NATIONS ANNUITY TRUST, N-1A, 1997-11-14

NATIONS ANNUITY TRUST
N-1A, 1997-11-14

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As filed with the Securities and Exchange Commission
on November 14, 1997
Registration No. 333-_____; 811-08481

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ____ [ ]
(Check appropriate box or boxes)
-----------------------
NATIONS ANNUITY TRUST
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis & Frankel
Morrison & Foerster LLP 919 3rd Avenue
2000 Pennsylvania Ave., N.W. New York, New York 10022
Suite 5500
Washington, D.C. 20006

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this registration statement.

It is expected that the securities will be sold to the public as soon as
possible after the registration statement is effective.

The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>

EXPLANATORY NOTE

This Registration Statement on Form N-1A (the "Registration Statement")
of Nations Annuity Trust (the "Trust") is being filed in order to register eight
series: Nations Marsico Selected Equities Portfolio, Nations Marsico Growth
Portfolio, Nations Value Portfolio, Nations International Growth Portfolio,
Nations Disciplined Equity Portfolio, Nations Managed Index Portfolio, Nations
Managed SmallCap Index Portfolio and Nations Balanced Assets Portfolio
(collectively, the "Funds").

<PAGE>

NATIONS ANNUITY TRUST
CROSS REFERENCE SHEET

Part A
Item No. Prospectus
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<S> <C>
1. Cover Page ................................................ Cover Page

2. Synopsis .................................................. Prospectus Summary

3. Condensed Financial
Information ................................................ Not Applicable

4. General Description of
Registrant ................................................. Cover Page; Objectives; How
Objectives Are Pursued; Organization And
History

5. Management of the Fund .................................... How The Portfolios Are Managed

5A. Management's Discussion of Fund
Performance............................................... Not Applicable

6. Capital Stock and Other Securities ......................... Organization and History, How To
Buy Shares; How The Portfolios
Value Their Shares; How Dividends
And Distributions Are Made; Tax
Information

7. Purchase of Securities Being Offered ....................... How Performance Is Shown; How
To Buy Shares; How the Portfolios Value
Their Share

8. Redemption or Repurchase ................................... How To Redeem Shares; How To
Exchange Shares

9. Legal Proceedings .......................................... Not Applicable

Part B
Item No.

10. Cover Page.................................................. Cover Page

11. Table of Contents........................................... Table of Contents

<PAGE>

12. General Information and
History..................................................... Introduction

13. Investment Objectives and
Policies.................................................... Additional Information on Portfolio
Investments

14. Management of the Registrant................................ Trustees And Officers; Investment
Advisory, Administration, Custody Transfer
Agency, Shareholder Servicing and
Distribution Agreements
15. Control Persons and Principal
Holders of Securities....................................... Not Applicable

16. Investment Advisory and Other Services...................... Investment Advisory,
Administration, Custody, Transfer Agency,
Shareholder Servicing And Distribution
Agreements

17. Brokerage Allocation ....................................... Portfolio Transactions and
Brokerage--General Brokerage Policy

18. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory, Administration,
Custody, Transfer Custody, Transfer
Agency, Shareholder Servicing And
Distribution Agreements

19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Net Asset Value -- Purchases
And Redemptions; Distributor

20. Tax Status.................................................. Additional Information Concerning
Taxes

21. Underwriters................................................ Investment Advisory,
Administration Custody, Transfer Agency
Shareholder Servicing And Distribution
Agreements; Distributor
<PAGE>

22. Calculation of Performance Data............................. Additional Information on
Performance

23. Financial Statements........................................ Independent Accountant and
Reports

Part C
Item No. Other Information

Information required to be included in
Part C is set forth under the
appropriate Item, so numbered, in Part C
of this Document
</TABLE>

<PAGE>
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Prospectus

JANUARY , 1998

EQUITY PORTFOLIOS
Nations Value Portfolio
Nations International Growth Portfolio
Nations Disciplined Equity Portfolio
Nations Marsico Selected Equities
Portfolio
Nations Marsico Growth Portfolio
INDEX PORTFOLIOS
Nations Managed Index Portfolio
Nations Managed SmallCap Index
Portfolio
BALANCED PORTFOLIO
Nations Balanced Assets Portfolio

INVESTMENT ADVISER: NationsBanc Advisors, Inc.
INVESTMENT SUB-ADVISER: TradeStreet Investment Associates, Inc.
INVESTMENT SUB-ADVISER: Gartmore Global Partners

INVESTMENT SUB-ADVISER: Marsico Capital Management, LLC
[NATIONS FUNDS LOGO]
DISTRIBUTOR: Stephens Inc.

<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

Preliminary Prospectus subject to completion dated , 1997
Prospectus

JANUARY , 1998

EQUITY PORTFOLIOS:
Nations Value Portfolio
Nations International Growth
Portfolio
Nations Disciplined Equity
Portfolio
Nations Marsico Selected
Equities Portfolio
Nations Marsico Growth
Portfolio
INDEX PORTFOLIOS:
Nations Managed Index
Portfolio
Nations Managed SmallCap
Index Portfolio
BALANCED PORTFOLIO:
Nations Balanced Assets
Portfolio

This Prospectus describes the investment portfolios
listed in the column to the right (each a
"Portfolio") of Nations Annuity Trust (the
"Trust"), an open-end management investment
company. The Portfolios are available exclusively
as pooled funding vehicles for certain
variable annuity and variable life insurance
separate accounts issued by participating life
insurance companies ("Participating Insurance
Companies"), offering variable annuity contracts
(hereinafter a "Contract" or "Contracts").

Investors should read this Prospectus, along with
the prospectus for a Contract accompanying this
Prospectus, before investing and retain it for
future reference. It sets forth concisely the
information which a prospective purchaser of a
Contract should know about the Portfolios before
making such a purchase. Additional information
about the Trust is contained in a separate
Statement of Additional Information (the "SAI"),
that has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request
without charge by writing or calling the Trust at
its address or telephone number shown below. The SAI
for the Trust, dated January , 1998, is incorporated
by reference in its entirety into this Prospectus.
The SEC maintains a Web site (http://www.sec.gov)
that contains the SAI, material incorporated by
reference in this Prospectus and other information
regarding registrants that file electronically with
the SEC. NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Portfolios. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to certain of the Portfolios,
Gartmore Global Partners ("Gartmore") is investment
sub-adviser to Nations International Growth
Portfolio, and Marsico Capital Management, LLC
("Marsico Capital") is investment sub-adviser to
Nations Marsico Selected Equities Portfolio and
Nations Marsico Growth Portfolio. As used herein the
term "Adviser" shall mean NBAI, TradeStreet,
Gartmore and/or Marsico Capital as the context may
require.

SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE PORTFOLIOS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.

NATIONSBANK AFFILIATES PROVIDE SERVICES TO THE
PORTFOLIOS, FOR WHICH THEY ARE COMPENSATED. STEPHENS
INC., WHICH IS NOT AFFILIATED WITH NATIONSBANK, IS
THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE
DISTRIBUTOR FOR THE PORTFOLIOS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

For Portfolio information
call:
1-800-765-2668
Nations Annuity Trust
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255

[NATIONS FUNDS LOGO]

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Table Of Contents

Participating Insurance Companies 3
About The
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Portfolios
Objectives 3
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How Objectives Are Pursued 3
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How Performance Is Shown 11
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How The Portfolios Are Managed 12
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Organization And History 15
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How To Buy Shares 16
About Your
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Investment
How To Redeem Shares 16
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Shareholder Servicing Plan 16
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How The Portfolios Value Their Shares 17
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How Dividends And Distributions Are Made;
Tax Information 17
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General Information 18
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Appendix A -- Portfolio Securities 18
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Appendix B -- Description Of Ratings 26
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
SAI INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE TRUST OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.

<PAGE>
About The Portfolios

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Participating Insurance Companies

The Portfolios are made available to serve as the underlying investment vehicles
for certain variable annuity and variable life insurance separate accounts
issued by Participating Insurance Companies. Each Portfolio is an open-end
management investment company, organized as a Delaware business trust. Each
Portfolio has different investment objectives and policies. Each Contract is
described in a separate prospectus issued by the Participating Insurance
Companies. The Trust assumes no responsibility for such prospectus. For a
discussion of the Portfolio objectives and policies, see "Objectives" and "How
Objectives Are Pursued" below.

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Objectives

EQUITY PORTFOLIOS:

NATIONS VALUE PORTFOLIO: Nations Value Portfolio's investment objective is to
seek growth of capital by investing in companies that are believed to be
undervalued.

NATIONS INTERNATIONAL GROWTH PORTFOLIO: Nations International Growth Portfolio's
investment objective is to seek long-term capital growth by investing 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.

NATIONS DISCIPLINED EQUITY PORTFOLIO: Nations Disciplined Equity Portfolio's
investment objective is to seek growth of capital by investing in companies that
are expected to produce significant increases in earnings per share.

NATIONS MARSICO SELECTED EQUITIES PORTFOLIO: Nations Marsico Selected Equities
Portfolio's investment objective is to seek long-term growth of capital. It is a
non-diversified fund that pursues its objective by normally concentrating its
investments in a core position of 20-30 common stocks.

NATIONS MARSICO GROWTH PORTFOLIO: Nations Marsico Growth Portfolio's investment
objective is to seek long-term capital growth and current income.

INDEX PORTFOLIOS:

NATIONS MANAGED INDEX PORTFOLIO: Nations Managed Index Portfolio's investment
objective is to seek, over the long-term, to provide a total return which (gross
of fees and expenses) exceeds the total return of the Standard & Poor's 500
Composite Stock Price Index.

NATIONS MANAGED SMALLCAP INDEX PORTFOLIO: Nations Managed SmallCap Index
Portfolio's investment objective is to seek, over the long-term, to provide a
total return which (gross of fees and expenses) exceeds the total return of the
Standard & Poor's SmallCap 600 Index.

BALANCED PORTFOLIO:

NATIONS BALANCED ASSETS PORTFOLIO: Nations Balanced Assets Portfolio's
investment objective is to seek total return by investing in equity and fixed
income securities.

Although the Adviser will seek to achieve the investment objective of each
Portfolio, there is no assurance that it will be able to do so. No single
Portfolio should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Portfolio are not insured against
loss of principal.

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How Objectives Are Pursued

EQUITY PORTFOLIOS:

NATIONS VALUE PORTFOLIO: The Portfolio invests in stocks drawn from a broad
universe of companies monitored by the Adviser. The Adviser closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.

<PAGE>
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.

The Portfolio invests under normal market conditions at least 65% of its total
assets in common stocks. In addition to common stocks, the Portfolio also may
invest in preferred stocks, securities convertible into common stock and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities). Although the Portfolio invests
primarily in publicly-traded common stocks of companies incorporated in the
United States, the Portfolio may invest up to 20% of its assets in foreign
securities. The Portfolio also may hold up to 20% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies and instrumentalities (together, with U.S. Treasury Obligations, "U.S.
Government Obligations"), and investment grade securities of domestic companies.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by
Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("Moody's")) have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Portfolio, an issue of securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Portfolio. The Adviser will consider such an event
in determining whether the Portfolio should continue to hold the obligation.
Unrated obligations may be acquired by the Portfolio if they are determined by
the Adviser to be of comparable quality at the time of purchase to rated
obligations that may be acquired.

The Portfolio may invest in various money market instruments and repurchase
agreements. The Portfolio may invest without limitation in such instruments
pending investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.

NATIONS INTERNATIONAL GROWTH PORTFOLIO: In pursuing its investment objective,
under normal market conditions, the Portfolio will invest at least 65% of its
total assets in foreign equity securities listed on major exchanges, consisting
of common stocks, preferred stocks and convertible securities, such as warrants,
rights and convertible debt. The Portfolio may purchase the stock of small-,
mid- and large-capitalization companies.

The Portfolio may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Trustees, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Portfolio will be rated
in the top two categories by a nationally recognized statistical rating
organization ("NRSRO"), or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Portfolio may invest
up to 100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Portfolio may invest include short-term and
intermediate-term obligations of corporations, foreign governments and
international organizations (such as the International Bank for Reconstruction
and Development (the "World Bank")), including money market instruments.

The Portfolio may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Portfolio may invest in American Depository Receipts ("ADRs"),
Global Depository Receipts ("GDRs"), European Depository Receipts ("EDRs") and
American Depository Shares ("ADSs").

NATIONS DISCIPLINED EQUITY PORTFOLIO: The investment philosophy of the Portfolio
is based on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Portfolio invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Portfolio seeks to provide investors with
long-term capital appreciation which exceeds that of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index").1

In selecting stocks for the Portfolio, the Adviser utilizes quantitative
analysis and optimization tools. This approach seeks to identify companies with
improving profit potential through analysis of earnings forecasts issued by
investment banks, broker/dealers and other investment professionals. The Adviser
believes that companies experiencing such earnings trends have the

1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").

<PAGE>
potential to generate significant increases in per share earnings. The Adviser
also believes that companies with increasing earnings should experience positive
trends in their stock price. The quantitative analysis also includes ranking the
attractiveness of equity securities according to a multi-factor valuation model.
Both value and growth factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while growth characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. The objective is to maintain a broadly
diversified portfolio which ranks in the top quartile on earnings momentum and
in the top third on valuation. This approach generally produces a dividend yield
less than the market average. Although this Portfolio seeks to invest in
attractively priced securities with increasing earnings, its investment
objective focuses on long-term capital appreciation; income is not an objective
of this Portfolio.

Under normal market conditions, the Portfolio invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Portfolio's assets, the Portfolio may invest in a broad range of equity and
debt instruments, including preferred stocks, securities (debt and preferred
stock) convertible into common stock, warrants and rights to purchase common
stocks, options, U.S. government and corporate debt securities and various money
market instruments. The Portfolio will invest primarily in medium- and large-
sized companies (I.E. companies with market capitalizations of $500 million or
greater) that are determined to have favorable price/earnings ratios. The
Portfolio also may invest in securities issued by companies with market
capitalizations of less than $500 million. The volatility of
small-capitalization stocks is typically greater than that of larger companies.
To help reduce risk, the Portfolio will invest in the securities of companies
representing a broad range of industries and economic sectors.

The Portfolio's investments in debt securities, including convertible
securities, will be limited to securities rated investment grade (E.G.
securities rated in one of the top four investment categories by an NRSRO or, if
not rated, are of equivalent quality as determined by the Adviser). Obligations
rated in the lowest of the top four investment grade rating categories have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.

The Portfolio may invest up to 20% of its total assets in foreign securities.
For temporary defensive purposes if market conditions warrant, the Portfolio may
invest without limitation in preferred stocks, investment grade debt
instruments, money market instruments and repurchase agreements.

NATIONS MARSICO SELECTED EQUITIES PORTFOLIO: Nations Marsico Selected Equities
Portfolio invests primarily in common stocks selected for their growth
potential. The Portfolio may invest to a lesser degree in other types of
securities, including preferred stock, warrants, convertible securities and debt
securities. The Adviser generally takes a "bottom up" approach to building the
portfolio. In other words, the Adviser seeks to identify individual companies
with earnings growth potential that may not be recognized by the market at
large. To identify such opportunities, the Adviser looks for a combination of
four characteristics:

(Bullet) Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.

(Bullet) Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.

(Bullet) Global reach -- The Adviser selects securities without geographic bias
in the belief that the global market is both a source of growth
opportunity and a hedge against fluctuations and dislocations of local
markets.

(Bullet) Themes -- The Adviser seeks companies that are moving with, not
against, the major social, economic and cultural shifts taking place in
the world.

Once an opportunity is identified, it is subjected to a disciplined process
including both "top down" and "bottom up" elements. From a top down perspective,
the Adviser considers the economic, political and social factors that enhance a
company's ability to produce consistent, sustainable growth. The Adviser's
bottom up analysis also considers company fundamentals to determine the present
and future value of the company as an investment. Realization of income is not a
significant investment consideration. Any income realized on the Portfolio's
investments will be incidental to its objective.

NATIONS MARSICO GROWTH PORTFOLIO: Under normal circumstances, the Fund pursues
its objective by investing up to 75% of its assets in equity securities selected
primarily for their growth potential and at least 25% of its assets in
securities that have income potential. Nations Marsico Growth Fund normally
emphasizes the growth component. However, in unusual circumstances, the Fund may
reduce the growth component of its portfolio to 25% of its assets. The Portfolio
may invest in any combination of common stock, preferred stock, warrants,
convertible securities and debt securities. However, it is expected that the
Portfolio will emphasize investments in common stocks. The Portfolio may shift
assets between the growth and income components of its portfolio based on the
Adviser's analysis of relevant market, financial and economic conditions. If the
Adviser believes that growth securities will provide better returns than the
yields then available or expected on income-producing securities, then the
Portfolio will place

<PAGE>
a greater emphasis on the growth component. The Adviser generally takes a
"bottom up" approach to building the portfolio. In other words, the Adviser
seeks to identify individual companies with earnings growth potential that may
not be recognized by the market at large. To identify such opportunities, the
Adviser looks for a combination of four characteristics:

(Bullet) Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.

(Bullet) Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.

(Bullet) Themes -- The Adviser seeks companies that are moving with, not
against, the major social, economic and cultural shifts taking place in
the world.

Because income is a part of the investment objective of the Portfolio, the
Adviser may also consider dividend-paying characteristics in selecting equity
securities for the Portfolio. The Portfolio may also find opportunities for
capital growth from debt securities because of anticipated changes in interest
rates, credit standing, currency relationships or other factors. Investors in
the Portfolio should keep in mind that the Portfolio is not designed to produce
a consistent level of income.

ABOUT NATIONS MARSICO SELECTED EQUITIES FUND AND NATIONS MARSICO GROWTH FUND:
Nations Marsico Selected Equities Fund and Nations Marsico Growth Fund may also
invest up to 25% of their assets in mortgage- and asset-backed securities, up to
10% of its assets in zero coupon, pay-in-kind and step coupon securities, and
without limit in indexed/structured securities. The Portfolios will invest no
more than 35% of their assets in high-yield/high-risk securities. The Portfolios
may also purchase high-grade commercial paper, certificates of deposit, and
repurchase agreements. The Portfolios may also invest in short-term debt
securities as a means of receiving a return on idle cash. See the Portfolios'
SAI for a description of ratings.

When the Adviser believes that market conditions are not favorable for
profitable investing or when the Adviser is otherwise unable to locate favorable
investment opportunities, the Portfolios' investments may be hedged to a greater
degree and/or its cash or similar investments may increase. In other words, the
Portfolios do not always stay fully invested in stocks and bonds. Cash or
similar investments are a residual -- they represent the assets that remain
after the Adviser has committed available assets to desirable investment
opportunities. When the Portfolios' cash position increases, it may not
participate in stock market advances or declines to the extent that it would if
it remained more fully invested in common stocks.

The Portfolios may invest without limit in foreign equity and debt securities.
The Portfolios may invest directly in foreign securities denominated in a
foreign currency and not publicly traded in the United States. Other ways of
investing in foreign securities include depositary receipts or shares, and
passive foreign investment companies. Foreign securities are generally selected
on a company-by-company basis without regard to any defined allocation among
countries or geographic regions. However, certain factors such as expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships, and prospects for economic growth among
countries, regions or geographic areas may warrant greater consideration in
selecting foreign securities. The Portfolios may use options, futures, forward
currency contracts and other types of derivatives for hedging purposes or for
non-hedging purposes such as seeking to enhance return. The Portfolios may
purchase securities on a when-issued, delayed delivery or forward commitment
basis.

GENERAL: Each Equity Portfolio also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Portfolio may lend its portfolio
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. Each
Equity Portfolio also may invest in real estate investment trust securities. In
addition, each Equity Portfolio may invest in securities issued by other
investment companies, consistent with the Portfolio's investment objective and
policies and repurchase agreements. Nations International Growth Portfolio may
invest in forward foreign exchange contracts.

For more information concerning these and other investments in which the
Portfolios may invest and their investment practices, see "Appendix A."

<PAGE>
INDEX PORTFOLIOS:

NATIONS MANAGED INDEX PORTFOLIO: In seeking to achieve its investment objective,
the Portfolio will invest in selected equity securities that are included in the
S&P 500 Index. The S&P 500 Index is a market capitalizaton weighted index
consisting of 500 common stocks chosen for market size, liquidity and industry
group representation.

Unlike traditional index portfolios, the Portfolio has a "managed" overlay. The
Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the S&P 500 Index over time.

The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multi-factor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. A second
quantitative model which measures the earnings momentum of each security is
added to the screening process to serve as a validity check in the portfolio
construction process. Each stock is assigned a ranking from 1 to 10 (best to
worst). The Adviser then either underweights or eliminates the less attractive
securities and modestly emphasizes the most attractive stocks resulting in a
portfolio of 300 to 400 holdings that capture the overall investment
characteristics of the S&P 500 Index.

Under normal conditions, the Adviser will attempt to invest as much of the
Portfolio's assets as is practical and, in any event the Portfolio will invest
at least 80% of its total assets, in common stocks which are included in the S&P
500 Index. The Portfolio is expected, however, to maintain a position in
high-quality short-term debt securities and money market instruments to meet
redemption requests. If the Adviser believes that market conditions warrant a
temporary defensive posture, the Portfolio may invest without limitation in
high-quality short-term debt securities and money market instruments. These
securities and money market instruments may include domestic and foreign
commercial paper, certificates of deposit, bankers' acceptances and time
deposits, U.S. Government Obligations and repurchase agreements.

NATIONS MANAGED SMALLCAP INDEX PORTFOLIO: In seeking to achieve its investment
objective, the Portfolio will invest in selected equity securities that are
included in the Standard & Poor's SmallCap 600 Index (the "S&P 600 Index.")2 The
S&P 600 Index is a market capitalization weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance.

Unlike traditional index funds, the Portfolio has a "managed" overlay. The
Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 600 Index while
minimizing the downside risk of underperforming the S&P 600 Index over time.

From the initial S&P 600 Index stock universe the Adviser ranks the
attractiveness of each security according to a multi-factor valuation model.
Both value and momentum factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while momentum characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. A second quantitative model which
measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of approximately
400 to 500 holdings that capture the overall investment characteristics of the
S&P 600 Index.

Under normal conditions, substantially all of the Portfolio's assets, and, in
any event at least 80% of its total assets, will be invested in common stocks
which are included in the S&P 600 Index. The Portfolio is expected, however, to
maintain a position in high-quality short-term debt securities and money market
instruments to meet redemption requests. If the Adviser believes that market
conditions warrant a temporary defensive posture, the Portfolio may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. Government Obligations and repurchase agreements.

ABOUT THE INDEXES: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the S&P 500 Index. The
S&P 600 Index is composed of 600 domestic stocks, which are chosen by S&P based
on, among other things, market size, liquidity and industry group
representation.

The S&P 600 Index is designed to be a benchmark of small capitalization stock
performance. Most of these stocks are listed on either the New York, American or
NASDAQ stock exchanges.

2 "Standard & Poor's SmallCap 600" is a registered service mark of S&P.

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The inclusion of a stock in the S&P 500 Index or the S&P 600 Index (the
"Indexes") in no way implies that S&P believes the stock to be an attractive
investment. The Indexes are determined, composed and calculated by S&P without
regard to the Portfolios. S&P is not a sponsor of, or in any way affiliated
with, the Portfolios, and does not make any representations or warranties,
expressed or implied, on the advisability of investing in the Portfolios or as
to the ability of the Indexes to track general stock market performance. S&P
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the Indexes or any data included therein.

GENERAL: Each Index Portfolio also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. exchange-traded financial futures approved by the CFTC and
options thereon for market exposure risk management. Each Portfolio may lend its
portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. In addition, the Portfolio may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.

In addition, when consistent with the Portfolio's respective investment
objective, each of the Portfolios will employ various techniques to manage
capital gain distributions. These techniques include utilizing a share
identification methodology whereby the Portfolio will specifically identify each
lot of shares of portfolio securities that it holds, which will allow the
Portfolio to sell first those specific shares with the highest tax basis in
order to reduce the amount of recognized capital gains as compared with a sale
of identical portfolio securities, if any, with a lower tax basis. The Portfolio
will sell first those shares with the highest tax basis only when it is in the
best interest of the Portfolio to do so, and reserves the right to sell other
shares when appropriate. In addition, the Portfolio may, at times, sell
portfolio securities in order to realize capital losses. Such capital losses
would be used to offset realized capital gains thereby reducing capital gain
distributions. Additionally, the Adviser will, consistent with the portfolio
construction process discussed above, employ a low portfolio turnover strategy
designed to defer the realization of capital gains.

Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. With respect to the Index Portfolios, the Adviser will
attempt to minimize these transaction costs by utilizing program trades and
computerized exchanges called "crossing networks" which allow institutions to
execute trades at the midpoint of the bid/ask spread and at a reduced commission
rate.

For more information concerning these and other investments in which the
Portfolios may invest and their invesment practices, see "Appendix A".

BALANCED PORTFOLIO:

NATIONS BALANCED ASSETS PORTFOLIO: In pursuing the Portfolio's objective, the
Adviser will allocate the Portfolio's assets based upon its judgment of the
relative valuation and the expected returns of the three major asset classes in
which the Portfolio invests: common stocks, fixed income securities, and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.

The Portfolio invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.

Under normal circumstances, at least 25% of the total value of the Portfolio's
assets will be invested in fixed income securities. The Portfolio may invest in
government, corporate and municipal debt securities, as well as mortgage-backed
and asset-backed securities. Most obligations acquired by the Portfolio will be
issued by companies or governmental entities located within the United States.
Debt obligations acquired by the Portfolio will be rated investment grade at the
time of purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA") or Thomson BankWatch, Inc. ("BankWatch"), or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
S&P, Moody's, D&P, Fitch, IBCA and BankWatch are the six NRSROs. Obligations
with the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by
Moody's) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Portfolio, an

<PAGE>
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Portfolio. The Adviser will consider
such an event in determining whether the Portfolio should continue to hold the
obligation. Unrated obligations may be acquired by the Portfolio if they are
determined by the Adviser to be of comparable quality, at the time of purchase,
to rated obligations that may be acquired.

Although the Portfolio invests primarily in securities of U.S. issuers, the
Portfolio may invest up to 25% of its total assets in foreign securities.

The Portfolio also may invest in various money market instruments and repurchase
agreements. The Portfolio may invest without limitation in such instruments
pending investment, to meet anticipated redemption requests, or as a temporary
defense measure if market conditions warrant.

The Portfolio may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk-management. The Portfolio may lend its portfolio securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. The Portfolio may
engage in reverse repurchase agreements and dollar roll transactions.
Additionally, the Portfolio may purchase securities issued by other investment
companies, consistent with the Portfolio's investment objective and policies.

The Portfolio also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates representing participations in,
or debt investments backed by, the securities and other assets owned by such
trusts and partnerships.

Certain securities that have variable or floating interest rates or demand or
put features may be deemed to have remaining maturities shorter than their
nominal maturities for purposes of determining the average weighted maturity and
duration of the Portfolio.

For more information concerning these and other investments in which the
Portfolio may invest and their investment practices, see "Appendix A."

Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Portfolio's shares, such changes will
not affect the income received by the Portfolio from such securities. However,
since available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Portfolio will increase or decrease in
relation to the income received by the Portfolio from their investments, which
will in any case be reduced by the Portfolio's expenses before being distributed
to the Portfolio's shareholders.

