<PAGE>
ANNUAL REPORT
DECEMBER 31, 1997
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Kenneth C. Weiss
Chairman
Roman 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
Patricia A. Botta
Vice President
* 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.
One Liberty Plaza
165 Broadway, 36th Floor
New York, NY 10006-1404
<PAGE>
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HYPERION 2005
INVESTMENT
GRADE
OPPORTUNITY
TERM TRUST
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Annual Report
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December 31, 1997
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: February 20, 1998
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, 1997. 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 markets had a mixed year ending December, 1997. On the one
hand, the strong economy and low level of unemployment kept the Federal Reserve
Board's monetary policy with a bias towards raising interest rates. On the other
hand, the low inflation environment, in which prices on most consumer goods
increased slightly above 2.0%, caused interest rates on longer maturity assets
to fall relative to shorter maturity securities. The economic problems in Asia
will be the wild card going into 1998. The depth of Asia's problems will have
global implications that will impact monetary policy over the near term.
We are generally positive on interest rates and feel that there are a number of
fundamental factors that support a lower interest rate range than has been
experienced over the last few years. These factors include improving fiscal
policy, declining government deficits, and a low level of global inflation.
The decline in interest rates over the last few months has sent refinancing
applications on residential mortgages dramatically higher. We believe, however,
that because of the volume of refinancing that occurred in 1993, the refinancing
activity anticipated in 1998 will be lower than that of 1993.
PORTFOLIO STRATEGY AND PERFORMANCE
The overall strategy with respect to the Trust has been twofold; first, manage
the Trust's investment prepayment risk and, second, increase the Trust's
allocation to securities that closely match the Trust's targeted termination
date.
To reduce the exposure to prepayment risk we have increased our allocation to
commercial mortgage-backed securities and asset-backed securities collateralized
by credit card receivables and manufactured housing loans. By incorporating
these types of securities into the portfolio, prepayment protection is provided
through loans on the underlying collateral. These securities have historically
performed well in environments where prepayment rates on residential
mortgage-backed securities increase as the underlying borrower's incentive to
prepay the loans are much lower than with residential mortgage-backed
securities.
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
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Collateralized mortgage obligations ('CMOs') are another source of securities by
which prepayment activity can be mitigated and as such are currently held by the
Trust for their prepayment stability.
The more conservative classes of a CMO are called planned amortization class
('PAC CMOs'). The portfolio's allocation to these classes as a percentage of
total investments at December 31, 1997 was 46%.
Certain portions of the Trust's portfolio were restructured to hold securities
with a greater degree of maturity certainty, oriented toward the Trust's
expected maturity in late 2005. Examples of securities with more cash flow
certainty are asset-backed securities and planned amortization classes of agency
collateralized mortgage obligations where the principal return period can range
from 1 day to 2 years. Over the year, approximately 25% of the portfolio was
restructured into securities with maturities centered around the fourth quarter
of 2005, and these restructurings contributed 20 cents to the NAV. If interest
rates continue to fall, we expect that there will be more opportunities to
restructure the portfolio.
The Trust's total return for the twelve month period ending December 31, 1997
was 16.98%. 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 11.26% and the Lehman Aggregate
Bond Index of 9.65% during this same twelve month period. The current monthly
dividend the Trust pays its shareholders is $0.04583 per share. The current
yield of 6.52% on shares of the Trust is based on the December 31, 1997 NYSE
closing price of $8.4375.
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 8.3 years, with the core assets having a duration of
5.6 years.
The Trust is continuing its share repurchase program. In October, the Board of
Directors authorized the Trust to purchase and retire up to 25% of the Trust's
original outstanding common shares. Previously, the Board of Directors had
authorized the Trust to purchase and retire up to 15% of the Trust's original
outstanding common shares. 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 year ended
December 31, 1997, the Trust has repurchased and retired 3,748,600 shares,
capturing $0.2539 in additional NAV per share or $4,409,977 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. As of December 31,
1997, 78.6% of the portfolio was rated AAA, 10.3% was rated AA, and 11.1% was
rated A by Standard & Poor's Corporation or Fitch Investors Service, L.P.
