Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities and Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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THE HYPERION TOTAL RETURN FUND, INC.
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Payment of Filing Fee (Check the appropriate box:)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies: (2)
Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): (4) Proposed
maximum aggregate value of transaction: (5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
THE HYPERION TOTAL RETURN FUND, INC.
One Liberty Plaza, 36th floor, o New York, New York 10006-1404
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
February 12, 2003
To the Stockholders:
The Annual Meeting of Stockholders of The Hyperion Total Return Fund,
Inc. (the "Fund") will be held at The Downtown Association, 60 Pine Street
(between William and Pearl Streets), New York, New York 10005, on April 15,
2003, at 10:30 a.m., for the following purposes:
1. To elect directors (Proposal 1).
2. To approve a new Investment Sub-Advisory Agreement between
Hyperion Capital Management, Inc. and Seix Investment
Advisors, Inc. (Proposal 2).
3. To ratify or reject the selection of PricewaterhouseCoopers
LLP as the independent accountants of the Fund for the fiscal
year ending November 30, 2003 (Proposal 3).
4. To transact any other business that may properly come before
the meeting.
The close of business on January 20, 2003 has been fixed as the record
date for the determination of stockholders entitled to receive notice of and to
vote at the meeting.
By Order of the Board of Directors,
Joseph Tropeano
Secretary
WE NEED YOUR PROXY VOTE IMMEDIATELY.
YOU MAY THINK YOUR VOTE IS NOT IMPORTANT, BUT IT IS VITAL. THE MEETING OF
STOCKHOLDERS OF THE FUND WILL BE UNABLE TO CONDUCT ANY BUSINESS IF LESS THAN A
MAJORITY OF THE SHARES ELIGIBLE TO VOTE IS REPRESENTED. IN THAT EVENT, THE FUND,
AT THE STOCKHOLDERS' EXPENSE, WOULD CONTINUE TO SOLICIT VOTES IN AN ATTEMPT TO
ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE THE FUND TO
HOLD THE MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD IMMEDIATELY. YOU
AND ALL OTHER STOCKHOLDERS WILL BENEFIT FROM YOUR COOPERATION.
Instructions for Signing Proxy Cards
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense to the Fund involved in
validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts. Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts. Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration.
3. All Other Accounts. The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
Registration Valid Signature
- ------------ ---------------
Corporate Accounts
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
Trust Accounts
(1) ABC Trust John B. Doe, Trustee
(2) Jane B. Doe, Trustee u/t/d 12/28/78 Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr.
UGMA
(2) John B. Smith John B. Smith, Jr., Executor
THE HYPERION TOTAL RETURN FUND, INC.
One Liberty Plaza, 36th floor o New York, New York 10006-1404
PROXY STATEMENT
This proxy statement is furnished in connection with a solicitation by
the Board of Directors of The Hyperion Total Return Fund, Inc. (the "Fund") of
proxies to be used at the Annual Meeting of Stockholders of the Fund to be held
at The Downtown Association, 60 Pine Street (between William and Pearl Streets),
New York, New York 10005, at 10:30 a.m. on April 15, 2003 (and at any
adjournment or adjournments thereof) for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This proxy statement and
the accompanying form of proxy are first being mailed to stockholders on or
about February 12, 2003. Stockholders who execute proxies retain the right to
revoke them by written notice received by the Secretary of the Fund at any time
before they are voted. Unrevoked proxies will be voted in accordance with the
specifications thereon and, unless specified to the contrary, will be voted FOR
the re-election of the one nominee for Class I director, FOR the approval of the
new Investment Sub-Advisory Agreement and FOR the ratification of the selection
of PricewaterhouseCoopers LLP as the independent accountants of the Fund for the
fiscal year ending November 30, 2003. The close of business on January 20, 2003
has been fixed as the record date for the determination of stockholders entitled
to receive notice of and to vote at the meeting. Each stockholder is entitled to
one vote for each share held. On the record date there were 30,595,470 shares
outstanding.
For purposes of determining the presence of a quorum for transacting
business at the Meeting, executed proxies marked as abstentions and broker
"non-votes" (that is, proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be treated as shares
that are present for quorum purposes but which have not been voted. Accordingly,
abstentions and broker non-votes will have no effect on Proposal 1 and Proposal
3, for which the required vote is a plurality of the votes cast, and will
effectively be a vote against adjournment and against Proposal 2 for which the
required vote is approval by a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
ANNUAL REPORT
The Fund will furnish, without charge, a copy of the annual report to
any stockholder upon request. Stockholders should contact the Fund at
1-800-497-3746 or write the Fund at Attn: Shareholder Services, The Hyperion
Total Return Fund, Inc., One Liberty Plaza, 36th floor, New York, New York
10006-1404.
PROPOSAL 1: ELECTION OF DIRECTORS
The Fund's Articles of Incorporation provide that the Fund's Board of
Directors shall be divided into three classes: Class I, Class II and Class III.
The terms of office of the present directors in each class expire at the Annual
Meeting in the year indicated or thereafter in each case when their respective
successors are elected and qualified: Class I, 2003; Class II, 2004; and Class
III, 2005. At each subsequent annual election, Directors chosen to succeed those
whose terms are expiring will be identified as being of that same class and will
be elected for a three-year term. The effect of these staggered terms is to
limit the ability of other entities or persons to acquire control of the Fund by
delaying the replacement of a majority of the Board of Directors.
1
The term of Robert F. Birch, the member of Class I, currently serving
on the Board of Directors, expires at this year's Annual Meeting. The persons
named in the accompanying form of proxy intend to vote at the Annual Meeting
(unless directed not to so vote) for the re-election of Mr. Birch. The nominee
has indicated that he will serve if elected, but if he should be unable to
serve, the proxy or proxies will be voted for any other person determined by the
persons named in the proxy in accordance with their judgment.
As described above, there is one nominee for election to the Board of
Directors at this time. Proxies cannot be voted for a greater number of persons
than the nominee currently proposed to serve on the Board of Directors.
Information Concerning Nominees/Directors
The following tables provide information concerning each of the five
members and nominee of the Board of Directors of the Fund. The nominee is listed
first in the tables under the Class I directors.
Position(s) Held with Number of
Fund and Term of Office Principal Occupation(s) Portfolios in Fund
Name, Address and Length of Time During Past 5 Years and Complex Overseen
and Age Served Other Directorships Held by Director by Director
- -------------------------------------------------------------------------------------------------------------------------------
Class I Nominee to serve until 2006 Annual Meeting of Stockholders:
Disinterested Nominee
Robert F. Birch Director, Member of the Chairman and President, New America High 3
c/o One Liberty Audit Committee, Member of Income Fund (1992-Present); Chairman of the
Plaza, 36th floor, Nominating and Compensation Board and Co-Founder,The China Business
New York, New York Committees, Member of Group, Inc. (1996-Present); Director of
10006-1404 Executive Committee Brandywine Funds (2) (2001-Present).
Age 66 Elected for Three Year Formerly, Director and Strategic Planning
Term/Director since December Consultant, Dewe Rogerson, Ltd. (1994-1998)
1998
2
The terms of the Class II and III Directors do not expire this year.
The following table sets forth certain information regarding the Directors in
such classes.
