LIBERTY
TERM
TRUST, INC.
- --1999
ANNUAL REPORT
TO STOCKHOLDERS
DECEMBER 31, 1995
[LOGO] FEDERATED INVESTORS
-------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 531282101
2022001A (2/96)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders for Liberty Term
Trust, Inc.--1999 for the twelve-month period ended December 31, 1995. The
report begins with a review of the fund's objective and investments, and
includes a complete listing of its portfolio and financial statements.
As a closed-end investment company, Liberty Term Trust, Inc.--1999 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, 85.5% of the fund's assets
were invested in U.S. government securities. The remainder of the assets was
invested in long-term, high quality municipal securities and a repurchase
agreement.
Over the reporting period, dividends paid to shareholders by the fund's
portfolio of investments totaled $0.44 per share. At the end of the reporting
period, total assets stood at $47.4 million.
Shares are actively traded on the New York Stock Exchange under the symbol LTT,
and can be purchased through your investment representative. Thank you for
selecting Liberty Term Trust, Inc.--1999 as a way to pursue investment income.
Your comments or suggestions are always welcome.
Sincerely,
Richard B. Fisher
President
February 15, 1996
INVESTMENT REVIEW
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The fund's total investment returns for the last six months of 1995 were 5.09%
based on net asset value per share and .73% based on market value per share. The
fund's portfolio gains derived primarily from the strong performance of the bond
market during the second half of 1995 as inflation continued to remain under
control. 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 6.62% to 5.95%. Mortgage-backed securities
underperformed their Treasury counterparts during the second half of 1995.
Concerns regarding increased mortgage prepayments, as homeowners took advantage
of lower rates to refinance their mortgages led to the weaker performance of
mortgage-backed securities.
The fund took advantage of the strong performance of its Treasury issues by
selling Treasuries and reinvesting the proceeds in mortgage-backed securities,
primarily those selling at a slight discount to par. By the end of the reporting
period, with the exception of its core position in municipal zero-coupon bonds,
the fund was fully invested in mortgage-backed securities.
The fund also initiated a share repurchase program. During the period, the fund
repurchased 90,200 shares, 1.6% of those outstanding. The fund intends to
continue repurchasing shares offered at a discount to net asset value as a means
of increasing shareholder value.
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.
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. 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.
LIBERTY TERM TRUST, INC.--1999
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- --------- -------------
LONG-TERM OBLIGATIONS--99.3%
- --------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL SECURITIES--13.8%
- --------------------------------------------------------------------------------------
PENNSYLVANIA--6.1%
-----------------------------------------------------------------------
$ 3,400,000 Allegheny County, PA, Sanitary Authority Sewer Revenue Bonds, Series A,
12/1/1999 AAA $ 2,887,756
----------------------------------------------------------------------- -------------
TEXAS--2.7%
-----------------------------------------------------------------------
1,500,000 Austin, TX, Capital Appreciation Refunding & Improvement LT GO Bonds
(FGIC Insured), 9/1/1999 AAA 1,283,970
----------------------------------------------------------------------- -------------
UTAH--5.0%
-----------------------------------------------------------------------
2,770,000 Utah Associated Municipal Power Systems Revenue Bonds, (Hunter
Project)/(AMBAC Insured), 7/1/1999 AAA 2,387,020
----------------------------------------------------------------------- -------------
TOTAL LONG-TERM MUNICIPAL SECURITIES 6,558,746
----------------------------------------------------------------------- -------------
U.S. GOVERNMENT OBLIGATIONS--85.5%
- --------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--48.6%
-----------------------------------------------------------------------
12,548,761 30-Year Gold PCs, 7.00%-8.00%, 10/1/2025--
12/1/2025 -- 12,781,579
-----------------------------------------------------------------------
5,517,669 1-Year CMT ARM, 5.57%, 8/1/2025 -- 5,593,813
-----------------------------------------------------------------------
4,461,696 5.85%, Series 1567-B REMIC, 8/15/2023 (Inverse Floater) -- 3,375,540
-----------------------------------------------------------------------
4,494,091 7.00%, Series 152-B STRIP, 8/1/2023 (Interest Only) -- 1,241,987
----------------------------------------------------------------------- -------------
Total 22,992,919
----------------------------------------------------------------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--36.9%
-----------------------------------------------------------------------
17,413,332 6.50%-7.00%, 2/1/2009--2/1/2024 -- 17,494,376
----------------------------------------------------------------------- -------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 40,487,295
----------------------------------------------------------------------- -------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $45,896,865) 47,046,041
----------------------------------------------------------------------- -------------
(A) REPURCHASE AGREEMENT--0.2%
- --------------------------------------------------------------------------------------
110,000 J. P. Morgan Securities, Inc., 5.85%, dated 12/29/95, due
1/2/95 (at amortized cost) -- 110,000
----------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $46,006,865) (B) $ 47,156,041
----------------------------------------------------------------------- -------------
</TABLE>
LIBERTY TERM TRUST, INC.--1999
- --------------------------------------------------------------------------------
* See Notes to Portfolio of Investments on page 5. Current credit ratings are
unaudited.
