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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.
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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) 587-3400
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Date of fiscal year end: December 31, 2011
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Date of reporting period: June 30, 2011
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS
====================
Cornerstone Total
Return Fund, Inc.
Semi-Annual Report
June 30, 2011
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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 13
Investment Management Agreement Approval Disclosure 14
Description of Dividend Reinvestment Plan 15
Proxy Voting and Portfolio Holdings Information 17
Privacy Policy Notice 18
Summary of General Information 21
Stockholder Information 21
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CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2011 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Information Technology 16.2
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Financials 13.2
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Energy 11.4
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Healthcare 11.1
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Consumer Staples 10.8
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Industrials 10.2
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Closed-End Funds 9.2
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Consumer Discretionary 8.8
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Materials 3.4
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Telecommunication Services 2.8
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Utilities 2.7
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Other 0.2
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. Exxon Mobil Corporation Energy 4.0
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2. Wal-Mart Stores, Inc. Consumer Staples 3.0
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3. International Business Machines Corporation Information Technology 2.8
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4. Apple, Inc. Information Technology 2.7
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5. Microsoft Corporation Information Technology 2.5
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6. JPMorgan Chase & Co. Financials 2.5
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7. Eaton Vance Risk-Managed Diversified
Equity Income Fund Closed-End Funds 2.2
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8. AT&T, Inc. Telecommunications Service 2.2
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9. Wells Fargo & Company Financials 2.2
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10. Eaton Vance Tax-Managed Buy-Write
Opportunities Fund Closed-End Funds 2.1
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1
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2011 (UNAUDITED)
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No. of
Description Shares Value
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EQUITY SECURITIES - 99.82%
CLOSED-END FUNDS - 9.19%
CORPORATE DEBT FUNDS INVESTMENT
GRADE-RATED - 0.63%
Total Corporate Debt Funds
Investment Grade-Rated (a) $ 156,140
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GLOBAL INCOME - 0.53%
Total Global Income (a) 131,526
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HIGH CURRENT YIELD (LEVERAGED) - 0.26%
Total High Current Yield
(Leveraged) (a) 65,088
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OPTION ARBITRAGE/OPTIONS
STRATEGIES - 7.46%
Eaton Vance Risk-Managed
Diversified Equity
Income Fund 43,700 551,494
Eaton Vance Tax-Managed
Buy-Write Income Fund 13,000 179,010
Eaton Vance Tax-Managed
Buy-Write Opportunities
Fund 40,300 513,019
Eaton Vance Tax-Managed
Diversified Equity
Income Fund 41,085 448,648
Other Option Arbitrage/
Options Strategies (a) 148,488
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1,840,659
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SECTOR EQUITY - 0.31%
Total Sector Equity (a) 75,143
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TOTAL CLOSED-END FUNDS 2,268,556
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No. of
Description Shares Value
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CONSUMER DISCRETIONARY - 8.83%
DIRECTV Group, Inc.
