________________________________________________________________________________
________________________________________________________________________________
__________________________________________
HYPERION 2005
INVESTMENT
GRADE
OPPORTUNITY
TERM TRUST
________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Semi-Annual Report
________________________________________________________________________________
June 30, 1999
________________________________________________________________________________
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
Report of the Investment Advisor
________________________________________________________________________________
August 20, 1999
Dear Shareholder:
We welcome this opportunity to provide you with information about Hyperion
2005 Investment Grade Opportunity Term Trust, Inc. (the "Trust") for its
semi-annual period ended June 30, 1999, and to present our outlook for the
remainder of the fiscal year. The Trust's shares are traded on the New York
Stock Exchange ("NYSE") under the symbol "HTO".
Description of the Trust
The Trust is a closed-end investment company whose objectives are to provide a
high level of current income consistent with investing only in investment
grade securities and to attempt 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 objectives by investing in a portfolio
primarily of mortgage-backed securities ("MBS"), issued or guaranteed by
either the U.S. Government or one of its agencies or instrumentalities, or
rated "investment grade" by a nationally recognized rating agency (e.g.,
Standard & Poor's Corporation or Fitch IBCA, Inc.) at the time of the
investment. No assurance can be given that the Trust's investment objectives
will be achieved.
Market Environment
Fueled by the continued strength of the domestic economy, a slowly recovering
global economy, and increasing inflationary pressures, fixed income markets
were very volatile during the last 12 months. For example, interest rates,
driven down by over 1.0% by global economic problems in 1998, increased by
over 1.25% thus far in 1999. All of this led to the tightening in monetary
policy by the Federal Reserve this summer. The Federal Reserve's decision to
raise interest rates marks the first increase since February 1997. We believe
increases will be limited to 50 basis points this year, with uncertainties
associated with Year 2000 ("Y2K") issues preventing any further move.
The next twelve months should be as volatile as the last year. Caution
stemming from the potential impact associated with Y2K issues could set off a
chain reaction of events affecting the markets. Given these uncertainties, we
expect certain sectors of the market to underperform in the Third and Fourth
Quarters of 1999. Therefore, until a clear trend emerges, our strategy will
be to maintain a conservative positioning of the Trust with respect to
duration (a measure of a bond's price sensitivity to interest rates),
maturity, credit and liquidity.
Portfolio Strategy and Performance
Over the last year, our strategy for the Trust has been concentrated on the
following goals: to reduce the duration of the portfolio, to reduce prepayment
risk and, finally, to reduce credit risk. To accomplish these goals, we have
opportunistically sold securities with durations and projected cashflows
beyond the scheduled maturity date of the Trust. With the proceeds from these
sales, we reinvested into securities with maturities more consistent with the
scheduled 2005 termination of the Trust, which has reduced the portfolio's
duration. We have also reinvested into MBS that have lower coupon collateral
or structural features that reduce prepayment risk. Finally, we have
reinvested into those MBS that are either AAA rated or backed by the U.S.
Government or one of its agencies or instrumentalities to reduce credit risk.
So far, this strategy has positioned the portfolio to avoid some of the
problems created by the global economic crisis in 1998, as well as much of the
impact of the credit crisis in 1999. The majority of securities currently
held in the portfolio are either well-structured agency collateralized
mortgage obligations ("CMO") or AAA rated asset-backed securities ("ABS").
Both of these asset classes offer excellent liquidity and strong protection
against prepayments.
During the next six months, we expect investment opportunities in asset
classes such as residential MBS, ABS, and commercial MBS to become more
attractive. Accordingly, we plan to modestly increase the portfolio's
allocation to these types of securities in the coming months.
As of the end of July, the Trust, inclusive of leverage, had an average
duration of 6.5 years; the core (non-leveraged) assets had a duration of 4.3
years.
________________________________________________________________________________
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
Report of the Investment Advisor
________________________________________________________________________________
The Trust's total return for the six month period ending June 30, 1999, was
- -1.24%. Total return is calculated based upon the change in net asset value
("NAV") of the Trust's shares and includes reinvestment of dividends. The
closing NAV of the Trust on June 30, 1999, was $9.36. Based on the NYSE
closing price of $8.3125 on June 30, 1999, the Trust yielded 6.62%.
