<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: February 17, 1997
We welcome this opportunity to provide you with information about Hyperion 2005
Investment Grade Opportunity Term Trust, Inc. (the 'Trust') for its fiscal year
ended December 31, 1996. 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
The fixed income market continues to be volatile in reaction to short-term
changes in economic activity. In September, the market began a decline in
interest rates which resulted in a 100 basis point decrease, only to increase by
50 basis points in December. The cause of the volatility in interest rates is
the large variable swings in quarter-to-quarter economic activity. Gross
National Product economic growth, recorded at 4.7% in the second quarter, fell
to 2.1% in the third quarter, only to rebound back to 4.7% in the fourth
quarter, although the Gross Domestic Product deflator (an inflation measure)
rose at a 1.4% pace, its smallest increase in 30 years. The market's perception
of the correlation of economic growth and its impact on inflation and monetary
policy is the primary cause of the large swings in interest rates.
Over the long-term, we foresee a stable to lower interest rate environment in
the fixed income securities market. Our outlook includes continued improvements
in fiscal policy in reducing the budget deficit, favorable demographic trends
that should lead to increased savings and a reduction in economic activity, and
favorable global inflationary trends, especially in Europe where monetary union
should keep inflation in check. The fixed income market should do reasonably
well under the slow economic growth and low inflation conditions which we see
ahead.
PORTFOLIO PERFORMANCE AND STRATEGY
The Trusts total return for the twelve month period ending December 31, 1996 was
4.04%. Total investment return is computed based upon the change in net asset
value 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 0.10% and the Lehman Government/Corporate Index of 2.90%,
during this same twelve month period. The current monthly dividend the Trust
pays its shareholders is $0.05 per share. The current yield of 8.0% on shares of
the Trust is based on the NYSE closing price of $7.50 on December 31, 1996.
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
The Trust is currently managed with an average duration (duration measures a
bond portfolio's price sensitivity to interest rate changes) of 7.5 years, with
the core assets having a duration of 5.6 years. The dollar weighted average
maturity of the securities in the portfolio was approximately 8.5 years at
December 31, 1996.
The portfolio continues to enjoy the benefit of high credit quality and
maintains its AA ratings from Fitch Investors Service, L.P. and Standard &
Poor's Corporation. As of December 31, 1996, 82.3% of the portfolio was rated
AAA, while 14.2% was rated AA, and only 3.5% 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 amount of dividend payments that is attractive relative
to its 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 by
investing in high quality securities with relatively predictable cash flow
payments.
The chart that follows shows the allocation of the Trust's holdings by asset
category on December 31, 1996.
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1996*
[PIE CHART]
U.S. Government Agency Collateralized Mortgage Obligations .. 26.0%
AAA-Rated Whole Loan Collateralized Mortgage Obligations .... 19.8
U.S. Treasury and Agency Obligations ........................ 17.8
Asset-Backed Securities ..................................... 14.7
Subordinated Collateralized Mortgage Obligations ............ 9.0
Municipal Zero Coupon Securities ............................ 5.1
Commercial Collateralized Mortgage Obligations .............. 3.7
U.S. Government Agency Pass-Through Certificate ............. 3.6
Repurchase Agreement ........................................ 0.3
* As a percentage of total investments.
