<PAGE> 1
As filed with the Securities and Exchange Commission
on April 26, 1996
--------------
Registration No. 33-70988; 811-8118
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
[X]
Post-Effective Amendment No. 3
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
[X]
Amendment No. 5
(Check appropriate box or boxes)
--------------------------------
LIFE & ANNUITY TRUST
(Exact Name of Registrant as specified in Certificate of Trust)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------------
Registrant's Telephone Number, including Area Code: (800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
[X] Immediately upon filing pursuant [ ] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[ ] 60 Days after filing pursuant [ ] on _______________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[ ] 75 days after filing pursuant [ ] on _______________ pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
<PAGE> 2
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Rule 24f-2 Notice for the
fiscal year ending December 31, 1995, was filed with the Securities and
Exchange Commission on February 29, 1996.
<PAGE> 3
EXPLANATORY NOTE
This Post-Effective Amendment No. 3 to the Registration Statement
of Life & Annuity Trust (the "Trust") is being filed to add to the Trust's
Registration Statement the audited financial statements and certain related
financial information for the year ended December 31, 1995 for the Trust's
Asset Allocation, Growth and Income, Money Market and U.S. Government
Allocation Funds.
<PAGE> 4
Life & Annuity Trust
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-1A Item Number
- ---------------------
<S> <C>
Part A Prospectus Captions
- ------ -------------------
1 Cover Page
2 General Information
3 Financial Highlights
4 Participating Insurance Companies; Investment Objectives and Policies
5 The Funds, Management and Servicing Fees; Investment Objectives and
Policies; Prospectus Appendix -- Additional Investment Policies
6 The Funds, Management and Servicing Fees; Dividends; Taxes
7 Investing in the Funds; Fund Expenses
8 Investing in the Funds
9 Not Applicable
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
10 Cover Page
11 Cover Page
12 Management; Other
13 Investment Restrictions; Additional Permitted Investment Activities;
Portfolio Transactions; SAI Appendix
14 Management
15 Management
16 Management; Independent Auditors
17 Portfolio Transactions
18 Capital Stock
19 Determination of Net Asset Value
20 Federal Income Taxes
21 Management; Portfolio Transactions
22 Calculation of Yield and Total Return
23 Report of Independent Auditors and Financial Statements
Part C Other Information
- ------ -----------------
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
</TABLE>
<PAGE> 5
LIFE & ANNUITY TRUST
PROSPECTUS
ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
MONEY MARKET FUND
U.S. GOVERNMENT ALLOCATION FUND
MAY 1, 1996
LAT PROS (5/96)
<PAGE> 6
ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
MONEY MARKET FUND
U.S. GOVERNMENT ALLOCATION FUND
Life & Annuity Trust is an open-end series investment company. This
Prospectus contains information about four of the series of Life & Annuity
Trust -- the Asset Allocation Fund, the Growth and Income Fund, the Money Market
Fund and the U.S. Government Allocation Fund (each, a "Fund" and collectively,
the "Funds").
The ASSET ALLOCATION FUND seeks over the long term a high level of total
return, including net realized and unrealized capital gains and net investment
income, consistent with reasonable risk.
The GROWTH AND INCOME FUND seeks to earn current income and achieve
long-term capital appreciation.
The MONEY MARKET FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments. The Money Market Fund seeks to maintain a stable net
asset value ("NAV") of $1.00 per share.
The U.S. GOVERNMENT ALLOCATION FUND seeks over the long term a high level
of total return, including net realized and unrealized capital gains and net
investment income, consistent with reasonable risk.
SHARES OF THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE TO
MAINTAIN A STABLE NAV OF $1.00 PER SHARE.
The Funds are available exclusively as pooled funding vehicles for certain
participating life insurance companies (the "Participating Insurance Companies")
offering variable annuity contracts ("VA Contracts") and variable life insurance
policies ("VLI Policies").
The Funds are advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"). BZW
Barclays Global Fund Advisors ("BGFA") serves as sub-adviser to the Asset
Allocation and U.S. Government Allocation Funds.
Please read this Prospectus, along with the prospectus for the VA Contract
or VLI Policy accompanying this Prospectus, before investing and retain it for
future reference. It sets forth concisely the information which a prospective
purchaser of a VA Contract or VLI Policy should know about the Funds before
making such a purchase. A Statement of Additional Information ("SAI"), also
dated May 1, 1996, for the Funds has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference. The SAI is available free
of charge by calling (800)680-8920 or by writing to American Skandia, P.O. Box
883, Shelton, Connecticut 06484-0883, Attn: Stagecoach Variable Annuity
Administration.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, WELLS FARGO BANK, BGFA OR ANY OF THEIR RESPECTIVE
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER TO THE FUNDS. BGFA, WHICH IS NOT
AFFILIATED WITH WELLS FARGO BANK, IS THE SUB-ADVISER TO THE ASSET ALLOCATION AND
U.S. GOVERNMENT ALLOCATION FUNDS. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
WELLS FARGO BANK OR BGFA, IS THE SPONSOR AND DISTRIBUTOR FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS DATED MAY 1, 1996
<PAGE> 7
Wells Fargo Bank also serves as the Funds' transfer and dividend disbursing
agent, and as custodian for the Growth and Income and Money Market Funds. BZW
Barclays Global Investors, N.A. ("BGI") serves as the custodian for the Asset
Allocation and U.S. Government Allocation Funds. Stephens Inc. ("Stephens") is
the Funds' sponsor, administrator and distributor.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights................................................ 1
Participating Insurance Companies................................... 2
Investment Objectives and Policies.................................. 2
Investing in the Funds.............................................. 8
Dividends........................................................... 9
The Funds, Management and Servicing Fees............................ 9
Taxes............................................................... 12
Fund Expenses....................................................... 13
General Information................................................. 13
Prospectus Appendix -- Additional Investment Policies............... A-1
</TABLE>
i
<PAGE> 8
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Funds' 1995 annual financial statements. The Funds' financial statements,
financial highlights and independent auditors' report thereon are included in
the SAI. These financial statements were audited by KPMG Peat Marwick LLP,
independent auditors, whose report dated February 14, 1996 is included in the
SAI. This information should be read in conjunction with the Funds' 1995 annual
financial statements and the notes thereto. The SAI has been incorporated by
reference into this Prospectus.
<TABLE>
<CAPTION>
Asset Growth and Money
Allocation Income Market
Fund* Fund** Fund***
Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value: beginning of
period $ 9.71 $ 10.00 $ 10.30 $ 10.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income 0.55 0.30 0.22 0.14 0.05 0.03
Net realized and unrealized
gains/(losses) on
investments 2.21 (0.19) 2.77 0.30 0.00 0.00
------------- ------ ------------- ------ ------------- ------
Total from investment
operations 2.76 0.11 2.99 0.44 0.05 0.03
Less distributions:
Dividends from net investment
income (0.55) (0.30) (0.22) (0.14) (0.05) (0.03)
Distributions from realized
capital gains (0.65) (0.10) (0.16) 0.00 (0.00) 0.00
------------- ------ ------------- ------ ------------- ------
Total from distributions (1.20) (0.40) (0.38) (0.14) (0.05) (0.03)
------------- ------ ------------- ------ ------------- ------
Net asset value: end of period $ 11.27 $ 9.71 $ 12.91 $ 10.30 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
Total return (not annualized) 28.95% 1.13% 29.19% 4.47% 5.41% 2.71%
Ratios/supplemental data:
Net assets, end of period
(000) $25,467 $ 7,464 $10,920 $ 2,136 $ 5,823 $ 1,492
Number of shares outstanding,
end of period (000) 2,259 769 846 207 5,823 1,492
Ratios to average net assets
(annualized)
Ratio of expenses to average
net assets(1) 0.41% 0.00% 0.43% 0.00% 0.42% 0.00%
Ratio of net investment income
to average net assets(2) 5.58% 6.30% 2.05% 3.00% 5.15% 4.63%
Portfolio Turnover 97% 0% 84% 21% N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
(1) Ratio of net expenses to
average net assets prior
to waived fees and
reimbursed expenses 1.22% 2.24% 2.02% 10.18% 3.83% 11.43%
(2) Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 4.77% 4.06% 0.46% (7.18)% 1.74% (6.80)%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S. Government
Allocation
Fund****
Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Net asset value: beginning of
period $ 9.63 $ 10.00
Income from investment
operations:
Net investment income 0.60 0.40
Net realized and unrealized
gains/(losses) on
investments 0.77 (0.37)
------------- ------
Total from investment
operations 1.37 0.03
Less distributions:
Dividends from net investment
income (0.60) (0.40)
Distributions from realized
capital gains (0.10) 0.00
------------- ------
Total from distributions (0.70) (0.40)
------------- ------
Net asset value: end of period $ 10.30 $ 9.63
=========== ===========
Total return (not annualized) 14.40% 0.41%
Ratios/supplemental data:
Net assets, end of period
(000) $ 4,855 $ 866
Number of shares outstanding,
end of period (000) 471 90
Ratios to average net assets
(annualized)
Ratio of expenses to average
net assets(1) 0.45% 0.00%
Ratio of net investment income
to average net assets(2) 5.82% 7.35%
Portfolio Turnover 405% 130%
- --------------------------------------------------------------------------
(1) Ratio of net expenses to
average net assets prior
to waived fees and
reimbursed expenses 2.46% 12.73%
(2) Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 3.81% (5.38)%
- --------------------------------------------------------------------------
</TABLE>
* The Fund commenced operations on April 15, 1994.
** The Fund commenced operations on April 12, 1994.
*** The Fund commenced operations on May 19, 1994.
**** The Fund commenced operations on April 26, 1994.
1
<PAGE> 9
PARTICIPATING INSURANCE COMPANIES
The Funds are funding vehicles for VA Contracts and VLI Policies offered
by the separate accounts of Participating Insurance Companies. Life & Annuity
Trust currently does not foresee any disadvantages to the holders of VA
Contracts and VLI Policies arising from the fact that the interests of the
holders of VA Contracts and VLI Policies may differ. Nevertheless, Life &
Annuity Trust's Board of Trustees intend to monitor events in order to identify
any material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response to such conflicts. The VA
Contracts and VLI Policies are described in the separate prospectuses issued by
the Participating Insurance Companies. Life & Annuity Trust assumes no
responsibility for such prospectuses. Individual holders of VA Contracts and
VLI Policies are not the "shareholders" of or "investors" in the Funds. Rather,
the Participating Insurance Companies and their separate accounts are the
shareholders or investors, although such companies will pass through voting
rights to the holders of VA Contracts and VLI Policies. For a discussion of the
voting rights of holders of VA Contracts and VLI Policies, please see the
prospectuses of the Participating Insurance Companies.
INVESTMENT OBJECTIVES AND POLICIES
ASSET ALLOCATION FUND
The Asset Allocation Fund's investment objective is to seek over the long
term a high level of total return, including net realized and unrealized
capital gains and net investment income, consistent with reasonable risk. The
Fund seeks to achieve its objective by pursuing an asset allocation strategy.
This strategy is based upon the premise that certain asset classes from time to
time are either under- or over-valued relative to each other by the market, and
that undervalued asset classes represent relatively better long-term,
risk-adjusted investment opportunities. Timely, low-cost shifts among common
stocks, U.S. Treasury bonds and money market instruments (as determined by
their perceived relative over- or under-valuation) can, therefore, produce
attractive investment returns. Using this strategy, BGFA, as the Fund's
sub-adviser, regularly determines the appropriate mix of asset classes and the
Fund's portfolio is periodically adjusted to achieve this mix. The Fund is not
designed to profit from short-term market changes. The Fund is a diversified
portfolio.
In determining the appropriate mix, BGFA uses an investment model
developed over the past 20 years, which is also used by BGFA as a basis for
managing large employee benefit trust funds and other institutional accounts.
The Asset Allocation Model, which is proprietary to BGFA, analyzes extensive
financial data from numerous sources and recommends a portfolio allocation
among common stocks, U.S. Treasury bonds and money market instruments. As
further described in the "Prospectus Appendix -- Additional Investment
Policies," BGFA bases its investment decisions on the Asset Allocation Model's
results. At any given time, substantially all of the Fund's assets may be
invested in a single asset class and the relative allocation among the asset
classes may shift significantly from time to time.
The following description illustrates the types of investments in which
the Asset Allocation Fund's assets may be invested.
Stock Investments. In making its stock investments, the Fund invests
in substantially all of the common stocks which comprise the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index")(1) using, to the
extent feasible, the same weighting formula used by that index. The Fund
does not individually select common stocks on the basis of traditional
investment analysis.
- ---------------
(1) Standard & Poor's Corporation ("S&P") does not sponsor the Fund nor is it
affiliated with the Fund, Stephens, Wells Fargo Bank or BGFA. "S&P" and
"S&P 500" are trademarks of Standard & Poor's Corporation.
2
<PAGE> 10
Bond Investments. The Fund purchases U.S. Treasury bonds with
maturities greater than 20 years. The bond portion of the Fund's portfolio
is managed to attain an average maturity of between 22 and 28 years for the
U.S. Treasury bonds held. This form of debt instrument has been selected by
BGFA because of the relatively low transaction costs of buying and selling
U.S. Treasury bonds and because of the low default risk associated with
them.
Money Market Investments. The money market instrument portion of the
Fund's portfolio is invested in high-quality money market instruments,
including obligations of the U.S. Government, its agencies or
instrumentalities, obligations of domestic and foreign banks, short-term
corporate debt instruments and repurchase agreements.
Other Investments. The Fund also may enter into futures and options
contracts and options on futures contracts and make margin payments in
connection with such contracts, purchase securities with put rights in
order to maintain liquidity, purchase unrated instruments that are
determined by Wells Fargo Bank to be of investment quality comparable to
other rated instruments that the Fund is permitted to purchase, and may
purchase securities on a delayed delivery or when-issued basis. A more
complete description of the Asset Allocation Model, certain trading
policies relating to the implementation of the model's recommendations, and
the Fund's investments and investment activities is contained in the
"Prospectus Appendix -- Additional Investment Policies" and in the Funds'
SAI.
GROWTH AND INCOME FUND
The Growth and Income Fund seeks to earn current income and achieve
long-term capital appreciation. It seeks to achieve this objective by investing
primarily in common stocks and preferred stocks and debt securities that are
convertible into common stocks. Under normal market conditions, the Fund invests
at least 65% of its total assets in common stocks and securities which are
convertible into common stocks and at least 65% of its total assets in
income-producing securities. Up to 10% of the Fund's assets may be invested in
securities of foreign issuers.
Common Stocks. The Growth and Income Fund invests in common stocks of
issuers that exhibit a strong earnings growth trend and that are believed by
Wells Fargo Bank, as investment adviser, to have above-average prospects for
future earnings growth. The Fund maintains a portfolio of common stocks
diversified among industries and companies. The Fund may invest in common stocks
of large companies (i.e., those companies with more than $750 million in
capitalization) that Wells Fargo Bank believes offer the potential for long-term
earnings growth or above-average dividend yield. Emphasis may be placed on
common stocks which are trading at low price-to-earnings ratios, either relative
to the overall market or to the security's historic price-to-earnings
relationship, and on common stocks of issuers that have historically paid
above-average dividends. Some investments also may be made in common stocks of
medium and smaller sized companies (i.e., those companies with at least $250
million, but less than $750 million in capitalization) that appear to have the
potential to generate high levels of future revenue and earnings growth and
where the investment opportunity may not be fully reflected in the price of the
securities but that may involve greater risks than investments in larger
companies.
The Growth and Income Fund intends generally to invest less than 50% of its
assets in the securities of medium and smaller sized companies and the remainder
in securities of larger sized companies. However, the actual percentages may
vary according to changes in market conditions and the judgment of the Fund's
investment adviser of how best to achieve the Fund's investment objective.
Convertible Securities. The Growth and Income Fund may invest in
convertible securities that provide current income, are issued by companies with
the characteristics described above and have a strong earnings and credit
record. The Fund may purchase convertible securities that are fixed-income debt
instruments or preferred stocks, which may be converted at a stated price within
a specified period of time into a certain quantity of the common stock of the
same issuer. Convertible securities, while usually subordinated to similar
nonconvertible securities, are senior to common stocks in an
3
<PAGE> 11
issuer's capital structure. Convertible securities offer flexibility by
providing the investor with a steady income stream (generally yielding a lower
amount than similar nonconvertible securities and a higher amount than common
stocks) as well as the opportunity to take advantage of increases in the price
of the issuer's common stock through the conversion feature. Fluctuations in the
convertible security's price tend to correlate with changes in the market value
of the common stock. At most, 5% of the Fund's net assets will be invested in
convertible debt securities that are either rated below the four highest rating
categories (which includes securities also known as "junk bonds") by one or more
nationally recognized statistical rating organizations ("NRSROs"), such as
Moody's Investor Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P"), or unrated securities determined by Wells Fargo Bank to be of
comparable quality. Securities rated in the fourth highest rating category
(i.e., rated BBB by S&P or Baa by Moody's) are regarded by S&P as having an
adequate capacity to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make such repayments. Moody's considers such securities as having speculative
characteristics. For additional information relating to investments in below
investment-grade securities see "Additional Permitted Investment
Activities -- Unrated, Downgraded and Below Investment-Grade Investments" in the
Funds' SAI.
Other Investments. The Fund may retain cash or invest some of its assets in
high-quality money market instruments, consisting of U.S. Treasury bills, shares
of other mutual funds and repurchase agreements. The Fund also is permitted to
lend its portfolio securities.
The Fund also may purchase securities with put rights (in order to maintain
liquidity), American Depository Receipts ("ADRs"), and privately issued
securities which may be resold only in accordance with Rule 144A under the
Securities Act of 1933. The Fund is a diversified portfolio. A more complete
description of the Fund's investments and investment activities is contained in
the "Prospectus Appendix -- Additional Investment Policies" and in the Funds'
SAI.
MONEY MARKET FUND
The Money Market Fund seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term securities. The Fund only invests its assets in U.S.
dollar-denominated, high-quality money market instruments, and may engage in
certain other investment activities as described in this Prospectus. Permitted
investments consist of obligations of the U.S. Government, its agencies or
instrumentalities (including government-sponsored enterprises), obligations of
domestic and foreign banks, commercial paper, and repurchase agreements and
other debt obligations such as municipal obligations, asset-backed securities
and securities issued by special purpose entities. The Fund also may invest in
unrated instruments determined by Wells Fargo Bank to be of comparable quality
to other rated instruments that the Fund is permitted to purchase and otherwise
purchased in accordance with Fund procedures. The Fund is a diversified
portfolio. A more complete description of these investments and investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the Funds' SAI.
U.S. GOVERNMENT ALLOCATION FUND
The U.S. Government Allocation Fund's investment objective is to seek over
the long term a high level of total return, including net realized and
unrealized capital gains and net investment income, consistent with reasonable
risk. The Fund seeks to achieve its objective by pursuing a strategy of
allocating and reallocating its investments among the following three classes of
debt instruments: long-term U.S. Treasury bonds, intermediate-term U.S. Treasury
notes, and short-term money market instruments. This strategy is based upon the
premise that those classes of debt securities, from time to time, are either
over- or under-valued relative to each other by the market, and that
under-valued asset classes represent relatively better long-term investment
opportunities. Timely, low-cost shifts among such securities (as determined by
their perceived relative over- or under-valuation) can, therefore, produce
attractive long-term investment returns. Using this strategy, BGFA regularly
determines the appropriate mix of asset classes, and the Fund's portfolio is
periodically adjusted to
4
<PAGE> 12
achieve this mix. Under normal market conditions, the Fund invests at least 65%
of the value of its total assets in U.S. Government obligations.
