NATIONS MASTER INVESTMENT TRUST, POS AMI, 2000-02-11

NATIONS MASTER INVESTMENT TRUST
POS AMI, 2000-02-11

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As filed with the Securities and Exchange Commission
on February 11, 2000
Registration No. 811-09347

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [x]
------------------------

NATIONS MASTER INVESTMENT 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) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006

<PAGE>

EXPLANATORY NOTE

This Registration Statement has been filed by the Registrant
pursuant to Section 8(b) of the Investment Company Act of 1940, as amended in
order to add Nations High Yield Bond Master Portfolio. However, beneficial
interests in the Registrant are not being registered under the Securities Act of
1933, as amended (the "1933 Act"), since such interests will be issued solely in
private placement transactions which do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may
only be made by the investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any beneficial interests in the Registrant.

<PAGE>

Nations Master Investment Trust
Part A

February 11, 2000

Nations Intermediate Bond Master Portfolio
Nations Blue Chip Master Portfolio
Nations International Equity Master Portfolio
Nations International Value Master Portfolio
Nations Marsico Focused Equities Master Portfolio
Nations Marsico Growth & Income Master Portfolio
Nations High Yield Bond Master Portfolio

Responses to Items 1 through 3 have been omitted pursuant to paragraph (B)(2)(b)
of the General Instructions to Form N-1A.

Nations Master Investment Trust ("Trust") is registered as an open-end
management investment company under the Company Act of 1940, as amended (the
"1940 Act"). The Trust is currently comprised of seven separate series of Master
Portfolios (each a "Master Portfolio" and collectively the "Master Portfolios"):
Nations Intermediate Bond Master Portfolio, Nations Blue Chip Maser Portfolio,
Nations International Equity Master Portfolio, Nations International Value
Master Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations
Marsico Growth & Income Master Portfolio and Nations High Yield Bond Master
Portfolio. The Trust's Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of beneficial interest ("Beneficial Interests") and to
establish and designate such Beneficial Interests into one or more Master
Portfolios.

ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS.

Nations Intermediate Bond Master Portfolio: Nations Intermediate Bond master
Portfolio's investment objective is to seek to provide interest income and
capital appreciation.

This Master Portfolio is a diversified portfolio which will invest at least 65%
of its assets in intermediate and longer term fixed income securities that are
investment grade. The Master Portfolio can invest up to 35% of its assets in
mortgage-backed securities, including collateralized mortgage obligations
(CMOs), that are backed by the U.S. government or one of its agencies or
instrumentalities.

Normally, the Master Portfolio's average dollar-weighted maturity will be
between three and six years. Its duration generally will be the same as the
Lehman Brothers Intermediate/Corporate Bond Index.

When selecting individual investments, the portfolio management team:

o looks at a fixed income security's potential to generate both income and
price appreciation

o allocates assets among U.S. corporate securities and mortgage-backed
securities, based on how they have performed in the past, and on how they
are expected to perform under current market conditions. The team may change
the allocations when market conditions change

o selects securities using structure analysis, which evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows

o tries to maintain a duration that is similar to the duration of the
Portfolio's benchmark. This can help manage interest rate risk

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

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The team may sell a security when it believes the security is overvalued, there
is a deterioration in the security's credit rating or in the issuer's financial
situation, when other investments are more attractive, or for other reasons.

Nations Intermediate Bond Master 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 for the Master
Portfolio will not rise as high as the team expects, or will fall.

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 CREDIT RISK - The Master 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 DERIVATIVES RISK - The Master Portfolio may invest in derivatives. There is
a risk that these investments could result in losses, reduce returns,
increase transaction costs or increase the Master Portfolio's volatility.

o CHANGING DISTRIBUTION LEVELS - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities the
Fund holds. It is not guaranteed and will change. Changes in the value of
the securities, however, generally should not affect the amount of income
they pay.

o PREPAYMENT AND EXTENSION RISK - The value of the Master 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 Master Portfolio may have to reinvest this money in
mortgage-backed securities that have lower yields.

Nations Blue Chip Master Portfolio: Nations Blue Chip Master Portfolio's
investment objective is to seek long-term capital appreciation through
investments in blue chip stocks.

This Master Portfolio is a diversified portfolio which invests at least 65% of
its assets in blue chip stocks. These are stocks of well established, nationally
known companies that have a long record of profitability and a reputation for
quality management, products and services. The Master Portfolio primarily
invests in blue chip stocks that are included in the S&P 500, but may invest up
to 15% of its assets in stocks that are not included in the index. It usually
holds approximately 100 stocks.

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

The portfolio management team uses quantitative analysis to analyze fundamental
information about securities and identify value. Starting with a universe of
approximately 700 common stocks, the portfolio management team uses a
multi-factor computer model to rank securities, based on the following criteria,
among others:

o changes in actual and expected earnings

o unexpected changes in earnings

o price-to-earnings ratio

o price-to-book ratio

o price-to cash flow

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The portfolio management team tries to manage risk by matching the market
capitalization, style and industry weighting characteristics of the S&P 500. The
team focuses on selecting individual stocks to try to provide higher returns
than the S&P 500 while maintaining a level of risk similar to the index.

The team may sell a security when there is a development in the company or its
industry that causes earnings estimates to fall, when the team believes other
investments are more attractive, or for other reasons.

Nations Blue Chip Master Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - The Master Portfolio uses quantitative analysis
to select blue chip stocks that are believed to have the potential for
long-term growth. There is a risk that the value of these investments will
not rise as high as expected, or will fall.

o STOCK MARKET RISK - The value of the stocks the Master 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.

Nations International Equity Master Portfolio: Nations International Equity
Master Portfolio's investment objective is to seek long term capital growth by
investing primarily in equity securities of non-United States companies in
Europe, Australia, the Far East and other regions, including developing
countries.

In seeking to achieve its objective, The Master Portfolio normally invests at
least 65% of its assets in established companies located in at least three
countries other than the United States. The investment managers select
countries, including emerging market or developing countries, and companies they
believe have the potential for growth.

The Master Portfolio primarily invests in equity securities which may include
equity interests in foreign investment funds or trusts, convertible securities,
real estate investment trust securities and depositary receipts. The Master
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 Master Portfolio may 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.

The Master Portfolio is a "multi-manager" fund. It has three different
investment managers. Each is responsible for managing approximately one-third of
the Master Portfolio's assets. The managers all have different, but
complementary, investment styles:

o Gartmore combines "top down," allocation among regions around the world
with a stock selection process that focuses on investing in securities when
growth is likely to be higher, or sustained longer, than other investors
expect.

o INVESCO uses a "bottom up" approach, focusing exclusively on stock
selection, and looking for sustainable growth.

o Putnam is a "core manager," focusing on stable, long-term investments,
rather than growth or value stocks. It combines "bottom up" stock selection
with "top down" country allocation.

The multi-manager strategy is based on the belief that having more than one
manager may result in better performance and more stable returns over time.

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A manager may sell a security when its price reaches the target set by the
manager, when the company's growth prospects are deteriorating, when the manager
believes other investments are more attractive, or for other reasons.

Nations International Equity Master Portfolio has the following risks:

o INVESTMENT STRATEGY RISK - The managers choose stocks they believe have the
potential for long-term growth. There is a risk that the value of these
investments will not rise as high as expected, or will fall. There is also
a risk that the Master Portfolio's multi-manager strategy may not result in
better performance or more stable returns.

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

o FUTURES RISK - This Master Portfolio may use futures contracts to convert
currencies and to hedge against changes in foreign currency exchange rates.
There is a risk that this could result in losses, reduce returns, increase
transaction costs or increase the Portfolio's volatility.

Nations International Value Master Portfolio: Nations International Equity
Master Portfolio's investment objective is to seek long-term capital
appreciation by investing primarily in equity securities of foreign issuers,
including emerging markets countries.
In seeking to achieve its objective this Master 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 Master Portfolio primarily invests in common stocks, preferred stocks and
convertible securities, either directly or indirectly through closed-end
investment companies and depositary receipts. The Master Portfolio may also
invest in securities that aren't part of its principal investment strategies,
but it won't hold more than 10% of its assets in any one type of these
securities. These securities are described in the SAI.

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

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

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

Nations International Value Master Portfolio has the following risks:

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

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Nations Marsico Focused Equities Master Portfolio: Nations Marsico Focused
Equities Master Portfolio seeks long-term growth of capital.

This Master Portfolio normally invests at least 65% of its assets in common
stocks of large companies. The Master 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. The Master 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 investment sub-advisor, 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.

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Nations Marsico Focused Equities Master Portfolio has the following risks:

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

o HOLDING FEWER INVESTMENTS - This Master 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 Master Portfolio may become a
diversified fund by limiting the investments in which more than 5% of its
total assets are invested.

o FOREIGN INVESTMENT RISK - Because the Master 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.

Nations Marsico Growth & Income Master Portfolio: Nations Marsico Growth &
Income Master Portfolio seeks long-term growth of capital with a limited
emphasis on income.

The Master 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.

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

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

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Nations Marsico Growth & Income Master 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 Master 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.

Nations High Yield Bond Master Portfolio: Nations High Yield Bond Master
Portfolio seeks maximum income by investing in a diversified portfolio of high
yield debt securities.

The Master 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 Master 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

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The Master 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 investment 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 Master Portfolio's investment
across securities of many different issuers

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.

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

o INVESTING IN THE MASTER PORTFOLIO - Other mutual funds and eligible
investors can buy shares in the Master Portfolio. All investors in the
Master Portfolio invest under the same terms and conditions as the Fund and
pay a proportionate share of the Master Portfolio's expenses. Other feeder
funds that invest in the Master Portfolio may have different share prices
and returns than the Funds because different feeder funds typically have
varying sales charges, and ongoing administrative and other expenses.

The Fund can withdraw its entire investment from the Master Portfolio if it
believes it's in the best interest of the Fund to do so (for example, if the
Master Portfolio changed its investment objective). It is unlikely that this
would happen, but if it did, the Fund's portfolio could be less diversified and
therefore less liquid, and expenses could increase. The Fund might also have to
pay brokerage, tax or other charges.

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OTHER IMPORTANT INFORMATION

The following are some other risks and information that should be considered
before investing:

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 EMERGING MARKETS RISK - Securities issued by companies in developing or
emerging market countries, like those in Eastern Europe, the Middle East,
Asia or Africa, may be more sensitive to the risks of foreign investing. In
particular, these countries may experience instability resulting from rapid
social, political and economic development. Many of these countries are
dependent on international trade, which makes them sensitive to world
commodity prices and economic downturns in other countries. Some emerging
countries have a higher risk of currency devaluation, and some countries may
experience long periods of high inflation or rapid changes in inflation
rates.

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.

o INVESTING IN A MASTER PORTFOLIO - Other mutual funds and eligible investors
can buy shares in a Master Portfolio. For example, the World Horizon U.S.
Equity Fund, which is also managed by BAAI, invests all of its assets in the
Blue Chip Master Portfolio.

All investors in a Master Portfolio invest under the same terms and
conditions as the Portfolio and pay a proportionate share of the Master
Portfolio's expenses. Feeder funds that invest in the Master Portfolio may
have different share prices and returns than the Portfolio because
different feeder funds typically have varying sales charges, and ongoing
administrative and other expenses

A Fund can withdraw its entire investment from a Master Portfolio if it
believes it's in the best interest of the Fund to do so. It is unlikely
that this would happen, but if it did, the Fund's portfolio could be less
diversified and therefore less liquid, and expenses could increase. The
Fund might also have to pay brokerage, tax or other charges.

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ITEM 5: MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE:

The response to Item 5 has been omitted pursuant to paragraph (B)(2)(b) of the
General Instructions to Form N-1A.

ITEM 6: MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

INVESTMENT ADVISER

Banc of America Advisors, Inc. (BAAI) is the investment adviser to each of the
Master Portfolios, as well as to over 70 other mutual fund portfolios in the
Nations Funds Family ("Nations Funds"). BAAI is responsible for the overall
management and supervision of the investment management of each of the Master
Portfolios. BAAI and Nations Funds have engaged investment sub-advisers, which
are generally responsible for the day-to-day investment decisions for each of
the Master Portfolios.

BAAI is a registered investment adviser. It's a wholly owned subsidiary of Bank
of America, N.A. ("Bank of America"). BAAI has its principal offices at One Bank
of America Plaza, Charlotte, North Carolina 28255

Nations Funds pays BAAI an annual fee for its investment advisory services. The
fee is calculated daily based on the average net assets of each Master Portfolio
and is paid monthly. BAAI uses part of this money to pay investment sub-advisers
for the services they provide to Nations Master Portfolios.

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

Maximum investment advisory fee, as a % of average daily net assets:

Maximum
advisory
fee

Nations Intermediate Bond Master Portfolio 0.40
Nations Blue Chip Master Portfolio 0.65
Nations International Equity Master Portfolio 0.80
Nations International Value Master Portfolio 0.90
Nations Marsico Focused Equities Master Portfolio 0.75
Nations Marsico Growth & Income Master Portfolio 0.75
Nations High Yield Bond Master Portfolio 0.65

INVESTMENT SUB-ADVISERS

Nations Funds and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the Master Portfolios. These sub-advisers
function under the supervision of the Board of Trustees and BAAI.

TradeStreet Investment Associates, Inc. ("TradeStreet"), with principal offices
as One Bank of America Plaza, Charlotte, North Carolina 28255, serves as the
investment sub-adviser for Nations Intermediate Bond Master Portfolio.
TradeStreet is a registered investment adviser and a wholly owned subsidiary of
Bank of America. Its management expertise covers all major domestic asset
classes.

Currently managing more than $90 billion, TradeStreet has more than 2000
institutional clients and is investment sub-adviser to over 50 mutual funds in
the Nations Funds Family. TradeStreet uses a team approach to investment
management. Each team has access to the latest analytic technology and
expertise. The Fixed Income Team will be responsible for the day to day
management of the Nations Intermediate Bond Master Portfolio.

Chicago Equity Partners Corporation ("Chicago Equity"), with principal offices
at 231 South LaSalle, Chicago, Illinois 60697, serves as the sub-adviser for
Nations Blue Chip Master Portfolio. Chicago Equity is a registered investment
advisor and a wholly-owned subsidiary of Bank of America Corporation.

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The Equity Management Team of Chicago Equity is responsible for the day-to-day
management of Nations Blue Chip Master Portfolio.

Gartmore Global Partners ("Gartmore"), located at One Bank of America Plaza,
Charlotte, North Carolina 28255, 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 ("Gartmore plc"), a UK holding company for a
leading UK-based international fund management group of companies. Gartmore
serves as one of three sub-advisers to the National International Equity Master
Portfolio. Christopher Palmer, Seok Teoh, John Stewart, Nick Reid, Stephen Jones
and Stephen Watson are responsible for the day-to-day management of Nations
International Equity Master Portfolio. The business experience of these
individuals during the past 5 years is as follows:

Christopher Palmer is Co-Portfolio Manager of Nations International Equity
Master Portfolio, responsible for investments in developing countries (since May
1999), and is also Principal Portfolio Manager of Nations Emerging Markets Fund
(since May 1999). Mr. Palmer joined Gartmore in 1995 and is senior investment
manager on the Gartmore Emerging Markets Team. Before joining Gartmore, Mr.
Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City
and Hong Kong offices, and managed global derivatives, credit and counterparty
credit risk as vice president in the Institutional Credit Department of Bear
Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors
degree in History and completed an MBA in Finance at New York University in
1988. Mr. Palmer was awarded the CFA designation by the Association of
Investment Management Research in 1993.

Seok Teoh is Co-Portfolio Manager of Nations International Equity Fund,
responsible for investments in Asia (since June 1998). She has been with
Gartmore since 1990 as the London based manager of its Far East Team. Previously
she managed four equity funds for Rothschild Asset Management in Tokyo and
Singapore, and was also responsible for Singaporean and Malaysian equity sales
at Overseas Union Bank Securities in Singapore. Ms. Teoh is native to Singapore
and is fluent in Mandarin and Cantonese. She received an Economics degree from
the University of Durham.

John Stewart is Co-Portfolio Manager of Nations International Equity Fund,
sharing responsibility with Nick Reid for investments in Japan (since August
1999) and is also senior investment manager for the Gartmore Japanese Equities
Team and is responsible for managing specialist institutional portfolios and
providing input to the global asset allocation team in London. Mr. Stewart
joined Gartmore in 1992, after starting his career at the London office of
Prudential Portfolio Managers. He graduated from Loughborough University in 1991
with a BS Honors degree in Banking and Finance. Mr. Stewart is also a member of
the Institute of Investment Management and Research, and the Chartered Institute
of Bankers.

Nick Reid is Co-Portfolio Manager of Nations International Equity Fund, sharing
responsibility with John Stewart for investments in Japan (since August 1999).
He has been investment manager for the Gartmore Japanese Equities Team since he
joined Gartmore in 1994 and has specific responsibility for managing retail
funds. Before he joined Gartmore, Mr. Reid was an United Kingdom Smaller
Companies Analyst with Panmure Gordon and a fund manager covering Japanese and
other Asian Markets with Refuge Assurance. He graduated from Cambridge
University in 1989 with an honors degree in History. Mr. Reid is also an
associate member of the Institute of Investment Management and Research.

