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.
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(Exact name of registrant as specified in charter)
350 Jericho Turnpike, Suite 206 Jericho, New York 11753
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(Address of principal executive offices) (Zip code)
Frank J. Maresca
Ultimus Fund Solutions, LLC 350 Jericho Turnpike, Suite 206
Jericho, New York 11753
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(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 326-3597
Date of fiscal year end: December 31, 2010
Date of reporting period: December 31, 2010
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.
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
Tax Information 15
Additional Information Regarding the Fund's Directors and Corporate Officers 16
Description of Dividend Reinvestment Plan 19
Proxy Voting and Portfolio Holdings Information 21
Privacy Policy Notice 22
Summary of General Information 25
Shareholder Information 25
CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2010 (UNAUDITED)
SECTOR ALLOCATION
Percent of
Sector Net Assets
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Information Technology 16.4
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Financials 12.5
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Energy 10.8
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Consumer Staples 9.6
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Healthcare 9.6
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Closed-End Funds 9.4
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Industrials 8.9
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Consumer Discretionary 8.8
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Materials 3.2
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Telecommunication Services 2.7
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Other 8.1
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. Exxon Mobil Corporation Energy 3.4
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2. Microsoft Corporation Information Technology 2.6
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3. Apple, Inc. Information Technology 2.5
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4. Adams Express Company (The) Closed-End Funds 2.5
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5. Google, Inc. - Class A Information Technology 2.3
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6. W al-Mart Stores, Inc. Consumer Staples 2.3
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7. International Business Machines
Corporation Information Technology 2.3
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8. JPMorgan Chase & Company Financials 2.0
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9. A T&T, Inc. Telecommunications Service 1.9
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10. Johnson & Johnson Healthcare 1.8
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1
CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010
No. of
Description Shares Value
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EQUITY SECURITIES - 94.13%
CLOSED-END FUNDS - 9.41%
CORE - 3.71%
Adams Express Company
(The) (a) 59,400 $ 636,768
Other Core (b) 322,600
-----------
959,368
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CORPORATE DEBT FUNDS INVESTMENT
GRADE-RATED - 0.39%
Other Corporate Debt Funds
Investment Grade-Rated (b) 101,980
-----------
DEVELOPED MARKET - 0.12%
Other Developed Market (b) 31,858
-----------
GLOBAL INCOME - 0.83%
Nuveen Multi-Currency
Short-Term Government
Income Fund 15,656 215,583
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HIGH CURRENT YIELD (LEVERAGED) - 0.25%
Other High Current Yield
(Leveraged) (b) 65,870
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INCOME & PREFERRED STOCK - 0.34%
Total Income & Preferred
Stock (b) 87,988
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OPTION ARBITRAGE/OPTIONS
STRATEGIES - 2.29%
Eaton Vance Risk-Managed
Diversified Equity
Income Fund 28,800 382,464
NFJ Dividend, Interest &
Premium Strategy Fund 12,000 210,120
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592,584
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REAL ESTATE - 0.12%
Total Real Estate (b) 30,300
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SECTOR EQUITY - 1.10%
Petroleum & Resource
Corporaion (a) 3,000 81,030
Other Sector Equity (b) 205,130
-----------
286,160
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U.S. MORTGAGE - 0.26%
Total U.S. Mortgage (b) 67,689
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TOTAL CLOSED-END FUNDS 2,439,380
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CONSUMER DISCRETIONARY - 8.75%
DIRECTV Group, Inc.
(The) - Class A * 4,000 159,720
Ford Motor Company * 10,000 167,900
Home Depot, Inc. (The) 5,000 175,300
McDonald's Corporation 2,000 153,520
NIKE, Inc. - Class B 2,500 213,550
Time Warner, Inc. 4,666 150,105
Walt Disney Company (The) 5,000 187,549
Other Consumer
Discretionary (b) 1,059,217
-----------
2,266,861
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CONSUMER STAPLES - 9.55%
Coca-Cola Company (The) 5,000 328,850
PepsiCo, Inc. 4,000 261,320
Philip Morris International, Inc. 5,000 292,650
Procter & Gamble
Company (The) 6,972 448,509
Wal-Mart Stores, Inc. 11,000 593,230
Other Consumer Staples (b) 550,132
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2,474,691
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ENERGY - 10.75%
Apache Corporation 2,000 238,460
Chevron Corporation 3,500 319,375
ConocoPhillips 5,000 340,500
Exxon Mobil Corporation 12,000 877,440
Occidental Petroleum
Corporation 4,000 392,400
Schlumberger Ltd. 3,000 250,500
Other Energy (b) 367,870
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2,786,545
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FINANCIALS - 12.49%
American Express Company 4,000 171,680
Bank of America Corporation 16,521 220,390
Goldman Sachs Group,
Inc. (The) 2,500 420,400
JPMorgan Chase & Company 12,200 517,524
See accompanying notes to financial statements.
