<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: January 22, 1997
We welcome this opportunity to provide you with information about Hyperion 1999
Term Trust, Inc. (the 'Trust') for its fiscal year ended November 30, 1996. The
Trust's shares are traded on the New York Stock Exchange ('NYSE') under the
symbol 'HTT'.
DESCRIPTION OF THE TRUST
The Trust is a closed-end investment company whose investment objectives are to
attempt 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 Advisor presently intends to manage the portfolio for the remaining term of
the Trust in a manner that attempts to achieve the Trust's objectives, but there
is no assurance that these investment objectives can be achieved; indeed, under
current market conditions it will be extremely difficult for the Trust to
achieve its objective to return $10.00 per share by its scheduled termination
date, November 30, 1999.
The Trust pursues these investment objectives by investing in a portfolio
primarily of mortgage-backed securities ('MBS') 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.)
MARKET ENVIRONMENT
The fixed income market continues to be volatile in reaction to short-term
changes in economic activity. In September, the market began a decline in
interest rates which resulted in a 100 basis point decrease, only to increase by
50 basis points in December. The cause of the volatility in interest rates is
the large variable swings in quarter to quarter economic activity. Economic
growth, recorded at 4.7% in the second quarter, fell to 2.1% in the third
quarter, only to rebound back to a projected 4.0% in the fourth quarter. The
market's perception of the correlation of economic growth and its impact on
inflation and monetary policy is the primary cause of the large swings in
interest rates.
Over the long-term, we foresee a stable to lower interest rate environment in
the fixed income securities market. Our outlook includes continued improvements
in fiscal policy in reducing the budget deficit, favorable demographic trends
that should lead to increased savings and a reduction in economic activity, and
favorable global inflationary trends especially in Europe where monetary union
should keep inflation in check. The fixed income market should do reasonably
well under the slow economic growth and low inflation conditions we see ahead.
PORTFOLIO STRATEGY
Since the semi-annual report dated May 31, 1996, the Trust was able to take
advantage of several opportunities in the Interest Only ('IO') market. The
relative richness of IOs in the market provided the Advisor with an
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
opportunity to reduce our holdings in older seasoned IOs and to invest in a
smaller allocation of newer, more liquid IOs. This swap improved the liquidity
of the Trust while providing some additional prepayment cushion should interest
rates fall. The portfolio's current market value allocations to IOs and
Principal Only Securities ('POs') continues to be matched in an effort to
approximate a synthetic 6.5% coupon pass-through while attempting to limit the
Trust's outright exposure to the IO and PO markets. In addition to our reduction
in IO holdings, we have also lowered our allocation to MBS pass-throughs by 8%
in favor of U.S. Treasury Securities ('Treasuries') as a conservative move
towards a more stable investment profile. Additionally, the portfolio's
allocation to municipals has also been reduced in favor of higher yielding
Treasuries.
The Trust's total return for the six and twelve month periods ending November
30, 1996 were 7.35% and 2.52%, respectively. Total investment return is computed
based upon the change in Net Asset Value of the Trust's shares and includes
reinvestment of dividends. The current monthly dividend the Trust pays its
shareholders is $0.03958 per share. The current yield of 7.31% on shares of the
Trust is based on the NYSE closing price of $6.50 on November 29, 1996.
The Trust is currently managed with an average duration (duration measures a
bond portfolio's price sensitivity to interest rate changes) of 5 years, with
the core assets having a duration of 3.5 years. The dollar weighted average
maturity of the securities in the portfolio is approximately 5 years.
The chart that follows shows the allocation of the Trust's holdings by asset
category on November 30, 1996.
2
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1996*
[Chart]
U.S. Government Pass-Through Certificates 42.8%
U.S. Treasury Obligations 22.9%
U.S. Government Agency Stripped Mortgage-Backed Securities 11.7%
U.S. Government Agency Collateralized Mortgage Obligations 8.9%
Collateralized Mortgage Obligations 8.9%
Asset-Backed Securities 3.7%
Municipal Zero Coupon Securities 1%
Repurchase Agreement 0.1%
*As a percentage of total investments.
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,
KENNETH C. WEISS
Chairman,
Hyperion 1999 Term Trust, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
LOUIS C. LUCIDO
President,
Hyperion 1999 Term Trust, Inc.
Managing Director and Chief Operating Officer,
Hyperion Capital Management, Inc.
