---

 

Item 1.     Reports to Shareholders.

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The chart that follows shows the allocation of the Fund’s holdings by asset category as of May 31, 2006.

THE HYPERION TOTAL RETURN FUND, INC.

* As a percentage of total investments.

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We welcome this opportunity to provide you with information about The Hyperion Total Return Fund, Inc. (the “Fund”) for the semi-annual period ended May 31, 2006. 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.

Portfolio Performance

For the six month period ending May 31, 2006, shareholders realized a total investment return of 7.21%, which assumes the reinvestment of dividends and is exclusive of brokerage commissions. Based on the NYSE closing price of $8.45 on May 31, 2006, the Fund’s shares had a current yield of 8.52%, which was 3.49% higher than the yield of the 5-Year U.S. Treasury note, and competitive with the yields of other multi-sector bond funds in its category.

As of May 31, 2006, the Fund, inclusive of the effect of leverage, was managed with an average duration (a bond’s duration is the weighted average number of years until maturity of all its cash flows, including coupon payments and principal) of 4.3 years, as measured on a net asset basis.

Market Environment

The economy drifted sideways for the first half of the year. Business indicators and surveys from purchasing managers indicate growth; hard commodity prices have soared (although they appear to have peaked), and consumer confidence remains above 100. However, new home sales have dipped, home inventories have risen, oil prices remain high, and interest rates continue to climb. The stock markets are about unchanged for 2006.

The Fed raised the Fed Funds target rate four times during the last six months, most recently to 5.00% at the May 10 meeting, representing 16 meetings in a row that they have increased interest rates. The market anticipates another 25 basis point hike at the upcoming August meeting but we expect that the Fed is towards the end of this tightening cycle.

Our sense is that Fed Chairman Bernanke is looking to demonstrate his resolve in fighting inflation (and to make sure that any U.S. dollar weakness is moderate), so these last two tightening moves may be typical of the Fed overshooting on Fed Funds targeting.

We expect the impact of higher mortgage rates and higher energy prices to eventually have a negative impact on the consumer sector, which at 75% of GDP, would have a profound impact on the economy. We look for the economy to slow toward the end of third quarter, and expect the Fed to begin easing in the first quarter of 2007. As a point of reference, the average time between the last tightening of an interest rate cycle and the first ease of the next cycle has been nine months.

The yield curve has shifted higher across all maturities throughout the last six months as the Fed tightened. Additionally, interest rates (and stock markets) have been rising around the globe as other central banks have raised funding rates. This has led to a yield curve flattening in many markets. While increased geo-political issues (Iran, Venezuela) have increased the risk of longer maturity bonds, the global appetite for longer duration securities should keep longer dated Treasury yields from rising much further.

2

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Portfolio Strategy

Credit spreads tightened in three key sectors (residential, commercial and corporate credit) during 2006 despite signals of economic weakness, reflecting the huge global pool of funds that may be invested. Foreign buyers have continued to recycle U.S. dollars (from our large trade deficit) back into the financial markets (thereby keeping our interest rates relatively low).

The most significant yield spread tightening occurred in the commercial mortgage backed securities (CMBS) market. We had increased our CMBS allocation in February, with the idea that the strength in the business sector (versus some anticipated weakness in the consumer sector) would increase demand for office space, hotels and industrial space, which are some of the core components of the CMBS market. That view proved correct and BBB-rated CMBS bonds are 60 basis points tighter than at year-end. We remain fans of CMBS as those bonds are better insulated from many of the “shareholder friendly” corporate actions (e.g. MBO, share-buybacks, increase in leverage) that plagued the corporate credit sector.

We continue to position the Fund with an “up-in-credit” bias. Our AAA rated exposure remains in excess of 53%.

The Fund remains nearly fully leveraged (with a maximum of 50% of net assets by charter) to take advantage of the yield premium afforded by some of the mortgage-related credit sectors. We have kept some buying power in reserve should credit spreads widen.

The Fund’s exposure to increases in financing costs had been almost fully hedged (either through buying floaters or by using interest rate swaps) for the last year. In anticipation that the Fed is near the end of this tightening cycle, we have begun to leave some portion of the funding cost unhedged.

Similarly, given our view that longer maturity U.S Treasury interest rates are not likely to head much higher, we have extended the duration of the Fund slightly, to about 4.3 years. Over time, higher interest rates will cause some extension in duration of the underlying assets, although much less than what we expect in the Agency MBS market. Our intention is to manage the duration toward a target of 4.5 to 5.0 years during the summer.

3

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Conclusion

We remain committed to the Fund and its shareholders. As always, we will continue to actively seek 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,
CLIFFORD E. LAI President, The Hyperion Total Return Fund, Inc. President and Chief Executive Officer, Hyperion Brookfield Asset Management, Inc.
JOHN H. DOLAN Vice President, The Hyperion Total Return Fund, Inc. Chief Investment Officer, Hyperion Brookfield Asset Management, Inc.

4

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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments – (Unaudited)

											Principal
May 31, 2006					Interest						Amount				Value
					Rate				Maturity		(000s)				(Note 2)
U.S. GOVERNMENT & AGENCY OBLIGATIONS – 69.1%
U.S. Government Agency Collateralized Mortgage Obligations – 3.2%
	Federal Home Loan Mortgage Corporation
		Series 1675, Class KC				6.50	%		10/15/10		$	4,349	@		$	4,388,155
		Series 1587, Class SK				9.00	†		10/15/08			1,032				1,060,556
		Series 1604, Class MC				9.00	†		11/15/08			663				679,779
		Series 1604, Class SB				9.00	†		11/15/08			128				130,379
																6,258,869
	Federal National Mortgage Association
		Series 1997-79, Class PL				6.85			12/18/27			1,181				1,205,116
		Series 1998-W6, Class B3				7.09			10/25/28			1,329				1,174,527
		Series 1993-170, Class SC				9.00	†		09/25/08			68				70,866
		Series 1993-48, Class C				9.50			04/25/08			80				81,041
																2,531,550
Total U.S. Government Agency Collateralized Mortgage Obligations
			(Cost – $8,583,971)													8,790,419
U.S. Government Agency Pass-Through Certificates – 58.5%
	Federal Home Loan Mortgage Corporation
		Pool A16170				6.00			12/01/33			3,832	@			3,799,300
		Pool A17112				6.00			12/01/33			12,321	@			12,216,233
		Pool A24261				6.50			07/01/34			2,800				2,832,461
		Pool A25455				6.50			08/01/34			4,035	@			4,081,348
		Pool A13915				7.00			09/01/33			2,963				3,039,372
		Pool A17331				7.00			12/01/33			124				126,959
		Pool C53494				7.50			06/01/31			51				52,964
		Pool C56878				8.00			08/01/31			719				762,818
		Pool C58516				8.00			09/01/31			603				639,975
		Pool C59641				8.00			10/01/31			371				392,986
		Pool C55166				8.50			07/01/31			219				235,680
		Pool C55167				8.50			07/01/31			79				85,017
		Pool C55168				8.50			07/01/31			82				88,458
		Pool C55169				8.50			07/01/31			214				230,414
		Pool C60422				8.50			10/01/31			64				68,269
		Pool C60423				8.50			10/01/31			247				265,499
		Pool C60424				8.50			10/01/31			141				151,888
		Pool G01466				9.50			12/01/22			2,292				2,490,780
		Pool 555538				10.00			03/01/21			2,114				2,276,042
																33,836,463
	Federal National Mortgage Association
		TBA				6.00			07/01/26			18,000				17,758,116
		Pool 649881				6.00			09/01/32			3,068				3,039,963
		Pool 811125				6.00			02/01/35			3,602	@			3,560,608
		Pool 650162				6.50			10/01/32			2,364				2,391,520
		Pool 652870				6.50			10/01/32			2,182				2,207,525
		Pool 654917				6.50			08/01/32			5,737	@			5,804,036
		Pool 655843				6.50			09/01/32			2,552				2,581,143
		Pool 783828				6.50			07/01/34			1,599				1,614,139
		Pool 789949				6.50			07/01/34			4,592	@			4,635,744
		Pool 796005				6.50			09/01/34			8,009	@			8,084,917
		Pool 809240				6.50			01/01/35			2,862				2,888,705
		Pool 555933				7.00			06/01/32			10,263	@			10,539,766
		Pool 642102				7.00			05/01/32			2,668				2,737,490
		Pool 645406				7.00			05/01/32			1,993				2,044,539

