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, 2007
Date of reporting period: June 30, 2007
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.
SEMI-ANNUAL REPORT
JUNE 30, 2007
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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
Result of Annual Meeting of Stockholders 12
Description of Dividend Reinvestment Plan 13
Investment Management Agreement Approval Disclosure 15
Proxy Voting and Portfolio Holdings Information 16
Privacy Policy Notice 16
Summary of General Information 17
Shareholder Information 17
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CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2007 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Financials 19.0
Information Technology 14.3
Healthcare 10.8
Industrials 10.4
Energy 9.7
Consumer Discretionary 9.3
Consumer Staples 8.5
Closed-End Funds 8.1
Telecommunication Services 3.8
Utilities 2.9
Materials 2.5
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 5.3
2. General Electric Company Industrials 3.7
3. Citigroup Inc. Financials 2.6
4. AT&T Inc. Telecommunication Services 2.4
5. Microsoft Corporation Information Technology 2.2
6. Dreman/Claymore Dividend & Income Fund Closed-End Funds 2.1
7. Adams Express Company Closed-End Funds 2.1
8. Johnson & Johnson Healthcare 1.9
9. American International Group, Inc. Financials 1.7
10. Chevron Corporation Energy 1.7
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1
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2007 (UNAUDITED)
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No. of
Description Shares Value
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EQUITY SECURITIES - 99.72%
CLOSED-END FUNDS - 8.11%
Adams Express Company 70,400 $ 1,048,256
Boulder Total Return Fund, Inc. 13,900 296,626
Dreman/Claymore Dividend & Income Fund 49,500 1,063,260
Liberty All-Star Growth Fund, Inc. 126,800 722,760
Other Closed-End Funds (a) 964,444
------------
4,095,346
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CONSUMER DISCRETIONARY - 9.28%
Home Depot, Inc. (The) 9,000 354,150
Target Corporation 4,600 292,560
Time Warner Inc. 17,000 357,680
Walt Disney Company (The) 8,000 273,120
Other Consumer Discretionary (a) 3,409,034
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4,686,544
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CONSUMER STAPLES - 8.52%
Altria Group, Inc. 7,700 540,078
Coca-Cola Company (The) 11,000 575,410
PepsiCo, Inc. ^ 5,000 324,250
Procter & Gamble Company (The) 11,472 701,972
Wal-Mart Stores, Inc. 16,000 769,760
Other Consumer Staples (a) 1,391,066
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4,302,536
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ENERGY - 9.69%
Chevron Corporation 10,068 848,128
Exxon Mobil Corporation 32,000 2,684,160
Marathon Oil Corp. 5,000 299,800
Schlumberger Limited ^ 5,000 424,700
Other Energy (a) 633,575
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4,890,363
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FINANCIALS - 18.96%
American International Group, Inc. 12,331 863,540
Bank of America Corporation 14,521 709,932
Citigroup Inc. 25,600 1,313,024
Franklin Resources, Inc. ^ 2,500 331,175
Goldman Sachs Group, Inc. (The) 3,000 650,250
JPMorgan Chase & Co. 12,700 615,315
Morgan Stanley 3,700 310,356
Wachovia Corporation 5,600 287,000
Wells Fargo & Company ^ 18,000 633,060
Other Financials (a) 3,856,919
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9,570,571
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HEALTHCARE - 10.83%
Amgen Inc. * 8,300 458,907
Johnson & Johnson 15,500 955,110
Merck & Co. Inc. 8,700 433,260
Pfizer Inc. ^ 22,460 574,302
UnitedHealth Group Incorporated 10,000 511,400
Wyeth ^ 5,000 286,700
Other Healthcare (a) 2,244,332
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5,464,011
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INDUSTRIALS - 10.41%
FedEx Corp. ^ 2,500 277,425
General Electric Company 49,000 1,875,720
United Parcel Service, Inc., Class B 4,000 292,000
United Technologies Corporation 4,400 312,092
Other Industrials (a) 2,498,873
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5,256,110
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INFORMATION TECHNOLOGY - 14.28%
Apple Computer, Inc. ^ * 5,000 610,200
Cisco Systems, Inc. * 22,000 612,700
Google Inc. * 1,000 523,380
Hewlett-Packard Company ^ 10,000 446,200
Intel Corporation 13,000 308,880
International Business Machines Corporation 5,700 599,925
Microsoft Corporation 37,500 1,105,125
Oracle Corporation ^ * 28,600 563,706
QUALCOMM Inc. 6,800 295,052
See accompanying notes to financial statements.
