<PAGE> 1
LIFE & ANNUITY TRUST
SEMI-ANNUAL REPORT
JUNE 30, 1996
ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
MONEY MARKET FUND
U.S. GOVERNMENT ALLOCATION FUND
5
<PAGE> 2
LIFE & ANNUITY TRUST
ASSET ALLOCATION FUND
The Asset Allocation Portfolio is a professionally managed portfolio, advised by
Wells Fargo Bank, N.A. ("Wells Fargo Bank"). BZW Barclays Fund Advisors ("BGFA")
serves as sub-investment adviser. Looking at the asset classes through the
framework of a model gives the advantage of assessing the relative
attractiveness of stocks, bonds, and cash consistently through time.
Q. How did the Asset Allocation Fund perform for the six-month period ended June
30, 1996?
A. The Asset Allocation Fund posted a year-to-date total return of
3.76% -- after fee waivers -- for the period ended June 30, 1996. Average annual
return since inception is 12.72%.
Q. Total return has been modest compared to 1995. Why?
A. The Asset Allocation Fund allocates across common stocks, U.S. Treasury Bonds
and money market instruments. The return for stocks and bonds have been modest
year-to-date 1996 relative to the first six months of 1995. The asset class
returns were: 10.09% versus 20.21% for stocks (represented by the S&P 500
Index); -7.57% versus 18.89% for bonds (represented by the Lehman Brothers U.S.
Treasury Bond Index); and 2.76% versus 3.05% for cash (represented by the
IBC/Donoghue Money Fund Average) for the first six months of 1996 and 1995,
respectively.* In addition to the 1996 returns being modest relative to 1995,
the returns have also been achieved in a comparatively stable stream, that is,
there has been little monthly variation. When this is the case, there is little
value to be gained from shifting across the asset classes. Therefore, Fund gains
are unlikely to exceed the return of any one asset class.
Q. What is the Fund's outlook for the remainder of 1996?
A. Currently the model employed by the Fund indicates that equities are modestly
overvalued relative to bonds and bonds are fairly valued relative to cash.
However, significant changes in any of these markets would serve to change this
outlook at any time during the year.
Q. During 1994 and 1995, stocks and bonds seemed to track together -- both down,
then both up. Has there been
a fundamental change in the relationship between these two classes? How have
they done relative to one another
in 1996?
A. The stock and bond markets are generally related, often moving together over
various time periods such as we saw in 1994 and 1995. However, these markets are
not intrinsically linked, and it is when they differ significantly from each
other and/or when markets are extremely volatile that asset allocation
strategies are most likely to add value. 1996 provides an example of both an
increase in volatility and a decrease in the tracking between stocks and bonds.
While equities have been steadily moving upward throughout the first two
quarters of 1996, bonds have been steadily moving in the opposite direction,
demonstrating a distinct reversal of the situation over the previous two years,
and belying the notion that there has been a fundamental change in the
relationship between these two asset classes.
- --------------------------------------------------------------------------------
* The S&P 500 Index is an unmanaged index of 500 widely held common
stocks, representing industrial, financial, utility and transportation
companies, listed or traded on national exchanges and the over-the-counter
market. The Lehman Brothers U.S. Treasury Bond Index is an unmanaged index
comprised of Treasury bonds with maturities between 10 and 30 years. The
IBC/Donoghue Money Fund Average is comprised of the average yields of over
600 taxable money funds.
6
<PAGE> 3
Q. What is the basis behind the Asset Allocation strategy?
A. The asset allocation strategy provides a quantitative, disciplined,
risk-controlled approach to tactical asset allocation. The key elements of the
strategy are consensus-based forecasts of intrinsic market value, including a
dividend discount model, bond yield-to-maturity, and current cash yield. The
optimal allocation is based on the expected spreads between the risk and reward
of the asset classes.
Q. The asset allocation model has been largely unchanged since the addition of
cash to the mix during the '80's. What refinements have been made or are being
contemplated?
A. The asset allocation strategy has been refined over the past ten years. These
include refinements to the dividend discount model, estimation of cash risk, and
the addition of real cash yield. We expect additional refinements to the
strategy over the next quarter including aggregate measures of corporate insider
evaluations of market value.
7
<PAGE> 4
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--JUNE 30, 1996
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES (48.73%)
$ 1,200,000 U.S. Treasury Bonds 7.13% 02/15/23 $ 1,212,000
700,000 U.S. Treasury Bonds 7.25 05/15/16 717,063
1,100,000 U.S. Treasury Bonds 7.25 08/15/22 1,127,153
2,600,000 U.S. Treasury Bonds 7.63 02/15/25 2,803,125
2,700,000 U.S. Treasury Bonds 7.88 02/15/21 2,958,188
2,800,000 U.S. Treasury Bonds 8.00 11/15/21 3,115,871
1,100,000 U.S. Treasury Bonds 8.75 05/15/17 1,305,217
3,400,000 U.S. Treasury Bonds 8.75 08/15/20 4,065,125
1,550,000 U.S. Treasury Bonds 8.88 02/15/19 1,869,201
600,000 U.S. Treasury Bonds 9.00 11/15/18 731,437
-----------
TOTAL U.S. TREASURY SECURITIES $19,904,380
(Cost $20,001,919)
SHORT-TERM INSTRUMENTS (49.90%)
$10,556,000 U.S. Treasury Bills + 4.34%* 07/11/96 $10,540,617
5,200,000 U.S. Treasury Bills + 4.87 * 08/08/96 5,172,588
1,219,000 U.S. Treasury Bills + 4.92 * 08/15/96 1,211,481
202,000 U.S. Treasury Bills 5.06 * 08/29/96 200,385
655,000 U.S. Treasury Bills 5.15 * 09/12/96 648,305
2,634,000 U.S. Treasury Bills + 5.18 * 09/19/96 2,603,970
-----------
TOTAL SHORT-TERM INSTRUMENTS $20,377,346
(Cost $20,378,246)
TOTAL INVESTMENTS IN SECURITIES
(Cost $40,380,165)** (Notes 1 & 3) 98.63% $40,281,726
Other Assets and Liabilities, Net 1.37 557,908
------ -----------
TOTAL NET ASSETS 100.00% $40,839,634
====== ===========
</TABLE>
- --------------------------------------------------------------------------------
* Yield to maturity.
