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)
260 MADISON AVENUE, 8th FLOOR NEW YORK, NEW YORK 10016
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Frank J. Maresca
--------------------------------------------------------------------------------
ULTIMUS FUND SOLUTIONS, LLC, 260 MADISON AVENUE, 8th FLOOR
NEW YORK, NEW YORK 10016
(Name and address of agent for service)
Registrant's telephone number, including area code: 646-881-4985
----------------
Date of fiscal year end: DECEMBER 31, 2009
---------------------------------------------
Date of reporting period: DECEMBER 31, 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
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 28801
ADMINISTRATOR INDEPENDENT REGISTERED
Ultimus Fund Solutions, LLC PUBLIC ACCOUNTING FIRM
260 Madison Avenue Tait, Weller & Baker LLP
8th Floor 1818 Market Street
New York, NY 10016 Suite 2400
Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
JPMorgan Chase Bank, N.A. Blank Rome LLP Bank, N.A.
14201 North Dallas Pkwy. 405 Lexington
Second Floor New York, NY 10174
Dallas, TX 75254
EXECUTIVE OFFICES
260 Madison Avenue
8th Floor
New York, NY 10016
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.
DECEMBER 31, 2009
This update contains the following two documents:
o Letter from the Funds
o Annual Report to Shareholders
================================================================================
LETTER FROM THE FUND'S PRESIDENT
January 27, 2010
Dear Fellow Shareholders:
Following is the annual report for Cornerstone Total Return Fund, Inc., (the
"Fund"), for the year ended December 31, 2009. At the end of the year, the
Fund's net assets were $20.4 million and the Net Asset Value per share was
$7.19. The share price closed at $10.29. After reflecting the reinvestment of
monthly distributions totaling $1.90 per share, the Fund achieved a total
investment return at market value of 66.98% for the year ended December 31,
2009.
ECONOMIC AND MARKET SUMMARY
The economy and financial markets reached bottom at the end of March, and both
have managed a partial recovery during the rest of the year. Economic health has
shown consistent improvement in the last three quarters. Gross Domestic Product
("GDP") measured (5.5%), (0.7%), and 2.2% for the first three quarters
respectively. Economists are expecting even stronger positive growth in the 4th
quarter. However, many of the systemic problems that created the most severe
recession in half a century still remain to one degree or another. Most
observers agree that the strong, though controversial intervention by the
government in the form of the Troubled Asset Relief Program, the government
stimulus package, and other programs to subsidize the severely damaged real
estate markets over the last year has averted a full blown depression. The
programs aimed at supporting the residential real estate market, originally set
to expire in 2009, have been extended into 2010. The Fed's program to purchase
of $1.25 trillion of mortgage-backed securities was extended through March 2010,
and the tax credit program for first-time homebuyers was extended into the first
half of 2010. Both of these programs have aided the crippled residential real
estate industry in making a tentative recovery. There are, however, significant
headwinds remaining. Residential foreclosures reached a record 2.8 million in
2009, and there are more to come in 2010. Separately, the commercial real estate
industry, approximately one-third the size of the residential market, is headed
for a round of mid-term loan renewals in the next 24 months in an environment
where commercial real estate prices are down over (40%) since October 2007.
Given the tenuous state of economic recovery, there remains significant
uncertainty regarding the ability of the economy to sustain a continued recovery
in the absence of federal assistance.
The equity markets, which are typically leading indicators, have been more
robust in their recovery. The major market indices and most sectors of the
financial markets have shown very strong growth following the lows at the end of
the first quarter. However, a significant part of this growth has been fueled
from two sources, first, a natural reaction to what was later perceived as a
panic-driven, over-sold market in 2008 and the first quarter of 2009, and
second, the effects of various forms of government stimulus which propped up
consumers and businesses through deficit spending. By the end of the year
following a strong run, equity valuations seem to have reached a plateau.
Although earnings and productivity recovered in many business sectors, it has
been observed that these results owe more to very strong cost control measures,
through reduction of inventories and personnel layoffs, rather than renewed
consumer demand. It remains unclear whether the economy can sustain these
positive trends after government stimulus is withdrawn.
For the time being, the Federal Reserve has been aggressive in its monetary
policy. Short-term interest rates have remained near zero with the federal funds
rate set between 0% and 0.25%. Although many have voiced concern over the latent
inflationary pressures of the excess liquidity resulting from the Fed's
policies, inflation has remained subdued, and the Fed has indicated that it does
not anticipate a change in monetary policy until the recovery shows signs of
sustaining itself through normal economic activity.
--------------------------------------------------------------------------------
ii
LETTER FROM THE FUND'S PRESIDENT (CONTINUED)
MANAGED DISTRIBUTION POLICY
The Fund has maintained its policy of regular distributions to shareholders
which continues to be popular with investors. These distributions are not tied
to the Fund's investment income and capital gains and do not represent yield or
investment return on the Fund's portfolio. The policy of maintaining regular
monthly distributions is designed to enhance shareholder value by increasing
liquidity for individual investors and providing greater flexibility to manage
their investment in the Fund. As always, shareholders have the option of taking
their distributions in cash or reinvesting them in shares of the Fund pursuant
to the Fund's reinvestment plan.
Pursuant to the Fund's distribution policy, the monthly distribution amount for
the year 2010 was reset to $0.1213 per share. The Board of Directors approved a
distribution percentage of 21% of net assets for the calendar year 2010; under
this policy this annual percentage rate was applied to the Fund's NAV at the end
of October, 2009 in order to determine the monthly distribution amount for 2010.
The Board of Directors believes that the Fund's distribution policy maintains a
stable, high rate of distribution for shareholders. As always, the monthly
distributions are reviewed and approved periodically by the Board throughout the
year and are subject to change at the discretion of the Board. In addition,
shareholders should read the disclosure notes in the Fund's report for details
on the Fund's distribution policy and reinvestment plan.
As in previous years, shareholders receive a final determination of the total
distribution attributable to income, capital gains, or return-of-capital after
the end of each year. The allocation among these categories may vary greatly
from year to year. In any given year, there can be no guarantee that the Fund's
investment returns will exceed the amount of the distributions. To the extent
that the amount of distributions taken in cash exceeds the total net investment
returns of the Fund, the assets of the Fund will decline. If the total net
investment returns exceed the amount of cash distributions, the assets of the
Fund will increase. Either way, the Fund's individual shareholders have complete
flexibility to take their distributions in cash or to reinvest in Fund shares
through the Fund's reinvestment plan, and they can change this election as often
as they desire.
Under the managed distribution policy, the Fund makes monthly distributions to
shareholders at a rate that may include periodic distributions of its net income
and net capital gains, ("Net Earnings"), or from return-of-capital. For any
fiscal year where total cash distributions exceeded Net Earnings (the "Excess"),
the Excess would decrease the Fund's total assets and, as a result, would have
the likely effect of increasing the Fund's expense ratio. There is a risk that
the total Net Earnings from the Fund's portfolio would not be great enough to
offset the amount of cash distributions paid to Fund shareholders. If this were
to be the case, the Fund's assets would be depleted, and there is no guarantee
that the Fund would be able to replace the assets. In addition, in order to make
such distributions, the Fund may have to sell a portion of its investment
portfolio at a time when independent investment judgment might not dictate such
action. Furthermore, such assets used to make distributions will not be
available for investment pursuant to the Fund's investment objective.
