<PAGE> 1
NATIONS BALANCED TARGET
MATURITY FUND, INC.
ANNUAL
REPORT
For the Year Ended March 31, 1997
NATIONS
BALANCED
TARGET
MATURITY FUND
<PAGE> 2
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<TABLE>
<S> <C>
NOT MAY LOSE VALUE
FDIC-
INSURED NO BANK GUARANTEE
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SHARES OF THE NATIONS BALANCED TARGET MATURITY FUND, INC. ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED BY NATIONSBANK, N.A.
("NATIONSBANK") OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE COMPANY INVOLVES
CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND ITS AFFILIATES PROVIDE INVESTMENT ADVISORY AND OTHER SERVICES TO
THE COMPANY, FOR WHICH THEY ARE COMPENSATED.
<PAGE> 3
NATIONS BALANCED TARGET MATURITY FUND, INC.
DEAR SHAREHOLDER:
We welcome this opportunity to provide you with the annual report for
Nations Balanced Target Maturity Fund, Inc. (the "Company") for the fiscal year
ended March 31, 1997.
INVESTMENT OBJECTIVE
The Company, which trades on the New York Stock Exchange under the symbol
"NBM," is a closed-end diversified investment management company. For
shareholders of the Company who purchased shares during the initial public
offering and have reinvested all dividends, the objective remains to return at
least the principal investment on September 30, 2004. In addition, for all
shareholders, the Company seeks long-term growth with income as a secondary
consideration.
PORTFOLIO PERFORMANCE AND ASSET ALLOCATION(1)
The Company continued to pursue its long-term objective over this one-year
period by investing a portion of its assets in Zero Coupon U.S. Treasury
Obligations and the balance of its assets in equity securities.
For the twelve-month period ended March 31, 1997, the total return of the
Company was 13.93%(2) based on an ending market value of $9.00. Over this
period, the Company distributed $0.44 per share of ordinary income to its
shareholders. Additionally, a capital gain of $1.15 per share was distributed
over this same period. As of March 31, 1997, 58.7% of the Company was invested
in Zero Coupon U.S. Treasury Obligations, 35.6% was invested in common stocks
and 4.5% was invested in a repurchase agreement. A breakdown of portfolio
holdings follows.
PORTFOLIO BREAKDOWN AS OF MARCH 31, 1997
<TABLE>
<S> <C>
Zero Coupon U.S. Treasury Obligations.......... 58.7%
Repurchase Agreement........................... 4.5%
Domestic Petroleum............................. 3.9%
Electric Power................................. 2.9%
Computer Software and Services................. 2.8%
Chemicals-Basic................................ 2.6%
Machinery & Equipment.......................... 2.3%
Paper & Forest Products........................ 2.0%
Other Assets & Liabilities..................... 1.2%
Other Common Stocks............................ 19.1%
</TABLE>
INVESTMENT PHILOSOPHY
The equity portion of the Company is invested under the philosophy that
value may be represented in all sectors of the market. By investing in those
companies that the Company's investment adviser believes represent the best
value in each sector, the Company seeks to deliver above-average performance
with below-average risk over a market cycle. Consequently, the portfolio is
broadly diversified across many economic sectors, although certain sectors may
be modestly over- or underweighted relative to the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), from time to time.
- ---------------
(1) THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NOT
PREDICTIVE OF FUTURE RESULTS.
(2) The average annual total return since inception (6/30/94) based on the
market price was 9.49%. Total return represents the change, over a specific
period of time, in the value of an investment in the Company after
reinvesting all income and capital gains.
1
<PAGE> 4
The emphasis in stock selection will continue to be a "bottom-up" analysis
of individual company fundamentals. When evaluating specific equity investment
alternatives, the key investment criteria include a low price-to-earnings ratio,
strong financial quality and a catalyst for improved price performance.
Catalysts for improved price performance typically come in the form of improving
earnings estimates, changes in management, new product development or corporate
restructurings.
