NATIONS ANNUITY TRUST, 485APOS, 2000-02-15

NATIONS ANNUITY TRUST
485APOS, 2000-02-15

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As filed with the Securities and Exchange Commission
on February 15, 2000
Registration No. 333-40265; 811-08481
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 3 [X]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 4 [X]

(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

It is proposed that this filing will become effective (check appropriate box):
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[ ] Immediately upon filing pursuant to Rule 485(b); or [ ] on (date) pursuant to Rule 485(b), or

[ ] 60 days after filing pursuant to Rule 485(a), or [ ] on (date) pursuant to Rule 485(a)(1)

[X] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of
Rule 485
</TABLE>
<PAGE>
EXPLANATORY NOTE
----------------

This Post-Effective Amendment No. 3 to the Registration Statement of
Nations Annuity Trust (the "Trust") is being filed to add three new portfolios,
Nations Strategic Growth Portfolio, Nations International Value Portfolio and
Nations High Yield Bond Portfolio and to revise the principal investment
strategy of Nations SmallCap Index Portfolio and Nations Aggressive Growth
Portfolio.
<PAGE>
NATIONS ANNUITY TRUST
CROSS REFERENCE SHEET
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Part A
Item No. Prospectus
- -------- ----------

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1. Front and Back Cover Pages................................ Front and Back Cover Pages

2. Risk/Return Summary: Investments, Risks,
and Performance ........................................... About this Prospectus

3. Risk/Return Summary: Fee Table.............................. Not Applicable

4. Investment Objectives, Principal Investment
Strategies, and Related Risks.............................. About the Equity Portfolios; About
the Managed Index Portfolios; About
the Balanced Portfolio; Other
Important Information

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

6. Management, Organization, and
Capital Structure........................................... How the Portfolios are Managed;
About Your Investment: Information
for Investors

7. Shareholder Information .................................... About Your Investment: Information
for Investors

8. Distribution Arrangements .................................. About Your Investment: Information
for Investors

9. Financial Highlights Information ........................... About Your Investment: Financial
Highlights
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Part B
Item No.
- --------

<S> <C> <C>
10. Cover Page and Table of Contents............................ Cover Page and Table of Contents

11. Fund History................................................ Introduction

12. Description of the Fund and
Its Investments and Risks................................... Additional Information on Portfolio
Investments
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13. Management of the Fund...................................... Trustees And Officers; Investment
Advisory, Administration, Custody Transfer
Agency, Shareholder Servicing and
Distribution Agreements

14. Control Persons and Principal
Holders of Securities....................................... Not Applicable

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

16. Brokerage Allocation and Other Practices.................... Portfolio Transactions and
Brokerage--General Brokerage Policy

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

18. Purchase, Redemption and Pricing
of Shares.................................................. Net Asset Value -- Purchases
And Redemptions; Distributor

19. Taxation of the Fund........................................ Additional Information Concerning
Taxes

20. Underwriters................................................ Investment Advisory,
Administration Custody, Transfer Agency
Shareholder Servicing And Distribution
Agreements; Distributor

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

22. Financial Statements........................................ Independent Accountant and
Reports
</TABLE>
<PAGE>
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
<PAGE>

[GRAPHIC APPEARS HERE]

NATIONS ANNUITY TRUST
PROSPECTUS

MAY 1, 2000

Equity Portfolios
NATIONS VALUE PORTFOLIO
NATIONS AGGRESSIVE GROWTH PORTFOLIO
NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO
NATIONS MARSICO GROWTH & INCOME PORTFOLIO
NATIONS STRATEGIC GROWTH PORTFOLIO

International Portfolios
NATIONS INTERNATIONAL VALUE PORTFOLIO
NATIONS INTERNATIONAL GROWTH PORTFOLIO

Index Portfolios
NATIONS MANAGED INDEX PORTFOLIO
NATIONS SMALLCAP INDEX PORTFOLIO

Balanced Portfolio
NATIONS BALANCED ASSETS PORTFOLIO

Fixed Income Portfolio
NATIONS HIGH YIELD BOND PORTFOLIO

THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>

AN OVERVIEW OF THE PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

TERMS USED IN THIS PROSPECTUS

IN THIS PROSPECTUS, WE, US AND OUR REFER TO THE NATIONS FUNDS
FAMILY (NATIONS FUNDS). SOME OTHER IMPORTANT TERMS WE'VE USED MAY
BE NEW TO YOU. THESE ARE PRINTED IN ITALICS WHERE THEY FIRST
APPEAR IN A SECTION AND ARE DESCRIBED IN TERMS USED IN THIS
PROSPECTUS.

[GRAPHIC APPEARS HERE]

YOU'LL FIND TERMS USED
IN THIS PROSPECTUS ON
PAGE 49.

YOUR INVESTMENT IN THESE PORTFOLIOS IS NOT A BANK DEPOSIT AND IS
NOT INSURED OR GUARANTEED BY BANK OF AMERICA, N. A. (BANK OF
AMERICA), THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY
OTHER GOVERNMENT AGENCY. YOUR INVESTMENT MAY LOSE MONEY.

AFFILIATES OF BANK OF AMERICA ARE PAID FOR THE SERVICES THEY
PROVIDE TO THE PORTFOLIOS.

This booklet, which is called a prospectus, tells you about eleven Nations
Annuity Trust Portfolios. The Portfolios are the underlying investment
vehicles for certain variable annuity and variable life insurance separate
accounts issued by participating life insurance companies, including Hartford
Life Insurance Company. Please read it carefully, because it contains
information that's designed to help you make informed investment decisions.

ABOUT THE PORTFOLIOS
Each group of Portfolios has a different investment focus:

o Equity portfolios invest primarily in EQUITY SECURITIES of U.S. companies

o International portfolios invest primarily in equity securities of companies
outside the United States

o Index portfolios are intended to match the industry and risk
characteristics of a specific stock market index, like the S&P 500, by
investing primarily in equity securities that are included in the index

Nations Balanced Assets Portfolio invests in a mix of equity and FIXED INCOME
SECURITIES, as well as MONEY MARKET INSTRUMENTS

Nations High Yield Bond Portfolio focuses on the potential to earn income by
investing primarily in HIGH YIELD DEBT SECURITIES

The Portfolios also have different risk/return characteristics because they
invest in different kinds of securities.

Equity securities have the potential to provide you with higher returns than
many other kinds of investments, but they also tend to have the highest risk.
FOREIGN SECURITIES also involve special risks not associated with investing in
the U.S. stock market, which you need to be aware of before you invest.

High yield debt securities, like all fixed income securities, have the
potential to increase in value because when interest rates fall, the value of
these securities tends to rise. When interest rates rise, however, the value
of these securities tends to fall. Other things can also affect the value of
high yield debt securities, most importantly credit risk. High yield debt
securities are generally more sensitive to credit risk than other types of
fixed income securities.

In every case, there's a risk that you'll lose money or you may not earn as
much as you expect.

CHOOSING THE RIGHT PORTFOLIOS FOR YOU
Not every Portfolio is right for every investor. When you're choosing a
Portfolio to invest in, you should consider things like your investment goals,
how much risk you can accept and how long you're planning to hold your
investment.

2
<PAGE>
The Equity, International and Index Portfolios all focus on long-term growth.
They may be suitable for you if:

o you have longer-term investment goals

o they're part of a balanced portfolio

o you want to try to protect your portfolio against a loss of buying power
that inflation can cause over time

They may not be suitable for you if:

o you're not prepared to accept or are unable to bear the risks associated
with equity securities, including foreign securities

o you have short-term investment goals

o you're looking for a regular stream of income

Nations Balanced Assets Portfolio invests in a mix of equity and fixed income
securities, as well as money market instruments. It may be suitable for you if:

o you're looking for both long-term growth and income

o you want a diversified portfolio in a single mutual fund

It may not be suitable for you if:

o you're not prepared to accept or are unable to bear the risks associated
with equity and fixed income securities

o you have short-term investment goals

o you're looking for a regular stream of income

Nations High Yield Bond Portfolio focuses on the potential to earn income. It
may be suitable for you if:

o you're looking for income

o you have longer-term investment goals

It may not be suitable for you if:

o you're not prepared to accept or are unable to bear the risks associated
with fixed income securities, particularly high yield debt securities

o you're seeking preservation of capital and stability of share price

You'll find a discussion of each Portfolio's principal investments, strategies
and risks in the portfolio descriptions that start on page 6.

FOR MORE INFORMATION
If you have any questions about the Portfolios, please call us at
1.800.321.7854 or contact your investment professional.

You'll find more information about the Portfolios in the Statement of
Additional Information (SAI). The SAI includes more detailed information about
each Portfolio's investments, policies, performance and management, among
other things. Please turn to the back cover to find out how you can get a
copy.

3
<PAGE>

WHAT'S INSIDE
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

BANC OF AMERICA ADVISORS, INC.

BANC OF AMERICA ADVISORS, INC. (BAAI) IS THE INVESTMENT ADVISER TO
EACH OF THE PORTFOLIOS. BAAI IS RESPONSIBLE FOR THE OVERALL
MANAGEMENT AND SUPERVISION OF THE INVESTMENT MANAGEMENT OF EACH
PORTFOLIO. BAAI AND NATIONS FUNDS HAVE ENGAGED SUB-ADVISERS, WHICH
ARE RESPONSIBLE FOR THE DAY-TO-DAY INVESTMENT DECISIONS FOR EACH
OF THE PORTFOLIOS.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BAAI AND THE SUB-ADVISERS
STARTING ON PAGE 36.

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[GRAPHIC APPEARS HERE]
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ABOUT THE PORTFOLIOS

Equity Portfolios
NATIONS VALUE PORTFOLIO 6
Sub-adviser: Banc of America Capital Management, Inc.
- -------------------------------------------------------
NATIONS AGGRESSIVE GROWTH PORTFOLIO 8
Sub-adviser: Banc of America Capital Management, Inc.
- -------------------------------------------------------
NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO 10
Sub-adviser: Marsico Capital Management, LLC
- -------------------------------------------------------
NATIONS MARSICO GROWTH & INCOME PORTFOLIO 13
Sub-adviser: Marsico Capital Management, LLC
- -------------------------------------------------------
NATIONS STRATEGIC GROWTH PORTFOLIO 16
Sub-adviser: Banc of America Capital Management, Inc.
- -------------------------------------------------------
International Portfolios
NATIONS INTERNATIONAL VALUE PORTFOLIO 18
Sub-adviser: Brandes Investment Partners, L.P.
- -------------------------------------------------------
NATIONS INTERNATIONAL GROWTH PORTFOLIO 20
Sub-adviser: Gartmore Global Partners
- -------------------------------------------------------
Index Portfolios
NATIONS MANAGED INDEX PORTFOLIO 23
Sub-adviser: Banc of America Capital Management, Inc.
- -------------------------------------------------------
NATIONS SMALLCAP INDEX PORTFOLIO 26
Sub-adviser: Banc of America Capital Management, Inc.
- -------------------------------------------------------
Balanced Portfolio
NATIONS BALANCED ASSETS PORTFOLIO 29
Sub-adviser: Banc of America Capital Management, Inc.
- -------------------------------------------------------
Fixed Income Portfolio
NATIONS HIGH YIELD BOND PORTFOLIO
Sub-adviser: MacKay Shields LLC 32
- ------------------------------------------------------- --
OTHER IMPORTANT INFORMATION 34
- ------------------------------------------------------- --
HOW THE PORTFOLIOS ARE MANAGED 36
</TABLE>

4
<PAGE>

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[GRAPHIC APPEARS HERE]
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ABOUT YOUR INVESTMENT

INFORMATION FOR INVESTORS
Buying, selling and transfering shares 44
How selling and servicing agents are paid 45
Distributions and taxes 46
- --------------------------------------------- --
FINANCIAL HIGHLIGHTS 47
- --------------------------------------------- --
TERMS USED IN THIS PROSPECTUS 49
- --------------------------------------------- --
WHERE TO FIND MORE INFORMATION BACK COVER
</TABLE>

5
<PAGE>

ABOUT THE EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

BANC OF AMERICA CAPITAL MANAGEMENT, INC. (BACAP) IS THIS
PORTFOLIO'S SUB-ADVISER. BACAP'S VALUE STRATEGIES TEAM MAKES THE
DAY-TO-DAY INVESTMENT DECISIONS FOR THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BACAP ON PAGE 37.

[GRAPHIC APPEARS HERE]

WHAT IS VALUE INVESTING?

VALUE INVESTING MEANS LOOKING FOR "UNDERVALUED" COMPANIES -
QUALITY COMPANIES THAT MAY BE CURRENTLY OUT OF FAVOR AND SELLING
AT A REDUCED PRICE, BUT THAT HAVE GOOD POTENTIAL TO INCREASE IN
VALUE.

THE MANAGEMENT TEAM USES FUNDAMENTAL ANALYSIS TO HELP DECIDE
WHETHER THE CURRENT STOCK PRICE OF A COMPANY MAY BE LOWER THAN THE
COMPANY'S TRUE VALUE, AND THEN LOOKS FOR THINGS THAT COULD TRIGGER
A RISE IN PRICE, LIKE A NEW PRODUCT LINE, NEW PRICING OR A CHANGE
IN MANAGEMENT. THIS TRIGGER IS OFTEN CALLED A "CATALYST."

Nations Value Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks growth of capital by investing in companies that
are believed to be undervalued.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 65% of its assets in COMMON
STOCKS of U.S. companies. It generally invests in companies in a broad
range of industries with market capitalizations of at least $1 billion
and daily trading volumes of at least $3 million.

The Portfolio may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.

The management team uses FUNDAMENTAL ANALYSIS to identify stocks of companies
that it believes are undervalued, looking at, among other things:

o the quality of the company

o the company's projected earnings and dividends

o the stock's PRICE-TO-EARNINGS RATIO relative to other stocks in the same
industry or economic sector. The team believes that companies with lower
price-to-earnings ratios are generally more likely to provide better
opportunities for capital appreciation

o the stock's potential to provide total return

o the value of the stock relative to the overall stock market

The team also looks for a "catalyst" for improved earnings. This could be, for
example, a new product, new management or a new sales channel.

The management team may use various strategies, consistent with the
Portfolio's investment objective, to try to reduce the amount of CAPITAL GAINS
distributed to shareholders. For example, the team:

o may limit the number of buy and sell transactions it makes

o will try to sell shares that have the lowest tax burden on shareholders

o may offset capital gains by selling securities to realize a CAPITAL LOSS

While the Portfolio tries to manage its capital gain distributions, it will
not be able to completely avoid making taxable distributions. These strategies
also may be affected by changes in tax laws and regulations, or by court
decisions.

The team may sell a security when its price reaches the target set by the
team, there is a deterioration in the company's financial situation, when the
team believes other investments are more attractive, or for other reasons.

6
<PAGE>
[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO ON PAGE 34
AND IN THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations Value Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - The management team chooses stocks that it
believes are undervalued, with the expectation that they will rise in
value. There is a risk that the value of these investments will not rise
as high as the team expects, or will fall.

o STOCK MARKET RISK - The value of the stocks the Portfolio holds can be
affected by changes in U.S. or foreign economies and financial markets,
and the companies that issue the stocks, among other things. Stock prices
can rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and periods
of falling prices. As of the date of this prospectus, the stock markets,
as measured by the S&P 500 and other commonly used indices, were trading
at or close to record levels. There can be no guarantee that these levels
will continue.

[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

YEAR BY YEAR TOTAL RETURN (%) AS OF DECEMBER 31 EACH YEAR
The bar chart shows you how the performance of the Portfolio has varied
from year to year. These returns do not reflect deductions of sales
charges or account fees, if any, and would be lower if they did.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

4.48%* 2.50%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD
<TABLE>
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Best: 4th quarter 1998: 19.00%
Worst: 3rd quarter 1998: -11.67%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations Value Portfolio 2.50% 3.96%
S&P 500 21.04% 19.50%
</TABLE>

7
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ABOUT THE EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

BACAP IS THIS PORTFOLIO'S SUB-ADVISER. BACAP'S GROWTH STRATEGIES
TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BACAP ON PAGE 37.

Nations Aggressive Growth Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks capital appreciation.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 65% of its assets in COMMON
STOCKS of large and medium-sized U.S. companies. These companies
typically have a market capitalization of $500 million or more.

The Portfolio was formerly named Nations Disciplined Equity Portfolio and
operated under a different investment objective and principal investment
strategies from its inception until April 30, 2000.

The management team uses a combination of FUNDAMENTAL and QUANTITATIVE
ANALYSIS to help construct a portfolio of 50 to 75 securities of companies
diversified across industry sectors. The team's investment process begins with
a review of all major U.S. companies with a market capitalization of $500
million or more with the goal of discovering potential industry leaders.

When selecting investments, the team looks for securities it believes are
attractively priced with increasing earnings. It uses QUANTITATIVE ANALYSIS,
which is an analysis of a company's financial information, and FUNDAMENTAL
ANALYSIS to:

o identify companies with above-average growth potential, a strong competitive
position and effective management strategies; and

o identify companies presenting tactical opportunities, such as companies
likely to experience cyclical profit recovery or exhibiting structural
change

The management team may use various strategies, consistent with the
Portfolio's investment objective, to try to reduce the amount of CAPITAL GAINS
it distributes to shareholders. For example, the team:

o will focus on long-term investments to try and limit the number of buy and
sell transactions

o will try to sell securities that have the lowest tax burden on shareholders

o may offset capital gains by selling securities to realize a CAPITAL LOSS

o will invest primarily in securities with lower DIVIDEND YIELDS

o may use options instead of selling securities

While the Portfolio tries to manage capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.

The team may sell a security when it forecasts a decline in industry
profitability, it believes a company's competitive position erodes
significantly, management strategies prove ineffective or a company's price
exceeds a reasonable value.

8
<PAGE>

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO ON PAGE 34
AND THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations Aggressive Growth Portfolio has the following risks:

o INVESTMENT STRATEGY RISK -- The team uses quantitative and fundamental
analysis to select securities it believes are attractively priced with
increased earnings. There is a risk that the value of these investments
will not rise as high as the team expects, or will fall.

o STOCK MARKET RISK -- The value of the stocks the Portfolio holds can be
affected by changes in the U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other things.
Stock prices can rise or fall over short as well as long periods. In
general, stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices. As of the date of this prospectus,
the markets, as measured by the S&P 500 and other commonly used indices,
were trading at or close to record levels. There can be no guarantee that
these levels will continue.

[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

PRIOR TO MAY 1, 2000, THE PORTFOLIO HAD A DIFFERENT INVESTMENT
OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

6.44%* 9.75%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD

<TABLE>
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Best: 4th quarter 1998: 23.48%
Worst: 3rd quarter 1998: -15.07%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations Aggressive Growth Portfolio 9.75% 9.20%
S&P 500 % %
</TABLE>

9
<PAGE>

ABOUT THE EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

MARSICO CAPITAL MANAGEMENT, LLC (MARSICO CAPITAL) IS THIS
PORTFOLIO'S SUB-ADVISER. THOMAS F. MARSICO IS THE PORTFOLIO
MANAGER AND MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE
PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
MARSICO CAPITAL AND
MR. MARSICO ON PAGE 37.

[GRAPHIC APPEARS HERE]

WHAT IS A FOCUSED PORTFOLIO?

A FOCUSED PORTFOLIO INVESTS IN A SMALL NUMBER OF COMPANIES WITH
EARNINGS THAT ARE BELIEVED TO HAVE THE POTENTIAL TO GROW
SIGNIFICANTLY. THIS PORTFOLIO FOCUSES ON LARGE, ESTABLISHED AND
WELL-KNOWN U.S. COMPANIES.

BECAUSE A FOCUSED PORTFOLIO HOLDS FEWER INVESTMENTS THAN OTHER
KINDS OF PORTFOLIOS, IT CAN HAVE GREATER PRICE SWINGS THAN MORE
DIVERSIFIED PORTFOLIOS. IT MAY EARN RELATIVELY HIGHER RETURNS WHEN
ONE OF ITS INVESTMENTS PERFORMS WELL, OR RELATIVELY LOWER RETURNS
WHEN AN INVESTMENT PERFORMS POORLY.

Nations Marsico Focused Equities Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks long-term growth of capital.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 65% of its assets in COMMON
STOCKS of large companies. The Portfolio, which is NON-DIVERSIFIED,
generally holds a core position of 20 to 30 common stocks. It may
invest up to 25% of its assets in FOREIGN SECURITIES.

Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some of
the following characteristics:

o products, markets or technologies in flux that can result in extraordinary
growth

o strong brand franchises that can take advantage of a changing global
environment

o global reach that allows the company to generate sales and earnings both in
the United States and abroad. This can give the company added growth
potential and also means the company may be less affected by changes in
local markets

o movement with, not against, the major social, economic and cultural shifts
taking place in the world

Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment. This
process includes a "top-down" analysis that takes into account economic
factors like interest rates, inflation, the regulatory environment, the
industry and global competition.

The process also includes a "bottom-up" analysis of a company's financial
situation, as well as individual company characteristics like commitment to
research, market franchise and quality of management.

Marsico Capital may sell a security when it believes there is a deterioration
in the company's financial situation, the security is overvalued, when there
is a negative development in the company's competitive, regulatory or economic
environment, or for other reasons.

10
<PAGE>

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO ON PAGE 34
AND THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations Marsico Focused Equities Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - There is a risk that the value of the
Portfolio's investments will not rise as high as Marsico Capital expects,
or will fall.

o HOLDING FEWER INVESTMENTS - This Portfolio is considered to be
non-diversified because it may hold fewer investments than other kinds of
equity funds. This increases the risk that its value could go down
significantly if even only one of its investments performs poorly. The
value of this Portfolio will tend to have greater price swings than the
value of more diversified equity funds. The Portfolio may become a
diversified portfolio by limiting the investments in which more than 5%
of its total assets are invested.

o FOREIGN INVESTMENT RISK - Because the Portfolio may invest up to 25% of
its assets in foreign securities, it can be affected by the risks of
foreign investing. Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign controls
on investment, difficulties selling some securities and lack of or
limited financial information. Withholding taxes also may apply to some
foreign investments.

11
<PAGE>

[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

30.16%* 53.28%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD

<TABLE>
<S> <C>
Best: 4th quarter 1999: 32.37%
Worst: 3rd quarter 1998: -7.06%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations Marsico Focused Equities Portfolio 53.28% 47.83%
S&P 500 21.04% 19.50%
</TABLE>

12
<PAGE>

ABOUT THE EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

MARSICO CAPITAL IS THIS PORTFOLIO'S SUB-ADVISER. THOMAS F. MARSICO
IS THE PORTFOLIO MANAGER AND MAKES THE DAY-TO-DAY INVESTMENT
DECISIONS FOR THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
MARSICO CAPITAL AND
MR. MARSICO ON PAGE 37.

[GRAPHIC APPEARS HERE]

WHY INVEST IN A GROWTH
AND INCOME PORTFOLIO?

GROWTH AND INCOME PORTFOLIOS CAN INVEST IN A MIX OF EQUITY AND
FIXED INCOME SECURITIES. THIS CAN HELP REDUCE VOLATILITY AND
PROVIDE THE PORTFOLIO WITH THE FLEXIBILITY TO SHIFT AMONG
SECURITIES THAT OFFER THE POTENTIAL FOR HIGHER RETURNS.

WHILE THIS PORTFOLIO INVESTS IN A WIDE RANGE OF COMPANIES AND
INDUSTRIES, IT HOLDS FEWER INVESTMENTS THAN OTHER KINDS OF
PORTFOLIOS. THIS MEANS IT CAN HAVE GREATER PRICE SWINGS THAN MORE
DIVERSIFIED PORTFOLIOS. IT ALSO MEANS IT MAY HAVE RELATIVELY
HIGHER RETURNS WHEN ONE OF ITS INVESTMENTS PERFORMS WELL, OR
RELATIVELY LOWER RETURNS WHEN AN INVESTMENT PERFORMS POORLY.

