<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: July 18, 1996
We welcome this opportunity to provide you with information about Hyperion 1999
Term Trust, Inc. (the 'Trust') for its semi-annual period ended May 31, 1996 and
to share our outlook for the rest of the Trust's fiscal year. The Trust's shares
are traded on the New York Stock Exchange under the symbol 'HTT'.
DESCRIPTION OF THE TRUST
The Trust is a closed-end investment company whose investment objectives are to
provide a high level of current income consistent with investing only in
securities of the highest credit quality and to return $10.00 per share (the
initial public offering price per share) to investors on or shortly before
November 30, 1999. The Trust pursues these investment objectives by investing in
a portfolio primarily of mortgage-backed securities issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities or rated AAA by a
nationally recognized rating agency (e.g. Standard & Poor's Corporation or Fitch
Investors Service, L.P.).
It should be noted that, as set forth in the prospectus, the Advisor may from
time to time, position the portfolio's investments in instruments whose values
are affected by changing interest rates. To the extent the portfolio is
adversely affected by changing interest rates, such changes may have a
detrimental impact on the Trust's ability to achieve its objective of returning
$10.00 per share to the shareholders.
MARKET ENVIRONMENT
Since our last report, interest rates have moved in a volatile fashion. Year-end
expectations of further Federal Reserve easing were realized with a 25 basis
point reduction in the Federal Funds rate to 5.25% in January. However, a
dramatic shift in market psychology occurred. Led by strong auto and housing
markets, economic growth for 1996 is stronger than anticipated. With stronger
economic growth, interest rates increased on fears of surging inflation and a
projected shift in the future course of monetary policy towards higher interest
rates. Although economic growth has been higher than anticipated by the Federal
Reserve, inflationary pressures have yet to surface in the economy. Nonetheless,
interest rate volatility has been high.
The dramatic change in yields between November 30, 1995, February 13, 1996 and
May 31, 1996 is outlined below.
<TABLE>
<CAPTION>
11/30/95 2/13/96 5/31/96
-------- ------- -------
<S> <C> <C> <C>
Fed Funds.................... 5.75% 5.25% 5.25%
1-Year Treasury Bill......... 5.35% 4.78% 5.74%
2-Year Treasury Note......... 5.35% 4.79% 6.24%
5-Year Treasury Note......... 5.52% 5.13% 6.63%
10-Year Treasury Note........ 5.75% 5.58% 6.85%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
PORTFOLIO STRATEGY
Our investment outlook as stated in our last report was cautiously optimistic,
expecting a much more stable and constructive interest rate environment.
Unfortunately, the rise in interest rates and the decline in market prices of
the fixed income market in general has adversely impacted the Trust's net asset
value ('NAV'). However, we remain optimistic on the market over the long term
and believe that interest rates will eventually decline, which should result in
a recovery of the NAV.
The portfolio composition has been relatively constant from the last annual
report dated November 30, 1995. Currently the Trust's portfolio is composed of
United States Treasury obligations, municipal securities, mortgage-backed
pass-throughs and collateralized mortgage obligations with low coupons, and
asset-backed securities. We feel that the current composition of the Trust is
fairly well protected from mortgage refinancing related extension or shortening
risks.
The chart below shows the allocation of the Trust's holdings by asset category
on May 31, 1996.
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF MAY 31, 1996*
[CHART]
U.S. Government Agency Pass-Through Certificates 48.3%
U.S. Government Agency Stripped Mortgage-Backed Securities 13.6%
Municipal Zero Coupon Securities 10.4%
Collateralized Mortgage Obligations 10.2%
U.S. Government Agency Collateralized Mortgage Obligations 9.4%
U.S. Treasury Obligations 5.5%
Asset-Backed Securities 2.5%
Repurchase Agreement 0.1%
* As a percentage of total investments.
2
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
- --------------------------------------------------------------------------------
CONCLUSION
We appreciate the opportunity to serve your investment needs and we thank you
for your continued support. As always, we welcome your questions and comments
and encourage you to contact our Shareholder Services Representatives at
1-800-HYPERION.
Sincerely,
/s/ Kenneth C. Weiss
KENNETH C. WEISS
Chairman,
Hyperion 1999 Term Trust, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
/s/ Louis C. Lucido
LOUIS C. LUCIDO
President,
Hyperion 1999 Term Trust, Inc.
Managing Director and Chief Operating Officer,
Hyperion Capital Management, Inc.
