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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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ANNUAL REPORT
TO STOCKHOLDERS
DECEMBER 31, 1994
(LOGO)Federated Securities Corp.
- ------------------------------
Distributor
A subsidiary of Federated Investors
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
531282101
2022001A (2/95)
PRESIDENT'S MESSAGE
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Dear Investor:
I am pleased to present the Annual Report to Stockholders for Liberty Term
Trust, Inc.-1999 (the "Fund") for the fiscal year ended December 31, 1994. The
report begins with a review of the Fund's objective and investments by the
portfolio manager and is followed by a complete listing of 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 the year 1999. At
the end of the reporting period, 76.2% of the Fund's assets were invested in
U.S. government securities. The rest of the assets were invested in long-term,
high quality municipal securities and a repurchase agreement.
Over the period, dividends paid to stockholders totaled $0.60 per share. As of
December 31, 1994, net assets stood at $44.9 million.
Shares of the Fund 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,
/s/ Richard B. Fisher
Richard B. Fisher
President
February 15, 1995
MANAGEMENT DISCUSSION & ANALYSIS
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The Fund continues to be on the conservative end of the closed-end term trust
competitor matrix. The dominant market trend was the significant flattening of
the yield curve in the second half of 1994. The two-year Treasury note, assisted
by a 75 basis point hike in the Federal Funds rate in November, 1994, increased
in yield by over 100 basis points. Conversely, the yield on the 30-year Treasury
bond was virtually unchanged as the aggressive monetary policy stance of the
Federal Reserve Board made investors comfortable with the inflation outlook.
The impact of this yield curve flattening phenomenon on the mortgage sector was
rather muted as spreads to Treasuries stayed in a narrow range through quarter
end.
Throughout the latter part of 1994, mortgage funds such as the Fund continued to
stress transactions that maintained a neutral risk profile while investing in
assets in accordance with the Fund's objectives and policies. The Fund was rated
AAAf by Standard & Poor's Ratings Group ("Standard & Poor's")* and on December
31, 1994, the Fund's closing stock price was $7.13, a discount of 10.6% to its
net asset value of $7.97. Closed-end bond funds continue to trade at wide
discounts to net asset value as selling pressures due to rising interest rates
continue. The U.S. Treasury component is currently allocated in the two year
part of the yield curve. This allocation to Treasuries is currently in a barbell
structure with a ten year Constant Maturity Treasury inverse floater to allow
the portfolio to take advantage of the flattening yield curve trend and to
protect against underperformance in the intermediate sector. Other major
transactions included an increase to the municipal zero holdings and the use of
seven-year balloon paper versus intermediate Treasuries.
During the first quarter of 1995, we believe the mortgage sector should offer
solid relative performance as the fundamental conditions of lower interest rate
volatility, attractive income versus other spread products, such as asset-backed
securities and corporate bonds, and prices that are below par combine to support
the mortgage securities market. The mortgage sector will remain overweighted in
the portfolio holdings with constant monitoring of its response to any change in
the yield curve and volatility.
* This rating is obtained after Standard & Poor's evaluates a number of factors,
including credit quality, market price exposure, and management. They monitor
the portfolio weekly for developments that could cause changes in ratings.
LIBERTY TERM TRUST, INC.-1999
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
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<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <C> <S> <C> <C>
LONG-TERM OBLIGATIONS--98.4%
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LONG-TERM MUNICIPAL SECURITIES--22.2%
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MICHIGAN--9.1%
----------------------------------------------------------
$5,750,000 Michigan Municipal Authority Revenue Bonds, Government
Loan A (FGIC Insured), 0.00%, 12/1/2000 AAA $ 4,087,905
----------------------------------------------------------
PENNSYLVANIA--5.7%
----------------------------------------------------------
3,400,000 Allegheny County, PA, Sanitary Authority Sewer Revenue
Bonds, (Series A)/(FGIC Insured), 0.00%, 12/1/99 AAA 2,581,518
----------------------------------------------------------
TEXAS--2.6%
----------------------------------------------------------
1,500,000 Austin, TX, Capital Appreciation Refunding & Improvement
LT GO Bonds (FGIC Insured), 0.00%, 9/1/99 AAA 1,151,325
----------------------------------------------------------
UTAH--4.8%
----------------------------------------------------------
2,770,000 Utah Associated Municipal Power Systems Revenue Bonds
(Hunter Project)/(AMBAC Insured), 0.00%, 7/1/99 AAA 2,146,279
---------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES 9,967,027
---------------------------------------------------------- -----------
U.S. GOVERNMENT OBLIGATIONS--76.2%
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FEDERAL HOME LOAN MORTGAGE CORPORATION PC--20.5%
----------------------------------------------------------
9,481,401 7-Year Gold Balloon, 7.50%, 10/1/2001 -- 9,199,803
---------------------------------------------------------- -----------
FEDERAL HOME LOAN MORTGAGE CORPORATION REMIC--3.9%
----------------------------------------------------------
3,035,500 4.198%, Series 1662-M, 1/15/2009 (10 yr CMT Inverse
Floater) -- 1,743,515
---------------------------------------------------------- -----------
FEDERAL HOME LOAN MORTGAGE CORPORATION PC--1.8%
----------------------------------------------------------
763,299 30-Year Pass Thru, 11.50%, 9/1/2015 -- 824,111
---------------------------------------------------------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION MBS--13.2%
----------------------------------------------------------
2,669,826 30-Year Pass Thru, 12.00%, 1/1/2013 -- 2,927,597
----------------------------------------------------------
1,737,733 30-Year Pass Thru, 11.50%, 10/1/2019 -- 1,891,383
----------------------------------------------------------
1,028,460 30-Year Pass Thru, 11.00%, 10/1/2015 -- 1,111,045
---------------------------------------------------------- -----------
Total 5,930,025
---------------------------------------------------------- -----------
</TABLE>
LIBERTY TERM TRUST, INC.-1999
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<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING:
AMOUNT OR MOODY'S
CONTRACTS OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
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FEDERAL NATIONAL MORTGAGE ASSOCIATION PC--17.7%
----------------------------------------------------------
