<PAGE> 1
Nations Government Income
Term Trust 2004, Inc.
A N N U A L
R E P O R T
For the Year Ended December 31, 1996
-----------
Nations
-----------
Government
-----------
Income Term
-----------
Trust 2004
-----------
<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 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 AND ITS AFFILIATES PROVIDE INVESTMENT ADVISORY AND OTHER SERVICES TO
THE COMPANY, FOR WHICH THEY ARE COMPENSATED.
- --------------------------------------------------------------------------------
<PAGE> 3
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
DEAR SHAREHOLDER:
We welcome this opportunity to provide you with the annual report for
Nations Government Income Term Trust 2004, Inc. (the "Company") for the year
ending December 31, 1996, 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 "NGF." 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 February
28, 2004.
PORTFOLIO PERFORMANCE*
For the twelve-month period ending December 31, 1996, the Company
distributed net investment income of $0.6456 per share. On December 31, 1996, a
monthly dividend in the amount of $0.0538 per share was paid. This dividend rate
equates to an annualized yield of 6.46%, based on the initial offering price of
$10.00 per share. In addition, the dividend rate of $0.0538 per month translates
into a current annualized yield of 8.07%, based upon the closing market price of
$8.00 per share on December 31, 1996. The net asset value of the Company's
shares on December 31, 1996 was $9.27.
MARKET ENVIRONMENT
During 1996, the economy was characterized by moderate growth and low
inflation. The Federal Reserve Board's (the "Fed") last move was a 0.25%
reduction in the Federal Funds Rate, posted in January 1996. Bond strength early
in the year, due to economic damping from the severe winter and government
shutdown, gave way to a rapid sell-off as job creation increased and the economy
rebounded. As the economy settled back into moderate growth, the bond market
adopted a trading range through the spring and summer. The bond market then
rallied in the early fall when it appeared that the economy was slowing.
However, in December, the belief that the economy was once again strengthening
prompted an increase in interest rates. Throughout the year, the bond market's
reaction to the release of economic data has contributed to the low inflation
environment sought by the Fed.
Interest rates, as measured by the 10-Year U.S. Treasury Note, ranged from
5.75% at the beginning of the year, to 6.42% at year's end, with a mid-year high
of 7.06%.
MARKET OUTLOOK
We forsee continued overall volatility in the bond market, but do not
anticipate the bond market moving out of the broad range of 5.75% to 8.00% that
has persisted during the last three years. We anticipate a continuation of low
inflation, moderate economic growth and a Fed committed to price stability.
Given this relatively secure environment, we continue to have a generally
positive view towards the bond market for the coming year.
CONCLUSION
The Company continues to pursue its dual objectives of providing a high
level of current income and returning $10 per share to shareholders upon
termination of the Company.
Sincerely,
/s/ Mark H. Williamson
Mark H. Williamson
President
December 31, 1996
- ---------------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
1
<PAGE> 4
<TABLE>
Nations Government Income Term Trust 2004, Inc.