3
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
May 31, 1996 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS--108.1%
U.S. GOVERNMENT AGENCY PASS-THROUGH
CERTIFICATES--68.0%
Federal Home Loan Mortgage
Corporation
6.50% 06/01/08-05/01/09 $ 68,620@ $ 65,939,324
8.00 07/01/22-08/01/24 16,813 7,967,869
------------
73,907,193
------------
Federal National Mortgage
Association
6.00 11/01/00-08/01/02 50,134@ 48,129,011
6.50 07/01/02-10/01/10 48,300 46,409,558
7.00 11/01/01-04/01/26 68,298 67,118,603
8.00 01/01/25-08/01/25 58,341@ 58,559,806
------------
220,216,978
------------
Government National
Mortgage Association 8.00 10/15/24-01/15/26 6,695 6,734,630
------------
TOTAL U.S. GOVERNMENT AGENCY
PASS-THROUGH CERTIFICATES
(Cost - $304,541,252) 300,858,801
------------
U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS
(REMICS)--13.3%
Federal Home Loan Mortgage
Corporation
Series 1517, Class E,
PAC 6.00 04/15/18 2,000 1,931,880
Series 1456, Class G,
PAC 6.50 12/15/18 10,000@ 9,570,300
Series 55, Class D, PAC 9.00 11/15/14 1,807 1,833,927
------------
13,336,107
------------
Federal National Mortgage
Association
Series 1994-50, Class
PD, PAC 5.85 09/25/17 48,000@ 45,525,120
------------
TOTAL U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS(REMICS)
(Cost - $57,785,345) 58,861,227
------------
U.S. GOVERNMENT AGENCY STRIPPED
MORTGAGE-BACKED
SECURITIES--19.1%
PLANNED AMORTIZATION CLASS
INTEREST-ONLY SECURITIES:
Federal National Mortgage
Association
Series X-109A, Class QC,
REMIC 6.00 07/25/07 9,600 2,270,208
Series 1994-23, Class
PN, REMIC 6.00 07/25/17 5,278 965,248
------------
3,235,456
------------
INTEREST-ONLY SECURITIES:
Federal National Mortgage
Association
Series 1994-M2, Class B,
REMIC 1.24+ 02/25/01 109,766 4,802,241
Series 153, Class 2 7.50 07/25/22 17,059 5,848,118
Series 1992-168, Class
IO, REMIC 7.50 10/25/22 13,309 4,562,522
Series 162, Class 2 8.00 07/25/22 16,361 5,465,435
Series 64, Class 2 8.50 05/01/18 17,050 5,567,984
------------
26,246,300
------------
PRINCIPAL-ONLY SECURITY:
Federal National Mortgage
Association
Series 267, Class 1 0.00 10/01/24 78,164 54,812,475
------------
TOTAL U.S. GOVERNMENT AGENCY
STRIPPED MORTGAGE-BACKED
SECURITIES
(Cost - $87,650,288) 84,294,231
------------
</TABLE>
4
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
May 31, 1996 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (CONCLUDED)
U.S. TREASURY OBLIGATIONS--7.7%
U.S. Treasury Bills 4.92% 08/08/96 $ 5,844 $ 5,790,352
------------
U.S. Treasury Notes
5.13 02/28/98 9,150@ 8,981,274
6.25 05/31/00 8,000@ 7,893,760
6.38 05/15/99 6,250@ 6,234,375
------------
23,109,409
------------
U.S. Treasury Bonds 6.00 02/15/26 5,800@ 5,069,548
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost - $34,610,688) 33,969,309
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost - $484,587,573) 477,983,568
------------
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITY--3.5%
Neiman Marcus Group Credit
Card Master Trust
Series 1995-1, Class A
(Cost - $14,997,656) 7.60 06/15/03 15,000 15,311,700
------------
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)--14.3%
DLJ Mortgage Acceptance
Corporation
Series 1995-CF2, Class
A1A 6.65 12/17/27 11,720 11,361,367
Series 1993-MF10, Class
A2 7.20 07/15/03 9,307 9,053,953
------------
20,415,320
------------
First Boston Mortgage
Securities Corporation
Series 1993-M1, Class 1A 6.75 09/25/06 24,543 23,361,703
------------
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C1, Class A 7.14+ 05/25/15 7,544 7,425,732
------------
Prudential Home Mortgage
Securities Co., Inc.