PORTFOLIO TURNOVER: Generally, the Equity Portfolios, the Index Portfolios and
the Balanced Portfolio will purchase portfolio securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. If a Portfolio's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Portfolio
and its shareholders. While it is not possible to predict exactly annual
portfolio turnover rates, it is expected that under normal market conditions,
the annual portfolio turnover rate will not exceed the following: Nations Value
Portfolio -- 50%; Nations International Growth Portfolio -- 100%; Nations
Disciplined Equity Portfolio -- 125%; Nations Marsico Selected Equities
Portfolio -- %; Nations Marsico Growth Portfolio -- %; Nations Managed Index
Portfolio -- 25%; Nations Managed SmallCap Index Portfolio -- 25%; and Nations
Balanced Assets Portfolio -- 175%.

RISK CONSIDERATIONS: Investments by a Portfolio in common stocks and other
equity securities are subject to stock market risks. The value of the stocks
that the Portfolio holds, like the broader stock market, may decline over short
or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline. As of the date of this Prospectus, the stock market, as measured by the
S&P 500 Index and other commonly used indices, was trading at or close to record
levels. There can be no guarantee that these levels will continue.

The value of a Portfolio's investments in debt securities, including U.S.
Government Obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments tend
to fluctuate in value more than shorter-term debt instruments in response to
interest rate movements. In addition, debt securities that are not backed by the
United States Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.

Certain of the Portfolios' investments constitute derivative securities, which
are securities whose value is derived, at least in part, from an underlying
index or reference rate. There are certain types of derivative securities that
can, under certain circumstances, significantly increase a purchaser's exposure
to market or other risks. The Adviser, however, only purchases derivative
securities in circumstances where it believes such purchases are consistent with
such Portfolios' investment objectives and do not unduly increase the Fund's
exposure to market or other risks. For additional risk information regarding the
Portfolios' investments in particular instruments, see "Appendix A -- Portfolio
Securities."

<PAGE>
Certain of the Portfolios may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.

SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
GROWTH PORTFOLIO: Investors should understand and consider carefully the special
risks involved in foreign investing.

Investors in Nations International Growth Portfolio should be aware that the
Portfolio may, from time to time, invest up to 5% of its total assets in
securities of companies located in Eastern Europe. Economic and political
reforms in this region are still in their infancy. As a result, investment in
such countries would be highly speculative and could result in losses to the
Fund and, thus, to its shareholders.

Moreover, investing in securities denominated in foreign currencies and
utilization of forward foreign currency exchange contracts and other currency
hedging techniques involve certain considerations comprising both opportunities
and risks not typically associated with investing in U.S. dollar-denominated
securities. Additionally, changes in the value of foreign currencies can
significantly affect the Portfolio's share price. General economic and political
factors in the various world markets also can impact the Portfolio's share
price.

The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Portfolio offers a more efficient way for individual investors to
participate in foreign markets, their expenses, including custodial fees, are
also higher than the typical domestic equity mutual fund.

Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in Nations International Growth Portfolio.

SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE INDEX PORTFOLIOS:
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of a Portfolio after the first sale could receive capital gain
distributions that are higher than the distributions that would have been
received if this methodology had not been used. Therefore, certain investors
actually could be disadvantaged by the techniques employed by the Portfolio to
seek to manage capital gain distributions, depending on the timing of their
purchase of Portfolio shares. Even if there are no subsequent sales, upon a
redemption or exchange of Portfolio shares an investor will have to recognize
gain to the extent that the net asset value of Portfolio shares at such time
exceeds such investor's tax basis in his or her Portfolio shares.

The various techniques employed by the Portfolios to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Portfolios. Moreover, the realization of capital gains is not entirely
within a Portfolio's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year to year.

INVESTMENT LIMITATIONS: Each Portfolio is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares. Other investment limitations
that cannot be changed without such a vote of shareholders are described in the
SAI.

Each Portfolio may not:

1. Purchase any securities which would cause 25% or more of the value of the
Portfolio's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. In addition, this limitation does not apply to investments by
"money market funds" as that term is used under the 1940 Act, in obligations of
domestic banks.

<PAGE>
2. Make loans, except that a Portfolio may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.

3. Each Portfolio (except Nations Marsico Selected Equities Portfolio) may not
purchase 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 5% of the value of such Portfolio's
total assets would be invested in the securities of such issuer, except that up
to 25% of the value of the Portfolio's total assets may be invested without
regard to these limitations and with respect to 75% of such Portfolio's assets,
such Portfolio will not hold more than 10% of the voting securities of any
issuer.

Nations Marsico Selected Equities Fund may not purchase 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 such Fund's total assets would be invested in the securities
of one issuer, and with respect to 50% of such Fund's total assets, more than 5%
of its assets would be invested in the securities of one issuer.

Nations 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
Portfolio's total assets or from banks or in connection with reverse repurchase
agreements provided that immediately after such borrowing, all borrowings of the
Portfolio do not exceed one-third of the Portfolio's total assets and no
purchases of portfolio instruments will be made while such Portfolio has
borrowings outstanding in an amount exceeding 5% of its total assets.

The investment objective and policies of each Portfolio, unless otherwise
specified, are non-fundamental and may be changed without shareholder approval.
If the investment objective or policies of a Portfolio change, shareholders
should consider whether the Fund remains an appropriate investment in light of
their current position and needs.

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How Performance Is Shown

From time to time the Portfolios may advertise the total return and yield on a
class of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a
class of shares of a Portfolio may be calculated on an average annual total
return basis or an aggregate total return basis. Average annual total return
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or the life of the Portfolio (as stated in the Portfolio's
advertisement) that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment, assuming the
reinvestment of all dividend and capital gain distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period again assuming the reinvestment of all dividends and
capital gain distributions. Total return may also be presented for other
periods.

"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Portfolio
by the maximum public offering price per share on the last day of that period.

Total return and yield figures quoted for the Portfolios include the effect of
deducting each Portfolio's expenses, but may not include charges and expenses
attributable to any particular insurance product. Since you can only purchase
shares of the Portfolios through an insurance product, you should carefully
review the prospectus of the insurance product you have chosen for information
on relevant charges and expenses. Excluding these charges from quotations of the
Portfolio's performance has the effect of increasing the performance quoted.
Investment performance, which will vary, is based on many factors, including
market conditions, the portfolio composition and such Portfolio's operating
expenses as well as the charges and fees imposed by the separate accounts.
Investment performance also often reflects the risks associated with a
Portfolio's investment objective and policies. These factors should be
considered when comparing a Portfolio's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Portfolios with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.

<PAGE>
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How The Portfolios Are Managed

The business and affairs of Nations Annuity Trust are managed under the
direction of their Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of the Trust.

The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.

INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Portfolios. NBAI is a wholly owned subsidiary of NationsBank, which in turn
is a wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.

TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to all of the Portfolios except for Nations International Growth
Portfolio, Nations Marsico Selected Equities Portfolio and Nations Marsico
Growth Portfolio. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.

Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to Nations
International Growth Fund pursuant to a sub-advisory agreement. Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect,
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company which is the holding company for a leading UK-based international
fund management group of companies. National Westminster Bank plc and affiliated
entities (collectively, "NatWest") own 100% of the equity of Gartmore Investment
Management plc.

Marsico Capital Management, LLC, located at 1200 17th Street, Suite 1300,
Denver, CO 80202, serves as the investment sub-adviser to Nations Marsico
Selected Equities Portfolio and Nations Marsico Growth Portfolio. Thomas F.
Marsico is President and Chief Executive Officer of Marsico Capital and has
voting control of the company. Prior to forming Marsico Capital in September
1997, Mr. Marsico had years of experience as a securities analyst/portfolio
manager, including years in which he served as Executive Vice President and
Portfolio Manager of the Janus Twenty Fund and the Janus Growth & Income Fund.
Marsico Capital has formed a strategic financial alliance with NationsBank.

Subject to the general supervision of the Trust's Board of Trustees, NBAI, and
in accordance with each Portfolio's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Portfolio, makes decisions
with respect to and places orders for each Portfolio's purchases and sales of
portfolio securities and maintains records relating to such purchases and sales.
The Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with NBAI or which
have sold shares in the Portfolios, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Portfolio may
invest in securities of companies with which NationsBank has a lending
relationship.

For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: .50% of the average daily net assets
of Nations Managed Index Portfolio and Nations Managed SmallCap Index Portfolio;
.75% of the average daily net assets of each of Nations Value Portfolio, Nations
Disciplined Equity Portfolio and Nations Balanced Assets Portfolio; .90% of the
average daily net assets of Nations International Growth Portfolio; % of the
average daily net assets of Nations Marsico Selected Equities Portfolio and %
of the average daily net assets of Nations Marsico Growth Portfolio.

For the services provided pursuant to a sub-advisory agreement, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .10% of Nations Managed Index Portfolio's and Nations Managed SmallCap
Index Portfolio's average daily net assets; and .25% of Nations Value
Portfolio's, Nations Balanced Assets Portfolio's, and Nations Disciplined Equity
Portfolio's average daily net assets.

For services provided pursuant to a sub-advisory agreement, Gartmore is entitled
to receive from NBAI sub-advisory fees, computed daily and paid monthly at the
annual rate of .70% of Nations International Growth Portfolio's average daily
net assets.

<PAGE>
For the services provided pursuant to a sub-advisory agreement, NBAI will pay
Marsico Capital sub-advisory fees, computed daily and paid monthly, at the
annual rate of % of the average daily net assets of Nations Marsico Capital
Selected Equities Portfolio and % of the average daily net assets of Nations
Marsico Growth Portfolio.

From time to time, NBAI (and/or TradeStreet and/or Gartmore and/or Marsico
Capital) may waive or reimburse (either voluntarily or pursuant to applicable
state limitations) advisory fees or expenses payable by a Portfolio.

Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Managed Index Portfolio and
Nations Managed SmallCap Index Portfolio. He has been Portfolio Manager for
these Portfolios since their inception. Prior to assuming his position with
TradeStreet in 1996, he was Vice President and Structured Products Manager for
the Investment Management Group at NationsBank. He has worked in the investment
community since 1990. His past experience includes portfolio management,
derivatives management and quantitative analysis for the Investment Management
Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden received a B.B.A.
in Finance from Belmont University. He is a Chartered Financial Analyst
candidate and a member of Chicago Quantitative Alliance, the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.

Jeffrey C. Moser is a Senior Product Manager, Equity Management for TradeStreet
and Senior Portfolio Manager for Nations Disciplined Equity Portfolio. Mr. Moser
has been with TradeStreet since 1996 and Portfolio Manager for Nations
Disciplined Equity Portfolio since its inception. Prior to assuming his position
with TradeStreet, he was Senior Vice President and Senior Portfolio Manager for
the Investment Management Group at NationsBank. Mr. Moser has worked for the
Investment Management Group at NationsBank since 1983 where his responsibilities
included institutional portfolio management and equity analysis. Mr. Moser
graduated Phi Beta Kappa with a B.S. in Mathematics from Wake Forest University.
He holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.

Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.

Sharon M. Herrmann is a Director of Equity Management for TradeStreet and Senior
Portfolio Manager for Nations Value Portfolio. Ms. Herrmann has been the
Portfolio Manager for Nations Value Portfolio since its inception. Prior to
assuming her position with TradeStreet, she was Senior Vice President and
Portfolio Manager for the Investment Management Group at NationsBank. Ms.
Herrmann has worked for the Investment Management Group at NationsBank since
1981 where her responsibilities included fund management and institutional
portfolio management. She attended Virginia Wesleyan College. Ms. Herrmann holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.

Julie L. Hale is a Senior Product Manager, Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Balanced Assets Portfolio. Ms. Hale has
been Portfolio Manager for the Nations Balanced Assets Portfolio since its
inception. Prior to assuming her position with TradeStreet, she was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. She has worked in the investment community since 1981. Her past
experience includes research analysis and portfolio management for Mercantile
Safe Deposit and Trust, and National City Bank. Ms. Hale received a B.S. in
Business and Finance from Mount St. Mary's College and an M.B.A. from Kent State
University. She holds the Chartered Financial Analyst designation and is a
member of the Association for Investment Management and Research as well as the
North Carolina Society of Security Analysts, Inc. She is also a member of the
National Association for Petroleum Investment Analysts and the World Affairs
Council of Washington, D.C.

Mr. Marsico manages the investment program of Nations Marsico Selected Equities
Portfolio and Nations Growth Portfolio and is primarily responsible for the
day-to-day management of the Portfolios. Mr. Marsico served as Portfolio Manager
for the Janus Twenty Fund and the Janus Growth and Income Fund from to
. The cumulative total return for the Janus Twenty Fund and the Janus
Growth & Income Fund during the periods when Mr. Marsico served as Portfolio
Manager of both Funds was % and %, respectively. At , the
date on which Mr. Marsico ceased serving as the Portfolio Manager to both the
Janus Twenty Fund and the Janus Growth & Income Fund, the Janus

<PAGE>
Twenty Fund had $ in net assets, and the Janus Growth & Income Fund had
$ in net assets. As Executive Vice President and Portfolio Manager of the
Janus Twenty Fund and the Janus Growth & Income Fund, Mr. Marsico had full
discretionary authority over the selection of investments for those funds.
Average annual returns for the one-year, three-year and five-year periods ended
and for the entire period during which Mr. Marsico managed those
funds compared with the performance of the S&P 500 Index were:

<TABLE>
<CAPTION>
Janus
Twenty Janus Growth & S&P 500
Fund(a) Income Fund(a) Index(b)
------- -------------- -------
<S> <C> <C> <C>
One Year
Three Years
Five Years
During Period of
Management by Mr.
Marsico
</TABLE>

(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.

(b) The S&P 500 Index is an unmanaged index of common stocks that is considered
to be generally representative of the United States stock market. The S&P
500 Index is adjusted to reflect reinvestment of dividends.

Historical performance is not indicative of future performance. The Janus Twenty
Fund and the Janus Growth & Income Fund are separate funds and their historical
performance is not indicative of the potential performance of Nations Marsico
Selected Equities Portfolio and Nations Marsico Growth Portfolio, respectively.
Share prices and investment returns will fluctuate reflecting market conditions,
as well as changes in company-specific fundamentals of portfolio securities.

Morrison & Foerster LLP, counsel to the Trust and special counsel to NationsBank
has advised the Trust and NationsBank that NationsBank and its affiliates may
perform the services contemplated by the Investment Advisory Agreement and this
Prospectus without violation of the Glass-Steagall Act. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such federal or state statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any of such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.

OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Trust pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Portfolios, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Portfolios.

First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Trust
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Portfolios including performing the calculations necessary to determine net
asset value per share and dividends, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Portfolios. For the services rendered pursuant to the
Administration and Co-Administration Agreements, Stephens and First Data are
entitled to receive a combined fee at the annual rate of up to .10% of each
Portfolio's average daily net assets.

NBAI serves as sub-administrator for the Trust pursuant to a Sub-Administration
Agreement. Pursuant to the terms of the Sub-Administration Agreement, NBAI
assists Stephens in supervising, coordinating and monitoring various aspects of
the Portfolios' administrative operations. For providing such services, NBAI
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Portfolios' average daily net assets.

Shares of the Portfolios are sold on a continuous basis by Stephens, as the
Portfolios' sponsor and distributor. Stephens is a registered broker/dealer. The
Trust has entered into distribution agreements with Stephens which provide that
Stephens has the exclusive right to distribute shares of the Portfolios.
Stephens may pay service fees or commissions to institutions which assist
customers in purchasing shares of the Portfolios.

NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as custodian for the
assets of all the Portfolios, except Nations International Growth Portfolio.
NationsBank of Texas is located at 1401 Elm Street, Dallas, Texas 75202, and is
a wholly owned subsidiary of NationsBank Corporation. In return for providing
custodial services to the Portfolios, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for

<PAGE>
custodian services for up to and including 50 Funds or Portfolios in the Nations
Funds Family; and (ii) $6,000 per annum, to be paid in equal monthly payments,
for custodian services for each additional portfolio above 50 Funds or
Portfolios.

BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of Nations International Growth Portfolio.

BONY has entered into an agreement with each of the Portfolios and NationsBank
of Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for
the assets of the Portfolios. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds or Portfolios up to $10 billion; and (ii) 1/2 of one basis point on the
excess, including all Nations' Money Market Funds or Portfolios.

First Data serves as transfer agent (the "Transfer Agent") for the Portfolios.
The Transfer Agent is located at One Exchange Place, Boston, Massachusetts
02109.

Price Waterhouse LLP serves as independent accountant to the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.

EXPENSES: The accrued expenses of each Portfolio are deducted from the
Portfolio's total accrued income before dividends are declared. These expenses
include, but are not limited to: fees paid to the Adviser, Stephens and First
Data; taxes; interest; fees (including fees paid to trustees and officers);
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
Custodians and Transfer Agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, Stephens or First Data
under their respective agreements with the Trust; and any extraordinary
expenses. Any general expenses of the Trust that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of the Trust or in such other manner as the Board of Trustees deems appropriate.

- --------------------------------------------------------------------------------
Organization And History

The Portfolios are members of the Nations Funds Family, which consists of
Nations Annuity Trust, Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations Institutional Reserves and Nations LifeGoal Funds,
Inc. The Nations Funds Family currently has more than 52 distinct investment
portfolios and total assets in excess of $27 billion.

NATIONS ANNUITY TRUST: Nations Annuity Trust was organized as a Delaware
business trust on , 1997. Nations Annuity Trust's fiscal year end is
December 31.

Each share of the Trust is without par value, represents an equal proportionate
interest in the related fund with other shares of the same class, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such fund as are declared in the discretion of the Trust's
Board of Trustees. The Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.

Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each portfolio of the Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the SAI for examples of when the 1940 Act requires
voting by fund.

The Trust does not presently intend to hold annual meetings except as required
by the 1940 Act. Shareholders will have the right to remove Trustees. The
Trust's By-laws provides that special meetings of shareholders shall be called
at the written request of the shareholders entitled to vote at least 10% of the
outstanding shares of the Trust entitled to be voted at such meeting. Individual
holders of Contracts are not the "shareholders" of or "investors" in the
Portfolios. Hartford and their separate accounts are deemed the shareholders or
investors. However, it is anticipated that Hartford will pass through voting
rights to the holders of Contracts. For a discussion of voting rights of holders
of Contracts, please see the accompanying prospectus for Hartford.

<PAGE>
About Your Investment

- --------------------------------------------------------------------------------
How To Buy Shares

Portfolio shares are made available to serve as the underlying investment
vehicles for variable annuity and variable life insurance separate accounts
issued by Participating Insurance Companies. Shares of the Portfolios are sold
at net asset value without the imposition of a sales charge.

Purchases of the Portfolios may be effected on days on which the New York Stock
Exchange (the "Exchange") is open for business (a "Business Day").

The Trust and Stephens reserve the right to reject any purchase order. The
issuance of Shares is recorded on the books of the Trust, and share certificates
are not issued.

EFFECTIVE TIME OF PURCHASES: Purchase orders for Shares in the Portfolios that
are received by Stephens or by the Transfer Agent before the close of regular
trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Portfolio's Custodian. Such payment must be received no later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the investor placing the order. Payment for orders which are
not received or accepted will be returned after prompt inquiry to the investor.
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent.

- --------------------------------------------------------------------------------
How To Redeem Shares

Redemption proceeds are normally remitted in Federal funds wired to the
redeeming investor within three Business Days following receipt of the order. It
is the responsibility of Stephens to transmit orders it receives to the Trust.
No charge for wiring redemption payments is imposed by the Trust. Redemption
orders are effected at the net asset value per share next determined after
acceptance of the order by Stephens or by the Transfer Agent.

The Trust may redeem a shareholder's shares if the balance in such shareholder's
account with the Portfolio drops below $500 as a result of redemptions, and the
shareholder does not increase the balance to at least $500 on 60 days' written
notice. The Trust also may redeem shares involuntarily or make payment for
redemption in readily marketable securities or other property under certain
circumstances in accordance with the 1940 Act.

- --------------------------------------------------------------------------------
Shareholder Servicing Plan

The Portfolios have adopted a Shareholder Servicing Plan (the "Servicing Plan")
pursuant to which the Portfolios may compensate servicing agents for providing
certain shareholder support services to their customers who invest in the
Portfolios by purchasing Contracts. Payments under the Servicing Plan will be
calculated daily and paid monthly at a rate not exceeding 0.25% (on an
annualized basis) of the average daily net asset value of the Shares
beneficially owned through the ownership of Contracts by customers with whom the
servicing agents have a servicing relationship. Under the Servicing Plan, the
shareholder services provided by servicing agents may include general
shareholder liaison services, processing purchases and redemption requests;
processing dividend and distribution payments; providing sales information
periodically to customers, including information showing their Contracts'
positions in the Portfolios; providing sub-accounting; responding to inquiries
from customers; arranging for bank wires; and providing such other similar
services as may be reasonably requested. Servicing agents may include
Participating Insurance Companies.

<PAGE>
- --------------------------------------------------------------------------------
How The Portfolios Value Their Shares

The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Portfolios are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day.

Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities are valued at their fair value following procedures approved by the
Trustees.

- --------------------------------------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information

DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid monthly by Nations Disciplined Equity Portfolio, Nations Managed Index
Portfolio and Nations Value Portfolio. Dividends from net investment income are
declared and paid annually by Nations International Growth Portfolio. Dividends
from net investment income are declared and paid each calendar quarter by all
other Equity Portfolios, Index Portfolios and the Balanced Portfolio. Each
Fund's net realized capital gains (including net short-term capital gains) are
distributed at least annually.

Shares of the Portfolios are eligible to receive dividends when declared,
provided, however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.

The net asset value of shares will be reduced by the amount of any dividend or
distribution. Accordingly, dividends and distributions on newly purchased shares
represent, in substance, a return of capital. However, such dividends and
distributions would nevertheless be taxable. Dividends and distributions are
paid in cash within five Business Days of the end of the month or quarter to
which the dividend relates. Dividends are paid in the form of additional shares
of the same Portfolio unless the investor has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Portfolio's Transfer Agent and will
become effective with respect to dividends paid after its receipt. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his or her shares in a
Portfolio.
TAX INFORMATION

Each of the Portfolios intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Portfolio of liability for Federal income tax to the
extent its earnings are distributed in accordance with the Code.

Each Portfolio intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Portfolio of its net investment income (including net foreign currency
gains) and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)

Substantially all of the net realized long-term capital gains of the Portfolios,
if any, will be distributed at least annually to such Portfolios' shareholders.
These Portfolios will generally have no tax liability with respect to such
gains, and the distributions will be taxable to such shareholders who are not
currently exempt from Federal income tax as long-term capital gains, regardless
of how long the shareholders have held such Portfolios' shares and whether such
gains are received in cash or reinvested in additional shares.

Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.

Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Portfolio on December 31 of such
year in the event such dividends are actually paid during January of the
following year.

Federal law requires the Trust to withhold 31% from any dividends (other than
exempt-interest dividends) paid by the Trust and/or redemptions (including
exchanges and redemptions in-kind) that occur in certain shareholder accounts if
the shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified the Trust that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the

<PAGE>
shareholder is subject to backup withholding, the Portfolio is required by the
Internal Revenue Service to withhold 31% of any dividend (other than
exempt-interest dividends) and/or redemption (including exchange redemptions).
Amounts withheld are applied to the shareholder's Federal tax liability, and a
refund may be obtained from the Internal Revenue Service if withholding results
in overpayment of tax. Federal law also requires the Portfolios to withhold tax
on dividends, distributions and proceeds from the disposition of Portfolio
shares paid to certain foreign shareholders.

Portions of each Portfolio's investment income may be subject to foreign income
taxes withheld at their source. Tax conventions between certain countries and
the United States may reduce or eliminate such taxes. Generally, more than 50%
of the value of the total assets of each Portfolio consists of securities of
foreign issuers it may elect to "pass through" to its shareholders these foreign
taxes, if any. Upon such an election, each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.

The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Portfolios and their
shareholders. For a discussion of Federal income taxation of separate accounts
of life insurance companies, see the prospectuses for the Participating
Insurance Companies that accompanies this Prospectus. It is not intended as a
substitute for careful tax planning. Accordingly, potential investors should
consult their tax advisors with specific reference to their own tax situations.
Further tax information is contained in the SAI.

- --------------------------------------------------------------------------------
General Information

This Prospectus and the SAI omit certain information contained in the
Registration Statement that the Portfolios have filed with the SEC and reference
is hereby made to the Registration Statement and its exhibits and amendments.
The Registration Statement and its exhibits and amendments are available for
examination at the SEC's Washington, D.C. office.

- --------------------------------------------------------------------------------
Appendix A -- Portfolio Securities

The following are summary descriptions of certain types of instruments in which
a Portfolio may invest. The "How Objectives Are Pursued" section of this
Prospectus identifies each Portfolio's permissible investments, and the SAI
contain more information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.

The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities may not be as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.

MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of residential mortgage loans.

Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers

<PAGE>
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.

The guaranteed mortgage pass-through securities in which a Portfolio may invest
may include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such
Certificates are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Such mortgage loans may have
fixed or adjustable rates of interest.

The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.

The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Portfolio.

Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.

Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.

Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.

The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.

Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Portfolio will only invest in SMBS that are obligations backed by
the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of Mortgage Assets. A Portfolio will only
invest in SMBS whose Mortgage Assets are U.S. Government Obligations.

A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Portfolio may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.

The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Estimated average life will be determined by the Adviser and used for
the purpose of determining the average weighted maturity and duration of the
Portfolio. For additional information concerning mortgage-backed securities, see
the SAI.

The mortgage-backed securities in which the Portfolios invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying

<PAGE>
obligations slow thereby lengthening duration and potentially reducing the value
of these securities. The debt securities held by the Portfolios also may be
subject to credit risk. Credit risk is the risk that the issuers of securities
in which a Portfolio invests may default in the payment of principal and/or
interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Portfolios'
portfolio investments and, hence, the value of your investment in the
corresponding Portfolio.

NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.

Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.

The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.

BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Portfolios (except Nations
International Growth Portfolio) will limit their investments in bank obligations
so they do not exceed 25% of each Portfolio's total assets at the time of
purchase.

U.S. dollar denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.

BORROWINGS: When a Portfolio borrows money, the net asset value of a share may
be subject to greater fluctuation until the borrowing is paid off. The
Portfolios may borrow money from banks for temporary purposes in amounts of up
to one-third of their respective total assets, provided that borrowings in
excess of 5% of the value of the Portfolios' total assets must be repaid prior
to the purchase of portfolio securities. Pursuant to line of credit
arrangements, certain of the Portfolios may

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borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.

Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Portfolio invests in a reverse repurchase agreement, it
sells a portfolio security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, certain of the Portfolios
may use reverse repurchase agreements for the purpose of investing the proceeds
in tri-party repurchase agreements. Generally, the effect of such a transaction
is that a Portfolio can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Portfolios of the reverse repurchase transaction is less
than the cost of obtaining the cash otherwise.

At the time a Portfolio enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Portfolios are obligated to repurchase under the agreement may
decline below the repurchase price. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
Portfolios' use of proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Portfolios' obligation to repurchase the securities. In addition, there is a
risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. A Portfolio only enters into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage requirements if the
Portfolio does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940 Act, the Portfolios are required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings. Depending on market conditions, the Portfolios'
asset coverage and other factors at the time of a reverse repurchase, the
Portfolios may not establish a segregated account when the Adviser believes it
is not in the best interests of the Portfolios to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.

Dollar roll transactions consist of the sale by a Portfolio of mortgage-backed
or other asset-backed securities, together with a commitment to purchase
similar, but not identical, securities at a future date, at the same price. In
addition, a Portfolio is paid a fee as consideration for entering into the
commitment to purchase. If the broker/dealer to whom a Portfolio sells the
security becomes insolvent, the Portfolio's right to purchase or repurchase the
security may be restricted; the value of the security may change adversely over
the term of the dollar roll; the security that the Portfolio is required to
repurchase may be worth less than the security that the Portfolio originally
held, and the return earned by the Portfolio with the proceeds of a dollar roll
may not exceed transaction costs.

COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks.

Investments by a Portfolio in commercial paper will consist of issues rated in a
manner consistent with such Portfolio's investment policies and objective. In
addition, a Portfolio may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Portfolio. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable and floating rate
instruments.

CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Portfolios
may invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.

FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Portfolio's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Portfolio's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Portfolio's

<PAGE>
share price and yield depend, in part, on the maturity and quality of its debt
instruments.

FOREIGN CURRENCY TRANSACTIONS: Certain of the Portfolios may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Portfolio either enters into these transactions on a spot (I.E.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or uses forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract is an obligation by a Portfolio to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract.

Foreign currency hedging transactions are an attempt to protect a Portfolio
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of
portfolio securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.

A Portfolio will generally enter into forward currency exchange contracts only
under two circumstances: (i) when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, to "lock" in
the U.S. dollar price of the security; and (ii) when the Adviser believes that
the currency of a particular foreign country may experience a substantial
movement against another currency. Under certain circumstances, the Portfolio
may commit a substantial portion of its portfolio to the execution of these
contracts. The Adviser will consider the effects such a commitment would have on
the investment program of the Portfolio and the flexibility of the Portfolio to
purchase additional securities. Although forward contracts will be used
primarily to protect the Portfolio from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted.

FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Portfolio to special investment
risks, including future political and economic developments, the possible
imposition of withholding taxes on income (including interest, distributions and
disposition proceeds), possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.

Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Portfolio may be subject to
greater fluctuation in price than securities of domestic companies.

The Portfolios may invest indirectly in the securities of foreign issuers
through sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Portfolios to
financial or other reports from the issuer, to which it would be entitled as the
owner of sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in
registered form, are designed for use in the U.S. securities market. GDRs are
designed for use in both the U.S. and European securities markets. EDRs, in
bearer form, are designed for use in European securities markets. ADRs, ADSs,
GDRs and EDRs also involve certain risks of other investments in foreign
securities.

FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Portfolios may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Portfolio against adverse

<PAGE>
market movements by investing in futures, options and other derivative
instruments. These include the purchase and writing of options on securities
(including index options) and options on foreign currencies, and investing in
futures contracts for the purchase or sale of instruments based on financial
indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.

The use of futures, options, forward contracts and swaps exposes a Portfolio to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Portfolio could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Portfolio may
not purchase put and call options which are traded on a national stock exchange
in an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.

GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Portfolio may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Portfolio guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.

A Portfolio will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by the Adviser. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Portfolio may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, at which point the GIC may be
considered to be an illiquid investment.

ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Portfolios will not hold
more than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Portfolio sells its shares. Repurchase agreements, time deposits and
GICs that do not provide for payment to a Portfolio within seven days after
notice, and illiquid restricted securities are subject to the limitation on
illiquid securities.

If otherwise consistent with their investment objectives and policies, certain
Portfolios may purchase securities that are not registered under the Securities
Act of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Portfolio's Board of
Trustees or the Adviser acting under guidelines approved and monitored by such
Portfolio's Board, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Portfolio holding such securities may increase during such period.

INDEXED/STRUCTURED SECURITIES: Indexed/structured
securities are typically short- to intermediate-term debt securities whose value
at maturity or interest rate is linked to currencies, interest rates, equity
securities, indices, commodity prices or other financial indicators. Such
securities may be positively or negatively indexed (i.e., their value may
increase or decrease if the reference index or instrument appreciates).
Indexed/structured securities may have return characteristics similar to direct
investments in the underlying instruments and may be more volatile than the
underlying instruments. The Fund bears the market risk of an investment in the
underlying instruments, as well as the credit risk of the issuer.

INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Portfolios may enter
into various hedging transactions, such as interest rate swaps and the purchase
or sale of interest rate caps and floors. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest, E.G., an exchange of floating-rate payments for
fixed-rate payments. A Portfolio will enter into a swap transaction on a net
basis, I.E. the payment obligations of the Portfolio and the counterparty will
be netted out with the Portfolio receiving or paying, as the case may be, only
the net amount of the two payment obligations. A Portfolio will segregate, on a
daily basis, cash or liquid high quality debt securities with a value at

<PAGE>
least equal to the Portfolio's net obligations, if any, under a swap agreement.

The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Portfolio primarily to preserve a return or spread
on a particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Portfolio anticipated purchasing at a
later date rather than for speculative purposes. A Portfolio will not sell
interest rate caps or floors that it does not own.

LOWER-RATED DEBT SECURITIES: Certain of the Portfolios may invest in lower-rated
debt securities. Lower rated, high-yielding securities are those rated "Ba" or
"B" by Moody's or "BB" or "B" by S&P which are commonly referred to as "junk
bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.

The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Portfolios' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Portfolio to value its portfolio securities, and a
Portfolio's ability to dispose of these lower-rated bonds.

The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to serve their payment obligations, meet projected goals,
or obtain additional financing may be impaired.

Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.

Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Portfolio's policies
regarding lower-rated debt securities is not fundamental and may be changed at
any time without shareholder approval.

MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.

OTHER INVESTMENT COMPANIES: Each Portfolio may invest in securities issued by
other investment companies to the extent that such investments are consistent
with the Portfolio's investment objective and policies and permissible under the
1940 Act. As a shareholder of another investment company, a Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Portfolio bears directly
in connection with its own operations. Pursuant to an exemptive order issued by
the SEC, the Nations' Non-Money Market Portfolios may purchase shares of
Nations' Money Market Portfolios.

PASSIVE FOREIGN INVESTMENT COMPANIES: Passive foreign investment companies
("PFICs") are any foreign corporations which generate certain amounts of passive
income or hold certain amounts of assets for the production of passive income.
Passive income includes dividends, interest, royalties, rents and annuities.
Income tax regulations may require the Fund to recognize income associated with
the PFIC prior to the actual receipt of any such income.

PAY-IN-KIND BONDS: Pay-in-kind bonds are debt securities that normally give the
issuer an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.

REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may

<PAGE>
be affected by changes in the value of the underlying property owned or financed
by the REIT, while Mortgage REITs also may be affected by the quality of credit
extended. Both Equity and Mortgage REITs are dependent upon management skill and
may not be diversified. REITs also may be subject to heavy cash flow dependency,
defaults by borrowers, self-liquidation, and the possibility of failing to
qualify for tax-free pass-through of income under the Code.

REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Portfolio and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Portfolio at a specified
price and date or upon demand. This technique offers a method of earning income
on uninvested cash. A risk associated with repurchase agreements is the failure
of the seller to repurchase the securities as agreed, which may cause a
Portfolio to suffer a loss if the market value of such securities declines
before they can be liquidated on the open market. Repurchase agreements with a
duration of more than seven days are considered illiquid securities and are
subject to the limit stated above. A Portfolio may enter into joint repurchase
agreements jointly with other investment portfolios of Nations Funds.

SECURITIES LENDING: To increase return on portfolio securities, the Portfolios
may lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Portfolio may not exceed 33% of the
value of its total assets. Cash collateral received by a Portfolio may be
invested in a Nations' Money Market Fund or Portfolio.

SHORT-TERM TRUST OBLIGATIONS: Certain of the Portfolios may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the
Portfolio to a proportional fractional interest in payments received by such
trusts, either from the underlying securities owned by the trust or pursuant to
other arrangements entered into by the trusts. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula.

STEP COUPON BONDS: Step coupon bonds are debt securities that trade at a
discount from their face value and pay coupon interest. The discount from the
face value depends on the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer.

STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the
Portfolios may purchase and sell futures contracts and related options with
respect to non-U.S. stock indices, non-U.S. interest rates and foreign
currencies, that have been approved by the CFTC for investment by U.S.
investors, for the purpose of hedging against changes in values of a Portfolio's
securities or changes in the prevailing levels of interest rates or currency
exchange rates. The contracts entail certain risks, including but not limited to
the following: no assurance that futures contracts transactions can be offset at
favorable prices; possible reduction of a Portfolio's total return due to the
use of hedging; possible lack of liquidity due to daily limits on price
fluctuation; imperfect correlation between the contracts and the securities or
currencies being hedged; and potential losses in excess of the amount invested
in the futures contracts themselves.

Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Portfolio hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Portfolio might realize could be eliminated by adverse changes in the exchange
rate, or the Portfolio could incur losses as a result of those changes.

U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S.
Govern-

<PAGE>
ment would provide financial support to government-sponsored instrumentalities
if it is not obligated to do so by law.

The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.

VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. Certain Portfolios may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
featuer, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.

WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.

ZERO COUPON BONDS: Zero coupon bonds are debt securities that do not pay
interest at regular intervals, but are issued at a discount from face value. The
discount approximates the total amount of interest the security will accrue from
the date of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.

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Appendix B -- Description Of Ratings

The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.

AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.

AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.

A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.

BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.

BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.

The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.

Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be

<PAGE>
visualized are most unlikely to impair the fundamentally strong position of
such issues.

Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.

A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.

Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.

The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:

AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.

AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.

A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.

To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.

The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:

AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.

A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.

<PAGE>
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.

The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:

MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.

MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.

The following summarizes the two highest ratings used by S&P for short-term
municipal notes:

SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.

The following summarizes the two highest rating categories used by Fitch for
short-term obligations:

F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.

Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

For commercial paper, D&P uses the short-term debt ratings described above.

For commercial paper, Fitch uses the short-term debt ratings described above.

BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.

BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:

AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.

AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.

<PAGE>
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.

BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.

The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.

TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".

TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.

TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

The following summarizes the four highest long-term ratings used by IBCA:

AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.

AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.

A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.

BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.

A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.

The following summarizes the two highest short-term debt ratings used by IBCA:

A1+ -- Where issues possess a particularly strong credit feature.

A1 -- Obligations supported by the highest capacity for timely repayment.

<PAGE>

NATIONS ANNUITY TRUST

Statement of Additional Information

Nations Value Portfolio
Nations Managed Index Portfolio
Nations Managed SmallCap Index Portfolio
Nations Disciplined Equity Portfolio
Nations Balanced Assets Portfolio
Nations Marsico Selected Equities Portfolio
Nations Marsico Growth Portfolio
Nations International Growth Portfolio

January ____, 1998

This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the shares representing interests in the above listed
eight investment portfolios (individually, a "Portfolio" and collectively, the
"Portfolios") of Nations Annuity Trust (the "Trust"). This SAI is not a
prospectus, and should be read only in conjunction with the current Prospectuses
for the aforementioned Portfolios related to the class or series of shares in
which one is interested, dated January __, 1998 (each a "Prospectus"). All terms
used in this SAI that are defined in the Prospectuses will have the same
meanings assigned in the Prospectuses. Copies of these Prospectuses may be
obtained by writing the Trust c/o Stephens Inc., One NationsBank Plaza, 33rd
Floor, Charlotte, North Carolina 28255, or by calling the Trust at (800)
321-7854.

<PAGE>

TABLE OF CONTENTS

<TABLE>
Page

<S> <C>
INTRODUCTION ................................................................................

PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................................
General Brokerage Policy.............................................................
Section 28(e) Standards..............................................................

ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS .............................................
General..............................................................................
Additional Investment Limitations ...................................................
Asset-Backed Securities..............................................................
Commercial Instruments...............................................................
Guaranteed Investment Contracts .....................................................
Delayed Delivery Transactions .......................................................
Dollar Roll Transactions ............................................................
Equity Swap Contracts ...............................................................
Foreign Currency Transactions .......................................................
Futures, Options and Other Derivative
Instruments ...................................................................
Guaranteed Investment Contracts.......................................................
Illiquid Securities..................................................................
Insured Municipal Securities ........................................................
Interest Rate Transactions ..........................................................
Lower Rated Debt Securities..........................................................
Municipal Securities ................................................................
Options on Currencies................................................................
Real Estate Investment Trusts........................................................
Repurchase Agreements ...............................................................
Reverse Repurchase Agreements .......................................................
Risk Factors Associated with Futures and Options Transactions .......................
Securities Lending...................................................................
Short Sales..........................................................................
Special Situations...................................................................
Stand-by Commitments ................................................................
Variable and Floating Rate Instruments ..............................................
When-Issued Purchases and Forward Commitments ......................................

NET ASSET VALUE..............................................................................
Purchases and Redemptions............................................................
Investment Strategy..................................................................
Net Asset Value Determination........................................................

DESCRIPTION OF SHARES........................................................................
Dividends and Distributions..........................................................

ADDITIONAL INFORMATION CONCERNING TAXES......................................................
General..............................................................................
Excise Tax ..........................................................................
Taxation of Portfolio Investments....................................................
Foreign Taxes .......................................................................
Capital Gain Distribution............................................................
Other Distributions..................................................................

<PAGE>

Disposition of Portfolio Shares......................................................
Federal Income Tax Rates.............................................................
Corporate Shareholders...............................................................
Foreign Shareholders.................................................................
Backup Withholding...................................................................
Tax Deferred Plans...................................................................
Special Tax Consideration............................................................

TRUSTEES AND OFFICERS........................................................................
Nations Funds Retirement Plan........................................................
Nations Funds Deferred Compensation Plan ...........................................
Compensation Table...................................................................
Shareholder and Trustee Liability ...................................................

INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS .....................................................................
The Trust and Shares of Beneficial Interest..........................................
Investment Adviser...................................................................
Investment Styles....................................................................
Administrator and Co-Administrator...................................................
Shareholder Servicing Arrangements ..................................................
Expenses.............................................................................
Transfer Agents and Custodians.......................................................

DISTRIBUTOR .................................................................................

INDEPENDENT ACCOUNTANT AND REPORTS...........................................................

COUNSEL......................................................................................

ADDITIONAL INFORMATION ON PERFORMANCE........................................................
Yield Calculations...................................................................
Total Return Calculations............................................................

SCHEDULE A - Description of Ratings.......................................................... A-1

SCHEDULE B - Additional Information Concerning Options &
Futures...................................................................................... B-1

SCHEDULE C - Additional Information Concerning Mortgage
Backed Securities............................................................................ C-1

</TABLE>

ii
<PAGE>

INTRODUCTION

Nations Annuity Trust (the "Trust") is a mutual fund. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors certain information
concerning the activities of the mutual fund being considered for investment.
This information about the Trust is included in various Prospectuses.

Nations Annuity Trust currently consists of eight different investment
portfolios, Nations Value Portfolio, Nations Disciplined Equity Portfolio,
Nations Marsico Selected Equities Portfolio, Nations Marsico Growth Portfolio,
Nations Managed Index Portfolio, Nations Managed SmallCap Index Portfolio,
Nations Balanced Assets Portfolio and Nations International Growth Portfolio
(each a "Portfolio" and collectively the "Portfolios").

As of the date of this SAI, no shares of the Portfolios have been sold.
As a result, certain financial information and performance data is not available
and thus not included in this SAI.

Prospectuses relating to these Portfolios may be obtained without
charge by written request to the Trust, c/o Stephens, Inc., One NationsBank
Plaza, 33rd Floor, Charlotte, NC 28255. Investors also may call toll-free at
(800) 321-7854.

NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the
Portfolios. TradeStreet Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to all of the Portfolios except Nations Marsico Selected
Equities and Nations Marsico Growth Portfolios, which are sub-advised by Marsico
Capital Management, LLC ("Marsico"), and Nations International Growth Portfolio.
Gartmore Global Partners ("Gartmore") serves as investment sub-adviser to
Nations International Growth Portfolio. As used herein, "Adviser" shall mean
NBAI, TradeStreet, Gartmore, and/or Marsico as the context may require.

This SAI is intended to furnish prospective investors with additional
information concerning the Trust and the Portfolios. Some of the information
required to be in this SAI is also included in the Portfolios' current
Prospectuses, and, in order to avoid repetition, reference will be made to
sections of the Prospectuses. Additionally, the Prospectuses and this SAI omit
certain information contained in the registration statement filed with the SEC.
Copies of the registration statement, including items omitted from the
Prospectuses and this SAI, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. No investment in the Portfolios
should be made without first reading the related Prospectuses.

PORTFOLIO TRANSACTIONS AND BROKERAGE

General Brokerage Policy

Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for decisions to buy and sell securities for each
Portfolio, for the selection of broker/dealers, for the execution of such
Portfolio's securities transactions, and for the allocation of brokerage fees in
connection with such transactions. The Adviser's primary consideration in
effecting a security transaction is to obtain the best net price and the most
favorable execution of the order. While the Adviser generally seeks reasonably
competitive commission rates, a Portfolio does not necessarily pay the lowest
commission or spread available. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a negotiated
commission for their services. Orders may be directed to any broker to the
extent and in the manner permitted by applicable law.

In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.

1
<PAGE>

In placing orders for securities of a Portfolio, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. In seeking
such execution, the Adviser will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors,
including, without limitation, the size and type of the transaction, the nature
and character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the broker-dealer, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions and
the reasonableness of the spread or commission, if any.

While the Adviser generally seeks reasonably competitive spreads or
commissions, a Portfolio will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, the Adviser will
consider research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of a Portfolio, the Adviser or
its other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular Trust and
industries. Such services are used by the Adviser in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for a Portfolio may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Portfolio. Services furnished by
such brokers may be used by the Adviser in providing investment advisory and
investment management services for the Trust.

Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees of the Trust. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment of brokerage commissions which are generally
fixed. Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Adviser, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances in which better prices and execution are available
elsewhere.

In certain instances there may be securities which are suitable for
more than one Portfolio as well as for one or more of the other clients of the
Adviser. Investment decisions for each Portfolio and for the Adviser's other
clients are made with the goal of achieving their respective investment
objectives. It may happen that a particular security is bought or sold for only
one client even though it may be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as far
as a Portfolio is concerned. The Trust believes that over time its ability to
participate in volume transactions will produce superior executions for the
Portfolios.

The portfolio turnover rate for each Portfolio is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
reporting period by the monthly average value of the portfolio securities owned
during the reporting period. The calculation excludes all securities, including
options, whose maturities or expiration dates at the time of acquisition are one
year or less. Portfolio turnover may vary greatly from year to year as well as
within a particular year, and may be affected by cash requirements for
redemption of shares and by requirements which enable the Portfolios to receive
favorable tax treatment. Portfolio turnover will not be a limiting factor in
making portfolio decisions.

2
<PAGE>

The Portfolios may participate, if and when practicable, in bidding for
the purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Portfolio will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be otherwise in the Portfolio's
interests.

The Trust will not execute portfolio transactions through, or purchase
or sell portfolio securities from or to the distributor, the Adviser, the
administrator, or the co-administrator, or their affiliates acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by the SEC. In addition, the Trust will not give preference to
correspondents of NationsBank N.A. ("NationsBank") or its affiliates with
respect to such transactions or securities. (However, the Adviser is authorized
to allocate purchase and sale orders for portfolio securities to certain
financial institutions, including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or its affiliates, and to
take into account the sale of Portfolio shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.) In addition, a Portfolio will not
purchase securities during the existence of any underwriting or selling group
relating thereto of which the distributor, the Adviser, administrator, or the
co-administrator, or any of their affiliates, is a member, except to the extent
permitted by the SEC. Under certain circumstances, the Portfolios may be at a
disadvantage because of these limitations in comparison with other investment
company which have similar investment objectives but are not subject to such
limitations.

Under the 1940 Act, persons affiliated with the Trust are prohibited
from dealing with the Trust as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC. Each of the Portfolios may purchase securities from underwriting
syndicates of which NationsBank or any of its affiliates is a member under
certain conditions, in accordance with the provisions of a rule adopted under
the 1940 Act and any restrictions imposed by the Board of Governors of the
Federal Reserve System.

Investment decisions for each Portfolio are made independently from
those for the Trust's other investment portfolios, other investment companies,
and accounts advised or managed by the Adviser. Such other investment
portfolios, investment company, and accounts may also invest in the same
securities as the Portfolios. When a purchase or sale of the same security is
made at substantially the same time on behalf of one or more of the Portfolios
and another investment portfolio, investment company, or account, the
transaction will be averaged as to price and available investments allocated as
to amount, in a manner which the Adviser believes to be equitable to each
Portfolio and such other investment portfolio, investment company or account. In
some instances, this investment procedure may adversely affect the price paid or
received by a Portfolio or the size of the position obtained or sold by the
Portfolio. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for the Portfolios with those to be sold or
purchased for other investment portfolios, investment company, or accounts in
executing transactions.

The Adviser may from time to time determine target levels of commission
business to transact with various brokers on behalf of its clients (including
the Trust) over a certain time period. The target levels will be determined
based upon the following factors, among others: (1) the execution services
provided by the broker; (2) the research services provided by the broker; and
(3) the broker's attitude toward and interest in mutual Funds in general and in
the Trust and other mutual funds advised by the Adviser in particular. No
specific formula will be used in connection with any of the foregoing
considerations in determining the target levels. However, if a broker has
indicated a certain level of desired commissions in return for certain research
services provided by the broker, this factor will be taken into consideration by
the Adviser.

Subject to the overall objective of obtaining best price and execution
for a Portfolio, the Adviser may also consider sales of shares of such Portfolio
and of the other mutual funds managed or advised by the Adviser as a factor in
the selection of broker/dealers to execute portfolio transactions for the
Portfolios.

The Adviser will seek, whenever possible, to recapture for the benefit
of a Portfolio any commission, fees, brokerage or similar payments paid by such
Portfolio on portfolio transactions. Normally, the only fees which may be
recaptured are the soliciting dealer fees on the tender of an account's
portfolio securities in a tender or exchange offer.

3
<PAGE>

The Portfolios are not under any obligation to deal with any broker or
group of brokers in the execution of transactions in portfolio securities.
Brokers who provide supplemental investment research to the Adviser may receive
orders for transactions by a Portfolio. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Adviser under its agreements with each Portfolio and the expenses of the Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information. Certain research services furnished by broker/dealers may be useful
to the Adviser in connection with its services to other advisory clients,
including the investment company which it advises. Also, the Portfolio may pay a
higher price for securities or higher commissions in recognition of research
services furnished by broker/dealers.

The Adviser and its affiliates manage several other investment
accounts, some of which may have investment objectives similar to those of one
or more of the Portfolios. It is possible that, at times, identical securities
will be appropriate for investment by one or more of the Portfolios and by one
or more of such investment accounts. The position of each account, however, in
the securities of the same issuer may vary and the length of time that each
account may choose to hold its investment in the securities of the same issuer
may likewise vary. The timing and amount of purchase by each account will also
be determined by its cash position. If the purchase or sale of securities
consistent with the investment policies of a Portfolio and one or more of these
accounts is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Adviser. The Adviser may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Simultaneous transactions could, however, adversely affect
the ability of a Portfolio to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.

In some cases the procedure for allocating securities transactions
among the various investment accounts advised by the Adviser and its affiliates
could have an adverse effect on the price or amount of securities available to a
Portfolio. In making such allocations, the main factors considered by the
Adviser are the respective investment objectives and policies of such advisory
clients, the relative size of holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the judgments of the persons responsible for recommending the
investment.

Section 28(e) Standards
Under Section 28(e) of the Securities Exchange Act of 1934, the Adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ...viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision making responsibilities." Accordingly,
the price to a Portfolio in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.

Broker/dealers utilized by the Adviser may furnish statistical,
research and other information or services which are deemed by the Adviser to be
beneficial to the Portfolios' investment programs. Research services received
from brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual Trust; forecasts and interpretations with respect to U.S and
foreign economies, securities, markets, specific industry groups and individual
Trust; information on political developments; Portfolio management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Trust's directors with respect to the performance, investment activities
and fees and expenses of other mutual Portfolios. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of Trust and the
providing of access to consultants who supply research information.

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The outside research assistance is useful to the Adviser since the
brokers utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
this research provides the Adviser with a diverse perspective on financial
markets. Research services which are provided to the Adviser by brokers are
available for the benefit of all accounts managed or advised by the Adviser. In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. The Adviser is of the opinion
that because the broker research supplements rather than replaces its research,
the receipt of such research does not tend to decrease its expenses, but tends
to improve the quality of its investment advice. However, to the extent that the
Adviser would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Adviser could be
considered to have been reduced accordingly. Certain research services furnished
by broker/dealers may be useful to the Adviser with clients other than the
Portfolios. Similarly, any research services received by the Adviser through the
placement of Portfolio transactions of other clients may be of value to the
Adviser in fulfilling its obligations to the Portfolios. The Adviser is of the
opinion that this material is beneficial in supplementing its research and
analysis; and, therefore, it may benefit the Trust by improving the quality of
the Adviser's investment advice. The advisory fees paid by the Trust are not
reduced because the Adviser receives such services.

Some broker/dealers may indicate that the provision of research
services is dependent upon the generation of certain specified levels of
commissions and underwriting concessions by the Adviser's clients, including the
Portfolios.

General

Information concerning each Portfolio's investment objective is set
forth in each of the Prospectuses under the headings "About the
Portfolios--Objectives." There can be no assurance that the Portfolios will
achieve their objectives. The principal features of the Portfolios' investment
programs and the primary risks associated with those investment programs are
discussed in the Prospectuses under the heading "About the Portfolios--How
Objectives Are Pursued" and "Appendix A--Portfolio Securities." The values of
the securities in which the Portfolios invest fluctuate based upon interest
rates, foreign currency rates, the financial stability of the issuer and market
factors.

The Portfolios are dollar-denominated mutual funds and therefore
consideration is given to hedging part or all of the portfolio back to U.S.
dollars from international currencies. All decisions to hedge are based upon an
analysis of the relative value of the U.S. dollar on an international purchasing
power parity basis (purchasing power parity is a method for determining the
relative purchasing power of different currencies by comparing the amount of
each currency required to purchase a typical bundle of goods and services to
domestic markets) and an estimation of short-term interest rate differentials
(which affect both the direction of currency movements and also the cost of
hedging).

Pursuant to one of the Trust's fundamental investment restrictions (see
"Investment Limitations" in the Trust's Prospectuses), the Trust does not have
authority to purchase any securities which would cause more than 25% of the
value of any Portfolio's total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that, there is no limitation
with respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The position of the staff of the
SEC is that the exclusion with respect to banks may only be applied to domestic
banks. For this purpose, the staff also takes the position that United States
branches of foreign banks and foreign branches of domestic banks may, if certain
conditions are met, be treated as "domestic banks." The Trust currently intends
to consider only obligations of "domestic banks" to be within the exclusion with
respect to banks. For this purpose, "domestic banks" will be construed by the
Trust to include: (a) United States branches of foreign banks, to the extent
they are subject to the same regulation as United States banks; and (b) foreign
branches of domestic banks with respect to which the domestic bank would be
unconditionally liable in the event that the foreign branch failed to pay on its
instruments for any reason.

ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS

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Additional Investment Limitations

The most significant investment restrictions applicable to the
Portfolios' investment programs are set forth in the Prospectuses under the
heading "How Objectives Are Pursued - Investment Limitations." Additionally, as
a matter of fundamental policy which may not be changed without a majority vote
of a Portfolio's shareholders (as that term is defined under the heading
"Investment Advisory, Administration, Custody, Transfer Agency, Agreements --
The Trust and Its Shares of Beneficial Interest" in this SAI) each Portfolio
will not:

1. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) a Portfolio may borrow money from banks for temporary
purposes in amounts up to one-third of the value of such Portfolio's
total assets at the time of borrowing, provided that borrowings in
excess of 5% of the value of such Portfolio's total assets will be
repaid prior to the purchase of additional portfolio securities by such
Portfolio, (b) a Portfolio may enter into commitments to purchase
securities in accordance with the Portfolio's investment program,
including delayed delivery and when-issued securities, which
commitments may be considered the issuance of senior securities, and
(c) a Portfolio 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.

2. 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 against the box.) For
purposes of this restriction, the deposit or payment by the Portfolio
of initial or maintenance margin connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.

3. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such
securities in accordance with the Portfolio's investment program may be
deemed an underwriting. This restriction shall not limit a Portfolio's
ability to invest in securities issued by other registered investment
Trust.

4. Invest in real estate or real estate limited partnership interests. (A
Portfolio may, however, purchase and sell securities secured by real
estate or interests therein or issued by issuers which invest in real
estate or interests therein.) This restriction does not apply to real
estate limited partnerships listed on a national stock exchange (e.g.,
the New York Stock Exchange).

5. Purchase or sell commodity contracts except that each Portfolio may, to
the extent appropriate under its investment policies, purchase publicly
traded securities of Trust engaging in whole or in part in such
activities, may enter into futures contracts and related options, may
engage in transactions on a when-issued or forward commitment basis,
and may enter into forward currency contracts in accordance with its
investment policies.

In addition, certain non-fundamental investment restrictions are also
applicable to various investment portfolios, including the following:

1. The Trust will not purchase or retain the securities of any issuer if
the officers or trustees of the Trust, its advisers, or managers owning
beneficially more than one half of one percent of the securities of
each issuer together own beneficially more than five percent of such
securities.

2. No Portfolio of the Trust will purchase securities of unseasoned
issuers, including their predecessors, that have been in operation for
less than three years, if by reason thereof the value of such
Portfolio's investment in such classes of securities would exceed 5% of
such Portfolio's total assets. For purposes of this limitation, issuers
include predecessors, sponsors, controlling persons, general partners,
guarantors and originators of underlying assets which have less than
three years of continuous operation or relevant business experience.

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3. No Portfolio will purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total
assets except that: (a) this restriction shall not apply to standby
commitments, (b) this restriction shall not apply to a Portfolio's
transactions in futures contracts and related options, and (c) a
Portfolio may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.

4. No Portfolio will invest in warrants, valued at the lower of cost or
market, in excess of 5% of the value of such Portfolio's assets, and no
more than 2% of the value of the Portfolio's net assets may be invested
in warrants that are not listed on the New York or American Stock
Exchange (for purposes of this undertaking, warrants acquired by a
Portfolio in units or attached to securities will be deemed to have no
value).

5. No Portfolio of the Trust will purchase securities of a company for the
purpose of exercising control.

6. No Portfolio of the Trust will invest more than 15% of the value of its
net assets in illiquid securities, including repurchase agreements,
time deposits and GICs with maturities in excess of seven days,
illiquid restricted securities, and other securities which are not
readily marketable. For purposes of this restriction, illiquid
securities shall not include securities which may be resold under Rule
144A and Section 4(2) of the Securities Act of 1933 that the Board of
Trustees, or its delegate, determines to be liquid, based upon the
trading markets for the specific security.

7. No Portfolio of the Trust will mortgage, pledge or hypothecate any
assets except to secure permitted borrowings and then only in an amount
up to one-third of the value of the Portfolio's total assets at the
time of borrowing. For purposes of this limitation, collateral
arrangements with respect to the writing of options, futures contracts,
options on futures contracts, and collateral arrangements with respect
to initial and variation margin are not considered to be a mortgage,
pledge or hypothecation of assets.

8. No Portfolio of the Trust will invest in securities of other investment
company, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and except to the extent
otherwise permitted by the 1940 Act.

9. No Portfolio of the Trust will purchase oil, gas or mineral leases or
other interests (a Portfolio may, however, purchase and sell the
securities of Trust engaged in the exploration, development,
production, refining, transporting and marketing of oil, gas or
minerals).

For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Portfolio.

Asset-Backed Securities

In General. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.

The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities

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may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.

Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.

Mortgage pass-through securities may represent participation interests
in pools of residential mortgage loans originated by U.S. governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.

The guaranteed mortgage pass-through securities in which a Portfolio
may invest may include those issued or guaranteed by GNMA, FNMA and FHLMC. Such
Certificates are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Such mortgage loans may have
fixed or adjustable rates of interest.

The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.

The yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) Certificates may be
issued at a premium or discount, rather than at par; (ii) Certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Portfolio.

Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government.

Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the Portfolios to pay debt service on the
CMOs or make scheduled distribution on the multi-class pass-through securities.

Moreover, principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.

The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.

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Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Portfolio will only invest in SMBS that are obligations
backed by the full faith and credit of the U.S. Government. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets. A Portfolio will
only invest in SMBS whose mortgage assets are U.S. Government obligations.

A common type of SMBS will be structured so that one class receives
some of the interest and most of the principal from the mortgage assets, while
the other class receives most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Portfolio may fail to fully recoup its initial
investment in these securities. The market value of any class which consists
primarily or entirely of principal payments generally is unusually volatile in
response to changes in interest rates.

The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments, mortgage
refinancings, or foreclosures. The rate of mortgage prepayments, and hence the
average life of the certificates, will be a function of the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. Such prepayments are passed through to
the registered holder with the regular monthly payments of principal and
interest and have the effect of reducing future payments. Estimated average life
will be determined by the Adviser and used for the purpose of determining the
average weighted maturity and duration of the Portfolios.

Non-Mortgage Asset-backed Securities. Non-mortgage asset-backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.

Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance Trust) unaffiliated with the
issuers of such securities.

The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the Asset-backed Securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the Asset-backed Securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the Asset-backed Securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related Asset-backed Securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other Asset-backed Securities, credit card receivables are unsecured obligations
of the card holder.

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The development of non-mortgage-backed securities is at an early stage
compared to mortgage-backed securities. While the market for Asset-backed
Securities is becoming increasingly liquid, the market for mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities is not as well developed. As stated above, the Adviser, as adviser to
each Portfolio, intends to limit its purchases of mortgage-backed securities
issued by certain private organizations and non-mortgage-backed securities to
securities that are readily marketable at the time of purchase.

Commercial Instruments

Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. Investments by a Portfolio in
commercial paper will consist of issues rated in a manner consistent with such
Portfolio's investment policies and objectives. In addition, the Portfolios may
acquire unrated commercial paper and corporate bonds that are determined by the
Adviser at the time of purchase to be of comparable quality to rated instruments
that may be acquired by such Portfolios as previously described.

Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Variable-rate instruments acquired by a Portfolio will be rated
at a level consistent with such Portfolio's investment objective and policies of
high quality as determined by a major rating agency or, if not rated, will be of
comparable quality as determined by the Adviser.

Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Portfolio, a Portfolio may, from time to time as
specified in the instrument, demand payment of the principal or may resell the
instrument to a third party. The absence of an active secondary market, however,
could make it difficult for a Portfolio to dispose of an instrument if the
issuer defaulted on its payment obligation or during periods when a Portfolio is
not entitled to exercise its demand rights, and a Portfolio could, for these or
other reasons, suffer a loss. A Portfolio may invest in variable and floating
rate instruments only when the Adviser deems the investment to involve minimal
credit risk. If such instruments are not rated, the Adviser will consider the
earning power, cash flows, and other liquidity ratios of the issuers of such
instruments and will continuously monitor their financial status to meet payment
on demand. In determining average weighted portfolio maturity, an instrument
will be deemed to have a maturity equal to the longer of the period remaining to
the next interest rate adjustment or the demand notice period specified in the
instrument.

Delayed Delivery Transactions

In a delayed delivery transaction, the Portfolio relies on the other
party to complete the transaction. If the transaction is not completed, the
Portfolio may miss a price or yield considered to be advantageous.

Dollar Roll Transactions

Certain Portfolios may enter into "dollar roll" transactions, which
consist of the sale by a Portfolio to a bank or broker/dealer (the
"counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while it is the holder. A Portfolio receives a fee from the
counterparty as consideration for entering into the commitment to purchase.
Dollar rolls may be renewed over a period of several months with a different
repurchase price and a cash settlement made at each renewal without physical
delivery of securities. Moreover, the transaction may be preceded by a firm
commitment agreement pursuant to which the Portfolio agrees to buy a security on
a future date.

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repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security that the Portfolio is
required to repurchase may be worth less than the security that the Portfolio
originally held, and the return earned by the Portfolio with the proceeds of a
dollar roll may not exceed transaction costs.

The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Portfolio's right to
purchase from the counterparty might be restricted. Additionally, the value of
such securities may change adversely before the Portfolio is able to purchase
them. Similarly, the Portfolio may be required to purchase securities in
connection with a dollar roll at a higher price than may otherwise be available
on the open market. Since, as noted above, the counterparty is required to
deliver a similar, but not identical security to the Portfolio, the security
that the Portfolio is required to buy under the dollar roll may be worth less
than an identical security. Finally, there can be no assurance that the
Portfolio's use of the cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.

Equity Swap Contracts

The counterparty to an Equity Swap Contract will typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty will
generally agree to pay a Portfolio the amount, if any, by which the notional
amount of the Equity Swap Contract would have increased in value had it been
invested in the stocks comprising the S&P 500 Index in proportion to the
composition of the Index, plus the dividends that would have been received on
those stocks. A Portfolio will agree to pay to the counterparty a floating rate
of interest (typically the London Inter Bank Offered Rate) on the notional
amount of the Equity Swap Contract plus the amount, if any, by which that
notional amount would have decreased in value had it been invested in such
stocks. Therefore, the return to a Portfolio on any Equity Swap Contract should
be the gain or loss on the notional amount plus dividends on the stocks
comprising the S&P 500 Index less the interest paid by the Portfolio on the
notional amount. A Portfolio will only enter into Equity Swap Contracts on a net
basis, i.e., the two parties' obligations are netted out, with the Portfolio
paying or receiving, as the case may be, only the net amount of any payments.
Payments under the Equity Swap Contracts may be made at the conclusion of the
contract or periodically during its term.

If there is a default by the counterparty to an Equity Swap Contract, a
Portfolio will be limited to contractual remedies pursuant to the agreements
related to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Portfolio will succeed in pursuing
contractual remedies. A Portfolio thus assumes the risk that it may be delayed
in or prevented from obtaining payments owed to it pursuant to Equity Swap
Contracts. A Portfolio will closely monitor the credit of Equity Swap Contract
counterparties in order to minimize this risk.

Certain Portfolios may from time to time enter into the opposite side
of Equity Swap Contracts (i.e., where a Portfolio is obligated to pay the
increase (net of interest) or receive the decrease (plus interest) on the
contract to reduce the amount of the Portfolio's equity market exposure
consistent with the Portfolio's objective. These positions are sometimes
referred to as Reverse Equity Swap Contracts.

Equity Swap Contracts will not be used to leverage a Portfolio. A
Portfolio will not enter into any Equity Swap Contract or Reverse Equity Swap
Contract unless, at the time of entering into such transaction, the unsecured
senior debt of the counterparty is rated at least "A" by Moody's Investor
Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"). Since the
SEC considers Equity Swap Contracts and Reverse Equity Swap Contracts to be
illiquid securities, a Portfolio will not invest in Equity Swap Contracts or
Reverse Equity Swap Contracts if the total value of such investments together
with that of all other illiquid securities which a Portfolio owns would exceed
15% of the Portfolio's total assets.

The Adviser does not believe that a Portfolio's obligations under
Equity Swap Contracts or Reverse Equity Swap Contracts are senior securities
and, accordingly, the Portfolio will not treat them as being subject to its
borrowing restrictions. However, the net amount of the excess, if any, of a
Portfolio's obligations over its respective entitlements with respect to each
Equity Swap Contract and each Reverse Equity Swap Contract will be accrued on a
daily basis and an amount of cash, U.S. Government securities or other liquid
high quality debt securities having an

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aggregate market value at least equal to the accrued excess will be maintained
in a segregated account by the Portfolio's custodian.

Foreign Currency Transactions

As described in the Prospectuses, certain Portfolios may invest in
foreign currency transactions. Foreign securities involve currency risks. The
U.S. dollar value of a foreign security tends to decrease when the value of the
U.S. dollar rises against the foreign currency in which the security is
denominated, and tends to increase when the value of the U.S. dollar falls
against such currency. A Portfolio may purchase or sell forward foreign currency
exchange contracts ("forward contracts") to attempt to minimize the risk to the
Portfolio from adverse changes in the relationship between the U.S. dollar and
foreign currencies. A Portfolio may also purchase and sell foreign currency
futures contracts and related options (see "Purchase and Sale of Currency
Futures Contracts and Related Options"). A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date that
is individually negotiated and privately traded by currency traders and their
customers.

Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A
Portfolio will direct its custodian to segregate high grade liquid assets in an
amount at least equal to its obligations under each forward foreign currency
exchange contract. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Portfolio's
portfolio securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.

A Portfolio may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").

A Portfolio may, however, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the Adviser
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which the Portfolio securities are denominated (a
"cross-hedge").

Foreign currency hedging transactions are an attempt to protect a
Portfolio against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.

The Portfolio's custodian will segregate cash, U.S. Government
securities or other high-quality debt securities having a value equal to the
aggregate amount of the Portfolio's commitments under forward contracts entered
into with respect to position hedges and cross-hedges. If the value of the
segregated securities declines, additional cash or securities will be segregated
on a daily basis so that the value of the segregated securities will equal the
amount of the Portfolio's commitments with respect to such contracts. As an
alternative to segregating all or part of such securities, the Portfolio may
purchase a call option permitting the Portfolio to purchase the amount of
foreign currency being hedged by a forward sale contract at a price no higher
than the forward contract price or the

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<PAGE>

Portfolio may purchase a put option permitting the Portfolio to sell the amount
of foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price.

Futures, Options and Other Derivative Instruments

Futures Contracts in General. A futures contract is an agreement
between two parties for the future delivery of fixed income securities or equity
securities or for the payment or acceptance of a cash settlement in the case of
futures contracts on an index of fixed income or equity securities. A "sale" of
a futures contract means the contractual obligation to deliver the securities at
a specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a brokerage firm, known as a futures
commission merchant, which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges, through their clearing
organizations, guarantee that the contracts will be performed as between the
clearing members of the exchange. Presently, futures contracts are based on such
debt securities as long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills, bank certificates of deposit, and on indices of
municipal, corporate and government bonds.

While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Portfolio will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Portfolio must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Portfolio that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.

Futures contracts on indices of securities are settled through the
making and acceptance of cash settlements based on changes in value of the
underlying rate or index between the time the contract is entered into and the
time it is liquidated.

Futures Contracts on Fixed Income Securities and Related Indices. As
noted in their respective Prospectuses, certain Portfolios may enter into
transactions in futures contracts for the purpose of hedging a relevant portion
of their portfolios. A Portfolio may enter into transactions in futures
contracts that are based on U.S. Government obligations, including any index of
government obligations that may be available for trading. Such transactions will
be entered into where movements in the value of the securities or index
underlying a futures contract can be expected to correlate closely with
movements in the value of securities held in a Portfolio. For example, a
Portfolio may sell futures contracts in anticipation of a general rise in the
level of interest rates, which would result in a decline in the value of its
fixed income securities. If the expected rise in interest rates occurs, the
Portfolio may realize gains on its futures position, which should offset all or
part of the decline in value of fixed income Portfolio securities. A Portfolio
could protect against such decline by selling fixed income securities, but such
a strategy would involve higher transaction costs than the sale of futures
contracts and, if interest rates again declined, the Portfolio would be unable
to take advantage of the resulting market advance without purchases of
additional securities.

The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Portfolios, which hold or intend to acquire long-term debt
securities, is to protect a Portfolio from fluctuations in interest rates
without actually buying or selling long-term debt securities. For example, if
long-term bonds are held by a Portfolio, and interest rates were expected to
increase, the Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an equivalent
value of the long-term bonds held by the Portfolio. If interest rates did
increase, the

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<PAGE>

value of the debt securities in the Portfolio would decline, but the value of
the futures contracts to the Portfolio would increase at approximately the same
rate thereby keeping the net asset value of the Portfolio from declining as much
as it otherwise would have. When a Portfolio is not fully invested and a decline
in interest rates is anticipated, which would increase the cost of fixed income
securities that the Portfolio intends to acquire, it may purchase futures
contracts. In the event that the projected decline in interest rates occurs, the
increased cost of the securities acquired by the Portfolio should be offset, in
whole or part, by gains on the futures contracts by entering into offsetting
transactions on the contract market on which the initial purchase was effected.
In a substantial majority of transactions involving futures contracts on fixed
income securities, a Portfolio will purchase the securities upon termination of
the long futures positions, but under unusual market conditions, a long futures
position may be terminated without a corresponding purchase of securities.

Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Portfolio could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio's cash reserves could then be
used to buy long-term bonds in the cash market. Similar results could be
accomplished by selling bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to increase. However, since
the futures market is more liquid than the cash market, the use of these futures
contracts as an investment technique allows a Portfolio to act in anticipation
of such an interest rate decline without having to sell its portfolio
securities. To the extent a Portfolio enters into futures contracts for this
purpose, the segregated assets maintained by a Portfolio will consist of cash,
cash equivalents or high quality debt securities of the Portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contract and the aggregate value of the initial deposit and variation margin
payments made by the Portfolio with respect to such futures contracts.

Stock Index Futures Contracts. As described in the Prospectuses,
certain Portfolios may sell stock index futures contracts in order to offset a
decrease in market value of its securities that might otherwise result from a
market decline. A Portfolio may do so either to hedge the value of its portfolio
as a whole, or to protect against declines, occurring prior to sales of
securities, in the value of securities to be sold. Conversely, a Portfolio may
purchase stock index futures contracts in order to protect against anticipated
increases in the cost of securities to be acquired.

In addition, a Portfolio may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Portfolio expects to narrow the range of industry groups
represented in its portfolio, it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. As such
securities are acquired, a Portfolio's futures positions would be closed out. A
Portfolio may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of its portfolio will decline prior to the
time of sale.

Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to purchase a
position in the underlying futures contract (i.e., a purchase of such futures
contract) in the case of an option to purchase (a "call" option), or a "short"
position in the underlying futures contract (i.e., a sale of such futures
contract) in the case of an option to sell (a "put" option), at a fixed price
(the "strike price") up to a stated expiration date. The holder pays a
non-rePortfolioable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.

Options on Futures Contracts on Fixed Income Securities and Related
Indices. As described in the Prospectuses, certain Portfolios may purchase put
options on futures contracts in which such Portfolios are permitted

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<PAGE>

to invest for the purpose of hedging a relevant portion of their portfolios
against an anticipated decline in the values of portfolio securities resulting
from increases in interest rates, and may purchase call options on such futures
contracts as a hedge against an interest rate decline when they are not fully
invested. A Portfolio would write options on these futures contracts primarily
for the purpose of terminating existing positions.

Options on Stock Index Futures Contracts, Options on Stock Indices and
Options on Equity Securities. As described in the Prospectuses, certain
Portfolios may purchase put options on stock index futures contracts, stock
indices or equity securities for the purpose of hedging the relevant portion of
their portfolio securities against an anticipated market-wide decline or against
declines in the values of individual portfolio securities, and they may purchase
call options on such futures contracts as a hedge against a market advance when
they are not fully invested. A Portfolio would write options on such futures
contracts primarily for the purpose of terminating existing positions. In
general, options on stock indices will be employed in lieu of options on stock
index futures contracts only where they present an opportunity to hedge at lower
cost. With respect to options on equity securities, a Portfolio may, under
certain circumstances, purchase a combination of call options on such securities
and U.S. Treasury bills. The Adviser believes that such a combination may more
closely parallel movements in the value of the security underlying the call
option than would the option itself.

Further, while a Portfolio generally would not write options on
individual portfolio securities, it may do so under limited circumstances known
as "targeted sales" and "targeted buys," which involve the writing of call or
put options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Portfolio would receive a fee, or a "premium," for the writing
of the option. For example, where the Portfolio seeks to sell portfolio
securities at a "targeted" price, it may write a call option at that price. In
the event that the market rises above the exercise price, it would receive its
"targeted" price, upon the exercise of the option, as well as the premium
income. Also, where it seeks to buy portfolio securities at a "targeted" price,
it may write a put option at that price for which it will receive the premium
income. In the event that the market declines below the exercise price, a
Portfolio would pay its "targeted" price upon the exercise of the option. In the
event that the market does not move in the direction or to the extent
anticipated, however, the targeted sale or buy might not be successful and a
Portfolio could sustain a loss on the transaction that may not be offset by the
premium received. In addition, a Portfolio may be required to forego the benefit
of an intervening increase or decline in value of the underlying security.

Options and Futures Strategies. The Adviser may seek to increase the
current return of the Portfolio by writing covered call or put options. In
addition, through the writing and purchase of options and the purchase and sale
of U.S. and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, the Adviser may at times seek to hedge against a decline in
the value of securities included in the Portfolio or an increase in the price of
securities that it plans to purchase for the Portfolio. Expenses and losses
incurred as a result of such hedging strategies will reduce the Portfolio's
current return. A Portfolio's investment in foreign stock index futures
contracts and foreign interest rate futures contracts, and related options on
such futures contracts, are limited to only those contracts and related options
that have been approved by the CFTC for investment by U.S. investors.
Additionally, with respect to a Portfolio's investment in foreign options,
unless such options are specifically authorized for investment by order of the
CFTC or meet the definition of trade options as set forth in CFTC rule 32.4, a
Portfolio will not make these investments.

The ability of a Portfolio to engage in the options and futures
strategies described below will depend on the availability of liquid markets in
such instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Portfolio will be able to utilize these instruments
effectively for the purposes stated below. Furthermore, a Portfolio's ability to
engage in options and futures transactions may be limited by tax considerations.
Although a Portfolio will only engage in options and futures transactions for
limited purposes, these activities will involve certain risks which are
described below under "Risk Factors Associated with Futures and Options
Transactions." A Portfolio will not engage in options and futures transactions
leveraging purposes.

Writing Covered Options on Securities. A Portfolio may write covered
call options and covered put options on securities in which it is permitted to
invest from time to time as the Adviser determines is appropriate in seeking to
attain its objective. Call options written by a Portfolio give the holder the
right to buy the underlying securities

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<PAGE>

from a Portfolio at a stated exercise price; put options give the holder the
right to sell the underlying security to the Portfolio at a stated price.

A Portfolio may write only covered options, which means that, so long
as the Portfolio is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). In the case of put options, a
Portfolio will maintain in a separate account cash or short-term U.S. Government
securities with a value equal to or greater than the exercise price of the
underlying securities. A Portfolio may also write combinations of covered puts
and calls on the same underlying security.

A Portfolio will receive a premium from writing a put or call option,
which increases the Portfolio's return in the event the option expires
unexercised or is closed out at a profit. The amount of the premium will
reflect, among other things, the relationship of the market price of the
underlying security to the exercise price of the option, the term of the option
and the volatility of the market price of the underlying security. By writing a
call option, a Portfolio limits its opportunity to profit from any increase in
the market value of the underlying security above the exercise price of the
option. By writing a put option, the Portfolio assumes the risk that it may be
required to purchase the underlying security for an exercise price higher than
its then current market value, resulting in a potential capital loss if the
purchase price exceeds the market value plus the amount of the premium received,
unless the security subsequently appreciates in value.

A Portfolio may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Portfolio will realize
a profit or loss from such transaction if the cost of such transaction is less
or more than the premium received from the writing of the option. In the case of
a put option, any loss so incurred may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by a
Portfolio.

Purchasing Put and Call Options on Securities. A Portfolio may purchase
put options to protect its portfolio holdings in an underlying security against
a decline in market value. Such hedge protection is provided during the life of
the put option since a Portfolio, as holder of the put option, is able to sell
the underlying security at the put exercise price regardless of any decline in
the underlying security's market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, a Portfolio will reduce any profit
it might otherwise have realized in its underlying security by the premium paid
for the put option and by transaction costs.

A Portfolio may also purchase call options to hedge against an increase
in prices of securities that it wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Portfolio, as holder of
the call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Portfolio will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.

Purchase and Sale of Options and Futures on Stock Indices. A Portfolio
may purchase and sell options on non-U.S. stock indices and stock index futures
as a hedge against movements in the equity markets.

Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of

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<PAGE>

this amount. Unlike options on specific securities, all settlements of options
on stock indices are in cash and gain or loss depends on general movements in
the stocks included in the index rather than price movements in particular
stocks. A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific amount multiplied
by the difference between the value of a specific stock index at the close of
the last trading day of the contract and the price at which the agreement is
made. No physical delivery of securities is made.

If the Adviser expects general stock market prices to rise, a Portfolio
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a
Portfolio's index option or futures contract resulting from the increase in the
index. If, on the other hand, the Adviser expects general stock market prices to
decline, a Portfolio might purchase a put option or sell a futures contract on
the index. If that index does in fact decline, the value of some or all of the
equity securities in a Portfolio may also be expected to decline, but that
decrease would be offset in part by the increase in the value of the Portfolio's
position in such put option or futures contract.

Purchase and Sale of Interest Rate Futures. A Portfolio may purchase
and sell interest rate futures contracts on foreign government securities
including, but not limited to, debt securities of the governments and central
banks of France, Germany, Denmark and Japan for the purpose of hedging fixed
income and interest sensitive securities against the adverse effects of
anticipated movements in interest rates.

A Portfolio may sell interest rate futures contracts in anticipation of
an increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Portfolio will
fall, thus reducing the net asset value of the Portfolio. This interest rate
risk can be reduced without employing futures as a hedge by selling long-term
fixed income securities and either reinvesting the proceeds in securities with
shorter maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Portfolio in the form of dealer spreads and
brokerage commissions.

The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
a Portfolio's short position in the futures contracts will also tend to
increase, thus offsetting all or a portion of the depreciation in the market
value of a Portfolio's investments that are being hedged. While a Portfolio will
incur commission expenses in selling and closing out futures positions (which is
done by taking an opposite position which operates to terminate the position in
the futures contract), commissions on futures transactions are lower than
transaction costs incurred in the purchase and sale of portfolio securities.

Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. A Portfolio may purchase and write call and put options on non-U.S.
stock index and interest rate futures contracts. A Portfolio may use such
options on futures contracts in connection with its hedging strategies in lieu
of purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a
Portfolio may purchase put options or write call options on stock index futures,
or interest rate futures, rather than selling futures contracts, in anticipation
of a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Portfolio intends to purchase.

Purchase and Sale of Currency Futures Contracts and Related Options. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a
Portfolio may buy or sell currency futures contracts and related options. If a
fall in exchange rates for a particular currency is anticipated, a Portfolio may
sell a currency futures contract or a call option thereon or purchase a put
option on such futures contract as a hedge. If it is anticipated that exchange
rates will rise, a Portfolio may purchase a currency futures contract or a call
option thereon or sell (write) a put option to protect against an increase in
the price of securities denominated in a particular currency a Portfolio intends
to purchase. These futures contracts and related

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<PAGE>

options thereon will be used only as a hedge against anticipated currency rate
changes, and all options on currency futures written by a Portfolio will be
covered.

A currency futures contract sale creates an obligation by a Portfolio,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a special price. A currency futures contract purchase
creates an obligation by a Portfolio, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract. If the holder decides not to enter into the contract, the
premium paid for the option is fixed at the point of sale.

