<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: August 25, 1997
We welcome this opportunity to provide you with information about Hyperion 2005
Investment Grade Opportunity Term Trust, Inc. (the 'Trust') for its semi-annual
period ended June 30, 1997 and to share our outlook for the rest of the Trust's
fiscal year. The Trust's shares are traded on the New York Stock Exchange
('NYSE') under the symbol 'HTO'.
DESCRIPTION OF THE TRUST
The Trust is a closed-end investment company whose investment objectives are to
attempt 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 issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, or rated in one of the
four highest rating categories by a nationally recognized rating agency (e.g.,
Standard & Poor's Corporation or Fitch Investors Service, L.P.) at the time of
the investment. No assurance can be given that the Trust's investment objectives
will be achieved.
MARKET ENVIRONMENT
Strength in many sectors of the economy appears to have carried over from the
very robust first quarter into the second quarter and seems to be continuing
into the third quarter. Continuing strength from multiple sectors in the economy
often gives rise to inflationary pressures. These pressures may prompt the
Federal Reserve Bank to raise the Discount Rate. We do not expect a significant
rise in interest rates in the near future, however, we do expect more interest
rate volatility due to the market's reaction to perceived near term inflationary
pressures.
Over the long term, our outlook for the fixed income market continues to include
lower interest rates. Positive fundamentals, such as a reduction in fiscal
spending, a decline in global inflationary pressures, increasing productivity,
technological advancements and higher savings and investment rates due to the
aging of the 'baby boomer' segment of the population, are major factors that
should result in a decline in interest rates. The fixed income markets usually
do reasonably well under these conditions.
PORTFOLIO STRATEGY AND PERFORMANCE
The Trust's total return for the six month period ending June 30, 1997 was
6.39%. Total investment return is computed based upon the change in net asset
value ('NAV') of the Trust's shares and includes reinvestment of dividends. The
Trust's performance compares quite favorably with the total returns of the
10-year U.S. Treasury Bond of 2.50% and the Lehman Aggregate Bond Index of 3.11%
during this same six month period. The current monthly dividend the Trust pays
its shareholders is $0.04583 per share. The current yield of 7.04% on shares of
the Trust is based on the NYSE closing price of $7.8125 on June 30, 1997.
The Trust, inclusive of leverage, is currently managed with an average duration
(duration measures a bond portfolio's price sensitivity to interest rate
changes) of approximately 6.5 years. The dollar weighted average life of the
securities in the portfolio was approximately 10 years at June 30, 1997.
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
The Trust is continuing its share repurchase program. This repurchase program
allows the Trust to purchase and retire shares of the Trust in the open
marketplace. Such transactions are made when the share price of the Trust is
significantly below the Trust's NAV. By purchasing the stock at a discount to
the NAV and retiring the stock, the benefit of that spread (between stock
purchase price and the NAV) is captured and returned to all of the Trust's
remaining shareholders. During the six months ended June 30, 1997, the Trust
repurchased and retired 1,950,100 shares, capturing $0.1181 in additional NAV
per share or $2,264,077 in an actual dollar amount for shareholders.
The portfolio continues to enjoy the benefit of high credit quality and
maintains its AA rating from Fitch Investors Service, L.P. We have continued to
upgrade the credit quality of the portfolio as credit spreads have narrowed. As
of June 30, 1997, 76.7% of the portfolio was rated AAA, while 15.8% was rated
AA, and only 7.5% was rated A by Standard & Poor's Corporation or Fitch
Investors Service, L.P.
We continue to believe that the Trust is properly positioned to provide
investors with a stable stream of dividend payments which is attractive relative
to a comparable U.S. Treasury Note. We believe that this is the case due to the
Trust's portfolio structure, our relative value investment strategy, and the
Trust's investment in higher quality securities with relatively predictable cash
flows.
The chart that follows shows the allocation of the Trust's holdings by asset
category on June 30, 1997.
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, 1997*
U.S. Government Agency Pass-Through Certificates 3.60%
U.S. Government Agency Collateralized Mortgage Obligations 35.10%
U.S. Treasury Obligations 4.00%
Asset-Backed Securities 14.40%
AAA-Rated Whole Loan Collateralized Mortgage Obligations 16.40%
Commercial/Collateralized Mortgage Obligations 2.70%
Subordinated Collateralized Mortgage Obligations 17.60%
Municipal Zero Coupon Securities 5.50%
Repurchase Agreement 0.70%
* 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/ Clifford E. Lai
- --------------------------
CLIFFORD E. LAI
President,
Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc.
