<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: January 22, 1996
We welcome this opportunity to provide you with information about Hyperion 2002
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 'HTB'.
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, 2002. 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, at the
time of investment, 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. Since this rally began, the market has been anticipatory,
rallying sharply based upon expectations of future interest rate cuts by the
Federal Reserve Board (the 'Fed'). So far, the market has been correct about the
direction of the Fed activity. 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. Current market levels, and a continued downtrend in interest
rates suggest that the market expects additional interest rate cuts by the Fed
and is hopeful for a balanced budget agreement that is currently being debated
in Washington.
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
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISER (CONTINUED)
- --------------------------------------------------------------------------------
the returns on the Merrill Lynch 5-Year Treasury Index.
PORTFOLIO STRATEGY AND PERFORMANCE
The Trust enjoyed excellent net asset value ('NAV') performance, posting a
positive total return of 22.95% for the twelve month period ended November 30,
1995. Total investment return is computed based upon the change in NAV of the
Trust's shares and reinvestment of dividends. The NAV increased over this period
by $1.03, from $7.64 on November 30, 1994 to $8.67 on November 30, 1995. The
Trust's core portfolio had been well positioned for the decline in interest
rates, which had occurred over this period. We have sought to improve the
convexity characteristics of the portfolio, by purchasing MBS pass-throughs,
Collateralized Mortgage Obligations ('CMO'), Planned Amortization Class ('PAC')
bonds and call-protected multifamily and commercial CMOs. This strategy
succeeded in protecting the portfolio from heightened fears of residential
refinancing activity.
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 historical
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, we anticipate 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 CMO 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 that follows shows the allocation of the Trust's holdings by asset
category on November 30, 1995.
2
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISER (CONCLUDED)
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1995*
[CHART]
U.S. Government Agency Collateralized Mortgage Obligations 25.8%
U.S. Government Agency Pass-Through Certificates 24.6
Collateralized Mortgage Obligations 19.1
U.S. Treasury Obligations 14.9
Municipal Zero Coupon Securities 7.7
U.S. Government Agency Stripped Mortgage-Backed Securities 2.7
U.S. Government Agency Asset Backed Security 2.4
Asset Backed Security 2.3
Repurchase Agreement 0.5
* 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 2002 Term Trust, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
/s/ Louis C. Lucido
- ----------------------------
LOUIS C. LUCIDO
President,
Hyperion 2002 Term Trust, Inc.
Managing Director and Chief Operating Officer,
Hyperion Capital Management, Inc.
3
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 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--101.9%
U.S. GOVERNMENT AGENCY ASSET-BACKED SECURITY--3.3%
Federal National Mortgage
Association
Series 1995-W1, Class A6
(Cost - $10,137,500) 8.10% 04/25/25 $ 10,000 $ 10,406,300
------------
U.S. GOVERNMENT AGENCY PASS-THROUGH
CERTIFICATES--35.7%
Federal National Mortgage
Association
6.50 12/01/23-08/01/25 88,700# 86,980,944
8.00 04/01/25 23,280 24,036,318
------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
(Cost - $108,427,620) 111,017,262
------------
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)--37.3%
Federal Home Loan Mortgage
Corporation
Series 1628, Class KC 6.25 05/19/09 10,075 9,899,282
Series 1727, Class G 6.50 02/15/23 27,000# 27,115,020
Series 1694, Class PQ 6.50 09/15/23 20,000 20,124,600
Series 1725, Class B 7.00 10/15/20 7,364 7,426,299
------------
64,565,201
------------
Federal National Mortgage
Association
Series 1994-56, Class H 6.00 07/25/22 20,000# 19,358,600
Series 1989-20, Class A 6.75 04/25/18 8,778# 8,873,309
Series 1994-79, Class B 7.00 12/25/19 23,100# 23,235,366
------------
51,467,275
------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)
(Cost - $106,275,815) 116,032,476
------------
U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED SECURITIES (REMICS)--4.0%
INTEREST-ONLY SECURITIES
Federal National Mortgage
Association
Series 1994-M1, Class
IO, WAC 0.87 10/25/03 76,642 3,616,721
Series 1993-M2, Class J,
WAC 2.03 11/25/03 73,140 5,748,091
Series 1994-10, Class H,
PAC 6.50 08/25/22 3,000 3,006,810
------------
TOTAL U.S. GOVERNMENT
AGENCY STRIPPED
MORTGAGE-BACKED
SECURITIES (REMICS)
(Cost - $14,912,727) 12,371,622
------------
U.S. TREASURY OBLIGATIONS--21.6%
U.S. Treasury Notes
(Cost - $61,961,637) 7.50 02/15/05 60,000# 67,153,200
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $301,715,299) 316,980,860
------------
- -------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
ASSET BACKED SECURITY--3.4%
Prime Credit Card Master Trust
Series 1992-2, Class A2
(Cost - $9,976,563) 7.45% 11/15/02 $ 10,000 $ 10,551,600
------------
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--27.6%
GE Capital Mortgage
Services, Inc.
