UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05820
THE HYPERION TOTAL RETURN FUND, INC.
(Exact name of registrant as specified in charter)
ONE LIBERTY PLAZA, 165 BROADWAY, 36TH FLOOR
NEW YORK, NEW YORK 10006-1404
(Address of principal executive offices) (Zip code)
CLIFFORD E. LAI, PRESIDENT
THE HYPERION TOTAL RETURN FUND, INC.
ONE LIBERTY PLAZA, 165 BROADWAY, 36TH FLOOR
NEW YORK, NEW YORK, 10006-1404
(Name and address of agent for service)
Registrant's telephone number, including area code: 1 (800) Hyperion
Date of fiscal year end: November 30th
Date of reporting period: May 31, 2003
Item 1. Reports to Stockholders.
THE HYPERION
TOTAL RETURN
FUND, INC.
_____________________
______________________________________________________________
Semi-Annual Report
______________________________________________________________
May 31, 2003
[HYPERION LOGO]
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THE HYPERION TOTAL RETURN FUND, INC.
Report of the Investment Advisor
For the Six Months Ended May 31, 2003
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Dear Shareholder:
We welcome this opportunity to provide you with information about The Hyperion
Total Return Fund, Inc. (the "Fund") for the semi-annual period ended May 31,
2003. 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 ("MBS"), Asset-Backed Securities ("ABS"),
and High Yield Corporate securities.
Performance
The Fund's total return, based on market price, was 15.05% for the six months
ended May 31, 2003. Based on the NYSE closing price of $10.18 on May 31, 2003,
the Fund had a yield of 8.84%, which was 6.55% higher than the yield of the
5-year U.S. Treasury Note, and competitive with the yields of other multi-sector
bond funds in its category.
As of May 31, 2003, the Fund, inclusive of the effect of leverage, was managed
with an average duration (duration measures a bond portfolio's price sensitivity
to interest rate changes) of 4.2 years, as measured on a net asset basis.
Market Environment
The economy has continued to weaken since the Fund's last reporting date of
November 30, 2002. The consumer sector, which has held up the best in the
recession thus far, suffered as unemployment escalated to an 8-year high of 6.1%
in May. During the period, retail sales and car purchases slowed and consumer
confidence dropped to 10-year lows. The war in Iraq also dampened economic
activity.
While interest rates had been falling lower, the pace of their decline
accelerated during the period. Federal Reserve comments about deflation and its
potentially negative impact on the already weak economy drove interest rates to
the lowest levels since the 1950s.
One bright spot in the market has been the increased demand for corporate bonds.
This demand led to a narrowing of corporate bond spreads, reducing the cost of
debt and making the credit markets accessible to some corporations that have had
difficulty issuing debt in the past. The high yield corporate bond market
rallied strongly, supported by apparent efforts by many corporations to improve
their balance sheets. All of these factors could help improve corporate
profitability going forward and set the foundation for an economic recovery in
the future.
While signs point to economic recovery, there are factors that lead us to
believe difficulty lies ahead. Although the Federal Reserve is doing everything
in its power to resuscitate the economy by lowering interest rates, we believe
that continued economic restructuring from the excesses of the late 1990s,
rising unemployment at the state and local municipality levels in reaction to
their budget deficits and a weak global economy will keep a damper on the
economy. Time will be the critical medicine that will cure the economy. As a
result, we expect interest rates to remain low at least for the remainder of
2003, with no move on the part of the Federal Reserve to raise interest rates
until 2004.
Portfolio Strategy
The Fund's assets continued to be allocated primarily among the Agency MBS,
non-Agency residential MBS (RMBS) and commercial MBS (CMBS) sectors. Since
January, 2003, in light of favorable market indications and a slight improvement
in corporate earnings, we have increased the Fund's allocation to high yield
corporate bonds by approximately 3.5%. Since then, yield spreads on high yield
corporate bonds have narrowed dramatically and we believe the sector continues
to show strength. Funding some of the increase was a decrease in CMBS. A
continued weak economy, an increase in commercial real estate delinquencies and
narrowing yield spreads on CMBS, were all factors in leading us to reduce the
CMBS exposure of the Fund, especially in the lower rated BB and BBB rated areas.
Due to the dramatic decline in interest rates, mortgage prepayment activity has
been at record high levels for the last 12 months. Fortunately, the Fund has
been structured to achieve a balance toward prepayment risk. On the one hand,
prepayments on premium priced Agency MBS have resulted in additional cash flow
being reinvested at lower yields, which can have the effect of putting downward
pressure on the dividend. However, the portfolio has a large percentage in
discount priced non-Agency MBS. Higher prepayments on these have the effect of
increasing income available for the dividend. Thus far, this balance has
mitigated any need to change the dividend payout of the Fund. We will continue
to manage prepayment risk in the portfolio. However, low interest rates over an
extended period of time will eventually cause the dividend to drop.
While most of our RMBS exposure is in 30-year fixed rate mortgages, we have a
moderate exposure to Hybrid Adjustable-Rates Mortgages (ARMs), where the
mortgage rates are fixed for 3 to 7 years before resetting at a floating rate. A
large supply of Hybrid ARMs into the market has made that sector attractive,
allowing us to add marginally to our exposure.
We continue to manage the portfolio at full leverage, to take advantage of
historically low borrowing rates.
Of the Fund's total assets, 16.1% and 9.3% are invested in securities issued by
Fannie Mae and Freddie Mac, respectively. These securities are collateralized by
residential mortgage loans and are structured as either pass-throughs or
collateralized mortgage obligations. We have monitored the recent developments
at Freddie Mac and Fannie Mae and we remain confident that the creditworthiness
of these securities has not and will not be impacted in the future.
Conclusion
We remain committed to the Fund and its shareholders. As always, we will
continue to actively seek out investment opportunities in the market and act on
them in a timely fashion in an effort to achieve the Fund's objectives. We
welcome your questions and comments, and encourage you to contact our
Shareholder Services Representatives at 1-800-HYPERION.
We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ CLIFFORD E. LAI
CLIFFORD E. LAI
President,
The Hyperion Total Return Fund, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
/s/ JOHN H. DOLAN
JOHN H. DOLAN
Vice President,
The Hyperion Total Return Fund, Inc.
Chief Investment Officer,
Hyperion Capital Management, Inc.
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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments -- (Unaudited)
May 31, 2003
Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
-------------------------------------------------------------------------------------- ---------- -------------- -----------------
-------------------------------------------------------------------------------------- ---------- -------------- -----------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 56.5%
U.S. Government Agency Collateralized Mortgage Obligations -- 7.3%
Federal Home Loan Mortgage Corporation
Series 1675, Class KC....................................................6.50% 10/15/10 $ 5,750 $ 6,204,589
Series 1659, Class SD...................................................8.50+. 01/15/09 797 828,898
Series 1565, Class L....................................................9.00+. 08/15/08 607@ 622,818
Series 1604, Class MC...................................................9.00+. 11/15/08 3,736@ 4,078,891
Series 1604, Class SB...................................................9.00+. 11/15/08 719 785,493
Series 1587, Class SK...................................................9.00+. 10/15/08 1,857 2,152,738
14,673,427
Federal National Mortgage Corporation
Series 1997-1, Class B...................................................6.50. 02/18/04 1,854 1,883,107
Series 1998-W6, Class B3.................................................7.09. 10/25/28 2,151 1,988,401
Series 1993-170, Class SC...............................................9.00+. 09/25/08 1,457 1,539,088
Series 1993-48, Class C..................................................9.50. 04/25/08 864# 934,510
6,345,106
Total U.S. Government Agency Collateralized Mortgage Obligations
(Cost-- $19,301,405)..................................................... 21,018,533
U.S. Government Agency Pass-Through
Certificates-- 30.3% 7.50 06/01/31 977 1,038,766
Federal Home Loan Mortgage Corporation
C53494........................................................................
C48073...................................................................8.00. 02/01/31 470 505,220
C48075...................................................................8.00. 02/01/31 197 211,165
C55470...................................................................8.00. 07/01/31 661 710,464
C56878...................................................................8.00. 08/01/31 4,510@ 4,845,945
C56879...................................................................8.00. 08/01/31 517 555,029
C58516...................................................................8.00. 09/01/31 1,431 1,537,696
C59641...................................................................8.00. 10/01/31 3,354@ 3,603,648
C55166...................................................................8.50. 07/01/31 430 461,945
C55167...................................................................8.50. 07/01/31 1,880 2,017,117
C55168...................................................................8.50. 07/01/31 1,930 2,071,296
C55169...................................................................8.50. 07/01/31 2,507@ 2,690,572
C57010...................................................................8.50. 08/01/31 960 1,030,270
C58521...................................................................8.50. 09/01/31 525 563,484
C60422...................................................................8.50. 10/01/31 459 492,574
C60423...................................................................8.50. 10/01/31 2,033@ 2,181,365
C60424...................................................................8.50. 10/01/31 637 683,642
25,200,198
Federal National Mortgage Corporation
649881...................................................................6.00% 09/01/32 $ 6,694@ $ 6,956,484
650162...................................................................6.50. 10/01/32 4,619@ 4,813,504
652870...................................................................6.50. 10/01/32 4,499@ 4,689,066
654917...................................................................6.50. 08/01/32 14,340@ 14,944,565
642102...................................................................7.00. 05/01/32 8,755@ 9,223,261
645406...................................................................7.00. 05/01/32 6,736@ 7,096,062
645912...................................................................7.00. 06/01/32 7,600@ 8,006,314
645913...................................................................7.00. 06/01/32 6,560@ 6,910,240
62,639,496
Total U.S. Government Agency Pass-Through
Certificates
(Cost-- $86,909,197)..................................................... 87,839,694
U.S. Treasury Obligation -- 18.9%
U.S. Treasury Notes
..............................................................................3.63. 05/15/13 4,000@ 4,091,248
..............................................................................3.88. 02/15/13 24,600@ 25,691,625
..............................................................................4.38. 08/15/12 23,000@ 25,005,324
Total U.S. Treasury Obligation
(Cost-- $52,411,988)..................................................... 54,788,197
Total U.S. Government & Agency Obligations
(Cost-- $158,622,590).................................................... 163,646,424
ASSET-BACKED SECURITIES -- 22.2%
Housing Related Asset-Backed Securities -- 13.5%
125 Home Loan Owner Trust
Series 1998-1A, Class M2.................................................7.75. 02/15/29 2,339 2,436,217
Access Financial Manufactured Housing Contract
Trust
Series 1995-1, Class B1.................................................7.65+. 05/15/21 10,060 8,098,300
Chase Funding Mortgage Loan Asset-Backed
Series 2000-1, Class IIM2...............................................2.12+. 02/15/30 2,438 2,418,385
Ditech Home Loan Owner Trust
Series 1998-1, Class M2..................................................7.64. 06/15/29 2,227 2,331,316
First Franklin Mortgage Loan Trust
Series 2001-FF2, Class M3...............................................3.10+. 11/25/31 5,000 4,824,860
Green Tree Financial Corp.
