<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: August 14, 1996
We welcome this opportunity to provide you with information about the Hyperion
2005 Investment Grade Opportunity Term Trust, Inc. (the 'Trust') for its
semi-annual period which ended June 30, 1996 and to share our outlook for the
rest of the Trust's fiscal year. The Trust's shares are traded on the New York
Stock Exchange under the symbol 'HTO'.
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
investment grade securities and to return $10.00 per share (the initial public
offering price per share) to investors on or shortly before November 30, 2005.
The Trust pursues these investment objectives by investing in a portfolio
primarily of mortgage-backed securities ('MBS') either (i) issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities or (ii) rated
in one of the four highest rating categories of a nationally recognized rating
agency (e.g., Standard & Poor's Corporation or Fitch Investors Service, L.P.) at
the time of the investment.
MARKET ENVIRONMENT
Since our last report, interest rates have been volatile. Expectations of
further Federal Reserve ('Fed') easing for the fourth quarter of 1995 were
finally realized in January, 1996 with a 25 basis point reduction in the Federal
Funds rate to 5.25%. This reduction was followed, however, by a fairly dramatic
shift in market psychology because economic growth for 1996 has turned out to be
stronger than originally anticipated. With stronger economic growth, interest
rates have increased on fears of increasing inflation and the possibility of a
shift in the future course of monetary policy, resulting in higher interest
rates. During the last six months, the economy exceeded the expectations of most
professional forecasters and economists who had previously called for modestly
good performance from the economy. As an example of the economy's strength,
second quarter 1996 GDP increased by 4 1/2%. It should be noted that despite the
increase in economic growth, signs of escalating inflation have failed to
materialize, and the Fed has opted to keep the Federal Funds rate unchanged.
Despite the Fed's 'hold' on rates, interest rate volatility has been much higher
than in the recent past.
The dramatic change in yields between December 31, 1995, February 13, 1996 and
June 30, 1996 is outlined below.
<TABLE>
<CAPTION>
12/31/95 2/13/96 6/30/96
-------- -------- --------
<S> <C> <C> <C>
Fed Funds............. 5.50% 5.25% 5.25%
1-Year Treasury
Bill................ 5.14% 4.78% 5.68%
2-Year Treasury
Note................ 5.15% 4.79% 6.11%
5-Year Treasury
Note................ 5.38% 5.13% 6.46%
10-Year Treasury
Note................ 5.57% 5.58% 6.71%
</TABLE>
PORTFOLIO STRATEGY AND PERFORMANCE
Since the last report, dated February 23, 1996, a reallocation of the portfolio
has occurred. Due to substantial spread tightening in the Commercial
Collateralized Mortgage Obligation ('CMO') and the Subordinated CMO areas, these
sectors have had their portfolio weightings reduced from 11.2% and
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
27.7% to 6.0% and 13.6%, respectively, resulting in the Trust capturing these
sector's improved relative performance.
The reduction in exposure to these sectors was offset by an increased allocation
to Whole Loan CMOs which now comprise 20.5% of the portfolio. The CMOs purchased
are backed by low coupon mortgages, which together with the structural features
of the CMO, provide these holdings with protection against prepayment risk and
form a core investment of the portfolio that will remain stable under a wide
range of interest rate scenarios.
The portfolio also increased its allocation to asset-backed securities ('ABSs')
because this sector currently represents excellent value and is consistent with
the Trust's investment objectives.
During the six month period, the Trust posted a -4.42% total return (based on
Net Asset Value) which was entirely attributable to price declines on the
securities in the Trust, as a result of rising interest rates. This performance,
however, compares favorably with the performance of 10-year U.S. Treasury which
posted a -5.02% total return during the same six month period.
In summary, the portfolio as of June 30, 1996 had 48.8% allocation to Agency
CMOs and Whole Loan CMOs. The current credit component of the portfolio, which
amounts to 30.8%, is comprised of Subordinated CMOs, Commercial CMOs, and ABSs.
Over the past six months, the credit exposure of the Trust has declined as we
reduced our Commercial and Subordinated CMO holdings. The portfolio currently is
invested in approximately 80% securities rated AAA, while the balance of the
portfolio has investments rated no lower than BBB. We will continue to pursue
investment opportunities in the credit sensitive sectors.
The portfolio maintains an average life of 8 years, and a duration of 5.5 years
which embraces the Trust's targeted maturity of November 30, 2005. Because the
Trust currently has a long duration relative to some other fixed income
investments, the Trust may experience, N.A.V. volatility as a function of
changes in interest rates.
The chart on the following page shows the
allocation of the Trust's holdings by asset
category on June 30, 1996.
