UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use by the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
Nations Annuity Trust
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
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(2) Aggregate number of securities to which transaction applies: N/A
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
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(4) Proposed maximum aggregate value of transaction: N/A
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
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(3) Filing Party: N/A
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(4) Date Filed: N/A
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Notes:
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NATIONS ANNUITY TRUST
One Bank of America Plaza
101 South Tryon Street
Charlotte, North Carolina 28255
Telephone: 800-653-9427
January 29, 2001
DEAR SHAREHOLDER:
On behalf of the Board of Trustees of Nations Annuity Trust, we are
pleased to invite you to special meetings of shareholders of each portfolio of
Nations Annuity Trust (each a "Fund" and collectively, the "Funds") to be held
jointly at 10:00 a.m., Eastern time, on April 12, 2001, at One Bank of America
Plaza, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina (the
"Meetings").
At the Meetings, shareholders of the Funds will be asked to vote on some
or all of the following items:
(i) new investment advisory and/or investment sub-advisory arrangements
for certain of the Funds;
(ii) authorization to convert certain Funds to feeders in a master/feeder
structure at some point in the future;
(iii) authorization to implement a "manager of managers" structure pursuant
to Securities and Exchange Commission exemptive relief for all
Funds; and
(iv) adoption of streamlined fundamental investment policies for Funds
that do not already have such policies.
The new advisory and sub-advisory agreements proposed under item (i)
above, and related changes to these Funds' investment objectives and principal
investment strategies, are being proposed as part of an effort to improve
Nations Funds' variable annuity and life insurance fund options by making
available a well-rounded variety of funds to our insurance company partners.
Because shareholder approval must be obtained to implement the new agreements,
management is seeking approval for items (ii), (iii) and (iv) at the same time
in order to avoid additional proxy solicitation costs in the future. These
changes noted in (ii), (iii) and (iv) above are being proposed primarily to
allow the investment adviser more flexibility in managing the Funds and also to
provide the Funds with the potential to operate more efficiently on a
day-to-day basis.
Additionally, shareholders of Nations Marsico Focused Equities Portfolio
and Nations Marsico Growth & Income Portfolio (together the "Marsico Funds")
will be asked to approve a new investment sub-advisory agreement with Marsico
Capital Management, LLC ("Marsico Capital") as a result of Marsico Capital's
recent change in ownership. This change has not resulted, nor is expected to
result, in any significant change to the Marsico Capital personnel who manage
the Marsico Funds or in the way that the Marsico Funds are managed.
Nevertheless, the federal securities laws require that shareholders of each
Marsico Fund be given the opportunity to approve a new investment sub-advisory
agreement in order to allow Marsico Capital to continue to serve as investment
sub-adviser to each Marsico Fund whenever this type of change occurs.
<PAGE>
The general array of sub-advisory services provided under the new
agreement and the aggregate fees payable by each Marsico Fund for advisory
services remain unchanged. Approval of the investment sub-advisory agreement
also will have the effect of confirming the interim investment sub-advisory
agreement with Marsico Capital that was put in place for each Marsico Fund
after the change in ownership, and pursuant to which Marsico Capital currently
provides investment sub-advisory services to the Marsico Funds. Accordingly, we
are soliciting your vote on a new investment sub-advisory agreement for your
Marsico Fund.
None of the customary costs associated with this proxy solicitation will
be borne by the Funds or their shareholders.
THE BOARD OF TRUSTEES OF NATIONS ANNUITY TRUST UNANIMOUSLY RECOMMENDS THAT
YOU VOTE TO APPROVE EACH PROPOSAL RELATING TO YOUR FUND.
The formal Notice of Special Meetings, Proxy Statement and Proxy Ballot(s)
are enclosed. Each proposal and the reasons for the unanimous recommendation by
the Board of Trustees are discussed in more detail in the enclosed materials,
which you should read carefully. If you have any questions, please do not
hesitate to contact us at the toll-free number set forth above.
We look forward to your attendance at the Meetings or to receiving your
Proxy Ballot(s) so that your shares may be voted at the Meetings.
Sincerely,
A. MAX WALKER
President and Chairman of the Board
of Trustees of Nations Annuity
Trust
YOUR VOTE IS IMPORTANT TO US REGARDLESS OF THE NUMBER OF SHARES THAT YOU
OWN. PLEASE VOTE BY SUBMITTING YOUR PROXY BALLOT(S) TODAY.
<PAGE>
NATIONS ANNUITY TRUST
One Bank of America Plaza
101 South Tryon Street
33rd Floor
Charlotte, North Carolina 28255
1-800-653-9427
---------------------------------------------
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
To Be Held on April 12, 2001
---------------------------------------------
TO NATIONS SMALLCAP INDEX PORTFOLIO AND NATIONS MANAGED INDEX PORTFOLIO
SHAREHOLDERS:
PLEASE TAKE NOTE THAT special meetings of shareholders of Nations SmallCap
Index Portfolio and Nations Managed Index Portfolio of Nations Annuity Trust
will be held jointly at 10:00 a.m., Eastern time, on April 12, 2001, at One
Bank of America Plaza, 101 South Tryon Street, 33rd Floor, Charlotte, North
Carolina, for the purpose of each portfolio's shareholders to consider and vote
upon:
ITEM 1. A new investment advisory agreement with Banc of America Advisors,
Inc.
ITEM 2: A new investment sub-advisory agreement with Banc of America
Capital Management, Inc.
ITEM 3. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 4. An authorization for Banc of America Advisors, Inc. to hire and
replace investment sub- advisers or to modify investment sub-advisory agreements
without shareholder approval.
ITEM 5. New fundamental investment policies.
ITEM 6. Such other business as may properly come before the meetings or
any adjournment(s).
TO NATIONS INTERNATIONAL GROWTH PORTFOLIO SHAREHOLDERS:
PLEASE TAKE NOTE THAT a special meeting of shareholders of Nations
International Growth Portfolio of Nations Annuity Trust will be held at 10:00
a.m., Eastern time, on April 12, 2001, at One Bank of America Plaza, 101 South
Tryon Street, 33rd Floor, Charlotte, North Carolina, for the purpose of
considering and voting upon:
ITEM 1. A new investment sub-advisory agreement with Marsico Capital
Management, LLC.
ITEM 2. An authorization for Banc of America Advisors, Inc. to hire and
replace investment sub- advisers or to modify investment sub-advisory agreements
without shareholder approval.
ITEM 3. New fundamental investment policies.
ITEM 4. Such other business as may properly come before the meeting or any
adjournment(s).
<PAGE>
TO NATIONS BALANCED ASSETS PORTFOLIO SHAREHOLDERS:
PLEASE TAKE NOTE THAT a special meeting of shareholders of Nations
Balanced Assets Portfolio of Nations Annuity Trust will be held at 10:00 a.m.,
Eastern time, on April 12, 2001, at One Bank of America Plaza, 101 South Tryon
Street, 33rd Floor, Charlotte, North Carolina, for the purpose of considering
and voting upon:
ITEM 1. A new investment sub-advisory agreement with Banc of America
Capital Management, Inc.
ITEM 2. A new investment sub-advisory agreement with Chicago Equity
Partners LLC.
ITEM 3. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 4. An authorization for Banc of America Advisors, Inc. to hire and
replace investment sub- advisers or to modify investment sub-advisory agreements
without shareholder approval.
ITEM 5. New fundamental investment policies.
ITEM 6. Such other business as may properly come before the meeting or any
adjournment(s).
TO NATIONS AGGRESSIVE GROWTH PORTFOLIO SHAREHOLDERS:
PLEASE TAKE NOTE THAT a special meeting of shareholders of Nations
Aggressive Growth Portfolio of Nations Annuity Trust will be held at 10:00
a.m., Eastern time, on April 12, 2001, at One Bank of America Plaza, 101 South
Tryon Street, 33rd Floor, Charlotte, North Carolina, for the purpose of
considering and voting upon:
ITEM 1. A new investment advisory agreement with Banc of America Advisors,
Inc.
ITEM 2. A new investment sub-advisory agreement with Marsico Capital
Management, LLC.
ITEM 3. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 4. An authorization for Banc of America Advisors, Inc. to hire and
replace investment sub- advisers or to modify investment sub-advisory agreements
without shareholder approval.
ITEM 5. New fundamental investment policies.
ITEM 6. Such other business as may properly come before the meeting or any
adjournment(s).
<PAGE>
TO NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO AND NATIONS MARSICO GROWTH &
INCOME PORTFOLIO SHAREHOLDERS:
PLEASE TAKE NOTE THAT special meetings of shareholders of Nations Marsico
Focused Equities Portfolio and Nations Marsico Growth & Income Portfolio of
Nations Annuity Trust will be held jointly at 10:00 a.m., Eastern time, on
April 12, 2001, at One Bank of America Plaza, 101 South Tryon Street, 33rd
Floor, Charlotte, North Carolina, for the purpose of each portfolio's
shareholders to consider and vote upon:
ITEM 1. A new investment sub-advisory agreement with Marsico Capital
Management, LLC.
ITEM 2. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 3. An authorization for Banc of America Advisors, Inc. to hire and
replace investment sub- advisers or to modify investment sub-advisory agreements
without shareholder approval.
ITEM 4. New fundamental investment policies.
ITEM 5. Such other business as may properly come before the meetings or any
adjournment(s).
TO NATIONS VALUE PORTFOLIO SHAREHOLDERS:
PLEASE TAKE NOTE THAT a special meeting of shareholders of Nations Value
Portfolio of Nations Annuity Trust will be held at 10:00 a.m., Eastern time, on
April 12, 2001, at One Bank of America Plaza, 101 South Tryon Street, 33rd
Floor, Charlotte, North Carolina, for the purpose of considering and voting
upon:
ITEM 1. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 2. An authorization for Banc of America Advisors, Inc. to hire and
replace investment sub- advisers or to modify investment sub-advisory agreements
without shareholder approval.
ITEM 3. New fundamental investment policies.
ITEM 4. Such other business as may properly come before the meeting or any
adjournment(s).
TO NATIONS INTERNATIONAL VALUE PORTFOLIO AND NATIONS HIGH YIELD BOND PORTFOLIO
SHAREHOLDERS:
PLEASE TAKE NOTE THAT special meetings of shareholders of Nations
International Value Portfolio and Nations High Yield Bond Portfolio of Nations
Annuity Trust will be held jointly at 10:00 a.m., Eastern time, on April 12,
2001, at One Bank of America Plaza, 101 South Tryon Street, 33rd Floor,
Charlotte, North Carolina, for the purpose of each portfolio's shareholders to
consider and vote upon:
ITEM 1. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 2. An authorization for Banc of America Advisors, Inc. to hire and
replace investment sub- advisers or to modify investment sub-advisory agreements
without shareholder approval.
<PAGE>
ITEM 3. Such other business as may properly come before the meetings or
any adjournment(s).
YOUR TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THE
PROPOSALS.
Shareholders of record as of the close of business on January 15, 2001 are
entitled to notice of, and to vote at, the Meetings or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY BALLOT(S). THIS IS IMPORTANT TO ENSURE
A QUORUM AT THE MEETINGS. SHAREHOLDERS ALSO MAY SUBMIT THEIR PROXIES BY FAX AT
(704) 388-2641. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED.
By Order of the Board of Trustees,
RICHARD H. BLANK, JR.
Secretary of Nations Annuity Trust
January 29, 2001
<PAGE>
PROXY STATEMENT
Dated January 20, 2001
NATIONS ANNUITY TRUST
One Bank of America Plaza
101 South Tryon Street
Charlotte, North Carolina 28255
1-800-653-9427
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of Nations Annuity Trust ("Annuity Trust") at
special meetings of shareholders of Nations SmallCap Index Portfolio ("SmallCap
Index Portfolio"), Nations International Growth Portfolio ("International
Growth Portfolio"), Nations Balanced Assets Portfolio ("Balanced Assets
Portfolio"), Nations Managed Index Portfolio ("Managed Index Portfolio"),
Nations Aggressive Growth Portfolio ("Aggressive Growth Portfolio"), Nations
Marsico Focused Equities Portfolio ("Focused Equities Portfolio"), Nations
Marsico Growth & Income Portfolio ("Growth & Income Portfolio"), Nations Value
Portfolio ("Value Portfolio"), Nations International Value Portfolio
("International Value Portfolio") and Nations High Yield Bond Portfolio ("High
Yield Bond Portfolio") (each a "Fund" and collectively, the "Funds"). The Board
of Trustees of Annuity Trust is sometimes referred to as the "Board." The
special meetings and any adjournment(s) are referred to as the "Meetings." The
Meetings have been called to consider the following proposals:
FOR EACH OF SMALLCAP INDEX PORTFOLIO AND MANAGED INDEX PORTFOLIO SHAREHOLDERS:
ITEM 1. A new investment advisory agreement with Banc of America Advisors,
Inc. ("BAAI").
ITEM 2: A new investment sub-advisory agreement with Banc of America
Capital Management, Inc. ("BACAP").
ITEM 3. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 4. An authorization for BAAI to hire and replace investment
sub-advisers or to modify investment sub-advisory agreements without shareholder
approval.
ITEM 5. New fundamental investment policies.
ITEM 6. Such other business as may properly come before the Meetings or
any adjournment(s).
FOR INTERNATIONAL GROWTH PORTFOLIO SHAREHOLDERS:
ITEM 1. A new investment sub-advisory agreement with Marsico Capital
Management, LLC ("Marsico Capital").
ITEM 2. An authorization for BAAI to hire and replace investment
sub-advisers or to modify investment sub-advisory agreements without shareholder
approval.
1
<PAGE>
ITEM 3. New fundamental investment policies.
ITEM 4. Such other business as may properly come before the Meetings or
any adjournment(s).
FOR BALANCED ASSETS PORTFOLIO SHAREHOLDERS:
ITEM 1. A new investment sub-advisory agreement with BACAP.
ITEM 2. A new investment sub-advisory agreement with Chicago Equity
Partners LLC ("Chicago Equity").
ITEM 3. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 4. An authorization for BAAI to hire and replace investment
sub-advisers or to modify investment sub-advisory agreements without shareholder
approval.
ITEM 5. New fundamental investment policies.
ITEM 6. Such other business as may properly come before the Meetings or
any adjournment(s).
FOR AGGRESSIVE GROWTH PORTFOLIO SHAREHOLDERS:
ITEM 1. A new investment advisory agreement with BAAI
ITEM 2. A new investment sub-advisory agreement with Marsico Capital.
ITEM 3. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 4. An authorization for BAAI to hire and replace investment
sub-advisers or to modify investment sub-advisory agreements without shareholder
approval.
ITEM 5. New fundamental investment policies.
ITEM 6. Such other business as may properly come before the Meetings or
any adjournment(s).
FOR EACH OF FOCUSED EQUITIES PORTFOLIO AND GROWTH & INCOME PORTFOLIO
SHAREHOLDERS:
ITEM 1. A new investment sub-advisory agreement with Marsico Capital.
ITEM 2. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 3. An authorization for BAAI to hire and replace investment
sub-advisers or to modify investment sub-advisory agreements without shareholder
approval.
ITEM 4. New fundamental investment policies.
ITEM 5. Such other business as may properly come before the Meetings or
any adjournment(s).
2
<PAGE>
FOR VALUE PORTFOLIO SHAREHOLDERS:
ITEM 1. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 2. An authorization for BAAI to hire and replace investment
sub-advisers or to modify investment sub-advisory agreements without shareholder
approval.
ITEM 3. New fundamental investment policies.
ITEM 4. Such other business as may properly come before the Meetings or
any adjournment(s).
FOR EACH OF INTERNATIONAL VALUE PORTFOLIO AND HIGH YIELD BOND PORTFOLIO
SHAREHOLDERS:
ITEM 1. An authorization to convert to a feeder fund in a master/feeder
structure.
ITEM 2. An authorization for BAAI to hire and replace investment
sub-advisers or to modify investment sub-advisory agreements without shareholder
approval.
ITEM 3. Such other business as may properly come before the Meetings or
any adjournment(s).
Additional information about the Funds is available in their:
o Prospectuses;
o Statements of Additional Information, or SAIs; and
o Annual and Semi-Annual Reports to shareholders.
All of this information is in documents filed with the U.S. Securities and
Exchange Commission ("SEC") and is available upon oral or written request
without charge. The annual reports to shareholders for the fiscal year ended
December 31, 1999 and semi-annual reports to shareholders for the fiscal period
ended June 30, 2000 previously have been mailed to shareholders. Additional
copies are available without charge by writing the address given above or by
calling 1-800-321-7854.
It is expected that this Proxy will be mailed to shareholders on or about
January 29, 2001.
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Special Note for Polaris America Contract Holders
At this time, the International Growth Portfolio, the SmallCap Index Portfolio
and the Balanced Assets Portfolio are not available through the Polaris
America Variable Annuity contract underwritten by Anchor National Life
Insurance Company. Accordingly, Polaris America participants should disregard
those parts of this Proxy Statement which discuss these Funds.
