HYPERION 2002 TERM TRUST, INC.
One Liberty Plaza , New York, New York 10006
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
July 30, 1998 To the Stockholders:
The Annual Meeting of Stockholders of Hyperion 2002 Term Trust, Inc.
(the "Trust") will be held at The Millenium Hilton, 55 Church Street (across
from the World Trade Center), New York, New York 10007, on Tuesday, October 13,
1998, at 9:45 a.m., for the following purposes:
1. To elect directors (Proposal 1).
2. To ratify or reject the selection of PricewaterhouseCoopers LLP as
the independent accountants of the Trust for the fiscal year
ending May 31, 1999 (Proposal 2).
3. To transact any other business that may properly come before the
meeting.
The close of business on July 24, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the meeting.
By Order of the Board of Directors,
Patricia A. Sloan
Secretary
WE NEED YOUR PROXY VOTE IMMEDIATELY.
YOU MAY THINK YOUR VOTE IS NOT IMPORTANT, BUT IT IS VITAL. THE MEETING OF
STOCKHOLDERS OF THE TRUST WILL BE UNABLE TO CONDUCT ANY BUSINESS IF LESS THAN A
MAJORITY OF THE SHARES ELIGIBLE TO VOTE IS REPRESENTED. IN THAT EVENT, THE
TRUST, AT STOCKHOLDERS' EXPENSE, WOULD CONTINUE TO SOLICIT VOTES IN AN ATTEMPT
TO ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE THE TRUST TO
HOLD THE MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD IMMEDIATELY. YOU
AND ALL OTHER STOCKHOLDERS WILL BENEFIT FROM YOUR COOPERATION.
<PAGE>
Instructions for Signing Proxy Cards
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense to the Trust involved in
validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts. Sign your name
exactly as it appears in the registration on the
proxy card.
2. Joint Accounts. Either party may
sign, but the name of the party signing should
conform exactly to the name shown in the
registration.
3. All Other Accounts. The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
Registration Valid Signature
Corporate Accounts
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
Trust Accounts
(1) ABC Trust John B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr.
UGMA John B. Smith
(2) John B. Smith John B. Smith, Jr.,
Executor
HYPERION 2002 TERM TRUST, INC.
One Liberty Plaza o New York, New York 10006
PROXY STATEMENT
This proxy statement is furnished in connection with a solicitation by
the Board of Directors of Hyperion 2002 Term Trust, Inc. (the "Trust") of
proxies to be used at the Annual Meeting of Stockholders of the Trust to be held
at The Millenium Hilton, 55 Church Street (across from the World Trade Center),
New York, New York 10007, at 9:45 a.m. on Tuesday, October 13, 1998 (and at any
adjournment or adjournments thereof) for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This proxy statement and
the accompanying form of proxy are first being mailed to stockholders on or
about July 30, 1998. Stockholders who execute proxies retain the right to revoke
them by written notice received by the Secretary of the Trust at any time before
they are voted. Unrevoked proxies will be voted in accordance with the
specifications thereon and, unless specified to the contrary, will be voted FOR
the election of the two nominees for director, and FOR the ratification of the
selection of PricewaterhouseCoopers LLP as the independent accountants of the
Trust for the fiscal year ending May 31, 1999. The close of business on July 24,
1998 has been fixed as the record date for the determination of stockholders
entitled to notice of and to vote at the meeting. Each stockholder is entitled
to one vote for each share held. Abstentions will be treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of any matters
submitted to stockholders for a vote. Broker non-votes will not be counted for
purposes of determining the presence of a quorum or determining whether a
proposal has been approved. On the record date, there were 30,888,439 shares
outstanding.
PROPOSAL 1: ELECTION OF DIRECTORS
The Trust's Articles of Incorporation provide that the Trust's Board of
Directors shall be divided into three classes: Class I, Class II and Class III.