2
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF JUNE 30, 1996*
Repurchase Agreements........................ 0.2%
Municipal Zero Coupon Securities............. 5.0%
U.S. Government Agency Stripped
Mortgage-Backed Securities.................. 5.9%
Commercial Collateralized Mortgage
Obligations................................. 6.0%
U.S. Treasury Obligations.................... 9.3%
Asset-Backed Securities...................... 11.2%
Subordinated Collateralized Mortgage
Obligations................................. 13.6%
Whole Loan Collateralized Mortgage
Obligations................................. 20.5%
U.S. Government Agency Collateralized
Mortgage Obligations....................... 28.3%
* As a percentage of total investments.
CONCLUSION
We appreciate the opportunity to serve your investment needs and we thank you
for your continued support. As always, we welcome your questions and comments
and encourage you to contact our Shareholder Services Representatives at
1-800-HYPERION.
Sincerely,
/s/Kenneth C. Weiss
KENNETH C. WEISS
Chairman,
Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
/s/Louis C. Lucido
LOUIS C. LUCIDO
President,
Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc.
Managing Director and Chief Operating Officer,
Hyperion Capital Management, Inc.
/s/John N. Dunlevy
JOHN N. DUNLEVY
Vice President,
Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc.
Director and Senior Portfolio Manager,
Hyperion Capital Management, Inc.
3
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS--61.7%
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICs)--40.2%
Federal Home Loan Mortgage Corporation
Series 1637, Class G, PAC 6.00% 06/15/23 $ 14,213# $ 13,071,740
Series 1819, Class E, PAC 6.00 02/15/11 10,000# 9,085,940
Series 1832, Class F, PAC 6.50 03/15/11 5,771 5,440,968
Series 1515, Class SA 8.61+ 05/15/08 1,345 1,197,925
Series 1576, Class S 8.75+ 09/15/08 2,557 2,351,459
------------
31,148,032
------------
Federal National Mortgage Association
Series 1994-15, Class G, PAC 5.50 08/25/21 15,000# 13,800,000
Series 1994-92, Class B 7.50 01/25/21 22,067# 21,394,678
Series 1993-186, Class SA 9.25+ 09/25/08 1,695 1,556,542
Series 1993-170, Class SB 9.75+ 08/25/07 2,575 2,473,448
Series 1992-200, Class SG 11.50+ 11/25/22 2,477 2,469,649
------------
41,694,317
------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICs)
(Cost - $73,369,620) 72,842,349
------------
U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED SECURITIES--8.3%
PLANNED AMORTIZATION CLASS INTEREST-ONLY SECURITIES:
Federal Home Loan Mortgage Corporation
Series 1489, Class K 6.50 10/15/07 6,225 1,156,487
Series 1831, Class PG 6.50 03/15/11 6,570 2,073,790
------------
3,230,277
------------
Federal National Mortgage Association
Series 1993-221, Class JB 6.00 09/25/07 4,579 1,155,420
Series 1994-20, Class PN 6.50 02/25/09 3,613 878,299
Series 1993-201, Class JC 6.50 05/25/19 21,227 5,492,387
Series 1993-183, Class GA 6.50 03/25/22 7,152 1,695,194
Series 1993-198, Class M 6.50 10/25/23 2,415 929,775
Series 1993-140, Class V 7.00 06/25/13 5,566 1,752,332
------------
11,903,407
------------
TOTAL U.S. GOVERNMENT AGENCY STRIPPED MORTGAGE-BACKED SECURITIES
(Cost - $16,607,335) 15,133,684
------------
U.S. TREASURY OBLIGATIONS--13.2%
U.S. Treasury Notes
5.63 02/15/06 8,000# 7,418,752
6.88 03/31/00 2,000# 2,030,626
7.50 01/31/97 4,000# 4,041,876
7.75 01/31/00 10,000# 10,423,440
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost - $23,534,077) 23,914,694
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $113,511,032) 111,890,727
------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES--15.9%
ContiMortgage Home Equity Loan Trust
Series 1996-1, Class A7 7.00% 03/15/27 $ 3,000 $ 2,796,072
------------
First Bank Auto Receivables Grantor Trust
Series 1995-A, Class A 8.00 01/15/00 2,612 2,669,018
------------
Green Tree Financial Corporation
Series 1996-3, Class M1 7.70 05/15/27 5,000 4,931,250
Series 1996-4, Class M1 7.75 06/15/27 4,750 4,701,018
------------
9,632,268
------------
The Money Store Home Equity Trust
Series 1996-A, Class A7 7.36 03/15/24 4,000 3,932,500
Series 1996-B, Class A7 7.55 02/15/20 7,200 7,257,377
------------
11,189,877
------------
World Financial Network Credit Card Master Trust
Series 1996-B, Class A 6.95 04/15/06 2,500 2,486,328
------------
TOTAL ASSET-BACKED SECURITIES
(Cost--$28,843,274) 28,773,563
------------
- -----------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--56.9%
WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS (REMICs)--29.1%
CountryWide Home Loans, Inc.
