<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: January 22, 1996
We welcome this opportunity to present you with the annual report for The
Hyperion Total Return Fund, Inc. (the 'Fund') for its fiscal year ended November
30, 1995. The Fund's shares are traded on the New York Stock Exchange under the
symbol 'HTR'.
DESCRIPTION OF THE FUND
The Fund is a closed-end investment company whose investment objective is to
provide shareholders high total return, including short and long-term capital
gains and a high level of current income, through the management of a portfolio
of securities. The Fund pursues these objectives by investing in a portfolio
consisting primarily of mortgage-backed securities ('MBS'), U.S. Treasury
obligations, collateralized mortgage obligations ('CMOs') and corporate
obligations.
MARKET ENVIRONMENT:
Over the past six months, the recovery in the fixed income markets has
continued. Interest rates, which have broadly declined since late 1994,
continued their downward path since May declining by roughly 50 basis points
over the period. Since this rally began, the market has been anticipatory,
rallying sharply based upon expectations of future interest rate cuts by the
Federal Reserve Board (the 'Fed'). So far, the market has been correct about the
direction of the Fed activity. The Fed has cut the Federal Funds Rate by 50
basis points since May, reducing the rate in 25 basis point increments in July
and December 1995. Current market levels and a continued downtrend in interest
rates suggest that we expect additional interest rate cuts by the Fed and hope
for a balanced-budget agreement that is currently being debated in Washington.
The economy continues to grow at a moderate pace. Preliminary estimates for
fourth quarter economic activity were dampened by evidence of weak holiday sales
for retailers. The third quarter Gross Domestic Product ('GDP') growth rebounded
to 3.2% after posting a 1.3% growth rate in the second quarter of 1995. During
the fiscal year which ended November 30, 1995, many economic aggregates,
including the employment rate and consumer confidence, were significantly
stronger than they were during the bond market rally of 1993.
PORTFOLIO PERFORMANCE AND STRATEGY
The Fund enjoyed excellent net asset value ('NAV') performance, posting a
positive total return of 24.3% for the year ending November 30, 1995. Total
investment return is computed based upon the change in NAV of the Fund's shares
and reinvestment of dividends. The Fund's NAV increased over this period by
$1.05 from $9.56 on November 30, 1994 to $10.61 on November 30, 1995.
Performance was strong against both applicable bond indices as well as its peer
fund group. The Fund's performance versus applicable bond indices, for the year
ended November 30, 1995 is shown below:
<TABLE>
<CAPTION>
ONE YEAR
TOTAL RETURN
THROUGH 11/30/95
----------------
<S> <C>
Hyperion Total Return Fund .......... 24.3%
Lehman Govt/Corporate Index ......... 18.3%
Lehman Aggregate Index .............. 17.7%
10-Year Treasury .................... 22.9%
5-Year Treasury ..................... 16.3%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISER (CONTINUED)
- --------------------------------------------------------------------------------
The Fund continues to focus on sector allocation and security selection in
carrying out its investment activities. During the past year, the Fund had a
greater allocation to securities with better protection against mortgage-backed
prepayments. This was accomplished by shifting some assets into Treasuries,
asset-backed securities ('ABS') and investment grade corporate bonds. We also
increased the Fund's allocation to commercial mortgage-backed securities
('CMBS') and subordinated CMOs (comprised of non-agency residential backed
collateral). Typically, these securities offer significantly enhanced protection
from mortgage-backed securities prepayments to the investor. To date, our
activities within the subordinated CMO sector have benefited the Fund. As a
result of several credit upgrades and bond restructurings of these issues, the
value and pricing of these subordinated CMOs have increased.
During this period, the Fund's investment guidelines were amended. Prior to the
amendment, the Fund could invest without limitation in U.S. Treasuries for
temporary or defensive purposes. In December, 1995, the Board of Directors
approved the removal of the restrictive 'temporary' holding period on
Treasuries. The Fund is now authorized to invest 60% of total assets in any
combination of MBS and U.S. Treasuries.
INVESTMENT OUTLOOK
We are cautiously optimistic about the bond market. Inflation continues to be
subdued, and although nominal interest rates appear low relative to historic
standards, real interest rates (the difference between interest rates and
inflation) are above long-term averages. As a result, unless there is
significant improvement in the economy, the market expects that there will be
further short-term interest rate decreases by the Fed during 1996.
Within this declining interest rate environment, mortgage-refinancing risk
should be high. Therefore, we will continue to limit our exposure to mortgage
securities that are susceptible to refinancing and can cause the Fund to
underperform. Consequently, we anticipate higher Fund allocations to the
following sectors: 1) Treasuries, 2) ABS, 3) corporate bonds, 4) subordinated
CMOs and 5) CMBS.
The chart on the following page shows the allocation of the Fund's holdings by
asset category on November 30, 1995.
2
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISER (CONCLUDED)
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1995*
[CHART]
Subordinated CMOs 18.8%
U.S. Agency-Backed CMOs (includes PAC IOs) 18.1
U.S. Treasury Obligations 16.4
Commercial MBS 15.4
Asset-Backed Securities 8.9
U.S. Government Agency Certificates 8.4
Corporate Bonds - High Yield 8.2
Corporate Bonds - Investment Grade 4.1
U.S. Government Agency Debenture 1.4
Repurchase Agreement 0.3
* As a percentage of total investments.
CONCLUSION
Hyperion Capital Management, as the Fund's Adviser, commits to its shareholders
to continue to actively seek out the significant investment opportunities, and
act on them in a timely fashion. We have endeavored to be accessible to our
shareholders during these challenging times in the fixed income markets. As
always, we welcome your questions and comments and encourage you to contact our
Shareholder Services Representatives at 1-800-HYPERION.
