LIBERTY
TERM
TRUST, INC.
_1999
SEMI-ANNUAL REPORT
TO STOCKHOLDERS
JUNE 30, 1995
[LOGO] FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 531282101
2080602 (8/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present this Semi-Annual Report to Stockholders for Liberty Term
Trust, Inc.--1999 for the six-month period ended June 30, 1995. The Report
begins with an investment review by the Fund's portfolio manager followed by a
complete listing of the Fund's investments and the financial statements.
Liberty Term Trust, Inc.--1999 is a closed-end fund that pursues high monthly
income and seeks to return a target value of principal to holders of the shares
in 1999. At the end of the reporting period, 59.6% of the Fund's total assets
(including pending transactions) consisted of mortgage-backed securities,
substantially all of which were issued or guaranteed by the U.S. government, its
agencies or instrumentalities. The remainder was invested in U.S. Treasury
securities, zero coupon municipal securities, and a repurchase agreement.
Over the period, the Fund paid dividends of $0.25 per share. At the end of the
period, total assets stood at $46.8 million. The Fund's net asset value per
share increased from $7.97 on the first day of the period to $8.33 on the last
day of the period. I am pleased to report that the Board of Directors, in an
effort to further enhance stockholder value, subject to regulatory limits, has
authorized the Fund to pursue a repurchase program of its outstanding shares at
market value on the New York Stock Exchange and, if permissible, in private
transactions.
Shares are traded on the New York Stock Exchange under the symbol LTT. Thank you
for your confidence in the Liberty Term Trust, Inc.--1999. Your comments or
suggestions are always welcome.
Sincerely,
/s/ Richard B. Fisher
Richard B. Fisher
President
August 15, 1995
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The Fund's total investment returns for the first six months of 1995 were 7.67%
based on net asset value per share and 8.71% based on market value per share.
Realized and unrealized portfolio gains contributed $0.34 per share to these
returns. Net investment income fell to $0.27 per share during the period, from
$0.37 per share during the first six months of 1994. Dividends also fell from
$0.31 per share in the first half of 1994 to $0.25 for the first half of 1995.
The market price of the Fund's shares increased from $7.13 to $7.50 during the
period.
The Fund's portfolio gains derived primarily from the strong performance of the
bond market during the first half of 1995, due in part to a series of weak
economic reports that reduced investor concerns regarding inflation. This
resulted in a substantial decrease in bond yields, with a corresponding increase
in bond prices. For example, the yield on 30-year U. S. Treasury bonds dropped
from 7.88% to 6.62% over the period. Mortgage-backed securities performed well
relative to Treasuries in the first quarter, and then underperformed their
Treasury counterparts during the second quarter. Concerns regarding increased
mortgage prepayments, as homeowners took advantage of lower rates to refinance
their mortgages, and increased interest rate volatility led to the weaker
performance of mortgage-backed securities in the second quarter.
In response to the decline in bond yields, the Fund shifted from premium
mortgage-backed securities to discount mortgage-backed securities and U.S.
Treasury securities. Premium mortgage-backed securities have coupon rates above
current market levels; discount mortgage-backed securities have coupon rates
below current market levels. This shift from premium mortgage-backed securities
should reduce the impact of increases in mortgage prepayments on the value of
the Fund's portfolio, as premium securities typically prepay more rapidly than
discount securities. This shift, together with the decline in bond yields and
the continued reduction in the Fund's duration as it approaches 1999,
contributed to the decline in the Fund's investment income and dividends.
Despite the rebound in the portfolio's value, the Fund's net asset value per
share has yet to return to its 1993 high. A combination of unprecedented
mortgage prepayments in 1993 and a severe bear market in fixed income securities
in 1994 caused the Fund and other term trusts investing in mortgage-backed
securities to realize significant losses. At the end of the reporting period,
the Fund's accumulated realized losses exceeded $7 million.