Series 1994-3, Class A12 6.50 01/25/24 12,000 11,420,638
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C3, Class A3 7.09 06/25/15 7,500 7,612,500
Prudential Home Mortgage
Securities Co., Inc.
Series 1992-42, Class A7 7.00 01/25/08 18,669 18,635,582
Residential Funding
Mortgage Securities, Inc.
Series 1994-S9, Class A8 6.50 03/25/24 29,000 27,655,150
------------
65,323,870
------------
Structured Asset
Securities Corporation
Series 1992-M1, Class A2 7.05 11/25/02 20,000 20,709,400
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost - $83,614,347) 86,033,270
------------
- -------------------------------------------------------------------------------
MUNICIPAL ZERO COUPON SECURITIES--11.2%
MASSACHUSETTS--3.3%
Massachusetts State
Series B, FGIC (a) 06/01/02 5,000 3,719,900
Series B, AMBAC (a) 08/01/02 8,830 6,519,719
PENNSYLVANIA--2.7%
Pittsburgh Pennsylvania, Water & Sewer Authority
Series A, Revenue
Bond, FGIC (a) 09/01/03 12,000 8,244,960
TEXAS--3.2%
San Antonio Texas,
Electric & Gas
Revenue Bond, AMBAC (a) 02/01/03 7,500 5,300,700
Series B, Revenue
Bond, FGIC (a) 02/01/04 7,000 4,694,760
UTAH--2.0%
Intermountain Power Agency Utah, Power Supply
Series B, Revenue
Bond, AMBAC (a) 07/01/02 8,490@ 6,232,085
------------
TOTAL MUNICIPAL ZERO
COUPON SECURITIES
(Cost - $31,468,966) 34,712,124
------------
- -------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
November 30, 1995 (unaudited)
Principal Market
Amount Value
(000s) (Note 1)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--0.7%
Dated 11/30/95, with State Street Bank and Trust
Company, 5.55%, due 12/1/95; proceeds:
$2,123,327; collateralized by $2,115,000
U.S Treasury Note, 6.00% due 8/31/97,
value: $2,135,489
(Cost - $2,123,000) $2,123 $ 2,123,000
------------
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS--144.8%
(Cost - $428,898,175) $450,400,854
VARIATION MARGIN PAYABLE ON OPEN FUTURES CONTRACTS*--(0.1%) (201,563)
LIABILITIES IN EXCESS OF OTHER ASSETS--(44.7%) (139,171,094)
------------
NET ASSETS--100.0% $311,028,197
------------
------------
- -------------------------------------------------------------------------------
# Portion of or entire principal amount pledged as collateral for
reverse repurchase agreements (Note 4)
REMIC Real Estate Mortgage Investment Conduit
WAC Weighted Average Coupon
PAC Planned Amortization Class
FGIC Financial Guaranty Insurance Company
(a) Zero Coupon Bonds
AMBAC American Municipal Bond Assurance Corporation
@ Portion of or entire principal amount pledged as initial margin on
financial futures transactions
* Open Futures Transactions as of November 30, 1995 are as follows
(Notes 1 & 7):
OPEN FUTURES
<TABLE>
<CAPTION>
VALUE AT
EXPIRATION VALUE AT NOVEMBER 30, UNREALIZED
NOTIONAL AMOUNT TYPE DATE TRADE DATE 1995 DEPRECIATION
- ---------------- --------------------------------- ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Short:
$25,800,000 30 Yr. U.S. Treasury Bond March 1996 $30,403,679 $30,710,063 $ (306,384)
----------- ------------ --------------
----------- ------------ --------------
</TABLE>
- ---------------
See notes to financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost - $428,898,175) (Note 1)........... $450,400,854
Cash........................................................... 235
Interest receivable............................................ 3,348,663
Prepaid expenses............................................... 196,416
Deferred organization expense (Note 1)......................... 15,422
------------
Total assets......................................... 453,961,590
------------
LIABILITIES:
Reverse repurchase agreements (Note 4)......................... 142,127,000
Dividends payable.............................................. 259,072
Variation margin payable on open futures contracts (Note 1).... 201,563
Investment advisory fee payable (Note 2)....................... 126,578
Interest payable (Note 4)...................................... 109,629
Administration fee payable (Note 2)............................ 37,571
Accrued expenses and other liabilities......................... 71,980
Contingencies (Note 6).........................................
------------
Total liabilities.................................... 142,933,393
------------
NET ASSETS (equivalent to $8.67 per share based on 35,894,339
shares outstanding).......................................... $311,028,197
