THE
H Y P E R I O N
TOTAL RETURN FUND, INC.
Annual Report
November 30, 1999
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THE HYPERION TOTAL RETURN FUND, INC.
Report of the Investment Advisor
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January 21, 2000
Dear Shareholder:
We welcome this opportunity to provide you with the annual report of The
Hyperion Total Return Fund, Inc. (the "Fund") for its fiscal year ended
November 30, 1999. 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-term 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. Government Agency Collateralized
Mortgage Obligations ("CMOs"), Subordinated CMOs, mortgage-backed
securities ("MBS"), asset-backed securities ("ABS") and high-yield
corporate securities.
Market Environment
Interest rates rose significantly throughout 1999, spurred by three
separate quarter-point tightenings by the Federal Reserve, exceptional
U.S. economic strength and a powerful bull market in stocks. From May
31, 1999 to November 30, 1999, the yield on the 2-year U.S. Treasury Note
increased from 5.40% to 6.01%, the yield on the 10-year U.S. Treasury
Note rose from 5.62% to 6.19%, and the Federal Reserve's target Federal
Funds rate rose from 4.75% to 5.50%. In single-family mortgages, the
Federal Home Loan Mortgage Corporation ("FHLMC") average 30-year mortgage
rate rose from 7.23% to 7.75%.
Over the short term, the environment for fixed income securities will
continue to be challenging. Consumer spending and confidence are up,
stock prices continue to rise, and labor markets are tight. We believe
that the Federal Reserve will tighten at least twice more in the next six
months, and will continue to do so until both price gains in the stock
market and consumer spending slows, even if inflation remains subdued.
Over the longer term, we believe that the Federal Reserve will ultimately
engineer a slowdown in economic activity, which should allow interest
rates to fall back toward mid-1999 levels. However, given the current
uncertainty regarding the actions of the Federal Reserve and the strength
of the economy, we expect volatility to be high over the next few months.
Portfolio Strategy and Performance
Over the last year, the relative value differential between various
sectors of the fixed income market shifted. As a result, we have
reallocated the Fund away from Agency Collateralized Mortgage Obligations
("CMOs") towards more credit sensitive MBS and ABS. The percent of the
Fund held in Agency CMOs, as a percentage of total investments, declined
from 33.8% in November 1998, to 27.9% in November 1999, while the percent
of the Fund held in subordinated Residential MBS and housing-related ABS
increased from 25.2% and 16.0% to 32.1% and 16.4%, respectively. The
goal of this reallocation was to take advantage of excellent relative
value opportunities that developed in certain sectors of the market
during the Fourth Quarter of 1998 that had not been available in several
years. This shift has been beneficial to the Fund as these sectors
posted mostly strong performance versus CMOs on the year.
Among these credit sensitive sectors, we continue to overweight
Residential MBS relative to Commercial MBS, high yield Corporate
securities or other, non-housing related ABS. We believe that the market
fundamentals remain in place for housing prices to continue to appreciate
and are wary of the impact of an economic slowdown. We believe that the
recent increase in interest rates will cause the supply of
housing-related securities to contract more dramatically than any
reduction in the supply of Commercial MBS, Corporate securities, or
non-housing related ABS, which in turn will make Residential MBS more
attractive.
The Fund's total return, based on Net Asset Value ("NAV") for the fiscal
year ending November 30, 1999, was (0.76%). Total investment return is
based upon the change in NAV of the Fund's shares and includes
reinvestment of dividends. Based on the NYSE closing price of $7.375 on
November 30, 1999, the yield of the Fund was 9.76%. This yield was 365
basis points above the yield of the 5-Year U.S. Treasury Note, and was
competitive with the yield of other multi-sector fixed income 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 4.3 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 benefit of that spread
(between share purchase price and the NAV) is captured and returned to
all of the Fund's remaining shareholders. From December 1, 1998, through
and including November 30, 1999, the Fund has repurchased and retired
732,500 shares, and captured $0.0422 in additional NAV per share, for a
total of $968,613 for all shareholders.
The chart that follows shows the allocation of the Fund's holdings by
asset category on November 30, 1999.
The Hyperion Total Return Fund, Inc.
Portfolio of Investments as of NOVEMBER 30, 1999 *
U.S. Government Agency Pass-Through Certificates 4.0%
U.S. Government Agency Collateralized Mortgage Obligations 27.9%
U.S. Treasury Obligations 1.8%
Asset-Backed Securities 16.4%
Commercial Mortgage-Backed Securities 10.1%
Subordinated Collateralized Mortgage Obligations 32.1%
High-Yield Corporate Securities 4.8%
U.S. Government Stripped Mortgage-Backed Security 0.2%
Preferred Stocks 1.7%
Repurchase Agreement 1.0
*As a percentage of total investments
Conclusion
The Fund's commitment to its shareholders remains to actively seek out
significant 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 in an effort to
achieve its objectives. We appreciate the opportunity to serve your
investment needs.
