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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.
(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)
Kayadti A. Madison
383 Madison Avenue, New York, New York 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, 2008
Date of reporting period: June 30, 2008
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.
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ITEM 1. REPORTS TO STOCKHOLDERS.
The report of Cornerstone Total Return Fund, Inc. (the "Registrant") to
stockholders for the semi-annual period ended June 30, 2008 follows.
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CORNERSTONE TOTAL
RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2008
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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 13
Description of Dividend Reinvestment Plan 14
Investment Management Agreement Approval Disclosure 16
Proxy Voting and Portfolio Holdings Information 17
Privacy Policy Notice 17
Summary of General Information 18
Shareholder Information 18
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CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2008 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Information Technology 15.8
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Energy 14.5
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Financials 11.4
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Healthcare 10.8
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Industrials 10.4
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Consumer Staples 10.0
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Closed-End Funds 8.0
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Consumer Discretionary 7.7
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Materials 3.8
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Utilities 3.4
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Telecommunication Services 3.0
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Other 1.2
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. Exxon Mobil Corporation Energy 5.0
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2. General Electric Company Industrials 3.4
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3. Chevron Corporation Energy 2.8
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4. Johnson & Johnson Healthcare 2.8
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5. Apple Computer, Inc. Information Technology 2.4
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6. Wal-Mart Stores, Inc. Consumer Staples 2.3
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7. Microsoft Corporation Information Technology 2.3
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8. Adams Express Company Closed-End Funds 2.2
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9. AT&T Inc. Telecommunication Services 2.2
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10. Dreman/Claymore Dividend & Income Fund Closed-End Funds 1.9
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1
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2008 (UNAUDITED)
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No. of
Description Shares Value
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EQUITY SECURITIES - 99.38%
CLOSED-END FUNDS - 8.01%
Adams Express Company (a) 67,400 $ 798,690
Dreman/Claymore Dividend & Income Fund 53,500 679,450
Other Closed-End Funds (a)(b) 1,372,755
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2,850,895
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CONSUMER DISCRETIONARY - 7.66%
McDonald's Corporation 5,100 286,722
Walt Disney Company (The) 11,000 343,200
Other Consumer Discretionary (b) 2,094,525
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2,724,447
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CONSUMER STAPLES - 10.04%
Coca-Cola Company (The) 8,000 415,840
PepsiCo, Inc. 5,000 317,950
Philip Morris International Inc. 7,700 380,303
Procter & Gamble Company (The) 8,472 515,182
Wal-Mart Stores, Inc. 14,500 814,900
Other Consumer Staples (b) 1,129,357
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3,573,532
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ENERGY - 14.48%
Chevron Corporation 10,068 998,041
Devon Energy Corporation 2,500 300,400
Exxon Mobil Corporation ^ 20,000 1,762,601
Peabody Energy Corporation 2,500 220,125
Schlumberger Limited ^ 5,000 537,150
Weatherford International Ltd. * 5,000 247,950
XTO Energy, Inc. 3,125 214,094
Other Energy (b) 870,290
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5,150,651
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FINANCIALS - 11.36%
American International Group, Inc. ^ 8,331 220,438
Bank of America Corporation 17,521 418,226
Goldman Sachs Group, Inc. (The) ^ 3,000 524,700
JPMorgan Chase & Co. 18,200 624,442
No. of
Description Shares Value
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FINANCIALS (CONTINUED)
Travelers Companies, Inc. (The) 5,092 $ 220,993
Wells Fargo & Company 14,000 332,500
Other Financials (b) 1,701,745
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4,043,044
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HEALTHCARE - 10.83%
Gilead Sciences, Inc. * 7,000 370,650
Johnson & Johnson 15,500 997,270
Medtronic, Inc. 4,500 232,875
Merck & Co. Inc. ^ 10,700 403,283
Pfizer Inc. 12,000 209,640
Other Healthcare (b) 1,638,962
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3,852,680
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INDUSTRIALS - 10.45%
CSX Corporation 5,000 314,050
General Dynamics Corporation ^ 2,500 210,500
General Electric Company 45,000 1,201,050
Lockheed Martin Corporation ^ 2,500 246,650
United Parcel Service, Inc., Class B 4,000 245,880
United Technologies Corporation 4,400 271,480
Other Industrials (b) 1,228,518
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3,718,128
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INFORMATION TECHNOLOGY - 15.79%
Apple Computer, Inc. ^ * 5,000 837,200
Cisco Systems, Inc. * 19,000 441,940
Google Inc. * 1,000 526,420
Hewlett-Packard Company 7,500 331,575
International Business Machines Corporation 3,200 379,296
Microsoft Corporation 29,500 811,545
Oracle Corporation * 23,600 495,600
QUALCOMM Inc. 6,800 301,716
Texas Instruments Incorporated ^ 11,000 309,760
Other Information Technology (b) 1,181,285
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5,616,337
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See accompanying notes to financial statements.