+ These U.S. Treasury Bills are held in segregated accounts in connection with
the Fund's holdings of S&P 500 futures contracts. See Note 1.
** Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized depreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $ 286,793
Gross Unrealized Depreciation (385,232)
---------
NET UNREALIZED DEPRECIATION $ (98,439)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 5
LIFE & ANNUITY TRUST
GROWTH AND INCOME FUND
Robert W. Bissell has been responsible for the day-to-day management of the
portfolio of the Growth and Income Fund since its inception, excluding the
period from October 1, 1995 to February 14, 1996. Mr. Bissell joined Wells Fargo
Bank at the time of its merger with Crocker Bank and has been with the combined
organization for over 20 years. Prior to joining Wells Fargo Bank, he was a vice
president and investment counsel with M.H. Edie Investment Counseling, where he
managed institutional and high-net worth portfolios. Mr. Bissell holds a finance
degree from the University of Virginia. He is a chartered financial analyst and
a member of the Los Angeles Society of Financial Analysts.
Brian K. Mulligan has been responsible for the day-to-day management of the
portfolio of the Growth and Income Fund since October 1, 1995. Mr. Mulligan is
also co-manager of the Wells Fargo Core Equities Group. He is a vice president
and manager of the San Francisco Investment Office, where he is primarily
responsible for personal accounts including individuals, charitable foundations
and IRAs. He also covers, from a research standpoint, the telecommunications and
electric utilities industries. Mr. Mulligan was graduated from Skidmore College
with a B.S. degree in business management. He is a chartered financial analyst
and serves as a member of the staff of graders. In addition, Mr. Mulligan is a
former member of the Board of Governors for the Los Angeles Society of Financial
Analysts and a member of the San Francisco Security Analysts Society.
Q. How did the Growth and Income Fund perform for the six-month period ended
June 30, 1996?
A. The Growth and Income Fund posted a year-to-date total return of
10.22% -- after fee waivers -- for the period ended June 30, 1996. Average
annual return since inception is 15.89%.
Q. The Fund has done well the first six months of 1996. What has kept it ahead
of the S&P 500 Index so far this year?
A. A combination of stock selection and sector emphasis helped the Fund's
performance in the first half of 1996. The overweighting of technology and
slight overweighting in financial services continues. Electric utilities have
been underweighted throughout the first half of the year in response to the
upward trend in interest rates. The Capital Goods/Technology sector remains
overweighted reflecting strong, longer term earnings growth and attractive
valuations for those companies. Financial services were reduced earlier in the
year in reaction to higher interest rates and the expectation of declining
credit quality. We reduced the weighting in credit card issuers and increased
our weighting in insurance companies during the quarter.
Q. Of the sectors you increased at the end of 1995, including biotech,
pharmaceutical, and drug retailing, which have done well?
A. These traditional defensive sectors were increased to the portfolio because
of their consistent earnings growth. Through the second quarter we increased
exposure to international pharmaceuticals where valuations appeared better than
the U.S. based companies. Energy and related holdings were also increased during
the quarter. The profitability of pipeline, refining, and gas companies is
improving, and stock prices could rise as earnings are recorded.
Q. Were there any sector surprises?
A. The Basic Industry sector has proved disappointing thus far. However, better
than expected economic growth could trigger better price performance for these
economically sensitive stocks. Patient investors may be rewarded given the
strong forecasted earnings for these companies.
9
<PAGE> 6
Q. The Fund may invest up to ten percent of its assets in foreign stocks. What
was the Fund's exposure as of the end of June 1996?
A. It was nearly ten percent in foreign stocks. The most attractive positions
include Ericsson, Potash, Astra, and SmithKline Beecham. These companies have a
global presence, sales world-wide, and a history of consistent earnings.
Q. Does the Fund invest in foreign stocks to offset domestic cycles?
A. The primary intent is to capture additional opportunities. Currency benefits
are incidental. Our primary intention is to have exposure to companies with
solid earnings and an attractive valuation.
10
<PAGE> 7
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--JUNE 30, 1996
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
COMMON STOCKS (79.06%)
ADVERTISING (1.50%)
6,700 Omnicom Group $ 219,243 $ 311,550
AUTOMOBILE & RELATED (4.03%)
12,900 Danaher Corp $ 419,345 $ 561,150
5,300 General Motors Corp 258,489 277,588
---------- -----------
$ 677,834 $ 838,738
BASIC INDUSTRIES (3.49%)
3,100 Aluminum Co of America $ 190,533 $ 177,863
5,300 Case Corp 282,999 254,400
9,000 Monsanto Co 190,208 292,500
---------- -----------
$ 663,740 $ 724,763
BIOTECHNOLOGY (0.68%)
2,800 Genzyme Corp -- General Division + $ 176,625 $ 140,700
COMMERCIAL SERVICES (3.09%)
8,000 CUC International Inc + $ 244,304 $ 284,000
6,200 Service Corp International 270,098 356,500
---------- -----------
$ 514,402 $ 640,500
COMPUTER SOFTWARE (5.59%)
5,400 First Data Corp $ 366,900 $ 429,975
7,000 Oracle Systems Corp + 236,833 276,063
8,523 Reynolds & Reynolds Co Class A 362,695 453,850
---------- -----------
$ 966,428 $ 1,159,888
COMPUTER SYSTEMS (7.18%)
8,600 Cisco Systems Inc + $ 354,120 $ 486,975
9,250 Danka Business Systems Plc 372,389 270,563