The terms of office of the present directors in each class expire at the Annual
Meeting in the year indicated or thereafter in each case when their respective
successors are elected and qualified: Class I, 2000; Class II, 1998; and Class
III, 1999. At each subsequent annual election, Directors chosen to succeed those
whose terms are expiring will be identified as being of that same class and will
be elected for a three-year term. The effect of these staggered terms is to
limit the ability of other entities or persons to acquire control of the Trust
by delaying the replacement of a majority of the Board of Directors.
The terms of Rodman L. Drake and Andrew M. Carter, members of Class II,
currently serving on the Board of Directors, expire at this year's Annual
Meeting. The persons named in the accompanying form of proxy intend to vote at
the Annual Meeting (unless directed not to so vote) for the re-election of Mr.
Drake and Mr. Carter. Each nominee has indicated that he will serve if elected,
but if either nominee should be unable to serve, the proxy or proxies will be
voted for any other person or persons, as the case may be, determined by the
persons named in the proxy in accordance with their judgment.
As described above, there are two nominees for election to the Board of
Directors at this time. Proxies cannot be voted for a greater number of persons
than the two nominees currently proposed to serve on the Board of Directors.
The following table provides information concerning each of the seven
members and nominees of the Board of Directors of the Trust:
<TABLE>
<S> <C> <C> <C>
Shares of
Common Stock
Beneficially
Owned Directly
or Indirectly,
on May 31,
1998(**)
Name and Office Principal Occupation During Past Five Years, Director
with the Trust Other Directorships and Age Since
Class II Nominees to serve until 2001 Annual Meeting of Stockholders:
Rodman L. Drake
Director, Member of the President and Chief Operating Officer, Continuation Investments Group
Audit Committee Inc. (1997-Present). Director and/or Trustee of several investment
companies advised by Hyperion Capital Management, Inc. (1989-Present).
Formerly, Co-Chairman of KMR Power Corporation (1993-1997); President,
Mandrake Group (1993-1997); Managing Director and Chief Executive
Officer of Cresap (1980-1990). Trustee of Excelsior Funds. Director,
Parsons Brinckerhoff, Inc. and Latin American Growth Fund Inc.
Age 55. July 1992 317
Andrew M. Carter
Director, Member of the President and Founding Principal, Andrew M. Carter & Company
Audit Committee (1994-Present). Vice Chairman of The China Business Group
(1996-Present), Chairman of CBG Hybrid Rice LLC (1998-Present), and
presently officer of four charitable boards: The New England
Conservatory, The Loomis Chaffee School, The William E. Simon Graduate
School of Business Administration at the University of Rochester, and
The Big Brother Association of Boston. Director of several investment
companies advised by Hyperion Capital Management, Inc.
(1998-Present). Director and Senior Vice President, Jennison
Associates Capital Corp. (1975-1993); Founder, Standard &
Poor's/Carter, Doyle (1972-1975); Vice President, Head of Fixed Income
Group, Wellington Management Co. (1968-1972); and Manager of the
Harvard Endowment bond portfolio, Harvard Treasurer's Office
(1964-1968).
Age 58. July 1998* -0-
* On July 21, 1998, the Board of Directors elected Mr. Carter to fill the
vacancy created by the resignation of Garth Marston, who resigned on June 10,
1998.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Shares of
Common Stock
Beneficially
Owned Directly
or Indirectly,
on May 31,
1998(**)
Name and Office Principal Occupation During Past Five Years, Director
with the Trust Other Directorships and Age Since
-------------- --------------------------- -----
Class I Directors to serve until 2000 Annual Meeting of Stockholders:
Kenneth C. Weiss*
Director, Chairman of President and Chief Executive Officer of Hyperion Capital Management,
the Board of Directors Inc. (February 1992-Present). Chairman of the Board, Director/Trustee
and/or officer of several investment companies advised by Hyperion
Capital Management, Inc. or by its affiliates (February
1992-Present). Director and President of Equitable Real Estate
Hyperion Mortgage Opportunity Fund, Inc. and Equitable Real Estate
Hyperion High Yield Commercial Mortgage Funds, Inc. and their
Investment Advisors (1995-Present). Formerly Director of First Boston
Asset Management (1988-February 1992); Director of The First Boston
Corporation (until 1988).
