<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY
TERM TRUST INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY
TERM TRUST, INC.
One Liberty Plaza o New York, New York 10006-1404
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
February 27, 1998
To the Stockholders:
The Annual Meeting of Stockholders of Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc. (the 'Trust') will be held at The Millenium Hilton,
55 Church Street (next to the World Trade Center),
New York, New York 10007, on Tuesday, April 21, 1998, at 10:30 a.m., for the
following purposes:
1. To elect directors (Proposal 1).
2. To ratify or reject the selection of Price Waterhouse LLP as the
independent accountants of the Trust for the fiscal year ending December
31, 1998 (Proposal 2).
3. To transact any other business that may properly come before the
meeting.
The close of business on February 20, 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:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
- ---------------------------------------------------------------------- ----------------------------
<S> <C>
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
</TABLE>
<PAGE>
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY
TERM TRUST, INC.
One Liberty Plaza o New York, New York 10006-1404
------------------------
PROXY STATEMENT
------------------------
This proxy statement is furnished in connection with a solicitation by the
Board of Directors of Hyperion 2005 Investment Grade Opportunity 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 (next to the
World Trade Center), New York, New York 10007, at 10:30 a.m. on Tuesday, April
21, 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 February 27, 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 Price Waterhouse LLP as the independent
accountants of the Trust for the fiscal year ending December 31, 1998. The close
of business on February 20, 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 17,332,473 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, 1998; Class II, 1999; and Class
III, 2000. 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 Patricia A. Sloan, the members of Class I,
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 Ms. Sloan. Each nominee has indicated that he or she 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.
1
<PAGE>
The following table provides information concerning each of the seven
members and nominees of the Board of Directors of the Trust:
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED
DIRECTLY OR
PRINCIPAL OCCUPATION INDIRECTLY, ON
NAME AND OFFICE DURING PAST FIVE YEARS, DIRECTOR DECEMBER 31,
WITH THE TRUST OTHER DIRECTORSHIPS AND AGE SINCE 1997 (**)
- ------------------------------ --------------------------------------------- -------------- -----------------
CLASS I NOMINEES TO SERVE UNTIL 2001 ANNUAL MEETING
OF STOCKHOLDERS:
<S> <C> <C> <C>
Rodman L. Drake .............. Chief Operating Officer, Continuation In- February 1993 204
Director, Member of the vestments N.V. (1997-Present). Director
Audit Committee 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 Parsons
Brinckerhoff Energy Systems, Inc., and
Latin American Growth Fund Inc. Age 55.
Patricia A. Sloan* ........... Managing Director of Ranieri & Co., Inc. February 1993 300
Director, Secretary (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.
<CAPTION>
CLASS II DIRECTORS TO SERVE UNTIL 1999 ANNUAL MEETING
OF STOCKHOLDERS:
<S> <C> <C> <C>
Garth Marston ................ Managing Director of M.E. Associates, a February 1993 0
Director, Member of the financial consulting group (1986-Present).
Audit Committee Director and/or Trustee of several
investment companies advised by Hyperion
Capital Management, Inc. (1989-Present).
Currently a member of the Board of Managers
of the Sun Life Assurance Company of Canada
(U.S.)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED
DIRECTLY OR
PRINCIPAL OCCUPATION INDIRECTLY, ON
NAME AND OFFICE DURING PAST FIVE YEARS, DIRECTOR DECEMBER 31,
WITH THE TRUST OTHER DIRECTORSHIPS AND AGE SINCE 1997 (**)
- ------------------------------ --------------------------------------------- -------------- -----------------
<S> <C> <C> <C>
Formerly Director and interim Chief Ex-
ecutive Officer of Florida Federal Savings
(1986-1988); Chairman of the Board and
Chief Executive Officer of The Provident
Institution for Savings (1979-1986);
Special Assignment regarding partially call
protected Mortgage-Backed Securities for
Salomon Brothers Inc. (1987). Age 71.
Leo M. Walsh, Jr. ............ Director and/or Trustee of several invest- February 1993 6,000
Director, Chairman of ment companies advised by Hyperion Capital
the Audit Committee Management, Inc. or by its affiliates
(1989-Present). Director of POREX
Corporation (1997-Present). Financial
Consultant for Merck-Medco Managed Care
Inc. (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. (1989-1994);
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 In-
vestment 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.
