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
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Cornerstone Total Return Fund, Inc.
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(Exact name of registrant as secified in charter)
383 MADISON AVENUE, NEW YORK, NY 10179
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(Address of principal executive offices) (Zip code)
FRANK J. MARESCA. 383 MADISON AVE, NEW YORK, NY
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-272-3550
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Date of fiscal year end: DECEMBER 31, 2003
Date of reporting period: JANUARY 1, 2003 THROUGH JUNE 30, 2003
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Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
CORNERSTONE TOTAL RETURN FUND, INC.
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
Gary A. Bentz Director, Vice President
and Treasurer
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
STOCK TRANSFER AGENT AND
INVESTMENT MANAGER 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 Spitzer & Feldman P.C.
101 Carnegie Center 405 Park Avenue
Princeton, NJ 08540 New York, NY 10022
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.
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. The financial information 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 this report.
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CORNERSTONE TOTAL
RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2003
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CONTENTS
Letter to Shareholders 1
Portfolio Summary 3
Schedule of Investments 4
Statement of Assets and Liabilities 9
Statement of Operations 10
Statement of Changes in Net Assets 11
Financial Highlights 12
Notes to Financial Statements 13
Results of Annual Meeting of Stockholders 17
Description of Dividend Reinvestment & Cash Purchase Plan 18
Summary of General Information 20
Shareholder Information 20
Privacy Policy Notice 21
LETTER TO SHAREHOLDERS
July 25, 2003
Dear Fellow Shareholders:
We are pleased to report the semi-annual results of Cornerstone Total Return
Fund, Inc. (the "Fund"), covering the six months ended June 30, 2003. This Fund
resulted from the merger in October 2002 of The Cornerstone Strategic Return
Fund, Inc. with and into EIS Fund, Inc., and the subsequent name and stock
ticker symbol change. At the end of the period, the Fund's net assets were $61.9
million and the Net Asset Value ("NAV") per share was $13.17. The share price
closed at $13.99, representing a premium over NAV of 6.2%. Monthly distributions
to shareholders during the period have totaled $0.99 per share, most of which is
expected to be classified as non-taxable return-of-capital. Year-to-date 2003
total investment return at market value for shareholders who reinvested their
distributions was 33.7%, significantly outperforming the Fund's benchmark, the
S&P 500 Index, which returned 11.76% for the six-month period. We are gratified
that our strategic vision for enhancing shareholder value has resulted in
positive market performance.
CREATING VALUE FOR OUR SHAREHOLDERS
Since assuming portfolio management responsibilities for the Fund at the start
of 2002, the main goal of the Fund's investment manager, Cornerstone Advisors,
Inc., has been to add value for the owners of the Fund, our shareholders, by
continuing to outperform the Fund's benchmark. We have accomplished this
objective so far by focusing on portfolio performance, minimizing Fund expenses,
and taking advantage of the Fund's discount to NAV for the benefit of its
shareholders. The Fund and its investment manager remain firmly committed to
this important goal, both now and over the long-term. The greatest contribution
to Fund performance thus far in 2003 has resulted from actions designed to take
advantage of the Fund's discount. After commencing the year with a price
discount to NAV of 11.9%, the Fund's discount continued to close throughout the
first half of the year, until the ending stock price on June 30th stood at a
substantial 6.2% premium over the underlying portfolio NAV. We think that this
vastly improving discount picture confirms the market's favorable view of our
strategy and direction. We believe the Fund's monthly distribution policy with a
fixed payout has been instrumental in contributing to this discount elimination
and movement to a premium, while also providing maximum flexibility to
shareholders. Shareholders can choose to receive substantial portions of their
investment in cash via these large monthly distributions, or to continue their
holdings in the Fund's stock by reinvesting in additional shares. As an added
benefit to shareholders, losses in the portfolio are expected to allow most of
the distributions to be classified as return-of-capital, which will defer the
impact of capital gains taxes until significant Fund profits are realized in
future periods. Repurchases of shares selling below NAV in the open market have
enhanced NAV performance. Furthermore, these repurchases have served to reduce
the supply of shares available for sale, thus changing the demand/supply balance
and helping to reduce any existing discount.
The investment manager also attempts to enhance portfolio performance by
exploiting temporary and occasional pricing inefficiencies in certain
securities, representing components of a fully diversified U.S. stock portfolio.
The availability and magnitude of such opportunities are unpredictable and
therefore, any potential portfolio out-performance will in all probability vary
considerably from year to year.
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1
LETTER TO SHAREHOLDERS (CONCLUDED)
On-going, diligent attention to Fund expenses has allowed continued substantial
reductions in expense levels. In a demonstration of it's commitment, Cornerstone
Advisors, Inc. has extended its voluntary agreement to waive a substantial
portion of its management fees to the extent that monthly operating expenses
exceed a monthly rate of 0.10%. The investment manager takes a serious view of
the importance of controlling expenses, and fully intends for our Fund to
continue to enjoy one of the lowest expense ratios among comparable closed-end
funds.
