<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: July 21, 1997
We welcome this opportunity to provide you with information about The Hyperion
Total Return Fund, Inc. (the 'Fund') for its semi-annual period ended May 31,
1997 and to share our outlook for the rest of the Fund's fiscal year. 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 economic growth in the second quarter has slowed from the torrid first
quarter pace, leaving intact expectations for low inflation and a steady Federal
Reserve interest-rate policy in the third and fourth quarters of 1997.
Over the long term, our outlook for the fixed income market continues to include
lower interest rates. Positive fundamentals, such as a reduction in fiscal
spending, a decline in global inflationary pressures, increasing productivity,
technological advancements and higher savings and investment rates due to the
aging of the 'baby boomer' segment of the population are major factors that
should result in a decline in interest rates. The fixed income markets usually
do reasonably well under these conditions.
PORTFOLIO STRATEGY AND PERFORMANCE
Hyperion Capital Management, Inc., the Fund's investment advisor, took steps,
primarily in the latter half of last year, to guard against increases in
prepayment risk associated with our mortgage-backed securities holdings.
Prepayment risk in the mortgage market typically increases whenever the overall
level of interest rates declines and homeowners can refinance their mortgage
loans at lower rates. We have accomplished this prepayment protection by
downsizing some of our more prepayment sensitive portfolio areas (i.e., agency
pass-throughs and callable agency debentures) and replacing them with bonds less
sensitive to prepayment risk (e.g., U.S. Treasury Obligations, call-protected
asset-backed securities and planned amortization classes of agency
collateralized mortgage obligations).
Over the last few months, interest rate volatility has been very low.
Consequently, portfolio managers who try to anticipate the direction of interest
rates have been unable to significantly improve their investment returns through
the use of this strategy. As a result, more investors are buying higher yielding
bonds as a way to outperform their benchmarks. This trend has, in general, led
to a compression in yield spreads for many sectors of the market. We have seen
this tightening or improving price action in many sectors of our traditional
market niches (i.e., subordinated collateralized mortgage obligations,
commercial mortgage-backed securities, asset-backed securities and high-yield
corporates).
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
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One total return strategy which we have employed in this environment is to move
up in credit quality. That is, we have sold much of our lower-rated bonds in
favor of higher credit-rated securities. This strategy was employed because we
felt that the risk premium or additional yield offered in the market did not
adequately compensate us for taking additional credit risk and to permanently
capture in the Fund's Net Asset Value ('NAV'), some of the spread compression
that we discussed above. For example, as of May 31, 1997, the percentage of
high-yield Corporate Obligations within the portfolio was 4.0%. This level
represents our smallest allocation to this sector during the last five years.
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 month period
ending May 31, 1997 was 1.45%. Total investment return is computed based upon
the change in NAV of the Fund's shares and includes reinvestment of dividends.
The monthly dividend on the Fund was reduced from $0.0750 per share to $0.0700
on July 11, 1997. This reduction was due to the overall decline in market
yields, the improvement in portfolio credit quality discussed above and the
increased cost of leverage. We believe that the strategy to improve credit
quality will benefit shareholders in the long run. At the new dividend rate, HTR
currently has a yield of 8.45% based on the NYSE closing price of $9.9375 on
July 10, 1997. This yield is 220 basis points over the yield on the 10-year
U.S. Treasury Note.
The Fund, inclusive of leverage, is currently managed with an average duration
(duration measures a bond portfolio's price sensitivity to interest rate
changes) of approximately 5.8 years.
The chart that follows shows the allocation of the Fund's holdings by asset
category on May 31, 1997.
2
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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 MAY 31, 1997*
U.S. Government Agency Pass-Through Certificates 2.6%
U.S. Government Agency Collateralized Mortgage Obligations 35.5%
U.S. Treasury Obligations 9.1%
Asset-Backed Securities 21.9%
Commercial Collateralized Mortgage Obligations 7.6%
Subordinated Collateralized Mortgage Obligations 14.5%
Whole Loan Collateralized Mortgage Obligations 4.4%
Corporate Obligations 4.0%
Repurchase Agreement 0.4%
*As a percentage of total investments.
