<PAGE>
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HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: January 22, 1996
We welcome this opportunity to provide you with information about Hyperion 1997
Term Trust, Inc. (the 'Trust') for its semi-annual period ended November 30,
1995 and to share our outlook for the rest of the Trust's fiscal year. The
Trust's shares are traded on the New York Stock Exchange under the symbol 'HTA'.
DESCRIPTION OF THE TRUST
The Trust is a closed-end investment company whose investment objectives are to
provide a high level of current income consistent with investing only in
securities of the highest credit quality and to return $10.00 per share (the
initial public offering price per share) to investors on or shortly before
November 30, 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 instrumentalities or rated AAA
by a nationally recognized rating agency (e.g., Standard & Poor's Corporation or
Moody's Investors Service, Inc.).
MARKET ENVIRONMENT
Over the past six months, the recovery in the fixed income markets has
continued. Interest rates, which have broadly declined since late 1994,
continued their downward path since May declining by roughly 50 basis points
over the period. The Federal Reserve Board (the 'Fed') has cut the Federal Funds
rate by 50 basis points since May, reducing the rate in 25 basis point
increments in July and December 1995.
The economy continues to grow at a moderate pace. Preliminary estimates for
fourth quarter economic activity were dampened by evidence of weak holiday sales
for retailers. The third quarter Gross Domestic Product ('GDP') growth rebounded
to 3.2% after posting a 1.3% growth rate in the second quarter of 1995. During
the twelve month period ended November 30, 1995, many economic aggregates,
including the employment rate and consumer confidence, were significantly
stronger than they were during the bond market rally of 1993.
Bond market rallies are never easy for mortgages. Since November 1994, there has
been more than a 200 basis point decline in interest rates, which once again put
mortgages to the test. The decline in interest rates resulted in a rise of
prepayment fears and actual prepayments. However, after seasonal summer peaks,
the actual dollar volume of prepayments declined in the last months of 1995
despite continued Fed interest rate cuts. The overall duration of the Lehman
mortgage index shortened from approximately 4.2 years to 2.9 years in 1995, and
the 30 year fixed rate mortgages declined by approximately 200 basis points
(i.e., from approximately 9.5% to approximately 7.5%). During this period, the
Lehman Mortgage Index returned 16.80%, 13 basis points below the returns on the
Merrill 5-Year Treasury Index.
PORTFOLIO STRATEGY AND PERFORMANCE
From July through September, the Trust was positioned to maintain or increase
its net asset value ('NAV') in the event of rising interest rates, which,
coupled with declining interest rates caused the NAV to decline from
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISER (CONTINUED)
- --------------------------------------------------------------------------------
$8.26 on May 31, 1995 to $7.92 on November 30, 1995. After that, however, we
positioned the Trust's duration less defensively, with assets that benefited
significantly during a period of lower interest rates. This, coupled with the
Trust's leverage, had a positive impact on the Trust's NAV as it increased to
$8.04 as of January 1996.
During 1995, MBS have not kept pace with Treasury market total returns because
lower interest rates have increased the risk of mortgage refinancings. Over the
period, mortgage rates have declined almost as much as Treasury yields, which
significantly increases the proportion of outstanding mortgages that can be
favorably refinanced. Refinancing risk is largely limited to mortgages with
coupons above prevailing market rates. Currently, the Trust's portfolio consists
of MBS with low coupons and asset-backed securities ('ABS') that are not nearly
as susceptible to interest rate movements. We continue to seek investments with
a high degree of stability, in order to insulate the Trust from prepayments.
INVESTMENT OUTLOOK
We are cautiously optimistic about the bond market. Inflation continues to be
subdued, and although nominal interest rates appear low relative to historic
standards, real interest rates (the difference between interest rates and
inflation) are above long term averages. As a result, unless there is
significant improvement in the economy, the market expects that there will be
further short-term interest rate decreases by the Fed during 1996.
The overall mortgage market faces challenges as declining interest rates enable
more mortgages to become refinancable. The Trust continues to be positioned to
avoid many of the risks associated with a mortgage refinancing boom by: 1)
investing in lower coupon MBS pass-throughs, well structured collateralized
mortgage obligations ('CMO'), planned amortization class ('PAC') bonds and high
quality ABS, and 2) significantly reducing interest-only security allocations.
The maintenance of relative principal stability and predictability is an ongoing
task, as mortgage securities require active management in an effort to achieve
this goal.
The chart on the following page shows the allocation of the Trust's holdings by
asset category on November 30, 1995.
