-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EXmhofcxZRknFJO8P6Ts/htzE+JlnS80CIisSbC/R4s4jZ36e4qv6vqg2mMDzbdH brB3nIuJNVI25OA5ZU5V8Q== 0000909012-06-000975.txt : 20060831 0000909012-06-000975.hdr.sgml : 20060831 20060831153909 ACCESSION NUMBER: 0000909012-06-000975 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060831 DATE AS OF CHANGE: 20060831 EFFECTIVENESS DATE: 20060831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNERSTONE TOTAL RETURN FUND INC CENTRAL INDEX KEY: 0000033934 IRS NUMBER: 132727013 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02363 FILM NUMBER: 061068445 BUSINESS ADDRESS: STREET 1: BEAR STEARNS FUNDS MGMT INC. STREET 2: 383 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10179 BUSINESS PHONE: 2122722093 MAIL ADDRESS: STREET 1: BEAR STEARNS FUNDS MGMT INC. STREET 2: 383 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10179 FORMER COMPANY: FORMER CONFORMED NAME: EIS FUND INC DATE OF NAME CHANGE: 20020109 FORMER COMPANY: FORMER CONFORMED NAME: EXCELSIOR INCOME SHARES INC DATE OF NAME CHANGE: 19920703 N-CSRS 1 t302781.txt SEMI-ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR 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, New York 10179 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Jodi Levine 383 Madison Avenue, New York, NY 10179 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (212) 272-3550 Date of fiscal year end: December 31, 2006 Date of reporting period: June 30, 2006 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. ================================================= CORNERSTONE TOTAL RETURN FUND, INC. JUNE 30, 2006 ================================================= ================================================= CORNERSTONE TOTAL RETURN FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 2006 ================================================= 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 13 Proxy Voting and Portfolio Holdings Information 14 Privacy Policy Notice 14 Summary of General Information 15 Shareholder Information 15 CORNERSTONE TOTAL RETURN FUND, INC. PORTFOLIO SUMMARY - AS OF JUNE 30, 2006 (UNAUDITED) SECTOR ALLOCATION Percent of Sector Net Assets - -------------------------------------------------------------------------------- Financials 18.8 Information Technology 13.3 Healthcare 11.1 Industrials 10.5 Consumer Discretionary 10.2 Consumer Staples 9.5 Energy 9.1 Closed-End Domestic Funds 8.4 Telecommunication Services 3.0 Utilities 2.8 Materials 2.6 Other 0.7 - -------------------------------------------------------------------------------- TOP TEN HOLDINGS, BY ISSUER Percent of Holding Sector Net Assets - -------------------------------------------------------------------------------- 1. Exxon Mobil Corporation Energy 3.9 2. General Electric Company Industrials 3.4 3. Citigroup Inc. Financials 2.4 4. Microsoft Corporation Information Technology 2.0 5. Dreman/Claymore Dividend & Income Fund Closed-End Domestic Funds 1.9 6. Johnson & Johnson Healthcare 1.8 7. Wal-Mart Stores, Inc. Consumer Staples 1.8 8. Adams Express Company Closed-End Domestic Funds 1.8 9. Zweig Fund, Inc. Closed-End Domestic Funds 1.7 10. Pfizer Inc. Healthcare 1.7 - -------------------------------------------------------------------------------- 1 CORNERSTONE TOTAL RETURN FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2006 (UNAUDITED) No. of Description Shares Value - -------------------------------------------------------------------------------- EQUITY SECURITIES - 99.72% UNITED STATES - 99.45% CLOSED-END DOMESTIC FUNDS - 8.37% Adams Express Company 70,400 $ 906,048 Boulder Total Return Fund, Inc. 18,900 340,200 Dreman/Claymore Dividend & Income Fund 49,500 954,855 John Hanock Bank and Thrift Opportunity Fund 35,700 336,294 Liberty All-Star Growth Fund, Inc. ++ 140,800 726,528 Zweig Fund, Inc. ++ 165,900 884,247 Other Closed-End Domestic Funds (a) 101,970 ----------- 4,250,142 ----------- CONSUMER DISCRETIONARY - 9.88% Home Depot, Inc. (The) 12,300 440,217 Time Warner Inc. 21,000 363,300 Other Consumer Discretionary (a) 4,211,796 ----------- 5,015,313 ----------- CONSUMER STAPLES - 9.49% Altria Group, Inc. 7,700 565,411 Coca-Cola Company (The) 13,500 580,770 PepsiCo, Inc. ++ 7,500 450,300 Procter & Gamble Company (The) 13,972 776,843 Wal-Mart Stores, Inc. 19,000 915,230 Other Consumer Staples (a) 1,529,673 ----------- 4,818,227 ----------- ENERGY - 9.14% Chevron Corporation 6,568 407,610 ConocoPhillips 7,641 500,715 Exxon Mobil Corporation 