2
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2008 (UNAUDITED)(CONCLUDED)
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No. of
Description Shares Value
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MATERIALS - 3.76%
Air Products & Chemicals, Inc. 2,500 $ 247,150
Freeport-McMoRan Copper & Gold, Inc. 2,500 292,975
Monsanto Company 3,546 448,356
Other Materials (b) 349,137
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1,337,618
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REAL ESTATE INVESTMENT TRUST - 0.63%
Simon Property Group, Inc. ^ 2,500 224,725
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TELECOMMUNICATION SERVICES - 2.98%
AT&T Inc. 23,589 794,713
Verizon Communications Inc. 7,500 265,500
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1,060,213
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UTILITIES - 3.39%
American Electric Power Company, Inc. 5,500 221,265
Dominion Resources, Inc. 5,000 237,450
Other Utilities (b) 745,923
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1,204,638
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TOTAL EQUITY SECURITIES
(cost - $31,436,813) 35,356,908
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SHORT-TERM INVESTMENTS - 11.62%
MONEY MARKET SECURITY - 0.63%
JPMorgan U.S. Government Money Market Fund 222,427 222,427
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Principal
Amount
Description (000's) Value
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REPURCHASE AGREEMENTS - 10.99%
Bear, Stearns & Co. Inc. +
(Agreements dated
6/30/2008 to be
repurchased at $3,912,140) (c) $ 3,912 $ 3,911,885
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TOTAL SHORT-TERM INVESTMENTS
(cost - $4,134,312) 4,134,312
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TOTAL INVESTMENTS - 111.00%
(cost - $35,571,125) 39,491,220
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LIABILITIES IN EXCESS OF
OTHER ASSETS - (11.00)% (3,914,758)
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NET ASSETS - 100.00% $ 35,576,462
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^ Security or a portion thereof is out on loan.
* Non-income producing security.
+ Includes investments purchased with collateral received for securities on
loan.
(a) Affiliated investment. The Fund holds 2.24% and 0.37% (based on net assets)
of Adams Express Company and Petroleum & Resources Corporation,
respectively. A director of the Fund also serves as a director to such
companies. During the six months ended June 30, 2008, 3,000 shares of Adams
Express Company were sold. There were no other purchases or sales of these
securities.
(b) 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, 2008.
(c) At June 30, 2008, the maturity date for all repurchase agreements held was
July 1, 2008, with interest rates ranging from 1.25% to 2.50% and
collateralized by $4,022,429 in U.S. Treasury Bonds maturing April 15,
2028.
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See accompanying notes to financial statements.
3
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2008 (UNAUDITED)
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ASSETS
Investments, at value, including collateral for securities
on loan of $3,911,885:
Unaffiliated issuers (cost - $34,610,250)(1) $ 38,561,760
Affiliated issuers (cost - $960,875) 929,460
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Total investments (cost - $35,571,125) 39,491,220
Receivables:
Dividends 45,152
Foreign reclaims 22,943
Interest 1,050
Prepaid expenses 4,952
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Total Assets 39,565,317
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LIABILITIES
Payables:
Due to custodian 604
Upon return of securities loaned 3,911,885
Investment management fees 30,902
Directors' fees 14,869
Other accrued expenses 30,595
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Total Liabilities 3,988,855
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NET ASSETS (applicable to 5,427,065 shares of common
stock outstanding) $ 35,576,462
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NET ASSET VALUE PER SHARE ($35,576,462 / 5,427,065) $ 6.56
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NET ASSETS CONSISTS OF
Capital stock, $0.01 par value;
5,427,065 shares issued and outstanding
(15,000,000 shares authorized) $ 54,270
Paid-in capital 47,872,581
Accumulated net realized loss on investments and
foreign currency related transactions (16,276,850)
Net unrealized appreciation in value of
investments and translation of foreign currency 3,926,461
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Net assets applicable to shares outstanding $ 35,576,462
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(1) Includes securities out on loan to brokers with a market value of
$3,816,641.