Series 1995-4, Class A6 7.50 09/25/25 10,000 9,165,630
------------
GE Capital Mortgage Services, Inc.
Series 1996-9, Class A4 7.50 06/25/26 8,738 8,442,877
------------
Prudential Home Mortgage Securities Co., Inc.
Series 1993-35, Class A3, PAC 6.75 09/25/08 5,327 5,323,661
------------
Ryland Mortgage Securities Corporation
Series 1993-A1, Class A 7.45 01/28/23 14,258 13,569,176
------------
Securitized Asset Sales, Inc.
Series 1995-B, Class A3 7.41 09/25/24 16,700 16,123,332
------------
TOTAL WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS (REMICs)
(Cost--$54,000,146) 52,624,676
------------
COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS--8.5%
DLJ Mortgage Acceptance Corp.
Series 1996-CF1, Class A1B 7.58 03/13/28 3,000(a) 3,002,814
------------
Resolution Trust Corp.
Series 1992-CHF, Class C 8.25 12/25/20 824 833,678
Series 1992-C8, Class B 8.84 12/25/23 3,663 3,798,645
------------
4,632,323
------------
</TABLE>
5
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--(CONCLUDED)
COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS--(CONCLUDED)
SKW II Real Estate Limited Partnership
Series 1, Class C 7.45% 04/15/03 $ 3,000(a) $ 3,000,000
------------
Salomon Brothers Mortgage Securities VII
Series 1996-C1, Class A2 6.78 03/20/06 5,000 4,846,095
------------
TOTAL COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $15,696,063) 15,481,232
------------
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS (REMICs)--19.3%
CountryWide Home Loans, Inc.
Series 1996-1, Class B1 7.25 05/25/26 3,944 3,699,097
------------
Independent National Mortgage Corporation
Series 1995-L, Class B1 7.50 08/25/25 6,963 6,533,409
------------
Prudential Home Mortgage Securities Co., Inc.
Series 1993-E, Class 3B 7.39+ 07/28/23 5,415(a) 4,952,612
------------
Residential Funding Mortgage Securities, Inc.
Series 1996-S7, Class M2 7.00 03/25/26 4,967 4,492,468
Series 1996-S4, Class M2 7.25 02/25/26 4,990 4,589,079
Series 1995-S11, Class M1 7.50 09/25/25 11,259 10,744,876
------------
19,826,423
------------
TOTAL SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS (REMICs)
(Cost - $36,106,498) 35,011,541
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $105,802,707) 103,117,449
------------
- -----------------------------------------------------------------------------------------------------------------
MUNICIPAL ZERO COUPON SECURITIES--7.1%
TEXAS
Houston Texas, Water & Sewer System
Revenue Bond, AMBAC (b) 12/01/06 5,000 2,825,635
San Antonio Texas, Electricity & Gas
Series B, Revenue Bond, FGIC (b) 02/01/07 10,000 5,542,540
Texas, Municipal Power Agency
Revenue Bond, AMBAC (b) 09/01/05 5,490 3,352,084
------------
11,720,259
------------
WEST VIRGINIA
West Virginia, State Parkways Economic
Development and Tourism Authority Revenue
Bond, FGIC (b) 05/15/05 1,975 1,225,137
------------
TOTAL MUNICIPAL ZERO COUPON SECURITIES
(Cost - $12,816,292) 12,945,396
------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount Value
(000s) (Note 2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT--0.2%
Dated 6/28/96, with State Street Bank and Trust Company, 4.90%,
due 7/1/96; proceeds: $416,170, collateralized by $420,000
U.S. Treasury Note, 6.00%, due 8/31/97, value: $428,152
(Cost - $416,000) $ 416 $ 416,000
------------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--141.8%
(Cost - $261,389,305) $257,143,135
LIABILITIES IN EXCESS OF OTHER ASSETS--(41.8%) (75,848,662)
------------
NET ASSETS--100.0% $181,294,473
------------
------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
REMIC Real Estate Mortgage Investment Conduit
PAC Planned Amortization Class -- Security principal payments are within
a predetermined range.
# Portion of or entire principal amount delivered as collateral for
reverse repurchase agreements. (Note 5)
+ Variable Rate Security -- Coupon Rate is in effect as of June 30, 1996.