(The) - Class A * 4,000 $ 203,280
Home Depot, Inc. (The) 5,000 181,100
McDonald's Corporation 2,000 168,640
Time Warner, Inc. 4,666 169,702
Walt Disney Company (The) 5,000 195,200
Other Consumer Discretionary (a) 1,261,142
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2,179,064
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CONSUMER STAPLES - 10.79%
Coca-Cola Company (The) 5,000 336,450
PepsiCo, Inc. 3,000 211,290
Philip Morris International, Inc. 5,000 333,850
Procter & Gamble Company (The) 6,972 443,210
Wal-Mart Stores, Inc. 14,000 743,960
Other Consumer Staples (a) 592,911
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2,661,671
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ENERGY - 11.44%
Apache Corporation 2,000 246,780
Chevron Corporation 3,500 359,940
ConocoPhillips 5,000 375,950
Exxon Mobil Corporation 12,000 976,560
Occidental Petroleum Corporation 4,000 416,160
Schlumberger Ltd. 3,000 259,200
Other Energy (a) 188,000
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2,822,590
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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, 2011 (UNAUDITED) (CONCLUDED)
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No. of
Description Shares Value
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FINANCIALS - 13.14%
American Express Company 4,000 $ 206,800
Goldman Sachs Group, Inc. (The) 2,500 332,725
JPMorgan Chase & Co. 15,200 622,288
Prudential Financial, Inc. 2,500 158,975
Travelers Companies, Inc. (The) 3,092 180,511
Wells Fargo & Company 19,000 533,140
Other Financials (a) 1,209,747
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3,244,186
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HEALTHCARE - 11.07%
Abbott Laboratories 3,000 157,860
Amgen, Inc. * 3,000 175,050
Bristol-Myers Squibb Company 6,000 173,760
Cigna Corporation 3,000 154,290
Johnson & Johnson 6,000 399,120
McKesson Corporation 2,500 209,125
Medtronic, Inc. 4,500 173,385
WellPoint, Inc. 2,500 196,925
Other Healthcare (a) 1,092,134
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2,731,649
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INDUSTRIALS - 10.23%
3M Company 2,500 237,125
General Electric Company 24,000 452,640
Lockheed Martin Corporation 2,500 202,425
Precision Castparts Corporation 1,000 164,650
Union Pacific Corporation 2,500 261,000
United Technologies Corporation 2,500 221,275
Other Industrials (a) 984,181
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2,523,296
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INFORMATION TECHNOLOGY - 16.19%
Apple, Inc. * 2,000 671,340
Google, Inc. - Class A * 1,000 506,380
Hewlett-Packard Company 8,000 291,200
Intel Corporation 17,000 376,720
International Business
Machines Corporation 4,000 686,201
Microsoft Corporation 24,000 624,000
Oracle Corporation 12,600 414,666
No. of
Description Shares Value
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INFORMATION TECHNOLOGY (CONTINUED)
Total Information Technology (a) $ 424,600
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3,995,107
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MATERIALS - 3.40%
E.I. Du Pont de
Nemours & Company 4,800 259,440
Freeport-McMoRan
Copper & Gold, Inc. 5,000 264,500
Other Materials (a) 315,888
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839,828
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REAL ESTATE INVESTMENT TRUST - 0.01%
Total Real Estate Investment Trust (a) 1,860
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TELECOMMUNICATION SERVICES - 2.83%
AT&T, Inc. 17,089 536,765
CenturyLink, Inc. 4,000 161,720
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698,485
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UTILITIES - 2.70%
Total Utilities (a) 665,733
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TOTAL EQUITY SECURITIES
(cost - $22,354,946) 24,632,025
SHORT-TERM INVESTMENTS - 0.53%
MONEY MARKET SECURITY - 0.53%
Fidelity Institutional Money Market
Government Portfolio -
Class I (cost - $ 131,651) 131,651 131,651
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TOTAL INVESTMENTS - 100.35%
(cost - $22,486,597) 24,763,676
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LIABILITIES IN EXCESS OF
OTHER ASSETS - (0.35)% (86,045)
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NET ASSETS - 100.00% $24,677,631
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(a) 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, 2011.
