<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: January 9, 1998
We welcome this opportunity to present you with the annual report The Hyperion
Total Return Fund, Inc. (the 'Fund') for its fiscal year ended November 30,
1997. 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 markets had a mixed year ending November 30, 1997. On the one
hand, the strong economy and low level of unemployment kept the Federal Reserve
Board's monetary policy with a bias towards raising interest rates. On the other
hand, the low inflation environment where prices on most consumer goods
increased slightly above 2.0% caused interest rates on longer maturity assets to
fall relative to shorter maturity securities. The economic problems in Asia will
be the wild card going into 1998. The depth of Asia's problems will have global
implications that will impact monetary policy over the near term.
We are generally positive on interest rates and feel that there are a number of
fundamental factors that support a lower interest rate range than has been
experienced over the last few years. These factors include improving fiscal
policy, declining government deficits, and a low level of global inflation.
The decline in interest rates over the last few months has sent refinancing
applications on residential mortgages dramatically higher. We believe, however,
that because of the volume of refinancing that occurred in 1993, the refinancing
activity anticipated in 1998 will be lower than that of 1993.
PORTFOLIO STRATEGY AND PERFORMANCE
The impact of Asia's economic problems has helped spur a widening in yield
spreads for many sectors of the fixed income markets. Moreover, there exists a
higher degree of concern over credit quality in general and prepayment risk from
lower interest rates. We believe that this yield spread widening in certain
sectors represents an excellent opportunity to increase the Fund's exposure to
those sectors in securities with strong call protection. As a result of this,
the portfolio's allocation of high credit quality, prepayment protected
securities, such as well structured agency collateralized mortgage obligations
and subordinated mortgage-backed securities has increased. Some of these added
securities in the portfolio actually benefit from increased prepayment activity
and its associated positive effect on the credit outlook for the securities.
Accordingly, as these securities were added, the allocation to Treasuries and
MBS passthoughs were reduced.
The asset-backed securities ('ABS') sector of the market saw an unusually high
level of activity in 1997. Securitization of new asset
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR (CONTINUED)
- --------------------------------------------------------------------------------
categories presents opportunities for investors in two ways. With any new asset
classes, credit support tends to be higher per unit of credit. Also, investors
demand higher yields to give them incentive to invest in new classes of such
securities. As a result, stronger credit support and higher yields are often
attained with new securitizations. 1997 proved to be a record issuance year for
the asset-backed market. As a result, the ABS allocation of the portfolio has
increased 5% from November of 1996 to an allocation of 25% of the portfolio.
The allocation to high-yield corporates was increased over the summer of 1997.
As with many sectors of the fixed income market, high yield corporates became
more attractive as yield spreads on some competing securities became overpriced.
The corporate high yield portion of the portfolio at fiscal year end is 5.6%.
The Fund's total return for the six and twelve month periods ending November 30,
1997 were % and %, respectively. Total investment return is based upon
the change in Net Asset Value of the Trust's shares and includes reinvestment of
dividends. The current monthly dividend the Trust pays its shareholder is
$0.06250 per share. The current yield of 8.05% on shares of the Trust is based
on the NYSE closing price of $9.3125 on November 30, 1997. This yield was
218 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 Fund, inclusive of leverage, is currently managed with an average duration
(duration measures a bond portfolio's price sensitivity to interest rate
changes) of 5 years.
The chart that follows shows the allocation of the Fund's holdings by asset
category on November 30, 1997.
2
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
REPORT OF THE INVESTMENT ADVISOR (CONCLUDED)
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1997 *
[PIE CHART]
Subordinated Collateralized
Mortgage Obligations 12.9%
Corporate Obligations 0.9%
High-Yield Corporate Securities 5.4%
Planned Amortization Class
Interest-Only Securities 0.4%
Repurchase Agreement 0.3%
U.S. Government Agency
Pass-Through Certificates 3.3%
U.S. Government Agency
Collateralized Mortgage
Obligations 36.5%
U.S. Treasury Obligations 9.9%
Asset-Backed Securities 23.3%
Commercial Collateralized
Mortgage Obligations 7.1%
* As a percentage of total investments.
The Fund is managed by Clifford E. Lai, President of the Fund and Chief
Investment Officer of Hyperion Capital Management, Inc. ("HCM"), and John H.
Dolan, a Managing Director and Chief Investment Strategist of HCM. Mr. Lai has
participated in the management of the Fund since he joined HCM in March 1993.
From August 1989 to March 1993, Mr. Lai was a Managing Director and the Chief
Investment Strategist for fixed income at First Boston Asset Management. Mr.
Dolan has participated in the management of the Fund since he joined HCM in
January 1998. From June 1995 to December 1997, Mr. Dolan served as Managing
Director and ran the Active Bond Group in the Global Investment Management area
at Bankers Trust. Additionally, from April 1987 to May 1995, he was a Managing
Director at Salomon Brothers Inc, where he specialized in mortgage-backed
securities trading and new product development.
