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LIBERTY
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TERM
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TRUST, INC.
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--1999
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SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1994
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FEDERATED INVESTORS
(LOGO)
- ------------------------------
---------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
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531282101
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2080602 (8/94)
PRESIDENT'S MESSAGE
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Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders of Liberty Term
Trust, Inc.-1999 (the "Fund") for the six-month period from January 1, 1994
through June 30, 1994. The Report begins with an investment review of the Fund's
progress and includes its Portfolio of Investments and Financial Statements.
As a closed-end investment company, the Fund pursues high monthly income and
seeks to return full value of the principal of your shares in 1999. At the end
of the reporting period, 86.8% of the Fund's net assets consisted of
high-quality U.S. mortgage-backed securities. The remainder of the portfolio was
invested in repurchase agreements and long-term municipal securities.
Over the period, dividends paid to shareholders by the Fund's portfolio of
investments totaled $0.31 per share. At the end of the period, total net assets
stood at $46.7 million. The rising interest rate environment has affected all
financial markets. As a result, the Fund's net asset value decreased from $9.10
per share on the first day of the period to $8.30 per share on the last day of
the period.
Liberty Term Trust, Inc.-1999 shares are actively traded on the New York Stock
Exchange under the symbol LTT, and can be purchased through your investment
representative. Thank you for your confidence in the Fund. Your comments or
suggestions are always welcome.
Sincerely,
Richard B. Fisher
President
August 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
For the third consecutive quarter, interest rates rose significantly in the U.S.
government bond market. The yield on the U.S. government benchmark 30-year
Treasury bond increased from 7.09 percent to 7.61 percent, bringing the total
second quarter increase to 52 basis points. In the first six months of 1994,
yields on 30-year Treasury bonds increased 126 basis points. Primary market
influences on interest rate volatility were significant weakness of the U.S.
dollar and the potential inflationary risks associated with the decline in
value. The dollar reached post-World War II lows versus the Japanese Yen and
13-month lows versus the German Deutschmark at the end of the second quarter.
These factors replaced the past two quarter concerns of above average economic
growth.
Liberty Term Trust, Inc.-1999 (the "Fund") remained neutral to its term date of
December 1999, exhibiting an average life of 5.5-6.0 years and an average
modified duration of 4.5-4.75 years. Distributable income remains attractive at
approximately 80 basis points over a comparable U.S. Treasury. Future income
streams will be ultimately impacted by the reduction in average term to
maturity, as well as by market conditions and reinvestment levels of principal
cash flows.
Asset allocation continued to stress an overweighted position to mortgage-backed
securities (MBS). At this point, the MBS sector offers value from both a
technical and fundamental perspective. On balance, we believe MBSs offer a firm
spread picture versus U.S. Treasuries due to reduced prepayment concern, lower
interest rate volatility, limited supply, and a more discounted market price.
Portfolio structure stresses a lower concentration in collateralized mortgage
obligations (CMOs) and derivatives in part due to the near-term supply overhang
on the Street and poor liquidity. For the time being, the mortgage allocation is
more heavily weighted in the pass-through sector, offering added liquidity and
the ability to actively manage various prepayment misvaluations.
Transactions represent a more active approach in managing the pass-through
positions by trading between slight discount/current coupons (7.5-8.0 percent)
in combination with high premium mortgages. This allows for participation in
positive market moves without penalizing income. The Fund's derivative/CMO
position represented 4 percent of total net assets. The current holding is an
inverse floater indexed off a 10-year constant maturity treasury with very low
leverage (1.8 times) and little, if any, extension risk. Underlying collateral
consists of 15-year 6.0 percent agency mortgages, giving the bond exceptional
optionality at a deep discount dollar price. The bond was purchased at an unduly
conservative prepayment assumption for this particular collateral thereby
offering fundamentally cheap cash flows. The impact of leverage is being hedged
in the futures market. The Fund continued to add to the U.S. Treasury zero
position and along with the municipal zeros account for approximately 41 percent
of total net assets.
The Fund will remain neutral to its target date going forward as current market
conditions represent value from a real rate scenario. The last six months
represented an unusually severe beginning to a market downturn for bonds and a
substantial discounting of economic fundamentals. The position offers an
opportunity to maintain higher income, as well as the ability to respond to any
rally should economic fundamentals allow interest rates to decline. Thus, a
neutral position offers a more even balance to the risk of higher interest rates
in the future.