Although the bond rally has allowed the Fund to recover some of its realized
losses, the full recovery of realized losses is unlikely. Therefore, it will be
difficult for the Fund to meet its investment objective by 1999. Under the
Fund's current investment policies and limitations, a full recovery of current
losses would require a decline in interest rates significantly below the low
levels that prevailed in 1993. Even if interest rates did decline to such
levels, accelerating prepayments could still prevent the Fund from realizing
significant gains if it continues to invest primarily in mortgage-backed
securities. In order to allow the Fund to capitalize fully on any further rally
in the bond market, the Fund's Board of Directors has eliminated the Fund's
nonfundamental policy of investing at least 65% of the Fund's assets in
mortgage-backed securities. The Fund's investment adviser will continue to
review the Fund's investment policies and limitations and may recommend further
changes that, in the adviser's opinion, could enhance the Fund's ability to
offset its current realized losses.
An Annual Meeting of the Stockholders of Liberty Term Trust, Inc.--1999 was held
on May 18, 1995. On March 20, 1995, the record date for stockholders voting at
the meeting, there were 5,625,018 total outstanding shares. The following items
were considered by the stockholders and the results of their voting were as
follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA
AUTHORITY
ITEM FOR
AGAINST ABSTAIN TO VOTE
<S> <C> <C>
<C> <C>
1. Election of Class II and Class III Directors*.
William J. Copeland 4,703,743.183 0
0 75,185
J. Christopher Donahue 4,703,743.183 0
0 75,185
James E. Dowd 4,703,743.183 0
0 75,185
Lawrence D. Ellis, M.D. 4,703,743.183 0
0 75,185
John E. Murray, Jr. 4,703,743.183 0
0 75,185
2. To ratify the selection by the Board of Directors of the firm of Ernst &
Young LLP as Independent Auditors for
the Fund.
4,692,010.201
20,544.000 66,373.982 0
</TABLE>
* The following Directors of the Fund continued their terms as Directors of the
Fund: John F. Donahue, John T. Conroy, Jr., Edward L. Flaherty, Jr.,
Peter E. Madden, Gregor F. Meyer, Wesley W. Posvar, and Marjorie P. Smuts.
LIBERTY TERM TRUST, INC.--1999
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CREDIT
AMOUNT
RATING* VALUE
<C> <S>
<C> <C>
- ------------- -----------------------------------------------------------------
- ------ --------- -------------
LONG-TERM OBLIGATIONS--81.7%
- --------------------------------------------------------------------------------
- ------
ASSET-BACKED SECURITIES--2.1%
-----------------------------------------------------------------
- ------
MORTGAGE SECURITIES--2.1%
-----------------------------------------------------------------
- ------
$ 1,000,000 Prudential Home Mortgage Security, 7.50%,
(Series 1993-32)/(Class A-6), 10/25/2022
- -- $ 990,938
-----------------------------------------------------------------
- ------ -------------
TOTAL ASSET-BACKED SECURITIES
990,938
-----------------------------------------------------------------
- ------ -------------
LONG-TERM MUNICIPAL SECURITIES--18.6%
-----------------------------------------------------------------
- ------
MICHIGAN--5.3%
-----------------------------------------------------------------
- ------
3,250,000 Michigan Municipal Authority Revenue Bonds,
Government Loan A, (FGIC Insured) 0.00%, 12/1/2000
AAA 2,472,405
-----------------------------------------------------------------
- ------
PENNSYLVANIA--5.9%
-----------------------------------------------------------------
- ------
3,400,000 Allegheny County, PA, Sanitary Authority Sewer Revenue Bonds,
(Series
A)/(FGIC Insured), 0.00%, 12/1/1999
AAA 2,749,852
-----------------------------------------------------------------
- ------
TEXAS--2.6%
-----------------------------------------------------------------
- ------
1,500,000 Austin, TX, Capital Appreciation Refunding &
Improvement LT GO Bonds (FGIC Insured), 0.00%,
9/1/1999
AAA 1,224,840
-----------------------------------------------------------------
- ------
UTAH--4.8%
-----------------------------------------------------------------
- ------
2,770,000 Utah Associated Municipal Power Systems Revenue Bonds (Hunter
Project)/(AMBAC Insured), 0.00%, 7/1/1999
AAA 2,269,599
-----------------------------------------------------------------
- ------ -------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
8,716,696
-----------------------------------------------------------------
- ------ -------------
U.S. GOVERNMENT OBLIGATIONS--61.0%
-----------------------------------------------------------------
- ------
FEDERAL HOME LOAN MORTGAGE CORPORATION--11.7%
-----------------------------------------------------------------
- ------
5,593,545 5-Year Gold Balloon, 5.50%, 8/1/1998
- -- 5,493,812
-----------------------------------------------------------------
- ------ -------------
FEDERAL HOME LOAN MORTGAGE CORPORATION PC--8.6%
-----------------------------------------------------------------
- ------
3,852,701 15-Year Gold Balloon, 9.00%, 10/1/2006
- -- 4,016,364
-----------------------------------------------------------------
- ------ -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION PC--20.3%
-----------------------------------------------------------------
- ------
9,714,999 6.50%, 2/1/2009-2/1/2024
- -- 9,488,314
-----------------------------------------------------------------
- ------ -------------
</TABLE>
LIBERTY TERM TRUST, INC.--1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CREDIT
AMOUNT
RATING* VALUE
<C> <S>
<C> <C>
- ------------- -----------------------------------------------------------------
- ------ --------- -------------
LONG-TERM OBLIGATIONS--CONTINUED
- --------------------------------------------------------------------------------
- ------
