CORNERSTONE TOTAL RETURN FUND, INC. 383 Madison Avenue, 23rd Floor
New York, New York 10179
(212) 272-3550
IMPROVEMENTS IN YOUR FUND'S
DIVIDEND REINVESTMENT PLAN
MAY OFFER YOU SIGNIFICANT EXTRA VALUE
December 30, 2004
Dear Fellow Shareholder:
Your Fund's Board of Directors has recently made important changes to the
Dividend Reinvestment Plan, ("Reinvestment Plan") that may increase the benefits
of reinvesting. WHENEVER THE FUND IS TRADING AT A PREMIUM TO NET ASSET VALUE
("NAV") AS IT HAS FOR WELL OVER A YEAR NOW, THE MARKET VALUE OF THE SHARES
DISTRIBUTED PURSUANT TO THE TERMS OF THE REINVESTMENT PLAN WILL BE GREATER THAN
THE SAME DISTRIBUTION IF TAKEN IN CASH. The example shown below, based on recent
price and NAV figures for your Fund, demonstrates that the additional value from
reinvesting can be very significant - IN THIS CASE + 40.9%.
ADVANTAGES OF CHOOSING REINVESTMENT:
A comparative example of the distribution for the month of November based on
ownership of 1,000 shares is shown below:
NEW SHARES RECEIVED FROM REINVESTMENT DATE PER SHARE
--------------------------------------------------------------------------------
NAV APPLICABLE (PRECEDING WEEK) 11/26/04 $ 12.66
MARKET VALUE ON PAYMENT DATE 11/30/04 $ 17.84
DISTRIBUTION AMOUNT $ 0.176
SHARES ISSUED FOR REINVESTMENT PLAN
[ 0.176 / 12.66 = 0.0139 ] 0.0139 SHRS
MONTHLY PER 1,000
EXTRA VALUE FROM REINVESTMENT OPTION PER SHARE SHARES
--------------------------------------------------------------------------------
CASH OPTION
DISTRIBUTION TAKEN IN CASH ON PAYMENT DATE $ 0.176 $176.00
REINVESTMENT OPTION
MARKET VALUE OF SHARES ISSUED ON PAYMENT DATE
[ 0.0139 SHRS X $17.84 = 0.248 ] $ 0.248 $248.01
--------------------------------------------------------------------------------
ADDITIONAL GROSS VALUE OF DISTRIBUTION
FROM REINVESTING IN SHARES + 40.9% $ 0.072 $ 72.01
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In this example, the value of the distribution based on the market price of the
Fund on the payment date of the distribution is 40.9% GREATER THAN THE CASH
OPTION. There is a clear advantage to taking distributions in shares of the Fund
under these circumstances.
IT IS EASY TO SWITCH TO THE REINVESTMENT PLAN
1. IF YOU HOLD YOUR SHARES THROUGH A BROKER OR FINANCIAL INSTITUTION, AS MOST
PEOPLE DO:
CALL OR WRITE YOUR BROKER TO SAY THAT YOU WANT TO SWITCH IMMEDIATELY TO
THE REINVESTMENT PLAN FOR YOUR CORNERSTONE TOTAL RETURN FUND (CRF) SHARES.
2. IF YOU HOLD YOUR SHARES DIRECTLY WITH THE FUND:
CALL OR WRITE THE FUND'S TRANSFER AGENT TO SAY THAT YOU WANT TO SWITCH TO
THE REINVESTMENT PLAN:
AMERICAN STOCK TRANSFER & TRUST CO.
P.O. BOX 922, WALL STREET STATION
NEW YORK, NY 10269-0560 OR TOLL-FREE (877) 248-6416
COORDINATE WITH YOUR BROKER TO PROVIDE REGULAR CASH IF DESIRED
Shareholders who desire cash withdrawals from their holdings as part of their
investment planning can coordinate with their broker to generate required cash
from their portfolio while still taking advantage of the Fund's Reinvestment
Plan. Raising cash from securities in your portfolio can be handled as needed or
on a regularly scheduled periodic basis with simple instructions to your broker.