Position(s) Held with Number of
Fund and Term of Office Principal Occupation(s) Portfolios in Fund
Name, Address and Length of Time During Past 5 Years and Complex Overseen
and Age Served Other Directorships Held by Director by Director
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Class II Director to serve until 2004 Annual Meeting of Stockholders:
Disinterested Director
Rodman L. Drake Director, Member of the Director and/or Trustee of several investment 3
c/o One Liberty Plaza, Audit Committee, companies (3) advised by Hyperion Capital
36th floor, New York, Chairman of Nominating Management, Inc. (1989-Present); Co-founder,
New York 10006-1404 and Compensation Baringo Capital LLC (2002-Present); Director,
Committees Animal Medical Center (2002-Present);
Age 60 Director, Hotelevision, Inc. (1999-Present);
Elected for Three Year Chairman, Metro Cash Card International
Term/Director since July (1999-Present). Director, Parsons
1989 Brinckerhoff, Inc. (1995-Present); Director,
Absolute Quality Inc. (2000- Present);
Trustee of Excelsior Funds (3)
(1994-Present).
Formerly, President, Continuation Investments
Group Inc. (1997-2001); Director, Alliance
Group Services, Inc. (1998-2001).
Class II Director to serve until 2004 Annual Meeting of Stockholders:
Disinterested Director
Harry E. Petersen, Jr. Director, Member of the Director and/or Trustee of several investment 3
c/o One Liberty Plaza, Audit Committee, Member companies (3) advised by Hyperion Capital
36th floor, New York, of Compensation and Management, Inc. or by its affiliates
New York 10006-1404 Nominating Committees, (1992-Present).
Member of Executive
Age 78 Committee Formerly, Senior Consultant to Cornerstone
Equity Advisors, Inc. (1998-2001); Senior
Elected for Three Year Consultant to Potomac Babson Inc. (1995-1998).
Term/Director since
October 1993
3
Position(s) Held with Number of
Fund and Term of Office Principal Occupation(s) Portfolios in Fund
Name, Address and Length of Time During Past 5 Years and Complex Overseen
and Age Served Other Directorships Held by Director by Director
- -------------------------------------------------------------------------------------------------------------------------------
Class III Director to serve until 2005 Annual Meeting of Stockholders:
Interested Director
Lewis S. Ranieri* Director, Member of the Chairman and Chief Executive Officer of 3
c/o One Liberty Plaza, Executive Committee Ranieri & Co., Inc. (since 1988); President of
36th floor, New York, LSR Hyperion Corp., a general partner of the
New York 10006-1404 Elected for Three Year limited partnership that is the general
Term/Director since partner of Hyperion Partners L.P. ("Hyperion
Age 56 June 1989 Partners") (since 1988); Director and Chairman
of the Board of Hyperion Capital Management,
Chairman/Elected Inc. (since June 2002); Director and President
annually since June 2002 of Hyperion Funding II Corp., the general
partner of the limited partnership that is the
general partner of Hyperion Partners II, L.P.
(Hyperion Partners II) (since 2002); Chairman
and President of various other direct and
indirect subsidiaries of Hyperion Partners
(since 1989) and Hyperion Partners II (since
1995); Chairman of the Board (1989-December
1998 and June 2002 through present) and/or
Director (since 1989) of several investment
companies (3) advised by Hyperion Capital
Management, Inc. or by its affiliates.
Formerly, Director and Vice Chairman of the
Board of Hyperion Capital Management, Inc.
(from November 1998 through June 2002);
Director and Chairman of the Board of Hyperion
Capital Management, Inc. (1989-November 1998);
Director and Chairman of Bank United Corp.,
and Director of Bank United (1988-2001);
Director of Lend Lease Hyperion Mortgage
Opportunity Fund, Inc. (formerly, Equitable
Real Estate Hyperion Mortgage Opportunity
Fund, Inc.) and Lend Lease Hyperion High Yield
Commercial Mortgage Fund, Inc. (formerly,
Equitable Real Estate Hyperion High Yield
Commercial Mortgage Fund, Inc.) (1995-1999).
- --------------------------
* Mr. Ranieri is an "interested person" as defined in the 1940 Act, because of
his affiliations with Hyperion Capital Management, Inc., the Fund's Advisor.
4
Position(s) Held with Number of
Fund and Term of Office Principal Occupation(s) Portfolios in Fund
Name, Address and Length of Time During Past 5 Years and Complex Overseen
and Age Served Other Directorships Held by Director by Director
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Class III Director to serve until 2005 Annual Meeting of Stockholders:
Disinterested Director
Leo M. Walsh, Jr. Director, Chairman of Director and/or Trustee of several investment 3
c/o One Liberty Plaza, the Audit Committee, companies (3) advised by Hyperion Capital
36th floor, New York, Member of Nominating and Management, Inc. or by its affiliates
New York 10006-1404 Compensation Committees (1989-Present); Financial Consultant for
Medco Health Solutions Inc. (formerly
Age 70 Elected for Three Year Merck-Medco Managed Care LLC) (1994-Present);
Term/Director since June Director of Lend Lease Hyperion Mortgage
1989 Opportunity Fund, Inc. (formerly, Equitable
Real Estate Hyperion Mortgage Opportunity
Fund, Inc.) and Lend Lease Hyperion High
Yield CMBS Fund, Inc. (formerly, Equitable
Real Estate Hyperion High Yield Commercial
Mortgage Fund, Inc.) (1999-Present).
Officers of the Fund
The officers of the Fund are chosen each year at the first meeting of
the Board of Directors of the Fund following the Annual Meeting of Stockholders,
to hold office at the discretion of the Board of Directors until the meeting of
the Board following the next Annual Meeting of Stockholders and until their
successors are chosen and qualified. The Board of Directors has elected six
officers of the Fund. Except where dates of service are noted, all officers
listed below served as such throughout the 2002 fiscal year. An asterisk (*)
indicates a person is an "interested person" as defined in the 1940 Act, because
of affiliations with Hyperion Capital Management, Inc. (the "Advisor"). The
following table sets forth information concerning each officer of the Fund who
served during all or part of the last fiscal year of the Fund:
Term of Office and
Name, Address Position(s) Held Length of Time Principal Occupation(s)
and Age with Fund Served During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------------
Lewis S. Ranieri* Chairman Elected Annually Please see "Information Concerning
c/o One Liberty Plaza, 36th Since June 2002 Directors."
floor, New York, New York
10006-1404
Age 56
5
Term of Office and
Name, Address Position(s) Held Length of Time Principal Occupation(s)
and Age with Fund Served During Past 5 Years
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Clifford E. Lai* President Elected Annually President (since November 1998) of
c/o One Liberty Plaza, 36th Since April 1993 Hyperion Capital Management, Inc.
floor, New York, New York (March 1993-Present); President (since
10006-1404 June 1997) of Hyperion 2005 Investment
Age 48 Grade Opportunity Term Trust, Inc.
(Senior Vice President from April 1993
to June 1997); President (since June
2002) of The Hyperion Strategic
Mortgage Income Fund, Inc.; Director
and Chairman of the Board of the Lend
lease Hyperion High-Yield CMBS Fund,
Inc. (since October 2000); Senior Vice
President of the Lend Lease Hyperion
High-Yield Commercial Mortgage Fund,
Inc. (November 1998-December 1999);
Senior Vice President of the Equitable
Real Estate Hyperion High-Yield
Commercial Mortgage Fund, Inc.
(September 1995-November 1998).
John Dolan* Vice President Elected Annually Chief Investment Strategist
c/o One Liberty Plaza, 36th Since March 1998 (1998-Present)and Chief Investment
floor, New York, New York Officer (since 2002) of Hyperion Capital
10006-1404 Management, Inc.
Age 49
Patricia A. Sloan* Vice President Elected Annually Consultant of Ranieri & Co., Inc.
c/o One Liberty Plaza Since June 2002 (2000-Present). Formerly, Secretary,
36th floor, New York Director and/or Trustee of several
New York 10006-1404 investment companies (3) advised by
Age 59 Hyperion Capital management, Inc. or by
its affiliates (1989-2002).
