<PAGE> 1
NATIONS GOVERNMENT INCOME
TERM TRUST 2003, INC.
SEMI
ANNUAL
REPORT
For the Period Ended December 31, 1995
NATIONS
GOVERNMENT
INCOME TERM
TRUST 2003
<PAGE> 2
<TABLE>
<S> <C>
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NOT MAY LOSE VALUE
FDIC-
INSURED NO BANK GUARANTEE
</TABLE>
- --------------------------------------------------------------------------------
SHARES OF THE COMPANY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN THE COMPANY INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK OR ITS AFFILIATES PROVIDE INVESTMENT ADVISORY AND OTHER
SERVICES TO THE COMPANY, FOR WHICH THEY ARE COMPENSATED.
<PAGE> 3
NATIONS GOVERNMENT INCOME TERM TRUST 2003, INC.
DEAR SHAREHOLDER:
We welcome this opportunity to provide you with the semiannual report for
Nations Government Income Term Trust 2003, Inc. (the "Company") for the six
month period ended December 31, 1995, and to share our outlook for the near
term.
INVESTMENT OBJECTIVE
The Company is a closed-end investment company and its shares are traded on
the New York Stock Exchange under the symbol "NGI". The Company's investment
objectives are to seek to provide a high level of current income and to return
$10 per share (the initial public offering price per share) on or about
September 30, 2003.
PORTFOLIO PERFORMANCE
For the six month period ended December 31, 1995, the Company distributed
$0.3084 per share to its shareholders.
As of December 31, 1995, a monthly dividend in the amount of $0.0514 per
share was paid. This dividend rate equates to an annualized yield of 6.17% based
upon the initial offering price of $10.00 per share and 7.83% based upon the
closing market price of $7 7/8 per share on December 31, 1995.
MARKET ENVIRONMENT
The past year, 1995, provided welcome relief to the fixed income markets
after the trying events of 1994. During the year bond yields as measured by the
10-year Treasury declined over 2% from 7.83% to 5.62%. This favorable market
environment was supported by continuing moderate inflation and a period of
overall moderate economic growth. The prospects for a long-term plan to lower
federal budget deficits was also a key contributor to the drop in rates in the
latter part of the year. In this favorable environment the net asset value of
the Company appreciated 18.31%.
MARKET OUTLOOK
While the pronounced volatility of the bond markets over the last two years
may continue, we enter 1996 with some optimism. We believe that there are
reasonable prospects for interest rates, particularly short-term rates, to
decline further. Economic growth continues at a moderate rate. Inflation remains
subdued and despite a relatively low level of unemployment, wage rates have not
accelerated to a level that would fuel inflation.
CONTRIBUTION IN CONNECTION WITH CLASS ACTION SETTLEMENT
As was announced in early December, the Company expects to receive a
contribution of $14 million, less attorneys' fees, from NationsBank Corporation
in connection with the settlement of certain class action lawsuits brought by
investors against NationsSecurities and several other NationsBank Corporation
affiliates. The Company was not named as a defendant in any of the lawsuits. The
entire settlement, including this contribution, is subject to court approval,
which is expected to take several more months. Assuming the contribution is
received, it will be invested in U.S. Treasury instruments, which will be added
to the existing assets of the Company, thereby increasing the net asset value of
the Company's shares. All persons who are shareholders of the Company when the
contribution is received, including those who purchased their shares in the
secondary market, will benefit from this increase, without the need for any
action on their part.
1
<PAGE> 4
CONCLUSION
The Company continues to pursue its dual objectives of seeking to provide
high current income and returning $10 per share to investors upon termination of
the Company despite the potential continuing volatility of the markets.