Series 1998-3, Class A6..................................................6.76. 03/01/30 5,936 5,586,385
Series 1998-4, Class A7..................................................6.87. 02/01/30 2,672 2,441,466
Series 1998-8, Class M1..................................................6.98. 09/01/30 5,000 2,650,000
Series 1997-6, Class A9..................................................7.55. 01/15/29 3,500 3,311,817
13,989,668
Saxon Asset Securities Trust
Series 1998-1, Class MF1.................................................7.05. 12/25/27 1,823 1,891,152
Vanderbilt Mortgage Finance, Inc.
Series 2001-B, Class A5..................................................6.96. 09/07/31 2,000 1,960,478
Westgate Resorts
Series 1998-AA, Class A2*................................................8.26. 07/15/13 1,278 1,256,769
Total Housing Related Asset-Backed Securities
(Cost-- $43,861,104)..................................................... 39,207,145
Non-Housing Related Asset-Backed Securities -- 3.6%
Aerco Ltd.
Series 2A, Class B2.....................................................2.36+. 07/15/25 3,310 1,841,033
Global Rated Eligible Assets Trust
Series 1998-A, Class A1*(c)..............................................7.33. 03/15/06 1,594 15,936
MBNA Credit Card Master Trust
Series 2002-C7, Class C7.................................................6.70. 03/16/15 5,000 5,441,270
Structured Mortgage Asset Residential Trust
Series 1997-2, Class A(c)................................................8.24% 03/15/06 $ 2,309 $ 22,399
Tobacco Settlement Financing Corp.
Series 2001-A, Class A...................................................6.36. 05/15/25 3,047 2,939,387
Total Non-Housing Related Asset-Backed
Securities
(Cost-- $15,248,469)..................................................... 10,260,025
Franchise Securities -- 1.9%
FFCA Secured Lending Corp.
Series 1998-1, Class A1B*(b).............................................6.73. 07/18/13 4,264 4,509,746
Franchisee Loan Receivable Trust
Series 1995-B, Class A*.................................................9.59+. 01/25/11 1,755 944,822
Total Franchise Securities
(Cost-- $6,140,167)...................................................... 5,454,568
Collateralized Debt Obligations -- 3.2%
Anthracite CDO I Ltd.
Series 2002-CIBA, Class CFL*............................................2.57+. 05/24/37 5,000 4,769,500
Seneca Funding I Ltd.*....................................................4.03+. 05/31/29 5,000 4,600,000
Total Collateralized Debt Obligations
(Cost-- $8,890,099)...................................................... 9,369,500
Total Asset-Backed Securities
(Cost-- $74,139,839)..................................................... 64,291,238
COMMERCIAL MORTGAGE BACKED SECURITIES -- 17.4%
Banc of America Commercial Mortgage Inc.
Series 2003-1, Class XP2*...............................................1.67+. 09/11/36 19,165 3,040,362
Bear Stearns Commercial Mortgage Securities
Series 1999-C1, Class F..................................................5.64. 02/14/31 1,394 1,248,554
Series 1999-C1, Class D..................................................6.53. 10/14/13 5,000 5,733,910
Series 2001-EPR, Class B*................................................6.92. 02/12/11 5,000@ 5,508,250
12,490,714
Columbia Center Trust
Series 2000-CCT, Class D*...............................................2.07+. 12/15/09 2,720 2,618,000
Commercial Mortgage Asset Trust
Series 1999-C1, Class C..................................................7.35. 01/17/32 2,000 2,468,232
Commercial Mortgage Lease-Backed Certificate
Series 2001-CMLB, Class A1*..............................................6.75. 06/20/31 2,807 3,191,227
First Chicago/Lennar Trust
Series 1997-CHL1, Class D*...............................................8.00. 05/25/08 3,000 3,049,230
JP Morgan Commercial Mortgage Finance Corp.
Series 1999-C8, Class C.................................................7.68+. 07/15/31 5,000 6,002,165
LB-UBS Commercial Mortgage Trust
Series 2002-C2, Class L*.................................................5.68. 07/15/35 5,300 4,751,037
Mortgage Capital Funding, Inc.
Series 1996-MC1, Class G*(b).............................................7.15. 06/15/06 4,409 4,605,200
Nationslink Funding Corp.
Series 1998-2, Class F*..................................................7.11. 01/20/13 4,840 4,738,762
UBS 400 Atlantic Street Mortgage Trust
Series 2002-C1A, Class B3................................................7.19. 01/11/22 3,000 3,488,910
Total Commercial Mortgage Backed Securities
(Cost-- $45,074,684)..................................................... 50,443,839
NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES -- 29.9%
Subordinated Collateralized Mortgage Obligations -- 29.9%
ABN AMRO Mortgage Corp.
Series 2002-1A, Class B3*...............................................5.64+. 06/25/32 1,088 1,050,817
Series 2002-1A, Class B4*...............................................5.64+. 06/25/32 653 541,137
Series 2002-1A, Class B5*................................................5.64%+ 06/25/32 $ 1,093 $ 282,504
Series 2001-2, Class B2..................................................6.75. 06/25/31 986 1,001,701
2,876,159
Bank of America Mortgage Securities, Inc.
Series 2001-F, Class B6.................................................5.50+. 11/25/31 1,511 539,246
Series 2001-4, Class 1B3.................................................6.75. 04/25/31 2,077 2,196,504
Series 2001-3, Class B3..................................................7.00. 04/25/31 1,986 1,983,191
4,718,941
Cendant Mortgage Corp.
Series 2001-1, Class B4..................................................7.25. 01/18/30 421 420,698
Series 2000-1, Class B7..................................................7.25. 01/18/30 114 34,153
454,851
Chase Mortgage Finance Corp.
Series 2002-A1, Class B3.................................................6.19. 12/25/29 410 398,936
Series 1998-S4, Class B3.................................................6.75. 08/25/28 1,815 1,824,952
Series 1994-D, Class B3..................................................6.75. 02/25/25 250 251,285
2,475,173
Citicorp Mortgage Securities, Inc.
Series 2001-16, Class M.................................................5.94+. 11/25/31 3,780 3,863,134
Series 2001-16, Class B1................................................5.94+. 11/25/31 1,454 1,483,398
Series 2001-16, Class B2................................................5.94+. 11/25/31 872 885,723
Series 2001-16, Class B3................................................6.01+. 11/25/31 436 439,311
Series 2001-16, Class B4................................................6.01+. 11/25/31 436 403,089
Series 2001-16, Class B5................................................6.01+. 11/25/31 437 196,838
Series 2002-6, Class B4.................................................6.07+. 05/25/32 616 558,770
Series 2002-6, Class B5.................................................6.07+. 05/25/32 616 415,155
Series 2002-6, Class B6.................................................6.07+. 05/25/32 616 153,998
Series 2002-7, Class B5.................................................6.37+. 06/25/32 432 423,083
Series 2002-7, Class B6.................................................6.37+. 06/25/32 433 123,341
Series 1997-2, Class B2..................................................7.25. 05/25/27 1,403 1,423,235
Series 1997-5, Class B2..................................................7.25. 11/25/27 1,568 1,595,631
11,964,706
Countrywide Alternative Loan Trust
Series 1998-2, Class B3..................................................7.00. 05/25/28 987 985,719
DLJ Mortgage Acceptance Corp.
Series 1995-T10, Class C*..............................................16.80+. 09/02/23 593 489,042
First Republic Mortgage Loan Trust
Series 2000-FRB1, Class B3..............................................1.82+. 06/25/30 1,315 1,227,463
G3 Mortgage Reinsurance Ltd.
Series 1, Class E*(b)..................................................21.30+. 05/25/08 6,161 6,777,576
GE Capital Mortgage Services, Inc.
Series 1994-2, Class B5.................................................6.00+. 01/25/09 212 171,890
Series 1994-10, Class M..................................................6.50. 03/25/24 1,582 1,591,465
Series 1998-17, Class B3*................................................6.75. 10/25/28 3,205 3,235,291
4,998,646
GMAC Mortgage Corp. Loan Trust
Series 2002-J6, Class B2.................................................6.25. 10/25/32 968 678,965
Series 2002-J6, Class B3.................................................6.25. 10/25/32 1,291 412,919
1,091,884
Granite Mortgages PLC
Series 2002-1, Class 1C.................................................2.63+. 04/20/42 5,000 4,951,565
Norwest Asset Securities Corp.
Series 1998-2, Class B4..................................................6.50. 02/25/28 291 290,745
Series 1999-26, Class B6.................................................7.25. 12/25/29 518 217,316
508,061
Paine Webber Mortgage Acceptance Corp.
