- --------------------------------------------------------------------------------
LIBERTY
- --------------------------------------------------------------------------------
TERM
- --------------------------------------------------------------------------------
TRUST, INC.
- --------------------------------------------------------------------------------
--1999
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1993
---------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
---------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
--------------------------------------------------------
3012913 (2/94)
PRESIDENT'S MESSAGE
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Dear Investor:
I am pleased to present the Annual Report to Shareholders for Liberty Term
Trust, Inc.-1999 (the "Trust") for the year ended December 31, 1993. In this
report you will find the portfolio manager's Investment Review, as well as the
Trust's year-end portfolio and financial statements.
As a closed-end investment company, the Trust pursues high monthly income and
seeks to return full value of the principal of your shares in the year 1999. At
December 31, 1993, 88.1% of the Trust's portfolio consisted of high-quality U.S.
government securities. The remainder of the portfolio was invested largely in
repurchase agreements and long-term municipal securities.
Dividends paid to Trust shareholders during the year totaled $4.2 million or
$0.75 per share. At the end of the year, net assets were at $51.2 million.
Thank you for your confidence in the Trust. Your comments or suggestions are
always welcome. If you wish, your investment representative can help you
purchase additional Trust shares. These are actively traded on the New York
Stock Exchange under the symbol LTT.
Sincerely,
Richard B. Fisher
President
February 15, 1994
INVESTMENT REVIEW
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Liberty Term Trust, Inc.-1999 (the "Trust") continues to be on the conservative
end of the closed-end term trust competitor matrix. The Trust remains committed
to the $10 per share term price, and over 1993, gave up income to help reach
that goal. The year 1993 was characterized by declining interest rates and
substantially higher mortgage prepayments than predicted. In this environment,
mortgage-backed securities underperformed comparable U.S. Treasuries. The
Trust's performance reflected some degree of lag due to its mortgage security
allocations, but ended the year with a total return of 8.73%.
Over the fourth quarter, intermediate U.S. Treasury yields have risen in
response to improved fourth quarter economic statistics and inflation concerns.
Despite the increase in interest rates, the Trust remains concerned about
higher-than-average mortgage refinance levels, as well as a flatter yield curve
and general market liquidity. In addition, mortgage-backed security derivative
products have come under pressure due to market underperformance, illiquidity,
and problems such as those experienced by the State of Ohio with interest-only
securities. Continued public and regulatory scrutiny of mortgage derivatives
will make trading very difficult well into 1994.
The Trust's response to the above concerns was minor asset allocation
rebalancing. Mortgage derivative securities were reduced by 5.3% with the
remaining position limited to an interest-only inverse floater backed by 6.5%
15-year collateral. By design, this security is limited to minimal prepayment
risk and virtually no extension risk. The securities' exposure to rising
short-term interest rates is being hedged with Eurodollar puts, as concerns
about a Federal Reserve tightening remain in the market place. The Trust's
five-year Treasury position was replaced by zero coupon Treasuries tied to the
Trust's 1999 term. With the back-up in yields, intermediate Treasury zeros were
purchased at cheap levels, adding insurance to the $10 per share term price.
Including the municipal zeros, total zeros currently stand at 36.55% of total
assets. The remaining portfolio consists of a barbell position combining current
coupon and premium mortgage-backed securities. Management anticipates mortgage
security performance to improve in 1994, as refinance activity diminishes,
supply subsides, and demand increases as coupon income becomes a more important
component of total return.
The result is a more defensive portfolio at reduced distribution levels. The
current dividend continues to support a yield well in excess of the Trust's
original goal of 50 basis points over the comparable U.S. Treasury securities,
as related to the time to maturity of the Trust. The portfolio's average life
and modified duration as of year-end December 31, 1993, equaled 5.8 and 4.7
years, respectively.