(a) Private Placements
AMBAC American Municipal Bond Assurance Corporation
(b) Zero Coupon Bonds
FGIC Financial Guaranty Insurance Company
- ---------------
See notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (cost--$261,389,305) (Note 2)............................................. $257,143,135
Cash............................................................................................ 32,603
Interest receivable............................................................................. 2,738,689
Deferred organization expenses and other assets (Note 2)........................................ 118,982
------------
Total assets.......................................................................... 260,033,409
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................................................... 78,402,000
Interest payable (Note 5)....................................................................... 105,487
Accrued expenses................................................................................ 105,444
Investment advisory fee payable (Note 3)........................................................ 94,037
Administration fee payable (Note 3)............................................................. 31,968
------------
Total liabilities..................................................................... 78,738,936
------------
NET ASSETS (equivalent to $8.51 per share based on 21,304,673 shares
outstanding).................................................................................. $181,294,473
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6).................................................................. $ 21,305
Additional paid-in capital...................................................................... 199,452,147
Undistributed net investment income............................................................. 1,207,271
Accumulated net realized losses................................................................. (15,140,080)
Net unrealized depreciation..................................................................... (4,246,170)
------------
Net assets applicable to capital stock outstanding.............................................. $181,294,473
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME (Note 2):
Interest....................................................................................... $ 10,794,109
------------
EXPENSES:
Investment advisory fees (Note 3).............................................................. 606,894
Administration fees (Note 3)................................................................... 147,816
Insurance...................................................................................... 81,800
Reports to shareholders........................................................................ 49,389
Custodian...................................................................................... 39,838
Audit and tax services......................................................................... 23,677
Directors' fees................................................................................ 23,418
Registration................................................................................... 16,169
Transfer agency................................................................................ 10,835
Legal.......................................................................................... 3,407
Amortization of organization expenses (Note 2)................................................. 3,372
Miscellaneous.................................................................................. 34,560
------------
Total operating expenses.................................................................... 1,041,175
Interest expense (Note 5)................................................................. 2,241,629
------------
Total expenses............................................................................ 3,282,804
------------
Net investment income.......................................................................... 7,511,305
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FUTURES TRANSACTIONS (Note 2):
Net realized gains (losses) on:
Investment transactions........................................................................ 4,233,574
Futures transactions........................................................................... (336,153)
------------
3,897,421
------------
Net change in unrealized appreciation (depreciation) on:
Investments.................................................................................... (21,768,940)
Futures transactions........................................................................... 582,188
------------
(21,186,752)
------------
Net realized and unrealized losses on investments and futures transactions....................... (17,289,331)
------------
Net decrease in net assets resulting from operations............................................. $ (9,778,026)
------------
------------
</TABLE>
- ---------------
See notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Year
June 30, Ended
1996 December 31,
(unaudited) 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income........................ $ 7,511,305 $ 13,366,214
Net realized gains (losses) on investments,
short sales, futures and option
transactions.............................. 3,897,421 (4,902,040)
Net change in unrealized appreciation
(depreciation) on investments and futures
transactions.............................. (21,186,752) 31,235,652
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. (9,778,026) 39,699,826
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income........................ (6,924,921) (14,439,693)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Trust shares repurchased and
retired................................... (281,526) (485,673)
------------ ------------
Total increase (decrease) in net
assets............................. (16,984,473) 24,774,460
NET ASSETS:
Beginning of period............................ 198,278,946 173,504,486
------------ ------------
End of period (including undistributed net
investment income of $1,207,271 and $620,887
respectively)................................ $181,294,473 $198,278,946
------------ ------------
------------ ------------
- ---------------
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1996 (unaudited)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding accretion of $291,016).......................................... $ 10,829,275
Interest expense paid........................................................................ (2,326,543)
Operating expenses paid...................................................................... (1,186,989)
Sale of short-term portfolio investments, net................................................ 227,000
Purchase of long-term portfolio investments.................................................. (191,168,065)
Proceeds from disposition of long-term portfolio investments and principal paydowns.......... 200,650,095
Net cash provided by futures transactions.................................................... 195,410
-------------
Net cash provided by operating activities.................................................... 17,220,183
-------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements.............................................. (10,081,000)
Cash used to repurchase and retire Trust shares.............................................. (356,826)
Cash dividends paid.......................................................................... (7,029,167)
-------------
Net cash used for financing activities....................................................... (17,466,993)
-------------
Net decrease in cash........................................................................... (246,810)
Cash at beginning of period.................................................................... 279,413
-------------
Cash at end of period.......................................................................... $ 32,603
-------------
-------------
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations........................................... $ (9,778,026)
-------------
Decrease in investments...................................................................... 5,167,422
Decrease in net unrealized appreciation on investments....................................... 21,768,940
Decrease in interest receivable.............................................................. 343,200
Decrease in variation margin payable......................................................... (50,625)
Increase in other assets..................................................................... (104,179)
Decrease in accrued expenses and other liabilities........................................... (126,549)
-------------
Total adjustments.................................................................... 26,998,209
-------------
Net cash provided by operating activities...................................................... $ 17,220,183
-------------
-------------
</TABLE>
- ------------------
See notes to financial statements.