The Portfolio will write (sell) only covered put and call options on
currency futures. This means that a Portfolio will provide for its obligations
upon exercise of the option by segregating sufficient cash or short-term
obligations or by holding an offsetting position in the option or underlying
currency future, or a combination of the foregoing. A Portfolio will, so long as
it is obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased maintained by a Portfolio in cash,
Treasury bills, or other high grade short-term obligations in a segregated
account with its custodian. If at the close of business on any day the market
value of the call purchased by a Portfolio falls below 100% of the market value
of the call written by the Portfolio, a Portfolio will so segregate an amount of
cash, Treasury bills or other high grade short-term obligations equal in value
to the difference. Alternatively, a Portfolio may cover the call option through
segregating with the custodian an amount of the particular foreign currency
equal to the amount of foreign currency per futures contract option times the
number of options written by a Portfolio. In the case of put options on currency
futures written by the Portfolio, the Portfolio will hold the aggregate exercise
price in cash, Treasury bills, or other high grade short-term obligations in a
segregated account with its custodian, or own put options on currency futures or
short currency futures, with the difference, if any, between the market value of
the put written and the market value of the puts purchased or the currency
futures sold maintained by a Portfolio in cash, Treasury bills or other high
grade short-term obligations in a segregated account with its custodian. If at
the close of business on any day the market value of the put options purchased
or the currency futures by a Portfolio falls below 100% of the market value of
the put options written by the Portfolio, a Portfolio will so segregate an
amount of cash, Treasury bills or other high grade short-term obligations equal
in value to the difference.

If other methods of providing appropriate cover are developed, a
Portfolio reserves the right to employ them to the extent consistent with
applicable regulatory and exchange requirements. In connection with transactions
in stock index options, stock index futures, interest rate futures, foreign
currency futures and related options on such futures, a Portfolio will be
required to deposit as "initial margin" an amount of cash or short-term
government securities equal to from 5% to 8% of the contract amount. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from the
broker to reflect changes in the value of the futures contract.

Limitations on Purchase of Options. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Portfolio's assets. The
Adviser intends to limit a Portfolio's writing of over-the-counter options in
accordance with the following procedure. Each Portfolio intends to write
over-the-counter options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the contracts which a
Portfolio has in place with such primary dealers will provide that the Portfolio
has the absolute right to repurchase an option it writes at any time at a price
which represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific formula
may vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by a Portfolio for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula also may include
a factor to account for the difference between the price of the security and the

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strike price of the option if the option is written out-of-the-money. A
Portfolio will treat all or a part of the formula price as illiquid for purposes
of the 15% test imposed by the SEC staff.

Guaranteed Investment Contracts

Guaranteed Investment Contracts, investment contracts or funding
agreements (each referred to as a "GIC") are investment instruments issued by
highly rated insurance company. Pursuant to such contracts, a Portfolio may make
cash contributions to a deposit Portfolio of the insurance company's general or
separate accounts. The insurance company then credits to a Portfolio guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit Portfolio. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.

A Portfolio will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance company, and an active secondary market in GICs does not
currently exist. Also, a Portfolio may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, at which point the GIC
may be considered to be an illiquid investment.

Illiquid Securities

Certain of the Portfolios may invest up to 15% of their net assets in
securities that are considered illiquid because of the absence of a readily
available market or due to legal or contractual restrictions. Certain restricted
securities that are not registered for sale to the general public but that can
be resold to institutional investors may not be considered illiquid, provided
that a dealer or institutional trading market exists.

Interest Rate Transactions

Among the strategic transactions into which a Portfolio may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Portfolios expect to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. A Portfolio intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, e.g. an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.

A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. In as much as these swaps, caps
and floors are entered into for good faith hedging purposes, the Adviser and the
Portfolio believe such obligations do not constitute senior securities under the
Investment Company Act of 1940 (the "1940 Act") and, accordingly, will not treat
them as being subject to its borrowing restrictions. A Portfolio will not enter
into any swap, cap and floor transaction unless, at the time of entering into
such transaction, the unsecured long-term debt of the counterparty, combined
with any credit enhancements, is rated at least "A" by S&P or Moody's or has an
equivalent rating from a Nationally Recognized Statistical Rating Organization
("NRSRO") or is determined to be of equivalent credit quality by the Adviser. If
there is a default by the counterparty, the Portfolio may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the

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swap market has become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.

With respect to swaps, a Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps and floors require
segregation of assets with a value equal to the Portfolio's net obligation, if
any.

Lower Rated Debt Securities

The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in a Portfolio's portfolio, with a commensurate
effect on the value of the Portfolio's shares. Therefore, an investment in the
Portfolio should not be considered as a complete investment program and may not
be appropriate for all investors.

The market prices of lower rated securities may fluctuate more than
higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.

Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.

Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as may buyers. Each Portfolio's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.

While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Portfolio may
incur additional expenses to the extent that it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings. The existence of limited markets for lower rated debt and comparable
unrated securities may diminish a Portfolio's ability to (a) obtain accurate
market quotations for purposes of valuing such securities and calculating its
net asset value and (b) sell the securities at fair value either to meet
redemption requests or to respond to changes in the economy or in financial
markets.

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Fixed-income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Portfolio. If an issuer exercises these rights during periods of
declining interest rates, a Portfolio may have to replace the security with a
lower yielding security, thus resulting in a decreased return to a Portfolio.

The market for certain lower rated debt and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known. Any
such recession, however, could disrupt severely the market for such securities
and adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.

Municipal Securities

Generally. The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Portfolio are in most cases revenue securities and are
not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.

Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve Portfolio, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.

Municipal securities may include variable- or floating- rate
instruments issued by industrial development authorities and other governmental
entities. While there may not be an active secondary market with respect to a
particular instrument purchased by a Portfolio, a Portfolio may demand payment
of the principal and accrued interest on the instrument or may resell it to a
third party as specified in the instruments. The absence of an active secondary
market, however, could make it difficult for a Portfolio to dispose of the
instrument if the issuer defaulted on its payment obligation or during periods
the Portfolio is not entitled to exercise its demand rights, and the Portfolio
could, for these or other reasons, suffer a loss.

Some of these instruments may be unrated, but unrated instruments
purchased by a Portfolio will be determined by the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Portfolio will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.

Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Portfolio. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of credit.
In other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Portfolio may have a demand provision permitting
the Portfolio to require payment within seven days. Participations in such
loans, however, may not have such a demand provision and may not be otherwise
marketable.

Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to

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budget for, appropriate, and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Portfolios' ability to recover under the lease in
the event of non-appropriation or default will be limited solely to the
repossession of the leased property in the event foreclosure might prove
difficult.

The Portfolios will not invest more than 5% of their total investment
assets in lease obligations that contain "non-appropriation" clauses where (1)
the nature of the leased equipment or property is such that its ownership or use
is essential to a governmental function of the municipality, (2) the lease
payments will commence amortization of principal at an early date resulting in
an average life of seven years or less for the lease obligation, (3) appropriate
covenants will be obtained from the municipal obligor prohibiting the
substitution or purchase of similar equipment if lease payments are not
appropriated, (4) the lease obligor has maintained good market acceptability in
the past, (5) the investment is of a size that will be attractive to
institutional investors, and (6) the underlying leased equipment has elements of
probability and/or use that enhance its marketability in the event foreclosure
on the underlying equipment were ever required. The Portfolios have not imposed
any percentage limitations with respect to their investment in lease obligations
not subject to the "non-appropriation" risk. To the extent municipal leases are
illiquid, they will be subject to each Portfolio's limitation on investments in
illiquid securities. Recovery of an investment in any such loan that is illiquid
and payable on demand may depend on the ability of the municipal borrower to
meet an obligation for full repayment of principal and payment of accrued
interest within the demand period, normally seven days or less (unless a
Portfolio determines that a particular loan issue, unlike most such loans, has a
readily available market). As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.

In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Adviser for each Portfolio will consider: (1) whether the lease can be canceled;
(2) what assurance there is that the assets represented by the lease can be
sold; (3) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (4) the likelihood
that the municipality will discontinue appropriating Portfolioing for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an "event of non-appropriation"); and
(5) the legal recourse in the event of failure to appropriate.

Municipal securities may include units of participation in trusts
holding pools of tax-exempt leases. Municipal participation interests may be
purchased from financial institutions, and give the purchaser an undivided
interest in one or more underlying municipal security. To the extent that
municipal participation interests are considered to be "illiquid securities,"
such instruments are subject to each Portfolio's limitation on the purchase of
illiquid securities. Municipal leases and participating interests therein, which
may take the form of a lease or an installment sales contract, are issued by
state and local governments and authorities to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are exempt from
Federal income taxes.

In addition, certain of the Portfolios may acquire "stand-by
commitments" from banks or broker/dealers with respect to municipal securities
held in their portfolios. Under a stand-by commitment, a dealer would agree to
purchase at a Portfolio's option specified Municipal Securities at a specified
price. The Portfolios will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes.

Although the Portfolios do not presently intend to do so on a regular
basis, each may invest more than 25% of its total assets in municipal securities
the interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Portfolio's total assets are invested in Municipal Securities
that are payable from the revenues of similar projects, a Portfolio will be
subject to the peculiar risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.

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There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of nationally recognized statistical rating organizations
represent their opinions as to the quality of Municipal Securities. It should be
emphasized, however, that these ratings are general and are not absolute
standards of quality, and Municipal Securities with the same maturity, interest
rate, and rating may have different yields while Municipal Securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Portfolio, an issue of Municipal Securities may
cease to be rated, or its rating may be reduced below the minimum rating
required for purchase by that Portfolio. The Adviser will consider such an event
in determining whether a Portfolio should continue to hold the obligation.

Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular Federal income tax or state income
tax are rendered by counsel to the issuer or bond counsel at the time of
issuance. Neither the Portfolios nor the Adviser will review the proceedings
relating to the issuance of Municipal Securities or the bases for opinions
relating to the validity of such issuance.

The payment of principal and interest on most securities purchased by a
Portfolio will depend upon the ability of the issuers to meet their obligations.
Each state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in the Prospectuses
and this SAI. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Securities may be materially adversely affected by
litigation or other conditions.

Certain types of Municipal Securities (private activity bonds) have
been or are issued to obtain Portfolios to provide, among other things,
privately operated housing facilities, pollution control facilities, convention
or trade show facilities, mass transit, airport, port or parking facilities, and
certain local facilities for water supply, gas, electricity, or sewage or solid
waste disposal. Private activity bonds are also issued for privately held or
publicly owned corporations in the financing of commercial or industrial
facilities. Most governments are authorized to issue private activity bonds for
such purposes in order to encourage corporations to locate within their
communities. The principal and interest on these obligations may be payable from
the general revenues of the users of such facilities.

Options on Currencies

The International Growth Portfolio may purchase and sell options on
currencies to hedge the value of securities the Portfolio holds or intends to
buy. Options on foreign currencies may be traded on U.S. and foreign exchanges
or over-the-counter.

Real Estate Investment Trusts

A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An Equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A Mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.

REITs may be affected by changes in the value of the underlying
property owned or financed by the REIT, while Mortgage REITs also may be
affected by the quality of credit extended. Both Equity and Mortgage REITs are
dependent upon management skill and may not be diversified. REITs also may be
subject to heavy cash flow

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dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code or 1986, as amended.

Repurchase Agreements

The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Portfolio plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by the Trust's custodian, or a
sub-custodian, in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the Trust
under the 1940 Act.

Reverse Repurchase Agreements

At the time a Portfolio enters into a reverse repurchase agreement, it
may establish a segregated account with its custodian bank in which it will
maintain cash, U.S. Government securities or other liquid high grade debt
obligations equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market value
of the securities the Portfolios are obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement files for bankruptcy or becomes insolvent,
the Portfolios' use of proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Portfolios' obligation to repurchase the securities. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Portfolios do not establish and maintain a
segregated account (as described above). In addition, some or all of the
proceeds received by a Portfolio from the sale of a portfolio instrument may be
applied to the purchase of a repurchase agreement. To the extent the proceeds
are used in this fashion and a common broker/dealer is the counterparty on both
the reverse repurchase agreement and the repurchase agreement, the arrangement
might be recharacterized as a swap transaction. Under the requirements of the
1940 Act, the Portfolios are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Portfolios may not establish a segregated account
when the Adviser believes it is not in the best interests of the Portfolios to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.

Risk Factors Associated with Futures and Options Transactions

The effective use of options and futures strategies depends on, among
other things, a Portfolio's ability to terminate options and futures positions
at times when its the Adviser deems it desirable to do so. Although a Portfolio
will not enter into an option or futures position unless the Adviser believes
that a liquid secondary market exists for such option or future, there is no
assurance that a Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price. A Portfolio generally expects that
its options and futures transactions will be conducted on recognized U.S. and
foreign securities and commodity exchanges. In certain instances, however, a
Portfolio may purchase and sell options in the over-the-counter market. A
Portfolio's ability to terminate option positions established in the
over-the-counter market may be more limited than in the case of exchange-traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Portfolio.

Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.

The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of securities which are the subject of the hedge. Such correlation,
particularly with respect to options on stock indices and stock index futures,
is imperfect, and such risk increases as the composition of a Portfolio diverges
from the composition of the relevant index. The successful use of these

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strategies also depends on the ability of the Adviser to correctly forecast
interest rate movements, currency rate movements and general stock market price
movements.

In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Portfolios' futures and options transactions.

Risk of Imperfect Correlation. A Portfolio's ability effectively to
hedge all or a portion of its portfolio through transactions in futures, options
on futures or options on stock indices depends on the degree to which movements
in the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Portfolio's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Portfolio might not be successful and the Portfolio could sustain losses
on its hedging transactions which would not be offset by gains on its portfolio.
It is also possible that there may be a negative correlation between the
security or index underlying a futures or option contract and the portfolio
securities being hedged, which could result in losses both on the hedging
transaction and the Portfolio securities. In such instances, a Portfolio's
overall return could be less than if the hedging transactions had not been
undertaken. Stock index futures or options based on a narrower index of
securities may present greater risk than options or futures based on a broad
market index, as a narrower index is more susceptible to rapid and extreme
fluctuations resulting from changes in the value of a small number of
securities. A Portfolio would, however, effect transactions in such futures or
options only for hedging purposes.

The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Portfolio will
not be able to establish hedging positions, or that any hedging strategy adopted
will be insufficient to completely protect the Portfolio.

A Portfolio will purchase or sell futures contracts or options only if,
in the Adviser's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Portfolio's portfolio for the hedge to
be effective. There can be no assurance that the Adviser's judgment will be
accurate.

Potential Lack of a Liquid Secondary Market. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Portfolio to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Portfolio will
establish a futures or option position only if there appears to be a liquid
secondary market therefor, there can be no assurance that such a market will
exist for any particular futures or option contract at any specific time. In
such event, it may not be possible to close out a position held by a Portfolio,
which could require the Portfolio to purchase or sell the instrument underlying
the position, make or receive a cash settlement, or meet ongoing variation
margin requirements. The inability to close out futures or option positions also
could have an adverse impact on a Portfolio's ability effectively to hedge its
securities, or the relevant portion thereof.

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The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.

Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Portfolio's overall performance may be poorer
than if it had not entered into any such contract. For example, if a Portfolio
has been hedged against the possibility of an increase in interest rates which
would adversely affect the price of bonds held in its portfolio and interest
rates decrease instead, the Portfolio will lose part or all of the benefit of
the increased value of its bonds which have been hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Portfolio has insufficient cash, it may have to sell bonds from its portfolio
to meet daily variation margin requirements, possibly at a time when it may be
disadvantageous to do so. Such sale of bonds may be, but will not necessarily
be, at increased prices which reflect the rising market.

Trading and Position Limits. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Portfolios' investments.

Regulations on the Use of Futures and Options Contracts. Regulations of
the CFTC require that the Portfolios enter into transactions in futures
contracts and options thereon for hedging purposes only, in order to assure that
they are not deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations require that all short futures positions be entered
into for the purpose of hedging the value of investment securities held by a
Portfolio, and that all long futures positions either constitute bona fide
hedging transactions, as defined in such regulations, or have a total value not
in excess of an amount determined by reference to certain cash and securities
positions maintained for the Portfolio, and accrued profits on such positions.
In addition, a Portfolio may not purchase or sell such instruments if,
immediately thereafter, the sum of the amount of initial margin deposits on its
existing futures positions and premiums paid for options on futures contracts
would exceed 5% of the market value of the Portfolio's total assets.

When a Portfolio purchases a futures contract, an amount of cash or
cash equivalents or high quality debt securities will be segregated with the
Portfolio's custodian so that the amount so segregated, plus the initial deposit
and variation margin held in the account of its broker, will at all times equal
the value of the futures contract, thereby insuring that the use of such futures
is unleveraged.

The Portfolios' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a
Portfolio derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months. The
Portfolios may also further limit their ability to engage in such transactions
in response to the policies and concerns of various Federal and state regulatory
agencies. Such policies may be changed by vote of the Board of Directors.

Securities Lending

To increase return on portfolio securities, certain of the Portfolios
may lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. Collateral for such loans may include cash, securities
of the U.S. Government, its agencies or instrumentalities, an irrevocable letter
of credit issued by (i) a U.S. bank that has total assets exceeding $1 billion
and that is a member of the Federal Deposit Insurance Corporation, or (ii) a
foreign bank that is one of the 75 largest foreign commercial banks in terms

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of total assets, or any combination thereof. Such loans will not be made if, as
a result, the aggregate of all outstanding loans of the Portfolio involved
exceeds 33% of the value of its total assets. There may be risks of delay in
receiving additional collateral or in recovering the securities loaned or even a
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by the Adviser to
be of good standing and when, in its judgment, the income to be earned from the
loan justifies the attendant risks. Pursuant to the securities loan agreement a
Portfolio is able to terminate the securities loan upon notice of not more than
five business days and thereby secure the return to the Portfolio of securities
identical to the transferred securities upon termination of the loan.

Short Sales

As described in the Prospectuses, certain Portfolios may from time to
time enter into short sales transactions. A Portfolio will not make short sales
of securities nor maintain a short position unless at all times when a short
position is open, such Portfolio owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." Such short sales will be used by a Portfolio for the purpose of deferring
recognition of gain or loss for federal income tax purposes.

Special Situations

As described in the Prospectuses, certain Portfolios may invest in
"special situations." A special situation arises when, in the opinion of the
Adviser, the securities of a particular Trust will, within a reasonably
estimable period of time, be accorded market recognition at an appreciated value
solely by reason of a development applicable to that Trust, and regardless of
general business conditions or movements of the market as a whole. Developments
creating special situations might include, among others: liquidations,
reorganizations, recapitalizations, mergers, material litigation, technical
breakthroughs and new management or management policies. Although large and well
known Trust may be involved, special situations more often involve comparatively
small or unseasoned Trust. Investments in unseasoned Trust and special
situations often involve much greater risk than is inherent in ordinary
investment securities.

Stand-By Commitments

The Portfolios may acquire "stand-by commitments" with respect to
Municipal Securities held in their portfolios. Under a "stand-by commitment," a
dealer agrees to purchase from a Portfolio, at a Portfolio's option, specified
Municipal Securities at a specified price. Stand-by commitments are exercisable
by a Portfolio at any time before the maturity of the underlying Municipal
Securities, and may be sold, transferred, or assigned by a Portfolio only with
the underlying instruments.

A Portfolio's right to exercise stand-by commitments will be
unconditional and unqualified. A stand-by commitment will not be transferable by
a Portfolio, although the Portfolio could sell the underlying Municipal
Securities to a third party at any time. Until a Portfolio exercises its
stand-by commitment, it owns the securities in its portfolio which are subject
to the stand-by commitment.

The Portfolios expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Portfolio may pay for a stand-by commitment either
separately in cash or by paying a higher price for the security being acquired
which will be subject to the commitment (thus reducing the yield to maturity
otherwise available for the same security). When a Portfolio pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by that Portfolio.

Each Portfolio intends to enter into stand-by commitments only with
banks and broker/dealers which, in the Adviser's opinion, present minimal credit
risks. In evaluating the credit worthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims, and other relevant financial information.

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The Portfolios would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by a Portfolio will be valued at
zero in determining net asset value. A Portfolio's reliance upon the credit of
these dealers, banks, and broker/dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Portfolio in connection with a "stand-by commitment" will
not be qualitatively different from the risk of loss faced by a person that is
holding securities pending settlement after having agreed to sell the securities
in the ordinary course of business.

Variable- and Floating-Rate Instruments

The Portfolios may purchase variable-rate and floating rate obligations
as described in the Prospectuses. If such instrument is not rated, the Adviser
will consider the earning power, cash flows, and other liquidity ratios of the
issuers and guarantors of such obligations and, if the obligation is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, a variable-rate demand
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the time a
Portfolio can recover payment of principal as specified in the instrument.

The variable- and-floating rate demand instruments that the Portfolios
may purchase include participations in Municipal Securities purchased from and
owned by financial institutions, primarily banks. Participation interests
provide a Portfolio with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the participation interest from the institution
upon a specified number of days' notice, not to exceed 30 days. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of a bank that the Adviser has determined meets the prescribed quality standards
for the Portfolios. The bank typically retains fees out of the interest paid on
the obligation for servicing the obligation, providing the letter of credit, and
issuing the repurchase commitment.

When-Issued Purchases and Forward Commitments

A Portfolio may agree to purchase securities on a when-issued basis or
enter into a forward commitment to purchase securities. When a Portfolio engages
in these transactions, its custodian will segregate cash, U.S. government
securities or other high quality debt obligations equal to the amount of the
commitment. Normally, the custodian will segregate portfolio securities to
satisfy a purchase commitment, and in such a case a Portfolio may be required
subsequently to segregate additional assets in order to ensure that the value of
the segregated assets remains equal to the amount of the Portfolio's commitment.
Because a Portfolio will segregate cash or liquid assets to satisfy its purchase
commitments in the manner described, the Portfolio's liquidity and ability to
manage its portfolio might be adversely affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its assets. In
the case of a forward commitment to sell portfolio securities, the Portfolio's
custodian will hold the portfolio securities themselves in a segregated account
while the commitment is outstanding.

A Portfolio will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a forward commitment
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. If deemed advisable as a matter of
investment strategy, however, a Portfolio may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Portfolio on the
settlement date. In these cases the Portfolio may realize a capital gain or
loss.

When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the net asset value

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<PAGE>

of a Portfolio starting on the date the Portfolio agrees to purchase the
securities. The Portfolio does not earn dividends on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date. When the Portfolio makes a forward commitment to sell securities it owns,
the proceeds to be received upon settlement are included in the Portfolio's
assets. Fluctuations in the value of the underlying securities are not reflected
in the Portfolio's net asset value as long as the commitment remains in effect.

NET ASSET VALUE

Purchases and Redemptions

See "How To Buy Shares" and "How To Redeem Shares" in the Prospectuses
for a complete description of the manner in which shares of the various classes
of the Portfolios may be purchased and redeemed.

The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is [closed for other than customary weekend and holiday
closings,] (c) the SEC has by order permitted such suspension, or (d) an
emergency as determined by the SEC exists making disposal of portfolio
securities or the valuation of the net assets of a Portfolio of a Trust not
reasonably practicable.

Investment Strategy

Investing the same dollar amount at regular intervals is an investment
strategy known as Dollar Cost Averaging. Using this strategy, investors purchase
a greater number of shares when the Portfolio's price is low and fewer shares
when the price is high. As a result, the average purchase price for shares will
be less than their average cost. Dollar Cost Averaging does not provide
assurance of making a profit or any guarantee against loss in continually
declining markets. Investors should evaluate whether they are able to make
regular investments through periods of declining price levels before deciding to
use this investment technique.

Net Asset Value Determination

Shares of the common stock of each class of shares of each Portfolio
that are offered by the Prospectuses are sold at their respective net asset
value next determined after the receipt of the purchase order, plus any
applicable sales charge. Shareholders may at any time redeem all or a portion of
their shares at net asset value next determined following receipt of a
redemption order, less any contingent deferred sales charge applicable to
Investor Shares.

The net asset value per share of each of the Portfolios is determined
at the times and in the manner described in the Prospectuses.

A security listed or traded on an exchange is valued at its last sales
price on the exchange where the security is principally traded or, lacking any
sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the
over-the-counter market (but not including securities reported on the Nasdaq
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the Nasdaq National Market System is valued at the last
sales price on the valuation date.

Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the Trust's officers in a manner specifically authorized by the Board of
Trustees of the Trust. Short-Term obligations having 60 days or less to maturity
are valued at amortized cost, which approximates market value.

Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the shares of the Portfolio are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of

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the New York Stock Exchange. Occasionally, events affecting the value of such
securities and such exchange rates may occur between the times at which they are
determined and the close of the New York Stock Exchange, which will not be
reflected in the computation of net asset value. If during such periods events
occur which materially affect the value of such securities, the securities will
be valued at their fair market value as determined in good faith by the
directors/trustees.

For purposes of determining the net asset value per share of the
International Portfolio, all assets and liabilities of the International
Portfolio initially expressed in foreign currencies will be converted into U.S.
dollars at the mean between the bid and offer prices of such currencies against
U.S. dollars quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks.

The Trust may redeem shares involuntarily to reimburse the Portfolios
for any loss sustained by reason of the failure of a shareholder to make full
payment for Investor Shares purchased by the shareholder or to collect any
charge relating to a transaction effected for the benefit of a shareholder which
is applicable to Investor Shares as provided in the related Prospectuses from
time to time. The Trust also may make payment for redemptions in readily
marketable securities or other property if it is appropriate to do so in light
of Nations Annuity Trust's responsibilities under the 1940 Act.

Under the 1940 Act, the Portfolios may suspend the right of redemption
or postpone the date of payment for Investor Shares or Primary Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The Portfolios
may also suspend or postpone the recordation of the transfer of their shares
upon the occurrence of any of the foregoing conditions.)

DESCRIPTION OF SHARES

Description of Shares of the Trust

Nations Annuity Trust is a Delaware business trust organized on January
__, 1998. The Trust's Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of units of beneficial interest ("shares") and to
classify or reclassify any unissued shares of the Trust into one or more
additional classes or series by setting or changing in any one or more respects
their respective preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption. Pursuant to such authority, the Board of Trustees has
authorized the issuance of eight series of shares which are described in this
SAI.

Life & Annuity Trust, an open-end, management investment company, was
organized as a Delaware Business Trust on October 28, 1993. As of the date of
this SAI, Life & Annuity Trust's Board of Trustees has authorized the issuance
of four series of shares, each representing an unlimited number of beneficial
interests -- the U.S. Government Allocation Fund, the Growth and Income Fund,
the Asset Allocation Fund and the Money Market Fund -- and the Board of Trustees
may, in the future, authorize the creation of additional investment portfolios.

All shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy would be voted upon only by shareholders of
the Fund involved. Additionally, approval of an advisory contract is a matter to
be determined separately by Fund. Approval by the shareholders of one Fund is
effective as to that Fund whether or not sufficient votes are received from the
Shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in the Prospectus and in this SAI, the term
"majority," when referring to approvals to be obtained from shareholders of the
Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the shareholders of more than 50% of the outstanding
interests of the Fund are present in person or by proxy, or (ii) more than 50%
of the outstanding shares of the Fund. The term "majority," when referring to
the approvals to be

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obtained from shareholders of Life & Annuity Trust as a whole, means the vote of
the lesser of (i) 67% of Life & Annuity Trust's shares represented at a meeting
if the shareholders of more than 50% of Life & Annuity Trust's outstanding
shares are present in person or by proxy, or (ii) more than 50% of Life &
Annuity Trust's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.

Life & Annuity Trust may dispense with an annual meeting of
shareholders in any year in which it is not required to elect Trustees under the
1940 Act. However, Life & Annuity Trust has undertaken to hold a special meeting
of its shareholders for the purpose of voting on the question of removal of a
Trustee or Trustees if requested in writing by the shareholders of at least 10%
of Life & Annuity Trust's outstanding voting shares, and to assist in
communicating with other shareholders as required by Section 16(c) of the 1940
Act.

Each share of a Fund represents an equal proportional interest in the
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund as are declared in
the discretion of the Trustees. In the event of the liquidation or dissolution
of Life & Annuity Trust, shareholders of a Fund are entitled to receive the
assets attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular investment
portfolio that are available for distribution in such manner and on such basis
as the Trustees in their sole discretion may determine.

