OMB APPROVAL
------------------------
OMB Number: 3235-0570
Expires: August 31, 2011
Estimated average burden
hours per response: 18.9
------------------------
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)
305 MADISON AVENUE, SUITE 740 NEW YORK, NEW YORK 10165
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Frank J. Maresca
ULTIMUS FUND SOLUTIONS, LLC 305 MADISON AVENUE, SUITE 740 NEW YORK, NY 10165
--------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 652-6155
--------------
Date of fiscal year end: DECEMBER 31, 2009
----------------------------
Date of reporting period: JUNE 30, 2009
----------------------------
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.
================================================================================
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,
Secretary, and
Assistant Treasurer
William A. Clark Vice President
Frank J. Maresca 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
INDEPENDENT REGISTERED
ADMINISTRATOR PUBLIC ACCOUNTING FIRM
Ultimus Fund Solutions, LLC Tait, Weller & Baker LLP
305 Madison Avenue 1818 Market Street
New York, NY 10165 Suite 2400
Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
JPMorgan Chase Bank, N.A. Blank Rome LLP
14201 North Dallas Pkwy. 405 Lexington Avenue
Second Floor New York, NY 10174
Dallas, TX 75254
EXECUTIVE OFFICES
305 Madison Avenue
New York, NY 10165
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (513) 326-3597.
CRF
LISTED
ALTERNEXT.
================================================================================
CORNERSTONE TOTAL
RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2009
================================================================================
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
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
================================================================================
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
SECTOR ALLOCATION
Percent of
Sector Net Assets
--------------------------------------------------------------------------------
Information Technology 17.0
--------------------------------------------------------------------------------
Healthcare 13.2
--------------------------------------------------------------------------------
Energy 11.4
--------------------------------------------------------------------------------
Consumer Staples 10.9
--------------------------------------------------------------------------------
Financials 10.6
--------------------------------------------------------------------------------
Closed-End Funds 9.9
--------------------------------------------------------------------------------
Industrials 8.6
--------------------------------------------------------------------------------
Consumer Discretionary 7.7
--------------------------------------------------------------------------------
Utilities 3.4
--------------------------------------------------------------------------------
Telecommunication Services 3.0
--------------------------------------------------------------------------------
Materials 2.8
--------------------------------------------------------------------------------
Other 1.5
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Exxon Mobil Corporation Energy 4.4
--------------------------------------------------------------------------------
2. Johnson & Johnson Healthcare 3.1
--------------------------------------------------------------------------------
3. Adams Express Company (The) Closed-End Funds 2.6
--------------------------------------------------------------------------------
4. Wal-Mart Stores, Inc. Consumer Staples 2.5
--------------------------------------------------------------------------------
5. International Business
Machines Corporation Information Technology 2.3
--------------------------------------------------------------------------------
6. Google, Inc. - Class A Information Technology 2.2
--------------------------------------------------------------------------------
7. JPMorgan Chase & Company Financials 2.2
--------------------------------------------------------------------------------
8. Oracle Corporation Information Technology 2.0
--------------------------------------------------------------------------------
9. Wells Fargo & Company Financials 1.8
--------------------------------------------------------------------------------
10. AT&T, Inc. Telecommunication Services 1.8
--------------------------------------------------------------------------------
