UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02363
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Cornerstone Total Return Fund, Inc.
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(Exact name of registrant as specified in charter)
383 Madison Avenue, New York, NY 10179
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(Address of principal executive offices) (Zip code)
Jodi B. Levine
383 Madison Avenue, New York, NY 10179
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(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 272-2889
---------------------
Date of fiscal year end: December 31, 2005
------------------------------
Date of reporting period: January 1, 2005 -
June 30, 2005
----------------------------
Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
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 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. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
William A. Clark Director and Vice President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Gary A. Bentz Chief Compliance Officer
Thomas R. Westle Secretary
Jodi B. Levine Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock Transfer &
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 10038
INDEPENDENT REGISTERED
ADMINISTRATOR PUBLIC ACCOUNTING FIRM
Bear Stearns Funds Tait, Weller & Baker
Management Inc. 1818 Market Street
383 Madison Avenue Suite 2400
New York, NY 10179 Philadelphia, 19103 PA
CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Blank Rome LLP
101 Carnegie Center 405 Lexington Avenue
Princeton, NJ 08540 New York, NY 10174
EXECUTIVE OFFICES
383 Madison Avenue
New York, NY 10179
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (212) 272-3550.
LOGO
AMERICAN
STOCK EXCHANGE(r)
LISTED
CRF (tm)
================================================================================
CORNERSTONE TOTAL
RETURN FUND, INC.
JUNE 30, 2005
This update contains the following two documents:
o Letter from the Fund's President
o Semi-Annual Report to Shareholders
================================================================================
LETTER FROM THE FUND'S PRESIDENT
July 29, 2005
Dear Fellow Shareholders:
We present the following semi-annual report for Cornerstone Total Return Fund,
Inc. (the "Fund"), covering the six months ended June 30, 2005. At the end of
the period, the Fund's net assets were $55.6 million. The Net Asset Value
("NAV") per share was $11.39 and the share price closed at $15.70. After
reflecting the reinvestment of monthly distributions (some of which may be
classified as a return-of-capital after year-end) totaling $1.06 per share, the
Fund achieved a total investment return at market value of (4.43)% for the six
months ended June 30, 2005.
CREATING VALUE
The Fund, under the leadership of the Board of Directors, has made substantial
progress in creating value for its shareholders. A continuing effort to reduce
expenses held the overall expense ratio for the period to an annualized rate of
1.47%. As you are aware, the Fund instituted a monthly distribution policy
designed to provide significant flexibility to all of the Fund's shareholders.
From shareholder comments, we believe the continuity of these distributions has
broad support and has contributed significantly to the Fund's performance.
We hold the belief that, over the long-run, a well-managed, diversified equity
portfolio provides the best risk/reward tradeoff for many investors. Long-term
equity returns are generally found to be higher than those with fixed-income or
balanced programs and favorable tax treatment on capital gains makes the net
returns even better for taxable investors. The Fund's distribution policy
recognizes that many investors are willing to accept the potentially higher
asset volatility in this approach but would prefer that stable distributions
were available to them each year to either reinvest or receive cash. Shortly
after the end of the year, it is determined what portion of these distributions
is attributable to income, capital gains, or return-of-capital. It is important
for shareholders to consult their tax advisor on proper recognition of the
return-of-capital distributions with regard to the cost basis of their shares.
All shareholders have the option to receive their distributions in cash or
shares of the Fund and may change this election whenever they wish. It is the
goal of the Fund to have its long-term investment returns exceed the level of
distributions, but there is no guarantee that this goal will be met. If the
amount of distributions taken in cash exceeds the total investment returns of
the Fund, the assets of the Fund will decline. If the total investment return of
the Fund exceeds the amount of cash distributions, the assets of the Fund will
increase. Shareholders may find that recent changes in the Fund's Dividend
Reinvestment Plan make it even more beneficial for them. We encourage you to
consider the reinvestment option for your distributions from the Fund.
ECONOMIC AND MARKET SUMMARY
Following its strength in 2004, the pace of growth has lessened and U.S. equity
markets were held to modest losses for the first six months of 2005. Business
activity has been negatively affected by the significant run-up in oil prices,
the less accommodative monetary signals from the Federal Reserve, and the
challenging situation in Iraq. On the other hand, inflation remains benign,
unemployment declined, and spending by consumers and businesses continued to
increase, albeit more slowly than at the end of 2004.
================================================================================
i
LETTER FROM THE FUND'S PRESIDENT (CONCLUDED)
Therefore, in spite of the pressures, the economy, as measured by the Gross
Domestic Product, performed fairly well with a solid 3.8% annual growth rate in
the first quarter followed by 3.4% estimate for the second quarter.
Even though short-term interest rates have risen, their slow and steady increase
has constricted growth without slamming on the economic brakes. In fact,
long-term rates were seemingly unaffected by the short-term rate rise as the
10-year Treasury fell below 4.00% at the end of the period and helped fuel
further strength in the homebuilders. Most analysts see at least a pause, if not
a finish, to further tightening later this year.
In addition to existing risk factors, China's recent revaluation of its currency
represents additional uncertainty. Although the initial moves are modest, they
have great potential to change the face of international commerce and
relationships.
OUTLOOK
The Fund's portfolio continues to be broadly diversified in the U.S. large-cap
equity market and we believe that it is well-positioned to take advantage of the
current economic environment. Performance in the Fund's portfolio showed
strength in Energy and Utility issues but weakness in most other areas. The
Investment Manager attempts to enhance portfolio performance by profiting from
temporary and occasional pricing inefficiencies in certain securities. The
availability and magnitude of such opportunities are unpredictable and
therefore, their effect on possible portfolio out-performance may vary
considerably from year to year.
We expect continued strength in the economy and in the prospects for measured
growth in the financial markets. The Fund's Board of Directors, its officers,
and its Investment Manager realize that the Fund's shareholders have placed
their trust in us. We know you have a choice, we appreciate your support, and we
look forward to continuing our service to you in the future.
Sincerely,
/s/RALPH W. BRADSHAW
--------------------
Ralph W. Bradshaw
President
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
THIS LETTER FROM THE FUND'S PRESIDENT IS NOT A PART OF THE SEMI-ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS.