See notes to financial statements.

5

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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments – (Unaudited)

											Principal
May 31, 2006					Interest						Amount				Value
					Rate				Maturity		(000s)				(Note 2)
U.S. GOVERNMENT & AGENCY OBLIGATIONS (continued)
		Pool 645912				7.00	%		06/01/32		$	2,123			$	2,178,049
		Pool 645913				7.00			06/01/32			2,076				2,130,559
		Pool 651588				7.00			07/01/32			662				678,958
		Pool 660181				7.00			10/01/32			604				619,587
		Pool 661116				7.00			10/01/32			908				931,358
		Pool 663372				7.00			10/01/32			357				366,172
		Pool 663874				7.00			10/01/32			895				917,915
		Pool 669474				7.00			11/01/32			725				744,195
		Pool 678012				7.00			08/01/32			2,067				2,121,515
		Pool 759505				7.00			01/01/34			2,786				2,855,322
		Pool 794759				7.00			10/01/34			2,968				3,041,849
		Pool 796481				7.00			08/01/34			2,592				2,656,051
		Pool 843773				7.00			12/01/35			1,543				1,581,552
		Pool 255053				7.50			12/01/33			769				797,185
		Pool 545990				7.50			04/01/31			3,818	@			3,964,126
		Pool 735576				7.50			11/01/34			4,730	@			4,912,442
		Pool 784369				7.50			07/01/13			589				589,920
		Pool 789284				7.50			05/01/17			1,158				1,191,021
		Pool 827853				7.50			10/01/29			978				1,016,219
		Pool 833602				7.50			11/01/35			3,912	@			4,056,998
		Pool 885034				7.50			05/01/36			3,183	@			3,284,449
		Pool 398800				8.00			06/01/12			1,181				1,225,398
		Pool 735800				8.00			01/01/35			2,779				2,952,873
		Pool 827855				8.50			10/01/29			1,991				2,141,578
		Pool 545436				9.00			10/01/31			1,407				1,536,144
		Pool 852865				9.00			07/01/20			3,011				3,255,603
		Pool 458132				9.45			03/15/31			3,523				3,852,886
																125,488,135
Total U.S. Government Agency Pass-Through Certificates
			(Cost – $163,531,056)													159,324,598
U.S. Treasury Obligations – 7.4%
	United States Treasury Notes
			(Cost – $20,657,967)			4.50			02/15/16			21,300	@			20,272,445
Total U.S. Government & Agency Obligations
			(Cost – $192,772,994)													188,387,462
ASSET-BACKED SECURITIES – 29.3%
Housing Related Asset-Backed Securities – 22.9%
	125 Home Loan Owner Trust
		Series 1998-1A, Class M2*(b)				7.75			02/15/29			450				449,761
	Access Financial Manufactured Housing Contract Trust
		Series 1995-1, Class B1				7.65			05/15/21			10,060				7,545,000
	Argent NIM Trust
		Series 2004-WN3, Class A*(b)				5.93			03/25/34			4				3,866
	Asset Backed Funding Corporation
		Series 2005-AQ1, Class B1*(e)				5.75/6.25			06/25/35			1,986				1,676,250
		Series 2005-AQ1, Class B2*(e)				5.75/6.25			06/25/35			2,087				1,733,132
																3,409,382

See notes to financial statements.

6

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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments – (Unaudited)

											Principal
May 31, 2006					Interest						Amount				Value
					Rate				Maturity		(000s)				(Note 2)
ASSET-BACKED SECURITIES (continued)
	First Franklin Mortgage Loan Trust
		Series 2004-FF8, Class B4*(d)				8.58	%†		10/25/34		$	2,500			$	2,340,057
		Series 2004-FFH2, Class B1*(d)				8.58	†		06/25/34			2,750				2,655,920
																4,995,977
	Green Tree Financial Corp.
		Series 1998-3, Class A6				6.76			03/01/30			3,752				3,694,729
		Series 1998-8, Class M1				6.98			09/01/30			5,000				2,350,000
		Series 1997-6, Class B1				7.17			01/15/29			7,153				1,215,977
		Series 1997-6, Class M1				7.21			01/15/29			6,100				4,636,000
		Series 1997-3, Class M1				7.53			03/15/28			4,500				2,812,500
		Series 1997-6, Class A9				7.55			01/15/29			2,476				2,560,550
		Series 1995-6, Class M1				8.10			09/15/26			8,650				8,823,778
																26,093,534
	Harborview Mortgage Loan Trust
		Series 2005-14, Class B4*(b)				5.52	†		12/19/35			1,180				975,112
		Series 2005-2, Class B4*(b)(d)				6.66	†		05/19/35			2,976				2,487,107
		Series 2005-1, Class B4*(b)(d)				6.83	†		03/19/35			1,264				1,077,702
		Series 2005-1, Class B5*(b)(d)				6.83	†		03/19/35			1,823				1,262,366
		Series 2005-1, Class B6*(b)(d)				6.83	†		03/19/35			2,287				457,476
																6,259,763
	Mid-State Trust
		Series 10, Class B				7.54			02/15/36			1,867				1,612,084
		Series 2004-1, Class M2				8.11			08/15/37			2,900				2,941,728
																4,553,812
	Structured Asset Investment Loan Trust
		Series 2004-11, Class M9(e)				5.00			01/25/35			3,775				3,552,060
		Series 2004-8, Class B1(d)				7.58	†		09/25/34			2,000				1,912,254
																5,464,314
	Structured Asset Securities Corporation
		Series 2005-6, Class B5				5.34	†		05/25/35			986				768,364
		Series 2005-6, Class B6				5.34	†		05/25/35			986				606,155
		Series 2005-6, Class B7				5.34	†		05/25/35			666				199,741
																1,574,260
	Vanderbilt Mortgage Finance, Inc. Series 2001-B, Class A5					6.96			09/07/31			2,000				2,029,962
Total Housing Related Asset-Backed Securities
			(Cost – $71,175,372)													62,379,631
Non-Housing Related Asset-Backed Securities – 2.1%
	Aerco Ltd.
		Series 2A, Class A3*(b)				5.54	†		07/15/25			3,339				2,888,292
	Airlines Pass Through Trust
		Series 1R, Class A8				5.46	†		03/15/19			2,846				2,724,952
	Global Rated Eligible Assets Trust
		Series 1998-A, Class A1				7.33			03/15/06			1,560				7,802
	Securitized Multiple Asset Rated Trust
		Series 1997-2, Class A(c)				8.24			03/15/06			2,265				11,325
Total Non-Housing Related Asset-Backed Securities
			(Cost – $5,044,246)													5,632,371

See notes to financial statements.