In determining the appropriate mix, BGFA, as the Fund's investment
sub-adviser, uses an investment model, the U.S. Government Allocation Model,
which is also used by BGFA as a basis for managing large employee benefit trust
funds and other institutional accounts. The model, which is proprietary to BGFA,
analyzes risk, correlation and expected return data and recommends a portfolio
allocation among the three classes of debt instruments. As further described in
the "Prospectus Appendix -- Additional Investment Policies," BGFA bases its
investment decisions on the model's results. At any given time, substantially
all of the Fund's assets may be invested in a single asset class, and the
relative allocation among the asset classes may shift significantly from time to
time. The Fund is not designed to profit from short-term market changes.
The following description illustrates the types of debt instruments in
which the U.S. Government Allocation Fund's assets may be invested.
Long-Term Investments. The Fund may purchase U.S. Treasury bonds with
remaining maturities of at least 20 years. Under normal market conditions, the
dollar-weighted average maturity of this portion of the Fund's portfolio is
expected to range between 22 and 28 years.
Intermediate-Term Investments. The Fund may purchase U.S. Treasury notes
and other U.S. Treasury securities with remaining maturities ranging from one to
20 years. Under normal market conditions, the dollar-weighted average maturity
of this portion of the Fund's portfolio is expected to range between three and
seven years.
Short-Term Investments. The Fund may purchase short-term money market
instruments with remaining maturities of one year or less. This portion of the
Fund's portfolio may be invested in the following types of short-term money
market instruments: U.S. Government obligations, commercial paper, bankers'
acceptances, certificates of deposit, fixed time deposits, and repurchase
agreements. U.S. dollar-denominated obligations of both domestic and foreign
banks may be included.
U.S. Government obligations have been selected by Wells Fargo Bank as the
Fund's principal investments because of their relatively low purchase and sale
transaction costs and because of the low default risk associated with them
(i.e., they are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities).
Other Investments. The Fund also may enter into futures and options
contracts and options on futures contracts and make margin payments in
connection with such contracts, invest in unrated instruments determined by the
Fund's adviser to be of investment quality comparable to other rated instruments
that the Fund is permitted to purchase, and purchase securities on a delayed
delivery or when-issued basis. The Fund is a diversified portfolio. A more
complete description of the model and the Fund's investments and investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the Funds' SAI.
PERFORMANCE
Each Fund's performance may be advertised in terms of average annual total
return and cumulative total return. In addition, the performance for the U.S.
Government Allocation Fund and the Money Market Fund may be advertised in terms
of yield. These performance figures are based on historical results calculated
under uniform SEC formulas and are not intended to indicate future performance.
The actual return of a holder of a VA Contract or VLI Policy is also affected by
charges and fees imposed by the separate accounts of Participating Insurance
Companies. Any Fund advertising is accompanied by performance information of the
related insurance company separate accounts which fund the VA Contracts or VLI
Policies or by an explanation that Fund performance information does not reflect
separate account fees and charges.
5
<PAGE> 13
Each Fund's total return is based on the overall dollar or percentage
change in value of a hypothetical investment in the Fund and assumes that all
Fund dividends and capital gain distributions are reinvested.
The yield for the U.S. Government Allocation Fund and the Money Market Fund
is calculated by dividing each Fund's net investment income per share earned
during a specified period (30 days for the U.S. Government Allocation Fund and
seven days or 30 days for the Money Market Fund) by its net asset value per
share on the last day of such period and annualizing the result. Each Fund's
annual report contains additional performance information and is available upon
request without charge from the Funds' distributor.
POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUNDS
An investment in the Funds is not insured against loss of principal. When
prices of the securities that a Fund owns decline, so does the value of such
Fund's shares. Although the Money Market Fund seeks to maintain a stable net
asset value of $1.00 per share, there is no assurance that it will be able to do
so. Also, the Funds' shares are not insured or guaranteed. Therefore, investors
should be prepared to accept some risk, including possible loss of principal,
with the money they invest in a Fund.
Because the Asset Allocation Fund and the U.S. Government Allocation Fund
(the "Allocation Funds") may shift their investment allocations significantly
from time to time, their performance may differ from funds which invest in one
asset class or from funds with a stable mix of assets. Further, shifts among
asset classes may result in relatively high portfolio turnover rates, which may,
in turn, result in increased brokerage and transaction costs. These costs may
not be offset by the improved performance expected from the asset allocation
strategies. A Fund's portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of securities for the fiscal year by the monthly
average of the value of a Fund's securities (with obligations having less than
one year until maturity excluded).
The debt instruments in the portfolios of the Asset Allocation, Growth and
Income and U.S. Government Allocation Funds (the "Non-Money Market Funds") and
the Money Market Fund, are subject to interest-rate risk (i.e., the risk that
increases in market interest rates may adversely affect the value of the
intermediate- and long-term debt securities in which a Fund invests and hence
the value of an investment in such Fund; the values of such securities generally
change inversely to changes in market interest rates). During those periods in
which a high percentage of the portfolio of a Fund is invested in long-term
bonds, its exposure to interest-rate risk is greater because the longer maturity
of those securities means their value generally is more sensitive to changes in
market interest rates than shorter-term debt securities.
The stock investments of the Funds are subject to equity market risk (i.e.,
the possibility that common stock prices will fluctuate or decline over short or
even extended periods). The U.S. stock market tends to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline. The
Growth and Income Fund's investments in smaller sized companies present greater
risks than investments in larger sized companies with more established operating
histories and financial capacity.
Some of the permissible investments described throughout this Prospectus
are considered "derivative" securities because their value is derived, at least
in part, from the price of another security or a specified asset, index or rate.
The futures contracts and options on futures contracts that the Allocation Funds
may purchase are considered derivatives. The Allocation Funds may only purchase
or sell these contracts or options as substitutes for comparable market
positions in the underlying securities. Also, asset-backed securities issued or
guaranteed by U.S. Government agencies or instrumentalities and certain
floating- and variable-rate instruments can be considered derivatives. Some
derivatives may be more sensitive than direct securities to changes in interest
rates or sudden market moves. Some derivatives also may be susceptible to
fluctuations in yield or value due to their structure or contract terms.
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Wells Fargo Bank and BGFA use a variety of internal risk management
procedures to ensure that derivatives use is consistent with a Fund's investment
objective, does not expose the Fund to undue risk and is closely monitored.
These procedures include providing periodic reports to the Board of Trustees
concerning the use of derivatives. Also, cash maintained by each Fund for
short-term liquidity needs (e.g., to meet anticipated redemption requests) will,
as a general matter, only be invested in U.S. Treasury bills, shares of other
mutual funds and repurchase agreements.
The use of derivatives by the Funds also is subject to broadly applicable
investment policies. For example, the Funds may not invest more than a specified
percentage of their assets in "illiquid securities," including those derivatives
that do not have active secondary markets. Nor may a Fund use certain
derivatives without establishing adequate "cover" in compliance with SEC rules
limiting the use of leverage.
For more information on all of the Funds' investment activities, see
"Prospectus Appendix -- Investment Techniques."
Risk Factors. The Money Market Fund, under the Investment Company Act of
1940 ("1940 Act"), must comply with certain investment criteria designed to
provide liquidity, reduce risk and allow the Fund to maintain a stable net asset
value of $1.00 per share. The Fund cannot guarantee a $1.00 share price. The
Fund's dollar-weighted average portfolio maturity must not exceed 90 days. Any
security that the Fund purchases must have a remaining maturity of not more than
397 days (thirteen months). In addition, any security that the Fund purchases
must present minimal credit risks and be of high quality (i.e., be rated in the
top two rating categories by the required number of nationally recognized
statistical rating organizations or, if unrated, determined to be of comparable
quality to such rated securities). These determinations are made by Wells Fargo
Bank, as the Funds' investment adviser, under guidelines adopted by Life &
Annuity Trust's Board of Trustees.
The Money Market Fund seeks to reduce risk by investing its assets in
securities of various issuers. As such, the Money Market Fund is considered to
be diversified for purposes of the 1940 Act. In addition, the Money Market Fund,
since its inception, has emphasized safety of principal and high credit quality.
In particular, the internal investment policies of the Fund's investment
adviser, Wells Fargo Bank, have always prohibited the purchase for the Fund of
many types of floating-rate derivative securities that are considered
potentially volatile. The following types of derivative securities ARE NOT
permitted investments for the Fund:
- capped floaters (on which interest is not paid when market rates move
above a certain level);
- leveraged floaters (whose interest-rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
- dual index floaters (whose interest-rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Money Market Fund may not invest in securities whose
interest rate reset provisions are tied to an index that materially lags
short-term interest rates, such as Cost of Funds Index ("COFI") Floaters. The
Fund may only invest in floating-rate securities that bear interest at a rate
that resets quarterly or more frequently, and which resets based on changes in
standard money market rate indices such as U.S. Treasury bills, London Interbank
Offered Rate, the prime rate, published commercial paper rates, federal funds
rates, Public Securities Associates ("PSA") floaters or JJ Kenney index
floaters.
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<PAGE> 15
As with all mutual funds, there can be no assurance that a Fund will
achieve its investment objective. Investors should be prepared to accept that
risk, as well as the risk that a Fund may under-perform (over the short- and/or
long-term) one or more of the classes of securities in which it invests. In
addition, since Life & Annuity Trust is a relatively new investment company, the
Funds have a limited operating history.
INVESTING IN THE FUNDS
NET ASSET VALUE
The value of each Fund's share is its "net asset value," or NAV. NAV is
computed by adding the value of a Fund's portfolio investments plus cash and
other assets, deducting liabilities and then dividing the result by the number
of shares outstanding. The Non-Money Market Funds' NAV is expected to fluctuate
daily. As noted above, the Money Market Fund seeks to maintain a constant $1.00
NAV share price, although there is no assurance that it will be able to do so.
The Non-Money Market Funds are open for business each day the New York
Stock Exchange ("NYSE") is open for trading ("NYSE Business Day"). Wells Fargo
Bank calculates each Non-Money Market Fund's NAV each NYSE Business Day as of
the close of regular trading on the NYSE (referred to hereafter as "the close of
the NYSE"), which is currently 1:00 p.m. (Pacific time).
The Money Market Fund is open for business on the same days Wells Fargo
Bank is open ("Bank Business Day"). Currently, the only Bank Business Day that
is not also an NYSE Business Day is Good Friday; the only NYSE Business Days
that are not also Bank Business Days are Martin Luther King, Jr. Day, Columbus
Day and Veterans Day. Wells Fargo Bank calculates the Money Market Fund's NAV as
of 9:00 a.m. (Pacific time) each Bank Business Day.
Unless otherwise specified, the term Business Day in this Prospectus refers
to a Bank Business Day, with respect to the Money Market Fund, and an NYSE
Business Day, with respect to the other Funds.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost (unless the Board of Trustees determines that
amortized cost does not represent fair value), the Non-Money Market Funds' other
assets are valued at current market prices, or if such prices are not readily
available, at fair value as determined in good faith by Life & Annuity Trust's
Board of Trustees. Prices used for such valuations may be provided by
independent pricing services.
The Money Market Fund's portfolio investments are valued on the basis of
amortized cost. This valuation method involves valuing a portfolio instrument at
its cost at the time of purchase and thereafter assuming a constant amortization
or accretion to maturity of any premium or discount, without regard to the
effect of fluctuating interest rates on the market value of the instrument. By
using amortized cost valuation, which reasonably approximates market value, the
Money Market Fund seeks to maintain a constant NAV of $1.00 per share. The
Trust's Board of Trustees has determined that it is in the best interests of the
Fund and its shareholders to maintain a stable NAV and the Fund will continue to
use amortized cost valuation only as long as the Board of Trustees believes that
it fairly reflects market-based NAV.
PURCHASES AND REDEMPTIONS
The separate accounts of the Participating Insurance Companies place orders
to purchase and redeem shares of each Fund based on, among other things, the
amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectuses describing the VA Contracts
and VLI Policies issued by the Participating Insurance Companies) to be effected
on that day pursuant to VA Contracts and VLI policies.
Orders received by a Fund or a Fund's transfer agent are effected on each
Business Day. For orders received before the close of the NYSE, purchases and
redemptions of the shares of each Non-Money Market Fund are effected at the
respective net asset values per share determined as of the close of the NYSE on
that same day. Orders received after the close of the NYSE for shares of a Non-
Money Market Fund are effected on the next Business Day. With respect to the
Money Market Fund,
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<PAGE> 16
if orders are received by the Fund or the Fund's transfer agent by 9:00 a.m.
(Pacific time), the order is executed on the same day. Orders received after
9:00 a.m. (Pacific time) for shares of the Money Market Fund generally are
executed on the next Business Day.
All orders for the purchase of shares are subject to acceptance or
rejection by Life & Annuity Trust. Payment for redemptions will be made by Life
& Annuity Trust's transfer agent on behalf of Life & Annuity Trust and the
relevant Funds within seven days after the request is received. Life & Annuity
Trust does not assess any fees, either when it sells or when it redeems its
shares. Surrender charges, mortality and expense risk fees and other charges may
be assessed by Participating Insurance Companies under the VA Contracts or VLI
Policies. These fees and charges are described in the Participating Insurance
Companies' prospectuses.
Should any conflict between VA Contract and VLI Policy holders arise which
would require that a substantial amount of net assets be withdrawn from a Fund
of Life & Annuity Trust, orderly portfolio management could be disrupted to the
potential detriment of the VA Contract and VLI Policy holders.
DIVIDENDS
Each Fund is treated separately in determining the amounts of dividends of
investment income and distributions of capital gains payable to its
shareholders. Dividends and distributions are automatically reinvested on the
payment date for each shareholder's account in additional shares of the Fund
that paid the dividend or distribution at NAV or are paid in cash at the
election of the Participating Insurance Company.
The Asset Allocation and Growth and Income Funds declare and pay a
quarterly dividend, and the U.S. Government Allocation Fund declares and pays a
monthly dividend, of substantially all of their respective net investment
income. The Money Market Fund declares dividends daily and pays the dividends
monthly. The Funds generally distribute any capital gains once a year. Dividends
and distributions are invested in additional shares unless an election is made
on behalf of a separate account to receive dividends or distributions in cash.
Participating Insurance Companies will be informed about the amount and
character of dividends and distributions from the relevant Fund for federal
income tax purposes.
THE FUNDS, MANAGEMENT AND SERVICING FEES
Life & Annuity Trust was organized as a Delaware Business Trust on October
28, 1993. The Board of Trustees of Life & Annuity Trust supervises each Fund's
activities and monitors its contractual arrangements with various
service-providers.
Life & Annuity Trust offers shares of the Funds only to Participating
Insurance Companies, and only Participating Insurance Companies and their
separate accounts are considered shareholders of, or investors in, the Funds.
Although the Participating Insurance Companies and their separate accounts are
the shareholders or investors, such companies will pass through voting rights to
their VA Contract and VLI Policy holders. For a discussion of the voting rights
of VA Contract and VLI Policy holders, please refer to the Participating
Insurance Companies' prospectuses.
When matters are submitted for shareholder vote, shareholders of each Fund
have one vote for each full share and fractional votes for fractional shares
held. A separate vote of a Fund is required on any matter affecting the Fund on
which shareholders are entitled to vote, such as approval of a Fund's agreement
with the Fund's investment adviser. Shareholders of one Fund are not entitled to
vote on a matter that does not affect that Fund but that does require a separate
vote of the other Funds. Normally no annual meetings of shareholders will be
held unless and until such time as less than a majority of Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. Any
Trustee may be removed from office on the vote of shareholders holding at least
two-thirds of Life & Annuity Trust's
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<PAGE> 17
outstanding shares at a meeting called for that purpose. The Trustees are
required to call such a meeting on the written request of shareholders holding
at least 10 percent of Life & Annuity Trust's outstanding shares.
A more detailed description of the voting rights and attributes of the
shares is contained in the "Capital Stock" section of the SAI.
INVESTMENT ADVISER
Subject to the overall supervision of Life & Annuity Trust's Board of
Trustees, Wells Fargo Bank, pursuant to agreements with the Funds (the
"Investment Advisory Agreements"), provides investment guidance and policy
direction in connection with the management of the Funds' assets. As investment
adviser, Wells Fargo Bank furnishes the Board of Trustees with periodic reports
on the Funds' investment strategy and performance. Wells Fargo Bank also is the
Funds' transfer and dividend disbursing agent.
Wells Fargo Bank, one of the largest banks in the United States, was
founded in 1852 and is the oldest bank in the western United States. As of April
1, 1996,Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $56 billion of assets of individuals, trusts, estates
and institutions. Wells Fargo Bank also serves as the investment adviser or
sub-adviser to six other registered, open-end, management investment companies,
each of which consists of several separately managed investment portfolios. From
time to time, each of the Funds, consistent with its investment objectives,
policies and restrictions, may invest in securities of companies with which
Wells Fargo Bank has a lending relationship. Wells Fargo Bank, a wholly-owned
subsidiary of Wells Fargo & Company, is located at 420 Montgomery Street, San
Francisco, California 94104.
For its advisory services to the Non-Money Market Funds, Wells Fargo Bank
is entitled to a monthly advisory fee at an annual rate equal to 0.60% of each
Fund's average daily net assets. For its advisory services to the Money Market
Fund, Wells Fargo Bank is entitled to a monthly advisory fee at an annual rate
equal to 0.45% of the Fund's average daily net assets. For the year ended
December 31, 1995, Wells Fargo Bank waived all of its advisory fees.
Pursuant to sub-advisory agreements, Wells Fargo Bank has delegated certain
advisory responsibilities to BGFA for the Asset Allocation Fund and U.S.
Government Allocation Fund. Wells Fargo Bank has retained authority over the
management of each Fund and the investment and disposition of each Fund's
assets. Wells Fargo Bank may reject any investment recommendations or decisions
for a Fund if Wells Fargo Bank determines that rejecting such recommendations or
decisions is consistent with the best interests of the Fund. Wells Fargo Bank
has agreed to pay BGFA monthly fees at annual rates equal to 0.20% and 0.15% of
the average daily net assets of the Asset Allocation Fund and U.S. Government
Allocation Fund, respectively, for its services as sub-adviser. From time to
time, Wells Fargo Bank may waive its fees in whole or in part. Any such waiver
will reduce a Fund's expenses and, accordingly, have a favorable impact on a
Fund's performance.
BGFA is located at 45 Fremont Street, San Francisco, California 94105. BGFA
is a wholly owned subsidiary of BGI and is an indirect subsidiary of Barclays
Bank PLC. As of January 1, 1996, BGFA and its affiliates provided investment
advisory services for over $220 billion of assets. BGFA was created by the
reorganization of Wells Fargo Nikko Investment Advisors ("WFNIA"), a former
affiliate of Wells Fargo Bank, with and into an affiliate of Wells Fargo
Institutional Trust Company, N.A. Prior to January 1, 1996, WFNIA served as
sub-adviser to the Asset Allocation and U.S. Government Allocation Funds. For
its services as sub-adviser, WFNIA was contractually entitled to receive from
Wells Fargo Bank monthly fees at the annual rate of 0.20% and 0.15% of the
average daily net assets of the Asset Allocation and U.S. Government Allocation
Funds, respectively. For the year ended December 31, 1995, WFNIA actually
received payment for its sub-advisory services at the rate of 0.20% and 0.15% of
the average daily net assets of the Asset Allocation and the U.S. Government
Allocation Funds, respectively.
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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.
The portfolios of the Allocation Funds are managed based on the
recommendations of computer models, and no person is primarily responsible for
making recommendations or investment decisions.