CONCLUSION
The Fund commits to its shareholders to continue to actively seek out the
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
<PAGE>
<TABLE>
<CAPTION>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
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<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS--66.6%
U.S. GOVERNMENT AGENCY
PASS-THROUGH CERTIFICATES
--3.6%
Federal Home Loan Mortgage
Corporation
8.00% 12/01/26 $ 8,832@ $ 9,021,949
------------
TOTAL U.S. GOVERNMENT AGENCY
PASS-THROUGH CERTIFICATES
(Cost - $9,067,482) 9,021,949
------------
U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS
(REMICS)--50.2%
Federal Home Loan Mortgage
Corporation
Series 1643, Class PH,
PAC 5.75 07/15/23 12,000@ 11,034,375
Series 1701, Class C 6.50 03/15/09 5,884@ 5,496,256
Series 1701, Class PH,
PAC 6.50 03/15/09 10,000@ 9,654,687
Series 1675, Class KC 6.50 10/15/10 5,750 5,484,961
Series 1839, Class A,
PAC 6.50 07/15/17 11,858@ 11,772,709
Series 1659, Class SD 8.50+ 01/15/09 2,234 2,179,278
Series 1565, Class L 9.00+ 08/15/08 2,066 2,083,439
Series 1587, Class SK 9.00+ 10/15/08 1,857 1,874,031
Series 1469, Class I 9.15+ 03/15/00 2,184 2,177,478
Series 1587, Class SF 9.29+ 05/15/08 928 939,164
------------
52,696,378
------------
Federal National Mortgage
Association
Series 1993-175, Class
PT, PAC 6.00 11/25/07 13,000@ 12,547,031
Series 1996-21, Class
PJ, PAC 6.00 12/25/10 7,428 6,872,851
Series 1994-42, Class
PG, PAC 6.00 03/25/23 10,000@ 9,350,000
Series 1997-1, Class B 6.50 02/18/04 15,000@ 14,606,250
Series 1994-27, Class PM 6.50 11/25/10 7,760 7,397,463
Series 1996-45, Class K 7.00 09/25/21 2,700 2,576,812
Series 1990-128, Class
J, PAC 8.50 10/25/20 5,000 5,294,531
Series 1994-12, Class SD 8.75+ 01/25/09 849 837,240
Series 1993-170, Class
SC 9.00+ 09/25/08 4,612 4,667,956
Series 1993-48, Class C 9.50 04/25/08 9,023 9,641,998
------------
73,792,132
------------
TOTAL U.S. GOVERNMENT
AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(REMICS)
(Cost - $126,898,627) 126,488,510
------------
U.S. TREASURY OBLIGATIONS--
12.8%
U.S. Treasury Notes 6.13 03/31/98 10,000@ 10,021,875
6.25 02/28/02 11,500@ 11,372,422
6.50 08/31/01 11,000@ 10,998,281
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost - $32,441,354) 32,392,578
------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost - $168,407,463) 167,903,037
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</TABLE>
4
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<TABLE>
<CAPTION>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES--
31.0%
Aegis Auto Receivables
Trust
Series 1996-3, Class C 11.10% 03/20/02 $ 1,839(a) $ 1,195,028
Series 1996-2, Class C 11.65 01/20/02 859(a) 558,163
Series 1996-1, Class C 12.14 10/20/01 1,508(a) 980,043
------------
2,733,234
------------
Autobond Receivables
Trust
Series 1996-A, Class B 15.00 01/15/02 1,512(a) 1,511,946
Series 1996-B, Class B 15.00 04/15/02 1,618(a) 1,617,873
------------
3,129,819
------------
Compania De Desarollo
Aeropuerto
Senior Secured Notes 10.19 05/31/11 1,000(a) 1,081,871
------------
CST Export Master Trust
Series 1997-1 8.22 03/01/04 5,000(a) 5,017,188
------------
Financial Asset Securities
Corporation Auto Trust
Series 1996-1, Class B 10.00 11/15/01 2,587(a) 2,556,671
------------
Financial Asset
Securities Corporation
Series 1996-A, Class C 11.91 09/10/01 1,287(a)(b) 514,747
Series 1995-A, Class D 30.00 12/10/00 2,324(a)(b) 1,510,757
------------
2,025,504
------------
Franchise Loan
Receivables Trust
Series 1995-B, Class C 9.63 01/15/11 5,141(a) 5,477,432
------------
GE Capital Mortgage
Services, Inc.
Series 1997-HE1, Class
B1 7.50 03/25/27 3,934 3,846,453
------------
Green Tree Financial
Corporation
Series 1995-7, Class
B1 7.35 11/15/26 4,000 4,000,625
Series 1997-3, Class
B1 7.51 07/15/28 4,000 4,000,625
------------
8,001,250
------------
Green Tree Home
Improvement Loan Trust
Series 1997-A, Class
HEA6 7.16 03/15/28 5,000 5,010,938
Series 1996-F, Class
HIB1 7.25 11/15/27 500 493,203
Series 1996-F, Class
HIM1 7.30 11/15/27 1,500 1,478,438
------------
6,982,579
------------
Health & Tennis Master
Trust
Series 1996-1, Class
A-1 8.43 08/15/02 2,500(a) 2,456,250
------------
Health Care Receivables
Securitization Program
Series 1996-1, Class A 7.20 07/01/00 4,000(a) 4,021,250
------------
Imexsa Export
Trust-Senior
Structured Export
Certificates
Series 1996-1 10.13 05/31/03 4,000(a) 4,208,750
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES--
31.0% (CONCLUDED)
Mego Mortgage Home Loan
Owner Trust
Series 1997-1, Class
A4 7.33% 03/25/23 $ 5,000 $ 4,926,563
------------
Mexican United States
Floating Rate Notes 7.88+ 08/06/01 2,750(a) 2,770,625
------------
Santista Export
Securitization I
Limited
Securitized Export
Notes 8.09 11/30/06 1,000(a) 990,657
------------
Sears Credit Agreement
Master Trust
Series 1996-3, Class A 7.00 07/15/08 5,000 5,022,656
------------
Standard Credit Card
Master Trust
Series 1995-1, Class B 8.45 01/07/07 5,600 5,992,875
------------
Sterling Jewelers
Receivables Master
Trust
Series 1995-1, Class B 8.02 11/02/04 4,000(a) 3,928,750
------------
Structured Mortgage
Asset Residential
Trust
Series 1997-2, Class A 8.24 03/15/06 2,935 2,930,868
------------
TOTAL ASSET-BACKED
SECURITIES
(Cost - $81,083,073) 78,101,245
------------
- ------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)--37.3%
WHOLE LOAN COLLATERALIZED
MORTGAGE OBLIGATIONS--6.2%
Citibank, N.A.