MARKET ENVIRONMENT AND PORTFOLIO STRATEGY
Over the past year, the economy accelerated and inflation remained
relatively low. The environment was favorable for corporate profits and a strong
equity market that enhanced the Company's performance. Bond returns were limited
by rising interest rates. The Company continues to hold a significant portion of
the portfolio in Zero Coupon U.S. Treasuries in pursuit of its objective.
The Company reduced its exposure to the finance and healthcare sectors this
past year. Strong stock price performance in these groups resulted in less
attractive valuations. Positions were dramatically lowered in the bank,
insurance, and pharmaceutical areas. Proceeds from these sales were reinvested
into the economically sensitive sectors of the stock market, including basic
materials and capital goods.
The Company's investment adviser believes that the domestic oil, electric
utility and defense groups currently offer compelling valuations and the
prospects for improving long-term earnings growth. Oil industry fundamentals are
strengthening as capacity utilization is rising. Domestic oil companies with an
orientation toward exploration, natural gas or refining are poised for favorable
earnings growth over the next several years. Moreover, certain oil company
management teams appear committed to restructuring programs to enhance profits.
In the electric utility industry, deregulation is creating investment
opportunities and risks for its participants. Those companies with favorable
cost structures, proactive management teams and financial strength should
benefit. The holdings in the defense sector should benefit from ongoing industry
consolidation. Consolidation leads to lower corporate operating costs and in
turn, faster earnings growth.
TOP TEN EQUITY HOLDINGS AS OF MARCH 31, 1997*
<TABLE>
<S> <C>
1. Computer Associates International Inc....... 0.71%
2. Motorola, Inc............................... 0.61
3. Wellman, Inc................................ 0.60
4. Union Texas Petroleum Holdings Inc.......... 0.58
5. Phillips Petroleum Company.................. 0.57
6. Ford Motor Company.......................... 0.56
7. Kerr-McGee Corporation...................... 0.56
8. Nucor Corporation........................... 0.54
9. Electronic Data Systems Corporation......... 0.53
10. Rhone-Poulenc Rorer, Inc.................... 0.53
</TABLE>
* Portfolio holdings are subject to change and may not be representative of
the Company's current holdings.
Thank you for your investment in Nations Balanced Target Maturity Fund,
Inc. We appreciate your confidence and continued support.
Sincerely,
/s/ Mark H. Williamson
Mark H. Williamson
President
March 31, 1997
2
<PAGE> 5
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 35.6%
AEROSPACE AND DEFENSE -- 1.4%
6,100 Litton Industries Inc. ...................................................... $ 245,525
2,800 Lockheed Martin Corporation.................................................. 235,200
5,600 Raytheon Company............................................................. 252,700
-----------
733,425
-----------
APPAREL AND TEXTILES -- 0.4%
3,200 V.F. Corporation............................................................. 214,000
-----------
AUTOMOBILE AND TRUCK MANUFACTURERS -- 0.5%
9,500 Ford Motor Company........................................................... 298,062
-----------
AUTOMOBILE PARTS MANUFACTURERS -- 1.0%
8,300 Cooper Tire & Rubber Company................................................. 153,550
5,800 Dana Corporation............................................................. 190,675
4,900 Snap-On Inc. ................................................................ 189,875
-----------
534,100
-----------
BANKS -- 0.3%
2,000 Bankers Trust N.Y. Corporation............................................... 164,000
-----------
CHEMICALS -- BASIC -- 2.6%
9,800 Cabot Corporation............................................................ 235,200
2,400 Dow Chemical Company......................................................... 192,000
8,900 Georgia Gulf Corporation..................................................... 224,725
4,900 Imperial Chemical Industries Plc, ADR........................................ 222,950
6,200 Mallinckrodt Group Inc. ..................................................... 254,975
4,300 PPG Industries, Inc. ........................................................ 232,200
-----------
1,362,050
-----------
CHEMICALS -- SPECIALTY -- 0.6%
18,000 Wellman, Inc. ............................................................... 315,000
-----------
COAL, GAS AND PIPELINE -- 0.4%
19,000 Transportadora de Gas, ADR................................................... 244,625
-----------
COMPUTER SOFTWARE AND SERVICES -- 2.8%
4,900 Cabletron Systems Inc.+...................................................... 143,325
7,600 Ceridian Corporation+........................................................ 272,650
9,600 Computer Associates International Inc. ...................................... 373,200
7,000 Electronic Data Systems Corporation.......................................... 282,625
2,700 Hewlett-Packard Company...................................................... 143,775
8,200 3Com Corporation+............................................................ 268,550
-----------
1,484,125
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 6
Nations Balanced Target Maturity Fund, Inc.