2
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HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISER (CONCLUDED)
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HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1995*
[CHART]
U.S. Government Agency Pass-Through Certificates 33.1%
U.S. Treasury Obligations 21.4
Asset-Backed Securities 12.9
Collateralized Mortgage Obligations 11.8
Municipal Zero Coupon Securities 11.3
U.S. Government Agency Collateralized Mortgage Obligations 4.0
U.S. Government Agency Stripped Mortgage-Backed Securities 2.7
U.S. Government Agency Debenture 1.5
Outstanding Options Purchased 1.0
Repurchase Agreement 0.3
* As a percentage of total investments.
CONCLUSION
We will continue to do our best to manage the Trust in an attempt to achieve its
objectives. We appreciate the opportunity to serve your investment needs and we
thank you for your continued support. As always, we welcome your questions and
comments and encourage you to contact our Shareholder Services Representatives
at 1-800-HYPERION.
Sincerely,
/s/ Kenneth C. Weiss
- ----------------------------
KENNETH C. WEISS
Chairman,
Hyperion 1997 Term Trust, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
/s/ Louis C. Lucido
- ----------------------------
LOUIS C. LUCIDO
President,
Hyperion 1997 Term Trust, Inc.
Managing Director and Chief Operating Officer,
Hyperion Capital Management, Inc.
3
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1995 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 90.2%
U.S. GOVERNMENT AGENCY PASS-THROUGH
CERTIFICATES -- 47.6%
Federal Home Loan Mortgage
Corporation
6.00% 05/01/24 $ 28,948# $ 27,781,491
6.50 09/01/08-01/01/24 40,536# 40,072,191
7.00 11/01/99 10,126 10,312,837
------------
78,166,519
------------
Federal National Mortgage
Association
6.00 01/01/01 12,743 12,674,863
6.50 01/01/05-09/01/10 29,248 29,229,981
7.00 11/01/99-10/01/01 18,631 18,946,399
TBA 8.00 05/01/25 27,878 28,784,097
8.50 01/01/05 14,921# 15,545,892
TBA 9.00 01/01/99 8,750 9,201,150
------------
114,382,382
------------
Government National
Mortgage Association
TBA 7.00 12/15/99 35,612 35,779,020
------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
(Cost -- $223,607,459) 228,327,921
------------
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) -- 5.8%
Federal Home Loan Mortgage
Corporation
Series 1416, Class PE 6.00 02/15/16 10,800 10,722,132
Series 1482, Class F 6.50 05/15/19 11,199 11,217,159
------------
21,939,291
------------
Federal National Mortgage
Association
Series 1993-247, Class
AB 5.75 01/25/23 6,047 5,870,602
------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost -- $26,306,969)
27,809,893
------------
U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED
SECURITIES -- 3.9%
Interest-Only Securities:
Federal National Mortgage
Association
Series 1993-M2, Class B,
WAC, REMIC 2.57 07/25/03 95,089 8,780,551
Series 167, Class 2 8.00 08/01/22 40,192 9,935,032
------------
TOTAL U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED
SECURITIES
(Cost -- $23,170,349) 18,715,583
------------
4
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HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- (CONCLUDED)
U.S. TREASURY & AGENCY OBLIGATIONS -- 32.9%
Federal Home Loan Mortgage
Corporation Debenture 8.42 % 01/12/98 $ 10,000 $ 10,028,800
------------
U.S. Treasury Notes
7.38 11/15/97 121,000# 125,291,870
7.75 12/31/99 13,500# 14,573,655
------------
139,865,525
------------
U.S. Treasury Bills
(a) 02/01/96 7,898 7,827,708
------------
TOTAL U.S. TREASURY & AGENCY
OBLIGATIONS
(Cost -- $153,607,542) 157,722,033
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost -- $426,692,319) 432,575,430
------------
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ASSET BACKED SECURITIES -- 18.4%
CARCO Auto Loan Master
Trust
Series 1994-2, Class A 7.88 07/15/99 20,000 20,684,400
Ford Credit Grantor Trust
Series 1994-B, Class A 7.30 10/15/99 16,638 16,973,027
MBNA Master Credit Card
Trust
Series 1992-1, Class A 7.25 06/15/99 5,000 5,110,150
Standard Credit Card
Master Trust
Series 1991-6, Class A 7.88 01/07/00 29,000 30,635,890
The Money Store Home
Equity Trust
Series 1994-B, Class A3 7.10 11/15/16 15,000 15,189,900
------------
TOTAL ASSET-BACKED SECURITIES
(Cost -- $86,453,210) 88,593,367
------------
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) -- 17.0%
Merrill Lynch Mortgage
Investors
Series 1995-C3, Class A1 6.79 06/25/15 10,000 10,131,250
Prudential Home Mortgage
Securities Co., Inc.
