<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, 1999
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 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 annual report for Nations
Government Income Term Trust 2004, Inc. (the "Company") for the twelve-month
period ending December 31, 1999, and to share our outlook for the near term.
INVESTMENT OBJECTIVES
The Company is a closed-end investment company, and its shares are traded on the
New York Stock Exchange under the symbol "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, 1999, the Company distributed
net investment income of $0.5928 per share. The December 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 6.68%, based
upon the closing market price of $8.8750 per share on December 31, 1999. The net
asset value of the Company's shares on December 31, 1999 was $9.56 per share.
The Company's total return for the twelve-month period was 1.77%, based on the
net asset value at the end of the period.
MARKET ENVIRONMENT
Early in the past year, the bond market's focus shifted from receding global
disinflationary shocks to domestic U.S. economic strength. As this occurred,
capital began to flow out of safe harbor investments such as U.S. Treasury
securities back into equities and spread sector instruments such as corporate
bonds and mortgage-backed securities. (Spread sector instruments provide
additional yield over similar maturity U.S. Treasury securities). As a result,
equity valuations improved, spread sectors began to tighten, and the threat of
potential inflation captured the market's attention.
Interest rates rose steadily during much of the past year based in part on the
perception that strong domestic growth could not be sustained. The Federal
Reserve Board (the Fed) took back all three interest rate eases from 1998,
totaling 75 basis points. Over the same annual period, market yields rose 170
basis points for the 2-year note, 181 basis points for the 5-year note and 138
basis points for the long bond (30-year). The yield on the 5-year note finished
the year at 6.34%. The lowest unemployment rate in 30 years and a near-record
level of consumer confidence contributed to the bearish sentiment about interest
rates, and the market has discounted further hikes in rates by the Fed in the
months ahead. We believe the Fed is now determined to head off potential
imbalances between the demand and supply sides of the economy before they
curtail the current record U.S. expansion.
While U.S. Treasury yields rose through most of the year, spread sectors
finished with much better relative performance. Mortgage-backed securities,
investment-grade corporate bonds, asset-backed securities and government agency
offerings all posted returns superior to U.S. Treasury bonds. Mortgage-backed
securities and corporate bonds in particular benefited from tightening spreads
through most of the year as they outperformed the U.S. Treasury market. Positive
technicals, historically cheap valuations, and improving liquidity combined to
boost the relative performance of these sectors as investment cash flowed out of
U.S. Treasuries.
MARKET OUTLOOK
Bond market consensus continues to look for a modest uptick in inflation, and
believes a vigilant Fed will continue to act to head off more severe problems by
raising short-term interest rates. Much bearish sentiment is priced in at
current levels, but interest rates should feel pressured to move higher until
either the Fed is finished raising rates or the economy falters. Meanwhile, we
remain positive on spread sectors, especially mortgage-backed securities. Here,
the combination of
- ---------------
THE PAST PERFORMANCE QUOTED IS NOT AN INDICATION OF FUTURE RESULTS.
1
<PAGE> 4
low issuance and still generous spreads should contribute to good relative
performance ahead. The market will have room to rally once the Fed has finished
raising rates, as we see a continuation of the positive benefits from
productivity growth holding inflation down.
We thank you for your continued support.
Sincerely,
/s/ Robert H. Gordon
- --------------------
Robert H. Gordon
President
December 31, 1999
P.S. At the February FOMC Meeting, the Federal Reserve Board raised the Fed
Funds rate by 25 basis points.
2
<PAGE> 5
Nations Government Income Term Trust 2004, Inc.