Series 1993-61, Class A5 6.50 12/25/08 1,941 1,851,778
------------
Residential Funding
Mortgage Securities I
Series 1996-S7, Class
A12 7.00 03/25/26 6,091 5,594,216
------------
Salomon Brothers Mortgage
Securities VII
Series 1996-C1, Class A2 6.78 11/20/04 5,000 4,803,150
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)
(Cost - $66,812,980) 63,451,899
------------
- -------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
May 31, 1996 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL ZERO COUPON
SECURITIES--14.6%
ARIZONA
Maricopa County Arizona,
School District #28
FGIC (a) 07/01/00 $ 2,500 $ 2,039,100
Pima County Arizona,
School District #10
FGIC (a) 07/01/00 2,000 1,631,280
Tempe Arizona, School
District #213
FGIC (a) 07/01/00 3,860 3,148,370
------------
6,818,750
------------
KANSAS
Kansas City Kansas,
Utility System
Revenue Bond, AMBAC (a) 03/01/00 2,200 1,821,138
Revenue Bond, AMBAC (a) 09/01/00 2,390 1,929,232
Revenue Bond, AMBAC (a) 03/01/01 4,095 3,245,820
------------
6,996,190
------------
NEW JERSEY
New Jersey, Wastewater
Treatment Trust
Series A, Revenue
Bonds (a) 09/01/99 9,585 8,188,561
Series A, Revenue
Bonds (a) 09/01/00 10,850 8,794,576
------------
16,983,137
------------
TEXAS
Austin Texas
Series B, MBIA (a) 09/01/00 3,560 2,879,613
Austin Texas, Utility
System
Revenue Bond, FGIC (a) 05/15/01 5,000 3,895,150
Harris County Texas,
Flood Control,
MBIA (a) 10/01/99 8,500 7,220,580
Klein Texas, Independent
School District
PSFG (a) 02/01/00 3,000 2,498,280
Richardson Texas, Independent
School District
AMBAC (a) 08/15/00 6,215 5,048,134
------------
21,541,757
------------
UTAH
Intermountain Power Agency
Utah, Power Supply
Revenue Bonds (a) 07/01/00 14,935 12,238,263
------------
TOTAL MUNICIPAL ZERO
COUPON SECURITIES
(Cost - $64,248,892) 64,578,097
------------
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
May 31, 1996 (unaudited)
Principal Market
Amount Value
(000s) (Note 2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT--0.1%
Dated 5/31/96, with State Street Bank and Trust Company, 4.90%,
due 6/3/96; proceeds: $560,229; collateralized by $570,000
U.S Treasury Note, 6.25%, due 8/31/00, value: $573,117
(Cost - $560,000) $ 560 $ 560,000
------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--140.6%
(Cost - $631,207,101) $621,885,264
LIABILITIES IN EXCESS OF OTHER ASSETS--(40.6%) (179,713,697)
------------
NET ASSETS--100.0% $442,171,567
------------
------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
@ Portion of or entire principal amount delivered as collateral for reverse repurchase agreements (Note 5)
REMIC Real Estate Mortgage Investment Conduit
PAC Planned Amortization Class: Security principal payments are within a predetermined range
+ Variable Rate Security: Coupon rate is rate in effect at May 31, 1996
FGIC Financial Guaranty Insurance Company
(a) Zero Coupon Bonds
AMBAC American Municipal Bond Assurance Corporation
MBIA Municipal Bond Insurance Association Insured Bond Certificate
PSFG Permanant School Fund Guaranteed
</TABLE>
7
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $631,207,101) (Note 2)............. $621,885,264
Cash........................................................... 888
Receivable for investment sold................................. 7,171,265
Interest receivable............................................ 3,497,026
Deferred organization expenses and other assets (Note 2)....... 164,695
------------
Total assets......................................... 632,719,138
------------
LIABILITIES:
Reverse repurchase agreements (Note 5)......................... 190,184,187
Investment advisory fee payable (Note 3)....................... 189,976
Interest payable (Note 5)...................................... 95,475
Administration fee payable (Note 3)............................ 53,033
Accrued expenses and other liabilities......................... 24,900
Contingencies (Note 8).........................................
------------
Total liabilities.................................... 190,547,571
------------
NET ASSETS (equivalent to $7.01 per share based on 63,112,639
shares outstanding).......................................... $442,171,567
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6)................................. $ 631,126
Additional paid-in capital..................................... 591,913,726
Undistributed net investment income............................ 11,455,478
Accumulated net realized losses................................ (152,506,926)
Net unrealized depreciation.................................... (9,321,837)
------------
Net assets applicable to capital stock outstanding............. $442,171,567
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2):
Interest....................................................... $ 24,883,675
------------
EXPENSES:
Investment advisory fee (Note 3)............................... 1,170,208
Administration fee (Note 3).................................... 324,759
Insurance...................................................... 147,268
Custodian...................................................... 65,086
Reports to shareholders........................................ 56,186
Legal.......................................................... 35,278
Transfer agency................................................ 29,336
Audit and tax services......................................... 28,557
Registration................................................... 28,081
Directors' fees................................................ 24,467
Amortization of organization expenses (Note 2)................. 8,191
Miscellaneous.................................................. 55,104
------------
Total operating expenses.................................... 1,972,521
Interest expense (Note 5).............................. 5,671,018
------------
Total expenses......................................... 7,643,539
------------
Net investment income.......................................... 17,240,136
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS, FUTURES
AND OPTION TRANSACTIONS (Notes 2):
Net realized losses on:
Investment transactions........................................ (2,841,705)
Futures transactions........................................... (9,313,834)
Written option transactions.................................... (74,017)
------------
(12,229,556)
------------
Net change in unrealized appreciation (depreciation) on:
Investments.................................................... (28,497,598)
Futures transactions........................................... 617,500
Option transactions............................................ (50,940)
------------
(27,931,038)
------------
Net realized and unrealized losses on investments, futures and
option transactions............................................ (40,160,594)
