H Y P E R I O N
1999
TERM TRUST
Semi-Annual Report
May 31, 1999
________________________________________________________________________________
HYPERION 1999 TERM TRUST, INC.
Report of the Investment Advisor
________________________________________________________________________________
July 20, 1999
Dear Shareholder:
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,
1999, and to share our outlook for the remainder of the 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 with a scheduled termination
date of November 30, 1999. As reported in the annual report dated November
30, 1998, the Trust's investment advisor, Hyperion Capital Management, Inc.
(the "Advisor"), has determined that the amount of portfolio risk required
during the remaining term of the Trust to attain the $10.00 per share
terminal date objective would be inappropriate for the Trust and its
shareholders. Accordingly, the Trust's portfolio is now invested primarily
in U.S. Treasury and mortgage-backed securities ("MBS") that mature near the
Trust's scheduled termination date, but will not enable the Trust to achieve
its objective to return $10.00 per share by that time.
Market Environment
Fueled by the continued strength of the domestic economy, a slowly
recovering global economy, and an alarmingly high consumer price index
("CPI") report in April, fixed income markets were very volatile during the
last 12 months. For example, interest rates, driven down over 1.0% by
global economic problems in 1998, increased by over 1.5% thus far in 1999.
Over the last six months, the yield on the 2-year U.S. Treasury Note
increased from 4.53% to 5.40%, while the yield on the 10-year U.S. Treasury
Note increased from 4.64% to 5.62%. All of this foretells the tightening
in monetary policy by the Federal Reserve this summer. The Federal
Reserve's decision to raise interest rates marks the first increase since
February 1997. We believe increases will be limited to 50 basis points this
year, however, with uncertainties surrounding the Year 2000 preventing any
further move.
The next twelve months should be as volatile as the last year. Problems
associated with Year 2000 issues-whether real or perceived-could set off a
chain reaction of events affecting the markets. Given these uncertainties,
we expect certain sectors of the market to underperform in the Third and
Fourth Quarters of 1999. Therefore, until a clear trend emerges, our
strategy will be to maintain a conservative positioning of the Trust with
respect to duration, maturity, and liquidity.
Portfolio Strategy and Performance
Due to the Trust's targeted termination in November 1999, its maturity and
duration (duration measures a bond portfolio's price sensitivity to interest
rate changes) profile have slowly been reduced from 1.9 years in 1998 to its
current level of 1.0 year. During this last year, we have been gradually
increasing the portfolio's concentration in U.S. Treasuries and high quality
AAA rated MBS and asset-backed securities ("ABS") that have maturities
consistent with the termination date of the Trust. In the process, we have
reduced exposure to prepayment risk by reinvesting into MBS that either have
lower coupon collateral or have structural features that reduce prepayment
risk. Consistent with this objective, the portfolio's allocation to
Treasuries and Collateralized Mortgage Obligations ("CMOs") has increased by
over 12% over the last six months.
For the remainder of the year, we will continue to manage the Trust with the
goal of reducing duration and being invested in cash and/or cash equivalents
by late October 1999 in preparation for its scheduled liquidation. The
Trust's total return based on Net Asset Value ("NAV") for the six month
period ending May 31, 1999, was 1.89%. Total return is based upon the
change in NAV of the Trust's shares and includes reinvestment of dividends.
Based on the NYSE closing price of $7.3125 on May 31, 1999, the Trust was
yielding 5.81%.
On July 9, 1999, the Board of Directors of the Trust declared a new monthly
dividend of $0.03125 per share. This dividend represents an annualized rate
of 3.75% based on the Trust's initial offering price of $10.00 per share.
________________________________________________________________________________
HYPERION 1999 TERM TRUST, INC.
Report of the Investment Advisor
________________________________________________________________________________
During the past six months, the Trust has continued its share repurchase
program. This repurchase program allows the Trust to purchase and retire
shares of the Trust in the open marketplace. Such transactions were made
when the share price of the Trust was significantly below the Trust's NAV.
By purchasing the shares at a discount to the NAV and retiring them, the
spread (between share purchase price and the NAV) is captured by the Trust
and benefits all of the Trust's remaining shareholders. From December 23,
1993 (inception date), through and including May 31, 1999, the Trust has
repurchased and retired 1,902,300 shares, capturing $0.0138 in additional
NAV per share, for a total of $847,342 for all shareholders.