Stephen Jones is Co-Portfolio Manager of Nations International Equity Fund,
responsible for investments in Europe (since June 1998). He is also head of
Gartmore European Equities. Mr. Jones joined Gartmore as a senior investment
manager in the European Equities Team in 1994 and was appointed head of the
European Equity Team in 1995. He began his career at The Prudential in 1984,
spending a year as a business analyst before becoming the personal assistant to
the Group Chief Executive. Mr. Jones graduated from Manchester University in
1984 with an honors degree in Economics.

Stephen Watson is Co-Portfolio Manager for Nations International Equity Fund,
responsible for allocating assets among the various regions in which it invests,
as well as determining investments in regions not covered by the other
Co-Portfolio Managers (since June 1998). Mr. Watson had been the sole Portfolio
Manager of the Fund since February 1995. He joined Gartmore as a Global Fund
Manager in 1993 and currently holds the position of Chief Investment Officer of
Gartmore's Global Partners and is a member of Gartmore's Global Policy Group.
Previously, Mr. Watson was a director and global fund manager with James Capel
Fund Managers, London, as well as client services manager for international
clients.

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Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resources funds.

INVESCO Global Asset Management (N.A.) ("INVESCO") with principal offices
located at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309, was founded in
1997 as a division of INVESCO Global, a publicly traded investment management
firm located in London, England, and a wholly owned subsidiary of AMVESCAP PLC,
a publicly traded UK financial holding company also located in London, England
that, through its subsidiaries, engages in international investment management.
INVESCO serves as one of three sub-advisers of the Nations International Equity
Master Portfolio.

The International Equity Portfolio Management Team of INVESCO is responsible for
the day-to-day management of the assets allocated to INVESCO of Nations
International Equity Master Portfolio.

Putnam Investment Management, Inc. ("Putnam") with principal offices located at
One Post Office Square, Boston, Massachusetts 02109, is a wholly owned
subsidiary of Putnam Investments, Inc., an investment management firm founded in
1937 which, except for shares held by employees is owned by Marsh & McLennan
Companies, a publicly traded professional services firm that engages, through
its subsidiaries in the business of investment management. Putnam serves as one
of three sub-advisers to the Nations International Equity Master Portfolio.

The Core International Equity Group of Putnam is responsible for the day-to-day
management of the assets allocated to Putnam of Nations International Equity
Master Portfolio.

Brandes Investment Partners, L.P. ("Brandes") with principal offices located at
12750 High Bluff Drive, San Diego, California 92130, serves as the investment
sub-adviser to Nations International Value Master Portfolio. 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' Large Cap Investment Committee is responsible for making the day-to-day
investment decisions for the fund.

Marsico Capital Management, LLC ("Marsico Capital") with principal offices at
1200 17th Street, Suite 1300, Denver, Colorado 80202, serves as the investment
sub-adviser for the Nations Marsico Focused Equities Master Portfolio and the
Nations Marsico Growth & Income Master Portfolio. Marsico Capital is a full
service investment advisory firm founded by Thomas F. Marsico in September 1997.
It is a registered investment adviser and specializes in large capitalization
stocks and currently has over $6 billion in assets under management.

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

Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for the day-to-day management of these Master
Portfolios. Before forming the company, Mr. Marsico was an executive vice
president and portfolio manager at Janus Capital Corporation. He has more than
20 years of experience as a securities analyst and portfolio manager.

MacKay Shields, LLC ("MacKay Shields") with principal offices at 9 West 57th
Street, New York, New York 10019 serves as the investment sub-adviser for
Nations High Yield Bond Master Portfolio. 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.

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

ITEM 7: SHAREHOLDER INFORMATION

PRICING OF FUND SHARES

The value of a Master 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
Master 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,
and the value of foreign securities owned by the portfolio could change on days
when Beneficial Interests may not be purchased or redeemed.

All transactions are based on the net asset value of the Master Portfolios. We
calculate net asset value per unit of Beneficial Interest at the end of each
business day. First, we calculate the net asset value by determining the value
of the Master Portfolio's assets and then subtracting its liabilities. Next, we
divide this amount by the number of units of Beneficial Interest that investors
are holding.

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 New York Stock Exchange
(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 holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

PURCHASE OF BENEFICIAL INTERESTS

Beneficial Interests in the Master Portfolios are issued by the Trust in private
placement transactions which do not involve a "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended ("1933 Act").
Investments in the Master Portfolios may only be made by investment companies or
other entities which are "accredited investors" within the meaning of Regulation
D under the 1933 Act. The Master Portfolios are prohibited by the Trust's
Declaration of Trust from accepting investments from individuals, S
corporations, partnerships and grantor trusts.

Stephens Inc. ("Stephens" or "Distributor") with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the distributor of the Trust,
assisting with Beneficial Interestholders' transactions. An account may be
opened by contacting either the Trust or Stephens. There is no minimum initial
or subsequent purchases amount with respect to any Master Portfolio of the
Trust. The Trust reserves the right to reject any purchase order for any reason.

Orders to buy, sell or exchange Beneficial Interests are processed on business
days. Orders received by Stephens before the end of a business day will receive
that day's net asset value per unit of Beneficial Interest. Orders received
after the end of a business day will receive the next business day's net asset
value per unit of Beneficial Interest. The business day that applies to your
order is also called the trade date. We and Stephens may refuse any order. If
this happens, we'll return any money we've received to your selling agent.

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REDEMPTION OF BENEFICIAL INTERESTS

An investor may redeem/sell Beneficial Interests in any amount by sending a
written request to or calling Stephens. Redemption requests must be made by a
duly authorized representative of the investor and must specify the name of the
Master Portfolio, the dollar amount to be redeemed and the investor's name and
account number.

Redemption orders are effected at the net asset value of the Beneficial
Interests next determined after receipt of the order in proper form by the
Trust. The Master Portfolios will make payment for all Beneficial Interests
redeemed after receipt by Stephens of a request in proper form, except as
provided by the rules of the Securities and Exchange Commission. The Master
Portfolios impose no charge when Beneficial Interests are redeemed. The value of
the Beneficial Interests redeemed may be more or less than the investor's cost,
depending on the Master Portfolio's current net asset value.

The Trust will wire the proceeds of redemption in federal funds to the
commercial bank specified by the investor, normally the next business day after
receiving the redemption request and all necessary documents. Wire redemptions
may be terminated or modified by the Trust at any time. An investor should
contact its bank for information on any charges imposed by the bank in
connection with the receipt of redemption proceeds by wire. During periods of
substantial economic or market change, telephone wire redemptions may be
difficult to implement.

The Trust will act upon the instruction of any person by telephone deemed by it
to be authorized to redeem Beneficial Interests on behalf of an investor.
Neither the Trust nor any of its service contractors will be liable for any loss
or expense for acting upon telephone instructions that are reasonably believed
to be genuine. In attempting to confirm that telephone instructions are genuine,
the Trust will use such procedures as are considered reasonable. To the extent
the Trust fails to use reasonable procedures as a basis for its belief, it
and/or its service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.

The right of any investor to receive payment with respect to any withdrawal may
be suspended or the payment of the withdrawal proceeds postponed during any
period in which the NYSE is closed (other than weekends or holidays) or trading
on NYSE is restricted, or, to the extent otherwise permitted by the Investment
Company Act of 1940, as amended ("1940 Act"), if an emergency exists.

DISTRIBUTIONS:

Investors are entitled to their pro rata shares of any distributions arising
from the net investment income and net realized gains, if any, earned
investments held by the Master Portfolios in which such investors hold
Beneficial Interests. Each Portfolio will allocate its investment income,
expenses, and realized and unrealized gains and losses daily.

A request for a distribution must be made in writing to Nations Master
Investment Trust, c/o Banc of America Advisors, Inc., One Bank of America Plaza,
33rd Floor, Charlotte, North Carolina 28255.

TAXES:

Each Master Portfolio has been and will continue to be operated in a manner so
as to qualify it as a non-publicly traded partnership for federal income tax
purposes. Provided that a Master Portfolio so qualifies, it will not be subject
to any federal income tax on its income and net capital gains (if any). However,
each investor in the Master Portfolio will be taxable on its distributive share
of the Master Portfolio's taxable income in determining its federal income tax
liability. As a non-publicly traded partnership, the Master Portfolio will be
deemed to have "passed through" to interestholders any interests, dividends,
gains or losses. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder. All Master Portfolios will have less than 100 investors.

It is intended that the Master Portfolio's assets, income and distributions will
be managed in such a way that a regulated investment company investing in the
Master Portfolio may satisfy the requirements of Subchapter M of the Code by
investing substantially all of its assets in the Master Portfolio.

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Investor inquiries should be directed to Nations Master Investment Trust, One
Bank of America Plaza, 33rd Floor, Charlotte, North Carolina 28255.

ITEM 8: DISTRIBUTION ARRANGEMENTS.

The Trust is registered as an open-end management investment company under the
1940 Act. The Trust was organized as a Delaware business trust. Investors in the
Trust will each be liable for all obligations of the Trust. However, the risk of
an investor incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations. The Trust's Declaration of Trust authorizes
the Board of Trustees to issue Beneficial Interests and to establish and
designate such Beneficial Interests into one or more Master Portfolios.
Beneficial Interests may be purchased only by institutional investors which are
"accredited investors" within the meaning of Regulation D under the 1933 Act,
and may not be purchased by individuals, S corporations, partnerships or grantor
trusts.

The Trust is currently comprised of seven separate series of Master Portfolios
(each a "Master Portfolio" and collectively the "Master Portfolios"): Nations
Intermediate Bond Master Portfolio, Nations Blue Chip Master Portfolio, Nations
International Equity Master Portfolio, Nations International Value Master
Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico
Growth & Income Master Portfolio, and Nations High Yield Bond Master Portfolio.
Each Master Portfolio (except for Nations Marsico Focused Equities Master
Portfolio) is "diversified" as defined in the 1940 Act.

Each Master Portfolio is a separate series of the Trust. A non-accredited
investor does not directly purchase an interest in the Master Portfolio, but
instead purchases shares in a corresponding "feeder" fund which invests all of
its assets in a Master Portfolio series. The feeder funds related to the Master
Portfolio are the Nations Intermediate Bond Fund, Nations Blue Chip Fund,
Nations International Equity Fund, Nations International Value Fund, Nations
Marsico Focused Equities Fund, Nations Marsico Growth & Income Fund, and Nations
High Yield Bond Fund (individually, a "Fund", and collectively, the "Funds"),
which in turn invest all of their assets in, respectively, the Nations
Intermediate Bond Master Portfolio, Nations Blue Chip Master Portfolio, Nations
International Equity Master Portfolio, Nations International Value Master
Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico
Growth & Income Master Portfolio, and Nations High Yield Bond Fund. Each
corresponding Master Portfolio, which has the same investment objective,
policies, and limitations as the Fund, invests in the actual securities.

Other investors may also be permitted to invest in a Master Portfolio. All other
investors will invest in a Master Portfolio on the same terms and conditions as
a Fund, although there may be different administrative and other expenses.
Therefore, the Funds may have different returns than other investors of the same
Master Portfolio.

A discussion of the risk factors, objectives and other investment aspects in a
Fund will include all aspects of an investment in the corresponding Master
Portfolio. In this registration statement, the discussion of risk factors which
apply to an investment by a Master Portfolio shall include the risk factors
which apply to an investment by a Fund.

The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The office of the Trust is located at One Bank of America
Plaza, Charlotte, NC 28255.

ITEM 9: FINANCIAL HIGHLIGHTS INFORMATION

The response to Item 9 has been omitted pursuant to paragraph (B)(2)(b) of the
General Instructions to Form N-1A.

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NATIONS MASTER INVESTMENT TRUST

Part B
Nations Intermediate Bond Master Portfolio
Nations Blue Chip Master Portfolio
Nations International Equity Master Portfolio
Nations International Value Master Portfolio
Nations Marsico Growth & Income Master Portfolio
Nations Marsico Focused Equities Master Portfolio
Nations High Yield Bond Master Portfolio

ITEM 10. COVER PAGE AND TABLE OF CONTENTS.

This Part B is not a prospectus. It is intended to provide additional
information regarding the seven Master Portfolios of Nations Master Investment
Trust (the "Trust") and should be read in conjunction with the Trust's Part A
dated October 14, 1999. All terms used in Part B that are defined in Part A will
have the same meanings assigned in Part A. Copies of Part A may be obtained
without charge by writing Nations Funds c/o the Distributor, Stephens Inc., One
Bank of America Plaza, 33rd Floor, Charlotte, North Carolina 28255, or by
calling Nations Funds at (800) 321-7854.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
TRUST HISTORY.....................................................................................................3
DESCRIPTION OF THE TRUST, MASTER PORTFOLIOS, INVESTMENT AND RISKS.................................................3
INVESTMENT LIMITATIONS............................................................................................3
FUNDAMENTAL INVESTMENT LIMITATIONS................................................................................3
NON-FUNDAMENTAL INVESTMENT LIMITATIONS............................................................................4
INVESTMENT RISKS..................................................................................................5
ADDITIONAL INFORMATION ON MASTER PORTFOLIO INVESTMENTS............................................................7
PERMISSIBLE FUND INVESTMENTS...................................................................................7
ASSET-BACKED SECURITIES........................................................................................9
BANK INSTRUMENTS..............................................................................................11
BORROWINGS....................................................................................................11
COMMERCIAL INSTRUMENTS........................................................................................12
CONVERTIBLE SECURITIES........................................................................................12
CORPORATE DEBT SECURITIES.....................................................................................13
CUSTODIAL RECEIPTS............................................................................................14
CURRENCY SWAPS................................................................................................14
DELAYED DELIVERY TRANSACTIONS.................................................................................14
DOLLAR ROLL TRANSACTIONS......................................................................................14
EQUITY SWAP CONTRACTS.........................................................................................15
FOREIGN CURRENCY TRANSACTIONS.................................................................................16
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS.............................................................17
RISK FACTORS ASSOCIATED WITH FUTURES AND OPTIONS TRANSACTIONS.................................................23
GUARANTEED INVESTMENT CONTRACTS...............................................................................25
INSURED MUNICIPAL SECURITIES..................................................................................25
INTEREST RATE TRANSACTIONS....................................................................................25
LOWER RATED (OR HIGH YIELD) DEBT SECURITIES...................................................................26
MUNICIPAL SECURITIES..........................................................................................27
OPTIONS ON CURRENCIES.........................................................................................29
OTHER INVESTMENT COMPANIES....................................................................................30
REAL ESTATE INVESTMENT TRUSTS.................................................................................30
REPURCHASE AGREEMENTS.........................................................................................30
RESTRICTED SECURITIES.........................................................................................31
REVERSE REPURCHASE AGREEMENTS.................................................................................31
SECURITIES LENDING............................................................................................31

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SHORT SALES...................................................................................................32
SPECIAL SITUATIONS............................................................................................32
STAND-BY COMMITMENTS..........................................................................................32
STRIPPED SECURITIES...........................................................................................33
TAX-EXEMPT INSTRUMENTS........................................................................................33
U.S. AND FOREIGN BANK OBLIGATIONS.............................................................................34
U.S. GOVERNMENT OBLIGATIONS...................................................................................34
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS..................................................................35
VARIABLE AMOUNT MASTER DEMAND NOTES...........................................................................35
VARIABLE- AND FLOATING-RATE INSTRUMENTS.......................................................................36
WARRANTS......................................................................................................36
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS.................................................................36
PORTFOLIO TURNOVER............................................................................................37
MANAGEMENT OF THE TRUST..........................................................................................37
NATIONS FUNDS RETIREMENT PLAN.................................................................................41
NATIONS FUNDS DEFERRED COMPENSATION PLAN......................................................................41
COMPENSATION TABLE...............................................................................................41
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..............................................................42
INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................43
BROKERAGE ALLOCATION AND OTHER PRACTICES.........................................................................45
SECTION 28(E) STANDARDS.......................................................................................47
CAPITAL STOCK AND OTHER SECURITIES...............................................................................48
DESCRIPTION OF SHARES............................................................................................48
PURCHASE, REDEMPTION, AND PRICING OF SHARES......................................................................48
DETERMINATION OF NET ASSET VALUE.................................................................................49
TAXATION.........................................................................................................50
UNDERWRITERS.....................................................................................................50
CALCULATION OF PERFORMANCE DATA..................................................................................51
FINANCIAL STATEMENTS.............................................................................................51
SCHEDULE A - DESCRIPTION OF RATINGS...............................................................................1
SCHEDULE B - ADDITIONAL INFORMATION CONCERNING OPTIONS & FUTURES..................................................1
ADDITIONAL INFORMATION CONCERNING MORTGAGE-BACKED SECURITIES......................................................1
MORTGAGED-BACKED SECURITIES....................................................................................1
UNDERLYING MORTGAGES...........................................................................................2
AVERAGE LIFE...................................................................................................2
RETURNS ON MORTGAGE-BACKED SECURITIES..........................................................................2
</TABLE>

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ITEM 11. TRUST HISTORY

The Trust is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust was
organized as a Delaware business trust. The Trust's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of beneficial
interests ("Beneficial Interests") and to establish and designate such
Beneficial Interests into one or more master portfolios. Beneficial Interests
may be purchased only by institutional investors which are "accredited
investors" within the meaning of Regulation D under the Securities Act of 1933,
as amended (the "1933 Act"), and may not be purchased by individuals, S
corporations, partnerships or grantor trusts. The number of investors for each
master portfolio may not exceed 100.

