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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
CORNERSTONE TOTAL RETURN FUND, INC.
(Exact name of registrant as specified in charter)
305 Madison Avenue, New York, New York 10165
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(Address of principal executive offices) (Zip code)
Gary A. Bentz
305 Madison Avenue, New York, New York 10165
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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, 2008
Date of reporting period: December 31, 2008
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.
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ITEM 1. REPORTS TO STOCKHOLDERS.
The report of Cornerstone Total Return Fund, Inc. (the "Registrant") to
stockholders for the year ended December 31, 2008 follows.
CORNERSTONE TOTAL
RETURN FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2008
CONTENTS
Portfolio Summary 1
Summary Schedule of Investments 2
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
Report of Independent Registered Public Accounting Firm 14
Results of Special Meeting of Stockholders 15
Tax Information 16
Additional Information Regarding the Fund's Directors
and Corporate Officers 17
Description of Dividend Reinvestment Plan 20
Proxy Voting and Portfolio Holdings Information 22
Privacy Policy Notice 22
Summary of General Information 23
Shareholder Information 23
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CORNERSTONE TOTAL RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2008 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Information Technology 13.9
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Healthcare 13.0
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Consumer Staples 12.3
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Energy 12.1
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Financials 10.9
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Industrials 10.0
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Closed-End Funds 9.6
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Consumer Discretionary 7.6
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Telecommunication Services 3.5
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Utilities 3.5
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Materials 2.1
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Other 1.5
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. Exxon Mobil Corporation Energy 5.6
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2. Johnson & Johnson Healthcare 3.8
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3. Wal-Mart Stores, Inc. Consumer Staples 3.3
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4. Adams Express Company Closed-End Funds 2.7
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5. JPMorgan Chase & Co. Financials 2.7
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6. General Electric Company Industrials 2.6
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7. Procter & Gamble Company (The) Consumer Staples 2.4
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8. AT&T Inc. Telecommunication Services 2.3
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9. Microsoft Corporation Information Technology 2.0
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10. Oracle Corporation Information Technology 2.0
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1
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2008
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No. of
Description Shares Value
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EQUITY SECURITIES - 99.12%
CLOSED-END FUNDS - 9.59%
Adams Express Company (a) 73,000 $ 586,190
H&Q Healthcare Investors 14,400 159,408
Liberty All-Star Growth
Fund, Inc. 76,075 197,795
Zweig Total Return Fund,
Inc. (The) 85,000 244,800
Other Closed-End Funds (a)(b) 874,160
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2,062,353
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CONSUMER DISCRETIONARY - 7.62%
Comcast Corporation, Class A 9,012 152,123
McDonald's Corporation 3,100 192,789
Walt Disney Company (The) 8,000 181,520
Other Consumer
Discretionary ^(b) 1,113,135
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1,639,567
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CONSUMER STAPLES - 12.29%
Coca-Cola Company (The) 5,000 226,350
Kraft Foods Inc, Class A 5,328 143,057
PepsiCo, Inc. 3,000 164,310
Philip Morris International Inc. 5,700 248,007
Procter & Gamble
Company (The) 8,472 523,739
Wal-Mart Stores, Inc. 12,500 700,750
Other Consumer Staples (b) 637,697
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2,643,910
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ENERGY - 12.10%
Chevron Corporation 5,068 374,880
Devon Energy Corporation 2,500 164,275
Exxon Mobil Corporation 15,000 1,197,450
Occidental Petroleum Corp. 2,500 149,975
Schlumberger Limited 5,000 211,650
Other Energy ^(b) 503,139
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2,601,369
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FINANCIALS - 10.95%
Bank of America Corporation 10,521 148,136
JPMorgan Chase & Co. 18,200 573,846
Travelers Companies,
Inc (The) 3,092 139,758
No. of
Description Shares Value
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FINANCIALS (CONTINUED)
Wells Fargo & Company 14,000 $ 412,720
Other Financials ^(b) 1,079,306
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2,353,766
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HEALTHCARE - 12.98%
Abbott Laboratories 3,000 160,110
Amgen Inc. * 3,000 173,250
Celgene Corporation * 2,500 138,200
Gilead Sciences, Inc. * 3,000 153,420
Johnson & Johnson 13,500 807,705
Medtronic, Inc. 4,500 141,390
Merck & Co. Inc. 5,000 152,000
Pfizer Inc. 12,000 212,520
Other Healthcare (b) 852,951
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2,791,546
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INDUSTRIALS - 9.97%
CSX Corporation 5,000 162,350
Danaher Corporation 2,500 141,525
General Dynamics Corporation 2,500 143,975
General Electric Company 34,000 550,800
Lockheed Martin Corporation 2,500 210,200
United Parcel Service, Inc.,
Class B 4,000 220,640
United Technologies
Corporation 4,400 235,840
Other Industrials ^(b) 478,204
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2,143,534
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INFORMATION TECHNOLOGY - 13.91%
Apple, Inc. * 2,000 170,700
Cisco Systems, Inc. * 13,000 211,900
Google Inc. * 1,000 307,650
Hewlett-Packard Company 5,000 181,450
Intel Corporation 16,000 234,560
International Business
Machines Corporation 4,200 353,472
Microsoft Corporation 22,500 437,400
Oracle Corporation * 23,600 418,428
QUALCOMM Inc. 3,800 136,154
Other Information
Technology (b) 540,390
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2,992,104
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See accompanying notes to financial statements.