Nations Marsico Growth & Income Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks long-term growth of capital with a limited
emphasis on income.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio invests primarily in EQUITY SECURITIES of large
capitalization companies that are selected for their growth potential.
It invests at least 25% of its assets in securities that are believed
to have income potential, and generally holds 35 to 50 securities. It
may hold up to 25% of its assets in FOREIGN SECURITIES.

Marsico Capital may shift assets between growth and income securities based on
its assessment of market, financial and economic conditions. The Portfolio,
however, is not designed to produce a consistent level of income.

Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some of
the following characteristics:

o products, markets or technologies in flux that can result in extraordinary
growth

o strong brand franchises that can take advantage of a changing global
environment

o movement with, not against, the major social, economic and cultural shifts
taking place in the world

13
<PAGE>

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO ON PAGE 34
AND THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations Marsico Growth & Income Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - Marsico Capital uses an investment strategy
that tries to identify equities with growth or income potential. There is
a risk that the value of these investments will not rise as high as
Marsico Capital expects, or will fall.

o INTEREST RATE RISK - The prices of the Portfolio's FIXED INCOME
SECURITIES will tend to fall when interest rates rise and to rise when
interest rates fall. In general, fixed income securities with longer
terms tend to fall more in value when interest rates rise than fixed
income securities with shorter terms.

o CREDIT RISK - The Portfolio could lose money if the issuer of a fixed
income security is unable to pay interest or repay principal when it's
due. Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. GOVERNMENT OBLIGATIONS.

14
<PAGE>

[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

21.80%* 55.10%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD

<TABLE>
<S> <C>
Best: 4th quarter 1999: 36.77%
Worst: 3rd quarter 1998: -11.62%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations Marsico Growth & Income Portfolio 55.10% 43.33%
S&P 500 21.04% 19.50%
</TABLE>

15
<PAGE>

ABOUT THE EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

BACAP IS THIS PORTFOLIO'S SUB-ADVISER. BACAP'S GROWTH STRATEGIES
TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BACAP ON PAGE 37.

[GRAPHIC APPEARS HERE]

MINIMIZING TAXES

THIS PORTFOLIO TRIES TO REPLACE -- OR TURN OVER -- NO MORE THAN 25%
OF ITS INVESTMENTS IN A YEAR. MANAGING THE NUMBER OF BUY AND SELL
TRANSACTIONS THE PORTFOLIO MAKES CAN HELP REDUCE THE CAPITAL GAINS
IT DISTRIBUTES.

Nations Strategic Growth Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks long-term, after-tax returns by investing in a
diversified portfolio of COMMON STOCKS.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 65% of its assets in common
stocks of companies that it selects from most major industry sectors.
The Portfolio normally holds 60 to 80 securities, which include common
stocks, PREFERRED STOCKS and CONVERTIBLE SECURITIES like WARRANTS and
RIGHTS.

The portfolio management team identifies stocks using a disciplined analytical
process. Starting with a universe of companies with market capitalizations of
at least $1 billion, the portfolio management team assesses the investment
potential of these companies and their industries by evaluating:

o the growth prospects of the company's industry

o the company's relative competitive position in the industry

The management team believes that this analysis identifies companies with
favorable long-term growth potential, competitive advantages and sensible
business strategies.

The team then uses QUANTITATIVE ANALYSIS to decide when to invest, evaluating
each company's earnings trends and stock valuations, among other things, to try
to determine when it is reasonably valued.

The portfolio management team may use various strategies, consistent with the
Portfolio's investment objective, to try to reduce the amount of CAPITAL GAINS
and income distributed to shareholders. For example, the team:

o will focus on long-term investments to try to limit the number of buy and
sell transactions
o will try to sell securities that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
o invests primarily in securities with lower DIVIDEND YIELDS
o may use options, instead of selling securities

While the Portfolio tries to manage its capital gain distributions, it will not
be able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.

The portfolio management team may sell a security when he believes that the
profitability of the company's industry is beginning to decline, there is a
meaningful deterioration in the company's competitive position, the company's
management fails to execute its business strategy, when the team considers the
security's price to be overvalued, or for other reasons.

16
<PAGE>

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING
IN THIS PORTFOLIO STARTING ON
PAGE 34 AND IN THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations Strategic Growth Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - The portfolio management team chooses
stocks that are believed have the potential for long-term growth.
There is a risk that the value of these investments will not rise as
expected, or will fall.

o STOCK MARKET RISK - The value of the stocks the Portfolio holds can
be affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.

o CONVERTIBLE SECURITY FEATURES - The issuer of a convertible security
may have the option to redeem it at a specified price. If a
convertible security is redeemed, the Portfolio may accept the
redemption, convert the convertible security to common stock, or
sell the convertible security to a third party. Any of these
transactions could affect the Portfolio's ability to meet its
objective.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The Portfolio commenced its operations on May 1, 2000 and has been in
operation for less than a full calendar year, so no performance
information has been included in this prospectus.

17
<PAGE>

ABOUT THE INTERNATIONAL PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

BRANDES INVESTMENT PARTNERS, L.P. (BRANDES) IS THIS PORTFOLIO'S
SUB-ADVISER. BRANDES'S LARGE CAP INVESTMENT COMMITTEE MAKES THE
DAY-TO-DAY INVESTMENT DECISIONS FOR THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BRANDES ON PAGE 39.
[GRAPHIC APPEARS HERE]

WHAT IS THE GRAHAM AND DODD
APPROACH TO INVESTING?

BENJAMIN GRAHAM IS WIDELY REGARDED AS THE FOUNDER OF THIS CLASSIC
VALUE APPROACH TO INVESTING AND A PIONEER IN MODERN SECURITY
ANALYSIS. IN HIS 1934 BOOK, SECURITY ANALYSIS, CO-WRITTEN BY DAVID
DODD, GRAHAM INTRODUCED THE IDEA THAT STOCKS SHOULD BE CHOSEN BY
IDENTIFYING THE "TRUE" LONG-TERM -- OR INTRINSIC -- VALUE OF A
COMPANY BASED ON MEASURABLE DATA.

THE TEAM FOLLOWS THIS APPROACH, LOOKING AT EACH STOCK AS THOUGH
IT'S A BUSINESS THAT'S FOR SALE. BY BUYING STOCKS AT WHAT IT
BELIEVES ARE FAVORABLE PRICES, THE PORTFOLIO LOOKS FOR THE
POTENTIAL FOR APPRECIATION OVER THE BUSINESS CYCLE, AND FOR A
MARGIN OF SAFETY AGAINST PRICE DECLINES.

Nations International Value Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks long-term capital appreciation by investing
primarily in EQUITY SECURITIES of foreign issuers, including emerging
markets countries.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 65% of its assets in foreign
companies anywhere in the world that have a market capitalization of
more than $1 billion at the time of investment. The Portfolio typically
invests in at least three countries other than the United States at any
one time.

The Portfolio primarily invests in COMMON STOCKS, PREFERRED STOCKS and
CONVERTIBLE SECURITIES, either directly or indirectly through closed-end
investment companies and DEPOSITARY RECEIPTS.

The portfolio management team uses the "Graham and Dodd" value approach to
selecting securities and managing the Portfolio. The team invests in a company
when its current price appears to be below its true long-term -- or
intrinsic -- value.

The team uses FUNDAMENTAL ANALYSIS to determine intrinsic value, and will look
at a company's book value, cash flow, capital structure, and management
record, as well as its industry and its position in the industry. This
analysis includes a review of company reports, filings with the SEC, computer
databases, industry publications, general and business publications, brokerage
firm research reports and other information sources, as well as interviews
with company management.

18
<PAGE>

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO STARTING ON PAGE
34 AND IN THE SAI.

[GRAPHIC APPEARS HERE]

LIMITS ON INVESTMENTS

TO HELP MANAGE RISK, THE PORTFOLIO HAS CERTAIN LIMITS ON ITS
INVESTMENTS. THESE LIMITS APPLY AT THE TIME AN INVESTMENT IS MADE:

o THE PORTFOLIO WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A
SINGLE SECURITY.

o IT MAY NOT INVEST MORE THAN THE HIGHER OF:

o 20% OF ITS ASSETS IN A SINGLE COUNTRY OR INDUSTRY, OR

o 150% OF THE WEIGHTING OF A SINGLE COUNTRY OR INDUSTRY IN THE MSCI EAFE
INDEX (TO A MAXIMUM OF 25% OF ITS ASSETS IN A SINGLE INDUSTRY, OTHER
THAN U.S. GOVERNMENT SECURITIES).

o IT GENERALLY MAY NOT INVEST MORE THAN 20% OF ITS ASSETS IN EMERGING
MARKETS OR DEVELOPING COUNTRIES.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations International Value Fund has the following risks:

o INVESTMENT STRATEGY RISK - The management team chooses stocks it believes
are undervalued or out of favor with the expectation that these stocks
will eventually rise in value. There is a risk that the value of these
investments will not rise as high or as quickly as the manager expects,
or will fall.

o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign controls
on investment, difficulties selling some securities and lack of or
limited financial information. Withholding taxes may also apply to some
foreign investments.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The Portfolio commenced its operations on May 1, 2000 and has been in
operation for less than a full calendar year, so no performance
information has been included in this prospectus.

19
<PAGE>

ABOUT THE INTERNATIONAL PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

GARTMORE GLOBAL PARTNERS (GARTMORE) IS THIS PORTFOLIO'S
SUB-ADVISER. BRIAN O'NEILL, THE PRINCIPAL SENIOR INVESTMENT
MANAGER OF THE GARTMORE GLOBAL PORTFOLIO TEAM, MAKES THE
DAY-TO-DAY INVESTMENT DECISIONS FOR THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
GARTMORE ON PAGE 41.

[GRAPHIC APPEARS HERE]

WHAT IS AN INTERNATIONAL
GROWTH PORTFOLIO?

INTERNATIONAL GROWTH PORTFOLIOS INVEST IN COMPANIES AROUND THE
WORLD THAT HAVE THE POTENTIAL FOR SIGNIFICANT INCREASES IN REVENUE
OR EARNINGS. THESE ARE TYPICALLY COMPANIES THAT ARE DEVELOPING OR
APPLYING NEW TECHNOLOGIES, PRODUCTS OR SERVICES IN STRONG INDUSTRY
SECTORS.

THE PORTFOLIO MANAGER FOR THIS PORTFOLIO LOOKS FOR COMPANIES WITH
EARNINGS GROWTH THAT IS EXPECTED TO BE HIGHER THAN OTHER INVESTORS
BELIEVE, AND THEN SELLS THESE INVESTMENTS WHEN GROWTH MAY BE LOWER
THAN OTHERS EXPECT.

Nations International Growth Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks 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.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 65% of its assets in foreign
companies listed on major exchanges in Europe and the Pacific Basin.
These companies can be of any size.

The Portfolio invests in COMMON STOCKS, PREFERRED STOCKS and CONVERTIBLE
SECURITIES, such as WARRANTS, RIGHTS and CONVERTIBLE DEBT.

The Portfolio may invest up to 35% of its assets in securities of issuers
located in developing countries in the Asia and Pacific regions, Africa, Latin
America and Eastern Europe.

The Portfolio will generally hold 50 to 80 securities invested in
approximately 10 industry sectors within 15 to 20 stock markets.

The portfolio manager uses a "bottom-up" approach to selecting securities,
looking for companies with:

o high quality and sustainable earnings

o high growth potential over a two-year investment horizon

o quality management teams

o the ability to finance growth internally

o strong financial results

Throughout the investment process, the portfolio manager balances the
Portfolio's emphasis on growth companies with a sensitivity to securities
prices.

The portfolio manager may sell a security when its price reaches the target
set by the portfolio manager, when there is a deterioration in the growth
prospects of the company or its industry, when the portfolio manager believes
other investments are more attractive, or for other reasons.

20
<PAGE>
[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO ON PAGE 34
AND IN THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations International Growth Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - The portfolio manager chooses stocks believed
to have the potential for high growth. There is a risk that the value of
these investments will not rise as high as the portfolio manager expects,
or will fall.

[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

3.11%* 43.05%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

21
<PAGE>

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD

<TABLE>
<S> <C>
Best: 4th quarter 1999: 28.55%
Worst: 3rd quarter 1998: -14.52%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations International Growth Portfolio 43.05% 24.60%
MSCI EAFE 27.30% 17.93%
</TABLE>

22
<PAGE>

ABOUT THE INDEX PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

BACAP IS THIS PORTFOLIO'S SUB-ADVISER. BACAP'S QUANTITATIVE
STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE
PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BACAP ON PAGE 37.

[GRAPHIC APPEARS HERE]

WHAT IS A MANAGED INDEX
PORTFOLIO?

A MANAGED INDEX PORTFOLIO COMBINES THE BENEFITS OF TRADITIONAL
INDEX FUNDS -- RELATIVELY LOW COSTS AND LOW PORTFOLIO
TURNOVER -- WITH ACTIVE MANAGEMENT.

WITH A MANAGED INDEX PORTFOLIO, THE PORTFOLIO MANAGER STARTS WITH
THE STOCKS OF A SPECIFIC MARKET INDEX -- IN THIS CASE, THE S&P
500 -- AND THEN TRIES TO ACHIEVE HIGHER RETURNS THAN THE INDEX BY
EMPHASIZING STOCKS IN THE INDEX THAT ARE EXPECTED TO GENERATE THE
HIGHEST RETURNS.

THERE IS NO ASSURANCE THAT ACTIVE MANAGEMENT WILL RESULT IN A
HIGHER RETURN THAN THE INDEX.

Nations Managed Index Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks, over the long term, to provide a total return
that (before fees and expenses) exceeds the total return of the
Standard & Poor's 500 Composite Stock Price Index (S&P 500).

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 80% of its assets in COMMON
STOCKS that are included in the S&P 500. The S&P 500 is an unmanaged
index of 500 widely held common stocks, and is not available for
investment.

The management team tries to maintain a portfolio that matches the industry
and risk characteristics of the S&P 500. The team will, from time to time,
vary the number and percentages of the Portfolio's holdings to try to provide
higher returns than the S&P 500 and to reduce the risk of underperforming the
index over time. The Portfolio usually holds 300 to 400 of the stocks included
in the index. The Portfolio may invest in financial futures traded on U.S.
exchanges.

When selecting investments for the Portfolio, the management team starts with
the stocks included in the S&P 500. It uses QUANTITATIVE ANALYSIS, which is an
analysis of a company's financial information, to:

o rank the attractiveness of each stock based on a "multi-factor" valuation
model, which takes into account value measures like book value, earnings
yield and cash flow to measure a stock's intrinsic worth versus its
market price. The model also considers growth measures like price
momentum and the size and rate of earnings growth when comparing a stock
with others in the same industry

o measure the rate of earnings growth of each stock. Each stock is assigned
a ranking from 1 to 10 (best to worst). The team will hold a slightly
higher percentage of an attractively ranked stock than the index and hold
a lower percentage -- or none -- of a less attractively ranked stock

The management team tries to control costs when it buys and sells securities
for the Portfolio by using computerized systems called CROSSING NETWORKS that
allow it to try to make trades at better prices and reduced commission rates.

The management team uses various strategies, consistent with the Portfolio's
investment objective, to try to reduce the amount of CAPITAL GAINS distributed
to shareholders. For example, the team:

o may try to sell shares of a security with the highest cost for tax
purposes first, before selling other shares of the same security. The
management

23
<PAGE>

team will only use this strategy when it is in the best interest of the
Portfolio to do so and may sell other shares when appropriate

o may offset capital gains by selling securities to realize a CAPITAL LOSS.
This may reduce capital gains distributions

o will try to keep portfolio turnover low, which helps to defer the
realization of capital gains

While the Portfolio tries to manage its capital gain distributions, it will
not be able to completely avoid making taxable distributions. These strategies
may also be affected by changes in tax laws and regulations, or by court
decisions.

The team may sell a stock when it believes other stocks in the index are more
attractive investments, when the stock is removed from the index, or for other
reasons.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO ON PAGE 34
AND IN THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations Managed Index Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - The team chooses stocks that it believes have
the potential for higher growth than the S&P 500. There is a risk that
the value of these investments will not rise as high as the team expects,
or will fall.

o FUTURES RISK - This Portfolio may use FUTURES CONTRACTS periodically to
manage LIQUIDITY. There is a risk that this could result in losses,
reduce returns, increase transaction costs or increase the Portfolio's
volatility.

24
<PAGE>

[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

11.39%* 18.27%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD

<TABLE>
<S> <C>
Best: 4th quarter 1998: 20.16%
Worst: 3rd quarter 1998: -10.17%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations Managed Index Portfolio 18.27% 16.88%
S&P 500 21.04% 19.50%
</TABLE>

25
<PAGE>

ABOUT THE INDEX PORTFOLIOS
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

BACAP IS THIS PORTFOLIO'S SUB-ADVISER. BACAP'S QUANTITATIVE
STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE
PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BACAP ON PAGE 37.

[GRAPHIC APPEARS HERE]

WHAT IS AN INDEX PORTFOLIO?

INDEX PORTFOLIOS USE A "PASSIVE" OR "INDEXING" INVESTMENT
APPROACH, WHICH ATTEMPTS TO DUPLICATE THE PERFORMANCE OF A
SPECIFIC MARKET INDEX.

CORRELATION MEASURES HOW CLOSELY A PORTFOLIO'S RETURNS MATCH THOSE
OF AN INDEX. A PERFECT CORRELATION OF 1.0 MEANS THAT THE NET ASSET
VALUE OF THE PORTFOLIO INCREASES OR DECREASES IN EXACT PROPORTION
TO CHANGES IN THE INDEX.

Nations SmallCap Index Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks investment results that (before fees and expenses)
correspond to the total return of the Standard & Poor's SmallCap 600
Index (S&P SMALLCAP 600).

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 80% of its assets in COMMON
STOCKS that are included in the S&P SmallCap 600. The S&P SmallCap 600
is an unmanaged index of 600 common stocks weighted by market
capitalization. It is not available for investment.

The Portfolio may buy stock index futures and other financial futures as
substitutes for the underlying securities in the S&P SmallCap 600.

The Portfolio was formerly named Nations Managed SmallCap Index Portfolio and
operated under a different investment objective and principal investment
strategies from its inception until April 30, 2000.

Different common stocks have different weightings in the S&P SmallCap 600,
depending on the amount of stock outstanding and the stock's current price. In
trying to match the performance of the S&P SmallCap 600, the management team
will try to allocate the Portfolio's portfolio among common stocks in
approximately the same weightings as the S&P SmallCap 600, beginning with the
most heavily weighted stocks that make up a larger portion of the value of the
S&P SmallCap 600.

The team generally will try to match the composition of the S&P SmallCap 600
as closely as possible. The team starts with the stocks that make up a larger
portion of the value of the S&P SmallCap 600. It may not always invest in
stocks that make up the smaller percentages because it may be more difficult
and costly to make relatively small transactions. The team may remove a stock
from the Portfolio's holdings or not invest in a stock if it believes that the
stock is not liquid enough, or for other reasons. The team can substitute
stocks that are not included in the S&P SmallCap 600, if it believes these
stocks have similar characteristics.

The Portfolio tries to achieve a correlation of at least 0.95 with the S&P
SmallCap 600 on an annual basis (before fees and expenses). The Portfolio's
ability to track the S&P SmallCap 600 is affected by transaction costs and
other expenses, changes in the composition of the S&P SmallCap 600, changes in
the number of shares issued by the companies represented in the S&P SmallCap
600, and by the timing and amount of shareholder purchases and redemptions,
among other things.

26
<PAGE>

Equity Portfolios, like other investors in EQUITY SECURITIES, incur
transaction costs, such as brokerage costs, when they buy and sell securities.
The management team tries to minimize these costs for the Portfolio by using
program trades and CROSSING NETWORKS.

The team may sell a stock when its percentage weighting in the index is
reduced, when the stock is removed from the index, or for other reasons.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations SmallCap Index Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - This Portfolio tries to match (before fees and
expenses) the returns of the S&P 600, and is not actively managed. There
is no assurance that the returns of the Portfolio will match the returns
of the S&P 600. The value of the Portfolio will rise and fall with the
performance of the S&P 600.

o STOCK MARKET RISK - The value of the stocks the Portfolio holds can be
affected by changes in U.S. or foreign economies and financial markets,
and the companies that issue the stocks, among other things. Stock prices
can rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and periods
of falling prices. As of the date of this prospectus, the stock markets,
as measured by the S&P 600 and other commonly used indices, were trading
at or close to record levels. There can be no guarantee that these levels
will continue.

o FUTURES RISK - This Portfolio may use FUTURES CONTRACTS as a substitute
for the securities included in the index. There is a risk that this could
result in losses, reduce returns, increase transaction costs or increase
the Portfolio's volatility.

[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

PRIOR TO MAY 1, 2000, THE PORTFOLIO HAD A DIFFERENT INVESTMENT
OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

-9.35%* 5.92%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

27
<PAGE>

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD

<TABLE>
<S> <C>
Best: 4th quarter 1998: 15.92%
Worst: 3rd quarter 1998: -19.79%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations SmallCap Index Portfolio 5.92% -2.27%
S&P SmallCap 600 12.41% -0.07%
</TABLE>

28
<PAGE>

ABOUT THE BALANCED PORTFOLIO
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

BACAP IS THIS PORTFOLIO'S SUB-ADVISER. BACAP'S INVESTMENT
STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE
EQUITY PORTION OF THE PORTFOLIO. ITS FIXED INCOME MANAGEMENT TEAM
MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FIXED INCOME AND
MONEY MARKET PORTIONS OF THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
BACAP ON PAGE 37.

[GRAPHIC APPEARS HERE]

WHAT IS A BALANCED PORTFOLIO?

A BALANCED PORTFOLIO INVESTS IN A MIX OF EQUITY AND FIXED INCOME
SECURITIES, AND MONEY MARKET INSTRUMENTS.

EACH OF THESE "ASSET CLASSES" HAS DIFFERENT RISK/RETURN
CHARACTERISTICS. COMBINING THEM IN ONE PORTFOLIO CAN HELP REDUCE
RISK AND INCREASE RETURNS BECAUSE AT LEAST ONE ASSET CLASS SHOULD
HAVE THE POTENTIAL TO BE A STRONGER PERFORMER REGARDLESS OF MARKET
CONDITIONS.

BALANCED PORTFOLIOS LIKE THIS ONE CAN PROVIDE A DIVERSIFIED ASSET
MIX FOR YOU IN A SINGLE INVESTMENT.

Nations Balanced Assets Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks total return by investing in EQUITY and FIXED
INCOME SECURITIES.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

This Portfolio invests in a mix of equity and fixed income securities,
as well as MONEY MARKET INSTRUMENTS.

Equity securities the Portfolio invests in are primarily COMMON STOCK of
established companies believed to be financially strong.

Fixed income securities normally make up at least 25% of the Portfolio's
assets. Fixed income securities the Portfolio invests in are primarily bonds,
notes and MORTGAGE-BACKED and ASSET-BACKED SECURITIES issued by U.S. companies
and government entities.

Money market instruments the Portfolio invests in are primarily CASH
EQUIVALENTS, including U.S. GOVERNMENT OBLIGATIONS, COMMERCIAL PAPER and other
short-term, interest-bearing instruments.

The management team uses asset allocation as its primary investment approach.
The team allocates assets among the three asset classes based on its
assessment of the expected risks and returns of each class. The team
evaluates:

o current economic and financial market conditions, including trends in
interest rates, in the United States and abroad

o earnings and dividend prospects for common stocks

o the overall stability of financial markets

The team may change the Portfolio's asset allocation to try to increase
returns and reduce risk.

The team identifies individual investments using the following process:

o For the equity portion of the Portfolio, the team evaluates the overall
economy, industry conditions, and the financial condition and management of
each company, using a process called FUNDAMENTAL ANALYSIS.

o For the fixed income portion of the Portfolio, the team looks for securities
rated INVESTMENT GRADE at the time of investment. The team may choose
unrated securities if it believes they are of comparable quality to
investment grade securities at the time of investment.

o For the money market portion of the Portfolio, the team chooses high-quality
securities primarily to provide LIQUIDITY.