- ----------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- 78.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 25.3%
REMIC:
$ 3,585,198 Series 1489 VB, CMO, Inverse Floater, 6.802% 10/15/07**........... $ 2,997,655
4,000,000 Series 1544 SA, CMO, TAC, Inverse Floater, 7.313% 07/15/08**...... 3,477,200
1,861,171 Series 1550 SD, CMO, TAC, Inverse Floater, 5.679% 07/15/08**...... 1,485,735
5,115,354 Series 1693 SC, CMO, TAC, Inverse Floater, 5.725% 03/15/09**...... 3,730,679
10,000,000 Series 1720 E, CMO, VADM, 7.500% 12/15/09......................... 9,815,700
6,563,096 Series 1688 M, CMO, SEQ, 6.000% 08/15/13.......................... 6,375,391
2,936,000 Series 1437 W, CMO, PAC, Inverse Floater, 8.312% 11/15/19**....... 2,523,932
1,454,539 Series 1644 NB, PAC, Inverse Floater, 5.725% 12/15/23**........... 1,283,049
-----------
31,689,341
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 45.5%
REMIC:
10,000,000 Certificate 93-12 ED, CMO, VADM, 7.500% 02/25/06.................. 10,232,500
10,000,000 Certificate 92-193 HD, CMO, PAC, 7.000% 11/25/07.................. 9,855,000
3,290,236 Certificate 93-214 SP, CMO, PAC, Inverse Floater, 4.847%
12/25/08**...................................................... 2,948,973
1,738,276 Certificate 93-231 SA, CMO, Inverse Floater, 5.344% 12/25/08**.... 1,406,821
10,000,000 Certificate 94-82 B, CMO, TAC, 8.000% 03/25/17.................... 10,538,600
10,000,000 Certificate 93-2 G, CMO, PAC, 7.000% 01/25/18..................... 9,998,400
3,014,778 Certificate 91-162 SA, PAC, Inverse Floater, 10.237% 04/25/20**... 3,015,230
5,287,384 Certificate 93-247 SK, CMO, TAC, Inverse Floater, 9.559%
02/25/23**...................................................... 5,263,274
2,747,250 Certificate 93-179 SG, TAC, Inverse Floater, 5.036% 10/25/23**.... 2,346,262
1,736,687 Certificate 93-202 VB, PAC, Inverse Floater, 5.165% 11/25/23**.... 1,477,244
-----------
57,082,304
-----------
WHOLE LOAN COLLATERAL -- 7.3%
5,000,000 General Electric Capital Mortgage Services Inc., CMO, TAC,
Series 1994-13, Class A-8, 6.500% 04/25/24...................... 4,679,050
4,730,303 Residential Funding Mortgage, CMO, TAC,
Series 1993-S48, Class A-8, 6.500% 12/25/08..................... 4,544,591
-----------
9,223,641
-----------
TOTAL MORTGAGE-BACKED SECURITIES (Cost $99,119,601)............... 97,995,286
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE> 5
<TABLE>
Nations Government Income Term Trust 2004, Inc.
- ---------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued) DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL BONDS -- 10.3%
$3,340,000 Conroe, Texas, Independent School District, 5.500% 02/01/04***.... $ 2,355,736
2,000,000 Kentucky State Turnpike Authority, Development Revenue,
5.034% 01/01/04***.............................................. 1,421,260
2,080,000 Lower Colorado River Authority, Texas, Series B, 5.450%
01/01/04***..................................................... 1,486,222
2,500,000 San Antonio, Texas, Electric and Gas Revenue, 5.037%
02/01/04***..................................................... 1,763,275
3,165,000 Texas State Capital Appreciation, 5.160% 04/01/04***.............. 2,214,044
3,845,000 University of Illinois, Revenue Auxiliary, 5.050% 04/01/04***..... 2,680,234
1,500,000 Washington State Public Power Supply, 5.300% 07/01/04***.......... 1,025,895
------------
TOTAL MUNICIPAL BONDS (Cost $12,757,847).......................... 12,946,666
------------
U.S. TREASURY OBLIGATIONS -- 11.1%
U.S. TREASURY NOTE -- 7.1%
9,220,000 5.875% 02/15/04................................................... 8,974,011
------------
U.S. TREASURY STRIP -- 4.0%
6,700,000 Interest Only, 6.138% 11/15/01+................................... 4,975,286
------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $13,707,147)................ 13,949,297
------------
TOTAL INVESTMENTS (Cost $125,584,595*)................................. 99.5% 124,891,249
OTHER ASSETS AND LIABILITIES (NET)..................................... 0.5 681,968
----- ------------
NET ASSETS............................................................. 100.0% $125,573,217
----- ------------
</TABLE>
- ---------------
* Aggregate cost for Federal tax purposes was $124,989,250.
** Current coupon rate at December 31, 1996.
*** 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.
ABBREVIATIONS:
CMO Collateralized Mortgage Obligation
PAC Planned Amortization Class
REMIC Real Estate Mortgage Investment Conduit
SEQ Sequential Payment Class
TAC Targeted Amortization Class
VADM Very Accurately Defined Maturity
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 6
<TABLE>
Nations Government Income Term Trust 2004, Inc.
