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----------------------------
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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.
383 MADISON AVENUE, NEW YORK, NY 10179
-----------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jodi B. Levine, 383 MADISON AVE, NEW YORK, NY
----------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-272-3550
Date of fiscal year end: DECEMBER 31, 2004
------------------
Date of reporting period: JANUARY 1, 2004 THROUGH JUNE 30, 2004
-------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
William A. Clark Director and Vice President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Thomas R. Westle Secretary
Jodi B. Levine Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock Transfer &
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 10038
ADMINISTRATOR INDEPENDENT ACCOUNTANTS
Bear Stearns Funds Tait, Weller & Baker
Management Inc. 1818 Market Street
383 Madison Avenue Suite 2400
New York, NY 10179 Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Blank Rome LLP
101 Carnegie Center 405 Lexington Avenue
Princeton, NJ 08540 New York, NY 10174
EXECUTIVE OFFICES
383 Madison Avenue
New York, NY 10179
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (212) 272-3550.
[LOGO]
AMERICAN
STOCK EXCHANGE
LISTED
CRF
================================================================================
CORNERSTONE TOTAL RETURN FUND, INC.
JUNE 30, 2004
This update contains the following two documents:
o Letter from the Fund's President
o Semi-Annual Report to Shareholders
================================================================================
LETTER FROM THE FUND'S PRESIDENT
July 30, 2004
Dear Fellow Shareholders:
We present the following report for Cornerstone Total Return Fund, Inc. (the
"Fund"), covering the six months ended June 30, 2004. At the end of the period,
the Fund's net assets were $62.4 million, the Net Asset Value per share was
$13.12, and the share price closed at $16.65. After reflecting the reinvestment
of monthly distributions totaling $1.06 per share, the Fund achieved a total
investment return at market value of (1.13%) for the six months ended June 30,
2004.
FOCUS ON SHAREHOLDER VALUE
Under the leadership of its Board, the Fund has maintained its focus on creating
value for its shareholders. The Fund's continued concentration on reducing
expenses, along with the continuing voluntary waiver of a portion of management
fees by the Fund's investment manager, has held the annualized net expense ratio
to 1.38% for the first half of the year. In 2002, the Fund instituted its fixed,
monthly distribution policy designed to provide significant flexibility to those
who invest in the Fund. Judging by the reaction in the marketplace, this
innovative concept has been welcomed by the Fund's shareholders and has
contributed greatly to the Fund's positive price performance.
We believe that a well-managed, diversified equity portfolio provides the best
risk/reward tradeoff for many investors over the long-run. Long-term equity
returns are generally found to be higher than those with fixed-income or
balanced programs and favorable tax treatment on capital gains makes the net
returns even better for taxable investors. The Fund's distribution policy
recognizes that many investors are willing to accept the potentially higher
asset volatility in this approach, but would prefer that stable distributions
were available to them each year to either reinvest or utilize for other
purposes of their choosing.
Each shareholder has the option to receive their distributions in cash or new
shares of the Fund and may change this election whenever they wish. It is a goal
that long-term investment returns will exceed the level of distributions, but
there can be no guarantee that this goal will be met. If the amount of
distributions taken in cash exceeds the total investment return of the Fund, the
assets of the Fund will decline. If the total investment return of the Fund
exceeds the amount of cash distributions and expenses, as it did in 2003, the
assets of the Fund will increase.
Shortly after the end of the year, each shareholder receives a final
determination of what portion of these distributions is attributable to income,
capital gains, or return-of-capital. Last year, even though the assets of the
Fund increased, most of the distributions were classified as a
return-of-capital. It is important for shareholders to consult their tax advisor
on proper recognition of the return-of-capital distributions with regard to the
cost basis of their shares.
ECONOMIC AND MARKET SUMMARY
The U.S. economy continued its strong showing through the first half of the year
with support from housing construction, consumer spending, and industrial
production. Gross domestic product dipped to 3.0% in the second quarter after
growing at a revised first quarter rate of 4.5%.
================================================================================
i
LETTER FROM THE FUND'S PRESIDENT (CONCLUDED)
As always, the U.S. equity markets function as forward-looking indicators
measuring future expectations. Investors balanced the good news against high
energy prices, domestic political uncertainty, and international tensions and
remained skittish, punishing companies who delivered even slight disappointment.
The first half was overshadowed by the anticipated end of a long period of
falling interest rates. The Federal Reserve announced its first widely expected
increase in short-term rates on June 30, the last day of the half. Therefore,
even with positive economic news and strong earnings reports, the S&P 500 Index
traded in a fairly narrow band with little volatility and ended the period up
3.44% while the DJIA finished basically flat for the year.
Overall, the economy seems poised for good performance in the second half of the
year, even in light of significant risks. Terrorism threats may weigh on the
market for years. Rising prices raise concerns for creeping inflation, though
broad acceleration does not appear to be a problem at this point.
The investment manager attempts to enhance portfolio performance by taking
advantage of temporary and occasional pricing inefficiencies in certain
securities. To that end, the percentage of the portfolio represented by
discounted closed-end funds increased for the period. The availability and
magnitude of such opportunities are unpredictable, and therefore, their effect
on portfolio performance may vary considerably from year to year.