32,000 1,963,198 Schlumberger Limited ++ 5,000 325,550 Other Energy (a) 1,439,005 ----------- 4,636,078 ----------- FINANCIALS - 18.82% American Express Company 6,100 $ 324,642 American International Group, Inc. ++ 12,331 728,146 Bank of America Corporation 17,021 818,710 Citigroup Inc. 25,600 1,234,944 Goldman Sachs Group, Inc. (The) ++ 3,000 451,290 JPMorgan Chase & Co. 12,700 533,400 Lehman Brothers Holdings Inc. 5,000 325,750 M&T Bank Corporation ++ 2,500 294,800 Wachovia Corporation 8,100 438,048 Wells Fargo & Company 9,000 603,720 Other Financials (a) 3,795,836 ----------- 9,549,286 ----------- HEALTHCARE - 11.09% Amgen Inc. + 8,300 541,409 Johnson & Johnson ++ 15,500 928,760 Medtronic, Inc. 7,100 333,132 Merck & Co. Inc. ++ 8,700 316,941 Pfizer Inc. ++ 37,460 879,186 UnitedHealth Group Incorporated 10,000 447,800 Other Healthcare (a) 2,178,176 ----------- 5,625,404 ----------- INDUSTRIALS - 10.49% Boeing Company (The) ++ 3,900 319,449 Caterpillar Inc. 5,000 372,400 FedEx Corp. ++ 2,500 292,150 General Electric Company 52,000 1,713,920 United Parcel Service, Inc., Class B 4,000 329,320 Other Industrials (a) 2,295,314 ----------- 5,322,553 ----------- INFORMATION TECHNOLOGY - 13.35% Cisco Systems, Inc. + 27,000 527,310 Hewlett-Packard Company ++ 13,342 422,675 Intel Corporation ++ 22,000 416,900 International Business Machines Corporation ++ 5,700 437,874 See accompanying notes to financial statements. 2 CORNERSTONE TOTAL RETURN FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2006 (UNAUDITED) (CONCLUDED) No. of Description Shares Value - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (CONTINUED) Microsoft Corporation 43,000 $ 1,001,900 Motorola, Inc. 16,100 324,415 Oracle Corporation + 33,600 486,864 Texas Instruments Incorporated 13,500 408,915 Other Information Technology (a) 2,750,180 ----------- 6,777,033 ----------- MATERIALS - 2.63% Total Materials (a) 1,336,955 ----------- REAL ESTATE INVESTMENT TRUSTS - 0.41% Total Real Estate Investment Trusts (a) 207,350 ----------- TELECOMMUNICATION SERVICES - 3.00% AT&T Inc. ++ 24,699 688,855 Verizon Communications Inc. ++ 14,900 499,001 Other Telecommunication Services (a) 336,906 ----------- 1,524,762 ----------- UTILITIES - 2.78% TXU Corp. ++ 7,400 442,446 Other Utilities (a) 969,107 ----------- 1,411,553 ----------- TOTAL UNITED STATES (cost - $48,498,631) 50,474,656 ----------- CZECH REPUBLIC - 0.27% CONSUMER DISCRETIONARY - 0.27% Total Consumer Discretionary (a)* 137,768 ----------- TOTAL CZECH REPUBLIC (cost - $894,865) 137,768 ----------- TOTAL EQUITY SECURITIES (cost - $49,393,496) 50,612,424 ----------- Principal Amount Description (000's) Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 1.37% REPURCHASE AGREEMENTS - 1.37% Bear, Stearns & Co. Inc. + (b) (Agreement dated 6/30/2006 to be repurchased at $695,264) $ 695 $ 695,080 ----------- TOTAL SHORT-TERM INVESTMENTS (cost - $695,080) 695,080 ----------- TOTAL INVESTMENTS - 101.09% (cost - $50,088,576) 51,307,504 ----------- LIABILITIES IN EXCESS OF OTHER ASSETS - (1.09)% (555,693) ----------- NET ASSETS - 100.00% $50,751,811 =========== - ---------- + Non-income producing security. ++ Security or a portion thereof is out on loan. + Includes investments purchased with cash collateral received for securities on loan. * Securities are fair valued in accordance with procedures established by the Board of Directors. (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, 2006. (b) At June 30, 2006, the maturity date for all repurchase agreements held was July 3, 2006, with interest rates ranging from 2.66% to 5.31%, and collateralized by $717,380 in U.S. Treasury Bond STRIPs. See accompanying notes to financial statements. 3 CORNERSTONE TOTAL RETURN FUND, INC. STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2006 (UNAUDITED) ASSETS Investments, at value, including collateral for securities on loan of $543,412 (Cost $50,088,576)(1) $ 51,307,504 Receivables: Dividends 52,150 Investments sold 40,285 Interest 5,651 Prepaid expenses 7,973 ------------ Total Assets 51,413,563 ------------ LIABILITIES Payables: Upon return of securities loaned 543,412 Investment management fees 41,678 Directors' fees 15,755 Other accrued expenses 60,907 ------------ Total Liabilities 661,752 ------------ NET ASSETS (applicable to 5,060,873 shares of common stock outstanding) $ 50,751,811 ============ NET ASSET VALUE PER SHARE ($50,751,811 / 5,060,873) $ 10.03 ============ NET ASSETS CONSISTS OF Capital stock, $0.01 par value; 5,060,873 shares issued and outstanding (100,000,000 shares authorized) $ 50,609 Paid-in capital 64,906,526 Accumulated net realized loss on investments (15,424,252) Net unrealized appreciation in value of investments 1,218,928 ------------ Net assets applicable to shares outstanding $ 50,751,811 ============