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 5)................................. $ 358,943
Additional paid-in capital..................................... 337,093,027
Undistributed net investment income............................ 2,154,716
Accumulated net realized losses................................ (49,774,784)
Net unrealized appreciation.................................... 21,196,295
------------
Net assets applicable to capital stock outstanding............. $311,028,197
------------
------------
- ------------------
See notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1):
Interest....................................................... $15,477,966
EXPENSES:
Investment advisory fees (Note 2).............................. 763,710
Administration fees (Note 2)................................... 227,160
Insurance...................................................... 116,344
Legal.......................................................... 97,172
Reports to shareholders........................................ 53,258
Custodian...................................................... 29,712
Audit and tax service.......................................... 27,133
Directors' fees and expenses................................... 18,724
Registration................................................... 12,857
Transfer agency................................................ 10,315
Miscellaneous.................................................. 8,222
Amortization of organization expenses (Note 1)................. 4,026
-----------
Total operating expenses.................................... 1,368,633
Interest expense (Note 4).............................. 3,808,308
-----------
Total expenses......................................... 5,176,941
-----------
Net investment income.......................................... 10,301,025
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS,
FUTURES AND OPTIONS (Notes 1 & 3):
Net realized gains (losses) on:
Investments transactions....................................... (3,412,079)
Futures transactions........................................... (7,958,291)
Option transactions............................................ 47,579
-----------
(11,322,791)
Net change in unrealized appreciation on:
Investments.................................................... 14,548,557
Futures........................................................ 3,327,779
-----------
17,876,336
-----------
Net realized and unrealized gains on investments, futures and
options........................................................ 6,553,545
-----------
Net increase in net assets resulting from operations............. $16,854,570
-----------
-----------
- ---------------
See notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the
Six Months
Ended For the Year
November 30, Ended
1995 May 31,
(unaudited) 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income........................... $ 10,301,025 $ 24,160,525
Net realized gains (losses) on investments,
futures and option transactions.............. (11,322,791) 2,749,368
Net change in unrealized appreciation on
investments, futures and options............. 17,876,336 9,686,927
------------ ------------
Net increase in net assets resulting from
operations................................... 16,854,570 36,596,820
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 1):
Net investment income........................... (9,652,762) (22,641,238)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 5):
Cost of Trust shares repurchased and retired.... (256,955) (1,335,267)
------------ ------------
Total increase in net assets............ 6,944,853 12,620,315
NET ASSETS:
Beginning of period............................... 304,083,344 291,463,029
------------ ------------
End of period (including undistributed net
investment income of $2,154,716 and $1,506,454,
respectively)................................... $311,028,197 $304,083,344
------------ ------------
------------ ------------
- ---------------
See notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
Cash Flows provided from operating activities:
Interest received............................................ $ 14,782,658
Operating expenses paid...................................... (1,445,210)
Interest expenses paid....................................... (3,770,018)