STATEMENT OF NET ASSETS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 51.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 14.4%
GOLD:
$ 1,901 5.500% 06/01/03........................ $ 1,823
4,964 6.000% 08/01/03........................ 4,836
603 8.000% 11/01/03........................ 612
REMIC:
19 Series 1437 W, CMO, PAC, Inverse
Floater, 6.417%** 11/15/19........... 19
295 Series 1489 VB, CMO, SUP,
Inverse Floater,
5.293%** 10/15/07.................... 274
3,578 Series 1544 SA, CMO, TAC, Inverse
Floater, 5.200%** 07/15/08........... 3,502
1,076 Series 1550 SD, CMO, TAC, Inverse
Floater, 4.286%** 07/15/08........... 971
243 Series 1644 NB, PAC, Inverse Floater,
4.100%** 12/15/23.................... 208
5,115 Series 1693 SC, CMO, TAC, Inverse
Floater, 4.100%** 03/15/09........... 4,380
--------
16,625
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 36.8%
866 7.000% 08/01/03........................ 863
REMIC:
738 Certificate 92-150 SU, CMO, PAC,
Inverse Floater, 5.600%** 05/25/21... 734
20,000 Certificate 92-193 HD, CMO, PAC, 7.000%
11/25/07............................. 19,793
1,645 Certificate 93-12 ED, CMO, AD, 7.500%
02/25/06............................. 1,657
716 Certificate 93-179 SG, TAC, Inverse
Floater, 3.311%** 10/25/23........... 680
540 Certificate 93-202 VB, PAC, Inverse
Floater, 3.714%** 11/25/23........... 453
744 Certificate 93-214 SP, CMO, PAC,
Inverse Floater, 2.842%** 12/25/08... 709
1,011 Certificate 93-231 SA, CMO, SCH,
Inverse Floater, 3.000%** 12/25/08... 896
3,887 Certificate 93-247 SK, CMO, AD, Inverse
Floater, 6.825%** 02/25/23........... 3,787
9,951 Certificate 94-82 B, CMO, TAC, 8.000%
03/25/17............................. 9,865
3,058 Certificate G93-32 H, CMO, AD, 6.750%
09/25/03............................. 3,042
--------
42,479
--------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost: $60,886)........................ 59,104
--------
MUNICIPAL BONDS AND NOTES -- 13.0%
ILLINOIS -- 2.7%
3,845 University of Illinois, Revenue Bonds,
Auxiliary Facilities, Series 1991,
(AMBAC Insured), 5.050%*** 04/01/04.. 3,103
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------
<S> <C> <C> <C>
KENTUCKY -- 1.4%
$ 2,000 Kentucky State Turnpike Authority,
Economic Development Revenue, Capital
Appreciation, Series 1992, (FGIC
Insured), 5.080%*** 01/01/04......... $ 1,639
--------
TEXAS -- 7.9%
3,340 Conroe, Texas, Independent School
District, GO, Capital Appreciation,
Series 1993, (PSFG Insured),
5.500%*** 02/01/04................... 2,719
2,080 Lower Colorado River Authority, Texas,
Revenue Bonds, Capital Appreciation,
Series 1991B, (AMBAC Insured),
5.450%*** 01/01/04................... 1,704
2,500 San Antonio, Texas, Electric & Gas
Revenue, Capital Appreciation, Series
1989A, (AMBAC Insured), 5.033%***
02/01/04............................. 2,036
3,165 Texas State, GO, Capital Appreciation,
Series 1992, (FGIC Insured),
5.160%*** 04/01/04................... 2,558
--------
9,017
--------
WASHINGTON -- 1.0%
1,500 Washington State, Public Power Supply
System Revenue, Series 1990, (MBIA-
IBC Insured), 5.300%*** 07/01/04..... 1,194
--------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost: $14,838)........................ 14,953
--------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS -- 19.9%
FEDERAL HOME LOAN BANK (FHLB) -- 3.2%
4,000 5.100% 02/05/04........................ 3,748
--------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 11.0%
13,400 5.625% 02/20/04........................ 12,663
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- 5.7%
6,800 5.940% 01/27/03........................ 6,591
--------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(Cost: $24,062)........................ 23,002
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 6
Nations Government Income Term Trust 2004, Inc.
STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 12.4%
U.S. TREASURY NOTES -- 12.1%
$ 5,000 5.625% 09/30/01........................ $ 4,950
9,220 5.875% 02/15/04........................ 9,060
--------
14,010
--------
U.S. TREASURY STRIPS -- 0.3%
372 Interest Only, due 11/15/01............ 332
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost: $14,209)........................ 14,342
--------
SHORT TERM INVESTMENTS -- 2.4%
(Cost: $2,788)
2,800 FMC Discount note, due 01/28/00........ 2,788
--------
TOTAL INVESTMENTS
(Cost $116,783*)................ 98.9% 114,189
--------
OTHER ASSETS AND LIABILITIES
(NET)......................... 1.1%
Cash................................... 285
Interest receivable.................... 1,097
Administration fee payable............. (5)
Accrued Trustees'/Directors' fees and
expenses............................. (3)
Accrued expenses and other
liabilities.......................... (131)
--------
TOTAL OTHER ASSETS AND LIABILITIES
(NET)................................ 1,243
--------
NET ASSETS...................... 100.0% $115,432
========
NET ASSETS CONSIST OF:
Undistributed net investment income.... $ 3,040
Accumulated net realized loss on
investments sold..................... (898)
Net unrealized depreciation of
investments.......................... (2,594)
Paid-in capital........................ 115,884
--------
NET ASSETS............................. $115,432
========
Net asset value per share
($115,432,346/ 12,077,206 shares
outstanding)......................... 9.56
====
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $729 and gross depreciation
of $3,184 for Federal income tax purposes. At December 31, 1999, the
aggregate cost of securities for Federal income tax purposes was $116,644.
** Variable rate note. The interest rate shown reflects the rate in effect at
December 31, 1999.
*** Zero Coupon Security. The rate shown is the effective yield at date of
purchase.
ABBREVIATIONS:
<TABLE>
<S> <C>
AD Accretion Directed
AMBAC American Municipal Bond Assurance Corporation
CMO Collateralized Mortgage Obligation
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
Nations Government Income Term Trust 2004, Inc.
STATEMENT OF OPERATIONS
For the year ended December 31, 1999
<TABLE>
<S> <C>
(IN THOUSANDS)
INVESTMENT INCOME:
Interest.................................................... $ 7,894
--------------
EXPENSES:
Investment advisory fee..................................... 601
Administration fee.......................................... 300
Transfer agent fees......................................... 62
Legal and audit fees........................................ 56
Custodian fees.............................................. 19
Directors' fees and expenses................................ 11
Other....................................................... 59
--------------
Total expenses.......................................... 1,108
Fees waived by investment advisor and administrator......... (841)
Fees reduced by credits allowed by the custodian............ (10)
--------------
Net expenses............................................ 257
--------------
NET INVESTMENT INCOME....................................... 7,637
--------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investments..................... 726
Net change in unrealized appreciation/(depreciation) of
investments............................................... (6,778)
--------------
Net realized and unrealized gain/(loss) on investments...... (6,052)
--------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 1,585
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
Nations Government Income Term Trust 2004, Inc.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/99 12/31/98
<S> <C> <C>
(IN THOUSANDS)
Net investment income....................................... $ 7,637 $ 8,220
Net realized gain/(loss) on investments..................... 726 961
Net change in unrealized appreciation/(depreciation) of
investments............................................... (6,778) 1,498
-------------- --------------
Net increase/(decrease) in net assets resulting from
operations................................................ 1,585 10,679
Distributions to shareholders from net investment income.... (7,274) (7,491)
Net increase/(decrease) in net assets from Fund share
transactions.............................................. (3,258) (3,212)
-------------- --------------
Net increase/(decrease) in net assets....................... (8,947) (24)
-------------- --------------
NET ASSETS:
Beginning of year........................................... 124,379 124,403
-------------- --------------
End of year................................................. $ 115,432 $ 124,379
============== ==============
Undistributed net investment income/(distributions in excess
of net investment income) at end of year.................. $ 3,040 $ 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 year.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99+ 12/31/98+ 12/31/97+ 12/31/96+ 12/31/95
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year.................... $ 10.00 $ 9.73 $ 9.27 $ 8.86 $ 7.62
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................................. 0.62 0.65 0.74 0.72 0.66
Net realized and unrealized gain/(loss) on
