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 30
Date of reporting period: November 30, 2003
Item 1. Reports to Shareholders.
[Graphic Omitted]
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THE HYPERION TOTAL RETURN FUND, INC.
Report of Investment Advisor
For the Year Ended November 30, 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 fiscal year ended November 30,
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
For the fiscal year ended November 30, 2003, shareholders realized a total
investment return of 20.43%, which assumes the reinvestment of dividends and is
exclusive of brokerage commissions. Based on the NYSE closing price of $10.16 on
November 30, 2003, the Fund's shares had a current yield of 8.86%, which was
5.5% 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 November 30, 2003, the Fund, inclusive of the effect of leverage, was
managed with an average duration of 3.8 years, as measured on a net asset basis.
Duration is the weighted average maturity of a bond's cash flows used in
estimating the bond's price sensitivity for a given change in interest rates.
Market Environment
After struggling for several years, the momentum of the economy turned more
positive in the second half of 2003. Housing sales and mortgage refinancings had
another very strong year in 2003 and helped to keep consumer activity robust.
Tax reductions and strength in the stock market added further fuel to the
economy with economic growth surging to 8.2% in the third quarter, its highest
rate since 1984. While we believe that we have seen the cyclical lows in
economic activity and in interest rates, the pace of the recovery and
accompanying rise in interest rates may be slower than past recoveries. The
unemployment rate remains stubbornly high and job creation subdued. In excess of
5 million jobs were lost in the recession that began in 2000 and it will take
some time to fully employ the population. Monthly job creation of at least
250,000 is needed to make significant steps towards long term and sustained
economic growth. Until then, the Federal Reserve will remain aggressive with
respect to Monetary Policy and keep interest rates low.
While corporate earnings have improved, and have helped push the stock market
higher, most of those gains have been due to reductions in expenses rather than
increases in revenues. Although clearly a positive for the equity markets,
revenue increases are needed for sustained stock market growth.
A growing concern for the economy has been weakness in the dollar, particularly
against the Euro which hit lifetime highs in the last month. The high current
account deficit combined with a growing budget deficit makes the U.S. ever more
dependent on foreign investment. A stronger economy, rising stock market, and
higher interest rates will attract foreigners to hold dollar financial assets
and temper any dollar decline. The key risk to the markets and the economy is
economic weakness that translates into dollar distress.
With the recent improvement in the economy and the weakness in the dollar we now
look for the Fed to begin shifting their bias toward tightening sometime in
mid-2004 (versus late 2004 or even 2005 as we had thought a few months ago). The
markets will be paying particularly close attention to the minutes of Fed
meetings and any Fed testimony for any signals to changes from their current
policy.
Portfolio Strategy
Our outlook for 2003 was that due to the improving fundamentals of the economy,
credit-oriented securities should perform well. As a result, we increased the
Fund's exposure to high yield corporate bonds (HY) in February 2003 to 3.5%. The
high yield sector turned in strong performance in 2003, and that allocation has
been very beneficial to HTR's returns. The increase in corporate HY was offset
by selectively decreasing the Fund's allocation to below-investment-grade
Commercial Mortgage-Backed Securities ("CMBS"), where commercial real estate
fundamentals have continued to weaken due to rising vacancies and declining
rents. An upturn in commercial real estate fundamentals typically lags the
general economic recovery by 6 to 8 months and is highly dependent on employment
growth: the more people at work, the more office space needed, the higher the
demand for both hotel rooms and retail space. Commercial real estate
delinquencies have continued to rise as yield spreads on commercial MBS have
narrowed, leading to our negative outlook on the sector in favor of corporate
HY. We are comfortable with our remaining CMBS exposures and expect the entire
CMBS sector to improve from these levels.
In the Non-Agency Residential MBS ("RMBS") allocation of the Fund, we continue
to maintain a mix of Fannie Mae and Freddie Mac premium-priced MBS. While
prepayment rates have been high in this sector, these securities have offered an
attractive alternative to other shorter duration securities. RMBS have performed
exceptionally well over the past few years and have benefited from the faster
prepayment environment. With most of the RMBS held in the portfolio purchased at
discount dollar prices, the high levels of prepayment rates have led not only to
strong price performance but also to numerous credit rating upgrades.
We continue to manage the portfolio at full leverage, to take advantage of
historically low borrowing rates, and have utilized interest rate swaps and
floating rate securities to hedge against increases in borrowing costs.
In 2003, the Fund outperformed many of the broad market bond indices due to its
allocation of High Yield corporates, along with strength in the non-Agency MBS
sector due to faster prepayments.
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,
[GRAPHIC OMITTED][GRAPHIC OMITTED]
CLIFFORD E. LAI
President and Director,
The Hyperion Total Return Fund, Inc.
President and Chief Executive Officer,
Hyperion Capital Management, Inc.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
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
November 30, 2003 Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
- ---------------------------------------------------------- -------------- ------------- -------------- -----------------
- ------------
See notes to financial statements.
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 65.6%
U.S. Government Agency Collateralized Mortgage Obligations -- 5.1%
Federal Home Loan Mortgage Corporation
Series 1675, Class KC.........................................6.50%.........10/15/10 $ 5,750 $ 6,138,602
Series 1659, Class SD.........................................8.50+.........01/15/09 31 31,384
Series 1604, Class MC.........................................9.00+.........11/15/08 2,482 2,701,908
Series 1604, Class SB.........................................9.00+.........11/15/08 477 520,122
Series 1587, Class SK.........................................9.00+.........10/15/08 1,369# 1,545,669
----------------
10,937,685
----------------
Federal National Mortgage Association
Series 1997-1, Class B........................................6.50..........02/18/04 299 299,056
Series 1998-W6, Class B3......................................7.09..........10/25/28 1,996 1,822,296
Series 1993-170, Class SC.....................................9.00+.........09/25/08 708 744,764
Series 1993-48, Class C.......................................9.50..........04/25/08 606 645,901
----------------
3,512,017
----------------
Total U.S. Government Agency Collateralized Mortgage Obligations
(Cost-- $13,253,572).......................................................... 14,449,702
----------------
U.S. Government Agency Pass-Through Certificates -- 32.5%
Federal Home Loan Mortgage Corporation
C53494........................................................7.50..........06/01/31 628 671,954
C55470........................................................8.00..........07/01/31 342 368,201
C56878........................................................8.00..........08/01/31 2,446 2,634,440
C56879........................................................8.00..........08/01/31 515 554,146
C58516........................................................8.00..........09/01/31 878 945,180
C59641........................................................8.00..........10/01/31 2,068 2,226,736
C55166........................................................8.50..........07/01/31 254 273,238
C55167........................................................8.50..........07/01/31 801 862,151
C55168........................................................8.50..........07/01/31 1,143 1,230,918
C55169........................................................8.50..........07/01/31 773 831,941
C57010........................................................8.50..........08/01/31 541 582,344
C58521........................................................8.50..........09/01/31 162 174,613
C60422........................................................8.50..........10/01/31 218 234,497
C60423........................................................8.50..........10/01/31 1,560 1,679,657
C60424........................................................8.50..........10/01/31 444 478,074
----------------
13,748,090
----------------
Federal National Mortgage Association
TBA...........................................................4.50...............TBA 20,000 18,940,620
TBA...........................................................6.00...............TBA 11,500 11,767,283
649881........................................................6.00..........09/01/32 5,727@ 5,885,259
650162........................................................6.50..........10/01/32 3,917 4,084,216
652870........................................................6.50..........10/01/32 4,157 4,334,723
654917........................................................6.50..........08/01/32 10,794@ 11,255,601
642102........................................................7.00..........05/01/32 6,983 7,372,905
645406........................................................7.00..........05/01/32 4,774@ 5,039,870
645912........................................................7.00..........06/01/32 5,114@ 5,399,580
645913........................................................7.00..........06/01/32 4,576 4,831,291
----------------
78,911,348
----------------
Total U.S. Government Agency Pass-Through Certificates
(Cost-- $92,058,171).......................................................... 92,659,438
----------------
U.S. Treasury/Agency Obligations -- 28.0%
Federal Home Loan Mortgage Corp................................5.13%.........11/07/13 $ 25,000@ $ 24,781,250
Federal National Mortgage Association..........................4.75..........02/21/13 25,000@ 24,453,125
U.S. Treasury Notes ...........................................3.63..........05/15/13 4,000@ 3,836,248
3.88 02/15/13 27,600@ 26,832,389
----------------
30,668,637
----------------
Total U.S. Treasury/Agency Obligations
(Cost-- $80,838,020).......................................................... 79,903,012
----------------
Total U.S. Government & Agency Obligations
(Cost-- $186,149,763)......................................................... 187,012,152
----------------
ASSET-BACKED SECURITIES -- 21.4%
Housing Related Asset-Backed Securities -- 12.9%
125 Home Loan Owner Trust
Series 1998-1A, Class M2*.....................................7.75..........02/15/29 1,722 1,766,984
Access Financial Manufactured Housing Contract Trust
Series 1995-1, Class B1.......................................7.65..........05/15/21 10,060 7,211,763
Asset Backed Securities Corp., NIMS Trust
Series 2003-HE6, Class A1*....................................6.75..........11/27/33 1,000 997,500
Chase Funding Mortgage Loan Asset-Backed
Series 2000-1, Class IIM2.....................................1.92+.........02/15/30 1,645 1,646,079
Ditech Home Loan Owner Trust
Series 1998-1, Class M2(f)................................7.64/8.14.........06/15/29 1,469 1,512,005
First Franklin Mortgage Loan Trust
Series 2001-FF2, Class M3.....................................2.90+.........11/25/31 5,000 4,899,850
Green Tree Financial Corp.
Series 1998-3, Class A6.......................................6.76..........03/01/30 5,429 4,878,402
Series 1998-4, Class A7.......................................6.87..........02/01/30 2,440 2,112,056
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 3,249 3,376,097
----------------
13,016,555
----------------
Long Beach Asset Holdings Corp.
Series 2003-4, Class N1*......................................6.54..........08/25/33 1,524 1,527,600
Saxon Asset Securities Trust
Series 1998-1, Class MF1......................................7.05..........12/25/27 1,382 1,404,570
Vanderbilt Mortgage Finance, Inc.