================================================================================
1
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
EQUITY SECURITIES - 98.90%
CLOSED-END FUNDS - 9.86%
Adams Express Company (The) (a) 59,400 $ 498,960
H&Q Healthcare Investors * 14,400 154,800
Liberty All-Star Equity Fund 37,000 127,650
Liberty All-Star Growth Fund 86,075 234,985
NFJ Dividend, Interest & Premium Strategy Fund 19,000 224,960
Zweig Fund, Inc. (The) 91,000 257,530
Other Closed-End Funds (b) 382,211
------------
1,881,096
------------
CONSUMER DISCRETIONARY - 7.68%
McDonald's Corporation 3,100 178,219
NIKE, Inc. - Class B 2,500 129,450
Other Consumer Discretionary ^ (b) 1,158,288
------------
1,465,957
------------
CONSUMER STAPLES - 10.87%
Coca-Cola Company (The) 5,000 239,950
CVS Caremark Corporation 4,175 133,057
PepsiCo, Inc. 3,000 164,880
Philip Morris International, Inc. 3,700 161,394
Procter & Gamble Company (The) 6,472 330,719
Wal-Mart Stores, Inc. 10,000 484,400
Other Consumer Staples (b) 559,367
------------
2,073,767
------------
ENERGY - 11.37%
Chevron Corporation 5,068 335,755
Devon Energy Corporation ^ 2,500 136,250
Exxon Mobil Corporation 12,000 838,920
Occidental Petroleum Corporation 2,500 164,525
Schlumberger Ltd. 3,000 162,330
Other Energy ^(b) 530,963
------------
2,168,743
------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
FINANCIALS - 10.55%
Bank of America Corporation 10,521 $ 138,877
Goldman Sachs Group, Inc. (The) 1,000 147,440
JPMorgan Chase & Company 12,200 416,142
Travelers Companies, Inc. (The) 3,092 126,896
Wells Fargo & Company 14,000 339,640
Other Financials ^(b) 844,456
------------
2,013,451
------------
HEALTHCARE - 13.17%
Abbott Laboratories 3,000 141,120
Amgen, Inc. * 3,000 158,820
Baxter International, Inc. 2,500 132,400
Gilead Sciences, Inc. * 3,000 140,520
Johnson & Johnson 10,500 596,400
Medtronic, Inc. 4,500 157,005
Pfizer, Inc. 12,000 180,000
Other Health Care ^ (b) 1,007,025
------------
2,513,290
------------
INDUSTRIALS - 8.60%
CSX Corporation 5,000 173,150
Danaher Corporation 2,500 154,350
General Electric Company 28,000 328,160
Lockheed Martin Corporation ^ 2,500 201,625
United Parcel Service, Inc. - Class B 4,000 199,960
United Technologies Corporation 4,400 228,624
Other Industrials ^(b) 354,191
------------
1,640,060
------------
INFORMATION TECHNOLOGY - 16.95%
Apple, Inc. * 2,000 284,860
Cisco Systems, Inc. * 13,000 242,320
Google, Inc. - Class A * 1,000 421,590
Intel Corporation 16,000 264,800
International Business Machines Corporation 4,200 438,563
Microsoft Corporation 14,000 332,780
================================================================================
See accompanying notes to financial statements.
2
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED)(CONCLUDED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Oracle Corporation 17,600 $ 376,992
QUALCOMM, Inc. 3,800 171,760
Other Information Technology ^ (b) 702,355
------------
3,236,020
------------
MATERIALS - 2.75%
Monsanto Company 2,000 148,680
Other Materials ^ (b) 376,766
------------
525,446
------------
REAL ESTATE INVESTMENT TRUST - 0.70%
Other Real Estate Investment Trust (b) 132,792
------------
TELECOMMUNICATION SERVICES - 2.98%
AT&T, Inc. 13,589 337,551
Verizon Communications, Inc. 7,500 230,475
------------
568,026
------------
UTILITIES - 3.42%
Exelon Corporation 2,500 128,025
Other Utilities ^ (b) 525,174
------------
653,199
------------
TOTAL EQUITY SECURITIES
(cost - $21,109,323) 18,871,847
------------
SHORT-TERM INVESTMENTS - 10.28%
MONEY MARKET SECURITY - 1.22%
JPMorgan U.S. Government Money Market Fund 232,747 232,747
------------
Principal
Amount
Description (000s) Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 9.06%
J.P. Morgan Securities Inc.+++
(Agreement dated 6/30/2009
to be repurchased at
$1,728,103)(b) $ 1,728 $ 1,728,092
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $1,960,839) 1,960,839
------------
TOTAL INVESTMENTS - 109.18%
(cost - $23,070,162) 20,832,686
------------
LIABILITIES IN EXCESS OF
OTHER ASSETS - (9.18)% (1,751,509)
------------
NET ASSETS - 100.00% $ 19,081,177
============
(a) Affiliated investment. The Fund holds 2.62% (based on net assets) of
Adams Express Company. A director of the Fund also serves as a director
to such company. During the six months ended June 30, 2009 the Fund sold
13,600 of this security. There were no purchases during this period.
(b) Represents issuers 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, 2009.
* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ The maturity date for all repurchase agreements held was July 1, 2009,
with interest rates ranging from 0.12% to 0.24% and collater- alized by
$1,779,662 in United States Treasury Bills maturing August 13, 2009.
Stated interest rate, before rebate earned by borrower of securities on
loan.
++ Represents investment purchased with collateral received for securities
on loan.
================================================================================
See accompanying notes to financial statements.
3
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value, including collateral for
securities on loan of $1,728,092:
Unaffiliated issuers (cost - $22,377,472)(1) $ 20,333,726
Affiliated issuer (cost - $692,690) 498,960
------------
Total investments (cost - $23,070,162) 20,832,686
Receivables:
Dividends 21,428
Foreign reclaims 18,770
Prepaid expenses 4,763
------------
Total Assets 20,877,647
------------
LIABILITIES
Payables:
Upon return of securities loaned 1,728,092
Directors' fees 12,750
Investment management fees (net of fee waivers) 11,550
Other accrued expenses 44,078
------------
Total Liabilities 1,796,470
------------
NET ASSETS (applicable to 2,809,209 shares of
common stock outstanding) $ 19,081,177
============
NET ASSET VALUE PER SHARE ($19,081,177 / 2,809,209) $ 6.79
============
NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 2,809,209 shares
issued and outstanding (15,000,000 shares authorized) $ 2,809
Paid-in capital 28,609,373
Accumulated net realized loss on investments and
foreign currency related transactions (7,293,529)
Net unrealized depreciation in value of
investments and translation of foreign currency (2,237,476)
------------
Net assets applicable to shares outstanding $ 19,081,177
============
---------
(1) Includes securities out on loan to brokers with a market value of
$1,616,697.
================================================================================
See accompanying notes to financial statements.
4
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (including $5,825 earned from affiliated issuers) $ 280,234
Securities lending 707
-----------
Total Investment Income 280,941
-----------
Expenses:
Legal and audit fees 199,773
Investment management fees 94,313
Directors' fees 29,483
Printing 18,348
Administration fees 18,054
Accounting fees 17,179
Transfer agent fees 14,047
Custodian fees 4,959
Stock exchange listing fees 2,480
Insurance 2,521
Miscellaneous 1,488
-----------
Total Expenses 402,645
Less: Management fee waivers (62,127)
Less: Fees paid indirectly (18,731)
-----------
Net Expenses 321,787
-----------
Net Investment Loss (40,846)
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized loss from unaffiliated investments (2,117,416)
Net realized loss from affiliated investments (107,268)
Capital gain distributions from regulated
investment companies and real estate
investment trust 10,898
Net change in unrealized depreciation
in value of investments and translation
of foreign currency 2,198,832
-----------
Net realized and unrealized loss on investments
and foreign currency (14,954)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (55,800)
===========
================================================================================
See accompanying notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
For the Six
Months Ended
June 30, 2009 For the Year Ended
(unaudited) December 31, 2008
------------- ------------------
DECREASE IN NET ASSETS
Operations:
Net investment income/(loss) $ (40,846) $ 334,663
Net realized loss from investments (2,224,684) (2,348,430)
Capital gain distributions from
regulated investment companies
and real estate investment trust 10,898 40,178
Net change in unrealized appreciation/(depreciation)
in value of investments 2,198,832 (12,967,513)
------------ ------------
Net decrease in net assets resulting from operations (55,800) (14,941,102)
------------ ------------
Dividends and distributions to shareholders:
Net investment income -- (334,663)
Return-of-capital (2,643,339) (10,218,473)
------------ ------------
Total dividends and distributions to shareholders (2,643,339) (10,553,136)
------------ ------------
Capital stock transactions:
Cash in lieu of fractional shares from the reverse stock split -- (542)
Proceeds from 35,505 and 102,212 shares newly issued
and/or from treasury in reinvestment of dividends
and distributions, respectively 275,696 1,588,319
------------ ------------
Total Capital stock transactions 275,696 1,587,777
------------ ------------
Total decrease in net assets (2,423,443) (23,906,461)
------------ ------------
NET ASSETS
Beginning of period 21,504,620 45,411,081
------------ ------------
End of period $ 19,081,177 $ 21,504,620
============ ============
================================================================================
See accompanying notes to financial statements.