LIBERTY TERM TRUST, INC.-1999
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
(UNAUDITED)
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<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM OBLIGATIONS--99.1%
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LONG-TERM MUNICIPAL SECURITIES--12.4%
- --------------------------------------------------------------------------
PENNSYLVANIA--5.4%
---------------------------------------------------------
$ 3,400,000 Allegheny County, PA, Sanitary Authority Sewer Revenue
Bonds (FGIC Insured), 0.00%, 12/1/99 AAA $ 2,541,806
---------------------------------------------------------
TEXAS--2.5%
---------------------------------------------------------
1,500,000 Austin, TX, Capital Appreciation Refunding & Improvement
LT GO Bond (FGIC Insured), 0.00%, 9/1/99 AAA 1,140,270
---------------------------------------------------------
UTAH--4.5%
---------------------------------------------------------
2,770,000 Utah Associated Municipal Power Systems Revenue Bonds
(Hunter Project)/(AMBAC Insured), 0.00%, 7/1/99 AAA 2,111,183
--------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES 5,793,259
--------------------------------------------------------- -----------
U.S. GOVERNMENT OBLIGATIONS--86.7%
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FEDERAL HOME LOAN MORTGAGE CORPORATION REMIC--4.1%
---------------------------------------------------------
3,035,500 5.638%, Series 1662-M, 1/15/2009 -- 1,927,543
--------------------------------------------------------- -----------
FEDERAL HOME LOAN MORTGAGE CORPORATION PC--2.6%
---------------------------------------------------------
1,126,527 30-Year Pass Thru, 10.50%, 12/1/2020 -- 1,209,247
--------------------------------------------------------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION MBS--43.5%
---------------------------------------------------------
1,950,231 30-Year Pass Thru, 12.00%, 1/1/2013 -- 2,178,154
---------------------------------------------------------
18,100,000 30-Year Pass Thru TBA, 8.00% -- 18,128,417
--------------------------------------------------------- -----------
Total 20,306,571
--------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION PC--8.2%
---------------------------------------------------------
3,570,068 10.00%, 10/15/2017 -- 3,833,361
--------------------------------------------------------- -----------
</TABLE>
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING:
OR MOODY'S
CONTRACTS OR S&P* VALUE
- ----------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
- --------------------------------------------------------------------------
UNITED STATES TREASURY STRIPS--28.3%
---------------------------------------------------------
$19,180,000 0.00%, 11/15/99 -- $13,227,103
--------------------------------------------------------- -----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 40,503,825
--------------------------------------------------------- -----------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $47,611,806) 46,297,084
--------------------------------------------------------- -----------
PUT OPTIONS PURCHASED--0.2%
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150 Put Options on Eurodollar Futures -- 18,750
---------------------------------------------------------
50 10-Year Note Futures -- 49,218
--------------------------------------------------------- -----------
TOTAL PUT OPTIONS PURCHASED (IDENTIFIED COST $134,448) 67,968
--------------------------------------------------------- -----------
**REPURCHASE AGREEMENTS--39.9%
- --------------------------------------------------------------------------
$ 8,300,000 First Boston Corp., 4.31%, dated 6/13/94, due 7/14/94 -- 8,300,000(a)
---------------------------------------------------------
340,000 J.P. Morgan Securities, Inc., 4.35%, dated 6/30/94,
due 7/1/94 -- 340,000
---------------------------------------------------------
10,000,000 Morgan Stanley & Co., 4.24%, dated 6/13/94, due 7/14/94 -- 10,000,000(a)
--------------------------------------------------------- -----------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST)
(NOTE 2B) 18,640,000
--------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $66,386,254) $65,005,052+
--------------------------------------------------------- -----------
</TABLE>
(a) Although final maturity falls beyond seven days a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
* See Notes to Portfolio of Investments on page 6.
** Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in repurchase agreements are through participation in joint
accounts with other Federated funds.
+ The cost of investments for federal tax purposes amounts to $66,386,254. The
net unrealized depreciation on a federal tax cost basis amounts to
$1,381,202 and is comprised of $283,159 appreciation and $1,664,361
depreciation at June 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($46,715,247) at
June 30, 1994.