OUTLOOK
The Federal Reserve, the Treasury, and most economists have consistently noted
that the economy is still frail and that the recovery in 2010 will be slow.
Financial institutions will face continued challenges in dealing with remaining
over-valued assets, continuing residential real estate foreclosures, and
forthcoming
--------------------------------------------------------------------------------
iii
LETTER FROM THE FUND'S PRESIDENT (CONCLUDED)
commercial property loan renewals. Economists are predicting GDP growth in 2010
between 2% and 3%. After the substantial recovery in the financial markets
during 2009, many now expect a correction in the range of 5% to 10% before
continuing in recovery. Investors are still holding a tremendous amount of cash,
but most will probably remain on the sidelines until employment, typically a
lagging indicator, shows signs of improvement. Unemployment, which currently
stands at 10%, is expected to move upward during the 1st quarter of 2010 before
growth in employment begins to turn positive sometime within the next six
months. Recovery to nominal full employment is expected to take another eighteen
to twenty-four months. Businesses need to begin rehiring personnel and
restocking seriously depleted inventories before investors have full confidence
in self-sustaining growth. We hope and anticipate that these trends will become
established by the middle of 2010.
As you know, the Fund's holdings represent a widely diversified portfolio of
predominantly large-cap companies. We believe the large-cap sector tends to show
a greater degree of defensive strength than other sectors of the market during
periods of adverse market activity. In addition to this, the investment manager
attempts to enhance portfolio performance by taking advantage of temporary and
occasional pricing inefficiencies in certain securities. The availability and
magnitude of such opportunities are unpredictable, and their effect on possible
portfolio performance may vary considerably from year to year. We remain
confident that the Fund's portfolio is well-structured to weather the current
market volatility and to participate in the recovery when it occurs.
The Fund's Board of Directors, its officers, and its investment manager are very
conscious of the fact that investors have placed their trust in us. Thank you
for your support. We know you have a choice, and we look forward to continuing
our service to you in the future.
Sincerely,
/s/ RALPH W. BRADSHAW
---------------------
Ralph W. Bradshaw
President
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTICAND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
THIS LETTER FROM THE FUND'S PRESIDENT IS NOT A PART OF THE ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS.
--------------------------------------------------------------------------------
iv
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
Report of Independent Registered Public Accounting Firm 14
Results of Meeting of Stockholders 15
Tax Information 16
Additional Information Regarding the Fund's Directors
and Corporate Officers 17
Description of Dividend Reinvestment Plan 20
Proxy Voting and Portfolio Holdings Information 22
Privacy Policy Notice 22
Summary of General Information 23
Shareholder Information 23
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
SECTOR ALLOCATION
Percent of
Sector Net Assets
--------------------------------------------------------------------------------
Information Technology 18.7
--------------------------------------------------------------------------------
Financials 11.7
--------------------------------------------------------------------------------
Healthcare 11.4
--------------------------------------------------------------------------------
Energy 10.7
--------------------------------------------------------------------------------
Consumer Staples 10.6
--------------------------------------------------------------------------------
Closed-End Funds 10.0
--------------------------------------------------------------------------------
Industrials 8.6
--------------------------------------------------------------------------------
Consumer Discretionary 8.5
--------------------------------------------------------------------------------
Utilities 3.5
--------------------------------------------------------------------------------
Materials 3.4
--------------------------------------------------------------------------------
Telecommunication Services 2.8
--------------------------------------------------------------------------------
Other 0.1
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Exxon Mobil Corporation Energy 3.3
--------------------------------------------------------------------------------
2. Google, Inc. - Class A Information Technology 3.0
--------------------------------------------------------------------------------
3. Adams Express Company (The) Closed-End Funds 2.9
--------------------------------------------------------------------------------
4. JPMorgan Chase & Company Financials 2.5
--------------------------------------------------------------------------------
5. Wal-Mart Stores, Inc. Consumer Staples 2.4
--------------------------------------------------------------------------------
6. Microsoft Corporation Information Technology 2.1
--------------------------------------------------------------------------------
7. Apple, Inc. Information Technology 2.1
--------------------------------------------------------------------------------
8. Procter & Gamble Company (The) Consumer Staples 1.9
--------------------------------------------------------------------------------
9. General Electric Company Industrials 1.8
--------------------------------------------------------------------------------
10. Johnson & Johnson Healthcare 1.7
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.98%
CLOSED-END FUNDS - 9.99%
CORE - 5.66%
Adams Express Company (The) (a) 59,400 $ 599,940
Liberty All-Star Equity Fund 37,000 160,210
Liberty All-Star Growth Fund 86,075 289,212
Other Core (b) 104,136
------------
1,153,498
------------
DEVELOPED MARKET - 0.33%
Total Developed Market (b) 68,120
------------
HIGH CURRENT YIELD (LEVERAGED) - 0.11%
Total High Current Yield (Leveraged) (b) 23,440
------------
INCOME & PREFERRED STOCK - 0.25%
Total Income & Preferred Stock (b) 51,750
------------
OPTION ARBITRAGE/OPTIONS STRATEGIES - 1.37%
NFJ Dividend, Interest & Premium Strategy Fund 19,000 280,250
------------
REAL ESTATE - 0.46%
Total Real Estate (b) 93,450
------------
SECTOR EQUITY - 1.50%
H&Q Healthcare Investors 14,400 170,928
Other Sector Equity (b) 134,310
------------
305,238
------------
U.S. MORTGAGE - 0.31%
Total U.S. Mortgage (b) 62,939
------------
TOTAL CLOSED-END FUNDS 2,038,685
------------
CONSUMER DISCRETIONARY - 8.53%
DIRECTV Group, Inc. (The) - Class A * 4,000 133,400
Home Depot, Inc. (The) 5,000 144,650
NIKE, Inc. - Class B 2,500 165,175
Walt Disney Company (The) ^ 5,000 161,250
Other Consumer
Discretionary ^ (b) 1,135,702
------------
1,740,177
------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
CONSUMER STAPLES - 10.55%
Coca-Cola Company (The) 5,000 $ 285,000
Philip Morris International, Inc. 3,500 168,665
Procter & Gamble Company (The) 6,472 392,397
Walgreen Company 4,100 150,552
Wal-Mart Stores, Inc. 9,000 481,050
Other Consumer Staples ^ (b) 674,617
------------
2,152,281
------------
ENERGY - 10.70%
Chevron Corporation 3,500 269,465
Devon Energy Corporation ^ 2,500 183,750
Exxon Mobil Corporation ^ 10,000 681,900
Occidental Petroleum Corporation 4,000 325,400
Schlumberger Ltd. ^ 3,000 195,270
Other Energy (b) 526,460
------------
2,182,245
------------
FINANCIALS - 11.75%
Bank of America Corporation 10,521 158,446
Goldman Sachs Group, Inc. (The) 1,500 253,260
JPMorgan Chase & Company 12,200 508,374
Travelers Companies, Inc. (The) 3,092 154,167
Wells Fargo & Company 11,000 296,890
Other Financials ^ (b) 1,025,666
------------
2,396,803
------------
HEALTHCARE - 11.39%
Abbott Laboratories 3,000 161,970
Amgen, Inc. * 3,000 169,710
Baxter International, Inc. 2,500 146,700
Johnson & Johnson 5,500 354,255
McKesson Corporation 2,500 156,250
Medtronic, Inc. 4,500 197,910
Pfizer, Inc. 14,462 263,064
Other Health Care ^ (b) 874,565
------------
2,324,424
------------
INDUSTRIALS - 8.62%
General Electric Company 24,000 363,120
Illinois Tool Works, Inc. 3,500 167,965
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
2
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONCLUDED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
Lockheed Martin Corporation 2,500 $ 188,375
Union Pacific Corporation 2,500 159,750
Other Industrials (b) 879,524
------------
1,758,734
------------
INFORMATION TECHNOLOGY - 18.66%