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3
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TABLE OF CONTENTS
<TABLE>
<S> <C>
CHANGES TO THE NAME, INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT
STRATEGIES OF THE FUNDS ................................................................. 6
Overview .............................................................................. 6
Comparison of Current and Proposed Names, Investment Objectives and Principal
Investment Strategies ................................................................ 6
PROPOSED CHANGES TO INVESTMENT ADVISORY & SUB-ADVISORY ARRANGEMENTS ...................... 9
Overview .............................................................................. 9
APPROVAL OF NEW BAAI AGREEMENT ........................................................... 10
Description of the New BAAI Agreement ................................................. 10
Reasons for the New BAAI Agreement .................................................... 11
The SmallCap Index Portfolio ......................................................... 11
The Managed Index Portfolio .......................................................... 12
The Aggressive Growth Portfolio ...................................................... 13
Board Consideration ................................................................... 13
Information Regarding BAAI ............................................................ 14
APPROVAL OF NEW BACAP AGREEMENT .......................................................... 16
Description of the New BACAP Agreement ................................................ 16
Reasons for the New BACAP Agreement ................................................... 17
The SmallCap Index Portfolio ......................................................... 17
The Managed Index Portfolio .......................................................... 17
The Balanced Assets Portfolio ........................................................ 17
Board Consideration ................................................................... 18
Information Regarding BACAP ........................................................... 19
APPROVAL OF NEW MARSICO CAPITAL AGREEMENT ................................................ 20
Description of the New Marsico Capital Agreement ...................................... 20
Reasons for the New Marsico Capital Agreement ......................................... 21
The International Growth Portfolio ................................................... 21
The Aggressive Growth Portfolio ...................................................... 22
Board Consideration ................................................................... 22
Information Regarding Marsico Capital ................................................. 22
APPROVAL OF NEW CHICAGO EQUITY AGREEMENT ................................................. 24
Description of the New Chicago Equity Agreement ....................................... 24
Reasons for the New Chicago Equity Agreement .......................................... 25
Board Consideration ................................................................... 26
Information Regarding Chicago Equity .................................................. 27
</TABLE>
4
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<TABLE>
<S> <C>
MARSICO CAPITAL CHANGE IN CONTROL -- APPROVAL OF NEW MARSICO CAPITAL
AGREEMENT ............................................................................ 28
Overview ........................................................................... 28
Description of the Interim Marsico Capital Agreement and the New Marsico Capital
Agreement......................................................................... 29
Board Consideration ................................................................ 30
Information Regarding Marsico Capital .............................................. 32
AUTHORIZATION OF THE FUNDS TO CONVERT TO A MASTER/FEEDER STRUCTURE .................... 32
Overview of the Proposal ........................................................... 32
Board Consideration ................................................................ 33
Master/Feeder Structures ........................................................... 33
Taxation of a Master Feeder Structure .............................................. 34
AUTHORIZATION FOR THE FUNDS' ADVISER, BAAI, TO HIRE AND REPLACE INVESTMENT
SUB-ADVISERS OR TO MODIFY INVESTMENT SUB-ADVISORY AGREEMENTS WITHOUT
SHAREHOLDER APPROVAL ................................................................. 35
Overview ........................................................................... 35
Reasons for the Proposal ........................................................... 37
Board Consideration ................................................................ 37
APPROVAL OF NEW FUNDAMENTAL POLICIES .................................................. 38
Overview ........................................................................... 38
Comparison of Investment Policies and Restrictions ................................. 39
OTHER INFORMATION ..................................................................... 39
VOTING MATTERS ........................................................................ 39
General Information ................................................................ 39
Quorum ............................................................................. 40
Shareholder Approval ............................................................... 41
Principal Shareholders ............................................................. 41
Annual Meetings and Shareholder Meetings ........................................... 42
OTHER BUSINESS ........................................................................ 42
SHAREHOLDER INQUIRIES ................................................................. 42
APPENDICES
I. COMPARISON OF THE CURRENT AND PROPOSED FUNDAMENTAL POLICIES AND
LIMITATIONS OF THE FUNDS ........................................................ I-1
II. OTHER FUNDS ADVISED BY THE INVESTMENT ADVISERS .................................. II-1
III. EXPENSE SUMMARIES OF FUNDS FOR WHICH A FEE/EXPENSE CHANGE IS
PROPOSED ........................................................................ III-1
</TABLE>
5
<PAGE>
CHANGES TO THE NAME, INVESTMENT OBJECTIVE AND PRINCIPAL
INVESTMENT STRATEGIES OF THE FUNDS
(For SmallCap Index Portfolio, International Growth Portfolio,
Balanced Assets Portfolio, Managed Index Portfolio and Aggressive
Growth Portfolio Shareholders Only)
Overview
As part of an effort to continually improve Annuity Trust's variable
annuity and variable life underlying Fund options, management is proposing, and
the Board has approved, the restructuring of the SmallCap Index Portfolio, the
International Growth Portfolio, the Balanced Assets Portfolio, the Managed
Index Portfolio and the Aggressive Growth Portfolio. This restructuring
involves some or all of the following for these Funds: (i) a name change; (ii)
modification to investment objective and principal investment strategies; and
(iii) change to the investment advisory and/or investment sub-advisory
arrangements. The name changes and modifications to the investment objectives
and principal investment strategies of the Funds do not require shareholder
approval but will not be implemented unless shareholders approve the related
investment advisory and/or sub-advisory agreement matters which are discussed
in more detail below.
If the related advisory and sub-advisory matters are approved and the
changes to Fund name, investment objective and/or principal investment
strategies are made, management believes the restructured Funds would serve the
interests of existing contract owners and would likely provide an attractive,
well-rounded variety of portfolio choices for all contract owners going
forward, potentially leading to larger asset sizes and cost savings for any
economies of scale achieved.
Comparison of Current and Proposed Names, Investment Objectives and Principal
Investment Strategies
The chart below compares the current name, investment objectives and
principal investment strategies of the Funds with their proposed alternatives.
6
<PAGE>
<TABLE>
<S> <C>
CURRENT PROPOSED
------------------------------------------------------- --------------------------------------------------
SmallCap Index Portfolio Nations Small Company Portfolio
Objective: Objective:
To seek investment results that (before fees and To seek long-term capital growth by investing
expenses) correspond to the total return of the primarily in equity securities.
Standard & Poor's SmallCap 600 Stock Price Index
("S&P SmallCap 600").
Strategy: Strategy:
The Fund normally invests at least 80% of its assets The Fund normally invests at least 65% of its
in common stocks that are included in the S&P assets in companies with a market capitalization
SmallCap 600. The S&P SmallCap 600 is an of $2 billion or less. The Fund usually holds 75
unmanaged market capitalization index consisting of to 130 securities, which include common stocks,
600 common stocks weighted by market preferred stocks and convertible securities like
capitalization. It is not available for investment. warrants, rights and convertible debt.
---------------------------------------------------------------------------------------------------------------
International Growth Portfolio Nations Marsico International Opportunities
Portfolio
Objective: Objective:
To seek long-term capital growth by investing To seek long-term growth of capital.
primarily in equity securities of companies
domiciled in countries outside the United States and
listed on major stock exchanges primarily in Europe
and the Pacific Basin.
Strategy: Strategy:
The Fund normally invests at least 65% of its assets The Fund normally invests at least 65% of its
in foreign companies listed on major exchanges in assets in common stocks of foreign companies.
Europe and the Pacific Basin. These companies can While the Fund may invest in companies of any
be of any size. size, it focuses on large companies. These
companies are selected for their long-term growth
potential. The Fund normally invests in issuers
from at least three different countries not
including the United States and generally holds a
core position of 35 to 50 common stocks. The
Fund may invest in common stocks of companies
operating in emerging markets.
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</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Balanced Assets Portfolio Nations Asset Allocation Portfolio
Objective: Objective:
To seek total return by investing in equity and fixed To seek to obtain long-term growth from capital
income securities. appreciation and dividend and interest income.
Strategy: Strategy:
This Fund invests in a mix of equity and fixed The Fund invests in a mix of equity and fixed
income securities, as well as money market income securities, as well as cash equivalents,
instruments. including U.S. government obligations,
commercial paper and other short-term interest-
bearing instruments.
---------------------------------------------------------------------------------------------------------------
Managed Index Portfolio Nations Capital Growth Portfolio
Objective: Objective:
To seek, over the long term, to provide a total To seek growth of capital by investing in
return that (before fees and expenses) exceeds the companies that are believed to have superior
total return of the Standard & Poor's 500 earnings growth potential.
Composite Stock Price Index ("S&P 500").
Strategy: Strategy:
The Fund normally invests at least 80% of its assets The Fund normally invests at least 65% of its
in common stocks that are included in the S&P 500. assets in common stocks of companies that have
The S&P 500 is an unmanaged index of 500 widely one or more of the following characteristics:
held common stocks, and is not available for o above-average earnings growth compared with the
investment. S&P 500
o established operating histories, strong balance
sheets and favorable financial performance
o above-average return on equity compared with the
S&P 500.
---------------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio Nations Marsico 21st Century Portfolio
Objective: Objective:
To seek capital appreciation. To seek long-term growth of capital.
Strategy: Strategy:
The Fund normally invests at least 65% of its assets The Fund is an aggressive growth fund that
in common stocks of large and medium-sized U.S. primarily invests in equity securities of
companies. These companies typically have a companies of any capitalization size. The Fund
market capitalization of $500 million or more. will focus on paradigm shifting technologies and
companies seeking to take advantage of
technological innovations in the way business is
conducted. The Fund may invest without limit in
foreign securities.
</TABLE>
8
<PAGE>
PROPOSED CHANGES TO INVESTMENT ADVISORY & SUB-ADVISORY
ARRANGEMENTS
(For SmallCap Index Portfolio, International Growth Portfolio,
Balanced Assets Portfolio, Managed Index Portfolio and Aggressive
Growth Portfolio Shareholders Only)
Overview
BAAI currently serves as the investment adviser to each Fund pursuant to
an investment advisory agreement with Annuity Trust (the "Current BAAI
Agreement"). BACAP serves as the investment sub-adviser to the SmallCap Index
Portfolio, the Balanced Assets Portfolio, the Managed Index Portfolio and the
Aggressive Growth Portfolio pursuant to an investment sub-advisory agreement
among Annuity Trust, BAAI and BACAP (the "Current BACAP Agreement"). Gartmore
Global Partners ("Gartmore") serves as the investment sub-adviser to the
International Growth Portfolio pursuant to an investment sub-advisory agreement
among Annuity Trust, BAAI and Gartmore (the "Current Gartmore Agreement"). In
connection with the change of name, investment objective and principal
investment strategies discussed above, shareholders are being asked to approve
changes to the current investment advisory and/or sub-advisory arrangements for
these Funds. The proposed changes are outlined in the following table.
<TABLE>
<CAPTION>
ADVISORY SUB-ADVISORY
CURRENT PROPOSED CURRENT SUB- PROPOSED SUB-
ADVISER/ ADVISER/ ADVISER/ ADVISER/
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
FUND ANNUAL FEE ANNUAL FEE ANNUAL FEE ANNUAL FEE
----------------------------------------- ------------ ------------ ---------------- -------------------
<S> <C> <C> <C> <C>
BAAI/0.40% BAAI/0.90% BACAP/0.10% BACAP/0.25%
SmallCap Index Portfolio (would
become Nations Small Company
Portfolio)
International Growth Portfolio (would No Change No Change Gartmore/0.54% Marsico
become Nations Marsico International Capital/0.45%
Opportunities Portfolio)
Balanced Assets Portfolio (would No Change No Change BACAP/0.25% BACAP/0.25%
become Nations Asset Allocation (non-equity
Portfolio) portion) & Chicago
Equity/0.25%
(equity portion)
Managed Index Portfolio (would BAAI/0.40% BAAI/0.65% BACAP/0.10% BACAP/0.25%
become Nations Capital Growth
Portfolio)
Aggressive Growth Portfolio (would BAAI/0.65% BAAI/0.75% BACAP/0.25% Marsico
become Nations Marsico 21st Century Capital/0.45%
Portfolio)
</TABLE>
Shareholder approval is being requested for the Funds shown in the table
where there is either a proposed change in the maximum annual fees paid (as a
percentage of a Fund's average daily net assets) pursuant to an investment
advisory and/or sub-advisory agreement, or a proposed change to the investment
sub-adviser that
9
<PAGE>
manages a Fund. More specifically, shareholders of the SmallCap Index
Portfolio, the Managed Index Portfolio and the Aggressive Growth Portfolio are
being asked to approve a new investment advisory agreement with BAAI reflecting
the proposed change in the maximum annual fees that may be paid for BAAI's
services as shown in the table (the "New BAAI Agreement"). In addition,
shareholders of the SmallCap Index Portfolio, the Balanced Assets Portfolio and
the Managed Index Portfolio are being asked to approve a new investment
sub-advisory agreement with BACAP reflecting the proposed change in the maximum
annual fees that may be paid for BACAP's services as shown in the table (the
"New BACAP Agreement"). Further, shareholders of the International Growth
Portfolio and the Aggressive Growth Portfolio are being asked to approve a new
investment sub-advisory agreement with Marsico Capital, pursuant to which
Marsico Capital would serve as investment sub-adviser to such Funds and may
receive the maximum annual compensation as shown in the table (the "New Marsico
Capital Agreement"). Finally, shareholders of the Balanced Assets Portfolio are
also being asked to approve a new investment sub-advisory agreement with
Chicago Equity, pursuant to which Chicago Equity would serve as investment
sub-adviser to the Fund and may receive the maximum annual compensation as
shown in the table (the "New Chicago Equity Agreement").
The maximum annual investment advisory and/or sub-advisory fees paid for
some of the Funds will be higher if the proposed agreements are implemented.
The important reasons for these changes are discussed below under the separate
headings for each new agreement.
APPROVAL OF NEW BAAI AGREEMENT
(For SmallCap Index Portfolio, Managed Index Portfolio and Aggressive Growth
Portfolio Shareholders Only)
Description of the New BAAI Agreement
BAAI currently serves as the adviser to these Funds pursuant to the
Current BAAI Agreement, which is dated February 25, 1998 and was approved by
the sole shareholder of the Funds on that date. Under the Current BAAI
Agreement, BAAI is entitled to receive a maximum advisory fee at the annual
rate of 0.40% of the average daily net assets of each of the SmallCap Index
Portfolio and the Managed Index Portfolio, and 0.65% of the average daily net
assets of the Aggressive Growth Portfolio.
The New BAAI Agreement is based on a new uniform form of investment
advisory agreement that the entire Nations Funds family is in the process of
implementing over time. Accordingly, the New BAAI Agreement will be different
in form than the Current BAAI Agreement, although the scope and type of
services under the New BAAI Agreement are substantially the same as those
provided under the Current BAAI Agreement. Under the New BAAI Agreement, BAAI
would be entitled to receive an advisory fee at the maximum annual rate of
0.90% of the average daily net assets of the SmallCap Index Portfolio, 0.65% of
the average daily net assets of the Managed Index Portfolio and 0.75% of the
average daily net assets of the Aggressive Growth Portfolio.
Pursuant to the New BAAI Agreement, BAAI will continue to provide, or
arrange for the provision of by an investment sub-adviser, the management
services necessary for the investment operations of each Fund,
10
<PAGE>
including determining from time to time what securities and other investments
will be purchased, retained or sold by the Funds, and the placing, or arranging
for the placement of, all orders for the purchase or sale of securities. In
addition, BAAI will continue to: provide, or delegate to an investment
sub-adviser to provide, additional services related to the continuous
investment program, including recordkeeping services; comply with all
applicable rules and regulations of the SEC; use the same skill and care in
providing such services as it uses in providing services to fiduciary accounts
for which it has investment responsibilities; use its best efforts to seek on
behalf of the Funds the best overall terms available when executing portfolio
transactions, and in evaluating the best overall terms available, may consider
the brokerage and research services provided to the Funds and/or other accounts
over which BAAI exercises investment discretion.
If approved by shareholders at the Meetings, the New BAAI Agreement will
remain in effect for a two-year period following the date of such approval.
Thereafter, the New BAAI Agreement will continue in effect for successive
periods not to exceed one year, provided that such continuance is specifically
approved at least annually by the Board, or by a vote of a majority of the
outstanding shares of each of the Funds, and in either case by a majority of
the Trustees who are not interested persons of the Funds or BAAI, as that term
is defined in the Investment Company Act of 1940, as amended (the "1940 Act")
(the "Non-Interested Trustees").
There are no material differences (other than the changes in fees
discussed above) between the Current BAAI Agreement and the New BAAI Agreement.
Nevertheless, copies of the New BAAI Agreement are available upon request by
writing or calling Annuity Trust at the toll-free number listed on the first
page of this Proxy Statement.