2
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CORNERSTONE TOTAL RETURN FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2008 (CONTINUED)
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No. of
Description Shares Value
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MATERIALS - 2.10%
Monsanto Company 2,000 $ 140,700
Other Materials (b) 310,430
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451,130
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REAL ESTATE INVESTMENT TRUST - 0.62%
Total Real Estate
Investment Trust (b) 2,500 132,825
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TELECOMMUNICATION SERVICES - 3.51%
AT&T Inc. 17,589 501,286
Verizon Communications Inc. 7,500 254,250
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755,536
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UTILITIES - 3.48%
American Electric Power
Company, Inc. 5,500 183,040
Other Utilities (b) 564,476
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747,516
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TOTAL EQUITY SECURITIES
(cost - $25,749,449) 21,315,156
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SHORT-TERM INVESTMENTS - 2.62%
MONEY MARKET SECURITY - 1.07%
JPMorgan U.S. Government
Money Market Fund 230,040 230,040
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Principal
Amount
Description (000's) Value
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REPURCHASE AGREEMENTS - 1.55%
J.P. Morgan Securities Inc.+
(Agreements dated
12/31/2008 to be repurchased
at $334,257) (c) $ 334 $ 334,257
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TOTAL SHORT-TERM INVESTMENTS
(cost - $564,297) 564,297
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TOTAL INVESTMENTS - 101.74%
(cost - $26,313,746) 21,879,453
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LIABILITIES IN EXCESS OF
OTHER ASSETS - (1.74)% (374,833)
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NET ASSETS - 100.00% $ 21,504,620
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* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ Includes 330,839 of investments purchased with collateral received for
securities on loan.
(a) Affiliated investment. The Fund holds 2.73% and 0.27% (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, 2008,
13,600 and 11,000 shares of Adams Express Company were purchased and
sold, respectively. There were no purchases or sales of Petroleum &
Resources Corp.
(b) Represents issuers not identified as a top 50 holding in terms of
market value and issues or issuers not exceeding 1% of net assets
individually or in the aggregate, respectively, as of December 31,
2008.
(c) At December 31, 2008, the maturity date for all repurchase agree-
ments held was January 2, 2009, with interest rates ranging from 0.01%
to 0.04% and collateralized by $350,786 in United States Treasury
Notes maturing December 31, 2010.
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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 - DECEMBER 31, 2008
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ASSETS
Investments, at value, including collateral for
securities on loan of $330,839:
Unaffiliated issuers (cost - 25,346,336)(1) $ 21,235,093
Affiliated issuers (cost - 967,410) 644,360
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Total investments (cost - 26,313,746) 21,879,453
Receivables:
Investments sold 568,567
Dividends 56,507
Foreign reclaims 18,024
Interest 367
Prepaid expenses 996
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Total Assets 22,523,914
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LIABILITIES
Payables:
Due to custodian 605
Investments purchased 603,992
Upon return of securities loaned 330,839
Directors' fees 17,738
Investment management fees (net of fee waivers) 7,792
Other accrued expenses 58,328
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Total Liabilities 1,019,294
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NET ASSETS (applicable to 2,773,704 shares of common stock outstanding) $ 21,504,620
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NET ASSET VALUE PER SHARE ($21,504,620 / 2,773,704) $ 7.75
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NET ASSETS CONSISTS OF
Capital stock, $0.01 par value; 2,773,704 shares issued and
outstanding (15,000,000 shares authorized) $ 27,737
Paid-in capital 30,989,471
Accumulated net realized loss on investments and foreign
currency related transactions (5,079,743)
Net unrealized appreciation in value of investments
and translation of foreign currency (4,432,845)
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Net assets applicable to shares outstanding $ 21,504,620
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(1) Includes securities out on loan to brokers with a market value of $329,055.