2
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
- --------------------------------------------------------------------------------
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
December 31, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--67.7%
U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATE--5.1%
Federal Home Loan Mortgage
Corporation (Cost --
$9,523,912) 8.00% 12/01/26 $ 9,276# $ 9,522,467
------------
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--37.2%
Federal Home Loan Mortgage
Corporation
Series 1832, Class F, PAC 6.50 03/15/11 5,771# 5,621,318
Series 1101, Class M, PAC 6.95 07/15/21 7,000# 6,805,316
Series 1898, Class C 7.50 01/15/20 14,910# 15,056,803
Series 1515, Class SA 8.61+ 05/15/08 1,345 1,310,764
Series 1576, Class S 8.75+ 09/15/08 2,557 2,530,435
Series 1550, Class SE 8.92+ 07/15/08 4,000 3,425,000
------------
34,749,636
------------
Federal National Mortgage
Association
Series 1992-83, Class K 7.00 04/25/09 6,338# 6,372,663
Series 1994-92, Class B 7.50 01/25/21 22,067# 21,887,744
Series 1993-186, Class SA 9.25+ 09/25/08 1,695 1,714,686
Series 1993-170, Class SB 9.75+ 08/25/07 2,575 2,652,883
Series 1992-200, Class SG 11.50+ 11/25/22 2,477 2,399,586
------------
35,027,562
------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS) (Cost -- $68,312,245) 69,777,198
------------
U.S. TREASURY & AGENCY OBLIGATIONS--25.4%
Federal National Mortgage
Association DUS Pools 7.04 07/01/06 17,929 18,253,747
7.43 09/01/06 2,795 2,908,853
------------
(Cost--$20,849,280) 21,162,600
------------
U.S. Treasury Notes 6.25 07/31/98 10,000# 10,075,000
6.88 03/31/00 2,000# 2,050,938
7.50 01/31/97 4,000# 4,005,624
7.75 01/31/00 10,000# 10,492,188
------------
(Cost--$26,039,392) 26,623,750
------------
TOTAL U.S. TREASURY & AGENCY OBLIGATIONS (Cost -- $46,888,672) 47,786,350
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost -- $124,724,829) 127,086,015
------------
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4
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--21.0%
First Bank Auto Receivables
Grantor Trust
Series 1995-A, Class A 8.00% 01/15/00 $ 1,924 $ 1,954,561
------------
Green Tree Home Improvement
Loan Trust
Series 1996-F, Class HIM1 7.30 11/15/27 4,000 4,028,124
------------
Green Tree Financial Corporation
Series 1996-3, Class M1 7.70 05/15/27 5,000 5,095,315
Series 1996-4, Class M1 7.75 06/15/27 4,750 4,851,678
Series 1996-8, Class M1 7.85 10/15/27 2,250 2,311,524
------------
12,258,517
------------
Southern Pacific Secured Assets
Corporation
Series 1996-2, Class A5 7.69 04/25/25 5,280 5,368,276
------------
The Money Store Home Equity Trust
Series 1996-B, Class A7 7.55 02/15/20 7,200 7,347,377
Series 1996-B, Class A8 7.91 05/15/24 3,000 3,100,314
------------
10,447,691
------------
UCFC Home Equity Loan
Series 1994-B1, Class A5 7.90 08/10/15 5,134 5,289,627
------------
TOTAL ASSET-BACKED SECURITIES (Cost--$38,563,302 ) 39,346,796
------------
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--46.4%
AAA-RATED WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--28.2%
CountryWide Funding Corporation
Series 1995-4, Class A6 7.50 09/25/25 10,000 9,479,690
------------
GE Capital Mortgage Services, Inc.
Series 1996-9, Class A4 7.50 06/25/26 8,701 8,663,064
------------
Prudential Home Mortgage
Securities Co., Inc.
Series 1994-29, Class A6 7.00 10/25/24 5,000 4,748,440
------------
Ryland Mortgage Securities
Corporation
Series 1993-A1, Class A 7.45 01/28/23 14,019 13,677,601
------------
Securitized Asset Sales, Inc.
Series 1995-B, Class A3 7.41 09/25/24 16,700 16,433,852
------------
TOTAL AAA-RATED WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS) (Cost--$52,923,976 ) 53,002,647
------------
COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS--5.3%
DLJ Mortgage Acceptance Corporation
Series 1996-CF1, Class A1B 7.58 03/13/28 3,000(a) 3,111,093
------------
Potomac Gurnee Finance Corporation
Series 1, Class A 6.89 12/21/26 3,000(a) 3,016,407
------------
Resolution Trust Corporation
Series 1992-C8, Class B 8.84 12/25/23 3,663 3,823,828
------------
TOTAL COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost--$9,811,623) 9,951,328
------------
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--12.9%
CountryWide Home Loans, Inc.
Series 1996-1, Class B1 7.25 05/25/26 3,924 3,790,947
------------
5
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
December 31, 1996
- ------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Residential Funding Mortgage
Securities I, Inc.