3
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1996
<TABLE>
<CAPTION>
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS--127.8%
U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES--63.4%
Federal Home Loan Mortgage Corporation 6.50% 06/01/08-05/01/09 $ 64,423 $ 63,980,835
8.00 08/01/24 3,215 3,309,847
------------
67,290,682
------------
Federal National Mortgage Association 6.00 11/01/00-08/01/02 46,367@ 45,715,044
6.50 07/01/02-10/01/10 46,266 45,900,808
7.00 12/01/01-04/01/26 65,898 66,286,952
8.00 12/01/24-08/01/25 55,432@,* 56,973,508
------------
214,876,312
------------
Government National Mortgage Association 8.00 10/15/24-01/15/26 6,595 6,800,924
------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
(Cost - $283,492,792) 288,967,918
------------
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--13.2%
Federal Home Loan Mortgage Corporation
Series 1517, Class E, PAC 6.00 04/15/18 2,000 1,972,556
Series 1456, Class G, PAC 6.50 12/15/18 10,000 9,920,420
Series 55, Class D, PAC 9.00 11/15/14 1,258 1,276,310
------------
13,169,286
------------
Federal National Mortgage Association
Series 1994-50, Class PD, PAC 5.85 09/25/17 48,000@ 47,128,368
------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost - $57,235,141) 60,297,654
------------
U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED SECURITIES--17.3%
INTEREST-ONLY SECURITIES:
Federal National Mortgage Association
Series 1994-M2, Class B, REMIC 1.24+ 02/25/01 109,260 3,687,517
Series 176, Class B 7.00 06/01/26 18,234 6,000,223
Series 218, Class 2 7.50 04/01/23 14,856 4,271,032
Series 1992-168, Class IO, REMIC 7.50 10/25/22 12,566 3,612,639
Series 251, Class 2 8.00 11/01/23 12,476 3,528,197
------------
21,099,608
------------
PRINCIPAL-ONLY SECURITY:
Federal National Mortgage Association
Series 267, Class 1 0.00 10/01/24 73,234 57,579,947
------------
TOTAL U.S. GOVERNMENT AGENCY STRIPPED
MORTGAGE-BACKED SECURITIES
(Cost - $74,111,019) 78,679,555
------------
</TABLE>
4
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
<TABLE>
<CAPTION>
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--33.9%
U.S. Treasury Notes 5.13% 02/28/98 $ 9,150@ $ 9,101,395
5.88 10/31/98 8,000@ 8,033,752
6.00 08/15/99 20,421 20,567,786
6.25 05/31/00 8,000@ 8,111,248
6.25 10/31/01 23,506 23,869,614
6.50 10/15/06 25,803@ 26,577,090
7.75 12/31/99 25,000@ 26,390,625
7.75 01/31/00 25,000@ 26,410,150
------------
149,061,660
------------
U.S. Treasury Bonds 6.00 02/15/26 5,800@ 5,445,655
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost - $153,179,895) 154,507,315
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $568,018,847) 582,452,442
------------
ASSET-BACKED SECURITIES--5.6%
Green Tree Financial Corporation
Series 1996-5, Class A4 7.15 07/15/27 4,500 4,634,595
------------
MBNA Master Credit Card Trust
Series 1996-M, Class A 5.63+ 04/15/09 5,000 4,998,083
------------
Neiman Marcus Group Credit Card Master Trust
Series 1995-1, Class A 7.60 06/15/03 15,000 15,622,260
------------
TOTAL ASSET-BACKED SECURITIES
(Cost - $24,495,036) 25,254,938
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--13.2%
DLJ Mortgage Acceptance Corporation
Series 1995-CF2, Class A1A 6.65 12/17/27 11,370 11,367,644
Series 1993-MF10, Class A2 7.20 07/15/03 9,167 9,357,794
------------
20,725,438
------------
First Boston Mortgage Securities Corporation
Series 1993-M1, Class 1A 6.75 09/25/06 24,449 24,280,434
------------
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C1, Class A 7.15+ 05/25/15 7,291 7,422,427
------------
Prudential Home Mortgage Securities Co., Inc.
Series 1993-61, Class A5 6.50 12/25/08 1,941 1,899,930
------------
Residential Funding Mortgage Securities I, Inc.