Managing Director and Chief Investment 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
<TABLE>
<CAPTION>
June 30, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 63.0%
U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES - 5.3%
Federal Home Loan Mortgage Corporation
(Cost - $9,276,203) 8.00% 12/01/26 $ 9,035@ $ 9,280,442
------------
<CAPTION>
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) - 51.8%
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation
Series 1101, Class M, PAC 6.95 07/15/21 7,000@ 6,840,316
Series 1898, Class C 7.50 01/15/20 14,197@ 14,208,480
Series 1540, Class KB 8.25+ 06/15/13 844 794,161
Series 1515, Class SA 8.61+ 05/15/08 1,345 1,339,034
Series 1576, Class S 8.75+ 09/15/08 2,557 2,649,459
Series 1550, Class SE 8.97+ 07/15/08 4,000 3,416,876
------------
29,248,326
------------
Federal National Mortgage Association
Series 1992-83, Class K 7.00 04/25/09 6,338@ 6,288,488
Series 1997-5, Class VC 7.00 12/18/13 15,000@ 14,739,840
Series 1996-45, Class K 7.00 09/25/21 4,747 4,586,048
Series 1992-181, Class PL, PAC 7.00 10/25/21 6,605@ 6,490,443
Series 1994-92, Class B 7.50 01/25/21 22,067@ 22,249,776
Series 1993-186, Class SA 9.25+ 09/25/08 1,695 1,746,515
Series 1993-170, Class SB 9.75+ 08/25/07 2,575 2,687,481
Series 1992-200, Class SG 11.50+ 11/25/22 2,477 2,454,673
------------
61,243,264
------------
<CAPTION>
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
<S> <C> <C> <C> <C>
(Cost - $88,402,729) 90,491,590
------------
U.S. TREASURY OBLIGATIONS - 5.9%
U.S. Treasury Notes
(Cost - $10,034,773) 7.75 01/31/00 10,000@ 10,360,940
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $107,713,705) 110,132,972
------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 21.3%
Cityscape Home Equity Loan Trust
Series 1997-2, Class M2 8.06 04/25/18 5,000 5,092,970
------------
First Bank Auto Receivables Grantor Trust
Series 1995-A, Class A 8.00 01/15/00 1,328 1,350,563
------------
Green Tree Financial Corporation
Series 1996-3, Class M1 7.70 05/15/27 5,000 5,092,970
Series 1996-4, Class M1 7.75 06/15/27 4,750 4,849,456
Series 1996-8, Class M1 7.85 10/15/27 2,250 2,310,820
------------
12,253,246
------------
Green Tree Home Improvement Loan Trust
Series 1997-A, Class HEA5 7.21 03/15/28 10,000 10,088,700
------------
The Money Store Home Equity Trust
Series 1996-B, Class A8 7.91 05/15/24 3,000 3,092,343
------------
</TABLE>
4
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 21.3% (CONCLUDED)
UCFC Home Equity Loan
Series 1994-B1, Class A5 7.90% 08/10/15 $ 5,134 $ 5,321,714
------------
TOTAL ASSET-BACKED SECURITIES
(Cost - $ 36,317,939) 37,199,536
------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 54.1%
AAA-RATED WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) - 24.2%
CountryWide Funding Corporation
Series 1995-4, Class A6 7.50 09/25/25 10,000 9,884,380
------------
GE Capital Mortgage Services, Inc.
Series 1996-9, Class A4 7.50 06/25/26 8,662 8,564,702
------------
Prudential Home Mortgage Securities Co., Inc.
Series 1994-29, Class A6 7.00 10/25/24 5,000 4,753,125
------------
Residential Asset Securitization Trust
Series 1997-A1, Class A8 7.38 03/25/27 2,142 2,113,552
Series 1997-A5, Class A18 7.75 07/25/27 10,000 10,193,750
------------
12,307,302
------------
Securitized Asset Sales, Inc.