2
CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (CONCLUDED)
No. of
Description Shares Value
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FINANCIALS (CONTINUED)
Travelers Companies,
Inc. (The) 3,092 $ 172,255
Wells Fargo & Company 10,000 309,900
Other Financials (b) 1,423,920
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3,236,069
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HEALTHCARE - 9.57%
Abbott Laboratories 3,000 143,730
Amgen, Inc. * 3,000 164,700
Bristol-Myers Squibb
Company 6,000 158,880
Johnson & Johnson 7,500 463,875
McKesson Corporation 2,500 175,950
Medtronic, Inc. 4,500 166,905
Other Health Care (b) 1,204,785
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2,478,825
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INDUSTRIALS - 8.86%
3M Company 2,500 215,750
General Electric Company 24,000 438,960
Lockheed Martin Corporation 2,500 174,775
Union Pacific Corporation 2,500 231,650
United Parcel Service, Inc. -
Class B 2,000 145,160
Other Industrials (b) 1,090,638
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2,296,933
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INFORMATION TECHNOLOGY - 16.43%
Apple, Inc. * 2,000 645,119
Google, Inc. - Class A * 1,000 593,970
Hewlett-Packard Company 8,000 336,800
Intel Corporation 17,000 357,510
International Business
Machines Corporation 4,000 587,040
Microsoft Corporation 24,000 670,080
Oracle Corporation 12,600 394,380
Other Information
Technology (b) 675,288
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4,260,187
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MATERIALS - 3.18%
E.I. Du Pont de Nemours
& Company 4,800 239,424
Freeport-McMoRan Copper
& Gold, Inc. 2,500 300,225
Other Materials (b) 283,205
822,854
REAL ESTATE INVESTMENT TRUST - 0.01%
Total Real Estate
Investment Trust (b) $ 1,592
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TELECOMMUNICATION SERVICES - 2.65%
AT&T, Inc. 17,089 502,075
Centurytel, Inc. 4,000 184,680
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686,755
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UTILITIES - 2.48%
Other Utilities (b) 643,216
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TOTAL EQUITY SECURITIES
(cost - $23,055,479) 24,393,908
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SHORT-TERM INVESTMENTS - 8.02%
MONEY MARKET SECURITY - 8.02%
JPMorgan U.S. Government
Money Market Fund
(cost - $2,077,580) 2,077,580 2,077,580
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TOTAL INVESTMENTS - 102.15%
(cost - $25,133,059) 26,471,488
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LIABILITIES IN EXCESS OF
OTHER ASSETS - (2.15)% (558,268)
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NET ASSETS - 100.00% $25,913,220
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(a) Affiliated investment. The Fund holds 2.46% and 0.31% (based on net
assets) of Adams Express Company and Petroleum & Resources Corporation,
respectively. A director of the Fund also serves as a director to such
companies. During the year ended December 31, 2010 there were purchases
totaling 3,000 shares of Petroleum & Resources Corporation with a cost of
$63,070. There were no purchases or sales of Adams Express Company during
the year.
(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, 2010.
* Non-income producing security.
See accompanying notes to financial statements.
3
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2010
ASSETS
Investments, at value:
Unaffiliated issuers (cost - $24,377,299) $ 25,753,690
Affiliated issuers (cost - $755,760) 717,798
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Total investments (cost - $25,133,059) 26,471,488
Receivables:
Dividends 29,555
Prepaid expenses 1,013
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Total Assets 26,502,056
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LIABILITIES
Payables:
Securities purchased 472,926
Investment management fees 23,577
Directors' fees 13,500
Administration fees 2,500
Other accrued expenses 76,333
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Total Liabilities 588,836
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NET ASSETS (applicable to 3,896,958 shares of common stock outstanding) $ 25,913,220
============
NET ASSET VALUE PER SHARE ($25,913,220 / 3,896,958) $ 6.65
============
NET ASSETS CONSISTS OF
Common stock, $0.01 par value; 3,896,958 shares issued and outstanding
(15,000,000 shares authorized) $ 3,897
Paid-in capital 28,569,711
Accumulated net realized loss on investments (3,998,817)
Net unrealized appreciation in value of investments 1,338,429
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Net assets applicable to shares outstanding $ 25,913,220
============
See accompanying notes to financial statements.
4
CORNERSTONE TOTAL RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2010
INVESTMENT INCOME
Income:
Dividends from non-affiliated investments $ 425,679
Dividends from affiliated investments 9,774
Securities lending 290
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Total Investment Income 435,743
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Expenses:
Investment management fees 190,388
Directors' fees 56,865
Legal and audit fees 55,764
Accounting fees 37,432
Printing 37,000
Administration fees 29,818
Transfer agent fees 24,262
Custodian fees 6,872
Insurance 5,665
Stock exchange listing fees 3,974
Miscellaneous 2,700
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Total Expenses 450,740
Less: Fees paid indirectly (6,872)
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Net Expenses 443,868
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Net Investment Loss (8,125)
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NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized loss from unaffilated investments (114,358)
Capital gain distributions from regulated investment companies 15,989
Capital gain distributions from affiliated regulated investment companies 23,430
Net change in unrealized depreciation in value of investments 2,089,762
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Net realized and unrealized gain on investments 2,014,823
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,006,698
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See accompanying notes to financial statements.