The chart that follows shows the allocation of the Trust's holdings by asset
category on December 31, 1997.
2
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1997*
U.S. Government Agency Collateralized Mortgage Obligations 56.8%
Asset-Backed Securities 17.3%
Subordinated Collateralized Mortgage Obligations 11.9%
Municipal Zero Coupon Securities 6.2%
U.S. Treasury Obligations 4.2%
Commercial/Collateralized Mortgage Obligations 3.3%
Repurchase Agreement 0.3%
*As a percentage of total investments.
The Trust is managed by Clifford E. Lai,
President of the Fund and Chief Investment Officer of Hyperion Capital
Management, Inc. ('HCM'). Mr. Lai has participated in the management of the
Trust since he joined HCM in March 1993. From August 1989 to March 1993, Mr. Lai
was a Managing Director and the Chief Investment Strategist for fixed income at
First Boston Asset Management, Inc.
3
<PAGE>
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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/ 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.
4
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1997
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<TABLE>
<CAPTION>
Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
U.S. GOVERNMENT & AGENCY OBLIGATIONS--88.8%
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)--82.6%
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation (FHLMC)
Series 1515, Class SA 8.61 %+ 05/15/08 $ 1,345 $ 1,400,989
Series 1550, Class SE 8.52 + 07/15/08 4,000 3,478,752
Series 1576, Class S 8.75 + 09/15/08 2,523 2,602,102
Series 1934, Class B, PAC 6.25 08/15/11 20,000 20,022,740
Series 1540, Class KB 8.25 + 06/15/13 844 840,127
Series 1101, Class M, PAC 6.95 07/15/21 7,000@ 7,103,747
Series 1522, Classs G, PAC 6.50 03/15/22 15,000@ 15,218,025
Series 1676, Class H, PAC 6.50 10/15/22 12,389@ 12,544,693
Series 1732, Class H, PAC 6.50 11/15/22 16,350@ 16,560,964
Series 1684, Class G, PAC 6.50 03/15/23 20,000 20,310,620
Series 1671, Class G, PAC 6.50 08/15/23 8,000@ 8,124,576
------------
108,207,335
------------
Federal National Mortgage
Association (FNMA)
Series 1993-170, Class SB 9.75 + 08/25/07 2,575 2,734,497
Series 1993-186, Class SA 9.25 + 09/25/08 1,695 1,815,295
Series 1996-45, Class K 7.00 09/25/21 4,747@ 4,828,962
Series 1992-181, Class PL, PAC 7.00 10/25/21 6,605@ 6,852,172
Series 1992-200, Class SG 11.50 + 11/25/22 2,477 2,647,216
Series 1993-160, Class AJ, PAC 6.50 04/25/23 1,638 1,658,703
Series 1993-204, Class PJ, PAC 6.05 05/25/23 9,837@ 9,703,728
------------
30,240,573
------------
<CAPTION>
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)
<S> <C> <C> <C> <C>
(Cost--$134,675,486) 138,447,908
------------
<CAPTION>
U.S. TREASURY OBLIGATIONS--6.2%
<S> <C> <C> <C> <C>
U. S. Treasury Notes 7.75 01/31/00 10,000@ 10,392,190
(Cost--$ 10,028,534 )
<CAPTION>
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
<S> <C> <C> <C> <C>
(Cost--$144,704,020) 148,840,098
------------
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</TABLE>
5
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1997
Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES--25.1%
First Bank Auto Receivables
Grantor Trust
Series 1995-A, Class A 8.00 % 01/15/00 $ 829 $ 843,538
Green Tree Financial Corporation
Series 1996-3, Class M1 7.70 05/15/27 5,000 5,249,220
Series 1996-8, Class M1 7.85 10/15/27 2,250 2,385,000
Series 1997-A, Class HEA5 7.21 03/15/28 10,000 10,268,750
Series 1997-D, Class HEA7 6.82 09/15/28 2,000 2,039,980
------------
19,942,950
------------
The Money Store
Series 1996-B, Class A8 7.91 05/15/24 3,000 3,172,500
------------
Standard Credit Card Master Trust
Series 1994-2, Class B 7.50 04/07/08 11,900 12,688,375
------------
UCFC Home Equity Loan
Series 1994-B1, Class A5 7.90 08/10/15 5,134 5,433,215
------------
TOTAL ASSET-BACKED SECURITIES
(Cost--$ 40,641,813 ) 42,080,578
------------
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<CAPTION>
PRIVATE COLLATERALIZED MORTGAGE OBLIGATIONS--22.1%
COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS--4.8%
<S> <C> <C> <C> <C>
Asset Securitization Corp.