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>
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THE HYPERION TOTAL RETURN FUND, INC. Principal
PORTFOLIO OF INVESTMENTS Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS--67.0%
U.S. GOVERNMENT AGENCY PASS-
THROUGH CERTIFICATES--1.3%
Government National
Mortgage Association 8.50% 07/15/27 $ 3,327 $ 3,484,335
------------
TOTAL U.S. GOVERNMENT AGENCY
PASS-THROUGH CERTIFICATES
(Cost - $3,476,537) 3,484,335
------------
U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS--51.1%
Federal Home Loan Mortgage
Corporation
Series 1643, Class PH 5.75 07/15/23 12,000@ 11,532,492
Series 1701, Class C 6.50 03/15/09 5,884@ 5,844,924
Series 1701, Class PH 6.50 03/15/09 10,000@ 10,002,770
Series 1675, Class KC 6.50 10/15/10 5,750@ 5,730,899
Series 1844, Class E 6.50 10/15/13 2,305 2,223,044
Series 1659, Class SD 8.50+ 01/15/09 2,234 2,299,664
Series 1469, Class I 8.73+ 03/15/00 2,184 2,232,772
Series 1565, Class L 9.00+ 08/15/08 2,066 2,187,790
Series 1587, Class SK 9.00+ 10/15/08 1,857 1,997,951
Series 1604, Class MC 9.00+ 11/15/08 5,557 6,071,881
Series 1604, Class SB 9.00+ 11/15/08 1,084 1,157,740
Series 1606, Class SD 9.00+ 11/15/08 9,304 10,245,433
Series 1587, Class SF 9.29+ 05/15/08 928 991,089
------------
62,518,449
------------
Federal National Mortgage
Association
Series 1993-175, Class
PT 6.00 11/25/07 13,000@ 12,843,636
Series 1996-21, Class PJ 6.00 12/25/10 7,428@ 7,220,541
Series 1994-42, Class PG 6.00 03/25/23 10,000@ 9,781,290
Series 1997-1, Class B 6.50 02/18/04 15,000@ 15,042,187
Series 1994-27, Class PM 6.50 11/25/10 7,760@ 7,720,478
Series 1994-12, Class SD 8.75+ 01/25/09 849 887,360
Series 1993-170, Class
SC 9.00+ 09/25/08 4,612 4,887,579
Series 1993-48, Class C 9.50 04/25/08 8,159@ 8,725,618
Series 1993-174, Class
SE 11.00+ 09/25/08 2,861 3,296,765
------------
70,405,454
------------
TOTAL U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost - $128,995,806) 132,923,903
------------
U.S. GOVERNMENT STRIPPED
MORTGAGE-BACKED
SECURITY--0.5%
INTEREST-ONLY SECURITY:
Vendee Mortgage Trust
Series 1997-2, Class IO
(Cost - $1,369,253) 0.07 06/15/27 331,458 1,346,548
------------
U.S. TREASURY
OBLIGATIONS--14.1%
U.S. Treasury Notes 5.75 10/31/02 2,100 2,091,141
6.13 03/31/98 10,000@ 10,020,312
6.13 08/15/07 4,100 4,179,438
6.25 02/28/02 9,000@ 9,122,344
6.50 08/31/01 11,000@ 11,228,594
------------
</TABLE>
4
<PAGE>
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THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS Principal
(CONTINUED) Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost - $36,250,348) $ 36,641,829
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost - $170,091,944) 174,396,615
------------
- -------------------------------------------------------------------------------
ASSET-BACKED
SECURITIES--33.3%
Aegis Auto Receivables
Trust Series 1996-3,
Class C*
(b)**** 11.10 03/20/02 1,839(a) 1,011,178
Series 1996-2, Class C
(b)**** 11.65 01/20/02 859(a) 472,292
Series 1996-1, Class C
(b)**** 12.14 10/20/01 1,508(a) 829,267
------------
2,312,737
------------
Autobond Receivables Trust
Series 1996-A, Class B
(b) 15.00 01/15/02 1,257(a) 1,256,892
Series 1996-B, Class B
(b) 15.00 04/15/02 1,513(a) 1,512,641
------------
2,769,533
------------
Bosque Asset Corporation
Asset-Backed Notes* 7.66 06/05/02 1,797(a) 1,807,358
------------
California Infrastructure
Public Gas and Electric
Series 1997-1, Class A8 6.48 12/26/09 3,800 3,821,375
------------
CF/SPC Structured Mortgage
Asset Residential Trust
Series 1997-4, Class A 7.85 09/15/01 1,940 1,944,087
------------
Compania De Desarollo
Aeropuerto
Senior Secured Notes* 10.19 05/31/11 1,000(a) 1,109,630
------------
CST Export Master Trust
Series 1997-1 8.22 03/01/04 5,000(a) 5,065,625
------------
Financial Asset Securities
Corporation Auto Trust
Series 1996-1, Class B** 10.00 11/15/01 2,016(a) 2,005,607
------------
Financial Asset Securities
Corporation
Series 1996-A, Class C
(b)*** 11.91 09/10/01 1,287(a) 514,747
Series 1995-A, Class D
(b)**** 30.00 12/10/00 2,324(a) 1,278,333
------------
1,793,080
------------
Franchise Loan Receivables
Trust
Series 1995-B, Class A 9.63+ 01/15/11 4,940(a) 5,476,945
------------
GE Capital Mortgage
Services, Inc.