29
<PAGE>

The management team may use various tax strategies, consistent with the
Portfolio's investment objective, to try to reduce the amount of CAPITAL GAINS
distributed to shareholders. For example, the team:

o may limit the number of buy and sell transactions it makes

o will try to sell shares that have the lowest tax burden on shareholders

o may offset capital gains by selling securities to realize a CAPITAL LOSS

The team may sell a security when the Portfolio's asset allocation changes,
there is a deterioration in the issuer's financial situation, when the team
believes other investments are more attractive, or for other reasons.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO ON PAGE 34
AND THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations Balanced Assets Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - The team uses an asset allocation strategy to
try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns the team expects, or
will fall in value.

o STOCK MARKET RISK - The value of the stocks the Portfolio holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.

o INTEREST RATE RISK - The prices of the Portfolio's fixed income
securities will tend to fall when interest rates rise. In general,
fixed income securities with longer terms tend to fall more in value
when interest rates rise than fixed income securities with shorter
terms.

o CREDIT RISK - The Portfolio could lose money if the issuer of a fixed
income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income
securities, but is generally not a factor for U.S. government
obligations.

o PREPAYMENT AND EXTENSION RISK - The value of the Portfolio's
mortgage-backed securities can fall if the owners of the underlying
mortgages pay off their mortgages sooner than expected, which could
happen when interest rates fall, or later than expected, which could
happen when interest rates rise. If the underlying mortgages are
paid off sooner than expected, the portfolio may have to reinvest
this money in mortgage-backed securities that have lower yields.

30
<PAGE>
[GRAPHIC APPEARS HERE]

MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS, AND
PORTFOLIO EXPENSES.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio.

[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]

-2.23%* 1.44%
1998 1999

*Return is from inception (3-26-98) to 12-31-98.

BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD

<TABLE>
<S> <C>
Best: 4th quarter 1998: 9.86%
Worst: 3rd quarter 1998: -9.09%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Nations Balanced Assets Portfolio 1.44% -0.47%
S&P 500 21.04% 19.50%
Lehman Aggregate Bond Index -0.82% 3.47%
</TABLE>

31
<PAGE>

ABOUT THE FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------

[GRAPHIC APPEARS HERE]

ABOUT THE SUB-ADVISER

MACKAY SHIELDS LLC (MACKAY SHIELDS) IS THE PORTFOLIO'S
SUB-ADVISER. THE HIGH YIELD PORTFOLIO MANAGEMENT TEAM MAKES THE
DAY-TO-DAY INVESTMENT DECISIONS FOR THE PORTFOLIO.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
MACKAY SHIELDS ON PAGE 41.

[GRAPHIC APPEARS HERE]

HIGH YIELD DEBT SECURITIES

THIS PORTFOLIO INVESTS PRIMARILY IN HIGH YIELD DEBT SECURITIES,
WHICH ARE OFTEN REFERRED TO AS "JUNK BONDS." HIGH YIELD DEBT
SECURITIES OFFER THE POTENTIAL FOR HIGHER INCOME THAN OTHER KINDS
OF DEBT SECURITIES WITH SIMILAR MATURITIES, BUT THEY ALSO HAVE
HIGHER CREDIT RISK.

Nations High Yield Bond Portfolio

[GRAPHIC APPEARS HERE]

INVESTMENT OBJECTIVE

This Portfolio seeks maximum income by investing in a diversified
portfolio of high yield debt securities.

[GRAPHIC APPEARS HERE]

PRINCIPAL INVESTMENT STRATEGIES

The Portfolio normally invests at least 65% of its assets in domestic
and foreign corporate high yield debt securities. These securities are
not rated INVESTMENT GRADE, but generally will be rated "B" or better
by Moody's Investor Services, Inc. (Moody's) or Standard & Poor's
Corporation (S&P). The portfolio management team may choose unrated
securities if it believes they are of comparable quality at the time of
investment. The Portfolio is not managed within any specific DURATION.

The Portfolio invests primarily in:

o Domestic corporate high yield debt securities, including PRIVATE PLACEMENTS

o U.S. dollar-denominated foreign corporate high yield debt securities,
including private placements

o ZERO-COUPON BONDS

o U.S. GOVERNMENT OBLIGATIONS

o EQUITY SECURITIES (up to 25% of its assets), which may include CONVERTIBLE
SECURITIES

The Portfolio also may invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.

When selecting investments for the Portfolio, the portfolio management
team:

o focuses on individual security selection (bottom up analysis)

o uses fundamental credit analysis

o emphasizes current income while attempting to minimize risk to principal

o seeks to identify a catalyst for capital appreciation such as an
operational or financial restructuring

o tries to manage risk by diversifying the Portfolio's investments across
securities of many different issuers

32
<PAGE>

The portfolio management team may sell a security when its market price rises
above the target price the team has set, when it believes there has been a
deterioration in an issuer's fundamentals, such as earnings, sales or
management, or an issuer's credit quality, or to maintain portfolio
diversification.

[GRAPHIC APPEARS HERE]

YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS PORTFOLIO STARTING ON
PAGE 34 AND IN THE SAI.

[GRAPHIC APPEARS HERE]

RISKS AND OTHER THINGS TO CONSIDER

Nations High Yield Bond Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.

o CREDIT RISK - The types of securities in which the Portfolio typically
invests are not investment grade and are generally considered speculative
because they present a greater risk of loss, including default, than
higher quality debt securities. These securities typically pay a premium
-- a high interest rate or yield -- because of the increased risk of
loss. These securities also can be subject to greater price volatility.

o INTEREST RATE RISK - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.

o LIQUIDITY RISK - There is a risk that a security held by the Portfolio
cannot be sold at the time desired, or cannot be sold without adversely
affecting the price.

[GRAPHIC APPEARS HERE]

A LOOK AT THE PORTFOLIO'S PERFORMANCE

The Portfolio commenced its operations on May 1, 2000 and has been in
operation for less than a full calendar year so no performance has been
included in this prospectus.

33
<PAGE>

[GRAPHIC APPEARS HERE]

Other important information

You'll find specific information about each Portfolio's principal investments,
strategies and risks in the descriptions starting on page 6. The following are
some other risks and information you should consider before you invest:

o CHANGING INVESTMENT OBJECTIVES AND POLICIES - The investment objective
and certain investment policies of any Portfolio can be changed without
shareholder approval. Other investment policies may be changed only with
shareholder approval.

o HOLDING OTHER KINDS OF INVESTMENTS - The Portfolios may hold investments
that aren't part of their principal investment strategies. Please refer
to the SAI for more information. The portfolio managers or management
team can also choose not to invest in specific securities described in
this prospectus and in the SAI.

o FOREIGN INVESTMENT RISK - Portfolios that invest in FOREIGN SECURITIES
may be affected by changes in currency exchange rates and the costs of
converting currencies; the implementation of the Euro; foreign government
controls on foreign investment, repatriation of capital, and currency and
exchange; foreign taxes; inadequate supervision and regulation of some
foreign markets; difficulty selling some investments which may increase
volatility; different settlement practices or delayed settlements in some
markets; difficulty getting complete or accurate information about
foreign companies; less strict accounting, auditing and financial
reporting standards than those in the U.S.; political, economic or social
instability; and difficulty enforcing legal rights outside the U.S.

o INVESTING DEFENSIVELY - A Portfolio may temporarily hold investments that
are not part of its investment objective or its principal investment
strategies to try to protect it during a market or economic downturn or
because of political or other conditions. A Portfolio may not achieve its
investment objective while it is investing defensively.

o PORTFOLIO TURNOVER - A Portfolio that replaces -- or turns over -- more
than 100% of its investments in a year is considered to trade frequently.
Frequent trading can result in larger distributions of short-term CAPITAL
GAINS to shareholders. These gains are taxable at higher rates than
long-term capital gains. Frequent trading can also mean higher brokerage
and other transaction costs, which could reduce the Portfolio's returns.
The Portfolios generally buy securities for capital appreciation,
investment income, or both, and don't engage in short-term trading. The
annual portfolio turnover rate for Nations Strategic Growth Portfolio,
and the Index Funds is expected to be no more than 25%. The annual
portfolio turnover rate for Nations High Yield Bond Portfolio and
Nation's International Value Portfolio are expected to be no more than
130% and %, respectively. You'll find the portfolio turnover rate for
each portfolio in FINANCIAL HIGHLIGHTS.

34
<PAGE>

[GRAPHIC APPEARS HERE]

How the Portfolios are managed

[GRAPHIC APPEARS HERE]

BANC OF AMERICA ADVISORS, INC.

ONE BANK OF AMERICA PLAZA
CHARLOTTE, NORTH CAROLINA 28255

INVESTMENT ADVISER
BAAI is the investment adviser to over 60 mutual fund portfolios in the
Nations Funds family, including the Nations Annuity Trust Portfolios. Nations
Annuity Trust is a series of mutual funds that provides underlying investment
alternatives for variable annuity contracts and variable life insurance
policies.

BAAI is a registered investment adviser. It's a wholly-owned subsidiary of
Bank of America, which is owned by Bank of America Corporation. Nations
Annuity Trust pays BAAI an annual fee for its investment advisory services.
The fee is calculated daily based on the average net assets of each Portfolio
and is paid monthly. BAAI uses part of this money to pay investment
sub-advisers for the services they provide to each Portfolio.

BAAI has agreed to waive fees and/or reimburse expenses for certain Portfolios
until May 1, 2001. You'll find a discussion of any waiver and/or reimbursement
in the Fee Table Summary section of the preceding Nations Variable Annuity
prospectus. There is no assurance that BAAI will continue to waive and/or
reimburse any fees and/or expenses after this date.

The following chart shows the maximum advisory fees BAAI can receive.

ANNUAL INVESTMENT ADVISORY FEE, AS A % OF AVERAGE DAILY NET ASSETS

<TABLE>
<CAPTION>
Maximum
advisory
fee
<S> <C>
Nations Value Portfolio .65%
Nations Aggressive Growth Portfolio .65%
Nations Marsico Focused Equities Portfolio .75%
Nations Marsico Growth & Income Portfolio .75%
Nations Strategic Growth Portfolio .65%
Nations International Value Portfolio .90%
Nations International Growth Portfolio .80%
Nations Managed Index Portfolio .40%
Nations SmallCap Index Portfolio .40%
Nations Balanced Assets Portfolio .65%
Nations High Yield Bond Portfolio .55%
</TABLE>

INVESTMENT SUB-ADVISERS
Nations Annuity Trust and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the Portfolios. These sub-advisers
function under the supervision of BAAI and the Board of Trustees of Nations
Annuity Trust.

35
<PAGE>

[GRAPHIC APPEARS HERE]

BANC OF AMERICA CAPITAL
MANAGEMENT, INC.

ONE BANK OF AMERICA PLAZA
CHARLOTTE, NORTH CAROLINA 28255

BANC OF AMERICA CAPITAL MANAGEMENT, INC.
BACAP, the successor to TradeStreet Investment Associates, Inc., is a
registered investment adviser and a wholly-owned subsidiary of Bank of
America. Its management expertise covers all major domestic asset classes,
including EQUITY and FIXED INCOME SECURITIES, and MONEY MARKET INSTRUMENTS.

Currently managing more than $90 billion, BACAP has over 200 institutional
clients and is sub-adviser to more than 50 mutual funds in the Nations Funds
family. BACAP uses a team approach to investment management. Each team has
access to the latest technology and analytical resources.

BACAP is the investment sub-adviser to the Portfolios shown in the table
below. The table also tells you which internal BACAP asset management team is
responsible for making the day-to-day investment decisions for each Portfolio.

<TABLE>
<CAPTION>
Portfolio BACAP Team
<S> <C>
Nations Value Portfolio Value Strategies Team
Nations Aggressive Growth Portfolio Growth Strategies Team
Nations Strategic Growth Portfolio Growth Strategies Team
Nations Managed Index Portfolio Quantitative Strategies Team
Nations SmallCap Index Portfolio Quantitative Strategies Team
Nations Balanced Assets Portfolio Investment Strategies Team
for the equity portion of the portfolio
Fixed Income Management Team
for the fixed income and money market
portions of the portfolio
</TABLE>

[GRAPHIC APPEARS HERE]

MARSICO CAPITAL
MANAGEMENT, LLC

1200 17TH STREET
SUITE 1300
DENVER, COLORADO 80202

MARSICO CAPITAL MANAGEMENT, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas
F. Marsico in September 1997. It is a registered investment adviser,
specializing in large capitalization stocks, and currently has over $6.5
billion in assets under management.

Marsico Management Holdings, LLC, a wholly-owned subsidiary of Bank of America
Corporation, indirectly owns 50% of the equity of Marsico Capital.

Marsico Capital is the investment sub-adviser to:

o Nations Marsico Focused Equities Portfolio

o Nations Marsico Growth & Income Portfolio

THOMAS F. MARSICO, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for making the day-to-day investment
decisions for these portfolios. Mr. Marsico was an executive vice president
and portfolio manager at Janus Capital Corporation from 1988 until he formed
Marsico Capital in September 1997. He has more than 20 years of experience as
a securities analyst and portfolio manager.

36
<PAGE>
PERFORMANCE OF OTHER EQUITY FUNDS MANAGED BY THOMAS MARSICO
Nations Marsico Focused Equities Portfolio and Nations Marsico Growth & Income
Portfolio have been in operation since March 27, 1998, so they have a
relatively short performance history. The tables below are designed to show
you how similar equity funds managed by Thomas Marsico performed in the past.

The Janus Twenty Fund has an investment objective, policies and strategies
that are substantially similar to Nations Marsico Focused Equities Portfolio.
Mr. Marsico managed the Janus Twenty Fund from January 31, 1988 through August
11, 1997. He had full discretionary authority for selecting investments for
that fund, which had approximately $6 billion in net assets on August 11,
1997.

The table below shows the returns for the Janus Twenty Fund compared with the
S&P 500 for the periods ending August 7, 1997. The returns reflect deductions
of fees and expenses, and assume all dividends and distributions have been
reinvested.

AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 7, 1997

<TABLE>
<CAPTION>
Janus Twenty
Fund (%) S&P 500 (%)
<S> <C> <C>
one year 48.21 46.41
three years 32.07 30.63
five years 20.02 20.98
during the period of Mr. Marsico's management
(January 31, 1988 to August 7, 1997) 23.38 18.20
</TABLE>

This information is designed to show the historical track record of Mr.
Marsico. It does not indicate how the Portfolio has performed or will perform
in the future.

Performance will vary based on many factors, including market conditions, the
composition of the Portfolio's holdings and the portfolio's expenses.

The Janus Growth and Income Fund has an investment objective, policies and
strategies that are substantially similar to Nations Marsico Growth & Income
Portfolio. Mr. Marsico managed the Janus Growth and Income Fund from its
inception on May 31, 1991 through August 11, 1997. He had full discretionary
authority for selecting investments for that fund, which had approximately
$1.7 billion in net assets on August 11, 1997.

37
<PAGE>
The table below shows the returns for the Janus Growth and Income Fund
compared with the S&P 500 for the period ending August 7, 1997. The returns
reflect deductions of fees and expenses, and assume all dividends and
distributions have been reinvested.

AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 7, 1997

<TABLE>
<CAPTION>
Janus
Growth and
Income Fund (%) S&P 500 (%)
<S> <C> <C>
one year 47.77 46.41
three years 31.13 30.63
five years 21.16 20.98
during the period of Mr. Marsico's management
(May 31, 1991 to August 7, 1997) 21.19 18.59
</TABLE>

This information is designed to show the historical track record of Mr.
Marsico. It does not indicate how the Portfolio has performed or will perform
in the future.

Performance will vary based on many factors, including market conditions, the
composition of the Portfolio's holdings and the portfolio's expenses.

[GRAPHIC APPEARS HERE]

BRANDES INVESTMENT
PARTNERS, L.P.

12750 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130

BRANDES INVESTMENT PARTNERS, L.P.
Founded in 1974, Brandes is an investment advisory firm with 37 investment
professionals who manage more than $20 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to
build wealth by buying high quality, undervalued stocks.

Brandes is the investment sub-adviser to Nations International Value
Portfolio. Brandes' Large Cap Investment Committee is responsible for making
the day-to-day investment decisions for the Portfolio.

PERFORMANCE OF OTHER INTERNATIONAL EQUITY FUNDS AND ACCOUNTS MANAGED BY
BRANDES
Nations International Value Portfolio has been in operation since May 1, 2000,
so it has a relatively short performance history. The table below is designed
to show you how a similar composite of international equity accounts managed
by Brandes performed over a longer period in the past.

The Brandes composite's investment objective, policies and strategies are
substantially similar to Nations International Value Portfolio.

38
<PAGE>

The table below shows the returns for the Brandes composite compared with the
MSCI EAFE INDEX for the periods ending December 31, 1998. The returns reflect
deductions of fees and expenses, and assume all dividends and distributions
have been reinvested.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
one year 15.03% 20.33%
three years 17.12% 9.00%
five years 12.13% 9.19%
since inception (6/30/90) 18.10% 6.97%
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
1998 15.03% 20.33%
1997 20.00% 1.78%
1996 16.34% 6.05%
1995 13.75% 11.21%
1994 (2.98)% 7.78%
1993 40.86% 32.56%
1992 6.28% (12.17)%
1991 40.17% 12.13%
</TABLE>

This information is designed to demonstrate the historical track record of
Brandes. It does not indicate how the Portfolio has performed or will perform
in the future.

Performance will vary based on many factors, including market conditions, the
composition of the Portfolio's holdings and the Portfolio's expenses.

The Brandes composite includes Brandes International Equity Fund (since 1995)
and international equity accounts managed by Brandes. The accounts don't pay
the same expenses that mutual funds pay and aren't subject to the
diversification rules, tax restrictions and investment limits under the 1940
Act or Subchapter M of the Internal Revenue Code. Returns could have been
lower if the composite had been subject to these expenses and regulations. The
aggregate returns of the accounts in the composite may not reflect the returns
of any particular account of Brandes.

39
<PAGE>

[GRAPHIC APPEARS HERE]

GARTMORE GLOBAL PARTNERS

ONE BANK OF AMERICA PLAZA
CHARLOTTE, NORTH CAROLINA 28255

GARTMORE GLOBAL PARTNERS
Gartmore is a global asset manager dedicated to serving the needs of U.S.
based investors. Gartmore was formed in 1995 as a registered investment
adviser and manages more than $1 billion in assets.

Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly-owned subsidiary of Bank of America, and Gartmore U.S.
Limited, an indirect, wholly-owned subsidiary of Gartmore Investment
Management plc, a UK holding company for a leading UK-based international fund
management group of companies.

Gartmore follows a growth philosophy, which is reflected in its active
management of market allocation and stock selection.

Gartmore is the investment sub-adviser to Nations International Growth
Portfolio.

BRIAN O'NEILL, the principal senior investment manager of the Gartmore Global
Portfolio Team at Gartmore Global Partners, manages this portfolio. He has
managed the portfolio since its inception. Before joining Gartmore in 1981,
Mr. O'Neill was a fund manager in global equities at Antony Gibbs & Sons and
an investment analyst at Royal Insurance. He graduated from Glasgow University
in 1969 with a MA Honors degree in Political Economy.

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MACKAY SHIELDS LLC

9 WEST 57TH STREET
NEW YORK, NEW YORK 10019

MACKAY SHIELDS LLC
Founded in 1938, MacKay Shields is an independently-managed, wholly-owned
subsidiary of New York Life Insurance Company. The firm's 63 investment
professionals manage more than $30 billion in assets, including over $6
billion in high yield assets.

MacKay Shields' High Yield Portfolio Management Team is responsible for making
the day-to-day decisions for Nations High Yield Bond Portfolio.

PRIOR PERFORMANCE OF OTHER HIGH YIELD ACCOUNTS MANAGED BY MACKAY SHIELDS
Nations High Yield Bond Portfolio commenced its operations on May 1, 2000. The
table below is designed to show you how a similar composite of high yield
accounts managed by MacKay Shields performed over various time periods in the
past.

The MacKay Shields composite's investment objective, policies and strategies
are substantially similar to those of Nations High Yield Bond Portfolio.

40
<PAGE>

The table below shows the returns for the MacKay Shields composite compared
with the CS FIRST BOSTON HIGH YIELD INDEX for the periods ending December 31,
1999. The returns reflect deduction of certain expenses, but not investment
advisory fees, and assume all dividends and distributions have been
reinvested.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
CS First Boston
MacKay Shields High Yield
Composite (%) Index (%)
<S> <C> <C>
one year 11.2% 3.3%
three years 11.0% 5.4%
five years 14.9% 9.1%
since inception (7/1/91) 16.2% 10.8%
</TABLE>

ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
CS First Boston
MacKay Shields High Yield
Composite (%) Index (%)
<S> <C> <C>
1999 11.2% 3.3%
1998 5.5% 0.6%
1997 16.5% 12.6%
1996 20.2% 12.4%
1995 21.8% 17.4%
1994 3.1% (1.0)%
1993 23.7% 18.9%
1992 24.0% 16.7%
1991 (since 7/1/91) 13.1% 12.9%
</TABLE>

This information is designed to demonstrate the historical track record of
MacKay Shields. It does not indicate how the Portfolio will perform in the
future.

Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Portfolio's fees and expenses.

The MacKay Shields composite includes high yield accounts managed by MacKay
Shields. The accounts don't pay the same expenses that mutual funds pay and
aren't subject to the diversification rules, tax restrictions and investment
limits under the 1940 Act or Subchapter M of the Internal Revenue Code.
Returns would have been lower if the composite had been subject to these
expenses and regulations and reflected a deduction for investment advisory
fees. Performance is expressed in U.S. dollars. The aggregate returns of the
accounts in the composite may not reflect the returns of any particular
account of MacKay Shields. For further information regarding the composite
performance, please see the SAI.

41
<PAGE>
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STEPHENS INC.

111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201

OTHER SERVICE PROVIDERS
The Portfolios are distributed and co-administered by Stephens Inc., a
registered broker/dealer. Stephens may pay commissions, distribution (12b-1)
and shareholder servicing fees, and/or other compensation to companies for
selling shares and providing services to investors.

BAAI is also co-administrator of the Portfolios, and assists in overseeing the
administrative operations of the Portfolios. The Portfolios pay BAAI and
Stephens a combined fee for their services, plus certain out-of-pocket
expenses. The fee is calculated as an annual percentage of the average daily
net assets of the Portfolios and is paid monthly, as follows:

<TABLE>
<S> <C>
Domestic Equity Portfolios 0.23%
International Portfolio 0.22%
Nations High Yield Bond 0.23%
</TABLE>

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PFPC INC.

400 BELLEVUE PARKWAY
WILMINGTON, DELAWARE 19809

PFPC Inc. ("PFPC") is the transfer agent for the Portfolios' shares. Its
responsibilities include processing purchases, sales and exchanges,
calculating and paying distributions, keeping shareholder records, preparing
account statements and providing customer service.

42
<PAGE>

ABOUT YOUR INVESTMENT
- --------------------------------------------------------------------------------

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WE'VE USED THE TERM, INVESTMENT PROFESSIONAL, TO REFER TO THE
PERSON WHO HAS ASSISTED YOU WITH BUYING THE PORTFOLIOS. SELLING
AGENT OR SERVICING AGENT (SOMETIMES REFERRED TO AS A SELLING
AGENT) MEANS THE COMPANY THAT EMPLOYS YOUR INVESTMENT
PROFESSIONAL. SELLING AGENTS INCLUDE BANKS, BROKERAGE FIRMS,
MUTUAL FUND DEALERS, PARTICIPATING LIFE INSURANCE COMPANIES, AND
OTHER FINANCIAL INSTITUTIONS, INCLUDING AFFILIATES OF BANK OF
AMERICA.

WHEN YOU SELL SHARES OF A MUTUAL FUND, THE FUND IS EFFECTIVELY
"BUYING" THEM BACK FROM YOU. THIS IS CALLED A REDEMPTION.

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A BUSINESS DAY IS ANY DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE)
IS OPEN. A BUSINESS DAY ENDS AT THE CLOSE OF REGULAR TRADING ON THE
NYSE, USUALLY AT 4:00 P.M. EASTERN TIME. IF THE NYSE CLOSES EARLY,
THE BUSINESS DAY ENDS AS OF THE TIME THE NYSE CLOSES.

