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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02363
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CORNERSTONE TOTAL RETURN FUND, INC.
(Exact name of registrant as specified in charter)
260 MADISON AVENUE, 8th FLOOR NEW YORK, NEW YORK 10165
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(Address of principal executive offices) (Zip code)
Frank J. Maresca
ULTIMUS FUND SOLUTIONS, LLC, 260 MADISON AVENUE, 8th FLOOR NEW YORK, NY 10016
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(Name and address of agent for service)
Registrant's telephone number, including area code: (646) 881-4985
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Date of fiscal year end: DECEMBER 31, 2010
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Date of reporting period: JUNE 30, 2010
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
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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
Frank J. Maresca Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock Transfer &
1075 Hendersonville Road Trust Co.
Suite 250 59 Maiden Lane
Asheville, NC 28803 New York, NY 10038
INDEPENDENT REGISTERED
ADMINISTRATOR PUBLIC ACCOUNTING FIRM
Ultimus Fund Solutions, LLC Tait, Weller & Baker LLP
260 Madison Avenue 1818 Market Street
8th Floor Suite 2400
New York, NY 10016 Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
JPMorgan Chase Bank, N.A. Blank Rome LLP
14201 North Dallas Pkwy. 405 Lexington Avenue
Second Floor New York, NY 10174
Dallas, TX 75254
EXECUTIVE OFFICES
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
NYSE
AMEX(TM)
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CORNERSTONE TOTAL
RETURN FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2010
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CONTENTS
Portfolio Summary 1
Summary Schedule of Investments 2
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
Results of Annual Meeting of Stockholders 14
Investment Management Agreement Approval Disclosure 15
Description of Dividend Reinvestment Plan 16
Proxy Voting and Portfolio Holdings Information 18
Privacy Policy Notice 18
Summary of General Information 19
Shareholder Information 19
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CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2010 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Information Technology 17.5
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Financials 13.6
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Consumer Staples 11.3
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Healthcare 11.0
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Energy 10.1
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Industrials 9.9
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Consumer Discretionary 9.9
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Closed-End Funds 8.4
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Utilities 3.0
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Materials 2.8
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Telecommunication Services 2.5
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. Exxon Mobil Corporation Energy 3.3
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2. Adams Express Company (The) Closed-End Funds 3.1
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3. Apple, Inc. Information Technology 3.0
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4. JPMorgan Chase & Company Financials 2.6
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5. Google, Inc. - Class A Information Technology 2.6
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6. Procter & Gamble Company (The) Consumer Staples 2.3
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7. General Electric Company Industrials 2.0
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8. Wal-Mart Stores, Inc. Consumer Staples 2.0
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9. Johnson & Johnson Healthcare 1.9
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10. Microsoft Corporation Information Technology 1.9
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1
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2010 (UNAUDITED)
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No. of
Description Shares Value
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EQUITY SECURITIES - 99.99%
CLOSED-END FUNDS - 8.37%
CORE - 3.99%
Adams Express Company (The) (a) 59,400 $ 536,382
Other Core (b) 144,748
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681,130
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HIGH CURRENT YIELD (LEVERAGED) - 0.35%
Other High Current Yield (Leveraged) (b) 59,390
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OPTION ARBITRAGE/OPTIONS STRATEGIES - 0.97%
NFJ Dividend, Interest &
Premium Strategy Fund 12,000 165,720
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REAL ESTATE - 0.79%
Other Real Estate (b) 135,090
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SECTOR EQUITY - 1.88%
John Hancock Bank and Thrift
Opportunity Fund 14,200 203,628
Other Sector Equity (b) 116,970
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320,598
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U.S. MORTGAGE - 0.39%
Total U.S. Mortgage (b) 66,897
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TOTAL CLOSED-END FUNDS 1,428,825
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CONSUMER DISCRETIONARY - 9.88%
DIRECTV Group, Inc. (The) - Class A * 4,000 135,680
Home Depot, Inc. (The) 5,000 140,350
McDonald's Corporation 2,000 131,740
NIKE, Inc. - Class B 2,500 168,875
Walt Disney Company (The) 5,000 157,500
Other Consumer Discretionary (b) 952,417
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1,686,562
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CONSUMER STAPLES - 11.29%
Coca-Cola Company (The) 5,000 250,600
H.J. Heinz Company 2,700 116,694
PepsiCo, Inc. 2,000 121,900
No. of
Description Shares Value
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CONSUMER STAPLES (CONTINUED)
Philip Morris International, Inc. 3,500 $ 160,440
Procter & Gamble Company (The) 6,472 388,191