Series 1987-A, Class 1 9.00 01/25/17 9,477 9,308,063
------------
Prudential Home Mortgage
Securities Co., Inc.
Series 1993-5, Class
A8 8.28+ 03/25/00 4,382 4,342,863
------------
Residential Asset
Securitization Trust
Series 1997-A1, Class
A8 7.38 03/25/27 2,000 1,949,688
------------
TOTAL WHOLE LOAN COLLATE-
RALIZED MORTGAGE OBLIGATIONS
(Cost - $15,415,679) 15,600,614
------------
COMMERCIAL COLLATERALIZED
MORTGAGE OBLIGATIONS
--10.6%
Asset Securitization
Corporation
Series 1997-MD7, Class
A3 7.84 01/13/30 1,000 1,023,750
------------
Bankers Trust Company
Mortgage Investors Trust
Series 1996-S1, Class
E 10.25 12/01/06 3,000(a) 3,000,938
------------
DLJ Mortgage Acceptance
Corporation
Series 1995-CF2, Class
S2, IO 1.64+ 12/17/27 48,300(a) 4,694,156
------------
First Chicago/Lennar
Trust I
Series 1997-CHL1,
Class D 8.11 05/29/08 3,000(a) 2,812,500
------------
Fleet Finance Home
Equity Trust
Series 1991-1, Class
G, I/O-ette 499.40+ 07/25/21 10(b) 50,000
------------
Lennar Central Partners
Limited Partnership
Series 1994-1, Class D 9.89 09/15/04 2,321(a) 2,324,995
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)--
37.3% (CONTINUED)
COMMERCIAL COLLATERALIZED
MORTGAGE OBLIGATIONS--
10.6% (CONCLUDED)
Paine Webber Mortgage
Acceptance Corporation
Series 1995-M2, Class
C 6.90% 12/01/03 $ 5,000(a) $ 4,929,688
------------
Potomac Gurnee Finance
Corporation
Series 1, Class A 6.89 12/21/26 5,967(a) 5,878,103
------------
Resolution Trust Company
Series 1994-N2, Class
N4 10.00 12/15/04 443(a) 443,365
Series 1994-N2, Class
5A 10.63 12/15/04 2,000(a) 2,000,000
------------
2,443,365
------------
TOTAL COMMERCIAL
COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost - $30,104,348) 27,157,495
------------
SUBORDINATED COLLATERALIZED
MORTGAGE OBLIGATIONS
--20.5%
Banco Hipotecario
Nacional--
I Mortgage Fund
Series 1996-1, Class
A2 7.36 09/25/01 658(a) 655,912
------------
Banco Hipotecario
Nacional--II
Mortgage Trust
Series 1997-1, Class
A1 7.14+ 03/25/11 1,984(a) 1,984,257
------------
Chase Mortgage Finance
Corporation
Series 1994-D, Class
B3 6.75 02/25/25 720 591,196
------------
CitiCorp Mortgage
Securities, Inc.
Series 1993-12, Class
B3 6.50 10/25/23 902(a) 708,644
------------
Countrywide Funding
Corporation
Series 1994-2, Class
B2 6.50 02/25/09 641 243,487
------------
DLJ Mortgage Acceptance
Corporation
Series 1995-T10, Class
C 22.55+ 09/02/23 2,526(a)(b) 1,898,524
------------
GE Capital Mortgage
Services, Inc.
