<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: January 22, 1997
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, 1996. The Fund's shares are traded on the New York Stock Exchange ('NYSE')
under the symbol 'HTR'.
DESCRIPTION OF THE FUND
The Fund is a diversified closed-end investment company. The Fund's investment
objective is to attempt to provide shareholders with 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. The Fund pursues this
objective by investing and actively managing a portfolio consisting primarily of
U.S. Treasury, mortgage-backed, asset-backed and high-yield corporate
securities.
MARKET ENVIRONMENT
The fixed income market continues to be volatile in reaction to short-term
changes in economic activity. In September, the market began a decline in
interest rates which resulted in a 100 basis point decrease, only to increase by
50 basis points in December. The cause of the volatility in interest rates is
the large variable swings in quarter to quarter economic activity. Economic
growth, recorded at 4.7% in the second quarter, fell to 2.1% in the third
quarter, only to rebound back to a projected 4.0% in the fourth quarter. The
market's perception of the correlation of economic growth and its impact on
inflation and monetary policy is the primary cause of the large swings in
interest rates.
Over the long-term, we foresee a stable to lower interest rate environment in
the fixed income securities market. Our outlook includes continued improvements
in fiscal policy in reducing the budget deficit, favorable demographic trends
that should lead to increased savings and a reduction in economic activity, and
favorable global inflationary trends especially in Europe where monetary union
should keep inflation in check. The fixed income market should do reasonably
well under the slow economic growth and low inflation conditions we
see ahead.
PORTFOLIO PERFORMANCE AND STRATEGY
Hyperion Capital Management, Inc., (the 'Advisor') has been innovative in
security selections in order to provide investors with the best optimal risk
return profile. Since our last report we have reduced our exposure to sectors of
the fixed income market that we feel are subject to prepayment pressures such as
Planned Amortization Class Interest Only Securities, home-equity asset-backed
securities and non-agency sequential Collateralized Mortgage Obligations. In
recent months we have seen increasing relative value opportunities in some newer
sectors of the market which include emerging market debt and credit sensitive
asset-backed securities. The Advisor is active in both the domestic and
international asset-backed securities markets and will begin a pilot program to
invest up to 3.5% of the portfolio in Brady Bonds subject to final authorization
by the Fund's Board of Directors. Such investments are currently permitted by
the Fund's investment guidelines and restrictions. Brady Bonds represent a
portion of the country specific collateralized debt of
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
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some emerging market countries. These bonds are structured using emerging market
export cash flows and have principal defeased with U.S. Treasury zero coupon
bonds. Our allocation to newer, more favorable sectors of the fixed income
markets early in their development has allowed us to provide investors with a
high monthly dividend while still maintaining a high weighted average credit
quality.
The performance of HTR continues to be comparable or better than similar
closed-end fixed income Funds. The Fund's total return for the six and twelve
month periods ending November 30, 1996 were 11.17% and 9.73%, respectively.
Total investment return is computed based upon the change in Net Asset Value of
the Fund's shares and includes reinvestment of dividends. The current monthly
dividend the Fund pays its shareholders is $0.0750 per share. The current yield
of 9.60% on shares of the Fund is based on the NYSE closing price of $9.375 on
November 29, 1996. This yield was 355 basis points above the yield on the
10-Year Treasury Note which was competitive when compared to other
multisector-bond funds in its category. The current average duration (duration
measures a bond portfolio's price sensitivity to interest-rate changes) of the
Fund is approximately 5.7 years.
The chart that follows shows the allocation of the Fund's holdings by asset
category on November 30, 1996.
2
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1996*
[PASTE UP PIE CHART]
U.S. Treasury Obligations 28.0%
Asset-Backed Securities 22.7%
Subordinated Collateralized Mortgage Obligations 18.5%
U.S. Government Agency Collateralized Mortgage Obligations 10.6%
Commercial Collateralized Mortgage Obligations 10.4%
U.S. Government Agency Pass-Through Certificates 5.6%
Corporate Obligations 4.1%
Repurchase Agreement 0.1%
*As a percentage of total investments.
CONCLUSION
Hyperion Capital Management as the Fund's Advisor commits to its shareholders to
continue to actively seek out significant investment opportunities, and act on
them in a timely fashion. 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 achieves its
objectives. We appreciate the opportunity to serve your investment needs and we
thank you for your continued support.
Sincerely,
CLIFFORD E. LAI
President,
The Hyperion Total Return Fund, Inc.
Managing Director and Chief Investment Officer,
Hyperion Capital Management, Inc.
