<PAGE>
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HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: January 22, 1997
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,
1996 and to share our outlook for the rest of the Trust's fiscal year. The
Trust's shares are traded on the New York Stock Exchange ('NYSE') under the
symbol 'HTA'.
DESCRIPTION OF THE TRUST
The Trust is a closed-end investment company with a scheduled termination date
of November 30, 1997. As reported in the annual report dated May 31, 1996, the
Trust's investment advisor, Hyperion Capital Management, Inc. (the 'Advisor'),
has determined that the amount of portfolio risk required during the remaining
term of the Trust to attain the $10.00 per share terminal date objective would
be inappropriate for the Trust and its shareholders. Accordingly, the Trust
portfolio is now invested primarily in U.S. Treasury securities that mature near
the Trust's scheduled termination date but will not enable the Trust to achieve
its objective to return $10.00 per share by that time.
Based upon the reduced profile of the Trust's investment activities, on July 16,
1996, the Advisor voluntarily agreed to reduce its investment advisory fee by
sixty percent, from 50 basis points (.50%) per annum to 20 basis points (.20%)
per annum, an effective 30 basis point reduction per annum.
MARKET ENVIRONMENT
The fixed income market continues to be volatile in reaction to short-term
changes in economic activity. In September, the market began a decline in
interest rates which resulted in a 100 basis point decrease, only to increase by
50 basis points in December. The cause of the volatility in interest rates is
the large variable swings in quarter to quarter economic activity. Economic
growth, recorded at 4.7% in the second quarter, fell to 2.1% in the third
quarter, only to rebound back to a projected 4.0% in the fourth quarter. The
market's perception of the correlation of economic growth and its impact on
inflation and monetary policy is the primary cause of the large swings in
interest rates.
The Trust's duration (duration measures a bond portfolio's price sensitivity to
interest rate changes) is currently 1.5 years, which includes leverage. The
proceeds from the Trust's leverage is utilized to purchase short maturity U.S.
Treasury securities ('Treasuries') with an objective of improving the Trust's
dividend earnings. In view of the Trust's relative short duration, upward or
downward changes in interest rates are not likely to have a significant impact
on the Trust's Net Asset Value ('NAV'). However, as the Trust continues to
approach its expected termination date and as set forth in the Trust's original
prospectus, the dividends paid by the Trust may decline as the average life of
the securities in the portfolio declines.
PORTFOLIO STRATEGY AND PERFORMANCE
Over the past several months, the portfolio has continued to increase its
allocation to Treasuries with maturities targeting the fourth quarter of 1997.
Currently 95% of the portfolio is invested in Treasuries. The increase into
Treasuries is the result of two factors. First, they were added to the portfolio
as a replacement for the Trust's holdings in
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
municipal securities, as the municipals have been sold in favor of higher
yielding Treasuries. Second, some asset-backed and mortgage-backed securities
have been sold in favor of Treasuries to improve portfolio liquidity as the
Trust approaches its scheduled termination date.
On July 16, 1996 the Board of Directors of the Trust authorized the Trust to
purchase in the open market up to 25% of the Trust's outstanding shares with the
primary objective of attempting to capture the discount on the share purchase
price relative to the Trust's NAV by retiring shares of the Trust. The benefit
of the discount captured goes directly to existing shareholders. The Trust has
repurchased and retired 3,246,600 shares since inception through and including
November 29, 1996 capturing $0.0139 in additional NAV per share or $798,663.25
in an actual dollar amount for shareholders.
The Trust's total return for the six month period ending November 30, 1996 was
4.57%. Total investment return is computed based upon the change in NAV of the
Trust's shares and includes reinvestment of dividends. The current monthly
dividend the Trust pays its shareholders is $0.03333 per share. The current
yield of 5.61% on shares of the Trust is based on the NYSE closing price of
$7.125 on November 29, 1996.
The chart that follows shows the allocation of the Trust's holdings by asset
category on November 30, 1996.
2
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HYPERION 1997 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1996*
[PIE CHART]
U.S. Treasury & Agency Obligations 95.0%
U.S. Government Agency Pass-Through Certificates 2.85%
Collateralized Mortgage Obligation 1.0%
Asset-Backed Security 0.8%
Municipal Security 0.2%
Repurchase Agreement 0.2%
*As a percentage of total investments.
CONCLUSION
We appreciate the opportunity to serve your investment needs and we thank you
for your continued support. As always, we welcome your questions and comments
and encourage you to contact our Shareholder Services Representatives at
1-800-HYPERION.