Sincerely,
ANDREW M. CARTER
Director and Chairman of the Board,
The Hyperion Total Return Fund, Inc.
Chairman and Chief Executive Officer,
Hyperion Capital Management, Inc.
CLIFFORD E. LAI
President,
The Hyperion Total Return Fund, Inc.
President and Chief Investment Officer,
Hyperion Capital Management, Inc.
JOHN H. DOLAN
Vice President,
The Hyperion Total Return Fund, Inc.
Director,
Hyperion Capital Management, Inc.
%
<TABLE>
<S> <C> <C> <C> <C>
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1999 Interest Amount Value
Rate Maturity (000s) (Note 2)
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U.S. GOVERNMENT & AGENCY OBLIGATIONS - 50.3%
U.S. Government Agency Pass-Through Certificates - 6.0%
Federal National Mortgage Association (TBA)
(Cost - $12,748,125) 7.00 % 12/01/29 $ 13,000 $ 12,703,444
------------
U.S. Government Agency Collateralized Mortgage Obligations - 41.4%
Federal Home Loan Mortgage Corporation
Series 1643, Class PH 5.75 07/15/23 12,000 @ 11,412,240
Series 1675, Class KC 6.50 10/15/10 5,750 @ 5,532,132
Series 1659, Class SD 8.50 + 01/15/09 2,234 2,230,470
Series 1565, Class L 9.00 + 08/15/08 2,066 2,116,363
Series 1587, Class SK 9.00 + 10/15/08 1,857 1,904,464
Series 1604, Class MC 9.00 + 11/15/08 5,557 5,712,756
Series 1604, Class SB 9.00 + 11/15/08 1,084 1,109,490
Series 1587, Class SF 9.29 + 05/15/08 928 951,082
Series 1469, Class I 9.60 + 03/15/00 1,268 1,267,122
-----------
32,236,119
-----------
Federal National Mortgage Association 6.63 09/15/09 20,000 @ 19,725,000
-----------
Federal National Mortgage Association
Series 1994-42, Class PG 6.00 03/25/23 10,000 @ 9,547,800
Series 1997-1, Class B 6.50 02/18/04 16,770 @ 16,576,889
Series 1998-W6, Class B3 7.09 10/25/28 2,248 1,485,202
Series 1993-170, Class SC 9.00 + 09/25/08 4,612 @ 4,738,236
Series 1993-48, Class C 9.50 04/25/08 3,618 @ 3,755,213
-----------
36,103,340
-----------
Total U.S. Government Agency Collateralized Mortgage Obligations
(Cost - $88,071,657) 88,064,459
-----------
U.S. Government Stripped Mortgage-Backed Security - 0.3%
Interest-Only Security:
Vendee Mortgage Trust
Series 1997-2, IO
(Cost - $1,128,839) 0.07 + 06/15/27 273,260 657,191
-----------
U.S. Treasury Obligations - 2.6%
U.S. Treasury Bills # 4.44-4.83 ++ 12/23/99 400 399,000
-----------
U.S. Treasury Notes 3.63 07/15/02 5,241 @ 5,198,367
-----------
Total U.S. Treasury Obligations
(Cost - $5,629,116) 5,597,367
-----------
Total U.S. Government & Agency Obligations
(Cost - $107,577,737) 107,022,461
-----------
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ASSET-BACKED SECURITIES - 24.3%
Access Financial Manufactured Housing Contract Trust
Series 1995-1, Class B1 7.65 + 05/15/21 10,060 7,645,600
-----------
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1999 Interest Amount Value
Rate Maturity (000s) (Note 2)
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ASSET-BACKED SECURITIES (continued)
Bosque Asset Corporation
Asset-Backed Notes* 7.66 % 06/05/02 $ 476 $ 475,834
------------
Ditech Home Loan Owner Trust
Series 1998-1, Class M2 7.64 06/15/29 5,000 4,468,750
------------
Franchisee Loan Receivable Trust
Series 1995-B, Class A 9.63 01/25/11 3,399 3,449,486
-----------
GE Capital Mortgage Services, Inc.