MARKET ENVIRONMENT AND OUTLOOK
Following three consecutive years of dismal returns, U.S. investors welcomed the
strong recovery in the equity markets exhibited thus far in 2003. The S&P 500
Index enjoyed its best quarter since 1998 in the second quarter, after
experiencing meandering weakness in the first three months of the year. Most
foreign equity markets also finished positive for the period. International
political uncertainty, continuing concerns in Iraq and complications such as the
SARS epidemic all combined to keep second quarter earnings expectations low.
However, the market continues to anticipate stronger recovery in the second half
of this year.
Economic weakness continues to frustrate analysts and no consensus yet exists
for when solid evidence of a sustained recovery should be expected. Unemployment
remains stubbornly high and business investment remains unacceptably low. But
consumer spending and confidence both remain high, and the housing market is
still strong. The powerful combination of massive fiscal stimulus provided by
tax cuts and tremendous monetary stimulus from continuing low interest rates
should yet help put the economy back firmly on the right track. For most of
first half of 2003, the Fund's portfolio remained essentially fully invested,
with broad diversification across and within sectors, by utilizing closed-end
fund and global equity positions. This approach has continued to serve us well
and helped produce the sizable year-to-date Fund performance. We remain
convinced the most compelling opportunities are still in the equity area, rather
than in fixed-income investments. The Fund's portfolio will continue to consist
primarily of stock holdings in the strongest, most stable U.S. companies and
should provide solid returns for the long-term investor.
The Fund's Board of Directors, officers and investment manager are all mindful
of the trust that our 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
Chairman
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKET,
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.
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2
CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2003 (UNAUDITED)
TOP TEN, BY SECTOR
Percent of
Sector Net Assets
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1. Financials 19.1
2. Information Technology 14.8
3. Consumer Discretionary 14.4
4. Healthcare 13.7
5. Industrials 11.4
6. Consumer Staples 9.2
7. Energy 5.0
8. Telecommunication Services 3.4
9. Utilities 2.6
10. Materials 1.8
TOP TEN HOLDINGS, BY ISSUER
Holding Sector Net Assets
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1. General Electric Co. Industrials 3.6
2. Microsoft Corp. Information Technology 3.5
3. Pfizer Inc. Healthcare 3.1
4. Wal-Mart Stores, Inc. Consumer Discretionary 2.9
5. Exxon Mobil Corp. Energy 2.7
6. Citigroup Inc. Financials 2.4
7. American International Group, Inc. Financials 1.9
8. International Business Machines Corp. Information Technology 1.9
9. Johnson & Johnson Healthcare 1.9
10. Intel Corp. Information Technology 1.8
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3
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CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
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No. of Value
Description Shares (Note A)
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EQUITY SECURITIES - 95.57%
UNITED STATES - 94.16%
CLOSED-END DOMESTIC FUND - 0.27%
Gabelli Global Multimedia
Trust, Inc. 21,700 $ 168,175
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CONSUMER DISCRETIONARY - 12.94%
AOL Time Warner Inc.+ 31,500 506,835
Bed Bath & Beyond Inc.+ 2,500 97,025
Best Buy Co., Inc.+ 5,000 219,600
Carnival Corp. 5,300 172,303
Clear Channel
Communications, Inc.+ 2,700 114,453
Comcast Corp., Class A+ 8,508 256,771
Comcast Corp.,
Special Class A + 7,500 216,225
Costco Wholesale Corp.+ 4,600 168,360
CVS Corp. 2,500 70,075
Dana Corp. 2,500 28,900
Delphi Corp. 5,100 44,013
Eastman Kodak Co. 2,500 68,375
Federated Department Stores, Inc. 2,500 92,125
Ford Motor Co. 15,200 167,048
Fortune Brands, Inc. 2,500 130,500
Gannett Co., Inc. 2,500 192,025
Gap, Inc. (The) 6,900 129,444
General Motors Corp. 5,000 180,000
Harley-Davidson, Inc. 5,000 199,300
Harrah's Entertainment, Inc.+ 2,500 100,600
Hilton Hotels Corp. 5,000 63,950
Home Depot, Inc. (The) 17,800 589,536