Series 1994-2, Class
B5 6.00 01/25/09 887(a) 265,993
Series 1994-10, Class
M 6.50 03/25/24 5,787 5,286,706
Series 1995-10, Class
B3 7.00 10/25/10 704 629,535
Series 1994-17, Class
B3 7.00 05/25/24 1,974(a) 1,642,579
Series 1996-3, Class
B3 7.00 03/25/26 1,857(a) 1,531,362
Series 1995-7, Class
B3 7.50 09/25/25 2,957(a) 2,536,607
Series 1996-9, Class
B5 7.50 06/25/26 1,348(a) 337,113
Series 1996-HE3, Class
B4 8.25 09/25/26 583(a) 382,067
Series 1996-HE3, Class
B5 8.25 09/25/26 744(a) 174,754
------------
12,786,716
------------
Independent National
Mortgage Corporation
Series 1995-Q, Class
B1 7.50 11/25/25 2,952 2,864,494
------------
Paine Webber Mortgage
Acceptance Corporation
Series 1993-9, Class
B1 7.00 10/25/23 2,952 2,281,797
------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)--
37.3% (CONCLUDED)
SUBORDINATED COLLATERALIZED
MORTGAGE OBLIGATIONS--
20.5% (CONCLUDED)
Prudential Home Mortgage
Securities Co., Inc.
Series 1996-5, Class
B1 7.25% 04/25/26 $ 3,439 $ 3,267,942
Series 1996-5, Class
B4 7.25 04/25/26 1,376(a) 914,854
Series 1996-5, Class
B5 7.25 04/25/26 1,376(a) 330,155
Series 1993-E, Class
B4 7.39+ 07/28/23 3,001(a) 2,663,936
Series 1996-A, Class
B1 7.96+ 05/28/26 3,113(a) 2,708,310
------------
9,885,197
------------
Residential Asset
Securitization Trust
Series 1996-A2, Class
B3 7.50 06/25/26 1,830 1,756,367
Series 1997-A2, Class
B1 7.75 04/25/27 2,442 2,436,881
------------
4,193,248
------------
Residential Funding
Mortgage Securities I,
Inc.
Series 1993-S49, Class
B2 6.00 12/25/08 263 196,177
Series 1996-S5, Class
B1 6.75 02/25/11 570 499,479
Series 1996-S8, Class
B1 6.75 03/25/11 546 478,275
Series 1996-S13, Class
B2 7.00 05/25/11 386 290,348
Series 1996-S13, Class
B3 7.00 05/25/11 379 128,872
Series 1994-S13, Class
M1 7.00 05/25/24 3,872 3,692,207
Series 1995-S12, Class
B2 7.25 08/25/10 337 261,801
Series 1996-S17, Class
B2 7.25 07/25/11 299 226,585
Series 1996-S17, Class
B3 7.25 07/25/11 299 104,585
Series 1996-S4, Class
M2 7.25 02/25/26 2,102 2,001,503
Series 1997-S2, Class
B2 7.50 01/25/27 846 575,967
Series 1997-S2, Class
M2 7.50 01/25/27 1,794 1,735,498
Series 1997-S3, Class
B2 7.50 02/25/27 515 349,788
Series 1997-S7, Class
B1 7.50 05/25/27 1,187 1,038,702
Series 1996-S23, Class
B1 7.75 11/25/26 696 606,409
Series 1996-S23, Class
B2 7.75 11/25/26 518 360,167
Series 1996-S22, Class
B1 8.00 10/25/26 1,055 934,497
------------
13,480,860
------------
TOTAL SUBORDINATED
COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost - $50,239,180) 51,574,332
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (REMICS)
(Cost - $95,759,207) 94,332,441
------------
- ---------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--5.7%
AUTOMOTIVE--0.2%
Western Star Truck
Holdings 8.75 05/01/07 500(a) 511,250
------------
BEVERAGES--0.2%
Cott Corporation 9.38 07/01/05 500 515,000
------------
BUILDING &
DEVELOPMENT--0.2%
J. Ray McDermott, S.A. 9.38 07/15/06 500 505,000
------------
BUILDING PRODUCTS--0.1%
Building Materials
Corporation 8.63 12/15/06 250(a) 250,000
------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--
5.7% (CONTINUED)
BUSINESS EQUIPMENT &
SERVICES--0.1%
Muzak L.P./Muzak Capital
Corporation 10.00% 10/01/03 $ 250 $ 257,500
------------
CABLE TELEVISION--0.4%
Century Communications
Corporation 9.50 03/01/05 500 506,250
Rogers Cablesystem, Ltd. 9.63 08/01/02 500 520,000
------------
1,026,250
------------
CHEMICALS/PLASTICS--0.3%
Buckeye Cellulose
Corporation 8.50 12/15/05 500 495,000
ISP Holdings, Inc. 9.00 10/15/03 250(a) 256,250
------------
751,250
------------
CLOTHING/TEXTILES--0.2%
Tultex Corporation 10.63 03/15/05 500 545,625
------------
ELECTRONICS/ELECTRIC--0.5%
Mark IV Industries, Inc. 7.75 04/01/06 750 727,500
Tracor, Inc. 8.50 03/01/07 500(a) 505,000
------------
1,232,500
------------
EQUIPMENT LEASING--0.1%
Coinmach Corporation 11.75 11/15/05 250 275,000
------------
FOOD/DRUG RETAILERS--0.1%
Quality Food Centers,
Inc. 8.70 03/15/07 250(a) 250,000
------------
FOOD SERVICE--0.4%
Apple South, Inc. 9.75 06/01/06 500 513,125
Host Marriott Travel
Plaza 9.50 05/15/05 500 521,875
------------
1,035,000
------------
HEALTHCARE--0.2%
Manor Care, Inc. 9.50 11/15/02 500 523,125
------------
HOME FURNISHINGS--0.2%
Ekco Group, Inc. 9.25 04/01/06 500 501,250
------------
HOTELS/MOTELS/INNS AND
CASINOS--0.1%
Boyd Gaming Corporation 9.25 10/01/03 250 247,500
------------
INDUSTRIAL EQUIPMENT--0.1%
Idex Corporation 9.75 09/15/02 250 261,250
------------
INSURANCE--0.2%
Americo Life, Inc. 9.25 06/01/05 500 506,250
------------
NONFERROUS
METALS/MINERALS--0.1%
Easco Corporation 10.00 03/15/01 250 252,500
------------
OIL & GAS--0.2%
Pogo Producing Company 8.75 05/15/07 500(a) 498,750
------------
PUBLISHING--0.2%
K-III Communications
Corporation 8.50 02/01/06 500 493,750
------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
May 31, 1997 (unaudited)
Principal Market
Current Amount Value
Coupon Maturity (000s) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--5.7%
(CONCLUDED)
RETAILERS (OTHER THAN
FOOD/DRUG)--0.2%
Proffitt's, Inc. 8.13% 05/15/04 $ 500(a) $ 497,500
------------
STEEL--0.2%
Ryerson Tull, Inc. 9.13 07/15/06 500 523,750
------------
