THE
H Y P E R I O N
TOTAL RETURN FUND, INC.
Annual Report
November 30, 1998
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HYPERION TOTAL RETURN FUND, INC.
Report of the Investment Advisor
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HYPERION TOTAL RETURN FUND, INC.
Report of the Investment Advisor
January 22, 1999
Dear Shareholder:
We welcome this opportunity to present you with the annual report of The
Hyperion Total Return Fund, Inc. (the "Fund") for its fiscal year ended November
30, 1998. 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 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 securities, asset-backed and high-yield corporate
securities.
Market Environment
This past year was a very challenging period for the markets. The problems in
the global economy caused volatility in both the fixed income and equity
markets. Prices on U.S. Treasuries increased, but other sectors of the market
did not fare as well. Prices on mortgage-backed securities ("MBS") increased in
general, but to a lesser amount than anticipated as prepayment risk increased.
Credit related securities like corporate bonds also lagged, due to credit
concern and fears of an economic recession.
Two seemingly contradictory events needed to take place before any semblance of
order could be restored to the markets. First, there had to be a significant
deleveraging of portfolios; and, second, there had to be a reassertion of
economic leadership on the part of both the U.S. and foreign governments.
Surprisingly, both of these occurred in the fourth quarter. The deleveraging of
portfolios occurred as a result of the implementation of stricter lending
standards for all types of companies and portfolios. This forced these
institutions to sell securities into the market and reduce market risk.
Similarly, the lowering of administered interest rates by both the U.S. Federal
Reserve Bank and its European counterparts clearly demonstrated a commitment to
maintain the positive forward movement of these respective economies. Over the
period, the Federal Funds rate dropped by 75 basis points.
By the end of the year, the fixed income markets appeared to be more sound. The
"flight-to-quality" subsided, interest rates reversed some of their decline but,
more importantly, the performance of corporate bonds and MBS began to recover.
Below is a chart showing the changes in interest rates and yield spreads for
various sectors of the fixed income market.
HYPERION TOTAL RETURN FUND, INC.
Report of the Investment Advisor
Graph:The graph depicts the differences in yield spreads between the GNMA
current coupon, 10 year Treasury, 2 year Treasury, and AAA Corporates for
the period September 30, 1998 and December 30, 1998.
We believe that the fixed income market will
reverse course in 1999. We expect interest rates
to increase slightly during the year. This is
primarily due to the continued strength of the U.S.
economy. For the last 18 months, the U.S. economy
has been an oasis of prosperity in the global
community. The problems in Asia, Russia, and Latin
America have failed to slow the U.S. economy.
Weakness in manufacturing and other
export-dependent companies has been more than
compensated for in other areas, such as high-technology,
bio-technology, and Internet-oriented companies.
We target a 5.5% to 6.0% yield level on 30-year U.S. Treasury Bonds in 1999.
This interest rate environment should be favorable for MBS, as higher interest
rates should reduce prepayment risk. The market environment should also be
supportive of credit-related securities, as the strength of the economy should
keep credit problems at a minimum.
Portfolio Strategy and Performance
We continue to manage The Hyperion Total Return Fund in a manner consistent with
the long term objective of the portfolio, which is to achieve high overall total
return and a high level of monthly income while maintaining the overall credit
quality of the portfolio. In order to achieve this mandate, the portfolio is
invested in yield-advantaged and credit sensitive sectors in both the MBS and
Corporate high-yield sectors of the market.
The disruptions that occurred in the markets over the last year resulted in some
changes to the portfolio. In general, we have shifted the credit exposure of the
portfolio away from consumer related assets towards real estate collateral. We
have reduced our holdings in asset-backed securities ("ABS"), and increased
holdings in residential and commercial MBS. This shift was in response to
persistently high delinquency levels on overall consumer debt, and our
expectations of continued strong fundamentals in both the commercial and
residential real estate markets. Our exposure to investment and below investment
grade residential and commercial MBS increased over the period. To permit
additional allocation to residential and commercial MBS, U.S. Treasuries were
sold. This allowed the portfolio to benefit from anomalies in the marketplace,
and to take advantage of the opportunities in the MBS market.
The Fund's total return, based on Net Asset Value for the fiscal year ended
November 30, 1998, was 2.78%. Total investment return is based upon the change
in Net Asset Value of the Fund's shares and includes reinvestment of dividends.
The current monthly dividend the Fund pays its shareholder is $0.06250 per
share. The current yield of 8.63% on shares of the Fund is based on the NYSE
closing price of $8.6875 on November 30, 1998. This yield was 415 basis points
above the yield of the 5-Year Treasury Note, and was competitive with the yields
of other multi-sector bond funds in its category
As of the end of December, the Fund, inclusive of leverage, was managed with an
average duration (duration measures a bond portfolio's price sensitivity to
interest rate changes) of 5.0 years.
The Fund has continued its share repurchase program. This repurchase program
allows the Fund to purchase and retire shares of the Fund in the open
marketplace. Such transactions are made when the share price of the Fund is
significantly below the Fund's NAV. By purchasing the shares at a discount to
the NAV and retiring them, the Trust recaptures the benefit of that spread
(between share purchase price and the NAV) which is returned to all of the
Fund's remaining shareholders. From December 1, 1997 through and including
November 30, 1998, the Fund has repurchased and retired 772,300 shares, and
captured $0.0430 in additional NAV per share, or $1,019,478 in an actual dollar
amount for shareholders.
The chart that follows shows the allocation of the Fund's holdings by asset
category on November 30, 1998.
THE HYPERION TOTAL RETURN FUND, INC.
