<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NATIONS GOVERNMENT INCOME
TERM TRUST 2004, INC.
S E M I
A N N U A L
R E P O R T
FOR THE PERIOD ENDED JUNE 30, 1999
NATIONS
GOVERNMENT
INCOME TERM
TRUST 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
NOT MAY LOSE VALUE
FDIC
INSURED NO BANK GUARANTEE
</TABLE>
SHARES OF THE COMPANY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY 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 2004, INC.
DEAR SHAREHOLDER:
We welcome this opportunity to provide you with the semi-annual report for
Nations Government Income Term Trust 2004, Inc. (the "Company") for the
six-month period ending June 30, 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 "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 March
31, 2004.
PORTFOLIO PERFORMANCE*
For the six-month period ending June 30, 1999, the Company distributed net
investment income of $0.29 per share. The June dividend was $0.0494 per share.
This dividend rate 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 6.45%, based upon the
closing market price of $9.188 per share on June 30, 1999. The net asset value
of the Company's shares on June 30, 1999 was $9.73 per share. The Company's
total return for the six-month period was 0.31%, based on net asset value at the
end of the period.
MARKET ENVIRONMENT
Persistent strength in the U.S. economy has replaced global event risk as the
primary driver of the bond market over the past six months. Above-trend growth
and the perception of a growing inflation threat caused interest rates to rise
over most of the period. The Federal Reserve Board (the "Fed") got into the act
in May as it began telegraphing an increase in the Federal funds rate. The
problem for the market and for the Fed has been the threat of strong consumer
spending and a tight labor market leading to eventual inflation. This concern
led the Fed to raise interest rates by 25 basis points in June, taking back one
of last fall's series of rate cuts. After raising rates, the Fed adopted a
neutral bias. By adopting a neutral bias, however, the Fed signalled a
wait-and-see attitude before it acts again. If the economy downshifts as they
expect, we look for a steady state Fed in the months ahead.
The increase in interest rates throughout the last six months was steady and
persistent. Neither Brazil's currency devaluation nor NATO airstrikes in the
Balkans halted the increase. Yields on the five-year Treasury note rose from
4.5% in January to a peak of 5.9% in June. Bond yields were spurred higher by
above-trend U.S. economic strength and by a flight away from the safety of U.S.
Treasuries as the global economic problems of last year faded into the market's
rear-view mirror. Mortgage-backed securities outperformed Treasuries during most
of the period as prepayment risk decreased with higher yields and investors
sought income. As rates climbed past the highs from a year ago, extension risk
resurfaced and mortgages gave back some performance in the second quarter.
MARKET OUTLOOK
After raising rates in June, the Fed adopted a neutral bias. This was a signal
to many that the Fed was not planning a sequence of hikes but is willing to wait
for U.S. economic data to indicate its next course of action, and will likely
telegraph any future actions well in advance. Mortgage-backed securities have
value at current spread levels, and should be good performers in the period
ahead if the Fed is right on its forecast. Risks of inflation are still present
as long as the consumer is spending and job markets are tight. In addition,
interest rates could go higher from here if we see any outbreak in inflation or
if labor markets tighten further, but for now the expectation is for conditions
to stabilize. In a stable economic environment, mortgage-backed securities
historically have performed well, and we think it likely they will do so in the
coming months.
We thank you for your continued support.
Sincerely,
/s/ Robert H. Gordon
Robert H. Gordon
President
June 30, 1999
- ---------------
* THE PAST PERFORMANCE INFORMATION QUOTED IS NOT AN INDICATION OF FUTURE
RESULTS.