Series 1997-D5, Class PS1 (IO) 1.55 02/14/41 8,984 969,962
------------
DLJ Mortgage Acceptance Corp.*
Series 1996-CF1, Class A1B 7.58 03/13/28 3,000 3,214,218
------------
Resolution Trust Corporation
Series 1992 C8, Class B 8.84 12/25/23 3,663 3,810,949
------------
<CAPTION>
TOTAL COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS
<S> <C> <C> <C> <C>
(Cost--$7,781,585) 7,995,129
------------
<CAPTION>
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)--17.3%
<S> <C> <C> <C> <C>
Countrywide Home Loans
Series 1996-1, Class B1 7.25 05/25/26 3,871 3,949,791
------------
Citicorp Mortgage Securities
Incorporated
Series 1997-1 Class M 7.25 02/25/27 4,085 4,191,899
------------
Prudential Home Mortgage
Securities
Series 1996-8, Class B1 6.75 06/25/26 2,653 2,626,503
------------
Residential Funding Mortgage
Securities
Series 1996-S4, Class M2 7.25 02/25/26 4,911 4,949,086
Series 1996-S7, Class M2 7.00 03/25/26 4,881 4,833,730
------------
9,782,816
------------
</TABLE>
6
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
December 31, 1997
Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<CAPTION>
PRIVATE COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
<S> <C> <C> <C> <C>
Salomon Brothers Mortgage
Securities VII
Series 1997-HUD1, Class B1 7.75% 12/25/30 $ 5,662 $ 5,931,751
Series 1997-HUD1, Class B2 7.75 12/25/30 2,340 2,443,367
------------
8,375,118
<CAPTION>
TOTAL SUBORDINATED COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)
<S> <C> <C> <C> <C>
(Cost--$27,252,095 ) 28,926,127
------------
<CAPTION>
TOTAL PRIVATE COLLATERALIZED
MORTGAGE OBLIGATIONS
<S> <C> <C> <C> <C>
(Cost--$35,033,680) 36,921,256
------------
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<CAPTION>
MUNICIPAL ZERO COUPON SECURITIES--9.1%
<S> <C> <C> <C> <C>
TEXAS--8.2%
Houston Texas Water & Sewer
System
Revenue Bond, AMBAC (b) 12/01/06 5,000 3,332,725
San Antonio Texas, Electricity
& Gas
Series B, Revenue Bond, FGIC (b) 02/01/07 10,000 6,585,810
Texas Municipal Power Agency
Revenue Bond, AMBAC (b) 09/01/05 5,490 3,887,936
------------
13,806,471
------------
WEST VIRGINIA--0.9%
West Virginia State Parkways
Economic Development and
Tourism Authority Revenue
Bond, FGIC (b) 05/15/05 1,975 1,417,317
------------
TOTAL MUNICIPAL ZERO COUPON
SECURITIES
(Cost--$13,875,890) 15,223,788
------------
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<CAPTION>
REPURCHASE AGREEMENT--0.4%
<S> <C> <C> <C> <C>
Dated 12/31/97, with State Street
Bank and Trust Company, 5.50%,
due 1/2/98;
proceeds: $730,223,
collateralized
by $745,000 U.S. Treasury Note,
5.625%,
due 11/30/98, value: $739,710
(Cost--$730,000) 730 730,000
------------
- -------------------------------------------------------------------------------
<CAPTION>
TOTAL INVESTMENTS--145.5%
<S> <C> <C> <C> <C>
(Cost--$234,985,403) $243,795,720
LIABILITIES IN EXCESS OF OTHER
ASSETS--(45.5%) (76,275,796)
------------
NET ASSETS--100.0% $167,519,924
------------
------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(b) Zero Coupon Bonds
@ Portion of or entire principal amount delivered as collateral for reverse
repurchase agreements. (Note 5)
+ Variable Rate Security--Coupon rate is rate in effect as of December 31,
1997.