We will continue to do our best to manage the Fund so that it attempts to
achieve its objectives. We appreciate the opportunity to serve your investment
needs and we thank you for your continued support.
Sincerely,
/s/ Clifford E. Lai
- -----------------------------
CLIFFORD E. LAI
President,
The Hyperion Total Return Fund, Inc.
Managing Director and Chief Investment Officer,
Hyperion Capital Management, Inc.
/s/ Kenneth C. Weiss
- -----------------------------
KENNETH C. WEISS
Senior Vice President,
The Hyperion Total Return Fund, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
/s/ John N. Dunlevy
- ------------------------------
JOHN N. DUNLEVY
Vice President,
The Hyperion Total Return Fund, Inc.
Director,
Hyperion Capital Management, Inc.
3
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1995
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--63.6%
U.S. GOVERNMENT AGENCY PASS-THROUGH
CERTIFICATES--12.1%
Federal National Mortgage
Association
7.00% TBA $ 14,500 $ 14,500,000
7.50 06/01/25-11/01/25 10,000 10,196,875
------------
24,696,875
------------
Government National
Mortgage Association 6.00 TBA 7,000 7,056,875
------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
(Cost - $31,562,969) 31,753,750
------------
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)--26.0%
Federal Home Loan Mortgage
Corporation
Series 1643, Class PH 5.75 07/15/23 12,000# 11,546,250
Series 1101, Class M 6.95 07/15/21 16,000# 16,070,000
Series 1607, Class SB 9.64 10/15/13 13,465 12,677,688
Series 1362, Class CA,
PAC, IO 1071.22 07/15/21 25 1,129,688
------------
41,423,626
------------
Federal National Mortgage
Association
Series 1993-223, Class
PH 6.05 10/25/22 5,000# 4,905,469
Pool 73152 6.87 07/01/05 3,241 3,364,142
Pool 73192 6.88 09/01/05 12,463 12,980,605
Series 1993-78, Class SC 9.00 06/25/08 2,501 2,329,290
Series 1995-M3, Class
CN, PAC, IO 0.91 07/25/19 23,889 1,586,392
Series 1993-154, Class
EA, PAC, IO 6.00 10/25/06 6,493 1,700,354
------------
26,866,252
------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)
(Cost - $65,691,124) 68,289,878
------------
U.S. TREASURY & AGENCY OBLIGATIONS--25.5%
Federal National
Mortgage Association
Debenture 7.55 06/10/04 5,000# 5,213,281
------------
U.S. Treasury Notes
6.88 03/31/00 10,000# 10,510,937
7.50 02/15/05 10,000# 11,192,188
7.75 01/31/00 15,000# 16,211,719
7.88 11/15/04 21,000# 23,995,781
------------
61,910,625
------------
TOTAL U.S. TREASURY & AGENCY OBLIGATIONS
(Cost - $61,240,729) 67,123,906
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $158,494,822) 167,167,534
------------
- -------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--12.8%
Broadway Receivables,
Inc.
Series 1994, Class B 11.00% 10/15/99 $ 6,000(b)@ $ 6,053,437
Fasco Inc.
Series 1995-A, Class C 11.92 12/01/05 2,700(b) 2,705,062
Health & Tennis Master
Trust
Series 1995-1 9.73 01/15/01 5,000(b) 5,089,844
Neiman Marcus Group
Credit Card Master
Trust
Series 1995-1, Class A 7.60 06/15/03 5,000 5,320,312
Standard Credit Card
Master Trust
Series 1995-9, Class A 6.55 10/07/07 7,000 7,115,938
Series 1994-2, Class A 7.25 04/07/08 7,000 7,465,938
------------
TOTAL ASSET-BACKED
SECURITIES
(Cost - $33,011,009) 33,750,531
------------
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--49.3%
COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS--22.2%
Bellaire Finance, Inc.
Series 1995-1, Class E 12.74 02/01/08 4,806(b) 5,110,414
Factory Stores of
America
Class A 7.42 06/01/07 3,964 4,120,338
Lennar US Partners
Series 1995-1, Class E 9.75 02/15/05 3,500(b) 3,532,266
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C1, Class
A 7.07 05/25/15 4,974 5,106,442
Series 1995-C3, Class
A3 7.09 12/26/25 7,500 7,612,500
Nomura Asset Securities
Corporation
Series 1995-MD-4,
Class A2 7.38 08/13/29 2,000 2,076,875
PaineWebber Mortgage
Acceptance Corporation
Series 1995-M2, Class
C 6.90 12/01/03 5,000(b) 5,055,469
Series 1995-M1, Class
B 6.95 01/15/07 4,000(b) 4,092,500
Resolution Trust Company
Series 1994-N2, Class
N4 10.00 12/15/04 5,000(b) 5,159,375
Series 1993-N3, Class
4 10.50 10/15/03 2,000(b) 1,980,000
Series 1994-N2, Class
5A 10.63 12/15/04 2,000(b)@ 2,016,562
SKW Real Estate Limited
Partnership
Class E 10.75 04/15/04 6,000(b) 6,015,000
Class II E 11.00 04/15/05 6,500(b) 6,541,641
----------
TOTAL COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $57,333,856) 58,419,382
----------
5
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) (CONTINUED)
SUBORDINATED COLLATERALIZED MORTGAGE
OBLIGATIONS--27.1%
America Southwest
Financial
Securities Co.