$7,136,467 12.50%, 5/1/2015 -- $ 7,928,044
---------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION PC--2.3%
----------------------------------------------------------
931,181 11.50%, 10/20/2015 -- 1,006,830
---------------------------------------------------------- -----------
U.S. TREASURY NOTES--16.8%
----------------------------------------------------------
7,600,000 7.25%, 11/30/96 -- 7,544,596
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TOTAL U.S. GOVERNMENT OBLIGATIONS 34,176,924
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TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $45,177,910) 44,143,951
---------------------------------------------------------- -----------
PUT OPTIONS PURCHASED--0.1%
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90 10-Year U.S. Treasury Note Futures (identified cost
$138,769) -- 60,469
---------------------------------------------------------- -----------
**REPURCHASE AGREEMENT--0.7%
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315,000 J.P. Morgan Securities, Inc., 6.05%, dated 12/30/94, due
1/3/95 (at amortized cost) -- 315,000
---------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $45,631,679) $44,519,420+
---------------------------------------------------------- -----------
</TABLE>
* See Notes to Portfolio of Investments on page 6. Current credit ratings are
unaudited.
** 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.
+ The cost of investments for federal tax purposes amounts to $45,553,379. The
net unrealized depreciation on a federal tax cost basis amounts to $1,033,959
and is comprised of $60,292 appreciation and $1,094,251 depreciation at
December 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($44,851,420) at December 31, 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
CMT -- Constant Maturity Treasury
</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. ("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 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 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
DECEMBER 31, 1994
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<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investment in securities, at value (identified cost, $45,631,679 and tax cost,
$45,553,379) $44,519,420
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Cash 3,895
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Interest receivable 339,944
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Total assets 44,863,259
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LIABILITIES:
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Accrued expenses $11,839
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Total liabilities 11,839
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NET ASSETS for 5,625,018 shares of common stock outstanding $44,851,420
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NET ASSETS Consist of:
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Paid-in capital $52,889,122
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Net unrealized appreciation (depreciation) of investments and options (1,112,259)
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Accumulated net realized gain (loss) on investments and options (7,568,660)
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Undistributed net investment income 643,217
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Total Net Assets $44,851,420
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NET ASSET VALUE, ($44,851,420 / 5,625,018 shares of common stock outstanding) $7.97
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
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<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Income--
- -----------------------------------------------------------------------------------
Interest income (net of dollar roll interest expense of $490,004) $ 4,146,189
- -----------------------------------------------------------------------------------
EXPENSES:
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Investment advisory fee $237,518
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Directors' fees 7,240
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Administrative personnel and services 142,606
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Shareholder services fee 19,598
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Custodian and portfolio accounting fees 55,833
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Transfer and dividend disbursing agent fees and expenses 20,972
- ------------------------------------------------------------------------
Common stock registration costs 350
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Auditing fees 19,000
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Legal fees 2,800
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Printing and postage 24,429
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Insurance 4,654
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Taxes 5,891
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Miscellaneous 237
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Total expenses 541,128
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Deduct--Waiver of investment advisory fee 113,530
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Net expenses 427,598
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Net investment income 3,718,591
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments and options (identified cost basis) (5,763,109)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments and options (915,238)
- ----------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments and options (6,678,347)
- ----------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $(2,959,756)
- ----------------------------------------------------------------------------------- -----------
</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,
-----------------------------
1994 1993
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 3,718,591 $ 4,411,740
- ----------------------------------------------------------------
Net realized gain (loss) on investments and options ($5,022,908
net loss and $566,707 net gain, respectively, as computed for
federal income tax purposes) (5,763,109) 277,984
- ----------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments
and options (915,238) (427,606)
- ---------------------------------------------------------------- ----------- -----------
Change in net assets from operations (2,959,756) 4,262,118
- ---------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (3,363,730) (4,218,731)
- ---------------------------------------------------------------- ----------- -----------
Change in net assets (6,323,486) 43,387
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 51,174,906 51,131,519
- ---------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income of
$643,217 and $288,356, respectively) $44,851,420 $51,174,906
- ---------------------------------------------------------------- ----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.-1999
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------------------------------------------------