The chart that follows shows the allocation of the Trust's holdings by asset
category on May 31, 1999.
HYPERION 1999 TERM TRUST, INC.
Portfolio of Investments As Of May 31, 1999 *
U.S. Government Agency Pass-Through Certificates 6.7%
U.S. Government Agency Collateralized Mortgage Obligations 54.9%
U.S. Treasury Obligations 18.4%
Asset-Backed Securities 6.1%
Collateralized Mortgage Obligations 2.9%
Municipal Zero Coupon Securities 0.2%
Repurchase Agreement 10.8%
*As a percentage of total investments.
Conclusion
We appreciate the opportunity to serve your investment needs. As always, we
welcome your questions and comments, and encourage you to contact our
Shareholder Services Representatives at 1-800-HYPERION.
Sincerely,
ANDREW M. CARTER CLIFFORD E. LAI
Director and Chairman of the Board, President,
Hyperion 1999 Term Trust, Inc. Hyperion 1999 Term Trust, Inc.
Chairman and Chief Executive Officer, President and Chief Investment Officer,
Hyperion Capital Management, Inc. Hyperion Capital Management, Inc.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
Portfolio of Investments Principal
May 31, 1999 (unaudited) Interest Amount Value
Rate Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 79.3%
U.S. Government Agency Pass-Through Certificates - 6.6%
Federal National Mortgage Association 6.00 % 11/01/00-08/01/02 $ 23,200 $ 23,209,066
6.30 06/25/13 5,830 5,826,768
6.50 08/01/02 585 593,061
-------------------------
Total U.S. Government Agency Pass-Through Certificates
(Cost - $29,002,768) 29,628,895
-------------------------
U.S. Government Agency Collateralized Mortgage Obligations - 54.4%
Federal Home Loan Mortgage Corporation
Series 1626, Class PG 5.70 08/15/07 6,122 6,121,477
Series 1490, Class PE 5.75 07/15/06 2,919 2,919,273
Series 2048, Class QA 5.75 12/15/09 10,587 10,587,642
Series 1634, Class PE 5.75 06/15/18 6,413 6,402,518
Series 1539, Class PG 5.80 06/15/05 14,424 14,426,957
Series 1610, Class PE 6.00 04/15/17 24,086 24,134,008
Series 1517, Class E 6.00 04/15/18 736 735,487
Series 1836, Class C 6.25 06/15/14 4,200 4,210,293
Series 1478, Class F 6.50 05/15/06 8,156 8,222,227
Series 1453, Class S 7.85 + 01/15/00 2,712 2,726,470
-------------------------
80,486,352
-------------------------
Federal National Mortgage Association
Series 1993-202, Class E 5.75 12/25/16 10,720 10,703,826
Series 1994-30, Class E 5.75 11/25/17 20,670 20,639,655
Series 1993-210, Class PE 5.75 03/25/18 11,937 11,919,591
Series 1993-191, Class PE 5.80 09/25/06 10,995 10,984,739
Series 1994-50, Class PD 5.85 09/25/17 41,594 41,568,481
Series 1994-27, Class PE 5.90 08/25/17 7,796 7,783,530
Series 1993-174, Class D 6.00 07/25/06 26,070 25,983,691
Series 1994-34, Class A 6.00 08/25/07 3,836 3,837,728
Series 1998-11, Class G 6.00 05/18/09 3,933 3,929,907
Series 1998-6, Class PB 6.00 03/18/13 11,705 11,726,303
Series 1993-160, Class PE 6.00 05/25/16 6,000 5,991,941
Series 1993-10, Class PE 6.50 10/25/04 4,988 4,991,313
Series 1997-32, Class PA 6.50 04/25/09 3,639 3,636,908
-------------------------
163,697,613
-------------------------
Total U.S. Government Agency Collateralized Mortgage Obligations
(Cost - $241,327,002) 244,183,965
-------------------------
U.S. Treasury Obligations - 18.3%
U.S. Treasury Notes 5.88 11/15/99 5,700 5,723,156
6.25 05/31/00 8,000 8,077,504
7.75 12/31/99 25,000 25,394,531
7.75 01/31/00 42,000 42,754,698
-------------------------
Total U.S. Treasury Obligations
(Cost - $81,565,342) 81,949,889
-------------------------
Total U.S. Government & Agency Obligations
(Cost - $351,895,112) 355,762,749
-------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 6.1%
FirstPlus Home Loan Owner
Series 1998-2, Class A2 6.23 % 06/10/10 $ 10,000 $ 10,012,400
-------------------------
Green Tree Financial Corp.