KENNETH C. WEISS
Director & Senior Vice President,
The Hyperion Total Return Fund, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
JOHN N. DUNLEVY
Vice President,
The Hyperion Total Return Fund, Inc.
Director,
Hyperion Capital Management, Inc.
3
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
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U.S. GOVERNMENT & AGENCY OBLIGATIONS--62.4%
U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES--7.9%
Federal National Mortgage
Association
7.04% 07/01/06 $ 6,978 $ 7,207,974
7.17 09/01/06 6,097 6,342,019
8.00 10/01/26 6,940 7,133,184
------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES
(Cost - $20,204,472) 20,683,177
------------
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)--15.0%
Federal Home Loan Mortgage
Corporation
Series 1643, Class PH,
PAC 5.75 07/15/23 12,000@ 11,411,250
Series 1839, Class A,
PAC 6.50 07/15/17 12,526@ 12,622,183
Series 1659, Class SD 8.50+ 01/15/09 2,234 2,194,639
Series 1565, Class L 9.00+ 08/15/08 2,066 2,095,382
Series 1469, Class I 9.01+ 03/15/00 2,184 2,240,939
Series 1587, Class SF 9.29+ 05/15/08 928 941,485
------------
31,505,878
------------
Federal National Mortgage
Association
Series 1994-12, Class SD 8.75+ 01/25/09 849 842,280
Series 1993-160, Class
SD 8.90+ 09/25/23 2,269 2,144,487
Series 1993-170, Class
SC 9.00+ 09/25/08 4,612 4,695,338
------------
7,682,105
------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(REMICS)
(Cost - $38,445,551) 39,187,983
------------
U.S. TREASURY OBLIGATIONS--39.5%
U.S. Treasury Notes 6.13 03/31/98 10,000@ 10,076,562
6.25 04/30/01 10,000@ 10,156,250
6.25 10/31/01 6,500 6,600,548
6.50 08/31/01 21,000@ 21,538,125
6.50 10/15/06 6,000@ 6,180,000
6.88 05/15/06 5,000@ 5,271,875
7.00 07/15/06 10,000@ 10,634,375
7.75 01/31/00 15,000@ 15,846,090
7.88 11/15/04 15,000@ 16,710,937
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost - $99,395,739) 103,014,762
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $158,045,762) 162,885,922
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4
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
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ASSET-BACKED SECURITIES--32.0%
Aegis Auto Receivables
Trust
Series 1996-3, Class C 11.10% 03/20/02 $ 2,200(a) $ 2,197,938
Series 1996-2, Class C 11.65 01/20/02 974(a) 981,895
Series 1996-1, Class C 12.14 10/20/01 1,649(a) 1,668,739
------------
4,848,572
------------
Associates Manufactured
Housing Pass-Through
Certificates
Series 1996-2, Class
B1 7.20 06/15/27 2,000 2,004,063
------------
Autobond Receivables
Trust
Series 1996-A, Class B 15.00 01/15/02 1,647(a) 1,647,265
Series 1996-B, Class B 15.00 04/15/02 1,813(a) 1,813,216
------------
3,460,481
------------
Bankers Trust Company
Mortgage Investors
Trust
Series 1996-S1, Class
E 10.25 12/01/06 3,000(a) 2,949,375
------------
Contimortgage Home
Equity Loan Trust
Series 1996-4, Class
A9 6.88 01/25/28 3,500 3,510,938
------------
Financial Asset
Securities
Corporation, Inc.