Age 46. July 1992 13,799
Lewis S. Ranieri*
Director Chairman and Chief Executive Officer of Ranieri & Co., Inc. (since
1988); in addition, President of LSR Hyperion Corp., a general partner
of the limited partnership that is the general partner of Hyperion
Partners L.P. ("Hyperion Partners") (since 1988). Director and
Chairman of the Board of Hyperion Capital Management, Inc. (since
1989). Chairman of the Board and/or Director of several investment
companies advised by Hyperion Capital Management, Inc. or by its
affiliates (since 1989). Director of Equitable Real Estate Hyperion
Mortgage Opportunity Fund, Inc. and Equitable Real Estate Hyperion
High Yield Commercial Mortgage Fund, Inc. (since 1995); Director and
Chairman of the Board of Bank United Corp. and Director of Bank
United; Director and President of Hyperion Funding 1993 Corp., the
general partner of the limited partnership that is the general
partnership that is the general partner of Hyperion 1993 Fund L.P.;
and also Chairman and President of various other direct and indirect
subsidiaries of Hyperion Partners (since 1989). Director of Equitable
Real Estate Hyperion Mortgage Opportunity Fund, Inc. and Equitable
Real Estate Hyperion High Yield Commercial Mortgage Fund, Inc. (since
1995). Formerly Vice Chairman of Salomon Brothers Inc. (until 1987).
Age 51. July 1992 6,250
</TABLE>
<TABLE>
<S> <C> <C> <C>
Shares of
Common Stock
Beneficially
Owned Directly
or Indirectly,
on May 31,
1998(**)
Name and Office Principal Occupation During Past Five Years, Director
with the Trust Other Directorships and Age Since
Patricia A. Sloan*
Director, Secretary Managing Director of Ranieri & Co., Inc. (1988-Present). Secretary,
Director and/or Trustee of several investment companies advised by
Hyperion Capital Management, Inc. or by its affiliates (1989-Present).
Director of Bank United Corp., the parent of Bank United (formerly
Bank United of Texas FSB (1988-Present). Formerly Director of the
Financial Institutions Group of Salomon Brothers Inc. (1972-1988).
Age 54. July 1992 300
Class III Directors to serve until 1999 Annual Meeting of Stockholders:
Harry E. Petersen, Jr.
Director, Member of the Director and/or Trustee of several investment companies advised by
Audit Committee Hyperion Capital Management, Inc. or by its affiliates
(1992-Present). Senior Advisor to Potomac Babson Inc.
(1995-Present). Formerly, Director of Equitable Real Estate
Hyperion Mortgage Opportunity Fund, Inc. and Equitable Real Estate
Hyperion High Yield Commercial Mortgage Fund, Inc. (1995-1997);
Consultant to Advisers Capital Management, Inc. (1992-1995); Director
of Lexington Corporate Properties, Inc. (1993-1997); Consultant on
public and private pension funds (1991-1993); President of Lepercq
Realty Advisors (1988-1990). Member of Advisory Council of Polytechnic
University.
Age 73. July 1992 200
Leo M. Walsh, Jr.
Director, Chairman of Director and/or Trustee of several investment companies advised by
the Audit Committee Hyperion Capital Management, Inc. or by its affiliates (1989-Present).
Financial Consultant for Merck-Medco Managed Care L.L.C. (formerly
Medco Containment Services Inc.) (1994-Present). Formerly, Director
of Equitable Real Estate Hyperion Mortgage Opportunity Fund, Inc. and
Equitable Real Estate Hyperion High Yield Commercial Mortgage Fund,
Inc. (1995-1997); Financial Consultant for Synetic Inc., a
manufacturer of porous plastic materials for health care uses
(1989-1994). Formerly President, WW Acquisition Corp. (1989-1990);
Senior Executive Vice President and Chief Operating Officer of The
Equitable Life Assurance Society of the United States ("The
Equitable") (1986-1988); Director of The Equitable and Chairman of
Equitable Investment Corporation, a holding company for The
Equitable's investment oriented subsidiaries (1983-1988); Chairman and
Chief Executive Officer of EQUICOR-Equitable HCA Corporation
(1987-1988).