Series 1992-42, Class A7 7.00 01/25/08 41,375 41,300,939
Residential Funding
Mortgage Securities Inc.
Series 1994-MZ1, Class
A1 6.47 01/28/24 30,354 29,956,133
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost -- $79,430,335) 81,388,322
------------
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5
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HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
MUNICIPAL ZERO COUPON SECURITIES -- 16.2%
ARIZONA
Maricopa County Arizona,
School District #4
FGIC (a) 07/01/98 $ 5,200@ $ 4,652,336
Maricopa County Arizona,
School District #41
FGIC (a) 07/01/98 6,000@ 5,368,080
Maricopa County Arizona,
School District #97
FGIC (a) 07/01/98 4,185 3,744,236
------------
13,764,652
------------
FLORIDA
Hillsborough County
Florida, Utility
Series A, Revenue
Bond, MBIA-IBC (a) 08/01/98-08/01/99 17,190@ 14,862,976
------------
ILLINOIS
Metropolitan Pier &
Exposition Authority
Illinois Revenue Bond,
AMBAC (a) 12/15/97-06/15/98 11,500@ 10,445,855
------------
KANSAS
Kansas City Kansas,
Utility System
Revenue Bond, AMBAC (a) 09/01/98 8,185@ 7,300,038
------------
KENTUCKY
Owensboro Kentucky,
Electric Light & Power
Series B, Revenue
Bond, AMBAC (a) 01/01/98 1,000@ 914,140
------------
NEW JERSEY
New Jersey, Wastewater
Treatment Trust
Series A, Revenue Bond (a) 09/01/97 7,305 6,791,751
------------
TEXAS
Austin Texas, FGIC (a) 09/01/98 7,845 6,968,635
Austin Texas, Utility
System
Series A, Revenue
Bond, MBIA (a) 05/15/98 1,750@ 1,574,318
Dallas Texas,
Independent School
District PSFG (a) 08/15/97 12,400 11,540,432
Denton Texas,
Independent School
District PSFG (a) 02/15/98 3,960@ 3,600,986
------------
23,684,371
------------
TOTAL MUNICIPAL ZERO COUPON SECURITIES
(Cost -- $75,981,204) 77,763,783
------------
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6
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995 (unaudited)
Principal Market
Amount Value
(000s) (Note 1)
- --------------------------------------------------------------------------------
OUTSTANDING OPTIONS PURCHASED -- 1.4%
CALL OPTIONS
November 95 U.S. Treasury Bond Futures, Call
at 104.1875 expiring November 1995 $ 21,156 $ 171,998
December 95 U.S. Treasury Bond Futures, Call
at 112.21875 expiring December 1995 100,000 6,438,000
------------
TOTAL OUTSTANDING OPTIONS PURCHASED
(Cost -- $2,997,768) 6,609,998
------------
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.4%
Dated 11/30/95, with State Street Bank and Trust
Company, 5.55%, due 12/1/95; proceeds: $1,849,285;
collateralized by $1,845,000 U.S Treasury Note,
6.00%, due 08/31/97, value: $1,849,285
(Cost -- $1,849,000) 1,849 1,849,000
------------
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 143.6%
(Cost -- $673,403,836) $688,779,900
CALL OPTIONS WRITTEN* -- (0.0%) (162,544)
VARIATION MARGIN PAYABLE ON OPEN
FUTURES CONTRACTS** -- (0.1%) (279,531)
LIABILITIES IN EXCESS OF OTHER ASSETS -- (43.5%) (208,624,329)
------------
NET ASSETS -- 100.0% $479,713,496
------------
------------
- -------------------------------------------------------------------------------
# Portion or entire principal amount pledged as collateral for reverse
repurchase agreements. (Note 4)
TBA To Be Announced
REMIC Real Estate Mortgage Investment Conduit
WAC Weighted Average Coupon
FGIC Financial Guaranty Insurance Company
(a) Zero Coupon Bonds
@ Portion 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
PSFG Permenant School Fund Guaranteed
* Outstanding Call Option Written as of November 30, 1995 are as
follows on the next page:
** Open Futures Contracts as of November 30, 1995 are as follows on
the next page:
7
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE AT UNREALIZED
OPEN FUTURES EXPIRATION VALUE AT NOVEMBER 30, APPRECIATION
NOTIONAL AMOUNT TYPE DATE TRADE DATE 1995 (DEPRECIATION)
- --------------- ------------------------------ --------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Long:
$24,000,000 10 Yr. U.S. Treasury Note March 1996 $27,065,942 $27,195,000 $129,058
----------- ----------- ---------
----------- ----------- ---------
Short:
$52,100,000 30 Yr. U.S. Treasury Bond March 1996 $61,396,594 $62,015,281 $(618,687)
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
CALL OPTION WRITTEN
PRINCIPAL LIABILITY VALUE AT
AMOUNT OF FOR OPTION NOVEMBER 30, UNREALIZED
DESCRIPTION CONTRACTS WRITTEN 1995 APPRECIATION
- ------------------------------------------------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
December 95, GNMA 7.00%, 12/15/99, Strike at 99.75 $35,259,000 $213,482 $162,544 $50,938
-------- -------- -------
-------- -------- -------
</TABLE>
- ---------------
See notes to financial statements.