LIBERTY TERM TRUST, INC.-1999
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
<C> <C> <S> <C> <C>
- ----------- ------------------------------------------------------- -------- -----------
LONG-TERM OBLIGATIONS--99.7%
- ------------------------------------------------------------------------
LONG-TERM MUNICIPAL SECURITIES--11.6%
- ------------------------------------------------------------------------
PENNSYLVANIA--5.1%
-------------------------------------------------------
$ 3,400,000 Allegheny County, PA, Sanitary Authority Sewer Revenue
Bonds (FGIC Insured), 0.00%, 12/1/99 AAA $ 2,618,986
------------------------------------------------------- -----------
TEXAS--2.3%
-------------------------------------------------------
1,500,000 Austin, TX, Capital Appreciation Refunding &
Improvement LT GO Bond (FGIC Insured), 0.00%, 9/1/99 AAA 1,168,245
------------------------------------------------------- -----------
UTAH--4.2%
-------------------------------------------------------
2,770,000 Utah Associated Municipal Power Systems Revenue Bonds
(Hunter Project) (AMBAC Insured), 0.00%, 7/1/99 AAA 2,160,351
------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES 5,947,582
------------------------------------------------------- -----------
U.S. GOVERNMENT OBLIGATIONS--88.1%
- ------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION REMIC--8.6%
-------------------------------------------------------
53,000,000 4.625%, Series 1564-S, 5/15/2007 -- 4,372,500
------------------------------------------------------- -----------
FEDERAL HOME LOAN MORTGAGE CORPORATION PC--3.1%
-------------------------------------------------------
1,437,278 30-Year Pass Thru 10.50%, 12/1/2020 -- 1,591,785
------------------------------------------------------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION MBS--41.6%
-------------------------------------------------------
2,395,498 30-Year Pass Thru 12.00%, 1/1/2013 -- 2,735,347
-------------------------------------------------------
18,300,000 30-Year Pass Thru TBA 7.00% -- 18,568,644
------------------------------------------------------- -----------
Total 21,303,991
------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION PC--9.9%
-------------------------------------------------------
4,600,676 10.00%, 10/15/2017 -- 5,073,672
------------------------------------------------------- -----------
</TABLE>
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P*
OR CONTRACTS (NOTE 7) VALUE
<C> <C> <S> <C> <C>
- ------------- ---------------------------------------------------- -------- -----------
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
- -----------------------------------------------------------------------
UNITED STATES TREASURY STRIPS--24.9%
----------------------------------------------------
$17,500,000 0.00%, 11/15/99 -- $12,757,500
---------------------------------------------------- -----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 45,099,448
---------------------------------------------------- -----------
TOTAL LONG-TERM OBLIGATIONS
(IDENTIFIED COST, $51,234,977) 51,047,030
---------------------------------------------------- -----------
PUT OPTIONS PURCHASED--0.1%
- -----------------------------------------------------------------------
150 Put Options on Eurodollar Futures
(identified cost, $50,324) -- 41,250
---------------------------------------------------- -----------
** REPURCHASE AGREEMENTS--36.4%
- ----------------------------------------------------------------------
$ 315,000 J.P. Morgan Securities, Inc., 3.24%, dated 12/31/93,
due 1/3/94 -- 315,000
----------------------------------------------------
18,300,000 Morgan Stanley & Co., 3.17%, dated 11/15/93, due
1/13/94 -- 18,300,000(a)
---------------------------------------------------- -----------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST)
(NOTE 1B) 18,615,000
---------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $69,900,301) $69,703,280+
---------------------------------------------------- -----------
</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 $69,745,484. The
net unrealized depreciation on a federal tax cost basis amounts to $42,204
and is comprised of $313,182 appreciation and $355,386 depreciation at
December 31, 1993.
Note: The categories of investments are shown as a percentage of net assets
($51,174,906) at December 31, 1993.
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
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 the 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 Trust
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 Trust
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
DECEMBER 31, 1993
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<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost and value
(Note 1B) $18,615,000
- -------------------------------------------------------------------
Investment in securities and options 51,088,280
- ------------------------------------------------------------------- -----------
Total investments, at value (Note 1A and 1B)
(identified cost, $69,900,301; tax cost, $69,745,484) $69,703,280
- ---------------------------------------------------------------------------------
Cash 2,579
- ---------------------------------------------------------------------------------
Receivable for investments sold 18,334,517
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Interest receivable 255,229
- --------------------------------------------------------------------------------- -----------
Total assets 88,295,605
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LIABILITIES:
- -------------------------------------------------------------------
Payable for investments purchased 37,053,759
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Dividends payable 15,832
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Accrued expenses 51,108
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Total liabilities 37,120,699
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NET ASSETS for 5,625,018 shares of capital stock outstanding $51,174,906
- --------------------------------------------------------------------------------- -----------
NET ASSETS Consist of:
- ---------------------------------------------------------------------------------
Paid-in capital $52,889,122
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Net unrealized depreciation of investments (197,021)
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Accumulated net realized loss on investments and options (1,805,551)
- ---------------------------------------------------------------------------------
Undistributed net investment income 288,356
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Total $51,174,906
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NET ASSET VALUE, ($51,174,906 / 5,625,018 shares of capital stock outstanding) $9.10
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
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<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Income--
- ---------------------------------------------------------------------------------
Interest income (Note 1C) (net of dollar roll interest expense of $247,639) $4,881,329
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 4) $260,893
- ----------------------------------------------------------------------
Directors' fees 9,236
- ----------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 233,839