Sincerely,
KENNETH C. WEISS
Chairman,
Hyperion 1997 Term Trust, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
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, 1996 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 139.8%
U.S. GOVERNMENT AGENCY PASS-THROUGH
CERTIFICATES -- 4.1%
Federal National Mortgage
Association
7.00% 10/01/01 $ 16,247 $ 16,440,303
10.00 02/01/25 585 642,585
------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
(Cost--$16,140,961) 17,082,888
------------
U.S. TREASURY & AGENCY OBLIGATIONS -- 135.7%
Federal Farm Credit Bank
Debenture 5.90 12/03/97 35,000 35,121,205
------------
U.S. Treasury Notes
5.00 01/31/98 113,000@ 112,329,119
5.13 02/28/98 45,000 44,760,960
5.25 12/31/97 75,000 74,812,500
5.38 11/30/97 73,500 73,419,591
6.38 05/15/99 6,250 6,344,725
7.25 02/15/98 100,000@ 101,953,100
7.38 11/15/97 121,000 123,060,751
------------
536,680,746
------------
TOTAL U.S. TREASURY & AGENCY
OBLIGATIONS
(Cost--$567,898,730) 571,801,951
------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost--$584,039,691) 588,884,839
------------
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ASSET-BACKED SECURITY -- 1.2%
MBNA Master Credit Card
Trust
Series 1992-1, Class A
(Cost--$5,102,344) 7.25 06/15/99 5,000 5,030,665
------------
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COLLATERALIZED MORTGAGE OBLIGATION (REMIC) -- 1.4%
Residential Funding Mortgage
Securities I, Inc.
Series 1996-S7, Class A12
(Cost--$5,888,659) 7.00 03/25/26 6,061 5,946,800
------------
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MUNICIPAL ZERO COUPON SECURITY -- 0.2%
KENTUCKY
Owensboro Kentucky, Electric
Light & Power
Series B, Revenue
Bond, AMBAC
(Cost--$954,890) (a) 01/01/98 1,000 956,769
------------
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4
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HYPERION 1997 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
November 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount Value
(000s) (Note 2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.3%
Dated 11/29/96 with State Street Bank and Trust Company, 5.00%,
due 12/02/96; proceeds: $1,120,467; collateralized by $1,125,000
U.S. Treasury Note, 6.125%, due 03/31/98, value: $1,144,796
(Cost--$1,120,000) $ 1,120 $ 1,120,000
------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 142.9%
(Cost--$597,105,584) $601,939,073
LIABILITIES IN EXCESS OF OTHER ASSETS -- (42.9%) (180,573,578)
------------
NET ASSETS--100.0% $421,365,495
------------
------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
@ Portion of or entire principal amount delivered as collateral for
reverse repurchase agreements. (Note 5)
REMIC Real Estate Mortgage Investment Conduit
(a) Zero Coupon Bonds
AMBAC American Municipal Bond Assurance Corporation
- ---------------
See notes to financial statements.
5
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost -- $597,105,584) (Note 2).......... $601,939,073
Cash........................................................... 242
Interest receivable............................................ 9,834,800
Prepaid expenses............................................... 27,013
Deferred organization expenses (Note 2)........................ 11,286
------------
Total assets......................................... 611,812,414
------------
LIABILITIES:
Reverse repurchase agreements (Note 5)......................... 189,518,750
Dividends payable.............................................. 359,712
Accrued expenses and other liabilities......................... 287,253
Interest payable (Note 5)...................................... 155,367
Investment advisory fee payable (Note 3)....................... 75,503
Administration fee payable (Note 3)............................ 50,334
Contingencies (Notes 8 and 9)..................................
------------
Total liabilities.................................... 190,446,919
------------
NET ASSETS (equivalent to $7.35 per share based on 57,363,927
shares outstanding).......................................... $421,365,495
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6)................................. $ 573,639
Additional paid-in capital..................................... 551,375,663
Undistributed net investment income............................ 11,401,413
Accumulated net realized losses................................ (146,818,709)
Net unrealized appreciation.................................... 4,833,489
------------
Net assets applicable to capital stock outstanding............. $421,365,495
------------
------------
- -----------------
See notes to financial statements.