6
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
For the Six
Months Ended For the Years Ended December 31,*
June 30, 2009 ----------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
------------- -------- -------- -------- -------- -------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 7.75 $ 17.00 $ 20.28 $ 21.82 $ 25.56 $ 27.78
-------- -------- -------- -------- -------- -------
Net investment income/(loss) # (0.01) 0.12 0.14 0.18 0.12 0.20
Net realized and unrealized gain/(loss)
on investments and foreign currency
related transactions (0.01) (5.64) 0.64 2.50 0.36 1.74
-------- -------- -------- -------- -------- -------
Net increase/(decrease) in net assets
resulting from operations and
foreign currency related transactions (0.02) (5.52) 0.78 2.68 0.48 1.94
-------- -------- -------- -------- -------- -------
Dividends and distributions to shareholders:
Net investment income -- (0.12) (0.14) (0.18) (0.12) (0.20)
Net realized capital gains -- -- (0.06) -- -- --
Return-of-capital (0.95) (3.77) (4.08) (4.04) (4.10) (4.02)
-------- -------- -------- -------- -------- -------
Total dividends and distributions to
shareholders (0.95) (3.89) (4.28) (4.22) (4.22) (4.22)
-------- -------- -------- -------- -------- -------
Capital stock transactions:
Anti-dilutive effect due to shares issued
in reinvestment of dividends and distributions 0.01 0.16 0.22 -- -- 0.06
-------- -------- -------- -------- -------- -------
Net asset value, end of period $ 6.79 $ 7.75 $ 17.00 $ 20.28 $ 21.82 $ 25.56
======== ======== ======== ======== ======== =======
Market value, end of period $ 10.06 $ 7.60 $ 19.60 $ 39.24 $ 29.30 $ 35.90
======== ======== ======== ======== ======== =======
Total investment return (a) 49.50%(b) (49.30)% (40.97)% 64.15% (2.07)% 15.11%
======== ======== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 19,081 $ 21,505 $ 45,411 $ 52,379 $ 54,194 $61,365
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 3.47%(e) 1.67% 1.49% 1.44% 1.47% 1.14%
Ratio of expenses to average net assets,
excluding fee waivers, if any (d) 4.34%(e) 1.94% 1.53% 1.50% 1.52% 1.45%
Ratio of expenses to average net assets,
net of fee waivers, if any (d) 3.67%(e) 1.77% 1.52% 1.50% 1.50% 1.43%
Ratio of net investment income/(loss) to
average net assets (0.44)%(e) 0.98% 0.74 0.82% 0.53% 0.75%
Portfolio turnover rate 7.65%(b) 15.61% 11.00% 11.29% 9.84% 12.15%
----------
* Effective December 23, 2008, a reverse stock split of 1:2 occurred. All
per share amounts have been restated according to the terms of the
split.
# 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) Not annualized.
(c) Expenses are net of fees paid indirectly.
(d) Expenses exclude the reduction for fees paid indirectly.
(e) Annualized.
================================================================================
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
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.
In May 2009, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 165, "SUBSEQUENT EVENTS." The Fund has adopted FAS 165 with these
financial statements.
FAS 165 requires the Fund to recognize in the financial statements the effects
of all subsequent events that provide additional evidence about conditions that
existed at the date of the Statement of Assets and Liabilities. For
nonrecognized subsequent events that must be disclosed to keep the financial
statements from being misleading, the Fund will be required to disclose the
nature of the event as well as an estimate of its financial effect, or a
statement that such an estimate cannot be made. In addition, FAS 165 requires
the Fund to disclose the date through which the subsequent events have been
evaluated. Management has evaluated any matters requiring such disclosure
through the date when such financial statements were issued (August 31, 2009).
Other than disclosures contained in these notes to the financial statements,
subsequent events after such date have not been evaluated with respect to the
impact on such financial statements.
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, 2009, 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
================================================================================
8
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
weekly and on the last business day of the month with the exception of those
days on which the NYSE Alternext US 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.
Management has evaluated the implications of FAS 161 and its impact on the
financial statements are not material.