Series 2001-B, Class A5.......................................6.96..........09/07/31 2,000 1,882,870
Westgate Resorts
Series 1998-AA, Class A2*.....................................8.26..........07/15/13 1,077 1,025,419
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Total Housing Related Asset-Backed Securities
(Cost-- $42,642,717).......................................................... 36,891,195
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Non-Housing Related Asset-Backed Securities -- 3.5%
Aerco Ltd.
Series 2A, Class B2...........................................2.17+%........07/15/25 3,257 1,628,737
Global Rated Eligible Assets Trust
Series 1998-A, Class A1*(c)...................................7.33..........03/15/06 1,593 10,673
MBNA Credit Card Master Trust
Series 2002-C7, Class C7......................................6.70..........03/16/15 5,000 5,401,120
Structured Mortgage Asset Residential Trust
Series 1997-2, Class A(c).....................................8.24..........03/15/06 2,308 11,541
Tobacco Settlement Financing Corp.
Series 2001-A, Class A........................................6.36..........05/15/25 3,016 2,941,698
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Total Non-Housing Related Asset-Backed Securities
(Cost-- $15,168,475).......................................................... 9,993,769
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Franchise Securities -- 1.7%
FFCA Secured Lending Corp.
Series 1998-1, Class A1B*(b)..................................6.73%.........07/18/13 $ 3,870 $ 3,935,305
Franchisee Loan Receivable Trust
Series 1995-B, Class A*.......................................9.59+.........01/15/11 1,622 873,334
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Total Franchise Securities
(Cost-- $5,592,284)........................................................... 4,808,639
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Collateralized Debt Obligations -- 3.3%
Anthracite CDO I Ltd.
Series 2002-CIBA, Class CFL*..................................2.37+.........05/24/37 5,000 4,779,000
Seneca Funding I Ltd.*.........................................3.92+.........05/31/29 5,000 4,600,000
----------------
Total Collateralized Debt Obligations
(Cost-- $8,945,049)........................................................... 9,379,000
----------------
Total Asset-Backed Securities
(Cost-- $72,348,525).......................................................... 61,072,603
----------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 16.0%
Bear Stearns Commercial Mortgage Securities
Series 1999-C1, Class F*......................................5.64..........02/14/31 1,394 1,122,777
Series 1999-C1, Class D.......................................6.53..........02/14/31 5,000 5,269,700
Series 2001-EPR, Class B*.....................................6.92..........02/12/11 5,000 5,346,150
----------------
11,738,627
----------------
Columbia Center Trust
Series 2000-CCT, Class D*.....................................1.88+.........12/15/09 2,720 2,657,492
Commercial Mortgage Asset Trust
Series 1999-C1, Class C.......................................7.35..........01/17/32 2,000 2,337,260
Commercial Mortgage Lease-Backed Certificates
Series 2001-CMLB, Class A1*...................................6.75..........06/20/31 2,759 3,013,858
First Chicago/Lennar Trust
Series 1997-CHL1, Class D*....................................7.96+.........04/29/39 3,000 2,983,593
JP Morgan Commercial Mortgage Finance Corp.
Series 1999-C8, Class C.......................................7.43+.........07/15/31 5,000 5,720,995
LB-UBS Commercial Mortgage Trust
Series 2002-C2, Class L*......................................5.68..........07/15/35 5,300 4,565,404
Mortgage Capital Funding, Inc.
Series 1996-MC1, Class G*(b)..................................7.15..........06/15/06 4,409 4,741,747
Nationslink Funding Corp.
Series 1998-2, Class F*.......................................7.11..........08/20/30 4,840 4,502,604
UBS 400 Atlantic Street Mortgage Trust
Series 2002-C1A, Class B3*....................................7.19..........01/11/22 3,000 3,325,380
----------------
Total Commercial Mortgage Backed Securities
(Cost-- $42,179,721).......................................................... 45,586,960
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NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES -- 23.3%
Subordinated Collateralized Mortgage Obligations -- 23.3%
ABN AMRO Mortgage Corp.
Series 2002-1A, Class B3*.....................................5.63+.........06/25/32 771 764,686
Series 2002-1A, Class B4*.....................................5.63+.........06/25/32 462 420,550
Series 2002-1A, Class B5*.....................................5.63+.........06/25/32 774 599,836
----------------
1,785,072
----------------
Bank of America Mortgage Securities, Inc.
Series 2001-F, Class B6.......................................5.50+.........11/25/31 973 632,423
Series 2001-4, Class 1B3......................................6.75..........04/20/31 2,058 2,123,828
----------------
2,756,251
----------------
Cendant Mortgage Corp.
Series 2001-1, Class B4.......................................7.25%.........01/18/30 $ 360 $ 359,987
Series 2000-1, Class B7.......................................7.25..........01/18/30 74 28,533
----------------
388,520
Chase Mortgage Finance Corp.
Series 2002-A1, Class B3*.....................................6.22+.........12/25/29 259 264,695
Series 1994-D, Class B3.......................................6.75..........02/25/25 130 130,241
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394,936
----------------
Citicorp Mortgage Securities, Inc.
Series 2002-6, Class B4.......................................6.28+.........05/25/32 610 559,604
Series 2002-6, Class B5.......................................6.28+.........05/25/32 610 443,839
Series 2002-6, Class B6.......................................6.28+.........05/25/32 610 274,496
Series 2001-16, Class M.......................................6.31+.........11/25/31 3,735 3,776,896
Series 2001-16, Class B1......................................6.31+.........11/25/31 1,437 1,451,797
Series 2001-16, Class B2......................................6.31+.........11/25/31 862 869,524
Series 2001-16, Class B3......................................6.31+.........11/25/31 431 434,528
Series 2001-16, Class B4......................................6.31+.........11/25/31 431 409,631
Series 2001-16, Class B5......................................6.31+.........11/25/31 432 205,311
Series 2002-7, Class B5.......................................6.37..........06/25/32 427 389,050
Series 2002-7, Class B6.......................................6.37..........06/25/32 428 122,088
NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES (continued)
Series 1997-2, Class B2.......................................7.25..........05/25/27 1,029 1,028,174
Series 1997-5, Class B2.......................................7.25..........11/25/27 1,231 1,230,428
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11,195,366
----------------
Countrywide Alternative Loan Trust
Series 1998-2, Class B3.......................................7.00..........05/25/28 874 874,730
DLJ Mortgage Acceptance Corp.
Series 1995-T10, Class C*....................................17.97+.........09/02/23 342 282,627
First Republic Mortgage Loan Trust
Series 2000-FRB1, Class B3....................................1.62+.........06/25/30 922 860,488
G3 Mortgage Reinsurance Ltd.
Series 1, Class E*(b)........................................21.12+.........05/25/08 5,845 6,341,779
GMAC Mortgage Corp. Loan Trust
Series 2002-J6, Class B2......................................6.25..........10/25/32 962 811,697
Series 2002-J6, Class B3......................................6.25..........10/25/32 1,283 638,314
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1,450,011
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Granite Mortgages PLC
Series 2002-1, Class 1C.......................................2.46+.........04/20/42 5,000 4,951,565
Norwest Asset Securities Corp.
Series 1999-26, Class B6......................................7.25..........12/25/29 514 297,739
PHH Mortgage Services Corp.
Series 1997-6, Class B3*......................................7.31+.........11/18/27 598 597,512
Residential Accredit Loans, Inc.
Series 1998-QS5, Class B1*....................................6.75..........04/25/28 1,408 1,414,357
Series 1998-QS11, Class B1....................................6.75..........08/25/28 2,334 2,350,674
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3,765,031
----------------
Residential Finance Limited Partnership
Series 2002-A, Class B7.......................................6.82+.........10/10/34 2,968 3,057,673
Residential Funding Mortgage Securities I, Inc.
Series 2003-S7, Class B2......................................5.50..........05/25/33 696 400,814
Series 2003-S7, Class B3(a)...................................5.50..........05/25/33 994 253,435
Series 1993-S49, Class B2.....................................6.00..........12/25/08 61 61,429
Series 1999-S12, Class M3.....................................6.50..........05/25/29 3,334 3,332,012
Series 1999-S13, Class M3.....................................6.50..........05/25/29 1,381 1,380,450
Series 2002-S7, Class B1......................................6.50..........05/25/32 813 780,411
Series 2002-S7, Class B2......................................6.50..........05/25/32 610 466,548
Series 2002-S7, Class B3(a)...................................6.50..........05/25/32 610 253,135
Series 1996-S5, Class B1......................................6.75..........02/25/11 229 229,074
Series 1996-S8, Class B1......................................6.75%.........03/25/11 $ 226 $ 234,453
Series 2001-S24, Class B1.....................................6.75..........10/25/31 812 810,925
Series 2001-S24, Class M3.....................................6.75..........10/25/31 1,421 1,419,700
Series 1996-S13, Class B2.....................................7.00..........05/25/11 125 126,376
Series 1996-S13, Class B3(a)..................................7.00..........05/25/11 109 91,126
Series 2000-S3, Class B2*.....................................7.00..........03/25/15 172 147,326
Series 1995-S12, Class B2.....................................7.25..........08/25/10 126 126,118
Series 1996-S17, Class B2.....................................7.25..........07/25/11 108 107,877
Series 1996-S17, Class B3(a)..................................7.25..........07/25/11 108 88,243
Series 1995-S17, Class B3(a)..................................7.50..........12/26/25 417 344,097
Series 1996-S23, Class B1.....................................7.75..........11/25/26 243 243,214
Series 1996-S23, Class B2.....................................7.75..........11/25/26 181 180,870
----------------
11,077,633
----------------
Resix Finance Ltd.
