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
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(Address of principal executive offices) (Zip code)
Jodi Levine
383 Madison Avenue, New York, NY 10179
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(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 272-3550
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.
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CORNERSTONE TOTAL
RETURN FUND, INC.
JUNE 30, 2006
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CORNERSTONE TOTAL
RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2006
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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
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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
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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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
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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
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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
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5,322,553
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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
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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
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MATERIALS - 2.63%
Total Materials (a) 1,336,955
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REAL ESTATE INVESTMENT TRUSTS - 0.41%
Total Real Estate Investment Trusts (a) 207,350
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TELECOMMUNICATION SERVICES - 3.00%
AT&T Inc. ++ 24,699 688,855
Verizon Communications Inc. ++ 14,900 499,001
Other Telecommunication Services (a) 336,906
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1,524,762
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UTILITIES - 2.78%
TXU Corp. ++ 7,400 442,446
Other Utilities (a) 969,107
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1,411,553
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TOTAL UNITED STATES
(cost - $48,498,631) 50,474,656
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CZECH REPUBLIC - 0.27%
CONSUMER DISCRETIONARY - 0.27%
Total Consumer Discretionary (a)* 137,768
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TOTAL CZECH REPUBLIC
(cost - $894,865) 137,768
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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
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TOTAL SHORT-TERM INVESTMENTS
(cost - $695,080) 695,080
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TOTAL INVESTMENTS - 101.09%
(cost - $50,088,576) 51,307,504
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LIABILITIES IN EXCESS OF OTHER ASSETS - (1.09)% (555,693)
-----------
NET ASSETS - 100.00% $50,751,811
===========
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+ 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
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Total Liabilities 661,752
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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
============
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(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
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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
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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