<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: July 21, 1997
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, 1997 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 ('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. There is no assurance that this investment objective can be
met; you may recall in our last shareholder letter we noted that under market
conditions at that time, it would have been extremely difficult for the Trust to
return $10.00 per share on its scheduled termination date. Unfortunately, under
current market conditions it still remains extremely difficult for the Trust to
achieve its $10.00 per share objective. The Trust continues to invest 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 other MBS
rated AAA by a nationally recognized rating agency (e.g., Standard & Poor's
Corporation or Fitch Investors Service, L.P.).
MARKET ENVIRONMENT
The economic growth in the second quarter has slowed from the torrid first
quarter pace, leaving intact expectations for low inflation and a steady Federal
Reserve interest-rate policy in the third and fourth quarters of 1997.
Over the long term, our outlook for the fixed income market continues to include
lower interest rates. Positive fundamentals, such as a reduction in fiscal
spending, a decline in global inflationary pressures, increasing productivity,
technological advancements and higher savings and investment rates due to the
aging of the 'baby boomer' segment of the population are major factors that
should result in a decline in interest rates. The fixed income markets usually
do reasonably well under these conditions.
PORTFOLIO STRATEGY AND PERFORMANCE
The portfolio's allocation towards U.S. Treasury Obligations has been decreased
over the last six months in favor of higher yielding MBS pass-throughs and AAA
commercial mortgage securities. Given the lack of interest rate volatility in
the market over the last few months, we believe that this modest increase to
yield-advantaged securities will benefit the portfolio. Indeed, MBS
pass-throughs and commercial mortgage securities have outperformed over this
time period.
The Trust's total return for the six month period ending May 31, 1997 was 0.93%.
Total investment return is computed based upon the change in Net Asset Value
('NAV') of the Trust's shares and includes reinvestment of dividends. The
current monthly dividend the Trust pays its shareholders is $0.03542 per share.
The current yield of 6.36% on shares of the Trust is based on the NYSE closing
price of $6.6875 on July 21, 1997. This yield was 33 basis points above the
yield on the 3-Year Treasury Note.
The Trust, inclusive of leverage, is currently managed with an average duration
(duration measures a bond portfolio's price sensitivity to interest rate
changes) of 4.6 years with the
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
core assets having a duration of approximately 3.3 years.
The Trust's investment advisor, Hyperion Capital Management, Inc., is continuing
to explore opportunities, strategies and investments that may improve the NAV
and/or the market price of the Trust's shares, some of which may require
shareholder approval. We will keep you informed as appropriate.
The chart that follows shows the allocation of the Trust's holdings by asset
category on May 31, 1997.
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF MAY 31, 1997*
[PASTE UP PIE CHART]
U.S. Government Agency Pass-Through Certificates 45.3%
U.S. Government Agency Collateralized Mortgage Obligations 10.9%
U.S. Government Agency Stripped Mortgage-Backed Securities 11.3%
U.S. Treasury Obligations 17.2%
Asset-Backed Securities 4.2%
Collateralized Mortgage Obligations 9.8%
Municipal Zero Coupon Securities 1.1%
Repurchase Agreement 0.2%
* As a percentage of total investments.
2
<PAGE>
- --------------------------------------------------------------------------------
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,
KENNETH C. WEISS
Chairman,
Hyperion 1999 Term Trust, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
CLIFFORD E. LAI
President,
Hyperion 1999 Term Trust, Inc.
Managing Director and Chief Investment Officer,
Hyperion Capital Management, Inc.