SURFACE TRANSPORT--0.4%
Moran Transportation
Company 11.75 07/15/04 250 273,125
Newport News
Shipbuilding, Inc. 8.63 12/01/06 250(a) 255,000
Viking Star Shipping,
Inc. 9.63 07/15/03 500 517,500
------------
1,045,625
------------
TELECOMMUNICATIONS/MOBILE,
CELLULAR--0.3%
Centennial Cellular
Corporation 8.88 11/01/01 500 496,250
Rogers Cantel, Inc. 9.38 06/01/08 250 260,000
------------
756,250
------------
UTILITIES/ELECTRIC--0.5%
California Energy
Company, Inc. 9.88 06/30/03 500 532,500
El Paso Electric Company 8.90 02/01/06 500 525,000
------------
1,057,500
------------
TOTAL CORPORATE OBLIGATIONS
(Cost - $14,017,001) 14,319,375
------------
- ---------------------------------------------------------------------------------
REPURCHASE AGREEMENT--0.6%
Dated 05/30/97, with State
Street Bank and
Trust Company, 5.15%,
due 06/02/97;
proceeds: $1,469,630;
collateralized by
$1,235,000 U.S. Treasury
Note 9.00%,
due 11/15/18, value:
$1,501,023
(Cost - $1,469,000) 1,469 1,469,000
------------
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS--141.2%
(Cost - $360,735,744) $356,125,098
LIABILITIES IN EXCESS OF
OTHER ASSETS--(41.2%) (103,847,993)
------------
NET ASSETS--100.0% $252,277,105
------------
------------
- ---------------------------------------------------------------------------------
</TABLE>
@ Portion of or entire principal amount delivered as collateral for
reverse repurchase agreements. (Note 5)
REMIC Real Estate Mortgage Investment Conduit
PAC Planned Amortization Class
+ Variable Rate Security: Coupon rate is rate in effect at May 31, 1997
(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>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $360,735,744) (Note 2).............. $356,125,098
Cash............................................................ 427
Interest receivable............................................. 3,820,033
Principal paydowns receivable................................... 617,368
Prepaid expenses................................................ 105,162
------------
Total assets.......................................... 360,668,088
------------
LIABILITIES:
Reverse repurchase agreements (Note 5).......................... 106,952,125
Payable for investments purchased............................... 1,031,308
Interest payable (Note 5)....................................... 158,898
Investment advisory fee payable (Note 3)........................ 138,742
Accrued expenses and other liabilities.......................... 67,220
Administration fee payable (Note 3)............................. 42,690
------------
Total liabilities..................................... 108,390,983
------------
NET ASSETS (equivalent to $10.21 per share based on 24,716,615
shares outstanding)........................................... $252,277,105
------------
------------
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6).................................. $ 247,166
Additional paid-in capital...................................... 275,806,797
Undistributed net investment income............................. 473,437
Accumulated net realized losses................................. (19,639,649)
Net unrealized depreciation..................................... (4,610,646)
------------
Net assets applicable to capital stock outstanding.............. $252,277,105
------------
------------
- ------------------
See notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2):
Interest...................................................... $13,827,024
-----------
EXPENSES:
Investment advisory fee (Note 3).............................. 822,925
Administration fee (Note 3)................................... 253,208
Insurance..................................................... 78,243
Reports to shareholders....................................... 44,765
Custodian..................................................... 38,923
Transfer agency............................................... 32,357
Audit and tax services........................................ 27,400
Directors' fees and expenses.................................. 22,863
Registration fees............................................. 16,175
Legal......................................................... 4,806
Miscellaneous................................................. 6,558
-----------
Total operating expenses................................... 1,348,223
Interest expense (Note 5)............................. 3,060,448
-----------
Total expenses............................................. 4,408,671
-----------
Net investment income......................................... 9,418,353
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENT
AND FUTURES TRANSACTIONS (Notes 2 and 4):
Net realized gain (loss) on:
Investment transactions....................................... 2,874,095
Futures transactions.......................................... (69,048)
-----------
2,805,047
-----------
Net change in unrealized depreciation on investments............ (9,503,321)
-----------
Net realized and unrealized loss on investment and futures
transactions.................................................. (6,698,274)
-----------