Series 1996-S7, Class A12 7.00 03/25/26 6,061 5,946,800
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost - $60,882,587) 60,275,029
------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
November 30, 1996
<TABLE>
<CAPTION>
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL ZERO COUPON SECURITIES--1.4%
KANSAS
Kansas City Kansas, Utility System
Revenue Bond, AMBAC (b) 03/01/00 $ 985 $ 850,797
------------
UTAH
Intermountain Power Agency Utah,
Power Supply Revenue Bonds (b) 07/01/00 6,500 5,599,360
------------
TOTAL MUNICIPAL ZERO COUPON SECURITIES
(Cost - $6,194,614) 6,450,157
------------
REPURCHASE AGREEMENT--0.2%
Dated 11/29/96, with State Street Bank and Trust
Company, 5.00%, due 12/2/96; proceeds: $824,343;
collateralized by $830,000 U.S. Treasury Note
6.125%, due 3/31/98,
value: $844,605 (Cost - $824,000) 824 824,000
------------
TOTAL INVESTMENTS--148.2%
(Cost - $660,415,084) $675,256,566
LIABILITIES IN EXCESS OF OTHER ASSETS--(48.2%) (219,740,942)
------------
NET ASSETS--100.0% $455,515,624
------------
------------
</TABLE>
@ Portion of or entire principal amount delivered as collateral for reverse
repurchase agreements (Note 5)
* The fluctuations in value on a portion of this position were hedged
against by the short sale on the following page.
REMIC Real Estate Mortgage Investment Conduit
PAC Planned Amortization Class: Security principal payments are within a
predetermined range
AMBAC American Municipal Bond Assurance Corporation
(b) Zero Coupon Bonds
+ Variable Rate Security: Coupon rate is rate in effect at November 30,
1996
- ------------------
See notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
SECURITIES SOLD SHORT
November 30, 1996
<TABLE>
<CAPTION>
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATION
U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
Federal National Mortgage Association 8.00% 12/01/26 $ 49,000 $50,362,690
-----------
TOTAL SECURITIES SOLD SHORT
(Proceeds - $49,884,297) $50,362,690
-----------
</TABLE>
- ------------------
See notes to financial statements.
7
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $660,415,084) (Note 2).............. $675,256,566
Cash............................................................ 409
Receivable for investments sold and other receivables........... 50,041,220
Interest receivable............................................. 5,610,172
Deferred organization expenses and other assets (Note 2)........ 34,631
------------
Total assets.................................................. 730,942,998
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................... 173,334,000
Payable for investments purchased............................... 50,480,057
Securities sold short, at value (proceeds $49,884,297) (Note
2)............................................................ 50,362,690
Payable for Trust shares repurchased............................ 411,279
Dividends payable............................................... 272,955
Investment advisory fee payable (Note 3)........................ 186,557
Accrued expenses and other liabilities.......................... 111,131
Interest payable for short sale................................. 108,889
Interest payable for reverse repurchase agreements (Note 5)..... 108,002
Administration fee payable (Note 3)............................. 51,814
------------
Total liabilities............................................. 275,427,374
------------
NET ASSETS (equivalent to $7.25 per share based on 62,809,839
shares outstanding)........................................... $455,515,624
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6).................................. $ 628,098
Additional paid-in capital...................................... 589,901,620
Undistributed net investment income............................. 11,453,968
Accumulated net realized losses................................. (160,831,151)
Net unrealized appreciation..................................... 14,363,089
------------
Net assets applicable to capital stock outstanding.............. $455,515,624
------------
------------
- ------------------
See notes to financial statements.