11
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For the Period
For the For the Year For the Year March 1, 1993*
Six Months Ended Ended Ended through
June 30, 1996 December 31, December 31, December 31,
(unaudited) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period ............................. $ 9.29 $ 8.11 $ 9.41 $ 9.34**
---------------- ------------ ------------ --------------
Net investment income ................ 0.35 0.63 0.80 0.62
Net effect of shares repurchased ..... -- 0.01 0.01 --
Net realized and unrealized gains
(losses) on investments, short
sales, futures and option
transactions ....................... (0.81) 1.22 (1.36) 0.04
---------------- ------------ ------------ --------------
Net increase (decrease) in net asset
value resulting from operations .... (0.46) 1.86 (0.55) 0.66
---------------- ------------ ------------ --------------
Dividends from net investment
income ............................. (0.32) (0.68) (0.75) (0.59)
Net asset value, end of period ....... $ 8.51 $ 9.29 $ 8.11 $ 9.41
---------------- ------------ ------------ --------------
---------------- ------------ ------------ --------------
Market price, end of period .......... $ 7.25 $ 7.625 $ 7.00 $ 8.63
---------------- ------------ ------------ --------------
---------------- ------------ ------------ --------------
TOTAL INVESTMENT RETURN+ ............. (0.77)% 19.10% (10.63)% (1.81)%(1)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTARY DATA:
Net assets, end of period (000s) ....... $181,294 $198,279 $173,504 $204,146
Total operating expenses ............... 1.12%(2) 1.08% 1.08% 0.99%(2)
Interest expense ....................... 2.40%(2) 2.49% 1.90% 1.08%(2)
Net investment income .................. 8.05%(2) 7.14% 9.10% 7.85%(2)
Portfolio turnover rate ................ 71% 163% 171% 287%
</TABLE>
- ------------
* Commencement of investment operations.
** Net of offering costs of $0.03.
+ 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.
12
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
1. THE TRUST:
Hyperion 2005 Investment Grade Opportunity Term Trust, Inc. (the 'Trust'), which
was incorporated under the laws of the State of Maryland on December 14, 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 February 17, 1993, when it sold 10,673 shares of common stock
for $100,006 to Hyperion Capital Management, Inc. (the 'Advisor'). The Trust
expects to distribute substantially all of its net assets on or shortly before
November 30, 2005 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
investment grade securities and to return at least $10.00 per share (the initial
public offering price per share) to investors on or shortly before November 30,
2005. Investment grade securities are securities that are either (i) at the time
of investment rated in one of the four highest rating categories of a nationally
recognized rating agency (e.g., between AAA and BBB by Standard & Poor's
Corporation and Fitch Investors Service, L.P. or between Aaa and Baa by Moody's
Investors Services, Inc.) or (ii) issued or guaranteed by the U.S. Government or
one of its agencies or instrumentalities. No assurance can be given that the
Trust's investment objectives will be achieved.
2. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Valuation of Investments -- Where market quotations are readily available,
portfolio securities are valued based upon the current bid price. The Trust
values mortgage-backed securities ('MBS') and other debt securities for which
market quotations are not readily available at their fair value as determined in
good faith, utilizing procedures approved by the Board of Directors of the
Trust, on the basis of information provided by dealers in such securities. Some
of the general factors which may be considered in determining fair value include
the fundamental analytic data relating to the investment and an evaluation of
the forces which influence the market in which these securities are purchased
and sold. Determination of fair value involves subjective judgment, as the
actual market value of a particular security can be established only by
negotiations between the parties in a sales transaction. Debt securities having
a remaining maturity of sixty days or less when purchased and debt securities
originally purchased with maturities in excess of sixty days but which currently
have maturities of sixty days or less are valued at amortized cost.
The ability of issuers of debt securities held by the Trust to meet their
obligations may be affected by economic developments in a specific industry or
region. The values of MBS can be significantly affected by changes in interest
rates.
Financial Futures Contracts -- A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by 'marking-to-market' on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
The Trust invests in financial futures contracts to adjust the portfolio for
fluctuations in value caused by changes in prevailing market interest rates.
Should interest rates move unexpectedly, the Trust may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets. The Trust is at risk that it may not be able to close out a
transaction because of an illiquid secondary market.
Options Written or Purchased -- The Trust may write or purchase options as a
method of hedging potential declines in similar underlying securities. When the
Trust writes or purchases an option, an amount equal to the premium received or
paid by the Trust is recorded as a liability or an asset and is subsequently
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
adjusted to the current market value of the option written or purchased.