Shareholders are not entitled to any preemptive rights. All shares,
when issued as described in the Prospectus, will be fully paid and
non-assessable by Life & Annuity Trust.

Net income for dividend purposes consists of (i) interest accrued and
original issue discount earned on the Portfolio's assets, (ii) plus the
amortization of market discount and minus the amortization of market premium on
such assets, (iii) less accrued expenses directly attributable to the Portfolio
and the general expenses of Nations Funds prorated to a Portfolio on the basis
of its relative net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following information supplements and should be read in conjunction
with Prospectus section entitled "Tax Information." The Prospectus of the
Portfolios describes generally the tax treatment of distributions by the
Portfolios. This section of the SAI includes additional information concerning
income taxes.

General

The Trust intends to qualify each Portfolio as a regulated investment
Company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") as long as such qualification is in the best interest of the Portfolio's
shareholders. Each Portfolio will be treated as a separate entity for tax
purposes and thus the provisions of the Code applicable to regulated investment
company will generally be applied to each Portfolio, rather than to the Trust as
a whole. In addition, net capital gains, net investment income, and operating
expenses will be determined separately for each Portfolio. As a regulated
investment company, each Portfolio will not be taxed on its net investment
income and capital gains distributed to its shareholders.

Qualification as a regulated investment company under the Code
requires, among other things, that (a) each Portfolio derive at least 90% of its
annual gross income from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies (to the extent such currency gains are directly
related to the regulated investment company's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) the Portfolio
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Portfolio's assets is represented by
cash, government securities and other securities limited in respect of any one
issuer to an amount not greater than 5% of the Portfolio's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government obligations and the securities of other regulated investment
company), or in two or more issuers which the Portfolio controls and which are
determined to be engaged in the same or similar trades or businesses.

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The Portfolios must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income earned in each taxable
year. In general, these distributions must actually or be deemed to be made in
the taxable year. However, in certain circumstances, such distributions may be
made in the 12 months following the taxable year. The Portfolios intend to pay
out substantially all of their net investment income and net realized capital
gains (if any) for each year.

In addition, a regulated investment company must, in general, derive
less than 30% of its gross income from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.

Excise Tax

A 4% nondeductible excise tax will be imposed on each Portfolio (other
than to the extent of its tax-exempt interest income) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar year.
Each Portfolio intends to actually or be deemed to distribute substantially all
of its net investment income and net capital gains by the end of each calendar
year and, thus, expects not to be subject to the excise tax.

Taxation of Portfolio Investments

Except as provided herein, gains and losses on the sale of portfolio
securities by a Portfolio will generally be capital gains and losses. Such gains
and losses will ordinarily be long-term capital gains and losses if the
securities have been held by the Portfolio for more than one year at the time of
disposition of the securities.

Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by the
Portfolio at a market discount (generally at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of
market discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Portfolio held the debt obligation.

If an option granted by the Portfolio lapses or is terminated through a
closing transaction, such as a repurchase by the Portfolio of the option from
its holder, the Portfolio will realize a short-term capital gain or loss,
depending on whether the premium income is greater or less than the amount paid
by the Portfolio in the closing transaction. Some realized capital losses may be
deferred if they result from a position which is part of a "straddle," discussed
below. If securities are sold by the Portfolio pursuant to the exercise of a
call option written by it, the Portfolio will add the premium received to the
sale price of the securities delivered in determining the amount of gain or loss
on the sale.

Under Section 1256 of the Code, the Portfolio will be required to "mark
to market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed options. In this regard, Section 1256
contracts will be deemed to have been sold at market value. Sixty percent (60%)
of any net gain or loss realized on all dispositions of Section 1256 contracts,
including deemed dispositions under the mark-to-market regime, will generally be
treated as long-term capital gain or loss, and the remaining forty percent (40%)
will be treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the mark-to-market and 60%/40% rules.

Under Section 988 of the Code, a Portfolio will generally recognize
ordinary income or loss to the extent gain or loss realized on the disposition
of portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Portfolios will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.

Offsetting positions held by a regulated investment Company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a

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regulated investment company were treated as entering into "straddles" by
engaging in certain financial forward, futures or option contracts, such
straddles could be characterized as "mixed straddles" if the futures, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the regulated investment company may differ. Generally,
to the extent the straddle rules apply to positions established by the regulated
investment company, losses realized by the regulated investment company may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and the conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term capital
loss, and long-term capital gain may be characterized as short-term capital gain
or ordinary income.

If a Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Portfolio must recognize gain (but not loss) with respect to that position. For
this purpose, a constructive sale occurs when the Portfolio enters into one of
the following transactions with respect to the same or substantially identical
property: (i) a short sale; (ii) an offsetting notional principal contract; or
(iii) a futures or forward contract.

If a Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), the Portfolio may be subject to Federal income tax and an
interest charge imposed by the IRS upon certain distributions from the PFIC or
the Portfolio's disposition of its PFIC shares. If the Portfolio invests in a
PFIC, the Portfolio intends to make an available election to mark-to-market its
interest in PFIC shares. Under the election, the Portfolio will be treated as
recognizing at the end of each taxable year the difference, if any, between the
fair market value of its interest in the PFIC shares and its basis in such
shares. In some circumstances, the recognition of loss may be suspended. The
Portfolio will adjust its basis in the PFIC shares by the amount of income (or
loss) recognized. Although such income (or loss) will be taxable to the
Portfolio as ordinary income (or loss) notwithstanding any distributions by the
PFIC, the Portfolio will not be subject to Federal income tax or the interest
charge with respect to its interest in the PFIC.

Foreign Taxes

Income and dividends received by the Portfolio from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% in value of a regulated
investment company's total assets at the close of its taxable year consist of
securities of non-U.S. corporations, the regulated investment company will be
eligible to file an election with the IRS pursuant to which the regulated
investment Company may pass-through to its shareholders foreign taxes paid by
the regulated investment Company unsold, which may be claimed either as a credit
or deduction by the shareholders. Only the Nations International Growth
Portfolio expect to qualify for the election. However, even if a Portfolio
qualifies for the election, foreign taxes will only pass-through to a Portfolio
shareholder if (i) the shareholder holds the Portfolio shares for at least 16
days during the 30 day period beginning 15 days prior to the date upon which the
shareholder becomes entitled to receive Portfolio dividends corresponding with
the pass-through of the foreign taxes paid by the Portfolio, and (ii), with
respect to foreign source dividends received by the Portfolio on shares giving
rise to foreign tax, the Portfolio holds the shares during the 30 day period
beginning 15 days prior to the date upon which the Portfolio becomes entitled to
the dividend.

Capital Gain Distributions

Distributions which are designated by a Portfolio as capital gain
distributions will be taxed to shareholders as long-term term capital gain (to
the extent such dividends do exceed the Portfolio's actual net capital gains for
the taxable year), regardless of how long a shareholder has held Portfolio
shares. Such distributions will be designated as capital gain distributions in a
written notice mailed by the Portfolio to its shareholders not later than 60
days after the close of the Portfolio's taxable year.

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The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and 18 months or less. The 1997 Act retains the treatment
of short term capital gain or loss (generally, gain or loss attributable to
capital assets held for 1 year or less) and did not affect the taxation of
capital gains in the hands of corporate taxpayers.

Under the 1997 Act, the Treasury is authorized to issue regulations
for application of the reduced capital gains tax rates to pass-through entities,
including regulated investment Trust, such as the Portfolios. Noncorporate
stockholders of the Portfolios may therefore qualify for the reduced rate of tax
on capital gain dividends paid by the Portfolios.

Other Distributions

For Federal income tax purposes, the Portfolio's earnings and profits
will be determined at the end of each taxable year and will be allocated pro
rata over the entire year. For Federal income tax purposes, only amounts paid
out of earnings and profits will qualify as dividends. Thus, if during a taxable
year a Portfolio's declared dividends (as declared daily throughout the year)
exceed the Portfolio's net income (as determined at the end of the year), only
that portion of the year's distributions which equals the year's earnings and
profits will be deemed to have constituted a dividend. It is expected that each
Portfolio's net income, on an annual basis, will equal the dividends declared
during the year.

Disposition of Portfolio Shares

A disposition of Portfolio shares pursuant to redemption (including a
redemption in-kind) or exchanges will ordinarily result in a taxable capital
gain or loss, depending on the amount received for the shares (or are deemed to
receive in the case of an exchange) and the cost of the shares.

If a shareholder exchanges or otherwise disposes of Portfolio shares
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
on a new purchase of shares of the Portfolio or a different regulated investment
company, the sales charge previously incurred acquiring the Portfolio's shares
shall not be taken into account (to the extent such previous sales charges do
not exceed the reduction in sales charges on the new purchase) for the purpose
of determining the amount of gain or loss on the disposition, but will be
treated as having been incurred in the acquisition of such other shares. Also,
any loss realized on a redemption or exchange of shares of the Portfolio will be
disallowed to the extent that substantially identical shares are acquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.

If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any
Portfolio share and such Portfolio share is held for six months or less, then
(unless otherwise disallowed) any loss on the sale or exchange of that Portfolio
share will be treated as a long-term capital loss to the extent of the
designated capital gain distribution. In addition, if a shareholder holds
Portfolio shares for six months or less, any loss on the sale or exchange of
those shares will be disallowed to the extent of the amount of exempt-interest
dividends received with respect to the shares. The Treasury Department is
authorized to issue regulations reducing the six months holding requirement to a
period of not less than the greater of 31 days or the period between regular
dividend distributions where a Portfolio regularly distributes at least 90% of
its net tax-exempt interest, if any. No such regulations had been issued as of
the date of this SAI. The loss disallowance rules described in this paragraph do
not apply to losses realized under a periodic redemption plan.

Federal Income Tax Rates

34
<PAGE>

As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 28% (however, see "Capital Gain Distributions" above); and the maximum
corporate tax rate applicable to ordinary income and net capital gain is 35%
(marginal tax rates may be higher for some corporations to reduce or eliminate
the benefit of lower marginal income tax rates). Naturally, the amount of tax
payable by an individual or corporation will be affected by a combination of tax
laws covering, for example, deductions, credits, deferrals, exemptions, sources
of income and other matters.

Corporate Shareholders

Corporate shareholders of the Portfolios may be eligible for the
dividends-received deduction on dividends distributed out of a Portfolio's net
investment income attributable to dividends received from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
deduction. In order to qualify for the dividends-received deduction, a corporate
shareholder must generally hold the shares upon which the dividend is made for
at least 46 days during the 90 day period beginning 45 days prior to the date
upon which the shareholder becomes entitled to the Portfolio's distribution
qualifying for the deduction.

Foreign Shareholders

Under the Code, distributions of net investment income by a Portfolio
to a nonresident alien individual, foreign trust (i.e., trust which a U.S. court
is able to exercise primary supervision over administration of that trust and
one or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate). Withholding will not apply if a dividend paid by a Portfolio
to a foreign shareholder is "effectively connected" with a U.S. trade or
business (or, if an income tax treaty applies, is attributable to a U.S.
permanent establishment of the foreign shareholder), in which case the reporting
and withholding requirements applicable to U.S. persons will apply.
Distributions of net capital gains are generally not subject to tax withholding,
and, beginning in 1999, the Portfolios will be permitted to estimate the portion
of their distributions qualifying as capital gain distributions.

Backup Withholding

The Trust may be required to withhold, subject to certain exemptions,
at a rate of 31% ("backup withholding") on dividends, capital gain
distributions, and redemption proceeds (including proceeds from exchanges and
redemptions in-kind) paid or credited to an individual Portfolio shareholder,
unless the shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Trust that the shareholder's TIN is
incorrect or that the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's Federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Trust could subject the investor to
penalties imposed by the IRS.

Tax-Deferred Plans

The Portfolios are available for a variety of tax-deferred retirement
and other plans, including Individual Retirement Accounts ("IRA"), Simplified
Employee Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees
("SIMPLE plans"), Roth IRAs, and Education IRAs, which permit investors to defer
some of their income from taxes.

Other Matters

Investors should be aware that the investments to be made by the
Portfolio may involve sophisticated tax rules that may result in income or gain
recognition by the Portfolio without corresponding current cash receipts.

35
<PAGE>

Although the Portfolio will seek to avoid significant noncash income, such
noncash income could be recognized by the Portfolio, in which case the Portfolio
may distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.

The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the Federal tax
considerations generally affecting investments in the Portfolio. Each investor
is urged to consult his or her tax advisor regarding specific questions as to
Federal, state, local or foreign taxes.

TRUSTEES AND OFFICERS

The trustees and executive officers of the Trust and their principal
occupations during the last five years are set forth below. The address of each,
unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Those directors who are "interested persons" of a Trust (as defined in the 1940
Act) are indicated by an asterisk(*).

<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- ------------- ---------------------
<S> <C> <C>
Edmund L. Benson, III, 60 Trustee Director, President and
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Trustee,
Suite 400 Nations Institutional Reserves
Richmond, VA 23219 and Nations Fund Trust, Director,
Nations Fund, Inc., Nations
LifeGoal Funds, Inc., and Nations
Fund Portfolios, Inc.

James Ermer, 54 Trustee Senior Vice President- Finance,
13705 Hickory Nut Point CSX Corporation (transportation
Midlothian, VA 23112 and natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation;
Trustee, Nations Institutional
Reserves and Nations Fund Trust;
Director, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.

36
<PAGE>

Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- ------------- ---------------------

William H. Grigg, 64 Trustee Chairman Emeritus, Duke Power
Duke Power Co. Co., since July, 1997; April 1994
422 South Church Street to July 1997, Chairman and Chief
PB04G Executive Officer; November 1991
Charlotte, NC 28242-0001 to April 1994, Vice Chairman,
from April 1988 to November 1991,
Executive Vice President --
Customer Group, Director, Coltec
Industries, Hatteras Income
Securities, Inc., Nations
Government Income Term Trust 2003,
Inc., Nations Government Income
Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund,
Inc., Nations Fund, Inc., Nations
LifeGoal Funds, Inc. and Nations
Fund Portfolios, Inc.; Trustee,
Nations Institutional Reserves and
Nations Fund Trust.

Thomas F. Keller, 65 Trustee R.J. Reynolds Industries
Fuqua School of Business Professor of Business
P.O. Box 90120 Administration and former Dean,
Duke University Fuqua School of Business, Duke
Durham, NC 27708 University; Director, LADD
Furniture, Inc.; Director, Wendy's
International Inc., American
Business Products, Dimon Inc.,
Biogen, Inc., Hatteras Income
Securities, Inc., Nations
Government Income Term Trust 2003,
Inc., Nations Government Income
Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund,
Inc., Nations Fund, Inc., Nations
LifeGoal Funds, Inc., and Nations
Fund Portfolios, Inc.; Trustee,
Nations Institutional Reserves,
Nations Fund Trust, the Mentor
Funds, Mentor Institutional Trust,
Cash Resource Trust.

Carl E. Mundy, Jr., 62 Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 22309 1995; Commanding General, Marine
Forces Atlantic, from June 1990 to
June 1991; Director, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.

James B. Sommers* Trustee President, NationsBank Trust,
from January 1992 to September
1996; Executive Vice President,
NationsBank Corporation, from
January 1992 to May 1997;
Principal, Bainbridge &
Associates; Partner, Villa LLC;
Chairman, Central Piedmont
Community College Foundation;
Trustee, Central Piedmont
Community College; Board of
Commissioners,
Charlotte/Mecklenberg Hospital
Authority; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.

37
<PAGE>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- ------------- ---------------------

A. Max Walker*, 75 President, Trustee and Financial consultant; Formerly,
4580 Windsor Gate Court Chairman of the Board President, A. Max Walker, Inc.;
Atlanta, GA 30342 Director and Chairman of the
Board, Hatteras Income Securities,
Inc., Nations Government Income
Term Trust 2003, Inc., Nations
Government Income Term Trust 2004,
Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.; President and Chairman of
the Board of Trustees, Nations
Institutional Reserves and Nations
Fund Trust.

Charles B. Walker, 58 Trustee Since 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial
330 South Fourth Street Officer and Treasurer, Ethyl
Richmond, VA 23219 Corporation (chemicals, plastics,
and aluminum manufacturing); since
1994, Vice Chairman, Ethyl
Corporation and Vice Chairman,
Chief Financial Officer and
Treasurer, Albemarle Corporation,
Director, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc, and
Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional
Reserves and Nations Fund Trust.

Thomas S. Word, Jr.*, 59 Trustee Partner, McGuire Woods Battle &
McGuire, Woods, Battle & Boothe Boothe (law); Director, Vaughan
One James Center Bassett Furniture Trust, Director
Richmond, VA 23219 VB Williams Furniture Trust,
Inc.; Director, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.

Richard H. Blank, Jr., 40 Secretary Since 1994, Vice President of
Stephens Inc. Mutual Fund Services, Stephens
Inc. 1990 to 1994, Manager Mutual
Portfolio Services, Stephens Inc.
1983 to 1990, Associate in
Corporate Finance Department,
Stephens Inc.; Secretary, Nations
Institutional Reserves, Nations
Fund Trust, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.

Michael W. Nolte, 36 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.

Louise P. Newcomb, 44 Assistant Secretary Corporate Syndicate Associate,
Stephens Inc. Stephens Inc.

James E. Banks, 41 Assistant Secretary Since 1993, Attorney, Stephens
Stephens Inc. Inc.; Associate Corporate
Counsel, Federated Investors; from
1991 to 1993, Staff Attorney,
Securities and Exchange Commission
from 1988 to 1991

38
<PAGE>

Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- ------------- ---------------------

Richard H. Rose, 42 Treasurer Since 1994, Vice President,
First Data Investor Services Group, Inc. Division Manager, First Data
(formerly, The Shareholder Services Group, Investor Services Group, Inc.
Inc.) since 1988, Senior Vice
One Exchange Place President, The Boston Company
Boston, MA 02109 Advisors. Inc.; Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.

Joseph C. Viselli, 33 Assistant Treasurer Since 1994, Director, First Data
First Data Investor Services Group, Inc. Investor Services Group, Inc.,
One Exchange Place since 1992, Assistant Vice
Boston, MA 02109 President, The Boston Company
Advisors, Inc., since 1989,
Senior Accountant, Price
Waterhouse LLP

Steven Levy, 32 Assistant Treasurer Since 1997, Vice President of
Fund Accounting, First Data
Investor Services Group, Inc.;
Prior to 1997, Investment
Operations Manager, Franklin
Templeton Group and Assistant
Vice President of Fund
Accounting, Scudder Stevens and
Clark, Inc.

</TABLE>

Mr. Rose serves as Treasurer to certain other investment company for
which First Data Investors Services Group, Inc.(formerly, The Shareholder
Services Group, Inc.) (the "Co-Administrator") or its affiliates serve as
sponsor, distributor, administrator and/or investment adviser.

Each Trustee of the Trust is also a Trustee of Nations Fund Trust and
Nations Institutional Reserves and a Director of Nations Fund, Inc., Nations
Fund Portfolios, Inc., and Nations LifeGoal Funds, Inc. each a registered
investment company that is part of the Nations Funds Family. Richard H. Blank,
Jr., Richard H. Rose, Joseph C. Viselli, Steven Levy, Michael W. Nolte, Louise
P. Newcomb and James E. Banks. Jr. also are officers of Nations Fund Trust,
Nations Institutional Reserves, Nations Fund Portfolios, Inc., Nations Fund,
Inc. and Nations LifeGoal Funds, Inc.

Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Portfolio of each Trust, plus (ii) a
fee of $1,000 for attendance at each "in-person" meeting of the Board of
Trustees (or committee thereof). All Trustees receive reimbursements for
expenses related to their attendance at meetings of the Board of Trustees.
Officers receive no direct remuneration in such capacity from the Trust. No
person who is an officer, , trustee, or employee of NationsBank or its
affiliates serves as an officer, trustee or employee of the Trust. As of the
date of this SAI, the trustees and officers of the Trust as a group owned less
than 1% of the outstanding shares of each of the Portfolios.

The Trust has adopted a Code of Ethics which, among other things,
prohibits each access person of the Trust from purchasing or selling securities
when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Portfolio, or (ii) was being purchased or sold by a Portfolio. For purposes of
the Code of Ethics, an access person means (i) a director or officer of a Trust,
(ii) any employee of a Trust (or any Trust in a control relationship with a
Trust) who, in the course of his/her regular duties, obtains information about,
or makes recommendations with respect to, the purchase or sale of securities by
a Trust, and (iii) any natural person in a control relationship with a Trust who
obtains information concerning recommendations made to a Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to a Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,

39
<PAGE>

the Code of Ethics generally requires that a Trust's access persons, other than
its "disinterested" directors, submit reports to a Trust's designated compliance
person regarding transactions involving securities which are eligible for
purchase by a Portfolio.

Nations Funds Retirement Plan

Under the terms of the Nations Funds Retirement Plan for Eligible
Trustees (the "Retirement Plan"), each director may be entitled to certain
benefits upon retirement from the Board of Trustees. Pursuant to the Retirement
Plan, the normal retirement date is the date on which the eligible trustee has
attained age 65 and has completed at least five years of continuous service with
one or more of the open-end investment company ("Portfolios") advised by the
Adviser. If a trustee retires before reaching age 65, no benefits are payable.
Each eligible trustee is entitled to receive an annual benefit from the
Portfolios commencing on the first day of the calendar quarter coincident with
or next following his date of retirement equal to 5% of the aggregate trustee's
fees payable by the Portfolios during the calendar year in which the trustee's
retirement occurs multiplied by the number of years of service (not in excess of
ten years of service) completed with respect to any of the Portfolios. Such
benefit is payable to each eligible trustee in quarterly installments for a
period of no more than five years. If an eligible trustee's dies after attaining
age 65, the trustees surviving spouse (if any) will be entitled to receive 50%
of the benefits that would have been paid (or would have continued to have been
paid) to the trustee if he had not died. The Retirement Plan is unfunded. The
benefits owed to each trustee are unsecured and subject to the general creditors
of the Portfolios.

Nations Funds Deferred Compensation Plan

Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Trustees (the "Deferred Compensation Plan"), each trustee may elect, on
an annual basis, to defer all or any portion of the annual board fees (including
the annual retainer and all attendance fees) payable to the trustee for that
calendar year. An application was submitted to and approved by the SEC to permit
deferring directors to elect to tie the rate of return on fees deferred pursuant
to the Deferred Compensation Plan to one or more of certain investment
portfolios of certain Portfolios. Distributions from the deferring trustees,
deferral accounts will be paid in cash, in generally equal quarterly
installments over a period of five years beginning on the date the deferring
trustees retirement benefits commence under the Retirement Plan. The Board of
Trustees, in its sole discretion, may accelerate or extend such payments after a
trustees, termination of service. If a deferring trustee dies prior to the
commencement of the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
lump sum as soon as practicable after the trustees, death. If a deferring
director dies after the commencement of such distribution, but prior to the
complete distribution of his deferral account, the balance of the amounts
credited to his deferral account will be distributed to his designated
beneficiary over the remaining period during which such amounts were
distributable to the director. Amounts payable under the Deferred Compensation
Plan are not funded or secured in any way and deferring trustees have the status
of unsecured creditors of the Portfolios from which they are deferring
compensation.

40
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
Pension or Retirement
Aggregate Benefits Accrued as Part Estimated Annual Total Compensation from
Name of Person Compensation from of Portfolio Benefits Upon Registrant and Portfolio
Position (1) NAT (2) Expenses Retirement Complex (3)(4)
------------ ------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, $11,535.67 $84,042.84
Trustee (50% Def'd)

James Ermer 11,535.67 46,716.94
Trustee

William H. Grigg 11,535.67 115,933.25
Trustee (100% Def'd)

Thomas F. Keller 11,535.67 124,575.75
Trustee (100% Def'd)

A. Max Walker 11,535.67 75,322.94
Chairman of the Board

Charles B. Walker 11,535.67 51,238.33
Trustee

Thomas S. Word 11,535.67 118,926.66
Trustee (100% Def'd)

James Sommers
Trustee

Carl E. Mundy, Jr. 11,535.67 52,092.00
--------- ---------
Trustee

$92,285.34 $668,848.71
========== ===========

</TABLE>

(1) All trustees receive reimbursements for expenses related to their
attendance at meetings of the Board of Trustees. Officers of the Trust receive
no direct remuneration in such capacity from the Trust.

(2) Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for
the Chairman of the Board) plus $500 for each Portfolio of the Trust, plus (ii)
a fee of $1,000 for attendance at each "in-person" meeting of the Board of
Trustees (or committee thereof) and $500 for attendance at each other meeting of
the Board of Trustees (or Committee thereof).

(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from
nine investment companies, including the Trust, that are deemed to be part of
the Nations Funds "fund complex," as that term is defined under Rule 14a-101 of
the Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer, C.
Walker, Mundy and Word receive compensation from six investment companies,
including the Trust, deemed to be part of the Nations Funds complex.

(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L. Benson,
III ($55,652.78); William H. Grigg ($102,683.25); Thomas F. Keller
($110,610.14); and Thomas S. Word ($114,008.63).

41
<PAGE>

Shareholder and Trustee Liability

Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, the Trust's Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder and
not because of his acts or omissions or some other reason. The Declaration of
Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and shall satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.

The Declaration of Trust states further that no Trustee, officer, or
agent of the Trust shall be personally liable for or on account of any contract,
debt, tort, claim, damage, judgment, or decree arising out of or connected with
the administration or preservation of the trust estate or the conduct of any
business of the Trust; nor shall any Trustee be personally liable to any person
for any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties as Trustee.
The Declaration of Trust also provides that all persons having any claim against
the Trustees or the Trust shall look solely to the trust property for payment.

With the exceptions stated, the Declaration of Trust provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee, and that the Trustees have the
power, but not the duty, to indemnify officers and employees of the Trust unless
any such person would not be entitled to indemnification had he or she been a
Trustee.

INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS

The Trust and Its Beneficial Interest

Nations Annuity Trust is an open-end diversified management investment
Trust organized as a corporation under the laws of the State of Delaware on
January __, 1998. NAT offers shares of beneficial interest which represent
interests in one of eight separate Portfolios. This SAI relates to the following
Portfolios of the Trust: the Nations Value Portfolio, Nations Disciplined Equity
Portfolio, Nations Marsico Selected Equities Portfolio, Nations Marsico Growth
Portfolio, Nations Managed Index Portfolio, Nations Managed SmallCap Index
Portfolio, Nations Balanced Assets Portfolio and Nations International Growth
Portfolio. Shares of each Portfolio of the Trust are redeemable at the net asset
value (less any applicable contingent deferred sales charge ("CDSC") thereof at
the option of the holders thereof or in certain circumstances at the option of
the Trust. For information concerning the methods of redemption and the rights
of share ownership, consult the Prospectuses under the captions "How To Buy
Shares," "How To Redeem Shares" and "Organization And History."

As used in this SAI and in the Prospectuses, the term "majority of the
outstanding shares" of a Trust, a particular Portfolio or a particular class of
shares of a Portfolio means, respectively, the vote of the lesser of (i) 67% or
more of the shares of the Trust, Portfolio or class (as appropriate) present at
a meeting of shareholders, if the holders of more than 50% of the outstanding
shares entitled to vote, are present or represented by proxy, or (ii) more than
50% of the outstanding shares of the Trust, Portfolio or class.

The Board of Trustees may classify or reclassify any unissued shares of
a Trust into shares of any class, classes or Portfolio in addition to those
already authorized by setting or changing in any one or more respects, from time
to time, prior to the issuance of such shares, the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption, of such shares and,
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any

42
<PAGE>

Portfolio or class. Any such classification or reclassification will comply with
the provisions of the 1940 Act. Fractional shares shall have the same rights as
full shares to the extent of their proportionate interest.

