<PAGE>
As filed with the Securities and Exchange Commission
on January 29, 1998
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 [_]
Post-Effective Amendment No. 5 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 7 [X]
(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
[_] 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)
[X] 75 days after filing pursuant [_] on _________ pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment No. 5 to the Registration Statement of Life &
Annuity Trust (the "Trust") is being filed to register the Prospectus and
related Statement of Additional Information ("SAI") for the single class shares
of the Trust's new Equity Value Fund and Strategic Growth Fund. This Post-
Effective Amendment does not affect the Registration Statement for the Trust's
other Funds, prospectuses and SAIs. However, in anticipation of the annual
update for the Trust's existing Funds on May 1, 1998, templates have been set up
in the Prospectus and SAI to facilitate the input of updated financial
information for these Funds. A Rule 485(b) filing to update the existing Funds'
financial information will be filed shortly after the anticipated effective date
for this 485(a)(2) filing.
<PAGE>
LIFE & ANNUITY TRUST
--------------------
Cross Reference Sheet
---------------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
- ------ -------------------
1 Cover Page
2 General Information
3 Financial Highlights
4 Participating Insurance Companies
Investment Objectives and Policies
Prospectus Appendix - Additional Investment Policies
5 Management of The Funds
Fund Expenses
6 Management of the Funds
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
SAI Appendix
14 Management
15 Management
16 Management
Independent Auditors
17 Portfolio Transactions
18 Capital Stock
19 Determination of Net Asset Value
Additional Purchase and Redemption Information
20 Federal Income Taxes
21 Management
Portfolio Transactions
22 Performance Calculations
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.
<PAGE>
LIFE & ANNUITY TRUST
PROSPECTUS
ASSET ALLOCATION FUND
EQUITY VALUE FUND
GROWTH FUND
MONEY MARKET FUND
STRATEGIC GROWTH FUND
U.S. GOVERNMENT ALLOCATION FUND
MAY 1, 1998
LAT PROS (5/98)
<PAGE>
ASSET ALLOCATION FUND
EQUITY VALUE FUND
GROWTH FUND
MONEY MARKET FUND
STRATEGIC GROWTH FUND
U.S. GOVERNMENT ALLOCATION FUND
Life & Annuity Trust is an open-end series investment company. This
Prospectus contains information about six of the series of Life & Annuity
Trust--the Asset Allocation Fund, Equity Value Fund, Growth Fund (formerly, the
"Growth and Income Fund"), Money Market Fund, Strategic Growth Fund and 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 EQUITY VALUE FUND seeks to provide investors with long-term capital
appreciatioN.
The GROWTH 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 STRATEGIC GROWTH FUND seeks to provide investors with an above-average
level of capital appreciation.
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.
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").
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.
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") dated May
1, 1998 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, N.A. ("WELLS FARGO BANK"), BARCLAYS
GLOBAL FUND ADVISERS ("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 AND ADMINISTRATOR TO THE FUNDS
AND IS COMPENSATED FOR PROVIDING THE FUNDS WITH CERTAIN OTHER SERVICES. 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. ("STEPHENS"),
WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK OR BGFA, IS THE CO-ADMINISTRATOR
AND DISTRIBUTOR FOR THE FUNDS.
<PAGE>
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, 1998
<PAGE>
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 and Distributions........................................................... 9
Management of the Funds............................................................... 9
Taxes................................................................................. 12
Fund Expenses......................................................................... 12
General Information................................................................... 12
Prospectus Appendix -- Additional Investment Policies................................. A-1
</TABLE>
i
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Funds' 1997 annual financial statements. The financial statements are
attached to the SAI and have been audited by KPMG Peat Marwick LLP, independent
auditors, whose report dated February [14], 1998 also is attached to the SAI.
This information should be read in conjunction with the Funds' 1997 annual
financial statements and the notes thereto. The SAI is incorporated by
reference into this Prospectus. The Equity Value and Strategic Growth Funds
were not in operation during the periods shown.
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND* GROWTH FUND**
---------------------------------------------- --------------------------------------------
YEAR YEAR YEAR PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1997 1996 1995 1994 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
beginning of period.............. $ 11.27 $ 9.71 $10.00 $ 12.91 $ 10.30 $ 10.00
Income from investment
operations:
Net investment income............. 0.56 0.55 0.30 0.20 0.22 0.14
Net realized and
unrealized gains/(losses)
on investments................. 0.69 2.21 (0.19) 2.68 2.77 0.30
------- ------- ------ ------- ------- -------
Total from investment
operations....................... 1.25 2.76 0.11 2.88 2.99 0.44
Less distributions:
Dividends from net
investment income................ (0.56) (0.55) (0.30) (0.20) (0.22) (0.14)
Distributions from
realized capital gains........... (0.54) (0.65) (0.10) (0.25) (0.16) 0.00
------- ------- ------ ------- ------- -------
Total from distributions.......... (1.10) (1.20) (0.40) (0.45) (0.38) (0.14)
------- ------- ------ ------- ------- -------
Net asset value: end of
period........................... $ 11.42 $ 11.27 $ 9.71 $ 15.34 $ 12.91 $ 10.30
======= ======= ====== ======= ======= =======
Total return (not annualized)***.. 11.46% 28.95% 1.13% 22.44% 29.19% 4.47%
Ratios/supplemental data:
Net assets, end of period (000)... $51,797 $25,467 $7,464 $33,381 $10,920 $ 2,136
Number of shares outstanding, end
of period (000)................. 4,537 2,259 769 2,176 846 207
Ratios to average net assets
(annualized) Ratio of expenses
to average net assets(1)........ 0.96% 0.41% 0.00% 0.60% 0.43% 0.00%
Ratio of net investment income
to average net assets(2)........ 5.34% 5.58% 6.30% 1.53% 2.05% 3.00%
Portfolio Turnover................ 4% 97% 0% 95% 84% 21%
Average Commission Rate Paid(3)... N/A N/A N/A $0.0810 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratio of net expenses to
average net assets prior to
waived fees and reimbursed
expenses......................... 0.80% 1.22% 2.24% 1.12% 2.02% 10.18%
(2) Ratio of net investment income
(loss) to average net assets prior
to waived fees and reimbursed
expenses 5.23% 4.77% 4.06% 1.01% 0.46% (7.18)%
</TABLE>
(3) For fiscal years beginning on or after September 15, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period and
fund to fund depending on the mix of trades executed in various markets where
trading practices and commission rate structures may differ.
___________________
* The Asset Allocation fund commenced operations on April 15, 1994.
** The Growth Fund commenced operations on April 12, 1994.
*** Total returns do not include any sales charges.
1
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND* U.S. GOVERNMENT ALLOCATION FUND**
---------------------------------------------- --------------------------------------------------
YEAR YEAR YEAR PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1997 1996 1995 1994 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
beginning of period......... $ 1.00 $ 1.00 $ 1.00 $ 10.30 $ 9.63 $ 10.00
Income from investment
operations: Net
investment income............ 0.05 0.05 0.03 0.56 0.60 0.40
Net realized and
unrealized gains/(losses)
on investments.............. 0.00 0.00 0.00 (0.17) 0.77 (0.37)
------- ------ ------- ------- ------ -------
Total from investment
operations................... 0.05 0.05 0.03 0.39 1.37 0.03
Less distributions:
Dividends from net
investment income............ (0.05) (0.05) (0.03) (0.56) (0.60) (0.40)
Distributions from
realized capital gains....... 0.00 0.00 0.00 0.00 (0.10) 0.00
------- ------ ------- ------- ------ -------
Total from distributions...... (0.05) (0.05) (0.03) (0.56) (0.70) (0.40)
------- ------ ------- ------- ------ -------
Net asset value: end
of period.................... $ 1.00 $ 1.00 $ 1.00 $ 10.13 $10.30 $ 9.63
======= ====== ======= ======= ====== =======
Total return (not
annualized)***............... 4.72% 5.41% 2.71% 3.99% 14.40% 0.41%
Ratios/supplemental data:
Net assets, end of
period (000)................. $12,667 $5,823 $ 1,492 $13,527 $4,855 $ 866
Number of shares outstanding,
end of period (000).......... 12,667 5,823 1,492 1,335 471 90
Ratios to average net assets
(annualized) Ratio of expenses
to average net assets(1)... 0.51% 0.42% 0.00% 0.60% 0.45% 0.00%
Ratio of net investment income to
average net assets(2)....... 4.64% 5.15% 4.63% 5.75% 5.82% 7.35%
Portfolio Turnover............ N/A N/A N/A 222% 405% 130%
Average Commission............ N/A N/A N/A N/A N/A N/A
Rate Paid(3)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratio of net expenses to average
net assets prior to waived fees and
reimbursed expenses.......... 1.22% 3.83% 11.43% 1.18% 2.46% 12.73%
(2) Ratio of net investment income
(loss) to average net assets.prior
to waived fees and reimbursed
expenses..................... 3.93% 1.74% (6.80)% 5.17% 3.81% (5.38)%
</TABLE>
(3) For fiscal years beginning on or after September 15, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period and
fund to fund depending on the mix of trades executed in various markets where
trading practices and commission rate structures may differ.
___________________
* The Money Market Fund commenced operations on May 19, 1994.
** The U.S. Government Allocation Fund commenced operations on April 26, 1994.
*** Total returns do not include any sales charges.
2
<PAGE>
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 intends 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 that allocates
the Fund's assets among three broad categories of investments: stocks, bonds and
money market instruments. 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. The Fund is not designed
to profit from short-term market changes.
In determining the appropriate mix, BGFA uses an investment model, the
Asset Allocation Model, that was originally developed in 1973 and is continually
refined and updated. 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. The Asset Allocation Model has broad latitude to allocate and
reallocate the investments in the Fund's portfolio. 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 investments in which the
Fund may invest.
Stock Investments. In making its stock investments, the Fund invests
in a representative sample of the common stocks comprising 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.
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. U.S. Treasury bonds have been selected by BGFA
for this portion of the Fund's portfolio because of their relatively low
purchase and sale transaction costs 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
_____________________
/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 McGraw-Hill, Inc.
3
<PAGE>
that the Fund is permitted to purchase, and may purchase securities on a
delayed delivery or when-issued basis. The Fund is a diversified portfolio.
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.
EQUITY VALUE FUND
The Equity Value Fund's investment objective is to seek to provide
investors with long-term capital appreciation. The Fund pursues this objective
by investing primarily in equity securities, including common stocks and may
invest in debt instruments that are convertible into common stocks of both
domestic and foreign companies. The Fund may invest in large, well-established
companies and smaller companies with market capitalization exceeding $50
million. The Fund may invest up to 25% of its assets in American Depositary
Receipts and similar instruments. Income generation is a secondary
consideration. The Fund may purchase dividend paying stocks of particular
issuers when the issuer's dividend record may, in the investment adviser's
opinion, have a favorable influence on the market value of the securities. The
Fund also may purchase convertible securities with the same characteristics As
common stocks. as with all mutual funds, there can be no assurance that the
Fund, which is a diversified portfolio, will achieve its investment
objectivE.
In selecting equity investments (which may include common stocks of both
domestic and foreign companies) for the Fund, the adviser selects companies for
investment using both quantitative and qualitative analysis to identify those
issuers that, in the adviser's opinion, exhibit below-average valuation
multiples, above-average financial strength, a strong position in their industry
and a history of steady profit growth.
The adviser also may select other equity securities in addition to common
stocks for investment by the Fund. Such other equity securities are preferred
stocks, high grade securities convertible into common stocks, and warrants. The
Fund will not invest more than 5% of its net assets in warrants, no more than 2%
of which will be invested in warrants which are not listed on the New York or
American Stock Exchanges. For temporary defensive purposes, however, the Fund
may invest in U.S. Government obligations (as defined below), certificates of
deposit, bankers' acceptances, commercial paper, repurchase agreements (maturing
in seven days or less) and debt obligations of corporations (corporate bonds,
debentures, notes and other similar corporate debt instruments) that are rated
investment grade or better by S&P or Moody's.
The Fund also may hold short-term U.S. Government obligations, money market
instruments, repurchase agreements, securities issued by other investment
companies within the limits prescribed by the Investment Company Act of 1940, as
amended (the "1940 Act"), and cash, pending investment, to meet anticipated
redemption requests or if the investment adviser deems suitable investments for
the Fund to be unavailable. Such investments may be made in such proportions as,
in the opinion of the investment adviser, existing circumstances may warrant,
and may include obligations of foreign banks and foreign branches of U.S. banks.
A more complete description of the Fund's investments and investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
GROWTH FUND
The Growth 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. The Fund may invest up to 25% of its assets in American Depositary
Receipts and similar instruments.
Common Stocks. The Growth 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 with market capitalization which falls within the range of the Russell
1000 Index (as of July 1, 1997, this range was from $1.1 billion to $198.3
billion) 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. The capitalization range for the Russell 1000 Index is
expected to change frequently. The Fund may invest
4
<PAGE>
in companies with a market capitalization under $1.1 billion if the investment
adviser to the Fund believes such investments to be in the best interest of the
Fund.
The Growth 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.
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.
STRATEGIC GROWTH FUND
The Strategic Growth Fund seeks to provide investors with an above-average
level of capital appreciation. The Strategic Growth Fund seeks to achieve this
objective through the active management of a broadly-diversified portfolio of
equity securities of companies expected to experience strong growth in revenues,
earnings and assets. The Fund is designed to provide above-average capital
growth for investors willing to assume above-average risk.
