<PAGE>
As filed with the Securities and Exchange Commission
on May 1, 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. 6 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [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
[X] Immediately upon filing pursuant [ ] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[ ] 60 Days after filing pursuant [ ] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[ ] 75 days after filing pursuant [ ] on _________ pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
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. 6 to the Registration Statement of Life &
Annuity Trust (the "Trust") is being filed to add audited financial statements,
independent auditors report and certain other financial information for the year
ended December 31, 1997, for the Asset Allocation, Growth, Money Market and U.S.
Government Allocation Funds and to make certain non-material changes to the
Asset Allocation, Equity Value, Growth, Money Market, Strategic Growth and U.S.
Government Allocation Funds.
This Post-Effective Amendment does not affect the Registration Statement for
the Trust's other Funds, prospectuses and Statements of Additional Information.
<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 Table of Contents
12 Management
Other
13 Investment Restrictions
Additional Permitted Investment Activities
Appendix
14 Management
15 Management
16 Management
Fund Expenses
Independent Auditors
17 Portfolio Transactions
18 Capital Stock
Other
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. WELLS CAPITAL MANAGEMENT
("WCM"), AN AFFILIATE OF WELLS FARGO BANK, IS THE SUB-ADVISER TO THE EQUITY
VALUE, GROWTH, MONEY MARKET AND STRATEGIC GROWTH FUNDS. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK OR BGFA, IS THE
CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS DATED MAY 1, 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..................................................... 10
Dividends and Distributions................................................ 11
Management of the Funds.................................................... 12
Taxes...................................................................... 16
Fund Expenses.............................................................. 17
General Information........................................................ 17
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 6, 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 Year Year Year Year Year
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........... $ 11.42 $ 11.27 $ 9.71 $10.00 $ 15.34 $ 12.91 $ 10.30 $ 10.00
Income from
investment
operations:
Net investment
income........... 0.60 0.56 0.55 0.30 0.19 0.20 0.22 0.14
Net realized and
unrealized
gains/(losses)on
investments...... 1.73 0.69 2.21 (0.19) 2.48 2.68 2.77 0.30
------- ------- ------- ------ ------- ------- ------- -------
Total from
investment
operations....... 2.33 1.25 2.76 0.11 2.67 2.88 2.99 0.44
Less
distributions:
Dividends from
net investment
income........... (0.60) (0.56) (0.55) (0.30) (0.19) (0.20) (0.22) (0.14)
Distributions
from realized
capital gains.... (1.16) (0.54) (0.65) (0.10) (1.03) (0.25) (0.16) 0.00
------- ------- ------- ------ ------- ------- ------- -------
Total from
distributions.... (1.76) (1.10) (1.20) (0.40) (1.22) (0.45) (0.38) (0.14)
------- ------- ------- ------ ------- ------- ------- -------
Net asset value:
end of period.... $ 11.99 $ 11.42 $ 11.27 $ 9.71 $ 16.79 $ 15.34 $ 12.91 $ 10.30
======= ======= ======= ====== ======= ======= ======= =======
Total return (not
annualized)***... 20.88% 11.46% 28.95% 1.13% 17.33% 22.44% 29.19% 4.47%
Ratios/supplemental
data:
Net assets, end
of period (000).. $86,506 $51,797 $25,467 $7,464 $71,944 $33,381 $10,920 $ 2,136
Number of shares
outstanding, end
of period (000).. 7,215 4,537 2,259 769 4,285 2,176 846 207
Ratios to average
net assets
(annualized)
Ratio of expenses
to average net
assets(1)........ 0.80% 0.69% 0.41% 0.00% 0.65% 0.60% 0.43% 0.00%
Ratio of net
investment
income to
average net
assets(2)....... 5.20% 5.34% 5.58% 6.30% 1.19% 1.53% 2.05% 3.00%
Portfolio
Turnover......... 156% 4% 97% 0% 124% 95% 84% 21%
Average
Commission Rate
<CAPTION>Paid(3).......... N/A N/A N/A N/A $0.0725 $0.0810 N/A N/A
Money Market Fund* U.S. Government Allocation Fund**
-------------------------------------- --------------------------------------
Year Year Year Year Year Year Year Year
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 $ 1.00 $ 10.13 $ 10.30 $ 9.63 $ 10.00
Income from
investment
operations:
Net investment
income........... 0.05 0.05 0.05 0.03 0.58 0.56 0.60 0.40
Net realized and
unrealized
gains/(losses)on
investments...... 0.00 0.00 0.00 0.00 0.15 (0.17) 0.77 (0.37)
--------- --------- -------- --------- --------- --------- -------- ---------
Total from
investment
operations....... 0.05 0.05 0.05 0.03 0.73 0.39 1.37 0.03
Less
distributions:
Dividends from
net investment
income........... (0.05) (0.05) (0.05) (0.03) (0.58) (0.56) (0.60) (0.40)
Distributions
from realized
capital gains.... 0.00 0.00 0.00 0.00 (0.01) 0.00 (0.10) 0.00
--------- --------- -------- --------- --------- --------- -------- ---------
Total from
distributions.... (0.05) (0.05) (0.05) (0.03) (0.59) (0.56) (0.70) (0.40)
--------- --------- -------- --------- --------- --------- -------- ---------
Net asset value:
end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 10.27 $ 10.13 $10.30 $ 9.63
========= ========= ======== ========= ========= ========= ======== =========
Total return (not
annualized)***... 5.04% 4.72% 5.41% 2.71% 7.47% 3.99% 14.40% 0.41%
Ratios/supplemental
data:
Net assets, end
of period (000).. $14,788 $12,667 $5,823 $ 1,492 $23,894 $13,527 $4,855 $ 866
Number of shares
outstanding, end
of period (000).. 14,788 12,667 5,823 1,492 2,327 1,335 471 90
Ratios to average
net assets
(annualized)
Ratio of expenses
to average net
assets(1)........ 0.53% 0.51% 0.42% 0.00% 0.64% 0.60% 0.45% 0.00%
Ratio of net
investment
income to
average net
assets(2)....... 4.95% 4.64% 5.15% 4.63% 5.75% 5.75% 5.82% 7.35%
Portfolio
Turnover......... N/A N/A N/A N/A 135% 222% 405% 130%
Average
Commission Rate
Paid(3).......... N/A N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(1) Ratio of net
expenses to
average net
assets prior
to waived
fees and
reimbursed
expenses.... 0.85% 0.80% 1.22% 2.24% 1.01% 1.12% 2.02% 10.18%
(2) Ratio of net
investment
income
(loss) to
average net
assets prior
to waived
fees and
reimbursed
expenses.... 5.15% 5.23% 4.77% 4.06% 0.83% 1.01% 0.46% (7.18)%
(1) Ratio of net
expenses to
average net
assets prior
to waived
fees and
reimbursed
expenses.... 1.07% 1.22% 3.83% 11.43% .97% 1.18% 2.46% 12.73%
(2) Ratio of net
investment
income
(loss) to
average net
assets prior
to waived
fees and
reimbursed
expenses.... 4.41% 3.93% 1.74% (6.80)% 5.42% 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 Asset Allocation fund commenced operations on April 15, 1994.
**The Growth Fund commenced operations on April 12, 1994.
***
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.
1
<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.
- --------
/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.
2
<PAGE>
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 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.
Common Stocks. 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.
Other Investments. 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.
3
<PAGE>
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 December 1997, this range was from $3.0 billion to
$240.0 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 in companies with a
market capitalization under $3.0 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), 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. In addition, the Fund 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. 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
4
<PAGE>
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.
Common Stock. 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
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 December 1997, the capitalization range for the Russell Midcap
Index was from $.43 billion to $16.42 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 $.43 billion if the investment
adviser to the Fund believes such investments to be in the best interest of
the Fund.
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.
Other Investments. The Fund 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.
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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.
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.
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,
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commercial paper, bankers' acceptances, certificates of deposit, fixed time
deposits and repurchase agreements. U.S. dollar-denominated obligations of
both domestic and foreign banks may be included.
U.S. Government obligations have been selected by Wells Fargo Bank as the
Fund's principal investments because of their relatively low purchase and sale
transaction costs and because of the low default risk associated with them
(i.e., they are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities).
Other Investments. The Fund also may enter into futures and options
contracts and options on futures contracts and make margin payments in
connection with such contracts, invest in unrated instruments determined by
the Fund's adviser to be of investment quality comparable to other rated
instruments that the Fund is permitted to purchase, and purchase securities on
a delayed delivery or when-issued basis. The Fund is a diversified portfolio.
A more complete description of the model and the Fund's investments and
investment activities is contained in the "Prospectus Appendix -- Additional
Investment Policies" and in the Funds' SAI.
PERFORMANCE
Each Fund's performance may be advertised in terms of average annual total
return and cumulative total return. In addition, the performance for the U.S.
Government Allocation Fund and the Money Market Fund may be advertised in
terms of yield. These performance figures are based on historical results
calculated under uniform SEC formulas and are not intended to indicate future
performance. The actual return of a holder of a VA Contract or VLI Policy is
also affected by charges and fees imposed by the separate accounts of
Participating Insurance Companies. Any Fund advertising is accompanied by
performance information of the related insurance company separate accounts
which fund the VA Contracts or VLI Policies or by an explanation that Fund
performance information does not reflect separate account fees and charges.
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
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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
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rates or sudden market moves. Some derivatives also may be susceptible to
fluctuations in yield or value due to their structure or contract terms.
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);
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. 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
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.
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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 may suspend the right of redemption or postpone the date of payment upon
redemption for any period during which the New York Stock Exchange 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 or
the 1940 Act may otherwise permit.
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.
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.
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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 several 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 0.60%, 0.52%, 0.27% and 0.45%, 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.
INVESTMENT SUB-ADVISERS
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.
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As compensation for it sub-advisory services, BGFA is entitled to receive a
monthly fee equal to an annual rate of 0.15% of the first $900 million of the
Asset Allocation Fund's average daily net assets and 0.10% of net assets over
$900 million. As compensation for sub-advisory services for the U.S.
Government Allocation Fund, BGFA is entitled to receive a monthly fee equal to
an annual rate of 0.05% of the first $75 million of the U.S. Government
Allocation Fund's average daily net assets, 0.04% of the next $75 million of
such Fund's net assets, and 0.03% of net assets over $150 million. For the
year ended December 31, 1997, BGFA actually received payment for its sub-
advisory services at the rate of 0.15% and 0.10% of the 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.
As of May 1, 1998, Wells Fargo Bank has engaged WCM to provide sub-advisory
services to the Equity Value, Growth, Money Market and Strategic Growth Funds.
Wells Fargo Bank has retained authority over the management of each such Fund
and the investment and disposition of such Funds' assets. As compensation for
its sub-advisory services, WCM is entitled to receive a monthly fee equal to an
annual rate of 0.25% of the first $200 million of each of the Equity Value,
Growth and Strategic Growth Funds' average daily net assets, 0.20% of the next
$200 million and 0.15% of net assets over $400 million. As compensation for sub-
advisory services for the Money Market Fund, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Money Market Fund's average daily net assets and 0.04% of net assets over $960
million. WCM is located at 525 Market Street, 10th Floor, San Francisco, CA
94105.
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.
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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. Jon Hickman has assumed responsibility as portfolio co-manager of the
Strategic Growth Fund since May 1, 1998. Mr. Hickman has over sixteen years'
experience in the investment management field. He joined Wells Fargo Bank in
1986 managing equity and balanced portfolios for individuals and employee
benefit plans. He is a senior member of Wells Fargo Bank's Equity Strategy
Committee. Mr. Hickman has a B.A. and an M.B.A. in Finance from Brigham Young
University.
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 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
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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 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.
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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 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
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maintain and invest 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 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 Trust
in a manner proportionate to the net assets of each Fund, on a transactional
basis, or on such other basis as Life & Annuity Trust's Board of Trustees
deems equitable.
GENERAL INFORMATION
The Funds' SAI and this Prospectus omit certain information contained in the
Registration Statement that the Funds have filed with the SEC under the
Securities Act of 1933 and the 1940 Act, and reference is hereby made to the
Registration Statement and its exhibits and amendments for further information
about the Funds and the shares offered hereby. The Registration Statement and
its exhibits and amendments are available for public inspection at the SEC in
Washington, D.C.
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PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES
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
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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.
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
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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.
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
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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
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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 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.
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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 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,
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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
Each Fund 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 (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
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"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
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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.
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 Item (i) above, 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 Item (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
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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.
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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 Statement of Additional Information ("SAI") contains
additional 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 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:
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Investment Restrictions............................................................... 1
Additional Permitted Investment Activities............................................ 3
Management............................................................................ 14
Performance Calculations............................................................. 18
Determination of Net Asset Value..................................................... 21
Additional Purchase and Redemption Information....................................... 22
Portfolio Transactions............................................................... 22
Fund Expenses........................................................................ 24
Federal Income Taxes................................................................. 24
Capital Stock........................................................................ 27
Other................................................................................ 28
Independent Auditors................................................................. 29
Appendix............................................................................. A-1
Report of Independent Auditors and Financial Statements.............................. FS-1
i
</TABLE>
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INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Funds are subject to the following
investment restrictions, all of which are fundamental policies; that is, they
may not be changed, without approval by the vote of the holders of a majority
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
of the outstanding voting securities of such Fund.
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 Securities and Exchange Commission ("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;
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(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
(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 or hold 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.
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<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 Standard & Poor's Ratings Group ("S&P"), (iii) the present yield on money
market instruments, (iv) the historical statistical standard deviation in
investment return for each class of assets, 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.
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.
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.
Commercial Paper. The Allocation Funds, Equity Value 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
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<PAGE>
foreign bank holding companies, 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 Nationally Recognized Statistical Ratings Organization ("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 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
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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. 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
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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 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
ADRs, CDRs, EDRs, IDRs and 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 Fund 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.
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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 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.
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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 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.
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.
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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 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
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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 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 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).
10
<PAGE>
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 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 a 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.
11
<PAGE>
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 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 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 Government National Mortgage Association
("GNMA") certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with Federal National Mortgage
Association ("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.
12
<PAGE>
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 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
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Management of the Funds." 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 Inc.; President of
President Stephens Insurance Services Inc.; Senior Vice President
of 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
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 Street since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Trustee President of Westchester Community College since 1971;
75 Grasslands Road Adjunct Professor of Columbia University Teachers College
Valhalla, NY 10595 since 1976.
*W. Rodney Hughes, 71 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Trustee Private Investor; Chairman of Home Account Network, Inc.
4 Beaufain Street Real Estate Developer; Chairman of Renaissance Properties
Charleston, SC 29401 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 Inc.; Director of Stephens
Officer, Secretary and Sports Management Inc.; and Director of Capo Inc.
Treasurer
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Year Ended December 31, 1997
----------------------------
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
15
<PAGE>
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, 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>
Year Ended Year Ended Year Ended
12/31/95 12/31/96 12/31/97
---------- ---------- ----------
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 $ 419,704 $ 0
Growth $ 0 $ 19,169 $ 81,759 $ 46,059 $ 277,841 $40,391
Money Market $ 0 $ 9,854 $ 15,620 $ 27,451 $ 42,375 $29,403
U.S. Government Allocation $ 0 $ 12,949 $ 6,751 $ 42,413 $ 86,904 $28,118
</TABLE>
General. Each Fund's Advisory Contract will continue in effect for more than
two years from the effective date 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.
A Fund's Advisory Contract may be terminated on 60 days' written notice by
either party and will terminate 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, 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 0.15% of the first $900 million of the
Asset Allocation Fund's average daily net assets and 0.10% of net assets over
$900 million. As compensation for sub-advisory services for the U.S. Government
Allocation Fund, BGFA is entitled to receive a monthly fee equal to an annual
rate of 0.05% of the first $75 million of the U.S. Government Allocation Fund's
average daily net assets, 0.04% of the next $75 million of such Fund's net
assets, and 0.03% of net assets over $150 million.
Prior to May 1, 1998, BGFA was entitled to receive a monthly fee equal to an
annual rate of 0.20% of the first $500 million of the Asset Allocation Fund's
average daily net assets, 0.15% of the next $500 million of such Fund's net
assets, and 0.10% of net assets over $1 billion. Also prior to May 1, 1998, BGFA
was entitled to receive a monthly fee equal to an annual rate of 0.05% of the
first $100 million of the U.S. Government Allocation Fund's average daily net
assets, 0.04% of the next $50 million of such Fund's net assets, and 0.03% of
net assets over $150 million. Prior to October 30, 1997, BGFA was 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 net
assets.
As of May 1, 1998, Wells Capital Management ("WCM") serves as sub-advisor to
the Equity Value, Growth, Money Market and Strategic Growth Funds. As sub-
adviser, WCM makes recommendations regarding the investment and reinvestment of
the Funds' assets, furnishes to Wells Fargo Bank periodic reports on the
investment activity and performance of the Funds, and furnishes such additional
reports and information as Wells Fargo Bank and the Trust's Board of Trustees
and officers may reasonably request. As compensation for its sub-advisory
services, WCM is entitled to receive a monthly fee equal to an annual rate 0.25%
of the first $200 million of the Equity Value, Growth and Strategic Growth
Funds' average daily net assets, 0.20% of the next $200 million of such Funds'
net assets, and 0.15% of net assets over $400 million. As compensation for sub-
advisory services for the Money Market Fund, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Money Market Fund's average daily net assets and 0.04% of net assets over $960
million.
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>
Year Ended Year Ended Year Ended
12/31/95 12/31/96 12/31/97
Fund Fees Paid Fees Paid Fees Paid
---- ---------- ---------- ----------
<S> <C> <C> <C>
Asset Allocation $28,442 $79,587 $131,848
U.S. Government Allocation $ 3,251 $12,320 $ 24,439
</TABLE>
General. Each Fund's Sub-Advisory Contract will continue in effect for more
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or (ii) by the Company's Board of Directors, including a
majority of the Directors of the Company who are not parties to the Sub-Advisory
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
A Fund's Sub-Advisory Contract may be terminated on 60 days written notice by
either party and will terminate automatically if assigned.
16
<PAGE>
Administrator and Co-Administrator. The Trust has retained Wells Fargo Bank
as administrator and Stephens Inc. ("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 May 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. 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 served as sole administrator to the
Funds. Stephens performed substantially the same services now provided by
Stephens and Wells Fargo Bank 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:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 12/31/95 12/31/96 12/31/97
---- ---------- ---------- ----------
<S> <C> <C> <C>
Asset Allocation $0 $16,872 $36,082
Growth $0 $ 6,291 $28,024
Money Market $0 $ 0 $ 8,107
U.S. Government Allocation $0 $ 0 $10,010
</TABLE>
Custodian. Wells Fargo Bank acts 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 acts 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, except for $55,960 of transfer agency fees paid by
the Asset Allocation Fund for the year ended December 31, 1997.
17
<PAGE>
Shareholder Servicing Agent. Life & Annuity Trust has approved 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. Under the agreements, Shareholder Servicing
Agents (including Wells Fargo Bank) agree to perform, as agents for their
customers, administrative services, with respect to Fund shares, which include
aggregating and transmitting shareholder orders for purchases, exchanges and
redemptions; maintaining shareholder accounts and records; and providing such
other related services as the Company to a shareholder may reasonably request.
For providing shareholder services, a Servicing Agent is entitled to a fee from
the applicable Fund, on an annualized basis, of the average daily net assets of
the class of shares owned of record or beneficially by the customers of the
Servicing Agent during the period for which payment is being made. 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. The Servicing Plan 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.
For the period ended December 31, 1997, Wells Fargo Bank and its affiliates
waived any and all shareholder servicing fees payable to them by the Funds.
General. The Servicing Plan for the Funds will continue 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.
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
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The yield of a
Fund and the yield of a Class of shares in 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.
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<PAGE>
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Average Annual Total Return: Each Fund may advertise certain yield and total
return information. 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 ("ERV") 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.
Cumulative Total Return: In addition to the above performance information,
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:
One Year Ended Three Years Ended Inception to Inception to
Fund 12/31/97 12/31/97 12/31/97 12/31/97
---- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Asset Allocation 20.88% 20.21% 16.22% 75.69%
Growth 17.33% 22.89% 19.51% 93.89%
U.S. Government Allocation 7.47% 8.54% 6.89% 28.38%
</TABLE>
Yield Calculations: 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 4.16%.
In addition, 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
yield for the period ended December 31, 1997 was 5.09%.
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.
19
<PAGE>
In addition, investors should recognize that changes in the net asset value
of shares of the U.S. Government Allocation Fund will affect the yield of the
Fund for any specified period, and such changes should be considered together
with the Fund's yield in ascertaining the Fund's total return to shareholders
for the period. Yield information for the Funds may be useful in reviewing the
performance of the Funds and for providing a basis for comparison with
investment alternatives. The yield of a Fund, however, may not be comparable to
the yields from investment alternatives because of 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
20
<PAGE>
investment attributes of a Fund or the general economic, business, investment,
or financial environment in which a Fund operates; (iii) the effect of tax-
deferred compounding on the investment returns of a Fund, or on returns in
general, may be illustrated by graphs, charts, etc., where such graphs or charts
would compare, at various points in time, the return from an investment in a
Fund (or returns in general) on a tax deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which a Fund invests
may be compared to relevant indices of stocks or surveys (e.g., S&P Industry
Surveys) to evaluate a Fund's historical performance or current or potential
value with respect to the particular industry or sector.
From time to time, Life & Annuity Trust also may include in advertisements
or other marketing materials a discussion of certain of the objectives of the
investment strategy of the U.S. Government Allocation Fund and the Asset
Allocation Fund and a comparison of this strategy with other investment
strategies. In particular, the responsiveness of these Funds to changing market
conditions may be discussed. For example, Life & Annuity Trust may describe the
benefits derived by having Wells Fargo Bank, as Investment Adviser, and BGFA, as
investment sub-adviser, monitor and reallocate investments among the three asset
categories described in the Funds' Prospectus. Life & Annuity Trust's
advertising or other marketing material also might set forth illustrations
depicting examples of recommended allocations in different market conditions. It
may state, for example, that when the model indicates that stocks represent a
better value than bonds or money market instruments, the Asset Allocation Fund
might consist of 70% stocks, 25% bonds and 5% money market instruments and that
when the model indicates that bonds represent a better value than stocks or
money market instruments, the balance of assets might shift to 60% bonds, 20%
stocks and 20% money market instruments.
Life & Annuity Trust also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by an NRSRO, such as Standard
& Poor's Corporation. Such rating would assess the creditworthiness of the
investments held by a Fund. The assigned rating would not be a recommendation to
purchase, sell or hold a Fund's shares since the rating would not comment on the
net asset value of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. Life & Annuity Trust
may compare a Fund's performance with other investments which are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each of the Non-Money Market Funds is
determined by the custodian of the Fund on each day the New York Stock Exchange
("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
21
<PAGE>
periods during which the value, as determined by amortized cost, is higher or
lower than the price that the Money Market Fund would receive if the security
were sold. During these periods, the yield to a shareholder may differ somewhat
from that which could be obtained from a similar fund that uses a method of
valuation based upon market prices. Thus, during periods of declining interest
rates, if the use of the amortized cost method resulted in a lower value of the
Money Market Fund's portfolio on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund using solely market values, and existing Fund shareholders
would receive correspondingly less income. The converse would apply during
periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, a fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Trustees to present minimal
credit risks. The maturity of an instrument is generally deemed to be the period
remaining until the date when the principal amount thereof is due or the date on
which the instrument is to be redeemed. However, Rule 2a-7 provides that the
maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, a fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Money Market Fund's portfolio holdings by
the Board of Trustees, at such intervals as it may deem appropriate, to
determine whether the Money Market Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation is examined by the Board of Trustees. If such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, the Board will take such corrective action as it
regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity.