7

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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments – (Unaudited)

											Principal
May 31, 2006					Interest						Amount				Value
					Rate				Maturity		(000s)				(Note 2)
ASSET-BACKED SECURITIES (continued)
Franchise Securities – 0.2%
	FFCA Secured Lending Corp.
		Series 1998-1, Class A1B*(b)				6.73	%		10/18/25		$	215			$	214,824
	Franchisee Loan Receivable Trust
		Series 1995-B, Class A*				9.33	†		01/15/11			980				385,889
Total Franchise Securities
			(Cost – $1,199,939)													600,713
Collateralized Debt Obligations – 4.1%
	Anthracite CDO I Ltd.
		Series 2002-CIBA, Class CFL*(b)				6.33	†		05/24/37			5,000				5,238,085
	Apidos CDO
		Series 2005-2A, Class B*(b)				5.50	†		12/21/18			4,000				3,940,000
	Porter Square CDO I Limited
		Series 1A, Class C*(b)				8.63	†		08/15/38			2,000				2,055,000
Total Collateralized Debt Obligations
			(Cost – $10,916,787)													11,233,085
Total Asset-Backed Securities
			(Cost – $88,336,344)													79,845,800
COMMERCIAL MORTGAGE BACKED SECURITIES – 18.4%
	Bear Stearns Commercial Mortgage Securities
		Series 2006-PWR11, Class H*				5.63			03/11/39			1,700				1,560,348
		Series 1999-C1, Class D				6.53			02/14/31			5,000				5,082,550
																6,642,898
	CD 2006 CD2
		Series 2006-CD2, Class J*				5.47			01/11/46			1,000				915,732
	Commercial Mortgage Asset Trust
		Series 1999-C1, Class C				7.35			01/17/32			2,000				2,185,496
	Commercial Mortgage Lease-Backed Certificate
		Series 2001-CMLB, Class A1*(b)				6.75			06/20/31			1,912				1,970,703
	Credit Suisse First Boston Mortgage
		Series 2004-C5, Class J*(b)				4.65	†		11/15/37			1,000				854,129
	Credit Suisse Mortgage Capital Certificates
		Series 2006-C1, Class K*(b)				5.74			02/15/16			4,715				4,358,485
	First Chicago/ Lennar Trust
		Series 1997-CHL1, Class D*(b)				7.62	†		04/29/39			1,213				1,215,077
	GM Building Mezzanine Loan(g)					6.00			02/10/10			5,000				4,745,955
	JP Morgan Chase Commercial Mortgage Securities Corp.
		Series 2006-CIIBC, Class H*(b)				5.54			12/12/44			2,300				2,122,005
	JP Morgan Commercial Mortgage Finance Corp.
		Series 1999-C8, Class C				7.43	†		07/15/31			5,000	@			5,260,205
	LB-UBS Commercial Mortgage Trust
		Series 2002-C2, Class L*(b)				5.68			07/15/35			5,300				5,083,919
	Morgan Stanley Capital I
		Series 2006-TOP21, Class H*(b)				5.44			10/12/52			1,500				1,342,185
		Series 2006-IQ11, Class J*				5.53			06/15/42			256				210,640
																1,552,825

See notes to financial statements.

8

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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments – (Unaudited)

											Principal
May 31, 2006					Interest						Amount				Value
					Rate				Maturity		(000s)				(Note 2)
COMMERCIAL MORTGAGE BACKED SECURITIES (continued)
	Nationslink Funding Corp.
		Series 1998-2, Class F*(b)				7.11	%		08/20/30		$	4,840			$	5,003,640
	UBS 400 Atlantic Street Mortgage Trust
		Series 2002-C1A, Class B3*(b)				7.19			01/11/22			3,000				3,099,300
	Wachovia Bank Commercial Mortgage Trust
		Series 2005-C16, Class H*(b)				5.30	†		10/15/41			4,000				3,694,064
		Series 2004-WL4A, Class H*(b)				5.93	†		10/15/15			1,300				1,300,335
																4,994,399
Total Commercial Mortgage Backed Securities
			(Cost – $48,365,955)													50,004,768
NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES – 14.4%
Subordinated Collateralized Mortgage Obligations – 14.4%
	Banc of America Alternative Loan Trust
		Series 2004-3, Class 30B6				5.50			04/25/34			741				255,690
	Banc of America Funding Corporation
		Series 2003-3, Class B4				5.46	†		10/25/33			913				797,884
		Series 2003-3, Class B5				5.46	†		10/25/33			913				634,982
		Series 2003-3, Class B6				5.46	†		10/25/33			916				366,415
																1,799,281
	Banc of America Mortgage Securities, Inc.
		Series 2005-4, Class B4				5.50			05/25/35			543				441,091
		Series 2005-4, Class B5				5.50			05/25/35			407				257,599
		Series 2005-4, Class B6				5.50			05/25/35			272				91,100
		Series 2005-5, Class 30B4				5.50			06/25/35			793				641,872
		Series 2005-5, Class 30B5				5.50			06/25/35			595				373,344
		Series 2005-5, Class 30B6				5.50			06/25/35			596				199,513
		Series 2001-4, Class 1B3				6.75			04/20/31			1,653				1,651,616
																3,656,135
	Countrywide Home Loans
		Series 2003-57, Class B3				5.50			01/25/34			485				405,534
	First Horizon Mortgage Pass-Through Trust
		Series 2005-4, Class B5*(b)				5.45	†		07/25/35			423				257,951
		Series 2005-4, Class B6*(b)				5.45	†		07/25/35			424				125,028
		Series 2005-3, Class B5				5.50			06/25/35			340				209,810
		Series 2005-3, Class B6				5.50			06/25/35			341				100,452
																693,241
	First Republic Mortgage Loan Trust
		Series 2000-FRB1, Class B3				5.58	†		06/25/30			423				422,866
	G3 Mortgage Reinsurance Ltd.
		Series 1, Class E*(b)				25.08	†		05/25/08			5,569				6,063,669
	GMAC Mortgage Corp. Loan Trust
		Series 2003-J9, Class B1				5.50			01/25/34			870				682,858
		Series 2003-J9, Class B2				5.50			01/25/34			870				511,788
		Series 2003-J9, Class B3				5.50			01/25/34			851				217,041
																1,411,687

See notes to financial statements.

