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Nations Annuity Trust
Prospectus Supplement
Supplement dated July 3, 2000
to Prospectus dated May 1, 2000
International Portfolio
Nations International Value Portfolio
Fixed Income Portfolio
Nations High Yield Bond Portfolio
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus supplement is truthful or
complete. Any representation to the contrary is a criminal offense.
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NOT FDIC
INSURED
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May Lose Value
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No Bank Guarantee
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[NATIONS FUNDS LOGO]
This supplement reflects the addition of two new portfolios to Nations Annuity
Trust, and restates certain information in the Prospectus dated May 1, 2000.
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About this Prospectus Supplement
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This booklet, which is a supplement to the Prospectus dated May 1, 2000, tells
you about two new Nations Annuity Trust Portfolios. The Portfolios are the
underlying investment vehicles for certain variable annuity and/or variable
life insurance separate accounts issued by participating life insurance
companies, including Hartford Life Insurance Company. This supplement should be
read in connection with the Prospectus information contained in "An Overview of
the Portfolios" and "About your investment".
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About the International Portfolio
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About the sub-adviser
Banc of America Advisors, Inc. (BAAI) is the investment adviser to
the Portfolio. Brandes Investment Partners, L.P. (Brandes) is this
Portfolio's sub-adviser. Brandes' Large Cap Investment Committee
makes the day-to-day investment decisions for the Portfolio.
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What is the Graham and Dodd approach to investing?
Benjamin Graham is widely regarded as the founder of this classic
value approach to investing and a pioneer in modern security
analysis. In his 1934 book, Security Analysis, co-written by David
Dodd, Graham introduced the idea that stocks should be chosen by
identifying the "true" long-term -- or intrinsic -- value of a
company based on measurable data.
The team follows this approach, looking at each stock as though
it's a business that's for sale. By buying stocks at what it
believes are favorable prices, the Portfolio looks for the
potential for appreciation over the business cycle, and for a
margin of safety against price declines.
Nations International Value Portfolio
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Investment objective
This Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of foreign issuers, including emerging
markets countries.
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Principal investment strategies
The Portfolio normally invests at least 65% of its assets in foreign
companies anywhere in the world that have a market capitalization of
more than $1 billion at the time of investment. The Portfolio typically
invests in at least three countries other than the United States at any
one time.
The Portfolio primarily invests in common stocks, preferred stocks and
convertible securities, either directly or indirectly through closed-end
investment companies and depositary receipts.
The Portfolio may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any one
type of these securities. These securities are described in the SAI.
The portfolio management team uses the "Graham and Dodd" value approach to
selecting securities and managing the Portfolio. The team invests in a company
when its current price appears to be below its true long-term -- or intrinsic
-- value.
The team uses fundamental analysis to determine intrinsic value, and will look
at a company's book value, cash flow, capital structure, and management record,
as well as its industry and its position in the industry. This analysis
includes a review of company reports, filings with the SEC, computer databases,
industry publications, general and business publications, brokerage firm
research reports and other information sources, as well as interviews with
company management.
The team may sell a security when its price reaches the target set by the team,
there is a deterioration in the company's financial situation, when the team
believes other investments are more attractive, or for other reasons.
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You'll find more about other risks of investing in this Portfolio
starting on page 7 of this supplement and in the SAI.
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Limits on investments
To help manage risk, the Portfolio has certain limits on its
investments. These limits apply at the time an investment is made:
o The Portfolio will normally invest no more than 5% of its assets in a
single security.
o It may not invest more than the higher of:
o 20% of its assets in a single country or industry, or
o 150% of the weighting of a single country or industry in the MSCI EAFE
Index (to a maximum of 25% of its assets in a single industry, other
than U.S. government securities).
o It generally may not invest more than 20% of its assets in emerging
markets or developing countries.
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Risks and other things to consider
Nations International Value Portfolio has the following risks:
o Investment strategy risk - The management team chooses stocks it
believes are undervalued or out of favor with the expectation that
these stocks will eventually rise in value. There is a risk that the
value of these investments will not rise as high or as quickly as the
manager expects, or will fall.
o Foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign
controls on investment, difficulties selling some securities and lack
of or limited financial information. Withholding taxes may also apply
to some foreign investments.
o Stock market risk - The value of the stocks the Portfolio holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other things.
Stock prices can rise or fall over short as well as long periods. In
general, stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
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A look at the Portfolio's performance
The Portfolio commenced its operations on July 3, 2000 and has been in
operation for less than a full calendar year, so no performance
information has been included in this prospectus.