Series 1997-HE2, Class
A7 7.12 06/25/27 5,000 5,100,000
Series 1997-HE1, Class
B1 7.50 03/25/27 3,900 3,964,582
------------
9,064,582
------------
Green Tree Financial
Corporation
Series 1995-7, Class B1 7.35 11/15/26 4,000 4,090,625
Series 1997-3, Class B1 7.51 07/15/28 4,000 4,130,625
------------
8,221,250
------------
</TABLE>
5
<PAGE>
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS Principal
(CONTINUED) Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Green Tree Home
Improvement Loan Trust
Series 1997-A, Class
HEA6 7.16 03/15/28 5,000 $ 5,123,437
Series 1996-F, Class
HIM1 7.30 11/15/27 1,500 1,554,375
------------
6,677,812
------------
Health & Tennis Master Trust
Series 1996-1, Class A-1 8.43 08/15/02 2,500(a) 2,508,984
------------
Imexsa Export Trust-Senior
Structured Export
Certificates
Series 1996-1 10.13 05/31/03 4,000(a) 4,190,781
------------
Mego Mortgage Home Loan
Owner Trust Series 1997-3,
Class CTFS 8.01 08/25/23 5,754 5,892,086
------------
Parametric Re, Ltd.
Floating Rate Notes 10.21+ 11/15/25 500 501,250
------------
Residential Reinsurance
Limited
Series 1997-1, Class A2* 11.87+ 12/15/08 2,500(a) 2,567,969
------------
Santista Export
Securitization I Limited
Securitized Export
Notes* 8.09 11/30/06 1,000(a) 1,001,609
------------
Sears Credit Account
Master Trust
Series 1996-3, Class A 7.00 07/15/08 5,000 5,121,875
------------
Securitized Multiple Asset
Rated Trust
Series 1997-2 8.24 03/15/06 2,816 2,839,035
------------
Standard Credit Card
Master Trust
Series 1995-1, Class B 8.45 01/07/07 5,600 6,148,625
------------
Sterling Jewelers
Receivables Master Trust
Series 1995-1, Class B 8.02 11/02/04 4,000(a) 4,023,125
------------
TOTAL ASSET-BACKED
SECURITIES
(Cost - $88,909,369) 86,864,960
------------
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS--35.2%
WHOLE LOAN COLLATERALIZED
MORTGAGE OBLIGATIONS--4.9%
Citibank, N.A.
Series 1987-A, Class 1 9.00 01/25/17 8,293 8,251,221
------------
Prudential Home Mortgage
Securities Co., Inc.
Series 1993-5, Class A8 8.28+ 03/25/00 4,382 4,489,553
------------
TOTAL WHOLE LOAN
COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost - $12,347,577) 12,740,774
------------
COMMERCIAL COLLATERALIZED
MORTGAGE OBLIGATIONS--11.8%
Asset Securitization
Corporation
Series 1997-D5, Class
PS1, IO 1.37 02/14/41 46,000 4,973,750
Series 1997-D5, Class
A1B 6.66 02/14/41 10,000 10,093,750
------------
15,067,500
------------
Bankers Trust Company
Mortgage Investors Trust
Series 1996-S1, Class E 10.25 12/01/06 3,000(a) 3,054,375
------------
</TABLE>
6
<PAGE>
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN
FUND, INC.
PORTFOLIO OF INVESTMENTS Principal
(CONTINUED) Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
DLJ Mortgage Acceptance
Corporation
Series 1995-CF2, Class
S2, IO* 0.63 12/17/27 48,300(a) $ 4,633,781
------------
First Chicago/Lennar Trust I
Series 1997-CHL1, Class D 8.12+ 05/29/08 3,000(a) 2,994,375
------------
Paine Webber Mortgage
Acceptance Corporation
Series 1995-M2, Class C 6.90 12/01/03 5,000(a) 5,030,469
------------
TOTAL COMMERCIAL
COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost - $30,230,461) 30,780,500
------------
SUBORDINATED COLLATERALIZED
MORTGAGE OBLIGATIONS--18.5%
Banco Hipotecario
Nacional--I Mortgage
Fund
Series 1996-1, Class A2 7.36 09/25/01 459(a) 460,099
------------
Banco Hipotecario
Nacional--II Mortgage
Trust
Series 1997-1, Class A1 7.14+ 03/25/11 1,827(a) 1,826,709
------------
Chase Mortgage Finance
Corporation
Series 1994-D, Class B3 6.75 02/25/25 696 612,622
------------
Countrywide Funding
Corporation
Series 1994-2, Class B2
(c) 6.50 02/25/09 616 234,064
------------
DLJ Mortgage Acceptance
Corporation
Series 1995-T10, Class
C, IO 17.60 09/02/23 2,139(a) 1,497,639
------------
GE Capital Mortgage
Services, Inc.
Series 1994-2, Class B5*
(c) 6.00 01/25/09 790(a) 237,024
Series 1994-10, Class M 6.50 03/25/24 5,745 5,561,554
Series 1995-10, Class
B3* 7.00 10/25/10 685(a) 644,039
Series 1994-17, Class
B3* 7.00 05/25/24 1,959(a) 1,748,354
Series 1996-3, Class B3 7.00 03/25/26 1,845(a) 1,637,543
Series 1996-9, Class B5
(c) 7.50 06/25/26 1,305(a) 326,182
Series 1996-HE3, Class
B4* 8.25 09/25/26 576(a) 396,789
Series 1996-HE3, Class
B5* (c) 8.25 09/25/26 611(a) 143,584
------------
10,695,069
------------
Headlands Mortgage
Securities, Inc.
Series 1997-4, Class B4 7.25 11/25/27 1,543 1,413,399
------------
Independent National
Mortgage Corporation
Series 1995-V, Class B2 7.25 02/25/26 1,413 1,432,761
Series 1995-Q, Class B1 7.50 11/25/25 2,919 2,977,226
------------
4,409,987
------------
Paine Webber Mortgage
Acceptance Corporation
Series 1993-9, Class B1 7.00 10/25/23 2,952 2,440,466
------------
Prudential Home Mortgage
Securities Co., Inc.