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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, 2008 (UNAUDITED)
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INVESTMENT INCOME
Income:
Dividends (including $5,992 earned from affiliated issuers) $ 466,632
Interest 4,277
Securities lending 4,372
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Total Investment Income 475,281
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Expenses:
Investment management fees 196,784
Directors' fees 28,821
Administration fees 25,233
Legal and audit fees 20,730
Accounting fees 15,142
Printing 14,910
Transfer agent fees 14,885
Custodian fees 5,968
Insurance 2,573
Stock exchange listing fees 1,708
Miscellaneous 1,243
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Total Expenses 327,997
Less: Management fee waivers (12,643)
Less: Fees paid indirectly (14,301)
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Net Expenses 301,053
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Net Investment Income 174,228
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NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized loss from investments (1,069,485)
Capital gain distributions from regulated investment companies 13,366
Net change in unrealized appreciation in value of investments
and translation of foreign currency (4,608,207)
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Net realized and unrealized loss on investments
and foreign currency related transactions (5,664,326)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(5,490,098)
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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, 2008 For the Year Ended
(unaudited) December 31, 2007
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DECREASE IN NET ASSETS
Operations:
Net investment income $ 174,228 $ 365,282
Net realized gain/(loss) from investments
and foreign currency related transactions (1,069,485) 31,417
Capital gain distributions from regulated
investment companies 13,366 116,984
Net change in unrealized appreciation in
value of investments and translation
of foreign currency (4,608,207) 1,514,360
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Net increase/(decrease) in net assets
resulting from operations (5,490,098) 2,028,043
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Dividends and distributions to shareholders:
Net investment income (174,228) (363,469)
Net realized capital gains -- (150,214)
Return-of-capital (5,062,317) (10,698,032)
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Total dividends and distributions to shareholders (5,236,545) (11,211,715)
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Capital stock transactions:
Proceeds from 83,927 and 175,264 shares
newly issued in reinvestment of dividends
and distributions, respectively 892,024 2,215,523
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Total decrease in net assets (9,834,619) (6,968,149)
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NET ASSETS
Beginning of period 45,411,081 52,379,230
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End of period $ 35,576,462 $ 45,411,081
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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.
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For the Six
Months Ended For the Years Ended December 31,
June 30, 2008 ---------------------------------------------------------------------
(unaudited) 2007 2006 2005 2004 2003
----------- ---- ---- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period $ 8.50 $ 10.14 $ 10.91 $ 12.78 $ 13.89 $ 12.89
-------- -------- -------- -------- -------- --------
Net investment income # 0.03 0.07 0.09 0.06 0.10 0.08
Net realized and
unrealized gain/(loss)
on investments and
foreign currency
related transactions (1.05) 0.32 1.25 0.18 0.87 2.91
-------- -------- -------- -------- -------- --------
Net increase/(decrease)
in net assets resulting
from operations (1.02) 0.39 1.34 0.24 0.97 2.99
-------- -------- -------- -------- -------- --------
Dividends and distributions
to shareholders:
Net investment income (0.03) (0.07) (0.09) (0.06) (0.10) (0.08)
Net realized capital gains -- (0.03) -- -- -- --
Return-of-capital (0.94) (2.04) (2.02) (2.05) (2.01) (1.91)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders (0.97) (2.14) (2.11) (2.11) (2.11) (1.99)
-------- -------- -------- -------- -------- --------
Capital stock transactions:
Anti-dilutive effect due
to shares issued in reinvestment
of dividends and distributions 0.05 0.11 -- -- 0.03 --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 6.56 $ 8.50 $ 10.14 $ 10.91 $ 12.78 $ 13.89
======== ======== ======== ======== ======== ========
Market value, end of period $ 12.35 $ 9.80 $ 19.62 $ 14.65 $ 17.95 $ 17.95
======== ======== ======== ======== ======== ========
Total investment return (a) 38.01% (40.97)% 64.15% (2.07)% 15.11% 82.96%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $ 35,576 $ 45,411 $ 52,379 $ 54,194 $ 61,365 $ 65,642
Ratio of expenses to
average net assets,
net of fee waivers,
if any (b) 1.52%(d) 1.49% 1.44% 1.47% 1.41% 1.20%
Ratio of expenses to
average net assets,
excluding fee waivers,
if any (c) 1.66%(d) 1.53% 1.50% 1.52% 1.45% 1.43%
Ratio of expenses to
average net assets,
net of fee waivers,
if any (c) 1.60%(d) 1.52% 1.50% 1.50% 1.43% 1.23%
Ratio of net investment
income to average net assets 0.88%(d) 0.74% 0.82% 0.53% 0.75% 0.65%
Portfolio turnover rate 7.35% 11.00% 11.29% 9.84% 12.15% 3.62%
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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
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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. ORGANIZATION
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.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
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. Readily marketable portfolio securities listed on the NYSE
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the NYSE on the business day as of which such
value is being determined. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices on such day. If no
bid or asked prices are quoted on such day or if market prices may be unreliable
because of events occurring after the close of trading, then the security is
valued by such method as the Board of Directors shall determine in good faith to
reflect its fair market value. Readily marketable securities not listed on the
NYSE but listed on other domestic or foreign securities exchanges are valued in
a like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the consolidated tape at the close of the
exchange representing the principal market for such securities. Securities
trading on the Nasdaq Stock Market, Inc. ("NASDAQ") are valued at the closing
price.