The Trust is a member of the Nations Funds family ("Nations Funds"), a fund
complex consisting of the Trust, Nations Fund, Inc., Nations Fund Trust, Nations
Fund Portfolios, Inc., Nations Annuity Trust, Nations Reserves and Nations
LifeGoal Funds, Inc. Nations Funds currently have more than 70 distinct
investment portfolios and total assets in excess of $60 billion.

ITEM 12. DESCRIPTION OF THE TRUST, MASTER PORTFOLIOS, INVESTMENTS AND RISKS

The Trust is currently comprised of seven separate series of master portfolios
(each a "Master Portfolio" and collectively the "Master Portfolios"): Nations
Intermediate Bond Master Portfolio, Nations Blue Chip Master Portfolio, Nations
International Equity Master Portfolio, Nations International Value Master
Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico
Growth & Income Master Portfolio and Nations High Yield Bond Master Portfolio.
Each Master Portfolio (except for Nations Marsico Focused Equities Master
Portfolio) is "diversified" as defined in the 1940 Act.

Each Master Portfolio is a separate series of the Trust. An investor does not
purchase an interest in the Master Portfolio, but instead, purchases shares in a
corresponding "feeder" fund which invests all of its assets in a Master
Portfolio series. The feeder funds related to each respective Master Portfolio
are Nations Intermediate Bond Fund, Nations Blue Chip Fund, Nations
International Equity Fund, Nations International Value Fund, Nations Marsico
Focused Equities Fund, Nations Marsico Growth & Income Fund, and Nations High
Yield Bond Fund (each, a "Fund", and collectively, the "Funds"), which in turn
invest all of their assets in, respectively, the Nations Intermediate Bond
Master Portfolio, Nations Blue Chip Master Portfolio, Nations International
Equity Master Portfolio, Nations Internaitional Value Master Portfolio, Nations
Marsico Focused Equities Master Portfolio, and Nations Marsico Growth & Income
Master Portfolio. Each corresponding Master Portfolio, which has the same
investment objective, policies, and limitations as the Fund, invests in the
actual securities.

Other investors may also be permitted to invest in a Master Portfolio. All other
investors will invest in a Master Portfolio on the same terms and conditions as
a Fund, although there may be different administrative and other expenses.
Therefore, the Private Master Portfolio may have different returns than other
investors of the same Master Portfolio.

INVESTMENT LIMITATIONS

Information concerning each Master Portfolio's investment objective is set forth
in Part A. There can be no assurance that the Master Portfolios will achieve
their objectives. The principal features of the Master Portfolios' investment
programs and the primary risks associated with those investment programs are
discussed in Part A. The values of the securities in which the Master Portfolios
invest fluctuate based upon interest rates, foreign currency rates, the
financial stability of the issuer and market factors.

FUNDAMENTAL INVESTMENT LIMITATIONS:

As a matter of fundamental policy which may not be changed without a majority
vote of a Master Portfolio's Beneficial Interest holders, each Master Portfolio
will not:

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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.

2. Purchase or sell real estate, except a Master 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 Master 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, issue senior securities or mortgage, pledge or hypothecate its
assets except to the extent permitted under 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 Fund's assets may be invested
in the securities of one or more diversified management investment companies
to the extent permitted by the 1940 Act, the rules and regulations
thereunder and any exemptive relief obtained by the Funds.

NON-FUNDAMENTAL INVESTMENT LIMITATIONS:

Each Master Portfolio may not:

1. Sell securities short, maintain a short position, or purchase securities on
margin, except for such short-term credits as are necessary for the
clearance of transactions. For this purpose, a deposit or payment by a Fund
for initial or maintenance margin in connection with future contracts is not
considered to be the purchase or sale of a security on margin.

2. Purchase securities of other investment companies except as permitted by the
1940 Act.

3. Write or sell puts, calls, straddles, spreads or combinations thereof except
that a Fund may acquire standby commitments and may enter into futures
contracts and options in accordance with their investment objectives.

Pursuant to a fundamental investment restriction (except for the Nations Marsico
Focused Equities Master Portfolio), the Master Portfolios do not have authority
to purchase any securities which would cause more than 25% of the value of any
Master 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.

For purposes of the foregoing fundamental and non-fundamental 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, the Master Portfolios.

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INVESTMENT RISKS

In addition to the investment risks and considerations identified in certain of
the securities descriptions below, there are additional investment risks and
considerations associated with an investment in certain of the Funds.
Investments by a Master Portfolio in common stocks and other equity securities
are subject to stock market risks. The value of the stocks that the Master
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 SAI, 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 Master Portfolio is a non-diversified
portfolio, which means that it typically invests in fewer issuers than
diversified portfolios. Therefore, appreciation or depreciation of an investment
in a single issuer could have a greater impact on this Master Portfolio's net
asset value. Nations Marsico Focused Equities Master Portfolio reserves the
right to become a diversified portfolio by limiting the investments in which
more than 5% of its total assets are invested.
The value of a Master 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 Master 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 Master Portfolio. The Adviser will consider
such an event in determining whether the Master Portfolio should continue to
hold the obligation. Unrated obligations may be acquired by the Master 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 Master 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 Master Portfolio's investment objective and
do not unduly increase the Master Portfolio's exposure to market or other risks.
For additional risk information regarding the Master Portfolios' investments in
particular instruments.
Certain of the Master 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.

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Master Feeder Structure. The Funds are open-end mutual funds that seek to
achieve their investment objectives by investing all of its investable assets in
corresponding Master Portfolios which have the same investment objectives. The
Funds may withdraw their investment in the Master Portfolios at any time if the
Board of Directors of appropriate Company determines that it is in the best
interest of such Fund to do so. Upon such withdrawal, the Board of Directors
would consider what action might be taken, including the investment of all of
the assets of the Fund in another pooled investment entity having the same
investment objective as the Fund or the hiring of an investment adviser to
manage the Fund's assets in accordance with its investment policies. The Master
Portfolios are separate series of Nations Master Investment Trust (the "Master
Trust"), which is organized as a business trust under the laws of Delaware. The
Fund and other entities that may invest in the Master Portfolios from time to
time (E.G., other investment companies and commingled trust funds) will each be
liable for all obligations of the Master Portfolios. However, the risk of the
Fund's incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and a Portfolio itself
is unable to meet its obligations. Accordingly, the Companies' Boards of
Directors believe that neither a Fund nor its shareholders will be adversely
affected by reason of a Fund's investing in a Master Portfolio. As with any
mutual fund, other investors in the Master Portfolios could control the results
of voting at the Master Portfolio level in certain instances (E.G., a change in
fundamental policies by the Master Portfolio which was not approved by the
Fund's shareholders). This could result in a Fund's withdrawal of its investment
in the Master Portfolio. Further, the withdrawal of other entities that may from
time to time invest in the Master Portfolios could have an adverse effect on the
performance of such Master Portfolios and the corresponding Fund, such as
decreased economies of scale, and increased per share operating expenses. In
addition, the total withdrawal by another investment company as an investor in a
Master Portfolio will cause the such Master Portfolio to terminate automatically
in 120 days unless a Fund and any other investors in the Master Portfolio
unanimously agree to continue the business of the Master Portfolio. If unanimous
agreement is not reached to continue the Master Portfolio, the Board of
Directors of a Company would need to consider alternative arrangements for the
Fund, such as those described above. When the Fund is required to vote as an
interestholder of the Master Portfolio, current regulations provide that in
those circumstances the Fund may either seek instructions from its security
holders with regard to voting such proxies and vote such proxies in accordance
with such instructions or the Fund may vote its shares in the Master Portfolio
in the same proportion of all other security holders in the Master Portfolio.
There may also be other investment companies through which you can invest in the
Master Portfolio which may have higher or lower fees and expenses than those of
its corresponding Fund and which may therefore have different performance
results than the Fund.

SPECIAL RISK RELATING TO THE HIGH YIELD BOND MASTER 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 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
the Master 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. The Master
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 Master 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 Master Portfolio may have to
sell some of its assets to reduce the Master 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 High Yield Bond Master
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 Master 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 the High Yield Bond Master
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.

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SPECIAL RISK RELATING TO THE INTERNATIONAL EQUITY MASTER PORTFOLIO AND THE
INTERNATIONAL VALUE MASTER PORTFOLIO. 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 Master 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 the Master Portfolios 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.

ADDITIONAL INFORMATION ON MASTER PORTFOLIO INVESTMENTS

PERMISSIBLE FUND INVESTMENTS
In addition to the principal investment strategies for each Master Portfolio,
which are outlined in Part A, each Fund also may invest in other types of
securities in percentages of less than 10% of its total assets (unless otherwise
indicated, E.G., most Funds 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.
Nations Marsico Focused Equities Master Portfolio and Nations Marsico Growth &
Income Master Portfolio: In addition to the types of securities described in
Part A, the Master 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 Master Portfolios also may invest its assets in
high-yield/high-risk securities, such as lower grade debt securities, 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.
The Master 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 when the Adviser: (i) believes that the market conditions are not
favorable for profitable investing, (ii) is unable to locate favorable
investment opportunities, or (iii) determines that a temporary defensive
position is advisable or necessary to meet anticipated redemption request. In
other words, the Master Portfolios do not always stay fully invested in stocks
and bonds. The Master 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 Master Portfolios also may
purchase securities on a when-issued, delayed delivery or forward commitment
basis. In addition, each Nations Marsico Master 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 Nations Marsico
Master Portfolio may lend its portfolio securities to qualified institutional
investors and may invest in repurchase agreements, restricted, private placement
and other illiquid securities and forward foreign exchange contracts. Each
Nations Marsico Master Portfolio also may invest in real estate investment trust
securities. In addition, each Nations Marsico Master Portfolio may invest in
securities issued by other investment companies, consistent with the each
Nations Marsico Master Portfolio's investment objective and policies and
repurchase agreements.

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Nations Blue Chip Master Portfolio: In addition to the types of securities
described in Part A, Nations Blue Chip Master Portfolio may invest in cash
equivalents, which include the following short-term interest rate bearing
instruments--obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities (some of which may be subject to repurchase
agreements), certificates of deposit, bankers' acceptances, time deposits and
other interest-bearing deposits issued by domestic and foreign banks and foreign
branches of U.S. banks, foreign government securities and commercial papers
issued by U.S. and foreign issuers which is rated at the time of purchase at
least Prime-2 by Moody's or A-2 by S&P, Duff & Phelps and Fitch IBCA. For a
description of ratings, see Appendix A to this SAI. The Master 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 CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk-management. The Master Portfolio also may lend its portfolios
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. It also
may invest in real estate investment trust securities, securities issued by
other investment companies, consistent with the Master Portfolio's investment
objective and policies.

Nations International Equity Master Portfolio: In addition to the types of
securities described in Part A, the Master Portfolio may invest in: real estate
investment trust securities and, for temporary defensive purposes, substantially
all of its assets in U.S. financial markets or U.S. dollar-denominated
instruments. The Master Portfolio also may invest in convertible securities,
preferred stocks, bonds, notes and other fixed-income securities, including
Eurodollar and foreign government securities.

International Value Master Portfolio: In addition to the types of securities
described in Part A, the Master 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 Master 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: Each of the Nations International Equity Master Portfolio and Nations
International Value Master 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 CFTC and options thereon for market exposure risk management.
Each International Master 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
Master Portfolio also may invest in real estate investment trust securities. In
addition, each International Fund may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies and repurchase agreements. Each Fund also may invest in forward foreign
exchange contracts.

Intermediate Bond Master Portfolio: In addition to the types of securities
described in Part A, the Master Portfolio (in which the Fund invests all of its
assets) may invest in: municipal securities, cash equivalents, 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 Master Portfolio may
lend its securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. The Master Portfolio may engage in reverse repurchase agreements and
dollar roll transactions. Additionally, the Master Portfolio may purchase
securities issued by other investment companies, consistent with its investment
objective and policies. The Master 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.

Additional information on the particular types of securities in which certain
Funds may invest in is set forth below.

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High Yield Bond Master Portfolio: In addition to the types of securities
described in its Prospectuses, the Master Portfolio (in which the Fund invests
all of its assets) 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 Master 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 Master
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 Master 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 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 Master Portfolio may
invest may include those issued or guaranteed by GNMA, FNMA, or "Freddie Mac"
(see Schedule C). 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.

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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
Master 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 ("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 Master Portfolios to pay debt service
on the CMOs or make scheduled distribution on the multi-class pass-through
securities.

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

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

Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Master 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 Master 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 Master Portfolio may fail to fully recoup its initial investment in
these securities. The market value of any class which consists primarily or
entirely of principal payments generally is unusually volatile in response to
changes in interest rates.

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

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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.

BANK INSTRUMENTS

Obligations of U.S. commercial banks include certificates of deposit, time
deposits and bankers' acceptances. Certificates of deposit are negotiable
interest-bearing instruments with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Time deposits earn a specified rate of interest over a
definite period of time; however, time deposits cannot be traded in the
secondary market. Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods and furnish dollar
exchanges. Maturities are generally six months or less.

BORROWINGS

The Trust participates in an uncommitted line of credit provided by The Bank of
New York ("BNY") under a line of credit agreement (the "Agreement"). Advances
under the Agreement are taken primarily for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. Interest on borrowings is payable at the
federal funds rate plus .50% on an annualized basis. The Agreement requires,
among other things, that each participating Master Portfolio maintain a ratio of
no less than 4 to 1 net assets (not including funds borrowed pursuant to the
Agreement) to the aggregate amount of indebtedness pursuant to the Agreement.
Specific borrowings by a Master Portfolio under the Agreement for each fiscal
year, if any, will be described in the Master Portfolios' Annual Report. The
Master Portfolios may lend portfolio securities and participate in a interfund
lending program with other members of the Nations Funds Family after obtaining
permission from the Commission.

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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 Master Portfolio in commercial
paper will consist of issues rated in a manner consistent with such Master
Portfolio's investment policies and objectives. In addition, the Master
Portfolios may acquire unrated commercial paper and corporate bonds that are
determined by the investment adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Master 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. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the
investment advisor that they are: (i) comparable in priority and security to a
class of short-term instruments of the same issuer that has such rating(s), or
(ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the investment adviser. Variable-rate instruments
acquired by a Master Portfolio will be rated at a level consistent with such
Master 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 investment adviser. See also the discussion of
variable- and floating-rate instruments in this Part B.

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 Master Portfolio, a Master 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 Master Portfolio to dispose of an instrument if
the issuer defaulted on its payment obligation or during periods when a Master
Portfolio is not entitled to exercise its demand rights, and a Master Portfolio
could, for these or other reasons, suffer a loss. A Master Portfolio may invest
in variable and floating rate instruments only when the investment adviser deems
the investment to involve minimal credit risk. If such instruments are not
rated, the investment 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 Master 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 Master 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 Master Portfolio will be exposed to a
risk of loss if the borrower defaults. Loan participations also may be purchased
by the Master Portfolio when the borrowing company is already in default. In
purchasing a loan participation, the Master Portfolio may have less protection
under the federal securities laws than it has in purchasing traditional types of
securities. The Master Portfolio's ability to assert its rights against the
borrower will also depend on the particular terms of the loan agreement among
the parties.

CONVERTIBLE SECURITIES

Certain Master 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 Master Portfolio
will be rated in the top two categories by an NRSRO or, if unrated, determined
by the investment 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.

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The convertible securities in which a Master 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
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 Master 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 may also invest
in corporate debt securities of foreign issuers.

The corporate debt securities in which the High Yield Master Portfolio will
invest will be rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba
or below by Moody's Investors Services, Inc. ("Moody's"). The corporate debt
securities in which the other Master 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 Master Portfolios (other than
Nations High Yield Bond Master Portfolio) will be rated in the top two
categories by a NRSRO. Corporate debt securities that are not rated may be
purchased by such Master 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 Master Portfolio falls
below such ratings or if the investment 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 Part B.

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CUSTODIAL RECEIPTS

Certain Master Portfolios may also 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 Master 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 Master Portfolio and the investment 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 Master Portfolio's
borrowing restrictions. The net amount of the excess, if any, of the Master
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 investment 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 Master
Portfolio's custodian. The Master 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
investment adviser.