Premiums received or paid from writing or purchasing options which expire
unexercised are treated by the Trust on the expiration date as realized gains or
losses. The difference between the premium and the amount paid or received on
effecting a closing purchase or sale transaction, including brokerage
commissions, is also treated as a realized gain or loss. If an option is
exercised, the premium paid or received is added to the proceeds from the sale
or cost of the purchase in determining whether the Trust has realized a gain or
a loss on the transaction. The Trust, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
The Trust purchases or writes options to hedge against adverse market movements
or fluctuations in value caused by changes in interest rates. The Trust bears
the risk in purchasing an option that it will expire without being exercised. If
this occurs, the option expires worthless and the premium paid for the option is
a loss. The risk associated with writing call options is that the Trust may
forego the opportunity for a profit if the market value of the underlying
position increases and the option is exercised. The Trust will only write call
options on positions held in its portfolio. The risk in writing a put option is
that the Trust may incur a loss if the market value of the underlying position
decreases and the option is exercised. In addition, the Trust bears the risk of
not being able to enter into a closing transaction for written options as a
result of an illiquid market.
Securities Transactions and Investment Income -- Securities transactions are
recorded on the trade date. Realized gains and losses from securities
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. Discounts and premiums on zero-coupon 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 realized capital gains in excess of
capital loss carryforwards are distributed at least annually. Dividends and
distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences, which
could be temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
Deferred Organization Expenses -- A total of $34,000 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 defined as 'Cash' in the Statement of Assets and
Liabilities, and does not include short-term investments.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value and accreting discounts and amortizing
premiums on debt obligations.
Repurchase Agreements -- The Trust, through its custodian, receives delivery of
the underlying collateral, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price, including
accrued interest. The Advisor is responsible for determining that the value of
these underlying securities is sufficient at all times. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings commence
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
3. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS:
The Trust has entered into an Investment Advisory Agreement with the Advisor.
The Advisor is responsible for the management of the Trust's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Trust. For such services, the Trust
pays a monthly fee at an annual
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
rate of 0.65% of the Trust's average weekly net assets. For the six months ended
June 30, 1996, the Advisor earned $606,894 in Investment Advisory Fees.
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc. (the 'Administrator'). The Administrator performs
administrative services necessary for the operation of the Trust, including
maintaining certain books and records of the Trust, and preparing reports and
other documents required by federal, state, and other applicable laws and
regulations, and provides the Trust with administrative office facilities. For
these services, the Trust pays to the Administrator a monthly fee at an annual
rate of 0.17% of the first $100 million of the Trust's average weekly net
assets, 0.145% of the next $150 million and 0.12% of any amounts above $250
million. For the six months ended June 30, 1996, the Administrator earned
$147,816 in Administration Fees.
Certain officers and/or directors of the Trust are officers and/or directors of
the Advisor.
4. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 1996 aggregated $191,168,065 and $198,671,658,
respectively.
The federal income tax basis of the Trust's investments at June 30, 1996 was
$261,389,305 and accordingly, net unrealized depreciation for federal income tax
purposes was $4,246,170 (gross unrealized appreciation--$1,505,027; gross
unrealized depreciation--$5,751,197). At December 31, 1995, the Trust had a
capital loss carryforward of approximately $19,160,154, of which $6,572,792
expires in 2001, $6,856,606 expires in 2002 and $5,730,756 expires in 2003.
5. BORROWINGS:
The Trust may enter into reverse repurchase agreements and dollar roll
agreements with the same parties with whom it may enter into repurchase
agreements. A dollar roll agreement is identical to a reverse repurchase
agreement except for the fact that substantially identical securities may be
repurchased. Under a reverse repurchase agreement or a dollar roll agreement,
the Trust sells securities and agrees to repurchase them, or substantially
similar securities in the case of a dollar roll agreement, at a mutually agreed
upon date and price. Under the 1940 Act, reverse repurchase agreements and
dollar roll agreements will be regarded as a form of borrowing by the Trust
unless, at the time it enters into a reverse repurchase agreement or a dollar
roll agreement, it establishes and maintains a segregated account with its
custodian containing securities from its portfolio having a value not less than
the repurchase price (including accrued interest). The Trust has established and
maintained such an account for each of its reverse 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 June 30, 1996, the Trust had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount..................... $78,530,481
---------------
Market Value of Assets Sold Under
Agreements........................ $78,831,080
---------------
Weighted Average Interest Rate...... 5.28%
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the six months ended June 30, 1996 was approximately $83,691,023 at a weighted
average interest rate of 5.39%. The maximum amount of reverse repurchase
agreements outstanding on any day that net asset value was calculated during the
period was $100,433,000 as of January 22, 1996, which was 33.4% of total assets.