* Security exempt from registration under rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified buyers.
AMBAC American Municipal Bond Assurance Corporation
FGIC Financial Guaranty Insurance Company
IO Interest Only Security-Interest rate and principal amount are based on the
notional amount of the underlying mortgage pools.
PAC Planned Amortization Class--Security principal payments are within a
predetermined range.
REMIC Real Estate Mortgage Investment Conduit
</TABLE>
- ---------------
See notes to financial statements.
7
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $234,985,403) (Note 2).............. $243,795,720
Cash............................................................ 105,884
Interest and principal paydowns receivable...................... 1,795,363
Prepaid expenses and other assets............................... 232,022
------------
Total assets.......................................... 245,928,989
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................... 77,274,000
Distribution payable............................................ 836,967
Interest payable (Note 5)....................................... 102,114
Investment advisory fee payable (Note 3)........................ 93,821
Administration fee payable (Note 3)............................. 23,053
Accrued expenses and other liabilities.......................... 79,110
------------
Total liabilities..................................... 78,409,065
------------
NET ASSETS (equivalent to $9.65 per share based on 17,366,873
shares outstanding)........................................... $167,519,924
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6).................................. $ 17,367
Additional paid-in capital...................................... 168,242,994
Undistributed net investment income............................. 1,803,897
Accumulated net realized losses................................. (11,354,651)
Net unrealized appreciation..................................... 8,810,317
------------
Net assets applicable to capital stock outstanding.............. $167,519,924
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
8
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2):
Interest...................................................... $18,564,808
-----------
EXPENSES:
Investment advisory fee (Note 3).............................. 1,152,026
Administration fee (Note 3)................................... 273,049
Insurance..................................................... 132,674
Reports to shareholders....................................... 63,514
Custodian..................................................... 64,787
Audit and tax services........................................ 69,333
Directors' fees............................................... 46,000
Transfer agency............................................... 23,486
Amortization of organization expenses (Note 2)................ 7,083
Miscellaneous................................................. 24,788
-----------
Total operating expenses................................... 1,856,740
Interest expense (Note 5)..................................... 4,551,266
-----------
Total expenses............................................. 6,408,006
-----------
Net investment income......................................... 12,156,802
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENT TRANSACTIONS
(Note 2):
Net realized gain on investment transactions.................... 4,484,582
Net unrealized appreciation on investments...................... 4,737,235
-----------
Net realized and unrealized gain on investment transactions..... 9,221,817
-----------
Net increase in net assets resulting from operations............ $21,378,619
-----------
-----------
</TABLE>
- ------------------
See notes to financial statements.