Series 1996-5, Class B1 7.25 04/25/26 3,419 3,440,307
Series 1996-5, Class B4* 7.25 04/25/26 1,368(a) 977,044
Series 1996-5, Class B5
(c) 7.25 04/25/26 1,224(a) 293,786
------------
4,711,137
------------
Residential Asset
Securitization Trust
Series 1997-A2, Class B1 7.75 04/25/27 2,433 2,557,688
------------
</TABLE>
7
<PAGE>
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN
FUND, INC.
PORTFOLIO OF INVESTMENTS Principal
(CONTINUED) Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Residential Funding
Mortgage Securities I,
Inc.
Series 1993-S49, Class B2 6.00 12/25/08 253 $ 199,248
Series 1996-S5, Class B1 6.75 02/25/11 554 512,926
Series 1996-S8, Class B1 6.75 03/25/11 532 491,787
Series 1996-S13, Class B2 7.00 05/25/11 369 298,131
Series 1996-S13, Class B3(c) 7.00 05/25/11 369 125,379
Series 1994-S13, Class M1 7.00 05/25/24 3,841 3,845,537
Series 1995-S12, Class B2 7.25 08/25/10 328 268,776
Series 1996-S17, Class B2 7.25 07/25/11 287 233,607
Series 1996-S17, Class B3(c) 7.25 07/25/11 287 102,023
Series 1996-S4, Class M2 7.25 02/25/26 2,089 2,110,573
Series 1997-S2, Class B2 7.50 01/25/27 842 615,568
Series 1997-S2, Class M2 7.50 01/25/27 1,786 1,827,869
Series 1997-S3, Class B2 7.50 02/25/27 512 373,892
Series 1997-S7, Class B1 7.50 05/25/27 1,182 1,119,087
Series 1996-S23, Class B1 7.75 11/25/26 693 648,204
Series 1996-S23, Class B2 7.75 11/25/26 515 384,664
Series 1996-S22, Class B1 8.00 10/25/26 1,050 997,940
-----------
14,155,211
-----------
Salomon Brothers Mortgage
Securities VII
Series 1997-HUD2, Class B5 7.00 07/25/24 4,500 3,087,135
-----------
TOTAL SUBORDINATED
COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost - $44,851,752) 48,101,225
-----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(Cost - $87,429,790) 91,622,499
-----------
- --------------------------------------------------------------------------------
CORPORATE
OBLIGATIONS--9.2%
AEROSPACE AND
DEFENSE--0.2%
BE Aerospace, Inc. 9.75 03/01/03 500 522,500
-----------
AIR TRANSPORT--0.2%
Atlantic Coast Airlines* 8.75 01/01/07 500(a) 500,000
-----------
AUTOMOTIVE--0.2%
Western Star Truck
Holdings* 8.75 05/01/07 500(a) 513,750
-----------
BEVERAGE AND TOBACCO--0.2%
Cott Corporation 9.38 07/01/05 500 518,750
-----------
BUILDING &
DEVELOPMENT--0.2%
U.S. Home Corporation 8.25 08/15/04 500 503,750
-----------
BUILDING PRODUCTS--0.2%
Building Materials
Corporation of
America* 8.00 10/15/07 500(a) 491,250
-----------
BUSINESS EQUIPMENT &
SERVICES--0.1%
Muzak L.P./Muzak Capital
Corporation 10.00 10/01/03 250 265,000
-----------
</TABLE>
8
<PAGE>
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN
FUND, INC.
PORTFOLIO OF INVESTMENTS Principal
(CONTINUED) Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
CABLE TELEVISION--0.6%
Cablevision Systems
Corporation* 8.13 08/15/09 500(a) $ 508,750
Century Communications
Corporation 9.50 03/01/05 500 523,750
Rogers Cablesystem, Ltd. 9.63 08/01/02 500 527,500
----------
1,560,000
----------
CHEMICALS/PLASTICS--0.5%
Buckeye Cellulose
Corporation 8.50 12/15/05 500 507,500
ISP Holdings, Inc. 9.00 10/15/03 250 258,437
Sifco Canada, Inc. 8.50 07/15/00 500 506,250
----------
1,272,187
----------
CLOTHING/TEXTILES--0.3%
Dyersburg Corporation* 9.75 09/01/07 250(a) 257,500
Nine West Group, Inc.* 8.38 08/15/05 500(a) 488,750
----------
746,250
----------
DRUGS--0.1%
ICN Pharmaceuticals,
Inc.* 9.25 08/15/05 250(a) 260,625
----------
ELECTRONICS/ELECTRIC--0.7%
DII Group, Inc.* 8.50 09/15/07 500(a) 493,750
Mark IV Industries, Inc. 7.75 04/01/06 750 758,550
Tracor, Inc. 8.50 03/01/07 500 503,750
----------
1,756,050
----------
EQUIPMENT LEASING--0.1%
Coinmach Corporation 11.75 11/15/05 250 276,875
----------
FINANCIAL SERVICES--1.3%
ABN AMRO Bank N.V. 7.55 06/28/06 3,300 3,509,124
----------
FOOD SERVICE--0.4%
Apple South, Inc. 9.75 06/01/06 500 532,500
Host Marriott Travel
Plaza 9.50 05/15/05 500 530,625
----------
1,063,125
----------
FOREST PRODUCTS--0.1%
Doman Industries, Ltd.* 9.25 11/15/07 250(a) 248,750
----------
HEALTHCARE--0.1%
Ivax Corporation 6.50 11/15/01 250 218,750
----------
HOME FURNISHINGS--0.2%
Ekco Group, Inc. 9.25 04/01/06 500 516,250
----------
HOTELS/MOTELS/INNS AND
CASINOS--0.2%
HMH Properties, Inc. 8.88 07/15/07 500 513,750
----------
INDUSTRIAL EQUIPMENT--0.1%
Idex Corporation 9.75 09/15/02 250 258,750
----------
</TABLE>
9
<PAGE>
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN
FUND, INC.