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ii
================================================================================
CORNERSTONE TOTAL
RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2005
================================================================================
CONTENTS
Portfolio Summary 1
Summary Schedule of Investments 2
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
Results of Annual Meeting of Stockholders 11
Description of Dividend Reinvestment Plan 12
Investment Management Agreement Approval Disclosure 14
Proxy Voting and Portfolio Holdings Information 15
Privacy Policy Notice 15
Summary of General Information 16
Shareholder Information 16
================================================================================
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CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2005 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Financials 19.0
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Information Technology 14.6
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Consumer Discretionary 12.6
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Healthcare 11.4
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Industrials 10.7
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Consumer Staples 8.1
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Energy 7.4
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Closed-End Domestic Funds 7.3
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Telecommunication Services 3.0
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Utilities 2.9
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Materials 2.3
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Other 0.7
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Exxon Mobil Corp. Energy 3.7
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2. General Electric Co. Industrials 3.6
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3. Tri-Continental Corp. Closed-End Domestic Funds 3.5
--------------------------------------------------------------------------------
4. Citigroup Inc. Financials 2.4
--------------------------------------------------------------------------------
5. Microsoft Corp. Information Technology 2.3
--------------------------------------------------------------------------------
6. Johnson & Johnson Healthcare 2.1
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7. Pfizer Inc. Healthcare 2.1
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8. American International Group, Inc. Financials 1.6
--------------------------------------------------------------------------------
9. Zweig Fund, Inc. Closed-End Domestic Funds 1.6
--------------------------------------------------------------------------------
10. Intel Corp. Information Technology 1.5
--------------------------------------------------------------------------------
================================================================================
1
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.57%
UNITED STATES - 98.86%
CLOSED-END DOMESTIC FUNDS - 7.29%
Adams Express Co. 41,800 $ 537,966
Boulder Total Return Fund, Inc. 18,900 322,056
Dreman/Claymore Dividend & Income Fund 15,000 284,400
Tri-Continental Corp. 109,000 1,941,290
Zweig Fund, Inc. 165,900 887,565
Other Closed-End Domestic Funds (a) 80,000
-----------
4,053,277
-----------
CONSUMER DISCRETIONARY - 11.93%
Carnival Corp. 5,300 289,115
Home Depot, Inc. (The) 12,300 478,470
Time Warner Inc. + 25,500 426,105
Viacom Inc., non-voting Class B 9,000 288,180
Wal-Mart Stores, Inc. 13,000 626,600
Walt Disney Co. (The) 11,700 294,606
Other Consumer Discretionary (a) 4,230,719
-----------
6,633,795
-----------
CONSUMER STAPLES - 8.09%
Altria Group, Inc. 10,700 691,862
Coca-Cola Co. (The) 13,500 563,625
PepsiCo, Inc. 7,500 404,475
Procter & Gamble Co. (The) 15,000 791,250
Other Consumer Staples (a) 2,051,840
-----------
4,503,052
-----------
ENERGY - 7.39%
ChevronTexaco Corp. 7,604 425,216
Exxon Mobil Corp. 36,000 2,068,920
Other Energy (a) 1,614,599
-----------
4,108,735
-----------
FINANCIALS - 19.00%
Allstate Corp. (The) 5,200 310,700
American Express Company 6,100 324,703
American International Group, Inc. 15,331 890,731
No. of
Description Shares Value
--------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
Bank of America Corp. 18,240 $ 831,926
Citigroup Inc. 28,600 1,322,178
Fannie Mae 5,700 332,880
Goldman Sachs Group, Inc. (The) 3,000 306,060
JPMorgan Chase & Co. 12,700 448,564
Morgan Stanley 6,200 325,314
Wachovia Corp. 8,100 401,760
Wells Fargo & Co. 9,000 554,220
Other Financials (a) 4,521,514
-----------
10,570,550
-----------
HEALTHCARE - 11.41%
Amgen Inc. + 8,300 501,818
Johnson & Johnson 18,200 1,183,000
Medtronic, Inc. 7,100 367,709
Pfizer Inc. 42,460 1,171,047
UnitedHealth Group Inc. 10,000 521,400
Wyeth 7,500 333,750
Other Healthcare (a) 2,267,232
-----------
6,345,956
-----------
INDUSTRIALS - 10.67%
General Electric Co. 58,000 2,009,700
Other Industrials (a) 3,924,076
-----------
5,933,776
-----------
INFORMATION TECHNOLOGY - 14.63%
Cisco Systems, Inc. + 35,000 668,850
Dell Inc. + 13,700 541,287
Hewlett-Packard Co. 13,342 313,670
Intel Corp. 32,000 833,920
International Business Machines Corp. 8,200 608,440
Microsoft Corp. 51,300 1,274,292
Motorola, Inc. 16,100 293,986
Oracle Corp. + 33,600 443,520
Texas Instruments Inc. 13,500 378,945
Yahoo! Inc. + 8,500 294,525
Other Information Technology (a) 2,487,651
-----------
8,139,086
-----------
================================================================================
See accompanying notes to financial statements
2
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2005 (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
MATERIALS - 2.26%
Total Materials (a) $ 1,257,991
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.33%
Total Real Estate Investment Trusts (a) 181,225
-----------
TELECOMMUNICATION SERVICES - 3.00%
SBC Communications Inc. 25,600 608,000
Verizon Communications Inc. 14,900 514,795
Other Telecommunication Services (a) 546,383
-----------
1,669,178
-----------
UTILITIES - 2.86%
TXU Corp. 3,700 307,433
Other Utilities (a) 1,281,593
-----------
1,589,026
-----------
TOTAL UNITED STATES
(cost - $56,445,957) 54,985,647
-----------
CZECH REPUBLIC - 0.71%
CONSUMER DISCRETIONARY - 0.71%
Total Consumer Discretionary # (a) 396,761
-----------
TOTAL CZECH REPUBLIC
(cost - $894,867) 396,761
-----------
TOTAL EQUITY SECURITIES
(cost - $57,340,824) 55,382,408
-----------
Principal
Amount
Description (000's) Value
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.36%
REPURCHASE AGREEMENTS - 2.36%
Bear, Stearns & Co. Inc. *
(Agreement dated 6/30/05
to be repurchased at
$1,315,745) (b) $1,315 $ 1,315,647
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost - $1,315,647) 1,315,647
-----------
TOTAL INVESTMENTS - 101.93%
(cost - $58,656,471) 56,698,055
-----------
LIABILITIES IN EXCESS OF
OTHER ASSETS - (1.93)% (1,076,234)
-----------
NET ASSETS - 100.00% $55,621,821
===========
-------
+ Non-income producing security.
# Securities are fair valued in accordance with procedures established by the
Board of Directors.
* Includes investment purchased with cash collateral received for securities
on loan.
(a) Represents issues not identified as a top 50 holding in terms of market
value and issues or issuers not exceeding 1% of net assets individually or
in the aggregate, respectively, as of June 30, 2005.
(b) At June 30, 2005, the maturity date for all repurchase agreements held was
07/01/05, with interest rates ranging from 1.687% to 3.375% and
collateralized by $1,358,935 in U.S. Treasury STRIPS.