Series 1995-B, Class A3 7.41 09/25/24 6,700 6,678,017
------------
<CAPTION>
TOTAL AAA-RATED WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
<S> <C> <C> <C> <C>
(Cost - $41,707,198) 42,187,526
------------
COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS - 3.9%
DLJ Mortgage Acceptance Corporation
Series 1996-CF1, Class A1B 7.58 03/13/28 3,000(a) 3,097,032
------------
Resolution Trust Corporation
Series 1992-C8, Class B 8.84 12/25/23 3,663 3,780,399
------------
TOTAL COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $ 6,811,622) 6,877,431
------------
<CAPTION>
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) - 26.0%
<S> <C> <C> <C> <C>
Citicorp Mortgage Securities, Inc.
Series 1997-1, Class M 7.25 02/25/27 4,103 4,018,716
------------
CountryWide Home Loans, Inc.
Series 1996-1, Class B1 7.25 05/25/26 3,906 3,796,324
------------
Huntoon Paige Associates Limited
Series 1997-11, Class A 5.90 12/01/10 6,799 6,441,104
------------
Prudential Home Mortgage Securities Co., Inc.
Series 1996-8, Class B1 6.75 06/25/26 2,668 2,536,230
------------
Residential Funding Mortgage Securities I, Inc.
Series 1996-S7, Class M2 7.00 03/25/26 4,916 4,664,508
Series 1996-S4, Class M2 7.25 02/25/26 4,942 4,762,866
Series 1995-S11, Class M1 7.50 09/25/25 11,144 11,027,110
------------
20,454,484
------------
</TABLE>
5
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
June 30, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ----------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 54.1% (CONCLUDED)
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) - 26.0% (CONCLUDED)
<S> <C> <C> <C> <C>
Salomon Brothers Mortgage Securities VII
Series 1997-HUD1, Class B1 7.75% 12/25/30 $ 5,722 $ 5,772,081
Series 1997-HUD1, Class B2 7.75 12/25/30 2,365 2,352,676
------------
8,124,757
------------
<CAPTION>
TOTAL SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
<S> <C> <C> <C> <C>
(Cost - $ 44,692,057) 45,371,615
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $ 93,210,877) 94,436,572
------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL ZERO COUPON SECURITIES - 8.2%
TEXAS - 7.4%
Houston Texas, Water & Sewer System
Revenue Bond, AMBAC (b) 12/01/06 5,000 3,111,390
San Antonio Texas, Electricity & Gas
Series B, Revenue Bond, FGIC (b) 02/01/07 10,000 6,141,990
Texas, Municipal Power Agency
Revenue Bond, AMBAC (b) 09/01/05 5,490 3,652,799
------------
12,906,179
------------
WEST VIRGINIA - 0.8%
West Virginia, State Parkways Economic
Development and Tourism Authority
Revenue Bond, FGIC (b) 05/15/05 1,975 1,333,516
------------
TOTAL MUNICIPAL ZERO COUPON SECURITIES
(Cost - $ 13,509,154) 14,239,695
------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT - 1.1%
Dated 06/30/97, with State Street Bank and Trust Company, 5.30%,
due 07/01/97; proceeds: $1,843,271, collateralized by $1,840,000
U.S. Treasury Note, 5.875%, due 01/31/99, value: $1,883,700
(Cost - $1,843,000) 1,843 1,843,000
------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL INVESTMENTS - 147.7%
(Cost - $252,594,675) $257,851,775
LIABILITIES IN EXCESS OF OTHER ASSETS - (47.7%) (83,245,395)
------------
NET ASSETS - 100.0% $174,606,380
------------
------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
@ Portion of or entire principal amount delivered as collateral for reverse repurchase agreements. (Note 5)
REMIC Real Estate Mortgage Investment Conduit
PAC Planned Amortization Class - Security principal payments are within a predetermined range.
+ Variable Rate Security - Coupon rate is rate in effect as of June 30, 1997.
(a) Private Placement
AMBAC American Municipal Bond Assurance Corporation
(b) Zero Coupon Bonds
FGIC Financial Guaranty Insurance Company
</TABLE>
- ---------------
See notes to financial statements.