PORTFOLIO OF INVESTMENTS Principal
(CONTINUED) Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
INSURANCE--0.2%
Americo Life, Inc. 9.25 06/01/05 500 $ 513,750
----------
LEISURE--0.3%
Leslie's Poolmart, Inc.* 10.38 07/15/04 500(a) 515,000
Speedway MotorSports,
Inc. 8.50 08/15/07 350 353,500
----------
868,500
----------
NONFERROUS
METALS/MINERALS--0.1%
Easco Corporation 10.00 03/15/01 250 258,125
----------
OIL & GAS--0.7%
Clark Refining and
Marketing, Inc.* 8.38 11/15/07 250(a) 250,000
Pogo Producing Company 8.75 05/15/07 500 510,000
Synder Oil Corporation 8.75 06/15/07 500 505,625
Trico Marine Services,
Inc. 8.50 08/01/05 500 501,250
----------
1,766,875
----------
RETAILERS (OTHER THAN
FOOD/DRUG)--0.3%
Proffitt's, Inc. 8.13 05/15/04 500 515,000
Specialty Retailers,
Inc. 8.50 07/15/05 250 254,375
----------
769,375
----------
STEEL--0.4%
LTV Corporation* 8.20 09/15/07 500(a) 488,750
Ryerson Tull, Inc. 9.13 07/15/06 500 540,000
----------
1,028,750
----------
SURFACE TRANSPORT--0.5%
Allied Holdings, Inc.* 8.63 10/01/07 250(a) 255,625
Moran Transportation
Company 11.75 07/15/04 250 277,500
Newport News
Shipbuilding, Inc. 8.63 12/01/06 250 260,000
Viking Star Shipping,
Inc. 9.63 07/15/03 496 515,840
----------
1,308,965
----------
TELECOMMUNICATIONS/MOBILE,
CELLULAR--0.3%
Centennial Cellular
Corporation 8.88 11/01/01 500 507,500
Rogers Cantel, Inc. 9.38 06/01/08 250 263,750
----------
771,250
----------
UTILITIES--0.4%
California Energy
Company, Inc. 9.88 06/30/03 500 544,375
El Paso Electric Company 8.90 02/01/06 500 542,500
----------
1,086,875
----------
TOTAL CORPORATE
OBLIGATIONS
(Cost - $23,372,303) 23,887,951
-----------
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN
FUND, INC.
PORTFOLIO OF INVESTMENTS Principal
(CONCLUDED) Interest Amount Value
November 30, 1997 Rate Maturity (000s) (Note 2)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT--1.0%
Dated 11/28/97, with State
Street Bank and Trust
Company; proceeds:
$2,591,079;
collateralized by
$2,630,000 U.S. Treasury
Note 5.875%, due
10/31/98, value:
$2,632,877
(Cost - $2,590,000) 5.00 12/01/97 2,590 $ 2,590,000
------------
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS--145.7%
(Cost - $372,393,406) 379,362,025
LIABILITIES IN EXCESS OF
OTHER ASSETS--(45.7%) (119,034,160)
------------
NET ASSETS--100.0% $260,327,865
------------
------------
- -------------------------------------------------------------------------------
</TABLE>
@ 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,
1997
* Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
** Non-income producing
*** Subsequent to year-end, the Advisor concluded that the Fund was not
likely to receive any principal _____________ amount or any interest
payments accordingly, the value of this security was reduced to $0.
**** Subsequent to year-end, the Advisor reduced its estimates of
anticipated cash flows from these securities and, accordingly, the
values of these securities have been reduced, in the aggregate, by
$2,307,600.
(a) Private Placement
(b) Security valued in good faith by or at the direction of the Board of
Directors
(c) First Loss Bonds
IO Interest Only Security-Interest rate and principal amount are based on
the notional amount of the underlying mortgage pools.