6
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 2):
Interest....................................................... $19,441,665
-----------
EXPENSES:
Investment advisory fees (Note 3).............................. 593,719
Administration fees (Note 3)................................... 302,705
Legal.......................................................... 233,347
Insurance...................................................... 131,063
Custodian...................................................... 62,528
Reports to shareholders........................................ 50,254
Transfer agency................................................ 46,507
Audit and tax services......................................... 40,326
Registration................................................... 18,124
Directors' fees................................................ 19,931
Amortization of organization expenses (Note 2)................. 8,735
Miscellaneous.................................................. 125,490
-----------
Total operating expenses............................... 1,632,729
Interest expense (Note 5).................... 4,582,377
-----------
Total expenses......................................... 6,215,106
-----------
Net investment income.......................................... 13,226,559
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND FUTURES (Notes 2 and 4):
Net realized losses on:
Investment transactions........................................ (5,064,568)
Futures transactions........................................... (8,000)
-----------
(5,072,568)
-----------
Net change in unrealized appreciation on investments............. 10,023,854
-----------
Net realized and unrealized gains on investments and futures
transactions................................................... 4,951,286
-----------
Net increase in net assets resulting from operations............. $18,177,845
-----------
-----------
- ---------------
See notes to financial statements.
7
<PAGE>
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HYPERION 1997 TERM TRUST, INC. For the
STATEMENTS OF CHANGES IN NET ASSETS Six Months
Ended
November 30, For the Year
1996 Ended
(unaudited) May 31, 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income...................... $ 13,226,559 $ 31,712,136
Net realized losses on investments, short
sales, futures and written option
transactions............................ (5,072,568) (51,018,325)
Net change in unrealized appreciation
(depreciation) on investments and
futures transactions.................... 10,023,854 (13,640,434)
------------ ------------
Net increase (decrease) in net assets
resulting from operations............... 18,177,845 (32,946,623)
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income...................... (12,581,469) (29,139,632)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Trust shares repurchased and
retired................................. (22,433,745) --
------------ ------------
Total decrease in net assets....... (16,837,369) (62,086,255)
NET ASSETS:
Beginning of period.......................... 438,202,864 500,289,119
------------ ------------
End of period (including undistributed net
investment income of $11,401,413 and
$10,756,323, respectively)................. $421,365,495 $438,202,864
------------ ------------
------------ ------------
- ---------------
See notes to financial statements.
8
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding accretion of $1,532,692)........ $ 11,758,429
Interest expense paid........................................ (4,492,925)
Operating expenses paid...................................... (1,442,770)
Purchase of short-term portfolio investments, including
options, net.............................................. (573,500)
Purchase of long-term portfolio investments.................. (439,663,555)
Proceeds from disposition of long-term portfolio investments
and principal paydowns.................................... 474,343,755
Net cash used for futures transactions....................... (8,000)
-------------
Net cash provided by operating activities.................... 39,921,434
-------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements.............. (5,379,250)
Cash used to repurchase and retire Trust shares.............. (22,433,745)
Cash dividends paid.......................................... (12,221,757)
-------------
Net cash used for financing activities....................... (40,034,752)
-------------
Net decrease in cash......................................... (113,318)
Cash at beginning of period.................................... 113,560
-------------
Cash at end of period.......................................... $ 242
-------------
-------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations........... $ 18,177,845
-------------
Decrease in investments...................................... 4,535,303
Increase in net unrealized appreciation on investments....... (10,023,854)
Increase in interest receivable.............................. (6,066,026)
Decrease in other assets..................................... 33,152,372
Increase in accrued expenses and other liabilities........... 145,794
-------------
Total adjustments.................................... 21,743,589
-------------
Net cash provided by operating activities...................... $ 39,921,434
-------------
-------------
- ------------------
See notes to financial statements.
9
<PAGE>
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<TABLE>
<CAPTION>
HYPERION 1997 TERM TRUST, INC. For the
FINANCIAL HIGHLIGHTS Six Months
Ended For the Period
November 30, For the Year For the Year For the Year November 2, 1992*
1996 Ended Ended Ended through
(unaudited) May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 7.24 $ 8.26 $ 8.11 $ 9.05 $ 9.48**
------------- ------------ ------------ ------------ -----------------
Net investment income..................... 0.24 0.52 0.62 0.65 0.43
Net effect of shares repurchased.......... 0.01 -- -- -- --
Net realized and unrealized gains (losses)
on investments, short sales, futures and
written option transactions............. 0.08 (1.06) 0.11 (0.96) (0.51)
------------- ------------ ------------ ------------ -----------------
Net increase (decrease) in net asset value
resulting from operations............... 0.33 (0.54) 0.73 (0.31) (0.08)
------------- ------------ ------------ ------------ -----------------
Dividends from net investment income...... (0.22) (0.48) (0.58) (0.63) (0.35)
------------- ------------ ------------ ------------ -----------------
Net asset value, end of period............ $ 7.35 $ 7.24 $ 8.26 $ 8.11 $ 9.05
------------- ------------ ------------ ------------ -----------------
------------- ------------ ------------ ------------ -----------------
Market price, end of period............... $ 7.125 $ 6.875 $ 8.00 $ 7.375 $ 9.50
------------- ------------ ------------ ------------ -----------------
------------- ------------ ------------ ------------ -----------------
TOTAL INVESTMENT RETURN+.................. 6.76%(1) (8.31)% 16.98% (16.22)% (3.59)%(1)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s).......... $ 421,365 $438,203 $500,289 $491,303 $ 548,268
Total operating expenses.................. 0.76%(2) 0.95% 0.86% 0.76% 0.79%(2)
Interest expense.......................... 2.12%(2) 2.39% 2.31% 1.41% 1.57%(2)
Net investment income..................... 6.13%(2) 6.63% 7.71% 7.61% 7.99%(2)
Portfolio turnover rate................... 78% 382% 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.