6
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $252,594,675) (Note 2).............................................. $257,851,775
Interest receivable............................................................................. 2,085,051
Prepaid expenses and other assets............................................................... 84,139
Principal paydowns receivable................................................................... 28,134
Deferred organization expenses (Note 2)......................................................... 4,530
------------
Total assets.......................................................................... 260,053,629
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................................................... 85,038,500
Interest payable (Note 5)....................................................................... 165,197
Investment advisory fee payable (Note 3)........................................................ 94,311
Bank overdraft.................................................................................. 63,883
Accrued expenses and other liabilities.......................................................... 62,265
Administration fee payable (Note 3)............................................................. 23,093
------------
Total liabilities..................................................................... 85,447,249
------------
NET ASSETS (equivalent to $9.11 per share based on 19,165,373 shares
outstanding).................................................................................. $174,606,380
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6).................................................................. $ 19,165
Additional paid-in capital...................................................................... 183,115,376
Undistributed net investment income............................................................. 2,019,452
Accumulated net realized losses................................................................. (15,804,713)
Net unrealized appreciation..................................................................... 5,257,100
------------
Net assets applicable to capital stock outstanding.............................................. $174,606,380
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
7
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2):
Interest....................................................................................... $ 9,670,367
------------
EXPENSES:
Investment advisory fee (Note 3)............................................................... 583,962
Administration fee (Note 3).................................................................... 133,724
Insurance...................................................................................... 67,864
Reports to shareholders........................................................................ 34,914
Custodian...................................................................................... 29,846
Audit and tax services......................................................................... 29,003
Directors' fees................................................................................ 22,381
Registration................................................................................... 15,981
Transfer agency................................................................................ 13,431
Amortization of organization expenses (Note 2)................................................. 3,491
Legal.......................................................................................... 744
Miscellaneous.................................................................................. 3,934
------------
Total operating expenses.................................................................... 939,275
Interest expense (Note 5)................................................................. 2,188,735
------------
Total expenses.............................................................................. 3,128,010
------------
Net investment income.......................................................................... 6,542,357
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENT TRANSACTIONS (Note 2):
Net realized gain on investment transactions..................................................... 34,520
------------
Net change in unrealized appreciation on investments............................................. 1,184,018
------------
Net realized and unrealized gain on investment transactions...................................... 1,218,538
------------
Net increase in net assets resulting from operations............................................. $ 7,760,895
------------
------------
</TABLE>
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See notes to financial statements.
8
<PAGE>
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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
1997 December 31,
(unaudited) 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income........................ $ 6,542,357 $ 14,232,747
Net realized gain on investment and futures
transactions.............................. 34,520 3,198,268
Net change in unrealized appreciation
(depreciation) on
investment and futures transactions....... 1,184,018 (12,867,500)
------------ ------------
Net increase in net assets resulting from
operations................................ 7,760,895 4,563,515
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income........................ (5,889,724) (13,486,815)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Trust shares repurchased and
retired................................... (14,933,185) (1,687,252)
------------ ------------
Total decrease in net assets......... (13,062,014) (10,610,552)
NET ASSETS:
Beginning of period.......................... 187,668,394 198,278,946
------------ ------------
End of period (including undistributed net
investment income of $2,019,452 and
$1,366,819, respectively)................. $174,606,380 $187,668,394
------------ ------------
------------ ------------
</TABLE>
- ---------------
See notes to financial statements.
9
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding net accretion of $345,120)...................................... $ 9,562,995
Interest expense paid........................................................................ (2,187,831)
Operating expenses paid...................................................................... (932,335)
Purchase of short-term portfolio investments, net............................................ (1,016,000)
Purchase of long-term portfolio investments.................................................. (95,895,827)
Proceeds from disposition of long-term portfolio investments and principal paydowns.......... 108,618,036
-------------
Net cash provided by operating activities.................................................... 18,149,038
-------------
Cash flows used for financing activities:
Net cash provided by reverse repurchase agreements........................................... 2,478,500
Cash used to repurchase and retire Trust shares.............................................. (14,933,185)
Cash dividends paid.......................................................................... (5,894,978)
-------------
Net cash used for financing activities....................................................... (18,349,663)
-------------
Net decrease in cash........................................................................... (200,625)
Cash at beginning of period.................................................................... 136,742
-------------
Bank overdraft at end of period................................................................ $ (63,883)
-------------
-------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations........................................... $ 7,760,895
-------------
Decrease in investments...................................................................... 11,354,703
Increase in net unrealized appreciation on investments....................................... (1,184,018)
Decrease in interest receivable.............................................................. 237,748
Decrease in other assets..................................................................... 44,825
Decrease in accrued expenses and other liabilities........................................... (65,115)
-------------
Total adjustments.................................................................... 10,388,143
-------------
Net cash provided by operating activities...................................................... $ 18,149,038
-------------
-------------
</TABLE>
- ------------------
See notes to financial statements.
