Government & Corporate Bond Funds

Nations Funds
Notes to financial statements (continued) (unaudited)
potential gain that might result should the value of the current value at least equal to the amount of its whencurrency
increase instead of decrease. These contracts issued or delayed-delivery purchase commitments.
may involve market risk in excess of the unrealized gain
or loss reflected in the Statements of net assets. In
addition, the Master Portfolios could be exposed to risks
if counterparties to the contracts are unable to meet the
terms of their contracts. The counterparty risk exposure
is, therefore, closely monitored and contracts are only
Loan Participations: The High Yield Master Portfolio
may invest in Loan Participations. When the Master
Portfolio purchases a Loan Participation, the Master
Portfolio typically enters into a contractual relationship
with the lender or third party selling such Participations
executed with high credit quality financial institutions.
(‘‘Selling Participant’’), but not the Borrower. As a
Swaps: The Portfolios may engage in swap transactions
result, the Master Portfolio assumes the credit risk of the
Borrower, the Selling Participant and any other persons
such as interest rate, total return, index or currency interpositioned between the Master Portfolio and the
swaps, consistent with its investment objective and Borrower (‘‘Intermediate Participants’’). The Master
policies. Swaps involve the exchange by the Portfolio Portfolio may not directly benefit from the collateral
with another party of their respective commitments to pay supporting the Senior Loan in which it has purchased the
or receive interest, effective return, or total return Loan Participation.
throughout the lives of the agreements. The interest to be
paid or received on swaps is included in interest income
or interest expense. Unrealized gains are reported as an
asset and unrealized losses are reported as a liability on
the Statement of net assets. A realized gain or loss is
recorded upon termination of swap agreements and is
equal to the difference between the Master Portfolio’s
basis in the swap and the proceeds from (or cost of) the
closing transaction. Swap agreements are stated at fair
Securities transactions and investment income:
Securities transactions are recorded on trade date.
Realized gains and losses are computed based on the
specific identification of securities sold. Interest income,
adjusted for accretion of discounts and amortization of
premiums, is earned from settlement date and recorded
on an accrual basis. Dividend income is recorded on ex-
dividend date.
value. Notional principal amounts are used to express the
extent of involvement in these transactions, but the
amounts potentially subject to credit risk are much
smaller.
Federal income taxes: The Master Portfolios are treated
as partnerships for federal income tax purposes and
therefore are not subject to federal income tax. Each
investor in the Master Portfolios will be subject to
If there is a default by the counterparty to a swap
taxation on its allocated share of the Master Portfolio’s
contract, a Portfolio will be limited to contractual
ordinary income and capital gains.
remedies pursuant to the agreements related to the
transaction. There is no assurance that the swap contract
counterparties will be able to meet their obligations
pursuant to the swap contracts or that, in the event of
default, a Portfolio will succeed in pursuing contractual
remedies. A Portfolio thus assumes the risk that it may
be delayed in or prevented from obtaining payments owed
Expenses: General expenses of the Master Trust are
allocated to the Master Portfolios based upon their
relative net assets or other expense allocation
methodologies determined by the nature of the expense.
Expenses directly attributable to a Master Portfolio are
charged to such Master Portfolio.
to it pursuant to the swap contracts. The creditworthiness
of the swap contract counterparties is closely monitored
in order to minimize this risk.
2. Investment advisory fee, sub-advisory fee,
administration fee and related party transactions
The use of derivative instruments involves, to varying
degrees, the elements of market risk in excess of the
The Master Trust has entered into an investment advisory
agreement (the ‘‘Investment Advisory Agreement’’) with
amount recognized in the Statement of net assets.
Banc of America Advisors, LLC (‘‘BA Advisors’’), a
wholly-owned subsidiary of Bank of America, N.A.
When-issued/delayed delivery securities: Securities (‘‘Bank of America’’), which in turn is a wholly-owned
purchased or sold on a when-issued or delayed-delivery banking subsidiary of Bank of America Corporation, a
basis may be settled a month or more after trade date; bank holding company organized as a Delaware
interest income is not accrued until settlement date. At corporation, pursuant to which BA Advisors provides
the time a Master Portfolio enters into such transactions, investment advisory services to the Master Portfolios.
it instructs the custodian to segregate assets with a Under the terms of the Investment Advisory Agreement,
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