5
CORNERSTONE TOTAL RETURN FUND, INC
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,
--------------------------------
2010 2009
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INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment loss $ (8,125) $ (46,373)
Net realized loss from investments (74,939) (12,396)
Net change in unrealized depreciation in value of investments 2,089,762 3,681,512
------------ ------------
Net increase in net assets resulting from operations 2,006,698 3,622,743
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Dividends and distributions to shareholders:
Net investment income -- --
Return-of-capital (4,164,904) (5,317,678)
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Total dividends and distributions to shareholders (4,164,904) (5,317,678)
------------ ------------
Common stock transactions:
Proceeds from rights offerings of 1,006,384 and 0 shares of newly
issued common stock, respectively 7,275,425 --
Offering expenses associated with the rights offering (79,196) --
Proceeds from 52,016 and 64,854 shares newly issued in
reinvestment of dividends and distributions, respectively 475,258 590,254
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Net increase in net assets from captial stock transactions 7,671,487 590,254
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Total increase/(decrease) in net assets 5,513,281 (1,104,681)
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NET ASSETS
Beginning of year 20,399,939 21,504,620
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End of year $ 25,913,220 $ 20,399,939
============ ============
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,*
----------------------------------------------------------------------
2010 2009 2008 2007 2006
---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year $ 7.19 $ 7.75 $ 17.00 $ 20.28 $ 21.82
---------- ---------- ---------- ---------- ----------
Net investment income/(loss) # (0.00) (0.02) 0.12 0.14 0.18
Net realized and unrealized gain/(loss) on investments 0.68 1.31 (5.64) 0.64 2.50
---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in net assets resulting
from operations 0.68 1.29 (5.52) 0.78 2.68
---------- ---------- ---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income -- -- (0.12) (0.14) (0.18)
Net realized capital gains -- -- -- (0.06) --
Return-of-capital (1.46) (1.90) (3.77) (4.08) (4.04)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to shareholders (1.46) (1.90) (3.89) (4.28) (4.22)
---------- ---------- ---------- ---------- ----------
Common stock transactions:
Anti-dilutive effect due to shares issued:
Rights offering 0.19 -- -- -- --
Reinvestment of dividends and distributions 0.05 0.05 0.16 0.22 --
---------- ---------- ---------- ---------- ----------
Total anti-dilutive effect due to shares issued 0.24 0.05 0.16 0.22 0.00
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 6.65 $ 7.19 $ 7.75 $ 17.00 $ 20.28
========== ========== ========== ========== ==========
Market value, end of year $ 7.88 $ 10.29 $ 7.60 $ 19.60 $ 39.24
========== ========== ========== ========== ==========
Total investment return (a) (10.28)% 66.98% (49.30)% (40.97)% 64.15%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 25,913 $ 20,400 $ 21,505 $ 45,411 $ 52,379
Ratio of expenses to average net assets,
net of fee waivers, if any (b)(c) 2.33% 2.76% 1.67% 1.49% 1.44%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c)(d) 2.37% 3.20% 1.94% 1.53% 1.50%
Ratio of expenses to average net assets,
net of fee waivers, if any (c)(d) 2.37% 2.88% 1.77% 1.52% 1.50%
Ratio of net investment income/(loss) to
average net assets (0.04)% (0.24)% 0.98% 0.74% 0.82%
Portfolio turnover rate 34.39% 13.24% 15.61% 11.00% 11.29%
----------
* 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 do not include expenses of investments companies in which the
Fund invests.
(d) 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. 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 December 31, 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 year ended December 31, 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 the securities as
collateral, subject to the agreement at not less than the repurchase price
8
CORNERSTONE TOTAL RETURN FUND, INC. NOTES TO
FINANCIAL STATEMENTS (CONTINUED)
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.
SUBSEQUENT EVENTS: On February 11, 2011, the board approved the elimination of
the Fund's non-fundamental investment restriction regarding investments in the
securities of other investment companies. Accordingly, effective immediately,
the Fund may invest without limitation in ETFs and other closed-end investment
companies, provided that the Fund limits its investment in securities issued by
other investment companies so that not more than 3% of the outstanding voting
stock of any one investment company will be owned by the Fund.
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, 2010, 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 2007 through 2009; or expected to be taken in
the Fund's 2010 tax return. 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
9
CORNERSTONE TOTAL RETURN FUND, INC. NOTES TO
FINANCIAL STATEMENTS (CONTINUED)
will be generated from sales of portfolio securities held by the Fund, which
will either be short-term or long-term capital gains or a tax-free
return-of-capital. To the extent these distributions are not represented by net
investment income and capital gains, they will not represent yield or investment
return on the Fund's investment portfolio. The Fund plans to maintain this
distribution policy even if regulatory requirements would make part of a
return-of-capital, necessary to maintain the distribution, taxable to
shareholders and to disclose that portion of the distribution that is classified
as ordinary income. Although it has no current intention to do so, the Board may
terminate this distribution policy at any time and such termination may have an
adverse effect on the market price for the Fund's common shares. The Fund
determines annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses, including capital
loss carryovers, if any. To the extent that the Fund's taxable income in any
calendar year exceeds the aggregate amount distributed pursuant to this
distribution policy, an additional distribution may be made to avoid the payment
of a 4% U.S. federal excise tax, and to the extent that the aggregate amount
distributed in any calendar year exceeds the Fund's taxable income, the amount
of that excess may constitute a return-of-capital for tax purposes. A
return-of-capital distribution reduces the cost basis of an investor's shares in
the Fund. Dividends and distributions to shareholders are recorded by the Fund
on the ex-dividend date.
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 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,
10
CORNERSTONE TOTAL RETURN FUND, INC. NOTES TO
FINANCIAL STATEMENTS (CONTINUED)
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 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, 2010 in valuing
the Fund's investments carried at value:
Investments in Other Financial
Valuation Inputs Securities Instruments*
--------------------------------------------------------------------------------
Level 1 - Quoted Prices
Equity Investments $24,393,908 --
Short-Term Investments 2,077,580 --
Level 2 - Other Significant
Observable Inputs -- --
Level 3 - Significant
Unobservable Inputs -- --
----------- -----------
Total $26,471,488 --
=========== ===========
----------
* Other financial instruments include futures, and swap contracts.
The breakdown of the Fund's investments into major categories is disclosed in
its Summary Schedule of Investments.
During the year ended December 31, 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 December
31, 2010.
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 will not 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.
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.
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 year ended December
31, 2010, Cornerstone earned $190,388 for investment management services.
