<PAGE> 1
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
--------------------------------------------------------------------------------
July 17, 1995
DEAR SHAREHOLDER:
We welcome this opportunity to provide you with information about the Hyperion
1997 Term Trust, Inc. (the "Trust") for its fiscal year ended May 31, 1995. As
you know, 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 $10.00 per share (the initial public offering price
per share) to investors on or shortly before November 30, 1997. The Trust
pursues these investment objectives by investing in a portfolio primarily of
mortgage-backed securities ("MBS") issued or guaranteed by the U.S. Government
or one of its agencies or rated AAA by a nationally recognized rating agency
(e.g., Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch
Investment Services, Inc.).
MARKET ENVIRONMENT
The fixed income market has continued its remarkable recovery that was just in
the beginning stages when we reported to you last November. Interest rates have
broadly declined since the end of 1994. The Federal Reserve Board reduced short
term interest rates by .25% on July 6, 1995. While judged modest, this reduction
in interest rates confirmed the market's anticipatory move to lower rates.
After recording strong Gross Domestic Product ("GDP") growth of 5.1% during the
fourth quarter of 1994, the economy slowed to 2.7% in the first quarter of 1995.
A slowdown in retail sales, housing completions, durable goods orders and
employment growth all suggests GDP growth of about 1.0% for the second quarter,
which is slightly below the growth target of the Federal Reserve.
This recent economic data suggests that there is likely to be a "soft landing"
within the economy. This means that the level of economic activity has slowed
GDP growth to non-inflationary levels (under 2.5%). These circumstances have led
to a leveling of interest rates across varying maturities (commonly referred to
as a "flattening of the yield curve").
PORTFOLIO STRATEGY AND PERFORMANCE
These economic events have affected the Trust's earnings from leverage. Leverage
is most beneficial when short term interest rates are lower than longer maturity
interest rates. When long term interest rates are barely higher than short term
interest rates the benefit of leverage, and therefore earnings applied to the
dividend, is reduced. History supports our view that the norm for interest rates
is for higher long term interest rates and lower short term interest rates (a
positively sloped yield curve). We are optimistically anticipating an increase
in opportunities to enhance earnings for the Trust.
The Trust participated in the recent bond market rally, posting a positive total
return of 7.80% based on the net asset value for the six month period ended May
31, 1995. The net asset value increased in this period by $0.31, from $7.95 on
November 30, 1994 to $8.26, on May 31, 1995. During this period, the Trust's
investment activities have been tailored to the changing conditions in the
Treasury and MBS markets. The following points summarize some of the factors
that contributed to the Trust's performance.
The most important major trend during 1995 was the recovery in Treasury prices
brought on by the slowing economy. We positioned the Trust by maintaining well
structured
<PAGE> 2
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
--------------------------------------------------------------------------------
investments in securities which perform best as the bond market rallies, such as
Treasuries and asset-backed securities. Another major trend in the market for
the year has been that declining yields have increased the refinancing risks of
certain mortgage products. Mortgage rates have declined by approximately 175
basis points since the end of November 1994, with 30-year mortgage rates at
approximately 7.50%. Consequently, lower mortgage rates increase the refinancing
risk of higher coupon mortgages. We have sought to decrease the Trust's exposure
to this refinancing risk by favoring lower coupon MBS and increasing our
allocation to securities that may benefit from mortgage prepayments, such as
principal-only securities. Currently, a high percentage of the Trust's assets
consist of MBS with low gross coupons, Treasuries and asset-backed securities.
We continue to seek investments with a high degree of stability, in order to
insulate the Trust from average life variability in both rising and declining
interest rate environments.
INVESTMENT OUTLOOK
We believe the involuntary increase in inventories of durable goods (i.e.,
automobiles, home appliances, etc.) and nondurable goods (i.e., retail clothing,
etc.) due to a reduction of final sales has created the economic environment
which has prompted the Federal Reserve to ease interest rates. Hyperion Capital
Management believes that at least two themes will direct the course of interest
rates for the remainder of the calendar year: 1) consumer spending patterns and
their resultant impact on increase/decrease of production and 2) Congress'
attempt to structurally change the deficit of the U.S. Government.
The fixed income markets have experienced significant volatility over the past
several years, as evidenced by a market dominated by declining interest rates in
1993, sharply rising interest rates in 1994, and again a significant decline in
interest rates in 1995. This market volatility has largely been a product of
changing domestic and worldwide conditions. Though many of these trends have
come full circle, we believe that interest rates will continue to be volatile.
In this uncertain economic environment, we continue to favor the most stable
mortgage-backed securities for the portfolio, such as collateralized mortgage
obligation ("CMO") planned amortization class ("PAC") bonds, slower prepaying
discount MBS and high quality asset-backed securities backed by retail auto
loans and home equity loans.
The chart which follows shows the allocation of the Trust's holdings by asset
category on May 31, 1995.