------------
Net decrease in net assets resulting from operations............. $(22,920,458)
------------
------------
</TABLE>
- ---------------
See notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HYPERION 1999 TERM TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the
Six Months
Ended For the Year
May 31, Ended
1996 November 30,
(unaudited) 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income........................... $ 17,240,136 $ 32,325,805
Net realized losses on investments, futures and
written option transactions.................. (12,229,556) (39,022,594)
Net change in unrealized appreciation
(depreciation) on investments, futures and
written option transactions.................. (27,931,038) 32,512,872
---------------- ------------
Net increase (decrease) in net assets resulting
from operations.............................. (22,920,458) 25,816,083
---------------- ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income........................... (14,987,866) (33,000,107)
---------------- ------------
Total decrease in net assets............ (37,908,324) (7,184,024)
NET ASSETS:
Beginning of period............................. 480,079,891 487,263,915
---------------- ------------
End of period (including undistributed net
investment income of $11,455,478 and
$9,203,208, respectively).................... $ 442,171,567 $480,079,891
---------------- ------------
---------------- ------------
</TABLE>
- ---------------
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash Flows provided by operating activities:
Interest received (excluding accretion of $1,761,490)........ $ 21,900,381
Interest expense paid........................................ (5,805,465)
Operating expenses paid...................................... (2,198,304)
Purchase of short-term portfolio investments, including
options, net.............................................. (2,081,034)
Purchase of long-term portfolio investments.................. (739,526,782)
Proceeds from disposition of long-term portfolio investments
and principal paydowns.................................... 743,397,139
Net cash used for futures transactions....................... (9,361,389)
------------
Net cash provided by operating activities.................... 6,324,546
------------
Cash Flows used for financing activities:
Net cash provided by reverse repurchase agreements........... 8,663,660
Cash dividends paid.......................................... (14,987,866)
------------
Net cash used for financing activities....................... (6,324,206)
------------
Net increase in cash........................................... 340
Cash at beginning of period.................................... 548
------------
Cash at end of period.......................................... $ 888
------------
------------
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations........... $(22,920,458)
------------
Decrease in investments...................................... 54,079,066
Decrease in net unrealized appreciation...................... 27,931,038
Decrease in interest receivable.............................. 350,116
Decrease in variation margin payable......................... (665,055)
Increase in other assets..................................... (7,267,548)
Decrease in accrued expenses and other liabilities........... (45,182,613)
------------
Total adjustments.................................... 29,245,004
------------
Net cash provided by operating activities...................... $ 6,324,546
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
11
<PAGE>
- ------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
For the Period
Six Months June 28,
PER SHARE OPERATING PERFORMANCE: Ended For the Year For the Year For the Year 1992*
May 31, Ended Ended Ended through
1996 November 30, November 30, November 30, November 30,
(unaudited) 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 7.61 $ 7.72 $ 7.02 $ 8.77 $ 9.38**
----------- ------------ ------------ ------------ ------------
Net investment income..................... 0.27 0.51 0.68 0.72 0.32
Net realized and unrealized gains (losses)
on investments, futures and written
option transactions..................... (0.63) (0.10) 0.58 (1.73) (0.66)
----------- ------------ ------------ ------------ ------------
Net increase (decrease) in net asset value
resulting from operations............... (0.36) 0.41 1.26 (1.01) (0.34)
----------- ------------ ------------ ------------ ------------
Dividends from net investment income...... (0.24) (0.52) (0.56) (0.74) (0.27)
----------- ------------ ------------ ------------ ------------
Net asset value, end of period............ $ 7.01 $ 7.61 $ 7.72 $ 7.02 $ 8.77
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Market price, end of period............... $ 6.25 $ 6.50 $ 6.875 $ 6.75 $ 10.00
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN+.................. (0.31)% 1.91% 10.29% (26.53)% (9.22)%(1)
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s)............ $ 442,172 $ 480,080 $ 487,264 $ 444,024 $ 554,894
Total operating expenses.................... 0.84%(2) 0.96% 0.83% 0.76% 0.80%(2)
Interest expense............................ 2.42%(2) 2.50% 1.69% 1.61% 1.28%(2)
Net investment income....................... 7.37%(2) 6.55% 9.07% 8.98% 8.08%(2)
Portfolio turnover rate..................... 101% 473% 745% 1175% 111%
- ------------
</TABLE>
<TABLE>
<S> <C>
* Commencement of investment operations.
** Net of offering costs of $0.02.
+ Total investment return is computed based upon the New York Stock Exchange market price of the Trust's shares
and excludes the effects of sales loads or brokerage commissions.
(1) Not annualized.
(2) Annualized.
</TABLE>
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
1. THE TRUST:
Hyperion 1999 Term Trust, Inc. (the 'Trust'), which was incorporated under the
laws of the State of Maryland on November 22, 1991, is registered under the
Investment Company Act of 1940 (the '1940 Act') as a diversified, closed-end
management investment company. The Trust had no transactions until June 16,
1992, when it sold 10,639 shares of common stock for $100,007 to Hyperion
Capital Management, Inc. (the 'Advisor'). The Trust expects to distribute
substantially all of its net assets on or shortly before November 30, 1999 and
thereafter to terminate. The distribution and termination may require
shareholder approval. The Trust's investment objectives are to provide a high
level of current income consistent with investing only in securities of the
highest credit quality and to return at least $10.00 per share (the initial
public offering price per share) to investors on or shortly before November 30,
1999. No assurance can be given that the Trust's investment objectives will be
achieved.
2. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Valuation of Investments: Where market quotations are readily available, Trust
securities are valued based upon the current bid price. The Trust values
mortgage-backed securities ('MBS') and other debt securities for which market
quotations are not readily available at their fair value as determined in good
faith, utilizing procedures approved by the Board of Directors of the Trust, on
the basis of information provided by dealers in such securities. Some of the
general factors which may be considered in determining fair value include the
fundamental analytic data relating to the investment and an evaluation of the
forces which influence the market in which these securities are purchased and
sold. Determination of fair value involves subjective judgment, as the actual
market value of a particular security can be established only by negotiations
between the parties in a sales transaction. Debt securities having a remaining
maturity of sixty days or less when purchased and debt securities originally
purchased with maturities in excess of sixty days but which currently have
maturities of sixty days or less are valued at amortized cost.
The ability of issuers of debt securities held by the Trust to meet their
obligations may be affected by economic developments in a specific industry or
region. The values of MBS can be significantly affected by changes in interest
rates.
Options Written or Purchased: When the Trust writes or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions.The Trust, as writer of
an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
The Trust purchases or writes options to hedge against adverse market movements
or fluctuations in value caused by changes in interest rates. The Trust bears
the risk in purchasing an option that it will expire without being exercised. If
this occurs, the option expires worthless and the premium paid for the option is
a loss. The risk associated with writing call options is that the Trust may
forego the opportunity for a profit if the market value of the underlying
position increases and the option is exercised. The Trust will only write
options on positions held in its portfolio. The risk in writing a put option is
that the Trust may incur a loss if the market value of the underlying position
decreases and the option is exercised. In addition, the Trust bears the risk of
not being able to enter into a closing
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
transaction for written options as a result of an illiquid market.
Financial Futures Contracts: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by 'marking-to-market' on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
The Trust invests in financial futures contracts to adjust the portfolio for
fluctuations in value caused by changes in prevailing market interest rates.
Should interest rates move unexpectedly, the Trust may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets. The Trust is at risk that it may not be able to close out a
transaction because of an illiquid secondary market.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses are calculated on the
identified cost basis. Interest income is recorded on the accrual basis.
Discounts and premiums on zero-coupon securities are amortized using the
effective yield to maturity method.
Taxes: It is the Trust's intention to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders. Therefore, no
federal income or excise tax provision is required.
Dividends and Distributions: The Trust declares and pays dividends monthly from
net investment income. Distributions of realized capital gains in excess of
capital loss carryforwards are distributed at least annually. Dividends and
distributions are recorded on the ex-dividend date.
Deferred Organization Expenses: A total of $68,000 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced investment operations.
Cash Flow Information: The Trust invests in securities and distributes dividends
and distributions which are paid in cash or are reinvested at the discretion of
shareholders. These activities are reported in the Statement of Changes in Net
Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value and accreting discounts on debt
obligations. Cash, as used in the Statement of Cash Flows, is the amount
reported as 'Cash' in the Statement of Assets and Liabilities, and does not
include short-term investments.
Repurchase Agreements: The Trust, through its custodian, receives delivery of
the underlying collateral, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price, including
accrued interest. The Advisor is responsible for determining that the value of
these underlying securities is sufficient at all times. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings commence
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
3. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS:
The Trust has entered into an Investment Advisory Agreement with the Advisor.
The Advisor is responsible for management of the Trust's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Trust. For such services, the Trust pays a
monthly fee at an annual rate of 0.50% of the Trust's average weekly net assets.
For the six months ended May 31, 1996, the Advisor earned $1,170,208 in
Investment Advisory fees.
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc. (the 'Administrator'). The Administrator performs
administrative services necessary for the operation of the Trust, including
maintaining certain books and records of the Trust, and preparing reports and
other documents required by federal, state, and other applicable laws and
regulations, and provides the Trust with administrative office facilities. For
these services the Trust pays a monthly fee at an annual rate of 0.17% of the
first $100 million of the Trust's average weekly net assets, 0.145% of the next
$150 million and 0.12% of any amounts above $250 million. For the six months
ended May 31, 1996, the Administrator earned $324,759 in Administration fees.
Certain officers and/or directors of the Trust are officers and/or directors of
the Advisor.
4. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term investments, for the
six months ended May 31, 1996 aggregated $673,373,442 and $686,555,043,
respectively.
The federal income tax basis of the Trust's investments at May 31, 1996 was
$631,207,101 and, accordingly, net unrealized depreciation for federal income
tax purposes was $9,321,837 (gross unrealized appreciation--$10,937,975; gross
unrealized depreciation--$20,259,812). At May 31, 1995, the Trust had a capital
loss carryforward of approximately $107,959,000 of which $25,335,000 expires in
2001, $80,484,000 expires in 2002, and $2,140,000 expires in 2003. However if
the Trust terminates as expected in 1999, the carryforward must be utilized by
1999 in order for shareholders to realize a benefit.