- ---------- (1) Includes securities out on loan to brokers with a market value of $542,314. See accompanying notes to financial statements. 4 CORNERSTONE TOTAL RETURN FUND, INC. STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) INVESTMENT INCOME Income: Dividends $ 566,540 Interest 10,975 Securities lending 5,479 --------- Total Investment Income 582,994 --------- Expenses: Investment management fees 264,678 Legal and audit fees 35,320 Directors' fees 28,513 Administration fees 26,472 Accounting fees 17,730 Printing 15,551 Transfer agent fees 14,876 Custodian fees 6,824 Insurance 3,294 Stock exchange listing fees 3,167 Miscellaneous 1,176 --------- Total Expenses 417,601 Less: Fees paid indirectly (15,975) --------- Net Expenses 401,626 --------- Net Investment Income 181,368 --------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from investments 154,719 Net change in unrealized appreciation in value of investments 517,231 --------- Net realized and unrealized gain on investments 671,950 --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 853,318 ========= 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, 2006 Ended (unaudited) December 31, 2005 ------------------ ----------------- DECREASE IN NET ASSETS Operations: Net investment income $ 181,368 $ 299,210 Net realized gain/(loss) from investments 154,719 (464,943) Net change in unrealized appreciation/(depreciation) in value of investments 517,231 1,364,595 ------------ ------------ Net increase in net assets resulting from operations 853,318 1,198,862 ------------ ------------ Dividends and distributions to shareholders: Net investment income (181,368) (299,210) Net realized capital gains (154,719) -- Return-of-capital (4,949,128) (9,996,313) ------------ ------------ Total dividends and distributions to shareholders (5,285,215) (10,295,523) ------------ ------------ Capital stock transactions: Proceeds from 93,572, and 167,470 shares newly issued in reinvestment of dividends and distributions, respectively 989,392 1,925,600 ------------ ------------ Total decrease in net assets (3,442,505) (7,171,061) ------------ ------------ NET ASSETS Beginning of period 54,194,316 61,365,377 ------------ ------------ End of period $ 50,751,811 $ 54,194,316 ============ ============
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 For the Years Ended December 31, June 30, 2006 ------------------------------------------------------------ (unaudited) 2005 2004 2003 2002 2001 ------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $ 10.91 $ 12.78 $ 13.89 $ 12.89 $ 18.30 $ 18.28 -------- -------- -------- -------- -------- -------- Net investment income 0.04# 0.06# 0.10# 0.08# 0.15# 0.52 Net realized and unrealized gain/(loss) on investments 0.14 0.18 0.87 2.91 (3.57) 0.24 -------- -------- -------- -------- -------- -------- Net increase/(decrease) in net assets resulting from operations 0.18 0.24 0.97 2.99 (3.42) 0.76 -------- -------- -------- -------- -------- -------- Dividends and distributions to shareholders: Net investment income (0.04) (0.06) (0.10) (0.08) (0.18) (0.66) Capital gains (0.03) -- -- -- -- -- Return-of-capital (0.99) (2.05) (2.01) (1.91) (1.80) (0.09) -------- -------- -------- -------- -------- -------- Total dividends and distributions to shareholders (1.06) (2.11) (2.11) (1.99) (1.98) (0.75) -------- -------- -------- -------- -------- -------- Capital stock transactions: Anti-dilutive effect due to capital stock repurchased -- -- -- -- 0.02 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 -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 10.03 $ 10.91 $ 12.78 $ 13.89 $ 12.89 $ 18.30 ======== ======== ======== ======== ======== ======== Market value, end of period $ 16.99 $ 14.65 $ 17.95 $ 17.95 $ 11.35 $ 16.29 ======== ======== ======== ======== ======== ======== Total investment return (a) 28.04% (2.07)% 15.11% 82.96% (19.30)% 8.91% ======== ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 50,752 $ 54,194 $ 61,365 $ 65,642 $ 60,151 $ 39,547 Ratio of expenses to average net assets, net of fee waivers, if any (b) 1.52%(d) 1.47% 1.41% 1.20% 1.50% 3.01% Ratio of expenses to average net assets, excluding fee waivers, if any (c) 1.58%(d) 1.52% 1.45% 1.43% 2.07% 3.01% Ratio of expenses to average net assets, net of fee waivers, if any (c) 1.58%(d) 1.50% 1.43% 1.23% 1.63% 3.01% Ratio of net investment income to average net assets 0.69%(d) 0.53% 0.75% 0.65% 1.01% 2.77% Portfolio turnover rate 5.57% 9.84% 12.15% 3.62% 86.60% --