PORTFOLIO OF INVESTMENTS AS OF NOVEMBER 30, 1998 *
U.S. Government Agency Collateralized Mortgage Obligations 33.8%
U.S. Treasury Obligations 2.9%
Subordinated Collateralized Mortgage Obligations 25.2%
Collateralized Mortgage Obligations 1.2%
Asset-Backed Securities 16.0%
U.S. Government Stripped Mortgage-Backed Security 0.2%
Repurchase Agreement 0.8%
High-Yield Corporate Securities 6.3%
U.S. Government Agency Pass-Through Certificates 0.5%
Commercial Mortgage-Backed Securities 13.1%
*As a percentage of total investments
Conclusion
The Fund's commitment to its shareholders remains to actively seek out
investment opportunities in the market, 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.
Sincerely,
CLIFFORD E. LAI
President
The Hyperion Total Return Fund, Inc.
President and Chief Investment Officer,
Hyperion Capital Management, Inc.
ANDREW M. CARTER
Director and Chairman of the Board,
The Hyperion Total Return Fund, Inc.
Chairman and Chief Executive Officer,
Hyperion Capital Management, Inc.
JOHN H. DOLAN
Vice President
The Hyperion Total Return Fund, Inc.
Director,
Hyperion Capital Management, Inc.
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1998 Interest Amount Value
Rate Maturity (000s) (Note 2)
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U.S. GOVERNMENT & AGENCY OBLIGATIONS - 53.8%
U.S. Government Agency Pass-Through Certificates - 0.7%
Government National Mortgage Association
( Cost - $ 1,689,358 ) 1,689,3588.%0 07/15/27 $ 1,617 $ 1,714,688
----------------------
U.S. Government Agency Collateralized Mortgage Obligations - 48.6%
Federal Home Loan Mortgage Corporation
Series 1643, Class PH 5.75 07/15/23 12,000 @ 11,881,320
Series 1675, Class KC 6.50 10/15/10 5,750 @ 5,852,457
Series 1701, Class PH 6.50 03/15/09 10,000 @ 10,193,246
Series 1659, Class SD 8.50 01/15/09 2,234 2,289,210
Series 1565, Class L 9.00+ 08/15/08 2,066 2,138,181
Series 1587, Class SK 9.00+ 10/15/08 1,857 1,911,617
Series 1604, Class MC 9.00+ 11/15/08 5,557 5,830,872
Series 1604, Class SB 9.00+ 11/15/08 1,084 1,134,691
Series 1469, Class I 8.89+ 03/15/00 2,184 2,236,501
Series 1587, Class SF 9.29+ 05/15/08 928 967,010
----------------------
44,435,105
----------------------
Federal National Mortgage Association
Series 1993-175, Class PT 6.00 11/25/07 13,000 @ 13,098,670
Series 1994-42, Class PG 6.00 03/25/23 10,000 @ 9,996,600
Series 1996-21, Class PJ 6.00 12/25/10 7,428 @ 7,493,186
Series 1994-27, Class PM 6.50 11/25/10 7,760 @ 7,892,831
Series 1997-1, Class B 6.50 02/18/04 22,000 @ 22,435,096
Series 1993-170, Class SC 9.00+ 09/25/08 4,612 4,726,946
Series 1993-48, Class C 9.50 04/25/08 5,695 @ 5,948,475
----------------------
71,591,804
----------------------
Total U.S. Government Agency Collateralized Mortgage Obligations
( Cost - $ 111,637,130 ) 637,130 116,026,909
----------------------
U.S. Government Stripped Mortgage-Backed Security - 0.3%
Interest-Only Security:
Vendee Mortgage Trust
Series 1997-2, IO
( Cost - $ 1,283,907 ) 1,283,9070.+7 06/15/27 310,798 762,698
----------------------
U.S. Treasury Obligations - 4.2%
U.S. Treasury Notes
( Cost - $ 9,950,131 ) 9,950,1314.75 11/15/08 10,000 @ 10,015,630
----------------------
Total U.S. Government & Agency Obligations
( Cost - $ 124,560,526 ) 560,526 128,519,925
----------------------
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ASSET-BACKED SECURITIES - 22.9%
Access Financial Manufactured Housing Contract Trust
Series 1995-1, Class B1 7.65%+ 05/15/21 $ 10,060 $ 9,795,925
----------------------
Autobond Receivables Trust
Series 1996-A, Class B (b) 15.00+ 01/15/02 1,206 (a) 67,822
Series 1996-B, Class B (b) 15.00+ 04/15/02 1,468 (a) 153,861
----------------------
221,683
----------------------
BHN I Mortgage Fund
Series 1996-1, Class A2 (d)* 7.36 09/25/01 81 75,883
----------------------
Bosque Asset Corporation
Asset-Backed Notes* 7.66+ 06/05/02 724 (a) 724,611
----------------------
Franchisee Loan Receivable Trust
Series 1995-B, Class A 9.63 01/15/11 4,117 (a) 4,260,820
----------------------
GE Capital Mortgage Services, Inc.
Series 1996-HE3, Class B4 (b) (d)* 8.25 09/25/26 564 84,562
Series 1996-HE3, Class B5 (b) (d)* 8.25 09/25/26 415 12,444
----------------------
97,006
----------------------
Global Rated Eligible Assets Trust
Series 1998-A, Class A1 (b)* 7.33 03/15/06 1,734 1,126,851
----------------------
Green Tree Financial Corporation
Series 1998-8, Class M1 6.84 09/01/30 10,000 10,054,688
Series 1996 CTF Class M 7.30 11/15/27 1,500 1,539,990
----------------------
11,594,678
----------------------
Health & Tennis Master Trust
Series 1996, Class A1* 8.43 08/15/02 2,500 (a) 2,504,050
----------------------
Residential Accredit Loans, Inc.
