Government & Corporate Bond Funds

Nations Funds
Notes to financial statements (continued) (unaudited)
price; put options give the holder the right to sell the Foreign currencies, investments and other assets and
underlying security to the Master Portfolio at a stated liabilities are translated into U.S. dollars at the current
price. In the case of put options, a Master Portfolio is exchange rates. Purchases and sales of investment
required to maintain in a separate account liquid assets securities and income and expenses are translated on the
with a value equal to or greater than the exercise price of respective dates of such transactions. Net realized foreign
the underlying securities. The Master Portfolio may also currency gains and losses resulting from changes in
write combinations of covered puts and calls on the same exchange rates include foreign currency gains and losses
underlying security. When the Portfolio purchases an between trade date and settlement date of securities
option, it pays a premium and an amount equal to that transactions, foreign currency transactions and the
premium is recorded as an asset. When the Portfolio difference between the amounts of interest and dividends
writes an option, it receives a premium and an amount recorded on the books of a Master Portfolio and the
equal to that premium is recorded as a liability. The asset amounts actually received. The effects of changes in
or liability is adjusted daily to reflect the current market foreign currency exchange rates on securities are not
value of the option. separately identified in the Statements of operations from
the effects of changes in market prices of those securities,
The Master Portfolio typically receives a premium from
writing a put or call option, which would increase the
Master Portfolio’s return in the event the option expires
but are included with the net realized and unrealized gain
or loss on securities.
unexercised or is closed out at a profit. The amount of Forward foreign currency transactions: Generally, a
the premium would reflect, among other things, the
Master Portfolio may enter into forward currency
relationship of the market price of the underlying security exchange contracts only under two circumstances:
to the exercise price of the option, the term of the option (i) when a Master Portfolio enters into a contract for the
and the volatility of the market price of the underlying purchase or sale of a security denominated in a foreign
security. By writing a call option, a Master Portfolio currency, to ‘‘lock in’’ the U.S. exchange rate of the
limits its opportunity to profit from any increase in the transaction, with such period being a short-dated contract
market value of the underlying security for an exercise covering the period between transaction date and
price higher than its then current market value, resulting settlement date; or (ii) when the investment adviser or
in potential capital loss if the purchase price exceeds the sub-adviser believes that the currency of a particular
market value plus the amount of the premium received.
foreign country may experience a substantial movement
The Master Portfolio may terminate an option that it has
against the U.S. dollar. Forward foreign currency
contracts are valued at the forward rate and are markedwritten
prior to its expiration by entering into a closing to-market daily. The change in market value is recorded
purchase transaction in which it purchases an option by a Master Portfolio as an unrealized gain or loss. When
having the same terms as the option written. The Master the contract is closed or offset with the same
Portfolio will realize a profit or loss from such counterparty, a Master Portfolio records a realized gain
transaction in which it purchases an option having the or loss equal to the difference between the value of the
same terms as the option written. The Master Portfolio contract at the time it was opened and the value at the
will realize a profit or loss from such transaction if the time it was closed or offset.
cost of such transaction is less or more than the premium
received from the writing of the option. In the case of a Forward foreign currency contracts will be used primarily
put option, any loss so incurred may be partially or
to protect the Master Portfolios from adverse currency
entirely offset by the premium received from a
movements and will generally not be entered into for
simultaneous or subsequent sale of a different put option. terms greater than one year. The use of forward foreign
Because increases in the market price of a call option currency contracts does not eliminate fluctuations in the
will generally reflect increases in the market price of the underlying prices of a Master Portfolio’s investment
underlying security, any loss resulting from the
securities; however, it does establish a rate of exchange
repurchase of a call option is likely to be offset in whole that can be achieved in the future. The use of forward
or in part by unrealized appreciation of the underlying foreign currency contracts involves the risk that
security owned by a Master Portfolio.
anticipated currency movements will not be accurately
predicted. A forward foreign currency contract would
Foreign currency transactions: The books and records limit the risk of loss due to a decline in the value of a
of the Master Portfolios are maintained in U.S. dollars. particular currency; however, it also would limit any
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