Our investment orientation featuring broad diversification has served the Fund
well over the up and down markets of recent years. Though the range-bound
trading and low volatility of recent months tend to limit opportunities to
create distinguishing performance, we believe that our approach will continue to
benefit the Fund and its shareholders for the long-term.
The Fund's Board of Directors, its officers, and its investment manager are
mindful of the trust that the Fund's shareholders have placed in us. We know you
have a choice, we appreciate your support, and we look forward to continuing our
service to you in the future.
Sincerely,
/S/ RALPH W. BRADSHAW
----------------------
Ralph W. Bradshaw
President
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
THIS LETTER FROM THE FUND'S PRESIDENT IS NOT A PART OF THE SEMI-ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS. CORNERSTONE TOTAL RETURN FUND, INC.
================================================================================
ii
================================================================================
CORNERSTONE TOTAL
RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2004
================================================================================
CONTENTS
Portfolio Summary 1
Schedule of Investments 2
Statement of Assets and Liabilities 6
Statement of Operations 7
Statement of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 10
Results of Annual Meeting of Stockholders 13
Description of Dividend Reinvestment Plan 14
Summary of General Information 16
Shareholder Information 16
Proxy Voting 17
Privacy Policy Notice 17
================================================================================
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
TOP TEN, BY SECTOR
Percent of
Sector Net Assets
--------------------------------------------------------------------------------
1. Financials 18.8
--------------------------------------------------------------------------------
2. Information Technology 16.7
--------------------------------------------------------------------------------
3. Consumer Discretionary 14.0
--------------------------------------------------------------------------------
4. Healthcare 12.5
--------------------------------------------------------------------------------
5. Industrials 11.1
--------------------------------------------------------------------------------
6. Consumer Staples 7.9
--------------------------------------------------------------------------------
7. Energy 6.0
--------------------------------------------------------------------------------
8. Closed-End Domestic Funds 4.4
--------------------------------------------------------------------------------
9. Telecommunication Services 3.5
--------------------------------------------------------------------------------
10. Materials 2.6
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. General Electric Co. Industrials 3.5
--------------------------------------------------------------------------------
2. Microsoft Corp. Information Technology 3.4
--------------------------------------------------------------------------------
3. Exxon Mobil Corp. Energy 3.0
--------------------------------------------------------------------------------
4. Tri-Continental Corp. Closed-End Domestic Funds 2.9
--------------------------------------------------------------------------------
5. Wal-Mart Stores, Inc. Consumer Discretionary 2.4
--------------------------------------------------------------------------------
6. Citigroup Inc. Financials 2.4
--------------------------------------------------------------------------------
7. Pfizer Inc. Healthcare 2.3
--------------------------------------------------------------------------------
8. American International Group, Inc. Financials 2.1
--------------------------------------------------------------------------------
9. Intel Corp. Information Technology 2.0
--------------------------------------------------------------------------------
10. Cisco Systems, Inc. Information Technology 1.8
--------------------------------------------------------------------------------
================================================================================
1
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.90%
UNITED STATES - 98.78%
CLOSED-END DOMESTIC FUNDS - 4.42%
Adams Express Co. 38,800 $ 493,536
Salomon Brothers
Fund, Inc. (The) 13,300 162,925
Tri-Continental Corp. 109,000 1,834,470
Zweig Fund, Inc. 55,300 267,099
-----------
2,758,030
-----------
CONSUMER DISCRETIONARY - 12.83%
Bed Bath & Beyond Inc. + 2,500 96,125
Carnival Corp. 5,300 249,100
Clear Channel
Communications, Inc. 2,700 99,765
Comcast Corp., Class A + 8,508 238,479
Comcast Corp.,
Special Class A + 7,500 207,075
Costco Wholesale Corp. 2,600 106,782
CVS Corp. 2,500 105,050
Dana Corp. 2,500 49,000
Delphi Corp. 5,100 54,468
Eastman Kodak Co. 2,500 67,450
Ford Motor Co. 15,200 237,880
Fortune Brands, Inc. 2,500 188,575
Gannett Co., Inc. 2,500 212,125
Gap, Inc. (The) 6,900 167,325
General Motors Corp. 5,000 232,950
Harley-Davidson, Inc. 2,500 154,850
Harrah's Entertainment, Inc. 2,500 135,250
Hilton Hotels Corp. 5,000 93,300
Home Depot, Inc. (The) 14,800 520,960
Kohl's Corp. + 2,500 105,700
Limited Brands 4,500 84,150
Lowe's Companies, Inc. 3,700 194,435
Mattel, Inc. 4,500 82,125
May Department
Stores Co. (The) 2,500 68,725
McDonald's Corp. 8,100 210,600
Monsanto Co. 1,773 68,260
NIKE, Inc., Class B 2,500 189,375
Office Depot, Inc. + 2,500 44,775
Omnicom Group Inc. 1,500 113,835
Reebok International Ltd. 2,500 89,950
Sears, Roebuck & Co. 2,500 94,400
Staples, Inc. 2,100 61,551
Starbucks Corp. + 2,500 108,700
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (CONTINUED)
Target Corp. 4,600 $ 195,362
Time Warner Inc. + 31,500 553,770
TJX Companies, Inc. (The) 4,000 96,560
Tribune Co. 2,500 113,850
Univision Communications Inc.