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
-----------------------------------------------------------------
- ------
U.S. TREASURY NOTES--20.4%
-----------------------------------------------------------------
- ------
$ 9,815,000 5.125%-5.875%, 11/30/1998-8/15/2003
- -- $ 9,564,574
-----------------------------------------------------------------
- ------ -------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
28,563,064
-----------------------------------------------------------------
- ------ -------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $37,710,068)
38,270,698
-----------------------------------------------------------------
- ------ -------------
**REPURCHASE AGREEMENT--1.1%
- --------------------------------------------------------------------------------
- ------
510,000 J.P. Morgan Securities, Inc., 6.125%, dated 6/30/1995,
due 7/3/1995 (at amortized cost)
510,000
-----------------------------------------------------------------
- ------ -------------
TOTAL INVESTMENTS (IDENTIFIED COST, $38,220,068) (a)
$ 38,780,698
-----------------------------------------------------------------
- ------ -------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $38,220,068. The
net unrealized depreciation on a federal tax cost basis amounts to $560,630
and is comprised of $672,313 appreciation and $111,683 depreciation at June
30, 1995.
* See Notes to Portfolio of Investments on page 6.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in joint
accounts with other Federated funds.
Note: The categories of investments are shown as a percentage of net assets
($46,844,267) at June 30, 1995.
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Co.
GO--General Obligation
LT--Limited Tax
PC--Participation Certificates
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.--1999
NOTES TO PORTFOLIO OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
The municipal bonds rated by Moody's Investors Service, Inc. ("Moody's") 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 rate 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 Ratings Group ("Standard &
Poor's") 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, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C> <C>
ASSETS:
- --------------------------------------------------------------------------------
- -------------------
Investments in securities, at value (identified and tax cost $38,220,068)
$ 38,780,698
- --------------------------------------------------------------------------------
- -------------------
Cash
4,433
- --------------------------------------------------------------------------------
- -----------------
Interest receivable
255,058
- --------------------------------------------------------------------------------
- -----------------
Receivable for investments sold
8,058,543
- --------------------------------------------------------------------------------
- --- --------------------------------------
Total assets
47,098,732
- --------------------------------------------------------------------------------
- -----------------
LIABILITIES:
- --------------------------------------------------------------------------------
- -----------------
Income distribution payable
$ 225,001
- --------------------------------------------------------------------------------
- -----------------
Accrued expenses
29,464
- --------------------------------------------------------------------------------
- -----------------
Total liabilities
254,465
- --------------------------------------------------------------------------------
- --- -------------
NET ASSETS for 5,625,018 shares outstanding
$ 46,844,267
- --------------------------------------------------------------------------------
- ------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
- -------------------
Paid-in capital
$ 52,889,122
- --------------------------------------------------------------------------------
- -------------------
Net unrealized appreciation (depreciation) of investments
560,630
- --------------------------------------------------------------------------------
- -------------------
Accumulated net realized gain (loss) on investments and options
(7,354,089)
- --------------------------------------------------------------------------------
- -------------------
Undistributed net investment income
748,604
- --------------------------------------------------------------------------------
- ------------------- -------------
Total Net Assets
$ 46,844,267
- --------------------------------------------------------------------------------
- ------------------- -------------
NET ASSET VALUE, ($46,844,267 / 5,625,018 shares outstanding)
$8.33
- --------------------------------------------------------------------------------
- ------------------- -------------
</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, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
- --------------------
Interest (net of dollar roll expense $100,976)
$ 1,722,272
- --------------------------------------------------------------------------------
- --------------------
EXPENSES:
- --------------------------------------------------------------------------------
- --------------------
Investment advisory fee
$ 113,808
- --------------------------------------------------------------------------------
- -----------
Administrative personnel and services fee
61,987
- --------------------------------------------------------------------------------
- --------
Custodian fees
23,007
- --------------------------------------------------------------------------------
- --------
Transfer agent and dividend disbursing agent fees and expenses 12,332
- --------------------------------------------------------------------------------
- --------
Directors'/Trustees' fees
4,139
- --------------------------------------------------------------------------------