THE NYSE IS CLOSED ON WEEKENDS AND ON THE FOLLOWING NATIONAL
HOLIDAYS: NEW YEAR'S DAY, MARTIN LUTHER KING, JR. DAY, PRESIDENTS'
DAY, GOOD FRIDAY, MEMORIAL DAY, INDEPENDENCE DAY, LABOR DAY,
THANKSGIVING DAY AND CHRISTMAS DAY.

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Buying, selling and transfering shares

Nations Annuity Trust Portfolios are available only to owners of variable
annuity contracts or variable life insurance policies. Please refer to the
prospectus that describes your annuity contract or life insurance policy for
information about how to buy, sell and transfer your investment among shares
of the Portfolios.

HOW SHARES ARE PRICED
All transactions are based on the price of a Portfolio's shares -- or its net
asset value. We calculate net asset value per share for each Portfolio at the
end of each business day. First, we calculate the net asset value for each
Portfolio by determining the value of the Portfolio's assets and then
subtracting its liabilities. Next, we divide this amount by the number of
shares that investors are holding in the Portfolio.

VALUING SECURITIES IN A PORTFOLIO
The value of a Portfolio's assets is based on the total market value of all of
the securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Portfolio.
If prices aren't readily available, we'll base the price of a security on its
fair market value. We use the amortized cost method, which approximates market
value, to value short-term investments maturing in 60 days or less.
International markets may be open on days when U.S. markets are closed. The
value of foreign securities owned by a portfolio could change on days when
Portfolio shares may not be bought or sold.

43
<PAGE>

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How selling and servicing agents are paid

Selling and servicing agents usually receive compensation based on your
investment in the Portfolios. Selling agents typically pay a portion of the
compensation they receive to their investment professionals.

[GRAPHIC APPEARS HERE]

THE FINANCIAL INSTITUTION OR INTERMEDIARY THAT BUYS SHARES FOR YOU
IS ALSO SOMETIMES REFERRED TO AS A SELLING AGENT.

THE DISTRIBUTION FEE IS OFTEN REFERRED TO AS A "12B-1" FEE BECAUSE
IT'S PAID THROUGH A PLAN APPROVED UNDER RULE 12B-1 UNDER THE 1940
ACT.

YOUR SELLING AGENT MAY CHARGE OTHER FEES RELATED TO SERVICES
PROVIDED TO YOUR ACCOUNT.

DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES
Stephens and/or selling and servicing agents are compensated for selling
shares and providing services to investors under a combined distribution and
shareholder servicing plan.

Stephens and/or selling and servicing agents may receive a maximum combined
annual distribution (12b-1) and shareholder servicing fee of 0.25% for selling
shares and providing services to holders of variable annuity contracts or
variable life insurance policies with whom the selling and servicing agents
have a relationship.

Fees are calculated daily and deducted monthly. Because these fees are paid
out of the Portfolios' assets on an ongoing basis they will increase the cost
of your investment over time, and may cost you more than any sales charges you
may pay.

The Portfolios pay these fees to Stephens and/or to eligible selling and
servicing agents for as long as the plan continues. We may reduce or
discontinue payments at any time.

44
<PAGE>
[GRAPHIC APPEARS HERE]

Distributions and taxes

[GRAPHIC APPEARS HERE]

THE POWER OF COMPOUNDING

REINVESTING YOUR DISTRIBUTIONS BUYS YOU MORE SHARES OF A
PORTFOLIO -- WHICH LETS YOU TAKE ADVANTAGE OF THE POTENTIAL FOR
COMPOUND GROWTH.

PUTTING THE MONEY YOU EARN BACK INTO YOUR INVESTMENT MEANS IT, IN
TURN, MAY EARN EVEN MORE MONEY. OVER TIME, THE POWER OF
COMPOUNDING HAS THE POTENTIAL TO SIGNIFICANTLY INCREASE THE VALUE
OF YOUR INVESTMENT. THERE IS NO ASSURANCE, HOWEVER, THAT YOU'LL
EARN MORE MONEY IF YOU REINVEST YOUR DISTRIBUTIONS.

ABOUT DISTRIBUTIONS
A mutual fund can make money two ways:

o It can earn income. Examples are interest paid on bonds and dividends paid
on COMMON STOCKS.

o A portfolio can also have CAPITAL GAIN if the value of its investments
increases. If a portfolio sells an investment at a gain, the gain is
realized. If a portfolio continues to hold the investment, any gain is
unrealized.

A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gain to its shareholders. The
Portfolios intend to pay out a sufficient amount of their income and capital
gain to their shareholders so the portfolios won't have to pay any income tax.
When a Portfolio makes this kind of a payment, it's split equally among all
shares, and is called a distribution.

The Portfolios distribute dividends from net investment income once a year.
They may also distribute any net realized capital gains, including short-term
capital gains, at least once a year.

A distribution is paid based on the number of shares you hold on the record
date, which is usually the day before the distribution is declared. Shares are
eligible to receive distributions from the TRADE DATE of the purchase up to
and including the day before the shares are sold.

Each time a distribution is made, the net asset value per share of the
Portfolio is reduced by the amount of the distribution.

We'll automatically reinvest distributions in additional shares of the same
Portfolio unless you tell us you want to receive your distributions in cash.
You can do this by writing to us at the address on the back cover, or by
calling us at 1.800.321.7854.

We generally pay cash distributions within five business days after the end of
the month or quarter in which the distribution was made. If you sell all of
your shares, we'll pay any distribution that applies to those shares in cash
within five business days after the sale was made.

If you buy shares of a Portfolio shortly before it makes a distribution, you
will, in effect, receive part of your purchase back in the distribution, which
is subject to tax. Similarly, if you buy shares of a Portfolio that holds
securities with unrealized capital gain, you will, in effect, receive part of
your purchase back if and when the Portfolio sells those securities and
distributes the gain. This distribution is also subject to tax. Some
Portfolios have built up, or have the potential to build up, high levels of
unrealized capital gain.

45
<PAGE>

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THIS INFORMATION IS A SUMMARY OF HOW FEDERAL INCOME TAXES MAY
AFFECT YOUR INVESTMENT IN THE PORTFOLIOS. IT IS NOT INTENDED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING. YOU SHOULD CONSULT WITH YOUR
OWN TAX ADVISOR ABOUT YOUR SITUATION, INCLUDING ANY FOREIGN, STATE
AND LOCAL TAXES THAT MAY APPLY.

[GRAPHIC APPEARS HERE]

FOR MORE INFORMATION ABOUT TAXES, PLEASE SEE THE SAI.

HOW TAXES AFFECT YOUR INVESTMENT
Distributions of net investment income, including net foreign currency gain
and any excess of net short-term capital gain over net long-term capital loss
generally are taxable to you as ordinary income.

Distributions of net capital gain (generally the excess of net long-term
capital gain over net short-term capital loss) generally are taxable to you as
net capital gain.

In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the
Portfolio. However, any distributions declared in October, November or
December of one year and distributed in January of the following year will be
taxable as if they had been paid to you on December 31 of the first year.

We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.

By investing in shares of a Portfolio through a variable annuity contract or
variable life insurance policy, you may not be subject to immediate taxation
on distributions from a portfolio and may qualify for other favorable tax
treatment. In order to qualify for such treatment, among other things, the
Portfolios generally must only be available to owners of variable annuity
contracts and variable life insurance policies and the portfolios must be
"adequately diversified." Each Portfolio is only available to owners of
variable annuity contracts and variable life insurance policies and intends to
be "adequately diversified" so that owners of variable annuity contracts and
variable life insurance policies investing in the portfolio may qualify for
favorable tax treatment. See the accompanying prospectus for additional
information regarding the taxation of your variable annuity contract or
variable life insurance policy. Federal income taxation of participating life
insurance companies, variable annuity contracts and variable life insurance
policies is discussed in the accompanying prospectus.

[GRAPHIC APPEARS HERE]

Financial highlights

The financial highlights table is designed to help you understand how the
Portfolios have performed since their inception. Certain information reflects
financial results for a single Portfolio share. The total investment return
line indicates how much an investment in the Portfolio would have earned,
assuming all dividends and distributions had been reinvested.

This financial information has been audited by PricewaterhouseCoopers LLP. The
independent accountant's report and Nations Annuity Trust's financial
statements are incorporated by reference into the SAI. Please see the back
cover to find out how you can get a copy.

46
<PAGE>

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
International Focused
Growth Portfolio Equities Portfolio
Period ended Period ended
12/31/98* 12/31/98*
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.06 0.02
Net realized and unrealized gain/(loss) on
investments 0.25 3.00
Net Increase/(Decrease) in Net Asset Value from
operations 0.31 3.02
LESS DISTRIBUTIONS:
Dividends from net investment income (a) ( 0.03) ( 0.02)
Dividends from net realized capital gains ( 0.00) ( 0.00)
Returns of capital ( 0.00) ( 0.00)
Total dividends and distributions ( 0.03) ( 0.02)
Net asset value, end of period $ 10.28 $ 13.00
TOTAL RETURN+ 3.11% 30.16%
===================================================== ======= =======
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,310 $24,521
Ratio of operating expenses to average net assets++ 1.25% 1.10%
Ratio of net investment income to average net
assets++ 1.09% 0.33%
Portfolio turnover rate 16% 236%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements
(b)++ 4.09% 1.94%

<CAPTION>
Managed SmallCap Disciplined Growth & Income
Index Portfolio Equity Portfolio Portfolio
Period ended Period ended Period ended
12/31/98* 12/31/98* 12/31/98*
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.02 0.02
Net realized and unrealized gain/(loss) on
investments ( 0.97) 0.62 2.16
Net Increase/(Decrease) in Net Asset Value from
operations ( 0.94) 0.64 2.18
LESS DISTRIBUTIONS:
Dividends from net investment income (a) ( 0.03) ( 0.02) ( 0.02)
Dividends from net realized capital gains ( 0.00) ( 0.00) ( 0.00)
Returns of capital ( 0.00) ( 0.00) ( 0.00)
Total dividends and distributions ( 0.03) ( 0.02) ( 0.02)
Net asset value, end of period $ 9.03 $ 10.62 $ 12.16
TOTAL RETURN+ ( 9.35)% 6.44% 21.80%
===================================================== ======= ======= =======
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $6,098 $4,796 $15,576
Ratio of operating expenses to average net assets++ 0.75% 1.00% 1.10%
Ratio of net investment income to average net
assets++ 0.49% 0.44% 0.40%
Portfolio turnover rate 44% 40% 184%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements
(b)++ 1.70% 2.41% 1.99%
</TABLE>

* Portfolio commenced operations on March 27, 1998.
Shares were offered to the public on April 6, 1998.
+ Total return represents aggregate total return for
the period indicated.
++ Annualized.
(a) Includes distributions in excess of net
investment income or from net realized gains that
amounted to less than $0.01 per share.
(b) The ratio includes custodian fees before
reduction for credits.

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
Managed Index Portfolio
Period ended 12/31/98*
<S> <C>
Net asset value, beginning of period $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.06
Net realized and unrealized gain/(loss) on
investments 1.07
Net Increase/(Decrease) in Net Asset Value from
operations 1.13
LESS DISTRIBUTIONS:
Dividends from net investment income (a) ( 0.07)
Dividends from net realized capital gains ( 0.00)
Returns of capital ( 0.00)
Total dividends and distributions ( 0.07)
Net asset value, end of period $ 11.06
TOTAL RETURN+ 11.39%
===================================================== =======
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $9,931
Ratio of operating expenses to average net assets++ 0.75%
Ratio of net investment income to average net
assets++ 1.04%
Portfolio turnover rate 16%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements
(b)++ 1.62%

<CAPTION>
Value Portfolio Balanced Assets Portfolio
Period ended 12/31/98* Period ended 12/31/98*
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.09
Net realized and unrealized gain/(loss) on
investments 0.41 ( 0.31)
Net Increase/(Decrease) in Net Asset Value from
operations 0.45 ( 0.22)
LESS DISTRIBUTIONS:
Dividends from net investment income (a) ( 0.04) ( 0.10)
Dividends from net realized capital gains ( 0.00) ( 0.00)
Returns of capital ( 0.00) ( 0.00)
Total dividends and distributions ( 0.04) ( 0.10)
Net asset value, end of period $ 10.41 $ 9.68
TOTAL RETURN+ 4.48% ( 2.23)%
===================================================== ======= =======
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,645 $3,823
Ratio of operating expenses to average net assets++ 1.00% 1.00
Ratio of net investment income to average net
assets++ 0.83% 2.36%
Portfolio turnover rate 27% 94%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements
(b)++ 2.32% 2.71%
</TABLE>

47
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Terms used in this prospectus

ASSET-BACKED SECURITY - a debt security that gives you an interest in a pool
of assets that is collateralized or "backed" by one or more kinds of assets,
including real property, receivables or mortgages, generally issued by banks,
credit card companies or other lenders. Some securities may be issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities. Asset-backed securities typically make periodic payments,
which may be interest or a combination of interest and a portion of the
principal of the underlying assets.

AVERAGE DOLLAR-WEIGHTED MATURITY - the average length of time until the debt
securities held by a Fund reach maturity. In general, the longer the average
dollar-weighted maturity, the more a Fund's share price will fluctuate in
response to changes in interest rates.

BANK OBLIGATION - a money market instrument issued by a bank, including
certificates of deposit, time deposits and bankers' acceptances.

CAPITAL GAIN OR LOSS - the difference between the purchase price of a security
and its selling price. You realize a capital gain when you sell a security for
more than you paid for it. You realize a capital loss when you sell a security
for less than you paid for it.

CASH EQUIVALENTS - short-term, interest-bearing instruments, including
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, bank obligations, asset-backed securities, foreign
government securities and commercial paper issued by U.S. and foreign issuers
which, at the time of investment, is rated at least Prime-2 by Moody's
Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch).

COLLATERALIZED MORTGAGE OBLIGATION (CMO) - a debt security that is backed by
real estate mortgages. CMO payment obligations are covered by interest and/or
principal payments from a pool of mortgages. In addition, the underlying
assets of a CMO are typically separated into classes, called tranches, based
on maturity. Each tranche pays a different rate of interest. CMOs are not
generally issued by the U.S. government, its agencies or instrumentalities.

COMMERCIAL PAPER - a money market instrument issued by a large company.

COMMON STOCK - a security that represents part equity ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.

CONVERTIBLE DEBT - a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.

CONVERTIBLE SECURITY - a security that can be exchanged for common stock (or
another type of security) at a specified rate. Convertible securities include
convertible debt, rights and warrants.

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<PAGE>
CORPORATE OBLIGATION - a money market instrument issued by a corporation or
commercial bank.

CROSSING NETWORKS - an electronic system where anonymous parties can match buy
and sell transactions. These transactions don't affect the market, and
transaction costs are extremely low.

CS FIRST BOSTON HIGH YIELD INDEX - the Credit Suisse First Boston Global High
Yield Index is an unmanaged, trader priced portfolio constructed to mirror the
high yield debt market. The index is not available for investment.

DEBT SECURITY - when you invest in a debt security, you are typically lending
your money to a governmental body or company (the issuer) to help fund their
operations or major projects. The issuer pays interest at a specified rate on
a specified date or dates, and repays the principal when the security matures.
Short-term debt securities include money market instruments such as treasury
bills. Long-term debt securities include fixed income securities such as
government and corporate bonds, and mortgage-backed and asset-backed
securities.

DEPOSITARY RECEIPTS - evidence of the deposit of a security with a custodian
bank. American Depositary Receipts (ADRs), for example, are certificates
traded in U.S. markets representing an interest of a foreign company. They
were created to make it possible for foreign issuers to meet U.S. security
registration requirements. Other examples include ADSs, GDRs and EDRs.

DIVIDEND YIELD - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.

DOLLAR ROLL TRANSACTION - the sale by a Portfolio of mortgage-backed or other
asset-backed securities, together with a commitment to buy similar, but not
identical, securities at a future date.

DURATION - a security's or portfolio's sensitivity to changes in interest
rates. For example, if interest rates rise by one percentage point, the share
price of a fund with a duration of five years would decline by about 5%. If
interest rates fall by one percentage point, the fund's share price would rise
by about 5%.

EQUITY SECURITY - an investment that gives you an equity ownership right in a
company. Equity securities (or "equities") include common and preferred stock,
rights and warrants.

FIRST BOSTON CONVERTIBLE INDEX - a widely-used unmanaged index that measures
the performance of convertible securities. The index is not available for
investment.

FIRST-TIER SECURITY - under Rule 2a-7 under the 1940 Act, a debt security that
is an eligible investment for money market funds and has the highest
short-term rating from a nationally recognized statistical rating organization
(NRSRO), or if unrated, is determined by the fund's portfolio management team
to be of comparable quality, or is a money market fund issued by a registered
investment company, or is a government security.

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<PAGE>
FIXED INCOME SECURITY - an intermediate to long-term debt security that
matures in more than one year.

FOREIGN SECURITY - a debt or equity security issued by a foreign company or
government.

FUNDAMENTAL ANALYSIS - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.

FUTURES CONTRACT - a contract to buy or sell an asset or an index of
securities at a specified price on a specified future date. The price is set
through a futures exchange.

GUARANTEED INVESTMENT CONTRACT - an investment instrument issued by a rated
insurance company in return for a payment by an investor.

HIGH QUALITY - in the case of municipal securities, a long-term rating of A or
higher from Duff & Phelps Credit Rating Co. (D&P), Fitch, S&P, Thomson
BankWatch, Inc. (BankWatch), or Moody's in the case of certain bonds that are
lacking a short-term rating from the required number of NRSROs; rated D-1 or
higher by D&P, F-1 or higher by Fitch, SP-1 by S&P, or MIG-1 by Moody's in the
case of notes; rated D-1 or higher by D&P, F-1 or higher by Fitch, or VMIG-1
by Moody's in the case of variable rate demand notes; or rated D-1 or higher
by D&P, F-1 or higher by Fitch, A-1 or higher by S&P or PRIME-1 by Moody's in
the case of tax-exempt commercial paper. The portfolio management team may
consider an unrated municipal security to be investment grade if the team
believes it to be of comparable quality, based on guidelines provided by the
Portfolio's Board of Directors. Please see the SAI for more information about
credit ratings.

HIGH-YIELD DEBT SECURITY - debt securities that, at the time of investment by
the sub-adviser, are rated "BB" or below by S&P or "Ba" or below by Moody's,
or that are unrated and determined to be of comparable quality.

IFC INVESTABLES INDEX - an unmanaged index that tracks more than 1,400 stocks
in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the
Middle East. The index is weighted by market capitalization.

INVESTMENT GRADE - a debt security that has been given a medium to high credit
rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating
by other nationally recognized statistical rating organization NRSROs) based
on the issuer's ability to pay interest and repay principal on time. The
portfolio management team may consider an unrated debt security to be
investment grade if the team believes it is of comparable quality. Please see
the SAI for more information about credit ratings.

LEHMAN 3-YEAR MUNICIPAL BOND INDEX - a broad-based, unmanaged index of
investment grade bonds with maturities of two to four years. All dividends are
reinvested.

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LEHMAN 7-YEAR MUNICIPAL BOND INDEX - a broad-based, unmanaged index of
investment grade bonds with maturities of seven to eight years. All dividends
are reinvested.

LEHMAN AGGREGATE BOND INDEX - an index made up of the Lehman
Government/Corporate Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index. These indexes include U.S. government agency
and U.S. Treasury securities, corporate bonds and mortgage-backed securities.
All dividends are reinvested.

LEHMAN GOVERNMENT BOND INDEX - an index of government bonds with an average
maturity of approximately nine years. All dividends are reinvested.

LEHMAN GOVERNMENT/CORPORATE BOND INDEX - an index of U.S. government, U.S.
Treasury and agency securities, and corporate and Yankee bonds. All dividends
are reinvested.

LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX - an index of U.S. government agency
and U.S. Treasury securities. All dividends are reinvested.

LEHMAN INTERMEDIATE TREASURY INDEX - an index of U.S. Treasury securities with
maturities of three to 10 years. All dividends are reinvested.

LEHMAN MUNICIPAL BOND INDEX - a broad-based, unmanaged index of 8,000
investment grade bonds with long-term maturities. All dividends are
reinvested.

LIQUIDITY - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.

MERRILL LYNCH 1-3 YEAR TREASURY INDEX - an index of U.S. Treasury bonds with
maturities of 1 to 3 years. All dividends are reinvested.

MONEY MARKET INSTRUMENT - a short-term debt security that matures in 13 months
or less. Money market instruments include U.S. Treasury obligations, U.S.
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, repurchase agreements and certain municipal securities.

MORTGAGE-BACKED SECURITY OR MORTGAGE-RELATED SECURITY - a debt security that
gives you an interest in, and is backed by, a pool of residential mortgages
issued by the U.S. government or by financial institutions. The underlying
mortgages may be guaranteed by the U.S. government or one of its agencies,
authorities or instrumentalities. Mortgage-backed securities typically make
monthly payments, which are a combination of interest and a portion of the
principal of the underlying mortgages.

MSCI EAFE INDEX - Morgan Stanley Capital International Europe, Australasia and
Far East Index, an index of over 1,100 stocks from 21 developed markets in
Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.

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MUNICIPAL SECURITY (OBLIGATION) - a debt security issued by state or local
governments or governmental authorities to pay for public projects and
services. "General obligations" are typically backed by the issuer's full
taxing and revenue-raising powers. "Revenue securities" depend on the income
earned by a specific project or authority, like road or bridge tolls, user
fees for water or revenues from a utility. Interest income from these
securities is exempt from federal income taxes and is generally exempt from
state taxes if you live in the state that issued the security. If you live in
the municipality that issued the security, interest income may also be exempt
from local taxes.

NON-DIVERSIFIED - a portfolio that holds securities of fewer issuers or kinds
of issuers than other kinds of portfolios. Non-diversified portfolios tend to
have greater price swings than more diversified portfolios because events
affecting one or more of its securities may have a disproportionately large
effect on the portfolio.

OVER-THE-COUNTER MARKET - a market where dealers trade securities through a
telephone or computer network rather than through a public stock exchange.

PARTICIPATION - a pass-through certificate representing a share in a pool of
debt obligations or other instruments.

PASS-THROUGH CERTIFICATE - securitized mortgages or other debt securities with
interest and principal paid by a servicing intermediary shortly after interest
payments are received from borrowers.

PREFERRED STOCK - a type of equity security that gives you a limited ownership
right in a company, with certain preferences or priority over common stock.
Preferred stock generally pays a fixed annual dividend. If the company goes
bankrupt, preferred shareholders generally receive their share of the
company's remaining assets before common shareholders and after bondholders
and other creditors.

PRE-REFUNDED BOND - a bond that is repaid before its maturity date. The
repayment is generally financed by a new issue. Issuers generally pre-refund
bonds during periods of lower interest rates to reduce their interest costs.

PRICE-TO-EARNINGS RATIO (P/E RATIO) - the current price of a share divided by
its actual or estimated earnings per share. The P/E ratio is one measure of
the value of a company.

PRIVATE ACTIVITY BOND - a municipal security that is used to finance private
projects or other projects that aren't qualified for tax purposes. Private
activity bonds are generally taxable, unless their use is specifically
exempted, or may be treated as tax preference items.

PRIVATE PLACEMENT - a private placement is the sale of stocks, bonds or other
investments directly to a qualified investor without having to register the
offering with the U.S. Securities and Exchange Commission or other comparable
foreign regulatory authorities. Qualified investors are typically large
institutional investors rather than individuals. Securities acquired through
private placements generally may not be resold.

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<PAGE>
QUANTITATIVE ANALYSIS - an analysis of financial information about a company
or security to identify securities that have the potential for growth or are
otherwise suitable for a portfolio to buy.

REAL ESTATE INVESTMENT TRUST (REIT) - a portfolio of real estate investments
which may include office buildings, apartment complexes, hotels and shopping
malls, and real-estate-related loans or interests.