DELAYED DELIVERY TRANSACTIONS

In a delayed delivery transaction, the Master Portfolio relies on the other
party to complete the transaction. If the transaction is not completed, the
Master 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 Master Portfolio would not pay for such securities or
start earning interest on them until they are delivered. However, when a Master
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 Master 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 Master Portfolio's total assets,
including the value of when-issued and delayed delivery securities held by the
Master Portfolio, exceed its net assets.

DOLLAR ROLL TRANSACTIONS

Certain Master Portfolios may enter into "dollar roll" transactions, which
consist of the sale by a Master 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 Master 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 Master Portfolio agrees to buy a
security on a future date. If the broker/dealer to whom a Master Portfolio sells
the security becomes insolvent, the Master 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 Master
Portfolio is required to repurchase may be worth less than the security that the
Master Portfolio originally held, and the return earned by the Master Portfolio
with the proceeds of a dollar roll may not exceed transaction costs.

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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 Master Portfolio's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Master Portfolio is able to purchase
them. Similarly, the Master 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 Master Portfolio, the
security that the Master 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 Master 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 Master 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 Master 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 Master 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 Master 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 Master Portfolio on
the notional amount. A Master Portfolio will only enter into Equity Swap
Contracts on a net basis, i.e., the two parties' obligations are netted out,
with the Master 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 Master
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 Master Portfolio will succeed in
pursuing contractual remedies. A Master 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 Master Portfolio will closely monitor the credit of
Equity Swap Contract counterparties in order to minimize this risk.

Certain Master Portfolios may from time to time enter into the opposite side of
Equity Swap Contracts (i.e., where a Master 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 Master Portfolio's equity market exposure
consistent with the Master Portfolio's objective. These positions are sometimes
referred to as Reverse Equity Swap Contracts.

Equity Swap Contracts will not be used to leverage a Master Portfolio. A Master
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 Master 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 Master Portfolio owns would
exceed 15% of the Master Portfolio's net assets.

The investment adviser does not believe that a Master Portfolio's obligations
under Equity Swap Contracts or Reverse Equity Swap Contracts are senior
securities and, accordingly, the Master Portfolio will not treat them as being
subject to its borrowing restrictions. However, the net amount of the excess, if
any, of a Master 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 Master Portfolio's custodian.

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FOREIGN CURRENCY TRANSACTIONS

Certain Master 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 Master Portfolio may
purchase or sell forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Master Portfolio from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
Master 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 Master 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 Master Portfolio's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.

A Master 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 investment advisor 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 Master Portfolio's
securities denominated in such foreign currency, or when the investment advisor
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 Master Portfolio may, however, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the investment
advisor 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 Master Portfolio securities are denominated
(a "cross-hedge").

Foreign currency hedging transactions are an attempt to protect a Master
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 Master 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 Master 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 Master Portfolio's commitments with respect to such contracts. As
an alternative to segregating all or part of such securities, the Master
Portfolio may purchase a call option permitting the Master 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 Master Portfolio may
purchase a put option permitting the Master 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.

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The Master Portfolios are dollar-denominated mutual Master Portfolios 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).

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 Master Portfolio will incur brokerage fees when it purchases and
sells futures contracts. At the time such a purchase or sale is made, a Master
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 Master 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. Certain Master
Portfolios may enter into transactions in futures contracts for the purpose of
hedging a relevant portion of their portfolios. A Master 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 Master
Portfolio. For example, a Master 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 Master Portfolio may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income Master Portfolio securities. A Master 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 Master Portfolio would be unable to take
advantage of the resulting market advance without purchases of additional
securities.

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The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of certain Master
Portfolios, which hold or intend to acquire long-term debt securities, is to
protect a Master 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 Master Portfolio, and interest rates were expected to increase, the
Master 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 Master Portfolio. If interest rates did
increase, the value of the debt securities in the Master Portfolio would
decline, but the value of the futures contracts to the Master Portfolio would
increase at approximately the same rate thereby keeping the net asset value of
the Master Portfolio from declining as much as it otherwise would have. When a
Master Portfolio is not fully invested and a decline in interest rates is
anticipated, which would increase the cost of fixed income securities that the
Master Portfolio intends to acquire, it may purchase futures contracts. In the
event that the projected decline in interest rates occurs, the increased cost of
the securities acquired by the Master 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 Master 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 Master 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 Master 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 Master Portfolio to act in
anticipation of such an interest rate decline without having to sell its
portfolio securities. To the extent a Master Portfolio enters into futures
contracts for this purpose, the segregated assets maintained by a Master
Portfolio will consist of cash, cash equivalents or high quality debt securities
of the Master 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 Master Portfolio with
respect to such futures contracts.

STOCK INDEX FUTURES CONTRACTS. Certain Master 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 Master 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 Master 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 Master Portfolio may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Master 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 Master Portfolio's futures positions would be closed
out. A Master 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.

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OPTIONS ON FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES.
Certain Master Portfolios may purchase put options on futures contracts in which
such Master 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 Master 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 Master Portfolios may purchase put options on
stock index futures contracts, stock indices or equity securities for the
purpose of hedging the relevant portion of their portfolio securities against an
anticipated market-wide decline or against declines in the values of individual
portfolio securities, and they may purchase call options on such futures
contracts as a hedge against a market advance when they are not fully invested.
A Master 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 Master 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 Master 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 Master Portfolio would receive a fee, or a "premium," for the
writing of the option. For example, where the Master 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 Master 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 Master Portfolio could sustain a loss on the transaction that may not be
offset by the premium received. In addition, a Master 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 investment advisor may seek to increase the
current return of certain Master 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 investment advisor may at times seek to
hedge against a decline in the value of securities included in the Master
Portfolio or an increase in the price of securities that it plans to purchase
for the Master Portfolio. Expenses and losses incurred as a result of such
hedging strategies will reduce the Master Portfolio's current return. A Master
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
Master 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 Master Portfolio
will not make these investments.

The ability of a Master 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 Master Portfolio will be able to utilize these instruments
effectively for the purposes stated below. Furthermore, a Master Portfolio's
ability to engage in options and futures transactions may be limited by tax
considerations. Although a Master 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 Master Portfolio will not engage in options and futures
transactions for leveraging purposes.

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WRITING COVERED OPTIONS ON SECURITIES. Certain Master 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 investment advisor determines is
appropriate in seeking to attain its objective. Call options written by a Master
Portfolio give the holder the right to buy the underlying securities from a
Master Portfolio at a stated exercise price; put options give the holder the
right to sell the underlying security to the Master Portfolio at a stated price.

A Master Portfolio may write only covered options, which means that, so long as
the Master 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 Master Portfolio will maintain in a separate account cash or
short-term U.S. Government securities with a value equal to or greater than the
exercise price of the underlying securities. A Master Portfolio may also write
combinations of covered puts and calls on the same underlying security.

A Master Portfolio will receive a premium from writing a put or call option,
which increases the Master 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 Master 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 Master 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 Master 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 Master 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 Master Portfolio.

PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Master 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 Master 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 Master 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 Master 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 Master 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 Master
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 Master 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.

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

PURCHASE AND SALE OF INTEREST RATE FUTURES. A Master 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 Master 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 Master Portfolio
will fall, thus reducing the net asset value of the Master 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 Master 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 Master
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
Master Portfolio's investments that are being hedged. While a Master 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
Master Portfolio may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Master 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 Master
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 Master Portfolio intends to purchase.

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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 Master
Portfolio may buy or sell currency futures contracts and related options. If a
fall in exchange rates for a particular currency is anticipated, a Master
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 Master 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 Master 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 Master Portfolio will be covered.

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

The Master Portfolio will write (sell) only covered put and call options on
currency futures. This means that a Master 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 Master
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 Master 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 Master
Portfolio falls below 100% of the market value of the call written by the Master
Portfolio, a Master 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 Master 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 Master Portfolio. In the case of put options on
currency futures written by the Master Portfolio, the Master 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 Master 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 Master Portfolio
falls below 100% of the market value of the put options written by the Master
Portfolio, a Master 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 Master
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 Master 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.

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LIMITATIONS ON PURCHASE OF OPTIONS. The staff of the Securities and Exchange
Commission ("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
Master Portfolio's net assets. The Investment adviser intends to limit a Master
Portfolio's writing of over-the-counter options in accordance with the following
procedure. Each Master 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 Master Portfolio has in
place with such primary dealers will provide that the Master 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 Master 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 Master
Portfolio will treat all or a part of the formula price as illiquid for purposes
of any limitation on illiquid securities 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 Master Portfolio's ability to terminate options and futures positions
at times when its the investment adviser deems it desirable to do so. Although a
Master Portfolio will not enter into an option or futures position unless the
investment adviser believes that a liquid secondary market exists for such
option or future, there is no assurance that a Master Portfolio will be able to
effect closing transactions at any particular time or at an acceptable price. A
Master 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 Master Portfolio may purchase and
sell options in the over-the-counter market. A Master Portfolio's ability to
terminate option positions established in the over-the-counter market may be
more limited than in the case of exchange-traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to the Master 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 Master Portfolio diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of the investment 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 Master
Portfolios' futures and options transactions.

RISK OF IMPERFECT CORRELATION. A Master 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 Master
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 Master Portfolio might not be successful and the Master 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 Master Portfolio securities. In such
instances, a Master 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 Master Portfolio would, however, effect transactions in such
futures or options only for hedging purposes.

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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 Master Portfolio
will not be able to establish hedging positions, or that any hedging strategy
adopted will be insufficient to completely protect the Master Portfolio.

A Master Portfolio will purchase or sell futures contracts or options only if,
in the investment 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 Master Portfolio for the
hedge to be effective. There can be no assurance that the investment 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 Master Portfolio to post additional cash or cash equivalents as
the value of the position fluctuates. Further, rather than meeting additional
variation margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures or options market
may be lacking. Prior to exercise or expiration, a futures or option position
may be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the exchange on which the position was
originally established. While a Master 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 Master Portfolio, which could require
the Master 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 Master 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
investment adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Master Portfolio's overall performance may be
poorer than if it had not entered into any such contract. For example, if a
Master 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 Master 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 Master 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 investment adviser does not believe that these
trading and position limits will have an adverse impact on the hedging
strategies regarding the Master Portfolios' investments.

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REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of the CFTC
require that the Master 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 Master
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 Master Portfolio, and accrued profits on such
positions. In addition, a Master 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 Master Portfolio's
total assets.

When a Master Portfolio purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Master
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 Master Portfolios' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a
Master 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 Master
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.

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 Master 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 Master 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 Master Portfolio will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the investment
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 Master 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.

INSURED MUNICIPAL SECURITIES

Certain of the Municipal Securities held by the Master Portfolios may be insured
at the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Securities at the time of its original issuance. In the event that the issuer
defaults with respect to interest or principal payments, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes in
interest rates and other factors. INTEREST RATE TRANSACTIONS

Among the strategic transactions into which certain Master Portfolios may enter
are interest rate swaps and the purchase or sale of related caps and floors. The
Master 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 Master Portfolio
anticipates purchasing at a later date. A Master 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 Master Portfolio may be obligated to
pay. Interest rate swaps involve the exchange by a Master 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.

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A Master 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 Master 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
investment adviser and the Master 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 Master 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 Standard &
Poor's Corporation or Moody's Investors Service, Inc. or has an equivalent
rating from a NRSRO, or is determined to be of equivalent credit quality by the
Investment adviser. If there is a default by the counterparty, the Master
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 Master 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 Master Portfolio's net
obligation, if any.

LOWER RATED (OR HIGH YIELD) DEBT SECURITIES

The yields on lower rated debt and comparable unrated fixed-income securities
generally are higher than the yields available on higher-rated securities.
However, investments in lower rated debt and comparable unrated securities
generally involve greater volatility of price and risk of loss of income and
principal, including the probability of default by or bankruptcy of the issuers
of such securities. Lower rated debt and comparable unrated securities (a) will
likely have some quality and protective characteristics that, in the judgment of
the rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value of
securities held in a Master Portfolio's portfolio, with a commensurate effect on
the value of the Master Portfolio's shares. Therefore, an investment in the
Master 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 investment
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 Investment 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 Master Portfolio's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.

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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 Master 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 Master 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
Master Portfolio. If an issuer exercises these rights during periods of
declining interest rates, a Master Portfolio may have to replace the security
with a lower yielding security, thus resulting in a decreased return to a Master
Portfolio.

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

MUNICIPAL SECURITIES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. Such proposals, while pending or if enacted,
might materially and adversely affect the availability of Municipal Securities
for investment by one of these Master Portfolios and the liquidity and value of
such portfolios. In such an event, a Master Portfolio impacted would re-evaluate
its investment objective and policies and consider possible changes in its
structure or possible dissolution.

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OPTIONS ON CURRENCIES

Certain Master Portfolios may purchase and sell options on currencies to hedge
the value of securities the Master 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 Master Portfolios may
invest in securities issued by other investment companies within the limits
prescribed by the 1940 Act. Each Master 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 Master Portfolio
or by the Trust as a whole. As a shareholder of another investment company, a
Master Portfolio would bear, along with other shareholders, its pro rata portion
of the other investment company's expenses, including investment advisory fees.
These expenses would be in addition to the investment advisory and other
expenses that a Master Portfolio bears in connection with its own operations.
The investment adviser has agreed to remit to the respective investing Master
Portfolio fees payable to it under its respective Investment Advisory Agreement
with an affiliated money market fund to the extent such fees are based upon the
investing Master Portfolio's assets invested in shares of the affiliated money
market fund.

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.

REPURCHASE AGREEMENTS

Repurchase agreements are agreements by which a person (E.G., a Master
Portfolio) obtains a security and simultaneously commits to return the security
to the seller (a member bank of the Federal Reserve System or recognized
securities dealer) at an agreed upon price (including principal and interest) on
an agreed upon date within a number of days (usually not more than seven) from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.

The repurchase agreements entered into by the Master Portfolios will provide
that the underlying security at all times shall have a value at least equal to
102% of the resale price stated in the agreement (the investment adviser, the
Custodian or an agent of either such party monitors compliance with this
requirement). Under all repurchase agreements entered into by the Master
Portfolios, the Master Portfolios' custodian or its agent must take possession
of the underlying collateral. However, if the seller defaults, the Master
Portfolios could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Master Portfolios may incur delay and costs in selling the underlying security
or may suffer a loss of principal and interest if the Master Portfolios are
treated as an unsecured creditor and required to return the underlying security
to the seller's estate. Repurchase agreements are a permissible investment for
all Master Portfolios.

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RESTRICTED SECURITIES

Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act")
absent an exemption from registration. Certain of the permitted investments of
the Master Portfolios may be restricted securities and the investment adviser
may invest in restricted securities based on guidelines which are the
responsibility of and are periodically reviewed by the Board of Trustees. Under
these guidelines, the investment adviser will consider the frequency of trades
and quotes for the security, the number of dealers in, and potential purchasers
for, the securities, dealer undertakings to make a market in the security, and
the nature of the security and of the marketplace trades. In purchasing such
restricted securities, the investment adviser intends to purchase securities
that are exempt from registration under Rule 144A and Section 4(2) promulgated
under the 1933 Act. The Master Portfolios may purchase liquid and illiquid
restricted securities.

REVERSE REPURCHASE AGREEMENTS

At the time a Master 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 Master 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 Master 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 Master Portfolios' obligation to repurchase the
securities. Reverse repurchase agreements are speculative techniques involving
leverage, and are subject to asset coverage requirements if the Master
Portfolios do not establish and maintain a segregated account (as described
above). In addition, some or all of the proceeds received by a Master 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 Master
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 Master Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Master Portfolios may not establish a segregated
account when the investment adviser believes it is not in the best interests of
the Master 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, all the Master 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 Master Portfolio involved exceeds
one-third of the value of its total assets taken at fair market value. A Master
Portfolio will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
government securities, including cash collateral received for securities loans.
However, a Master Portfolio will normally pay lending fees to such
broker/dealers and related expenses from the interest earned on investment
collateral. Any loan may be terminated by either party upon reasonable notice to
the other party.

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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 investment 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 Master Portfolio is able to
terminate the securities loan upon notice of not more than five business days
and thereby secure the return to the Master Portfolio of securities identical to
the transferred securities upon termination of the loan.

SHORT SALES

Certain Master Portfolios may from time to time enter into short sales
transactions. A Master Portfolio will not make short sales of securities nor
maintain a short position unless at all times when a short position is open,
such Master 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 Master Portfolio for the purpose of deferring
recognition of gain or loss for federal income tax purposes.

SPECIAL SITUATIONS

Certain Master Portfolios may invest in "special situations." A special
situation arises when, in the opinion of the investment 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.

STAND-BY COMMITMENTS

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

The amount payable to a Master Portfolio upon its exercise of a stand-by
commitment will normally be (i) the Master Portfolio's acquisition cost of the
Municipal Securities (excluding any accrued interest which a Master Portfolio
paid on their acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period a Master Portfolio
owned the securities, plus (ii) all interest accrued on the securities since the
last interest payment date during that period. Under normal market conditions,
in determining net asset value a Master Portfolio values the underlying
Municipal Securities on an amortized cost basis. Accordingly, the amount payable
by a dealer upon exercise of a stand-by commitment will normally be
substantially the same as the portfolio value of the underlying Municipal
Securities.