Series 1995-C1, Class
S2, IO 2.03% 05/05/25 $ 49,800 $ 5,820,375
Chase Mortgage Finance
Corporation
Series 1993-D2, Class 2M 8.00 03/25/25 2,253 2,345,546
Citicorp Mortgage
Securities, Inc.
Series 1993-6, Class B4 7.00 03/25/08 797(b) 310,997
Series 1993-7, Class B1 7.00 06/25/23 2,169 1,915,402
Series 1995-3, Class B5 7.50 11/25/25 652(b) 363,964
Countrywide Funding Corp.
Series 1994-2, Class B2 6.50 02/25/09 693 290,959
Series 1993-6, Class B2 6.63 12/25/08 546(b) 229,406
Series 1994-A, Class B2 6.75 03/25/24 3,437 3,215,959
Series 1995-2, Class B4 8.50 06/25/25 875(b) 691,683
DLJ Mortgage Acceptance
Corp.
Series 1995-T10, Class C 17.96 12/25/23 3,647(b) 2,745,800
Fleet Finance Home
Equity Trust
Series 1991-1, Class G,
I/O-ette 742.92 07/25/21 10(a) 50,000
GE Capital Mortgage
Services, Inc.
Series 1994-10, Class M 6.50 03/25/24 5,898 5,644,555
Series 1994-18, Class B5 7.00 05/25/24 1,362(b) 286,116
Series 1995-9, Class B3 7.50 11/25/25 1,503 1,195,641
Series 1994-12, Class B1 7.91 08/25/25 3,019 3,058,247
Series 1995-12, Class B3 7.91 08/25/25 1,359(b) 994,743
Series 1995-4, Class B1 8.00 06/25/25 1,223 1,243,815
Series 1994-28, Class B5 8.00 08/25/24 1,512 272,178
Greenwich Capital
Acceptance Corporation
Series 1991-1, Class S, IO 0.66 05/01/20 131,502(b) 3,554,650
JP Morgan Commercial
Mortgage Finance
Corporation
Series 1995-C1, Class
DX, IO 1.21 08/01/25 29,266 2,231,532
Kidder Peabody
Acceptance Corporation
Series 1993-C1, Class
A3XP, PAC, IO 0.93 09/01/06 25,000 1,273,436
Nomura Asset Securities
Corporation
Series 1994-MD1, Class
A3X, IO 0.40 03/15/18 41,049 949,258
Series 1994-MD1, Class
A2X, IO 0.75 03/25/18 38,996 1,444,071
Prudential Home Mortgage
Securities Co., Inc.
Series 1993-L, Class 5B 6.64 12/25/23 6,752(b) 3,794,776
Series 1993-43, Class M 6.75 10/25/23 980 936,321
Series 1993-63, Class M 6.75 01/25/24 986 940,751
Series 1995-7, Class B4 7.00 11/25/25 1,044(b) 615,471
Series 1995-5, Class B4 7.25 09/25/25 950(b) 563,113
Series 1992-33, Class B3 7.50 11/25/22 7,389 6,884,743
Series 1995-4, Class B3 7.50 07/25/10 816 688,439
Series 1992-A, Class 4B 7.90 04/28/22 14,946(c) 1,569,291
6
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
[S] [C] [C] [C] [C]
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) (CONCLUDED)
SUBORDINATED COLLATERALIZED MORTGAGE
OBLIGATIONS--27.1% (CONCLUDED)
Prudential Securities
Secured Financing
Corporation
Series 1993-3, Class
B3 7.50% 06/25/23 $ 1,237 $ 835,355
Residential Funding
Mortgage
Securities, Inc.
Series 1994-S13, Class M1 7.00 05/25/24 3,938 3,890,779
Series 1993-J3, Class B5 7.19 02/28/08 1,352(b) 473,085
Series 1995-J1, Class 3 7.57 06/28/23 6,072(b) 4,040,099
Series 1992-S16, Class A9 17.16 05/25/22 3,314 3,498,240
Salomon Brothers
Acceptance Corporation
Series 1987-1, Class A 8.50 01/25/17 6,563(b) 1,312,653
Sears Mortgage
Securities
Series 1991-I, Class
A2, IO 0.38 07/25/21 100,136 1,032,656
------------
TOTAL CREDIT COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $73,497,914) 71,204,105
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost - $130,831,770) 129,623,487
------------
- -------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--17.7%
AEROSPACE/SUBSYSTEMS/COMPONENTS--0.4%
Coltec Industries, Inc. 9.75 04/01/00 1,000 1,020,000
------------
ALUMINUM--0.4%
Easco Corp. 10.00 03/15/01 1,000 975,000
------------
BEVERAGES--0.2%
Cott Corp. 9.38 07/01/05 500 495,000
------------
BROADCASTING/CABLE TV--0.8%
Century Communications
Corp. 11.88 10/15/03 1,000 1,070,000
Rogers Cablesystem, Ltd. 9.63 08/01/02 1,000 1,025,000
------------
2,095,000
------------
BROADCASTING/RADIO--0.4%
Infinity Broadcasting
Co. 10.38 03/15/02 1,000 1,072,500
------------
BUILDING--0.5%
Blount, Inc. 9.00 06/15/03 500 529,375
Triangle Pacific Corp. 10.50 08/01/03 750 781,875
------------
1,311,250
------------
CONTAINERS/GLASS--0.6%
Owens-Illinois, Inc. 11.00 12/01/03 1,500 1,674,375
------------
CONTAINERS/PAPER--0.4%
Stone Container Corp. 10.75 10/01/02 1,000 1,025,000
------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--17.7% (CONTINUED)