- ---------- # 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 capital appreciation with current income as a secondary objective by investing primarily in U.S. and non-U.S. companies. 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 shall 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 shall be valued at the closing price on another exchange where it trades. If there are no such sale prices, the value shall be the most recent bid, and if there is no bid, the security shall be valued at the most recent asked. If no pricing service is available and there are more than two dealers, the value shall be the mean of the highest bid and lowest ask. If there is only one dealer, then the value shall be the mean if bid and ask are available, otherwise the value shall 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. Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of financial and non-financial information about the Fund; comparisons to the valuation and changes in valuation of similar securities, including reference to special reports prepared by analysts and or reports published in the financial press, the financial conditions and prospects of the issuer available, including considering any recent management or capital structure changes or other recent events that may impact the price of the security; and evaluation of any other information that could be indicative of the value of the security. At June 30, 2006, the Fund held 0.27% of its net assets in securities valued in good faith by the Board of Directors with an aggregate cost of $894,865 and a fair value of $137,768. 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 would, however, expose the Fund to possible loss because of adverse market action or delays in connection with the disposition of the underlying securities. 8 CORNERSTONE TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 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. 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 a distribution policy even if regulatory requirements would make part of 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 the 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 the 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. For the year 2006, Cornerstone voluntarily agreed to waive its management fees from the Fund to the extent that the Fund's net monthly operating expenses (including basic legal fees but excluding other legal expenses) exceed a rate of 0.125% of average net assets. For the six months ended June 30, 2006, Cornerstone earned $264,678 for investment management services, of which no amounts were required to waive. 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 $15,975 arising from credits earned on portfolio transactions executed with a broker, pursuant to a directed brokerage arrangement. The Fund paid or accrued approximately $28,080 for the six months ended June 30, 2006 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, 2006, purchases and sales of securities, other than short-term investments, were $2,955,790 and $7,150,992 respectively. 9 CORNERSTONE TOTAL RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED) NOTE D. 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 the 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, 2006, was $542,314. NOTE E. 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 years ended December 31, for the Fund was as follows: ORDINARY INCOME RETURN-OF-CAPITAL --------------- ----------------- 2005 2004 2005 2004 ---- ---- ---- ---- $299,210 $462,154 $9,996,313 $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"). For the tax period ended December 31, 2005, the Fund did not incur Post-October losses. At December 31, 2005, the Fund had a capital loss carryforward for U.S. federal income tax purposes of $15,262,226, of which $12,887,270 expires in 2008, $1,170,157 expires in 2009, $425,706 expires in 2011, $358,321 expires in 2012 and $420,772 expires in 2013. At June 30, 2006, 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 appreciation from investments were $50,088,576, $8,223,691, $(7,004,763) and $1,218,928, respectively. 