Age 65. July 1992 7,000
</TABLE>
* Interested persons as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), because of affiliations with Hyperion Capital
Management, Inc., the Trust's Investment Advisor.
** The holdings of no director or nominee represented more than 1% of the
outstanding shares of the Trust.
Officers of the Trust. The officers of the Trust are chosen each year
at the first meeting of the Board of Directors of the Trust following the Annual
Meeting of Stockholders, to hold office at the discretion of the Board of
Directors until the meeting of the Board following the next Annual Meeting of
Stockholders and until their successors are chosen and qualified. The Board of
Directors has elected five officers of the Trust. Except where dates of service
are noted, all officers listed below served as such throughout the 1998 fiscal
year. The following sets forth information concerning each officer of the Trust
who served during all or part of the last fiscal year of the Trust:
<TABLE>
<S> <C> <C> <C>
Name and
Principal Occupation Office Age Officer Since
Kenneth C. Weiss Chairman 46 July, 1992
President and Chief Executive Officer of Hyperion Capital Management, Inc.; See
information under "ELECTION OF DIRECTORS."
Clifford E. Lai President 44 April 1993
Managing Director and Chief Investment Officer, Hyperion Capital Management,
Inc. (March 1993-Present). President and/or Senior Vice President of several
investment companies advised by Hyperion Capital Management, Inc. or by its
affiliates (1993-Present). Formerly Managing Director and Chief Investment
Strategist for Fixed Income, First Boston Asset Management (1989-1993); Vice
President, Morgan Stanley & Co. (1987-1989).
Patricia A. Botta Vice President 41 December 1996
Director of Hyperion Capital Management, Inc. (1989-Present). Formerly with
the Davco Group (1988-1989)and with Salomon Brothers Inc. (1986-1988).
Patricia A. Sloan Secretary 54 July 1992
Managing Director of Ranieri & Co., Inc. (1988-Present); See information under
"ELECTION OF DIRECTORS."
Joseph W. Sullivan Treasurer 41 September 1995
Chief Operating Officer of Dreman Value Management LLC (December 1997-Present) (Resigned December 1997)
Vice President of Hyperion Capital Management, Inc. (August 1995-December
1997). Treasurer of several investment companies advised by Hyperion Capital
Management, Inc. or by its affiliates (September 1995-Present.) Formerly Vice
President in Merrill Lynch & Co.'s Investment Banking Division; Treasurer and
Chief Financial Officer of several Merrill Lynch subsidiaries, responsible for
all financial reporting, accounting, ministerial and administrative services
(1990-1995); Assistant Vice President of Standard & Poor's Debt Rating Group
(1988-1990); Assistant Vice President and Operations Controller of Shearson
Lehman Hutton, Inc., engaged in the identification, analysis and financial
administration of public and private real estate investment programs
(1983-1987). A Licensed Certified Public Accountant since 1981.
Thomas F. Doodian Treasurer 39 February 1998
Director of Finance and Operations, Hyperion Capital Management, Inc. (July
1995-Present). Treasurer of several investment companies advised by Hyperion
Capital Management, Inc. (February 1998-Present). Formerly, Vice President in
Mortgage Backed Trading at Mabon Securities Corporation (1994-1995); fixed
income analyst, trader, and Vice President and Controller at Credit Suisse
First Boston (1984-1994).
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Security Ownership of Certain Beneficial Owners at May 31, 1998
- ------------------ ----------------------------------------------- ------------------------------ --------------- ------------
Title of Name and Address of Amount and Nature of Percent Of
Class Beneficial Owner Beneficial Ownership Class Source
- ------------------ ----------------------------------------------- ------------------------------ --------------- ------------
Common Lowe, Brockenbrough & Tattersall, Inc. 9,665,200 shares 30.9% 13G
Stock 6620 West Broad Street, Suite 300
Richmond, Virginia 23230
- ------------------ ----------------------------------------------- ------------------------------ --------------- ------------
</TABLE>
At May 31, 1998, directors and officers of the Trust as a group owned
beneficially less than 1% of the outstanding shares of the Trust. The business
address of the Trust and its officers and directors is One Liberty Plaza, New
York, New York
10006.