Series 1996-S7, Class M2 7.00% 03/25/26 $ 4,939 $ 4,606,335
Series 1996-S4, Class M2 7.25 02/25/26 4,965 4,745,984
Series 1995-S11, Class M1 7.50 09/25/25 11,203 10,980,877
------------
20,333,196
------------
TOTAL SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost--$23,939,869) 24,124,143
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost--$86,675,468) 87,078,118
------------
- -------------------------------------------------------------------------------
MUNICIPAL ZERO COUPON SECURITIES--7.3%
TEXAS
Houston Texas, Water & Sewer System
Revenue Bond, AMBAC (b) 12/01/06 5,000 2,990,335
San Antonio Texas, Electricity & Gas
Series B, Revenue Bond, FGIC (b) 02/01/07 10,000 5,871,260
Texas, Municipal Power Agency
Revenue Bond, AMBAC (b) 09/01/05 5,490 3,532,842
------------
12,394,437
------------
WEST VIRGINIA
West Virginia, State Parkways
Economic Development and Tourism
Authority
Revenue Bond, FGIC (b) 05/15/05 1,975 1,290,094
------------
TOTAL MUNICIPAL ZERO COUPON SECURITIES (Cost--$13,158,779) 13,684,531
------------
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REPURCHASE AGREEMENT--0.4%
Dated 12/31/96, with State Street Bank and Trust Company,
5.50%, due 1/2/97; proceeds: $827,253, collateralized by
$785,000 U.S. Treasury Note, 7.0%, due 7/15/06, value:
$847,400 (Cost--$827,000) 827 827,000
------------
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS--142.8% (Cost--$263,949,378) 268,022,460
LIABILITIES IN EXCESS OF OTHER ASSETS--(42.8%) (80,354,066)
------------
NET ASSETS--100.0% $187,668,394
------------
------------
- -------------------------------------------------------------------------------
# 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 December 31,
1996.
DUS Delegated Underwriting and Servicing
(a) Private Placements (Section 144A)
AMBAC American Municipal Bond Assurance Corporation
(b) Zero Coupon Bonds
FGIC Financial Guaranty Insurance Company
- ---------------
See notes to financial statements.
6
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost--$263,949,378) (Note 2)............. $268,022,460
Cash............................................................ 136,742
Interest and principal paydown receivable....................... 2,341,110
Deferred organization expenses and other assets (Note 2)........ 138,063
------------
Total assets.......................................... 270,638,375
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................... 82,560,000
Interest payable (Note 5)....................................... 164,294
Accrued expenses and other liabilities.......................... 116,520
Investment advisory fee payable (Note 3)........................ 103,877
Administration fee payable (Note 3)............................. 25,290
------------
Total liabilities..................................... 82,969,981
------------
NET ASSETS (equivalent to $8.89 per share based on 21,115,473
shares outstanding)........................................... $187,668,394
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6).................................. $ 21,115
Additional paid-in capital...................................... 198,046,611
Undistributed net investment income............................. 1,366,819
Accumulated net realized losses................................. (15,839,233)
Net unrealized appreciation..................................... 4,073,082
------------
Net assets applicable to capital stock outstanding.............. $187,668,394
------------
------------
- ------------------
See notes to financial statements.
7
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 2):
Interest...................................................... $20,641,705
-----------
EXPENSES:
Investment advisory fees (Note 3)............................. 1,209,528
Administration fees (Note 3).................................. 294,818
Insurance..................................................... 166,774
Custodian..................................................... 59,916
Reports to shareholders....................................... 50,510
Directors' fees............................................... 44,140
Audit and tax services........................................ 41,541
Registration.................................................. 31,363
Transfer agency............................................... 24,185
Legal......................................................... 20,382
Amortization of organization expenses (Note 2)................ 6,782
Miscellaneous................................................. 51,583
-----------
Total operating expenses................................... 2,001,522
Interest expense (Note 5)............................. 4,407,436
-----------
Total expenses........................................ 6,408,958
-----------
Net investment income......................................... 14,232,747
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENT AND FUTURES
TRANSACTIONS (Note 2):
Net realized gain (loss) on:
Investment transactions....................................... 3,534,421
Futures transactions.......................................... (336,153)
-----------
3,198,268
-----------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... (13,449,688)
Futures transactions.......................................... 582,188
-----------
(12,867,500)
-----------
Net realized and unrealized loss on investment and futures
transactions.................................................. (9,669,232)
-----------
Net increase in net assets resulting from operations............ $ 4,563,515
-----------
-----------
- ------------------
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
For the Year For the Year
Ended Ended
December 31, December 31,
1996 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income........................... $ 14,232,747 $ 13,366,214