3,500 Hewlett Packard Co 297,573 348,688
14,500 Komag Inc + 442,763 382,438
---------- -----------
$ 1,466,845 $ 1,488,664
ELECTRICAL EQUIPMENT (1.12%)
4,700 Thermedics Inc + $ 105,818 $ 117,500
2,200 Varian Associates Inc 132,176 113,850
---------- -----------
$ 237,994 $ 231,350
</TABLE>
11
<PAGE> 8
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--JUNE 30, 1996
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
ENERGY & RELATED (9.94%)
3,500 Anadarko Petroleum Corp $ 158,114 $ 203,000
8,000 Ashland Inc 334,544 317,000
2,100 Mobil Corp 208,800 235,463
17,700 Reading & Bates Corp + 356,993 391,613
7,780 Sonat Inc 262,511 350,100
3,100 Texaco Inc 222,348 260,013
10,500 Ultramar Corp 315,214 304,500
---------- -----------
$ 1,858,524 $ 2,061,689
FINANCE & RELATED (12.42%)
3,500 Aetna Life & Casualty Co $ 248,780 $ 250,250
2,500 American International Group Inc 237,179 246,563
13,000 Block (H & R) Inc 460,631 424,125
3,000 Citicorp 171,424 247,875
4,500 Federal Home Loan Mortgage Corp 377,614 384,750
5,700 Household International Inc 306,311 433,200
8,500 MBNA Corp 222,891 242,250
14,200 Schwab (Charles) Corp 312,640 347,900
---------- -----------
$ 2,337,470 $ 2,576,913
FOOD & RELATED (2.32%)
2,650 Philip Morris Co Inc $ 241,596 $ 275,600
10,000 Ralcorp Holdings Inc + 237,086 206,250
---------- -----------
$ 478,682 $ 481,850
HEALTHCARE (2.66%)
14,800 Tenet Healthcare Corp + $ 317,768 $ 316,350
4,650 United Healthcare Corp 284,252 234,825
---------- -----------
$ 602,020 $ 551,175
MANUFACTURING PROCESSING (4.27%)
4,400 Allied Signal Inc $ 197,139 $ 251,350
3,700 Harsco Corp 184,739 248,825
2,800 Potash Corp of Saskatchewan Inc 189,983 185,500
4,800 Thermo Electron Corp + 173,233 199,800
---------- -----------
$ 745,094 $ 885,475
MEDICAL EQUIPMENT & SUPPLIES (0.64%)
2,800 Baxter International Inc $ 124,898 $ 132,300
PHARMACEUTICALS (3.47%)
9,000 Astra AB ADR Class A $ 403,875 $ 393,750
6,000 Smithkline Beecham Plc 308,730 326,250
---------- -----------
$ 712,605 $ 720,000
</TABLE>
12
<PAGE> 9
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--JUNE 30, 1996
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
RETAIL & RELATED (5.62%)
6,000 Gap Inc $ 172,342 $ 192,750
5,000 Gillette Co 269,190 311,875
14,900 Mattel Inc 355,575 426,513
7,900 Rite Aid Corp 247,743 235,025
---------- -----------
$ 1,044,850 $ 1,166,163
SEMICONDUCTORS (2.99%)
6,300 Intel Corp $ 343,313 $ 462,656
6,100 LSI Logic Corp + 188,273 158,600
---------- -----------
$ 531,586 $ 621,256
TELECOMMUNICATIONS (8.06%)
14,400 Airtouch Communications + $ 441,934 $ 406,800
6,400 Alltel Corp 184,527 196,800
28,300 Ericson Telefonaktiebolaget L M Class B 562,955 608,450
8,300 WorldCom Inc + 350,985 459,613
---------- -----------
$ 1,540,401 $ 1,671,663
TOTAL COMMON STOCKS $14,899,241 $16,404,637
PREFERRED STOCKS (0.79%)
CONVERTIBLES (0.79%)
8,000 First Chicago NBD Corp expires 02/15/1997 $ 146,504 $ 164,000
</TABLE>
13
<PAGE> 10
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--JUNE 30, 1996
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
CORPORATE BONDS & NOTES (2.36%)
CONVERTIBLE CORPORATE BONDS (2.36%)
$ 100,000 HFS Inc 4.75% 03/01/03 $ 119,000
250,000 U.S. Office Products Inc 5.50% 02/01/01 369,688
-----------
TOTAL CORPORATE BONDS & NOTES $ 488,688
(Cost $354,938)
SHORT-TERM INSTRUMENTS (17.71%)
U.S. TREASURY BILLS (13.35%)
$2,800,000 U.S. Treasury Bills 5.18%* 09/19/96 $ 2,768,522
REPURCHASE AGREEMENTS (4.36%)
$ 905,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government Securities 5.30% 07/03/96 $ 905,000
TOTAL SHORT-TERM INSTRUMENTS $ 3,673,522
(Cost $3,673,268)
TOTAL INVESTMENTS IN SECURITIES
(Cost $19,073,951)** (Notes 1 and
3) 99.92% $20,730,847
Other Assets and Liabilities, Net 0.08 15,719
------ -----------
TOTAL NET ASSETS 100.00% $20,746,566
====== ===========
</TABLE>
- --------------------------------------------------------------------------------
+ Non-income earning securities.
* Yield to maturity.
** Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized appreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $2,185,699
Gross Unrealized Depreciation (528,803)
----------
NET UNREALIZED APPRECIATION $1,656,896
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 11
LIFE & ANNUITY TRUST
MONEY MARKET FUND
Q. How did the Money Market Fund perform for the six-month period ended June 30,
1996?
A. For the period ended June 30, 1996, the Money Market Fund seven-day simple
yield was 4.53% -- after fee waivers.
Q. Why is the seven-day yield lower now than it was at the end of 1995?
A. The federal funds target rate and 3-month LIBOR are good indications of the
level of interest rates in the money market portion of the yield curve. At the
end of 1995 the federal funds target rate was at 5.50% and 3-month LIBOR was at
5.625%. As of June 30, 1996 the federal funds target rate was at 5.25% and
3-month LIBOR was at 5.53%. In late January, the Fed lowered the federal funds
target rate from 5.50% to 5.25% in response to a stagnant economy and no fear of
inflation. The second quarter was a different story, however, as the U.S.
economy heated up, lead by strengths in employment, the housing sector and auto
sales.
Q. What do you expect to happen to rates for the rest of 1996?
A. We expect the Fed to tighten monetary policy in the third quarter by raising
the Federal funds target rate in response to continued strength in the economy
and fears of inflation. Money market rates should increase and the short-end of
the yield curve should remain steep.
Q. What will your strategy be in response?
A. With our current outlook on interest rates the Fund has shortened its average
days to maturity from 70 days in the first quarter to approximately 50 days as
of the end of the first half of the year. If rates are increased, we may extend
maturity again to lock in higher yields.