Sincerely,
/s/ Mark H. Williamson
Mark H. Williamson
President
December 31, 1995
2
<PAGE> 5
Nations Government Income Term Trust 2003, Inc.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- 85.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 44.3%
Multiclass:
$ 4,380,578 Series 1489 VB, CMO, Inverse Floater, 9.214% 10/15/07**.......... $ 4,039,550
4,500,000 Series 1544 SA, CMO, TAC, Inverse Floater, 9.242% 07/15/08**..... 4,182,435
2,274,764 Series 1550 SD, CMO, TAC, Inverse Floater, 9.628% 07/15/08**..... 1,918,718
6,205,511 Series 1693 SC, CMO, TAC, Inverse Floater, 10.050% 03/15/09**.... 4,729,965
3,589,000 Series 1437 W, CMO, PAC, Inverse Floater, 11.739% 11/15/19**..... 3,277,008
13,050,000 Series 1399 G, CMO, PAC, 7.000% 12/15/19......................... 13,559,603
20,000,000 Series 1435 G, CMO, PAC, 7.000% 12/15/21......................... 20,450,800
13,546,000 Series 1517 H, CMO, PAC, 7.000% 03/15/22......................... 13,824,235
1,590,830 Series 1644 NB, PAC, Inverse Floater, 14.069% 12/15/23**......... 1,389,288
-----------
67,371,602
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 24.2%
REMIC:
10,000,000 Certificate 92-193 SD, 7.000% 11/25/07........................... 10,334,700
4,613,181 Certificate 93-214 SP, CMO, PAC, Inverse Floater,
9.037% 12/25/08**............................................. 4,168,747
2,140,618 Certificate 93-231 SA, CMO, Inverse Floater, 8.265% 12/25/08**... 1,924,694
5,081,723 Certificate 91-162 SA, PAC, Inverse Floater, 9.764% 04/25/20**... 5,143,110
2,305,434 Certificate 93-165 SO, TAC, Inverse Floater, 9.731% 11/25/20**... 2,080,815
4,020 Certificate 92-16 SQ, Inverse Floater, IOette, 19.400%
03/25/22**.................................................... 763,757
6,957,498 Certificate 93-247 SK, CMO, TAC, Inverse Floater, 9.527%
02/25/23**.................................................... 7,107,989
3,736,517 Certificate 93-179 SG, TAC, Inverse Floater, 9.463% 10/25/23**... 3,373,440
2,174,605 Certificate 93-202 VB, PAC, Inverse Floater, 12.535%
11/25/23**.................................................... 1,820,449
-----------
36,717,701
-----------
OTHER -- 16.7%
7,000,000 General Electric Capital Mortgage Services Inc., CMO, TAC,
Series 1994-13, Class A-8, 6.500% 04/25/24....................... 6,810,370
Residential Funding Mortgage, CMO:
5,276,000 Series 1993-S48, PAC, Class A-7, 6.500% 12/25/08................. 5,268,930
6,622,424 Series 1993-S48, TAC, Class A-8, 6.500% 12/25/08................. 6,623,749
7,000,000 Series 1993-S45, TAC, Class A-14, 6.500% 12/25/23................ 6,643,630
-----------
25,346,679
-----------
TOTAL MORTGAGE-BACKED SECURITIES (Cost $127,779,758)............... 129,435,982
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 6
Nations Government Income Term Trust 2003, Inc.
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SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 11.5%
$ 6,250,000 Clark County, Nevada, School District, Series B, 4.800%
06/01/03***...................................................... $ 4,404,812
5,850,000 Houston, Texas, Independent School District, 4.800% 08/15/03***.... 4,082,540
2,870,000 Illinois Educational Facilities, Authority Revenue, 4.900%
07/01/03***...................................................... 2,014,022
3,755,000 Maricopa County, Arizona, School District, 4.856% 07/01/03***...... 2,654,447
6,430,000 Tulsa, Oklahoma, Industrial Authority Hospital Revenue,
4.800% 12/01/03***............................................... 4,398,827
-----------
TOTAL MUNICIPAL BONDS (Cost $17,521,912)........................... 17,554,648
-----------
U.S. TREASURY OBLIGATIONS -- 2.6%
U.S. TREASURY BILL -- 0.2%
250,000 4.980% 06/27/96+................................................. 243,706
-----------
U.S. TREASURY BOND -- 2.4%
2,700,000 10.375% 11/15/12................................................. 3,731,913
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $4,020,617).................. 3,975,619
-----------
TOTAL INVESTMENTS (Cost $149,322,287*)................................. 99.3% 150,966,249
OTHER ASSETS AND LIABILITIES (NET)..................................... 0.7 995,843
----- ------------
NET ASSETS............................................................. 100.0% $151,962,092
----- ------------
</TABLE>
- ---------------
* Aggregate cost for Federal tax purposes.