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.
As indicated in the Prospectus, the Trust may suspend redemption rights or
postpone redemption payments for such periods as are permitted under the 1940
Act. The Trust also may 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.
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
22
<PAGE>
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.
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.
23
<PAGE>
Brokerage Commissions. For the year ended December 31, 1997, the Asset
Allocation and Growth Funds paid brokerage commissions in the amount of $5,722
and $184,263, 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 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 $ 2,793,000 Goldman Sachs & Co
$ 1,923,000 J.P. Morgan
Money Market $ 2,208,000 Goldman Sachs & Co
$ 3,679,000 HSBC Securities
$ 192,000 J P Morgan
$ 2,679,000 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 156%, 124% and 135% 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.
24
<PAGE>
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% of its gross income in a taxable year 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 circumstances, the Fund may make
such distributions in the following taxable year. Furthermore, distributions 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 are treated as paid by
December 31 of the first taxable year.
Excise Tax. A 4% non-deductible 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.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund 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 a 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 a 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. Under Section
1256 of the Code, 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
"mark-to-market" rule and the "60%/40%" rule.
25
<PAGE>
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 of the Code,
described above. 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. A
Fund may make one or more elections with 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 a 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 capital 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 any 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 purchases 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 its interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may 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 if it makes the available election if it makes the
available election.
Income and dividends received by the Fund from sources within foreign
countries and gains on the disposition of foreign securities may be subject to
withholding and other taxes imposed by foreign 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-favored tax treatment 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 the 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.
26
<PAGE>
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
treat its interests in a Fund as ownership of a pro rata portion of each asset
of the Fund, so that individual holders of the VA Contracts or 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 own 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 investments 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 questions as to Federal, state, local or
foreign taxes.
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.
27
<PAGE>
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.
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 a Fund as a whole.
<TABLE>
<CAPTION>
5% OWNERSHIP AS OF APRIL 1, 1998
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF CLASS CAPACITY
- ------------ ---------------- ---------- --------
<S> <C> <C> <C>
Asset Allocation ............. American Skandia Life 99.93% Record
P.O. Box 883
Shelton, CT 06484
Growth ....................... American Skandia Life 99.94% Record
P.O. Box 883
Shelton, CT 06484
Money Market ................. American Skandia Life 99.79% Record
P.O. Box 883
Shelton, CT 06484
U.S. Government Allocation ... American Skandia Life 94.35% Record
P.O. Box 883
Shelton, CT 06484
Security Equity 5.52% 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.
28
<PAGE>
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.
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.
29
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
CORPORATE BONDS
MOODY'S: The four highest ratings for corporate bonds are "Aaa,""Aa","A" and
"Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry the
smallest amount of investment risk. Bonds rated "Aa" are of "high quality by all
standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers: 1, 2 and 3 in each
rating category from "Aa" through "Baa" in its rating system. The modifier 1
indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA,""AA,""A" and
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
CORPORATE COMMERCIAL PAPER
MOODY'S: The highest rating for corporate commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a strong
capacity for repayment of short-term promissory obligations," but earnings
trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
<PAGE>
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1997
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES (99.48%)
U.S. TREASURY BILLS (68.70%)
$ 8,310,000 U.S. Treasury Bills 4.71%+ 01/15/98 $ 8,292,853
8,932,000 U.S. Treasury Bills 5.00+ 02/05/98 8,884,674
3,814,000 U.S. Treasury Bills* 5.00+ 02/26/98 3,783,162
31,387,000 U.S. Treasury Bills 5.01+ 01/22/98 31,291,531
297,000 U.S. Treasury Bills 5.02+ 02/19/98 294,777
4,664,000 U.S. Treasury Bills 5.10+ 03/05/98 4,622,635
2,281,000 U.S. Treasury Bills 5.13+ 03/26/98 2,253,968
-----------
$59,423,600
U.S. TREASURY BONDS (30.78%)
$ 900,000 U.S. Treasury Bonds 6.00% 02/15/26 $ 898,874
4,800,000 U.S. Treasury Bonds 8.50 02/15/20 6,238,502
5,000,000 U.S. Treasury Bonds 8.75 05/15/20 6,657,815
2,350,000 U.S. Treasury Bonds 8.75 08/15/20 3,133,579
2,200,000 U.S. Treasury Bonds 8.88 02/15/19 2,943,875
5,000,000 U.S. Treasury Bonds 9.00 11/15/18 6,757,815
-----------
$26,630,460
TOTAL U.S. TREASURY SECURITIES $86,054,060
(Cost $84,739,465)
TOTAL INVESTMENTS IN SECURITIES
(Cost $84,739,465)** (Notes 1 and 3) 99.48% $86,054,060
Other Assets and Liabilities, Net 0.52 451,796
------- -----------
TOTAL NET ASSETS 100.00% $86,505,856
======= ===========
</TABLE>
- --------------------------------------------------------------------------------
+ Yield to maturity.
* These U.S. Treasury Bills are held in a segregated account for margin
requirements on future contracts. As of 12/31/97 the notional contractual
value of the futures contracts was $50,893,650. See note 1.
** Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized appreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $1,317,010
Gross Unrealized Depreciation (2,415)
----------
NET UNREALIZED APPRECIATION $1,314,595
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-1
<PAGE>
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1997
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
COMMON STOCKS (89.14%)
AEROSPACE (1.70%)
15,000 Boeing Co $ 857,615 $ 734,063
5,000 Lockheed Martin Corp 527,804 492,500
----------- -----------
$ 1,385,419 $ 1,226,563
APPLIANCES AND FURNITURE (1.20%)
20,500 Sunbeam-Oster Co Inc $ 619,068 $ 863,563
AUTOMOBILE & RELATED (1.84%
21,000 Danaher Corp $ 874,115 $ 1,325,625
BASIC INDUSTRIES (3.34%)
13,400 Aluminum Co of America $ 899,658 $ 943,025
12,800 Colgate-Palmolive Co 685,664 940,800
12,300 Monsanto Co 443,860 516,600
----------- -----------
$ 2,029,182 $ 2,400,425
BEVERAGE BREWING AND DISTRIBUTION (3.01%)
20,900 Coca-Cola Co $ 1,383,789 $ 1,392,463
21,300 Pepsico Inc 780,853 776,119
----------- -----------
$ 2,164,642 $ 2,168,582
COMMERCIAL SERVICES (2.11%)
41,000 Service Corp International $ 1,291,254 $ 1,514,438
COMPUTER SOFTWARE (2.46%)
14,600 First Data Corp $ 563,633 $ 427,050
10,400 Microsoft Corp! 1,454,653 1,344,200
----------- -----------
$ 2,018,286 $ 1,771,250
COMPUTER SYSTEMS (4.75%)
21,000 Cisco Systems Inc! $ 833,105 $ 1,170,750
9,400 Hewlett Packard Co 636,474 587,500
8,900 International Business Machines Corp 1,001,450 930,606
9,100 Lucent Technologies Inc 737,874 726,863
----------- -----------
$ 3,208,903 $ 3,415,719
</TABLE>
FS-2
<PAGE>
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1997
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
ENERGY & RELATED (11.25%)
10,200 Amoco Corp $ 916,955 $ 868,275
14,400 Anadarko Petroleum Corp 890,170 873,900
15,000 Baker Hughes Inc 666,671 654,375
22,000 Exxon Corp 1,409,870 1,346,125
7,200 FPL Group Inc 379,759 426,150
8,800 Mobil Corp 599,139 635,250
19,200 Royal Dutch Petroleum Co 1,037,232 1,040,400
7,243 Santa Fe International Corp 339,288 294,700
8,149 Schlumberger Ltd 629,551 655,995
10,200 Texaco Inc 551,597 554,625
9,100 Tosco Corp 296,333 344,094
14,200 Williams Co Inc 332,795 402,917
----------- -----------
$ 8,049,360 $ 8,096,806
ENTERTAINMENT & LEISURE (1.20%)
8,700 Disney (Walt) Co $ 818,540 $ 861,844
FINANCE & RELATED (13.20%)
16,100 American International Group Inc $ 1,274,351 $ 1,750,875
6,000 Banc One Corp 324,934 325,875
14,700 Chase Manhattan Bank 1,521,317 1,609,650
29,600 Conseco Inc 1,181,818 1,344,950
13,100 Federal Home Loan Mortgage Corp 457,998 549,381
11,800 Household International Inc 1,197,031 1,505,238
15,264 MBNA Corp 389,659 416,898
28,900 SAFECO Corp 1,400,866 1,408,875
9,700 Schwab (Charles) Corp 268,180 406,794
7,000 Security Capital Industrial Trust 142,134 174,125
----------- -----------
$ 8,158,288 $ 9,492,661
FOOD & RELATED (1.74%)
27,700 Philip Morris Co Inc $ 1,158,656 $ 1,255,156
GENERAL BUSINESS & RELATED (4.71%)
10,100 DuPont (E I) de Nemours $ 651,677 $ 606,631
28,500 General Electric Co 1,698,681 2,091,188
11,500 Kimberly-Clark Corp 550,885 567,094
2,000 Tribune Co 117,920 124,500
----------- -----------
$ 3,019,163 $ 3,389,413
HEALTHCARE (4.00%)
17,000 American Home Products Corp $ 1,243,765 $ 1,300,500
10,200 Lilly (Eli) & Co 688,191 710,175
11,600 Pfizer Inc 876,786 864,925
----------- -----------
$ 2,808,742 $ 2,875,600
</TABLE>
FS-3
<PAGE>
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1997
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
MANUFACTURING PROCESSING (5.55%)
30,000 Allied Signal Inc $ 963,992 $ 1,168,125
5,500 Honeywell Inc 428,145 376,750
12,000 Johnson & Johnson 783,270 790,500
8,100 Praxair Inc 456,908 364,500
16,200 Procter & Gamble Co 1,317,727 1,292,963
----------- -----------
$ 3,950,042 $ 3,992,838
MEDICAL EQUIPMENT & SUPPLIES (1.89%)
27,000 Baxter International Inc $ 1,202,653 $ 1,361,813
PHARMACEUTICALS (3.69%)
12,500 Bristol-Myers Squibb Co $ 1,201,063 $ 1,182,813
10,900 Merck & Co Inc 1,039,892 1,158,125
6,100 Smithkline Beecham Plc 293,730 313,769
----------- -----------
$ 2,534,685 $ 2,654,707
REAL ESTATE INVESTMENT TRUSTS (0.88%)
6,200 Equity Residential Properties Trust $ 258,951 $ 313,488
7,500 Spieker Properties Inc 227,475 321,563
----------- -----------
$ 486,426 $ 635,051
RETAIL & RELATED (3.10%)
8,000 Dayton-Hudson Corp $ 448,899 $ 540,000
3,650 Gap Inc 129,121 129,347
7,500 Gillette Co 447,088 753,281
20,400 Wal Mart Stores Inc 836,859 804,525
----------- -----------
$ 1,861,967 $ 2,227,153
SEMICONDUCTORS (1.74%)
9,600 Intel Corp $ 782,551 $ 674,400
10,100 Motorola Inc 692,099 576,331
----------- -----------
$ 1,474,650 $ 1,250,731
TELECOMMUNICATIONS (11.06%)
25,800 AT & T Corp $ 1,277,388 $ 1,580,250
21,100 Bell Atlantic Corp 1,790,316 1,920,100
45,000 Ericsson Telefonaktiebolaget L M Class B 1,475,953 1,679,063
8,700 France Telecom SA -- Sponsored ADR+ (France) 319,703 313,200
13,000 GTE Corp 576,046 679,250
4,000 Nokia Corp ADR Class A 353,231 280,000
6,750 Portugal Telecom SA -- Sponsored ADR (Portugal) 286,385 317,250
11,900 SBC Communication Inc 719,029 871,675
4,900 Telecom Italia SPA -- Sponsored ADR (Italy) 316,932 313,600
----------- -----------
$ 7,114,983 $ 7,954,388
</TABLE>
FS-4
<PAGE>
LIFE & ANNUITY TRUST GROWTH AND INCOME FUND--DECEMBER 31, 1997
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
UNIT INVESTMENT TRUSTS (4.16%)
30,850 Standard & Poor's Depositary Receipt $ 2,998,157 $ 2,990,522
UTILITIES (0.56%)
14,900 Edison International $ 384,109 $ 405,094
TOTAL COMMON STOCKS $59,611,290 $64,129,942
WARRANTS (0.002%)
325 Security Capital Group expires 9/18/98+ $ 2,559 $ 1,706
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL RATE DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INSTRUMENTS (6.56%)
REPURCHASE AGREEMENTS (6.56%)
$2,793,000 Goldman Sachs Pooled Repurchase Agreement - 102%
Collateralized by U.S. Government Securities 6.50% 01/02/98 $ 2,793,000
1,923,000 JP Morgan Securities Inc Repurchase Agreement - 102%
Collateralized by U.S. Government Securities (Cost
$4,716,000) 6.30 01/02/98 1,923,000
-----------
$ 4,716,000
TOTAL INVESTMENTS IN SECURITIES
(Cost $64,329,849)* (Notes 1 and 3) 95.70% $68,847,648
Other Assets and Liabilities, Net 4.30 3,096,220
------ -----------
TOTAL NET ASSETS 100.00% $71,943,868
====== ===========
</TABLE>
- --------------------------------------------------------------------------------
+ Non-income earning securities.
* Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized appreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $6,030,574
Gross Unrealized Depreciation (1,512,775)
----------
NET UNREALIZED APPRECIATION $4,517,799
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-5
<PAGE>
LIFE & ANNUITY TRUST MONEY MARKET FUND--DECEMBER 31, 1997
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES 69.21%
U.S. TREASURY BILLS 39.39%
$1,500,000 U.S. Treasury Bills 4.09%+ 01/08/98 $ 1,498,513
4,340,000 U.S. Treasury Bills 5.01+ 01/22/98 4,326,374
-----------
$ 5,824,887
U.S. TREASURY NOTES 29.82%
$ 530,000 U.S. Treasury Notes 5.13% 04/30/98 $ 528,480
250,000 U.S. Treasury Notes 5.13 06/30/98 249,361
500,000 U.S. Treasury Notes 5.88 04/30/98 500,581
1,200,000 U.S. Treasury Notes 6.13 05/15/98 1,201,528
480,000 U.S. Treasury Notes 6.13 08/31/98 481,076
660,000 U.S. Treasury Notes 7.13 10/15/98 667,296
150,000 U.S. Treasury Notes 7.88 01/15/98 150,124
250,000 U.S. Treasury Notes 7.88 04/15/98 251,232
375,000 U.S. Treasury Notes 8.25 07/15/98 380,147
-----------
$ 4,409,825
TOTAL U.S. TREASURY SECURITIES $10,234,712
(Cost $10,234,712)
REPURCHASE AGREEMENTS 59.23%
$2,208,000 Goldman Sachs Pooled Repurchase Agreement - 102%
Collateralized by U.S. Government Securities 6.50% 01/02/98 $ 2,208,000
3,679,000 HSBC Securities Inc Repurchase Agreement - 102%
Collateralized by U.S. Government Securities 6.50 01/02/98 3,679,000
192,000 JP Morgan Securities Inc Repurchase Agreement - 102%
Collateralized by U.S. Government Securities 6.30 01/02/98 192,000
2,679,000 Morgan Stanley & Co Repurchase Agreement - 102%
Collateralized by U.S. Government Securities 6.50 01/02/98 2,679,000
-----------
TOTAL REPURCHASE AGREEMENTS (Cost $8,758,000) $ 8,758,000
TOTAL INVESTMENTS IN SECURITIES
(Cost $18,992,712)* (Note 1) 128.44% $18,992,712
Other Assets and Liabilities, Net (28.44) (4,205,084)
------- -----------
TOTAL NET ASSETS 100.00% $14,787,628
======= ===========
</TABLE>
- --------------------------------------------------------------------------------
+ Yield to maturity.
* Cost for federal income tax purposes is the same as for financial statement
purposes.
The accompanying notes are an integral part of these financial statements.
FS-6
<PAGE>
LIFE & ANNUITY TRUST U.S. GOVERNMENT ALLOCATION FUND--DECEMBER 31, 1997
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES--112.48%
U.S. TREASURY BILLS--68.03%
$3,048,000 U.S. Treasury Bills 4.71%+ 01/15/98 $ 3,041,711
323,000 U.S. Treasury Bills 5.00+ 02/05/98 321,393
3,059,000 U.S. Treasury Bills 5.00+ 02/26/98 3,034,266
6,159,000 U.S. Treasury Bills 5.01+ 01/22/98 6,140,274
78,000 U.S. Treasury Bills 5.02+ 02/19/98 77,416
3,618,000 U.S. Treasury Bills 5.10+ 03/05/98 3,585,912
52,000 U.S. Treasury Bills 5.13+ 03/26/98 51,384
-----------
$16,252,356
U.S. TREASURY BONDS--7.92%
$ 250,000 U.S. Treasury Bonds 10.75% 05/15/03 $ 306,953
300,000 U.S. Treasury Bonds 11.13 08/15/03 376,500
600,000 U.S. Treasury Bonds 11.88 11/15/03 780,375
300,000 U.S. Treasury Bonds 13.75 08/15/04 429,750
-----------
$ 1,893,578
U.S. TREASURY NOTES--36.53%
$2,150,000 U.S. Treasury Notes 5.75% 08/15/03 $ 2,152,017
1,000,000 U.S. Treasury Notes 5.88 02/15/04 1,009,063
1,800,000 U.S. Treasury Notes 6.25 02/15/03 1,841,063
1,150,000 U.S. Treasury Notes 7.25 05/15/04 1,241,281
1,150,000 U.S. Treasury Notes 7.25 08/15/04 1,243,079
750,000 U.S. Treasury Notes 7.88 11/15/04 838,360
300,000 U.S. Treasury Notes 12.38 05/15/04 404,344
-----------
$ 8,729,207
TOTAL U.S. TREASURY SECURITIES $26,875,141
(Cost $26,646,994)
TOTAL INVESTMENTS IN SECURITIES
(Cost $26,646,994)* (Notes 1 and 3) 112.48% $26,875,141
Other Assets and Liabilities, Net (12.48) (2,981,362)
------- -----------
TOTAL NET ASSETS 100.00% $23,893,779
======= ===========
</TABLE>
- --------------------------------------------------------------------------------
+ Yield to maturity.
* Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized appreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $228,960
Gross Unrealized Depreciation (813)
--------
NET UNREALIZED APPRECIATION $228,147
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-7
<PAGE>
LIFE & ANNUITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S.
Asset Growth and Money Government
Allocation Income Market Allocation
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
In securities, at identified cost (Note 3)
(Includes repurchase agreements of $8,758,000
for the Money Market Fund) $84,739,465 $64,329,849 $18,992,712 $26,646,994
In securities, at market value $86,054,060 $68,847,648 $18,992,712 $26,875,141
Cash 860 1,316 2,562 421
Receivables:
Dividends and interest 441,151 95,331 64,875 207,112
Fund shares sold 1,122,949 3,341,544 80,553 120,137
Prepaid expenses 4,758 929 0 331
TOTAL ASSETS 87,623,778 72,286,768 19,140,702 27,203,142
LIABILITIES
Variation margin on futures contracts 19,700 0 0 0
Payables:
Investment securities purchased 0 125,118 0 0
Distribution to shareholders 1,025,129 172,105 80,553 120,139
Fund shares redeemed 0 0 4,238,947 3,142,712
Due to co-administrator (Note 2) 1,424 1,134 318 451
Due to adviser (Note 2) 55,415 40,308 7,523 13,939
Accrued expenses 16,254 4,235 25,733 32,122
TOTAL LIABILITIES 1,117,922 342,900 4,353,074 3,309,363
TOTAL NET ASSETS $86,505,856 $71,943,868 $14,787,628 $23,893,779
Net assets consist of:
Paid-in Capital $82,609,421 $64,221,389 $14,787,628 $23,559,783
Undistributed net realized gain on investments 1,863,490 3,204,680 0 105,849
Net unrealized appreciation of futures 718,350 0 0 0
Net unrealized appreciation of investments 1,314,595 4,517,799 0 228,147
TOTAL NET ASSETS $86,505,856 $71,943,868 $14,787,628 $23,893,779
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
(NOTE 4)
Net assets $86,505,856 $71,943,868 $14,787,628 $23,893,779
Shares outstanding 7,217,104 4,285,400 14,787,632 2,327,003
Net asset value and offering price $11.99 $16.79 $1.00 $10.27
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-8
<PAGE>
LIFE & ANNUITY TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Asset Growth and Money U.S. Government
Allocation Income Market Allocation
Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 0 $ 716,607 $ 0 $ 0
Interest 4,212,871 260,785 872,937 1,228,097
TOTAL INCOME 4,212,871 977,392 872,937 1,228,097
EXPENSES (NOTE 2)
Advisory fees 419,704 318,232 71,778 115,022
Administration fees 36,082 28,024 8,107 10,010
Custody fees 0 17,858 5,742 0
Portfolio accounting fees 0 59,430 35,141 0
Transfer agency fees 94,187 71,653 15,412 25,864
Legal and audit fees 28,977 24,361 19,591 22,206
Registration fees 4,131 1,000 0 1,000
Directors' fees 11,856 11,856 11,856 11,856
Other 2,095 1,556 2,569 715
TOTAL EXPENSES 597,032 533,970 170,196 186,673
Less: Waived Fees and Reimbursed Expenses (38,227) (189,332) (85,698) (63,992)
Net Expenses 558,805 344,638 84,498 122,681
NET INVESTMENT INCOME 3,654,066 632,754 788,439 1,105,416
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on sale of investments and futures
contracts 8,763,882 6,848,993 0 149,427
Net unrealized appreciation of futures contracts 496,725 0 0 0
Net change in unrealized appreciation of investments 706,325 143,053 0 204,961
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 9,966,932 6,992,046 0 354,388
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,620,998 $7,624,800 $788,439 $1,459,804
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-9
<PAGE>
LIFE & ANNUITY TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Asset Growth and
Allocation Income
Fund Fund
-------------------------------- --------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income $ 3,654,066 $ 2,121,841 $ 632,754 $ 321,626
Net realized gain (loss) on sale of investments and
futures contracts 8,763,882 2,464,924 6,848,993 670,537
Net unrealized appreciation of futures contracts 496,725 37,850 0 0
Net unrealized appreciation (depreciation) of
investments 706,325 (24,131) 143,053 3,407,928
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 13,620,998 4,600,484 7,624,800 4,400,091
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (3,654,066) (2,121,841) (632,754) (321,626)
From net realized gain on sales of investments (7,395,696) (2,300,431) (3,829,806) (514,688)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 28,067,836 25,372,586 33,001,835 19,876,206
Reinvestment of dividends 11,049,762 4,422,270 4,462,560 836,312
Cost of shares redeemed (6,979,919) (3,642,899) (2,063,405) (1,815,249)
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL SHARE
TRANSACTIONS (NOTE 4) 32,137,679 26,151,957 35,400,990 18,897,269
INCREASE IN NET ASSETS 34,708,915 26,330,169 38,563,230 22,461,046
NET ASSETS
Beginning net assets 51,796,941 25,466,772 33,380,638 10,919,592
ENDING NET ASSETS $86,505,856 $51,796,941 $71,943,868 $33,380,638
SHARES ISSUED AND REDEEMED:
Shares sold 2,314,085 2,210,668 1,974,920 1,407,558
Shares issued in reinvestment of dividends 914,141 385,749 261,363 56,387
Shares redeemed (548,327) (318,474) (127,163) (133,606)
NET INCREASE IN SHARES OUTSTANDING 2,679,899 2,277,943 2,109,120 1,330,339
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-10
<PAGE>
LIFE & ANNUITY TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Money U.S. Government
Market Allocation
Fund Fund
-------------------------------- --------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income $ 788,439 $ 442,922 $ 1,105,416 $ 470,850
Net realized gain (loss) on sale of investments 0 225 149,427 (3,569)
Net unrealized appreciation of futures contracts 0 0 0 0
Net unrealized appreciation (depreciation) of
investments 0 0 204,961 (32,071)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 788,439 443,147 1,459,804 435,210
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (788,439) (442,922) (1,105,416) (470,850)
From net realized gain on sales of investments 0 (225) (40,057) 0
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 20,957,328 15,213,897 12,942,563 8,754,298
Reinvestment of dividends 788,439 443,145 1,145,473 470,850
Cost of shares redeemed (19,625,090) (8,813,439) (4,035,922) (517,327)
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL SHARE
TRANSACTIONS (NOTE 4) 2,120,677 6,843,603 10,052,114 8,707,821
INCREASE IN NET ASSETS 2,120,677 6,843,603 10,366,445 8,672,181
NET ASSETS:
Beginning net assets 12,666,951 5,823,348 13,527,334 4,855,153
ENDING NET ASSETS $14,787,628 $12,666,951 $23,893,779 $13,527,334
SHARES ISSUED AND REDEEMED:
Shares sold 20,957,328 15,213,897 1,273,335 868,061
Shares issued in reinvestment of dividends 788,439 443,145 112,789 46,768
Shares redeemed (19,625,090) (8,813,439) (394,100) (51,054)
NET INCREASE IN SHARES OUTSTANDING 2,120,677 6,843,603 992,024 863,775
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-11
<PAGE>
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
Asset Allocation Fund
--------------------------------------------------------------
From inception
on April 15,
Year Ended Year Ended Year Ended 1994 to
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.42 $ 11.27 $ 9.71 $10.00
Net investment income 0.60 0.56 0.55 0.30
Net realized and unrealized gain (loss) on investments 1.73 0.69 2.21 (0.19)
------- ------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS 2.33 1.25 2.76 0.11
LESS DISTRIBUTIONS:
Dividends from net investment income (0.60) (0.56) (0.55) (0.30)
Distributions from net realized gain (1.16) (0.54) (0.65) (0.10)
------- ------- ------- ------
TOTAL FROM DISTRIBUTIONS (1.76) (1.10) (1.20) (0.40)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 11.99 $ 11.42 $ 11.27 $ 9.71
======= ======= ======= ======
Total Return* 20.88% 11.46% 28.95% 1.13%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $86,506 $51,797 $25,467 $7,464
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.80% 0.69% 0.41% 0.00%
Ratio of net investment income to average net assets 5.20% 5.34% 5.58% 6.30%
Portfolio turnover 156% 4% 97% 0%
Average commission rate paid(1) N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 0.85% 0.80% 1.22% 2.24%
Ratio of net investment income(loss) to average net assets
prior to waived fees and reimbursed expenses 5.15% 5.23% 4.77% 4.06%
- ----------------------------------------------------------------------------------------------------------------------------
(1) 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.