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligation based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $46,006,865. The
net unrealized appreciation on a federal tax cost basis amounts to
$1,149,176, which is comprised of $1,227,215 appreciation and $78,039
depreciation at December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($47,357,172) at
December 31, 1995.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
ARM--Adjustable Rate Mortgage
CMT--Constant Maturity Treasury
FGIC--Financial Guaranty Insurance Company
GO--General Obligation
LT--Limited Tax
PC--Participation Certificate
REMIC--Real Estate Mortgage Investment Conduit
STRIP--Separate Trading of Registered Interest & Principal of a Security
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.--1999
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
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 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
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $46,006,465) $ 47,156,041
- ---------------------------------------------------------------------------------------------------
Cash 2,762
- ---------------------------------------------------------------------------------------------------
Income receivable 244,464
- --------------------------------------------------------------------------------------------------- -------------
Total assets 47,403,267
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 12,640
- ----------------------------------------------------------------------------------------
Income distribution payable 19,886
- ----------------------------------------------------------------------------------------
Accrued expenses 13,569
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 46,095
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 5,534,818 shares outstanding $ 47,357,172
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 53,113,902
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,149,176
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (7,000,111)
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 94,205
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 47,357,172
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE
- ---------------------------------------------------------------------------------------------------
($47,357,172 / 5,534,818 shares outstanding) $8.56
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC.--1999
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest (net of dollar roll expense of $100,976) $ 3,242,623
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 232,665
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 35,192
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 21,618
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 9,901
- ---------------------------------------------------------------------------------------
Auditing fees 17,500
- ---------------------------------------------------------------------------------------
Legal fees 5,318
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 30,776
- ---------------------------------------------------------------------------------------
Share registration costs 350
- ---------------------------------------------------------------------------------------
Printing and postage 21,556
- ---------------------------------------------------------------------------------------
Insurance premiums 4,507
- ---------------------------------------------------------------------------------------
Taxes 5,386
- ---------------------------------------------------------------------------------------
Miscellaneous 26,840
- --------------------------------------------------------------------------------------- -----------
Total expenses 536,609
- ---------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (116,596)
- --------------------------------------------------------------------------------------- -----------
Net expenses 420,013
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 2,822,610
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 568,549
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 2,261,435
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 2,829,984
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 5,652,594
- ---------------------------------------------------------------------------------------------------- ------------
</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,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------------
Net investment income $ 2,822,610 $ 3,718,591
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments ($992,239 net loss and $5,022,908 net
loss, respectively, as computed for federal tax purposes) 568,549 (5,763,109)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 2,261,435 (915,238)
- -------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 5,652,594 (2,959,756)
- -------------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------------------
Distributions from net investment income (2,473,079) (3,363,730)
- -------------------------------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------------------
Cost of shares reacquired from shareholders (673,763) --
- -------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from share transactions (673,763) --
- -------------------------------------------------------------------------------- ------------- -------------
Change in net assets 2,505,752 (6,323,486)
- --------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------
Beginning of period 44,851,420 51,174,906
- -------------------------------------------------------------------------------- ------------- -------------
End of period (including undistributed net investment income of $94,205 and
$643,217, respectively) $ 47,357,172 $ 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>
YEAR ENDED DECEMBER 31,
1995 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 0.50 0.66 0.78 0.60
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.5]3 (1.19) (0.02) (0.42)
- ----------------------------------------------------------------------- --------- --------- --------- -----------
Total from investment operations 1.03 (0.53) 0.76 0.18
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Distributions from net investment income (0.44) (0.60) (0.75) (0.59)
- ----------------------------------------------------------------------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 8.56 $ 7.97 $ 9.10 $ 9.09