Sales of short-term portfolio investments, including options,
net....................................................... 959,578
Purchase of long-term portfolio investments.................. (169,358,546)
Proceeds from disposition of long-term portfolio investments
and principal paydowns.................................... 173,882,268
Net cash used for futures transactions....................... (4,412,630)
------------
Net cash provided from operating activities.................. 10,638,100
------------
Cash Flows used for financing activities:
Cash used to repurchase shares............................... (256,955)
Net cash used to liquidate reverse repurchase agreements..... (652,000)
Cash dividends paid.......................................... (9,729,152)
------------
Net cash used for financing activities....................... (10,638,107)
------------
Net decrease in cash........................................... (6)
Cash at beginning of period.................................... 241
------------
Cash at end of period.......................................... $ 235
------------
------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations........... $ 16,854,570
------------
Decrease in investments...................................... 4,601,553
Net realized losses on investments, futures and option
transactions.............................................. 11,322,791
Increase in net unrealized appreciation on investments and
futures transactions...................................... (17,876,336)
Net cash used for futures transactions....................... (4,365,052)
Decrease in interest receivable.............................. 138,861
Amortization of deferred organization expenses............... 4,026
Increase in interest payable................................. 38,290
Decrease in accrued expenses and other liabilities........... (80,603)
------------
Total adjustments.................................... (6,216,470)
------------
Net cash provided from operating activities.................... $ 10,638,100
------------
------------
- ------------------
See notes to financial statements.
10
<PAGE>
- ------------------------------------------------------------------------------
HYPERION 2002 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............ $ 8.46 $ 8.07 $ 9.05 $ 9.37**
-------- -------- -------- --------
Net investment income........................... 0.29 0.67 0.68 0.44
Net effect of shares repurchased................ 0.01 0.01 0.01 --
Net realized and unrealized gains (losses) on
investments, futures and options.............. 0.18 0.34 (0.95) (0.36)
-------- -------- -------- --------
Net increase (decrease) in net asset value
resulting from operations..................... 0.48 1.02 (0.26) 0.08
-------- -------- -------- --------
Dividends from net investment income............ (0.27) (0.63) (0.72) (0.40)
-------- -------- -------- --------
Net asset value, end of period.................. $ 8.67 $ 8.46 $ 8.07 $ 9.05
-------- -------- -------- --------
-------- -------- -------- --------
Market price, end of period..................... $ 7.25 $ 7.25 $ 7.25 $ 9.125
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL INVESTMENT RETURN+........................ 3.73% 9.46% (13.17)% (1.18)%(1)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s).................. $311,028 $304,083 $291,463 $328,672
Total operating expenses.......................... 0.90%(2) 0.91% 0.81% 0.80%(2)
Interest expense.................................. 2.50%(2) 2.29% 1.34% 1.66%(2)
Net investment income............................. 6.74%(2) 8.50% 7.90% 8.34%(2)
Portfolio turnover rate........................... 39% 356% 628% 237%
</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.
11
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Hyperion 2002 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 10,639 shares of common stock for $100,006 to Hyperion
Capital Management, Inc. (the 'Adviser'). The Trust expects to distribute
substantially all of its net assets on or shortly before November 30, 2002 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,
2002. 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, the amount equal to the premium received or
paid by the Trust is recorded as a liability or an asset and is subsequently
adjusted to the current market value of the option written or purchased.
