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
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The Hyperion Strategic Mortgage Income Fund, Inc.
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(Exact name of registrant as specified in charter)
One Liberty Plaza, 165 Broadway, 36th Fl., New York, NY 10006-1404
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(Address of principal executive offices) (Zip code)
Thomas F. Doodian One Liberty Plaza, 165 Broadway, New York, NY 10006-1404
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-549-8400
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Date of fiscal year end: November 30, 2004
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Date of reporting period: August 31, 2004
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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
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THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2004
Principal
Interest Amount
Rage Maturity (000s) Value
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U.S. GOVERNMENT & AGENCY OBLIGATIONS - 50.6%
U.S. GOVERNMENT AGENCY PASS-THROUGH CERTIFICATES - 50.6%
Federal Home Loan Mortgage Corporation
Pool C68878 ............................................ 7.00% 06/01/32 $ 621 # $ 662,620
Pool C69047 ............................................ 7.00 06/01/32 1,625 1,735,392
Pool G01466 ............................................ 9.50 12/01/22 2,068 2,328,913
Pool 555538 ............................................ 10.00 03/01/21 1,866 @ 2,080,679
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6,807,604
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Federal National Mortgage Association
Pool 694391 ............................................ 5.50 03/01/33 5,207 @ 5,301,687
Pool 753914 ............................................ 5.50 12/01/33 12,532 @ 12,760,777
Pool 754355 ............................................ 6.00 12/01/33 9,496 @ 9,849,709
Pool 761836 ............................................ 6.00 06/01/33 6,880 @ 7,137,360
Pool 763643 ............................................ 6.00 01/01/34 9,301 @ 9,647,429
Pool 323982 ............................................ 6.50 10/01/06 711 728,715
Pool 626299 ............................................ 7.00 06/01/32 1,058 1,130,246
Pool 635095 ............................................ 7.00 06/01/32 1,525 1,628,810
Pool 641575 ............................................ 7.00 04/01/32 722 771,355
Pool 645399 ............................................ 7.00 05/01/32 3,383 @ 3,613,562
Pool 645466 ............................................ 7.00 05/01/32 3,746 @ 4,001,609
Pool 650131 ............................................ 7.00 07/01/32 1,999 @ 2,135,467
Pool 398800 ............................................ 8.00 06/01/12 1,030 1,104,232
Pool 636449 ............................................ 8.50 04/01/32 4,623 @ 5,011,385
Pool 458132 ............................................ 9.41+ 03/15/31 2,900 @ 3,250,374
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68,072,717
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TOTAL U.S. GOVERNMENT AGENCY PASS -THROUGH CERTIFICATES
(Cost - $74,148,343) ................................. 74,880,321
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TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost - $74,148,343) ................................. 74,880,321
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ASSET-BACKED SECURITIES - 26.0%
HOUSING RELATED ASSET-BACKED SECURITIES - 26.0%
Argent Securities, Inc.
Series 2004-W3, Class M5*(a) ........................... 3.91+ 02/25/34 1,200 920,987
Asset Backed Funding Corp.
Series 2003-OPT1, Class M4(a) .......................... 4.41+ 07/25/32 3,000 3,086,337
Equity One ABS, Inc.
Series 2003-4, Class B2................................. 6.36+ 11/25/33 1,000 1,010,006
First Franklin Mortgage Loan Asset Backed Certificates
Series 2004-FF4, Class M2(a) ........................... 2.87+ 06/25/34 2,000 1,999,940
Series 2003-FF4, Class M4(a) ........................... 4.51+ 10/25/33 3,000 3,098,853
Series 2003-FF1, Class M4(a) ........................... 4.61+ 03/25/33 2,000 2,037,504
Series 2003-FFH1, Class M4(a) .......................... 5.11+ 09/25/33 4,740 4,961,415
Series 2004-FFH1, Class B*(a) .......................... 5.11+ 03/25/34 1,550 1,337,687
Series 2004-FFH2C, Class B1*(a) ........................ 5.11+ 06/25/34 1,250 1,043,685
Series 2004-FF2, Class B*(a) ........................... 5.11+ 03/25/34 900 775,736
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15,254,820
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Green Tree Financial Corp.