Series 1998-B, Class A 6.06 11/15/29 1,309 1,311,374
-------------------------
The Money Store Home Equity Trust
Series 1998-A, Class AH1 6.36 07/15/07 651 650,295
-------------------------
Neiman Marcus Credit Master Trust
Series 1995-1, Class A 7.60 06/15/03 15,000 15,263,400
-------------------------
Total Asset-Backed Securities
(Cost - $26,957,971) 27,237,469
-------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 2.9%
Commercial Mortgage Acceptance Corporation
Series 1996-C1, Class A * 6.68 + 12/25/20 2,443 2,434,523
-------------------------
Contimortgage Home Equity Loan Trust
Series 1998-2, Class A2A 6.15 + 03/15/13 5,996 5,997,008
-------------------------
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C1, Class A 7.14 + 05/25/15 3,100 3,124,330
-------------------------
Prudential Home Mortgage Securities Co., Inc.
Series 1993-61, Class A5 6.50 12/26/07 1,307 1,309,320
-------------------------
Total Collateralized Mortgage Obligations
(Cost - $12,856,229) 12,865,181
-------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL ZERO COUPON SECURITY - 0.2%
Kansas
Kansas City, Kansas, Utility System
Revenue Bonds**
(Cost - $948,173) 3.71 (a) 03/01/00 985 958,349
-------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 10.7%
Dated 5/27/99, with Morgan Stanley Dean Witter;
proceeds: $12,008,117; collateralized by $12,310,000
FNMA 1998-45 PD, 6.00%, due 4/18/18,
value: $12,244,880 (Note 2)
(Cost - $12,000,000) 4.87 06/01/99 12,000 12,000,000
-------------------------
Dated 5/21/99, with Lehman Brothers;
proceeds: $36,052,140; collateralized by $35,535,777
FHR 2006 ZB, 7.00%, due 10/15/27,
value: $39,688,093 (Note 2)
(Cost - $36,000,000) 4.74 06/01/99 36,000 36,000,000
-------------------------
Total Repurchase Agreements
(Cost - $48,000,000) 48,000,000
-------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.2%
(Cost - $440,657,485) 444,823,748
-------------------------
Other Assets in Excess of Liabilities - 0.8% 3,828,045
-------------------------
NET ASSETS - 100.0% $ 448,651,793
=========================
</TABLE>
- --------------------------------------------------------------------------------
+ - Variable Rate Security: Coupon rate is rate in effect at
May 31, 1999.
(a)- Zero Coupon Bond. Interest rate represents yield to maturity.
* - Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers.
** - Insured by American Municipal Bond Assurance Corporation.
_________________
See notes to financial statements.
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC.
Statement of Assets and Liabilities
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $440,657,485) (Note 2) $ 444,823,748
Interest receivable 3,808,629
Principal paydowns receivable 28,625
Prepaid expenses 334,746
-------------------
Total assets 448,995,748
-------------------
Liabilities:
Temporary bank overdraft 48,733
Accrued expenses and other liabilities 295,222
-------------------
Total liabilities 343,955
-------------------
Net Assets (equivalent to $7.31 per share based on
61,358,339 shares issued and outstanding) $ 448,651,793
===================
Composition of Net Assets:
Capital stock, at par value ($.01) (Note 6) $ 613,583
Additional paid-in capital (Note 6) 580,123,157
Undistributed net investment income 12,467,162
Accumulated net realized loss (148,718,372)
Net unrealized appreciation 4,166,263
-------------------
Net assets applicable to capital stock outstanding $ 448,651,793
===================
__________
See notes to financial statements
</TABLE>
- --------------------------------------------------------------------------------
Hyperion 1999 Term Trust, Inc
Statement of Operations
For the Six Months Ended May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income (Note 2):
Interest $ 15,033,426
--------------------
Expenses:
Investment advisory fee (Note 3) 1,123,830
Administration fee (Note 3) 313,349
Insurance 109,661
Custodian 55,523
Reports to shareholders 34,712
Transfer agency 30,403
Registration 26,024
Directors' fees 25,832
Accounting and tax services 20,354
Legal 7,710
Miscellaneous 20,144
--------------------
Total operating expenses 1,767,542
Interest expense (Note 5) 1,041,047
--------------------
Total expenses 2,808,589
--------------------
Net investment income 12,224,837
--------------------
Realized and Unrealized Gains (Losses) on Investments
and Futures Transactions (Notes 2 and 4):
Net realized gains (losses) on:
Investments (66,946)
Futures transactions 358,454
--------------------
291,508
--------------------
Net change in unrealized appreciation on investments (4,058,739)
--------------------
Net realized and unrealized loss on investments and futures transactions (3,767,231)
--------------------
Net increase in net assets resulting from operations $ 8,457,606
====================
__________
See notes to financial statements
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Hyperion 1999 Term Trust, Inc For the For the Year
Statements of Changes in Net Assets Six Months Ended Ended