Kohl's Corp.+ 2,500 128,450
Limited Brands 4,500 69,750
Lowe's Companies, Inc. 6,200 266,290
Mattel, Inc. 4,500 85,140
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CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
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No. of Value
Description Shares (Note A)
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CONSUMER DISCRETIONARY (CONTINUED)
May Department Stores Co. (The) 2,500 $ 55,650
McDonald's Corp. 10,600 233,836
Monsanto Co. 1,773 38,368
Office Depot, Inc. + 2,500 36,275
Omnicom Group Inc. 1,500 107,550
Reebok International Ltd.+ 2,500 84,075
Sears, Roebuck & Co. 2,500 84,100
Staples, Inc.+ 4,600 84,410
Starbucks Corp.+ 2,500 61,300
Target Corp. 7,100 268,664
TJX Companies, Inc. (The) 4,000 75,360
Viacom Inc., non-voting Class B+ 9,000 392,940
Wal-Mart Stores, Inc. 32,900 1,765,743
Walt Disney Co. (The) 14,200 280,450
Yum! Brands, Inc.+ 2,500 73,900
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7,999,714
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CONSUMER STAPLES - 9.21%
Albertson's, Inc. 2,500 48,000
Altria Group, Inc. 19,200 872,448
Anheuser-Busch Companies, Inc. 6,200 316,510
Archer-Daniels-Midland Co. 5,650 72,716
Campbell Soup Co. 3,200 78,400
Coca-Cola Co. (The) 21,600 1,002,456
Coca-Cola Enterprises Inc. 2,500 45,375
Colgate-Palmolive Co. 5,100 295,545
ConAgra Foods, Inc. 2,500 59,000
General Mills, Inc. 2,500 118,525
Gillette Co. (The) 8,600 273,996
H.J. Heinz Co. 2,700 89,046
Kimberly-Clark Corp. 5,000 260,700
Kroger Co. (The)+ 6,600 110,088
PepsiCo, Inc. 12,600 560,700
Procter & Gamble Co. (The) 10,000 891,800
See accompanying notes to financial statements.
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4
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CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED) (CONTINUED)
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No. of Value
Description Shares (Note A)
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CONSUMER STAPLES (CONTINUED)
Safeway Inc.+ 4,900 $ 100,254
Sara Lee Corp. 6,300 118,503
Walgreen Co. 8,100 243,810
Wm. Wrigley Jr. Co. 2,500 140,575
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5,698,447
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ENERGY - 5.00%
Anadarko Petroleum Corp. 2,500 111,175
Calpine Corp. + 3,000 19,800
CenterPoint Energy, Inc. 5,700 46,455
ChevronTexaco Corp. 8,302 599,404
ConocoPhillips 3,669 201,061
El Paso Corp. 4,800 38,784
Exxon Mobil Corp. 46,500 1,669,815
Marathon Oil Corp. 2,500 65,875
Reliant Resources, Inc.+ 4,494 27,548
Schlumberger Ltd. 5,100 242,607
Unocal Corp. 2,500 71,725
-----------
3,094,249
-----------
FINANCIALS - 19.05%
AFLAC Inc. 4,000 123,000
Allstate Corp. (The) 5,200 185,380
American Express Co. 8,600 359,566
American International Group, Inc. 21,331 1,177,045
Bank of America Corp. 10,900 861,427
Bank of New York Co., Inc. (The) 5,900 169,625
Bank One Corp. 9,300 345,774
BB&T Corp. 4,500 154,350
Capital One Financial Corp. 1,000 49,180
Charles Schwab Corp. (The) 10,700 107,963
Citigroup Inc. 35,100 1,502,280
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No. of Value
Description Shares (Note A)
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FINANCIALS (CONTINUED)
Fannie Mae 5,700 $ 384,408
Fifth Third Bancorp 5,100 292,434
Fiserv, Inc.+ 2,500 89,025
FleetBoston Financial Corp. 8,500 252,535
Freddie Mac 5,800 294,466
Goldman Sachs Group, Inc. (The) 3,000 251,250
Hartford Financial
Services Group, Inc. (The) 4,600 231,656
HSBC Holdings plc ADR 2,514 148,602
J.P. Morgan Chase & Co. 14,700 502,446
John Hancock Financial Services, Inc. 3,500 107,555
Lehman Brothers Holdings Inc. 2,500 166,200
Marsh & McLennan
Companies, Inc. 4,600 234,922
MBNA Corp. 10,050 209,442
Mellon Financial Corp. 4,800 133,200
Merrill Lynch & Co., Inc. 6,600 308,088
MetLife, Inc. 6,000 169,920
Morgan Stanley 6,200 265,050
National City Corp. 5,300 173,363
Northern Trust Corp. 1,100 45,969
PNC Financial Services Group 1,400 68,334
Principal Financial Group, Inc. 2,500 80,625
Progressive Corp. (The) 2,500 182,750
Prudential Financial, Inc. 5,000 168,250
State Street Corp. 1,600 63,040
SunTrust Banks, Inc. 1,500 89,010
Travelers Property Casualty Corp.,
Class A 1,731 27,523
Travelers Property Casualty Corp.,
Class B 3,558 56,110
U.S. Bancorp 15,700 384,650
See accompanying notes to financial statements.