Class A + 2,500 79,825
Viacom Inc.,
non-voting Class B 9,000 321,480
Wal-Mart Stores, Inc. 28,900 1,524,764
Walt Disney Co. (The) 11,700 298,233
Yum! Brands, Inc. + 2,500 93,050
-----------
8,009,984
-----------
CONSUMER STAPLES - 7.86%
Albertson's, Inc. 2,500 66,350
Altria Group, Inc. 13,200 660,660
Anheuser-Busch
Companies, Inc. 6,200 334,800
Archer-Daniels-Midland Co. 5,650 94,807
Campbell Soup Co. 3,200 86,016
Coca-Cola Co. (The) 13,500 681,480
Coca-Cola Enterprises Inc. 2,500 72,475
Colgate-Palmolive Co. 2,600 151,970
ConAgra Foods, Inc. 2,500 67,700
General Mills, Inc. 2,500 118,825
Gillette Co. (The) 8,600 364,640
H.J. Heinz Co. 2,700 105,840
Kimberly-Clark Corp. 2,500 164,700
Kroger Co. (The) + 6,600 120,120
PepsiCo, Inc. 10,000 538,800
Procter & Gamble Co. (The) 12,000 653,280
Safeway Inc. 4,900 124,166
Sara Lee Corp. 6,300 144,837
Walgreen Co. 5,600 202,776
Wm. Wrigley Jr. Co. 2,500 157,625
-----------
4,911,867
-----------
ENERGY - 5.99%
Anadarko Petroleum Corp. 2,500 146,500
CenterPoint Energy, Inc. 5,700 65,550
ChevronTexaco Corp. 8,302 781,301
ConocoPhillips 3,669 279,908
El Paso Corp. 2,500 19,700
Exxon Mobil Corp. 42,500 1,887,425
Marathon Oil Corp. 2,500 94,600
Reliant Energy Inc. + 4,494 48,670
================================================================================
See accompanying notes to financial statements.
2
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
ENERGY (CONTINUED)
Schlumberger Ltd. 5,100 $ 323,901
Unocal Corp. 2,500 95,000
-----------
3,742,555
-----------
FINANCIALS - 18.75%
AFLAC Inc. 4,000 163,240
Allstate Corp. (The) 5,200 242,060
American Express Co. 8,600 441,868
American International
Group, Inc. 18,331 1,306,634
Bank of America Corp. 11,620 983,284
Bank of New York
Co., Inc. (The) 5,900 173,932
Bank One Corp. 3,900 198,900
BB&T Corp. 2,000 73,940
Capital One Financial Corp. 1,000 68,380
Charles Schwab Corp. (The) 8,200 78,802
Citigroup Inc. 32,600 1,515,900
Fannie Mae 5,700 406,752
Fifth Third Bancorp 2,500 134,450
Fiserv, Inc. + 2,500 97,225
Freddie Mac 3,300 208,890
Goldman Sachs
Group, Inc. (The) 3,000 282,480
Hartford Financial
Services Group, Inc. (The) 1,600 109,984
HSBC Holdings plc, ADR 2,514 188,324
J.P. Morgan Chase & Co. 15,700 608,689
Key Corp. 2,500 74,725
Lehman Brothers
Holdings Inc. 2,500 188,125
Manulife Financial Corp. 4,148 167,994
Marsh & McLennan
Companies, Inc. 4,600 208,748
MBNA Corp. 7,550 194,715
Mellon Financial Corp. 2,300 67,459
Merrill Lynch & Co., Inc. 4,100 221,318
MetLife, Inc. 6,000 215,100
Moody's Corp. 1,000 64,660
Morgan Stanley 6,200 327,174
National City Corp. 2,500 87,525
Northern Trust Corp. 1,100 46,508
Piper Jaffray Companies, Inc. + 122 5,518
PNC Financial Services Group 1,400 74,312
Progressive Corp. (The) 2,500 213,250
Prudential Financial, Inc. 5,000 232,350
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
SLM Corp. 2,500 $ 101,125
St. Paul Travelers
Companies, Inc. (The) 2,292 92,918
State Street Corp. 1,600 78,464
SunTrust Banks, Inc. 1,500 97,485
U.S. Bancorp 12,200 336,232
Wachovia Corp. 8,100 360,450
Washington Mutual, Inc. 7,250 280,140
Wells Fargo & Co. 12,000 686,760
-----------
11,706,789
-----------
HEALTHCARE - 12.51%
Abbott Laboratories 8,200 334,232
Aetna Inc. 1,000 85,000
Amgen Inc. + 8,300 452,931
Anthem, Inc. + 2,500 223,900
Baxter International Inc. 2,600 89,726
Becton, Dickinson & Co. 2,500 129,500
Biomet, Inc. 2,500 111,100
Boston Scientific Corp. + 5,500 235,400
Bristol-Myers Squibb Co. 9,600 235,200
Cardinal Health, Inc. 2,500 175,125
CIGNA Corp. 800 55,048
Eli Lilly & Co. 6,600 461,406
Forest Laboratories, Inc. + 2,500 141,575
Genzyme Corp. + 5,000 236,650
Guidant Corp. 2,500 139,700
HCA Inc. 2,600 108,134
Health Management
Associates, Inc., Class A 2,500 56,050
HEALTHSOUTH Corp. + 2,500 14,875
Hospira, Inc. + 820 22,632
Johnson & Johnson 18,200 1,013,740
King Pharmaceuticals, Inc. + 2,500 28,625
McKesson Corp. 2,500 85,825
Medco Health Solutions, Inc. + 1,531 57,413
Medtronic, Inc. 7,100 345,912
Merck & Co. Inc. 12,700 603,250
Pfizer Inc. 42,460 1,455,529
Schering-Plough Corp. 8,400 155,232
Stryker Corp. 2,000 110,000
Tenet Healthcare Corp. + 5,000 67,050
UnitedHealth Group Inc. 5,000 311,250
Wyeth 7,500 271,200
-----------
7,813,210
-----------
================================================================================
See accompanying notes to financial statements.