At June 30, 2005, the Fund held 0.71% of its net assets in securities valued in
good faith by the Board of Directors with an aggregate cost of $894,867 and a
fair value of $396,761.
================================================================================
See accompanying notes to financial statements.
3
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $58,656,471) $ 56,698,055
Receivables:
Investments sold 173,189
Dividends 63,021
Interest 1,058
Prepaid expenses 7,355
------------
Total Assets 56,942,678
------------
LIABILITIES
Payables:
Upon return of securities loaned 1,162,781
Investment management fees 46,477
Directors' fees 11,827
Other accrued expenses 99,772
------------
Total Liabilities 1,320,857
------------
NET ASSETS (applicable to 4,882,336 shares
of common stock outstanding) $ 55,621,821
============
NET ASSET VALUE PER SHARE ($55,621,821 / 4,882,336) $ 11.39
============
NET ASSETS CONSISTS OF
Capital stock, $0.01 par value; 4,882,336
shares issued and outstanding
(15,000,000 shares authorized) $ 48,823
Paid-in capital 77,939,733
Distributions in excess of net investment income (4,966,453)
Accumulated net realized loss on investments (15,441,866)
Net unrealized depreciation in value of investments (1,958,416)
------------
Net assets applicable to shares outstanding $ 55,621,821
============
================================================================================
See accompanying notes to financial statements
4
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends $ 554,849
Interest 11,100
-----------
Total Investment Income 565,949
-----------
Expenses:
Investment management fees 286,843
Administration fees 28,684
Directors' fees 26,531
Legal and audit fees 23,580
Printing 19,681
Accounting fees 17,051
Transfer agent fees 16,343
Custodian fees 5,949
Stock exchange listing fees 3,902
Insurance 2,881
Miscellaneous 4,238
-----------
Total Expenses 435,683
Less: Management fee waivers (854)
Less: Fees paid indirectly (5,949)
-----------
Net Expenses 428,880
-----------
Net Investment Income 137,069
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investments (456,884)
Net change in unrealized depreciation in value of investments (1,295,518)
-----------
Net realized and unrealized loss on investments (1,752,402)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,615,333)
===========
================================================================================
See accompanying notes to financial statements
5
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Six Months
Ended For the Year
June 30, 2005 Ended
(unaudited) December 31, 2004
----------- -----------------
DECREASE IN NET ASSETS
Operations:
Net investment income $ 137,069 $ 462,154
Net realized loss from investments (456,884) (428,172)
Net change in unrealized depreciation
in value of investments (1,295,518) 4,649,941
------------ ------------
Net increase/(decrease) in net assets
resulting from operations (1,615,333) 4,683,923
------------ ------------
Dividends and distributions to shareholders:
Net investment income (137,069) (462,154)
Return-of-capital (4,966,453) (9,584,964)
------------ ------------
Total dividends and distributions to shareholders (5,103,522) (10,047,118)
------------ ------------
Capital stock transactions:
Proceeds from 82,505 and 73,202 shares
newly issued in reinvestment of dividends
and distributions, respectively 975,299 1,086,831
------------ ------------
Total decrease in net assets (5,743,556) (4,276,364)
------------ ------------
NET ASSETS
Beginning of period 61,365,377 65,641,741
------------ ------------
End of period $ 55,621,821 $ 61,365,377
============ ============
================================================================================
See accompanying notes to financial statements
6
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
For the Six
Months Ended
June 30, 2005 For the Years Ended December 31,
-----------------------------------------------------------------
(unaudited) 2004 2003 2002 2001 2000
----------- ---- ---- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 12.78 $ 13.89 $ 12.89 $ 18.30 $ 18.28 $ 17.62
-------- --------- -------- -------- -------- -------
Net investment income 0.03# 0.10# 0.08# 0.15# 0.52 1.07
Net realized and unrealized gain/(loss)
on investments (0.36) 0.87 2.91 (3.57) 0.24 0.63
-------- --------- -------- -------- -------- -------
Net increase/(decrease) in net
assets resulting from operations (0.33) 0.97 2.99 (3.42) 0.76 1.70
-------- --------- -------- -------- -------- -------
Dividends and distributions to
shareholders:
Net investment income (0.03) (0.10) (0.08) (0.18) (0.66) (1.05)
Return-of-capital (1.03) (2.01) (1.91) (1.80) (0.09) --
-------- --------- -------- -------- -------- -------
Total dividends and distributions
to shareholders (1.06) (2.11) (1.99) (1.98) (0.75) (1.05)
-------- --------- -------- -------- -------- -------
Capital stock transactions:
Anti-dilutive effect due to
capital stock repurchased -- -- -- 0.02 0.01 0.01
Anti-dilutive/(dilutive) effect
due to shares issued in
reinvestment of dividends
and distributions -- 0.03 -- (0.03) -- --
-------- --------- -------- -------- -------- -------
Total capital stock transactions -- 0.03 -- (0.01) 0.01 0.01
-------- --------- -------- -------- -------- -------
Net asset value, end of period $ 11.39 $ 12.78 $ 13.89 $ 12.89 $ 18.30 $ 18.28
======== ========= ======== ======== ========= ==========
Market value, end of period $ 15.70 $ 17.95 $ 17.95 $ 11.35 $ 16.29 $ 15.875
======== ========= ======== ======== ========= ==========
Total investment return (a) (4.43)% 15.11% 82.96% (19.30)% 8.91% 19.02%
======== ========= ======== ======== ========= ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 55,622 $ 61,365 $ 65,642 $ 60,151 $ 39,547 $ 39,640
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.47%(d) 1.41% 1.20% 1.50% 3.01% 1.06%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 1.50%(d) 1.45% 1.43% 2.07% 3.01% 1.06%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.50%(d) 1.43% 1.23% 1.63% 3.01% 1.06%
Ratio of net investment income to
average net assets 0.47%(d) 0.75% 0.65% 1.01% 2.77% 5.97%
Portfolio turnover rate 3.67% 12.15% 3.62% 86.60% -- 15.87%
------------------------------------------------------------------------------------------------------------------------------
# Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends
and distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions.
(b) Expenses are net of fees paid indirectly.
(c) Expenses exclude the reduction for fees paid indirectly.
(d) Annualized.