Morrison & Foerster LLP, counsel to Life & Annuity Trust and special
counsel to Wells Fargo Bank and BGFA, has advised Life & Annuity Trust, Wells
Fargo Bank and BGFA that Wells Fargo Bank, BGFA and their respective affiliates,
may perform the services contemplated by this Prospectus and the Advisory
Contracts without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Such counsel has pointed out, however, that there
are no controlling judicial or administrative interpretations or decisions and
that future judicial or administrative interpretations of, or decisions relating
to, present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations could
prevent Wells Fargo Bank, BGFA and their respective affiliates from continuing
to perform, in whole or in part, such services. If Wells Fargo Bank or BGFA were
prohibited from performing any such services, it is expected that the Trustees
of Life & Annuity Trust would recommend to the Funds' shareholders that they
approve a new advisory agreement or sub-advisory agreement (as the case may be)
with another entity or entities qualified to perform such services.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the custodian for the Money Market Fund and the
Growth and Income Fund. Wells Fargo Bank performs these services at 525 Market
Street, San Francisco, California 94105. BGI serves as the custodian for the
Allocation Funds and performs these services at 45 Fremont Street, San
Francisco, California 94105.
Wells Fargo Bank serves as the Funds' transfer and dividend disbursing
agent. Wells Fargo Bank performs the transfer and dividend disbursing agency
activities at 525 Market Street, San Francisco, California 94105.
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and administrator and distributes the Funds'
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit sharing plans, individual investors, foundations,
insurance companies and university endowments.
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Subject to the overall supervision of Life & Annuity Trust's Board of
Trustees, Stephens provides the Funds with administrative services, including
general supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to Life & Annuity Trust's Trustees and officers.
Stephens also furnishes office space and certain facilities to conduct each
Fund's business, and compensates Life & Annuity Trust's Trustees, officers and
employees who are affiliated with Stephens. For these services, Stephens is
entitled to a monthly fee at the annual rate of 0.03% of each Fund's average
daily net assets. From time to time, Stephens may waive its fees from a Fund in
whole or in part. Any such waiver will reduce a Fund's expenses and,
accordingly, have a favorable impact on such Fund's yield and total return.
Stephens, as the principal underwriter of the Funds within the meaning of
the 1940 Act, has entered into a Distribution Agreement with Life & Annuity
Trust pursuant to which Stephens has the responsibility for distributing shares
of the Funds.
Stephens, as distributor of each Fund's shares, or the Participating
Insurance companies that offer VA Contracts and VLI Policies that are funded by
the Funds, bears all of the Funds' marketing expenses. These expenses include
the cost of printing prospectuses, statements of additional information and
other sales-related materials.
TAXES
Each Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code of 1986 (the "Code"). The Funds intend to pay
out substantially all of their net investment income and net realized capital
gains (if any) for each year. By complying with the applicable provisions of the
Code, the Funds will not be subject to federal income taxes with respect to net
investment income and net realized capital gains distributed to its
shareholders. Unless a shareholder is exempt from taxation or entitled to tax
deferral, dividends from the investment income (including net short-term capital
gains, if any) declared and paid by each Fund will be treated as ordinary income
by Participating Insurance Companies. Similarly, distributions of net long-term
capital gains paid are treated as such by Participating Insurance Companies for
federal income tax purposes. Each year, the Funds will notify shareholders as to
the amount and tax status of all dividends and capital gains declared and paid
during the prior year.
Dividends and capital gain distributions (if any) declared in a calendar
year generally will be includable in the year they are declared regardless of
when they are paid. Such distributions are includable whether they are taken in
cash or reinvested in additional shares, regardless of how long the shareholder
has held the shares.
Each Fund is subject to asset diversification regulations prescribed by the
U.S. Treasury Department. These regulations generally provide that, as of the
end of each calendar quarter or within 30 days thereafter, no more than 55% of
the total assets of the Fund may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment. Furthermore, each U.S.
Government agency or instrumentality is treated as a single issuer. There are
also alternative diversification tests which may be satisfied by the funds under
the regulations. The Funds intend to comply with these asset diversification
regulations. If a Fund should fail to comply with these regulations, VA
Contracts and VLI Policies shall not be treated as annuity, endowment or life
insurance contracts under the Code.
The foregoing is a brief discussion of certain federal income tax
considerations. Federal income taxation of separate accounts of life insurance
companies, VA Contracts and VLI Policies is discussed in the prospectuses of the
Participating Insurance Companies. Please see the Statement of Additional
Information for further information regarding the tax implications of investment
in shares of the
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Funds. Prospective purchasers of a VA Contract or VLI Policy with questions
should also consult their tax advisors.
FUND EXPENSES
From time to time Wells Fargo Bank and Stephens may waive all or a portion
of the fees payable to them and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce a Fund's expenses and, therefore, have a
favorable impact on the Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, Life & Annuity Trust bears all costs of its
operations, including, shareholder servicing, transfer agency, custody and
administration fees, payments pursuant to any Plans, interest, fees and expenses
of independent auditors and legal counsel and any extraordinary expenses.
Expenses attributable to a Fund are charged against a Fund's assets. General
expenses of Life & Annuity Trust are allocated among all of the Funds of Life &
Annuity Trust in a manner proportionate to the net assets of each Fund, on a
transactional basis, or on such other basis as Life & Annuity Trust's Board of
Trustees deems equitable.
GENERAL INFORMATION
The Funds' SAI and this Prospectus omit certain information contained in
the Registration Statement that the Funds have filed with the SEC under the
Securities Act of 1933 and the 1940 Act, and reference is hereby made to the
Registration Statement and its exhibits and amendments for further information
about the Funds and the shares offered hereby. The Registration Statement and
its exhibits and amendments are available for public inspection at the SEC in
Washington, D.C.
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PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Asset Allocation Model
BGFA compares the Asset Allocation Fund's investments daily to the computer
Asset Allocation Model's recommended asset allocation. Any recommended
reallocation is implemented in accordance with trading policies that have been
designed to take advantage of market opportunities and to reduce transaction
costs. Under current trading policies employed by BGFA, recommended
reallocations may be implemented promptly upon receipt of recommendations or may
not be acted upon for as long as two or three months thereafter depending on
factors such as the percentage change from previous recommendations and the
consistency of recommended reallocations over a period of time. In addition, the
Asset Allocation Fund may invest the net proceeds from the sale of shares of the
Fund and may liquidate existing Fund investments to meet net redemption
requirements in a manner that best allows the Fund's existing asset allocation
to follow that recommended by the computer model. Notwithstanding any
recommendation of the computer model to the contrary, the Asset Allocation Fund
will generally maintain at least that portion of its assets in money market
instruments reasonably considered necessary to meet redemption requirements.
There is no requirement that the Fund maintain positions in any particular asset
class or classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Asset Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to differences in the
equilibrium asset mix assumption used for the various portfolios, timing
differences in the implementation of the model's recommendations for each
portfolio and differences in portfolio expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500 Index
based on its criteria for inclusion of stocks in the S&P 500 Index. The S&P 500
Index is market-capitalization-weighted so that each stock in the S&P 500 Index
represents its proportion of the total market value of all stocks in the S&P 500
Index.
In making its stock investments, the policy of the Asset Allocation Fund is
to invest its assets in substantially the same stocks, and in substantially the
same percentages, as the S&P 500 Index, including Wells Fargo & Company stock.
U.S. Government Allocation Model
BGFA compares the U.S. Government Allocation Fund's investments daily to
the computer U.S. Government Allocation Model's recommended allocation. Any
recommended reallocation is implemented in accordance with trading policies that
have been designed to take advantage of market opportunities and to reduce
transaction costs. Under current trading policies employed by BGFA, recommended
reallocations may be implemented promptly upon receipt of recommendations or may
not be acted upon for as long as two to three months thereafter depending on
factors such as the percentage change from previous recommendations and the
consistency of recommended reallocations over a period of time. In addition, the
U.S. Government Allocation Fund may invest the net proceeds from the sale of
shares of the Fund and may liquidate existing Fund investments to meet net
redemption requirements in a manner that best allows the Fund's existing asset
allocation to follow that recommended by the computer model. Notwithstanding any
recommendation of the computer model to the contrary, the Fund will generally
maintain at least that portion of its assets in money market instruments
reasonably considered necessary to meet redemption requirements. There is no
requirement that the Fund maintain positions in any particular asset class or
classes.
A key component of the model is a set of assumptions concerning expected
risk and return and investor attitudes toward risk, which are incorporated into
the allocation decision. The principal
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inputs of financial data to the U.S. Government Allocation Model currently are:
(i) yields on 90-day U.S. Treasury bills, 5-year U.S. Treasury notes, and
30-year U.S. Treasury bonds; (ii) the expected statistical standard deviation in
investment returns for each class of fixed-income security; and (iii) the
expected statistical correlation of investment return among the various classes
of fixed-income investments. Using this and other data, the model is run daily
to determine the recommended allocation.
BGFA manages other portfolios which invest in accordance with a
substantially similar version of the U.S. Government Allocation Model. The
performance of each of those other portfolios is likely to vary among themselves
and from the performance of the Fund. Such variation in performance is primarily
due to timing differences in the implementation of the model's recommendations
for each portfolio, differences in expenses and liquidity requirements, and the
other portfolios' ability to invest more of their assets in investments that may
generate a higher yield, but are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Although BGFA intends to use the model as a basis for its investment
recommendations with respect to the U.S. Government Allocation Fund, BGFA may
change from time to time the criteria and methods it uses to implement the
model's recommendations if it believes such a change is desirable for the Fund.
Delayed Delivery Transactions
The Funds may purchase securities on a delayed delivery or when-issued
basis, with payment and delivery taking place at a future date. The market value
of securities purchased in this manner may change before the delivery date,
which could affect the market value of a Fund's portfolio assets. Ordinarily, a
Fund will not earn interest on securities until they are delivered. When delayed
delivery or when-issued purchase orders are outstanding, a Fund will segregate
cash, U.S. Government obligations of other high quality debt instruments to
cover its purchase obligations.
Floating- and Variable-Rate Instruments
Certain of the debt instruments that the Funds may purchase bear interest
at rates that are not fixed, but vary with, for example, changes in specified
market rates or indices or specified intervals. Certain of these instruments may
carry a demand feature that would permit the holder to tender them back to the
issuer at par value prior to maturity. The Funds may purchase certificates of
participation in pools of floating- and variable-rate obligations from banks and
other financial institutions. The Money Market Fund may invest in floating- and
variable-rate obligations even if they carry stated maturities in excess of
thirteen months, upon compliance with certain conditions of the SEC, in which
case such obligations will be treated in accordance with these conditions as
having maturities not exceeding thirteen months. Wells Fargo Bank, as investment
adviser, will monitor on an ongoing basis the ability of an issuer of a demand
instrument to pay principal and interest on demand. Events affecting the ability
of the issuer of a demand instrument to make payment when due may occur between
the date a Fund elects to demand payment and the date payment is due. Such
events may affect the ability of the issuer of the instrument to make payment
when due, thereby affecting a Fund's ability to obtain payment at par. Demand
instruments whose demand feature is not exercisable within seven days may be
treated as liquid, provided that an active secondary market exists.
Foreign Obligations
The Funds may invest up to 25% of their respective assets in high-quality,
short-term debt obligations of foreign branches of U.S. banks or U.S. branches
of foreign banks that are denominated in and pay interest in U.S. dollars.
Investments in foreign obligations involve certain considerations that are not
typically associated with investing in domestic obligations. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not subject to the same uniform accounting,
auditing and financial reporting standards or governmental
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<PAGE> 23
supervision as domestic issuers. In addition, with respect to certain foreign
countries, interest may be withheld at the source under foreign income tax laws,
and there is a possibility of expropriation or confiscatory taxation, political
or social instability or diplomatic developments that could adversely affect
investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those countries.
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Money Market Fund is permitted
to purchase may be backed by an unconditional and irrevocable letter of credit
of a bank, savings and loan association or insurance company which assumes the
obligation for payment of principal and interest in the event of default by the
issuer. Letter of credit-backed investments must, in the opinion of Wells Fargo
Bank, be of investment quality comparable to other permitted investments of the
Money Market Fund.
Loans of Portfolio Securities
The Non-Money Market Funds may lend securities from their portfolios to
brokers, dealers and financial institutions (but not individuals) if cash, U.S.
Government obligations or other high-quality debt instruments equal to at least
100% of the current market value of the securities loan (including accrued
interest thereon) plus the interest payable to a Fund with respect to the loan
is maintained with the Fund. In determining whether to lend a security to a
particular broker, dealer or financial institution, a Fund's investment adviser
considers all relevant facts and circumstances, including the creditworthiness
of the broker, dealer or financial institution. Any loans of portfolio
securities will be fully collateralized based on values that are marked to
market daily. The Non-Money Market Funds will not enter into any portfolio
security lending arrangement having a duration of longer than one year. Any
securities that a Fund may receive as collateral do not become part of the
Fund's portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund, if permitted by law, will dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay a Fund any
accrued income on those securities, and the Fund may invest the cash collateral
and earn additional income or receive an agreed-upon fee from a borrower that
has delivered cash-equivalent collateral. No Fund will lend securities having a
total value that exceeds one third of the current value of its total assets.
Loans of securities by a Fund will be subject to termination at the Fund's or
the borrower's option. The Non-Money Market Funds may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with Life & Annuity Trust, the
investment adviser, or the Distributor.
Money Market Instruments and Temporary Investments
In accordance with their investment policies, the Funds may invest varying
percentages of their assets in money market instruments. In addition, the Funds
may have temporary cash balances on account of new purchases, dividends,
interest and reserves for redemptions, and which the Funds may invest in the
following high-quality money market instruments: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, including
government-sponsored enterprises ("U.S. Government obligations") (discussed
below); (ii) negotiable certificates of deposit, bankers' acceptances and fixed
time deposits and other obligations of domestic banks (including foreign
branches) that have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the FDIC ("Bank
Instruments"); (iii) commercial paper rated at the date of purchase "P-1" by
Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as
determined by Wells Fargo Bank, as investment adviser, or BGFA, as sub-adviser;
(iv) commercial paper unrated at the date of purchase but secured by a letter of
credit from a U.S. bank that meets the
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<PAGE> 24
above criteria for investment; (v) certain floating and variable rate
instruments; (vi) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment: (a) have more than $10 billion, or the equivalent in
other currencies, in total assets; (b) are among the 75 largest foreign banks in
the world as determined on the basis of assets; (c) have branches or agencies in
the United States; and (d) in the opinion of Wells Fargo Bank, as investment
adviser, are of comparable quality to obligations of U.S. banks which may be
purchased by a Fund.
Other Investment Companies
Each Fund may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchase is limited to temporary investments in shares of
unaffiliated investment companies and each Fund's investment adviser waives its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition. Notwithstanding any other investment policy or limitation (whether
or not fundamental), as a matter of fundamental policy, each Fund may invest all
of its assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective, policies
and limitations as the Fund.
Repurchase Agreements
The Funds may enter into repurchase agreements wherein the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Funds may enter into repurchase agreements only with respect to
those debt instruments which are permissible investments for the Fund. All
repurchase agreements will be fully collateralized based on values that are
marked to market daily. The maturities of the underlying securities in a
repurchase agreement transaction may be greater than twelve months, although the
maximum term of a repurchase agreement will always be less than twelve months.
However, the term of repurchase agreements entered into on behalf of the Money
Market Fund will always be less than twelve months. If the seller defaults and
the value of the underlying securities has declined, a Fund may incur a loss. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, a Fund's disposition of the security may be delayed or limited.
The Funds only will enter into repurchase agreements with registered
broker/dealers and commercial banks that meet guidelines established by Life &
Annuity Trust's Board of Trustees and are not affiliated with the Funds'
investment adviser.
Short-Term Corporate Debt Instruments
The Funds may invest in commercial paper (including variable amount master
demand notes), which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Such Funds also may invest in non-convertible corporate debt securities
(e.g., bonds and debentures) with no more than one year remaining to maturity at
the date of settlement. Such Funds will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P.
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<PAGE> 25
U.S. Government Obligations
The Funds may invest in the various types of short-term securities issued
by or guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the U.S. Treasury. U.S. Treasury
obligations differ mainly in the length of their maturity. Treasury bills, the
most frequently issued marketable government securities, have a maturity of up
to one year and are issued on a discount basis. U.S. Government obligations also
include securities issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises. Some obligations
of U.S. Government agencies or instrumentalities are supported by the full faith
and credit of the United States or U.S. Treasury guarantees; others, by the
right of the issuer or guarantor to borrow from the U.S. Treasury; still others,
by the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, only by the credit of
the agency or instrumentality issuing the obligation. In the case of obligations
not backed by the full faith and credit of the United States, the investor must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or the timing of receipt of payments due to
their structure or contract terms.
INVESTMENT TECHNIQUES
Futures Transactions
None of the Funds is a commodity pool. To the extent permitted by
applicable regulations, each Allocation Fund is permitted to use futures
contracts and options on futures contracts as substitutes for comparable market
positions in the underlying securities. These contracts and options may include
stock index and interest rate futures contracts and options thereon. The use of
futures contracts and options thereon as substitutes for comparable market
positions involves certain risks, including, for the reasons described below,
the risk of imperfect correlation between the value of the Allocation Fund's
futures or options position and the value of the underlying index or securities.
Each Allocation Fund's futures transactions must constitute permissible
transactions pursuant to regulations promulgated by the Commodity Futures
Trading Commission. In addition, an Allocation Fund may not engage in such
transactions if the sum of the amount of initial margin deposits and premiums
paid for unexpired futures contract options would exceed 5% of the liquidation
value of the Fund's assets, after taking into account unrealized profits and
unrealized losses on such contracts; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount may
be excluded in calculating the 5%. Pursuant to regulations and/or published
positions of the SEC, an Allocation Fund may be required to segregate cash, U.S.
Government obligations or other high quality debt instruments in connection with
its futures transactions in an amount generally equal to the entire value of the
contract amount.
Initially, when purchasing or selling futures contracts an Allocation Fund
will be required to deposit with a custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short
A-5
<PAGE> 26
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
the Allocation Fund may elect to close the position by taking an opposite
position, at the then-prevailing price, thereby terminating its existing
position in the contract.
Although each Allocation Fund intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the relevant
Allocation Fund to substantial losses. If it is not possible, or the Allocation
Fund determines not, to close a futures position in anticipation of adverse
price movements, it may be required to make daily cash payments of variation
margin.
A futures contract obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock or interest-rate index at
the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks or instruments
in the index occurs. With respect to indexes that are permitted investments,
each Allocation Fund intends to purchase and sell futures contracts on the index
for which it can obtain the best price with consideration also given to
liquidity.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. Upon
exercise of the option, the writer/seller is required to assume an offsetting
futures position (a short position if the option is a call and a long position
if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer/seller and holder/buyer of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract.
INVESTMENT POLICIES
Each Fund's investment objective, as set forth in the "Investment
Objectives and Policies" section, is fundamental; that is, it may not be changed
without approval by the vote of a majority of a Fund's outstanding voting
securities, as described under "Capital Stock" in the Funds' SAI. In addition,
any fundamental investment policy may not be changed without such shareholder
approval. If the Board of Trustees determines, however, that a substantive
change in a non-fundamental investment policy or strategy is in the best
interests of a Fund's shareholders, the Board may make such change without
shareholder approval and will disclose any such material changes in the affected
Fund's then-current prospectus.