2
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2007 (UNAUDITED) (CONCLUDED)
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No. of
Description Shares Value
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INFORMATION TECHNOLOGY (CONTINUED)
Texas Instruments Incorporated 11,000 $ 413,930
Other Information Technology (a) 1,729,995
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7,209,093
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MATERIALS - 2.49%
E. I. du Pont de Nemours and Company 5,800 294,872
Other Materials (a) 963,917
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1,258,789
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REAL ESTATE INVESTMENT TRUST - 0.46%
Total Real Estate Investment Trust (a) 232,600
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TELECOMMUNICATION SERVICES - 3.75%
AT&T Inc. 28,589 1,186,444
Verizon Communications Inc. 10,000 411,700
Other Telecommunication Services (a) 292,195
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1,890,339
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UTILITIES - 2.94%
TXU Corp. 7,400 498,020
Other Utilities (a) 984,235
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1,482,255
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TOTAL EQUITY SECURITIES
(cost - $40,567,315) 50,338,557
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Principal
Amount
Description (000's) Value
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SHORT-TERM INVESTMENTS - 3.92%
REPURCHASE AGREEMENTS - 3.92%
Bear, Stearns & Co. Inc. +
(Agreements dated 6/29/2007 to
be repurchased at $1,979,387) (b) $ 1,979 $ 1,978,659
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TOTAL SHORT-TERM INVESTMENTS
(cost - $1,978,659) 1,978,659
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TOTAL INVESTMENTS - 103.64%
(cost - $42,545,974) 52,317,216
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LIABILITIES IN EXCESS OF
OTHER ASSETS - (3.64)% (1,839,115)
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NET ASSETS - 100.00% $ 50,478,101
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* Non-income producing security.
+ Includes investments purchased with collateral received for securities on
loan.
^ Security or a portion thereof is out on loan.
(a) Represents issues not identified as a top 50 holding in terms of market
value and issues or issuers not exceeding 1% of net assets individually or
in the aggregate, respectively, as of June 30, 2007.
(b) At June 29, 2007, the maturity date for all repurchase agreements held was
July 2, 2007, with interest rates ranging from 2.6875% to 5.3750% and
collateralized by $2,024,120 in U.S. Treasury Bonds.
See accompanying notes to financial statements.
3
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2007 (UNAUDITED)
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ASSETS
Investments, at value, including collateral for securities
on loan of $1,817,719 (Cost $42,545,974) (1) $ 52,317,216
Receivables:
Dividends 47,121
Interest 1,638
Reclaims 16,360
Prepaid expenses 7,561
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Total Assets 52,389,896
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LIABILITIES
Payables:
Upon return of securities loaned 1,817,719
Investment management fees (net of fee waivers) 42,159
Directors' fees 13,883
Other accrued expenses 37,488
Due to custodian 546
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Total Liabilities 1,911,795
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NET ASSETS (applicable to 5,256,603 shares of common stock outstanding) $ 50,478,101
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NET ASSET VALUE PER SHARE ($50,478,101 [divided by] 5,256,603) $ 9.60
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NET ASSETS CONSISTS OF
Capital stock, $0.01 par value; 5,256,603 shares issued and outstanding
(15,000,000 shares authorized) $ 52,566
Paid-in capital 56,394,155
Accumulated net realized loss on investments and foreign currency related transactions (15,739,862)
Net unrealized appreciation in value of investments and translation of foreign currency 9,771,242
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Net assets applicable to shares outstanding $ 50,478,101
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(1) Includes securities out on loan to brokers with a market value of
$1,787,327.
See accompanying notes to financial statements.