Walgreen Company 4,100 109,470
Wal-Mart Stores, Inc. 7,000 336,490
Other Consumer Staples (b) 443,720
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1,927,505
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ENERGY - 10.13%
Chevron Corporation 3,500 237,510
Devon Energy Corporation 2,500 152,300
Exxon Mobil Corporation 10,000 570,700
Occidental Petroleum Corporation 4,000 308,600
Schlumberger Ltd. 3,000 166,020
Other Energy (b) 294,685
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1,729,815
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FINANCIALS - 13.57%
Bank of America Corporation 16,521 237,407
Goldman Sachs Group, Inc. (The) 1,500 196,905
JPMorgan Chase & Company 12,200 446,642
Travelers Companies, Inc. (The) 3,092 152,281
Wells Fargo & Company 5,000 128,000
Other Financials (b) 1,156,732
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2,317,967
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HEALTHCARE - 11.02%
Abbott Laboratories 3,000 140,340
Amgen, Inc. * 3,000 157,800
Express Scripts, Inc. * 2,400 112,848
Johnson & Johnson 5,500 324,830
McKesson Corporation 2,500 167,900
Medtronic, Inc. 4,500 163,215
Pfizer, Inc. 12,462 177,708
Other Health Care (b) 637,565
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1,882,206
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INDUSTRIALS - 9.90%
3M Company 1,500 118,485
General Electric Company 24,000 346,080
Illinois Tool Works, Inc. 3,500 144,480
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See accompanying notes to financial statements
2
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2010 (UNAUDITED)
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No. of
Description Shares Value
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INDUSTRIALS (CONTINUED)
Lockheed Martin Corporation 2,500 $ 186,250
Union Pacific Corporation 2,500 173,775
Other Industrials (b) 721,331
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1,690,401
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INFORMATION TECHNOLOGY - 17.50%
Apple, Inc. * 2,000 503,059
Cisco Systems, Inc. * 13,000 277,030
Google, Inc. - Class A * 1,000 444,950
Hewlett-Packard Company 5,000 216,400
Intel Corporation 11,000 213,950
International Business Machines Corporation 2,200 271,656
Microsoft Corporation 14,000 322,140
Oracle Corporation 12,600 270,396
Other Information Technology (b) 470,696
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2,990,277
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MATERIALS - 2.77%
E.I. Du Pont de Nemours & Company 4,800 166,032
Freeport-McMoRan Copper & Gold, Inc. 2,500 147,825
Other Materials (b) 158,955
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472,812
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REAL ESTATE INVESTMENT TRUST - 0.01%
Total Real Estate
Investment Trust (b) 1,292
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TELECOMMUNICATION SERVICES - 2.50%
AT&T, Inc. 11,089 268,243
Centurytel, Inc. 4,000 133,240
Other Telecommunication Services (b) 26,250
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427,733
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No. of
Description Shares Value
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UTILITIES - 3.05%
Southern Company (The) 3,500 $ 116,480
Xcel Energy, Inc. 5,500 113,355
Other Utilities (b) 290,150
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519,985
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TOTAL EQUITY SECURITIES
(cost - $19,019,628) 17,075,380
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SHORT-TERM INVESTMENT - 0.34%
MONEY MARKET FUND - 0.34%
JPMorgan U.S. Government Money Market Fund
(cost - $ 57,228) 57,228 57,228
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TOTAL INVESTMENTS - 100.33%
(cost - $19,076,856) 17,132,608
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LIABILITIES IN EXCESS OF OTHER ASSETS - (0.33)% (56,352)
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NET ASSETS - 100.00% $17,076,256
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(a) Affiliated investment. The Fund holds 3.14 % (based on net assets) of
Adams Express Company. A director of the Fund also serves as a director to
such company. There were no purchases or sales of this security during the
six months ended June 30, 2010.
(b) Represents issuers not identified as a top 50 holding in terms of market
value and issues or issuers not exceeding 1% of net assets individually or
in the aggregate, respectively, as of June 30, 2010.
* Non-income producing security.
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See accompanying notes to financial statements.
3
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2010 (UNAUDITED)
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ASSETS
Investments, at value
Unaffiliated issuers (cost - $18,384,166) $ 16,596,226
Affiliated issuer (cost - $692,690) 536,382
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Total investments (cost - $19,076,856) 17,132,608
Receivables:
Dividends 24,259
Prepaid expenses 3,457
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Total Assets 17,160,324
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LIABILITIES
Payables:
Investment management fees 19,992
Directors' fees 13,331
Administration fees 2,559
Other accrued expenses 48,186
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Total Liabilities 84,068
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NET ASSETS (applicable to 2,863,271 shares of
common stock outstanding) $ 17,076,256
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NET ASSET VALUE PER SHARE ($17,076,256 (div) 2,863,271) $ 5.96
======
NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 2,863,271
shares issued and outstanding
(15,000,000 shares authorized) $ 2,863
Paid-in capital 23,228,616
Accumulated net realized loss on investments (4,210,975)
Net unrealized depreciation in value of investments (1,944,248)
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Net assets applicable to shares outstanding $ 17,076,256
============
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See accompanying notes to financial statements.