investments......................................... (0.49) 0.19 0.29 (0.33) 1.23
-------- -------- -------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations............................... 0.13 0.84 1.03 0.39 1.89
Distributions:
Dividends from net investment income.................. (0.59) (0.59) (0.61) (0.65) (0.64)
Distributions in excess of net investment income...... -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total distributions................................... (0.59) (0.59) (0.61) (0.65) (0.65)
-------- -------- -------- -------- --------
Increase from repurchase of common shares............. 0.02 0.02 0.04 0.04 --
Increase due to capital contribution.................. -- -- -- 0.63 --
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 9.56 $ 10.00 $ 9.73 $ 9.27 $ 8.86
======== ======== ======== ======== ========
Market value, end of year............................. $ 8.875 $ 9.438 $ 8.813 $ 8.000 $ 8.000
======== ======== ======== ======== ========
Total return++........................................ 0.24% 14.27% 18.24% 8.27% 26.29%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (000)......................... $115,432 $124,379 $124,403 $125,573 $124,388
Ratio of operating expenses to average net assets..... 0.21% 0.26% 0.27% 0.29% 0.56%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian........................................... 0.22% 0.28% 0.28% 0.30% 0.57%
Ratio of net investment income to average net
assets.............................................. 6.36% 6.56% 7.86% 8.01% 7.97%
Portfolio turnover rate............................... 26% 39% 11% 4% 88%
Ratio of operating expenses to average net assets
without waivers, expenses reimbursed and/or fees
reduced by credits allowed by the custodian......... 0.92% 1.00% 0.99% 1.01% 1.09%
</TABLE>
- ---------------
+ Per share net investment income has been calculated using the monthly average
shares method.
++ Total return represents aggregate total return for the period based on market
value at period end.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 10
Nations Government Income Term Trust 2004, Inc.
NOTES TO FINANCIAL STATEMENTS
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 may be valued at their fair value by Banc of America
Advisors, Inc. ("BAAI") (formerly known as NationsBanc Advisors, Inc.), the
Company's investment adviser, under the supervision of the Board of Directors.
Certain securities may be valued by one or more principal market makers.
Short-term investments that mature in 60 days or less are valued at amortized
cost.
Securities transactions and investment income: Securities transactions are
accounted for on trade date. Realized gains or losses are computed based on the
specific identification of securities sold. Interest income, adjusted for
accretion of discounts and amortization of premiums, is earned from settlement
date and is recorded on an accrual basis.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. The Company instructs its custodian to establish a
segregated account in which it will maintain cash or U.S. government securities
or other high grade debt securities at least equal in value to its commitments
for such securities.
Inverse floating rate obligations: Inverse floating rate obligations ("inverse
floaters") are tranches of a REMIC or CMO with an interest rate that moves
inversely to a specified index. The interest rate, which is adjust periodically,
is based on a formula incorporating a specific index times a multiplier, plus or
minus a spread over the index. The value and related unrealized and realized
gain or loss (due to changes in interest rates) on an inverse floater can be
much more volatile than other debt securities because of the inverse floater's
multiple to the index.
Dividends and distributions to shareholders: It is the policy of the Company to
declare and pay distributions from net investment income monthly to
shareholders. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. 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 for the year ended December 31, 1999, resulting from
differences in book and tax accounting for REMICs and CMOs, have been
reclassified to reflect an increase to undistributed net investment income of
$761,475, an increase to accumulated net realized loss of $1,040,751 and an
increase to paid-in capital of $279,276.
Federal income tax: The Company intends to continue to qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the applicable requirements of the Internal
Revenue Code of 1986, as amended, and by distributing substantially all of its
taxable earnings to its shareholders.
2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND OTHER
RELATED PARTY TRANSACTIONS
The Company has entered into an investment advisory agreement with BAAI, a
wholly-owned subsidiary of Bank of America, N.A. ("Bank of America") which in
turn is a wholly-owned banking subsidiary of Bank of America Corporation, a bank
holding company organized as a Delaware corporation. Pursuant to the investment
advisory agreement, the Company pays BAAI a monthly fee equal to an annual rate
of 0.50% of the Company's average weekly net assets. For the year ended
8
<PAGE> 11
Nations Government Income Term Trust 2004, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999, BAAI voluntarily waived all of its fees.