4
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
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INVESTMENT INCOME
Income:
Dividends $ 530,207
Interest 10,815
Securities lending 10,710
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Total Investment Income 551,732
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Expenses:
Investment management fees 254,112
Directors' fees 27,769
Administration fees 25,439
Legal and audit fees 25,393
Accounting fees 17,624
Printing 15,483
Transfer agent fees 14,876
Custodian fees 5,949
Stock exchange listing fees 3,168
Insurance 3,165
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Total Expenses 392,978
Less: Management fee waivers (1,467)
Less: Fees paid indirectly (5,949)
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Net Expenses 385,562
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Net Investment Income 166,170
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NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized loss from investments and foreign currency related transactions (375,222)
Capital gain distributions from regulated investment companies 6,305
Net change in unrealized appreciation in value of investments
and translation of foreign currency 2,750,934
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Net realized and unrealized gain on investments and foreign currency related transactions 2,382,017
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,548,187
============
See accompanying notes to financial statements.
5
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
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For the Six
Months Ended
June 30, 2007 For the Year Ended
(unaudited) December 31, 2006
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DECREASE IN NET ASSETS
Operations:
Net investment income $ 166,170 $ 428,197
Net realized loss from investments and foreign
currency related transactions (375,222) (50,353)
Capital gain distributions from regulated investment companies 6,305 103,660
Net change in unrealized appreciation in value of investments
and translation of foreign currency 2,750,934 6,318,611
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Net increase in net assets resulting from operations 2,548,187 6,800,115
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Dividends and distributions to shareholders:
Net investment income (166,170) (428,197)
Return-of-capital (5,398,973) (10,248,116)
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Total dividends and distributions to shareholders (5,565,143) (10,676,313)
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Capital stock transactions:
Proceeds from 88,729 and 200,573 shares newly issued
in reinvestment of dividends and distributions, respectively 1,115,827 2,061,112
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Total decrease in net assets (1,901,129) (1,815,086)
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NET ASSETS
Beginning of period 52,379,230 54,194,316
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End of period $ 50,478,101 $ 52,379,230
============ ============
See accompanying notes to financial statements.
6
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CORNERSTONE TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
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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, 2007 ------------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.14 $ 10.91 $ 12.78 $ 13.89 $ 12.89 $ 18.30
-------- -------- -------- -------- -------- --------
Net investment income # 0.03 0.09 0.06 0.10 0.08 0.15
Net realized and unrealized gain/(loss)
on investments and foreign currency
related transactions 0.46 1.25 0.18 0.87 2.91 (3.57)
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from operations 0.49 1.34 0.24 0.97 2.99 (3.42)
-------- -------- -------- -------- -------- --------
Dividends and distributions to shareholders:
Net investment income (0.03) (0.09) (0.06) (0.10) (0.08) (0.18)
Return-of-capital (1.04) (2.02) (2.05) (2.01) (1.91) (1.80)
-------- -------- -------- -------- -------- --------
Total dividends and distributions to shareholders (1.07) (2.11) (2.11) (2.11) (1.99) (1.98)
-------- -------- -------- -------- -------- --------
Capital stock transactions:
Anti-dilutive effect due to capital
stock repurchased -- -- -- -- -- 0.02
Anti-dilutive/(dilutive) effect due to shares
issued in reinvestment of dividends
and distributions 0.04 -- -- 0.03 -- (0.03)
-------- -------- -------- -------- -------- --------
Total capital stock transactions 0.04 -- -- 0.03 -- (0.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 9.60 $ 10.14 $ 10.91 $ 12.78 $ 13.89 $ 12.89
======== ======== ======== ======== ======== ========
Market value, end of period $ 18.85 $ 19.62 $ 14.65 $ 17.95 $ 17.95 $ 11.35
======== ======== ======== ======== ======== ========
Total investment return (a) 4.49% 64.15% (2.07)% 15.11% 82.96% (19.30)%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 50,478 $ 52,379 $ 54,194 $ 61,365 $ 65,642 $ 60,151
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.50%(d) 1.44% 1.47% 1.41% 1.20% 1.50%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 1.53%(d) 1.50% 1.52% 1.45% 1.43% 2.07%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.53%(d) 1.50% 1.50% 1.43% 1.23% 1.63%
Ratio of net investment income to
average net assets 0.65%(d) 0.82% 0.53% 0.75% 0.65% 1.01%
Portfolio turnover rate 4.34% 11.29% 9.84% 12.15% 3.62% 86.60%
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# 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
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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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 company; 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,
2007, the Fund held no securities valued in good faith by the Board of
Directors. 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.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years, beginning after November
15, 2007 and interim periods within those fiscal years. At this time, the Fund
is evaluating the implication of FAS 157 and its impact on the financial
statements has not yet been determined.