3
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INDUSTRIALS - 11.09%
3M Co. 5,000 $ 450,050
Apollo Group, Inc., Class A 1,000 88,290
Automatic Data Processing, Inc. 4,500 188,460
Boeing Co. (The) 6,700 342,303
Burlington Northern
Santa Fe Corp. 2,000 70,140
Caterpillar Inc. 2,500 198,600
Cendant Corp. 7,100 173,808
CSX Corp. 2,500 81,925
Dover Corp. 3,500 147,350
Emerson Electric Co. 2,000 127,100
FedEx Corp. 2,500 204,225
General Dynamics Corp. 2,500 248,250
General Electric Co. 68,000 2,203,200
Honeywell International Inc. 3,300 120,879
Illinois Tool Works Inc. 2,500 239,725
Lockheed Martin Corp. 2,500 130,200
Masco Corp. 4,600 143,428
Paychex, Inc. 5,000 169,400
Raytheon Co. 2,500 89,425
Southwest Airlines Co. 6,100 102,297
Transocean Inc. + 2,500 72,350
Tyco International Ltd. 14,600 483,844
United Parcel Service, Inc.,
Class B 6,500 488,605
United Technologies Corp. 2,200 201,256
Waste Management, Inc. 5,300 162,445
-----------
6,927,555
-----------
INFORMATION TECHNOLOGY - 16.66%
Agere Systems Inc., Class A + 75 173
Agere Systems Inc., Class B + 1,851 3,980
Agilent Technologies, Inc. + 5,000 146,400
Analog Devices, Inc. 2,500 117,700
Apple Computer, Inc. + 2,500 81,350
Applied Materials, Inc. + 13,400 262,908
CIENA Corp. + 1,500 5,580
Cisco Systems, Inc. + 48,000 1,137,600
Computer Associates
International, Inc. 2,700 75,762
Corning Inc. + 3,200 41,792
Dell Inc. + 20,200 723,564
eBay Inc. + 3,500 321,825
Electronic Data Systems Corp. 7,500 143,625
EMC Corp. + 8,000 91,200
First Data Corp. 4,325 192,549
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Hewlett-Packard Co. 15,842 $ 334,266
Intel Corp. 44,500 1,228,200
International Business
Machines Corp. 10,700 943,205
JDS Uniphase Corp. + 9,700 36,763
Lucent Technologies Inc. + 7,000 26,460
Maxim Integrated Products, Inc. 2,500 131,050
Micron Technology, Inc. + 5,500 84,205
Microsoft Corp. 73,800 2,107,728
Motorola, Inc. 16,100 293,825
Oracle Corp. + 37,600 448,568
PerkinElmer, Inc. 1,500 30,060
QUALCOMM Inc. 3,400 248,132
Sanmina-SCI Corp. + 4,000 36,400
Siebel Systems, Inc. + 5,000 53,400
Solectron Corp. + 5,700 36,879
Sun Microsystems, Inc. + 24,600 106,764
Texas Instruments Inc. 13,500 326,430
VERITAS Software Corp. + 2,500 69,250
Waters Corp. + 2,500 119,450
Xerox Corp. + 6,000 87,000
Yahoo! Inc. + 8,500 308,805
-----------
10,402,848
-----------
MATERIALS - 2.63%
Air Products & Chemicals, Inc. 2,500 131,125
Alcan Inc. 1,500 62,100
Alcoa Inc. 6,800 224,604
Dow Chemical Co. (The) 7,200 293,040
E.I. du Pont de Nemours & Co. 5,800 257,636
Georgia-Pacific Corp. 2,500 92,450
International Paper Co. 4,800 214,560
Newmont Mining Corp. 2,500 96,900
Praxair, Inc. 2,500 99,775
Rohm & Haas Co. 2,500 103,950
Weyerhaeuser Co. 1,000 63,120
-----------
1,639,260
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.21%
Simon Property Group Inc. 2,500 128,550
-----------
TELECOMMUNICATION SERVICES - 3.46%
ALLTEL Corp. 2,500 126,550
AT&T Corp. 5,260 76,954
AT&T Wireless Services Inc. + 10,067 144,159
BellSouth Corp. 12,700 332,994
================================================================================
See accompanying notes to financial statements.