8
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost -- $673,403,836) (Note 1).......... $688,779,900
Cash........................................................... 303
Interest receivable............................................ 4,369,142
Prepaid expenses............................................... 42,272
Deferred organization expenses (Note 1)........................ 33,459
Other assets................................................... 173,340
------------
Total assets......................................... 693,398,416
------------
LIABILITIES:
Reverse repurchase agreements (Note 4)......................... 168,184,125
Payable for investments purchased.............................. 44,756,117
Variation margin payable on open futures contracts (Note 1).... 279,531
Investment advisory fee payable (Note 2)....................... 196,020
Written options outstanding at value (premiums received,
$213,482).................................................... 162,544
Administration fee payable (Note 2)............................ 54,118
Interest payable (Note 4)...................................... 52,465
------------
Total liabilities.................................... 213,684,920
------------
NET ASSETS (equivalent to $7.92 per share based on 60,555,227
shares outstanding).......................................... $479,713,496
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 5)................................. $ 605,552
Additional paid-in capital..................................... 573,808,743
Undistributed net investment income............................ 10,057,684
Accumulated net realized losses................................ (119,695,856)
Net unrealized appreciation.................................... 14,937,373
------------
Net assets applicable to capital stock outstanding............. $479,713,496
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
9
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 1)
Interest....................................................... $24,873,396
-----------
EXPENSES:
Investment advisory fees (Note 2).............................. 1,231,509
Administration fees (Note 2)................................... 339,432
Insurance...................................................... 257,860
Legal.......................................................... 101,726
Reports to shareholders........................................ 77,724
Custodian...................................................... 51,793
Audit and tax services......................................... 28,643
Registration................................................... 26,414
Transfer agency................................................ 24,708
Directors' fees................................................ 22,468
Amortization of organization expenses (Note 1)................. 8,735
Miscellaneous.................................................. 20,138
-----------
Total operating expenses............................... 2,191,150
Interest expense (Note 4).................... 6,018,062
-----------
Total expenses............................... 8,209,212
-----------
Net investment income.......................................... 16,664,184
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS,
SHORT SALES, FUTURES AND OPTIONS (Notes 1 & 3)
Net realized gains (losses) on:
Investment transactions........................................ 8,184,327
Futures transactions........................................... (27,892,855)
Option transactions............................................ (9,259,512)
-----------
(28,968,040)
-----------
Net change in unrealized appreciation on:
Investments.................................................... 2,177,840
Futures........................................................ 4,258,526
Options........................................................ 50,938
-----------
6,487,304
-----------
Net realized and unrealized losses on investments, short sales,
futures and options............................................ (22,480,736)
-----------
Net increase in net assets resulting from operations............. $(5,816,552)
-----------
-----------
</TABLE>
- ---------------
See notes to financial statements.
10
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
Six Months
Ended
November 30, For the Year
1995 Ended
(unaudited) May 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income...................... $ 16,664,184 $ 37,668,242
Net realized gains (losses) on investments,
short sales, futures and option
transactions............................ (28,968,040) 402,244
Net change in unrealized appreciation on
investments, futures and options........ 6,487,304 6,082,810
------------ ------------
Net increase (decrease) in net assets
resulting from operations............... (5,816,552) 44,153,296
------------ ------------
DIVIDENDS TO SHAREHOLDERS
Net investment income...................... (14,759,071) (35,073,708)
------------ ------------
CAPITAL STOCK TRANSACTIONS
Cost of Trust shares repurchased and
retired................................. -- (93,016)
------------ ------------
Total increase (decrease) in net
assets........................... (20,575,623) 8,986,572
NET ASSETS:
Beginning of year............................ 500,289,119 491,302,547
------------ ------------
End of year (including undistributed net
investment income of $10,057,684 and
$8,152,571 respectively)................... $479,713,496 $500,289,119
------------ ------------
------------ ------------
</TABLE>
- ---------------
See notes to financial statements.
