PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Annual Report to Stockholders for Liberty Term
Trust, Inc. -- 1999 for the 12-month period ended December 31, 1996. 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, 92.0% of the
Fund's net assets were invested in U.S. government agency securities. The
remaining assets were invested in AAA-rated long-term municipal securities,
a collateralized mortgage obligation, mutual fund shares, and a repurchase
agreement.
Over the reporting period, dividends paid to stockholders by the Fund's
portfolio of investments totaled $0.42 per share. At the end of the
reporting period, total assets stood at $42 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 pursuing investment income through Liberty Term Trust Inc., -- 1999.
Your comments or suggestions are always welcome.
Sincerely,
[Graphic]
Richard B. Fisher
President
February 15, 1997
INVESTMENT REVIEW
The U.S. Treasury market in 1996 offered lackluster returns to investors
versus 1995's awesome returns and played second fiddle to the stellar gains
in the equity market. Shorter duration U.S. Treasuries posted slightly
positive returns while the longer end of the curve produced negative
returns. The theme throughout 1996 was a trading range environment, amidst
swift and sharp market movements based on shifting Fed expectations. Given
this environment, the mortgage-backed securities sector was the best
performing fixed income sector during 1996. On a total rate of return basis
for the year, mortgages outperformed their Treasury counterparts by over 200
basis points. The fundamentals and technicals in the mortgage market were
attractive for most of 1996 with relatively benign prepayment rates.
The Fund during this annual reporting period continued its overweight in
mortgage-backed securities as well as its share repurchase program. During
the fiscal year, the Fund repurchased 621,800 shares, 11.1% of those
originally issued. The Fund intends to continue repurchasing shares offered
at a discount to net asset value as a means of increasing shareholder value.
Transaction activity also included purchases of other target term funds,
closed-end investment companies, with comparable investment objectives and
policies which were selling at 10-15 percent discounts to net asset value.
Effective as of February 11, 1997, the Fund has received an exemptive order
from the SEC to allow the Fund to invest up to 75% of its assets (measured
at the time of purchase) in target term fund. Certain of these target term
fund may hold securities that, after initial purchase, are downgraded
below investment grade. The Board has authorized the Fund to purchase these
target term fund. The Fund intends to increase its purchases of target
term fund securities if discounts to net asset value continue to be
attractive.
Given the events in the bond market over the last several years, the Fund's
net asset value has not returned to the highs of 1993. A combination of
unprecedented mortgage prepayments in 1993 and a severe bear market in fixed
income securities in 1994 caused the Fund and other target term funds investing
in mortgage-backed securities to realize significant losses. 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, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS -- 12.1%
PENNSYLVANIA -- 3.0%
$ 1,400,000 Allegheny County, PA, Sanitary Authority Sewer Revenue
Bonds, Series A, 12/1/1999 AAA/Aaa $ 1,236,522
TEXAS -- 3.2%
1,500,000 Austin, TX, Capital Appreciation Refunding &
Improvement LT GO Bonds (FGIC Insured), 9/1/1999 AAA/Aaa 1,338,324
UTAH -- 5.9%
2,770,000 Utah Associated Municipal Power Systems Revenue Bonds,
(Hunter Project)/(AMBAC Insured), 7/1/1999 AAA/Aaa 2,486,546
TOTAL LONG-TERM MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $4,966,005) 5,061,392
MUTUAL FUND ISSUES -- 5.0%
150,000 Hyperion 1999 Term Trust, Inc. -- 993,750
125,000 Income Opportunities Fund 1999 -- 1,125,000
TOTAL MUTUAL FUND ISSUES (IDENTIFIED COST $2,032,500) 2,118,750
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 92.0%
FEDERAL HOME LOAN MORTGAGE CORP. -- 9.1%
3,900,000 6.50%, 1/1/2026 -- 3,831,789
FEDERAL HOME LOAN MORTGAGE CORP. REMIC -- 11.0%
7,227,728 0%, Series 1686-B, 2/15/2024 (Principal Only) -- 3,217,495
7,724,732 8.00%, Series 1752-C, 12/15/2023 (Interest Only) -- 1,390,452
Total 4,607,947
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 27.7%
6,752,466 5.00%, 8/1/2001 -- 6,469,673
5,300,000 7.00%, 2/1/2026 -- 5,185,732
Total 11,655,405
LIBERTY TERM TRUST, INC. -- 1999
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING* VALUE
<C> <S> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- CONTINUED
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC -- 43.7%
$ 6,275,644 0%, Series 1996-43A, 10/25/2003 (Principal Only) -- $ 4,947,906
10,420,002 0%, Series 199645-N, 6/25/2023 (Principal Only) -- 7,474,684
17,921,523 7.50%, Series 272-2, 7/1/2026 (Interest Only) -- 5,902,991
Total 18,325,581
U.S. TREASURY NOTES -- 0.5%
200,000 6.125%, 7/31/2000 -- 200,204
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(IDENTIFIED COST $38,414,821) 38,620,926
COLLATERALIZED MORTGAGE OBLIGATION -- 12.0%
5,049,310 Residential Acredit Loans, Inc., Series 96-QS8 A3, 7.05%,
12/25/2026 AAA/AAA 5,030,375
TOTAL COLLATERALIZED MORTGAGE OBLIGATION
(IDENTIFIED COST $5,052,466) 5,030,375
(A)REPURCHASE AGREEMENT -- 1.2%
495,000 BT Securities Corporation, 6.90%, dated 12/31/1996,
due 1/2/1997 (AT AMORTIZED COST) -- 495,000
TOTAL INVESTMENTS (IDENTIFIED COST $50,960,792)(B) $51,326,443
</TABLE>
(a) 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 a joint account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $50,960,792.