<CAPTION>
CLASS III DIRECTORS TO SERVE UNTIL 2000 ANNUAL MEETING
OF STOCKHOLDERS:
<S> <C> <C> <C>
Harry E. Petersen, Jr. ....... Director and/or Trustee of several invest- February 1993 200
Director, Member of the ment companies advised by Hyperion Capital
Audit Committee 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
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED
DIRECTLY OR
PRINCIPAL OCCUPATION INDIRECTLY, ON
NAME AND OFFICE DURING PAST FIVE YEARS, DIRECTOR DECEMBER 31,
WITH THE TRUST OTHER DIRECTORSHIPS AND AGE SINCE 1997 (**)
- ------------------------------ --------------------------------------------- -------------- -----------------
<S> <C> <C> <C>
Fund, Inc. and Equitable Real Estate
Hyperion High Yield Commercial Mortgage
Fund, Inc. (1995-1997); Director of
Lexington Corporate Properties, Inc.
(1993-1997); Consultant to Advisers Capital
Management, Inc. (1992-1995); 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.
Lewis S. Ranieri* ............ Chairman and Chief Executive Officer of February 1993 0
Director Ranieri & Co., Inc. (since 1988); in ad-
dition, 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 gen-
eral 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. Formerly Vice Chairman
of Salomon Brothers Inc. (until 1987). Age
51.
Kenneth C. Weiss* ............ President and Chief Executive Officer of February 1993 14,962
Director, Chairman of the Hyperion Capital Management, Inc. (February
Board of Directors 1992-Present). Chairman of
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED
DIRECTLY OR
PRINCIPAL OCCUPATION INDIRECTLY, ON
NAME AND OFFICE DURING PAST FIVE YEARS, DIRECTOR DECEMBER 31,
WITH THE TRUST OTHER DIRECTORSHIPS AND AGE SINCE 1997 (**)
- ------------------------------ --------------------------------------------- -------------- -----------------
<S> <C> <C> <C>
the Board, Director/ Trustee and/or of-
ficer 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
Advisor (1995-Present). Formerly Director
of First Boston Asset Management
(1988-February 1992). Director of The First
Boston Corporation, (until 1988). Age 46.
</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 '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 1997 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>
<CAPTION>
NAME AND
PRINCIPAL OCCUPATION OFFICE AGE OFFICER SINCE
- ------------------------------------------- ------------ --- --------------
<S> <C> <C> <C>
Kenneth C. Weiss Chairman 46 February 1993
President and Chief Executive Officer of
Hyperion Capital Management, Inc.; See
information under 'ELECTION OF
DIRECTORS.'
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL OCCUPATION OFFICE AGE OFFICER SINCE
- ------------------------------------------- ------------ --- --------------
<S> <C> <C> <C>
Louis C. Lucido President 49 February 1993
Managing Director and Chief Operating (Resigned June
Officer of Hyperion Capital Management, 1997)
Inc. (February 1992-June 1997).
President of several investment
companies advised by Hyperion Capital
Management, Inc. or by its affiliates
(1992-June 1997). Formerly, Senior
Vice President and Director,
Progressive Capital Management Inc.
(1991-February 1992); Senior Vice
President and Manager, Donaldson
Lufkin & Jenrette (1988-1991); Vice
President, Smith Barney, Harris Upham
& Co. Inc. (1987-1988);
Vice-President, Merrill Lynch, Pierce,
Fenner & Smith (1981-1987).
Clifford E. Lai President 44 June 1997
Managing Director and Chief Investment Senior Vice (April 1993-
Officer, Hyperion Capital Management, President June 1997)
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 40 March 1997
Director of Hyperion Capital Management, President
Inc. (1989-Present). Formerly with
the Davco Group (1988-1989) and with
Salomon Brothers Inc. (1986-1988).
John N. Dunlevy Vice 38 April 1993
Director, Hyperion Capital Management, President (Resigned
Inc. (July 1992-December 1997). December 1997)
Formerly, Director and Portfolio
Manager, Teachers Insurance & Annuity
Association (1988-1992); Assistant
Vice President, Sumitomo Bank Ltd.