The Fund invests primarily in common stocks that Wells Fargo Bank, as
investment adviser, believes have better-than-average prospects for
appreciation. Under normal market conditions, the Fund will hold at least 20
common stock issues spread across multiple industry groups, with the majority of
these holdings consisting of established growth companies, turnaround or
acquisition candidates, or attractive larger capitalization companies. The Fund
also may invest up to 25% of its assets in American Depositary Receipts ("ADRs")
and similar instruments and may invest up to 15% of its assets in equity
securities of companies in emerging or less developed markets. The stock issues
held by the Fund may have some of the following characteristics: low or no
dividends; smaller market capitalizations; less market liquidity; relatively
short operating histories; aggressive capitalization structures (including high
debt levels); and involvement in rapidly growing/changing industries and/or new
technologies.
Additionally, it is expected that the Fund may from time to time acquire
securities through initial public offerings, and may acquire and hold common
stocks of smaller and newer issuers. It is expected that no more than 40% of the
Fund's assets will be invested in these highly aggressive issues at one time.
Though the Fund will hold a number of larger capitalization stocks, under
normal market conditions more than 50% of the Fund's total assets will be
invested in companies whose market capitalizations at the time of acquisition
are within the capitalization range of companies listed on the Russell Midcap
Index. As of July 1997, the capitalization range for the Russell Midcap Index
was from $1.1 billion to $8 billion. The capitalization range for the Russell
Midcap Index is expected to change frequently. The Fund may invest in companies
with a market capitalization under $1.1 billion if the investment adviser to the
Fund believes such investments to be in the best interest of the Fund.
5
<PAGE>
Under ordinary market conditions, at least 65% of the value of the total
assets of the Fund will be invested in common stocks and in securities which are
convertible into common stocks that Wells Fargo Bank, as investment adviser,
believes have better-than-average prospects for appreciation. The Fund also may
invest in convertible debt securities. At most, 5% of the Fund's net assets will
be invested in convertible debt securities that are either not rated in the four
highest rating categories 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. See "Risk Factors"
below.
From time to time, when the adviser, Wells Fargo Bank, determines market
conditions make pursuing the Fund's basic investment strategy inconsistent with
the best interests of the Fund's investors, the Fund may use temporary
alternative strategies, primarily designed to reduce fluctuations in the value
of the Fund's assetS. In implementing these temporary "defensive" strategies,
the Fund may invest in preferred stock or investment-grade debt securities that
are convertible into common stock and in money market instruments. Generally,
these temporary "defensive" investments will not exceed 30% of the Fund's total
assets.
A more complete description of the Fund's investments and investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the 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. 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 of assets in the Fund's portfolio, BGFA
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
extensive financial data from various sources and recommends a portfolio
allocation among the three classes of debt instruments. The U.S. Government
Allocation Model has broad latitude to allocate and reallocate the investments
in the Fund's portfolio. 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 Fund may invest.
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).
6
<PAGE>
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.
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 or guaranteed against loss of
principal. When prices of the securities that a Fund owns decline, so does the
value of such Fund's shares and the value of an investment in a Fund may
increase or decrease. 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. As with all mutual funds, there can be no assurance that a Fund will
achieve its investment objective. Investors should be prepared to accept some
risk, including possible loss of principal, with the money they invest in a
Fund.
The debt instruments in the Funds' portfolios are subject to interest-rate
risk and credit risk. Interest-rate risk is 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 a
Fund's portfolio 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. Credit risk is the risk that issuers of the debt
instruments in which the Funds invest may default on the payment of principal
and/or interest.
The stock investments of the Funds' portfolios are subject to equity market
risk. Equity market risk is the risk 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. Throughout most of 1997, the stock market, as measured by the
S&P 500 Index and other commonly used indices, was trading at or close to record
levels. There can be no guarantee that these performance levels will continue. A
Fund's investments in smaller sized companies present greater risks than
investments in larger sized companies with more established operating histories
and financial capacity.
Investing in the securities of issuers in any foreign country, including
American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs") and similar securities, involves special risks and considerations not
typically associated with investing in U.S. companies. These include
differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations (which may
include suspension of the ability to transfer currency from a country); and
political, social and monetary or diplomatic developments that could affect
U.S. investments in foreign countries. Additionally, dispositions of foreign
securities and dividends and interest payable on those securities may be
subject to foreign taxes, including withholding taxes. Foreign securities
often trade with less frequency and volume than domestic securities and,
therefore, may greater price volatility. Additional costs associated with an
investment in foreign securities may include higher custodial fees than apply
to domestic custodial arrangements and transaction costs of foreign currency
conversions. Changes if foreign exchange rates also will affect the value of
securities denominated or quoted in currencies other than the U.S. dollar. A
Fund's performance may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments.
There are special risks involved in investing in emerging-market
countries. Many investments in emerging markets can be considered speculative,
and their prices can be much more volatile than in the more developed nations
of the world. This difference reflects the greater uncertainties of investing
in less established markets and economies. In addition, the financial markets
of emerging markets countries are generally less well capitalized and thus
securities of issuers based in such countries may be less liquid. Further,
such markets may be vulnerable to high inflation and interest rates. Most are
heavily dependent on international trade, and some are especially vulnerable
to recessions in other countries. Some of these countries are also sensitive
to world commodity prices and may be subject to political and social
uncertainties.
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.
7
<PAGE>
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.
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 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'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.
See "Prospectus Appendix -- Additional Investment Policies" for further
discussion of the Funds' investments and related risks.
INVESTING IN THE FUNDS
NET ASSET VALUE
8
<PAGE>
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 NAV of the Asset Allocation, Equity Value, Growth
Fund, Strategic Growth and U.S. Government Allocation Funds (the "Non-Money
Market Funds") 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 Funds are open Monday through Friday and are closed on weekends. The
Non-Money Market Funds are closed on standard New York Stock Exchange holidays.
The Money Market Fund is closed on standard federal bank holidays. Unless
otherwise specified, the term "Business Day" when used in reference to the Non-
Money Market Funds refers only to the days such Funds are open and when used in
reference to the Money Market Fund refers only to the days the Money Market Fund
is open. Wells Fargo Bank calculates each Non-Money Market Fund's NAV as of 1:00
p.m. (Pacific time) each Business Day. Wells Fargo Bank calculates the Money
Market Fund's NAV as of 9:00 a.m. (Pacific time) each Business Day.
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.
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 the Non-Money Market Funds purchase and redemption orders
received before 1:00 p.m. (Pacific time) are effected at the respective NAV per
share determined as of 1:00 p.m. (Pacific time) on that same day. Orders
received after 1:00 p.m. (Pacific time) for shares of a Non-Money Market Fund
are effected on the next Business Day. With respect to the Money Market Fund, 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 at the NAV per share
determined as of 9:00 a.m. (Pacific time). 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 AND DISTRIBUTIONS
Each Fund is treated separately in determining the amounts of dividends of
net 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.
9
<PAGE>
The Asset Allocation, Equity Value and Growth Funds declare and pay a
quarterly dividend, the Strategic Growth Fund Declares and pays an annual
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. Participating
Insurance Companies will be informed by January 31 about the amount and
character of dividends and distributions of the previous year from the relevant
Fund for federal income tax purposes.
MANAGEMENT OF THE FUNDS
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, monitors its contractual arrangements with various service-providers
and decides upon matters of general policy.
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.
A more detailed description of the voting rights and attributes of the
shares is contained in the "Capital Stock" section of the Funds' SAI.
INVESTMENT ADVISER
The Funds are advised by Wells Fargo Bank. 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 December 31, 1997, Wells Fargo Bank and its
affiliates managed more than $62 billion of assets of individuals, trusts,
estates and institutions. Wells Fargo Bank is the investment adviser or sub-
adviser to three other registered, open-end management investment companies.
From time to time, each of the Funds, consistent with its investment objective,
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.
Wells Fargo Bank provides investment guidance and policy direction in
connection with the daily portfolio management of the Funds. Wells Fargo Bank
also furnishes the Board of Trustees with periodic reports on the Funds'
investment strategy and performance. For its services as investment adviser 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 services as investment adviser 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, 1997, Wells
Fargo Bank was paid [____%], [____%], [____%] AND [____%], of the average daily
net assets of the Asset Allocation, Growth, Money Market and U.S. Government
Allocation Funds, respectively, as compensation for its advisory services. The
Equity Value and Strategic Growth Funds had not yet commenced operations during
this period.
Wells Fargo Bank has engaged BGFA to provide sub-advisory services to the
Asset Allocation and U.S. Government Allocation Funds. 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 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. For the year ended December 31,
1997, BGFA actually received payment for its sub-advisory services at the rate
of [0.20%] and [0.15%] of the
10
<PAGE>
average daily net assets of the Asset Allocation and the U.S. Government
Allocation Funds, respectively. 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.
PORTFOLIO MANAGERS
Mr. Brian Mulligan is responsible, as co-manager, for the day-to-day
management of the portfolio of the Growth Fund. Mr. Mulligan has been co-manager
since October 1, 1995. Mr. Mulligan joined Wells Fargo Bank in 1986 through its
acquisition of Crocker National Bank, where he had been a portfolio manager. 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 utility industries. He 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 present member of the San Francisco Security
Analysts Society.
Ms. Kelli Hill, as co-manager, has been responsible for the day-to-day
management of the portfolio of the Growth Fund since May 1, 1997. Ms. Hill
joined Wells Fargo Bank in 1987 and manages client portfolios. Prior to joining
Wells Fargo Bank, Ms. Hill worked as an institutional equity trader for E.F.
Hutton. Ms. Hill holds a B.A. from the University of SOuthern California in
international relations and economics and is working toward her chartered
financial analyst designation.
Mr. Rex Wardlaw, as co-manager, has been responsible for the day-to-day
management of the portfolio of the Equity Value Fund since May 1, 1998. Mr.
Wardlaw joined Wells Fargo Bank in 1986 and has eight years of investment
experience. He is the Private Client Services investment manager for the
Portland office and is responsible for stock market research in healthcare,
basic industries and transportation sectors. He holds an M.B.A. from the
University of Oregon and a B.A. from Northwest Nazarene College. Mr. Wardlaw is
a chartered financial analyst and a member of the Portland Society of Financial
Analysts. He is also a member of the Association for Investment management and
Research and the American Association of Individual Investors.
Mr. Allen Wisniewski has been responsible, as co-manager, for the day-to-
day management of the portfolio of the Equity Value Fund since May 1, 1998. He
also is responsible for managing equity and balanced accounts for high-net-worth
individuals and pensions. Mr. Wisniewski joined Wells Fargo Bank in April 1987
with the acquisition of Bank of America's consumer trust services, where he was
a portfolio manager. He received his B.A. degree and M.B.A. degree in economics
and finance from the University of California at Los Angeles. He is a member of
the Los Angeles Society of Financial Analysts.
Mr. Steve Enos is responsible, as co-manager, for the day-to-day management
of the Strategic Growth Fund since May 1, 1998. Mr. Enos joined Wells Fargo Bank
in 1993 and is a member of the wells Fargo Bank Growth Equity Team. He began his
career with First Interstate Bank, where he was assistant vice president and
portfolio manager. From 1991 to 1993, Mr. Enos was a principal at Dolan Capital
Management where he managed both personal and pension portfolios. Mr. Enos
received his undergraduate degree in economics from the University of California
at Davis. Mr. Enos is a Chartered Financial Analyst and a member of the
Association for Investment Management and Research.
Mr. Chris Greene joined Wells Fargo Bank on April 1, 1997, and has been
responsible as portfolio co-manager of the Strategic Growth Fund since May 1,
1998. Immediately prior to joining Wells Fargo Bank, Mr. Greene worked for
three years in the Mergers & Acquisitions group for Hambrecht & Quist, an
investment banking firm focusing on growth companies. Before that, he worked
for two years at GB Capital Management and prior to that, he worked at Wood
Island Associates, firms focusing on equity and fixed-income securities. He has
over five years experience in the industry. Mr. Greene received his B.A. in
Economics from Claremont McKenna College.
The Asset Allocation and U.S. Government Allocation Funds are managed based
on the recommendations of computer models, and no person is primarily
responsible for making 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
11
<PAGE>
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.
ADMINISTRATOR AND CO-ADMINISTRATOR
Wells Fargo Bank as administrator and Stephens as co-administrator provide
the Funds with administration 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. Wells Fargo Bank and
Stephens also furnish office space and certain facilities to conduct each Fund's
business, and Stephens compensates Life & Annuity Trust's Trustees, officers and
employees who are affiliated with Stephens. For these administration services,
Wells Fargo Bank and Stephens are entitled to receive monthly fees at the annual
rates of 0.03% and 0.04%, respectively, of each Fund's average daily net assets.
Wells Fargo Bank and Stephens may delegate certain of their administration
duties to sub-administrators. Prior to February 1, 1998, Wells Fargo Bank and
Stephens were entitled to receive monthly fees at the annual rates of 0.04%
and 0.02%, respectively, of each Fund's average daily net assets for performing
administration services. In connection with the change in fees, the
responsibility for performing various administration services was shifted to the
co-administrator.
Prior to February 1, 1997, Stephens previously provided substantially the
same services as sole administrator to the Funds. For these administration
services, Stephens was entitled to a monthly fee at the annual rate of 0.03% of
each Fund's average daily net assets.