Investment Adviser

Effective upon inception of the Trust, NBAI serves as investment
adviser to the Portfolios of the Trust, pursuant to an Investment Advisory
Agreement and TradeStreet serves as investment sub-adviser to the Portfolios of
the Trust except Nations International Growth Portfolio, Nations Marsico
Selected Equities Portfolio and Nations Marsico Growth Portfolio pursuant to an
Investment Sub-Advisory Agreement entered into with the Trust. Marsico serves as
investment sub-adviser to Nations Marsico Selected Equities Portfolio and
Nations Marsico Growth Portfolio pursuant to an Investment Sub-Advisory
Agreement entered into with the Trust. Gartmore serves as investment sub-adviser
to Nations International Growth Portfolio pursuant to a Sub-Advisory Agreement.
All such agreements are effective as of January ___, 1998 for a period of two
years from such date.

NBAI also serves as the investment adviser to Nations Fund, Inc.,
Nations Fund Trust, Nations Fund Portfolios, Inc., Nations Institutional
Reserves and Nations LifeGoal Funds, Inc., each a registered investment company
that is part of the Nations Funds Family. In addition, NBAI serves as the
investment advisor 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. TradeStreet
also serves as the sub-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.

NBAI and TradeStreet are each wholly owned subsidiaries of Nations
Bank, N.A. ("NationsBank"), which in turn is a wholly owned banking subsidiary
of NationsBank Corporation, a bank holding Trust organized as a North Carolina
corporation. Gartmore is a joint venture structured as a Delaware general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank
and Gartmore U.S. Limited, an indirect wholly owned subsidiary of Gartmore
Investment Management plc ("Gartmore plc"), a publicly listed U.K. company.
National Westminster Bank plc and affiliated parties (collectively, "NatWest)
own 100% of the equity of Gartmore plc. Gartmore is a registered investment
adviser in the United States and a member of the Investment Management
Regulatory Organization Limited, a U.K. regulatory authority. The respective
principal offices of NBAI, TradeStreet and Gartmore are located at One
NationsBank Plaza, Charlotte, N.C. 28255. Marsico Capital Management, LLC is
located at 1200 17th Street, Suite 1300, Denver, CO 80202.

NationsBank is a wholly owned subsidiary of NationsBank Corporation, a
bank holding company organized as a North Carolina corporation. NationsBank and
NationsBank of Georgia, N.A. are wholly owned subsidiaries of NationsBank
Corporation.

Since 1874, NationsBank and its predecessors have been managing money
for foundations, universities, corporations, institutions and individuals.
Today, NationsBank affiliates collectively manage in excess of $50 billion,
including the more than $27 billion in mutual Portfolio assets. It is a Trust
dedicated to a goal of providing responsible investment management and superior
service. NationsBank is recognized for its sound investment approaches, which
place it among the nation's foremost financial institutions. NationsBank and its
affiliates organization makes available a wide range of financial services to
its over 6 million customers through over 1700 banking and investment centers.
Approximately 12 of NationsBank personnel are involved in stock and bond
research.

NationsBank restructured its investment management division as of
January 1, 1996 by reorganizing the division into two separate, wholly owned
advisory subsidiaries, NBAI and TradeStreet. The restructuring resulted in the
transfer of the division's investment management and advisory functions to NBAI,
and its day-to-day investment company portfolio management functions to
TradeStreet. The investment professionals who performed investment company
management functions and who managed the Trust portfolios as employees of
NationsBank continue to perform such services as employees of NBAI and
TradeStreet, respectively. The restructuring did not change the scope and nature
of investment advisory services provided to the relevant Portfolios. The
restructuring, and related
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Investment Advisory Agreements and Sub-Advisory Agreements, were approved by the
Board of Trustees of the Trust.

Pursuant to the terms of the Investment Advisory Agreement and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with NBAI,
TradeStreet, Gartmore and Marsico, respectively, subject at all times to the
control of the Trust's Board of Trustees and in conformance with the stated
policies of each of the Trust, NBAI, TradeStreet, Gartmore and Marsico each
selects and manages the investments of the Portfolios. Each such advisory entity
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the respective Portfolios.

The Advisory Agreements for NBAI, TradeStreet, Gartmore and Marsico
each provide that in the absence of willful misfeasance, bad faith, negligence
or reckless disregard of obligations or duties thereunder on the part of NBAI or
TradeStreet, Gartmore or Marsco, respectively, or any of their respective
officers, directors, employees or agents, NBAI, TradeStreet, Gartmore or Marsico
shall not be subject to liability to the Trust or to any shareholder of the
Trust for any act or omission in the course of, or connected with, rendering
services under thereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.

The Investment Advisory Agreement with NBAI shall become effective with
respect to a Portfolio if and when approved by the Trustees of a Trust, and if
so approved, shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Trust's Board of Trustees or (ii) the vote of "a majority of the
outstanding voting securities" of a Portfolio (as defined in Section 2(a)(42) of
the 1940 Act), and (b) the affirmative vote of a majority of the Trustees who
are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose. The
respective Investment Advisory Agreement will terminate automatically in the
event of its assignment, and is terminable with respect to a Portfolio at any
time without penalty by a Trust (by vote of the Board of Trustees or by vote of
a majority of the outstanding voting securities of the Portfolio) or by NBAI on
60 days' written notice.

The Sub-Advisory Agreement with TradeStreet shall become effective with
respect to the respective Portfolios as of its execution date and, unless sooner
terminated, shall continue in full force and effect for one year, and may be
continued with respect to each Portfolio thereafter, provided that the
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Trust's Board of Trustees (ii) the vote of "a majority of the
outstanding voting securities" of a Portfolio (as defined in Section 2(a)(42) of
the 1940 Act), and (b) the affirmative vote of a majority of the Trustees who
are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose. The
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Portfolio at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Portfolio), or by NBAI, or by
TradeStreet on 60 days' written notice.

The Sub-Advisory Agreement with Gartmore with respect to Nations
International Growth Portfolio shall become effective with respect to Nations
International Growth Portfolio as of its effective date. The Sub-Advisory
Agreement will continue in effect for an initial term of two years from its
effective date and continues in effect from year to year thereafter only if such
continuance is specifically approved at least annually by the Trust's Board of
Trustees and the affirmative vote of a majority of the directors who are not
parties to the Sub-Advisory Agreement or "interested persons" of any such party
by votes cast in person at a meeting called for such purpose. The respective
Portfolios, NBAI or Gartmore may terminate the Sub-Advisory Agreement, on 60
days' written notice without penalty. The Sub-Advisory Agreement terminates
automatically in the event of its "assignment," as defined in the 1940 Act. The
Sub-Advisory Agreement with Gartmore provides that Gartmore shall not be liable
to the Trust or to its shareholders for any act or omission by Gartmore or for
any loss sustained by the Trust or by its shareholders except in the case of
Gartmore's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of Gartmore, as the case may be.

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The Sub-Advisory Agreement with Marsico with respect to Nations Marsico
Selected Equities Portfolio and Nations Marsico Growth Portfolio will continue
in effect for an initial term of two years from its effective date and continues
in effect from year to year thereafter only if such continuance is specifically
approved at least annually by the Trust's Board of Trustees and the affirmative
vote of a majority of the Trustees who are not parties to the Sub-Advisory
Agreement or "interested persons" of any such party by votes cast in person at a
meeting called for such purpose. The respective Portfolios, NBAI or Marsico may
terminate the Sub-Advisory Agreement, on 60 days' written notice without
penalty. The Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act. The Sub-Advisory Agreement with
Marsico provides that Marsico shall not be liable to the Trust or to its
shareholders for any act or omission by Marsico or for any loss sustained by the
Trust or by its shareholders except in the case of Marsico's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty on the
part of Marsico, as the case may be.

NBAI, TradeStreet, Gartmore or Marsico may waive a portion of their
fees; however, any such waiver may be discontinued at any time. As discussed
under the caption "Expenses," NBAI, TradeStreet, Gartmore and Marsico will be
required to reduce their fees from the Portfolios, in direct proportion to the
fees payable by the Portfolios to NBAI, TradeStreet, Gartmore, Marsico and the
Administrator, if the expenses of the Portfolios exceed the applicable expense
limitation of any state in which the Portfolios' shares are registered or
qualified for sale.

NBAI may waive a portion of their fees; however, any such waiver may be
discontinued at any time. As discussed under the caption "Expenses," the Adviser
will be required to reduce their fees from the Portfolios, in direct proportion
to the fees payable by the Portfolios to the Adviser, the Sub-Adviser, the
Administrator and the Co-Administrator, if the expenses of the Portfolios exceed
the applicable expense limitation of any state in which the Portfolios' shares
are registered or qualified for sale.

Investment Styles

When you invest in any Portfolio in the Nations Funds Family, you can be
assured your money is managed according to a disciplined investment style; one
that remains constant regardless of particular styles coming in and out of
favor. The Adviser believes this structured approach to managing portfolio
securities may provide you with consistent performance over time. The Adviser
uses various investment strategies during the process of constructing and
managing the Portfolios. These strategies have been categorized into investment
styles which consist of (i) the NationsBank Value Equity Style, (ii) the
NationsBank Balanced Assets Style, (iii) the Nations Equity Income Style and
(iv) the Nations International Growth Style. Investment Styles described below
relate to Nations Value, Balanced , Diversified Income and International Growth
Portfolios.

NationsBank Value Equity Style. The Value Portfolio is managed by the
Adviser using the NationsBank Value Equity Style. The Value Equity Style
investment philosophy is premised on the belief that a well diversified
portfolio of undervalued Trust exhibiting low price/earnings ratios will over
time outperform the market while incurring lower than market risk.

This style utilizes a "bottom-up" approach to stock selection, focusing
on well proven factors of fundamental valuation. A low price/earnings ratio and
above market dividend yield are two of the biases which reduce market risk. A
catalyst for earnings improvement is also one of this Style's requirements as it
assists with the "timing" of the purchase of a particular Trust.

Stock selection process begins with a team of 10 in-house research
specialists aided by a computerized screening model. Starting with approximately
a 2,000 Trust universe, stocks must first pass a rigorous screening process that
selects only those Trust that possess strong financial quality and a market
capitalization greater than $500 million. This results in a universe of
approximately 900 Trust, representing all of the 54 major U.S.
industries and approximately 10 economic sectors.

A more sophisticated screening process is then applied to the 900 Trust
universe. The Trust are then ranked based on the following factor weightings:

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The top one-third, or approximately 300 Trust, result in the final
universe from which the industry specialists make initial selections for a
Portfolio. To insure adherence to the discipline, price objectives (buy and sell
prices) are set for each Trust purchased, based on sound fundamental analysis. A
final diversified portfolio of approximately 65 issues is constructed by the
Value Equity Style Group Senior Portfolio Managers working closely with in-house
industry specialists, as well as expert Wall Street sources.

In summary, the low price/earnings ratio, value discipline seeks to
produce a well diversified portfolio of high quality Trust, that over time,
should outperform the market, thereby adding value while incurring below-market
risk.

NationsBank Balanced Asset Style. The Balanced Assets Portfolio is
managed by the Adviser using the NationsBank Balanced Assets Style. The
NationsBank Balanced Asset Style investment philosophy is premised on the belief
that a diversified portfolio of stocks, fixed income, and money market
securities will provide total investment return through a combination of growth
of capital and current income consistent with preservation of capital.

In order to pursue this goal, the Balanced Asset Style utilizes an
asset allocation approach. Asset allocation is a process of allocating a
portfolio's market value among major asset classes (equities, fixed income, and
cash equivalents). Different asset classes have unique return and risk
characteristics. The principle behind asset allocations is that a diversified
portfolio of equities, fixed income, and cash equivalents with different
return/risk characteristics will reduce overall portfolio risk in both up and
down markets.

The asset allocation process begins by making projections for stock,
bond and cash returns and risk profiles. A computer data analysis identifies the
highest expected return and measures it against the minimum return requirements
for the balanced strategy. Recommendations are made to an Investment Policy
Committee who reviews and approves asset class allocations.

The stock, bond and asset allocation recommendations are then passed
onto the Balanced Asset Group Senior Portfolio Managers who make the final
investment decisions. The Portfolio Managers have the ability to change the
portfolio's holdings to take advantage of changing market conditions, while
seeking an optimal balance of income, stability, and growth. Most stock
investments will be made in Trust with above average earnings and dividend
prospects and overall financial market stability. All bond purchases will be
investment grade or above. Cash instruments will provide liquidity.

In summary, the Balanced Asset Style should provide total investment
return through a combination of growth of capital and current income consistent
with preservation of capital.

NationsBank Disciplined Equity Style. The Disciplined Equity Portfolio
is managed by the Adviser using the NationsBank Disciplined Equity Style. The
NationsBank Disciplined Equity Style investment philosophy seeks to identify
Trust which offer future near-term earnings momentum.

The Adviser pursues this investment philosophy through the use of a
proprietary computerized tracking system (the "Alpha Model") which monitors the
earnings per share estimates of approximately 3,000 Wall Street analysts, and
through conventional security analysis. In utilizing the computerized tracking
system, the Adviser identifies Trust with respect to which there has been a
change in the consensus analyst estimate of earnings per share. The Adviser
believes that such a change often signifies the beginning of a trend for the
Trust, rather than an isolated occurrence, and that such trend ultimately will
be reflected in the share price of the Trust. The Adviser then buys or sells
stocks for the Portfolio based on the results of this analysis.

In selecting stocks pursuant to the NationsBank Disciplined Equity
Style, the Adviser also uses conventional security analysis techniques. Starting
with a universe of approximately 2,000 Trust with large market capitalization's,
the Adviser eliminates stocks that have relatively low trading activity, as well
as stocks of Trust of poor credit quality and those which, in the opinion of the
Adviser, are overpriced. From the available pool of stocks that meet all of the
criteria, approximately 40 to 50 are selected for inclusion in the Portfolio's
portfolio.

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International Growth Style. The International Growth Style investment
philosophy is premised on the belief that a diversified portfolio of equity
securities of established, non-United States issuers can provide long-term
growth of capital and income.

This style focuses on the country selection process by utilizing
macroeconomic forecasts to identify areas of the world which will exhibit
relatively strong growth within the context of a modest inflation and low
interest rate environment. The political factors and market liquidity
constraints which can affect stock market valuations are also taken into
consideration by the Adviser prior to making stock selections.

The stock selection process begins with the elimination of equity
securities with a market capitalization of less than $250 million. The next step
in the process is the ranking of each country and industry sector by relative
price/earnings ratio using an historical range of not less than ten years from
an universe of approximately 1000 stocks. In addition to the relative historical
price/earnings ratio the portfolio managers also employ a fundamental analysis
of growth opportunities, management and future direction of these stocks.

The International Growth Portfolio is a dollar-denominated mutual fund and
therefore, consideration is given to hedging part or all of the portfolio back
to U.S. dollars from international currencies. All decisions to hedge are based
upon an analysis of the relative value of the U.S. dollar on an international
purchasing power parity basis (purchasing power parity is a method for
determining the relative purchasing power of different currencies by comparing
the amount of each currency required to purchase a typical bundle of goods and
services to domestic markets) and an estimation of short-term interest rate
differentials (which affect both the direction of currency movements and also
the cost of hedging).

Administrator and Co-Administrator

Stephens Inc. (the "Administrator") serves as administrator of the
Trust and First Data Investors Services Group, Inc. (formerly, The Shareholder
Services Group, Inc.) (the "Co-Administrator") serves as the co-administrator of
the Trust.

The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and co-administration agreement
("Co-Administration Agreement"), respectively, each of which was approved by the
Board of Trustees on January ___, 1998 for a period of two years. The
Administrator receives, as compensation for its services rendered under the
Administration Agreement and as agent for the Co-Administrator for the services
it provides under the Co-Administration Agreement, an administrative fee,
computed daily and paid monthly, at the annual rate of 0.10% of the average
daily net assets of each Portfolio.

Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Portfolios, (ii)
furnish statistical and research data, data processing, clerical, and internal
executive and administrative services to each Trust, (iii) furnish corporate
secretarial services to each Trust, including coordinating the preparation and
distribution of materials for Board of Trustees meetings, (iv) coordinate the
provision of legal advice to each Trust with respect to regulatory matters, (v)
coordinate the preparation of reports to each Trust's shareholders and the SEC,
including annual and semi-annual reports, (vi) coordinating the provision of
services to each Trust by the Co-Administrator, the Transfer Agents and the
Custodians, and (vii) generally assist in all aspects of each Trust's
operations. Additionally, the Administrator is authorized to receive, as agent
for the Co-Administrator, the fees payable to the Co-Administrator by each Trust
for its services rendered under the Co-Administration Agreement. The
Administrator bears all expenses incurred in connection with the performance of
its services.

Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the Portfolios, (ii) compute each Portfolio's net asset value and net
income, (iii) accumulate information required for the Trust's reports to
shareholders and the SEC, (iv) prepare and file each Trust's federal and state
tax returns, (v) perform monthly compliance testing for the Trust, and (vi)
prepare and furnish the Trust monthly broker security transaction summaries and
transaction listings and performance information. The Co-Administrator bears all
expenses incurred in connection with the performance of its services.

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The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Trustees or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Portfolios or to their shareholders except in the case of the Administrator's or
Co-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.

Custodian and Transfer Agent

First Data, a wholly owned subsidiary of First Data Corporation, which
is located at One Exchange Place, Boston, Massachusetts 02109, acts as transfer
agent for the Trust's Shares. Under the transfer agency agreements, the transfer
agent maintains the shareholder account records for the Trust, handles certain
communications between shareholders and the Trust, and distributes dividends and
distributions payable by the Trust to shareholders, and produces statements with
respect to account activity for the Trust and its shareholders for these
services. The transfer agent receives a monthly fee computed on the basis of the
number of shareholder accounts that it maintains for the Trust during the month
and is reimbursed for out-of-pocket expenses. NationsBank of Texas, N.A., 901
Main Street, Dallas, Texas 75201, serves as sub-transfer agent for each
Portfolio's Primary A and Primary B Shares.

NationsBank of Texas, N.A., serves as custodian for the Portfolio
securities and cash of each Portfolio. As custodian, NationsBank of Texas, N.A.,
maintains custody of such Portfolios' securities, cash and other property,
delivers securities against payment upon sale and pays for securities against
delivery upon purchase, makes payments on behalf of such Portfolios for payments
of dividends, distributions and redemptions, endorses and collects on behalf of
such Portfolios all checks, and receives all dividends and other distributions
made on securities owned by such Portfolios. For such services, NationsBank of
Texas, N.A., is entitled to receive, in addition to out-of-pocket expenses,
fees, payable monthly (i) at the rate of 1.25% of 1% of the amortized cost value
of the average daily net assets of each Portfolio, (ii) $10.00 per repurchase
collateral transaction by each Portfolio, and (iii) $15.00 per purchase, sale
and maturity transaction involving each Portfolio. NationsBank of Texas, N.A. is
a wholly owned subsidiary of NationsBank Corp.

Bank of New York, 90 Washington Street, New York, New York 10286,
serves as sub-custodian for the portfolio securities and cash of all the
Portfolios.

As discussed under the caption "Expenses," the Administrator and
Co-Administrator will be required to reduce their fee from the Trust, in direct
proportion to the fees payable to the Administrator and Co-Administrator by the
Trust, if the expenses of the Trust exceed the applicable expense limitation of
any state in which the Portfolios' shares are registered or qualified for sale.

Shareholder Servicing Arrangements

The Trustees have approved a Shareholder Servicing Plan ("Servicing
Plan") with respect to Shares of the Portfolios (the "Servicing Plan"). Pursuant
to the Servicing Plan, each Portfolio may pay banks, broker/dealers or other
financial institutions that have entered into a Shareholder Servicing Agreement
with the Trust ("Servicing Agents") for certain expenses that are incurred by
the Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Servicing Plan will be
calculated daily and paid monthly at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Portfolios' Shares. The shareholder services
provided by the Servicing Agents may include (i) aggregating and processing
purchase and redemption requests for such Shares from Customers and transmitting
promptly net purchase and redemption orders to our distributor or transfer
agent; (ii) providing Customers with a service that invests the assets of their
accounts in such Shares pursuant to specific or pre-authorized instructions;
(iii) dividend and distribution payments from the Trust on behalf of Customers;
(iv) providing information periodically to Customers showing their positions in
such Shares; (v) arranging for bank wires; (vi) responding to Customers'
inquiries concerning their investment in such Shares; (vii) providing
sub-accounting with respect to such Plan beneficially owned by Customers or
providing the information to us necessary

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for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Trust (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers; (ix) forwarding to Customers proxy statements and proxies containing
any proposals regarding the Shareholder Servicing Agreement; (x) providing
general shareholder liaison services; and (xi) providing such other similar
services as the Trust may reasonably request to the extent the Servicing Agent
is permitted to do so under applicable statutes, rules or regulations.

Expenses

The Administrator furnishes, without additional cost to the Trust, the
services of the Treasurer and Secretary of the Trust and such other personnel
(other than the personnel of the Adviser) as are required for the proper conduct
of the Trust's affairs. The Distributor bears the incremental expenses of
printing and distributing prospectuses used by the Distributor or furnished by
the Distributor to investors in connection with the public offering of the
Trust's shares and the costs of any other promotional or sales literature.

The Trust pays or causes to be paid all other expenses of the Trust,
including, without limitation: the fees of the Adviser, the Administrator and
Co-Administrator; the charges and expenses of any registrar, any custodian or
depository appointed by the Trust for the safekeeping of its cash, Portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Trust; brokerage commissions chargeable to the
Trust in connection with Portfolio securities transactions to which the Trust is
a party; all taxes, including securities issuance and transfer taxes; corporate
fees payable by the Trust to federal, state or other governmental agencies; all
costs and expenses in connection with the registration and maintenance of
registration of the Trust and its shares with the SEC and various states and
other jurisdictions (including filing fees, legal fees and disbursements of
counsel); the costs and expenses of typesetting prospectuses and statements of
additional information of the Trust (including supplements thereto) and periodic
reports and of printing and distributing such prospectuses and statements of
additional information (including supplements thereto) to the Trust's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of directors or director members of any advisory board
or committee; all expenses incident to the payment of any dividend or
distribution, whether in shares or cash; charges and expenses of any outside
service used for pricing of the Trust's shares; fees and expenses of legal
counsel and of independent auditors in connection with any matter relating to
the Trust; membership dues of industry associations; interest payable on Trust
borrowings; postage and long-distance telephone charges; insurance premiums on
property or personnel (including officers and directors) of the Trust which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Trust's operation
unless otherwise explicitly assumed by the Adviser), the Administrator or
Co-Administrator.

Expenses of the Trust which are not directly attributable to the
operations of any class of shares or Portfolio are pro-rated among all classes
of shares or Portfolio of the Trust based upon the relative net assets of each
class or Portfolio. Expenses of the Trust which are not directly attributable to
a specific class of shares but are directly attributable to a specific Portfolio
are prorated among all the classes of shares of such Portfolio based upon the
relative net assets of each such class of shares. Expenses of the Trust which
are directly attributable to a class of shares are charged against the income
available for distribution as dividends to such class of shares.

The Advisory Agreement, the Sub-Advisory Agreements, and the
Administration Agreement require NBAI, TradeStreet, Gartmore, Marsico, and the
Administrator to reduce their fees to the extent required to satisfy any expense
limitations which may be imposed by the securities laws or regulations
thereunder of any state in which a Portfolio's shares are registered or
qualified for sale, as such limitations may be raised or lowered from time to
time, and the aggregate of all such investment advisory, sub-advisory, and
administration fees shall be reduced by the amount of such excess. The amount of
any such reduction to be borne by NBAI, TradeStreet, Marsico or the
Administrator shall be deducted from the monthly investment advisory and
administration fees otherwise payable to NBAI, TradeStreet, Gartmore, Marsico
and the Administrator during such fiscal year. If required pursuant to such
state securities regulations, NBAI, TradeStreet, Gartmore, Marsico and the
Administrator will reimburse the Trust no later than the last day of the first
month of the next succeeding fiscal year, for any such annual operating expenses
(after reduction of all investment advisory and administration fees in excess of
such limitation).

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Transfer Agents and Custodians

First Data Investors Services Group, Inc. is located at One Exchange
Place, 53 State Street, Boston, Massachusetts 02109, and acts as transfer agent
for the Trust's Primary Shares and Investor Shares. Under the transfer agency
agreements, the transfer agent maintains shareholder account records for the
Trust, handles certain communications between shareholders and the Trust, and
distributes dividends and distributions payable by the Trust to shareholders,
and produces statements with respect to account activity for the Trust and its
shareholders for these services. The transfer agent receives a monthly fee
computed on the basis of the number of shareholder accounts that it maintains
for the Trust during the month and is reimbursed for out-of-pocket expenses.

NationsBank of Texas, N.A., ("NationsBank of Texas") 901 Main Street,
Dallas, Texas 75201, serves as sub-transfer agent for each Portfolio's Primary
Shares. As such custodian, NationsBank of Texas, maintains custody of such
Portfolios' securities cash and other property, delivers securities against
payment upon sale and pays for securities against delivery upon purchase, makes
payments on behalf of such Portfolios for payments of dividends, distributions
and redemptions, endorses and collects on behalf of such Portfolios all checks,
and receives all dividends and other distributions made on securities owned by
such Portfolios.

The Bank of New York ("BONY"), Avenue des Arts, 35 1040 Brussels,
Belgium serves as custodian for the portfolio securities and cash of the
International Equity Portfolio.

The Bank of New York, 90 Washington Street, New York, New York 10286,
serves as sub-custodian for the portfolio securities and cash of all the
Portfolios, except the International Portfolios, for which BONY is already
serving as custodian.

DISTRIBUTOR

Stephens Inc. (the "Distributor") serves as the principal underwriter
and distributor of the shares of the Portfolios.

Pursuant to a distribution agreement (the "Distribution Agreement"),
the Distributor, as agent, sells shares of the Portfolios on a continuous basis
and transmits purchase and redemption orders that its receives to the Trust or
the Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Portfolios, including, but not limited to,
advertising, compensation of underwriters, dealers and sales personnel, the
printing of prospectuses to other than existing shareholders, and the printing
and mailing of sales literature. The Distributor, however, may be reimbursed for
all or a portion of such expenses to the extent permitted by a distribution plan
adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act.

The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Trustees or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Portfolio and (ii) a majority of the directors who are not
parties to the Distribution Agreement or "interested persons" of any such party
by a vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Portfolio,
without penalty, on 60 days' notice by the Board of Trustees, the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Portfolio, or by the Distributor.

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INDEPENDENT ACCOUNTANT AND REPORTS

At least semi-annually, the Trust will furnish shareholders of the
Portfolios with a list of the investments held in the Portfolios and financial
statements for the Portfolios. The annual financial statements will be audited
by the Trust's independent accountant. The Board of Trustees has selected Price
Waterhouse, LLP, 160 Federal Street, Boston, Massachusetts, 02110 as the Trust's
independent accountant to audit the Trust's books and review the Trust's tax
returns.

The Annual Reports, when available, will be sent free of charge with
this SAI to any shareholder who requests this SAI.

COUNSEL

Morrison & Foerster LLP serves as legal counsel to the Trust. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.

ADDITIONAL INFORMATION ON PERFORMANCE

Yield information and other performance information for the Trust's
Portfolios may be obtained by calling the Trust at (800) 321-7854.

From time to time, the yield and total return of a Portfolio's Shares
may be quoted in advertisements, shareholder reports, and other communications
to shareholders. Each Portfolio of the Trust also may quote information obtained
from the Investment Company Institute in its advertising materials and sales
literature. In addition, certain potential benefits of investing in world
securities markets may be discussed in promotional materials. Such benefits
include, but are not limited to: a) the expanded opportunities for investment in
securities markets outside the U.S.; b) the growth of securities markets outside
the U.S. vis-a-vis U.S. markets; c) the relative return associated with foreign
securities markets vis-a-vis U.S. markets; and d) a reduced risk of portfolio
volatility resulting from a diversified securities portfolio consisting of both
U.S. and foreign securities. Performance information is available by calling
1-800-321-7854 with respect to Shares.