================================================================================
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
Cornerstone Total Return Fund, Inc. (the "Fund") was incorporated in New York on
March 16, 1973 and commenced investment operations on May 15, 1973. Its
investment objective is to seek total return consisting of capital appreciation
with current income as a secondary objective. The Fund is registered under the
Investment Company Act of 1940, as amended, as a closed-end, diversified
management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make certain estimates and assumptions that may
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities will be valued at the closing price
on the exchange or market on which the security is primarily traded ("Primary
Market"). If the security did not trade on the Primary Market, it will be valued
at the closing price on another exchange where it trades. If there are no such
sale prices, the value will be the most recent bid, and if there is no bid, the
security will be valued at the most recent asked. If no pricing service is
available and there are more than two dealers, the value will be the mean of the
highest bid and lowest ask. If there is only one dealer, then the value will be
the mean if bid and ask are available, otherwise the value will be the bid. All
other securities and assets are valued as determined in good faith by the Board
of Directors. Short-term investments having a maturity of 60 days or less are
valued on the basis of amortized cost. The Board of Directors has established
general guidelines for calculating fair value of not readily marketable
securities. At June 30, 2005, the Fund held 0.71% of its net assets in
securities valued in good faith by the Board of Directors with an aggregate cost
of $894,867 and a fair value of $396,761. The net asset value per share of the
Fund is calculated weekly and on the last business day of the month with the
exception of those days on which the American Stock Exchange, LLC is closed.
REPURCHASE AGREEMENTS: The Fund has agreed to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an
agreed-upon time and price ("repurchase agreements"). The financial institutions
with whom the Fund enters into repurchase agreements are banks and
broker/dealers, which Cornerstone Advisors, Inc. (the Fund's "Investment
Manager" or "Cornerstone") considers creditworthy. The seller under a repurchase
agreement will be required to maintain the value of the securities as
collateral, subject to the agreement at not less than the repurchase price plus
accrued interest. Cornerstone monitors daily the mark-to-market of the value of
the collateral, and, if necessary, requires the seller to maintain additional
securities, so that the value of the collateral is not less than the repurchase
price. Default by or bankruptcy of the seller could, however, expose the Fund to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date. TAXES: No provision is made for U.S.
federal income or excise taxes as it is the Fund's intention to continue to
qualify as a regulated investment company and to make the requisite
distributions to its shareholders which will be sufficient to relieve it from
all or substantially all U.S. federal income and excise taxes.
================================================================================
8
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
DISTRIBUTIONS OF INCOME AND GAINS: Effective January 2002, the Fund
initiated a fixed, monthly distribution to shareholders. To the extent that
these distributions exceed the current earnings of the Fund, the balance will be
generated from sales of portfolio securities held by the Fund, which will either
be short-term or long-term capital gains or a tax-free return-of-capital. To the
extent these distributions are not represented by net investment income and
capital gains, they will not represent yield or investment return on the Fund's
investment portfolio. The Fund plans to maintain this distribution policy even
if regulatory requirements would make part of it a return-of-capital, necessary
to maintain the distribution taxable to shareholders, and to disclose that
portion of the distribution that is classified as ordinary income. Although it
has no current intention to do so, the Board may terminate this distribution
policy at any time and such termination may have an adverse effect on the market
price for the Fund's common shares. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. To the
extent that the Fund's taxable income in any calendar year exceeds the aggregate
amount distributed pursuant to this distribution policy, an additional
distribution may be made to avoid the payment of a 4% U.S. federal excise tax,
and to the extent that the aggregate amount distributed in any calendar year
exceeds the Fund's taxable income, the amount of that excess may constitute a
return-of-capital for tax purposes. A return-of-capital distribution reduces the
cost basis of an investor's shares in the Fund. Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend date.
NOTE B. AGREEMENTS
Cornerstone serves as the Fund's Investment Manager with respect to all
investments. As compensation for its investment management services, Cornerstone
receives from the Fund, an annual fee, calculated weekly and paid monthly, equal
to 1.00% of the Fund's average weekly net assets.
Cornerstone has voluntarily agreed to waive its management fees from the Fund to
the extent that monthly operating expenses exceed 0.125% of average net assets
calculated monthly. For the six months ended June 30, 2005, Cornerstone earned
$286,843 for investment management services, of which it waived $854. The
Investment Manager may discontinue such undertaking at any time during the
fiscal year without notice to fund shareholders.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $5,949 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid approximately $12,800 for the six months ended June 30, 2005 for
legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas R.
Westle, partner of Blank, serves as secretary of the Fund.
NOTE C. INVESTMENT IN SECURITIES
For the six months ended June 30, 2005, purchases and sales of securities, other
than short-term investments, were $2,120,359 and $6,105,463, respectively.
NOTE D. SHARE REPURCHASE PROGRAM
As had been done in the past to enhance shareholder value, pursuant to Section
23 of the Investment Company Act of 1940, as amended, the Fund may again in the
future purchase shares of its common stock on the open market from time to time,
at such times, and in such amounts as may be deemed advantageous to the Fund.
Nothing herein shall be considered a commitment to purchase such shares. For the
six months ended June 30, 2005, the Fund had no repurchases. No limit has been
placed on the number of shares to be purchased by the Fund other than those
imposed by federal securities laws.
================================================================================
9
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
All purchases are made in accordance with federal securities laws,
with shares repurchased held in treasury, effective January 1, 2002.
NOTE E. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33 1/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount. The value of securities on loan to brokers at
June 30, 2005 was $1,145,532.
During the six months ended June 30, 2005, the Fund earned $4,083 in securities
lending income that is included under the caption INTEREST in the Statement of
Operations.
NOTE F. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of losses deferred due to wash sales and
Post-October losses (as later defined), and excise tax regulations.
The tax character of dividends and distributions paid during the
year ended December 31, 2004 for the Fund were as follows:
ORDINARY INCOME RETURN-OF-CAPITAL
--------------- -----------------
$462,154 $9,584,964
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred and treated as occurring on the first day of the
following tax year ("Post-October losses").
At December 31, 2004, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $14,841,454 of which $12,887,270 expires in 2008,
$1,170,157 expires in 2009, $425,706 expires in 2011 and $358,321 expires in
2012.
At June 30, 2005, the identified cost for federal income tax purposes, as well
as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized depreciation from investments were $58,708,100, $6,969,335,
$(8,979,380) and $(2,010,045), respectively.
================================================================================
10
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On May 10, 2005, the Annual Meeting of Stockholders of Cornerstone Total Return
Fund, Inc. was held and the following matter was voted upon:
(1) To elect seven Directors until the year 2006 Annual Meeting.
NAME OF DIRECTORS FOR WITHHOLD
----------------- --- --------
Ralph W. Bradshaw 4,539,599 18,760
William A. Clark 4,540,202 18,157
Thomas H. Lenagh 4,527,334 31,025
Edwin Meese III 4,527,777 30,582
Scott B. Rogers 4,531,545 26,814
Andrew A. Strauss 4,535,655 22,704
Glenn W. Wilcox, Sr. 4,539,917 18,442
================================================================================
11
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Shareholders who have shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment Plan (the "Plan"),
unless and until an election is made to withdraw from the Plan on behalf of such
participating shareholders. Shareholders who do not wish to have distributions
automatically reinvested should so notify American Stock Transfer & Trust Co.