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SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
<S> <C> <C>
CONSTRUCTION -- 0.5%
4,500 Fluor Corporation............................................................ $ 236,250
-----------
DIVERSIFIED -- 0.5%
10,200 First Brands Corporation..................................................... 249,900
-----------
DRUGS -- 1.1%
3,000 Glaxo Wellcome Plc, ADR...................................................... 106,125
5,000 Pharmacia & Upjohn Inc. ..................................................... 183,125
3,800 Rhone-Poulenc Rorer, Inc. ................................................... 281,200
-----------
570,450
-----------
ELECTRIC POWER -- 2.8%
10,000 Baltimore Gas & Electric Company............................................. 267,500
6,400 Central & South West Corporation............................................. 136,800
5,800 DTE Energy Company........................................................... 155,875
6,200 Duke Power Company........................................................... 273,575
4,200 Florida Progress Corporation................................................. 127,575
10,800 New York State Electric & Gas Company........................................ 233,550
7,000 PECO Energy Company.......................................................... 142,625
7,900 Unicom Corporation........................................................... 154,050
-----------
1,491,550
-----------
ELECTRICAL EQUIPMENT -- 0.4%
3,100 Grainger (W.W.) Inc. ........................................................ 229,400
-----------
ELECTRONICS -- 1.5%
7,100 AMP Inc. .................................................................... 244,062
9,500 Atmel Corporation+........................................................... 227,406
5,300 Motorola, Inc. .............................................................. 319,988
-----------
791,456
-----------
FOOD PRODUCERS -- 1.1%
8,000 IBP, Inc. ................................................................... 197,000
8,100 McCormack & Company, Inc. ................................................... 198,450
4,600 Sara Lee Corporation......................................................... 186,300
-----------
581,750
-----------
FOOD RETAILERS -- 0.3%
6,300 Great Atlantic & Pacific Tea Inc. ........................................... 159,863
-----------
FURNITURE AND APPLIANCES -- 1.1%
7,000 Black & Decker Corporation................................................... 224,875
9,100 Rubbermaid, Inc. ............................................................ 226,362
2,500 Whirlpool Corporation........................................................ 119,063
-----------
570,300
-----------
INSURANCE COMPANIES -- 0.4%
2,100 CNA Financial Corporation+................................................... 225,225
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 7
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
<S> <C> <C>
MACHINERY AND EQUIPMENT -- 2.3%
5,000 Dover Corporation............................................................ $ 262,500
7,000 Foster Wheeler Corporation................................................... 247,625
5,700 General Signal Corporation................................................... 223,013
6,600 Harsco Corporation........................................................... 240,075
7,600 Trinity Industries Inc. ..................................................... 230,850
-----------
1,204,063
-----------
MEDICAL PRODUCTS AND SUPPLIES -- 0.8%
6,000 Bard (C.R.) Inc. ............................................................ 171,000
4,000 Medtronic, Inc. ............................................................. 249,000
-----------
420,000
-----------
MEDICAL SERVICES -- 0.4%
5,700 Columbia/HCA Healthcare Corporation.......................................... 191,663
-----------
OIL -- DOMESTIC -- 3.9%
1,700 Amoco Corporation............................................................ 147,262
6,200 Ashland Oil, Inc. ........................................................... 249,550
1,900 Atlantic Richfield Company................................................... 251,988
6,000 Burlington Resources Inc. ................................................... 256,500
4,800 Kerr-McGee Corporation....................................................... 297,000
