<PAGE> 1
NATIONS GOVERNMENT INCOME
TERM TRUST 2004, INC.
SEMI
ANNUAL
REPORT
For the Period Ended June 30, 1998
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 ISSUED 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 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 the opportunity to provide you with the semi-annual report for
Nations Government Income Term Trust 2004, Inc. (the "Company") for the 6-month
period ending June 30, 1998, 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 February
28, 2004.
PORTFOLIO PERFORMANCE*
For the six-month period ending June 30, 1998, the Company distributed net
investment income of $0.296 per share. The June dividend was $0.0494 per share.
This dividend equates to an annualized yield of 5.93%, based on the initial
offering price of $10.00 per share. In addition, the dividend rate of $0.0494
per month translates into a current annualized yield of 6.73%, based on the
closing market price of $8.8125 per share on June 30, 1998. The net asset value
of the Company's shares on June 30, 1998 was $9.88 per share. The Company's
total return for the six-month period was 5.08%, based on net asset value at the
end of the period.
MARKET ENVIRONMENT
Economic turbulence in Southeast Asia continued to dominate market perceptions
and activity during the last six months. Domestic economic strength held through
the first quarter, but has waned more recently. Current projections put the
second quarter's Gross Domestic Product at around 2%, compared to 5.4% for the
first quarter. This slowdown is attributable to the decline in foreign trade,
and excess inventory accumulated during the first quarter. The combination of
persistent tightness in the U.S. labor market and continued benign inflation
news led the Federal Reserve Board ("Fed") to hold lending rates steady, a range
bound Treasury market, and flattening pressure on the yield curve. The yield on
the 5-year U.S. Treasury Note traded between 5.2% and 5.8% during the six-month
period, finishing the period at 5.5%. Mortgaged-backed securities gave up a
little ground during the second quarter, but outperformed Treasuries for the six
months as a whole. Investor demand for these securities continues to provide a
price floor for mortgage-backed securities even as prepayment concerns linger.
Transient mortgage market weakness continues to attract buying, and this
behavior is reinforced by the range bound character of the overall bond market
and investor desire for income.
MARKET OUTLOOK
The market is currently testing the upper end of the trading range established
in 1993, when the 10-year U.S. Treasury traded as low as 5.2%. A great deal of
good news is priced into the bond market at these levels, and, since the Fed
appears to be on hold for the foreseeable future, we believe the range will
hold. With benign inflation and low volatility, mortgage-backed securities
should continue as the bond market sector of choice, and we expect spreads
between mortgages and Treasuries to narrow from current levels. Turbulence
abroad and the dollar's role as global safe-haven will continue to prompt
inflows to U.S. financial markets, and we look for continued global support for
the fixed income market during the year ahead.
We thank you for your continued support.
Sincerely,
/s/ Robert Gordon
- ---------------------------
Robert Gordon
President
June 30, 1998
- --------------
* THE PAST PERFORMANCE INFORMATION QUOTED IS NOT AN INDICATION OF FUTURE
RESULTS.
<PAGE> 4
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES - 79.3%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 33.2%
REMIC:
$ 2,684,430 Series 1489 VB, CMO, Inverse Floater, 6.802% 10/15/07** .............. $ 2,651,774
4,500,000 Series 1544 SA, CMO, TAC, Inverse Floater, 7.313% 07/15/08** ......... 4,544,066
1,861,171 Series 1550 SD, CMO, TAC, Inverse Floater, 5.679% 07/15/08** ......... 1,797,030
5,115,354 Series 1693 SC, CMO, TAC, Inverse Floater, 5.725% 03/15/09** ......... 4,699,239
10,000,000 Series 1720 E, CMO, VADM, 7.500% 12/15/09 ............................ 10,300,163