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

The Master Portfolios expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Master Portfolio may pay for a stand-by commitment
either separately in cash or by paying a higher price for the security being
acquired which will be subject to the commitment (thus reducing the yield to
maturity otherwise available for the same security). When a Master Portfolio
pays any consideration directly or indirectly for a stand-by commitment, its
cost will be reflected as unrealized depreciation for the period during which
the commitment is held by that Master Portfolio.
The Master Portfolios will not acquire a stand-by commitment unless immediately
after the acquisition not more than 5% of the Master Portfolios' total assets
will be subject to a demand feature, or in stand-by commitments, with the same
institution.

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

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

STRIPPED SECURITIES

Certain Master 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 Master 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 Master 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
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 Master Portfolio's
net asset value.

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

TAX-EXEMPT INSTRUMENTS

Tax-exempt instruments which are permissible investments include floating-rate
notes. Investments in such floating-rate instruments will normally involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate (such as the prime
rate at a major commercial bank), and that the Master Portfolio can demand
payment of the obligation at all times or at stipulated dates on short notice
(not to exceed 30 days) at par plus accrued interest. Such obligations are
frequently secured by letters of credit or other credit support arrangements
provided by banks. The quality of the underlying credit or of the bank, as the
case may be, must, in the investment adviser's opinion be comparable to the
long-term bond or commercial paper ratings discussed in Part A. The investment
adviser will monitor the earnings power, cash flow and liquidity ratios of the
issuers of such instruments and the ability of an issuer of a demand instrument
to pay principal and interest on demand. The investment adviser may purchase
other types of tax-exempt instruments as long as they are of a quality
equivalent to the long-term bond or commercial paper ratings discussed in Part
A, including municipal lease obligations and participation interests in
municipal securities (such as industrial development bonds and municipal lease
purchase payments).

33
<PAGE>

U.S. AND FOREIGN BANK OBLIGATIONS

These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Master 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 Master
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 Master 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 Master 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 Master Portfolio's right to
transfer a beneficial interest in the deposit to a third party.

Each Master 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 investment adviser, pursuant to
the established by the Board of Trustees of the Trust, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Master 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 Master 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 Master Portfolio will limit its investment
in securities of foreign banks to not more than 20% of total assets at the time
of investment.

Each Master 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 Master Portfolio.

U.S. GOVERNMENT OBLIGATIONS

Each Master Portfolio may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Master 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 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.

34
<PAGE>

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS

Options, futures and forward foreign currency contracts that obligate a Master
Portfolio to provide cash, securities or currencies to complete such
transactions will entail that Master Portfolio to either segregate assets in an
account with, or on the books of, the Trust's custodian, or otherwise "covering"
the transaction as described below. For example, a call option written by a
Master Portfolio will require the Master 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 Master Portfolio to have
portfolio securities that correlate with the index. A put option written by a
Master Portfolio also will require that Master Portfolio to have available
assets sufficient to purchase the securities the Master Portfolio would be
obligated to buy if the put is exercised.

A forward foreign currency contract that obligates a Master Portfolio to provide
currencies will require the Master Portfolio to hold currencies or liquid
securities denominated in a foreign currency which will equal the Master
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 Master 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 Master Portfolio could own securities substantially
replicating the movement of the particular index.

In the case of a futures contract, a Master 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 Master
Portfolio to deposit margin to the extent necessary to meet the Master
Portfolio's commitments.

In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Master 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 Master 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 Master Portfolio. Moreover, instead of
segregating assets if a Master 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 AMOUNT MASTER DEMAND NOTES

Commercial paper which may be purchased by the Master Portfolios includes
variable-amount master demand notes which may or may not be backed by bank
letters of credit. These notes permit the investment of fluctuating amounts at
varying market rates of interest pursuant to direct arrangements between the
Trust, as lender, and the borrower. Such notes provide that the interest rate on
the amount outstanding varies on a periodic basis (E.G. daily, weekly or
monthly) depending upon a stated short-term interest rate index. Both the lender
and the borrower may have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is not
generally contemplated that such instruments will be traded. The holder of an
instrument with a demand feature may tender the instrument back to the issuer at
par prior to maturity. A variable-amount master demand note is issued pursuant
to a written agreement between the issuer and the holder, its amount may be
increased by the holder or decreased by the holder or issuer, it is payable on
demand, and the rate of interest varies based upon an agreed formula. The
investment adviser will monitor on an ongoing basis the earnings power, cash
flow, and liquidity ratios of the issuers of such instruments and will similarly
monitor the ability of an issuer of a demand instrument to pay principal and
interest on demand. In addition, variable-amount master demand notes must meet
the demand feature ratings and notice requirements set forth above.

35
<PAGE>

VARIABLE- AND FLOATING-RATE INSTRUMENTS

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

The variable- and-floating rate demand instruments that the Master Portfolios
may purchase include participations in Municipal Securities purchased from and
owned by financial institutions, primarily banks. Participation interests
provide a Master 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 investment adviser has determined meets the prescribed
quality standards for the Master 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 Master 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 Master Portfolio may agree to purchase securities on a when-issued basis or
enter into a forward commitment to purchase securities. When a Master 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 Master 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 Master
Portfolio's commitment. Because a Master Portfolio will segregate cash or liquid
assets to satisfy its purchase commitments in the manner described, the Master
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 Master Portfolio's custodian will hold the
portfolio securities themselves in a segregated account while the commitment is
outstanding.

A Master 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 Master 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 Master Portfolio on the settlement date. In
these cases the Master Portfolio may realize a capital gain or loss.

When a Master 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 Master Portfolio's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.

36
<PAGE>

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 Master
Portfolio starting on the date the Master Portfolio agrees to purchase the
securities. The Master 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 Master Portfolio makes a forward commitment to sell
securities it owns, the proceeds to be received upon settlement are included in
the Master Portfolio's assets. Fluctuations in the value of the underlying
securities are not reflected in the Master Portfolio's net asset value as long
as the commitment remains in effect.

PORTFOLIO TURNOVER

Generally, the Master Portfolios will purchase portfolio securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. If a Master Portfolio's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the
interestholders.

ITEM 13. MANAGEMENT OF THE TRUST

The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the state of Delaware. The Trustees and the
officers of the Trust and their principal occupations for the last five years
are set forth below.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C>
Edmund L. Benson, III, 62 Trustee Director, President and Treasurer,
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance);
728 East Main Street Trustee, Nations Institutional
Suite 400 Reserves, Nations Fund Trust,
Richmond, VA 23219 Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Fund, Inc.

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

William H. Grigg, 66 Trustee Since June 1997, Chairman Emeritus;
Duke Power Co. June 1997 to April 1994, Chairman
422 South Church Street and Chief Executive Officer;
PB04G November 1991 to April 1994, Vice
Charlotte, NC 28242-0001 Chairman, Duke Power Co.; from April
1988 to November 1991, Executive
Vice President Customer Group, Duke
Power Co.; Director, 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 Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc.; Trustee, Nations Institutional
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.
</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C>
Thomas F. Keller, 67 Trustee R.J. Reynolds Industries Professor
Fuqua School of Business of Business Administration and Dean,
Duke University Fuqua School of Business, Duke
Durham, NC 27706 University; Director, LADD
Furniture, Inc.; Director, Wendy's
and Mentor Funds; Director, 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 Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc.; Trustee, Nations Institutional
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.

Carl E. Mundy, Jr., 64 Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July 1995;
Alexandria, VA 23309 Commanding General, Marine Forces
Atlantic, from June 1990 to June
1991; Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Master Portfolio
Trust, Nations Annuity Trust and
Nations Master Investment Trust.

James B. Sommers, 60* Trustee President, NationsBank Trust, from
237 Cherokee Road January 1992 to September 1996;
Charlotte, NC 28207 Executive Vice President,
NationsBank Corporation, from January
1992 to May 1997; Principal,
Bainbridge & Associates; Partner,
Villa LLC; Chairman, Central Piedmont
Community College Foundation;
Trustee, Central Piedmont Community
College; Board of Commissioners,
Charlotte/Mecklenberg Hospital
Authority; Director, Nations Fund,
Inc., Nations Fund Portfolios, Inc.
and Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Master Portfolio
Trust, Nations Annuity Trust and
Nations Master Investment Trust.

</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C>
A. Max Walker, 77* President, Trustee and Chairman Financial consultant; Formerly,
4580 Windsor Gate Court 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 Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
President and Chairman of the Board
of Trustees, Nations Institutional
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.

Charles B. Walker, 60 Trustee Since 1989, Director, Executive Vice
Ethyl Corporation President, Chief Financial Officer
P.O. Box 2189 and Treasurer, Ethyl Corporation
330 South Fourth Street (chemicals, plastics, and aluminum
Richmond, VA 23217 manufacturing); since 1994, Vice
Chairman, Ethyl Corporation and Vice
Chairman, Chief Financial Officer
and Treasurer, Albemarle
Corporation, Director, Nations Fund,
Inc., Nations Fund Portfolios, Inc.
and Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.

Thomas S. Word, Jr., 60* Trustee Partner, McGuire Woods Battle &
McGuire, Woods, Battle Boothe (law); Director, Vaughan
& Boothe Bassett Furniture Company, Director
One James Center VB Williams Furniture Company, Inc.;
Richmond, VA 23219 Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C>
Richard H. Blank, Jr., 42 Secretary and Treasurer Since 1999, Senior Vice President of
Stephens Inc. Stephens; 1994 to 1999, Vice
111 Center Street President of Mutual Fund Services,
Suite 300 Stephens Inc.; 1990 to 1994, Manager
Little Rock, AR 72201 Mutual Fund Services, Stephens Inc.;
1983 to 1990, Associate in Corporate
Finance Department, Stephens Inc.;
Secretary and Treasurer, Nations
Institutional Reserves, Nations Fund
Trust, Nations Fund, Inc., Nations
Fund Portfolios, Inc., Nations
Annuity Trust, Nations Master
Investment Trust and Nations
LifeGoal Funds, Inc.

Michael W. Nolte, 38 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201

James E. Banks, 42 Assistant Secretary Since 1993, Attorney,
Stephens Inc. Stephens Inc.; Associate
111 Center Street Corporate Counsel,
Suite 300 Federated Investors; from
Little Rock, AR 72201 1991 to 1993, Staff
Attorney, Securities and
Exchange Commission from
1988 to 1991
</TABLE>

- --------------------
* James P. Sommers, A. Max Walker and Thomas S. Word, Jr. are considered
"interested persons" of the Trust for purposes of the 1940 Act.

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

Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Master 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 each telephonic Board meeting attended. 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, director, or employee
of Bank of America or its affiliates serves as an officer, Trustee, or employee
of the Trust. The Trustees and officers of the Nations Funds own less than 1% of
the shares of the Trust.

40
<PAGE>

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 Master Portfolio or
(ii) was being purchased or sold by a Master 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 company 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 Master 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 Investment 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 Master Portfolios
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate Trustee's fees
payable by the Master 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 Master 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 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 Master 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. 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 or 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 his or her 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 Master Portfolios from which they are deferring compensation.

41
<PAGE>

COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED ANNUAL
COMPENSATION BENEFITS ACCRUED BENEFITS UPON TOTAL COMPENSATION
NAME OF PERSON FROM AS PART OF FUND RETIREMENT FROM REGISTRANT
POSITION (1) REGISTRANT (2) EXPENSES PLAN & FUND COMPLEX (3) (4)
- -------------- -------------- ---------------- ---------------- ----------------------

Edmund L. Benson, III $9,500 $11,111.11 $35,000 $75,376 (50% Def'd)
Trustee

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

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

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

James P. Sommers $9,500 $11,111.11 $40,000 $70,625
Trustee

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

(2) For the current fiscal year and estimated future payments. Each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the
Board) plus $500 for each Master Portfolio of the Trust, plus (ii) a fee of
$1,000 for attendance at each in-person board meeting attended and $500 for
each telephonic board meeting attended. The Trust also reimburses expenses
incurred by the Trustees in attending such meetings.

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

(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L.
Benson, III $34,563; William H. Grigg $65,125; Thomas F. Keller $69,125; and
Thomas S. Word $69,125.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

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As of the date of this SAI, each Fund could be considered a "controlling person"
of its corresponding Master Portfolio for purposes of the 1940 Act. As of the
date of commencement of operations of Nations High Yield Bond Master Portfolio,
Stephens Inc. also could be considered a "controlling person" of that Master
Portfolio.

ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.

The Adviser and Sub-Advisers: Banc of America Advisors, Inc. ("BAAI") serves as
investment adviser to the Master Portfolios, pursuant to an investment advisory
agreement (the "Investment Advisory Agreement") dated May 21, 1999.

In addition, TradeStreet serves as the investment sub-adviser to the Nations
Intermediate Bond Master Portfolio pursuant to a sub-advisory agreement dated
May 21, 1999. Chicago Equity serves as investment sub-adviser to Nations Blue
Chip Master Portfolio pursuant to a sub-advisory agreement dated May 21, 1999.
Marsico Capital Management, LLC ("Marsico Capital") serves as the investment
sub-adviser to Nations Marsico Focused Equities Master Portfolio and Nations
Marsico Growth & Income Master Portfolio pursuant to a sub-advisory agreement
dated May 21, 1999. Gartmore is a co-investment sub-adviser to Nations
International Equity Master Portfolio along with INVESCO Global Asset Management
(N.A.) Inc. ("INVESCO") and Putnam Investment Management, Inc. ("Putnam")
pursuant to a sub-advisory agreement (collectively the "Sub-Advisory
Agreements"). Brandes Investment Partners, L.P. ("Brandes") serves as the
investment sub-advisor to Nations International Value Master Portfolio pursuant
to a sub-advisory agreement dated ________. As used herein, "Adviser" shall mean
BAAI, TradeStreet, Chicago Equity, Gartmore, INVESCO, Putnam, Brandes and/or
Marsico Capital as the context may require.

BAAI, TradeStreet and Chicago Equity are each wholly owned subsidiaries of Bank
of America, N.A., which in turn is a wholly owned banking subsidiary of
BankAmerica Corporation, a bank holding company organized as a Delaware
corporation. Prior to April 10, 1996, the predecessor to Gartmore, Nations
Gartmore Investment Management ("Nations Gartmore"), provided sub-advisory
services to BAAI and Nations International Equity Fund. Nations Gartmore was a
joint venture structured as a general partnership between NB Partner Corp. and
Gartmore U.S. Limited, an indirectly wholly owned subsidiary of Gartmore
Investment Management plc ("Gartmore plc"). On April 10, 1996, National
Westminster Bank plc and affiliated parties (collectively, "NatWest") purchased
100% of the equity of Gartmore plc from Compagnie de Suez, S.A. and affiliated
entities (collectively, "Compagnie de Suez") and other shareholders through a
two-part transaction involving (1) the direct purchase from Compagnie de Suez of
its indirect subsidiary Indosuez UK Asset Management Limited, which held 75% of
the outstanding voting shares of Gartmore plc; and (2) the acquisition of the
remaining portion of Gartmore plc's shares held by public shareholders through a
tender offer. This acquisition resulted in the change of control of Nations
Gartmore and the creation of a successor entity, Gartmore.

Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico Capital.
Prior to forming Marsico Capital in September 1997, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager. Marsico Capital is an
independent subsidiary of Bank of America and its affiliates. The principal
offices of Marsico Captial is 1200 17th Street, Suite 1300, Denver, CO 80202.

MacKay Shields is the investment sub-adviser to the High Yield Bond Master
Portfolio. MacKay Shields is located at 9 West 57th Street, New York, New York
10019.

The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties thereunder on the part of BAAI or any of its officers, Trustees,
employees or agents, BAAI 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 became effective with respect to a Master
Portfolio when approved by the Trustees of the Trust, and thereafter continues
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
Master Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and (b) the
affirmative vote of a majority of the Trust's Trustees who are not parties to
such Agreement or "interested persons"

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<PAGE>

(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 Investment Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to a Master 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 Master Portfolio) or by
BAAI on 60 days' written notice.

The Sub-Advisory Agreements provide that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
thereunder on the part of TradeStreet, Chicago Equity, Gartmore, INVESCO,
Putnam, Brandes, MacKay Shields and/or Marsico Capital or any of their officers,
Trustees, employees or agents, TradeStreet, Chicago Equity, Gartmore, INVESCO,
Putnam, Brandes and/or Marsico Capital shall not be subject to liability to BAAI
or to 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 Sub-Advisory Agreements became effective with respect to each Master
Portfolio as of their execution date and, unless sooner terminated, continue in
full force and effect for one year, and may be continued with respect to each
Master Portfolio thereafter, provided that the continuation of the Agreements
are 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 Master Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and (b)
the affirmative vote of a majority of the Trust's Trustees who are not parties
to such Agreements or "interested persons" (as defined in the 1940 Act) of a
party to such Agreements (other than as Trustees of the Trust), by votes cast in
person at a meeting specifically called for such purpose.