7,400 Phillips Petroleum Company................................................... 302,475
7,400 Ultramar Diamond Shamrock Corporation........................................ 234,950
16,600 Union Texas Petroleum Holdings Inc. ......................................... 305,025
-----------
2,044,750
-----------
OIL -- INTERNATIONAL -- 0.4%
1,800 Mobil Corporation............................................................ 235,125
-----------
PAPER AND FOREST PRODUCTS -- 2.0%
2,800 Georgia-Pacific Corporation.................................................. 203,000
4,500 Mead Corporation............................................................. 238,500
8,900 Sonoco Products Company...................................................... 240,300
9,200 Westvaco Corporation......................................................... 231,150
3,600 Weyerhaeuser Company......................................................... 160,650
-----------
1,073,600
-----------
RECREATION -- 0.3%
7,000 Circus Circus Enterprises Inc.+.............................................. 182,000
-----------
RETAIL -- 1.0%
5,900 Mercantile Stores Inc. ...................................................... 273,613
5,800 Penney (J.C.) Company Inc. .................................................. 276,225
-----------
549,838
-----------
STEEL -- 0.7%
3,000 British Steel Plc, ADR....................................................... 79,875
6,200 Nucor Corporation............................................................ 283,650
-----------
363,525
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
<S> <C> <C>
TELECOMMUNICATIONS -- 0.8%
8,700 LCI International Inc. ...................................................... $ 145,725
7,200 Royal PTT Nederland, ADR..................................................... 261,000
-----------
406,725
-----------
TRANSPORTATION -- AIRLINES -- 0.7%
2,200 AMR Corporation+............................................................. 181,500
8,600 Southwest Airlines Company................................................... 190,275
-----------
371,775
-----------
TRANSPORTATION -- RAILROADS -- 0.5%
3,300 Burlington Northern Santa Fe Inc. ........................................... 244,200
-----------
UTILITIES -- NATURAL GAS -- 0.8%
8,800 Brooklyn Union Gas Company................................................... 248,600
5,100 Equitable Resources Inc. .................................................... 156,187
-----------
404,787
-----------
UTILITIES -- TELEPHONE -- 1.3%
2,400 Ameritech Corporation........................................................ 147,600
2,400 Bell Atlantic Corporation.................................................... 146,100
4,600 SBC Communications Inc. ..................................................... 242,075
2,900 Sprint Corporation........................................................... 131,950
-----------
667,725
-----------
TOTAL COMMON STOCKS (Cost $19,150,477)....................................... 18,815,307
===========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<S> <C> <C>
U.S. TREASURY STRIPPED SECURITIES -- 58.7%
$15,256,800 TIGR, Interest Receipt, 7.460% due 08/15/2004**.............................. 9,211,140
20,000,000 TIGR, Principal Receipt, 7.440% due 08/15/2004**............................. 12,074,800
16,120,000 U.S. Treasury Strip, 7.440% due 08/15/2004**................................. 9,739,220
-----------
TOTAL U.S. TREASURY STRIPPED SECURITIES (Cost $29,945,519)................... 31,025,160
===========
REPURCHASE AGREEMENT -- 4.5% (Cost $2,399,000)
2,399,000 Agreement with Smith Barney, 6.300% dated 03/31/1997, to be
repurchased at $2,399,420 on 04/01/1997, collateralized by:
$2,399,006 U.S. Government Agency Securities,
5.125% -- 8.740% due 03/04/98 -- 12/14/43.................................. 2,399,000
===========
TOTAL INVESTMENTS (Cost $51,494,996*)............................................. 98.8% 52,239,467
OTHER ASSETS AND LIABILITIES (NET)................................................ 1.2 624,500
----- -----------
NET ASSETS........................................................................ 100.0% $52,863,967
===== ===========
</TABLE>
- ---------------
* Aggregate cost for Federal tax purposes is $51,562,022.
** The rate shown is the effective yield at date of purchase.
+ Non-income producing security.