10 RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED) On April 10, 2006, the Annual Meeting of Stockholders of Cornerstone Total Return Fund, Inc. was held and the following matter was voted upon: (1) To approve the election of seven Directors until the year 2007 Annual Meeting. NAME OF DIRECTORS FOR WITHHOLD ----------------- --- -------- Ralph W. Bradshaw 4,133,682 26,519 William A. Clark 4,133,789 26,412 Andrew A. Strauss 4,133,639 26,562 Glenn W. Wilcox, Sr. 4,132,978 27,223 Scott B. Rogers 4,133,481 26,720 Edwin Meese III 4,130,721 29,480 Thomas H. Lenagh 4,132,756 27,445 11 DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) Cornerstone Total Return Fund, Inc. (the "Fund") operates a Dividend Reinvestment Plan (the "Plan"), sponsored and administered by American Stock Transfer & Trust Company (the "Agent"), pursuant to which the Fund's dividends and distributions, net of any applicable U.S. withholding tax, are reinvested in shares of the Fund. American Stock Transfer & Trust Company serves as the Agent that administers the Plan for the shareholders in the Plan. Shareholders who have shares registered directly in their own names automatically participate in the Fund's Plan, unless and until an election is made to withdraw from the Plan on behalf of such participating shareholder. Shareholders who do not wish to have distributions automatically reinvested should so notify the Agent at P.O. Box 922, Wall Street Station, New York, New York 10269-0560 or call (877) 248-6416. Under the Plan, the Fund's respective 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 shareholder's 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) 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 shares of the respective 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 Dividend, 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 Distribution 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/or her account under the Plan will, upon request, be issued. Whether or not a participant requests that certificates for whole shares by 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 the Plan participant in non-certified 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. All correspondence concerning the Plan should be directed to the Agent at P.O. Box 922, Wall Street Station, New York, New York 10269-0560. 12 INVESTMENT MANAGEMENT AGREEMENT APPROVAL DISCLOSURE (UNAUDITED) The Board of Directors including, the Independent Directors, (the "Board") of 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 17, 2006. 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 (including basic legal fees but excluding other extraordinary legal expenses). 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. 13 PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED) Information regarding how Cornerstone Total Return Fund, Inc. (the "Fund") voted proxies related to its portfolio securities during the 12-month period ended June 30 of each year as well as the policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities are available: by calling (212) 272-3550; 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 (202) 551-8090. 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. 14 SUMMARY OF GENERAL INFORMATION (UNAUDITED) 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 capital appreciation with current income as a secondary objective by investing primarily in U.S. and non-U.S. companies. 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. 15 This page intentionally left blank. CORNERSTONE TOTAL RETURN FUND, INC. 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 INVESTMENT MANAGER Cornerstone Advisors, Inc. One West Pack Square Suite 1650 Asheville, NC 28801 ADMINISTRATOR Bear Stearns Funds Management Inc. 383 Madison Avenue New York, NY 10179 CUSTODIAN Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540 EXECUTIVE OFFICES 383 Madison Avenue New York, NY 10179 STOCK TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Co. 59 Maiden Lane New York, NY 10038 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Tait, Weller & Baker LLP 1818 Market Street Suite 2400 Philadelphia, PA 19103 LEGAL COUNSEL Blank Rome LLP 405 Lexington Avenue New York, NY 10174 For shareholder inquiries, registered shareholders should call (800) 937-5449. For general inquiries, please call (212) 272-3550. [LOGO] ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. CORNERSTONE TOTAL RETURN FUND, INC. SCHEDULE OF INVESTMENTS -- JUNE 30, 2006 (UNAUDITED) NO. OF DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- EQUITY SECURITIES - 99.72% UNITED STATES - 99.45% CLOSED-END DOMESTIC FUNDS - 8.37% Adams Express Company 70,400 $ 906,048 Boulder Total Return Fund, Inc. 18,900 340,200 Dreman/Claymore Dividend & Income Fund 49,500 954,855 John Hanock Bank and Thrift Opportunity Fund 35,700 336,294 Liberty All-Star Growth Fund, Inc. *** 140,800 726,528 Petroleum & Resources Corporation 3,000 101,970 Zweig Fund, Inc. *** 165,900 884,247 ----------- 4,250,142 ----------- CONSUMER DISCRETIONARY - 9.88% Apollo Group, Inc. + 2,500 129,175 Bed Bath & Beyond Inc. + 2,500 82,925 Best Buy Co., Inc. *** 3,750 205,650 CBS Corporation *** 4,500 121,725 Clear Channel Communications, Inc. *** 2,700 83,565 Coach, Inc. + 2,500 74,750 Comcast Corporation, Class A + 4,500 147,510 Comcast Corporation, Special Class A + 6,008 196,702 D.R. Horton, Inc. 2,500 59,550 eBay Inc. + 4,000 117,160 Fortune Brands, Inc. 2,500 177,525 Goodyear Tire & Rubber Company (The) + *** 2,500 27,750 Harley-Davidson, Inc. 2,500 137,225 Hilton Hotels Corporation 2,500 70,700 Home Depot, Inc. (The) 12,300 440,217 J.C. Penney Company, Inc. 2,500 168,775 Kohl's Corporation + 2,500 147,800 Lowe's Companies, Inc. 3,700 224,479 Marriott International, Inc., Class A 5,000 190,600 Mattel, Inc. 4,500 74,295 McDonald's Corporation 8,100 272,160 McGraw-Hill Companies, Inc. (The) 2,500 125,575 Nordstrom, Inc. 2,500 91,250 Office Depot, Inc. + 2,500 95,000 Omnicom Group Inc. 1,500 133,635 Staples, Inc. 3,150 76,608 Starbucks Corporation + 5,000 188,800 Target Corporation 4,600 224,802 Time Warner Inc. 21,000 363,300 Tribune Company 2,500 81,075 Univision Communications Inc., Class A + 2,500 83,750 Viacom Inc. + 4,500 161,280 Walt Disney Company (The) 8,000 240,000 ----------- 5,015,313 ----------- CONSUMER STAPLES - 9.49% Altria Group, Inc. 7,700 565,411 Archer-Daniels-Midland Company *** 3,000 123,840 Campbell Soup Company 5,700 211,527 Coca-Cola Company (The) 13,500 580,770 Coca-Cola Enterprises Inc. 2,500 50,925 NO. OF DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- Colgate-Palmolive Company 2,500 149,750 ConAgra Foods, Inc. 2,500 55,275 CVS Corporation 3,000 92,100 General Mills, Inc. *** 2,500 129,150 H.J. Heinz Company *** 2,700 111,294 Kroger Co. (The) *** 3,600 78,696 PepsiCo, Inc. *** 7,500 450,300 Procter & Gamble Company (The) 13,972 776,843 Safeway Inc. 4,900 127,400 Sara Lee Corporation 2,600 41,652 Sysco Corporation 3,500 106,960 Walgreen Co. 5,600 251,104 Wal-Mart Stores, Inc. 19,000 915,230 ----------- 4,818,227 ----------- ENERGY - 9.14% Anadarko Petroleum Corp. 5,000 238,450 BJ Services Company 3,000 111,780 Chevron Corporation 6,568 407,610 ConocoPhillips 7,641 500,715 Devon Energy Corporation *** 2,500 151,025 El Paso Corporation 3,000 45,000 Exxon Mobil Corporation 32,000 1,963,198 Halliburton Company 2,500 185,525 Occidental Petroleum Corporation 2,500 256,375 Peabody Energy Corporation 2,500 139,375 Schlumberger Limited *** 5,000 325,550 Transocean Inc. + 2,500 200,800 XTO Energy, Inc. 2,500 110,675 ----------- 4,636,078 ----------- FINANCIALS - 18.82% AFLAC Incorporated 4,000 185,400 American Express Company 6,100 324,642 American International Group, Inc. *** 12,331 728,146 Ameriprise Financial, Inc. 1,220 54,497 AmSouth Bancorporation 2,500 66,125 Bank of America Corporation 17,021 818,710 BB&T Corporation 4,500 187,155 Charles Schwab Corporation (The) 8,200 131,036 Chubb Corporation (The) 5,000 249,500 Cincinnati Financial Corporation *** 2,500 117,525 Citigroup Inc. 25,600 1,234,944 Countrywide Financial Corporation 3,500 133,280 Fannie Mae 3,200 153,920 Franklin Resources, Inc. *** 2,500 217,025 Freddie Mac 3,300 188,133 Goldman Sachs Group, Inc. (The) *** 3,000 451,290 Hartford Financial Services Group, Inc. (The) 1,600 135,360 JPMorgan Chase & Co. 12,700 533,400 KeyCorp 2,500 89,200 Lehman Brothers Holdings Inc. 5,000 325,750 M&T Bank Corporation *** 2,500 294,800 Marsh & McLennan Companies, Inc. 4,600 123,694 Mellon Financial Corporation 2,300 79,189 Merrill Lynch & Co., Inc. 1,100 76,516 Metlife, Inc. *** 3,000 153,630 Moody's Corporation 2,000 108,920 Morgan Stanley 3,700 233,877 Northern Trust Corporation 1,100 60,830 NO. OF DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- PNC Financial Services Group, Inc. 1,400 98,238 Prudential Financial, Inc. 2,500 194,250 SLM Corporation *** 2,500 132,300 St. Paul Travelers Companies, Inc. (The) 5,092 227,001 State Street Corporation *** 1,600 92,944 Synovus Corporation 2,500 66,950 