Series 1996-HE3, Class B4* (b) (c) 8.25 09/25/26 402 16,088
-----------
Global Rated Eligible Assets Trust
Series 1998-A, Class A1* (c) 7.33 03/15/06 1,685 387,464
-----------
Green Tree Financial Corporation
Series 1999-2, Class M1 6.80 + 12/01/30 12,750 @ 11,646,335
Series 1998-8, Class M1 6.98 09/01/30 10,000 @ 9,404,400
Series 1996 CTF, Class M1 7.30 11/15/27 1,500 1,478,205
-----------
22,528,940
-----------
125 Home Loan Owner Trust
Series 1998-1, Class M2 7.75 + 02/15/29 5,000 4,558,200
-----------
Saxon Asset Securities Trust
Series 1998-1, Class MF1 7.05 12/25/27 5,000 4,880,400
-----------
Structured Mortgage Asset Residential Trust
Series 1997-2, Class A (c) 8.24 03/15/06 2,446 440,344
-----------
Westgate Resorts LLC
Series 1998-A, Class A2* 8.26 07/15/13 3,145 2,882,597
-----------
Total Asset-Backed Securities
(Cost - $60,654,438) 51,733,703
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COLLATERALIZED MORTGAGE OBLIGATIONS - 62.6%
Commercial Mortgage Backed Securities - 15.0%
Asset Securitization Corporation
Series 1997-D5, Class A1B 6.66 + 02/14/41 10,000 9,805,300
-----------
FFCA Secured Lending Corporation
Series 1998-1, Class A1B* 6.73 07/18/13 4,500 4,110,885
-----------
First Chicago/Lennar Trust I
Series 1997-CHLI, Class D* 8.13 + 05/29/08 3,000 2,421,094
-----------
GS Mortgage Securities Corp. II
Series 1998-GLII, Class F* (b) 7.19 + 04/13/31 4,000 2,793,880
-----------
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1999 Interest Amount Value
Rate Maturity (000s) (Note 2)
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Commercial Mortgage Backed Securities (continued)
Morgan (JP) Commercial Mortgage Finance Corp.
Series 1999-C8, Class C 7.45 % + 07/15/31 $ 5,000 $ 4,931,650
-----------
Mortgage Capital Funding, Inc.
Series 1996-MC1, Class G* (b) 7.15 06/15/06 1,559 1,269,712
-----------
Nationslink Funding Corporation
Series 1998-1, Class F* (b) 7.05 02/20/08 2,000 1,490,584
-----------
Paine Webber Mortgage Acceptance Corporation
Series 1995-M2, Class C* 6.90 12/01/03 5,000 4,988,480
-----------
Total Commercial Mortgage Backed Securities
(Cost - $34,440,407) 31,811,585
-----------
Subordinated Collateralized Mortgage Obligations - 47.6%
Cendant Mortgage Corp.
Series 1998-9, Class A4 (b) 6.50 08/18/28 15,273 13,976,784
-----------
Chase Mortgage Finance Corporation
Series 1998-S4, Class B3 6.75 08/25/28 1,900 1,267,850
Series 1994-D, Class B3 6.75 + 02/25/25 654 513,878
-----------
1,781,728
-----------
Citicorp Mortgage Securities, Incorporated
Series 1997-2, Class B2 7.25 05/25/27 1,981 1,776,427
Series 1997-5, Class B2 7.25 11/25/27 2,023 1,806,165
-----------
3,582,592
-----------
Countrywide Alternative Loan Trust
Series 1998-2, Class B3* 7.00 05/25/28 1,084 749,348
-----------
Countrywide Funding Corporation
Series 1994-2, Class B2 6.50 02/25/09 513 112,939
Series 1996-2, Class B4* 7.75 09/25/26 945 864,168
-----------
977,107
-----------
DLJ Mortgage Acceptance Corporation
Series 1995-T10, Class C* 23.96 + 09/02/23 1,642 726,801
-----------
G3 Mortgage Reinsurance Ltd.
Mortgage Default Recourse Class A* (b) 6.59 + 05/25/08 2,000 1,875,000
Mortgage Default Recourse Class B* (b) 6.89 + 05/25/08 6,000 5,563,128
Mortgage Default Recourse Class C* (b) 8.44 + 05/25/08 6,500 5,797,188
Mortgage Default Recourse Class E* (b) 25.59 + 05/25/08 6,721 4,771,596
-----------
18,006,912
-----------
GE Capital Mortgage Services, Inc.