- --------
Auditing fees
9,412
- --------------------------------------------------------------------------------
- --------
Legal fees
2,248
- --------------------------------------------------------------------------------
- --------
Portfolio accounting fees
6,583
- --------------------------------------------------------------------------------
- --------
Share registration costs
81
- --------------------------------------------------------------------------------
- --------
Printing and postage
8,308
- --------------------------------------------------------------------------------
- --------
Insurance premiums
2,353
- --------------------------------------------------------------------------------
- --------
Taxes
2,496
- --------------------------------------------------------------------------------
- --------
Miscellaneous
11,222
- --------------------------------------------------------------------------------
- ----------
Total expenses
257,976
- --------------------------------------------------------------------------------
- -----------
Deduct--Waiver of investment advisory fee
52,952
- --------------------------------------------------------------------------------
- ----------
Net expenses
205,024
- --------------------------------------------------------------------------------
- -------------------- ------------
Net investment income
1,517,248
- --------------------------------------------------------------------------------
- -------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
- --------------------
Net realized gain (loss) on investments and options
214,571
- --------------------------------------------------------------------------------
- --------------------
Net change in unrealized appreciation (depreciation) on investments
1,672,889
- --------------------------------------------------------------------------------
- -------------------- ------------
Net realized and unrealized gain (loss) on investments and options
1,887,460
- --------------------------------------------------------------------------------
- -------------------- ------------
Change in net assets resulting from operations
$ 3,404,708
- --------------------------------------------------------------------------------
- -------------------- ------------
</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>
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------
Net investment income $
1,517,248 $ 3,718,591
- ------------------------------------------------------------------------
Net realized gain (loss) on investments and options ($214,571 net gain
and $5,022,908 net loss, respectively, as computed for federal income
tax purposes)
214,571 (5,763,109)
- ------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 1,672,889
(915,238)
- ------------------------------------------------------------------------ ------
- ---------- ----------------------
Change in assets resulting from operations
3,404,708 (2,959,756)
- ------------------------------------------------------------------------ -------
- --------- ----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
Distributions from net investment income
(1,411,861) (3,363,730)
- ------------------------------------------------------------------------ ------
- ---------- ----------------------
Change in net assets
1,992,847 (6,323,486)
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period
44,851,420 51,174,906
- ------------------------------------------------------------------------ ------
- ---------- ----------------------
End of period (including undistributed net investment income of $748,604
and $643,217, respectively) $
46,844,267 $ 44,851,420
- ------------------------------------------------------------------------ ------
- ---------- ----------------------
</TABLE>
(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>
SIX MONTHS
ENDED
JUNE 30, 1995 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1994 1993 1992(a)
<S> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.97 $ 9.10 $
9.09 $ 9.50
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income
0.27 0.66 0.78 0.60
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
options
0.34 (1.19) (0.02) (0.42)
- ------------------------------------------------------------------ ----
- -- --------- --------- -----------
Total from investment operations
0.61 (0.53) 0.76 0.18
- ------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.25)
(0.60) (0.75) (0.59)
- ------------------------------------------------------------------ ------
- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 8.33 $ 7.97
$ 9.10 $ 9.09
- ------------------------------------------------------------------ ------
- --------- --------- -----------
MARKET VALUE PER SHARE, END OF PERIOD $ 7.50 $ 7.13 $ 8.63
$ 10.25
- ------------------------------------------------------------------ ------
- --------- --------- -----------
TOTAL INVESTMENT RETURNS (b)
- ------------------------------------------------------------------
Based on net asset value per share
7.67% (6.20%) 8.73% 1.75%
- ------------------------------------------------------------------
Based on market value per share
8.71% (10.43%) (8.49%) 8.90%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses
0.90%(c) 0.90% 0.90% 0.90%(c)
- ------------------------------------------------------------------
Net investment income
6.67%(c) 7.83% 8.46% 8.65%(c)
- ------------------------------------------------------------------
Expense waiver/reimbursement (d)
0.23%(c) 0.24% 0.40% 0.18%(c)
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $46,844
$44,851 $51,175 $51,132
- ------------------------------------------------------------------
Portfolio Turnover
173 % 393% 402% 164 %
- ------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from April 4, 1992 (date of initial
public investment) to December 31, 1992.