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 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 2005 through 2008 and for the period
ended June 30, 2009. The Fund has initiated discussions with the Internal
Revenue Service's New York Regional Office regarding a technical tax issue
relating to whether the Fund's historic dividend reinvestment plan may have
resulted in a violation of certain Subchapter 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 by
seeking to obtain a closing letter
================================================================================
9
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
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
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)
================================================================================
10
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
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, 2009 in valuing the
Fund's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
--------------------------------------------------------------------------------
Level 1 - Quoted Prices
Equity Investments $18,871,847 --
Short-term Investments 1,960,839 --
Level 2 - Other Significant
Observable Inputs -- --
Level 3 - Significant
Unobservable Inputs -- --
----------- -----------
Total $20,832,686 --
=========== ===========
----------
* 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, 2009.
NOTE D. AGREEMENTS
Certain officers of the Fund are also officers of Cornerstone or Ultimus Fund
Solutions, LLC ("Ultimus"). Such officers are paid no fees by the Fund for
serving as officers of the Fund.
INVESTMENT MANAGEMENT AGREEMENT
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, 2009, 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 and extraordinary expenses) exceed a
rate of 0.125% of average net assets. For the six months ended June 30, 2009,
Cornerstone earned $94,313 for investment management services, of which it
waived $62,127. Effective July 1, 2009, the Investment Manager suspended it's
voluntary fee waiver.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement, Ultimus supplies executive,
administrative and regulatory services for the Fund. Ultimus supervises the
preparation of reports to stockholders for the Fund, reports to and filings with
the Securities and Exchange Commission and materials for meetings of the Board
of Directors. For these services, the Fund pays Ultimus a monthly fee at an
annual rate of 0.100% of its average daily net assets up to $250 million and
0.075% of such assets in excess of $250 million, subject to an annual minimum
fee of $50,000. Ultimus has agreed to discount the annual minimum fee to $30,000
and such discount will remain in place until amended fee is agreed upon.
FUND ACCOUNTING AGREEMENT
Under the terms of the Fund Accounting Agreement, Ultimus calculates the net
asset value per share and maintains the financial books and records of the Fund.
For the performance of these services, the Fund pays Ultimus a base fee of
$2,500 per month plus an asset based fee of 0.010% of the first $500 million of
average daily net assets and 0.005% of such assets in excess of $500 million.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $18,731 arising from credits earned on portfolio
transactions executed with brokers, pursuant to directed brokerage arrangements.
================================================================================
11
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
NOTE E. AFFILIATED
INVESTMENTS Transactions in affiliates for the six months ended June 30, 2009
were as follows:
ADAMS PETROLEUM &
EXPRESS RESOURCES
COMPANY CORPORATION
------- -----------
Market value at
beginning of period $ 586,190 $ 58,170
========= =========
Shares at beginning
of period 73,000 3,000
Shares purchased
during the period -- --
Shares sold during
the period (13,600) (3,000)
--------- ---------
Shares at end of period 59,400 --
========= =========
Dividend income earned
during the period 5,585 240
========= =========
Cost of purchases
during the period -- --
========= =========
Proceeds from sales
during the period 110,433 57,019
========= =========
Net realized loss
during the period (63,487) (43,781)
========= =========
Market value at
end of period $ 498,960 $ --
========= =========
NOTE F. INVESTMENT IN SECURITIES
For the six months ended June 30, 2009, purchases and sales of securities, other
than short-term investments, were $1,472,117 and $3,812,181 respectively.
NOTE G. SHARES OF COMMON STOCK
The Fund has 15,000,000 shares of common stock authorized and 2,809,209 shares
outstanding at June 30, 2009. Transactions in common stock for the six months
ended June 30, 2009 were as follows:
Shares at beginning of period 2,773,704
Shares newly issued in reinvestment
of dividends and distributions 35,505
---------
Shares at end of period 2,809,209
=========
NOTE H. 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, 2009. 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 I. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33(1)/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount.
================================================================================
12
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
The value of securities on loan to brokers at June 30, 2009, was
$1,616,697. During the six months ended June 30, 2009, the Fund earned $707 in
securities lending income which is included under the caption SECURITIES LENDING
in the Statement of Operations.
NOTE J. 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 year ended
December 31, 2008 for the Fund was ordinary icome of $334,663 and
return-of-capital $10,218,473.
