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 from January 1, 1997 through December
31, 1997. 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, 46% of the fund's net assets
were invested in U.S. government 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 shareholders by the fund's
portfolio of investments totaled $0.43 per share. At the end of the reporting
period, the fund's assets totaled $38.8 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, 1998
INVESTMENT REVIEW
Balanced budgets, reduced Treasury supply and the turmoil in the Asian sector
were the key events that shaped the course of interest rates during 1997. The
pivotal event of 1997 was the Asia currency and financial crisis, which
intensified in the fourth quarter. This event brought bond yields below 6% to
close out 1997. The impact to the shape of the yield curve was a pronounced
flattening to less than 30 basis points with the long rallying on positive
inflation fundamentals while the two-year yield was targeted near the fund's
rate by the Federal Reserve Board's on-hold policy.
The performance of the mortgage market over the course of 1997 was stellar, as
the pass-through market outperformed comparable duration matched treasuries by
130 basis points. The majority of the mortgage market's strong performance over
Treasuries occurred in the first half of 1997. During this period, the mortgage
market was the beneficiary of a trading range environment in the U.S. Treasury
market, low volatility and tightening spreads. The second half of 1997 proved to
be less favorable as intrest rates declined on the 10-year U.S. Treasury by 75
basis points, the yield curve flattened, and volatility increased. The interest
rate rally in the Treasury market has brought mortgage rates down to the lows
last seen in early 1996 and has greatly increased prepayment risk within the
mortgage backed sector. Given this environment, the basic theme throughout 1997
was to favor securities that offered prepayment protection.
The fund during the annual reporting period continued to overweight
mortgage-backed securities and the share repurchase program. During the 12-month
reporting period, the fund repurchased 547,600 shares, 11.0% 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 trusts with comparable
investment objectives which were selling at 7-8 percent discounts to net asset
value.
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 term trusts 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.
An Annual Meeting of the Stockholders of Liberty Term Trust, Inc.--1999 was held
on May 16, 1997. On March 19, 1997, the record date for stockholders voting at
the meeting, there were 4,774,818 total outstanding shares. The following items
were considered by the stockholders and the results of their voting were as
follows:
WITHHELD
AUTHORITY
AGENDA ITEM FOR AGAINST ABSTAIN TO VOTE
1.Election of
Class I
Directors*
John T. Conroy, 3,955,495 0 0 68,272
Jr.
Peter E. Madden 3,954,095 0 0 69,672
Wesley W. 3,952,337 0 0 71,429
Posvar
Marjorie P. 3,955,595 0 0 68,172
Smuts
2.To ratify the selection by the Board of Directors of the
firm of Ernst & Young LLP as Independent Auditors for the
fund.
3,973,765 9,310 40,691 0
* The following Directors of the fund continued their terms as Directors of
the fund: John F. Donahue, Thomas G. Bigley, William J. Copeland, J.
Christopher Donahue, James E. Dowd, Lawerance D. Ellis, M.D., Edward L.
Flaherty, Jr., Gregor F. Meyer and John E. Murray, Jr.