Apple, Inc. * 2,000 421,719
Cisco Systems, Inc. * 13,000 311,220
Google, Inc. - Class A * 1,000 619,980
Hewlett-Packard Company 5,000 257,550
Intel Corporation 16,000 326,400
International Business
Machines Corporation 2,200 287,980
Microsoft Corporation 14,000 426,860
Oracle Corporation 12,600 309,204
QUALCOMM, Inc. 3,800 175,788
Other Information Technology ^ (b) 669,142
------------
3,805,843
------------
MATERIALS - 3.41%
E.I. Du Pont de
Nemours & Company 4,800 161,616
Freeport-McMoRan
Copper & Gold, Inc. 2,500 200,725
Monsanto Company 2,000 163,500
Other Materials (b) 168,900
------------
694,741
------------
REAL ESTATE INVESTMENT TRUST - 0.01%
Total Real Estate
Investment Trust ^ (b) 1,277
------------
TELECOMMUNICATION SERVICES - 2.84%
AT&T, Inc. 11,089 310,825
Verizon Communications, Inc. 7,500 248,475
Other Telecommunication
Services (b) 21,050
------------
580,350
------------
UTILITIES - 3.53%
Other Utilities ^ (b) 721,061
------------
TOTAL EQUITY SECURITIES
(cost - $21,147,954) 20,396,621
------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 12.73%
MONEY MARKET SECURITY - 2.19%
JPMorgan U.S. Government Money Market Fund 446,588 $ 446,588
------------
Principal
Amount
(000's)
---------
REPURCHASE AGREEMENTS - 10.54%
J.P. Morgan Securities Inc.+++
(Agreement dated 12/31/2009
to be repurchased at $2,142,166) $ 2,142 2,142,128
------------
J.P. Morgan Securities Inc.+
(Agreement dated 12/31/2009
to be repurchased at $6,881) 7 6,881
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $2,595,597) 2,595,597
------------
TOTAL INVESTMENTS - 112.71%
(cost - $23,743,551) 22,992,218
------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (12.71)% (2,592,279)
------------
NET ASSETS - 100.00% $ 20,399,939
============
----------
(a) Affiliated investment. The Fund holds 2.94% (based on net assets) of
Adams Express Company. A Director of the Fund also serves as a director
to such company. During the year ended December 31, 2009 the Fund had no
purchases but sold 13,600 shares of this security.
(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 December 31, 2009.
* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ The maturity date for all repurchase agreements held was January 4,
2010, with interest rates ranging from 0.01% to 0.16% and collateralized
by $2,218,562 in U.S. Treasury Notes maturing August 15, 2018. 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 - DECEMBER 31, 2009
--------------------------------------------------------------------------------
ASSETS
Investments, at value, including collateral for securities on loan of $2,142,128:
Unaffiliated issuers (cost - $23,050,861)(1) $ 22,392,278
Affiliated issuer (cost - $692,690) 599,940
------------
Total investments (cost - $23,743,551) 22,992,218
Receivables:
Securities sold 121,567
Dividends 36,939
Prepaid expenses 1,829
------------
Total Assets 23,152,553
------------
LIABILITIES
Payables:
Upon return of securities loaned 2,142,128
Dividends 397,102
Securities purchased 124,090
Investment management fees 22,352
Directors' fees 13,480
Other accrued expenses 53,462
------------
Total Liabilities 2,752,614
------------
NET ASSETS (applicable to 2,838,558 shares of
common stock outstanding) $ 20,399,939
============
NET ASSET VALUE PER SHARE ($20,399,939
(division) 2,838,558) $ 7.19
============
NET ASSETS CONSISTS OF
Common stock, $0.001 par value; 2,838,558 shares
issued and outstanding (100,000,000 shares authorized) $ 2,839
Paid-in capital 25,072,311
Accumulated net realized loss on investments (3,923,878)
Net unrealized depreciation in value of investments (751,333)
------------
Net assets applicable to shares outstanding $ 20,399,939
============
----------
(1) Includes securities out on loan to brokers with a market value of
$2,079,502.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
4
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2009
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (including $9,983 earned from affiliated issuers) $ 490,586
Securities lending 2,003
-----------
Total Investment Income 492,589
-----------
Expenses:
Legal and audit fees 223,718
Investment management fees 195,144
Directors' fees 59,908
Accounting fees 36,013
Administration fees 31,009
Transfer agent fees 27,657
Printing 26,500
Custodian fees 10,001
Insurance 5,455
Stock exchange listing fees 5,001
Miscellaneous 4,456
-----------
Total Expenses 624,862
Less: Management fee waivers (62,127)
Less: Fees paid indirectly (23,773)
-----------
Net Expenses 538,962
-----------
Net Investment Loss (46,373)
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain from unaffilated investments
and foreign currency 76,630
Net realized loss from affilated investments (89,026)
Net change in unrealized depreciation in value of
investments and foreign currency 3,681,512
-----------
Net realized and unrealized gain on investments
and foreign currency 3,669,116
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,622,743
===========
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended December 31,
2009 2008
------------ ------------
DECREASE IN NET ASSETS
Operations:
Net investment income/(loss) $ (46,373) $ 334,663
Net realized loss from investments (12,396) (2,308,252)
Net change in unrealized appreciation/(depreciation)
in value of investments 3,681,512 (12,967,513)
------------ ------------
Net increase/(decrease) in net assets resulting
from operations 3,622,743 (14,941,102)
------------ ------------
Dividends and distributions to shareholders:
Net investment income -- (334,663)
Return-of-capital (5,317,678) (10,218,473)
------------ ------------
Total dividends and distributions to shareholders (5,317,678) (10,553,136)
------------ ------------
Common stock transactions:
Cash in lieu of fractional shares from the reverse stock split -- (542)
Proceeds from 64,854 and 102,212 shares newly issued in
reinvestment of dividends and distributions, respectively 590,254 1,588,319
------------ ------------
Total common stock transactions 590,254 1,587,777
------------ ------------
Total decrease in net assets (1,104,681) (23,906,461)
------------ ------------
NET ASSETS
Beginning of year 21,504,620 45,411,081
------------ ------------
End of year $ 20,399,939 $ 21,504,620
============ ============
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
6
--------------------------------------------------------------------------------
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 year 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,*
---------------------------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year $ 7.75 $ 17.00 $ 20.28 $ 21.82 $ 25.56
-------- -------- -------- -------- --------
Net investment income/(loss) # (0.02) 0.12 0.14 0.18 0.12
Net realized and unrealized gain/(loss) on
investments and foreign currency
related transactions 1.31 (5.64) 0.64 2.50 0.36
-------- -------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from operations and
foreign currency related transactions 1.29 (5.52) 0.78 2.68 0.48
-------- -------- -------- -------- --------
Dividends and distributions to shareholders:
Net investment income -- (0.12) (0.14) (0.18) (0.12)
Net realized capital gains -- -- (0.06) -- --
Return-of-capital (1.90) (3.77) (4.08) (4.04) (4.10)
-------- -------- -------- -------- --------
Total dividends and distributions to
shareholders (1.90) (3.89) (4.28) (4.22) (4.22)
-------- -------- -------- -------- --------
Common stock transactions:
Anti-dilutive effect due to shares issued in
reinvestment of dividends and distributions 0.05 0.16 0.22 -- --
-------- -------- -------- -------- --------
Net asset value, end of year $ 7.19 $ 7.75 $ 17.00 $ 20.28 $ 21.82
======== ======== ======== ======== ========
Market value, end of year $ 10.29 $ 7.60 $ 19.60 $ 39.24 $ 29.30
======== ======== ======== ======== ========
Total investment return (a) 66.98% (49.30)% (40.97)% 64.15% (2.07)%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 20,400 $ 21,505 $ 45,411 $ 52,379 $ 54,194
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 2.76% 1.67% 1.49% 1.44% 1.47%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 3.20% 1.94% 1.53% 1.50% 1.52%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 2.88% 1.77% 1.52% 1.50% 1.50%
Ratio of net investment income/(loss) to
average net assets (0.24)% 0.98% 0.74% 0.82% 0.53%
Portfolio turnover rate 13.24% 15.61% 11.00% 11.29% 9.84%
--------------------------------------------------------------------------------
* 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) Expenses are net of fees paid indirectly. (c) Expenses exclude the
reduction for fees paid indirectly.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 conformity 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.