The net unrealized appreciation of investments on a federal tax basis
amounts to $365,651 which is comprised of $666,759 appreciation and
$301,108 depreciation at December 31, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
Note: The categories of investments are shown as a percentage of net assets
($41,956,813) at December 31, 1996.
LIBERTY TERM TRUST, INC. -- 1999
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
LT -- Limited Tax
REMIC -- Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM, TRUST, INC. -- 1999
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $50,960,792) $51,326,443
Cash 4,888
Income receivable 206,408
Receivable for daily variation margin 46,875
Total assets 51,584,614
LIABILITIES:
Payable for investments purchased $ 9,370,008
Payable for shares redeemed 235,471
Income distribution payable 9,612
Accrued expenses 12,710
Total liabilities 9,627,801
Net Assets for 4,913,018 shares outstanding $41,956,813
NET ASSETS CONSIST OF:
Paid in capital $48,497,430
Net unrealized appreciation of investments and futures contracts 492,697
Accumulated net realized loss on investments and futures contracts (7,200,731)
Accumulated undistributed net investment income 167,417
Total Net Assets $41,956,813
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$41,956,813 / 4,913,018 shares outstanding $8.54
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC. -- 1999
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 117,901
Interest 2,776,119
Total income 2,894,020
EXPENSES:
Investment advisory fee $ 222,310
Administrative personnel and services fee 125,000
Custodian fees 21,961
Transfer and dividend disbursing agent fees and expenses 23,256
Directors'/Trustees' fees 9,126
Auditing fees 17,500
Legal fees 18,750
Portfolio accounting fees 47,745
Share registration costs 272
Printing and postage 14,537
Insurance premiums 2,885
Taxes 4,296
Miscellaneous 23,459
Total expenses 531,097
Waiver of investment advisory fee (128,983)
Net expenses 402,114
Net investment income 2,491,906
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized loss on investments and futures contracts (200,620)
Net change in unrealized appreciation of investments and futures contracts (656,479)
Net realized and unrealized loss on investments and futures contracts (857,099)
Change in net assets resulting from operations $1,634,807
</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,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,491,906 $ 2,822,610
Net realized gain (loss) on investments and futures contracts
($284,843 net gain and $992,239 net loss, respectively, as
computed for federal tax purposes) (200,620) 568,549
Net change in unrealized appreciation (depreciation) of
investments and futures contracts (656,479) 2,261,435
Change in net assets resulting from operations 1,634,807 5,652,594
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (2,181,152) (2,473,079)
SHARE TRANSACTIONS --
Cost of shares reacquired from shareholders (4,854,014) (673,763)
Change in net assets resulting from share transactions (4,854,014) (673,763)
Change in net assets (5,400,359) 2,505,752
NET ASSETS --
Beginning of period 47,357,172 44,851,420
End of period (including undistributed net investment
income of $167,417 and $94,205, respectively) $41,956,813 $47,357,172
</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,
1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.56 $ 7.97 $ 9.10 $ 9.09 $ 9.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.48 0.50 0.66 0.78 0.60
Net realized and unrealized gain (loss) on
investments and futures contracts (0.08) 0.53 (1.19) (0.02) (0.42)
Total from investment operations 0.40 1.03 (0.53) 0.76 0.18
LESS DISTRIBUTIONS
Distributions from net investment income (0.42) (0.44) (0.60) (0.75) (0.59)
NET ASSET VALUE, END OF PERIOD $ 8.54 $ 8.56 $ 7.97 $ 9.10 $ 9.09
MARKET VALUE, PER SHARE END OF PERIOD $ 7.88 $ 7.38 $ 7.13 $ 8.63 $10.25
TOTAL INVESTMENT RETURNS(B)
Based on net asset value per share 4.78% 12.92% (6.20%) 8.73% 1.75%
Based on market value per share 12.14% 9.68% (10.43%) (8.49%) 8.90%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90% 0.90% 0.90% 0.90% 0.90%*
Net investment income 5.60% 6.07% 7.83% 8.46% 8.65%*
Expense waiver/reimbursement(c) 0.29% 0.25% 0.24% 0.40% 0.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,957 $47,357 $44,851 $51,175 $51,132
Average commission rate paid(d) $0.0500 -- -- -- --
Portfolio turnover 252% 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.