Premiums received or paid from writing or purchasing options which expire
unexercised are treated by the Trust on the expiration date as realized gains or
losses. The difference between the premium and the amount paid or received on
effecting a closing purchase or sale transaction, including brokerage
commissions, is also treated as a realized gain or loss. If an option is
exercised, the premium paid or received is added to the proceeds from the sale
or cost of the purchase in determining the realized gain or loss or the basis of
the security.
The Trust, as writer of an option, may have no control over whether the
underlying securities may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
Financial Futures Contracts -- A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by 'marking-to-market' on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
12
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
The Trust invests in financial futures contracts solely for the purpose of
hedging, its existing portfolio securities or securities that the Trust intends
to purchase, against fluctuations in value caused by changes in prevailing
market interest rates. Should interest rates move unexpectedly, the Trust may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets.
Short Sales -- The Trust may make short sales of securities as a method of
hedging potential declines in similar securities owned. When the Trust makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is greater or less than the proceeds originally received.
Securities Transactions and Investment Income --
Securities transactions are recorded on the trade date. Realized and unrealized
gains and losses are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. Discounts and premiums on long term securities
are amortized using the effective yield to maturity method.
Taxes -- It is the Trust's intention to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders. Therefore, no
federal income or excise tax provision is required.
Dividends and Distributions -- The Trust declares and pays dividends monthly
from net investment income. Distributions of net realized capital gains in
excess of capital loss carryforwards are distributed at least annually.
Dividends and distributions are recorded on the ex-dividend date.
Deferred Organization Expenses -- A total of $40,500 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced investment operations.
Cash Flow Information -- The Trust invests in securities and distributes
dividends and distributions which are paid in cash or are reinvested at the
discretion of shareholders. These activities are reported in the Statement of
Changes in Net Assets and additional information on cash receipts and cash
payments is presented in the Statement of Cash Flows. Cash, as used in the
Statement of Cash Flows, is the amount reported as 'Cash' in the Statement of
Assets and Liabilities, and does not include short-term investments.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value and accreting discounts on debt
obligations.
Repurchase Agreements -- The Trust, through its custodian, receives delivery of
the underlying collateral, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price, including
accrued interest. The Adviser is responsible for determining that the value of
these underlying securities is sufficient at all times. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings commence
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
2. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS:
The Trust has entered into an Investment Advisory Agreement with the Adviser.
The Adviser is responsible for the management of the Trust's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Trust. For such services, the Trust
pays a monthly fee at an annual rate of 0.50% of the Trust's average weekly net
assets. For the six month period ending November 30, 1995, the Adviser earned
$763,710 in Investment Advisory fees.
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc. ('Administrator'). The Administrator performs administrative
services necessary for the operation of the Trust, including maintaining certain
books and records
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
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 ending November 30, 1995, the
Administrator earned $227,160 in Administration fees.
The Trust has entered into a Sub-Administration Agreement with Middlesex
Administrators L.P. (the 'Sub-Administrator'), an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to whom the Administrator has delegated
certain of its administrative responsibilities. For these services, the
Administrator will pay out of its own assets the fee to be paid to the
Sub-Administrator computed at the rate of 0.12% per annum of the first $100
million of the Trust's average weekly net assets, 0.10% of the next $150 million
and 0.08% of any amounts above $250 million.
The Administrator informed the Trust that it paid $157,290 to the
Sub-Administrator for the six month period ended November 30, 1995.
Certain officers and/or directors of the Trust are officers and/or directors of
the Adviser.
3. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended November 30, 1995 aggregated $169,358,545 and $169,926,593,
respectively.
The federal income tax basis of the Trust's investments at November 30, 1995 was
substantially the same for financial reporting and, accordingly, net unrealized
appreciation for federal income tax purposes was $21,196,295 (gross unrealized
appreciation--$24,359,894; gross unrealized depreciation-- $3,163,599). At May
31, 1995, the Trust had capital losses of $38,476,254, of which $30,666,463
expires in 2002 and $7,809,791 expires in 2003, available to offset any future
capital gains. However, if the Trust terminates as expected in 2002, the capital
loss carryforward must be utilized by 2002 in order for shareholders to realize
a benefit.