Series 1993-9, Class B1..................................................7.00% 10/25/23 $ 2,797 $ 2,796,736
PHH Mortgage Services Corp.
Series 1997-6, Class B3*................................................7.30+. 11/18/27 754 753,868
Residential Accredit Loans, Inc.
Series 1998-QS5, Class B1*...............................................6.75. 04/25/28 1,608 1,727,795
Series 1998-QS11, Class B1*..............................................6.75. 08/25/28 2,490 2,588,694
4,316,489
Residential Finance Limited Partnership
Series 2002-A, Class B7.................................................6.81+. 10/10/34 2,986 3,012,896
Residential Funding Mortgage Securities I, Inc.
Series 2003-S7, Class B2.................................................5.50. 05/25/33 700 433,783
Series 2003-S7, Class B3.................................................5.50. 05/25/33 1,000 268,130
Series 1993-S49, Class B2................................................6.00. 12/25/08 91 91,858
Series 1999-S12, Class M3................................................6.50. 05/25/29 3,357 3,400,082
Series 1999-S13, Class M3................................................6.50. 05/25/29 1,392 1,409,797
Series 2002-S7, Class B1.................................................6.50. 05/25/32 817 810,594
Series 2002-S7, Class B2.................................................6.50. 05/25/32 613 451,732
Series 2002-S7, Class B3.................................................6.50. 05/25/32 613 183,631
Series 1996-S8, Class B1.................................................6.75. 03/25/11 329 336,284
Series 1996-S5, Class B1.................................................6.75. 02/25/11 327 330,876
Series 2001-S24, Class M3................................................6.75. 10/25/31 1,428 1,450,871
Series 2001-S24, Class B1................................................6.75. 10/25/31 816 829,285
Series 1997-S17, Class B3................................................7.00. 11/25/27 2,341 1,647,942
Series 1996-S13, Class B3(a).............................................7.00. 05/25/11 151 127,446
Series 1996-S13, Class B2................................................7.00. 05/25/11 173 177,795
Series 2001-S5, Class M3.................................................7.00. 03/25/31 1,375 1,373,191
Series 2000-S3, Class B2.................................................7.00. 03/25/15 177 179,481
Series 1996-S17, Class B2................................................7.25. 07/25/11 139 141,389
Series 1996-S17, Class B3(a).............................................7.25. 07/25/11 139 114,631
Series 1995-S12, Class B2................................................7.25. 08/25/10 161 162,361
Series 1997-S2, Class M2.................................................7.50. 01/25/27 1,528 1,526,493
Series 1997-S3, Class B2.................................................7.50. 02/25/27 364 352,712
Series 1997-S2, Class B2.................................................7.50. 01/25/27 720 720,870
Series 1995-S17, Class B3................................................7.50. 12/26/25 609 507,264
Series 1996-S23, Class B2................................................7.75. 11/25/26 326 326,195
Series 1996-S23, Class B1................................................7.75. 11/25/26 438 438,030
17,792,723
Washington Mutual
Series 2002-AR7, Class B4...............................................5.56+. 07/25/32 2,682 2,592,742
Series 2002-AR7, Class B5...............................................5.56+. 07/25/32 2,012 1,662,106
Series 2002-AR7, Class B6...............................................5.56+. 07/25/32 3,355 905,963
5,160,811
Wells Fargo Mortgage Backed Securities Trust
Series 2002-10, Class B6.................................................6.00. 06/25/32 496 198,282
Series 2001-11, Class B5.................................................6.25. 05/25/31 280 281,068
Series 2001-26, Class B3.................................................6.50. 10/25/31 1,972 2,002,179
Series 2001-26, Class B4.................................................6.50. 11/25/31 1,233 1,268,980
Series 2001-26, Class B5.................................................6.50. 11/25/31 740 670,524
Series 2001-26, Class B6.................................................6.50. 11/25/31 986 308,509
Series 2001-24, Class B3.................................................6.75. 11/30/31 2,045 2,072,974
Series 2001-24, Class B4.................................................6.75. 11/25/31 1,278 1,303,668
Series 2001-24, Class B5.................................................6.75. 11/25/31 766 702,223
Series 2001-24, Class B6.................................................6.75. 11/25/31 908 332,736
9,141,143
Total Subordinated Collateralized Mortgage
Obligations
(Cost-- $79,448,421)..................................................... 86,494,452
Senior Collateralized Mortgage Backed
Securities -- 0.0%
Countrywide Funding Corp.
Series 1994-2, Class B2
(Cost-- $97,145)....................................................6.50% 02/25/09 $ 181 $ 153,440
Total Non-Agency Residential Mortgage Backed
Securities
(Cost-- $79,545,566)..................................................... 86,647,892
CORPORATE OBLIGATIONS -- 8.9%
Aerospace -- 0.0%
Titan Corp.*...............................................................8.00. 05/15/11 25 25,813
Airlines -- 0.8%
American Airline...........................................................8.61. 04/01/11 2,500 1,540,843
United Airlines............................................................7.19. 04/01/11 982 794,488
2,335,331
Apparel & Textiles -- 0.0%
William Carter............................................................10.88. 08/15/11 50 56,750
Automotive -- 0.2%
Autonation, Inc............................................................9.00. 08/01/08 110 120,450
Rexnord Corp.*............................................................10.13. 12/15/12 10 10,950
Sonic Automotive Inc......................................................11.00. 08/01/08 125 132,500
United Auto Group, Inc.....................................................9.63. 03/15/12 55 56,925
United Rentals NA, Inc.*..................................................10.75. 04/15/08 90 96,300
Universal Compression, Inc.*...............................................7.25. 05/15/10 10 10,250
427,375
Building Construction -- 0.2%
Beazer Homes USA, Inc......................................................8.88. 04/01/08 115 120,750
D.R. Horton, Inc...........................................................6.88. 05/01/13 25 25,812
K. Hovnanian Enterprises, Inc.*............................................7.75. 05/15/13 20 20,450
K. Hovnanian Enterprises, Inc..............................................8.00. 04/01/12 170 181,050
KB Home....................................................................8.63. 12/15/08 35 38,500
Ryland Group, Inc..........................................................5.38. 06/01/08 40 40,000
Schuler Homes*.............................................................9.38. 07/15/09 75 82,500
Standard Pacific Corp.*....................................................6.88. 05/15/11 40 39,400
Standard Pacific Corp......................................................7.75. 03/15/13 70 71,400
Technical Olympic USA, Inc.*...............................................9.00. 07/01/10 55 57,475
677,337
Beverages, Food & Tobacco -- 0.1%
Constellation Brands, Inc..................................................8.13. 01/15/12 135 142,088
Chemicals -- 0.3%
Equistar Chemicals LP.....................................................10.13. 09/01/08 45 45,900
Equistar Chemicals LP*....................................................10.63. 05/01/11 55 56,100
FMC Corp..................................................................10.25. 11/01/09 200 225,500
IMC Global, Inc...........................................................10.88. 06/01/08 10 11,150
IMC Global, Inc.*.........................................................11.25. 06/01/11 145 161,675
Lyondell Chemical Co.......................................................9.50. 12/15/08 80 77,000
Lyondell Chemical Co.*.....................................................9.50. 12/15/08 30 28,875
Macdermid, Inc.............................................................9.13. 07/15/11 115 128,225
Rhodia SA*.................................................................8.88. 06/01/11 40 40,400
774,825
Coal -- 0.1%
Luscar Coal Ltd............................................................9.75. 10/15/11 150 168,750
Peabody Energy Corp.*......................................................6.88. 03/15/13 50 52,500
221,250
Commercial Services -- 0.1%
Iron Mountain, Inc.........................................................7.75% 01/15/15 $ 75 $ 80,250
RH Donnelley Finance Corp. I*..............................................8.88. 12/15/10 95 104,025
RH Donnelley Finance Corp. I*.............................................10.88. 12/15/12 90 102,375
286,650
Computers & Business Equipment -- 0.0%
Unisys Corp................................................................6.88. 03/15/10 100 103,500
Containers & Packaging -- 0.3%
Berry Plastics Corp.......................................................10.75. 07/15/12 70 76,650
Graphic Packaging Corp.....................................................8.63. 02/15/12 125 130,938
Jefferson Smurfit Corp.....................................................8.25. 10/01/12 50 52,500
Norampac, Inc.*............................................................6.75. 06/01/13 30 30,825
Owens Brockway Glass Container*............................................7.75. 05/15/11 40 41,100
Owens Brockway Glass Container*............................................8.25. 05/15/13 40 40,600
Owens Brockway Glass Container.............................................8.88. 02/15/09 120 127,800
Packaging Corp. of America.................................................9.63. 04/01/09 120 129,900
Silgan Holdings, Inc.......................................................9.00. 06/01/09 135 140,062
770,375
Drugs & Health Care -- 0.4%
Advancepcs.................................................................8.50. 04/01/08 20 21,550
Alpharma Inc.*.............................................................8.63. 05/01/11 45 46,575
Amerisourcebergen Corp.....................................................8.13. 09/01/08 60 65,100
Apogent Technologies, Inc.*................................................6.50. 05/15/13 20 20,500
Biovail Corp...............................................................7.88. 04/01/10 100 107,000