Interested Persons. Mr. Ranieri serves as a Director and Chairman of
the Board of the Advisor and Mr. Weiss serves as a Director, President and Chief
Executive Officer of the Advisor. Ms. Sloan is a special limited partner of
Hyperion Ventures, the sole general partner of Hyperion Partners L.P., of which
the Advisor is a wholly-owned subsidiary. As a result of their service with the
Advisor and certain affiliations with the Advisor as described below, the Trust
considers Messrs. Ranieri and Weiss and Ms. Sloan to be "interested persons" of
the Trust within the meaning of Section 2(a)(19) of the 1940 Act.
Committees and Board of Directors' Meetings. The Trust has a standing
Audit Committee presently consisting of Messrs. Walsh, Drake, Petersen and
Carter, all of whom are members of the Board of Directors and are currently
non-interested persons of the Trust. The principal functions of the Trust's
Audit Committee are to recommend to the Board the appointment of the Trust's
accountants, to review with the accountants the scope and anticipated costs of
their audit and to receive and consider a report from the accountants concerning
their conduct of the audit, including any comments or recommendations they might
want to make in that connection. During the last fiscal year of the Trust, the
full Board of Directors met four times, and the Audit Committee met one time.
All of the directors attended the Audit Committee meeting and all of the Board
meetings and the Audit Committee meeting]. The Trust has no nominating,
compensation or similar committees.
Compensation of Directors and Executive Officers. No remuneration was
paid by the Trust to persons who were directors, officers or employees of
Hyperion Capital Management, Inc. or any affiliate thereof for their services as
directors or officers of the Trust. Each director of the Trust, other than those
who are officers or employees of Hyperion Capital Management, Inc. or any
affiliate thereof, is entitled to receive a fee of $7,500 per year plus $1,000
for each Board of Directors' meeting attended. Members of the Audit Committee
receive $750 for each Audit Committee meeting attended, other than meetings held
on days when there is also a directors' meeting.
<TABLE>
<S> <C> <C>
Directors' Compensation Table For The Twelve Month Period Ended 5/31/98
Directors' Total Directors' Compensation
Compensation from the Trust and the Fund
from the Trust Complex
Rodman L. Drake...................................................... $11,500 $51,750
Garth Marston*....................................................... $11,500 $51,750
Harry E. Petersen, Jr................................................ $11,500 $51,750
Leo M. Walsh, Jr. ................................................... $11,500 $51,750
------- -------
$46,000 $207,000
======= ========
</TABLE>
*Mr. Marston resigned as Director of the Fund on June 10, 1998, and currently
serves as a Director Emeritus. Pursuant to the Director Emeritus Plan adopted by
the Board of Directors, a Director Emeritus receives compensation from the Trust
at a rate equal to one-half of the compensation paid to directors.
Required Vote
Election of the listed nominees for director requires the affirmative
vote of the holders of a majority of the shares of Common Stock of the Trust
present or represented by proxy at the Annual Meeting.
PROPOSAL 2: RATIFICATION OR REJECTION OF
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Trust will consider, and it is expected
that they will recommend, the selection of PricewaterhouseCoopers LLP as
independent accountants of the Trust for the fiscal year ending May 31, 1999 at
a meeting to be held on September 22, 1998. The appointment of accountants is
approved annually by the Audit Committee of the Board of Directors and is
subsequently submitted to the stockholders for ratification or rejection. The
Trust has been advised by PricewaterhouseCoopers LLP that at May 31, 1998
neither that firm nor any of its partners had any direct or material indirect
financial interest in the Trust. A representative of PricewaterhouseCoopers LLP
will be at the meeting to answer questions concerning the Trust's financial
statements and will have an opportunity to make a statement if he or she chooses
to do so.