2
<PAGE> 3
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF MAY 31, 1995*
<TABLE>
<S> <C>
U.S. GOVERNMENT AGENCY
PASS-THROUGH CERTIFICATES 18.0%
U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS 3.8%
U.S. GOVERNMENT AGENCY
STRIPPED MORTGAGE-BACKED
SECURITIES 6.8%
U.S. TREASURY AND AGENCY
OBLIGATIONS 24.0%
ASSET-BACKED SECURITIES 18.2%
COLLATERALIZED MORTGAGE
OBLIGATIONS 11.0%
MUNICIPAL SECURITIES 17.9%
REPURCHASE AGREEMENTS 0.3%
</TABLE>
* As a percentage of total investments.
CONCLUSION
As always, we remain committed to serving the needs of our shareholders by
meeting the Trust's objectives. If you have any questions, please call us at
800-HYPERION. We look forward to hearing from you.
Sincerely,
/s/ KENNETH C. WEISS /s/ LOUIS C. LUCIDO
----------------------------------------- -----------------------------------
KENNETH C. WEISS LOUIS C. LUCIDO
Chairman, President,
Hyperion 1997 Term Trust, Inc. Hyperion 1997 Term Trust, Inc.
President and Chief Executive Officer, Managing Director, Chief Operating
Hyperion Capital Management, Inc. Officer,
Hyperion Capital Management, Inc.
3
<PAGE> 4
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC. Principal
PORTFOLIO OF INVESTMENTS Current Amount Value
May 31, 1995 Coupon Maturity (000s) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 76.2%
U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES -- 26.1%
Federal Home Loan Mortgage Corporation
Gold Pool #M80009 7.00% 11/01/99 $ 10,989# $ 11,119,993
===========
Federal National Mortgage Association 6.00 01/01/01 13,670 13,435,430
7.00 11/01/99-01/01/24 34,822 34,952,261
7.50 01/01/10 7,850 8,009,446
8.00 07/01/24-05/01/25 51,898# 53,114,939
===========
109,512,076
===========
Government National Mortgage Association 7.00 08/15/23-05/15/24 10,255 10,110,432
===========
TOTAL U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
(cost - $125,488,221) 130,742,501
===========
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) -- 5.5%
Federal Home Loan Mortgage Corporation
Series 1416, Class PE 6.00 02/15/16 10,800 10,546,632
Series 1482, Class F 6.50 05/15/19 11,199# 10,930,461
===========
21,477,093
===========
Federal National Mortgage Association
Series 1993-247, Class AB 5.75 01/25/23 6,410 6,098,489
===========
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(cost - $26,641,346) 27,575,582
===========
U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED SECURITIES -- 9.9%
Interest-Only Securities
Federal National Mortgage Association
Series 1993-M2, Class B, WAC, REMIC 2.57 07/25/03 95,467 10,024,019
Series 167, Class 2 8.00 08/25/22 42,413 11,610,477
Series 261, Class 2 8.50 04/25/24 33,596 8,146,992
===========
29,781,488
===========
Principal-Only Security
Federal National Mortgage Association
Series 267, Class 1 8.50(p) 10/25/24 24,650 19,473,386
===========
TOTAL U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED SECURITIES
(cost - $50,084,028) 49,254,874
===========
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC. Principal
PORTFOLIO OF INVESTMENTS (CONTINUED) Current Amount Value
May 31, 1995 Coupon Maturity (000s) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- (CONCLUDED)
U.S. TREASURY & AGENCY OBLIGATIONS -- 34.7%
Federal Home Loan Mortgage Corporation
Debenture 8.42% 01/12/98 $ 10,000# $ 10,103,700
===========
U.S. Treasury Notes 6.13 05/15/98 10,000# 10,042,200
6.75 06/30/99 9,500# 9,733,035
7.38 11/15/97 121,000# 124,875,630
7.75 12/31/99 17,500# 18,648,525
===========
163,299,390
===========
TOTAL U.S. TREASURY & AGENCY OBLIGATIONS
(cost - $169,570,827) 173,403,090
===========
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(cost - $371,784,422) 380,976,047
===========
----------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 26.3%
CARCO Auto Loan Master Trust
Series 1994-2, Class A 7.88 07/15/99 20,000 20,668,800
Ford Credit Grantor Trust
Series 1994-B, Class A 7.30 10/15/99 20,863 21,198,792
Ford Credit Auto Lease Trust
Series 1995-1, Class A2 6.35 10/15/98 6,250 6,269,563
MBNA Master Credit Card Trust
Series 1992-1, Class A 7.25 06/15/99 20,000 20,390,600
Private Label Credit Card Master Trust II
Series 1994-1, Class A 7.15 06/20/01 17,500 17,729,775
Standard Credit Card Trust
Series 1991-6, Class A 7.88 11/07/98 29,000 30,327,620
The Money Store Home Equity Trust
Series 1994-B, Class A3 7.10 11/15/16 15,000 15,110,100
===========
TOTAL ASSET-BACKED SECURITIES
(cost - $129,781,423) 131,695,250
===========
----------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) -- 15.9%
Prudential Home Mortgage Securities Co., Inc.