4
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About the Fixed Income Portfolio
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About the sub-adviser
BAAI is the investment adviser to the Portfolio. MacKay Shields LLC
(MacKay Shields) is the Portfolio's sub-adviser. The High Yield
Portfolio Management Team makes the day-to-day investment decisions
for the Portfolio.
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High yield debt securities
This Portfolio invests primarily in high yield debt securities,
which are often referred to as "junk bonds." High yield debt
securities offer the potential for higher income than other kinds
of debt securities with similar maturities, but they also have
higher credit risk.
Nations High Yield Bond Portfolio
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Investment objective
This Portfolio seeks maximum income by investing in a diversified
portfolio of high yield debt securities.
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Principal investment strategies
The Portfolio normally invests at least 65% of its assets in domestic
and foreign corporate high yield debt securities. These securities are
not rated investment grade, but generally will be rated "B" or better by
Moody's Investor Services, Inc. (Moody's) or Standard & Poor's
Corporation (S&P). The portfolio management team may choose unrated
securities if it believes they are of comparable quality at the time of
investment. The Portfolio does not seek to maintain a specific duration.
Its duration will generally track that of the CS First Boston High Yield
Index.
The Portfolio invests primarily in:
o Domestic corporate high yield debt securities, including private placements
o U.S. dollar-denominated foreign corporate high yield debt securities,
including private placements
o Zero-coupon bonds
o U.S. government obligations
o Equity securities (up to 25% of its assets), which may include convertible
securities
The Portfolio also may invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any one
type of these securities. These securities are described in the SAI.
When selecting investments for the Portfolio, the team:
o focuses on individual security selection (bottom up analysis)
o uses fundamental credit analysis
o emphasizes current income while attempting to minimize risk to principal
o seeks to identify a catalyst for capital appreciation such as an
operational or financial restructuring
o tries to manage risk by diversifying the Portfolio's investments across
securities of many different issuers
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You'll find more about other risks of investing in this Portfolio
starting on page 7 of this supplement and in the SAI.
The team may sell a security when its market price rises above the target price
the team has set, when it believes there has been a deterioration in an
issuer's fundamentals, such as earnings, sales or management, or an issuer's
credit quality, or to maintain portfolio diversification.
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Risks and other things to consider
Nations High Yield Bond Portfolio has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the management team chooses will not rise as high as
the team expects, or will fall.
o Credit risk - The types of securities in which the Portfolio typically
invests are not investment grade and are generally considered
speculative because they present a greater risk of loss, including
default, than higher quality debt securities. These securities
typically pay a premium -- a high interest rate or yield -- because of
the increased risk of loss. These securities also can be subject to
greater price volatility.
o Interest rate risk - The prices of fixed income securities will tend
to fall when interest rates rise. In general, fixed income securities
with longer terms tend to fall more in value when interest rates rise
than fixed income securities with shorter terms.
o Liquidity risk - There is a risk that a security held by the Portfolio
cannot be sold at the time desired, or cannot be sold without
adversely affecting the price.
o Foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign
controls on investment, difficulties selling some securities and lack
of or limited financial information. Withholding taxes may also apply
to some foreign investments.
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A look at the Portfolio's performance
The Portfolio commenced its operations on July 3, 2000 and has been in
operation for less than a full calendar year so no performance has been
included in this prospectus.
6
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Other important information
You'll find specific information about Nations International Value Portfolio's
and Nations High Yield Bond Portfolio's principal investments, strategies and
risks in the descriptions starting on page 3 of this supplement. The following
are some other risks and information you should consider before you invest:
o Changing investment objectives and policies - The investment objective
and certain investment policies of either Portfolio can be changed
without shareholder approval. Other investment policies may be changed
only with shareholder approval.
o Holding other kinds of investments - The Portfolios may hold
investments that aren't part of their principal investment strategies.