On July 9, 1999, the Board of Directors of the Trust declared a new monthly
dividend of $0.04375 per share. This dividend represents an annualized return
of 5.25% based on the Trust's initial offering price of $10.00 per share.
During the past six months, the Trust has continued its share repurchase
program. This repurchase program allows the Trust to purchase and retire
shares of the Trust in the open marketplace. Such transactions are made when
the share price of the Trust is significantly below the Trust's NAV. From
January 1, 1999 through and including June 30, 1999, the Trust has repurchased
and retired 59,100 shares, capturing $0.0035 in additional NAV per share, for
a total of $60,106.50 for all shareholders.
The chart that follows shows the allocation of the Trust's holdings by asset
category as of June 30, 1999.
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
Portfolio Of Investments As Of June 30, 1999*
Pie Chart
U.S. Government Agency Collateralized Mortgage Obligations(REMICs) - 47.5%
Asset-Backed Securities - 23.5%
Commercial Mortgage Backed Securities - 16.8%
Subordinated Collateralized Mortgage Obligations - 5.1%
Municipal Zero Coupon Securities - 6.8%
Repurchase Agreement - 0.3%
*As a percentage of total investments.
Conclusion
We appreciate the opportunity to serve your investment needs and we thank you
for your continued support. As always, we welcome your questions and
comments, and encourage you to contact our Shareholder Services
Representatives at 1-800-HYPERION.
Sincerely,
ANDREW M. CARTER CLIFFORD E. LAI
Director and Chairman of the Board, President,
Hyperion 2005 Investment Grade Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc. Opportunity Term Trust, Inc.
Chairman and Chief Executive Officer, President and Chief Investment Officer,
Hyperion Capital Management, Inc. Hyperion Capital Management, Inc.
<TABLE>
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
Portfolio of Investments Principal
June 30, 1999 (unaudited) Interest Amount Value
Rate Maturity (000s) (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (REMICs) - 70.6%
Federal Home Loan Mortgage Corporation (FHLMC)
Series 2021, Class PT 6.00 % 06/15/22 $ 39,140 @ $ 38,158,760
Series 2029, Class PB 6.00 02/15/22 37,141 @ 36,236,617
Series 2050, Class PG 6.25 02/15/23 17,955 @ 17,474,165
--------------------
91,869,542
--------------------
Federal National Mortgage Association (FNMA)
Series 1998-44, Class QE 6.00 04/18/21 5,000 4,864,250
Series 1998-36, Class PM 6.25 11/18/22 16,300 15,922,785
--------------------
20,787,035
--------------------
Total U.S. Government Agency Collateralized Mortgage Obligations (REMICs)
(Cost - $115,898,231) 112,656,577
--------------------
- ---------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 34.9%
Green Tree Financial Corporation
Series 1999-2, Class M1 6.80 12/01/30 5,000 4,788,280
--------------------
Midland Receivables *
Series 1998-1 8.63 01/15/04 3,022 3,007,816
--------------------
The Money Store
Series 1996-B, Class A8 7.91 05/15/24 3,000 3,063,720
Series 1998-A, Class AH1 6.36 07/15/07 295 294,746
--------------------
3,358,466
--------------------
Residential Funding Mortgage Securities II
Series 1999-HI1, Class A4 6.51 09/25/29 16,000 15,808,000
Series 1999-HS2, Class AI4 6.34 07/25/29 15,991 15,732,426
Series 1999-HS2 (IO) 2.00 07/25/29 23,065 710,863
--------------------
32,251,289
--------------------
Standard Credit Card Master Trust
Series 1994-2, Class B 7.50 04/07/08 11,900 12,281,026
--------------------
Total Asset-Backed Securities
(Cost - $56,569,681) 55,686,877
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PRIVATE COLLATERALIZED MORTGAGE OBLIGATIONS - 32.5%
Commercial Mortgage Backed Securities - 24.9%
DLJ Mortgage Acceptance Corp. *
Series 1997-CF2, Class CP (IO) 1.36 + 11/15/04 125,000 7,461,000
Series 1996-CF1, Class A1B 7.58 02/12/06 3,000 3,130,800
--------------------
10,591,800
--------------------
Morgan Stanley Capital I *
Series 1999-1NYP, Class A2 6.84 05/03/06 16,000 16,013,710
--------------------
Norse Ltd.*
Series 1A, Class A3 6.52 08/13/10 10,000 9,450,000
--------------------
Resolution Trust Corporation
Series 1992-C8, Class B 8.84 12/25/23 3,663 3,701,802