</TABLE>
* Total returns do not include any sales charges.
** Not annualized.
The accompanying notes are an integral part of these financial statements.
FS-12
<PAGE>
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
Growth and Income Fund
--------------------------------------------------------------
From inception
on April 12,
Year Ended Year Ended Year Ended 1994 to
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.34 $ 12.91 $ 10.30 $10.00
Net investment income 0.19 0.20 0.22 0.14
Net realized and unrealized gain (loss) on investments 2.48 2.68 2.77 0.30
------- ------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS 2.67 2.88 2.99 0.44
LESS DISTRIBUTIONS:
Dividends from net investment income (0.19) (0.20) (0.22) (0.14)
Distributions from net realized gain (1.03) (0.25) (0.16) 0.00
------- ------- ------- ------
TOTAL FROM DISTRIBUTIONS (1.22) (0.45) (0.38) (0.14)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 16.79 $ 15.34 $ 12.91 $10.30
======= ======= ======= ======
Total Return* 17.33% 22.44% 29.19% 4.47%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $71,944 $33,381 $10,920 $2,136
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.65% 0.60% 0.43% 0.00%
Ratio of net investment income to average net assets 1.19% 1.53% 2.05% 3.00%
Portfolio turnover 124% 95% 84% 21%
Average commission rate paid(1) $0.0725 $0.0810 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses: 1.01% 1.12% 2.02% 10.18%
Ratio of net investment income(loss) to average net assets
prior to waived fees and reimbursed expenses: 0.83% 1.01% 0.46% (7.18%)
- ----------------------------------------------------------------------------------------------------------------------------
(1) 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.
</TABLE>
* Total returns do not include any sales charges.
** Not annualized.
The accompanying notes are an integral part of these financial statements.
FS-13
<PAGE>
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
Money Market Fund
-----------------------------------------------------------
From inception
on May 19,
Year Ended Year Ended Year Ended 1994 to
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.05 0.05 0.05 0.03
Net realized and unrealized gain (loss) on investments 0.00 0.00 0.00 0.00
------- ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.05 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.03)
Distributions from net realized gain 0.00 0.00 0.00 0.00
------- ------- ------ ------
TOTAL FROM DISTRIBUTIONS (0.05) (0.05) (0.05) (0.03)
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ====== ======
Total Return* 5.04% 4.72% 5.41% 2.71%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $14,788 $12,667 $5,823 $1,492
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.53% 0.51% 0.42% 0.00%
Ratio of net investment income to average net assets 4.95% 4.64% 5.15% 4.63%
Portfolio turnover N/A N/A N/A N/A
Average commission rate paid(1) N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.07% 1.22% 3.83% 11.43%
Ratio of net investment income (loss) to average net
assets prior to waived fees and reimbursed expenses 4.41% 3.93% 1.74% (6.80%)
- -------------------------------------------------------------------------------------------------------------------------
(1) 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.
</TABLE>
* Total returns do not include any sales charges.
** Not annualized.
The accompanying notes are an integral part of these financial statements.
FS-14
<PAGE>
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. Government Allocation Fund
-----------------------------------------------------------
From inception
on April 26,
Year Ended Year Ended Year Ended 1994 to
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.13 $ 10.30 $ 9.63 $10.00
Net investment income 0.58 0.56 0.60 0.40
Net realized and unrealized gain (loss) on investments 0.15 (0.17) 0.77 (0.37)
------- ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.73 0.39 1.37 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.58) (0.56) (0.60) (0.40)
Distributions from net realized gain (0.01) 0.00 (0.10) 0.00
------- ------- ------ ------
TOTAL FROM DISTRIBUTIONS (0.59) (0.56) (0.70) (0.40)
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.27 $ 10.13 $10.30 $ 9.63
======= ======= ====== ======
Total Return* 7.47% 3.99% 14.40% 0.41%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $23,894 $13,527 $4,855 $ 866
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.64% 0.60% 0.45% 0.00%
Ratio of net investment income to average net assets 5.75% 5.75% 5.82% 7.35%
Portfolio turnover 135% 222% 405% 130%
Average commission rate paid(1) N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 0.97% 1.18% 2.46% 12.73%
Ratio of net investment income (loss) to average net
assets prior to waived fees and reimbursed expenses 5.42% 5.17% 3.81% (5.38%)
- -------------------------------------------------------------------------------------------------------------------------
(1) 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.
</TABLE>
* Total returns do not include any sales charges.
** Not annualized.
The accompanying notes are an integral part of these financial statements.
FS-15
<PAGE>
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Life & Annuity Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end series management investment company.
The Trust was organized as a Delaware Business Trust on October 28, 1993. The
Trust consists of four separate diversified funds (the "Funds"): the Asset
Allocation, Growth and Income, Money Market, and U.S. Government Allocation
Funds.
The Funds are available exclusively as pooled funding vehicles for certain
participating life insurance companies offering variable annuity contracts and
variable life insurance policies.
The following significant accounting policies are consistently followed by the
Trust in the preparation of its financial statements, and such policies are in
conformity with generally accepted accounting principles ("GAAP") for investment
companies.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. These estimates and assumptions should not
be considered an indication of actual or expected figures; actual results may
differ.
INVESTMENT POLICY AND SECURITY VALUATION
NON-MONEY MARKET FUNDS -- All securities are valued at the close of each
business day. Securities for which the primary market is a national or foreign
recognized securities or commodities exchange or the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System, are
valued at the last reported sales price on the day of valuation. Debt securities
are generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in those
securities or by an independent pricing source. U.S. Government obligations are
valued at the last reported bid price. In the absence of any sale of such
securities on the valuation date and in the case of other securities, 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. The amortized cost method involves valuing a security at its
cost, plus accretion of discount or minus amortization of premium over the
period until maturity, which approximates market value. Futures contracts are
marked to market daily at their respective settlement prices determined by the
relevant exchange. Securities for which quotations are not readily available are
valued at fair value as determined by policies approved by the Trust's Board of
Trustees (the "Board").
MONEY MARKET FUND -- The Money Market Fund invests only in securities with
remaining maturities not exceeding 397 days (thirteen months) and uses the
amortized cost method to value these securities. The Money Market Fund seeks to
maintain a constant net asset value of $1.00 per share, although there is no
assurance that it will be able to do so.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Securities transactions are recorded on a trade date basis. Dividend income is
recognized on the ex-dividend date, and interest income is accrued daily.
Realized gains or losses are reported on the basis of identified cost of
securities delivered. Bond discounts are accreted and premiums are amortized as
required by the Internal Revenue Code of 1986, as amended (the "Code").
FS-16
<PAGE>
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell such
securities ("repurchase agreements") are treated as collateralized financing
transactions and are recorded at their contracted resale amounts. These
repurchase agreements, if any, are detailed in each Fund's Portfolio of
Investments. The Funds may participate in pooled repurchase agreement
transactions with other funds advised by Wells Fargo Bank, N.A. ("WFB"). The
repurchase agreements must be fully collateralized based on values that are
marked to market daily. The collateral may be held by an agent bank under a
tri-party agreement. It is the custodian's responsibility to value collateral
daily and to take action to obtain additional collateral as necessary to
maintain market value equal to or greater than the resale price. Any repurchase
agreements held in the Funds are collateralized by instruments such as U.S.
Treasury or federal agency obligations.
FUTURES CONTRACTS
The Asset Allocation and U.S. Government Allocation Funds may purchase futures
contracts to gain exposure to market changes. This procedure may be more
efficient or cost effective than actually buying the securities. A futures
contract is an agreement between parties to buy or sell a security at a set
price on a future date. Upon entering into such a contract, a Fund is required
to pledge to the broker an amount of cash, U.S. Government obligations or other
high-quality debt securities equal to the minimum "initial margin" requirements
of the exchange on which the futures contract is traded. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in the value of the contract. Such receipts or
payments are known as "variation margin" and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Pursuant to
regulations and/or published positions of the Securities and Exchange
Commission, the Asset Allocation Fund and the U.S. Government Allocation Fund
may be required to segregate cash or high quality money market instruments in
connection with futures transactions in an amount generally equal to the entire
value of the underlying contracts. Risks of entering into futures contracts
include the possibility that there may be an illiquid market and that a change
in the value of the contract may not correlate with changes in the value of the
underlying securities. On December 31, 1997 the Asset Allocation Fund held the
following long futures contracts:
<TABLE>
<CAPTION>
Notional Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
18 S&P 500 Index March 1998 $ 4,405,950 $ 30,650
188 S&P 500 Index June 1998 $46,487,700 $687,700
</TABLE>
The Asset Allocation Fund has pledged to brokers U.S. Treasury bills for initial
margin requirements with a par value of $2,500,000.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of the Asset Allocation and Growth and
Income Funds, if any, are declared and distributed quarterly. Dividends from net
investment income of the U.S. Government Allocation Fund, if any, are declared
and distributed monthly. Dividends from net investment income of the Money
Market Fund, if any, are declared daily and distributed monthly. Distributions
to shareholders from net realized capital gains are declared and distributed
annually.
FS-17
<PAGE>
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
Due to the timing of dividend distributions and the differences in accounting
for income and realized gains (losses) for financial statement and federal
income tax purposes, the fiscal year in which amounts are distributed may differ
from the year in which the income and realized gains (losses) were recorded by
the Fund. The differences between the income or gains distributed on a book
versus tax basis are shown as excess distributions of net investment income and
net realized gain on sales of investments in the accompanying Statements of
Changes in Net Assets. The amount of distributions from net investment income
and net realized capital gains are determined in accordance with federal income
tax regulations, which may differ from GAAP. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent that these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
FEDERAL INCOME TAXES
Each Fund of the Trust is treated as a separate entity for federal income tax
purposes. It is the policy of each Fund to continue to qualify as a regulated
investment company by complying with the provisions applicable to regulated
investment companies, as defined in the Code, and to make distributions of
substantially all of its investment company taxable income and any net realized
capital gains (after reduction for capital loss carryforwards) sufficient to
relieve it from all, or substantially all, federal income taxes. Accordingly, no
provision for federal income taxes was required at December 31, 1997. The Funds
had no net capital loss carryforwards at December 31, 1997.
2. AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
The Trust has entered into advisory contracts on behalf of the Funds with WFB.
Pursuant to the contracts, WFB has agreed to provide the Funds with daily
portfolio management. Under the contracts with the Asset Allocation, Growth and
Income, and U.S. Government Allocation Funds, WFB is entitled to a monthly
advisory fee at an annual rate of 0.60% of such Funds' average daily net assets.
Under the contract with the Money Market Fund, WFB is entitled to a monthly
advisory fee at an annual rate of 0.45% of such Fund's average daily net assets.
Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary of Barclays
Global Investors, N.A. ("BGI") and indirect subsidiary of Barclays Bank PLC,
currently acts as sub-adviser to the Asset Allocation and U.S. Government
Allocation Funds. BGFA is entitled to receive from WFB, as compensation for its
sub-advisory services, monthly fees at the annual rates of 0.20% and 0.15% of
the average daily net assets of the Asset Allocation and U.S. Government
Allocation Funds, respectively.
BGI, a wholly-owned subsidiary of Barclays Global Investors Holdings Inc.,
currently acts as custodian to the Asset Allocation and U.S. Government
Allocation Funds. BGI will not be entitled to receive compensation for its
custodial services so long as BGFA is entitled to receive compensation for
providing investment sub-advisory services to such Funds.
The Trust has entered into contracts on behalf of the Growth and Income and
Money Market Funds with WFB, whereby WFB is responsible for providing custody
and portfolio accounting services for such Funds. Pursuant to the contracts, WFB
is entitled to certain transaction charges plus an annual fee for custody
services at an annual rate of
FS-18
<PAGE>
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
0.0167% of the average daily net assets of each Fund. For portfolio accounting
services, WFB is entitled to receive a monthly base fee from each such Fund of
$2,000 plus an annual fee of 0.07% of the first $50 million of each such Fund's
average daily net assets, 0.045% of the next $50 million and 0.02% of each such
Fund's average daily net assets in excess of $100 million.
The Trust has entered into a contract on behalf of the Funds with WFB, whereby
WFB provides transfer agency services for the Funds. Under the transfer agency
contract, WFB is entitled to receive transfer agency fees at an annual rate of
0.14% of the average daily net assets of the Asset Allocation, Growth and Income
and U.S. Government Allocation Funds, and 0.10% of the average daily net assets
of the Money Market Fund. Prior to February 1, 1997, WFB was entitled to receive
transfer agency fees at an annual rate of 0.05% of the Funds' average daily net
assets.
The Trust has entered into administration agreements on behalf of the Funds
whereby WFB as administrator and Stephens Inc. ("Stephens") as co-administrator
provide the Funds with administrative services. For these services, WFB and
Stephens are entitled to receive monthly fees at the annual rates of 0.04% and
0.02%, respectively, of each Fund's average daily net assets. Prior to May 1,
1997, Stephens provided substantially the same services as sole administrator to
the Funds and was entitled to receive a monthly fee at the annual rate of 0.03%
of each Fund's average daily net assets.
WAIVED FEES AND REIMBURSED EXPENSES
All amounts shown as waived fees and reimbursed expenses on the Statement of
Operations for the year ended December 31, 1997 were waived by WFB. Waived fees
and reimbursed expenses continue at the discretion of WFB and Stephens.
Certain officers and one director of the Trust are also officers of Stephens. As
of December 31, 1997, Stephens owned 3,663 shares of the Asset Allocation Fund,
2,887 shares of the Growth and Income Fund, 29,934 shares of the Money Market
Fund and 3,125 shares of the U.S. Government Allocation Fund.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities
(securities with maturities of one year or less at purchase date), for the Funds
for the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Asset Growth and U.S. Government
Allocation Income Allocation
AGGREGATE PURCHASES AND SALES: Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases at cost $54,025,001 $86,685,458 $16,909,477
Sales proceeds $59,730,665 $60,255,558 $17,437,324
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Money Market Fund, not reflected in this schedule, trades exclusively in
short-term securities.
4. CAPITAL SHARE TRANSACTIONS
The Trust has authorized an unlimited number of no par value shares of capital
stock. Capital share transactions for each of the Funds for the years ended
December 31, 1997 and December 31, 1996 are disclosed in detail in the
Statements of Changes in Net Assets.
FS-19
<PAGE>
LIFE & ANNUITY TRUST
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. SUBSEQUENT EVENTS
On October 30, 1997, the Board approved a name change of the Growth and Income
Fund to the Growth Fund, effective May 1, 1998. Additionally, effective May 1,
1998, the Asset Allocation and U.S. Government Funds will be charged portfolio
accounting fees at the same rates currently charged to the Growth and Income and
Money Market Funds.
On January 29, 1998, the Board approved a change to the administration and
co-administration agreements and the shareholder servicing agreements for the
Funds. WFB and Stephens will be entitled to receive 0.03% and 0.04%,
respectively, of each Fund' s average daily net assets for administration
services. Additionally, American Skandia Life Assurance Company will be entitled
to receive 0.25% of each Fund's average daily net assets for shareholder
services. These fee changes will take effect on May 1, 1998.
FS-20
<PAGE>
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LIFE & ANNUITY TRUST:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Asset Allocation Fund, Growth and
Income Fund, Money Market Fund and U.S. Government Allocation Fund (constituting
Life & Annuity Trust) as of December 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and financial highlights
for the periods indicated herein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the aforementioned funds of Life & Annuity Trust as of December 31,
1997, the results of their operations, the changes in their net assets and their
financial highlights for the periods indicated herein in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
February 6, 1998
<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, 1997
Statement of Assets and Liabilities - December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statements of Changes in Net Assets for the year ended December 31,
1997
Financial Highlights for the year ended December 31, 1997
Notes to the Financial Statements - December 31, 1997
(b) Exhibits:
Exhibit
Number Description
- --------------------------- ----------------------------------------------
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.
1(c) - Amendment No. 2 to the Declaration of Trust,
filed herewith.
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) - Form of Sub-Advisory Contract with Barclays
Global Fund Advisors on behalf of the Asset
Allocation Fund, filed herewith.
5(a)(iii) - Form of Sub-Advisory Contract with Barclays
Global Fund Advisors on behalf of the U.S.
Government Allocation Fund, filed
herewith.
C-1
<PAGE>
5(b)(i) - 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.
5(b)(ii) - Form of Advisory Contract with Wells Fargo
Bank, N.A. on behalf of the Equity Value and
Strategic Growth Funds, filed herewith.
5(b)(iii) - Form of Sub-Advisory Contract with Wells
Capital Management on behalf of the Equity
Value, Growth, Money Market and Strategic
Growth Funds, filed herewith.
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 Equity Value, Growth, Money
Market and Strategic Growth Funds, filed
herewith.
9(a) - Form of Administration Agreement with Wells
Fargo Bank, N.A. on behalf of the Funds, filed
herewith.
9(b) - Form of Co-Administration Agreement with
Stephens Inc. on behalf of the Funds, filed
herewith.
9(c) - Agency Agreement with Wells Fargo Bank, N.A.
on behalf of the Funds, filed herewith.
10 - Opinion and Consent of Counsel, filed
herewith.
11 - Consent of Independent Auditors, filed
herewith.
12 - Not applicable
13 - Investment Letter, incorporated by reference
to the Registration Statement on Form N-1A,
filed on October 28, 1993.
14 - Not applicable
15 - Not applicable
16 - Schedule of Computation of Performance Data,
filed herewith.
17 - Powers of Attorney for Joseph N. Hankin, Jack
S. Euphrat, R. Greg Feltus, Thomas S. Goho, W.
Rodney Hughes, Tucker Morse and Peter G.
Gordon, filed herewith.
27.1 - Financial Data Schedule for the Asset
Allocation Fund, filed herewith.
27.2 - Financial Data Schedule for the Growth Fund
(formerly, Growth and Income Fund), filed
herewith.
C-2
<PAGE>
27.3 - Financial Data Schedule for the Money Market
Fund, filed herewith.
27.4 - Financial Data Schedule for the U.S.
Government Asset Allocation Fund, filed
herewith.
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 March 31, 1998 the number of record holders of each class of
securities of the Registrant was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
The Asset Allocation Fund 3
The Growth Fund 2
The Money Market Fund 2
The U.S. Government Allocation Fund 3
Item 27. Indemnification.
---------------
Article V of the Registrant's Declaration of Trust limits the liability
and, in certain instances, provides for mandatory indemnification of the
Registrant's trustees, officers, employees, agents and holders of beneficial
interests in the Trust and its four Funds. In addition, the Trustees are
empowered under Section 3.9 of the Registrant's Declaration of Trust to obtain
such insurance policies as they deem necessary.
Item 28. Business and Other Connections
of Investment Adviser.
----------------------
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned subsidiary
of Wells Fargo & Company, serves as investment adviser to all of the
Registrant's investment portfolios, and to certain other registered open-end
management investment companies. Wells Fargo Bank's business is that of a
national banking association with respect to which it conducts a variety of
commercial banking and trust activities.
C-3
<PAGE>
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.
Director 3200 San Fernando Road
Los Angeles, CA 90065
</TABLE>
C-4
<PAGE>
<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>
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
San Jose, CA 95112
Director of Boise Cascade Corp.
</TABLE>
C-5
<PAGE>
<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>
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
Palo Alto, CA 94303
Carl E. Reichardt Director of Ford Motor Company
</TABLE>
C-6
<PAGE>
<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>
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
Director of First Interstate Bancorp
633 West Fifth Street
</TABLE>
C-7
<PAGE>
<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>
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
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.