8
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 2):
Interest...................................................... $46,384,376
-----------
EXPENSES:
Investment advisory fee (Note 3).............................. 2,283,745
Administration fee (Note 3)................................... 635,599
Insurance..................................................... 279,402
Reports to shareholders....................................... 144,931
Custodian..................................................... 135,322
Transfer agency............................................... 70,457
Audit and tax services........................................ 63,398
Registration.................................................. 48,541
Directors' fees............................................... 40,999
Legal......................................................... 17,580
Amortization of organization expenses (Note 2)................ 16,382
Miscellaneous................................................. 56,602
-----------
Total operating expenses................................... 3,792,958
Interest expense (Note 5)................................ 10,369,575
-----------
Total expenses............................................. 14,162,533
-----------
Net investment income......................................... 32,221,843
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS,
FUTURES AND WRITTEN OPTION TRANSACTIONS (Notes 2 and 4):
Net realized gains (losses) on:
Investment transactions....................................... (11,432,930)
Futures transactions.......................................... (9,321,834)
Written option transactions................................... 200,983
-----------
(20,553,781)
-----------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... (4,812,672)
Futures transactions.......................................... 617,500
Written option transactions................................... (50,940)
-----------
(4,246,112)
-----------
Net realized and unrealized losses on investments, futures and
written option transactions................................... (24,799,893)
-----------
Net increase in net assets resulting from operations............ $ 7,421,950
-----------
-----------
- ------------------
See notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year For the Year
Ended Ended
November 30, November 30,
1996 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income......................... $ 32,221,843 $ 32,325,805
Net realized losses on investments, futures
and written option transactions............ (20,553,781) (39,022,594)
Net change in unrealized appreciation
(depreciation) on investments, futures and
written option transactions................ (4,246,112) 32,512,872
------------ ------------
Net increase in net assets resulting from
operations................................. 7,421,950 25,816,083
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income......................... (29,971,083) (33,000,107)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Trust shares repurchased and
retired.................................... (2,015,134) --
------------ ------------
Total decrease in net assets............... (24,564,267) (7,184,024)
NET ASSETS:
Beginning of year............................... 480,079,891 487,263,915
------------ ------------
End of year (including undistributed net
investment income of $11,453,968 and
$9,203,208, respectively)..................... $455,515,624 $480,079,891
------------ ------------
------------ ------------
- ------------------
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
Cash flows provided from operating activities:
Interest received (excluding accretion of $3,229,754)..... $ 39,736,637
Interest expense paid..................................... (10,382,608)
Operating expenses paid................................... (3,807,084)
Purchase of short-term portfolio investments, including
options, net........................................... (3,076,096)
Purchase of long-term portfolio investments............... (879,237,287)
Proceeds from disposition of long-term portfolio
investments, short sales and principal paydowns........ 905,624,198
Net cash used for futures transactions.................... (9,369,389)
---------------
Net cash provided from operating activities............... 39,488,371
---------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements........... (8,186,527)
Cash dividends paid....................................... (29,698,128)
Cash used to repurchase and retire Trust shares........... (1,603,855)
---------------
Net cash used for financing activities.................... (39,488,510)
---------------
Net decrease in cash........................................ (139)
Cash at beginning of year................................... 548
---------------
Cash at end of year......................................... $ 409
---------------
---------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations........ $ 7,421,950
---------------
Decrease in investments................................... 74,188,820
Decrease in net unrealized appreciation on investments.... 4,812,672
Increase in interest receivable........................... (1,763,030)
Decrease in variation margin payable...................... (665,055)
Increase in other assets.................................. (50,007,439)
Increase in accrued expenses and other liabilities........ 5,500,453
---------------
Total adjustments...................................... 32,066,421
---------------
Net cash provided from operating activities................. $ 39,488,371
---------------
---------------
- ------------------
See notes to financial statements.
11
<PAGE>
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HYPERION 1999 TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Year For the Year For the Year For the Year For the Period
Ended Ended Ended Ended June 28, 1992*
November 30, November 30, November 30, November 30, through
1996 1995 1994 1993 November 30, 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of the
year................................. $ 7.61 $ 7.72 $ 7.02 $ 8.77 $ 9.38**
------------ ------------ ------------ ------------ -----------------
Net investment income.................. 0.52 0.51 0.68 0.72 0.32
Net realized and unrealized gains
(losses) on investments, futures and
written option transactions.......... (0.40) (0.10) 0.58 (1.73) (0.66)
------------ ------------ ------------ ------------ -----------------
Net increase (decrease) in net asset
value resulting from operations...... 0.12 0.41 1.26 (1.01) (0.34)
------------ ------------ ------------ ------------ -----------------
Dividends from net investment income... (0.48) (0.52) (0.56) (0.74) (0.27)
------------ ------------ ------------ ------------ -----------------
Net asset value, end of year........... $ 7.25 $ 7.61 $ 7.72 $ 7.02 $ 8.77
------------ ------------ ------------ ------------ -----------------
------------ ------------ ------------ ------------ -----------------
Market price, end of year.............. $ 6.50 $ 6.50 $ 6.875 $ 6.75 $ 10.00
------------ ------------ ------------ ------------ -----------------
------------ ------------ ------------ ------------ -----------------
TOTAL INVESTMENT RETURN+............... 7.53% 1.91% 10.29% (26.53)% 9.22 % (1)
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s)..... $455,516 $480,080 $487,264 $444,024 $ 554,894
Total operating expenses............. 0.83% 0.96% 0.83% 0.76% 0.80% (2)
Interest expense..................... 2.27% 2.50% 1.69% 1.61% 1.28% (2)
Net investment income................ 7.05% 6.55% 9.07% 8.98% 8.08% (2)
Portfolio turnover rate.............. 135% 473% 745% 1,175% 111%
</TABLE>
- ------------------
* 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.