* 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, 2011 (UNAUDITED)
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ASSETS
Investments, at value (cost - $22,486,597) $ 24,763,676
Receivables:
Investment sold 88,035
Dividends 34,565
Prepaid expenses 3,118
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Total Assets 24,889,394
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LIABILITIES
Payables:
Securities purchased 94,475
Investment management fees 25,024
Directors' fees 14,024
Administration fees 2,273
Other accrued expenses 75,967
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Total Liabilities 211,763
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NET ASSETS (applicable to 3,922,871 shares
of common stock outstanding) $ 24,677,631
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NET ASSET VALUE PER SHARE ($24,677,631 (division) 3,922,871) $ 6.29
============
NET ASSETS CONSISTS OF
Common stock, $0.01 par value; 3,922,871
shares issued and outstanding
(15,000,000 shares authorized) $ 3,923
Paid-in capital 26,263,707
Accumulated net realized loss on investments (3,867,078)
Net unrealized appreciation in value of investments 2,277,079
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Net assets applicable to shares outstanding $ 24,677,631
============
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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, 2011 (UNAUDITED)
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INVESTMENT INCOME
Income:
Dividends from non-affiliated investments $ 325,461
Dividends from affiliated investments 1,782
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Total Investment Income 327,243
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Expenses:
Investment management fees 126,898
Directors' fees 27,273
Legal and audit fees 21,722
Printing 18,348
Accounting fees 17,536
Transfer agent fees 14,870
Administration fees 14,774
Custodian fees 3,260
Insurance 2,174
Miscellaneous 1,488
Stock exchange listing fees 1,470
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Total Expenses 249,813
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Net Investment Income 77,430
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NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain from unaffilated investments 132,246
Net realized loss from affiliated investments (1,695)
Net realized loss from foreign currency related transactions (431)
Capital gain distributions from affiliated regulated
investment companies 1,188
Net change in unrealized appreciation in value of investments 938,650
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Net realized and unrealized gain on investments 1,069,958
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,147,388
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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, 2011 December 31,
(Unaudited) 2010
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INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income/(loss) $ 77,430 $ (8,125)
Net realized gain/(loss) from investments 131,308 (74,939)
Net change in unrealized appreciation in
value of investments 938,650 2,089,762
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Net increase in net assets resulting from operations 1,147,388 2,006,698
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Dividends and distributions to stockholders:
Net investment income (76,999) --
Return-of-capital (2,530,433) (4,164,904)
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Total dividends and distributions to stockholders (2,607,432) (4,164,904)
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Common stock transactions:
Proceeds from rights offering of 0 and
1,006,384 shares of newly issued common
stock, respectively -- 7,275,425
Offering expenses associated with
rights offering (6,833) (79,196)
Proceeds from 25,913 and 52,016 shares newly
issued in reinvestment of dividends and
distributions, respectively 231,288 475,258
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Net increase in net assets from captial
stock transactions 224,455 7,671,487
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Total increase/(decrease) in net assets (1,235,589) 5,513,281
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NET ASSETS
Beginning of period 25,913,220 20,399,939
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End of period $24,677,631 $25,913,220
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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 For the Years Ended December 31,*
June 30, 2011 --------------------------------------------------
(Unaudited) 2010 2009 2008 2007 2006
-------------- ---- ---- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 6.65 $ 7.19 $ 7.75 $ 17.00 $ 20.28 $ 21.82
------- ------- ------- ------- ------- -------
Net investment income/(loss)# 0.02 (0.00) (0.02) 0.12 0.14 0.18
Net realized and unrealized gain/(loss)
on investments 0.27 0.68 1.31 (5.64) 0.64 2.50
------- ------- ------- ------- ------- -------
Net increase/(decrease) in net assets resulting
from operations 0.29 0.68 1.29 (5.52) 0.78 2.68
------- ------- ------- ------- ------- -------
Dividends and distributions to stockholders:
Net investment income (0.02) -- -- (0.12) (0.14) (0.18)
Net realized capital gains -- -- -- -- (0.06) --
Return-of-capital (0.65) (1.46) (1.90) (3.77) (4.08) (4.04)
------- ------- ------- ------- ------- -------
Total dividends and distributions
to stockholders (0.67) (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 0.02 0.05 0.05 0.16 0.22 --
------- ------- ------- ------- ------- -------
Total common stock transactions 0.02 0.24 0.05 0.16 0.22 0.00
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 6.29 $ 6.65 $ 7.19 $ 7.75 $ 17.00 $ 20.28
======= ======= ======= ======= ======= =======
Market value, end of period $ 9.32 $ 7.88 $ 10.29 $ 7.60 $ 19.60 $ 39.24
======= ======= ======= ======= ======= =======
Total investment return(a) 27.44%(b) (10.28)% 66.98% (49.30)% (40.97)% 64.15%
======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $24,678 $25,913 $20,400 $21,505 $45,411 $52,379
Ratio of expenses to average net assets,
net of fee waivers, if any (c)(d) 1.97%(e) 2.33% 2.76% 1.67% 1.49% 1.44%
Ratio of expenses to average net assets,
excluding fee waivers, if any (d)(f) 1.97%(e) 2.37% 3.20% 1.94% 1.53% 1.50%
Ratio of expenses to average net assets,
net of fee waivers, if any (d)(f) 1.97%(e) 2.37% 2.88% 1.77% 1.52% 1.50%
Ratio of net investment income/(loss) to
average net assets 0.58%(e) (0.04)% (0.24)% 0.98% 0.74% 0.82%
Portfolio turnover rate 12.48%(b) 34.39% 13.24% 15.61% 11.00% 11.29%
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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 nvests.