10
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
1. THE TRUST:
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 'Advisor'). 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.
In light of the Trust's scheduled termination date of November 30, 1997, on June
14, 1996 the Trust's Advisor determined that the amount of portfolio risk
required during the remaining term of the Trust to attain the $10.00 per share
terminal date objective would, in its view, be inappropriate for the Trust and
its shareholders. Accordingly, the Trust portfolio is now invested primarily in
U.S. Treasury securities that mature near the Trust's scheduled termination date
but will not enable the Trust to achieve its objective to return $10.00 per
share by that time. The Advisor intends to continue to reduce the portfolio's
duration as its expected termination date of November 30, 1997 approaches.
2. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Valuation of Investments: Where market quotations are readily available, Trust
securities are valued based upon the current bid price for long positions, and
the current ask price for short positions. The Trust values mortgage-backed
securities ('MBS') and other debt securities for which market quotations are not
readily available at their fair value as determined in good faith, utilizing
procedures approved by the Board of Directors of the Trust, on the basis of
information provided by dealers in such securities. Some of the general factors
which may be considered in determining fair value include the fundamental
analytic data relating to the investment and an evaluation of the forces which
influence the market in which these securities are purchased and sold.
Determination of fair value involves subjective judgment, as the actual market
value of a particular security can be established only by negotiations between
the parties in a sales transaction. Debt securities having a remaining maturity
of sixty days or less when purchased and debt securities originally purchased
with maturities in excess of sixty days but which currently have maturities of
sixty days or less are valued at amortized cost.
The ability of issuers of debt securities held by the Trust to meet their
obligations may be affected by economic developments in a specific industry or
region. The values of MBS can be significantly affected by changes in interest
rates.
Financial Futures Contracts: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by 'marking-to-market' on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
The Trust invests in financial futures contracts to adjust the portfolio for
fluctuations in value caused by changes in prevailing market interest rates.
Should interest rates move unexpectedly, the Trust may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets. The Trust is at risk that it may not be able to close out a
transaction because of an illiquid secondary market.
Options Written or Purchased: The Trust may write or purchase options as a
method of hedging potential declines in similar underlying securities. When the
Trust writes or purchases an option, an amount equal to the premium received or
paid by the Trust is recorded as a liability or an asset and is subsequently
11
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
adjusted to the current market value of the option written or purchased.
Premiums received or paid from writing or purchasing options which expire
unexercised are treated by the Trust on the expiration date as realized gains or
losses. The difference between the premium and the amount paid or received on
effecting a closing purchase or sale transaction, including brokerage
commissions, is also treated as a realized gain or loss. If an option is
exercised, the premium paid or received is added to the proceeds from the sale
or cost of the purchase in determining whether the Trust has realized a gain or
a loss on the investment transaction.
The Trust, as writer of an option, may have no control over whether the
underlying securities may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
The Trust purchases or writes options to hedge against adverse market movements
or fluctuations in value caused by changes in interest rates. The Trust bears
the risk in purchasing an option, to the extent of the premium paid, that it
will expire without being exercised. If this occurs, the option expires
worthless and the premium paid for the option is recognized as a loss. The risk
associated with writing call options is that the Trust may forego the
opportunity for a profit if the market value of the underlying position
increases and the option is exercised. The Trust will only write call options on
positions held in its portfolio. The risk in writing a put option is that the
Trust may incur a loss if the market value of the underlying position decreases
and the option is exercised. In addition, the Trust bears the risk of not being
able to enter into a closing transaction for written options as a result of an
illiquid market.