** Current coupon rate at December 31, 1995.
*** Zero Coupon Security. The rate shown is the effective yield at date of
purchase.
+ The rate shown is the effective yield at date of purchase.
<TABLE>
<S> <C>
ABBREVIATIONS:
CMO Collateralized Mortgage Obligation
PAC Planned Amortization Class
REMIC Real Estate Mortgage Investment Conduit
TAC Targeted Amortization Class
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
Nations Government Income Term Trust 2003, Inc.
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STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $149,322,287) (Note 1)
See accompanying schedule.................................. $150,966,249
Cash......................................................... 285,823
Interest receivable.......................................... 595,922
Receivable from investment adviser........................... 185,446
Prepaid expenses............................................. 21,181
Unamortized organization costs (Note 5)...................... 5,355
-----------
Total Assets............................................ 152,059,976
LIABILITIES:
Transfer agent fees payable (Note 2)......................... $35,708
Accrued legal and audit fees payable......................... 34,998
Accrued shareholder report expense........................... 10,028
Custodian fees payable (Note 2).............................. 6,215
Administration fee payable (Note 2).......................... 4,167
Accrued Directors' fees and expenses (Note 2)................ 3,067
Accrued expenses and other payables.......................... 3,701
-------
Total Liabilities....................................... 97,884
-----------
NET ASSETS........................................................ $151,962,092
------------
NET ASSETS consist of: (Note 7)
Undistributed net investment income.......................... $ 1,779,106
Accumulated net realized loss on investments sold............ (16,698,797)
Net unrealized appreciation of investments................... 1,643,962
Common Stock at par value (Note 4)........................... 17,541
Paid-in capital in excess of par value....................... 165,220,280
-----------
Total Net Assets........................................ $151,962,092
------------
NET ASSET VALUE PER SHARE:
($151,962,092 / 17,541,130 shares of common stock
outstanding).................................................... $8.66
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
Nations Government Income Term Trust 2003, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................... $ 5,846,878
-----------
EXPENSES:
Investment advisory fee (Note 2)............................... $ 369,077
Administration fee (Note 2).................................... 184,538
Legal and audit fees........................................... 171,524
Transfer agent fees (Note 2)................................... 85,534
Custodian fees (Note 2)........................................ 29,757
Directors' fees and expenses (Note 2).......................... 9,097
Amortization of organization costs (Note 5).................... 765
Other.......................................................... 46,094
---------
896,386
Fees waived and expenses reimbursed by investment adviser and
administrator (Note 2)........................................ (714,062)
Fees reduced by credits allowed by the custodian (Note 2)...... (23,502)
---------
Total Expenses............................................ 158,822
-----------
NET INVESTMENT INCOME............................................... 5,688,056
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTES 1 AND 3):
Net realized gain on investments sold during the period........ 2,249,399
Net change in unrealized appreciation/depreciation of
investments during the period................................. 3,577,357
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS..................... 5,826,756
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................................ $11,514,812
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 9
Nations Government Income Term Trust 2003, Inc.
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STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
12/31/95 ENDED
(UNAUDITED) 06/30/95
----------------------------
<S> <C> <C>
Net investment income............................................ $ 5,688,056 $ 12,082,091
Net realized gain/(loss) on investments sold during the period... 2,249,399 (3,684,878)
Net unrealized appreciation/depreciation on investments during
the period..................................................... 3,577,357 12,434,573
------------ ------------
Net increase in net assets resulting from operations............. 11,514,812 20,831,786
Distributions to shareholders from net investment income......... (5,409,390) (11,385,042)
Net increase in net assets from Company share transactions (Note
4)............................................................. 47,020 1,774,149
------------ ------------
Net increase in net assets....................................... 6,152,442 11,220,893
NET ASSETS:
Beginning of period.............................................. 145,809,650 134,588,757
------------ ------------
End of period (including undistributed net investment income of
$1,779,106 and $1,500,440, respectively)....................... $151,962,092 $145,809,650
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 10
Nations Government Income Term Trust 2003, Inc.