Q. How direct is the impact between changes in the Federal funds target rate and
the yields on money market instruments?
A. As discussed before, changes in the Federal funds target rate have a direct
effect on money market yields. Money market yields increase as expectations for
a higher Federal funds rate increase.
Q. During periods of lower interest rates, does the Fund go "shopping" for the
best deals? How does the Fund select investments?
A. Regardless of the level of interest rates, the Fund is always looking for the
best deals without compromising credit quality or the integrity of the Fund.
Over a period of time, the relative values between government and corporate
issues change. These changes present the Fund with opportunities which are
evaluated on a continual basis.
15
<PAGE> 12
LIFE & ANNUITY TRUST MONEY MARKET FUND--JUNE 30, 1996
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY BILLS (98.18%)
$4,250,000 U.S. Treasury Bills 4.34%* 07/11/96 $ 4,244,199
2,550,000 U.S. Treasury Bills 4.87* 08/08/96 2,537,078
3,250,000 U.S. Treasury Bills 5.18* 09/19/96 3,213,467
-----------
TOTAL U.S. TREASURY BILLS $ 9,994,744
REPURCHASE AGREEMENTS (0.35%)
$ 36,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government Securities 5.30% 07/03/96 $ 36,000
TOTAL INVESTMENTS IN SECURITIES
(Cost $10,030,744)** (Note 1) 98.53% $10,030,744
Other Assets and Liabilities, Net 1.47 149,149
------ -----------
TOTAL NET ASSETS 100.00% $10,179,893
====== ===========
</TABLE>
- --------------------------------------------------------------------------------
* Yield to maturity.
** Cost for federal income tax purposes is the same as for financial statement
purposes.
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 13
LIFE & ANNUITY TRUST
U.S. GOVERNMENT ALLOCATION FUND
The U.S. Government Allocation Portfolio is a professionally managed portfolio,
advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"). BZW Barclays Fund
Advisors ("BGFA") serves as sub-investment adviser. Looking at the asset classes
through the framework of a model gives the advantage of assessing the relative
attractiveness of U.S. Treasury bonds, U.S. Treasury notes, and money market
instruments consistently through time.
Q. How did the U.S. Government Allocation Fund perform for the six-month period
ended June 30, 1996?
A. The U.S. Government Allocation Fund posted a year-to-date total return of
- -0.52% for the period ended June 30, 1996. Average annual return since inception
is 5.98%.
Q. The Fund's performance is down compared to last year. Why?
A. It certainly is a new year in the bond market. After a year of declining
yields, the long bond yield has climbed from below 6% at the end of 1995, to
6.9% at the end of the second quarter 1996. Due to the rise in interest rates,
the aggregate bond market had a dismal -1.21% return for the first half of 1996.
This brought the 1995 bond market rally to a close. The turning point was in
mid-February. Bond yields turned decisively upward, when Fed. Chairman Alan
Greenspan's positive comments on the renewed strength of the economy dashed
hopes of a further rate cut. By the end of the month the long bond yield had
risen to 6.47%, 44 basis points higher than the previous month. Since then,
interest rates have increased even further as reports of higher-than-expected
growth have bolstered fears of inflation. Through the second quarter, with
increasing speculation of a possible increase in the federal funds target rate,
the long bond yield backed up from 6.7% to 7.2% before settling down to 6.9% at
the end of June 1996.
With the increase in interest rates, most bond funds have had returns far lower
this year than they did in 1995. The aggregate bond market, measured by the
Lehman Aggregate Index, had a -1.21% return and the Intermediate Government Bond
market, measured by the Lehman Intermediate Government Bond Index had a -0.01%
return. The U.S. Government Allocation Fund, by comparison, had a 0.09% return.
Q. The economy seems to be growing at a strong pace without igniting inflation.
Why the concern about inflation?
A. The value of bonds is affected not only by the current rate of inflation, but
also by the future rate of inflation. If inflation increases, it erodes the
value of the bonds investors hold. Though the current rate of inflation has
remained fairly stable, investors appear increasingly concerned that the current
pace of job growth and economic growth will spark future inflation.
Q. How has the Fund positioned itself in response to this environment?
A. At the beginning of year, the Fund was positioned with a shorter average
weighted maturity and duration than its benchmark, the Intermediate Government
Bond Index. This defensive position was coupled with a barbelled allocation
between long bonds (20%) and money market instruments (80%) with no allocation
to intermediate notes. Through the course of the year, as intermediate yields
have risen relative to short-term yields as well as long-term yields, the Fund
has been repositioned to more aggressive longer average weighted maturity and
duration with an emphasis on the intermediate sector. The allocation at the end
of June was 100% to intermediate notes.
Q. What is your outlook for the remainder of 1996?
A. The Fund is designed to take advantage of the relative yield differences
between U.S. Treasury issued long bonds, intermediate notes and money market
instruments in relation to their risks. Our objective is to position the Fund to
make the optimal allocation between these securities and to take advantage of
the potential returns while controlling the overall level of risk. The Fund's
strategy does not depend on expectations of interest rate increases or decreases
in any given year.
17
<PAGE> 14
Q. Why would an investor choose a Fund that allocates between bills, notes and
bonds rather than a Fund that invests in just one asset class?
A. At any point in time, the Fund seeks to invest in the sector that offers the
best return at the lowest risk relative to the other sectors. The Fund is
designed to take advantage of the potential risk-adjusted returns in either
bills, notes or bonds. A fund that is invested exclusively in just one of the
three classes cannot offer these advantages.
Q. Other than maturities, are there any other intrinsic differences between the
three asset class in the Funds allocation model?
A. No, other than maturities there are no intrinsic differences between the
three asset classes. Treasury bills, Treasury notes and Treasury bonds are all
direct obligations of the U.S. government and as such are backed by the full
faith and credit of the federal government.