Reasons for the New BAAI Agreement
The SmallCap Index Portfolio
The Board, at its in-person meeting held on November 29, 2000, approved
the restructuring of the SmallCap Index Portfolio from an index style fund,
which is passively managed, to a fund that is actively managed. One difference
between these two styles relates to whether the management team actively
chooses investments for the Fund based on detailed research and analysis versus
passively buying stocks seeking to replicate the composition of an index. For
the SmallCap Index Portfolio, BAAI and the Board oversee the Fund's
sub-adviser, BACAP, whose Quantitative Strategies Team seeks to maintain a
portfolio whose holdings match the securities in the S&P SmallCap 600.
If the New BAAI Agreement and the New BACAP Agreement are approved by Fund
shareholders and the restructuring occurs, the Fund (to be renamed Nations
Small Company Portfolio) will be actively managed and BACAP's SmallCap
Strategies Team will actively pick stocks according to the new principal
investment strategy discussed above. Specifically, the team will identify
stocks using a disciplined process based on a fundamental analysis of the
overall economy, industry conditions, and the financial situation and
management of each company. The team will then conduct a rigorous qualitative
analysis of each company being considered for investment. The team will only
invest in a company when its stock price is believed to be
11
<PAGE>
attractive relative to its forecasted growth. The resulting portfolio will be
comprised substantially of stocks of between 75 to 130 companies that have
market capitalizations of $2 billion or less.
The increase in the maximum annual advisory fee and sub-advisory fees that
may be paid to BAAI and BACAP, respectively, directly reflects this change in
management style. The sub-advisory fees paid to BACAP will continue to be paid
by BAAI from the advisory fees it receives from the Funds. The New BACAP
Agreement is discussed below under "Approval of the New BACAP Agreement." If
either the New BAAI Agreement or the New BACAP Agreement is not approved by
shareholders, the Board will consider what further action is appropriate.
The Managed Index Portfolio
With respect to the Managed Index Portfolio, at its in-person meeting held
on November 29, 2000, the Board approved the restructuring of the Fund from a
managed index style to an actively managed style. When utilizing a managed
index style, BACAP's Quantitative Strategies Team starts with stocks included
in the benchmark index (in this case the S&P 500), and then ranks the
attractiveness of each stock in the index using quantitative analysis. The
quantitative analysis takes into account value measures like book value,
earnings yield and cash flow to measure a stock's intrinsic worth versus its
market price. Each stock is assigned a ranking from 1 to 10 (best to worst).
The Fund generally holds a slightly higher percentage of attractively ranked
stocks than the relevant index and holds a lower percentage -- or none -- of
less attractively ranked stocks.
If the New BAAI Agreement and the New BACAP Agreement are approved by Fund
shareholders and the restructuring occurs, the Fund (to be renamed Nations
Capital Growth Portfolio) will be actively managed and BAAI and the Board will
oversee the Fund's investment sub-adviser, BACAP, whose Growth Strategies Team
will actively choose investments for the Fund according to the new principal
investment strategy discussed above. The team will identify stocks using a
disciplined analytical process. The team believes that this analysis identifies
companies with favorable long-term growth potential, competitive advantages and
sensible business strategies. The team will then use quantitative analysis to
decide when to invest, evaluating each company's earning trends and stock
valuations, among other things, to try to determine when it is reasonably
valued. In actively managing the portfolio, the team will consider the
characteristics of the S&P 500 as a general baseline. The index characteristics
evaluated by the team include risk and sector diversification, as well as
individual securities holdings. The resulting portfolio will be comprised
substantially of common stocks that are believed to have: above-average
earnings growth compared with the S&P 500; established operating histories,
strong balance sheets and favorable financial performance; and above-average
return on equity compared with the S&P 500.
The increase in the maximum annual advisory and sub-advisory fee that may
be paid to BAAI and BACAP under the New BAAI Agreement and the New BACAP
Agreement, respectively, is directly a result of the change in management
style. The sub-advisory fees paid to BACAP will continue to be paid by BAAI
from the advisory fees it receives from the Funds. The New BACAP Agreement is
discussed below under "Approval of the New BACAP Agreement." If either the New
BAAI Agreement or the New BACAP Agreement is not approved by shareholders, the
Board will consider what further action is appropriate.
12
<PAGE>
The Aggressive Growth Portfolio
The restructuring approved by the Board with respect to the Aggressive
Growth Portfolio involves a change in the way that the Fund is managed as well
as a change in the investment sub-adviser making the day-to-day investment
decisions for the Fund. The new sub-advisory arrangements are discussed below
under "Approval of the New Marsico Capital Agreement." Currently, BAAI and the
Board oversee the Fund's sub-adviser, BACAP, whose Growth Strategies Team
identifies stocks using a disciplined analytical process. The team believes
that the process identifies companies with favorable long-term growth
potential, competitive advantages and sensible business strategies. Then the
team uses quantitative analysis to decide when to invest, evaluating each
company's earnings trends and stock valuations, among other things, to try to
determine when it is reasonably valued. In managing the portfolio, the team
considers the characteristics of the Russell 1000 Growth Index as a general
baseline. The index characteristics evaluated by the team include risk and
sector diversification, as well as individual securities holdings. The
resulting portfolio typically consists of between 50 to 75 securities.
If the New BAAI Agreement and the New Marsico Capital Agreement are
approved by Fund shareholders and the restructuring occurs, the Fund (to be
renamed Nations Marsico 21st Century Portfolio) will be advised by BAAI, which
(along with the Board) will oversee the Fund's new investment sub-adviser,
Marsico Capital. Marsico Capital will look for companies with earnings growth
potential that may not be recognized by other investors. Once an investment
opportunity is identified, Marsico Capital will use a disciplined analytical
process to assess its potential as an investment. This process includes a
"top-down" analysis that takes into account economic factors like interest
rates, inflation, the regulatory environment, the industry and global
competition. The process also includes a "bottom-up" analysis of a company's
financial situation, as well as individual company characteristics like
commitment to research, market franchise and quality of management.
The change in investment sub-adviser and the increase in the maximum
annual advisory fee and sub-advisory fee that may be paid to BAAI and Marsico
Capital under the New BAAI Agreement and the New Marsico Capital Agreement,
respectively, are direct results of the change in management style. The
sub-advisory fees paid to Marsico Capital will be paid by BAAI from the
advisory fees it receives from the Fund. The New Marsico Capital Agreement is
discussed below under "Approval of the New Marsico Capital Agreement." If
either the New BAAI Agreement or the New Marsico Capital Agreement is not
approved by shareholders, the Board will consider what further action is
appropriate.
Board Consideration
The New BAAI Agreement was approved by the Board, including a majority of
the Non-Interested Trustees, at a regular in-person meeting held on November
29, 2000. The Board was provided with information concerning the New BAAI
Agreement and was informed of the standards that the Board should apply in
determining whether to approve the New BAAI Agreement. The information provided
by management to the Board included comparative investment advisory fee
information.
13
<PAGE>
Specifically, the Board determined that the compensation payable under the
New BAAI Agreement was fair and reasonable in light of the proposed
restructuring of the Funds. During its deliberations, the Board considered,
among other things: (i) the long-term viability of the Funds, as currently
structured, given their current asset levels and their ability to attract
additional assets; (ii) the investment advisory fees paid by the Funds, and the
historical and projected expense ratios for the Funds, as compared with those
of the Funds under the proposed restructuring, as well as industry peer groups;
(iii) the option of liquidating the Funds; (iv) the historical investment
performance records of non-annuity Nations Funds with identical investment
objectives and principal investment strategies as the Funds would have under
the proposed restructuring; and (v) the greater efficiency in administering a
standard form of contract.
Based upon their evaluation of the information presented to them, and in
light of their fiduciary duties under federal and state law, the Board of
Trustees of Annuity Trust, including the Non-Interested Trustees, approved the
New BAAI Agreement.
THE BOARD OF TRUSTEES, INCLUDING THE NON-INTERESTED TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THIS PROPOSAL
Information Regarding BAAI
BAAI also serves as the investment adviser to the funds of Nations Fund,
Inc., Nations Fund Trust, Nations Reserves, Nations Funds Trust, Nations
LifeGoal Funds, Inc. and Nations Master Investment Trust, each a registered
investment company that is part of the Nations Funds family. In addition, BAAI
serves as the investment adviser to Hatteras Income Securities, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc. and Nations Balanced Target Maturity Fund, Inc., each a closed-end
diversified management investment company traded on the New York Stock
Exchange, and as investment manager to a private investment company.
BAAI is a wholly owned subsidiary of Bank of America, N.A., which in turn
is a wholly owned banking subsidiary of Bank of America Corporation ("Bank of
America"), a bank holding company organized as a Delaware corporation. The
principal office of BAAI is located at One Bank of America Plaza, 101 South
Tryon Street, Charlotte, North Carolina 28255. The address of Bank of America,
N.A. is: 101 South Tryon Street, Charlotte, North Carolina 28255.
The owners and principal executive officers of BAAI are listed below. The
address for each is: c/o Banc of America Advisors, Inc., One Bank of America
Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255.
14
<PAGE>
<TABLE>
<CAPTION>
Name Position at BAAI Principal Occupation(s)
---------------------- -------------------------------- -----------------------------------------------
<S> <C> <C>
Edward D. Bedard Director, Chief Administrative Same position at BAAI; Chief Administrative
Officer Officer and Treasurer, BACAP; Senior Vice
President, Bank of America
Holly Day Deem Director Same position at BAAI; President, Bank of
America Private Investments; Senior Vice
President, Bank of America
Arthur A. Fritz Director of Compliance Same position at BAAI
Robert H. Gordon President; Director Same position at BAAI; Chief Marketing Officer
and Co-Chairman, BACAP; Director of
Marketing, Bank of America
Michael E. Kenneally Director Same position at BAAI; President and Chief
Investment Officer, BACAP; President and Chief
Investment Officer, Bank of America
Robert W. Decker Director Same position at BAAI; Chief Operating Officer
and Director, BACAP; Senior Vice President,
Bank of America
Michael S. Podracky Treasurer Same position at BAAI
Edward J. Stark Secretary Same position at BAAI; Senior Vice President,
Bank of America
</TABLE>
The aggregate amount paid to BAAI (or its predecessor) for each Fund (or
its predecessor) for the period January 1, 2000 through December 31, 2000 was
as follows: $0 for the SmallCap Index Portfolio; $0 for the Managed Index
Portfolio; and $0 for the Aggressive Growth Portfolio. Had the proposed
investment advisory fees been in effect for each of these Funds during this
same period, the aggregate amount paid to BAAI would have been as follows: $0
for the SmallCap Index Portfolio; $27,124 for the Managed Index Portfolio; and
$0 for the Aggressive Growth Portfolio. The difference between these aggregate
amounts with respect to each Fund, represented as a percentage of the aggregate
amount advisory fees actually received is as follows: 0% for the SmallCap Index
Portfolio; 100% for the Managed Index Portfolio; and 0% for the Aggressive
Growth Portfolio. The aggregate amount paid to BAAI (or its predecessor) for
each mutual fund in the Nations Funds family (or their predecessors) for the
period January 1, 2000 through December 31, 2000 was $194,936,708.
Appendix II sets forth the fees and other information regarding certain
other Funds advised by BAAI having a similar investment objective as the Funds.
15
<PAGE>
For the fiscal year ended December 31, 2000, BAAI waived advisory fees
and/or reimbursed expenses for the Funds as follows:
<TABLE>
<CAPTION>
Fees Waived Expenses Reimbursed
------------- --------------------
<S> <C> <C>
SmallCap Index Portfolio $32,094 $66,289
Managed Index Portfolio $91,336 $29,961
Aggressive Growth Portfolio $39,771 $22,459
</TABLE>
APPROVAL OF NEW BACAP AGREEMENT
(For SmallCap Index Portfolio, Balanced Assets Portfolio and
Managed Index Portfolio Shareholders Only)
Description of the New BACAP Agreement
BACAP currently serves as the investment sub-adviser to these Funds
pursuant to the Current BACAP Agreement, which is dated February 25, 1998 and
was approved by the sole shareholder of the Funds on that date. Under the
Current BACAP Agreement, BACAP is entitled to receive from BAAI a maximum
sub-advisory fee at the annual rate of 0.10% of the average daily net assets of
each of the SmallCap Index Portfolio and the Managed Index Portfolio, and 0.25%
of the average daily net assets of the Balanced Assets Portfolio.
The New BACAP Agreement is based on a new uniform form of agreement that
the entire Nations Funds family is in the process of implementing over time.
Accordingly, the New BACAP Agreement will be different in form than the Current
BACAP Agreement, although the scope and type of services under the New BACAP
Agreement are substantially the same as those provided under the Current BACAP
Agreement. Under the New BACAP Agreement, BACAP would be entitled to receive a
maximum advisory fee at the annual rate of 0.25% of the average daily net
assets of each of the SmallCap Index Portfolio and the Managed Index Portfolio
and 0.25% of the average daily net assets of the non-equity portion of the
Balanced Assets Portfolio (it is proposed that Chicago Equity would manage the
equity portion of the Balanced Assets Portfolio pursuant to the New Chicago
Equity Agreement discussed below under "Approval of the New Chicago Equity
Agreement.").
Pursuant to the New BACAP Agreement, BACAP will continue to perform the
management services necessary for the investment operations of each Fund
including, determining from time to time what securities and other investments
will be purchased, retained or sold by the Funds, and will place the daily
orders for the purchase or sale of securities. In addition, BACAP will continue
to: provide additional services related to the continuous investment program,
including recordkeeping services; comply with all applicable rules and
regulations of the SEC; use the same skill and care in providing such services
as it uses in providing services to fiduciary accounts for which it has
investment responsibilities; use its best efforts to seek on behalf of the
Funds the best overall terms available when executing portfolio transactions,
and in evaluating the best overall terms available, may consider the brokerage
and research services provided to the Funds and/or other accounts over which
BACAP exercises investment discretion.
16
<PAGE>
If approved by shareholders at the Meetings, the New BACAP Agreement will
remain in effect for a two-year period following the date of such approval.
Thereafter, the New BACAP Agreement will continue in effect for successive
periods not to exceed one year, provided that such continuance is specifically
approved at least annually by the Board, or by a vote of a majority of the
outstanding shares of each of the Funds, and in either case by a majority of
Non-Interested Trustees.
There are no material differences (other than the changes in fees
discussed above) between the Current BACAP Agreement and the New BACAP
Agreement. Nevertheless, copies of the New BACAP Agreement are available upon
request by writing or calling Annuity Trust at the toll-free number listed on
the first page of this Proxy Statement.
Reasons for the New BACAP Agreement
At an in-person meeting held on November 29, 2000, the Board approved the
new names and modifications to the investment objectives and principal
investment strategies as outlined in the table above under "Comparison of
Current and Proposed Names, Investment Objectives and Principal Investment
Strategies." Approval of the New BACAP Agreement is necessary in order to
implement such changes and modifications for the SmallCap Index Portfolio, the
Managed Index Portfolio and the Balanced Assets Portfolio, reflecting the
change in maximum fee rates payable to BACAP for its services to the SmallCap
Index Portfolio and the Managed Index Portfolio and the change to the type of
assets managed by BACAP for the Balanced Assets Portfolio. There is no proposed
change to the maximum fees paid to BACAP by the Balanced Assets Portfolio. The
change in maximum fee rates for the SmallCap Index Portfolio and the Managed
Index Portfolio directly reflects the proposed change to how each such Fund
would be managed.
The SmallCap Index Portfolio
For a detailed discussion of the proposed change of management style for
this Fund and the effects of approving the New BACAP Agreement, see the
discussion above under "Reasons for the New BAAI Agreement -- The SmallCap
Index Portfolio."
The Managed Index Portfolio
For a detailed discussion of the proposed change of management style for
this Fund and the effects of approving the New BACAP Agreement, see the
discussion above under "Reasons for the New BAAI Agreement -- The Managed Index
Portfolio."
The Balanced Assets Portfolio
The restructuring approved by the Board with respect to the Balanced
Assets Portfolio involves a change in the way that the equity portion of the
Fund is managed, including a change in the investment sub-adviser that manages
the equity portion of the Fund. Currently, BACAP is the sub-adviser for all of
the assets of the
17
<PAGE>
Fund. If the New BACAP Agreement and the New Chicago Equity Agreement
(discussed below) are approved and the restructuring occurs, BACAP's Fixed
Income Management Team will continue to manage the non-equity portion of the
assets of the Fund and Chicago Equity will manage the equity portion of the
Funds' assets. Accordingly, it is proposed that shareholders of the Balanced
Assets Portfolio approve the New BACAP agreement for the non-equity portion of
the Fund only. The New Chicago Equity agreement is discussed below under
"Approval of the New Chicago Equity Agreement."
Currently, BACAP uses asset allocation as its primary investment approach.
The management team allocates assets among three classes based on its
assessment of the expected risks and returns of each class. The team may change
the Fund's asset allocation to try to increase returns and reduce risk. The
team identifies individual investments using the following process: for the
equity portion of the Fund, the team evaluates the overall economy, industry
conditions, and the financial condition and management of each company, using a
process called fundamental analysis; for the fixed income portion of the Fund,
the team looks for securities rated investment grade at the time of investment.