5. BORROWINGS:
The Trust may enter into reverse repurchase agreements and dollar roll
agreements with the same parties with whom it may enter into repurchase
agreements. A dollar roll agreement is identical to a reverse repurchase
agreement except for the fact that substantially identical securities may be
repurchased. Under a reverse repurchase agreement or a dollar roll agreement,
the Trust sells securities and agrees to repurchase them, or substantially
similar securities in the case of a dollar roll agreement, at a mutually agreed
upon date and price. Under the 1940 Act, reverse repurchase agreements and
dollar roll agreements will be regarded as a form of borrowing by the Trust
unless, at the time it enters into a reverse repurchase agreement or a dollar
roll agreement, it establishes and maintains a segregated account with its
custodian containing securities from its portfolio having a value not less than
the repurchase price (including accrued interest). The Trust has established and
maintained such an account for each of its reverse repurchase agreements and
dollar roll agreements. Reverse repurchase agreements and dollar roll agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Trust may decline below the price of the securities the Trust has
sold but is obligated to repurchase. In the event the buyer of securities under
a reverse repurchase agreement or a dollar roll agreement files for bankruptcy
or becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Trust's obligation to
repurchase the securities, and the Trust's use of the proceeds of the reverse
repurchase agreement or the dollar roll agreement may effectively be restricted
pending such decision.
At May 31, 1996, the Trust had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount..................... $ 190,380,161
---------------
Market Value of Assets Sold Under
Agreements........................ $ 192,778,320
---------------
Weighted Average Interest Rate...... 5.30%
---------------
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the six months ended May 31, 1996, was approximately $204,358,899 at a weighted
average interest rate of 5.55%. The maximum amount of reverse repurchase
agreements outstanding at any time during the six months was $261,776,713, as of
March 7, 1996, which was 35.35% of total assets.
6. CAPITAL STOCK:
There are 75 million shares of $.01 par value common stock authorized. Of the
63,112,639 shares outstanding at May 31, 1996, the Advisor owned 10,639 shares.
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
The Trust is continuing its stock repurchase program, whereby an amount of up to
15% of the total outstanding common stock or approximately 9.5 million shares,
are authorized for repurchase. The purchase price may not exceed the
then-current net asset value. As of May 31, 1996, 148,000 shares have been
repurchased pursuant to this program at a cost of $1,004,815 at an average
discount of 10.06% from its net asset value. For the six months ended May 31,
1996, no shares were repurchased. All shares repurchased will be retired. All
repurchases occurred during the year ended November 30, 1994.
7. FINANCIAL INSTRUMENTS:
The Trust regularly trades in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing exposure
to various market risks. These financial instruments include written options and
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes. The notional
or contractual amounts of these instruments represent the investment the Trust
has in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
There were no open futures contracts at May 31, 1996.
Written option activity for the six months ended May 31, 1996 is as follows:
<TABLE>
<CAPTION>
WRITTEN CALL OPTION TRANSACTIONS
- -----------------------------------------------------
<S> <C> <C>
NUMBER OF
CONTRACTS PREMIUMS
--------- ---------
Outstanding, beginning of
period.................... 35 $ 213,488
Options written........... 29 244,570
Options closed............ (53) (357,643)
Options expired........... (11) (100,415)
--- ---------
Outstanding, end of
period.................. -- $ --
--- ---------
--- ---------
</TABLE>
During the six months ended May 31, 1996, the Trust had segregated sufficient
cash and/or securities to cover any commitments under these contracts.
8. LITIGATION:
During the months of October and November 1993, purported class action lawsuits
were instituted against the Trust and its directors, officers and underwriters
by certain shareholders of the Trust in the United States District Court,
Southern District of New York. The plaintiffs in those actions generally alleged
that the defendants made inadequate and misleading disclosure in the
registration statement and prospectus for the Trust, in particular, as such
disclosure relates to the nature and risks of 'interest-only mortgage strip
securities' and the Trust's investments in those instruments. A Pre-Trial Order
of Consolidation dated December 27, 1993 consolidated these and other actions
under the consolidated caption In re: Hyperion Securities Litigation Master File
No. 93-CIV-7179 (MBM). Pursuant to the terms of the Order of Consolidation, one
consolidated amended complaint was served upon the Trust and the other
defendants which superseded all other complaints previously filed. The Advisor
was added as a defendant in that complaint. On April 8, 1994, the defendants
moved to dismiss the consolidated complaint. Pursuant to an order dated October
3, 1994, the Court stayed all discovery in the Action except for certain limited
document discovery. In November 1994, while the motion to dismiss was still
pending, plaintiffs filed a second consolidated amended complaint which
superseded the first amended complaint. The allegations in the second
consolidated amended complaint relate to the accuracy of the defendants'
representations to investors about the Trust's investment objectives, and level
and adequacy of the disclosure in the Prospectus for the Trust used in
connection with its initial public offering. Defendants moved to dismiss the
second consolidated amended complaint in December 1994. Judge Michael B. Mukasey
issued an opinion and order dated July 12, 1995 dismissing the second
consolidated amended complaint without leave to replead (granted 93 CIV 7179;
July 18, 1995). The plaintiffs filed a motion to reargue on July 27, 1995 and
Judge Mukasey denied the motion to reargue on September 6, 1995. Plaintiffs
filed a notice of appeal to the Second Circuit Court on August 17, 1995. The
appeal has been fully briefed and oral argument of the appeal took place on
March 27, 1996. A decision on the appeal is expected to be issued in the summer
of 1996.