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
11
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Fund pays Ultimus a monthly fee at an annual rate of 0.100% of its average daily
net assets up to $250 million and 0.075% of such assets in excess of $250
million, subject to an annual minimum fee of $50,000. Ultimus has agreed to
discount the annual minimum fee to $30,000 and such discount will remain in
place until amended fee is agreed upon.
FUND ACCOUNTING AGREEMENT
Under the terms of the Fund Accounting Agreement, Ultimus calculates the net
asset value per share and maintains the financial books and records of the Fund.
For the performance of these services, the Fund pays Ultimus a base fee of
$2,500 per month plus an asset based fee of 0.010% of the first $500 million of
average daily net assets and 0.005% of such assets in excess of $500 million.
NOTE E. AFFILIATED INVESTMENTS
Transactions in affiliates for the year ended December 31, 2010 were as follows:
Adams Petroleum &
Express Resources
Company Corporation
-------- -----------
Market value at beginning of year $599,940 $ --
======== ========
Shares at beginning of year 59,400 --
Shares purchased during the year -- 3,000
Shares sold during the year -- --
-------- --------
Shares at end of year 59,400 3,000
======== ========
Dividend income earned during the year $ 9,504 $ 270
======== ========
Cost of purchases during the year -- $ 63,070
Proceeds from sales during the year -- --
Net realized gain/(loss) during the year -- --
Capital gain distribution $ 20,790 $ 2,640
Market value at end of year $636,768 $ 81,030
NOTE F. INVESTMENT IN SECURITIES
For the year ended December 31, 2010, purchases and sales of securities, other
than short-term investments, were $8,607,725 and $6,560,392 respectively.
NOTE G. SHARES OF COMMON STOCK
The Fund has 15,000,000 shares of common stock authorized and 3,896,958 shares
outstanding at December 31, 2010. Transactions in common stock for the year
ended December 31, 2010 were as follows:
Shares at beginning of year 2,838,558
Shares newly issued from rights offering 1,006,384
Shares newly issued in reinvestment
of dividends and distributions 52,016
---------
Shares at end of year 3,896,958
=========
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, 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 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.
12
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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.
The Fund had no securities on loan to brokers at December 31, 2010. During the
year ended December 31, 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 dividends and distributions paid to stockholders during the
years ended December 31, for the Fund were as follows:
Ordinary Income Return-of-Capital
--------------- -----------------
2010 2009 2010 2009
---- ---- ---- ----
-- -- $4,164,904 $5,317,678
At December 31, 2010 the components of accumulated deficit on a tax basis, for
the Fund were as follows:
Capital loss carryforward $ (3,980,615)
Net unrealized appreciation 1,320,227
------------
Total accumulated deficit $ (2,660,388)
============
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, 2010, the Fund decreased net investment loss by $8,125 and
decreased paid-in capital by $8,125. 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, 2010, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $3,980,615, 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, $260,903 expires in 2017 and $74,939 expires in 2018.
At December 31, 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 appreciation from investments were $25,151,261, $2,779,762,
$(1,459,535), and $1,320,227, respectively.
NOTE K. SUBSEQUENT EVENTS
On February 11, 2011, the Board of Directors approved U.S. Bank, N.A. to replace
JPMorgan Chase Bank, N.A. as Custodian.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Cornerstone Total Return Fund, Inc.
Jericho, 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, 2010, 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, 2010, 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, 2010, 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 28, 2011
14
2010 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 stockholders within
60 days of the Fund's year end (December 31, 2010) as to the federal tax status
of the distributions received by the Fund's stockholders in respect of such
fiscal year. The $4,164,904 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
2010 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: 1/29/10 2/26/10 3/31/10 4/30/10 5/28/10 6/30/10
Return-of-Capital(1) $0.1213 $0.1213 $0.1213 $0.1213 $0.1213 $0.1213
Payment Dates: 7/30/10 8/31/10 9/30/10 10/29/10 11/30/10 12/31/10
Return-of-Capital(1) $0.1213 $0.1213 $0.1213 $0.1213 $0.1213 $0.1213
----------
(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 amount should
not be reported as taxable income on your current 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.
15
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 Value
President Fund, Inc.; President and Trustee of
Cornerstone Progressive Return Fund.
Thomas H. Director; Audit, Independent Financial Advisor; Director 2002 3
Lenagh Nominating of Photonics Products Group; Director
(Nov. 1924) and Corporate of Cornerstone Strategic Value Fund,
Governance Inc.; Trustee of Cornerstone Progressive
Committee Return Fund; Director of Adams Express
Member Company, Petroleum & Resources
Corporation and PPGI Industries.
Edwin Meese III Director; Audit, Distinguished Fellow, The Heritage 2001 3
(Dec. 1931) Nominating Foundation Washington D.C.;
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.
16
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; Director of Cornerstone
(Nov. 1953) Nominating Strategic Value Fund, Inc.; Trustee of
and Corporate Cornerstone Progressive Return Fund.
Governance
Committee and
Audit Committee
Member
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
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 2004, 2008,
(June 1956) Officer, Secretary, of Cornerstone Advisors, Inc.; Financial 2009
and Assistant Consultant, C.P.A., Chief Compliance Officer,
Treasurer Secretary, and Assistant Treasurer of
Cornerstone Strategic Value Fund, Inc. and
Cornerstone Progressive Return Fund.
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 350 Jericho Turnpike, Suite 206, Jericho, NY 11753.
** 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 Adviser of the Fund.
18
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 include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right
19
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.
20
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.