Series 1996-1, Class B 10.00 11/15/01 3,109(a) 3,099,691
Series 1996-A, Class C 11.91 09/10/01 1,343(b) 1,354,903
Series 1995-A, Class D 30.00 12/10/00 2,324(b) 1,929,121
------------
6,383,715
------------
Franchise Loan
Receivables Trust
Series 1995-B, Class A 9.63 01/25/11 5,336(a) 5,872,432
Series 1995-B, Class C 9.63 01/25/11 4,207(a) 3,841,517
------------
9,713,949
------------
Green Tree Financial
Corporation
Series 1995-7, Class
B1 7.35 11/15/26 4,000 4,034,375
------------
Health Care Receivables
Securitization Program
Series 1996-1, Class A 7.20 07/01/00 4,000(a) 4,092,500
------------
Health & Tennis Master
Trust
Series 1995-1 9.73 01/15/01 5,000(a) 5,150,000
------------
Imexsa Export
Trust-Senior
Structured Export
Certificates
Series 1996-1 10.13 05/31/03 8,000 8,421,840
------------
Mexican United States
Floating Rate Notes 7.56+ 08/06/01 3,250(a) 3,257,150
------------
Santista Export
Securitization I
Limited
Securitized Export
Notes 8.09 11/30/06 1,000(a) 1,003,410
------------
Sears Credit Agreement
Master Trust
Series 1996-3, Class A 7.00 07/15/08 5,000 5,185,156
------------
5
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
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Standard Credit Card
Master Trust
Series 1995-1, Class A 8.25% 01/07/07 $ 5,000 $ 5,530,469
----------
Sterling Jewelers
Series 1995-1, Class B 8.02 11/02/04 7,880(a) 7,875,075
----------
The Money Store Home
Equity Trust
Series 1996-A, Class
A7 7.36 03/15/24 6,000 6,091,875
----------
TOTAL ASSET-BACKED SECURITIES
(Cost - $82,723,232) 83,512,943
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)--40.8%
COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS--14.7%
Bellaire Finance, Inc.
Series 1995-1, Class E 12.74 02/01/08 4,516(a) 4,707,509
----------
DLJ Mortgage Acceptance
Corporation
Series 1995-CF2, Class
S2, IO 1.64+ 12/17/27 48,300(a) 4,686,609
Series 1996-CF1, Class
A1B 7.58 03/13/28 3,000(a) 3,126,093
----------
7,812,702
----------
Lennar Central Partners
Limited Partnership
Series 1994-1, Class D 9.89 09/15/04 4,000(a) 4,066,250
----------
Lennar U.S. Partners
Limited Partnership
Series 1995-1, Class E 9.75 05/15/05 3,500(a) 3,589,687
----------
Nomura Asset Securities
Corporation
Series 1994-MD1, Class
A3X, IO 0.40 03/15/18 41,049 801,738
----------
Paine Webber Mortgage
Acceptance Corporation
Series 1995-M2, Class
C 6.90 12/01/03 5,000(a) 5,013,281
----------
Resolution Trust Company
Series 1992-C8, Class
B 8.84 12/25/23 5,000 5,254,687
Series 1994-N2, Class
N4 10.00 12/15/04 5,000(a) 5,000,000
Series 1994-N2, Class
5A 10.63 12/15/04 2,000(a) 2,000,000
----------
12,254,687
----------
TOTAL COMMERCIAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $37,879,701) 38,245,854
----------
SUBORDINATED COLLATERALIZED MORTGAGE
OBLIGATIONS--26.1%
Banco Hipotecario
Nacional--I Mortgage
Fund
Series 1996-1, Class
A2 7.36 12/25/01 821(a) 820,615
----------
Citibank, N.A.
Series 1986-S, Class 1 9.00 12/25/16 6,442 6,486,366
Series 1987-A, Class 1 9.00 01/25/17 10,315 10,179,873
Series 1986-P, Class 1 9.50 10/25/16 5,517 5,788,937
----------
22,455,176
----------
Continental Savings of
America Finance
Corporation
Series 1992-1, Class
1C 9.61 09/01/19 1,053 579,260
----------
6
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
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COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) (CONTINUED)
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS--26.1%
(CONTINUED)
Countrywide Funding
Corporation
Series 1994-2, Class
B2 6.50% 02/25/09 $ 657 $ 249,730
Series 1993-6, Class
B2 6.63 12/25/08 273(a) 103,819
----------
353,549
----------
DLJ Mortgage Acceptance
Corporation
Series 1995-T10, Class
C 19.16+ 09/02/23 3,257(b) 2,443,624
----------
Fleet Finance Home
Equity Trust
Series 1991-1, Class
G, I/O-ette 542.01+ 07/25/21 10(b) 50,000
----------
GE Capital Mortgage
Services, Inc.
Series 1994-2, Class
B5 6.00 01/25/09 909(a) 272,629
Series 1994-10, Class
M 6.50 03/25/24 5,827 5,495,659
Series 1994-17, Class
B3 7.00 05/25/24 1,988(a) 1,533,115
Series 1994-18, Class
B5 7.00 08/25/24 1,347(a) 282,810
Series 1996-2, Class
B3 7.00 02/25/26 997(a) 766,543
Series 1996-3, Class
B3 7.00 03/25/26 1,866(a) 1,412,271
Series 1995-7, Class
B3 7.50 09/25/25 2,971(a) 2,360,525
Series 1996-9, Class
B5 7.50 06/25/26 1,353(a) 338,357
----------
12,461,909
----------
Independent National
Mortgage Corporation
Series 1995-Q, Class
B1 7.50 11/25/25 2,978 2,940,646
----------
PNC Mortgage Securities
Corporation
Series 1996-1, Class
B5 7.50 06/25/26 657(a) 385,567
----------
Prudential Home Mortgage
Securities Co., Inc.