FINANCE--5.9%
Bayerische Landesbank 6.38% 10/15/05 $ 5,000 $ 5,067,187
Commercial Credit Corp. 7.38 04/15/05 5,000 5,328,125
General Motors
Acceptance Corp. 6.63 10/15/05 5,000 5,051,562
VIS Capital Corp. 12.38 07/01/98 168 168,000
------------
15,614,874
------------
FOOD--0.1%
Beatrice Foods Corp. 12.00 12/01/01 1,000(c) 300,000
------------
FOOD SERVING--0.2%
Flagstar Corp. 10.88 12/01/02 500 460,000
------------
GAS & OIL RETAILER--0.1%
Petroleum Heat & Power
Co. 12.25 02/01/05 250 276,250
------------
HEALTH CARE CENTERS--0.2%
Manor Care, Inc. 9.50 11/15/02 500 537,500
------------
HOME FURNISHINGS--0.2%
Congoleum Corp. 9.00 02/01/01 500 475,000
------------
INSURANCE--0.7%
American Financial Ohio
Corp. 10.00 10/20/99 1,000 1,005,000
Americo Life, Inc. 9.25 06/01/05 1,000 940,000
------------
1,945,000
------------
LEISURE/AMUSEMENT/MUSICAL INSTRUMENTS--0.2%
Selmer Company, Inc. 11.00 05/15/05 500 487,500
------------
MEDICAL EQUIPMENT/SUPPLY--0.4%
Mcgaw, Inc. 10.38 04/01/99 1,000 1,033,750
------------
METAL/OTHER FABRICATING--0.2%
Wolverine Tube, Inc. 10.13 09/01/02 500 525,000
------------
MINING--0.5%
Magma Copper Co. 12.00 12/15/01 1,250 1,362,500
------------
MOTION PICTURES--0.2%
AMC Entertainment, Inc. 11.88 08/01/00 500 558,750
------------
OIL & GAS/REFINER--0.2%
Tesoro Petroleum Corp. 13.00 12/01/00 650 658,125
------------
PLASTICS/PRODUCTS--0.3%
Applied Extrusion
Technologies, Inc. 11.50 04/01/02 750 802,500
------------
RETAIL/DRUGS--0.5%
Hook-Super X, Inc. 10.13 06/01/02 1,250 1,359,375
------------
RETAIL/FOOD SUPERMARKETS--1.0%
Ralph's Grocery, Inc. 10.45 06/15/04 500 492,500
Safeway, Inc. 10.00 12/01/01 1,000 1,112,500
Stop & Shop Companies,
Inc. 9.75 02/01/02 1,000 1,085,000
------------
2,690,000
------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1995
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 1)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--17.7% (CONCLUDED)
SERVICES--0.3%
Coinmach Corp. 11.75% 11/15/05 $ 750 $ 753,750
------------
STEEL/IRON/STEEL MINI-MILL--0.4%
Northwestern Steel &
Wire Co. 9.50 06/15/01 1,000 985,000
------------
TELECOMMUNICATIONS--0.4%
Paging Network, Inc. 11.75 05/15/02 1,000 1,105,000
------------
TEXTILES/APPAREL MANUFACTURER--0.3%
Tultex Corp. 10.63 03/15/05 750 780,000
------------
TEXTILES/PRODUCER--0.4%
Fieldcrest Cannon, Inc. 11.25 06/15/04 1,000 1,020,000
------------
TRANSPORTATION--0.7%
Moran Transportation
Company 11.75 07/15/04 750 701,250
Viking Star Shipping,
Inc. 9.63 07/15/03 1,000 1,027,500
------------
1,728,750
------------
UTILITIES/ELECTRIC--0.3%
California Energy Corp. 9.88 06/30/03 750 775,313
------------
UTILITIES/GAS--0.3%
Texas Gas Transmission
Corp. 9.63 07/15/97 750 787,140
------------
TOTAL CORPORATE OBLIGATIONS
(Cost - $45,716,115) 46,689,202
------------
- -------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
November 30, 1995
Principal Market
Amount Value
(000s) (Note 1)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--0.4%
Dated 11/30/95, with State Street Bank and Trust
Company, 5.55%, due 12/1/95; proceeds: $969,149;
collateralized by $970,000 U.S. Treasury Note
6.00%, due 08/31/97, value: $1,007,898
(Cost - $969,000) $ 969 $ 969,000
----------
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS--143.8%
(Cost - $369,022,716) 378,199,754
VARIATION MARGIN PAYABLE ON OPEN FUTURES CONTRACTS*--(0.1%) (164,063)
LIABILITIES IN EXCESS OF OTHER ASSETS--(43.7%) (115,013,664)
------------
NET ASSETS--100.0% $263,022,027
------------
------------
- -------------------------------------------------------------------------------
TBA To Be Announced
REMIC Real Estate Mortgage Investment Conduit
# Portion of or entire principal amount pledged as collateral for
reverse repurchase agreements. (Note 5)
PAC Planned Amortization Class
IO Interest-only security
@ Portion of or entire principal amount pledged as initial margin on
financial futures transactions
I/O-ette Interest-only security with nominal principal amount
(a) Not readily marketable
(b) Private Placement
(c) Non-accrual investment status.