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5
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CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED) (CONTINUED)
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No. of Value
Description Shares (Note A)
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FINANCIALS (CONTINUED)
Wachovia Corp. 11,600 $ 463,536
Washington Mutual, Inc. 7,250 299,425
Wells Fargo & Co. 12,000 604,800
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11,784,174
-----------
HEALTHCARE - 13.69%
Abbott Laboratories 10,700 468,232
Amgen Inc.+ 8,300 555,934
Baxter International Inc. 5,100 132,600
Becton, Dickinson & Co. 2,500 97,125
Boston Scientific Corp.+ 3,000 183,300
Bristol-Myers Squibb Co. 12,100 328,515
Cardinal Health, Inc. 2,500 160,750
CIGNA Corp. 800 37,552
Eli Lilly & Co. 9,100 627,627
Genzyme Corp.+ 5,000 209,000
Guidant Corp. 2,500 110,975
HCA Inc. 2,600 83,304
HEALTHSOUTH Corp.+ 2,500 1,275
Johnson & Johnson 22,600 1,168,420
King Pharmaceuticals, Inc.+ 2,500 36,900
McKesson Corp. 2,500 89,350
Medtronic, Inc. 10,100 484,497
Merck & Co. Inc. 12,700 768,985
Pfizer Inc. 56,360 1,924,694
Schering-Plough Corp. 11,400 212,040
Tenet Healthcare Corp.+ 5,000 58,250
UnitedHealth Group Inc. 5,000 251,250
Wyeth 10,500 478,275
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8,468,850
-----------
INDUSTRIALS - 11.38%
3M Co. 2,500 322,450
Automatic Data Processing, Inc. 7,500 253,950
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No. of Value
Description Shares (Note A)
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INDUSTRIALS (CONTINUED)
Boeing Co. (The) 6,700 $ 229,944
Burlington North Santa Fe Corp. 5,000 142,200
Caterpillar Inc. 2,500 139,150
Cendant Corp.+ 7,100 130,072
Concord EFS, Inc.+ 5,000 73,600
CSX Corp. 2,500 75,225
Dover Corp. 3,500 104,860
Emerson Electric Co. 4,500 229,950
FedEx Corp. 2,500 155,075
First Data Corp. 5,000 207,200
General Dynamics Corp. 2,500 181,250
General Electric Co. 76,500 2,194,020
Honeywell International Inc. 12,300 330,255
Illinois Tool Works Inc. 2,500 164,625
Lockheed Martin Corp. 5,000 237,850
Masco Corp. 4,600 109,710
Paychex, Inc. 5,000 146,550
Raytheon Co. 2,500 82,100
Southwest Airlines Co. 6,100 104,920
Transocean Inc.+ 2,500 54,925
Tyco International Ltd. 17,600 334,048
United Parcel Service, Inc., Class B 9,000 573,300
United Technologies Corp. 4,700 332,901
Waste Management, Inc. 5,300 127,677
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7,037,807
-----------
INFORMATION TECHNOLOGY - 14.77%
Adobe Systems Inc. 2,500 80,175
Agere Systems Inc., Class A+ 75 175
Agere Systems Inc., Class B+ 1,851 4,257
Agilent Technologies, Inc.+ 5,000 97,750
Altera Corp.+ 1,200 19,680
Analog Devices, Inc.+ 5,000 174,100
Apple Computer, Inc.+ 2,500 47,800
See accompanying notes to financial statements.
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6
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CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED) (CONTINUED)
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No. of Value
Description Shares (Note A)
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INFORMATION TECHNOLOGY (CONTINUED)
Applied Materials, Inc.+ 19,400 $ 307,684
CIENA Corp.+ 1,500 7,785
Cisco Systems, Inc.+ 52,000 862,680
Computer Associates
International, Inc. 5,200 115,856
Corning Inc.+ 7,500 55,425
Dell Computer Corp.+ 20,200 645,592
Electronic Data
Systems Corp. 7,500 160,875
EMC Corp.+ 8,000 83,760
Hewlett-Packard Co. 15,842 337,435
Intel Corp. 52,500 1,091,160
International Business
Machines Corp. 14,200 1,171,500
JDS Uniphase Corp.+ 9,700 34,047
Linear Technology Corp. 2,500 80,525
Lucent Technologies Inc.+ 7,000 14,210
Maxim Integrated
Products, Inc. 2,500 85,475
Micron Technology, Inc. 5,500 63,965
Microsoft Corp. 84,800 2,171,728
Motorola, Inc. 16,100 151,823
Oracle Corp.+ 43,100 518,062
PerkinElmer, Inc. 1,500 20,715
QUALCOMM Inc. 3,400 121,550
Sanmina-SCI Corp.+ 4,000 25,240
Siebel Systems, Inc.+ 5,000 47,700
Solectron Corp.+ 5,700 21,318
Sun Microsystems, Inc.+ 24,600 113,160
Texas Instruments Inc. 13,500 237,600
Yahoo! Inc.+ 5,000 163,800
-----------
9,134,607
-----------
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No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------------------
MATERIALS - 1.84%
Air Products & Chemicals, Inc. 2,500 $ 104,000
Alcan Inc. 1,500 46,935
Alcoa Inc. 6,800 173,400
Dow Chemical Co. (The) 7,200 222,912
E .I. du Pont de Nemours & Co. 5,800 241,512
Georgia-Pacific Corp. 2,500 47,375
International Paper Co. 4,800 171,504
Rohm & Haas Co. 2,500 77,575