Series 1992-42, Class A7 7.00 01/25/08 41,375 40,476,335
Residential Funding Mortgage Securities I
Series 1994-MZ1, Class A1 6.47 01/28/24 30,802 29,752,848
Saxon Mortgage Securities Corporation
Series 1992-6, Class A 7.54(v) 01/25/23 9,304 9,449,093
===========
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(cost - $79,240,452) 79,678,276
===========
----------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC. Principal
PORTFOLIO OF INVESTMENTS (CONTINUED) Current Amount Value
May 31, 1995 Coupon Maturity (000s) (Note 1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES -- 26.0%
ARIZONA
Maricopa County Arizona, School District
#4, FGIC (a) 07/01/98 $ 5,200 $ 4,498,676
Maricopa County Arizona, School District
#41, FGIC (a) 07/01/98 6,000@ 5,190,780
Maricopa County Arizona, School District
#97, FGIC (a) 07/01/98 4,185 3,620,569
===========
13,310,025
===========
FLORIDA
Hillsborough County Florida, Utility
Series A, Revenue Bond, MBIA-IBC (a) 08/01/98-08/01/99 17,190@ 14,351,483
===========
ILLINOIS
Metropolitan Pier & Exposition Authority
Illinois Revenue Bond, AMBAC (a) 12/15/97-06/15/98 11,500 10,122,165
===========
KANSAS
Kansas City Kansas, Utility System
Revenue Bond, AMBAC (a) 09/01/98 8,185@ 7,059,481
===========
KENTUCKY
Owensboro Kentucky, Electric Light &
Power Series B, Revenue Bond, AMBAC (a) 01/01/98 1,000 885,680
===========
MARYLAND
Maryland State, Department of
Transportation Revenue Bond 6.60% 08/15/02 2,225 2,414,637
===========
NEW JERSEY
New Jersey, Wastewater Treatment Trust
Series A, Revenue Bond (a) 09/01/97 7,305 6,600,871
===========
NEW YORK
New York State, Urban Development Corp.
Series C, Revenue Bond, AMBAC 7.63 01/01/08 10,000 10,986,400
===========
TEXAS
Austin Texas, FGIC (a) 09/01/98 7,845 6,734,069
Austin Texas, Utility System
Series A, Revenue Bond, MBIA (a) 05/15/98-11/15/99 13,030@ 10,691,576
Dallas Texas, Independent School
District PSFG (a) 08/15/97 12,400 11,215,180
Denton Texas, Independent School
District PSFG (a) 02/15/98 3,960@ 3,487,216
===========
32,128,041
===========
UTAH
Utah State 4.40 07/01/99 24,600 24,644,526
Utah State 4.90 07/01/97 7,300 7,407,091
===========
32,051,617
===========
TOTAL MUNICIPAL SECURITIES
(Cost - $128,255,449) 129,910,400
===========
----------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC. Principal
PORTFOLIO OF INVESTMENTS (CONCLUDED) Amount Value
May 31, 1995 (000s) (Note 1)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.4%
Dated 5/31/95, State Street Bank and Trust Company, 5.90%,
due 6/1/95; proceeds: $2,148,352; collateralized by $2,195,000
U.S. Treasury Note, 3.875%, due 9/30/95, value: $2,194,664
(Cost - $2,148,000) $ 2,148 $ 2,148,000
------------
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 144.8%
(Cost $711,209,750) $724,407,973
VARIATION MARGIN RECEIVABLE ON OPEN FUTURES CONTRACTS -- 0.0%* 36,738
LIABILITIES IN EXCESS OF OTHER ASSETS -- (44.8%) (224,155,592)
------------
NET ASSETS -- 100.0% $500,289,119
===========
--------------------------------------------------------------------------------------------------------
</TABLE>
# Portion of or entire principal amount pledged as collateral for
reverse repurchase agreements (Note 4).
REMIC Real Estate Mortgage Investment Conduit
WAC Weighted Average Coupon
(p) Rate reflects coupon of collateral security; security listed is
non-interest bearing. Cash flow is dependent upon prepayments.
(v) Reflects rate at May 31, 1995 on variable rate security.
FGIC Financial Guaranty Insurance Company
(a) Zero Coupon Bond
@ Portion of or entire principal amount pledged as initial margin
on financial futures transactions.