Yield Calculations

The yield of the Shares of the Portfolios is a measure of the net
investment income per share (as defined) earned over a 30-day period expressed
as a percentage of the maximum offering price of a share of such classes at the
end of the period.

The Trust's yield figures are determined by dividing the net investment
income per share earned during the specified 30-day period by the maximum
offering price per share on the last day of the period, according to the
following formula:

<TABLE>

Yield = 2[(a-b + 1)(6) power -1]
cd
<S> <C> <C>
Where: a = dividends and interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = average daily number of shares outstanding during the period that were entitled to
receive dividends

d = maximum offering price per share on the last day of the period
</TABLE>

For purposes of yield quotation, income is calculated in accordance
with standardized methods applicable to all stock and bond mutual funds. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with

51
<PAGE>

respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses are excluded from the calculation.

Income calculated for the purposes of calculating a Portfolio's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Portfolio may differ from the rate of
distributions a Portfolio paid over the same period or the rate of income
reported in the Portfolios' financial statements.

Total Return Calculations

Total return measures both the net investment income generated by, and
the effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Portfolio. The Portfolios' average annual and
cumulative total return figures are computed in accordance with the standardized
methods prescribed by the SEC.

Average annual total return figures are computed by determining the
average annual compounded rates of return over the periods indicated in the
advertisement, sales literature or shareholders' report that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:

P(1 + T)n = ERV

Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV= ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period.

This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.

Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

CTR = (ERV-P) 100
P

Where: CTR = Cumulative total return

ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period

P = initial payment of $1,000.

Each Portfolio may quote information obtained from the Investment
Company Institute, national financial publications, trade journals and other
industry sources in its advertising and sales literature. In addition, the

52
<PAGE>

Portfolios also may compare the performance and yield of a class or series of
shares to those of other funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance and yield of a class of shares in a Portfolio may
be compared to data prepared by Lipper Analytical Services, Inc. Performance and
yield data as reported in national financial publications such as Money
Magazine, Forbes, Barron's, The Wall Street Journal, and The New York Times, or
in publications of a local or regional nature, also may be used in comparing the
performance of a class of shares in a Portfolio.

Any given performance comparison should not be considered
representative of a Portfolio's performance for any future period.

MISCELLANEOUS

Certain Record Holders

As of the date of this SAI, NationsBank Corporation and its affiliates
owned of record more than 25% of the outstanding shares of the Trust acting as
agent, fiduciary, or custodian for its customers and may be deemed a controlling
person of the Trust under the 1940 Act.

53
<PAGE>

SCHEDULE A

DESCRIPTION OF RATINGS

The following summarizes the highest six ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal bonds. The first four
ratings denote investment-grade securities.

AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest
and repay principal.

AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.

A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.

BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those
in higher-rated categories.

BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt
rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal.

To provide more detailed indications of credit quality, the AA, A and
BBB, BB and B ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.

The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal bonds. The first
four denote investment grade securities.

Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.

Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.

A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.

Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but

A-1
<PAGE>

certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not as well safeguarded during both good times and bad times over
the future. Uncertainty of position characterizes bonds in this class.

B - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.

The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.

AAA - Bonds that are rated AAA are of the highest credit quality.
The risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.

AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.

A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and greater
in periods of economic stress.

BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.

To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.

The following summarizes the highest four ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the
securities are investment grade:

AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.

AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.

A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and

A-2
<PAGE>

circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.

To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.

The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable-rate demand obligations:

MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.

The following summarizes the two highest ratings used by S&P for
short-term municipal notes:

SP-1 - Indicates very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.

SP-2 - Indicates satisfactory capacity to pay principal and interest.

The three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of Portfolios, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and Trust
fundamentals are sound. Although ongoing Portfolioing needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.

The following summarizes the two highest rating categories used by
Fitch for short-term obligations each of which denotes that the securities are
investment grade:

F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.

F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.

F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.

Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.

A-3
<PAGE>

The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

For commercial paper, D&P uses the short-term debt ratings described
above.

For commercial paper, Fitch uses the short-term debt ratings described
above.

Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding Trust and operating subsidiaries. BankWatch
ratings do not constitute a recommendation to buy or sell securities of any of
these Trust. Further, BankWatch does not suggest specific investment criteria
for individual clients.

BankWatch long-term ratings apply to specific issues of long-term debt
and preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:

AAA - The highest category; indicates ability to repay principal
and interest on a timely basis is extremely high.

AA - The second highest category; indicates a very strong ability
to repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.

A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.

Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.

The BankWatch short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned. The BankWatch short-term ratings specifically
assess the likelihood of an untimely payment of principal or interest.

TBW-1 The highest category; indicates a very high
likelihood that principal and interest will be paid
on a timely basis.

TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".

TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.

A-4
<PAGE>

TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.

The following summarizes the four highest long-term debt ratings used
by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):

AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
significantly.

AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.

A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.

BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.

A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.

The following summarizes the two highest short-term debt ratings used by
IBCA:

A1+ When issues possess a particularly strong credit feature, a
rating of A1+ is assigned.

A1 - Obligations supported by the highest capacity for timely
repayment.

A2 - Obligations supported by a good capacity for timely repayment.

A-5
<PAGE>

SCHEDULE B

ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES

As stated in the Prospectus, each Portfolio, may enter into futures
contracts and options for hedging purposes. Such transactions are described in
this Schedule. During the current fiscal year, each of these Portfolios intends
to limit its transactions in futures contracts and options so that not more than
5% of the Portfolio's net assets are at risk. Furthermore, in no event would any
Portfolio purchase or sell futures contracts, or related options thereon, for
hedging purposes if, immediately thereafter, the aggregate initial margin that
is required to be posted by the Portfolio under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Portfolio on its open futures options positions, exceeds 5% of the
Portfolio's total assets, after taking into account any unrealized profits and
unrealized losses on the Portfolio's open contracts and excluding the amount
that a futures option is "in-the-money" at the time of purchase. (An option to
buy a futures contract is "in-the-money" if the value of the contract that is
subject to the option exceeds the exercise price; an option to sell a futures
contract is "in-the-money" if the exercise Price exceeds the value of the
contract that is subject of the option.)

I. Interest Rate Futures Contracts.

Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Portfolio may use interest rate futures as a
defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.

A Portfolio presently could accomplish a similar result to that which
it hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Portfolio, through using futures contracts.

Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.

Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Portfolio's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Portfolio is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Portfolio pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Portfolio's entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Portfolio realizes a gain, and if the purchase
price exceeds the offsetting sale price, the Portfolio realizes a loss.

B-1
<PAGE>

Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Portfolio would
deal only in standardized contracts on recognized changes. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.

A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Portfolios may trade in any futures contract
for which there exists a public market, including, without limitation, the
foregoing instruments.

Examples of Futures Contract Sale. A Portfolio would engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise act Trust a decline in long-term
securities prices. Assume that the market value of a certain security in a
Portfolio tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury Bonds"). The Adviser wishes to fix the
current market value of this portfolio security until some point in the future.
Assume the portfolio security has a market value of 100, and the Adviser
believes that, because of an anticipated rise in interest rates, the value will
decline to 95. The Portfolio might enter into futures contract sales of Treasury
bonds for an equivalent of 98. If the market value of the portfolio securities
does indeed decline from 100 to 95, the equivalent futures market price for the
Treasury bonds might also decline from 98 to 93.

In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.

The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.

If interest rate levels did not change, the Portfolio in the above
example might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.

Examples of Future Contract Purchase. A Portfolio would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Portfolio's basic motivation would be to maintain for a
time the income advantage from investing in the short-term securities; the
Portfolio would be endeavoring at the same time to eliminate the effect of all
or part of an expected increase in market price of the long-term bonds that the
Portfolio may purchase.

For example, assume that the market price of a long-term bond that the
Portfolio may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The Adviser wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the long-term
bond has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Portfolio might
enter into futures contracts purchases of Treasury bonds for an equivalent price
of 98. At the same time, the Portfolio would assign a pool of investments in
short-term securities that are either maturing in four months or earmarked for
sale in four months, for purchase of the long-term bond at an assumed market
price of 100. Assume these short-term securities are yielding 15%. If the market
price of the long-

B-2
<PAGE>

term bond does indeed rise from 100 to 105, the equivalent futures market price
for Treasury bonds might also rise from 98 to 103. In that case, the 5-point
increase in the price that the Portfolio pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
Purchase.

The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Portfolio would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.

If, however, short-term rates remained above available long-term rates,
it is possible that the Portfolio would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.

In each transaction, expenses also would be incurred.

II. Index Futures Contracts.

A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.

A Portfolio will sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Portfolio may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, a
Portfolio will purchase index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, the Portfolio will
purchase such securities upon termination of the long futures position, but a
long futures position may be terminated without a corresponding purchase of
securities.

In addition, a Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
A Portfolio also may sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of the portfolio will decline prior to the
time of sale.

The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).

B-3
<PAGE>

ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection Protect Against Increasing Price

Portfolio Futures

-Day Hedge is Placed

Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract

-Day Hedge is Lifted-

Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500

HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective Protect Against Declining (Value of the Portfolio)

Factors

Value of Stock Portfolio = $1,000,000 Value of Futures Contract = 125 x $500 =
$62,500 Portfolio Beta Relative to the Index - 1 0

Portfolio Futures

-Day Hedge is Placed

Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000

-Day Hedge is Lifted-

Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000

If, however, the market moved in the opposite direction, that is, market
value decreased and the Portfolio had entered into an anticipatory purchase
hedge, or market value increased and the Portfolio had hedged its stock
portfolio, the results of the Portfolio's transactions in stock index futures
would be as set forth below.

B-4
<PAGE>

ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price

Portfolio Futures

-Day Hedge is Placed

Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract

-Day Hedge is Lifted-

Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $2,500 Contract

HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio

Factors

Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 =$62,500
Portfolio Beta Relative to the Index - 1 0

Portfolio Futures

-Day Hedge is Placed

Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000

-Day Hedge is Lifted-

Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000

III. Margin Payments

Unlike when a Portfolio purchases or sells a security, no price is paid
or received by the Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with the Portfolio's Custodian an amount of cash or cash
equivalents, the value, of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of Portfolios by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied.

B-5
<PAGE>

Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying security or index
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as marking to the market. For example, when a
Portfolio has purchased a futures contract and the price of the contract has
risen in response to a rise in the underlying instruments, that position will
have increased in value and the Portfolio will be entitled to receive from the
broker a variation margin payment equal to that increase in value. Conversely,
where a Portfolio has purchased a futures contract and the price of the futures
contract has declined in response to a decrease in the underlying instruments,
the position would be less valuable, the Portfolio would be required to make a
variation margin payment to the broker. At any time prior to expiration of the
futures contract, the Adviser may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which will
operate to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.

IV. Risks of Transactions in Futures Contracts

There are several risks in connection with the use of futures by a
Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of securities being hedged has moved in an unfavorable direction, the
Portfolio would be in a better position than if it had not hedged at Al. If the
price of the securities being hedged has moved in a favorable direction, this
advance will be partially offset by the loss on the future. If the price of the
future moves more than the price of the hedged securities, the Portfolio
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge.

To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of futures contracts, a
Portfolio may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, a Portfolio may buy or sell fewer
futures contracts if the volatility over a particular time period of the prices
of the securities being hedged is less than the volatility over such time period
of the futures contract being used, or if otherwise deemed to be appropriate by
the Adviser. It also is possible that, where a Portfolio has sold futures to
hedge its portfolio against a decline in the market, the market may advance, and
the value of securities held by the Portfolio may decline. If this occurred, the
Portfolio would lose money on the future and also experience a decline in value
in its portfolio securities.

Where futures are purchased to hedge against a possible increase in the
price of securities before a Portfolio is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Portfolio then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, the Portfolio will realize a loss
on the futures contract that is not offset by a reduction in the price of
securities purchased.

In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the
Portfolio's Custodian and/or in a margin account with a broker to collateralized
the position and thereby insure that the use of such futures is unleveraged.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking

B-6
<PAGE>

delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.

Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.

Successful use of futures by a Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Portfolio has hedged against the possibility of a decline in
the market adversely affecting securities held in its portfolio and securities
prices increase instead, the Portfolio will lose part or all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. A
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.

V. Options on Futures Contracts.

The Portfolios may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.

Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Portfolio because the maximum amount at risk is the premium
paid for the options (plus transaction costs).

B-7
<PAGE>

Although permitted by their fundamental investment policies, the Portfolios do
not currently intend to write future options, and will not do so in the future
absent any necessary regulatory approvals.

Accounting and Tax Treatment.

Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.

Generally, futures contracts and options on futures contracts held by a
Portfolio at the close of the Portfolio's taxable year will be treated for
Federal income tax purposes as sold for their fair market value on the last
business day of such year, a process known as "marking-to-market." Forty percent
(40%) of any gains or loss resulting from such constructive sale will be treated
as short-term capital gain or loss and sixty percent (60%) of such gain or loss
will be treated as long-term capital gain or loss without regard to the length
of time the Portfolio holds the futures contract or option (the "40%-60% rule").
The amount of any capital gain or loss actually realized by a Portfolio in a
subsequent sale or other disposition of those futures contracts will be adjusted
to reflect any capital gain or loss taken into account by the Portfolio in a
prior year as a result of the constructive sale of the contracts and options.
With respect to futures contracts to sell or options which will be regarded as
parts of a "mixed straddle" because their values fluctuate inversely to the
values of specific securities held by the Portfolio, losses as to such contracts
to sell or options will be subject to certain loss deferral rules which limit
the amount of loss currently deductible on either part of the straddle to the
amount thereof which exceeds the unrecognized gain (if any) with respect to the
other part of the straddle, and to certain wash sales regulations. Under short
sales rules, which also will be applicable, the holding period of the securities
forming part of the straddle will (if they have not been held for the long-term
holding period) be deemed not to begin prior to termination of the straddle.
With respect to certain futures contracts and options, deductions for interest
and carrying charges will not be allowed. Notwithstanding the rules described
above, with respect to futures contracts to sell which are properly identified
as such and certain options, a Portfolio may make an election which will except
(in whole or in part) those identified futures contracts or options from being
treated for Federal income tax purposes as sold on the last business day of the
Portfolio's taxable year, but gains and losses will be subject to such short
sales, wash sales, loss deferral rules and the requirement to capitalize
interest and carrying charges. Under temporary regulations, a Portfolio would be
allowed (in lieu of the foregoing) to elect to either (1) offset gains or losses
from portions which are part of a mixed straddle by separately identifying each
mixed straddle to which such treatment applies, or (2) establish a mixed
straddle account for which gains and losses would be recognized and offset on a
periodic basis during the taxable year. Under either election, the 40%-60% rule
will apply to the net gain or loss attributable to the futures contracts, but in
the case of a mixed straddle account election, not more than 50% of any net gain
may be treated as long-term and not more than 40% of any net loss may be treated
as short-term.

Certain foreign currency contracts entered into by a Portfolio may be
subject to the "marking-to-market" process and the 40%-60% rule in a manner
similar to that described in the preceding paragraph for futures contracts and
options on futures contracts. To receive such Federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
Other foreign currency contracts entered into by a Portfolio may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.

As described more fully in the section of the SAI entitled "Additional
Information Concerning Taxes," in order to qualify as a regulated investment
Trust under the Code a Portfolio must derive less than 30% of its gross income
from investments held for less than three months. With respect to futures
contracts and other financial instruments subject to the marking-to-market
rules, the Internal Revenue Service has ruled in private letter rulings that a
gain realized from such a futures contract or financial instrument will be
treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract or instrument is held)
if the gain arises as a result of a constructive sale under the
marking-to-market rules, and will be treated as being

B-8
<PAGE>

derived from a security held for less than three months only if the contract or
instrument is terminated (or transferred) during taxable year (other than by
reason of marking-to-market) and less than three months have elapsed between the
date the contract or instrument is acquired and the termination date. In
determining whether the 30% test is met for a taxable year, increases and
decreases in the value of each Portfolio's futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.

B-9
<PAGE>

SCHEDULE C

ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES

Mortgage-Backed Securities

Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.

Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.

Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.

The Federal National Mortgage Association (FNMA) is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.

The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.

Commercial banks, savings and loan institutions, private mortgage
insurance Trust, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
Government and Government-related pools because there are no direct or indirect
Government guarantees of payments in the former pools. However, timely payment
of interest and principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance purchased by the issuer. The insurance and

C-1
<PAGE>

guarantees are issued by Governmental entities, private insurers, and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.

The Portfolio expects that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Portfolios will, consistent with their investment
objective and policies, consider making investments in such new types of
securities.

Underlying Mortgages

Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Portfolio may purchase pools of variable-rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset the mortgage's interest rate periodically with changes in
open market interest rates. To the extent that the Portfolio is actually
invested in VRM's, the Portfolio's interest income will vary with changes in the
applicable interest rate on pools of VRM's. GPM and GEM pools maintain constant
interest rates, with varying levels of principal repayment over the life of the
mortgage. These different interest and principal payment procedures should not
impact the Portfolio's net asset value since the prices at which these
securities are valued will reflect the payment procedures.

All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance company.

Average Life

The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.

As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.

Returns on Mortgage-Backed Securities

Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.

Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Portfolio. The
compounding effect from reinvestments of monthly payments received by the
Portfolio will increase its yield to shareholders, compared to bonds that pay
interest semi-annually.

C-2
<PAGE>

NATIONS ANNUITY TRUST
FILE NOS. 333-_____; 811-08481

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

<TABLE>
<S> <C>
(a) Statement of Assets and Liabilities of Nations Annuity Trust at ________, 1997*

(b) Exhibits

Exhibit
Number Description

(1) Declaration of Trust, to be filed by Amendment

(2) Bylaws, to be filed by Amendment.

(3) None.

(4) N/A

(5)(a) Investment Advisory Agreement between NationsBanc Advisors, Inc. ("NBAI") and the
Registrant, to be filed by Amendment.

(5)(b) Sub-Advisory Agreement among NBAI, TradeStreet Investment Associates, Inc. ("TradeStreet")
and the Registrant, to be filed by Amendment.

(5)(c) Sub-Advisory Agreement among NBAI, Gartmore Global Partners ("Gartmore") and the Registrant,
to be filed by Amendment.

(5)(d) Sub-Advisory Agreement among NBAI, Marsico Capital
Management, LLC ("Marsico"), and the Registrant, to be
filed by Amendment.

(6)(a) Distribution Agreement between Stephens Inc. and Registrant for all classes of shares of
Nations Annuity Trust, to be filed by Amendment.

(6)(b) Sales Support Agreement, to be filed by Amendment.

(6)(c) Shareholder Servicing Agreement, to be filed by Amendment.

- ---------------
* To be filed by Amendment.

<PAGE>

(6)(d) Participation Agreement with Hartford Life Insurance Company, to be filed by Amendment.

(7) Deferred Compensation Plan, to be filed by Amendment.

(8)(a) Mutual Fund Custody and Sub-Custody Agreement between Registrant, NationsBank of Texas, N.A.
("NationsBank Texas") and The Bank of New York ("BONY"), to be filed by Amendment.

(8)(b) Custody Agreement between BONY and Registrant, on behalf of
Nations International Growth Portfolio, to be filed by
Amendment.

(9)(a) Administration Agreement between Stephens Inc. and Registrant, to be filed by Amendment.

(9)(b) Co-Administration Agreement between First Data Investor Services Group, Inc. ("First Data")
and Registrant, to be filed by Amendment.

(9)(c) Sub-Administration Agreement among NBAI, Stephens Inc. and the Registrant, to be filed by
Amendment.

(9)(d) Shareholder Administration Agreement for Primary B Shares, to be filed by Amendment.

(9)(e) Transfer Agency and Services Agreement, between Registrant and First Data, to be filed by
Amendment.

(10) Opinion and Consent of Counsel, to be filed by Amendment.

(11) Report and Consent of Independent Accountants, to be filed by Amendment.

(12) N/A

(13) N/A

(14) N/A

(15)(a) Shareholder Servicing Plan, to be filed by Amendment.

(15)(b) Shareholder Servicing Agreement, to be filed by Amendment.

(16) Schedule for Computation of Performance Quotations, to be filed by Amendment.

(17) N/A

(18) N/A

</TABLE>

<PAGE>

Item 25. Persons Controlled By or Under Common Control with Registrant

No person is controlled by or under common control with the
Registrant.

Item 26. Number of Holders of Securities

As of November 14, 1997, no securities of the Registrant had been
issued.

Item 27. Indemnification

Article V of the Registrant's Declaration of Trust limits the liability
and, in certain instances, provides for mandatory indemnification of the
Registrant's trustees, officers, employees, agents and holders of
beneficial interests in the Trust. In addition, the Trustees are
empowered under Section 3.9 of the Registrant's Declaration of Trust to
obtain such insurance policies as they deem necessary. Indemnification
of Registrant's administrator, principal underwriter, custodian, and
transfer agent is provided for, respectively, in:

1. Administration Agreement with Stephens Inc.;

2. Co-Administration Agreement with First Data Investors
Services Group, Inc.;

3. Distribution Agreement with Stephens Inc.;

4. Mutual Fund Custody and Sub-Custody Agreement with
NationsBank Texas and The Bank of New York; and

5. Transfer Agency Agreement with First Data Investors Services
Group, Inc.

Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser

(a) To the knowledge of Registrant, none of the directors or officers
of NBAI, the adviser to the Registrant's portfolios, or TradeStreet, Gartmore or
Marsico, the sub-investment

<PAGE>

advisers, except those set forth below, is or has been, at any time during the
past two calendar years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for, the company that
owns all the outstanding stock (other than directors' qualifying shares) of NBAI
or TradeStreet, respectively, or other subsidiaries of NationsBank Corporation.

(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940 (file no. 801-49874).

(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the sub-investment adviser is incorporated by reference to Form ADV filed by
TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).

Item 29. Principal Underwriter

(a) Stephens Inc., distributor for the Registrant, does not presently act
as investment adviser for any other registered investment companies, but does
act as principal underwriter for Nations Fund Trust, Nations Fund, Inc., Nations
Fund Portfolios, Inc., Nations Institutional Reserves, Nations LifeGoal Fund,
Inc., the Overland Express Funds, Inc., Stagecoach Inc., Stagecoach Funds, Inc.
and Stagecoach Trust and is the exclusive placement agent for Master Investment
Trust, Managed Series Investment Trust, Life & Annuity Trust and Master
Investment Portfolio, all of which are registered open-end management investment
companies, and has acted as principal underwriter for the Liberty Term Trust,
Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and the Managed Balanced Target Maturity Fund, Inc.,
closed-end management investment companies.

(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).

Item 30. Location of Accounts and Records

(1) NBAI, One NationsBank Plaza, Charlotte, North Carolina 28255 (records
relating to its function as Investment Adviser).

(2) TradeStreet, One NationsBank Plaza, Charlotte, North Carolina 28255
(records relating to its function as Sub-Adviser).
<PAGE>

(3) Gartmore Global Partners, One NationsBank Plaza, Charlotte, NC
28255 (records relating to its function as Sub-Adviser).

(4) Marsico Capital Management, LLC, 1200 17th Street, Suite 1300,
Denver, CO 80202 (records relating to its function as
Sub-Advisor).

(5) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Distributor).

(6) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Administrator).

(7) The First Data Investors Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as
Co-Administrator and Transfer Agent).

(8) NationsBank Texas, 1401 Elm Street, Dallas, Texas 75202 (records
relating to its function as Custodian).

(9) The Bank of New York, 90 Washington Street, New York, New York
10286 (records relating to its function as Custodian, for Nations
International Growth Portfolio, and Sub-Custodian)

Item 31. Management Services

Not applicable.

Item 32. Undertakings

(a) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the effective date of this Registration Statement.

(b) Registrant undertakes to call a meeting for the purpose of voting
upon the question or removal of a trustee or trustees when
requested in writing to do so by the holders of at least 10% of a
Fund's outstanding shares of beneficial interest and in connection
with such meeting to comply with the provisions of Section 16(c)
of the 1940 Act, as amended, relating to shareholder
communications.

(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's most recent annual
report to shareholder upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Little Rock, State of Arkansas on the 12th day of
November, 1997.

NATIONS ANNUITY TRUST

By: *
--------------------------------
A. Max Walker
President and Chairman
of the Board of Trustees

By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>

* President and Chairman November 12, 1997
- ---------------------------------------- of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)

* Treasurer, Vice President November 12, 1997
- ---------------------------------------- (Principal Financial and
(Richard H. Rose) Accounting Officer)

* Trustee November 12, 1997
- ----------------------------------------
(Edmund L. Benson, III)

* Trustee November 12, 1997
- ----------------------------------------
(James Ermer)

* Trustee November 12, 1997
- ----------------------------------------
(William H. Grigg)

* Trustee November 12, 1997
- ----------------------------------------
(Thomas F. Keller)

* Trustee November 12, 1997
- ----------------------------------------
(Carl E. Mundy, Jr.)

* Trustee November 12, 1997
- ----------------------------------------
(Charles B. Walker)

* Trustee November 12, 1997
- ----------------------------------------
(Thomas S. Word)

* Trustee November 12, 1997
- ----------------------------------------
(James B. Sommers)

/s/ Richard H. Blank, Jr.
- ----------------------------------------
Richard H. Blank, Jr.

</TABLE>

<PAGE>

POWER OF ATTORNEY

Edmund L. Benson, III, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ Edmund L. Benson, III
-------------------------------
Edmund L. Benson, III

<PAGE>

POWER OF ATTORNEY

James Ermer, whose signature appears below, does hereby constitute
and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M. Kurucza, Marco E.
Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each individually, his
true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, each individually, may deem
necessary or advisable or which may be required to enable Nations Annuity Trust
(the "Trust"), to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments to the
Trust's Registration Statement on Form N-1A pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a trustee
of the Trust any and all such amendments filed with the Securities and Exchange
Commission under said Acts, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents, individually or collectively, shall do or cause to be done
by virtue thereof.

Dated: October 30, 1997

/s/ James Ermer
-------------------------------
James Ermer

<PAGE>

POWER OF ATTORNEY

William H. Grigg, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ William H. Grigg
-------------------------------
William H. Grigg

<PAGE>

POWER OF ATTORNEY

Thomas F. Keller, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ Thomas F. Keller
-------------------------------
Thomas F. Keller

<PAGE>

POWER OF ATTORNEY

A. Max Walker, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ A. Max Walker
-------------------------------
A. Max Walker

<PAGE>

POWER OF ATTORNEY

Charles B. Walker, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ Charles B. Walker
-------------------------------
Charles B. Walker

<PAGE>

POWER OF ATTORNEY

Thomas S. Word, Jr., whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ Thomas S. Word, Jr.
-------------------------------
Thomas S. Word, Jr.

<PAGE>

POWER OF ATTORNEY

Richard H. Rose, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ Richard H. Rose
-------------------------------
Richard H. Rose

<PAGE>

POWER OF ATTORNEY

Carl E. Mundy, Jr., whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ Carl E. Mundy, Jr.
-------------------------------
Carl E. Mundy, Jr.

<PAGE>

POWER OF ATTORNEY

James B. Sommers, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio, Steven G. Cravath and Richard H. Blank, Jr., each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Annuity
Trust (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Trust any and all such amendments filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, individually or collectively, shall do or
cause to be done by virtue thereof.

Dated: October 30, 1997

/s/ James B. Sommers
-------------------------------
James B. Sommers

<PAGE>