<PAGE> 1
NATIONS GOVERNMENT INCOME
TERM TRUST 2003, INC.
S E M I
A N N U A L
R E P O R T
For the Period Ended December 31, 1999
Nations
Government
Income Term
Trust 2003
<PAGE> 2
NOT MAY LOSE VALUE
FDIC
INSURED NO BANK GUARANTEE
SHARES OF THE COMPANY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY BANK OF AMERICA, N.A. ("BANK OF AMERICA") 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.
AFFILIATES OF BANK OF AMERICA 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 ending December 31, 1999, and to share our outlook for the near
term.
INVESTMENT OBJECTIVES
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 ending December 31, 1999, the Company distributed net
investment income of $0.279 per share. The current monthly dividend rate is
$0.0465 per share which equates to an annualized yield of 5.58%, based on the
initial offering price of $10.00 per share. In addition, the dividend rate of
$0.0465 per month translates into a current annualized yield of 6.24%, based
upon the closing market price of $8.9375 per share on December 31, 1999. The net
asset value of the Company's shares on December 31, 1999 was $9.48 per share.
The Company's total return for the six-month period was 1.84% based on the net
asset value at the end of the period.
MARKET ENVIRONMENT
The past six months have continued to be bearish for the bond market. A hawkish
Federal Reserve Board (the Fed), an ebullient domestic economy and signs of
stability abroad combined to push up interest rates 51 to 71 basis points across
the yield curve. Yields had troughed in late August near 6% on the long bond
before steadily rising to end the year at 6.48%. Yields on shorter maturity U.S.
Treasury securities also rose as the yield curve flattened and the market made
room for the Fed to raise interest rates. The 5-year note rose 69 basis points
to finish the year at a yield of 6.34%. The Fed took back the last of their 1998
easings in November by raising the Federal Funds rate to 5.5%, and appears to be
poised to raise interest rates again in the first quarter of 2000.
Yields on spread sectors (those sectors of the bond market such as corporate
bonds and mortgage-backed securities which have a yield advantage over similar
maturity U.S. Treasury bonds), including mortgage-backed securities and
corporate bonds, contracted versus U.S. Treasury yields for most of the period
after reaching their widest levels early on. Declining issuance, dropping
volatility and improving liquidity all supported tighter spreads as investor
cash sought out relatively attractive income levels.
MARKET OUTLOOK
The bond market could be characterized as cautious given the expectations for
further interest rate hikes from the Fed. Until the Fed signals it has completed
its actions, or until the domestic economy show signs of slowing, we think
interest rates will tend to work their way higher. The Fed intends to hold
inflation at bay, and is being assisted in this effort by
- ---------------
THE PAST PERFORMANCE INFORMATION QUOTED IS NOT AN INDICATION OF FUTURE RESULTS.
1
<PAGE> 4
the tremendous gains in productivity ongoing in the American workplace.
Meanwhile, we remain positive on spread sectors, especially mortgage-backed
securities. Here, the combination of low issuance and still generous spreads
should contribute to good relative performance ahead.
We thank you for your continued support.
Sincerely,
/s/ Robert H. Gordon
- --------------------
Robert H. Gordon
President
December 31, 1999
P.S. At the February FOMC Meeting, the Federal Reserve Board raised the Fed
Funds rate by 25 basis points.
2
<PAGE> 5
Nations Government Income Term Trust 2003, Inc.