Net realized gain (loss) on investment, short
sale, futures and options transactions....... 3,198,268 (4,902,040)
Net change in unrealized appreciation
(depreciation) on investments and futures
transactions................................. (12,867,500) 31,235,652
------------ ------------
Net increase in net assets resulting from
operations................................... 4,563,515 39,699,826
------------ ------------
DIVIDENDS TO SHAREHOLDERS (NOTE 2):
Net investment income........................... (13,486,815) (14,439,693)
------------ ------------
CAPITAL STOCK TRANSACTIONS (NOTE 6):
Cost of Trust shares repurchased and retired.... (1,687,252) (485,673)
------------ ------------
Total increase (decrease) in net
assets................................ (10,610,552) 24,774,460
NET ASSETS:
Beginning of year................................. 198,278,946 173,504,486
------------ ------------
End of year (including undistributed net
investment income of $1,366,819 and $620,887
respectively)................................... $187,668,394 198,278,946
------------ ------------
------------ ------------
- ---------------
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 Year Ended December 31, 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding net accretion of $612,986)....... $ 20,770,410
Interest expense paid......................................... (4,433,543)
Operating expenses paid....................................... (2,170,490)
Purchase of short-term portfolio investments, net............. (184,000)
Purchase of long-term portfolio investments................... (302,983,009)
Proceeds from disposition of long-term portfolio investments
and principal paydowns..................................... 309,939,164
Net cash provided by futures transactions..................... 195,410
-------------
Net cash provided by operating activities..................... 21,133,942
-------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements............... (5,923,000)
Cash used to repurchase and retire Trust shares............... (1,762,552)
Cash dividends paid........................................... (13,591,061)
-------------
Net cash used for financing activities........................ (21,276,613)
-------------
Net decrease in cash............................................ (142,671)
Cash at beginning of year....................................... 279,413
-------------
Cash at end of year............................................. $ 136,742
-------------
-------------
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............ $ 4,563,515
-------------
Decrease in investments....................................... 2,607,349
Decrease in net unrealized appreciation on investments........ 13,449,688
Decrease in interest receivable............................... 759,090
Decrease in variation margin payable.......................... (50,625)
Increase in other assets...................................... (141,571)
Decrease in accrued expenses and other liabilities............ (53,504)
-------------
Total adjustments........................................ 16,570,427
-------------
Net cash provided by operating activities....................... $ 21,133,942
-------------
-------------
- ------------------
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
For the Period
For the Year For the Year For the Year March 1, 1993*
Ended Ended Ended through
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of the period............. $ 9.29 $ 8.11 $ 9.41 $ 9.34**
------------ ------------ ------------ ---------------
Net investment income....... 0.67 0.63 0.80 0.62
Net effect of shares
repurchased............... 0.01 0.01 0.01 --
Net realized and unrealized
gains (losses) on
investments, short sales,
futures and options
transactions.............. (0.45) 1.22 (1.36) 0.04
------------ ------------ ------------ ---------------
Net increase (decrease) in
net asset value resulting
from operations........... 0.23 1.86 (0.55) 0.66
------------ ------------ ------------ ---------------
Dividends from net
investment income......... (0.63) (0.68) (0.75) (0.59)
Net asset value, end of
year...................... $ 8.89 $ 9.29 $ 8.11 $ 9.41
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
Market price, end of year... $ 7.50 $ 7.625 $ 7.00 $ 8.63
------------ ------------ ------------ ---------------
------------ ------------ ------------ ---------------
TOTAL INVESTMENT RETURN+.... 6.98% 19.10% (10.63)% (1.81)%(1)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTARY DATA:
Net assets, end of year
(000s).................... $187,668 $198,279 $173,504 $ 204,146
Total operating expenses.... 1.08% 1.08% 1.08% 0.99%(2)
Interest expense............ 2.37% 2.49% 1.90% 1.08%(2)
Net investment income....... 7.65% 7.14% 9.10% 7.85%(2)
Portfolio turnover rate..... 116% 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.
11
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
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 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,
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 hedge 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
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
12
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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 rate of 0.65% of the Trust's average weekly net
assets. For the year ended December 31, 1996, the Advisor earned $1,209,528 in
Investment Advisory Fees.
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc.
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
(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 year ended December
31, 1996, the Administrator earned $294,818 in Administration Fees.
Certain officers and/or directors of the Trust are officers and/or directors of
the Advisor and Administrator.