Series 1994-2, Class B5* (a) 6.00 + 01/25/09 655 144,097
Series 1994-10, Class M 6.50 03/25/24 5,370 5,021,879
Series 1998-17, Class B3 6.75 10/25/28 3,356 2,229,255
Series 1995-10, Class B3* 7.00 + 10/25/10 564 463,195
Series 1997-12, Class B5* 7.00 + 12/25/27 2,217 942,036
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1999 Interest Amount Value
Rate Maturity (000s) (Note 2)
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Subordinated Collateralized Mortgage Obligations (continued)
GE Capital Mortgage Services, Inc. (continued)
Series 1994-17, Class B3* 7.00 % + 05/25/24 $ 1,849 $ 1,631,513
Series 1996-3, Class B3* 7.00 + 03/25/26 1,794 1,527,363
Series 1996-9, Class B5* (a) 7.50 06/25/26 1,129 282,368
-----------
12,241,706
-----------
Headlands Mortgage Securities, Inc.
Series 1997-4, Class B4 7.25 11/25/27 1,513 1,194,609
-----------
IMPAC CMB Trust
Series 1998-3, Class B 6.87 + 07/25/28 3,027 2,885,074
-----------
Independent National Mortgage Corporation
Series 1995-Q, Class B1 7.50 11/25/25 2,740 2,676,481
-----------
Norwest Asset Securities Corp.
Series 1999-18, Class B1 6.50 07/25/29 19,047 16,883,625
-----------
Paine Webber Mortgage Acceptance Corporation
Series 1993-9, Class B1 7.00 10/25/23 2,952 1,892,442
-----------
PHH Mortgage Services Corp.
Series 1997-6, Class B3 7.34 + 11/18/27 987 886,239
-----------
Prudential Home Mortgage Securities Co., Inc.
Series 1996-5, Class B4* 7.25 04/25/26 1,339 905,987
Series 1996-5, Class B5* (a) 7.25 04/25/26 1,199 299,670
Series 1996-5, Class B1 7.25 04/25/26 3,347 3,198,785
-----------
4,404,442
-----------
Residential Accredit Loans, Inc.
Series 1998-QS5, Class B1* 6.75 04/25/28 1,730 1,169,807
Series 1998-QS11, Class B1* 6.75 08/25/28 2,607 1,702,181
-----------
2,871,988
-----------
Residential Asset Securitization Trust
Series 1997-A2, Class B1 7.75 04/25/27 2,368 2,326,679
-----------
Residential Funding Mortgage Securities I, Inc.
Series 1993-S49, Class B2 6.00 12/25/08 216 162,421
Series 1999-S12. Class M3 6.50 05/25/29 3,504 2,907,947
Series 1999-13, Class M3 6.50 05/25/29 1,454 1,207,146
Series 1996-S5, Class B1 6.75 02/25/11 496 410,140
Series 1996-S8, Class B1 6.75 03/25/11 478 386,978
Series 1996-S13, Class B3 (a) 7.00 05/25/11 329 72,341
Series 1996-S13, Class B2 7.00 05/25/11 329 251,507
Series 1997-S17, Class B3* 7.00 11/25/27 2,995 1,153,193
Series 1995-S12, Class B2 7.25 08/25/10 293 225,288
Series 1996-S17, Class B3 7.25 07/25/11 259 46,583
Series 1996-S17, Class B2 (a) 7.25 07/25/11 259 192,967
Series 1995-S17, Class B3 7.50 12/26/25 1,778 782,434
Series 1997-S2, Class M2 7.50 01/25/27 1,741 1,683,149
Series 1997-S2, Class B2 7.50 01/25/27 821 544,175
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1999 Interest Amount Value
Rate Maturity (000s) (Note 2)
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Subordinated Collateralized Mortgage Obligations (continued)
Residential Funding Mortgage Securities I, Inc. (continued)
Series 1997-S3, Class B2 7.50 % 02/25/27 $ 498 $ 308,881
Series 1997-S7, Class B1 7.50 05/25/27 1,157 889,396
Series 1996-S23, Class B2 7.75 11/25/26 499 387,569
Series 1996-S23, Class B1 7.75 11/25/26 670 641,652
Series 1996-S22, Class B1 8.00 10/25/26 1,018 985,048
-----------
13,238,815
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Total Subordinated Collateralized Mortgage Obligations
(Cost - $107,461,928) 101,303,372
-----------
Total Collateralized Mortgage Obligations
(Cost - $141,902,335) 133,114,957
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CORPORATE OBLIGATIONS - 7.2%
Aerospace and Defense - 0.2%
BE Aerospace, Inc. 8.00 03/01/08 500 410,000
-----------
Air Transport - 0.2%
Atlantic Coast Airlines* 8.75 01/01/07 437 437,200
-----------
Automotive - 0.5%
Navistar International Corporation 8.00 02/01/08 500 478,750
Western Star Trucks Holdings* 8.75 05/01/07 500 481,250
-----------
960,000
-----------
Beverage and Tobacco - 0.2%
Cott Corporation 9.38 07/01/05 500 490,000
-----------
Building & Development - 0.3%
American Standard Inc. 7.38 02/01/08 250 230,000
U S Home Corporation 8.25 08/15/04 500 472,500
-----------
702,500
-----------
Cable Television - 0.7%