ABBREVIATIONS:
ADR -- American Depositary Receipt
TIGR -- Treasury Investor Growth Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 9
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $51,494,996) (Note 1)
See accompanying schedule............................................ $52,239,467
Cash................................................................... 181,106
Receivable for investment securities sold.............................. 1,630,245
Dividends and interest receivable...................................... 37,705
Unamortized organization costs (Note 5)................................ 24,875
Prepaid expenses....................................................... 13,475
-----------
Total Assets...................................................... 54,126,873
LIABILITIES:
Payable for investment securities purchased............................ $1,148,973
Accrued legal and audit fees payable................................... 42,342
Investment advisory fee payable (Note 2)............................... 22,409
Transfer agent fees payable (Note 2)................................... 11,496
Administration fee payable (Note 2).................................... 11,422
Custodian fees payable (Note 2)........................................ 7,143
Accrued Directors' fees and expenses (Note 2).......................... 1,125
Accrued expenses and other payables.................................... 17,996
--------
Total Liabilities................................................. 1,262,906
-----------
NET ASSETS.................................................................. $52,863,967
===========
NET ASSETS consist of:
Distributions in excess of net investment income....................... $ (439)
Accumulated net realized gain on investments sold...................... 3,320,175
Net unrealized appreciation of investments............................. 744,471
Common Stock at par value (Note 4)..................................... 5,231
Paid-in capital in excess of par value................................. 48,794,529
-----------
Total Net Assets.................................................. $52,863,967
===========
NET ASSET VALUE PER SHARE:
($52,863,967 / 5,231,163 shares of common stock outstanding).............. $10.11
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 10
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................................ $ 2,264,585
Dividends............................................................... 640,883
-----------
Total Investment Income............................................ 2,905,468
EXPENSES:
Investment advisory fee (Note 2)........................................ $281,548
Administration fee (Note 2)............................................. 139,948
Transfer agent fees (Note 2)............................................ 81,622
Legal and audit fees.................................................... 65,935
Custodian fees (Note 2)................................................. 30,384
Amortization of organization costs (Note 5)............................. 11,056
Directors' fees and expenses (Note 2)................................... 7,900
Other................................................................... 39,526
--------
Total Expenses..................................................... 657,919
-----------
NET INVESTMENT INCOME........................................................ 2,247,549
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 1 AND 3):
Net realized gain on investments during the period...................... 6,344,318
Net unrealized depreciation of investments during the period............ (3,817,472)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.............................. 2,526,846
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......................... $ 4,774,395
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 11
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
03/31/97 03/31/96
----------- -----------
<S> <C> <C>
Net investment income........................................................ $ 2,247,549 $ 2,094,645
Net realized gain on investments............................................. 6,344,318 5,478,212
Net unrealized appreciation/(depreciation) on investments.................... (3,817,472) 2,894,805
----------- -----------
Net increase in net assets resulting from operations......................... 4,774,395 10,467,662
Distributions to shareholders from net investment income..................... (2,281,662) (2,064,257)
Distributions to shareholders from net realized gains on investments......... (6,009,731) (2,610,350)
Net increase in net assets from Company share transactions (Note 4).......... -- 349,684
----------- -----------
Net increase/(decrease) in net assets........................................ (3,516,998) 6,142,739
NET ASSETS:
Beginning of year............................................................ 56,380,965 50,238,226
----------- -----------
End of year (including distributions in excess of net investment income and
undistributed net investment income of $(439) and $33,251, respectively)... $52,863,967 $56,380,965
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 12
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
03/31/97 03/31/96 03/31/95*
--------- --------- ---------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of year...................................... $ 10.78 $ 9.67 $ 9.35#
------ ------- -------
Net investment income................................................... 0.43 0.40 0.29**
Net realized and unrealized gain on investments......................... 0.49 1.61 0.40
------ ------- -------
Net increase in net assets resulting from investment operations......... 0.92 2.01 0.69
Offering expenses charged to paid-in-capital............................ -- -- (0.03)
Distributions:
Dividends from net investment income.................................... (0.44) (0.40) (0.29)
Distributions in excess of net investment income........................ -- -- (0.00)##
Distributions from net realized capital gains........................... (1.15) (0.50) (0.05)
------ ------- -------
Total distributions..................................................... (1.59) (0.90) (0.34)
------ ------- -------
Net asset value, end of year............................................ $ 10.11 $ 10.78 $ 9.67
======== ======== ========
Market value, end of year............................................... $ 9.000 $ 9.250 $ 8.500
======== ======== ========
Total return++.......................................................... 13.93% 19.25% (5.54)%
======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's)...................................... $52,864 $56,381 $50,238
Ratio of operating expenses to average net assets....................... 1.18% 1.24% 1.10%+
Ratio of net investment income to average net assets.................... 4.01% 3.75% 4.12%+
Portfolio turnover rate................................................. 99% 46% 25%
Average commission rate (per share of security)+++...................... $0.0592 $0.0623 N/A
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Nations Balanced Target Maturity Fund, Inc. commenced operations on June 30, 1994.