The team may choose unrated securities if it believes they are of comparable
quality to investment grade securities at the time of investment; for the money
market portion of the Fund, the team chooses money market securities believed
to be of high quality. The resulting portfolio will be comprised of a mix of
equity, fixed-income securities and cash equivalents.
If the New BACAP Agreement and the New Chicago Equity Agreement are
approved by Fund shareholders and the restructuring occurs, the non-equity
portion of the Fund will continue to be managed by BACAP using the same
management style discussed above. BACAP will be entitled to receive the same
maximum fee it receives under the Current BACAP Agreement, and Chicago Equity
will manage the equity portion of the Fund for the maximum fee as discussed
below under "Approval of the Chicago Equity Agreement." Although the investment
sub-advisory fee rate will be higher if the restructuring of the Fund is
implemented, because BAAI would pay these sub-advisory fees out of its advisory
fees, shareholders of the Fund will not see any change to their aggregate
advisory fee rate.
Board Consideration
The New BACAP Agreement was approved by the Board, including a majority of
the Non-Interested Trustees, at a regular in-person meeting held on November
29, 2000. The Board was provided with information concerning the New BACAP
Agreement and was informed of the standards that the Board should apply in
determining whether to approve the New BACAP Agreement. The information
provided by management to the Board included comparative investment
sub-advisory fee information.
Specifically, the Board determined that the compensation payable under the
New BACAP Agreement was fair and reasonable in light of the proposed
restructuring of the Funds. During its deliberations, the Board considered,
among other things: (i) the long-term viability of the Funds, as currently
structured, given their current asset levels and their ability to attract
additional assets; (ii) the investment sub-advisory fees paid by the Funds, and
the historical and projected expense ratios for the Funds, as compared with
those of the Funds under the proposed restructuring, as well as industry peer
groups; (iii) the option of liquidating the Funds; and (iv) the historical
investment performance records of non-annuity Nations Funds with identical
investment objectives and principal investment strategies as the Funds would
have under the proposed restructuring.
18
<PAGE>
Based upon their evaluation of the information presented to them, and in
light of their fiduciary duties under federal and state law, the Board of
Trustees of Annuity Trust, including the Non-Interested Trustees, approved the
New BACAP Agreement.
THE BOARD OF TRUSTEES, INCLUDING THE NON-INTERESTED TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THIS PROPOSAL
Information Regarding BACAP
BACAP is a wholly owned subsidiary of Bank of America, N.A. , which in
turn is a wholly owned banking subsidiary of Bank of America, a bank holding
company organized as a Delaware corporation. The principal office of BACAP is
located at One Bank of America Plaza, 101 South Tryon Street, Charlotte, North
Carolina 28255. The address of Bank of America, N.A. is: 101 South Tryon
Street, Charlotte, North Carolina 28255.
The owners and principal executive officers of BACAP are listed below. The
address for each is: c/o Banc of America Capital Management, Inc., One Bank of
America Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255.
<TABLE>
<CAPTION>
Name Position at BACAP Principal Occupation(s)
---------------------- ------------------------------ -----------------------------------------------------
<S> <C> <C>
Edward D. Bedard Chief Administrative Officer Same position at BACAP; Director and Chief
Administrative Officer, BAAI; Senior Vice President,
Bank of America
Robert W. Decker Chief Operating Officer Same position at BACAP; Senior Vice President, Bank
of America
David W. Fisher Director Same position at BACAP; President Trust, Investments
& Banking, Bank of America
Robert H. Gordon Chief Marketing Officer and Same position at BACAP; President and Director,
Co-Chairman BAAI; Senior Vice President, Bank of America
Michael E. Kenneally President and Chief Same position at BACAP; Director, BAAI; President
Investment Officer and Chief Investment Officer, Bank of America
Michael S. Podracky Chief Financial Officer Same position at BACAP; Chief Operating Officer,
BAAI; Senior Vice President, Bank of America
</TABLE>
The aggregate amount paid to BACAP (or its predecessor) for each Fund (or
its predecessor) for the period January 1, 2000 through December 31, 2000 was
as follows: $0 for the SmallCap Index Portfolio; $0 for the Managed Index
Portfolio; and $0 for the Balanced Assets Portfolio. Had the proposed
investment sub-advisory fees been in effect for each of these Funds during this
same period, the aggregate amount paid to BACAP would have been as follows: $0
for the SmallCap Index Portfolio; and $11,417 for the Managed Index Portfolio.
The difference between these aggregate amounts with respect to each Fund,
represented as a
19
<PAGE>
percentage of the aggregate amount of sub-advisory fees actually received is as
follows: 0% for the SmallCap Index Portfolio; and 100% for the Managed Index
Portfolio. The aggregate amount paid to BACAP (or its predecessor) for each
mutual fund in the Nations Funds family (or their predecessors) for the period
January 1, 2000 through December 31, 2000 was $52,107,324.
Appendix II sets forth the fees and other information regarding certain
other Funds sub-advised by BACAP having a similar investment objective as the
Funds.
For the fiscal year ended December 31, 2000, BACAP waived sub-advisory
fees and/or reimbursed expenses for the Funds as follows:
<TABLE>
<CAPTION>
Fees Waived Expenses Reimbursed
------------- --------------------
<S> <C> <C>
Balanced Assets Portfolio $16,071 $0
Managed Index Portfolio $82,834 $0
SmallCap Index Portfolio $ 8,040 $0
</TABLE>
APPROVAL OF NEW MARSICO CAPITAL AGREEMENT
(For International Growth Portfolio and Aggressive Growth
Portfolio Shareholders Only)
Description of the New Marsico Capital Agreement
Gartmore currently serves as the investment sub-adviser to the
International Growth Portfolio pursuant to the Current Gartmore Agreement,
which is dated August 1, 2000 and was approved by the shareholders of the Fund
on that date. BACAP currently serves as the investment sub-adviser to the
Aggressive Growth Portfolio pursuant to the Current BACAP Agreement, which is
dated February 25, 1998 and was approved by the sole shareholder of the Fund on
that date. Under the Current Gartmore Agreement, Gartmore is entitled to
receive from BAAI a maximum sub-advisory fee at the annual rate of 0.54% of the
average daily net assets of the International Growth Portfolio. Under the
Current BACAP Agreement, BACAP is entitled to receive a maximum sub-advisory
fee at the annual rate of 0.25% of the average daily net assets of Aggressive
Growth Portfolio.
The New Marsico Capital Agreement that shareholders are being asked to
approve is based on a new uniform form of agreement that the entire Nations
Funds family is in the process of implementing over time. The New Marsico
Capital Agreement will be substantially similar in form and substance to the
Current Gartmore Agreement but for one difference. Under the Current Gartmore
Agreement, Gartmore agreed to indemnify, under certain circumstances, the
International Growth Portfolio in the event that a party charges the
International Growth Portfolio with liability. On the other hand, under the New
Marsico Capital Agreement, Marsico Capital has not agreed to indemnify the
International Growth Portfolio under any circumstances in the event that a
party charges the International Growth Portfolio with liability. As a result,
the New Marsico Capital Agreement could be viewed as being less favorable to
shareholders than the Current Gartmore Agreement. The New Marsico Capital
Agreement will be different in form from the Current BACAP Agreement, although
the substance (i.e., the scope and type of services) of the New Marsico Capital
20
<PAGE>
Agreement are substantially the same as those provided under the Current BACAP
Agreement. Under the New Marsico Capital Agreement, Marsico Capital would be
entitled to receive a maximum sub-advisory fee from BAAI at the annual rate of
0.45% of the average daily net assets of each of the International Growth
Portfolio and the Aggressive Growth Portfolio
Detailed information about the New Marsico Capital Agreement can be found
below under "Marsico Change in Control -- Approval of the New Marsico Capital
Agreement."
Reasons for the New Marsico Capital Agreement
At an in-person meeting held on November 29, 2000, the Board approved the
new names and modifications to the investment objectives and principal
investment strategies as outlined in the table above under "Comparison of
Current and Proposed Names, Investment Objectives and Principal Investment
Strategies." Approval of the New Marsico Capital Agreement is necessary in
order to implement such changes and modifications for the International Growth
Portfolio, and approval of the New Marsico Capital Agreement and the New BAAI
Agreement are necessary in order to implement such changes and modifications
for the Aggressive Growth Portfolio. The New BAAI Agreement is discussed above
under "Approval of the New BAAI Agreement." If the New Marsico Capital
Agreement is not approved by shareholders of the International Growth
Portfolio, or if either the New BAAI Agreement or the New Marsico Capital
Agreement is not approved by shareholders of the Aggressive Growth Portfolio,
the Board will consider what further action is appropriate.
The International Growth Portfolio
The restructuring approved by the Board with respect to the International
Growth Portfolio involves a change in the way the Fund is actively managed
including a change to the investment sub-adviser that currently manages the
Fund. Currently, Gartmore uses a "bottom-up" approach to selecting securities,
looking for companies with: high quality and sustainable earnings; high growth
potential over a two-year investment horizon; quality management teams; the
ability to finance growth internally; and strong financial results. Throughout
the investment process, Gartmore seeks to balance the Fund's emphasis on growth
companies with a sensitivity to securities prices.
If the New Marsico Capital Agreement is approved by Fund shareholders and
the restructuring occurs, the Fund will be actively managed by Marsico Capital
which will look for companies with earnings growth potential that may not be
recognized by other investors. Once an investment opportunity is identified,
Marsico Capital will use a disciplined analytical process to assess its
potential as an investment. This process includes a "top-down" analysis that
takes into account economic factors like interest rates, inflation, the
regulatory environment, the industry and global competition. This process also
includes a "bottom-up" analysis of a company's financial situation, as well as
individual company characteristics like commitment to research, market
franchise and quality of management. The resulting portfolio will be comprised
substantially of between 30 and 50 common stocks of large foreign companies.
21
<PAGE>
The change in investment sub-adviser and the decrease in the sub-advisory
fee to be paid to Marsico Capital under the New Marsico Capital Agreement is a
direct result of the change in management style.
The Aggressive Growth Portfolio
For a detailed discussion of the reasons for the New Marsico Capital
Agreement, see the above discussion under "Approval of the New BAAI Agreement --
Reasons for the New BAAI Agreement -- The Aggressive Growth Portfolio."
Board Consideration
The New Marsico Capital Agreement was approved by the Board, including a
majority of the Non-Interested Trustees, at a regular in-person meeting held on
November 29, 2000. The Board was provided with information concerning the New
Marsico Capital Agreement and was informed of the standards that the Board
should apply in determining whether to approve the New Marsico Capital
Agreement. The information provided by management to the Board included
comparative investment sub-advisory fee information.
Specifically, the Board determined that the compensation payable under the
New Marsico Capital Agreement was fair and reasonable in light of the proposed
restructuring of the Funds. During its deliberations, the Board considered,
among other things: (i) the long-term viability of the Funds given their
current asset levels, as currently structured, and their ability to attract
additional assets; (ii) the investment sub-advisory fees paid by the Funds, and
the historical and projected expense ratios for the Funds, as compared with
those of the Funds under the proposed restructuring, as well as industry peer
groups; (iii) the option of liquidating the Funds; (iv) the historical
investment performance records of non-annuity Nations Funds with identical
investment objectives and principal investment strategies as the Funds would
have under the proposed restructuring; and (v) the efficiency in administering
a standard form of agreement.
Based upon their evaluation of the information presented to them, and in
light of their fiduciary duties under federal and state law, the Board of
Trustees of Annuity Trust, including the Non-Interested Trustees, approved the
New Marsico Capital Agreement.
THE BOARD OF TRUSTEES, INCLUDING THE NON-INTERESTED TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THIS PROPOSAL
Information Regarding Marsico Capital
Marsico Capital was established in 1997 by Thomas F. Marsico and TFM
Holdings (defined below). It is a Delaware limited liability company. The
principal source of Marsico Capital's income is professional fees received from
providing continuing investment advice. Marsico Capital provides investment
advice to registered mutual funds that are distributed to retail investors as
well as mutual funds that serve as funding vehicles for variable life insurance
policies and variable annuity contracts. Marsico Capital also provides
investment advice to institutions and individuals and to private funds. Prior
to forming Marsico Capital,
22
<PAGE>
Mr. Marsico served as the portfolio manager of the Janus Twenty Fund from
January 31, 1988 through August 11, 1997 and served in the same capacity for
the Janus Growth and Income Fund from May 31, 1991 through August 11, 1997.
Marsico Capital is located at 1200 17th Street, Suite 1300, Denver, Colorado
80202.
The principal executive officers of Marsico Capital are listed below. The
address of each is: c/o Marsico Capital Management, LLC at the address listed
above.
<TABLE>
<CAPTION>
Name Position at Marsico Capital Principal Occupation(s)
------------------------ ----------------------------- ---------------------------------------
<S> <C> <C>
Thomas F. Marsico Chief Executive Officer and Same position at Marsico Capital
Member
Barbara M. Japha President and General Same position at Marsico Capital
Counsel
Christopher J. Marsico Vice President and Chief Same position at Marsico Capital
Operating Officer
Robert H. Gordon Director See "Information Regarding BAAI" above
Frank L. Gentry Director
Owen G. Shell Director
</TABLE>
Prior to the Transaction (defined below under "Marsico Capital Change in
Control -- Approval of the New Marsico Capital Agreement"), the outstanding
interests of Marsico Capital were held of record by TFM Holdings and Bank of
America through its ownership of Marsico Management Holdings, LLC.
Marsico Capital also provides investment advisory services to Nations
Marsico Focused Equities Master Portfolio, Nations Marsico Growth & Income
Master Portfolio, Nations Marsico 21st Century Master Portfolio and Nations
Marsico International Opportunities Master Portfolio, of Nations Master
Investment Trust, another investment company in the Nations Funds family.
Additionally, Marsico Capital provides investment advisory services to funds
which are not members of the Nations Funds family. The shareholders of the
funds of The Marsico Investment Fund -- Marsico Focus Fund, Marsico Growth &
Income Fund, Marsico 21st Century Fund and Marsico International Opportunities
Fund -- were asked to approve a new advisory agreement with Marsico Capital at
meetings held on November 9, 2000.
Appendix II sets forth the fees and other information regarding certain
other investment companies sub- advised by Marsico Capital.
The aggregate amount paid to Gartmore (or its predecessor) for the
International Growth Fund (or its predecessor) for the period January 1, 2000
through December 31, 2000 was $8,821. The aggregate amount paid to BACAP for
the Aggressive Growth Portfolio for the period January 1, 2000 through December
31, 2000 was $0. Had the proposed investment sub-advisory fees been in effect
for each of these Funds during this same period, the aggregate amount paid to
Marsico Capital would have been as follows: $47,643 for the International
Growth Portfolio; and $27,534 for the Aggressive Growth Portfolio. The
difference between these aggregate amounts with respect to each Fund,
represented as a percentage of the aggregate amount of
23
<PAGE>
sub-advisory fees actually received is as follows: 540% for the International
Growth Portfolio; and 100% for the Aggressive Growth Portfolio. The aggregate
amount paid to Marsico Capital (or its predecessor) for each mutual fund in the
Nations Funds family (or their predecessors) for the period January 1, 2000
through December 31, 2000 was $14,320,382.
Appendix II sets forth the fees and other information regarding certain
other Funds sub-advised by Marsico Capital having a similar investment
objective as the Funds.
For the fiscal year ended December 31, 2000, Marsico Capital (or its
predecessor) did not waive sub-advisory fees and/or reimburse expenses for the
Funds (or their predecessor).
APPROVAL OF NEW CHICAGO EQUITY AGREEMENT
(For Balanced Assets Portfolio Shareholders Only)
Description of the New Chicago Equity Agreement
BACAP currently serves as the investment sub-adviser to the Balanced
Assets Fund pursuant to the Current BACAP Agreement, which is dated February
25, 1998 and was approved by the sole shareholder of the Fund on that date.
Under the Current BACAP Agreement, BACAP is entitled to receive from BAAI a
maximum sub-advisory fee at the annual rate of 0.25% of the average daily net
assets of the Balanced Assets Portfolio.
The New Chicago Equity Agreement is based on a new uniform form of
agreement that the entire Nations Funds family is in the process of
implementing over time. Accordingly, the New Chicago Equity Agreement will be
different in form than the Current BACAP Agreement, although the scope and type
of services under the New Chicago Equity Agreement are substantially the same
as those provided under the Current BACAP Agreement. Under the New Chicago
Equity Agreement, Chicago Equity would be entitled to receive a maximum
advisory fee at the annual rate of 0.25% of the average daily net assets of the
equity portion of the Balanced Assets Portfolio (it is proposed that BACAP
would continue to manage the non-equity portion of the Balanced Assets
Portfolio pursuant to the New BACAP Agreement discussed above under "Approval
of the New BACAP Agreement").