Readily marketable securities traded in the over-the counter market, including
listed securities whose primary market is believed by Cornerstone Advisors, Inc.
(the "Investment Adviser" or "Cornerstone") to be over-the-counter, are valued
at the mean of the current bid and asked prices as reported by the NASDAQ or, in
the case of securities not reported by the NASDAQ or a comparable source, as the
Board of Directors deem appropriate to reflect their fair market value. Where
securities are traded on more than one exchange and also over-the-counter, the
securities will generally be valued using the quotations the Board of Directors
believes reflect most closely the value of such securities.
At June 30, 2008, 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 March 19, 2008, Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 161, "Disclosures about Derivative
instruments and Hedging Activities" ("FAS 161"). FAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. The application of FAS 161 is required for fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years.
At this time, management is evaluating the implications of FAS 161 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
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8
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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"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 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 and reviewed any
uncertain tax positions for open tax years 2004 through 2007. The Fund has
initiated discussions with the Internal Revenue Service's National Office
regarding a technical tax issue relating to whether the Fund's historic dividend
reinvestment plan may have resulted in a violation of certain Sub-Chapter M
requirements of the Internal Revenue Code for certain prior tax years. The
outcome of this matter is currently uncertain including, whether ultimately it
might negatively affect the tax status of the Fund. The Fund will continue to
monitor this matter closely and is pursuing a potential resolution with the
Internal Revenue Service that, if successful, will avoid a material negative tax
impact to the Fund. There was no material impact to the financial statements or,
other than as described herein, the 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 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
================================================================================
9
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
of the distribution that is classified as ordinary income. Although it has no
current intention to do so, the Board may terminate this distribution policy at
any time and such termination may have an adverse effect on the market price for
the Fund's common shares. The Fund determines annually whether to distribute any
net realized long-term capital gains in excess of net realized short-term
capital losses, including capital loss carryovers, if any. To the extent that
the Fund's taxable income in any calendar year exceeds the aggregate amount
distributed pursuant to this distribution policy, an additional distribution may
be made to avoid the payment of a 4% U.S. federal excise tax, and to the extent
that the aggregate amount distributed in any calendar year exceeds the Fund's
taxable income, the amount of that excess may constitute a return-of-capital for
tax purposes. A return-of-capital distribution reduces the cost basis of an
investor's shares in the Fund. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
NOTE C. FAIR VALUE
The Fund adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 157, Fair Value Measurements ("FAS 157"), effective
January 1, 2008. In accordance with FAS 157, fair value is defined as the price
that the Fund would receive upon selling an investment in a timely transaction
to an independent buyer in the principal or most advantageous market of the
investment. FAS 157 established a three-tier hierarchy to maximize the use of
observable market data and minimize the use of unobservable inputs and to
establish classification of fair value measurements for disclosure purposes.