--------------------
Total Commercial Mortgage Backed Securities
(Cost - $41,706,670) 39,757,312
--------------------
Subordinated Collateralized Mortgage Obligations - 7.6%
Countrywide Funding Corporation
Series 1994-5, Class A3A 6.50 % 03/25/09 $ 1,000 $ 987,760
--------------------
Countrywide Home Loans
Series 1996-1, Class B1 7.25 05/25/26 3,781 3,703,497
--------------------
Salomon Brothers Mortgage Securities VII
Series 1997-HUD1, Class B1 7.75 12/25/30 5,491 5,234,204
Series 1997-HUD1, Class B2 7.75 12/25/30 2,270 2,123,373
--------------------
7,357,577
--------------------
Total Subordinated Collateralized Mortgage Obligations
(Cost - $12,302,080) 12,048,834
--------------------
Total Private Collateralized Mortgage Obligations
(Cost - $54,008,750) 51,806,146
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MUNICIPAL ZERO COUPON SECURITIES - 10.1%
Texas - 9.2%
Houston Texas Water & Sewer System
Revenue Bond, AMBAC 5.61 (a) 12/01/06 5,000 3,531,980
San Antonio Texas, Electricity & Gas
Revenue Bond, Series B, FGIC 5.70 (a) 02/01/07 10,000 6,983,100
Texas Municipal Power Agency
Revenue Bond, AMBAC 5.28 (a) 09/01/05 5,490 4,141,848
--------------------
14,656,928
--------------------
West Virginia - 0.9%
West Virginia State Parkways Economic
Development and Tourism Authority
Revenue Bond, FGIC 4.97 (a) 05/15/05 1,975 1,529,393
--------------------
Total Municipal Zero Coupon Securities
(Cost - $15,044,920) 16,186,321
--------------------
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REPURCHASE AGREEMENT - 0.5%
Dated 06/30/99, with State Street Bank and Trust Company, 4.50%,
due 07/01/99; proceeds: $803,100, collateralized by $815,000
Federal National Mortgage Association, 5.80%, due 03/15/02, value: $811,310
(Cost - $803,000) 803 803,000
--------------------
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TOTAL INVESTMENTS - 148.6%
(Cost - $242,324,582) 237,138,921
Liabilities in Excess of Other Assets - (48.6%) (77,514,851)
--------------------
NET ASSETS - 100.0% $ 159,624,070
====================
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</TABLE>
(a) - Zero Coupon Bonds. Interest rate represents current yield to
maturity.
@ - Portion of or entire principal amount delivered as collateral to
counterparty for reverse repurchase agreements. (Note 5)
+ - Variable Rate Security - Coupon rate is rate in effect as of
June 30, 1999.
* - Securities 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
institutional buyers.
AMBAC - Insured by American Municipal Bond Assurance Corporation
FGIC - Insured by Financial Guaranty Insurance Company
IO - Interest Only Security-Interest rate and principal amount are based
on the notional amount of the underlying mortgage pools.
REMIC - Real Estate Mortgage Investment Conduit
__________
See notes to financial statements.
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC
Statement of Assets and Liabilities
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
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Assets:
Investments, at value (cost $242,324,582) (Note 2) $ 237,138,921
Cash 399
Interest receivable 1,608,658
Principal paydowns receivable 48,266
Prepaid expenses 154,359
---------------------------
Total assets 238,950,603
---------------------------
Liabilities:
Reverse repurchase agreements (Note 5) 79,049,000
Interest payable (Note 5) 136,741
Investment advisory fee payable (Note 3) 85,247
Administration fee payable (Note 3) 21,072
Accrued expenses and other liabilities 34,473
---------------------------
Total liabilities 79,326,533
---------------------------
Net Assets (equivalent to $9.36 per share based on
17,046,573 shares issued and outstanding) $ 159,624,070
===========================
Composition of Net Assets:
Capital stock, at par ($.001) (Note 6) $ 17,047
Additional paid-in capital (Note 6) 165,463,906
Undistributed net investment income 3,675,397
Accumulated net realized loss (4,346,619)
Net unrealized depreciation (5,185,661)
---------------------------
Net assets applicable to capital stock outstanding $ 159,624,070
===========================
</TABLE>
__________
See notes to financial statements.