STATEMENT OF NET ASSETS DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 45.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 24.4%
GOLD:
$ 2,807 5.500% 06/01/03....................... $ 2,693
7,332 6.000% 08/01/03....................... 7,142
737 8.000% 11/01/03....................... 748
REMIC:
13,050 Series 1399 G, CMO, PAC, 7.000%
12/15/19............................ 12,989
23 Series 1437 W, CMO, PAC, Inverse
Floater, 6.417%** 11/15/19.......... 23
360 Series 1489 VB, CMO, SUP, Inverse
Floater, 5.293%** 10/15/07.......... 335
3,180 Series 1544 SA, CMO, TAC, Inverse
Floater, 5.200%** 07/15/08.......... 3,113
1,315 Series 1550 SD, CMO, TAC, Inverse
Floater, 4.286%** 07/15/08.......... 1,187
243 Series 1644 NB, PAC, Inverse Floater,
4.100%** 12/15/23................... 208
6,206 Series 1693 SC, CMO, TAC, Inverse
Floater, 4.100%** 03/15/09.......... 5,313
--------
33,751
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 17.0%
719 7.000% 09/01/03....................... 717
REMIC:
1,107 Certificate 92-150 SU, CMO, PAC,
Inverse Floater, 5.600%**
05/25/21............................ 1,101
1 Certificate 92-16 SQ, Inverse Floater,
930.800%** 03/25/22................. 142
10,000 Certificate 93-12 ED, CMO, AD, 7.500%
02/25/06............................ 10,070
835 Certificate 93-179 SG, TAC, Inverse
Floater, 3.311%** 10/25/23.......... 793
660 Certificate 93-202 VB, PAC, Inverse
Floater, 3.714%** 11/25/23.......... 554
909 Certificate 93-214 SP, CMO, PAC,
Inverse Floater, 2.842%**
12/25/08............................ 866
1,236 Certificate 93-231 SA, CMO, SCH,
Inverse Floater, 3.000%**
12/25/08............................ 1,095
4,750 Certificate 93-247 SK, CMO, AD,
Inverse Floater, 6.825%**
02/25/23............................ 4,629
3,610 Certificate G93-32 H, CMO, AD, 6.750%
09/25/03............................ 3,591
--------
23,558
--------
WHOLE LOAN COLLATERAL -- 3.7%
5,276 Residential Funding Mortgage, CMO,
Series 1993-S48, Class A-7, PAC,
6.500% 12/25/08..................... 5,170
--------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost: $65,809)....................... 62,479
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 15.2%
ARIZONA -- 2.3%
$ 3,755 Maricopa County, Arizona, School
District, GO, Capital Appreciation,
Series 1993, (AMBAC Insured),
4.720%*** 07/01/03.................. $ 3,165
--------
ILLINOIS -- 1.7%
2,870 Illinois Educational Facilities
Authority, Revenue, Capital
Appreciation, (Loyola University
Project) Series 1991A, (MBIA
Insured), 4.770%*** 07/01/03........ 2,415
--------
NEVADA -- 3.8%
6,250 Clark County, Nevada, School District,
GO, Series 1991B, (MBIA Insured),
4.720%*** 06/01/03.................. 5,278
--------
OKLAHOMA -- 3.9%
6,430 Tulsa, Oklahoma, Industrial
Development Authority, Hospital
Revenue, (St. John's Medical Center
Project) Series 1990, (MBIA
Insured), 4.720%*** 12/01/03........ 5,304
--------
TEXAS -- 3.5%
5,850 Houston, Texas, Independent School
District, GO, Capital Appreciation,
Series 1989, (AMBAC Insured),
4.720%*** 08/15/03.................. 4,885
--------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost: $21,083)....................... 21,047
--------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS -- 19.7%
FEDERAL HOME LOAN BANK (FHLB) -- 4.2%
6,000 5.630% 09/02/03....................... 5,771
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 15.5%
8,200 5.940% 01/27/03....................... 7,948
14,000 6.110% 07/10/03....................... 13,549
--------
21,497
--------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(Cost: $28,288)....................... 27,268
--------
U.S. TREASURY
OBLIGATIONS -- 15.4%
U.S. TREASURY NOTES -- 15.4%
5,000 5.625% 09/30/01....................... 4,950
5,000 5.250% 08/15/03....................... 4,820
11,762 5.750% 08/15/03....................... 11,520
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost: $21,289)....................... 21,290
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 6
Nations Government Income Term Trust 2003, Inc.
STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS -- 3.5%
(Cost: $4,779)
$ 4,800 FMC Discount note, due 01/28/00....... $ 4,779
--------
TOTAL INVESTMENTS
(Cost $141,248*)............... 98.9% 136,863
--------
OTHER ASSETS AND LIABILITIES
(NET)........................ 1.1%
Cash.................................. 258
Interest receivable................... 1,442
Payable for Fund shares repurchased... (21)
Administration fee payable............ (6)
Accrued expenses and other
liabilities......................... (92)
--------
TOTAL OTHER ASSETS AND LIABILITIES
(NET)............................... 1,581
--------
NET ASSETS..................... 100.0% $138,444
========
NET ASSETS CONSIST OF:
Undistributed net investment income... $ 4,215
Accumulated net realized loss on
investments sold.................... (1,660)
Net unrealized depreciation of
investments......................... (4,385)
Paid-in capital....................... 140,274
--------
NET ASSETS............................ $138,444
========
Net asset value per share
($138,444,405/ 14,602,385 shares
outstanding)........................ 9.48
=====
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $291 and gross depreciation
of $4,676 for Federal income tax purposes. At December 31, 1999, the
aggregate cost of securities for Federal income tax purposes was $141,248.
** Variable rate note. The interest rate shown reflects the rate in effect at
December 31, 1999.
*** Zero Coupon Security. The rate shown is the effective yield at date of
purchase.
ABBREVIATIONS:
<TABLE>
<S> <C>
AD Accretion Directed
AMBAC American Municipal Bond Assurance Corporation
CMO Collateralized Mortgage Obligation
GO General Obligation
MBIA Municipal Bond Insurance Association
PAC Planned Amortization Class
REMIC Real Estate Mortgage Investment Conduit
SCH Scheduled Pay Bond
SUP Support Bond
TAC Targeted Amortization Class
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
Nations Government Income Term Trust 2003, Inc.
STATEMENT OF OPERATIONS
For the six months ended December 31, 1999 (unaudited)
<TABLE>
<S> <C>
(IN THOUSANDS)
INVESTMENT INCOME:
Interest.................................................... $ 4,385
--------------
EXPENSES:
Investment advisory fee..................................... 354
Administration fee.......................................... 177
Other....................................................... 13
--------------
Total expenses.......................................... 544
Fees waived by investment advisor and administrator......... (496)
--------------
Net expenses............................................ 48
--------------
NET INVESTMENT INCOME....................................... 4,337
--------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investments..................... (213)
Net change in unrealized appreciation/(depreciation) of
investments............................................... (1,891)
--------------
Net realized and unrealized gain/(loss) on investments...... (2,104)
--------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 2,233
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
Nations Government Income Term Trust 2003, Inc.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
12/31/99 YEAR ENDED
(UNAUDITED) 6/30/99
<S> <C> <C>
(IN THOUSANDS)
Net investment income....................................... $ 4,337 $ 10,133
Net realized gain/(loss) on investments..................... (213) (499)
Net change in unrealized appreciation/(depreciation) of
investments............................................... (1,891) (3,021)
-------------- --------------
Net increase/(decrease) in net assets resulting from
operations................................................ 2,233 6,613
Distributions to shareholders from net investment income.... (4,099) (8,604)
Net increase/(decrease) in net assets from Fund share
transactions.............................................. (1,463) (3,713)
-------------- --------------
Net increase/(decrease) in net assets....................... (3,329) (5,704)
NET ASSETS:
Beginning of year........................................... 141,773 147,477
-------------- --------------
End of year................................................. $ 138,444 $ 141,773
============== ==============
Undistributed net investment income/(distributions in excess
of net investment income) at end of year.................. $ 4,215 $ 3,977
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 9
Nations Government Income Term Trust 2003, Inc.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
12/31/1999++ ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 6/30/99++ 6/30/98++ 6/30/97++ 6/30/96++ 6/30/95++
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of
period.............................. $ 9.60 $ 9.72 $ 9.22 $ 8.84 $ 8.32 $ 7.77
--------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.30 0.67 0.71 0.73 0.66 0.69
Net realized and unrealized
gain/(loss) on investments.......... (0.15) (0.25) 0.30 0.20 (0.21) 0.51
--------- -------- -------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from investment
operations.......................... 0.15 0.42 1.01 0.93 0.45 1.20
Dividends from net investment
