<PAGE> 1
Annual Report
Stagecoach
Variable Annuities
Stagecoach Variable Annuity(TM)
Stagecoach Variable Annuity Plus(TM)
Stagecoach Extra Credit Variable Annuity(TM)
Stagecoach Variable Annuity Flex(TM)
December 31, 1998
NOT FDIC INSURED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Contract Holders.................................. 2-3
Life & Annuity Trust Financial Statements................... 5
American Skandia Trust Financial Statements................. 71
Alger American Fund Financial Statements.................... 135
</TABLE>
This report has been prepared to provide information to owners of American
Skandia Life Assurance Corporation's Stagecoach Variable Annuity, Stagecoach
Variable Annuity Plus, Stagecoach Extra Credit Variable Annuity and Stagecoach
Variable Annuity Flex. If it is used for any other purpose, it must be
accompanied or preceded by a current prospectus, as applicable, which discloses
any charges and other important information about the Account, together with the
current applicable prospectus for the Life & Annuity Trust, the American Skandia
Trust, and the Alger American Growth Fund.
The financial statements for the sub-accounts that invest in Portfolios of
American Skandia Trust reflect financial activity for the Stagecoach Variable
Annuities and other products that use the same sub-accounts.
VARIABLE ANNUITIES:
- ---------------------------------------------------------------------
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor guaranteed by the
Bank
- involve investment risk, including possible loss of principal [NO FDIC LOGO]
1
<PAGE> 3
STAGECOACH VARIABLE ANNUITY
STAGECOACH VARIABLE ANNUITY PLUS
STAGECOACH EXTRA CREDIT VARIABLE ANNUITY
STAGECOACH VARIABLE ANNUITY FLEX
ANNUAL REPORT
TO OUR CONTRACT HOLDERS:
Our Chief Economist, Lawrence Kudlow, believes history teaches that the
stock market is the best leading indicator of future wealth creation. Stock
market investors will benefit not only from faster growth and lower inflation,
but also from the gravitational pull of lower prices on interest rates. Mr.
Kudlow tells us to look for long-term Treasury rates to hover around 4%, with
the official fed funds rate dropping to 3%. That will benefit corporate
earnings, as will a reduction in non-labor costs -- namely cheaper fuel -- and
lower raw material costs. Mr. Kudlow also feels that technologically enhanced
productivity will prevent total wage and salary costs from rising excessively.
Therefore, Mr. Kudlow estimates real earnings should rise 3% to 5% in the next
few years. Mr. Kudlow's thoughts on the current U.S. business expansion -- now
nearly eight years old -- "it might well become the first 10-year recovery cycle
in the twentieth century."
We are optimistic about the future, but we are also cognizant of the past.
History teaches that the stock market will fluctuate, sometimes quite widely, as
evidenced by the precipitous market decline this past Fall. The stock market
also recovers, as evidenced by its amazing late year recovery. Is this an
indication that market cycles will shorten from years to months or even weeks?
Only time -- history -- will tell. The clear lesson to be learned for the
investor is not to panic and be adequately diversified. Investing for the long
term has historically proven to be more profitable than trying to guess when to
get in and out of the market. History also tells us that most individual
investors chase returns -- they buy at the top and sell at the bottom. This is
why we at American Skandia recommend you seek the advice of a financial advisor
to help you develop an investment plan to meet your long-term savings needs.
Our goal is to offer you and your financial advisor a selection of
top-flight money managers that can help your long-term savings and investment
programs succeed. Investment breadth and selection is a cornerstone of the
American Skandia investment philosophy. Our commitment to you is to seek to
bring you the "best of the best" in investment management. While we cannot
guarantee performance our commitment to you is to hire the best investment
management organizations and make them prove it. This means that we will make
investment management changes when appropriate.
1998 brought several positive changes to both the American Skandia Trust
("AST") and the Life & Annuity Trust ("LAT"). In May, we instituted two changes
in AST while LAT added two new portfolios to its line up. All four of these
portfolios are managed by proven, well-established money management
organizations. These portfolios are:
1. AST Neuberger Berman Mid-Cap Growth Portfolio
2. AST Neuberger Berman Mid-Cap Value Portfolio
3. LAT Equity Value Portfolio
4. LAT Strategic Growth Portfolio
These portfolios provide you and your financial advisor with a wider range
of investment options, money managers and asset classes to choose from. They
also underscore the importance of a quality investment management selection and
monitoring process that seeks to provide you with the best investment management
expertise available.
2
<PAGE> 4
AST NEUBERGER BERMAN MID-CAP GROWTH PORTFOLIO
Managing the AST Neuberger Berman Mid-Cap Growth Portfolio are Jennifer
Silver and Brooke Cobb, both of whom were specifically hired by Neuberger Berman
to launch the company's Growth Equity Group. Before joining Neuberger Berman,
Ms. Silver ran the highly successful Putnam Vista Fund. Brooke Cobb is a former
Putnam colleague of Jennifer who joined Neuberger Berman from Bainco
International Investors, a private money management firm.
AST NEUBERGER BERMAN MID-CAP VALUE PORTFOLIO
With the AST Neuberger Berman Mid-Cap Value Portfolio, we have hired one of
the best mid-cap value teams in the mutual fund industry. In addition to
managing this portfolio for American Skandia, Michael Kassen and Robert
Gendelman are also the current managers of the Partners Portfolio of the
Neuberger Berman Advisers Management Trust. Mr. Kassen also co-manages the
highly successful Partners public mutual fund.
LAT EQUITY VALUE FUND
Rex Wardlaw and Allen Wisniewski manage the LAT Equity Value Fund. Mr.
Wardlaw brings 11 years of investment experience to the Fund. He specializes in
value-style investing and has been managing investments at Wells Fargo and Wells
Capital Management Incorporated since 1993. Mr. Wardlaw earned a BA in Chemistry
from Northwest Nazarene College and an MBA with honors in Finance from the
University of Oregon. He is also a Chartered Financial Analyst. Mr. Wisniewski
received his BA and MBA in Economics and Finance from the University of
California at Los Angeles. In his 13 years of experience in the securities
industry his main focus has been on equities. Mr. Wisniewski is a Chartered
Financial Analyst and a member of the Los Angeles Society of Financial Analysts.
The fund managers work together to bring disciplined investment expertise to
equity investing.
LAT STRATEGIC GROWTH FUND
Jon Hickman and Chris Greene manage the Strategic Growth Fund. Mr. Hickman
has over sixteen years of experience in the investment management field and has
a BA and an MBA from Brigham Young University. Mr. Greene has seven years of
experience in the securities industry. Prior to joining Wells Capital Management
Incorporated in 1997, Mr. Greene worked as an analyst for Hambrecht & Quist. He
graduated with a BA in Economics from Claremont McKenna College.
Our goal at American Skandia is to provide you and your financial advisors
with the best investment choice and selection to help you meet your long-term
savings goals. We are very excited about the investment portfolios that we
offer. They enhance one of the strongest lineups of money managers in the
industry. Your tremendous support in 1998, with more than $4.15 billion in
variable annuity sales, is a positive signal that we are delivering to you the
types of products and investment options you need to meet your long-term savings
objectives.
Best regards,
Gordon, C. Boronow
3
<PAGE> 5
[This page intentionally left blank.]
4
<PAGE> 6
LIFE & ANNUITY TRUST
ANNUAL REPORT
DECEMBER 31, 1998
ASSET ALLOCATION FUND
EQUITY VALUE FUND
GROWTH FUND
MONEY MARKET FUND
STRATEGIC GROWTH FUND
U.S. GOVERNMENT ALLOCATION FUND
5
<PAGE> 7
ASSET ALLOCATION FUND
The LAT Asset Allocation Fund (the "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 Fund invests in
common stocks, U.S. Treasury bonds and money market instruments. The Fund's
investment model recommends the optimal mix of assets designed for a long-term
investment strategy.
The Asset Allocation Fund is a professionally managed portfolio, advised by
Wells Fargo Bank, N.A. Barclays Global Fund Advisors ("BGFA"), which is not
affiliated with Wells Fargo Bank, N.A., serves as investment sub-adviser. BGFA
uses an investment model developed and refined over the past twenty years that
analyzes extensive financial data from numerous sources and recommends a
portfolio allocation.
PERFORMANCE SUMMARY
For the one-year period ending December 31, 1998, the Fund reported an
average annual total return of 25.26%. The Fund has three benchmarks
representing each of the major asset classes in which the Fund can invest. The
S&P 500 Index returned 28.60%, the Lehman Brothers U.S. Treasury Bond Index
returned 10.03%, and the IBC All Taxable Money Fund Average posted a 5.04%
return over the same one-year period.
The Fund's performance was impacted by three main factors: rapid price
swings in the stock and bond markets, strong stock market performance, and
record low bond yields. Throughout the year, the U.S. economy was subject to
volatile market conditions caused by international economic turmoil in markets
such as Asia, Russia and Latin America. One outcome of these conditions was a
"flight to quality" in which investors moved into larger, growth stocks.
The fast moving bond market was also impacted by this "flight to quality"
as investors turned to the U.S. Treasury sector. The Fund invests exclusively in
U.S. securities and has benefited from the greater demand for U.S. Treasuries
caused by the economic conditions abroad. Moreover, low inflation and
unemployment rates in the U.S. have created an atmosphere that investors find
appealing.
During this one-year reporting period, the Fund's share price increased
from $11.99 on December 31, 1997, to $13.45 on December 31, 1998. The Fund
distributed $0.34 per share in dividend income, and $1.14 in capital gains. Keep
in mind that past performance is no guarantee of future results.
6
<PAGE> 8
LAT ASSET ALLOCATION FUND
[LAT ASSET ALLOCATION PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
LAT ASSET U.S. TREASURY IBC MONEY FUND
ALLOCATION BOND INDEX AVERAGE S&P 500 INDEX
<S> <C> <C> <C> <C>
10000 10000 10000 10000
9940 9934 10028 10164
JUN-94 9796 9840 10058 9915
10107 10173 10090 10241
10248 10098 10123 10660
SEP-94 9964 9780 10158 10400
10055 9746 10195 10633
9954 9803 10234 10246
DEC-94 10113 9954 10277 10398
10384 10209 10322 10668
10707 10499 10369 11083
MAR-95 10894 10590 10416 11409
11137 10778 10464 11745
11686 11605 10512 12214
JUN-95 11870 11740 10560 12497
12031 11553 10608 12911
12127 11809 10654 12944
SEP-95 12438 12026 10701 13490
12514 12363 10747 13442
12860 12672 10794 14031
DEC-95 13041 13009 10841 14301
13284 13009 10886 14788
13180 12381 10931 14925
MAR-96 13256 12134 10975 15068
13233 11932 11019 15290
13350 11870 11063 15683
JUN-96 13531 12122 11107 15742
13223 12127 11151 15047
13199 11976 11196 15364
SEP-96 13705 12306 11241 16227
14185 12790 11286 16675
14917 13217 11331 17934
DEC-96 14535 12893 11376 17579
14815 12800 11422 18678
14853 12808 11467 18824
MAR-97 14323 12481 11513 18050
14904 12786 11561 19126
15406 12929 11609 20294
JUN-97 15820 13180 11657 21197
16903 13958 11707 22883
16211 13572 11757 21601
SEP-97 16822 13940 11805 22783
16849 14409 11856 22022
17232 14602 11906 23041
DEC-97 17569 14845 11957 23438
17833 15147 12009 23696
18624 15038 12055 25404
MAR-98 19295 15069 12107 26705
19458 15125 12157 26977
19354 15414 12208 26513
JUN-98 20075 15772 12258 27590
19881 15705 12309 27297
17985 16414 12361 23353
SEP-98 18996 17014 12412 24850
20090 16757 12468 26867
21065 16886 12520 28496
DEC-98 22008 16851 12569 30137
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)(1)
<TABLE>
<S> <C>
1-Year 25.26%
3-Year 19.06%
Since Inception 18.24%
</TABLE>
PORTFOLIO REVIEW
Every day the Fund's proprietary model determines the appropriate asset
allocation and recommends shifts in the Fund based on changing economic
conditions. As opportunities arise among the three asset classes, the investment
model will shift Fund assets accordingly in 5% increments.
In January, the Fund had an asset allocation mix of 70% stocks and 30%
bonds, and it experienced five reallocations throughout the year. In April, the
Fund reallocated assets to 65% stocks and 35% bonds when the model sought to
take advantage of opportunities on the shorter end of the yield curve, and
lessen exposure to a slumping U.S. equity market.
In June, the Fund rebalanced to a mix of 70% stocks and 30% bonds in order
to take advantage of falling equity prices and a steady drop in bond yields.
Next, calculating strong market fundamentals following a stock market price drop
in August, the Fund rebalanced its allocation to 75% stocks and 25% bonds. The
Fund reallocated again in late August to 75% stocks, 20% bonds and 5% cash.
Finally, in September, the Fund increased the allocation devoted to stocks to
80%, with 20% in bonds. Stocks were viewed as attractive investments primarily
because of the expensive bond prices and the
7
<PAGE> 9
tumble in stock prices. These stock allocation increases significantly
contributed to the Fund's performance during the last three months of 1998 as
the equity market rebounded strongly, reaching new all-time highs.
Please keep in mind that it is not the volatility of the markets that
generates shifts in the Fund's mix, but rather the attempt to capture value from
an asset class based on, among other things, market and economic conditions.
Overall, the volatility in 1998 created buying opportunities that benefited the
Fund.
MODEL ALLOCATION CHANGES (DURING 12 MONTH REPORTING PERIOD)
<TABLE>
<CAPTION>
MONTH STOCKS (%) BONDS (%) CASH (%)
- ----- ---------- --------- --------
<S> <C> <C> <C>
April 1998 65 35 0
June 1998 70 30 0
August 5, 1998 75 25 0
August 25, 1998 75 20 5
September 1998 80 20 0
</TABLE>
PORTFOLIO DATA (AS OF DECEMBER 31, 1998)
<TABLE>
<S> <C>
Average Coupon of Bond Portfolio 6.46%
Average Maturity of Bond Portfolio 23.0 years
Average Duration of Bond Portfolio 11.7 years
</TABLE>
PORTFOLIO ALLOCATION (AS OF DECEMBER 31, 1998)*
[PIE CHART]
Bonds 20%
Stocks 80%
- ---------------
* Represents recommended asset mix. There is no guarantee that the Fund will
continue to hold any one particular security or stay invested in any one
sector. The composition of the Fund's portfolio is subject to change depending
on current market activity.
8
<PAGE> 10
TOP TEN HOLDINGS (AS OF DECEMBER 31, 1998)(2)
<TABLE>
<CAPTION>
NAME % OF PORTFOLIO
- ---- --------------
<S> <C>
Microsoft Corporation 2.8%
General Electric Company 2.7%
U.S. Treasury Bill 2/4/1999, 4.37% 2.5%
U.S. Treasury Bond 2/15/20, 8.5% 2.4%
U.S. Treasury Bond 2/15/26, 6.0% 2.0%
U.S. Treasury Bond 8/15/27, 6.38% 2.0%
U.S. Treasury Bond 8/15/20, 8.75% 1.9%
U.S. Treasury Bond 2/15/19, 8.88% 1.8%
Intel Corporation 1.6%
U.S. Treasury Bond 11/15/28, 5.25% 1.5%
</TABLE>
STRATEGIC OUTLOOK
We believe the economy's stronger-than-expected performance in the second
half of 1998 will give way to moderate growth during the first half of 1999.
Overall, we feel a stable economic and inflation environment provides the
foundation for strong earnings in 1999. The Fund will continue to apply its
quantitative strategies to allocate assets among stocks, bonds and cash, taking
into consideration factors that affect the economy.
The Asset Allocation Model does not attempt to predict short-term price
movements, but relies on comparing the risk-adjusted "value" of stocks, bonds
and cash instruments. At this point in time, there is a high allocation to
stocks as we find stocks to be a good value given their earnings prospects
versus bonds and cash. This condition can, however, change quickly as stock and
bond prices and earnings expectations will change according to news and other
events that affect the economy.
- ---------------
(1) These figures assume the contract owner is still invested at the end of the
reporting period. Investment return and principal value of an investment will
fluctuate so that an investor's units, when redeemed, may be worth more or less
than their original cost. Figures quoted represent past performance, which is no
guarantee of future results. Portfolio performance numbers are net of all
portfolio expenses, but do not reflect deduction of insurance account charges.
During the one-year reporting period ended December 31, 1998, the Fund's advisor
and administrator have voluntarily waived portions of their fees or assumed
responsibility for other expenses, which has reduced operating expenses for
shareholders. Without these reductions, which can be discontinued at any time,
the Fund's returns would have been lower.
The S&P 500 Index is an unmanaged index of 500 widely held common stocks
representing, among others, industrial, financial, utility, and transportation
companies listed or traded on national exchanges or over-the-counter markets.
The Index does not incur expenses and is not available directly for investment.
Had this Index incurred operating expenses, its performance would have been
lower.
The Lehman Brothers U.S. Treasury Bond Index is an unmanaged index comprised of
Treasury bonds with maturities averaging between 10 and 30 years. The Index does
not incur expenses and is not available directly for investment. Had this Index
incurred operating expenses, its performance would have been lower.
The IBC All Taxable Money Fund Average is comprised of the average yields of
over 600 taxable money market funds. The Index does not incur expenses and is
not available directly for investment. Had this Index incurred operating
expenses, its performance would have been lower.
(2) Percentages reflect market value of portfolio.