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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 YEAR ENDED DECEMBER 31, 2008
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INVESTMENT INCOME
Income:
Dividends (including $33,536 earned from affiliated issuers) $ 885,768
Interest 7,407
Securities lending 9,922
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Total Investment Income 903,097
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Expenses:
Investment management fees 339,439
Legal and audit fees 69,399
Directors' fees 59,580
Administration fees 50,216
Printing 38,736
Accounting fees 29,590
Transfer agent fees 27,437
Reverse split fees 21,250
Custodian fees 12,001
Insurance 4,801
Stock exchange listing fees 3,436
Miscellaneous 3,000
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Total Expenses 658,885
Less: Management fee waivers (57,412)
Less: Fees paid indirectly (33,039)
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Net Expenses 568,434
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Net Investment Income 334,663
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NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized loss from investments (including $5,421 of net realized
losses from affiliated issuers) (2,348,430)
Capital gain distributions from regulated investment companies
and real estate investment trust 40,178
Net change in unrealized appreciation in value of investments
and translation of foreign currency (12,967,513)
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Net realized and unrealized loss on investments and foreign
currency related transactions (15,275,765)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(14,941,102)
============
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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 Years Ended
December 31,
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2008 2007
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DECREASE IN NET ASSETS
Operations:
Net investment income $ 334,663 $ 365,282
Net realized gain/(loss) from investments and
foreign currency related transactions (2,348,430) 31,417
Capital gain distributions from regulated investment companies
and real estate investment trust 40,178 116,984
Net change in unrealized appreciation in value of investments
and translation of foreign currency (12,967,513) 1,514,360
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Net increase/(decrease) in net assets resulting from operations (14,941,102) 2,028,043
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Dividends and distributions to shareholders:
Net investment income (334,663) (363,469)
Net realized capital gains -- (150,214)
Return-of-capital (10,218,473) (10,698,032)
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Total dividends and distributions to shareholders (10,553,136) (11,211,715)
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Capital stock transactions:*
Cash in lieu of 77 fractional shares from the reverse stock split (542) --
Proceeds from 102,212, and 87,632 shares newly issued in
reinvestment of dividends and distributions, respectively 1,588,319 2,215,523
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Total capital stock transactions 1,587,777 2,215,523
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Total decrease in net assets (23,906,461) (6,968,149)
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NET ASSETS
Beginning of year 45,411,081 52,379,230
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End of year $ 21,504,620 $ 45,411,081
============ ============
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* Shares are adjusted for the one-for-two reverse stock split that was effective
December 23, 2008.
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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 year 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 Years Ended December 31,
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2008 2007 2006 2005 2004
---- ---- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year $ 17.00 $ 20.28 $ 21.82 $ 25.56 $ 27.78
-------- -------- -------- -------- --------
Net investment income # 0.12 0.14 0.18 0.12 0.20
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions (5.64) 0.64 2.50 0.36 1.74
-------- -------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from operations (5.52) 0.78 2.68 0.48 1.94
-------- -------- -------- -------- --------
Dividends and distributions to shareholders:
Net investment income (0.12) (0.14) (0.18) (0.12) (0.20)
Net realized capital gains -- (0.06) -- -- --
Return-of-capital (3.77) (4.08) (4.04) (4.10) (4.02)
-------- -------- -------- -------- --------
Total dividends and distributions to shareholders (3.89) (4.28) (4.22) (4.22) (4.22)
-------- -------- -------- -------- --------
Capital stock transactions:
Anti-dilutive effect due to shares issued in
reinvestment of dividends and distributions 0.16 0.22 -- -- 0.06
-------- -------- -------- -------- --------
Net asset value, end of year $ 7.75 $ 17.00 $ 20.28 $ 21.82 $ 25.56
======== ======== ======== ======== ========
Market value, end of year $ 7.60 $ 19.60 $ 39.24 $ 29.30 $ 35.90
======== ======== ======== ======== ========
Total investment return (a) (49.30)% (40.97)% 64.15% (2.07)% 15.11%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 21,505 $ 45,411 $ 52,379 $ 54,194 $ 61,365
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.67% 1.49% 1.44% 1.47% 1.41%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 1.94% 1.53% 1.50% 1.52% 1.45%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.77% 1.52% 1.50% 1.50% 1.43%
Ratio of net investment income to
average net assets 0.98% 0.74% 0.82% 0.53% 0.75%
Portfolio turnover rate 15.61% 11.00% 11.29% 9.84% 12.15%
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* Per share amounts prior to December 23, 2008 have been restated to
reflect a one-for-two reverse stock 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 year and assumes reinvestment of
dividends and distributions, if any, at actual prices pursuant to the
Fund's dividend reinvestment plan. Total investment return does not
reflect brokerage commissions.