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC
Statement of Operations
For the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
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Investment Income (Note 2):
Interest $ 8,436,603
--------------------------
Expenses:
Investment advisory fee (Note 3) 529,531
Administration fee (Note 3) 130,523
Insurance 65,686
Custodian 30,652
Directors' fees 22,312
Accounting and tax services 19,000
Legal 15,441
Registration fees 12,707
Reports to shareholders 12,173
Transfer agency 11,516
Miscellaneous 16,251
--------------------------
Total operating expenses 865,792
Interest expense (Note 5) 2,012,829
--------------------------
Total expenses 2,878,621
--------------------------
Net investment income 5,557,982
--------------------------
Realized and Unrealized Gains (Losses) on Investments (Note 2):
Net realized gains on investment transactions 358,207
Net change in unrealized appreciation on investments (7,995,151)
--------------------------
Net realized and unrealized loss on investments (7,636,944)
--------------------------
Net decrease in net assets resulting from operations $ (2,078,962)
==========================
</TABLE>
__________
See notes to financial statements.
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC
Statements of Changes in Net Assets
For the
Six Months Ended For the Year
June 30, 1999 Ended
(unaudited) December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting from Operations:
Net investment income $ 5,557,982 $ 9,704,494
Net realized gain on investment and futures transactions 358,207 6,649,825
Net change in unrealized appreciation on investments (7,995,151) (6,000,827)
------------------------- -------------------------
Net increase (decrease) in net assets resulting from operations (2,078,962) 10,353,492
------------------------- -------------------------
Dividends to Shareholders (Note 2):
Net investment income (3,909,162) (9,481,814)
------------------------- -------------------------
Capital Stock Transactions (Note 6):
Cost of Trust shares repurchased and retired (511,385) (2,268,023)
------------------------- -------------------------
Total decrease in net assets (6,499,509) (1,396,345)
------------------------- -------------------------
Net Assets:
Beginning of period 166,123,579 167,519,924
------------------------- -------------------------
End of period (including undistributed net investment income
of $3,675,397 and $2,026,577, respectively) $ 159,624,070 $ 166,123,579
========================= =========================
</TABLE>
_____________
See notes to financial statements.
- --------------------------------------------------------------------------------
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC
Statement of Cash Flows
For the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
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Increase (Decrease) in Cash:
Cash flows provided by operating activities:
Interest received (excluding net accretion of $403,989) $ 8,193,868
Interest expense paid (2,081,665)
Operating expenses paid (1,004,883)
Purchase and sale of short-term portfolio investments, net (226,000)
Purchase of long-term portfolio investments (67,393,926)
Proceeds from disposition of long-term portfolio
investments and principal paydowns 72,126,142
----------------------------
Net cash provided by operating activities 9,613,536
----------------------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements (4,385,000)
Cash used to repurchase and retire Trust shares (511,385)
Cash dividends paid (4,717,648)
----------------------------
Net cash used for financing activities (9,614,033)
----------------------------
Net decrease in cash (497)
Cash at beginning of period 896
----------------------------
Cash at end of period $ 399
============================
Reconciliation of Net Decrease in Net Assets Resulting from Operations to
Net Cash Provided by Operating Activities:
Net decrease in net assets resulting from operations $ (2,078,962)
----------------------------
Decrease in investments 3,744,020
Decrease in net unrealized appreciation on investments 7,995,151
Decrease in interest receivable 161,254
Increase in prepaid expenses and other assets (90,933)
Decrease in liabilities (116,994)
----------------------------
Total adjustments 11,692,498
----------------------------
Net cash provided by operating activities $ 9,613,536
============================
</TABLE>
____________
See notes to financial statements.