9
<PAGE> 11
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
COMMON STOCKS--79.83%
CAPITAL GOODS--16.09%
AEROSPACE & RELATED--0.64%
12,551 Boeing Company $ 574,541 $ 409,475
1,612 General Dynamics Corporation 70,639 94,504
2,429 Lockheed Martin Corporation 263,312 205,858
840 Northrop Corporation 80,834 61,425
4,235 Raytheon Company 232,143 225,514
----------- -----------
$ 1,221,469 $ 996,776
BUSINESS SERVICES & TELECOM--0.71%
13,836 Ameritech Corporation $ 629,183 $ 876,857
2,161 Omnicom Group Incorporated 105,914 125,338
2,033 Paychex Incorporated 104,377 104,572
----------- -----------
$ 839,474 $ 1,106,767
COMPUTER SYSTEMS & SOFTWARE--9.27%
4,491 3COM Corporation+ $ 138,794 $ 201,253
1,688 Apple Computer Incorporated+ 53,177 69,103
588 Autodesk Incorporated 25,184 25,100
2,728 BMC Software Incorporated+ 159,185 121,567
21,349 Compaq Computer Corporation 680,532 895,324
1,929 Computer Sciences 104,659 124,300
609 Data General Corporation+ 9,048 10,010
15,955 Dell Computer Corporation+ 775,502 1,167,707
6,185 Electronic Data Systems Corporation 247,831 310,795
6,244 EMC Corporation+ 298,969 530,740
2,015 Gateway 2000 Incorporated+ 107,700 103,143
13,045 Hewlett Packard Company 907,464 891,137
11,661 IBM Corporation 1,436,571 2,154,370
20,952 Intel Corporation 1,747,945 2,484,122
31,266 Microsoft Corporation+ 2,902,941 4,336,203
4,466 Novell Incorporated+ 48,408 80,945
3,458 Parametric Technology Corporation+ 93,697 56,625
2,911 Peoplesoft Incorporated+ 91,402 55,127
3,129 Seagate Technology+ 83,341 94,652
2,361 Silicon Graphics Incorporated+ 29,021 30,398
4,742 Sun Microsystems Incorporated+ 211,097 406,034
2,741 SunAmerica Incorporated 154,666 222,364
3,210 Unisys Corporation+ 79,834 110,544
----------- -----------
$10,386,968 $14,481,563
</TABLE>
10
<PAGE> 12
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
CONSTRUCTION & MINING EQUIPMENT--0.22%
982 Case Corporation $ 44,856 $ 21,420
4,507 Caterpillar Incorporated 238,568 207,322
969 Fluor Corporation 44,074 41,243
1,060 Sealed Air Corporation+ 51,203 54,125
730 Snap-On Incorporated 29,510 25,413
----------- -----------
$ 408,211 $ 349,523
ELECTRICAL EQUIPMENT--3.33%
2,381 American Electric Power Incorporated $ 111,002 $ 112,055
2,794 AMP Incorporated 111,381 145,463
526 Foster Wheeler Corporation 12,133 6,937
41,114 General Electric Company 3,467,943 4,196,198
1,232 W W Grainger Incorporated 62,685 51,282
1,032 Harris Corporation 48,463 37,797
7,532 Motorola Incorporated 410,335 459,923
2,439 Tellabs Incorporated+ 163,461 167,224
673 Thomas & Betts Corporation 35,919 29,149
----------- -----------
$ 4,423,322 $ 5,206,028
ELECTRONICS--0.72%
1,882 Advanced Micro Devices Incorporated+ $ 43,793 $ 54,460
4,604 Applied Materials Incorporated+ 160,296 196,533
1,084 KLA-Tencor Corporation+ 38,894 47,019
1,776 LSI Logic Corporation+ 40,217 28,638
2,611 Micron Technology+ 80,087 132,019
2,115 National Semiconductor Corporation+ 38,511 28,553
1,425 New Century Energies Incorporated 69,022 69,469
981 Raychem Corporation 35,938 31,699
2,387 Rockwell International Corporation 128,290 115,919
4,871 Texas Instruments Incorporated 304,413 416,775
----------- -----------
$ 939,461 $ 1,121,084
FARM MACHINERY--0.08%
3,002 Deere & Company $ 156,186 $ 99,441
849 Navistar International Corporation+ 23,125 24,197
----------- -----------
$ 179,311 $ 123,638
</TABLE>
11
<PAGE> 13
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
INDUSTRIAL MACHINERY & RELATED--0.52%
1,139 Black & Decker Corporation $ 60,221 $ 63,855
257 Briggs & Stratton Corporation 11,357 12,818
2,196 Browning Ferris Industries Incorporated 71,896 62,449
1,337 Cooper Industries Incorporated 83,261 63,758
1,655 Danaher Corporation 73,755 89,887
2,821 Dover Corporation 101,985 103,319
2,193 Freeport McMoran Copper 34,419 22,889
700 Harnischfeger Industries Incorporated 15,301 7,130
3,102 Illinois Tool Works Incorporated 197,473 195,814
2,028 Ingersoll Rand Company 92,112 95,189
1,599 Pall Corporation 33,084 40,475
1,358 Parker Hannifin Corporation 54,874 44,475
758 Timken Company 25,327 14,307
----------- -----------
$ 855,065 $ 816,365
INSTRUMENTS--0.45%
1,126 Andrew Corporation+ $ 22,759 $ 18,579
574 EG & G Incorporated 15,933 15,964
5,525 Emerson Electric Company 344,732 320,450
1,873 Guidant Corporation 125,395 206,498
1,027 Johnson Controls Incorporated 57,669 60,593
608 Perkin Elmer Corporation 39,705 59,318
627 Tektronix Incorporated 23,038 18,849
----------- -----------
$ 629,231 $ 700,251
OFFICE MACHINES--0.15%
3,479 Pitney Bowes Incorporated $ 173,038 $ 229,831
TOTAL CAPITAL GOODS $20,055,550 $25,131,826
</TABLE>
12
<PAGE> 14
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
CONSUMER--BASIC--12.81%
FOOD & RELATED--1.56%
7,490 Archer Daniels Midland Corporation $ 140,924 $ 128,734
3,558 Bestfoods 191,434 189,464
5,560 Campbell Soup Company 301,341 305,800
6,154 Conagra Incorporated 178,109 193,851
1,740 Darden Restaurants Incorporated 27,795 31,320
1,930 General Mills Incorporated 131,598 150,058
4,513 H J Heinz Company 244,491 255,549
1,791 Hershey Foods Corporation 124,019 111,378
5,085 Kellogg Company 197,297 173,526
3,048 Pioneer Hi-Bred International 111,758 82,296
1,746 Quaker Oats Company 96,349 103,887
3,965 Ralston-Ralston Purina Group 137,377 128,367
4,081 RJR Nabisco Corporation 108,591 121,155
11,504 Sara Lee Corporation 334,899 324,269
1,512 Wm. Wrigley Jr. Company 136,760 135,419
----------- -----------
$ 2,462,742 $ 2,435,073
FOOD STORES--0.61%
3,451 American Stores Company $ 89,260 $ 127,471
501 Great Atlantic & Pacific Tea Incorporated 14,461 14,842
3,264 Kroger Company+ 143,927 197,472
6,046 Safeway Incorporated+ 332,029 368,428
1,553 Supervalu Incorporated 34,821 43,484
4,245 Sysco Corporation 104,077 116,472
1,851 Winn Dixie Stores Incorporated 72,000 83,064
----------- -----------
$ 790,575 $ 951,233
</TABLE>
13
<PAGE> 15
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
HEALTHCARE--8.17%
884 Allergan Incorporated $ 41,196 $ 57,239
1,147 Alza Corporation+ 51,149 59,931
16,558 American Home Products 783,160 932,422
675 Bausch & Lomb Incorporated 33,806 40,500
3,151 Becton Dickinson & Company 113,635 134,508
1,467 Biomet Incorporated 45,284 59,047
12,483 Bristol Myers Squibb Company 1,369,574 1,670,381
4,892 CVS Corporation 181,658 269,060
8,152 Columbia HCA Healthcare Corporation 242,533 201,762
1,366 HCR Manor Care+ 45,374 40,126
5,343 Healthsouth Corporation+ 142,222 82,483
2,115 Humana Incorporated+ 53,506 37,673
1,996 IMS Health Incorporated 102,582 150,573
16,906 Johnson & Johnson 1,226,012 1,417,991
13,811 Lilly Eli & Company 946,689 1,227,453
863 Mallinckrodt Incorporated 26,711 26,591
6,100 Medtronic Incorporated 326,966 452,925
14,956 Merck & Company Incorporated 1,822,783 2,208,814
556 Millipore Corporation 17,007 15,811
6,355 Pharmacia & Upjohn Incorporated 277,526 359,852
16,282 Pfizer Incorporated 1,779,331 2,042,373
1,078 St. Jude Medical Incorporated+ 38,323 29,847
18,452 Schering Plough Corporation 813,709 1,019,473
364 Shared Medical System Corporation 23,515 18,155
3,900 Tenet Healthcare Corporation+ 130,239 102,375
2,369 United Healthcare Corporation 146,147 102,015
----------- -----------
$10,780,637 $12,759,380
HOUSEHOLD PRODUCTS--1.38%
1,306 Clorox Company $ 117,177 $ 152,557
3,638 Colgate-Palmolive Company 316,586 337,879
2,916 Corning Incorporated 110,557 131,220
16,650 Procter & Gamble Corporation 1,360,465 1,520,353
736 Tupperware Corporation 19,303 12,098
----------- -----------
$ 1,924,088 $ 2,154,107
TOBACCO--1.10%
30,569 Philip Morris Companies Incorporated $ 1,233,394 $ 1,635,442
2,328 UST Incorporated 64,487 81,189
----------- -----------
$ 1,297,881 $ 1,716,631
TOTAL CONSUMER--BASIC $17,255,923 $20,016,424
</TABLE>
14
<PAGE> 16
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
CONSUMER--DISCRETIONARY--10.00%
AIRLINES--0.25%
2,305 AMR Corporation+ $ 163,199 $ 136,859
1,827 Delta Airlines Incorporated 103,314 95,004
4,213 Southwest Airlines Company 78,218 94,529
1,141 USAir Group Incorporated+ 74,310 59,332
----------- -----------
$ 419,041 $ 385,724
APPAREL--0.23%
685 Reebok International Limited+ $ 18,727 $ 10,189
962 Fruit of the Loom+ 30,165 13,288
2,838 Limited Incorporated 90,568 82,657
797 Liz Claiborne Incorporated 35,914 25,155
3,528 Nike Incorporated 157,748 143,105
483 Russel Corporation 12,789 9,811
1,473 V F Corporation 72,385 69,047
----------- -----------
$ 418,296 $ 353,252
BEVERAGE BREWING & DISTRIBUTION--2.13%
488 Adolph Coors Company $ 19,695 $ 27,542
820 Brown Forman Corporation 48,141 62,064
30,907 Coca-Cola Company 2,335,250 2,066,906
4,932 Coca-Cola Enterprises Incorporated 146,804 176,319
939 Harcourt General Incorporated 49,877 49,943
18,402 Pepsico Incorporated 702,453 753,332
4,995 Seagrams Company Limited 196,240 189,810
----------- -----------
$ 3,498,460 $ 3,325,916
COSMETICS--0.57%
691 Alberto Culver Company $ 19,663 $ 18,441
3,355 Avon Products Incorporated 134,413 148,459
13,890 Gillette Company 756,423 671,061
1,334 International Flavors & Fragrances Incorporated 61,832 58,946
----------- -----------
$ 972,331 $ 896,907
HOTELS--0.11%
1,253 Harrah Entertainment+ $ 28,479 $ 19,656
3,309 Hilton Hotels Corporation 94,381 63,285
3,162 Marriott International 100,024 91,698
----------- -----------
$ 222,884 $ 174,639
HOUSEHOLD GOODS--0.13%
1,090 Maytag Corporation $ 53,060 $ 67,853
2,064 Newell Company 96,940 85,140
926 Whirlpool Corporation 58,490 51,277
----------- -----------
$ 208,490 $ 204,270
</TABLE>
15
<PAGE> 17
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
LEISURE TIME INDUSTRY--0.47%
1,240 Brunswick Corporation $ 34,534 $ 30,690
1,687 Hasbro Incorporated 61,811 60,943
5,900 HBO & Company 166,963 169,256
967 King World Productions Incorporated+ 25,418 28,466
3,609 Mattel Incorporated 142,994 82,330
2,270 Mirage Resorts Incorporated+ 48,684 33,908
4,346 Viacom Incorporated+ 252,896 321,604
----------- -----------
$ 733,300 $ 727,197
MOTOR VEHICLES & EQUIPMENT--1.32%
7,086 Allied Signal Incorporated $ 299,608 $ 313,998
501 Cummins Engine Incorporated 24,847 17,786
890 Eaton Corporation 74,364 62,912
15,164 Ford Motor Company 727,919 889,937
8,205 General Motors Corporation 558,438 587,170
2,262 Genuine Parts Company 77,556 75,636
953 Paccar Incorporated 51,056 39,192
1,484 TRW Incorporated 78,675 83,382
----------- -----------
$ 1,892,463 $ 2,070,013
PHOTOGRAPHIC EQUIPMENT--0.50%
4,027 Eastman Kodak Company $ 295,274 $ 289,944
568 Polaroid Corporation 20,699 10,615
4,091 Xerox Corporation 439,256 482,738
----------- -----------
$ 755,229 $ 783,297
RESTAURANTS--0.50%
8,415 McDonalds Corporation $ 529,361 $ 644,799
1,883 Tricon Global Restaurants+ 60,786 94,385
1,575 Wendy's International Incorporated 36,389 34,355
----------- -----------
$ 626,536 $ 773,539
RETAIL & RELATED--2.54%
2,739 Costco Companies Incorporated+ $ 155,471 $ 197,722
5,460 Dayton Hudson Corporation 237,851 296,205
1,356 Dillards Incorporated 49,423 38,477
2,338 Dollar General Corporation 78,069 55,235
2,591 Federated Department Stores Incorporated+ 128,596 112,870
1,969 Fred Meyer Incorporated+ 93,793 118,632
505 Jostens Incorporated 11,980 13,225
6,190 K-Mart Corporation+ 107,513 94,784
1,997 Kohls Corporation+ 109,884 122,690
3,148 J C Penney Incorporated 210,220 147,563
3,293 Rite Aid Corporation 111,604 163,209
3,886 Staples Incorporated+ 111,665 169,770
4,059 TJX Companies Incorporated 95,792 117,710
1,810 Venator Group Incorporated+ 31,196 11,652
28,321 Wal-Mart Stores Incorporated 1,567,358 2,306,390
----------- -----------
$ 3,100,415 $ 3,966,134
</TABLE>
16
<PAGE> 18
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
RETAIL STORES--SPECIALTY--1.14%
3,063 Albertsons Incorporated $ 146,666 $ 195,075
1,886 Autozone Incorporated+ 56,259 62,120
893 Ceridian Corporation+ 50,280 62,343
1,279 Circuit City Stores Incorporated 53,392 63,870
1,427 Consolidated Stores Corporation+ 50,532 28,808
7,333 GAP Incorporated 271,121 412,481
506 Longs Drug Stores Corporation 15,971 18,975
2,914 May Department Stores 182,799 175,933
1,907 Nordstrom Incorporated 62,172 66,149
864 Pep Boys Manny Moe & Jack 17,275 13,554
4,808 Sears Roebuck & Company 266,576 204,340
1,274 Tandy Corporation 59,069 52,473
3,351 Toys "R" Us Incorporated+ 87,623 56,548
6,233 Walgreen Company 239,415 365,020
----------- -----------
$ 1,559,150 $ 1,777,689
RUBBER & PLASTIC--0.11%
1,021 Cooper Tire & Rubber Company $ 22,339 $ 20,867
1,935 Goodyear Tire & Rubber 127,702 97,597
1,862 Rubbermaid Incorporated 57,145 58,537
----------- -----------
$ 207,186 $ 177,001
TEXTILE--0.01%
204 Springs Industries Incorporated $ 10,769 $ 8,453
TOTAL CONSUMER--DISCRETIONARY $14,624,550 $15,624,031
</TABLE>
17
<PAGE> 19
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
ENERGY & RELATED--5.16%
1,100 Amerada Hess Corporation $ 59,990 $ 54,725
3,133 Amgen Incorporated+ 194,195 327,594
9,481 Amoco Corporation 424,802 559,379
1,550 Anadarko Petroleum Corporation 53,837 47,855
1,278 Apache Corporation 40,471 32,349
985 Ashland Incorporated 51,443 47,649
4,007 Atlantic Richfield 303,287 261,457
4,084 Baker Hughes Incorporated 126,678 72,235
2,241 Burlington Resources Incorporated 92,596 80,255
8,206 Chevron Corporation 680,994 680,585
314 Eastern Enterprises 12,958 13,738
964 Eastman Chemical Company 61,867 43,139
30,519 Exxon Corporation 2,188,494 2,231,702
5,567 Halliburton Company 255,963 164,922
624 Helmerich & Payne Incorporated 16,382 12,090
598 Kerr McGee Corporation 35,620 22,874
9,748 Mobil Corporation 747,839 849,295
4,416 Occidental Petroleum Corporation 116,872 74,520
1 Octel Corporation+ 6 3
1,402 Oryx Energy Company+ 30,738 18,839
22 Pennzoil Energy Company 393 359
22 Pennzoil-Quaker State Company+ 402 325
3,218 Phillips Petroleum Company 149,914 137,167
1,106 Rowan Companies Incorporated+ 26,689 11,060
26,950 Royal Dutch Petroleum - Sponsored ADR 1,462,218 1,290,219
6,844 Schlumberger Limited 483,974 315,680
1,247 Sigma Aldrich Corporation 44,846 36,630
1,196 Sunoco Incorporated 47,408 43,130
6,704 Texaco Incorporated 400,050 354,474
2,003 Thermo Electron Corporation+ 63,798 33,925
3,141 Union Pacific Resources 60,993 28,465
3,063 Unocal Corporation 115,244 89,400
3,915 USX-Marathon Group Company 132,937 117,939
977 W R Grace & Company+ 17,859 15,327
----------- -----------
$ 8,501,757 $ 8,069,305
</TABLE>
18
<PAGE> 20
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
FINANCE--12.27%
BANKS--6.64%
3,672 BB & T Corporation $ 123,919 $ 148,028
9,557 Bank of New York Incorporated 281,012 384,669
14,706 Banc One Corporation 780,667 750,925
21,765 Bank of America Corporation 1,550,955 1,308,621
3,637 Bank of Boston Corporation 179,961 141,616
1,171 Bankers Trust New York Corporation 139,802 100,047
10,609 Chase Manhattan Corporation 705,862 722,075
28,571 Citigroup Incorporated 1,629,127 1,414,265
1,940 Comerica Incorporated 125,174 132,284
3,342 Fifth Third Bancorp 183,078 238,326
12,365 First Union Corporation 718,669 751,947
7,118 Fleet Financial Group Incorporated 286,925 318,086
2,708 Huntington Bancshares Incorporated 81,430 81,409
5,685 Keycorp 207,445 181,920
9,494 MBNA Corporation 204,095 236,757
3,248 Mellon Bank Corporation 223,917 223,300
1,969 Mercantile Bancorporation Incorporated 100,729 90,820
2,154 J P Morgan & Company Incorporated 271,310 226,305
4,091 National City Corporation 272,010 296,598
1,366 Northern Trust Corporation 96,076 119,269
3,778 PNC Bank Corporation 212,551 204,484