4
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2010 (UNAUDITED)
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INVESTMENT INCOME
Income:
Dividends (including $2,970 earned from affiliated issuers) $ 207,903
Securities lending 290
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Total Investment Income 208,193
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Expenses:
Investment management fees 97,159
Directors' fees 27,273
Legal and audit fees 24,958
Printing 18,348
Accounting fees 17,305
Administration fees 14,877
Transfer agent fees 11,433
Custodian fees 4,959
Insurance 3,222
Stock exchange listing fees 2,480
Miscellaneous 1,188
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Total Expenses 223,202
Less: Fees paid indirectly (6,872)
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Net Expenses 216,330
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Net Investment Loss (8,137)
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NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized loss from unaffiliated investments (314,627)
Capital gain distributions from regulated investment companies 27,530
Net change in unrealized depreciation in value of investments (1,192,915)
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Net realized and unrealized loss on investments (1,480,012)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,488,149)
===========
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See accompanying notes to financial statements.
5
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CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
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For the Six For the
Months Ended Year Ended
June 30, 2010 December 31,
(Unaudited) 2009
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INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment loss $ (8,137) $ (46,373)
Net realized loss from investments (287,097) (12,396)
Net change in unrealized depreciation in
value of investments (1,192,915) 3,681,512
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Net increase/(decrease) in net assets
resulting from operations (1,488,149) 3,622,743
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Distributions to shareholders:
Return-of-capital (2,073,260) (5,317,678)
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Total distributions to shareholders (2,073,260) (5,317,678)
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Capital stock transactions:
Proceeds from 24,713 and 64,854 shares
newly issued in reinvestment of
distributions, respectively 237,726 590,254
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Total decrease in net assets (3,323,683) (1,104,681)
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NET ASSETS
Beginning of period 20,399,939 21,504,620
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End of period $17,076,256 $20,399,939
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See accompanying notes to financial statements.
6
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CORNERSTONE TOTAL RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
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Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
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For the Six
Months Ended
June 30, 2010 For the Years Ended December 31,*
(Unaudited) 2009 2008 2007 2006 2005
------------- ----- ----- ----- ----- -----
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 7.19 $ 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 (0.52) 1.31 (5.64) 0.64 2.50 0.36
------- ------- ------- ------- ------- -------
(Net increase/(decrease) in net assets
resulting) from operations (0.52) 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 (0.73) (1.90) (3.77) (4.08) (4.04) (4.10)
------- ------- ------- ------- ------- -------
Total dividends and distributions
to shareholders (0.73) (1.90) (3.89) (4.28) (4.22) (4.22)
------- ------- ------- ------- ------- -------
Capital stock transactions:
Anti-dilutive effect due to shares issued in
reinvestment of dividends and distributions 0.02 0.05 0.16 0.22 -- --
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 5.96 $ 7.19 $ 7.75 $ 17.00 $ 20.28 $ 21.82
======= ======= ======= ======= ======= =======
Market value, end of period $ 10.00 $ 10.29 $ 7.60 $ 19.60 $ 39.24 $ 29.30
======= ======= ======= ======= ======= =======
Total investment return(a) 4.77%(b) 66.98% (49.30)% (40.97)% 64.15% (2.07)%
======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $17,076 $20,400 $21,505 $45,411 $52,379 $54,194
(Ratio of expenses to average net assets,)
net of fee waivers, if any (c)(d) 2.26%(e) 2.76% 1.67% 1.49% 1.44% 1.47%
(Ratio of expenses to average net assets,)
excluding fee waivers, if any (d)(f) 2.34%(e) 3.20% 1.94% 1.53% 1.50% 1.52%
(Ratio of expenses to average net assets,)
net of fee waivers, if any (d)(f) 2.34%(e) 2.88% 1.77% 1.52% 1.50% 1.50%
(Ratio of net investment income to)
average net assets (0.09)%(e) (0.24)% 0.98% 0.74% 0.82% 0.53%
Portfolio turnover rate 8.42%(b) 13.24% 15.61% 11.00% 11.29% 9.84%
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* Effective December 23, 2008, a reverse stock split of 1:2 occurred. All
per share amounts have been restated according to the terms of the split.
# Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends
and distributions, if any, at actual prices pursuant to the Fund's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
(b) Not annualized
(c) Expenses are net of fees paid indirectly.
(d) Expenses do not include expenses of investment companies in which the
Fund invests.
(e) Annualized
(f) Expenses exclude the reduction for fees paid indirectly.
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See accompanying notes to financial statements.