Joseph Tropeano* Secretary Elected Annually Director and Compliance Officer,
c/o One Liberty Plaza, Since June 2002 Hyperion Capital Management, Inc.
36th floor, New York, New (1993-Present); Secretary and Compliance
York 10006-1404 Officer of several investment companies
Age 40 (3) advised by Hyperion Capital
Management, Inc. (1994-Present);
Secretary and Compliance Officer, Lend
Lease Hyperion Capital Advisors, LLC
(1995-Present); Secretary and Compliance
Officer of Lend Lease Hyperion
High-Yield CMBS Fund, Inc.
(1998-Present).
Formerly, Assistant Secretary and
Compliance Officer, AIG Hyperion Inc.
(1994-2002); Vice President and
Compliance Officer, Hyperion
Distributors, Inc. (1994-1998).
6
Term of Office and
Name, Address Position(s) Held Length of Time Principal Occupation(s)
and Age with Fund Served During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------------
Thomas F. Doodian* Treasurer Elected Annually Managing Director, Chief Operating
c/o One Liberty Plaza, 36th Since February 1998 Officer (1998-Present) and Director of
floor, New York, New York Finance and Operations, Hyperion Capital
10006-1404 Management, Inc. (July 1995-Present).
Age 43 Treasurer of several investment
companies (3) advised by Hyperion
Capital Management, Inc. (February 1998-
Present).
Fund Shares owned by Directors and Officers
The following table sets forth, for each Director, the aggregate dollar
range of equity securities owned of the Fund and of all funds overseen by each
Director in the Fund Complex as of November 30, 2002. The information as to
beneficial ownership is based on statements furnished to the Fund by each
Director.
Aggregate Dollar Range of Equity
Securities in All Funds Overseen by
Dollar Range of Equity Director or Nominee in Family of
Name of Director Securities in the Fund Investment Companies
-------------------------------------------------------------------------------------------------------------
Lewis Ranieri None $50,001-$100,000
Leo M. Walsh, Jr. $50,001-$100,000 Over $100,000
Rodman L. Drake $10,001-$50,000 $10,001-$50,000
Harry E. Petersen, Jr. $1-$10,000 $1-$10,000
Robert F. Birch $50,001-$100,000 $50,001-$100,000
As of January 20, 2003, each Director's individual beneficial
shareholdings of the Fund constitute less than 1% of the outstanding shares of
the Fund, and as a group, the Directors and officers of the Fund own
beneficially less than 1% of the Fund.
Principal Holders
To the best of the Fund's knowledge, as of January 20, 2003, no person
owned beneficially more than 5% of the Fund's outstanding shares.
Interested Persons
Mr. Ranieri serves as a Director and Chairman of the Board of the
Advisor. As a result of his service with the Advisor and certain affiliations
with the Advisor as described below, 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.
7
Committees and Board of Directors' Meetings
The Fund has a standing Audit Committee presently consisting of Messrs.
Walsh, Drake, Petersen and Birch, all of whom are members of the Board of
Directors and are currently non-interested persons of the Fund. The principal
functions of the Fund's Audit Committee are to recommend to the Board the
appointment of the Fund's accountants, to review with the accountants the scope
and anticipated costs of their audit and to receive and consider a report from
the accountants concerning their conduct of the audit, including any comments or
recommendations they might want to make in that connection. The Board of
Directors has adopted a written charter for the Audit Committee, that was
previously filed with the Securities and Exchange Commission ("SEC") in 2001.
The Report of the Audit Committee is presented below. During the last fiscal
year of the Fund, the full Board of Directors met five times, and the Audit
Committee met two times. Except for Mr. Drake, who attended one Audit Committee
meeting, all of the members of the Audit Committee attended the Audit Committee
meetings, and all of the Directors attended at least 75% of the aggregate Board
meetings and Audit Committee meetings. The Fund has a Nominating and a
Compensation Committee. The Nominating and Compensation Committees presently
consist of Messrs. Drake, Birch, Petersen and Walsh. There was one Nominating
Committee meeting and one Compensation Committee meeting in 2002. The function
of the Nominating Committee is to recommend candidates for election to the Board
as independent directors. The Committee will consider nominees recommended by
stockholders. Such recommendations should be submitted in writing to the
Secretary of the Fund. The function of the Compensation Committee is to
determine the compensation paid to the independent directors. The Fund has an
Executive Committee. The Executive Committee presently consists of Messrs.
Birch, Petersen and Ranieri. The function of the Executive Committee is to
approve dividends for the Fund when the full Board of Directors can not meet.
The Executive Committee did not meet during 2002.
Report of the Audit Commitee
On January 15, 2003, the Audit Committee reviewed and discussed with
management the Fund's audited financial statements as of and for the year ended
November 30, 2002. The Audit Committee discussed with PricewaterhouseCoopers LLP
the matters required to be discussed by Statement of Auditing Standards No. 61,
Communications with Audit Committees, as amended, by the Auditing Standards
Board of the American Institute of Certified Public Accountants.
The Audit Committee received and reviewed the written disclosures and
the letter from PricewaterhouseCoopers LLP required by Independence Standard No.
1, Independence Discussion with Audit Committees, as amended, by the
Independence Standards Board, and have discussed with the auditors the auditors'
independence.
Based on the reviews and discussions referred to above, the Audit
Committee recommends to the Board of Directors that the financial statements
referred to above be included in the Fund's Annual Report to stockholders
required by Section 30(e) of the Investment Company Act of 1940, as amended and
Rule 30d-1 thereunder for the year ended November 30, 2002.
Leo M. Walsh, Jr. - Audit Committee Chairman
Rodman L. Drake - Audit Committee Member
Harry E. Petersen, Jr. - Audit Committee Member
Robert F. Birch- Audit Committee Member
Compensation of Directors and Executive Officers
No remuneration was paid by the Fund to persons who were directors,
officers or employees of Hyperion Capital Management, Inc. or any affiliate
thereof for their services as directors or officers of the Fund. Each director
of the Fund, other than those who are officers or employees of Hyperion Capital
Management, Inc. or any affiliate thereof, is entitled to receive a fee of
$10,000 per year plus $1,000 for each Board of Directors' meeting attended.
Members of the Audit Committee receive $750 for each Audit Committee meeting
attended, other than meetings held on days when there is also a directors'
meeting. The following table sets forth information concerning the compensation
received by directors for the twelve month period ended November 30, 2002.
8
Total Directors' Compensation
Directors' Compensation from the Fund and the Fund
from the Fund Complex*
- --------------------------------------------------------------------------------------------------------------------
Robert F. Birch $10,869 $39,607
Rodman L. Drake $7,250 $28,750
Harry E. Petersen, Jr. $10,375 $38,125
Leo M. Walsh, Jr. $10,375 $38,125
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*Total number of registered investment companies in fund complex is currently
three (The Hyperion Total Return Fund, Inc., Hyperion Strategic Mortage Income
Fund, Inc. and Hyperion 2005 Investment Grade Opportunity Term Trust, Inc.).
From June 2002 to December 2002, there were four funds in the complex, including
the Hyperion 2002 Term Trust, Inc. which closed in December 2002.