MBIA-IBC Municipal Bond Insurance Association Insured Bond Certificate
AMBAC American Municipal Bond Assurance Corporation
MBIA Municipal Bond Insurance Association
PSFG Permanent School Fund Guaranteed
* Open Futures Contracts as of May 31, 1995 are as follows (Note 1):
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION VALUE AT VALUE AT APPRECIATION
NOTIONAL AMOUNT TYPE DATE TRADE DATE MAY 31, 1995 (DEPRECIATION)
--------------- --------------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Long:
$ 264,000,000 10-Yr. U.S. Treasury Note June 1995 $ 276,350,153 $ 290,812,500 $ 14,462,347
198,500,000 10-Yr. U.S. Treasury Note September 1995 214,380,870 217,729,688 3,348,818
-------------- -------------- --------------
$ 490,731,023 $ 508,542,188 $ 17,811,165
============= ============= =============
Short:
$ 299,800,000 10-Yr. U.S. Treasury Note June 1995 $ 312,509,729 $ 330,248,438 ($ 17,738,709)
50,000,000 10-Yr. U.S. Treasury Note September 1995 53,329,690 54,843,750 (1,514,060)
359,000,000 Eurodollar Futures June 1995 83,889,325 84,320,125 (430,800)
169,000,000 Eurodollar Futures September 1995 39,407,900 39,795,275 (387,375)
167,000,000 Eurodollar Futures December 1995 38,840,125 39,328,500 (488,375)
163,000,000 Eurodollar Futures March 1996 37,865,350 38,406,875 (541,525)
161,000,000 Eurodollar Futures June 1996 37,360,400 37,903,425 (543,025)
157,000,000 Eurodollar Futures September 1996 36,411,675 36,930,325 (518,650)
128,000,000 Eurodollar Futures December 1996 29,654,400 30,051,200 (396,800)
-------------- -------------- --------------
$ 669,268,594 $ 691,827,913 ($ 22,559,319)
============= ============= =============
</TABLE>
---------------
See notes to financial statements.
7
<PAGE> 8
<TABLE>
<S> <C>
--------------------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
--------------------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost - $711,209,750) (Note 1)....................... $ 724,407,973
Cash....................................................................... 353
Receivable for investment sold............................................. 7,058,201
Principal paydown and interest receivable.................................. 5,903,301
Prepaid expenses........................................................... 300,132
Deferred organization expenses (Note 1).................................... 42,194
Variation margin receivable on open futures contracts (Note 1)............. 36,738
-------------
Total assets.......................................................... 737,748,892
-------------
LIABILITIES:
Reverse repurchase agreements (Note 4)..................................... 219,054,250
Payable for investments purchased.......................................... 17,936,621
Investment advisory fee payable (Note 2)................................... 209,903
Interest payable (Note 4).................................................. 62,453
Administration fee payable (Note 2)........................................ 57,808
Accrued expenses and other liabilities..................................... 138,738
Contingencies (Note 6).....................................................
-------------
Total liabilities................................................ 237,459,773
-------------
NET ASSETS
(equivalent to $8.26 per share based on 60,555,227 shares outstanding)... $ 500,289,119
=============
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 5)............................................. $ 605,552
Additional paid-in capital................................................. 573,808,743
Undistributed net investment income........................................ 8,152,571
Accumulated net realized losses............................................ (90,727,816)
Net unrealized appreciation................................................ 8,450,069
-------------
Net assets applicable to capital stock outstanding......................... $ 500,289,119
=============
</TABLE>
---------------
See notes to financial statements.
8
<PAGE> 9
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the year ended May 31, 1995
---------------------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1)
Interest................................................................... $ 53,158,758
------------
EXPENSES:
Investment advisory fee (Note 2)........................................... 2,443,959
Administration fee (Note 2)................................................ 674,050
Insurance.................................................................. 219,869
Legal...................................................................... 260,000
Reports to shareholders.................................................... 225,000
Custodian.................................................................. 73,000
Audit and tax services..................................................... 63,000
Transfer agent............................................................. 49,000
Directors' fees............................................................ 47,000
Registration............................................................... 43,000
Amortization of organization expenses (Note 1)............................. 17,484
Miscellaneous.............................................................. 74,262
------------
Total operating expenses......................................... 4,189,624
Interest expense (Note 4).............................. 11,300,892
------------
Total expenses......................................... 15,490,516
------------
Net investment income...................................................... 37,668,242
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS, SHORT SALES,
FUTURES AND OPTION TRANSACTIONS (Notes 1 & 3)
Net realized gains (losses) on:
Investment transactions.................................................... (1,915,295)
Short sales transactions................................................... (121,238)
Futures transactions....................................................... 6,207,775
Option transactions........................................................ (3,768,998)
------------
402,244
------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................ 14,576,531
Futures transactions....................................................... (8,493,721)
------------
6,082,810
------------
Net realized and unrealized gains on investments, short sales, futures and
option transactions........................................................ 6,485,054
------------
Net increase in net assets resulting from operations......................... $ 44,153,296
============
</TABLE>
---------------
See notes to financial statements.
9
<PAGE> 10
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------------------
For the Year For the Year
Ended Ended
May 31, 1995 May 31, 1994
HYPERION 1997 TERM TRUST, INC.
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income....................................... $ 37,668,242 $ 39,383,232
Net realized gain (loss) on investments, short sales,
futures and option transactions.......................... 402,244 (57,541,407)
Net change in unrealized appreciation (depreciation) on
investments and futures transactions..................... 6,082,810 (247,215)
------------- -------------
Net increase (decrease) in net assets resulting from
operations............................................... 44,153,296 (18,405,390)
------------- -------------
DIVIDENDS TO SHAREHOLDERS
Net investment income....................................... (35,073,708) (38,374,305)
------------- -------------
CAPITAL STOCK TRANSACTIONS
Cost of Trust shares repurchased and retired................ (93,016) (313,231)
Proceeds from over-accrual of offering costs................ -- 127,089
------------- -------------
Net decrease in net assets from capital stock
transactions............................................. (93,016) (186,142)
------------- -------------
Total increase (decrease) in net assets............. 8,986,572 (56,965,837)
NET ASSETS:
Beginning of year............................................. 491,302,547 548,268,384
------------- -------------
End of year (including undistributed net investment income of
$8,152,571 and $5,558,037 respectively)..................... $ 500,289,119 $ 491,302,547
============= =============
</TABLE>
---------------
See notes to financial statements.