7
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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NOTE A. ORGANIZATION
Cornerstone Total Return Fund, Inc. (the "Fund") was incorporated in New York on
March 16, 1973 and commenced investment operations on May 15, 1973. Its
investment objective is to seek capital appreciation with current income as a
secondary objective by investing primarily in U.S. and non-U.S. companies. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES: The preparation of financial statements in 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 the date its
financial statements were issued. Based on this evaluation, no additional
disclosures or adjustments were required to such financial statements.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. Readily marketable portfolio securities listed on the NYSE
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the NYSE on the business day as of which such
value is being determined. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices on such day. If no
bid or asked prices are quoted on such day or if market prices may be unreliable
because of events occurring after the close of trading, then the security is
valued by such method as the Board of Directors shall determine in good faith to
reflect its fair market value. Readily marketable securities not listed on the
NYSE but listed on other domestic or foreign securities exchanges are valued in
a like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the consolidated tape at the close of the
exchange representing the principal market for such securities. Securities
trading on the Nasdaq Stock Market, Inc. ("NASDAQ") are valued at the closing
price.
Readily marketable securities traded in the over-the counter market, including
listed securities whose primary market is believed by Cornerstone Advisors, Inc.
(the "Investment 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 June 30, 2010 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 Amex LLC is closed.
The Fund is exposed to financial market risks, including the valuations of its
investment portfolio. For the six months ended June 30, 2010, 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
repurchase agreement will be required to maintain the value of
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8
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), (CONTINUED)
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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.
RISKS ASSOCIATED WITH INVESTMENTS IN OTHER CLOSED-END FUNDS: Closed-end
investment companies are subject to the risks of investing in the underlying
securities. The Fund, as a holder of the securities of the closed-end investment
company, will bear its pro rata portion of the closed-end investment company's
expenses, including advisory fees. These expenses are in addition to the direct
expenses of the Fund's own operations.
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 June
30, 2010, the Fund does not have any interest or penalties associated with the
underpayment of any income taxes. Management reviewed any uncertain tax
positions for open tax years 2006 through 2009 and for the period ended June 30,
2010. There was no material impact to the financial statements or, other than as
described below, the disclosures thereto as a result of the adoption of this
pronouncement. The Fund and the Investment Manager have entered into a closing
letter 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
closing letter avoids any potential material negative tax impact to the Fund.
Pursuant to the closing letter, the Investment Manager paid any settlement
amount owed to the Internal Revenue Service.
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
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9
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), (CONTINUED)
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current intention to do so, the Board may terminate this distribution policy at
any time and such termination may have an adverse effect on the market price for
the Fund's common shares. The Fund determines annually whether to distribute any
net realized long-term capital gains in excess of net realized short-term
capital losses, including capital loss carryovers, if any. To the extent that
the Fund's taxable income in any calendar year exceeds the aggregate amount
distributed pursuant to this distribution policy, an additional distribution may
be made to avoid the payment of a 4% U.S. federal excise tax, and to the extent
that the aggregate amount distributed in any calendar year exceeds the Fund's
taxable income, the amount of that excess may constitute a return-of-capital for
tax purposes. A return-of-capital distribution reduces the cost basis of an
investor's shares in the Fund. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
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. If, 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 trans- actions, 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.
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), (CONTINUED)
--------------------------------------------------------------------------------
The following is a summary of the inputs used as of June 30, 2010 in valuing the
Fund's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
--------------------------------------------------------------------------------
Level 1 - Quoted Prices
Equity Investments $17,075,380 --
Short-Term Investments 57,228 --
Level 2 - Other Significant
Observable Inputs -- --
Level 3 - Significant
Unobservable Inputs -- --
----------- --------------
Total $17,132,608 --
=========== ==============
--------
* Other financial instruments include futures, forwards and swap contracts.
During the period ended June 30, 2010, the Fund did not have any significant
transfers in and out of Level 1 or Level 2. The Fund did not have any assets or
liabilities that were measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) at June 30, 2010.
RECENT 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 has evaluated the
impact ASU No. 2010-06 and has determined that it is not expected to have a
significant impact 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. For the six months ended June
30, 2010, Cornerstone earned $97,159 for investment management services.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $6,872 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
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), (CONTINUED)
--------------------------------------------------------------------------------
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.
NOTE E. AFFILIATED INVESTMENTS
Transactions in affiliates for the six month ended June 30, 2010 were as
follows:
ADAMS
EXPRESS
COMPANY
--------
Market value at beginning of period $599,940
========
Shares at beginning of period 59,400
Shares purchased during the period --
Shares sold during the period --
--------
Shares at end of period 59,400
--------
Dividend income earned
during the period $ 2,970
========
Cost of purchases during the period --
Proceeds from sales during the period --
Net realized gain/(loss) during the period --
Market value at end of period $536,382
NOTE F. INVESTMENT IN SECURITIES
For the six months ended June 30, 2010, purchases and sales of securities, other
than short-term investments, were $1,625,713 and $3,452,644, respectively.
