UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21102
------------
The Hyperion Strategic Mortgage Income Fund, Inc.
---------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Liberty Plaza, 165 Broadway, 36th Fl., New York, NY 10006-1404
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Thomas F. Doodian One Liberty Plaza, 165 Broadway, New York, NY 10006-1404
---------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-549-8400
--------------------
Date of fiscal year end: November 30, 2005
--------------------------
Date of reporting period: August 31, 2005
-----------------------
Form N-Q is to be used by management investment companies, other than
small business investment companies registered on Form N-5 (Sections 239.24 and
274.5 of this chapter), to file reports with the Commission, not later than 60
days after the close of the first and third fiscal quarters, pursuant to rule
30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The
Commission may use the information provided on Form N-Q in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-Q, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-Q
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to the Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
Item 1. Schedule of Investments
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2005
Principal
Interest Amount
Rate Maturity (000s) Value
--------- ---------- --------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 67.2%
U.S. GOVERNMENT AGENCY PASS -THROUGH CERTIFICATES - 60.2%
Federal Home Loan Mortgage Corporation
Pool A14559 6.50% 09/01/33 $ 2,377 $ 2,458,944
Pool C68878 7.00 06/01/32 503 526,697
Pool C69047 7.00 06/01/32 1,137 1,190,068
Pool G01466 9.50 12/01/22 1,472 1,622,013
Pool 555559 10.00 03/01/21 1,571 1,766,335
-------------
7,564,057
-------------
Federal National Mortgage Association
Pool 694391 5.50 03/01/33 4,116 @ 4,161,657
Pool 753914 5.50 12/01/33 10,084 @ 10,196,724
Pool 754355 6.00 12/01/33 6,626 @ 6,788,523
Pool 761836 6.00 06/01/33 3,906 4,001,764
Pool 763643 6.00 01/01/34 8,093 @ 8,285,348
Pool 255413 6.50 10/01/34 10,619 @ 10,974,880
Pool 323982 6.50 10/01/06 409 413,488
Pool 795367 6.50 09/01/34 5,483 5,666,637
Pool 809989 6.50 03/01/35 4,955 @ 5,121,194
Pool 626299 7.00 06/01/32 602 631,665
Pool 635095 7.00 06/01/32 1,018 1,067,728
Pool 641575 7.00 04/01/32 519 544,055
Pool 645399 7.00 05/01/32 2,843 @ 2,982,183
Pool 645466 7.00 05/01/32 2,691 @ 2,822,050
Pool 650131 7.00 07/01/32 1,587 1,664,637
Pool 398800 8.00 06/01/12 752 804,089
Pool 827854 8.00 10/01/29 3,219 3,451,302
Pool 636449 8.50 04/01/32 2,479 2,697,880
Pool 823757 8.50 10/01/29 4,816 5,253,523
Pool 458132 9.41 03/15/31 2,064 2,273,289
-------------
79,802,616
-------------
TOTAL U.S. GOVERNMENT AGENCY PASS -THROUGH CERTIFICATES
(Cost - $87,789,784) 87,366,673
-------------
U.S. TREASURY OBLIGATIONS - 7.0%
United States Treasury Notes
4.00 02/15/15 1,173 1,169,563
4.25 11/15/14 8,800 @ 8,945,060
TOTAL U.S. TREASURY OBLIGATIONS
(Cost - $10,014,441) 10,114,623
-------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $97,804,225) 97,481,296
-------------
ASSET-BACKED SECURITIES - 26.1%
HOUSING RELATED ASSET-BACKED SECURITIES - 24.3%
Asset Backed Funding Certificates
Series 2005-AQ1, Class B1*(b) 5.75/6.25 06/25/35 993 864,681
Series 2005-AQ1, Class B2*(b) 5.75/6.25 06/25/35 1,050 874,676
-------------
1,739,357
-------------
Bank of America Funding Corp.
Series 2005-2, Class B4* 5.66+ 04/25/35 877 785,379
Series 2005-2, Class B5* 5.66+ 04/25/35 702 472,894
Series 2005-2, Class B6* 5.66+ 04/25/35 528 175,029
-------------
1,433,302
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2005
Principal
Interest Amount
Rate Maturity (000s) Value
--------- ---------- --------- -------------
Equity One ABS, Inc.
Series 2003-4, Class B2 8.39%+ 11/25/33 $ 139 $ 139,789
First Franklin Mortgage Loan Asset Backed Certificates
Series 2003-FFH1, Class M4(a) 7.14+ 09/25/33 4,740 4,875,697
Series 2004-FFH1, Class B*(a) 7.14+ 03/25/34 1,550 1,477,079
Series 2004-FF2, Class B*(a) 7.14+ 03/25/34 900 864,217
Series 2004-FFH2C, Class B1*(a) 7.14+ 06/25/34 1,250 1,175,862
Series 2004-FF8, Class B4*(a) 7.14+ 10/25/34 1,250 1,141,616
-------------
9,534,471
-------------
Green Tree Financial Corp.