SHAREHOLDER SERVICING AGENT
The Trust has entered into a Shareholder Servicing Agreement as of May 1,
1998, on behalf of the Funds with American Skandia Life Insurance Company, and
may enter into such Agreements with one or more other financial institutions
which desire to act as Servicing Agents. Pursuant to each such Shareholder
Servicing Agreement, the Servicing Agent, as agent for its customers, will,
among other things: automatically invest cash balances maintained in customer
accounts with the Servicing Agent into the funds, and redeem shares out of the
Funds, in the amounts specified pursuant to agency agreements between the
Servicing Agent and its customers; maintain a single shareholder account for
the benefit of its customers with the Funds; provide sub-accounting services
to monitor and account for its customers' beneficial ownership of Fund shares
held in the Servicing Agent's shareholder account; answer customer inquiries
regarding account status and history, purchases and redemptions of shares of a
Fund, Fund performance and certain other matters pertaining to the Funds;
assist its customers in designating and changing account designations and
addresses; process Fund purchase and redemption transactions; forward and
receive funds in connection with purchases or redemptions of shares of a Fund;
provide periodic statements showing a customer's subaccount balance; furnish
(either separately or on an integrated basis with other reports sent to a
customer by the Servicing Agent) monthly statements and confirmations of
purchases and redemptions of Fund shares in the Servicing Agent's shareholder
account on behalf of the customer; forward to its customers proxy statements,
annual reports, updated prospectuses and other communications from the Funds
to shareholders as required; receive, tabulate and forward to the Trust
proxies executed by or on behalf of its customers with respect to meetings of
shareholders of the Funds; and provide such other related services, and
necessary personnel and facilities to provide all of the shareholder services
contemplated by the Shareholder Servicing Agreement, in each case, as the
Trust or a customer of the Servicing Agent may reasonably request. All
purchases and redemptions are effected through Stephens as the Fund's
Distributor.
For providing these services, each Servicing Agent is entitled to receive a
fee from each Fund, which may be paid periodically, of up to 0.25%, on an
annualized basis, of the average daily net assets of the Fund represented by
shares owned of record by the Servicing Agent on behalf of its customers, or an
amount which, when considered in conjunction with amounts payable pursuant to
the Fund's Distribution Agreement, equals the maximum amount payable to the
Servicing Agent under applicable laws, regulations or rules, whichever is less.
A Servicing Agent also may impose certain conditions on its customers, subject
to the terms of this Prospectus, in addition to or different from those imposed
by the Fund, such as requiring a minimum initial investment or the payment of
additional fees for additional services offered to the customer. The exercise of
voting rights and the delivery to customers of shareholder communications will
be governed by the customers' agency agreements with the Servicing Agent. The
Servicing Agent has agreed to forward to its customers who are shareholders of
the Fund appropriate prior written disclosure of any fees that it may charge
them directly and to provide written notice at least 15 days prior to imposition
of any transaction fees.
DISTRIBUTOR
Stephens is the Funds' co-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
12
<PAGE>
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.
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.
CUSTODIAN
Wells Fargo Bank serves as the custodian for the Equity Value, Growth,
Money Market and Strategic Growth Funds. Wells Fargo Bank performs these
services at 525 Market Street, San Francisco, California 94105.
BGI serves as the custodian for the Asset Allocation and U.S. Government
Allocation Funds and performs these services at 45 Fremont Street, San
Francisco, California 94105.
FUND ACCOUNTANT
Wells Fargo Bank serves as the Fund Accountant for the Funds and performs
these services at 525 Market Street, San Francisco, California 94105.
TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Funds' transfer and dividend disbursing
agent and performs the transfer and dividend disbursing agency activities at 525
Market Street, San Francisco, California 94105.
TAXES
Distributions from a Fund's net investment income and net short-term
capital gain, if any, are taxable to the Fund's shareholders as ordinary income.
Distributions from a Fund's net long-term capital gains are taxable to the
Fund's shareholders as long-term capital gains. In general, distributions will
be taxable when paid, whether such distributions are taken in cash or are
automatically reinvested in additional Fund shares. However, dividends declared
in October, November or December of one year and distributed in January of the
following year will be taxable as if they were paid by December 31 of the first
year.
As described in the prospectuses of the Participating Insurance Companies,
individual holders of VA Contracts and VLI Policies may qualify for favorable
tax treatment. In order to qualify for such treatment, the Internal Revenue
Code of 1986, as amended (the "Code"), requires, among other things, that the
"separate accounts" of the Participating Insurance Companies, which maintain and
incest net proceeds form the VA Contracts and VLI Policies, to be "adequately
diversified." See "Taxation of a Separate Account of a Participating Insurance
Company" in the SAI. Subject to certain conditions, for purposes of the
"adequate diversification" test, shares of a Fund will not be treated as single
investment. Rather, the separate account will be treated as the owner of its
proportionate share of each of the assets of the Fund. Each Fund intends to
satisfy the relevant conditions of the COde and Treasury Regulations so that its
shares held in a separate account of a Participating Insurance Company, and the
VA Contracts and VLI Policies underlying such account, may qualify for
favorable tax treatment.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
material federal income tax considerations affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning and
does not discuss state, local or foreign income tax considerations; you should
consult your own tax advisor with respect to your specific tax situation.
Please see the SAI of each Fund for further 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.
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
13
<PAGE>
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.
14
<PAGE>
PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES
Set forth below is additional information about the Funds' permitted
investment activities and related risks. For further information please see
"Additional Permitted Investment Activities" in the SAI.
Asset Allocation and U.S. Government Allocation Models
BGFA compares the Asset Allocation and U.S. Government Allocation Funds'
investments daily to the Asset Allocation Model's and the U.S. Government
Allocation Model's (the "Models") recommended asset allocation. Each Model has
broad latitude to allocate and reallocate the assets in the corresponding Fund's
portfolio. Each Model recommends allocations among each asset class in 5%
increments only. Each Fund's investments are compared from time to time to the
corresponding Model's recommendations. Recommended reallocations are implemented
subject to BGFA'a assessment of current economic conditions and investment
opportunities. 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. Notwithstanding any
recommendation of the appropriate Model to the contrary, each 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. BGFA may change from time to time the criteria and methods it
uses to implement the recommendations of a Model. The overall management of each
Fund is based on the recommendations of the corresponding model, and no person
is primarily responsible for recommending the mix of asset classes in a Fund's
portfolio or the mix of securities within the asset classes. Decisions relating
to each Model are made by BGFA's investment committee. A key component of each
Model is a set of assumptions concerning expected risk and return and investor
attitudes toward risk, which are incorporated into the allocation decision.
Certain Asset-Backed Securities
The Equity Value, [GROWTH] and Strategic Growth Funds may purchase asset-
backed securities unrelated to mortgage loanS. These asset-backed securities may
consist of undivided fractional interests in pools of consumer loans or
receivables held in trust. Examples include certificates for automobile
receivables (CARS) and credit card receivables (CARDS). Payments of principal
and interest on these asset-backed securities are "passed through" on a monthly
or other periodic basis to certificate holders and are typically supported by
some form of credit enhancement, such as a letter of credit, surety bond,
limited guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's par value
until exhausted. Ultimately, asset-backed securities are dependent upon payment
of the consumer loans or receivables by individuals, and the certificate holder
frequently has no recourse to the entity that originated the loans or
receivables. The actual maturity and realized yield will vary based upon the
prepayment experience of the underlying asset pool and prevailing interest rates
at the time of prepayment. Asset-backed securities are relatively new
instruments and may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a fund experiencing difficulty in valuing or
liquidating such securities.
Convertible Securities.
The Equity Value, Growth and Strategic Growth Funds 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 Funds 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 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 a 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.
A-1
<PAGE>
Corporate Reorganizations
The Equity Value and Strategic Growth Funds may invest in securities for
which a tender or exchange offer has been made or announced, and in securities
of companies for which a merger, consolidation, liquidation or similar
reorganization proposal has been announced if, in the judgment of Wells Fargo
Bank, there is a reasonable prospect of capital appreciation significantly
greater than the added portfolio turnover expenses inherent in the short term
nature of such transactions. The principal risk associated with such investments
is that such offers or proposals may not be consummated within the time and
under the terms contemplated at the time of the investment, in which case,
unless such offers or proposals are replaced by equivalent or increased offers
or proposals which are consummated, the Funds may sustain a loss.
Custodial Receipts for Treasury Securities
The Equity Value and Strategic Growth Funds may purchase participations in
trusts that hold U.S. Treasury securities (such as TIGRS and CATS) or other
obligations where the trust participations evidence ownership in either the
future interest payments or the future principal payments on the obligations.
These participations are normally issued at a discount to their "face value,"
and can exhibit greater price volatility than ordinary debt securities because
of the way in which their principal and interest are returned to investors.
investments by a Fund in such participations will not exceed 5% of the value of
that Fund's total assets.
Emerging Markets
Each of the Growth and Strategic Growth Funds may invest up to 15% of its
assets in equity securities of companies in "emerging markets." The Fund
considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank for Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The adviser may invest in those emerging markets
that have a relatively low gross national product per capita, compared to the
world's major economies, and which exhibit potential for rapid economic growth.
The adviser believes that investment in equity securities of emerging market
issuers offers significant potential for long-term capital appreciation.
Equity securities of emerging market issuers may include common stock,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Growth Fund may invest in ADRs, CDRs, GDRs, EDRs and IDRs of
such issuers.
Emerging market countries include, but are not limited to: Argentina,
Brazil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. A company is
considered in a country, market or region if it conducts its principal business
activities there, namely, if it derives a significant portion (at least 50%) of
its revenues or profits from goods produced or sold, investments made, or
services performed therein or has at least 50% of its assets situated in such
country, market or region.
There are special risks involved in investing in emerging-market countries.
Most are heavily dependent on international trade and some are especially
vulnerable to recessions in other countries. Many of these countries are also
sensitive to world commodity prices. Some countries may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. Many
investments in emerging markets can be considered speculative, and their prices
can be much more volatile than in the more developed nations of the world. This
difference reflects the greater uncertainties of investing in less established
markets and economies. The financial markets of emerging markets countries are
generally less well capitalized and thus securities of issuers based in such
countries may be less liquid. Returns on such investments may also be subject
taxes withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
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.
Floating- and Variable-Rate Instruments
The Funds may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in the
amount of interest received on the debt instruments. The floating- and variable-
rate instruments that the Funds may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
A-2
<PAGE>
The Equity Value Fund also may hold floating- and variable-rate instruments
that have interest rates that re-set inversely to changing current market rates
and/or have embedded interest rate floors and caps that require the issuer to
pay an adjusted interest rate if market rates fall below or rise above a
specified rate. These instruments represent relatively recent innovations in the
bond markets, and the trading market for these instruments is less developed
than the markets for traditional types of debt instruments. it is uncertain how
these instruments will perform under different economic and interest-rate
scenarios. The market value of these instruments may be more volatile than other
types of debt instruments and may present greater potential for capital-gain or
loss. in some cases, it may be difficult to determine the fair value of a
structured or derivative instrument because of a lack of reliable objective
information and an established secondary market for some instruments may not
exist. See "Additional Permitted Investment Activities" in the SAI for
additional information.
Foreign Obligations and Securities
A Fund may invest up to 25% of its 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.
Each of the Equity Value, Growth and Strategic Growth Funds may invest up
to 25% of its assets in securities of foreign companies and foreign governmental
issuers that are denominated in and pay interest in U.S. dollars. These
securities may take the form of American Depositary Receipts ("ADRs"), Canadian
Depositary Receipts ("CDRs"), European Depositary Receipts ("EDRs"),
International Depositary Receipts ("IDRs") and Global Depositary Receipts
("GDRs") or other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs (sponsored or
unsponsored) are receipts typically issued by a U. S. bank or trust company and
traded on a U.S. stock exchange, and CDRs are receipts typically issued by a
Canadian bank or trust company that evidence ownership of underlying foreign
securities. Issuers of unsponsored ADRs are not contractually obligated to
disclose material information in the U.S. and, therefore, such information may
not correlate to the market value of the unsponsored ADR. EDRs and IDRs are
receipts typically issued by European banks and trust companies, and GDRs are
receipts issued by either a U.S. or non-U.S. banking institution that evidence
ownership of the underlying foreign securities. Generally, ADRs in registered
form are designed for use in U.S. securities markets and EDRs and IDRs in bearer
form are designed primarily for use in Europe.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
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.
Forward Commitments, When-Issued Purchases and Delay-Delivery Transactions
Each Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although a
Fund will generally purchase securities with the intention of acquiring them, a
Fund may dispose of securities purchased on a when-issued, delayed-delivery or a
forward commitment basis before settlement when deemed appropriate by Wells
Fargo Bank.
Futures Transactions
To the extent permitted by applicable regulations, the Asset Allocation,
Equity Value and U.S. Government Allocation Funds are 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.
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
A-3
<PAGE>
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.
Stock Index Futures and Options on Stock Index Futures. Each Allocation
Fund may invest in stock index futures and options on stock index futures as a
substitute for a comparable market position in the underlying securities. The
Equity Value Fund may invest in stock index futures in order to protect the
value of common stock investments or to maintain liquidity, provided not more
than 5% of its net assets are committed to such transactions. A stock index
future 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 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 in the index is made. With respect to stock indices that
are permitted investments, each fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. Each Allocation Fund may invest in interest-rate futures contracts
and options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. Each Fund may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or the degree of correlation between price
movements in the options on interest rate futures and price movements in the
Fund's securities which are the subject of the transaction.