Accounting principles generally accepted in the United States of America require
that certain components of net assets relating to permanent differences be
reclassified between financial and tax reporting. These reclassifications have
no effect on net assets or net asset value per share. 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, 2008, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $4,814,930, of which $1,170,157 expires in 2009, $425,706
expires in 2011, $358,321 expires in 2012, $420,772 expires in 2013, $57,090
expires in 2014, and $2,382,884 expires in 2016.
At June 30, 2009, 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 $23,070,162, $1,851,819,
$(4,089,295), and $(2,237,476), respectively.
================================================================================
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
NYSE Alternext US 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
certificates for whole shares owned.
================================================================================
14
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)(CONCLUDED)
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 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 an in person meeting of the Board held on
February 13, 2009.
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
companies 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 (including a separate vote of all 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 (513) 326-3597 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 (513) 326-3597. 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 NYSE Alternext US 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 NYSE Alternext US 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
This page intentionally left blank.
This page intentionally left blank.
CORNERSTONE TOTAL RETURN FUND, INC.
ITEM 2. CODE OF ETHICS.
Not required
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not required
ITEM 6. SCHEDULE OF INVESTMENTS.
(a)
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED)
DESCRIPTION NO. OF SHARES VALUE
---------------------------------------------------------------------------------------------
EQUITY SECURITIES - 98.90%
CLOSED-END FUNDS - 9.86%
Adams Express Company (The) (a) 59,400 $ 498,960
BlackRock Income Trust 9,896 61,751
Clough Global Equity Fund 4,000 47,200
H&Q Healthcare Investors * 14,400 154,800
H&Q Life Sciences Investors * 9,000 78,030
Japan Equity Fund 13,000 64,870
Liberty All-Star Equity Fund 37,000 127,650
Liberty All-Star Growth Fund 86,075 234,985
LMP Capital & Income Fund, Inc. 5,000 43,000
NFJ Dividend, Interest & Premium Strategy Fund 19,000 224,960
Zweig Fund, Inc. (The) 91,000 257,530
Zweig Total Return Fund, Inc. (The) 26,000 87,360
------------
1,881,096
------------
CONSUMER DISCRETIONARY - 7.68%
Amazon.com, Inc. * 1,500 125,490
Apollo Group, Inc. - Class A * 1,000 71,120
Bed Bath & Beyond, Inc. * 2,500 76,875
Comcast Corporation - Special Class A 4,250 59,925
Comcast Corporation - Class A 2,012 29,154
DIRECTV Group, Inc. (The) ^ * 4,000 98,840
Ford Motor Company ^ * 5,000 30,350
Home Depot, Inc. (The) 5,000 118,150
Lowe's Companies, Inc. 5,000 97,050
Mattel, Inc. 1,500 24,075
McDonald's Corporation 3,100 178,219
News Corporation - Class B ^ 2,500 26,425
NIKE, Inc. - Class B 2,500 129,450
Omnicom Group, Inc. ^ 1,000 31,580
Pulte Homes, Inc. ^ 2,500 22,075
Staples, Inc. 3,150 63,536
Time Warner Cable, Inc. ^ * 669 21,187
Time Warner, Inc. 2,666 67,157
TJX Companies, Inc. (The) 2,500 78,650
Walt Disney Company (The) 5,000 116,649
------------
1,465,957
------------
CONSUMER STAPLES - 10.87%
Altria Group, Inc. 5,000 81,950
Archer-Daniels-Midland Company 1,500 40,155
Coca-Cola Company (The) 5,000 239,950
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED) (CONTINUED)
CONSUMER STAPLES (CONTINUED)
Colgate-Palmolive Company 1,000 70,740
ConAgra Foods, Inc. 2,500 47,650