1,810 Providian Financial Corporation 79,238 135,750
1,334 Republic New York Corporation 81,446 60,780
2,237 Summit Bancorp 106,070 97,729
2,602 Suntrust Banks Incorporated 196,250 199,053
3,341 Synovus Financial Corporation 74,787 81,437
1,693 Union Planters Corporation 84,189 76,714
9,163 U.S. Bancorp 367,223 325,287
2,552 Wachovia Corporation 208,472 223,141
7,463 Washington Mutual Incorporated 320,000 284,993
20,304 Wells Fargo & Company** 737,513 810,891
----------- -----------
$10,629,902 $10,367,526
</TABLE>
19
<PAGE> 21
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
FINANCE COMPANIES--3.04%
5,724 American Express Company $ 575,026 $ 585,279
9,036 Associates First Capital Corporation 332,876 382,901
1,443 Bear Stearns Companies Incorporated 77,558 53,932
817 Capital One Financial Corporation 96,795 93,955
2,122 Cincinnati Financial Corporation 86,018 77,718
1,435 Countrywide Credit Industries 66,490 72,019
2,145 Dun & Bradstreet Corporation 64,049 67,702
8,522 Federal Home Loan Mortgage Corporation 388,232 549,136
13,039 Federal National Mortgage Association 785,179 964,886
3,141 Franklin Resources Incorporated 157,380 100,512
725 Golden West Financial Corporation 71,074 66,473
6,058 Household International Incorporated 258,673 240,048
1,496 Lehman Brothers Holding 102,034 65,918
4,382 Merrill Lynch & Company 368,978 292,499
7,190 Morgan Stanley Dean Witter & Company 537,637 510,490
2,761 Regions Financial Corporation 98,010 111,303
2,055 SLM Holding Corporation 97,047 98,640
5,009 Charles Schwab Corporation 121,026 281,443
1,980 State Street Corporation 131,555 137,734
----------- -----------
$ 4,415,637 $ 4,752,588
FINANCIAL SERVICES--0.05%
1,128 Moore Limited Corporation $ 15,897 $ 12,408
1,293 H&R Block Incorporated 56,163 58,185
----------- -----------
$ 72,060 $ 70,593
</TABLE>
20
<PAGE> 22
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<S> <C> <C> <C>
INSURANCE COMPANIES--2.55%
1,844 Aetna Incorporated $ 143,701 $ 144,985
10,328 Allstate Corporation 462,519 398,919
3,150 American Gen Corporation 210,446 245,700
13,229 American International Group Incorporated 1,146,721 1,278,252
2,151 AON Corporation 136,334 119,112
2,593 CIGNA Corporation 179,088 200,471
2,072 Chubb Corporation 154,297 134,421
3,954 Conseco Incorporated 174,369 120,844
2,864 Hartford Financial Service Group 155,437 157,162
1,307 Jefferson Pilot Corporation 75,125 98,025
1,285 Lincoln National Corporation 113,122 105,129
1,267 MBIA Incorporated 89,625 83,068
1,392 MGIC Investment Corporation 80,285 55,419
3,215 Marsh & McLennan Companies 183,877 187,877
892 Progressive Corporation 117,889 151,083
1,659 Provident Companies Incorporated 59,618 68,849
1,750 Safeco Corporation 80,993 75,141
2,966 St. Paul Companies Incorporated 121,096 103,069
1,763 Torchmark Corporation 64,574 62,256
790 Transamerica Corporation 88,834 91,245
1,748 Unum Corporation 97,905 102,040
----------- -----------
$ 3,935,855 $ 3,983,067
TOTAL FINANCE $19,053,454 $19,173,774
</TABLE>
<TABLE>
<S> <C> <C> <C>
GENERAL BUSINESS--4.49%
BROADCASTERS--1.21%
8,854 CBS Corporation $ 286,079 $ 289,969
3,274 Clear Channel Communications+ 153,589 178,433
4,631 Comcast Corporation 177,011 271,782
6,797 Tele Communications Group+ 244,799 375,959
25,767 Walt Disney Company 954,401 773,010
----------- -----------
$ 1,815,879 $ 1,889,153
</TABLE>
21
<PAGE> 23
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
BUSINESS SERVICES--1.75%
813 Adobe Systems Incorporated $ 36,216 $ 38,008
223 America Online Incorporated 34,175 32,279
3,795 Automatic Data Processing Incorporated 253,356 304,312
10,713 Cendant Corporation+ 223,954 204,217
6,734 Computer Associate International Incorporated 353,153 287,037
1,046 De Luxe Corporation 36,189 38,244
1,201 Dow Jones & Company Incorporated 59,374 57,798
1,863 Equifax Incorporated 69,953 63,690
1,831 FDX Corporation+ 115,112 162,959
5,586 First Data Corporation 178,892 177,006
1,794 Interpublic Group Companies Incorporated 108,975 143,072
549 National Service Industries Incorporated 26,298 20,862
12,246 Oracle Corporation+ 326,150 528,109
1,715 R R Donnelley & Sons 74,750 75,138
3,201 Service Corporation International 126,252 121,838
1,464 Solectron Corporation+ 136,679 136,061
7,230 Waste Management Incorporated 363,658 337,099
----------- -----------
$ 2,523,136 $ 2,727,729
MULTI-INDUSTRY--0.47%
2,445 Allegheny Teledyne Incorporated $ 56,369 $ 49,970
2,154 Cabletron Systems Incorporated+ 26,931 18,040
3,005 Homestake Mining Company 32,805 27,608
1,402 Loews Corporation 133,133 137,747
1,515 Mortan International Incorporated 44,724 37,118
1,999 Textron Incorporated 152,094 151,799
2,822 United Technologies Corporation 263,668 306,893
----------- -----------
$ 709,724 $ 729,175
NEWSPAPER--0.33%
3,512 Gannett Incorporated $ 226,945 $ 232,450
1,025 Knight Ridder Incorporated 57,380 52,403
2,341 New York Times Company 80,861 81,203
1,036 Times Mirror 64,081 58,015
1,481 Tribune Company 97,826 97,745
----------- -----------
$ 527,093 $ 521,816
PUBLISHING--0.73%
860 American Greetings Company $ 39,654 $ 35,314
1,288 McGraw-Hill Incorporated 100,586 131,215
650 Meredith Corporation 26,735 24,619
15,366 Time Warner Incorporated 629,621 953,652
----------- -----------
$ 796,596 $ 1,144,800
TOTAL GENERAL BUSINESS $ 6,372,428 $ 7,012,673
</TABLE>
22
<PAGE> 24
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
MANUFACTURING--PROCESSING--5.79%
ALUMINUM--0.26%
2,266 AES Corporation+ $ 83,572 $ 107,352
2,869 Alcan Aluminum Limited 85,066 77,642
2,306 Aluminum Company of America 166,125 171,940
849 Reynolds Metals Company 51,623 44,732
------------ ------------
$ 386,386 $ 401,666
CHEMICALS--1.88%
2,956 Air Products & Chemicals Incorporated $ 122,396 $ 118,240
4,962 Boston Scientific Corporation+ 171,026 133,044
2,761 Dow Chemical Company 261,905 251,078
14,142 Dupont E I de Nemours 989,063 750,410
1,645 Ecolab Incorporated 51,663 59,528
1,807 Engelhard Corporation 38,230 35,237
721 Great Lakes Chemical Corporation 29,995 28,840
1,305 Hercules Incorporated 53,404 35,724
7,851 Monsanto Corporation 412,443 372,923
795 Nalco Chemical Company 28,951 24,645
1,947 Praxair Incorporated 91,753 68,632
2,054 Rohm & Haas Company 71,664 61,877
3,017 Sempra Energy 80,454 76,555
2,203 Sherwin Williams Company 70,808 64,713
1,691 Union Carbide 83,859 71,868
10,328 Warner Lambert Company 671,952 776,537
------------ ------------
$ 3,229,566 $ 2,929,851
CONTAINERS--0.10%
414 Ball Corporation $ 15,932 $ 18,940
652 Bemis Incorporated 27,086 24,735
1,531 Crown Cork & Seal 73,613 47,174
1,999 Owens-Illinois Incorporated+ 79,251 61,219
------------ ------------
$ 195,882 $ 152,068
MACHINERY--0.02%
727 McDermott International Incorporated $ 27,091 $ 17,948
517 Milacron Incorporated 13,720 9,952
83 Nacco Industries Incorporated 12,648 7,635
------------ ------------
$ 53,459 $ 35,535
MEDICAL SUPPLIES--0.17%
691 C R Bard Incorporated $ 24,800 $ 34,205
3,575 Baxter International Incorporated 199,559 229,917
------------ ------------
$ 224,359 $ 264,122
</TABLE>
23
<PAGE> 25
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
MINING--0.32%
4,694 Barrick Gold Corporation $ 94,607 $ 91,533
2,993 Battle Mountain Gold Company 17,413 12,345
4,957 Minnesota Mining & Manufacturing Company 436,500 352,567
2,136 Newmont Mining Corporation 55,433 38,582
------------ ------------
$ 603,953 $ 495,027
MULTI-INDUSTRY--1.61%
393 Aeroquip-Vickers Incorporated $ 21,741 $ 11,765
898 B F Goodrich Company 41,661 32,215
6,921 Carnival Corporation 297,820 332,208
8,083 Unilever New York 611,410 670,384
6,005 Anheuser-Busch Companies Incorporated 289,054 394,078
377 FMC Corporation+ 25,698 21,112
2,193 Fortune Brands Incorporated 77,403 69,354
1,525 Honeywell Incorporated 129,253 114,852
1,359 ITT Industries Incorporated 48,812 54,020
2,256 PPG Industries Incorporated 152,777 131,412
2,175 Tenneco Incorporated 86,724 74,085
8,058 Tyco International Limited 434,620 607,875
------------ ------------
$ 2,216,973 $ 2,513,360
NON-FERROUS METAL--0.08%
521 Asarco Incorporated $ 11,363 $ 7,848
1,176 Cyprus Amax Minerals 17,598 11,760
2,142 Inco Limited 30,927 22,625
711 Phelps Dodge Corporation 43,966 36,172
3,182 Placer Dome Incorporated 41,524 36,593
1,210 Worthington Industries Incorporated 19,403 15,125
------------ ------------
$ 164,781 $ 130,123
PAPER PRODUCTS--0.58%
1,484 Avery Dennison Corporation $ 76,052 $ 66,873
2,810 Fort James Corporation 124,552 112,400
1,809 IKON Office Solutions Incorporated 33,754 15,490
3,864 International Paper Company 188,894 173,155
6,859 Kimberly Clark Corporation 329,544 373,815
1,291 Mead Corporation 42,737 37,842
687 Temple Inland Incorporated 40,831 40,748
828 Union Camp Corporation 46,228 55,890
1,261 Westvaco Corporation 35,888 33,810
------------ ------------
$ 918,480 $ 910,023
PHARMACEUTICALS--0.72%
19,040 Abbott Laboratories $ 728,525 $ 932,960
2,572 Cardinal Health Incorporated 160,524 195,150
------------ ------------
$ 889,049 $ 1,128,110
</TABLE>
24
<PAGE> 26
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
STEEL--0.06%
1,716 Bethlehem Steel Corporation+ $ 21,101 $ 14,372
1,119 Nucor Corporation 58,797 48,397
1,103 USX-U.S. Steel Group 36,727 25,369
------------ ------------
$ 116,625 $ 88,138
TOTAL MANUFACTURING--PROCESSING $ 8,999,513 $ 9,048,023
SHELTER--1.34%
CONSTRUCTION MATERIALS--1.13%
524 Armstrong World Industries Incorporated $ 38,485 $ 31,604
868 Crane Company 28,354 26,203
19,623 Home Depot Incorporated 760,452 1,200,682
1,346 Louisiana Pacific Corporation 27,560 24,649
4,352 Lowes Company 154,574 222,768
4,264 Masco Corporation 121,382 122,590
658 Owens Corning 26,717 23,318
1,132 Stanley Works 51,870 31,413
717 Centex Corporation 25,723 32,310
480 Fleetwood Enterprises Incorporated 19,185 16,680
510 Kaufman & Broad Home Corporation 13,188 14,663
544 Pulte Corporation 15,021 15,130
------------ ------------
$ 1,282,511 $ 1,762,010
FOREST PRODUCTS--0.21%
685 Boise Cascade Corporation $ 23,502 $ 21,235
1,252 Champion International Corporation 60,300 50,706
1,139 Georgia Pacific Corporation 77,838 66,703
401 Potlatch Corporation 17,042 14,787
2,480 Weyerhaeuser 128,515 126,015
1,363 Willamette Industries Incorporated 47,573 45,661
------------ ------------
$ 354,770 $ 325,107
TOTAL SHELTER $ 1,637,281 $ 2,087,117
TRANSPORTATION--0.48%
5,897 Burlington Northern Santa Fe $ 195,392 $ 199,024
2,678 CSX Corporation 133,794 111,137
2,109 Dana Corporation 105,576 86,205
4,132 Laidlaw Incorporated 50,456 41,578
4,739 Norfolk Southern Corporation 152,335 150,167
894 Ryder Systems Incorporated 28,732 23,244
3,078 Union Pacific Corporation 158,379 138,702
------------ ------------
$ 824,664 $ 750,057
</TABLE>
25
<PAGE> 27
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
UTILITIES--11.40%
ELECTRIC--2.26%
1,733 Ameren Corporation $ 67,850 $ 73,977
1,841 Baltimore Gas & Electric Company 57,625 56,841
1,870 Carolina Power & Light Company 79,177 88,007
2,716 Central & Southwest Corporation 73,323 74,520
2,047 Cinergy Corporation 68,430 70,366
2,954 Consolidated Edison Incorporated 134,192 156,193
4,445 Edison International 128,475 123,904
3,149 Entergy Corporation 84,087 98,013
2,283 FPL Group Incorporated 140,549 140,690
1,624 GPU Incorporated 62,914 71,761
3,633 Houston Industries Incorporated 106,795 116,710
2,386 Niagara Mohawk Power Corporation+ 33,290 38,474
1,956 Northern States Power Company 54,588 54,279
2,821 PECO Energy 76,439 117,424
4,818 Pacific Gas & Electric Company 148,298 151,767
1,930 PP & L Resources Incorporated 44,028 53,799
3,793 Pacificorp 84,946 79,890
2,896 Public Service Enterprise Group 99,506 115,840
24,616 SBC Communications 1,038,435 1,320,033
8,728 Southern Company 232,637 253,658
3,595 Texas Utilities Company 144,541 167,842
2,660 Unicom Corporation (Formerly Commonwealth Edison) 90,749 102,576
------------ ------------
$ 3,050,874 $ 3,526,564
GAS & PIPELINE--0.83%
2,724 Coastal Corporation $ 95,326 $ 95,170
1,008 Columbia Energy Group 54,103 58,212
1,248 Consolidated Natural Gas Company 67,588 67,392
1,815 Detroit Energy Company 73,146 77,818
2,422 Dominion Resource Incorporated 97,178 113,229
4,557 Duke Energy Corporation 266,115 291,933
4,093 Enron Corporation 211,902 233,557
3,006 First Energy Corporation 89,363 97,883
604 NICOR Incorporated 23,489 25,519
423 Oneok Incorporated 16,102 15,281
465 Peoples Energy Corporation 16,937 18,542
1,350 Sonat Incorporated 52,996 36,534
5,339 Williams Companies Incorporated 161,591 166,510
------------ ------------
$ 1,225,836 $ 1,297,580
</TABLE>
26
<PAGE> 28
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
TELECOMMUNICATIONS--8.32%
7,162 Airtouch Communications+ $ 374,293 $ 516,559
3,501 Alltel Corporation 153,072 209,404
22,668 American Telephone & Telegraph Corporation 1,324,534 1,705,767
2,728 Ascend Communications Incorporated+ 131,510 179,366
19,459 Bell Atlantic Corporation 917,181 1,031,327
24,562 Bellsouth Corporation 827,729 1,225,030
19,797 Cisco Systems Incorporated+ 1,100,060 1,837,409
2,125 Frontier Corporation 64,031 72,250
2,147 General Instrument Corporation+ 54,630 72,864
12,127 GTE Corporation 695,424 817,815
16,550 Lucent Technologies Incorporated 1,272,419 1,820,500
23,002 MCI Worldcom Incorporated+ 1,043,464 1,650,394
7,637 Media One Group Incorporated+ 298,784 358,939
3,593 Nextel Communications Incorporated 91,129 84,885
8,149 Northern Telecom Limited - Sponsored ADR 452,231 408,469
923 Scientific Atlanta Incorporated 21,049 21,056
5,386 Sprint Corporation (FON Group) 337,013 453,097
5,205 Sprint Corporation (PCS Group)+ 86,515 120,366
6,287 U.S. West Incorporated 324,788 406,297
------------ ------------
$ 9,569,856 $ 12,991,794
TOTAL UTILITIES $ 13,846,566 $ 17,815,938
TOTAL COMMON STOCKS $111,171,686 $124,729,168
</TABLE>
27
<PAGE> 29
LIFE & ANNUITY TRUST ASSET ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES--17.93%
U.S. TREASURY BONDS--17.93%
$2,000,000 U.S. Treasury Bonds 8.88% 02/15/19 $ 2,848,440
850,000 U.S. Treasury Bonds 8.13 08/15/19 1,135,150
2,700,000 U.S. Treasury Bonds 8.50 02/15/20 3,743,712
1,100,000 U.S. Treasury Bonds 8.75 05/15/20 1,562,176
2,050,000 U.S. Treasury Bonds 8.75 08/15/20 2,917,396
1,150,000 U.S. Treasury Bonds 7.25 08/15/22 1,431,394
450,000 U.S. Treasury Bonds 7.63 11/15/22 583,313
350,000 U.S. Treasury Bonds 7.13 02/15/23 431,319
2,900,000 U.S. Treasury Bonds 6.00 02/15/26 3,163,262
550,000 U.S. Treasury Bonds 6.75 08/15/26 658,884
100,000 U.S. Treasury Bonds 6.50 11/15/26 116,281
1,050,000 U.S. Treasury Bonds 6.63 02/15/27 1,241,951
2,700,000 U.S. Treasury Bonds 6.38 08/15/27 3,103,299
1,550,000 U.S. Treasury Bonds 6.13 11/15/27 1,735,024
950,000 U.S. Treasury Bonds 5.50 08/15/28 994,384
2,300,000 U.S. Treasury Bonds 5.25 11/15/28 2,354,625
-------------
TOTAL U.S. TREASURY SECURITIES $ 28,020,610
(Cost $25,703,221)
SHORT-TERM INSTRUMENTS--2.61%
U.S. TREASURY BILLS--2.61%
$ 153,000 U.S. Treasury Bills 3.88++ 01/14/1999 $ 152,769
3,941,000 U.S. Treasury Bills 4.37++ 02/04/1999 3,924,309
-------------
TOTAL SHORT-TERM INSTRUMENTS $ 4,077,078
(Cost $4,077,078)
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $140,951,985)* (Notes 1 and 3) 100.38% $156,826,856
Other Assets and Liabilities, Net (0.38) (585,923)
------ ------------
TOTAL NET ASSETS 100.00% $156,240,933
====== ============
</TABLE>
- --------------------------------------------------------------------------------
+ Non-income earning securities.