- ----------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (Cost $125,584,595) (Note 1)
See accompanying schedule................................... $124,891,249
Cash.......................................................... 32,197
Interest receivable........................................... 676,957
Unamortized organization costs (Note 5)....................... 3,900
Prepaid expenses.............................................. 2,632
------------
Total Assets............................................. 125,606,935
------------
LIABILITIES:
Transfer agent fees payable (Note 2).......................... 8,537
Accrued legal and audit fees.................................. 6,208
Accrued shareholder reports expense........................... 6,158
Custodian fees payable (Note 2)............................... 6,099
Administration fee payable (Note 2)........................... 3,333
Accrued directors' fees and expenses (Note 2)................. 1,500
Accrued expenses and other payables........................... 1,883
------------
Total Liabilities........................................ 33,718
------------
NET ASSETS......................................................... $125,573,217
------------
NET ASSETS consist of:
Undistributed net investment income........................... $ 267,046
Accumulated net realized loss on investments.................. (2,662,652)
Net unrealized depreciation of investments.................... (693,346)
Common stock at par value (Note 4)............................ 13,550
Paid-in capital in excess of par value........................ 128,648,619
------------
Total Net Assets......................................... $125,573,217
------------
NET ASSET VALUE PER SHARE:
($125,573,217 / 13,549,948 shares of common stock outstanding). $9.27
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
<TABLE>
Nations Government Income Term Trust 2004, Inc.
- -----------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $10,344,586
----------
EXPENSES:
Investment advisory fee (Note 2)............................ 623,108
Administration fee (Note 2)................................. 311,554
Transfer agent fees (Note 2)................................ 110,937
Legal and audit fees........................................ 89,040
Custodian fees (Note 2)..................................... 34,254
Directors' fees and expenses (Note 2)....................... 8,053
Amortization of organization costs (Note 5)................. 1,800
Other....................................................... 83,810
----------
1,262,556
Fees waived by investment adviser and administrator (Note
2)........................................................ (887,995)
Fees reduced by credits allowed by the custodian (Note 2)... (7,150)
----------
Total Expenses......................................... 367,411
----------
NET INVESTMENT INCOME............................................ 9,977,175
----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 1 AND 3):
Net realized gain on investments sold....................... 16,959
Change in unrealized appreciation/depreciation of
investments............................................... (4,630,719)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS.................. (4,613,760)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................................... $ 5,363,415
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
<TABLE>
Nations Government Income Term Trust 2004, Inc.
- -----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/96 12/31/95
---------------------------
<S> <C> <C>
Net investment income............................................. $ 9,977,175 $ 9,320,258
Net realized gain on investments sold............................. 16,959 3,686,058
Change in unrealized appreciation/depreciation of investments..... (4,630,719) 13,470,219
------------ ------------
Net increase in net assets resulting from operations.............. 5,363,415 26,476,535
Distributions to shareholders from net investment income.......... (8,973,253) (8,941,274)
Distributions in excess of net investment income.................. -- (121,758)
Net increase/(decrease) in net assets from Company share
transactions (Note 4)........................................... (4,005,860) 34,702
Increase due to capital contribution (Note 7)..................... 8,800,880 --
------------ ------------
Net increase in net assets........................................ 1,185,182 17,448,205
NET ASSETS:
Beginning of year................................................. 124,388,035 106,939,830
------------ ------------
End of year (including undistributed net investment income
of $267,046 and $0, respectively)............................... $125,573,217 $124,388,035
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 9
<TABLE>
Nations Government Income Term Trust 2004, Inc.