Series 1997-6, Class B1 ................................ 7.17 01/15/29 5,000 1,000,000
Long Beach Mortgage Loan Trust
Series 2004-3, Class M9(a) ............................. 4.61+ 07/25/34 2,500 2,437,140
Series 2002-5, Class M3(a) ............................. 4.86+ 11/25/32 2,500 2,549,655
Series 2004-1, Class M9(a) ............................. 5.11+ 02/25/34 4,500 4,488,169
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9,474,964
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THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2004
Principal
Interest Amount
Rage Maturity (000s) Value
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Mid-State Trust
Series 2004-1, Class M2 .............................. 8.11% 08/15/37 $ 1,956 $ 1,991,611
Structured Asset Investment Loan Trust
Series 2003-BC8, Class M2(a) ......................... 3.37+ 08/25/33 3,000 3,042,996
Series 2004-7, Class B(a) ............................ 4.11+ 08/25/34 2,161 1,828,924
Series 2004-2, Class B*(a) ........................... 4.61+ 03/25/34 1,074 947,860
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5,819,780
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TOTAL HOUSING RELATED ASSET-BACKED SECURITIES
(Cost - $38,564,966) ......................... 38,558,505
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TOTAL ASSET-BACKED SECURITIES
(Cost - $38,564,966) ......................... 38,558,505
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COMMERCIAL MORTGAGE BACKED SECURITIES - 27.3%
Bear Stearns Commercial Mortgage Securities
Series 1999-C1, Class G* ............................. 5.64 02/14/31 2,390 1,630,233
Series 1999-C1, Class D .............................. 6.53 02/14/31 2,500 2,749,925
Series 2000-WF1, Class E ............................. 8.16+ 02/15/32 2,000 2,326,620
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6,706,778
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Chase Commercial Mortgage Securities Corp.
Series 2000-2, Class I* .............................. 6.65 07/15/32 1,000 606,950
GE Capital Commercial Mortgage Corp.
Series 2002-2A, Class G* ............................. 6.04 08/11/36 3,000 3,180,672
Series 2000-1, Class G* .............................. 6.13 01/15/33 1,000 731,600
Series 2002-2A, Class H* ............................. 6.31 08/11/36 2,000 2,120,458
Series 2000-1, Class E ............................... 7.43+ 01/15/33 1,000 1,089,260
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7,121,990
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Government Lease Trust
Series 1999-C1A, Class B3* ........................... 4.00 05/18/11 2,500 2,310,430
JP Morgan Chase Commercial Mortgage Securities
Series 2003-LN1, Class G* ............................ 5.65+ 10/15/37 1,600 1,627,200
JP Morgan Commercial Mortgage Finance Corp.
Series 1999-C7, Class F* ............................. 6.00 10/15/35 2,000 1,985,092
Morgan Stanley Capital I
Series 1999-WF1, Class E ............................. 7.19+ 11/15/31 5,500 6,079,144
Series 1999-FNV1, Class E ............................ 7.71+ 03/15/31 2,000 2,234,860
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8,314,004
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Morgan Stanley Dean Witter Capital I
Series 2001-TOP1, Class A4 ........................... 6.66 02/15/33 4,500 5,062,869
Nationslink Funding Corp.
Series 1998-2, Class E ............................... 7.11 08/20/30 4,000 4,415,568
UBS 400 Atlantic Street Mortgage Trust
Series 2002-C1A, Class B3* ........................... 7.19 01/11/22 2,000 2,234,960
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TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES
(Cost - $39,314,450) ......................... 40,385,841
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NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES - 36.7%
SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS - 36.7%
ABN AMRO Mortgage Corp.
Series 2002-7, Class B2 .............................. 6.20+ 09/25/32 1,053 1,056,872
Bank of America Alternative Loan Trust
Series 2004-3, Class 30B4 ............................ 5.50 04/25/34 1,012 807,353
Series 2004-3, Class 30B5 ............................ 5.50 04/25/34 708 396,419
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1,203,772
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THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2004
Principal
Interest Amount
Rage Maturity (000s) Value
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Bank of America Mortgage Securities, Inc.