++ Yield to maturity.
** Security of an affiliate of the Fund with a cost of $737,513.
* Cost for federal income tax purposes is $140,991,424 and net unrealized
appreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $ 21,916,447
Gross Unrealized Depreciation (6,081,015)
------------
NET UNREALIZED APPRECIATION $ 15,835,432
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 30
EQUITY VALUE FUND
The LAT Equity Value Fund (the "Fund") seeks to provide investors with
long-term capital appreciation. The Fund invests primarily in common stocks, and
may invest in debt securities that are convertible into common stocks of both
domestic and foreign companies, implementing a value strategy that targets "out
of favor" stocks. Our portfolio managers believe these companies are underpriced
relative to market indicators, making them hidden opportunities for capital
appreciation.
Rex Wardlaw and Allen Wisniewski manage the LAT Equity Value Fund. Mr.
Wardlaw brings 11 years of investment experience to the Fund. He specializes in
value-style investing and has been managing investments at Wells Fargo and Wells
Capital Management Incorporated since 1993. Mr. Wardlaw earned a BA in Chemistry
from Northwest Nazarene College and an MBA with honors in Finance from the
University of Oregon. He is also a Chartered Financial Analyst. Mr. Wisniewski
received his BA and MBA in Economics and Finance from the University of
California at Los Angeles. In his 13 years of experience in the securities
industry his main focus has been on equities. Mr. Wisniewski is a Chartered
Financial Analyst and a member of the Los Angeles Society of Financial Analysts.
The fund managers work together to bring disciplined investment expertise to
equity investing.
PERFORMANCE SUMMARY
The LAT Equity Value Fund commenced operations on May 1, 1998. For the
eight-month period ending December 31, 1998, the Fund reported an average annual
total return of -3.76%, underperforming its benchmark, the S&P 500 Index, which
returned 13.80% over the same period.
The Fund underperformed its benchmark in part because the Fund maintained
its portfolio in securities of smaller average market capitalization than the
S&P 500 Index and large capitalization stocks were the best performing portion
of the S&P 500 Index this year. Throughout the year, the small- to
mid-capitalization market was negatively impacted by uncertain economic
conditions, both in the United States and abroad. Stocks with value
characteristics like low price-to-earnings ratios often underperform in periods
of economic uncertainty or slowing growth in the economy.
Another reason the Fund lagged its benchmark centers on its value
investment style. The U.S. economy was subject to volatile market conditions
caused by international economic problems in markets such as Asia, Russia and
Latin America. One outcome of these conditions was a "flight to quality" in
which investors moved into larger stocks with excellent liquidity. Value stocks,
by definition, tend to be smaller and less liquid, and as a result were out of
favor and did not perform as well as larger growth stocks. (Liquidity, in this
instance, refers to how easily large blocks of shares can trade without
impacting the market price of a stock.)
During the eight-month reporting period, the Fund's share price decreased
from $10.00 on May 1, 1998, to $9.55 on December 31, 1998. The Fund distributed
$0.07 per share in dividend income, and no capital gains were distributed from
the Fund. Keep in mind that past performance is no guarantee of future results.
TOTAL RETURNS (AS OF DECEMBER 31, 1998)(1)
<TABLE>
<S> <C>
Year-to-date -3.76%
Since Inception -3.76%
</TABLE>
29
<PAGE> 31
LAT EQUITY VALUE FUND
[LAT EQUITY VALUE PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LAT EQUITY VALUE S&P 500 INDEX
<S> <C> <C>
APR-98 10000 10000
MAY-98 9680 9828
JUN-98 9739 10227
JUL-98 9268 10119
AUG-98 8156 8656
SEP-98 8626 9211
OCT-98 9199 9959
NOV-98 9460 10563
DEC-98 9624 11171
</TABLE>
PORTFOLIO REVIEW
PORTFOLIO DATA (AS OF DECEMBER 31, 1998)
<TABLE>
<S> <C>
Number of Issues 56
Portfolio Turnover Ratio 27%
Median Market Capitalization $11.2 Billion
</TABLE>
Companies such as Phillip Morris, American Stores and Food Lion Inc. helped
to boost the Fund's return. Historically, these types of companies do well
because demand for their products remains constant despite economic conditions.
In addition, the telecommunication sector had a positive impact on the Fund.
Looking ahead, we believe long distance and local telecommunications companies
will continue to perform well as a result of the Internet boom.
TOP FIVE INDUSTRY HOLDINGS (AS OF DECEMBER 31, 1998)(2)
<TABLE>
<S> <C>
Utilities 20%
Finance 15%
Insurance Companies 14%
Energy 12%
Manufacturing Processing 9%
</TABLE>
30
<PAGE> 32
The utility sector represented 20% of the Fund's portfolio as of December
31, 1998. In a declining interest rate environment, investors typically look to
the stability of utilities as an attractive place to invest, causing prices to
increase. For example, Montana Power Company was one of the top performers for
the Fund. This company is primarily known as an electric utility, however it
also owns a fiber-optic telecommunications business unit with significant
potential for expansion and profit. This, in addition to its strong management
team, made Montana Power Company a great performer for our portfolio in 1998.
The stocks we held in the healthcare sector did not perform well for the
Fund as the market tended to reward growth, not value in this sector. In
addition, the Fund's HMO and long-term care stocks were negatively affected by
recent Medicare legislation passed by the U.S. Congress.
TOP TEN EQUITY HOLDINGS (AS OF DECEMBER 31, 1998)(2)
<TABLE>
<S> <C>
International Business Machines Corporation 3.2%
Chase Manhattan Corporation 3.1%
Cigna Corporation 2.9%
Montana Power Company 2.9%
Philip Morris Companies Incorporated 2.8%
American Telegraph and Telephone Corporation 2.8%
Fremont General Corporation 2.6%
Cabot Corporation 2.6%
North Fork Bancorporation 2.6%
GTE Corporation 2.5%
</TABLE>
IBM was our largest position as of December 31, 1998 and has performed well
for the Fund. It was not hurt by its global exposure and has benefited from the
rapid growth of Internet usage. In addition to making computer hardware, IBM has
a recurring revenue stream from software and service contracts that provides
stability to the earnings stream. We will continue to focus on companies such as
IBM, that are run by smart, effective managers with an ownership stake in the
company. One of our key criteria in stock selection is finding managers with an
incentive to perform in the shareholders' best interest.
STRATEGIC OUTLOOK
We believe that the stronger than anticipated performance of the economy in
the second half of 1998 will lead to moderate growth during the first half of
1999. While growth stocks outperformed value stocks in 1998, we feel the Federal
Reserve Board's moves to ease monetary policy have set the stage for the cycle
to turn. In addition, with international markets beginning to recover, U.S.
investors may consider value as they return from their "flight to quality". As a
result, we believe this is a favorable time to purchase stocks that are
undervalued and will continue to focus on companies that have a catalyst to
reverse the conditions that cause low valuations.
Based on this outlook, we have focused on telecommunication stocks as they
make up a large segment of the value "universe". In addition, we currently
maintain a significant position in financial and utility stocks, as we believe
these are promising value sectors and will continue to provide positive returns.
Overall, we believe that the Fund is well positioned as we continue to focus on
high-quality, undervalued stocks.
- ---------------
(1) These figures assume the contract owner is still invested at the end of the
reporting period. Investment return and principal value of an investment will
fluctuate so that an investor's units, when redeemed, may be worth more or less
than their original cost. Figures quoted represent past performance, which is no
guarantee of future results. Portfolio performance numbers are net of all
portfolio expenses, but do not reflect deduction of insurance account charges.
During the eight-month reporting period ended December 31, 1998, the Fund's
advisor and administrator have voluntarily waived portions of their fees or
assumed responsibility for other expenses, which has reduced operating expenses
for shareholders. Without these reductions, which can be discontinued at any
time, the Fund's returns would have been lower.
The S&P 500 Index is an unmanaged index of 500 widely held common stocks
representing, among others, industrial, financial, utility, and transportation
companies listed or traded on national exchanges or over-the-counter markets.
The Index does not incur expenses and is not available directly for investment.
Had this Index incurred operating expenses, its performance would have been
lower.
There is no guarantee that the Fund will continue to hold any one particular
security or stay invested in any one sector. The composition of the Fund's
portfolio is subject to change.
(2) Percentages reflect market value of portfolio.
31
<PAGE> 33
LIFE & ANNUITY TRUST EQUITY VALUE FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
COMMON STOCKS--96.71%
CAPITAL GOODS--5.84%
2,150 Harris Corporation $ 81,375 $ 78,744
2,400 Lockheed Martin Corporation 244,026 203,400
4,550 Raytheon Company Class B 247,733 242,287
5,350 U.S. Filter Corp+ 107,477 122,381
----------- -----------
$ 680,611 $ 646,812
CONSUMER BASIC--7.91%
5,950 American Stores Company $ 180,176 $ 219,778
19,200 Food Lion Incorporated Class B 190,783 193,200
12,550 Foundation Health Systems Incorporated+ 201,917 149,816
5,850 Philip Morris Companies Incorporated 266,146 312,975
----------- -----------
$ 839,022 $ 875,769
CONSUMER--DISCRETIONARY--1.60%
3,000 Consolidated Stores Corporation+ $ 71,827 $ 60,562
3,950 Sherwin Williams Company 96,266 116,031
----------- -----------
$ 168,093 $ 176,593
ENERGY & RELATED--11.83%
1,850 Atlantic Richfield Corporation $ 126,881 $ 120,712
4,800 Columbia Energy Group 266,625 277,200
2,000 Mobil Corporation 151,940 174,250
4,100 Phillips Petroleum Company 189,642 174,762
1,800 Texaco Incorporated 107,738 95,175
4,300 Tidewater Incorporated 116,310 99,706
7,375 USX -- Marathon Group 237,716 222,172
6,850 Valero Energy Corporation 173,103 145,562
----------- -----------
$ 1,369,955 $ 1,309,539
FINANCE & RELATED--15.26%
4,528 Banc One Corporation $ 225,565 $ 231,211
3,500 Bank America Corporation 220,863 210,437
5,100 Chase Manhattan Corporation 319,662 347,119
2,800 Citigroup Incorporated 154,933 138,600
3,900 First Union Corporation 225,351 237,169
11,950 North Fork Bancorporation 253,574 286,053
6,250 Washington Mutual Incorporated 245,998 238,672
----------- -----------
$ 1,645,946 $ 1,689,261
</TABLE>
32
<PAGE> 34
LIFE & ANNUITY TRUST EQUITY VALUE FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
INSURANCE COMPANIES--14.49%
5,250 American Bankers Insurance Group $ 258,049 $ 253,969
4,200 CIGNA Corporation 294,311 324,713
4,900 Hartford Financial Services Group 254,644 268,888
2,450 Safeco Corporation 109,550 105,197
3,200 Simon Property Group Incorporated 95,637 91,200
11,800 Fremont General Corporation 297,024 292,050
5,600 SLM Holding Corporation 234,853 268,800
----------- -----------
$ 1,544,068 $ 1,604,817
GENERAL BUSINESS & RELATED--8.59%
6,900 Allegheny Teledyne Incorporated $ 141,120 $ 141,019
10,300 Cabot Corporation 291,608 287,756
1,750 DuPont (E.I.) de Nemours and Company 110,146 92,859
1,900 Loews Corporation 166,265 186,675
5,205 Waste Management Incorporated 240,850 242,683
----------- -----------
$ 949,989 $ 950,992
MANUFACTURING--PROCESSING--8.94%
2,450 Dana Corporation $ 105,412 $ 100,144
2,150 Eaton Corporation 150,052 151,978
2,725 Fort James Corporation 95,837 109,000
1,900 International Business Machines Corporation 241,805 351,025
2,550 Magna International Incorporated Class A 168,825 158,100
3,900 Owens-Illinois Incorporated+ 146,890 119,437
----------- -----------
$ 908,821 $ 989,684
SHELTER--1.36%
8,550 Corrections Corporation of America+ $ 162,527 $ 150,694
TRANSPORTATION--0.92%
1,425 General Motors Corporation $ 96,580 $ 101,977
UTILITIES--19.97%
4,050 American Telephone & Telegraph Corporation $ 257,069 $ 304,763
6,700 American Water Works Co Inc 207,795 226,125
4,050 Ameritech Corporation 202,989 256,669
4,050 Bell Atlantic Corporation 198,554 214,650
2,700 Cinergy Corporation 91,838 92,813
4,150 GTE Corporation 231,513 279,866
5,600 Montana Power Company 217,560 316,750
3,200 New Century Energies Incorporated 146,423 156,000
3,800 Northern States Power Company 104,810 105,450
2,800 SBC Communications Incorporated 138,130 150,150
2,300 Texas Utilities Company 102,520 107,381
----------- -----------
$ 1,899,201 $ 2,210,617
TOTAL COMMON STOCKS $10,264,813 $10,706,755
</TABLE>
33
<PAGE> 35
LIFE & ANNUITY TRUST EQUITY VALUE FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INSTRUMENTS--3.32%
REPURCHASE AGREEMENTS--3.32%
$ 67,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.70% 01/04/99 $ 67,000
211,000 HSBC Securities Incorporated Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.80 01/04/99 211,000
58,000 JP Morgan Securities Incorporated Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.75 01/04/99 58,000
32,000 Morgan Stanley & Company Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.65 01/04/99 32,000
----------
</TABLE>
<TABLE>
<C> <S> <C> <C> <C> <C>
TOTAL SHORT-TERM INSTRUMENTS
(Cost $368,000) $ 368,000
TOTAL INVESTMENTS IN SECURITIES
(Cost $10,632,813)* (Notes 1 and 3) 100.03% $11,074,755
Other Assets and Liabilities, Net (0.03) (3,227)
------ -----------
TOTAL NET ASSETS 100.00% $11,071,528
====== ===========
</TABLE>
- --------------------------------------------------------------------------------
+ Non-income earning securities.
* Cost for federal income tax purposes is $10,634,971 and net unrealized
appreciation consists of:
<TABLE>
<S> <C> <C>
Gross Unrealized Appreciation $ 924,758
Gross Unrealized Depreciation (484,974)
---------
NET UNREALIZED APPRECIATION $ 439,784
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
GROWTH FUND
The LAT Growth Fund (the "Fund") seeks to earn current income and achieve
long-term capital appreciation by investing primarily in common stocks and
preferred stocks, and in debt securities that are convertible into common
stocks. The Fund maintains a large company emphasis and the majority of the
Fund's holdings consist of common stocks diversified among industries and
companies. These companies represent some of America's best known firms with
long histories of increasing earnings.