Coventry Health Care, Inc..................................................8.13. 02/15/12 130 140,400
Pacificare Health Systems, Inc............................................10.75. 06/01/09 170 187,000
Province Healthcare Co.....................................................7.50. 06/01/13 35 35,175
Sybron Dental Specialties, Inc.............................................8.13. 06/15/12 75 78,375
Tenet Healthcare Corp......................................................7.38. 02/01/13 230 236,325
Triad Hospitals, Inc.......................................................8.75. 05/01/09 125 136,250
1,074,250
Electrical Equipment -- 0.1%
BRL Universal Equipment....................................................8.88. 02/15/08 170 184,025
FIMEP SA*.................................................................10.50. 02/15/13 95 104,500
Sierra Pacific Power Co....................................................8.61. 06/01/22 30 30,113
318,638
Electric Utilities -- 0.8%
AES Corp.*.................................................................8.75. 05/15/13 285 290,700
AES Corp...................................................................9.38. 09/15/10 20 19,000
Centerpoint Energy Resource Corp.*.........................................7.88. 04/01/13 240 281,293
Centerpoint Energy, Inc.*..................................................6.85. 06/01/15 15 15,719
Edison Mission Energy......................................................7.73. 06/15/09 100 82,500
El Paso Corp. *............................................................7.88. 06/15/12 1,000 875,000
Midwest Generation LLC.....................................................8.56. 01/02/16 25 25,112
PSE&G Energy Holdings*.....................................................7.75. 04/16/07 95 101,039
PSE&G Energy Holdings......................................................8.50. 06/15/11 20 21,838
Sithe/Independence Funding.................................................9.00. 12/30/13 55 55,275
Southern California Edison Co.*............................................8.00. 02/15/07 185 201,650
TXU Energy Co., LLC*.......................................................7.00. 03/15/13 55 61,515
Westar Energy, Inc.........................................................8.50. 07/01/22 190 199,975
2,230,616
Electronics -- 0.2%
Amkor Technologies, Inc.*..................................................7.75. 05/15/13 50 47,688
Amkor Technologies, Inc....................................................9.25. 05/01/06 10 10,520
Fairchild Semiconductor Corp..............................................10.38. 10/01/07 175 185,281
L-3 Communications Corp.*..................................................6.13. 07/15/13 65 65,000
L-3 Communications Corp....................................................7.63% 06/15/12 $ 185 $ 202,575
Thomas & Betts Corp........................................................7.25. 06/01/13 20 20,200
531,264
Financial Services -- 0.7%
CIT Group, Inc.............................................................7.75. 04/02/12 1,000 1,185,502
Fairfax Financial Holdings.................................................7.38. 04/15/18 30 25,200
Labranche & Co., Inc.......................................................9.50. 08/15/04 75 79,125
Labranche & Co., Inc......................................................12.00. 03/02/07 40 45,800
Liberty Mutual Insurance*..................................................7.88. 10/15/26 100 85,722
Midland Funding Corp. II..................................................11.75. 07/23/05 200 216,500
Midland Funding Corp. II..................................................13.25. 07/23/06 80 91,000
Sovereign Bancorp, Inc....................................................10.50. 11/15/06 125 151,250
1,880,099
Food & Beverages -- 0.1%
Dole Foods Co.............................................................8.63+. 05/01/09 80 84,800
Dole Foods Co.*............................................................8.88. 03/15/11 20 21,200
Dominos, Inc..............................................................10.38. 01/15/09 105 115,631
Smithfield Foods, Inc.*....................................................7.75. 05/15/13 65 66,950
288,581
Forest Products & Paper -- 0.2%
Abitibi Consolidated, Inc..................................................8.85. 08/01/30 50 54,779
Appleton Papers, Inc......................................................12.50. 12/15/08 90 101,475
Cascades, Inc.*............................................................7.25. 02/15/13 95 98,562
Georgia Pacific Corp.*.....................................................7.38. 07/15/08 75 74,625
Georgia Pacific Corp.*.....................................................8.88. 02/01/10 155 161,975
Georgia Pacific Corp.*.....................................................9.38. 02/01/13 140 149,100
640,516
Gambling -- 0.2%
Argosy Gaming Co...........................................................9.00. 09/01/11 160 172,800
Argosy Gaming Co..........................................................10.75. 06/01/09 10 10,975
Horseshoe Gaming LLC.......................................................8.63. 05/15/09 100 106,500
Isle Capri Casinos, Inc....................................................8.75. 04/15/09 115 120,750
Mohegan Tribal Gaming......................................................8.13. 01/01/06 145 155,513
Penn National Gaming, Inc.................................................11.13. 03/01/08 50 55,000
621,538
Hotels & Casinos -- 0.2%
Ameristar Casinos Inc.....................................................10.75. 02/15/09 25 27,875
Mandalay Resort Group......................................................9.50. 08/01/08 20 22,500
Mandalay Resort Group.....................................................10.25. 08/01/07 180 198,900
MGM Mirage, Inc............................................................8.50. 09/15/10 160 184,400
Sun International Hotels Ltd...............................................8.88. 08/15/11 135 144,788
Venetian Casino Resort LLC................................................11.00. 06/15/10 15 16,481
594,944
Industrial -- Diversified -- 0.1%
Tyco International Group SA................................................6.38. 10/15/11 330 332,475
Industrial Machinery -- 0.1%
Dresser Industries, Inc....................................................7.60. 08/15/96 125 117,500
NMHG Holding Co...........................................................10.00. 05/15/09 105 113,400
Petroleum Helicopters, Inc.................................................9.38. 05/01/09 105 116,025
346,925
Insurance -- 0.1%
Allmerica Financial Corp...................................................7.63. 10/15/25 25 22,000
Crum & Forster Holdings Corp.*............................................10.38. 06/15/13 25 24,246
Fairfax Financial Holdings Ltd.............................................7.38. 03/15/06 40 37,600
Fairfax Financial Holdings Ltd.............................................8.30. 04/15/26 20 16,800
Markel Capital Trust I.....................................................8.71. 01/01/46 55 59,121
159,767
Media-Broadcasting & Publishing -- 0.9%
Alliance Atlantis Communications, Inc.....................................13.00% 12/15/09 $ 160 $ 183,200
Canwest Media, Inc.*.......................................................7.63. 04/15/13 25 26,375
Canwest Media, Inc........................................................10.63. 05/15/11 70 79,450
Cinemark USA, Inc.*........................................................9.00. 02/01/13 20 21,600
CSC Holdings, Inc..........................................................7.25. 07/15/08 115 116,437
CSC Holdings, Inc..........................................................7.88. 02/15/18 105 107,625
Dex Media East LLC*.......................................................12.13. 11/15/12 190 223,250
DirecTV Holdings LLC*......................................................8.38. 03/15/13 95 105,687
Echostar DBS Corp..........................................................9.13. 01/15/09 300 334,500
Hollinger Participation*..................................................12.13. 11/15/10 55 58,988
Hollinger, Inc.*..........................................................11.88. 03/01/11 130 137,150
Houghton Mifflin Co.*......................................................8.25. 02/01/11 40 41,850
Houghton Mifflin Co.*......................................................9.88. 02/01/13 55 59,331
Interpublic Group Cos, Inc.................................................7.25. 08/15/11 60 63,000
Radio One, Inc.............................................................8.88. 07/01/11 70 76,825
Regal Cinemas, Inc.........................................................9.38. 02/01/12 120 131,100
Rogers Cable, Inc..........................................................8.75. 05/01/32 200 219,000
Rogers Communications, Inc.................................................8.88. 07/15/07 80 83,200
Shaw Communications, Inc...................................................7.20. 12/15/11 65 67,925
Shaw Communications, Inc...................................................8.25. 04/11/10 20 21,800
Sinclair Broadcast Group, Inc..............................................8.75. 12/15/11 200 218,750
Susquehanna Media Co.*.....................................................7.38. 04/15/13 30 30,975
Vertis, Inc...............................................................10.88. 06/15/09 70 67,900
Vivendi Universal*.........................................................9.25. 04/15/10 195 222,544
Yell Finance BV(d).........................................................0.00. 08/01/11 18 14,625
2,713,087
Metal Fabrication/Hardware -- 0.0%
Shaw Group, Inc...........................................................10.75. 03/15/10 100 99,500
Miscellaneous -- 0.4%
Ameripath, Inc.*..........................................................10.50. 04/01/13 60 62,700
Dade Behring, Inc.........................................................11.91. 10/03/10 130 146,250
Perkinelmer, Inc.*.........................................................8.88. 01/15/13 85 92,225
Salton Sea Funding.........................................................7.48. 11/30/18 98 92,413
Service Corp. International................................................6.88. 10/01/07 40 40,000
Service Corp. International................................................7.20. 06/01/06 55 55,825
Service Corp. International................................................7.70. 04/15/09 200 203,000