Century Communications Corporation 9.50 03/01/05 500 503,125
CSC Holdings Inc 8.13 08/15/09 500 500,000
Rogers Cablesystems, Ltd. 9.63 08/01/02 500 521,250
-----------
1,524,375
-----------
Chemicals/Plastics - 0.4%
Buckeye Cellulose Corporation 8.50 12/15/05 500 490,000
ISP Holdings, Inc. 9.00 10/15/03 250 249,375
-----------
739,375
-----------
Clothing/Textiles - 0.2%
Westpoint Stevens Inc. 7.88 06/15/08 500 467,500
-----------
Containers-Metal/Glass - 0.1%
Ball Corporation 8.25 08/01/08 250 244,062
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1999 Interest Amount Value
Rate Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (continued)
Ecological Services & Equipment - 0.2%
American Eco Corp. 9.63 % 05/15/08 $ 250 $ 137,500
Safety Kleen Services, Inc. 9.25 06/01/08 250 246,250
-----------
383,750
-----------
Electronics/Electric - 0.4%
Elgar Holdings, Inc. 9.88 02/01/08 125 87,500
Mark IV Industries, Inc. 7.75 04/01/06 750 713,295
-----------
800,795
-----------
Equipment Leasing - 0.1%
Coinmach Corporation 11.75 11/15/05 250 258,125
-----------
Food Service - 0.2%
Apple South Inc. 9.75 06/01/06 500 430,000
-----------
Home Furnishings - 0.1%
Home Products International Inc. 9.63 05/15/08 250 225,000
-----------
Hotels/Motels/Inns and Casinos - 0.3%
HMH Properties Inc. 7.88 08/01/08 500 452,500
Prime Hospitality Corporation 9.25 01/15/06 250 245,000
-----------
697,500
-----------
Industrial Equipment - 0.2%
Columbus McKinnon Corporation 8.50 04/01/08 500 433,125
-----------
Insurance - 0.3%
Americo Life, Inc. 9.25 06/01/05 500 500,000
-----------
Leisure - 0.5%
Premier Parks Incorporated 9.25 04/01/06 500 488,750
Speedway MotorSports, Inc. 8.50 08/15/07 500 487,500
-----------
976,250
-----------
Medical Equipment - 0.2%
Prime Medical Services, Inc. 8.75 04/01/08 500 460,000
-----------
Nonferrous Metals/Minerals - 0.2%
P & L Coal Holdings Corp.* 8.88 05/15/08 500 491,250
-----------
Steel - 0.7%
Inland Steel Company 7.90 01/15/07 500 477,500
NS Group Incorporated 13.50 07/15/03 500 518,750
Ryerson Tull, Inc. 9.13 07/15/06 500 534,765
-----------
1,531,015
-----------
Surface Transport - 0.2%
Allied Holdings Inc. 8.63 10/01/07 250 217,500
Newport News Shipbuilding, Inc. 8.63 12/01/06 270 270,675
-----------
488,175
-----------
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments Principal
November 30, 1999 Interest Amount Value
Rate Maturity (000s) (Note 2)
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CORPORATE OBLIGATIONS (continued)
Telecommunications/Mobile, Cellular - 0.5%
Global Crossing Holdings Ltd. 9.13 % 11/15/06 $ 250 $ 246,563
Price Communications Wireless* 9.13 12/15/06 500 508,750
Rogers Cantel 9.38 06/01/08 250 266,563
-----------
1,021,876
-----------
Utilities - 0.3%
El Paso Electric Company 8.90 02/01/06 500 522,180
-----------
Total Corporate Obligations
(Cost - $15,825,711) 15,194,053
-----------
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Shares
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PREFERRED STOCKS - 2.5%
Camden Property Trust, Series A, 9.00% 80,973 1,892,744
Duke Realty Investment, Series D, 7.375% 765 15,013
Equity Office Properties, Series B, 5.25% 46,012 1,696,693
Equity Residential Properties, Series J, 8.60% 32,927 827,291
Equity Residential Properties, Series G, 7.25% 49,358 962,481
-----------
Total Preferred Stocks
(Cost - $6,054,704) 5,394,222
-----------
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Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.5%
Dated 11/30/99, with State Street Bank and Trust Company;
proceeds: $3,235,472; collateralized by $3,280,000
Federal National Mortgage Association, 5.94%, due 9/14/01,
value: $3,280,541 (Note 2)
(Cost - $3,235,000) 5.25 % 12/01/99 $ 3,235 3,235,000
-----------
Total Investments - 148.4%
(Cost - $335,249,925) 315,694,396
Liabilities in Excess of Other Assets - (48.4%) (102,991,218)
-----------
NET ASSETS - 100.0% $ 212,703,178
===========
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</TABLE>
@ - Portion of or entire principal amount delivered as
collateral for reverse repurchase agreements. (Note 5)
# - Security is held in a margin account as collateral for open
financial futures contracts.