Kelli Hill manages the Fund. Ms. Hill has 15 years of experience in the
securities industry. Prior to joining Wells Fargo in 1987, Ms. Hill worked as an
institutional equity trader for E.F. Hutton. Ms. Hill holds a BA in
International Relations and Economics from the University of Southern California
and is a Chartered Financial Analyst Level II candidate.
PERFORMANCE SUMMARY
For the one-year period ending December 31, 1998, the Fund reported an
average annual total return of 28.81%, outperforming its benchmark, the S&P 500
Index, which returned 28.60% over the same period.
The Fund outperformed its benchmark as a result of the conservative,
risk-reducing strategy implemented in the third quarter. With an increased focus
on risk management, our strategy enabled us to avoid some of the market's
downside volatility.
Another reason for the Fund's positive performance centers on the heavier
weighting of technology stocks in our portfolio relative to the S&P 500 Index.
Companies such as Intel, Microsoft, EMC, Cisco and IBM helped propel the Fund's
performance. As a result, we increased our positions in these companies and
continue to favor the technology sector.
During this one-year reporting period, the Fund's share price increased
from $16.79 on December 31, 1997, to $20.05 on December 31, 1998. The Fund
distributed $0.09 per share in dividend income, and $1.39 in capital gains. Keep
in mind that past performance is no guarantee of future results.
35
<PAGE> 37
LAT GROWTH FUND
[LAT GROWTH PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LAT GROWTH S&P 500 INDEX
<S> <C> <C>
10000 10000
10110 10164
JUN-94 9888 9915
10189 10241
10511 10660
SEP-94 10422 10400
10502 10633
10260 10246
DEC-94 10447 10398
10508 10668
10994 11083
MAR-95 11237 11409
11390 11745
11930 12214
JUN-95 12209 12497
12589 12911
12794 12944
SEP-95 13223 13490
12801 13442
13325 14031
DEC-95 13497 14301
13748 14788
14260 14925
MAR-96 14297 15068
14769 15290
15136 15683
JUN-96 14876 15742
14108 15047
14518 15364
SEP-96 15247 16227
15659 16675
16662 17934
DEC-96 16525 17579
17473 18678
16966 18824
MAR-97 16376 18050
17036 19126
18117 20294
JUN-97 18506 21197
20013 22883
18853 21601
SEP-97 19906 22783
18986 22022
19280 23041
DEC-97 19389 23438
19747 23696
20810 25404
MAR-98 21809 26705
21959 26977
21624 26513
JUN-98 22674 27590
22558 27297
19418 23353
SEP-98 20316 24850
21964 26867
23437 28496
DEC-98 24975 30137
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)(1)
<TABLE>
<S> <C>
1-Year 28.81%
3-Year 22.77%
Since Inception 21.42%
</TABLE>
PORTFOLIO REVIEW
PORTFOLIO DATA (AS OF DECEMBER 31, 1998)
<TABLE>
<S> <C>
Number of Issues 79
Portfolio Turnover Ratio 69%
Median Market Capitalization $71.0 Billion
</TABLE>
The healthcare sector performed well for the Fund throughout the period.
Large capitalization drug stocks in particular, such as Pfizer, Bristol Myers
Squibb, and Medtronic, led the way for this industry sector. In addition, we
held an overweighted position relative to our benchmark in Guidant, a medical
technology company with strong earnings, excellent products, leading market
share and exceptional technology, which helped propel our performance.
36
<PAGE> 38
TOP FIVE INDUSTRY HOLDINGS (AS OF DECEMBER 31, 1998)(2)
<TABLE>
<S> <C>
Consumer-Basic 21%
Manufacturing-Processing 18%
Finance 14%
Capital Goods 11%
Utilities 11%
</TABLE>
We feel our disciplined management style contributed to the Fund's success
as we continued to focus on two main factors: a company's market capitalization
and their projected acceleration of earnings growth. As a result, we
underweighted the portfolio in the energy sector, which did not perform well
during this period due to the decreased commodity price of oil. Another sector
that did not perform well was consumer-basic, which includes companies such as
Procter & Gamble and Gillette. This sector's performance was hampered by its
international exposure, particularly in Asia and Brazil.
TOP TEN EQUITY HOLDINGS (AS OF DECEMBER 31, 1998)(2)
<TABLE>
<S> <C>
General Electric Company 4.2%
Microsoft Corporation 3.8%
Cisco Systems Incorporated 3.3%
American International Group Incorporated 2.9%
Chase Manhattan Corporation 2.7%
Wal Mart Stores Incorporated 2.5%
International Business Machines Corporation 2.4%
EMC Corporation 2.2%
Pfizer Incorporated 2.1%
Danaher Corporation 2.1%
</TABLE>
Factors we consider when selecting stocks focus on company fundamentals,
such as technological leadership, low-cost production, market share and a strong
management team. General Electric, for example, did extremely well in the fourth
quarter due to its strong management and market share. Microsoft remains one of
our top holdings as it continues to show strong management, brand and product.
STRATEGIC OUTLOOK
It is our belief that the stronger than expected performance of the economy
in the second half of 1998 will be followed by moderate growth during the first
half of 1999. We believe that both the technology and healthcare sectors have a
strong growth bias, and we expect them to continue their positive performance.
Particularly in the healthcare sector, we see strong potential as demographics
change and the aging population relies more on pharmaceutical remedies and
preventative medicine. Overall, we see consistency and viability in revenue and
earnings.
Moving forward, we believe stock selection will remain a very important
element, especially due to valuation concerns. As a result, we will focus some
of our attention on the mid-capitalization sector as we continually search for
growth potential. As always, we will continue to focus on the companies with
accelerated earnings that we believe to be consistent and stable.
- ---------------
(1) These figures assume the contract owner is still invested at the end of the
reporting period. Investment return and principal value of an investment will
fluctuate so that an investor's units, when redeemed, may be worth more or less
than their original cost. Figures quoted represent past performance, which is no
guarantee of future results. Portfolio performance numbers are net of all
portfolio expenses, but do not reflect deduction of insurance account charges.
During the one-year reporting period ended December 31, 1998, the Fund's advisor
and administrator have voluntarily waived portions of their fees or assumed
responsibility for other expenses, which has reduced operating expenses for
shareholders. Without these reductions, which can be discontinued at any time,
the Fund's returns would have been lower.
The S&P 500 Index is an unmanaged index of 500 widely held common stocks
representing, among others, industrial, financial, utility, and transportation
companies listed or traded on national exchanges or over-the-counter markets.
The Index does not incur expenses and is not available directly for investment.
Had this Index incurred operating expenses, its performance would have been
lower.
There is no guarantee that the Fund will continue to hold any one particular
security or stay invested in any one sector. The composition of the Fund's
portfolio is subject to change.
(2) Percentages reflect market value of portfolio.
37
<PAGE> 39
LIFE & ANNUITY TRUST GROWTH FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
COMMON STOCKS--94.78%
CAPITAL GOODS--11.39%
34,578 Allied Signal Incorporated $ 1,312,969 $ 1,532,238
36,275 Cisco Systems Incorporated+ 1,386,961 3,366,773
38,944 Danaher Corporation 1,065,885 2,115,145
41,647 General Electric Company 2,928,570 4,250,597
5,000 Ingersoll-Rand Company 221,337 234,688
----------- -----------
$ 6,915,722 $11,499,441
CONSUMER BASIC--21.42%
BEVERAGE BREWING AND DISTRIBUTION--1.95%
29,460 Coca-Cola Company $ 2,015,700 $ 1,970,138
ENTERTAINMENT & LEISURE--1.61%
22,800 Walt Disney Company $ 731,724 $ 684,000
37,400 Fox Entertainment Group Incorporated+ 889,336 942,013
----------- -----------
$ 1,621,060 $ 1,626,013
FOOD & RELATED--4.14%
9,500 Bestfoods $ 519,257 $ 505,875
7,100 McDonald's Corporation 437,293 544,038
29,200 Philip Morris Companies Incorporated 1,267,202 1,562,200
10,600 Safeway Incorporated+ 470,438 645,938
32,800 Sara Lee Corporation 963,917 924,550
----------- -----------
$ 3,658,107 $ 4,182,601
HEALTHCARE--10.82%
14,936 Abbott Laboratories $ 547,208 $ 731,864
16,286 Baxter International Incorporated 852,484 1,047,393
13,396 Bristol-Myers Squibb Company 1,321,392 1,792,552
5,089 Guidant Corporation 361,717 561,062
13,826 Johnson & Johnson 954,055 1,159,656
4,502 Lilly Eli & Company 313,519 400,115
4,300 Medtronic Incorporated 250,205 319,275
11,000 Merck & Company Incorporated 1,172,531 1,624,563
16,870 Pfizer Incorporated 1,404,333 2,116,131
21,200 Schering-Plough Corporation 824,472 1,171,300
----------- -----------
$ 8,001,916 $10,923,911
PERSONAL CARE--2.89%
11,700 Colgate-Palmolive Company $ 862,866 $ 1,086,638
17,488 Gillette Company 696,941 844,889
10,772 Procter & Gamble Company 885,038 983,618
----------- -----------
$ 2,444,845 $ 2,915,145
TOTAL CONSUMER BASIC $17,741,628 $21,617,808
</TABLE>
38
<PAGE> 40
LIFE & ANNUITY TRUST GROWTH FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
CONSUMER--DISCRETIONARY--7.50%
24,060 Dayton-Hudson Corporation $ 791,737 $ 1,305,255
15,188 DuPont E.I. de Nemours and Company 971,561 805,913
6,600 Gap Incorporated 188,101 371,250
7,900 Mattel Incorporated 321,006 180,219
9,000 Rite Aid Corporation 392,003 446,063
37,750 Service Corporation International 1,303,079 1,436,859
30,576 Wal Mart Stores Incorporated 1,376,073 2,490,033
4,500 Xerox Corporation 442,217 531,000
----------- -----------
$ 5,785,777 $ 7,566,592
ENERGY & RELATED--6.78%
13,645 Chevron Corporation $ 1,139,466 $ 1,131,682
24,914 Exxon Corporation 1,621,716 1,821,836
11,124 FPL Group Incorporated 618,147 685,517
10,962 Mobil Corporation 779,297 955,064
22,808 Royal Dutch Petroleum Company 1,226,870 1,091,932
12,102 Texaco Incorporated 677,711 639,892
16,690 Williams Companies Incorporated 437,938 520,519
----------- -----------
$ 6,501,145 $ 6,846,442
FINANCE & RELATED--14.04%
26,948 Allstate Corporation $ 1,199,778 $ 1,040,867
30,376 American International Group Incorporated 2,034,295 2,935,081
25,101 Banc One Corporation 1,279,703 1,281,720
20,148 Charles Schwab Corporation 427,912 1,132,065
40,380 Chase Manhattan Corporation 2,272,867 2,748,364
31,180 Federal Home Loan Mortgage Corporation 1,368,203 2,009,160
17,688 Federal National Mortgage Association 1,079,832 1,308,912
25,238 Household International Incorporated 1,032,927 1,000,055
8,800 Sunamerica Incorporated 457,810 713,900
----------- -----------
$11,153,327 $14,170,124
GENERAL BUSINESS & RELATED--2.97%
10,000 Clear Channel Communications Incorporated+ $ 453,329 $ 545,000
16,340 Gannett Company Incorporated 1,005,193 1,081,504
20,000 Infinity Broadcasting Corporation+ 410,000 547,500
2,924 Tribune Company 175,856 192,984
5,800 United Technologies Corporation 531,675 630,750
----------- -----------
$ 2,576,053 $ 2,997,738
</TABLE>
39
<PAGE> 41
LIFE & ANNUITY TRUST GROWTH FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
MANUFACTURING--PROCESSING--17.94%
17,200 AES Corporation+ $ 722,869 $ 814,850
18,000 Aluminum Company of America 1,240,780 1,342,125
20,000 Compaq Computer Corporation 645,634 838,750
8,000 Compuware Corporation+ 460,424 625,000
26,500 EMC Corporation+ 1,036,196 2,252,500
14,218 Hewlett Packard Company 945,377 971,267
14,504 Intel Corporation 1,228,475 1,719,630
13,306 International Business Machines Corporation 1,508,412 2,458,284
11,496 Lucent Technologies Incorporated 611,718 1,264,560
28,004 Microsoft Corporation+ 2,165,364 3,883,805
17,054 Monsanto Company 678,171 810,065
14,900 Tyco International Limited 822,819 1,124,019
----------- -----------
$12,066,239 $18,104,855
SHELTER--0.85%
14,100 Home Depot Incorporated $ 505,813 $ 862,744
TRANSPORTATION--0.59%
10,100 Ford Motor Company $ 516,034 $ 592,744
UTILITIES--11.29%
13,382 American Telephone & Telegraph Corporation $ 755,908 $ 1,006,996
22,276 Bell Atlantic Corporation 1,020,689 1,180,628
22,918 Edison International 605,310 638,839
19,398 GTE Corporation 932,608 1,308,153
10,600 Houston Industries Incorporated 313,372 340,525
23,339 MCI Worldcom Incorporated+ 1,016,203 1,674,573
18,100 Northern Telecom Limited--Sponsored ADR (Canada) 978,409 907,263
30,368 Pacific Gas & Electric Company 931,328 956,592
36,052 SBC Communications Incorporated 1,217,009 1,933,289
60,630 Telefonaktiebolaget Ericsson (LM)--Sponsored ADR (Sweden) 1,251,290 1,451,331
----------- -----------
$ 9,022,126 $11,398,189
TOTAL COMMON STOCKS $72,783,864 $95,656,677
</TABLE>
40
<PAGE> 42
LIFE & ANNUITY TRUST GROWTH FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL RATE DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INSTRUMENTS--5.17%
REPURCHASE AGREEMENTS--5.17%
$5,010,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.70% 01/04/99 $ 5,010,000
71,000 HSBC Securities Incorporated Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.80 01/04/99 71,000
103,000 JP Morgan Securities Incorporated Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.75 01/04/99 103,000
38,000 Morgan Stanley & Company Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.65 01/04/99 38,000
-----------
</TABLE>
<TABLE>
<C> <S> <C> <C> <C> <C>
TOTAL SHORT-TERM INSTRUMENTS
(Cost $5,222,000) $ 5,222,000
TOTAL INVESTMENTS IN SECURITIES
(Cost $78,005,864)* (Notes 1 and 3) 99.95% $100,878,677
Other Assets and Liabilities, Net 0.05 48,045
------ ------------
TOTAL NET ASSETS 100.00% $100,926,722
====== ============
</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 $23,991,704
Gross Unrealized Depreciation (1,118,891)
-----------
NET UNREALIZED APPRECIATION $22,872,813
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 43
MONEY MARKET FUND
The LAT Money Market Fund (the "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 Fund may invest in repurchase
agreements, commercial paper, corporate bonds, floating rate bonds and
certificates of deposit. The Fund is managed with the goal of maintaining a
stable share price of $1.00, however, there can be no assurance that the Fund
will meet this objective.
The Fund is managed by Michael Neitzke of Wells Capital Management
Incorporated. Mr. Neitzke joined Wells Fargo Bank in 1996 from First Interstate
Capital Management. He has over a decade of experience in managing taxable money
market mutual funds at First Interstate Bank and Union Capital Advisors. He has
a BS in Finance from California State University, Los Angeles.
PERFORMANCE SUMMARY(1)
For the one-year period ending December 31, 1998, the Fund reported a
cumulative total return of 4.77%. The seven-day current yield for the Fund on
this date was 4.35%.
The Fund distributed $0.05 in dividend income for the one-year reporting
period and negligible capital gains were distributed. Keep in mind that past
performance is no guarantee of future results.
PORTFOLIO REVIEW
1998 was a turbulent year resulting from economic problems in foreign
markets such as Asia, Russia, and Latin America. The subsequent "flight to
quality", in which investors moved into Treasuries, pushed interest rates lower.
As a result, we took a more conservative posture in the Fund, particularly in
the third and fourth quarters. Specifically, we maintained a higher credit
quality in the portfolio by purchasing highly rated securities. Currently there
are still credit concerns in the marketplace, so we have avoided lower rated
securities and continue to focus on higher quality issues.
In order to maintain a competitive yield for the Fund in the face of lower
interest rates, we kept a longer than normal weighted average maturity. As of
December 31, 1998, the Fund's weighted average maturity was 69 days. Weighted
average maturity is an indication of a fund's sensitivity to interest rates.
Since the Fed's last easing of interest rates on November 17, 1998,
liquidity conditions have dramatically improved, but are still not at normal
levels. We continue to invest in repurchase agreements for their high level of
liquidity. The largest segment of the Fund is invested in commercial paper, as
it is a high-yielding, high-quality holding.
STRATEGIC OUTLOOK
After the Fed's last rate decrease in November, credit conditions improved,
which prompted the Fed to leave rates unchanged for the remainder of the year.
However, we still expect short-term interest rates to decrease again sometime
during the first half of 1999 in response to subdued inflation, lingering
strains on emerging markets, and signs of slower economic growth.
Overall, we do not expect to change our current strategy and will continue
to focus on high quality issues until we see signs that liquidity and credit
problems are improving significantly. As always, we will continue to focus on
capital preservation and liquidity.
(1) These figures assume the contract owner is still invested at the end of the
reporting period. An investment in the Fund is not insured by the Federal
Deposit Insurance Corporation or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund. Figures quoted represent past
performance, which is no guarantee of future results. Portfolio performance
numbers are net of all portfolio expenses, but do not reflect deduction of
insurance account charges.
Yield reflects fluctuations in interest rates on portfolio investments and
reflects Fund expenses.