Series 1996-5, Class
B4 7.25 04/25/26 1,382(a) 795,739
Series 1996-5, Class
B1 7.25 04/25/26 3,455 3,357,923
Series 1996-5, Class
B5 7.25 04/25/26 1,382(a) 331,666
Series 1996-A, Class
B1 7.96+ 05/28/26 6,000(a) 4,239,375
----------
8,724,703
----------
Residential Accredit
Loans, Inc.
Series 1996-QS3, Class
B1 7.75 06/25/26 1,804 1,386,501
----------
Residential Asset
Securitization Trust
Series 1996-A2, Class
B3 7.50 06/25/26 1,842 1,758,229
----------
Residential Funding
Mortgage Securities,
Inc.
Series 1993-S49, Class
B2 6.00 12/25/08 271 196,699
Series 1996-S5, Class
B1 6.75 02/25/11 580 502,749
Series 1996-S8, Class
B1 6.75 03/25/11 556 481,114
Series 1996-S13, Class
B3 7.00 05/25/11 387 131,274
Series 1996-S13, Class
B2 7.00 05/25/11 386 287,912
Series 1994-S13, Class
M1 7.00 05/25/24 3,891 3,816,422
Series 1995-S12, Class
B2 7.25 08/25/10 345 261,403
Series 1996-S17, Class
B2 7.25 07/25/11 299 215,453
Series 1996-S17, Class
B3 7.25 07/25/11 299 106,315
Series 1996-S4, Class
M2 7.25 02/25/26 2,110 2,049,616
7
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
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COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS) (CONCLUDED)
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS--26.1%
(CONCLUDED)
Series 1995-J1, Class
3 7.57+% 06/28/23 $ 6,054(a) $4,061,803
Series 1996-S23, Class
B2 7.75 11/25/26 520 325,012
Series 1996-S23, Class
B1 7.75 11/25/26 699 573,999
Series 1996-S22, Class
B1 8.00 10/25/26 1,059 874,089
----------
13,883,860
----------
TOTAL SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $69,736,713) 68,243,639
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (REMICS)
(Cost - $107,616,414) 106,489,493
----------
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CORPORATE OBLIGATIONS--5.8%
AEROSPACE/SUBSYSTEMS/COMPONENTS--0.2%
Coltec Industries, Inc. 9.75 04/01/00 500 540,000
----------
ALUMINUM--0.2%
Easco Corporation 10.00 03/15/01 500 507,500
----------
BEVERAGES--0.2%
Cott Corporation 9.38 07/01/05 500 510,000
----------
BROADCASTING/CABLE TV--0.5%
Century Communications
Corporation 9.50 03/01/05 500 502,500
Lenfest Communications,
Inc. 8.38 11/01/05 500 482,500
Rogers Cablesystem, Ltd. 9.63 08/01/02 500 523,750
----------
1,508,750
----------
BROADCASTING/RADIO--0.2%
Infinity Broadcasting
Company 10.38 03/15/02 500 528,750
----------
BUILDING/CONTRACTING--0.2%
J. Ray McDermott, S.A. 9.38 07/15/06 500 525,000
----------
CHEMICALS--0.3%
Buckeye Cellulose
Corporation 8.50 12/15/05 500 493,750
ISP Holdings, Inc. 9.00 10/15/03 250(a) 253,750
----------
747,500
----------
CONTAINERS/GLASS--0.2%
Owens-Illinois, Inc. 11.00 12/01/03 500 553,125
----------
CONTAINERS/PAPER--0.2%
Stone Container
Corporation 10.75 10/01/02 500 520,000
----------
FOOD SERVING/RESTAURANTS--0.2%
Apple South, Inc. 9.75 06/01/06 500 497,500
----------
HEALTH CARE CENTERS--0.2%
Manor Care, Inc. 9.50 11/15/02 500 525,000
----------
HOTELS/MOTELS/INNS--0.3%