Speedway Motorsports, Inc.*................................................6.75. 06/01/13 25 25,750
SPX Corp...................................................................7.50. 01/01/13 105 111,037
Stewart Enterprises, Inc..................................................10.75. 07/01/08 220 244,750
1,073,950
Office Furnishings & Supplies -- 0.1%
Moore North America Finance, Inc.*.........................................7.88. 01/15/11 105 110,775
Office Depot, Inc.........................................................10.00. 07/15/08 20 23,400
Xerox Capital Europe PLC...................................................5.88. 05/15/04 185 185,231
Xerox Corp.*...............................................................9.75. 01/15/09 20 21,950
341,356
Oil & Gas -- 0.9%
Amerigas Partners..........................................................8.88. 05/20/11 95 102,600
ANR Pipeline Co.*..........................................................8.88. 03/15/10 35 38,150
ANR Pipeline Co............................................................9.63. 11/01/21 10 11,575
Chesapeake Energy Corp.....................................................7.50. 09/15/13 20 20,900
Chesapeake Energy Corp.....................................................9.00. 08/15/12 350 385,000
Citgo Peteroleum Corp.*...................................................11.38. 02/01/11 150 168,000
El Paso Energy Partners LP.................................................8.50. 06/01/11 150 160,500
El Paso Energy Partners LP*................................................8.50. 06/01/10 40 42,800
El Paso Energy Partners LP*...............................................10.63. 12/01/12 70 80,850
El Paso Natural Gas........................................................7.50. 11/15/26 20 18,800
El Paso Natural Gas........................................................8.63% 01/15/22 $ 20 $ 20,350
El Paso Production Holding Co.*............................................7.75. 06/01/13 170 169,575
Ferrellgas Partners LP.....................................................8.75. 06/15/12 170 184,450
Forest Oil Corp............................................................8.00. 06/15/08 55 58,575
Frontier Escrow Corp.*.....................................................8.00. 04/15/13 65 67,113
Plains All American Pipeline...............................................7.75. 10/15/12 295 323,025
Premcor Refining Group, Inc.*..............................................9.25. 02/01/10 170 187,850
Premcor Refining Group, Inc.*..............................................9.50. 02/01/13 145 162,400
Southern Natural Gas Co....................................................7.35. 02/15/31 25 24,656
Southern Natural Gas Co....................................................8.00. 03/01/32 35 36,050
Tennessee Gas Pipeline Co..................................................7.50. 04/01/17 40 39,800
Tennessee Gas Pipeline Co..................................................8.38. 06/15/32 20 20,500
Tesoro Peteroleum Corp*....................................................8.00. 04/15/08 25 25,125
Tesoro Peteroleum Corp.....................................................9.00. 07/01/08 35 31,325
Tesoro Peteroleum Corp.....................................................9.63. 11/01/08 105 96,600
Transmontaigne, Inc.*......................................................9.13. 06/01/10 40 41,200
Western Oil Sands, Inc.....................................................8.38. 05/01/12 185 200,725
2,718,494
Pollution Control -- 0.1%
Allied Waste North America, Inc.*..........................................9.25. 09/01/12 300 323,250
Allied Waste North America, Inc...........................................10.00. 08/01/09 45 47,531
Casella Waste Systems, Inc.*...............................................9.75. 02/01/13 45 47,475
418,256
Real Estate -- 0.1%
CBRE Escrow, Inc.*.........................................................9.75. 05/15/10 30 31,350
Choctaw Resort Developement Enterprise.....................................9.25. 04/01/09 80 86,200
Corrections Corp. of America...............................................7.50. 05/01/11 15 15,412
Corrections Corp. of America...............................................9.88. 05/01/09 90 100,125
Health Care REIT, Inc. (REIT)..............................................8.00. 09/12/12 80 84,817
Istar Financial, Inc. (REIT)...............................................7.00. 03/15/08 35 36,922
Istar Financial, Inc. (REIT)...............................................8.75. 08/15/08 15 16,312
371,138
Retail Trade -- 0.2%
Penney J.C. Co., Inc.......................................................7.40. 04/01/37 110 113,850
Penney J.C. Co., Inc.......................................................8.00. 03/01/10 85 87,337
Rent-A-Center, Inc.*.......................................................7.50. 05/01/10 35 35,963
Rite Aid Corp.*............................................................8.13. 05/01/10 60 61,500
Rite Aid Corp.*............................................................9.50. 02/15/11 65 69,225
Saks, Inc..................................................................7.50. 12/01/10 15 15,375
Saks, Inc..................................................................8.25. 11/15/08 5 5,350
Tricon Global Restaurants, Inc.............................................8.88. 04/15/11 100 115,000
503,600
Telecommunications -- 0.9%
Avaya, Inc................................................................11.13. 04/01/09 70 76,650
Motorola, Inc..............................................................8.00. 11/01/11 1,000 1,180,000
Nextel Communications, Inc.................................................9.38. 11/15/09 195 210,113
Nextel Communications, Inc.................................................9.50. 02/01/11 85 93,075
Nextel Communications, Inc................................................12.00. 11/01/08 80 86,600
Nortel Networks Ltd........................................................6.13. 02/15/06 80 78,000
Qwest Corp.*...............................................................8.88. 03/15/12 5 5,625
Sprint Capital Corp........................................................8.38. 03/15/12 120 140,361
Sprint Capital Corp........................................................8.75. 03/15/32 65 76,865
TCI Communications Financing III...........................................9.65. 03/31/27 125 146,875
Tritel PCS, Inc...........................................................10.38% 01/15/11 $ 50 $ 60,500
US West Communication......................................................8.88. 06/01/31 390 407,550
2,562,214
Total Corporate Obligations
(Cost-- $25,680,795)..................................................... 25,642,502
INTEREST ONLY SECURITIES -- 8.2%
Bear Stearns Commercial Mortgage Securities
Series 2001-TOP2, Class X2*.............................................1.36+. 04/15/11 74,184 4,004,451
COMM
Class 2001-J2A, Class EIO*..............................................3.87+. 07/16/34 10,000 2,996,830
Commercial Capital Access One, Inc.
Series 2001-A, Class T1..................................................4.50. 02/15/09 18,000 4,680,000
GMAC Commercial Mortgage Securities, Inc.
Series 2003-C1, Class X1.................................................0.07. 05/10/36 88,600 3,031,790
GS Mortgage Securities Corp. II
Series 2001-ROCK, Class X1*.............................................0.41+. 06/01/11 260,465 4,305,745
Residential Funding Mortgage Securities I
Series 2002-HS1, Class A.................................................7.00. 07/25/04 23,980 1,184,376
Vendee Mortgage Trust
Series 1997-2, Class IO.................................................0.06+. 06/15/27 123,006 172,946
Wachovia Bank Commercial Mortgage Trust
Series 2002-C2, Class IO1*...............................................0.13. 11/15/34 86,907 3,272,675
Total Interest Only Securities
(Cost-- $22,334,199)..................................................... 23,648,813
Shares
------------------------------------------------------------ -- ------------------------------- ------------- --------------------
PREFERRED STOCKS -- 1.4%
CSC Holdings Inc. Series M, 11.13%................. 1,250 130,625
Duke Realty Investments, Inc. Series D, 7.38%
(REIT)........................................... 12,365 337,564
Equity Office Properties Trust Series B, 5.25%
(REIT)........................................... 46,012 2,259,649
Equity Residential Properties Trust Series G,
7.25% (REIT)..................................... 49,358 1,268,501
Hercules Trust II 6.50%............................ 115 67,965
Shaw Communications, Inc. 8.50%.................... 590 14,243
Total Preferred Stocks
(Cost-- $3,617,660)......................... 4,078,547
----------------------------------------------------------------------------------------------------------------------------------
Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
-------------------------------------------------------------------- -------------- ------------ -------------- ------------------
-------------------------------------------------------------------- -------------- ------------ -------------- ------------------
REPURCHASE AGREEMENTS -- 0.5%
Dated 5/30/03, with State Street Corp.; proceeds:
$1,562,065; collateralized by $1,425,000 USTB,
5.25%, due 11/15/28, value: $1,597,781
(Cost-- $1,562,000).......................... 0.50% 06/02/03 $ 1,562 $ 1,562,000
Total Investments -- 145.0%
(Cost-- $410,577,333)......................... 419,961,255
Liabilities in Excess of Other
Assets-- (45.0)%..................................... (130,177,287)
NET ASSETS-- 100.0%.................................... $ 289,783,968
@ Portion or entire principal amount delivered as collateral for reverse
repurchase agreements or swap agreements. (Note 5)
+ Variable Rate Security: Interest rate is the rate in effect May 31, 2003.
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may only 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 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) These issuers are currently making only partial interest payments.
(d) Security is a "step up" bond where coupon increases or steps up at a
predetermined date. Rates shown are current coupon and next coupon rate when
security steps up.
# Portion or entire principal amount is held as collateral for open futures
contracts. (Note 7)
IO Interest Only Security -- Interest rate is based on the notional amount of
the underlying mortgage pools.