- ------------------
See notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (cost $372,393,406) (Note 2)................ $379,362,025
Cash.............................................................. 963
Interest receivable............................................... 3,950,441
Receivable for investments sold................................... 3,949,328
Principal paydowns receivable..................................... 1,014,857
Prepaid expenses.................................................. 15,228
------------
Total assets............................................ 388,292,842
------------
LIABILITIES:
Reverse repurchase agreements (Note 5)........................... 122,139,500
Payable for investments purchased................................ 3,799,756
Dividends payable................................................ 1,528,378
Interest payable (Note 5)........................................ 227,831
Investment advisory fee payable (Note 3)......................... 139,600
Accrued expenses and other liabilities........................... 86,958
Administration fee payable (Note 3).............................. 42,954
------------
Total liabilities...................................... 127,964,977
------------
NET ASSETS (equivalent to $10.64 per share based on
24,455,415 shares outstanding)................................. $260,327,865
============
COMPOSITION OF NET ASSETS:
Capital stock, at par (Note 6)................................... $ 244,554
Additional paid-in capital (Note 6).............................. 273,375,412
Undistributed net investment income.............................. 33,712
Accumulated net realized losses.................................. (20,294,432)
Net unrealized appreciation...................................... 6,968,619
------------
Net assets applicable to capital stock outstanding............... $260,327,865
============
</TABLE>
- ------------------
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2):
Interest....................................................... $28,085,509
-----------
EXPENSES:
Investment advisory fee (Note 3)............................... 1,666,464
Administration fee (Note 3).................................... 512,758
Insurance...................................................... 154,504
Custodian...................................................... 72,133
Transfer agency................................................ 69,585
Reports to shareholders........................................ 60,405
Audit and tax services......................................... 57,600
Directors' fees and expenses................................... 46,000
Registration fees.............................................. 33,065
Legal.......................................................... 9,785
Miscellaneous.................................................. 10,738
-----------
Total operating expenses.................................... 2,693,037
Interest expense (Note 5).............................. 6,302,675
-----------
Total expenses.............................................. 8,995,712
-----------
Net investment income.......................................... 19,089,797
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENT AND FUTURES
TRANSACTIONS (Notes 2 and 4):
Net realized gains (losses) on:
Investment transactions........................................ 2,219,312
Futures transactions........................................... (69,048)
-----------
2,150,264
-----------
Net unrealized appreciation on investments....................... 2,075,944
-----------
Net realized and unrealized gain on investment and futures
transactions................................................... 4,226,208
-----------
Net increase in net assets resulting from operations............. $23,316,005
-----------
-----------
</TABLE>
- ------------------
See notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
November 30, November 30,
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income........................... $ 19,089,797 $ 23,576,421
Net realized gain on investment and futures
transactions................................. 2,150,264 1,014,684
Net unrealized appreciation (depreciation) on
investments.................................. 2,075,944 (4,034,988)
------------ ------------
Net increase in net assets resulting from
operations................................... 23,316,005 20,556,117
------------ ------------
DIVIDENDS TO SHAREHOLDERS:
Net investment income........................... (21,249,957) (22,291,630)
------------ ------------
CAPITAL STOCK TRANSACTIONS (Note 6):
Cost of Fund shares repurchased and retired..... (2,851,597) (173,100)
------------ ------------
Total decrease in net assets............ (785,549) (1,908,613)
NET ASSETS:
Beginning of year............................... 261,113,414 263,022,027
------------ ------------
End of year (including undistributed net
investment income of $33,712 and
$2,193,872, respectively)................... $260,327,865 $261,113,414
------------ ------------
------------ ------------
</TABLE>
- ------------------
See notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
STATEMENT OF CASH FLOWS
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash flows provided by operating activities:
Interest received (excluding net amortization of $318,020)... $ 29,837,468
Interest expense paid........................................ (6,140,529)
Operating expenses paid...................................... (2,728,340)
Purchase of short-term portfolio investments, net............ (2,329,000)
Purchase of long-term portfolio investments.................. (426,130,246)
Proceeds from disposition of long-term portfolio investments
and principal paydowns.................................... 416,497,779
Net cash used for futures transactions....................... (69,048)
------------
Net cash provided by operating activities.................... 8,938,084
------------
Cash flows used for financing activities:
Cash used to repurchase and retire Fund shares............... (2,851,597)
Net cash provided by reverse repurchase agreements........... 13,792,750
Cash dividends paid.......................................... (19,868,187)
------------
Net cash used for financing activities....................... (8,927,034)
------------
Net increase in cash........................................... 11,050
Bank overdraft at beginning of year............................ (10,087)
------------
Cash at end of year............................................ $ 963
------------
------------
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........... $ 23,316,005
------------
Increase in investments...................................... (8,974,535)
Net unrealized appreciation on investments................... (2,075,944)
Decrease in interest receivable.............................. 654,273
Decrease in other assets..................................... 4,049,983
Decrease in other liabilities................................ (8,031,698)
------------
Total adjustments.................................... (14,377,921)
------------
Net cash provided by operating activities...................... $ 8,938,084
------------
------------
</TABLE>
- ------------------
See notes to financial statements.
15
<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,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.......... $ 10.55 $ 10.61 $ 9.56 $ 10.59 $ 10.87
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.77 0.95 0.92 1.07 1.07
Net realized and unrealized gains (losses)
on investment and futures
transactions.............................. 0.16 (0.11) 1.13 (1.10) (0.21)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net asset value
resulting from operations................. 0.93 0.84 2.05 (0.03) 0.86
------------ ------------ ------------ ------------ ------------
Net effect of shares repurchased............ 0.02 -- -- 0.01 --
Dividends from net investment income........ (0.86) (0.90) (1.00) (1.01) (1.14)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year................ $ 10.64 $ 10.55 $ 10.61 $ 9.56 $ 10.59
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market price, end of year................... $ 9.3125 9.375 $ 9.00 $ 8.50 $ 10.375
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN+.................... 8.64% 14.97% 17.45% (7.93)% (0.89)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTARY
DATA:
Net assets, end of year (000s).............. $260,328 $261,113 $263,022 $237,208 $263,801
Operating expenses.......................... 1.05% 1.08% 1.07% 1.09% 1.08%
Interest expense............................ 2.46% 2.34% 2.24% 1.75% 1.50%
Total expenses.............................. 3.51% 3.42% 3.31% 2.84% 2.58%
Net investment income....................... 7.45% 9.26% 9.18% 10.63% 9.95%
Portfolio turnover rate..................... 109% 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.