Required Vote
Ratification of the selection of PricewaterhouseCoopers LLP as
independent accountants of the Trust requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Trust
present or represented by proxy at the Annual Meeting.
ADDITIONAL INFORMATION
Investment Advisor
The Trust has engaged Hyperion Capital Management, Inc., the Advisor,
to provide professional investment management for the Trust pursuant to an
Advisory Agreement dated September 29, 1993. The Advisor is a Delaware
corporation which was organized in February 1989. The Advisor is a registered
investment advisor under the Investment Advisers Act of 1940, as amended. The
business address of the Advisor and its officers and directors is One Liberty
Plaza, New York, New York 10006. The Trust has also engaged Hyperion Capital
Management, Inc. as the Trust's administrator. The administrator's address is
the same as that of the Advisor.
The Advisor is an indirect, wholly-owned subsidiary of Hyperion
Partners L.P., a Delaware limited partnership ("Hyperion Partners"). On January
15, 1993, Hyperion Partners acquired all of the shares of the Advisor held by
Hyperion Holdings Inc. in exchange for $20,000,000 of indebtedness. The sole
general partner of Hyperion Partners is Hyperion Ventures L.P., a Delaware
limited partnership ("Hyperion Ventures"). Corporations owned principally by
Lewis S. Ranieri, Salvatore A. Ranieri and Scott A. Shay are the general
partners of Hyperion Ventures. Lewis S. Ranieri, a former Vice Chairman of
Salomon Brothers Inc. ("Salomon Brothers"), is the Chairman of the Board of the
Advisor and a Director of the Trust. Messrs. Salvatore Ranieri and Shay are
directors of the Advisor, but have no other positions with either the Advisor or
the Trust. Messrs. Salvatore Ranieri and Shay are principally engaged in the
management of the affairs of Hyperion Ventures and its affiliated entities.
Since January 1, 1990, Patricia A. Sloan, Secretary of the Trust, has been a
special limited partner of Hyperion Ventures and since July 1993, she has been a
limited partner of Hyperion Partners. Mr. Weiss, Chairman of the Board, and Mr.
Lai, President of the Trust, are employees of the Advisor, and each may be
entitled, in addition to receiving a salary from the Advisor, to receive a bonus
based upon a portion of the Advisor's profits, including any profit from a sale
of the Advisor. Ms. Botta, Vice President of the Trust, and Mr. Doodian,
Treasurer of the Trust, are also employees of the Advisor. The business address
of Hyperion Partners and Hyperion Ventures is 50 Charles Lindbergh Boulevard,
Suite 500, Uniondale, New York 11553.
The Advisor provides advisory services to several other registered
investment companies and one offshore fund, all of which invest in
mortgage-backed securities. Its management includes several individuals with
extensive experience in creating, evaluating and investing in Mortgage-Backed
Securities, Derivative Mortgage-Backed Securities and Asset-Backed Securities,
and in using hedging techniques. Lewis S. Ranieri, Chairman of the Advisor and a
Director of the Trust, was instrumental in the development of the secondary
mortgage-backed securities market and the creation and development of secondary
markets for conventional mortgage loans, CMOs and other mortgage-related
securities. While at Salomon Brothers, Mr. Ranieri directed that firm's
activities in the mortgage, real estate and government guaranteed areas. Kenneth
C. Weiss, President and Chief Executive Officer of the Advisor and Chairman of
the Board of the Trust, was a Director of First Boston Asset Management
Corporation and was a Director of The First Boston Corporation. Clifford E. Lai,
Chief Investment Manager of the Advisor and President of the Trust, was Managing
Director and Chief Investment Strategist for Fixed Income for First Boston Asset
Management Corporation.