SUBSEQUENT EVENTS: The Fund has evaluated the need for additional disclosures
and/or adjustments resulting from subsequent events through February 24, 2010,
the date the financial statements were issued. Based on this evaluation, no
additional disclosures or adjustments were required to the financial statements
as of December 31, 2009.
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 Manager" 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 December 31, 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
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.
The Fund is exposed to financial market risks, including the valuations of its
investment portfolio. For the year ended December 31, 2009, the Fund did not
engage in derivative instruments and other hedging activities.
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
--------------------------------------------------------------------------------
8
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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.
The Accounting for Uncertainty in Income Taxes Topic of the FASB Accounting
Standards Codification defines the threshold for recognizing the benefits of
tax-return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and requires measurement of a tax position
meeting the more-likely-than-not criterion, based on the largest benefit that is
more than 50 percent likely to be realized. The Fund's policy is to classify
interest and penalties associated with underpayment of federal and state income
taxes, if any, as income tax expense on its Statement of Operations. As of
December 31, 2009, the Fund does not have any interest or penalties associated
with the under-payment of any income taxes. Management reviewed any uncertain
tax positions for open tax years 2006 through 2009. The Fund has had 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 Fund
and the Internal Revenue Service have reached a tentative agreement to resolve
this matter through the issuance of a closing letter that, if finalized in its
current form, will avoid material negative tax impact to the Fund. Pursuant to
this tentative agreement, the Investment Manager will be responsible for paying
any amount owing to the Internal Revenue Service. 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
--------------------------------------------------------------------------------
9
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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.
MANAGED DISTRIBUTION RISK: Under the managed distribution policy, the Fund makes
monthly distributions to shareholders at a rate that may include periodic
distributions of its net income and net capital gains, ("Net Earnings"), or from
return-of-capital. For any fiscal year where total cash distributions exceeded
Net Earnings (the "Excess"), the Excess would decrease the Fund's total assets
and, as a result, would have the likely effect of increasing the Fund's expense
ratio. There is a risk that the total Net Earnings from the Fund's portfolio
would not be great enough to offset the amount of cash distributions paid to
Fund shareholders. If this were to be the case, the Fund's assets would be
depleted, and there is no guarantee that the Fund would be able to replace the
assets. In addition, in order to make such distributions, the Fund may have to
sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Furthermore, such assets used to make
distributions will not be available for investment pursuant to the Fund's
investment objective.
NOTE C. FAIR VALUE
As required by the Fair Value Measurement and Disclosures Topic of the FASB
Accounting Standards Codification, the Fund has performed an analysis of all
assets and liabilities measured at fair value to determine the significance and
character of all inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value into the following three broad categories.
o Level 1 - quoted unadjusted prices for identical instruments in active
markets to which the Fund has access at the date of measurement.
o Level 2 - quoted prices for similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which all significant inputs
and significant value drivers are observable in active markets. Level 2
inputs are those in markets for which there are few transactions, the
prices are not current, little public information exists or instances
where prices vary substantially over time or among brokered market
makers.
o Level 3 - model derived valuations in which one or more significant
inputs or significant value drivers are unobservable. Unobservable
inputs are those inputs that reflect the Fund's own assumptions that
market participants would use to price the asset or liability based on
the best available information.
The following is a summary of the inputs used as of December 31, 2009 in valuing
the Fund's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
--------------------------------------------------------------------------------
Level 1 - Quoted Prices
Equity Investments $20,396,621 --
Short-Term Investments 2,595,597 --
Level 2 - Other Significant
Observable Inputs -- --
Level 3 - Significant
Unobservable Inputs -- --
----------- -----------
Total $22,992,218 --
=========== ===========
------
* Other financial instruments include futures, forwards and swap contracts.
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 December
31, 2009.
NEW ACCOUNTING PRONOUNCEMENT: In January 2010, the FASB Accounting Standards
Board issued Accounting Standards Update ("ASU") No. 2010-06 "Improving
Disclosures about Fair Value Measurements". ASU 2010-06 amends FASB Accounting
Standards Codification Topic, Fair Value Measurements and Disclosures, to
require additional disclosures regarding fair value measurements. Certain
disclosures required by ASU No. 2010-06 are effective for interim and annual
reporting periods beginning after December 15, 2009, and other required
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years. Management is currently
evaluating the impact ASU No. 2010-06 will have on its financial statement
disclosures.
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 year ended December
31, 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
monthly rate of 0.125% of average net assets. For the year ended December 31,
2009, Cornerstone earned $195,144 for investment management services, of which
it waived $62,127. Effective July 1, 2009 the Investment Manager discontinued
such undertaking.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $23,773 arising from credits earned on portfolio
transactions executed with brokers, pursuant to directed brokerage arrangements.
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. Currently, Ultimus has agreed to discount the annual minimum fee
to $30,000. This arrangement will remain in place until an amended fee is agreed
upon by the Fund and Ultimus.
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.
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
NOTE E. AFFILIATED INVESTMENTS
Transactions in affiliates for the year ended December 31, 2009 were as follows:
ADAMS PETROLEUM &
EXPRESS RESOURCES
COMPANY CORPORATION
--------- -----------
Market value at beginning of year $ 586,190 $ 58,170
========= =========
Shares at beginning of year 73,000 3,000
Shares purchased during the year -- --
Shares sold during the year (13,600) (3,000)
--------- ---------
Shares at end of year 59,400 --
========= =========
Dividend income earned during the year $ 9,743 $ 240
========= =========
Cost of purchases during the year -- --
Proceeds from sales during the year $ 110,433 $ 57,019
Net realized gain/(loss) during the year $ (45,395) $ (43,631)
Market value at end of year $ 599,940 --
NOTE F. INVESTMENT IN SECURITIES
For the year ended December 31, 2009, purchases and sales of securities, other
than short-term investments, were $6,920,570 and $11,348,120 respectively.