Inputs refer broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk, for example,
the risk inherent in a particular valuation technique used to measure fair value
including such a pricing model and/or the risk inherent in the inputs to the
valuation technique. Inputs may be observable or unobservable. Observable inputs
are inputs that reflect the assumptions market participants would use in pricing
the asset or liability developed based on market data obtained from sources
independent of the reporting entity. Unobservable inputs are inputs that reflect
the reporting entity's own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. The three-tier hierarchy of inputs
is summarized in the three broad Levels listed below.
o Level 1 - quoted prices in active markets for identical investments
o Level 2 - other significant observable inputs (including quoted prices
for similar investments, interest rates, prepayment speeds, credit
risk, etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used in valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of June 30, 2008 in valuing the
Fund's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
--------------------------------------------------------------------------------
Level 1 - Quoted
Prices $ 35,356,908 --
Level 2 - Other
Significant
Observable Inputs 4,134,312 --
Level 3 - Significant
Unobservable Inputs -- --
------------ -----------
Total $ 39,491,220 --
============ ===========
---------
* Other financial instruments include futures, forwards and swap contracts.
The Fund did not have any assets or liabilities that were measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) at June 30,
2008.
================================================================================
10
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
NOTE D. 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. During the six months ended
June 30, 2008, 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, 2008, Cornerstone earned
$196,784 for investment management services, of which it waived $12,643. 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 $14,301 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $12,418 for the six months ended June 30,
2008 for legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas
R. Westle, partner of Blank, served as Secretary of the Fund until February 15,
2008.
NOTE E. INVESTMENT IN SECURITIES
For the six months ended June 30, 2008, purchases and sales of securities, other
than short-term investments, were $2,931,513 and $7,090,938 respectively.
NOTE F. SHARES OF COMMON STOCK
The Fund has 15,000,000 shares of common stock authorized and 5,427,065 shares
outstanding at June 30, 2008. As of that date, three individuals that control
Cornerstone owned 21,913 shares in the Fund.
Transactions in common stock for the period ended June 30, 2008 were as follows:
Shares at beginning of period 5,343,138
Shares newly issued in reinvestment of
dividends and distributions 83,927
----------
Shares at end of period 5,427,065
==========
NOTE G. 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, 2008. 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 H. 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
================================================================================
11
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount.
The value of securities on loan to brokers at June 30, 2008, was $3,816,641.
During the six months ended June 30, 2008, the Fund earned $4,372 in securities
lending income which is included under the caption SECURITIES LENDING in the
Statement of Operations.
NOTE I. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of losses deferred due to wash sales and
Post-October losses (as later defined), and excise tax regulations.
The tax character of dividends and distributions paid during the
years ended December 31, for the Fund were as follows:
ORDINARY INCOME RETURN-OF-CAPITAL
--------------- -----------------
2007 2006 2007 2006
---- ---- ---- ----
$513,683 $428,197 $10,698,032 $10,248,116
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, 2007, the Fund incurred Post-October losses in the amount of $287,816.
At December 31, 2007, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $14,881,286, of which $12,449,240 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, 2008, 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 $35,600,706, $7,739,651,
$(3,849,137), and $3,890,514, respectively.
================================================================================
12
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On April 15, 2008, the Annual Meeting of Stockholders of Cornerstone Total
Return Fund, Inc. was held and the following matter was voted upon based on
5,360,139 shares of common stock outstanding on February 19, 2008:
(1) To approve the re-election of six Directors until the 2009 Annual
Meeting.
NAME OF DIRECTORS FOR WITHHOLD
Ralph W. Bradshaw 4,469,627 192,438
Thomas H. Lenagh 4,463,543 198,522
Edwin Meese III 4,448,534 213,531
Scott B. Rogers 4,463,998 198,067
Andrew A. Strauss 4,465,705 196,360
Glenn W. Wilcox, Sr. 4,464,287 197,778
================================================================================
13
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Cornerstone Total Return Fund, Inc. (the "Fund") operates a Dividend
Reinvestment Plan (the "Plan"), sponsored and administered by American Stock
Transfer & Trust Company (the "Agent"), pursuant to which the Fund's 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.
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
shareholder. Shareholders who do not wish to have Distributions automatically
reinvested should so notify their broker, or if a registered shareholder, the
Agent in writing at P.O. Box 922, Wall Street Station, New York, New York
10269-0560. Such written notice must be received by the Agent prior to the
record date of the Distribution or the shareholder will receive such
Distribution in shares through the Plan. 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 shareholders 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.
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. 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
================================================================================
14
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
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.
The automatic reinvestment of Distributions will not relieve participants of any
federal, state or local income tax that may be payable (or required to be
withheld) on such Distributions.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan.
All correspondence concerning the Plan should be directed to the Agent at P.O.