Compliance With Section 16 Reporting Requirements
Section 16(a) of the Securities Exchange Act of 1934 requires the
Fund's officers and directors and persons who own more than ten percent of a
registered class of the Fund's equity securities to file reports of ownership
and changes in ownership with the SEC and the New York Stock Exchange. Officers,
directors and greater than ten-percent stockholders are required by SEC
regulations to furnish the Fund with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by the
Fund and written representations from certain reporting persons that all
applicable filing requirements for such persons had been complied with, the Fund
believes that, during the fiscal year ended November 30, 2002, all filing
requirements applicable to the Fund's officers, directors, and greater than
ten-percent beneficial owners were complied with.
Required Vote
Election of the listed nominees for director requires the affirmative
vote of the holders of a majority of the shares of Common Stock of the Fund
present or represented by proxy at the Annual Meeting.
PROPOSAL 2: APPROVAL OF NEW INVESTMENT SUB-ADVISORY AGREEMENT
The Advisor serves as investment advisor to the Fund pursuant to an
Investment Advisory Agreement between the Fund and the Advisor dated June 4,
2002 (the "Investment Advisory Agreement"). Pursuant to a sub-advisory agreement
of the same date, the Advisor has engaged Pacholder Associates, Inc.
("Pacholder") to provide sub-investment advisory services (the "Investment
Sub-Advisory Agreement") for investments in higher yielding, lower rated, or
unrated fixed income securities of U.S. corporations (the "Portfolio"). By its
terms, the Investment Sub-Advisory Agreement will terminate automatically in the
event of an assignment by Pacholder. A change of control of Pacholder is
considered an assignment pursuant to the 1940 Act.
9
At its meeting held on January 15, 2003, the Board was presented with
information concerning a change of control of Pacholder, which is scheduled to
occur on or about February 15, 2003. In anticipation of Pacholder's change of
control and automatic termination of the Investment Sub-Advisory Agreement, the
Board, including a majority of the Directors that are not interested persons,
determined that it is in the best interests of the Fund and its stockholders for
the Advisor (1) to terminate the current Investment Sub-Advisory Agreement
effective February 15, 2003, (2) to enter into an Interim Investment
Sub-Advisory Agreement (the "Interim Agreement") with Seix Investment Advisors,
Inc. ("Seix") effective February 15, 2003, and (3) to enter into a new
Investment Sub-Advisory Agreement (the "New Sub-Advisory Agreement") with Seix.
(Please see the section entitled "Board Considerations Relating to the New
Sub-Advisory Agreement" for factors that the Board considered in making such
determination.) The Interim Agreement will terminate automatically on the
earlier of 150 days from its effective date or the date on which the Fund's
stockholders approve the New Sub-Advisory Agreement. The same fee (0.35% per
annum of the Portfolio's average weekly net assets on an annualized basis) paid
under the current Investment Sub-Advisory Agreement will be paid by the Advisor
to Seix under the Interim Agreement.
As explained in more detail below, stockholders are being asked to
approve the New Sub-Advisory Agreement between the Advisor and Seix. The New
Sub-Advisory Agreement will contain terms substantially the same as those in the
Investment Sub-Advisory Agreement and the Interim Agreement, except that under
the New Sub-Advisory Agreement, Seix will receive a fee of 0.50% per annum of
the Portfolio's average weekly net assets on an annualized basis.
Seix
Seix, a registered investment advisor, is a Delaware corporation,
organized in July 1992, and currently manages approximately $12.2 billion of
fixed income assets. The business address of Seix is 300 Tice Blvd., Woodcliff
Lake, NJ 07677. Seix is employee owned and controlled and has no affiliates. If
the New Sub-Advisory Agreement is approved, Christina Seix and Michael McEachern
will serve as portfolio managers of the Portfolio.
The following are the principal executive officers and Directors of
Seix, along with their addresses and principal occupations:
- -----------------------------------------------------------------------------------------------------------------------
Name Address Principal Occupation
- -----------------------------------------------------------------------------------------------------------------------
Christina Seix 300 Tice Blvd., Woodcliff Lake, NJ Chairman, Chief Investment Officer and
Director
- -----------------------------------------------------------------------------------------------------------------------
John Talty 300 Tice Blvd., Woodcliff Lake, NJ President, Senior Portfolio Manager and
Director
- -----------------------------------------------------------------------------------------------------------------------
Peter Bourke 300 Tice Blvd., Woodcliff Lake, NJ Chief Operating Officer, Secretary,
Treasurer, Senior Portfolio Manager and
Director
- -----------------------------------------------------------------------------------------------------------------------
Christina Seix, John Talty and Michael McEachern own ten percent or
more of the outstanding voting securities of Seix. Mr. McEachern's address is
300 Tice Blvd., Woodcliff Lake, NJ.
10
The Current Investment Sub-Advisory Agreement
The current Investment Sub-Advisory Agreement was last submitted to a
vote of the stockholders of the Fund at the Annual Meeting of the Stockholders
of the Fund held on April 16, 2002. At that meeting the stockholders approved
the current Investment Sub-Advisory Agreement, which provides that it will
continue from year to year, but only so long as such continuation is
specifically approved at least annually by both (1) the vote of a majority of
the Board of Directors or the vote of a majority of the outstanding voting
securities of the Fund (as provided in the 1940 Act) and (2) by the vote of a
majority of the Directors who are not interested persons cast in person at a
meeting called for the purpose of voting on such approval. The current
Investment Sub-Advisory Agreement may be terminated at any time by Pacholder or
the Advisor, without the payment of any penalty, with 60 days' written notice by
either party to the other. Any termination by the Adviser must be directed or
approved by the vote of a majority of the Directors of the Fund in office at the
time or by the vote of the holders of a "majority" (as defined in the 1940 Act)
of the voting securities of the Fund at the time outstanding and entitled to
vote. The current Investment Sub-Advisory Agreement will terminate automatically
in the event of an assignment. The current Investment Sub-Advisory Agreement
also provides that Pacholder shall not be liable for any error of judgment or
mistake of law, any loss arising out of any investment, or any act or omission
taken with respect to the Fund, except for willful misfeasance, bad faith, or
gross negligence in performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder.
The current Investment Sub-Advisory Agreement provides, among other
things, that Pacholder will bear all expenses of its employees and overhead
incurred in connection with its duties under the Investment Sub-Advisory
Agreement. It also provides that the Advisor shall pay to Pacholder a monthly
fee for Pacholder's services which is equal to 0.35% per annum of the
Portfolio's average weekly net assets on an annualized basis. The Advisor has
paid and intends to continue to pay Pacholder's fee out of the fee that the
Advisor will receive from the Fund. The Fund paid the Advisor $1,813,011 in
investment advisory fees for the fiscal year ending November 30, 2002.
Investment advisory fees paid by the Advisor to Pacholder during the last fiscal
year of the fund amounted to $23,302.
The New Sub-Advisory Agreement
Pursuant to the New Sub-Advisory Agreement, the Advisor will engage
Seix to provide sub-investment advisory services for the Portfolio. Although
Seix will make all decisions with respect to the Portfolio on behalf of the
Advisor, the amount of the Fund's assets allocated to the Portfolio will be
determined by the Advisor.
The New Sub-Advisory Agreement is the same in all material respects as
the current Investment Sub-Advisory Agreement except that the Advisor would pay
Seix a monthly fee equal to 0.50% per annum of the Portfolio's average weekly
net assets on an annualized basis. Thus, the key terms of the New Sub-Advisory
Agreement are set out in detail above, under the heading "The Current Investment
Sub-Advisory Agreement."