4
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (CONTINUED)
Nextel Communications, Inc.,
Class A + 6,000 $ 159,960
SBC Communications Inc. 25,600 620,800
Sprint Corp. (FON Group) 4,100 72,160
Verizon Communications Inc. 17,400 629,706
-----------
2,163,283
-----------
UTILITIES - 2.37%
American Electric
Power Co., Inc. 5,500 176,000
Dominion Resources, Inc. 2,000 126,160
Duke Energy Corp. 6,600 133,914
Edison International 2,500 63,925
Exelon Corp. 5,000 166,450
FirstEnergy Corp. 2,500 93,525
Public Service
Enterprise Group Inc. 2,500 100,075
Scottish Power plc, ADR 4,000 118,040
Sempra Energy 2,500 86,075
Southern Co. (The) 5,000 145,750
TXU Corp. 3,700 149,887
Williams Companies, Inc. (The) 2,500 29,750
Xcel Energy, Inc. 5,500 91,905
-----------
1,481,456
-----------
TOTAL UNITED STATES
(cost - $65,345,022) 61,685,387
-----------
CZECH REPUBLIC - 1.12%
CONSUMER DISCRETIONARY - 1.12%
Bonton AS +# 68,590 116,282
Bonton Book AS +# 68,590 116,282
Bonton Discs AS +# 68,590 116,282
Bonton Film
Entertainment AS +# 68,590 116,282
Bonton Music AS +# 68,590 116,282
Bonton Pictures AS +# 68,590 116,282
TOTAL CZECH REPUBLIC
(cost - $894,866) 697,692
-----------
TOTAL EQUITY SECURITIES
(cost - $66,239,888) 62,383,079
-----------
Principal
Amount Value
Description (000's) (Note A)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.66%
REPURCHASE AGREEMENTS - 1.66%
Bear, Stearns & Co. Inc.
(Agreement dated 06/30/04 to
be repurchased at $141,351),
1.25%, 07/01/04 (Note F) $ 141 $ 141,346
-----------
Bear, Stearns & Co. Inc.
(Agreement dated 06/30/04 to
be repurchased at $535,032),
1.50%*, 07/01/04** (Note E) 535 535,010
-----------
Bear, Stearns & Co. Inc.
(Agreement dated 06/30/04 to
be repurchased at $359,787),
0.75%*, 07/01/04** (Note E) 360 359,779
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost - $1,036,135) 1,036,135
-----------
TOTAL INVESTMENTS - 101.56%
(cost - $67,276,023) (Notes A, E, F, G) 63,419,214
-----------
LIABILITIES IN EXCESS OF
OTHER ASSETS - (1.56)% (972,693)
-----------
NET ASSETS - 100.00% $62,446,521
===========
-------------
+ Non-income producing security.
# Security 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 cash collateral received for
securities on loan.
ADR American Depositary Receipts.
================================================================================
See accompanying notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $67,276,023) (A, E, F, G) $ 63,419,214
Receivables:
Dividends 64,669
Interest 497
Prepaid expenses 9,693
------------
Total Assets 63,494,073
------------
LIABILITIES
Payables:
Upon return of securities loaned (Note E) 894,789
Investment management fees (Note B) 51,088
Directors' Fees 12,920
Other accrued expenses 88,755
------------
Total Liabilities 1,047,552
------------
NET ASSETS (applicable to 4,759,123 shares
of common stock outstanding) $ 62,446,521
============
NET ASSET VALUE PER SHARE ($62,446,521/4,759,123) $ 13.12
============
NET ASSETS CONSISTS OF
Capital stock, $0.01 par value; 4,759,123
shares issued and outstanding
(15,000,000 shares authorized) $ 47,591
Paid-in capital 86,085,065
Distributions in excess of net investment income (4,913,641)
Accumulated net realized loss on investments (14,915,685)
Net unrealized depreciation in value of investments (3,856,809)
------------
Net assets applicable to shares outstanding $ 62,446,521
============
================================================================================
See accompanying notes to financial statements.
6
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income (Note A) :
Dividends $ 530,458
Interest 2,947
Foreign taxes withheld (29)
------------
Total Investment Income 533,376
------------
Expenses:
Investment management fees (Note B) 318,467
Administration fees 31,852
Legal and audit fees (Note B) 26,738
Directors' fees 22,128
Accounting fees 17,282
Transfer agent fees 16,475
Printing 11,648
Custodian fees 5,222
Stock exchange listing fees 3,992
Insurance 2,424
Miscellaneous 1,886
------------
Total Expenses 458,114
Less: Management fee waivers (Note B) (11,305)
Less: Fees paid indirectly (Note B) (5,222)
------------
Net Expenses 441,587
------------
Net Investment Income 91,789
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investments (272,528)
Net change in unrealized depreciation in value of investments 1,456,030
------------
Net realized and unrealized gain on investments 1,183,502
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,275,291
============
================================================================================
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Six Months
Ended For the Year
June 30, 2004 Ended
(unaudited) December 31, 2003
----------- -----------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income $ 91,789 $ 394,232
Net realized loss on investments (272,528) (403,402)
Net change in unrealized depreciation
in value of investments 1,456,030 13,990,328
------------ ------------
Net increase in net assets resulting
from operations 1,275,291 13,981,158
------------ ------------
Dividends and distributions to shareholders
(Note A, G):
Net investment income (91,789) (394,232)
Return-of-capital (4,913,641) (8,947,881)
------------ ------------
Total dividends and distributions to shareholders (5,005,430) (9,342,113)
------------ ------------
Capital stock transactions (Note D):
Proceeds from 32,493 and 68,969 new shares issued
in reinvestment of distributions, respectively 534,919 941,371
Cost of 7,500 shares repurchased -- (90,050)
------------ ------------
Net increase in net assets resulting from
capital stock transactions 534,919 851,321
------------ ------------
Total increase/(decrease) in net assets (3,195,220) 5,490,366
------------ ------------
NET ASSETS
Beginning of period 65,641,741 60,151,375
------------ ------------
End of period $ 62,446,521 $ 65,641,741
============ ============
================================================================================
See accompanying notes to financial statements.