As matters of fundamental policy, each Fund may: (i) not purchase
securities of any issuer (except U.S. Government obligations) if as a result,
with respect to 75% of a Fund's assets, more than 5% of the value of the Fund's
total assets would be invested in the securities of such issuer or the Fund
would own more than 10% of the outstanding voting securities of such issuer;
(ii) borrow from banks up to 20%, with respect to the Asset Allocation Fund and
the U.S. Government Allocation Fund, or 10%, with respect to the other Funds, of
the current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20%,
with respect to the Asset Allocation Fund and the U.S. Government Allocation
Fund, or 10% with respect
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<PAGE> 27
to the other Funds, of the current value of its net assets (but investments may
not be purchased while any such outstanding borrowing in excess of 5% of its net
assets exists); (iii) not invest 25% or more of its assets (i.e., concentrate)
in any particular industry, except that: (a) each Fund may invest 25% or more of
its assets in U.S. Government obligations; (b) the Money Market Fund may
concentrate its assets in obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks and obligations of U.S. branches of foreign banks); and
(c) the Asset Allocation Fund is permitted to concentrate its assets in any
industry for the same period as does the S&P 500 Index, and the Asset Allocation
Fund's money market investments may be concentrated in the banking industry.
However, the Asset Allocation Fund's money market investments in the banking
industry will not represent 25% or more of its total assets unless the SEC staff
has confirmed that it does not object to the Fund reserving freedom of action to
concentrate investments in the banking industry. In addition, as a matter of
fundamental policy, the Money Market Fund may not make loans of portfolio
securities or assets, except that loans for purposes of this restriction will
not include the purchase of fixed time deposits, repurchase agreements,
commercial paper and other short-term obligations, and other types of debt
instruments commonly sold in a public or private offering; and the other Funds
may make such loans in accordance with their investment policies.
With respect to paragraph (i), it may be possible that the aggregate
ownership by Life & Annuity Trust would exceed 10% of the outstanding voting
securities of an issuer. With respect to paragraph (ii) above, each Fund
presently does not intend to put at risk more than 5% of its assets during the
coming year. With respect to loans of portfolio securities, the Asset Allocation
Fund presently does not intend to put at risk more than 5% of its assets during
the coming year.
As a matter of non-fundamental policy each Non-Money Market Fund may invest
up to 15% of the current value of its net assets in securities that are illiquid
by virtue of the absence of a readily available market or legal or contractual
restrictions on resale and fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days. The Money Market
Fund may invest up to 10% of its net assets in illiquid securities.
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<PAGE> 28
LIFE & ANNUITY TRUST
800-680-8920
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996
ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
MONEY MARKET FUND
U.S. GOVERNMENT ALLOCATION FUND
Life & Annuity Trust is an open-end series investment company. This SAI
contains information about four of the series of Life & Annuity Trust -- the
Asset Allocation Fund, the Growth and Income Fund, the Money Market Fund and the
U.S. Government Allocation Fund (each, a "Fund" and collectively, the "Funds").
The investment objective of each Fund is described in the Prospectus under
"Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated May 1, 1996. All terms used in this SAI that are
defined in the Prospectus will have the meanings assigned in the Prospectus. A
copy of the Prospectus may be obtained without charge by calling (800) 680-8920
or by writing to American Skandia, P.O. Box 883, Shelton, Connecticut
06484-0883, Attn: Stagecoach Variable Annuity Administration.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions.............................................. 1
Additional Permitted Investment Activities........................... 2
Management........................................................... 6
Calculation of Yield and Total Return................................ 9
Determination of Net Asset Value..................................... 12
Portfolio Transactions............................................... 14
Federal Income Taxes................................................. 15
Capital Stock........................................................ 16
Other................................................................ 18
Independent Auditors................................................. 18
SAI Appendix......................................................... A-1
Report of Independent Auditors and Financial Statements.............. FS-1
</TABLE>
<PAGE> 29
INVESTMENT RESTRICTIONS
The Funds are subject to the following investment restrictions, all of
which are fundamental policies.
None of the Funds may:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase
and as a result thereof, the value of any Fund's investments in that
industry would be 25% or more of the current value of such Fund's total
assets, provided that there is no limitation with respect to investments in
(i) obligations of the U.S. Government, its agencies or instrumentalities;
(ii) in the case of the Asset Allocation Fund, any industry in which the
S&P 500 Index becomes concentrated to the same degree during the same
period; (iii) in the case of the Asset Allocation Fund, its money market
instruments may be invested in the banking industry (but the Fund will not
do so unless the SEC staff confirms that it does not object to the Fund
reserving freedom of action to concentrate investments in the banking
industry); and (iv) in the case of the Money Market Fund, the obligations
of domestic banks (for the purpose of this restriction, domestic bank
obligations do not include obligations of U.S. branches of foreign banks or
obligations of foreign branches of U.S. banks);
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
(3) invest in commodities, except that the Asset Allocation Fund and
the U.S. Government Allocation Fund (together, the "Allocation Funds") may
purchase and sell (i.e., write) options and futures contracts, including
those relating to indices and options on futures contracts or indices and
that the Allocation Funds and the Growth and Income Fund may purchase
securities of an issuer which invests or deals in commodities or commodity
contracts;
(4) purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and, in the case of the
Allocation Funds, except for margin payments in connection with options,
futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that
the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such
securities in accordance with a Fund's investment program may be deemed to
be an underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) issue senior securities, except that the Money Market Fund and the
Growth and Income Fund may borrow from banks up to 10% of the current value
of its net assets for temporary purposes only in order to meet redemptions,
and these borrowings may be secured by the pledge of up to 10% of the
current value of its net assets (but investments may not be purchased while
any such outstanding borrowing in excess of 5% of its net assets exists),
and except that the U.S. Government Allocation Fund and the Asset
Allocation Fund may borrow up to 20% of the current value of its net assets
for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 20% of the current value
of its net assets (but investments may not be purchased while any such
outstanding borrowing in excess of 5% of its net assets exists). For
purposes of this investment restriction, an Allocation Fund's entry into
options and futures contracts including those relating to indexes and
options on futures or indexes shall not constitute borrowing to the extent
certain segregated accounts are established and maintained by an Allocation
Fund;
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<PAGE> 30
(9) write, purchase or sell puts, calls, or combinations thereof,
except as may be described in the Funds' offering documents and except that
the Money Market Fund, the Growth and Income Fund and the Asset Allocation
Fund may purchase securities with put rights in order to maintain
liquidity, and except that the Growth and Income Fund may invest up to 5%
of its net assets in warrants, in accordance with their investment policies
stated below;
(10) in the case of the Asset Allocation Fund, the Growth and Income
Fund and the U.S. Government Allocation Fund ("Non-Money Market Funds"),
purchase securities of any issuer (except securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of a Fund's assets, more than 5% of the value
of a Fund's total assets would be invested in the securities of any one
issuer or the Fund's ownership would be more than 10% of the outstanding
voting securities of such issuer; or
(11) in the case of the Money Market Fund, make loans of portfolio
securities or other assets, except that loans for purposes of this
restriction will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other short-term obligations,
and other types of debt instruments commonly sold in public or private
offerings; the Non-Money Market Funds may lend portfolio securities to
brokers, dealers and financial institutions as described below.
The Funds are subject to the following non-fundamental policies.
None of the Funds may:
(1) purchase or retain securities of any issuer if the officers or
Trustees of Life & Annuity Trust or the officers and directors of Wells
Fargo Bank (the "Investment Adviser") individually owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer
together owned beneficially more than 5% of such securities;
(2) purchase securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth,
possession, territory, the District of Columbia or by an entity in
existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of
its aggregate investments in such securities will exceed 5% of its total
assets;
(3) invest more than 15% with respect to the Non-Money Market Funds
and 10% with respect to the Money Market Fund of the current value of its
net assets in securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale and
and fixed time deposits that are subject to withdrawal penalties and that
have maturities of more than seven days.
In addition, as provided in Rule 2a-7 under the 1940 Act, the Money
Market Fund may only purchase "Eligible Securities" (as defined in Rule
2a-7) and only if, immediately after such purchase: the Money Market Fund
would have no more than 5% of its total assets in "First Tier Securities"
(as defined in Rule 2a-7) of any one issuer, excluding government
securities and except as otherwise permitted for temporary purposes and for
certain guarantees and unconditional puts; the Money Market Fund would own
no more than 10% of the voting securities of any one issuer; the Money
Market Fund would have no more than 5% of its total assets in "Second Tier
Securities" (as defined in Rule 2a-7); and the Money Market Fund would have
no more than the greater of $1 million or 1% of its total assets in Second
Tier Securities of any one issuer.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
ASSET ALLOCATION MODEL. A key component of the Asset Allocation Model is a
set of assumptions concerning expected risk and return and investor attitudes
toward risk which are incorporated
2
<PAGE> 31
into the asset allocation decision. The principal inputs of financial data to
the Asset Allocation Model currently are (i) consensus estimates of the
earnings, dividends and payout ratios on a broad cross-section of common stocks
as reported by independent financial reporting services which survey a broad
cross-section of Wall Street analysts, (ii) the estimated current yield to
maturity on new long-term corporate bonds rated "AA" by S&P, (iii) the present
yield on money market instruments, (iv) the historical statistical standard
deviation in investment return for each class of asset, and (v) the historical
statistical correlation of investment returns among the various asset classes in
which the Asset Allocation Fund invests. Using these data, the Asset Allocation
Model is run daily to determine the recommended asset allocation. The model's
recommendations are presently made in 10% increments.
UNRATED AND DOWNGRADED INVESTMENTS. The Funds may purchase instruments that
are not rated if, in the opinion of Wells Fargo Bank, such obligations are
comparable to other rated investments that are permitted to be purchased by such
Fund. After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event requires an immediate sale of such security by such Fund. To the extent
the ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, each Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in the Prospectus and in this SAI. The ratings of Moody's and S&P are
more fully described in the SAI Appendix.
WHEN-ISSUED SECURITIES. Certain of the securities in which the Non-Money
Market Funds may invest may be purchased on a when-issued basis, in which case
delivery and payment normally take place within 45 days (120 days with respect
to the Growth and Income Fund) after the date of the commitment to purchase.
These Funds will only make commitments to purchase securities on a when-issued
basis with the intention of actually acquiring the securities, but may sell them
before the settlement date if it is deemed advisable. When-issued securities are
subject to market fluctuation, and no income accrues to the purchaser during the
period prior to issuance. The purchase price and the interest rate that will be
received on debt instruments are fixed at the time the purchaser enters into the
commitment. Purchasing a security on a when-issued basis can involve a risk that
the market price at the time of delivery may be lower than the agreed-upon
purchase price, in which case there could be an unrealized loss at the time of
delivery. Each Fund currently does not intend to invest more than 5% of its
assets in when-issued securities during the coming year.
Each Fund will segregate cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
LOANS OF PORTFOLIO SECURITIES. The Non-Money Market Funds may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government obligations or other high-quality
debt instruments equal to at least 100% of the current market value of the
securities loan (including accrued interest thereon) plus the interest payable
to such Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, a Fund's Investment Adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer,
or financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Non-Money
Market Funds will not enter into any portfolio security lending arrangement
having a duration of longer than one year. Any securities that a Fund may
receive as collateral do not become part of the Fund's portfolio at the time of
the loan and, in the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Fund is permitted to invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that has
delivered cash-equivalent collateral. None of the Non-Money Market Funds will
lend securities having a value
3
<PAGE> 32
that exceeds one third of the current value of its total assets. Loans of
securities by any of the Non-Money Market Funds will be subject to termination
at the Fund's or the borrower's option. The Non-Money Market Funds may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with respect
to the collateral to the borrower or the placing broker. Borrowers and placing
brokers may not be affiliated, directly or indirectly, with Life & Annuity
Trust, its Investment Adviser, or its Distributor.
FOREIGN OBLIGATIONS. Investments in foreign obligations involve certain
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not generally
subject to uniform accounting, auditing and financial reporting standards or
governmental supervision comparable to those applicable to domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign income tax laws, and there is a possibility of
expropriation of confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries. The Growth and Income Fund
currently does not intend to invest more than 10% of its assets in foreign
obligations. None of the Funds may invest 25% or more of its assets in foreign
obligations.
AMERICAN DEPOSITARY RECEIPTS. American Depositary Receipts ("ADRs") are
certificates evidencing ownership of shares of a foreign-based issuer held in
trust by a bank or similar financial institution. Designed for use in U.S.
securities markets, ADRs are alternatives to the purchase of the underlying
securities in their national markets and currencies.
CONVERTIBLE SECURITIES (LOWER-RATED SECURITIES). Subject to the limitations
described in the Prospectus, the Growth and Income Fund may invest in
convertible securities that are not rated in one of the four highest rating
categories by an NRSRO. The yields on such lower-rated securities (which include
securities also known as junk bonds) generally are higher than the yields
available on higher-rated securities. However, investments in lower-rated
securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower-rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of factors
could, in certain instances, reduce the value of securities held in the Fund's
portfolio, with a commensurate effect on the value of the Fund's interests.
Therefore, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.
While the market values of lower-rated securities and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain
lower-rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
Issuers of lower-rated securities and comparable unrated securities often are
highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt obligations during
an economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater because lower-rated securities and comparable unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness. The Fund may incur additional expenses to the extent that
it is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The existence of limited markets for
lower-rated securities and comparable unrated securities may diminish the Fund's
ability to (a) obtain accurate market quotations for purposes of valuing such
securities and calculating its net asset value and
4
<PAGE> 33
(b) sell the securities at fair value either to meet redemption requests or to
respond to changes in the economy or in financial markets.
Certain lower-rated debt securities and comparable unrated securities
frequently have call or buy-back features that permit their issuers to call or
repurchase the securities from their holders, such as the Fund. If an issuer
exercises these rights during periods of declining interest rates, the Fund may
have to replace the security with a lower-yielding security, thus resulting in a
decrease return to the Fund.
The market for certain lower-rated securities and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known. Any
such recession, however, could disrupt severely the market for such securities
and affect adversely the value of such securities. Any such economic downturn
also could affect adversely the ability of the issuers of such securities to
repay principal and pay interest thereon.
PRIVATELY ISSUED SECURITIES (RULE 144A). The Growth and Income Fund may
invest in privately issued securities which may be resold only in accordance
with Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"). Rule
144A Securities are restricted securities and may not be publicly traded.
Accordingly, the liquidity of the market for specific Rule 144A Securities may
vary. The Investment Adviser, using guidelines approved by the Board of Trustees
of Life & Annuity Trust evaluates the liquidity characteristics of each Rule
144A Security proposed for purchase by the Fund on a case-by-case basis and
considers the following factors, among others, in its evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer). The
Growth and Income Fund does not intend to invest more than 5% of its net assets
in Rule 144A Securities during the coming year.
INVESTMENT IN WARRANTS. The Growth and Income Fund may invest no more than
5% of its net assets at the time of purchase in warrants (other than those that
have been acquired in units or attached to other securities), and not more than
2% of its net assets in warrants which are not listed on the New York or
American Stock Exchange. Warrants represent rights to purchase securities at a
specific price valid for a specific period of time. The prices of warrants do
not necessarily correlate with the prices of the underlying securities. The
Growth and Income Fund may only purchase warrants on securities in which the
Fund may invest directly. The Growth and Income Fund does not presently intend
to invest in warrants.
5
<PAGE> 34
MANAGEMENT
TRUSTEES AND OFFICERS. The principal occupations during the past five years
of the Trustees and executive officers of Life & Annuity Trust are listed below.
The address of each, unless otherwise indicated, is 111 Center Street, Little
Rock, Arkansas 72201. Trustees deemed to be "interested persons" of Life &
Annuity Trust for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- ---------------------------- ------------------------- ---------------------------------
<S> <C> <C>
Jack S. Euphrat, 73......... Director Private Investor
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 44......... Director, Chairman and Senior Vice President of
President Stephens; Manager of Financial
Services Group; President of
Stephens Insurance Services Inc.;
Senior Vice President of Stephens
Sports Management Inc.; and
President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 53.......... Director T.B. Rose Faculty Fellow-
321 Beechcliff Court Business, Wake Forest University
Winston-Salem, NC 27104 Calloway School of Business and
Accountancy; Associate Professor
of Finance of the School of
Business and Accounting at Wake
Forest University since 1983.
*Zoe Ann Hines, 46.......... Director Senior Vice President of Stephens
and Director of Brokerage
Accounting; and Secretary of
Stephens Resource Management.
*W. Rodney Hughes, 69....... Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77......... Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 51........ Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of
Charleston, SC 29401 Renaissance Properties Ltd.;
President of Morse Investment
Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 39... Chief Operating Officer, Associate of Financial Services
Secretary and Treasurer Group of Stephens; Director of
Stephens Sports Management Inc.;
and Director of Capo Inc.
</TABLE>
6
<PAGE> 35
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEX
- -------------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $ 9,188 $ 39,750
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 9,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 8,688 37,000
Director
Robert M. Joses 9,188 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Trustees of Life & Annuity Trust are compensated by the Trust for their
services as indicated above and also are reimbursed for all out-of-pocket
expenses relating to attendance at board meetings. Each of the Trustees and,
except for Mr. Jeffries, each of the officers of Life & Annuity Trust serves in
the same capacity for Stagecoach Inc., Stagecoach Trust, Master Investment
Trust, Stagecoach Funds, Inc., Overland Express Funds, Inc., Master Investment
Portfolio, and Managed Series Investment Trust. Each such company is a
registered open-end management investment company and each such company is
considered to be in the same "fund complex", as that term is defined in Form
N-1A under the 1940 Act, as the Company. The Trustees are compensated by other
investment companies within the fund complex for their services as
trustees/directors to such investment companies. Currently the Trustees do not
receive any retirement benefits or deferred compensation from Life & Annuity
Trust or any other investment company in the fund complex.
As of the date of this SAI, Trustees and officers of Life & Annuity Trust
as a group beneficially owned less than 1% of the outstanding interests of Life
& Annuity Trust.
INVESTMENT ADVISER. Each of the Funds is advised by Wells Fargo Bank
pursuant to an Advisory Contract. BGFA serves as sub-adviser to the U.S.
Government Allocation Fund and the Asset Allocation Fund. The Advisory Contracts
provide that Wells Fargo Bank shall furnish to the Funds investment guidance and
policy direction in connection with the daily portfolio management of each Fund.
Under the Advisory Contracts, Wells Fargo Bank furnishes to the Board of
Trustees periodic reports on the investment strategy and performance of each
Fund.
Wells Fargo Bank has agreed to provide to the Funds, among other things,
money market and fixed-income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition, credit conditions and, in the case of the Money Market
Fund, the U.S. Government Allocation Fund and the Asset Allocation Fund, average
maturities of the portfolios of each Fund. For the period ended December 31,
1994 and the year ended
7
<PAGE> 36
December 31, 1995, each Fund paid to Wells Fargo Bank as compensation for its
advisory services the amounts indicated below and Wells Fargo Bank waived the
indicated amounts.
<TABLE>
<CAPTION>
1994* 1995
----------------------- -----------------------
FUND FEES PAID FEES WAIVED FEES PAID FEES WAIVED
------------------------------ --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Asset Allocation.............. $ 0 $17,516 $ 0 $85,107
Growth and Income............. 0 4,064 0 19,169
Money Market.................. 0 2,309 0 9,854
U.S. Government Allocation.... 0 2,149 0 12,949
</TABLE>
- ---------------
* The Asset Allocation Fund commenced operations on April 15, 1994, the
Growth and Income Fund on April 12, 1994, the Money Market Fund on May 19,
1994 and the U.S. Government Allocation Fund on April 26, 1994.
Each Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the respective Fund's outstanding voting securities or by Life & Annuity
Trust's Board of Trustees and (ii) by a majority of the Trustees of Life &
Annuity Trust who are not parties to the Advisory Contract or "interested
persons" (as defined in the 1940 Act) of any such party. Each Advisory Contract
may be terminated on 60 days' written notice by either party and terminates
automatically if assigned.