NOTE G. SHARES OF COMMON STOCK
The Fund has 15,000,000 shares of common stock authorized and 2,838,558 shares
outstanding at December 31, 2009. Transactions in common stock for the year
ended December 31, 2009 were as follows:
Shares at beginning of year 2,773,704
Shares newly issued in reinvestment
of dividends and distributions 64,854
---------
Shares at end of year 2,838,558
=========
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 year ended December 31, 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 331/3% 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 (CONCLUDED)
--------------------------------------------------------------------------------
The market value of securities on loan to brokers at December 31, 2009, was
$2,079,502. During the year ended December 31, 2009, the Fund earned $2,003 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 years ended
December 31, for the Fund were as follows:
Ordinary Income Return-of-Capital
----------------------- ------------------------------
2009 2008 2009 2008
---- ---- ---- ----
-- $334,663 $5,317,678 $10,218,473
At December 31, 2009 the components of accumulated deficit on a tax basis, for
the Fund were as follows:
Accumulated net realized loss $(3,905,676)
Net unrealized depreciation (769,535)
-----------
Total accumulated deficit $(4,675,211)
===========
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. For the year ended
December 31, 2009, the Fund decreased net investment loss by $46,373, decreased
net realized loss by $1,168,261 and decreased paid capital by $1,214,634. 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"). The Fund incurred no such loss.
At December 31, 2009, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $3,905,676, of which $425,706 expires in 2011, $358,321
expires in 2012, $420,772 expires in 2013, $57,090 expires in 2014, $2,382,884
expires in 2016 and $260,903 expires in 2017.
At December 31, 2009, the identified cost for federal income tax purposes, as
well as the gross unrealized appreciationfrominvestmentsforthosesecuritieshaving
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 $23,761,753, $1,478,822, $(2,248,357), and
$(769,535), respectively.
--------------------------------------------------------------------------------
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Cornerstone Total Return Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of
Cornerstone Total Return Fund, Inc., including the summary schedule of
investments as of December 31, 2009, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cornerstone Total Return Fund, Inc. as of December 31, 2009, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Tait, Weller & Baker LLP
Philadelphia, Pennsylvania
February 24, 2010
--------------------------------------------------------------------------------
14
RESULTS OF MEETING OF STOCKHOLDERS (UNAUDITED)
On October 14, 2009, the Annual Meeting of Stockholders of Cornerstone Total
Return Fund, Inc. was held and the following matter was voted upon based on
2,813,692 shares of common stock outstanding on August 14, 2009:
(1) To approve the re-election of six Trustees until the 2010 Annual Meeting.
NAME OF DIRECTORS FOR WITHHOLD
----------------- --- --------
Ralph W. Bradshaw 2,339,347 80,840
Thomas H. Lenagh 2,338,266 81,921
Edwin Meese III 2,317,330 102,857
Scott B. Rogers 2,342,845 77,342
Andrew A. Strauss 2,332,727 87,460
Glenn W. Wilcox, Sr. 2,338,985 81,202
--------------------------------------------------------------------------------
15
2009 TAX INFORMATION (UNAUDITED)
Cornerstone Total Return Fund, Inc. (the "Fund") is required by Subchapter M of
the Internal Revenue Code of 1986, as amended, to advise its shareholders within
60 days of the Fund's year end (December 31, 2009) as to the federal tax status
of the distributions received by the Fund's stockholders in respect of such
fiscal year. The $5,317,678 in distributions paid to shareholders in respect of
such year, represented a total return-of-capital. As indicated in this notice,
the entire amount of the Fund's distributions for 2009 were comprised of a
return-of-capital; accordingly these distributions do not represent yield or
investment return on the Fund's portfolio.
SOURCES OF DIVIDENDS AND DISTRIBUTIONS
(PER SHARE AMOUNTS)
Payment Dates: 1/30/09 2/27/09 3/31/09 4/30/09 5/29/09 6/30/09
-------- -------- -------- -------- -------- --------
Return-of-Capital(1) $ 0.1580 $ 0.1580 $ 0.1580 $ 0.1580 $ 0.1580 $ 0.1580
-------- -------- -------- -------- -------- --------
Payment Dates: 7/31/09 8/31/09 9/30/09 10/30/09 11/30/09 12/31/09
-------- -------- -------- -------- -------- --------
Return-of-Capital(1) $ 0.1580 $ 0.1580 $ 0.1580 $ 0.1580 $ 0.1580 $ 0.1580
-------- -------- -------- -------- -------- --------
---------
(1) Return-of-capital- This is the per share amount of return-of-capital, or
sometimes called nontaxable, distributions reported in Box 3 - under the
title "Nondividend distributions" - on Form 1099-DIV. This not be
reported as taxable income on your current amount should return. Rather,
it should be treated as a reduction in the original cost basis of your
investment in the Fund.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund.
--------------------------------------------------------------------------------
16
ADDITIONAL INFORMATION
REGARDING THE FUND'S DIRECTORS AND CORPORATE OFFICERS (UNAUDITED)
NUMBER OF
PORTFOLIOS IN
NAME AND POSITION FUND COMPLEX
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS
----------------------------------------------------------------------------------------------------------------
Ralph W. Chairman of President, Cornerstone Advisors, Inc.; 2001 3
Bradshaw** the Board of Financial Consultant; President and
(Dec. 1950) Directors and Director of Cornerstone Strategic
President Value Fund, Inc.; President and Trustee
of Cornerstone Progressive Return Fund.
Thomas H. Director; Audit, Director of Cornerstone Strategic Value 2002 3
Lenagh Nominating Fund, Inc.; Trustee of Cornerstone
(Nov. 1924) and Corporate Progressive Return Fund; Director of
Governance Adams Express Company, Petroleum
Committee & Resources Corporation and PPGI
Member Industries.
Edwin Director; Audit, Distinguished Fellow, The Heritage 2001 3
Meese III Nominating Foundation Washington D.C.;
(Dec. 1931) and Corporate Distinguished Visiting Fellow at the
Governance Hoover Institution, Stanford University;
Committee Senior Adviser, Revelation L.P.; Director
Member of Cornerstone Strategic Value Fund, Inc.;
Trustee of Cornerstone Progressive
Return Fund.
Scott B. Rogers Director; Audit, Chairman, Board of Health Partners, 2001 3
(July 1955) Nominating Inc.; Chief Executive Officer, Asheville
and Corporate Buncombe Community Christian
Governance Ministry; and President, ABCCM
Committee Doctor's Medical Clinic; Appointee, NC
Member Governor's Commission on Welfare to
Work; Director of Cornerstone
Strategic Value Fund, Inc.; Trustee of
Cornerstone Progressive Return Fund.