NOTE G. SHARES OF COMMON STOCK
The Fund has 15,000,000 shares of common stock authorized and 2,863,271 shares
outstanding at June 30, 2010. Transactions in common stock for the six months
ended June 30, 2010 were as follows:
Shares at beginning of period 2,838,558
Shares newly issued in reinvestment
of dividends and distributions 24,713
---------
Shares at end of period 2,863,271
=========
NOTE H. SHARE REPURCHASE PROGRAM
As has been done in the past to enhance shareholder value, pursuant to Section
23 of the Investment Company Act of 1940, as amended, the Fund may again in the
future purchase shares of its common stock on the open market from time to time,
at such times, and in such amounts as may be deemed advantageous to the Fund.
Nothing herein shall be considered a commitment to purchase such shares. The
Fund had no repurchases during the six months ended June 30, 2010. No limit has
been placed on the number of shares to be repurchased by the Fund other than
those imposed by federal securities laws.
To the extent such purchases are made they will be in accordance with federal
securities laws, with shares repurchased held in treasury for future use by the
Fund.
NOTE I. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33 1/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest, thereon) to the Fund. However, there can be no
assurance the Fund can recover this amount.
--------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), (CONCLUDED)
--------------------------------------------------------------------------------
The Fund had no securities on loan to brokers at June 30, 2010. During the six
months ended June 30, 2010, the Fund earned $290 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 distributions paid to stockholders during the years ended December
31, 2009 for the Fund consisted entirely of return-of-capital in the amount of
$5,317,678.
Accounting principles generally accepted in the United States of America require
that certain components of net assets relating to permanent differences be
reclassified between financial and tax reporting. These reclassifications have
no effect on net assets or net asset value per share. Under current tax law,
certain capital losses realized after October 31 within a taxable year may be
deferred and treated as occurring on the first day of the following tax year
("Post-October losses"). 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 June 30, 2010, the identified cost for federal income tax purposes, as well
as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized depreciation from investments were $19,076,856, $1,045,308,
$(2,989,556), and $(1,944,248), respectively.
--------------------------------------------------------------------------------
13
RESULTS OF MEETING OF STOCKHOLDERS (UNAUDITED)
On July 20, 2010, the Annual Meeting of Stockholders of the Fund was held and
the following matters were voted upon based on 2,859,117 shares of common stock
outstanding on June 1, 2010:
(1) To approve the re-election of six directors until the 2011 Annual
Meeting.
Name of Directors For Withhold
----------------- ----- --------
Ralph W. Bradshaw 2,308,340 102,351
Thomas H. Lenagh 2,302,537 108,155
Edwin Meese III 2,294,189 116,503
Scott B. Rogers 2,306,859 103,832
Andrew A. Strauss 2,298,521 112,170
Glenn W. Wilcox, Sr. 2,305,370 105,322
(2) To consider and vote upon an advisory proposal from the Board of
Directors regarding the Fund's Managed Distribution Plan. Regarding the
Fund's Managed Distribution Plan.
For Abstain
----- -------
2(a) No Managed Distribution Plan 87,857 225,246
2(b) A Low-Level Managed Distribution Plan 85,288 225,998
2(c) A High-Level Managed Distribution Plan 290,704 155,771
--------------------------------------------------------------------------------
14
INVESTMENT MANAGEMENT AGREEMENT APPROVAL DISCLOSURE (UNAUDITED)
The Board of Directors including, the Independent Directors, (the "Board") of
Cornerstone Total Return Fund, Inc. (the "Fund") considers the approval of the
continuation of the Investment Management Agreement (the "Agreement") between
Cornerstone Advisors, Inc. (the "Investment Manager") and the Fund on an annual
basis. The most recent approval of the continuation of the Agreement occurred at
an in person meeting of the Board held on February 12, 2010.
The Board requested and received extensive materials and information from the
Investment Manager to assist them in considering the approval of the continuance
of the Agreement. Based on their review of the materials and information and
discussions with management of the Investment Manager, the Board determined that
the approval of the continuation of the Agreement was consistent with the best
interests of the Fund and its shareholders, and would enable the Fund to
continue to receive high quality services at a cost that is appropriate,
reasonable, and in the best interests of the Fund and its shareholders. The
Board made these determinations on the basis of the following factors, among
others: (1) the nature and quality of the services provided by the Investment
Manager; (2) the cost to the Investment Manager for providing such services,
with special attention to the Investment Manager's profitability (and whether
the Investment Manager realizes any economies of scale); (3) the direct and
indirect benefits received by the Investment Manager from its relationship with
the Fund and the other investment companies advised by the Investment Manager;
and (4) comparative information as to the management fees, expense ratios and
performance of other similarly situated closed-end investment companies.