PORTFOLIO OF INVESTMENTS
LIBERTY TERM TRUST, INC.--1999
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL OBLIGATIONS--12.8%
PENNSYLVANIA--3.3%
$ 1,400,000 Allegheny County, PA, Sanitation Authority Sewer AAA/Aaa $ 1,297,660
Revenue Bonds, Series A (FGIC Insured),
12/1/1999
TEXAS--2.8%
1,145,000 Austin, TX, Capital Appreciation Refunding & AAA/NR 1,071,553
Improvement LT GO Bonds (FGIC Insured), 9/1/1999
UTAH--6.7%
2,770,000 Utah Associated Municipal Power Systems Revenue AAA/Aaa 2,608,315
Bonds, (HunterProject)/ (AMBAC Insured),
7/1/1999
TOTAL LONG-TERM MUNICIPAL OBLIGATIONS 4,977,528
(IDENTIFIED COST $4,891,698)
CLOSED-END MUTUAL FUND ISSUES--35.1%
300,000 Hyperion 1999 Term Trust, Inc. AAA 2,081,250
1,000,000 Income Opportunities Fund 1999, Inc. -- 9,562,500
205,000 Income Opportunities Fund 2000, Inc. -- 1,973,125
TOTAL CLOSED-END MUTUAL FUND ISSUES 13,616,875
(IDENTIFIED COST $12,868,480)
U.S. GOVERNMENT AGENCY OBLIGATIONS--46.0%
(A)FEDERAL HOME LOAN MORTGAGE CORP. REMIC--7.7%
$ 3,000,000 5.85%, Series 1492-D, 5/15/2017 -- 2,990,250
FEDERAL NATIONAL MORTGAGE ASSOCIATION--4.9%
1,949,771 5.00%, 8/1/2001 -- 1,897,985
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--29.2%
5,318,394 6.03%, Series 96-43A, 10/25/2003 (Principal -- 4,555,683
Only)
5,800,000 6.25%, Series 96-69PD, 12/18/2019 -- 5,810,730
2,250,000 6.50%, Series 97-9H, 3/25/2027 (Interest Only) -- 968,198
TOTAL 11,334,611
U.S. TREASURY BILLS--2.2%
685,000 (b)5.33%, 6/25/1998 -- 667,957
200,000 (b)5.625%, 4/2/1998 -- 197,458
TOTAL 865,415
U.S. TREASURY NOTES--2.0%
770,000 5.875%, 11/15/1999 -- 773,003
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 17,861,264
(IDENTIFIED COST $17,374,559)
</TABLE>
LIBERTY TERM TRUST, INC. -- 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATION--4.6%
$ 22,889,741 First Union/Lehman Brothers Commercial Mortgage AAA/Aaa $ 1,788,375
Trust, Series 1997-C1, 1.307% (Interest Only),
4/18/2029
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 1,788,375
(IDENTIFIED COST $1,756,039)
(C)REPURCHASE AGREEMENT--1.3%
495,000 BT Securities Corp., 6.60%, dated 12/31/1997, -- 495,000
due 1/2/1998 (at amortized cost)
TOTAL INVESTMENTS $ 38,739,042
(IDENTIFIED COST $37,385,776)(D)
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a) Because of monthly principal payments, the average lives of REMICs are less
than the indicated periods.
(b) Represents rate of discount at the time of purchase.
(c) 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.
(d) The cost of investments for federal tax purposes amounts to $37,385,776. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,353,266 at December 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($38,843,541) at December 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American 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)
STATEMENT OF ASSETS AND LIABILITIES
LIBERTY TERM TRUST, INC.--1999
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 38,739,042
$37,385,776)
Cash 4,885
Income receivable 247,467
Total assets 38,991,394
LIABILITIES:
Income distribution payable $ 131,206
Accrued expenses 16,647
Total liabilities 147,853
NET ASSETS FOR 4,365,418 SHARES OUTSTANDING $ 38,843,541
NET ASSETS CONSIST OF:
Paid in capital $ 44,308,990
Net unrealized appreciation of investments 1,353,266
Accumulated net realized loss on investments and futures contracts (6,919,203)
Undistributed net investment income 100,488
Total Net Assets $ 38,843,541
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$38,843,541 / 4,365,418 shares outstanding $ 8.90
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
LIBERTY TERM TRUST, INC.--1999
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 700,402
Interest (net of dollar roll expense of $34,536) 1,838,537
Total income 2,538,939
EXPENSES:
Investment advisory fee $ 175,547
Administrative personnel and services fee 125,002
Custodian fees 3,531
Transfer and dividend disbursing agent fees and expenses 27,285
Directors'/Trustees' fees 10,016
Auditing fees 17,794
Legal fees 17,129
Portfolio accounting fees 44,076
Printing and postage 5,934
Insurance premiums 2,472
Taxes 7,855
Miscellaneous 12,265
Total expenses 448,906
Waivers --
Waiver of investment advisory fee (96,097)
Net expenses 352,809
Net investment income 2,186,130
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
CONTRACTS:
Net realized gain on investments and futures contracts 281,528
Net change in unrealized appreciation of investments 860,569
Net realized and unrealized gain on investments and futures 1,142,097
contracts
Change in net assets resulting from operations $ 3,328,227
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
LIBERTY TERM TRUST, INC.--1999
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 2,186,130 $ 2,491,906