LIBERTY TERM TRUST, INC.-1999
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The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Co.
GO -- General Obligation
LT -- Limited Tax
MBS -- Mortgage-Backed Securities
PC -- Participation Certificates
REMIC -- Real Estate Mortgage Investment Conduit
STRIPs -- Separate Trading of Registered Interest and Principal of Securities
TBA -- To be announced
</TABLE>
(See Notes which are an integral part of Financial Statements)
LIBERTY TERM TRUST, INC.-1999
NOTES TO PORTFOLIO OF INVESTMENTS
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The municipal bonds rated by Moody's Investors Service, Inc. in which the Fund
may invest are Aaa, Aa, and A. Municipal bonds rated Aaa are judged to be of the
"best quality." The rating Aa is assigned to municipal bonds which are of "high
quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat larger than Aaa-rated municipal
bonds. The Aaa and Aa-rated municipal bonds comprise what are generally known as
"high-grade bonds." Municipal bonds which are rated A by Moody's possess many
favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A-rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future. The letter
ratings carry numerical modifiers with 1 indicating the higher end of the rating
category, 2 indicating the mid-range, and 3 indicating the lower end of the
rating category.
Moody's highest rating for state and municipal short-term securities is
MIG1/VMIG1. Short-term municipal securities rated MIG1/VMIG1 are of the best
quality. They have strong protection from established cash flows of funds for
their servicing or have established a broad-based access to the market for
refinancing or both. The VMIG1 rating denotes that the security has a variable
rate and is payable on demand.
The municipal bonds rated by Standard & Poor's Corporation in which the Fund may
invest are AAA, AA, and A. Municipal bonds rated AAA are "obligations of the
highest quality." The rating of AA is accorded issues with investment
characteristics "only slightly less marked than those of the prime quality
issues." The category of A describes "the third strongest capacity for payment
of debt service." Principal and interest payments on bonds in this category are
regarded as safe. It differs from the two higher ratings because with respect to
general obligation bonds there is some weakness, either in the local economic
base, in debt burden, in the balance between revenues and expenditures, or in
quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date. With respect to revenue bonds, debt service coverage is good, but
not exceptional. Stability of the pledge revenues could show some variations
because of increased competition or economic influences on revenues. Basic
security provisions, while satisfactory, are less stringent. These ratings may
be modified by the addition of a plus or minus sign to show relative standing
with the major categories.
NR indicates that the bonds are not currently rated by Moody's or Standard &
Poor's; however, management considers them to be of good quality.
Bonds for which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally.
LIBERTY TERM TRUST, INC.-1999
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1994
(UNAUDITED)
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<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost and value
(Note 2B) $18,640,000
- -------------------------------------------------------------------
Investment in securities and options (Note 2A) 46,365,052
- ------------------------------------------------------------------- -----------
Total investments, at value
(identified and tax cost; $66,386,254) $65,005,052
- ---------------------------------------------------------------------------------
Cash 1,287
- ---------------------------------------------------------------------------------
Receivable for investments sold 18,211,328
- ---------------------------------------------------------------------------------
Interest receivable 153,325
- --------------------------------------------------------------------------------- -----------
Total assets 83,370,992
- ---------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------
Payable for dollar roll transactions (Note 2F) 18,326,968
- -------------------------------------------------------------------
Payable for investments purchased 17,993,914
- -------------------------------------------------------------------
Dividends payable 292,499
- -------------------------------------------------------------------
Accrued expenses 42,364
- ------------------------------------------------------------------- -----------
Total liabilities 36,655,745
- --------------------------------------------------------------------------------- -----------
NET ASSETS for 5,625,018 shares of common stock outstanding $46,715,247
- --------------------------------------------------------------------------------- -----------
NET ASSETS Consist of:
- ---------------------------------------------------------------------------------
Paid-in capital $52,889,122
- ---------------------------------------------------------------------------------
Net unrealized depreciation of investments and options (1,381,202)
- ---------------------------------------------------------------------------------
Accumulated net realized loss on investments and options (5,416,148)
- ---------------------------------------------------------------------------------
Undistributed net investment income 623,475
- --------------------------------------------------------------------------------- -----------
Total Net Assets $46,715,247
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE, ($46,715,247 / 5,625,018 shares of common stock outstanding) $8.30
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Income--
- -----------------------------------------------------------------------------------
Interest income (Note 2C) (net of dollar roll interest expense of $267,398) $ 2,276,198
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee* $122,096
- ------------------------------------------------------------------------
Directors' fees 3,700
- ------------------------------------------------------------------------
Administrative personnel and services* 79,602
- ------------------------------------------------------------------------
Shareholder service fees* 8,056
- ------------------------------------------------------------------------
Custodian and portfolio accounting fees 27,320
- ------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 8,433
- ------------------------------------------------------------------------
Common stock registration costs 6,175
- ------------------------------------------------------------------------
Auditing fees 9,500
- ------------------------------------------------------------------------
Legal fees 3,000
- ------------------------------------------------------------------------
Printing and postage 18,900