16
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
May 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
Pursuant to the Underwriting Agreement between the Trust and its underwriters,
the Trust and the Advisor have jointly and severally agreed to indemnify the
underwriters for their liabilities, losses and costs directly related to certain
contents of the prospectus and registration statement of the Trust. The
underwriters have provided notification to the Trust and the Advisor that they
intend to exercise their rights of indemnification in the event that they are
subject to liabilities, costs or losses that are covered by the indemnity. In
addition, pursuant to the Advisory Agreement between the Trust and the Advisor,
the Advisor is indemnified for all of its liabilities, losses and costs in
connection with any matter involving the Trust, except for actions relating to
the gross negligence, willful malfeasance or fraud of the Advisor. In addition,
the Trust's Articles of Incorporation provide for the indemnification of its
Directors. The Trust's Directors and Advisor have also notified the Trust of
their intention to seek indemnification. The Trust has incurred litigation
expenses for the six months ended May 31, 1996 to the indemnified parties noted
above, based upon amounts which are deemed reimbursable in accordance with the
indemnification provisions. Pursuant to these indemnification provisions, the
Trust reimbursed $58,508 of litigation expenses to the Advisor during the six
month period ending May 31, 1996. This amount was previously advanced by the
Advisor on behalf of the Trust, its directors, certain of its officers and
underwriters. The Trust has included these amounts in legal fees. The ultimate
outcome of this litigation is not presently determinable.
9. SUBSEQUENT EVENTS:
The Trusts' Board of Directors declared the following regular monthly dividends:
<TABLE>
<CAPTION>
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- ---------- -------- --------
<S> <C> <C>
$0.03958 06/17/96 06/27/96
$0.03958 07/22/96 07/31/96
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six months ended May 31, 1996, Hyperion 1999 Term Trust, Inc.
shareholders voted on the following proposals at a shareholders meeting on April
16, 1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. To elect members to the Trust's Board
of Directors: Kenneth C. Weiss 42,483,821 1,368,208
Lewis S. Ranieri 42,478,118 1,373,911
Patricia A. Sloan 42,468,822 1,383,207
- ----------------------------------------------------------------------------------------------------
<CAPTION>
SHARES VOTED SHARES VOTED
SHARES VOTED FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. To select Deloitte & Touche LLP as the
Trust's independent accountants: 42,607,964 517,593 726,472
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON NET INCREASE
INVESTMENTS, FUTURES (DECREASE) IN NET
NET INVESTMENT AND WRITTEN ASSETS RESULTING
INCOME OPTION TRANSACTIONS FROM OPERATIONS
---------------------- ----------------------- -----------------------
TOTAL PER PER PER
QUARTERLY PERIOD INCOME AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
June 26, 1992* to
August 31, 1992...... $ 8,539,531 $ 7,129,135 $0.11 $(19,306,330) $ (0.30) $(12,177,195) $ (0.19)
September 1, 1992 to
November 30, 1992.... 16,580,937 12,842,733 0.21 (22,483,352) (0.36) (9,640,619) (0.15)
December 1, 1992 to
February 28, 1993.... 14,278,323 10,642,860 0.17 (31,400,517) (0.50) (20,757,657) (0.33)
March 1, 1993 to
May 31, 1993......... 13,647,042 10,562,767 0.17 (5,780,313) (0.09) 4,782,454 0.08
June 1, 1993 to
August 31, 1993...... 11,325,312 8,412,983 0.13 (27,675,828) (0.44) (19,262,845) (0.31)
September 1, 1993 to
November 30, 1993.... 18,307,264 15,895,853 0.25 (44,953,480) (0.70) (29,057,627) (0.45)
December 1, 1993 to
February 28, 1994.... 14,880,602 12,231,574 0.19 12,367,705 0.20 24,599,279 0.39
March 1, 1994 to
May 31, 1994......... 15,469,465 12,626,698 0.20 17,800,528 0.28 30,427,226 0.48
June 1, 1994 to
August 31, 1994...... 7,142,378 9,904,737 0.16 (36,250,648) (0.57) (26,345,911) (0.41)
September 1, 1994 to
November 30, 1994.... 17,379,627 8,190,924 0.13 42,523,788 0.67 50,714,712 0.80
December 1, 1994 to
February 28, 1995.... 12,898,232 9,029,349 0.14 6,995,260 0.11 16,024,609 0.25
March 1, 1995 to
May 31, 1995......... 12,240,737 7,744,298 0.12 14,747,914 0.24 22,492,212 0.36
June 1, 1995 to
August 31, 1995...... 12,848,385 8,727,012 0.14 (12,253,807) (0.19) (3,526,795) (0.05)
September 1, 1995 to
November 30, 1995.... 11,433,972 6,825,146 0.11 (15,999,089) (0.26) (9,173,943) (0.15)
December 1, 1995 to
February 29, 1996.... 12,730,201 8,716,948 0.14 (13,968,641) (0.22) (5,251,693) (0.08)
March 1, 1996 to
May 31, 1996......... 12,153,474 8,523,188 0.13 (26,191,953) (0.41) (17,668,765) (0.28)
<CAPTION>
DIVIDENDS AND
DISTRIBUTIONS
--------------------- SHARE PRICE
PER -------------
QUARTERLY PERIOD AMOUNT SHARE HIGH LOW
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
June 26, 1992* to
August 31, 1992...... $ 4,219,485 $0.07 $ 10 3/8 $10