BGFA has entered into an agreement with Wells Fargo Bank and Life & Annuity
Trust pursuant to which Wells Fargo Bank has employed BGFA to provide certain
sub-advisory services to the U.S. Government Allocation Fund and the Asset
Allocation Fund. Subject to the direction of Life & Annuity Trust's Board of
Trustees and the overall supervision and control of Wells Fargo Bank and Life &
Annuity Trust, BGFA is responsible for investing and reinvesting such Funds'
assets. In this regard, BGFA is responsible for implementing and monitoring the
performance of the investment models employed with respect to the Funds, in
accordance with the investment objective, policies and restrictions set forth in
the Prospectus, and shall furnish to Wells Fargo Bank periodic reports on the
investment activity and performance of the Funds, and such additional reports
and information as Wells Fargo Bank and Life & Annuity Trust's Board of Trustees
and officers shall reasonably request. Prior to the reorganization of WFNIA,
WFNIA provided sub-advisory services to the Asset Allocation and U.S. Government
Allocation Funds.
For the period ended December 31, 1994 and the year ended December 31,
1995, Wells Fargo Bank paid to WFNIA the amounts indicated below for its
services as sub-adviser to the Asset Allocation and U.S. Government Allocation
Funds.
<TABLE>
<CAPTION>
1994* 1995
FUND FEES PAID FEES PAID
----------------------------------------------------- --------- ---------
<S> <C> <C>
Asset Allocation $ 5,767 $28,442
U.S. Government Allocation 540 3,251
</TABLE>
- ---------------
* The Asset Allocation Fund commenced operations on April 15, 1994, and the
U.S. Government Allocation Fund commenced operations on April 26, 1994.
ADMINISTRATOR AND DISTRIBUTOR. Life & Annuity Trust has retained Stephens
as administrator and distributor on behalf of each of its Funds. Each
Administration Agreement between Stephens and a Fund states that Stephens shall
provide as administrative services, among other things: (i) general supervision
of the operation of the Fund, including coordination of the services performed
by the Fund's Investment Adviser, transfer and dividend disbursing agent,
custodian, independent public accountants and legal counsel, regulatory
compliance, including the compilation of information for documents such as
reports to, and filings with, the SEC and state securities commissions; and
preparation of proxy statements and shareholder reports for the Fund; and (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to Life & Annuity Trust's officers
and Board of Trustees. Stephens also furnishes office space and certain
facilities required for conducting the business of the Funds together with those
ordinary clerical and
8
<PAGE> 37
bookkeeping services that are not being furnished by Wells Fargo Bank. Stephens
also pays the compensation of Life & Annuity Trust's Trustees, officers and
employees who are affiliated with Stephens. For providing such services,
Stephens is entitled to monthly administration fees at the annual rate of 0.03%
of each Fund's average daily net asset value. For the year ended December 31,
1995, Stephens waived all administration fees payable under the Administration
Agreement.
---------------------
The Advisory Contract and Administration Agreement for each Fund provide
that if, in any fiscal year, the total expenses of the Fund incurred by, or
allocated to, the Fund (excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles and extraordinary
expenses but including the fees provided for in the Advisory Contract and the
Administration Agreement) exceed the most restrictive expense limitation
applicable to the Fund imposed by the securities laws or regulations of the
states in which the VA Contracts or VLI Policies are registered for sale, Wells
Fargo Bank and Stephens shall waive their fees proportionately under the
Advisory Contract and the Administration Agreement, respectively, for each Fund
to the extent of the excess or reimburse the excess, but only to the extent of
their respective fees. The Advisory Contract and the Administration Agreement
for each Fund further provide that the respective Fund's total expenses shall be
reviewed monthly so that, to the extent the annualized expenses for such month
exceed the most restrictive applicable annual expense limitation, the monthly
fees under the contract and the agreement shall be reduced as necessary. The
most stringent applicable restriction limits these expenses for any fiscal year
to 2.5% of the first $30 million of the Fund's average net assets, 2% of the
next $70 million of average net assets, and 1.5% of the average net assets in
excess of $100 million.
TRANSFER AGENCY, CUSTODY AND FUND ACCOUNTING. The Trust has entered into
an agreement with Wells Fargo Bank whereby the Bank agreed to provide transfer
agent services for the Funds. Under the agreement, Wells Fargo Bank is entitled
to be compensated at an annual rate of 0.05% of each Fund's average daily net
assets when the assets of each Fund exceed $20 million. On behalf of the Growth
and Income and Money Market Funds, the Trust has also entered into an agreement
with Wells Fargo Bank whereby the Bank agreed to provide custody and fund
accounting services. For providing custody services, Wells Fargo Bank is
entitled an annual fee at the rate of 0.0167% of each Fund's average net assets
plus certain transaction charges. For providing fund accounting services, Wells
Fargo Bank is entitled to compensation at a base rate of $2,000 monthly plus
0.07% for the first $50 million, 0.045% for the next $50 million and 0.02% on
net assets over $100 million. For the year ended December 31, 1995, Wells Fargo
Bank waived all fees and expenses payable to it under the transfer agency and
custody agreements with Wells Fargo Bank. BGI provides custody services to the
Asset Allocation and U.S. Government Allocation Funds. For providing these
services BGI is entitled to compensation from the fees paid to BGFA for its
sub-advisory services.
The custodians, among other things, maintain a custody account or accounts
in the name of each Fund, receive and deliver all assets for each Fund upon
purchase and upon sale or maturity, collect and receive all income and other
payments and distributions on account of the assets of each Fund and pay all
expenses of each Fund.
CALCULATION OF YIELD AND TOTAL RETURN
As indicated in the Prospectus, the Funds may advertise certain yield and
total return information computed in the manner described in the Prospectus. Any
Fund advertising would be accompanied by performance information of the related
insurance company separate accounts or by an explanation that Fund performance
information does not reflect separate account fees and charges. As and to the
extent required by the SEC, an average annual total rate of return ("T") is
computed by using the redeemable value at the end of a specified period ("E-V")
of a hypothetical initial investment of $1,000 ("P") over a period of years
("n") according to the following formula: P(1+T)n = ERV.
9
<PAGE> 38
The Funds may advertise cumulative total return of shares. Cumulative total
return of shares is computed on a per share basis and assumes the reinvestment
of dividends and distributions. Cumulative total return of shares generally is
expressed as a percentage rate which is calculated by combining the income and
principal charges for a specified period and dividing by the net asset value per
share at the beginning of the period. Advertisements may include the percentage
rate of total return of shares or may include the value of a hypothetical
investment in shares at the end of the period which assumes the application of
the percentage rate of total return.
For the following periods ended December 31, 1995, the following chart
provides the average annual and cumulative total returns for the Funds listed
below:
<TABLE>
<CAPTION>
CUMULATIVE
AVERAGE ANNUAL AVERAGE ANNUAL TOTAL
TOTAL RETURN: TOTAL RETURN: RETURN:
YEAR ENDED INCEPTION TO INCEPTION TO
FUND 12/31/95 12/31/95* 12/31/95*
- ----------------------------------- --------------- --------------- ------------
<S> <C> <C> <C>
Asset Allocation 28.95% 16.38% 30.41%
Growth and Income 29.19% 18.69% 34.97%
U.S. Government Allocation 14.40% 8.24% 14.87%
</TABLE>
- ---------------
* The Asset Allocation Fund commenced operations on April 15, 1994, the
Growth and Income Fund on April 12, 1994 and the U.S. Government
Allocation Fund on April 26, 1994.
As indicated in the Prospectus, the U.S. Government Allocation Fund may
advertise certain yield information. As and to the extent required by the SEC,
yield is calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share earned during the period by the net
asset value per share on the last day of the period, according to the following
formula: YIELD = 2[((a-b/cd)+1)6-1], where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the net asset value per share on the last
day of the period. The net investment income of the U.S. Government Allocation
Fund includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in the Fund's net investment income. The Fund's 30-day yield for the 30
days ended December 31, 1995 was 4.98%.
In addition, as indicated in the Prospectus, the Money Market Fund may
advertise certain yield information. Current yield for the Money Market Fund is
calculated based on the net changes, exclusive of capital changes, over a
seven-day period, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
(365/7) with the resulting yield figure carried to at least the nearest
hundredth of one percent. The Fund's seven-day and 30-day yields for the periods
ended December 31, 1995 were 4.84% and 4.85%, respectively.
The yields for the U.S. Government Allocation Fund and the Money Market
Fund will fluctuate from time to time, unlike bank deposits or other investments
that pay a fixed yield for a stated period of time, and do not provide a basis
for determining future yields since they are based on historical data. Yield is
a function of portfolio quality, composition, maturity and market conditions as
well as the expenses allocated to the Fund.
In addition, investors should recognize that changes in the net asset value
of shares of the U.S. Government Allocation Fund will affect the yield of the
Fund for any specified period, and such changes should be considered together
with the Fund's yield in ascertaining the Fund's total return to shareholders
for the period. Yield information for the Funds may be useful in reviewing the
performance of the Funds and for providing a basis for comparison with
investment alternatives. The yield of a Fund, however, may not be comparable to
the yields from investment alternatives because of
10
<PAGE> 39
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate yield.
From time to time, and only to the extent the comparison is appropriate for
a Fund, Life & Annuity Trust may quote the Fund's performance or price-earning
ratio in advertising and other types of literature as compared to the
performance of the S&P 500 Index, the Dow Jones Industrial Average, the Wilshire
5000 Equity Index, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), Ten Year U.S.
Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P 500 Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. Unmanaged indices
may assume the reinvestment of dividends, but generally do not reflect
deductions for administrative and management costs and expenses. Managed indices
generally do reflect such deductions.
The Fund's performance also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance is calculated by relating net asset value per share at the beginning
of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Money Market Fund's comparative performance will be based on a
comparison of yields, as described above, or total return, as reported by
Lipper, Survey Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare a
Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results. Life & Annuity Trust also
may include, from time to time, a reference to certain marketing approaches of
the Distributor, including, for example, a reference to a potential holder being
contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
Life & Annuity Trust may also disclose in advertising and other types of
sales literature the assets and categories of assets under management by a
fund's investment adviser or sub-adviser and the total amount of assets under
management by Wells Fargo Investment Management Group ("IMG"). As of December
31, 1995, IMG had $30.1 billion in assets under management. The Company may
disclose in advertising, statements and other literature the amount of assets
and mutual fund assets managed by Wells Fargo Bank. As of April 1, 1996, Wells
Fargo Bank provided investment advisory services for approximately $56 billion
of assets of individuals, trusts, estates and institutions and $17 billion of
mutual fund assets.
In addition, Life & Annuity Trust also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. Life &
Annuity Trust also may
11
<PAGE> 40
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
Life & Annuity Trust also may use the following information in
advertisements and other types of literature, only to the extent the information
is appropriate for a Fund: (i) the Consumer Price Index may be used to assess
the real rate of return from an investment in a Fund; (ii) other government
statistics, including, but not limited to, The Survey of Current Business, may
be used to illustrate investment attributes of a Fund or the general economic,
business, investment, or financial environment in which a Fund operates; (iii)
the effect of tax-deferred compounding on the investment returns of a Fund, or
on returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
a Fund invests may be compared to relevant indices of stocks or surveys (e.g.,
S&P Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
From time to time, Life & Annuity Trust also may include in advertisements
or other marketing materials a discussion of certain of the objectives of the
investment strategy of the U.S. Government Allocation Fund and the Asset
Allocation Fund and a comparison of this strategy with other investment
strategies. In particular, the responsiveness of these Funds to changing market
conditions may be discussed. For example, Life & Annuity Trust may describe the
benefits derived by having Wells Fargo Bank, as Investment Adviser, and BGFA, as
investment sub-adviser, monitor and reallocate investments among the three asset
categories described in the Funds' Prospectus. Life & Annuity Trust's
advertising or other marketing material also might set forth illustrations
depicting examples of recommended allocations in different market conditions. It
may state, for example, that when the model indicates that stocks represent a
better value than bonds or money market instruments, the Asset Allocation Fund
might consist of 70% stocks, 25% bonds and 5% money market instruments and that
when the model indicates that bonds represent a better value than stocks or
money market instruments, the balance of assets might shift to 60% bonds, 20%
stocks and 20% money market instruments.
Life & Annuity Trust also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by an NRSRO, such as Standard
& Poor's Corporation. Such rating would assess the creditworthiness of the
investments held by a Fund. The assigned rating would not be a recommendation to
purchase, sell or hold a Fund's shares since the rating would not comment on the
net asset value of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. Life & Annuity Trust
may compare a Fund's performance with other investments which are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each of the Non-Money Market Funds is
determined by the custodian of the Fund on each day the NYSE is open for
trading. Net asset value per share for the Money Market Fund is determined by
the Custodian on each day Wells Fargo Bank is open for business.
NON-MONEY MARKET FUNDS. Securities of a Non-Money Market Fund for which
market quotations are available are valued at latest prices. Securities for
which the primary market is a national securities exchange or the National
Association of Securities Dealers Automated Quotations National Market System
are valued at last sale prices. In the absence of any sale of such securities on
12
<PAGE> 41
the valuation date and in the case of other securities, including U.S.
Government obligations but excluding debt instruments maturing in 60 days or
less, the valuations are based on latest quoted bid prices. Debt instruments
maturing in 60 days or less are valued at amortized cost. Futures contracts are
marked to market daily at their respective settlement prices determined by the
relevant exchange. These prices are not necessarily final closing prices but are
intended to represent prices prevailing during the final 30 seconds of the
trading day. Options listed on a national exchange are valued at the last sale
price on the exchange on which they are traded at the close of the NYSE, or, in
the absence of any sale on the valuation date, at latest quoted bid prices.
Options not listed on a national exchange are valued at latest quoted bid
prices. In all cases, bid prices are furnished by a reputable independent
pricing service approved by the Board of Trustees. Prices provided by an
independent pricing service may be determined without exclusive reliance on
quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by Life & Annuity Trust's Trustees and in accordance
with procedures adopted by the Trustees.
MONEY MARKET FUND. As indicated under "Investing in the Funds" in the
Prospectus, the Money Market Fund uses the amortized cost method to determine
the value of its portfolio securities pursuant to Rule 2a-7 under the 1940 Act.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Money Market Fund would receive if the security were sold. During these
periods, the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund that uses a method of valuation based upon market
prices. Thus, during periods of declining interest rates, if the use of the
amortized cost method resulted in a lower value of the Money Market Fund's
portfolio on a particular day, a prospective investor in the Fund would be able
to obtain a somewhat higher yield than would result from investment in a fund
using solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, a fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Trustees to present minimal
credit risks. The maturity of an instrument is generally deemed to be the period
remaining until the date when the principal amount thereof is due or the date on
which the instrument is to be redeemed. However, Rule 2a-7 provides that the
maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, a fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Money Market Fund's portfolio holdings by
the Board of Trustees, at such intervals as it may deem appropriate, to
determine whether the Money Market Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation is examined by the Board of Trustees. If such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, the Board will take such corrective action as it
regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity.
13
<PAGE> 42
PORTFOLIO TRANSACTIONS
Life & Annuity Trust has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by Life & Annuity Trust's Board of Trustees, Wells Fargo
Bank, as adviser, or BGFA, as sub-adviser, is responsible for each Fund's
portfolio decisions and the placing of portfolio transactions. In placing
orders, it is the policy of Life & Annuity Trust to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank and BGFA generally
seek reasonably competitive spreads or commissions, the Funds will not
necessarily be paying the lowest spread or commission available.
Except in the case of equity securities purchased by the Growth and Income
Fund and the Asset Allocation Fund, purchases and sales of securities are
usually principal transactions. Portfolio securities normally are purchased or
sold from or to dealers serving as market makers for the securities at a net
price. Each of the Funds also may purchase portfolio securities in underwritten
offerings and may purchase securities directly from the issuer. Generally, money
market securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing a Fund's portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with Life & Annuity Trust are prohibited from
dealing with Life & Annuity Trust as principals in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC or an exemption is otherwise available.
Purchase and sale orders of the securities for the Money Market Fund may be
combined with those of other accounts that Wells Fargo Bank or BGFA manages, and
for which they have brokerage placement authority, in the interest of seeking
the most favorable overall net results. When Wells Fargo Bank or BGFA determines
that a particular security should be bought or sold for a Fund and other
accounts managed by Wells Fargo Bank or BGFA, Wells Fargo Bank and BGFA
undertake to allocate those transactions among the participants equitably.
Wells Fargo Bank, as the Investment Adviser of each of the Funds, and BGFA,
as sub-adviser of the Allocation Funds, may, in circumstances in which two or
more dealers are in a position to offer comparable results for a Fund portfolio
transaction, give preference to a dealer that has provided statistical or other
research services to Wells Fargo Bank or BGFA. By allocating transactions in
this manner, Wells Fargo Bank and BGFA are able to supplement their research and
analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the Advisory Contracts, or BGFA under the
Sub-Advisory Contracts, and the expenses of Wells Fargo Bank and BGFA will not
necessarily be reduced as a result of the receipt of this supplemental research
information. Furthermore, research services furnished by dealers through which
Wells Fargo Bank or BGFA places securities transactions for a Fund may be used
by Wells Fargo Bank and BGFA in servicing their other accounts, and not all of
these services may be used by Wells Fargo Bank or BGFA in connection with
advising the Funds.
THE GROWTH AND INCOME FUND AND THE ASSET ALLOCATION FUND. Purchases and
sales of equity securities on a securities exchange are effected through brokers
who charge a negotiated commission for their services. Orders may be directed to
any broker including, to the extent and in the manner permitted by applicable
law, Stephens or Wells Fargo Securities Inc. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
In placing orders for portfolio securities of these Funds, Wells Fargo Bank
and BGFA are required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that Wells Fargo Bank and
BGFA will seek to execute each transaction at a price and
14
<PAGE> 43
commission, if any, that provide the most favorable total cost or proceeds
reasonably attainable in the circumstances. While Wells Fargo Bank and BGFA will
generally seek reasonably competitive spreads or commissions, these Funds will
not necessarily be paying the lowest spread or commission available. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Trustees.
BROKERAGE COMMISSIONS. For the year ended December 31, 1995, the Asset
Allocation Fund and the Growth and Income Fund paid brokerage commissions in the
amount of $656 and $31,290, respectively. The other Funds did not pay brokerage
commissions for the year ended December 31, 1995.
SECURITIES OF REGULAR BROKER/DEALERS. On December 31, 1995, the Growth and
Income Fund and the Money Market Fund each owned securities of its "regular
brokers or dealers," as defined in the 1940 Act, or their parents as follows:
$737,000 and $229,000, respectively, of pooled repurchase agreements of Goldman
Sachs & Co. The other Funds did not own securities of their "regular brokers or
dealers" on December 31, 1995.
PORTFOLIO TURNOVER. For the year ended December 31, 1995, the portfolio
turnover rates for the Asset Allocation Fund, the Growth and Income Fund and the
U.S. Government Allocation Fund were 97%, 84% and 405%, respectively. The higher
portfolio turnover rates for the U.S. Government Allocation Fund should not
materially adversely affect this Fund because portfolio transactions ordinarily
will be made directly with principals on a net basis (although they may be
subject to markups) and, consequently, this Fund usually will not incur
brokerage expenses. Because the portfolio of the Money Market Fund consists of
securities with relatively short-term maturities, the Money Market Fund can
expect to experience a high portfolio turnover. A high portfolio turnover rate
should not adversely affect the Fund, however, because portfolio transactions
ordinarily will be made directly with principals on a net basis (although they
may be subject to markups) and, consequently, the Money Market Fund usually will
not incur brokerage expenses. The portfolio turnover rate will not be a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate.