(the "Agent") at P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or
call (877) 248-6416. Under the Plan, all of the Fund's dividends and other
distributions to shareholders are reinvested in full and fractional shares as
described below.
When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Distribution" and collectively, "Distributions"), the
Agent, on the shareholders' behalf, will: (i) receive additional authorized
shares from the Fund either newly issued or repurchased from shareholders by the
Fund and held as treasury stock ("Newly Issued Shares") or, (ii) at the sole
discretion of the Board of Directors, be authorized to purchase outstanding
shares on the open market, on the American Stock Exchange, LLC or elsewhere,
with cash allocated to it by the Fund ("Open Market Purchases").
Shares acquired by the Agent in Open Market Purchases will be allocated to the
reinvesting shareholders based on the average cost of such Open Market
Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at the lower of (i) a price equal to the average
closing price of the Fund over the five trading days preceding the payment date
of such distribution or (ii) the net asset value of the Fund as last determined
prior to such payment date.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Distributions automatically reinvested should
so notify the Fund in writing. If a Shareholder has not elected to receive cash
Distributions and the Agent does not receive notice of an election to receive
cash Distributions prior to the record date of any distribution, the shareholder
will automatically receive such Distributions in additional Shares.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Distributions payment
date. When a participant withdraws from the Plan, or upon termination of the
Plan as provided below, certificates for whole shares credited to his/her
account under the Plan will, upon request, be issued. Whether or not a
participant requests that certificates for whole shares be issued, a cash
payment will be made for any fraction of a share credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of each Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the Shareholder's name and held for the account of
beneficial owners participating in the Plan.
There will be no charge to participants for reinvesting Distributions other than
their share of brokerage commissions as discussed below. The Agent's fees for
administering the Plan and handling the reinvestment of Distributions will be
paid by the Fund. Each participant's account will be charged a
================================================================================
12
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
pro-rata share of brokerage commissions incurred with respect to the Agent's
Open Market Purchases in connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of shares for individual accounts
through the Plan are expected to be less than the usual brokerage charges for
such transactions because the Agent will be purchasing shares for all the
participants in blocks and pro-rating the lower commission that may be
attainable.
The automatic reinvestment of Distributions will not relieve participants of any
income tax that may be payable on such Distributions. Participants who receive
shares pursuant to the Plan as described above will recognize taxable income in
the amount of the fair market value of those shares. In the case of non-U.S.
participants whose Distributions are subject to U.S. income tax withholding and
in the case of participants subject to 28% federal backup withholding, the Agent
will reinvest Distributions after deduction of the amount required to be
withheld.
The Fund reserves the right to amend or terminate the Plan by written notice to
participants. All correspondence concerning the Plan should be directed to the
Agent at the address referred to in the first paragraph of this section.
================================================================================
13
INVESTMENT MANAGEMENT AGREEMENT APPROVAL DISCLOSURE (UNAUDITED)
The Board of Directors including, the Independent Directors, (the "Board") of
the Cornerstone Total Return Fund, Inc. (the "Fund") considers the approval of
the Investment Management Agreement (the "Agreement") between Cornerstone
Advisors, Inc. (the "Investment Manager") and the Fund on an annual basis. The
most recent approval of the Agreement occurred at a meeting of the Board held on
February 25, 2005.
In determining whether to approve the Agreement, the Board requested and
received extensive materials and information from the Investment Manager to
assist them in considering the approval of the continuance of the Agreement.
Based on their review of the information requested and provided, and the
discussions with management of the Investment Manager, the Board determined that
the approval of the Agreement was consistent with the best interests of the Fund
and its shareholders, and would enable the Fund to continue to receive high
quality services at a cost that is appropriate, reasonable, and in the best
interests of the Fund and its shareholders. The Board made these determinations
on the basis of the following factors, among others: (1) the nature and quality
of the services provided by the Investment Manager; (2) the cost to the
Investment Manager for providing such services, with special attention to the
Investment Manager's profitability (and whether the Investment Manager realizes
any economies of scale); (3) the direct and indirect benefits received by the
Investment Manager from its relationship with the Fund and the other investment
company advised by the Investment Manager; and (4) comparative information as to
the management fees, expense ratios and performance of other similarly situated
closed-end investment companies.
The materials provided by the Investment Manager to the Board described the
services provided by the Investment Manager to the Fund and included an overview
of the Investment Manager and its investment process and policies, including the
Investment Manager's extensive knowledge and experience in the closed-end fund
industry. The Board also discussed the knowledge of the Investment Manager with
respect to managing the Fund's monthly distribution policy and the extent to
which such policy contributes to the current premium of the Fund's market price
to its net asset value. The Board also favorably received the Investment
Manager's continued commitment to voluntarily waive its management fees from the
Fund to the extent that monthly operating expenses exceed 0.125% of average net
assets calculated monthly. The Board also reviewed and discussed a comparison of
the Fund's performance with comparable closed-end funds and a comparison of the
Fund's expense ratios and management fees with those comparable funds.
Additionally, the Investment Manager presented an analysis of its profitability
based on its contractual relationship with the Fund and the other investment
company advised by the Investment Manager.
The Board carefully evaluated this information, taking into consideration many
factors including, the overall high quality of the personnel, operations,
financial condition, investment management capabilities, methodologies, and
performance of the Investment Manager, and was advised by independent legal
counsel with respect to its deliberations. Based on its review of the
information requested and provided, the Board determined that the management
fees payable to the Investment Manager under the Agreement are fair and
reasonable in light of the services to be provided, the anticipated costs of
these services, the profitability of the Investment Manager's relationship with
the Fund, and the comparability of the proposed fee to fees paid by comparable
closed-end funds. The Board determined that the Agreement is consistent with the
best interests of the Fund and its shareholders, and enables the Fund to receive
high quality services at a cost that is appropriate, reasonable, and in the best
interests of the Fund and its shareholders.
Accordingly, in light of the above considerations and such other factors and
information it considered relevant, the Board by a unanimous vote of those
present in person at the meeting (including a separate vote of the Independent
Directors present in person at the meeting) approved the continuance of the
Agreement with respect to the Fund.
================================================================================
14
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how the Cornerstone Total Return Fund, Inc. (the "Fund")
voted proxies related to its portfolio securities during the 12-month period
ended June 30, 2005 as well as the policies and procedures that the Fund uses to
determine how to vote proxies relating to its portfolio securities are
available:
o by calling (212) 272-3550;
o on the website of the Securities and Exchange Commission,
http://www.sec.gov.