11
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash flows used for operating activities:
Interest received.......................................... $ 24,831,002
Operating expenses paid.................................... (2,553,618)
Interest expense paid...................................... (6,028,050)
Purchase of short-term portfolio investments............... (8,960,512)
Purchase of long-term portfolio investments................ (1,951,835,843)
Proceeds from disposition of long-term portfolio investment
and principal paydowns.................................. 2,033,494,227
Variation margin........................................... (23,318,060)
---------------
Net cash used for operating activities..................... 65,629,146
---------------
Cash flows provided from financing activities:
Cash provided from reverse repurchase agreements, net...... (50,870,125)
Cash dividends paid........................................ (14,759,071)
---------------
Net cash provided from financing activities................ (65,629,196)
---------------
Net decrease in cash....................................... (50)
Cash at beginning of period.................................. 353
---------------
Cash at end of period........................................ $ 303
---------------
---------------
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......... $ (5,816,552)
---------------
Decrease in investments.................................... 42,277,921
Increase in net unrealized appreciation.................... (6,487,304)
Decrease in interest receivable............................ 1,448,599
Increase in variation margin payable....................... 316,269
Decrease in other assets................................... 7,237,017
Decrease in other liabilities.............................. 26,653,196
---------------
Total adjustments.................................. 71,445,698
---------------
Net cash used for operating activities....................... $ 65,629,146
---------------
---------------
</TABLE>
- ---------------
See notes to financial statements.
12
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Period
November 30, For the Year For the Year November 2, 1992*
1995 Ended Ended through
(unaudited) May 31, 1995 May 31, 1994 May 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $ 8.26 $ 8.11 $ 9.05 $ 9.48**
------------- ------------ ------------ -----------------
Net investment income................................. 0.27 0.62 0.65 0.43
Net realized and unrealized gains (losses) on
investments, options and futures transactions....... (0.37) 0.11 (0.96) (0.51)
------------- ------------ ------------ -----------------
Net increase (decrease) in net asset value resulting
from operations..................................... (0.10) 0.73 (0.31) (0.08)
------------- ------------ ------------ -----------------
Dividends from net investment income.................. (0.24) (0.58) (0.63) (0.35)
------------- ------------ ------------ -----------------
Net asset value, end of period........................ $ 7.92 $ 8.26 $ 8.11 $ 9.05
------------- ------------ ------------ -----------------
------------- ------------ ------------ -----------------
Market price, end of period........................... $ 7.25 $ 8.00 $ 7.375 $ 9.50
------------- ------------ ------------ -----------------
------------- ------------ ------------ -----------------
TOTAL INVESTMENT RETURN+.............................. (6.44)% 16.98% (16.22)% 3.59%(1)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s)...................... $ 479,713 $500,289 $491,303 $ 548,268
Total operating expenses.............................. 0.89%(2) 0.86% 0.76% 0.79%(2)
Interest expense...................................... 2.44%(2) 2.31% 1.41% 1.57%(2)
Net investment income................................. 6.77%(2) 7.71% 7.61% 7.99%(2)
Portfolio turnover rate............................... 279% 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.
13
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
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.
The Trust purchases or writes options to hedge against adverse market movements
or fluctuations in value caused by changes in interest rates. The Trust bears
the risk in purchasing an option that it will expire without being exercised. If
this occurs, the option expires worthless and the premium paid for the option is
a loss. The risk associated with writing call options is that the Trust may
forego the opportunity for a profit if the market value of the underlying
position increases and the option is exercised. The Trust will only write
options on positions held in its portfolio. The risk in writing a put option is
that the Trust may incur a loss if the market value of the underlying position
decreases and the option is exercised. In addition, the Trust bears the risk of
not being able to enter into a closing transaction for written options as a
result of an illiquid market.
Financial Futures Contracts: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
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 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.
The Trust invests in financial futures contracts to hedge existing portfolio
securities 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. The Trust is at risk that it may not be able to
close out a transaction because of an illiquid secondary market.
Short Sales: The Trust may make short sales of securities as a method of hedging
potential declines in similar securities owned. When the Trust makes a short
sale, it must borrow the security sold short and deliver it to the broker-dealer
through which it made the short sale as collateral for its obligation to deliver
the security upon conclusion of the sale. The Trust may have to pay a fee to
borrow the particular securities and may be obligated to pay over any payments
received on such borrowed securities. A gain, limited to the price at which the
Trust sold the security short, or a loss, unlimited as to dollar amount, will be
recognized upon the termination of a short sale if the market price is 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 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.
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
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. For the six month period ended November 30, 1995, the Adviser earned
$1,231,509 in investment advisory fees.