(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. 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, 2011 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, 3011, the Fund did not
engage in derivative instruments and other hedging activities.
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.
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8
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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 stockholders 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, 2011, 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 2007 through 2010, and for the period ended June
30, 2011. There was no material impact to the financial statements.
DISTRIBUTIONS TO STOCKHOLDERS: Effective January 2002, the Fund initiated a
fixed, monthly distribution to stockholders. 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 stockholders 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 stockholders are
recorded by the Fund on the ex-dividend date.
MANAGED DISTRIBUTION RISK: Under the managed distribution policy, the Fund makes
monthly distributions to stockholders 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
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9
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
distributions paid to Fund stockholders. If this were to be the case, the Fund's
assets would be depleted, and there is no guarantee that the Fund would be able
to replace the assets. In addition, in order to make such distributions, the
Fund may have to sell a portion of its investment portfolio at a time when
independent investment judgment might not dictate such action. Furthermore, such
assets used to make distributions will not be available for investment pursuant
to the Fund's investment objective.
NOTE C. FAIR VALUE
As required by the Fair Value Measurement and Disclosures Topic of the FASB
Accounting Standards Codification, the Fund has performed an analysis of all
assets and liabilities measured at fair value to determine the significance and
character of all inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value into the following three broad categories.
o Level 1 - quoted unadjusted prices for identical instruments in active
markets to which the Fund has access at the date of measurement.
o Level 2 - quoted prices for similar instruments in active markets; quoted
prices for identical or similar instruments in markets that are not
active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets. Level 2 inputs
are those in markets for which there are few transactions, the prices are
not current, little public information exists or instances where prices
vary substantially over time or among brokered market makers.
o Level 3 - model derived valuations in which one or more significant inputs
or significant value drivers are unobservable. Unobservable inputs are
those inputs that reflect the Fund's own assumptions that market
participants would use to price the asset or liability based on the best
available information.
The following is a summary of the inputs used as of June 30, 2011 in valuing the
Fund's investments carried at value:
Investments in Other Financial
Valuation Inputs Securities Instruments*
--------------------------------------------------------------------------------
Level 1 - Quoted Prices
Equity Investments $ 24,632,025 --
Short-Term Investments 131,651 --
Level 2 - Other Significant
Observable Inputs -- --
Level 3 - Significant
Unobservable Inputs -- --
------------ ------------
Total $ 24,763,676 --
============ ============
-----------
* Other financial instruments include futures, forwards and swap contracts.
The breakdown of the Fund's investments into major categories is disclosed in
its Summary Schedule of Investments.
During the six months ended June 30, 2011 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,
2011.
The disclosures for the Fund's fiscal year beginning January 1, 2011 relate to
presenting separately any Level 3 purchases, sales, issuances and settlements on
a gross basis instead of one net amount. Management continues to evaluate the
impact of ASU No. 2010-6 for the required disclosures.
In May 2011, FASB issued ASU No. 2011-04 "Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs". ASU No.
2011-04 establishes common requirements for measuring fair value and for
disclosing information about fair value measurements in accordance with U.S.
generally accepted accounting principles ("GAAP") and International Financial
Reporting Standards ("IFRSs"). ASU No. 2011-04 is effective for interim and
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
annual periods beginning after December 15, 2011 and is applied prospectively.