- --------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96+++ 12/31/95 12/31/94*
--------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of year.................. $ 8.86 $ 7.62 $ 9.45#
-------- -------- --------
Net investment income............................... 0.72 0.66 0.57
Net realized and unrealized gain/(loss) on
investments....................................... (0.33) 1.23 (1.85)
-------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations............................. 0.39 1.89 (1.28)
Distributions to shareholders:
Dividends from net investment income................ (0.65) (0.64) (0.55)
Distributions in excess of net investment income -- (0.01) --
-------- -------- --------
Total distributions................................. (0.65) (0.65) (0.55)
-------- -------- --------
Increase in net assets from repurchase of common
shares (Note 4)................................... 0.04 -- --
Increase due to capital contribution (Note 7)....... 0.63 -- --
-------- -------- --------
Net asset value, end of year........................ $ 9.27 $ 8.86 $ 7.62
-------- -------- --------
Market value, end of year........................... $ 8.000 $ 8.000 $ 6.875
-------- -------- --------
Total return++...................................... 8.27% 26.29% (22.12)%
-------- -------- --------
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's).................. $125,573 $124,388 $106,940
Ratio of operating expenses to average net assets... 0.29% 0.56% 0.95%+
Ratio of net investment income to average net
assets............................................ 8.01% 7.97% 8.27%+
Portfolio turnover rate............................. 4% 88% 259%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian......................................... 0.30%(a) 0.57%(a) --
Ratio of operating expenses to average net assets
without waivers, reimbursements and/or fees
reduced by credits allowed by the custodian....... 1.01% 1.09% N/A
Net investment income per share without waivers,
reimbursements and/or fees reduced by credits
allowed by the custodian.......................... $ 0.65 $ 0.62 N/A
</TABLE>
- ---------------
* Nations Government Income Term Trust 2004, Inc. commenced operations on
February 28, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period based on
market value.
+++ Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord
with the results of operations.
# Initial offering price net of sales commissions of $0.55 per share.
(a) The ratio includes custodian fees before credits earned at the custodian
bank.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 10
Nations Government Income Term Trust 2004, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES.
Nations Government Income Term Trust 2004, Inc. (the "Company") was
incorporated under the laws of the State of Maryland on November 3, 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 February 28, 1994. 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 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, 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 are valued at
fair market 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.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. 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 using the effective
yield method, is earned from settlement date and is recorded on the 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. The Company is required to
establish a segregated account with its custodian bank 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.
Dividend and Distributions to Shareholders: It is the policy of the
Company to pay monthly distributions from net investment income to shareholders.
The Company intends 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
treatments of income and gains on various investment securities held by the
Company, timing differences and differing characterization of distributions made
by the Company. Permanent differences incurred for the year ended December 31,
1996, resulting from differences in book and tax accounting for capital
contribution, REMICs and CMOs, have been reclassified to reflect a decrease to
undistributed net investment income of $736,876, an increase to accumulated net
realized gain/loss of $9,683,299 and a decrease to paid-in capital of
$8,946,423.
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
8
<PAGE> 11
Nations Government Income Term Trust 2004, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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 ("Advisory
Agreement") with NationsBanc Advisors, Inc. ("NBAI"), a wholly-owned subsidiary
of NationsBank, N.A.("NationsBank"). Under the terms of the Advisory Agreement,
the Company pays NBAI a monthly fee equal to an annual rate of 0.50% of the
Company's average weekly net assets. For the year ended December 31, 1996, NBAI
voluntarily waived fees of $623,108.
The Company and NBAI have entered into a sub-advisory agreement
("Sub-Advisory Agreement") with TradeStreet Investment Associates, Inc.
("TradeStreet"), a wholly-owned subsidiary of NationsBank. Under the terms of
the Sub-Advisory Agreement, TradeStreet is entitled to receive from NBAI a
monthly fee equal to an annual rate of 0.15% of the Company's average weekly net
assets. For the year ended December 31, 1996, TradeStreet voluntarily waived all
of its fees.
NationsBank is the Company's administrator. Pursuant to an administration
agreement ("Administration Agreement"), the Company has retained NationsBank to
supervise the overall day-to-day operations of the Company 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, clerical assistance,
bookkeeping and other administrative services as the Company may reasonably
require in the conduct of its business.
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 year ended December 31, 1996, NationsBank
voluntarily waived fees of $264,887.
NationsBank has entered into a sub-administration agreement
("Sub-Administration Agreement") with First Data Investor Services Group, Inc.
("First Data"), a wholly-owned subsidiary of First Data Corporation, pursuant to
which First Data provides certain administrative services in support of the
operations of the Company. The fees to First Data are paid out of the fees paid
to NationsBank by the Company pursuant to the Administration Agreement.