18
<PAGE> 15
LIFE & ANNUITY TRUST U.S. GOVERNMENT ALLOCATION FUND--JUNE 30, 1996
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES (93.14%)
U.S. TREASURY NOTES (93.14%)
$ 850,000 U.S. Treasury Notes 6.25% 02/15/03 $ 834,593
850,000 U.S. Treasury Notes 6.38 08/15/02 842,031
2,350,000 U.S. Treasury Notes 7.50 11/15/01 2,452,813
1,700,000 U.S. Treasury Notes 7.50 05/15/02 1,778,091
500,000 U.S. Treasury Notes 7.88 08/15/01 529,531
500,000 U.S. Treasury Notes 8.00 05/15/01 531,250
----------
TOTAL U.S. TREASURY SECURITIES $6,968,309
(Cost $7,049,422)
SHORT-TERM INSTRUMENTS (4.77%)
U.S. TREASURY BILLS (4.77%)
$ 27,000 U.S. Treasury Bills 4.82%* 08/01/96 $ 26,885
104,000 U.S. Treasury Bills 4.92* 08/15/96 103,359
34,000 U.S. Treasury Bills 5.06* 08/29/96 33,728
86,000 U.S. Treasury Bills 5.15* 09/12/96 85,121
109,000 U.S. Treasury Bills 5.18* 09/19/96 107,757
----------
TOTAL SHORT-TERM INSTRUMENTS $ 356,850
(Cost $356,831)
TOTAL INVESTMENTS IN SECURITIES
(Cost $7,406,253)** (Notes 1 and 3) 97.91% $7,325,159
Other Assets and Liabilities, Net 2.09 156,442
------ ----------
TOTAL NET ASSETS 100.00% $7,481,601
====== ==========
</TABLE>
- --------------------------------------------------------------------------------
* Yield to maturity.
** Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized depreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $ 3,027
Gross Unrealized Depreciation (84,121)
--------
NET UNREALIZED APPRECIATION $(81,094)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 16
LIFE & ANNUITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Asset Growth and Money U.S. Government
Allocation Income Market Allocation
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments:
In securities, at identified cost (Note 3) $40,380,165 $19,073,951 $10,030,744 $7,406,253
In securities, at market value $40,281,726 $20,730,847 $10,030,744 $7,325,159
Cash 3,744 1,975 0 508
Variation margin of financial futures contracts 110,625 0 0 0
Receivables:
Dividends and interest 434,864 25,725 5 99,112
Due from administrator (Note 2) 0 0 0 1,131
Fund shares sold 595,383 88,129 208,608 115,530
Organization expenses, net of amortization 28,381 29,144 30,025 29,372
Prepaid expenses 5,579 6,520 0 1,948
TOTAL ASSETS 41,460,302 20,882,340 10,269,382 7,572,760
LIABILITIES
Cash overdraft due to custodian (Note 2) 0 0 389 0
Payables:
Distribution to shareholders 509,973 76,870 36,921 37,465
Organizational costs 38,473 38,473 38,473 38,473
Due to administrator 9,983 3,997 911 1,419
Due to advisor 46,847 11,786 87 0
Accrued expenses 15,392 4,648 12,708 13,802
TOTAL LIABILITIES 620,668 135,774 89,489 91,159
NET ASSETS $40,839,634 $20,746,566 $10,179,893 $7,481,601
Net assets consist of:
Paid-in capital $39,300,144 $18,457,022 $10,179,713 $7,624,186
Undistributed net realized gain (loss) on investments 1,228,929 632,648 180 (61,491)
Net unrealized appreciation of futures contracts 409,000 0 0 0
Net unrealized appreciation (depreciation) of
investments (98,439) 1,656,896 0 (81,094)
NET ASSETS $40,839,634 $20,746,566 $10,179,893 $7,481,601
COMPUTATION OF NET ASSET
VALUE AND OFFERING PRICE (NOTE 4):
Net assets $40,839,634 $20,746,566 $10,179,893 $7,481,601
Shares outstanding 3,574,946 1,468,741 10,179,716 750,087
Net asset value and offering price $11.42 $14.13 $1.00 $9.97
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 17
LIFE & ANNUITY TRUST
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Asset Growth and Money U.S. Government
Allocation Income Market Allocation
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 0 $110,201 $ 0 $ 0
Interest 974,243 61,822 209,466 196,043
TOTAL INCOME 974,243 172,023 209,466 196,043
EXPENSES (NOTE 2):
Advisory fees 100,222 47,732 18,514 18,614
Custody fees 0 5,804 680 0
Portfolio accounting fees 0 17,319 14,825 0
Transfer Agency fees 8,352 3,978 2,057 1,551
Administration fees 5,011 2,387 1,234 931
Amortization of organization expenses 5,184 5,184 5,184 5,184
Legal and audit 14,918 12,111 9,664 12,431
Registration fees 2,485 497 0 497
Directors fees 5,595 5,595 5,595 5,595
Other 2,454 1,109 2,654 2,557
TOTAL EXPENSES 144,221 101,716 60,407 47,360
Less: Waived Fees and Reimbursed Expenses (Note 2) (52,097) (59,432) (40,165) (30,470)
Net expenses 92,124 42,284 20,242 16,890
NET INVESTMENT INCOME 882,119 129,739 189,224 179,153
REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net realized gain (loss) on sale of investments (1,469) 603,004 180 (61,539)
Net realized gain on sale of futures contracts 899,586 0 0 0
Net unrealized appreciation of futures contracts 225,225 0 0 0
Net unrealized appreciation (depreciation) of
investments (730,841) 690,078 0 (136,350)
NET GAIN (LOSS) ON INVESTMENTS 392,501 1,293,082 180 (197,889)
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $1,274,620 $1,422,821 $189,404 $(18,736)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 18
LIFE & ANNUITY TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Asset Growth and
Allocation Income
Fund Fund
-------------------------- --------------------------
(Unaudited) For the (Unaudited) For the
Six Months Year Six Months Year
Ended Ended Ended Ended
June 30, Dec. 31, June 30, Dec. 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income $882,119 $795,863 $129,739 $110,826
Net realized gain/loss on sale of investments (1,469) 1,687,439 603,004 158,953