3,969,974 Series 1688 M, CMO, SEQ, 6.000% 08/15/13 ............................. 3,873,586
2,936,000 Series 1437 W, CMO, PAC, Inverse Floater, 8.312% 11/15/19** .......... 2,976,636
9,400,000 Series 1517 H, CMO, PAC,7.000% 3/15/22 ............................... 9,650,418
957,311 Series 1644 NB, PAC, Inverse Floater, 5.725% 12/15/23** .............. 950,588
-------------
41,443,500
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 38.4%
495,675 6.500% 06/01/08 ...................................................... 499,741
REMIC:
1,645,000 Certificate 93-12 ED, CMO, VADM, 7.500% 02/25/06 ..................... 1,701,978
20,000,000 Certificate 92-193 HD, CMO, PAC, 7.000% 11/25/07 ..................... 20,809,138
2,182,415 Certificate 93-214 SP, CMO, PAC, Inverse Floater, 4.331% 12/25/08** .. 2,134,592
1,524,953 Certificate 93-231 SA, CMO, Inverse Floater, 5.438% 12/25/08** ....... 1,458,181
10,000,000 Certificate 94-82 B, CMO, TAC, 8.000% 03/25/17 ....................... 10,412,969
998,890 Certificate 91-162 SA, PAC, Inverse Floater, 10.308% 04/25/20** ...... 1,010,966
2,000,000 Certificate 92-150 SU, PAC, Inverse Floater, 7.496% 05/25/21** ....... 1,960,920
4,623,768 Certificate 93-247 SK, CMO, TAC, Inverse Floater, 9.669% 02/25/23** .. 4,984,483
1,938,387 Certificate 93-179 SG, TAC, Inverse Floater, 5.105% 10/25/23** ....... 1,890,597
1,165,027 Certificate 93-202 VB, PAC, Inverse Floater, 5.223% 11/25/23** ....... 1,128,567
-------------
47,992,132
-------------
WHOLE LOAN COLLATERAL - 7.7%
5,000,000 General Electric Capital Mortgage Services Inc., CMO, TAC,
Series 1994-13, Class A-8, 6.500% 04/25/24 ........................... 4,896,280
4,730,303 Residential Funding Mortgage, CMO, TAC,
Series 1993-S48, Class A-8, 6.500% 12/25/08 .......................... 4,665,784
-------------
9,562,064
-------------
TOTAL MORTGAGE-BACKED SECURITIES (Cost $97,685,826) .................... 98,997,696
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE> 5
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS - 11.5%
$ 3,340,000 Conroe, Texas, Independent School District,
5.500%, 02/01/04*** ........................................... $ 2,609,141
2,000,000 Kentucky State Turnpike Authority, Development Revenue,
5.034% 01/01/04*** ............................................ 1,579,140
2,080,000 Lower Colorado River Authority, Texas, Series B,
5.450% 01/01/04*** ............................................ 1,637,896
2,500,000 San Antonio, Texas, Electric and Gas Revenue,
5.037% 02/01/04*** ............................................ 1,952,950
3,165,000 Texas State Capital Appreciation,
5.160% 04/01/04*** ............................................ 2,454,299
3,845,000 University of Illinois, Revenue Auxiliary,
5.050% 04/01/04*** ............................................ 2,979,913
1,500,000 Washington State Public Power Supply,
5.300% 07/01/04*** ............................................ 1,141,635
-------------
TOTAL MUNICIPAL BONDS (Cost $13,749,766) ........................ 14,354,974
=============
U.S. TREASURY OBLIGATIONS - 7.8%
U.S. TREASURY NOTE - 7.5%
9,220,000 5.875% Due 02/15/04** ......................................... 9,392,875
U.S. TREASURY STRIP - 0.3%
372,000 6.138% Due 11/15/01*** ........................................ 309,683
-------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $9,101,966) ............... 9,702,558
==============
SHORT TERM INVESTMENTS - 0.8% (Cost $998,043)
1,000,000 Federal National Mortgage Association,
5.75%, 7/14/98+ ............................................. 998,043
=============
TOTAL INVESTMENTS (COST $121,535,601*) ............................................ 99.4% 124,053,271
OTHER ASSETS AND LIABILITIES (NET) ................................................ 0.6 729,668
----- -------------
NET ASSETS ........................................................................ 100.0% $ 124,782,939
===== =============
</TABLE>
* Aggregate cost for Federal tax purposes.
** Current coupon rate at June 30, 1998.
*** Zero Coupon Security. The rate shown is the effective yield at date of
purchase.