C-8
<PAGE>
<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.
Item 29. Principal Underwriters.
----------------------
C-9
<PAGE>
(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.
-------------
(a) Not Applicable.
(b) Not applicable.
C-10
<PAGE>
(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 certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 30th day of April, 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
------------------------- (Principal Executive Officer)
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 4/30/98
------------------------- (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Trustee
-------------------------
(Jack S. Euphrat)
* Trustee
-------------------------
(Thomas S. Goho)
* Trustee
-------------------------
(Peter G. Gordon)
* Trustee
-------------------------
(Joseph N. Hankin)
* Trustee
-------------------------
(W. Rodney Hughes)
* Trustee
-------------------------
(J. Tucker Morse)
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
April 30, 1998
</TABLE>
<PAGE>
LIFE & ANNUITY TRUST
FILE NOS. 33-70988; 811-8118
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER Description
<S> <C>
EX-27.1 Financial Data Schedule - Asset Allocation Fund
EX-27.2 Financial Data Schedule - Growth Fund (formerly, Growth and
Income Fund)
EX-27.3 Financial Data Schedule - Money Market Fund
EX-27.4 Financial Data Schedule - U.S. Government Allocation Fund
EX-99.B1(c) Amendment No. 2 to the Declaration of Trust
EX-99.B5(a)(ii) Form of Sub-Advisory Contract with Barclays Global Fund
Advisors on behalf of the Asset Allocation Fund
EX-99.B5(a)(iii) Form of Sub-Advisory Contract with Barclays Global Fund
Advisors on behalf of the U.S. Government Allocation
Fund
EX-99.B5(b)(ii) Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the Equity Value and Strategic Growth
Funds
EX-99.B5(b)(iii) Form of Sub-Advisory Contract with Wells Capital
Management on behalf of the Equity Value, Growth, Money
Market and Strategic Growth Funds
EX-99.B8(b) Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the Equity Value, Growth, Money Market and Strategic
Growth Funds
EX-99.B9(a) Form of Administration Agreement with Wells Fargo Bank,
N.A. on behalf of the Funds
EX-99.B9(b) Form of Co-Administration Agreement with Stephens Inc. on
behalf of the Funds
EX-99.B9(c) Agency Agreement with Wells Fargo Bank, N.A. on behalf of
the Funds
EX-99.B10 Opinion of Counsel - Morrison & Foerster LLP
EX-99.B11 Consent of Independent Auditors - KPMG Peat Marwick LLP
EX-99.B16 Schedule of Computation of Performance Data
EX-99.B17 Powers of Attorney
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000914324
<NAME> LIFE AND ANNUITY TRUST
<SERIES>
<NUMBER> 01
<NAME> ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 84,739,465
<INVESTMENTS-AT-VALUE> 86,054,060
<RECEIVABLES> 1,564,100
<ASSETS-OTHER> 860
<OTHER-ITEMS-ASSETS> 4,758
<TOTAL-ASSETS> 87,623,778
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,117,922
<TOTAL-LIABILITIES> 1,117,922
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82,609,421
<SHARES-COMMON-STOCK> 7,217,104
<SHARES-COMMON-PRIOR> 4,537,205
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,863,490
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,032,945
<NET-ASSETS> 86,505,856
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,212,871
<OTHER-INCOME> 0
<EXPENSES-NET> (558,805)
<NET-INVESTMENT-INCOME> 3,654,066
<REALIZED-GAINS-CURRENT> 8,763,882
<APPREC-INCREASE-CURRENT> 1,203,050
<NET-CHANGE-FROM-OPS> 13,820,998
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,654,066)
<DISTRIBUTIONS-OF-GAINS> (7,395,696)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,314,085
<NUMBER-OF-SHARES-REDEEMED> 548,327
<SHARES-REINVESTED> 914,141
<NET-CHANGE-IN-ASSETS> 34,708,915
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 495,304
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 419,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 597,032
<AVERAGE-NET-ASSETS> 70,201,000
<PER-SHARE-NAV-BEGIN> 11.42
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 1.73
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> (1.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.99
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000914324
<NAME> LIFE AND ANNUITY TRUS
<SERIES>
<NUMBER> 02
<NAME> GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 64,329,849
<INVESTMENTS-AT-VALUE> 68,847,648
<RECEIVABLES> 3,436,875
<ASSETS-OTHER> 1,316
<OTHER-ITEMS-ASSETS> 929
<TOTAL-ASSETS> 72,286,768
<PAYABLE-FOR-SECURITIES> 125,118
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 217,782
<TOTAL-LIABILITIES> 342,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,221,389
<SHARES-COMMON-STOCK> 4,285,400
<SHARES-COMMON-PRIOR> 2,176,280
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,204,680
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,517,799
<NET-ASSETS> 71,943,868
<DIVIDEND-INCOME> 716,607
<INTEREST-INCOME> 260,785
<OTHER-INCOME> 0
<EXPENSES-NET> (344,638)
<NET-INVESTMENT-INCOME> 632,754
<REALIZED-GAINS-CURRENT> 6,848,993
<APPREC-INCREASE-CURRENT> 143,053
<NET-CHANGE-FROM-OPS> 7,624,800
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (632,754)
<DISTRIBUTIONS-OF-GAINS> (3,829,806)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,974,920
<NUMBER-OF-SHARES-REDEEMED> 127,163
<SHARES-REINVESTED> 261,363
<NET-CHANGE-IN-ASSETS> 38,583,230
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 185,493
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 318,232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 533,970
<AVERAGE-NET-ASSETS> 53,277,000
<PER-SHARE-NAV-BEGIN> 15.34
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 2.48
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (1.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.79
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000914324
<NAME> LIFE AND ANNUITY TRUST
<SERIES>
<NUMBER> 03
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 18,992,712
<INVESTMENTS-AT-VALUE> 18,992,712
<RECEIVABLES> 145,428
<ASSETS-OTHER> 2,562
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,140,702
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,353,074
<TOTAL-LIABILITIES> 4,353,074
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,787,628
<SHARES-COMMON-STOCK> 14,787,632
<SHARES-COMMON-PRIOR> 12,666,954
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 14,787,628
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 872,937
<OTHER-INCOME> 0
<EXPENSES-NET> (84,498)
<NET-INVESTMENT-INCOME> 788,439
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 788,439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (788,439)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,957,328
<NUMBER-OF-SHARES-REDEEMED> 19,625,090
<SHARES-REINVESTED> 788,439
<NET-CHANGE-IN-ASSETS> 2,120,677
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71,778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 170,196
<AVERAGE-NET-ASSETS> 15,963,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000914324
<NAME> LIFE AND ANNUITY TRUST
<SERIES>
<NUMBER> 04
<NAME> U.S. GOVERNMENT ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 26,646,994
<INVESTMENTS-AT-VALUE> 26,875,141
<RECEIVABLES> 327,249
<ASSETS-OTHER> 421
<OTHER-ITEMS-ASSETS> 331
<TOTAL-ASSETS> 27,203,142
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,309,363
<TOTAL-LIABILITIES> 3,309,363
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,559,783
<SHARES-COMMON-STOCK> 2,327,003
<SHARES-COMMON-PRIOR> 1,334,979
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 105,849
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 228,147
<NET-ASSETS> 23,893,779
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,228,097
<OTHER-INCOME> 0
<EXPENSES-NET> (122,681)
<NET-INVESTMENT-INCOME> 1,105,416
<REALIZED-GAINS-CURRENT> 149,427
<APPREC-INCREASE-CURRENT> 204,961
<NET-CHANGE-FROM-OPS> 1,459,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,105,416)
<DISTRIBUTIONS-OF-GAINS> (40,057)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,273,335
<NUMBER-OF-SHARES-REDEEMED> 394,100
<SHARES-REINVESTED> 112,789
<NET-CHANGE-IN-ASSETS> 10,366,445
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,521)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 115,022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 186,673
<AVERAGE-NET-ASSETS> 19,222,000
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EX-99.B1(c)
AMENDMENT NUMBER TWO TO THE
DECLARATION OF TRUST
OF
LIFE & ANNUITY TRUST
This AMENDMENT NUMBER TWO to the DECLARATION OF TRUST of the Life &
Annuity Trust (the "Trust") is made on the 28th day of April, 1998 by the
parties signatory hereto, as trustees (hereinafter called the "Trustees").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Trustees desire to change the name of a series of
Interests,pursuant to a vote of the majority of the Trustees held at the October
30, 1997 meeting of the Board, and to add two new series of Interests, pursuant
to a vote of the majority of the Trustees held at the January 29, 1998 meeting
of the Board.
NOW, THEREFORE, the Trustees hereby declare that Paragraph 9.8(e) of
Article IX of the Trust's Declaration of Trust, dated October 26, 1993, is
amended, effective immediately, as follows:
ARTICLE IX
Holders
-------
9.8 Series of Interests. If the Trustees shall divide the Trust
-------------------
Property into two or more series the following provisions shall be applicable:
(e) There shall be six series of Interests designated as the "Asset
Allocation Fund Series," the "Equity Value Fund Series," the "Growth Fund
Series," the "Money Market Fund Series," the "Strategic Growth Fund Series," and
the "U.S. Government Allocation Fund Series." Each such series will consist of
an unlimited number of Interests, and shall have the rights and privileges as
set forth herein.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as
of the 28th day of April, 1998.
Signature Title
- --------- -----
* Trustee, Chairman and President
- -------------------------- (Principal Executive Officer)
R. Greg Feltus
/s/Richard H. Blank, Jr. Secretary and Treasurer
- -------------------------- (Principal Financial Officer)
Richard H. Blank, Jr.
* Trustee
- --------------------------
Jack S. Euphrat
* Trustee
- --------------------------
Thomas S. Goho
* Trustee
- --------------------------
Peter G. Gordon
* Trustee
- --------------------------
Joseph N. Hankin
* Trustee
- --------------------------
W. Rodney Hughes
* Trustee
- --------------------------
J. Tucker Morse
*By: /s/Richard H. Blank, Jr.
--------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
April 28, 1998
<PAGE>
FORM OF SUB-ADVISORY CONTRACT
WELLS FARGO BANK, N.A.
525 Market Street
San Francisco, CA 94163
January 1, 1996
Barclays Global Fund Advisors
45 Fremont Street, 17th Floor
San Francisco, California 94105
Dear Sirs:
This will confirm the agreement by and among Wells Fargo Bank, N.A. (the
"Adviser"), Life & Annuity Trust (the "Trust") on behalf of the Asset Allocation
Fund (the "Fund"), and Barclays Global Fund Advisors (the "Sub-Adviser") as
follows:
1. The Trust is a registered open-end management investment company
currently consisting of four investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios. The Trust
proposes to engage in the business of investing and reinvesting the assets of
the Fund in the manner and in accordance with the investment objective and
restrictions specified in the Trust's currently effective Registration
Statement, as amended from time to time (the "Registration Statement"), filed by
the Trust under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the Registration Statement have been
furnished to the Sub-Adviser. Any amendments to the Registration Statement
shall be furnished to the Sub-Adviser promptly.
2. The Trust has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified in the Advisory Contract between the Trust and the Adviser, dated
March 31, 1994, subject to the overall supervision of the Board of Trustees of
the Trust. Pursuant to an administration agreement between the Trust, on behalf
of the Fund, and an administrator (the "Administrator"), the Trust has engaged
the Administrator to provide the administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for the
Fund certain advisory services and the Sub-Adviser hereby accepts such
employment. The Adviser shall retain the authority to establish and modify from
time to time the investment strategies and approaches to be followed by the Sub-
Adviser, subject, in all respects, to the supervision and direction of the
Trust's Board of Trustees and subject to compliance with the investment
objectives, policies and restrictions set forth in the Registration Statement.
(b) Subject to the overall supervision and control of the Adviser and
the Trust, the Sub-Adviser shall be responsible for investing and reinvesting
the Fund's assets
1
<PAGE>
consistent with the investment strategies and approaches referenced in
subparagraph (a), above. In this regard, the Sub-Adviser shall be responsible
for implementing and monitoring the performance of the investment model employed
with respect to the Fund, in accordance with the investment objective, policies
and restrictions set forth in the Registration Statement, the Act and the
provisions of the Internal Revenue Code of 1986 relating to investment companies
and shall furnish to the Adviser periodic reports on the investment activity and
performance of the Fund. The Sub-Adviser shall also furnish such additional
reports and information as the Adviser and the Trust's Board of Trustees and
officers shall reasonably request.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for fees paid to the Sub-Adviser
for its services hereunder. The Sub-Adviser agrees that it shall have no claim
against the Trust or the Fund respecting compensation under this contract. In
consideration of the services to be rendered by the Sub-Adviser under this
contract, the Adviser shall pay the Sub-Adviser a fee on the first business day
of each calendar month, at the annual rate of 0.15% of the average daily value
(as determined on each day that such value is determined for the Fund at the
time set forth in the Registration Statement for determining net asset value per
share) of the first $900 million of the Fund's net assets for the preceding
month and 0.10% of net assets over $900 million. If the fee payable to the Sub-
Adviser pursuant to this Paragraph 4 begins to accrue on a day after the first
day of any month or if this contract terminates before the end of any month, the
fee for the period from the effective date to the end of the month, or from the
beginning of that month to the termination date, shall be prorated according to
the proportion that such period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating the monthly
fee, the value of a Fund's net assets shall be computed in the manner specified
in the Registration Statement and the Trust's Declaration of Trust for the
computation of the value of a Fund's net assets in connection with the
determination of the net asset value of Fund shares.
5. The Sub-Adviser shall give the Trust the benefit of the Sub-
Adviser's best judgment and efforts in rendering services under this contract.
As consideration and an inducement to the Sub-Adviser's undertaking to render
these services, the Trust and the Adviser agree that the Sub-Adviser shall not
be liable under this contract for any mistake in judgment or in any other event
whatsoever except for lack of good faith, provided that nothing in this contract
shall be deemed to protect or purport to protect the Sub-Adviser against any
liability to the Adviser, the Trust or its holders of interests of the Fund to
which the Sub-Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
6. This contract shall become effective as of its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote of
a majority of the Fund's outstanding voting securities (as defined in
2
<PAGE>
the Act) or by the Trust's Board of Trustees and (b) by the vote, cast in person
at a meeting called for the purpose of continuing this Sub-Advisory Contract, of
a majority of the Trust's Trustees who are not parties to this contract or
"interested persons" (as defined in the Act) of any such party. This contract
may be terminated at any time by the Trust, without the payment of any penalty,
by a vote of a majority of the Fund's outstanding voting securities (as defined
in the Act) or by a vote of a majority of the Trust's entire Board of Trustees
on 60 days' written notice to the Sub-Adviser, or by the Sub-Adviser on 60 days'
written notice to the Trust. This contract shall terminate automatically in the
event of its assignment (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Trust shall own and control all records generated on behalf of
the Trust as a result of services provided under this contract. In addition,
the Trust shall have the right to inspect, audit, and/or copy all records
pertaining to the performance of services under this contract.
9. This contract shall be governed by and construed in accordance with
the laws of the State of California.
3
<PAGE>
If the foregoing correctly sets forth the agreement by and among the
Adviser, the Trust and the Sub-Adviser, please so indicate by signing and
returning to the Trust the enclosed copy hereof.
Very truly yours,
WELLS FARGO BANK, N.A.
By: _________________________________________
Name: _______________________________________
Title: ______________________________________
By: _________________________________________
Name: _______________________________________
Title: ______________________________________
AGREED to as of the date set forth above,
and as amended on October 30, 1997,
January 29, 1998 and April 30, 1998:
BARCLAYS GLOBAL FUND ADVISORS
By: _________________________________________
Name: _______________________________________
Title: ______________________________________
ACCEPTED as of the date set forth above,
and as amended on October 30, 1997,
January 29, 1998 and April 30, 1998:
LIFE & ANNUITY TRUST
on behalf of the Asset Allocation Fund
By: _________________________________________
Richard H. Blank, Jr.
Chief Operating Officer
4
<PAGE>
FORM OF SUB-ADVISORY CONTRACT
WELLS FARGO BANK, N.A.
525 Market Street
San Francisco, CA 94163
January 1, 1996
Barclays Global Fund Advisors
45 Fremont Street, 17th Floor
San Francisco, California 94105
Dear Sirs:
This will confirm the agreement by and among Wells Fargo Bank, N.A. (the
"Adviser"), Life & Annuity Trust (the "Trust") on behalf of the U.S. Government
Allocation Fund (the "Fund"), and Barclays Global Fund Advisors (the "Sub-
Adviser") as follows:
1. The Trust is a registered open-end management investment company
currently consisting of four investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios. The Trust
proposes to engage in the business of investing and reinvesting the assets of
the Fund in the manner and in accordance with the investment objective and
restrictions specified in the Trust's currently effective Registration
Statement, as amended from time to time (the "Registration Statement"), filed by
the Trust under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the Registration Statement have been
furnished to the Sub-Adviser. Any amendments to the Registration Statement
shall be furnished to the Sub-Adviser promptly.
2. The Trust has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified in the Advisory Contract between the Trust and the Adviser, dated
March 31, 1994, subject to the overall supervision of the Board of Trustees of
the Trust. Pursuant to an administration agreement between the Trust, on behalf
of the Fund, and an administrator (the "Administrator"), the Trust has engaged
the Administrator to provide the administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for the
Fund certain advisory services and the Sub-Adviser hereby accepts such
employment. The Adviser shall retain the authority to establish and modify from
time to time the investment strategies and approaches to be followed by the Sub-
Adviser, subject, in all respects, to the supervision and direction of the
Trust's Board of Trustees and subject to compliance with the investment
objectives, policies and restrictions set forth in the Registration Statement.
(b) Subject to the overall supervision and control of the Adviser and
the Trust, the Sub-Adviser shall be responsible for investing and reinvesting
the Fund's assets
1
<PAGE>
consistent with the investment strategies and approaches referenced in
subparagraph (a), above. In this regard, the Sub-Adviser shall be responsible
for implementing and monitoring the performance of the investment model employed
with respect to the Fund, in accordance with the investment objective, policies
and restrictions set forth in the Registration Statement, the Act and the
provisions of the Internal Revenue Code of 1986 relating to investment companies
and shall furnish to the Adviser periodic reports on the investment activity and
performance of the Fund. The Sub-Adviser shall also furnish such additional
reports and information as the Adviser and the Trust's Board of Trustees and
officers shall reasonably request.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for fees paid to the Sub-Adviser
for its services hereunder. The Sub-Adviser agrees that it shall have no claim
against the Trust or the Fund respecting compensation under this contract. In
consideration of the services to be rendered by the Sub-Adviser under this
contract, the Adviser shall pay the Sub-Adviser a fee on the first business day
of each calendar month, at the annual rate of 0.05% of the average daily value
(as determined on each day that such value is determined for the Fund at the
time set forth in the Registration Statement for determining net asset value per
share) of the first $75 million of the Fund's net assets for the preceding
month; 0.04% of the next $75 million of net assets, and 0.03% of net assets over
$150 million. If the fee payable to the Sub-Adviser pursuant to this Paragraph
4 begins to accrue on a day after the first day of any month or if this contract
terminates before the end of any month, the fee for the period from the
effective date to the end of the month, or from the beginning of that month to
the termination date, shall be prorated according to the proportion that such
period bears to the full month in which the effectiveness or termination occurs.
For purposes of calculating the monthly fee, the value of a Fund's net assets
shall be computed in the manner specified in the Registration Statement and the
Trust's Declaration of Trust for the computation of the value of a Fund's net
assets in connection with the determination of the net asset value of Fund
shares.
5. The Sub-Adviser shall give the Trust the benefit of the Sub-
Adviser's best judgment and efforts in rendering services under this contract.
As consideration and an inducement to the Sub-Adviser's undertaking to render
these services, the Trust and the Adviser agree that the Sub-Adviser shall not
be liable under this contract for any mistake in judgment or in any other event
whatsoever except for lack of good faith, provided that nothing in this contract
shall be deemed to protect or purport to protect the Sub-Adviser against any
liability to the Adviser, the Trust or its holders of interests of the Fund to
which the Sub-Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
6. This contract shall become effective as of its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least
2
<PAGE>
annually (a) by the vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by the Trust's Board of Trustees and (b)
by the vote, cast in person at a meeting called for the purpose of continuing
this Sub-Advisory Contract, of a majority of the Trust's Trustees who are not
parties to this contract or "interested persons" (as defined in the Act) of any
such party. This contract may be terminated at any time by the Trust, without
the payment of any penalty, by a vote of a majority of the Fund's outstanding
voting securities (as defined in the Act) or by a vote of a majority of the
Trust's entire Board of Trustees on 60 days' written notice to the Sub-Adviser,
or by the Sub-Adviser on 60 days' written notice to the Trust. This contract
shall terminate automatically in the event of its assignment (as defined in the
Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Trust shall own and control all records generated on behalf of
the Trust as a result of services provided under this contract. In addition,
the Trust shall have the right to inspect, audit, and/or copy all records
pertaining to the performance of services under this contract.
9. This contract shall be governed by and construed in accordance with
the laws of the State of California.
3
<PAGE>
If the foregoing correctly sets forth the agreement by and among the
Adviser, the Trust and the Sub-Adviser, please so indicate by signing and
returning to the Trust the enclosed copy hereof.
Very truly yours,
WELLS FARGO BANK, N.A.
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
AGREED to as of the date set forth above,
and as amended on October 30, 1997,
January 29, 1998 and April 30, 1998:
BARCLAYS GLOBAL FUND ADVISORS
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
ACCEPTED as of the date set forth above,
and as amended on October 30, 1997,
January 29, 1998 and April 30, 1998:
LIFE & ANNUITY TRUST
on behalf of U.S. Government Allocation Fund
By: ____________________________________________
Richard H. Blank, Jr.
Chief Operating Officer
4
<PAGE>
FORM OF ADVISORY CONTRACT
LIFE & ANNUITY TRUST
111 Center Street
Little Rock, Arkansas 72201
__________, 1998
Wells Fargo Bank, N.A.
525 Market Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") on
behalf of the Funds listed in Appendix A (each a "Fund") and Wells Fargo Bank,
N.A. (the "Adviser") as follows:
1. The Trust is a registered open-end management investment company
currently consisting of four investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Trust proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Trust's currently
effective prospectus and the currently effective statement of additional
information incorporated by reference therein relating to the Fund and the Trust
(such prospectus and such statement of additional information being collectively
referred to as the "Prospectus") included in the Trust's Registration Statement,
as amended from time to time (the "Registration Statement"), filed by the Trust
under the Investment Company Act of 1940 (the "Act") and the Securities Act of
1933. Copies of the documents referred to in the preceding sentence have been
furnished to the Adviser. Any amendments to those documents shall be furnished
to the Adviser promptly.
2. The Trust is engaging the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Trustees of the Trust. Pursuant to an administration agreement between
the Trust and Stephens Inc. (the "Administrator") on behalf of the Fund, the
Trust has engaged the Administrator to provide the administrative services
specified therein.
3. (a) The Adviser shall make investments for the account of the Fund in
accordance with the Adviser's best judgment and consistent with the investment
objective and restrictions set forth in the Trust's Prospectus, the Act and the
provisions of the Internal Revenue Code relating to regulated investment
companies and variable annuity contracts, subject to policy decisions adopted by
the Trust's Board of Trustees. The Adviser shall advise the Trust's officers
and Board of Trustees, at such times as the Trust's Board of Trustees may
specify, of investments
1
<PAGE>
made for the Fund and shall, when requested by the Trust's officers or Board of
Trustees, supply the reasons for making particular investments.