Series 1997-3, Class M1 7.53 03/15/28 2,000 1,160,000
Series 1995-6, Class M1 8.10 09/15/26 4,325 4,571,395
-------------
5,731,395
-------------
Harborview Mortgage Loan Trust
Series 2005-1, Class B4*(a) 5.34+ 03/19/35 629 537,005
Series 2005-1, Class B5*(a) 5.34+ 03/19/35 914 594,371
Series 2005-1, Class B6*(a) 5.34+ 03/19/35 1,144 257,337
Series 2005-2, Class B4*(a) 5.34+ 05/19/35 1,488 1,258,761
-------------
2,647,474
-------------
Long Beach Mortgage Loan Trust
Series 2002-5, Class M3(a) 6.89+ 11/25/32 2,500 2,519,610
Mid-State Trust
Series 2004-1, Class M2 8.11 08/15/37 1,644 1,669,169
Structured Asset Investment Loan Trust
Series 2004-4, Class B*(b) 5.00/5.50 04/25/34 1,500 1,308,953
Series 2004-11, Class M9(b) 5.00/5.50 01/25/35 1,900 1,815,824
Series 2004-7, Class B(a) 6.14+ 08/25/34 2,161 1,921,765
Series 2004-8, Class B1(a) 6.14+ 09/25/34 1,000 952,541
Series 2004-10, Class M7(a) 6.14+ 11/25/34 2,000 2,015,606
Series 2004-2, Class B*(a) 6.64+ 03/25/34 1,074 974,854
-------------
8,989,543
-------------
Structured Asset Securities Corporation
Series 2005-6, Class B5 5.34+ 05/25/35 498 433,897
Series 2005-6, Class B6 5.34+ 05/25/35 498 330,793
Series 2005-6, Class B7 5.34+ 05/25/35 349 108,058
-------------
872,748
-------------
TOTAL HOUSING RELATED ASSET-BACKED SECURITIES
(Cost - $35,163,605) 35,276,858
-------------
NON-HOUSING RELATED ASSET- BACKED SECURITIES - 1.8%
Airplanes Pass Through Trust
Series 1R, Class A8
(Cost - $2,421,227) 3.95+ 03/15/19 2,805 2,636,690
-------------
TOTAL ASSET-BACKED SECURITIES
(Cost - $37,584,832) 37,913,548
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES - 18.7%
Bear Stearns Commercial Mortgage Securities
Series 1999-C1, Class D 6.53 02/14/31 2,500 2,759,275
Series 2000-WF1, Class E 8.14+ 02/15/32 2,000 2,252,380
-------------
5,011,655
-------------
Chase Commercial Mortgage Securities Corp.
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2005
Principal
Interest Amount
Rate Maturity (000s) Value
--------- ---------- --------- -------------
Series 2000-2, Class I* 6.65% 07/15/32 $ 1,000 $ 631,257
GE Capital Commercial Mortgage Corp.
Series 2002-2A, Class G* 6.04 08/11/36 3,000 3,129,750
Series 2000-1, Class G* 6.13 01/15/33 1,000 252,900
Series 2002-2A, Class H* 6.31 08/11/36 2,000 2,075,634
Series 2000-1, Class E 7.44+ 01/15/33 1,000 1,081,070
-------------
6,539,354
-------------
JP Morgan Chase Commercial Mortgage Securities
Series 2003-LN1, Class G* 5.65+ 10/15/37 1,600 1,636,870
JP Morgan Commercial Mortgage Finance Corp.
Series 1999-C7, Class F* 6.00 10/15/35 2,000 2,047,660
Morgan Stanley Capital I
Series 1999-FNV1, Class E 7.72+ 03/15/31 2,000 2,168,000
Nationslink Funding Corp.
Series 1998-2, Class E 7.11 08/20/30 4,000 4,315,656
UBS 400 Atlantic Street Mortgage Trust
Series 2002-C1A, Class B3* 7.19 01/11/22 2,000 2,201,600
Wachovia Bank Commercial Mortgage Trust
Series 2004-WL4A, Class H* 4.42+ 10/15/15 700 700,268
Series 2005-C16, Class H* 5.48+ 10/15/41 2,000 1,937,256
-------------
2,637,524
-------------
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES
(Cost - $26,953,906) 27,189,576
-------------
NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES - 26.3%
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS - 26.3%
Bank of America Alternative Loan Trust
Series 2004-3, Class 30B4 5.50 04/25/34 999 846,555
Series 2004-3, Class 30B5 5.50 04/25/34 699 440,283
-------------
1,286,838
-------------
Bank of America Mortgage Securities, Inc.