The Sub-Advisory Agreements will terminate automatically in the event of their
assignment, and are terminable with respect to a Master 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 Master Portfolio), or by
BAAI, TradeStreet, Chicago Equity, Gartmore, INVESCO, Putnam, Brandes, MacKay
Shields or Marsico Capital on 60 days' written notice.

Administrator, Co-Administrator, and Sub-Administrator. Stephens Inc. and BAAI
(the "Co-Administrators") serve as co-administrators of each Master Portfolio.

The Co-Administrators serve under a co-administration agreement
("Co-Administration Agreement"), which was approved by the Board of Trustees on
December 2, 1998. The Co-Administrators receive, as compensation for their
services rendered under the Co-Administration Agreement, administration fees,
computed daily and paid monthly.

Pursuant to the Co-Administration Agreement, Stephens has agreed to, among other
things, (i) maintain office facilities for the Master Portfolios, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, 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 the Trust's shareholders and the SEC, including annual
and semi-annual reports, (vi) coordinating the provision of services to the
Trust by the Transfer Agent, Sub-Transfer Agent and the Custodian, and (vii)
generally assist in all aspects of the Trust's operations. Stephens bears all
expenses incurred in connection with the performance of its services.

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

The Co-Administration Agreement may be terminated by a vote of a majority of the
Board of Trustees, by Stephens or by BAAI on 60 days' written notice without
penalty. The Co-Administration Agreement is not assignable without the written
consent of the other party. Furthermore, the Co-Administration Agreement
provides that

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<PAGE>

Stephens and BAAI shall not be liable to the Master Portfolios or to their
shareholders except in the case of Stephens' or BAAI's willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.

The Bank of New York ("BNY") serves as sub-administrator for the Master
Portfolios pursuant to a sub-administration agreement. Pursuant to its terms,
BNY assists Stephens and BAAI in supervising, coordinating and monitoring
various aspects of the Master Portfolios' administrative operations. For
providing such services, BNY is entitled to receive a monthly fee from BAAI.

Custodian and Transfer Agent: BNY , 90 Washington Street, New York, New York
10286, serves as custodian ("Custodian") for the securities and cash of each
Master Portfolio. As custodian, BNY, maintains custody of the Master 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 the Master Portfolios for payments of dividends, distributions and
redemptions, endorses and collects on behalf of the Master Portfolios all
checks, and receives all dividends and other distributions made on securities
owned by the Master Portfolios.

The Bank of New York ("BONY"), located at Avenue des Arts, 35 1040 Brussels,
Belgium, serves as custodian for the assets of the Nations International Equity
Master Portfolio.

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 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.

First Data, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent for the Master Portfolios. Under the transfer agency
agreement, the transfer agent maintains the interestholder account records for
the Trust, handles certain communications between interestholders and the Trust,
and distributes dividends and distributions payable by the Trust to
interestholders, and produces statements with respect to account activity for
the Trust and its interestholders for these services.

Counsel: Morrison & Foerster LLP serves as legal counsel to the Trust and the
Nations Master Portfolios. Their address is 2000 Pennsylvania Avenue, N.W.,
Suite 5500, Washington, D.C. 20006-1812.

ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.

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 Master
Portfolio, for the selection of broker/dealers, for the execution of such Master
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. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a negotiated
commission for their services. Orders may be directed to any broker to the
extent and in the manner permitted by applicable law.

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

In placing orders for portfolio securities of a Master 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

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<PAGE>

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. In addition, the Adviser will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Master 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 Master 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 Master 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 Master Portfolio as well as for one or more of the other clients of the
Adviser. Investment decisions for each Master 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 Master Portfolio is concerned. The Trust believes that over time its
ability to participate in volume transactions will produce superior executions
for the Master Portfolios.

The portfolio turnover rate for each Master Portfolio is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities, including options,
whose maturities or expiration dates at the time of acquisition are one year or
less. Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Master Portfolios to receive
favorable tax treatment.

The Master 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
Master Portfolio will engage in this practice, however, only when the Adviser,
in its sole discretion, believes such practice to be otherwise in the Master
Portfolio's interests.

The Trust will not execute portfolio transactions through, or purchase or sell
portfolio securities from or to the distributor, the Adviser, the administrator,
the co-administrator or their affiliates, acting as principal (including
repurchase and reverse repurchase agreements), except to the extent permitted by
applicable law. In addition, the Trust will not give preference to
correspondents of BankAmerica 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 BankAmerica or its affiliates, and to
take into account the sale of Master Portfolio interests 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 Master
Portfolio will not purchase securities during the existence of any

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underwriting or selling group relating thereto of which the distributor, the
Adviser, the administrator, or the co-administrator, or any of their affiliates,
is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Master 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 Master 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 Master Portfolio are made independently from those
for the Trust's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Master 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 Master 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 Master
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 Master Portfolio or the size of the position obtained or sold by
the Master Portfolio. To the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for the Master Portfolios with those to
be sold or purchased for other investment portfolios, investment companies, or
accounts in executing transactions.

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), the Adviser must make a good faith determination that the commissions
paid are "reasonable in relation to the value of the brokerage and research
services provided ...viewed in terms of either that particular transaction or
its overall responsibilities with respect to the accounts as to which it
exercises investment discretion and that the services provided by a broker
provide an adviser with lawful and appropriate assistance in the performance of
its investment decision making responsibilities." Accordingly, the price to a
Master 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 Master 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; fund 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
and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of 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

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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 Master Portfolios. Similarly, any research services received by
the Adviser through the placement of Master Portfolio transactions of other
clients may be of value to the Adviser in fulfilling its obligations to the
Master 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 Master
Portfolios.

ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.

DESCRIPTION OF SHARES

The Agreement and Declaration of Trust authorizes the issuance of an unlimited
number of units of the Master Portfolios. Each unit of a Master Portfolio
represents an equal proportionate interest in that Master Portfolio with each
other unit. Units are entitled upon liquidation to a pro rata share in the net
assets of the Master Portfolios. Interestholders have no preemptive rights. The
Agreement and Declaration of Trust provides that the Trustees of the Trust may
create additional series of interests. All consideration received by the Trust
for Beneficial Interest in any additional series and all assets in which such
consideration is invested would belong to that Master Portfolio and would be
subject to the liabilities related thereto. Certificates representing Beneficial
Interests will not be issued.

Each Master Portfolio will vote separately on matters pertaining solely to such
Master Portfolio. Such matters include matters relating to a Master Portfolio's
investment advisory agreement. All Master Portfolios will vote as a whole on
matters affecting all Master Portfolios such as the election of Trustees and the
appointment of the Trust's independent accountant.

Net investment income for the Master Portfolios for dividend purposes consists
of (i) interest accrued and original issue discount earned on a Master
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 Master Portfolio and the general expenses of the
Trust prorated to a Master Portfolio on the basis of its relative net assets,
plus dividend or distribution income on a Master Portfolio's assets.

Prior to purchasing Beneficial Interests in one of the Master Portfolios, the
impact of dividends or distributions which are expected to be or have been
declared, but not paid, should be carefully considered. Any dividend or
distribution declared shortly after a purchase of such Beneficial Interests
prior to the record date will have the effect of reducing the per unit of
interest net asset value by the per unit amount of the dividend or distribution.
All or a portion of such dividend or distribution, although in effect a return
of capital, may be subject to tax.

Interestholders receiving a distribution in the form of additional units will be
treated as receiving an amount equal to the fair market value of the units
received, determined as of the reinvestment date.

The Master Portfolios use the so-called "equalization accounting method" to
allocate a portion of earnings and profits to redemption proceeds. This method
permits a Master Portfolio to achieve more balanced distributions for both
continuing and departing interestholders. Continuing interestholders should
realize tax savings or deferrals through this method, and departing
interestholders will not have their tax obligations change. Although using this
method will not affect a Master Portfolio's total returns, it may reduce the
amount that otherwise would be distributable to continuing interestholders by
reducing the effect of redemptions on dividend and distribution amounts.

ITEM 18. PURCHASE, REDEMPTION, AND PRICING OF SHARES

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In addition to cash purchases of Beneficial Interests, if accepted by the Trust,
investments in Beneficial Interests of a Master Portfolio may be made in
exchange for securities which are eligible for purchase by the Master Portfolio
and consistent with the Master Portfolio's investment objective and policies as
described in Part A.
In connection with an in-kind securities payment, a Master Portfolio may
require, among other things, that the securities (i) be valued on the day of
purchase in accordance with the pricing methods used by the Master Portfolio;
(ii) are accompanied by satisfactory assurance that the Master Portfolio will
have good and marketable title to such securities received by it; (iii) are not
subject to any restrictions upon resale by the Master Portfolio; (iv) be in
proper form for transfer to the Master Portfolio; and (v) are accompanied by
adequate information concerning the basis and other tax matters relating to the
securities. All dividends, interest, subscription or other rights pertaining to
such securities shall become the property of the Master Portfolio engaged in the
in-kind purchase transaction and must be delivered to such Master Portfolio by
the investor upon receipt from the issuer. Securities acquired through an
in-kind purchase will be acquired for investment and not for immediate resale.
Shares purchased in exchange for securities generally cannot be redeemed until
the transfer has settled.

The Trust is required to redeem for cash all full and fractional units of
Beneficial Interests in the Trust. The redemption price is the net asset value
per unit of each Master Portfolio next determined after receipt by the
Distributor of the redemption order.

The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
interestholder(s) to accept such purchase order. The Trust reserves the right to
suspend the right of redemption and/or to postpone the date of payment upon
redemption for any period during which trading on the Exchange is restricted, or
during the existence of an emergency (as determined by the SEC by rule or
regulation) as a result of which disposal or valuation of the portfolio
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
Beneficial Interests in a Master Portfolio for any period during which the
Exchange, Bank of America, the Distributor, the Administrator, the
Co-Administrator, and/or the Custodian are not open for business.

By use of the exchange privilege, the interestholder authorizes the transfer
agent or the interestholder's financial institution to rely on telephonic
instructions from any person representing himself to be the investor and
reasonably believed to be genuine. The transfer agent's or a financial
institution's records of such instructions are binding. Exchanges are taxable
transactions for Federal income tax purposes; therefore, an interestholder will
realize a capital gain or loss depending on whether the interest being exchanged
has a value which is more or less than its adjusted cost basis.

The Trust may limit the number of times the exchange privilege may be exercised
by an interestholder within a specified period of time. Also, the exchange
privilege may be terminated or revised at any time by the Trust upon such notice
as may be required by applicable regulatory agencies (presently sixty days for
termination or material revision), provided that the exchange privilege may be
terminated or materially revised without notice under certain unusual
circumstances.

Part A describes the exchange privileges available to interestholders.

DETERMINATION OF NET ASSET VALUE

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

49
<PAGE>

National Market System is valued at the last sales price on the valuation date.
With respect to Nations Intermediate Bond Master Portfolio, securities may be
valued on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as yield, type of issue,
coupon rate maturity and seasoning differential. Securities for which prices are
not provided by the pricing service are valued at the mean between the last bid
and asked prices based upon quotes furnished by market makers for such
securities.

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

Generally, trading in foreign securities, as well as U.S. Government securities,
money market instruments and repurchase agreements, is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the Master
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 of the Master Portfolios that
invest in foreign securities or engage in Foreign Currency Transactions, all
assets and liabilities of the Master Portfolios initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
offer prices of such currencies against U.S. dollars quoted by a major bank that
is a regular participant in the foreign exchange market or on the basis of a
pricing service that takes into account the quotes provided by a number of such
major banks.

The Trust may redeem Beneficial Interests involuntarily to reimburse the Master
Portfolios for any loss sustained by reason of the failure of a an
interestholder to make full payment for interests/units purchased by the
interestholder or to collect any charge relating to a transaction effected for
the benefit of an interestholder which is applicable to such interest as
provided in Part A 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.

ITEM 19. TAXATION.

The Trust is organized as a business trust under Delaware law. Under the Trust's
current classification for federal income tax purposes, it is intended that each
Master Portfolio will be treated as a non-publicly traded partnership for such
purposes and, therefore, such Master Portfolio will not be subject to any
federal income tax. However, each investor in a Master Portfolio will be taxable
on its share (as determined in accordance with the governing instruments of the
Trust) of such Master Portfolio's ordinary income and capital gain in
determining its federal income tax liability. The determination of such share
will be made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.

Each Master Portfolio's assets, income and distributions will be managed in
such a way that an investor in the Master Portfolio may satisfy the requirements
of Subchapter M of the Code, by investing substantially all of its investable
assets in the Master Portfolio. Investors are advised to consult their own tax
advisors as to the tax consequences of an investment in a Master Portfolio.

ITEM 20. UNDERWRITERS.

Stephens Inc. (the "Distributor") serves as the principal underwriter and
distributor of the Beneficial Interests in the Master Portfolios.

50
<PAGE>

Pursuant to a distribution agreement (the "Distribution Agreement"), the
Distributor, as agent, sells Beneficial Interests in the Master Portfolios on a
continuous basis and transmits purchase and redemption orders that it receives
to the Trust or the Transfer Agent. Additionally, the Distributor has agreed to
use appropriate efforts to solicit orders for the sale of Beneficial Interests
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 Master Portfolios, including,
but not limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing of Part A to other than existing interestholders, and
the printing and mailing of sales literature. The Distributor, however, may be
reimbursed for all or a portion of such expenses to the extent permitted by a
distribution plan adopted by the Trust pursuant to Rule 12b-1 under the 1940
Act.

The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Trustees or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
Beneficial Interests of the Master 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
Master 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
Beneficial Interest in the Master Portfolio, or by the Distributor.

ITEM 21. CALCULATION OF PERFORMANCE DATA.

Not applicable.

ITEM 22. FINANCIAL STATEMENTS.

The Board of Trustees has selected PricewaterhouseCoopers LLP, with offices at
160 Federal Street, Boston MA 02110, to serve as the independent accountants to
the Trust. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY
10036, were the independent accountants for each of the Blue Chip Fund
(predecessor to Nations Blue Chip Master Portfolio) and the Investment Grade
Bond Fund (predecessor to Nations Intermediate Bond Master Portfolio) for the
fiscal year ended February 28, 1999. Certain financial information which appears
in the financial statements has been audited by the accountants.

The Annual Reports for the Blue Chip Fund (predecessor to Nations Blue Chip
Master Portfolio) and the Investment Grade Bond Fund (predecessor to Nations
Intermediate Bond Master Portfolio) for the fiscal year ended February 28, 1999
are incorporated herein by reference. No other Master Portfolio has yet
completed a fiscal year as of the date of this SAI. Accordingly, Annual Reports
for these other Master Portfolios are not yet available. Annual Reports, when
available, will be sent free of charge with Part B to any interestholder who
requests a copy of Part B.

51
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SCHEDULE A

DESCRIPTION OF RATINGS

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

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

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

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

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

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

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

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

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

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

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

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

A-1
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A-2
<PAGE>

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 Master 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 company
Fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.

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

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

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

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

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

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.

A-3
<PAGE>

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 company and operating subsidiaries.
BankWatch ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.

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

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

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

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.

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-4
<PAGE>

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

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

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

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

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

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

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

A-5
<PAGE>

SCHEDULE B

ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES

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

I. Interest Rate Futures Contracts.

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

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

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

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

B-1
<PAGE>

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

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

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

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

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

If interest rate levels did not change, the Master Portfolio in the
above example might incur a loss of 2 points (which might be reduced by an
offsetting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.

Examples of Future Contract Purchase. A Master Portfolio would engage
in an interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Master Portfolio's basic motivation would be to maintain
for a time the income advantage from investing in the short-term securities; the
Master Portfolio would be endeavoring at the same time to eliminate the effect
of all or part of an expected increase in market price of the long-term bonds
that the Master Portfolio may purchase.

For example, assume that the market price of a long-term bond that the
Master Portfolio may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The Adviser wishes to fix the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the Adviser believes that, because
of an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9-1/2%) in four months. The Master
Portfolio might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Master Portfolio would assign a
pool of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term bond
at an assumed market price of 100. Assume these short-term securities are
yielding 15%. If the market price of the long-term bond does indeed rise from
100 to 105, the equivalent futures market price for Treasury bonds might also
rise from 98 to 103. In that case, the 5-point increase in the price that the
Master Portfolio pays for the long-term bond would be offset by the 5-point gain
realized by closing out the futures contract Purchase.

B-2
<PAGE>

The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Master Portfolio would continue with its purchase
program for long-term bonds. The market price of available long-term bonds would
have decreased. The benefit of this price decrease, and thus yield increase,
will be reduced by the loss realized on closing out the futures contract
purchase.

If, however, short-term rates remained above available long-term rates,
it is possible that the Master Portfolio would discontinue its purchase program
for long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing out
the futures contract purchase.

In each transaction, expenses also would be incurred.

II. Index Futures Contracts.

A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.