9

---

 

THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments – (Unaudited)

											Principal
May 31, 2006					Interest						Amount				Value
					Rate				Maturity		(000s)				(Note 2)
NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES (continued)
	JP Morgan Mortgage Trust
		Series 2003-A2, Class B4				4.55	%†		11/25/33		$	544			$	479,818
	Residential Finance Limited Partnership
		Series 2004-B, Class B5*(b)				6.63	†		02/10/36			3,458				3,493,059
		Series 2002-A, Class B7				10.78	†		10/10/34			2,831				2,845,548
																6,338,607
	Residential Funding Mortgage Securities I, Inc.
		Series 2004-S1, Class B1				5.25			02/25/34			597				491,009
		Series 2004-S1, Class B3				5.25			02/25/34			242				82,191
		Series 2003-S7, Class B2				5.50			05/25/33			671				446,247
		Series 2003-S7, Class B3(a)				5.50			05/25/33			958				368,660
																1,388,107
	Resix Finance Ltd. Credit-Linked Notes
		Series 2005-C, Class B7*(b)				8.18	†		09/10/37			3,964				3,949,311
		Series 2004-C, Class B7*(b)				8.58	†		09/10/36			1,465				1,480,228
		Series 2003-D, Class B7*(b)				10.83	†		12/10/35			1,915				1,952,523
		Series 2003-CB1, Class B8*(b)				11.83	†		06/10/35			1,904				1,964,929
		Series 2004-A, Class B10*(b)				16.58	†		02/10/36			847				872,154
																10,219,145
	Washington Mutual
		Series 2005-AR2, Class B11(d)				5.91	†		01/25/45			3,727				2,674,534
		Series 2005-AR2, Class B12(d)				5.91	†		01/25/45			3,256				586,096
																3,260,630
	Wells Fargo Mortgage Backed Securities Trust
		Series 2004-6, Class B4				5.50			06/25/34			1,764				1,489,428
		Series 2004-6, Class B5				5.50			06/25/34			1,059				729,823
		Series 2004-6, Class B6				5.50			06/25/34			706				268,167
		Series 2002-10, Class B6				6.00			06/25/32			475				334,877
																2,822,295
Total Subordinated Collateralized Mortgage Obligations
			(Cost – $39,002,031)													39,216,705
Total Non-Agency Residential Mortgage Backed Securities
			(Cost – $39,002,031)													39,216,705

Notional

Interest

Amount

Value

Rate

Maturity

(000s)

(Note 2)

INTEREST ONLY SECURITIES – 6.8%

Banc of America Commercial Mortgage Inc.

Series 2003-1, Class XP2*(b)(f)

1.40

%†

09/11/36

55,684

2,349,831

Bear Stearns Commercial Mortgage Securities

Series 2001-TOP2, Class X2*(b)(f)

1.07

†

02/15/35

74,184

1,551,335

COMM Commercial Mortgage Class 2001-J2A, Class EIO*(b)(f)

3.74

†

07/16/34

10,000

2,784,650

Commercial Capital Access One, Inc.

Series 2001-A, Class T1(f)

4.50

02/15/09

18,000

2,061,000

GMAC Commercial Mortgage Securities, Inc.

Series 2003-C1, Class X1*(b)(f)

0.23

†

05/10/36

85,031

3,437,823

GS Mortgage Securities Corp. II

Series 2001-ROCK, Class X1*(b)(f)

0.21

†

05/03/18

251,924

2,776,784

See notes to financial statements.

10

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THE HYPERION TOTAL RETURN FUND, INC.
Portfolio of Investments – (Unaudited)

Notional

May 31, 2006

Interest

Amount

Value

Rate

Maturity

(000s)

(Note 2)

INTEREST ONLY SECURITIES (continued)

Vendee Mortgage Trust

Series 1997-2, Class IO(f)

0.06

%†

06/15/27

$

42,022

$

75,640

Wachovia Bank Commercial Mortgage Trust

Series 2002-C2, Class IO1*(b)(f)

0.39

†

11/15/34

82,723

3,548,802

Total Interest Only Securities

(Cost – $17,876,834)

18,585,865

										Shares
COMMON STOCK – 1.3%
	Duke Realty Corp. (REIT)										11,583				393,127
	MFA Mortgage Investments Incorporated (REIT)										171,900				1,165,482
	Opteum Incorporated Class A (REIT)										107,200				904,768
	Sunset Financial Resources Incorporated (REIT)										115,000				967,150
Total Common Stock
		(Cost – $3,295,492)													3,430,527
PREFERRED STOCK – 1.1%
	Equity Office Properties Trust Series B, 5.25% (REIT)										46,012				2,354,894
	SL Green Realty Corp. Series C, 7.63% (REIT)										29,900				753,480
Total Preferred Stock
		(Cost – $2,725,533)													3,108,374

Principal

Interest

Amount

Value

Rate

Maturity

(000s)

(Note 2)

SHORT TERM INVESTMENTS – 0.8%

Federal Home Loan Bank Discount Notes

4.93

06/02/06

$

2,000

1,999,726

United States Treasury Bills

0

06/15/06

100

#

99,816

Total Short Term Investments

(Cost – $2,098,590)

2,099,542

Total Investments – 141.2%

(Cost – $394,473,773)

384,679,043

Liabilities in Excess of Other Assets – (41.2)%

(112,244,082

)

NET ASSETS – 100.0%

$

272,434,961

†		—		Variable Rate Security: Interest rate is the rate in effect May 31, 2006.
*		—		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)		—		This issue is currently making only partial interest payments.
(d)		—		Security is a “step up” bond where coupon increases or steps up at a predetermined date. At that date the coupon increases to LIBOR plus a predetermined margin.
(e)		—		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.

See notes to financial statements.

11

---

 

(f)		—		Interest rate is based on the notional amount of the underlying mortgage pools.
(g)		—		Represents investment in Mezzanine loans.
#		—		Portion or entire principal amount is held as collateral for open futures contracts (Note 7).
CDO		—		Collateralized Debt Obligation
REIT		—		Real Estate Investment Trust
TBA		—		Settlement is on a delayed delivery or when-issued basis with a final maturity To Be Announced.
@		—		Portion or entire principal amount delivered as collateral for reverse repurchase agreements (Note 5).

See notes to financial statements.

12

---

 

THE HYPERION TOTAL RETURN FUND, INC.
Statement of Assets and Liabilities – (Unaudited)
May 31, 2006

---

Assets:
	Investments in securities, at market (cost $389,659,805) (Note 2)			$	379,933,088
	Investments in Mezzanine loans (cost $4,813,968)				4,745,955
		Total Investments (cost $394,473,773)			384,679,043
	Cash				158,375
	Interest and dividends receivable				2,487,669
	Receivable for investments sold				17,847,562
	Principal paydowns receivable				48,657
	Prepaid expenses and other assets				94,873
	Receivable for variation margin				13,234
		Total assets			405,329,413
Liabilities:
	Reverse repurchase agreements (Note 5)				96,613,625
	Interest payable for reverse repurchase agreements (Note 5)				158,984
	Payable for investments purchased				35,890,572
	Unrealized depreciation on swap contracts (Note 7)				40,052
	Investment advisory fee payable (Note 3)				149,790
	Administration fee payable (Note 3)				41,429
		Total liabilities			132,894,452
Net Assets (equivalent to $8.84 per share based on 30,813,437 shares issued and outstanding)				$	272,434,961
Composition of Net Assets:
	Capital stock, at par value ($.01) (Note 6)			$	308,134
	Additional paid-in capital (Note 6)				300,883,422
	Accumulated undistributed net investment income				4,994,569
	Accumulated net realized loss				(23,913,816	)
	Net unrealized depreciation on investments, swaps contracts and futures				(9,837,348	)
	Net assets applicable to capital stock outstanding			$	272,434,961

See notes to financial statements.