(b) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Trust's Board of Trustees periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Trust's Board of Trustees and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request, other
than such costs relating to proxy statements, prospectuses, reports for holders
of beneficial interests ("Interests") of the Fund ("Holders") and other
materials distributed to existing or prospective Holders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with itself
such persons as the Adviser believes appropriate to assist it in performing its
obligations under this contract.
4. The Trust understands that the Adviser, in rendering its services to
the Funds hereunder, may engage a sub-adviser to provide certain sub-advisory
services pursuant to a separate sub-advisory contract. The Adviser will not
seek to amend any sub-advisory contract to materially alter the obligations of
the parties unless the Adviser gives the Trust at least 60 days' prior written
notice thereof.
5. Except as provided in each of the Trust's advisory contracts and
administration agreements, the Trust shall bear all costs of its operations,
including the compensation of its trustees who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; governmental fees; interest charges; taxes; fees and
expenses of its independent accountants, legal counsel, transfer agent and
dividend disbursing agent; expenses of redeeming Interests; expenses of
preparing and printing Interest certificates, prospectuses (except the expense
of printing and mailing prospectuses used for promotional purposes), Holders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of trustees, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and calculating the net asset value per
Interest of the Fund; expenses of Holders' meetings; expenses relating to the
issuance, registration and qualification of Interests of the Fund; pricing
services, if any; organizational expenses; and any extraordinary expenses.
Expenses attributable to one or more, but not all, of the Funds are charged
against the assets of the relevant Funds. General expenses of the Funds are
allocated among the Funds in a manner proportionate to the net assets of each
Fund, on a transactional basis or on such other basis as the Board of Trustees
deems equitable.
2
<PAGE>
6. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Trust
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Trust or its Holders to which
the Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Adviser's duties under this
contract or by reason of reckless disregard of its obligations and duties
hereunder.
7. In consideration of the services to be rendered by the Adviser under
this contract, the Trust shall pay the Adviser a monthly fee on the first
business day of each month, at an annual rate, listed in Appendix B, of the
average daily value (as determined on each day that such value is determined for
the Fund at the time set forth in the Prospectus for determining net asset value
per Interest) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract terminates before the end of any month, the
fee for the period from the effective date to the end of that month or from the
beginning of that month to the termination date, respectively, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating each such
monthly fee, the value of the Fund's net assets shall be computed in the manner
specified in the Prospectus and the Trust's Declaration of Trust for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of Fund Interests.
8. If in any fiscal year the total expenses of the Fund incurred by, or
allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles and extraordinary
expenses of the Fund, but including the fees provided for in paragraph 7 and
those provided for pursuant to the Fund's Administration Agreement ("includible
expenses"), exceed the most restrictive expense limitation applicable to the
Fund imposed by state securities laws or regulations thereunder, as these
limitations may be raised or lowered from time to time, the Adviser shall waive
or reimburse that portion of the excess derived by multiplying the excess by a
fraction, the numerator of which shall be the percentage at which the excess
portion attributable to the fee payable pursuant to this agreement is calculated
under paragraph 7 hereof, and the denominator of which shall be the sum of such
percentage plus the percentage at which the excess portion attributable to the
fee payable pursuant to the Fund's Administration Agreement is calculated (the
"Applicable Ratio"), but only to the extent of the fee hereunder for the fiscal
year. If the fees payable under this agreement and/or the Fund's Administration
Agreement contributing to such excess portion are calculated at more than one
percentage rate, the Applicable Ratio shall be calculated separately on the
basis of, and applied separately to, the portions of the fees calculated at the
different rates. At the end of each month of the Trust's fiscal year, the Trust
shall review the includible expenses accrued during that fiscal year to the end
of the period and shall estimate the contemplated includible expenses for the
balance of that fiscal year. If as a result of that review and estimation it
appears likely that the includible expenses will exceed the limitations referred
to in this paragraph 8 for a fiscal year with respect to the Fund, the monthly
fee set forth in paragraph 7 payable to the
3
<PAGE>
Adviser for such month shall be reduced, subject to a later adjustment, by an
amount equal to the Applicable Ratio times the pro rata portion (prorated on the
basis of the remaining months of the fiscal year, including the month just
ended) of the amount by which the includible expenses for the fiscal year are
expected to exceed the limitations provided for in this paragraph 8. For
purposes of computing the excess, if any, over the most restrictive applicable
expense limitation, the value of the Fund's net assets shall be computed in the
manner specified in the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Trust's fiscal year.
9. This contract shall become effective on its execution date and shall
thereafter continue in effect, provided that this contract shall continue in
effect for a period of more than two years from the date hereof only so long as
the continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the Act) or
by the Trust's Board of Trustees and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's trustees who are
not parties to this contract or "interested persons" (as defined in the Act) of
any such party. This contract may be terminated at any time by the Trust,
without the payment of any penalty, by a vote of a majority of the Fund's
outstanding voting securities (as defined in the Act) or by a vote of a majority
of the Trust's entire Board of Trustees on 60 days' written notice to the
Adviser or by the Adviser, at any time after the second anniversary of the
effective date of this contract, on 60 days' written notice to the Trust. This
contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
11. This agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this agreement shall only be binding upon the assets and
property of the relevant Fund, as provided for in the Trust's Agreement and
Declaration of Trust, and shall not be binding upon any trustee, officer or
shareholder of the Trust or Fund individually.
12. The Trust shall own and control all records generated on behalf of
the Trust as a result of services provided under this contract. In addition,
the Trust shall have the right to inspect, audit, and/or copy all records
pertaining to the performance of services under this contract.
13. This contract shall be governed by and construed in accordance with
the laws of the State of California.
4
<PAGE>
If the foregoing correctly sets forth the agreement between the Trust and
the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
LIFE & ANNUITY TRUST
By: ________________________________
Name: ______________________________
Title: _____________________________
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: ________________________________
Name: ______________________________
Title: _____________________________
By: ________________________________
Name: ______________________________
Title: _____________________________
5
<PAGE>
APPENDIX A
----------
Equity Value Fund
Strategic Growth Fund
6
<PAGE>
APPENDIX B
----------
INVESTMENT ADVISORY FEE SCHEDULE
--------------------------------
Fund Advisory Fee Rate
- ----
(as annualized %
of average net assets)
---------------------
Equity Value Fund 0.60%
Strategic Growth Fund 0.60%
Approved : January 29, 1998
7
<PAGE>
FORM OF SUB-ADVISORY CONTRACT
WELLS FARGO BANK, N.A.
525 Market Street
San Francisco, CA 94163
___________, 1998
Wells Capital Management
525 Market Street, 10th Floor
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement by and among Wells Fargo Bank, N.A. (the
"Adviser"), Life & Annuity Trust (the "Trust") on behalf of each Fund listed on
attached Appendix I, (each, a "Fund" and collectively, the "Funds"), and Wells
Capital Management (the "Sub-Adviser") as follows:
1. The Trust is a registered open-end management investment company
currently consisting of four investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios. The Trust
proposes to engage in the business of investing and reinvesting the assets of
the Fund in the manner and in accordance with the investment objective and
restrictions specified in the Trust's currently effective Registration
Statement, as amended from time to time (the "Registration Statement"), filed by
the Trust under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the Registration Statement have been
furnished to the Sub-Adviser. Any amendments to the Registration Statement
shall be furnished to the Sub-Adviser promptly.
2. The Trust has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified in the Advisory Contract between the Trust and the Adviser, dated
March 31, 1994, subject to the overall supervision of the Board of Trustees of
the Trust. Pursuant to an administration agreement between the Trust, on behalf
of the Fund, and an administrator (the "Administrator"), the Trust has engaged
the Administrator to provide the administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for the
Fund certain advisory services and the Sub-Adviser hereby accepts such
employment. The Adviser shall retain the authority to establish and modify from
time to time the investment strategies and approaches to be followed by the Sub-
Adviser, subject, in all respects, to the supervision and direction of the
Trust's Board of Trustees and subject to compliance with the investment
objectives, policies and restrictions set forth in the Registration Statement.
<PAGE>
(b) Subject to the overall supervision and control of the Adviser and
the Trust, the Sub-Adviser shall be responsible for investing and reinvesting
the Fund's assets consistent with the investment strategies and approaches
referenced in subparagraph (a), above. In this regard, the Sub-Adviser shall be
responsible for implementing and monitoring the performance of the investment
model employed with respect to the Fund, in accordance with the investment
objective, policies and restrictions set forth in the Registration Statement,
the Act and the provisions of the Internal Revenue Code of 1986 relating to
investment companies and shall furnish to the Adviser periodic reports on the
investment activity and performance of the Fund. The Sub-Adviser shall also
furnish such additional reports and information as the Adviser and the Trust's
Board of Trustees and officers shall reasonably request.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for fees paid to the Sub-Adviser
for its services hereunder. The Sub-Adviser agrees that it shall have no claim
against the Trust or the Fund respecting compensation under this contract. In
consideration of the services to be rendered by the Sub-Adviser under this
contract, the Adviser shall pay the Sub-Adviser a fee on the first business day
of each calendar month, at the annual rate of 0.20% of the average daily value
(as determined on each day that such value is determined for the Fund at the
time set forth in the Registration Statement for determining net asset value per
share) of the first $500 million of the Fund's net assets for the preceding
month; 0.15% of the next $500 million of nets assets, and 0.10% of net assets
over $1 billion. If the fee payable to the Sub-Adviser pursuant to this
Paragraph 4 begins to accrue on a day after the first day of any month or if
this contract terminates before the end of any month, the fee for the period
from the effective date to the end of the month, or from the beginning of that
month to the termination date, shall be prorated according to the proportion
that such period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating the monthly fee, the value of a
Fund's net assets shall be computed in the manner specified in the Registration
Statement and the Trust's Declaration of Trust for the computation of the value
of a Fund's net assets in connection with the determination of the net asset
value of Fund shares.
5. The Sub-Adviser shall give the Trust the benefit of the Sub-
Adviser's best judgment and efforts in rendering services under this contract.
As consideration and an inducement to the Sub-Adviser's undertaking to render
these services, the Trust and the Adviser agree that the Sub-Adviser shall not
be liable under this contract for any mistake in judgment or in any other event
whatsoever except for lack of good faith, provided that nothing in this contract
shall be deemed to protect or purport to protect the Sub-Adviser against any
liability to the Adviser, the Trust or its holders of interests of the Fund to
which the Sub-Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
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<PAGE>
6. This contract shall become effective as of its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote of
a majority of the Fund's outstanding voting securities (as defined in the Act)
or by the Trust's Board of Trustees and (b) by the vote, cast in person at a
meeting called for the purpose of continuing this Sub-Advisory Contract, of a
majority of the Trust's Trustees who are not parties to this contract or
"interested persons" (as defined in the Act) of any such party. This contract
may be terminated at any time by the Trust, without the payment of any penalty,
by a vote of a majority of the Fund's outstanding voting securities (as defined
in the Act) or by a vote of a majority of the Trust's entire Board of Trustees
on 60 days' written notice to the Sub-Adviser, or by the Sub-Adviser on 60 days'
written notice to the Trust. This contract shall terminate automatically in the
event of its assignment (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Trust shall own and control all records generated on behalf of
the Trust as a result of services provided under this contract. In addition,
the Trust shall have the right to inspect, audit, and/or copy all records
pertaining to the performance of services under this contract.
9. This contract shall be governed by and construed in accordance with
the laws of the State of California.
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<PAGE>
If the foregoing correctly sets forth the agreement by and among the
Adviser, the Trust and the Sub-Adviser, please so indicate by signing and
returning to the Trust the enclosed copy hereof.
Very truly yours,
WELLS FARGO BANK, N.A.
By: ______________________________
Name: ____________________________
Title: ___________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
AGREED to as of the date set forth above:
WELLS CAPITAL MANAGEMENT
By: ______________________________
Name: ____________________________
Title: ___________________________
ACCEPTED as of the date
set forth above:
LIFE & ANNUITY TRUST
on behalf of each Fund listed on
attached Appendix I
By:
------------------------------
Richard H. Blank, Jr.
Chief Operating Officer
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<PAGE>
APPENDIX I
Sub-advisory fees shall be paid monthly on the first business day of each
month, at the annual rates specified below of each fund's average daily value
(as determined on each day that such value is determined for the fund at the
time set forth in the prospectus for determining net asset value per share)
during the preceding month.
<TABLE>
<CAPTION>
FUND INVESTMENT SUB-ADVISORY FEE
- ------------------------------------------- --------------------------------------------
<S> <C>
Equity Value Fund 0.25% of the first $200 million in assets
0.20% of the next $200 million in assets
0.15% of all assets over $400 million
Growth Fund 0.25% of the first $200 million
0.20% of the next $200 million
0.15% of all assets over $400 million
Money Market Fund 0.05% of the first $960 million in assets
0.04% of all assets above $960 million
Strategic Growth Fund 0.25% of the first $200 million in assets
0.20% of the next $200 million in assets
0.15% of all assets over $400 million
</TABLE>
Approved: April 30, 1998
5
<PAGE>
CUSTODY AGREEMENT
LIFE & ANNUITY TRUST
This Agreement is made as of this 15th day of November, 1993 (the
"Agreement"), by and between LIFE & ANNUITY TRUST (the "Trust"), on behalf of
the Funds listed on Appendix A hereto, as such Appendix may be revised from time
to time (each a "Fund" and, collectively, the "Funds"), and WELLS FARGO BANK,
N.A. (the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Trust and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meaning:
1. "Authorized Person" shall be deemed to include the treasurer, the
controller or any other person, whether or not any such person is an Officer or
employee of the Trust, duly authorized by the Board of Trustees ("Trustees") to
give Oral Instructions and Written Instructions on behalf of a Fund and listed
in the Certificate attached hereto as Appendix C or such other Certificate as
may be received from time to time by the Custodian.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-
entry system for United States and federal agency securities, its successor(s)
and its nominee(s).
3. "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the
Custodian, which is actually received by the Custodian and signed on behalf of a
Fund by any two Officers of the Trust.
4. "Clearing Member" shall mean a registered broker-dealer that is a
member of a national securities exchange qualified to act as a custodian for an
investment company, or any broker-dealer reasonably believed by the Custodian to
be such a clearing member.
5. "Depository" shall mean The Depository Trust Trust ("DTC"),
Participants Trust Trust ("PTC"), and any other clearing agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934, its successor(s) and its nominee(s), provided the
Custodian has received a certified copy of a resolution of the Board of Trustees
specifically approving deposits in DTC, PTC or such other clearing agency. The
term "Depository" shall further mean and include any person authorized to act as
a depository pursuant to Section 17, Rule 17f-4 or Rule 17f-5 thereunder, under
the Investment Trust Act of 1940, its successor(s) and its nominee(s),
specifically identified in a certified copy of a resolution of the Board of
Trustees approving deposits therein by the Custodian.
<PAGE>
6. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, or Clearing Member, or in the name of the Trust or a Fund for
the benefit of a broker, dealer, or Clearing Member, or otherwise, in accordance
with an agreement between the Trust on behalf of a Fund, the Custodian and a
broker, dealer, or Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or moneys of
a Fund shall be deposited and withdrawn from time to time in connection with
such transactions as a Fund may from time to time determine. Securities held in
the Book-Entry System or the Depository shall be deemed to have been deposited
in, or withdrawn from, a Margin Account upon the Custodian's effecting an
appropriate entry on its books and records.
7. "Money Market Securities" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and interest
by the government of the United States or agencies or instrumentalities thereof,
commercial paper, certificates of deposit and bankers' acceptances, repurchase
and reverse repurchase agreements with respect to the same and bank time
deposits, where the purchase and sale of such securities normally requires
settlement in federal funds on the same date as such purchase or sale.
8. "Officers" shall be deemed to include the President, Vice President,
the Secretary, the Treasurer, the Controller, any Assistant Secretary, any
Assistant Treasurer or any other person or persons duly authorized by the
Trustees of the Trust to execute any Certificate, instruction, notice or other
instrument on behalf of a Fund and listed in the Certificate attached hereto as
Appendix B or such other Certificate as may be received by the Custodian from
time to time.
9. "Oral Instructions" shall mean verbal instructions actually received
by the Custodian from an Authorized Person or from a person reasonably believed
by the Custodian to be an Authorized Person.
10. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which a Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
11. "Security" or "Securities" shall be deemed to include, without
limitation, Money Market Securities, Reverse Repurchase Agreements, common stock
and other instruments or rights having characteristics similar to common stocks,
preferred stocks, debt obligations issued by state or municipal governments and
by public authorities (including, without limitation, general obligations
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
12. "Segregated Security Account" shall mean an account maintained under
the terms of this Agreement as a segregated account, by recordation or
otherwise, within the custody account in which certain Securities and/or other
assets of a Fund shall be deposited and withdrawn from time to time in
accordance with Certificates received by the Custodian in connection with such
transactions as a Fund may from time to time determine.
13. "Shares" shall mean the shares of common stock of a Fund, each of
which, in the case of a Fund having Series, is allocated to a particular Series.
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<PAGE>
14. "Written Instructions" shall mean written communications actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person by telex or any other such
system whereby the receiver of such communications is able to verify by codes or
otherwise with a reasonable degree of certainty the authenticity of the sender
of such communication.
ARTICLE II
APPOINTMENT OF A CUSTODIAN
1. The Trust on behalf of a Fund hereby constitutes and appoints the
Custodian as custodian of all the Securities and moneys at any time owned by a
Fund during the term of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees
to perform all the duties thereof as set forth in this Agreement.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in Article V, a Fund will deliver or
cause to be delivered to the Custodian all Securities and all moneys owned by
it, including cash received for the issuance of its Shares, at any time during
the term of this Agreement. The Custodian will not be responsible for such
Securities and such moneys until actually received by it. The Custodian will be
entitled to reverse any credits made on a Fund's behalf where such credits have
been previously made and moneys are not finally collected. A Fund shall deliver
to the Custodian a certified resolution of the Trustees of the Trust authorizing
and instructing the Custodian on a continuous and ongoing basis to deposit in
the Book-Entry System all Securities eligible for deposit therein and to utilize
the Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and deliveries and
returns of Securities collateral. Prior to a deposit of Securities of a Fund in
the Depository, a Fund shall deliver to the Custodian a certified resolution of
the Trustees of the Trust approving, authorizing and instructing the Custodian
on a continuous and ongoing basis until instructed to the contrary by a
Certificate actually received by the Custodian to deposit in the Depository all
Securities eligible for deposit therein and to utilize the Depository to the
extent possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities collateral.
Securities and moneys of a Fund deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only assets held by the
Custodian for customers, including, but not limited to, accounts in which the
Custodian acts in a fiduciary or representative capacity.
2. The Custodian shall credit to a separate account in the name of a
Fund all moneys received by it for the account of a Fund, and shall disburse the
same only:
(a) In payment for Securities purchased, as provided in Article IV
hereof;
(b) In payment of dividends or distributions, as provided in Article
VIII hereof;
(c) In payment of original issue or other taxes, as provided in Article
IX hereof;
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<PAGE>
(d) In payment for Shares redeemed by it, as provided in Article IX
hereof;
(e) Pursuant to Certificate(s) setting forth the name(s) and address(es)
of the person(s) to whom the payment is to be made, and the purpose for which
payment is to be made; or
(f) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian, as provided in Article XII hereof.
3. Promptly after the close of business on each day, the Custodian shall
furnish a Fund with confirmations and a summary of all transfers to or from the
account of a Fund during said day. Where Securities are transferred to the
account of a Fund, the Custodian shall also by book-entry or otherwise identify
as belonging to a Fund a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Book-Entry System or the Depository.
The Custodian shall furnish a Fund at least monthly with a detailed statement of
the Securities and moneys held for a Fund under this Agreement.
4. Except as otherwise provided in Article V, all Securities held for a
Fund which are issued or issuable only in bearer form, except such Securities as
are held in the Book-Entry System, shall be held by the Custodian in that form;
all other Securities held for a Fund may be registered in the name of a Fund, in
the name of any duly appointed registered nominee of the Custodian as the
Custodian may from time to time determine, or in the name of the Book-Entry
System or the Depository or their successor(s) or their nominee(s). The Trust
agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository, any Securities which it may hold for the account of a Fund and which
may from time to time be registered in the name of a Fund. The Custodian shall
hold all such Securities which are not held in the Book-Entry System or in the
Depository in a separate account in the name of a Fund physically segregated at
all times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to the
Securities therein deposited, shall, with respect to all Securities held for a
Fund in accordance with this Agreement:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix D annexed hereto, which may be amended at
any time by the Custodian upon five business days' prior notification to a Fund;
(c) Present for payment and collect the amount payable upon all
Securities which mature;
(d) Surrender Securities in temporary form for definitive Securities;
(e) Execute, as Custodian, any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and
4
<PAGE>
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Fund all
rights and similar securities issued with respect to any Securities held by the
Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other instruments whereby
the authority of a Fund as owner of any Securities may be exercised;
(b) Deliver any Securities held for a Fund in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any Securities held for a Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
(d) Make such transfer or exchanges of the assets of a Fund and take
such other steps as shall be stated in said order to be for the purpose of
effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of a Fund; and
(e) Present for payment and collect the amount payable upon Securities
not described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase or sale (as applicable) of Securities by
a Fund, other than a purchase or sale of any Reverse Repurchase Agreement, a
Fund shall deliver to the Custodian (i) with respect to each purchase or sale of
Securities which are not Money Market Securities, a Certificate; and (ii) with
respect to each purchase or sale of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect to each such
purchase or sale: (a) the name of the issuer and the title of the Securities;
(b) the number of shares or the principal amount purchased or sold and accrued
interest, if any; (c) the date of purchase or sale and settlement date; (d) the
purchase or sale price per unit; (e) the total amount payable upon such purchase
or sale; (f) the name of the person from whom or the broker through whom the
purchase or sale was made, and the name of the clearing broker, if any; (g) in
the case of a purchase, the name of the broker to which payment is to be made;
and (h) in the case of a sale, the name of the broker to whom the Securities are
to be delivered. In the case of a purchase, the Custodian shall, upon receipt
of Securities purchased by or for a Fund, pay out of the moneys held for the
account of a Fund the total amount payable to the person from whom, or the
broker through whom, the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Certificate, Oral Instructions or
Written Instructions. In the case of a sale, the Custodian shall deliver the
Securities upon receipt of the total amount payable to a Fund upon such sale,
provided that the same
5
<PAGE>
conforms to the total amount payable as set forth in such Certificate, Oral
Instructions or Written Instructions. Subject to the foregoing, the Custodian
may accept payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in securities.