Series 2003-D, Class B7*......................................6.92+%........12/10/35 2,000 2,005,000
Washington Mutual
Series 2002-AR7, Class B4.....................................5.53+.........07/25/32 1,855 1,835,486
Series 2002-AR7, Class B5.....................................5.53+.........07/25/32 1,391 1,252,622
Series 2002-AR7, Class B6.....................................5.53+.........07/25/32 2,321 1,798,452
----------------
4,886,560
----------------
NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES (continued)
Wells Fargo Mortgage Backed Securities Trust
Series 2002-10, Class B6......................................6.00..........06/25/32 493 229,167
Series 2001-11, Class B5......................................6.25..........05/25/31 278 278,903
Series 2001-26, Class B3......................................6.50..........11/25/31 1,962 1,960,586
Series 2001-26, Class B4......................................6.50..........11/25/31 1,227 1,225,899
Series 2001-26, Class B5......................................6.50..........11/25/31 736 731,139
Series 2001-26, Class B6......................................6.50..........11/25/31 981 431,378
Series 2001-24, Class B3......................................6.75..........11/25/31 2,035 2,033,805
Series 2001-24, Class B4......................................6.75..........11/25/31 1,271 1,270,430
Series 2001-24, Class B5......................................6.75..........11/25/31 763 757,577
Series 2001-24, Class B6......................................6.75..........11/25/31 987 541,094
----------------
9,459,978
----------------
Total Subordinated Collateralized Mortgage Obligations
(Cost-- $59,526,714).......................................................... 66,428,471
----------------
Senior Collateralized Mortgage Backed Securities -- 0.0%
Countrywide Funding Corp.
Series 1994-2, Class B2
(Cost-- $65,383).........................................6.50..........02/25/09 119 111,414
----------------
Total Non-Agency Residential Mortgage Backed Securities
(Cost-- $59,592,097).......................................................... 66,539,885
----------------
- ----------------------------------------------------------- -------------- ------------- -------------- -----------------
- ----------------------------------------------------------- -------------- ------------- -------------- -----------------
CORPORATE OBLIGATIONS -- 9.4%
Aerospace -- 0.0%
DRS Technologies. Inc.*........................................6.88..........11/01/13 55 56,100
----------------
Airlines -- 1.1%
American Airline...............................................8.61..........04/01/11 2,500 2,204,312
United Airlines, Series 00-2(d)................................7.19..........04/01/11 982 835,970
----------------
3,040,282
----------------
Apparel & Textiles -- 0.0%
William Carter................................................10.88..........08/15/11 33 37,826
----------------
Automotive -- 0.2%
Autonation, Inc................................................9.00..........08/01/08 110 125,675
Group 1 Automotive, Inc........................................8.25..........08/15/13 50 53,125
Keystone Automotive Operations Corp.*..........................9.75..........11/01/13 20 21,225
Nationsrent, Inc.*.............................................9.50..........10/15/10 20 21,000
Sonic Automotive, Inc.*........................................8.63%.........08/15/13 $ 40 $ 42,300
United Auto Group, Inc.........................................9.63..........03/15/12 55 61,325
United Rentals North America, Inc.*............................7.75..........11/15/13 110 110,275
United Rentals North America, Inc., Series B..................10.75..........04/15/08 90 101,025
----------------
535,950
----------------
Building Construction -- 0.2%
K. Hovnanian Enterprises, Inc..................................7.75..........05/15/13 20 21,175
K. Hovnanian Enterprises, Inc..................................8.00..........04/01/12 170 186,150
Koppers, Inc.*.................................................9.88..........10/15/13 25 27,250
Meritage Corp.*................................................9.75..........06/01/11 30 33,488
Nortek Holdings, Inc., Series B................................9.88..........06/15/11 15 16,575
Schuler Homes..................................................9.38..........07/15/09 75 84,750
Standard Pacific Corp..........................................6.88..........05/15/11 40 41,200
Standard Pacific Corp..........................................7.75..........03/15/13 70 75,075
Technical Olympic USA, Inc.....................................9.00..........07/01/10 55 58,987
----------------
544,650
----------------
Chemicals -- 0.3%
Acetex Corp...................................................10.88..........08/01/09 15 16,725
Acetex Corp.*.................................................10.88..........08/01/09 15 16,725
Arco Chemical Co...............................................9.80..........02/01/20 25 23,625
Arco Chemical Co..............................................10.25..........11/01/10 20 20,100
Equistar Chemical*............................................10.63..........05/01/11 40 42,600
FMC Corp......................................................10.25..........11/01/09 200 235,000
CORPORATE OBLIGATIONS (continued)
Lyondell Chemical Co...........................................9.50..........12/15/08 10 10,200
Lyondell Chemical Co., Series A................................9.63..........05/01/07 15 15,525
Lyondell Chemical Co., Series B................................9.88..........05/01/07 110 113,850
Macdermid, Inc.................................................9.13..........07/15/11 115 128,800
Nalco Co.*.....................................................7.75..........11/15/11 70 73,325
Rockwood Specialties Group, Inc.*.............................10.63..........05/15/11 65 71,175
----------------
767,650
----------------
Coal -- 0.1%
Luscar Coal Ltd................................................9.75..........10/15/11 150 171,000
Massey Energy Co.*.............................................6.63..........11/15/10 35 35,525
Peabody Energy Corp., Series B.................................6.88..........03/15/13 50 52,875
----------------
259,400
----------------
Commercial Services -- 0.1%
Iron Mountain, Inc.............................................7.75..........01/15/15 75 79,875
RH Donnelley Finance Corp. I*.................................10.88..........12/15/12 77 91,341
RH Donnelley Finance Corp. I..................................10.88..........12/15/12 25 29,656
----------------
200,872
----------------
Computers & Business Equipment -- 0.1%
Digitalnet, Inc.*..............................................9.00..........07/15/10 23 25,357
Seagate Technology HDD Holding Co..............................8.00..........05/15/09 40 43,400
Unisys Corp....................................................6.88..........03/15/10 120 128,100
Unisys Corp....................................................7.25..........01/15/05 102 106,590
----------------
303,447
----------------
Consumer Products -- 0.0%
Central Garden & Pet Co........................................9.13..........02/01/13 35 38,763
Scotts Co.*....................................................6.63..........11/15/13 45 45,675
----------------
84,438
----------------
Containers & Packaging -- 0.3%
Ball Corp......................................................6.88..........12/15/12 115 120,750
Berry Plastics Corp...........................................10.75..........07/15/12 70 80,063
Crown Holdings.................................................9.50..........03/01/11 85 95,625
Crown Holdings................................................10.88..........03/01/13 10 11,600
Graphic Packaging International, Inc.*.........................9.50..........08/15/13 65 72,069
Jefferson Smurfit Corp.........................................8.25%.........10/01/12 $ 200 $ 215,250
Norampac, Inc..................................................6.75..........06/01/13 10 10,450
Owens-Brockway Glass Container Corp............................8.88..........02/15/09 85 92,437
Silgan Holdings, Inc.*.........................................6.75..........11/15/13 70 70,350
Silgan Holdings, Inc...........................................9.00..........06/01/09 128 133,299
Stone Container Corp...........................................9.25..........02/01/08 15 16,575
----------------
918,468
----------------
Drugs & Health Care -- 0.4%
Advancepcs.....................................................8.50..........04/01/08 20 22,100
Bio-Rad Laboratories, Inc......................................7.50..........08/15/13 30 32,400
Columbia/HCA...................................................7.25..........05/20/08 40 43,402
Coventry Health Care, Inc......................................8.13..........02/15/12 130 143,650
Genesis Healthcare Corp.*......................................8.00..........10/15/13 10 10,225
HCA, Inc.......................................................8.75..........09/01/10 75 87,148
Kinetic Concepts, Inc.*........................................7.38..........05/15/13 45 46,350
Pacificare Health Systems, Inc................................10.75..........06/01/09 170 195,925
Province Healthcare Co.........................................7.50..........06/01/13 30 30,450
Psychiatric Solutions, Inc.*..................................10.63..........06/15/13 55 61,738
Select Medical Corp.*..........................................7.50..........08/01/13 145 152,250
Sybron Dental Specialties, Inc.................................8.13..........06/15/12 75 81,562
Triad Hospitals, Inc...........................................8.75..........05/01/09 115 124,919
Universal Hospital Services, Inc.*............................10.13..........11/01/11 60 62,400
----------------
1,094,519
----------------
CORPORATE OBLIGATIONS (continued)
Electrical Equipment -- 0.1%
Amkor Technologies, Inc........................................7.75..........05/15/13 110 118,250
Amkor Technologies, Inc........................................9.25..........02/15/08 70 79,100
BRL Universal Equipment........................................8.88..........02/15/08 170 183,600
----------------
380,950
----------------
Electric Utilities -- 0.4%
AES Corp.*.....................................................8.75..........05/15/13 350 380,625
Calpine Corp.*.................................................8.50..........07/15/10 105 97,912
Calpine Corp.*.................................................8.75..........07/15/13 25 23,188
Edison International, Inc......................................6.88..........09/15/04 70 72,450
MSW Energy Holdings Finance II*................................7.38..........09/01/10 45 46,575
MSW Energy Holdings LLC*.......................................8.50..........09/01/10 55 59,537
PSE&G Energy Holdings..........................................7.75..........04/16/07 120 124,350
PSE&G Energy Holdings..........................................8.63..........02/15/08 55 58,644
PSE&G Energy Holdings.........................................10.00..........10/01/09 45 50,456
Reliant Resources, Inc.*.......................................9.25..........07/15/10 95 96,425
Reliant Resources, Inc.*.......................................9.50..........07/15/13 45 45,675
Sithe/Independence Funding.....................................9.00..........12/30/13 55 62,219
Southern California Edison Co..................................8.00..........02/15/07 40 45,550
----------------
1,163,606
----------------
Electronics -- 0.1%
Fairchild Semiconductor Corp..................................10.50..........02/01/09 95 106,875
FIMEP SA......................................................10.50..........02/15/13 95 110,675
L-3 Communications Corp........................................7.63..........06/15/12 185 202,575
----------------
420,125
----------------
Financial Services -- 0.2%
Fairfax Financial Holdings.....................................7.38..........04/15/18 80 71,300
Midland Funding Corp. II......................................11.75..........07/23/05 183 198,868
Sovereign Bancorp, Inc........................................10.50..........11/15/06 140 163,781
----------------
433,949
----------------
Food & Beverages -- 0.1%
Constellation Brands, Inc......................................8.13%.........01/15/12 $ 95 $ 104,737
Del Monte Corp.*...............................................8.63..........12/15/12 5 5,475
Pinnacle Foods Holding Corp.*..................................8.25..........12/01/13 40 41,200
Smithfield Foods, Inc., Series B...............................7.75..........05/15/13 65 71,013
----------------
222,425
----------------
Forest Products & Paper -- 0.2%
Appleton Papers, Inc..........................................12.50..........12/15/08 35 39,638
Boise Cascade Corp.............................................6.50..........11/01/10 25 25,364
Boise Cascade Corp.............................................7.00..........11/01/13 15 15,267
Cascades, Inc..................................................7.25..........02/15/13 95 99,750
Cascades, Inc.*................................................7.25..........02/15/13 75 78,750