Short Sales: The Trust may make short sales of securities as a method of hedging
potential declines in similar securities owned. When the Trust makes a short
sale, it must borrow the security sold short and deliver it to the broker-dealer
through which it made the short sale as collateral for its obligation to deliver
the security upon conclusion of the sale. The Trust may have to pay a fee to
borrow the particular securities and may be obligated to pay over any payments
received on such borrowed securities. A gain, limited to the price at which the
Trust sold the security short, or a loss, unlimited as to dollar amount, will be
recognized upon the termination of a short sale if the market price is greater
or less than the proceeds originally received.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from securities
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. Discounts and premiums on certain securities are
accreted and amortized using the effective yield to maturity method.
Taxes: It is the Trust's intention to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders. Therefore, no
federal income or excise tax provision is required.
Dividends and Distributions: The Trust declares and pays dividends monthly from
net investment income. Distributions of net realized capital gains in excess of
capital loss carryforwards are distributed at least annually. Dividends and
distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences, which
could be temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
Deferred Organization Expenses: A total of $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 and amortizing
premiums on debt obligations.
Repurchase Agreements: The Trust, through its custodian, receives delivery of
the underlying collateral, the market value of which at the time of purchase is
12
<PAGE>
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HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
required to be in an amount at least equal to the resale price, including
accrued interest. The Advisor is responsible for determining that the value of
these underlying securities is sufficient at all times. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings commence
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
3. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS:
The Trust has entered into an Investment Advisory Agreement with the Advisor.
The Advisor is responsible for the management of the Trust's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Trust. For the period from June 1,
1996 to July 15, 1996, the Trust paid a monthly investment advisory fee at an
annual rate of .50% of the Trust's average weekly net assets. On July 16, 1996,
the Advisor agreed to immediately reduce its investment advisory fee from 50
basis points (.50%) per annum to 20 basis points (.20%) per annum, an effective
30 basis points reduction per annum. For the six month period ended November 30,
1996, the Advisor earned $593,719 in investment advisory fees.
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc. (the 'Administrator'). The Administrator performs
administrative services necessary for the operation of the Trust, including
maintaining certain books and records of the Trust, and preparing reports and
other documents required by federal, state, and other applicable laws and
regulations, and provides the Trust with administrative office facilities. For
these services, the Trust pays to the Administrator a monthly fee at an annual
rate of 0.17% of the first $100 million of the Trust's average weekly net
assets, 0.145% of the next $150 million and 0.12% of any amounts above $250
million. For the six month period ended November 30, 1996, the Administrator
earned $302,705 in Administration Fees.
Certain officers and/or directors of the Trust are officers and/or directors of
the Advisor.
4. PURCHASES AND SALES OF INVESTMENTS:
Sales of investments, excluding short-term securities, U.S. Government
securities and reverse repurchase agreements, for the six month period ended
November 30, 1996 amounted to $295,890,977. There were no purchases of
investments other than short-term and U.S. Government securities. Purchases and
sales of U.S. Government securities, for the six month period ended November
30,1996, were $439,663,555 and $138,027,951, respectively. For purposes of this
footnote, U.S. Government securities include securities issued by the U.S.
Treasury, the Federal Home Loan Mortgage Corporation, the Federal Farm Credit
Bank and the Government National Mortgage Association.
The federal income tax basis of the Trust's investments at November 30, 1996 was
$597,105,584 and, accordingly, net unrealized appreciation for federal income
tax purposes was $4,833,489 (gross unrealized appreciation--$4,905,168, gross
unrealized depreciation-- $71,679). At May 31, 1996, the Trust had capital
losses of $141,746,141, of which $87,384,493 expires in 2002, $8,086,789 expires
in 2003 and $46,274,859 expires in 2004, 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.
5. BORROWINGS:
The Trust may enter into reverse repurchase agreements and dollar roll
agreements with the same parties with whom it may enter into repurchase
agreements. A dollar roll agreement is identical to a reverse repurchase
agreement except for the fact that substantially identical securities may be
repurchased. Under a reverse repurchase agreement or a dollar roll agreement,
the Trust sells securities and agrees to repurchase them, or substantially
similar securities in the case of a dollar roll agreement, at a mutually agreed
upon date and price. Under the 1940 Act, reverse repurchase agreements and
dollar roll agreements will be regarded as a form of borrowing by the Trust
unless, at the time it enters into a reverse repurchase agreement or a dollar
roll agreement, it establishes and maintains a segregated account with its
custodian containing securities from its portfolio having a value not less than
the repurchase price (including accrued interest). The Trust has established and
maintained such an account for each of its reverse
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
repurchase agreements and dollar roll agreements. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of the
securities retained in lieu of sale by the Trust may decline below the price of
the securities the Trust has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement or a dollar roll
agreement files for bankruptcy or becomes insolvent, such buyer or its trustee
or receiver may receive an extension of time to determine whether to enforce the
Trust's obligation to repurchase the securities, and the Trust's use of the
proceeds of the reverse repurchase agreement or the dollar roll agreement may
effectively be restricted pending such decision.