Management is currently evaluating the impact ASU No. 2011-04 may have on
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, 2011, Cornerstone earned $126,898 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 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 six months ended June 30, 2011 were as
follows:
ADAMS PETROLEUM &
EXPRESS RESOURCES
COMPANY CORPORATION
----------- ------------
Market value at
beginning of period $ 636,768 $ 81,036
========= ========
Shares at beginning
of period 59,400 3,000
Shares purchased
during the period -- --
Shares sold during
the period 59,400 3,000
--------- --------
Shares at end of period -- --
========= ========
Dividend income earned
during the period $ 1,782 $ --
========= ========
Cost of purchases
during the period -- --
Proceeds from sales
during the period $ 669,479 $ 84,586
Net realized gain/(loss)
during the period $ (23,211) $ 21,516
Capital gain distribution $ 1,188 --
Market value at
end of period -- --
NOTE F. INVESTMENT IN SECURITIES
For the six months ended June 30, 2011, purchases and sales of securities, other
than short-term investments, were $3,173,877 and $3,996,289, respectively.
NOTE G. SHARES OF COMMON STOCK
The Fund has 15,000,000 shares of common stock authorized and 3,922,871 shares
outstanding at June 30, 2011. Transactions in common stock for the six months
ended June 30, 2011 were as follows:
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
Shares at beginning of period 3,896,958
Shares newly issued in reinvestment
of dividends and distributions 25,913
---------
Shares at end of period 3,922,871
=========
NOTE H. SHARE REPURCHASE PROGRAM
As has been done in the past to enhance stockholder 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, 2011. 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. 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
year ended December 31, 2010 for the Fund represented entirely of
return-of-capital in the amount of $4,164,904.
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, 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.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses recognized after December 31, 2010, may be carried forward
indefinitely, and their character is retained as short-term and/or long-term
losses. Under the law in effect prior to the Act, pre-enactment net capital
losses were carried forward for eight years and treated as short-term losses. As
a transition rule, the Act requires that post-enactment net capital losses be
used before pre-enactment net capital losses.
At June 30, 2011, 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 $22,486,597, $3,563,042,
$(1,285,963), and $2,277,079, respectively.
--------------------------------------------------------------------------------
12
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On April 19, 2011, the Annual Meeting of Stockholders of Cornerstone Total
Return Fund, Inc. was held and the following matters were voted upon based on
3,901,788 shares of common stock outstanding on February 16, 2011:
(1) To approve the re-election of six directors until the 2012 Annual
Meeting.
Name of Directors For Withheld
------------------- ---------- ----------
Ralph W. Bradshaw 3,163,884 117,792
Thomas H. Lenagh 3,157,091 124,585
Edwin Meese III 3,123,598 158,078
Scott B. Rogers 3,162,990 118,686
Andrew A. Strauss 3,156,165 125,511
Glenn W. Wilcox, Sr. 3,159,664 122,012
--------------------------------------------------------------------------------
13
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 11, 2011.
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 stockholders, 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 stockholders. 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
stockholders, 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
stockholders. 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.
--------------------------------------------------------------------------------
14
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, LLC (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.
Stockholders automatically participate in the Fund's Plan, unless and until an
election is made to withdraw from the Plan on behalf of such participating
stockholder. Stockholders who do not wish to have Distributions automatically
reinvested should so notify the Agent at P.O. Box 922, Wall Street Station, New
York, New York 10269-0560. Under the Plan, the Fund's Distributions to
stockholders are reinvested in full and fractional shares as described below.
When the Fund declares a Distribution the Agent, on the stockholder's behalf,
will (i) receive additional authorized shares from the Fund either newly issued
or repurchased from stockholders 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 Newly Issued Shares received when
Distributions are reinvested will be determined by dividing the amount of the
Distribution either by the Fund's last reported net asset value per share or by
a price equal to the average closing price of the Fund over the five trading
days preceding the payment date of the Distribution, whichever is lower.
However, if the last reported net asset value of the Fund's shares is higher
than its market price (i.e., the Fund is selling at a discount), shares may be
acquired by the Agent in Open Market Purchases and allocated to the reinvesting
stockholders based on the average cost of such Open Market Purchases.
Whenever the Fund declares a Distribution and the last reported 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.