Weyerhaeuser Co. 1,000 54,000
-----------
1,139,213
-----------
TELECOMMUNICATION SERVICES - 3.42%
ALLTEL Corp. 2,500 120,550
AT&T Corp. 5,260 101,255
AT&T Wireless Services Inc.+ 15,567 127,805
BellSouth Corp. 12,700 338,201
SBC Communications Inc. 25,600 654,080
Sprint Corp. (FON Group) 4,100 59,040
Sprint Corp. (PCS Group)+ 4,300 24,725
Verizon Communications Inc. 17,400 686,430
-----------
2,112,086
-----------
UTILITIES - 2.59%
American Electric Power Co., Inc. 5,500 164,065
Dominion Resources, Inc. 5,000 321,350
Duke Energy Corp. 6,600 131,670
Edison International+ 5,000 82,150
Exelon Corp. 2,500 149,525
FirstEnergy Corp. 5,000 192,250
Public Service Enterprise Group Inc. 2,500 105,625
Scottish Power plc ADR 4,000 97,240
Southern Co. (The) 5,000 155,800
See accompanying notes to financial statements.
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7
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CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------------------
UTILITIES (CONTINUED)
TXU Corp. 3,700 $ 83,065
Williams Companies, Inc. (The) 4,800 37,920
Xcel Energy, Inc. 5,500 82,720
1,603,380
TOTAL UNITED STATES
(cost - $71,122,828) 58,240,702
-----------
CZECH REPUBLIC - 1.41%
CONSUMER DISCRETIONARY - 1.41%
Bonton AS 68,590 145,461
Bonton Book AS 68,590 145,461
Bonton Disc AS 68,590 145,486
Bonton Film Entertainment AS 68,590 145,461
Bonton Music AS 68,590 145,485
Bonton Pictures AS 68,590 145,485
-----------
TOTAL CZECH REPUBLIC
(cost - $894,867) 872,839
-----------
TOTAL EQUITY SECURITIES - 95.57%
(cost - $72,017,695) 59,113,541
-----------
Amount Value
Description (000's) (Note A)
SHORT-TERM INVESTMENT - 4.58%
REPURCHASE AGREEMENT - 4.58%
Bear, Stearns & Co. Inc.
(Agreement dated 06/30/03 to be
repurchased at $2,829,242),
1.10%, 07/01/03
(cost - $2,829,156) (Note F) $ 2,829 $ 2,829,156
-----------
TOTAL INVESTMENTS - 100.15%
(cost - $74,846,851) (Notes A, G) 61,942,697
-----------
SECURITIES LENDING
COLLATERAL (Note E) - 1.34% 830,584
LIABILITIES IN EXCESS OF OTHER
ASSETS - (1.49)% (920,356)
-----------
NET ASSETS - 100.00% $61,852,925
===========
+ Non-income producing security.
ADR American Depositary Receipts.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
8
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $74,846,851) (Notes A, G) $ 61,942,697
Cash collateral received for securities loaned (Note E) 830,584
Receivables:
Dividends 75,558
Interest 1,395
Prepaid expenses 16,711
------------
Total Assets 62,866,945
------------
LIABILITIES
Payables:
Upon return of securities loaned (Note E) 830,584
Investment management fees (Note B) 9,382
Other accrued expenses 174,054
Total Liabilities 1,014,020
------------
NET ASSETS (applicable to 4,694,778 shares of common stock outstanding) $ 61,852,925
------------
NET ASSET VALUE PER SHARE ($61,852,925 / 4,694,778) $ 13.17
============
NET ASSETS CONSISTS OF
Capital stock, $0.01 par value; 4,694,778 shares issued and outstanding
(15,000,000 shares authorized) $ 46,948
Paid-in capital 94,167,851
Cost of 14,282 shares repurchased (159,454)
Distributions in excess of net investment income (4,438,607)
Accumulated net realized loss on investments (14,859,659)
Net unrealized depreciation in value of investments (12,904,154)
------------
Net assets applicable to shares outstanding $ 61,852,925
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income (Note A):
Dividends $ 536,633
Interest 7,903
------------
Total Investment Income 544,536
------------
Expenses:
Investment management fees (Note B) 293,022
Administration fees 29,292
Transfer agent fees 21,017
Legal and audit fees (Note B) 17,921
Directors' fees 16,612
Accounting fees 16,181
Printing 12,523
Stock exchange listing fees 7,623
Custodian fees 6,558
Japanese filings 5,740
Insurance 5,316
Other 544
------------
Total Expenses 432,349
Less: Management fee waivers (Note B) (66,680)
Less: Fees paid indirectly (Note B) (11,335)
------------
Net Expenses 354,334
------------
Net Investment Income 190,202
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investments (619,904)
Net change in unrealized depreciation in value of investments 6,399,013
------------
Net realized and unrealized gain on investments 5,779,109
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,969,311
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Six
Months Ended For the Year
June 30, 2003 Ended
(unaudited) December 31, 2002
------------ ------------
INCREASE IN NET ASSETS
Operations:
Net investment income $ 190,202 $ 397,285
Net realized loss on investments (619,904) (10,666)
Net change in unrealized appreciation/(depreciation) in value of