May 31, 1999 November 30,
(unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations:
Net investment income $ 12,224,837 $ 26,156,429
Net realized gains on investment, short sales and
futures transactions 291,508 10,584,704
Net change in unrealized appreciation on investments,
short sales and futures transactions (4,058,739) (4,445,668)
------------------- --------------------
Net increase in net assets resulting from operations 8,457,606 32,295,465
------------------- --------------------
Dividends to Shareholders (Note 2):
Net investment income (13,039,692) (26,092,588)
------------------- --------------------
Capital Stock Transactions (Note 6):
Cost of Trust shares repurchased and retired - (1,315,955)
------------------- --------------------
Total increase (decrease) in net assets (4,582,086) 4,886,922
Net Assets:
Beginning of period 453,233,879 448,346,957
------------------- --------------------
End of period (including undistributed net investment income
of $12,467,162 and $13,282,017, respectively) $ 448,651,793 $ 453,233,879
=================== ====================
__________
See notes to financial statements
</TABLE>
- --------------------------------------------------------------------------------
HYPERION 1999 TERM TRUST, INC
Statement of Cash Flows
For the Six Months Ended May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash:
Cash flows provided by operating activities:
Interest received (excluding net accretion of $203,000) $ 15,451,617
Interest expense paid (1,263,926)
Operating expenses paid (1,639,361)
Purchase and sale of short-term portfolio investments, net (38,738,000)
Purchases of long-term portfolio investments (43,957,318)
Proceeds from dispositions of long-term portfolio investments and
principal paydowns 196,886,558
Net cash used for futures transactions 358,454
--------------------
Net cash provided by operating activities 127,098,024
--------------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements (113,977,625)
Cash dividends paid (13,169,144)
Cash used to repurchase and retire Trust shares -
--------------------
Net cash used for financing activities (127,146,769)
--------------------
Net decrease in cash (48,745)
Cash at beginning of period 12
--------------------
Temporary bank overdraft at end of period $ (48,733)
====================
Reconciliation of Net Increase in Net Assets Resulting from
Operations to Net Cash Provided by Operating Activities:
Net increase in net assets resulting from operations $ 8,457,606
--------------------
Decrease in investments 114,055,186
Decrease in net unrealized appreciation on investments 4,058,739
Decrease in interest receivable 649,816
Increase in other assets (126,307)
Increase in other liabilities 2,984
--------------------
Total adjustments 118,640,418
--------------------
Net cash used for operating activities $ 127,098,024
====================
See notes to financial statements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Hyperion 1999 Term Trust, Inc For the For the Year For the Year For the Year For the Year For the Year
Financial Highlights Six Months Ended Ended Ended Ended Ended Ended
May 31, 1999 November 30, November 30, November 30, November 30, November 30,
(Unaudited) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of the period $ 7.39 $ 7.28 $ 7.25 $ 7.61 $ 7.72 $ 7.02
------------- ------------- ------------- ------------- ------------- ------------
Net investment income 0.20 0.43 0.47 0.52 0.51 0.68
Net realized and unrealized gain (loss)
on investment, short sales and
futures transactions (0.07) 0.11 (0.01) (0.40) (0.10) 0.58
------------- ------------- ------------- ------------- ------------- ------------
Net increase in net asset value resulting
from operations 0.13 0.54 0.46 0.12 0.41 1.26
------------- ------------- ------------- ------------- ------------- ------------
Net effect of shares repurchased - - 0.01 - - -
Dividends from net investment income (0.21) (0.43) (0.44) (0.48) (0.52) (0.56)
------------- ------------- ------------- ------------- ------------- ------------
Net asset value, end of period $ 7.31 $ 7.39 $ 7.28 $ 7.25 $ 7.61 $ 7.72
============= ============= ============= ============= ============= ============
Market price, end of period $ 7.3125 $ 7.190 $ 6.875 $ 6.50 $ 6.50 $ 6.875
============= ============= ============= ============= ============= ============
Total Investment Return + 4.72% (1) 10.92% 12.90% 7.53% 1.91% 10.29%
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of period (000s) $448,652 $453,234 $448,347 $455,516 $480,080 $487,264
Operating expenses 0.79% (2) 0.79% 0.81% 0.83% 0.96% 0.83%
Interest expense 0.46% (2) 2.58% 2.27% 2.27% 2.50% 1.69%
Total expenses 1.25% (2) 3.37% 2.98% 3.10% 3.46% 2.52%
Net investment income 5.44% (2) 5.79% 6.57% 7.05% 6.55% 9.07%
Portfolio turnover rate 9% 63% 50% 135% 473% 745%
</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 brokerage
commissions Dividends and distributions are assumed to be reinvested at