Net increase in net assets resulting from operations............ $ 2,720,079
-----------
-----------
- ------------------
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the Year
Months Ended Ended
May 31, 1997 November 30,
(unaudited) 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income........................ $ 9,418,353 $ 23,576,421
Net realized gain on investment and futures
transactions.............................. 2,805,047 1,014,684
Net change in unrealized depreciation on
investment and futures transactions....... (9,503,321) (4,034,988)
------------ ------------
Net increase in net assets resulting from
operations................................ 2,720,079 20,556,117
------------ ------------
DIVIDENDS TO SHAREHOLDERS (Note 2):
Net investment income........................ (11,138,788) (22,291,630)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Fund shares repurchased and
retired................................... (417,600) (173,100)
------------ ------------
Total decrease in net assets......... (8,836,309) (1,908,613)
NET ASSETS:
Beginning of period.......................... 261,113,414 263,022,027
------------ ------------
End of period (including undistributed net
investment income of $473,437 and
$2,193,872, respectively)................. $252,277,105 $261,113,414
------------ ------------
------------ ------------
- ---------------
See notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding net amortization of
$295,505).............................................. $ 15,509,497
Interest expense paid..................................... (2,967,235)
Operating expenses paid................................... (1,494,320)
Purchase of short-term portfolio investments, net......... (1,208,000)
Purchase of long-term portfolio investments............... (288,004,301)
Proceeds from disposition of long-term portfolio
investments and principal paydowns..................... 291,341,542
Net cash used for futures transactions.................... (69,048)
-------------
Net cash provided by operating activities................. 13,108,135
-------------
Cash flows used for financing activities:
Cash used to repurchase and retire Fund shares............ (417,600)
Net cash used for reverse repurchase agreements........... (1,394,625)
Cash dividends paid....................................... (11,285,396)
-------------
Net cash used for financing activities.................... (13,097,621)
-------------
Net increase in cash........................................ 10,514
Bank overdraft at beginning of period....................... (10,087)
-------------
Cash at end of period....................................... $ 427
-------------
-------------
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........ $ 2,720,079
-------------
Decrease in investments................................... 2,683,127
Increase in net unrealized depreciation on investments.... 9,503,321
Decrease in interest receivable........................... 784,681
Decrease in other assets.................................. 8,306,866
Decrease in accrued expenses and other liabilities........ (10,889,939)
-------------
Total adjustments................................. 10,388,056
-------------
Net cash provided by operating activities................... $ 13,108,135
-------------
-------------
- ------------------
See notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For the Six For the Year For the Year For the Year For the Year
Months Ended Ended Ended Ended Ended
May 31, 1997 November 30, November 30, November 30, November 30,
(unaudited) 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 10.55 $ 10.61 $ 9.56 $ 10.59 $ 10.87
------------- ------------ ------------ ------------ ------------
Net investment income...................... 0.38 0.95 0.92 1.07 1.07
Net effect of shares repurchased........... -- -- -- 0.01 --
Net realized and unrealized gains (losses)
on investment and futures transactions... (0.27) (0.11) 1.13 (1.10) (0.21)
------------- ------------ ------------ ------------ ------------
Net increase (decrease) in net asset value
resulting from operations................ 0.11 0.84 2.05 (0.02) 0.86
------------- ------------ ------------ ------------ ------------
Dividends from net investment income....... (0.45) (0.90) (1.00) (1.01) (1.14)
------------- ------------ ------------ ------------ ------------
Net asset value, end of period............. $ 10.21 $ 10.55 $ 10.61 $ 9.56 $ 10.59
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
Market price, end of period................ $ 9.63 $ 9.375 $ 9.00 $ 8.50 $ 10.375
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN+................... 7.63% 14.97% 17.45% (7.93)% (0.89)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY
DATA:
Net assets, end of period (000s)........... $ 252,277 $261,113 $263,022 $237,208 $263,801
Total operating expenses................... 1.06%* 1.08% 1.07% 1.09% 1.08%
Interest expense........................... 2.42%* 2.34% 2.24% 1.75% 1.50%
Net investment income...................... 7.44%* 9.26% 9.18% 10.63% 9.95%
Portfolio turnover rate.................... 76% 227% 320% 234% 395%
</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.