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 year ended
December 31, 1996 were $197,347,497 and $219,436,503, respectively. Purchases
and sales of U.S. Government securities, for the year ended December 31, 1996
were $105,635,512 and $85,180,933, 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 December 31, 1996 was
$264,050,651 and accordingly, net unrealized appreciation for federal income tax
purposes was $3,971,809 (gross unrealized appreciation--$4,620,074; gross
unrealized depreciation--$648,265). 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.
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 December 31, 1996, the Trust had the following reverse repurchase agreements
outstanding:
MATURITY IN
ZERO TO 30 DAYS
---------------
Maturity Amount................................. $82,815,764
-----------
Market Value of Assets Sold Under Agreements.... $83,873,413
-----------
Weighted Average Interest Rate.................. 5.74%
-----------
The average daily balance of reverse repurchase agreements outstanding during
the year ended December 31, 1996 was approximately $81,555,107 at a weighted
average interest rate of 5.40%. The maximum amount of reverse repurchase
agreements outstanding at any time during the year 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
21,115,473 shares outstanding at December 31, 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. Under the terms of the stock repurchase program,
the purchase price may not exceed the then-current net asset value.
During the years ended December 31, 1996 and 1995, the Trust repurchased totals
of 225,900 and 64,100 shares of its outstanding common stock at costs of
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
December 31, 1996
- --------------------------------------------------------------------------------
$1,687,252 and $485,673 and average discounts of approximately 16.44% 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 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 December 31, 1996.
8. SUBSEQUENT EVENT:
The Trust's Board of Directors declared the following regular monthly dividends:
DIVIDENDS RECORD PAYABLE
PER SHARE DATE DATE
--------- ------- -------
$0.05 1/20/97 1/30/97
$0.05 2/18/97 2/27/97
15
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Hyperion 2005 Investment
Grade Opportunity Term Trust, Inc. (the 'Trust') at December 31, 1996, the
results of its operations and its cash flows for the year then ended, the
changes in its net assets and the financial highlights for the years ended
December 31, 1996 and 1995, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments at December 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 10, 1997
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Trust's fiscal year end (December
31, 1996) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that all distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. In addition, 8.35% of the Trust's distributions were
earned from U.S. Treasury obligations. None of the Trust's distributions qualify
for the dividends received deduction available to corporate shareholders.
A notification sent to shareholders with respect to calendar 1996, which
reflected the amounts to be used by calendar year taxpayers on their federal,
state and local income tax returns, was made in conjunction with Form 1099-DIV
and was mailed in January 1997. Shareholders are advised to consult their own
tax advisers with respect to the tax consequences of their investment in the
Trust.
- --------------------------------------------------------------------------------
16
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS NET INCREASE
(LOSSES) ON (DECREASE) IN NET
INVESTMENTS, SHORT ASSETS RESULTING
NET INVESTMENT SALES, FUTURES AND FROM DIVIDENDS AND
INCOME OPTION TRANSACTIONS OPERATIONS DISTRIBUTION
----------------- ------------------- ------------------- ------------------- SHARE PRICE
TOTAL PER PER PER PER ------------
QUARTERLY PERIOD INCOME AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE HIGH LOW
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 10 1/8 $9 7/8
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) 10 8 7/8
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) 9 3/8 9
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) 9 1/4 8 3/8
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) 8 7/8 8
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) 8 1/4 7 5/8
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) 8 7 1/4
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) 7 3/8 6 3/4
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) 7 3/8 7
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) 8 7 1/8
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) 7 7/8 7 1/8
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) 7 7/8 7 1/2
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) 8 1/8 7 1/2
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) 7 5/8 7
July 1, 1996 through
September 30, 1996 5,009,905 3,498,254 0.17 1,735,438 0.08 5,233,692 0.25 (3,372,722) (0.16) 7 1/2 7
October 1, 1996
through December
31, 1996........... 4,837,691 3,223,188 0.15 5,884,661 0.28 9,107,849 0.43 (3,189,172) (0.15) 7 5/8 7 1/8
</TABLE>
* Commencement of investment operations.
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022-4213
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.
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>
- ------------------------------------------------------
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.
- ------------------------------------------------------
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
HYPERION 2005
INVESTMENT
GRADE
OPPORTUNITY
TERM TRUST
Annual Report
December 31, 1996