10
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
For the For the Year For the Year For the Year March 1, 1993*
Six Months Ended Ended Ended Ended through
June 30, 1997 December 31, December 31, December 31, December 31,
(unaudited) 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 8.89 $ 9.29 $ 8.11 $ 9.41 $ 9.34**
---------------- ------------ ------------ ------------ --------------
Net investment income................... 0.33 0.67 0.63 0.80 0.62
Net effect of shares repurchased........ 0.12 0.01 0.01 0.01 --
Net realized and unrealized gains
(losses) on investment, short sale,
futures and option transactions....... 0.06 (0.45) 1.22 (1.36) 0.04
---------------- ------------ ------------ ------------ --------------
Net increase (decrease) in net asset
value resulting from operations....... 0.51 0.23 1.86 (0.55) 0.66
---------------- ------------ ------------ ------------ --------------
Dividends from net investment income.... (0.29) (0.63) (0.68) (0.75) (0.59)
---------------- ------------ ------------ ------------ --------------
Net asset value, end of period.......... $ 9.11 $ 8.89 $ 9.29 $ 8.11 $ 9.41
---------------- ------------ ------------ ------------ --------------
---------------- ------------ ------------ ------------ --------------
Market price, end of period............. $ 7.8125 $ 7.50 $ 7.625 $ 7.00 $ 8.63
---------------- ------------ ------------ ------------ --------------
---------------- ------------ ------------ ------------ --------------
TOTAL INVESTMENT RETURN+................ 8.12% 6.98% 19.10% (10.63)% (1.81)%(1)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY DATA:
Net assets, end of period (000s)........ $174,606 $187,668 $198,279 $173,504 $204,146
Total operating expenses................ 1.05% 1.08% 1.08% 1.08% 0.99%(2)
Interest expense........................ 2.44% 2.37% 2.49% 1.90% 1.08%(2)
Net investment income................... 7.30% 7.65% 7.14% 9.10% 7.85%(2)
Portfolio turnover rate................. 37% 116% 163% 171% 287%
</TABLE>
<TABLE>
<S> <C>
- ------------
* 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.
- ------------
</TABLE>
See notes to financial statements.
11
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (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 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 Service, 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, Trust
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.
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
adjusted to the current market value of the option written or purchased.
Premiums received or paid from writing or purchasing options which expire
unexercised are treated by the Trust on the expiration date as realized gains or
losses. The difference between the premium and the amount paid or received on
effecting a closing purchase or sale transaction, including brokerage
commissions, is also treated as a realized gain or loss. If an option is
exercised, the premium paid or received is added to the proceeds from the sale
or cost of the purchase in determining whether the Trust has realized a gain or
a loss on the investment transaction.
The Trust, as writer of an option, may have no control over whether the
underlying securities may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
The Trust purchases or writes options to hedge against adverse market movements
or fluctuations in value caused by changes in interest rates. The Trust bears
the risk in purchasing an option, to the extent of the premium paid, that it
will expire without being exercised. If this occurs, the option expires
worthless and the premium paid for the option is recognized as a loss. The risk
associated with writing call options is
12
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
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 certain securities are
accreted and amortized using the effective yield to maturity method.
Taxes -- It is the Trust's intention to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders. Therefore, no
federal income or excise tax provision is required.
Dividends and Distributions -- The Trust declares and pays dividends monthly
from net investment income. Distributions of net realized capital gains in
excess of capital loss carryforwards are distributed at least annually.
Dividends and distributions are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences, which could be temporary or permanent in nature, may result
in reclassification of distributions; however, net investment income, net
realized gains and net assets are not affected.
Deferred Organization Expenses -- A total of $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 the amount reported as 'Bank Overdraft' 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 rate of 0.65% of the Trust's average weekly net
assets. For the six months ended June 30, 1997, the Advisor earned $583,962 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, 1997, the Administrator earned
$133,724 in Administration Fees.
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
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, U.S.
Government securities and reverse repurchase agreements, for the six months
ended June 30, 1997 were $84,871,219 and $74,994,187, respectively. Purchases
and sales of U.S. Government securities, for the six months ended June 30, 1997
were $11,024,607 and $31,804,899, respectively. For purposes of this footnote,
U.S. Government securities include securities issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation and the Government National Mortgage
Association.