Box 922, Wall Street Station, New York, New York 10269-0560. Certain
transactions can be performed online at www.amstock.com or by calling the toll
free number 877-864-4833.
================================================================================
15
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
15, 2008.
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
companies 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's investment philosophy, management style and plan,
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 legal
and extraordinary 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 performance of the Fund,
the profitability of the Investment Manager's relationship with the Fund, the
comparability of the proposed fee to fees paid by comparable closed-end funds,
and the level of quality of investment management personnel. The Board
determined that the Agreement is consistent with the best interests of the Fund
and its shareholders, and enables the Fund to receive high quality services at a
cost that is appropriate, reasonable, and in the best interests of the Fund and
its shareholders.
Accordingly, in light of the above considerations and such other factors and
information it considered relevant, the Board by a unanimous vote of those
present 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.
================================================================================
16
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 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
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.
--------------------------------------------------------------------------------
================================================================================
18
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CORNERSTONE TOTAL RETURN FUND, INC.
================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and 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
and Secretary
William A. Clark Vice President
Kayadti A. Madison 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 REGISTERED
Bear Stearns Funds PUBLIC ACCOUNTING FIRM
Management Inc., Tait, Weller & Baker LLP
a J.P. Morgan Company 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(R)
LISTED
CRF
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. INVESTMENTS.
(a)
================================================================================
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED)
================================================================================
No. of
Description Shares Value
----------------------------------------------- ----------- -----------
EQUITY SECURITIES - 99.38%
CLOSED-END FUNDS - 8.01%
Adams Express Company (a) 67,400 $ 798,690
Alpine Global Premier Properties Fund 3,000 32,550
Boulder Growth & Income Fund Inc. 7,700 56,672
Boulder Total Return Fund, Inc. 7,500 135,375
Central Europe and Russia Fund, Inc. (The) ^ 2,500 131,850
Denali Fund (The) 8,500 146,200
Dreman/Claymore Dividend & Income Fund 53,500 679,450
H&Q Healthcare Investors ^ 11,400 167,238
H&Q Life Sciences Investors ^ 6,000 68,520
Japan Equity Fund * 13,000 91,000
Liberty All-Star Growth Fund, Inc. 39,075 182,090
Petroleum & Resources Corporation (a) 3,000 130,770
Templeton Emerging Markets Fund 3,000 59,550
Zweig Fund, Inc. ^ 37,000 170,940
----------
2,850,895
----------
CONSUMER DISCRETIONARY - 7.66%
Amazon.com, Inc. * 2,500 183,325
Bed Bath & Beyond Inc. * 2,500 70,250
Best Buy Co., Inc. ^ 2,500 99,000
Comcast Corporation, Class A ^ 9,012 170,958
Comcast Corporation, Special Class A 4,250 79,730
DIRECTV Group, Inc. (The) * 4,000 103,640
Ford Motor Company * 14,000 67,340
Gap, Inc. (The) 3,000 50,010
Goodyear Tire & Rubber Company (The) * 2,500 44,575
Home Depot, Inc. (The) 5,000 117,100
Johnson Controls, Inc. ^ 2,500 71,700
Lowe's Companies, Inc. ^ 5,000 103,750
Marriott International, Inc., Class A 2,000 52,480