10
<PAGE> 11
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
STATEMENT OF CASH FLOWS
Year Ended May 31, 1995
---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
Cash flows used for operating activities:
Interest received (excluding accretion of $3,568,787)................. $ 48,977,213
Operating expenses paid............................................... (4,437,327)
Interest expense paid................................................. (11,341,804)
Purchase of short-term investments, including options, net............ (2,214,996)
Purchase of long-term portfolio investments........................... (3,635,309,271)
Proceeds from disposition of long-term investments and principal
paydowns............................................................. 3,601,062,846
Net cash used for futures transactions................................ (2,042,293)
----------------
Net cash used for operating activities................................ (5,305,632)
----------------
Cash flows provided from financing activities:
Cost of Trust shares repurchased and retired.......................... (93,016)
Cash provided from reverse repurchase agreements...................... 45,345,250
Cash dividends paid................................................... (38,102,113)
----------------
Net cash provided from financing activities........................... 7,150,121
----------------
Net increase in cash....................................................... 1,844,489
Cash at beginning of period................................................ (1,844,136)
----------------
Cash at end of period...................................................... $ 353
===============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO
NET CASH FLOWS USED FOR OPERATING ACTIVITIES:
Net increase in net assets resulting from operations....................... $ 44,153,296
----------------
Increase in investments............................................... (43,482,497)
Increase in net unrealized appreciation on investments................ (6,082,810)
Decrease in variation margin receivable............................... 243,653
Increase in interest receivable....................................... (766,168)
Increase in other assets.............................................. (5,292,963)
Increase in accrued expenses and other liabilities.................... 5,921,857
----------------
Total adjustments................................................ (49,458,928)
----------------
Net cash used for operating activities..................................... $ (5,305,632)
===============
</TABLE>
---------------
See notes to financial statements.
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------
For the Period
For the Year For the Year November 2, 1992*
Ended Ended through
May 31, 1995 May 31, 1994 May 31, 1993
HYPERION 1997 TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 8.11 $ 9.05 $ 9.48**
------------ ------------ ------------------
Net investment income...................... 0.62 0.65 0.43
Net realized and unrealized gains (losses)
on investments, options and futures
transactions............................. 0.11 (0.96) (0.51)
------------ ------------ ------------------
Net increase (decrease) in net asset value
resulting from operations................ 0.73 (0.31) (0.08)
------------ ------------ ------------------
Dividends from net investment income....... (0.58) (0.63) (0.35)
------------ ------------ ------------------
Net asset value, end of period............. $ 8.26 $ 8.11 $ 9.05
============= ============= ===================
Market price, end of period................ $ 8.00 $ 7.375 $ 9.50
============= ============= ===================
TOTAL INVESTMENT RETURN+................... 16.98% (16.22)% 3.59%(1)
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s)........... $500,289 $491,303 $548,268
Total operating expenses................... 0.86% 0.76% 0.79%(2)
Interest expense........................... 2.31% 1.41% 1.57%(2)
Net investment income...................... 7.71% 7.61% 7.99%(2)
Portfolio turnover rate.................... 518% 580% 207%
</TABLE>
---------------
* Commencement of investment operations.
** Net of offering costs of $0.02.
+ Total investment return is computed based upon the New York Stock Exchange
market price of the Trust's shares and excludes the effects of sales loads
or brokerage commissions.
(1) Not annualized.
(2) Annualized.
See notes to financial statements.
12
<PAGE> 13
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1995
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Hyperion 1997 Term Trust, Inc. (the "Trust"), which was incorporated under the
laws of the State of Maryland on July 29, 1992, 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 October 20,
1992, when it sold 10,527 shares of common stock for $100,007 to Hyperion
Capital Management, Inc. (the "Adviser"). The Trust expects to distribute
substantially all of its net assets on or shortly before November 30, 1997 and
thereafter to terminate. The distribution and termination may require
shareholder approval. The Trust's investment objectives are to provide a high
level of current income consistent with investing only in securities of the
highest credit quality and to return at least $10.00 per share (the initial
public offering price per share) to investors on or shortly before November 30,
1997. The Trust pursues these investment objectives by investing in a portfolio
primarily of mortgage-backed securities ("MBS") issued or guaranteed by the U.S.
Government or one of its agencies or rated AAA by a nationally recognized rating
agency (e.g., Standard & Poor's Corporation or Moody's Investors Service, Inc.).
No assurance can be given that the Trust's investment objectives will be
achieved.
Valuation of Investments: Where market quotations are readily available,
portfolio securities are valued based upon the current bid price. The Trust
values mortgage-backed securities 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 purchase or write 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 the realized gain or loss or the basis of
the security.