+ - Variable Rate Security: Interest rate is rate in effect at
November 30, 1999.
++ - Interest rates shown represent yield to Maturity at date of
purchase.
* - 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)- 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.
(b)- Private Placement
(c)- Illiquid securities representing in the aggregate 0.40%
of net assets.
IO - Interest Only Security -- Interest rate is based on the
notional amount of the underlying mortgage pools.
TBA - To Be Announced -- Security is subject to delayed delivery.
Open futures contracts as of November 30, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Notional Value at Value at Unrealized
Amount Type Expiration Date Trade Date November 30, 1999 Appreciation
Short:
$ 26,000,000 10 Yr. U.S. Treasury Note December 1999 $28,460,813 $28,405,000 $55,813
</TABLE>
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See notes to financial statements.
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THE HYPERION TOTAL RETURN FUND, INC.
Statement of Assets and Liabilities
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $335,249,925) (Note 2) $ 315,694,396
Cash 189,301
Interest receivable 2,923,719
Principal paydowns receivable 349,143
Prepaid expenses and other assets 144,344
-------------
Total assets 319,300,903
-------------
Liabilities:
Reverse repurchase agreements (Note 5) 93,050,756
Payable for investments purchased 12,778,458
Interest payable for reverse repurchase agreements (Note 5) 447,073
Investment advisory fee payable (Note 3) 113,334
Payable for fund shares repurchased 45,552
Payable for variation margin 44,688
Administration fee payable (Note 3) 35,028
Accrued expenses and other liabilities 82,836
-------------
Total liabilities 106,597,725
-------------
Net Assets (equivalent to $927 per share based on
22,950,615 shares issued and outstanding) $ 212,703,178
==============
Composition of Net Assets:
Capital stock, at par value ($01) (Note 6) $ 229,506
Additional paid-in capital (Note 6) 259,957,866
Undistributed net investment income 1,651,305
Accumulated net realized loss (29,635,783)
Net unrealized depreciation (19,499,716)
--------------
Net assets applicable to capital stock outstanding $ 212,703,178
==============
- -------------------
See notes to financial statements
</TABLE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Operations
For the Year Ended November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income (Note 2):
Interest $ 25,728,895
Dividend 234,014
-----------------------------
25,962,909
-----------------------------
Expenses:
Investment advisory fee (Note 3) 1,456,297
Administration fee (Note 3) 448,092
Insurance 147,277
Custodian 80,353
Directors' fees 66,125
Transfer agency 61,592
Accounting and tax services 53,700
Reports to shareholders 34,765
Registration fees 32,340
Legal 15,291
Miscellaneous 28,105
-----------------------------
Total operating expenses 2,423,937
Interest expense (Note 5) 5,177,064
-----------------------------
Total expenses 7,601,001
-----------------------------
Net investment income 18,361,908
-----------------------------
Realized and Unrealized Gain (Loss) on Investment
and Futures Transactions (Notes 2 and 4):
Net realized gain (loss) on:
Investment transactions (5,891,401)
Futures transactions 402,836
-----------------------------
Net realized loss on investments and futures transactions (5,488,565)
-----------------------------
Net change in unrealized depreciation on investments and futures transactions (15,578,326)
-----------------------------
Net realized and unrealized loss on investments and futures transactions (21,066,891)
-----------------------------
Net decrease in net assets resulting from operations $ (2,704,983)
=============================
_____________
See notes to financial statements
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statements of Changes in Net Assets
For the Year Ended November 30,
-----------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting from Operations:
Net investment income $ 18,361,908 $ 18,386,968
Net realized loss on investments and futures transactions (5,488,565) (3,852,786)
Net change in unrealized appreciation (depreciation)
on investments and futures transactions (15,578,326) (10,890,009)
---------------------- -----------------------
Net increase (decrease) in net assets resulting from operations (2,704,983) 3,644,173
---------------------- -----------------------
Dividends to Shareholders (Note 2):
Net investment income (17,037,688) (18,093,595)
---------------------- -----------------------
Capital Stock Transactions (Note 6):
Cost of Fund shares repurchased and retired (6,357,494) (7,075,100)
---------------------- -----------------------
Total decrease in net assets (26,100,165) (21,524,522)
Net Assets:
Beginning of year 238,803,343 260,327,865
---------------------- -----------------------
End of year (including undistributed net investment income of
$1,651,305 and $327,085, respectively) $ 212,703,178 $ 238,803,343
====================== =======================
______________
See notes to financial statements.