6. CAPITAL STOCK:
There are 75 million shares of $0.001 par value common stock authorized. Of the
21,304,673 shares outstanding at June 30, 1996, the Advisor owned 10,673 shares.
The Trust is continuing its stock repurchase program, whereby an amount of up to
15% of the total outstanding common stock, or approximately 3.2 million shares,
are authorized for repurchase. The
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
purchase price may not exceed the then-current net asset value.
During the six months ended June 30, 1996 and the year ended December 31, 1995,
the Trust repurchased totals of 36,700 and 64,100 shares of its outstanding
common stock at costs of $281,526 and $485,673 and average discounts of
approximately 16.91% and 16.56% from its net asset value, respectively. All
shares repurchased have been retired.
7. FINANCIAL INSTRUMENTS:
The Trust regularly trades in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing exposure
to various market risks. These financial instruments include written options and
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Trust has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
The Trust held no futures contracts at June 30, 1996.
8. SUBSEQUENT EVENT:
The Trust's Board of Directors declared the following regular monthly dividends:
<TABLE>
<CAPTION>
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- --------- -------- --------
<S> <C> <C>
$0.05416 07/22/96 07/31/96
$0.05416 08/19/96 08/29/96
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS--(UNAUDITED)
- --------------------------------------------------------------------------------
During the six months ended June 30, 1996, Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc. shareholders voted on the following proposals at a
shareholders meeting on April 16, 1996. The description of each proposal and
number of shares voted are as follows:
<TABLE>
<CAPTION>
SHARES VOTED
SHARES VOTED WITHOUT
FOR AUTHORITY
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
1. To elect the members
to the Trust's Board
of Directors: Garth Marston 17,194,689 337,924
Leo M. Walsh, Jr. 17,225,537 307,075
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED
SHARES VOTED FOR AGAINST ABSTAIN
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
2. To select Price
Waterhouse LLP as the
Trust's independent
accountants: 17,090,134 105,889 336,589
- ------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON NET INCREASE
NET INVESTMENT INVESTMENTS, SHORT (DECREASE) IN NET
SALES, FUTURES AND ASSETS RESULTING DIVIDENDS AND
INCOME OPTION TRANSACTIONS FROM OPERATIONS DISTRIBUTIONS
------------------ --------------------- -------------------- --------------------
TOTAL PER PER PER PER
QUARTERLY PERIOD INCOME AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 1, 1993* through
March 31, 1993........... $1,098,287 $ 937,481 $0.04 $ 309,743 $ 0.01 $ 1,247,224 $ 0.05 $ 0 $ 0.00
April 1, 1993 through
June 30, 1993............ 4,763,551 3,832,812 0.18 2,686,112 0.12 6,518,924 0.30 (4,344,306) (0.20)
July 1, 1993 through
September 30, 1993....... 5,272,115 4,111,430 0.19 2,755,490 0.13 6,866,920 0.32 (4,342,104) (0.20)
October 1, 1993 through
December 31, 1993........ 5,832,414 4,539,300 0.21 (4,723,850) (0.22) (184,550) (0.01) (4,068,685) (0.19)
January 1, 1994 through
March 31, 1994........... 5,795,794 4,558,085 0.21 (6,888,543) (0.32) (2,330,458) (0.11) (4,058,269) (0.19)
April 1, 1994 through
June 30, 1994............ 5,902,772 4,616,386 0.22 (9,012,124) (0.40) (4,395,738) (0.18) (4,042,754) (0.19)
July 1, 1994 through
September 30, 1994....... 5,406,620 3,968,134 0.18 (5,830,890) (0.28) (1,862,756) (0.09) (4,029,318) (0.19)
October 1, 1994 through
December 31, 1994........ 5,679,863 4,021,909 0.19 (7,726,469) (0.36) (3,704,560) (0.17) (4,005,735) (0.18)
January 1, 1995 through
March 31, 1995........... 4,717,982 3,413,100 0.16 (7,036,248) (0.33) (3,623,148) (0.17) (3,745,737) (0.17)
April 1, 1995 through
June 30, 1995............ 4,968,099 3,310,058 0.15 25,633,344 1.20 28,943,402 1.35 (3,745,744) (0.18)
July 1, 1995 through
September 30, 1995....... 5,181,587 3,333,022 0.16 211,662 0.01 3,544,684 0.17 (3,476,446) (0.17)
October 1, 1995 through
December 31, 1995........ 5,193,154 3,310,034 0.16 7,524,854 0.35 10,834,888 0.51 (3,471,766) (0.16)
January 1, 1996 through
March 31, 1996........... 5,275,950 3,476,418 0.16 (11,839,891) (0.55) (8,363,473) (0.39) (3,463,398) (0.16)
April 1, 1996 through
June 30, 1996............ 5,518,159 4,034,887 0.19 (5,449,440) (0.26) (1,414,553) (0.07) (3,461,523) (0.16)
<CAPTION>
SHARE
PRICE
-------------
QUARTERLY PERIOD HIGH LOW
- -------------------------------------------
<S> <C> <C>
March 1, 1993* through
March 31, 1993........... $10 1/8 $9 7/8
April 1, 1993 through
June 30, 1993............ 10 8 7/8
July 1, 1993 through
September 30, 1993....... 9 3/8 9
October 1, 1993 through
December 31, 1993........ 9 1/4 8 3/8
January 1, 1994 through
March 31, 1994........... 8 7/8 8
April 1, 1994 through
June 30, 1994............ 8 1/4 7 5/8
July 1, 1994 through
September 30, 1994....... 8 7 1/4
October 1, 1994 through
December 31, 1994........ 7 3/8 6 3/4
January 1, 1995 through
March 31, 1995........... 7 3/8 7
April 1, 1995 through
June 30, 1995............ 8 7 1/8
July 1, 1995 through
September 30, 1995....... 7 7/8 7 1/8
October 1, 1995 through
December 31, 1995........ 7 7/8 7 1/2
January 1, 1996 through
March 31, 1996........... 8 1/8 7 1/2
April 1, 1996 through
June 30, 1996............ 7 5/8 7
</TABLE>
* Commencement of investment operations.