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FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
12/31/95 ENDED ENDED
(UNAUDITED) 06/30/95 06/30/94*
-----------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period.................... $ 8.32 $ 7.77 $ 9.45#
-------- -------- --------
Net investment income................................... 0.32 0.69 0.55
Net realized and unrealized gain/(loss) on investment... 0.33 0.51 (1.72)
-------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations................................. 0.65 1.20 (1.17)
Dividends from net investment income.................... (0.31) (0.65) (0.51)
-------- -------- --------
Net asset value, end of period.......................... $ 8.66 $ 8.32 $ 7.77
------------ -------- ---------
Market value, end of period............................. $ 7.875 $ 7.500 $ 8.750
------------ -------- ---------
Total return++.......................................... 9.21% (6.50)% (7.52)%
------------ -------- ---------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's).................... $151,962 $145,810 $ 134,589
Ratio of operating expenses to average net assets....... 0.21%+ 0.90% 0.91%+
Ratio of net investment income to average net assets.... 7.69%+ 9.00% 8.43%+
Portfolio turnover rate................................. 44% 38% 212%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian............................................. 0.25%+(a) -- --
Ratio of operating expenses to average net assets
without waivers, reimbursements and/or fees reduced by
credits allowed by the custodian...................... 1.21%+ 0.96% 0.93%+
Net investment income per share without waivers,
reimbursements and/or fees reduced by credits allowed
by the custodian...................................... $ 0.28 $ 0.69 $ 0.55
</TABLE>
- ---------------
* The Nations Government Income Term Trust 2003, Inc. commenced operations on
September 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period based on
market value at period end.
# Initial offering price net of sales commissions of $0.55 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by the
custodian as required by amended disclosure requirements effective September
1, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 11
Nations Government Income Term Trust 2003, Inc.
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NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES.
Nations Government Income Term Trust 2003, Inc. (the "Company") was
incorporated under the laws of the State of Maryland on July 26, 1993 and is
registered with the Securities and Exchange Commission as a diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Company commenced operations on September 30, 1993. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. The
policies described below are followed by the Company in the preparation of its
financial statements and are in accordance with generally accepted accounting
principles.
Portfolio Valuation: The Company's securities are valued using broker
quotations or on the basis of prices provided by a pricing service. Certain
securities are valued using broker quotations which are based on a matrix system
which considers such factors as security prices, yields and maturities. The
value of mortgage-backed securities can be significantly effected by changes in
interest rates. Restricted securities, securities for which market quotations
are not readily available and other assets are valued at fair value by the
investment adviser under the supervision of the Board of Directors. Certain
securities may be valued by one or more principal market makers. Short-term
investments that mature in 60 days or less are valued at amortized cost.
Interest Rate Caps: The Company may enter into interest rate cap
transactions. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap. The Company expects not to enter into any
interest rate cap unless the unsecured senior debt or the claims-paying ability
of the other party thereto is rated in the highest rating category of at least
one nationally recognized statistical rating organization at the time of
entering into such transactions. If there is a default by the other party to
such a transaction, the Company will have contractual remedies pursuant to the
agreements related to the transaction.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Securities purchased or sold on a
when-issued or delayed-delivery basis may be settled a month or more after trade
date. The Company establishes a segregated account with its custodian bank in
which it will maintain cash or U.S. government securities or other high grade
debt securities equal in value to its commitments for such securities. Realized
gains or losses are computed on the specific identification of the securities
sold. Interest income, adjusted for amortization of discounts and premiums on
investments under the yield to maturity method, is earned from settlement date
and is recorded on the accrual basis. Discount on zero coupon securities is
accreted under the effective yield method.