* Annualized
See notes to financial statements.
15
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
1. THE FUND:
The Hyperion Total Return Fund, Inc. (the 'Fund'), which was incorporated under
the laws of the State of Maryland on May 26, 1989, is registered under the
Investment Company Act of 1940 (the '1940 Act') as a diversified, closed-end
management investment company. The Fund had no transactions until July 20, 1989,
when it sold 8,334 shares of common stock for $100,008 to Hyperion Capital
Management, Inc. (the 'Advisor').
The Fund's investment objective 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, Fund
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 -- The Fund may write or purchase options as a
method of hedging potential declines in similar underlying securities. When the
Fund writes or purchases an option, an 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 whether the Fund has realized a gain or a
loss on the investment transaction.
The Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
The 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, to the extent of the premium paid, that it will
expire without being exercised. If this occurs, the option expires worthless and
the premium paid for the option is recognized as a loss. The risk associated
with writing call options is that the 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 call 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 -- A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by 'marking-to-market' on a daily basis to reflect the market value of
the contract
16
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
at the end of each day's trading. Variation margin payments are made or
received, depending upon whether unrealized gains or losses are incurred. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract.
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 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.
Securities Transactions and Investment Income --
Securities transactions are recorded on the trade date. Realized gains and
losses from securities transactions are calculated on the identified cost basis.
Interest income is recorded on the accrual basis. Discounts and premiums on
certain securities are accreted and amortized using the effective yield to
maturity method.
Taxes -- It is the Fund's intention to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders. Therefore, no
federal income or excise tax provision is required.
Dividends and Distributions -- The 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. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences, which
could be temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
Cash Flow Information -- The 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. Cash, as used in the
Statement of Cash Flows, is the amount reported as 'Cash' in the Statement of
Assets and Liabilities, and does not include short-term investments.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value and accreting discounts and amortizing
premiums on debt obligations.
Repurchase Agreements -- The 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. 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.
For the six months ended May 31, 1997, the Advisor earned $822,925 in Investment
Advisory Fees.
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. For the six months ended May 31, 1997, Pacholder earned $25,149 in
Sub-Advisory Fees.
The Fund has entered into an Administration Agreement with Hyperion Capital
Management, Inc. (the 'Administrator'). 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
17
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
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 to the Administrator a monthly fee at an annual rate of 0.20% of
the Fund's average weekly net assets. For the six months ended May 31, 1997, the
Administrator earned $253,208 in Administration Fees.
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 six months
ended May 31, 1997 were $203,722,119 and $160,733,543, respectively. Purchases
and sales of U.S. Government securities, for the six months ended May 31, 1997
were $73,356,345 and $109,591,121, respectively. For purposes of this footnote,
U.S. Government securities include securities issued by the U.S. Treasury,
Federal Home Loan Mortgage Corporation and Government National Mortgage
Association.
The federal income tax basis of the Fund's investments at May 31, 1997 was
$360,735,744 and, accordingly, net unrealized depreciation for federal income
tax purposes was $4,610,646 (gross unrealized appreciation -- $3,024,675; gross
unrealized depreciation -- $7,635,321). At tax year end November 30, 1996, the
Fund had a capital loss carryforward of approximately $22,414,206, of which
$4,576,305 and $17,837,901 expire in 2000 and 2002, respectively, available to
offset any future capital gains.
5. BORROWINGS:
The Fund may enter into reverse repurchase agreements with the same parties with
whom it may enter into repurchase agreements. Under a reverse repurchase
agreement , the Fund sells securities and agrees to repurchase them at a
mutually agreed upon date and price. Under the 1940 Act, reverse repurchase
agreements will be regarded as a form of borrowing by the Fund unless, at the
time it enters into a reverse repurchase agreement, it establishes and maintains
a segregated account with its custodian containing securities from its portfolio
having a value not less than the repurchase price (including accrued interest).
The Fund has established and maintained such an account for each of its reverse
repurchase agreements. Reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale by the 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 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 may effectively be restricted
pending such decision.