REPURCHASE AGREEMENT - a short-term (often overnight) investment arrangement.
The investor agrees to buy certain securities from the borrower and the
borrower promises to buy them back at a specified date and price. The
difference between the purchase price paid by the investor and the repurchase
price paid by the borrower represents the investor's return. Repurchase
agreements are popular because they provide very low-risk return and can
virtually eliminate credit difficulties.

REVERSE REPURCHASE AGREEMENT - a repurchase agreement in which an investor
sells a security to another party, like a bank or dealer, in return for cash,
and agrees to buy the security back at a specified date and price.

RIGHT - a temporary privilege allowing investors who already own a common
stock to buy additional shares directly from the company at a specified price
or formula.

RUSSELL 1000 GROWTH - an unmanaged index which measures the performance of the
largest U.S. companies based on total market capitalization, with high
price-to-book ratios and forecasted growth relative to the Russell 1000 index
as a whole.

S&P 400(1) - Standard & Poor's 400 Composite Stock Price Index, an unmanaged
index of 400 widely held common stocks. It is not available for investment.

S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged
index of 500 widely held common stocks. It is not available for investment.

S&P MIDCAP 400(1) - an unmanaged index of 400 domestic stocks chosen for market
size, liquidity and industry representation. The index is weighted by market
value, and is not available for investment.

S&P SMALLCAP 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index
of 600 common stocks, weighted by market capitalization. It is not available
for investment.

S&P/BARRA SMALLCAP VALUE INDEX(1) - an unmanaged index of a group of stocks
from the S&P SmallCap 600 that have low price-to-book ratios relative to the
S&P SmallCap 600 as a whole. It is weighted by market capitalization, and is
not available for investment.

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S&P/BARRA VALUE INDEX(1) - an unmanaged index of a group of stocks from the S&P
500 that have low price-to-book ratios relative to the S&P 500 as a whole. It
is weighted by market capitalization, and is not available for investment.

SALOMON BROTHERS MORTGAGE INDEX - an index of 30-year and 15-year GNMA, FNMA
and FHLMC securities, and FNMA and FHLMC balloon mortgages.

SECOND-TIER SECURITY - under Rule 2a-7 under the 1940 Act, a debt security
that is an eligible investment for money market funds, but is not a first-tier
security.

SENIOR SECURITY - a debt security that allows holders to receive their share
of a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.

SPECIAL PURPOSE ISSUER - an entity organized solely to issue asset-backed
securities on a pool of assets it owns.

SETTLEMENT DATE - the date on which an order is settled either by payment or
delivery of securities.

TRADE DATE - the effective date of a purchase, sale or exchange transaction,
or other instructions sent to us. The trade date is determined by the day and
time we receive the order or instructions in a form that's acceptable to us.

U.S. GOVERNMENT OBLIGATIONS - a wide range of debt securities issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.

U.S. TREASURY OBLIGATION - a debt security issued by the U.S. Treasury.

WARRANT - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.

WILSHIRE 5000 EQUITY INDEX - an index that measures the performance of the
equity securities of all companies headquartered in the U.S. that have readily
available price data -- over 7,000 companies. The index is weighted by market
capitalization and is not available for investment.

ZERO-COUPON BOND - a bond that makes no periodic interest payments. Zero
coupon bonds are sold at a deep discount to their face value and mature at
face value. The difference between the face value at maturity and the purchase
price represents the return.

(1)S&P and BARRA have not reviewed any stock included in the S&P 400, S&P 500,
S&P 600, BARRA Index or BARRA SmallCap Index for its investment merit. S&P
and BARRA determine and calculate their indexes independently of the
Portfolios and are not a sponsor or affiliate of the Portfolios. S&P and
BARRA give no information and make no statements about the suitability of
investing in the Portfolios or the ability of their indexes to track stock
market performance. S&P and BARRA make no guarantees about the indexes, any
data included in them and the suitability of the indexes or their data for
any purpose. "Standard and Poor's," "S&P 400," "S&P 500" and "S&P 600" are
trademarks of the McGraw-Hill Companies, Inc.

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<PAGE>
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NATIONS ANNUITY TRUST

NATIONS ANNUITY TRUST PORTFOLIOS ARE AVAILABLE ONLY TO OWNERS OF
VARIABLE ANNUITY CONTRACTS OR VARIABLE LIFE INSURANCE POLICIES
ISSUED BY PARTICIPATING LIFE INSURANCE COMPANIES, INCLUDING
HARTFORD LIFE INSURANCE COMPANY.

PLEASE REFER TO THE PROSPECTUS THAT DESCRIBES YOUR ANNUITY
CONTRACT OR LIFE INSURANCE POLICY FOR INFORMATION ABOUT HOW TO
BUY, SELL AND TRANSFER YOUR INVESTMENT AMONG SHARES OF THE
PORTFOLIOS.

[GRAPHIC APPEARS HERE]

WHERE TO FIND MORE INFORMATION

You'll find more information about Nations Annuity Trust Portfolios in the
following documents:

[GRAPHIC APPEARS HERE]

ANNUAL AND SEMI-ANNUAL REPORTS

The annual and semi-annual reports contain information about portfolio
investments and performance, the financial statements and the auditor's
reports. The annual report also includes a discussion about the market
conditions and investment strategies that had a significant effect on
each Portfolio's performance during the period covered.

[GRAPHIC APPEARS HERE]

STATEMENT OF ADDITIONAL INFORMATION

The SAI contains additional information about the Portfolios and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the SEC.

You can obtain a free copy of these documents, request other
information about the portfolios and make shareholder inquiries by
contacting Nations Annuity Trust:

By telephone: 1.800.321.7854

By mail:
NATIONS ANNUITY TRUST
C/O STEPHENS INC.
ONE BANK OF AMERICA PLAZA
33RD FLOOR
CHARLOTTE, NC 28255

On the Internet: WWW.NATIONS-FUNDS.COM

Information about the Portfolios can be reviewed and copied at the
Commission's Public Reference Room in Washington, D.C. Information on
the operation of the Public Reference Room may be obtained by calling
the Commission at 1-202-942-8090. The reports and other information
about the Portfolios are available on the EDGAR Database on the
Commission's Internet site at http://www.sec.gov, and copies of this
information may be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address: [email protected],
or by writing the Commission's Public Reference Section, Washington,
D.C. 20549-0102.

SEC file number:

Nations Annuity Trust, 811-04305

NF-[ ]
[GRAPHIC APPEARS HERE]
<PAGE>

NATIONS ANNUITY TRUST

Statement of Additional Information

NATIONS BALANCED ASSETS PORTFOLIO
NATIONS AGGRESSIVE GROWTH PORTFOLIO
NATIONS INTERNATIONAL GROWTH PORTFOLIO
NATIONS INTERNATIONAL VALUE PORTFOLIO
NATIONS STRATEGIC GROWTH PORTFOLIO
NATIONS MANAGED INDEX PORTFOLIO
NATIONS SMALLCAP INDEX PORTFOLIO
NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO
NATIONS MARSICO GROWTH & INCOME PORTFOLIO
NATIONS HIGH YIELD BOND PORTFOLIO
NATIONS VALUE PORTFOLIO

May 1, 2000

This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the shares representing interests in the above listed
eleven 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 Prospectus
for the aforementioned Portfolios in which one is interested, dated May 1, 2000
("Prospectus"). All terms used in this SAI that are defined in the Prospectus
will have the same meanings assigned in the Prospectus. Copies of the Prospectus
may be obtained by writing the Trust c/o Stephens Inc., One Bank of America
Plaza, 33rd Floor, Charlotte, North Carolina 28255, or by calling the Trust at
(800) 321-7854.
<PAGE>
TABLE OF CONTENTS

Page
----

NATIONS ANNUITY TRUST HISTORY ......................................... 1

DESCRIPTION OF THE TRUST AND THE INVESTMENTS AND
RISKS OF ITS PORTFOLIOS................................................ 1
General........................................................... 2
Investment Limitations............................................ 2
Permissible Portfolio Investments................................. 5
Asset-Backed Securities........................................... 8
Commercial Instruments............................................ 11
Combined Transactions............................................. 11
Convertible Securities............................................ 12
Corporate Debt Securities......................................... 12
Custodial Receipts................................................ 13
Currency Swaps.................................................... 13
Delayed Delivery Transactions .................................... 13
Dollar Roll Transactions ......................................... 13
Equity Swap Contracts ............................................ 14
Foreign Currency Transactions .................................... 15
Futures, Options and Other Derivative
Instruments ............................................... 16
Risk Factors Associated with Futures and Options Transactions..... 22
Guaranteed Investment Contracts................................... 24
Interest Rate Transactions ....................................... 24
Lower Rated Debt Securities....................................... 25
Options on Currencies............................................. 26
Other Investment Companies........................................ 26
Real Estate Investment Trusts..................................... 26
Repurchase Agreements............................................. 27
Reverse Repurchase Agreements..................................... 27
Securities Lending................................................ 27
Short Sales....................................................... 28
Special Situations................................................ 28
Stripped Securities............................................... 28
U.S. and Foreign Bank Obligations................................. 29
U.S. Government Obligations....................................... 29
Use of Segregated and Other Special Accounts...................... 30
Variable- and Floating-Rate Instruments .......................... 30
Warrants.......................................................... 31
When-Issued Purchases and Forward Commitments ................... 31
Portfolio Turnover................................................ 31
Investment Risks.................................................. 32

MANAGEMENT OF THE TRUST................................................ 34
Nations Funds Retirement Plan..................................... 37
Nations Fund Deferred Compensation Plan........................... 38
Shareholder and Trustee Liability................................. 39

INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY, TRANSFER
AGENCY AND SHAREHOLDER SERVICING AGREEMENTS ........................... 40
Investment Adviser and Sub-Advisors............................... 40
Administrator and Co-Administrator................................ 44

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Custodian and Transfer Agent............................................... 45
Shareholder Servicing and Distribution Plan................................ 46
Expenses................................................................... 46
Distributor................................................................ 47
Independent Accountant and Reports......................................... 47
Counsel.................................................................... 48

PORTFOLIO TRANSACTIONS AND BROKERAGE......................................... 48
General Brokerage Policy................................................... 48
Brokerage Commissions...................................................... 51
Section 28(e) Standards.................................................... 51

PURCHASE, REDEMPTION AND PRICING OF SHARES................................... 52
Purchases.................................................................. 52
Redemptions................................................................ 52
Net Asset Value Determination.............................................. 53

DESCRIPTION OF SHARES........................................................ 54
Description of Shares of the Trust......................................... 54

ADDITIONAL INFORMATION CONCERNING TAXES...................................... 55
General.................................................................... 55
Excise Tax................................................................. 55
Taxation of Portfolio Investments.......................................... 56
Taxation of a Separate Account of a Participating Insurance Company........ 57
Federal Income Tax Rates................................................... 57
Other Matters.............................................................. 58

ADDITIONAL INFORMATION ON PERFORMANCE........................................ 58
Yield Calculations......................................................... 59
Total Return Calculations.................................................. 59
Additional Information about MacKay Shields's Performance Appearing in the
Prospectus for the High Yield Bond Portfolio .............................. 60

MISCELLANEOUS ............................................................... 61
Certain Record Holders..................................................... 62

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

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NATIONS ANNUITY TRUST HISTORY
-----------------------------

The Portfolios are members of the Nations Funds family, which consists
of Nations Annuity Trust (the "Trust"), Nations Funds Trust, Nations Fund Trust,
Nations Fund, Inc., Nations Reserves, Nations Master Investment Trust and
Nations LifeGoal Funds, Inc. The Nations Funds family currently has more than 70
distinct investment portfolios and total assets in excess of $70 billion.

Nations Annuity Trust was organized as a Delaware business trust on
November 24, 1997. Nations Annuity Trust's fiscal year end is December 31.

DESCRIPTION OF THE TRUST AND THE INVESTMENTS AND RISKS OF ITS PORTFOLIOS
------------------------------------------------------------------------

The Trust is an open-end, management investment company. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors with certain
information concerning the activities of the mutual fund being considered for
investment. This information about the Trust is also included in the
corresponding Prospectus.

The Trust currently consists of eleven different investment portfolios,
Nations Balanced Assets Portfolio, Nations Aggressive Growth Portfolio, Nations
International Value Portfolio, Nations International Growth Portfolio, Nations
Strategic Growth Portfolio, Nations Managed Index Portfolio, Nations SmallCap
Index Portfolio, Nations High Yield Bond Portfolio, Nations Marsico Focused
Equities Portfolio, Nations Marsico Growth & Income Portfolio and Nations Value
Portfolio (each a "Portfolio" and collectively the "Portfolios"). All the
Portfolios are diversified, with the exception of Nations Marsico Focused
Equities Portfolio.

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 Portfolio, and
shareholders of each Portfolio 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 Portfolio or class. See the discussion on
Investment Limitations and Description of Shares for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by Portfolio.

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 provide 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. The Participating Insurance Companies and their separate
accounts are deemed the shareholders or investors. However, it is anticipated
that the Participating Insurance Companies will pass through voting rights to
the holders of Contracts. For a discussion of voting rights of holders of
Contracts, please see the accompanying prospectuses for the Participating
Insurance Companies.

The Prospectus relating to these Portfolios may be obtained without
charge by written request to the Trust, c/o Stephens, Inc., One Bank of America
Plaza, 33rd Floor, Charlotte, NC 28255. Participating Insurance Companies also
may call toll-free at (800) 321-7854.

Banc of America Advisors, Inc. ("BAAI") is the investment adviser to
the Portfolios. Banc of America Capital Management, Inc. ("BACAP") is the
investment sub-adviser to all of the Portfolios except Nations Marsico Focused
Equities Portfolio and Nations Marsico Growth & Income Portfolio, which are
sub-advised by Marsico Capital Management, LLC ("Marsico Capital"), and Nations
International Growth Portfolio, Nations International Value Portfolio and
Nations High Yield Bond Portfolio. Gartmore Global Partners ("Gartmore") serves
as the

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investment sub-adviser to Nations International Growth Portfolio. Brandes
Investment Partners, L.P. ("Brandes") serves as the investment sub-adviser to
Nations International Value Portfolio. MacKay Shields LLC ("MacKay Shields")
serves as the investment sub-adviser to Nations High Yield Bond Portfolio. As
used herein, "Adviser" shall mean BAAI, BACAP, Gartmore, Brandes, MacKay Shields
and/or Marsico Capital as the context may require.

This SAI is intended to furnish Participating Insurance Companies 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 Prospectus, and, in order to avoid repetition, reference will be made to
sections of the Prospectus. Additionally, the Prospectus 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
Prospectus 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 Prospectus.

GENERAL

Information concerning each Portfolio's investment objective is set
forth in the Prospectus. There can be no assurance that the Portfolios will
achieve their objectives. The principal features of the Portfolios' principal
investment strategies and the primary risks associated with those investment
strategies are discussed in the Prospectus. 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 Portfolios 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, 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.

INVESTMENT LIMITATIONS

Except with respect to the International Growth Portfolio, the
Strategic Growth Portfolio, and the High Yield Bond Portfolio, the investment
restrictions applicable to the Portfolios' investment programs are set forth
below.

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.

2. Make loans, except that a Portfolio may purchase and hold debt instruments
(whether such instruments are part of

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<PAGE>
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 Focused 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 Focused 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 25% of the value of the Portfolio's total assets would be invested in the
securities of one issuer, and with respect to 50% of the Portfolio's total
assets, more than 5% of its assets would be invested in the securities of one
issuer.

Each of the Nations Marsico Focused Equities Portfolio, Nations Marsico Growth &
Income Portfolio and the Nations International Value Portfolio may:

1 Not invest in shares of other open-end management investment companies,
subject to the limitations of the Investment Company Act of 1940 (the
"1940 Act"), the rules thereunder, and any orders obtained thereunder
now or in the future. Other investment companies in which the
Portfolios invest can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that
would be in addition to those charged by a Portfolio.

2. Invest or hold more than 15% (10% in the case of a money market fund)
of the Portfolio's net assets in illiquid securities. For this purpose,
illiquid securities include, among others, (a) securities that are
illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable
within seven days.

3. Not hedge more than 50% of its total assets by selling futures
contracts, buying put options, and writing call options (so called
"short positions"), not buy futures contracts or write put options
whose underlying value exceeds 25% of the Portfolio's total assets, and
not buy call options with a value exceeding 5% of the Fund's total
assets.

4. Lend securities from its portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) one-third of
the Portfolio's total assets. Any such loans of portfolio securities
will be fully collateralized based on values that are marked to market
daily. The Portfolio will not enter into any portfolio security lending
arrangement having a duration of longer than one year.

5. Not make investments for the purpose of exercising control or
management. (Investments by the Portfolio in entities created under the
laws of foreign countries solely to facilitate investment in securities
in that country will not be deemed the making of investments for the
purpose of exercising control.)

6. Not purchase securities on margin (except for short-term credits
necessary for the clearance of transactions).

7. Not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short.

8. Not purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs.

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

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should consider whether the Portfolio remains an appropriate investment in light
of their current position and needs.

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

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
companies.

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 a company engaging in whole or in part in such
activities, enter into futures contracts and related options, engage in
transactions on a when-issued or forward commitment basis, and enter
into forward currency contracts in accordance with its investment
policies.

In addition, certain non-fundamental investment restrictions which may
be changed by a majority vote of the Board of Trustees at any time and without
approval of the shareholders, are also applicable to the Portfolios, including
the following:

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

2. No Portfolio will invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements, time deposits
and Guaranteed Investment Contracts ("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.

3. No Portfolio 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 a 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

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contracts, and collateral arrangements with respect to initial and
variation margin are not considered to be a mortgage, pledge or
hypothecation of assets.

4. No Portfolio will invest in securities of other investment companies,
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.

WITH RESPECT TO THE INTERNATIONAL GROWTH PORTFOLIO, STRATEGIC GROWTH
PORTFOLIO AND HIGH YIELD BOND PORTFOLIO:

Each Portfolio may not, as a matter of fundamental policy:

1. Underwrite any issue of securities within the meaning of the 1933 Act
except when it might technically be deemed to be an underwriter either (a)
in connection with the disposition of a portfolio security, or (b) in
connection with the purchase of securities directly from the issuer thereof
in accordance with its investment objective. This restriction shall not
limit the Portfolio's ability to invest in securities issued by other
registered investment companies.

2. Purchase or sell real estate, except a Portfolio may purchase securities of
issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.

3. Purchase or sell commodities, except that a Portfolio may to the extent
consistent with its investment objective, invest in securities of companies
that purchase or sell commodities or which invest in such programs, and
purchase and sell options, forward contracts, futures contracts, and
options on futures contracts. This limitation does not apply to foreign
currency transactions including without limitation forward currency
contracts.

4. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, any state or
territory of the United States, or any of their agencies, instrumentalities
or political subdivisions, and (b) notwithstanding this limitation or any
other fundamental investment limitation, assets may be invested in the
securities of one or more management investment companies to the extent
permitted by the 1940 Act, the rules and regulations thereunder and any
exemptive relief obtained by the Funds.

5. Make loans, except to the extent permitted by the 1940 Act, the rules and
regulations thereunder and any exemptive relief obtained by the Funds.

6. Borrow money or issue senior securities except to the extent permitted by
the 1940 Act, the rules and regulations thereunder and any exemptive relief
obtained by the Funds.

7. Purchase securities (except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) of any one issuer if, as a
result, more than 5% of its total assets will be invested in the securities
of such issuer or it would own more than 10% of the voting securities of
such issuer, except that (a) up to 25% of its total assets may be invested
without regard to these limitations and (b) a Portfolio's assets may be
invested in the securities of one or more management investment companies
to the extent permitted by the 1940 Act, the rules and regulations
thereunder and any exemptive relief obtained by the Funds.

Each Portfolio may, as a matter of non-fundamental policy:

1. Invest in shares of other open-end management investment companies, subject
to the limitations of the 1940 Act, the rules thereunder, and any orders
obtained thereunder now or in the future. Funds in a master/feeder
structure generally invest in the securities of one or more open-end
management investment companies pursuant to various provisions of the 1940
Act.

2. Not invest or hold more than 15% (10% in the case of a money market fund)
of the Portfolio's net assets in illiquid securities. For this purpose,
illiquid securities include, among others, (a) securities that are illiquid
by virtue of the absence of a readily available market or legal or
contractual restrictions on resale, (b) fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days.

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3. Invest in futures or options contracts regulated by the CFTC for (i) bona
fide hedging purposes within the meaning of the rules of the CFTC and (ii)
for other purposes if, as a result, no more than 5% of a Portfolio's net
assets would be invested in initial margin and premiums (excluding amounts
"in-the-money") required to establish the contracts.

A Portfolio (i) will not hedge more than 50% of its total assets by selling
futures contracts, buying put options, and writing call options (so called
"short positions"), (ii) will not buy futures contracts or write put
options whose underlying value exceeds 25% of the Portfolio's total assets,
and (iii) will not buy call options with a value exceeding 5% of the
Portfolio's total assets.

4. Lend securities from its portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) one-third of the
Portfolio's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily.

5. Not make investments for the purpose of exercising control of management.
(Investments by the Portfolio in entities created under the laws of foreign
countries solely to facilitate investment in securities in that country
will not be deemed the making of investments for the purpose of exercising
control.)

6. Not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.

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.

PERMISSIBLE PORTFOLIO INVESTMENTS

In addition to the principal investment strategies for each Portfolio,
which is outlined in the Portfolios' prospectus, each Portfolio also may invest
in other types of securities in percentages of less than 10% of its total assets
(unless otherwise indicated, E.G., most Portfolios may invest in money market
instruments without limit during temporary defensive periods). These types of
securities are listed below for each portfolio and then are described in more
detail after this sub-section.

THE EQUITY PORTFOLIOS

Nations Value Portfolio: In addition to the types of securities
described in the Prospectus, the Portfolio may invest 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"); investment grade debt securities of domestic companies; various
money market instruments and repurchase agreements.

Nations Aggressive Growth Portfolio: In addition to the types of
securities described in the Prospectus, 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'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). 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 Focused Equities Portfolio and Nations Marsico Growth &
Income Portfolio: In addition

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to the types of securities described in the Prospectus, these Portfolios may
invest in: preferred stock, warrants, convertible securities and debt
securities; zero coupon, pay- in-kind and step coupon securities, and may invest
without limit in indexed/structured securities. The Portfolios also may invest
its assets in high-yield/high-risk securities, such as lower grade debt
securities. The Portfolios also may purchase high-grade commercial paper,
certificates of deposit, and repurchase agreements, and may invest in short-term
debt securities as a means of receiving a return on idle cash.

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 may hold cash or cash equivalents and
invest without limit in U.S. Government Obligations and short-term debt
securities or money market instruments if the Adviser determines that a
temporary defensive position is advisable or to meet anticipated redemption
requests. In other words, the Portfolios do not always stay fully invested in
stocks and bonds. The Portfolios also 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 also may purchase
securities on a when-issued, delayed delivery or forward commitment basis.

General. Notwithstanding that each Equity Portfolio may invest in each
type of security listed above in percentages of less than 10% of that
Portfolio's total assets, each Equity Portfolio may invest up to 20% of its
assets in foreign securities. While each Equity Portfolio reserves the right to
so invest, investing in foreign securities is not considered a principal
investment strategy of the Equity Portfolios.

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 Marsico Focused Equities Portfolio
and Nations Marsico Growth & Income Portfolio may invest in forward foreign
exchange contracts.

The Equity Portfolios incur transaction (brokerage) costs in connection
with the purchase and sale of portfolio securities. For some portfolios, these
costs can have a material negative impact on performance. With respect to the
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.

THE INTERNATIONAL PORTFOLIOS

Nations International Growth Portfolio: In addition to the types of
securities described in the Prospectus, the Portfolio may invest in: options and
futures contracts on securities, securities lending, forward foreign exchange
contracts and repurchase agreements. The Portfolio also may invest in American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), European
Depositary Receipts ("EDRs") and American Depositary Shares ("ADSs"). For
temporary defensive purposes, the Portfolio may invest substantially all of its
assets in U.S. financial markets or U.S. dollar-denominated instruments.