ARTICLE V
SHORT SALES
1. Promptly after any short sale, a Fund shall deliver to the Custodian
a Certificate specifying: (a) the name of the issuer and the title of the
Security; (b) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (c) the dates of the sale and settlement; (d) the
sale price per unit; (e) the total amount credited to a Fund upon such sale, if
any (f) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (g) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Segregated Security
Account; and (h) the name of the broker through which such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to a Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of a Fund, issue a
receipt or make the deposits into the Margin Account and the Segregated Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, a Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing-out: (a) the name of the issuer and the title of the Security; (b)
the number of shares or the principal amount, and accrued interest or dividends,
if any, required to effect such closing-out to be delivered to the broker; (c)
the dates of the closing-out and settlement; (d) the purchase price per unit;
(e) the net total amount payable to a Fund upon such closing-out; (f) the net
total amount payable to the broker upon such closing-out; (g) the amount of cash
and the amount and kind of Securities, if any, to be withdrawn, from the Margin
Account; (h) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Segregated Security Account; and (i) the name of
the broker through which a Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to a Fund upon such closing-
out and the return and/or cancellation of the receipts, if any, issued by the
Custodian with respect to the short sale being closed-out, pay out the moneys
held for the account of a Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Segregated
Security Account, as the same are specified in the Certificate.
ARTICLE VI
REVERSE REPURCHASE AGREEMENTS
1. Promptly after a Fund enters into a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, a Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate, Oral Instructions or
Written Instructions specifying: (a) the total amount payable to a Fund in
connection with such Reverse Repurchase Agreement; (b) the broker or dealer
through or with which the Reverse Repurchase Agreement is entered; (c) the
amount and kind of Securities to be delivered by a Fund to such broker or
dealer; (d) the date of such Reverse Repurchase Agreement; and (e) the amount of
cash and/or the amount and kind of Securities, if any, to be deposited in a
Segregated Security
6
<PAGE>
Account in connection with such Reverse Repurchase Agreement. The Custodian
shall, upon receipt of the total amount payable to a Fund specified in the
Certificate, Oral Instructions or Written Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Segregated Security Account,
specified in such Certificate, Oral Instructions or Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
paragraph 1 of this Article VI, a Fund shall promptly deliver a Certificate or,
in the event such Reverse Repurchase Agreement is a Money Market Security, a
Certificate, Oral Instructions or Written Instructions to the Custodian
specifying: (a) the Reverse Repurchase Agreement being terminated; (b) the
total amount payable by a Fund in connection with such termination; (c) the
amount and kind of Securities to be received by a Fund in connection with such
termination; (d) the date of termination; (e) the name of the broker or dealer
with or through which the Reverse Repurchase Agreement is to be terminated; and
(f) the amount of cash and/or the amount and kind of Securities to be withdrawn
from the Segregated Security Account. The Custodian shall, upon receipt of the
amount and kind of Securities to be received by a Fund specified in the
Certificate, Oral Instructions or Written Instructions, make the payment to the
broker or dealer, and the withdrawals, if any, from the Segregated Security
Account, specified in such Certificate, Oral Instructions or Written
Instructions.
ARTICLE VII
MARGIN ACCOUNTS, SEGREGATED SECURITY
ACCOUNTS AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Segregated Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the amount of cash
and/or the amount and kind of Securities to be deposited in, or withdrawn from,
the Segregated Security Account. In the event that a Fund fails to specify in a
Certificate the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities to be deposited by the Custodian
into, or withdrawn from, a Segregated Securities Account, the Custodian shall be
under no obligation to make any such deposit or withdrawal and shall so notify a
Fund.
2. The Custodian shall make deliveries or payments from a Margin Account
to the broker, dealer or Clearing Member in whose name, or for whose benefit,
the account was established as specified in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein.
5. On each business day, the Custodian shall furnish a Fund with a
statement with respect to a Fund's Margin Account in which money or Securities
are held specifying as of the close of business on the previous business day:
(a) the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker or dealer specified in the name of a Margin
Account a copy of the statement furnished a Fund with respect to such Margin
Account.
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<PAGE>
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account, the Custodian
shall furnish a Fund with a statement with respect to a Fund's Collateral
Account specifying the amount of cash and/or the amount and kind of Securities
held therein. No later than the close of business next succeeding the delivery
to a Fund of such statement, a Fund shall furnish the Custodian with a
Certificate or Written Instructions specifying the then market value of the
Securities described in such statement.
ARTICLE VIII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. A Fund shall furnish the Custodian with a copy of the resolution of
the Trustees, certified by the Secretary or any Assistant Secretary, either (i)
setting forth the date of the declaration of a dividend or distribution, the
date of payment thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per share to the shareholders of
record as of that date and the total amount payable to the Dividend Agent of a
Fund on the payment date, or (ii) authorizing the declaration of dividends and
distributions on a daily basis or some other periodic basis and authorizing the
Custodian to rely on Oral Instructions, Written Instructions or a Certificate
setting forth the date of the declaration of such dividend or distribution, the
date of payment thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per share to the shareholders of
record as of that date and the total amount payable to the Dividend Agent on the
payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, the Custodian shall pay out
the moneys held for the account of a Fund the total amount payable to the
Dividend Agent of a Fund.
ARTICLE IX
SALE AND REDEMPTION OF SHARES
1. Whenever a Fund shall sell any of its Shares, it shall deliver to the
Custodian a Certificate duly specifying the number of Shares sold, trade date,
price and the amount of money to be received by the Custodian for the sale of
such Shares.
2. Upon receipt of such money from the Transfer Agent or a co-transfer
agent, the Custodian shall credit such money to the account of a Fund.
3. Upon issuance of any of a Fund's Shares in accordance with the
foregoing provisions of this Article IX, the Custodian shall pay, out of the
money held for the account of a Fund, all original issue or other taxes required
to be paid by a Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever a Fund shall redeem any of
its Shares, it shall furnish the Custodian with a Certificate specifying the
number of Shares redeemed and the amount to be paid for the Shares redeemed.
5. Upon receipt from the Transfer Agent or co-transfer agent of an
advice setting forth the number of Shares received by the Transfer Agent or co-
transfer agent for redemption, and that such
8
<PAGE>
Shares are valid and in good form for redemption, the Custodian shall make
payment to the Transfer Agent or co-transfer agent, as the case may be, out of
the moneys held for the account of a Fund of the total amount specified in the
Certificate issued pursuant to paragraph 4 of this Article IX.
6. Notwithstanding the above provisions regarding the redemption of any
of a Fund's Shares, whenever its Shares are redeemed pursuant to any check
redemption privilege which may from time to time be offered by a Fund, the
Custodian, unless otherwise instructed by a Certificate, shall, upon receipt of
an advice from a Fund or its agent setting forth that the redemption is in good
form for redemption in accordance with the check redemption procedure, honor the
check presented as part of such check redemption privilege out of the money held
in the account of a Fund for such purposes.
ARTICLE X
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on
behalf of a Fund which results in an overdraft because the moneys held by the
Custodian for the account of a Fund shall be insufficient to pay the total
amount payable upon a purchase of Securities as set forth in a Certificate or
Oral Instructions issued pursuant to Article IV, or which results in an
overdraft for some other reason, or if a Fund is, for any other reason, indebted
to the Custodian (except a borrowing for investment or for temporary or
emergency purposes using Securities as collateral pursuant to a separate
agreement and subject to the provisions of paragraph 2 of this Article X), such
overdraft or indebtedness shall be deemed to be a loan made by the Custodian to
a Fund payable on demand and shall bear interest from the date incurred at a
rate per annum (based on a 360-day year for the actual number of days involved)
equal to 1/2% over the Custodian's prime commercial lending rate in effect from
time to time, such rate to be adjusted on the effective date of any change in
such prime commercial lending rate but in no event to be less than 6% per annum.
Any such overdraft or indebtedness shall be reduced by an amount equal to the
total of all amounts due a Fund which have not been collected by the Custodian
on behalf of a Fund when due because of the failure of the Custodian to make
timely demand or presentment for payment. In addition, the Trust on behalf of a
Fund hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property at any time held by it for the benefit of a Fund
or in which a Fund may have an interest which is then in the Custodian's
possession or control or in possession or control of any third party acting on
the Custodian's behalf. The Trust authorizes the Custodian, in its sole
discretion, at any time to charge any such overdraft or indebtedness together
with interest due thereon against any balance of account standing to a Fund's
credit on the Custodian's books.
2. A Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities as collateral for such borrowings, a notice or
undertaking in the form currently employed by any such bank setting forth the
amount which such bank will loan to a Fund against delivery of a stated amount
of collateral. A Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such borrowing: (a) the name of the bank; (b)
the amount and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by a Fund, or other loan
agreement; (c) the time and date, if known, on which the loan is to be entered
into; (d) the date on which the loan becomes due and payable; (e) the total
amount payable to a Fund on the borrowing date; (f) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal of any
particular Securities; and (g) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with
9
<PAGE>
the Investment Trust Act of 1940 and a Fund's prospectus. The Custodian shall
deliver on the borrowing date specified in a Certificate the specified
collateral and the executed promissory note, if any, against delivery by the
lending bank of the total amount of the loan payable, provided that the same
conforms to the total amounts payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein given the
lending bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver such Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described in this
paragraph. A Fund shall cause all Securities released from collateral status to
be returned directly to the Custodian, and the Custodian shall receive from time
to time such return of collateral as may be tendered to it. In the event that a
Fund fails to specify in a Certificate the name of the issuer, the title and
number of shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall not be under any
obligation to deliver any Securities.
ARTICLE XI
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. If a Fund is permitted by the terms of the Trust's Articles of
Incorporation and as disclosed in a Fund's most recent and currently effective
prospectus to lend its portfolio Securities, within twenty-four (24) hours after
each loan of portfolio Securities a Fund shall deliver or cause to be delivered
to the Custodian a Certificate specifying with respect to each such loan; (a)
the name of the issuer and the title of the Securities; (b) the number of shares
or the principal amount loaned; (c) the date of loan and delivery; (d) the total
amount to be delivered to the Custodian against the loan of the Securities,
including the amount of cash collateral and the premium, if any, separately
identified; and (e) the name of the broker, dealer or financial institution to
which the loan was made. The Custodian shall deliver the Securities thus
designated to the broker, dealer or financial institution to which the loan was
made upon receipt of the total amount designated as to be delivered against the
loan of Securities. The Custodian may accept payment in connection with a
delivery otherwise than through the Book-Entry System or Depository only in the
form of a certified or bank cashier's check payable to the order of a Fund or
the Custodian drawn on New York Clearing House funds and may deliver Securities
in accordance with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by a Fund,
it shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the name of the issuer and the title of the Securities to be returned; (b)
the number of shares or the principal amount to be returned; (c) the date of
termination; (d) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate); and (e) the name of the broker, dealer or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of a Fund, the total amount payable
upon such return of Securities as set forth in the Certificate.
10
<PAGE>
ARTICLE XII
THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its nominee
shall be liable for any loss or damage, including attorney's fees, resulting
from its action or omission to act or otherwise, either hereunder or under any
Margin Account Agreement, except for any such loss or damage arising out of its
own negligence or willful misconduct. The Custodian may, with respect to
questions of law arising hereunder or under any Margin Account Agreement, apply
for and obtain the advice and opinion of counsel to a Fund or of its own
counsel, at the expense of a Fund, and shall be fully protected with respect to
anything done or omitted by it in good faith in conformity with such advice or
opinion. The Custodian shall be liable to a Fund for any loss or damage
resulting from the use of the Book-Entry System or any Depository arising by
reason of any negligence, misfeasance or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian shall
be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased, sold or
written by or for a Fund, the legality of the purchase, sale or writing thereof,
or the propriety of the amount paid or received thereof;
(b) The legality of the issue or sale of any of a Fund's Shares, or the
sufficiency of the amount to be received therefor;
(c) The legality of the redemption of any of a Fund's Shares, or the
propriety of the amount to be paid therefor;
(d) The legality of the declaration or payment of any dividend by a
Fund;
(e) The legality of any borrowing by a Fund using Securities as
collateral;
(f) The legality of any loan of portfolio Securities pursuant to Article
XI of this Agreement, nor shall the Custodian be under any duty or obligation to
see to it that any cash collateral delivered to it by a broker, dealer or
financial institution or held by it at any time as a result of such loan of
portfolio Securities of a Fund is adequate collateral for a Fund against any
loss it might sustain as a result of such loan. The Custodian specifically, but
not by way of limitation, shall not be under any duty or obligation periodically
to check or notify a Fund that the amount of such cash collateral held by it for
a Fund is sufficient collateral for a Fund, but such duty or obligation shall be
the sole responsibility of a Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of a Fund are lent pursuant to Article XI of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of a Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify a Fund in the event that such dividends or interest are not paid and
received when due; or
(g) The sufficiency or value of any amounts of money and/or Securities
held in any Margin Account, Segregated Security Account or Collateral Account in
connection with transactions by a Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer, or Clearing
11
<PAGE>
Member makes payment to a Fund of any variation margin payment or similar
payment which a Fund may be entitled to receive from such broker, dealer, or
Clearing Member, to see that any payment received by the Custodian from any
broker, dealer, or Clearing Member is the amount a Fund is entitled to receive,
or to notify a Fund of the Custodian's receipt or non-receipt of any such
payment; provided however that the Custodian, upon a Fund's written request,
shall as Custodian, demand from any broker, dealer, or Clearing Member
identified by a Fund the payment of any variation margin payment or similar
payment that a Fund asserts it is entitled to receive pursuant to the terms of a
Margin Account Agreement or otherwise from such broker, dealer, or Clearing
Member.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft or other
instrument for the payment of money, received by it on behalf of a Fund until
the Custodian actually receives and collects such money directly or by the final
crediting of the account representing a Fund's interest at the Book-Entry System
or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchanges, offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
a Fund of an overdue amount on Securities held in the Depository, the Custodian
shall make a claim against the Depository on behalf of a Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action, suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to a Fund from the Transfer Agent
of a Fund nor to take any action to effect payment or distribution by the
Transfer Agent of a Fund of any amount paid by the Custodian to the Transfer
Agent of a Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions as
Depository or Depositories or as sub-custodian(s), including, but not limited
to, banking institutions located in foreign countries, of Securities and moneys
at any time owned by a Fund, upon terms and conditions approved in a
Certificate, which shall, if requested by the Custodian, be accompanied by an
approving resolution of the Trust's Board of Trustees adopted in accordance with
Rule 17f-5 under the Investment Trust Act of 1940, as amended.
8. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
a Fund are such as properly may be held by a Fund under the provisions of its
Declaration of Trust.
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<PAGE>
9. The Custodian shall be entitled to receive and each Fund agrees to
pay to the Custodian all out-of-pocket expenses and fees as set forth in
Appendix E attached hereto. The Custodian may charge such fees and any expenses
incurred by the Custodian in the performance of its duties against any money
held by it for the account of a Fund. The Custodian shall also be entitled to
charge against any money held by it for the account of a Fund the amount of any
loss, damage, liability or expense, including attorney's fees, for which it
shall be entitled to reimbursement under the provisions of this Agreement. The
expense which the Custodian may charge against the account of a Fund include,
but are not limited to, the expenses of Sub-Custodians of the Custodian incurred
in settling outside of New York City transactions involving the purchase and
sale of Securities of a Fund.
10. The Custodian shall be entitled to rely upon any Certificate, notice
or other instrument in writing received by the Custodian and reasonably believed
by the Custodian to be a Certificate. The Custodian shall be entitled to rely
upon any Oral Instructions and any Written Instructions actually received by the
Custodian pursuant to Article IV or VII hereof. A Fund agrees to forward to the
Custodian a Certificate or facsimile thereof, confirming such Oral Instructions
or Written Instructions in such manner so that such Certificate or facsimile
thereof is received by the Custodian, whether by hand delivery, telex or
otherwise, by the close of business of the same day that such Oral Instructions
or Written Instructions are given to the Custodian. A Fund agrees that the fact
that such confirming instructions are not received by the Custodian shall in no
way affect the validity of the transactions hereby authorized by a Fund. A Fund
agrees that the Custodian shall incur no liability to a Fund in acting upon Oral
Instructions given to the Custodian hereunder concerning such transactions,
provided such instructions reasonably appear to have been received from an
Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, or Clearing Member.
12. The books and records pertaining to a Fund which are in the
possession of the Custodian shall be the property of a Fund. Such books and
records shall be prepared and maintained as required by the Investment Trust Act
of 1940, as amended, and other applicable securities laws, rules and
regulations. A Fund, or a Fund's authorized representative(s), shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of a Fund, copies of any such books and records
shall be provided by the Custodian to a Fund or a Fund's authorized
representative(s) at a Fund's expense.
13. The Custodian shall provide the Trust with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System or the Depository and with such reports on its own systems of internal
accounting control as the Trust may reasonably request from time to time.
14. A Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with the Custodian's payment or non-payment of checks pursuant to
paragraph 6 of Article IX as part of any check redemption privilege program of a
Fund, except for any such liability, claim, loss and demand arising out of the
Custodian's own negligence or willful misconduct.
13
<PAGE>
15. Subject to the foregoing provisions of this Agreement, the Custodian
may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian in
accordance with the customs prevailing from time to time among brokers or
dealers in such Securities.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement or Appendix F attached hereto, and no covenant or obligation shall be
implied in this Agreement against the Custodian.
ARTICLE XIII
TERMINATION
1. This Agreement shall continue until October 1994, and thereafter
shall continue automatically for successive annual periods ending on October of
each year, provided such continuance is specifically approved at least annually
by (i) the Trust's Trustees or (ii) vote of a majority (as defined in the
Investment Trust Act of 1940) of a Fund's outstanding voting securities,
provided that in either event its continuance also is approved by a majority of
the Trust's Trustees who are not "interested persons" (as defined in said Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable without
penalty, on sixty (60) days' notice, by the Trust's Trustees or, by vote of
holders of a majority of a Fund's Shares or, upon not less than ninety (90)
days' notice, by the Custodian. In the event such notice is given by a Fund, it
shall be accompanied by a copy of a resolution of the Trustees of the Trust on
behalf of a Fund, certified by the Secretary or any Assistant Secretary,
electing to terminate this Agreement and designating a successor custodian or
custodians, each of which shall be a bank or trust company having not less than
$2,000,000 aggregate capital, surplus and undivided profits. In the event such
notice is given by the Custodian, a Fund shall, on or before the termination
date, deliver to the Custodian a copy of a resolution of the Trustees, certified
by the Secretary or any Assistant Secretary, designating a successor custodian
or custodians. In the absence of such designation by a Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon
the date set forth in such notice, this Agreement shall terminate and the
Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on that date deliver directly to the successor custodian all
Securities and moneys then owned by a Fund and held by it as Custodian, after
deducting all fees, expenses, and other amounts for the payment of reimbursement
of which shall then be entitled.
2. If a successor custodian is not designated by the Trust on behalf of
a Fund or the Custodian in accordance with the preceding paragraph, a Fund
shall, upon the date specified in the notice of termination of this Agreement
and upon the delivery by the Custodian of all Securities (other than Securities
held in the Book-Entry System which cannot be delivered to a Fund) and moneys
then owned by a Fund, be deemed to be its own custodian, and the Custodian shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement, other than the duty with respect to Securities held in the Book-Entry
System, in any Depository or by a Clearing Member which cannot be delivered to a
Fund, to hold such Securities hereunder in accordance with this Agreement.
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<PAGE>
ARTICLE XIV
MISCELLANEOUS
1. Annexed hereto as Appendix B is a Certificate signed by two of the
present Officers of the Trust under its seal, setting forth the names and the
signatures of the present Authorized Persons. The Trust agrees to furnish to
the Custodian a new Certificate in similar form in the event that any such
present Authorized Person ceases to be an Authorized Person or in the event that
other or additional Authorized Persons are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered Certificate.
2. Annexed hereto as Appendix C is a Certificate signed by two of the
present Officers of the Trust under its seal, setting forth the names and the
signatures of the present Officers of the Trust. A Fund agrees to furnish to
the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Trust, or in the event that other or
additional Officers are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be fully be protected in acting under the
provisions of this Agreement upon the signatures of the Officers as set forth in
the last delivered Certificate.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be deemed sufficiently given
if addressed to the Custodian and mailed or delivered to it at its offices at
420 Montgomery Street, San Francisco, California, 94105, or at such other place
as the Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given by or on behalf of a Fund, shall be deemed
sufficiently given if addressed to a Fund and mailed or delivered to it at its
office at 111 Center Street, Little Rock, Arkansas, 72201, or at such other
place as a Fund may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties to this Agreement and approved by a
resolution of the Trustees of the Trust.
6. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successor(s) and assign(s); provided, however, that
this Agreement shall not be assignable by the Trust without the written consent
of the Custodian, or by the Custodian without the written consent of the Trust,
authorized or approved by a resolution of its Trustees.
7. This Agreement shall be construed in accordance with the laws of the
State of California.
8. This Agreement may be executed in any number of counterparts, each
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
9. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this agreement shall only be binding upon the assets and
property of the relevant Fund, as provided for in the Trust's Agreement and
Declaration of Trust, and shall not be binding upon any trustee, officer of
shareholder of the Trust or Fund individually.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized, as of the day
and year first above written.
LIFE & ANNUITY TRUST WELLS FARGO BANK, N.A.
By: /s/ Richard H. Blank, Jr. By: /s/ Anthony Portolano
-------------------------- ----------------------
Name: Richard H. Blank, Jr. Name: Anthony Portolano
---------------------- ------------------
Title: Chief Operating Officer Title: Vice President
------------------------ ---------------
By: /s/ Henry J. Cavigli, Jr.
--------------------------
Name: Henry J. Cavigli, Jr.
----------------------
Title: Vice President
---------------
16
<PAGE>
APPENDIX A
----------
Equity Value Fund
Growth Fund
Money Market Fund
Strategic Growth Fund
Approved as amended: February 2, 1995, Paragraph 5 of Article I
Approved as amended: January 29, 1998, to add the Equity Value and Strategic
Growth Funds
-A-
<PAGE>
APPENDIX B
----------
OFFICERS
Pursuant to Article I, Paragraph 8, the term "Officers" does not
include any persons other than the President, Vice President, Secretary,
Treasurer, Controller, Assistant Secretary and Assistant Treasurer.
-B-
<PAGE>
APPENDIX C
----------
AUTHORIZED PERSONS
Pursuant to Article I, Paragraph 1, Paragraph 1, of the Custody
Agreement, the following persons have been authorized by the Board of Trustees
to give Oral Instructions and Written Instructions on behalf of a Fund.
Signature: _______________________________
Name: ____________________________________
Signature: _______________________________
Name: ____________________________________
-C-
<PAGE>
APPENDIX D
----------
DESIGNATED PUBLICATIONS LIST FOR CALLED INSTRUMENTS
The following publications are designated publications for the purposes
of Article III, Para. 5(b):
A. The Bond Buyer
B. The Depository Trust Trust Notices
C. Financial Daily Card Services
D. The New York Times
E. Standard & Poor's Called Bond Record
F. The Wall Street Journal
-D-
<PAGE>
APPENDIX E
----------
CUSTODY FEES
Net Asset Charge 0.0167% (1.67 bps) annually
Transaction Charges:
Depository Eligible $10.00 ea.
Physical Delivery $20.00 ea.
Principal & Interest Paydown $10.00 ea.