A form of the New Sub-Advisory Agreement is attached to this Proxy
Statement as Exhibit A. Seix will supervise and arrange the purchase and sale of
assets for the Portfolio. All services under the New Sub-Advisory Agreement must
be provided in accordance with the provisions of the 1940 Act and any rules or
regulations thereunder, the Securities Act of 1933 and any rules or regulations
thereunder, the Internal Revenue Code, any other applicable provision of law,
the Fund's charter and by-laws, any policies adopted by the Fund's Board of
Directors, and the investment policies of the Fund as disclosed in its
registration statement on file with the SEC, as amended from time to time.
Contingent upon receipt of stockholder approval, the New Sub-Advisory
Agreement will be effective April 15, 2003, and will continue in effect until
April 15, 2005. Thereafter, the New Sub-Advisory Agreement will continue in
effect for successive annual periods, provided its continuance is approved at
least annually by (1) a majority vote, cast in person at a meeting called for
that purpose, of the Fund's directors or (2) a vote of the holders of a majority
of the outstanding voting securities (as defined by the 1940 Act) of the Fund
and (3) in either event by a majority of the Directors who are not interested
persons.
11
Board Considerations Relating to the New Sub-Advisory Agreement
On January 15, 2003, the Board of Directors considered the New
Sub-Advisory Agreement and determined that approving the New Sub-Advisory
Agreement was in the best interests of the stockholders. At the meeting, senior
officers of the Advisor discussed the reasons for replacing Pacholder with Seix
due to Pacholder's anticipated change of control. The Board of Directors
considered a wide range of information, including information of the type they
regularly consider when determining to continue the Fund's current Investment
Sub-Advisory Agreement. In determining that the New Sub-Advisory Agreement was
in the best interests of the stockholders, the Board of Directors considered,
among other things:
o the effect of Pacholder's change of control on the Portfolio;
o Seix and its personnel (including particularly those personnel
with responsibilities for providing services to the
Portfolio), resources and investment process;
o the terms of the New Sub-Advisory Agreement;
o the scope and quality of the services that Seix will provide
to the Portfolio; and
o the investment performance of the Fund and of similar funds
managed by other advisors over various periods.
In particular, the Board considered Seix's outstanding performance
record as a manager of high yield bond portfolios. The Board determined that the
increase in the sub-advisory fee was acceptable due to Seix's performance record
and the fact that, because the Advisor pays the Sub-Advisor, neither the Fund
nor the stockholders will be affected by the higher fee.
After carefully considering the information described above, the
Directors who are not interested persons unanimously voted to approve the New
Sub-Advisory Agreement and to recommend that the Fund's stockholders vote to
approve the New Sub-Advisory Agreement.
Required Vote
Approval of the New Sub-Advisory Agreement requires the vote of a
majority of the Fund's outstanding voting securities, as defined in the 1940
Act. A "majority of the outstanding voting securities" of the Fund, as defined
in the 1940 Act, means the lesser of (a) 67% or more of the shares of the Fund
present at the Meeting if the owners of more than 50% of the shares of the Fund
entitled to vote at the Meeting are present in person or by proxy, or (b) more
than 50% of the outstanding shares of the Fund entitled to vote at the Meeting.
There are several alternatives the Board may consider if the New Sub-Advisory
Agreement is not approved: (1) the possibility of negotiating a different
compensation scheme, (2) the possibility of terminating the current sub-advisory
arrangement and retaining another sub-advisor for the Portfolio, (3) the
possibility of terminating the current sub-advisory arrangement and not
retaining another sub-advisor for the Portfolio, or (4) retaining internal
management for the Portfolio.
12
PROPOSAL 3: RATIFICATION OR REJECTION OF
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Fund will consider, and it is expected
that they will recommend, the selection of PricewaterhouseCoopers LLP ("PwC") as
independent accountants of the Fund for the fiscal year ending November 30, 2003
at a meeting scheduled to be held on March 11, 2003. The appointment of
accountants is approved annually by the Audit Committee of the Board of
Directors and is subsequently submitted to the stockholders for ratification or
rejection. The Fund has been advised by PwC that at November 30, 2002 neither
that firm nor any of its partners had any direct or material indirect financial
interest in the Fund. A representative of PwC will be at the meeting to answer
questions concerning the Fund's financial statements and will have an
opportunity to make a statement if he or she chooses to do so.
Audit Fees
The Fund will pay PwC $57,000 for its audit of the Fund's November 30,
2002 financial statements. During 2002, the total audit fees paid to PwC for all
of the funds (consisting of the Fund, Hyperion Strategic Mortgage Income Fund,
Inc., Hyperion 2005 Investment Grade Opportunity Term Trust, Inc and Hyperion
2002 Term Trust, Inc.), was $187,000.
Financial Information Systems Design and Implementation
The Fund did not pay PwC for any other professional services relating
to the Fund's financial information for the fiscal year ended November 30, 2002.
Hyperion Capital Management, Inc. (the "Advisor") is a subsidiary of Hyperion
Partners L.P., a Delaware limited partnership ("Hyperion Partners"). The sole
general partner of Hyperion Partners is Hyperion Ventures L.P., a Delaware
limited partnership ("Hyperion Ventures"). The Advisor did not pay PwC for any
other professional services relating to the Advisor's financial information
systems for the fiscal year ended November 30, 2002.
All Other Fees
The Fund paid PwC $8,135.00 for other non-audit professional services
for the fiscal year ended November 30, 2002. The Advisor, Hyperion Partners or
Hyperion Ventures did not pay PwC for any other professional services for the
fiscal year ended November 30, 2002. The Fund's Audit Committee has determined
that the provision of the services by PwC to the Advisor, Hyperion Partners or
Hyperion Ventures is compatible with maintaining PwC's independence.
Required Vote
Ratification of the selection of PwC as independent accountants of the
Fund requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of the Fund present or represented by proxy
at the Annual Meeting.
ADDITIONAL INFORMATION
The Advisor
The Advisor is a Delaware corporation organized in February 1989 and a
registered investment advisor under the Investment Advisers Act of 1940, as
amended. The business address of the Advisor and its officers and directors is
One Liberty Plaza, 36th floor, New York, New York 10006-1404. Subject to the
authority of the Board of Directors, the Advisor is responsible for overall
management of the Fund's business affairs. As of December 31, 2002, the Advisor
had $6.8 billion in assets under management. The Advisor's clients include
pensions, foundations and endowments, insurance companies and closed-end mutual
funds. In its investment process, the Advisor focuses on relative value
opportunities, particularly in the MBS and ABS markets.
13
The Advisor is a subsidiary of HCM Holdings, Inc. ("HHI"). LSR Capital
HCM, L.L.C. ("LSR") owns 61.75% of HHI. LSR Hyperion Corp. is the managing
member of LSR. Lewis S. Ranieri is the sole shareholder of LSR Hyperion Corp.
Lewis S. Ranieri, a former Vice Chairman of Salomon Brothers Inc
("Salomon Brothers"), is the Chairman of the Board of the Advisor and Chairman
and Director of the Fund. Mr. Andrew Carter is Vice Chairman of the Advisor, but
does not serve on the Advisor's Board of Directors. Clifford E. Lai, the
President of the Fund, is the President and a Director of the Advisor. Mr. John
Feeney is a Director and Managing Director, Marketing of the Advisor. Mr. John
H. Dolan is a Director and Managing Director, Chief Investment Officer of the
Advisor and Vice President of the Fund. Mr. Thomas F. Doodian, Treasurer of the
Fund, and Mr. Joseph Tropeano, Secretary of the Fund, are also employees of the
Advisor.