Nations International Value Portfolio: In addition to the types of
securities described in the Prospectus, the Portfolio may invest in: short-term
debt instruments; purchase and write covered call options on specific portfolio
securities and may purchase and write put and call options on foreign stock
indices listed on foreign and domestic exchanges options and futures contracts
on securities, securities lending, forward foreign exchange contracts and
repurchase agreements. The Portfolio also may invest in ADRs, GDRs, EDRs and
ADSs and invest in foreign currency exchange contracts to convert foreign
currencies to and from the U.S. dollar, and to hedge against changes in foreign
currency exchange rates.

General: Both International Portfolios also may invest in certain
specified derivative securities including:

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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 CFTC and options
thereon for market exposure risk management. Each International Portfolio may
lend its portfolio securities to qualified institutional investors and may
invest in repurchase agreements, restricted, private placement and other
illiquid securities. Each International Portfolio also may invest in real estate
investment trust securities. In addition, each International Portfolio may
invest in securities issued by other investment companies, consistent with the
Portfolio's investment objective and policies and repurchase agreements. Each
Portfolio also may invest in forward foreign exchange contracts.

THE INDEX PORTFOLIOS

Nations Managed Index Portfolio: In addition to the types of securities
described in the Prospectus, the Portfolio may invest 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, domestic and foreign
commercial paper, certificates of deposit, bankers' acceptances and time
deposits, U.S. Government Obligations and repurchase agreements. The 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. The 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 such Portfolio's investment objective and policies.

In addition, when consistent with such Portfolio's respective
investment objective, the Portfolio 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. A 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.

Nations SmallCap Index Portfolio: In addition to the types of
securities described in the Prospectus, the Portfolio may invest 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, domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. Government Obligations and repurchase agreements. The
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. 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 also
may invest in Standard & Poor's Depositary Receipts ("SPDRs"). In addition, the
Portfolio may invest in other securities issued by other investment companies,
consistent with such Portfolio's investment objective and policies.

The Index Portfolios incur transaction (brokerage) costs in connection
with the purchase and sale of portfolio securities. For the Portfolios, these
costs can have a material negative impact on performance. With respect to the
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.

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BALANCED PORTFOLIO

Nations Balanced Assets Portfolio: In addition to the types of
securities described in the Prospectus, the Portfolio may invest in: foreign
securities, 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.

FIXED INCOME

Nations High Yield Bond Portfolio: In addition to the types of
securities described in the Prospectus, the Portfolio may invest in: debt
securities, which include all types of debt obligations of both domestic and
foreign issuers, such as bonds, debentures, notes, equipment lease certificates,
equipment trust certificates, conditional sales contracts, commercial paper and
U.S. government securities (including obligations, such as repurchase
agreements, secured by such instruments). The debt securities in which the
Portfolio invests may be in non-dollar denominated foreign currency and may
include debt issued by countries or corporations located in emerging market
countries. The Portfolio may invest in participation interests in loans. Such
participation interests, which may take the form of interests in, or assignments
of, loans, are acquired from banks which have made loans or are members of
lending syndicates. The Portfolio's investments in loan participation interests
will be subject to its limitation on investments in illiquid securities and, to
the extent applicable, its limitation on investments in securities rated below
investment grade.

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
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

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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 Ginnie Mae, Fannie Mae or
Freddie Mac. 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

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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 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.

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 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

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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. See also the discussion of
variable- and floating-rate instruments in this SAI.

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.

Certain Portfolios also may purchase short-term participation interests
in loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. In purchasing a loan
participation or assignment, the Portfolio acquires some or all of the interest
of a bank or other lending institution in a loan to a corporate borrower. Many
such loans are secured and most impose restrictive covenants which must be met
by the borrower and which are generally more stringent than the covenants
available in publicly traded debt securities. However, interests in some loans
may not be secured, and the Portfolio will be exposed to a risk of loss if the
borrower defaults. Loan participations also may be purchased by the Portfolio
when the borrowing company is already in default. In purchasing a loan
participation, the Portfolio may have less protection under the federal
securities laws than it has in purchasing traditional types of securities. The
Portfolio's ability to assert its rights against the borrower will also depend
on the particular terms of the loan agreement among the parties.

COMBINED TRANSACTIONS

Certain Portfolios may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple forward
foreign currency exchange contracts and any combination of futures, options and
forward foreign currency exchange contracts ("component" transactions), instead
of a single transaction, as part of a single hedging strategy when, in the
opinion of the Adviser, it is in the best interest of a Portfolio to do so and
where underlying hedging strategies are permitted by a Portfolio's investment
policies. A combined transaction, while part of a single hedging strategy, may
contain elements of risk that are present in each of its component transactions.
(See above for the risk characteristics of certain transactions.)

CONVERTIBLE SECURITIES

Certain Portfolios may invest in convertible securities, such as bonds,
notes, debentures, preferred stocks and other securities that may be converted
into common stock. All convertible securities purchased by the Portfolio will be
rated in the top two categories by an NRSRO or, if unrated, determined by the
Adviser to be of comparable quality. Investments in convertible securities can
provide income through interest and dividend payments, as well as, an
opportunity for capital appreciation by virtue of their conversion or exchange
features.

The convertible securities in which a Portfolio may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into

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underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.

As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion
exchange features. Convertible securities generally are subordinated to other
similar debt securities but not to non-convertible securities of the same
issuer. Convertible bonds, as corporate debt obligations, are senior in right of
payment to all equity securities, and convertible preferred stock is senior to
common stock, of the same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar non-convertible
securities. Convertible securities may be issued as fixed income obligations
that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

CORPORATE DEBT SECURITIES

Certain Portfolios may invest in corporate debt securities of domestic
issuers of all types and maturities, such as bonds, debentures, notes and
commercial paper. Corporate debt securities may involve equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, participation based on revenue, sales or profit, or
the purchase of common stock or warrants in a unit transaction (where corporate
debt obligations and common stock are offered as a unit). Each Portfolio may
also invest in corporate debt securities of foreign issuers.

The corporate debt securities in which the Portfolios will invest will
be rated investment grade by at least one NRSRO (E.G., BBB or above by Standard
& Poor's Corporation ("S&P") or Baa or above by Moody's Investors Services, Inc.
("Moody's")). Commercial paper purchased by the Portfolios will be rated in the
top two categories by a NRSRO. Corporate debt securities that are not rated may
be purchased by such Portfolios if they are determined by the Adviser to be of
comparable quality under the direction of the Board of Trustees of the Trust. If
the rating of any corporate debt security held by a Portfolio falls below such
ratings or if the Adviser determines that an unrated corporate debt security is
no longer of comparable quality, then such security shall be disposed of in an
orderly manner as quickly as possible. A description of these ratings is
attached as Schedule A to this Statement of Additional Information.

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CUSTODIAL RECEIPTS

Certain Portfolios also may acquire custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government notes or bonds. Such notes and bonds are held in custody by a
bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as illiquid
securities.

CURRENCY SWAPS

Certain Portfolios also may enter into currency swaps for hedging
purposes and to seek to increase total return. In as much as swaps are entered
into for good faith hedging purposes or are offset by a segregated account as
described below, the Portfolio and the Adviser believe that swaps do not
constitute senior securities as defined in the 1940 Act and, accordingly, will
not treat them as being subject to the Portfolio's borrowing restrictions. The
net amount of the excess, if any, of the Portfolio's obligations over its
entitlement with respect to each currency swap will be accrued on a daily basis
and an amount of cash or liquid high grade debt securities (I.E., securities
rated in one of the top three ratings categories by an NRSRO, or, if unrated,
deemed by the Adviser to be of comparable credit quality) having an aggregate
net asset value at least equal to such accrued excess will be maintained in a
segregated account by the Portfolio's custodian. The Portfolio will not enter
into any currency swap unless the credit quality of the unsecured senior debt or
the claims-paying ability of the other party thereto is considered to be
investment grade by the Adviser.

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. In delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but a Portfolio would not pay for such securities or start earning
interest on them until they are delivered. However, when a Portfolio purchases
securities on such a delayed delivery basis, it immediately assumes the risk of
ownership, including the risk of price fluctuation. Failure by a counterparty to
deliver a security purchased on a delayed delivery basis may result in a loss or
missed opportunity to make an alternative investment. Depending upon market
conditions, a Portfolio's delayed delivery purchase commitments could cause its
net asset value to be more volatile, because such securities may increase the
amount by which the Portfolio's total assets, including the value of when-issued
and delayed delivery securities held by the Portfolio, exceed its net assets.

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. 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.

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

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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

Certain Portfolios may from time to time enter into 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 or 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 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

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

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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 fund 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 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.

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).

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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, GNMA 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 fund 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 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

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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. 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-refundable 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. Certain Portfolios may purchase put options on futures contracts in
which such Portfolios are permitted 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. Certain Portfolios may purchase put options on
stock index futures contracts, stock indices or equity securities for

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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 certain Portfolios 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
for leveraging purposes.

WRITING COVERED OPTIONS ON SECURITIES. Certain Portfolios 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 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

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<PAGE>
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 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

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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 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

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<PAGE>
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
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.

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

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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
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 fund 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

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<PAGE>
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.

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 Trustees.

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<PAGE>
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.

INTEREST RATE TRANSACTIONS

Among the strategic transactions into which certain Portfolios 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
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 an 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 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

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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.

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.

OPTIONS ON CURRENCIES

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Certain Portfolios 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.

OTHER INVESTMENT COMPANIES

In seeking to attain their investment objectives, certain Portfolios
may invest in securities issued by other investment companies within the limits
prescribed by the 1940 Act. Each Portfolio currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Company as a whole. 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
in connection with its own operations.

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 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 of 1986, as amended (the "Code").

REPURCHASE AGREEMENTS

The repurchase price under any 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 a Company's custodian in a
segregated account or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by such Company 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

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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.

SECURITIES LENDING

To increase return on portfolio securities, certain 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 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 which may include cash collateral received for
securities loaned. 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

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

Certain Portfolios may invest in "special situations." A special
situation arises when, in the opinion of the Adviser, the securities of a
particular company 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 company, 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 companies may
be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.

STRIPPED SECURITIES

Certain Portfolios may purchase stripped securities issued or
guaranteed by the U.S. Government, where the principal and interest components
are traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS"). Under STRIPS, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.

In addition, the Portfolio may purchase stripped mortgage-backed
securities ("SMBS") issued by the U.S. Government (or a U.S. Government agency
or instrumentality) or by private issuers such as banks and other institutions.
If the underlying obligations experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recover its initial investment. The
market value of the class consisting entirely of principal payments can be
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-backed

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obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be full recovered. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Trust's Board of Trustees
if they can be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of the Portfolio's per
share net asset value.

Although stripped securities may not pay interest to holders prior to
maturity, Federal income tax regulations require a Portfolio to recognize as
interest income a portion of the bond's discount each year. This income must
then be distributed to shareholders along with other income earned by the
Portfolio. To the extent that any shareholders in the Portfolio elect to receive
their dividends in cash rather than reinvest such dividends in additional
Portfolio shares, cash to make these distributions will have to be provided from
the assets of the Portfolio or other sources such as proceeds of sales of
Portfolio shares and/or sales of portfolio securities. In such cases, the
Portfolio will not be able to purchase additional income producing securities
with cash used to make such distributions and its current income may ultimately
be reduced as a result.

U.S. AND FOREIGN BANK OBLIGATIONS

These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Portfolio limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Portfolio may also invest
in certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Portfolio will at no time own more than $100,000 principal amount of
certificates of deposit (or any higher principal amount which in the future may
be fully covered by FDIC insurance) of any one of those issuers. Fixed time
deposits are obligations which are payable at a stated maturity date and bear a
fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by a Portfolio, but they may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on a Portfolio's right to transfer a beneficial
interest in the deposit to a third party.

Each Portfolio limits its investments in foreign bank obligations
(i.e., obligations of foreign branches and subsidiaries of domestic banks, and
domestic and foreign branches and agencies of foreign banks) to obligations of
banks which at the time of investment are branches or subsidiaries of domestic
banks which meet the criteria in the preceding paragraphs or are branches or
agencies of foreign banks which (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) in terms of assets are
among the 75 largest foreign banks in the world; (iii) have branches or agencies
in the United States; and (iv) in the opinion of the Adviser, pursuant to the
established by the Trust's Board of Trustees, are of an investment quality
comparable to obligations of domestic banks which may be purchased by a
Portfolio. These obligations may be general obligations of the parent bank in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. Each Portfolio also limits its investments in foreign bank
obligations to banks, branches and subsidiaries located in Western Europe
(United Kingdom, France, Germany, Belgium, The Netherlands, Italy and
Switzerland), Scandinavia (Denmark and Sweden), Australia, Japan, the Cayman
Islands, the Bahamas and Canada. Each Portfolio will limit its investment in
securities of foreign banks to not more than 20% of total assets at the time of
investment.

Each Portfolio may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of the total assets
of the Portfolio.

U.S. GOVERNMENT OBLIGATIONS

Each Portfolio may invest in U.S. Government obligations. Examples of
the types of U.S. Government obligations that may be held by the Portfolios
include, in addition to U.S. Treasury bonds, notes and bills, the obligations of
the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks,
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, General

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Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. Obligations guaranteed as to principal or interest by
the U.S. Government, its agencies, authorities or instrumentalities are deemed
to include: (a) securities for which the payment of principal and interest is
backed by an irrevocable letter of credit issued by the U.S. Government, its
agencies, authorities or instrumentalities and (b) participations in loans made
to foreign governments or their agencies that are so guaranteed. The secondary
market for certain of these participations is limited. If such participations
are illiquid they will not be purchased.

U.S. Government obligations include principal and interest components
of securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS

Options, futures and forward foreign currency contracts that obligate a
Portfolio to provide cash, securities or currencies to complete such
transactions will entail that Portfolio to either segregate assets in an account
with, or on the books of, the Company's custodian, or otherwise "covering" the
transaction as described below. For example, a call option written by a
Portfolio will require the Portfolio to hold the securities subject to the call
(or securities convertible into the needed securities without additional
consideration) or liquid assets sufficient to meet the obligation by purchasing
and delivering the securities if the call is exercised. A call option written on
an index will require that Portfolio to have portfolio securities that correlate
with the index. A put option written by a Portfolio also will require that
Portfolio to have available assets sufficient to purchase the securities the
Portfolio would be obligated to buy if the put is exercised.

A forward foreign currency contract that obligates a Portfolio to
provide currencies will require the Portfolio to hold currencies or liquid
securities denominated in a foreign currency which will equal the Portfolio's
obligations. Such a contract requiring the purchase of currencies also requires
segregation.

Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, a Portfolio will hold cash,
U.S. Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, a Portfolio could own securities substantially
replicating the movement of the particular index.

In the case of a futures contract, a Portfolio must deposit initial
margin and variation margin, as often as daily, if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require a Portfolio to
deposit margin to the extent necessary to meet the Portfolio's commitments.

In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Portfolio may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Portfolio could purchase a put option if
the strike price of that option is the same or higher than the strike price of a
put option sold by that Portfolio. Moreover, instead of segregating assets if a
Portfolio held a futures or forward contract, it could purchase a put option on
the same futures or forward contract with a strike price as high or higher than
the price of the contract held. Of course, the off-setting transaction must
terminate at the time of or after the primary transaction.

VARIABLE- AND FLOATING-RATE INSTRUMENTS

Certain Portfolios may purchase variable-rate and floating rate
obligations. 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

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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.

WARRANTS

Certain Portfolios are permitted to invest in warrants. Warrants are
privileges issued by corporations enabling the owner to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.

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 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

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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.

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. For the portfolio turnover rates for each Portfolio see the
Financial Highlights in the prospectus.

INVESTMENT RISKS

In addition to the risks identified in certain of the securities
descriptions above, there also are general investment risks associated with an
investment in any of the Portfolios.

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 indexes, was trading at or close to record levels. There can be no
guarantee that these levels will continue.

Nations Marsico Focused Equities Portfolio, as a non-diversified fund,
may invest in fewer issuers than diversified funds such as Nations Marsico
Growth & Income Portfolio. Therefore, appreciation or depreciation of an
investment in a single issuer could have a greater impact on the Portfolio's net
asset value. The Portfolio reserves the right to become a diversified fund by
limiting the investments in which more than 5% of its total assets are invested.

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. In addition,
obligations with the lowest investment grade rating (E.G., "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.

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 Portfolio's investment objective and do not
unduly increase the Portfolio's exposure to market or other risks. For
additional risk information regarding the Portfolios' investments in particular
instruments, see "Appendix A -- Portfolio Securities."

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.

32
<PAGE>
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 35% 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
Portfolio 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 a higher tax basis, 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 an Index 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
Portfolios 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.

SPECIAL RISK RELATING TO NATIONS HIGH YIELD BOND PORTFOLIO -- High
yield bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest-rate changes than
more highly rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in high
yield bond prices because the advent of a recession could lessen the ability of
a highly leveraged company to make principal and interest payments on its debt
securities. Adverse publicity and investor perceptions, whether or not based on
fundamental

33
<PAGE>
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market. Legislation designed to limit the use of high yield
bonds in corporate transactions may have a material adverse effect on a
Portfolio's net asset value and investment practices. In addition, there may be
special tax considerations associated with investing in high yield bonds
structured as zero coupon or payment-in-kind securities. A Portfolio records the
interest on these securities annually as income even though it receives no cash
interest until the security's maturity or payment date. Also, distributions on
account of such interest generally will be taxable to shareholders even if the
Portfolio does not distribute cash to them. Therefore, in order to pay taxes on
this interest, shareholders may have to redeem some of their shares to pay the
tax or the Portfolio may have to sell some of its assets to reduce the
Portfolio's assets and may thereby increase its expense ratio and decrease its
rate of return. The Sub-Adviser seeks to reduce risk through diversification,
credit analysis and attention to current developments and trends in both the
economy and financial markets. In addition, investments in foreign securities
may serve to provide further diversification.

Because certain high yield debt instruments that the Nations High Yield
Bond Portfolio purchases may be instruments issued by foreign governments,
agencies, corporations or other entities of countries, some of which may be
considered emerging markets countries, there are certain additional risks
associated with such investments.

Investors should also understand and consider carefully the special
risks involved in foreign investing. Such risks include, but are not limited to:
(1) restrictions on foreign investment and repatriation of capital; (2)
fluctuations in currency exchange rates, which can significantly affect a
Portfolio's share price; (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 U.S. markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible impositions 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.

Certain of the risks associated with investments by Nations High Yield
Bond Portfolio in foreign securities are heightened with respect to investment
in emerging markets countries. Political and economic structures in many
emerging market countries, especially those in Eastern Europe, the Pacific
Basin, and the Far East, may be undergoing significant evolution and rapid
development, and may lack the social, political and economic stability
characteristic of more developed countries. Investing in emerging markets
securities also involves risks which are in addition to the usual risks inherent
in foreign investments. For example, some emerging market countries may have
fixed or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be traded internationally and some countries
with emerging securities markets have sustained long periods of substantially
high inflation or rapid fluctuation in inflation rates which can have negative
effects on a country's economy or securities markets.

MANAGEMENT OF THE TRUST
-----------------------

The business and affairs of Nations Annuity Trust are managed under the
direction of its 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.

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 Trustees who are "interested persons" of the Trust (as defined in the 1940
Act) are indicated by an asterisk(*).

34
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years
Name, Address and Age the Trust and Current Directorships
- --------------------- --------- -------------------------
<S> <C> <C>
Edmund L. Benson, III, 62 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 Nations Fund Trust and Nations
Annuity Trust; Director, Nations
Fund, Inc., Nations LifeGoal
Funds, Inc., and Nations Fund
Portfolios, Inc.

William P. Carmichael, 66 Trustee Trustee - 231 Funds (investment
Succession Fund company) from 1993 to 1995, Time
The Wrigley Building Horizon Fund (investment company)
400 North Michigan Avenue from 1995 to 1999, Pacific
Suite 1016 Innovations Trust (investment
Chicago, IL 60611 company) from 1997 to 1999,
Nations Annuity Trust (investment
company) since December 1999,
Nations Master Investment Trust
(investment company) since
December 1999 and Nations Funds
Trust (investment company) since
December 1999; Director- The Hain
Food Group, Inc. (specialty food
products distributor) until
December 1998, Cobra Electronics
Corporation (electronic equipment
manufacturer), Opta Food
Ingredients, Inc. (food
ingredients manufacturer), Golden
Rule Insurance Company, Nations
LifeGoal Funds, Inc. (investment
company) since December 1999.

James Ermer, 56 Trustee Retired; Formerly, Senior Vice
13705 Hickory Nut Point President- Finance, CSX
Midlothian, VA 23112 Corporation (transportation and
natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust; Director,
Nations Fund, Inc., Nations
LifeGoal Funds, Inc., and Nations
Fund Portfolios, Inc.

William H. Grigg, 66 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, Nations Fund Trust and
Nations Annuity Trust.
</TABLE>

35
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years
Name, Address and Age the Trust and Current Directorships
- --------------------- --------- -------------------------
<S> <C> <C>
Thomas F. Keller, 67 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,
Nations Annuity Trust, the Mentor
Funds, Mentor Institutional
Trust, Cash Resource Trust.

Carl E. Mundy, Jr., 64 Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 22309 1995; Director, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund
Portfolios, Inc.; Trustee,
Nations Institutional Reserves,
Nations Fund Trust and Nations
Annuity Trust.

Dr. Cornelius J. Pings, 70* Trustee President - Association of
480 S. Orange Grove Blvd. American Universities from
Pasadena, CA 91105 February 1993 to June 1998;
Director - Farmers Group, Inc.
(insurance company), Nations
Fund, Inc. and Nations LifeGoal
Funds, Inc.; Trustee, Master
Investment Trust, Series I from
1995 to 1999, Master Investment
Trust, Series II from 1995 to
1997, Nations Reserves, Nations
Fund Trust, Nations Annuity Trust
and Nations Master Investment
Trust.; Director/Trustee and
Chairman - Pacific Horizon Funds,
Inc. and Master Investment Trust,
Series I, from inception to May
1999; Director - Time Horizon
Funds and Pacific Innovations
Trust; Director, Nations Fund
Portfolios, Inc. through August,
1999.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
James B. Sommers*, 60 Trustee President, Bank of America Trust,
237 Cherokee Road from January 1992 to September
Charlotte, NC 28207 1996; Executive Vice President,
Bank of America 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,
Nations Fund Trust and Nations
Annuity Trust.

A. Max Walker*, 77 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, Nations
Fund Trust and Nations Annuity
Trust.

Charles B. Walker, 60 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, Nations Fund Trust and
Nations Annuity Trust.

Thomas S. Word, Jr.*, 60 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, Nations
Fund Trust and Nations Annuity
Trust.

Richard H. Blank, Jr., 42 Secretary and Treasurer Since 1994, Vice President of
Stephens Inc. Mutual Fund Services, Stephens
Inc. 1990 to 1994, Manager Mutual
Portfolio Services, Stephens
Inc.; Secretary and Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations
Annuity Trust, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund
Portfolios, Inc.

Michael W. Nolte, 38 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
James E. Banks, 42 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
</TABLE>
Mr. Blank serves as Treasurer to certain other investment companies for
which Stephens also serves as Co-Administrator, Sponsor, Distributor,
Administrator and/or Adviser.