1
<PAGE> 4
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
STATEMENT OF NET ASSETS JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- 75.2%
FEDERAL HOME LOAN BANK (FHLB) -- 3.2%
$ 4,000 5.100% 02/05/04............................................. $ 3,830
-------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 28.1%
13,400 5.625% 02/20/04............................................. 13,090
GOLD:
2,214 5.500% 06/01/03............................................. 2,150
5,927 6.000% 08/01/03............................................. 5,842
794 8.000% 11/01/03............................................. 811
REMIC:
899 Series 1437 W, CMO, PAC, Inverse Floater,
9.916%** 11/15/19........................................... 908
490 Series 1489 VB, CMO, SUP, Inverse Floater,
8.079%** 10/15/07........................................... 455
4,500 Series 1544 SA, CMO, TAC, Inverse Floater,
9.100%** 07/15/08........................................... 4,485
1,243 Series 1550 SD, CMO, TAC, Inverse Floater,
6.857%** 07/15/08........................................... 1,122
327 Series 1644 NB, PAC, Inverse Floater,
7.100%** 12/15/23........................................... 298
5,115 Series 1693 SC, CMO, TAC, Inverse Floater,
7.100%** 03/15/09........................................... 4,381
-------
33,542
-------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 43.9%
6,800 5.940% 01/27/03............................................. 6,748
950 7.000% 08/01/03............................................. 955
REMIC:
1,471 Certificate 92-150 SU, CMO, PAC, Inverse Floater,
8.881%** 05/25/21........................................... 1,467
20,000 Certificate 92-193 HD, CMO, PAC,
7.000% 11/25/07............................................. 20,253
1,645 Certificate 93-12 ED, CMO, AD,
7.500% 02/25/06............................................. 1,678
964 Certificate 93-179 SG, TAC, Inverse Floater,
6.416%** 10/25/23........................................... 933
626 Certificate 93-202 VB, PAC, Inverse Floater,
6.326%** 11/25/23........................................... 553
874 Certificate 93-214 SP, CMO, PAC, Inverse Floater,
5.420%** 12/25/08........................................... 839
1,082 Certificate 93-231 SA, CMO, SCH, Inverse Floater,
7.219%** 12/25/08........................................... 976
4,141 Certificate 93-247 SK, CMO, AD, Inverse Floater,
11.747%** 02/25/23.......................................... 4,237
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE> 5
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
STATEMENT OF NET ASSETS (CONTINUED) JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- (CONTINUED)
$10,000 Certificate 94-82 B, CMO, TAC,
8.000% 03/25/17............................................. $10,175
3,410 Certificate G93-32 H, CMO, AD,
6.750% 09/25/03............................................. 3,429
-------
52,243
-------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $91,187).............................................. 89,615
-------
MUNICIPAL BONDS AND NOTES -- 12.4%
ILLINOIS -- 2.6%
3,845 University of Illinois, Revenue Bonds, Auxiliary Facilities,
Series 1991, (AMBAC Insured), 5.050%*** 04/01/04............ 3,078
-------
KENTUCKY -- 1.4%
2,000 Kentucky State Turnpike Authority, Economic Development
Revenue, Capital Appreciation, Series 1992, (FGIC Insured),
5.080%*** 01/01/04.......................................... 1,625
-------
TEXAS -- 7.4%
3,340 Conroe, Texas, Independent School District, GO, Capital
Appreciation, Series 1993, (PSFG Insured),
5.500%*** 02/01/04.......................................... 2,698
2,080 Lower Colorado River Authority, Texas, Revenue Bonds,
Capital Appreciation, Series 1991B, (AMBAC Insured),
5.450%*** 01/01/04.......................................... 1,691
2,500 San Antonio, Texas, Electric & Gas Revenue, Capital
Appreciation, Series 1989A, (AMBAC Insured),
5.033%*** 02/01/04.......................................... 2,019
3,165 Texas State, GO, Capital Appreciation, Series 1992, (FGIC
Insured),
5.160%*** 04/01/04.......................................... 2,537
-------
8,945
-------
WASHINGTON -- 1.0%
1,500 Washington State, Public Power Supply System Revenue, Series
1990, (MBIA-IBC Insured), 5.300%*** 07/01/04................ 1,187
-------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $14,454).............................................. 14,835
-------
U.S. TREASURY OBLIGATIONS -- 8.4%
U.S. TREASURY NOTES -- 8.1%
450 5.750% 06/30/01............................................. 452
9,220 5.875% 02/15/04............................................. 9,272
-------
9,724
-------
U.S. TREASURY STRIPS -- 0.3%
372 6.138%*** 11/15/01.......................................... 326
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $9,631)............................................... 10,050
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 6
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
STATEMENT OF NET ASSETS (CONTINUED) JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
SHORT TERM INVESTMENTS -- 3.1%
(Cost $3,735)
$ 3,750 FMC Discount note,
5.073%+ 07/29/99............................................ $ 3,735
-------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $119,007*).......................................... 99.1% 118,235
--------
OTHER ASSETS AND LIABILITIES (NET).......................... 0.9%
Cash............................................................... $ 706
Interest receivable................................................ 1,130
Payable for Fund shares redeemed................................... (161)
Administration fee payable......................................... (5)
Payable for investment securities purchased........................ (451)
Accrued Directors' fees and expenses............................... (2)
Accrued expenses and other liabilities............................. (175)
--------
TOTAL OTHER ASSETS AND LIABILITIES (NET)........................... 1,042
--------
NET ASSETS.................................................. 100.0% $119,277
========
NET ASSETS CONSIST OF:
Undistributed net investment income................................ $ 2,926
Accumulated net realized loss on investments sold.................. (82)
Net unrealized depreciation of investments......................... (772)
Paid-in capital.................................................... 117,205
--------
NET ASSETS......................................................... $119,277
========
Net asset value per share
($119,276,669/12,256,406 shares of common stock
outstanding).............................................. $ 9.73
========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $537 and gross
depreciation of $1,309 for Federal income tax purposes. At June 30, 1999,
the aggregate cost of securities for Federal income tax purposes was
$119,007.