+ Rate represents annualized 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
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (UNAUDITED) JUNE 30, 1998
- -----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (Cost $121,535,601) ......................... $ 124,053,271
Cash .............................................................. 709,966
Interest receivable ............................................... 608,046
Receivable for investment securities sold ......................... 2,005,303
Unamortized organization cost ..................................... 1,050
-------------
TOTAL ASSETS .................................................. 127,377,636
-------------
LIABILITIES:
Payable for investment securities purchased ....................... 2,507,209
Professional fees payable ......................................... 31,480
Administration fees payable ....................................... 3,333
Trustees fees and expenses payable ................................ 563
Transfer agent fees payable ....................................... 34,205
Custodian fees payable ............................................ 1,412
Accrued expenses and other payables ............................... 16,495
-------------
TOTAL LIABILITIES ............................................. 2,594,697
-------------
NET ASSETS ........................................................... $ 124,782,939
=============
NET ASSETS CONSIST OF:
Paid-in capital ................................................... $ 120,594,510
Undistributed net investment income ............................... 1,754,313
Accumulated net realized loss on investments ...................... (83,554)
Net unrealized appreciation of investments ........................ 2,517,670
-------------
TOTAL NET ASSETS .............................................. $ 124,782,939
=============
NET ASSET VALUE PER SHARE:
($124,782,939 [divided by] 12,628,506 shares of
common stock outstanding) ................................. $ 9.88
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Interest .................................................................. $ 4,619,125
EXPENSES:
Investment advisory fees .................................................. 309,994
Administration fees ....................................................... 154,997
Custodian fees ............................................................ 12,476
Trustees fees and expenses ................................................ 3,588
Professional fees ......................................................... 27,858
Transfer agent fees ....................................................... 46,332
Printing fees ............................................................. 21,942
Amortization of organization costs ........................................ 1,050
Other ..................................................................... 34,906
Fees waived and expenses reimbursed by investment adviser and administrator (444,991)
-----------
Total expenses ........................................................ 168,152
Fees reduced by credits allowed by the custodian ............................. (8,242)
-----------
Net expenses .......................................................... 159,910
-----------
NET INVESTMENT INCOME ........................................................ 4,459,215
-----------
Net realized gain on investments .......................................... 1,295,786
Net unrealized depreciation of investments ................................ (169,239)
-----------
NET GAIN ON INVESTMENTS ...................................................... $ 1,126,547
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $ 5,585,762
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
6/30/98 ENDED
(UNAUDITED) 12/31/97
------------- -------------
<S> <C> <C>
Net investment income ......................................... $ 4,459,215 $ 9,694,699
Net realized gain on investments .............................. 1,295,786 377,777
Net unrealized appreciation/(depreciation) of investments ..... (169,239) 3,380,255
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... 5,585,762 13,452,731
Distributions to shareholders from net investment income ...... (3,776,809) (8,055,132)
Decrease in net assets from Fund share transactions ........... (1,429,462) (6,567,368)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....................... 379,491 (1,169,769)
NET ASSETS:
Beginning of period ........................................ 124,403,448 125,573,217
------------- -------------
End of period (including undistributed net investment income
of $1,754,313 and $1,071,907, respectively) .............. $ 124,782,939 $ 124,403,448
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 9
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
6/30/98 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97++ 12/31/96++ 12/31/95 12/31/94*
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, beginning of year ............ $ 9.73 $ 9.27 $ 8.86 $ 7.62 $ 9.45#
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ......................... 0.60 0.74 0.72 0.66 0.57
Net realized and unrealized gain/(loss)
on investments ............................. 0.08 0.29 (0.33) 1.23 (1.85)
--------- --------- --------- --------- ---------
Net increase/(decrease) in net assets resulting
from investment operations ................. 0.68 1.03 0.39 1.89 (1.28)
Distributions from shareholders:
Distributions from net investment income ...... (0.54) (0.61) (0.65) (0.64) (0.55)
Distributions in excess
of net investment income ................... -- -- -- (0.01) --
--------- --------- --------- --------- ---------
Total Distributions ........................... (0.54) (0.61) (0.65) (0.65) (0.55)
Increase from repurchase of common shares ..... 0.01 0.04 0.04 -- --
Increase due to capital contribution .......... -- -- 0.63 -- --
--------- --------- --------- --------- ---------
Net Asset Value, end of period ................ $ 9.88 $ 9.73 $ 9.27 $ 8.86 $ 7.62
========= ========= ========= ========= =========
Market value, end of period ................... $ 8.813 $ 8.813 $ 8.000 $ 8.000 $ 6.875
========= ========= ========= ========= =========
Total Return at market value .................. 3.38% 18.24% 8.27% 26.29% (22.12)%
========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) .............. $ 124,783 $ 124,403 $ 125,573 $ 124,388 $ 106,940
Ratio of operating expenses to average
net assets ................................. 0.26%+ 0.27% 0.29% 0.56% 0.95%+
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian ........... 0.27%+ 0.28% 0.30% 0.57% --
Ratio of net investment income to average
net assets ................................. 7.20%+ 7.86% 8.01% 7.97% 8.27%+
Portfolio turnover rate ....................... 20% 11% 4% 88% 259%
Ratio of operating expenses to average
net assets without waivers, expenses
reimbursed and/or fees reduced
by credits allowed by the custodian ........ 0.99%+ 0.99% 1.01% 1.09% N/A
</TABLE>
* Nations Government Income Term Trust 2004, Inc. commenced operations on
February 28, 1994.