8
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
For the Six
Months Ended
June 30, 2004 For the Years Ended December 31,
----------------------------------------------------------
(unaudited) 2003 2002 2001 2000 1999
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 13.89 $ 12.89 $ 18.30 $ 18.28 $ 17.62 $ 18.78
--------- -------- --------- -------- -------- ---------
Net investment income 0.02# 0.08# 0.15# 0.52 1.07 1.03
Net realized and unrealized gain/(loss)
on investments 0.25 2.91 (3.57) 0.24 0.63 (1.20)
--------- -------- --------- -------- -------- ---------
Net increase/(decrease) in net
assets resulting
from operations 0.27 2.99 (3.42) 0.76 1.70 (0.17)
--------- -------- --------- -------- -------- ---------
Dividends and distributions to
shareholders:
Net investment income (0.02) (0.08) (0.18) (0.66) (1.05) (1.01)
Return-of-capital (1.04) (1.91) (1.80) (0.09) -- --
--------- -------- --------- -------- -------- ---------
Total dividends and distributions to (1.06) (1.99) (1.98) (0.75) (1.05) (1.01)
shareholders --------- -------- --------- -------- -------- ---------
Capital stock transactions:
Anti-dilutive effect due to
capital stock repurchased -- -- 0.02 0.01 0.01 0.02
Dilutive effect due to shares
issued in reinvestment of dividends
and distributions 0.02 -- (0.03) -- -- --
--------- -------- --------- -------- -------- ---------
Total capital stock transactions 0.02 -- (0.01) 0.01 0.01 0.02
--------- -------- --------- -------- -------- ---------
Net asset value, end of period $ 13.12 $ 13.89 $ 12.89 $ 18.30 $ 18.28 $ 17.62
========= ======== ========= ======== ======== =========
Market value, end of period $ 16.65 $ 17.95 $ 11.35 $ 16.29 $ 15.875 $ 14.250
========= ======== ========= ======== ======== =========
Total investment return (a) (1.13)% 82.96% (19.30)% 8.91% 19.02% (8.39)%
========= ======== ========= ======== ======== =========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $ 62,447 $ 65,642 $ 60,151 $ 39,547 $ 39,640 $ 38,283
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.38%(d) 1.20% 1.50% 3.01% 1.06% 1.05%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 1.43%(d) 1.43% 2.07% 3.01% 1.06% 1.05%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.40%(d) 1.23% 1.63% 3.01% 1.06% 1.05%
Ratio of net investment income to
average net assets 0.29%(d) 0.65% 1.01% 2.77% 5.97% 5.60%
Portfolio turnover rate 5.30% 3.62% 86.60% -- 15.87% 16.09%
----------------------------------------------------------------------------------------------------------------------
# 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
Total investment return does not reinvestment plan. 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.
9
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
Cornerstone Total Return Fund, Inc. (the "Fund") was incorporated in New York on
March 16, 1973 and commenced investment operations on May 15, 1973. Its
investment objective is to seek total return consisting of capital appreciation
with current income as a secondary objective. The Fund is registered under the
Investment Company Act of 1940, as amended, as a closed-end, diversified
management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make certain estimates and assumptions that may
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities 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. The Board of Directors
has established general guidelines for calculating fair value of not readily
marketable securities. At June 30, 2004, the Fund held 1.12% of its net assets
in securities valued in good faith by the Board of Directors with an aggregate
cost of $894,866 and a fair value of $697,692. 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.
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.
================================================================================
10
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
DISTRIBUTIONS OF INCOME AND GAINS: Effective January 2002, the Fund initiated a
fixed, monthly distribution to shareholders. To the extent that these
distributions exceed the current earnings of the Fund, the balance will be
generated from sales of portfolio securities held by the Fund, which will either
be short-term or long-term capital gains or a tax-free return-of-capital. To the
extent these distributions are not represented by net investment income and
capital gains, they will not represent yield or investment return on the Fund's
investment portfolio. The Fund plans to maintain this distribution policy even
if regulatory requirements would make part of a return-of-capital necessary to
maintain the distribution taxable to shareholders and to disclose that portion
of the distribution that is classified as ordinary income. Although it has no
current intention to do so, the Board may terminate this distribution policy at
any time and such termination may have an adverse effect on the market price for
the Fund's common shares. The Fund determines annually whether to distribute any
net realized long-term capital gains in excess of net realized short-term
capital losses, including capital loss carryovers, if any. To the extent that
the Fund's taxable income in any calendar year exceeds the aggregate amount
distributed pursuant to this distribution policy, an additional distribution may
be made to avoid the payment of a 4% U.S. federal excise tax, and to the extent
that the aggregate amount distributed in any calendar year exceeds the Fund's
taxable income, the amount of that excess may constitute a return-of-capital for
tax purposes. A return-of-capital distribution reduces the cost basis of an
investor's shares in the Fund. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
The character of dividends and distributions made during the six months ended
June 30, 2004 from net investment income or net realized gains, if any, may
differ from their ultimate characterization for U.S. income tax purposes due to
U.S. generally accepted accounting principles/tax differences in the character
of income and expense recognition.