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.
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 solely for the purpose of
hedging its existing portfolio securities
13
<PAGE> 14
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
or securities the Trust intends to purchase against fluctuations in value caused
by changes in prevailing market interest rates. Should interest rates move
unexpectedly, the Trust may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
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 greater
or less than the proceeds originally received.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. Discounts and premiums on long term securities are amortized
using the effective yield to maturity method.
Taxes: It is the Trust's intention to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders. Therefore, no
federal income or excise tax provision is required.
Dividends and Distributions: The Trust declares and pays dividends monthly from
net investment income. Distributions of net realized capital gains in excess of
capital loss carryforwards are distributed at least annually. Dividends and
distributions are recorded on the ex-dividend date.
Deferred Organization Expenses: A total of $72,575 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 "Cash" 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 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 Adviser 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.
2. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS:
The Trust has entered into an Investment Advisory Agreement with the Adviser.
The Adviser 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.
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 the 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
14
<PAGE> 15
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
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.
The Trust has entered into a Sub-Administrator agreement with Prudential Mutual
Fund Management, Inc. (the "Sub-Administrator"), an indirect, wholly-owned
subsidiary of The Prudential Insurance Company of America, to whom the
Administrator will delegate certain of its' administrative responsibilities. For
these services, the Administrator pays out of its own assets the fee to be paid
to the Sub-Administrator computed at the rate of 0.12% per annum of the first
$100 million of the Trust's average weekly net assets, 0.10% of the next $150
million and 0.08% of any amounts above $250 million.
The Administrator informed the Trust that it paid $461,031 to the
Sub-Administrator for the year ended May 31, 1995.
Certain officers and/or directors of the Trust are officers and/or directors of
the Adviser.
3. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
year ended May 31, 1995 aggregated $3,635,266,951 and $3,586,389,175,
respectively.
Written option activity for the year ended May 31, 1995 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
--------- ---------
<S> <C> <C>
Options outstanding at
May 31, 1994............... -- $ --
Options written.............. (593) (246,426)
Options assigned............. -- --
Options closed............... 462 184,902
Options expired.............. 131 61,524
---- ---------
Options outstanding at
May 31, 1995............... -- $ --
==== =========
</TABLE>
The federal income tax basis of the Trust's investments at May 31, 1995 was
$711,214,439 and, accordingly, net unrealized appreciation for federal income
tax purposes was $13,193,534 (gross unrealized appreciation -- $20,555,611,
gross unrealized depreciation -- $7,362,077). At May 31, 1995, the Trust had
capital losses of $95,471,281, of which $87,384,493 expires in 2002 and
$8,086,788 expires in 2003, available to offset any future capital gains.
However, if the Trust terminates as expected in 1997, the capital loss
carryforward must be utilized by 1997 in order for shareholders to realize a
benefit.
4. BORROWINGS:
The Trust may enter into reverse repurchase agreements and dollar roll
agreements with the same parties with whom it may enter into repurchase
agreements. A dollar roll agreement is identical to a reverse repurchase
agreement except for the fact that substantially identical securities may be
repurchased. Under a reverse repurchase agreement or a dollar roll agreement,
the Trust sells securities and agrees to repurchase them, or substantially
similar securities in the case of a dollar roll agreement, at a mutually agreed
upon date and price. Under the 1940 Act, reverse repurchase agreements and
dollar roll agreements will be regarded as a form of borrowing by the Trust
unless, at the time it enters into a reverse repurchase agreement or a dollar
roll agreement, it establishes and maintains a segregated account with its
custodian containing securities from its portfolio having a value not less than
the repurchase price (including accrued interest). The Trust has established and
maintained such an account for each of its reverse repurchase agreements and
dollar roll agreements. Reverse repurchase agreements and dollar roll agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Trust may decline below the price of the securities the Trust has
sold but is obligated to repurchase. In the event the buyer of securities under
a reverse repurchase agreement or a dollar roll agreement files for bankruptcy
or becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Trust's obligation to
repurchase the securities, and the Trust's use of the proceeds of the reverse
repurchase agreement or the dollar roll agreement may effectively be restricted
pending such decision.
15
<PAGE> 16
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
At May 31, 1995, the Trust had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount.................. $ 219,308,912
------------
Market Value of Assets Sold Under
Agreements..................... $ 220,147,649
------------
Weighted Average Interest Rate... 5.98%
-----
</TABLE>
The average end-of-week balance of reverse repurchase agreements outstanding
during the period ended May 31, 1995, was approximately $209,019,342 at a
weighted average interest rate of 5.33%. The maximum amount of reverse
repurchase agreements outstanding at any time during the year was $316,144,470
as of April 10, 1995, which was 35.5% of total assets.
5. CAPITAL STOCK:
There are 100 million shares of $0.01 par value common stock authorized. Of the
60,555,227 shares outstanding at May 31, 1995, the Adviser owned 10,527 shares.
During the years ended May 31, 1994 and 1995, the Trust repurchased a total of
42,300 and 13,000 shares of its outstanding common stock at a cost of $313,231
and $93,016 and an average discount of approximately 10.68% and 11.71% from its
net asset value, respectively. All shares repurchased have been retired.