* Open Futures Contracts as of November 30, 1995 are as follows:
OPEN FUTURES
<TABLE>
<CAPTION>
EXPIRATION VALUE AT VALUE AT UNREALIZED
NOTIONAL AMOUNT TYPE DATE TRADE DATE NOVEMBER 30, 1995 DEPRECIATION
- ------------------- ------------------------- ---------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Short:
$21,000,000 30 Yr. U.S. Treasury Note March 1996 $24,747,188 $24,996,563 ($249,375)
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
- ---------------
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost - $369,022,716) (Note 1)............ $378,199,754
Cash............................................................ 699
Interest receivable............................................. 4,397,152
Receivable for investments sold and other receivables........... 2,723,809
Prepaid expenses................................................ 6,526
------------
Total assets.......................................... 385,327,940
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................... 95,792,000
Payable for investments purchased............................... 25,820,952
Variation margin on open futures transactions (Note 1).......... 164,063
Dividends payable............................................... 153,386
Investment advisory fee payable (Note 2)........................ 141,119
Interest payable (Note 5)....................................... 65,222
Administration fee payable (Note 2)............................. 43,421
Accrued expenses and other liabilities.......................... 125,750
------------
Total liabilities..................................... 122,305,913
------------
NET ASSETS (equivalent to $10.61 per share based on 24,781,615
shares outstanding)........................................... $263,022,027
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 4).................................. $ 247,816
Additional paid-in capital...................................... 276,396,847
Undistributed net investment income............................. 909,081
Accumulated net realized losses................................. (23,459,380)
Net unrealized appreciation..................................... 8,927,663
------------
Net assets applicable to capital stock outstanding.............. $263,022,027
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 1):
Interest...................................................... $30,974,376
-----------
EXPENSES:
Investment advisory fees (Note 2)............................. 1,612,199
Administration fees (Note 2).................................. 496,060
Transfer agency............................................... 153,073
Custodian..................................................... 92,235
Directors' fees and expenses.................................. 52,917
Audit and tax services........................................ 50,900
Insurance..................................................... 44,610
Reports to shareholders....................................... 35,984
Legal......................................................... 13,055
Miscellaneous................................................. 97,375
-----------
Total operating expenses................................... 2,648,408
Interest expense (Note 5)............................. 5,560,006
-----------
Total expenses........................................ 8,208,414
-----------
Net investment income......................................... 22,765,962
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS,
FUTURES AND OPTIONS (Notes 1 and 3):
Net realized gains (losses) on:
Investment transactions....................................... 11,999,779
Futures transactions.......................................... (1,834,925)
Option transactions........................................... (288,345)
-----------
9,876,509
Net change in unrealized appreciation on investments and
futures....................................................... 18,096,156
-----------
Net realized and unrealized gains on investments, futures, and
options....................................................... 27,972,665
-----------
Net increase in net assets resulting from operations............ $50,738,627
-----------
-----------
</TABLE>
- ---------------
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
November 30, November 30,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income........................ $ 22,765,962 $ 26,670,353
Net realized gains (losses) on investments,
futures and options....................... 9,876,509 (15,636,182)
Net change in unrealized appreciaton
(depreciation) on investments and
futures................................... 18,096,156 (11,839,629)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 50,738,627 (805,458)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
(Note 1):
Net investment income........................ (24,681,139) (25,056,641)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 4):
Net proceeds from issuance of shares......... -- 691,936
Cost of shares repurchased................... (243,325) (1,422,539)
------------ ------------
Net decrease in net assets resulting from
capital stock transactions................ (243,325) (730,603)
------------ ------------
Total increase (decrease) in net
assets............................. 25,814,163 (26,592,702)
NET ASSETS:
Beginning of year.............................. 237,207,864 263,800,566
------------ ------------
End of year (including undistributed net
investment income of $909,081 and $2,824,258,
respectively)................................ $263,022,027 $237,207,864
------------ ------------
------------ ------------
</TABLE>
- ---------------
See notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF CASH FLOWS
For the Year Ended November 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash Flows provided from operating activities:
Interest received......................................... $ 29,657,853
Operating expenses paid................................... (2,666,390)
Interest expenses paid.................................... (5,632,656)
Sales of short-term portfolio investments, net............ 277,655
Purchase of long-term portfolio investments............... (1,142,478,937)
Proceeds from disposition of long-term portfolio
investments and principal paydowns..................... 1,141,559,678
Net cash used for futures transactions.................... (3,167,639)
---------------
Net cash provided from operating activities............... 17,549,564
---------------
Cash Flows used for financing activities:
Cash used to repurchase shares............................ (243,325)
Cash provided from reverse repurchase agreements.......... 6,104,311,907
Cash used to liquidate reverse repurchase agreements...... (6,097,102,657)
Cash dividends paid....................................... (24,527,753)
---------------
Net cash used for financing activities.................... (17,561,828)
---------------
Net decrease in cash........................................ (12,264)
Cash at beginning of year................................... 12,963
---------------
Cash at end of year......................................... $ 699
---------------
---------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations........ $ 50,738,627
---------------
Increase in investments................................... (52,088,255)
Increase in prepaid assets................................ (3,831)
Decrease in receivable for investments sold............... 7,498,279
Decrease in interest receivable........................... 928,586
Increase in payable for investments purchased............. 10,475,460
Increase in fees payable.................................. 16,373
Increase in variation margin payable...................... 87,500
Decrease in interest payable.............................. (72,650)
Decrease in accrued expenses and other liabilities........ (30,525)
---------------
Total adjustments................................. (33,189,063)
---------------
Net cash provided from operating activities................. $ 17,549,564
---------------
---------------
</TABLE>
- ------------------
See notes to financial statements.