the prices obtained under the Trust's dividend reinvestment plan
(1) Not Annualized
(2) Annualized
__________
See notes to financial statements
________________________________________________________________________________
HYPERION 1999 TERM TRUST, INC.
Notes to Financial Statements
May 31, 1999 (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 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.
Hyperion Capital Management, Inc. (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 the Trust will not be able 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,
securities held by the Trust 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 or in the financial conditional of an issuer or market.
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 bears the risk in purchasing an option, to the
extent of the premium paid, that it will expire without being
2. Significant Accounting Policies (continued)
exercised. If this occurs, the option expires worthless and the premium
paid for the option is recognized as a realized 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 for the underlying security.
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 realized upon the termination
of a short sale if the market price is less or greater than the proceeds
originally received.
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 hedge against
fluctuations in the value of portfolio securities 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 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 continue 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. Dividends
from net investment income and distributions from realized gains from
investment transactions have been determined in accordance with Federal
income tax regulations and may differ from net investment income and
realized gains recorded by the Trust for financial reporting purposes. 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.
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. Additional
2. Significant Accounting Policies (continued)
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 "Temporary 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 Agreement and Affiliated Transactions
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 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. During the six months ended May 31,
1999, the Advisor received $1,123,830 in investment advisory fees.
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc. (the "Administrator"). The Administrator has entered into a
sub-administration agreement with Investors Capital Services, Inc. (the
"Sub-Administrator"). The Administrator and Sub-Adminstrator perform
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 providing 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. During the six months ended May 31, 1999, the Administrator
received $313,349 in Administration fees. The Administrator is responsible
for any fees due the Sub-Administrator.
Certain officers and/or directors of the Trust are officers and/or directors
of the Advisor, Administrator and Sub-Administrator.
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, 1999, were $0 and $62,130,614, respectively. Purchases and
sales of U.S. Government securities, for the six months ended May 31, 1999,
were $43,957,318 and $14,550,469, 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.
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
5. Borrowings (continued)
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, 1999, the Trust had no reverse repurchase agreements outstanding.
The average daily balance of reverse repurchase agreements outstanding
during the six months ended May 31, 1999 was $41,685,264 at a weighted
average interest rate of 5.01%. The maximum amount of reverse repurchase
agreements outstanding at any time during the six months was $104,845,625,
as of December 1, 1998, which was 18.55% of total assets.
6. Capital Stock
There are 75 million shares of $.01 par value common stock authorized. Of
the 61,358,339 shares outstanding at May 31, 1999, the Advisor owned 25,639
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 of the Trust's shares, are authorized for repurchase. The purchase
price may not exceed the then-current net asset value.
As of May 31, 1999, 1,902,300 shares have been repurchased pursuant to this
program at a cost of $12,812,926 and an average discount of 6.61% from its
net asset value. For the six months ended May 31, 1999, no shares have been
repurchased. For the year ended November 30, 1998, 186,000 shares had been
repurchased at a cost of $1,315,955, at an average discount of 4.30%. All
shares repurchased have been 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. During the
period, the Trust had segregated sufficient cash and/or securities to cover
any commitments under these contracts.
There was no written option activity for the six months ended May 31, 1999.
There were no open futures contracts at May 31, 1999.