The Advisor provides advisory services to several other registered
investment companies which invest in MBS. Its management includes several
individuals with extensive experience in originating, evaluating and investing
in MBS, RMBS and ABS, and in using hedging techniques. Lewis S. Ranieri was
instrumental in the development of the secondary MBS market and the creation and
development of secondary markets for conventional mortgage loans, COs and other
mortgage-related securities. While at Salomon Brothers, Mr. Ranieri directed
that firm's activities in the mortgage, real estate and U.S. Government
guaranteed areas. Clifford E. Lai was Managing Director and Chief Investment
Strategist for Fixed Income at First Boston Asset Management Corporation. John
H. Dolan, Director and Chief Investment Officer of the Advisor, will be
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Dolan was recently appointed to Chief Investment Officer of the Advisor and has
served as Chief Investment Strategist of the Advisor since 1998. Formerly, Mr.
Dolan was Managing Director at Bankers Trust.
The Administrator
The Fund has entered into an Administration Agreement with Hyperion
Capital Management, Inc. (the "Administrator"). The Administrator performs
administrative services necessary for the operation of the Fund, including
maintaining certain books and records of the Fund, and preparing reports and
other documents required by federal, state, and other applicable laws and
regulations, and provides the Fund with administrative office facilities. For
these services, the Fund pays a fee monthly at an annual rate of 0.20% of its
average weekly assets. For the twelve month period ended November 30, 2002, the
Administrator earned $565,019 in Administration fees. In addition, the
Administrator has entered into Administration Agreements with two other
investment companies, with the following fee structure:
Name Administration Fee
- ----------------------------------------------------------------------------------------------------------------------
The Hyperion Strategic Mortgage Income Fund, a monthly fee paid at an annual rate of:
Inc. 0.20% of its average weekly net assets
14
Name Administration Fee
- ----------------------------------------------------------------------------------------------------------------------
a monthly fee paid at an annual rate of:
Hyperion 2005 Investment Grade 0.17% of the first $100 million of its average weekly net assets
Opportunity Term Trust, Inc. 0.145% of the next $150 million
0.12% of any amounts above $250 million
Investment Companies Managed by the Advisor
The Advisor provides advisory services to several other registered
investment companies, all of which invest in mortgage-backed securities. Its
management includes several individuals with extensive experience in creating,
evaluating and investing in Mortgage-Backed Securities, Derivative
Mortgage-Backed Securities and Asset-Backed Securities, and in using hedging
techniques. Lewis S. Ranieri, Chairman of the Advisor and of the Fund, was
instrumental in the development of the secondary mortgage-backed securities
market and the creation and development of secondary markets for conventional
mortgage loans, CMOs and other mortgage-related securities. While at Salomon
Brothers, Mr. Ranieri directed that firm's activities in the mortgage, real
estate and government guaranteed areas. Clifford E. Lai, President of the
Advisor and President of the Fund, was Managing Director and Chief Investment
Strategist for Fixed Income for First Boston Asset Management Corporation.
In addition to acting as advisor to the Fund, the Advisor acts as
investment advisor to the following other investment companies at the indicated
annual compensation.
Approximate Net Assets
Name of Fund Investment Advisory Fees at November 30, 2002
- -----------------------------------------------------------------------------------------------------------------------
The Hyperion Strategic Mortgage 0.65% of its average weekly net assets $142,921,281
Income Fund, Inc.
Hyperion 2005 Investment Grade 0.65% of its average weekly net assets $167,288,677
Opportunity Term Trust, Inc.
Pacholder
As noted above, Pacholder's contract to provide sub-investment advisory
services for the Fund will be terminated on February 15, 2003 due to Pacholder's
anticipated change in control. Pacholder, a registered investment advisor, is an
Ohio corporation, organized in December 1983, and currently manages
approximately $1.1 billion in corporate high yield bonds and related securities
and approximately $145 million of other securities. The business address of
Pacholder and its officers and directors is 8044 Montgomery Road, Suite 840,
Cincinnati, Ohio 45236.
Brokerage Commissions
The Fund paid an aggregate of $16,209.90 in brokerage commissions,
including futures commissions, on its securities purchases during its last
fiscal year, all of which were paid to entities that are not affiliated with the
Fund or the Advisor.
The Advisor and Pacholder have discretion to select brokers and dealers
to execute portfolio transactions initiated by the Advisor and the Pacholder and
to select the markets in which such transactions are to be executed. The
Agreements provide, in substance, that in executing portfolio transactions and
selecting brokers or dealers, the primary responsibility of the Advisor and the
Sub-Advisor is to seek the best combination of net price and execution for the
Fund. It is expected that securities will ordinarily be purchased in primary
markets, and that in assessing the best net price and execution available to the
Fund, the Advisor and Pacholder will consider all factors they deem relevant,
including the price, dealer spread, the size, type and difficulty of the
transaction involved, the firm's general execution and operation facilities and
the firm's risk in positioning the securities involved. Transactions in foreign
securities markets may involve the payment of fixed brokerage commissions, which
are generally higher than those in the United States.
15
In selecting brokers or dealers to execute particular transactions and
in evaluating the best net price and execution available, the Advisor and
Pacholder are authorized to consider "brokerage and research services" (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934). The
Advisor and Pacholder are also authorized to cause the Fund to pay to a broker
or dealer who provides such brokerage and research services a commission for
executing a portfolio transaction which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction. The
Advisor and Pacholder must determine in good faith, however, that such
commission was reasonable in relation to the value of the brokerage and research
services provided, viewed in terms of that particular transaction or in terms of
all the accounts over which the Advisor or Pacholder exercise investment
discretion. Research services furnished by brokers through whom the Fund effects
securities transactions may be used by the Advisor and Pacholder in servicing
all of the accounts for which investment discretion is exercised by the Advisor
or Pacholder, and not all such services may be used by the Advisor or Pacholder
in connection with the Fund.
OTHER BUSINESS
The Board of Directors of the Fund does not know of any other matter
which may come before the meeting. If any other matter properly comes before the
meeting, it is the intention of the persons named in the proxy to vote the
proxies in accordance with their judgment on that matter.
PROPOSALS TO BE SUBMITTED BY STOCKHOLDERS
All proposals by stockholders of the Fund that are intended to be
presented at the Fund's next Annual Meeting of Stockholders to be held in 2004
must be received by the Fund for inclusion in the Fund's proxy statement and
proxy relating to that meeting no later than November 1, 2003.
EXPENSES OF PROXY SOLICITATION
The cost of preparing and assembling material in connection with this
solicitation of proxies will be borne by the Fund. The cost of mailing material
in connection with this solicitation of proxies will be borne by the Advisor. In
addition to the use of the mails, proxies may be solicited personally by regular
employees of the Fund, Hyperion Capital Management, Inc., or Georgeson
Shareholder, paid solicitors for the Fund, or by telephone or telegraph. The
anticipated cost of solicitation by the paid solicitors will be approximately
$6,000. The Fund's agreement with Georgeson Shareholder provides that such paid
solicitors will perform a broker search and deliver proxies in return for the
payment of their fee plus the expenses associated with this proxy solicitation.
Brokerage houses, banks and other fiduciaries will be requested to forward proxy
solicitation material to their principals to obtain authorization for the
execution of proxies, and they will be reimbursed by the Fund for out-of-pocket
expenses incurred in this connection.
February 12, 2003
16
Exhibit A
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT, dated April __, 2003, between Hyperion Capital
Management, Inc. (the "Adviser"), a Delaware corporation, and Seix Investment
Advisors Inc. (the "Sub-Adviser"), a Delaware corporation.