A Master Portfolio will sell index futures contracts in order to offset
a decrease in market value of its portfolio securities that might otherwise
result from a market decline. The Master Portfolio may do so either to hedge the
value of its portfolio as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, a Master Portfolio will purchase index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Master Portfolio will purchase such securities upon
termination of the long futures position, but a long futures position may be
terminated without a corresponding purchase of securities.

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

The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).

ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<S> <C>
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-

B-3
<PAGE>

Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective: Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
IF, HOWEVER, THE MARKET MOVED IN THE OPPOSITE DIRECTION, THAT IS, MARKET
VALUE DECREASED AND THE MASTER PORTFOLIO HAD ENTERED INTO AN ANTICIPATORY
PURCHASE HEDGE, OR MARKET VALUE INCREASED AND THE MASTER PORTFOLIO HAD HEDGED
ITS STOCK PORTFOLIO, THE RESULTS OF THE MASTER PORTFOLIO'S TRANSACTIONS IN STOCK
INDEX FUTURES WOULD BE AS SET FORTH BELOW.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price

Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
</TABLE>

B-4
<PAGE>

III. Margin Payments

Unlike when a Master Portfolio purchases or sells a security, no price
is paid or received by the Master Portfolio upon the purchase or sale of a
futures contract. Initially, the Master Portfolio will be required to deposit
with the broker or in a segregated account with the Master Portfolio's Custodian
an amount of cash or cash equivalents, the value, of which may vary but is
generally equal to 10% or less of the value of the contract. This amount is
known as initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions in that futures contract
margin does not involve the borrowing of Master Portfolios by the customer to
finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Master Portfolio upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a Master Portfolio has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Master Portfolio will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where a Master
Portfolio has purchased a futures contract and the price of the futures contract
has declined in response to a decrease in the underlying instruments, the
position would be less valuable, the Master Portfolio would be required to make
a variation margin payment to the broker. At any time prior to expiration of the
futures contract, the Adviser may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which will
operate to terminate the Master Portfolio's position in the futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid by or released to the Master Portfolio, and the Master
Portfolio realizes a loss or gain.

IV. Risks of Transactions in Futures Contracts

There are several risks in connection with the use of futures by a
Master Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of securities being hedged has moved in an unfavorable direction, the
Master Portfolio would be in a better position than if it had not hedged at Al.
If the price of the securities being hedged has moved in a favorable direction,
this advance will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, the Master
Portfolio involved will experience either a loss or gain on the future which
will not be completely offset by movements in the price of the securities which
are the subject of the hedge.

To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of futures contracts, a
Master Portfolio may buy or sell futures contracts in a greater dollar amount
than the dollar amount of securities being hedged if the volatility over a
particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, a Master Portfolio may buy or sell fewer
futures contracts if the volatility over a particular time period of the prices
of the securities being hedged is less than the volatility over such time period
of the futures contract being used, or if otherwise deemed to be appropriate by
the Adviser. It also is possible that, where a Master Portfolio has sold futures
to hedge its portfolio against a decline in the market, the market may advance,
and the value of securities held by the Master Portfolio may decline. If this
occurred, the Master Portfolio would lose money on the future and also
experience a decline in value in its portfolio securities.

Where futures are purchased to hedge against a possible increase in the
price of securities before a Master Portfolio is able to invest its cash (or
cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if the Master Portfolio then
concludes not to invest in securities or options at that time because of concern
as to possible further market decline or for other reasons, the Master Portfolio
will realize a loss on the futures contract that is not offset by a reduction in
the price of securities purchased.

In instances involving the purchase of futures contracts by a Master
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the Master
Portfolio's Custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.

B-5
<PAGE>

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Master
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Master Portfolio would continue to be required to make daily
cash payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.

Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.

Successful use of futures by a Master Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Master Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Master Portfolio will lose part or all
of the benefit to the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Master Portfolio has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Master Portfolio may have to sell securities at a
time when it may be disadvantageous to do so.

V. Options on Futures Contracts.

The Master Portfolios may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.

Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the

B-6
<PAGE>

futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to a Master Portfolio because the maximum amount at
risk is the premium paid for the options (plus transaction costs). Although
permitted by their Fundamental investment policies, the Master Portfolios do not
currently intend to write future options, and will not do so in the future
absent any necessary regulatory approvals.

ACCOUNTING TREATMENT.

Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.

B-7
<PAGE>

SCHEDULE C

ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.

Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.

Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the U.S.
Government and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.

The Federal National Mortgage Association ("FNMA") is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.

The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.

Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and

A-1
<PAGE>

guarantees are issued by Governmental entities, private insurers, and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.

The Master Portfolio expects that Governmental or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payment may vary or whose terms to maturity may be shorter than
previously customary. As new types of mortgage-backed securities are developed
and offered to investors, certain Master Portfolios will, consistent with their
investment objective and policies, consider making investments in such new types
of securities.

UNDERLYING MORTGAGES

Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Master Portfolio may purchase pools of variable-rate
mortgages ("VRM"), growing equity mortgages ("GEM"), graduated payment mortgages
("GPM") and other types where the principal and interest payment procedures
vary. VRMs are mortgages which reset the mortgage's interest rate periodically
with changes in open market interest rates. To the extent that the Master
Portfolio is actually invested in VRMs, the Master Portfolio's interest income
will vary with changes in the applicable interest rate on pools of VRMs. GPM and
GEM pools maintain constant interest rates, with varying levels of principal
repayment over the life of the mortgage. These different interest and principal
payment procedures should not impact the Master Portfolio's net asset value
since the prices at which these securities are valued will reflect the payment
procedures.

All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.

AVERAGE LIFE

The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.

As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.

RETURNS ON MORTGAGE-BACKED SECURITIES

Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.

Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Master Portfolio.
The compounding effect from reinvestments of monthly payments received by the
Master Portfolio will increase its yield to shareholders, compared to bonds that
pay interest semi-annually.

A-2
<PAGE>

NATIONS MASTER INVESTMENT 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 No. 811-09347).

- ---------------------- -------------------------------------------------------------------------------------
EXHIBIT LETTER DESCRIPTION
- ---------------------- -------------------------------------------------------------------------------------
<S> <C>
(a) ARTICLES OF INCORPORATION:
(a)(1) Certificate of Trust dated January 13, 1999, incorporated by reference to Amendment
No. 1, filed October 14, 1999.
(a)(2) Declaration of Trust dated January 14, 1999, incorporated by reference to Amendment
No. 1, filed October 14, 1999.
- ---------------------- -------------------------------------------------------------------------------------
(b) BY-LAWS:
(b)(1) Amended and Restated By-Laws dated January 14, 1999, last amended May 26, 1999,
incorporated by reference to Amendment No. 1, filed October 14, 1999.
- ---------------------- -------------------------------------------------------------------------------------
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITIES HOLDERS:

Not Applicable
- ---------------------- -------------------------------------------------------------------------------------
(d) INVESTMENT ADVISORY CONTRACTS:
(d)(1) Investment Advisory Agreement between Banc of America Advisors, Inc. (formerly
NationsBanc Advisors, Inc.) ("BAAI") and the Registrant dated May 21, 1999,
Schedule I dated October 15, 1999, incorporated by reference to Amendment No. 1,
filed October 14, 1999.
(d)(2) Sub-Advisory Agreement among BAAI, TradeStreet Investment Associates, Inc.
("TradeStreet") and the Registrant dated May 21, 1999, incorporated by reference to
Amendment No. 1, filed October 14, 1999.

C-1
<PAGE>

- ---------------------- -------------------------------------------------------------------------------------
(d)(3) Sub-Advisory Agreement among BAAI, Chicago Equity
Partners Corporation ("Chicago Equity") and the
Registrant dated May 21, 1999, incorporated by reference
to Amendment No. 1, filed October 14, 1999.
(d)(4) Sub-Advisory Agreement among BAAI, Gartmore Global
Partners ("Gartmore") and the Registrant dated August 19,
1999, incorporated by reference to Amendment No. 1, filed
October 14, 1999.
(d)(5) Sub-Advisory Agreement among BAAI, INVESCO Global Asset Management (N.A.), Inc.
("INVESCO") and the Registrant dated August 19, 1999, incorporated by reference to
Amendment No. 1, filed October 14, 1999.
(d)(6) Sub-Advisory Agreement among BAAI, Putnam Investment Management, Inc. ("Putnam")
and the Registrant dated August 19, 1999, incorporated by reference to Amendment
No. 1, filed October 14, 1999.
(d)(7) Sub-Advisory Agreement among BAAI, Marsico Capital
Management, LLC ("Marsico") and the Registrant dated
August 19, 1999, incorporated by reference to Amendment
No. 1, filed October 14, 1999.
(d)(8) Sub-Advisory Agreement among BAAI, Brandes Investment Partners, L.P. ("Brandes")
and the Registrant dated October 15, 1999, incorporated by reference to Amendment
No. 1, filed October 14, 1999.
(d)(9) Sub-Advisory Agreement among BAAI, MacKay Shields LLC ("MacKay Shields") and the
Registrant dated February 14, 2000, filed herewith.
- ---------------------- -------------------------------------------------------------------------------------
(e) Not Applicable pursuant to General Instruction (B)(2)(b).
- ---------------------- -------------------------------------------------------------------------------------
(f) BONUS OR PROFIT SHARING CONTRACTS:
(f)(1) Deferred Compensation Plan dated February 24, 1999, incorporated by reference to
Amendment No. 1, filed October 14, 1999.
- ---------------------- -------------------------------------------------------------------------------------
(g) CUSTODIAN AGREEMENTS:
(g)(1) Custody Agreement between The Bank of New York ("BNY")
and the Registrant dated May 21, 1999, Schedule I dated
October 15, 1999, incorporated by reference to Amendment
No. 1, filed October 14, 1999.

C-2
<PAGE>

(g)(2) Amendment to Custody Agreement dated September 1, 1999, incorporated by reference
to Amendment No. 1, filed October 14, 1999.
- ---------------------- -------------------------------------------------------------------------------------
(h) OTHER MATERIAL CONTRACTS:
(h)(1) Co-Administration Agreement among BAAI, Stephens Inc.
("Stephens"), and Registrant dated May 21, 1999, Schedule
I dated October 15, 1999, incorporated by reference to
Amendment No. 1, filed October 14, 1999.
- ---------------------- -------------------------------------------------------------------------------------
(h)(2) Sub-Administration Agreement among BAAI, BNY, and
Registrant dated May 21, 1999, Schedule I dated October
15, 1999, incorporated by reference to Amendment No. 1,
filed October 14, 1999.
(h)(3) Placement Agency Agreement between Stephens Inc. and the Registrant dated May 21,
1999, Schedule I dated October 15, 1999, incorporated by reference to Amendment No.
1, filed October 14, 1999.
(h)(4) Cross Indemnification Agreement among Nations Fund, Inc., Nations Fund Trust,
Nations Fund Portfolios, Inc., Nations Reserves and the Registrant dated August 1,
1999, incorporated by reference to Amendment No. 1, filed October 14, 1999.
- ---------------------- -------------------------------------------------------------------------------------
(i) Not Applicable pursuant to General Instruction (B)(2)(b).
- ---------------------- -------------------------------------------------------------------------------------
(j) Not Applicable pursuant to General Instruction (B)(2)(b).
- ---------------------- -------------------------------------------------------------------------------------
- ---------------------- -------------------------------------------------------------------------------------
(k) Not Applicable pursuant to General Instruction (B)(2)(b).
- ---------------------- -------------------------------------------------------------------------------------
(l) INITIAL CAPITAL AGREEMENTS:

Not Applicable
- ---------------------- -------------------------------------------------------------------------------------
(m) RULE 12B-1 PLAN:

Not Applicable
- ---------------------- -------------------------------------------------------------------------------------
(n) FINANCIAL DATA SCHEDULE:

Not Applicable
- ---------------------- -------------------------------------------------------------------------------------
(o) RULE 18F-3 PLAN:

Not Applicable

C-3
<PAGE>

- ---------------------- -------------------------------------------------------------------------------------
(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 Amendment No. 1, filed October 14, 1999.
- ---------------------- -------------------------------------------------------------------------------------
</TABLE>
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, placement agent and distributor,
and custodian is provided for, respectively, in:

1. Co-Administration Agreement with Stephens and BAAI;

2. Sub-Administration Agreement with BNY and BAAI;

3. Placement Agency Agreement with Stephens; and

4. Custody Agreement with BNY.

The Registrant has entered into a Cross Indemnification Agreement
with Nations Fund, Inc., (the "Company"), Nations Fund Trust (the "Trust"),
Nations Portfolios, Inc. ("Portfolios") and Nations Reserves ("Reserves") dated
August 1, 1999. The Company, Trust, Portfolios and/or Reserves will indemnify
and hold harmless the Registrant against any losses, claims, damages or
liabilities, to which the Registrant may become subject, under the Securities
Act of 1933 (the "Act") and the Investment Company Act of 1940 (the "1940 Act")
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Prospectuses, any
Preliminary Prospectuses, the Registration Statements, any other Prospectuses
relating to the securities, or any amendments or supplements to the foregoing
(hereinafter referred to collectively as the "Offering Documents"), or arise out
of or are based upon the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Offering Documents in reliance upon and in conformity with written information
furnished to the Registrant by the Company,

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Trust, Portfolios and/or Reserves expressly for use therein; and will reimburse
the Registrant for any legal or other expenses reasonably incurred by the
Registrant in connection with investigating or defending any such action or
claim; provided, however, that the Company, Trust, Portfolios and/or Reserves
shall not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the Offering
Documents in reliance upon and in conformity with written information furnished
to the Company, Trust, Portfolios and/or Reserves by the Registrant expressly
for use in the Offering Documents.

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.

Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its directors, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his/her willful misfeasance, bad faith, gross negligence
in the performance of his/her duties, or by reason of his/her reckless disregard
of the duties involved in the conduct of his/her office or arising under his
agreement with Registrant. Registrant will comply with Rule 484 under the Act
and Release No. 11330 under the 1940 Act, in connection with any
indemnification.

Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Act"), 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 ("SEC") 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

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has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 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, Chicago
Equity, Gartmore, INVESCO, Putnam, Marsico, Brandes or MacKay Shields, 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, Chicago Equity, Gartmore, INVESCO,
Putnam, Marsico or Brandes, respectively, or other subsidiaries of Bank of
America Corporation.

(b) 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).

(c) 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).

(d) Chicago Equity performs investment sub-advisory services for the
Registrant and certain other customers. Chicago Equity is a wholly-owned
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 Chicago Equity with the SEC pursuant to the Advisers Act
(file no. 801-55997).

(e) 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

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Form ADV filed by Gartmore with the SEC pursuant to the Advisers Act (file no.
801-48811).

(f) INVESCO performs investment sub-advisory services for the
Registrant and certain other customers. INVESCO is a division of INVESCO Global,
a publicly traded investment management firm and a wholly-owned subsidiary of
AMVESCAP PLC, a publicly traded UK financial holding company that engages
through its subsidiaries in the business of international investment management.
Information with respect to each director and officer of the investment
sub-adviser is incorporated by reference to Form ADV filed by INVESCO with the
SEC pursuant to the Advisers Act (file no. 801-54192).

(g) Putnam performs investment sub-advisory services for the Registrant
and certain other customers. Putnam is a wholly-owned subsidiary of Putnam
Investments, Inc., an investment management firm which, except for shares held
by employees is owned by Marsh & McLennan Companies, a publicly traded
professional services firm that engages through its subsidiaries in the business
of investment management. Information with respect to each director and officer
of the investment sub-adviser is incorporated by reference to Form ADV filed by
Putnam with the SEC pursuant to the Advisers Act (file no. 801-7974).

(h) 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).

(i) Brandes performs investment sub-advisory services for the
Registrant and certain other customers. Information with respect to each
director and officer of the investment sub-adviser is incorporated by reference
to Form ADV filed by Brandes with the SEC pursuant to the Advisers Act (file no.
801-24896).

(j) MacKay Shields performs investment sub-advisory services for the
Registrant and certain other customers. Information with respect to each
director and officer of the investment sub-adviser is incorporated by reference
to Form ADV filed by MacKay Shields with the SEC pursuant to the Advisers Act
(file no. 801-5594).

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

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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
placement agent is incorporated by reference to Form ADV filed by Stephens 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 investment sub-adviser).

(3) Chicago Equity, 231 South LaSalle, Chicago, IL 60697 (records
relating to its function as investment sub-advisor).

(4) Gartmore, One Bank of America Plaza, Charlotte, NC 28255
(records relating to its function as investment sub-adviser).

(5) INVESCO, 1315 Peachtree Street, N.E., Atlanta, GA 30309
(records relating to its function as investment sub-advisor).

(6) Putnam, One Post Office Square, Boston, MA 02109 (records
relating to its function as investment sub-advisor).

(7) Marsico Capital, 1200 17th Street, Suite 1300, Denver, CO
80202 (records relating to its function as investment
sub-advisor).

(8) Brandes, 12750 High Bluff Drive, San Diego, CA 92130 (records
relating to its function as investment sub-advisor).