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc. (the 'Administrator'). The Administrator performs
administrative services necessary for the operation of the Trust, including
maintaining 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 a monthly fee at an annual rate of 0.17% of the first $100
million of the Trust's average weekly net assets, 0.145% of the next $150
million and 0.12% of any amounts above $250 million. For the six month period
ended November 30, 1995, the Administrator earned $339,432 in administration
fees.
The Administrator 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 paid
$232,109 to the Sub-Administrator for the six month period ended November 30,
1995.
On September 22, 1995, the Administrator notified PMF that it was terminating
its Sub-Administration agreement with them effective November 30, 1995. The
Administrator would then assume all responsibilities previously performed by
PMF.
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 six
month period ended November 30, 1995 aggregated $1,961,719,185 and
$1,998,589,176, respectively.
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
16
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
repurchase the securities, and the Trust's use of the proceeds of the reverse
repurchase agreement or the dollar roll agreement may effectively be restricted
pending such decision.
At November 30, 1995, the Trust had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount..................... $168,366,717
---------------
Market Value of Assets Sold Under
Agreements........................ $168,345,726
---------------
Weighted Average Interest Rate...... 5.85%
-----
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the period ended November 30, 1995, was approximately $202,373,143 at a weighted
average interest rate of 5.95%. The maximum amount of reverse repurchase
agreements outstanding at any time during the six month period ended November
30, 1995 was $231,552,875 as of June 13, 1995, which was 31.6% 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 November 30, 1995, the Adviser owned 10,527
shares.
The Trust is continuing its stock repurchase program, whereby an amount of up to
15% of the total outstanding common stock, or approximately 9.1 million shares,
are authorized for repurchase. The purchase price may not exceed the
then-current net asset value. As of November 30, 1995, 55,300 shares have been
repurchased pursuant to this program. For the six month period ending November
30, 1995, no shares were repurchased. All shares repurchased will be retired.
6. LITIGATION:
During the months of October and November 1993, purported class action lawsuits
were instituted against the Trust and its directors, officers and underwriters
by certain shareholders of the Trust in the United States District Court,
Southern District of New York. The plaintiffs in those actions generally alleged
that the defendants made inadequate and misleading disclosure in the
registration statement and prospectus for the Trust, in particular, as such
disclosure relates to the nature and risks of 'interest-only mortgage strip
securities' and the Trust's investments in those instruments. A Pre-Trial Order
of Consolidation dated December 27, 1993 consolidated these actions under the
consolidated caption In re: Hyperion Securities Litigation Master File No.
93-CIV-7179 (MBM). Pursuant to the terms of the Order of Consolidation, one
consolidated amended complaint was served upon the Trust and the other
defendants which superseded all other complaints previously filed. The Advisor
was added as a defendant in that complaint. On April 8, 1994, the defendants
moved to dismiss the consolidated complaint. Pursuant to an order dated October
3, 1994, the Court stayed all discovery in the Action except for certain limited
document discovery. In November 1994, while the motion to dismiss was still
pending, plaintiffs filed a second consolidated amended complaint which
supersedes the first amended complaint. The allegations in the second
consolidated amended complaint relate to the accuracy of the defendants'
representations to investors about the Trust's investment objectives, and level
and adequacy of the disclosure in the Prospectus for the Trust used in
connection with its initial public offering. Defendants moved to dismiss the
second consolidated amended complaint in December 1994. Judge Michael B. Mukasey
issued an opinion and order dated July 12, 1995 dismissing the second
consolidated amended complaint without leave to replead (granted 93 CIV 7179;
July 18, 1995). The plaintiffs filed a motion to reargue on July 27, 1995 and
Judge Mukasey denied the motion to reargue on September 6, 1995. Plaintiffs
filed a notice of appeal to the Second Circuit Court of Appeals on August 17,
1995. The appeal has been fully briefed and oral argument of the appeal will
likely occur in early 1996.
The Trust, its directors, certain of its officers and underwriters and the
Advisor have been named as defendants in Moelis v. Hyperion 1997, et al., a
purported class action originally filed on May 6, 1994 and amended shortly
thereafter. The claims in the Moelis complaint allege, inter alia, 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. Plaintiff
agreed that the defendants need not respond to any of the claims in the Moelis
complaint pending the Court's disposition of
17
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
the motion to dismiss In re: Hyperion Securities Litigation. Subsequent to the
court's dismissal of the second consolidated amended complaint In re: Hyperion
Securities Litigation, plaintiff sought leave to file a second amended
complaint. Leave to do so was granted orally by the Court on October 23, 1995
and its second amended complaint will be served in the near future.