Investment Advisory Agreement
On September 23, 1997, the Board of Directors of the Trust, including
those persons identified as interested persons and a majority of the directors
who are not parties to the Advisory Agreement or interested persons (as such
term is defined in the 1940 Act) of any such party (the "Disinterested
Directors"), approved extension of the revised Advisory Agreement through
September 30, 1998. At the time of the Board's approval of the latest extension
of the Advisory Agreement, Messrs. Lewis Ranieri and Weiss and Ms. Sloan were
interested persons of the Trust. The Advisory Agreement was last submitted to a
vote of the Stockholders of the Trust at the Annual Meeting of the Stockholders
of the Trust held on September 29, 1993. At that meeting, the Stockholders
approved the continuance of the revised Advisory Agreement. The Advisory
Agreement provides that it will continue from year to year, but only so long as
such continuation is specifically approved at least annually by both (1) the
vote of a majority of the Board of Directors or the vote of a majority of the
outstanding voting securities of the Trust (as provided in the 1940 Act) and (2)
by the vote of a majority of the Disinterested Directors cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated at any time without the payment of any penalty, upon
the vote of a majority of the Board of Directors or a majority of the
outstanding voting securities of the Trust or by the Advisor, on 60 days'
written notice by either party to the other. The Agreement will terminate
automatically in the event of its assignment (as such term is defined in the
1940 Act and the rules thereunder). The Board of Directors will consider
continuance of the Advisory Agreement until October 1, 1999 at a meeting
scheduled for September 22, 1998.
Pursuant to the Advisory Agreement, the Trust has retained the Advisor
to manage the investment of the Trust's assets and to provide such investment
research, advice and supervision, in conformity with the Trust's investment
objective and policies, as may be necessary for the operations of the Trust.
The Advisory Agreement provides, among other things, that the Advisor
will bear all expenses of its employees and overhead incurred in connection with
its duties under the Advisory Agreement, and will pay all salaries of the
Trust's directors and officers who are affiliated persons (as such term is
defined in the 1940 Act) of the Advisor. The Advisory Agreement provides that
the Trust shall pay to the Advisor a monthly fee for its services which is equal
to .50% per annum of the Trust's average weekly net assets, which, for purposes
of determining the Advisor's fee, shall be the average weekly value of the total
assets of the Trust, minus the sum of accrued liabilities (including accrued
expenses) of the Trust and any declared but unpaid dividends on the Common
Shares and any Preferred Shares (if such shares are issued in the future) and
any accumulated dividends on any Preferred Shares (but without deducting the
aggregate liquidation value of any Preferred Shares). Investment advisory fees
earned by the Advisor from the Trust during the last fiscal year of the Trust
amounted to $1,412,271.
Administration Agreement
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 a monthly fee at an annual rate of 0.17% of the
first $100 million of the Trust's average weekly net assets, 0.145% of the next
$150 million and 0.12% of any amounts above $250 million. The Advisor, in its
capacity as Administrator, has entered into a Sub-Administration Agreement with
Investors Capital Services, Inc., to which the Advisor delegates certain of its
administrative responsibilities. for these services, the Advisor pays out of its
own assets the fee to be paid to the Sub-Administrator, computed at the rate of
0.075% per annum of the first $650 million of the Trust's average weekly net
assets and 0.005% of any amounts above $650 million. For the twelve month period
ended May 31, 1998, the Administrator earned $426,445 in administration fees.
Investment Companies Managed by Hyperion Capital
Management, Inc.
In addition to acting as advisor to the Trust, Hyperion Capital
Management, Inc. acts as investment advisor to the following other investment
companies at the indicated annual
compensation.
<TABLE>
<S> <C> <C>
Investment Advisory Fee Approximate Net Assets at May
31,1998
(in Millions)
The Hyperion Total Return Fund, Inc.* 0.65% of the Fund's average weekly $253.4
net assets
Hyperion 1999 Term Trust, Inc. 0.50% of the Trust's average weekly $451.6
net assets
Hyperion 2005 Investment Grade Opportunity Term 65% of the Trust's average weekly $167.2
Trust, Inc. net assets
- --------------
</TABLE>
* The Advisor and The Hyperion Total Return Fund, Inc. (the "Fund") have
entered into a sub-advisory agreement with Pacholder Associates, Inc.,
an Ohio corporation organized in 1983, to serve as an investment
advisor with respect to a portion of this Fund's assets.