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
8
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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.
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.
In July 2006, the Financial Accounting Standards Board ("FASB") released FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), an
interpretation of FASB Statement No. 109. FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the accounting and disclosure of
tax positions taken or expected to be taken in the course of preparing the
Fund's tax returns to determine whether the tax positions are "more likely than
not" of being sustained by the applicable tax authority. Tax positions not
deemed to meet the more likely than not threshold would be recorded as a tax
benefit or expense in the current year. Adoption of FIN 48 is effective during
the first required financial reporting period for fiscal years beginning after
December 15, 2006. Management adopted FIN 48 on June 29, 2007. There was no
material impact to the financial statements or disclosures thereto as a result
of the adoption of this pronouncement.
DISTRIBUTIONS TO SHAREHOLDERS: Effective January 2002, the Fund initiated a
fixed, monthly distribution to shareholders. On November 29, 2006, this
distribution policy was updated to provide for the annual resetting of the
monthly distribution amount per share, beginning in 2007, based on the Fund's
net asset value on the last business day in each October. The terms of the
distribution policy will be reviewed and approved at least annually by the
Fund's Board of Directors and can be modified at their discretion. To the extent
that these distributions exceed the current earnings of the Fund, the balance
will be generated from sales of portfolio securities held by the Fund, which
will either be short-term or long-term capital gains or a tax-free
return-of-capital. To the extent these distributions are not represented by net
investment income and capital gains, they will not represent yield or investment
return on the Fund's investment portfolio. The Fund plans to maintain this
distribution policy even if regulatory requirements would make part of a
return-of-capital, necessary to maintain the distribution, taxable to
shareholders and to disclose that portion of the distribution that is classified
as ordinary income. Although it has no current intention to do so, the Board may
terminate this distribution policy at any time and such termination may have an
adverse effect on the market price for the Fund's common shares. The Fund
determines annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses, including capital
loss carryovers, if any. To the extent that the Fund's taxable income in any
calendar year exceeds the aggregate amount distributed pursuant to this
distribution policy, an additional distribution may be made to avoid the payment
of a 4% U.S. federal excise tax, and to the extent that the aggregate amount
distributed in any calendar year exceeds the Fund's taxable income, the amount
of that excess may constitute a return-of-capital for tax purposes. A
9
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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 2007, 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, 2007, Cornerstone earned $254,112 for
investment management services, of which it waived $1,467. The Investment
Manager may discontinue such under- taking at any time during the fiscal year
without notice to fund shareholders.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $5,949 arising from credits earned on portfolio trans-
actions executed with a broker, pursuant to a directed brokerage arrangement.
The Fund paid or accrued approximately $17,307 for the six months ended June 30,
2007 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, 2007, purchases and sales of securities, other
than short-term investments, were $2,217,341 and $9,149,421 respectively.
NOTE D. SHARE REPURCHASE PROGRAM
As has been done in the past to enhance shareholder value, pursuant to Section
23 of the Investment Company Act of 1940, as amended, the Fund may again in the
future purchase shares of its common stock on the open market from time to time,
at such times, and in such amounts as may be deemed advantageous to the Fund.
Nothing herein shall be considered a commitment to purchase such shares. The
Fund had no repurchases during the six months ended June 30, 2007. No limit has
been placed on the number of shares to be repurchased by the Fund other than
those imposed by federal securities laws.
To the extent such purchases are made they will be in accordance with federal
securities laws, with shares repurchased held in treasury for future use by the
Fund.
NOTE E. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33 1/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by 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
10
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
assurance the Fund can recover this amount. The value of securities on loan to
brokers at June 30, 2007, was $1,787,327. During the six months ended June 30,
2007, the Fund earned $10,710 in securities lending income which is included
under the caption Securities lending in the Statement of Operations.
NOTE F. FEDERAL INCOME TAXES
Income and capital gains distributions are deter- mined 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 were as follows:
ORDINARY INCOME RETURN-OF-CAPITAL
--------------- -----------------
2006 2005 2006 2005
---- ---- ---- ----
$428,197 $299,210 $10,248,116 $9,996,313
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, 2006, the Fund did not incur Post-October losses.
At December 31, 2006, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $15,319,316, of which $12,887,270 expires in 2008,
$1,170,157 expires in 2009, $425,706 expires in 2011, $358,321 expires in 2012,
$420,772 expires in 2013 and $57,090 expires in 2014.