The new form of agreement is more efficient for the Fund, BAAI and Chicago
Equity to utilize because of its standardization. In addition, the New Chicago
Equity Agreement benefits the Fund by providing for the indemnification of the
Fund by Chicago Equity under certain circumstances. Specifically, Chicago
Equity agrees to hold the Fund harmless from any and all direct or indirect
claims, losses, liabilities or damages resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services arising from: (i)
willful misfeasance, bad faith or negligence on the part of Chicago Equity or
any of its officers, directors, employees or agents in connection with their
duties under the New Chicago Equity Agreement, (ii) reckless disregard by
Chicago Equity or its officers, directors, employees or agents of any of their
obligations and duties under the New Chicago Equity Agreement, or (iii) any
violations of federal or state securities laws, rules, regulations, statutes
and codes by Chicago Equity or any of its officers, directors, employees or
agents.
24
<PAGE>
In an attempt to further protect the Fund, the New Chicago Equity Agreement
requires Chicago Equity to maintain a blanket bond and professional liability
insurance in an amount acceptable to BAAI.
The New Chicago Equity Agreement contains additional provisions that are
intended to ensure continued consistency in the services provided to the Fund.
For example, if Chicago Equity becomes aware of any event or occurrence that
could have a material impact on the performance of its duties, the New Chicago
Equity Agreement requires Chicago Equity to provide notice of such event to
BAAI and the Fund. This will enable BAAI and the Fund to avoid any
interruptions in the sub-advisory services provided to the Fund that might
result from events beyond the control of the Fund.
Pursuant to New Chicago Equity Agreement, Chicago Equity will determine,
from time to time what securities and other investments will be purchased,
retained or sold by the equity portion of the Balanced Assets Portfolio, and
will place the daily orders for the purchase or sale of securities. Chicago
Equity also will: provide additional services related to the continuous
investment program, including recordkeeping services; will comply with all
applicable rules and regulations of the SEC; use the same skill and care in
providing such services as it uses in providing services to fiduciary accounts
for which it has investment responsibilities; use its best efforts to seek on
behalf of the Fund the best overall terms available when executing portfolio
transactions, and in evaluating the best overall terms available, may consider
the brokerage and research services provided to the Fund and/or other accounts
over which Chicago Equity exercises investment discretion. Under the New
Chicago Equity Agreement, BAAI retains authority over the management of the
Fund and the investment and disposition of the Fund's assets.
If approved by shareholders at the Meeting, the New Chicago Equity
Agreement will remain in effect for a two-year period following the date of
such approval. Thereafter, the New Chicago Equity Agreement will continue in
effect for successive periods not to exceed one year, provided that such
continuance is specifically approved at least annually by the Board, or by a
vote of a majority of the outstanding shares of the Fund, and in either case by
the Non-Interested Trustees.
Copies of the New Chicago Equity Agreement are available upon request by
writing or calling Annuity Trust at the toll-free number listed on the first
page of this Proxy Statement.
Reasons for the New Chicago Equity Agreement
At an in-person meeting held on November 29, 2000, the Board approved the
new name and modifications to the investment objective and principal investment
strategies as outlined in the table above under "Comparison of Current and
Proposed Names, Investment Objectives and Principal Investment Strategies."
Approval of the New Chicago Equity Agreement is necessary in order to implement
such changes and modifications for the Balanced Assets Portfolio, reflecting
the change in the investment sub-adviser that manages the equity portion of the
Balanced Assets Portfolio. There is no proposed change to the total
sub-advisory fees paid by the Balanced Assets Portfolio.
25
<PAGE>
The restructuring approved by the Board with respect to the Balanced
Assets Portfolio involves a change in the way that the equity portion of the
Fund is actively managed, including a change to the investment sub-adviser that
manages the equity portion of the Fund. Currently, BACAP is the sub-adviser for
all of the assets of the Fund. If the New BACAP Agreement (discussed above) and
the New Chicago Equity Agreement are approved and the restructuring occurs,
BACAP will continue to manage the non-equity portion of the assets of the Fund
and Chicago Equity will manage the equity portion of the Funds assets.
Accordingly, it is proposed that shareholders of the Balanced Assets Portfolio
approve the New Chicago Equity Agreement for the equity portion of the Fund
only. The New BACAP Agreement is discussed above under "Approval of the New
BACAP Agreement." If either the New BACAP Agreement or the New Chicago Equity
Agreement is not approved by shareholders, the Board will consider what further
action is appropriate.
For a discussion of how BACAP currently manages the Fund, see "Approval of
New BACAP Agreement -- Reasons for the New BACAP Agreement -- The Balanced
Assets Fund" above.
If the New BACAP Agreement and the New Chicago Equity Agreement are
approved by Fund shareholders and the restructuring occurs, the non-equity
portion of the Fund will continue to be actively managed by BACAP using the
same management style discussed above, for which BACAP will be entitled to
receive the same fee it receives under the Current BACAP Agreement, and Chicago
Equity will manage the equity portion of the Fund. Pursuant to the New Chicago
Equity Agreement, Chicago Equity will use quantitative analysis to analyze
fundamental information about securities and identify value. Starting with a
universe of approximately 2000 common stocks, Chicago Equity will use a
multi-factor computer model to rank securities. Chicago Equity will try to
manage risk by matching the market capitalization, style and industry weighting
characteristics of the S&P SuperComposite 1500 and will focus on selecting
individual stocks to try to provide higher returns than the S&P SuperComposite
1500 while maintaining a level of risk similar to the index.
Board Consideration
The New Chicago Equity Agreement was approved by the Board, including a
majority of the Non-Interested Trustees, at a regular in-person meeting held on
November 29, 2000. The Board was provided with information concerning the New
Chicago Equity Agreement and was informed of the standards that the Board
should apply in determining whether to approve the New Chicago Equity
Agreement. The information provided by management to the Board included
comparative investment sub-advisory fee information.
Specifically, the Board determined that the compensation payable under the
New Chicago Equity Agreement was fair and reasonable in light of the proposed
restructuring of the Fund. During its deliberations, the Board considered,
among other things: (i) the long-term viability of the Fund given its current
asset level and its ability to attract additional assets; (ii) the investment
sub-advisory fee paid by the Fund, and the historical and projected expense
ratios for the Fund, as compared with those of the Fund under the proposed
restructuring, as well as industry peer groups; (iii) the option of liquidating
the Fund; and (iv) the historical investment performance records of a
non-annuity Nations Fund with an identical investment objective and principal
investment strategies as the Fund would have under the proposed restructuring.
26
<PAGE>
Based upon their evaluation of the information presented to them, and in
light of their fiduciary duties under federal and state law, the Board of
Trustees of Annuity Trust, including the Non-Interested Trustees, approved the
New Chicago Equity Agreement.
THE BOARD OF TRUSTEES, INCLUDING THE NON-INTERESTED TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THIS PROPOSAL
Information Regarding Chicago Equity
Chicago Equity is a limited liability company organized in the State of
Delaware. Chicago Equity is an investment adviser registered under the
Investment Advisers Act of 1940, as amended. The principal source of Chicago
Equity's income is professional fees received from the management of client
portfolios. Chicago Equity manages the assets of fiduciary and other
institutional accounts. Chicago Equity is located at 180 North LaSalle Street,
Suite 3800, Chicago, Illinois 60601.
The owners and principal executive officers of Chicago Equity are listed
below. The address for each is: c/o Chicago Equity Partners LLC, 180 North
LaSalle Street, Suite 3800, Chicago, Illinois 60601.
<TABLE>
<CAPTION>
Name Position at Chicago Equity Principal Occupation(s)
------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
James Miller Chairman of the Board, President and same as position at Chicago Equity
Chief Executive Officer
Patrick Lynch Senior Vice President and Treasurer Director of Sales and Client Services
and Managing Director of Chicago
Equity
Robert Kramer Senior Vice President and Secretary Investment Adviser, Co-Manager of
Research and Managing Director of
Chicago Equity
David Coughenour Senior Vice President Investment Adviser, Co-Manager of
Research and Managing Director of
Chicago Equity
David Johnsen Senior Vice President Investment Adviser, Co-Manager of
Research and Managing Director of
Chicago Equity
</TABLE>
The aggregate amount paid to BACAP for the Balanced Assets Portfolio for
the period January 1, 2000 through December 31, 2000 was $0. Had the proposed
investment sub-advisory fees been in effect for the Fund during this same
period, the aggregate amount paid to Chicago Equity would have been $9,643.
This difference between the aggregate amounts with respect to the Fund,
represented as a percentage of the aggregate amount of sub-advisory fee
actually received is 100% for the Balanced Assets Portfolio.
The aggregate amount paid to Chicago Equity (or its predecessor) for each
mutual fund in the Nations Funds family (or their predecessors) for the period
January 1, 2000 through December 31, 2000 was $3,241,550. For the fiscal year
ended December 31, 2000, Chicago Equity (or its predecessor) did not waive
27
<PAGE>
or otherwise reduce the compensation entitled to it for providing investment
sub-advisory services to such funds (or their predecessor).
Appendix II sets forth the fees and other information regarding certain
other Funds sub-advised by Chicago Equity having a similar investment objective
as the Balanced Assets Portfolio.
MARSICO CAPITAL CHANGE IN CONTROL
APPROVAL OF THE NEW MARSICO CAPITAL AGREEMENT
(For Focused Equities Portfolio and Growth & Income
Portfolio Shareholders Only)
Overview
The investment sub-adviser that manages the Focused Equities Portfolio and
the Growth & Income Portfolio (each a "Marsico Fund" and together, the "Marsico
Funds") on a day-to-day basis is Marsico Capital. In June 2000, Bank of
America, on behalf of itself and its subsidiaries, entered into a definitive
agreement with the general partner and limited partners of TFM Holdings, LLLP
("TFM Holdings") pursuant to which Bank of America agreed to purchase their
interests in TFM Holdings (the "Transaction"). Prior to the Transaction, TFM
Holdings owned 50% of Marsico Capital. Following the Transaction, which
occurred on January 2, 2001, a Bank of America wholly-owned subsidiary, Marsico
Management Holdings, LLC, now owns 100% of Marsico Capital.
The Transaction has not resulted in any change in Marsico Capital
personnel who manage the Marsico Funds or in the way that the Marsico Funds are
managed. Additionally, the investment objectives and principal investment
strategies of the Marsico Funds, and the investment advisory and sub-advisory
fees payable by the Marsico Funds have not changed, and are not expected to
change, as a result of the Transaction.
Nevertheless, in order to protect investors, the 1940 Act effectively
requires that an investment sub-advisory agreement automatically terminate any
time an investment sub-adviser undergoes a change in ownership or control.
Shareholders must then approve a new agreement in order for the fund to
continue to receive contractual sub-advisory services. In order to ensure that
a fund is not left without contractual sub-advisory services after the
automatic termination of a sub-advisory agreement, but before shareholders can
approve a new agreement, Rule 15a-4 under the 1940 Act allows a mutual fund's
board of trustees to approve and put into place an interim investment
sub-advisory agreement, subject to certain conditions.
The consummation of the Transaction has resulted in a "change of control"
of Marsico Capital of the type that constitutes an assignment and immediate
termination of the investment sub-advisory agreement last approved by each
Marsico Fund's shareholders (the "Previous Marsico Capital Agreement"). In
anticipation of the Transaction and to ensure a continuity of contractually
provided sub-advisory services to the Marsico Funds, on August 23, 2000 the
Board approved, for each Marsico Fund, both an interim investment sub-advisory
agreement (the "Interim Marsico Capital Agreement") and also a new investment
sub-advisory agreement (the "New Marsico Capital Agreement") with Marsico
Capital. Consequently, Marsico Capital
28
<PAGE>
currently serves as investment sub-adviser to each Marsico Fund under the
Interim Marsico Capital Agreement. Rule 15a-4 permits Marsico Capital to
continue to so serve under the current Interim Marsico Capital Agreement until
May 31, 2001 (which is 150 days from January 2, 2001).
Description of the Interim Marsico Capital Agreement and the New Marsico
Capital Agreement
In accordance with the terms of Rule 15a-4, the Interim Marsico Capital
Agreement (i) does not provide for any increase in the compensation to be
received by Marsico Capital from that provided in the Previous Marsico Capital
Agreement; (ii) provides that the Board, or a majority of a Marsico Fund's
outstanding shares, may terminate the Interim Marsico Capital Agreement at any
time, without payment of any penalty, on ten (10) days' written notice to
Marsico Capital; (iii) contains the same terms and conditions as the Previous
Marsico Capital Agreement, except for required exceptions; and (iv) provides
that compensation earned by Marsico Capital under the Interim Marsico Capital
Agreement be held in an interest-bearing escrow account to be paid to Marsico
Capital only if the shareholders of the applicable Marsico Fund approve the New
Marsico Capital Agreement, and that if shareholders do not approve the New
Marsico Capital Agreement, Marsico Capital shall be entitled to a portion of
such compensation that equals its costs incurred in providing services under
such Interim Marsico Capital Agreement (plus interest earned on that amount
while in escrow). Except for these differences and its effective date, the
Interim Marsico Capital Agreement is identical to the Previous Marsico Capital
Agreement (which was approved by Marsico Fund shareholders).
The term of the Interim Marsico Capital Agreement is from January 2, 2001
through the date that Marsico Fund shareholders approve a new investment
sub-advisory agreement, but in no case later than 150 days from January 2, 2001
-- or May 31, 2001. Under the Interim Marsico Capital Agreement, Marsico
Capital is entitled to receive a sub-advisory fee at the annual rate of 0.45%
of the average daily net assets of each Marsico Fund.
The New Marsico Capital Agreement is based on a new uniform form of
agreement that the entire Nations Funds family is in the process of
implementing. Accordingly, the New Marsico Capital Agreement will be different
in form than the Previous Marsico Capital Agreement and Interim Marsico Capital
Agreement. The scope and type of services under the New Marsico Capital
Agreement are substantially the same as those provided under the Previous
Marsico Capital Agreement and Interim Marsico Capital Agreement.
This new form of agreement is more efficient for BAAI and Marsico Capital
-- the Marsico Funds' investment adviser and sub-adviser, respectively -- to
utilize because of its standardization. In addition, the New Marsico Capital
Agreement benefits the Marsico Funds by providing for the liability of Marsico
Capital under certain circumstances. Specifically, Marsico Capital would be
held liable for any loss resulting from: (i) a breach of fiduciary duty with
respect to the receipt of compensation for services; (ii) willful misfeasance,
bad faith or negligence on the part of Marsico Capital or any of its officers,
directors, employees or agents in connection with their duties under the New
Marsico Capital Agreement; (iii) reckless disregard by Marsico Capital or its
officers, directors, employees or agents of any of their obligations and duties
under the New
29
<PAGE>
Marsico Capital Agreement; or (iv) any violations of federal or state
securities laws, rules, regulations, statutes and codes by Marsico Capital or
any of its officers, directors, employees or agents. In an attempt to further
protect the Marsico Funds, the New Marsico Capital Agreement requires Marsico
Capital to maintain a blanket bond and professional liability insurance in an
amount acceptable to BAAI.
The New Marsico Capital Agreement contains additional provisions that are
intended to ensure continued consistency in the services provided to the
Marsico Funds. For example, if Marsico Capital becomes aware of any event or
occurrence that could have a material impact on the performance of its duties,
the New Marsico Capital Agreement requires Marsico Capital to provide notice of
such event to BAAI and the Marsico Funds. This will enable BAAI and the Marsico
Funds to avoid any interruptions in the sub-advisory services provided to the
Marsico Funds that might result from events beyond the control of the Marsico
Funds.
As a general matter, however, the Interim Marsico Capital Agreement and
New Marsico Capital Agreement are similar. Pursuant to both the Interim Marsico
Capital Agreement and New Marsico Capital Agreement, Marsico Capital will
determine from time to time what securities and other investments will be
purchased, retained or sold by the Marsico Funds, and will place the daily
orders for the purchase or sale of securities. Under both, Marsico Capital also
will provide additional services related to the continuous investment program,
including recordkeeping services; will comply with all applicable rules and
regulations of the SEC; will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for which it
has investment responsibilities; will use its best efforts to seek on behalf of
the Marsico Funds the best overall terms available when executing portfolio
transactions, and in evaluating the best overall terms available, may consider
the brokerage and research services provided to the Marsico Funds and/or other
accounts over which Marsico Capital exercises investment discretion. Under both
the Interim Marsico Capital Agreement and the New Marsico Capital Agreement,
BAAI retains authority over the management of the Marsico Funds and the
investment and disposition of the Marsico Funds' assets.
If approved by shareholders at the Meetings, the New Marsico Capital
Agreement will remain in effect for a two-year period following the date of
such approval. Thereafter, the New Marsico Capital Agreement will continue in
effect for successive periods not to exceed one year, provided that such
continuance is specifically approved at least annually by the Board, or by a
vote of a majority of the outstanding shares of each of the Marsico Funds, and
in either case by a majority of the Non-Interested Trustees. The investment
sub-advisory fee rate payable to Marsico Capital for each Fund under the New
Marsico Capital Agreement is the same as that shown above for the Interim
Marsico Capital Agreement.