- ----------------------------------------------------------------------- --------- --------- --------- -----------
MARKET VALUE PER SHARE, END OF PERIOD $ 7.38 $ 7.13 $ 8.63 $ 10.25
- ----------------------------------------------------------------------- --------- --------- --------- -----------
TOTAL INVESTMENT RETURNS (B)
- -----------------------------------------------------------------------
Based on net asset value per share 12.92% (6.20%) 8.73% 1.75%
- -----------------------------------------------------------------------
Based on market value per share 9.68% (10.43%) (8.49%) 8.90%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 0.90% 0.90% 0.90% 0.90%*
- -----------------------------------------------------------------------
Net investment income 6.07% 7.83% 8.46% 8.65%*
- -----------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.25% 0.24% 0.40% 0.18%*
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $47,357 $44,851 $51,175 $51,132
- -----------------------------------------------------------------------
Portfolio Turnover 238% 393% 402% 164 %
- -----------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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) 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
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Liberty Term Trust, Inc.--1999 (the "Fund") is registered under the Investment
Company Act of 1940 (the "Act"), as a diversified, closed-end 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.
INVESTMENT VALUATIONS--U.S. government obligations 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 deemed relevant. Short-term securities purchased with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates 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 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 the 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 agreement. 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.
Income 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
non-taxable income. The following reclassifications have been made to the
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
<S> <C>
PAID-IN CAPITAL UNDISTRIBUTED NET INVESTMENT INCOME
$898,543 ($ 898,543)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At December 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $6,986,606, 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 as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2000 $ 971,459
2002 5,022,908
2003 992,239
</TABLE>
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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OPTIONS CONTRACTS--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.
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At December 31, 1995, there were 1,000,000,000 shares of $0.001 par value
capital stock authorized. The Fund purchased 90,200 shares during the year ended
December 31, 1995, at an average price per share of $7.49 and a weighted average
discount of 12.36%. There were no transactions in capital stock for the fiscal
year ended December 31, 1994.
(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 any portion of its fee and/or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement 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 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 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 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, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This 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 the period of the Administrative Services
Agreement 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 daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts. For the
period ended December 31, 1995, the Fund did not incur a shareholder services
fee.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's
accounting records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
OTHER--A Form 3 Report, a report which was required to be filed during the
fiscal year by or on behalf of Messrs. Roberge and Murray pursuant to Rule 16(a)
of the Securities Exchange Act of 1940, was not filed on the required date;
however, both have subsequently filed the required Form 3.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended
December 31, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 137,354,581
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 135,314,372
- -------------------------------------------------------------------------------------------------- --------------
</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 terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date; otherwise, such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends"), non-participants in the Plan will
receive cash and participants will receive the equivalent in Shares. The Shares
will be acquired by the Plan Agent for the participant's account by the purchase
of outstanding shares on the open market on the New York Stock Exchange or
elsewhere. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of the Shares, the average purchase price per
Share paid by the Plan Agent may exceed the net asset value of the Fund's
Shares, resulting in the acquisition of fewer Shares than if the dividend or
distribution had been paid in Shares issued by the Fund. The Plan Agent will use
all dividends and distributions received in cash to purchase Shares in the open
market within 30 days of the dividend payment date. Each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases. Interest will not be paid on any uninvested cash
payments. Dividends are expected to be paid monthly. 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 ERNST & YOUNG LLP,
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, 1995, and the related statement of operations 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 and financial highlights 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, 1995, by correspondence with the custodian. 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, 1995, the results of its
operations 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 19, 1996
DIRECTORS OFFICERS
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<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
J. Christopher Donahue J. Christopher Donahue
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
</TABLE>