Registered stockholders who do not wish to have their Distributions
automatically reinvested should so notify the Fund in writing. If a stockholder
has not elected to receive cash Distributions and the Agent does not receive
notice of an election to receive cash Distributions prior to the record date of
any Distribution, the stockholder will automatically receive such Distributions
in additional shares.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable 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.
--------------------------------------------------------------------------------
15
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
The Agent will maintain all stockholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by stockholders 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 stockholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating stockholders.
In the case of stockholders, 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 stockholder as representing the total amount of
shares registered in the stockholder'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 888-556-0422.
--------------------------------------------------------------------------------
16
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how Cornerstone Total Return Fund, Inc. (the "Fund") voted
proxies related to its portfolio securities during the 12-month period ended
June 30 of each year as well as the policies and procedures that the Fund uses
to determine how to vote proxies relating to its portfolio securities are
available by calling (513) 326-3597 or on the website of the Securities and
Exchange Commission, http://www.sec.gov.
This report incorporates a Summary Schedule of Investments for the Fund. A
complete Schedule of Investments for the Fund may be obtained free of charge by
contacting the Fund at (513) 326-3597. The Fund files a complete schedule of its
portfolio holdings for the first and third quarters of its fiscal year with the
SEC on Form N-Q. The Fund's Forms N-Q 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.
--------------------------------------------------------------------------------
17
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
18
PRIVACY POLICY (UNAUDITED) (CONTINUED)
Reasons we can share your Does the 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 FUND'S To protect your personal information from
SERVICE PROVIDERS, ON THE FUND'S unauthorized access and use, we and
BEHALF PROTECT MY PERSONAL our service providers use security measures
INFORMATION? that comply with federal law. These
measures include computer safeguards and
secured files and buildings.
--------------------------------------------------------------------------------
HOW DOES THE FUND AND THE FUND'S We collect your personal information, for
SERVICE PROVIDERS, ON THE FUND'S example, when you:
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 collect your information from
others, such as credit bureaus,
affiliates, or other companies.
--------------------------------------------------------------------------------
19
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 you
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
20
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.
STOCKHOLDER 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-CEF33.html under the designation
"Cornerstone Total Return (CRF)" and on the BARRON'S website at
http://online.barrons.com/mdc/public/page/2_3040-CEF33.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
stockholders of the Fund for their information. The financial information
included herein is taken from the records of the Fund without examination by the
independent registered public accountants who do not express an opinion thereon.
It is not a prospectus, circular or representation intended for use in the
purchase or sale of shares of the Fund or of any securities mentioned in the
report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
21
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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. INVESTMENTS.
(a)
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2011 (UNAUDITED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.82%