Series 1998-QS14, Class M1 6.75 10/25/28 12,385 12,108,658
----------------------
Standard Credit Card Master Trust
Series 1995-1, Class B 8.45 01/07/07 5,600 6,272,925
----------------------
Structured Mortgage Asset Residential Trust
Series 1997-2, Class A (b) 8.24 03/15/06 2,471 1,606,195
----------------------
Westgate Resorts LLC
Series 1998-A, Class A2* 8.26 07/15/13 4,483 4,393,729
----------------------
Total Asset-Backed Securities
( Cost - $ 59,460,385 ) 54,783,014
----------------------
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COLLATERALIZED MORTGAGE OBLIGATIONS - 56.9% Collateralized Mortgage Obligations
- - 1.7% Prudential Home Mortgage Securities Co., Inc.
Series 1993-5, Class A8
( Cost - $ 4,199,371 ) 9.89%+ 03/25/00 $ 4,117 $ 4,138,151
----------------------
Commercial Mortgage Backed Securities - 18.9%
Asset Securitization Corporation
Series 1997-D5, Class A1B 6.66+ 02/14/41 10,000 10,509,000
----------------------
Bankers Trust Company Mortgage Investors Trust
Series 1996-S1, Class E 10.25 12/01/06 3,000 (a) 3,044,700
----------------------
DLJ Mortgage Acceptance Corporation
Series 1995-CF2, Class S2, IO* 1.64+ 12/17/27 48,300 (a) 3,426,281
----------------------
Ditech Home Loan Owner Trust
Series 1998-1, Class M2 7.64 06/15/29 5,000 4,663,282
----------------------
FFCA Secured Lending Corporation
Series 1998-1, Class A 1B* 6.73 10/18/25 4,500 4,652,578
----------------------
First Chicago/Lennar Trust I
Series 1997-CHLI, Class D* 8.10+ 05/29/08 3,000 (a) 2,765,156
----------------------
GS Mortgage Securities Corp. II
Series 1998-GLII, Class F (d)* 7.19+ 04/13/31 4,000 3,055,625
----------------------
Mortgage Capital Funding, Inc.
Series 1996-MC1, Class G (d)* 7.15 06/15/06 1,559 1,421,356
----------------------
Nationslink Funding Corporation
Series 1998-1, Class F (d)* 7.05 02/20/08 2,000 1,743,462
----------------------
125 Home Loan Owner Trust
Series 1998-1, Class M2 7.75+ 02/15/29 5,000 4,728,906
----------------------
Paine Webber Mortgage Acceptance Corporation
Series 1995-M2, Class C* 6.90 12/01/03 5,000 (a) 5,042,665
----------------------
Total Commercial Mortgage Backed Securities
( Cost - $ 46,191,330 ) 45,053,011
----------------------
Subordinated Collateralized Mortgage Obligations - 36.3%
Cendant Mortgage Corp.
Series 1998-9, Class A4 (d) 6.50 08/18/28 15,427 15,137,712
----------------------
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Subordinated Collateralized Mortgage Obligations - (continued)
Chase Mortgage Finance Corporation
Series 1998-S4, Class M 6.75% 08/25/28 $ 11,789 $ 11,511,375
Series 1994-D, Class B3 6.75+ 02/25/25 701 571,447
----------------------
12,082,822
----------------------
Citicorp Mortgage Securities, Incorporated
Series 1997-2, Class B2 7.25 05/25/27 2,003 1,953,508
Series 1997-5, Class B2 7.25 11/25/27 2,045 1,985,952
----------------------
3,939,460
----------------------
Independent National Mortgage Corporation
Series 1994-2, Class B2 (c) 6.50 02/25/09 574 123,471
Series 1995-V, Class B2 7.25 02/25/26 1,381 1,380,517
Series 1995-Q, Class B1 7.50 11/25/25 2,818 2,841,869
----------------------
----------------------
4,345,857
----------------------
DLJ Mortgage Acceptance Corporation
Series 1995-T10, Class C (b)* 22.80+ 09/02/23 1,780 (a) 751,878
----------------------
G3 Mortgage Reinsurance Ltd.
Mortgage Default Recourse Class A (d)* 6.04+ 05/25/08 2,000 1,863,750
Mortgage Default Recourse Class B (d)* 6.34+ 05/25/08 6,000 5,617,500
Mortgage Default Recourse Class C (d)* 7.89+ 05/25/08 6,500 5,752,500
Mortgage Default Recourse Class E (d)* 25.00+ 05/25/08 3,000 2,325,000
----------------------
----------------------
15,558,750
----------------------
GE Capital Mortgage Services, Inc.
Series 1994-2, Class B5* (c) 6.00+ 01/25/09 735 (a) 161,718
Series 1994-10, Class M 6.50 03/25/24 5,659 5,560,497
Series 1994-17, Class B3* 7.00+ 05/25/24 1,927 (a) 1,698,814
Series 1995-10, Class B3* 7.00+ 10/25/10 644 (a) 600,017
Series 1996-3, Class B3* 7.00+ 03/25/26 1,824 (a) 1,560,444
Series 1996-9, Class B5* (c) 7.50 06/25/26 1,293 (a) 323,170
----------------------
9,904,660
----------------------
Headlands Mortgage Securities, Inc.
Series 1997-4, Class B4 7.25 11/25/27 1,528 1,170,458
----------------------
Paine Webber Mortgage Acceptance Corporation
Series 1993-9, Class B1 7.00 10/25/23 2,952 1,827,467
----------------------
PHH Mortgage Services Corp
Series 1997-6, Class B3 7.40+ 11/18/27 1,003 960,400
----------------------
Prudential Home Mortgage Securities Co., Inc.