+ Annualized.
++ Per share net investment income has been calculated using the monthly
average shares method.
# Initial offering price net of sales commissions of $0.55 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 10
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998
- --------------------------------------------------------------------------------
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.
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 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 based 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; 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.
DIVIDEND AND DISTRIBUTIONS TO SHAREHOLDERS -- It is the policy of the
Company to declare and 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.
8
<PAGE> 11
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES -- It is the policy of the Company to continue 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 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 six months ended June 30,
1998, NBAI voluntarily waived all of its fees.
The Company and NBAI have entered into a sub-advisory agreement (the
"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 six months ended June 30, 1998, TradeStreet voluntarily waived
all of its fees.
Effective January 1, 1998, NBAI became the Company's administrator. Prior
to that date, NationsBank served as the administrator. Pursuant to the
administration agreement (the "Administration Agreement"), NBAI (and prior to
January 1998, NationsBank) supervises the overall day-to-day operations and
provides certain administrative services. NBAI also maintains certain of the
Company's book 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 NBAI, the Company pays NBAI
a monthly fee equal to an annual rate of 0.25% of the Company's average weekly
net assets. For the six months ended June 30, 1998, NBAI voluntarily waived
administration fees of $134,997.
NBAI has entered into a sub-administration agreement dated January 1,
1998, with First Data Investor Services Group, Inc. ("First Data"), a
wholly-owned subsidiary of First Data Corporation. First Data provides certain
administrative services in support of the operations of the Company. The fees of
First Data are paid out of the fees paid to NBAI by the Company for
administrative services. Prior to January 1, 1998, the fees of First Data were
part of the fees paid to NationsBank for administrative services. First Data
also serves as the transfer agent and dividend disbursing agent for the company.
Boston Safe & Trust Company ("Boston Safe"), a subsidiary of Mellon Trust,
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 June 30, 1998, the earnings credit
was $8,242.
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
unaffiliated 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.
9
<PAGE> 12
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998
- --------------------------------------------------------------------------------
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1998, the cost of purchases and proceeds
from sales of long-term U.S. government securities aggregated $23,873,889 and
$25,597,197, respectively.
At June 30, 1998, gross unrealized appreciation and depreciation for tax
purposes was $3,657,626 and $1,139,956 respectively.
4. COMMON STOCK
At June 30, 1998, 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
periods ended June 30, 1998 and December 31, 1997, the Company repurchased
shares of its common stock in the open market at an average discount of
approximately 10% and 8%, respectively, of its net asset value. All repurchased
shares have been retired by the Company.
Common stock transactions were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
6/30/98 12/31/97
------- --------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares repurchased by the Company (162,100) $(1,429,462) (759,342) $(6,567,368)
-------- ----------- -------- -----------
Total decrease (162,100) $(1,429,462) (759,342) $(6,567,368)
-------- ----------- -------- -----------
</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 December 31, 1997 the Company had available for Federal income tax
purposes a capital loss carryforward of $2,976,837, expiring in the year 2002.
7. LINE OF CREDIT
The Company participates in an uncommitted line of credit provided by The
Bank of New York under a Line of Credit Agreement dated February 28, 1997 (the
"Agreement"). Advances under the Agreement are taken primarily for temporary
purposes, including the repurchase of its outstanding common stock. Under the
Agreement, the Company may borrow up to the lesser of $5 million or 25% of its
net assets. Interest on borrowings is payable at the Federal Funds Rate plus
0.75% on an annualized basis. The Agreement requires,
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NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998
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among other things, that the Company maintain a ratio of no less than 4 to 1 net
assets (not including funds borrowed pursuant to the Agreement) to aggregate
amount of indebtedness. During the period ended June 30, 1998, the Company had
not borrowed under the Agreement.
SEE NOTES TO FINANCIAL STATEMENTS.
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NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
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DIVIDEND REINVESTMENT PLAN JUNE 30, 1998
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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 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
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NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
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DIVIDEND REINVESTMENT PLAN JUNE 30, 1998
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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 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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BULK RATE
PO Box 34602 U.S. POSTAGE
Charlotte, NC 28234-4602 PAID
Toll Free 1-800-982-2271 BOSTON, MA
PERMIT NO.
105
SA04 6/98