REIT Real Estate Investment Trust
USTB United States Treasury Bonds
-------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Assets and Liabilities -- (Unaudited)
May 31, 2003
-------------------------------------------------------------------------------
Assets:
Investments in securities, at market (cost
$410,577,333)(Note 2)...................................... $ 419,961,255
Cash......................................................... 1,076,425
Receivable for investments sold.............................. 3,627,936
Interest receivable.......................................... 3,375,558
Principal paydowns receivable................................ 829,373
Receivable due from transfer agent........................... 84,013
Prepaid expenses and other assets............................ 153,601
Total assets............................................. 429,108,161
Liabilities:
Reverse repurchase agreements (Note 5)....................... 137,085,300
Interest payable for reverse repurchase agreements (Note
5)......................................................... 63,945
Unrealized depreciation on swap contracts (Note 7)........... 1,122,435
Payable on open swap contracts............................... 478,307
Payable for investments purchased............................ 282,748
Investment advisory fee payable (Note 3)..................... 159,325
Administration fee payable (Note 3).......................... 49,023
Payable for variation margin................................. 8,875
Accrued expenses and other liabilities....................... 74,235
Total liabilities........................................ 139,324,193
Net Assets (equivalent to $9.46 per share based on
30,639,747 shares issued and outstanding).................... $ 289,783,968
Composition of Net Assets:
Capital stock, at par value ($.01) (Note 6).................. $ 306,397
Additional paid-in capital (Note 6).......................... 299,226,958
Accumulated undistributed net investment income.............. 3,816,705
Accumulated net realized loss................................ (21,892,108)
Net unrealized appreciation.................................. 8,326,016
Net assets applicable to capital stock outstanding........... $ 289,783,968
-------------------------------------------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Operations -- (Unaudited)
For the Six Months Ended May 31, 2003
-------------------------------------------------------------------------------------------------------------------
Investment Income (Note 2):
Interest...................................................... $ 18,859,539
Dividends..................................................... 131,825
18,991,364
Expenses:
Investment advisory fee (Note 3).............................. 925,380
Administration fee (Note 3)................................... 284,732
Legal......................................................... 97,461
Insurance..................................................... 71,914
Reports to shareholders....................................... 70,012
Custodian..................................................... 50,954
Accounting and tax services................................... 45,866
Directors' fees............................................... 30,433
Transfer agency............................................... 19,229
Registration fees............................................. 9,656
Miscellaneous................................................. 10,317
Total operating expenses.................................... 1,615,954
Interest expense on reverse repurchase agreements (Note
5)......................................................... 897,401
Net interest expense on swaps (Note 2)...................... 319,254
Total expenses.............................................. 2,832,609
Net investment income......................................... 16,158,755
Realized and Unrealized Gain (Loss) on Investments
(Notes 2 and 7):
Net realized gain (loss) on:
Investments................................................... 2,838,168
Swap contracts................................................ (506,544)
Futures....................................................... 321,587
Net realized gain (loss) on investments, swap contracts and
futures....................................................... 2,653,211
Net change in unrealized appreciation/depreciation on:
Investments................................................... 2,861,747
Swap contracts................................................ (1,593,474)
Futures....................................................... 411,749
Net change in unrealized appreciation/depreciation on
investments, swap contracts and futures....................... 1,680,022
Net realized and unrealized gain on investments, swap
contracts and futures......................................... 4,333,233
Net increase in net assets resulting from operations............ $ 20,491,988
---------------------------------------------------------------- -------------------- -------------------
THE HYPERION TOTAL RETURN FUND, INC. For the Six Months
Statements of Changes in Net Assets Ended For the Year
May 31, 2003 Ended
(Unaudited) November 30, 2002
---------------------------------------------------------------- -------------------- -------------------
---------------------------------------------------------------- -------------------- -------------------
Increase (Decrease) in Net Assets Resulting from
Operations:
Net investment income...................................... $ 16,158,755 $ 26,070,086
Net realized gain (loss) on investments, swap contracts
and futures.............................................. 2,653,211 (2,669,189)
Net change in unrealized appreciation/depreciation on
investments, swap contracts and futures.................. 1,680,022 5,965,224
Net increase in net assets resulting from operations....... 20,491,988 29,366,121
Dividends to Shareholders (Note 2):
Net investment income...................................... (13,773,963) (27,420,820)
Capital Stock Transactions (Note 6):
Net asset value of shares issued through dividend
reinvestment (52,860 and 53,787 shares, respectively).... 497,509 500,857
Rights offering cost adjustment............................ -- 16,696
Net increase from capital stock transactions............... 497,509 517,553
Total increase in net assets........................... 7,215,534 2,462,854
Net Assets:
Beginning of period........................................ 282,568,434 280,105,580
End of period (including undistributed net investment
income of $3,816,705 and $1,431,913, respectively)....... $ 289,783,968 $ 282,568,434
-------------------------------------------------------------------------------------------------------------------
HYPERION TOTAL RETURN FUND, INC.
Statement of Cash Flows -- (Unaudited)
For the Six Months Ended May 31, 2003
-------------------------------------------------------------------------------
Increase (Decrease) in Cash:
Cash flows provided by (used for) operating activities:
Interest received (including net accretion of
$388,754)................................................. $ 15,737,448
Interest expense paid...................................... (835,533)
Operating expenses paid.................................... (1,801,214)
Sales of short-term portfolio investments, net............. 1,737,916
Purchases of long-term portfolio investments............... (87,690,929)
Proceeds from disposition of long-term portfolio
investments and principal paydowns........................ 84,512,819
Net cash provided by for futures transactions.............. 807,930
Net cash provided by operating activities.................. 12,468,437
Cash flows provided by (used for) financing activities:
Net cash provided by reverse repurchase agreements......... 1,756,124
Cash dividends paid........................................ (13,441,318)
Net cash used for financing activities..................... (11,685,194)
Net increase in cash......................................... 783,243
Cash at beginning of year.................................... 293,182
Cash at end of year.......................................... $ 1,076,425
Reconciliation of Net Increase in Net Assets Resulting
from Operations to Net Cash Provided by Operating
Activities:
Net increase in net assets resulting from operations......... $ 20,491,988
Increase in investments, at cost........................... (2,792,770)
Increase in net unrealized appreciation/depreciation on
investments and swaps..................................... (1,268,273)
Increase in interest receivable............................ (314,752)
Decrease in variation margin receivable.................... 74,594
Increase in other assets................................... (4,346,681)
Increase in other liabilities.............................. 624,331
Total adjustments........................................ (8,023,551)
Net cash provided by operating activities.................... $ 12,468,437
Noncash financing activities not included herein consist of reinvestment of
dividends of $413,496.
THE HYPERION TOTAL RETURN FUND, INC.
Financial Highlights
For the
Six Months
Ended For the Year Ended November 30,
May 31, 2003
(Unaudited) 2002 2001 2000 1999 1998
------------------------------------ --------------- ------------ -------------- ------------ ------------ ------------
Per Share Operating Performance:
Net asset value, beginning of
period......................... $ 9.24 $ 9.17 $ 9.41 $ 9.27 $ 10.08 $ 10.64
Net investment income............ 0.53 0.85 0.84 0.78 0.80 0.76
Net realized and unrealized gains
(losses) on investments, short
sales, futures transactions and
swap 0.14 0.12 0.30 0.21 (0.90) (0.61)
contracts......................
Net increase (decrease) in net
asset 0.67 0.97 1.14 0.99 (0.10) 0.15
value resulting from operations
Net effect of shares repurchased. -- -- -- --* 0.03 0.04
Dividends from net investment
income......................... (0.45) (0.90) (0.87) (0.85) (0.74) (0.75)
Offering costs charged to
additional -- --* (0.09) -- -- --
paid-in-capital................
Dilutive effect of rights offering -- -- (0.42) -- -- --
Net asset value, end of period... $ 9.46 $ 9.24 $ 9.17 $ 9.41 $ 9.27 $ 10.08
Market price, end of period...... $ 10.1800 $ 9.2800 $ 8.5700 $ 8.4375 $ 7.3750 $ 8.6900
Total Investment Return +........ 15.05%(1) 19.39% 13.13%++ 26.41% -7.17% 1.23%
Ratios to Average Net Assets/
Supplementary Data:
Net assets, end of period (000's) $ 289,784 $ 282,568 $ 280,106 $ 215,318 $ 212,703 $ 238,803
Operating expenses............... 1.14%(2) 1.05% 1.11% 1.10% 1.08% 1.05%
Interest expense................. 0.85%(2) 1.23% 1.59% 1.87% 2.31% 2.39%
Total expenses................... 1.99%(2) 2.28% 2.70% 2.97% 3.39% 3.44%
Net investment income............ 11.35%(2) 9.23% 8.84% 8.50% 8.20% 7.27%
Portfolio turnover rate.......... 21%(1) 61% 43% 57% 72% 90%
__________
+ 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.
++ Adjusted for assumed reinvestment of proceeds of rights offering.
* Rounds to less than .01.
(1) Not annualized
(2) Annualized
-------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Notes to Financial Statements -- (Unaudited)
May 31, 2003
-------------------------------------------------------------------------------
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. Securities may
be valued by independent pricing services that have been approved by the Board
of Directors. The prices provided by a pricing service take into account broker
dealer market price quotations for institutional size trading in similar groups
of securities, security quality, maturity, coupon and other security
characteristics as well as any developments related to the specific securities.
The Fund values mortgage-backed securities ("MBS") and other debt securities for
which market quotations are not readily available (approximately 27% of the
investments in securities held by the Fund at May 31, 2003) 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 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.
Short Sales: The Fund may make short sales of securities as a method of hedging
potential declines in similar securities owned. The Fund may have to pay a fee
to borrow the particular securities and may be obligated to pay to the lender an
amount equal to any payments received on such borrowed securities. A gain,
limited to the amount at which the Fund sold the security short, or a loss,
unlimited as to dollar amount, will be realized upon the termination of a short
sale if the market price is less or greater than the proceeds originally
received.
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 market.
Swap agreements: The Fund may invest in swap agreements. The Fund may enter into
interest rate swap agreements to manage its exposure to interest rates. Interest
rate swap agreements involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. Swaps are marked to market daily based upon quotations from market
makers and the change, if any, is recorded as unrealized gain or loss in the
Statement of Operations. Net payments of interest on interest rate swap
agreements are included as part of interest expense. For the six months ended
May 31, 2003, such net payments made by the Fund amounted to $319,254. Entering
into these agreements involves, to varying degrees, elements of credit and
market risk in excess of the amounts recognized on the Statement of Assets and
Liabilities. Such risks involve the possibility that there will be no liquid
market for these agreements, that the counterparty to the agreements may default
on its obligation to perform or that there may be unfavorable changes in the
fluctuation of interest rates. See Note 7 for a summary of all open swap
agreements as of May 31, 2003.
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 securities are accreted
and amortized, respectively, 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 six months ended May 31, 2003, the Advisor earned $925,380 in
investment advisory fees.
Effective April 15, 2003, the Advisor has entered into a Sub-Advisory Agreement
with Seix Investment Advisors Inc. ("Seix"). Prior to April 15, Pacholder
Associates, Inc. served as sub-advisor. Under the terms of the agreement, Seix
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 0.50% 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 entered into a
sub-administration agreement with State Street Corp. (the "Sub-Administrator"),
an affiliate of the Fund's Custodian. The Administrator and Sub-Administrator
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
six months ended May 31, 2003, the Administrator earned $284,732 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 six months
ended May 31, 2003, were $39,229,520 and $59,433,575, respectively. Purchases
and sales of U.S. Government securities, excluding short-term securities for the
six months ended May 31, 2003 were $48,744,156 and $29,840,756, respectively.
For purposes of this footnote, U.S. Government securities may include securities
issued by the U.S. Treasury, Federal Home Loan Mortgage Corporation, and the
Federal National Mortgage Association.