- ------------------
See notes to financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
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'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, also is treated as a realized gain or loss. If an option is
exercised, the premium paid or received is added to the proceeds from the sale
or cost of the purchase in determining whether the 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.
17
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1997
- --------------------------------------------------------------------------------
Financial Futures Contracts: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by 'marking-to-market' on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the 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. Dividends from net
investment income and distributions from realized gains from investment
transactions have been determined in accordance with Federal income tax
regulations and may differ from net investment income and realized gains
recorded by the Fund for financial reporting purposes. These differences, which
could be temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
Cash Flow Information: The 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. 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.
18
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1997
- --------------------------------------------------------------------------------
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.
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 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.
Certain officers and/or directors of the Fund are officers and/or directors of
the Advisor and Administrator.
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, 1997 were $289,935,182 and $232,172,181, respectively. Purchases
and sales of U.S. Government securities, for the year ended November 30, 1997
were $128,037,676 and $159,438,153, respectively. For purposes of this footnote,
U.S. Government securities include securities issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation, the Government National Mortgage
Association and the United States Department of Veterans Affairs.
The federal income tax basis of the Fund's investments at November 30, 1997 was
$372,401,763 and, accordingly, net unrealized appreciation for federal income
tax purposes was $6,960,262 (gross unrealized appreciation--$10,509,595; gross
unrealized depreciation--$3,549,333). At tax year end November 30, 1997, the
Fund had a capital loss carryforward of $20,209,936, of which $2,372,035 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 November 30, 1997, the Fund had the following reverse repurchase agreements
outstanding:
<TABLE>
<CAPTION>
MATURITY IN
ZERO TO 30 DAYS
---------------
<S> <C>
Maturity Amount, including Interest
Payable........................... $ 122,425,617
---------------
Market Value of Assets Sold
Under Agreements.................. $ 125,067,381
---------------
Weighted Average Interest Rate...... 5.66%
---------------
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the year ended November 30, 1997, was approximately $114,254,163 at a weighted
average interest rate of 5.52%. The maximum amount of reverse repurchase
agreements outstanding at any time during the year was
19
<PAGE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
November 30, 1997
- --------------------------------------------------------------------------------
$124,039,750, as of November 25, 1997, which was 30.94% of total assets.
6. CAPITAL STOCK:
There are 50 million shares of $0.01 par value common stock authorized. Of the
24,455,415 shares outstanding at November 30, 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 November 30, 1997, 522,900 shares have been repurchased pursuant to this
program at a cost of $4,690,560 and at an average discount of 12.80% from its
net asset value. For the year ended November 30, 1997, 306,200 shares have been
repurchased at a cost of $2,851,597 and at an average discount of 11.65% from
its net asset value. For the year ended 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 have been retired.
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, 1997.
There was no written option activity for the year ended November 30, 1997.
8. SUBSEQUENT EVENTS:
The Fund's Board of Directors declared the following regular monthly dividend:
<TABLE>
<CAPTION>
DIVIDEND RECORD PAYABLE
PER SHARE DATE DATE
- ---------- -------- --------
<S> <C> <C>
$0.0625 12/22/97 12/31/97
</TABLE>
20
<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, 1997, 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, 1997 and 1996 and the financial highlights for each of the years in
the five-year period ended November 30, 1997. 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, 1997 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, 1997, 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
Two World Financial Center
New York, New York 10281
January 9, 1998
- --------------------------------------------------------------------------------
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, 1997) 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, 11.07% 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 1997. 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 1998. Shareholders are advised to consult their own
tax advisors with respect to the tax consequences of their investment in the
Fund.
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------------------
NET REALIZED UNREALIZED MARKET PRICE NAV
INVESTMENT GAIN GAIN DIVIDEND/ ------------ ------
QUARTER ENDED INCOME (LOSS) (LOSS) DISTRIBUTION HIGH LOW HIGH
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
February 28, 1991.................... $ 0.29 $ 0.01 $ 0.12 $(0.30) $11 $9 5/8 $10.91
May 31, 1991......................... 0.32 0.02 0.16 (0.30) 11 1/4 10 1/8 11.12
August 31, 1991...................... 0.30 (0.06) 0.26 (0.30) 11 5/8 10 3/4 11.32