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.
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
Each Non-Money Market Fund may lend securities from its portfolio to
brokers, dealers and financial institutions (but not individuals) in order to
increase the return on such Fund's portfolio. The value of the loaned securities
may not exceed one-third of a Fund's total assets and loans of portfolio
securities are 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. The principal
risk of portfolio lending is potential default or insolvency of the borrower. In
either of these cases, a Fund could experience delays in recovering securities
or collateral or could lose all or part of the value of the loaned securities.
The Non-Money Market
A-4
<PAGE>
Funds may pay reasonable administrative and custodial fees in connection with
loans of portfolio securities and may pay a portion of the interest or fee
earned thereon to the borrower or a placing broker.
Money Market Instruments
The Funds may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (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; (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; and (iv) repurchase agreements. The
Funds also may invest in short-term U.S. dollar-denominated obligations of
foreign banks (including U.S. branches) that at the time of investment: (i) have
more than $10 billion, or the equivalent in other currencies, in total assets;
(ii) are among the 75 largest foreign banks in the world as determined on the
basis of assets; (iii) have branches or agencies in the United States; and (iv)
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 the Funds.
Options
The Equity Value and Strategic Growth Funds may purchase or sell options on
individual securities or options on indices of securities as described below.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized but
foregoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option.
Call and Put Options on Specific Securities. The Equity Value Fund may
invest in call and put options on a specific security. the strategic growth fund
may invest up to 15% of its assets, represented by the premium paid, in the
purchase of call and put options in respect of specific securities (or groups of
"baskets" of specific securities). The Equity Value Fund may purchase put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 5% of its net assets.
A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, an underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, an underlying
security at the exercise price at any time during the option period. Investments
by a Fund in off-exchange options will be treated as "illiquid" and therefore
subject to each Fund's policy of not investing more than 15% of its net assets
in illiquid securities.
The Equity Value Fund may write covered call option contracts and secured
put options as Wells Fargo Bank deems appropriate. A covered call option is a
call option for which the writer of the option owns the security covered by the
option. Covered call options written by a Fund expose the Fund during the term
of the option (i) to the possible loss of opportunity to realize appreciation in
the market price of the underlying security or (ii) to possible loss caused by
continued holding of a security which might otherwise have been sold to protect
against depreciation in the market price of the security. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. the
aggregate value of the securities subject to options written by the Equity Value
Fund will not exceed 25% of the value of its assets. The use of covered call
options and securities put options will not be a primary investment technique of
the Funds, and they are expected to be used infrequently. if the adviser is
incorrect in its forecast of market value or other factors when writing the
foregoing options, a fund would be in a worse position than it would have been
had the foregoing investment techniques not been used.
Each of the Equity Value and Strategic Growth Funds may engage in unlisted
over-the-counter options with broker/dealers deemed creditworthy by the adviser.
Closing transactions for such options are usually effected directly with the
same broker/dealer that effected the original option transaction. A fund bears
the risk that the broker/dealer will fail to meet its obligations. There is no
assurance that a liquid secondary trading market exists for closing out an
unlisted option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to perform
in connection with the purchase or sale of options.
Other Investment Companies
A-5
<PAGE>
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. The Funds may purchase shares of exchange-listed closed-end Funds.
Privately Issued Securities (Rule 144A)
The Funds may invest in privately issued securities which may be resold in
accordance with Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Rule 144A Securities are restricted securities which are not
publicly traded. Accordingly, the liquidity of the market for specific Rule 144A
Securities may vary. Delay or difficulty in selling such securities may result
in a loss to a Fund. Privately issued securities that are determined by the
investment adviser to be "illiquid" are subject to each Funds' policy of not
investing more than 15% (10% in the case of the Money Market Funds) of its net
assets in illiquid securities.
Repurchase Agreements
The Funds may enter into repurchase transactions in which 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. A Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collateralized. A Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Funds may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank.
Short-Term Corporate Debt Instruments
The Asset Allocation and U.S. Government Allocation 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. The Asset Allocation and U.S. Government Allocation
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.
Temporary Investments
Each Fund may hold a certain portion of its assets in cash or short-term
investments in order to maintain adequate liquidity for redemption requests or
other cash management needs or for temporary defensive purposes during periods
of unusual market volatility. The short-term investments that the funds may
purchase include, among other things, U.S. government obligations, shares of
other mutual funds, repurchase agreements, obligations of domestic banks and
short-term obligations of foreign banks, corporations and other entities.
U.S. Government Obligations
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States ( as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors 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 will 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 value due to their structure
or contract terms.
A-6
<PAGE>
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 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); and (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 Fund may invest up to 15% (10%
for the Money Market Fund) of the current value of its net assets in securities
that are illiquid. For these purposes, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days and (c) repurchase agreements not terminable within seven
days.
Illiquid Securities shall not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act") that
have been determined to be liquid by the adviser, pursuant to guidelines
established by the Trust's Board of Trustees, and commercial paper that is sold
under Section 4(2) of the 1933 Act that (i) is not traded flat or in default as
to interest or principal and (ii) is rated in one of the two highest categories
by at least two NRSROs and the adviser, pursuant to guidelines established by
the Trust's Board of Trustees, has determined the commercial paper to be liquid;
or (iii) is rated in one of the two highest categories by one NRSRO and the
adviser, pursuant to guidelines established by the Trust's Board of Trustees,
has determined that the commercial paper is of equivalent quality and is
liquid), if by any reason thereof the value of its aggregate investment in such
classes of securities will exceed 10% of its total assets.
A-7
<PAGE>
LIFE & ANNUITY TRUST
800-680-8920
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1998
ASSET ALLOCATION FUND
EQUITY VALUE FUND
GROWTH FUND
MONEY MARKET FUND
STRATEGIC GROWTH FUND
U.S. GOVERNMENT ALLOCATION FUND
Life & Annuity Trust (at times, the "Trust") is an open-end series
investment company. This SAI contains information about six of the series of
Life & Annuity Trust -- the Asset Allocation Fund, Equity Value Fund, Growth
Fund (formerly, the "Growth and Income Fund"), Money Market Fund, Strategic
Growth Fund and 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, 1998. 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions............................................... 1
Additional Permitted Investment Activities............................ 3
Management............................................................ 6
Performance Calculations.............................................. 9
Determination of Net Asset Value...................................... 12
Additional Purchase and Redemption Information........................ 14
Portfolio Transactions................................................ 14
Fund Expenses......................................................... 16
Federal Income Taxes.................................................. 17
Capital Stock......................................................... 19
Other................................................................. 20
Independent Auditors.................................................. 20
SAI Appendix.......................................................... A-1
</TABLE>
i
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Funds are subject to the following
investment restrictions, all of which are fundamental policies.
The Funds may not:
(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 and U.S.
Government Allocation Funds (together, the "Allocation Funds") and the
Equity Value and Strategic Growth 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, together with the Growth
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 Equity
Value, Strategic Growth and 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 Growth, Equity Value,
Money Market and Strategic Growth Funds may borrow from banks up to 10%,
and the Allocation Funds may borrow up to 20%, of the current value of
their respective net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10%
and 20%, respectively, (i.e., amounts equal to the amount borrowed, except
that the Equity Value Fund may pledge up to 15% to secure 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 a Fund's 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;
(9) write, purchase or sell puts, calls, or combinations thereof,
except as may be described in the Funds' offering documents and except that
the Asset Allocation, Growth, Money Market and Strategic Growth Funds may
purchase securities with put rights in order to maintain liquidity, and
except that the Equity Value and Growth Fund may invest up to 5% and the
Strategic Growth Fund up to 15% of its net assets in such securities, in
accordance with their investment policies stated below;
(10) in the case of the Asset Allocation, Equity Value, Growth,
Strategic Growth and U.S. Government Allocation Funds (together, the "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
1
<PAGE>
(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.
Non-Fundamental Investment Policies. Each fund has adopted the following
non-fundamental policies which may be changed by a vote of a majority of the
trustees of the trust or at any time without approval of such Fund's
shareholders.
(1) 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. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by a Fund.
(2) Each Fund may not invest more than 15% (10% for the Money Market
Fund), of it's net assets in illiquid securities. For this purpose, illiquid
securities include, among others, (a) securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale, (b) fixed time deposits that are subject to withdrawal penalties and
that have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.
(3) Each Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. Dollars.
(4) Each Fund may lend securities from its portfolio to brokers,
dealers and financial institutions, in amounts not to exceed (in the aggregate)
one-third of each Fund's total assets. Any such loans of portfolio securities
will be fully collateralized based on values that are marked to market daily.
The Funds will not enter into any portfolio security lending arrangement
having a duration of longer than one year.
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.
2
<PAGE>
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 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 5% increments.
BANK OBLIGATIONS. The Equity Value and Strategic Growth Funds may invest in
bank obligations, including certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations of domestic banks, foreign
subsidiaries of domestic banks, foreign branches of domestic banks, and domestic
and foreign branches of foreign banks, domestic savings and loan associations
and other banking institutions. With respect to such securities issued by
foreign branches of domestic banks, foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, a Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a Fund which invests only in debt obligations of U.S. domestic
issuers. Such risks include possible future political and economic developments,
the possible imposition of foreign withholding taxes on interest income payable
on the securities, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on these securities and the possible
seizure or nationalization of foreign deposits. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
standards than those applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
CERTAIN ASSET-BACKED SECURITIES. The Equity Value, [GROWTH AND STRATEGIC
GROWTH FUNDS] may purchase asset-backed securities unrelated to mortgage loans.
These asset-backed securities may consist of undivided fractional interests in
pools of consumer loans or receivables held in trust. Examples include
certificates for automobile receivables (CARS) and credit card receivables
(CARDS). Payments of principal and interest on these asset-backed securities are
"passed through" on a monthly or other periodic basis to certificate holders and
are typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guaranty, or subordination. The extent of credit
enhancement varies, but usually amounts to only a fraction of the asset-backed
security's par value until exhausted. ultimately, asset-backed securities are
dependent upon payment of the consumer loans or receivables by individuals, and
the certificate holder frequently has no recourse to the entity that originated
the loans or receivables. The actual maturity and realized yield will vary based
upon the prepayment experience of the underlying asset pool and prevailing
interest rates at the time of prepayment. Asset-backed securities are relatively
new instruments and may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a fund experiencing difficulty in valuing or
liquidating such securities.
COMMERCIAL PAPER. The Allocation Funds, Equity Value [GROWTH] and Strategic
Growth 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 which 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.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies,
3
<PAGE>
corporations and financial institutions, as well as similar instruments issued
by government agencies and instrumentalities) will consist of issues that are
rated in one of the two highest rating categories by a NRSRO. Commercial paper
may include variable- and floating-rate instruments.
CONVERTIBLE SECURITIES (LOWER-RATED SECURITIES). The Equity Value, Growth,
and Strategic Growth Funds may invest in convertible securities that are not
rated in one of the four highest rating categories by a 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 a Fund's portfolio, with a commensurate effect on the value
of the Fund's Shares.
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 Funds 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 their portfolio holdings. The existence of limited markets for
lower rated securities and comparable unrated securities may diminish a FUND'S
ability to (a) obtain accurate market quotations for purposes of valuing such
securities and calculating its net asset value and (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 a Fund. If an issuer
exercises these rights during periods of declining interest rates, a Fund may
have to replace the security with a lower yielding security, thus resulting in a
decreased 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 adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
The Funds may invest in convertible securities that provide current income
and are issued by companies with the characteristics described above for each
Fund and that have a strong earnings and credit record. The Funds may purchase
convertible securities that are fixed-income debt securities or preferred
stocks, and 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 subordinate to similar nonconvertible
securities, are senior to common stocks in an issuer's capital structure.
Convertible securities offer flexibility by providing the investor with a steady
income stream (which generally yield 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 can
reflect changes in the market value of the common stock or changes in market
interest rates. At most, 5% of each Fund's net assets will be invested, at the
time of purchase, in convertible securities that are not rated in the four
highest rating categories by one or more NRSROS, such as Moody's Investors
Service, Inc. ("MOODY'S") or Standard & Poor's Rating Group ("S&P"), or unrated
but determined by the advisor to be of comparable quality.
CORPORATE REORGANIZATIONS. The Equity Value and Strategic Growth Funds may
invest in securities for which a tender or exchange offer has been made or
announced, and in securities of companies for which a merger, consolidation,
liquidation or similar reorganization proposal has been announced if, in the
judgment of Wells Fargo Bank, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short term nature of such transactions. The principal risk
associated with such investments is that such offers or proposals may not be
consummated
4
<PAGE>
within the time and under the terms contemplated at the time of the investment,
in which case, unless such offers or proposals are replaced by equivalent or
increased offers or proposals which are consummated, the Funds may sustain a
loss.
CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. The Equity Value and Strategic
Growth Funds may purchase participations in trusts that hold U.S. Treasury
Securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. investments by a Fund in such
participations will not exceed 5% of the value of that Fund's total assets.
EMERGING MARKETS. The Growth and Strategic Growth Funds each may invest up
to 15% of its assets in equity securities of companies in "emerging markets."