investments 6,399,013 (8,144,534)
------------ ------------
Net increase/(decrease) in net assets resulting from operations 5,969,311 (7,757,915)
------------ ------------
Dividends and distributions to shareholders (Notes A, G):
Net investment income (190,202) (397,285)
Return-of-capital (4,438,607) (4,727,860)
------------ ------------
Total dividends and distributions to shareholders (4,628,809) (5,125,145)
------------ ------------
Capital stock transactions (Note D):
Net assets received in conjunction with Merger
Agreement (Note A) -- 33,396,970
Proceeds from 37,118 and 47,882 shares newly issued in
reinvestment of distributions, respectively 451,098 610,487
Cost of 7,500 and 43,900 shares repurchased, respectively (90,050) (520,502)
------------ ------------
Net increase in net assets resulting from capital stock transactions 361,048 33,486,955
------------ ------------
Total increase in net assets 1,701,550 20,603,895
------------ ------------
NET ASSETS
Beginning of period 60,151,375 39,547,480
------------ ------------
End of period $ 61,852,925 $ 60,151,375
============ ============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
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 Years Ended December 31,
For the Six -----------------------------------------------------------------------
Months Ended
June 30, 2003
(unaudited) 2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 12.89 $ 18.30 $ 18.28 $ 17.62 $ 18.78 $ 18.52
----------- ----------- ----------- ----------- ----------- -----------
Net investment income 0.04# 0.15# 0.52 1.07 1.03 1.06
Net realized and unrealized gain/(loss)
on investments 1.23 (3.57) 0.24 0.63 (1.20) 0.23
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease) in net assets
resulting from operations 1.27 (3.42) 0.76 1.70 (0.17) 1.29
----------- ----------- ----------- ----------- ----------- -----------
Dividends and distributions to shareholders:
Net investment income (0.04) (0.18) (0.66) (1.05) (1.01) (1.03)
Return-of-capital (0.95) (1.80) (0.09) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and distributions to
shareholders (0.99) (1.98) (0.75) (1.05) (1.01) (1.03)
----------- ----------- ----------- ----------- ----------- -----------
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 -- (0.03) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total capital stock transactions -- (0.01) 0.01 0.01 0.02 --
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 13.17 $ 12.89 $ 18.30 $ 18.28 $ 17.62 $ 18.78
Market value, end of period $ 13.99 $ 11.350 $ 16.290 $ 15.875 $ 14.250 $ 16.560
Total investment return (a) 33.65% (19.30)% 8.91% 19.02% (8.39)% 5.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 61,853 $ 60,151 $ 39,547 $ 39,640 $ 38,283 $ 41,069
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.21%(d) 1.50% -- -- -- --
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 1.48%(d) 2.07% 3.01% -- -- --
Ratio of expenses to average net assets,
net of fee waivers but excluding fees paid
indirectly, if any 1.25%(d) 1.63% -- 1.06% 1.05% 0.97%
Ratio of net investment income to
average net assets 0.65%(d) 1.01% 2.77% 5.97% 5.60% 5.62%
Portfolio turnover -- 86.60% -- 15.87% 16.09% 15.88%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
# 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 fees paid indirectly.
(d) Annualized.
</FN>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
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. On October 31, 2002, the Fund (then known as "EIS
Fund, Inc.") consummated a merger with The Cornerstone Strategic Return Fund,
Inc. (the "Predecessor Fund"). Pursuant to the terms of the agreement governing
the merger, each share of common stock of the Predecessor Fund was converted
into an equivalent dollar amount of full shares of common stock of the Fund,
based on the net asset value of the Fund and the Predecessor Fund as of October
30, 2002 ($13.35 and $7.33, respectively), resulting in a conversion ratio of
0.5490 shares of the Fund for each share of the Predecessor Fund resulting in
the issuance of 2,500,087 Fund shares. Cash was paid in lieu of fractional
shares. Net assets of the Fund and the Predecessor Fund as of the merger date
were $29,172,812 and $33,396,970, including unrealized depreciation of
$5,895,432 and $12,013,315, respectively. In addition, the Predecessor Fund's
net assets included undistributed capital losses of $14,137,957. Total net
assets after the merger were $62,569,782. Upon the consummation of the merger,
the Fund changed its name to Cornerstone Total Return Fund, Inc.