income.............................. (0.28) (0.57) (0.56) (0.61) (0.62) (0.65)
Increase from repurchase of common
shares.............................. 0.01 0.03 0.05 0.06 0.05 --
Increase due to capital
contribution........................ -- -- -- -- 0.64 --
--------- -------- -------- -------- -------- --------
Net asset value, end of period........ $ 9.48 $ 9.60 $ 9.72 $ 9.22 $ 8.84 $ 8.32
========= ======== ======== ======== ======== ========
Market value, end of period........... $ 8.9375 $ 9.0625 $ 8.750 $ 8.375 $ 7.500 $ 7.500
========= ======== ======== ======== ======== ========
Total return+++....................... 1.76% 10.17% 10.56% 20.24% 8.12% (6.50)%
========= ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of period (000)....... $ 138,444 $141,773 $147,477 $148,715 $154,147 $145,810
Ratio of operating expenses to average
net assets.......................... 0.07%+ 0.25% 0.24% 0.24% 0.27% 0.90%
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian.... 0.07%+ 0.27% 0.25% 0.24% 0.28% --
Ratio of net investment income to
average net assets.................. 6.12%+ 6.90% 7.41% 8.10% 7.74% 9.00%
Portfolio turnover rate............... 11% 43% 26% 4% 46% 38%
Ratio of operating expenses to average
net assets without waivers, expenses
reimbursed and/or fees reduced by
credits allowed by the custodian.... 0.83% 0.98% 0.98% 0.96% 1.00% 0.96%
</TABLE>
- ---------------
+ Annualized.
++ Per share net investment income has been calculated using the monthly
average shares method.
+++ Total return represents aggregate total return for the period based on
market value at period end.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 10
Nations Government Income Term Trust 2003, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
1. SIGNIFICANT ACCOUNTING POLICIES
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. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Company in the preparation of
its financial statements.
Securities valuation: The Company's securities are valued using prices provided
by a pricing service, which may be based on a matrix system which considers such
factors as security prices, yields and maturities. The value of mortgage-backed
securities can be significantly affected by changes in interest rates.
Restricted securities, securities for which market quotations are not readily
available and other assets may be valued at their fair value by Banc of America
Advisors, Inc. ("BAAI") (formerly known as NationsBanc Advisors, Inc.), the
Company's 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.
Securities transactions and investment income: Securities transactions are
accounted for on trade date. Realized gains or 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 is recorded on an accrual basis.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. The Company instructs its custodian to establish a
segregated account in which it will maintain cash or U.S. government securities
or other high grade debt securities at least equal in value to its commitments
for such securities.
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 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 more volatile than other debt securities because of
the inverse floater's multiple to the index.
Dividends and distributions to shareholders: It is the policy of the Company to
declare and pay distributions from net investment income monthly to
shareholders. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Federal income tax: The Company intends to continue to qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the applicable requirements of the Internal
Revenue Code of 1986, as amended, and by distributing substantially all of its
taxable earnings to its shareholders.
2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND OTHER
RELATED PARTY TRANSACTIONS
The Company has entered into an investment advisory agreement with BAAI, 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, a bank
holding company organized as a Delaware corporation. Pursuant to the investment
advisory agreement, the Company pays BAAI 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, 1999, BAAI voluntarily waived all of its fees.
The Company and BAAI have entered into a sub-advisory agreement with TradeStreet
Investment Associates, Inc. ("TradeStreet"), a wholly-owned subsidiary of Bank
of America, pursuant to which TradeStreet is entitled to receive a sub-advisory
fee from BAAI at an annual rate of 0.15% of the Company's average weekly net
assets. For the six months ended December 31, 1999, TradeStreet voluntarily
waived all of its fees.
8
<PAGE> 11
Nations Government Income Term Trust 2003, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
BAAI is the Company's administrator. In its role as administrator, BAAI
supervises the Company's overall day-to-day operations and provides certain
administrative services. BAAI 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. As compensation for both the administrative services
and the expenses assumed by BAAI, the Company pays BAAI 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, 1999, BAAI voluntarily waived administration fees of
$141,638.