Series 1996-5, Class B4* 7.25 04/25/26 1,354 (a) 921,224
Series 1996-5, Class B5* (c) 7.25 04/25/26 1,212 (a) 302,942
Series 1996-5, Class B1 7.25 04/25/26 3,384 3,329,977
----------------------
4,554,143
----------------------
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Subordinated Collateralized Mortgage Obligations - (continued)
Residential Asset Securitization Trust
Series 1997-A2, Class B1 7.75% 04/25/27 $ 2,406 $ 2,429,156
----------------------
Residential Funding Mortgage Securities I, Inc.
Series 1993-S49, Class B2 6.00 12/25/08 236 179,566
Series 1996-S8, Class B1 6.75 03/25/11 506 449,165
Series 1996-S5, Class B1 6.75 02/25/11 526 466,864
Series 1994-S13, Class M 1 7.00 05/25/24 3,783 3,801,915
Series 1996-S13, Class B3 (c) 7.00 05/25/11 350 60,354
Series 1996-S13, Class B2 7.00 05/25/11 350 260,644
Series 1996-S17, Class B2 (c) 7.25 07/25/11 274 207,807
Series 1996-S17, Class B3 7.25 07/25/11 274 47,274
Series 1995-S12, Class B2 7.25 08/25/10 311 237,524
Series 1997-S2, Class M2 7.50 01/25/27 1,767 1,800,120
Series 1997-S3, Class B2 7.50 02/25/27 505 353,895
Series 1997-S7, Class B1 7.50 05/25/27 1,170 1,042,296
Series 1997-S2, Class B2 7.50 01/25/27 833 584,298
Series 1996-S23, Class B2 7.75 11/25/26 508 355,720
Series 1996-S23, Class B1 7.75 11/25/26 683 629,047
Series 1996-S22, Class B1 8.00 10/25/26 1,028 924,568
----------------------
11,401,057
----------------------
Salomon Brothers Mortgage Securities VII
Series 1997-HUD2, Class B5 7.00 07/25/24 4,440 2,526,094
----------------------
Total Subordinated Collateralized Mortgage Obligations
( Cost - $ 88,695,929 ) 86,589,914
----------------------
Total Collateralized Mortgage Obligations
( Cost - $ 139,086,630 ) 135,781,076
----------------------
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CORPORATE OBLIGATIONS - 9.0%
Aerospace and Defense - 0.2%
BE Aerospace, Inc. 8.00 03/01/08 500 485,000
----------------------
Air Transport - 0.2%
Atlantic Coast Airlines* 8.75 01/01/07 463 (a) 489,812
----------------------
Automotive - 0.5%
Navistar International Corporation 8.00 02/01/08 500 502,500
United Rentals Incorporated* 8.80 08/15/08 250 248,750
Western Star Trucks Holdings* 8.75 05/01/07 500 (a) 470,000
----------------------
1,221,250
----------------------
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Corporate Obligations (continued)
Beverage and Tobacco - 0.2%
Cott Corporation 9.38% 07/01/05 $ 500 $ 500,000
----------------------
Building & Development - 0.4%
American Standard Inc. 7.38 02/01/08 500 500,000
U S Home Corporation 8.25 08/15/04 500 503,750
----------------------
1,003,750
----------------------
Cable Television - 0.7%
Century Communications Corportion 9.50 03/01/05 500 547,500
CSC Holdings Inc 8.13 08/15/09 500 519,375
Rogers Cablesystems, Ltd. 9.63 08/01/02 500 540,000
----------------------
1,606,875
----------------------
Chemicals/Plastics - 0.4%
Buckeye Cellulose Corporation 8.50 12/15/05 500 520,000
Envirodyne Industries Incorporated 12.00 06/15/00 86 84,280
ISP Holdings, Inc. 9.00 10/15/03 250 263,750
----------------------
868,030
----------------------
Clothing/Textiles - 0.3%
Pillowtex Corporation 9.00 12/15/07 250 261,250
Westpoint Stevens Inc. 7.88 06/15/08 500 515,000
----------------------
776,250
----------------------
Containers-Metal/Glass - 0.1%
Ball Corporation 8.25 08/01/08 250 261,250
----------------------
Ecological Services & Equipment - 0.3%
American Eco Corp. 9.63 05/15/08 500 325,000
L.E.S. Inc.* 9.25 06/01/08 250 255,000
----------------------
580,000
----------------------
Electronics/Electric - 0.4%
Elgar Holdings, Inc. 9.88 02/01/08 250 213,438
Mark IV Industries, Inc. 7.75 04/01/06 750 736,020
----------------------
949,458
----------------------
Equipment Leasing - 0.3%
Coinmach Corporation 11.75 11/15/05 250 270,000
Rental Services Corp. 9.00 05/15/08 500 497,500
----------------------
----------------------
767,500
----------------------
Food Service - 0.4%
Apple South Inc. 9.75 06/01/06 500 470,000
Host Marriot Travel Plaza 9.50 05/15/05 500 518,750
----------------------
----------------------
988,750
----------------------
Healthcare - 0.2%
Rural/Metro Corporation 7.88 03/15/08 500 457,500
----------------------
----------------------
Home Furnishings - 0.3%
Ekco Group, Inc. 9.25 04/01/06 500 502,500
Home Products International Inc. 9.63 05/15/08 250 242,500
----------------------
----------------------
745,000
----------------------
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Corporate Obligations (continued)
Hotels/Motels/Inns and Casinos - 0.3%
HMH Properties Inc. 7.88% 08/01/08 $ 500 $ 491,250
Prime Hospitality Corporation 9.25 01/15/06 250 260,000
----------------------
----------------------
751,250
----------------------
Industrial Equipment - 0.3%
Columbus McKinnon Corporation 8.50 04/01/08 495 480,150
Figgie International Incorporated 9.88 10/01/99 250 256,250
----------------------
----------------------
736,400
----------------------
Insurance - 0.2%
Americo Life, Inc. 9.25 06/01/05 500 512,500
----------------------
Leisure - 0.4%
Premier Parks Incorporated 9.25 04/01/06 500 525,625
Speedway MotorSports, Inc. 8.50 08/15/07 350 364,000
----------------------
889,625
----------------------
Medical Equipment - 0.2%
Prime Medical Services, Inc. 8.75 04/01/08 500 466,250
----------------------
Nonferrous Metals/Minerals - 0.3%
Easco Corporation 10.00 03/15/01 250 252,500