4. BORROWINGS:
The Trust may enter into reverse repurchase agreements and dollar roll
agreements with the same parties with whom it may enter into repurchase
agreements. A dollar roll agreement is identical to a reverse repurchase
agreement except for the fact that substantially identical securities may be
repurchased. Under a reverse repurchase agreement or a dollar roll agreement,
the Trust sells securities and agrees to repurchase them, or substantially
similar securities in the case of a dollar roll agreement, at a mutually agreed
upon date and price. Under the 1940 Act, reverse repurchase agreements and
dollar roll agreements will be regarded as a form of borrowing by the Trust
unless, at the time it enters into a reverse repurchase agreement or a dollar
roll agreement, it establishes and maintains a segregated account with its
custodian containing securities from its portfolio having a value not less than
the repurchase price (including accrued interest). The Trust has established and
maintained such an account for each of its reverse repurchase agreements and
dollar roll agreements. Reverse repurchase agreements and dollar roll agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Trust may decline below the price of the securities the Trust has
sold but is obligated to repurchase. In the event the buyer of securities under
a reverse repurchase agreement or a dollar roll agreement files for bankruptcy
or becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Trust's obligation to
repurchase the securities, and the Trust's use of the proceeds of the reverse
repurchase agreement or the dollar roll agreement may effectively be restricted
pending such decision.
At November 30, 1995, the Trust had the following reverse repurchase agreements
outstanding:
MATURITY IN
ZERO TO 30 DAYS
---------------
Maturity Amount..................... $142,338,807
------------
Market Value of Assets Sold Under
Agreements........................ $190,825,794
------------
Weighted Average Interest Rate...... 5.86%
The average daily balance of reverse repurchase agreements outstanding during
the six months
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
ended November 30, 1995, was approximately $138,765,707, at a weighted average
interest rate of 5.54%. The maximum amount of reverse repurchase agreements
outstanding at any time during the period was $148,088,813 as of July 13, 1995,
which was 32.43% of total assets.
5. CAPITAL STOCK:
There are 75 million shares of $0.01 par value common stock authorized. Of the
35,894,339 shares outstanding at November 30, 1995, the Adviser owned 10,639
shares.
The Trust is continuing its stock repurchase program, whereby an amount of up to
15% of the total outstanding common stock, or approximately 5.4 million shares,
are authorized for repurchase. The purchase price may not exceed the
then-current net asset value. As of November 30, 1995, 416,300 shares have been
repurchased pursuant to this program. For the six month period ended November
30, 1995, 36,000 shares were repurchased at an average discount of 16.18%. All
shares repurchased have been 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 Adviser
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. 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. 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 six 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.
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
November 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
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 six month period ended November
30, 1995 is as follows:
WRITTEN CALL OPTION TRANSACTIONS
- -------------------------------------------
PRINCIPAL AMOUNTS
OF CONTRACTS
(000 OMITTED) PREMIUMS
----------------- --------
Outstanding,
beginning of
period................ -- $ --
Options written....... (21,000) (98,438)
Options assigned...... -- --
Options closed........ 21,000 98,438
Options expired....... -- --
-------- --------
Outstanding, end of
period................ -- $ --
-------- --------
-------- --------
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