- ----------------------------------------------------------------------
Custodian, transfer agent and dividend disbursing agent fees and
expenses 74,112
- ----------------------------------------------------------------------
Capital stock registration costs 23,101
- ----------------------------------------------------------------------
Auditing fees 25,900
- ----------------------------------------------------------------------
Legal fees 10,850
- ----------------------------------------------------------------------
Printing and postage 26,594
- ----------------------------------------------------------------------
Insurance premiums 6,067
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Taxes 3,360
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Miscellaneous 6,037
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Total expenses 679,989
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Deduct--Waiver of investment advisory fee (Note 4) 210,400
- ---------------------------------------------------------------------- --------
Net expenses 469,589
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Net investment income 4,411,740
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain on investments and options (identified cost basis) 277,984
- ---------------------------------------------------------------------------------
Net change in unrealized depreciation on investments and options (427,606)
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized loss on investments (149,622)
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $4,262,118
- --------------------------------------------------------------------------------- ----------
</TABLE>
(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,
-----------------------------
1993 1992*
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 4,411,740 $ 3,380,593
- ---------------------------------------------------------------
Net realized gain (loss) on investments and options ($566,707
net gain and $1,538,166 net loss, respectively, as computed
for federal income tax purposes) (Note 1D) 277,984 (2,083,535)
- ---------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments
and options (427,606) 230,585
- --------------------------------------------------------------- ----------- -----------
Change in net assets from operations 4,262,118 1,527,643
- --------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2)--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income (4,218,731) (3,285,246)
- --------------------------------------------------------------- ----------- -----------
CAPITAL STOCK TRANSACTIONS (NOTE 3)
- ---------------------------------------------------------------
Net proceeds from sale of 5,625,018 shares, net of underwriting
and offering expenses -- 52,889,122
- --------------------------------------------------------------- ----------- -----------
Change in net assets 43,387 51,131,519
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 51,131,519 --
- --------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income
of $288,356 and $95,347, respectively) $51,174,906 $51,131,519
- --------------------------------------------------------------- ----------- -----------
</TABLE>
*For the period from March 16, 1992 (start of business), to December 31, 1992.
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1993 1992*
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.09 $ 9.50
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------
Net investment income 0.78 0.60
- ----------------------------------------------------------------------------
Net realized and unrealized loss on investments and options (0.02) (0.42)
- ---------------------------------------------------------------------------- ------- -------
Total income from investment operations 0.76 0.18
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.75) (0.59)
- ---------------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.10 $ 9.09
- ---------------------------------------------------------------------------- ------- -------
MARKET VALUE PER SHARE, END OF PERIOD $ 8.63 $10.25
- ---------------------------------------------------------------------------- ------- -------
TOTAL INVESTMENT RETURNS**
- ----------------------------------------------------------------------------
Based on net asset value per share 8.73% 1.75%
- ----------------------------------------------------------------------------
Based on market value per share (8.49%) 8.90%
- ----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Expenses 0.90% 0.90%(a)
- ----------------------------------------------------------------------------
Net investment income 8.46% 8.65%(a)
- ----------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.40% 0.18%(a)
- ----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $51,175 $51,132
- ----------------------------------------------------------------------------
Portfolio turnover rate 402% 164%
- ----------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 4, 1992 (date of initial public
investment), to December 31, 1992. For the period from March 16, 1992 (start
of business) to April 3, 1992, net investment income per share aggregating
$0.02 per share ($215) was distributed to the Trust's investment adviser.
Such distribution represented the net income of the Trust prior to the
initial public offering of Trust shares.
** 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) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940, as amended, as
a diversified, closed-end, management investment company. The following is a
summary of significant accounting policies consistently followed by the Trust in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are valued at the mean
between the over-the-counter bid and asked prices as furnished by an
independent pricing service. Municipal bonds are valued at fair value. An
independent pricing service values the Trust's municipal bonds taking into
consideration yield, stability, risk, quality, coupon, maturity, type of
issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it deems relevant in
determining valuations for normal institutional size trading units of debt
securities and does not rely exclusively on quoted prices. The Executive
Committee continuously reviews these valuation methods to determine that they
reflect fair value and to recommend changes to the Directors which may be
necessary from time to time after considering relevant factors which may
affect the value of portfolio securities. Municipal bonds and U.S. government
obligations maturing in sixty days or less are valued at amortized cost,
which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Trust 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 agreement
investments. Additionally, procedures have been established by the Trust to
monitor on a daily basis, the market value of each repurchase agreement's
underlying securities to ensure the existence of a proper level of
collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by
the Trust's adviser to be creditworthy pursuant to guidelines established by
the Directors. Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Trust could
receive less than the repurchase price on the sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest and discount earned (net of premium) on short-term
obligations, and interest earned on all other debt securities including
original issue discount as required by the Internal Revenue Code.
D. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments. Accordingly, no provision for federal
income tax is necessary. At December 31, 1993, the Trust, for federal tax
purposes, had a capital loss carryforward of $971,459, which will reduce the
Trust's taxable income arising from
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
future net realized gain on investments, if any, to the extent permitted by
the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Trust of any liability for federal tax. Pursuant to the Internal Revenue
Code, such capital loss carryforward will expire in 2000. Additionally, net
capital losses of $992,333, attributable to security transactions incurred
after October 31, 1993, are treated as arising on the first day of the
Trust's next taxable year.
E. DOLLAR ROLL TRANSACTIONS--The Trust enters into dollar roll transactions with
respect to mortgage backed securities issued by GNMA, FNMA and FHLMC, in
which the Trust sells mortgage backed securities to financial institutions
and simultaneously agrees to repurchase substantially similar (same type,
coupon and maturity) securities at a later date at an agreed upon price.
During the period between the sale and repurchase, the Trust foregoes
principal and interest paid on the mortgage securities sold. The Trust is
compensated by the interest earned on the cash proceeds of the initial sale
and any additional fee income received on the sale.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. To the extent the Trust engages
in such transactions, it will do so for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
the purpose of investment leverage. The Trust will record a when-issued
security and the related liability on the trade date. Until the securities
are received and paid for, the Trust will maintain 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.
G. OTHER--Investment transactions are accounted for on the trade date of the
transaction.
(2) DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the
Trust on the record date. Distributions of any net realized long-term capital
gains will be made at least once every twelve months. Stockholders may elect to
participate in the dividend reinvestment plan and have dividends and capital
gain distributions reinvested automatically in shares of the Trust.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
straddles and post-October losses.
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
(3) CAPITAL STOCK
At December 31, 1993, there were 1,000,000,000 shares of $0.001 par value stock
authorized. The shares are not redeemable and have no preemptive or conversion
rights. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1992*
--------- ---------
<S> <C> <C>
- ---------------------------------------------------------------------
Shares outstanding, beginning of period 5,625,018 --
- ---------------------------------------------------------------------
Shares sold -- 5,625,018
- --------------------------------------------------------------------- -------- --------
Shares outstanding, end of period 5,625,018 5,625,018
- --------------------------------------------------------------------- -------- --------
</TABLE>
* For the period from March 16, 1992 (start of business), to December 31, 1992.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Advisers, the Trust's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to 0.50 of 1% of the Trust's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion. For the year ended December 31, 1993, the Adviser
earned $260,893 of which $210,400 was voluntarily waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. For the year ended December 31, 1993,
the Trust incurred $233,839 for administrative personnel and services. Certain
of the Officers and Directors of the Trust are Officers and Directors of the
above corporations.
Mr. Gary J. Madich, Vice President, Federated Advisers, is responsible for the
day-to-day management of the Trust's portfolio. Mr. Madich joined Federated in
1984, is an MBA/CFA, and has been responsible for managing the portfolio since
the Trust's inception.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) for the
year ended December 31, 1993 were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
PURCHASES $208,802,568
- ------------------------------------------------------------------------------ ------------
SALES $207,796,164
- ------------------------------------------------------------------------------ ------------
</TABLE>
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
(6) DIVIDEND REINVESTMENT PLAN
Pursuant to the Trust'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 Trust. 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 Trust 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 Trust's
Shares, resulting in the acquisition of fewer Shares than if the dividend or
distribution had been paid in Shares issued by the Trust. 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.
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
LIBERTY TERM TRUST, INC.-1999
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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 Trust reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Trust 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.
(7) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT AUDITORS
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To the Board of Directors and the Shareholders of
LIBERTY TERM TRUST, INC.-1999:
We have audited the accompanying statement of assets and liabilities of Liberty
Term Trust, Inc.-1999, including the portfolio of investments, as of December
31, 1993, and the related statement of operations for the year then ended and
the statement of changes in net assets and financial highlights for the year
ended December 31, 1993 and for the period from March 16, 1992 to December 31,
1992. These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1993, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Liberty Term Trust, Inc.-1999 at December 31, 1993, the results of its
operations for the year then ended and the changes in its net assets and
financial highlights for the year ended December 31, 1993 and for the period
from March 16, 1992 to December 31, 1992, in conformity with generally accepted
accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
February 11, 1994
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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 John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
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