Boyd Gaming Corporation 9.25 10/01/03 250 243,750
Host Marriott Travel
Plaza 9.50 05/15/05 500 510,000
----------
753,750
----------
8
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
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CORPORATE OBLIGATIONS--5.8% (CONCLUDED)
HOUSEWARES--0.2%
Ekco Group, Inc. 9.25% 04/01/06 $ 500 $ 485,000
----------
INDUSTRIAL EQUIPMENT--0.1%
Idex Corporation 9.75 09/15/02 250 261,875
----------
INSURANCE--0.2%
Americo Life, Inc. 9.25 06/01/05 500 500,000
----------
MANUFACTURING/SPECIALTIES--0.3%
Mark IV Industries, Inc. 7.75 04/01/06 750 746,250
----------
METAL/OTHER FABRICATING--0.2%
Wolverine Tube, Inc. 10.13 09/01/02 500 526,250
----------
PUBLISHING--0.2%
K-III Communications
Corporation 8.50 02/01/06 500 487,500
----------
SERVICES--0.1%
Coinmach Corporation 11.75 11/15/05 250 268,750
----------
SHIPBUILDING--0.1%
Newport News
Shipbuilding, Inc. 8.63 12/01/06 250(a) 253,750
----------
STEEL/IRON/STEEL
MINI-MILL--0.4%
Northwestern Steel &
Wire Company 9.50 06/15/01 500 482,500
Ryerson Tull, Inc. 9.13 07/15/06 500 528,750
----------
1,011,250
----------
TELECOMMUNICATIONS--0.1%
Paging Network, Inc. 11.75 05/15/02 250 269,063
----------
TELECOMMUNICATIONS/MOBILE,
CELLULAR--0.1%
Rogers Cantel, Inc. 9.38 06/01/08 250 262,500
----------
TEXTILES/APPAREL MANUFACTURER--0.2%
Tultex Corporation 10.63 03/15/05 500 537,500
----------
TRANSPORTATION--0.3%
Moran Transportation
Company 11.75 07/15/04 250 268,125
Viking Star Shipping,
Inc. 9.63 07/15/03 500 515,000
----------
783,125
----------
UTILITIES/ELECTRIC--0.2%
California Energy
Corporation 9.88 06/30/03 500 525,000
----------
UTILITIES/ELECTRIC/OPERATING--0.2%
El Paso Electric Company 8.90 02/01/06 500 527,500
----------
TOTAL CORPORATE OBLIGATIONS
(Cost - $14,772,463) 15,162,188
----------
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9
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
November 30, 1996
<TABLE>
<CAPTION>
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT--0.1%
Dated 11/29/96, with State Street Bank and
Trust Company, 5.00%, due 12/2/96;
proceeds: $261,109; collateralized
by $265,000 U.S. Treasury Note 6.125%,
due 3/31/98, value: $269,663
(Cost - $261,000) 5.00 % 12/02/96 $ 261 $ 261,000
------------
TOTAL INVESTMENTS--141.1%
(Cost - $363,418,871) 368,311,546
LIABILITIES IN EXCESS OF OTHER ASSETS--(41.1%) (107,198,132)
------------
NET ASSETS--100.0% $261,113,414
------------
------------
</TABLE>
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REMIC Real Estate Mortgage Investment Conduit
PAC Planned Amortization Class
@ Portion of or entire principal amount delivered as collateral for
reverse repurchase agreements. (Note 6)
+ Variable Rate Security: Coupon rate is rate in effect at November 30,
1996
(a) Private Placement
(b) Not readily marketable
IO Interest Only
I/O-ette Interest-only security with nominal principal amount
- ---------------
See notes to financial statements.