** Variable rate note. The interest rate shown reflects the rate in effect at
June 30, 1999.
*** Zero Coupon Security. The rate shown is the effective yield at date of
purchase.
+ Rate represents annualized yield at date of purchase.
ABBREVIATIONS:
AD -- Accretion Directed
AMBAC -- American Municipal Bond Assurance Corporation
CMO -- Collateralized Mortgage Obligation
FGIC -- Financial Guaranty Insurance Company
MBIA-IBC -- Municipal Bond Insurance Association -- Insured Bond Certificate
PAC -- Planned Amortization Class
PSFG -- Permanent School Fund Guaranteed
REMIC -- Real Estate Mortgage Investment Conduit
SCH -- Scheduled Pay Bond
SUP -- Support Bond
TAC -- Targeted Amortization Class
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 4,847
-------
EXPENSES:
Investment advisory fee..................................... 306
Administration fee.......................................... 153
Transfer agent fees......................................... 38
Legal and audit fees........................................ 35
Custodian fees.............................................. 18
Directors' fees and expenses................................ 8
Other....................................................... 46
-------
Total expenses......................................... 604
Fees waived by investment advisor and administrator......... (428)
Fees reduced by credits allowed by the custodian............ (7)
-------
Net expenses........................................... 169
-------
NET INVESTMENT INCOME....................................... 4,678
-------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investments..................... 501
Net change in unrealized appreciation/(depreciation) of
investments............................................... (4,956)
-------
Net realized and unrealized gain/(loss) on investments...... (4,455)
-------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 223
=======
</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
6/30/99 ENDED
(UNAUDITED) 12/31/98
----------- ----------
<S> <C> <C>
(IN THOUSANDS)
Net investment income....................................... $ 4,678 $ 8,220
Net realized gain/(loss) on investments..................... 501 961
Net change in unrealized appreciation/(depreciation) of
investments............................................... (4,956) 1,498
-------- --------
Net increase/(decrease) in net assets resulting from
operations................................................ 223 10,679
Distributions to shareholders from net investment income.... (3,667) (7,491)
Net increase/(decrease) in net assets from Fund share
transactions.............................................. (1,658) (3,212)
-------- --------
Net increase/(decrease) in net assets....................... (5,102) (24)
NET ASSETS:
Beginning of period......................................... 124,379 124,403
-------- --------
End of period............................................... $119,277 $124,379
======== ========
Undistributed net investment income/(distributions in excess
of net investment income) at end of period................ $ 2,926 $ 1,915
======== ========
</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 YEAR
6/30/99++ ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/98++ 12/31/97++ 12/31/96++ 12/31/95 12/31/94*
----------- ---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 10.00 $ 9.73 $ 9.27 $ 8.86 $ 7.62 $ 9.45#
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income....................... 0.38 0.65 0.74 0.72 0.66 0.57
Net realized and unrealized gain/(loss) on
investments............................... (0.37) 0.19 0.29 (0.33) 1.23 (1.85)
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from investment operations...... 0.01 0.84 1.03 0.39 1.89 (1.28)
Distributions:
Dividends from net investment income........ (0.29) (0.59) (0.61) (0.65) (0.64) (0.55)
Distributions in excess of net investment
income.................................... -- -- -- -- (0.01) --
-------- -------- -------- -------- -------- --------
Total distributions......................... (0.29) (0.59) (0.61) (0.65) (0.65) (0.55)
-------- -------- -------- -------- -------- --------
Increase from repurchase of common shares... 0.01 0.02 0.04 0.04 -- --
Increase due to capital contribution........ -- -- -- 0.63 -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period.............. $ 9.73 $ 10.00 $ 9.73 $ 9.27 $ 8.86 $ 7.62
======== ======== ======== ======== ======== ========
Market value, end of period................. $ 9.188 $ 9.438 $ 8.813 $ 8.000 $ 8.000 $ 6.875
======== ======== ======== ======== ======== ========
Total return+++............................. 0.46% 14.27% 18.24% 8.27% 26.29% (22.12)%
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (000)............. $119,277 $124,379 $124,403 $125,573 $124,388 $106,940
Ratio of operating expenses to average net
assets.................................... 0.28%+ 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.................. 0.29%+ 0.28% 0.28% 0.30% 0.57% --
Ratio of net investment income to average
net assets................................ 7.69%+ 6.56% 7.86% 8.01% 7.97% 8.27%+
Portfolio turnover rate..................... 19% 39% 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%+ 1.00% 0.99% 1.01% 1.09% --
</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.