--------------------------------------------------------------------------------
17
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPORATE OFFICERS (UNAUDITED) (CONTINUED)
Number of
Portfolios in
Name and Position Fund Complex
Address* Position(s) Principal Occupation with Fund Overseen by
(Birth Date) Held with Fund over Last 5 Years Since Directors
--------------------------------------------------------------------------------------------------------------
Andrew A. Director; Attorney and senior member of Strauss & 2001 3
Strauss Chairman of Associates, P.A., Attorneys, Asheville and
(Nov. 1953) Nominating Hendersonville, NC; previous President
and Corporate of White Knight Healthcare, Inc. and
Governance LMV Leasing, Inc., a wholly owned
Committee and subsidiary of Xerox Credit Corporation;
Audit Committee Director of Cornerstone Strategic Value
Member Fund, Inc.; Trustee of Cornerstone
Progressive Return Fund.
Glenn W. Director; Chairman of the Board, Tower 2001 3
Wilcox, Sr. Chairman of Associates, Inc.; Chairman of the
(Dec. 1931) Audit Committee, Board and Chief Executive Officer of
Nominating Wilcox Travel Agency, Inc.; Director of
and Corporate Cornerstone Strategic Value Fund, Inc.;
Governance Trustee of Cornerstone Progressive
Committee Return Fund.
Member
--------------------------------------------------------------------------------
18
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPORATE OFFICERS (UNAUDITED) (CONCLUDED)
Name and Position
Address* Position(s) Principal Occupation with Fund
(Birth Date) Held with Fund over Last 5 Years Since
---------------------------------------------------------------------------------------------------------------
Gary A. Bentz Chief Compliance Chairman and Chief Financial Officer of 2004, 2008,
(June 1956) Officer, Secretary, Cornerstone Advisors, Inc.; previous 2009
and Assistant Director, Vice President and Treasurer of
Treasurer the Fund and Cornerstone Strategic Value
Fund, Inc., Financial Consultant, C.P.A., Chief
Compliance Officer, Secretary, and Assistant
Treasurer of Cornerstone Strategic Value
Fund, Inc. and Cornerstone Progressive Return
Fund.
William A. Clark Vice President Director and Stockholder of Cornerstone 2004
(Oct. 1945) Advisors, Inc.; Vice President and former
Director of Cornerstone Strategic Value
Fund, Inc.; Vice President and former Trustee
of Cornerstone Progressive Return Fund;
Financial Consultant; former Director of
Investors First Fund, Inc.
Frank J. Maresca Treasurer Executive Vice President of Ultimus Fund 2009
(Oct. 1958) Solutions, LLC (since March 2009); previous
Executive Director, JP Morgan Chase & Co.
(since June 2008); previous President of Bear
Stearns Funds Management, Inc.; previous
Senior Managing Director of Bear Stearns &
Co., Inc.; Treasurer of Cornerstone Strategic
Value Fund, Inc. and Cornerstone Progressive
Return Fund (since May 2009).
--------------------------------------------------------------------------------
* The mailing address of each Director and/or Officer with respect to the
Fund's operation is 260 Madison Ave., New York, NY 10016.
** Designates a director who is an "interested person" of the Fund as
defined by the Investment Company Act of 1940, as amended. Mr. Bradshaw
is an interested person of the Fund by virtue of his current position
with the Investment Advisor of the Fund.
--------------------------------------------------------------------------------
19
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
--------------------------------------------------------------------------------
20
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
to receive certificates for whole shares owned. The Agent will distribute all
proxy solicitation materials to participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the shareholder's name and held for the account of
beneficial owners participating in the Plan.
Neither the Agent nor the Fund shall have any responsibility or liability beyond
the exercise of ordinary care for any action taken or omitted pursuant to the
Plan, nor shall they have any duties, responsibilities or liabilities except
such as expressly set forth herein. Neither shall they be liable hereunder for
any act done in good faith or for any good faith omissions to act, including,
without limitation, failure to terminate a participants account prior to receipt
of written notice of his or her death or with respect to prices at which shares
are purchased or sold for the participants account and the terms on which such
purchases and sales are made, subject to applicable provisions of the federal
securities laws.
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.
--------------------------------------------------------------------------------
21
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 with the Fund and its
affiliates: this category includes informationabout 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.
--------------------------------------------------------------------------------
22
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. 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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
23
This page intentionally left blank.
CORNERSTONE TOTAL RETURN FUND, INC.
ITEM 2. CODE OF ETHICS.
(a) As of the end of the period covered by this report, the Registrant has
adopted a code of ethics that applies to the Registrant's principal executive
officer, principal accounting officer, and persons performing similar functions.
(c) and (d). During the period covered by this report, there was no amendment
to, and no waiver granted from, any provision of the code of ethics that applies
to the Registrant's principal executive officer, principal accounting officer,
and persons performing similar functions.
(f)(1) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit
(EX-99.CODE ETH) a copy of its code of ethics that applies to its principal
executive officer, principal financial officer, and persons performing similar
functions.
(f)(3) The Registrant undertakes to provide to any person without charge, upon
request, a copy of its code of ethics. This can be accomplished by calling the
Registrant at (513) 326-3597.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
a)(1) The registrant's board of directors has determined that it does not have
an audit committee financial expert serving on its audit committee.
(a)(2) Not applicable
(a)(3) At this time, the registrant believes that the experience provided by
each member of the audit committee together offer the registrant adequate
oversight for the registrant's level of financial complexity.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) through (d). The information in the table below is provided for services
rendered to the registrant by its independent registered public accounting firm,
Tait, Weller & Baker LLP for the Registrant's fiscal years ended December 31,
2009 and December 31, 2008.
2009 2008
------- -------
Audit Fees $14,100 $14,100
Audit-related Fees -- --
Tax Fees (1) 3,000 3,000
All Other Fees -- --
------- -------
Total $17,100 $17,100
======= =======
(1) Tax services in connection with the registrant's excise tax calculations and
review of the registrant's applicable tax returns.
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
Before the auditor is (i) engaged by the Registrant to render audit, audit
related or permissible non-audit services to the Registrant or (ii) with respect
to non-audit services to be provided by the auditor to the Registrant's
investment adviser or any entity in the investment Registrant complex, if the
nature of the services provided relate directly to the operations or financial
reporting of the Registrant, either: (a) the Audit Committee shall pre-approve
such engagement; or (b) such engagement shall be entered into pursuant to
pre-approval policies and procedures established by the Audit Committee. Any
such policies and procedures must be detailed as to the particular service and
not involve any delegation of the Audit Committee's responsibilities to the
Registrant's investment adviser. The Audit Committee may delegate to one or more
of its members the authority to grant pre-approvals. The pre-approval policies
and procedures shall include the requirement that the decisions of any member to
whom authority is delegated under this provision shall be presented to the full
Audit Committee at its next scheduled meeting. Under certain limited
circumstances, pre-approvals are not required if certain de minimis thresholds
are not exceeded, as such thresholds are set forth by the Audit Committee and in
accordance with applicable SEC rules and regulations.
(e)(2) None of the services provided to the Registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) During the fiscal years ended December 31, 2009 and 2008, aggregate
non-audit fees of $3,000 and $3,000, respectively, were billed by Tait, Weller &
Baker LLP for services rendered to the Registrant. Investment advisor (not
including any sub-advisor whose role is primarily portfolio management and is
subcontracted with or overseen by another investment advisor) or any entity
controlling, controlled by, or under common control with the investment advisor
that provides ongoing services to the Registrant for the Registrant's last two
fiscal years (December 31, 2008 and December 31, 2009).