At June 30, 2007, 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 $42,597,603, $11,487,974,
$(1,768,361), and $9,719,613, respectively.
11
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On April 16, 2007, the Annual Meeting of Stockholders of Cornerstone Total
Return Fund, Inc. was held and the following matter was voted upon based on
5,186,446 shares of common stock outstanding on February 16, 2007:
(1) To approve the re-election of seven Directors until the 2008 Annual
Meeting.
NAME OF DIRECTORS FOR WITHHOLD
----------------- --- --------
Ralph W. Bradshaw 4,752,213 40,649
William A. Clark 4,750,310 42,552
Thomas H. Lenagh 4,752,045 40,817
Edwin Meese III 4,735,719 57,143
Scott B. Rogers 4,750,253 42,609
Andrew A. Strauss 4,750,134 42,728
Glenn W. Wilcox, Sr. 4,753,888 38,974
12
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Cornerstone Total Return Fund, Inc. operates a Dividend Reinvestment Plan (the
"Plan"), sponsored and administered by American Stock Transfer & Trust Company
(the "Agent"), pursuant to which the Fund's income dividends or capital gains or
other distributions (each, a "Distribution" and collectively, "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 automatically participate in the Fund's Plan, unless and until an
election is made to withdraw from the Plan on behalf of such participating
share- holder. 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. Under the Plan, the Fund's Distributions to
shareholders are reinvested in full and fractional shares as described below.
When the Fund declares a Distribution 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").
The method for determining the number of shares to be received when
Distributions are reinvested will vary depending upon whether the net asset
value of the Fund's shares is higher or lower than its market price. If the net
asset value of the Fund's shares is lower than its market price, the number of
Newly Issued Shares received will be determined by dividing the amount of the
Distribution either by the Fund's net asset value per share or by 95% of its
market price, whichever is higher. If the net asset value of the Fund's shares
is higher than its market price, shares acquired by the Agent in Open Market
Purchases will be allocated to the reinvesting share- holders based on the
average cost of such Open Market Purchases.
Whenever the Fund declares a Distribution and the net asset value of the Fund's
shares is higher than its market price, the Agent will apply the amount of such
Distribution payable to Plan participants of the Fund in Fund shares (less such
Plan participant's pro rata share of brokerage commissions incurred with respect
to Open Market Purchases in connection with the reinvestment of such
Distribution) to the purchase on the open market of Fund shares for such Plan
participant's account. Such purchases will be made on or after the payable date
for such Distribution, and in no event more than 30 days after such date except
where temporary curtailment or suspension of purchase is necessary to comply
with applicable provisions of federal securities laws. The Agent may aggregate a
Plan participant's purchases with the purchases of other Plan participants, and
the average price (including brokerage commissions) of all shares purchased by
the Agent shall be the price per share allocable to each Plan participant.
Registered shareholders who do not wish to have their Distributions
automatically reinvested should so notify the Fund in writing. If a shareholder
has not elected to receive cash Distributions and the Agent does not receive
notice of an election to receive cash Distributions prior to the record date of
any Distribution, the shareholder will automatically receive such Distributions
in additional shares.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Distribution payment date.
When a Participant withdraws from the Plan, or upon suspension or termination of
the Plan at the sole discretion of the Fund's Board of Directors, 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 be issued, a cash payment will be made for any fraction of a share
credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records.
13
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
The Agent will hold shares in the account of the Plan participant in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan. Each
participant, nevertheless, has the right to receive certificates for whole
shares owned. The Agent will distribute all proxy solicitation materials to
participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the shareholder's name and held for the account of
beneficial owners participating in the Plan.
Neither the Agent nor the Fund shall have any responsibility or liability beyond
the exercise of ordinary care for any action taken or omitted pursuant to the
Plan, nor shall they have any duties, responsibilities or liabilities except
such as expressly set forth herein. Neither shall they be liable hereunder for
any act done in good faith or for any good faith omissions to act, including,
without limitation, failure to terminate a participants account prior to receipt
of written notice of his or her death or with respect to prices at which shares
are purchased or sold for the participants account and the terms on which such
purchases and sales are made, subject to applicable provisions of the federal
securities laws.