CLOSED-END FUNDS - 9.19%
CORPORATE DEBT FUNDS INVESTMENT GRADE-RATED - 0.63%
AllianceBernstein Income Fund 6,000 $ 47,340
MFS Government Markets Income Trust 16,000 108,800
----------
156,140
----------
GLOBAL INCOME - 0.53%
Nuveen Multi-Currency Short-Term Government
Income Fund 8,851 131,526
----------
HIGH CURRENT YIELD (LEVERAGED) - 0.26%
First Trust Strategic High Income Fund III 14,400 65,088
----------
OPTION ARBITRAGE/OPTIONS STRATEGIES - 7.46%
Eaton Vance Enhanced Equity Income Fund 12,374 148,488
Eaton Vance Risk-Managed Diversified
Equity Income Fund 43,700 551,494
Eaton Vance Tax-Managed Buy-Write Income Fund 13,000 179,010
Eaton Vance Tax-Managed Buy-Write
Opportunities Fund 40,300 513,019
Eaton Vance Tax-Managed Diversified Equity
Income Fund 41,085 448,648
----------
1,840,659
----------
SECTOR EQUITY - 0.31%
Gabelli Healthcare & WellnessRx Trust (The) * 9,721 75,143
----------
TOTAL CLOSED-END FUNDS 2,268,556
----------
CONSUMER DISCRETIONARY - 8.83%
Bed Bath & Beyond, Inc.* 2,500 145,925
Comcast Corporation - Class A 2,012 50,984
Comcast Corporation - Special Class A 4,250 102,978
DIRECTV Group, Inc. (The) - Class A * 4,000 203,280
Ford Motor Company * 10,000 137,900
Home Depot, Inc. (The) 5,000 181,100
Kohl's Corporation 2,000 100,020
Limited Brands, Inc. 1,000 38,450
Lowe's Companies, Inc. 3,000 69,930
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2011 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (CONTINUED)
Macy's, Inc. 1,000 $ 29,240
McDonald's Corporation 2,000 168,640
News Corporation - Class B 2,500 45,200
Starbucks Corporation 2,500 98,725
Target Corporation 1,500 70,365
Time Warner, Inc. 4,666 169,702
TJX Companies, Inc. (The) 2,500 131,325
Viacom, Inc. - Class B 2,000 102,000
Walt Disney Company (The) 5,000 195,200
Yum! Brands, Inc. 2,500 138,100
----------
2,179,064
----------
CONSUMER STAPLES - 10.79%
Altria Group, Inc. 5,000 132,050
Coca-Cola Company (The) 5,000 336,450
Coca-Cola Enterprises, Inc. 2,500 72,950
General Mills, Inc. 3,000 111,660
H.J. Heinz Company 2,700 143,856
PepsiCo, Inc. 3,000 211,290
Philip Morris International, Inc. 5,000 333,850
Procter & Gamble Company (The) 6,972 443,210
Sara Lee Corporation 2,500 47,475
Walgreen Company 2,000 84,920
Wal-Mart Stores, Inc. 14,000 743,960
----------
2,661,671
----------
ENERGY - 11.44%
Apache Corporation 2,000 246,780
Chevron Corporation 3,500 359,940
ConocoPhillips 5,000 375,950
Exxon Mobil Corporation 12,000 976,560
Halliburton Company 2,500 127,500
Occidental Petroleum Corporation 4,000 416,160
Schlumberger Ltd. 3,000 259,200
Williams Companies, Inc. 2,000 60,500
----------
2,822,590
----------
FINANCIALS - 13.14%
AFLAC, Inc. 1,500 70,020
American Express Company 4,000 206,800
Bank of New York Mellon Corporation (The) 3,000 76,860
Capital One Financial Corporation 2,500 129,175
Citigroup, Inc. 2,800 116,592
Discover Financial Services 2,000 53,500
Franklin Resources, Inc. 1,000 131,290
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2011 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
Goldman Sachs Group, Inc. (The) 2,500 $ 332,725
JPMorgan Chase & Co. 15,200 622,288
M&T Bank Corporation 1,000 87,950
Marsh & McLennan Companies, Inc. 4,000 124,760
MetLife, Inc. 1,500 65,805
PNC Financial Services Group, Inc. 1,000 59,610
Prudential Financial, Inc. 2,500 158,975
State Street Corporation 2,000 90,180
Travelers Companies, Inc. (The) 3,092 180,511
U.S. Bancorp 5,500 140,305
Unum Group 2,500 63,700
Wells Fargo & Company 19,000 533,140
----------
3,244,186
----------
HEALTH CARE - 11.07%
Abbott Laboratories 3,000 157,860
Allergan, Inc. 1,000 83,250
Amgen, Inc. * 3,000 175,050
Baxter International, Inc. 2,500 149,225
Boston Scientific Corporation * 4,000 27,640
Bristol-Myers Squibb Company 6,000 173,760
Celgene Corporation * 1,000 60,320
Cigna Corporation 3,000 154,290
Eli Lilly & Company 2,500 93,825
Express Scripts, Inc. * 2,400 129,552
Gilead Sciences, Inc. * 2,000 82,820
Johnson & Johnson 6,000 399,120
McKesson Corporation 2,500 209,125
Medco Health Solutions, Inc. * 1,000 56,520
Medtronic, Inc. 4,500 173,385
Merck & Company, Inc. 2,500 88,225