Net realized gain (loss) on investments and futures contracts 281,528 (200,620)
($289,808 net loss and $284,843 net gain, respectively, as computed
for federal tax purposes)
Net change in unrealized appreciation/depreciation of investments 860,569 (656,479)
and futures contracts
Change in net assets resulting from operations 3,328,227 1,634,807
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (2,016,218) (2,181,152)
SHARE TRANSACTIONS--
Cost of shares reacquired from shareholders (4,425,281) (4,854,014)
Change in net assets resulting from share transactions (4,425,281) (4,854,014)
Change in net assets (3,113,272) (5,400,359)
NET ASSETS:
Beginning of period 41,956,813 47,357,172
End of period (including undistributed net investment income of $ 38,843,541 $ 41,956,813
$100,488 and $167,417, respectively)
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.54 $8.56 $7.97 $9.10 $9.09 $9.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.47 0.48 0.50 0.66 0.78 0.60
Net realized and unrealized gain (loss)
on investments and futures contracts 0.32 (0.08) 0.53 (1.19) (0.02) (0.42)
Total from investment operations 0.79 0.40 1.03 (0.53) 0.76 0.18
LESS DISTRIBUTIONS
Distributions from net investment income (0.43) (0.42) (0.44) (0.60) (0.75) (0.59)
NET ASSET VALUE, END OF PERIOD $8.90 $8.54 $8.56 $7.97 $9.10 $9.09
MARKET VALUE, PER SHARE END OF PERIOD $8.38 $7.88 $7.38 $7.13 $8.63 $10.25
TOTAL INVESTMENT RETURNS(B)
Based on net asset value per share 9.44% 4.78% 12.92% (6.20%) 8.73% 1.75%
Based on market value per share 11.67% 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% 0.90%*
Net investment income 5.56% 5.60% 6.07% 7.83% 8.46% 8.65%*
Expense waiver/reimbursement(c) 0.25% 0.29% 0.25% 0.24% 0.40% 0.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $38,844 $41,957 $47,357 $44,851 $51,175 $51,132
Average commission rate paid(d) $0.0500 $0.0500 -- -- -- --
Portfolio turnover 141% 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)
NOTES TO FINANCIAL STATEMENTS
LIBERTY TERM TRUST, INC.--1999
DECEMBER 31, 1997
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.
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.
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 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
$236,841 $(236,841)
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, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $6,991,571, 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
2005 289,808
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 is
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. 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. For the period ended December 31, 1997,
the Fund had realized gains on future contracts of $177,217. At December 31,
1997, the Fund had no outstanding futures contracts.
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.
CAPITAL STOCK
At December 31, 1997, there were 1,000,000,000 shares of $0.001 par value
capital stock authorized.
SHARES AVERAGE PRICE WEIGHTED
YEAR ENDED REACQUIRED PER SHARE AVERAGE DISCOUNT
December 31, 1995 90,200 $7.49 12.36%
December 31, 1996 621,800 $7.81 8.71%
December 31, 1997 547,600 $8.08 6.23%
As of December 31, 1997, the Fund has reacquired a total of 1,259,600 shares of
capital stock.
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 0.45% 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 advisor 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 Senior Vice
President of the Fund's investment adviser since April 1997. Ms. Nason
served as a Vice President of the investment adviser from 1993 to 1997, and
as an Assistant Vice President from 1990 until 1992. Ms. Nason is a
Chartered Financial Analyst and received her M.S.I.A. concentrating in
Finance 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 period
ended December 31, 1997, the Fund 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the
period ended December 31, 1997, were as follows:
PURCHASES $56,716,790
SALES $69,766,730
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
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 schedule of portfolio investments, as of
December 31, 1997, 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, 1997, 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, 1997, 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 its financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP Pittsburgh, Pennsylvania
February 17, 1998
DIRECTORS
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
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
J. Crilley Kelly
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including the
possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Liberty Term Trust, Inc.--1999
ANNUAL REPORT TO STOCKHOLDERS DECEMBER 31, 1997
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 531282101
2022001A (2/98)