21
PRIVACY POLICY (UNAUDITED)
--------------------------------------------------------------------------------
FACTS WHAT DOES CORNERSTONE TOTAL RETURN FUND, INC. (THE "FUND") DO WITH
YOUR PERSONAL INFORMATION?
--------------------------------------------------------------------------------
Why? Financial companies choose how they share your personal information.
Federal law gives consumers the right to limit some but not all
sharing. Federal law also requires us to tell you how we collect,
share, and protect your personal information. Please read this
notice carefully to understand what we do.
--------------------------------------------------------------------------------
What? The types of personal information we, and our service providers, on
our behalf, collect and share depend on the product or service you
have with us. This information can include:
o Social Security number
o account balances
o account transactions
o transaction history
o wire transfer instructions
o checking account information
When you are no longer our customer, we continue to share your
information as described in this notice.
--------------------------------------------------------------------------------
How? All financial companies need to share customers' personal
information to run their everyday business. In the section below, we
list the reasons financial companies can share their customers'
personal information; the reasons the Fund, and our service
providers, on our behalf, choose to share; and whether you can limit
this sharing.
--------------------------------------------------------------------------------
22
PRIVACY POLICY (UNAUDITED) (CONTINUED)
DOES THE
REASONS WE CAN SHARE YOUR CORNERSTONE CAN YOU LIMIT
PERSONAL INFORMATION FUND SHARE? THIS SHARING?
--------------------------------------------------------------------------------
FOR OUR EVERYDAY BUSINESS PURPOSES Yes No
- such as to process your transactions,
maintain your account(s), respond to
court orders and legal investigations, or
report to credit bureaus
--------------------------------------------------------------------------------
FOR OUR MARKETING PURPOSES - to No We don't share
offer our products and services to you
--------------------------------------------------------------------------------
FOR JOINT MARKETING WITH OTHER No We don't share
FINANCIAL COMPANIES
--------------------------------------------------------------------------------
FOR OUR AFFILIATES' EVERYDAY BUSINESS Yes No
PURPOSES - information about your
transactions and experiences
--------------------------------------------------------------------------------
FOR OUR AFFILIATES' EVERYDAY BUSINESS No We don't share
PURPOSES - information about your
creditworthiness
--------------------------------------------------------------------------------
FOR OUR AFFILIATES TO MARKET TO YOU No We don't share
--------------------------------------------------------------------------------
FOR NONAFFILIATES TO MARKET TO YOU No We don't share
--------------------------------------------------------------------------------
Questions? Call (513) 326-3597.
--------------------------------------------------------------------------------
What we do
--------------------------------------------------------------------------------
WHO IS PROVIDING THIS NOTICE? Cornerstone Total Return Fund, Inc.
(the "Fund")
--------------------------------------------------------------------------------
HOW DOES THE FUND AND THE To protect your personal information from
FUND'S SERVICE PROVIDERS, ON unauthorized access and use, we and our
THE FUND'S BEHALF PROTECT MY service providers use security measures that
PERSONAL INFORMATION? comply with federal law. These measures
include computer safeguards and secured
files and buildings.
--------------------------------------------------------------------------------
HOW DOES THE FUND AND THE We collect your personal information,
FUND'S SERVICE PROVIDERS, ON for example, when you:
THE FUND'S BEHALF COLLECT MY
PERSONAL INFORMATION? o open an account
o provide account information
o give us your contact information
o make a wire transfer
We also your information from others, such
as collect credit bureaus, affiliates, or
other companies.
--------------------------------------------------------------------------------
23
PRIVACY POLICY (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
WHY CAN'T I LIMIT ALL SHARING? Federal law gives you the right to limit
only
o sharing for affiliates' everyday
business purposes - information about
your creditworthiness
o affiliates from using your information
to market to
o sharing for nonaffiliates to market to
you
State laws and individual companies may give
you additional rights to limit sharing.
--------------------------------------------------------------------------------
DEFINITIONS
--------------------------------------------------------------------------------
AFFILIATES Companies related by common ownership or
control. They can be financial and
nonfinancial companies.
o CORNERSTONE ADVISORS, INC.
--------------------------------------------------------------------------------
NONAFFILIATES Companies not related by common ownership or
control. They can be financial and
nonfinancial companies.
O THE FUND DOES NOT SHARE WITH
NONAFFILIATES, SO THEY CAN MARKET TO YOU.
--------------------------------------------------------------------------------
JOINT MARKETING A formal agreement between nonaffiliated
financial companies that together market
financial products or services to you.
O THE FUND DOES NOT JOINTLY MARKET.
--------------------------------------------------------------------------------
24
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. The Fund
is managed by Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the NYSE Amex LLC (symbol "CRF"). The previous week's net
asset value per share, market price, and related premium or discount are
available on The Wall Street Journal website at
http://online.wsj.com/mdc/public/page/2_3040-CEF34.html under the designation
"Cornerstone Total Return (CRF)" and on the Barron's website at
http://online.barrons.com/mdc/public/page/2_3040-CEF34.html under the same
designation. Such information 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.
CORNERSTONE TOTAL RETURN FUND, INC.
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Gary A. Bentz Chief Compliance Officer,
Secretary, and
Assistant Treasurer
Frank J. Maresca Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR, LLC
Cornerstone Advisors, Inc. American Stock Transfer &
1075 Hendersonville Road Trust Co., LLC
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
350 Jericho Turnpike 1818 Market Street
Suite 206 Suite 2400
Jericho, NY 11753 Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
U.S. Bank, N.A. Blank Rome LLP
425 Walnut Street 405 Lexington Avenue
Cincinnati, OH 45202 New York, NY 10174
EXECUTIVE OFFICES
350 Jericho Turnpike
Suite 206
Jericho, NY 11753
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (513) 326-3597.