This report incorporates a Summary Schedule of Investments for the Fund. A
complete Schedule of Investments for the Fund may be obtained free of charge by
contacting the Fund at (212) 272-3550.
The Fund files a complete schedule of its portfolio holdings for the first and
third quarters of its fiscal year with the SEC on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
PRIVACY POLICY NOTICE (UNAUDITED)
The following is a description of Cornerstone Total Return Fund, Inc.'s (the
"Fund") policies regarding disclosure of nonpublic personal information that you
provide to the Fund or that the Fund collects from other sources. In the event
that you hold shares of the Fund through a broker-dealer or other financial
intermediary, the privacy policy of the financial intermediary would govern how
your nonpublic personal information would be shared with unaffiliated third
parties.
CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the following
nonpublic personal information about you:
1. Information from the Consumer: this category includes information the
Fund receives from you on or in applications or other forms,
correspondence, or conversations (such as your name, address, phone
number, social security number, assets, income and date of birth); and
2. Information about the Consumer's transactions: this category includes
information about your transactions with the Fund, its affiliates, or
others (such as your account number and balance, payment history,
parties to transactions, cost basis information, and other financial
information).
CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose any
nonpublic personal information about their current or former shareholders to
unaffiliated third parties, except as required or permitted by law. The Fund is
permitted by law to disclose all of the information it collects, as described
above, to its service providers (such as the Fund's custodian, administrator and
transfer agent) to process your transactions and otherwise provide services to
you.
CONFIDENTIALITY AND SECURITY. The Fund restricts access to your nonpublic
personal information to those persons who require such information to provide
products or services to you. The Fund maintains physical, electronic and
procedural safeguards that comply with federal standards to guard your nonpublic
personal information.
================================================================================
15
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
The Fund - Cornerstone Total Return Fund, Inc. is a closed-end, diversified
investment company whose shares trade on the American Stock Exchange, LLC. Its
investment objective is to seek total return, consisting of capital appreciation
and current income by investing primarily all of its assets in equity securities
of U.S. and non-U.S. issuers whose securities trade on a U.S. securities
exchange or over the counter or as American Depositary Receipts or other forms
of depositary receipts which trade in the United States. The Fund is managed by
Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the American Stock Exchange, LLC (symbol "CRF"). The share
price is published in: THE NEW YORK TIMES (daily) under the designation "Cnrstn
TR" and THE WALL STREET JOURNAL (daily) and BARRON'S (each Monday) under the
designation "CornstnTtlRtn." The net asset value per share is available weekly
and may be obtained by contacting the Fund at the general inquiry phone number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE TOTAL RETURN FUND, INC. MAY
FROM TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. The financial information
included herein is taken from the records of the Fund without examination by
independent registered public accountants who do not express an opinion thereon.
It is not a prospectus, circular or representation intended for use in the
purchase or sale of shares of the Fund or of any securities mentioned in the
report.
--------------------------------------------------------------------------------
================================================================================
16
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CORNERSTONE TOTAL RETURN FUND, INC.
ITEM 2. CODE OF ETHICS.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 6. SCHEDULE OF INVESTMENTS.
-----------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED)
-----------------------------------------------------------------------------------
DESCRIPTION NO. OF SHARES VALUE
-----------------------------------------------------------------------------------
EQUITY SECURITIES - 99.57%
UNITED STATES - 98.86%
CLOSED-END DOMESTIC FUNDS - 7.29%
Adams Express Co. 41,800 $ 537,966
Boulder Total Return Fund, Inc. 18,900 322,056
Dreman/Claymore Dividend & Income Fund 15,000 284,400
General American Investors Company, Inc. 2,500 80,000
Tri-Continental Corp. 109,000 1,941,290
Zweig Fund, Inc. (The) 165,900 887,565
------------
4,053,277
------------
CONSUMER DISCRETIONARY - 11.93%
Bed Bath & Beyond Inc. + 2,500 104,450
Best Buy Co., Inc. 2,500 171,375
Carnival Corp. 5,300 289,115
Clear Channel Communications, Inc. 2,700 83,511
Comcast Corp., Class A + 8,508 261,196
Comcast Corp., Special Class A + 4,500 134,775
Costco Wholesale Corp. 2,600 116,532
Dana Corporation 2,500 37,525
Delphi Corporation 5,100 23,715
Eastman Kodak Co. 2,500 67,125
Ford Motor Company 15,200 155,648
Fortune Brands, Inc. 2,500 222,000
Gap, Inc. (The) 6,900 136,275
General Motors Corp. 2,500 85,000
Goodyear Tire & Rubber Company (The) + 2,500 37,250
Harley-Davidson, Inc. 2,500 124,000
Harrah's Entertainment, Inc. 2,500 180,175
Hilton Hotels Corp. 2,500 59,625
Home Depot, Inc. (The) 12,300 478,470
J.C. Penney Company, Inc. 2,500 131,450
Kohl's Corp. + 2,500 139,775
Lowe's Companies, Inc. 3,700 215,414
Mattel, Inc. 4,500 82,350
McDonald's Corp. 8,100 224,775