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, 2003, the Fund held 1.41% of its net assets
in securities valued in good faith by the Board of Directors with an aggregate
cost of $894,867 and a fair value of $872,839. 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
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
("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 "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.
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. Prior
thereto, the Fund distributed at least annually to shareholders, substantially
all of its net investment income and net realized short-term capital gains, if
any. 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. An additional distribution may be
made to the extent necessary to avoid the payment of a 4% U.S. federal excise
tax. 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, 2003 from net investment income or net realized gains 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 0.10% of average net assets calculated monthly. Cornerstone
voluntarily agreed to continue the undertaking through December 31, 2003. For
the six months ended June 30, 2003, Cornerstone earned $293,022 for investment
management services, of which it waived $66,680.
Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY,
are expense offsets of $11,335 arising from credits earned on portfolio
transactions executed with a broker, pursuant to directed brokerage arrangement.
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
The Fund paid or accrued approximately $12,899 for the six months ended June 30,
2003 for legal services to Spitzer & Feldman P.C., counsel to the Fund. Thomas
R. Westle, a partner of the firm, serves as secretary of the Fund.
At June 30, 2003, pursuant to regulatory filings, a single shareholder and his
affiliates owned approximately 43% and 6% of the outstanding shares of the Fund
based on a Schedule 13G/A filing with the Securities and Exchange Commission on
February 7, 2003 and February 13, 2003, respectively.
NOTE C. INVESTMENT IN SECURITIES
For the six months ended June 30, 2003, purchases and sales of securities, other
than short-term investments, were $2,807 and $6,476,324, respectively.
NOTE D. SHARE REPURCHASE PROGRAM
Pursuant to Section 23 of the Investment Company Act of 1940, as amended the
Fund may 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, 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%. For the year ended December 31, 2002,
the Fund purchased 43,900 shares for a total cost of $540,395 at a weighted
average discount of 13.56% from net asset value. The discount of the individual
repurchases ranged from 9.87% - 16.26%. 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 and
the related collateral received at June 30, 2003 were $813,743 and $830,584,
respectively. Any cash collateral received is reinvested into repurchase
agreements, which in turn are collateralized by various U.S. Government and
Agency securities.
During the six months ended June 30, 2003, the Fund earned $596 in securities
lending income that is included under the caption INTEREST in the Statement of
Operations.
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
- --------------------------------------------------------------------------------
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, 2003.
PRINCIPAL
AMOUNT MARKET
ISSUER (000'S) MATURITY VALUE
- ------ --------- -------- ----------
United States
Treasury Bond,
(interest only) $6,380 2/15/20 $2,911,513
==========
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 distributions paid during the year ended December 31,
2002 for return-of-capital and net investment income were $4,727,860 and
$397,285, 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, 2002, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $14,143,775 of which $91,132 expires in 2008 and
$14,052,643 expires in 2010.
At June 30, 2003, 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 $74,942,831, $1,354,941,
$(14,355,075) and $(13,000,134), respectively.
- --------------------------------------------------------------------------------
16
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On April 11, 2003, 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 2004 Annual Meeting.
NAME OF DIRECTORS FOR WITHHOLD
----------------- --------- --------
Gary A. Bentz 4,319,742 14,739
Ralph W. Bradshaw 4,319,042 15,439
Thomas H. Lenagh 4,327,366 7,115
Edwin Meese III 4,317,797 16,684
Scott B. Rogers 4,328,287 6,194
Andrew A. Strauss 4,328,193 6,288
Glenn W. Wilcox, Sr. 4,319,228 15,253
- --------------------------------------------------------------------------------
17
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)
Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment & Cash Purchase
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 "Dividend" and collectively, "Dividends"), 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 a price equal to the average closing price of the
Fund over the five trading days preceding the payment date of such dividend.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Dividends automatically reinvested should so
notify the Fund in writing. If a Shareholder has not elected to receive cash
Dividends and the Agent does not receive notice of an election to receive cash
Dividends prior to the record date of any dividend, the shareholder will
automatically receive such Dividends 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 Dividend 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.
- --------------------------------------------------------------------------------
18
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)
(CONCLUDED)
There will be no charge to participants for reinvesting Dividends
other than their share of brokerage commissions as discussed below. The Agent's
fees for administering the Plan and handling the reinvestment of Dividends will
be paid by the Fund. Each participant's account will be charged a pro-rata share
of brokerage commissions incurred with respect to the Agent's Open Market
Purchases in connection with the reinvestment of Dividends.
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 Dividends will not relieve participants of any
income tax that may be payable on such Dividends. 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 Dividends are subject to U.S. income tax withholding and in
the case of participants subject to 28% federal backup withholding, the Agent
will reinvest Dividends 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.