Each Trustee is a board member of the Trust, Nations Fund Trust,
Nations Funds Trust, Nations Reserves, Nations Fund, Inc., Nations Master
Investment Trust and Nations LifeGoal Funds, Inc. each a registered investment
company that is part of the Nations Funds family. Richard H. Blank, Jr., Michael
W. Nolte, and James E. Banks. Jr. also are Officers of the Trust, Nations Funds
Trust, Nations Fund Trust, Nations Reserves, Nations Master Investment Trust 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 the 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 Bank of America 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 Trustee or Officer of the
Trust, (ii) any employee of the Trust (or any Trust in a control relationship
with the 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 the Trust, and (iii) any natural person in a control
relationship with the Trust who obtains information concerning recommendations
made to the 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 the 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, the Code of Ethics generally requires that the Trust's
access persons, other than its "disinterested" Trustees, submit reports to the
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 Trustee 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 companies 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/her 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 dies after attaining age 65, the
Trustee's surviving spouse (if any) will be entitled to receive 50% of the
benefits that would have been

38
<PAGE>
paid (or would have continued to have been paid) to the Trustee if he or she 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 trustees 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. 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 Trustee's retirement benefits commence
under the Retirement Plan. The Board of Trustees, in its sole discretion, may
accelerate or extend such payments after a Trustee's termination of service. If
a deferring Trustee dies prior to the commencement of the distribution of
amounts in his or her deferral account, the balance of the deferral account will
be distributed to his/her designated beneficiary in a lump sum as soon as
practicable after the Trustee's death. If a deferring Trustee dies after the
commencement of such distribution, but prior to the complete distribution of his
or her deferral account, the balance of the amounts credited to his or her
deferral account will be distributed to the designated beneficiary over the
remaining period during which such amounts were distributable to the Trustee.
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.
<TABLE>
<CAPTION>
COMPENSATION TABLE

AGGREGATE PENSION OR RETIREMENT
COMPENSATION FROM BENEFITS ACCRUED AS PART OF ESTIMATED ANNUAL TOTAL COMPENSATION FROM
NAME OF PERSON THE PORTFOLIO BENEFITS UPON REGISTRANT AND
POSITION (1) TRUST (2) EXPENSES RETIREMENT PORTFOLIO
------------ --------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, $9,500 $11,111.11 $35,000 $75,376
Trustee (50% Def'd)

James Ermer 7,500 11,111.11 35,000 62,625
Trustee

William H. Grigg 9,500 11,111.11 35,000 89,625
Trustee (100% Def'd)

Thomas F. Keller 9,500 11,111.11 35,000 93,625
Trustee (100% Def'd)

Carl E. Mundy, Jr. 9,000 11,111.11 35,000 70,127
Trustee

James Sommers 9,500 11,111.11 35,000 70,625
Trustee

A. Max Walker 11,500 11,111.11 40,000 108,125
Chairman of the Board

Charles B. Walker 9,500 11,111.11 35,000 74,625
Trustee

Thomas S. Word 9,500 11,111.11 35,000 76,125
Trustee (100% Def'd)

$85,000 $100,000 $320,000 $720,878
======= ======== ======== ========
</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.

39
<PAGE>
(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 10
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, Mundy,
Sommers, C. Walker and Word, receive compensation from six investment companies,
including the Trust, deemed to be part of the fund complex.

(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L. Benson,
III ($34,563); William H. Grigg ($65,125); Thomas F. Keller ($69,125); and
Thomas S. Word ($69,125).

SHAREHOLDER AND TRUSTEE LIABILITY

Under Delaware 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 or her in connection with the defense or disposition
of any proceeding in which he or she may be involved or with which he/she may be
threatened by reason of his or her 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 AND SHAREHOLDER SERVICING AGREEMENTS
----------------------------------------------------

INVESTMENT ADVISERS AND SUB-ADVISERS

BAAI serves as investment adviser to the Portfolios of the Trust,
pursuant to an Investment Advisory Agreement. Pursuant to an Investment
Sub-Advisory Agreement entered into with the Trust, BACAP serves as investment
sub-adviser to the Portfolios of the Trust except for Nations High Yield Bond
Portfolio, Nations International Value Portfolio, Nations International Growth
Portfolio, Nations Marsico Focused Equities Portfolio and Nations Marsico Growth
& Income Portfolio. Marsico Capital serves as the investment sub-adviser to
Nations Marsico Focused Equities Portfolio and Nations Marsico Growth & Income
Portfolio. Gartmore serves as the investment sub-adviser to Nations
International Growth Portfolio, Brandes serves as the investment sub-adviser to
Nations International Value Portfolio and MacKay Shields serves as the
investment adviser to Nations High Yield

40
<PAGE>
Bond Portfolio pursuant to respective Sub-Advisory Agreements entered into with
the Trust. All such agreements are effective as of May 1, 2000 for a period of
two years from such date.

The table below states the advisory fees paid to and waived by BAAI for
the fiscal period ending December 31, 1998.
<TABLE>
<CAPTION>
ADVISORY FEES

Net Amount Expenses Reimbursed
Amount Paid Waived by Advisor
----------- ------ ----------
<S> <C> <C> <C>
Nations Value Portfolio $0.00 $17,997 $13,229
Nations International Growth Portfolio 0.00 10,834 29,871
Nations International Value Portfolio 0.00 0.00 0.00
Nations Aggressive Growth Portfolio 0.00 15,986 15,395
Nations Strategic Growth Portfolio 0.00 0.00 0.00
Nations Marsico Focused Equities Portfolio 20,310 53,625 0.00
Nations Marsico Growth & Income Portfolio 9,150 43,246 0.00
Nations Managed Index Portfolio 0.00 27,337 62,101
Nations Small Cap Index Portfolio 0.00 20,469 83,193
Nations Balanced Assets Portfolio 0.00 11,808 22,772
Nations High Yield Bond Portfolio 0.00 0.00 0.00

The table below shows the net sub-advisory fees paid to Marsico Capital
for the fiscal period ending December 31, 1998.
<CAPTION>
SUB-ADVISORY FEES PAID

Net Amount Paid
---------------
<S> <C>
Nations Balanced Assets Portfolio $0.00
Nations Aggressive Growth Portfolio 0.00
Nations International Value Portfolio 0.00
Nations International Growth Portfolio 0.00
Nations Strategic Growth Portfolio 0.00
Nations Managed Index Portfolio 0.00
Nations Small Cap Index Portfolio 0.00
Nations Marsico Focused Equities Portfolio 39,264
Nations Marsico Growth & Income Portfolio 27,748
Nations Value Portfolio 0.00
Nations High Yield Bond Portfolio 0.00

Effective May 1, 1999, for the services provided and expenses assumed
pursuant to the Investment Advisory Agreement, BAAI is entitled to receive
advisory fees, computed daily and paid monthly, at the annual rates of:
<CAPTION>
Portfolio Percentage of Average Daily Net Assets
--------- --------------------------------------
<S> <C>
Nations Balanced Assets Portfolio .65%
Nations Aggressive Growth Portfolio .65%
Nations International Growth Portfolio .80%
Nations International Value Portfolio .00%
Nations Strategic Growth Portfolio .00%
Nations Managed Index Portfolio .40%
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Nations SmallCap Index Portfolio .40%
Nations Marsico Focused Equities Portfolio .75%
Nations Marsico Growth & Income Portfolio .75%
Nations Value Portfolio .65%
Nations High Yield Bond Portfolio .00%

Effective May 1, 1999, for the services provided pursuant to the
Sub-Advisory Agreement, BACAP is entitled to receive from BAAI sub-advisory
fees, computed daily and paid monthly, at the annual rates of:
<CAPTION>
Portfolio Percentage of Average Daily Net Assets
--------- --------------------------------------
<S> <C>
Nations Balanced Assets Portfolio .25%
Nations Aggressive Growth Portfolio .25%
Nations Managed Index Portfolio .10%
Nations SmallCap Index Portfolio .10%
Nations Value Portfolio .25%
Nations Strategic Growth Portfolio .00%

Effective May 1, 1999, for the services provided pursuant to the
Sub-Advisory Agreement, Gartmore is entitled to receive from BAAI sub-advisory
fees, computed daily and paid monthly at the annual rate of:
<CAPTION>
Portfolio Percentage of Average Daily Net Assets
--------- --------------------------------------
<S> <C>
Nations International Growth Portfolio .70%

For the services provided pursuant to the Sub-Advisory Agreement,
Marsico Capital is entitled to receive from BAAI sub-advisory fees, computed
daily and paid monthly at the annual rate of:
<CAPTION>
Portfolio Percentage of Average Daily Net Assets
--------- --------------------------------------
<S> <C>
Nations Marsico Focused Equities Portfolio .45%
Nations Marsico Growth & Income Portfolio .45%

Effective May 1, 2000, for the services provided pursuant to the
Sub-Advisory Agreement, Brandes is entitled to receive from BAAI sub-advisory
fees, computed daily and paid monthly, at the annual rates of:
<CAPTION>
Portfolio Percentage of Average Daily Net Assets
--------- --------------------------------------
<S> <C>
Nations International Value Portfolio .00%

Effective May 1, 2000 for the services provided pursuant to the
Sub-Advisory Agreement, MacKay Shields is entitled to receive from BAAI
sub-advisory fees, computed daily and paid monthly, at the annual rates of:
<CAPTION>
Portfolio Percentage of Average Daily Net Assets
--------- --------------------------------------
<S> <C>
Nations High Yield Bond Portfolio .00%
</TABLE>

42
<PAGE>
BAAI also serves as the investment adviser to the funds of Nations
Funds Trust, Nations Fund, Inc., Nations Fund Trust, Nations Reserves, Nations
Master Investment Trust and Nations LifeGoal Funds, Inc., each a registered
investment company that is part of the Nations Funds family. In addition, BAAI
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.
BACAP also serves as the investment sub-adviser to Nations Fund, Inc., Nations
Fund Trust, Nations Funds Trust, Nations Reserves, Nations Life Goal Funds,
Inc., 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. Gartmore serves as the investment sub-adviser to
Nations International Growth Fund, part of Nations Fund, Inc. Marsico Capital
serves as the investment sub-adviser to Nations Marsico Focused Equities Fund
and Nations Marsico Growth & Income Fund, part of Nations Reserves. Brandes
serves as the investment sub-adviser to Nations International Value Fund, part
of Nations Reserves. MacKay Shields serves as the investment adviser to Nations
High Yield Bond Portfolio, part of Nations Funds Trust.

BAAI and BACAP are each wholly owned subsidiaries of Bank of America,
N.A. ("Bank of America"), which in turn is a wholly owned banking subsidiary of
Bank of America 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 Bank of
America and Gartmore U.S. Limited, an indirect wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"). 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 BAAI, BACAP and
Gartmore are located at One Bank of America Plaza, Charlotte, N.C. 28255.
Marsico Capital Management, LLC is located at 1200 17th Street, Suite 1300,
Denver, CO 80202. Marsico Management Holdings, LLC, a wholly owned subsidiary of
Bank of America, owns 50% of the equity of Marsico Capital Management LLC.
Brandes is an investment advisory firm with 37 investment professionals who
manage more than $20 billion in assets. Brandes is located at 12750 High Bluff
Drive, San Diego, California 92130. MacKay Shields is an independently-managed,
wholly-owned subsidiary of New York Life Insurance Company. The firm's 63
investment professionals manage more than $30 billion in assets, including over
$6 billion in high yield assets. MacKay Shields is located at 9 West 57th
Street, New York, New York 10019.

Since 1874, Bank of America and its predecessors have been managing
money for foundations, universities, corporations, institutions and individuals.
Today, Bank of America affiliates collectively manage in excess of $100 billion,
including more than $70 billion in mutual fund assets. It is a company dedicated
to a goal of providing responsible investment management and superior service.
Bank of America is recognized for its sound investment approaches, which place
it among the nation's foremost financial institutions. Bank of America and its
affiliates organizations make available a wide range of financial services to
over 6 million customer households through over 1700 banking and investment
centers.

Pursuant to the terms of the Investment Advisory Agreement and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with BAAI, BACAP,
Gartmore, Brandes, MacKay Shields and Marsico Capital, 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 Portfolios, BAAI, BACAP, Gartmore,
Brandes, MacKay Shields and Marsico Capital 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 each provide that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties thereunder on the part of an Adviser, respectively, or any of its
respective Officers, Directors, employees or agents, 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 thereunder, or
for any losses that may be sustained in the purchase, holding or sale of any
security.

The Investment Advisory Agreement with BAAI shall become effective with
respect to a Portfolio when approved in accordance with the 1940 Act, and if so
approved shall continue in effect for an initial term of two years, and shall
thereafter continue from year to year, provided that such continuation of the
Agreement is specifically

43
<PAGE>
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 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 BAAI on 60 days' written notice.

The Sub-Advisory Agreement with BAAI shall become effective with
respect to the respective Portfolios when approved in accordance with the 1940
Act, and if so approved shall continue in effect for an initial term of two
years, and 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
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 BAAI, or by BACAP
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 when approved in accordance with the 1940 Act,
and if so approved shall continue in effect for an initial term of two years,
and shall thereafter continue from year to year, provided such continuance 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 Portfolio, BAAI 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 Marsico Capital with respect to Nations
Marsico Focused Equities Portfolio and Nations Marsico Growth & Income Portfolio
when approved in accordance with the 1940 Act, and if so approved shall continue
in effect for an initial term of two years, and shall thereafter continue from
year to year, provided such continuance 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 Portfolios, BAAI or Marsico Capital 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 Brandes with respect to Nations
International Value Portfolio shall become effective with respect to Nations
International Value Portfolio when approved in accordance with the 1940 Act, and
if so approved shall continue in effect for an initial term of two years, and
shall thereafter continue from year to year, provided such continuance 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 Portfolio, BAAI or Brandes
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.

44
<PAGE>
The Sub-Advisory Agreement with MacKay Shields with respect to Nations
High Yield Bond Portfolio when approved in accordance with the 1940 Act, and if
so approved shall continue in effect for an initial term of two years, and shall
thereafter continue from year to year, provided such continuance 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 Portfolio, BAAI or MacKay Shields 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.

BAAI, BACAP, Gartmore, Brandes, MacKay Shields or Marsico Capital may
waive a portion of their fees; however, any such waiver may be discontinued at
any time. As discussed under the caption "Expenses," BAAI, BACAP, Gartmore,
Brandes, MacKay Shields and Marsico Capital will be required to reduce their
fees from the Portfolios, in direct proportion to the fees payable by the
Portfolios to BAAI, BACAP, Gartmore, Brandes, MacKay Shields, Marsico Capital
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.

In addition, the Adviser may pay out of its own assets, amounts to
certain broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.

The Advisory and Sub-Advisory Agreements were approved by the Board of
Trustees, including a majority of Trustees who are not parties to such
Agreements or "interest persons" at the [DECEMBER 9, 1997 SPECIAL BOARD
MEETING.]

ADMINISTRATOR AND CO-ADMINISTRATOR

Stephens Inc. ("Stephens"), 111 Center Street, Suite 300, Little Rock, AR
72201, serves as Co-Administrator of the Trust with BAAI (each of BAAI and
Stephens are "Co-Administrators"). The Bank of New York ("BNY"), 90 Washington
Street, New York, New York 10286, serves as Sub-Administrator (the
"Sub-Administrator") for the Trust.

The Co-Administrators and Sub-Administrator serve under a
co-administration agreement ("Co-Administration Agreement") and
sub-administration agreement ("Sub-Administration Agreement"), respectively,
each of which was approved by the Board of Trustees on November 5, 1998. Prior
to the Co-Administration Agreement that was approved on November 5, 1998, the
Co-Administrators, Stephens and [PFPC INC. ("PFPC")], were paid $22,819 and
$9,438, respectively, for their services in 1998. The Co-Administrators are
entitled to receive, as compensation for their services rendered under the
current Co-Administration Agreement, a combined fee, computed daily and paid
monthly, at the annual rate of 0.22% of the average daily net assets of Nations
International Growth Portfolio; and 0.23% of the average daily net assets of the
other Portfolios. For providing Sub-Administration services, BNY is entitled to
receive a monthly fee from Stephens and/or BAAI.

Pursuant to the Co-Administration Agreements, the Co-Administrators have
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 Portfolio,
(iii) furnish corporate secretarial services to each Portfolio, including
coordinating the preparation and distribution of materials for Board of Trustees
meetings, (iv) coordinate the provision of legal advice to the Trust with
respect to regulatory matters, (v) coordinate the preparation of reports to each
Portfolio's shareholders and the SEC, including annual and semi-annual reports,
(vi) coordinate the provision of services to each Portfolio by the
Sub-Administrator, the Transfer Agent and the Custodian, and (vii) generally
assist in all aspects of each Portfolio's operations. Additionally, the
Co-Administrators are authorized to receive the fees payable to the
Sub-Administrator by each Portfolio for its services rendered under the
Sub-Administration Agreement.

Pursuant to the Sub-Administration Agreement, the Sub-Administrator has
agreed to, among other things, assist in supervising various aspects of the
Portfolios' administrative operations: (i) monitor the Portfolios' compliance

45
<PAGE>
with their policies and restrictions, (ii) provide income attribution summary
schedules for year-end tax reporting, (iii) prepare federal, state, excise and
local income tax returns for the Portfolios, (iv) support BAAI and disseminate
unaudited quarterly and semi-annual and audited annual financial statements and
schedules of Portfolio investments to the Portfolios' Board of Trustees, (v)
prepare statistical reports for outside information services, (vi) prepare
calculations for semi-annual capital gains, (vii) attend Portfolio shareholder
and Board of Trustees meetings as requested by BAAI, including making any
appropriate presentations, and (viii) provide all accounting and recordkeeping
services necessary and appropriate for the business of the Portfolios.

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

CUSTODIAN AND TRANSFER AGENT

PFPC, Inc. is located at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109, and acts as transfer agent for each Portfolio's 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.

BNY serves as Custodian for each Portfolio. As Custodian, BNY 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 to all the
Portfolios, BNY received, in addition to out-of-pocket expenses, fees of $20,660
for 1998.

The SEC has amended Rule 17f-5 under the 1940 Act to permit boards to
delegate certain foreign custody matters to foreign custody managers and to
modify the criteria applied in the selection process. Accordingly, BONY serves
as Foreign Custody Manager, pursuant to a Foreign Custody Manager Agreement,
under which the Board of Directors/Trustees retain the responsibility for
selecting foreign compulsory depositories, although BONY agrees to make certain
findings with respect to such depositories and to monitor such depositories.

SHAREHOLDER SERVICING AND DISTRIBUTION PLAN

The Portfolios have adopted a Shareholder Servicing and Distribution
Plan (the "Servicing and Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act under which the Portfolios may pay banks, broker/dealers, Participating
Insurance Companies (as defined in the Prospectus) or other financial
institutions that have entered into a Sales Support Agreement with the
Distributor ("Selling Agents") or a Shareholder Servicing Agreement with the
Trust ("Servicing Agents") (together with Selling Agents ("Agents")) for certain
expenses that are incurred by the Agents in connection with sales support and
shareholder support services that are provided by the Agents. Payments under the
Servicing and Distribution 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 Agents have a relationship. Under the Servicing and
Distribution 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. Under the Servicing and
Distribution Plan, the Trust may make payments in connection with any activity
which is primarily intended to result in the sale of the Shares, including, but
not

46
<PAGE>
limited to, expenses of organizing and conducting sales seminars, printing of
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising material and sales literature, supplemental payments to the
Trust's Distributor and the cost of administering this Servicing and
Distribution Plan, as well as the shareholder servicing activities described
above. There were no fees paid under the Servicing and Distribution Plan for the
fiscal period ending December 31, 1998.

EXPENSES

Stephens, as Co-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, Co-Administrator and
Sub-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 Transfer Agent, 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 Trustees' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Trustees or Trustee 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 Trustees) 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 Portfolio are pro-rated among all Portfolios of the Trust
based upon the relative net assets of each Portfolio.

The Advisory Agreement, the Sub-Advisory Agreements, and the
Co-Administration Agreement require BAAI, BACAP, Gartmore, Brandes, MacKay
Shields and the Co-Administrators 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 BAAI, BACAP, Gartmore, Brandes, MacKay Shields
or the Administrator shall be deducted from the monthly investment advisory and
administration fees otherwise payable to BAAI, BACAP, Gartmore, Brandes, MacKay
Shields and the Co-Administrators during such fiscal year. If required pursuant
to such state securities regulations, BAAI, BACAP, Gartmore, Brandes, MacKay
Shields and the Co-Administrators 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).

47
<PAGE>
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 the Distribution
Agreement 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 Trustees 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.

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
PriceWaterhouseCoopers, LLP, 1177 Avenue of the Americas, New York, New York
10036 as the Trust's independent accountant to audit the Trust's books and
review the Trust's tax returns.

The Annual Report for the fiscal year ended December 31, 1999 are
hereby incorporated herein by reference in this SAI. These Annual Reports 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.

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 each
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.

48
<PAGE>
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.

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 companies 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

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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.

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, purchase or
sell portfolio securities from or to the Distributor, the Adviser, the
Administrator, the Co-Administrator, or their respective 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 Bank of America 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 Bank of America 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, 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
companies 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 Bank of America 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 and other investment companies
and accounts advised or managed by the Adviser. Such other investment
portfolios, investment companies 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 companies 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.

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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.

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 other investment companies which it advises. Also, a 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.

BROKERAGE COMMISSIONS

During the fiscal period ended December 31, 1998, the Trust paid total
commissions for Nations Marsico Annuity Focused Equities Portfolio of $92,223.
Of this total, the Trust paid brokerage commissions to Nations Montgomery
Securities LLC, an affiliated broker-dealer, of $4,040 or 4.38%.

During the fiscal period ended December 31, 1998, the Trust paid total
commissions for Nations Marsico Annuity Growth & Income Portfolio of $26,389. Of
this total, the Trust paid brokerage commissions to Nations Montgomery
Securities LLC, an affiliated broker-dealer, of $1,430 or 5.42%.

During the fiscal year ended December 31, 1998, the Trust had total
brokerage transactions for Nations Marsico Annuity Focused Equities Portfolio of
$298,064,331. Of this total, 1.42% of the brokerage transactions were executed
through Nations Montgomery Securities LLC, an affiliated broker-dealer.

During the fiscal year ended December 31, 1998, the Trust had total
brokerage transactions for Nations Marsico Annuity Growth & Income Portfolio of
$196,719,117. Of this total, 0.77% of the brokerage transactions were executed
through Nations Montgomery Securities LLC, an affiliated broker-dealer.

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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 paid by 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 companies; forecasts and interpretations with respect to U.S. and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on securities and information concerning
prices of securities; and information supplied by specialized services to the
Adviser and to the Trust's Trustees with respect to the performance, investment
activities, fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include providing equipment used to communicate research information,
arranging meetings with management of the Trust and providing access to
consultants who supply research information.

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.

PURCHASE, REDEMPTION AND PRICING OF SHARES
------------------------------------------

PURCHASES

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. The separate
accounts of the Participating Insurance Companies place orders to purchase and
redeem shares of the Portfolios based on, among other things, the amount of
premium payments to be invested and the amount of surrender and transfer
requests to be effected on that day pursuant to the

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contracts.

Although this Prospectus discusses the Portfolios being made available to serve
as the underlying investment vehicles for variable life insurance separate
accounts, it is not presently contemplated that the Portfolios will accept such
investments. In addition, in no instance will the Portfolios be made available
to life insurance separate accounts without the Trust having received any
necessary SEC consents or approvals. It is conceivable that in the future it may
be disadvantageous for variable annuity separate accounts and variable life
insurance separate accounts to invest in the Portfolios simultaneously. Although
the Trust and the Portfolios do not currently foresee any such disadvantages
either to variable annuity contract owners or variable life insurance policy
owners, the Trust's Board of Trustees intends to monitor events in order to
identify any material conflicts between such contract owners and policy owners
and to determine what action, if any, should be taken in response thereto. If
the Board of Trustees were to conclude that separate funds should be established
for variable life and variable annuity separate accounts, the variable life and
variable annuity contract holders would not bear any expenses attendant to the
establishment of such separate funds.

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.

REDEMPTIONS

Redemption proceeds are normally remitted in Federal funds wired to the
redeeming Participating Insurance Company 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 shares involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.

NET ASSET VALUE DETERMINATION

Shares of each Portfolio are sold at their respective net asset value
next determined after the receipt of the purchase order. Participating Insurance
Companies may at any time redeem all or a portion of their shares at the next
determined net asset value following receipt of a redemption order.

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

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

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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 a Portfolio are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of 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 Trustees.

For purposes of determining the net asset value per share of the
International Growth Portfolio, all assets and liabilities of the International
Growth Portfolio initially expressed in foreign currencies will be converted
into U.S. dollars at the mean between the bid and ask 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 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 shares as provided in the Prospectus 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 the Trust's responsibilities
under the 1940 Act.