3
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS--114.4%
U.S. GOVERNMENT AGENCY
PASS-THROUGH
CERTIFICATES--61.2%
Federal Home Loan Mortgage
Corporation
6.50% 05/01/09 $ 60,215 $ 58,803,664
8.00 08/01/24 3,105 3,167,110
------------
61,970,774
------------
Federal National Mortgage
Association
6.00 11/01/00 43,277@ 41,830,419
6.50 08/01/02-10/01/10 43,584 42,533,397
7.00 05/01/03-03/01/26 63,067 62,610,843
8.00 08/01/25 51,522@ 52,455,446
------------
199,430,105
------------
Government National
Mortgage Association
8.00 01/15/26 6,140 6,251,704
------------
TOTAL U.S. GOVERNMENT AGENCY
PASS-THROUGH CERTIFICATES
(Cost - $266,506,221) 267,652,583
------------
U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS
(REMICS)--14.7%
Federal Home Loan Mortgage
Corporation
Series 1517, Class E,
PAC 6.00 04/15/18 2,000 1,956,126
Series 1456, Class G,
PAC 6.50 12/15/18 10,000 9,729,320
Series 55, Class D, PAC 9.00 11/15/14 906 911,464
------------
12,596,910
------------
Federal National Mortgage
Association
Series 1994-50, Class
PD, PAC 5.85 09/25/17 48,000@ 46,470,000
Series 1997-24, Class
PJ, PAC 7.00 08/18/26 5,351 5,157,535
------------
51,627,535
------------
TOTAL U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)
(Cost - $62,070,371) 64,224,445
------------
U.S. GOVERNMENT AGENCY
STRIPPED MORTGAGE-BACKED
SECURITIES--15.3%
INTEREST-ONLY SECURITIES:
Federal Home Loan Mortgage
Corporation
Series 176, Class B 7.00 06/01/26 17,809 6,488,973
------------
Federal National Mortgage
Association
Series 218, Class 2 7.50 04/01/23 14,205 4,887,416
Series 1992-168, Class
IO, REMIC 7.50 10/25/22 11,966 4,117,024
Series 251, Class 2 8.00 11/01/23 11,800 4,082,056
------------
13,086,496
------------
PRINCIPAL-ONLY SECURITY:
Federal National Mortgage
Association
Series 267, Class 1 0.00 10/01/24 67,286 47,478,880
------------
TOTAL U.S. GOVERNMENT AGENCY
STRIPPED MORTGAGE-BACKED
SECURITIES
(Cost - $62,354,349) 67,054,349
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS--114.4%
(CONCLUDED)
U.S. TREASURY OBLIGATIONS--
23.2%
U.S. Treasury Notes 5.13% 02/28/98 $ 9,150@ $ 9,101,395
5.88 10/31/98 8,000@ 7,977,504
6.25 05/31/00 8,000@ 7,973,752
7.75 12/31/99 25,000@ 25,835,950
7.75 01/31/00 25,000@ 25,851,575
------------
76,740,176
------------
U.S. Treasury Inflation
Indexed Notes 3.38 01/15/07 20,196@ 19,842,374
------------
U.S. Treasury Bonds 6.00 02/15/26 5,800@ 5,089,500
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost - $103,063,635) 101,672,050
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost - $493,994,576) 500,603,427
------------
- ---------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--5.7%
Green Tree Financial
Corporation
Series 1996-5, Class A4 7.15 07/15/27 4,500 4,521,272
------------
MBNA Master Credit Card
Trust
Series 1996-M, Class A 5.94+ 04/15/09 5,000 5,000,000
------------
Neiman Marcus Group Credit
Card Master Trust
Series 1995-1, Class A 7.60 06/15/03 15,000 15,291,210
------------
TOTAL ASSET-BACKED SECURITIES
(Cost - $24,495,036) 24,812,482
------------
- ---------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)--
13.1%
DLJ Mortgage Acceptance
Corporation
Series 1995-CF2, Class
A1A 6.65 12/17/27 11,004(a) 10,773,421
Series 1993-MF10, Class
A2 7.20 07/15/03 9,022 8,962,331
------------
19,735,752
------------
First Boston Mortgage
Securities Corporation
Series 1993-M1, Class 1A 6.75 09/25/06 24,367 23,636,178
------------
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C1, Class A 7.15+ 05/25/15 6,655 6,631,484
------------
Prudential Home Mortgage
Securities Co., Inc.
Series 1993-61, Class
A5, PAC 6.50 12/25/08 1,941 1,866,688
------------
Residential Funding
Mortgage Securities I,
Inc.