Georgia-Pacific Corp...........................................7.38..........07/15/08 75 80,062
Georgia-Pacific Corp...........................................8.88..........02/01/10 210 238,875
Millar Western Forest*.........................................7.75..........11/15/13 15 15,319
----------------
593,025
----------------
Gambling -- 0.2%
Argosy Gaming Co...............................................9.00..........09/01/11 160 177,200
Argosy Gaming Co..............................................10.75..........06/01/09 70 76,300
Horseshoe Gaming LLC...........................................8.63..........05/15/09 90 96,187
Mohegan Tribal Gaming..........................................8.13..........01/01/06 145 156,781
Penn National Gaming, Inc.*....................................6.88..........12/01/11 15 14,813
Penn National Gaming, Inc.....................................11.13..........03/01/08 50 56,500
----------------
577,781
----------------
CORPORATE OBLIGATIONS (continued)
Hotels & Casinos -- 0.4%
Ameristar, Casinos Inc........................................10.75..........02/15/09 30 34,500
Chumash Casino & Resorts*......................................9.25..........07/15/10 50 55,375
Gaylord Entertainment Co.*.....................................8.00..........11/15/13 20 20,900
Harrahs Opererating Co., Inc...................................7.88..........12/15/05 20 21,700
Host Marriott LP*..............................................7.13..........11/01/13 105 104,475
ITT Corp.......................................................6.75..........11/15/05 100 105,500
Mandalay Resort Group..........................................9.50..........08/01/08 20 23,150
Mandalay Resort Group.........................................10.25..........08/01/07 190 218,975
MGM Mirage, Inc................................................6.00..........10/01/09 30 30,562
MGM Mirage, Inc................................................8.50..........09/15/10 280 319,900
Park Place Entertainment Corp..................................9.38..........02/15/07 60 67,200
Sun International Hotels Ltd...................................8.88..........08/15/11 135 147,488
Venetian Casino Resort LLC....................................11.00..........06/15/10 60 69,750
----------------
1,219,475
----------------
Industrial -- Diversified -- 0.2%
SPX Corp.......................................................6.25..........06/15/11 50 50,750
SPX Corp.......................................................7.50..........01/01/13 105 112,875
TD Funding Corp.*..............................................8.38..........07/15/11 20 21,300
Tyco International Group SA....................................6.13..........11/01/08 215 228,169
Tyco International Group SA....................................6.38..........02/15/06 75 79,781
Williams Holdings Delaware, Inc................................6.50..........12/01/08 5 5,100
----------------
497,975
----------------
Industrial Machinery -- 0.1%
Dresser Industries, Inc........................................7.60..........08/15/96 125 130,163
NMHG Holding Co...............................................10.00..........05/15/09 105 116,156
Petroleum Helicopters, Inc.....................................9.38..........05/01/09 110 118,938
----------------
365,257
----------------
Insurance -- 0.1%
AFC Capital Trust I, Series B..................................8.21..........02/03/27 5 4,325
Allmerica Financial Corp.......................................7.63..........10/15/25 50 46,625
Crum & Forster Holdings Corp.*................................10.38..........06/15/13 25 27,375
Fairfax Financial Holdings Ltd.................................7.38%.........03/15/06 $ 40 $ 40,450
Fairfax Financial Holdings Ltd.................................7.75..........07/15/37 25 21,406
Fairfax Financial Holdings Ltd.................................8.30..........04/15/26 40 36,650
Markel Capital Trust I.........................................8.71..........01/01/46 55 56,653
----------------
233,484
----------------
Media -- Broadcasting & Publishing -- 1.1%
Alliance Atlantis Communications, Inc.........................13.00..........12/15/09 160 184,000
Canwest Media, Inc............................................10.63..........05/15/11 45 51,300
Canwest Media, Inc., Series B..................................7.63..........04/15/13 50 54,625
Corus Entertainment, Inc.......................................8.75..........03/01/12 15 16,500
CSC Holdings, Inc..............................................7.25..........07/15/08 115 116,150
CSC Holdings, Inc.............................................10.50..........05/15/16 70 77,700
CSC Holdings, Inc., Series B...................................8.13..........07/15/09 25 26,125
Dex Media East LLC.............................................9.88..........11/15/09 15 17,100
Dex Media East LLC............................................12.13..........11/15/12 210 253,575
Dex Media West LLC*............................................8.50..........08/15/10 20 21,950
Dex Media West LLC*............................................9.88..........08/15/13 100 114,000
DIRECTV Holdings LLC...........................................8.38..........03/15/13 205 232,931
Echostar DBS Corp.*............................................4.41+.........10/01/08 190 197,125
Echostar DBS Corp..............................................9.13..........01/15/09 195 218,400
Gray Television, Inc...........................................9.25..........12/15/11 55 61,325
Hollinger Participation*(PIK).................................12.13..........11/15/10 78 91,323
Mediacom Broadband LLC........................................11.00..........07/15/13 5 5,388
Medianews Group, Inc.*.........................................6.88..........10/01/13 60 59,925
CORPORATE OBLIGATIONS (continued)
Morris Publishing Group LLC*...................................7.00..........08/01/13 70 71,050
Panamsat Corp..................................................8.50..........02/01/12 15 16,387
Quebecor Media, Inc...........................................11.13..........07/15/11 5 5,775
Radio One, Inc.................................................8.88..........07/01/11 65 71,825
Regal Cinemas, Inc.............................................9.38..........02/01/12 120 136,350
Rogers Cable, Inc..............................................8.75..........05/01/32 180 206,100
Shaw Communications, Inc.......................................7.20..........12/15/11 65 69,875
Sinclair Broadcast Group, Inc..................................8.75..........12/15/11 210 232,050
Susquehanna Media Co...........................................7.38..........04/15/13 30 31,350
Videotron Ltee*................................................6.88..........01/15/14 30 30,975
Vivendi Universal*.............................................6.25..........07/15/08 70 73,850
Vivendi Universal*.............................................9.25..........04/15/10 220 258,500
----------------
3,003,529
----------------
Miscellaneous -- 0.3%
Dade Behring, Inc.............................................11.91..........10/03/10 130 149,663
Eircom Funding*................................................8.25..........08/15/13 25 27,250
Reddy Ice Group, Inc.*.........................................8.88..........08/01/11 15 15,900
River Rock Entertainment*......................................9.75..........11/01/11 5 5,325
Salton Sea Funding.............................................7.48..........11/30/18 97 102,388
Seminis Vegetable Seeds, Inc.*................................10.25..........10/01/13 35 37,319
Service Corp. International....................................6.88..........10/01/07 40 41,000
Service Corp. International....................................7.20..........06/01/06 55 56,787
Service Corp. International....................................7.70..........04/15/09 200 210,500
Stewart Enterprises, Inc......................................10.75..........07/01/08 220 248,600
----------------
894,732
----------------
Office Furnishings & Supplies -- 0.1%
Moore North America Finance, Inc.*.............................7.88..........01/15/11 105 119,700
Office Depot, Inc.............................................10.00..........07/15/08 20 24,000
Xerox Corp.....................................................7.13..........06/15/10 50 51,625
Xerox Corp.....................................................7.63..........06/15/13 40 41,400
Xerox Corp.....................................................9.75..........01/15/09 40 45,600
----------------
282,325
----------------
Oil & Gas -- 1.3%
Amerigas Partners..............................................8.88%.........05/20/11 $ 115 $ 125,350
Chesapeake Energy Corp.........................................7.50..........09/15/13 5 5,400
Chesapeake Energy Corp.........................................9.00..........08/15/12 350 402,500
Citgo Petroleum Corp...........................................7.88..........05/15/06 35 36,312
Citgo Petroleum Corp..........................................11.38..........02/01/11 150 174,000
Dynegy Holdings, Inc.*........................................10.13..........07/15/13 120 132,900
El Paso Corp...................................................7.88..........06/15/12 1,000 880,000
El Paso Energy Partners LP.....................................8.50..........06/01/11 150 164,250
Ferrellgas Partners LP.........................................8.75..........06/15/12 170 185,725
Forest Oil Corp................................................8.00..........06/15/08 55 59,400
Gulfterra Energy Partners LP..................................10.63..........12/01/12 70 82,600
Gulfterra Energy Partners LP, Series B.........................8.50..........06/01/10 120 131,400
Hanover Equipment Trust........................................8.75..........09/01/11 20 20,500
Hanover Equipment Trust, Series A..............................8.50..........09/01/08 50 51,250
Plains All American Pipeline...................................7.75..........10/15/12 295 339,250
Premcor Refining Group, Inc.*..................................7.75..........02/01/12 30 30,675
Premcor Refining Group, Inc....................................9.25..........02/01/10 170 190,400
Premcor Refining Group, Inc....................................9.50..........02/01/13 140 159,600
Tom Brown, Inc.................................................7.25..........09/15/13 15 15,675
Transcontinental Gas Pipeline Corp., Series B..................8.88..........07/15/12 15 17,738
Transmontaigne, Inc.*..........................................9.13..........06/01/10 40 43,100
Universal Compression, Inc.....................................7.25..........05/15/10 10 10,400
Western Oil Sands, Inc.........................................8.38..........05/01/12 185 211,594
CORPORATE OBLIGATIONS (continued)
Williams Cos, Inc..............................................6.50..........08/01/06 50 51,750
Williams Cos, Inc..............................................6.75+.........01/15/06 70 72,450
Williams Cos, Inc..............................................7.63..........07/15/19 55 54,587
Williams Cos, Inc..............................................8.13..........03/15/12 15 16,275
Williams Cos, Inc..............................................8.63..........06/01/10 40 44,400
Williams Cos, Inc..............................................8.75..........03/15/32 45 47,588
----------------
3,757,069
----------------
Pollution Control -- 0.2%
Allied Waste North America, Inc...............................10.00..........08/01/09 45 48,825
Allied Waste North America, Inc., Series B.....................8.88..........04/01/08 100 110,750
Allied Waste North America, Inc., Series B.....................9.25..........09/01/12 175 196,000
Casella Waste Systems, Inc.....................................9.75..........02/01/13 50 56,250
Imco Recycling, Inc.*.........................................10.38..........10/15/10 15 14,175
----------------
426,000
----------------
Real Estate -- 0.2%
CBRE Escrow, Inc.*.............................................9.75..........05/15/10 35 39,113
Choctaw Resort Developement Enterprise.........................9.25..........04/01/09 80 87,600
Corrections Corp. of America...................................7.50..........05/01/11 15 15,788
Corrections Corp. of America...................................9.88..........05/01/09 90 100,912
Istar Financial, Inc. (REIT)...................................7.00..........03/15/08 35 37,800
Istar Financial, Inc. (REIT)...................................8.75..........08/15/08 15 16,875
LNR Property Corp.*............................................7.25..........10/15/13 145 147,719
LNR Property Corp..............................................7.63..........07/15/13 95 98,681
Wackenhut Corrections Corp.*...................................8.25..........07/15/13 50 53,062
----------------
597,550
----------------
Retail Grocery -- 0.1%
General Nutrition Centers, Inc.*...............................8.50..........12/01/10 15 15,375
Rite Aid Corp..................................................8.13..........05/01/10 60 64,800
Rite Aid Corp..................................................9.50..........02/15/11 65 73,450
----------------