Stripped Mortgage-Backed Securities: Stripped mortgage-backed securities
are derivative multi-class mortgage securities structured so that one class
receives most, if not all, of the principal from the mortgage assets, while the
other classes receive most, if not all, of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater than anticipated
repayments of principal, a fund may fail to fully recoup its initial investment
in interest only securities ("IOs"). The market value of these securities is
unusually volatile in response to changes in interest rates. An IOette is a type
of CMO tranche with an extremely small principal amount and extremely high
coupon rate of interest, the characteristics of which are expected to resemble
an IO.
Inverse Floating Rate Obligations: Inverse floating rate obligations
("inverse floaters") are tranches of a REMIC or CMO with an interest rate that
moves inversely to a specified index. The interest rate, which is adjusted
periodically, is based on a formula incorporating a specific index times a
multiplier, plus or minus a
9
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Nations Government Income Term Trust 2003, Inc.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (UNAUDITED)
spread over the index. The value and related unrealized and realized gain or
loss (due to changes in interest rates) on an inverse floater can be much
greater than other debt securities because of the inverse floater's multiple to
the index.
Dividend and Distributions to Shareholders: It is the policy of the
Company to pay monthly distributions from net investment income to shareholders.
The Company expects to elect to retain net long-term gains (and pay corporate
income tax thereon) and to retain, until the final liquidating distribution,
income in an amount approximately equal to the tax-exempt income accrued on the
zero coupon securities of municipal issuers or other municipal securities in
which it invests. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatment of income and gains on various investment securities held by the
Company, timing differences and differing characterization of distributions made
by the Company.
Federal Income Taxes: It is the policy of the Company to qualify as a
regulated investment company, if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders. To the
extent that the Company does not distribute substantially all of its taxable
earnings, it will be subject to a 4% non-deductible excise tax.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS.
The Company has entered into an investment advisory agreement (the
"Advisory Agreement") with NationsBank, N.A. ("NationsBank"), as successor to
NationsBank of North Carolina, N.A., a wholly owned subsidiary of NationsBank
Corporation. Under the terms of the Advisory Agreement, the Company pays
NationsBank a monthly fee equal to an annual rate of 0.50% of the Company's
average weekly net assets. For the six months ended December 31, 1995,
NationsBank voluntarily waived fees of $369,077 and reimbursed expenses of
$185,446.
Pursuant to an administration agreement (the "Administration Agreement")
with NationsBank, the Company has retained NationsBank, subject to review by the
Company's Board of Directors, to supervise the overall day-to-day operations of
the Company (in addition to rendering investment advice) and provide various
types of administrative services to the Company. Under the terms of the
Administration Agreement, NationsBank also maintains certain of the Company's
books and records and furnishes, at its own expense, such clerical assistance,
bookkeeping and other administrative services as the Company may reasonably
require in the conduct of its business. In addition, NationsBank pays the
salaries of all personnel, including officers of the Company, who are employees
of NationsBank.
As full compensation for the administrative services furnished to the
Company and expenses of the Company assumed by NationsBank, the Company pays
NationsBank a monthly fee equal to an annual rate of 0.25% of the Company's
average weekly net assets. For the six months ended December 31, 1995,
NationsBank voluntarily waived administration fees of $159,539.
NationsBank has entered into a Sub-Administration Agreement with First Data
Investor Services Group, Inc., formerly known as The Shareholder Services Group,
Inc., a wholly-owned subsidiary of First Data Corporation, Inc., (the
"Sub-Administrator"), pursuant to which the Sub-Administrator provides certain
administrative services in support of the operations of the Company. The fees of
the Sub-Administrator are paid by NationsBank out of the fees paid to
NationsBank by the Company pursuant to the Administration Agreement.
10
<PAGE> 13
Nations Government Income Term Trust 2003, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (UNAUDITED)
No officer, director or employee of NationsBank or any affiliate thereof,
receives any compensation from the Company for serving as a Director or officer
of the Company. The Company pays each Director an annual fee of $1,000, plus an
additional $500 for each board meeting attended, plus reimbursement of expenses
incurred in attending such meetings.