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 the Trust not reasonably
practicable. The Exchange is closed for business on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Veterans Day, Thanksgiving Day and Christmas Day. The Federal Reserve
Bank observes the following holidays: New Years Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Thanksgiving Day and Christmas Day.

DESCRIPTION OF SHARES
---------------------

DESCRIPTION OF SHARES OF THE TRUST

Nations Annuity Trust, an open-end, management investment company, was
organized as a Delaware business trust on November 24, 1997. As of the date of
this SAI, the Trust's Board of Trustees has authorized the issuance of eleven
Portfolios, each representing an unlimited number of beneficial interests --
Nations Balanced Assets Portfolio, Nations Aggressive Growth Portfolio, Nations
International Value Portfolio, Nations International Growth Portfolio, Nations
Managed Index Portfolio, Nations SmallCap Index Portfolio, Nations Strategic
Growth Portfolio, Nations High Yield Bond Portfolio, Nations Marsico Focused
Equities Portfolio, Nations Marsico Growth & Income Portfolio and Nations Value
Portfolio -- and the Board of Trustees may, in the future, authorize the
creation of additional investment portfolios or classes of shares.

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 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.

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All shares of a Portfolio 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 Portfolio's fundamental investment policy would be voted upon only by
shareholders of the Portfolio involved. Additionally, approval of an advisory
contract is a matter to be determined separately by Portfolio. Approval by the
shareholders of one Portfolio is effective as to that Portfolio whether or not
sufficient votes are received from the shareholders of the other Portfolios to
approve the proposal as to those Portfolios. As used in the Prospectus and in
this SAI, the term "majority," when referring to approvals to be obtained from
shareholders of the Portfolio, means the vote of the lesser of (i) 67% of the
shares of the Portfolio represented at a meeting if the shareholders of more
than 50% of the outstanding interests of the Portfolio are present in person or
by proxy, or (ii) more than 50% of the outstanding shares of the Portfolio. The
term "majority," when referring to the approvals to be obtained from
shareholders of Nations Annuity Trust as a whole, means the vote of the lesser
of (i) 67% of the Trust's shares represented at a meeting if the shareholders of
more than 50% of the Trust's outstanding shares are present in person or by
proxy, or (ii) more than 50% of the Trust's outstanding shares. Shareholders are
entitled to one votE for each full share held and fractional votes for
fractional shares held.

The 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,
the 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 the 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 Portfolio represents an equal proportional interest in
the Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Portfolio,
as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of Nations Annuity Trust, shareholders of a Portfolio
are entitled to receive the assets attributable to the Portfolio that are
available for distribution, and a distribution of any general assets not
attributable to a particular 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, will be fully paid and non-assessable by the 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 the Portfolio on the basis
of its relative net assets.

ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------

The following information supplements and should be read in conjunction
with the Prospectus section entitled "About Your Investment--Tax Information."
The Prospectus of the Portfolios generally describes the tax treatment of the
Portfolios and their shareholders. This section of the SAI includes additional
information concerning Federal income taxes.

GENERAL

The Trust intends to qualify each Portfolio as a regulated investment
company under Subchapter M of 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 Federal income tax purposes and thus the provisions of the
Code applicable to regulated investment companies will generally be applied
separately to each Portfolio, rather than to the Trust as a whole. In addition,
net capital gain, net investment income, and operating expenses will be
determined separately for each Portfolio. As a regulated investment company,
each Portfolio will not be subject to Federal income tax on its net investment
income and net capital gain 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

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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
companies) 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.

The Portfolios must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) earned in each taxable year.
Although a Portfolio must ordinarily make such distributions during the taxable
year in which it realized the net investment income, in certain circumstances,
the Portfolio may make such distributions in the following taxable year.
Furthermore, distributions declared to a shareholder of record in a day in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Portfolios intend to pay out substantially all of their net
investment income and any net realized capital gains for each year.

EXCISE TAX

A 4% nondeductible excise tax will be imposed on each Portfolio 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 gain
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 a 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 Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Portfolio pursuant to the exercise of a put option
written by it, such Portfolio will subtract the premium received from its cost
basis in the securities purchased.

The amount of any gain or loss realized by a Portfolio on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales and sixty percent (60%) of any net
realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.

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<PAGE>
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 debt 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
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 a 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.

Income and dividends received by the Portfolios from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.

TAXATION OF A SEPARATE ACCOUNT OF A PARTICIPATING INSURANCE COMPANY

Under the Code, the investments of a segregated asset account, such as
the separate accounts of the Participating Insurance Companies, must be
"adequately diversified" in order for the holders of the variable annuity
contracts or variable life insurance policies underlying the account to receive
the tax-deferred or tax-free treatment on such annuities or policies generally
afforded holders of annuities or life insurance policies.

In general, the investments of a segregated asset account are
considered "adequately diversified" only if (i) no more than 55% of the value of
the total assets of the account is represented by any one investment; (ii) no
more than 70% of the value of the total assets of the account is represented by
any two investments; (iii) no more than 80% of the value of the total assets of
the account is represented by any three investments; and (iv) no more than 90%
of the value of the total assets of the account is represented by any four
investments. In general, all securities of the same issuer are treated as a
single investment. However, Treasury Regulations provide a "look-through rule"
with respect to a segregated asset account's investments in a regulated
investment company for purposes of the applicable

57
<PAGE>
diversification requirements, provided certain conditions are satisfied by the
regulated investment company. In particular, if the beneficial interests in the
regulated investment company are held by one or more segregated asset accounts
of one or more insurance companies, and if public access to such regulated
investment company is available exclusively through the purchase of a variable
contract, then a segregated asset account's beneficial interest in the regulated
investment company is not treated as a single investment. Instead, a pro rata
portion of each asset of the regulated investment company is treated as an asset
of the segregated asset account.

Each Portfolio intends to satisfy the relevant conditions at all times,
thereby enabling the investment of the corresponding separate accounts to
qualify as "adequately diversified" investments. Accordingly, each separate
account of the Participating Insurance Companies will be able to treat its
interests in a Portfolio as ownership of a pro rata portion of each asset of the
Portfolio, such that holders of the variable annuity contracts or variable life
insurance policies underlying the separate account will be subject to the
favorable Federal income tax treatment under the Code.

For information concerning the Federal income tax consequences for the
holders of variable annuity contracts and variable rate insurance policies, such
holders should consult the prospectus used in connection with the issuance of
their particular contracts or policies and should consult their own tax
advisors.

FEDERAL INCOME TAX RATES

As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 28%; and the maximum corporate tax rate applicable to ordinary income
and net capital gain is 35% (marginal tax rates may be higher for some
corporations to reduce or eliminate the benefit of lower marginal income tax
rates). 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.

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.
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.

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 Portfolios may advertise total return and yield. BOTH
TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "total return" 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 a 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

58
<PAGE>
month) period 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 composition of a Portfolio's securities and a 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
such 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 a Portfolio 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.
Any Portfolio advertising will be accompanied by performance information of the
related Participating Insurance Company's separate account which fund the
Contract and by an explanation that Portfolio performance information does not
reflect separate account fees and charges.

YIELD CALCULATIONS

The yield 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:

Yield = 2[(a-b + 1)(6)-1]
--
cd

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

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 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 Portfolio's financial statements.

59
<PAGE>
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, 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.

AVERAGE ANNUAL TOTAL RETURNS INCEPTION THROUGH 12/31/98
---------------------------- --------------------------

Nations Balanced Assets Portfolio (2.23%)
Nations Aggressive Growth Portfolio 6.44%
Nations International Growth Portfolio 3.11%
Nations International Value Portfolio
Nations Strategic Growth Portfolio
Nations Managed Index Portfolio 11.39%
Nations Small Cap Index Portfolio (9.35%)
Nations Value Portfolio 4.48%
Nations Marsico Growth & Income Portfolio 21.80%
Nations Marsico Focused Equities Portfolio 30.16%

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.

60
<PAGE>
This calculation, (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates, 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.

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
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.

ADDITIONAL INFORMATION ABOUT MACKAY SHIELDS'S PERFORMANCE APPEARING IN THE
PROSPECTUS FOR THE HIGH YIELD BOND PORTFOLIO

The High Yield Composite contained in the Prospectus includes all
discretionary high yield accounts managed by MacKay Shields with substantially
similar objectives for a full quarter. Composite performance reflects
reinvestment of income and dividends and is a market-weighted average of the
time-weighted return, before advisory fees, of each account for the period since
inception. Performance is expressed in U.S. Dollars. The composite creation and
inception date is 7/1/91. Fees, which are described in MacKay Shields' ADV Part
II, and related expenses will reduce returns. For example, a .50% annual
investment advisory fee would have the effect of reducing the annual compound
return by .50% in the first year and by a cumulative 2.53% in the fifth year.
Non-fee paying portfolios are not included in the composite. Past performance is
not necessarily indicative of future results.

MacKay Shields, an SEC-registered investment adviser, has prepared and
presented the performance information in compliance with the Performance
Presentation Standards of the Association for Investment Management and Research
(AIMR-PPSTM). AIMR has not been involved with the preparation or review of this
report. MacKay Shields (and its High Yield composite) has received a Level 1
verification from an independent accounting firm for the period January 1, 1988
through the most recent quarter. An opinion is available on request, as is a
complete list and description of the firm's composites. Balanced segments may be
utilized within this composite. Each balanced segment includes its own cash
balance. No leverage has been used in this composite. The asset mix of high
yield accounts may not be precisely comparable to the CS First Boston High Yield
Index. One account was removed from the composite after 12/31/95 because it was
no longer representative of the style. The number of accounts, composite assets
(in millions), percentage of total firm assets, and standard deviation of annual
returns were as follows at year-ends 1991-1999, respectively: 1, $299, 3.7% N/A;
1, $510, 6.1%, 0.0; 1, $935, 8.8%, 0.0; 1, $1,126, 8.9%, 0.0; 4, $1,756, 9.6%,
0.0; 5, $261, 1.1%, 3.2; 6, $254, 0.9%, 2.2; 10, $670, 2.2%, 1.8; 17,$1,901,
5.6%, 2.4.

At December 31, 1999 MacKay Shields was managing a total of $6,750
million of High Yield assets. Of the total assets managed in the High Yield
style, $1,901 million, or 28.2% is represented in the High Yield Composite.

61
<PAGE>
MISCELLANEOUS
-------------

CERTAIN RECORD HOLDERS

As of April 16, 1999, the following people owned 5% or more of the
following Portfolios outstanding securities:

62
<PAGE>
OWNER SHARES % OWNED
- --------------------------------------------- -------------------- -------------
BALANCED ASSET PORTFOLIO

ROBINSON, LEE 45,648.325 9.22%
3 Athenaeum Hall
Vale of Hlth London NW 3,1 AP 99999

BARKER, LARRY 64,084.082 12.95%
200 Highland Ln
Waverly, TN 37185

HL INVESTMENT ADVISORS, LLC 101,004.141 20.41%
200 Hopmeadow Street
Simsbury, CT 06089

AGGRESSIVE GROWTH PORTFOLIO

ROBINSON, LEE 33,288.532 6.86%
3 Athenaeum Hall
Vale of Hlth London NW 3,1 AP 99999

HL INVESTMENT ADVISORS, LLC 100,228.354 20.66%
200 Hopmeadow Street
Simsbury, CT 06089

INTERNATIONAL GROWTH PORTFOLIO

ROBINSON, LEE 22,267.045 8.68%
3 Athenaeum Hall
Vale of Hlth London NW 3,1 AP 99999

HL INVESTMENT ADVISORS, LLC 100,302.734 39.12%
200 Hopmeadow Street
Simsbury, CT 06089

INTERNATIONAL VALUE PORTFOLIO

STRATEGIC GROWTH PORTFOLIO

MANAGED INDEX

HL INVESTMENT ADVISORS, LLC 503,116.531 49.27%
200 Hopemeadow Street
Simsbury, CT 06089

SMALLCAP INDEX PORTFOLIO

HL INVESTMENT ADVISORS, LLC 501,934.016 72.49%
200 Hopmeadow Street
Simsbury, CT 06089

VALUE PORTFOLIO

ROBINSON, LEE 33,833.562 5.01%
3 Athenaeum Hall
Vale of Hlth London NW 3,1 AP 99999

HL INVESTMENT ADVISORS, LLC 100,366.795 14.87%
200 Hopmeadow Street
Simsbury, CT 06089

63
<PAGE>

MARSICO FOCUSED EQUITIES PORTFOLIO

HL INVESTMENT ADVISORS, LLC 300,367.816 11.21%
200 Hopmeadow Street
Simsbury CT 06089

OWNER SHARES % OWNED
- --------------------------------------------- -------------------- -------------
MARSICO GROWTH & INCOME PORTFOLIO

HL INVESTMENT ADVISORS, LLC 300,491.803 17.63%
200 Hopmeadow Street
Simsbury, CT 06089

64
<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.

A-1
<PAGE>
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 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 - Bonds 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.

A-2
<PAGE>
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.

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 - 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 portfolio 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

A-3
<PAGE>
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.

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>
NATIONS ANNUITY TRUST

ONE BANK OF AMERICA PLAZA
33RD FLOOR
CHARLOTTE, NC 28255
1-800-626-2275

FORM N-1A

PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

All references to the "Registration Statement" in the following
list of Exhibits refer to the Registrant's Registration Statement on Form N-1A
(FILE NOS. 33-40265; 811-08481)
<TABLE>
<CAPTION>
<S> <C>
- ---------------------- -------------------------------------------------------------------------------------
EXHIBIT LETTER DESCRIPTION
- ---------------------- -------------------------------------------------------------------------------------
(a) ARTICLES OF INCORPORATION:
(a)(1) Amended and Restated Declaration of Trust, incorporated by reference to
Pre-Effective Amendment No. 1, filed on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------
(b) BY-LAWS:
(b)(1) Amended and Restated By-Laws, dated February 5, 1998,
last amended November 17, 1999, incorporated by reference
to Pre-Effective Amendment No. 1, filed on February 20,
1998.
- ---------------------- -------------------------------------------------------------------------------------
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITIES HOLDERS:
Not Applicable
- ---------------------- -------------------------------------------------------------------------------------
(d) INVESTMENT ADVISORY CONTRACTS:
(d)(1) Investment Advisory Agreement between Nations Annuity Trust and Banc of America
Advisors, Inc. (formerly NationsBanc Advisors, Inc.), ("BAAI"), dated May 21, 1999,
incorporated by reference to Pre-Effective Amendment No. 1, filed on February 20,
1998.
(d)(2) Sub-Advisory Agreement between BAAI, TradeStreet Investment Associates,
incorporated by reference to Pre-Effective Amendment No. 1, filed on February 20,
1998.
- ---------------------- -------------------------------------------------------------------------------------

C-1
<PAGE>

- ---------------------- -------------------------------------------------------------------------------------
EXHIBIT LETTER DESCRIPTION
- ---------------------- -------------------------------------------------------------------------------------
(d)(3) Sub-Advisory Agreement between BAAI, Marsico Capital Management, Inc. ("Marsico")
and Nations Annuity Trust, dated February 25, 1998, Schedule I dated December 9,
1997, incorporated by reference to Pre-Effective Amendment No. 1, filed on February
20, 1998.
(d)(4) Sub-Advisory Agreement between BAAI, Gartmore Global Partners ("Gartmore") and
Nations Annuity Trust, incorporated by reference to Pre-Effective Amendment No. 1,
filed on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------
(e) UNDERWRITING CONTRACT:
(e)(1) Distribution Agreement between Nations Annuity Trust and Stephens Inc., dated
February 25, 1998, Schedule I amended December 9, 1997, incorporated by reference
to Pre-Effective Amendment No. 1, filed on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------
(f) BONUS OR PROFIT SHARING CONTRACTS:
Not Applicable.
- ---------------------- -------------------------------------------------------------------------------------
(g) CUSTODIAN AGREEMENTS:
(g)(1) Custody Agreement between Nations Annuity Trust and The Bank of New York,
incorporated by reference to Post-Effective Amendment No. 1, filed on February 12,
1999.
(g)(2) Amendment to Custody Agreement dated September 1, 1999, to be filed by amendment.
(h) OTHER MATERIAL CONTRACTS:
(h)(1) Co-Administration Agreement between Nations Annuity Trust, Stephens Inc. and BAAI,
incorporated by reference to Pre-Effective Amendment No. 1, filed on February 20,
1998.
(h)(2) Sub-Administration Agreement between Nations Annuity
Trust, The Bank of New York and BAAI, dated December 1,
1998, incorporated by reference to Pre-Effective
Amendment No. 1, filed on February 20, 1998.
(h)(3) Transfer Agency and Services Agreement between First Data Investor Services Group,
Inc. ("First Data") and the Nations Funds Family, dated June 1, 1995, incorporated
by reference to Pre-Effective Amendment No. 1, filed on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------

C-2
<PAGE>
- ---------------------- -------------------------------------------------------------------------------------
EXHIBIT LETTER DESCRIPTION
- ---------------------- -------------------------------------------------------------------------------------
(h)(4) Adoption Agreement and Amendment to Transfer Agency and Service Agreement, dated
February 25, 1998, incorporated by reference to Pre-Effective Amedment No. 1, filed
on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------
(h)(5) Amendment to Transfer Agency and Services Agreement dated January 1, 1999, to be
filed by amendment.
(h)(6) Participation Agreement with Hartford Life Insurance Company, incorporated by
reference to Pre-Effective Amendment No. 1, filed on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------
(i) LEGAL OPINION
- ---------------------- -------------------------------------------------------------------------------------
(j) OTHER OPINIONS
- ---------------------- -------------------------------------------------------------------------------------
(k) OMITTED FINANCIAL STATEMENTS
- ---------------------- -------------------------------------------------------------------------------------
(l) INITIAL CAPITAL AGREEMENTS:
Not Applicable
- ---------------------- -------------------------------------------------------------------------------------
(m) RULE 12B-1 PLAN:
(m)(1) Shareholder Servicing and Distribution Plan, incorporated by reference to
Pre-Effective Amendment No. 1, filed on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------
(n) FINANCIAL DATA SCHEDULE:
Not Applicable
- ---------------------- -------------------------------------------------------------------------------------
(o) RULE 18F-3 PLAN:
None
- ---------------------- -------------------------------------------------------------------------------------
(p) Powers of Attorney for Edmund L. Benson, James Ermer, William H. Grigg, Thomas F.
Keller, Carl E. Mundy, Jr., Cornelius J. Pings, James B. Sommers, A. Max Walker,
Charles B. Walker, Thomas S. Word, Jr. and Richard H. Blank, Jr., incorporated by
reference to Pre-Effective Amendment No. 1, filed on February 20, 1998.
- ---------------------- -------------------------------------------------------------------------------------
</TABLE>

C-3
<PAGE>

ITEM 24. PERSONS CONTROLLED BY OF UNDER COMMON CONTROL WITH THE FUND

No person is controlled by or under common control with the Registrant.

ITEM 25. INDEMNIFICATION

Article V, Section 5.3 of Registrant's Declaration of Trust
provides for the indemnification of Registrant's trustees and employees.
Indemnification of Registrant's administrators, principal underwriter, custodian
and transfer agent is provided for, respectively, in:

1. Co-Administration Agreement with Stephens Inc. and BAAI.;

2. Sub-Administration Agreement with The Bank of New York and BAAI;

3. Custody Agreement with The Bank of New York;

4. Transfer Agency and Registrar Agreement with First Data

Promptly after receipt by an indemnified party above of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission to so notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in such case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation.

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, 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.

C-4
<PAGE>

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER

To the knowledge of the Registrant, none of the directors or officers
of BAAI, the adviser to the Registrant's portfolios, or TradeStreet, Gartmore,
INVESCO, Putnam, Marsico or Chicago Equity, the investment sub-advisers, except
those set forth below, are or have 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
BAAI, TradeStreet, Gartmore, INVESCO, Putnam, Marsico or Chicago Equity,
respectively, or other subsidiaries of Bank of America Corporation.

(a) BAAI performs investment advisory services for the Registrant and
certain other customers. BAAI is a wholly owned subsidiary of Bank of America,
N.A. ("Bank of America"), which in turn is a wholly owned banking subsidiary of
Bank of America Corporation. Information with respect to each director and
officer of the investment adviser is incorporated by reference to Form ADV filed
by BAAI with the SEC pursuant to the Investment Advisers Act of 1940, as amended
(the "Advisers Act") (file no. 801-49874).

(b) TradeStreet performs investment sub-advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of Bank of America, which in turn is a wholly owned banking subsidiary of Bank
of America Corporation. Information with respect to each director and officer of
the investment sub-adviser is incorporated by reference to Form ADV filed by
TradeStreet with the SEC pursuant to the Advisers Act (file no. 801-50372).

(c) Marsico performs investment sub-advisory services for the
Registrant and certain other customers. Marsico Management Holdings, LLC, a
wholly owned subsidiary of Bank of America, owns 50% of the equity of Marsico
Capital. Information with respect to each director and officer of the investment
sub-adviser is incorporated by reference to Form ADV filed by Marsico with the
SEC pursuant to the Advisers Act (file no. 801-54914).

(d) Gartmore performs investment sub-advisory services for the
Registrant and certain other customers. Gartmore is a joint venture structured
as a general partnership between NB Partner Corp., a wholly owned subsidiary of
Bank of America, and Gartmore U.S. Limited, an indirect, wholly owned subsidiary
of Gartmore Investment Management plc, a UK Company which is the holding company
for a leading UK based international fund management group of companies.
Information with respect to each director and officer of the investment
sub-adviser is incorporated by reference to Form ADV filed by Gartmore with the
SEC pursuant to the Advisers Act (file no. 801-48811).

C-5
<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Stephens, distributor for the Registrant, does not presently act as
investment adviser for any other registered investment companies, but does act
as principal underwriter for Nations Fund Trust, Nations Fund, Inc., Nations
Reserves, Nations LifeGoal Fund, Inc., Nations Annuity Trust, Stagecoach Inc.,
Stagecoach Funds, Inc. and Stagecoach Trust and is the exclusive placement agent
for Nations Master 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 SEC pursuant to the Investment Company Act of 1940, as amended
(the "1940 Act") (file No. 501-15510).

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

(1) BAAI, One Bank of America Plaza, CHARLOTTE, NC 28255 (records
relating to its function as Investment Adviser and Co-Administrator).

(2) TradeStreet, One Bank of America Plaza, Charlotte, NC 28255
(records relating to its function as Sub-Adviser).

(3) Gartmore, One Bank of America Plaza, Charlotte, NC 28255 (records
relating to its function as Sub-Adviser).

(4) Marsico Capital, 1200 17th Street, Suite 1300, Denver, CO 80202
(records relating to its function as Sub-Advisor).

(5) First Data, One Exchange Place, Boston, MA 02109 (records relating
to its function as Transfer Agent).

(6) Bank of New York, 90 Washington Street, New York, NY 10286 (records
relating to its function as Custodian and Sub-Administrator)

ITEM 29. MANAGEMENT SERVICES

Not Applicable

ITEM 30. UNDERTAKINGS

Not Applicable

C-6
<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 Amendment to
its 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
15th day of February, 2000.
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
Post-Effective Amendment to the 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 February 15, 2000
- --------------------------------------- of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)

/s/ Richard H. Blank, Jr. Treasurer and Secretary February 15, 2000
- ------------------------------ (Principal Financial and
(Richard H. Blank, Jr.) Accounting Officer)

* Trustee February 15, 2000
- ----------------------------------------
(Edmund L. Benson, III)

* Trustee February 15, 2000
- ----------------------------------------
(James Ermer)

* Trustee February 15, 2000
- ----------------------------------------
(William H. Grigg)

* Trustee February 15, 2000
- ----------------------------------------
(Thomas F. Keller)

* Trustee February 15, 2000
- ----------------------------------------
(Carl E. Mundy, Jr.)

* Trustee February 15, 2000
- ----------------------------------------
(Cornelius J. Pings)

* Trustee February 15, 2000
- ----------------------------------------
(Charles B. Walker)

* Trustee February 15, 2000
- ----------------------------------------
(Thomas S. Word)

* Trustee February 15, 2000
- ----------------------------------------
(James B. Sommers)

/s/ Richard H. Blank, Jr.
- ------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>