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022
FOR GENERAL INFORMATION ABOUT THE TRUST:
(800) HYPERION
TRANSFER AGENT
BOSTON EQUISERVE L.P.
Investor Relations Department
P.O. Box 8200
Boston, Massachusetts 02266-8200
FOR SHAREHOLDER SERVICES:
(800) 426-5523
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02116
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
GIBSON DUNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Trust may purchase its shares in the
open market at prevailing market prices.
18
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
A Dividend Reinvestment Plan (the 'Plan') is available to shareholders of
the Trust pursuant to which they may elect to have all dividends and
distributions of capital gains automatically reinvested by State Street Bank and
Trust Company (the 'Plan Agent') in Trust shares. Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check
mailed directly to the shareholder of record (or if the Shares are held in
street or other nominee name, then to the nominee) by the Trust's Custodian, as
Dividend Disbursing Agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, payable in cash, the participants in the Plan will receive the
equivalent amount in Trust shares valued at the market price determined as of
the time of purchase (generally, the payment date of the dividend or
distribution). The Plan Agent will, as agent for the participants, use the
amount otherwise payable as a dividend to participants to buy shares in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price increases, the average per share purchase price paid by the Plan Agent may
exceed the market price of the shares at the time the dividend or other
distribution was declared. Share purchases under the Plan may have the effect of
increasing demand for the Trust's shares in the secondary market.
There is no charge to participants for reinvesting dividends or capital
gain distributions, except for certain brokerage commissions, as described
below. The Plan Agent's fees for handling the reinvestment of dividends and
distributions are paid by the Trust. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of dividends and
distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable on such dividends or
distributions.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. When a participant withdraws from the Plan or upon termination
of the Plan by the Trust, certificates for whole shares credited to his or her
account under the Plan will be issued and a cash payment will be made for any
fraction of a share credited to such account.
A brochure describing the Plan is available from the Plan Agent, State
Street Bank and Trust Company, by calling 1-800-426-5523.
If you wish to participate in the Plan and your shares are held in your
name, you may simply complete and mail the enrollment form in the brochure. If
your shares are held in the name of your brokerage firm, bank or other nominee,
you should ask them whether or how you can participate in the Plan. Shareholders
whose shares are held in the name of a brokerage firm, bank or other nominee and
are participating in the Plan may not be able to continue participating in the
Plan if they transfer their shares to a different brokerage firm, bank or other
nominee, since such shareholders may participate only if permitted by the
brokerage firm, bank or other nominee to which their shares are transferred.
19
<PAGE>
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Kenneth C. Weiss
Chairman
Rodman L. Drake*
Director
Garth Marston*
Director
Harry E. Petersen, Jr.*
Director
Lewis S. Ranieri
Director
Patricia A. Sloan
Director & Secretary
Leo M. Walsh, Jr.*
Director
Louis C. Lucido
President
Clifford E. Lai
Senior Vice President
John N. Dunlevy
Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
- ------------------------------------------------------
HYPERION
Capital Management, Inc.
- ------------------------------------------------------
The accompanying financial statements as of June 30, 1996 were not audited and,
accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY
TERM TRUST, INC.
520 Madison Avenue
New York, NY 10022
<PAGE>
- --------------------------------------
HYPERION 2005
INVESTMENT
GRADE
OPPORTUNITY
TERM TRUST
- --------------------------------------
Semi-Annual Report
- --------------------------------------
June 30, 1996