(1985-1988).
Patricia A. Sloan Secretary 54 February 1993
Managing Director of Ranieri & Co., Inc.
(1988-Present); See information under
'ELECTION OF DIRECTORS.'
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL OCCUPATION OFFICE AGE OFFICER SINCE
- ------------------------------------------- ------------ --- --------------
<S> <C> <C> <C>
Joseph W. Sullivan Treasurer 41 September 1995
Vice President of Hyperion Capital (Resigned
Management, Inc. (August 1995-December December,
1997). Treasurer of several investment 1997)
companies advised by Hyperion Capital
Management, Inc. or by its affiliates
(September 1995-December 1997).
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 38 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>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AT DECEMBER 31, 1997
At December 31, 1997, 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, its officers and directors is One Liberty Plaza, New York,
New York 10006-1404.
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 Marston,
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
auditors, to review with the auditors the scope and anticipated costs of their
audit and to receive and consider a report from the auditors 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
7
<PAGE>
and all of the directors attended all of the Board meetings. 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.
DIRECTORS' COMPENSATION TABLE
FOR THE TWELVE MONTH PERIOD ENDED 12/31/97
<TABLE>
<CAPTION>
TOTAL DIRECTORS'
DIRECTORS' COMPENSATION
COMPENSATION FROM THE TRUST
FROM THE AND THE FUND
TRUST COMPLEX
------------ ----------------
<S> <C> <C>
Rodman Drake.................. $ 11,500 $ 57,500
Garth Marston................. 11,500 57,500
Harry E. Petersen, Jr......... 11,500 57,500
Leo M. Walsh, Jr.............. 11,500 57,500
------------ ----------------
$ 46,000 $230,000
------------ ----------------
------------ ----------------
</TABLE>
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 Price Waterhouse LLP as independent
accountants of the Trust for the fiscal year ending December 31, 1998 at a
meeting scheduled to be held on March 10, 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 Price Waterhouse LLP that at December 31, 1997 neither
that firm nor any of its partners had any direct or material indirect financial
interest in the Trust. A representative of Price Waterhouse 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 Price Waterhouse 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.
8
<PAGE>
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 February 17, 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 10006-1404. 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 a subsidiary of Hyperion Partners L.P., a Delaware limited
partnership ('Hyperion Partners'). 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, the 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 Trust, 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 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 March 11, 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 Advisory Agreement through March 31, 1998. At the time
of the Board's approval of the latest extension of the Advisory Agreement,
Messrs. Lewis Ranieri, 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 May 23,
1995.
9
<PAGE>
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 March 31, 1999 at a meeting
scheduled for March 10, 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 .65%
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
paid by the Trust to the Advisor during the last fiscal year of the Trust
amounted to $1,152,026.
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. For the twelve month
period ended December 31, 1997, the Administrator earned $273,049 in
Administration fees. In addition, the Administrator has entered into
Administration Agreements with the other investment companies listed below,
generally under the same fee structure as noted above. The only exception is the
fee structure for services rendered to the Hyperion Total Return Fund, Inc.,
which stipulates a fee paid monthly at an annual rate of 0.20% of its average
weekly assets.
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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>
<CAPTION>
APPROXIMATE NET
ASSETS AT
DECEMBER 31,
NAME OF FUND INVESTMENT ADVISORY FEE 1997
- ------------------------------------- ---------------------------------------------- ---------------
(IN MILLIONS)
<S> <C> <C>
The Hyperion Total Return Fund, Inc.* 0.65% of the Fund's average weekly net assets $ 261,317
Hyperion 1997 Term Trust, Inc.** 0.20% of the Trust's average weekly net assets -0-
Hyperion 1999 Term Trust, Inc. 0.50% of the Trust's average weekly net assets 449,861
Hyperion 2002 Term Trust, Inc. 0.50% of the Trust's average weekly net assets 279,240
</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.
** Terminated on December 1, 1997.
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 did not pay any futures or options commissions during the
last fiscal year.
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.
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<PAGE>
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 December 31, 1997, 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 November 27, 1998.
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 telegraph. 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.
February 27, 1998
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