Mattel, Inc. 4,500 77,040
McDonald's Corporation 5,100 286,722
News Corporation, Class B ^ 7,500 115,125
NIKE, Inc., Class B 2,500 149,025
Omnicom Group Inc. ^ 3,000 134,640
Pulte Homes, Inc. ^ 2,500 24,075
Staples, Inc. 3,150 74,812
Starbucks Corporation * 2,500 39,350
Tata Motors Limited ^ ADR 2,500 25,125
Time Warner Inc. ^ 11,000 162,800
TJX Companies, Inc. (The) 2,500 78,675
Walt Disney Company (The) 11,000 343,200
----------
2,724,447
----------
CONSUMER STAPLES - 10.04%
Altria Group, Inc. 7,700 158,312
Coca-Cola Company (The) 8,000 415,840
Colgate-Palmolive Company 2,500 172,750
ConAgra Foods, Inc. 2,500 48,200
CVS Corporation 4,175 165,205
H.J. Heinz Company 2,700 129,195
Kraft Foods Inc, Class A 5,328 151,582
Kroger Co. (The) 3,600 103,932
PepsiCo, Inc. 5,000 317,950
Philip Morris International Inc. 7,700 380,303
Procter & Gamble Company (The) 8,472 515,182
Sara Lee Corporation 2,500 30,625
Sysco Corporation ^ 2,500 68,775
Walgreen Co. 3,100 100,781
Wal-Mart Stores, Inc. 14,500 814,900
----------
3,573,532
----------
ENERGY - 14.48%
Apache Corporation 1,000 139,000
Chesapeake Energy Corporation 2,500 164,900
Chevron Corporation 10,068 998,041
Devon Energy Corporation 2,500 300,400
El Paso Corporation. 5,000 108,700
Exxon Mobil Corporation ^ 20,000 1,762,601
Halliburton Company ^ 2,500 132,675
Peabody Energy Corporation 2,500 220,125
Schlumberger Limited ^ 5,000 537,150
Spectra Energy Corporation 2,500 71,850
Transocean Inc. ^ 1,000 152,390
Weatherford International Ltd. * 5,000 247,950
Williams Companies, Inc. (The) 2,500 100,775
XTO Energy, Inc. 3,125 214,094
----------
5,150,651
----------
FINANCIALS - 11.36%
AFLAC Incorporated 1,500 94,200
American Express Company ^ 3,500 131,845
American International Group, Inc. ^ 8,331 220,438
Ameriprise Financial, Inc. 1,220 49,617
Aon Corporation 2,500 114,850
Bank of America Corporation 17,521 418,226
Bank of New York Mellon Corporation 4,800 181,584
BB&T Corporation ^ 2,000 45,540
Charles Schwab Corporation (The) ^ 8,200 168,428
Chubb Corporation (The) ^ 2,000 98,020
Fannie Mae ^ 3,000 58,530
Freddie Mac 2,500 41,000
Goldman Sachs Group, Inc. (The) ^ 3,000 524,700
Hartford Financial Services Group, Inc. (The) 2,500 161,425
Hudson City Bancorp, Inc. 2,500 41,700
JPMorgan Chase & Co. 18,200 624,442
KeyCorp ^ 5,000 54,900
Metlife, Inc. ^ 3,000 158,310
Morgan Stanley ^ 1,700 61,319
State Street Corporation 1,600 102,384
Travelers Companies, Inc. (The) 5,092 220,993
UnumProvident Corporation 2,500 51,125
Wachovia Corporation ^ 5,600 86,968
Wells Fargo & Company 14,000 332,500
----------
4,043,044
----------
HEALTHCARE - 10.83%
Aetna Inc. 4,000 162,120
Baxter International Inc. ^ 2,500 159,850
Bristol-Myers Squibb Company ^ 4,000 82,120
Celgene Corporation ^ * 2,500 159,675
Gilead Sciences, Inc. * 7,000 370,650
Johnson & Johnson 15,500 997,270
Laboratory Corporation of America Holdings * 2,500 174,075
McKesson Corporation ^ 2,500 139,775
Medco Health Solutions, Inc. ^ * 1,562 73,726
Medtronic, Inc. 4,500 232,875
Merck & Co. Inc. ^ 10,700 403,283
Pfizer Inc. 12,000 209,640
Schering-Plough Corporation 4,400 86,636
St. Jude Medical, Inc. * 2,500 102,200
Stryker Corporation 2,000 125,760
UnitedHealth Group Incorporated 3,500 91,875
Waters Corporation ^ * 2,500 161,250
Wyeth 2,500 119,900
----------
3,852,680
----------
INDUSTRIALS - 10.45%
Allied Waste Industries, Inc. ^ * 2,500 31,550
Boeing Company (The) ^ 1,400 92,008
Caterpillar Inc. 2,500 184,550
CSX Corporation 5,000 314,050
Danaher Corporation 2,500 193,250
Deere & Company ^ 2,000 144,260
General Dynamics Corporation ^ 2,500 210,500
General Electric Company 45,000 1,201,050
Illinois Tool Works Inc. 2,500 118,775
Lockheed Martin Corporation ^ 2,500 246,650
Raytheon Company 2,500 140,700
Rockwell Automation, Inc. 2,500 109,325
Textron Inc. 2,500 119,825
United Parcel Service, Inc., Class B 4,000 245,880
United Technologies Corporation 4,400 271,480
Waste Management, Inc. 2,500 94,275