Boston Safe Deposit and Trust Company ("Boston Safe") serves as the
custodian of the Company's assets. The Company accrues a credit on daily cash
balances held at Boston Safe. The earnings credit is applied to the monthly
custody fee. For the six months ended December 31, 1995, the earnings credit was
$23,502.
First Data Investor Services Group, Inc. serves as the transfer agent and
dividend disbursing agent for the Company.
3. SECURITIES TRANSACTIONS.
For the six months ended December 31, 1995, the cost of purchases and
proceeds from sales of long-term U.S. government securities aggregated
$63,946,006 and $64,151,955, respectively.
At December 31, 1995, gross unrealized appreciation and depreciation for
tax purposes was $2,881,011 and $1,237,049, respectively.
4. COMMON STOCK.
At June 30, 1995, 1,000,000,000 shares of common stock, $.001 par value,
were authorized.
The Board of Directors of the Company has approved a plan that gives the
Company the flexibility to engage in occasional repurchases of its outstanding
common stock. Accordingly, shareholders are notified that from time to time, the
Company may purchase shares of its common stock in the open market when
management of the Company believes that such purchases are appropriate in light
of market conditions, including the presence of a market discount. For the six
months ended December 31, 1995, the Company did not repurchase shares of its
common stock in the open market.
Common stock transactions were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
12/31/95 6/30/95
---------------- --------------------
SHARES AMOUNT SHARES AMOUNT
---------------- --------------------
<S> <C> <C> <C> <C>
Issued as reinvestment of dividends..................... 5,773 $47,020 224,802 $1,774,149
------ ------- ------- ----------
Total increase.......................................... 5,773 $47,020 224,802 $1,774,149
------ ------- ------- ----------
</TABLE>
5. ORGANIZATION COSTS.
The Company bears all costs in connection with its organization. All such
costs are being amortized on the straight-line method over a period of five
years from the commencement of operations for the Company.
6. CAPITAL LOSS CARRYFORWARD.
As of June 30, 1995, the Company had available for Federal income tax
purposes a capital loss carryforward of $507,818 and $18,418,085 expiring in the
year 2002 and 2003, respectively.
11
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Nations Government Income Term Trust 2003, Inc.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (UNAUDITED)
7. CONTINGENCY.
The Company expects to receive approximately $14 million, less attorneys'
fees, from NationsBank Corporation in connection with the proposed settlement of
certain class action lawsuits brought by investors against NationsSecurities and
several other affiliates of NationsBank Corporation. The Company was not named
as a defendant in any of the lawsuits. The entire settlement is subject to court
approval.
8. QUARTERLY RESULTS OF OPERATIONS.
The following is a summary of quarterly results of operations:
<TABLE>
<CAPTION>
NET INCREASE/
(DECREASE) IN
NET REALIZED AND NET ASSETS
INVESTMENT NET INVESTMENT UNREALIZED GAIN/(LOSS) RESULTING FROM
INCOME INCOME ON INVESTMENTS OPERATIONS
---------------------- ---------------------- ----------------------- -----------------------
QUARTER ENDED TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993....... $ 3,642,681 $0.22 $ 3,267,203 $0.19 $ 8,013,030) $ (0.46) $ (4,745,827) $ (0.27)
March 31, 1994.......... 3,328,234 0.19 3,003,908 0.18 (13,069,741) (0.77) (10,065,834) (0.59)
June 30, 1994........... 3,436,453 0.20 3,122,893 0.18 (8,548,515) (0.49) (5,425,622) (0.31)
----------- --------- ----------- --------- ------------ --------- ------------ ---------
Total................... $10,407,368 $0.61 $ 9,394,004 $0.55 $(29,631,286) $ (1.72) $(20,237,282) $ (1.17)
========== ========= ========== ========= =========== ========= =========== =========
September 30, 1994...... $ 3,442,172 $0.20 $ 3,134,373 $0.18 $ (3,751,528) $ (0.21) $ (617,155) $ (0.03)
December 31, 1994....... 3,560,065 0.20 3,242,046 0.18 (4,635,405) (0.26) (1,393,359) (0.08)
March 31, 1995.......... 3,199,056 0.18 2,932,975 0.17 6,364,159 0.36 9,297,134 0.53