The materials provided by the Investment Manager described the services provided
by the Investment Manager to the Fund and included an overview of the Investment
Manager's investment philosophy, management style and plan, including regarding
the Investment Manager's extensive knowledge and experience in the closed-end
fund industry. The Board also discussed the knowledge of the Investment Manager
with respect to managing the Fund's monthly distribution policy and the extent
to which such policy contributes to the market's positive valuation of the Fund.
The Board also reviewed and discussed a comparison of the Fund's performance
with comparable closed-end funds and a comparison of the Fund's expense ratios
and management fees with those comparable funds. Additionally, the Investment
Manager presented an analysis of its profitability based on its contractual
relationship with the Fund and the other investment companies advised by the
Investment Manager.
The Board carefully evaluated this information, taking into consideration many
factors including, the overall high quality of the personnel, operations,
financial condition, investment management capabilities, methodologies, and
performance of the Investment Manager. The Board was advised by independent
legal counsel with respect to its deliberations and its duties when considering
the Agreement's continuance. Based on its review of the information requested
and provided, the Board determined that the management fees payable to the
Investment Manager under the Agreement are fair and reasonable in light of the
services to be provided, the performance of the Fund, the profitability of the
Investment Manager's relationship with the Fund, the comparability of the
proposed fee to fees paid by closed-end funds in the Fund's peer group, and the
level of quality of investment management personnel. The Board determined that
the Agreement is consistent with the best interests of the Fund and its
shareholders, and enables the Fund to receive high quality services at a cost
that is appropriate, reasonable, and in the best interests of the Fund and its
shareholders. Accordingly, in light of the above considerations and such other
factors and information it considered relevant, the Board by a unanimous vote
(including a separate vote of all the Independent Directors present in person at
the meeting) approved the continuance of the Agreement with respect to the Fund.
--------------------------------------------------------------------------------
15
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 Amex 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
--------------------------------------------------------------------------------
16
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED), (CONCLUDED)
include those shares purchased pursuant to the Plan. Each participant,
nevertheless, has the right to receive certificates for whole shares owned. The
Agent will distribute all proxy solicitation materials to participating
shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the shareholder's name and held for the account of
beneficial owners participating in the Plan.
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.
--------------------------------------------------------------------------------
17
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 is 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 information about your transactions
with the Fund, its affiliates, or others (such as your account number and
balance, payment history, parties to transactions, cost basis information,
and other financial information).
CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose any
nonpublic personal information about their current or former shareholders to
unaffiliated third parties, except as required or permitted by law. The Fund is
permitted by law to disclose all of the information it collects, as described
above, to its service providers (such as the Fund's custodian, administrator and
transfer agent) to process your transactions and otherwise provide services to
you. Confidentiality and Security. The Fund restricts access to your nonpublic
personal information to those persons who require such information to provide
products or services to you. The Fund maintains physical, electronic and
procedural safeguards that comply with federal standards to guard your nonpublic
personal information.
--------------------------------------------------------------------------------
18
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
Cornerstone Total Return Fund, Inc. is a closed-end, diversified investment
company whose shares trade on the NYSE Amex 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 Amex LLC (symbol "CRF"). The share price is
published in: The New York Times (daily) under the designation "Cnrstn TR" and
The Wall Street Journal (daily) and Barron's (each Monday) under the designation
"CornstnTtlRtn." The net asset value per share is available weekly and may be
obtained by contacting the Fund at the general inquiry phone number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE TOTAL RETURN FUND, INC. MAY
FROM TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. The financial information
included herein is taken from the records of the Fund without examination by
independent registered public accountants who do not express an opinion there
on. 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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
19
This page intentionally left blank.
CORNERSTONE TOTAL RETURN FUND, INC.
ITEM 2. CODE OF ETHICS.
Not required
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not required
ITEM 6. SCHEDULE OF INVESTMENTS.