WHEREAS, the Adviser has entered into an Investment Advisory
Agreement (the "Advisory Agreement") dated as of June 4, 2002 with The Hyperion
Total Return Fund, Inc. (the "Fund"), a Maryland corporation; and
WHEREAS, the Adviser seeks to retain the Sub-Adviser in
connection with the Adviser's duties and obligations under said Investment
Advisory Agreement and the Sub-Adviser desires to provide such assistance.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, it is agreed by and between the parties
hereto as follows:
1. In General
The Sub-Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Adviser with respect to the investment of that portion
of the Fund's assets constituting high yield, fixed income securities of U.S.
corporations ("High Yield Securities") and to provide investment research and
advice with respect to, supervise and arrange the purchase of High Yield
Securities for and the sale of High Yield Securities held in the investment
portfolio of the Fund (the High Yield Securities portion of the Fund's portfolio
is referred to herein as the "Portfolio").
2. Duties and Obligations of the Sub-Adviser with Respect to Investments
of Assets of the Fund
(a) Subject to the succeeding provisions of this paragraph and subject
to the direction and control of the Adviser, the Sub-Adviser shall (i) act as
investment adviser for and supervise and manage the investment and reinvestment
of the Portfolio only and in connection therewith have complete discretion in
purchasing and selling High Yield Securities for the Fund and in voting,
exercising consents and exercising all other rights appertaining to such
securities on behalf of the Fund; (ii) supervise continuously the investment
program of the Fund and the composition of its investment portfolio only as such
program and portfolio pertain to High Yield Securities; and (iii) arrange,
subject to the provisions of paragraph 3 hereof, for the purchase and sale of
High Yield Securities held in the Portfolio.
(b) In the performance of its duties under this Agreement, the
Sub-Adviser shall at all times conform to, and act in accordance with, any
requirements imposed by (i) the provisions of the Investment Company Act of 1940
(the "Act"), and of any rules or regulations in force thereunder; (ii) the
provisions of Subchapter M of the Internal Revenue Code of 1986, as amended, and
of any rules or regulations in force thereunder; (iii) any other applicable
provision of law; (iv) any policies and determinations of the Board of Directors
of the Fund and of the Adviser; and (v) the provisions of the Articles of
Incorporation and By-Laws of the Fund, as such documents are amended from time
to time.
A-1
(c) The Sub-Adviser will bear all costs and expenses of its members and
employees and any overhead incurred in connection with its duties hereunder and
shall bear the costs of any salaries or directors fees of any officers or
directors of the Fund who are affiliated persons (as defined in the Act) of the
Sub-Adviser.
(d) The Sub-Adviser shall give the Adviser the benefit of its best
judgment and effort in rendering services hereunder, but the Sub-Adviser shall
not be liable for any act or omission or for any loss sustained by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
(e) Nothing in this Agreement shall prevent the Sub-Adviser or any
director, officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any other
lawful activity, and shall not in any way limit or restrict the Sub-Adviser or
any of its partners, officers, employees or agents from buying, selling or
trading any securities for its or their own accounts or for the accounts of
others for whom it or they may be acting, provided, however, that the
Sub-Adviser will undertake no activities which, in its judgment, will adversely
affect the performance of its obligations under this Agreement.
(f) (i) The Adviser will have sole and absolute discretion to determine
the amount or percentage of Fund assets to be invested in High Yield Securities.
The Sub-Adviser shall invest that portion of the Fund's assets designated by the
Adviser for High Yield Securities as soon as practicable or at such later time
as the Adviser may direct after such funds are made available for investment.
From time to time the Adviser may determine to increase or decrease the amount
or percentage of Fund assets to be invested in High Yield Securities. If the
Adviser determines to increase such amount or percentage, the Sub-Adviser shall
invest such additional funds in High Yield Securities as soon as practicable, or
at such later time as the Adviser may direct, after (i) notice of such increase
is given to the Sub-Adviser and (ii) such additional funds are made available
for investment. If, on the other hand, the Adviser determines to decrease such
amount or percentage, the Sub-Adviser shall, as soon as practicable, or at such
later time as the Adviser may direct, after notice of such decrease is given to
the Sub-Adviser, liquidate that portion of the Portfolio required for the
Portfolio to represent the desired amount or percentage of the Fund assets and
cause such liquidated assets to be available to the Adviser.
(ii) Hedging of positions in the Portfolio, if any, will be undertaken
by the Adviser in consultation with the Sub-Adviser.
(g) The Sub-Adviser shall provide the Adviser with monthly reports
within 5 business days of the end of each month and quarterly reports within 7
business days of the end of each calendar quarter. Such reports shall include
(i) an itemized print-out of the Portfolio as of the last day of the period,
including the current market value thereof (ii) a statement of the Sub-Adviser's
advice concerning the Fund's investments in High Yield Securities in light of
the objectives of the Fund and the then current market conditions, (iii) a
print-out of the performance of the Portfolio relative to a mutually agreed upon
High Yield Securities securities index, and (iv) such other information as the
Adviser may from time to time reasonably request.
3. Portfolio Transactions and Brokerage
The Sub-Adviser is authorized, for the purchase and sale of the
securities in the Portfolio, to employ such securities dealers as may, in the
judgment of the Sub-Adviser, implement the policy of the Fund to obtain the best
net results taking into account such factors as price, including dealer spread,
the size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. Consistent with this policy, the Sub-Adviser is authorized
to direct the execution of Portfolio transactions to dealers and brokers
furnishing statistical information or research deemed by the Sub-Adviser to be
useful or valuable to the performance of its investment advisory functions for
the Portfolio. In addition, the Sub-Adviser may give proper instructions to the
Fund's custodian in connection with the purchase or sale of High Yield
Securities. The Adviser, upon the Sub-Adviser's request, shall confirm such
authority to the Custodian.
A-2
4. Compensation of the Sub-Adviser
(a) The Adviser agrees to pay to the Sub-Adviser and the Sub-Adviser
agrees to accept as full compensation for all services rendered by the
Sub-Adviser as such, a fee computed and payable monthly in an amount equal to
..50% per annum of the Portfolio's average weekly net assets on an annualized
basis, for the then-current fiscal year. For any period less than a month during
which this Agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month of 28, 29, 30 or 31 days, as
the case may be.
(b) For purposes of this Agreement, the average weekly net assets of
the Portfolio shall mean the average weekly value of the total assets of the
Portfolio, minus the sum of (i) accrued liabilities (including accrued expenses)
directly related to the Portfolio, (ii) that percent of both declared and unpaid
dividends on the Common Shares issued by the Fund and any Preferred Shares
issued by the Fund (the "Preferred Shares") and any accumulated dividends on any
Preferred Shares, but without deducting the aggregate liquidation value of the
Preferred Shares, that is equal to the percent of the Fund's assets that the
Portfolio represents, and (iii) that percent of accrued liabilities related to
the Fund in general that is equal to the percent of the Fund's assets that the
Portfolio represents. The average weekly net assets of the Portfolio shall be
calculated pursuant to the procedures adopted by resolutions of the Directors of
the Fund for calculating the net asset value of the Fund's shares or delegating
such calculations to third parties and such determination shall be binding on
the Sub-Adviser.