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities and
Exchange Act of 1934, as amended. Glenn Wilcox (Chair), Edwin Meese, Thomas
Lenagh, Andrew Strauss and Scott Rogers are the members of the Registrant's
audit committee.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a)
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------
EQUITY SECURITIES - 99.98%
CLOSED-END FUNDS - 9.99%
CORE - 5.66%
Adams Express Company (The) (a) 59,400 599,940
Liberty All-Star Equity Fund 37,000 160,210
Liberty All-Star Growth Fund 86,075 289,212
Royce Micro-Cap Trust, Inc. * 2,400 17,736
Royce Value Trust, Inc. * 8,000 86,400
------------
1,153,498
------------
DEVELOPED MARKET - 0.33%
Japan Equity Fund 13,000 68,120
------------
HIGH CURRENT YIELD (LEVERAGED) - 0.11%
First Trust Strategic High Income Fund 8,000 23,440
------------
INCOME & PREFERRED STOCK - 0.25%
LMP Capital & Income Fund, Inc. 5,000 51,750
------------
OPTION ARBITRAGE/OPTIONS STRATEGIES - 1.37%
NFJ Dividend, Interest & Premium Strategy Fund 19,000 280,250
------------
REAL ESTATE - 0.46%
Alpine Global Premier Properties Fund 15,000 93,450
------------
SECTOR EQUITY - 1.50%
H&Q Healthcare Investors * 14,400 170,928
H&Q Life Sciences Investors * 9,000 84,960
John Hancock Bank and Thrift Opportunity Fund 3,500 49,350
------------
305,238
------------
U.S. MORTGAGE - 0.31%
BlackRock Income Trust, Inc. 9,896 62,939
------------
TOTAL CLOSED-END FUNDS 2,038,685
------------
CONSUMER DISCRETIONARY - 8.53%
Apollo Group, Inc. - Class A ^ * 1,000 60,580
Bed Bath & Beyond, Inc. * 2,500 96,575
Carnival Corporation * 2,500 79,225
See accompanying notes to schedule of investments.
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (CONTINUED)
Comcast Corporation - Class A 2,012 33,922
Comcast Corporation - Special Class A 4,250 68,043
DIRECTV Group, Inc. (The) - Class A * 4,000 133,400
Ford Motor Company * 5,000 50,000
Gap, Inc. (The) 2,500 52,375
Home Depot, Inc. (The) 5,000 144,650
Lowe's Companies, Inc. 5,000 116,950
Mattel, Inc. 1,500 29,970
News Corporation - Class B ^ 2,500 39,800
NIKE, Inc. - Class B 2,500 165,175
Omnicom Group, Inc. 1,000 39,150
Pulte Homes, Inc. * 2,500 25,000
Starbucks Corporation * 2,500 57,650
Target Corporation 1,500 72,555
Time Warner Cable, Inc. * 669 27,690
Time Warner, Inc. 2,666 77,687
TJX Companies, Inc. (The) ^ 2,500 91,375
Viacom, Inc. - Class B * 1,000 29,730
Walt Disney Company (The) ^ 5,000 161,250
Yum! Brands, Inc. 2,500 87,425
------------
1,740,177
------------
CONSUMER STAPLES - 10.55%
Altria Group, Inc. 5,000 98,150
Archer-Daniels-Midland Company 1,500 46,965
Coca-Cola Company (The) 5,000 285,000
Coca-Cola Enterprises 2,500 53,000
ConAgra Foods, Inc. 2,500 57,625
General Mills, Inc. ^ 1,500 106,215
H.J. Heinz Company 2,700 115,452
Molson Coors Brewing Company - Class B 1,000 45,160
PepsiCo, Inc. 2,000 121,600
Philip Morris International, Inc. 3,500 168,665
Procter & Gamble Company (The) 6,472 392,397
Sara Lee Corporation 4,100 150,552
Wal-Mart Stores, Inc. 9,000 481,050
------------
2,152,281
------------
ENERGY - 10.70%
Anadarko Petroleum Corporation 1,000 62,420
Chevron Corporation 3,500 269,465
Consol Energy, Inc. 1,500 74,700
See accompanying notes to schedule of investments.
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------
ENERGY (CONTINUED)
Devon Energy Corporation ^ 2,500 $ 183,750
El Paso Corporation 5,000 49,150
EOG Resources, Inc. ^ 1,000 97,300
Exxon Mobil Corporation ^ 10,000 681,900
Halliburton Company 2,500 75,225
National Oilwell Varco, Inc. 1,000 44,090
Occidental Petroleum Corporation 4,000 325,400
Schlumberger Ltd. ^ 3,000 195,270
Southwestern Energy Company * 1,500 72,300
Spectra Energy Corporation 2,500 51,275
------------
2,182,245
------------
FINANCIALS - 11.75%
AFLAC, Inc. 1,500 69,375
AON Corporation 2,500 95,850
Bank of America Corporation 10,521 158,446
Bank of New York Mellon Corporation (The) 2,800 78,316
BB&T Corporation ^ 2,000 50,740
Capital One Financial Corporation 2,500 95,850
Chubb Corporation (The) 1,000 49,180
Citigroup, Inc. * 24,000 79,440
Franklin Resources, Inc. 1,000 105,350
Goldman Sachs Group, Inc. (The) 1,500 253,260
Hudson City Bancorp, Inc. 2,500 34,325
JPMorgan Chase & Company 12,200 508,374
MetLife, Inc. 1,500 53,025
Morgan Stanley 2,000 59,200
PNC Financial Services Group, Inc. ^ 1,000 52,790
Prudential Financial, Inc. 1,500 74,640
Travelers Companies, Inc. (The) 3,092 154,167
U.S. Bancorp 3,500 78,785
Unum Group 2,500 48,800
Wells Fargo & Company 11,000 296,890
------------
2,396,803
------------
HEALTH CARE - 11.39%
Abbott Laboratories 3,000 161,970
Amgen, Inc. * 3,000 169,710
Baxter International, Inc. 2,500 146,700
Boston Scientific Corporation * 3,000 27,000
Bristol-Myers Squibb Company 4,000 101,000
Celgene Corporation * 1,000 55,680
Cigna Corporation 3,000 105,810
See accompanying notes to schedule of investments.
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------
HEALTH CARE (CONTINUED)
Eli Lilly & Company ^ 2,500 89,275
Express Scripts, Inc. * 1,200 103,740
Gilead Sciences, Inc. * 2,000 86,560
Johnson & Johnson 5,500 354,255
McKesson Corporation 2,500 156,250
Medco Health Solutions, Inc. * 1,000 63,910
Medtronic, Inc. 4,500 197,910
Merck & Company, Inc. 2,500 91,350
Pfizer, Inc. 14,462 263,064
St. Jude Medical, Inc. * 2,500 91,950
WellPoint, Inc. * 1,000 58,290
------------
2,324,424
------------
INDUSTRIALS - 8.62%
3M Company 1,500 124,005
Deere & Company 1,500 81,135
Emerson Electric Company 2,500 106,500
FedEx Corporation 1,500 125,175
General Dynamics Corporation 1,000 68,170
General Electric Company 24,000 363,120
Honeywell International, Inc. 3,000 117,600
Illinois Tool Works, Inc. 3,500 167,965
Lockheed Martin Corporation 2,500 188,375
Precision Castparts Corporation 1,000 110,350
Republic Services, Inc. 1,125 31,849
Union Pacific Corporation 2,500 159,750
United Parcel Service, Inc. - Class B 2,000 114,740
------------
1,758,734
------------
INFORMATION TECHNOLOGY - 18.66%
Agilent Technologies, Inc. * 2,500 77,675
AOL, Inc. * 242 5,642
Apple, Inc. * 2,000 421,719
Automatic Data Processing, Inc. 2,500 107,050
CA, Inc. 2,500 56,150
Cisco Systems, Inc. * 13,000 311,220
Corning, Inc. 3,000 57,930
eBay, Inc. * 2,500 58,850
Google, Inc. - Class A * 1,000 619,980
Hewlett-Packard Company 5,000 257,550
Intel Corporation 16,000 326,400
International Business Machines Corporation 2,200 287,980
Intuit, Inc. * 2,500 76,775
See accompanying notes to schedule of investments.