(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
This disclosure is required for fiscal years beginning on or after
September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
LIBERTY TERM TRUST, INC. -- 1999
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Liberty Term Trust, Inc. -- 1999 (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
closed-end management investment company. The investment objective of the
Fund is to pursue high monthly income and seeks to return full value of the
principal of the shares in the year 1999.
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 -- 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. U.S. government and agency
securities, are generally valued at the mean of the latest bid and asked
price as furnished by an independent pricing service. Investments in
closed-end investment companies are valued at the last sale price reported
on a national securities exchange. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value. Investments in other open-end regulated investment companies are
valued at net asset 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 (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.
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").
Dividend income and 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.
INCREASE (DECREASE)
UNDISTRIBUTED NET
PAID-IN CAPITAL INVESTMENT INCOME
$237,542 $(237,542)
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, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $6,701,763, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
2000 $ 686,616
2002 $5,022,908
2003 $ 992,239
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.
FUTURES CONTRACTS -- The Fund purchases U.S. government securities futures
contracts to hedge fluctuations in the market value of certain portfolio
securities. Upon entering into U.S. government securities futures contracts
with a broker, the Fund may be required to deposit in a segregated account a
specified amount of cash or U.S. government securities. Futures contracts
are valued daily and unrealized gains or losses are recorded in a "variation
margin" account. Daily, the Fund receives from or pays to the broker a
specified amount of cash based upon changes in the variation margin account.
When a contract is closed, the Fund recognizes a realized gain or loss. For
the period ended December 31, 1996, the Fund had realized losses on future
contracts of $257,747.
At December 31, 1996, the Fund had outstanding Futures Contracts as set
forth below:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION DATE CONTRACTS TO DELIVER TOTAL FACE VALUE POSITION APPRECIATION
<S> <S> <C> <S> <C>
March 1997 60 U.S. 10 Year T-Notes $6,674,546 Short $127,046
</TABLE>
Futures contracts have market risks, including the risk that the change in
the value of the contract may not correlate with changes in the value of the
underlying 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.
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.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At December 31, 1996, there were 1,000,000,000 shares of $0.001 par value
capital stock authorized.
WEIGHTED
SHARES AVERAGE PRICE AVERAGE
YEAR ENDED REACQUIRED PER SHARE DISCOUNT
December 31, 1995 90,200 $7.49 12.36%
December 31, 1996 621,800 $7.81 8.71%
As of December 31, 1996, the Fund has reacquired a total of 712,000 shares
of capital stock.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
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. 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 Industrial Administration from Carnegie
Mellon University.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ 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 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. For the year ended December 31, 1996, the
Fund shares did not incur a shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ 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.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the
period ended December 31, 1996, were as follows:
PURCHASES $115,633,376
SALES $111,727,506
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.
7. SUBSEQUENT EVENT
Effective February 11, 1997, the Fund received an exemptive order from the
Securities and Exchange Commission. The order permits the Fund to invest in
shares of target term trusts in quantities that exceed those allowed by
statutory limitations. The Fund intends to make such purchases if discounts
to net asset value are attractive.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
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, 1996, 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. 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, 1996, 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, 1996, 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, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 11, 1997
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
LIBERTY TERM
TRUST, INC.
-- 1999
ANNUAL REPORT
TO STOCKHOLDERS
DECEMBER 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 531282101
2022001A (2/97)