10
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $363,418,871) (Note 2).............. $368,311,546
Receivable for investments sold and other receivables........... 9,013,015
Interest receivable............................................. 4,604,714
Prepaid expenses................................................ 16,381
------------
Total assets.......................................... 381,945,656
------------
LIABILITIES:
Bank overdraft.................................................. 10,087
Reverse repurchase agreements (Note 6).......................... 108,346,750
Payable for investments purchased............................... 11,957,144
Dividends payable............................................... 146,608
Investment advisory fee payable (Note 3)........................ 140,291
Interest payable (Note 6)....................................... 65,685
Administration fee payable (Note 3)............................. 43,166
Accrued expenses and other liabilities.......................... 122,511
------------
Total liabilities..................................... 120,832,242
------------
NET ASSETS (equivalent to $10.55 per share based on 24,761,615
shares outstanding)........................................... $261,113,414
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 5).................................. $ 247,616
Additional paid-in capital...................................... 276,223,947
Undistributed net investment income............................. 2,193,872
Accumulated net realized losses................................. (22,444,696)
Net unrealized appreciation..................................... 4,892,675
------------
Net assets applicable to capital stock outstanding.............. $261,113,414
------------
- ------------------
See notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 2):
Interest...................................................... $32,288,475
-----------
EXPENSES:
Investment advisory fee (Note 3).............................. 1,654,952
Administration fee (Note 3)................................... 509,215
Insurance..................................................... 157,859
Transfer agency............................................... 77,884
Custodian..................................................... 74,754
Audit and tax services........................................ 59,900
Legal......................................................... 21,830
Directors' fees and expenses.................................. 45,000
Reports to shareholders....................................... 91,401
Registration fees............................................. 32,340
Miscellaneous................................................. 18,970
-----------
Total operating expenses................................... 2,744,105
Interest expense (Note 6)............................. 5,967,949
-----------
Total expenses........................................ 8,712,054
-----------
Net investment income......................................... 23,576,421
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND FUTURES (Notes 2 and 4):
Net realized gains (losses) on:
Investment transactions....................................... 1,450,438
Futures transactions.......................................... (435,754)
-----------
1,014,684
-----------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... (4,284,363)
Futures transactions.......................................... 249,375
-----------
(4,034,988)
-----------
Net realized and unrealized losses on investments and futures... (3,020,304)
-----------
Net increase in net assets resulting from operations............ $20,556,117
-----------
-----------
- ------------------
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year For the Year
Ended Ended
November 30, November 30,
1996 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income........................ $ 23,576,421 $ 22,765,962
Net realized gains on investments and
futures................................... 1,014,684 9,876,509
Net change in unrealized appreciation
(depreciation) on investments and futures
transactions.............................. (4,034,988) 18,096,156
------------ ------------
Net increase in net assets resulting from
operations................................ 20,556,117 50,738,627
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
(Note 2):
Net investment income........................ (22,291,630) (24,681,139)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 5):
Cost of shares repurchased and retired....... (173,100) (243,325)
------------ ------------
Total increase (decrease) in net
assets............................. (1,908,613) 25,814,163
NET ASSETS:
Beginning of year.............................. 263,022,027 237,207,864
------------ ------------
End of year (including undistributed net
investment income of $2,193,872 and $909,081,
respectively)................................ $261,113,414 $263,022,027
------------ ------------
------------ ------------
- ---------------
See notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF CASH FLOWS
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding accretion of $2,146,858)..... $ 30,462,279
Interest expense paid..................................... (5,967,486)
Operating expenses paid................................... (2,758,282)
Sale of short-term portfolio investments, net............. 708,000
Purchase of long-term portfolio investments............... (843,063,763)
Proceeds from disposition of long-term portfolio
investments and principal paydowns..................... 830,875,666
Net cash used for futures transactions.................... (350,442)
---------------
Net cash provided by operating activities................. 9,905,972
---------------
Cash flows used for financing activities:
Cash used to repurchase and retire Trust shares........... (173,100)
Net cash provided by reverse repurchase agreements........ 12,554,750
Cash dividends paid....................................... (22,298,408)
---------------
Net cash used for financing activities.................... (9,916,758)
---------------
Net decrease in cash........................................ (10,786)
Cash at beginning of year................................... 699
---------------
Bank overdraft at end of year............................... $ (10,087)
---------------
---------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations........ $ 20,556,117
---------------
Decrease in investments................................... 5,603,845
Increase in net unrealized depreciation on investments.... 4,284,363
Increase in interest receivable........................... (207,562)
Increase in other assets.................................. (6,299,061)
Decrease in variation margin payable...................... (164,063)
Decrease in accrued expenses and other liabilities........ (13,867,667)
---------------
Total adjustments................................. (10,650,145)
---------------
Net cash provided by operating activities................... $ 9,905,972
---------------
---------------
- ------------------
See notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
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,
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........ $ 10.61 $ 9.56 $ 10.59 $ 10.87 $ 11.50
------------ ------------ ------------ ------------ ------------
Net investment income..................... 0.95 0.92 1.07 1.07 1.19
Net effect of shares repurchased.......... -- -- 0.01 -- --
Net realized and unrealized gains (losses)
on investments and futures
transactions............................ (0.11) 1.13 (1.10) (0.21) (0.59)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net asset value
from operations......................... 0.84 2.05 (0.02) 0.86 0.60
------------ ------------ ------------ ------------ ------------
Dividends to shareholders from net
investment income....................... (0.90) (1.00) (1.01) (1.14) (1.23)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year.............. $ 10.55 $ 10.61 $ 9.56 $ 10.59 $ 10.87
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market price, end of year................. $ 9.375 $ 9.00 $ 8.50 $ 10.375 $ 11.625
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN+.................. 14.97% 17.45% (7.93)% (0.89)% 10.31%
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTARY DATA:
Net assets, end of year (000s)............ $261,113 $263,022 $237,208 $263,801 $268,961
Total operating expenses.................. 1.08% 1.07% 1.09% 1.08% 1.04%
Interest expense.......................... 2.34% 2.24% 1.75% 1.50% 1.24%
Net investment income..................... 9.26% 9.18% 10.63% 9.95% 10.79%
Portfolio turnover rate................... 227% 320% 234% 395% 390%
</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, 1996
- --------------------------------------------------------------------------------
1. THE FUND:
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
management 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.
2. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Valuation of investments -- Where market quotations are readily available,
portfolio securities are valued based upon the current bid price. The 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 futures 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 adjust the portfolio for
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 futures contracts, interest
16
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
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 income is recorded as earned. Discounts on certain
securities are accreted using the effective yield to maturity method. 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 and amortizing
premiums on debt obligations. Cash, as used in the Statement of Cash Flows, is
the amount reported as 'Bank Overdraft' in the Statement of Assets and
Liabilities, and does not include short-term investments.
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 '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 Fund may be delayed or limited.
3. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS AND TRANSACTIONS WITH
AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Advisor. The
Advisor 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 Advisor 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 Advisor 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.
On August 4, 1989, the Fund entered into an Administration Agreement with
Princeton Administrators, L.P. ('Princeton'), an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. Princeton, as administrator, performed
administrative services necessary for the operation of the Fund, which included
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 providing the Fund with administrative office facilities. For
these services, the Fund paid to Princeton a monthly fee at an annual rate of
0.20% of the Fund's average weekly net assets.
On September 17, 1996, the Fund's Board of Directors authorized and directed the
Fund to terminate the Administration Agreement with Princeton and retain
Hyperion Capital Management, Inc. as the new administrator to the Fund.
On September 19, 1996, the Fund notified Princeton that it was terminating its
Administration Agreement with Princeton effective November 30, 1996. Hyperion
Capital Management, Inc., as new administrator to the Fund, has assumed all
responsibilities previously performed by Princeton. On that date, the Fund
entered into a new Administration Agreement with Hyperion Capital Management,
Inc. under the same terms and at the same annual rate, 0.20% of the
17
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
Fund's average weekly net assets, as the prior Administration Agreement with
Princeton.
Certain officers and/or directors of the Fund are officers and/or directors of
the Advisor.
4. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, U.S.
Government securities and reverse repurchase agreements, for the year ended
November 30, 1996 were $596,118,320 and $607,784,972, respectively. Purchases
and sales of U.S. Government securities, for the year ended November 30, 1996
were $233,081,635 and $216,528,037, respectively. For purposes of this footnote,
U.S. Government securities include U.S. Treasury, Federal Home Loan Mortgage
Corporation and Government National Mortgage Association securities.
As of November 30, 1996, unrealized appreciation for federal income tax purposes
aggregated $4,870,274, of which $8,660,895 related to appreciated securities and
$3,790,621 related to depreciated securities. The aggregate cost of investments
at November 30, 1996 for federal income tax purposes was $363,441,272. At
November 30, 1996, the Fund had a capital loss carryforward of $22,414,206, of
which $4,576,305 and $17,837,901 expire in 2000 and 2002, respectively. These
will be available to offset like amounts of any future taxable gains.
5. CAPITAL STOCK:
There are 50 million shares of $0.01 par value common stock authorized. Of the
24,761,615 shares outstanding at November 30, 1996, the Advisor 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, 1996, 216,700 shares have been
repurchased pursuant to this program at a cost of $1,838,964 and at an average
discount of 14.44% from its net asset value. For the year ending November 30,
1996, 20,000 shares were repurchased at a cost of $173,100 and at an average
discount of 15.59% from its net asset value. All shares repurchased will be
retired.
6. 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 use of the proceeds of the reverse repurchase agreement or the dollar
roll agreement may effectively be restricted pending such decision.