6. LITIGATION:
During the months of October and November 1993, several 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 that action 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. On April 8,
1994, the defendants requested that the Court 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. 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 offerings. Defendants moved to dismiss the
second consolidated amended complaint in December 1994. In addition, the Trust,
its directors, certain of its officers and underwriters have been named as
defendants in Moelis v. Hyperion 1997, et al., a purported class action filed on
May 6, 1994. The claims in the Moelis complaint allege that the prospectus and
several post-issuance reports and public statements were misleading by not
disclosing (i) all of the risks involved in the Trust's investments in certain
mortgage-backed securities including "interest-only strips", and (ii) that the
Trust had invested in U.S. Treasury Note commodity futures contracts in
violation of the Trust's investment objectives. By agreement, the defendants
need not respond to any of the claims in the Moelis complaint pending the
Court's disposition of the motion to dismiss In re: Hyperion Securities
Litigation.
On July 14, 1995, the second consolidated amended complaint was dismissed
without leave to replead by Judge Michael B. Mukasey, United States District
Court, Southern District of New York. At this time, the plaintiffs have not
indicated whether they will attempt to challenge the Court's decision.
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 indemnifica-
16
<PAGE> 17
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
May 31, 1995
--------------------------------------------------------------------------------
tion in the event that they are subject to liabilities, costs or losses that are
covered by the indemnity. During the year ended May 31, 1995 the Trust incurred
and paid legal expenses in the amount of $100,149 in connection with the
indemnification of the underwriters. In addition, pursuant to the Advisory
Agreement between the Trust and the Advisor, the Advisor is indemnified for all
of its liabilities, losses and costs in connection with any matter involving the
Trust, except for actions relating to the gross negligence, willful malfeasance
or fraud of the Advisor. At this time the Advisor has not notified the Trust of
its intention to seek indemnification. The ultimate outcome of this litigation
is not presently determinable, and no provision has been made in the Trust's
financial statements for the effect, if any, of such litigation.
7. SUBSEQUENT EVENTS:
The Trust's Board of Directors declared the following regular monthly dividends:
<TABLE>
<CAPTION>
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
---------- --------- ---------
<S> <C> <C>
$.04583 6/19/95 6/29/95
$.03958 7/17/95 7/27/95
</TABLE>
17
<PAGE> 18
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
HYPERION 1997 TERM TRUST, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
cash flows and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Hyperion 1997 Term
Trust, Inc. (the "Trust") at May 31, 1995, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the two years in the period then ended and for the period November 2, 1992
(commencement of operations) through May 31, 1993, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by
correspondence with the custodian and brokers provide a reasonable basis for the
opinion expressed above.
As described in Note 6 to the financial statements, the Trust remains one of
several defendants in litigation. The ultimate outcome of the litigation cannot
be determined at present. No provision for any liability that may result upon
resolution of the matter has been made in the accompanying financial statements.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 27, 1995
--------------------------------------------------------------------------------
TAX INFORMATION
--------------------------------------------------------------------------------
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Trust's fiscal year end (May 31,
1995) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that all distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. In addition, 2.28% of the Trust's distributions
during the year ended December 31, 1994 were earned from U.S. Treasury
obligations. None of the Trust's distributions qualify for the dividends
received deduction available to corporate shareholders.
Because the Trust's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1995. The second notification, which
will reflect the amounts to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1996. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Trust.
18
<PAGE> 19
--------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON NET INCREASE
INVESTMENTS, SHORT (DECREASE) IN NET
NET INVESTMENT SALES, FUTURES AND ASSETS RESULTING FROM
INCOME OPTION TRANSACTIONS OPERATIONS
---------------- ----------------- ----------------
TOTAL PER PER PER
QUARTERLY PERIOD INCOME AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
June 1, 1993
to August 31, 1993 $ 14,588,765 $ 11,384,530 $ 0.19 $ (11,342,823) $ (0.19) $ 41,707 $ (0.00)
September 1, 1993
to November 30, 1993 10,820,856 8,232,873 0.14 (24,209,878) (0.40) (15,977,005) (0.26)
December 1, 1993
to February 28, 1994 10,140,455 9,877,648 0.16 (7,298,603) (0.12) 2,579,045 0.04
March 1, 1994
to May 31, 1994 15,014,110 9,888,181 0.16 (14,937,318) (0.25) (5,049,137) (0.09)
June 1, 1994
to August 31, 1994 12,394,336 9,144,393 0.15 (637,576) (0.01) 8,506,817 0.14
September 1, 1994
to November 30, 1994 14,165,751 10,682,955 0.18 (10,524,270) (0.18) 158,685 0.00
December 1, 1994
to February 28, 1995 13,167,352 9,172,057 0.15 8,349,257 0.14 17,521,314 0.29
March 1, 1995
to May 31, 1995 13,431,319 8,668,837 0.14 9,297,643 0.16 17,966,480 0.30
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDENDS AND
DISTRIBUTIONS
--------------- SHARE PRICE
PER -----------
QUARTERLY PERIOD AMOUNT SHARE HIGH LOW
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 1, 1993
to August 31, 1993 $10,600,780 $ 0.175 $9 1/2 $9 1/4
September 1, 1993
to November 30, 1993 9,594,648 0.158 8 3/4 8
December 1, 1993
to February 28, 1994 9,091,549 0.149 8 1/8 7 3/4
March 1, 1994
to May 31, 1994 9,087,328 0.150 7 3/4 7 3/8
June 1, 1994
to August 31, 1994 9,085,234 0.150 8 7 3/8
September 1, 1994
to November 30, 1994 9,084,555 0.150 7 7/8 7
December 1, 1994
to February 28, 1995 8,578,218 0.140 7 1/2 7
March 1, 1995
to May 31, 1995 8,325,701 0.140 8 7 3/8
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
INVESTMENT ADVISER AND ADMINISTRATOR TRANSFER AGENT
HYPERION CAPITAL MANAGEMENT, INC. BOSTON FINANCIAL DATA SERVICES, INC.