Net realized gain on sale of futures contracts 899,586 0 0 0
Net unrealized appreciation of futures contracts 225,225 183,775 0 0
Net unrealized appreciation (depreciation)
of investments (730,841) 706,398 690,078 947,667
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,274,620 3,373,475 1,422,821 1,217,446
Distributions to shareholders:
From net investment income (882,119) (795,863) (129,739) (110,826)
From net realized capital gain 0 (1,266,518) 0 (122,419)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 15,126,794 15,133,424 9,713,659 7,617,935
Net asset value of shares issued in reinvestment
of dividend distributions 882,119 2,062,380 129,738 233,244
Cost of shares redeemed (1,028,552) (503,715) (1,309,505) (52,261)
Net increase in net assets resulting from
capital share transactions (Note 4) 14,980,361 16,692,089 8,533,892 7,798,918
INCREASE IN NET ASSETS 15,372,862 18,003,183 9,826,974 8,783,119
NET ASSETS
Beginning net assets 25,466,772 7,463,589 10,919,592 2,136,473
ENDING NET ASSETS $40,839,634 $25,466,772 $20,746,566 $10,919,592
SHARES ISSUED AND REDEEMED
Shares sold 1,328,014 1,352,899 712,081 624,798
Shares issued in reinvestment of dividends and
distributions 77,502 182,663 9,319 18,398
Shares redeemed (89,832) (45,222) (98,600) (4,706)
NET INCREASE IN SHARES OUTSTANDING 1,315,684 1,490,340 622,800 638,490
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 19
LIFE & ANNUITY TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Money U.S. Government
Market Allocation
Fund Fund
------------------------- ------------------------
(Unaudited) For the (Unaudited) For the
Six Months Year Six Months Year
Ended Ended Ended Ended
June 30, Dec. 31, June 30, Dec. 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income $189,224 $113,358 $179,153 $126,604
Net realized gain (loss) on sale of investments 180 409 (61,539) 58,078
Net unrealized appreciation (depreciation)
of investments 0 0 (136,350) 69,148
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 189,404 113,767 (18,736) 253,830
Distributions to shareholders:
From net investment income (189,224) (113,358) (179,153) (126,604)
From net realized capital gain 0 (409) 0 (40,804)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 6,500,678 6,635,924 3,016,539 3,905,350
Net asset value of shares issued in reinvestment
of dividend distributions 189,191 113,769 179,152 167,408
Cost of shares redeemed (2,333,504) (2,417,893) (371,354) (169,600)
Net increase in net assets resulting from
capital share transactions (Note 4) 4,356,365 4,331,800 2,824,337 3,903,158
INCREASE IN NET ASSETS 4,356,545 4,331,800 2,626,448 3,989,580
NET ASSETS
Beginning net assets 5,823,348 1,491,548 4,855,153 865,573
ENDING NET ASSETS $10,179,893 $5,823,348 $7,481,601 $4,855,153
SHARES ISSUED AND REDEEMED
Shares sold 6,500,678 6,635,924 297,547 381,576
Shares issued in reinvestment of dividends and
distributions 189,191 113,769 17,835 16,384
Shares redeemed (2,333,504) (2,417,893) (36,499) (16,619)
NET INCREASE IN SHARES OUTSTANDING 4,356,365 4,331,800 278,883 381,341
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 20
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD ARE AS FOLLOWS:
<TABLE>
<CAPTION>
Asset Allocation Fund Growth and Income Fund
------------------------------------- -------------------------------------
(Unaudited) (Unaudited)
Six For the Six For the
Months Year Period Months Year Period
Ended Ended Ended Ended Ended Ended
June December December June December December
30, 31, 31, 30, 31, 31,
1996 1995 1994* 1996 1995 1994**
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of period $ 11.27 $ 9.71 $ 10.00 $ 12.91 $ 10.30 $10.00
Income from investment operations:
Net investment income 0.27 0.55 0.30 0.10 0.22 0.14
Net realized and unrealized gains on
investments 0.15 2.21 (0.19) 1.22 2.77 0.30
------ ------ ------ ------ ------ ------
Total from investment operations 0.42 2.76 0.11 1.32 2.99 0.44
Less distributions:
Dividends from net investment income (0.27) (0.55) (0.30) (0.10) (0.22) (0.14)
Distributions from realized capital
gains (0.00) (0.65) (0.10) (0.00) (0.16) 0.00
------ ------ ------ ------ ------ ------
Total from distributions (0.27) (1.20) (0.40) (0.10) (0.38) (0.14)
------ ------ ------ ------ ------ ------
Net Asset Value, End of period $ 11.42 $ 11.27 $ 9.71 $ 14.13 $ 12.91 $10.30
====== ====== ====== ====== ====== ======
Total Return (not annualized) 3.76% 28.95% 1.13% 10.22% 29.19% 4.47%
Ratios/Supplemental Data:
Net assets, end of period (000) $40,840 $25,467 $7,464 $20,747 $10,920 $2,136
Number of shares outstanding, end of
period (000) 3,575 2,259 769 1,469 846 207
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1) 0.25% 0.41% 0.00% 0.53% 0.43% 0.00%
Ratio of net investment income to
average
net assets(2) 0.77% 5.58% 6.30% 1.62% 2.05% 3.00%
Portfolio turnover 0% 97% 0% 55% 84% 21%
Average commission rate paid $ 0.00 -- -- $ 0.08 -- --
- --------------------------------------------------------------------------------------------------------------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 0.60% 1.22% 2.24% 1.27% 2.02% 10.18%
(2) Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses 0.42% 4.77% 4.06% 0.88% 0.46% (7.18)%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
* The Fund commenced operations on April 15, 1994.