Series 2004-A, Class B4 3.92+ 02/25/34 2,047 1,894,538
Series 2002-H, Class B4 4.71+ 08/25/32 184 178,910
Series 2002-H, Class B5 4.71+ 08/25/32 122 121,982
Series 2002-H, Class B6 4.71+ 08/25/32 306 284,152
Series 2003-10, Class 1B4 5.50 01/25/34 560 523,945
Series 2002-10, Class 1B3 6.00 11/25/32 1,448 1,451,561
Series 2002-9, Class 1B3 6.25 10/25/32 1,737 1,731,420
Series 2002-9, Class 1B4 6.25 10/25/32 1,158 1,154,404
-------------
7,340,912
-------------
Cendant Mortgage Corp.
Series 2002-4, Class B1 6.50 07/25/32 2,594 2,592,112
Series 2002-4, Class B2 6.50 07/25/32 1,038 1,036,488
Series 2002-4, Class B3 6.50 07/25/32 605 609,458
Series 2002-4, Class B4 6.50 07/25/32 346 335,334
Series 2002-4, Class B5 6.50 07/25/32 259 244,135
Series 2002-4, Class B6* 6.50 07/25/32 346 276,710
-------------
5,094,237
-------------
First Horizon Alternative Mortgage Securities
Series 2005-AA6, Class B4 5.50+ 08/25/35 850 754,421
Series 2005-AA6, Class B5 5.50+ 08/25/35 800 568,932
Series 2005-AA6, Class B6 5.50+ 08/25/35 500 159,952
-------------
$ 1,483,305
-------------
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2005
Principal
Interest Amount Value
Rate Maturity (000s) (Note 2)
--------- ---------- --------- -------------
First Horizon Mortgage Pass-Through Trust
Series 2005-4, Class B4* 5.45%+ 07/25/35 $ 428 377,598
Series 2005-3, Class B4 5.50 06/25/35 458 404,869
-------------
782,467
-------------
G3 Mortgage Reinsurance Ltd.
Series 1, Class E* 23.60+ 05/25/08 4,244 4,695,202
JP Morgan Mortgage Trust
Series 2003-A1, Class B4 4.49+ 10/25/33 536 471,801
Residential Finance Limited Partnership
Series 2002-A, Class B7 9.27+ 10/10/34 1,931 1,972,149
Residential Funding Mortgage Securities I, Inc.
Series 2004-S1, Class B2 5.25 02/25/34 453 302,204
Series 2003-S7, Class B3 5.50 05/25/33 321 245,830
Series 2003-S7, Class B2 5.50 05/25/33 529 223,376
-------------
771,410
-------------
Resix Finance Limited Credit-Linked Note
Series 2004-C, Class B7* 7.07+ 09/10/36 988 1,008,691
Series 2004-B, Class B8* 8.32+ 02/10/36 801 825,076
Series 2003-CB1, Class B8* 10.30+ 06/10/35 967 1,010,061
Series 2004-B, Class B9* 11.80+ 02/10/36 1,227 1,276,173
Series 2004-A, Class B10* 15.10+ 02/10/36 490 509,653
-------------
4,629,654
-------------
Structured Asset Mortgage Investments, Inc.
Series 2002-AR1, Class B4 5.14+ 03/25/32 726 712,478
Washington Mutual Mortgage Securities Corp.
Series 2002-AR12, Class B4 4.68+ 10/25/32 1,006 977,955
Series 2002-AR12, Class B5 4.68+ 10/25/32 755 720,275
Series 2002-AR12, Class B6 4.68+ 10/25/32 1,259 931,606
Series 2005-AR2, Class B10(a) 4.75+ 01/25/45 1,793 1,443,134
Series 2002-AR10, Class B4* 4.96+ 10/25/32 1,144 1,115,857
Series 2002-AR10, Class B5* 4.96+ 10/25/32 858 814,335
Series 2002-AR10, Class B6* 4.96+ 10/25/32 1,431 1,058,975
Series 2002-AR11, Class B5 5.13+ 10/25/32 694 687,205
Series 2002-AR11, Class B6 5.13+ 10/25/32 1,156 813,781
-------------
8,563,123
-------------
Wells Fargo Mortgage Backed Securities Trust
Series 2002, Class B5 6.00 06/25/32 361 331,537
-------------
TOTAL SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $36,081,848) 38,135,113
-------------
TOTAL NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES
(Cost - $36,081,848) 38,135,113
-------------
GOVERNMENT AND AGENCY SECURITIES - 1.4%
SHORT TERM INVESTMENTS - 1.4%
Federal Home Loan Bank Consolidated Discount Note
(Cost - $1,999,083) 3.32 09/06/05 1,999 1,999,083
-------------
TOTAL INVESTMENTS - 139.7%
(Cost - $200,423,894) 202,718,616
LIABILITIES IN EXCESS OF OTHER ASSETS - (39.7)% 57,659,397
-------------
NET ASSETS - 100.0% $ 145,059,219
=============
See notes to financial statements.