At May 31, 1997, the Fund had the following reverse repurchase agreements
outstanding:
MATURITY IN
ZERO TO 30 DAYS
---------------
Maturity Amount..................... $ 107,209,163
---------------
Market Value of Assets Sold Under
Agreements........................ $ 109,272,861
---------------
Weighted Average Interest Rate...... 5.56%
---------------
The average daily balance of reverse repurchase agreements outstanding during
the six months ended May 31, 1997, was approximately $112,371,690 at a weighted
average interest rate of 5.46%. The maximum amount of reverse repurchase
agreements outstanding at any time during the six months was $120,040,250, as of
December 17, 1996, which was 31.02% of total assets.
6. CAPITAL STOCK:
There are 50 million shares of $0.01 par value common stock authorized. Of the
24,716,615 shares outstanding at May 31, 1997, the Advisor owned 8,334 shares.
The Fund is continuing its stock repurchase program, whereby an amount of up to
15% of the original 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 May 31, 1997, 261,700 shares have been repurchased pursuant to this
program at a cost of $2,256,564 and at an average discount of 13.36% from its
net asset value. For the six months ended May 31, 1997, 45,000 shares have been
repurchased at a cost of $417,600 and at an average discount of 8.14% from its
net asset value. All shares repurchased have been retired.
18
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
May 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
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 May 31, 1997.
There was no written option activity for the six months ended May 31, 1997.
8. SUBSEQUENT EVENTS:
The Fund's Board of Directors declared the following regular monthly dividends:
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
--------- -------- --------
$0.075 06/16/97 06/26/97
$0.070 07/21/97 07/31/97
19
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six months ended May 31, 1997, The Hyperion Total Return Fund, Inc.
shareholders voted on the following proposals at a shareholders meeting on April
22, 1997. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the members to the Fund's
Board of Directors: Garth Marston 22,813,725 341,398
Kenneth C. Weiss 22,879,079 276,044
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as
the Fund's independent auditors: 22,667,011 147,492 340,620
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
PER SHARE
-------------------------------------------------
NET REALIZED UNREALIZED
INVESTMENT GAIN GAIN DIVIDEND/
QUARTERLY PERIOD INCOME (LOSS) (LOSS) DISTRIBUTION
- ----------------------------------------------------------------------------
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)
February 28, 1997 0.18 0.09 (0.27) (0.23)
May 31, 1997 0.20 0.02 (0.11) (0.22)
MARKET PRICE NAV
----------------- --------------- VOLUME
QUARTERLY PERIOD HIGH LOW HIGH LOW (000'S)
- ----------------------------------------------------------------------------
February 28, 1991 $ 11 $ 9 5/8 $10.91 $10.70 3,040
May 31, 1991 11 1/4 10 1/8 11.12 10.86 4,287
August 31, 1991 11 5/8 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 12 1/4 11 1/8 11.07 10.86 2,843
August 31, 1992 12 1/8 11 1/8 11.12 10.91 3,539
November 30, 1992 11 7/8 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 11 7/8 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 10 7/8 10 10.66 10.48 2,591
May 31, 1994 10 5/8 9 10.36 9.85 1,898
August 31, 1994 9 1/4 8 1/2 9.98 9.87 2,249
November 30, 1994 8 7/8 7 5/8 9.81 9.53 2,879
February 28, 1995 8 7/8 8 9.70 9.40 2,405
May 31, 1995 9 8 1/2 10.18 9.69 1,565
August 31, 1995 9 3/8 8 3/8 10.37 10.04 2,129
November 30, 1995 9 1/8 8 5/8 10.61 10.23 1,698
February 28, 1996 9 5/8 9 10.78 10.41 2,217
May 31, 1996 9 1/4 8 3/8 10.45 9.99 2,068
August 31,1996 9 1/4 8 1/4 10.26 9.83 2,190
November 30, 1996 9 1/2 8 7/8 10.55 10.01 1,334
February 28, 1997 9 5/8 9 10.52 10.25 1,664
May 31, 1997 9 3/4 9 1/8 10.31 10.03 1,819
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
One Liberty Plaza
165 Broadway, 36th Floor
New York, New York 10006-1404
FOR GENERAL INFORMATION ABOUT THE 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., 9th Floor
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.
21
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
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.
22
<PAGE>
- --------------------------------------------------------------------------------
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.
23
<PAGE>
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Lewis S. Ranieri
Chairman
Rodman L. Drake*
Director
Garth Marston*
Director
Leo M. Walsh, Jr.*
Director
SEMI-ANNUAL REPORT
Harry E. Petersen, Jr.*
Director MAY 31, 1997
Kenneth C. Weiss
Director & Senior Vice President
Patricia A. Sloan
Director & Secretary
Clifford E. Lai
President
John N. Dunlevy
Vice President
Patricia A. Botta
Vice President
Joseph W. Sullivan
Treasurer
* Audit Committee Members
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
The accompanying financial statements as of May 31, 1997 were not audited and,
accordingly, no opinion is expressed on them.
This Report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
THE HYPERION TOTAL RETURN FUND, INC.
One Liberty Plaza
165 Broadway, 36th Floor
New York, NY 10006-1404