Sweeps $-0-
PORTFOLIO ACCOUNTING
Monthly Base Fee $2,000.00
Net Asset Charge:
First $50,000,000 Net Assets 0.070% (7 bps) annually
Next $50,000,000 Net Assets 0.045% (4.5 bps) annually
Net Assets Over $100,000,000 0.020% (2.0 bps) annually
-E-
<PAGE>
APPENDIX F
----------
COMPANY AND FUND ACCOUNTING SERVICES:
SCHEDULE OF SERVICES
A. Maintain Fund general ledger and journal.
B. Prepare and record disbursements for direct Fund expenses.
C. Prepare daily money transfers.
D. Reconcile all Fund bank and custodian accounts.
E. Assist Fund independent auditors as appropriate.
F. Prepare daily projection of available cash balances.
G. Record trading activity for purposes of determining net asset values and
daily dividend.
H. Prepare daily portfolio evaluation report to value portfolio Securities and
determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine the daily dividend per share.
K. Prepare monthly, quarterly, semi-annual and annual financial statements.
L. Provide financial information for reports to the Securities and Exchange
Commission in compliance with the provisions of the Investment Trust Act of
1940 and the Securities Act of 1933, the Internal Revenue Service and any
other regulatory or governmental agencies as required.
M. Provide financial, yield, net asset value, etc., information to National
Association of Securities Dealers, Inc., and other survey and statistical
agencies as instructed from time to time by a Fund.
-F-
<PAGE>
FORM OF ADMINISTRATION AGREEMENT
LIFE & ANNUITY TRUST
111 Center Street
Little Rock, Arkansas 72201
THIS AGREEMENT is made as of this 1st day of May, 1998, by and between the
Life & Annuity Trust, a Delaware business trust ("Life & Annuity") and Wells
Fargo Bank, N.A., a national banking association ("Wells Fargo").
WHEREAS, Life & Annuity is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Life & Annuity desires to retain Wells Fargo to render certain
administrative services to Life & Annuity's investment portfolios listed in
Appendix A (individually, a "Fund" and collectively, the "Funds"), and Wells
Fargo is willing to render such services; and
WHEREAS, Life & Annuity is retaining Stephens Inc. pursuant to a separate
Co-Administration Agreement with Life & Annuity and Wells Fargo to provide
certain other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed by the parties as follows:
1. Appointment. Life & Annuity hereby appoints Wells Fargo to act as
-----------
Administrator of the Funds, and Wells Fargo hereby accepts such appointment and
agrees to render such services and duties set forth in Paragraph 3, for the
compensation and on the terms herein provided. Each new investment portfolio
established in the future by Life & Annuity shall automatically become a "Fund"
for all purposes hereunder as if it were listed in Appendix A, absent written
notification to the contrary by either Life & Annuity or Wells Fargo.
2. Delivery of Documents. Life & Annuity shall furnish to, or cause to be
---------------------
furnished to, Wells Fargo originals of, or copies of, all books, records, and
other documents and papers related in any way to the administration of Life &
Annuity.
3. Duties as Administrator. Wells Fargo shall, at its expense, provide
-----------------------
the following administrative services in connection with the operations of Life
& Annuity and the Funds:
(a) track authorized vs. issued shares;
1
<PAGE>
(b) furnish statistical and research data;
(c) coordinate (or assist in) the preparation and filing with the U.S.
Securities and Exchange Commission of registration statements, notices, reports,
and other material required to be filed under applicable laws;
(d) coordinate (or assist in) the preparation of reports and other
information materials regarding the Funds including proxies and other
shareholder communications, and review prospectuses;
(e) prepare expense table information for annual updates;
(f) provide legal and regulatory advice to the Funds in connection with
its other administrative functions;
(g) provide office facilities and clerical support for the Funds;
(h) develop and implement procedures for monitoring compliance with
regulatory requirements and compliance with the Funds' investment objectives,
policies and restrictions;
(i) provide liaison with the Funds' independent auditors;
(j) prepare and file tax returns;
(k) review payments of Fund expenses;
(l) prepare expense budgeting and accruals;
(m) provide communication, coordination, and supervision services with
regard to the Funds' transfer agent, custodian, fund accountant, co-
administrator, and other service organizations that render recordkeeping or
shareholder communication services;
(n) provide information to the Funds' distributor concerning fund
performance and administration;
(o) assist Life & Annuity in the development of additional investment
portfolios;
(p) provide reports to the Funds' board of trustees regarding its
activities;
(q) assist in the preparation and assembly of meeting materials,
including comparable fee information, as required, for the Funds' board of
trustees; and
2
<PAGE>
(r) provide any other administrative services reasonably necessary for
the operation of the Funds other than those services that are to be provided by
Stephens pursuant to its Co-Administration Agreement with Life & Annuity and
Wells Fargo, and by Life & Annuity's transfer and dividend disbursing agent,
custodian, and fund accountant, provided that nothing in this Agreement shall be
deemed to require Wells Fargo to provide any services that may not be provided
by it under applicable banking laws and regulations.
In performing all services under this agreement, Wells Fargo shall: (a) act
in conformity with Life & Annuity's Declaration of Trust and By-Laws, the 1940
Act, and any other applicable laws as may be amended from time to time; and Life
& Annuity's registration statement under the Securities Act of 1933 and the 1940
Act, as may be amended from time to time; (b) consult and coordinate with legal
counsel to Life & Annuity as necessary and appropriate; and (c) advise and
report to Life & Annuity and its legal counsel, as necessary and appropriate,
with respect to any compliance or other matters that come to its attention.
In connection with its duties under this Paragraph 3, Wells Fargo may, at
its own expense, enter into sub-administration agreements with other service
providers, provided that each such service provider agrees with Wells Fargo to
comply with all relevant provisions of the 1940 Act, the Investment Advisers Act
of 1940, any other applicable laws as may be amended from time to time, and all
relevant rules thereunder. Wells Fargo will provide Life & Annuity with a copy
of each sub-administration agreement it executes relating to Life & Annuity.
Wells Fargo will be liable for acts or omissions of any such sub-administrators
under the standards of care described herein under Paragraph 5.
In performing its services under this agreement, Wells Fargo shall
cooperate and coordinate with Stephens as necessary and appropriate and shall
provide such information to Stephens as is reasonably necessary or appropriate
for Stephens to perform its obligations to Life & Annuity.
4. Compensation. In consideration of the administration services to be
------------
rendered by Wells Fargo under this agreement, Life & Annuity shall pay Wells
Fargo a monthly fee at the annual rate of 0.03% of the average daily value (as
determined on each business day at the time set forth in the Prospectus for
determining net asset value per share) of the Funds' net assets during the
preceding month. If the fee payable to Wells Fargo pursuant to this Paragraph 4
begins to accrue before the end of any month or if this agreement terminates
before the end of any month, the fee for the period from the effective date to
the end of that month or from the beginning of that month to the termination
date, respectively, shall be prorated according to the proportion that the
period bears to the full month in which the effectiveness or termination occurs.
For purposes of calculating each such monthly fee, the value of each Fund's net
assets shall be computed in the manner specified in the Prospectus and Life &
Annuity's Declaration of Trust for the computation of the value of the Fund's
net assets in connection with the determination of the net asset value of Fund
shares. For purposes of this agreement, a "business day" is any day that Life &
Annuity is open for trading.
5. Limitation of Liability; Indemnification.
----------------------------------------
3
<PAGE>
(a) Wells Fargo shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Life & Annuity in connection with the
performance of its obligations and duties under this agreement, except a loss
resulting from Wells Fargo's willful misfeasance, bad faith, or negligence in
the performance of its obligations and duties or that of its agents or sub-
administrators, or by reason of its or their reckless disregard thereof. Any
person, even though also an officer, director, employee or agent of Wells Fargo,
shall be deemed, when rendering services to Life & Annuity or acting on any
business of Life & Annuity (other than services or business in connection with
Wells Fargo's duties as Administrator hereunder) to be acting solely for Life &
Annuity and not as an officer, director, employee, or agent or one under the
control or discretion of Wells Fargo even though paid by it.
(b) Life & Annuity, on behalf of each Fund, will indemnify Wells Fargo
against and hold it harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit relating to the particular
Fund and not resulting from willful misfeasance, bad faith, or negligence of
Wells Fargo or its agents or sub-administrators in the performance of such
obligations and duties, or by reason of its or their reckless disregard thereof.
Wells Fargo will not confess any claim or settle or make any compromise in any
instance in which Life & Annuity will be asked to provide indemnification,
except with Life & Annuity's prior written consent. Any amounts payable by Life
& Annuity under this Paragraph 5(b) shall be satisfied only against the assets
of the Fund involved in the claim, demand, action, or suit and not against the
assets of any other Fund.
6. Life & Annuity expenses. Except as provided in each of Life &
-----------------------
Annuity's advisory contracts and its co-administration and distribution
agreements with Stephens, Life & Annuity shall bear all costs of its operations,
including the compensation of its trustees who are entitled to receive
compensation; advisory and administration fees; payments of distribution-related
expenses pursuant to any Rule 12b-1 Plan under the 1940 Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
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 Rule 12b-1 Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; travel expenses of
trustees, officers and employees; office supplies; insurance premiums and
certain expenses relating to insurance coverage; trade association membership
dues; brokerage and other expenses connected with the execution of portfolio
securities transactions; fees and expenses of any custodian, including those for
keeping books and accounts and calculating the net asset value per share of the
Funds; expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of shares of the Funds; pricing services, if any;
organizational expenses; and any extraordinary expenses. Expenses attributable
to one or more, but not all, of the Funds are charged against the assets of the
relevant Funds. General expenses of the Funds are allocated among the Funds in
a manner proportionate to the net assets of each Fund, on a transactional basis
or on such other basis as the Board of Trustees deems equitable.
4
<PAGE>
7. Amendment. This agreement may be amended at any time by mutual
---------
agreement in writing of Life & Annuity and Wells Fargo, provided that the Board
of Trustees of Life & Annuity approve any such amendment in advance.
8. Administrator's other businesses. Except to the extent necessary to
--------------------------------
perform Wells Fargo's obligations under this agreement, nothing herein shall be
deemed to limit or restrict the right of Wells Fargo, or any affiliate or
employee of Wells Fargo, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
9. Duration. This agreement shall become effective on its execution date
--------
and shall remain in full force and effect for one year or until terminated
pursuant to the provisions in Paragraph 10, and it may be reapproved at least
annually by the Board of Trustees, including a majority of the trustees who are
not interested persons of Life & Annuity or any party to this agreement, as
defined by the 1940 Act.
10. Termination of Agreement. This agreement may be terminated at any
------------------------
time, without the payment of any penalty, by a vote of a majority of the members
of Life & Annuity's Board of Trustees, on 60 days' written notice to Wells
Fargo; or by Wells Fargo on 60 days' written notice to Life & Annuity.
11. Expense waivers. If in any fiscal year the total expenses of a Fund
---------------
incurred by, or allocated to, the Fund excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses, other expenditures that
are capitalized in accordance with generally accepted accounting principles,
extraordinary expenses and amounts accrued or paid under a Rule 12b-1 Plan of
the Fund, but including the fees provided for in Paragraph 4 and those provided
for pursuant to the Fund's Advisory Agreement ("includible expenses"), exceed
the applicable voluntary expense waivers, if any, set forth in the Prospectus,
Wells Fargo shall waive or reimburse that portion of the excess derived by
multiplying the excess by a fraction, the numerator of which shall be the
percentage at which the excess portion attributable to the fee payable pursuant
to this agreement is calculated under Paragraph 4 hereof, and the denominator of
which shall be the sum of such percentage plus the percentage at which the
excess portion attributable to the fee payable pursuant to the Fund's Advisory
Agreement is calculated (the "Applicable Ratio"), but only to the extent of the
fee hereunder for the fiscal year. If the fees payable under this agreement
and/or the Fund's Advisory Agreement contributing to such excess portion are
calculated at more than one percentage rate, the Applicable Ratio shall be
calculated separately on the basis of, and applied separately to, the portions
of the fees calculated at the different rates. At the end of each month of Life
& Annuity's fiscal year, Life & Annuity shall review the includible expenses
accrued during that fiscal year to the end of that period and shall estimate the
includible expenses for the balance of that fiscal year. If as a result of that
review and estimation it appears likely that the includible expenses will exceed
the limitations referred to in this Paragraph 11 for a fiscal year with respect
to the Fund, the monthly fee set forth in Paragraph 4 payable to Wells Fargo for
such month shall be reduced, subject to a later adjustment, by an amount equal
to the Applicable Ratio times the pro rata portion (prorated on
5
<PAGE>
the basis of the remaining months of the fiscal year, including the month just
ended) of the amount by which the includible expenses for the fiscal year are
expected to exceed the limitations provided for in this Paragraph 11. For
purposes of computing the excess, if any, over the most restrictive applicable
expense limitation, the value of the Fund's net assets shall be computed in the
manner specified in Paragraph 4, and any reimbursements required to be made by
Wells Fargo shall be made once a year promptly after the end of Life & Annuity's
fiscal year.
12. Life & Annuity not bound to violate its Declaration. Nothing in this
---------------------------------------------------
agreement shall require Life & Annuity to take any action contrary to any
provision of its Declaration of Trust or to any applicable statute or
regulation.
13. Miscellaneous.
-------------
(a) Any notice or other instrument authorized or required by this
agreement to be given in writing to Life & Annuity or Wells Fargo shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To Life & Annuity:
Life & Annuity Trust
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Wells Fargo:
Wells Fargo Bank, N.A.
525 Market Street, 19th Floor
San Francisco, California 94105
Attention: Michael J. Hogan
(b) This agreement shall extend to and be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
agreement shall not be subject to assignment (as that term is defined under the
1940 Act) without the written consent of the other party.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of California.
(d) This agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one agreement.
6
<PAGE>
(e) The captions of this agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
In witness whereof, the parties have caused this agreement to be executed
by their duly authorized officers as of the day and year first above written.
LIFE & ANNUITY TRUST
By: _______________________
Richard H. Blank
Chief Operating Officer
WELLS FARGO BANK, N.A.
By: _______________________
Michael J. Hogan
Senior Vice President
By: _______________________
Elizabeth A. Gottfried
Vice President
7
<PAGE>
Appendix A
Life & Annuity Funds
Asset Allocation Fund
Equity Value Fund
Growth Fund
Money Market Fund
Strategic Growth Fund
U.S. Government Allocation Fund
Approved: January 16, 1997
Approved as Amended: January 29, 1998 to change the fee rate and to include
the Equity Value and Strategic Growth Funds
8
<PAGE>
FORM OF CO-ADMINISTRATION AGREEMENT
LIFE & ANNUITY TRUST
111 Center Street
Little Rock, Arkansas 72201
THIS AGREEMENT is made as of this 1st day of May, 1998, by and among the
Life & Annuity Trust, a Delaware business trust ("Life & Annuity"), Stephens
Inc. ("Stephens"), an Arkansas corporation, and Wells Fargo Bank, N.A., a
national banking association ("Wells Fargo").
WHEREAS, Life & Annuity is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Life & Annuity desires to retain Stephens to render certain co-
administrative services to Life & Annuity's investment portfolios listed in
Appendix A (individually, a "Fund" and collectively, the "Funds"), and Stephens
is willing to render such services; and
WHEREAS, Life & Annuity is retaining Wells Fargo pursuant to a separate
Administration Agreement to provide certain other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed by the parties as follows:
1. Appointment. Life & Annuity hereby appoints Stephens to act as Co-
-----------
Administrator of the Funds, subject to the control and supervision of Wells
Fargo and the overall supervision of the Board of Trustees of Life & Annuity.
Stephens hereby accepts such appointment and agrees to render such services and
duties set forth in Paragraph 3, for the compensation and on the terms herein
provided, the performance of which Wells Fargo agrees to supervise. Each new
investment portfolio established in the future by Life & Annuity shall
automatically become a "Fund" for all purposes hereunder as if it were listed in
Appendix A, absent written notification to the contrary by either Life &
Annuity, Wells Fargo, or Stephens.
2. Delivery of Documents. Life & Annuity and Wells Fargo shall furnish
---------------------
Stephens with originals of, or copies of, all books, records, and other
documents and papers related in any way to the administration of Life & Annuity.
3. Duties as Co-Administrator. Stephens shall, at its expense, provide
--------------------------
the following co-administrative services in connection with the operations of
Life & Annuity and the Funds:
1
<PAGE>
(a) prepare and file with the states registration statements, notices,
reports, and other material required to be filed under applicable laws;
(b) prepare and file Form 24F-2s and N-SARs;
(c) review bills submitted to the Funds and, upon determining that a bill
is appropriate, allocating amounts to the appropriate Funds and instructing the
Funds' custodian to pay such bills;
(d) provide officers at no cost to the Funds;
(e) provide office space and facilities;
(f) provide reports to the Funds' board of trustees ("Board") regarding its
activities;
(g) assist in the preparation and assembly of Board meeting materials,
including comparable fee information, as required;
(h) prepare and retain original minutes of Board meetings, shareholder
meetings, and other official corporate records; and
(i) maintain and preserve the records of the Funds, including financial
and corporate records;
(j) coordinate (or assist in) the preparation of shareholder reports and
other information materials regarding the Funds;
(k) provide legal and regulatory advice to the Funds in connection with
its other administrative functions;
(l) provide liaison with the Funds' independent auditors;
(m) establish and maintain a service desk to assist in handling Fund
administrative activities; and
(n) provide any other administrative services reasonably necessary for the
operation of the Funds, as Life & Annuity, Wells Fargo, and Stephens shall agree
from time to time, other than those services that are to be provided by Wells
Fargo pursuant to its Administration Agreement with Life & Annuity, and by Life
& Annuity's transfer and dividend disbursing agent, custodian, and fund
accountant.
In performing all services under this agreement, Stephens shall: (a) act in
conformity with Life & Annuity's Declaration of Trust and By-Laws, the 1940 Act,
the Investment Advisers Act
2
<PAGE>
of 1940, as applicable, and any other applicable laws as may be amended from
time to time; and Life & Annuity's registration statement under the Securities
Act of 1933 and the 1940 Act, as may be amended from time to time; (b) consult
and coordinate with legal counsel to Life & Annuity as necessary and
appropriate; and (c) advise and report to Life & Annuity and its legal counsel,
as necessary and appropriate, with respect to any compliance or other matters
that come to its attention.
Nothing in this Agreement shall be deemed to require Wells Fargo to provide
any supervisory services that may not be provided by it under applicable banking
laws and regulations.
In connection with its duties under this Paragraph 3, Stephens may, at its
own expense, enter into sub-administration agreements with other service
providers, provided that: (a) each such service provider agrees with Stephens to
comply with all relevant provisions of the 1940 Act, the Investment Advisers Act
of 1940, any other applicable laws as may be amended from time to time, and all
relevant rules thereunder; and (b) Wells Fargo agrees to the appointment of such
service provider. Stephens will provide Life & Annuity and Wells Fargo with a
copy of each sub-administration agreement it executes relating to Life &
Annuity. Stephens will be liable for acts or omissions of any such sub-
administrators under the standards of care described herein under Paragraph 5.
In performing its services under this agreement, Stephens shall cooperate
and coordinate with Wells Fargo as necessary and appropriate and shall provide
such information to Wells Fargo as is reasonably necessary or appropriate for
Wells Fargo to perform its obligations to Life & Annuity. Similarly, Wells Fargo
shall cooperate and coordinate with Stephens as necessary and appropriate and
shall provide such information to Stephens as is reasonably necessary or
appropriate for Stephens to perform its obligations to Life & Annuity.
4. Compensation. In consideration of the administration services to be
------------
rendered by Stephens under this agreement, Life & Annuity shall pay Stephens a
monthly fee at the annual rate of 0.04% of the average daily value (as
determined on each business day at the time set forth in the Prospectus for
determining net asset value per share) of the Funds' net assets during the
preceding month. If the fee payable to Stephens pursuant to this Paragraph 4
begins to accrue before the end of any month or if this agreement terminates
before the end of any month, the fee for the period from the effective date to
the end of that month or from the beginning of that month to the termination
date, respectively, shall be prorated according to the proportion that the
period bears to the full month in which the effectiveness or termination occurs.
For purposes of calculating each such monthly fee, the value of each Fund's net
assets shall be computed in the manner specified in the Prospectus and Life &
Annuity's Declaration of Trust for the computation of the value of the Fund's
net assets in connection with the determination of the net asset value of Fund
shares. For purposes of this agreement, a "business day" is any day that Life &
Annuity is open for trading.
3
<PAGE>
5. Limitation of Liability; Indemnification.
----------------------------------------
(a) Stephens shall not be liable for any error of judgment or mistake
of law or for any loss suffered by Life & Annuity in connection with the
performance of its obligations and duties under this agreement, except a loss
resulting from Stephens' willful misfeasance, bad faith, or negligence in the
performance of its obligations and duties, or by reason of its reckless
disregard thereof. Any person, even though also an officer, director, employee
or agent of Stephens, shall be deemed, when rendering services to Life & Annuity
or acting on any business of Life & Annuity (other than services or business in
connection with Stephens' duties as Co-Administrator hereunder) to be acting
solely for Life & Annuity and not as an officer, director, employee, or agent or
one under the control or discretion of Stephens even though paid by it.
Wells Fargo shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Life & Annuity in connection with
Stephens' performance of its obligations and duties under this Agreement, except
a loss resulting from Wells Fargo's willful misfeasance, bad faith, or
negligence in failing to supervise Stephens as required by this Agreement.
(b) Life & Annuity, on behalf of each Fund, will indemnify Stephens
against and hold it harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit relating to the particular
Fund and not resulting from willful misfeasance, bad faith, or negligence of
Stephens in the performance of such obligations and duties, or by reason of its
reckless disregard thereof. Stephens will not confess any claim or settle or
make any compromise in any instance in which Life & Annuity will be asked to
provide indemnification, except with Life & Annuity's prior written consent. Any
amounts payable by Life & Annuity under this Paragraph 5(b) shall be satisfied
only against the assets of the Fund involved in the claim, demand, action, or
suit and not against the assets of any other Fund.
6. Life & Annuity expenses. Except as provided in each of Life &
-----------------------
Annuity's advisory contracts and its Administration Agreement with Wells Fargo,
Life & Annuity shall bear all costs of its operations, including the
compensation of its trustees who are not affiliated with Stephens or any of
their affiliates; advisory and administration fees; payments of distribution-
related expenses pursuant to any Rule 12b-1 Plan under the 1940 Act;
governmental fees; interest charges; taxes; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of redeeming 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 Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of trustees, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and calculating the net asset value per
share of the Funds; expenses of shareholders' meetings; expenses relating to the
issuance, registration and qualification of shares of the Funds; pricing
services, if any; organizational
4
<PAGE>
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Trustees deems equitable.
7. Amendment. This agreement may be amended at any time by mutual
---------
agreement in writing of Life & Annuity, Stephens, and Wells Fargo, provided that
the Board of Trustees of Life & Annuity approve any such amendment in advance.
8. Co-Administrator's other businesses. Except to the extent necessary to
-----------------------------------
perform Stephens' obligations under this agreement, nothing herein shall be
deemed to limit or restrict the right of Stephens, or any affiliate or employee
of Stephens, to engage in any other business or to devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
9. Duration. This agreement shall become effective on its execution date
--------
and shall remain in full force and effect for one year or until terminated
pursuant to the provisions in Paragraph 10, and it may be reapproved at least
annually by the Board of Trustees, including a majority of the trustees who are
not interested persons of Life & Annuity or any party to this agreement, as
defined by the 1940 Act.