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. Certain
transactions can be performed online at www.amstock.com or by calling the toll
free number 888-556-0422.
14
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
16, 2007.
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 market's positive valuation of the Fund.
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 share- holders, 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.
15
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 or 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 trans- actions 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.
16
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.
--------------------------------------------------------------------------------
17
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.
[AMEX LOGO]
LISTED
CRF(TM)
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, 2007 (UNAUDITED)
--------------------------------------------------------------------------------
NO. OF
DESCRIPTION SHARES VALUE
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.72%
CLOSED-END FUNDS - 8.11%
Adams Express Company 70,400 $ 1,048,256
Boulder Total Return Fund, Inc. 13,900 296,626
Central Europe and Russia Fund, Inc. (The) 2,500 129,275
Cohen & Steers Select Utility Fund, Inc. 6,000 157,560
Dreman/Claymore Dividend & Income Fund 49,500 1,063,260
H&Q Healthcare Investors 5,100 87,669
H&Q Life Sciences Investors 6,000 81,240
Japan Equity Fund 13,000 109,980
Liberty All-Star Growth Fund, Inc. 126,800 722,760
Neuberger Berman Real Estate Income Fund Inc. 8,500 224,570
Petroleum & Resources Corporation ^ 3,000 115,860
Templeton Emerging Markets Fund ^ 3,000 58,290
------------
4,095,346
------------
CONSUMER DISCRETIONARY - 9.28%
Amazon.com, Inc. ^ * 2,500 171,025
Bed Bath & Beyond Inc. * 2,500 89,975
Citadel Broadcasting Corporation 614 3,960
Coach, Inc. * 2,500 118,475
Comcast Corporation, Class A * 9,012 253,417
Comcast Corporation, Special Class A * 4,250 118,830
DIRECTV Group, Inc. (The) * 4,000 92,440
Ford Motor Company 14,000 131,880
Goodyear Tire & Rubber Company (The) * 2,500 86,900
Harley-Davidson, Inc. 2,500 149,025
Hilton Hotels Corporation 2,500 83,675
Home Depot, Inc. (The) 9,000 354,150
J.C. Penney Company, Inc. 2,500 180,950
Kohl's Corporation * 2,500 177,575
Lowe's Companies, Inc. 4,900 150,381
Marriott International, Inc., Class A 5,000 216,200
Mattel, Inc. 4,500 113,805
McDonald's Corporation 5,100 258,876
McGraw-Hill Companies, Inc. (The) ^ 2,500 170,200
NIKE, Inc., Class B 2,500 145,725
Nordstrom, Inc. 2,500 127,800
Office Depot, Inc. * 2,500 75,750
Omnicom Group Inc. ^ 3,000 158,760
Staples, Inc. 3,150 74,750
Starbucks Corporation * 2,500 65,600
Target Corporation 4,600 292,560
Tata Motors Limited ADR ^ 2,500 41,050
Time Warner Inc. 17,000 357,680
TJX Companies, Inc. (The) 2,500 68,750
Viacom Inc., Class B * 2,000 83,260
Walt Disney Company (The) 8,000 273,120
------------
4,686,544
------------
CONSUMER STAPLES - 8.52%
Altria Group, Inc. 7,700 540,078
Campbell Soup Company 3,200 124,192
Coca-Cola Company (The) 11,000 575,410
Colgate-Palmolive Company 2,500 162,125
ConAgra Foods, Inc. 2,500 67,150
CVS Corporation 4,175 152,179
H.J. Heinz Company 2,700 128,169
Kraft Foods Inc, Class A 5,328 187,812
Kroger Co. (The) 3,600 101,268
PepsiCo, Inc. ^ 5,000 324,250
Procter & Gamble Company (The) 11,472 701,972
Safeway Inc. ^ 4,900 166,747
Tyson Foods, Inc. ^ 2,500 57,600