--------- -------- --------
$0.04375 12/18/95 12/28/95
$0.04375 1/22/96 1/31/96
16
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six month period ended November 30, 1995, Hyperion 2002 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:
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- --------------------------------------------------------------------------------
1. To elect the Trust's
Board of Directors:
Garth Marston 27,342,021 922,790
Rodman L. Drake 27,355,959 908,852
- --------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
SHARES VOTED FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
2. To select Price Waterhouse
LLP as the Trust's
independent accountants 27,367,092 336,433 561,286
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2002 TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
NET INVESTMENT INVESTMENTS, FUTURES
INCOME AND OPTIONS
TOTAL --------------------- -----------------------
QUARTERLY PERIOD INCOME AMOUNT PER SHARE AMOUNT PER SHARE
- -------------------------------------------------------------------------------
November 2, 1992* to
November 30, 1992 $1,811,843 $1,533,358 $0.04 $ 737,934 $ 0.03
December 1, 1992 to
February 28, 1993 9,122,966 7,032,751 0.19 (3,681,008) (0.10)
March 1, 1993 to
May 31, 1993 9,872,116 7,502,266 0.21 (10,302,260) (0.29)
June 1, 1993 to
August 31, 1993 7,900,285 5,891,890 0.17 (7,056,496) (0.19)
September 1, 1993 to
November 30, 1993 7,647,909 6,287,067 0.17 (14,250,814) (0.40)
December 1, 1993 to
February 28, 1994 7,304,356 5,779,371 0.16 (3,697,312) (0.10)
March 1, 1994 to
May 31, 1994 8,257,401 6,489,914 0.18 (9,318,373) (0.26)
June 1, 1994 to
August 31, 1994 8,111,892 6,080,085 0.17 (4,477,491) (0.12)
September 1, 1994 to
November 30, 1994 8,953,967 6,721,015 0.19 (12,361,939) (0.34)
December 1, 1994 to
February 28, 1995 8,177,423 5,855,585 0.16 11,776,995 0.32
March 1, 1995 to
May 31, 1995 7,992,242 5,503,840 0.15 17,498,730 0.49
June 1, 1995 to
August 31, 1995 7,720,721 5,165,495 0.15 (1,657,645) (0.05)
September 1, 1995 to
November 30, 1995 7,757,245 5,135,530 0.14 8,211,190 0.23
* Commencement of investment operations.
<TABLE>
<CAPTION>
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING DIVIDENDS AND
FROM 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 $ 2,271,292 $ 0.07 $ -- $ -- $10 1/8 $10
December 1, 1992 to
February 28, 1993 3,351,743 0.09 7,265,759 0.20 10 1/8 9 1/2
March 1, 1993 to
May 31, 1993 (2,799,994) (0.08) 7,265,759 0.20 10 1/8 8 7/8
June 1, 1993 to
August 31, 1993 (1,164,606) (0.02) 7,265,759 0.20 9 7/8 8 1/4
September 1, 1993 to
November 30, 1993 (7,963,747) (0.23) 6,655,302 0.18 9 3/8 7 1/2
December 1, 1993 to
February 28, 1994 2,082,059 0.06 6,200,403 0.17 8 7 3/8
March 1, 1994 to
May 31, 1994 (2,828,459) (0.08) 5,876,469 0.17 7 5/8 7
June 1, 1994 to
August 31, 1994 1,602,594 0.05 5,863,752 0.17 7 3/8 6 3/4
September 1, 1994 to
November 30, 1994 (5,640,924) (0.15) 5,848,698 0.16 7 1/8 6 1/4
December 1, 1994 to
February 28, 1995 17,632,580 0.48 5,539,380 0.15 7 6 1/2
March 1, 1995 to
May 31, 1995 23,002,570 0.64 5,389,408 0.15 7 3/8 6 3/4
June 1, 1995 to
August 31, 1995 3,507,850 0.10 (4,939,722) (0.14) 7 5/8 6 3/4
September 1, 1995 to
November 30, 1995 13,346,720 0.37 (4,713,040) (0.13) 7 3/8 7
</TABLE>
* Commencement of investment operations.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022
FOR GENERAL INFORMATION ABOUT THE TRUST:
(800) HYPERION
SUB-ADMINISTRATOR
MIDDLESEX ADMINISTRATORS L.P.
P.O. Box 9011
Princeton, New Jersey 08543
(800) 543-6217
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
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.
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>
HYPERION
2002
TERM TRUST
SEMI-ANNUAL REPORT
NOVEMBER 30, 1995
[Logo]
<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. 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
- ------------------------------------------------------
HYPERION
Capital Management, Inc.
- ------------------------------------------------------
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 2002 TERM TRUST, INC.
520 Madison Avenue
New York, NY 10022
