I'd add just enough water so that the sugar dissolves completely, but not so little that the mixture is really thick and you have to worry about scorching it. I'd think that 2 cups would be enough. If you real want to be accurate with your gravity point addition, then you should add .78 lbs sugar with 2 cups of water to add .007 points.

sugar to add = .007 * (5 gallon + .125 (2 cups))/.046 = .78lbs

Go math!