9
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income........................... $ 12,156,802 $ 14,232,747
Net realized gain on investment transactions.... 4,484,582 3,198,268
Net unrealized appreciation (depreciation) on
investment transactions...................... 4,737,235 (12,867,500)
------------ ------------
Net increase in net assets resulting from
operations................................... 21,378,619 4,563,515
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income........................... (11,719,724) (13,486,815)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Trust shares repurchased and retired.... (29,807,365) (1,687,252)
------------ ------------
Total decrease in net assets............ (20,148,470) (10,610,552)
------------ ------------
NET ASSETS:
Beginning of period............................... 187,668,394 198,278,946
------------ ------------
End of period (including undistributed net
investment income of $1,803,897 and $1,366,819,
respectively)................................... $167,519,924 $187,668,394
------------ ------------
------------ ------------
</TABLE>
- ---------------
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding net accretion of $701,720)....... $ 18,399,265
Interest expense paid......................................... (4,613,446)
Operating expenses paid....................................... (2,000,402)
Sale of short-term portfolio investments, net................. 97,000
Purchase of long-term portfolio investments................... (228,763,733)
Proceeds from disposition of long-term portfolio investments
and principal paydowns..................................... 262,826,580
-------------
Net cash provided by operating activities..................... 45,945,264
-------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements............... (5,286,000)
Cash used to repurchase and retire Trust shares............... (29,807,365)
Cash dividends paid........................................... (10,882,757)
-------------
Net cash used for financing activities........................ (45,976,122)
-------------
Net decrease in cash............................................ (30,858)
Cash at beginning of period..................................... 136,742
-------------
Cash at end of period........................................... $ 105,884
-------------
-------------
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............ $ 21,378,619
-------------
Decrease in investments....................................... 28,963,975
Increase in net unrealized appreciation on investments........ (4,737,235)
Decrease in interest and principal paydowns receivable........ 545,747
Increase in prepaid expenses and other assets................. (93,959)
Decrease in liabilities....................................... (111,883)
-------------
Total adjustments........................................ 24,566,645
-------------
Net cash provided by operating activities....................... $ 45,945,264
-------------
-------------
</TABLE>
- ------------------
See notes to financial statements.
11
<PAGE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
For the Year For the Year For the Year For the Year March 1, 1993*
Ended Ended Ended Ended through
December 31, December 31, December 31, December 31, December 31,
1997 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.................... 0.65 0.67 0.63 0.80 0.62
Net realized and unrealized gains
(losses) on investment, short sale,
futures and option transactions........ 0.47 (0.45) 1.22 (1.36) 0.04
------------ ------------ ------------ ------------ --------------
Net increase (decrease) in net asset
value resulting from operations........ 1.12 0.22 1.86 (0.55) 0.66
------------ ------------ ------------ ------------ --------------
Net effect of shares repurchased......... 0.25 0.01 0.01 0.01 --
Dividends from net investment income..... (0.61) (0.63) (0.68) (0.75) (0.59)
------------ ------------ ------------ ------------ --------------
Net asset value, end of period........... $ 9.65 $ 8.89 $ 9.29 $ 8.11 $ 9.41
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Market price, end of period.............. $ 8.4375 $ 7.50 $ 7.625 $ 7.00 $ 8.63
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
TOTAL INVESTMENT RETURN+................. 20.69% 6.98% 19.10% (10.63)% (1.81)%(1)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY
DATA:
Net assets, end of period (000s)......... $167,520 $187,668 $198,279 $173,504 $204,146
Total operating expenses................. 1.05% 1.08% 1.08% 1.08% 0.99%(2)
Interest expense......................... 2.57% 2.37% 2.49% 1.90% 1.08%(2)
Total Expenses........................... 3.62% 3.45% 3.57% 2.98% 2.07%(2)
Net investment income.................... 6.87% 7.65% 7.14% 9.10% 7.85%(2)
Portfolio turnover rate.................. 90% 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.
12
<PAGE>
- --------------------------------------------------------------------------------
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 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.
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 date as realized gains or
losses. The difference between the
13
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
premium and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, also is 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 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 only will 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 continue 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 net investment income and realized gains recorded by the Trust for
financial reporting purposes. 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 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.
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
14
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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.
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 and U.S.
Government securities, for the year ended December 31, 1997 were $73,175,905 and
$127,898,215, respectively. Purchases and sales of U.S. Government securities,
for the year ended December 31, 1997 were $155,587,828 and $131,523,640,
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, 1997 was
$234,985,403 which was substantially the same for financial reporting and,
accordingly, net unrealized appreciation for federal income tax purposes was
$8,810,317, all of which was gross unrealized appreciation. At December 31,
1997, the Trust had a capital loss carryforward of approximately $11,354,651, of
which $5,623,895 expires in 2002, and $5,730,756 expires in 2003, available to
offset any future capital gains. During the year ended 1997, the Trust utilized
$4,383,279 of capital loss carry forwards.