** Per share numbers have been calculated using the monthly average shares method, which more
appropriately represents the per share data for the period since use of the undistributed income
method did not accord with the results of operations.
+ Annualized
++ Total return represents aggregate total return for the period based on market value at period
end.
+++ Average commission rate paid per share of securities purchased and sold by the Company.
# Initial offering price net of sales commissions of $0.65 per share.
## Value represents less than $0.01 per share.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 13
Nations Balanced Target Maturity Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Nations Balanced Target Maturity Fund, Inc. (the "Company") was
incorporated under the laws of the State of Maryland on March 23, 1994 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 "1940 Act"). The Company commenced operations on June 30,
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 may differ from those estimates. The policies
described below are followed by the Company in the preparation of its financial
statements and are in accordance with generally accepted accounting principles.
Portfolio Valuation: The Company's portfolio securities that are traded on
a recognized securities exchange are valued at the last sales price on the
securities exchange that such securities are primarily traded on or at the last
sales price on the national securities market. Securities traded only on
over-the-counter markets are valued on the basis of the closing over-the-counter
bid prices or, if no sale occurred on such day, at the mean of the current bid
and asked prices. Certain securities are valued using broker quotations or on
the basis of prices provided by a pricing service. Certain securities may be
valued by one or more principal market makers. Restricted securities, securities
for which market quotations are not readily available and certain other assets
are valued by the investment adviser under the supervision of the Board of
Directors. Short-term investments that mature in 60 days or less are valued at
amortized cost.
Repurchase agreements: The Company may engage in repurchase agreement
transactions, including joint repurchase agreement transactions in which the
Company, along with other registered investment companies advised by NationsBanc
Advisors, Inc. ("NBAI"), invest their aggregate cash balances. Under the terms
of a typical repurchase agreement, the Company takes possession of an underlying
debt obligation subject to an obligation of the seller to repurchase, and the
Company to resell, the obligation at an agreed-upon price and time. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Company's holding period. The value of the collateral is
at least equal at all times to the total amount of the repurchase obligation
including interest. Generally, in the event of counterparty default, the Company
has the right to use the collateral to offset losses incurred. There would be a
potential loss to the Company in the event the Company is delayed or prevented
from exercising its rights to dispose of the collateral securities, including
the risk of a possible decline in the value of the underlying securities during
the period while the Company seeks to assert its rights. Unless permitted by the
Securities and Exchange Commission, the Company will not enter into repurchase
agreements with the Company's investment adviser, distributor or any of their
affiliates. The Company's investment adviser, acting under the supervision of
the Board of Directors, monitors the value of the collateral received as well as
the creditworthiness of those banks and dealers with which the Company enters
into repurchase agreements to evaluate potential risks.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Securities purchased or sold on a
when-issued or delayed-delivery basis may be settled a month or more after the
trade date. Realized gains or losses are computed based on the specific
identification of the securities sold. Interest income, adjusted for accretion
of discounts and amortization of premiums, is earned ratably from the settlement
date and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date.
Dividend and Distributions to Shareholders: It is the policy of the
Company to pay quarterly distributions from net investment income to
shareholders. The Company expects that all or a portion of net capital gains, if
any, will be distributed to shareholders annually. The Company may elect to
retain net long-term gains and pay corporate income tax thereon, which will
result in Federal tax consequences to shareholders. Income and capital gain
distributions are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments of income and gains on
various investment securities held by the Company, timing differences and
differing characterization of distributions made by the Company. Permanent
differences incurred for the year ended March 31, 1997, resulting from
differences in book and tax accounting for organization costs and distributions
from the Company's investment in Real Estate Investment Trusts, have been
reclassified at year end to reflect an increase to undistributed net investment
income of $423, an increase in accumulated net realized gains of $1,693 and a
decrease to paid-in capital of $2,116.