** The Fund commenced operations on April 12, 1994.
24
<PAGE> 21
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD ARE AS FOLLOWS:
<TABLE>
<CAPTION>
Money Market Fund U.S. Government Allocation Fund
------------------------------------- -------------------------------------
(Unaudited) (Unaudited)
Six For the Six For the
Months Year Period Months Year Period
Ended Ended Ended Ended Ended Ended
June December December June December December
30, 31, 31, 30, 31, 31,
1996 1995 1994*** 1996 1995 1994****
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of period $ 1.00 $ 1.00 $ 1.00 $10.30 $ 9.63 $10.00
Income from investment operations:
Net investment income 0.02 0.05 0.03 0.28 0.60 0.40
Net realized and unrealized
gains/(losses) on investments 0.00 0.00 0.00 (0.33) 0.77 (0.37)
------ ------ ------ ----- ----- -----
Total from investment operations 0.02 0.05 0.03 (0.05) 1.37 0.03
Less distributions:
Dividends from net investment income (0.02) (0.05) (0.03) (0.28) (0.60) (0.40)
Distributions from realized capital
gains (0.00) 0.00 0.00 (0.00) (0.10) (0.00)
------ ------ ------ ----- ----- -----
Total from distributions (0.02) (0.05) (0.03) (0.28) (0.70) (0.40)
------ ------ ------ ----- ----- -----
Net Asset Value, End of period $ 1.00 $ 1.00 $ 1.00 $ 9.97 $10.30 $ 9.63
====== ====== ====== ===== ===== =====
Total Return (not annualized) 2.31% 5.41% 2.71% (0.52)% 14.40% 0.41%
Ratios/Supplemental Data:
Net assets, end of period (000) $10,180 $5,823 $1,492 $7,482 $4,855 $866
Number of shares outstanding, end of
period (000) 10,180 5,823 1,492 750 471 90
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1) 0.49% 0.42% 0.00% 0.54% 0.45% 0.00%
Ratio of net investment income to
average net assets(2) 4.58% 5.15% 4.63% 0.57% 5.82% 7.35%
Portfolio turnover N/A N/A N/A 32% 405% 130%
Average commission rate paid $ 0.00 -- -- $ 0.00 -- --
- --------------------------------------------------------------------------------------------------------------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.46% 3.83% 11.43% 1.52% 2.46% 12.73%
(2) Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses 3.60% 1.74% (6.80)% 4.76% 3.81% (5.38)%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
*** The Fund commenced operations on May 19, 1994.
**** The Fund commenced operations on April 26, 1994.
25
<PAGE> 22
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Life and Annuity Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end series investment company. The Trust was
organized as a Delaware Business Trust on October 28, 1993. The Trust consists
of four separate diversified funds (the "Funds"): the Asset Allocation Fund, the
Growth and Income Fund, the Money Market Fund, and the U.S. Government
Allocation Fund. These Funds invest in a range of securities, generally
including money market instruments, equities, and U.S. government securities.
The Funds are available exclusively as pooled funding vehicles for certain
participating life insurance companies offering variable annuity contracts and
variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The following significant accounting policies are consistently followed by the
Trust in the preparation of its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
INVESTMENT POLICY AND SECURITY VALUATION
For all of the Funds except the Money Market Fund, investments in securities for
which the primary market is a national securities exchange or the Nasdaq
National Market System are stated at the last reported sales price on the day of
valuation. U.S. Government obligations are valued in a range between the last
reported bid and ask prices. In the absence of any sale of such securities on
the valuation date and in the case of other securities, excluding money market
instruments maturing in 60 days or less, the valuations are based on latest
quoted bid prices. Debt securities maturing in 60 days or less are valued at
amortized cost, which approximates market value. Securities for which quotations
are not readily available are valued at fair value as determined by policies set
by the Board of Trustees.
The Money Market Fund uses the amortized cost method to value its portfolio
securities and seeks to maintain a constant net asset value of $1.00 per share.
There is no assurance that the Fund will be able to do so. The amortized cost
method involves valuing a security at its cost, plus accretion of discount or
minus amortization of premium over the period until maturity, which approximates
market value.
Cash or high quality money market instruments relating to firm commitment
purchase agreements and/or futures contracts are segregated by the custodian and
may not be sold while the current commitment is outstanding.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Securities transactions are accounted for on the date the securities are
purchased or sold (trade date). Dividend income is recognized on the ex-dividend
date, and interest income is accrued daily. Realized gains or losses are
reported on the basis of identified cost of securities delivered. Bond discounts
and premiums are amortized or accreted as required by the Internal Revenue Code
(the "Code").
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell such
securities ("repurchase agreements") are treated as collateralized financing
transactions and are recorded at their contracted resale amounts. These
repurchase agreements, if any, are detailed in each Fund's Portfolio of
Investments. The adviser pools the Funds' cash and invests in repurchase
agreements entered into by the Funds. The repurchase agreements must be fully
26
<PAGE> 23
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
collateralized based on values that are marked to market daily. The collateral
is held by an agent bank. It is the adviser's responsibility to value collateral
daily and to obtain additional collateral as necessary to maintain market value
equal to or greater than the resale price. The repurchase agreements held in the
Funds at June 30, 1996 are collateralized by U.S. Treasury or Federal Agency
obligations. The repurchase agreements were entered into on June 28, 1996.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment income of the Asset Allocation
Fund and the Growth and Income Fund are declared and distributed quarterly.
Dividends of the U.S. Government Allocation Fund are declared and distributed
monthly. Dividends of the Money Market Fund, are declared daily and distributed
monthly. Any dividends to shareholders from net realized capital gains are
declared and distributed annually.
FEDERAL INCOME TAXES
The Trust's policy with respect to each Fund is to comply with the requirements
of the Code that are applicable to regulated investment companies and to
distribute substantially all of the Fund's taxable income and any net realized
capital gains to its shareholders. Accordingly, there is no provision for
federal or state income taxes.
FUTURES CONTRACTS
The Asset Allocation Fund and the U.S. Government Allocation Fund may purchase
futures contracts to gain exposure to market changes as this procedure may be
more efficient or cost effective than actually buying the securities. A futures
contract is an agreement between parties to buy or sell a security at a set
price on a future date. Upon entering into such a contract, a Fund is required
to pledge to the broker an amount of cash, U.S. government obligations or other
high-quality debt securities equal to the minimum "initial margin" requirements
of the exchange on which the futures contract is traded. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in the value of the contract. Such receipts or
payments are known as 'variation margin' and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Pursuant to
regulations and/or published positions of the Securities and Exchange
Commission, the Asset Allocation Fund and the U.S. Government Allocation Fund
may be required to segregate cash or high quality money market instruments in
connection with futures transactions in an amount generally equal to the entire
value of the underlying contracts. Risks of entering into futures contracts
include the possibility that there may be an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities. On June 30, 1996 the Asset Allocation Fund
held the following futures contracts:
<TABLE>
<CAPTION>
Notional
Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
59 S&P 500 Index September 1996 $ 19,965,600 $409,000
</TABLE>
The Life & Annuity Trust Asset Allocation Fund has pledged to brokers U.S.