Series 1996-S7, Class
A12 7.00 03/25/26 6,033 5,748,025
------------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(REMICS)
(Cost - $59,605,116) 57,618,127
------------
- ---------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL ZERO COUPON
SECURITIES--1.5%
KANSAS
Kansas City Kansas,
Utility System
Revenue Bonds, AMBAC (b) 03/01/00 $ 985 $ 863,268
------------
UTAH
Intermountain Power Agency
Utah,
Power Supply Revenue
Bonds (b) 07/01/00 6,500 5,673,980
------------
TOTAL MUNICIPAL ZERO
COUPON SECURITIES
(Cost - $6,357,349) 6,537,248
------------
- ---------------------------------------------------------------------------------
REPURCHASE AGREEMENT--0.3%
Dated 5/30/97, with State
Street Bank and Trust
Company, 5.15%, due
6/2/97; proceeds:
$1,260,541;
collateralized by
$1,060,000 U.S. Treasury
Note, 9.00%, due 11/15/18,
value: $1,288,310
(Cost - $1,260,000) 1,260 1,260,000
------------
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS--135.0%
(Cost - $585,712,077) $590,831,284
LIABILITIES IN EXCESS OF
OTHER ASSETS--(35.0%) (153,280,790)
------------
NET ASSETS--100.0% $437,550,494
------------
------------
- ---------------------------------------------------------------------------------
</TABLE>
@ 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, 1997
(a) Private Placement
AMBAC American Municipal Bond Assurance Corporation
(b) Zero Coupon Bonds
- ------------------
See notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $585,712,077) (Note 2).............................................. $590,831,284
Interest receivable............................................................................. 5,022,326
Deferred organization expenses and other assets (Note 2)........................................ 165,148
------------
Total assets.......................................................................... 596,018,758
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................................................... 157,830,688
Investment advisory fee payable (Note 3)........................................................ 185,992
Interest payable for reverse repurchase agreements (Note 5)..................................... 184,279
Bank Overdraft.................................................................................. 152,680
Accrued expenses and other liabilities.......................................................... 62,687
Administration fee payable (Note 3)............................................................. 51,938
------------
Total liabilities..................................................................... 158,468,264
------------
NET ASSETS (equivalent to $7.07 per share based on
61,871,339 shares outstanding)................................................................ $437,550,494
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6).................................................................. $ 618,713
Additional paid-in capital...................................................................... 583,707,327
Undistributed net investment income............................................................. 12,104,744
Accumulated net realized losses................................................................. (163,999,497)
Net unrealized appreciation..................................................................... 5,119,207
------------
Net assets applicable to capital stock outstanding.............................................. $437,550,494
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2):
Interest....................................................... $ 21,297,464
------------
EXPENSES:
Investment advisory fee (Note 3)............................... 1,102,496
Administration fee (Note 3).................................... 308,229
Insurance...................................................... 119,657
Reports to shareholders........................................ 70,145
Custodian...................................................... 59,606
Transfer agency................................................ 34,776
Audit and tax services......................................... 26,481
Legal.......................................................... 26,471
Directors' fees................................................ 20,160
Registration................................................... 16,190
Amortization of organization expenses (Note 2)................. 8,404
Miscellaneous.................................................. 14,179
------------
Total operating expenses.................................... 1,806,794
Interest expense (Note 5).............................. 4,546,541
------------
Total expenses.............................................. 6,353,335
------------
Net investment income.......................................... 14,944,129
------------
REALIZED AND UNREALIZED LOSSES ON INVESTMENT AND SHORT SALE
TRANSACTIONS (Notes 2 and 4):
Net realized losses on:
Investment transactions........................................ (3,039,049)
Short sale transactions........................................ (129,297)
------------
(3,168,346)
------------
Net change in unrealized depreciation on investments............. (9,243,882)
------------
Net realized and unrealized loss on investment and short sale
transactions................................................... (12,412,228)
------------
Net increase in net assets resulting from operations............. $ 2,531,901
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
8
<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
1997 November 30,
(unaudited) 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income........................... $ 14,944,129 $ 32,221,843
Net realized losses on investment, short sale,
futures and written option transactions...... (3,168,346) (20,553,781)
Net change in unrealized depreciation on
investment, futures and written option
transactions................................. (9,243,882) (4,246,112)
------------ ------------
Net increase in net assets resulting from
operations................................... 2,531,901 7,421,950
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income........................... (14,293,353) (29,971,083)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Trust shares repurchased and retired.... (6,203,678) (2,015,134)
------------ ------------
Total decrease in net assets............ (17,965,130) (24,564,267)
NET ASSETS:
Beginning of period............................. 455,515,624 480,079,891
------------ ------------
End of period (including undistributed net
investment income of $12,104,744 and
$11,453,968, respectively)................... $437,550,494 $455,515,624
------------ ------------
------------ ------------
</TABLE>
- ------------------
See notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash flows provided from operating activities:
Interest received (excluding net amortization of $267,356)... $ 20,547,908