The federal income tax basis of the Trust's investments at June 30, 1997 was
$252,594,675 which was substantially the same for financial reporting and,
accordingly, net unrealized appreciation for federal income tax purposes was
$5,257,100 (gross unrealized appreciation--$5,432,696; gross unrealized
depreciation--$175,596). At December 31, 1996, the Trust had a capital loss
carryforward of approximately $15,737,930, of which $3,150,568 expires in 2001,
$6,856,606 expires in 2002 and $5,730,756 expires in 2003, available to offset
any future capital gains.
5. BORROWINGS:
The Trust may enter into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Under a reverse repurchase
agreement, the Trust sells securities and agrees to repurchase them at a
mutually agreed upon date and price. Under the 1940 Act, reverse repurchase
agreements will be regarded as a form of borrowing by the Trust unless, at the
time it enters into a reverse repurchase 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. Reverse repurchase 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 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 may effectively be restricted
pending such decision.
At June 30, 1997, the Trust had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount..................... $85,232,427
---------------
Market Value of Assets Sold Under
Agreements........................ $88,561,814
---------------
Weighted Average Interest Rate...... 5.60%
---------------
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the six months ended June 30, 1997 was approximately $79,820,467 at a weighted
average interest rate of 5.53%. The maximum amount of reverse repurchase
agreements outstanding at any time during the six months was $86,287,000, as of
January 30, 1997, which was 31.72% of total assets.
6. CAPITAL STOCK:
There are 75 million shares of $0.001 par value common stock authorized. Of the
19,165,373 shares outstanding at June 30, 1997, the Advisor owned 10,673 shares.
The Trust is continuing its stock repurchase program, whereby an amount of up to
15% of the original outstanding common stock, or approximately 3.2 million
shares, are authorized for repurchase. The purchase price may not exceed the
then-current net asset value.
During the six months ended June 30, 1997 and the year ended December 31, 1996,
the Trust repurchased totals of 1,950,100 and 225,900 shares of its outstanding
common stock at costs of $14,933,185 and $1,687,252 and average discounts of
approximately 13.50% and 16.44% 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
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
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.
There was no written option activity for the six months ended June 30, 1997.
There were no open futures contracts at June 30, 1997.
8. SUBSEQUENT EVENTS:
The Trust's Board of Directors declared the following regular monthly dividends:
<TABLE>
<CAPTION>
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- --------- -------- --------
<S> <C> <C>
$.04583 07/21/97 07/31/97
$.04583 08/18/97 08/28/97
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six months ended June 30, 1997, Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc. shareholders voted on the following proposals at a
shareholders meeting on April 22, 1997. 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: Harry E. Petersen, Jr. 19,634,629 677,366
Lewis S. Ranieri 19,607,191 704,804
Kenneth C. Weiss 19,662,140 649,855
- ------------------------------------------------------------------------------------
</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
accountant 19,514,004 532,257 265,734
- ------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON INVESTMENTS, NET INCREASE (DECREASE)
NET INVESTMENT INCOME SHORT SALE, FUTURES AND IN NET ASSETS RESULTING
OPTION TRANSACTIONS FROM OPERATIONS
TOTAL ---------------------- ------------------------ ------------------------
QUARTERLY PERIOD INCOME AMOUNT PER SHARE AMOUNT PER SHARE AMOUNT PER SHARE*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 1, 1993**
to March 31, 1993...... $1,096,287 $ 937,481 0.04 $ 309,743 $ 0.01 $ 1,247,224 $ 0.05
April 1, 1993
to June 30, 1993....... 4,763,551 3,832,812 0.18 2,686,112 0.12 6,518,924 0.30
July 1, 1993