Treasury bills for initial margin requirements with a par value of $885,000.
27
<PAGE> 24
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
ORGANIZATION EXPENSES
Stephens Inc. ("Stephens"), the Funds' administrator and distributor, has
charged the Funds for expenses incurred in connection with the organization and
initial registration of the Funds. Organizational expenses of $38,473 for each
fund are payable to Stephens as of June 30, 1996. These expenses are being
amortized by the Funds on a straight-line basis over 60 months from the date
each Fund commenced operations. In the event that any of the initial interests
are redeemed during the 60 month amortization period, Stephens will reimburse
the Funds for the unamortized balance of the organizational costs in the same
proportion as the number of interests reduced bears to the number of initial
interests outstanding at the time of redemption.
2. AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
The Trust has entered into advisory contracts on behalf of the Funds with Wells
Fargo Bank, N.A. ("WFB"). Pursuant to the contracts, WFB furnishes to the Funds
investment guidance and policy direction in connection with daily portfolio
management of the funds. Under the contracts with the Asset Allocation Fund, the
Growth and Income Fund, and the U.S. Government Allocation Fund, WFB is entitled
to a monthly advisory fee at an annual rate of 0.60% of each Fund's average
daily net assets. Under the contract with the Money Market Fund, WFB is entitled
to a monthly advisory fee at an annual rate of 0.45% of the Fund's average daily
net assets.
In connection with the Asset Allocation Fund and the U.S. Government Allocation
Fund, the Trust and WFB have entered into sub-advisory contracts with BZW
Barclays Global Fund Advisors ("BGFA"). Subject to the overall supervision of
Wells Fargo Bank, BGFA is responsible for day-to-day portfolio management of
such Funds. BGFA is entitled to receive monthly fees at an annual rate of 0.20%
and 0.15% of the average daily net assets of the Asset Allocation Fund and the
U.S. Government Allocation Fund, respectively, as compensation for its
sub-advisory services. BGFA is an indirect subsidiary of Barclays Bank and is
located at 45 Fremont Street, San Francisco, California 94105. BGFA was formed
by the reorganization of Wells Fargo Nikko Investment Advisors ("WFNIA"), a
former affiliate of Wells Fargo & Co. Prior to January 1, 1996. WFNIA served as
sub-adviser to the Funds and was entitled to receive the same fees as BGFA. BZW
Barclays Global Investors, N.A. ("BGI") acts as custodian to the Asset
Allocation Fund and the U.S. Government Allocation Fund. BGI will not be
entitled to receive compensation for its services to the Asset Allocation Fund
and the U.S. Government Allocation Fund so long as BGFA is entitled to receive
fees for providing investment sub-advisory services to such Funds. Prior to
January 1, 1996, BGI was known as Wells Fargo Institutional Trust Company N.A.
and was an affiliate of WFB.
The Trust has also entered into contracts on behalf of the Growth and Income
Fund and the Money Market Fund with WFB for custody servicing and portfolio
accounting functions. WFB is entitled to be compensated for custody services
based on an annual rate of 0.0167% of the average daily net assets of the Funds,
plus transaction charges. For portfolio accounting services, WFB is compensated
at a base rate of $2,000 monthly plus 0.07% of the first $50 million of each
Fund's average daily net assets, 0.045% of the next $50 million and 0.02% of
each Fund's average daily net assets over $100 million.
The Trust has entered into a contract on behalf of each Fund with WFB whereby
WFB provides transfer agent servicing functions for each of the Funds. Under the
contract, WFB is entitled to an annual rate of 0.05% of the
28
<PAGE> 25
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
Funds' average daily net assets unless the net assets of a Fund are under $20
million. For as long as its net assets remain under $20 million, a Fund will not
be charged any transfer agent fees by WFB.
The Trust has entered into an administration agreement on behalf of the Funds
with Stephens. Under the agreement, Stephens provides supervisory and
administrative services to the Funds. For these services, Stephens is entitled
to a monthly fee at the annual rate of 0.03% of each of the Fund's average daily
net assets.
WAIVED FEES AND REIMBURSED EXPENSES
The following amounts of fees and expenses have been waived and/or reimbursed
for the six months ended June 30, 1996:
<TABLE>
<CAPTION>
Waived Fees and
Waived Fees Reimbursed Expenses
FUND by WFB by Administrator Total
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation.................................................. $ 52,097 $ 0 $52,097
Growth and Income................................................. 59,432 0 59,432
Money Market...................................................... 36,076 4,089 40,165
U. S. Government Allocation....................................... 20,165 10,305 30,470
</TABLE>
- --------------------------------------------------------------------------------
Waived fees and reimbursed expenses continue at the discretion of Wells Fargo
Bank and the administrator.
All of the officers and some of the directors of the Trust are also officers of
Stephens. As of June 30, 1996, Stephens owned 2,893 shares of the Asset
Allocation Fund; 2,614 shares of the Growth and Income Fund; 27,088 shares of
the Money Market Fund and 2,788 shares of the U.S. Government Allocation Fund.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities, for each
Fund for the six months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Asset Growth and U.S. Government
Allocation Income Allocation
AGGREGATE PURCHASES AND SALES OF: Fund Fund Fund
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
Purchases at cost $15,352,113 $ 0 $7,480,652
Sales proceeds 0 0 1,262,242
OTHER SECURITIES:
Purchases at cost 0 13,270,762 0
Sales proceeds 0 7,708,962 0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Money Market Fund, not reflected in this schedule, trades exclusively in
short-term securities.
4. CAPITAL SHARE TRANSACTIONS
The Trust has authorized an unlimited number of no par value shares of
beneficial interests. Capital share transactions for each of the Funds for the
six months ended June 30, 1996 and the year ended December 31, 1995 are
disclosed in detail in the Statements of Changes in Net Assets.
29
<PAGE> 26
[THIS PAGE INTENTIONALLY LEFT BLANK]
30