No officer, director or employee of NationsBank, NBAI, TradeStreet or First
Data, 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.
Mellon Trust serves as the custodian of the Company's assets. The Company
accrues a credit on daily cash balances held at Mellon Trust. The earnings
credit is applied to the monthly custody fee. For the year ended December 31,
1996, the earnings credit was $7,150.
First Data also serves as the transfer agent and dividend disbursing agent
for the Company.
3. SECURITIES TRANSACTIONS.
For the year ended December 31, 1996, the cost of purchases and proceeds
from sales of long-term U.S. government securities aggregated $8,677,604 and
$5,192,758, respectively.
At December 31, 1996, gross unrealized appreciation and depreciation for
tax purposes was $1,515,827 and $1,613,828, respectively.
9
<PAGE> 12
Nations Government Income Term Trust 2004, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996
- --------------------------------------------------------------------------------
4. COMMON STOCK.
At December 31, 1996, 1,000,000,000 shares of common stock, $.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 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
year ended December 31, 1996, the Company repurchased 490,718 shares of its
common stock in the open market at a cost of $4,005,860 and an average discount
of approximately 11% from its net asset value. All repurchased shares have been
retired by the Company.
Common stock transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/96 12/31/95
------------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
------------------------ ------------------
<S> <C> <C> <C> <C>
Issued as reinvestment of dividends.............. -- -- 4,209 $34,702
Shares repurchased by the Company................ (490,718) $(4,005,860) -- --
-------- ----------- ----- -------
Total increase/(decrease)........................ (490,718) $(4,005,860) 4,209 $34,702
-------- ----------- ------ -------
</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 date of commencement of operations for the Company.
6. CAPITAL LOSS CARRYFORWARD.
As of December 31, 1996, the Company had available for Federal income tax
purposes a capital loss carryforward of $3,257,997 expiring in the year 2002.
7. CAPITAL CONTRIBUTION.
On May 8, 1996, the Company received $8,800,880, after plaintiffs' legal
fees, from NationsBank Corporation in connection with a court-approved
settlement of a class action lawsuit brought by certain shareholders and former
shareholders of the Company against NationsSecurities and several other
affiliates of NationsBank Corporation. The Company was not named as a defendant
in the lawsuit. In accordance with the settlement, the proceeds of the
settlement were used to purchase a U.S. Treasury Note, with a coupon rate of
5.875% and a maturity date of February 15, 2004.
10
<PAGE> 13
Nations Government Income Term Trust 2004, Inc.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Nations Government Income Term
Trust 2004, Inc. (the "Company") at December 31, 1996, the results of its
operations, changes in its net assets and financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 14, 1997
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Nations Government Income Term Trust 2004, Inc.
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DIVIDEND REINVESTMENT PLAN
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THE PLAN
The Company's Dividend Reinvestment Plan (the "Plan") offers 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 otherwise instructed First Data (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 First Data, 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
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 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.
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Nations Government Income Term Trust 2004, Inc.
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DIVIDEND REINVESTMENT PLAN (CONTINUED)
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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 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 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 2004, Inc., Dividend
Reinvestment Plan, c/o First Data Investor Services Group, Inc., P.O. Box 34602,
Charlotte, NC 28234, (800) 982-2271.
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Nations Government Income Term Trust 2004, Inc.
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ANNUAL MEETING OF STOCKHOLDERS
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ANNUAL MEETING OF STOCKHOLDERS
On September 27, 1996, the Company held its Annual Meeting of Stockholders
in Charlotte, North Carolina. Thomas F. Keller was re-elected as a Director of
the Company for an additional three-year term, to expire in 1999, by the
following votes: 10,073,046 For, and 224,448 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 December 31,
1996, was ratified by the following votes: 10,021,347 For, 66,783 Against, and
209,364 Abstaining.
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PO Box 34602 =================
Charlotte, NC 28234-4602 BULK RATE
Toll Free 1-800-982-2271 U.S. POSTAGE
PAID
NORTH READING, MA
PERMIT NO.
105
=================
A2004 12/96