- ------------------
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1996
- --------------------------------------------------------------------------------
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. The Advisor presently intends to manage the portfolio for the remaining
term of the Trust in a manner that attempts to achieve the Trust's objectives,
but there is no assurance that these investment objectives can be achieved;
indeed, under current market conditions it will be extremely difficult for the
Trust to achieve its objective to return $10.00 per share by its scheduled
termination date, November 30, 1999.
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 for long positions and
the current ask price for short positions. 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
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
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 call
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 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 certain securities are accreted and 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.
Short Sales: The Trust may make short sales of securities as a method of hedging
potential declines in similar securities owned. When the Trust makes a short
sale, it must borrow the security sold short and deliver it to the broker-dealer
through which it made the short sale as collateral for its obligation to deliver
the security upon conclusion of the sale. The Trust may have to
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
pay a fee to borrow the particular securities and may be obligated to pay over
any payments received on such borrowed securities. A gain, limited to the price
at which the Trust sold the security short, or a loss, unlimited as to dollar
amount, will be recognized upon the termination of a short sale if the market
price is greater or less than the proceeds originally received.
Dividends and Distributions: The Trust declares and pays dividends monthly from
net investment income. Distributions of net 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 and amortizing
premiums 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 year ended November 30, 1996, the Advisor earned $2,283,745 in
Investment Advisory fees.
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 to the administrator 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 year ended November 30, 1996, the Administrator earned $635,599
in Administration fees.
Certain officers and/or directors of the Trust are officers and/or directors of
the Advisor.
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, U.S.
Government securities and reverse repurchase agreements, for the year ended
November 30, 1996 were $179,923,182 and $241,262,118, respectively. Purchases
and sales of U.S. Government securities, for the year ended November 30,1996
were $682,555,659 and $577,170,853, respectively. For purposes of this footnote,
U.S. Government securities include securities issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation and the Government National Mortgage
Association.
The federal income tax basis of the Trust's investments at November 30, 1996 was
$610,568,023 and, accordingly, net unrealized appreciation for federal income
tax purposes was $14,325,853 (gross unrealized appreciation--$21,025,972; gross
unrealized depreciation--$6,700,119). At tax year end May 31, 1996, the Trust
had a capital loss carryforward of approximately $152,506,926 of which
$25,334,582 expires in 2001, $80,484,434 expires in 2002, $2,139,679 expires in
2003 and $44,548,231 expires in 2004. 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 November 30, 1996, the Trust had the following reverse repurchase agreements
outstanding:
MATURITY IN
ZERO TO 30 DAYS
---------------
Maturity Amount........................................ $ 173,529,531
---------------
Market Value of Assets Sold Under Agreements........... $ 172,945,252
---------------
Weighted Average Interest Rate......................... 5.41%
---------------
The average daily balance of reverse repurchase agreements outstanding during
the year ended November 30, 1996, was $188,883,626 at a weighted average
interest rate of 5.49%. The maximum amount of reverse repurchase agreements
outstanding at any time during the year
16
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
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
62,809,839 shares outstanding at November 30, 1996, the Advisor owned 10,639
shares.
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 November 30, 1996, 450,800 shares have been
repurchased pursuant to this program at a cost of $3,019,949 at an average
discount of 8.60% from its net asset value. For the year ended November 30,
1996, 302,800 shares have been repurchased at a cost of $2,015,134, at an
average discount of 7.89%. All shares repurchased either have been or will be
retired.
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 November 30, 1996.