10. Termination of Agreement. This agreement may be terminated at any
------------------------
time, without the payment of any penalty by a vote of a majority of the members
of Life & Annuity's Board of Trustees, on 60 days' written notice to Stephens
and Wells Fargo; or by Stephens on 60 days' written notice to Life & Annuity and
Wells Fargo; or by Wells Fargo on 60 days' written notice to Life & Annuity and
Stephens.
11. Confidentiality. Stephens shall keep confidential all books, records,
---------------
information, and data pertaining to the business of Life & Annuity and its
prior, present, or potential shareholders that are exchanged or received
pursuant to the performance of Stephens' duties under this agreement and
Stephens shall not disclose the aforementioned to any other person, except as
Life & Annuity shall specifically authorize or as required by law, and the
aforementioned documents, information, and data shall not be used for any
purpose other than performance of its responsibilities and duties under this
agreement.
12. Life & Annuity not bound to violate its Declaration. Nothing in this
---------------------------------------------------
agreement shall require Life & Annuity to take any action contrary to any
provision of its Declaration of Trust or to any applicable statute or
regulation.
5
<PAGE>
13. Miscellaneous.
-------------
(a) Any notice or other instrument authorized or required by this
agreement to be given in writing to Life & Annuity, Wells Fargo, or Stephens
shall be sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To Life & Annuity:
Life & Annuity Trust
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Stephens:
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Wells Fargo:
Wells Fargo Bank, N.A.
525 Market Street, 19th Floor
San Francisco, California 94105
Attention: Michael J. Hogan
(b) This agreement shall extend to and be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
agreement shall not be subject to assignment (as that term is defined under the
1940 Act) without the written consent of the other party.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of California.
(d) This agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one agreement.
(e) The captions of this agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
6
<PAGE>
In witness whereof, the parties have caused this agreement to be executed
by their duly authorized officers in the day and year first above written.
LIFE & ANNUITY TRUST
By:
----------------------------
Richard H. Blank
Chief Operating Officer
STEPHENS INC.
By:
----------------------------
Richard H. Blank
Vice President
WELLS FARGO BANK, N.A.
By:
----------------------------
Michael J. Hogan
Senior Vice President
By:
----------------------------
Elizabeth A. Gottfried
Vice President
7
<PAGE>
Appendix A
Life & Annuity Funds
Asset Allocation Fund
Equity Value Fund
Growth Fund
Money Market Fund
Strategic Growth Fund
U.S. Government Allocation Fund
Approved: January 16, 1997
Approved as Amended: January 29, 1998 to change the fee rate and
include the Equity Value and Strategic Growth Funds
8
<PAGE>
AGENCY AGREEMENT
----------------
This agreement is made and entered into as of this 1st day of February,
1997 (the "Agreement"), by and between Life & Annuity Trust, a registered
management investment company incorporated as a Delaware Business Trust (the
"Company"), and Wells Fargo Bank, N.A., ("Agent"), for transfer agency and
dividend disbursing agency services as follows:
I. SERVICES.
A. Appointment of Agent. The Company hereby appoints Agent as its
---------------------
transfer and dividend disbursing agent for the Funds (each, a "Fund" and
collectively, the "Funds") listed in Appendix A, as such Appendix may be amended
from time to time, and Agent accepts such appointment.
B. Description of Services. As consideration for the compensation
------------------------
hereinafter described in Section I (C), Agent agrees to provide each Fund with
the facilities and services described and set forth on Appendix B attached
hereto and incorporated herein by reference.
C. Compensation. As consideration for the services described in
-------------
Section I (B), above, the Company shall pay to Agent, on behalf of each Fund,
fees at the rates specified on Appendix A.
II. EXPENSES. Agent shall be responsible for expenses incurred by it
pursuant to this Agreement and shall not be reimbursed for expenses incurred in
connection with the performance of services under this Agreement.
III. TERM. This Agreement shall become effective as of the date first above
written and shall continue until terminated pursuant to its provisions.
IV. INSURANCE. Agent agrees to procure and maintain such fidelity bond
coverage as may be required by the Investment Company Act of 1940 (the "1940
Act"), in the amounts and with such deductibles as are required by or permitted
under the 1940 Act, as it may be amended from time to time.
V. REGISTRATION AND COMPLIANCE.
A. Agent represents that it is registered as a transfer agent with the
Securities and Exchange Commission ("SEC") pursuant to Section 17A of the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations promulgated thereunder, and Agent agrees to maintain said
registration current and comply with all of the requirements of the Exchange
Act, rules and regulations during the term of this Agreement.
B. The Company represents that it is a diversified management
investment company registered with the SEC in accordance with the 1940 Act and
the rules and regulations promulgated thereunder. The Company is authorized to
offer and sell its shares pursuant to the 1940 Act, the Securities Act of 1933,
as amended ("1933 Act"), and the rules and regulations promulgated thereunder.
The Company will furnish Agent with a list of those jurisdictions in the United
States and elsewhere in which it is authorized to offer and sell its shares to
the general public and will maintain the currency of such list by amendment.
The Company agrees promptly to advise Agent of any change in or limitation upon
its authority to carry on business as an investment company pursuant to the 1940
Act, the Exchange
<PAGE>
Act and the 1933 Act and the statutes, rules and regulations of each and every
jurisdiction to which it is subject.
VI. DOCUMENTATION. The Company and Agent shall each supply to the other
upon request such documentation as is required by them to carry out their
respective obligations under this Agreement including, but not limited to,
articles of incorporation, bylaws, codes of ethics, registration statements,
permits, financial reports, third party audits, certificates of authority,
computer tapes and related items.
VII. PROPRIETARY INFORMATION. It is agreed that all records and documents,
excepting computer data processing programs and any related documentation used
or prepared by, or on behalf of Agent for the performance of its services
hereunder, are the property of the Company and shall be open to audit or
inspection by the Company or its agents during the normal business hours of
Agent; shall be maintained in a manner designed to preserve the confidentiality
thereof and to comply with applicable federal and state laws and regulations;
and shall, in whole or any specified part, be surrendered to the Company or its
duly authorized agents upon receipt by Agent of reasonable notice of and request
therefor.
VIII. INDEMNITY. The Company, on behalf of the Funds, shall indemnify and
hold Agent harmless against any losses, claims, damages, liabilities or expenses
(including reasonable attorney's fees and expenses) resulting from any claim,
demand, action or suit brought by any person other than the Company (including a
shareholder naming the Company as a party) and not resulting from Agent's bad
faith, willful misfeasance, reckless disregard of its obligations and duties,
gross negligence or breach of this Agreement, and arising out of, or in
connection with:
A. Agent's performance hereunder;
B. Any error or omission in any record (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm or microfiche
copies) delivered, or caused to be delivered, by the Company to Agent in
connection with this Agreement;
C. Bad faith, willful misfeasance, reckless disregard of its
obligations and duties or negligence of the Company, or Agent's acting upon any
instructions reasonably believed by it to have been properly executed or
communicated by any person duly authorized by the Company;
D. Agent's acting in reliance upon advice given by counsel for Agent or
upon advice reasonably believed by it to have been given by counsel for the
Company; or
E. Agent's acting in reliance upon any instrument reasonably believed
by it to have been genuine and signed, countersigned or executed by the proper
person(s) in accordance with the currently effective certificate(s) of authority
delivered to Agent by the Company.
In the event that Agent requests the Company to indemnify or hold it
harmless hereunder, agent shall use its best efforts to inform the Company of
the relevant facts concerning the matter in question. Agent shall use
reasonable care to identify and promptly notify the Company concerning any
matter which presents, or appears likely to present, a claim for indemnification
against the Company or the Funds.
The Company shall have the election of defending Agent against any claim
which may be the subject of indemnification hereunder. In the event the Company
so elects, it will so notify Agent and
2
<PAGE>
thereupon the Company shall take over defense of the claim, and (if so requested
by the Company) Agent shall incur no further legal or other expenses related
thereto for which it would be entitled to indemnity hereunder; provided,
however, that nothing herein contained shall prevent Agent from retaining, at
its own expense, counsel to defend any claim. Except with the Company's prior
consent, Agent shall in no event confess any claim or make any compromise in any
matter in which the Company will be asked to indemnify or hold harmless
hereunder.
IX. LIABILITY
A. Damages. Agent shall not be liable to the Company, or any third
-------
party, for punitive, exemplary, indirect, special or consequential damages (even
if Agent has been advised of the possibility of such damages) arising from its
obligations and the services provided under this Agreement, including but not
limited to loss of profits, loss of use of the shareholder accounting system,
cost of capital and expenses of substitute facilities, programs or services.
B. Force Majeure. Anything in this Agreement to the contrary
-------------
notwithstanding, Agent shall not be liable for delays or errors occurring by
reason of circumstances beyond its control, including but not limited to acts or
civil or military authority, national emergencies, work stoppage, fire, flood,
catastrophe, earthquake, acts of God, insurrection, war, riot, data processing
and communications downtime (where such downtime occurs for reasons other than
Agent's gross negligence or willful misconduct) or interruption of power supply.
X. AMENDMENT. This Agreement and the Appendices attached hereto and made
a part hereof may be amended at any time, with or without shareholder approval
(except as otherwise required by law), in writing signed by each of the parties
hereto. Any change in the Company's registration statements or other documents
of compliance or in the forms relating to any plan, program or service offered
by its current prospectus which would require a change in Agent's obligations
hereunder shall be subject to Agent's approval, which approval shall not be
unreasonably withheld.
XI. TERMINATION. This Agreement may be terminated by either party without
cause upon one hundred twenty (120) days' prior written notice to the other, and
at any time for cause in the event that such cause remains unremedied for more
than thirty (30) days after receipt by the other party of written specification
of such cause.
In the event the Company designates a successor to any of Agent's
obligations hereunder, Agent shall, at the expense and pursuant to the direction
of the Company, transfer promptly to such successor all relevant books, records
and other data of the Company in the possession or under the control of Agent.
XII. SEVERABILITY. If any clause or provision of this Agreement is
determined to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, then such clause or provision shall be
considered severed herefrom and the remainder of this Agreement shall continue
in full force and effect.
XIII. APPLICABLE LAW. This Agreement shall be subject to and construed in
accordance with the laws of the State of California without giving effect to the
choice of law provisions thereof.
3
<PAGE>
XIV. ENTIRE AGREEMENT. Except as otherwise provided herein, this Agreement
constitutes the entire and complete agreement of the parties hereto relating to
the subject matter hereof and supersedes and merges all prior contracts and
discussions between the parties.
XV. COUNTERPARTS. This Agreement may be executed in one or more
counterparts; all of which shall be considered one and the same Agreement and
each of which shall be deemed an original.
LIFE & ANNUITY TRUST WELLS FARGO BANK, N.A.
By: /s/ Richard H. Blank, Jr. By: /s/ Elizabeth Gottfried
-------------------------- -----------------------
Name: Richard H. Blank, Jr. Name: Elizabeth Gottfried
------------------------ ---------------------
Title: Chief Operating Officer Title: Vice President
----------------------- --------------------
By: /s/ James Nolan
-----------------------
Name: James Nolan
---------------------
Title: Vice President
--------------------
Approved: January 16, 1997
4
<PAGE>
APPENDIX A
----------
Name of Fund Rate
- ------------ ----
Asset Allocation Fund 0.14%
Equity Value Fund 0.14%
Growth Fund 0.14%
Money Market Fund 0.10%
Strategic Growth Fund 0.14%
U.S. Government Allocation Fund 0.14%
Approved: January 16, 1997
Approved as amended: January 29, 1998, to add the Equity Value and Strategic
Growth Funds
<PAGE>
APPENDIX B
----------
SCHEDULE OF SERVICES
A. Maintaining shareholder accounts, including processing of new accounts.
B. Posting address changes and other file maintenance for shareholder
accounts.
C. Posting all transactions to the shareholder file, including:
- Direct purchase
- Wire order purchases
- Direct redemptions
- Telephone redemption
- Wire order redemption
- Direct exchanges
- Dividend payments
- Dividend reinvestments
- Telephone exchanges
- Transfers
- Certificate issuances
- Certificate deposits.
D. Preparing daily reconciliations of shareholder processing to money
movement instructions.
E. Issuing all checks and stopping and replacing checks.
F. Mailing confirmations and checks.
G. Performing certain of the Funds' other mailings, including:
- Dividend and capital gain distributions
- 1099/year-end shareholder reporting
- Daily confirmations
- Furnish certified list of shareholders (hard copy of microfilm).
H. Maintaining and retrieving all required past history for shareholders and
providing research capabilities as follows:
- Daily monitoring of all processing activity to verify back-up
documentation
- Providing exception reports
- Microfilming
- Storing, retrieving and archiving records in accordance with Rules 31a-
1, 31a-2, and 31a-3 under the 1940 Act.
I. Reporting and remitting as necessary for state escheat requirements.
6
<PAGE>
J. Answering all service-related inquiries from shareholders and others,
including:
- General and Policy Inquiries (research and resolve problems)
- Fund yield inquiries
- Taking shareholder processing requests and account maintenance changes
as described above.
K. Responding to shareholder inquiries (research and resolve problems),
including:
- Initiate shareholder account reconciliation proceedings when
appropriate
- Notify shareholder of bounced investment checks
- Initiate proceedings regarding lost certificates
- Respond to customer complaints.
7
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
May 1, 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. 6 and Amendment No. 8 to the
Registration Statement on Form N-1A (SEC File Nos. 33-70988 and 811-8118) (the
"Registration Statement") of Life & Annuity Trust (the "Trust") relating to the
registration of an indefinite number of shares of common stock of the Asset
Allocation, Equity Value, Growth, Money Market, Strategic Growth and U.S.
Government Allocation 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 and sale of the Shares by the Trust has been duly and validly
authorized by all appropriate corporate action, and assuming delivery by sale or
in accord with the Trust's dividend reinvestment plan in accordance with the
description set forth in the Funds' current prospectuses 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
<PAGE>
Independent Auditors' Consent
-----------------------------
The Board of Trustees
Life and Annuity Trust:
We consent to the inclusion in Life and Annuity Trust's Post-Effective Amendment
No. 6 to the Registration Statement No. 33-70988 filed on Form N-1A under the
Securities Act of 1933 and Amendment No. 8 to the Registration Statement No.
811-8118 filed on Form N-1A under the Investment Company Act of 1940 of our
report dated February 6, 1998, on the financial statements and financial
highlights of Asset Allocation Fund, Growth Fund (formerly Growth and Income
Fund), Money Market Fund and U.S. Government Allocation Fund (constituting Life
and Annuity Trust) for the periods indicated therein, which report has been
included in the Statement of Additional Information of Life and Annuity Trust.
We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Independent Auditors" in
the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
San Francisco, CA
April 28, 1998
<PAGE>
===============================================================================
STAGECOACH LIFE & ANNUITY TRUST FUNDS, INC.
===============================================================================
TOTAL RETURN CALCULATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative Average
# of Period Beginning Ending Total Annual
Fund Name Months from Inception Unit Value Unit Value Return (1) Return (2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION 44.50 4/15/94-12/97 $1,000.00 $1,756.92 75.69% 16.41%
US GOVERNMENT ALLOCATION 44.13 4/26/94-12/97 $1,000.00 $1,283.83 28.38% 7.03%
MONEY MARKET 43.37 5/19/94-12/97 $1,000.00 $1,190.88 19.09% 4.95%
GROWTH & INCOME 44.60 4/12/94-12/97 $1,000.00 $1,938.91 93.89% 19.50%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes:
1) Cumulative Total Return = (Ending Unit Value - Beginning Unit
Value)/Beginning Unit Value
2) Average Annual Return = ((1+ Cumulative Total Return)(1/(#of periods/12)))- 1
<PAGE>
===============================================================================
STAGECOACH LIFE & ANNUITY TRUST FUNDS, INC.
===============================================================================
TOTAL RETURN CALCULATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative Average
# of Beginning Ending Total Annual
Fund Name Months Period Unit Value Unit Value Return (1) Return (2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION 12 12/31/1996-12/31/97 $1,453.48 $1,756.92 20.88% 20.88%
US GOVERNMENT ALLOCATION 12 12/31/1996-12/31/97 $1,194.55 $1,283.83 7.47% 7.47%
MONEY MARKET 12 12/31/1996-12/31/97 $1,133.75 $1,190.88 5.04% 5.04%
GROWTH & INCOME 12 12/31/1996-12/31/97 $1,652.46 $1,938.91 17.33% 17.33%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes:
1) Cumulative Total Return = (Ending Unit Value - Beginning Unit
Value)/Beginning Unit Value
2) Average Annual Return = ((1+ Cumulative Total Return)(1/(#of periods/12)))- 1
<PAGE>
===============================================================================
STAGECOACH LIFE & ANNUITY TRUST FUNDS, INC.
===============================================================================
TOTAL RETURN CALCULATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative Average
# of Beginning Ending Total Annual
Fund Name Months Period Unit Value Unit Value Return (1) Return (2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION 36 12/31/94-12/31/97 $1,011.33 $1,756.92 73.72% 20.21%
US GOVERNMENT ALLOCATION 36 12/31/94-12/31/97 $1,004.12 $1,283.83 27.86% 8.54%
MONEY MARKET 36 12/31/94-12/31/97 $1,027.06 $1,190.88 15.95% 5.06%
GROWTH & INCOME 36 12/31/94-12/31/97 $1,044.68 $1,938.91 85.60% 22.89%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes:
1) Cumulative Total Return = (Ending Unit Value - Beginning Unit
Value)/Beginning Unit Value
2) Average Annual Return = ((1+ Cumulative Total Return)(1/(#of periods/12)))- 1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Life & Annuity Trust, Master Investment
Trust, Overland Express Funds, Inc., Stagecoach Funds, Inc. and Stagecoach
Trust, (each, a "Company") and any or all amendments (including post-effective
amendments) thereto and to file the same, with any and all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and any state securities commissions or authorities, and (ii) to
execute any and all federal or state regulatory filings, including all
applications with regulatory authorities, state charter or organizational
documents and any amendments or supplements thereto, to be executed by, on
behalf of, or for the benefit of, a Company. The undersigned hereby grants to
each Attorney-in-Fact full power and authority to do and perform each and every
act and thing contemplated above, as fully and to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
Attorney-in-Fact may lawfully do or cause to be done by virtue hereof.
Dated: October 16, 1996 /s/ Joseph N. Hankin
-------------------------- ------------------------------------
Joseph N. Hankin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Life & Annuity Trust, Master Investment
Trust, Overland Express Funds, Inc., Stagecoach Funds, Inc. and Stagecoach
Trust, (each, a "Company") and any or all amendments (including post-effective
amendments) thereto and to file the same, with any and all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and any state securities commissions or authorities, and (ii) to
execute any and all federal or state regulatory filings, including all
applications with regulatory authorities, state charter or organizational
documents and any amendments or supplements thereto, to be executed by, on
behalf of, or for the benefit of, a Company. The undersigned hereby grants to
each Attorney-in-Fact full power and authority to do and perform each and every
act and thing contemplated above, as fully and to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
Attorney-in-Fact may lawfully do or cause to be done by virtue hereof.
Dated: October 24, 1996 /s/ Jack S. Euphrat
-------------------------- --------------------------------
Jack S. Euphrat
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr. and Robert M. Kurucza, and each
of them, his true and lawful attorney-in-fact and agent (each, an "Attorney-in
Fact") with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, (i) to execute the
Registration Statement of each of Life & Annuity Trust, Master Investment Trust,
Overland Express Funds, Inc., Stagecoach Funds, Inc. and Stagecoach Trust,
(each, a "Company") and any or all amendments (including post-effective
amendments) thereto and to file the same, with any and all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and any state securities commissions or authorities, and (ii) to
execute any and all federal or state regulatory filings, including all
applications with regulatory authorities, state charter or organizational
documents and any amendments or supplements thereto, to be executed by, on
behalf of, or for the benefit of, a Company. The undersigned hereby grants to
each Attorney-in-Fact full power and authority to do and perform each and every
act and thing contemplated above, as fully and to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
Attorney-in-Fact may lawfully do or cause to be done by virtue hereof.
Dated: October 24, 1996 /s/ R. Greg Feltus
---------------------------- ----------------------------------
R. Greg Feltus
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Life & Annuity Trust, Master Investment
Trust, Overland Express Funds, Inc., Stagecoach Funds, Inc. and Stagecoach
Trust, (each, a "Company") and any or all amendments (including post-effective
amendments) thereto and to file the same, with any and all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and any state securities commissions or authorities, and (ii) to
execute any and all federal or state regulatory filings, including all
applications with regulatory authorities, state charter or organizational
documents and any amendments or supplements thereto, to be executed by, on
behalf of, or for the benefit of, a Company. The undersigned hereby grants to
each Attorney-in-Fact full power and authority to do and perform each and every
act and thing contemplated above, as fully and to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
Attorney-in-Fact may lawfully do or cause to be done by virtue hereof.
Dated: October 24, 1996 /s/ Thomas S. Goho
---------------------------- ----------------------------
Thomas S. Goho
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Life & Annuity Trust, Master Investment
Trust, Overland Express Funds, Inc., Stagecoach Funds, Inc. and Stagecoach
Trust, (each, a "Company") and any or all amendments (including post-effective
amendments) thereto and to file the same, with any and all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and any state securities commissions or authorities, and (ii) to
execute any and all federal or state regulatory filings, including all
applications with regulatory authorities, state charter or organizational
documents and any amendments or supplements thereto, to be executed by, on
behalf of, or for the benefit of, a Company. The undersigned hereby grants to
each Attorney-in-Fact full power and authority to do and perform each and every
act and thing contemplated above, as fully and to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
Attorney-in-Fact may lawfully do or cause to be done by virtue hereof.
Dated: October 24, 1996 /s/ W. Rodney Hughes
--------------------------- ------------------------------
W. Rodney Hughes
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Life & Annuity Trust, Master Investment
Trust, Overland Express Funds, Inc., Stagecoach Funds, Inc. and Stagecoach
Trust, (each, a "Company") and any or all amendments (including post-effective
amendments) thereto and to file the same, with any and all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and any state securities commissions or authorities, and (ii) to
execute any and all federal or state regulatory filings, including all
applications with regulatory authorities, state charter or organizational
documents and any amendments or supplements thereto, to be executed by, on
behalf of, or for the benefit of, a Company. The undersigned hereby grants to
each Attorney-in-Fact full power and authority to do and perform each and every
act and thing contemplated above, as fully and to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
Attorney-in-Fact may lawfully do or cause to be done by virtue hereof.
Dated: October 24, 1996 /s/ J. Tucker Morse
--------------------------- -------------------------------
J. Tucker Morse
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Life & Annuity Trust, Stagecoach Funds,
Inc. and Stagecoach Trust, (each, a "Company") and any or all amendments
(including post-effective amendments) thereto and to file the same, with any and
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commissions or
authorities, and (ii) to execute any and all federal or state regulatory
filings, including all applications with regulatory authorities, state charter
or organizational documents and any amendments or supplements thereto, to be
executed by, on behalf of, or for the benefit of, a Company. The undersigned
hereby grants to each Attorney-in-Fact full power and authority to do and
perform each and every act and thing contemplated above, as fully and to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that said Attorney-in-Fact may lawfully do or cause to be done by
virtue hereof.
Dated: January 29, 1998 /s/ Peter G. Gordon
--------------------------- ------------------------------
Peter G. Gordon