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HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC
Financial Highlights
For the Year Ended
For the -------------------------------------------------------------------------
Six Months Ended
June 30, 1999 December 31, December 31, December 31, December 31, December 31,
(unaudited) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 9.71 $ 9.65 $ 8.89 $ 9.29 $ 8.11 $ 9.41
-------------- ------------- -------------- -------------- ------------- ------------
Net investment income 0.37 0.56 0.65 0.67 0.63 0.80
Net realized and unrealized gains (losses)
on investments, short sales, futures and
options transactions (0.45) 0.03 0.47 (0.45) 1.22 (1.36)
-------------- ------------- ------------ ------------ ------------- ------------
Net increase (decrease) in net asset value
resulting from operations (0.08) 0.59 1.12 0.22 1.86 (0.55)
-------------- ------------- ------------ ------------ ------------- ------------
Net effect of shares repurchased 0.00 0.02 0.25 0.01 0.01 0.01
Dividends from net investment income (0.27) (0.55) (0.61) (0.63) (0.68) (0.75)
-------------- ------------- ------------ ------------ ------------- ------------
Net asset value, end of period $ 9.36 $ 9.71 $ 9.65 $ 8.89 $ 9.29 $ 8.11
============== ============= ============== ============== ============= ==============
Market price, end of period $ 8.3125 $ 8.6250 $ 8.4375 $ 7.5000 $ 7.6250 $ 7.0000
============== ============= ============== ============== ============= ==============
Total Investment Return + (1.00)%(1) 8.92% 20.69% 6.98% 19.10% (10.63)%
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of period (000s) $159,624 $166,124 $167,520 $187,668 $198,279 $173,504
Total operating expenses 1.06% (2) 1.06% 1.05% 1.08% 1.08% 1.08%
Interest expense 2.47% (2) 2.45% 2.57% 2.37% 2.49% 1.90%
Total Expenses 3.53% (2) 3.51% 3.62% 3.45% 3.57% 2.98%
Net investment income 6.82% (2) 5.78% 6.87% 7.65% 7.14% 9.10%
Portfolio turnover rate 28% (1) 79% 90% 116% 163% 171%
</TABLE>
_____________
+ Total investment return is computed based upon the New York Stock Exchange
market price of the Trust's shares and excludes the effects of brokerage
commissions. Dividends and distributions are assumed to be reinvested at
the prices obtained under the Trust's dividend reinvestment plan.
(1) Not annualized.
(2) Annualized.
_____________
See notes to financial statements.
________________________________________________________________________________
HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
Notes to Financial Statements
June 30, 1999 (unaudited)
________________________________________________________________________________
1. The Trust
Hyperion 2005 Investment Grade Opportunity Term Trust, Inc. (the "Trust"),
which was incorporated under the laws of the State of Maryland on December 14,
1992, is registered under the Investment Company Act of 1940 (the "1940 Act")
as a diversified, closed-end management investment company. The Trust had no
transactions until February 17, 1993, when it sold 10,673 shares of common
stock for $100,006 to Hyperion Capital Management, Inc. (the "Advisor"). The
Trust expects to distribute substantially all of its net assets on or shortly
before November 30, 2005 and thereafter to terminate. The distribution and
termination may require shareholder approval.
The Trust's investment objectives are to provide a high level of current
income consistent with investing only in investment grade securities and to
return at least $10.00 per share (the initial public offering price per share)
to investors on or shortly before November 30, 2005. Investment grade
securities are securities that are either (i) at the time of investment rated
in one of the four highest rating categories of a nationally recognized rating
agency (e.g., between AAA and BBB by Standard & Poor's Corporation and Fitch
IBCA, Inc. 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 for long positions and
the current offer price for short positions. 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 or in the financial condition of the issuer.
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
against fluctuations in the value of portfolio securities 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.
2. Significant Accounting Policies (continued)
Options Written or Purchased: The Trust may write or purchase options as a
method of hedging potential declines in similar underlying securities. When
the Trust writes or purchases an option, an amount equal to the premium
received or paid by the Trust is recorded as a liability or an asset and is
subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Trust on the expiration date as realized
gains or losses. The difference between the premium and the amount paid or
received on effecting a closing purchase or sale transaction, including
brokerage commissions, 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
realized 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.
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. 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 Agreements and Affiliated Transactions
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. During the six months ended June 30, 1999, the Advisor
received $529,531 in advisory fees.
The Trust has entered into an Administration Agreement with Hyperion Capital
Management, Inc. (the "Administrator"). The Administrator has entered into a
Sub-Administration agreement with Investors Capital Services, Inc. (the
"Sub-Administrator"). The Administrator and Sub-Administrator perform
administrative services necessary for the operation of the Trust, including
maintaining certain books and records of the Trust, preparing reports and
other documents required by federal, state, and other applicable laws and
regulations, and providing 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. During the six months ended June 30, 1999, the Administrator
received $130,523 in administration fees. The Administrator is responsible
for any fees due the Sub-Administrator.