The Company and BAAI have entered into a sub-advisory agreement with TradeStreet
Investment Associates, Inc. ("TradeStreet"), a wholly-owned subsidiary of Bank
of America, pursuant to which TradeStreet is entitled to receive a sub-advisory
fee from BAAI at an annual rate of 0.15% of the Company's average weekly net
assets. For the year ended December 31, 1999, TradeStreet voluntarily waived all
of its fees.
BAAI is the Company's administrator. In its role as administrator, BAAI
supervises the Company's overall day-to-day operations and provides certain
administrative services. BAAI also maintains certain of the Company's books and
records and furnishes, at its own expense, such clerical assistance, bookkeeping
and other administrative services as the Company may reasonably require in the
conduct of its business. As compensation for both the administrative services
and the expenses assumed by BAAI, the Company pays BAAI a monthly fee equal to
an annual rate of 0.25% of the Company's average weekly net assets. For the year
ended December 31, 1999, BAAI voluntarily waived administration fees of
$240,211.
The Bank of New York ("BNY") serves as sub-administrator of the Company pursuant
to an agreement with BAAI and provides certain administrative services in
support of the operations of the Company. The fees of BNY are paid out of the
fees paid to BAAI by the Company for administration services.
Effective December 1, 1999, First Data Investor Services Group, Inc., the
Company's transfer agent and dividend disbursing agent, was acquired by PFPC
Inc. ("PFPC"). PFPC began serving as the transfer agent and dividend disbursing
agent for the Company on that date, and is providing the same services as those
previously provided by First Data Investor Services Group, Inc.
BNY also serves as the custodian of the Company's assets. For the year ended
December 31, 1999, expenses of the Company were reduced by $10,499 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 Bank of America, BAAI, TradeStreet or PFPC,
or any affiliate thereof, receives any compensation from the Company for serving
as a Director or Officer of the Company.
3. SECURITIES TRANSACTIONS
For the year ended December 31, 1999, the cost of purchases and proceeds from
sales of long-term U.S. government securities aggregated $45,039,297 and
$27,881,217, respectively.
4. COMMON STOCK
At December 31, 1999, 1,000,000,000 shares of common stock, $0.001 par value,
were authorized.
The Board of Directors of the Company has approved a stock repurchase plan that
gives the Company the flexibility to engage in repurchases of its outstanding
common stock. Accordingly, shareholders are notified that, from time to time,
the Company may purchase shares of its common stock in an open market when
management of the Company believes that such purchases are appropriate in light
of market conditions, including the presence of a market discount. For the years
ended December 31, 1999 and December 31, 1998, the Company repurchased shares of
its common stock in the open market at an average discount of approximately 7%
and 8%, respectively, from its net asset value. All repurchased shares have been
retired by the Company.
9
<PAGE> 12
Nations Government Income Term Trust 2004, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Common stock transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/99 12/31/98
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
<S> <C> <C> <C> <C>
Shares repurchased by the Company.............. (358,300) $(3,257,790) (355,100) $(3,212,356)
</TABLE>
5. CAPITAL LOSS CARRYFORWARD
As of December 31, 1999, the Company had available for Federal income tax
purposes a capital loss carryforward of $1,036,843 expiring in the year 2003.
The Company utilized $228,144 of capital loss carryforward during the year.
6. SUBSEQUENT EVENT
On January 18, 2000, TradeStreet changed its name to Banc of America Capital
Management, Inc. ("BACAP").
10
<PAGE> 13
Nations Government Income Term Trust 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 net assets, 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 "Fund") at December 31,
1999, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund'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 auditing standards generally accepted in the United States, 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, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
February 16, 2000
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Nations Government Income Term Trust 2004, Inc.
DIVIDEND REINVESTMENT PLAN
The Company's Dividend Reinvestment Plan (the "Plan") offers an automatic way to
reinvest dividends and capital gains distributions in shares of the Company.
PARTICIPATION
Shareholders of record will receive their dividends in cash unless they have
otherwise instructed PFPC (the "Plan Agent"), acting as agent for each
participant in the Plan, in writing. Such a notice must be received by the Plan
Agent not less than 5 business days prior to the record date for a dividend or
distribution in order to be effective with respect to that dividend or
distribution. A notice which is not received by that time will be effective only
with respect to subsequent dividends and distributions.