At November 30, 1996, the Trust had the following reverse repurchase agreements
outstanding:
MATURITY IN
ZERO TO 30 DAYS
---------------
Maturity Amount..................... $ 189,788,038
---------------
Market Value of Assets Sold Under
Agreements........................ $ 186,321,115
---------------
Weighted Average Interest Rate...... 5.41%
---------------
The average daily balance of reverse repurchase agreements outstanding during
the six month period ended November 30, 1996, was approximately $170,428,008 at
a weighted average interest rate of 5.36%. The maximum amount of reverse
repurchase agreements outstanding at any time during the year was $219,769,875
as of June 13, 1996, which was 33.3% of total assets.
6. CAPITAL STOCK:
There are 100 million shares of $0.01 par value common stock authorized. Of the
57,363,927 shares outstanding at November 30, 1996, the Advisor owned 10,527
shares.
The Trust is continuing its stock repurchase program. On July 16, 1996, the
Board of Directors authorized the Trust to purchase and retire up to 25%
(changed from 15%) of its then outstanding common shares, or approximately 15.1
million (changed from 9.1 million) of the Trust's shares, in the open market.
The purchase price may not exceed the then-current net asset value.
During the six month period ended November 30, 1996, the Trust repurchased
3,191,300 shares of its outstanding common stock at a cost of $22,433,745 and at
an average discount of 3.64% from its net asset value per share. During the year
ended May 31, 1996, the Trust did not repurchase any shares of its outstanding
common stock. All shares repurchased have been retired.
7. FINANCIAL INSTRUMENTS:
The Trust regularly trades in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing exposure
to various market risks. These financial instruments include written options and
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Trust has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
The Trust had no written option activity for the six month period ended November
30, 1996.
There were no open futures contracts at November 30, 1996.
8. LITIGATION:
During the months of October and November 1993, purported class action lawsuits
were instituted against the Trust and its directors, officers and underwriters
by certain shareholders of the Trust in the United States District Court,
Southern District of New York. The plaintiffs in those actions generally alleged
that the defendants made inadequate and misleading disclosure in the
registration statement and prospectus for the Trust, in particular, as such
disclosure relates to the nature and risks of 'interest-only mortgage strip
securities' and the Trust's investments in those instruments. A Pre-Trial Order
of Consolidation dated December 27, 1993 consolidated these and other actions
under the consolidated caption In re: Hyperion Securities Litigation Master File
No. 93-CIV-7179 (MBM). Pursuant to the terms of the Order of Consolidation, one
consolidated amended complaint was served upon the Trust and the other
defendants which superseded all other complaints previously filed. The Advisor
was added as a defendant in that complaint.
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
On April 8, 1994, the defendants moved to dismiss the consolidated complaint.
Pursuant to an order dated October 3, 1994, the Court stayed all discovery in
the Action except for certain limited document discovery. In November 1994,
while the motion to dismiss was still pending, plaintiffs filed a second
consolidated amended complaint which superseded the first amended complaint. The
allegations in the second consolidated amended complaint relate to the accuracy
of the defendants' representations to investors about the Trust's investment
objectives, and level and adequacy of the disclosure in the prospectus for the
Trust used in connection with its initial public offering. Defendants moved to
dismiss the second consolidated amended complaint in December 1994. Judge
Michael B. Mukasey issued an opinion and order dated July 12, 1995 dismissing
the second consolidated amended complaint without leave to replead (granted 93
CIV 7179; July 18, 1995). The plaintiffs filed a motion to reargue on July 27,
1995 and Judge Mukasey denied the motion to reargue on September 6, 1995.
Plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Second
Circuit on August 17, 1995. On October 15, 1996, a three judge panel of the
Court of Appeals for the Second Circuit in a two to one vote upheld Judge
Michael B. Mukasey's July 12, 1995 opinion and order dismissing with prejudice
plaintiffs' second consolidated amended complaint for failure to identify any
misrepresentations or misleading omissions in the registration statement and
prospectus for the Trust. Appellants filed a petition for rehearing and
suggestion for rehearing in banc by the entire appellate court on October 29,
1996. Please refer to Note 9 for further information.
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
(hereafter referred to as 'Moelis'), a purported class action originally filed
on May 6, 1994 and amended shortly thereafter in the United States District
Court, Southern District of New York, Index No. 94-CIV-3328 (MBM). The claims in
the Moelis complaint allege, inter alia, (i) that the prospectus and several
post-issuance reports and public statements were misleading by not disclosing
all of the risks involved in the Trust's investments in certain mortgage-backed
securities including 'interest-only strips', and (ii) that the Trust would
invest or had invested in U.S. Treasury Note commodity futures contracts in
violation of the Trust's investment objectives. The Moelis complaint also
alleges that it was false and misleading for the prospectus to state that 'under
current market conditions, the Trust does not intend to engage in any futures,
options or interest rate hedging transactions.' Plaintiff agreed that the
defendants need not respond to any of the claims in the Moelis complaint pending
the District Court's disposition of the motion to dismiss In re: Hyperion
Securities Litigation. An amended complaint is now scheduled to be served on
February 4, 1997.
Pursuant to the Underwriting Agreement between the Trust and its underwriters,
the Trust and the Advisor have jointly and severally agreed to indemnify the
underwriters for their liabilities, losses and costs directly related to certain
contents of the prospectus and registration statement of the Trust. The
underwriters have provided notification to the Trust and the Advisor that they
intend to exercise their rights of indemnification in the event that they are
subject to liabilities, costs or losses that are covered by the indemnity. In
addition, pursuant to the Investment Advisory Agreement between the Trust and
the Advisor, the Advisor is indemnified for all of its liabilities, losses and
costs in connection with any matter involving the Trust, except for actions
relating to the gross negligence, willful malfeasance or fraud of the Advisor.
In addition, the Trust's Articles of Incorporation provide for the
indemnification of its Directors. The Trust's Directors and Advisor have also
notified the Trust of their intention to seek indemnification. The Trust has
incurred litigation expenses for the six month period ended November 30, 1996 to
the indemnified parties noted above, based upon amounts which are deemed
reimbursable in accordance with the indemnification provisions. Pursuant to
these indemnification provisions, the Trust reimbursed $236,423 of litigation
expenses to the Advisor during the six month period ended November 30, 1996.
This amount was previously advanced by the Advisor on behalf of the Trust, its
directors, certain of its officers and underwriters. The Trust has included
these amounts in legal fees.
The Trust, certain of its directors, and the Advisor have been named as
defendants in Karpus v. Hyperion Capital Management, Inc., et al, a purported
class action brought on behalf of Trust's shareholders that was filed in the
United States District Court, Southern District of New York on June 21, 1996
(File No. 96-CIV-4671). Plaintiff's original complaint was dismissed by the
District Court on November 15, 1996 with leave to replead. The amended complaint
alleges (as did the original) that the Trust failed to adhere to a fundamental
policy set forth in the registration statement by failing to continue to reduce
the sensitivity to
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 1997 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
November 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
changes in interest rates of the Trust portfolio beginning in mid-1995, that
this failure was reckless behavior on the part of the defendants, and that these
actions constitute a violation of the 1940 Act and are also breaches of
fiduciary duty and trust. The amended complaint seeks unspecified monetary
damages, an accounting and other relief. The amended complaint adds the
allegation that the statement in the registration statement regarding the
reduction of sensitivity to changes in interest rates was 'an untrue statement
of material fact,' and a violation of the 1940 Act. Defendants believe that the
claims are without merit, and intend to defend the claims vigorously. Whether or
not the plaintiff prevails, however, the Trust may be obligated to indemnify and
advance litigation expenses to one or more of the defendants under the terms and
conditions of various indemnity provisions of the Trust's Investment Advisory
Agreement and its Articles of Incorporation, and the amounts of such
indemnification and expenses could be material. The ultimate outcome of this
litigation is not presently determinable.
9. 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>
$.03333 12/16/96 12/26/96
$.03333 12/30/96 01/30/97
</TABLE>
On January 7, 1997, the Court of Appeals for the Second Circuit denied the
appellants' petition for rehearing and suggestion for rehearing in banc with
regards to the Hyperion Securities Litigation. Please refer to Note 8 for
further information.