Walgreen Co. 5,600 243,824
Wal-Mart Stores, Inc. 16,000 769,760
------------
4,302,536
------------
ENERGY - 9.69%
Chevron Corporation 10,068 848,128
Exxon Mobil Corporation 32,000 2,684,160
Halliburton Company 5,000 172,500
Marathon Oil Corp. 5,000 299,800
NiSource Inc. ^ 2,500 51,775
Peabody Energy Corporation 2,500 120,950
Schlumberger Limited ^ 5,000 424,700
Weatherford International Ltd. * 2,500 138,100
XTO Energy, Inc. 2,500 150,250
------------
4,890,363
------------
FINANCIALS - 18.96%
AFLAC Incorporated 1,500 77,100
Allstate Corporation (The) 2,500 153,775
American Express Company ^ 3,500 214,130
American International Group, Inc. 12,331 863,540
Ameriprise Financial, Inc. 1,220 77,555
Aon Corporation 2,500 106,525
Bank of America Corporation 14,521 709,932
BB&T Corporation 4,500 183,060
CB Richard Ellis Group, Inc., Class A ^ * 2,500 91,250
Charles Schwab Corporation (The) 8,200 168,264
Chubb Corporation (The) 2,000 108,280
Citigroup Inc. 25,600 1,313,024
Fannie Mae 3,200 209,056
Fifth Third Bancorp 2,500 99,425
Franklin Resources, Inc. ^ 2,500 331,175
Freddie Mac 3,300 200,310
Goldman Sachs Group, Inc. (The) 3,000 650,250
Hartford Financial Services Group, Inc. (The) 1,600 157,616
JPMorgan Chase & Co. 12,700 615,315
KeyCorp 2,500 85,825
Lehman Brothers Holdings Inc. ^ 2,500 186,300
Marsh & McLennan Companies, Inc. ^ 2,500 77,200
Mellon Financial Corporation 2,300 101,200
Merrill Lynch & Co., Inc. 1,100 91,938
Metlife, Inc. 3,000 193,440
Moody's Corporation ^ 2,000 124,400
Morgan Stanley 3,700 310,356
National City Corporation 2,500 83,300
Prudential Financial, Inc. 2,500 243,075
Regions Financial Corporation 1,993 65,968
SLM Corporation 2,500 143,950
State Street Corporation ^ 1,600 109,440
Synovus Corporation 2,500 76,750
Travelers Companies, Inc. (The) ^ 5,092 272,422
UnumProvident Corporation 2,500 65,275
Wachovia Corporation 5,600 287,000
Wells Fargo & Company ^ 18,000 633,060
Western Union Company ^ 4,325 90,090
------------
9,570,571
------------
HEALTHCARE - 10.83%
Aetna Inc. 4,000 197,600
Amgen Inc. * 8,300 458,907
Biomet, Inc. 2,500 114,300
Eli Lilly and Company 4,100 229,108
Forest Laboratories, Inc. * 2,500 114,125
Gilead Sciences, Inc. * 5,000 193,850
Johnson & Johnson 15,500 955,110
Laboratory Corporation of America Holdings ^ * 2,500 195,650
McKesson Corporation 2,500 149,100
Medco Health Solutions, Inc. * 1,531 119,403
Medtronic, Inc. 4,500 233,370
Merck & Co. Inc. 8,700 433,260
Pfizer Inc. ^ 22,460 574,302
Schering-Plough Corporation 8,400 255,696
St. Jude Medical, Inc. * 2,500 103,725
Stryker Corporation 2,000 126,180
UnitedHealth Group Incorporated 10,000 511,400
Wyeth ^ 5,000 286,700
Zimmer Holdings, Inc. * 2,500 212,225
------------
5,464,011
------------
INDUSTRIALS - 10.41%
3M Co. ^ 2,500 216,975
Allied Waste Industries, Inc. * 2,500 33,650
AMR Corporation * 2,500 65,875
Boeing Company (The) ^ 1,400 134,624
Caterpillar Inc. 2,500 195,750
CSX Corporation 5,000 225,400
Danaher Corporation 2,500 188,750
FedEx Corp. ^ 2,500 277,425
General Dynamics Corporation ^ 2,500 195,550
General Electric Company 49,000 1,875,720
Honeywell International Inc. ^ 3,300 185,724
Illinois Tool Works Inc. 2,500 135,475
Lockheed Martin Corporation 2,500 235,325
Norfolk Southern Corporation ^ 2,500 131,425
Raytheon Company ^ 2,500 134,725
Rockwell Automation, Inc. ^ 2,500 173,600
United Parcel Service, Inc., Class B 4,000 292,000
United Technologies Corporation 4,400 312,092
Waste Management, Inc. ^ 2,500 97,625