CVS Caremark Corporation 4,175 133,057
H.J. Heinz Company 2,700 96,390
Kraft Foods, Inc. - Class A 2,828 71,662
Kroger Company (The) 3,600 79,380
PepsiCo, Inc. 3,000 164,880
Philip Morris International, Inc. 3,700 161,394
Procter & Gamble Company (The) 6,472 330,719
Sara Lee Corporation 2,500 24,400
Walgreen Company 1,600 47,040
Wal-Mart Stores, Inc. 10,000 484,400
------------
2,073,767
------------
ENERGY - 11.37%
Apache Corporation ^ 1,000 72,150
Chevron Corporation 5,068 335,755
Devon Energy Corporation ^ 2,500 136,250
El Paso Corporation 5,000 46,150
EOG Resources, Inc. 1,000 67,920
Exxon Mobil Corporation 12,000 838,920
Halliburton Company 2,500 51,750
Occidental Petroleum Corporation 2,500 164,525
Peabody Energy Corporation ^ 2,500 75,400
Schlumberger Ltd. 3,000 162,330
Spectra Energy Corporation ^ 2,500 42,300
Transocean Ltd. * 1,000 74,290
Williams Companies, Inc. 2,500 39,025
XTO Energy, Inc. 1,625 61,978
------------
2,168,743
------------
FINANCIALS - 10.55%
AFLAC, Inc. 1,500 46,635
Aon Corporation ^ 2,500 94,675
Bank of America Corporation 10,521 138,877
Bank of New York Mellon Corporation (The) 2,800 82,068
BB&T Corporation ^ 2,000 43,960
Charles Schwab Corporation (The) 4,200 73,668
Chubb Corporation (The) 1,000 39,880
Goldman Sachs Group, Inc. (The) 1,000 147,440
Hudson City Bancorp, Inc. 2,500 33,225
JPMorgan Chase & Company 12,200 416,142
Loews Corporation 2,000 54,800
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED) (CONTINUED)
FINANCIALS (CONTINUED)
MetLife, Inc. 1,500 45,015
Morgan Stanley 2,000 57,020
Northern Trust Corporation 1,000 53,680
PNC Financial Services Group, Inc. 1,000 38,810
Regions Financial Corporation 2,500 10,100
T. Rowe Price Group, Inc. 1,000 41,670
Travelers Companies, Inc. (The) 3,092 126,896
U.S. Bancorp 5,000 89,600
Unum Group 2,500 39,650
Wells Fargo & Company 14,000 339,640
------------
2,013,451
------------
HEALTH CARE - 13.17%
Abbott Laboratories 3,000 141,120
Aetna, Inc. 4,000 100,200
Amgen, Inc. * 3,000 158,820
Baxter International, Inc. 2,500 132,400
Bristol-Myers Squibb Company 4,000 81,240
Celgene Corporation * 1,000 47,840
Eli Lilly & Company 2,500 86,600
Express Scripts, Inc. * 1,200 82,500
Gilead Sciences, Inc. * 3,000 140,520
Johnson & Johnson 10,500 596,400
McKesson Corporation 2,500 110,000
Medco Health Solutions, Inc. ^ * 1,000 45,610
Medtronic, Inc. 4,500 157,005
Merck & Company, Inc. 2,500 69,900
Pfizer, Inc. 12,000 180,000
St. Jude Medical, Inc. * 2,500 102,750
Stryker Corporation 2,000 79,480
UnitedHealth Group, Inc. 3,500 87,430
Wyeth 2,500 113,475
------------
2,513,290
------------
INDUSTRIALS - 8.60%
Caterpillar, Inc. ^ 2,500 82,600
CSX Corporation 5,000 173,150
Danaher Corporation 2,500 154,350
Emerson Electric Company 2,500 81,000
General Dynamics Corporation 1,000 55,390
General Electric Company 28,000 328,160
Illinois Tool Works, Inc. 1,000 37,340
Lockheed Martin Corporation ^ 2,500 201,625
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED) (CONTINUED)
INDUSTRIALS (CONTINUED)
Republic Services, Inc. ^ 1,125 27,461
United Parcel Service, Inc. - Class B 4,000 199,960
United Technologies Corporation 4,400 228,624
Waste Management, Inc. 2,500 70,400
------------
1,640,060
------------
INFORMATION TECHNOLOGY - 16.95%
Agilent Technologies, Inc. ^ * 2,500 50,775
Apple, Inc. * 2,000 284,860
Automatic Data Processing, Inc. 2,500 88,600
CA, Inc. 2,500 43,575
Cisco Systems, Inc. * 13,000 242,320
Corning, Inc. 3,000 48,180
EMC Corporation * 5,500 72,050
Google, Inc. - Class A * 1,000 421,590
Hewlett-Packard Company 2,500 96,625
Intel Corporation 16,000 264,800
International Business Machines Corporation 4,200 438,563
Intuit, Inc. ^ * 2,500 70,400
Microsoft Corporation 14,000 332,780
Oracle Corporation 17,600 376,992
Paychex, Inc. ^ 2,500 63,000
QUALCOMM, Inc. 3,800 171,760
Texas Instruments, Inc. ^ 4,000 85,200
Western Union Company (The) 2,000 32,800
Xilinx, Inc. 2,500 51,150