During the one-year reporting period ended December 31, 1998, the Fund's advisor
and administrator have voluntarily waived portions of their fees or assumed
responsibility for other expenses, which has reduced operating expenses for
shareholders. Without these reductions, which can be discontinued at any time,
the Fund's returns would have been lower.
There is no guarantee that the Fund will continue to hold any one particular
security or stay invested in any one sector. The composition of the Fund's
portfolio is subject to change.
42
<PAGE> 44
LIFE & ANNUITY TRUST MONEY MARKET FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM CORPORATE BONDS & NOTES--10.47%
BANK & FINANCE--8.57%
$ 700,000 FCC National Bank 5.45% 03/10/99 $ 700,000
500,000 First Union Bank 5.35 09/09/99 500,000
450,000 Huntington National Bank 6.10 11/29/99 454,758
600,000 Nations Bank 5.50 02/04/99 600,000
-----------
$ 2,254,758
MISCELLANEOUS BONDS--1.90%
$ 500,000 IBM Credit Corporation 5.57% 08/17/99 $ 499,787
TOTAL SHORT-TERM CORPORATE BONDS & NOTES $ 2,754,545
(Cost $2,754,545)
U.S. TREASURY NOTES--6.28%
$ 225,000 U.S. Treasury Notes 6.25% 03/31/99 $ 225,406
360,000 U.S. Treasury Notes 6.38 01/15/99 360,136
700,000 U.S. Treasury Notes 6.38 04/30/99 701,765
365,000 U.S. Treasury Notes 6.50 04/30/99 366,110
-----------
TOTAL U.S. TREASURY SECURITIES $ 1,653,417
(Cost $1,653,417)
SHORT-TERM INSTRUMENTS--82.88%
CERTIFICATES OF DEPOSITS--6.46%
$ 800,000 Canadian Imperial Bank of Commerce 5.07% 04/13/99 $ 800,000
900,000 Northern Trust Company 4.78 04/05/99 900,000
-----------
$ 1,700,000
COMMERCIAL PAPER--44.56%
$1,000,000 Asset Securitization Coop Corporation 5.37%+ 02/19/99 $ 992,691
1,000,000 Atlantis One Funding Corporation 5.43+ 02/10/99 993,967
600,000 Beta Finance Incorporated 5.20+ 03/09/99 594,193
500,000 CC USA Incorporated 5.48+ 01/06/99 499,619
1,000,000 Commercial Credit Corporation 5.16+ 02/02/99 995,413
1,000,000 Corporate Receivables Corporation 5.30+ 02/04/99 994,994
400,000 General Electric Capital Corporation 5.48+ 01/26/99 398,478
1,000,000 Goldman Sachs LP 5.18+ 02/19/99 992,949
500,000 Johnson & Johnson 4.68+ 05/06/99 491,875
900,000 National Rural Utilities 4.93+ 02/08/99 895,317
500,000 Pepsico Incorporated 5.45+ 01/15/99 498,940
700,000 Preferred Receivables Funding Corporation 5.40+ 02/11/99 695,695
1,000,000 Wachovia Corporation 5.15+ 02/03/99 995,279
1,000,000 Windmill Funding Corporation 5.70+ 01/08/99 998,892
700,000 Xerox Corporation 4.70+ 04/16/99 690,404
-----------
$11,728,706
</TABLE>
43
<PAGE> 45
LIFE & ANNUITY TRUST MONEY MARKET FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM FEDERAL AGENCIES--17.60%
$2,000,000 Federal Home Loan Bank 4.89%+ 03/31/99 $ 1,975,797
800,000 Federal Home Loan Mortgage Corporation 4.92+ 03/19/99 791,581
1,000,000 Federal Home Loan Mortgage Corporation 4.90+ 03/29/99 988,158
900,000 Federal National Mortgage Association 4.67+ 07/15/99 877,235
-----------
$ 4,632,771
REPURCHASE AGREEMENTS--14.26%
$1,161,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.70% 01/04/99 $ 1,161,000
483,000 HSBC Securities Incorporated Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.80 01/04/99 483,000
149,000 JP Morgan Securities Incorporated Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.75 01/04/99 149,000
1,960,000 Morgan Stanley & Company Repurchase Agreement -
102% Collateralized by U.S. Government Securities 4.65 01/04/99 1,960,000
-----------
$ 3,753,000
TOTAL SHORT-TERM INSTRUMENTS $21,814,477
(Cost $21,814,477)
TOTAL INVESTMENTS IN SECURITIES
(Cost $26,222,439)* (Notes 1 and 3) 99.63% $26,222,439
Other Assets and Liabilities, Net 0.37 96,386
------- -----------
TOTAL NET ASSETS 100.00% $26,318,825
======= ===========
</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.
44
<PAGE> 46
STRATEGIC GROWTH FUND
The LAT Strategic Growth Fund (the "Fund") seeks to provide investors with
an above-average level of capital appreciation. The Fund invests in equity
securities of companies expected to experience strong growth in revenues,
earnings and assets. The Fund will hold 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.
Jon Hickman(1) and Chris Greene manage the Fund. Mr. Hickman has over
sixteen years of experience in the investment management field and has a BA and
an MBA from Brigham Young University. Mr. Greene has seven years of experience
in the securities industry. Prior to joining Wells Capital Management
Incorporated in 1997, Mr. Greene worked as an analyst for Hambrecht & Quist. He
graduated with a BA in Economics from Claremont McKenna College.
PERFORMANCE SUMMARY
From the Fund's inception date of May 1, 1998, to the end of this reporting
period, December 31, 1998, the Fund reported a cumulative total return of
39.74%, outperforming its benchmark, the S&P 500 Index, which returned 13.80%
over the same eight-month period.
The market correction in May enabled us to purchase quality stocks at low
prices. The low price purchases we made benefited the Fund later when the market
surged in October.
Another reason for the Fund's stellar performance stemmed from gains made
in the technology sector, which includes semiconductor, telecommunication, data
storage and internet stocks. This sector has done particularly well as
businesses continue to replace labor with capital and technological
improvements. As companies look for a competitive advantage, they increasingly
look toward new technologies. In addition, the Y2K problem has created a mini
spending boom into the technology sector, which we expect to continue into the
next decade.
During this eight-month reporting period, the Fund's share price increased
from $10.00 on May 1, 1998, to $13.94 on December 31, 1998. The Fund distributed
$0.03 in capital gains and no dividend income was distributed during the period.
Keep in mind that past performance is no guarantee of future results.
45
<PAGE> 47
LAT STRATEGIC GROWTH FUND
[LAT STRATEGIC GROWTH PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LAT STRATEGIC GROWTH S&P 500 INDEX
<S> <C> <C>
APR-98 10000 10000
MAY-98 10150 9828
JUN-98 12830 10227
JUL-98 12880 10119
AUG-98 9590 8656
SEP-98 10360 9211
OCT-98 10760 9959
NOV-98 12060 10563
DEC-98 13974 11171
</TABLE>
TOTAL RETURNS (AS OF DECEMBER 31, 1998)(2)
<TABLE>
<S> <C>
Year-to-Date 39.74%
Since Inception 39.74%
</TABLE>
PORTFOLIO REVIEW
PORTFOLIO DATA (AS OF DECEMBER 31, 1998)
<TABLE>
<S> <C>
Number of Issues 66
Portfolio Turnover Ratio 200%
Median Market Capitalization $ 0.9 Billion
</TABLE>
Healthcare stocks performed well for the Fund throughout the period. As the
U.S. population ages, there is a push to find ways to decrease healthcare costs
and increase quality of life. Drug companies, in particular, have benefited from
this trend as drug treatment tends to be less expensive than hospital care. The
Fund's investments in the biotech sector reaped the benefits of the success of
drug companies. Anesta Corporation, for example, received FDA approval for their
lead drug and in turn was a strong holding for our portfolio.
46
<PAGE> 48
TOP FIVE INDUSTRY HOLDINGS (AS OF DECEMBER 31, 1998)(3)
<TABLE>
<S> <C>
Healthcare 19%
Computer Software 18%
General Business 15%
Computer Systems 12%
Consumer-Discretionary 11%
</TABLE>
The Fund is managed with a mid-cap growth emphasis, focusing on companies
with attractive long-term earnings growth prospects. As a result, we were
underweighted in the energy sector, which showed weak performance during this
period due to the decreased commodity price of oil.
TOP TEN EQUITY HOLDINGS (AS OF DECEMBER 31, 1998)(3)
<TABLE>
<S> <C>
Envoy Corporation 3.4%
Infocure Corporation 2.7%
Metris Companies Incorporated 2.5%
Profit Recovery Group Incorporated 2.5%
Biomatrix Incorporated 2.4%
Smart Modular Technologies Incorporated 2.3%
Anesta Corporation 2.2%
Ha-Lo Industries Incorporated 2.2%
Rite Aid Corporation 2.0%
Informix Corporation 2.0%
</TABLE>
Envoy Corporation was the largest holding in the Fund as of December 31,
1998. Combining healthcare with technology, Envoy is the leader in the
electronic processing of healthcare claims and prescriptions. Ha-Lo Industries
Inc., a manufacturer of promotional items, was another top holding in the Fund.
The company had strong third and fourth quarters due to acquisitions during the
period.
47
<PAGE> 49
STRATEGIC OUTLOOK
We believe the economy's stronger-than-expected performance in the second
half of 1998 will give way to moderate growth during the first half of 1999. We
believe that both the technology and healthcare sectors have strong growth
prospects, so we expect them to continue their positive performance. We are,
however, cautious about some of the valuations in the Internet sector.
Therefore, we will continue to focus internet infrastructure stocks where we
feel revenues will be created.
Overall, we believe that the Federal Reserve Board's moves to lower
interest rates should help small and mid-cap stocks. In addition, the Fund is
well positioned to take advantage of this undervalued sector of the market. As
always, we will focus on growth companies that are characterized by dominant
market share, technological leadership and a strong management team.
- ---------------
(1) As of February 1, 1999, Tom Zeifang has replaced Jon Hickman as the Fund's
manager. Mr. Zeifang has been with Wells Fargo Bank/Wells Capital Management
since 1995. Prior to joining Wells Fargo, Mr. Zeifang provided fundamental
security analysis for Fleet Investment Advisors for three years. He has over
five years of equity investment management experience.
(2) These figures assume the contract owner is still invested at the end of the
reporting period. Investment return and principal value of an investment will
fluctuate so that an investor's units, when redeemed, may be worth more or less
than their original cost. Figures quoted represent past performance, which is no
guarantee of future results. There may be some additional risks associated with
investments in smaller and/or newer companies because their shares tend to be
less liquid than securities of larger companies. Further, shares of small and
new companies are generally more sensitive to purchase and sales transactions
and changes in the issuer's financial condition and, therefore, the prices of
such stocks may be more volatile than those of larger company stocks. Portfolio
performance numbers are net of all portfolio expenses, but do not reflect
deduction of insurance account charges.
During the eight-month reporting period ended December 31, 1998, the Fund's
advisor and administrator have voluntarily waived portions of their fees or
assumed responsibility for other expenses, which has reduced operating expenses
for shareholders. Without these reductions, which can be discontinued at any
time, the Fund's returns would have been lower.
The S&P 500 Index is an unmanaged index of 500 widely held common stocks
representing, among others, industrial, financial, utility, and transportation
companies listed or traded on national exchanges or over-the-counter markets.
The Index does not incur expenses and is not available directly for investment.
Had this Index incurred operating expenses, its performance would have been
lower.
There is no guarantee that the Fund will continue to hold any one particular
security or stay invested in any one sector. The composition of the Fund's
portfolio is subject to change.
(3) Percentages reflect market value of portfolio.
48
<PAGE> 50
LIFE & ANNUITY TRUST STRATEGIC GROWTH FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
COMMON STOCKS--100.81%
COMPUTER SOFTWARE--18.29%
500 Abovenet Communications Incorporated+ $ 11,905 $ 10,500
500 Broadvision Incorporated+ 7,969 16,000
500 Cambridge Tech Partners Incorporated+ 19,275 11,063
250 Cisco Systems Incorporated+ 12,573 23,203
300 Compuware Corporation+ 14,813 23,438
1,000 Intervu Incorporated+ 15,406 12,750
450 Keane Incorporated+ 20,660 17,972
700 Learning Company Incorporated+ 14,055 18,156
400 Lycos Incorporated+ 12,038 22,225
500 Micromuse Incorporated+ 9,750 9,750
1,000 Phoenix International Limited+ 17,495 14,750
1,000 Verio Incorporated+ 23,750 22,375
300 Veritas Software Company+ 16,163 17,981
---------- ----------
$ 195,852 $ 220,163
COMPUTER SYSTEMS--11.80%
1,000 FORE Systems Incorporated+ $ 19,109 $ 18,313
500 International Integration Incorporated+ 8,750 8,500
400 ISS Group Incorporated+ 14,750 22,000
800 Neomagic Corporation+ 15,100 17,700
700 Power Integrations Incorporated+ 9,013 17,544
200 Sanmina Corporation+ 9,128 12,500
1,000 Smart Modular Technologies Incorporated+ 18,300 27,750
300 Verisign Incorporated+ 11,180 17,738
---------- ----------
$ 105,330 $ 142,045
CONSUMER--BASIC--4.16%
1,100 Family Golf Centers Incorporated+ $ 23,438 $ 21,725
750 Foodmaker Incorporated+ 14,591 16,547
1,200 Mid Atlantic Medical Services+ 11,746 11,775
---------- ----------
$ 49,775 $ 50,047
CONSUMER--DISCRETIONARY--10.73%
ADVERTISING--3.53%
700 Ha-Lo Industries Incorporated+ $ 20,005 $ 26,338
500 Young & Rubicam Incorporated+ 14,750 16,188
---------- ----------
$ 34,755 $ 42,526
COMMERCIAL SERVICES--3.60%
1,600 Access Worldwide Commercial Incorporated+ $ 11,331 $ 13,400
800 Profit Recovery Group Incorporated+ 21,206 29,950
---------- ----------
$ 32,537 $ 43,350
</TABLE>
49
<PAGE> 51
LIFE & ANNUITY TRUST STRATEGIC GROWTH FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
RETAIL & RELATED--3.59%
500 Office Depot Incorporated+ $ 14,415 $ 18,469
500 Rite Aid Corporation 22,420 24,780
---------- ----------
$ 36,835 $ 43,249
TOTAL CONSUMER--DISCRETIONARY $ 104,127 $ 129,125
ELECTRONICS & RELATED--3.96%
500 Mettler-Toledo International Incorporated+ $ 13,103 $ 14,030
400 SCI Systems Incorporated+ 12,624 23,100
250 Teradyne Incorporated+ 11,036 10,594
---------- ----------
$ 36,763 $ 47,724
ENERGY & RELATED--1.83%
1,000 Friede Goldman International Incorporated+ $ 16,500 $ 11,375
1,000 Global Industries Limited+ 10,000 6,125
600 R & B Falcon Corporation+ 14,317 4,575
---------- ----------
$ 40,817 $ 22,075
FINANCE & RELATED--9.65%
1,500 Coinstar Incorporated+ $ 14,306 $ 16,125
300 Countrywide Credit Industries Incorporated 13,243 15,056
700 Envoy Corporation+ 18,638 40,775
600 Metris Companies Incorporated 18,750 30,188
2,000 Towne Services Incorporated+ 16,125 14,000
---------- ----------
$ 81,062 $ 116,144
GENERAL BUSINESS--15.60%
900 Administaff Incorporated+ $ 27,106 $ 22,500
700 Boron Lepore & Associates Incorporated+ 19,325 24,150
1,000 Convergys Corporation+ 18,580 22,375
1,000 Cunningham Graphics International Incorporated+ 15,950 15,250
2,500 Informix Corporation+ 20,156 24,688
800 Metamor Worldwide Incorporated+ 18,556 20,000
500 Network Appliance Incorporated+ 13,625 22,500
600 Parexel International Corporation+ 16,200 15,000
1,000 School Specialty Incorporated+ 20,313 21,375
---------- ----------
$ 169,811 $ 187,838
HEALTHCARE--19.29%
MEDICAL EQUIPMENT & SUPPLIES--11.85%
500 Biomatrix Incorporated+ $ 19,128 $ 29,125
400 Centocor Incorporated+ 16,613 18,050
800 Closure Medical Corporation+ 19,694 23,850
1,000 Infocure Corporation+ 25,930 32,750
700 PSS World Medical Incorporated+ 14,888 16,100
1,000 QLT Phototherapeutics Incorporated+ 23,125 22,750
---------- ----------
$ 119,378 $ 142,625
</TABLE>
50
<PAGE> 52
LIFE & ANNUITY TRUST STRATEGIC GROWTH FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C>
PHARMACEUTICALS--7.44%
1,000 Anesta Corporation+ $ 15,000 $ 26,625
600 Biochem Pharma Incorporated+ 15,263 17,175
500 Coulter Pharmaceutical Incorporated+ 13,813 15,000
1,000 Sonus Pharmaceuticals Incorporated+ 13,375 6,750
800 Pharmaceutical Product Development+ 19,744 24,050
---------- ----------
$ 77,195 $ 89,600
TOTAL HEALTHCARE $ 196,573 $ 232,225
TRANSPORTATION--2.45%
700 Atlantic Coast Airlines Incorporated+ $ 20,088 $ 17,500
700 Wisconsin Central Transportation+ $ 12,600 12,030
---------- ----------
$ 32,688 $ 29,530
TELECOMMUNICATIONS--3.04%
500 Level One Communications Incorporated+ $ 14,188 $ 17,750
250 Panamsat Corporation+ 9,344 9,734
750 Star Telecommunications Incorporated+ 12,188 9,140
---------- ----------
$ 35,720 $ 36,624
TOTAL COMMON STOCKS $1,048,518 $1,213,540
TOTAL INVESTMENTS IN SECURITIES
(Cost $1,048,518)* (Notes 1 and 3) 100.81% $1,213,540
Other Assets and Liabilities, Net (0.81) (9,711)
---------- ----------
TOTAL NET ASSETS 100.00% $1,203,829
========== ==========
</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 $232,026
Gross Unrealized Depreciation (67,004)
--------
NET UNREALIZED APPRECIATION $165,022
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE> 53
U.S. GOVERNMENT ALLOCATION FUND
The LAT U.S. Government Allocation Fund (the "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
Fund invests in long-term U.S. Treasury bonds, intermediate-term U.S. Treasury
notes, and short-term money market instruments. The Fund's investment model
recommends the optimal mix of assets designed for a long-term investment
strategy.