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Nations Balanced Target Maturity Fund, Inc.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Federal Income Tax: It is the policy of the Company to qualify as a
regulated investment company, if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders. Therefore,
no Federal income or excise tax provision is applicable.
2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND OTHER
RELATED PARTY TRANSACTIONS.
The Company has entered into an investment advisory agreement (the
"Advisory Agreement") with 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 0.30% of the Company's average
weekly net investment in Zero-Coupon (Stripped) U.S. Treasuries plus 0.75% of
the Company's average weekly net assets in investments other than Zero-Coupon
(Stripped) U.S. Treasuries.
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 a sub-advisory
fee from NBAI equal to an annual rate of 0.15% of the Company's average weekly
net investment in Zero-Coupon (Stripped) U.S. Treasuries plus 0.25% of the
Company's average weekly net assets other than Zero-Coupon (Stripped) U.S.
Treasuries.
NationsBank is the Company's Administrator. Pursuant to an administration
agreement (the "Administration Agreement"), the Company has retained NationsBank
to supervise the overall day-to-day operations of the Company and to provide
certain administrative services to the Company. Under the terms of the
Administration Agreement, NationsBank also maintains certain of the Company's
books and records and furnishes, at its own expense, 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 furnished to the Company and the expenses of the Company
assumed by NationsBank, the Company pays NationsBank a monthly fee equal to an
annual rate of 0.25% of the Company's average weekly net assets.
NationsBank has entered into a sub-administration agreement (the
"Sub-Administration Agreement") with First Data Investor Services Group, Inc.
("First Data"), a wholly-owned subsidiary of First Data Corporation, pursuant to
which First Data provides certain administrative services in support of the
operations of the Company. The fees of First Data are paid out of the fees paid
to NationsBank by the Company pursuant to the Administration Agreement.
NationsBank of Texas, N.A. acts as the custodian of the Company's assets
and for the year ended March 31, 1997, earned $30,384 for providing such
services. On October 18, 1996, The Bank of New York was appointed sub-custodian
of the Company. First Data also serves as the transfer agent and dividend
disbursing agent for the Company.
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 the Chairman
of the Board and 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. In addition, each eligible director may be
entitled to certain benefits upon retirement from the Board of Directors.
3. SECURITIES TRANSACTIONS.
For the year ended March 31, 1997, the cost of purchases and proceeds from
sales of investment securities (excluding long-term U.S. government securities
and short-term investments) aggregated $52,463,942 and $59,207,309,
respectively.
At March 31, 1997, gross unrealized appreciation and depreciation for tax
purposes was $1,608,278 and $930,833, respectively.
4. COMMON STOCK.
At March 31, 1997, 1,000,000,000 shares of common stock, $.001 par value,
were authorized.
The Company sold a total of 5,137,601 shares of common stock in the initial
public offering. Proceeds to the Company, before the expenditures of
underwriting commissions of $3,339,441, of which $805,466 and $2,522,275 was
paid to Stephens Inc. and NationsSecurities, respectively, amounted to
$51,376,010. These expenditures have been charged against paid-in capital.
12
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Nations Balanced Target Maturity Fund, Inc.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Board of Directors of the Company has approved a plan that gives the
Company the flexibility to engage in occasional 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. There were no
share repurchases for the year ended March 31, 1997.
Common stock transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------- -------------------------
<S> <C> <C> <C> <C>
Issued as reinvestment of dividends................ -- $ -- 33,395 $ 349,684
---------- ----------- ---------- -----------
Total increase..................................... -- $ -- 33,395 $ 349,684
========== =========== ========== ===========
</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.
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Nations Balanced Target Maturity Fund, Inc.
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
NATIONS BALANCED TARGET MATURITY FUND, INC.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Nations Balanced Target Maturity
Fund, Inc. (the "Company") at March 31, 1997, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 15, 1997
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Nations Balanced Target Maturity Fund, Inc.