Certain officers and/or directors of the Trust are officers and/or directors
of the Advisor, the Administrator and/or the Sub-Administrator.
4. Purchases and Sales of Investments
Purchases and sales of investments, excluding short-term securities and U.S.
Government securities, for the six months ended June 30, 1999, were
$55,974,332 and $0, respectively. Purchases and sales of U.S. Government
securities, for the six months ended June 30, 1999, were $11,419,594 and
$69,041,426, respectively. For purposes of this footnote, U.S. Government
securities include securities issued by the U.S. Treasury, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, and the
Government National Mortgage Association.
5. Borrowings
The Trust may enter into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Under a reverse repurchase
agreement, the Trust sells securities and agrees to repurchase them at a
mutually agreed upon date and price. Under the 1940 Act, reverse repurchase
agreements will be regarded as a form of borrowing by the Trust unless, at the
time it enters into a reverse repurchase agreement, it establishes and
maintains a segregated account with its custodian containing securities from
its portfolio having a value not less than the repurchase price (including
accrued interest). The Trust has established and maintained such an account
for each of its reverse repurchase agreements. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Trust may decline below the price of the securities the Trust has
sold but is obligated to repurchase. In the event the buyer of securities
under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce the Trust's obligation to repurchase the
securities, and the Trust's use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such decision.
At June 30, 1999, the Trust had the following reverse repurchase agreements
outstanding:
Maturity in
Zero to 30 days
Maturity Amount...............$79,362,565
-----------
Market Value of Assets Sold
Under Agreements...........$84,259,587
-----------
Weighted Average Interest Rate 5.08%
-----------
5. Borrowings (continued)
The average daily balance of reverse repurchase agreements outstanding during
the six months ended June 30, 1999, was $81,163,422 at a weighted average
interest rate of 5.00%. The maximum amount of reverse repurchase agreements
outstanding at any time during the year was $82,572,000, as of January 15,
1999, which was 32.81% of total assets.
6. Capital Stock
There are 75 million shares of $0.001 par value common stock authorized. Of
the 17,046,573 shares outstanding at June 30, 1999, the Advisor owned 10,673
shares.
The Trust is continuing its stock repurchase program, whereby an amount of up
to 30% of the outstanding common stock as of March 1998, or approximately 4.8
million shares, are authorized for repurchase. The purchase price may not
exceed the then-current net asset value.
As of June 30, 1999, 4,664,100 shares have been repurchased pursuant to this
program at a cost of $37,199,469 and an average discount of 13.17% from its
net asset value. For the six months ended June 30, 1999, 59,100 shares have
been repurchased at a cost of $511,385 and an average discount of 10.83% from
its net asset value. For the year ended December 31, 1998, 261,200 shares had
been repurchased at a cost of $2,268,023, at an average discount of 11.03%.
All shares repurchased have been, or will be, 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 were no written option or futures contracts activity for the six months
ended June 30, 1999.
- --------------------------------------------------------------------------------
PROXY RESULTS (unaudited)
- --------------------------------------------------------------------------------
During the six months ended June 30, 1999, Hyperion 2005 Investment Grade
Opportunity Term Trust, Inc. shareholders voted on the following proposals at
a shareholders meeting on April 20, 1999. The description of each proposal
and number of shares voted are as follows:
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------- ----------------------- --------------------- ---------------------
Shares Voted Shares Voted
For Without Authority
- -------------------------------------------------------------- ----------------------- --------------------- ---------------------
1. To elect members to the Trust's Board of Directors: Robert F. Birch 15,807,481 181,439
Andrew M. Carter 15,807,481 181,439
Leo M. Walsh, Jr. 15,811,775 177,145
- -------------------------------------------------------------- ----------------------- --------------------- ---------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------- ----------------------- --------------------- ---------------------
2. To select PricewaterhouseCoopers LLP
as the Trust's independent accountants: 15,641,745 80,191 266,984
- -------------------------------------------------------------- ----------------------- --------------------- ---------------------
</TABLE>
- --------------------------------------------------------------------------------
YEAR 2000 CHALLENGE (unaudited)
- --------------------------------------------------------------------------------
The Trust continues to review the current status of its exposure to the Year
2000 computer issue. The Trust does not own or directly use any computers in
conducting its business. Instead, it relies on various service providers to
conduct its business and its service providers may use or depend on computers
to provide services to the Trust. As is the case with other investment
companies and financial and business organizations, the Trust could be
adversely affected if the computer systems used by the Trust's service
providers do not properly address this problem prior to January 1, 2000.