(9) Stephens, 111 Center Street, Little Rock, AR 72201 (records
relating to its function as distributor, placement agent and
co-administrator).

(10) BNY, 90 Washington Street, New York, NY 10286 (records
relating to its function as custodian and sub-administrator)

(11) MacKay Shields, 9 West 57th Street, New York, New York, 10019
(records relating to its function as investment sub-advisor).

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ITEM 29. MANAGEMENT SERVICES

Not Applicable

ITEM 30. Undertakings
Not Applicable

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Signatures

Pursuant to the requirements of 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 11th day of February, 2000.

NATIONS MASTER INVESTMENT 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

<PAGE>

Nations Master Investment Trust
Exhibit Index

Exhibit No. Description

EX-99.23D9 Sub-Advisory Agreement - MacKay Shields, LLC

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EX-99.23d9

INVESTMENT SUB-ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST

THIS AGREEMENT is made as of February 14, 2000, by and between BANC OF
AMERICA ADVISORS, INC., a North Carolina corporation (the "Adviser"), MACKAY
SHIELDS, LLC, a Delaware limited liability company (the "Sub-Adviser"), and
NATIONS MASTER INVESTMENT TRUST, a Delaware business trust (the "Trust"), on
behalf of those series of the Trust now or hereafter identified on Schedule I
(each a "Master Portfolio" and collectively, the "Master Portfolios").

WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act");

WHEREAS, the Adviser is registered with the Commission as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act");

WHEREAS, the Sub-Adviser is also registered with the Commission as an
investment adviser under the Advisers Act;

WHEREAS, the Adviser and the Trust have entered into an investment
advisory agreement (the "Investment Advisory Agreement"), pursuant to which the
Adviser manages the investment operations of each Master Portfolio and may
delegate certain duties of the Adviser to one or more investment sub-adviser(s);
and

WHEREAS, the Adviser, with the approval of the Board of Trustees of the
Trust (the "Board"), including a majority of the Trustees who are not
"interested persons" (defined herein) of any party to this Agreement, desires to
delegate to the Sub-Adviser the duty to manage the portfolio investments of the
Master Portfolios;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. APPOINTMENT OF SUB-ADVISER. The Adviser hereby appoints the
Sub-Adviser and the Sub-Adviser hereby agrees to manage the portfolio
investments of each Master Portfolio subject to the terms of this Agreement and
subject to the supervision of the Adviser and the Board.

2. SERVICES OF SUB-ADVISER. The Sub-Adviser shall perform all services
necessary for the management of the portfolio investments of each Master
Portfolio, including but not limited to:

(a) Managing the investment and reinvestment of all assets,
now or hereafter acquired by each Master Portfolio,
including determining what securities

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<PAGE>

and other investments are to be purchased or sold for
each Master Portfolio and executing transactions
accordingly;

(b) Transmitting trades to each Master Portfolio's custodian
for settlement in accordance with each Master
Portfolio's procedures and as may be directed by the
Trust;

(c) Assisting in the preparation of all shareholder
communications, including shareholder reports, and
participating in shareholder relations;

(d) Making recommendations as to the manner in which voting
rights, rights to consent to Master Portfolio action and
any other rights pertaining to each Master Portfolio's
portfolio securities shall be exercised;

(e) Making recommendations to the Adviser and the Board with
respect to Master Portfolio investment policies and
procedures, and carrying out such investment policies
and procedures as are approved by the Board or by the
Adviser under authority delegated by the Board to the
Adviser;

(f) Supplying reports, evaluations, analyses, statistical
data and information to the Adviser, the Board or to the
Master Portfolios' officers and other service providers
as the Adviser or the Board may reasonably request from
time to time or as may be necessary or appropriate for
the operation of the Trust as an open-end investment
company or as necessary to comply with Section 3(a) of
this Agreement;

(g) Maintaining all books and records with respect to the
investment decisions and securities transactions for
each Master Portfolio required by applicable law;

(h) Furnishing any and all other services, subject to review
by the Board, that the Adviser from time to time
determines to be necessary or useful to perform its
obligations under the Investment Advisory Agreement or
as the Board may reasonably request from time to time.

3. RESPONSIBILITIES OF SUB-ADVISER. In carrying out its obligations
under this Agreement, the Sub-Adviser agrees that it will:

(a) Comply with all applicable law, including but not
limited to the 1940 Act and the Advisers Act, the rules
and regulations of the Commission thereunder, and the
conditions of any order affecting the Trust or a Master
Portfolio issued thereunder;

(b) Use the same skill and care in providing such services
as it uses in providing services to other fiduciary
accounts for which it has investment responsibilities;

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<PAGE>

(d) Place, or arrange for the placement of, all orders
pursuant to its investment determinations for the Master
Portfolios either directly with the issuer or with any
broker or dealer (including any affiliated broker or
dealer). In executing portfolio transactions and
selecting brokers or dealers, the Sub-Adviser will use
its best efforts to seek on behalf of each Master
Portfolio the best overall terms available. In assessing
the best overall terms available for any transaction,
the Sub-Adviser shall consider all factors that it deems
relevant, including the breadth of the market in the
security, the price of the security, the financial
condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms
available, and in selecting the broker or dealer to
execute a particular transaction, the Sub-Adviser may
also consider whether such broker or dealer furnishes
research and other information or services to the
Sub-Adviser;

(e) Adhere to the investment objective, strategies and
policies and procedures of the Trust adopted on behalf
of each Master Portfolio; and

(f) Meet the service level performance standards that the
parties may agree to from time to time.

4. CONFIDENTIALITY OF INFORMATION. Each party agrees that it will treat
confidentially all information provided by another party regarding such other
party's business and operations, including without limitation the investment
activities or holdings of a Master Portfolio. All confidential information
provided by a party hereto shall not be disclosed to any unaffiliated third
party without the prior consent of the providing party. The foregoing shall not
apply to any information that is public when provided or thereafter becomes
public or which is required to be disclosed by any regulatory authority in the
lawful and appropriate exercise of its jurisdiction over a party, by any auditor
of the parties hereto, by judicial or administrative process or otherwise by
applicable law or regulation.

5. SERVICES NOT EXCLUSIVE. The services furnished by the Sub-Adviser
hereunder are deemed not to be exclusive, and the Sub-Adviser shall be free to
furnish similar services to others so long as its provision of services under
this Agreement is not impaired thereby. To the extent that the purchase or sale
of securities or other investments of the same issuer may be deemed by the
Sub-Adviser to be suitable for two or more accounts managed by the Sub-Adviser,
the available securities or investments may be allocated in a manner believed by
the Sub-Adviser to be equitable to each account. It is recognized that in some
cases this procedure may adversely affect the price paid or received by a Master
Portfolio or the size of the position obtainable for or disposed of by a Master
Portfolio.

6. DELIVERY OF DOCUMENTS. The Trust will provide the Sub-Adviser with
copies, properly certified or authenticated, of each of the following:

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<PAGE>

(a) the Trust's Certificate of Trust, as filed with the
Secretary of State of Delaware, and Declaration of Trust
(such Declaration of Trust, as presently in effect and
as from time to time amended, is herein called the
"Declaration of Trust");

(b) the most recent prospectus(es) and statement(s) of
additional information relating to each Master Portfolio
(such prospectus(es) together with the related
statement(s) of additional information, as presently in
effect and all amendments and supplements thereto, are
herein called the "Prospectus"); and

The Trust will promptly furnish the Sub-Adviser with copies of any and
all amendments of or additions or supplements to the foregoing.

7. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records that it
maintains for each Master Portfolio under this Agreement are the property of the
Trust and further agrees to surrender promptly to the Trust or the Adviser any
of such records upon request. The Sub-Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.

8. EXPENSES OF THE MASTER PORTFOLIOS. Except to the extent expressly
assumed by the Sub-Adviser and except to any extent required by law to be paid
or reimbursed by the Sub-Adviser, the Sub-Adviser shall have no duty to pay any
ordinary operating expenses incurred in the organization and operation of the
Master Portfolios. Ordinary operating expenses include, but are not limited to,
brokerage commissions and other transaction charges, taxes, legal, auditing,
printing, or governmental fees, other Master Portfolio service providers' fees
and expenses, including those related to third party pricing of portfolio
securities, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
Board and shareholder meetings, and the cost of preparing and distributing
reports and notices to shareholders. The Sub-Adviser shall pay all other
expenses directly incurred by it in connection with its services under this
Agreement.

9. COMPENSATION. Except as otherwise provided herein, for the services
provided to each Master Portfolio and the expenses assumed pursuant to this
Agreement, the Adviser will pay the Sub-Adviser and the Sub-Adviser will accept
as full compensation therefor a fee determined in accordance with Schedule I
attached hereto. It is understood that the Adviser shall be solely responsible
for compensating the Sub-Adviser for performing any of the duties delegated to
the Sub-Adviser and the Sub-Adviser agrees that it shall have no claim against
the Trust or any Master Portfolio with respect to compensation under this
Agreement. To the extent that the advisory fee that the Trust would be obligated
to pay to the Adviser with respect to a Master Portfolio pursuant to the
Investment Advisory Agreement is reduced or reimbursed, the fee that the
Sub-Adviser would otherwise receive pursuant to this Agreement shall be reduced
or reimbursed proportionately.

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<PAGE>

10. LIABILITY OF SUB-ADVISER. The Sub-Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Adviser
or the Trust in connection with the performance of its duties under this
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services, from willful misfeasance, bad faith
or negligence on the part of the Sub-Adviser or any of its officers, directors
or employees, in connection with the performance of their duties under this
Agreement, from reckless disregard by it or its officers, directors or employees
of any of their obligations and duties under this Agreement, or from any
violations of securities laws, rules, regulations, statutes and codes, whether
federal or state, by the Sub-Adviser or any of its officers, directors or
employees.

11. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless
the Master Portfolios and the Adviser from and against any and all direct or
indirect claims, losses, liabilities or damages (including reasonable attorney's
fees and other related expenses) resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services, from willful misfeasance,
bad faith or negligence on the part of the Sub-Adviser or any of its officers,
directors or employees, in connection with the performance of their duties under
this Agreement, from reckless disregard by it or its officers, directors or
employees of any of their obligations and duties under this Agreement, or
resulting from any violations of securities laws, rules, regulations, statutes
and codes, whether federal or state, by the Sub-Adviser or any of its officers,
directors or employees; provided, however, that the Sub-Adviser shall not be
required to indemnify or otherwise hold the Master Portfolios or the Adviser
harmless under this Section 11 where the claim against, or the loss, liability
or damage experienced by the Master Portfolios or the Adviser, is caused by or
is otherwise directly related to the Master Portfolios' or the Adviser's own
willful misfeasance, bad faith or negligence, or to the reckless disregard by
the Master Portfolios or the Adviser of their duties under this Agreement.

12. TERM AND APPROVAL. This Agreement will become effective as of the
date set forth herein above, and shall continue in effect until the second
anniversary of its effective date. This Agreement will become effective with
respect to each additional Master Portfolio as of the date set forth on Schedule
I when each such Master Portfolio is added thereto. The Agreement shall continue
in effect for a Master Portfolio after the second anniversary of the effective
date for successive annual periods ending on each anniversary of such date,
provided that the continuation of the Agreement is specifically approved for the
Master Portfolio at least annually:

(a)(i) by the Board or (ii) by the vote of "a majority of
the outstanding voting securities" of the Master
Portfolio (as defined in Section 2(a)(42) of the 1940
Act); and

(b) by the affirmative vote of a majority of the Trustees
of the Trust who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of
a party to this Agreement (other than as Trustees of
the Trust), by votes cast in person at a meeting
specifically called for such purpose.

13. TERMINATION. This Agreement may be terminated without payment of
any penalty at any time by:

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<PAGE>

(a) the Trust with respect to a Master Portfolio, by vote of
the Board or by vote of a majority of a Master
Portfolio's outstanding voting securities, upon sixty
(60) days' written notice to the other parties to this
Agreement; or

(b) the Adviser or the Sub-Adviser with respect to a Master
Portfolio, upon sixty (60) days' written notice to the
other parties to this Agreement.

Any party entitled to notice may waive the notice provided for herein.
This Agreement shall automatically terminate in the event of its assignment,
unless an order is issued by the Commission conditionally or unconditionally
exempting such assignment from the provisions of Section 15(a) of the 1940 Act,
in which event this Agreement shall remain in full force and effect subject to
the terms of such order. For the purposes of this paragraph, the definitions
contained in Section 2(a) of the 1940 Act and the applicable rules under the
1940 Act shall apply.

14. CODE OF ETHICS. The Sub-Adviser represents that it has adopted a
written code of ethics complying with the requirements of Rule 17j-1 under the
1940 Act and will provide the Adviser or the Trust with a copy of such code, any
amendments or supplements thereto and its policies and/or procedures implemented
to ensure compliance therewith.

15. INSURANCE. The Sub-Adviser shall maintain for the term of this
Agreement and provide evidence thereof to the Trust or the Adviser a blanket
bond and professional liability (error and omissions) insurance in an amount
reasonably acceptable to Adviser.

16. REPRESENTATIONS AND WARRANTIES. Each party to this Agreement
represents and warrants that the execution, delivery and performance of its
obligations under this Agreement are within its powers, have been duly
authorized by all necessary actions and that this Agreement constitutes a legal,
valid and binding obligation enforceable against it in accordance with its
terms. The Sub-Adviser further represents and warrants that it is duly
registered as an investment adviser under the Advisers Act.

17. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, except by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

18. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to such address as may be
designated for the receipt of such notice. Until further notice, it is agreed
that the address of the Trust shall be c/o Stephens Inc., 111 Center Street,
Little Rock, Arkansas 72201, Attention: Secretary, that of the Adviser shall be
One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North
Carolina 28255, Attention: President and that of the Sub-Adviser shall be MacKay
Shields, LLC, 9 West 57th Street, New York, New York 10019, Attention: Robert
Nisi, Esq. The Sub-Adviser agrees to promptly notify the Adviser and the Trust
in writing of the occurrence of any event which could have a material impact on
the performance of its duties under this Agreement, including but not limited to
(i) the occurrence of any event which could disqualify the Sub-Adviser from
serving as an investment adviser pursuant to Section 9 of the 1940 Act; (ii) any
material change in the Sub-Adviser's business activities; (iii) any event that
would constitute a change in control

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of the Sub-Adviser; (iv) any change in the portfolio manager or portfolio
management team of a Master Portfolio; (v) the existence of any pending or
threatened audit, investigation, examination, complaint or other inquiry (other
than routine audits or regulatory examinations or inspections) relating to any
Master Portfolio; and (vi) any material violation of the Sub-Adviser's code of
ethics.

19. RELEASE. The names "Nations Master Investment Trust" and "Trustees
of Nations Master Investment Trust" refer respectively to the Trust created by
the Declaration of Trust and the Trustees as Trustees but not individually or
personally. All parties hereto acknowledge and agree that any and all
liabilities of the Trust arising, directly or indirectly, under this Agreement
will be satisfied solely out of the assets of the Trust and that no Trustee,
officer or shareholder shall be personally liable for any such liabilities. All
persons dealing with any Master Portfolio of the Trust must look solely to the
property belonging to such Master Portfolio for the enforcement of any claims
against the Trust.

20. MISCELLANEOUS. This Agreement contains the entire understanding of
the parties hereto. Each provision of this Agreement is intended to be
severable. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.

21. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, Delaware law and the federal securities laws, including the
1940 Act and the Advisers Act.

22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.

23. USE OF THE NAME "NATIONS FUNDS". The Sub-Adviser agrees that it
will not use the name "Nations Funds", any derivative thereof, or the name of
the Adviser, the Trust or any Master Portfolio except in accordance with such
policies and procedures as may be mutually agreed to in writing.

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

NATIONS MASTER INVESTMENT TRUST
on behalf of the Master Portfolios

By: /s/ James E. Banks, Jr.
---------------------------------
James E. Banks, Jr.
Assistant Secretary

BANC OF AMERICA ADVISORS, INC.

By: /s/ Robert H. Gordon
---------------------------------
Robert H. Gordon
President

MACKAY SHIELDS, LLC

By:/s/ Robert A. Nisi
---------------------------------
Robert A. Nisi
General Counsel

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<PAGE>

SCHEDULE I

The Adviser shall pay the Sub-Adviser, as full compensation for
services provided and expenses assumed hereunder, a sub-advisory fee for each
Master Portfolio, computed daily and payable monthly at the annual rates listed
below as a percentage of the average daily net assets of the Master Portfolio:

<TABLE>
<CAPTION>
RATE OF
MASTER PORTFOLIO COMPENSATION EFFECTIVE DATE
<S> <C> <C>
Nations High Yield Bond Master Portfolio 0.40% of average daily net 2/14/00
assets up to and including
$100 million; 0.375% of
average daily net assets in
excess of $100 million and
up to and including $200
million; and 0.35% of
average daily net assets in
excess of $200 million
</TABLE>

Approved: December 9, 1999

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