@ - Portion or entire principal amount delivered as collateral for reverse
repurchase agreements.
+ - Variable Rate Security: Interest rate is the rate in effect August 31,
2005.
* - 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.
# - Portion or entire principal amount is held as collateral for open
futures contracts.
(a) - Security is a "step up" bond where coupon increases or steps up at a
predetermined date. At that date these coupons increase to LIBOR plus a
predetermined margin
(b) - 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.
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
August 31, 2005
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 29% of the
investments in securities held by the Fund at August 31, 2005) 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.
Reverse Repurchase agreements: 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 August 31, 2005, the Fund had the following reverse repurchase agreements
outstanding:
MATURITY
FACE VALUE DESCRIPTION AMOUNT
----------- ---------------------------------------------------------------------- -----------
$ 2,928,000 CS First Boston 3.59%, dated 08/16/05, maturity date 09/21/05 $ 2,938,512
10,635,000 Goldman Sachs 3.58%, dated 08/08/05, maturity date 09/07/05 10,666,728
6,567,000 Goldman Sachs 3.60%, dated 08/29/05, maturity date 09/07/05 6,572,910
9,853,000 Lehman Brothers 3.56%, dated 08/17/05, maturity date 09/15/05 9,881,256
8,844,000 Lehman Brothers 3.45%, dated 08/25/05, maturity date 09/08/05 8,855,866
4,020,000 Morgan Stanley 3.58%, dated 08/16/05, maturity date 09/20/05 4,033,992
2,832,000 Morgan Stanley 3.60%, dated 08/30/05, maturity date 09/08/05 2,834,549
8,043,000 Wachovia Capital Markets 3.59%, dated 08/17/05, maturity date 09/19/05 8,069,468
4,980,000 Wachovia Capital Markets 3.59%, dated 08/18/05, maturity date 09/19/05 4,995,892
----------- -----------
$58,702,000
===========
Maturity Amount, Including Interest Payable $58,849,173
-----------
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
August 31, 2005
Market Value of Assets Sold Under Agreements $60,277,617
-----------
Weighted Average Interest Rate 3.56%
-----------
The average daily balance of reverse repurchase agreements outstanding during
the three months ended August 31, 2005, was approximately $73,721,489 at a
weighted average interest rate of 3.28%. The maximum amount of reverse
repurchase agreements outstanding at any time during the period was $72,964,960
as of June 10, 2005, which was 33.02% of total assets.
Swap agreements: The Fund may enter into interest rate swap agreements to manage
its exposure to interest rates. Interest rate swap agreements involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. The Fund will usually
enter into interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. Swaps are marked to market based upon quotations
from market makers and the change, if any, along with an accrual for periodic
payments due or owed is recorded as unrealized gain or loss in the Statement of
Operations. Net payments of interest on interest rate swap agreements are
included as part of 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.
As of August 31, 2005, the following swap agreements were outstanding:
NET UNREALIZED
EXPIRATION APPRECIATION/
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
--------------- ---------- ------------------------------------------------------- --------------
11,000,000 12/15/14 Agreement with Morgan Stanley Capital Services, Inc., (76,944)
dated 12/13/04 to pay semi-annually the notional amount
multiplied by 4.555% and to receive quarterly the
notional amount multiplied by 3 month USD-LIBOR-BBA.
--------------
$ (76,944)
==============
Item 2. Controls and Procedures.
(a) The Registrant's principal executive officer and principal financial
officer have concluded that the Registrant's Disclosure Controls and
Procedures are effective, based on their evaluation of such
Disclosure Controls and Procedures as of a date within 90 days of the
filing of this report on Form N-Q.
(b) As of the date of filing this Form N-Q, the Registrant's principal
executive officer and principal financial officer are aware of no
changes in the Registrant's internal control over financial reporting
that occurred during the Registrant's last fiscal quarter that has
materially affected or is reasonably likely to materially affect the
Registrant's internal control over financial reporting.
Item 3. Exhibits
(a) Certifications for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2(a)
under the Act. Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
By: /s/ Clifford E. Lai
Clifford E. Lai
Principal Executive Officer
Date: October 31, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Clifford E. Lai
Clifford E. Lai
Principal Executive Officer
Date: October 31, 2005
By: /s/ Thomas F. Doodian
Thomas F. Doodian
Treasurer and Principal Financial Officer
Date: October 31, 2005