The Trust's investment adviser has collected and assessed information
regarding the Year 2000 preparations of each of the Trust's service
providers. The Trust's investment adviser has been advised by each of the
Trust's service providers that it has adopted a Year 2000 plan, completed an
internal assessment of its computer systems, and begun implementation of
procedures to bring its mission-critical systems into Year 2000 compliance.
The Trust has been informed that substantially all of its service providers
will be compliant by the end of the Third Quarter of the calendar year of
1999. Based on this information, management of the Trust does not anticipate
that the transition into the Year 2000 will have any material impact on the
Trust's operations; however, management of the Trust will continue to monitor
the situation. However, no assurance can be given that the Trust's service
providers have anticipated every step necessary to avoid any adverse effect on
the Trust attributable to the Year 2000.
- --------------------------------------------------------------------------------
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.
INVESTMENT ADVISOR AND ADMINISTRATOR CUSTODIAN
HYPERION CAPITAL MANAGEMENT, INC. STATE STREET BANK AND TRUST COMPANY
One Liberty Plaza 225 Franklin Street
165 Broadway, 36th Floor Boston, Massachusetts 02116
New York, New York 10006-1404
For General Information about the Trust: INDEPENDENT ACCOUNTANTS
(800) HYPERION
PRICEWATERHOUSECOOPERS LLP
TRANSFER AGENT 1177 Avenue of the Americas
New York, New York 10036
BOSTON EQUISERVE L.P.
Investor Relations Department LEGAL COUNSEL
P.O. Box 8200
Boston, Massachusetts 02266-8200 SULLIVAN & WORCESTER LLP
For Shareholder Services: 1025 Connecticut Avenue, N.W.
(800) 426-5523 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.
_______________________________________________________________________________
Officers & Directors
_______________________________________________________________________________
Andrew M. Carter
Chairman
Lewis S. Ranieri
Director
Robert F. Birch*
Director
Rodman L. Drake*
Director
Harry E. Petersen, Jr.*
Director
Leo M. Walsh, Jr.*
Director
Kenneth C. Weiss
Director
Garth Marston
Director Emeritus
Patricia A. Sloan
Director & Secretary
Clifford E. Lai
President
John H. Dolan
Vice President
Patricia A. Botta
Vice President
Thomas F. Doodian
Treasurer
* Audit Committee Members
________________________________________
[HYPERION]
________________________________________
The accompanying financial statements as of June 30, 1999
were not audited and, accordingly, no opinion is expressed
on them.
This Report is for shareholder information. This is not a
prospectus intended for use in the purchase or sale of
Trust shares.
Hyperion 2005 Investment Grade Opportunity
Term Trust, Inc.
One Liberty Plaza
165 Broadway, 36th Floor
New York, NY 10006-1404
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
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<NAME> HYPERION 2005 INVESTMENT GRADE OPPORTUNITY TERM TRUST, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 242325
<INVESTMENTS-AT-VALUE> 237139
<RECEIVABLES> 1657
<ASSETS-OTHER> 155
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 238951
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79327
<TOTAL-LIABILITIES> 79327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 165481
<SHARES-COMMON-STOCK> 17047
<SHARES-COMMON-PRIOR> 17106
<ACCUMULATED-NII-CURRENT> 3676
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4347)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5186)
<NET-ASSETS> 159624
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8437
<OTHER-INCOME> 0
<EXPENSES-NET> 2879
<NET-INVESTMENT-INCOME> 5558
<REALIZED-GAINS-CURRENT> 358
<APPREC-INCREASE-CURRENT> (7995)
<NET-CHANGE-FROM-OPS> (2079)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3909)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 59
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (6500)
<ACCUMULATED-NII-PRIOR> 2027
<ACCUMULATED-GAINS-PRIOR> (4705)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 530
<INTEREST-EXPENSE> 2013
<GROSS-EXPENSE> 2879
<AVERAGE-NET-ASSETS> 164283
<PER-SHARE-NAV-BEGIN> 9.71
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> (0.45)
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.36
<EXPENSE-RATIO> 1.06
[AVG-DEBT-OUTSTANDING] 81163
[AVG-DEBT-PER-SHARE] 4.76
</TABLE>