(a)
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2010 (UNAUDITED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------
EQUITY SECURITIES - 99.99%
CLOSED-END FUNDS - 8.37%
CORE - 3.99%
Adams Express Company (The) (a) 59,400 $ 536,382
Royce Micro-Cap Trust, Inc. 8,200 60,188
Royce Value Trust, Inc. 8,000 84,560
-----------
681,130
-----------
HIGH CURRENT YIELD (LEVERAGED) - 0.35%
First Trust Strategic High Income Fund 8,000 24,560
First Trust Strategic High Income Fund III 9,000 34,830
-----------
59,390
-----------
OPTION ARBITRAGE/OPTIONS STRATEGIES - 0.97%
NFJ Dividend, Interest & Premium Strategy Fund 12,000 165,720
-----------
REAL ESTATE - 0.79%
Cohen & Steers Quality Income Realty Fund, Inc. 13,000 82,290
Cohen & Steers REIT & Preferred Income Fund, Inc. 5,000 52,800
-----------
135,090
-----------
SECTOR EQUITY - 1.88%
Cohen & Steers Infrastructure Fund, Inc. 3,000 37,950
H&Q Life Sciences Investors 9,000 79,020
John Hancock Bank and Thrift Opportunity Fund 14,200 203,628
-----------
320,598
-----------
U.S. MORTGAGE - 0.39%
BlackRock Income Trust, Inc. 9,896 66,897
-----------
TOTAL CLOSED-END FUNDS 1,428,825
-----------
CONSUMER DISCRETIONARY - 9.88%
Amazon.com, Inc. * 1,000 109,260
Bed Bath & Beyond, Inc. * 2,500 92,700
Comcast Corporation - Class A 2,012 34,948
Comcast Corporation - Special Class A 4,250 69,828
DIRECTV Group, Inc. (The) - Class A * 4,000 135,680
Ford Motor Company * 5,000 50,400
Gap, Inc. (The) 2,500 48,650
Home Depot, Inc. (The) 5,000 140,350
Mattel, Inc. 1,500 31,740
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2010 (UNAUDITED) (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (CONTINUED)
McDonald's Corporation 2,000 $ 131,740
News Corporation - Class B 2,500 34,625
NIKE, Inc. - Class B 2,500 168,875
Starbucks Corporation 2,500 60,750
Target Corporation 1,500 73,755
Time Warner Cable, Inc. 669 34,842
Time Warner, Inc. 2,666 77,074
TJX Companies, Inc. (The) 2,500 104,875
Viacom, Inc. - Class B 1,000 31,370
Walt Disney Company (The) 5,000 157,500
Yum! Brands, Inc. 2,500 97,600
-----------
1,686,562
-----------
CONSUMER STAPLES - 11.29%
Altria Group, Inc. 5,000 100,200
Coca-Cola Company (The) 5,000 250,600
Coca-Cola Enterprises 2,500 64,650
Colgate-Palmolive Company 1,000 78,760
ConAgra Foods, Inc. 2,500 58,300
General Mills, Inc. 3,000 106,560
H.J. Heinz Company 2,700 116,694
PepsiCo, Inc. 2,000 121,900
Philip Morris International, Inc. 3,500 160,440
Procter & Gamble Company (The) 6,472 388,191
Sara Lee Corporation 2,500 35,250
Walgreen Company 4,100 109,470
Wal-Mart Stores, Inc. 7,000 336,490
-----------
1,927,505
-----------
ENERGY - 10.13%
Anadarko Petroleum Corporation 1,000 36,090
Chevron Corporation 3,500 237,510
Consol Energy, Inc. 1,500 50,640
Devon Energy Corporation 2,500 152,300
El Paso Corporation 5,000 55,550
Exxon Mobil Corporation 10,000 570,700
Halliburton Company 2,500 61,375
National Oilwell Varco, Inc. 1,000 33,070
Occidental Petroleum Corporation 4,000 308,600
Schlumberger Ltd. 3,000 166,020
Southwestern Energy Company * 1,500 57,960
-----------
1,729,815
-----------
FINANCIALS - 13.57%
AFLAC, Inc. 1,500 64,005
American Express Company 2,000 79,400
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2010 (UNAUDITED) (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
Bank of America Corporation 16,521 $ 237,407
Bank of New York Mellon Corporation (The) 2,800 69,132
BB&T Corporation 2,000 52,620
Capital One Financial Corporation 2,500 100,750
Chubb Corporation (The) 1,000 50,010
Citigroup, Inc. * 24,000 90,240
Discover Financial Services 1,000 13,980
Franklin Resources, Inc. 1,000 86,190
Goldman Sachs Group, Inc. (The) 1,500 196,905
Hartford Financial Services Group, Inc. 1,000 22,130
Hudson City Bancorp, Inc. 2,500 30,600
JPMorgan Chase & Company 12,200 446,642
Marsh & McLennan Companies, Inc. 4,000 90,200
MetLife, Inc. 1,500 56,640
Morgan Stanley 2,000 46,420
PNC Financial Services Group, Inc. 1,000 56,500
Prudential Financial, Inc. 1,500 80,490
SunTrust Banks, Inc. 1,500 34,950
Travelers Companies, Inc. (The) 3,092 152,281
U.S. Bancorp 3,500 78,225
Unum Group 2,500 54,250
Wells Fargo & Company 5,000 128,000
-----------
2,317,967
-----------
HEALTH CARE - 11.02%
Abbott Laboratories 3,000 140,340
Amgen, Inc. * 3,000 157,800
Bristol-Myers Squibb Company 4,000 99,760
Celgene Corporation * 1,000 50,820
Cigna Corporation 3,000 93,180
Eli Lilly & Company 2,500 83,750
Express Scripts, Inc. * 2,400 112,848
Gilead Sciences, Inc. * 2,000 68,560
Johnson & Johnson 5,500 324,830
McKesson Corporation 2,500 167,900
Medco Health Solutions, Inc. * 1,000 55,080