16
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six month period ended November 30, 1996, Hyperion 1997 Term Trust,
Inc. shareholders voted on the following proposals at a shareholders' meeting on
October 15, 1996. 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 to the Trust's Board of
Directors:
Rodman L. Drake 54,224,367 2,420,425
Garth Marston 54,188,937 2,455,855
- ----------------------------------------------------------------------------------------------------
<CAPTION>
SHARES VOTED SHARES VOTED
SHARES VOTED FOR AGAINST ABSTAIN
- ----------------------------------------------------------------------------------------------------
2. To select Price Waterhouse LLP as the
Trust's independent accountants: 54,624,815 703,861 1,316,115
</TABLE>
- --------------------------------------------------------------------------------
17
<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 WRITTEN OPTION TRANSACTIONS
TOTAL ------------------------- --------------------------------
QUARTERLY PERIOD INCOME AMOUNT PER SHARE AMOUNT PER SHARE
<S> <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)
December 1, 1995
to February 28, 1996 11,731,996 7,886,509 0.13 (15,932,505) (0.26)
March 1, 1996
to May 31, 1996 11,065,744 7,161,443 0.12 (26,245,518) (0.43)
June 1, 1996
to August 31, 1996 9,791,767 6,758,343 0.12 693,486 0.01
September 1, 1996
to November 30, 1996 9,649,898 6,468,216 0.12 4,257,800 0.07
<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
- -------------------------------------------------------------------------------------------------------------------
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 0.125 8 1/8 7 1/2
September 1, 1995
to November 30, 1995 (5,804,323) (0.10) 7,190,273 0.119 7 3/4 7 1/8
December 1, 1995
to February 28, 1996 (8,045,996) (0.13) 7,190,289 0.119 7 5/8 7 1/8
March 1, 1996
to May 31, 1996 (19,084,075) (0.31) 7,190,272 0.119 7 3/8 6 3/4
June 1, 1996
to August 31, 1996 7,451,829 0.13 6,784,459 0.112 7 1/8 6 3/4
September 1, 1996
to November 30, 1996 10,726,016 0.19 5,797,010 0.100 7 1/4 6 7/8
</TABLE>
* Commencement of investment operations
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022-4213
FOR GENERAL INFORMATION ABOUT THE TRUST:
(800) HYPERION
TRANSFER AGENT
BOSTON EQUISERVE L.P.
Investor Relations Department
P.O. Box 8200
Boston, Massachusetts 02266-8200
FOR SHAREHOLDER SERVICES:
(800) 426-5523
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02116
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Trust may purchase its shares in the
open market at prevailing market prices.
18
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
A Dividend Reinvestment Plan (the 'Plan') is available to shareholders of the
Trust pursuant to which they may elect to have all dividends and distributions
of capital gains automatically reinvested by State Street Bank and Trust Company
(the 'Plan Agent') in Trust shares. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check mailed directly to the
shareholder of record (or if the shares are held in street or other nominee
name, then to the nominee) by the Trust's Custodian, as Dividend Disbursing
Agent.
The Plan Agent serves as agent for the shareholders in administering the Plan.
After the Trust declares a dividend or determines to make a capital gain
distribution, payable in cash, the participants in the Plan will receive the
equivalent amount in Trust shares valued at the market price determined as of
the time of purchase (generally, the payment date of the dividend or
distribution). The Plan Agent will, as agent for the participants, use the
amount otherwise payable as a dividend to participants to buy shares in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price increases, the average per share purchase price paid by the Plan Agent may
exceed the market price of the shares at the time the dividend or other
distribution was declared. Share purchases under the Plan may have the effect of
increasing demand for the Trust's shares in the secondary market.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for handling the reinvestment of dividends and distributions
are paid by the Trust. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends and distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable on such dividends or
distributions.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. When a participant withdraws from the Plan or upon termination of
the Plan by the Trust, certificates for whole shares credited to his or her
account under the Plan will be issued and a cash payment will be made for any
fraction of a share credited to such account.
A brochure describing the Plan is available from the Plan Agent, State Street
Bank and Trust Company, by calling 1-800-426-5523.
If you wish to participate in the Plan and your shares are held in your name,
you may simply complete and mail the enrollment form in the brochure. If your
shares are held in the name of your brokerage firm, bank or other nominee, you
should ask them whether or how you can participate in the Plan. Shareholders
whose shares are held in the name of a brokerage firm, bank or other nominee and
are participating in the Plan may not be able to continue participating in the
Plan if they transfer their shares to a different brokerage firm, bank or other
nominee, since such shareholders may participate only if permitted by the
brokerage firm, bank or other nominee to which their shares are transferred.
19
<PAGE>
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Kenneth C. Weiss
Chairman
Lewis S. Ranieri
Director
Garth Marston*
Director
Rodman L. Drake*
Director
Leo M. Walsh, Jr.*
Director
Harry E. Peterson, Jr.*
Director
Patricia A. Sloan
Director & Secretary
Louis C. Lucido
President
Clifford E. Lai
Senior Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
- -------------------------------------------------------------------------------
HYPERION
Capital Management, Inc.
- --------------------------------------------------------------------------------
The accompanying financial statements as of November 30, 1996 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
SEMI-ANNUAL REPORT
NOVEMBER 30, 1996