153,625
----------------
Retail Trade -- 0.2%
Gap, Inc......................................................10.55..........12/15/08 85 105,294
Penney J.C. Co., Inc...........................................7.40..........04/01/37 45 48,600
Rent-A-Center, Inc., Series B..................................7.50%.........05/01/10 $ 150 $ 159,000
Saks, Inc......................................................8.25..........11/15/08 25 28,438
Tricon Global Restaurants, Inc................................7.65..........05/15/08 115 130,237
Tricon Global Restaurants, Inc................................8.50..........04/15/06 60 66,975
Tricon Global Restaurants, Inc................................8.88..........04/15/11 120 145,200
----------------
683,744
----------------
Telecommunications -- 1.0%
Avaya, Inc...................................................11.13..........04/01/09 175 205,625
Cincinnati Bell, Inc.*........................................8.38..........01/15/14 80 84,200
General Cable Corp.*..........................................9.50..........11/15/10 40 42,300
Intelsat Ltd.*................................................6.50..........11/01/13 15 15,571
Motorola, Inc.................................................8.00..........11/01/11 1,000 1,171,013
Nextel Communications, Inc....................................6.88..........10/31/13 50 51,438
Nextel Communications, Inc....................................7.38..........08/01/15 165 174,487
Nextel Communications, Inc....................................9.38..........11/15/09 210 230,475
Nextel Communications, Inc....................................9.50..........02/01/11 85 97,537
Nortel Networks Ltd...........................................6.13..........02/15/06 85 85,956
Qwest Corp.*..................................................9.13..........03/15/12 45 51,300
TCI Communications Financing III..............................9.65..........03/31/27 125 151,719
US West Communication.........................................7.25..........10/15/35 5 4,838
US West Communication.........................................7.50..........06/15/23 40 39,100
US West Communication.........................................8.88..........06/01/31 350 370,125
----------------
2,775,684
----------------
CORPORATE OBLIGATIONS (continued)
Transportation -- 0.0%
Offshore Logistics, Inc.*.....................................6.13..........06/15/13 10 9,650
Offshore Logistics, Inc.......................................6.13..........06/15/13 65 62,725
----------------
72,375
----------------
Venture Capital -- 0.0%
Arch Western Finance LLC*.................................6.75..........07/01/13 70 72,538
----------------
Total Corporate Obligations
(Cost-- $25,846,796).......................................................... 26,670,825
----------------
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
Notional
Amount
(000s)
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
INTEREST ONLY SECURITIES -- 9.1%
Banc of America Commercial Mortgage Inc.
Series 2003-1, Class XP2*(g)..................... 1.48%+ 09/11/36 $ 19,165 $ 2,891,563
Bear Stearns Commercial Mortgage Securities
Series 2001-TOP2, Class X2*(g)................... 1.14+ 02/15/35 74,184 3,618,991
COMM
Class 2001-J2A, Class EIO*(g).................... 3.74+ 07/16/34 10,000 2,806,970
Commercial Capital Access One, Inc.
Series 2001-A, Class T1(g)....................... 4.50 02/15/09 18,000 5,400,000
GMAC Commercial Mortgage Securities, Inc.
Series 2003-C1, Class X1*(g)..................... 0.07+ 05/10/36 88,078 3,246,747
GS Mortgage Securities Corp. II
Series 2001-ROCK, Class X1*(g)................... 0.22+% 05/03/18 $ 259,228 $ 3,940,001
Residential Funding Mortgage Securities I
Series 2002-HS1, Class A(g)...................... 7.00 07/25/04 16,837 528,606
Vendee Mortgage Trust
Series 1997-2, Class IO(g)....................... 0.06+ 06/15/27 98,465 186,099
Wachovia Bank Commercial Mortgage Trust
Series 2002-C2, Class IO1*(g).................... 0.25+ 11/15/34 86,498 3,421,958
----------------
Total Interest Only Securities
(Cost-- $23,695,684)............................ 26,040,935
----------------
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
Shares
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
PREFERRED STOCKS -- 1.4%
CSC Holdings Inc., Series M, 11.13%.................. 950 100,937
Duke Realty Investments, Inc., Series D, 7.38% (REIT) 12,365 357,348
Equity Office Properties Trust, Series B, 5.25%
(REIT)............................................. 46,012 2,261,490
Equity Residential Properties Trust, Series G, 7.25%
(REIT)............................................. 49,358 1,284,789
Hercules Trust II, 6.50%............................. 60 43,950
Shaw Communications, Inc., 8.50%..................... 590 14,939
----------------
Total Preferred Stocks
(Cost-- $3,554,364)............................. 4,063,453
----------------
SHORT TERM INVESTMENTS -- 0.7%
Short Term Investments -- 0.7%
Federal National Mortgage Association Discount
Note(e)
(Cost-- $2,000,000)............................. 0.95% 12/01/03 $ 2,000 $ 2,000,000
- ----------------------------------------------------------- -------------- ------------- ------------- -----------------
Total Investments -- 146.9%
(Cost-- $415,366,950)........................... 418,986,813
SHORT TERM INVESTMENTS (continued)
Liabilities in Excess of Other Assets-- (46.9)%......... (133,837,558)
----------------
NET ASSETS-- 100.0%..................................... $ 285,149,255
================
- ----------------------------------------------------------- -------------- -
@ -- Portion or entire principal amount delivered as collateral for
reverse repurchase agreements (Note 5).
+ -- Variable Rate Security: Interest rate is the rate in effect
November 30, 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) -- Issuer is bankrupt: Bond is in default.
(e) -- Zero coupon note: Interest rate represents current yield to
maturity.
(f) -- 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.
(g) -- Interest rate is based on the notional amount of the underlying
mortgage pools.
# -- Portion or entire principal amount is held as collateral for open
futures contracts (Note 7).
PIK -- Payment In Kind.
REIT -- Real Estate Investment Trust.
TBA -- Settlement is on a delayed delivery or when-issued basis with
final maturity to be announced (TBA) in the future.
- ---------------------------------------------------------- -------------- -
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Assets and Liabilities
November 30, 2003
- ---------------------------------------------------------- -------------- -
See notes to financial statements
Assets:
Investments in securities, at market (cost $415,366,950)(Note 2)................................ $ 418,986,813
Cash.......................................................................................... 365,149
Receivable for investments sold............................................................... 28,075,098
Interest receivable........................................................................... 3,077,576
Unrealized appreciation on swap contracts (Note 7)............................................ 1,301,441
Principal paydowns receivable................................................................. 270,829
Receivable for variation margin............................................................... 92,172
Receivable due from transfer agent............................................................ 82,366
Prepaid expenses and other assets............................................................. 20,307
----------------
Total assets................................................................................ 452,271,751
----------------
Liabilities:
Reverse repurchase agreements (Note 5)........................................................ 107,490,000
Interest payable for reverse repurchase agreements (Note 5)................................... 35,228
Payable for investments purchased............................................................. 58,313,595
Payable on open swap contracts................................................................ 915,778
Investment advisory fee payable (Note 3)...................................................... 152,587
Administration fee payable (Note 3)........................................................... 46,950
Directors' fees payable....................................................................... 750
Accrued expenses and other liabilities........................................................ 167,608
----------------
Total liabilities........................................................................... 167,122,496
----------------
Net Assets (equivalent to $9.29 per share based on 30,692,887 shares issued and outstanding).... $ 285,149,255
================
Composition of Net Assets:
Capital stock, at par value ($.01) (Note 6)................................................... $ 306,929
Additional paid-in capital (Note 6)........................................................... 299,726,177
Accumulated undistributed net investment income............................................... 1,135,259
Accumulated net realized loss................................................................. (21,089,041)
Net unrealized appreciation................................................................... 5,069,931
----------------
Net assets applicable to capital stock outstanding............................................ $ 285,149,255
================
--------------------------------------------------------- -------------- ------------- ------------- -------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Operations
November 30, 2003
--------------------------------------------------------- -------------- ------------- ------------- -------------
See notes to financial statements
Investment Income (Note 2):
Interest...................................................................................... $ 30,334,713
Dividends..................................................................................... 257,935
----------------
30,592,648
----------------
Expenses:
Investment advisory fee (Note 3).............................................................. 1,854,463
Administration fee (Note 3)................................................................... 570,604
Insurance..................................................................................... 184,768
Custodian..................................................................................... 138,088
Accounting and tax services................................................................... 130,009
Legal......................................................................................... 119,782
Reports to shareholders....................................................................... 112,523
Directors' fees............................................................................... 66,092
Transfer agency............................................................................... 46,087
Registration fees............................................................................. 32,400
Miscellaneous................................................................................. 25,985
----------------
Total operating expenses.................................................................... 3,280,801
Interest expense on reverse repurchase agreements (Note 5)................................ 1,341,154
Net interest expense on swaps (Note 2).................................................... 998,026
----------------
Total expenses.............................................................................. 5,619,981
----------------
Net investment income......................................................................... 24,972,667
----------------
30,592,648
----------------
Realized and Unrealized Gain (Loss) on Investments (Notes 2 and 7):
Net realized gain (loss) on:
Investment transactions....................................................................... 7,471,826
Swap contracts................................................................................ (506,544)
Futures transactions.......................................................................... (1,206,381)
----------------
Net realized gain on investment transactions, swap contracts and futures transactions........... 5,758,901
----------------
Net change in unrealized appreciation/depreciation on:
Investments................................................................................... (2,902,312)
Swap contracts................................................................................ 830,402
Futures....................................................................................... 495,847
----------------
Net change in unrealized appreciation/depreciation on investments, swap contracts and futures... (1,576,063)
----------------
Net realized and unrealized gain on investments, swap contracts and futures..................... 4,182,838
----------------
Net increase in net assets resulting from operations............................................ $ 29,155,505
================
---------------------------------------------------------------------------- -
THE HYPERION TOTAL RETURN FUND, INC.