Series 2004-A, Class B4 .............................. 3.95+% 02/25/34 $ 2,067 $ 1,773,576
Series 2002-H, Class B4 .............................. 4.70+ 08/25/32 281 272,182
Series 2002-H, Class B5 .............................. 4.70+ 08/25/32 188 174,737
Series 2002-H, Class B6 .............................. 4.70+ 08/25/32 470 366,321
Series 2002-I, Class B4 .............................. 4.74+ 08/25/32 485 481,909
Series 2003-10, Class 1B4 ............................ 5.50 01/25/34 567 493,643
Series 2002-10, Class 1B3 ............................ 6.00 11/25/32 1,468 1,458,624
Series 2002-8, Class 1B1 ............................. 6.25 08/25/32 7,261 7,250,197
Series 2002-8, Class 1B4* ............................ 6.25 08/25/32 1,076 1,069,955
Series 2002-8, Class 1B5* ............................ 6.25 08/25/32 806 773,554
Series 2002-8, Class 1B6* ............................ 6.25 08/25/32 807 484,361
Series 2002-9, Class 1B3 ............................. 6.25 10/25/32 1,761 1,794,823
Series 2002-9, Class 1B4 ............................. 6.25 10/25/32 1,174 1,168,781
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17,562,663
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Cendant Mortgage Corp.
Series 2002-4, Class B1 .............................. 6.50 07/25/32 2,633 2,684,012
Series 2002-4, Class B2 .............................. 6.50 07/25/32 1,053 1,063,187
Series 2002-4, Class B3 .............................. 6.50 07/25/32 614 610,896
Series 2002-4, Class B4 .............................. 6.50 07/25/32 351 342,548
Series 2002-4, Class B5 .............................. 6.50 07/25/32 263 229,462
Series 2002-4, Class B6* ............................. 6.50 07/25/32 351 228,172
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5,158,277
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Citicorp Mortgage Securities, Inc.
Series 2002-8, Class B1 .............................. 6.29+ 07/25/32 3,542 3,537,129
Series 2002-8, Class B2 .............................. 6.29+ 07/25/32 1,541 1,539,001
Series 2002-8, Class B3 .............................. 6.29+ 07/25/32 770 768,529
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5,844,659
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G3 Mortgage Reinsurance Ltd.
Series 1, Class E* ................................... 21.62+ 05/25/08 4,198 4,512,518
Residential Finance Limited Partnership
Series 2002-A, Class B5* ............................. 3.92+ 10/10/34 1,955 1,979,848
Series 2002-A, Class B7 .............................. 7.27+ 10/10/34 1,968 2,019,195
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3,999,043
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Residential Funding Mortgage Securities I, Inc.
Series 2004-S1, Class B2 ............................. 5.25 02/25/34 459 286,202
Series 2003-S7, Class B3 ............................. 5.50 05/25/33 325 216,961
Series 2003-S7, Class B2 ............................. 5.50 05/25/33 537 187,987
Series 2002-S10, Class B1* ........................... 6.50 07/25/32 702 704,745
Series 2002-S10, Class B2* ........................... 6.50 07/25/32 527 492,994
Series 2002-S10, Class B3* ........................... 6.50 07/25/32 527 263,455
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2,152,344
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Resix Finance Limited Credit-Linked Note
Series 2004-B, Class B8* ............................. 6.32+ 02/10/36 813 813,160
Series 2004-B, Class B9* ............................. 9.82+ 02/10/36 1,246 1,245,641
Series 2004-A, Class B10* ............................ 13.10+ 02/10/36 497 508,794
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2,567,595
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Structured Asset Mortgage Investments, Inc.
Series 2002-AR1, Class B4 ............................ 4.44+ 03/25/32 1,000 950,699
Washington Mutual Mortgage Securities Corp.
Series 2002-AR12, Class B4 ........................... 4.71+ 10/25/32 1,295 1,258,173
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THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS - (UNAUDITED)
August 31, 2004
Principal
Interest Amount
Rage Maturity (000s) Value
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Series 2002-AR12, Class B5 ........................... 4.71+% 10/25/32 $ 972 $ 910,421
Series 2002-AR12, Class B6 ........................... 4.71+ 10/25/32 1,621 1,134,680
Series 2002-AR10, Class B4* .......................... 4.99+ 10/25/32 1,493 1,458,126
Series 2002-AR10, Class B5* .......................... 4.99+ 10/25/32 1,119 1,055,094
Series 2002-AR10, Class B6* .......................... 4.99+ 10/25/32 1,868 1,307,396
Series 2002-AR11, Class B5 ........................... 5.14+ 10/25/32 891 851,507
Series 2002-AR11, Class B6 ........................... 5.14+ 10/25/32 1,485 1,090,752
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9,066,149
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Wells Fargo Mortgage Backed Securities Trust
Series 2002, Class B5 ................................ 6.00 06/25/32 366 335,063
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TOTAL SUBORDINATED COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost - $51,158,427) ......................... 54,409,654
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TOTAL NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES
(Cost - $51,158,427) ......................... 54,409,654
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TOTAL INVESTMENTS - 140.6%
(Cost - $203,186,186)** ...................... 208,234,321
LIABILITIES IN EXCESS OF OTHER ASSETS - (40.6)% .............. (60,174,769)
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NET ASSETS - 100.0% .......................................... $148,059,552
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@ Portion or entire principal amount delivered as collateral for
reverse repurchase agreement.