Waters Corporation * 2,500 148,400
------------
5,256,110
------------
INFORMATION TECHNOLOGY - 14.28%
Agilent Technologies Inc. * 2,500 96,100
Altera Corporation 2,500 55,325
Apple Computer, Inc. ^ * 5,000 610,200
Applied Materials, Inc. ^ 8,000 158,960
Cisco Systems, Inc. * 22,000 612,700
Corning Incorporated * 6,000 153,300
eBay Inc. * 4,000 128,720
Electronic Data Systems Corporation 2,500 69,325
EMC Corporation * 8,000 144,800
Fiserv, Inc. ^ * 2,500 142,000
Google Inc. * 1,000 523,380
Hewlett-Packard Company ^ 10,000 446,200
Intel Corporation 13,000 308,880
International Business Machines Corporation 5,700 599,925
Intuit Inc. ^ * 2,500 75,200
Microsoft Corporation 37,500 1,105,125
Motorola, Inc. 8,600 152,220
NVIDIA Corporation * 2,500 103,275
Oracle Corporation ^ * 28,600 563,706
Paychex, Inc. 2,500 97,800
QUALCOMM Inc. 6,800 295,052
Texas Instruments Incorporated 11,000 413,930
Xerox Corporation * 3,000 55,440
Xilinx, Inc. 2,500 66,925
Yahoo! Inc. * 8,500 230,605
------------
7,209,093
------------
MATERIALS - 2.49%
Air Products & Chemicals, Inc. 2,500 200,925
Alcoa Inc. 3,000 121,590
Allegheny Technologies, Inc. ^ 1,500 157,320
Dow Chemical Company (The) 3,500 154,770
E. I. du Pont de Nemours and Company 5,800 294,872
International Paper Company ^ 2,300 89,815
Monsanto Company 3,546 239,497
------------
1,258,789
------------
REAL ESTATE INVESTMENT TRUST - 0.46%
Simon Property Group, Inc. ^ 2,500 232,600
------------
TELECOMMUNICATION SERVICES - 3.75%
AT&T Inc. 28,589 1,186,444
Nokia ADR 2,500 70,275
Qwest Communications International Inc. * 7,000 67,900
Sprint Nextel Corporation ^ 7,437 154,020
Verizon Communications Inc. 10,000 411,700
------------
1,890,339
------------
UTILITIES - 2.94%
Alleghany Energy Inc. * 2,500 129,350
American Electric Power Company, Inc. ^ 5,500 247,720
Duke Energy Corporation ^ 6,600 120,780
Dynegy Inc. ^ * 5,000 47,200
FirstEnergy Corp. 2,500 161,825
Southern Company (The) 2,500 85,725
TXU Corp. 7,400 498,020
Williams Companies, Inc. (The) 2,500 79,050
Xcel Energy, Inc. ^ 5,500 112,585
------------
1,482,255
------------
TOTAL EQUITY SECURITIES
(cost - $40,567,315) 50,338,557
------------
PRINCIPAL
AMOUNT
(000'S)
---------
SHORT-TERM INVESTMENTS - 3.92%
REPURCHASE AGREEMENTS - 3.92%
Bear, Stearns & Co. Inc. + ++
(Agreements dated 6/29/2007 to be repurchased
at $1,173,425, 5.3750%, 7/2/2007, collateralized
by $1,196,550 in United States Treasury Bonds) 1,173 1,172,900
Bear, Stearns & Co. Inc. + ++
(Agreements dated 6/29/2007 to be repurchased
at $644,963, 2.6875%, 7/2/2007, collateralized
by $658,893 in United States Treasury Bonds) 645 644,819
Bear, Stearns & Co. Inc.
(Agreements dated 6/29/2007 to be repurchased
at $160,998, 4.3000%, 7/2/2007, collateralized
by $168,677 in United States Treasury Bonds) 161 160,940
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $1,978,659) 1,978,659
------------
TOTAL INVESTMENTS - 103.64%
(cost - $42,545,974) 52,317,216
------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (3.64)% (1,839,115)
------------
NET ASSETS - 100.00% $ 50,478,101
============
----------
ADR American Depositary Receipt
* Non-income producing security.
+ 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.
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, 2007
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, 2007
By: /s/ Jodi B. Levine
------------------
Name: Jodi B. Levine
Title: Principal Financial Officer
Date: August 31, 2007