FEDERAL INCOME TAXES
As stated in the Prospectus, each Fund intends to qualify each year to be
taxed as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). If so qualified, each Fund will not be subject
to federal income taxes on its investment company taxable income and net capital
gains to the extent such investment company taxable income and net capital gains
are distributed to the separate accounts of insurance companies which hold its
shares. Under current tax law, capital gains or dividends from any Fund are not
currently taxable when left to accumulate within a qualified variable annuity or
variable life insurance contract. Distributions of net investment income and net
short-term capital gains will be treated as ordinary income and distributions of
net long-term capital gains will be treated as long-term capital gain in the
hands of the insurance companies.
Qualification as a regulated investment company also requires, among other
things, that (a) at least 90% of each Fund's annual gross income be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of securities or options thereon; (b) each Fund
derives less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) each Fund diversifies its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of each Fund's assets
is represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of each Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
15
<PAGE> 44
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses or related trades or businesses.
Section 817(h) of the Code requires that the investments of a segregated
asset account of an insurance company be "adequately diversified," in accordance
with Treasury Regulations promulgated thereunder, in order for the holders of
the variable annuity contracts or variable life insurance policies underlying
the account to receive the tax-deferred or tax-free treatment on such annuities
or policies generally afforded holders of annuities or life insurance policies
under the Code. The Department of the Treasury has issued Regulations under
section 817(h) which, among other things, provide the manner in which a
segregated asset account will treat investments in a regulated investment
company for purposes of the applicable diversification requirements. Under the
Regulations, if a regulated investment company satisfies certain conditions, a
segregated asset account owning shares of the regulated investment company will
not be treated as a single investment for these purposes, but rather the account
will be treated as owning its proportionate share of each of the assets of the
regulated investment company. Each Fund plans to satisfy these conditions at all
times so that the shares of such Fund owned by a segregated asset account of a
life insurance company will be subject to this treatment under the Code.
If securities are sold by a Fund pursuant to the exercise of a call option
written by it, such Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, such Fund will subtract the premium received from its cost basis
in the securities purchased. The requirement that the Fund derive less than 30%
of its gross income from gains from the sale of securities held for less than
three months may limit the Fund's ability to write options.
The amount of any gain or loss realized by a Fund on closing out a futures
contract will generally result in a realized capital gain or loss for tax
purposes. Futures contracts held at the end of each fiscal year will be required
to be "marked to market" for federal income tax purposes pursuant to Section
1256 of the Code. In this regard, they will be deemed to have been sold at
market value. Sixty percent (60%) of any net gain or loss recognized on these
deemed sales and sixty percent (60%) of any net realized gain or loss from any
actual sales, generally will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss. Transactions
that qualify as designated hedges are excepted from the marked to market rule
and the "60%/40%" rule.
Income and dividends received by a Fund from sources within foreign
countries may be subject to withholding and other taxes (generally at rates from
10% to 40%) imposed by such countries. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. Because not more than
50% of the value of the total assets of any Fund is expected to consist of
securities of foreign issuers, each Fund will not be eligible to elect to "pass
through" foreign tax credits to shareholders.
For information concerning the federal income tax consequences for the
holders of variable annuity contracts and variable rate insurance policies, such
holders should consult the prospectus used in connection with the issuance of
their particular contracts or policies and should consult their tax advisors.
CAPITAL STOCK
Life & Annuity Trust, an open-end, management investment company, was
organized as a Delaware Business Trust on October 28, 1993. As of the date of
this SAI, Life & Annuity Trust's Board of Trustees has authorized the issuance
of four series of shares, each representing an unlimited number of beneficial
interests -- the U.S. Government Allocation Fund, the Growth and Income Fund,
the Asset Allocation Fund and the Money Market Fund -- and the Board of Trustees
may, in the future, authorize the creation of additional investment portfolios.
16
<PAGE> 45
All shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy would be voted upon only by shareholders of
the Fund involved. Additionally, approval of an advisory contract is a matter to
be determined separately by Fund. Approval by the shareholders of one Fund is
effective as to that Fund whether or not sufficient votes are received from the
Shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in the Prospectus and in this SAI, the term
"majority," when referring to approvals to be obtained from shareholders of the
Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the shareholders of more than 50% of the outstanding
interests of the Fund are present in person or by proxy, or (ii) more than 50%
of the outstanding shares of the Fund. The term "majority," when referring to
the approvals to be obtained from shareholders of Life & Annuity Trust as a
whole, means the vote of the lesser of (i) 67% of Life & Annuity Trust's shares
represented at a meeting if the shareholders of more than 50% of Life & Annuity
Trust's outstanding shares are present in person or by proxy, or (ii) more than
50% of Life & Annuity Trust's outstanding shares. Shareholders are entitled to
one vote for each full share held and fractional votes for fractional shares
held.
Life & Annuity Trust may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Trustees under the 1940 Act.
However, Life & Annuity Trust has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Trustee
or Trustees if requested in writing by the shareholders of at least 10% of Life
& Annuity Trust's outstanding voting shares, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Fund represents an equal proportional interest in the Fund
with each other share and is entitled to such dividends and distributions out of
the income earned on the assets belonging to the Fund as are declared in the
discretion of the Trustees. In the event of the liquidation or dissolution of
Life & Annuity Trust, shareholders of a Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a distribution
of any general assets not attributable to a particular investment portfolio that
are available for distribution in such manner and on such basis as the Trustees
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued as described in the Prospectus, will be fully paid and non-assessable by
Life & Annuity Trust.
As of February 29, 1996, the shareholders identified below were known by
the Trust to own the percentage indicated below of outstanding shares of the
Funds in the following capacities:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF CLASS CAPACITY
- -------------------------------- ----------------------- ----------- ---------
<S> <C> <C> <C>
Asset Allocation Fund American Skandia Life 99.88% Record
P.O. Box 883
Shelton, CT 06484
Growth and Income Fund American Skandia Life 99.75% Record
P.O. Box 883
Shelton, CT 06484
Money Market Fund American Skandia Life 99.65% Record
P.O. Box 883
Shelton, CT 06484
U.S. Government Allocation Fund American Skandia Life 99.51% Record
P.O. Box 883
Shelton, CT 06484
</TABLE>
17
<PAGE> 46
OTHER
The Registration Statement, including the Prospectus, the SAI and the
exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C. Statements contained in the Prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The portfolio of investments, financial statements and independent
auditors' report for each Fund of Life & Annuity Trust for the year ended
December 31, 1995 are attached to this SAI.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for
Life & Annuity Trust. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of certain
SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
18
<PAGE> 47
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
CORPORATE BONDS
MOODY'S: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers: 1, 2 and 3 in each
rating category from "Aa" through "Baa" in its rating system. The modifier 1
indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
CORPORATE COMMERCIAL PAPER
MOODY'S: The highest rating for corporate commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a strong
capacity for repayment of short-term promissory obligations," but earnings
trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
<PAGE> 48
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LIFE & ANNUITY TRUST:
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of Asset Allocation Fund, Growth and
Income Fund, Money Market Fund, and U.S. Government Allocation Fund
(constituting Life & Annuity Trust) as of December 31, 1995, and the related
statement of operations for the year then ended, the statements of changes in
net assets and financial highlights for the year then ended, and for the period
from April 15, 1994 (date of inception) to December 31, 1994 for the Asset
Allocation Fund, from April 12, 1994 (date of inception) to December 31, 1994
for the Growth and Income Fund, from May 19, 1994 (date of inception) to
December 31, 1994 for the Money Market Fund, and from April 26, 1994 (date of
inception) to December 31, 1994 for the U.S. Government Allocation Fund. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1995, by examination and other appropriate audit procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the aforementioned funds constituting Life & Annuity Trust as of
December 31, 1995, the results of their operations, the changes in their net
assets and their financial highlights for the periods indicated above in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
SAN FRANCISCO, CALIFORNIA
FEBRUARY 14, 1996
FS-1
<PAGE> 49
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1995
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY BONDS (20.71%)
$ 100,000 U.S. Treasury Bonds 7.13% 02/15/23 $ 114,219
500,000 U.S. Treasury Bonds 7.25 05/15/16 570,938
200,000 U.S. Treasury Bonds 7.25 08/15/22 231,562
300,000 U.S. Treasury Bonds 7.63 02/15/25 366,562
550,000 U.S. Treasury Bonds 7.88 02/15/21 677,015
1,200,000 U.S. Treasury Bonds 8.00 11/15/21 1,501,873
200,000 U.S. Treasury Bonds 8.75 05/15/17 264,562
650,000 U.S. Treasury Bonds 8.75 08/15/20 872,015
400,000 U.S. Treasury Bonds 8.88 02/15/19 539,624
100,000 U.S. Treasury Bonds 9.00 11/15/18 136,281
-----------
TOTAL U.S. TREASURY BONDS $ 5,274,651
(Cost $4,649,589)
U.S. TREASURY BILLS (78.55%)
$1,994,000 U.S. Treasury Bills + 4.06%* 01/11/96 $ 1,990,829
2,265,000 U.S. Treasury Bills + 4.54 * 01/18/96 2,259,205
5,656,000 U.S. Treasury Bills + 4.74 * 02/08/96 5,624,348
177,000 U.S. Treasury Bills 4.78 * 02/29/96 175,642
733,000 U.S. Treasury Bills + 4.81 * 02/22/96 728,002
9,082,000 U.S. Treasury Bills + 5.03 * 03/07/96 9,002,133
227,000 U.S. Treasury Bills 5.06 * 03/14/96 224,762
-----------
TOTAL U.S. TREASURY BILLS $20,004,921
(Cost $19,997,582)
TOTAL INVESTMENTS IN SECURITIES
(Cost $24,647,171)** (Notes 1 & 3) 99.26% $25,279,572
Other Assets and Liabilities, Net 0.74 187,200
------ ------------
TOTAL NET ASSETS 100.00% $25,466,772
======== ==============
</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 appreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $714,968
Gross Unrealized Depreciation (82,567)
---------
NET UNREALIZED APPRECIATION $632,401
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-2
<PAGE> 50
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1995
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
COMMON STOCKS (91.68%)
ADVERTISING (1.50%)
4,400 Omnicom Group $ 123,926 $ 163,900
AUTOMOBILE & RELATED (4.86%)
6,100 Danaher Corp $ 186,479 $ 193,675
5,245 Ford Motor Co 150,604 152,105
3,500 General Motors Corp 162,945 185,063
---------- -----------
$ 500,028 $ 530,843
BASIC INDUSTRIES (5.50%)
4,000 Grace (W R) & Co $ 247,120 $ 236,500
2,620 Kimberly-Clark Corp 163,649 216,805
1,200 Monsanto Co 105,998 147,000
---------- -----------
$ 516,767 $ 600,305
BIOTECHNOLOGY (1.14%)
2,000 Genzyme Corp -- General Division + $ 121,500 $ 124,750
COMMERCIAL SERVICES (2.68%)
2,500 CUC International Inc + $ 79,263 $ 85,313
4,700 Service Corp International 192,923 206,800
---------- -----------
$ 272,186 $ 292,113
COMPUTER SOFTWARE (0.89%)
2,500 Reynolds & Reynolds Co Class A $ 91,138 $ 97,188
COMPUTER SYSTEMS (9.01%)
3,500 Cisco Systems Inc + $ 228,981 $ 261,188
3,700 Compaq Computer Corp + 164,867 177,600
2,000 Digital Equipment Corp + 92,271 128,250
2,500 Hewlett Packard Co 218,405 209,375
4,500 Komag Inc + 265,313 207,563
---------- -----------
$ 969,837 $ 983,976
CONGLOMERATES (1.97%)
3,700 Harsco Corp $ 184,739 $ 215,063
ELECTRICAL EQUIPMENT (4.67%)
3,500 AMP Inc $ 134,224 $ 134,313
2,000 Motorola Inc 125,645 114,000
3,500 Thermedics Inc + 68,648 97,125
1,200 Xerox Corp 134,972 164,400
---------- -----------
$ 463,489 $ 509,838
</TABLE>
FS-3
<PAGE> 51
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1995
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
ENERGY & RELATED (9.19%)
1,500 Amoco Corp $ 105,713 $ 107,813
4,500 Anadarko Petroleum Corp 194,877 243,563
1,600 Mobil Corp 151,948 179,200
5,980 Sonat Inc 183,985 213,038
2,500 Texaco Inc 171,138 196,250
2,500 Union Pacific Resources Group Inc + 52,500 63,438
---------- -----------
$ 860,161 $ 1,003,302
FINANCE & RELATED (12.40%)
2,500 BankAmerica Corp $ 133,448 $ 161,875
3,000 Citicorp 171,424 201,750
6,500 Household International Inc 323,438 384,313
5,500 MBNA Corp 199,077 202,813
14,400 Mercury Financial Corp 155,281 190,800
2,500 Patriot American Hospitality Inc + 60,719 64,375
1,500 Post Properties Inc 46,275 47,813
5,000 Schwab (Charles) Corp 101,650 100,625
---------- -----------
$1,191,312 $ 1,354,364
FOOD & RELATED (4.94%)
3,000 Anheuser-Busch Inc $ 186,503 $ 200,625
4,750 Heinz (H J) Co 141,319 157,344
2,000 Philip Morris Co Inc 141,008 181,000
---------- -----------
$ 468,830 $ 538,969
GENERAL BUSINESS & RELATED (1.42%)
3,400 Alco Standard Corp $ 121,180 $ 155,125
HEALTHCARE (2.70%)
4,500 United Healthcare Corp $ 250,184 $ 294,750
MANUFACTURING PROCESSING (3.95%)
3,200 Allied Signal Inc $ 127,269 $ 152,000
3,000 Eastman Kodak Co 167,016 201,000
1,500 Thermo Electron Corp + 74,400 78,000
---------- -----------
$ 368,685 $ 431,000
MATERIAL MANUFACTURING (1.83%)
5,600 Tyco International Inc $ 151,099 $ 199,500
PHARMACEUTICALS (4.60%)
4,500 Smithkline Beecham Plc ADR (UK) $ 245,255 $ 249,750
2,600 Warner Lambert Co 220,889 252,517
---------- -----------
$ 466,144 $ 502,267
RETAIL & RELATED (7.32%)
6,500 Lowe's Co Inc 209,833 217,750
10,000 Mattel Inc 291,410 307,500
8,000 Rite Aid Corp 209,194 274,000
---------- -----------
$ 710,437 $ 799,250
</TABLE>
FS-4
<PAGE> 52
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1995
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
SEMICONDUCTORS (3.01%)
5,800 Intel Corp $ 315,875 $ 329,150
TELECOMMUNICATIONS (5.98%)
5,000 Alltel Corp $ 138,362 $ 147,500
2,500 AT & T Corp 159,565 161,875
7,500 Comsat Corp 154,986 139,688
10,500 Ericsson Telefonaktiebolaget L M Class B ADR 214,040 204,750
---------- -----------
$ 666,953 $ 653,813
TRANSPORTATION (2.12%)
3,500 Union Pacific Corp $ 224,789 $ 231,000
TOTAL COMMON STOCKS $9,039,259 $10,010,466
PREFERRED STOCKS (0.82%)
CONVERTIBLES (0.82%)
5,000 First Chicago NBD Corp expires 02/15/1997 $ 96,389 $ 90,000
</TABLE>
FS-5
<PAGE> 53
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1995
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
CORPORATE BONDS & NOTES (0.93%)
$100,000 Magna International Inc 5.00% 10/15/02 $ 102,000
TOTAL CORPORATE BONDS & NOTES $ 102,000
(Cost $100,000)
SHORT-TERM INSTRUMENTS (6.75%)
REPURCHASE AGREEMENTS (6.75%)
$737,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.75% 01/02/96 $ 737,000
TOTAL REPURCHASE AGREEMENTS $ 737,000
(Cost $737,000)
TOTAL INVESTMENTS IN
SECURITIES
(Cost $9,972,648)* (Notes 1 & 3) 100.18% $10,939,466
Other Assets and Liabilities, Net (0.18) (19,874)
------ -----------
TOTAL NET ASSETS 100.00% $10,919,592
======= ============
</TABLE>
- --------------------------------------------------------------------------------
+ Non-income earning securities.
* 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 $1,163,689
Gross Unrealized Depreciation (196,871)
----------
NET UNREALIZED APPRECIATION $ 996,818
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-6
<PAGE> 54
LIFE & ANNUITY TRUST MONEY MARKET FUND--DECEMBER 31, 1995
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY BILLS (91.16%)
$1,850,000 U.S. Treasury Bills 4.54%* 01/18/96 $1,845,392
500,000 U.S. Treasury Bills 4.74* 02/08/96 497,163
1,500,000 U.S. Treasury Bills 4.81* 02/22/96 1,489,427
1,500,000 U.S. Treasury Bills 5.07* 04/18/96 1,476,612
-----------
TOTAL U.S. TREASURY BILLS $5,308,594
REPURCHASE AGREEMENTS (3.93%)
$ 229,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.75% 01/02/96 $229,000
TOTAL INVESTMENTS IN SECURITIES
(Cost $5,537,594)** (Note 1) 95.09% $5,537,594
Other Assets and Liabilities, Net 4.91 285,754
------ ----------
TOTAL NET ASSETS 100.00% $5,823,348
======= ===========
</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.
FS-7
<PAGE> 55
LIFE & ANNUITY TRUST U.S. GOVERNMENT ALLOCATION FUND--
DECEMBER 31, 1995
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES (19.48%)
U.S. TREASURY BONDS (19.48%)
$ 550,000 U.S. Treasury Bonds 7.88% 02/15/21 $ 677,015
150,000 U.S. Treasury Bonds 8.75 05/15/20 200,765
50,000 U.S. Treasury Bonds 9.00 11/15/18 68,141
$ 945,921
TOTAL U.S. TREASURY SECURITIES $ 945,921
(Cost $891,966)
SHORT-TERM INSTRUMENTS (79.74%)
U.S. TREASURY BILLS (79.74%)
$ 561,000 U.S. Treasury Bills 4.06%* 01/11/96 $ 560,108
583,000 U.S. Treasury Bills 4.54* 01/18/96 581,508
788,000 U.S. Treasury Bills 4.74* 02/08/96 783,590
27,000 U.S. Treasury Bills 4.78* 02/29/96 26,793
324,000 U.S. Treasury Bills 4.81* 02/22/96 321,791
1,551,000 U.S. Treasury Bills 5.03* 03/07/96 1,537,361
61,000 U.S. Treasury Bills 5.06* 03/14/96 60,398
$3,871,549
TOTAL SHORT-TERM INSTRUMENTS $3,871,549
(Cost $3,870,247)
TOTAL INVESTMENTS IN SECURITIES
Cost ($4,762,213)** (Notes 1 and 3) 99.22% $4,817,470
Other Assets and Liabilities, Net 0.78 37,683
------ ----------
TOTAL NET ASSETS 100.00% $4,855,153
======= ===========
</TABLE>
- --------------------------------------------------------------------------------
* 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 $55,362
Gross Unrealized Depreciation (105)
-------
NET UNREALIZED APPRECIATION $55,257
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-8
<PAGE> 56
LIFE & ANNUITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
U.S.