+ - Variable Rate Security: Interest rate is the rate in effect
August 31, 2004.
* - 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) - 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
# - Portion or entire principal amount is held as collateral for
open futures contracts.
** - At August 31, 2004, the aggregate cost of investments for income
tax purposes was $203,186,186. Net unrealized appreciation
aggregated $5,048,135 of which $6,658,323 related to appreciated
investment securities and $1,610,188 related to depreciated
investment securities.
See notes to financial statements.
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THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (UNAUDITED)
August 31, 2004
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At August 31, 2004 the Fund had the following reverse repurchase agreements
outstanding:
Maturity
Face Value Description Amount
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$ 5,088,000 Morgan Stanley 1.62%, dated 08/23/04, maturity date 09/23/04 $ 5,095,098
2,070,000 Morgan Stanley 1.63%, dated 08/27/04, maturity date 09/29/04 2,073,083
12,369,000 Morgan Stanley 1.58%, dated 08/27/04, maturity date 09/07/04 12,374,971
1,988,000 Morgan Stanley 1.60%, dated 08/30/04, maturity date 09/07/04 1,988,707
3,473,000 Merrill Lynch, 1.63%, dated 08/23/04, maturity date 09/23/04 3,477,875
9,300,000 Merrill Lynch, 1.63%, dated 08/23/04, maturity date 09/23/04 9,313,054
3,859,000 Lehman Brothers 1.61%, dated 08/23/04, maturity date 09/08/04 3,861,761
3,171,000 Lehman Brothers 1.61%, dated 08/23/04, maturity date 09/08/04 3,173,269
4,858,000 Lehman Brothers 1.61%, dated 08/26/04, maturity date 09/28/04 4,865,170
6,906,000 Goldman Sachs 1.59%, dated 08/19/04, maturity date 09/23/04 6,916,676
9,529,000 Goldman Sachs 1.59%, dated 08/19/04, maturity date 09/23/04 9,543,730
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$ 62,611,000
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Maturity Amount, Including Interest Payable $62,683,394
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Market Value of Assets Sold Under Agreements $64,790,038
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Weighted Average Interest Rate 1.60%
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The average daily balance of reverse repurchase agreements outstanding during
the nine months ended August 31, 2004, was approximately $60,977,429 at a
weighted average interest rate of 1.18%. The maximum amount of reverse
repurchase agreements outstanding at any time during the period was $75,036,958
as of February 11, 2004, which was 33.62% of total assets.
As of August 31, 2004, the following swap agreements were outstanding:
Net
Expiration Unrealized
Notional Amount Date Description Appreciation
--------------- ---------- ------------------------------------------------------------------ ------------
$10,000,000 01/23/06 Agreement with Goldman Sachs Capital Markets, LP, dated 01/21/04 $ 63,767
to pay semi-annually the notional amount multiplied by 2.005% and
to receive quarterly the notional amount multiplied by 3 month
USD-LIBOR-BBA.
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$ 63,767
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THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (UNAUDITED)
August 31, 2004
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As of August 31, 2004, the following futures contract was outstanding:
SHORT:
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Unrealized
Cost at Value at Appreciation/
Notional Amount Type Expiration Date Trade Date August 31, 2004 (Depreciation)
--------------- ------------------------ --------------- ---------- --------------- --------------
$1,500,000 5 Yr. U.S. Treasury Note September 2004 $1,613,208 $1,672,500 $ (59,292)
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 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Clifford E. Lai
Clifford E. Lai
Principal Executive Officer
Date: October 28, 2004
By: /s/ Thomas F. Doodian
Thomas F. Doodian
Treasurer and Principal Financial Officer
Date: October 28, 2004