------------
3,236,020
------------
MATERIALS - 2.75%
Dow Chemical Company (The) 2,000 32,280
E.I. Du Pont de Nemours & Company 2,800 71,736
Freeport-McMoRan Copper & Gold, Inc. ^ * 2,500 125,275
Monsanto Company 2,000 148,680
Newmont Mining Corporation 1,000 40,870
Praxair, Inc. 1,500 106,605
------------
525,446
------------
REAL ESTATE INVESTMENT TRUST - 0.70%
Simon Property Group, Inc. ^ 2,582 132,792
TELECOMMUNICATION SERVICES - 2.98%
AT&T, Inc. 13,589 337,551
Verizon Communications, Inc. 7,500 230,475
------------
568,026
------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED) (CONTINUED)
UTILITIES - 3.42%
Dominion Resources, Inc. ^ 2,000 66,840
Duke Energy Corporation ^ 6,600 96,294
Exelon Corporation 2,500 128,025
FirstEnergy Corporation 2,500 96,875
FPL Group, Inc. 1,000 56,860
NiSource, Inc. 2,500 29,150
Southern Company (The) 2,500 77,900
Xcel Energy, Inc. 5,500 101,255
------------
653,199
------------
TOTAL EQUITY SECURITIES (cost - $21,109,323) 18,871,847
------------
SHORT-TERM INVESTMENTS - 10.28%
MONEY MARKET SECURITY - 1.22%
JPMorgan U.S. Government Money Market Fund 232,747 232,747
------------
PRINCIPAL
AMOUNT (000's)
--------------
REPURCHASE AGREEMENTS - 9.06%
J.P. Morgan Securities, Inc.+++
(Agreement dated 6/30/2009 to be repurchased at
$111,395, 0.12%, 7/1/2009, collateralized by
$114,978 in United States Treasury Bill) $ 111 111,394
J.P. Morgan Securities, Inc.+++
(Agreement dated 6/30/2009 to be repurchased at
$1,616,708, 0.24%, 7/1/2009, collateralized by
$1,664,684 in United States Treasury Bill) 1,617 1,616,698
------------
$ 1,728,092
------------
TOTAL SHORT-TERM INVESTMENTS (cost - $1,960,839) 1,960,839
TOTAL INVESTMENTS - 109.18% (cost - $23,070,162) 20,832,686
------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (9.18)% (1,751,509)
------------
NET ASSETS - 100.00%
$ 19,081,177
============
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2009 (UNAUDITED) (CONTINUED)
(a) Affiliated investment. The Fund holds 2.62% (based on net assets) of Adams
Express Company. A director of the Fund also serves as a director to such
company. During the six months ended June 30, 2009 the Fund sold 13,600
shares of this security. There were no purchases during this period.
* Non-income producing security
^ Security or a portion thereof is out on loan.
+ Stated interest rate, before rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities on
loan.
See accompanying notes to financial statements.
(b) Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not required
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not required
(b) There has not been a change in any of the Portfolio Managers
identified in response to this Item in the registrant's most recent
annual report on Form N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors that have been
implemented after the registrant last provided disclosure in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) or this
Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) 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 required
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): Attached hereto
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): Attached hereto
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) CORNERSTONE TOTAL RETURN FUND, INC.
--------------------------------------
By (Signature and Title)* /S/ RALPH W. BRADSHAW
---------------------------------------------
Ralph W. Bradshaw, Chairman and President
(Principal Executive Officer)
Date SEPTEMBER 4, 2009
---------------------------
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, 2009
---------------------
By (Signature and Title)* /S/ FRANK J. MARESCA
--------------------------------------------
Frank J. Maresca, Treasurer
(Principal Financial Officer)
Date SEPTEMBER 4, 2009
----------------------
* Print the name and title of each signing officer under his or her signature.