Shareholders who do not participate in the Plan will receive all distributions
by check mailed directly to the shareholder by PFPC, as dividend paying agent.
For Federal income tax purposes, dividends are treated as income or capital
gains, regardless of whether they are received in cash or reinvested in
additional shares.
Participants may terminate their participation in the Plan by written notice to
the Plan Agent. If the written notice is received at least 5 business days
before the record date of any distribution, it will be effective immediately. If
received after that date, it will be effective as soon as possible after the
reinvestment of the dividend or distribution.
PRICING OF DIVIDENDS AND DISTRIBUTIONS
Whenever the Company's Board of Directors declares a dividend or other
distribution payable in cash or, at the option of the Plan Agent, in shares of
capital stock issued by the Company, the Plan Agent will elect, on behalf of the
participants, to receive the dividend in authorized but unissued shares of
capital stock if the net asset value per share (as determined by the investment
advisor of the Company as of the close of business on the record date for the
dividend or distribution) is equal to or less than 95% of the closing market
price per share of the capital stock of the Company on the New York Stock
Exchange (the "Exchange") on such record date plus estimated brokerage
commissions. The number of such authorized but unissued shares to be credited to
a participant's account will be determined as of the close of business on the
record date for the dividend, by valuing such shares at the greater of the net
asset value per share or 95% of the market price per share. The Plan Agent will
credit each participant's account with the number of shares corresponding in
value, as determined under the foregoing formula, to the amount such participant
would have received in cash had such participant not elected to participate in
this Plan.
If the net asset value per share is equal to or less than the closing market
price per share of the capital stock of the Company on the Exchange on such
record date plus estimated brokerage commissions but exceeds 95% of such closing
market price plus estimated brokerage commissions, the Plan Agent may elect, on
behalf of all participants, (i) to take the dividend in cash and as soon as
practicable thereafter, consistent with obtaining the best price and execution,
proceed to purchase in one or more transactions the shares of capital stock in
the open market, at the then current price as hereinafter provided, and will
credit each participant's account with the number of shares corresponding in
value, as determined by the price actually paid on the open market for such
shares including brokerage expenses, to the amount such participant would have
received in cash had such participant not elected to participate in this Plan or
(ii) to receive the dividend in authorized but unissued shares of capital stock,
in which case the Plan Agent will credit each participant's account with the
number of shares corresponding in value (determined by valuing such shares at
the greater of the net asset value per share or 95% of the market price per
share, in each case as of the close of business on the record date for the
dividend or distribution) to the amount such participant would have received in
cash had such participant not elected to participate in this Plan.
If the net asset value per share is higher than the closing market price per
share of the capital stock on the Exchange including estimated brokerage
commissions on such record date, the Plan Agent will elect to take the dividend
in cash and as soon as practicable, consistent with obtaining the best price and
execution, the Plan Agent will proceed to purchase in one or more transactions
the shares of capital stock in the open market, at the then current price as
hereinafter provided. Each participant's account will be credited with the
number of shares corresponding in value, as determined by the price actually
paid on the open market for such shares including brokerage expenses, to the
amount such participant would have received in cash had such participant not
elected to participate in this Plan. Under such circumstances, in anticipation
of receipt of a dividend in cash, the Plan Agent may purchase shares in
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Nations Government Income Term Trust 2004, Inc.
DIVIDEND REINVESTMENT PLAN (CONTINUED)
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 PFPC Inc., P.O. Box 34602, Charlotte, NC 28234, (800) 982-2271.
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Nations Government Income Term Trust 2004, Inc.
ANNUAL MEETING OF STOCKHOLDERS
ANNUAL MEETING OF STOCKHOLDERS
On September 17, 1999, the Company held its Annual Meeting of Stockholders.
Thomas F. Keller was elected as a Director of the Company by the following
votes: 11,336,979 For, 0 Withheld. In the only other matter voted upon at the
Annual Meeting, the selection of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1999, was
ratified by the following votes: 11,341,646 For, 70,266 Withheld.
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PO Box 34602
Charlotte, NC 28234-4602
Toll Free 1.800.321.7854
A2004 12/99