Asset Growth and Money Government
Allocation Income Market Allocation
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Investments:
In securities, at identified cost (Note
3) $24,647,171 $9,972,648 $5,537,594 $4,762,213
In securities, at market value $25,279,572 $10,939,466 $5,537,594 $4,817,470
Cash 358 1,780 1,497 743
Variation margin of financial futures
contracts 14,900 0 0 0
Receivables:
Dividends and interest 88,558 18,312 36 18,636
Due from administrator (Note 2) 10,546 0 13,066 10,477
Investment securities sold 0 306,827 0 0
Fund shares sold 369,704 278,554 307,370 42,693
Organization expenses, net of
amortization 33,661 34,328 35,213 34,556
Prepaid expenses 6,299 4,098 0 373
TOTAL ASSETS 25,803,598 11,583,365 5,894,776 4,924,948
LIABILITIES
Payables:
Investment securities purchased 0 573,136 0 0
Distribution to shareholders 278,637 40,471 20,881 19,497
Organizational costs 38,473 38,473 38,473 38,473
Due to administrator 4,972 1,611 652 488
Due to advisor 0 7,800 0 0
Accrued expenses 14,744 2,282 11,422 11,337
TOTAL LIABILITIES 336,826 663,773 71,428 69,795
NET ASSETS $25,466,772 $10,919,592 $5,823,348 $4,855,153
Net assets consist of:
Paid-in capital 24,319,785 9,923,130 5,823,348 4,799,848
Undistributed net realized gain on
investments 330,811 29,644 0 48
Net unrealized appreciation of futures
contracts 183,775 0 0 0
Net unrealized appreciation of
investments 632,401 966,818 0 55,257
NET ASSETS $25,466,772 $10,919,592 $5,823,348 $4,855,153
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE (NOTE 4):
Net assets $25,466,772 $10,919,592 $5,823,348 $4,855,153
Shares outstanding 2,259,262 845,941 5,823,351 471,204
Net asset value and offering price $11.27 $12.91 $1.00 $ 10.30
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-9
<PAGE> 57
LIFE & ANNUITY TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<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 $104,224 $ 0 $ 0
Interest 853,721 29,974 122,606 136,387
TOTAL INCOME 853,721 134,198 122,606 136,387
EXPENSES (NOTE 2):
Advisory fees 85,107 19,169 9,854 12,949
Custody fees 0 7,208 2,107 0
Portfolio accounting fees 0 27,740 25,567 0
Transfer Agency fees 7,133 2,681 1,095 1,079
Administration fees 4,255 1,770 657 647
Amortization of organization
expenses 10,424 10,424 10,424 10,424
Legal and audit 53,410 26,768 22,622 17,099
Registration fees 778 881 0 0
Directors fees 11,250 11,250 11,250 11,250
Other 1,056 986 853 0
TOTAL EXPENSES 173,413 108,877 84,429 53,448
Less: Waived Fees and Reimbursed
Expenses (Note 2) (115,555) (85,505) (75,181) (43,665)
Net expenses 57,858 23,372 9,248 9,783
NET INVESTMENT INCOME 795,863 110,826 113,358 126,604
REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on sale of
investments 1,687,439 158,953 409 58,078
Net unrealized appreciation of
futures contracts 171,775 0 0 0
Net unrealized appreciation of
investments 718,398 947,667 0 69,148
NET GAIN ON INVESTMENTS 2,577,612 1,106,620 409 127,226
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS $3,373,475 $1,217,446 $113,767 $253,830
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-10
<PAGE> 58
LIFE & ANNUITY TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Asset Growth and
Allocation Income
Fund Fund
--------------------------- ---------------------------
For the For the For the For the
Year Period Year Period
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994* 1995 1994**
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income $795,863 $184,556 $110,826 $20,607
Net realized gain (loss) on sale of
investments 1,687,439 (15,774) 158,953 (6,889)
Net unrealized appreciation of
futures contract 171,775 12,000 0 0
Net unrealized appreciation
(depreciation)
of investments 718,398 (85,996) 947,667 19,151
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 3,373,475 94,786 1,217,446 32,869
Distributions to shareholders:
From net investment income (795,863) (184,556) (110,826) (20,607)
From net realized capital gain (1,266,518) (74,335) (122,419) 0
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 15,133,424 7,716,275 7,617,935 2,169,419
Net asset value of shares issued in
reinvestment
of dividend distributions 2,062,380 258,893 233,244 20,607
Cost of shares redeemed (503,715) (372,474) (52,261) (90,816)
Net increase in net assets resulting
from
capital share transactions (Note 4) 16,692,089 7,602,694 7,798,918 2,099,210
INCREASE IN NET ASSETS 18,003,183 7,438,589 8,783,119 2,111,472
NET ASSETS
Beginning net assets 7,463,589 25,000 2,136,472 25,000
ENDING NET ASSETS $25,466,772 $7,463,589 $10,919,592 $2,136,472
SHARES ISSUED AND REDEEMED
Shares sold 1,352,899 777,328 624,798 211,849
Shares issued in reinvestment of
dividends and distributions 182,663 26,593 18,398 2,007
Shares redeemed (45,222) (37,498) (4,706) (8,905)
NET INCREASE IN SHARES OUTSTANDING 1,490,340 766,423 638,490 204,951
- -----------------------------------------------------------------------------------------------------
</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.
FS-11
<PAGE> 59
LIFE & ANNUITY TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Money U.S. Government
Market Allocation
Fund Fund
-------------------------- ----------------------------
For the For the For the For the
Year Period Year Period
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994*** 1995 1994****
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income $113,358 $24,035 $126,604 $26,658
Net realized gain (loss) on sale
of investments 409 5 58,078 (17,226)
Net unrealized appreciation
(depreciation)
of investments 0 0 69,148 (13,891)
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 113,767 24,040 253,830 (4,459)
Distributions to shareholders:
From net investment income (113,358) (24,035) (126,604) (26,658)
From net realized capital gain (409) (5) (40,804) 0
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 6,635,924 3,110,954 3,905,350 948,941
Net asset value of shares issued in
reinvestment
of dividend distributions 113,769 24,040 167,408 26,658
Cost of shares redeemed (2,417,893) (1,668,446) (169,600) (103,909)
Net increase in net assets resulting from
capital share transactions (Note 4) 4,331,800 1,466,548 3,903,158 871,690
INCREASE IN NET ASSETS 4,331,800 1,466,548 3,989,580 840,573
NET ASSETS
Beginning net assets 1,491,548 25,000 865,573 25,000
ENDING NET ASSETS $5,823,348 $1,491,548 $4,855,153 $865,573
SHARES ISSUED AND REDEEMED
Shares sold 6,635,924 3,110,954 381,576 95,072
Shares issued in reinvestment of
dividends and distributions 113,769 24,040 16,384 2,724
Shares redeemed (2,417,893) (1,668,446) (16,619) (10,432)
NET INCREASE IN SHARES OUTSTANDING 4,331,800 1,466,548 381,341 87,364
- --------------------------------------------------------------------------------------------------------
</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.
FS-12
<PAGE> 60
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
Asset Allocation Fund Growth and Income Fund
From From
inception inception
Year on April Year on April
ended 15, ended 12,
December 1994 to December 1994 to
31, Dec. 31, 31, Dec. 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of period $9.71 $10.00 $10.30 $10.00
Income from investment operations:
Net investment income 0.55 0.30 0.22 0.14
Net realized and unrealized gains/(losses) on
investments 2.21 (0.19) 2.77 0.30
------- ------ ------- ------
Total from investment operations 2.76 0.11 2.99 0.44
Less distributions:
Dividends from net investment income (0.55) (0.30) (0.22) (0.14)
Distributions from realized capital gains (0.65) (0.10) (0.16) 0.00
------- ------ ------- ------
Total from distributions (1.20) (0.40) (0.38) (0.14)
------- ------ ------- ------
Net Asset Value, End of period $11.27 $9.71 $12.91 $10.30
======= ====== ======= ======
Total Return (not annualized) 28.95% 1.13% 29.19% 4.47%
Ratios/Supplemental Data:
Net assets, end of period (000) $25,467 $7,464 $10,920 $2,136
Number of shares outstanding, end of period (000) 2,259 769 846 207
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(1) 0.41% 0.00% 0.43% 0.00%
Ratio of net investment income to average net
assets(2) 5.58% 6.30% 2.05% 3.00%
Portfolio turnover 97% 0% 84% 21%
- ---------------------------------------------------------------------------------------------------------
(1) Ratio of expenses to average net assets prior
to
waived fees and reimbursed expenses 1.22% 2.24% 2.02% 10.18%
(2) Ratio of net investment income to average net
assets prior to waived fees and reimbursed
expenses 4.77% 4.06% 0.46% (7.18)%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-13
<PAGE> 61
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. Government Allocation
Money Market Fund From
From Fund inception
Year inception Year on April
ended on May 19, ended 26,
December 1994 to December 1994 to
31, Dec. 31, 31, Dec. 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of period $ 1.00 $ 1.00 $ 9.63 $ 10.00
Income from investment operations:
Net investment income 0.05 0.03 0.60 0.40
Net realized and unrealized
gains/(losses) on investments 0.00 0.00 0.77 (0.37)
------ ------ ------ ------
Total from investment operations 0.05 0.03 1.37 0.03
Less distributions:
Dividends from net investment income (0.05) (0.03) (0.60) (0.40)
Distributions from realized capital
gains 0.00 0.00 (0.10) 0.00
------ ------ ------ ------
Total from distributions (0.05) (0.03) (0.70) (0.40)
------ ------ ------ ------
Net Asset Value, End of period $ 1.00 $ 1.00 $ 10.30 $ 9.63
====== ====== ====== ======
Total Return (not annualized) 5.41% 2.71% 14.40% 0.41%
Ratios/Supplemental Data:
Net assets, end of period (000) $ 5,823 $ 1,492 $ 4,855 $ 866
Number of shares outstanding, end of
period (000) 5,823 1,492 471 90
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1) 0.42% 0.00% 0.45% 0.00%
Ratio of net investment income to
average net assets(2) 5.15% 4.63% 5.82% 7.35%
Portfolio turnover N/A N/A 405% 130%
- ----------------------------------------------------------------------------------------------------------------
(1) Ratio of expenses to average net
assets prior to
waived fees and reimbursed expenses 3.83% 11.43% 2.46% 12.73%
(2) Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses 1.74% (6.80)% 3.81% (5.38)%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-14
<PAGE> 62
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Life & 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 valued 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
procedures 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
Security 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 accreted or amortized as required by the Internal Revenue Code
(the "Code").
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell
("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'
FS-15
<PAGE> 63
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
cash and invests in repurchase agreements entered into by the Funds. The
repurchase agreements must be fully collateralized based on values that are
marked to market daily. The collateral is held by an agent bank under a
tri-party agreement. 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. Any repurchase agreements held in the
Funds at December 31, 1995 are collateralized by U.S. Treasury or federal agency
obligations. The repurchase agreements were entered into on December 29, 1995.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from any 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 December 31, 1995 the Asset
Allocation Fund held the following futures contracts:
<TABLE>
<CAPTION>
Notional Net Unrealized
Contract Appreciation/
Contracts Type Expiration Date Value (Depreciation)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
38 S&P 500 Index March 1996 11,750,550 (4,550)
4 S&P 500 Index June 1996 $ 1,248,100 $188,325
</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 $480,000.
FS-16
<PAGE> 64
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
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 December 31, 1995. 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 and the U.S. Government Allocation Fund and with the Growth and Income
Fund, WFB is entitled to a monthly advisory fee at an annual rate of 0.60% of
average daily net assets. Under the contract with the Money Market Fund, WFB is
entitled to a monthly advisory fee based on an annual rate of 0.45% of the
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
Wells Fargo Nikko Investment Advisors ("WFNIA"). WFNIA is an affiliate of WFB.
Wells Fargo Institutional Trust Company, N.A. ("WFITC"), a subsidiary of WFNIA,
provides custody and portfolio accounting services for the Asset Allocation Fund
and the U.S. Government Allocation Fund. WFITC is compensated for these services
from the fees paid to WFNIA for its sub-advisory services. Pursuant to the
sub-advisory contracts, WFB pays WFNIA the Asset Allocation Fund and the U.S.
Government Allocation Fund annual sub-advisory fees equal to .20% and .15% of
the average daily net assets, respectively.
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% for the first $50
million, 0.045% for the next $50 million and 0.02% for the 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 each Fund's
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 Fund's average daily net
assets.
Effective January 1, 1996, BZW Barclays Global Fund Advisors ("BGFA")
replaced WFNIA as investment sub-adviser to the Asset Allocation Fund and the
U.S. Government Allocation Fund. BGFA was created by the reorganization of WFNIA
with and into an affiliate of WFITC. Pursuant to a sub-advisory contract with
each Fund and subject to the overall supervision of Wells Fargo Bank, the
investment adviser to each Fund, BGFA is responsible for day-to-day portfolio
management of each Fund. BGFA will continue to employ substantially the same
personnel and will continue to use the computer-based investment model developed
and previously used
FS-17
<PAGE> 65
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
by WFNIA to determine the recommended mix of assets in each Fund's portfolio.
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 U.S. Government
Allocation Fund, respectively, as compensation for its sub-advisory services.
BGFA is an indirect subsidiary of Barclays Bank PLC and is located at 45 Fremont
Street, San Francisco, CA 94105. As of January 1, 1996 BGFA and its affiliates
provide investment advisory services for over $220 billion of assets under
management. As of January 1, 1996, WFB provides investment advisory services for
approximately $33 billion of assets.
Effective January 1, 1996, WFITC, due to a change in control of its
outstanding voting securities, became a wholly owned subsidiary of BZW Barclays
Global Investors Holdings Inc. (formerly, The Nikko Building U.S.A., Inc.) and
WFITC was renamed BZW Barclays Global Investors, N.A. ("BGI"). BGI currently
acts as custodian to the Asset Allocation Fund and the U.S. Government
Allocation Fund. BGFA is a subsidiary of BGI. BGI will not be entitled to
receive compensation for its services to the Funds so long as BGFA is entitled
to receive fees for providing investment sub-advisory services to such Funds.
The principal business address of BGI is 45 Fremont Street, San Francisco,
California 94105.
WAIVED FEES AND REIMBURSED EXPENSES
The following amounts of fees and expenses have been waived and/or
reimbursed for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Waived and
Waived Fees Reimbursed Fees
FUND by WFB by Administrator Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund......................................... $ 92,240 $23,315 $115,555
Growth and Income Fund........................................ 56,798 28,707 85,505
Money Market Fund............................................. 38,623 36,558 75,181
U. S. Government Allocation Fund.............................. 14,028 29,637 43,665
</TABLE>
- --------------------------------------------------------------------------------
Waived fees and reimbursed expenses continue at the discretion of Wells
Fargo Bank and the administrator.
All of the officers and certain of the directors of the Trust are also
officers of Stephens. As of December 31, 1995, 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 year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Asset Growth and U.S. Government
AGGREGATE PURCHASES Allocation Income Allocation
AND SALES OF: Fund Fund Fund
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
Purchases at cost $3,817,844 $ 0 $3,105,715
Sales proceeds 3,966,021 0 3,089,983
OTHER SECURITIES:
Purchases at cost 0 11,326,334 0
Sales proceeds 0 4,194,517 0
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Money Market Fund, not reflected in this schedule, trades exclusively
in short-term securities.
FS-18
<PAGE> 66
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. CAPITAL SHARE TRANSACTIONS
The Trust has authorized an unlimited number of no par value of interests.
Capital share transactions for each of the Funds for the years ended December
31, 1995 and 1994 are disclosed in detail in the Statements of Changes in Net
Assets.
FS-19
<PAGE> 67
LIFE & ANNUITY TRUST
FILE NOS. 33-70988; 811-8118
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
The following audited financial statements for the Asset
Allocation, Growth and Income, Money Market and U.S. Government
Allocation Funds are included in Part B, Item 23:
Portfolio of Investments - December 31, 1995
Statement of Assets and Liabilities - December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statements of Changes in Net Assets for the year ended December
31, 1995
Financial Highlights for the year ended December 31, 1995
Notes to the Financial Statements - December 31, 1995
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1(a) - Declaration of Trust, incorporated by reference to the
Registration Statement on Form N-1A, filed on
October 28, 1993.
1(b) - Amendment No. 1 to the Declaration of Trust,
incorporated by reference to Pre-Effective Amendment
No. 2, filed on April 1, 1994.
2 - By-Laws, incorporated by reference to the Registration
Statement on Form N-1A, filed on October 28, 1993.
3 - Not applicable
4 - Not applicable
5(a)(i) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the Asset Allocation Fund and U.S.
Government Allocation Fund, incorporated by reference
to Post-Effective Amendment No. 2, filed on April 25,
1995.
5(a)(ii) - Sub-Advisory Contract with BZW Barclays Global Fund
Advisors on behalf of the Asset
Allocation Fund, filed herewith.
5(a)(iii) - Sub-Advisory Contract with BZW Global Fund Advisors
on behalf of the U.S. Government Allocation Fund,
filed herewith.
</TABLE>
C-1
<PAGE> 68
<TABLE>
<S> <C>
5(b) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of the
Growth and Income Fund and the Money Market Fund, incorporated
by reference to Post-Effective Amendment No. 2, filed on April
25, 1995.
6(a) - Distribution Agreement with Stephens Inc. on behalf of each
Fund, incorporated by reference to Post-Effective Amendment
No. 2, filed on April 25, 1995.
6(b) - Participation Agreement with American Skandia Life Assurance
Corporation, incorporated by reference to Post-Effective
Amendment No. 2, filed on April 25, 1995.
7 - Not applicable
8(a) - Custody Agreement with Wells Fargo Institutional Trust Company,
N.A. on behalf of the Asset Allocation Fund and the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 2, filed on April 25, 1995.
8(b) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of the
Growth and Income Fund and the Money Market Fund, incorporated
by reference to Post-Effective Amendment No. 2, filed on April
25, 1995.
9(a) - Administration Agreement with Stephens Inc. on behalf of the
Funds, incorporated by reference to Post-Effective Amendment
No. 2, filed on April 25, 1995.
9(b) - Agency Agreement with Wells Fargo Bank, N.A. on behalf of the
Funds, incorporated by reference to Post-Effective Amendment
No. 2, filed on April 25, 1995.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Consent of Independent Auditors, filed herewith.
12 - Not applicable
13 - Investment Letter, incorporated by reference to the
Registration Statement on Form N-1A, filed on October 28, 1993.
14 - Not applicable
15 - Not applicable
16 - Schedule of Computation of Performance Data, incorporated by
reference to Post-Effective Amendment No. 2, filed on April
25, 1995.
17 - Powers of Attorney, incorporated by reference to the
Registration Statement on Form N-1A, filed on October 28, 1993.
27 - Financial Data Schedules for the Asset Allocation, Growth and
Income, Money Market and U.S. Government Allocation Funds,
incorporated by reference to Form N-SAR, as filed with the
SEC on February 29, 1996.
</TABLE>
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<PAGE> 69
Item 25. Persons Controlled by or Under
Common Control with Registrant.
No person is controlled by or under common control with
Registrant.
Item 26. Number of Holders of Securities.
As of April 22, 1996, the number of record holders of each class
of securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
The Asset Allocation Fund 2
The Growth and Income Fund 2
The Money Market Fund 2
The U.S. Government Allocation Fund 2
</TABLE>
Item 27. Indemnification.
Article V of the Registrant's Declaration of Trust limits the
liability and, in certain instances, provides for mandatory indemnification of
the Registrant's trustees, officers, employees, agents and holders of
beneficial interests in the Trust and its four Funds. In addition, the
Trustees are empowered under Section 3.9 of the Registrant's Declaration of
Trust to obtain such insurance policies as they deem necessary.
Item 28. Business and Other Connections
of Investment Adviser.
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned
subsidiary of Wells Fargo & Company, serves as investment adviser to all of the
Registrant's investment portfolios, and to certain other registered open-end
management investment companies. Wells Fargo Bank's business is that of a
national banking association with respect to which it conducts a variety of
commercial banking and trust activities.