Statements of Changes in Net Assets
November 30, 2003
- --------------------------------------------------------------------------------
See notes to financial statements
For the Year For the Year
Ended Ended
November 30, 2003 November 30, 2002
---------------------------------------------------------------------------- ------------------- ------------------
Increase (Decrease) in Net Assets Resulting from Operations:
Net investment income.................................................... $ 24,972,667 $ 26,070,086
Net realized gain (loss) on investment transactions, swap contracts and
futures transactions.................................................... 5,758,901 (2,669,189)
Net change in unrealized appreciation/depreciation on investments, swap
contracts and futures................................................... (1,576,063) 5,965,224
--------------- ---------------
Net increase in net assets resulting from operations..................... 29,155,505 29,366,121
--------------- ---------------
Dividends to Shareholders (Note 2):
Net investment income.................................................... (27,571,944) (27,420,820)
--------------- ---------------
Capital Stock Transactions (Note 6):
Net asset value of shares issued through dividend reinvestment (106,000
and 53,787 shares, respectively)........................................ 997,260 500,857
Rights offering cost adjustment.......................................... -- 16,696
--------------- ---------------
Net increase from capital stock transactions........................... 997,260 517,553
--------------- ---------------
Total increase in net assets........................................... 2,580,821 2,462,854
Net Assets:
Beginning of year........................................................ 282,568,434 280,105,580
--------------- ---------------
End of year (including undistributed net investment income of $1,135,259
and $1,431,913, respectively)........................................... $ 285,149,255 $ 282,568,434
=============== ===============
--------------------------------------------------------- -------------- ----
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Cash Flows
November 30, 2003
--------------------------------------------------------- -------------- ----
See notes to financial statements
Increase (Decrease) in Cash:
Cash flows provided by (used for) operating activities:
Interest and dividends received (including net amortization of $163,434).................... $ 29,929,194
Interest expense paid....................................................................... (1,549,304)
Operating expenses paid..................................................................... (3,247,455)
Sales of short-term portfolio investments, net.............................................. 1,299,916
Purchases of long-term portfolio investments................................................ (303,732,887)
Proceeds from disposition of long-term portfolio investments and principal paydowns......... 332,686,566
Net cash used for futures transactions...................................................... (736,986)
-----------------
Net cash provided by operating activities................................................... 54,649,044
-----------------
Cash flows used for financing activities:
Net cash used for reverse repurchase agreements............................................. (27,839,176)
Cash dividends paid......................................................................... (26,737,901)
-----------------
Net cash used for financing activities...................................................... (54,577,077)
-----------------
Net increase in cash......................................................................... 71,967
Cash at beginning of year.................................................................... 293,182
-----------------
Cash at end of year.......................................................................... $ 365,149
=================
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......................................... $ 29,155,505
-----------------
Increase in investments, at cost............................................................ (7,582,388)
Decrease in net unrealized appreciation/depreciation on investments and swaps............... 2,071,911
Increase in interest receivable............................................................. (16,770)
Increase in variation margin receivable..................................................... (26,453)
Increase in other assets.................................................................... (28,102,005)
Increase in other liabilities............................................................... 59,149,244
-----------------
Total adjustments.......................................................................... 25,493,539
-----------------
Net cash provided by operating activities.................................................... $ 54,649,044
=================
Noncash financing activities not included herein consist of reinvestment of
dividends of $997,260.
- ------------------------------------------------------------------------------
THE HYPERION TOTAL RETURN FUND, INC.
Statement of Cash Flows
November 30, 2003
- ------------------------------------------------------------------------------
See notes to financial statements
- --------------------------------------------------
For the Year Ended November 30,
- --------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------- ------------ ------------ -------------- ------------ ---------
Per Share Operating Performance:
Net asset value, beginning of year............ $ 9.24 $ 9.17 $ 9.41 $ 9.27 $ 10.08
--------- --------- --------- --------- ---------
Net investment income......................... 0.82 0.85 0.84 0.78 0.80
Net realized and unrealized gains (losses) on
investments, short sales, futures
transactions and swap contracts............. 0.13 0.12 0.30 0.21 (0.90)
--------- --------- --------- --------- ----------
Net increase (decrease) in net asset value
resulting from operations................... 0.95 0.97 1.14 0.99 (0.10)
--------- --------- --------- --------- ----------
Net effect of shares repurchased.............. -- -- -- --* 0.03
--------- --------- --------- --------- ---------
Dividends from net investment income.......... (0.90) (0.90) (0.87) (0.85) (0.74)
Offering costs charged to additional
paid-in-capital............................. -- --* (0.09) -- --
Dilutive effect of rights offering............ -- -- (0.42) -- --
--------- --------- --------- --------- ---------
Net asset value, end of year.................. $ 9.29 $ 9.24 $ 9.17 $ 9.41 $ 9.27
========= ========= ========= ========= =========
Market price, end of year..................... $10.1600 $ 9.2800 $ 8.5700 $ 8.4375 $ 7.3750
======== ======== ======== ======== ========
Total Investment Return+...................... 20.43% 19.39% 13.13%++ 26.41% (7.17)%
Ratios to Average Net Assets/ Supplementary
Data:
Net assets, end of year (000's)............... $ 285,149 $ 282,568 $ 280,106 $ 215,318 $ 212,703
Operating expenses............................ 1.15% 1.05% 1.11% 1.10% 1.08%
Interest expense.............................. 0.82% 1.23% 1.59% 1.87% 2.31%
Total expenses............................... 1.97% 2.28% 2.70% 2.97% 3.39%
Net investment income......................... 8.75% 9.23% 8.84% 8.50% 8.20%
Portfolio turnover rate....................... 89% 61% 43% 57% 72%
- ----------
+ 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 $0.01.
- ------------------------------------------------------- ----------------------
THE HYPERION TOTAL RETURN FUND, INC.
Notes to Financial Statements
November 30, 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 20% of the
investments in securities held by the Fund at November 30, 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 affecting 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 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. The Fund will usually
enter into interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. Swaps are marked to market 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 year ended
November 30, 2003, such net payments made by the Fund amounted to $998,026.
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 November 30, 2003.
When-Issued Purchases and Forward Commitments: The Fund may purchase securities
on a "when-issued" basis and may purchase or sell securities on a "forward
commitment" basis in order to hedge against anticipated changes in interest
rates and prices and secure a favorable rate of return. When such transactions
are negotiated, the price, which is generally expressed in yield terms, is fixed
at the time the commitment is made, but delivery and payment for the securities
take place at a later date, which can be a month or more after the date of the
transaction. At the time the Fund makes the commitment to purchase securities on
a when-issued or forward commitment basis, it will record the transaction and
thereafter reflect the value of such securities in determining its net asset
value. At the time the Fund enters into a transaction on a when-issued or
forward commitment basis, the Advisor will identify collateral consisting of
cash or liquid securities equal to the value of the when-issued or forward
commitment securities and will monitor the adequacy of such collateral on a
daily basis. On the delivery date, the Fund will meet its obligations from
securities that are then maturing or sales of the securities identified as
collateral by the Advisor and/or from then available cash flow. When-issued
securities and forward commitments may be sold prior to the settlement date. If
the Fund disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss due to market fluctuation. There is
always a risk that the securities may not be delivered and that the Fund may
incur a loss. Settlements in the ordinary course are not treated by the Fund as
when-issued or forward commitment transactions and, accordingly, are not subject
to the foregoing limitations even though some of the risks described above may
be present in such transactions.
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.
For the year ended November 30, 2003, the Advisor earned $1,854,463 in
investment advisory fees.
Effective April 15, 2003, the Advisor 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 assists in
managing the Fund's investments in High Yield Securities and provides 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 Bank and Trust Company (the "Sub-
Administrator"). 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. For the year ended November 30, 2003, the Administrator
earned $570,604 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 and/or the Administrator.
4. Purchases and Sales of Investments
Purchases and sales of investments, excluding short-term securities, U.S.
Government securities and reverse repurchase agreements, for the year ended
November 30, 2003, were $54,388,624 and $101,408,373, respectively. Purchases
and sales of U.S. Government securities, for the year ended November 30, 2003
were $307,657,858 and $260,059,226, 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 November 30, 2003, the Fund had the following reverse repurchase agreements
outstanding:
Maturity
Face Value Description Amount
- ----------------- --------------------------------------------------------------------------- ------------
$ 25,031,000 UBS Warburg, 1.04%, dated 11/17/03, maturity date 12/02/03................. $ 25,041,847
10,959,000 UBS Warburg, 1.09%, dated 11/26/03, maturity date 12/17/03................. 10,965,968
17,534,000 Morgan Stanley, 0.65%, dated 11/19/03, maturity date 12/03/03.............. 17,538,432
9,850,000 Morgan Stanley, 0.55%, dated 11/25/03, maturity date 12/02/03.............. 9,851,053
24,360,000 Merrill Lynch, 1.06%, dated 11/17/03, maturity date 12/02/03............... 24,370,759
3,850,000 Merrill Lynch, 0.10%, dated 11/19/03, maturity date 12/03/03............... 3,850,150
4,889,000 Goldman Sachs, 1.09%, dated 11/18/03, maturity date 12/16/03............... 4,893,145
5,238,000 Goldman Sachs, 1.09%, dated 11/18/03, maturity date 12/30/03............... 5,244,661
5,779,000 Goldman Sachs, 1.13%, dated 11/06/03, maturity date 12/10/03............... 5,785,167
- ---------------- ----------------
$ 107,490,000
- -----------------
- -----------------
Maturity Amount, Including Interest Payable................................ $ 107,541,182
----------------
Market Value of Assets Sold Under Agreements............................... $ 107,483,323
----------------
Weighted Average Interest Rate............................................. 0.92%
----------------
The average daily balance of reverse repurchase agreements outstanding for the
year ended November 30, 2003, was approximately $113,735,470 at a weighted
average interest rate of 1.19%. 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
30,692,887 shares outstanding at November 30, 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 Trust's shares, are authorized for repurchase. The purchase price may not
exceed the then-current net asset value.