5. Borrowings
The Fund may enter into reverse repurchase agreements with the same parties with
whom it may enter into repurchase agreements. Under a reverse repurchase
agreement, the Fund sells securities and agrees to repurchase them at a mutually
agreed upon date and price. Under the 1940 Act, reverse repurchase agreements
will be regarded as a form of borrowing by the Fund unless, at the time it
enters into a reverse repurchase agreement, it establishes and maintains a
segregated account with its custodian containing securities from its portfolio
having a value not less than the repurchase price (including accrued interest).
The Fund has established and maintained such an account for each of its reverse
repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
At May 31, 2003, the Fund had the following reverse repurchase agreements
outstanding:
Maturity
Face Value Description Amount
$ 4,702,000 UBS/Paine Webber, 1.33%, dated 5/13/03, maturity date $ 4,707,038
6/11/03
4,544,000 UBS/Paine Webber, 1.30%, dated 5/22/03, maturity date 4,547,282
6/11/03
3,497,000 UBS/Paine Webber, 1.33%, dated 5/13/03, maturity date 3,500,747
6/11/03
6,740,000 Morgan Stanley, 1.32%, dated 5/14/03, maturity date 6,746,920
6/11/03
25,584,000 Morgan Stanley, 1.10%, dated 5/28/03, maturity date 25,594,943
6/11/03
2,140,000 Morgan Stanley, 1.45%, dated 5/30/03, maturity date 2,140,517
6/05/03
4,673,000 Merrill Lynch, 1.32%, dated 5/15/03, maturity date 4,678,654
6/17/03
6,749,000 Merrill Lynch, 1.32%, dated 5/15/03, maturity date 6,757,166
6/17/03
6,914,000 Merrill Lynch, 1.32%, dated 5/15/03, maturity date 6,922,366
6/17/03
7,801,000 Merrill Lynch, 1.32%, dated 5/15/03, maturity date 7,810,439
6/17/03
11,863,500 Merrill Lynch, 1.15%, dated 5/19/03, maturity date 11,868,806
6/02/03
14,340,000 Lehman Brothers, 1.30%, dated 5/15/03, maturity date 14,357,605
6/18/03
8,840,000 Lehman Brothers, 1.30%, dated 5/15/03, maturity date 8,850,854
6/18/03
2,600,000 Lehman Brothers, 1.31%, dated 5/29/03, maturity date 2,601,703
6/16/03
3,921,800 Lehman Brothers, 1.30%, dated 5/22/03, maturity date 3,926,757
6/26/03
13,170,000 Lehman Brothers, 1.23%, dated 5/22/03, maturity date 13,176,300
6/05/03
4,946,000 Bear Stearns, 1.76%, dated 5/08/03, maturity date 6/19/03 4,956,156
4,060,000 Bear Stearns, 1.15%, dated 5/22/03, maturity date 6/05/03 4,061,816
$ 137,085,300
Maturity Amount, Including Interest Payable $ 137,206,069
Market Value of Assets Sold Under Agreements $ 140,336,365
Weighted Average Interest Rate 1.26%
The average daily balance of reverse repurchase agreements outstanding during
the six months ended May 31, 2003, was approximately $137,768,813 at a weighted
average interest rate of 1.29%. The maximum amount of reverse repurchase
agreements outstanding at any time during the period was $147,569,318 as of
March 3, 2003, which was 33.93% of total assets.
6. Capital Stock
There are 50 million shares of $0.01 par value common stock authorized. Of the
30,639,747 shares outstanding at May 31, 2003, the Advisor owned 11,112 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 Fund's shares, are authorized for repurchase. The purchase price may not
exceed the then-current net asset value.
For the periods ended May 31, 2003 and November 30, 2002 no shares have been
repurchased. All shares repurchased have been retired. Since inception of the
stock repurchase program 2,089,740 shares have been repurchased pursuant to this
program at a cost of $18,605,505 and at an average discount of 13.18% from its
net asset value.
The Fund issued to its shareholders of records as of the close of business on
August 27, 2001 transferable rights to subscribe for up to an aggregate
7,644,525 shares of common stock of the Fund at a rate of one share of common
stock for 3 rights held at the subscription price $8.10 per share. During
September 2001, the Fund issued, in total, 7,644,525 shares of Common Stock on
exercise of such Rights. Rights offering costs of $515,977 and brokerage and
deal-manager commissions of $2,322,025 were charged directly against the
proceeds of the Offering. An adjustment of $16,696 related to such offering
costs was credited to paid-in capital during the year ended November 30, 2002.
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,
futures contracts and swap agreements and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. During the period,
the Fund had segregated sufficient cash and/or securities to cover any
commitments under these contracts.
There was no written option activity for the six months ended May 31, 2003.
As of May 31, 2003, the following swap agreements were outstanding:
Net Unrealized
Expiration Appreciation/
Notional Amount Date Description (Depreciation)
$ 30,000,000 01/02/06 Agreement with Goldman Sachs Capital Markets, LP, dated $ (561,597)
12/30/02 to pay semi-annually the notional amount multiplied
by 2.458% and to receive quarterly the notional amount
multiplied by 3 month LIBOR.
$ 30,000,000 01/02/06 Agreement with Morgan Stanley Capital Services Inc., dated (560,838)
12/30/02 to pay semi-annually the notional amount multiplied
by 2.457% and to receive quarterly the notional amount
multiplied by 3 month LIBOR.
$ (1,122,435)
As of May 31, 2003, the following futures contracts were outstanding:
Long:
Net Unrealized
Notional Cost at Value at Appreciation/
Amount Type Expiration Date Trade Date May 31, 2003 (Depreciation)
$ 5,000,000 U.S. Treasury Bond September 2003 $ 5,930,453 $ 5,960,938 $ 30,485
6,700,000 10 Yr. U.S. Treasury September 2003 7,901,269 7,935,313 34,044
Note
$ 64,529
8. Federal Income Tax Information
Income and capital gain distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles.
During the year ended November 30, 2002 the tax character of the $27,420,820 of
distributions paid was from ordinary income.
At November 30, 2002 the components of net assets (excluding paid-in-capital) on
a tax basis were as follows:
Undistributed Tax ordinary income.................... $ 1,431,913
Tax basis capital loss carryover..................... $ (24,213,695)
Less: Cumulative timing differences.................. (633,610)
Accumulated capital loss........................... $ (24,847,305)
Book basis unrealized appreciation/(depreciation).... $ 6,645,994
Plus: Cumulative timing differences.................. 301,986
Unrealized appreciation/(depreciation)............. $ 6,947,980
The cumulative timing differences under tax basis capital loss carryover is due
to post-October losses. The differences between book and tax basis unrealized
appreciation/(depreciation) are primarily attributable to the mark-to-market of
futures, and wash sales deferrals.
Federal Income Tax Basis: The federal income tax basis of the Fund's investments
at May 31, 2003 was $410,577,333. Net unrealized appreciation was $9,383,922
(gross unrealized appreciation -- $25,307,778; gross unrealized depreciation --
$15,923,856). At November 30, 2002, the Fund had a capital loss carryforward of
$24,213,695, of which $3,861,143 expires in 2006, $5,432,752 expires in 2007,
$3,003,624 expires in 2008, $8,349,330 expires in 2009, and $3,566,846 expires
in 2010, available to offset any future gains, to the extent provided by
regulations.
9. Subsequent Events
Dividend: The Fund's Board of Directors declared the following regular monthly
dividends:
Dividend Record Payable
Per Share Date Date
$ 0.0750 06/17/03 06/26/03
-------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Information Concerning Directors and Officers (Unaudited)
-------------------------------------------------------------------------------
The following tables provide information concerning the directors and officers
of The Hyperion Total Return Fund, Inc. (the "Fund").
Position(s) Held with Number of
Fund and Term of Portfolios in Fund
Name, Address Office and Length of Principal Occupation(s) During Past 5 Years and Complex Overseen
and Age Time Served Other Directorships Held by Director by Director
Class I Nominee/ Director to serve until 2006 Annual Meeting of Stockholders:
Robert F. Birch Director, Member of The Director and/or Trustee of several investment 4
c/o One Liberty Plaza, Audit Committee, Member companies (4) advised by Hyperion Capital
New York, New York of Nominating and Management, Inc. or by its affiliates
10006-1404 Compensation Committee (1998-Present); Chairman and President, New
and Member of Executive America High Income Fund (1992-Present); Chairman
Age 67 Committee of the Board and Co-Founder, The China Business
Group, Inc. (1996-Present); Director, Brandywine
Elected for Three Year Funds (2) (2001 to Present).
Term/Director Since
December 1998 Formerly, Director and Strategic Planning
Consultant, Dewe Rogerson, Ltd. (1994-1998)
Class II Director to serve until 2004 Annual Meeting of Stockholders:
Rodman L. Drake Director, Member of the Director and/or Trustee of several investment 3
c/o One Liberty Plaza, Audit Committee, companies (3) advised by Hyperion Capital
New York, New York Chairman of Nominating Management, Inc. (1989-Present); Co-founder,
10006-1404 and Compensation Baringo Capital LLC (2002-Present); Director,
Committees Animal Medical Center (2002- Present); Director,
Age 60 Hotelevision, Inc. (1999-Present); Chairman,
Elected for Three Year Metro Cash Card International (1999- Present).
Term/Director Since Director, Parsons Brinckerhoff, Inc. (1995-
July 1989 Present); Director, Absolute Quality Inc.
(2000-Present); Trustee of Excelsior Funds (3)
(1994-Present).
Formerly, President, Continuation Investments
Group Inc. (1997-2001); Director, Alliance Group
Services, Inc. (1998-2001).
Harry E. Petersen, Jr. Director, Member of the Director and/or Trustee of several investment 3
c/o One Liberty Plaza, Audit Committee, Member companies (3) advised by Hyperion Capital
New York, New York of Nominating and Management, Inc. or by its affiliates
10006-1404 Compensation (1992-Present).