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TAX INFORMATION (UNAUDITED)
For the year ended March 31, 1997 the amount of long term capital gain
distributed to shareholders by the Company was $3,196,240. Of the ordinary
income (including short-term capital gain) distributions made by the Company
during the fiscal year ended March 31, 1997, 11.58% qualified for the dividends
received deduction available to corporate shareholders.
15
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Nations Balanced Target Maturity Fund, Inc.
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DIVIDEND REINVESTMENT PLAN
THE PLAN
The Company's Dividend Reinvestment Plan (the "Plan") offers an automatic
way to reinvest your dividends and capital gains distributions in shares of the
Company.
PARTICIPATION
Shareholders of record will receive their dividends in cash unless they
have otherwise instructed First Data (the "Plan Agent"), acting as agent for
each participant in the Plan, in writing. Such a notice must be received by the
Plan Agent not less than 5 business days prior to the record date for a dividend
or distribution in order to be effective with respect to that dividend or
distribution. A notice which is not received by that time will be effective only
with respect to subsequent dividends and distributions.
Shareholders who do not participate in the Plan will receive all
distributions by check mailed directly to the shareholder by First Data, as
dividend paying agent. For Federal income tax purposes, dividends are treated as
income or capital gains, regardless of whether they are received in cash or
reinvested in additional shares.
Participants may terminate their participation in the Plan by written
notice to the Plan Agent. If the written notice is received at least 5 business
days before the record date of any distribution, it will be effective
immediately. If received after that date, it will be effective as soon as
possible after the reinvestment of the dividend or distribution.
PRICING OF DIVIDENDS AND DISTRIBUTIONS
Whenever the Company's Board of Directors declares a dividend or other
distribution payable in cash or, at the option of the Plan Agent, in shares of
capital stock issued by the Company, the Plan Agent will elect on behalf of the
participants to receive the dividend in authorized but unissued shares of
capital stock if the net asset value per share (as determined by the investment
adviser of the Company as of the close of business on the record date for the
dividend or distribution) is equal to or less than 95% of the closing market
price per share of the capital stock of the Company on the New York Stock
Exchange (the "Exchange") on such record date plus estimated brokerage
commissions. The number of such authorized but unissued shares to be credited to
a participant's account will be determined as of the close of business on the
record date for the dividend, by valuing such shares at the greater of the net
asset value per share or 95% of the market price per share. The Plan Agent will
credit each participant's account with the number of shares corresponding in
value, as determined under the foregoing formula, to the amount such participant
would have received in cash had such participant not elected to participate in
this Plan.
If the net asset value per share is equal to or less than the closing
market price per share of the capital stock of the Company on the Exchange on
such record date plus estimated brokerage commissions but exceeds 95% of such
closing market price plus estimated brokerage commissions, the Plan Agent may
elect on behalf of all participants (i) to take the dividend in cash and as soon
as practicable thereafter, consistent with obtaining the best price and
execution, proceed to purchase in one or more transactions the shares of capital
stock in the open market, at the then current price as hereinafter provided, and
will credit each participant's account with the number of shares corresponding
in value, as determined by the price actually paid on the open market for such
shares including brokerage expenses, to the amount such participant would have
received in cash had such participant not elected to participate in this Plan or
(ii) to receive the dividend in authorized but unissued shares of capital stock,
in which case the Plan Agent will credit each participant's account with the
number of shares corresponding in value (determined by valuing such shares at
the greater of the net asset value per share or 95% of the market price per
share, in each case as of the close of business on the record date for the
dividend or distribution) to the amount such participant would have received in
cash had such participant not elected to participate in this Plan.
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 thereafter, 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
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Nations Balanced Target Maturity Fund, Inc.
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DIVIDEND REINVESTMENT PLAN (CONTINUED)
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 Balanced Target Maturity Fund, 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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PO Box 34602 BULK RATE
Charlotte, NC 28234-4602 U.S. POSTAGE
Toll Free 1-800-982-2271 PAID
N READING, MA
PERMIT NO.
105
AR6 IN-96216-397