Investment income received $ 3,857,451
- ------------------------------------------------------------------------------
Payment of operating expenses (466,867)
- ------------------------------------------------------------------------------
Proceeds from sales and maturities of investments 204,075,869
- ------------------------------------------------------------------------------
Purchase of investments (204,011,910)
- ------------------------------------------------------------------------------
Net purchase of short-term investments 18,300,000
- ------------------------------------------------------------------------------ ------------
Cash used by operating activities 21,754,543
- ------------------------------------------------------------------------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------------------------------------------------
Decrease on payable for dollar roll transactions (18,373,665)
- ------------------------------------------------------------------------------
Distributions paid (3,379,562)
- ------------------------------------------------------------------------------ ------------
Cash used by financing activities (21,753,227)
- ------------------------------------------------------------------------------ ------------
Increase in cash 1,316
- ------------------------------------------------------------------------------ ------------
Cash at beginning of period 2,579
- ------------------------------------------------------------------------------ ------------
Cash at end of period $ 3,895
- ------------------------------------------------------------------------------ ------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH USED BY
OPERATING ACTIVITIES:
- ------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (2,959,756)
- ------------------------------------------------------------------------------
Net decrease in investments 25,183,860
- ------------------------------------------------------------------------------
Increase in interest receivable (84,715)
- ------------------------------------------------------------------------------
Decrease in receivable for investments sold 18,334,517
- ------------------------------------------------------------------------------
Decrease in payable for investments purchased (18,680,094)
- ------------------------------------------------------------------------------
Decrease in accrued expenses (39,269)
- ------------------------------------------------------------------------------ ------------
Cash used by operating activities $ 21,754,543
- ------------------------------------------------------------------------------ ------------
</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>
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 0.66 0.78 0.60
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and options (1.19) (0.02) (0.42)
- ---------------------------------------------------------------------- ----- ----- ------
Total income from investment operations (0.53) 0.76 0.18
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.60) (0.75) (0.59)
- ---------------------------------------------------------------------- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $7.97 $9.10 $9.09
- ---------------------------------------------------------------------- ----- ----- ------
MARKET VALUE PER SHARE, END OF PERIOD $7.13 $8.63 $10.25
- ---------------------------------------------------------------------- ----- ----- ------
TOTAL INVESTMENT RETURNS**
- ----------------------------------------------------------------------
Based on net asset value per share (6.20%) 8.73% 1.75%
- ----------------------------------------------------------------------
Based on market value per share (10.43%) (8.49%) 8.90%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.90% 0.90% 0.90%(b)
- ----------------------------------------------------------------------
Net investment income 7.83% 8.46% 8.65%(b)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.24% 0.40% 0.18%(b)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $44,851 $51,175 $51,132
- ----------------------------------------------------------------------
Portfolio turnover rate 393% 402% 164%
- ----------------------------------------------------------------------
</TABLE>
* 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 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.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(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
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(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 investments. 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 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 (the
"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 stockholders each year
substantially all of its taxable 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.
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. OPTIONS 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.
H. 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 December
31, 1994.
</TABLE>
LIBERTY TERM TRUST, INC.-1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
I. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) CAPITAL STOCK
At December 31, 1994, 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 fiscal
years ended December 31, 1994 and 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
.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 co-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") provides the
Fund's 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.
LIBERTY TERM TRUST, INC.-1999
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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 stockholders and to maintain stockholder accounts.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended
December 31, 1994, were as follows:
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PURCHASES $184,713,862
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SALES $185,511,336
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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.
LIBERTY TERM TRUST, INC.-1999
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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 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.
REPORT OF INDEPENDENT AUDITORS
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To the Board of Directors and the Stockholders 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, 1994, and the related statement of operations and cash flows for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for the periods presented
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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, 1994, 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, 1994, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for the periods presented therein, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 10, 1995
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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
Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
Charles H. Field
Assistant Secretary
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