November 30, 1991.................... 0.33 (0.18) 0.28 (0.20) 12 11 3/8 11.50
February 29, 1992.................... 0.30 0.34 0.59 (0.34) 12 11 11.46
May 31, 1992......................... 0.30 (0.35) 0.15 (0.30) 12 1/4 11 1/8 11.07
August 31, 1992...................... 0.30 (0.19) 0.29 (0.30) 12 1/8 11 1/8 11.12
November 30, 1992.................... 0.29 (0.27) 0.03 (0.29) 11 7/8 11 3/8 11.15
February 28, 1993.................... 0.28 (0.11) 0.03 (0.29) 12 11 10.89
May 31, 1993......................... 0.28 0.08 (0.19) (0.38) 12 10 3/4 10.69
August 31, 1993...................... 0.25 0.07 0.16 (0.28) 11 7/8 10 1/2 10.86
November 30, 1993.................... 0.26 (0.08) (0.17) (0.19) 11 9 7/8 10.81
February 28, 1994.................... 0.26 (0.23) 0.14 (0.35) 10 7/8 10 10.66
May 31, 1994......................... 0.29 (0.22) (0.35) (0.26) 10 5/8 9 10.36
August 31, 1994...................... 0.29 (0.09) 0.03 (0.24) 9 1/4 8 1/2 9.98
November 30, 1994.................... 0.23 (0.09) (0.29) (0.16) 8 7/8 7 5/8 9.81
February 28, 1995.................... 0.23 (0.16) 0.42 (0.35) 8 7/8 8 9.70
May 31, 1995......................... 0.23 0.18 0.37 (0.22) 9 8 1/2 10.18
August 31, 1995...................... 0.23 0.18 (0.22) (0.22) 9 3/8 8 3/8 10.37
November 30, 1995.................... 0.23 0.21 0.15 (0.21) 9 1/8 8 5/8 10.61
February 28, 1996.................... 0.25 0.17 (0.38) (0.24) 9 5/8 9 10.78
May 31, 1996......................... 0.25 (0.09) (0.40) (0.21) 9 1/4 8 3/8 10.45
August 31, 1996...................... 0.23 (0.12) 0.10 (0.23) 9 1/4 8 1/4 10.26
November 30, 1996.................... 0.22 0.08 0.52 (0.22) 9 1/2 8 7/8 10.55
February 28, 1997.................... 0.18 0.09 (0.27) (0.23) 9 5/8 9 1/8 10.52
May 31, 1997......................... 0.20 0.02 (0.11) (0.22) 9 1/4 9 5/8 10.31
August 31, 1997...................... 0.18 0.07 0.19 (0.21) 9 15/16 9 1/2 10.60
November 30, 1997.................... 0.21 (0.10) 0.27 (0.20) 9 3/4 9 3/16 10.72
<CAPTION>
NAV
--- VOLUME
QUARTER ENDED LOW (000S)
- -------------------------------------------------------
<S> <C> <C>
February 28, 1991.................... $10.70 3,040
May 31, 1991......................... 10.86 4,287
August 31, 1991...................... 11.06 2,469
November 30, 1991.................... 11.29 2,674
February 29, 1992.................... 10.94 4,012
May 31, 1992......................... 10.86 2,843
August 31, 1992...................... 10.91 3,539
November 30, 1992.................... 10.76 2,120
February 28, 1993.................... 10.77 2,104
May 31, 1993......................... 10.56 2,349
August 31, 1993...................... 10.62 4,997
November 30, 1993.................... 10.60 3,673
February 28, 1994.................... 10.48 2,591
May 31, 1994......................... 9.85 1,898
August 31, 1994...................... 9.87 2,249
November 30, 1994.................... 9.53 2,879
February 28, 1995.................... 9.40 2,405
May 31, 1995......................... 9.69 1,565
August 31, 1995...................... 10.04 2,129
November 30, 1995.................... 10.23 1,698
February 28, 1996.................... 10.41 2,217
May 31, 1996......................... 9.99 2,068
August 31, 1996...................... 9.83 2,190
November 30, 1996.................... 10.01 1,334
February 28, 1997.................... 10.25 1,664
May 31, 1997......................... 10.03 1,819
August 31, 1997...................... 10.25 1,922
November 30, 1997.................... 10.41 3,292
</TABLE>
- --------------------------------------------------------------------------------
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
SULLIVAN & WORCESTER LLP
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Fund may purchase its shares of
beneficial interest in the open market at prevailing market prices.
24
<PAGE>
- ------------------------------------------------------
OFFICERS & DIRECTORS
- ------------------------------------------------------
Lewis S. Ranieri
Chairman
Rodman L. Drake*
Director
Garth Marston*
Director
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Kenneth C. Weiss
Director & Senior Vice President
Patricia A. Sloan
Director & Secretary
Clifford E. Lai
President
Patricia A. Botta
Vice President
* Audit Committee Members
- ------------------------------------------------------
[LOGO]
- ------------------------------------------------------
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
THE HYPERION
TOTAL RETURN FUND, INC.
ANNUAL REPORT
NOVEMBER 30, 1997
[ART]
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 372393406
<INVESTMENTS-AT-VALUE> 379362025
<RECEIVABLES> 8914626
<ASSETS-OTHER> 15228
<OTHER-ITEMS-ASSETS> 963
<TOTAL-ASSETS> 388292842
<PAYABLE-FOR-SECURITIES> 3799756
<SENIOR-LONG-TERM-DEBT> 122367331
<OTHER-ITEMS-LIABILITIES> 1797890
<TOTAL-LIABILITIES> 127964977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 273619966
<SHARES-COMMON-STOCK> 24455415
<SHARES-COMMON-PRIOR> 24716615
<ACCUMULATED-NII-CURRENT> 33712
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (20294432)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6968619
<NET-ASSETS> 260327865
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28085509
<OTHER-INCOME> 0
<EXPENSES-NET> 8995712
<NET-INVESTMENT-INCOME> 19089797
<REALIZED-GAINS-CURRENT> 2150264
<APPREC-INCREASE-CURRENT> 2075944
<NET-CHANGE-FROM-OPS> 23316005
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21249957
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 306200
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (785,549)
<ACCUMULATED-NII-PRIOR> 2193872
<ACCUMULATED-GAINS-PRIOR> (22444696)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1666464
<INTEREST-EXPENSE> 6302675
<GROSS-EXPENSE> 8995712
<AVERAGE-NET-ASSETS> 256379056
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .77
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> (.86)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.64
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 114254163
<AVG-DEBT-PER-SHARE> 4.63
</TABLE>