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, 1997, the Trust had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount................................. $77,492,409
---------------
Market Value of Assets Sold Under Agreements.... $78,283,937
---------------
Weighted Average Interest Rate.................. 6.21%
---------------
</TABLE>
The following outstanding reverse repurchase agreements were greater than 10% of
Net Assets as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
MATURITY INTEREST
BROKER AMOUNT DATE RATE
- -------------------- ----------- ------------------ --------
<S> <C> <C> <C>
Goldman Sachs....... $29,778,000 January 8, 1998 6.08%
Union Bank of
Switzerland........ 29,441,000 January 8-13, 1998 6.253%
Morgan Stanley...... 18,055,000 January 5-20, 1998 6.367%
-----------
Total............... $77,274,000
-----------
-----------
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the year ended December 31, 1997 was $81,096,476 at a weighted average interest
rate of 5.61%. The maximum amount of reverse repurchase agreements outstanding
at any time during the year was $86,721,000, as of August 4, 1997, which was
25.5% of total assets.
6. CAPITAL STOCK:
There are 75 million shares of $0.001 par value common stock authorized. Of the
17,366,873 shares outstanding at December 31, 1997, the Advisor owned 10,673
shares.
The Trust is continuing its stock repurchase program, whereby an amount of up to
25% of the outstanding common stock as of June 1997, or approximately 4.8
million shares, are authorized for repurchase. The purchase price may not exceed
the then-current net asset value.
15
<PAGE>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
December 31, 1996
- --------------------------------------------------------------------------------
During the years ended December 31, 1997 and 1996, the Trust repurchased totals
of 3,748,600 and 225,900 shares of its outstanding common stock at costs of
$29,807,365 and $1,687,252 and average discounts of approximately 13.22% 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 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 year ended December 31, 1997.
There were no open futures contracts at December 31, 1997.
16
<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, 1997, the
results of its operations and its cash flows for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the four years in the period then ended and
for the period March 1, 1993 (commencement of operations) through December 31,
1993, 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 audit 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, 1997 by correspondence with the custodian and brokers, and the
application of alternative auditing procedures where confirmation from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 20, 1998
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The Trust is 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, 1997) 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, 10.29% of the Trust's distributions
during the fiscal year ended December 31, 1997 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 1997, 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 1998. Shareholders are advised to consult their own
tax advisors with respect to the tax consequences of their investment in the
Trust.
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS NET INCREASE
(LOSSES) ON (DECREASE) IN NET
INVESTMENT, SHORT ASSETS RESULTING
NET INVESTMENT SALE, FUTURES AND FROM DIVIDENDS AND
INCOME OPTION TRANSACTIONS OPERATIONS DISTRIBUTIONS
----------------- ------------------- ------------------- ------------------- SHARE PRICE
TOTAL PER PER PER PER --------------
QUARTER ENDED 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* to
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
March 31, 1997...... 4,907,167 3,352,714 0.16 (5,602,253) (0.27) (2,249,539) (0.11) (3,148,487) (0.15) 7 5/8 7 1/4
June 30, 1997....... 4,763,200 3,189,643 0.17 6,820,791 0.33 10,010,434 0.50 (2,741,237) (0.14) 7 7/8 7 3/8
September 30,
1997............... 4,580,480 2,930,078 0.17 4,744,476 0.24 7,674,554 0.41 (2,598,475) (0.14) 8 1/4 7 3/4
December 31, 1997... 4,313,961 2,684,367 0.15 3,258,803 0.17 5,943,170 0.32 (3,231,525) (0.18) 8 9/16 8 1/8
</TABLE>
* 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
SULLIVAN & WORCESTER
1025 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.
19