ITEM 2. CODE OF ETHICS.
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 financial officer, principal accounting officer or controller, or
persons performing similar functions, regardless of whether these individuals
are employed by the registrant or a third party. Pursuant to Item 12(a)(1), a
copy of registrant's code of ethics is filed as an exhibit to this Form N-CSR.
During the period covered by this report, the code of ethics has not been
amended, and the registrant has not granted any waivers, including implicit
waivers, from the provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of directors has determined that the registrant does not
have an audit committee financial expert serving on its audit committee. The
audit committee determined that, although none of its members meet the technical
definition of an audit committee financial expert, the experience provided by
each member of the audit committee together offer the registrant adequate
oversight for the registrant's current level of financial complexity.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees. The aggregate fees billed for professional services
rendered by the principal accountant for the audit of the
registrant's annual financial statements or for services that are
normally provided by the accountant in connection with statutory and
regulatory filings or engagements were $14,500 and $14,100 with
respect to the registrant's fiscal years ended December 31, 2010 and
2009, respectively.
(b) Audit-Related Fees. No fees were billed in either of the last two
fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported
under paragraph (a) of this Item.
(c) Tax Fees. The aggregate fees billed for professional services
rendered by the principal accountant for tax compliance, tax advice,
and tax planning were $3,300 and $3,000 with respect to the
registrant's fiscal years ended December 31, 2010 and 2009,
respectively. The services comprising these fees are the preparation
of the registrant's federal and state income and federal excise tax
returns.
(d) All Other Fees. No fees were billed in either of the last two fiscal
years for products and services provided by the principal
accountant, other than the services reported in paragraphs (a)
through (c) of this Item.
(e)(1) Before the principal accountant is engaged by the registrant to
render (i) audit, audit-related or permissible non-audit services to
the registrant or (ii) non-audit services to the registrant's
investment adviser and any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services
to 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 minimus thresholds are
not exceeded, as such thresholds are determined by the audit
committee in accordance with applicable Commission regulations.
(e)(2) None of the services described in paragraph (b) through (d) of this
Item were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50% of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the
most recent fiscal year were attributed to work performed by persons
other than the principal accountant's full-time, permanent
employees.
(g) During the fiscal years ended December 31, 2010 and 2009, aggregate
non-audit fees of $3,300 and $3,000, respectively, were billed by
the registrant's principal accountant for services rendered to the
registrant. No non-audit fees were billed in either of the last two
fiscal years by the registrant's principal accountant for services
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and
any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant.
(h) The principal accountant has not provided any non-audit services to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant.
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. Glenn W. Wilcox, Sr., (Chairman), Edwin
Meese, III, Thomas H. Lenagh, Andrew A. Strauss and Scott B. Rogers
are the members of the registrant's audit committee.
(b) Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS.
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010
DESCRIPTION NO. OF SHARES VALUE
--------------------------------------------------------------------------------
EQUITY SECURITIES - 94.13%
CLOSED-END FUNDS - 9.41%
CORE - 3.71%
Adams Express Company (The) (a) 59,400 $ 636,768
Royce Micro-Cap Trust, Inc. 8,200 80,360
Royce Value Trust, Inc. 8,000 116,320
SunAmerica Focused Alpha Large-Cap Fund,
Inc 8,000 125,920
-----------
959,368
-----------
CORPORATE DEBT FUNDS INVESTMENT
GRADE-RATED - 0.39%
AllianceBernstein Income Fund 6,000 47,580
MFS Government Markets Income Trust 8,000 54,400
-----------
101,980
-----------
DEVELOPED MARKET - 0.12%
Ibero-America Fund, Inc. 2,123 13,884
New Ireland Fund, Inc. (The) 2,620 17,974
-----------
31,858
-----------
GLOBAL INCOME - 0.83%
Nuveen Multi-Currency Short-Term
Government Income Fund 15,656 215,583
-----------
HIGH CURRENT YIELD (LEVERAGED) - 0.25%
First Trust Strategic High Income Fund 8,000 26,720
First Trust Strategic High Income Fund III 9,000 39,150
-----------
65,870
-----------
INCOME & PREFERRED STOCK - 0.34%
Preferred Income Strategies Fund 8,951 87,988
-----------
OPTION ARBITRAGE/OPTIONS STRATEGIES -- 2.29%
Eaton Vance Risk-Managed Diversified Equity
Income Fund 28,800 382,464
NFJ Dividend, Interest & Premium Strategy
Fund 12,000 210,120
-----------
592,584
-----------
REAL ESTATE - 0.12%
LMP Real Estate Income Fund, Inc. 3,000 30,300
-----------
SECTOR EQUITY - 1.10%
Evergreen Utilities and High Income Fund 5,010 58,116
Gabelli Healthcare & Wellness Rx Trust (The) 7,074 50,084
H&Q Life Sciences Investors 9,000 96,930
See accompanying notes to schedule of investments.