13

---

 

THE HYPERION TOTAL RETURN FUND, INC.
Statement of Operations – (Unaudited)
May 31, 2006

---

Investment Income (Note 2):
	Interest				$	14,711,535
	Dividends					135,662
						14,847,197
Expenses:
	Investment advisory fee (Note 3)					885,643
	Administration fee (Note 3)					272,506
	Insurance					124,162
	Custodian					25,716
	Reports to shareholders					17,182
	Accounting and tax services					41,219
	Transfer agency					24,881
	Directors’ fees					37,417
	Legal					90,012
	Registration fees					15,567
	Miscellaneous					8,627
		Total operating expenses				1,542,932
			Interest expense on reverse repurchase agreements (Note 5)			2,307,805
		Total expenses				3,850,737
	Net investment income					10,996,460
Realized and Unrealized Gain (Loss) on Investments (Notes 2 and 7):
Net realized gain (loss) on:
	Investment transactions					217,943
	Swap contracts					437,462
	Futures transactions					614,677
Net realized gain on investment transactions, swap contracts and futures transactions						1,270,082
Net change in unrealized appreciation/depreciation on:
	Investments					(2,174,067	)
	Swap contracts					(337,445	)
	Futures					(437,593	)
Net change in unrealized depreciation on investments, swap contracts and futures						(2,949,105	)
Net realized and unrealized loss on investments, swap contracts and futures						(1,679,023	)
Net increase in net assets resulting from operations					$	9,317,437

See notes to financial statements.

14

---

 

THE HYPERION TOTAL RETURN FUND, INC.
Statement of Changes in Net Assets – (Unaudited)
May 31, 2006

---

				For the Six Months
				Ended				For the Year
				May 31, 2006				Ended
				(Unaudited)				November 30, 2005
Increase (Decrease) in Net Assets Resulting from Operations:
	Net investment income			$	10,996,460			$	24,314,343
	Net realized gain (loss) on investment transactions, swap contracts and futures transactions				1,270,082				(763,187	)
	Net change in unrealized depreciation on investments, swap contracts and futures				(2,949,105	)			(5,940,660	)
	Net increase in net assets resulting from operations				9,317,437				17,610,496
Dividends to Shareholders (Note 2):
	Net investment income				(11,092,837	)			(25,406,137	)
Capital Stock Transactions (Note 6):
	Net asset value of shares issued through dividend reinvestment (0 and 49,223 shares, respectively)				—				471,064
	Net increase from capital stock transactions				—				471,064
		Total decrease in net assets			(1,775,400	)			(7,324,577	)
Net Assets:
	Beginning of period				274,210,361				281,534,938
	End of period (including undistributed net investment income of $4,994,569 and $3,891,987, respectively)			$	272,434,961			$	274,210,361

See notes to financial statements.

15

---

 

THE HYPERION TOTAL RETURN FUND, INC.
Statement of Cash Flows – (Unaudited)
May 31, 2006

---

Increase (Decrease) in Cash:
	Cash flows provided by (used for) operating activities:
		Net increase in net assets resulting from operations			$	9,317,437
		Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:
			Purchases of long-term portfolio investments			(159,919,867	)
			Proceeds from disposition of long-term portfolio investments, principal paydowns, and securities sold short			160,947,717
			Purchase of short-term portfolio investments, net			274
			Increase in interest and dividends receivable			(134,294	)
			Increase in receivable for investments sold and paydowns			(17,789,706	)
			Increase in prepaid expenses and other assets			(64,647	)
			Decrease in variation margin receivable			14,422
			Increase in interest payable for reverse repurchase agreements			11,806
			Increase in payable for investments purchased			16,892,056
			Increase in investment advisory fee payable			2,869
			Increase in administration fee payable			883
			Decrease in accrued expenses and other liabilities			(8,263	)
			Net accretion on investments			(736,645	)
			Unrealized depreciation on investments			2,174,067
			Unrealized depreciation on swaps			337,445
			Net realized gain on investment transactions			(217,943	)
		Net cash provided by operating activities				10,827,611
	Cash flows provided by (used for) financing activities:
		Net cash used for reverse repurchase agreements				(108,271	)
		Dividends paid to shareholders, net of reinvestments				(11,092,837	)
		Net cash used for financing activities				(11,201,108	)
Net decrease in cash						(373,497	)
Cash at beginning of period						531,872
Cash at end of period					$	158,375

Interest payments for the six months ended May 31, 2006, totaled $2,295,999.

See notes to financial statements.

16

---

 

THE HYPERION TOTAL RETURN FUND, INC.
Financial Highlights

			For the
			Six Months
			Ended				For the Year Ended November 30,
			May 31, 2006
			(Unaudited)				2005				2004				2003				2002				2001
Per Share Operating Performance:
Net asset value, beginning of period			$	8.90			$	9.15			$	9.29			$	9.24			$	9.17			$	9.41
Net investment income				0.36				0.79				0.79				0.85				0.89				0.88
Net realized and unrealized gains (losses) on investments, short sales, futures and swap contracts				(0.06	)			(0.21	)			(0.03	)			0.10				0.08				0.26
Net increase in net asset value resulting from operations				0.30				0.58				0.76				0.95				0.97				1.14
Net effect of shares repurchased				—				—				—				—				—	*			—	*
Dividends from net investment income				(0.36	)			(0.83	)			(0.90	)			(0.90	)			(0.90	)			(0.87	)
Offering costs charged to additional paid-in- capital				—				—				—				—				—	*			(0.09	)
Dilutive effect of rights offering				—				—				—				—				—				(0.42	)
Net asset value, end of period			$	8.84			$	8.90			$	9.15			$	9.29			$	9.24			$	9.17
Market price, end of period			$	8.4500			$	8.2200			$	10.2900			$	10.1600			$	9.2800			$	8.5700
Total Investment Return+				7.21%	(1)			(12.63	)%			11.31%				20.43%				19.39%				13.13%	++
Ratios to Average Net Assets/ Supplementary Data:
Net assets, end of period (000’s)			$	272,435			$	274,210			$	281,535			$	285,149			$	282,568			$	280,106
Operating expenses				1.13%	(2)			1.08%				1.10%				1.15%				1.05%				1.11%
Interest expense				1.69%	(2)			1.41%				0.61%				0.47%				0.84%				1.22%
	Total expenses			2.82%	(2)			2.49%				1.71%				1.62%				1.89%				2.33%
Net investment income				8.07%	(2)			8.68%				8.55%				9.10%				9.62%				9.21%
Portfolio turnover rate				42%	(1)			43%				80%				89%				61%				43%

+	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.
(1)	Not Annualized
(2)	Annualized

See notes to financial statements.

17

---

 

The Hyperion Total Return Fund, Inc. (the “Fund”), which was incorporated under the laws of the State of Maryland on May 26, 1989, is registered under the Investment Company Act of 1940 (the “1940 Act”) as a diversified, closed-end management investment company.

The Fund’s investment objective is to provide a high total return, including short and long-term capital gains and a high level of current income, through the management of a portfolio of securities. No assurance can be given that the Fund’s investment objective will be achieved.