+++Total return represents aggregate total return for the period indicated,
assumes reinvestment of all distributions, and is based on market value at
period end.
# 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)
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 value by the investment advisor
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 the 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 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.
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 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, SUB-ADVISORY FEE, ADMINISTRATION FEE AND OTHER
RELATED PARTY TRANSACTIONS
The Company has entered into an investment advisory agreement with NationsBanc
Advisors, Inc. ("NBAI"), a wholly-owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is an indirect wholly-owned banking subsidiary of
Bank of America Corporation, a bank holding company organized as a Delaware
corporation, pursuant to which it 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, 1999, NBAI voluntarily waived all of its fees.
8
<PAGE> 11
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Company and NBAI have entered into a sub-advisory agreement with TradeStreet
Investment Associates, Inc. ("TradeStreet"), a wholly-owned subsidiary of
NationsBank, pursuant to which TradeStreet is entitled to receive a sub-
advisory fee from NBAI at an annual rate of 0.15% of the Company's average
weekly net assets. For the six months ended June 30, 1999, TradeStreet
voluntarily waived all of its fees.
NBAI is the Company's administrator. In its role as administrator, NBAI
supervises the Company's overall day-to-day operations and provides certain
administrative services. NBAI 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 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, 1999, NBAI voluntarily waived administration fees of
$125,167.
Effective February 12, 1999, The Bank of New York ("BNY") became
sub-administrator of the Company pursuant to an agreement with NBAI and provides
certain administrative services in support of the operations of the Company.
Prior to that date, First Data Investor Services Group, Inc. ("First Data"), a
wholly-owned subsidiary of First Data Corporation, was sub-administrator. The
fees of BNY (and previously First Data) are paid out of the fees paid to NBAI by
the Company for administration services. First Data serves as the transfer agent
and dividend disbursing agent for the Company.
Effective June 23, 1999, BNY began serving as the custodian of the Company's
assets. Previously, Boston Safe Deposit & Trust Company ("Boston Safe"), a
subsidiary of Mellon Trust, served as the custodian of the Company's assets. For
the six months ended June 30, 1999, expenses of the Company were reduced by
$7,105 under expense offset arrangements with BNY. The Company could have
invested a portion of the assets utilized in connection with the expense offset
arrangements in an income producing asset if they had not entered into such
arrangements.
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.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1999, the cost of purchases and proceeds from
sales of long-term U.S. government securities aggregated $40,054,140 and
$21,703,721, respectively.
4. COMMON STOCK
At June 30, 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 June 30, 1999 and the year ended December 31, 1998, the Company
repurchased shares of its common stock in the open market at an average discount
of approximately 6% and 8%, respectively, from its net asset value. All
repurchased shares have been retired by the Company.
Common stock transactions were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
06/30/99 12/31/98
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------
<S> <C> <C> <C> <C>
Shares repurchased by the Company................. (179,100) $(1,657,949) (355,100) $(3,212,356)
-------- ----------- -------- -----------
</TABLE>
9
<PAGE> 12
NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. CAPITAL LOSS CARRYFORWARD
As of December 31, 1998, the Company had available for Federal income tax
purposes a capital loss carryforward of $1,268,073 expiring in the year 2002.
6. SUBSEQUENT EVENTS
In July of 1999, NationsBank merged into Bank of America, N.A. Effective on or
about September 1, 1999, it is anticipated that NBAI will change its name to
Banc of America Advisors, Inc. Neither of these changes is expected to alter the
level or quality of advisory or other services provided to the Company.
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NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
DIVIDEND REINVESTMENT PLAN
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
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.
DIVIDEND REINVESTMENT 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
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NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC.
DIVIDEND REINVESTMENT PLAN (CONTINUED)
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 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 1-800-321-7854 NORTH READING, MA
PERMIT NO. 105
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SA2004 06/99