- ------------------------------------------------------------------------------
PROXY RESULTS (unaudited)
- ------------------------------------------------------------------------------
During the six months ended May 31, 1999, Hyperion 1999 Term Trust, Inc.
shareholders voted on the following proposals at a shareholders meeting on
April 20, 1999. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------- ---------------------------- ----------------- --------------------
Shares Voted Shares Voted
For Without Authority
- -------------------------------------------------------------- ---------------------------- ----------------- --------------------
1. To elect the members to the Trust's Board of Directors: Robert F. Birch 52,116,753 1,030,532
Andrew M. Carter 52,114,460 1,032,825
Lewis S. Ranieri 52,121,429 1,025,856
Patricia A. Sloan 52,121,636 1,025,649
- -------------------------------------------------------------- ---------------------------- ----------------- --------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------- ---------------------------- ----------------- --------------------
2. To select PricewaterhouseCoopers LLP as the Trust's
independent accountants: 52,290,986 356,385 499,915
- --------------------------------------------------------------- ------------------------ ------------------- ---------------------
</TABLE>
- ------------------------------------------------------------------------------
YEAR 2000 CHALLENGE (unaudited)
- ------------------------------------------------------------------------------
The Trust could be adversely affected if computers used by the Trust's
service providers do not properly process information dated January 1, 2000
and after. The Trust's service providers are taking steps to address Year
2000 risks with respect to computer systems on which the Trust depends. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Trust.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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.
<TABLE>
<S> <C>
INVESTMENT ADVISOR AND ADMINISTRATOR CUSTODIAN
HYPERION CAPITAL MANAGEMENT, INC. STATE STREET BANK AND TRUST COMPANY
One Liberty Plaza 225 Franklin Street
165 Broadway, 36th Floor Boston, Massachusetts 02116
New York, New York 10006-1404
For General Information about the Trust: INDEPENDENT ACCOUNTANTS
(800) HYPERION
PRICEWATERHOUSECOOPERS LLP
TRANSFER AGENT 1177 Avenue of the Americas
New York, New York 10036
BOSTON EQUISERVE, L.P.
Investor Relations Department LEGAL COUNSEL
P.O. Box 8200
Boston, Massachusetts 02266-8200 SULLIVAN & WORCESTER LLP
For Shareholder Services: 1025 Connecticut Avenue, N.W.
(800) 426-5523 Washington, D.C. 20036
</TABLE>
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.
________________________________________________________________________________
Officers & Directors
________________________________________________________________________________
Andrew M. Carter
Chairman
Lewis S. Ranieri
Director
Robert F. Birch*
Director
Rodman L. Drake*
Director
Garth Marston
Director Emeritus
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Patricia A. Sloan
Director & Secretary
Clifford E. Lai
President
Patricia A. Botta
Vice President
Thomas F. Doodian
Treasurer
* Audit Committee Members
The accompanying financial statements as of May 31, 1999
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000881413
<NAME> HYPERION 1999 TERM TRUST, INC.
<SERIES>
<NUMBER> 0
<NAME> HYPERION 1999 TERM TRUST, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 440657
<INVESTMENTS-AT-VALUE> 444824
<RECEIVABLES> 3837
<ASSETS-OTHER> 335
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 448996
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 344
<TOTAL-LIABILITIES> 344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 580737
<SHARES-COMMON-STOCK> 61358
<SHARES-COMMON-PRIOR> 61358
<ACCUMULATED-NII-CURRENT> 12467
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (148718)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4166
<NET-ASSETS> 448652
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15033
<OTHER-INCOME> 0
<EXPENSES-NET> 2808
<NET-INVESTMENT-INCOME> 12225
<REALIZED-GAINS-CURRENT> 292
<APPREC-INCREASE-CURRENT> (4059)
<NET-CHANGE-FROM-OPS> 8458
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13040)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4582)
<ACCUMULATED-NII-PRIOR> 13282
<ACCUMULATED-GAINS-PRIOR> (149010)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1124
<INTEREST-EXPENSE> 1041
<GROSS-EXPENSE> 2808
<AVERAGE-NET-ASSETS> 450767
<PER-SHARE-NAV-BEGIN> 7.39
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> (0.07)
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.31
<EXPENSE-RATIO> 0.79
[AVG-DEBT-OUTSTANDING] 41685
[AVG-DEBT-PER-SHARE] 0.68
</TABLE>