The Funds consider countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank for Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in world bank
publications as developing. The advisor may invest in those emerging markets
that have a relatively low gross national product per capita, compared to the
world's major economies, and which exhibit potential for rapid economic growth.
the advisor believes that investment in equity securities of emerging market
issuers offers significant potential for long-term capital appreciation. Equity
securities of emerging market issuers may include common stock, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
The Funds may invest in American Depository Receipts ("ADRs"), Canadian
Depository Receipts ("CDRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") and International Depository Receipts ("IDRs") of
such issuers.
Emerging market countries include, but are not limited to: Argentina,
Brazil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. A company is
considered in a country, market or region if it conducts its principal business
activities there, namely, if it derives a significant portion (at least 50%) of
its revenues or profits from goods produced or sold, investments made, or
services performed therein or has at least 50% of its assets situated in such
country, market or region.
There are special risks involved in investing in emerging-market countries.
Many investments in emerging markets can be considered speculative, and their
prices can be much more volatile than in the more developed nations of the
world. This difference reflects the greater uncertainties of investing in less
established markets and economies. The financial markets of emerging markets
countries are generally less well capitalized and thus securities of issuers
based in such countries may be less liquid. Most are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries may still have obsolete financial systems, economic problems or
archaic legal systems. In addition, many of these nations are experiencing
political and social uncertainties.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Funds may purchase floating-and
variable-rate obligations. Each Fund may purchase floating- and variable-rate
demand notes and bonds. Variable-rate demand notes include master demand notes
that are obligations that permit a Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rates on these notes may fluctuate
from time to time. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, a
fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and each fund may invest in obligations which are not so
rated only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which such
fund may invest. Wells Fargo Bank, on behalf of each Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and variable-
rate demand obligations in such Fund's portfolio. No Fund will invest more than
15% of the value of its total net assets in floating- or variable-rate demand
obligations whose demand feature is not exercisable within seven days. Such
obligations
5
<PAGE>
may be treated as liquid, provided that an active secondary market exists.
Floating- and variable-rate instruments are subject to interest-rate risk and
credit risk.
The floating- and variable-rate instruments that the funds may purchase
include certificates of participation in such instruments.
The Equity Value Fund may also hold floating- and variable-rate instruments
that have interest rates that re-set inversely to changing current market rates
and/or have embedded interest rate floors and caps that require the issuer to
pay an adjusted interest rate if market rates fall below or rise above a
specified rate. These instruments represent relatively recent innovations in the
bond markets, and the trading market for these instruments is less developed
than the markets for traditional types of debt instruments. It is uncertain how
these instruments will perform under different economic and interest-rate
scenarios. The market value of these instruments may be more volatile than other
types of debt instruments and may present greater potential for capital-gain or
loss. In some cases, it may be difficult to determine the fair value of a
structured or derivative instrument because of a lack of reliable objective
information and an established secondary market for some instruments may not
exist.
FOREIGN OBLIGATIONS. The Funds may invest in foreign securities through
American Depository Receipts ("ADRs"), Canadian Depository Receipts ("CDRs"),
European Depository Receipts ("EDRs"), International Depository Receipts
("IDRs") and Global Depository Receipts ("GDRs") or other similar securities
convertible into securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs (sponsored or unsponsored) are receipts typically
issued by a u.s. bank or trust company and traded on a U.S. stock exchange, and
CDRS are receipts typically issued by a Canadian bank or trust company that
evidence ownership of underlying foreign securities. Issuers of unsponsored ADRs
are not contractually obligated to disclose material information in the U.S.
and, therefore, such information may not correlate to the market value of the
unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks
and trust companies, and GDRs are receipts issued by either a U.S. or Non-U.S.
banking institution, that evidence ownership of the underlying foreign
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and IDRs in bearer form are designed primarily for
use in Europe. Each Fund may not invest 25% or more of its assets in foreign
obligations.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
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.
FOREIGN CURRENCY TRANSACTIONS. The Equity Value [Growth and Strategic
Growth] Funds may enter into foreign currency exchange contracts in order to
protect against uncertainty in the level of future foreign exchange rates. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into the interbank market
conducted between currency traders (usually large commercial banks) and their
customers. Forward foreign currency exchange contracts may be bought or sold to
protect the Fund against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
Because the Fund may invest in securities denominated in currencies other
than the U.S. dollar and may temporarily hold Funds in bank deposits or other
money market investments denominated in foreign currencies, they may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates influence values within the fund from the perspective of
U.S. investors. Changes in foreign currency exchange rates may also affect the
value of dividends and interest earned, gains and losses realized on the sale of
securities, and any net investment income and gains to be distributed to
shareholders by the Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors.
Investments in foreign securities also involve certain inherent risks, such
as political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Investments in foreign securities and forward
contracts
6
<PAGE>
may also be subject to withholding and other taxes imposed by foreign
governments. With respect to certain foreign countries, there is also a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investments in those countries.
FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY
TRANSACTIONS. Each Fund may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although each Fund will generally purchase securities with the intention of
acquiring them, a Fund may dispose of securities purchased on a when-issued,
delayed-delivery or a forward commitment basis before settlement when deemed
appropriate by the advisor. Securities purchased on a when-issued or forward
commitment basis may expose the relevant Fund to risk because they may
experience such fluctuations prior to their actual delivery. Purchasing
securities on a when-issued or forward commitment basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
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. Each Non-Money Market Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities or cash or letters of credit maintained on a daily marked-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the Fund may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed one third of the
total assets of the Fund.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested in short-term money market instruments.
In connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. A Fund will not enter into any security
lending arrangement having a duration longer than one year. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral. In either case, a Fund could experience delays
in recovering securities or collateral or could lose all or part of the value of
the loaned securities. When a Fund lends its securities, it continues to
receive interest or dividends on the securities loaned and may simultaneously
earn interest on the collateral received from the borrower or from the
investment of cash collateral in readily marketable, high-quality, short-term
obligations. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by a fund if a material
event affecting the investment is to occur. A Fund may pay a portion of the
interest or fees earned from securities lending to a borrower or placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with Wells Fargo Bank, Stephens Inc. or any of their affiliates.
MONEY MARKET INSTRUMENTS AND TEMPORARY INVESTMENTS. The Funds may invest in
the following types of high quality money market instruments that have remaining
maturities not exceeding one year: (i) U.S. Government obligations; (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; (iii) commercial paper rated at the
date of purchase "Prime-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
advisor; and (iv) repurchase agreements. The Funds also may invest in short-term
U.S. dollar-denominated obligations of foreign banks (including U.S. branches)
that at the time of investment: (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) are among the 75 largest
foreign banks in the world as determined on the basis of assets; (iii) have
branches or agencies in the United States; and (iv) in the opinion of Wells
Fargo Bank, as investment advisor, are of comparable quality to obligations of
U.S. banks which may be purchased by the Funds.
Letters of Credit. Certain of the debt obligations (including certificates
of participation, commercial paper and other short-term obligations) which the
funds may 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. Only banks, savings and loan associations and insurance
companies which, in the opinion of Wells Fargo Bank, are of comparable quality
to issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Repurchase Agreements. A Fund may enter into repurchase agreements, wherein
the seller of a security to the Fund agrees to repurchase that security from the
Fund at a mutually agreed upon time and price. A Fund may enter into repurchase
agreements only with
7
<PAGE>
respect to securities that could otherwise be purchased by the Fund. All
repurchase agreements will be fully collateralized at 102% 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.
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, the Fund's disposition of the
security may be delayed or limited. Each Fund may not enter into a repurchase
agreement with a maturity of more than seven days, if, as a result, more than
15% (10% for the Money Market Fund) of the market value of such Fund's total net
assets would be invested in repurchase agreements with maturities of more than
seven days, restricted securities and illiquid securities. A Fund will only
enter into repurchase agreements with primary broker/dealers and commercial
banks that meet guidelines established by the Board of Trustees and that are not
affiliated with the investment advisor. The Funds may participate in pooled
repurchase agreement transactions with other Funds advised by Wells Fargo Bank.
Options Trading. The Equity Value, Growth and Strategic Growth Funds may
purchase or sell options on individual securities or options on indices of
securities as described below. The purchaser of an option risks a total loss of
the premium paid for the option if the price of the underlying security does not
increase or decrease sufficiently to justify exercise. The seller of an option,
on the other hand, will recognize the premium as income if the option expires
unrecognized but foregoes any capital appreciation in excess of the exercise
price in the case of a call option and may be required to pay a price in excess
of current market value in the case of a put option.
Call and Put Options on specific securities. The Equity Value Fund may
invest in call and put options on a specific security. the strategic growth fund
may invest up to 15% of its assets, represented by the premium paid, in the
purchase of call and put options in respect of specific securities (or groups of
"baskets" of specific securities). The Equity Value Fund may purchase put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 5% of its net assets.
A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, an underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, an underlying
security at the exercise price at any time during the option period. Investments
by a Fund in off-exchange options will be treated as "illiquid" and therefore
subject to the Fund's policy of not investing more than 15% of its net assets in
illiquid securities.
The Equity Value Fund may write covered call option contracts and secured
put options as Wells Fargo Bank deems appropriate. A covered call option is a
call option for which the writer of the option owns the security covered by the
option. Covered call options written by a Fund expose the Fund during the term
of the option (i) to the possible loss of opportunity to realize appreciation in
the market price of the underlying security or (ii) to possible loss caused by
continued holding of a security which might otherwise have been sold to protect
against depreciation in the market price of the security. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. The
aggregate value of the securities subject to options written by a Fund will not
exceed 25%. The use of covered call options and securities put options will not
be a primary investment technique of the Funds, and they are expected to be used
infrequently. If the advisor is incorrect in its forecast of market value or
other factors when writing the foregoing options, a Fund would be in a worse
position than it would have been had the foregoing investment techniques not
been used.
8
<PAGE>
Each Fund may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the advisor. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. A Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Each Fund may buy put and call options and write covered call and secured
put options. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. Purchasing options is a specialized
investment technique that entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the option.
The Funds may also write covered call and secured put options from time to
time as the advisor deems appropriate. By writing a covered call option, a Fund
forgoes the opportunity to profit from an increase in the market of the
underlying security above the exercise price except insofar as the premium
represents such a profit, and it is not able to sell the underlying security
until the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. If the
advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, the Fund would be in a worse position than it
would have been had the foregoing investment techniques not been used.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell the
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Options on
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option. With respect to options on indices, the amount of
the settlement equals the difference between the closing price of the index at
the time of exercise and the exercise price of the option expressed in dollars,
times a specified multiple.
The Funds will write call options only if they are "covered." In the case
of a call option on a security or currency, the option is "covered" if a Fund
owns the instrument underlying the call or has an absolute and immediate right
to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if a
Fund maintains with its custodian a diversified portfolio of securities
comprising the index or liquid assets equal to the contract value. A call option
is also covered if a fund holds a call on the same instrument or index as the
call written where the exercise price of the call held is (i) equal to or less
than the exercise price of the call written, or (ii) greater than the exercise
price of the call written provided the difference is maintained by the Fund in
liquid assets in a segregated account with its custodian. The Funds will write
put options only if they are "secured" by liquid assets maintained in a
segregated account by the Funds' custodian in an amount not less than the
exercise price of the option at all times during the option period.
A Fund's obligation to sell an instrument subject to a covered call option
written by it, or to purchase an instrument subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction is ordinarily effected to realize a profit on an
outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the writing of a new
option containing different terms on such underlying instrument. The cost of
such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying instrument (in the case of a covered call option) or liquidate the
segregated account (in the case of a secured put option) until the option
expires or the optioned instrument or currency is delivered upon exercise with
the result that the writer in such circumstances will be subject to the risk of
market decline or appreciation in the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the
9
<PAGE>
current bid price. If an option purchased by a Fund expires unexercised the Fund
realizes a loss equal to the premium paid. If a Fund enters into a closing sale
transaction on an option purchased by it, the Fund realizes a gain if the
premium received by the Fund on the closing transaction is more than the premium
paid to purchase the option, or a loss if it is less. If an option written by a
Fund expires on the stipulated expiration date or if a Fund enters into a
closing purchase transaction, it realizes a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option is eliminated. If an option
written by a Fund is exercised, the proceeds of the sale are increased by the
net premium originally received and the Fund realizes a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded over-the-
counter or on an exchange, may be absent for reasons that include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities or
currencies; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the Options Clearing
Corporation may not be adequate at all times to handle current trading value; or
one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund is likely to be unable to
control losses by closing its position where a liquid secondary market does not
exist. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
The Strategic Growth Fund may purchase or sell options on individual
securities or options on indices of securities as described below. The purchaser
of an option risks a total loss of the premium paid for the option if the price
of the underlying security does not increase or decrease sufficiently to justify
exercise. The seller of an option, on the other hand, will recognize the premium
as income if the option expires unrecognized but foregoes any capital
appreciation in excess of the exercise price in the case of a call option and
may be required to pay a price in excess of current market value in the case of
a put option.
The Strategic Growth Fund may engage in unlisted over-the-counter options
with broker/dealers deemed creditworthy by the advisor. Closing transactions for
such options are usually effected directly with the same broker/dealer that
effected the original option transaction. A Fund bears the risk that the
broker/dealer will fail to meet its obligations. There is no assurance that a
liquid secondary trading market exists for closing out an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members who fail to perform in connection with
the purchase or sale of options.