- ------------------------------------------------------------------------
Insurance 3,035
- ------------------------------------------------------------------------
Taxes 2,945
- ------------------------------------------------------------------------
Miscellaneous 3,250
- ------------------------------------------------------------------------ --------
Total expenses 296,012
- ------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee* 76,175
- ------------------------------------------------------------------------ --------
Net expenses 219,837
- ----------------------------------------------------------------------------------- -----------
Net investment income 2,056,361
- ----------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments and options (identified cost basis) (3,610,596)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments and options (1,184,181)
- ----------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments and options (4,794,777)
- ----------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $(2,738,416)
- ----------------------------------------------------------------------------------- -----------
</TABLE>
* (See Note 4)
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994* 1993
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 2,056,361 $ 4,411,740
- ----------------------------------------------------------------
Net realized gain (loss) on investments and options ($3,610,596
net loss and $566,707 net gain, respectively, as computed for
federal income tax purposes) (3,610,596) 277,984
- ----------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments
and options (1,184,181) (427,606)
- ---------------------------------------------------------------- ----------- -----------
Change in net assets from operations (2,738,416) 4,262,118
- ---------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (1,721,243) (4,218,731)
- ---------------------------------------------------------------- ----------- -----------
Change in net assets (4,459,659) 43,387
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 51,174,906 51,131,519
- ---------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income of
$623,475 and $288,357 respectively) $46,715,247 $51,174,906
- ---------------------------------------------------------------- ----------- -----------
</TABLE>
* Six months ended June 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------------------------------------------------
Investment income received $ 2,076,931
- ------------------------------------------------------------------------------
Payment of operating expenses (228,581)
- ------------------------------------------------------------------------------
Proceeds from sales and maturities of investments 95,550,768
- ------------------------------------------------------------------------------
Purchase of investments (95,884,149)
- ------------------------------------------------------------------------------
Net purchase of short-term investments (25,000)
- ------------------------------------------------------------------------------ ------------
Cash used by operating activities 1,489,969
- ------------------------------------------------------------------------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------------------------------------------------
Decrease on payable for dollar roll transactions (46,685)
- ------------------------------------------------------------------------------
Distributions paid (1,444,576)
- ------------------------------------------------------------------------------ ------------
Cash used by financing activities (1,491,261)
- ------------------------------------------------------------------------------ ------------
Decrease in cash (1,292)
- ------------------------------------------------------------------------------ ------------
Cash at beginning of period 2,579
- ------------------------------------------------------------------------------ ------------
Cash at end of period $ 1,287
- ------------------------------------------------------------------------------ ------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH USED BY
OPERATING ACTIVITIES:
- ------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (2,738,416)
- ------------------------------------------------------------------------------
Net decrease in investments 4,698,228
- ------------------------------------------------------------------------------
Decrease in interest receivable 101,904
- ------------------------------------------------------------------------------
Decrease in receivable for investments sold 123,189
- ------------------------------------------------------------------------------
Decrease in payable for investments purchased (686,192)
- ------------------------------------------------------------------------------
Decrease in accrued expenses (8,744)
- ------------------------------------------------------------------------------ ------------
Cash used by operating activities $ 1,489,969
- ------------------------------------------------------------------------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements) (Note 2G)
LIBERTY TERM TRUST, INC.-1999
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994* 1993 1992**
----- ----- ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.10 $9.09 $9.50
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.37 0.78 0.60
- ----------------------------------------------------------------------
Net realized and unrealized loss on investments and options (0.86) (0.02) (0.42 )
- ---------------------------------------------------------------------- ---- ----- -----
Total income from investment operations (0.49) 0.76 0.18
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.31) (0.75) (0.59 )
- ---------------------------------------------------------------------- ---- ----- -----
NET ASSET VALUE, END OF PERIOD $8.30 $9.10 $9.09
- ---------------------------------------------------------------------- ---- ----- -----
MARKET VALUE PER SHARE, END OF PERIOD $7.75 $8.63 $10.25
- ---------------------------------------------------------------------- ---- ----- -----
TOTAL INVESTMENT RETURNS***
- ----------------------------------------------------------------------
Based on net asset value per share (5.75)% 8.73% 1.75 %
- ----------------------------------------------------------------------
Based on market value per share (6.60)% (8.49)% 8.90 %
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.90 %(b) 0.90% 0.90 %(b)
- ----------------------------------------------------------------------
Net investment income 8.42 %(b) 8.46% 8.65 %(b)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.31 %(b) 0.40% 0.18 %(b)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $46,715 $51,175 $51,132
- ----------------------------------------------------------------------
Portfolio turnover rate 196 % 402% 164 %
- ----------------------------------------------------------------------
</TABLE>
* Six months ended June 30, 1994 (unaudited).