Pursuant to the Underwriting Agreement between the Trust and its underwriters,
the Trust and the Adviser 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 Adviser that they
intend to exercise their rights of indemnification in the event that they are
subject to liabilities, costs or losses that are covered by the indemnity. In
addition, pursuant to the Advisory Agreement between the Trust and the Adviser,
the Adviser 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 Adviser. In addition,
the Trust's Articles of Incorporation provide for the indemnification of its
Directors. The Trust's Directors and Adviser have also notified the Trust of
their intention to seek indemnification. The Trust has incurred litigation
expenses for the twelve month period ended November 30, 1995 to the indemnified
parties noted above, based upon amounts which are deemed reimbursable in
accordance with the indemnification provisions. The Trust has included these
amounts in legal fees. The ultimate outcome of this litigation is not presently
determinable.
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.
Open futures contracts at November 30, 1995 are included in the portfolio of
investments and written options activity for the year ended November 30, 1995 is
as follows:
WRITTEN CALL OPTION TRANSACTIONS
- ------------------------------------------
PRINCIPAL AMOUNTS
OF CONTRACTS
(000 OMITTED) PREMIUMS
----------------- -----------
Outstanding,
beginning of period... $ -- $ --
Options written....... (1,642,413) (1,800,201)
Options closed........ 1,532,154 742,969
Options assigned...... 75,000 843,750
Options expired....... -- --
----------------- -----------
Outstanding, end of
period................ $ (35,259) $ (213,482)
----------------- -----------
----------------- -----------
At November 30, 1995, the Trust had segregated sufficient cash and/or securities
to cover any commitments under these contracts.
8. SUBSEQUENT EVENTS:
The Trust's Board of Directors declared the following regular monthly dividends:
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- --------- -------- --------
$.03958 12/18/95 12/28/95
$.03958 01/22/96 01/31/96
18
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
- --------------------------------------------------------------------------------
During the period ended November 30, 1995, Hyperion 1997 Term Trust, Inc.
shareholders voted on the following proposals at a shareholders' meeting on
October 17, 1995. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. To elect the Trust's Board of
Directors:
Kenneth C. Weiss 54,919,758 1,367,324
Lewis S. Ranieri 54,944,252 1,342,830
Patricia A. Sloan 54,910,429 1,376,652
<CAPTION>
SHARES VOTED SHARES VOTED
SHARES VOTED FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. To select Price Waterhouse LLP as the
Trust's independent accountants: 54,730,988 384,972 1,171,122
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS, SHORT
NET INVESTMENT SALES, FUTURES AND
INCOME OPTION TRANSACTIONS
TOTAL ------------------------- -------------------------
QUARTERLY PERIOD INCOME AMOUNT PER SHARE AMOUNT PER SHARE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 2, 1992*
to November 30, 1992 $ 2,584,661 $ 2,159,309 $0.04 $ 1,146,808 $ 0.02
December 1, 1992
to February 28, 1993 14,779,207 11,246,030 0.19 (15,734,330) (0.26)
March 1, 1993
to May 31, 1993 15,992,379 12,345,333 0.20 (16,386,657) (0.27)
June 1, 1993
to August 31, 1993 14,588,765 11,384,530 0.19 (11,342,823) (0.19)
September 1, 1993
to November 30, 1993 10,820,856 8,232,873 0.14 (24,209,878) (0.40)
December 1, 1993
to February 28, 1994 10,140,455 9,877,648 0.16 (7,298,603) (0.12)
March 1, 1994
to May 31, 1994 15,014,110 9,888,181 0.16 (14,937,318) (0.25)
June 1, 1994
to August 31, 1994 12,394,336 9,144,393 0.15 (637,576) (0.01)
September 1, 1994
to November 30, 1994 14,165,751 10,682,955 0.18 (10,524,270) (0.18)
December 1, 1994
to February 28, 1995 13,167,352 9,172,057 0.15 8,349,257 0.14
March 1, 1995
to May 31, 1995 13,431,319 8,668,837 0.14 9,297,643 0.16
June 1, 1995
to August 31, 1995 12,853,355 8,557,537 0.14 (8,569,766) (0.14)
September 1, 1995
to November 30, 1995 12,020,041 8,106,647 0.13 (13,910,970) (0.23)
<CAPTION>
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING FROM DIVIDENDS AND
OPERATIONS DISTRIBUTIONS SHARE PRICE
-------------------------- ------------------------- ------------
QUARTERLY PERIOD AMOUNT PER SHARE AMOUNT PER SHARE HIGH LOW
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
November 2, 1992*
to November 30, 1992 $ 3,306,117 $ 0.06 $ -- $ -- $10 1/8 $10
December 1, 1992
to February 28, 1993 (4,488,300) (0.07) 10,600,781 0.175 10 1/8 9 1/2
March 1, 1993
to May 31, 1993 (4,041,324) (0.07) 10,600,781 0.175 10 1/8 9 1/2
June 1, 1993
to August 31, 1993 41,707 (0.00) 10,600,780 0.175 9 1/2 9 1/4
September 1, 1993
to November 30, 1993 (15,977,005) (0.26) 9,594,648 0.158 8 3/4 8
December 1, 1993