The Bank of New York ("BNY") serves as sub-administrator of the Company pursuant
to an agreement with BAAI and provides certain administrative services in
support of the operations of the Company. The fees of BNY are paid out of the
fees paid to BAAI by the Company for administration services.
Effective December 1, 1999, First Data Investor Services Group, Inc., the
Company's transfer agent and dividend disbursing agent, was acquired by PFPC
Inc. ("PFPC"). PFPC began serving as the transfer agent and dividend disbursing
agent for the Company on that date, and is providing the same services as those
previously provided by First Data Investor Services Group, Inc.
BNY also serves as the custodian of the Company's assets.
No officer, director or employee of Bank of America, BAAI, TradeStreet or PFPC,
or any affiliate thereof, receives any compensation from the Company for serving
as a Director or Officer of the Company.
3. SECURITIES TRANSACTIONS
For the six months ended December 31, 1999, the cost of purchases and proceeds
from sales of long-term U.S. government securities aggregated $14,828,125 and
$27,877,453, respectively.
4. COMMON STOCK
At December 31, 1999, 1,000,000,000 shares of common stock, $0.001 par value,
were authorized.
The Board of Directors of the Company has approved a stock repurchase plan that
gives the Company the flexibility to engage in 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 an 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, 1999 and the year ended June 30, 1999, the Company
repurchased shares of its common stock in the open market at an average discount
of approximately 7% from its net asset value. All repurchased shares have been
retired by the Company.
9
<PAGE> 12
Nations Government Income Term Trust 2003, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Common stock transactions were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
12/31/99 06/30/99
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
<S> <C> <C> <C> <C>
Shares repurchased by the Company.................... (164,500) $(1,462,469) (409,000) $(3,713,095)
</TABLE>
5. CAPITAL LOSS CARRYFORWARD
As of June 30, 1999, the Company had available for Federal income tax purposes a
capital loss carryforward of $4,483,639, of which $4,483,421 expires in the year
2003 and $218 expires in the year 2007.
6. SUBSEQUENT EVENT
On January 18, 2000, TradeStreet changed its name to Banc of America Capital
Management, Inc. ("BACAP").
10
<PAGE> 13
Nations Government Income Term Trust 2003, Inc.
DIVIDEND REINVESTMENT PLAN
The Company's Dividend Reinvestment Plan (the "Plan") offers an automatic way to
reinvest dividends and capital gains distributions in shares of the Company.
PARTICIPATION
Shareholders of record will receive their dividends in cash unless they have
otherwise instructed PFPC (the "Plan Agent"), acting as agent for each
participant in the Plan, in writing. 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 PFPC, 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 date 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, 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
advisor 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 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 including estimated brokerage
commissions on such record date, the Plan Agent will elect to take the dividend
in cash and as soon as practicable, consistent with obtaining the best price and
execution, the Plan Agent will 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. Each participant's account will be credited 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. Under such circumstances, in anticipation
of receipt of a dividend in cash, the Plan Agent may purchase shares in the open
market during the period between the record
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Nations Government Income Term Trust 2003, Inc.
DIVIDEND REINVESTMENT PLAN (CONTINUED)
date and the payable date for the dividend or distribution. The Plan has been
amended to specifically authorize such anticipatory purchases.
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 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 PFPC Inc., P.O. Box 34602, Charlotte, NC 28234, (800) 982-2271.
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Nations Government Income Term Trust 2003, Inc.
ANNUAL MEETING OF STOCKHOLDERS
ANNUAL MEETING OF STOCKHOLDERS
On February 17, 1999, the Company held its Annual Meeting of Stockholders.
Thomas F. Keller was elected as a Director of the Company by the following
votes: 13,112,474 For, 300,949 Withheld. In the only other matter voted upon at
the Annual Meeting, the selection of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending June 30, 2000, was
ratified by the following votes: 13,334,484 For, 26,718 Against, 52,221
Abstaining.
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PO Box 34602
Charlotte, NC 28234-4602
Toll Free 1.800.321.7854
SA20003 12/99