P & L Coal Holdings Corp.* 8.88 05/15/08 500 513,750
----------------------
----------------------
766,250
----------------------
Oil & Gas - 0.2%
Trico Marine Services, Inc. 8.50 08/01/05 500 455,000
----------------------
Publishing - 0.1%
Sun Media Corp. 9.50 02/15/07 250 270,000
----------------------
Retailers (Other than Food/Drug) - 0.1%
Specialty Retailers 8.50 07/15/05 250 230,000
----------------------
Steel - 0.7%
Inland Steel Company 7.90 01/15/07 500 485,000
NS Group Incorporated 13.50 07/15/03 500 535,000
Ryerson Tull, Inc. 9.13 07/15/06 500 560,780
----------------------
1,580,780
----------------------
Surface Transport - 0.3%
Allied Holdings Inc. 8.63 10/01/07 250 (a) 257,500
Moran Transportation Company 11.75 07/15/04 250 266,875
Newport News Shipbuilding, Inc. 8.63 12/01/06 250 264,375
----------------------
788,750
----------------------
Telecommunications/Mobile, Cellular - 0.6%
Centennial Corporation 8.88 11/01/01 500 527,500
Price Communications Wireless* 9.13 12/15/06 500 518,750
Rogers Cantel 9.38 06/01/08 250 258,750
----------------------
1,305,000
----------------------
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Corporate Obligations (continued)
Transportation - 0.2%
Offshore Logistics Corporation 7.88% 01/15/08 $ 500 $ 475,000
----------------------
Utilities - 0.2%
El Paso Electric Company 8.90 02/01/06 500 559,500
----------------------
Total Corporate Obligations
( Cost - $ 21,384,594 ) 21,486,730
----------------------
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REPURCHASE AGREEMENT - 1.2%
Dated 11/30/98, with State Street Bank and Trust Company;
proceeds: $2,937,408; collateralized by $2,240,000
U.S. Treasury Note, 7.875%, due 2/15/21, value: $2,986,869 (Note 2)
( Cost - $ 2,937,000 ) 5.00 12/02/98 2,937 2,937,000
----------------------
Total Investments - 143.8%
( Cost - $ 347,429,135 ) 343,507,745
Liabilities in Excess of Other Assets - (43.8%) (104,704,402)
----------------------
NET ASSETS - 100.0% $ 238,803,343
======================
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@ - 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, 1998
* - 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.
(a) - Non-Income Producing security
(b) - Security valued in good faith by or at
the direction of the Board of Directors
(c) - Represents a class of subordinated mortgage backed
securities (First Loss Bonds) that are the first
to receive the credit losses on the underlying mortgage
pools and will continue to receive the credit losses
until the subordinated class is paid off.
(d) - Private Placement
IO - Interest Only Security--Interest rate is based on the
notional amount of the underlying mortgage pools.
- -----------------
See notes to financial statements.
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THE HYPERION TOTAL RETURN FUND, INC.
Statement of Assets and Liabilities
November 30, 1998
- ------------------------------------------------------------------------------
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Assets:
Investments, at value (cost $347,429,135) (Note 2) $ 343,507,745
Receivable for investments sold 10,076,994
Interest receivable 3,736,939
Principal paydowns receivable 789,394
Prepaid expenses 170,820
----------------------
Total assets 358,281,892
----------------------
Liabilities:
Reverse repurchase agreements (Note 5) 109,037,001
Payable for investments purchased 10,054,688
Interest payable (Note 5) 169,926
Temporary bank overdraft 139,547
Accrued expenses and other liabilities 77,387
----------------------
Total liabilities 119,478,549
----------------------
Net Assets (equivalent to $10.08 per share based on
23,683,115 shares issued and outstanding) $ 238,803,343
======================
Composition of Net Assets:
Capital stock, at par value ($.01) (Note 6) $ 236,831
Additional paid-in capital (Note 6) 266,308,035
Undistributed net investment income 327,085
Accumulated net realized loss (24,147,218)
Net unrealized depreciation (3,921,390)
----------------------
Net assets applicable to capital stock outstanding $ 238,803,343
======================
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Operations
For the Year Ended November 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income (Note 2):
Interest $ 27,095,427
----------------------
Expenses:
Investment advisory fee (Note 3) 1,642,589
Administration fee (Note 3) 505,568
Insurance 135,980
Custodian 69,773
Transfer agency 67,173
Reports to shareholders 92,443
Accounting and tax services 43,800
Directors' fees and expenses 47,438
Registration fees 32,090
Legal 13,119
Miscellaneous 10,564
----------------------
Total operating expenses 2,660,537
Interest expense (Note 5) 6,047,922
----------------------
Total expenses 8,708,459
----------------------
Net investment income 18,386,968
----------------------
Realized and Unrealized Gains (Losses) on Investment and Futures Transactions
(Notes 2 and 4):
Net realized gains (losses) on:
Investment transactions (3,888,649)
Futures transactions 35,863
----------------------
----------------------
(3,852,786)
----------------------
Net change in unrealized appreciation on investments (10,890,009)
----------------------
Net realized and unrealized loss on investment transactions (14,742,795)
----------------------
Net increase in net assets resulting from operations $ 3,644,173
======================
See notes to financial statements.