To the knowledge of Registrant, none of the directors or
executive officers of Wells Fargo Bank, except those set forth below, is or has
been at any time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature,
C-3
<PAGE> 70
except that certain executive officers also hold various positions with and
engage in business for Wells Fargo & Company. Set forth below are the names
and principal businesses of the directors and executive officers of Wells Fargo
Bank who are or during the past two fiscal years have been engaged in any other
business, profession, vocation or employment of a substantial nature for their
own account or in the capacity of director, officer, employee, partner or
trustee. All the directors of Wells Fargo Bank also serve as directors of
Wells Fargo & Company.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- ------------------------------------------
<S> <C>
H. Jesse Arnelle Senior Partner of Arnelle & Hastie
Director 455 Market Street
San Francisco, CA 94105
Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408
William R. Breuner General Partner in Breuner Associates, Breuner
Director Properties and Breuner-Pavarnick Real Estate
Developers. Retired Chairman of
the Board of Directors of John Breuner Co.
2300 Clayton Road, Suite 1570
Concord, CA 94520
Vice Chairman of the California State Railroad
Museum Foundation.
111 I Street
Old Sacramento, CA 95814
William S. Davila President and Director of The Vons Companies, Inc.
Director 618 Michillinda Avenue
Arcadia, CA 91007
Officer of Western Association of Food Chains
825 Colorado Blvd. #203
Los Angeles, CA 90041
Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065
Director of Tejon Ranch Co.
P.O. Box 1000
Lebec, CA 93243
Director of Turner Casting Corp.
P.O. Box 1099
Cudahy, CA 90201
</TABLE>
C-4
<PAGE> 71
<TABLE>
<S> <C>
Director of The Bakersfield Californian
P.O. Box 440
1707 I Street
Bakersfield, CA 93302
Director of Kern County Economic Development Corp.
P.O. Box 1229
2700 M Street, Suite 225
Bakersfield, CA 93301
Chairman of the Board of Trustees of Whittier College
13406 East Philadelphia Avenue
P.O. Box 634
Whittier, CA 90608
Paul Hazen Chairman of the Board of Directors of
Chairman of the Wells Fargo & Company
Board of Directors 420 Montgomery Street
San Francisco, CA 94105
Director of Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Director of Phelps Dodge Corp.
2600 North Central Avenue
Phoenix, AZ 85004
Director of Safeway Inc.
Fourth and Jackson Streets
Oakland, CA 94660
Robert K. Jaedicke Accounting Professor and Dean Emeritus of
Director Graduate School of Business, Stanford University
MBA Admissions Office
Stanford, CA 94305
Director of Homestake Mining Co.
650 California Street
San Francisco, CA 94108
Director of California Water Service Company
1720 North First Street
San Jose, CA 95112
Director of Boise Cascade Corp.
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
</TABLE>
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<PAGE> 72
<TABLE>
<S> <C>
Director of Enron Corp.
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Paul A. Miller Chairman of Executive Committee and Director of
Director Pacific Enterprises
633 West Fifth Street
Los Angeles, CA 90071
Trustee of Mutual Life Insurance Company of
New York
1740 Broadway
New York, NY 10019
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Trustee of University of Southern California
University Park TGF 200
665 Exposition Blvd.
Los Angeles, CA 90089
Ellen M. Newman President of Ellen Newman Associates
Director 323 Geary Street, Suite 507
San Francisco, CA 94102
Chair of Board of Trustees of
University of California at San Francisco
Foundation
250 Executive Park Blvd., Suite 2000
San Francisco, CA 94143
Director of American Conservatory Theater
30 Grant Avenue
San Francisco, CA 94108
Director of California Chamber of Commerce
1201 K Street, 12th Floor
Sacramento, CA 95814
Philip J. Quigley Chairman, Chief Executive Officer and
Director Director of Pacific Telesis Group
130 Kearney Street, Rm. 3700
San Francisco, CA 94108
Director of Varian Associates
3050 Hansen Way
P.O. Box 10800
Palo Alto, CA 94303
</TABLE>
C-6
<PAGE> 73
<TABLE>
<S> <C>
Carl E. Reichardt Chairman and Chief Executive Officer of the
Director Board of Directors of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Director of Ford Motor Company
The American Road
Dearborn, MI 48121
Director of Hospital Corporation of America,
HCA-Hospital Corp. of America
One Park Plaza
Nashville, TN 37203
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Donald B. Rice President, Chief Operating Officer and Director of
Director Teledyne, Inc.
2049 Century Park East
Los Angeles, CA 90067
Director of Vulcan Materials Company
One Metroplex Drive
Birmingham, AL 35209
Retired Secretary of the Air Force
Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080
Chang-Lin Tien Chancellor of University of California at Berkeley
Director UC at Berkeley
Berkeley, CA 94720
John A. Young President, Director and Chief Executive Officer of
Director Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
</TABLE>
C-7
<PAGE> 74
<TABLE>
<S> <C>
William F. Zuendt Director of 3Com Corp.
President 5400 Bayfront Plaza
P.O. Box 58145
Santa Clara, CA 95052
Director of MasterCard International
888 Seventh Avenue
New York, NY 10106
Trustee of Golden Gate University
536 Mission Street
San Francisco, CA 94163
</TABLE>
BZW Barclays Global Fund Advisors ("BGFA"), a wholly-owned
subsidiary of BZW Barclays Global Investors, N.A. ("BGI", formerly, Wells Fargo
Institutional Trust Company), serves as sub-adviser to the Asset Allocation and
U.S. Government Allocation Funds of the Trust and as adviser or sub-adviser to
certain other open-end management investment companies.
The directors and officers of BGFA consist primarily of persons
who during the past two years have been active in the investment management
business of the former sub-adviser to the Asset Allocation and U.S. Government
Allocation Funds, Wells Fargo Nikko Investment Advisors ("WFNIA") and, in some
cases, the service business of BGI. With the exception of Irving Cohen, each
of the directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ------------------ --------------------------------
<S> <C>
Frederick L.A. Grauer Chairman and Director of WFNIA and WFITC+
Chairman, Director
Donald L. Luskin Chief Executive Officer of WFNIA's Defined
Vice Chairman & Director Contribution Group+
Irving Cohen Chief Financial Officer and Chief Operating
Director Officer of Barclays Bank PLC, New York Branch and
Chief Operating Officer of Barclays Group, Inc.
(USA)*: previously Chief Financial Officer of
Barclays de Zoete Wedd Securities Inc. (1994)*
Andrea M. Zolberti Chief Financial Officer of WFNIA and WFITC+
Chief Financial Officer
</TABLE>
C-8
<PAGE> 75
<TABLE>
<S> <C>
Vincent J. Bencivenga Previously Vice President at State Street
Chief Fiduciary Officer Bank & Trust Company++
</TABLE>
* 222 Broadway, New York, New York, 10038.
+ 45 Fremont Street, San Francisco, California 94105.
++ One Financial Center, Boston, Massachusetts 02111.
Prior to January 1, 1996, WFNIA served as sub-adviser to the Asset
Allocation and U.S. Government Allocation Funds of the Trust and as adviser or
sub-adviser to various other open-end management investment companies. For
additional information, see "The Funds, Management and Servicing Fees" in the
Prospectus describing the Funds and "Management" in the Statement of Additional
Information for the Funds. For information as to the business, profession,
vocation or employment of a substantial nature of each of the officers and
management committees of WFNIA, reference is made to WFNIA's Form ADV and
Schedules A and D filed under the Investment Advisers Act of 1940, File No.
801-36479, incorporated herein by reference.
Item 29. Principal Underwriters.
(a) Stephens Inc. ("Stephens"), distributor for the
Registrant, does not presently act as investment adviser for any other
registered investment companies, but does act as principal underwriter for
Overland Express Funds, Inc., MasterWorks Funds Inc., Stagecoach Funds, Inc.
and Stagecoach Trust and is the exclusive placement agent for Master Investment
Trust, Managed Series Investment Trust and Master Investment Portfolio, which
are registered open-end management investment companies, and has acted as
principal underwriter for the Liberty Term Trust, Inc., Nation's Government
Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc.
and Managed Balanced Target Maturity Fund, Inc., which are closed-end
management investment companies, and Nations Fund Trust, Nations Fund Inc.,
Nations Fund Portfolios, Inc. and the Capital Mutual Funds, which are open-end
management investment companies.
(b) Information with respect to each director and officer
of the principal underwriter is incorporated by reference to Form ADV and
Schedules A and D thereto, filed by Stephens with the Securities and Exchange
Commission pursuant to the Investment Advisers Act of 1940 (file #501-15510).
(c) Not applicable.
C-9
<PAGE> 76
Item 30. Location of Accounts and Records.
(a) The Registrant maintains accounts, books and other
documents required by Section 31(a) of the Investment Company Act of 1940 and
the rules thereunder (collectively, "Records") at the offices of Stephens Inc.,
111 Center Street, Little Rock, Arkansas 72201.
(b) Wells Fargo Bank maintains all Records relating to its
services as investment adviser and custodian and transfer and dividend
disbursing agent at 525 Market Street, San Francisco, California 94105.
(c) WFNIA and Wells Fargo Institutional Trust Company, N.A.
maintain all Records relating to their services as sub-adviser and custodian,
respectively, to the Asset Allocation and U.S. Government Allocation Funds for
the period prior to January 1, 1996, at 45 Fremont Street, San Francisco,
California 94105.
(d) BGFA and BGI maintain all Records relating to their
services as sub-adviser and custodian, respectively, to the Asset Allocation
and U.S. Government Allocation Funds for the period beginning January 1, 1996
at 45 Fremont Street, San Francisco, California 94105.
(e) Stephens maintains all Records relating to its services as
sponsor, administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
Item 31. Management Services.
Other than as set forth under the captions "Investment
Objectives and Policies" and "The Funds, Management and Servicing Fees" in the
Prospectus constituting Part A of this Registration Statement and "Management"
in the Statement of Additional Information constituting Part B of this
Registration Statement, the Registrant is not a party to any management-related
service contract.
Item 32. Undertakings.
(a) Not Applicable.
(b) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the
provisions set forth above in response to Item 27, or
otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
trustee, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by
C-10
<PAGE> 77
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(c) Registrant undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of
removal of a trustee or trustees if requested in writing by
the holders of at least 10% of the Trust's outstanding voting
securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
(d) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its most current annual
report to shareholders, upon request and without charge.
C-11
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to the Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized in the
City of Little Rock, State of Arkansas on the 25th day of April, 1996.
LIFE & ANNUITY TRUST
By: /s/Richard H. Blank, Jr.
------------------------------
(Richard H. Blank, Jr.
Secretary and Treasurer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Trustee, Chairman and President
------------------------------------- (Principal Executive Officer)
(R. Greg Feltus)
/s/Richard H. Blank, Jr. Secretary and Treasurer
-------------------------------------
(Richard H. Blank, Jr.)
* Trustee
-------------------------------------
(Jack S. Euphrat)
* Trustee
-------------------------------------
(Thomas S. Goho)
* Trustee
-------------------------------------
(W. Rodney Hughes)
* Trustee
-------------------------------------
(Robert M. Joses)
* Trustee
-------------------------------------
(J. Tucker Morse)
April 25, 1996
*By: /s/ Richard H. Blank, Jr.
---------------------------------------
(Richard H. Blank, Jr.)
As Attorney-in-Fact
</TABLE>
<PAGE> 79
LIFE & ANNUITY TRUST
FILE NOS. 33-70988; 811-8118
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99.B5(a)(ii) - Sub-Advisory Contract on behalf of the
Asset Allocation Fund
EX-99.B5(a)(iii) - Sub-Advisory Contract on behalf of the
U.S. Government Allocation Fund
EX-99.B10 - Opinion and Consent of Counsel
EX-99.B11 - Consent of Independent Auditors - KPMG
Peat Marwick
<PAGE> 1
EXHIBIT 99.B5(a)(ii)
SUB-ADVISORY CONTRACT
LIFE & ANNUITY TRUST
(formerly "Variable Insurance Product Trust")
111 Center Street
Little Rock, Arkansas 72201
January 1, 1996
BZW Barclays Global Fund Advisors
45 Fremont Street
San Francisco, California 94105
Dear Sirs:
This will confirm the agreement by and among Wells Fargo Bank,
N.A. (the "Adviser"), Life & Annuity Trust (the "Trust") on behalf of the Asset
Allocation Fund (the "Fund"), and BZW Barclays Global Fund Advisors (the "Sub-
Adviser") as follows:
1. The Trust is a registered open-end management investment
company currently consisting of four investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios.
The Trust proposes to engage in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment
objective and restrictions specified in the Trust's currently effective
Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Trust under the Investment Company Act of 1940 (the
"Act") and the Securities Act of 1933. Copies of the Registration Statement
have been furnished to the Sub-Adviser. Any amendments to the Registration
Statement shall be furnished to the Sub-Adviser promptly.
2. The Trust has engaged the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified in the Advisory Contract between the Trust and the Adviser, dated
March 31, 1994, subject to the overall supervision of the Board of Trustees of
the Trust. Pursuant to an administration agreement between the Trust, on
behalf of the Fund, and an administrator (the "Administrator"), the Trust has
engaged the Administrator to provide the administrative services specified
therein.
3. (a) The Adviser hereby employs the Sub-Adviser to
perform for the Fund certain advisory services and the Sub-Adviser hereby
accepts such employment. The Adviser shall retain the authority to establish
and modify from time to time the investment strategies and approaches to be
followed by the Sub-Adviser, subject, in all respects, to the supervision and
direction of the Trust's Board of Trustees and subject to compliance with the
investment objectives, policies and restrictions set forth in the Registration
Statement.
(b) Subject to the overall supervision and control of
the Adviser and the Trust, the Sub-Adviser shall be responsible for investing
and reinvesting the Fund's assets consistent with the investment strategies and
approaches referenced in subparagraph (a), above. In this regard, the
Sub-Adviser shall be responsible for implementing and monitoring the
performance of the investment model employed with respect to the Fund, in
accordance with the investment objective, policies and restrictions set forth
in the Registration Statement, the Act and the provisions of the Internal
Revenue Code of 1986 relating to investment companies and shall furnish to the
Adviser periodic reports on the investment activity and performance of the
Fund. The Sub-Adviser shall also furnish such additional reports and
information as the Adviser and the Trust's Board of Trustees and officers shall
reasonably request.
(c) The Sub-Adviser shall, at its expense, employ or
associate with itself such persons as the Sub-Adviser believes appropriate to
assist it in performing its obligations under this contract.
<PAGE> 1
______ 99.B5(a)(iii)
SUB-ADVISORY CONTRACT
LIFE & ANNUITY TRUST
(formerly "Variable Insurance Product Trust")
111 Center Street
Little Rock, Arkansas 72201
January 1, 1996
BZW Barclays Global Fund Advisors
45 Fremont Street
San Francisco, California 94105
Dear Sirs:
This will confirm the agreement by and among Wells Fargo Bank,
N.A. (the "Adviser"), Life & Annuity Trust (the "Trust") on behalf of the U.S.
Government Allocation Fund (the "Fund"), and BZW Barclays Global Fund Advisors
(the "Sub-Adviser") as follows:
1. The Trust is a registered open-end management investment
company currently consisting of four investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios.
The Trust proposes to engage in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment
objective and restrictions specified in the Trust's currently effective
Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Trust under the Investment Company Act of 1940 (the
"Act") and the Securities Act of 1933. Copies of the Registration Statement
have been furnished to the Sub-Adviser. Any amendments to the Registration
Statement shall be furnished to the Sub-Adviser promptly.
2. The Trust has engaged the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified in the Advisory Contract between the Trust and the Adviser, dated
March 31, 1994, subject to the overall supervision of the Board of Trustees of
the Trust. Pursuant to an administration agreement between the Trust, on
behalf of the Fund, and an administrator (the "Administrator"), the Trust has
engaged the Administrator to provide the administrative services specified
therein.
3. (a) The Adviser hereby employs the Sub-Adviser to
perform for the Fund certain advisory services and the Sub-Adviser hereby
accepts such employment. The Adviser shall retain the authority to establish
and modify from time to time the investment strategies and approaches to be
followed by the Sub-Adviser, subject, in all respects, to the supervision and
direction of the Trust's Board of Trustees and subject to compliance with the
investment objectives, policies and restrictions set forth in the Registration
Statement.
(b) Subject to the overall supervision and control of
the Adviser and the Trust, the Sub-Adviser shall be responsible for investing
and reinvesting the Fund's assets consistent with the investment strategies and
approaches referenced in subparagraph (a), above. In this regard, the
Sub-Adviser shall be responsible for implementing and monitoring the
performance of the investment model employed with respect to the Fund, in
accordance with the investment objective, policies and restrictions set forth
in the Registration Statement, the Act and the provisions of the Internal
Revenue Code of 1986 relating to investment companies and shall furnish to the
Adviser periodic reports on the investment activity and performance of the
Fund. The Sub-Adviser shall also furnish such additional reports and
information as the Adviser and the Trust's Board of Trustees and officers shall
reasonably request.
(c) The Sub-Adviser shall, at its expense, employ or
associate with itself such persons as the Sub-Adviser believes appropriate to
assist it in performing its obligations under this contract.
1
<PAGE> 1
EX 99.B10
April 26, 1996 (202) 887-1500
Life & Annuity Trust
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Common Stock of
Life & Annuity Trust
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 3 and Amendment No. 5 to
the Registration Statement on Form N-1A (SEC File Nos. 33-70988 and 811-8118)
(the "Registration Statement") of Life & Annuity Trust (the "Trust") relating
to the registration of an indefinite number of shares of common stock of the
Asset Allocation, Growth and Income, Money Market and U.S. Government
Allocation Funds of the Trust (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the
Trust and its series and the authorization and issuance of shares of its
series.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance of the Shares by the Trust has been duly and validly
authorized by all appropriate corporate action and, assuming delivery thereof
in accordance with the description set forth in the Funds' current prospectuses
the Shares will be legally issued, fully paid and nonassessable by the Trust.
<PAGE> 2
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our firm under the caption "Legal Counsel" and the description of
advice rendered by our firm under the heading "The Funds, Management and
Servicing Fees" in the Prospectus, which is included as part of the
Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE> 1
EX 99.B11
Independent Auditors' Consent
The Board of Trustees
Life and Annuity Trust:
We consent to the inclusion in the Life & Annuity Trust Post-Effective
Amendment No. 3 to the Registration Statement Number 33-70988 on Form N-1A
under the Securities Act of 1933 and Amendment No. 5 to the Registration
Statement Number 811-8118 on Form N-1A under the Investment Company Act of 1940
of our report dated February 14, 1996, on the statements of assets and
liabilities, including the portfolios of investments, of Asset Allocation Fund,
Growth and Income Fund, Money Market Fund, and U.S. Government Allocation Fund
(constituting Life & Annuity Trust) as of December 31, 1995, and the related
statement of operations for the year then ended, the statement of changes in
net assets and financial highlights for the year then ended, and for the period
from April 15, 1994 (date of inception) to December 31, 1994 for the Asset
Allocation Fund, from April 12, 1994 (date of inception) to December 31, 1994
for the Growth and Income Fund, from May 19, 1994 (date of inception) to
December 31, 1994 for the Money Market Fund, and from April 26, 1994 (date of
inception) to December 31, 1994 for the U.S. Government Allocation Fund, which
report has been included in the statement of additional information.
We also consent to the reference to our firm under the heading
"Financial Highlights" in the prospectus and "Independent Auditors" in the
statement of additional information.
/s/ KPMG Peat Marwick LLP
San Francisco, California
April 26, 1996