McGraw-Hill Companies, Inc. (The) 5,000 221,250
Monsanto Co. 1,773 111,469
Office Depot, Inc. + 2,500 57,100
Omnicom Group Inc. 1,500 119,790
Reebok International Ltd. 2,500 104,575
Rockwell Automation, Inc. 2,500 121,775
Staples, Inc. 3,150 67,158
Starbucks Corp. + 2,500 129,150
Target Corporation 4,600 250,286
Time Warner Inc. + 25,500 426,105
TJX Companies, Inc. (The) 4,000 97,400
Tribune Company 2,500 87,950
Univision Communications Inc., Class A + 2,500 68,875
Viacom Inc., non-voting Class B 9,000 288,180
Wal-Mart Stores, Inc. 13,000 626,600
Walt Disney Co. (The) 11,700 294,606
------------
6,633,795
------------
CONSUMER STAPLES - 8.09%
Albertson's, Inc. 2,500 51,700
Altria Group, Inc. 10,700 691,862
Anheuser-Busch Companies, Inc. 3,700 169,275
Archer Daniels Midland Company 2,500 53,450
Avon Products, Inc. 2,500 94,625
Campbell Soup Company 3,200 98,464
Coca-Cola Co. (The) 13,500 563,625
Coca-Cola Enterprises Inc. 2,500 55,025
ConAgra Foods, Inc. 2,500 57,900
General Mills, Inc. 2,500 116,975
Gillette Company (The) 5,100 258,213
H.J. Heinz Co. 2,700 95,634
Kimberly-Clark Corporation 2,500 156,475
Kroger Co. (The) + 6,600 125,598
PepsiCo, Inc. 7,500 404,475
Procter & Gamble Co. (The) 15,000 791,250
Safeway Inc. + 4,900 110,691
Sara Lee Corp. 2,600 51,506
Sysco Corp. 3,500 126,665
Walgreen Co. 5,600 257,544
Wm. Wrigley Jr. Company 2,500 172,100
------------
4,503,052
------------
ENERGY - 7.39%
Anadarko Petroleum Corp. 2,500 205,375
Baker Hughes Inc. 2,500 127,900
Burlington Resources, Inc. 2,500 138,100
CenterPoint Energy, Inc. 5,700 75,297
ChevronTexaco Corp. 7,604 425,216
ConocoPhillips 3,338 191,902
Devon Energy Corporation 2,500 126,700
Exxon Mobil Corp. 36,000 2,068,920
Halliburton Co. 2,500 119,550
Occidental Petroleum Corp. 2,500 192,325
Schlumberger Ltd. 2,500 189,850
Unocal Corp. 2,500 162,625
XTO Energy Inc. 2,500 84,975
------------
4,108,735
------------
FINANCIALS - 19.00%
Aetna Inc. 2,000 165,640
AFLAC Inc. 4,000 173,120
Allstate Corp. (The) 5,200 310,700
American Express Company 6,100 324,703
American International Group, Inc. 15,331 890,731
AmSouth Bancorporation 2,500 65,000
Bank of America Corp. 18,240 831,926
Bank of New York Co., Inc. (The) 5,900 169,802
BB&T Corporation 2,000 79,940
Capital One Financial Corporation 1,000 80,010
Charles Schwab Corporation (The) 8,200 92,496
Cincinnati Financial Corporation 2,500 98,900
Citigroup Inc. 28,600 1,322,178
Countrywide Financial Corporation 3,500 135,135
Fannie Mae 5,700 332,880
Fifth Third Bancorp 2,500 103,025
Fiserv, Inc. + 2,500 107,375
Freddie Mac 3,300 215,259
Goldman Sachs Group, Inc. (The) 3,000 306,060
Hartford Financial Services Group, Inc. (The) 1,600 119,648
JPMorgan Chase & Co. 12,700 448,564
KeyCorp 2,500 82,875
Lehman Brothers Holding Inc. 2,500 248,200
M&T Bank Corporation 2,500 262,900
Marsh & McLennan Companies, Inc. 4,600 127,420
MBNA Corp. 7,550 197,508
Mellon Financial Corporation 2,300 65,987
Merrill Lynch & Co., Inc. 1,100 60,511
MetLife, Inc. 6,000 269,640
Moody's Corporation 2,000 89,920
Morgan Stanley 6,200 325,314
North Fork Bancorporation, Inc. 2,500 70,225
Northern Trust Corp. 1,100 50,149
PNC Financial Services Group, Inc. 1,400 76,244
Progressive Corporaton (The) 2,500 247,025
Providian Financial Corporation. + 2,500 44,075
Prudential Financial, Inc. 2,500 164,150
SLM Corporation 2,500 127,000
St. Paul Travelers Companies, Inc. (The) 2,292 90,603
State Street Corp. 1,600 77,200
SunTrust Banks, Inc. 1,500 108,360
U.S. Bancorp 9,700 283,240
Wachovia Corp. 8,100 401,760
Washington Mutual, Inc. 4,250 172,932
Wells Fargo & Co. 9,000 554,220
------------
10,570,550
------------
HEALTHCARE - 11.41%
Amgen Inc. + 8,300 501,818
Becton, Dickinson & Co. 2,500 131,175
Biogen Idec Inc. 2,500 86,125
Biomet, Inc. 2,500 86,600
Boston Scientific Corp. + 5,000 135,000
Bristol-Myers Squibb Co. 9,600 239,808
Caremark Rx, Inc. + 2,500 111,300
Eli Lilly & Co. 4,100 228,411
Genzyme Corporation + 1,500 90,135
Health Management Associates, Inc., Class A 2,500 65,450
Johnson & Johnson 18,200 1,183,000
Laboratory Corporation of America Holdings + 2,500 124,750
McKesson Corp. 2,500 111,975
Medco Health Solutions, Inc. + 1,531 81,694
Medtronic, Inc. 7,100 367,709
Merck & Co. Inc. 8,700 267,960
Pfizer Inc. 42,460 1,171,047
Schering-Plough Corp. 8,400 160,104
Stryker Corporation 2,000 95,120
Tenet Healthcare Corp. + 5,000 61,200
United Health Group Inc. 10,000 521,400
Wyeth 7,500 333,750
Zimmer Holdings, Inc. + 2,500 190,425
------------
6,345,956
------------
INDUSTRIALS - 10.67%
3M Co. 2,500 180,750
Apollo Group, Inc., Class A + 1,000 78,220
Boeing Company (The) 3,900 257,400
Burlington Northern Sante Fe Corporation 2,000 94,160
Caterpillar Inc. 2,500 238,275
Cendant Corp. 7,100 158,827
CSX Corp. 2,500 106,650
Danaher Corp. 2,500 130,850
Deere & Coompany 2,500 163,725
Dover Corporation 1,000 36,380
Emerson Electric Co. 2,000 125,260
FedEx Corp. 2,500 202,525
General Dynamics Corp. 2,500 273,850
General Electric Co. 58,000 2,009,700
Honeywell International Inc. 3,300 120,879
Illinois Tool Works Inc. 2,500 199,200
Lockheed Martin Corp. 2,500 162,175
Norfolk Southern Corporation 2,500 77,400
Paychex, Inc. 2,500 81,350
Raytheon Company 2,500 97,800
Southwest Airlines Co. 6,100 84,973
Transocean Inc. + 2,500 134,925
Tyco International Ltd. 9,100 265,720
United Parcel Service, Inc., Class B 4,000 276,640
United Technologies Corp. 4,400 225,940
Waste Management, Inc. 5,300 150,202
------------
5,933,776
------------
INFORMATION TECHNOLOGY - 14.63%
Adobe Systems Inc. 2,500 71,550
Agere Systems, Inc. + 7 84
Agilent Technologies, Inc. + 5,000 115,100
Analog Devices, Inc. 2,500 93,275
Apple Computer, Inc. + 5,000 184,050
Applied Materials, Inc. 13,400 216,812
Autodesk, Inc. 2,500 85,925
Cisco Systems, Inc. + 35,000 668,850
Computer Associates International, Inc. 2,700 74,196
Corning Inc. + 7,500 124,650
Dell Inc. + 13,700 541,287