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC. For the Year For the Year
Statements of Changes in Net Assets Ended Ended
November 30, 1998 November 30, 1997
- ------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations:
Net investment income $ 18,386,968 $ 19,089,797
Net realized (loss) gain on investments and futures transactions (3,852,786) 2,150,264
Net change in unrealized appreciation (depreciation) on investments (10,890,009) 2,075,944
----------------- ------------------
Net increase in net assets resulting from operations 3,644,173 23,316,005
----------------- ------------------
Dividends to Shareholders (Note 2):
Net investment income (18,093,595) (21,249,957)
----------------- ------------------
Capital Stock Transactions (Note 6):
Cost of Fund shares repurchased and retired (7,075,100) (2,851,597)
----------------- ------------------
Total decrease in net assets (21,524,522) (785,549)
Net Assets:
Beginning of year 260,327,865 261,113,414
----------------- ------------------
End of year (including undistributed net investment income of
$327,085 and $33,712, respectively) $ 238,803,343 $ 260,327,865
================= ==================
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Cash Flows
For the Year Ended November 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash:
Cash flows provided by operating activities:
Interest received (excluding net amortization of $203,674) $ 27,925,449
Interest expense paid (6,105,827)
Operating expenses paid (2,779,791)
Purchases and sales of short-term portfolio investments, net (311,138)
Purchase of long-term portfolio investments (310,466,573)
Proceeds from disposition of long-term portfolio investments and
principal paydowns 331,399,942
----------------------
Net cash provided by operating activities 39,662,062
----------------------
Cash flows used for financing activities:
Cash used to repurchase and retire Fund shares (7,075,100)
Net cash used for reverse repurchase agreements (13,102,499)
Cash dividends paid (19,624,973)
----------------------
Net cash used for financing activities (39,802,572)
----------------------
Net decrease in cash (140,510)
Cash at beginning of year 963
----------------------
Temporary bank overdraft at end of year $ (139,547)
======================
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 $ 3,644,173
----------------------
Decrease in investments 24,964,271
Decrease in net unrealized appreciation on investments 10,890,009
Decrease in interest receivable 213,502
Increase in other assets (6,057,795)
Increase in other liabilities 6,007,902
----------------------
Total adjustments 36,017,889
----------------------
Net cash provided by operating activities $ 39,662,062
======================
</TABLE>
See notes to financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC. For the Year For the Year For the Year For the Year For the Year
Financial Highlights Ended Ended Ended Ended Ended
November 30, November 30, November 30, November 30, November 30,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 10.64 $ 10.55 $ 10.61 $ 9.56 $ 10.59
---------- ------------ --------------- --------------- -----------
Net investment income 0.76 0.77 0.95 0.92 1.07
Net realized and unrealized
gains (losses) on investment
and futures transactions (0.61) 0.16 (0.11) 1.13 (1.10)
---------- ------------ --------------- --------------- -----------
Net increase (decrease) in net
asset value resulting from operations 0.15 0.93 0.84 2.05 (0.03)
---------- ------------ --------------- --------------- -----------
Net effect of shares repurchased 0.04 0.02 ---- ---- 0.01
Dividends from net investment income (0.75) (0.86) (0.90) (1.00) (1.01)
---------- ------------ --------------- --------------- -----------
Net asset value, end of period $ 10.08 $ 10.64 $ 10.55 $ 10.61 $ 9.56
========== ============ =============== =============== ===========
Market price, end of period $ 8.69 $ 9.3125 $ 9.375 $ 9.00 $ 8.50
========== ============ =============== =============== ===========
Total Investment Return + 1.23% 8.64% 14.97% 17.45% (7.93)%
Ratios to Average Net Assets/Supplementary
Data:
Net assets, end of period (000's) $ 238,803 $ 260,328 $ 261,113 $ 263,022 $ 237,208
Operating expenses 1.05% 1.05% 1.08% 1.07% 1.09%
Interest expense 2.39% 2.46% 2.34% 2.24% 1.75%
Total expenses 3.44% 3.51% 3.42% 3.31% 2.84%
Net investment income 7.27% 7.45% 9.26% 9.18% 10.63%
Portfolio turnover rate 90% 109% 227% 320% 234%
</TABLE>
+ Total investment return is computed based upon the New York Stock Exchange
market price of the Fund's shares and excludes the effect of brokerage
commissions.
See notes to financial statements.
- -----------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Notes to Financial Statements
November 30, 1998
- -----------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Notes to Financial Statements
November 30, 1998
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,
securities held by the Fund 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.
At November 30, 1998, approximately 34% of the investments in securities held by
the Fund were valued on the basis of bid prices provided by a principal market
maker. These prices may differ from the value that would have been used had a
broader market for these securities existed.
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 or in the financial condition of an issuer or market.
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
2. Significant Accounting Policies (continued)
exercised. If this occurs, the option expires worthless and the premium paid for
the option is recognized as a realized 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 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 hedge against fluctuations in
the value of portfolio securities 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 continue 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. 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 "Temporary bank overdraft" 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.
2. Significant Accounting Policies (continued)
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 Agreements and Affiliated
Transactions
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.
During the year ended November 30, 1998, the Advisor received $1,642,589 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 pays,
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 has entered into a
sub-administration agreement with Investors Capital Services, Inc. (the
"Sub-Administrator"). The Administrator and Sub-Adminstrator perform
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 providing 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. During the year ended
November 30, 1998, the Administrator received $505,568 in Administration fees.