Medtronic, Inc. 4,500 163,215
Merck & Company, Inc. 2,500 87,425
Pfizer, Inc. 12,462 177,708
Stryker Corporation 1,000 50,060
WellPoint, Inc. * 1,000 48,930
-----------
1,882,206
-----------
INDUSTRIALS - 9.90%
3M Company 1,500 118,485
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2010 (UNAUDITED) (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
Danaher Corporation 2,000 $ 74,240
Deere & Company 1,500 83,520
Emerson Electric Company 2,500 109,225
FedEx Corporation 1,500 105,165
General Dynamics Corporation 1,000 58,560
General Electric Company 24,000 346,080
Illinois Tool Works, Inc. 3,500 144,480
Lockheed Martin Corporation 2,500 186,250
Precision Castparts Corporation 1,000 102,920
Republic Services, Inc. 1,125 33,446
Union Pacific Corporation 2,500 173,775
United Parcel Service, Inc. - Class B 1,000 56,890
United Technologies Corporation 1,500 97,365
-----------
1,690,401
-----------
INFORMATION TECHNOLOGY - 17.50%
Agilent Technologies, Inc. * 2,500 71,075
AOL, Inc. * 242 5,031
Apple, Inc. * 2,000 503,059
Automatic Data Processing, Inc. 2,500 100,650
CA, Inc. 2,500 46,000
Cisco Systems, Inc. * 13,000 277,030
Corning, Inc. 3,000 48,450
eBay, Inc. * 2,500 49,025
Google, Inc. - Class A * 1,000 444,950
Hewlett-Packard Company 5,000 216,400
Intel Corporation 11,000 213,950
International Business Machines Corporation 2,200 271,656
Intuit, Inc. * 2,500 86,925
Micron Technology, Inc. * 2,000 16,980
Microsoft Corporation 14,000 322,140
Oracle Corporation 12,600 270,396
Texas Instruments, Inc. 2,000 46,560
-----------
2,990,277
-----------
MATERIALS - 2.77%
Air Products & Chemicals, Inc. 1,500 97,215
E.I. Du Pont de Nemours & Company 4,800 166,032
Freeport-McMoRan Copper & Gold, Inc. 2,500 147,825
Newmont Mining Corporation 1,000 61,740
-----------
472,812
-----------
REAL ESTATE INVESTMENT TRUST - 0.01%
Simon Property Group, Inc. 16 1,292
-----------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2010 (UNAUDITED) (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 2.50%
AT&T, Inc. 11,089 $ 268,243
Centurytel, Inc. 4,000 133,240
Qwest Communications International, Inc. 5,000 26,250
-----------
427,733
-----------
UTILITIES - 3.05%
AES Corporation (The) * 3,000 27,720
Consolidated Edison, Inc. 1,000 43,100
Dominion Resources, Inc. 2,000 77,480
Duke Energy Corporation 6,600 105,600
NiSource, Inc. 2,500 36,250
Southern Company (The) 3,500 116,480
Xcel Energy, Inc. 5,500 113,355
-----------
519,985
-----------
TOTAL EQUITY SECURITIES (cost - $19,019,628) 17,075,380
-----------
SHORT-TERM INVESTMENT - 0.34%
MONEY MARKET FUND - 0.34%
JPMorgan U.S. Government
Money Market Fund (cost - $57,228) 57,228 57,228
-----------
TOTAL INVESTMENTS - 100.33% (cost - $19,076,856) 17,132,608
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.33)% (56,352)
-----------
NET ASSETS - 100.00% $17,076,256
===========
--------
(a) Affiliated investment. The Fund holds 3.14 % (based on net assets) of Adams
Express Company. A director of the Fund also serves as a director to such
company. There were no purchases or sales of this security during the six months
ended June 30, 2010.
* Non-income producing security.
(b) Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not required
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not required
(b) William A. Clark has resigned as a Portfolio Manager. As of the date
of the filing of this Form N-CSR, Ralph W. Bradshaw is the sole
Portfolio Manager of registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors that have been
implemented after the registrant last provided disclosure in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) or this
Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not required
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): Attached hereto
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): Attached hereto
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) CORNERSTONE TOTAL RETURN FUND, INC.
--------------------------------------
By (Signature and Title)* /S/ RALPH W. BRADSHAW
---------------------------------------------
Ralph W. Bradshaw, President
(Principal Executive Officer)
Date SEPTEMBER 2, 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, President
(Principal Executive Officer)
Date SEPTEMBER 2, 2010
---------------------
By (Signature and Title)* /S/ FRANK J. MARESCA
--------------------------------------------
Frank J. Maresca, Treasurer
(Principal Financial Officer)
Date SEPTEMBER 2, 2010
----------------------
* Print the name and title of each signing officer under his or her signature.