Wachovia Corporation 8,100 438,048 Washington Mutual, Inc. 5,251 239,341 Wells Fargo & Company 9,000 603,720 ----------- 9,549,286 ----------- HEALTH CARE - 11.09% Aetna Inc. 4,000 159,720 Amgen Inc. + 8,300 541,409 Biomet, Inc. 2,500 78,225 Bristol-Myers Squibb Company 9,600 248,256 Caremark Rx, Inc. + 2,500 124,675 Eli Lilly and Company 4,100 226,607 Gilead Sciences, Inc. + 2,500 147,900 Johnson & Johnson *** 15,500 928,760 Laboratory Corporation of America Holdings + *** 2,500 155,575 McKesson Corporation 2,500 118,200 Medco Health Solutions, Inc. + 1,531 87,696 Medtronic, Inc. 7,100 333,132 Merck & Co. Inc. *** 8,700 316,941 PerkinElmer, Inc. 1,500 31,350 Pfizer Inc. *** 37,460 879,186 Schering-Plough Corporation 8,400 159,852 St. Jude Medical, Inc. + 2,500 81,050 Stryker Corporation 2,000 84,220 UnitedHealth Group Incorporated 10,000 447,800 Waters Corporation + 2,500 111,000 Wyeth 5,000 222,050 Zimmer Holdings, Inc. + 2,500 141,800 ----------- 5,625,404 ----------- INDUSTRIALS - 10.49% 3M Co. *** 2,500 201,925 Boeing Company (The) *** 3,900 319,449 Caterpillar Inc. 5,000 372,400 CSX Corporation 2,500 176,100 Danaher Corporation *** 2,500 160,800 Dover Corporation *** 1,000 49,430 FedEx Corp. *** 2,500 292,150 General Dynamics Corporation 2,500 163,650 General Electric Company 52,000 1,713,920 Honeywell International Inc. 3,300 132,990 Illinois Tool Works Inc. 5,000 237,500 Lockheed Martin Corporation 2,500 179,350 Norfolk Southern Corporation 2,500 133,050 Raytheon Company *** 2,500 111,425 Rockwell Automation, Inc. 2,500 180,025 Southwest Airlines Co. 6,100 99,857 United Parcel Service, Inc., Class B 4,000 329,320 United Technologies Corporation 4,400 279,048 Waste Management, Inc. *** 5,300 190,164 ----------- 5,322,553 ----------- INFORMATION TECHNOLOGY - 13.35% Advanced Micro Devices + 2,500 61,050 NO. OF DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- Agilent Technologies Inc. + 5,000 157,800 Apple Computer, Inc. + 5,000 285,600 Applied Materials, Inc. 8,000 130,240 Autodesk, Inc. 2,500 86,150 Broadcom Corporation - Class A + 2,500 75,125 Cisco Systems, Inc. + 27,000 527,310 Corning Incorporated + 7,500 181,425 Dell Inc. + 10,700 261,187 Electronic Data Systems Corporation 7,500 180,450 EMC Corporation + 8,000 87,760 First Data Corporation *** 4,325 194,798 Fiserv, Inc. + 2,500 113,400 Freescale Semiconductor Inc., Class B + 1,777 52,244 Hewlett-Packard Company *** 13,342 422,675 Intel Corporation *** 22,000 416,900 International Business Machines Corporation *** 5,700 437,874 Jabil Circuit, Inc. + 2,500 64,000 Maxim Integrated Products, Inc. *** 2,500 80,275 Microsoft Corporation 43,000 1,001,900 Motorola, Inc. 16,100 324,415 Network Appliance, Inc. + 2,500 88,250 Oracle Corporation + 33,600 486,864 Paychex, Inc. 2,500 97,450 QUALCOMM Inc. 6,800 272,476 Texas Instruments Incorporated 13,500 408,915 Yahoo! Inc. + 8,500 280,500 ----------- 6,777,033 ----------- MATERIALS - 2.63% Air Products & Chemicals, Inc. 2,500 159,800 Dow Chemical Company (The) 4,700 183,441 E. I. du Pont de Nemours and Company 5,800 241,280 International Paper Company *** 2,300 74,290 Monsanto Company 1,773 149,269 Newmont Mining Corporation 2,500 132,325 Nucor Corporation *** 5,000 271,250 Rohm and Hass Company 2,500 125,300 ----------- 1,336,955 ----------- REAL ESTATE INVESTMENT TRUST - 0.41% Simon Property Group, Inc. *** 2,500 207,350 ----------- TELECOMMUNICATIONS SERVICES - 3.00% AT&T Inc. *** 24,699 688,855 BellSouth Corporation 5,200 188,240 Sprint Nextel Corporation *** 7,437 148,666 Verizon Communications Inc. *** 14,900 499,001 ----------- 1,524,762 ----------- UTILITIES - 2.78% AES Corporation (The) + 3,000 55,350 American Electric Power Company, Inc. 5,500 188,375 CenterPoint Energy, Inc. 5,700 71,250 Duke Energy Corporation *** 6,600 193,842 FirstEnergy Corp. 2,500 135,525 PPL Corporation *** 2,500 80,750 Southern Company (The) 2,500 80,125 TXU Corp. *** 7,400 442,446 Williams Companies, Inc. (The) 2,500 58,400 Xcel Energy, Inc. 5,500 105,490 ----------- 1,411,553 ----------- TOTAL UNITED STATES (cost - $48,498,631) 50,474,656 ----------- NO. OF DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- CZECH REPUBLIC - 0.27% CONSUMER DISCRETIONARY - 0.27% Bonton a.s. + # 137,180 23 Bonton Book a.s. + # 68,590 27,449 Bonton Film Entertainment a.s. + # 68,590 78,250 Bonton Music a.s. + # 68,590 32,023 Bonton Pictures a.s. + # 68,590 23 ----------- 137,768 ----------- TOTAL CZECH REPUBLIC (cost - $894,865) 137,768 ----------- TOTAL