Copies of the New Marsico Capital Agreement are available upon request by
writing or calling Annuity Trust at the toll-free number listed on the first
page of this Proxy Statement.
Board Consideration
Marsico Capital served as the sub-adviser to the Marsico Funds pursuant to
the Previous Marsico Capital Agreement for the Marsico Funds, which is dated
February 8, 1999, and was approved by the shareholders of such Marsico Funds on
December 18, 1998. The Interim Marsico Capital Agreement and the New Marsico
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Capital Agreement were approved by the Board, including a majority of the
Non-Interested Trustees, at a regular in-person meeting held on August 23,
2000.
At the August 23, 2000 in-person meeting, the Board was informed of the
Transaction, and the expected resulting assignment and termination of the
Previous Marsico Capital Agreement. The Board was provided with information
concerning the Interim Marsico Capital Agreement and New Marsico Capital
Agreement and was informed of the standards that the Board should apply in
determining whether to approve the Interim Marsico Capital Agreement and New
Marsico Capital Agreement. The information provided by management to the Board
included a description of the Transaction, investment sub-advisory comparative
fee information and a discussion of how the Transaction would affect Marsico
Capital's ability to perform its duties as set forth in the New Marsico Capital
Agreement. In this regard, the Board was advised by management that they did
not expect that the Transaction would have a material effect on the operations
of the Marsico Funds or their shareholders. Marsico Capital also noted that its
management did not contemplate any material change in the day-to-day operations
of Marsico Capital and that the internal management structure of Marsico
Capital would remain largely unchanged after the Transaction.
At the August 23 meeting, the Board, including the Non-Interested
Trustees, unanimously approved both the Interim Marsico Capital Agreement and
New Marsico Capital Agreement. Specifically, the Board determined that the
compensation payable under the Interim Marsico Capital Agreement and New
Marsico Capital Agreement was fair and reasonable and did not reflect an
increase in compensation from the Previous Marsico Capital Agreement. The Board
also determined that the scope and quality of services to be provided to the
Marsico Funds under the Interim Marsico Capital Agreement and New Marsico
Capital Agreement would be at least equivalent to the scope and quality of
services provided under the Previous Marsico Capital Agreement. The Board based
its decision to recommend the approval of the Interim Marsico Capital Agreement
and New Marsico Capital Agreement on the following material factors: (i) the
scope and type of services under the Interim Marsico Capital Agreement and New
Marsico Capital Agreement, the sub-advisory fees, and the level of service
provided to the Marsico Funds; (ii) the representations made with respect to
the financial strength of Marsico Capital; (iii) the continued employment by
Marsico Capital of the investment professionals then managing the assets of the
Marsico Funds; (iv) the depth of management experience with respect to Marsico
Capital's personnel following the change of control, including those persons
who would be involved in the daily management of the Marsico Funds; (v) the
strong investment record of Marsico Capital in managing the Marsico Funds; (vi)
that Marsico Fund shareholders would not bear any costs associated with the
proxy solicitation; and (vii) the efficiency in administering a standard form
of investment sub-advisory agreement. In making decision to recommend approving
the Interim Marsico Capital Agreement and New Marsico Capital Agreement, the
factors that the Board considered most important were: the absence of changes
to the level of service provided to the Marsico Funds; the fact that the
sub-advisory fee rates to be charged under the Interim Marsico Capital
Agreement and New Marsico Capital Agreement were no higher than those rates
under the Previous Marsico Capital Agreement; and the substantially identical
scope and type of services provided under the Interim Marsico Capital Agreement
and New Marsico Capital Agreement and the experience of Marsico Capital's
advisory personnel. The Board based its determinations in this regard on
discussions with representatives of Bank of America, BAAI and Marsico Capital
at the meeting and a review of materials presented by Bank of America, BAAI and
Marsico Capital. These materials included a form of the Interim Marsico Capital
Agreement and New Marsico Capital Agreement.
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THE BOARD OF ANNUITY TRUST UNANIMOUSLY RECOMMENDS
THAT YOU VOTE TO APPROVE THIS PROPOSAL
Information Regarding Marsico Capital
Detailed information about Marsico Capital can be found above under
"Approval of the New Marsico Capital Agreement -- Information Regarding Marsico
Capital."
The aggregate amount paid to Marsico Capital (or its predecessor) for each
Marsico Fund (or its predecessor) for the period January 1, 2000 through
December 31, 2000 was as follows: $619,454 for the Focused Equities Portfolio;
and $367,940 for the Growth & Income Portfolio. The aggregate amount paid to
Marsico Capital (or its predecessor) for all of the mutual funds in the Nations
Funds family (or their predecessors) for the period January 1, 2000 through
December 31, 2000 was $14,320,382.
For the fiscal year ended December 31, 2000, Marsico Capital (or its
predecessor) did not waive or otherwise reduce the compensation entitled to it
for providing investment sub-advisory services to the Marsico Funds (or their
predecessor).
AUTHORIZATION OF THE FUNDS TO CONVERT TO A MASTER/FEEDER STRUCTURE
(For SmallCap Index Portfolio, Balanced Assets Portfolio,
Managed Index Portfolio, Aggressive Growth Portfolio,
Focused Equities Portfolio, Growth & Income Portfolio,
Value Portfolio, International Value Portfolio
and High Yield Bond Portfolio Shareholders Only)
Overview of the Proposal
SmallCap Index Portfolio, Balanced Assets Portfolio, Managed Index
Portfolio, Aggressive Growth Portfolio, Focused Equities Portfolio, Growth &
Income Portfolio, Value Portfolio, International Value Portfolio and High Yield
Bond Portfolio currently are stand-alone mutual funds -- that is to say, they
invest directly in a portfolio of securities. In contrast, a "feeder" fund in a
master/feeder structure is a mutual fund that does not invest directly in a
portfolio of securities but rather invests all of its assets in another mutual
fund called a master portfolio, which has an identical investment objective and
principal investment strategies. As detailed below, a master/feeder structure
can be used to pool assets from multiple feeders into a larger master portfolio
which can be managed more effectively. SmallCap Index Portfolio, Balanced
Assets Portfolio, Managed Index Portfolio, Aggressive Growth Portfolio, Focused
Equities Portfolio, Growth & Income Portfolio, Value Portfolio, International
Value Portfolio and High Yield Bond Portfolio may decide to convert to feeder
funds in the future, and accordingly, Fund shareholders are being asked now to
authorize such Funds to do so at some future date. If shareholder approval is
obtained, there is no guarantee that the Funds would exercise such authority
within a specific period of time or even exercise the authority at all.
Nevertheless, if the Funds did convert to feeder funds, Fund shareholders would
not be re-solicited but would be made aware of the change by a supplement to
the Funds' prospectuses.
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Board Consideration
At an in-person meeting held on November 29, 2000, the Board of Annuity
Trust considered this proposal. Noting the potential advantages and
disadvantages and various aspects of a master/feeder structure, the Board
approved such authorization. The Board also noted that prior to any actual
conversion into a master/feeder structure, the Board would at such time have to
determine that the conversion would be in the best interest of the Funds and
their shareholders.
THE BOARD OF ANNUITY TRUST UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
AUTHORIZE THESE FUNDS TO CONVERT TO FEEDER FUNDS IN A MASTER/FEEDER STRUCTURE
Master/Feeder Structures
One potential advantage of a master/feeder structure is that feeder funds
investing in the same master portfolio can reduce their expenses through
sharing the costs of managing a larger combined pool of assets. Another
potential advantage of such a structure is that the master portfolio may have
opportunities to pursue other distribution channels -- such as a "private
label" investment in the Funds in addition to the insurance company separate
account investments -- that may not otherwise be available to the same extent
as stand-alone mutual funds. Typically, a feeder in a master portfolio has an
investment objective, principal investment strategies and principal investment
risks that are identical to that of the master portfolio.
Feeders in a master portfolio typically invest on the same terms and
conditions and pay a proportionate share of the master portfolio's expenses,
although such expenses and fees are reflected in the total operating expense
ratios that are shown in a fund's prospectus. However, all feeder funds in a
master portfolio are not required to sell their shares at the same offering
price and may sell shares with different sales loads and on-going
administrative and other expenses. Therefore, one feeder fund's shareholders
may have different returns than shareholders in another feeder fund that all
invest in the same master portfolio.
If the Funds were to convert to feeder funds, each could subsequently
withdraw its entire investment from a master portfolio and once again become a
stand-alone Fund if the Board determines that such course is in the best
interests of the Fund to do so. Also, other investors (e.g., other feeder
funds) in a master portfolio may similarly withdraw their investment at any
time. A Fund might withdraw, for example, if the master portfolio changed its
investment objective, policies and limitations in a manner unacceptable to the
Board of Annuity Trust. A withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the master
portfolio to such Fund. That distribution could result in a less diversified
portfolio of investments for the Fund and could adversely affect the liquidity
of the Fund's investment portfolio. In addition, if securities were
distributed, the Fund generally would incur brokerage commissions, capital
gains or losses, and/or other charges in converting the securities to cash.
This could result in a lower net asset value of a shareholder's shares and/or
certain adverse tax consequences for a shareholder.
The Funds' fundamental policies currently do not allow the Funds' assets
to be invested in a single issuer (e.g., a master portfolio). However,
shareholders are being asked in a proposal discussed below, to approve a
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set of new fundamental policies that would allow the Funds to invest all of
their assets in another registered investment company, such as a master
portfolio. Accordingly, a Fund will not convert to a feeder fund in a
master/feeder structure even if such Fund's shareholders vote in favor of the
authorization to so convert, unless and until that Fund's shareholders approve
the new fundamental policies. Nevertheless, the Board has decided to seek
shareholder authorization of the possible future change in order to confirm its
authority to do so, and to ensure that shareholder support exists.
Among other things, shareholder authorization will ensure that the Board
can convert the Funds without incurring the cost of a future proxy
solicitation, even if certain features or service providers of the master
portfolio differ from those of the Funds. The differences are likely to be
relatively insignificant from a shareholder's perspective. In addition, overall
fee levels are unlikely to increase as a result of such a conversion. Even if
fees do increase, the Board is not required to and may not solicit Fund
shareholders on a specific proposal at that time. For example, a master
portfolio may use a different custodian or may have a different compensation
arrangement for its fund accountant. It is possible that more significant
differences (e.g., a different advisory/sub-advisory arrangement or different
fundamental investment policies) are presented. In no event will the Board
approve a conversion unless it concludes that such conversion would be in the
best interest of each Fund and its shareholders at the time and in light of all
of the circumstances presented. Additionally, even if the differences are
sufficiently significant that the Board concludes that a proposed conversion
would fundamentally alter the investment characteristics of the Funds, the
Board is not required to and may not solicit Fund shareholders on a specific
proposal at that time. At a minimum, the details of any change will be provided
at the time via a supplement or update to the Funds' prospectuses.
If the Funds were to convert to feeder funds, they would be
interestholders in a master portfolio. This means that any matter upon which
all interestholders of the master portfolio would be entitled to vote (for
example, a new investment advisory contract) would be voted upon by each feeder
fund to the master portfolio. In determining how to vote its interests, the
Funds might either (a) submit the matter to their shareholders and vote their
interests in the same proportion as their shareholders vote, or (b) vote their
interest in the same proportion as other interests are voted.
Taxation of a Master/Feeder Structure
A master portfolio typically is treated as a partnership for federal
income tax purposes rather than as a regulated investment company or a
corporation under the Internal Revenue Code of 1986, as amended (the "Code").
Under the rules applicable to a partnership, a proportionate share of any
interest, dividends, gains and losses of the master portfolio will be deemed to
have been realized (i.e., "passed-through") to its interestholders, regardless
of whether any amounts are actually distributed by the master portfolio. Each
interestholder in the master portfolio, would be taxed on its share (as
determined in accordance with the governing instruments of the master
portfolio, the Code and applicable U.S. Treasury Regulations promulgated
thereunder) of the master portfolio's income and gains in determining such
holder's taxable income. It is intended that the master portfolio's assets,
income and distributions will be managed in such a way that an interestholder
in the master portfolio will be able to qualify as a regulated investment
company.
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Shares of the Funds are only offered to shareholders through a variable
annuity contract or variable insurance policy of a participating insurance
company. As discussed in the prospectus for the variable annuity contract or
variable insurance policy, the contract or policy may qualify for favorable tax
treatment. As long as the variable annuity contract or variable insurance
policy maintains favorable tax treatment, shareholders will only be taxed on
their investment in the Funds through the contract or policy, regardless of the
transfer of Fund shares or the Funds' distribution of net investment income and
realized capital gains. In order to qualify for this treatment, among other
things, the "separate accounts" of participating insurance companies, which
maintain and invest net proceeds from the variable annuity contracts and
variable insurance policies, must be "adequately diversified." The Funds intend
to operate in this manner so that a separate account investing in Fund shares
on behalf of a holder of a variable annuity contract or variable insurance
policy will be "adequately diversified." If the Funds were to convert to a
master/feeder structure, the master portfolio similarly would intend to be
"adequately diversified."
AUTHORIZATION FOR THE FUNDS' ADVISER, BAAI, TO HIRE AND REPLACE INVESTMENT
SUB-ADVISERS OR TO MODIFY INVESTMENT SUB-ADVISORY AGREEMENTS WITHOUT
SHAREHOLDER APPROVAL
(For All Fund Shareholders)
Overview
With respect to each Fund, management is proposing that shareholders grant
approval to permit BAAI to enter into new or amended investment sub-advisory
agreements with a sub-adviser(s) with respect to each Fund without obtaining
shareholder approval of the investment sub-advisory agreements, and to permit
the sub-adviser(s) to manage the assets of each Fund pursuant to these
agreements. If shareholders approve the proposal, BAAI would be able to take
these actions only to the extent permitted by any exemption or exemptions
granted by the SEC or by any applicable SEC rule.
This proposal is being submitted to the shareholders of each Fund for
approval as required by the terms of an exemptive order requested by Annuity
Trust and BAAI from the SEC (the "Order") and will not become effective with
respect to a Fund unless and until this proposal has been approved by a
requisite vote of the shareholders of that Fund and the Order is received from
the SEC.
The 1940 Act generally provides that an investment adviser or sub-adviser
to a mutual fund may serve only pursuant to a written agreement which has been
approved by a vote of a majority of the outstanding voting securities of the
fund as well as by a vote of a majority of the trustees of the fund. Pursuant
to the Order, BAAI will be permitted, with the approval of the Board, to hire
new sub-advisers, terminate sub-advisers, and modify investment sub-advisory
agreements with sub-advisers, including if there is an "assignment," as defined
in the 1940 Act, without the prior approval of Fund shareholders under certain
conditions. By eliminating shareholder approval in these matters, BAAI will
have greater flexibility in overseeing sub-advisers, and Annuity Trust and its
shareholders would be spared the time and expense of holding shareholder
meetings and soliciting and submitting proxies. Many other investment complexes
have obtained this relief and their investment managers and/or investment
advisers have been authorized by
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shareholders to enter into new or amended sub-advisory arrangements without
shareholder approval. The Order is expected to be subject to several
conditions, including the following:
1. Annuity Trust will disclose the terms and conditions of the Order in the
prospectuses for the Funds. In addition, each Fund will hold itself out to
the public as employing the management structure described in the Order.
The prospectuses for the Funds will prominently disclose that BAAI has the
ultimate responsibility (subject to oversight by the Board) to oversee the
sub-advisers and recommend their hiring, termination and replacement.
2. Within 90 days of the hiring of any new or additional sub-adviser that
is either unaffiliated with or wholly-owned by BAAI or by any company of
which BAAI is a wholly-owned subsidiary, shareholders will be furnished
with all relevant information about such new sub-advisers that would be
included in a proxy statement, except as modified by the Order. Each Fund
will meet this condition by providing shareholders with an information
statement which meets the applicable proxy rules, except, if applicable,
as modified by the Order.
3. Neither Annuity Trust nor BAAI will enter into an investment
sub-advisory agreement for a Fund with any sub-adviser that is an
"affiliated person," as defined by Section 2(a)(3) of the 1940 Act,
without such agreement, including the compensation to be paid thereunder,
being approved by the shareholders of the applicable Fund as and to the
extent required by Section 15(a) of the 1940 Act, and the applicable rules
thereunder, as interpreted or qualified by any no-action position or
interpretation taken by the SEC staff.
4. Before a Fund may rely on the Order, its ability to operate in the
manner described will be approved by a majority of each Fund's outstanding
voting securities, as defined in the 1940 Act, unless the substance and
effect of the requested relief has been disclosed in its initial
prospectus.