eBay, Inc. + 7,000 231,070
Electronic Data Systems Corp. 7,500 144,375
EMC Corp. + 8,000 109,680
First Data Corporation 4,325 173,606
Freescale Semiconductor Inc., Class B + 1,777 37,637
Hewlett-Packard Co. 13,342 313,670
Intel Corp. 32,000 833,920
International Business Machines Corp. 8,200 608,440
Maxim Integrated Products, Inc. 2,500 95,525
Micron Technology, Inc. + 5,500 56,155
Microsoft Corp. 51,300 1,274,292
Motorola, Inc. 16,100 293,986
Network Appliance, Inc. + 2,500 70,675
Oracle Corp. + 33,600 443,520
PerkinElmer, Inc. 1,500 28,350
QUALCOMM Inc. 6,800 224,468
Siebel Systems, Inc. 5,000 44,500
Solectron Corp. + 5,700 21,603
Symantec Corp. + 5,000 108,700
Texas Instruments Inc. 13,500 378,945
Waters Corporation + 2,500 92,925
Xerox Corporation + 6,000 82,740
Yahoo! Inc. + 8,500 294,525
------------
8,139,086
------------
MATERIALS - 2.26%
Air Products & Chemicals, Inc. 2,500 150,750
Alcoa Inc. 4,300 112,359
Dow Chemical Co. (The) 4,700 209,291
E.I. du Pont de Nemours & Co. 5,800 249,458
International Paper Co. 4,800 145,008
Newmont Mining Corporation 2,500 97,575
Nucor Corp. 2,500 114,050
Rohm & Haas Co. 2,500 115,850
Weyerhaeuser Co. 1,000 63,650
------------
1,257,991
------------
REAL ESTATE INVESTMENT TRUSTS - 0.33%
Simon Property Group, Inc. 2,500 181,225
------------
TELECOMMUNICATIONS SERVICES - 3.00%
AT&T Corp. 5,260 100,150
BellSouth Corporation 5,200 138,164
Lucent Technologies Inc. + 15,000 43,650
Nextel Communications, Inc., Class A + 5,000 161,550
SBC Communications Inc. 25,600 608,000
Sprint Corp. 4,100 102,869
Verizon Communications Inc. 14,900 514,795
------------
1,669,178
------------
UTILITIES - 2.86%
American Electric Power Co., Inc. 5,500 202,785
Dominion Resources, Inc. 2,000 146,780
Duke Energy Corp. 6,600 196,218
Exelon Corp. 2,500 128,325
FirstEnergy Corp. 2,500 120,275
Scottish Power plc, ADR 4,000 142,400
Sempra Energy 2,500 103,275
Southern Co. (The) 2,500 86,675
TXU Corp. 3,700 307,433
Williams Companies, Inc. (The) 2,500 47,500
Xcel Energy, Inc. 5,500 107,360
------------
1,589,026
------------
TOTAL UNITED STATES 54,985,647
------------
(cost - $56,445,957)
CZECH REPUBLIC - 0.71%
CONSUMER DISCRETIONARY - 0.71%
Bonton a.s + # ^ 68,590 7,794
Bonton Book a.s + # 68,590 62,353
Bonton Discs a.s. + # ^ 68,590 39
Bonton Film Entertainment a.s. + # 68,590 227,979
Bonton Music a.s. + # 68,590 59,625
Bonton Pictures a.s. + # 68,590 38,971
------------
396,761
------------
TOTAL CZECH REPUBLIC 396,761
(cost - $894,867)
------------
TOTAL EQUITY SECURITIES 55,382,408
(cost - $57,340,824)
------------
PRINCIPAL
AMOUNT (000'S)
SHORT-TERM INVESTMENTS - 2.36%
REPURCHASE AGREEMENTS - 2.36%
Bear, Stearns & Co. Inc. * ** $ 673 673,475
(Agreement dated 6/30/05 to be repurchased
at $673,538), 3.375%, 07/01/05, collateralized
by $694,274 in U.S. Treasury STRIPS
Bear, Stearns & Co. Inc. * ** 489 489,306
(Agreement dated 6/30/05 to be repurchased
at $489,329), 1.6875%, 07/01/05,
collateralized by $506,722 in U.S. Treasury
STRIPS
Bear, Stearns & Co. Inc. 153 152,866
------------
(Agreement dated 6/30/05 to be repurchased
at $152,878), 2.80%, 07/01/05, collateralized
by $157,939 in U.S. Treasury STRIPS
TOTAL SHORT-TERM INVESTMENTS 1,315,647
(cost - $1,315,647)
------------
TOTAL INVESTMENTS - 101.93% 56,698,055
(cost - $58,656,471)
------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.93)% (1,076,234)
------------
NET ASSETS - 100.00% $ 55,621,821
============
--------------
+ Non-income producing security.
# Securities are fair valued in accordance with procedures established by the
Board of Directors.
* Stated interest rate, before rebate earned by borrower of securities on
loan.
** Represents investment purchased with collateral received for securities on
loan.
ADR American Depositary Receipts
^ In July 2005, 68,590 shares of Bonton Discs a.s. were exchanged to Bonton
a.s.
At June 30, 2005, the Fund held 0.71% of its net assets in securities valued in
good faith by the Board of Directors with an aggregate cost of $894,867 and a
fair value of $396,761.
See accompanying notes to financial statements.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement not yet effective with respect to the
Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANIES AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders
may recommend nominees to the registrant's Board of Directors since the
registrant last provided disclosure in response to the requirements of Item
7(d)(2)(ii)(g) of Schedule 14A in its definitive proxy statement dated April 27,
2005.
ITEM 11. CONTROLS AND PROCEDURES.
(a) At a date within 90 days from the filing date of this report, the
principal executive officer and the principal financial officer concluded that
that the registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940 (the "Act")) were effective
based on their evaluation of the disclosure controls and procedures required by
Rule 30a-3 (b) under the Act and Rules 13a-15(b) or 15d-15(b) under the
Securities and Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred
during the second fiscal quarter of the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2)The certifications of the registrant as required by Rule 30a-2(a)
under the Act are exhibits to this report.
(a)(3) Not applicable.
(b) The certifications of the registrant as required by Rule 30a-2(b) under
the Act are an exhibit to this report.
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.
Cornerstone Total Return Fund, Inc.
By:/S/ RALPH W. BRADSHAW
------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: September 8, 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.
Cornerstone Total Return Fund, Inc.
By:/S/ RALPH W. BRADSHAW
-------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: September 8, 2005
By:/S/ JODI B. LEVINE
---------------------
Name: Jodi B. Levine
Title: Principal Financial Officer
Date: September 8, 2005