2.     Significant Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Valuation of Investments: Where market quotations are readily available, securities held by the Fund are valued based upon the current bid price, except preferred stocks, which are valued based upon the closing price. Securities may be valued by independent pricing services that have been approved by the Board of Directors. The prices provided by a pricing service take into account broker dealer market price quotations for institutional size trading in similar groups of securities, security quality, maturity, coupon and other security characteristics as well as any developments related to the specific securities. The Fund values mortgage-backed securities (“MBS”) and other debt securities for which market quotations are not readily available (approximately 27% of the investments in securities held by the Fund at May 31, 2006) at their fair value as determined in good faith, utilizing procedures approved by the Board of Directors of the Fund, on the basis of information provided by dealers in such securities. Some of the general factors which may be considered in determining fair value include the fundamental analytic data relating to the investment and an evaluation of the forces which influence the market in which these securities are purchased and sold. Determination of fair value involves subjective judgment, as the actual market value of a particular security can be established only by negotiations between the parties in a sales transaction. Debt securities having a remaining maturity of sixty days or less when purchased and debt securities originally purchased with maturities in excess of sixty days but which currently have maturities of sixty days or less are valued at amortized cost.

The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry or region. The values of MBS can be significantly affected by changes in interest rates or in the financial condition of an issuer or market.

Options Written or Purchased: The Fund may write or purchase options as a method of hedging potential declines in similar underlying securities. When the Fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Fund on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, also is treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether the Fund has realized a gain or a loss on the investment transaction.

The Fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option.

The Fund purchases or writes options to hedge against adverse market movements or fluctuations in value caused by changes in interest rates. The Fund bears the risk in purchasing an option, to the extent of the premium paid, that it will expire without being exercised. If this occurs, the option expires worthless and the premium paid for the option is recognized as a realized loss. The risk associated with writing call options is that the Fund may forego the opportunity for a profit if the market value of the underlying position increases and the option is exercised. The Fund will only write call options on positions held in its portfolio. The risk in writing a put option is that the Fund may incur a loss if the market value of the underlying position decreases and the option is exercised. In addition, the Fund bears the risk of not being able to enter into a closing transaction for written options as a result of an illiquid market.

18

---

 

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 daily based upon quotations from market makers and the change, if any, along with an accrual for periodic payments due or owed is recorded as unrealized gain or loss in the Statement of Operations. Net cash payments on interest rate swap agreements are included as part of realized gain/loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or that there may be unfavorable changes in the fluctuation of interest rates. See Note 7 for a summary of all open swap agreements as of May 31, 2006.

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, Hyperion Brookfield Asset Management, Inc. (formerly Hyperion Capital Management, Inc.) (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.

19

---

 

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. 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

Pursuant to a transaction whereby Brascan Financial (U.S.) Corporation purchased all stock ownership of the holding company indirectly owning the Advisor as described in the Proxy Statement to Stockholders dated March 18, 2005 (the “Transaction”) the Fund entered into an Investment Advisory Agreement (the “New Investment Advisory Agreement”) with the Advisor on April 28, 2005. The Advisor is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.65% of the Fund’s average weekly net assets. During the six months ended May, 31 2006, the Advisor earned $885,643 in investment advisory fees.

The Fund has entered into an Administration Agreement with Hyperion Brookfield Asset Management, Inc. (formerly 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. During the six months ended May, 31 2006, the Administrator earned $272,506 in administration fees. The administrator is responsible for any fees due the Sub-Administrator.

Certain officers and directors of the Fund are officers and/or directors of the Advisor or the Administrator.

4.     Purchases and Sales of Investments

Purchases and sales of investments, excluding short-term securities, U.S. Government securities, short sales and reverse repurchase agreements, for the six months ended May 31, 2006, were $14,471,291 and $40,128,740, respectively. Purchases and sales of U.S. Government securities, for the six months ended May 31, 2006 were $145,508,576 and $120,738,482, 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.

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5.     Borrowings

The Fund may enter into reverse repurchase agreements with the same parties with whom it may enter into repurchase agreements. Under a reverse repurchase agreement, the Fund sells securities and agrees to repurchase them at a mutually agreed upon date and price. Under the 1940 Act, reverse repurchase agreements will be regarded as a form of borrowing by the Fund unless, at the time it enters into a reverse repurchase agreement, it establishes and maintains a segregated account with its custodian containing securities from its portfolio having a value not less than the repurchase price (including accrued interest). The Fund has established and maintained such an account for each of its reverse repurchase agreements.

Reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision.

At May 31, 2006, the Fund had the following reverse repurchase agreements outstanding:

							Maturity
Face Value				Description			Amount
$	3,163,000			CS First Boston, 5.05%, dated 5/18/06, maturity date 6/19/06			$	3,177,198
	4,556,000			CS First Boston, 5.05%, dated 5/18/06, maturity date 6/19/06				4,576,451
	11,883,000			Goldman Sachs, 5.06%, dated 5/11/06, maturity date 6/15/06				11,941,458
	4,748,000			Greenwich Capital Markets, 5.05%, dated 5/23/06, maturity date 6/7/06				4,757,991
	7,857,000			Greenwich Capital Markets, 5.05%, dated 5/23/06, maturity date 6/7/06				7,873,532
	5,016,000			J.P. Morgan Chase, 5.13%, dated 5/22/06, maturity date 6/22/06				5,038,158
	4,260,000			Lehman Brothers, 5.07%, dated 5/23/06, maturity date 6/22/06				4,277,999
	10,222,000			Lehman Brothers, 5.05%, dated 5/24/06, maturity date 6/14/06				10,252,112
	5,635,000			Lehman Brothers, 5.07%, dated 5/23/06, maturity date 6/22/06				5,658,808
	3,967,000			Lehman Brothers, 5.07%, dated 5/23/06, maturity date 6/22/06				3,983,761
	3,683,000			Lehman Brothers, 5.07%, dated 5/24/06, maturity date 6/27/06				3,700,635
	9,587,500			Lehman Brothers, 4.65%, dated 5/25/06, maturity date 6/5/06				9,601,122
	10,862,125			Lehman Brothers, 4.55%, dated 5/22/06, maturity date 6/5/06				10,881,345
	3,934,000			Merrill Lynch, 5.06%, dated 5/11/06, maturity date 6/20/06				3,956,118
	3,840,000			Merrill Lynch, 5.06%, dated 5/11/06, maturity date 6/20/06				3,861,589
	3,400,000			Morgan Stanley, 5.05%, dated 5/17/06, maturity date 6/15/06				3,413,831
$	96,613,625
					Maturity Amount, Including Interest Payable		$	96,952,108
					Market Value of Assets Sold Under Agreements		$	98,860,771
					Weighted Average Interest Rate			4.96	%

The average daily balance of reverse repurchase agreements outstanding during the six months ended May 31, 2006, was approximately $102,485,516 at a weighted average interest rate of 4.50%. The maximum amount of reverse repurchase agreements outstanding at any time during the period was $115,125,044 as of January 17, 2006, which was 29.66% of total assets.

6.     Capital Stock

There are 50 million shares of $0.01 par value common stock authorized. Of the 30,813,437 shares outstanding at May 31, 2006, the Advisor owned 11,112 shares.

The Fund is continuing its stock repurchase program, whereby an amount of up to 15% of the original outstanding common stock, or approximately 3.7 million of the Fund’s shares, are authorized for repurchase. The purchase price may not exceed the then-current net asset value.

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For the six months ended May 31, 2006 and year ended November 30, 2005, no shares have been repurchased. All shares repurchased have been retired. Since inception of the stock repurchase program 2,089,740 shares have been repurchased pursuant to this program at a cost of $18,605,505 and at an average discount of 13.18% from its net asset value.