June 30, 1995........... 3,091,802 0.18 2,772,697 0.16 10,772,469 0.62 13,545,166 0.78
----------- --------- ----------- --------- ------------ --------- ------------ ---------
Total................... $13,293,095 $0.76 $12,082,091 $0.69 $ 8,749,695 $ 0.51 $ 20,831,786 $ 1.20
========== ========= ========== ========= =========== ========= =========== =========
September 30, 1995...... $ 2,946,974 $0.17 $ 2,844,408 $0.16 $ (614,988) $ (0.04) $ 2,229,420 $ 0.12
December 31, 1995....... 2,899,904 0.17 2,843,648 0.16 6,441,744 0.37 9,285,392 0.53
----------- --------- ----------- --------- ------------ --------- ------------ ---------
Total................... $ 5,846,878 $0.34 $ 5,688,056 $0.32 $ 5,826,756 $ 0.33 $ 11,514,812 $ 0.65
========== ========= ========== ========= =========== ========= =========== =========
</TABLE>
9. SUBSEQUENT EVENT.
Effective January 1, 1996, NationsBanc Advisors, Inc. ("NBAI")will become
the investment adviser to the Company. Also effective January 1, 1996,
TradeStreet Investment Associates, Inc. ("TradeStreet") will become the
sub-adviser to the Company. Both NBAI and TradeStreet are indirect wholly owned
subsidiaries of NationsBank. There will be no change in advisory fees paid by
the Company.
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Nations Government Income Term Trust 2003, Inc.
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DIVIDEND REINVESTMENT PLAN
THE PLAN
The Company's Dividend Reinvestment Plan (the "Plan") offers you an
automatic way to reinvest your dividends and capital gains distributions in
shares of the Company.
PARTICIPATION
Shareholders of record will receive their dividends in cash unless they
have instructed First Data Investor Services Group, Inc. (the "Plan Agent"),
acting as agent for each participant in the Plan, in writing otherwise. Such a
notice must be received by the Plan Agent not less than 5 business days prior to
the record date for a dividend or distribution in order to be effective with
respect to that dividend or distribution. A notice which is not received by that
time will be effective only with respect to subsequent dividends and
distributions.
Shareholders who do not participate in the Plan will receive all
distributions by check mailed directly to the shareholder by First Data Investor
Services Group, Inc., as dividend paying agent. For Federal income tax purposes,
dividends are treated as income or capital gains, regardless of whether they are
received in cash or reinvested in additional shares.
Participants may terminate their participation in the Plan by written
notice to the Plan Agent. If the written notice is received at least 5 business
days before the record day of any distribution, it will be effective
immediately. If received after that date, it will be effective as soon as
possible after the reinvestment of the dividend or distribution.
PRICING OF DIVIDENDS AND DISTRIBUTIONS
Whenever the Company's Board of Directors declares a dividend or other
distribution payable in cash or at the option of the Plan Agent, as agent for
all participants, in shares of capital stock issued by the Company, the Plan
Agent will elect on behalf of the participants to receive the dividend in
authorized but unissued shares of capital stock if the net asset value per share
(as determined by the investment adviser of the Company as of the close of
business on the record date for the dividend or distribution) is equal to or
less than 95% of the closing market price per share of the capital stock of the
Company on the New York Stock Exchange (the "Exchange") on such record date plus
estimated brokerage commissions. The number of such authorized but unissued
shares to be credited to a participant's account will be determined as of the
close of business on the record date for the dividend, by valuing such shares at
the greater of the net asset value per share or 95% of the market price per
share. The Plan Agent will credit each participant's account with the number of
shares corresponding in value, as determined under the foregoing formula, to the
amount such participant would have received in cash had such participant not
elected to participate in this Plan.