- --------------------------------------------------------------------------------
19
SUMMARY OF GENERAL INFORMATION
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
Effective February 21, 2003, 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 published under "Closed-End Funds" each Sunday in THE NEW
YORK TIMES UNDER THE DESIGNATION "CNRSTN TR" and each Monday in THE WALL STREET
JOURNAL and BARRON'S under the designation "CornrstnTtlRtn Fd".
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20
PRIVACY POLICY NOTICE
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.
- --------------------------------------------------------------------------------
21
ITEM 2. CODE OF ETHICS.
(a) Disclose whether, as of the end of the period covered by the report, the
registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. If the registrant has not adopted such a code of ethics, explain
why it has not done so. NOT APPLICABLE - ONLY EFFECTIVE FOR ANNUAL REPORTS
WITH PERIODS ENDING ON OR AFTER JULY 15, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) Disclose that the registrant's board of directors has determined that
the registrant either:
(i) Has at least one audit committee financial expert serving on its
audit committee; or
(ii) Does not have an audit committee financial expert serving on its
audit committee.
(2) If the registrant provides the disclosure required by paragraph (a)(1)(i)
of this Item, it must disclose the name of the audit committee financial
expert and whether that person is "independent." In order to be considered
"independent" for purposes of this Item, a member of an audit committee may
not, other than in his or her capacity as a member of the audit committee,
the board of directors, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or other
compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as defined in
Section 2(a)(19) of the Act (15 U.S.C. 80a- 2(a)(19)).
(3) If the registrant provides the disclosure required by paragraph
(a)(1)(ii) of this Item, it must explain why it does not have an audit
committee financial expert.
NOT APPLICABLE - ONLY EFFECTIVE FOR ANNUAL REPORTS WITH PERIODS ENDING ON OR
AFTER JULY 15, 2003.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Disclose, under the caption AUDIT FEES, the aggregate fees billed
for each of the last two fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Disclose, under the caption AUDIT-RELATED FEES, the aggregate
fees billed in each of the last two fiscal years for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
(c) Disclose, under the caption TAX FEES, the aggregate fees billed
in each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the fees
disclosed under this category.
(d) Disclose, under the caption ALL OTHER FEES, the aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant, other than the services reported in paragraphs (a)
through (c) of this Item. Registrants shall describe the nature of the services
comprising the fees disclosed under this category.
(e) (1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) If greater than 50 percent, disclose the percentage of hours
expended on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's full-time,
permanent employees.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
each of the last two fiscal years of the registrant.
(h) Disclose whether the registrant's audit committee of the board of
directors has considered whether the provision of nonaudit services that were
rendered to the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
NOT APPLICABLE - ONLY EFFECTIVE FOR ANNUAL REPORTS WITH PERIODS ENDING ON OR
AFTER DECEMBER 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Form N-CSR disclosure
requirement not yet effective with respect to the Registrant.
ITEM 6. [Reserved]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
A closed-end management investment company that is filing an annual
report on this Form N-CSR must, unless it invests exclusively in non-voting
securities, describe the policies and procedures that it uses to determine how
to vote proxies relating to portfolio securities, including the procedures that
the company uses when a vote presents a conflict between the interests of its
shareholders, on the one hand, and those of the company's investment adviser;
principal underwriter; or any affiliated person (as defined in Section 2(a)(3)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules
thereunder) of the company, its investment adviser, or its principal
underwriter, on the other. Include any policies and procedures of the company's
investment adviser, or any other third party, that the company uses, or that are
used on the company's behalf, to determine how to vote proxies relating to
portfolio securities.
NOT APPLICABLE - ONLY EFFECTIVE FOR ANNUAL REPORTS WITH PERIODS ENDING ON OR
AFTER JULY 1, 2003.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Principal Executive Officer and Principal Financial Officer
concluded that the Registrant's Disclosure Controls and Procedures are effective
based on their evaluation of the Disclosure Controls and Procedures as of a
date within 90 days of the filing date of this report.
(b) There were no significant changes in registrant's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number
the exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of
the disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit. NOT APPLICABLE.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2 under
the Act (17 CFR 270.30a-2)
SIGNATURES
[See General Instruction F]
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
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RALPH W. BRADSHAW,
Chairman and President (Principal Executive Officer)
Date: September 4, 2003
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 4, 2003
By (Signature and Title)*
/S/ GARY A. BENTZ
- -----------------------
GARY A. BENTZ,
Vice President and Treasurer (Principal Financial Officer)
Date: September 4, 2003
* Print the name and title of each signing officer under his or her signature.
ALL CERTIFICATIONS (UNDER THE ACT'S SECTION 302 AND 906) SHOULD BE INCLUDED IN
ONE EDGAR EX-99.CERT EXHIBIT DOCUMENT TO FORM N-CSR)