The Fund issued to its shareholders of records as of the close of business on August 27, 2001 transferable rights to subscribe for up to an aggregate 7,644,525 shares of common stock of the Fund at a rate of one share of common stock for 3 rights held at the subscription price $8.10 per share. During September 2001, the Fund issued, in total, 7,644,525 shares of Common Stock on exercise of such Rights. Rights offering costs of $515,977 and brokerage and deal-manager commissions of $2,322,025 were charged directly against the proceeds of the Offering. An adjustment of $16,696 related to such offering costs was credited to paid-in capital during the year ended November 30, 2002.

7.     Financial Instruments

The Fund regularly trades in financial instruments with off-balance sheet risk in the normal course of its investing activities to assist in managing exposure to various market risks. These financial instruments include written options, futures contracts and swap agreements and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and does not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. During the period, the Fund had segregated sufficient cash and/or securities to cover any commitments under these contracts.

There was no written option activity for the six months ended May 31, 2006.

As of May 31, 2006, the following swap agreement was outstanding:

Expiration

Net Unrealized

Notional Amount

Date

Description

Depreciation

$

2,500,000

09/11/42

Agreement with Bear Stearns, dated 11/02/05 to receive monthly the notional amount multiplied by 2.100% and to pay only in the event of a write down, failure to pay a principal payment or an interest shortfall on BSCMS 05-PWR9K.

$

(40,052

)

As of May 31, 2006, the following futures contracts were outstanding:

Long:

																		Unrealized
Notional										Cost at				Value at				Appreciation/
Amount				Type				Expiration Date		Trade Date				May 31, 2006				(Depreciation)
$	15,000,000			5 Yr. U.S. Treasury Note				September 2006		$	15,598,782			$	15,541,406			$	(57,376	)

Short:

Unrealized

Notional

Cost at

Value at

Appreciation/

Amount

Type

Expiration Date

Trade Date

May 31, 2006

(Depreciation)

$

16,300,000

10 Yr. U.S Treasury Note

September 2006

$

17,157,075

$

17,102,265

$

54,810

8.     Federal Income Tax Information

The below information is based upon financial data and book/tax differences as of May 31, 2006. As a result, the amounts provided may change based upon year-end information.

Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles.

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At May 31, 2006, the tax character of the $11,092,837 of distributions paid was entirely from ordinary income. During the year ended November 30, 2005, the tax character of the $25,406,137 of distributions paid was also entirely from ordinary income.

At May 31, 2006, the components of net assets (excluding paid-in-capital) on a tax basis were as follows:

Undistributed Tax Ordinary Income			$	4,999,089
	Accumulated capital loss			(23,916,382	)
Tax basis unrealized depreciation				(9,839,302	)
	Total		$	(28,756,595	)

The differences between book and tax basis unrealized appreciation/(depreciation) is primarily attributable to the mark-to-market of futures and differing treatment of swap interest income (expense) for tax purposes.

Federal Income Tax Basis: The federal income tax basis of the Fund’s investments at May 31, 2006 was $394,473,773. Net unrealized depreciation was $9,794,730 (gross unrealized appreciation — $6,755,545; gross unrealized depreciation — $16,550,275). At May 31, 2006, the Fund had a capital loss carryforward of $23,916,382, of which $4,541,146 expires as of November 30, 2007, $3,003,624 expires as of November 30, 2008, $8,349,330 expires as of November 30, 2009, $3,566,846 expires as of November 30, 2010, $3,587,094 expires as of November 30, 2013, and $868,342 expires as of November 30, 2014, available to offset any future gains, to the extent provided by regulations.

Capital Account Reclassification: At May 31, 2006, the Fund’s undistributed net investment income was increased by $1,364,584 with an offsetting increase in accumulated net realized loss. These adjustments were primarily the result of current period paydown reclassifications and swap interest income (expense) reclassifications.

9.     Subsequent Events

Dividend: The Fund’s Board of Directors declared the following regular monthly dividends:

Dividend				Record				Payable
Per Share				Date				Date
$	0.060				06/13/06				06/29/06
$	0.060				07/18/06				07/27/06

10.     Contractual Obligations

The Fund enters into contracts that contain a variety of indemnification. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

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On May 17, 2006, the Fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the Fund’s principal executive officer certified that he was not aware, as of that date, of any violation by the Fund of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund’s principal executive and principal financial officers have made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things, the Fund’s disclosure controls and procedures and internal control over financial reporting, as applicable.

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PROXY RESULTS (Unaudited)

During the six months ended May 31 2006, The Hyperion Total Return Fund, Inc. shareholders voted on the following proposals at a shareholders’ meeting on April 18, 2006. 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

Robert F. Birch:

27,815,894

0

468,177

Shares Voted

Shares Voted

Shares Voted

for

Against

Abstain

2. To elect to the Fund’s Board of Directors

Stuart A. McFarland:

27,812,647

0

471,424

Shares Voted

Shares Voted

Shares Voted

For

Against

Abstain

3. To elect to the Fund’s Board of Directors

Louis P. Salvatore:

27,782,138

0

501,933

25

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		Position(s) Held with				Number of
		Fund and Term of		Principal Occupation(s) During Past 5 Years		Portfolios in Fund
Name, Address		Office and Length of		and		Complex Overseen
and Age		Time Served		Other Directorships Held by Director		by Director
Disinterested Director Class II Director to serve until 2007 Annual Meeting of Stockholders:
Rodman L. Drake c/o Three World Financial Center, 200 Vesey Street, 10th Floor, New York, New York 10281-1010 Age 63		Chairman Elected December 2003 Director since July 1989, Member of the Audit Committee, Chairman of Nominating and Compensation Committee Elected for Three Year Term		Chairman (since 2003) and Director of several investment companies advised by the Advisor or by its affiliates (1989-Present); Director of Crystal River Capital, Inc. (2005-Present); Director of Celgene Corporation (“CELG”) (April 2006-Present); Director of Student Loan Corporation (“STU”) (2005-Present); General Partner of Resource Capital Fund I, II & III CIP L.P. (1998-Present); Co-founder of Baringo Capital LLC (2002-Present); Director of Jackson Hewitt Tax Services Inc. (“JTX”) (2004-Present); Director of Animal Medical Center (2002-Present); Director and/or Lead Director of Parsons Brinckerhoff, Inc. (1995-Present); Trustee of Excelsior Funds (33) (1994-Present).			4
Disinterested Directors Class I Directors to serve until 2009 Annual Meeting of Stockholders:
Robert F. Birch c/o Three World Financial Center, 200 Vesey Street, 10th Floor, New York, New York 10281-1010 Age 70		Director since December 1998, Member of the Audit Committee, Member of Nominating and Compensation Committee, Member of Executive Committee Elected for Three Year Term		Director of several investment companies advised by the Advisor or by its affiliates (1998- Present); Director and President of New America High Income Fund (1992-Present); Director of Brandywine Funds (3) (2001 to Present).			4
Stuart A. McFarland c/o Three World Financial Center, 200 Vesey Street, 10th Floor, New York, New York 10281-1010 Age 59		Director since April 2006, Member of the Audit Committee, Member of Nominating and Compensation Committee Elected for Three Year Term		Director of Brandywine Funds (2003-Present); Director of New Castle Investment Corp. (2000-Present); Chairman and Chief Executive Officer of Federal City Bancorp, Inc. (2005- Present); Managing Partner of Federal City Capital Advisors (1997-Present).			2