to September 30,
1993................... 5,272,115 4,111,430 0.19 2,755,490 0.13 6,866,920 0.32
October 1, 1993
to December 31, 1993... 5,832,414 4,539,300 0.21 (4,723,850) (0.22) (184,550) (0.01)
January 1, 1994
to March 31, 1994...... 5,795,794 4,558,085 0.21 (6,888,543) (0.32) (2,330,458) (0.11)
April 1, 1994
to June 30, 1994....... 5,902,772 4,616,386 0.22 (9,012,124) (0.40) (4,395,738) (0.18)
July 1, 1994
to September 30,
1994................... 5,406,620 3,968,134 0.18 (5,830,890) (0.28) (1,862,756) (0.09)
October 1, 1994
to December 31, 1994... 5,679,863 4,021,909 0.19 (7,726,469) (0.36) (3,704,560) (0.17)
January 1, 1995
to March 31, 1995...... 4,717,982 3,413,100 0.16 (7,036,248) (0.33) (3,623,148) (0.17)
April 1, 1995
to June 30, 1995....... 4,968,099 3,310,058 0.15 25,633,344 1.20 28,943,402 1.35
July 1, 1995
to September 30,
1995................... 5,181,587 3,333,022 0.16 211,662 0.01 3,544,684 0.17
October 1, 1995
to December 31, 1995... 5,193,154 3,310,034 0.16 7,524,854 0.35 10,834,888 0.51
January 1, 1996
to March 31, 1996...... 5,275,950 3,476,418 0.16 (11,839,891) (0.55) (8,363,473) (0.39)
April 1, 1996
to June 30, 1996....... 5,518,159 4,034,887 0.19 (5,449,440) (0.26) (1,414,553) (0.07)
July 1, 1996
to September 30,
1996................... 5,009,905 3,496,254 0.17 1,735,438 0.08 5,233,692 0.25
October 1, 1996
to December 31, 1996... 4,837,691 3,223,188 0.15 5,884,661 0.28 9,107,849 0.43
January 1, 1997
to March 31, 1997...... 4,907,167 3,352,714 0.16 (5,602,253) (0.27) (2,249,539) (0.11)
April 1, 1997
to June 30, 1997....... 4,763,200 3,189,643 0.17 6,820,791 0.33 10,010,434 0.50
<CAPTION>
DIVIDENDS AND
DISTRIBUTIONS SHARE PRICE
------------------------------- -----------------------
QUARTERLY PERIOD AMOUNT PER SHARE HIGH LOW
<S> <C> <C> <C> <C>
March 1, 1993**
to March 31, 1993...... $ -- $ -- $ 10 1/8 $ 9 7/8
April 1, 1993
to June 30, 1993....... (4,344,306) (0.20) 10 8 7/8
July 1, 1993
to September 30,
1993................... (4,342,104) (0.20) 9 3/8 9
October 1, 1993
to December 31, 1993... (4,068,685) (0.19) 9 1/4 8 3/8
January 1, 1994
to March 31, 1994...... (4,058,269) (0.19) 8 7/8 8
April 1, 1994
to June 30, 1994....... (4,042,754) (0.19) 8 1/4 7 5/8
July 1, 1994
to September 30,
1994................... (4,029,318) (0.19) 8 7 1/4
October 1, 1994
to December 31, 1994... (4,005,735) (0.18) 7 3/8 6 3/4
January 1, 1995
to March 31, 1995...... (3,745,737) (0.17) 7 3/8 7
April 1, 1995
to June 30, 1995....... (3,745,744) (0.18) 8 7 1/8
July 1, 1995
to September 30,
1995................... (3,476,446) (0.17) 7 7/8 7 1/8
October 1, 1995
to December 31, 1995... (3,471,766) (0.16) 7 7/8 7 1/2
January 1, 1996
to March 31, 1996...... (3,463,398) (0.16) 8 1/8 7 1/2
April 1, 1996
to June 30, 1996....... (3,461,523) (0.16) 7 5/8 7
July 1, 1996
to September 30,
1996................... (3,372,722) (0.16) 7 1/2 7
October 1, 1996
to December 31, 1996... (3,189,172) (0.15) 7 5/8 7 1/8
January 1, 1997
to March 31, 1997...... (3,148,487) (0.15) 7 5/8 7 1/4
April 1, 1997
to June 30, 1997....... (2,741,237) (0.14) 7 7/8 7 3/8
</TABLE>
* Excludes net effect of shares repurchased.
** Commencement of investment operations.
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
One Liberty Plaza
165 Broadway, 36th Floor
New York, New York 10006-1404
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., 9th Floor
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.
17
<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.
18
<PAGE>
[This page intentionally left blank]
<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
Clifford E. Lai
President
John N. Dunlevy
Vice President
Patricia A. Botta
Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
- --------------------------------------------------------------------------------
LOGO
- --------------------------------------------------------------------------------
The accompanying financial statements as of June 30, 1997 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.
One Liberty Plaza
165 Broadway, 36th Floor
New York, NY 10006-1404
----------------------------------------
HYPERION 2005
INVESTMENT
GRADE
OPPORTUNITY
TERM TRUST
----------------------------------------
Semi-Annual Report
----------------------------------------
June 30, 1997