520 Madison Avenue 2 Heritage Drive
New York, New York 10022 North Quincy, Massachusetts 02171
FOR GENERAL INFORMATION ABOUT THE FUNDS: FOR SHAREHOLDER SERVICES:
(800 ) HYPERION (800 ) 426-5523
SUB-ADMINISTRATOR INDEPENDENT ACCOUNTANTS
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. PRICE WATERHOUSE LLP
One Seaport Plaza 1177 Avenue of the Americas
New York, New York 10292 New York, New York 10036
(212) 214-3332
CUSTODIAN LEGAL COUNSEL
STATE STREET BANK AND TRUST COMPANY GIBSON, DUNN & CRUTCHER
225 Franklin St. 1050 Connecticut Avenue, N.W.
Boston, Massachusetts 02116 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.
19
<PAGE> 20
--------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
--------------------------------------------------------------------------------
A Dividend Reinvestment Plan (the "Plan") is available to shareholders of the
Trust pursuant to which they may elect to have all dividends and distributions
of capital gains automatically reinvested by State Street Bank and Trust Company
(the "Plan Agent") in Trust shares. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check mailed directly to the
shareholder of record (or if the Shares are held in street or other nominee
name, then to the nominee) by the Trust's Custodian, as Dividend Disbursing
Agent.
The Plan Agent serves as agent for the shareholders in administering the Plan.
After the Trust declares a dividend or determines to make a capital gain
distribution, payable in cash, the participants in the Plan will receive the
equivalent amount in Trust shares valued at the market price determined as of
the time of purchase (generally, the payment date of the dividend or
distribution). The Plan Agent will, as agent for the participants, use the
amount otherwise payable as a dividend to participants to buy shares in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price increases, the average per share purchase price paid by the Plan Agent may
exceed the market price of the shares at the time the dividend or other
distribution was declared. Share purchases under the Plan may have the effect of
increasing demand for the Trust's shares in the secondary market.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for handling the reinvestment of dividends and distributions
are paid by the Trust. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends and distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable on such dividends or
distributions.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. When a participant withdraws from the Plan or upon termination of
the Plan by the Trust, certificates for whole shares credited to his or her
account under the Plan will be issued and a cash payment will be made for any
fraction of a share credited to such account.
A brochure describing the Plan is available from the Plan Agent, State Street
Bank and Trust Company, by calling 1-800-426-5523.
If you wish to participate in the Plan and your shares are held in your name,
you may simply complete and mail the enrollment form in the brochure. If your
shares are held in the name of your brokerage firm, bank or other nominee, you
should ask them whether or how you can participate in the Plan. Shareholders
whose shares are held in the name of a brokerage firm, bank or other nominee and
are participating in the Plan may not be able to continue participating in the
Plan if they transfer their shares to a different brokerage firm, bank or other
nominee, since such shareholders may participate only if permitted by the
brokerage firm, bank or other nominee to which their shares are transferred.
20
<PAGE> 21
[This Page Intentionally Left Blank.]
<PAGE> 22
[This Page Intentionally Left Blank.]
<PAGE> 23
[This Page Intentionally Left Blank.]
<PAGE> 24
------------------------------------------------------
OFFICERS & DIRECTORS
------------------------------------------------------
Kenneth C. Weiss
Chairman
Lewis S. Ranieri
Director
Garth Marston*
Director
Rodman L. Drake*
Director
Leo M. Walsh, Jr.*
Director
Harry E. Peterson, Jr.*
Director
Patricia A. Sloan
Director & Secretary
Louis C. Lucido
President
Clifford E. Lai
Senior Vice President
L. David Ricci
Vice President
Paul Zavattoni
Treasurer
* Audit Committee Members
----------------------------------------------------
[HYPERION CAPITAL MANAGEMENT, INC. LOGO]
----------------------------------------------------
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
HYPERION 1997 TERM TRUST, INC.
520 Madison Avenue
New York, NY 10022
H Y P E R I O N
1997
TERMTRUST
ANNUAL REPORT
MAY 31, 1995
[ARTWORK]