The Administrator is responsible for any fees due the Sub-Administrator.
Certain officers and/or directors of the Fund are officers and/or directors of
the Advisor, Administrator and Sub-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, 1998, were $172,844,143 and $140,563,730, respectively. Purchases
and sales of U.S. Government securities, for the year ended November 30, 1998
were $143,870,102 and $187,134,519, 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 Federal National Mortgage
Association, 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, 1998 was
$347,429,135 which was the same for financial reporting and, accordingly, net
unrealized depreciation for federal income tax purposes was $3,921,390 (gross
unrealized appreciation -- $8,636,062; gross unrealized depreciation --
$12,557,452). At tax year end November 30, 1998, the Fund had a capital loss
carryforward of $24,139,129, of which $2,440,085, $17,837,901 and $3,861,143
expire in 2000, 2002 and 2006, 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, 1998, the Fund had the following reverse repurchase agreements
outstanding:
Maturity in
Zero to 30 Days
Maturity Amount, Including Interest Payable $ 109,344,568
Market Value of Assets Sold
Under Agreements.............. $ 116,091,552
Weighted Average Interest Rate
4.94%
- ------------------------------------------------- --------------------
The average daily balance of reverse repurchase agreements outstanding during
the year ended November 30, 1998, was approximately $107,870,636 at a weighted
average interest rate of 5.61%. The maximum amount of reverse repurchase
agreements outstanding at any time during the year was $97,782,471, as of March
18, 1998, which was 27.41% of total assets.
6. Capital Stock
There are 50 million shares of $0.01 par value common stock authorized. Of the
23,683,115 shares outstanding at November 30, 1998, 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, 1998, 1,295,200 shares have been repurchased pursuant to this
program at a cost of $11,765,660 and at an average discount of 12.86% from its
net asset value. For the year ended November 30, 1998, 772,300 shares have been
repurchased at a cost of $7,075,100 and at an average discount of 12.90% 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. 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.
7. Financial Instruments
There were no open futures contracts at November 30, 1998.
There was no written option activity for the year ended November 30, 1998.
8. Subsequent Events
The Fund's Board of Directors declared the following regular monthly dividend:
Dividend Record Payable
Per Share ---------- Date
Date
$0.0625 12/21/98 12/31/98
- -------------------------------------------------------------------------------
HYPERION TOTAL RETURN FUND, INC.
Report of Independent Accountants
- -------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
The Hyperion Total Return Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The Hyperion Total Return
Fund, Inc. (the "Fund") at November 30, 1998 and the results of its operations,
its cash flows, the changes in its net assets and the financial highlights for
the year then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of investments at November 30, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
The statement of changes in net assets of the Fund for the year ended November
30, 1997 and the financial highlights for the four years in the period then
ended were audited by other independent accountants whose report dated January
9, 1998 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 22, 1999
- -----------------------------------------------------
TAX INFORMATION (unaudited)
- -----------------------------------------------------
The Fund is 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, 1998) 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, 9.48% of the Fund's distributions
during the fiscal year ended November 30, 1998 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 1998. 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 1999. Shareholders are advised to consult their own
tax advisors with respect to the tax consequences of their investment in the
Fund.
PROXY RESULTS (unaudited)
- -------------------------------------------------------------------------------
The Hyperion Total Return Fund, Inc. shareholders
voted on the following proposals at a shareholders
meeting on April 21, 1998. The description of each
proposal and number of shares voted are as follows:
- ---------------------------------------------------- --------------------------
<TABLE>
<S> <C> <C> <C>
Shares Voted Shares Voted
For Without Authority
- ---------------------------------------------------- ---------------------------------------- ---------------- ------------------
1. To elect the Fund's Board of Directors: Rodman L. Drake 19,407,837 477,405
Harry E. Petersen, Jr 14,402,286 482,956
- ---------------------------------------------------- ---------------------------------------- ---------------- ------------------
</TABLE>
- -------------------------------------------------------------------------------
YEAR 2000 CHALLENGE (unaudited)
- -------------------------------------------------------------------------------
The Fund could be adversely affected if computers used by the Fund's service
providers do not properly process information dated January 1, 2000 and after.
The Fund's service providers are taking steps to address Year 2000 risks with
respect to computer systems on which the Fund depends. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund.
- --------------------------------------------------------------------------------
CHANGE IN ACCOUNTANTS (unaudited)
- -------------------------------------------------------------------------------
In 1998, the Fund determined to change accountants from Deloitte & Touche LLP
("D&T") to PricewaterhouseCoopers LLP ("PwC"). D&T's report on the financial
statements for the Fund's fiscal year ended November 30, 1997 contained no
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. The decision to change
accountants was determined by the Board of Directors of the Fund. There were no
disagreements with D&T on any matter of accounting principles or practices,
financial statement disclosures, auditing scope or procedure, which, if not
resolved to the satisfaction of D&T, would have caused D&T to make reference to
the matter in their reports.
In 1998, the Fund engaged PwC as its independent accountants to audit the Fund's
financial statements. Prior to engaging PwC, the Fund (or someone on its behalf)
did not consult PwC regarding either (i) the application of accounting
principles to a specified transaction, either contemplated or proposed or the
type of audit opinion that might be rendered on the Fund's financial statements;
or (ii) any matter that was either the subject of a disagreement with its former
accountant or a reportable event.
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.
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.