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (Continued)
CLOSED-END FUNDS (CONTINUED)
Petroleum & Resources Corporation (a) 3,000 $ 81,030
-----------
286,160
-----------
U.S. MORTGAGE - 0.26%
BlackRock Income Trust, Inc. 9,896 67,689
-----------
TOTAL CLOSED-END FUNDS 2,439,380
-----------
CONSUMER DISCRETIONARY - 8.75%
Bed Bath & Beyond, Inc. * 2,500 122,875
Carnival Corporation 2,500 115,275
Comcast Corporation - Class A 2,012 44,204
Comcast Corporation - Special Class A 4,250 88,443
DIRECTV Group, Inc. (The) - Class A * 4,000 159,720
Ford Motor Company * 10,000 167,900
Gap, Inc. (The) 2,500 55,350
Home Depot, Inc. (The) 5,000 175,300
Kohl's Corporation * 2,000 108,680
McDonald's Corporation 2,000 153,520
News Corporation - Class B 2,500 41,050
NIKE, Inc. - Class B 2,500 213,550
Starbucks Corporation 2,500 80,325
Target Corporation 1,500 90,195
Time Warner, Inc. 4,666 150,105
TJX Companies, Inc. (The) 2,500 110,975
Viacom, Inc. - Class B 2,000 79,220
Walt Disney Company (The) 5,000 187,549
Yum! Brands, Inc. 2,500 122,625
-----------
2,266,861
-----------
CONSUMER STAPLES - 9.55%
Altria Group, Inc. 5,000 123,100
Coca-Cola Company (The) 5,000 328,850
Coca-Cola Enterprises 2,500 62,575
Colgate-Palmolive Company 1,000 80,370
General Mills, Inc. 3,000 106,770
H.J. Heinz Company 2,700 133,542
PepsiCo, Inc. 4,000 261,320
Philip Morris International, Inc. 5,000 292,650
Procter & Gamble Company (The) 6,972 448,509
Sara Lee Corporation 2,500 43,775
Wal-Mart Stores, Inc. 11,000 593,230
-----------
2,474,691
-----------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (Continued)
ENERGY - 10.75%
Apache Corporation 2,000 $ 238,460
Chevron Corporation 3,500 319,375
ConocoPhillips 5,000 340,500
El Paso Corporation 5,000 68,800
EOG Resources, Inc. 1,000 91,410
Exxon Mobil Corporation 12,000 877,440
Halliburton Company 2,500 102,075
Occidental Petroleum Corporation 4,000 392,400
Schlumberger Ltd. 3,000 250,500
Southwestern Energy Company * 1,500 56,145
Williams Companies, Inc. 2,000 49,440
-----------
2,786,545
-----------
FINANCIALS - 12.49%
AFLAC, Inc. 1,500 84,645
American Express Company 4,000 171,680
Bank of America Corporation 16,521 220,390
Bank of New York Mellon Corporation (The) 3,000 90,600
BB&T Corporation 2,000 52,580
Capital One Financial Corporation 2,500 106,400
Chubb Corporation (The) 1,000 59,640
Citigroup, Inc. * 28,000 132,440
Discover Financial Services 1,000 18,530
Franklin Resources, Inc. 1,000 111,210
Goldman Sachs Group, Inc. (The) 2,500 420,400
Hudson City Bancorp, Inc. 2,500 31,850
JPMorgan Chase & Company 12,200 517,524
KeyCorp 2,500 22,125
M&T Bank Corporation 1,000 87,050
Marsh & McLennan Companies, Inc. 4,000 109,360
MetLife, Inc. 1,500 66,660
Morgan Stanley 2,000 54,420
PNC Financial Services Group, Inc. 1,000 60,720
Prudential Financial, Inc. 1,500 88,065
State Street Corporation 2,000 92,680
Travelers Companies, Inc. (The) 3,092 172,255
U.S. Bancorp 3,500 94,395
Unum Group 2,500 60,550
Wells Fargo & Company 10,000 309,900
-----------
3,236,069
-----------
HEALTH CARE - 9.57%
Abbott Laboratories 3,000 143,730
Allergan, Inc. 1,000 68,670
Amgen, Inc. * 3,000 164,700
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (Continued)
HEALTH CARE (CONTINUED)
Baxter International, Inc. 2,500 $ 126,550
Bristol-Myers Squibb Company 6,000 158,880
Celgene Corporation * 1,000 59,140
Cigna Corporation 3,000 109,980
Eli Lilly & Company 2,500 87,600
Express Scripts, Inc. * 2,400 129,720
Gilead Sciences, Inc. * 2,000 72,480
Johnson & Johnson 7,500 463,875
McKesson Corporation 2,500 175,950
Medco Health Solutions, Inc. * 1,000 61,270
Medtronic, Inc. 4,500 166,905
Merck & Company, Inc. 2,500 90,100
Pfizer, Inc. 6,462 113,150
Stryker Corporation 1,000 53,700
UnitedHealth Group, Inc. 2,500 90,275
WellPoint, Inc. * 2,500 142,150
-----------
2,478,825
-----------
INDUSTRIALS - 8.86%
3M Company 2,500 215,750
Boeing Company (The) 2,000 130,520
Danaher Corporation 2,000 94,340
Deere & Company 1,500 124,575
Emerson Electric Company 2,500 142,925
FedEx Corporation 1,500 139,515
General Dynamics Corporation 2,000 141,920
General Electric Company 24,000 438,960
Lockheed Martin Corporation 2,500 174,775
Precision Castparts Corporation 1,000 139,210
Republic Services, Inc. 1,125 33,593
Southwest Airlines Company 2,000 25,960
Union Pacific Corporation 2,500 231,650
United Parcel Service, Inc. - Class B 2,000 145,160
United Technologies Corporation 1,500 118,080
-----------
2,296,933
-----------
INFORMATION TECHNOLOGY - 16.43%
AOL, Inc. * 242 5,738
Apple, Inc. * 2,000 645,119
Applied Materials, Inc. 3,000 42,150
Cognizant Technology Solutions Corporation -
Class A * 1,500 109,935
Corning, Inc. 5,000 96,600
eBay, Inc. * 2,500 69,575
EMC Corporation * 5,000 114,500
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (Continued)
INFORMATION TECHNOLOGY (CONTINUED)
Google, Inc. - Class A * 1,000 $ 593,970
Hewlett-Packard Company 8,000 336,800
Intel Corporation 17,000 357,510
International Business Machines Corporation 4,000 587,040
Intuit, Inc. * 2,500 123,250
Micron Technology, Inc. * 2,000 16,040
Microsoft Corporation 24,000 670,080
Oracle Corporation 12,600 394,380
Texas Instruments, Inc. 3,000 97,500
-----------
4,260,187
-----------
MATERIALS - 3.18%
Air Products & Chemicals, Inc. 1,500 136,425