to February 28, 1994 2,579,045 0.04 9,091,549 0.149 8 1/8 7 3/4
March 1, 1994
to May 31, 1994 (5,049,137) (0.09) 9,087,328 0.150 7 3/4 7 3/8
June 1, 1994
to August 31, 1994 8,506,817 0.14 9,085,234 0.150 8 7 3/8
September 1, 1994
to November 30, 1994 158,685 0.00 9,084,555 0.150 7 7/8 7
December 1, 1994
to February 28, 1995 17,521,314 0.29 8,578,218 0.140 7 1/2 7
March 1, 1995
to May 31, 1995 17,966,480 0.30 8,325,701 0.140 8 7 3/8
June 1, 1995
to August 31, 1995 (12,229) 0.00 7,568,798 0.120 8 1/8 7 1/2
September 1, 1995
to November 30, 1995 (5,804,323) (0.10) 7,190,273 0.120 7 3/4 7 1/8
</TABLE>
* Commencement of investment operations
- --------------------------------------------------------------------------------
20
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022
FOR GENERAL INFORMATION ABOUT THE FUNDS:
(800) HYPERION
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin St.
Boston, Massachusetts 02116
TRANSFER AGENT
BOSTON FINANCIAL DATA SERVICES, INC.
2 Heritage Drive
North Quincy, Massachusetts 02171
FOR SHAREHOLDER SERVICES:
(800) 426-5523
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
GIBSON, DUNN & CRUTCHER
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Trust may purchase its shares in the
open market at prevailing market prices.
21
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
A Dividend Reinvestment Plan (the 'Plan') is available to shareholders of the
Trust pursuant to which they may elect to have all dividends and distributions
of capital gains automatically reinvested by State Street Bank and Trust Company
(the 'Plan Agent') in Trust shares. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check mailed directly to the
shareholder of record (or if the Shares are held in street or other nominee
name, then to the nominee) by the Trust's Custodian, as Dividend Disbursing
Agent.
The Plan Agent serves as agent for the shareholders in administering the Plan.
After the Trust declares a dividend or determines to make a capital gain
distribution, payable in cash, the participants in the Plan will receive the
equivalent amount in Trust shares valued at the market price determined as of
the time of purchase (generally, the payment date of the dividend or
distribution). The Plan Agent will, as agent for the participants, use the
amount otherwise payable as a dividend to participants to buy shares in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price increases, the average per share purchase price paid by the Plan Agent may
exceed the market price of the shares at the time the dividend or other
distribution was declared. Share purchases under the Plan may have the effect of
increasing demand for the Trust's shares in the secondary market.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for handling the reinvestment of dividends and distributions
are paid by the Trust. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends and distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable on such dividends or
distributions.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. When a participant withdraws from the Plan or upon termination of
the Plan by the Trust, certificates for whole shares credited to his or her
account under the Plan will be issued and a cash payment will be made for any
fraction of a share credited to such account.
A brochure describing the Plan is available from the Plan Agent, State Street
Bank and Trust Company, by calling 1-800-426-5523.
If you wish to participate in the Plan and your shares are held in your name,
you may simply complete and mail the enrollment form in the brochure. If your
shares are held in the name of your brokerage firm, bank or other nominee, you
should ask them whether or how you can participate in the Plan. Shareholders
whose shares are held in the name of a brokerage firm, bank or other nominee and
are participating in the Plan may not be able to continue participating in the
Plan if they transfer their shares to a different brokerage firm, bank or other
nominee, since such shareholders may participate only if permitted by the
brokerage firm, bank or other nominee to which their shares are transferred.
22
<PAGE>
HYPERION
1997
TERM TRUST
SEMI-ANNUAL REPORT
NOVEMBER 30, 1995
[logo]
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Kenneth C. Weiss
Chairman
Lewis S. Ranieri
Director
Garth Marston*
Director
Rodman L. Drake*
Director
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Patricia A. Sloan
Director & Secretary
Louis C. Lucido
President
Clifford E. Lai
Senior Vice President
L. David Ricci
Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
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HYPERION
Capital Management, Inc.
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The accompanying financial statements as of November 30, 1995 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 1997 TERM TRUST, INC.
520 Madison Avenue
New York, NY 10022