5. Indemnity
(a) Subject to and only to the extent of the indemnification provided
to the Adviser by the Fund in the Advisory Agreement, the Adviser hereby agrees
to indemnify the Sub-Adviser and each of the Sub-Adviser's directors, officers,
employees and agents (including any individual who serves at the Sub-Adviser's
request as director, officer, partner, trustee or the like of another
corporation or other entity in connection with the Sub-Adviser's duties under
this Agreement) (each such person being an "indemnitee") against any liabilities
and expenses, including amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees (all as provided in accordance with
applicable corporate law) reasonably incurred by such indemnitee in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or investigative body in
which he may be or may have been involved as a party or otherwise or with which
he may be or may have been threatened, while acting in any capacity set forth
above in this Section 5 or thereafter by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall have been
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Fund and the Adviser and furthermore, in
the case of any criminal proceeding, so long as he had no reasonable cause to
believe that the conduct was unlawful; provided, however, that (1) no indemnitee
shall be indemnified hereunder against any liability to the Adviser or the Fund
or its stockholders or any expense of such indemnitee arising by reason of (i)
willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless
disregard of the duties involved in the conduct of his position (the conduct
referred to in such clauses (i) through (iv) being sometimes referred to herein
as "disabling conduct"), (2) as to any matter disposed of by settlement or a
compromise payment by such indemnitee, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other expenses
shall be provided unless there has been a determination, in accordance with
paragraph 5(c) below, that such settlement or compromise is in the best
interests of the Fund and the Adviser and that such indemnitee appears to have
acted in good faith in the reasonable belief that his action was in the best
interest of the Fund and the Adviser and did not involve disabling conduct by
such indemnitee, (3) with respect to any action, suit or other proceeding
voluntarily prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding by
such indemnitee was authorized by the Adviser and (4) the indemnity provided
herein shall only be effective if, and to the extent, the Adviser is indemnified
by the Fund pursuant to the Advisory Agreement for the loss related to such
indemnity.
A-3
(b) To the extent made available to the Adviser pursuant to the
Advisory Agreement, the Adviser shall make advance payments in connection with
the expenses of defending any action with respect to which indemnification might
be sought hereunder if the Adviser receives a written affirmation of the
indemnitee's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to reimburse the Adviser,
unless it is subsequently determined that it is entitled to such indemnification
and if the Adviser and the directors of the Fund determine that the facts then
known to them would not preclude indemnification. In addition, at least one of
the following conditions must be met: (A) the indemnitee shall provide security
for this undertaking, (B) the Adviser and the Fund shall be insured against
losses arising by reason of any lawful advances, (C) a majority of a quorum
consisting of directors of the Fund who are neither "interested persons" of the
Fund (as defined in Section 2(a)(19) of the Act) nor parties to the proceeding
("Disinterested Non-Party Directors") or (D) an independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason to believe that
the indemnitee ultimately will be found entitled to indemnification.
(c) All determinations with respect to indemnification hereunder shall
be made (1) by a final decision on the merits by a court or other body before
whom the proceeding was brought that such indemnitee is not liable by reason of
disabling conduct or, (2) in the absence of such a decision, by (i) the Advisor
together with a majority vote of a quorum of the Disinterested Non-Party
Directors of the Fund, or (ii) if such a quorum is not obtainable or even, if
obtainable, if a majority vote of such quorum so directs, independent legal
counsel in a written opinion. All determinations regarding advance payments in
connection with the expense of defending any proceeding shall be authorized in
accordance with the immediately preceding clause (2) above.
The rights accruing to any indemnitee under these provisions shall not
exclude any other right to which he may be lawfully entitled.
6. Duration and Termination
(a) This Agreement shall become effective on the date first set forth
above and shall continue until April __, 2004. This Agreement shall continue
thereafter from year to year, but only so long as such continuation is
specifically approved at least annually in accordance with the requirements of
the Investment Company Act of 1940.
(b) This Agreement may be terminated by the Sub-Adviser at any time
without penalty upon giving the Adviser sixty days' written notice (which notice
may be waived by the Adviser) and may be terminated by the Adviser at any time
without penalty upon giving the Sub-Adviser sixty days' notice (which notice may
be waived by the Sub-Adviser); provided that such termination by the Adviser
shall be effected if so directed or approved by the vote of a majority of the
Directors of the Fund in office at the time or by the vote of the holders of a
"majority" (as defined in the Investment Company Act of 1940) of the voting
securities of the Fund at the time outstanding and entitled to vote. This
Agreement shall terminate automatically in the event of its assignment (as
"assignment" is defined in the Investment Company Act of 1940). The Sub-Adviser
represents that it is a corporation and will notify the Adviser promptly after
any change in control of such corporation, as defined in Section 2(a)(9) of the
Act.
A-4
7. Assignment
This Agreement may not be assigned by either party hereto and will
terminate upon assignment.
8. Notices
Any notice under this Agreement shall be in writing to the other party
at such address as the other party may designate from time to time for the
receipt of such notice and shall be deemed to be received on the date actually
received.
9. Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York for contracts to be performed entirely therein without
reference to choice of law principles thereof and in accordance with the
applicable provisions of the Act.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their respective
seals to be hereunto affixed, all as of the day and the year first above
written.
HYPERION CAPITAL MANAGEMENT, INC.
By:
----------------------------
SEIX INVESTMENT ADVISORS INC.
By:
----------------------------
A-5
HTR-PS-03
Proxy
THE HYPERION TOTAL RETURN FUND, INC.
This Proxy is Solicited on Behalf of the Directors
The undersigned hereby appoints Clifford E. Lai and JOSEPH TROPEANO
each of them attorneys and proxies for the undersigned, with full power of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of The Hyperion Total Return Fund, Inc. (the
"Fund") which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Fund to be held at The Downtown Association, 60 Pine Street
(between William and Pearl Streets), New York, New York 10005, on Tuesday, April
15, 2003 at 10:30 a.m., and at any adjournments thereof. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting and accompanying Proxy
Statement and hereby instructs said attorneys and proxies to vote said shares as
indicated hereon. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Meeting. A majority of the
proxies present and acting at the Meeting, in person or by substitute (or, if
only one shall be so present, then that one), shall have any may exercise all of
the power or authority of said proxies hereunder. The undersigned hereby revokes
any proxy previously given.
(Continued and to be signed on the reverse side)
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COMMENTS:
- --------------------------------------------------------------------------------
14475
ANNUAL MEETING OF STOCKHOLDERS OF
THE HYPERION TOTAL RETURN FUND, INC.
April 15, 2003
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
-------------------------- ---------------------
COMPANY NUMBER
-------------------------- ---------------------
ACCOUNT NUMBER
-------------------------- ---------------------
NUMBER OF SHARES
-------------------------- ---------------------
Please detach and mail in the envelope provided.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTOR AND
"FOR" PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. X
- --------------------------------------------------------------------------------
1. Election of Director Nominee (Class I)
NOMINEES
/ / FOR ALL NOMINEES / / Robert F. Birch
/ / WITHHOLD AUTHORITY FOR
/ / ALL NOMINEES
FOR ALL EXCEPT
(See instructions below)
Instruction: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here:
For Against Abstain
2. Approval of New Investment Sub-Advisory / / / / / /
Agreement.
3. Ratification or rejection of the
selection of independent accountants (a / / / / / /
vote "For" is a vote for ratification).
This proxy, if properly executed, will be voted in the manner directed by the
stockholder. If no direction is made, this proxy will be voted FOR the election
of the nominee as Director in Proposal 1, FOR the approval of the New Investment
Sub-Advisory Agreement in Proposal 2 and FOR the ratification of the selection
of PricewaterhouseCoopers LLP as the independent accountants of the Fund in
Proposal 2. Please refer to the Proxy Statement for a discussion of the
Proposals.
PLEASE VOTE, DATE AND SIGN THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
To change the address on your account, please check the box at the right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this
method. / /
Please check if you plan on attending the meeting. / /
Signature of Stockholder ____________________ Date:__________________
Signature of Stockholder ____________________ Date:__________________
Note: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title. If the
signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.