Brokerage Commissions
Because it buys its portfolio securities in dealer markets, the Trust
did not pay any brokerage commissions on its securities purchases during its
last fiscal year. The Trust paid an aggregate of $6,440 in futures commissions
during the last fiscal year, all of which were paid to entities that are not
affiliated with the Trust or the Advisor.
The Advisor has discretion to select brokers and dealers to execute
portfolio transactions initiated by the Advisor and to select the markets in
which such transactions are to be executed. The Advisory Agreement provides, in
substance, that in executing portfolio transactions and selecting brokers or
dealers, the primary responsibility of the Advisor is to seek the best
combination of net price and execution for the Trust. It is expected that
securities will ordinarily be purchased in primary markets, and that in
assessing the best net price and execution available to the Trust, the Advisor
will consider all factors they deem relevant, including the price, dealer
spread, the size, type and difficulty of the transaction involved, the firm's
general execution and operation facilities and the firm's risk in positioning
the securities involved. Transactions in foreign securities markets may involve
the payment of fixed brokerage commissions, which are generally higher than
those in the United States.
In selecting brokers or dealers to execute particular transactions and
in evaluating the best net price and execution available, the Advisor is
authorized to consider "brokerage and research services" (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934). The Advisor is
also authorized to cause the Trust to pay to a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. The Advisor must
determine in good faith, however, that such commission was reasonable in
relation to the value of the brokerage and research services provided, viewed in
terms of that particular transaction or in terms of all the accounts over which
the Advisor exercises investment discretion. Research services furnished by
brokers through whom the Trust effects securities transactions may be used by
the Advisor in servicing all of the accounts for which investment discretion is
exercised by the Advisor, and not all such services may be used by the Advisor
in connection with the Trust.
Compliance With Section 16 Reporting Requirements
Section 16(a) of the Securities Exchange Act of 1934 requires the
Trust's officers and directors, and persons who own more than ten percent of a
registered class of the Trust's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Officers, directors and greater than ten-percent
shareholders are required by SEC regulations to furnish the Trust with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by the
Trust and written representations from certain reporting persons that all
applicable filing requirements for such persons had been complied with, the
Trust believes that, during the fiscal year ended May 31, 1998, all filing
requirements applicable to the Trust's officers, directors, and greater than
ten-percent beneficial owners were complied with.
OTHER BUSINESS
The Board of Directors of the Trust does not know of any other matter
which may come before the meeting. If any other matter properly comes before the
meeting, it is the intention of the persons named in the proxy to vote the
proxies in accordance with their judgment on that matter.
PROPOSALS TO BE SUBMITTED BY STOCKHOLDERS
All proposals by stockholders of the Trust that are intended to be
presented at the Trust's next Annual Meeting of Stockholders to be held in 1999
must be received by the Trust for inclusion in the Trust's proxy statement and
proxy relating to that meeting no later than April 29, 1999.
EXPENSES OF PROXY SOLICITATION
The cost of preparing, assembling and mailing material in connection
with this solicitation of proxies will be borne by the Trust. In addition to the
use of the mails, proxies may be solicited personally by regular employees of
the Trust, Hyperion Capital Management, Inc., or Corporate Investor
Communications, Inc., paid solicitors for the Trust, or by telephone or
facsimile. The anticipated cost of solicitation by the paid solicitors will be
nominal. The Trust's agreement with Corporate Investor Communications, Inc.
provides that such paid solicitors will perform a broker search and deliver
proxies in return for the payment of their fee plus the expenses associated with
this proxy solicitation. Brokerage houses, banks and other fiduciaries will be
requested to forward proxy solicitation material to their principals to obtain
authorization for the execution of proxies, and they will be reimbursed by the
Trust for out-of-pocket expenses incurred in this connection.
July 30, 1998