In accordance with condition 4, shareholder approval of this proposed new
arrangement is being sought. Even if Fund shareholders approve this proposal,
any new sub-adviser engaged or terminated or any change in an investment
sub-advisory agreement will still require approval by the Board. In order to
approve a new sub-adviser, the Board will analyze the factors it deems
relevant, including the nature, quality and scope of services provided by the
sub-adviser to investment companies comparable to a Fund. The Board also will
review the ability of the sub-adviser to provide its services to a Fund, as
well as its personnel, operations, financial condition or any other factors
which would affect the sub-adviser with respect to compliance and regulatory
matters. In addition, the Board will consider other factors deemed relevant to
the sub-adviser's performance as an investment adviser. Annuity Trust believes
that this review will provide adequate shareholder protection in the selection
of sub-advisers. Finally, shareholder approval would still be required to amend
the investment advisory agreement with BAAI with respect to each Fund
(including any amendment to raise the advisory fee rate payable under such
agreement) or to enter into a new investment advisory agreement with BAAI or
any other adviser.
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Reasons for the Proposal
Annuity Trust is requesting shareholder approval of this proposal for
several reasons. The investment advisory agreement with BAAI on behalf of each
Fund permits each Fund to utilize an adviser/sub-adviser management structure
whereby BAAI, acting as each Fund's investment adviser, delegates day-to-day
portfolio management responsibilities to a sub-adviser. All Funds currently
utilize this structure. If BAAI were to change sub-advisers for a Fund or to
retain an additional sub-adviser for a Fund, BAAI would continue in its role as
adviser and would continue to exercise oversight and supervision of a Fund
sub-adviser's day-to-day portfolio management. Annuity Trust believes that
these situations are analogous to a situation where an investment adviser of a
mutual fund replaces an employee who manages the fund's investment portfolio
with a different manager, which does not require shareholder approval under the
1940 Act.
In addition, the shareholder approval requirement under the 1940 Act may
cause each Fund's shareholders to incur expenses, such as the expenses involved
in soliciting proxies for a shareholder meeting, and could hinder the prompt
implementation of sub-advisory changes that are in the best interest of the
shareholders, such as the prompt engagement or replacement of a sub-adviser if
circumstances so warrant. Without the ability to promptly retain a new
sub-adviser and/or replace an existing sub-adviser, or to reapprove existing
investment sub-advisory agreements, as the case may be, investors' expectations
may be frustrated. For instance, a Fund and its shareholders could be
disadvantaged under certain circumstances including: (i) where BAAI determines
to terminate a Fund's sub-adviser due to unsatisfactory performance or another
appropriate reason; (ii) where BAAI wishes to retain an additional sub-adviser
for a Fund that does not, at present, utilize a multi-sub-adviser structure;
(iii) where a Fund's sub-adviser resigns, ceases operations or is otherwise
incapable of providing portfolio management services on behalf of the Fund; or
(iv) where there has been an assignment of a investment sub-advisory agreement
with a current sub-adviser (for instance, due to a change in control of the
sub-adviser) or some other event causing the termination of the investment
sub-advisory agreement. In many cases, these events are beyond the control of
Annuity Trust, BAAI and the applicable Fund. In such circumstances, BAAI may
deem it in the best interests of the Fund to retain a new sub-adviser or to
reinstate a terminated investment sub-advisory agreement with a current
sub-adviser promptly. For these reasons, management and the Board believe that
approval of the proposal would benefit shareholders.
Board Consideration
At an in-person meeting held on November 29, 2000, the Board considered,
among other matters, that the proposal would be beneficial to the Funds by
reducing or eliminating the costs of shareholder meetings and the possible
negative impact caused by a delay in replacing or hiring a new sub-adviser, or
reapproving existing investment sub-advisory arrangements. They also considered
that the Funds would forego any benefits associated with shareholder scrutiny
of proposed investment sub-advisory agreements. To this end, the Board
considered that, even in the absence of shareholder scrutiny and approval, any
proposal to add or replace a sub-adviser, or to materially amend an investment
sub-advisory agreement with an existing sub-adviser, would receive careful
review. First, BAAI would assess each Fund's needs and, if it believed that the
Fund would benefit from a new or replacement sub-adviser, BAAI would review the
relevant universe of available
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investment managers. Second, any recommendations made by BAAI would have to be
approved by a majority of the Board of Trustees. Finally, in the absence of
shareholder approval, any retention of a new or replacement sub-adviser or any
amendment of an existing investment sub-advisory agreement would have to comply
with conditions contained in the Order.
THE BOARD OF ANNUITY TRUST UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE
PROPOSED AUTHORITY TO PERMIT BAAI TO ENTER INTO NEW OR AMENDED INVESTMENT
SUB-ADVISORY AGREEMENTS WITH SUB-ADVISERS WITH RESPECT TO YOUR FUND WITHOUT
OBTAINING SHAREHOLDER APPROVAL.
APPROVAL OF NEW FUNDAMENTAL POLICIES
(For All Fund Shareholders)
Overview
The 1940 Act requires investment companies (such as Annuity Trust) to
adopt certain specific investment policies or restrictions that may be changed
only by shareholder vote. An investment company may elect to designate
additional policies or restrictions that may be changed only by shareholder
vote. These policies and restrictions are often referred to as "fundamental
policies." It is proposed that shareholders of the Funds approve a new set of
fundamental policies for the Funds.
Some of Annuity Trust's current investment policies and restrictions may
limit its portfolio managers from investing in a security that is both
consistent with the investment objective of such Fund and also is believed to
be a good investment. One reason for changing some of these investment policies
is to remove restrictions that unnecessarily hamper the portfolio manager's
investment discretion. Many of these restrictions were put in place by the
Funds as a result of the directives of various state securities commissions.
Changes to federal securities laws have superseded these directives.
By changing the fundamental policies for each Fund, the Board believes
that the Funds would be able to minimize the costs and delays associated with
holding future shareholder meetings to revise fundamental policies that become
outdated or unnecessary. The Board believes that by moving toward a single
standard set of fundamental policies for the entire Nations Funds complex, the
investment adviser will be able to more effectively ensure the Funds'
compliance those policies. The Board also believes that the investment
adviser's or sub-advisers's ability to manage the Funds' assets in a changing
investment environment will be enhanced and that investment management
opportunities will be increased by these changes.
Accordingly, the new set of fundamental policies is proposed in order to:
1. simplify and streamline the Funds' fundamental policies and also
standardize fundamental policies across the entire Nations Funds family;
2. reclassify as non-fundamental operating policies those fundamental
policies that are not required to be fundamental under the 1940 Act; and
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3. eliminate those fundamental policies that are no longer required under
state securities laws.
THE BOARD OF ANNUITY TRUST UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE NEW FUNDAMENTAL POLICIES FOR YOUR FUND.
Comparison of Investment Policies and Restrictions
For a detailed comparison of the current and proposed fundamental
investment policies and limitations of the Funds, see Appendix I to this Proxy.
OTHER INFORMATION
James B. Sommers, a trustee of Annuity Trust, owns shares of Bank of
America. No other officer or trustee of Annuity Trust is an officer, employee,
director, general partner or shareholder of BAAI or any of its affiliates.
BAAI serves as the Funds' investment adviser. In addition, BAAI serves as
the Funds' co-administrator. Its address is 101 South Tryon Street, Charlotte,
North Carolina 28255. Stephens Inc. serves as the Funds' principal underwriter
and co-administrator. Its address is 111 Center Street, Little Rock, Arkansas
72201.
The Funds paid co-administration fees to BAAI for the fiscal period ended
December 31, 2000, as follows: for the SmallCap Index Portfolio $9,827; for the
International Growth Portfolio $11,647; for the Balanced Assets Portfolio
$7,074; for the Aggressive Growth Portfolio $6,732; for the Marsico Focused
Equities Portfolio $151,423; and for the Marsico Growth & Income Portfolio
$89,941.
VOTING MATTERS
General Information
This Proxy Statement is being furnished in connection with the
solicitation of proxies for the Meetings by the Board. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of Annuity Trust also may solicit proxies by telephone or
otherwise. In this connection, BAAI has retained ADP Proxy Services to assist
in the solicitation of proxies. Shareholders may submit their proxy: (1) by
mail, by marking, signing, dating and returning the enclosed proxy ballot(s) in
the enclosed postage-paid envelope; or (2) by fax, by marking, signing, dating
and faxing the enclosed proxy ballot(s) to ADP Proxy Services at (704)
388-2641. Any shareholder submitting a proxy may revoke it at any time before
it is exercised at the Meetings by submitting to Annuity Trust a written notice
of revocation addressed to Annuity Trust at the address shown on the cover page
of this Proxy Statement, or a subsequently executed proxy or by attending the
Meetings and voting in person.
Any expenses incurred as a result of hiring ADP Proxy Services or any
other proxy solicitation agent will be borne by BAAI and/or its affiliates.
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Only shareholders of record at the close of business on January 15, 2001
will be entitled to vote at the Meetings. xxx,xxx,xxx shares of the SmallCap
Index Portfolio, xxx,xxx,xxx shares of the International Growth Portfolio,
xxx,xxx,xxx shares of the Balanced Assets Portfolio, xxx,xxx,xxx shares of the
Managed Index Portfolio, xxx,xxx,xxx shares of the Aggressive Growth Portfolio,
xxx,xxx,xxx shares of the Focused Equities Portfolio, xxx,xxx,xxx shares of the
Growth & Income Portfolio, xxx,xxx,xxx shares of the Value Portfolio,
xxx,xxx,xxx shares of the International Value Portfolio and xxx,xxx,xxx shares
of the High Yield Bond Portfolio were outstanding and entitled to be voted.
Each whole and fractional share of a Fund is entitled to a whole or fractional
vote.
If the accompanying proxy ballot(s) is executed and returned in time for
the Meetings, the shares covered thereby will be voted in accordance with the
proxy on all matters that may properly come before the Meetings.
--------------------------------------------------------------------------------
Special Note for Shareholders of all Funds
The Hartford and Anchor are the legal owners of all Fund shares held in
their separate accounts (except with respect to International Growth
Portfolio, SmallCap Index Portfolio and Balanced Assets Portfolio, for which
The Hartford is sole legal owner). The separate accounts are registered as
unit investment trusts under the 1940 Act and are where The Hartford and
Anchor set aside and invest the assets of certain of its annuity contracts.
Accordingly, The Hartford and Anchor have the right to vote at the Funds'
shareholder meetings. To the extent required by federal securities laws or
regulations, The Hartford and Anchor will: (i) notify each annuity contract
owner ("Owner") of the Meetings if the shares held for that Owner's contract
may be voted; (ii) send proxy materials and a form of instructions that each
Owner can use to tell The Hartford and/or Anchor how to vote the Fund shares
held for such contract; (iii) arrange for the handling and tallying of proxies
received from Owners; (iv) vote all Fund shares attributable to such Owner's
contract according to instructions received from such Owner, and (v) vote all
Fund shares for which no voting instructions are received in the same
proportion as shares for which instructions have been received.
--------------------------------------------------------------------------------
Quorum
A quorum is constituted with respect to each Fund by the presence in
person or by proxy of the holders of one-third of the outstanding shares of
each Fund entitled to vote at their Meetings.
For purposes of determining the presence of a quorum for transacting
business at the Meetings, abstentions will be treated as shares that are
present at the Meetings but which have not been voted. Accordingly, abstentions
will have the effect of a "no" vote for purposes of obtaining the requisite
approvals of each proposal. Broker "non-votes" (that is, proxies from brokers
or nominees indicating that such persons have not received instructions from
the beneficial owners or other persons entitled to vote shares on a particular
matter with respect to which the brokers or nominees do not have discretionary
power) will be treated the same as abstentions.
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In the event that a quorum is not present for any of the Meetings, or in
the event that a quorum is present at such Meetings but sufficient votes to
approve any proposed item are not received by a Fund, one or more
adjournment(s) may be proposed to permit further solicitation of proxies. Any
such adjournment(s) will require the affirmative vote of a majority of those
shares affected by the adjournment(s) that are represented at the Meetings in
person or by proxy. If a quorum is present, the persons named as proxies will
vote those proxies which they are entitled to vote FOR the particular proposal
for which a quorum exists in favor of such adjournment(s), and will vote those
proxies required to be voted AGAINST such proposal against any adjournment(s).
Shareholder Approval
The 1940 Act requires that the New BAAI Agreement must be approved by a
"majority of the outstanding shares" of a Fund. The 1940 Act defines the term
"majority of the outstanding shares" to mean the lesser of: (i) 67% or more of
the shares of the Fund present at the Meeting if the holders of more than 50%
of the outstanding shares of the Fund are present; or (ii) more than 50% of the
outstanding shares of the Fund.
The New BACAP Agreement must be approved by a "majority of the outstanding
shares" of a Fund as described above.
The New Marsico Capital Agreement must be approved by a "majority of the
outstanding shares" of a Fund as described above. If the New Marsico Capital
Agreement is not approved with respect to a Marsico Fund by May 31, 2001,
Marsico Capital would be entitled to receive for the period covered by the
Interim Marsico Capital Agreement a portion of such compensation that equals
its costs incurred in providing services under the Interim Marsico Capital
Agreement (plus interest earned on that amount while in escrow). If the New
Marsico Capital Agreement is not approved for a Marsico Fund, the Board will
consider what further action is appropriate.
The New Chicago Equity Agreement must be approved by a "majority of the
outstanding shares" of a Fund as described above.
The authorization for BAAI to hire and replace investment sub-advisers or
to modify investment sub-advisory agreements without shareholder approval must
be approved by a "majority of the outstanding shares" of a Fund as described
above.
The authorization of a Fund to convert to a feeder fund in a master/feeder
structure shall be deemed approved by shareholders if a majority of shares
voted at the Meeting vote to approve the item.
The new fundamental investment policies must be approved with respect to a
Fund by a "majority of the outstanding shares" of a Fund as described above.
Principal Shareholders
The table below shows the name, address and share ownership of each person
known to Annuity Trust to have ownership with respect to 5% or more of a Fund
as of January 15, 2001. Each shareholder is known to
41
<PAGE>
own as of record the shares indicated below. Any shareholder known to Annuity
Trust to own such shares beneficially is designated by an asterisk.
<TABLE>
<CAPTION>
Class; Amount of Percentage of
Fund Name and Address Shares Owned Fund
--------- ------------------ ------------------ --------------
<S> <C> <C> <C>
[TBD]
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that
a shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class, or is identified as the holder of record of
more than 25% of a class and has voting and/or investment power, it may be
presumed to control such class.
As of January 15, 2001, the officers and Trustees of Annuity Trust, as a
group, owned less than 1% of any class of a Fund.
Annual Meetings and Shareholder Meetings
Annuity Trust does not presently hold annual meetings of shareholders for
the election of Trustees and other business unless otherwise required by the
1940 Act.
OTHER BUSINESS
The Board knows of no other business to be brought before the Meetings.
However, if any other matters properly come before the Meetings, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Annuity Trust in writing at the
address, or by phone at the phone number, on the cover page of this Proxy
Statement.
* * *
42
<PAGE>
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETINGS ARE REQUESTED
TO MARK, SIGN AND DATE THE ENCLOSED PROXY BALLOT(S) AND RETURN IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
SHAREHOLDERS ALSO MAY SUBMIT PROXIES BY FAX, TELEPHONE OR ON-LINE.
ANNUITY TRUST WILL FURNISH, WITHOUT CHARGE, COPIES OF THE DECEMBER 31,
1999 ANNUAL REPORT AND JUNE 30, 2000 SEMI-ANNUAL REPORT FOR THE FUNDS TO ANY
SHAREHOLDER UPON REQUEST ADDRESSED TO: NATIONS ANNUITY TRUST, ONE BANK OF
AMERICA PLAZA, 101 SOUTH TRYON STREET, CHARLOTTE, N.C. 28255 OR BY TELEPHONE AT
1-800-321-7854.
43
<PAGE>
APPENDIX I
COMPARISON OF CURRENT AND PROPOSED FUNDAMENTAL POLICIES AND
LIMITATIONS OF THE FUNDS
<TABLE>
<S> <C>
Current Proposed
The Funds may not: The Funds may not:
1. Underwrite securities issued by any other person, 1. Underwrite any issue of securities within the
except to the extent that the purchase of meaning of the 1933 Act except when it might
securities and the later disposition of such technically be deemed to be an underwriter
securities in accordance with the Fund's either (a) in connection with the disposition of a
investment program may be deemed an portfolio security, or (b) in connection with the
underwriting. This restriction shall not limit a purchase of securities directly from the issuer
Fund's ability to invest in securities issued by thereof in accordance with its investment
other registered investment companies. objective. This restriction shall not limit the
Fund's ability to invest in securities issued by
other registered investment companies.
2. Invest in real estate or real estate limited 2. Purchase or sell real estate, except a Fund may
partnership interests. (A Fund may, however, purchase securities of issuers which deal or
purchase and sell securities secured by real invest in real estate and may purchase securities
estate, or interests therein, or issued by issuers which are secured by real estate or interests in
which invest in real estate or interests therein.) real estate.