September 1, 1992 to
November 30, 1992.... 12,658,452 0.20 10 3/4 8 7/8
December 1, 1992 to
February 28, 1993.... 12,658,452 0.20 10 9
March 1, 1993 to
May 31, 1993......... 12,658,452 0.20 9 3/4 8 3/4
June 1, 1993 to
August 31, 1993...... 11,861,350 0.19 8 7/8 7 1/2
September 1, 1993 to
November 30, 1993.... 9,356,249 0.15 8 1/4 6 3/8
December 1, 1993 to
February 28, 1994.... 8,299,440 0.13 7 6 1/4
March 1, 1994 to
May 31, 1994......... 8,296,179 0.13 7 3/8 6 3/4
June 1, 1994 to
August 31, 1994...... 9,082,485 0.15 7 1/4 6 1/2
September 1, 1994 to
November 30, 1994.... 9,472,210 0.15 7 6 3/8
December 1, 1994 to
February 28, 1995.... 8,940,494 0.14 7 6 1/2
March 1, 1995 to
May 31, 1995......... 8,677,288 0.14 7 3/8 6 5/8
June 1, 1995 to
August 31, 1995...... 7,888,401 0.12 7 1/2 6 3/4
September 1, 1995 to
November 30, 1995.... 7,493,924 0.12 7 1/8 6 1/2
December 1, 1995 to
February 29, 1996.... 7,493,976 0.12 6 7/8 6 3/8
March 1, 1996 to
May 31, 1996......... 7,493,890 0.12 6 5/8 6
</TABLE>
* Commencement of investment operations.
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022
FOR GENERAL INFORMATION ABOUT THE TRUST:
(800) HYPERION
TRANSFER AGENT
BOSTON EQUISERVE L.P.
Investor Relations Department
P.O. Box 8200
Boston, Massachusetts 02266-8200
FOR SHAREHOLDER SERVICES:
(800) 426-5523
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02116
INDEPENDENT ACCOUNTANTS
DELOITTE & TOUCHE LLP
Two World Financial Center
New York, New York 10281
LEGAL COUNSEL
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Trust may purchase its shares in the
open market at prevailing market prices.
19
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
A Dividend Reinvestment Plan (the 'Plan') is available to shareholders of
the Trust pursuant to which they may elect to have all dividends and
distributions of capital gains automatically reinvested by State Street Bank and
Trust Company (the 'Plan Agent') in Trust shares. Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check
mailed directly to the shareholder of record (or if the shares are held in
street or other nominee name, then to the nominee) by the Trust's Custodian, as
Dividend Disbursing Agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, payable in cash, the participants in the Plan will receive the
equivalent amount in Trust shares valued at the market price determined as of
the time of purchase (generally, the payment date of the dividend or
distribution). The Plan Agent will, as agent for the participants, use the
amount otherwise payable as a dividend to participants to buy shares in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price increases, the average per share purchase price paid by the Plan Agent may
exceed the market price of the shares at the time the dividend or other
distribution was declared. Share purchases under the Plan may have the effect of
increasing demand for the Trust's shares in the secondary market.
There is no charge to participants for reinvesting dividends or capital
gain distributions, except for certain brokerage commissions, as described
below. The Plan Agent's fees for handling the reinvestment of dividends and
distributions are paid by the Trust. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of dividends and
distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable on such dividends or
distributions.
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 by the Trust, 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.
A brochure describing the Plan is available from the Plan Agent, State
Street Bank and Trust Company, by calling 1-800-426-5523.
If you wish to participate in the Plan and your shares are held in your
name, you may simply complete and mail the enrollment form in the brochure. If
your shares are held in the name of your brokerage firm, bank or other nominee,
you should ask them whether or how you can participate in the Plan. Shareholders
whose shares are held in the name of a brokerage firm, bank or other nominee and
are participating in the Plan may not be able to continue participating in the
Plan if they transfer their shares to a different brokerage firm, bank or other
nominee, since such shareholders may participate only if permitted by the
brokerage firm, bank or other nominee to which their shares are transferred.
20
<PAGE>
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Kenneth C. Weiss
Chairman
Lewis S. Ranieri
Director
Garth Marston*
Director
Rodman L. Drake*
Director
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Patricia A. Sloan
Director & Secretary
Louis C. Lucido
President
Clifford E. Lai
Senior Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
- ------------------------------------------------------
HYPERION
Capital Management, Inc.
- ------------------------------------------------------
The accompanying financial statements as of May 31, 1996 were not audited and,
accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
HYPERION 1999 TERM TRUST, INC.
520 Madison Avenue
New York, NY 10022
H Y P E R I O N
1999
SEMI-ANNUAL REPORT
MAY 31, 1996
[LOGO] 1999