Written option activity for the year ended November 30, 1996 is as follows:
WRITTEN CALL OPTION TRANSACTIONS
- -------------------------------------------------------
NUMBER OF
CONTRACTS PREMIUMS
--------- ---------
Outstanding, beginning of
period........................ 35 $ 213,488
Options written............... 112 597,695
Options closed................ (61) (357,643)
Options expired............... (74) (375,415)
Options assigned.............. (12) (78,125)
--------- ---------
Outstanding, end of period.... -- $ --
--------- ---------
--------- ---------
During the year ended November 30, 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
17
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
November 30, 1996
- --------------------------------------------------------------------------------
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 U.S. Court of Appeals for the Second
Circuit on August 17, 1995. On October 15, 1996, a three judge panel of the
Court of Appeals for the Second Circuit in a two to one vote upheld Judge
Michael B. Mukasey's July 12, 1995 opinion and order dismissing with prejudice
plaintiffs' second consolidated amended complaint for failure to identify any
misrepresentations or misleading omissions in the registration statement and
prospectus for the Trust. Appellants filed a petition for rehearing and
suggestion for rehearing in banc by the entire Appellate Court on October 29,
1996. Please refer to Note 9 for further information.
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 Investment 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 year ended November 30, 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 $61,724 of litigation
expenses to the Advisor during the year ending November 30, 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. Please refer to Note 9 for further information.
9. SUBSEQUENT EVENTS:
The Trust's Board of Directors declared the following regular monthly dividends:
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- ---------- -------- --------
$0.03958 12/16/96 12/26/96
On January 7, 1997, the Court of Appeals for the Second Circuit denied the
appellants' petition for rehearing in banc and suggestion for rehearing. Please
refer to Note 8 for further information.
18
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
HYPERION 1999 TERM TRUST, INC.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Hyperion 1999 Term Trust, Inc. as of November
30, 1996, the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for the years ended November 30,
1996 and 1995 and the financial highlights for each of the years in the five-
year period ended November 30, 1996. These financial statements and financial
highlights are the responsibility of the Trust'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 at November
30, 1996 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Hyperion 1999 Term
Trust, Inc. at November 30, 1996, the results of its operations, its cash flows,
the changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
As discussed in Notes 8 and 9 to the financial statements, the Trust is named as
one of several defendants in litigation alleging inadequate and misleading
disclosure in the registration statement and prospectus for the Trust.
DELOITTE & TOUCHE LLP
New York, New York
January 9, 1997
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Trust's fiscal year end (November
30, 1996) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that all distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. In addition, 4.07% of the Trust's distributions were
earned from U.S. Treasury obligations. None of the Trust's distributions qualify
for the dividends received deduction available to corporate shareholders.
Because the Trust's fiscal year is not the calendar year, another notification
will be sent with respect to calendar 1996. The second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal, state
and local income tax returns, will be made in conjunction with Form 1099-DIV and
will be mailed in January 1997. Shareholders are advised to consult their own
tax advisers with respect to the tax consequences of their investment in the
Trust.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS
(LOSSES)
ON INVESTMENTS, FUTURES NET INCREASE (DECREASE)
AND WRITTEN OPTION IN NET ASSETS RESULTING
NET INVESTMENT INCOME TRANSACTIONS FROM OPERATIONS
---------------------- ----------------------- -----------------------
QUARTERLY PERIOD TOTAL INCOME AMOUNT PER SHARE AMOUNT PER SHARE AMOUNT PER 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)
June 1, 1996
to August 31, 1996 10,994,972 7,631,546 0.12 9,748 0.00 7,641,294 0.12
September 1, 1996
to November 30, 1996 10,505,729 7,350,161 0.13 15,350,953 0.23 22,701,114 0.36
<CAPTION>
DIVIDENDS AND
DISTRIBUTIONS SHARE PRICE
--------------------- ------------
QUARTERLY PERIOD AMOUNT PER 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
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
September 1, 1993
to November 30, 1993 9,356,249 0.15 8 1/4 6
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
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
September 1, 1995
to November 30, 1995 7,493,924 0.12 7 1/8 6
December 1, 1995
to February 29, 1996 7,493,976 0.12 6 7/8 6
March 1, 1996
to May 31, 1996 7,493,890 0.12 6 5/8 6
June 1, 1996
to August 31, 1996 7,493,949 0.12 6 1/2 6 1/8
September 1, 1996
to November 30, 1996 7,489,268 0.12 6 5/8 6 1/4
</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 AUDITORS
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.
20
<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.
21
<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.
- ------------------------------------------------------
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
ANNUAL REPORT
NOVEMBER 30, 1996