----------
3,718,128
----------
INFORMATION TECHNOLOGY - 15.79%
Agilent Technologies Inc. * 2,500 88,850
Apple Computer, Inc. ^ * 5,000 837,200
Automatic Data Processing, Inc. 2,500 104,750
Cisco Systems, Inc. * 19,000 441,940
Corning Incorporated 6,000 138,300
eBay Inc. * 6,500 177,645
EMC Corporation * 8,000 117,520
Google Inc. * 1,000 526,420
Hewlett-Packard Company 7,500 331,575
Intel Corporation 8,000 171,840
International Business Machines Corporation 3,200 379,296
Intuit Inc. * 2,500 68,925
Microsoft Corporation 29,500 811,545
Nokia ADR 2,500 61,250
NVIDIA Corporation ^ * 3,750 70,200
Oracle Corporation * 23,600 495,600
Paychex, Inc. 2,500 78,200
QUALCOMM Inc. 6,800 301,716
Texas Instruments Incorporated ^ 11,000 309,760
Xerox Corporation ^ 3,000 40,680
Xilinx, Inc. 2,500 63,125
----------
5,616,337
----------
MATERIALS - 3.76%
Air Products & Chemicals, Inc. 2,500 247,150
Alcoa Inc. ^ 3,000 106,860
Dow Chemical Company (The) ^ 3,500 122,185
E. I. du Pont de Nemours and Company 2,800 120,092
Freeport-McMoRan Copper & Gold, Inc. 2,500 292,975
Monsanto Company 3,546 448,356
----------
1,337,618
----------
REAL ESTATE INVESTMENT TRUST - 0.63%
Simon Property Group, Inc. ^ 2,500 224,725
----------
TELECOMMUNICATION SERVICES - 2.98%
AT&T Inc. 23,589 794,713
Verizon Communications Inc. 7,500 265,500
----------
1,060,213
----------
UTILITIES - 3.39%
AES Corporation (The) * 3,000 57,630
Alleghany Energy Inc. 2,500 125,275
American Electric Power Company, Inc. 5,500 221,265
Dominion Resources, Inc. 5,000 237,450
Duke Energy Corporation 6,600 114,708
FirstEnergy Corp. 2,500 205,825
NiSource Inc. 2,500 44,800
Southern Company (The) ^ 2,500 87,300
Xcel Energy, Inc. 5,500 110,385
----------
1,204,638
----------
TOTAL EQUITY SECURITIES
(cost - $31,436,813) 35,356,908
----------
SHORT-TERM INVESTMENTS - 11.62%
MONEY MARKET SECURITY - 0.63%
JPMorgan U.S. Government Money Market Fund 222,427 222,427
----------
Principal
Amount
(000's)
---------
REPURCHASE AGREEMENTS - 10.99%
Bear, Stearns & Co. Inc. + ++
(Agreements dated 6/30/2008 to
be repurchased at $3,445,581, 2.50%,
7/1/2008, collateralized by $3,540,402
in United States Treasury Bonds) $ 3,445 3,445,342
Bear, Stearns & Co. Inc. + ++
(Agreements dated 6/30/2008 to be
repurchased at $466,559, 1.25%,
7/1/2008, collateralized by $482,027
in United States Treasury Bonds) 467 466,543
------------
3,911,885
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $4,134,312) 4,134,312
------------
TOTAL INVESTMENTS - 111.00%
(cost - $35,571,125) 39,491,220
------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (11.00)% (3,914,758)
------------
NET ASSETS - 100.00% $ 35,576,462
============
------------------------------
(a) Affiliated investment. The Fund holds 2.24% and 0.37% (based on net assets)
of Adams Express Company and Petroleum & Resources Corporation, respectively. A
director of the Fund also serves as a director to such companies. During the six
months ended June 30, 2008, 3,000 shares of Adams Express Company were sold.
There were no other purchases or sales of these securities.
^ Security or a portion thereof is out on loan.
* Non-income producing security.
ADR American Depositary Receipt
+ Stated interest rate, before rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities on
loan.
(b) Not applicable.
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 COMPANY 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 second fiscal quarter 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.
By: /S/ RALPH W. BRADSHAW
-------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: September 8, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Cornerstone Total Return Fund, Inc.
By: /S/ RALPH W. BRADSHAW
-------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: September 8, 2008
By: /S/ KAYADTI A. MADISON
----------------------
Name: Kayadti A. Madison
Title: Principal Financial Officer
Date: September 8, 2008