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Microsoft Corporation 14,000 $ 426,860
Oracle Corporation 12,600 309,204
Paychex, Inc. ^ 2,500 76,600
QUALCOMM, Inc. 3,800 175,788
Texas Instruments, Inc. 2,000 52,120
Western Union Company (The) 2,000 37,700
Xilinx, Inc. 2,500 62,650
------------
3,805,843
------------
MATERIALS - 3.41%
Air Products & Chemicals, Inc. 1,500 121,590
E.I. Du Pont de Nemours & Company 4,800 161,616
Freeport-McMoRan Copper & Gold, Inc. 2,500 200,725
Monsanto Company 2,000 163,500
Newmont Mining Corporation 1,000 47,310
------------
694,741
------------
REAL ESTATE INVESTMENT TRUST - 0.01%
Simon Property Group, Inc. ^ 16 1,277
------------
TELECOMMUNICATION SERVICES - 2.84%
AT&T, Inc. 11,089 310,825
Qwest Communications International, Inc. 5,000 21,050
Verizon Communications, Inc. 7,500 248,475
------------
580,350
------------
UTILITIES - 3.53%
Dominion Resources, Inc. 2,000 77,840
Duke Energy Corporation 6,600 113,586
Exelon Corporation 2,500 122,175
FirstEnergy Corporation 2,500 116,125
FPL Group, Inc. ^ 1,000 52,820
NiSource, Inc. 2,500 38,450
Southern Company (The) ^ 2,500 83,300
Xcel Energy, Inc. 5,500 116,765
------------
721,061
------------
TOTAL EQUITY SECURITIES (cost - $21,147,954) 20,396,621
------------
SHORT-TERM INVESTMENTS - 12.73%
MONEY MARKET SECURITY - 2.19%
JPMorgan U.S. Government Money Market Fund 446,588 446,588
------------
See accompanying notes to schedule of investments.
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
PRINCIPAL AMOUNT
(000'S)
-----------------
REPURCHASE AGREEMENTS - 10.54%
J.P. Morgan Securities, Inc. +++
(Agreement dated 12/31/2009 to be
repurchased at $ 2,142,166) $ 2,142 $ 2,142,128
J.P. Morgan Securities, Inc. +
(Agreement dated 12/31/2009 to be
repurchased at $ 6,881) 7 6,881
------------
TOTAL SHORT-TERM INVESTMENTS (cost - $2,595,597) 2,595,597
------------
TOTAL INVESTMENTS - 112.71% (cost - $23,743,551) 22,992,218
LIABILITIES IN EXCESS OF OTHER ASSETS - (12.71)% (2,592,279)
------------
NET ASSETS - 100.00% $ 20,399,939
============
------
(a) Affiliated investment. The Fund holds 0.46% (based on net assets) of Adams
Express Company. A trustee of the Fund also serves as a director to such
company. During the year ended December 31, 2009 the Fund sold 13,700 shares of
this security. There were no purchases during this period.
* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ The maturity date for all repurchase agreements held was January 4, 2010, with
interest rates ranging from 0.01% to 0.16% and collateralized by $7,428,035 in
U.S. Treasury Notes maturing August 15, 2018. Stated interest rate, before
rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities on
loan.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Cornerstone Total Return Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of
Cornerstone Total Return Fund, Inc. (the "Fund"), including the summary schedule
of investments as of December 31, 2009, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Cornerstone Total Return Fund, Inc. as of December 31, 2009, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of investments in securities
as of December 31, 2009 appearing in Item 6 of this Form N-CSR is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements. This additional information is the responsibility of the
Fund's management. Such information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 24, 2010
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant and Cornerstone Advisors, Inc. share the same Proxy Voting
Policies and Procedures. The respective Proxy Voting Policies and Procedures of
the Registrant and Adviser are attached as EXHIBIT99.VOTEREG
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) All information contained in this item and its subparts is as of the date
of this filing, unless otherwise noted. Ralph W. Bradshaw and William A. Clark
are employees of Cornerstone Advisors, Inc. (the Investment Manager) and
portfolio managers of the Fund. Mr. Bradshaw has acted as the portfolio manager
since 2001. Mr. Clark has acted as the portfolio manager since 2003. Ralph W.
Bradshaw's occupation for the last five years is President of Cornerstone
Advisors, Inc. and a Financial Consultant. William A. Clark's occupation for the
last five years is Director and Stockholder of Cornerstone Advisors, Inc. and
Vice President and former Director/Trustee of Cornerstone Total Return Fund,
Inc. and Cornerstone Progressive Return Fund.
(a)(2)(i) Ralph W. Bradshaw and William A. Clark
(a)(2)(ii)(A) Registered Investment Companies - Ralph W. Bradshaw and William A.
Clark each manage two other registered closed-end funds (Cornerstone Total
Return Fund, Inc. and Cornerstone Progressive Return Fund). As of December 31,
2009, the total assets of Cornerstone Strategic Value Fund, Inc. was $66.0
million. As of December 31, 2009, the total assets of Cornerstone Progressive
Return Fund, Inc. was $62.4 million.
(a)(2)(ii)(B) Not applicable
(a)(2)(ii)(C) Not applicable
(a)(2)(iii) None. Ralph W. Bradshaw and William A. Clark manage no accounts
where the Advisory Fee is based on the performance of the account.
(a)(2)(iv) None.
(a)(3) As of the most recent fiscal year end December 31, 2009, the compensation
paid to both Ralph W. Bradshaw and William A. Clark was fixed.
(a)(4) The dollar range of equity securities owned in the registrant
beneficially by each portfolio manager is as follows: for Ralph W. Bradshaw it
is in the range of $10,001-$50,000 and for William A. Clark it is in the range
of $10,001-$50,000.
(b) None.
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: EX-99.CODEETH
(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)): EX-II.CERT
(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)): EX-99.906CERT
(99) Proxy Voting Policies of the Registrant and Adviser attached as
EX-99.VOTEREG.
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 MARCH 5, 2010
-------------------------------------------
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 MARCH 5, 2010
---------------------------------------
By (Signature and Title)* /S/ FRANK J. MARESCA
-----------------------------------------------------
Frank J. Maresca, Treasurer
(Principal Financial Officer)
Date MARCH 5, 2010
---------------------------------------
* Print the name and title of each signing officer under his or her signature.