NOTE B. AGREEMENTS
Cornerstone serves as the Fund's investment manager with respect to all
investments. As compensation for its management services, Cornerstone receives
from the Fund, an annual fee, calculated weekly and paid monthly, equal to 1.00%
of the Fund's average weekly net assets. Cornerstone has voluntarily agreed to
waive its management fees from the Fund to the extent that monthly operating
expenses exceed 0.125% of average net assets calculated monthly. For the six
months ended June 30, 2004, Cornerstone earned $318,467 for investment
management services, of which it waived $11,305. The Investment Manager may
discontinue such undertaking at any time during the fiscal year without notice
to fund shareholders.
Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY,
are expense offsets of $5,222 arising from credits earned on portfolio
transactions executed with a broker, pursuant to directed brokerage arrangement.
The Fund paid or accrued approximately $13,079 for the six months ended June 30,
2004 for legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas
R. Westle, a partner of Blank, serves as secretary of the Fund.
At June 30, 2004, pursuant to regulatory filings, affiliates owned approximately
29% and 6% of the outstanding shares of the Fund based on Schedule 13G/A filings
with the Securities and Exchange Commission on March 9, 2004 and March 18, 2004,
respectively.
NOTE C. INVESTMENT IN SECURITIES
For the six months ended June 30, 2004, purchases and sales of securities, other
than short-term investments, were $3,382,082 and $7,216,058, 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. For the
six months ended June 30, 2004, the
================================================================================
11
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
Fund had no repurchases. For the year ended December 31, 2003, the Fund
repurchased 7,500 of its shares for a total cost of $ 90,050 at a weighted
average discount of 12.01% from net asset value. The discount of the individual
repurchases ranged from 11.76% - 12.13%. No limit has been placed on the number
of shares to be purchased by the Fund other than those imposed by federal
securities laws.
All purchases are made in accordance with federal securities laws, with shares
repurchased held in treasury, effective January 1, 2002.
NOTE E. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33 1/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount. The value of securities on loan to brokers at
June 30, 2004 was $883,234. Any cash collateral received is reinvested into
repurchase agreements, which in turn are collateralized by various U.S.
Government and Agency securities. These repurchase agreements have been
segregated to satisfy the future commitment to return the cash collateral.
During the six months ended June 30, 2004, the Fund earned $566 in securities
lending income that is included under the caption INTEREST in the Statement of
Operations.
NOTE F. COLLATERAL FOR REPURCHASE AGREEMENT
Listed below is the collateral associated with the repurchase agreement with
Bear, Stearns & Co. Inc. outstanding at June 30, 2004.
PRINCIPAL
ISSUER AMOUNT MATURITY MARKET
(000'S) VALUE
--------------------------------------------------------------------------------
United States Treasury Bond,
(interest only) $295 08/15/17 $147,282
NOTE G. 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 characteristic of dividends and distributions paid during the year ended
December 31, 2003 were ordinary income and return-of-capital of $394,232 and
$8,947,881, respectively.
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred and treated as occurring on the first day of the
following tax year ("Post-October Losses").
At December 31, 2003, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $14,569,481 of which $91,132 expires in 2008, $14,052,643
expires in 2010 and $425,706 expires in 2011.
At June 30, 2004, the identified cost for federal income tax purposes, as well
as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized depreciation from investments were $67,327,652, $4,924,334,
$(8,832,772) and $(3,908,438), respectively.
================================================================================
12
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On June 10, 2004, the Annual Meeting of Stockholders of Cornerstone Total Return
Fund, Inc. was held and the following matter was voted upon:
(1) To elect seven Directors until the year 2005 Annual Meeting.
NAME OF DIRECTORS FOR WITHHOLD
----------------- --- --------
Ralph W. Bradshaw 4,410,834 19,857
William A. Clark 4,411,231 19,460
Thomas H. Lenagh 4,409,739 20,952
Edwin Meese III 4,405,929 24,762
Scott B. Rogers 4,409,841 20,850
Andrew A. Strauss 4,410,135 20,556
Glenn W. Wilcox, Sr. 4,410,033 20,658
================================================================================
13
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment Plan (the "Plan"),
unless and until an election is made to withdraw from the Plan on behalf of such
participating shareholders. Shareholders who do not wish to have distributions
automatically reinvested should so notify American Stock Transfer & Trust Co.
(the "Agent") at P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or
call (877) 248-6416. Under the Plan, all of the Fund's dividends and other
distributions to shareholders are reinvested in full and fractional Shares as
described below.
When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Distribution" and collectively, "Distributions"), the
Agent, on the shareholders' behalf, will: (i) receive additional authorized
shares from the Fund either newly issued or repurchased from shareholders by the
Fund and held as treasury stock ("Newly Issued Shares") or, (ii) at the sole
discretion of the Board of Directors, be authorized to purchase outstanding
shares on the open market, on the American Stock Exchange, LLC or elsewhere,
with cash allocated to it by the Fund ("Open Market Purchases").