- -------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Selected Quarterly Financial Data
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
--------------------------------------
Net Realized Unrealized
Investment Gain Gain Dividend/ Market Price NAV Volume
--------------------- ------------------
Quarter Ended Income (Loss) (Loss) Distribution High Low High Low (000's)
- -------------------------------------------------------------------------------------------------------------------
February 28, 1991 $0.29 $0.01 $0.12 $(0.30) $11 $9 5/8 $10.91 $10.70 3,040
May 31, 1991 0.32 0.02 0.16 (0.30) 11 1/4 10 1/8 11.12 10.86 4,287
August 31, 1991 0.30 (0.06) 0.26 (0.30) 11 5/8 10 3/4 11.32 11.06 2,469
November 30, 1991 0.33 (0.18) 0.28 (0.20) 12 11 3/8 11.50 11.29 2,674
February 29, 1992 0.30 0.34 0.59 (0.34) 12 11 11.46 10.94 4,012
May 31, 1992 0.30 (0.35) 0.15 (0.30) 12 1/4 11 1/8 11.07 10.86 2,843
August 31, 1992 0.30 (0.19) 0.29 (0.30) 12 1/8 11 1/8 11.12 10.91 3,539
November 30, 1992 0.29 (0.27) 0.03 (0.29) 11 7/8 11 3/8 11.15 10.76 2,120
February 28, 1993 0.28 (0.11) 0.03 (0.29) 12 11 10.89 10.77 2,104
May 31, 1993 0.28 0.08 (0.19) (0.38) 12 10 3/4 10.69 10.56 2,349
August 31, 1993 0.25 0.07 0.16 (0.28) 11 7/8 10 1/2 10.86 10.62 4,997
November 30, 1993 0.26 (0.08) (0.17) (0.19) 11 9 7/8 10.81 10.60 3,673
February 28, 1994 0.26 (0.23) 0.14 (0.35) 10 7/8 10 10.66 10.48 2,591
May 31, 1994 0.29 (0.22) (0.35) (0.26) 10 5/8 9 10.36 9.85 1,898
August 31, 1994 0.29 (0.09) 0.03 (0.24) 9 1/4 8 1/2 9.98 9.87 2,249
November 30, 1994 0.23 (0.09) (0.29) (0.16) 8 7/8 7 5/8 9.81 9.53 2,879
February 28, 1995 0.23 (0.16) 0.42 (0.35) 8 7/8 8 9.70 9.40 2,405
May 31, 1995 0.23 0.18 0.37 (0.22) 9 8 1/2 10.18 9.69 1,565
August 31, 1995 0.23 0.18 (0.22) (0.22) 9 3/8 8 3/8 10.37 10.04 2,129
November 30, 1995 0.23 0.21 0.15 (0.21) 9 1/8 8 5/8 10.61 10.23 1,698
February 28, 1996 0.25 0.17 (0.38) (0.24) 9 5/8 9 10.78 10.41 2,217
May 31, 1996 0.25 (0.09) (0.40) (0.21) 9 1/4 8 3/8 10.45 9.99 2,068
August 31,1996 0.23 (0.12) 0.10 (0.23) 9 1/4 8 1/4 10.26 9.83 2,190
November 30, 1996 0.22 0.08 0.52 (0.22) 9 1/2 8 7/8 10.55 10.01 1,334
February 28, 1997 0.18 0.09 (0.27) (0.23) 9 5/8 9 1/8 10.52 10.25 1,664
May 31, 1997 0.20 0.02 (0.11) (0.22) 9 1/4 9 5/8 10.31 10.03 1,819
August 31,1997 0.18 0.07 0.19 (0.21) 9 15/16 9 1/2 10.60 10.25 1,922
November 30, 1997 0.21 (0.10) 0.27 (0.20) 9 3/4 9 3/16 10.72 10.41 3,292
February 28, 1998 0.20 (0.08) (0.06) (0.19) 9 5/8 9 3/8 10.80 10.52 2,650
May 31, 1998 0.19 0.02 (0.04) (0.19) 9 7/16 8 13/16 10.53 10.41 1,815
August 31, 1998 0.18 0.03 (0.06) (0.18) 9 1/8 8 3/4 10.55 10.43 1,809
November 30, 1998 0.19 (0.11) (0.29) (0.19) 9 1/8 8 11/16 10.55 10.00 1,468
----------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISOR AND ADMINISTRATOR TRANSFER AGENT
HYPERION CAPITAL MANAGEMENT, INC. BOSTON EQUISERVE L.P.
One Liberty Plaza Investor Relations Department
165 Broadway, 36th Floor P.O. Box 8200
New York, New York 10006-1404 Boston, Massachusetts 02266-8200
For General Information about the Fund: For Shareholder Services:
(800) HYPERION (800) 426-5523
SUB-ADVISOR INDEPENDENT ACCOUNTANTS
PACHOLDER ASSOCIATES, INC. PRICEWATERHOUSECOOPERS LLP
Towers of Kenwood 1177 Avenue of the Americas
8044 Montgomery Road New York, New York 10036
Suite 382
Cincinnati, Ohio 45236 LEGAL COUNSEL
CUSTODIAN SULLIVAN & WORCESTER LLP
1025 Connecticut Avenue, N.W.
STATE STREET BANK AND TRUST COMPANY Washington, D.C. 20036
225 Franklin Street
Boston, Massachusetts 02116
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.
- -------------------------------------------------------------------------------
Officers & Directors
- -------------------------------------------------------------------------------
Andrew M. Carter
Chairman
Lewis S. Ranieri
Director
Robert F. Birch
Director
Rodman L. Drake*
Director
Garth Marston
Director Emeritus
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Kenneth C. Weiss
Director
Patricia A. Sloan
Director & Secretary
Clifford E. Lai
President
John H. Dolan
Vice President
Patricia A. Botta
Vice President
Thomas F. Doodian
Treasurer
* Audit Committee Members
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
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