Stock Index Options. The Equity Value, [GROWTH AND STRATEGIC GROWTH] Funds
may purchase call and put options and write covered call options on stock
indices listed on national securities exchanges or traded in the over-the-
counter market to the extent of 25% of the value of its net assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's investment portfolio
correlate with price movements of the stock index selected. Because the value of
a stock index option depends upon changes to the price of all stocks comprising
the index rather than the price of a particular stock, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the price of all stocks in the index, rather than
movements in the price of a particular stock. Accordingly, successful use by a
Fund of options on stock indexes will be subject to Wells Fargo Bank's ability
to correctly analyze movements in the direction of the stock market generally or
of particular industry or market segments.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts.
The Equity Value, [GROWTH] and Strategic Growth Funds may participate in stock
index futures contracts and options on stock index futures contracts. A futures
transaction involves a firm agreement to buy or sell a commodity or financial
instrument at a particular price on a specified future date, while an option
transaction generally involves a right, which may or may not be exercised, to
buy or sell a commodity of financial instrument at a particular price on a
specified future date. Futures contracts and options are standardized and
exchange-traded, where the exchange serves as the ultimate counterparty for all
contracts. Consequently, the only credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts, however, are subject to
market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price
10
<PAGE>
at which the agreement is made. As the aggregate market value of the stocks in
the index changes, the value of the index also changes. In the event that the
index level rises above the level at which the stock index futures contract was
sold, the seller of the stock index futures contract realizes a loss determined
by the difference between the two index levels at the time of expiration of the
stock index futures contract, and the purchaser realizes a gain in that amount.
In the event the index level falls below the level at which the stock index
futures contract was sold, the seller recognizes a gain determined by the
difference between the two index levels at the expiration of the stock index
futures contract, and the purchaser realizes a loss. Stock index futures
contracts expire on a fixed date, currently one to seven months from the date of
the contract, and are settled upon expiration of the contract.
Stock index futures contracts may be purchased to protect a Fund against an
increase in the prices of stocks that Fund intends to purchase. If a Fund is
unable to invest its cash (or cash equivalents) in stock in an orderly fashion,
a Fund may purchase a stock index futures contract to offset any increase in the
price of the stock. However, it is possible that the market may decline instead,
resulting in a loss on the stock index futures contract. If Fund then concludes
not to invest in stock at that time, or if the price of the securities to be
purchased remains constant or increases, a Fund realizes a loss on the stock
index futures contract that is not offset by a reduction in the price of
securities purchased. The Funds also may buy or sell stock index futures
contracts to close out existing futures positions.
The Funds also may purchase put options on stock index futures contracts.
Sales of such options may also be made to close out an open option position. The
Funds may, for example, purchase a put option on a particular stock index
futures contract or stock index to protect against a decline in the value of the
common stocks it holds. If the stocks in the index decline in value, the put
should become more valuable and the Funds could sell it to offset losses in the
value of the common stocks. In this way, put options may be used to achieve the
same goals the funds seek in selling futures contracts. A put option on a stock
index future gives the purchaser the right, in return for a premium paid, to
assume a short (i.e., the right to sell stock index futures) position in a stock
index futures contract at a specified exercise price ("strike price") at any
time during the period of the option. If the option is exercised by the holder
before the last trading date during the option period, the holder receives the
futures position, as well as any balance in the futures margin account. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement is made entirely in cash in an amount equal to the
difference between the strike price and the closing level of the relevant index
on the expiration date.
Wells Fargo Bank expects that an increase or decrease in the index in
relation to the strike price level would normally correlate to an increase or
decrease (but not necessarily to the same extent) in the value of a Fund's
common stock portfolio against which the option was written. Thus, any loss in
the option transaction may be offset by an increase in the value of the common
stock portfolio to the extent changes in the index correlate to changes in the
value of that portfolio. The Funds may liquidate the put options they have
purchased by effecting a closing sale transaction rather than exercising the
option. This is accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that the Funds will be able
to effect the closing sale transaction. The Funds realize a gain from a closing
sale transaction if the price at which the transaction is effected exceeds the
premium paid to purchase the option and, if less, the Funds realize a loss.
The Funds may each invest in stock index futures in order to protect the
value of common stock investments or to maintain liquidity, provided not more
than 5% of a Fund's net assets are committed to such transactions. A stock index
future 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 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 in the index is made. With respect to stock indices that
are permitted investments, the Funds intend to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a Fund seeks to close out a futures contract
or a futures option position. Lack of a liquid market may prevent liquidation of
an unfavorable position.
OTHER INVESTMENT COMPANIES. The Funds may invest in shares of other open-
end management investment companies, up to the limits prescribed in Section
12(d) of the 1940 Act. Under the 1940 Act, a Fund's investment in such
securities currently is limited to, subject to certain exceptions, (i) 3% of the
total voting stock of any one investment company, (ii) 5% of such Fund's net
assets with respect to any one investment company and (iii) 10% of such Fund's
net assets in aggregate. Other investment companies in which the Funds invest
can be expected to charge fees for operating expenses such as investment
advisory and administration fees, that would be in addition to those charged by
the Funds.
PRIVATELY ISSUED SECURITIES. The Equity Value, Growth and Strategic Growth
Funds may invest in privately issued securities, including those 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 that are not
publicly traded. Accordingly, the liquidity of the market for specific Rule 144A
Securities may vary. Delay or difficulty in selling such securities may result
in a loss to a Fund. Privately issued or Rule 144A securities that are
determined by the investment advisor to be "illiquid" are subject to the Funds'
policy of not investing more than 15% of its net assets in illiquid securities.
The
11
<PAGE>
investment adviser, under guidelines approved by Board of Trustees of the Trust,
will evaluate the liquidity characteristics of each Rule 144A Security proposed
for purchase by a Fund on a case-by-case basis and will consider the following
factors, among others, in their 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).
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.
U.S. GOVERNMENT OBLIGATIONS. The Funds may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government obligations"). Payment of principal and interest on U.S. Government
obligations (i) may be backed by the full faith and credit of the United States
(as with U.S. Treasury bills and GNMA certificates) or (ii) may be backed solely
by the issuing or guaranteeing agency or instrumentality itself (as with FNMA
notes). In the latter case investors 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 will 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
value due to their structure or contract terms.
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 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.
WARRANTS. Each of the Equity Value, Growth and Strategic Growth Funds 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 Funds may only purchase warrants on securities in
which the Fund may invest directly. [THE FUNDS DO NOT PRESENTLY INTEND TO INVEST
IN WARRANTS.]
ZERO COUPON BONDS. The Equity Value and Strategic Growth Funds may invest
in zero coupon bonds. Zero coupon bonds are securities that make no periodic
interest payments, but are instead sold at discounts from face value. The buyer
of such a bond receives the rate of return by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. Because
zero coupon bonds bear no interest, they are more sensitive to interest-rate
changes and are therefore more volatile. When interest rates rise, the discount
to face value of the security deepens and the securities decrease more
12
<PAGE>
rapidly in value, when interest rates fall, zero coupon securities rise more
rapidly in value because the bonds carry fixed interest rates that become more
attractive in a falling interest rate environment.
NATIONALLY RECOGNIZED STATISTICAL RATINGS ORGANIZATIONS. The ratings of
Moody's Investors Service, Inc., Standard & Poor's Ratings Group, Division of
McGraw Hill, Duff & Phelps Credit Rating Co., Fitch Investors Service, Inc.
Thomson Bank Watch and IBCA Inc. represent their opinions as to the quality of
debt securities. It should be emphasized, however, that ratings are general and
not absolute standards of quality, and debt securities with the same maturity,
interest rate and rating may have different yields while debt securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase by a Fund, an issue of debt securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The advisor will consider such an event in determining
whether the Fund involved should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Equity Value Fund depends upon the ability of the issuers to meet their
obligations. An issuer's obligations under its debt securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or, in the case of governmental entities,
upon the ability of such entities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment of interest and principal of its
debt securities may be materially adversely affected by litigation or other
conditions. Further, it should also be, noted with respect to all municipal
obligations issued after August 15, 1986 (August 31, 1986 in the case of certain
bonds), the issuer must comply with certain rules formerly applicable only to
"industrial development bonds" which, if the issuer fails to observe them, could
cause interest on the municipal obligations to become taxable retroactive to the
date of issue.
13
<PAGE>
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 Occupations
Name, Age and Address Position During Past 5 years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Trustee, Chairman and Executive Vice President of Stephens;
President President of Stephens Insurance Services Inc.;
Senior Vice President of Insurance Services
Stephens Sports Management Inc.; and President of
Investor Brokerage Insurance Inc.
Thomas S. Goho, 55 Trustee Associate Professor of Finance of the School of Business
321 Beechcliff Court and Accounting at Wake Forest University since 1982.
Winston-Salem, NC 27104
Joseph N. Hankin, 57 Trustee President of Westchester Community College since 1971;
75 Grasslands Road Adjunct Professor of Columbia University Teachers
Valhalla, N.Y. 10595 College since 1976.
*W. Rodney Hughes, 71 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser Water Company
Crystal Geyser Water Co. and President of Crystal Geyser Roxane Water Company
55 Francisco St. since 1977.
San Francisco, CA 94133
(As of 1/1/98)
*J. Tucker Morse, 53 Trustee Private Investor; Chairman of Home Account Network, Inc.
4 Beaufain Street Real Estate Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse Investment
Corporation; and Co-Managing partner of Main Street
Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens; Director of Stephens
Officer, Secretary and SportS Management Inc.; and Director of Capo Inc.
Treasurer
</TABLE>
14
<PAGE>
Compensation Table
Year Ended December 31, 1997
----------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $9,500 $28,750
Trustee
R. Greg Feltus $ 0 $ 0
Trustee
Thomas S. Goho $9,500 $28,750
Trustee
Joseph N. Hankin $9,500 $28,750
Trustee
W. Rodney Hughes $8,500 $25,750
Trustee
Robert M. Joses $9,500 $28,750
Trustee
J. Tucker Morse $8,500 $25,750
Trustee
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Trustees of the Wells Fargo Fund Complex.
Trustees of the Trust are compensated annually by the Trust and by all the
registrants in the Fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. Stagecoach Funds, Inc. Stagecoach Trust and the Trust are considered
to be members of the same fund complex as such term is defined in Form N-1A
under the 1940 Act (the "Wells Fargo Fund Complex"). Overland Express Funds,
Inc. and Master Investment Trust, two investment companies previously advised by
Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to December
12, 1997. These companies are no longer part of the Wells Fargo Fund Complex.
MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust together form a separate fund complex (the "BGFA The Fund
Complex"). Each of the Trustees and Officers of the Trust serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo Fund Complex. The
Trustees are compensated by other companies and trusts within a Fund complex for
their services as directors/trustees to such companies and trusts. Currently the
Trustees do not receive any retirement benefits or deferred compensation from
the Trust or any other member of 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. 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. As compensation for its advisory
services, Wells Fargo Bank is entitled to receive a monthly fee at the annual
rate of 0.60% of each Fund's average daily net assets, with the exception of
the Money Market Fund, from which Wells Fargo Bank is entitled to receive
0.45% of such Fund's average daily net assets.
For the years ended December 31, 1995 1996 and 1997,
15
<PAGE>
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>
1995 1996 1997
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ------------- ---- ------ ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation $0 $85,107 $213,961 $24,043 $_____ $_____
Growth 0 19,169 81,759 46,059 $_____ $_____
Money Market 0 9,854 15,620 27,451 $_____ $_____
U.S. Government Allocation 0 12,949 6,751 42,413 $_____ $_____
</TABLE>
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.
INVESTMENT SUB-ADVISER. Barclays Global Fund Advisors ("BGFA") serves as
sub-adviser to the Asset Allocation and U.S. Government Allocation Funds
pursuant to a Sub-Advisory Contract (the "Sub-Advisory Contract") among Life &
Annuity Trust, on behalf of the Asset Allocation and U.S. Government Allocation
Funds, Wells Fargo Bank and BGFA. 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 makes recommendations regarding the
investment and reinvestment of the Asset Allocation and U.S. Government
Allocation Funds' assets. BGFA is responsible for implementing and monitoring
the performance of the asset allocation model employed with respect to these
Funds. BGFA furnishes to Wells Fargo Bank periodic reports on the investment
activity and performance of these Funds and such additional reports and
information as Wells Fargo Bank and Life & Annuity Trust's Board of Trustees and
officers may reasonably request. 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. ("WFITC"). Prior to January 1, 1996, WFNIA provided sub-advisory services
directly to the Asset Allocation and U.S. Government Allocation Funds. As
compensation for its sub-advisory services, BGFA is entitled to receive a
monthly fee equal to an annual rate of 0.20% of the Asset Allocation Fund's
average daily net assets, and 0.15% of the U.S. Government Allocation Fund's
average daily net assets.
For the years ended December 31, 1995, 1996 and 1997, Wells Fargo Bank paid
to WFNIA / BGFA the amounts indicated below for its services as sub-adviser to
the Asset Allocation and U.S. Government Allocation Funds. WFNIA / BGFA did not
waive any sub-advisory fees.