Remember that you may exercise the option to switch between taking distributions
in cash or through the Reinvestment Plan as often as you desire. Please review
the following important information regarding your Fund's Reinvestment Plan and
Distribution Policy. We hope that you will consider the Fund's Reinvestment Plan
in view of these recent improvements.
Sincerely,
Ralph W. Bradshaw
President
Past performance is no guarantee of future performance. An investment in the
Fund is subject to certain risks, including market risk. In general, shares of
closed-end funds often trade at a discount from their net asset value and at the
time of sale may be trading on the AMEX at a price that is more or less than the
original purchase price or the net asset value. An investor should carefully
consider the Fund's investment objective, risks, charges and expenses. Please
read the Fund's disclosure documents before you invest.
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ADDITIONAL INFORMATION ABOUT CHANGES IN YOUR FUND'S REINVESTMENT PLAN
The annual and semi-annual reports of the Fund contain more detailed information
about this change in the Reinvestment Plan. For those shareholders who elect to
take their distributions in shares of the Fund, the Board has revised the
Reinvestment Plan to change the price at which newly issued shares are
reinvested. As noted in the Fund's semi-annual report dated June 30, 2004:
"...the Agent will allocate Newly Issued Shares to the reinvesting shareholders
at the lower of (i) a price equal to the average closing price of the Fund over
the five trading days preceding the payment of such distribution, or (ii) the
net asset value of the Fund as last determined prior to such payment date."
This change is intended to enhance the already successful Distribution Policy of
your Fund. As you may know from previous communications, your Fund has a fixed,
monthly distribution policy which has been designed to provide greater
flexibility to all the Fund's shareholders. Over the long run, it has usually
been the case that a well-managed, diversified equity portfolio provides the
best risk/reward characteristics for many investors. Long-term equity returns
are generally higher than those for fixed income or balanced programs, and
favorable tax treatment on capital gains makes the net returns even more
desirable for taxable investors. However, the distributions from conventional
equity funds are usually sporadic, since dividend income is relatively low, and
the realization of capital gains is unpredictable. Many investors are willing to
accept the asset volatility inherent in a well managed equity portfolio, but
would prefer to have a predictable and stable cash flow as well, for
reinvestment or other purposes. Our distribution policy is designed to provide
our shareholders with this flexibility.
Pursuant to its Distribution Policy, the Fund is paying out a substantial, fixed
monthly distribution. At the end of each year, a determination is made as to
what portion of this distribution is attributable to income, capital gains, or
return-of-capital, and the allocation among these categories may vary greatly
from year to year. It is the goal of the Fund to have its long-term investment
returns match or exceed these distributions, but there can be no guarantee that
this goal will be met. To the extent that the amount of distributions taken in
cash exceeds the net investment returns of the Fund, the assets of the Fund will
decline through a return-of-capital to the shareholders. If the net investment
return exceeds the amount of cash distributions, the assets of the Fund will
increase.
We believe that a successful, well-managed equity Fund is made even more
valuable to its shareholders by providing this type of flexibility, and we hope
that you agree. We would be happy to hear from you if you have any questions
regarding our distribution policy.
It should be noted that in order to provide maximum flexibility in managing the
Fund's Reinvestment Plan for the benefit of the Fund and its shareholders, the
Board does retain the option of specifically directing the Agent to purchase
outstanding shares of the Fund on the open market ("Open Market Purchases") for
the purpose of issuing shares for the Reinvestment Plan. In this case, the
shares will be allocated to the reinvesting shareholders based on the average
cost of such Open Market Purchases. However, it is the current intention of the
Board to continue to satisfy Reinvestment Plan share requirements by using Newly
Issued shares which would be allocated as noted above at the lower of (i) the
average closing price of the Fund over the five trading days preceding the
payment of such distribution, or (ii) the net asset value of the Fund as last
determined prior to such payment. A full description of the Reinvestment Plan is
included in the Annual and Semi-Annual Reports of the Fund.
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