If the net asset value per share is equal to or less than the closing
market price per share of the capital stock of the Company on the Exchange on
such record date plus estimated brokerage commissions but exceeds 95% of such
closing market price plus estimated brokerage commissions, the Plan Agent may
elect on behalf of all participants (i) to take the dividend in cash and as soon
as practicable thereafter, consistent with obtaining the best price and
execution, proceed to purchase in one or more transactions the shares of capital
stock in the open market, at the then current price as hereinafter provided, and
will credit each participant's account with the number of shares corresponding
in value, as determined by the price actually paid on the open market for such
shares including brokerage expenses, to the amount such participant would have
received in cash had such participant not elected to participate in this Plan or
(ii) to receive the dividend in authorized but unissued shares of capital stock,
in which case the Plan Agent will credit each participant's account with the
number of shares corresponding in value (determined by valuing such shares at
the greater of the net asset value per share or 95% of the market price per
share, in each case as of the close of business on
13
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Nations Government Income Term Trust 2003, Inc.
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DIVIDEND REINVESTMENT PLAN (CONTINUED)
the record date for the dividend or distribution) to the amount such participant
would have received in cash had such participant not elected to participate in
this Plan.
If the net asset value per share is higher than the closing market price
per share of the capital stock on the Exchange plus estimated brokerage
commissions on such record date, the Plan Agent will elect to take the dividend
in cash and as soon as practicable thereafter, consistent with obtaining the
best price and execution, proceed to purchase in one or more transactions the
shares of capital stock in the open market, at the then current price as
hereinafter provided, and will credit each participant's account with the number
of shares corresponding in value, as determined by the price actually paid on
the open market for such shares including brokerage expenses, to the amount such
participant would have received in cash had such participant not elected to
participate in this Plan.
If the Plan Agent elects to purchase shares in the open market, and if
before the Plan Agent has completed its purchases the market price exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Company's shares, resulting in the
acquisition of fewer shares than if the dividend or distribution had been paid
in shares issued by the Company. During certain market conditions, it may be
impracticable or impossible to complete a market purchase program at prices that
are below or not substantially in excess of net asset value, and, in such event,
the Company may in its discretion issue the required shares.
NO SERVICE FEE TO REINVEST
There is no service fee charged to participants for reinvesting dividends
or distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gains distributions will
be paid by the Company. There will be no brokerage commissions with respect to
shares issued directly by the Company as a result of dividends or capital gains
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gains distributions payable only in cash.
PLAN AGENT ADDRESS AND TELEPHONE NUMBER
You may obtain more detailed information by requesting a copy of the Plan
from the Plan Agent. All correspondence (including notifications) should be
directed to: Nations Government Income Term Trust 2003, Inc., Dividend
Reinvestment Plan, c/o First Data Investors Services Group, Inc., P.O. Box
34602, Charlotte, NC 28234, (800) 982-2271.
14
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Nations Government Income Term Trust 2003, Inc.
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STOCK REPURCHASE PROGRAM
The Board of Directors of the Company has approved a plan that gives the
Company the flexibility to engage in occasional repurchases of its outstanding
common stock. Accordingly, shareholders are notified that from time to time, the
Company may purchase shares of its common stock in the open market when
management of the Company believes that such purchases are appropriate in light
of market conditions, including the presence of a market discount.
15
<PAGE> 18
Nations Government Income Term Trust 2003, Inc.
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ANNUAL MEETING OF STOCKHOLDERS
On September 29, 1995, the Company held its Annual Meeting of Stockholders
in Charlotte, North Carolina. William H. Grigg was elected as a director of the
Company, with a term to expire in 1998, by the following votes: 11,084,465.271
For, and 197,454.563 Withheld. In the only other matter voted upon at the Annual
Meeting, the selection of Price Waterhouse LLP as the Company's independent
public accountant for the fiscal year ending June 30, 1996, was ratified by the
following votes: 11,012,722.148 For, 88,152.184 Against, and 181,045.522
Abstaining.
16
<PAGE> 19
PO Box 34602
Charlotte, NC 28234-4602
Toll Free 1-800-982-2271
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BULK RATE
U.S. POSTAGE
PAID
BOSTON, MA
PERMIT NO.
54201
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