N-CSRS 1 t302060.txt PERIOD ENDED 6/30/05 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 -------------------------------------- Cornerstone Total Return Fund, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 383 Madison Avenue, New York, NY 10179 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Jodi B. Levine 383 Madison Avenue, New York, NY 10179 -------------------------------------------------------------------------------- (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. ================================================================================ 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 ================================================================================ -------------------------------------------------------------------------------- CORNERSTONE TOTAL RETURN FUND, INC. PORTFOLIO SUMMARY - AS OF JUNE 30, 2005 (UNAUDITED) -------------------------------------------------------------------------------- SECTOR ALLOCATION Percent of Sector Net Assets -------------------------------------------------------------------------------- Financials 19.0 -------------------------------------------------------------------------------- Information Technology 14.6 -------------------------------------------------------------------------------- Consumer Discretionary 12.6 -------------------------------------------------------------------------------- Healthcare 11.4 -------------------------------------------------------------------------------- Industrials 10.7 -------------------------------------------------------------------------------- Consumer Staples 8.1 -------------------------------------------------------------------------------- Energy 7.4 -------------------------------------------------------------------------------- Closed-End Domestic Funds 7.3 -------------------------------------------------------------------------------- Telecommunication Services 3.0 -------------------------------------------------------------------------------- Utilities 2.9 -------------------------------------------------------------------------------- Materials 2.3 -------------------------------------------------------------------------------- Other 0.7 -------------------------------------------------------------------------------- TOP TEN HOLDINGS, BY ISSUER Percent of Holding Sector Net Assets -------------------------------------------------------------------------------- 1. Exxon Mobil Corp. Energy 3.7 -------------------------------------------------------------------------------- 2. General Electric Co. Industrials 3.6 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 7. Pfizer Inc. Healthcare 2.1 -------------------------------------------------------------------------------- 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 This page intentionally left blank. 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