14
<PAGE>
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
November 30, November 30, November 30, November 30, November 30,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........ $ 9.56 $ 10.59 $ 10.87 $ 11.50 $ 10.75
---------- ---------- ---------- ---------- ----------
Net investment income..................... 0.92 1.07 1.07 1.19 1.24
Net realized and unrealized gains (losses)
on investments, futures and options..... 1.13 (1.09) (0.21) (0.59) 0.61
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value
from operations......................... 2.05 (0.02) 0.86 0.60 1.85
---------- ---------- ---------- ---------- ----------
Dividends to shareholders from net
investment income....................... (1.00) (1.01) (1.14) (1.23) (1.10)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 10.61 $ 9.56 $ 10.59 $ 10.87 $ 11.50
---------- ---------- ---------- ---------- ----------
Market price, end of year................. $ 9.00 $ 8.50 $ 10.375 $ 11.625 $ 11.75
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL INVESTMENT RETURN+.................. 17.45% (7.93)% (0.89)% 10.31% 33.11%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY DATA:
Net assets, end of year (000's)............. $263,022 $237,208 $263,801 $268,961 $281,898
Total operating expenses.................... 1.07% 1.09% 1.08% 1.04% 1.10%
Interest expense............................ 2.24% 1.75% 1.50% 1.24% 2.68%
Net investment income....................... 9.18% 10.63% 9.95% 10.79% 11.14%
Portfolio turnover rate..................... 320% 234% 395% 390% 65%
</TABLE>
- ------------
+ Total investment return is computed based upon the New York Stock Exchange
market price of the Fund's shares and excludes the effects of sales loads or
brokerage commissions.
See notes to financial statements.
15
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
The Hyperion Total Return Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 (the '1940 Act') as a diversified, closed-end
manage-ment investment company. The investment objective of the Fund is to
provide a high total return, including short and long-term capital gains and a
high level of current income, through the management of a portfolio of
securities. No assurance can be given that the Fund's investment objective will
be achieved.
Valuation of Investments -- Where market quotations are readily available,
portfolio securities are valued based upon the current bid price. The Fund
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 Fund,
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 Fund to meet their
obligations may be affected by economic developments in a specific industry or
region. The values of MBS can be significantly affected by changes in interest
rates.
Options Written or Purchased -- When the Fund writes or purchases an option, the
amount equal to the premium received or paid by the Fund 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 Fund on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining the realized gain
or loss or the basis of the security.
The Fund purchases or writes options to hedge against adverse market movements
or fluctuations in value caused by changes in interest rates. The Fund bears the
risk in purchasing an option that it will expire without being exercised. If
this occurs, the option expires worthless and the premium paid for the option is
a loss. The risk associated with writing call options is that the Fund may
forego the opportunity for a profit if the market value of the underlying
position increases and the option is exercised. The Fund will only write options
on positions held in its portfolio. The risk in writing a put option is that the
Fund may incur a loss if the market value of the underlying position decreases
and the option is exercised. In addition, the Fund bears the risk of not being
able to enter into a closing transaction for written options as a result of an
illiquid market.
Financial Futures Contracts -- The Fund may buy or sell interest rate and
Eurodollar futures contracts for the purpose of hedging its portfolio against
anticipated interest rate changes. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in the value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized gains or
losses by marking to market the option contracts at the end of each day's
trading. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
The Fund invests in financial futures contracts to hedge existing portfolio
securities against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Fund 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 future contracts, interest rates and
the underlying hedged assets. The Fund is at risk that it may not be able to
close out a transaction because of an illiquid secondary market.
Taxes -- It is the Fund's policy to comply with 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.
Security Transactions and Investment Income -- Security transactions are
recorded on the dates the transactions are executed (the trade dates). Interest
16
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1995
- --------------------------------------------------------------------------------
income is recorded as earned. Discounts on securities purchased are accrued on a
scientific basis over the estimated life of the respective securities. Realized
gains and losses are determined on the identified cost basis.
Cash Flow Information -- The Fund 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.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value and accreting discounts on debt
obligations. Cash, as used in the Statement of Cash Flows, is the amount
reported as 'Cash' in the Statement of Assets and Liabilities.
Dividends and Distributions -- The Fund declares and pays dividends monthly from
net investment income. Distributions of realized capital gains in excess of
capital loss carryforwards are distributed at least annually. Dividends and
distributions are recorded on the ex-dividend date.
Repurchase Agreements -- The Fund, through its custodian, receives delivery of
the underlying collateral, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price, including
accrued interest. Hyperion Capital Management, Inc. (the 'Adviser'), 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 Fund may be delayed or limited.
2. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS AND TRANSACTIONS WITH
AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Adviser. The
Adviser is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at an annual rate of 0.65% of the Fund's average weekly net assets.
The Adviser has entered into a Sub-Advisory Agreement with Pacholder Associates,
Inc. ('Pacholder'). Under the terms of the agreement, Pacholder is to assist in
managing the Fund's investments in High Yield Securities and to provide such
investment research and advice regarding High Yield Securities as may be
necessary for the operation of the Fund. For such services, the Adviser will
pay, out of its advisory fee, a monthly fee at an annual rate of 0.35% of the
portion of the Fund's average weekly net assets that is invested in High Yield
Securities.
The Fund has entered into an Administration Agreement with Princeton
Administrators, L.P. (the 'Administrator'), an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The Administrator performs administrative
services necessary for the operation of the Fund, including maintaining certain
books and records of the Fund and preparing reports and other documents required
by federal, state, and other applicable laws and regulations, and provides the
Fund with administrative office facilities. For these services, the Fund pays a
monthly fee at an annual rate of 0.20% of the Fund's average weekly net assets.
Certain officers and/or directors of the Fund are officers and/or directors of
the Adviser.
3. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, U.S.
Government Securities and reverse repurchase agreements, for the year ended
November 30, 1995 were $985,902,615 and $978,280,725, respectively.
As of November 30,1995, unrealized appreciation for federal income tax purposes
aggregated $9,120,417, of which $13,815,405 related to appreciated securities
and $4,694,988 related to depreciated securities. The aggregate cost of
investments at November 30,1995 for federal income tax purposes was
$369,079,337. At November 30, 1995, the Fund had a capital loss carryforward of
$22,415,204, of which $4,577,302, and $17,837,902 expire in 2000 and 2002,
respectively. These will be available to offset like amounts of any future
taxable gains.
4. CAPITAL STOCK:
There are 50 million shares of $0.01 par value common stock authorized. Of the
24,781,615 shares outstanding at November 30, 1995, the Adviser owned 8,334
shares.
The Fund is continuing its stock repurchase program, whereby an amount of up to
15% of the total outstanding common stock, or approximately 3.7 million shares,
are authorized for repurchase. The purchase price may not exceed the
then-current net asset value. As of November 30, 1995, 196,700 shares have been
repurchased pursuant to this program at a cost of $1,655,864 and at an average
discount of 14.32% from its net asset value. For the year ending November 30,
17
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
November 30, 1995
- --------------------------------------------------------------------------------
1995, 27,500 shares were repurchased at a cost of $243,325 and at an average
discount of 15.56% from its net asset value.
5. BORROWINGS--REVERSE REPURCHASE
AGREEMENTS AND DOLLAR ROLL AGREEMENTS:
The Fund may enter into reverse repurchase agreements and dollar roll agreements
with the same parties with whom it may enter into repurchase agreements. A
dollar roll agreement is identical to a reverse repurchase agreement except for
the fact that substantially identical securities may be repurchased. Under a
reverse repurchase agreement or a dollar roll agreement, the Fund sells
securities and agrees to repurchase them, or substantially similar securities in
the case of a dollar roll agreement, at a mutually agreed upon date and price.
Under the 1940 Act, reverse repurchase agreements and dollar roll agreements
will be regarded as a form of borrowing by the Fund unless, at the time it
enters into a reverse repurchase agreement or dollar roll 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 Fund has established and maintained such an
account for each of its reverse repurchase agreements. The Fund did not enter
into any dollar roll agreements during the period. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of the
securities retained in lieu of sale by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement or a dollar roll
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
Fund's obligation to repurchase the securities and the Fund's use of the
proceeds of the reverse repurchase agreement or the dollar roll agreement may
effectively be restricted pending such decision.
At November 30, 1995, the Fund had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount..................... $95,926,860
-----------
Market Value of Assets Sold Under
Agreements........................ $97,808,832
-----------
Weighted Average Interest Rate...... 5.84%
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the year ended November 30, 1995, was $98,043,586 at a weighted average interest
rate of 5.59%. The maximum amount of reverse repurchase agreements outstanding
at any time during the year was $119,796,670 as of April 19, 1995, which was
25.11% of total assets.
6. FINANCIAL INSTRUMENTS:
The Fund 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 Fund 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.
Open futures contracts at November 30, 1995 are included in the portfolio of
investments.
During the year, the Fund had segregated sufficient cash and/or securities to
cover any commitments under these contracts.
7. SUBSEQUENT EVENTS:
The Fund's Board of Directors declared the following regular monthly and special
dividends:
<TABLE>
<CAPTION>
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- --------- -------- --------
<S> <C> <C>
$0.070 12/18/95 12/28/95
$0.035 12/29/95 01/11/96
$0.070 01/22/96 01/31/96
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
THE HYPERION TOTAL RETURN FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Hyperion Total Return Fund, Inc. as of
November 30, 1995, the related statements of operations and cash flows for the
year then ended, the statements of changes in net assets for the years ended
November 30, 1995 and 1994 and the financial highlights for each of the years in
the five-year period ended November 30, 1995. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at November
30, 1995 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Hyperion Total
Return Fund, Inc. at November 30, 1995, the results of its operations, its cash
flows, the changes in its net assets, and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
January 22, 1996
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (November
30, 1995) 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, 13.88% of the Fund's distributions were
earned from U.S. Treasury obligations. None of the Fund's distributions qualify
for the dividends received deduction available to corporate shareholders.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar 1995. The second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal, state
and local income tax returns, will be made in conjunction with Form 1099-DIV and
will be mailed in January 1996. Shareholders are advised to consult their own
tax advisers with respect to the tax consequences of their investment in the
Fund.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE
-------------------------------------------------
NET REALIZED UNREALIZED
INVESTMENT GAIN GAIN DIVIDEND/
QUARTERLY PERIOD INCOME (LOSS) (LOSS) DISTRIBUTION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
February 28, 1991 $ 0.29 $ 0.01 $ 0.12 $(0.30)