Committees, Member of
Age 78 Executive Committee Formerly, Senior Consultant to Cornerstone Equity
Advisors, Inc. (1998-2001); Senior Consultant to
Elected for Three Year Potomac Babson Inc. (1995-1998).
Term/Director Since
October 1993
Class III Director to serve until 2005 Annual Meeting of Stockholders:
Lewis S. Ranieri* Chairman, Elected Chairman and Chief Executive Officer of Ranieri & 3
c/o One Liberty Plaza, Annually Since June Co., Inc. (since 1988); President of LSR Hyperion
New York, New York 2002 Corp., a general partner of the limited
10006-1404 partnership that is the general partner of
Director, Member of Hyperion Partners L.P. ("Hyperion Partners")
Age 56 Executive Committee (since 1988); Director and Chairman of the Board
of Hyperion Capital Management, Inc. (since June
Elected for Three Year 2002); Director and Vice Chairman of the Board of
Term/Director Since Hyperion Capital Management, Inc. (from November
June 1989 1998 through June 2002) Director and Chairman of
the Board of Hyperion Capital Management, Inc.
(1989-November 1998); Director and President of
Hyperion Funding II Corp., the general
partnership that is the general partner of
Hyperion Partners II, L.P. (Hyperion Partners
II); Chairman and President of various other
direct and indirect subsidiaries of Hyperion
Partners (since 1989) and Hyperion Partners II
(since 1995); Chairman of the Board
(1989-December 1998 and June 2002 through
present) and/or Director (since 1989) of several
investment companies (3) advised by Hyperion
Capital Management, Inc. or by its affiliates.
Formerly, Director and Chairman of Bank United
Corp., and Director of Bank United (1988-2001);
Director of Lend Lease Hyperion Mortgage
Opportunity Fund, Inc. (formerly, Equitable Real
Estate Hyperion Mortgage Opportunity Fund, Inc.)
and Lend Lease Hyperion High Yield Commercial
Mortgage Fund, Inc. (formerly, Equitable Real
Estate Hyperion High Yield Commercial Mortgage
Fund, Inc.) (1995-1999).
Leo M. Walsh, Jr. Director, Chairman of Director and/or Trustee of several investment 4
c/o One Liberty Plaza, the Audit Committee, companies (3) advised by Hyperion Capital
New York, New York Member of Nominating Management, Inc. or by its affiliates
10006-1404 and Compensation (1989-Present); Financial Consultant for Medco
Committees Health Solutions, Inc. (formerly, Merck-Medco
Age 70 Managed Care LLC) (1994-Present); Director of
Elected for Three Year Lend Lease Hyperion Mortgage Opportunity Fund,
Term/Director Since Inc. (formerly, Equitable Real Estate Hyperion
June 1989 Mortgage Opportunity Fund, Inc.) and Lend Lease
Hyperion High Yield CMBS Fund, Inc. (formerly,
Equitable Real Estate Hyperion High Yield
Commercial Mortgage Fund, Inc.) (1999-Present).
__________
o Interested persons as defined in the 1940 Act, because of affiliations with Hyperion Capital Management,
Inc., the Fund's Advisor.
------------------------------- ---------------- -------------------------- -------------------------------------------------------
Officers of the Fund
Position(s) Term of Office and Principal Occupation(s)
Name, Address and Age Held with Fund Length of Time Served During Past 5 Years
------------------------------- ---------------- -------------------------- -------------------------------------------------------
------------------------------- ---------------- -------------------------- -------------------------------------------------------
Lewis S. Ranieri* Chairman Elected Annually Since Please see "Information Concerning Directors."
c/o One Liberty Plaza, June 2002
New York, New York
10006-1404
Age 56
Clifford E. Lai* President Elected Annually Since President (since November 1998) of Hyperion
c/o One Liberty Plaza, April 1993 Capital Management, Inc. (March 1993-Present);
New York, New York President (since June 1997) of Hyperion 2005
10006-1404 Investment Grade Opportunity Term Trust, Inc.
(Senior Vice President from April 1993 to June
Age 50 1997); President (since October 1995) of The
Hyperion Total Return Fund, Inc.; Director and
Chairman of the Board (since October 2000) of the
Lend Lease Hyperion High-Yield CMBS Fund, Inc.
Formerly, President (December 1999-October 2000)
of the Lend Lease Hyperion High-Yield CMBS Fund,
Inc.; Senior Vice President (November
1998-December 1999) of the Lend Lease Hyperion
High-Yield Commercial Mortgage Fund, Inc; Senior
Vice President (September 1995-November 1998) of
the Equitable Real Estate Hyperion High-Yield
Commercial Mortgage Fund, Inc.
John Dolan* Vice President Elected Annually Since Chief Investment Strategist (1998-Present) and
c/o One Liberty Plaza, March 1998 Chief Investment Officer (since 2002) of Hyperion
New York, New York Capital Management.
10006-1404
Age 49
Patricia A. Sloan* Vice President Elected Annually Since Consultant of Ranieri & Co., Inc. (2000-Present).
c/o One Liberty Plaza June 2002 Formerly Secretary, Director and/or Trustee of
New York, New York several investment companies advised by Hyperion
10006-1404 Capital Management, Inc. or by its affiliates
(1989-2002).
Age 59
Thomas F. Doodian* Treasurer Elected Annually Since Managing Director, Chief Operating Officer (1998-
c/o One Liberty Plaza, February 1998 Present) and Director of Finance and Operations,
New York, New York Hyperion Capital Management, Inc. (July
10006-1404 1995-Present). Treasurer of several investment
companies advised by Hyperion Capital Management,
Age 44 Inc. (February 1998-Present).
__________
* Interested persons as defined in the 1940 Act, because of affiliations with Hyperion Capital Management, Inc.,
the Fund's Advisor.
------------------------------- --------------- -------------------------- --------------------------------------------------------
Officers of the Fund
Position(s) Term of Office and Principal Occupation(s)
Name, Address and Age Held with Fund Length of Time Served During Past 5 Years
------------------------------- --------------- -------------------------- --------------------------------------------------------
------------------------------- --------------- -------------------------- --------------------------------------------------------
Joseph Tropeano* Secretary Elected Annually Since Director and Compliance Officer, Hyperion Capital
c/o One Liberty Plaza, June 2002 Management, Inc. (1993-Present); Secretary and
New York, New York Compliance Officer of several investment companies
10006-1404 advised by Hyperion Capital Management, Inc.
(1994-Present); Secretary and Compliance Officer,
Age 41 Lend Lease Hyperion Capital Advisors, LLC
(1995-Present); Secretary and Compliance Officer
of Lend Lease Hyperion High-Yield CMBS Fund, Inc.
(1998-Present). Formerly, Assistant Secretary and
Compliance Officer, AIG Hyperion Inc. (1994-2002);
Vice President and Compliance Officer, Hyperion
Distributors, Inc. (1994-1998).
__________
* Interested persons as defined in the 1940 Act, because of affiliations with
Hyperion Capital Management, Inc., the Fund's Advisor.
The Fund's Statement of Additional Information includes additional information
about the directors and is available, without charge, upon request by calling
1-800-497-3746.
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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 American Stock Transfer 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, by calling
1-212-936-5100.
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.
INVESTMENT ADVISOR AND ADMINISTRATOR
HYPERION CAPITAL MANAGEMENT, INC.
One Liberty Plaza
165 Broadway, 36th Floor
New York, New York 10006-1404
For General Information about the Fund:
(800) HYPERION
SUB-ADVISOR
SEIX INVESTMENT ADVISORS INC.
300 Tice Boulevard
Woodcliff Lake, NJ 07677
TRANSFER AGENT
AMERICAN STOCK TRANSFER & TRUST COMPANY
Investor Relations Department
59 Maiden Lane
New York, NY 10038
For Shareholder Services:
(800) 937-5449
SUB-ADMINISTRATOR
STATE STREET CORP.
225 Franklin Street
Boston, Massachusetts 02116
CUSTODIAN AND FUND ACCOUNTING AGENT
STATE STREET CORP.
225 Franklin Street
Boston, Massachusetts 02116
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
SULLIVAN & WORCESTER LLP
1666 K Street, Northwest
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Fund may purchase its shares of
beneficial interest in the open market at prevailing market prices.
------------------------------------------------------------------------------
Officers & Directors
------------------------------------------------------------------------------
Lewis S. Ranieri
Chairman
Robert F. Birch*
Director
Rodman L. Drake*
Director
Garth Marston
Director Emeritus
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Clifford E. Lai
President
Patricia A. Sloan
Vice President
John Dolan
Vice President
Thomas F. Doodian
Treasurer
Joseph Tropeano
Secretary
* Audit Committee Members
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[HYPERION LOGO]
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The financial information included herein is taken from the records of the Fund
without audit by the Fund's independent auditors, who do not express an opinion
thereon.
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
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. [Reserved]
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's Disclosure Controls and Procedures are
effective, based on their evaluation of such Disclosure Controls and Procedures
as of a date within 90 days of the filing of this report on Form N-CSR.
(b) As of the date of filing this Form N-CSR, the registrant's principal
executive officer and principal financial officer are aware of no significant
changes in the registrant's internal controls or in other factors that could
significantly affect such controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10. Exhibits.
(a) Not applicable.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the
Investment Company Act of 1940 is attached as an exhibit to this Form N-CSR.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE HYPERION TOTAL RETURN FUND, INC.
By: /s/ Clifford E. Lai
-------------------------
Clifford E. Lai
President and Principal Executive Officer
Date: August 7, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Clifford E. Lai
------------------------------
Clifford E. Lai
President and Principal Executive Officer
Date: August 7, 2003
By: /s/Thomas F. Doodian
-------------------------------
Thomas F. Doodian
Treasurer and Principal Financial Officer
Date: August 7, 2003