The Fund is a professionally managed portfolio, advised by Wells Fargo
Bank, N.A. Barclays Global Fund Advisors ("BGFA"), which is not affiliated with
Wells Fargo Bank, N.A., serves as investment sub-adviser. BGFA uses an
investment model developed and refined over the past twenty years that analyzes
extensive financial data from numerous sources and recommends a portfolio
allocation.
PERFORMANCE SUMMARY
For the one-year period ending December 31, 1998, the Fund reported an
average annual total return of 5.86%. The Fund has three benchmarks representing
each of the major asset classes in which the Fund can invest. The Lehman
Brothers U.S. Treasury Bond Index returned 10.03%, the Lehman Brothers U.S.
Treasury Note Index returned 7.02%, and the IBC All Taxable Money Fund Average
posted a 5.04% return over the same one-year period.
The Fund's performance was affected by the combination of a healthy U.S.
economy and low inflation, which caused the yield difference between short-term
and long-term bonds to decline. As interest rates dropped during the period, the
price increase was greater for longer duration bonds than for shorter duration
bonds. As a result, returns for long-term U.S. Treasury bonds were higher than
the returns for intermediate-term U.S. Treasury notes and for money market
securities.
Since yield is a measure of expected return, as the incremental yield
provided by longer-term bonds declined, they became less attractive relative to
those of shorter maturity securities. Consequently, in August, the Fund shifted
its investments to a conservative mix more heavily weighted in intermediate
maturity bonds and money market instruments.
During this one-year reporting period, the Fund's share price decreased
from $10.27 on December 31, 1997, to $10.21 on December 31, 1998. The Fund
distributed $0.48 per share in dividend income, and $0.16 in capital gains. Keep
in mind that past performance is no guarantee of future results.
52
<PAGE> 54
LAT U.S. GOVERNMENT ALLOCATION FUND
[LAT U.S. GOVERNMENT ALLOCATION PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LAT U.S. GOVERNMENT LEHMAN BROTHERS U.S. IBC ALL TAXABLE MONEY LEHMAN BROTHERS U.S.
ALLOCATION FUND TREASURY BOND INDEX FUND AVERAGE TREASURY NOTE INDEX
------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
10000.00 10000.00 10000.00 10000.00
10005.00 9934.00 10028.00 10007.00
6/94 10000.00 9840.00 10058.00 10009.00
10164.00 10173.00 10090.00 10139.00
10190.00 10098.00 10123.00 10169.00
9/94 10061.00 9780.00 10158.00 10085.00
10054.00 9746.00 10195.00 10088.00
9985.00 9803.00 10234.00 10042.00
12/94 10041.00 9954.00 10277.00 10074.00
10204.00 10209.00 10322.00 10237.00
10449.00 10499.00 10369.00 10433.00
3/95 10518.00 10590.00 10416.00 10490.00
10643.00 10778.00 10464.00 10611.00
10955.00 11605.00 10512.00 10911.00
6/95 11029.00 11740.00 10560.00 10983.00
11015.00 11553.00 10608.00 10988.00
11109.00 11809.00 10654.00 11076.00
9/95 11209.00 12026.00 10701.00 11150.00
11310.00 12363.00 10747.00 11274.00
11388.00 12672.00 10794.00 11412.00
12/95 11487.00 13009.00 10841.00 11526.00
11533.00 13009.00 10886.00 11626.00
11419.00 12381.00 10931.00 11501.00
3/96 11402.00 12134.00 10975.00 11445.00
11343.00 11932.00 11019.00 11412.00
11301.00 11870.00 11063.00 11406.00
6/96 11427.00 12122.00 11107.00 11519.00
11452.00 12127.00 11151.00 11553.00
11452.00 11976.00 11196.00 11568.00
9/96 11646.00 12306.00 11241.00 11716.00
11890.00 12790.00 11286.00 11907.00
12034.00 13217.00 11331.00 12050.00
12/96 11945.00 12893.00 11376.00 11985.00
11978.00 12800.00 11422.00 12030.00
11982.00 12808.00 11467.00 12048.00
3/97 11839.00 12481.00 11513.00 11977.00
12008.00 12786.00 11561.00 12111.00
12118.00 12929.00 11609.00 12205.00
6/97 12252.00 13180.00 11657.00 12309.00
12506.00 13958.00 11707.00 12539.00
12445.00 13572.00 11757.00 12489.00
9/97 12586.00 13940.00 11805.00 12625.00
12731.00 14409.00 11856.00 12773.00
12749.00 14602.00 11906.00 12802.00
12/97 12838.00 14845.00 11957.00 12907.00
12955.00 15147.00 12009.00 13080.00
12965.00 15038.00 12055.00 13063.00
3/98 13006.00 15069.00 12107.00 13102.00
13044.00 15125.00 12157.00 13164.00
13114.00 15414.00 12208.00 13255.00
6/98 13180.00 15772.00 12258.00 13344.00
13197.00 15705.00 12309.00 13396.00
13394.00 16414.00 12361.00 13661.00
9/98 13520.00 17014.00 12412.00 13990.00
13518.00 16757.00 12468.00 14018.00
13564.00 16886.00 12520.00 13966.00
12/98 13590.00 16851.00 12569.00 14019.00
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)(1)
<TABLE>
<S> <C>
1-Year 5.86%
3-Year 5.77%
Since Inception 6.78%
</TABLE>
PORTFOLIO REVIEW
Every day the Fund's proprietary model analyzes extensive financial data
and market conditions to determine the optimal combination of bonds, notes and
money market instruments. As opportunities arise among the three asset classes,
the investment model will shift Fund assets accordingly in 5% increments.
The Fund began the year with a recommended allocation of 40% notes and 60%
cash, and experienced four reallocations throughout the year. In January, the
Fund reallocated assets to 10% bonds, 20% notes and 70% cash in response to
continued flattening of the yield curve between shorter-term securities such as
bills and notes.
In April, as the incremental yield of intermediate-term bonds increased
over cash, the Fund's allocation to intermediate-term notes increased to 40%,
and the cash position decreased to 60%. In August, however, that difference
declined sharply until it actually became negative. This meant that the U.S.
Treasury bill yield was higher than the yield of the 5-year note. As a result,
the Fund's allocation to intermediate-term securities was reduced to 10%. At the
same time, as the incremental yield offered by 30-year bonds increased over
5-year notes, the Fund's allocation to 30-year bonds was raised to 10% and the
Fund's cash position increased to 80%.
53
<PAGE> 55
The Fund's last reallocation occurred in November when note yields rose
relative to those of bonds and cash. As a result, notes became less attractive
and the allocation adjusted to 20% bonds and 80% cash. The Fund ended the
reporting period in this allocation mix.
MODEL ALLOCATION CHANGES (DURING 12-MONTH REPORTING PERIOD)
<TABLE>
<CAPTION>
MONTH BONDS (%) NOTES (%) CASH (%)
- ----- --------- --------- --------
<S> <C> <C> <C>
January 1998 10 20 70
April 1998 0 40 60
August 1998 10 10 80
November 1998 20 0 80
</TABLE>
PORTFOLIO DATA (AS OF DECEMBER 31, 1998)
<TABLE>
<S> <C>
Average Maturity 10.0 years
Average Duration 5.1 years
</TABLE>
PORTFOLIO ALLOCATION (AS OF DECEMBER 31, 1998)*
[PIE CHART]
Treasury Bonds 20%
CASH 80%
- ---------------
* Represents recommended asset mix. There is no guarantee that the Fund will
continue to hold any one particular security or stay invested in any one
sector. The composition of the Fund's portfolio is subject to change depending
on current market activity.
54
<PAGE> 56
STRATEGIC OUTLOOK
We believe the economy's stronger-than-expected performance in the second
half of 1998 will give way to moderate growth during the first half of 1999. We
look for interest rates to decline slightly as we feel the Federal Reserve Board
may again reduce rates as it did three times in 1998. Longer maturity bonds have
more interest rate risk than shorter maturity bonds. Since longer maturity bonds
currently do not offer markedly higher yields for bearing that greater risk, the
Fund is invested in a conservative mix, consisting of a high allocation to cash
and shorter maturity bonds.
We will continue to invest in what we believe to be the most attractive mix
of securities by comparing the expected return, risk and correlation of long-,
intermediate-, and short-term Treasuries. The Fund will utilize yield spread
opportunities between long-term bonds, intermediate-term notes and money market
instruments. Overall, we feel the Fund is well positioned and we expect it to
produce solid long-term performance.
(1) These figures assume the contract owner is still invested at the end of the
reporting period. Investment return and principal value of an investment will
fluctuate so that an investor's units, when redeemed, may be worth more or less
than their original cost. Figures quoted represent past performance, which is no
guarantee of future results. Portfolio performance numbers are net of all
portfolio expenses, but do not reflect deduction of insurance account charges.
During the one-year reporting period ended December 31, 1998, the Fund's advisor
and administrator have voluntarily waived portions of their fees or assumed
responsibility for other expenses, which has reduced operating expenses for
shareholders. Without these reductions, which can be discontinued at any time,
the Fund's returns would have been lower.
The Lehman Brothers U.S. Treasury Bond Index is an unmanaged index comprised of
Treasury bonds with maturities averaging between 10 and 30 years. The Index does
not incur expenses and is not available directly for investment. Had this Index
incurred operating expenses, its performance would have been lower.
The Lehman Brothers U.S. Treasury Note Index is an unmanaged index comprised of
U.S. Treasury 2-10 year notes. The Index does not incur expenses and is not
available directly for investment. Had this Index incurred operating expenses,
its performance would have been lower.
The IBC All Taxable Money Fund Average is comprised of the average yields of
over 600 taxable money market funds. The Index does not incur expenses and is
not available directly for investment. Had this Index incurred operating
expenses, its performance would have been lower.
55
<PAGE> 57
LIFE & ANNUITY TRUST U.S. GOVERNMENT ALLOCATION FUND--DECEMBER 31, 1998
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY BONDS--19.86 %
$ 500,000 U.S. Treasury Bonds 6.13% 11/15/27 $ 559,685
800,000 U.S. Treasury Bonds 6.50 11/15/26 930,248
250,000 U.S. Treasury Bonds 7.13 02/15/23 308,085
1,000,000 U.S. Treasury Bonds 7.50 11/15/24 1,295,940
200,000 U.S. Treasury Bonds 8.00 11/15/21 267,406
1,100,000 U.S. Treasury Bonds 8.13 08/15/19 1,469,017
650,000 U.S. Treasury Bonds 6.88 08/15/25 787,820
900,000 U.S. Treasury Bonds 8.75 05/15/20 1,278,144
-----------
TOTAL U.S. TREASURY SECURITIES $ 6,896,345
(Cost $6,873,848)
SHORT-TERM INSTRUMENTS--79.77%
COMMERCIAL PAPER--15.45%
$1,272,000 American Express Credit Corporation 4.96%+ 03/03/99 $ 1,261,224
1,026,000 Associates Corporation 4.98+ 01/28/99 1,022,044
1,022,000 Campbell Soup Company 5.21+ 01/08/99 1,020,819
1,044,000 Coca-Cola Company 4.93+ 03/03/99 1,035,208
1,040,000 Walt Disney Company 4.80+ 03/26/99 1,028,352
-----------
$ 5,367,647
SHORT-TERM FEDERAL AGENCIES--36.62%
$3,191,000 Federal Farm Credit Bank 4.77%+ 08/05/99 $ 3,101,875
616,000 Federal Farm Credit Bank 5.06+ 01/27/99 613,672
1,764,000 Federal Home Loan Mortgage Corporation 5.02+ 02/05/99 1,755,182
3,120,000 Federal Home Loan Mortgage Corporation 4.90+ 02/02/99 3,106,040
4,163,000 Federal National Mortgage Association 5.03+ 02/05/99 4,142,166
-----------
$12,718,935
U.S. TREASURY BILLS--27.70%
$9,623,000 U.S. Treasury Bills 4.30%+ 02/04/99 $ 9,582,923
34,000 U.S. Treasury Bills 3.89+ 01/14/99 33,949
-----------
$ 9,616,872
TOTAL SHORT-TERM INSTRUMENTS 27,703,454
(Cost $27,705,906)
</TABLE>
<TABLE>
<C> <S> <C> <C> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $34,579,754)* (Notes 1 and 3) 99.62% $34,599,799
Other Assets and Liabilities, Net 0.38 131,410
------ -----------
TOTAL NET ASSETS 100.00% $34,731,209
====== ===========
</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 $71,932
Gross Unrealized Depreciation (51,887)
-------
NET UNREALIZED APPRECIATION $20,045
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE> 58
LIFE & ANNUITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S.
Asset Equity Money Strategic Government
Allocation Value Growth Market Growth Allocation
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
In securities, at market value
(Includes repurchase agreements of
$3,753,000 for the Money Market
Fund) $156,826,856 $11,074,755 $100,878,677 $26,222,439 $1,213,540 $34,599,799
Cash 5,065 4,367 6,588 11,397 2,730 4,166
Receivables:
Dividends and interest 654,344 17,488 100,249 88,165 6 90,133
Fund shares sold 507,958 27,482 79,867 138,071 0 219,584
Investment securities sold 152,818 0 0 0 26,743 0
Due from co-administrator 0 0 0 0 3,981 0
Prepaid expenses 20,492 0 14,491 376 0 0
TOTAL ASSETS 158,167,533 11,124,092 101,079,872 26,460,448 1,247,000 34,913,682
LIABILITIES
Payables:
Investment securities purchased 1,301,159 0 0 0 26,159 0
Distribution to shareholders 469,269 26,656 34,668 92,080 0 121,014
Fund shares redeemed 0 0 0 0 94 0
Due to co-administrator (Note 2) 5,032 359 3,281 848 38 1,200
Due to adviser 107,660 3,427 82,151 13,306 0 23,517
Accrued expenses 43,480 22,122 33,050 35,389 16,880 36,742
TOTAL LIABILITIES 1,926,600 52,564 153,150 141,623 43,171 182,473
TOTAL NET ASSETS $156,240,933 $11,071,528 $100,926,722 $26,318,825 $1,203,829 $34,731,209
NET ASSETS CONSIST OF:
Paid-in Capital $140,362,578 $10,711,300 $ 78,114,556 $26,318,825 $ 965,224 $34,656,519
Undistributed net realized gain (loss)
on investments 3,484 (81,714) (60,647) 0 73,583 54,645
Net unrealized appreciation
(depreciation) of investments 15,874,871 441,942 22,872,813 0 165,022 20,045
TOTAL NET ASSETS $156,240,933 $11,071,528 $100,926,722 $26,318,825 $1,203,829 $34,731,209
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE
Net assets $156,240,933 $11,071,528 $100,926,722 $26,318,825 $1,203,829 $34,731,209
Shares outstanding 11,618,103 1,159,543 5,034,720 26,318,830 86,345 3,401,100
Net asset value and offering price $13.45 $9.55 $20.05 $1.00 $13.94 $10.21
INVESTMENT AT COST (NOTE 3) $140,951,985 $10,632,813 $ 78,005,864 $26,222,439 $1,048,518 $34,579,754
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE> 59
LIFE & ANNUITY TRUST
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S.
Asset Equity Money Strategic Government
Allocation Value Growth Market Growth Allocation
Fund Fund(1) Fund Fund Fund(1) Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 915,366 $ 75,876 $ 1,083,836 $ 0 $ 36 $ 0
Interest 3,149,833 16,562 245,351 951,551 1,372 1,710,082
TOTAL INCOME 4,065,199 92,438 1,329,187 951,551 1,408 1,710,082
EXPENSES (NOTE 2)
Advisory fees 688,313 21,312 511,578 78,792 2,251 181,407
Administration fees 77,161 2,487 57,090 11,783 263 20,324
Custody fees 0 593 23,240 6,424 63 0
Shareholder Servicing 208,384 8,896 148,369 31,936 940 54,581
Portfolio accounting fees 57,952 18,595 74,862 36,255 16,371 31,392
Transfer agency fees 160,606 4,973 119,368 17,509 525 42,328
Legal and audit fees 37,716 19,547 38,356 24,007 18,547 23,827
Registration fees 2,905 4,000 765 4 2,500 1,000
Directors' fees 15,053 8,100 24,821 16,139 8,100 15,512
Other 21,787 2,103 12,246 1,055 1,487 2,846
TOTAL EXPENSES 1,269,877 90,606 1,010,695 223,904 51,047 373,217
Less: Waived Fees and Reimbursed Expenses (214,173) (51,534) (118,761) (80,203) (46,920) (86,481)
Net Expenses 1,055,704 39,072 891,934 143,701 4,127 286,736
NET INVESTMENT INCOME (LOSS) 3,009,495 53,366 437,253 807,850 (2,719) 1,423,346
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES
Net realized gain (loss) on sale of
investments and futures 9,956,845 (81,714) 3,245,542 551 78,925 508,242
Net change in unrealized appreciation
(depreciation) of futures (718,350) 0 0 0 0 0
Net change in unrealized appreciation
(depreciation) of investments 14,560,276 441,942 18,355,014 0 165,022 (208,102)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES 23,798,771 360,228 21,600,556 551 243,947 300,140
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $26,808,266 $413,594 $22,037,809 $808,401 $241,228 $1,723,486
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund commenced operations on May 1, 1998.