Dow Chemical Company (The) 2,500 85,350
E.I. Du Pont de Nemours & Company 4,800 239,424
Freeport-McMoRan Copper & Gold, Inc. 2,500 300,225
Newmont Mining Corporation 1,000 61,430
-----------
822,854
-----------
REAL ESTATE INVESTMENT TRUST - 0.01%
Simon Property Group, Inc. 16 1,592
-----------
TELECOMMUNICATION SERVICES - 2.65%
AT&T, Inc. 17,089 502,075
Centurytel, Inc. 4,000 184,680
-----------
686,755
-----------
UTILITIES - 2.48%
Consolidated Edison, Inc. 1,000 49,570
Dominion Resources, Inc. 2,000 85,440
Duke Energy Corporation 6,600 117,546
Exelon Corporation 2,000 83,280
NiSource, Inc. 2,500 44,050
Southern Company (The) 3,500 133,805
Xcel Energy, Inc. 5,500 129,525
-----------
643,216
-----------
TOTAL EQUITY SECURITIES (cost - $23,055,479) 24,393,908
-----------
SHORT-TERM INVESTMENTS - 8.02%
MONEY MARKET SECURITY - 8.02%
JPMorgan U.S. Government Money Market Fund
(cost - $2,077,580) 2,077,580 2,077,580
-----------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (Continued)
TOTAL INVESTMENTS - 102.15% (cost - $25,133,059) $26,471,488
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (2.15)% (558,268)
-----------
NET ASSETS - 100.00% $25,913,220
===========
----------
(a) Affiliated investment. The Fund holds 2.46% and 0.31% (based on net assets)
of Adams Express Company and Petroleum & Resources Corporation, respectively. A
director of the Fund also serves as a director to such companies. During the
year ended December 31, 2010 there were additional purchases of 3,000 shares of
Petroleum & Resources Corporation with a cost of $63,070. There were no
purchases or sales of Adams Express Company during the year.
* Non-income producing security.
See accompanying notes to schedule of investments.
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 the
Cornerstone Total Return Fund, Inc. (the "Fund"), including the summary schedule
of investments as of December 31, 2010, 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, 2010, 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, 2010, 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 audits were 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, 2010 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 28, 2011
(b) Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant and Cornerstone Advisors, Inc., the registrant's investment
adviser, share the same proxy voting policies and procedures. The proxy voting
policies and procedures of the registrant and Cornerstone Advisors, Inc. are
attached as Exhibit 99.VOTEREG.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) All information included in this Item is as of the date of the filing of
this Form N-CSR, unless otherwise noted. Ralph W. Bradshaw is the
portfolio manager of the registrant. Mr. Bradshaw has acted as portfolio
manager since 2002. Mr. Bradshaw is President and Chief Financial Officer
of Cornerstone Advisors, Inc. and serves as President and Chairman of the
Board of the registrant, Cornerstone Progressive Return Fund and
Cornerstone Strategic Value Fund, Inc.
(a)(2) Ralph W. Bradshaw manages two other closed-end registered investment
companies: Cornerstone Progressive Return Fund and Cornerstone Strategic
Value Fund, Inc. As of December 31, 2010, net assets of Cornerstone
Progressive Return Fund were $55,276,998 and net assets of Cornerstone
Strategic Value Fund, Inc. were $64,265,689. Mr. Bradshaw manages no
accounts except for the registrant, Cornerstone Progressive Return Fund
and Cornerstone Strategic Value Fund, Inc. Mr. Bradshaw manages no
accounts where the advisory fee is based on the performance of the
account. No material conflicts of interest exist in connection with the
portfolio manager's management of the registrant's investments, on the one
hand, and the investment of the other accounts included in response to
this Item, on the other.
(a)(3) Compensation of Ralph W. Bradshaw includes a fixed salary paid by
Cornerstone Advisors, Inc. plus his share of the profits of Cornerstone
Advisors, Inc. The profitability of Cornerstone Advisors, Inc. is
primarily dependent upon the value of the assets of the registrant and
other managed accounts. However, compensation is not directly based upon
the registrant's performance or on the value of the registrant's assets.
(a)(4) The dollar range of equity securities in the registrant beneficially
owned by each portfolio manager as of December 31, 2010 is as follows:
Ralph W. Bradshaw: $10,001 - $50,000 (b) Not applicable
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: Attached hereto
(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.CODE ETH Code of Ethics
Exhibit 99.VOTEREG Proxy Voting Policies and Procedures
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Cornerstone Total Return Fund, Inc.
By (Signature and Title)* /s/ Ralph W. Bradshaw
------------------------------------------------------
Ralph W. Bradshaw, Chairman and President
(Principal Executive Officer)
Date March 8, 2011
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 8, 2011
By (Signature and Title)* /s/ Frank J. Maresca
------------------------------------------------------
Frank J. Maresca, Treasurer
(Principal Financial Officer)
Date March 8, 2011
* Print the name and title of each signing officer under his or her signature.