At November 30, 1996, the Fund had the following reverse repurchase agreements
outstanding:
MATURITY IN
ZERO TO 30 DAYS
---------------
Maturity Amount..................... $ 108,474,568
---------------
Market Value of Assets Sold Under
Agreements........................ $ 107,735,773
---------------
Weighted Average Interest Rate...... 5.42%
---------------
The average daily balance of reverse repurchase agreements outstanding during
the year ended November 30, 1996, was $111,560,927 at a weighted average
interest rate of 5.35%. The maximum amount of reverse repurchase agreements
outstanding at any time during the year, exclusive of reverse repurchase
agreement interest payable, was $131,654,250 as of April 8, 1996 which was
30.90% of total assets.
18
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
November 30, 1996
- --------------------------------------------------------------------------------
7. 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.
During the period, the Fund had segregated sufficient cash and/or securities to
cover any commitments under these contracts.
There were no open futures contracts at November 30, 1996.
There was no written option activity for the year ended November 30, 1996.
8. SUBSEQUENT EVENTS:
The Fund's Board of Directors declared the following regular monthly dividends:
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- --------- -------- --------
$0.075 12/16/96 12/26/96
$0.075 12/30/96 01/30/97
19
<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, 1996, 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, 1996 and 1995 and the financial highlights for each of the years in
the five-year period ended November 30, 1996. 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, 1996 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, 1996, 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 9, 1997
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (November
30, 1996) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that all distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. In addition, 19.7% 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 1996. 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 1997. Shareholders are advised to consult their own
tax advisers with respect to the tax consequences of their investment in the
Fund.
- --------------------------------------------------------------------------------
20
<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) (0.29) (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)
February 28, 1996 0.25 0.17 (0.38) (0.24)
May 31, 1996 0.25 (0.09) (0.40) (0.21)
August 31,1996 0.23 (0.12) 0.10 (0.23)
November 30, 1996 0.22 0.08 0.52 (0.22)
<CAPTION>
MARKET PRICE NAV
--------------- --------------- VOLUME
QUARTERLY PERIOD HIGH LOW HIGH LOW (000'S)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
February 28, 1991 $ 11 $ 9 5/8 $10.91 $10.70 3,040
May 31, 1991 111/4 10 1/8 11.12 10.86 4,287
August 31, 1991 115/8 10 3/4 11.32 11.06 2,469
November 30, 1991 12 11 3/8 11.50 11.29 2,674
February 29, 1992 12 11 11.46 10.94 4,012
May 31, 1992 121/4 11 1/8 11.07 10.86 2,843
August 31, 1992 121/8 11 1/8 11.12 10.91 3,539
November 30, 1992 117/8 11 3/8 11.15 10.76 2,120
February 28, 1993 12 11 10.89 10.77 2,104
May 31, 1993 12 10 3/4 10.69 10.56 2,349
August 31, 1993 117/8 10 1/2 10.86 10.62 4,997
November 30, 1993 11 9 7/8 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 8 1/2 9.98 9.87 2,249
November 30, 1994 87/8 7 5/8 9.81 9.53 2,879
February 28, 1995 87/8 8 9.70 9.40 2,405
May 31, 1995 9 8 1/2 10.18 9.69 1,565
August 31, 1995 93/8 8 3/8 10.37 10.04 2,129
November 30, 1995 91/8 8 5/8 10.61 10.23 1,698
February 28, 1996 95/8 9 10.78 10.41 2,217
May 31, 1996 91/4 8 3/8 10.45 9.99 2,068
August 31,1996 91/4 8 1/4 10.26 9.83 2,190
November 30, 1996 91/2 8 7/8 10.55 10.01 1,334
</TABLE>
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INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
520 Madison Avenue
New York, New York 10022-4213
FOR GENERAL INFORMATION ABOUT THE FUND:
(800) HYPERION
SUB-ADVISOR
PACHOLDER ASSOCIATES, INC.
Towers of Kenwood
8044 Montgomery Road
Suite 382
Cincinnati, Ohio 45236
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02116
TRANSFER AGENT
BOSTON EQUISERVE L.P.
Investor Relations Department
P.O. Box 8200
Boston, Massachusetts 02266-8200
FOR SHAREHOLDER SERVICES:
(800) 426-5523
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
Two World Financial Center
New York, New York 10281-1438
LEGAL COUNSEL
GIBSON DUNN & CRUTCHER LLP
1050 Connecticut Avenue, N.W.
Washington D.C. 20036-5303
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.
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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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OFFICERS & DIRECTORS
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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
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HYPERION
Capital Management, Inc.
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This Report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
THE HYPERION TOTAL RETURN FUND, INC.
520 Madison Avenue
New York, NY 10022
ANNUAL REPORT
NOVEMBER 30, 1996