May 31, 1991 0.32 0.02 0.16 (0.30)
August 31, 1991 0.30 (0.06) 0.26 (0.30)
November 30, 1991 0.33 (0.18) 0.28 (0.20)
February 29, 1992 0.30 0.34 0.59 (0.34)
May 31, 1992 0.30 (0.35) 0.15 (0.30)
August 31, 1992 0.30 (0.19) 0.29 (0.30)
November 30, 1992 0.29 (0.27) 0.03 (0.29)
February 28, 1993 0.28 (0.11) 0.03 (0.29)
May 31, 1993 0.28 0.08 (0.19) (0.38)
August 31, 1993 0.25 0.07 0.16 (0.28)
November 30, 1993 0.26 (0.08) (0.17) (0.19)
February 28, 1994 0.26 (0.23) 0.14 (0.35)
May 31, 1994 0.29 (0.22) (0.35) (0.26)
August 31, 1994 0.29 (0.09) 0.03 (0.24)
November 30, 1994 0.23 (0.09) (0.28) (0.16)
February 28, 1995 0.23 (0.16) 0.42 (0.35)
May 31, 1995 0.23 0.18 0.37 (0.22)
August 31, 1995 0.23 0.18 (0.22) (0.22)
November 30, 1995 0.23 0.21 0.15 (0.21)
<CAPTION>
MARKET PRICE NAV
--------------- --------------- VOLUME
QUARTERLY PERIOD HIGH LOW HIGH LOW (000'S)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
February 28, 1991 $ 11 $ 95/8 $10.91 $10.70 3,040
May 31, 1991 111/4 101/8 11.12 10.86 4,287
August 31, 1991 115/8 103/4 11.32 11.06 2,469
November 30, 1991 12 113/8 11.50 11.29 2,674
February 29, 1992 12 11 11.46 10.94 4,012
May 31, 1992 121/4 111/8 11.07 10.86 2,843
August 31, 1992 121/8 111/8 11.12 10.91 3,539
November 30, 1992 117/8 113/8 11.15 10.76 2,120
February 28, 1993 12 11 10.89 10.77 2,104
May 31, 1993 12 103/4 10.69 10.56 2,349
August 31, 1993 117/8 101/2 10.86 10.62 4,997
November 30, 1993 11 97/8 10.81 10.60 3,673
February 28, 1994 107/8 10 10.66 10.48 2,591
May 31, 1994 105/8 9 10.36 9.85 1,898
August 31, 1994 91/4 81/2 9.98 9.87 2,249
November 30, 1994 87/8 75/8 9.81 9.53 2,879
February 28, 1995 87/8 8 9.70 9.40 2,405
May 31, 1995 9 81/2 10.18 9.69 1,565
August 31, 1995 93/8 83/8 10.37 10.04 2,129
November 30, 1995 91/8 85/8 10.61 10.23 1,698
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022
FOR GENERAL INFORMATION ABOUT THE FUND:
(800) HYPERION
SUB-ADVISER
PACHOLDER ASSOCIATES, INC.
Towers of Kenwood
8044 Montgomery Road
Suite 382
Cincinnati, Ohio 45236
ADMINISTRATOR
PRINCETON ADMINISTRATORS, L.P.
P.O. Box 9011
Princeton, New Jersey 08543
(800) 543-6217
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02116
TRANSFER AGENT
BOSTON FINANCIAL DATA SERVICES, INC.
2 Heritage Drive
North Quincy, Massachusetts 02171
FOR SHAREHOLDER SERVICES:
(800) 426-5523
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
Two World Financial Center
New York, New York 10281
LEGAL COUNSEL
GIBSON, DUNN & CRUTCHER
1050 Connecticut Avenue, N.W.
Washington D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Fund may purchase its shares of
beneficial interest in the open market at prevailing market prices.
20
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DIVIDEND REINVESTMENT PLAN
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A Dividend Reinvestment Plan (the 'Plan') is available to shareholders of
the Fund pursuant to which they may elect to have all distributions of dividends
and capital gains automatically reinvested by State Street Bank and Trust
Company (the 'Plan Agent') in additional Fund 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 Fund's Custodian, as
Dividend Disbursing Agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Fund declares a dividend or determines to make a capital gain
distribution, payable in cash, if (1) the market price is lower than net asset
value, the participants in the Plan will receive the equivalent in Fund shares
valued at the market price determined as of the time of purchase (generally, the
payment date of the dividend or distribution); or if (2) the market price of the
shares on the payment date of the dividend or distribution is equal to or
exceeds their net asset value, participants will be issued Fund shares at the
higher of net asset value or 95% of the market price. This discount reflects
savings in underwriting and other costs that the Fund otherwise will be required
to incur to raise additional capital. If net asset value exceeds the market
price of the Fund shares on the payment date or the Fund declares a dividend or
other distribution payable only in cash (i.e., if the Board of Directors
precludes reinvestment in Fund shares for that purpose), the Plan Agent will, as
agent for the participants, receive the cash payment and use it to buy Fund
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 exceeds the net asset value of the Fund's shares, the average
per share purchase price paid by the Plan Agent may exceed the net asset value
of the Fund's shares, resulting in the acquisition of fewer shares than if the
dividend or distribution had been paid in shares issued by the Fund. The Fund
will not issue shares under the Plan below net asset value.
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 Fund, 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.
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 Fund. There are no brokerage commissions charged
with respect to shares issued directly by the Fund. 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.
A brochure describing the Plan is available from the Plan Agent, State
Street Bank and Trust Company, by calling 1-800-426-5523.
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DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
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.
22
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ANNUAL REPORT
NOVEMBER 30, 1995
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OFFICERS & DIRECTORS
- ------------------------------------------------------
Lewis S. Ranieri
Chairman
Rodman L. Drake*
Director
Garth Marston*
Director
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Kenneth C. Weiss
Director & Senior Vice President
Patricia A. Sloan
Director & Secretary
Clifford E. Lai
President
Louis C. Lucido
Senior Vice President
John N. Dunlevy
Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
- ------------------------------------------------------
HYPERION
Capital Management, Inc.
------------------------------------------------------
This Report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
THE HYPERION TOTAL RETURN FUND, INC.
520 Madison Avenue
New York, NY 10022