For the years ended November 30, 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 record 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 year ended November 30, 2003.
As of November 30, 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 12/30/02 $ (74,477)
to pay semi-annually the notional amount multiplied by 2.458%
and to receive quarterly the notional amount multiplied by 3
month USD-LIBOR-BBA.
$ 40,000,000 06/04/08 Agreement with Goldman Sachs Capital Markets, LP, dated 06/02/03 1,449,981
to pay semi-annually the notional amount multiplied by 2.710%
and to receive quarterly the notional amount multiplied by 3
month USD-LIBOR-BBA.
$ 30,000,000 01/02/06 Agreement with Morgan Stanley Capital Services Inc., dated (74,063)
-------------
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 USD-LIBOR-BBA.
$ 1,301,441
=============
As of November 30, 2003, the following futures contracts were outstanding:
Short:
Value at Net Unrealized
Notional Cost at November 30, Appreciation/
Amount Type Expiration Date Trade Date 2003 (Depreciation)
------------ ----------------------- ------------------ ------------ ------------- --------------
$ 9,700,000 5 Yr. U.S. Treasury Note December 2003 $ 10,925,413 $ 10,830,656 $ 94,756
6,100,000 10 Yr. U.S. Treasury Note March 2004 6,818,199 6,764,328 53,871
---------
$ 148,627
==========
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, 2003 the tax character of the $27,571,944 of
distributions paid was from ordinary income. 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, 2003 the components of net assets (excluding paid-in-capital) on
a tax basis were as follows:
Undistributed Tax Ordinary Income.................................................... $ 1,379,705
===============
Accumulated capital loss............................................................. $ (20,940,413)
===============
Book unrealized appreciation/(depreciation).......................................... $ 5,069,931
Plus: Cumulative Timing Differences.................................................. (393,074)
---------------
Unrealized appreciation/(depreciation)............................................. $ 4,676,857
===============
The differences between book and tax basis unrealized
appreciation/(depreciation) is primarily attributable to the mark-to-market of
futures and add back of interest write offs.
Federal Income Tax Basis: The federal income tax basis of the Fund's investments
at November 30, 2003 was $415,366,950. Net unrealized appreciation was
$3,619,863 (gross unrealized appreciation -- $18,368,254; gross unrealized
depreciation -- $14,748,391). At November 30, 2003, the Fund had a capital loss
carryforward of $20,940,413, of which $587,861 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.
Capital Account Reclassification: For the year ended November 30, 2003, the
Fund's undistributed net investment income was increased by $2,302,623 with an
offsetting decrease in accumulated net realized loss. These adjustments were
primarily the result of current year paydown reclassifications and the
reclassification of the character of dividends received from investments in real
estate investment trusts.
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 12/16/03 12/26/03
$0.0750 12/30/03 01/29/04
Sub-advisory agreement: Under the investment Sub-Advisory Agreement, Seix served
as the investment adviser to the Advisor with respect to the investment of the
portion of the Fund's assets constituting high-yield, fixed income securities of
U.S. corporations ("High-Yield Securities"). On December 30, 2003, the
investment Sub-Advisory Agreement between the Advisor and Seix was terminated.
The High-Yield Securities that were managed by Seix were replaced in-kind with
an investment in the Seix High Yield Fund which invests in U.S. dollar
denominated below investment grade, high yielding bonds.
To the Board of Directors and Shareholders of
The Hyperion Total Return Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The Hyperion Total Return
Fund, Inc. (the "Fund") at November 30, 2003, the results of its operations and
its cash flows for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at November 30, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
January 23, 2004
- -------------------------------------------------------------------------------
TAX INFORMATION (Unaudited)
- -------------------------------------------------------------------------------
The Fund is required by subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (November
30, 2003) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that all distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. In addition, 3.49% of the Fund's distributions
during the fiscal year ended November 30, 2003 were earned from U.S. Treasury
obligations. None of the Fund's distributions qualify for the dividends received
deduction available to corporate shareholders.
For the fiscal year ended November 30, 2003, certain dividends paid by the Fund
may be subject to a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The Fund designates a maximum
amount of $24,894 as qualified dividend income, which is taxed at a maximum rate
of 15%.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar 2003. the second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal, state
and local income tax returns, will be made in conjunction with Form 1099-DIV and
will be mailed in January 2004. Shareholders are advised to consult their own
tax advisors with respect to the tax consequences of their investment in the
Fund.
- -------------------------------------------------------------------------------
PROXY RESULTS (Unaudited)
- -------------------------------------------------------------------------------
During the year ended November 30, 2003, The Hyperion Total Return Fund, Inc.
shareholders voted on the following proposals at a shareholders' meeting on
April 15, 2003. The description of each proposal and number of shares voted are
as follows:
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
Shares Voted Shares Voted Shares Voted
for Against Abstain
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
1. To elect to the Fund's Board of Directors 27,401,576 0 255,155
Robert F. Birch:
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
Shares Voted Shares Voted Shares Voted
for Against Abstain
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
2. Approval of New Investment Sub-Advisory Agreement: 27,401,576 0 255,155
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
Shares Voted Shares Voted Shares Voted
for Against Abstain
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
3. To select PricewaterhouseCoopers LLP as the independent 27,280,822 166,523 209,385
auditors:
- ----- ------------------------------------------------------------------ ------------- -------------- -------------
- -------------------------------------------------------------------------------
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").
Number of
Position(s) Held with Portfolios
Fund and Term of in
Name, Address Office and Length of Principal Occupation(s) During Past 5 Years and Fund Complex
and Age Time Served Other Directorships Held by Director Overseen by
Director
- ----------------------------- -------------------------- ------------------------------------------------ --------------
- ----------------------------- -------------------------- ------------------------------------------------ --------------
Disinterested Directors
Class II Directors to serve until 2004 Annual Meeting of Stockholders:
Rodman L. Drake Chairman Chairman (since 2003) and Director and/or 3
c/o One Liberty Plaza, Trustee of several investment companies
36th floor, New York, Elected 12/9/03 advised by Hyperion Capital Management, Inc.
New York 10006-1404 (the "Advisor") (1989- Present); Co-founder,
Director, Member of the Baringo Capital LLC (2002- Present); Director,
Age 60 Audit Committee, Animal Medical Center (2002- Present);
Chairman of Nominating Director, Hotelevision, Inc. (1999-2003);
and Compensation Director and/or Lead Director, Parsons
Committee Brinckerhoff, Inc. (1995-Present); Director,
Absolute Quality Inc. (2000- Present); Trustee
Elected for Three Year of Excelsior Funds (33) (1994- Present);
Term Director since July President, Continuation Investments Group Inc.
1989 (1997-2001).
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 advised by the Advisor or by its
36th floor, New York, of Compensation and affiliates (1992-Present); Senior Consultant
New York 10006-1404 Nominating Committee, to Cornerstone Equity Advisors, Inc.
Member of Executive (1998-2001).
Age 78 Committee
Elected for Three Year
Term Director since
October 1993
Class I 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 advised by the Advisor or by its
36th floor, New York, of Nominating and affiliates (1998-Present); Director, Hyperion
New York 10006-1404 Compensation Committee, Strategic Bond Fund, Inc. (formerly Lend Lease
Member of Executive Hyperion High Yield CMBS Fund, Inc.)
Age 67 Committee (2002-Present); Chairman and President, New
America High Income Fund (1992-Present);
Elected for Three Year Chairman of the Board and Co-Founder, The
Term Director since China Business Group, Inc. (1996-Present);
December 1998 Director, Brandywine Funds (3) (2001 to
Present).
Class III Director to serve until 2005 Annual Meeting of Stockholders:
Leo M. Walsh, Jr. Director, Chairman of Director and/or Trustee of several investment 5
c/o One Liberty Plaza, the Audit Committee, companies advised by the Advisor or by its
36th floor, New York, Member of Nominating and affiliates (1989-Present); Financial
New York 10006-1404 Compensation Committee Consultant for Medco Health Solutions Inc.
(1994-2003); Director, Hyperion Strategic Bond
Age 71 Elected for Three Year Fund, Inc. (formerly Lend Lease Hyperion High
Term Director since June Yield CMBS Fund, Inc.) (1999-Present).
1989
Interested Directors
Clifford E. Lai* Director President (1998-Present) and Chief Investment 5
c/o One Liberty Plaza, Officer (1993-2002) of the Advisor;
36th floor, New York, Elected December 9, 2003 Co-Chairman (2003- Present) and Board of
New York 10006-1404 Managers (1995-Present) Hyperion GMAC Capital
President Advisors, LLC (formerly Lend Lease Hyperion
Age 50 Capital, LLC); President of several investment
Elected Annually Since companies advised by the Advisor (1995-
April 1993 Present).
Lewis S. Ranieri** Director, Member of the Director (1989-Present) and Chairman of the 3
c/o One Liberty Plaza, Executive Committee Board (1989-1998 and 2002-Present) of the
36th floor, New York, Advisor; Formerly, Vice Chairman of the Board
New York 10006-1404 Resigned December 9, of the Advisor (1998-2002); Chairman and Chief
2003 Executive Officer of Ranieri & Co., Inc.
Age 57 (1988-Present); President of LSR Hyperion
Elected for Three Year Corp., a general partner of the limited
Term Director since June partnership that is the general partner of
1989 Hyperion Partners L.P. ("Hyperion Partners")
(1988-Present); Director and President of
Chairman Hyperion Funding II Corp., the general partner
of the limited partnership that is the general
Elected annually since partner of Hyperion Partners II, L.P.