Please refer to the SAI for more information. Each portfolio
management team can also choose not to invest in specific securities
described in the prospectus and in the SAI.
o Foreign investment risk - Portfolios that invest in foreign securities
may be affected by changes in currency exchange rates and the costs of
converting currencies; the implementation of the Euro; foreign
government controls on foreign investment, repatriation of capital,
and currency and exchange; foreign taxes; inadequate supervision and
regulation of some foreign markets; difficulty selling some
investments which may increase volatility; different settlement
practices or delayed settlements in some markets; difficulty getting
complete or accurate information about foreign companies; less strict
accounting, auditing and financial reporting standards than those in
the U.S.; political, economic or social instability; and difficulty
enforcing legal rights outside the U.S.
o Emerging markets risk - Securities issued by companies in developing
or emerging market countries, like those in Eastern Europe, the Middle
East, Asia or Africa, may be more sensitive to the risks of foreign
investing. In particular, these countries may experience instability
resulting from rapid social, political and economic development. Many
of these countries are dependent on international trade, which makes
them sensitive to world commodity prices and economic factors in other
countries. Some emerging countries have a higher risk of currency
devaluation, and some countries may experience long periods of high
inflation or rapid changes in inflation rates.
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o Investing defensively - A Portfolio may temporarily hold investments
that are not part of its investment objective or its principal
investment strategies to try to protect it during a market or economic
downturn or because of political or other conditions. A Portfolio may
not achieve its investment objective while it is investing
defensively.
o Portfolio turnover - A Portfolio that replaces -- or turns over --
more than 100% of its investments in a year is considered to trade
frequently. Frequent trading can result in larger distributions of
short-term capital gains to shareholders. These gains are taxable at
higher rates than long-term capital gains. Frequent trading can also
mean higher brokerage and other transaction costs, which could reduce
the Portfolio's returns. The Portfolios generally buy securities for
capital appreciation, investment income, or both, and don't engage in
short-term trading. The annual portfolio turnover rate for Nations
International Value Portfolio and Nations High Yield Bond Portfolio
are expected to be no more than 50% and 130%, respectively.
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Banc of America Advisors, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
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How the Portfolios are managed
Investment adviser
BAAI is the investment adviser to over 60 mutual fund portfolios in the Nations
Funds family, including the Nations Annuity Trust Portfolios. Nations Annuity
Trust is a series of mutual funds that provides underlying investment
alternatives for variable annuity contracts and variable life insurance
policies.
BAAI is a registered investment adviser. It's a wholly-owned subsidiary of Bank
of America, which is owned by Bank of America Corporation. Nations Annuity
Trust pays BAAI an annual fee for its investment advisory services. The fee is
calculated daily based on the average net assets of each Portfolio and is paid
monthly. BAAI uses part of this money to pay investment sub-advisers for the
services they provide to each Portfolio.
BAAI has agreed to waive fees and/or reimburse expenses for certain Portfolios
until April 30, 2001. You'll find a discussion of any waiver and/or
reimbursement in the Fee Table Summary section of the preceding Nations
Variable Annuity prospectus. There is no assurance that BAAI will continue to
waive and/or reimburse any fees and/or expenses after this date.
The following chart shows the maximum advisory fees BAAI can receive.
Annual investment advisory fee, as a % of average daily net assets
<TABLE>
<CAPTION>
Maximum
advisory
fee
<S> <C>
Nations International Value Portfolio 0.90%
Nations High Yield Bond Portfolio 0.55%
</TABLE>
Investment sub-advisers
Nations Annuity Trust and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the Portfolios. These sub-advisers function
under the supervision of BAAI and the Board of Trustees of Nations Annuity
Trust.
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Brandes Investment
Partners, L.P.
12750 High Bluff Drive
San Diego, California 92130
Brandes Investment Partners, L.P.
Founded in 1974, Brandes is an investment advisory firm with 53 investment
professionals who manage more than $40 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to build
wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Portfolio.
Brandes' Large Cap Investment Committee is responsible for making the
day-to-day investment decisions for the Portfolio.
Performance of other international equity funds and accounts managed by Brandes
Nations International Value Portfolio commenced its operations on July 3, 2000.
The table below is designed to show you how a composite of similar
international equity accounts managed by Brandes performed over various periods
in the past.
The fund and the accounts comprising the Brandes composite's investment
objective, policies and strategies are substantially similar to Nations
International Value Portfolio.
The table below shows the returns for the Brandes composite compared with the
MSCI EAFE Index for the periods ending December 31, 1999. The returns reflect
deductions of fees and expenses, and assume all dividends and distributions
have been reinvested.
Average annual total returns as of December 31, 1999
<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
one year 53.42% 26.96%
three years 28.44% 15.75%
five years 22.90% 12.83%
since inception (6/30/90) 19.94% 8.86%
</TABLE>
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MacKay Shields LLC
9 West 57th Street
New York, New York 10019
Average annual total returns as of December 31, 1999
<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
1999 53.42% 26.96%
1998 15.03% 20.33%
1997 20.00% 1.78%
1996 16.34% 6.05%
1995 13.75% 11.21%
1994 (2.98)% 7.78%
1993 40.86% 32.56%
1992 6.28% (12.17)%
1991 40.17% 12.13%
</TABLE>
This information is designed to demonstrate the historical track record of
Brandes. It does not indicate how the Portfolio has performed or will perform
in the future.