This restriction does not apply to real estate
limited partnerships listed on a national stock
exchange (e.g., the New York Stock Exchange).
3. Purchase or sell commodity contracts except that 3. Purchase or sell commodities, except that a Fund
each Fund may, to the extent appropriate under may to the extent consistent with its investment
its investment policies, purchase publicly traded objective, invest in securities of companies that
securities of a company engaging in whole or in purchase or sell commodities or which invest in
part in such activities, enter into futures contracts such programs, and purchase and sell options,
and related options, engage in transactions on a forward contracts, futures contracts, and options
when-issued or forward commitment basis, and on futures contracts. This limitation does not
enter into forward currency contracts in apply to foreign currency transactions including
accordance with its investment policies. without limitation forward currency contracts.
4. Make loans, except that a Fund may purchase 4. Make loans, except to the extent permitted by
and hold debt instruments (whether such the 1940 Act, the rules and regulations
instruments are part of a public offering or thereunder and any exemptive relief obtained by
privately placed), may enter into repurchase the Funds.
agreements and may lend portfolio securities in
accordance with its investment policies.
</TABLE>
I-1
<PAGE>
<TABLE>
<S> <C>
5. Borrow money or issue senior securities, as 5. Borrow money or issue senior securities except
defined in the 1940 Act, except that (a) a Fund to the extent permitted by the 1940 Act, the rules
may borrow money from banks for temporary and regulations thereunder and any exemptive
purposes in amounts up to one-third of the value relief obtained by the Funds.
of such Fund's total assets at the time of
borrowing, provided that borrowings in excess of
5% of the value of such Fund's total assets will
be repaid prior to the purchase of additional
portfolio securities by such Fund, (b) a Fund
may enter into commitments to purchase
securities in accordance with the Fund's
investment program, including delayed delivery
and when-issued securities, which commitments
may be considered the issuance of senior
securities, and (c) a Fund may issue multiple
classes of shares in accordance with SEC
regulations or exemptions under the 1940 Act.
The purchase or sale of futures contracts and
related options shall not be considered to involve
the borrowing of money or issuance of senior
securities.
</TABLE>
I-2
<PAGE>
<TABLE>
<S> <C>
6. Each Fund (except the Focused Equities 6. Except for the Focused Equities Portfolio,
Portfolio) may not purchase securities of any one purchase securities (except securities issued or
issuer (other than securities issued or guaranteed guaranteed by the U.S. Government, its agencies
by the U.S. Government, its agencies or or instrumentalities) of any one issuer if, as a
instrumentalities) if, immediately after such result, more than 5% of its total assets will be
purchase, more than 5% of the value of such invested in the securities of such issuer or it
Fund's total assets would be invested in the would own more than 10% of the voting
securities of such issuer, except that up to 25% securities of such issuer, except that (a) up to
of the value of the Fund's total assets may be 25% of its total assets may be invested without
invested without regard to these limitations and regard to these limitations and (b) a Fund's
with respect to 75% of such Fund's assets, such assets may be invested in the securities of one or
Fund will not hold more than 10% of the voting more management investment companies to the
securities of any issuer. extent permitted by the 1940 Act, the rules and
regulations thereunder and any exemptive relief
The Focused Equities Portfolio may not purchase obtained by the Funds.
securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, immediately
after such purchase, more than 25% of the value
of the Fund's total assets would be invested in
the securities of one issuer, and with respect to
50% of the Fund's total assets, more than 5% of
its assets would be invested in the securities of
one issuer.
The International Growth Portfolio may not
borrow money except as a temporary measure
and then only in amounts not exceeding 5% of
the value of the Fund's total assets or from
banks or in connection with reverse repurchase
agreements provided that immediately after such
borrowing, all borrowings of the Fund do not
exceed one-third of the Fund's total assets and
no purchases of portfolio instruments will be
made while the Fund has borrowings outstanding
in an amount exceeding 5% of its total assets.
</TABLE>
I-3
<PAGE>
<TABLE>
<S> <C>
7. Purchase any securities which would cause 25% 7. Purchase any securities which would cause 25%
or more of the value of the Fund's total assets at or more of the value of its total assets at the
the time of such purchase to be invested in the time of purchase to be invested in the securities
securities of one or more issuers conducting their of one or more issuers conducting their principal
principal activities in the same industry, provided business activities in the same industry, provided
that this limitation does not apply to investments that: (a) there is no limitation with respect to
in obligations issued or guaranteed by the U.S. obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities. Government, any state or territory of the United
States, or any of their agencies, instrumentalities
or political subdivisions, and (b) notwithstanding
this limitation or any other fundamental
investment limitation, assets may be invested in
the securities of one or more management
investment companies to the extent permitted by
the 1940 Act, the rules and regulations
thereunder and any exemptive relief obtained by
the Funds.
8. Purchase any securities on margin (except for
such short-term credits as are necessary for the
clearance of purchases and sales of portfolio
securities) or sell any securities short (except
short sales against the box.) For purposes of this
restriction, the deposit or payment by the Fund
of initial or maintenance margin in connection
with futures contracts and related options and
options on securities is not considered to be the
purchase of a security on margin.
</TABLE>
I-4
<PAGE>
APPENDIX II
OTHER FUNDS ADVISED BY THE INVESTMENT ADVISERS
Additional Funds Advised by BAAI
<TABLE>
<CAPTION>
Assets in Million's Maximum Annual
(as of 12/31/00) Advisory Fee
-------------------- ---------------
<S> <C> <C>
Nations Value Fund 0.65%
Nations Capital Growth Fund 0.65%
Nations Strategic Growth Fund 0.65%
Nations MidCap Growth Fund 0.65%
Nations Managed Index Fund 0.40%
Nations SmallCap Index Fund 0.40%
Nations LargeCap Index Fund 0.40%
Nations Aggressive Growth Fund 0.65%
Nations Strategic Income Fund 0.50%
Nations Balanced Assets Fund 0.65%
Nations Short-Intermediate Government Fund 0.30%
Nations Short-Term Income Fund 0.30%
Nations Bond Fund 0.40%
Nations Equity Income Fund Breakpoint#
Nations Government Securities Fund Breakpoint(PHI)
Nations Small Company Fund 0.90%
Nations U.S. Government Bond Fund 0.50%
Nations Emerging Markets Fund 1.00%
Nations Marsico Focused Equities Fund* N/A
Nations Marsico Growth & Income Fund* N/A
Nations International Equity Fund* N/A
Nations International Value Fund* N/A
Nations Asset Allocation Fund 0.65%
Nations Convertible Securities Fund 0.65%
Nations Intermediate Bond Fund* N/A
Nations Blue Chip Fund* N/A
LifeGoal Growth Portfolio 0.25%
LifeGoal Balanced Growth Portfolio 0.25%
LifeGoal Income and Growth Portfolio 0.25%
Nations Intermediate Bond Master Portfolio 0.40%
Nations Blue Chip Master Portfolio 0.65%
Nations International Equity Master Portfolio 0.80%
Nations Marsico Focused Equities Master Portfolio 0.75%
Nations Marsico Growth & Income Master Portfolio 0.75%
Nations International Value Master Portfolio 0.90%
Nations High Yield Bond Master Portfolio 0.55%
Nations Marsico 21st Century Master Portfolio 0.75%
Nations Marsico International Opportunities Master 0.80%
Portfolio
Nations High Yield Bond Fund* N/A
Nations MidCap Index Fund 0.40%
Nations Marsico 21st Century Fund* N/A
Nations Marsico International Opportunities Fund* N/A
-----------------
# Nations Equity Income Fund has tiered advisory fees as follows: 0.65% for the
first $100 million of the Fund's average daily net assets, plus 0.60% of the
Fund's average daily net assets in excess of $100 million and up to $250
million, plus 0.50% of the Fund's average daily net assets in excess of $250
million.
(PHI) Nations Government Securities Fund has tiered advisory fees as follows:
0.50% for the first $200 million of the Fund's average daily net assets, plus
0.45% of the Fund's average daily net assets in excess of $200 million and up to
$250 million, plus 0.40% of the Fund's average daily net assets in excess of
$250 million.
* These Funds are "feeder" funds and do not have their own adviser or
sub-adviser. A feeder fund typically invests all of its assets in another fund,
which is called a "master portfolio." BAAI serves as the investment adviser to
each Master Portfolio.
</TABLE>
Additional Funds Sub-Advised by BACAP*
<TABLE>
<CAPTION>
Maximum Annual
Sub-Advisory
Fee to BACAP
---------------
<S> <C>
Nations Value Fund 0.25%
Nations Capital Growth Fund 0.25%
Nations Strategic Growth Fund 0.25%
Nations MidCap Growth Fund 0.25%
Nations Managed Index Fund 0.10%
Nations SmallCap Index Fund 0.10%
Nations LargeCap Index Fund 0.10%
Nations Aggressive Growth Fund 0.25%
Nations Balanced Assets Fund 0.25%
Nations Short-Intermediate Government Fund 0.15%
Nations Short-Term Income Fund 0.15%
Nations Bond Fund 0.15%
Nations Strategic Income Fund 0.15%
Nations Equity Income Fund 0.20%
Nations Government Securities Fund 0.15%
Nations Small Company Fund 0.25%
Nations U.S. Government Bond Fund 0.15%
Nations Asset Allocation Fund 0.25% (non-equity portion)
Nations Convertible Securities Fund 0.25%
Nations California Municipal Bond Fund 0.07%
LifeGoal Growth Portfolio 0.05%
LifeGoal Balanced Growth Portfolio 0.05%
LifeGoal Income and Growth Portfolio 0.05%
Nations Intermediate Bond Master Portfolio 0.15%
</TABLE>
*The asset size and advisory fee for each of these Funds is shown in the table
above.
Additional Funds Sub-Advised by Chicago Equity
<TABLE>
<CAPTION>
Maximum Annual
Sub-Advisory
Assets in Millions Maximum Annual Fee to Chicago
(as of 12/31/00) Advisory Fee Equity
-------------------- ---------------- ---------------
<S> <C> <C> <C>
Accessor Growth Fund $277 0.45% 0.20%*
Conseco Fund Group - Balanced $ 35 0.90% 0.30%
Conseco Fund Group - Equity $156 0.90% 0.30%
Conseco Fund Group - Large Cap $ 30 0.70% 0.30%
Conseco Series Trust - Asset Allocation $ 41 0.80% 0.30%
Conseco Series Trust - Common Stock $309 0.80% 0.30%
</TABLE>
--------
* CEP will become eligible to receive a performance based fee in 2001.
II-1
<PAGE>
Additional Funds Sub-Advised by Marsico Capital
<TABLE>
<CAPTION>
Maximum Annual
Sub-Advisory
Assets in Millions Maximum Annual Fee to Marsico
(as of 07/31/00) Advisory Fee Capital
-------------------- ---------------- ---------------
<S> <C> <C> <C>
Marsico Focus Fund $ 2,785.80 0.85% 0.85%
Marsico Growth & Income Fund $ 984.70 0.85% 0.85%
Marsico 21st Century Fund $ 137.40 0.85% 0.85%
Marsico International Opportunities Fund $ 13.10 0.85% 0.85%
Marsico Capital Growth Portfolio, a series of American
Skandia Advisor Funds, Inc. $ 1,887.7 0.90% 0.45%
Marsico Capital Growth Fund, a series of American
Skandia Advisory Funds, Inc. $ 1,073.6 1.00% 0.45%
Style Select Series Focus Portfolio Fund $ 645.9 0.85% 0.40%
Style Select Focused Growth & Income Portfolio Fund $ 103.4 1.00% 0.45%
Seasons Series Trust Focus Growth Portfolio Variable
Annuity $ 5.0 1.00% 0.40%*
Frank Russell Investment Company Equity I fund $ 126.4 0.55% 0.35%
Frank Russell Investment Company Diversified Equity
Fund $ 124.2 0.73% 0.35%
Enterprise Capital Appreciation Fund $ 285.6 0.75% 0.45%
Enterprise Accumulation Trust Variable Annuity $ 68.7 0.75% 0.45%
</TABLE>
--------
* A $100,000 bonus fee may be payable annually to the sub-adviser based on
performance.
II-2
<PAGE>
APPENDIX III
Expense Summaries of Funds for which a Fee/Expense Change is Proposed
The following tables describe the fees and expenses associated with
certain Funds for which the approval of a new investment sub-advisory agreement
will result in a change to a Fund's management fee, and accordingly, such
Fund's total operating expense ratios. In particular, the tables compare the
fees and expenses for each Fund both as they are as of October 1, 2000 and with
the fees and expenses that will apply if the proposed investment sub-advisory
agreements are approved.
III-1
<PAGE>
AGGRESSIVE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Nations Marsico
Aggressive 21st Century
Growth Portfolio
Portfolio (After Proposal)
------------ -----------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases,
as a % of offering price ...................................... none none
Maximum deferred sales charge as a % of net asset value ......... none none
Annual Fund Operating Expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees ................................................. 0.65 % 0.75 %
Distribution (12b-1) and shareholder servicing fees ............. 0.25 % 0.25 %
Other expenses .................................................. 1.34 % 1.34 %
----- -----
Total annual Fund operating expenses ............................ 2.24 % 2.34 %
Fee waivers and/or reimbursements ............................... (1.24)% (1.24)%
------ ------
Total net expenses .............................................. 1.00%(2) 1.10%(3)
======== ========
</TABLE>
(1) The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
necessary to reflect current service provider fees.
(2) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
April 30, 2001 in order to maintain total fund operating expenses at
the levels shown here. The figure shown here is after waivers and/ or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
(3) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
April 30, 2002 in order to maintain total fund operating expenses at
the levels shown here. The figure shown here is after waivers and/ or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in shares of the Fund for the time periods indicated
and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire April 30, 2001 and
are not reflected in the 3, 5 and 10 year examples
Although your actual cost may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Portfolio ...................................... $102 $580 $1,084 $2,472
Nations Marsico 21st Century Portfolio (after proposal) .......... $112 $611 $1,136 $2,577
</TABLE>
III-2
<PAGE>
SMALLCAP INDEX PORTFOLIO
<TABLE>
<CAPTION>
Nations Small
SmallCap Company
Index Portfolio
Portfolio (After Proposal)
----------- -----------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases,
as a % of offering price ....................................... none none
Maximum deferred sales charge as a % of net asset value ......... none none
Annual Fund Operating Expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees ................................................. 0.40 % 0.90 %
Distribution (12b-1) and shareholder servicing fees ............. 0.25 % 0.25 %
Other expenses .................................................. 1.21 % 1.21 %
------ -----
Total annual Fund operating expenses ............................ 1.86 % 2.36 %
Fee waivers and/or reimbursements ............................... (1.21)% (1.11)%
------ ------
Total net expenses .............................................. 0.65%(2) 1.25%(3)
======== ========
</TABLE>
(1) The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
necessary to reflect current service provider fees.
(2) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
April 30, 2001 in order to maintain total fund operating expenses at
the levels shown here. The figure shown here is after waivers and/ or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
(3) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
April 30, 2002 in order to maintain total fund operating expenses at
the levels shown here. The figure shown here is after waivers and/ or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire April 30, 2001
and are not reflected in the 3, 5 and 10 year examples
Although your actual cost may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
SmallCap Index Portfolio .................................. $ 66 $465 $ 888 $2,069
Nations Small Company Portfolio (after proposal) .......... $127 $630 $1,160 $2,611
</TABLE>
III-3
<PAGE>
MANAGED INDEX PORTFOLIO
<TABLE>
<CAPTION>
Managed Nations Capital
Index Growth Portfolio
Portfolio (After Proposal)
----------- -----------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases,
as a % of offering price ...................................... none none
Maximum deferred sales charge as a % of net asset value ......... none none
Annual Fund Operating Expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees ................................................. 0.40 % 0.65 %
Distribution (12b-1) and shareholder servicing fees ............. 0.25 % 0.25 %
Other expenses .................................................. 0.62 % 0.62 %
------ -----
Total annual Fund operating expenses ............................ 1.27 % 1.52 %
Fee waivers and/or reimbursements ............................... (0.52)% (0.52)%
------ ------
Total net expenses .............................................. 0.75%(2) 1.00%(3)
======== ========
</TABLE>
(1) The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
necessary to reflect current service provider fees.
(2) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
April 30, 2001 in order to maintain total fund operating expenses at
the levels shown here. The figure shown here is after waivers and/ or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
(3) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
April 30, 2002 in order to maintain total fund operating expenses at
the levels shown here. The figure shown here is after waivers and/ or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire April 30, 2001
and are not reflected in the 3, 5 and 10 year examples
Although your actual cost may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Managed Index Portfolio .................................... $ 77 $350 $644 $1,481
Nations Capital Growth Portfolio (after proposal) .......... $102 $428 $778 $1,764
</TABLE>
III-4
<PAGE>
Nations Annuity Trust
Exhibit Index
Exhibit No. Description
----------- -----------
EX-1 Form of Proxy Ballots