(b) 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 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 Fund'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 Fund's dividend reinvestment plan.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.--1999
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 (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 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.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at
the mean between 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 the pricing service 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 fair market value.
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 under repurchase
agreement transactions. 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 that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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 and/or
standards reviewed or established by the Board of Directors. Risks may
arise from the potential inability of counterparties to honor the terms of
the repurchase agreements. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
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 shareholders are recorded on the ex-dividend date.
LIBERTY TERM TRUST, INC.--1999
- --------------------------------------------------------------------------------
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
stockholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At December 31, 1994, the Fund, for federal tax purposes, had a capital
loss carryforward of $5,994,367, 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. Pursuant to the Code, such
capital loss carryforward will expire upon termination of the Fund.
Additionally, net capital losses of $1,639,088, attributable to security
transactions incurred after October 31, 1994, are treated as arising on
January 1, 1995, the first day of the Fund's next taxable year.
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.
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 sells 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 investments which may enhance the
Fund's current yield and total return.
OPTION TRANSACTIONS--The Fund purchases over-the-counter put options on
Eurodollar and U.S. government securities futures contracts to hedge
fluctuations in the market value of certain portfolio securities. The risk
associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the
risk of loss of premium and change in market value should the counterparty
not perform under the contract. Put options purchased are accounted for in
the same manner as portfolio securities.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At June 30, 1995, there were 1,000,000,000 shares of $0.001 par value capital
stock authorized. The shares are not redeemable and have no preemptive or
conversion rights. There were no transactions in capital stock for the six
months ended June 30, 1995, or the fiscal year ended December 31, 1994.
LIBERTY TERM TRUST, INC.--1999
- --------------------------------------------------------------------------------
(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
.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.
Gary J. Madich, the portfolio manager of the Fund since inception through
February 10, 1995, has been succeeded in that position by Kathleen M.
Foody-Malus, Susan M. Nason and James D. Roberge.
James D. Roberge assumed his position as the Fund's co-portfolio manager as of
February 15, 1995. Mr. Roberge joined Federated Investors in 1990 and has been a
Vice President of the Fund's investment adviser since October 1994. Prior to
this, Mr. Roberge served as an Assistant Vice President of the Fund's investment
adviser. From 1990 until 1992, Mr. Roberge acted as an investment analyst. Mr.
Roberge is a Chartered Financial Analyst and received his M.B.A. in Finance from
Wharton Business School in 1990.
Kathleen M. Foody-Malus has been the Fund's portfolio manager since June, 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.
Susan M. Nason has been the Fund's co-portfolio manager since June, 1994. Ms.
Nason joined Federated Investors in 1987 and has been a Vice President of the
Fund's investment adviser since 1993. Ms. Nason served as an Assistant Vice
President of the investment adviser from 1990 until 1992, and from 1987 until
1990 she acted as an investment analyst. Ms. Nason is a Chartered Financial
Analyst and received her M.B.A. in Finance from Carnegie Mellon University.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund administrative personnel
and services. 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 FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .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
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended
June 30, 1995, were as follows:
<TABLE>
<S>
<C>
- --------------------------------------------------------------------------------
- ------------------
PURCHASES
$ 75,562,221
- --------------------------------------------------------------------------------
- -- --------------
SALES
$ 75,858,856
- --------------------------------------------------------------------------------
- -- --------------
</TABLE>
(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 termined 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 shares 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
LIBERTY TERM TRUST, INC.--1999
- --------------------------------------------------------------------------------
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 stockholders' 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 not 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.
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. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Treasurer
Charles H. Field
Assistant Secretary