The accompanying notes are an integral part of these financial statements.
58
<PAGE> 60
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Equity Value Fund Growth Fund
Asset Allocation Fund ----------------- ------------------------------
------------------------------ From May 1, 1998
For the For the (commencement For the For the
Year Ended Year Ended of operations) to Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 3,009,495 $ 3,654,066 $ 53,366 $ 437,253 $ 632,754
Net realized gain (loss) on sale
of investments and futures 9,956,845 8,763,882 (81,714) 3,245,542 6,848,993
Net unrealized appreciation
(depreciation) of futures (718,350) 496,725 0 0 0
Net unrealized appreciation
(depreciation) of investments 14,560,276 706,325 441,942 18,355,014 143,053
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 26,808,266 13,620,998 413,594 22,037,809 7,624,800
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (3,009,495) (3,654,066) (53,366) (437,253) (632,754)
From net realized gain on sales of
investments (11,816,851) (7,395,696) 0 (6,510,869) (3,829,806)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 44,467,683 28,067,836 11,413,266 13,257,592 33,001,835
Reinvestment of dividends 14,826,346 11,049,762 53,366 6,948,122 4,462,560
Cost of shares redeemed (1,540,872) (6,979,919) (755,332) (6,312,547) (2,063,405)
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM CAPITAL
SHARE TRANSACTIONS (NOTE 4) 57,753,157 32,137,679 10,711,300 13,893,167 35,400,990
INCREASE (DECREASE) IN NET ASSETS 69,735,077 34,708,915 11,071,528 28,982,854 38,563,230
NET ASSETS:
Beginning net assets 86,505,856 51,796,941 0 71,943,868 33,380,638
ENDING NET ASSETS $156,240,933 $86,505,856 $11,071,528 $100,926,722 $71,943,868
ENDING BALANCE OF UNDISTRIBUTED NET
INVESTMENT INCOME (LOSS) $ 0 $ 0 $ 0 $ 0 $ 0
SHARES ISSUED AND REDEEMED:
Shares sold 3,380,397 2,314,085 1,234,474 729,308 1,974,920
Shares issued in reinvestment of
dividends 1,141,331 914,141 5,850 368,338 261,363
Shares redeemed (120,729) (548,327) (80,781) (348,326) (127,163)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING 4,400,999 2,679,899 1,159,543 749,320 2,109,120
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
59
<PAGE> 61
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Money Market Fund Strategic Growth Fund U.S. Government Allocation Fund
---------------------------------------------------------------------------------------
From May 1, 1998
For the For the (commencement For the For the
Year Ended Year Ended of operations) to Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 807,850 $ 788,439 $ (2,719) $ 1,423,346 $ 1,105,416
Net realized gain (loss) on sale of
investments and futures 551 0 78,925 508,242 149,427
Net unrealized appreciation
(depreciation) of futures 0 0 0 0 0
Net unrealized appreciation
(depreciation) of investments 0 0 165,022 (208,102) 204,961
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 808,401 788,439 241,228 1,723,486 1,459,804
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (807,850) (788,439) 0 (1,423,346) (1,105,416)
From net realized gain on sales of
investments (551) 0 (2,623) (559,446) (40,057)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 29,184,120 20,957,328 1,365,012 23,067,397 12,942,563
Reinvestment of dividends 808,401 788,439 2,623 1,982,792 1,145,473
Cost of shares redeemed (18,461,324) (19,625,090) (402,411) (13,953,453) (4,035,922)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS (NOTE 4) 11,531,197 2,120,677 965,224 11,096,736 10,052,114
INCREASE (DECREASE) IN NET ASSETS 11,531,197 2,120,677 1,203,829 10,837,430 10,366,445
NET ASSETS:
Beginning net assets 14,787,628 12,666,951 0 23,893,779 13,527,334
ENDING NET ASSETS $ 26,318,825 $ 14,787,628 $ 1,203,829 $ 34,731,209 $ 23,893,779
ENDING BALANCE OF UNDISTRIBUTED NET
INVESTMENT INCOME (LOSS) $ 0 $ 0 $ 0 $ 0 $ 0
SHARES ISSUED AND REDEEMED:
Shares sold 29,184,121 20,957,328 119,988 2,221,098 1,273,335
Shares issued in reinvestment of
dividends 808,531 788,439 214 192,599 112,789
Shares redeemed (18,461,454) (19,625,090) (33,857) (1,339,600) (394,100)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING 11,531,198 2,120,677 86,345 1,074,097 992,024
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE> 62
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 Year Ended 1994
Dec. 31, Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.99 $ 11.42 $ 11.27 $ 9.71 $10.00
Net investment income (loss) 0.34 0.60 0.56 0.55 0.30
Net realized and unrealized gain (loss) on investments 2.60 1.73 0.69 2.21 (0.19)
-------- ------- ------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS 2.94 2.33 1.25 2.76 0.11
LESS DISTRIBUTIONS:
Dividends from net investment income (0.34) (0.60) (0.56) (0.55) (0.30)
Distributions from net realized gain (1.14) (1.16) (0.54) (0.65) (0.10)
-------- ------- ------- ------- ------
TOTAL FROM DISTRIBUTIONS (1.48) (1.76) (1.10) (1.20) (0.40)
-------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 13.45 $ 11.99 $ 11.42 $ 11.27 $ 9.71
======== ======= ======= ======= ======
Total Return (not annualized)* 25.26% 20.88% 11.46% 28.95% 1.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $156,241 $86,506 $51,797 $25,467 $7,464
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.92% 0.80% 0.69% 0.41% 0.00%
Ratio of net investment income to average net assets 2.62% 5.20% 5.34% 5.58% 6.30%
Portfolio turnover 29% 156% 4% 97% 0%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.11% 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 2.43% 5.15% 5.23% 4.77% 4.06%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total returns do not include any sales charges.
The accompanying notes are an integral part of these financial statements.
61
<PAGE> 63
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
Equity
Value
Fund Growth Fund
-------------- ------------------------------------------------------------------
From inception From inception
on May 1, on April 12,
1998 Year Ended Year Ended Year Ended Year Ended 1994 to
to Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 16.79 $ 15.34 $ 12.91 $ 10.30 $10.00
Net investment income (loss) 0.07 0.09 0.19 0.20 0.22 0.14
Net realized and unrealized gain (loss) on
investments (0.45) 4.65 2.48 2.68 2.77 0.30
------- -------- ------- ------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS (0.38) 4.74 2.67 2.88 2.99 0.44
LESS DISTRIBUTIONS:
Dividends from net investment income (0.07) (0.09) (0.19) (0.20) (0.22) (0.14)
Distributions from net realized gain 0.00 (1.39) (1.03) (0.25) (0.16) 0.00
------- -------- ------- ------- ------- ------
TOTAL FROM DISTRIBUTIONS (0.07) (1.48) (1.22) (0.45) (0.38) (0.14)
------- -------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 9.55 $ 20.05 $ 16.79 $ 15.34 $ 12.91 $10.30
======= ======== ======= ======= ======= ======
Total Return (not annualized)* (3.76%) 28.81% 17.33% 22.44% 29.19% 4.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $11,072 $100,927 $71,944 $33,381 $10,920 $2,136
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 1.09% 1.04% 0.65% 0.60% 0.43% 0.00%
Ratio of net investment income to average
net assets 1.54% 0.51% 1.19% 1.53% 2.05% 3.00%
Portfolio turnover 27% 69% 124% 95% 84% 21%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 2.52% 1.18% 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 0.11% 0.37% 0.83% 1.01% 0.46% (7.18%)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total returns do not include any sales charges.
The accompanying notes are an integral part of these financial statements.
62
<PAGE> 64
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
<TABLE>
<CAPTION>
Money Market Fund
------------------------------------------------------------------
From inception
on May 19,
Year Ended Year Ended Year Ended Year Ended 1994 to
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income (loss) 0.05 0.05 0.05 0.05 0.03
Net realized and unrealized gain (loss) on investments 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------ -------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.05 0.05 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.03)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------ -------
TOTAL FROM DISTRIBUTIONS (0.05) (0.05) (0.05) (0.05) (0.03)
------- ------- ------- ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ====== =======
Total Return (not annualized)* 4.77% 5.04% 4.72% 5.41% 2.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $26,319 $14,788 $12,667 $5,823 $ 1,492
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.82% 0.53% 0.51% 0.42% 0.00%
Ratio of net investment income to average net assets 4.62% 4.95% 4.64% 5.15% 4.63%
Portfolio turnover N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.28% 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 4.16% 4.41% 3.93% 1.74% (6.80%)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total returns do not include any sales charges.
The accompanying notes are an integral part of these financial statements.
63
<PAGE> 65
LIFE & ANNUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
<TABLE>
<CAPTION>
Strategic
Growth Fund U.S. Government Allocation Fund
-------------- ------------------------------------------------------------------
From inception From inception
on May 1, on April 26,
1998 to Year Ended Year Ended Year Ended Year Ended 1994 to
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.27 $ 10.13 $ 10.30 $ 9.63 $ 10.00
Net investment income (loss) (0.03) 0.48 0.58 0.56 0.60 0.40
Net realized and unrealized gain (loss) on
investments 4.00 0.10 0.15 (0.17) 0.77 (0.37)
------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 3.97 0.58 0.73 0.39 1.37 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income 0.00 (0.48) (0.58) (0.56) (0.60) (0.40)
Distributions from net realized gain (0.03) (0.16) (0.01) 0.00 (0.10) 0.00
------- ------- ------- ------- ------- -------
TOTAL FROM DISTRIBUTIONS (0.03) (0.64) (0.59) (0.56) (0.70) (0.40)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.94 $ 10.21 $ 10.27 $ 10.13 $ 10.30 $ 9.63
======= ======= ======= ======= ======= =======
Total Return (not annualized)* 39.74% 5.86% 7.47% 3.99% 14.40% 0.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 1,204 $34,731 $23,894 $13,527 $ 4,855 $ 866
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 1.09% 0.95% 0.64% 0.60% 0.45% 0.00%
Ratio of net investment income to average
net assets (0.72%) 4.70% 5.75% 5.75% 5.82% 7.35%
Portfolio turnover 200% 230% 135% 222% 405% 130%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 13.44% 1.23% 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 (13.07%) 4.42% 5.42% 5.17% 3.81% (5.38%)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total returns do not include any sales charges.
The accompanying notes are an integral part of these financial statements.
64
<PAGE> 66
NOTES TO THE FINANCIAL STATEMENTS
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 six separate diversified funds (the "Funds"): the Asset
Allocation, Equity Value, Growth (formerly Growth and Income), Money Market,
Strategic Growth 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
Company 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. Actual results could differ from those
estimates.
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") Nasdaq National Market, 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. 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 as required by the Internal
Revenue Code of 1986, as amended (the "Code").
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell such
securities ("repurchase agreements") are treated as collateralized financing
transactions and are recorded at their contracted resale amounts. These
repurchase agreements, if any, are detailed in each Fund's Portfolio of
Investments. The 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
65
<PAGE> 67
NOTES TO THE FINANCIAL STATEMENTS
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, Equity Value 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. Futures contracts are marked to market daily
at their respective settlement prices determined by the relevant exchange. 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, these Funds 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.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of the Asset Allocation, Equity Value, and
Growth Funds, if any, are declared and distributed quarterly. Dividends from net
investment income of the Money Market Fund, if any, are declared daily and
distributed monthly. Dividends from net investment income of the Strategic
Growth Fund, if any, are declared and distributed annually. Dividends from net
investment income of the U.S. Government Allocation Fund, if any, are declared
and distributed monthly. Distributions to shareholders from net realized capital
gains are declared and distributed annually.
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, 1998. The Equity
Value Fund had a net capital loss carryforward of $79,556 at December 31, 1998,
which expires in 2006.
66
<PAGE> 68
NOTES TO THE FINANCIAL STATEMENTS
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, Equity
Value, Growth, Strategic Growth, 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.
On August 1, 1998, Wells Capital Management Incorporated ("WCM"), a wholly-owned
subsidiary of WFB, began acting as investment sub-advisor to the Equity Value,
Growth, Money Market and Strategic Growth Funds. WCM is entitled to receive from
WFB, as compensation for its sub-advisory services to the Equity Value, Growth
and Strategic Growth Funds, a monthly fee at the annual rate of 0.25% of the
Funds' average daily net assets up to $200 million, 0.20% for the next $200
million and 0.15% of the Fund's average daily net assets in excess of $400
million. WCM is entitled to receive from WFB, as compensation for its
sub-advisory services to the Money Market Fund, a monthly fee at the annual rate
of 0.05% of the Funds' average daily net assets up to $1 billion and 0.04% of
the Funds' average daily net assets in excess of $1 billion. WCM's minimum
annual fee is $120,000 for each Fund. This minimum annual fee does not increase
the advisory fees paid by the Funds to WFB.
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 to the Asset Allocation Fund, a monthly fee at the annual
rate of 0.15% the Fund's average daily net assets up to $900 million and 0.10%
of the average daily net assets in excess of $900 million. For its sub-advisory
services to the U.S. Government Allocation Fund, BGFA is entitled to receive a
monthly fee at the annual rate of 0.05% of the Fund's average daily net assets
up to $75 million, 0.04% for the next $75 million and 0.03% of the Fund's
average daily net assets in excess of $150 million.
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 Equity Value, Growth,
Money Market and Strategic Growth Funds with WFB, whereby WFB is responsible for
providing custody 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 0.0167% of the average daily net assets of each Fund.
The Trust has entered into contracts on behalf of the Funds with WFB, whereby
WFB is responsible for providing portfolio accounting services for the Funds.
Pursuant to the contracts, 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.
Prior to May 1, 1998, the Asset Allocation and U.S. Government Allocation Funds
were not being charged for portfolio accounting services.
The Trust has entered into contracts 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, Equity Value,
Growth, Strategic Growth and U.S. Government Allocation Funds, and 0.10% of the
average daily net assets of the Money Market Fund.
The Trust has entered into contracts on behalf of the Funds with WFB, whereby
WFB provides shareholder services to the Funds. Pursuant to the contracts, WFB
is entitled to receive shareholder servicing fees at an annual rate of 0.25% of
the average daily net assets of each Fund. Prior to May 1, 1998, the Funds were
not being charged for shareholder services.
67
<PAGE> 69
NOTES TO THE FINANCIAL STATEMENTS
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 0.03% and
0.04%, respectively, of each Fund's average daily net assets. Prior to May 1,
1998, WFB 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.
WAIVED FEES AND REIMBURSED EXPENSES
Waived fees and reimbursed expenses for the year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Expenses Reimbursed Fees Waived
FUND by Stephens by WFB
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Allocation Fund $0 $214,173
Equity Value Fund* 5,791 45,743
Growth Fund 0 118,761
Money Market Fund 0 80,203
Strategic Growth Fund* 26,655 20,265
U.S. Government Allocation Fund 0 86,481
</TABLE>
- ---------------
* Represents the period from May 1, 1998 to December 31, 1998
Certain officers and one trustee of the Trust are also officers of Stephens. As
of December 31, 1998, Stephens owned 4,091 shares of the Asset Allocation Fund,
10,078 shares of the Equity Value Fund, 3,116 shares of the Growth Fund, 31,230
shares of the Money Market Fund, 10,024 shares of the Strategic Growth Fund and
3,328 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, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
AGGREGATE PURCHASES AND SALES at Cost Proceeds
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Allocation Fund $135,123,323 $25,023,200
Equity Value Fund* 11,894,169 1,547,642
Growth Fund 65,232,227 55,307,753
Strategic Growth Fund* 2,213,987 1,244,394
U.S. Government Allocation Fund 20,011,469 24,034,637
</TABLE>
- ---------------
* Represents the period from May 1, 1998 to December 31, 1998
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 are disclosed in detail
in the Statements of Changes in Net Assets.
68
<PAGE> 70
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LIFE & ANNUITY TRUST:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of 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 (the six funds
constituting the Life & Annuity Trust) as of December 31, 1998, and the related
statements of operations for the year ended December 31, 1998, for all funds
except the Equity Value Fund and the Strategic Growth Fund which are for the
period from May 1, 1998 (commencement of operations) to December 31, 1998, the
statements of changes in net assets for each of the years in the two-year period
ended December 31, 1998 for all funds except the Equity Value Fund and the
Strategic Growth Fund which are for the period from May 1, 1998 to December 31,
1998, and financial highlights for the periods indicated herein. These financial
statements and financial highlights are the responsibility of the Company'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 required 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, 1998, 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 and Annuity Trust as of December 31,
1998, 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.
[KPMG LLP SIGNATURE GRAPHIC]
San Francisco, California
February 1, 1999
69
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American Skandia Life
Assurance Company
Tower One Corporate Drive
Shelton, CT 06484
BULK RATE
U.S. POSTAGE
PAID
SMITHTOWN, NY
PERMIT NO.700
This report and the financial statements contained herein are submitted for the
general information of the contract holders of the Stagecoach Variable Annuity,
Stagecoach Variable Annuity Plus, Stagecoach Extra Credit Variable Annuity, and
the Stagecoach Variable Annuity Flex. If this report is used for promotional
purposes, distribution of the report must be accompanied or proceeded by a
current prospectus. For a prospectus containing more complete information,
including charges and expenses, call 1-800-680-8920. Read the prospectus
carefully before you invest.
Printed on Recycled Paper (C)1999 American Skandia VA05001 (2/99)