EQUITY SECURITIES (cost - $49,393,496) 50,612,424 ----------- PRINCIPAL AMOUNT (000'S) --------- SHORT-TERM INVESTMENTS - 1.37% REPURCHASE AGREEMENTS - 1.37% Bear, Stearns & Co. Inc. * ** $509 508,992 (Agreement dated 6/30/2006 to be repurchased at $509,105), 2.6562%, 7/3/2006, collateralized by $525,130 in U.S. Treasury Bond STRIP) Bear, Stearns & Co. Inc. 152 151,668 (Agreement dated 6/30/2006 to be repurchased at $151,724), 4.5000%, 7/3/2006, collateralized by $156,649 in U.S. Treasury Bond STRIP) Bear, Stearns & Co. Inc. * ** 34 34,420 (Agreement dated 6/30/2006 to be repurchased at $34,435), 5.3125%, 7/3/2006, collateralized by $35,602 in U.S. Treasury Bond STRIP) TOTAL SHORT-TERM INVESTMENTS (cost - $695,080) 695,080 ----------- TOTAL INVESTMENTS - 101.09% (cost - $50,088,576) 51,307,504 ----------- LIABILITIES IN EXCESS OF OTHER ASSETS - (1.09)% (555,693) ----------- NET ASSETS - 100.00% $50,751,811 =========== - ---------- + 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. *** Security or a portion thereof is out on loan. At June 30, 2006, the Fund held 0.27% of its net assets in securities valued in good faith by the Board of Directors with an aggregate cost of $894,865 and a fair value of $137,768. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANIES AND AFFILIATED PURCHASERS. None. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 11. CONTROLS AND PROCEDURES. (a) The Registrant's principal executive officer and principal financial officer have evaluated the Registrant's disclosure controls and procedures as of a date within 90 days of this filing and have concluded that the Registrant's disclosure controls and procedures are effective, as of such date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The Registrant's principal executive officer and principal financial officer are aware of no changes in the Registrant's internal control over financial reporting that occurred during the Registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Not applicable. (a)(2) Separate certifications of Principal Executive and Financial Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 attached as EX-99.CERT. (b) Certification of Principal Executive and Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cornerstone Total Return Fund, Inc. By: /s/ Ralph W. Bradshaw --------------------- Name: Ralph W. Bradshaw Title: Principal Executive Officer Date: August 31, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Ralph W. Bradshaw --------------------- Name: Ralph W. Bradshaw Title: Principal Executive Officer Date: August 31, 2006 By: /s/ Jodi B. Levine ------------------ Name: Jodi B. Levine Title: Principal Financial Officer Date: August 31, 2006 EX-99.CERT 2 exh99cert.txt CERT EX-99.CERT CERTIFICATIONS I, Ralph A. Bradshaw, certify that: 1. I have reviewed this report on Form N-CSR of Cornerstone Total Return Fund, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) the registrant and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosures controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 31, 2006 /s/ Ralph W. Bradshaw - ------------------------ Ralph W. Bradshaw Chairman and President (Principal Executive Officer) Exhibit 12(a)(2) EX-99.CERT CERTIFICATIONS I, Jodi B. Levine, certify that: 1. I have reviewed this report on Form N-CSR of Cornerstone Total Return Fund, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) the registrant and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosures controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 31, 2006 /s/ Jodi B. Levine - ------------------------ Jodi B. Levine Treasurer (Principal Financial Officer) EX-99.906CERT 3 exh99-906cert.txt 906 CERT EX-99.906 CERT SECTION 906 CERTIFICATIONS SECTION 906 CERTIFICATIONS Ralph W. Bradshaw, Principal Executive Officer, and Jodi B. Levine, Principal Financial Officer, of the Cornerstone Total Return Fund, Inc. (the "Fund"), each certify to his knowledge that: (1)The Fund's periodic report on Form N-CSR for the period ended June 30, 2006 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Fund. /s/ RALPH W. BRADSHAW /s/ JODI B. LEVINE - --------------------- ------------------- Ralph W. Bradshaw Jodi B. Levine Chairman and President Treasurer (Principal Executive Officer) (Principal Financial Officer) Date: August 31, 2006 Date: August 31, 2006 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Fund and will be retained by the Fund and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----