Shares acquired by the Agent in Open Market Purchases will be allocated to the
reinvesting shareholders based on the average cost of such Open Market
Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at the lower of (i) a price equal to the average
closing price of the Fund over the five trading days preceding the payment date
of such distribution or (ii) the net asset value of the Fund as last determined
prior to such payment date.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Distributions automatically reinvested should
so notify the Fund in writing. If a Shareholder has not elected to receive cash
Distributions and the Agent does not receive notice of an election to receive
cash Distributions prior to the record date of any 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 Distributions payment
date. When a participant withdraws from the Plan, or upon termination of the
Plan as provided below, certificates for whole shares credited to his/her
account under the Plan will, upon request, be issued. Whether or not a
participant requests that certificates for whole shares be issued, a cash
payment will be made for any fraction of a Share credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of each Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the Shareholder's name and held for the account of
beneficial owners participating in the Plan.
There will be no charge to participants for reinvesting Distributions other than
their share of brokerage commissions as discussed below. The Agent's fees for
administering the Plan and handling the reinvestment of Distributions will be
paid by the Fund. Each participant's account will be charged a
================================================================================
14
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
pro-rata share of brokerage commissions incurred with respect to the Agent's
Open Market Purchases in connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of shares for individual accounts
through the Plan are expected to be less than the usual brokerage charges for
such transactions because the Agent will be purchasing shares for all the
participants in blocks and pro-rating the lower commission that may be
attainable.
The automatic reinvestment of Distributions will not relieve participants of any
income tax that may be payable on such Distributions. Participants who receive
shares pursuant to the Plan as described above will recognize taxable income in
the amount of the fair market value of those shares. In the case of non-U.S.
participants whose Distributions are subject to U.S. income tax withholding and
in the case of participants subject to 28% federal backup withholding, the Agent
will reinvest Distributions after deduction of the amount required to be
withheld.
The Fund reserves the right to amend or terminate the Plan by written notice to
participants. All correspondence concerning the Plan should be directed to the
Agent at the address referred to in the first paragraph of this section.
================================================================================
15
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
The Fund - Cornerstone Total Return Fund, Inc. is a closed-end, diversified
investment company whose shares trade on the American Stock Exchange, LLC. Its
investment objective is to seek total return, consisting of capital appreciation
and current income by investing primarily all of its assets in equity securities
of U.S. and non-U.S. issuers whose securities trade on a U.S. securities
exchange or over the counter or as American Depositary Receipts or other forms
of depositary receipts which trade in the United States. The Fund is managed by
Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the American Stock Exchange, LLC (symbol "CRF"). The share
price is published in: THE NEW YORK TIMES (daily) under the designation "Cnrstn
TR" and THE WALL STREET JOURNAL (daily) and BARRON'S (each Monday) under the
designation "CornstnTtlRtn." The net asset value per share is available weekly
and may be obtained by contacting the Fund at the general inquiry phone number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE TOTAL RETURN FUND, INC. MAY
FROM TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. The financial information
included herein is taken from the records of the Fund without examination by
independent accountants who do not express an opinion thereon. It is not a
prospectus, circular or representation intended for use in the purchase or sale
of shares of the Fund or of any securities mentioned in the report.
--------------------------------------------------------------------------------
================================================================================
16
PROXY VOTING (UNAUDITED)
The policies and procedures that Cornerstone Total Return Fund, Inc. uses to
determine how to vote proxies relating to its portfolio securities are
available:
o by calling (212) 272-3550;
o on the website of the Securities and Exchange Commission,
http://www.sec.gov.
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.
================================================================================
17
CORNERSTONE TOTAL RETURN FUND, INC.
ITEM 2. CODE OF ETHICS.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 6. SCHEDULE OF INVESTMENTS
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASERS Form N-CSR disclosure requirement
not yet effective with respect to the registrant.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of directors since
the registrant last provided disclosure in response to the requirements of Item
7(d)(2)(ii)(g) of Schedule 14A in its definitive proxy statement dated April 28,
2004.
ITEM 10. CONTROLS AND PROCEDURES.
(a) As of a date within 90 days from the filing date of this report,
the principal executive officer and the principal financial officer
concluded that the Registrant's Disclosure Controls and Procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act")) were effective based on their evaluation of the disclosure
controls and procedures required by Rule 30a-3(b) under the Act and
Rules 13a-15(b) or 15d-15(b) under the Securities and Exchange Act of
1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the registrant's second fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number
the exhibits in the sequence indicated.
(a)(1) Not applicable.
(a)(2) The certifications of the registrant as required by Rule
30a-2(a) under the Act are exhibits to this report.
(a)(3) Not applicable.
(b)The certifications of the registrant as required by Rule
30a-2(b) under the Act are an exhibit to this report.
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.
(Registrant) CORNERSTONE TOTAL RETURN FUND, INC.
By (Signature and Title)* /S/ RALPH W. BRADSHAW
----------------------------
RALPH W. BRADSHAW,
CHAIRMAN AND PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
Date: September 9, 2004
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 (Signature and Title)* /S/ RALPH W. BRADSHAW
-----------------------
RALPH W. BRADSHAW
CHAIRMAN AND PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
Date: September 9, 2004
By (Signature and Title)* /S/ JODI B. LEVINE
------------------
JODI B. LEVINE
TREASURER (PRINCIPAL FINANCIAL OFFICER)
Date: September 9, 2004