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		Position(s) Held with				Number of
		Fund and Term of		Principal Occupation(s) During Past 5 Years		Portfolios in Fund
Name, Address		Office and Length of		and		Complex Overseen
and Age		Time Served		Other Directorships Held by Director		by Director
Interested Director Class III Director to serve until 2008 Annual Meeting of Stockholders:
Clifford E. Lai* c/o Three World Financial Center, 200 Vesey Street, 10th Floor, New York, New York 10281-1010 Age 53		Director since December 2003 Member of Executive Committee Elected for Three Year Term		Managing Partner (2005-Present), President (1998-Present) and Chief Investment Officer (1993-2002) of the Advisor; President and Director of Crystal River Capital, Inc. (2005- Present); President and Director of several investment companies advised by the Advisor (1995-Present); Co-Chairman (2003-2006) and Board of Managers (1995-2006) of Hyperion-GMAC Capital Advisors, LLC (formerly Lend Lease Hyperion Capital, LLC).			4
Disinterested Director Class III Director to serve until 2008 Annual Meeting of Stockholders:
Louis P. Salvatore c/o Three World Financial Center, 200 Vesey Street, 10th Floor, New York, New York 10281-1010 Age 59		Director since September 2005, Chairman of the Audit Committee, Member of Compensation and Nominating Committee Elected for Two Year Term		Director of several investment companies advised by the Advisor or by its affiliates (2005- Present); Director of Crystal River Capital, Inc. (2005-Present); Director of Turner Corp. (2003-Present); Director of Jackson Hewitt Tax Services, Inc. (“JTX”) (2004-Present); Director of Professional Services Insurance Company Limited (2002-Present); Employee of Arthur Andersen LLP (2002-Present); Partner of Arthur Andersen LLP (1977-2002).			2

*	Interested person as defined by the Investment Company Act of 1940 (the “1940 Act”) because of affiliations with Hyperion Brookfield Asset Management, Inc., the Fund’s Advisor.

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Officers of the Fund

		Position(s)		Term of Office and		Principal Occupation(s)
Name, Address and Age		Held with Fund		Length of Time Served		During Past 5 Years
Clifford E. Lai* c/o Three World Financial Center, 200 Vesey Street, 10th floor, New York, New York 10281-1010 Age 53		President		Elected Annually Since April 1993		Please see “Information Concerning Directors.”
John Dolan* c/o Three World Financial Center, 200 Vesey Street, 10th floor, New York, New York 10281-1010 Age 52		Vice President		Elected Annually Since March 1998		Managing Partner (2005-Present), Chief Investment Strategist (1998-Present) and Chief Investment Officer (2002-Present) of the Advisor; Chief Investment Officer of Crystal River Capital, Inc. (2005-Present); Board of Managers (1995-2006) of Hyperion-GMAC Capital Advisors, LLC (formerly Lend Lease Hyperion Capital, LLC).
Daniel S. Kim* c/o Three World Financial Center, 200 Vesey Street, 10th floor, New York, New York 10281-1010 Age 38		Chief Compliance Officer (“CCO”) & Secretary		Elected Annually CCO Since September 2004 and Secretary Since January 2005		Director, General Counsel and CCO (2004- Present), and Secretary (2005-Present) of the Adviser; Secretary (2005-Present) and CCO (2004-Present) of several investment companies advised by the Advisor; Assistant Secretary of Crystal River Capital, Inc (2005-Present); Secretary (2005-2006) and CCO (2004-2006) of Hyperion GMAC Capital Advisors, LLC; Vice President, Assistant General Counsel and CCO of Oak Hill Capital Management, Inc. (2001-2004) and Assistant General Counsel of Oak Hill Advisors, LP (2000-2004).
Thomas F. Doodian* c/o Three World Financial Center, 200 Vesey Street, 10th floor, New York, New York 10281-1010 Age 47		Treasurer		Elected Annually Since February 1998		Managing Director, Chief Operating Officer (1998-Present) and Chief Financial Officer (2000-Present) of the Advisor (1995-Present); Treasurer of several investment companies advised by the Advisor (1996-Present); Treasurer of Hyperion GMAC Capital Advisors, LLC (formerly, Lend Lease Hyperion Capital Advisors, LLC) (1996-2006).

*	Interested person as defined by the Investment Company Act of 1940 (the “1940 Act”) because of affiliations with Hyperion Brookfield Asset Management, Inc., the Fund’s Advisor.

The Fund’s Statement of Additional Information includes additional information about the directors and is available, without charge, upon request by calling 1-800-497-3746

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DIVIDEND REINVESTMENT PLAN

A Dividend Reinvestment Plan (the “Plan”) is available to shareholders of the Fund pursuant to which they may elect to have all distributions of dividends and capital gains automatically reinvested by American Stock Transfer & 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.

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SUB-ADMINISTRATOR


STATE STREET BANK and TRUST COMPANY
2 Avenue De Lafayette
Lafayette Corporate Center
Boston, Massachusetts 02116

CUSTODIAN AND FUND ACCOUNTING AGENT


STATE STREET BANK and TRUST COMPANY
2 Avenue De Lafayette
Lafayette Corporate Center
Boston, Massachusetts 02116

TRANSFER AGENT


AMERICAN STOCK TRANSFER & TRUST
COMPANY
Investor Relations Department
59 Maiden Lane
New York, NY 10038
For Shareholder Services:
1 (800) 937-5449

INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM


BRIGGS, BUNTING & DOUGHERTY, LLP
Two Penn Center, Suite 820
Philadelphia, Pennsylvania 19102

LEGAL COUNSEL


SULLIVAN & WORCESTER LLP
1666 K Street, NW
Washington, D.C. 20006

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that periodically the Fund may purchase its shares in the open market at prevailing market prices.

Quarterly Portfolio Schedule: The Fund will file Form N-Q with the Securities and Exchange Commission for the first and third quarters of each fiscal year. The Fund’s Forms N-Q will be available on the Securities and Exchange Commission’s website at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Securities and Exchange Commission’s Public Reference Room in Washington, D.C. and information on the operation of the Public Reference Room may be obtained by calling 1 (800) SEC-0330. Once filed, the most recent Form N-Q will be available without charge, upon request, by calling 1 (800) HYPERION or on the Fund’s website at http://www.hyperionbrookfield.com.

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1 (800) 497-3746 and on the Securities and Exchange Commission’s website at http://www.sec.gov.

Proxy Voting Record

The Fund has filed with the Securities and Exchange Commission its proxy voting record for the 12-month period ending June 30 on Form N-PX. Once filed, the most recent Form N-PX will be available without charge, upon request, by calling 1 (800) 497-3746 or on the Securities and Exchange Commission’s website at http://www.sec.gov.

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	Rodman L. Drake* Chairman Robert F. Birch* Director Stuart A. McFarland* Director Louis P. Salvatore* Director Clifford E. Lai Director and President John Dolan Vice President Thomas F. Doodian Treasurer Daniel Kim CCO and Secretary
	* Audit Committee Members
	The financial information included herein is taken from records of the Fund without audit by the Fund’s independent auditors, who do not express an opinion thereon.

This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Fund shares.

The Hyperion Total Return Fund, Inc.

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