Pfizer, Inc. 6,462 133,117
Stryker Corporation 1,000 58,690
UnitedHealth Group, Inc. 2,500 128,950
WellPoint, Inc. 2,500 196,925
----------
2,731,649
----------
INDUSTRIALS - 10.23%
3M Company 2,500 237,125
Danaher Corporation 2,000 105,980
Deere & Company 1,500 123,675
Emerson Electric Company 2,500 140,625
FedEx Corporation 1,500 142,275
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2011 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
General Dynamics Corporation 2,000 $ 149,040
General Electric Company 24,000 452,640
Honeywell International Inc. 2,000 119,180
Lockheed Martin Corporation 2,500 202,425
Precision Castparts Corporation 1,000 164,650
Republic Services, Inc. 1,125 34,706
Southwest Airlines Company 2,000 22,840
Union Pacific Corporation 2,500 261,000
United Parcel Service, Inc. - Class B 2,000 145,860
United Technologies Corporation 2,500 221,275
----------
2,523,296
----------
INFORMATION TECHNOLOGY - 16.19%
Apple, Inc. * 2,000 671,340
Applied Materials, Inc. 3,000 39,030
Corning, Inc. 5,000 90,750
Dell Inc. * 4,000 66,680
Google, Inc. - Class A * 1,000 506,380
Hewlett-Packard Company 8,000 291,200
Intel Corporation 17,000 376,720
International Business Machines Corporation 4,000 686,201
Intuit, Inc. * 2,500 129,650
Microsoft Corporation 24,000 624,000
Oracle Corporation 12,600 414,666
Texas Instruments, Inc. 3,000 98,490
----------
3,995,107
----------
MATERIALS - 3.40%
Air Products & Chemicals, Inc. 1,500 143,370
Alcoa, Inc. 1,800 28,548
Dow Chemical Company (The) 2,500 90,000
E.I. Du Pont de Nemours & Company 4,800 259,440
Freeport-McMoRan Copper & Gold, Inc. 5,000 264,500
Newmont Mining Corporation 1,000 53,970
----------
839,828
----------
REAL ESTATE INVESTMENT TRUST - 0.01%
Simon Property Group, Inc. 16 1,860
----------
TELECOMMUNICATION SERVICES - 2.83%
AT&T, Inc. 17,089 536,765
CenturyLink, Inc. 4,000 161,720
----------
698,485
----------
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2011 (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
UTILITIES - 2.70%
Consolidated Edison, Inc. 1,000 $ 53,240
Dominion Resources, Inc. 2,000 96,540
Duke Energy Corporation 6,600 124,278
Exelon Corporation 3,500 149,940
NextEra Energy, Inc. 1,000 57,460
NiSource, Inc. 2,500 50,625
Xcel Energy, Inc. 5,500 133,650
-----------
665,733
-----------
TOTAL EQUITY SECURITIES (cost - $22,354,946) 24,632,025
-----------
SHORT-TERM INVESTMENT - 0.53%
MONEY MARKET FUND - 0.53%
Fidelity Institutional Money Market Government
Portfolio - Class I (cost - $131,651) 131,651 131,651
-----------
TOTAL INVESTMENTS - 100.35% (cost - $22,486,597) 24,763,676
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.35)% (86,045)
-----------
NET ASSETS - 100.00% $24,677,631
===========
----------
** Non-income producing security.
See accompanying notes to financial statements.
(b) Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not required
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not required
(b) There has not been a change in any of the Portfolio Managers identified in
response to this Item in the registrant's most recent annual report on Form
N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors that have been
implemented after the registrant last provided disclosure in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) or this
Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not required
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): Attached hereto
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): Attached hereto
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Cornerstone Total Return Fund, Inc.
-----------------------------------------------
By (Signature and Title)* /s/ Ralph W. Bradshaw
-----------------------------------------
Ralph W. Bradshaw, Chairman and President
(Principal Executive Officer)
Date September 2, 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 September 2, 2011
-------------------
By (Signature and Title)* /s/ Frank J. Maresca
-----------------------------------------
Frank J. Maresca, Treasurer
(Principal Financial Officer)
Date September 2, 2011
-------------------
* Print the name and title of each signing officer under his or her signature.