<TABLE>
<CAPTION>
1995 1996 1997
Fund Fees Paid Fees Paid Fees Paid
---- --------- --------- ---------
<S> <C> <C> <C>
Asset Allocation $28,442 $79,587 $_____
U.S. Government Allocation 3,251 12,320 $_____
</TABLE>
ADMINISTRATOR AND CO-ADMINISTRATOR. The Trust has retained Wells Fargo Bank
as administrator and Stephens as co-administrator on behalf of each Fund. The
Administration Agreement between Wells Fargo and each Fund, and the Co-
Administration Agreement among Wells Fargo Bank, Stephens and each Fund, state
that Wells Fargo Bank and Stephens shall provide as administration services,
among other things: (i) general supervision of the operation of each Fund,
including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), 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. Wells
Fargo Bank and Stephens also furnish office space and certain facilities
required for conducting the business of each Fund together with ordinary
clerical and bookkeeping services. Stephens pays the compensation of Life &
Annuity Trust's Trustees, officers and employees who are affiliated with
Stephens. The administrator and co-administrator are entitled to receive a
monthly fee of 0.03% and 0.04%, respectively, of the average daily net assets of
each Fund. Prior to February 1, 1998, the administrator and co-administrator
were entitled to receive a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of each Fund.
Prior to February 1, 1997 Stephens served as sole administrator to the
Funds and was entitled to monthly administration fees at the annual rate of
0.03% of each Fund's average daily net assets. For the years ended December 31,
1995 and 1996, Stephens was paid, and for the year ended December 31, 1997,
Wells Fargo and Stephens were paid, administration fees as follows:
16
<PAGE>
<TABLE>
<CAPTION>
Fund 1995 1996 1997
- -------------------------- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation $ 0 $16,872 $ ______
Growth 0 6,291 ______
Money Market 0 0 ______
U.S. Government Allocation 0 0 ______
</TABLE>
CUSTODIAN. Wells Fargo Bank has been retained to act as Custodian for the
Equity Value, Growth, Money Market and Strategic Growth Funds. Barclays Global
Investors, N.A. ("BGI"; formerly, WFITC) acts as Custodian for the Asset
Allocation and U.S. Government Allocation Funds. The Custodian, among other
things, maintains a custody account or accounts in the name of each Fund;
receives and delivers all assets for each Fund upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of each Fund and pays all expenses of each Fund. For
its services as Custodian to the Equity Value, Growth, Money Market and
Strategic Growth Funds, Wells Fargo Bank is entitled to an asset-based fee and
transaction charges. BGI is not entitled to receive compensation for its
services as Custodian to the Allocation Funds so long as its subsidiary, BGFA,
is entitled to receive fees for providing investment advisory services to such
Funds. BGI is entitled to compensation from the fees paid to BGFA for sub-
advisory services.
FUND ACCOUNTANT. Wells Fargo Bank acts as Fund Accountant for each Fund.
The Fund Accountant, among other things, computes net asset values on a daily
basis, and performance calculations on a regular basis and as requested by the
Funds. For providing such services, Wells Fargo Bank will be entitled to receive
from each Fund a monthly base fee of $2,000, plus a fee equal to an annual rate
of 0.070% of the first $50,000,000 of the Fund's average daily net assets,
0.045% of the next $50,000,000, and 0.020% of the average daily net assets in
excess of $100,000,000.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been retained
to act as Transfer and Dividend Disbursing Agent for the Funds. For its services
as transfer and dividend disbursing agent to the Funds, Wells Fargo Bank is
entitled to receive monthly payments at the annual rate of 0.10% of the Money
Market Fund's average daily net assets and 0.14% of each other Fund's average
daily net assets. Under the transfer agency agreement in place for the year
ended December 31, 1997, Wells Fargo Bank was 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 exceeded $20 million.
For the years ended December 31, 1995, 1996 [AND 1997], Wells Fargo Bank
waived all fees and expenses payable to it under the transfer agency and custody
agreements with the Funds.
SHAREHOLDER SERVICING AGENT. As discussed in the Funds' Prospectus under
the heading "Shareholder Servicing Agent", Life & Annuity Trust has approved, as
of May 1, 1998, a Servicing Plan on behalf of each Fund and has approved the
Funds' entry into related shareholder servicing agreements with financial
institutions, including American Skandia Life Insurance Company. For providing
these services, a shareholder servicing agent is entitled to a fee from the
Fund of up to 0.25%, on an annualized basis, of the average daily net asset
value of the Fund shares owned by or attributable to such customers of the
Shareholder Servicing Agent.
SERVICING PLAN. The Servicing Plan for the Funds and related shareholder
servicing agreements were approved by Life & Annuity Trust's Board of Trustees
including a majority of the Trustees who were not "interested persons" (as
defined in the Act) of the Funds and who had no direct or indirect financial
interest in the operation of the Servicing Plan or in any agreement related to
the Servicing Plan (the "Servicing Plan Qualified Trustees").
The actual fee payable to servicing agents under the Servicing Plan for the
Funds is determined, within such limits, from time to time by mutual agreement
between Life & Annuity Trust and each servicing agent and will not exceed the
maximum amounts payable by mutual funds sold by members of the NASD under the
conduct rules of the NASD.
The Servicing Plan for the Funds continues in effect from year to year if
such continuance is approved by a majority vote of both the Trustees of Life &
Annuity Trust and the Servicing Plan Qualified Trustees. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Trustees and the Servicing Plan Qualified Trustees. Servicing agreements may
be terminated at any time, without payment of any penalty, by vote of a majority
of the Servicing Plan Qualified Trustees. No material amendment to the Servicing
Plan may be made except by a majority of both the Trustees of the Trust and the
Servicing Plan Qualified Trustees.
17
<PAGE>
The Servicing Plan for the Funds requires that the administrator shall
provide to the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the
Servicing Plan.
PERFORMANCE CALCULATIONS
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.
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 periods ended December 31, 1997, the following chart provides the
average annual and cumulative total returns for the Funds listed below:
<TABLE>
<CAPTION>
Cumulative
Average Annual Total Return: Total Return:
--------------------------------------------------------- -------------------
<C> <C> <C> <C>
<S> One Year Ended Three Years Ended Inception to Inception to
Fund 12/31/97 12/31/97 12/31/97* 12/31/97*
----------------------- -------- -------- -------- --------
Asset Allocation [_____]% [_____]% [_____]% [_____]
Growth [_____]% [_____]% [_____]% [_____]
U.S. Government Allocation [_____]% [_____]% [_____]% [_____]
</TABLE>
YIELD. 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, 1997 was [_____%].
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, 1997
were [_____%] and [_____%], 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
18
<PAGE>
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 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 also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, WFIM), a division of Wells Fargo Bank, is listed in the top 100
by Institutional Investor magazine in its July 1997 survey "America's Top 300
Money Managers." This survey ranks money managers in several asset categories.
Life & Annuity Trust also may disclose in advertising and other types of sales
literature the assets and categories of assets under management by its
investment adviser or sub-adviser and the total amount of assets and mutual fund
assets managed by Wells Fargo Bank. As of December 31, 1997, Wells Fargo Bank
and its affiliates provided investment advisory services for approximately $62
billion of assets of individuals, trusts, estates and institutions and $23
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 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
19
<PAGE>
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
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.
20
<PAGE>
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Funds as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Funds
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by a Fund and that such
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Trust may suspend redemption rights or postpone redemption payments for
such periods as are permitted under the 1940 Act. The Trust may also redeem
shares involuntarily or make payment for redemption in securities or other
property if it appears appropriate to do so in light of Life & Annuity Trust's
responsibilities under the 1940 Act.
In addition, Life & Annuity Trust may redeem shares involuntarily to
reimburse the Funds for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of a Fund as provided from time to time in the
Prospectus.
PORTFOLIO TRANSACTIONS
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.
Purchases and sales of non-equity securities are usually principal
transactions. Non-equity 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 non-equity 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.
21
<PAGE>
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. Wells Fargo Bank and BGFA generally seek
reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank and BGFA consider factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
As a result, the Master Portfolio may pay a broker/dealer which furnishes
brokerage and research services a higher commission than that which may be
charged by another broker/dealer for effecting the same transaction. Such
brokerage and research services might consist of reports and statistics relating
to specific companies or industries, general summaries of groups of stocks or
bonds and their comparative earnings and yields, or broad overviews of the
stock, bond and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by Wells Fargo Bank and BGFA and
does not reduce the advisory fees payable by a Fund. The Board of Trustees will
periodically review the commissions paid by each Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Broker/dealers may furnish statistical, research and other information or
services which are deemed to be beneficial to a Fund's investment programs.
Research services received from brokers supplement the advisers' own research
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, market,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
The outside research assistance may be useful, since the brokers utilized
by the funds as a group may follow a broader universe of securities and other
matters than the staff of Wells Fargo Bank and/or BGFA can follow. In addition,
this research may provide Wells Fargo Bank and/or BGFA with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank and/or BGFA by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank and/or BGFA. It is the opinion of Wells
Fargo Bank that this material is beneficial in supplementing their research and
analysis; and, therefore, it may benefit the Funds by improving the qualify of
Wells Fargo Bank's investment advice. The advisory fees paid by the Funds are
not reduced because Wells Fargo Bank and BGFA may receive such services.
BROKERAGE COMMISSIONS. For the year ended December 31, 1997, the Asset
Allocation and Growth Funds paid brokerage commissions in the amount of
[$______] and [$_______], respectively. For the year ended December 31, 1996,
the Asset Allocation and Growth Funds paid brokerage commissions in the amount
of $2,682 and $85,137, respectively. For the year
22
<PAGE>
ended December 31, 1995, the Asset Allocation and the Growth Funds paid
brokerage commissions in the amount of $656 and $31,290, respectively. The other
Funds did not pay brokerage commissions during these periods.
SECURITIES OF REGULAR BROKER/DEALERS. On December 31, 1997, the Funds owned
securities (repurchase agreements) of their "regular brokers or dealers," as
defined in the 1940 Act, or their parents as follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
------ ------ ----------------------
<S> <C> <C>
Growth $ [______] Goldman Sachs & Co
Money Market $ [______] Goldman Sachs & Co
$ [______] HSBC Securities
$ [______] J P Morgan
$ [______] Morgan Stanley
</TABLE>
The other Funds did not own securities of their "regular brokers or
dealers" on December 31, 1997.
PORTFOLIO TURNOVER. For the year ended December 31, 1997, the portfolio
turnover rates for the Asset Allocation Fund, the Growth Fund and the U.S.
Government Allocation Fund were [____]%, [____]% and [____]%, 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.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce expenses of a Fund and,
accordingly, have a favorable impact on such Fund's performance. Except for the
expenses borne by Wells Fargo Bank and Stephens, the Funds bear all costs of
their respective operations, including the compensation of Life & Annuity
Trust's trustees who are not officers or employees of Wells Fargo Bank or
Stephens or any of their affiliates; advisory, shareholder servicing, and
administration fees; payments pursuant to any Plans; interest charges; taxes;
fees and expenses of independent auditors; legal counsel, transfer agent and
dividend disbursing agent; expenses of redeeming Fund shares; expenses of
preparing and printing prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant to
a Plan), shareholders' or investors' reports, notices, proxy statements and
reports to regulatory agencies; insurance premiums and certain expenses relating
to insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of the custodian, including those of keeping books and accounts and
calculating the net asset value of each Fund; expenses of shareholders' or
investors' meetings; expenses relating to the issuance, registration and
qualification of shares of the Funds; pricing services; organizational expenses;
and any extraordinary expenses. Expenses attributable to a Fund are charged
against the respective assets of the Fund. A pro rata portion of the expenses of
Life & Annuity Trust are charged against the assets of a Fund.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus of the Funds
describes generally the tax treatment of the Funds and their shareholders (i.e.,
the Participating Insurance Companies and their separate accounts). This section
of the SAI includes additional information concerning federal income taxes.
IN GENERAL. Each of the Funds intends to qualify as a separate "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 tax on
its annual net investment income and net capital gains to the extent such net
investment income and net capital gains are distributed to the Fund's
shareholders.
For a Fund to qualify as a regulated investment company under the Code, the
following requirements must also be satisfied: (a) at least 90% of the Fund's
annual gross income must be derived from dividends, interest, certain payments
with respect to securities loans, gains from the sale or other disposition of
stock or securities or foreign currencies (to the extent such currency gains are
directly related to the Fund's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (b) the Fund must diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the 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 the 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 obligations and the securities of other regulated investment
companies) or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses; and (c)
for taxable years beginning before August 5, 1997, the Fund, in general, must
derive less than 30% if its gross income from the sale or other disposition of
securities or options thereon held for less than three months.
Each Fund must also distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income (which, for this purpose,
includes net short-term capital gains) earned in each taxable year. Although a
Fund must ordinarily make such distributions during the taxable year in which it
realized the net investment income, in certain circumstance, the Fund may make
such distributions in the following taxable year. Furthermore, distribution to a
shareholder of record declared in October, November or December of one taxable
year and paid by January 31 of the following taxable year will be treated as
paid by December 31 of the first taxable year.
EXCISE TAX. A 4% nondeductible excise tax will be imposed on each Fund to
the extent it does not meet certain minimum distribution requirements by the
end of each calendar year. Each Fund intends to actually or be deemed to
distribute substantially all of its net investment income and net capital gains
by the end of each calendar year and, thus, expects not to be subject to the
excise tax.