** Reflects operations for the period from April 4, 1992 (date of initial
public investment), to December 31, 1992.
*** Total return based on market value per share is calculated using purchase of
common stock at the current market price on the first day and a sale at the
current market price as of the last day of the period, and reinvestment of
all dividends and distributions at prices that were obtained by the Trust's
dividend reinvestment plan. Total return based on net asset value per share
is calculated using purchase of common stock at the current net asset value
on the first day and a sale at the net asset value as of the last day of the
period, and reinvestment of all dividends and distributions at prices that
were obtained by the Trust's dividend reinvestment plan.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Fund is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, closed-end, no-load management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at the mean be-
tween the over-the-counter bid and asked prices as furnished by an independent pricing
service. Municipal bonds are valued by an independent pricing service taking into
consideration yield, liquidity, risk, credit, quality, coupon, maturity, type of issue,
and any other factors or market data it deems relevant in determining valuations for
normal institutional size trading units of debt securities. The independent pricing
service does not rely exclusively on quoted prices. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which approximates
value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to
take possession, to have legally segregated in the Federal Reserve Book Entry System, or
to have segregated within the custodian bank's vault, all securities held as collateral
in support of repurchase agreements. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure the value at least equals the principal amount of the
repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's adviser
to be creditworthy pursuant to guidelines established by the Board of Directors
("Directors"). Risks may arise from the potential inability of counterparties to honor
the terms of the repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
</TABLE>
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code"). Distributions to stockholders are
recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income. Accordingly, no provisions for federal tax are
necessary.
At December 31, 1993, the Fund for federal tax purposes, had a capital loss carryforward
of $971,459 which will reduce the Fund's taxable income arising from future net realized
gain on investments, if any, to the extent permitted by the Code, and thus will reduce
the amount of the distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal tax. Such capital loss carryforward will
expire upon termination of the Fund.
Additionally, net capital losses of $992,333, attributable to security transactions
incurred after October 31, 1993 are treated as arising on January 1, 1994, the first day
of the Fund's next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade date
and maintains security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions with respect to
mortgage securities issued by GNMA, FNMA, and FHLMC, in which the Fund loans mortgage
securities to financial institutions and simultaneously agrees to accept substantially
similar (same type, coupon and maturity) securities at a later date at an agreed upon
price. Dollar roll transactions are short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the transactions to
invest in short-term instruments. The income received from these short-term investments
may enhance the Fund's current yield and total return.
G. STATEMENT OF CASH FLOWS--Information on financial transactions which have been settled
through the receipt or disbursement of cash is presented in the Fund's Statement of Cash
Flows. The cash amount shown in the Statement of Cash Flows is the amount reported as
cash in the Fund's Statement of Assets and Liabilities and represents cash on hand in
its custodian bank account and does not include any short-term investments at June 30,
1994.
H. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
(3) COMMON STOCK
At June 30, 1994, there were 1,000,000,000 shares of $0.001 par value common
stock authorized. The shares are not redeemable and have no preemptive or
conversion rights. There were no transactions in common stock for the six-months
ended June 30, 1994, or the fiscal year ended December 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for the
Fund. Mr. Madich has been the Fund's portfolio manager since the Fund's
inception. Mr. Madich joined Federated Investors in 1984 and has been a Senior
Vice President of the Fund's investment adviser since 1993. Mr. Madich served as
a Vice President of the Fund's investment adviser from 1988 until 1993. Mr.
Madich is a Chartered Financial Analyst and received his M.B.A. in Public
Finance from the University of Pittsburgh.
Kathleen M. Foody-Malus has been the Fund's portfolio manager since 1994. Ms.
Foody-Malus joined Federated Investors in 1983 and has been a Vice President of
the Fund's investment adviser since 1993. Ms. Foody-Malus served as an Assistant
Vice President of the investment adviser from 1990 until 1992, and from 1986
until 1989 she acted as an investment analyst. Ms. Foody-Malus received her
M.B.A. in Accounting/Finance from the University of Pittsburgh.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES PLAN--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to 0.25
of 1% of average net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and to maintain shareholder accounts.
LIBERTY TERM TRUST, INC.-1999
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(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 1994, were as follows:
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PURCHASES $94,923,797
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SALES $95,062,611
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(6) DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), a stockholder
may elect to have all dividends (including capital gains distributions)
automatically reinvested by State Street Bank and Trust Company, as agent for
stockholders (the "Plan Agent"), in additional Shares of Common Stock ("Shares")
of the Fund. A stockholder who does not elect to participate in the Plan will
receive all such amounts in cash paid by check mailed directly to the
stockholder of record (or if the Shares are held in street or nominee name, then
to the nominee) by the Plan Agent. Stockholders whose Shares are registered in
their own names may elect to participate in the Plan by sending written
instructions to the Plan Agent at the address set forth below. Stockholders
whose Shares are held of record by brokers, nominees or otherwise in "street
name" should contact such brokers or nominees and request that they make
arrangements to participate in the Plan on such stockholders' behalf. Upon
transferring your Shares between or among brokers or nominees, please note that
these transferees may be unable to participate in the Plan. If your brokerage
firm, bank or other nominee is unable to participate in the Plan, you may
request your nominee to re-register the shares in your own name so that you may
take advantage of the Plan. Participation in the Plan is completely voluntary
and may be terminated or resumed at any time without penalty by written notice
if received by the Plan Agent not less than ten days prior to any dividend
record date; otherwise, such termination will be effective with respect to any
subsequently declared dividend or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends"), non-participants in the Plan will
receive cash and participants will receive the equivalent in Shares. The Shares
will be acquired by the Plan Agent for the participant's account by the purchase
of outstanding shares on the open market on the New York Stock Exchange or
elsewhere. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of the Shares, the average purchase price per
Share paid by the Plan Agent may exceed the net asset value of the Fund's
Shares, resulting in the acquisition of fewer Shares than if the dividend or
distribution had been paid in Shares issued by the Fund. The Plan Agent will use
all dividends and distributions received in cash to purchase Shares in the open
market within 30 days of the dividend payment date. Each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases. Interest will not be paid on any uninvested cash
payments. Dividends are expected to be paid monthly.
LIBERTY TERM TRUST, INC.-1999
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Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. When a participant withdraws from the Plan or upon termination of
the Plan, certificates for whole Shares credited to his or her account under the
Plan will be issued and a cash payment will be made for any fraction of a Share
credited to such account; or if a participant so desires, the Plan Agent will
sell his or her Shares in the Plan and send the proceeds to the participant,
less brokerage commissions. The Plan Agent may charge a service fee for
performing this service.
The Plan Agent maintains all stockholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by stockholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each stockholder's proxy will include those shares
received pursuant to the Plan.
In the case of stockholders such as banks, brokers or nominees that hold Shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of Shares certified from time to time by the
record stockholders as representing the total amount registered in the record
stockholder's name and held for the account of beneficial owners who are to
participate in the Plan.
The automatic reinvestment of dividends (including capital gains distributions)
will not relieve participants of any income taxes that may be payable on such
dividends.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants. All
correspondence concerning the Plan should be directed to State Street Bank and
Trust Company, P.O. Box 8200, Boston, Massachusetts 02266-8200.
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DIRECTORS OFFICERS
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John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
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