Performance will vary based on many factors, including market conditions, the
composition of the Portfolio's holdings and the Portfolio's expenses.
The Brandes composite includes Brandes International Equity Fund (since 1995)
and international equity accounts managed by Brandes. The accounts don't pay
the same expenses that mutual funds pay and aren't subject to the
diversification rules, tax restrictions and investment limits under the 1940
Act or Subchapter M of the Internal Revenue Code. Returns could have been lower
if the composite had been subject to these expenses and regulations. The
aggregate returns of the accounts in the composite may not reflect the returns
of any particular account of Brandes.
MacKay Shields LLC
Founded in 1938, MacKay Shields is an independently-managed, wholly-owned
subsidiary of New York Life Insurance Company. The firm's 63 investment
professionals manage more than $30 billion in assets, including over $6 billion
in high yield assets.
MacKay Shields' High Yield Portfolio Management Team is responsible for making
the day-to-day decisions for Nations High Yield Bond Portfolio.
Prior Performance of other high yield accounts managed by MacKay Shields
Nations High Yield Bond Portfolio commenced its operations on July 3, 2000. The
table below is designed to show you how a composite of similar high yield
accounts managed by MacKay Shields performed over various time periods in the
past.
The accounts comprising the MacKay Shields composite's investment objective,
policies and strategies are substantially similar to those of Nations High
Yield Bond Portfolio.
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Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
The table below shows the returns for the MacKay Shields composite compared
with the CS First Boston High Yield Index for the periods ending December 31,
1999. The returns reflect deduction of fees and expenses, and assume all
dividends and distributions have been reinvested.
Average annual total returns as of December 31, 1999
<TABLE>
<CAPTION>
CS First Boston
MacKay Shields High Yield
Composite (%) Index (%)
<S> <C> <C>
one year 10.7% 3.3%
three years 10.4% 5.4%
five years 14.3% 9.1%
since inception (7/1/91) 15.6% 10.8%
</TABLE>
Annual total returns as of December 31, 1999
<TABLE>
<CAPTION>
CS First Boston
MacKay Shields High Yield
Composite (%) Index (%)
<S> <C> <C>
1999 10.7% 3.3%
1998 5.0% 0.6%
1997 15.9% 12.6%
1996 19.6% 12.4%
1995 21.2% 17.4%
1994 2.6% (1.0)%
1993 23.1% 18.9%
1992 23.4% 16.7%
1991 (since 7/1/91) 12.8% 12.9%
</TABLE>
This information is designed to demonstrate the historical track record of
MacKay Shields. It does not indicate how the Portfolio has performed or will
perform in the future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Portfolio's fees and expenses.
The MacKay Shields composite includes all high yield accounts managed by MacKay
Shields. The accounts don't pay the same expenses that mutual funds pay and
aren't subject to the diversification rules, tax restrictions and investment
limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns
would have been lower if the composite had been subject to these expenses and
regulations and reflected a deduction for investment advisory fees. Performance
is expressed in U.S. dollars. The aggregate returns of the accounts in the
composite may not reflect the returns of any particular account of MacKay
Shields. For further information regarding the composite performance, please
see the SAI.
Other service providers
The Portfolios are distributed and co-administered by Stephens Inc., a
registered broker/dealer. Stephens may pay commissions, distribution (12b-1)
and shareholder servicing fees, and/or other compensation to companies for
selling shares and providing services to investors.
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PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
BAAI is also co-administrator of the Portfolios, and assists in overseeing the
administrative operations of the Portfolios. The Portfolios pay BAAI and
Stephens a combined fee for their services, plus certain out-of-pocket
expenses. The fee is calculated as an annual percentage of the average daily
net assets of the Portfolios and is paid monthly, as follows:
<TABLE>
<CAPTION>
<S> <C>
Nations International Value Portfolio 0.22%
Nations High Yield Bond Portfolio 0.23%
</TABLE>
PFPC Inc. ("PFPC") is the transfer agent for the Portfolios' shares. Its
responsibilities include processing purchases, sales and exchanges, calculating
and paying distributions, keeping shareholder records, preparing account
statements and providing customer service.
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