June 2002 ("Hyperion Partners II") (1995- Present);
Chairman and President of various other direct
Resigned December 9, 2003 and indirect subsidiaries of Hyperion Partners
(1988- 2002) and Hyperion Partners II
(1995-Present); Chairman of the Board
(1989-1998 and 2002-2003) and/or Director
(1989-2003) of several investment companies
advised by the Advisor or by its affiliates;
Director and Chairman of Bank United Corp.,
and Director of Bank United (1988-2001).
- ----------
* Interested person as defined in the 1940 Act, because of affiliations with
Hyperion Capital Management, Inc., the Fund's Advisor.
** Mr. Ranieri is an "interested person" as defined in the Investment Company
Act of 1940, as amended, (the "1940 Act") because of affiliations with
Hyperion Capital Management, Inc., the Fund's advisor. Mr. Ranieri serves
as a Director and Chairman of the Advisor. As a result of his service with
the Advisor and certain affiliations with the Advisor as described, the
Fund considers Mr. Ranieri to be an "interested person" of the Fund within
the meaning of Section 2(a)(19) of the 1940 Act.
Officers of the Trust
Name, Address Position(s) Term of Office and Principal Occupation(s)
and Age Held with Fund Length of Time Served During Past 5 Years
--------------------------- --------------------- ------------------------- -----------------------------------------
Lewis S. Ranieri Chairman Elected Annually Since Please see "Information Concerning
c/o One Liberty Plaza, June 2002 Directors and Officers" page 33.
36th floor, Resigned December
New York, New York 9, 2003
10006-1404
Age 57
Rodman L. Drake Chairman Elected 12/9/03 Please see "Information Concerning
c/o One Liberty Plaza, Directors and Officers" page 32.
36th floor, New York, Director, Member Elected for Three Year
New York 10006-1404 of the Audit Term Director since
Age 60 Committee, July 1989
Chairman of
Nominating and
Compensation
Committee
Clifford E. Lai Director Elected December 9, Please see "Information Concerning
c/o One Liberty Plaza, 2003 Directors and Officers" page 33.
36th floor,
New York, New York President Elected Annually Since
10006-1404 April 1993
Age 50
John Dolan Vice President Elected Annually Since Chief Investment Strategist
c/o One Liberty Plaza, March 1998 (1998-Present) and Chief Investment
36th floor, Officer (2002-Present) of the Advisor.
New York, New York
10006-1404
Age 50
Patricia A. Sloan Vice President Elected Annually Since Consultant of Ranieri & Co., Inc.
c/o One Liberty Plaza, June 2002 (2000-Present); Secretary, Director
36th floor, and/or Trustee of several investment
New York, New York companies advised by the Advisor or by
10006-1404 its affiliates (1989- 2002).
Age 60
Joseph Tropeano Secretary Elected Annually Since Director and Compliance Officer of the
c/o One Liberty Plaza, June 2002 Advisor (1993- Present); Secretary and
36th floor, Compliance Officer of several
New York, New York investment companies advised by the
10006-1404 Advisor (1994-Present); Secretary and
Age 42 Compliance Officer, Hyperion GMAC
Capital Advisors (formerly Lend Lease
Hyperion Capital Advisors, LLC)
(1995-Present); Secretary and
Compliance Officer of Hyperion
Strategic Bond Fund, Inc. (formerly
Lend Lease Hyperion High-Yield CMBS
Fund, Inc.) (1998-Present); Assistant
Secretary and Compliance Officer, AIG
Hyperion Inc. (1994-2002); Vice
President and Compliance Officer,
Hyperion Distributors, Inc.
(1994-1998).
Thomas F. Doodian Treasurer Elected Annually Since Managing Director, Chief Operating
c/o One Liberty Plaza, February 1998 Officer (1998- Present) and Director
36th floor, of Finance and Operations of the
New York, New York Advisor (July 1995-Present); Treasurer
10006-1404 of several investment companies
Age 44 advised by the Advisor (February
1998-Present).
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.
- ------------------------------------------------------------------------------
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 & Trust
Company (the "Plan Agent") in additional Fund shares. Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check
mailed directly to the shareholder of record (or if the shares are held in
street or other nominee name, then to the nominee) by the Fund's Custodian, as
Dividend Disbursing Agent.
The Plan Agent serves as agent for the shareholders in administering the Plan.
After the Fund declares a dividend or determines to make a capital gain
distribution, payable in cash, if (1) the market price is lower than net asset
value, the participants in the Plan will receive the equivalent in Fund shares
valued at the market price determined as of the time of purchase (generally, the
payment date of the dividend or distribution); or if (2) the market price of the
shares on the payment date of the dividend or distribution is equal to or
exceeds their net asset value, participants will be issued Fund shares at the
higher of net asset value or 95% of the market price. This discount reflects
savings in underwriting and other costs that the Fund otherwise will be required
to incur to raise additional capital. If net asset value exceeds the market
price of the Fund shares on the payment date or the Fund declares a dividend or
other distribution payable only in cash (i.e., if the Board of Directors
precludes reinvestment in Fund shares for that purpose), the Plan Agent will, as
agent for the participants, receive the cash payment and use it to buy Fund
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. If, before the Plan Agent has completed its purchases,
the market price exceeds the net asset value of the Fund's shares, the average
per share purchase price paid by the Plan Agent may exceed the net asset value
of the Fund's shares, resulting in the acquisition of fewer shares than if the
dividend or distribution had been paid in shares issued by the Fund. The Fund
will not issue shares under the Plan below net asset value.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. When a participant withdraws from the Plan or upon termination of
the Plan by the Fund, certificates for whole shares credited to his or her
account under the Plan will be issued and a cash payment will be made for any
fraction of a share credited to such account.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for handling the reinvestment of dividends and distributions
are paid by the Fund. There are no brokerage commissions charged with respect to
shares issued directly by the Fund. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of dividends and
distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable on such dividends or
distributions.
A brochure describing the Plan is available from the Plan Agent, 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-ADMINISTRATOR
STATE STREET BANK and TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02116
CUSTODIAN AND FUND ACCOUNTING AGENT
STATE STREET BANK and TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02116
TRANSFER AGENT
AMERICAN STOCK TRANSFER & TRUST
COMPANY
Investor Relations Department
59 Maiden Lane
New York, NY 10038
For Shareholder Services:
(800) 937-5449
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. 20006
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Trust may purchase its shares of
beneficial interest in the open market at prevailing market prices.
- -------------------------------------------------------------------------------
Officers & Directors
- -------------------------------------------------------------------------------
Rodman L. Drake*
Chairman
Robert F. Birch*
Director
Garth Marston
Director Emeritus
Leo M. Walsh, Jr.*
Director
Harry E. Petersen, Jr.*
Director
Clifford E. Lai
Director and President
Patricia A. Sloan
Vice President
John Dolan
Vice President
Thomas F. Doodian
Treasurer
Joseph Tropeano
Secretary
* Audit Committee Members
- -----------------------------------------------------------------------------
[Graphic Omitted]
- -----------------------------------------------------------------------------
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.
As of the end of the period covered by this report, the Registrant had
adopted a Code of Ethics for Principal Executive and Principal Financial
Officers (the "Code"). There were no amendments to or waivers from the Code
during the period covered by this report. A copy of the Registrant's Code will
be provided upon request to any person without charge by contacting Joseph
Tropeano at 1-800-HYPERION or by writing to Mr. Tropeano at One Liberty Plaza,
165 Broadway, 36th Floor, New York, NY 10006-1404.
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Directors has determined that the Registrant has
at least one audit committee financial expert serving on its audit committee,
and his name is Rodman L. Drake. Mr. Drake is independent.
Item 4. Principal Accountant Fees and Services.
Audit Fees
For the fiscal year ended November 30, 2003, PriceWaterhouseCoopers LLP
("PwC") billed the Registrant aggregate fees of $67,000 for professional
services rendered for the audit of the Registrant's annual financial statements
and review of financial statements included in the Registrant's annual report to
shareholders.
For the fiscal year ended November 30, 2002, PwC billed the Registrant
aggregate fees of $70,500 for professional services rendered for the audit of
the Registrant's annual financial statements and review of financial statements
included in the Registrant's annual report to shareholders.
Tax Fees
For the fiscal year ended November 30, 2003, PwC billed the Registrant
aggregate fees of $7,000 for professional services rendered for tax compliance,
tax advice and tax planning. The nature of the services comprising the Tax Fees
was the review of the Registrant's income tax returns and tax distribution
requirements.
For the fiscal year ended November 30, 2002, PwC billed the Registrant
aggregate fees of $7,885 for professional services rendered for tax compliance,
tax advice and tax planning. The nature of the services comprising the Tax Fees
was the review of the Registrant's income tax returns and tax distribution
requirements.
All Other Fees
For the fiscal year ended November 30, 2003, PwC billed the Registrant
aggregate fees of $43,500 for professional services rendered for the review of
financial statements included in the Registrant's semi-annual report to
shareholders.
For the fiscal year ended November 30, 2002, PwC did not bill the
Registrant for products or services other than those disclosed above.
Item 5. Audit Committee of Listed Registrants.
The Registrant has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The Registrant's Audit Committee members include Leo M. Walsh, Jr.,
Rodman L. Drake, Robert F. Birch and Harry E. Petersen, Jr.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
This Item is not applicable as the Registrant invested exclusively in
non-voting securities during the period covered by this report.
Item 8.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 changes
in the Registrant's internal control over financial reporting that occurred
during the Registrant's second fiscal half-year that has materially
affected or is reasonably likely to materially affect the Registrant's
internal control over financial reporting.
Item 11. Exhibits.
(a) None.
(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.
(c) None.
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
Principal Executive Officer
Date: February 6, 2004
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
Principal Executive Officer
Date: February 6, 2004
By: /s/ Thomas F. Doodian
____________________
Thomas F. Doodian
Treasurer and Principal Financial Officer
Date: February 6, 2004