</TABLE>
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Cash Flows
For the Year Ended November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash:
Cash flows provided by operating activities:
Interest received (including net amortization of $594,066) $ 27,355,936
Interest expense paid (4,899,917)
Operating expenses paid (2,243,648)
Purchases and sales of short-term portfolio investments, net (298,000)
Purchases of long-term portfolio investments (243,456,479)
Proceeds from disposition of long-term portfolio investments and
principal paydowns 262,703,495
Net cash from futures transactions 503,336
-----------------------------
Net cash provided by operating activities 39,664,723
-----------------------------
Cash flows used for financing activities:
Cash used to repurchase and retire Fund shares (6,311,942)
Net cash used for reverse repurchase agreements (15,986,245)
Cash dividends paid (17,037,688)
-----------------------------
Net cash used for financing activities (39,335,875)
-----------------------------
Net increase in cash 328,848
Temporary bank overdraft at beginning of year (139,547)
-----------------------------
Cash at end of year $ 189,301
=============================
Reconciliation of Net Decrease in Net Assets Resulting from
Operations to Net Cash Provided by Operating Activities:
Net decrease in net assets resulting from operations $ (2,704,983)
-----------------------------
Decrease in investments 12,235,023
Increase in net unrealized depreciation on investments 15,578,326
Decrease in interest receivable 813,220
Increase in variation margin payable 44,688
Decrease in other assets 10,543,721
Increase in other liabilities 3,154,728
-----------------------------
Total adjustments 42,369,706
-----------------------------
Net cash provided by operating activities $ 39,664,723
=============================
_____________
See notes to financial statements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Financial Highlights For the Year Ended November 30,
----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of year $ 10.08 $ 10.64 $ 10.55 $ 10.61 $ 9.56
---------------- ---------------- ----------------- ---------------- ----------
Net investment income 0.80 0.76 0.77 0.95 0.92
Net realized and unrealized
gains (losses) on investment
and futures transactions (0.91) (0.61) 0.16 (0.11) 1.13
---------------- ---------------- ----------------- ---------------- -----------
Net increase (decrease) in net
asset value resulting from operations (0.11) 0.15 0.93 0.84 2.05
---------------- ---------------- ----------------- ---------------- ----------
Net effect of shares repurchased 0.04 0.04 0.02 ---- ----
Dividends from net investment income (0.74) (0.75) (0.86) (0.90) (1.00)
---------------- ---------------- ----------------- ---------------- ----------
Net asset value, end of year $ 9.27 $ 10.08 $ 10.64 $ 10.55 $ 10.61
================ ================ ================= ================ ==========
Market price, end of year $ 7.375 $ 8.69 $ 9.3125 $ 9.375 $ 9.00
================ ================ ================= ================ ==========
Total Investment Return + (7.17)% 1.23% 8.64% 14.97% 17.45%
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of year (000's) $ 212,703 $ 238,803 $ 260,328 $ 261,113 $ 263,022
Operating expenses 1.08% 1.05% 1.05% 1.08% 1.07%
Interest expense 2.31% 2.39% 2.46% 2.34% 2.24%
Total expenses 3.39% 3.44% 3.51% 3.42% 3.31%
Net investment income 8.20% 7.27% 7.45% 9.26% 9.18%
Portfolio turnover rate 72% 90% 109% 227% 320%
</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 brokerage
commissions Dividends and distributions are assumed to be reinvested at
the prices obtained under the Fund's dividend reinvestment plan.
- ---------------------------------
See notes to financial statements.