TAXATION OF PORTFOLIO INVESTMENTS. Except as provided herein, gains and
losses on the sale of portfolio securities by a Fund will generally be capital
gains and losses. Such gains and losses will ordinarily be long-term capital
gains and losses if the securities have been held by the Fund for more than one
year at the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a Fund at a
market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
<PAGE>
If an option granted by the Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund or the option from its holder,
theFund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they result
from a position which is part of a "straddle," discussed below. If securities
are sold by the Fund pursuant to the exercise of a call option written by it,
the 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,
the Fund will subtract the premium received from its cost basis in the
securities purchased.
The amount of any gain or loss realized by a Fund on closing out regulated
futures contract or a nonequity option will generally result in a realized
capital gain or loss for federal income tax purposes. Such contracts and options
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, will generally 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 "make-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund will generally recognize ordinary
income or loss to the extent gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.
Offsetting positions held by the Funds involving certain financial forward,
futures or options contracts may be considered, for federal income tax purposes,
to constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a Fund
were treated as entering into "straddles" by engaging in certain financial
forward, futures or option contracts, such straddles could be characterized as
"mixed straddles" if the futures, forwards, or options comprising a part of such
straddles were governed by Section 1256 of the Code. The Fund may make one or
more elections with the respect to "mixed straddles." Depending upon which
election is made, if any, the results with respect to the Fund may differ.
Generally, to the extent the straddle rules apply to positions established by
the Fund, losses realized by the Fund may be deferred to the extent of
unrealized gain in any offsetting positions. Moreover, as a result of the
straddle and the conversion transaction rules, short-term captial loss on
straddle positions may be recharacterized as long-term capital loss, and long-
term capital gain may be characterized as short-term capital gain or ordinary
income.
If a Fund enters into a "constructive sale" of an appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchase shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the Internal Revenue Service upon certain distributions from the PFIC
or the Fund's disposition of its PFIC shares. If a Fund invests in a PFIC, the
Fund intends to make an available election to mark-to-market its interest in
PFIC shares. Under the election, the Fund will be treated as recognizing at the
end of each taxable year the difference, if any, between the fair market value
of it interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss my be suspended. The Fund will adjust its
basis in the PFIC shares by the amount of income (or loss) recognized. Although
such income (or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
federal income tax or the interest charge with respect to its interest in the
PFIC.
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
TAXATION OF A SEPARATE ACCOUNT OF A PARTICIPATING INSURANCE COMPANY. Under
the Code, the investments of a segregated asset account, such as the separate
accounts of the Participating Insurance Companies, must be "adequately
diversified" in order for the holders of the VA Contracts or VLI 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.
In general, the investments of a segregated asset account are considered to
be "adequately diversified" only if (i) no more than 55% of the value of the
total assets of that account is represented by any one investment; (ii) no more
than 70% of the value of the total assets of the account is represented by any
two investments; (iii) no more than 80% of the value of the total assets of the
account is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the account is represented by any four
investments. In general, all securities of the same issuer are treated as a
single investment for such purposes. However, Treasury Regulations provide a
"look-through rule" with respect to a segregated asset account's investments in
a regulated investment company for purposes of the applicable diversification
requirements, provided certain conditions are satisfied by the regulated
investment company. In particular, if the beneficial interests in the regulated
investment company are held by one or more segregated asset accounts of one or
more insurance companies, and if public access to such regulated investment
company is available exclusively through the purchase of a VA Contract or VLI
Policy, then a segregated asset account's beneficial interest in the regulated
investment company is not treated as a single investment. Instead, a pro rata
portion of each asset of the regulated investment company is treated as an asset
of the segregated asset account.
Each Fund intends to satisfy the relevant conditions at all times to enable
the corresponding separate accounts to be "adequately diversified." Accordingly,
each separate account of the Participating Insurance Companies will be able to
to treat its interests in a Fund as ownership of a pro rate portion of each
asset of the Fund, so that individual holders of the VA Contracts of VLI
Policies underlying the separate account will qualify for favorable federal
income tax treatment under the Code.
For information concerning the federal income tax consequences for the
holders of VA Contracts and VLI 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.
FEDERAL INCOME TAX RATES. As of the printing of this SAI, the maximum
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). The amount of tax payable by an individual or corporation,
however, may be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other
matters.
OTHER MATTERS. Investors should be aware that the investment to be made by
the Funds may involve sophisticated tax rules that may result in income or gain
recognition by the Funds without corresponding current cash receipts. Although
each Fund will seek to avoid significant noncash income, such noncash income
could be recognized by a Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Portfolio. Each investor is urged to
consult his or her tax advisor regarding specific question as to Federal, state,
local or foreign taxes.
23
<PAGE>
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 six series of shares, each representing an unlimited number of beneficial
interests-- the Asset Allocation Fund, the Equity Value Fund, the Growth Fund,
the Money Market Fund, the Strategic Growth Fund and the U.S. Government
Allocation Fund -- and the Board of Trustees may, in the future, authorize the
creation of additional investment portfolios.
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.
25
<PAGE>
Set forth below is the name, address and share ownership of each person
known by the Trust to have beneficial or record ownership of 5% or more of the
voting securities of the Fund as a whole. The term "N/A" is used where a
shareholder holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1998
<TABLE>
<CAPTION>
Name and Address Percentage
Name of Fund of Shareholder of Class Capacity
------------ ---------------- -------- --------
<S> <C> <C> <C>
Asset Allocation American Skandia Life 99.92% Record
P.O. Box 883
Shelton, CT 06484
Growth American Skandia Life 99.93% Record
P.O. Box 883
Shelton, CT 06484
Money Market American Skandia Life 99.84% Record
P .O. Box 883
Shelton, CT 06484
U.S. Government Allocation American Skandia Life 94.61% Record
P.O. Box 883
Shelton, CT 06484
Security Equity 5.27% Record
Life Insurance Co.
84 Business Park Drive
Suite 303
Armonk, NY 10504
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
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, audited financial statements and independent
auditors' report for the Funds of Life & Annuity Trust for the year ended
December 31, 1997 are attached to this SAI.
26
<PAGE>
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.
27
<PAGE>
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."
1
<PAGE>
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 (formerly, Growth and Income) Money Market and U.S.
Government Allocation Funds are included in Part B, Item 23:
Portfolio of Investments - December 31, 1996
Statement of Assets and Liabilities - December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statements of Changes in Net Assets for the year ended December 31,
1996
Financial Highlights for the year ended December 31, 1996
Notes to the Financial Statements - December 31, 1996
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1(a) - Declaration of Trust, incorporated by reference to Post-
Effective Amendment No. 4, filed April 30, 1997.
1(b) - Amendment No. 1 to the Declaration of Trust, incorporated by
reference to Post-Effective Amendment No. 4, filed April 30,
1997.
2 - By-Laws, incorporated by reference to Post-Effective
Amendment No. 4, filed April 30, 1997.
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. 4, filed April 30, 1997.
5(a)(ii) - Sub-Advisory Contract with BZW Barclays Global Fund Advisors
on behalf of the Asset Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 3 filed on April
26, 1996.
5(a)(iii) - Sub-Advisory Contract with BZW Global Fund Advisors on behalf
of the U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 3 filed on April
26, 1996.
</TABLE>
C-1
<PAGE>
<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. 4,
filed April 30, 1997.
6(a) - Distribution Agreement with Stephens Inc. on behalf of each
Fund, incorporated by reference to Post-Effective Amendment
No. 4, filed April 30, 1997.
6(b) - Participation Agreement with American Skandia Life Assurance
Corporation, incorporated by reference to Post-Effective
Amendment No. 4, filed April 30, 1997.
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. 4, filed April 30, 1997.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Not applicable
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.
27.1 - Financial Data Schedule for the Asset Allocation Fund,
incorporated by reference to Post-Effective Amendment No. 4,
filed April 30, 1997.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
27.2 - Financial Data Schedule for the Growth and Income Fund,
incorporated by reference to Post-Effective Amendment No. 4,
filed April 30, 1997.
27.3 - Financial Data Schedule for the Money Market Fund,
incorporated by reference to Post-Effective Amendment No. 4,
filed April 30, 1997.
27.4 - Financial Data Schedule for the U.S. Government Asset
Allocation Fund, incorporated by reference to Post-Effective
Amendment No. 4, filed April 30, 1997.
</TABLE>
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 January 2, 1998 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 3
The Growth Fund 2
The Money Market Fund 2
The U.S. Government Allocation Fund 3
</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
C-3
<PAGE>
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, 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, McKee, Willis & Greene
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
Michael R. Bowlin Chairman of the Board, Chief Executive Officer, Chief Operating
Officer and President of Atlantic Richfield Co. (ARCO)
Highway 150
Santa Paula, CA 93060
Edward Carson Chairman of the Board and Chief Executive Officer of
First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Director of Aztar Corporation
2390 East Camelback Road Suite 400
Phoenix, AZ 85016
Director of Castle & Cook, Inc.
10900 Wilshire Blvd.
Los Angeles, CA 90024
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.
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C>
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
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
Chairman of the and Chief Executive Officer of
Board of Directors Wells Fargo & Company
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
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
</TABLE>
C-5
<PAGE>
<TABLE>
<S> <C>
San Jose, CA 95112
Director of Boise Cascade Corp.
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
Director of Enron Corp.
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Thomas L. Lee Chairman and Chief Executive Officer
of The Newhall Land and Farming Company
10302 Avenue 7 1-2
Firebaugh, CA 93622
Director of Calmat Co.
501 El Charro Rod
Pleasanton, CA 94588
Director of the Los Angeles Area Chamber of Commerce
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
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
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C>
Palo Alto, CA 94303
Carl E. Reichardt Director of Ford Motor Company
Director 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
Richard J. Stegemeier Chairman (Emeritus) of Unocal Corp
44141 Yucca Avenue
Lancaster, CA 93534
Director of Foundation Health Corporation
166 4th
Fort Irwin, CA 92310
Director of Halliburton Company
3600 Lincoln Plaza
500 North Alcard Street
Dallas, TX 75201
Director of Northrop Grumman corp.
1840 Century Park East
Los Angeles, CA 90067
Director of Outboard Marine Corporation
100 Seahorse Drive
Waukegan, IL 60085
Director of Pacific Enterprises
555 West Fifth Street Suite 2900
Los Angeles, CA 90031
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C>
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080
David M. Tellep Chairman of the Board of Directors and
Chief Executive Officer of Lockheed Martin Corp.
6801 Rockledge Drive
Bethesda, MD 20817
Director of Edison International and
Southern California Edison Company
2244 Walnut Grove Ave.
Rosemead, CA 91770
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
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
William F. Zuendt President and Chief Operating Officer of
President Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Director of 3Com Corp.
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
</TABLE>
C-8
<PAGE>
<TABLE>
<S> <C>
San Francisco, CA 94163
</TABLE>
Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary of
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 Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Director of BGFA and C-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA
Chairman and Director and Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at
Bankers Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94105
</TABLE>
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 "Management of the Funds" in the Prospectus 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.
C-9
<PAGE>
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 MasterWorks Funds Inc.,
Stagecoach Funds, Inc. and Stagecoach Trust, Nations Fund, Inc., Nations Fund
Trust, Nations Fund Portfolios, Inc., Nations LifeGoal Funds, Inc. and Nations
Institutional Reserves, and is the exclusive placement agent for Managed Series
Investment Trust and Master Investment Portfolio, all of which are registered
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 Advisors Act of 1940 (file No. 501-15510).
(c) Not applicable.
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, administrator and custodian and transfer and dividend
disbursing agent at 525 Market Street, San Francisco, California 94105.
(c) 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 at 45 Fremont Street, San Francisco, California
94105.
(d) Stephens maintains all Records relating to its services as
sponsor, co- administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
Item 31. Management Services.
-------------------
Other than as set forth under the captions "Management of the Funds""
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.
-------------
C-10
<PAGE>
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the effective date of registrant's 1933 Act
registration statement.
(c) 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.
(d) 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 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.
(e) 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.
C-11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its 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 29th day of January, 1998.
LIFE & ANNUITY TRUST
By /s/ Richard H. Blank, Jr.
-------------------------
(Richard H. Blank, Jr.)
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Trustee, Chairman and President ______
------------------------------
(R. Greg Feltus) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 1/29/98
------------------------------ -------
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Trustee ______
------------------------------
(Jack S. Euphrat)
* Trustee ______
------------------------------
(Thomas S. Goho)
* Trustee ______
------------------------------
(Peter G. Gordon)
* Trustee ______
------------------------------
(Joseph N. Hankin)
* Trustee ______
------------------------------
(W. Rodney Hughes)
* Trustee ______
------------------------------
(J. Tucker Morse)
</TABLE>
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
January 29, 1998
<PAGE>
LIFE & ANNUITY TRUST
FILE NOS. 33-70988; 811-8118
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
EX-99.B10 Opinion of Counsel - Morrison & Foerster LLP
</TABLE>
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
EXHIBIT 99.B10
January 29, 1998
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. 5 and Amendment No. 7 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 Equity
Value and Strategic Growth Funds (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, upon completion of such
corporate action as is deemed necessary or appropriate, will be duly and validly
authorized by such corporate action, and assuming delivery by sale or in accord
with the Funds' dividend reinvestment plan, in accordance with the description
set forth in the Funds' current prospectus, under the Securities Act of 1933, as
amended, the Shares will be legally issued, fully paid and nonassessable by the
Trust.
<PAGE>
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 the description of advice rendered by our firm under the heading
"Management of the Funds" in the Prospectus, which is included as part of the
Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