Interest expense paid........................................ (4,579,152)
Operating expenses paid...................................... (1,986,197)
Purchase of short-term portfolio investments, including
options, net.............................................. (983,844)
Purchase of long-term portfolio investments.................. (224,357,274)
Proceeds from disposition of long-term portfolio investments,
short sales and principal paydowns........................ 247,890,047
------------
Net cash provided from operating activities.................. 36,531,488
------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements.............. (15,503,312)
Cash dividends paid.......................................... (14,566,308)
Cash used to repurchase and retire Trust shares.............. (6,614,957)
------------
Net cash used for financing activities....................... (36,684,577)
------------
Net decrease in cash........................................... (153,089)
Cash at beginning of period.................................... 409
------------
Bank Overdraft at end of period................................ $ (152,680)
------------
------------
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........... $ 2,531,901
------------
Decrease in investments...................................... 24,818,710
Decrease in net unrealized appreciation on investments....... 9,243,882
Decrease in interest receivable.............................. 587,846
Decrease in other assets..................................... 49,910,703
Decrease in accrued expenses and other liabilities........... (50,561,554)
------------
Total adjustments.................................... 33,999,587
------------
Net cash provided from operating activities.................... $ 36,531,488
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
For the Six
Months For the Year For the Year For the Year For the Year
Ended, Ended Ended Ended Ended
May 31, 1997 November 30, November 30, November 30, November 30,
(unaudited) 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of the
period.................................... $ 7.25 $ 7.61 $ 7.72 $ 7.02 $ 8.77
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.24 0.52 0.51 0.68 0.72
Net effect of shares repurchased............ 0.01 -- -- -- --
Net realized and unrealized gains (losses)
on investment, short sale, futures
and written option transactions........... (0.20) (0.40) (0.10) 0.58 (1.73)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net asset value
resulting from operations................. 0.05 0.12 0.41 1.26 (1.01)
------------ ------------ ------------ ------------ ------------
Dividends from net investment
income.................................... (0.23) (0.48) (0.52) (0.56) (0.74)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period.............. $ 7.07 $ 7.25 $ 7.61 $ 7.72 $ 7.02
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market price, end of period................. $ 6.50 $ 6.50 $ 6.50 $ 6.875 $ 6.75
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN+.................... 3.50%(1) 7.53% 1.91% 10.29% (26.53)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s)............ $437,550 $455,516 $480,080 $487,264 $444,024
Total operating expenses.................... 0.82%(2) 0.83% 0.96% 0.83% 0.76%
Interest expense............................ 2.06%(2) 2.27% 2.50% 1.69% 1.61%
Net investment income....................... 6.78%(2) 7.05% 6.55% 9.07% 8.98%
Portfolio turnover rate..................... 29% 135% 473% 745% 1,175%
</TABLE>
- ------------------
+ 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.
11
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997 (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 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: The Trust may write or purchase options as a
method of hedging potential declines in similar underlying securities. 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 the investment transaction.
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
12
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
bears the risk in purchasing an option, to the extent of the premium paid, that
it will expire without being exercised. If this occurs, the option expires
worthless and the premium paid for the option is recognized as 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.
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 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 less or greater than the proceeds originally received.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from securities
transactions 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.
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. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences, which
could be temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
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. Cash, as used in the
Statement of Cash Flows, is the amount reported as 'Bank Overdraft' in the
Statement of Assets and Liabilities, and does not include short-term
investments.
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.
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 the management of the Trust's portfolio and
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
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, 1997, the Advisor earned $1,102,496 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 six months ended May 31, 1997, the Administrator earned
$308,229 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 securities, U.S.
Government securities and reverse repurchase agreements, for the six months
ended May 31, 1997 were $93,739,772 and $42,475,336, respectively. Purchases and
sales of U.S. Government securities, for the six months ended May 31, 1997 were
$80,137,445 and $130,361,489, 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 May 31, 1997 was
$585,712,077 and, accordingly, net unrealized appreciation for federal income
tax purposes was $5,119,207 (gross unrealized appreciation--$10,663,954; gross
unrealized depreciation--$5,544,747). 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, available to offset any future capital
gains. However, if the Trust terminates as expected in 1999, the capital loss
carryforward must be utilized by 1999 in order for shareholders to realize a
benefit.
5. BORROWINGS:
The Trust may enter into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Under a reverse repurchase
agreement, the Trust sells securities and agrees to repurchase them at a
mutually agreed upon date and price. Under the 1940 Act, reverse repurchase
agreements will be regarded as a form of borrowing by the Trust unless, at the
time it enters into a reverse repurchase 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. Reverse repurchase 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 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 may effectively be restricted
pending such decision.