- --------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Notes to Financial Statements
November 30, 1999
- --------------------------------------------------------------------------------
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, except preferred stocks, which are valued based
upon the closing price. The Fund values mortgage-backed securities
("MBS") and other debt securities for which market quotations are not
readily available (approximately 38% of the investments in securities
held by the Fund at November 30, 1999) 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 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
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
2. Significant Accounting Policies (continued)
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 "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 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, 1999, the Advisor received $1,456,297 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, 1999, the
Administrator received $448,092 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, 1999, were $82,633,316 and $61,521,776,
respectively. Purchases and sales of U.S. Government securities, for
the year ended November 30, 1999 were $163,546,934 and $171,396,622,
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 Veteran Affairs.
The federal income tax basis of the Fund's investments at November
30, 1999 was $335,249,925 which was the same for financial reporting
and, accordingly, net unrealized depreciation for federal income tax
purposes was $19,555,529 (gross unrealized appreciation --
$2,371,932; gross unrealized depreciation -- $21,927,461). At tax
year end November 30, 1999, the Fund had a capital loss carryforward
of $29,571,881, of which $2,440,085, $17,837,901, $3,861,143 and
$5,432,752 expire in 2000, 2002, 2006 and 2007, 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.
5. Borrowings (continued)
At November 30, 1999, the Fund had the following reverse repurchase
agreements outstanding:
Maturity in
Zero to 30 Days
Maturity Amount, Including Interest Payable $ 93,827,241
Market Value of Assets Sold
Under Agreements.............. $ 117,022,522
Weighted Average Interest Rate 5.58%
The average daily balance of reverse repurchase agreements
outstanding during the year ended November 30, 1999, was
approximately $102,737,481 at a weighted average interest rate of
5.04%. The maximum amount of reverse repurchase agreements
outstanding at any time during the year was $113,915,757, as of
January 27, 1999, which was 31.00% of total assets.
6. Capital Stock
There are 50 million shares of $0.01 par value common stock
authorized. Of the 22,950,615 shares outstanding at November 30,
1999, 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 of the Trust's shares, are authorized for
repurchase. The purchase price may not exceed the then-current net
asset value.
As of November 30, 1999, 2,027,700 shares have been repurchased
pursuant to this program at a cost of $18,123,154 and at an average
discount of 13.10% from its net asset value. For the year ended
November 30, 1999, 732,500 shares have been repurchased at a cost of
$6,357,494 and at an average discount of 13.53% 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. 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.
An open futures contract at November 30, 1999 is included in the
portfolio of investments.
There was no written option activity for the year ended November 30,
1999.
8. Subsequent Events
The Fund's Board of Directors declared the following regular monthly
dividend:
Dividend Per Record Payable
Share Date Date
$0.0700 12/22/99 12/31/99
$0.0700 12/31/99 01/27/00
- ----------------
- --------------------------------------------------------------------------------
THE 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, 1999, the results of its operations and cash
flows for the year then ended, and the changes in its net assets and
the financial highlights for each of the two years in the period then
ended, in conformity with accounting principles generally accepted in
the United States. 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
audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United
States, 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 audits, which
included confirmation of investments at November 30, 1999 by
correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
The financial highlights for the three years in the period ended
November 30, 1997 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 21, 2000
- -----------------------------------------------------------------------
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, 1999) 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, 2.07% of the Fund's
distributions during the fiscal year ended November 30, 1999 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 1999. 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 2000. Shareholders are advised to consult their own tax
advisors with respect to the tax consequences of their investment in
the Fund.
- -----------------------------------------------------------------------
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.
<TABLE>
<S> <C>
SUB-ADMINISTRATORR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC. INVESTORS CAPITAL SERVICES, INC.
One Liberty Plaza 600 Fifth Avenue, 26th Floor
165 Broadway, 36th Floor New York, New York 10020
New York, New York 10006-1404
For General Information about the Fund: CUSTODIAN AND FUND ACCOUNTING AGENT
(800) HYPERION
STATE STREET BANK AND TRUST COMPANY
SUB-ADVISOR 225 Franklin Street
Boston, Massachusetts 02116
PACHOLDER ASSOCIATES, INC.
Towers of Kenwood INDEPENDENT ACCOUNTANTS
8044 Montgomery Road
Suite 480 PRICEWATERHOUSECOOPERS LLP
Cincinnati, Ohio 45236 1177 Avenue of the Americas
New York, New York 10036
TRANSFER AGENT
LEGAL COUNSEL
BOSTON EQUISERVE L.P.
Investor Relations Department SULLIVAN & WORCESTER LLP
P.O. Box 8200 1025 Connecticut Avenue, N.W.
Boston, Massachusetts 02266-8200 Washington, D.C. 20036
For Shareholder Services:
(800) 426-5523
</TABLE>
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
John W. English*
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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