At May 31, 1997, the Trust had the following reverse repurchase agreements
outstanding:
MATURITY IN
ZERO TO 30 DAYS
---------------
Maturity Amount..................... $ 158,168,417
---------------
Market Value of Assets Sold Under
Agreements........................ $ 157,233,865
---------------
Weighted Average Interest Rate...... 5.52%
---------------
The average daily balance of reverse repurchase agreements outstanding during
the six months ended May 31, 1997, was approximately $167,439,605 at a
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
weighted average interest rate of 5.45%. The maximum amount of reverse
repurchase agreements outstanding at any time during the six months was
$200,776,750, as of February 20, 1997, which was 29.8% of total assets.
6. CAPITAL STOCK:
There are 75 million shares of $.01 par value common stock authorized. Of the
61,871,339 shares outstanding at May 31, 1997, the Advisor owned 10,639 shares.
The Trust is continuing its stock repurchase program, whereby an amount of up to
15% of the original 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, 1997, 1,389,300 shares have been repurchased pursuant to this
program at a cost of $9,223,626 and an average discount of 7.30% from its net
asset value. For the six months ended May 31, 1997, 938,500 shares have been
repurchased at a cost of $6,203,677 and an average discount of 6.67% from its
net asset value. 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 was no written option activity for the six months ended May 31, 1997.
There were no open futures contracts at May 31, 1997.
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. 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 affirmed Judge Michael B. Mukasey's July 12, 1995 opinion and order
dismissing with prejudice plaintiffs' second consolidated amended complaint for
failure to identify any
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
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. On January 7, 1997, the appellate court denied the appellants' petition
for rehearing in banc. On April 7, 1997, plaintiffs filed a petition for a writ
of certiorari in the Supreme Court of the United States. On May 8, 1997, the
defendants filed briefs in opposition to the petition for a writ of certiorari
in the Supreme Court of the United States. 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 six months ended May 31, 1997 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 $26,169 of litigation
expenses to the Advisor during the six months ended May 31, 1997. 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.
9. SUBSEQUENT EVENTS:
The Trust's Board of Directors declared the following regular monthly dividends:
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
---------- -------- --------
$0.03542 06/16/97 06/26/97
$0.03542 07/21/97 07/31/97
On June 9, 1997, the Supreme Court of the United States denied the petition for
a writ of certiorari in Hyperion Securities Litigation, (under the name Marilyn
Okley, et al v. Hyperion 1999 Term Trust, Inc., et al), and no further appeals
are possible. Please refer to Note 8 for further information.
16
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six months ended May 31, 1997, Hyperion 1999 Term Trust, Inc.
shareholders voted on the following proposals at a shareholders meeting on April
22, 1997. 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:
Rodman L. Drake 57,671,750 1,978,722
Garth Marston 57,542,569 2,107,903
- ----------------------------------------------------------------------------------------------------
<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 auditors: 57,931,515 751,682 967,275
- ----------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS
(LOSSES)
ON INVESTMENT, SHORT NET INCREASE
SALE, FUTURES AND (DECREASE) IN NET
NET INVESTMENT WRITTEN ASSETS RESULTING
INCOME OPTION TRANSACTIONS FROM OPERATIONS
TOTAL ---------------------- ----------------------- ------------------------
QUARTERLY PERIOD 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
December 1, 1996
to February 28, 1997.......... 10,831,594 7,618,503 0.12 (8,866,675) (0.14) (1,248,172) (0.02)
March 1, 1997
to May 31, 1997............... 10,465,870 7,325,626 0.12 (3,545,553) (0.06) 3,780,073 0.06
</TABLE>
<TABLE>
<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 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
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
December 1, 1996
to February 28, 1997.......... 7,430,297 0.12 6 3/4 6 3/8
March 1, 1997
to May 31, 1997............... 6,863,056 0.11 6 5/8 6 3/8
</TABLE>
* Excludes net effect of shares repurchased.
** Commencement of investment operations.
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
One Liberty Plaza
165 Broadway, 36th Floor
New York, New York 10006-1404
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., 9th Floor
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.
18
<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.
19
<PAGE>
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Kenneth C. Weiss
Chairman
Lewis S. Ranieri
Director
Garth Marston*
Director
Rodman L. Drake*
Director
Leo M. Walsh, Jr.*
Director
SEMI-ANNUAL REPORT
Harry E. Petersen, Jr.*
Director MAY 31, 1997
Patricia A. Sloan
Director & Secretary
Clifford E. Lai
President
Patricia A. Botta
Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
- ------------------------------------------------------
HYPERION [LOGO]
- ------------------------------------------------------
The accompanying financial statements as of May 31, 1997 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.
One Liberty Plaza
165 Broadway, 36th Floor
New York, NY 10006-1404