(b) Expenses are net of fees paid indirectly.
(c) Expenses exclude the reduction for fees paid indirectly.
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See accompanying notes to financial statements.
7
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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NOTE A. ORGANIZATION
Cornerstone Total Return Fund, Inc. (the "Fund") was incorporated in New York on
March 16, 1973 and commenced investment operations on May 15, 1973. Its
investment objective is to seek capital appreciation with current income as a
secondary objective by investing primarily in U.S. and non-U.S. companies. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance 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.
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 Adviser" 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, 2008, the Fund held no securities valued in good faith by the
Board of Directors. The net asset value per share of the Fund is calculated
weekly and on the last business day of the month with the exception of those
days on which the NYSE Alternext US LLC is closed.
On March 19, 2008, Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 161, "Disclosures about Derivative
instruments and Hedging Activities" ("FAS 161"). FAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. The application of FAS 161 is required for fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years.
At this time, management is evaluating the implications of FAS 161 and its
impact on the financial statements is not expected to be material.
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
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8
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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banks and broker/dealers, which Cornerstone Advisors, Inc. (the Fund's
"Investment Manager" or "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
plus accrued interest. Cornerstone monitors the mark-to-market of the value of
the collateral, and, if necessary, requires the seller to maintain additional
securities, so that the value of the collateral is not less than the repurchase
price. Default by or bankruptcy of the seller would, however, expose the Fund to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
In July 2006, the Financial Accounting Standards Board ("FASB") released FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), an
interpretation of FASB Statement No. 109. FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the accounting and disclosure of
tax positions taken or expected to be taken in the course of preparing the
Fund's tax returns to determine whether the tax positions are "more likely than
not" of being sustained by the applicable tax authority. Tax positions not
deemed to meet the more likely than not threshold would be recorded as a tax
benefit or expense in the current year. Adoption of FIN 48 is effective during
the first required financial reporting period for fiscal years beginning after
December 15, 2006. Management adopted FIN 48 on June 29, 2007 and reviewed any
uncertain tax positions for open tax years 2005 through 2008. The Fund has
initiated discussions with the Internal Revenue Service's New York Regional
Office regarding a technical tax issue relating to whether the Fund's historic
dividend reinvestment plan may have resulted in a violation of certain
Subchapter M requirements of the Internal Revenue Code for certain prior tax
years. The outcome of this matter is currently uncertain including, whether
ultimately it might negatively affect the tax status of the Fund. The Fund will
continue to monitor this matter closely and is pursuing a potential resolution
with the Internal Revenue Service by seeking to obtain a closing letter that, if
successful, will avoid a material negative tax impact to the Fund. There was no
material impact to the financial statements or, other than as described herein,
the disclosures thereto as a result of the adoption of this pronouncement.
DISTRIBUTIONS TO SHAREHOLDERS: Effective January 2002, the Fund initiated a
fixed, monthly distribution to shareholders. On November 29, 2006, this
distribution policy was updated to provide for the annual resetting of the
monthly distribution amount per share based on the Fund's net asset value on the
last business day in each October. The terms of the distribution policy will be
reviewed and approved at least annually by the Fund's Board of Directors and can
be modified at their discretion. To the extent that these distributions exceed
the current earnings of the Fund, the balance will be generated from sales of
portfolio securities held by the Fund, which will either be short-term or
long-term capital gains or a tax-free return-of-capital. To the extent these
distributions are not represented by net investment income and capital gains,
they will not represent yield or investment return on the Fund's investment
portfolio. The Fund plans to maintain this distribution policy even if
regulatory requirements would make part of a return-
================================================================================
9
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CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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.
NOTE C. FAIR VALUE
The Fund adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 157, Fair Value Measurements ("FAS 157"), effective
January 1, 2008. In accordance with FAS 157, fair value is defined as the price
that the Fund would receive upon selling an investment in a timely transaction
to an independent buyer in the principal or most advantageous market of the
investment. FAS 157 established a three-tier hierarchy to maximize the use of
observable market data and minimize the use of unobservable inputs and to
establish classification of fair value measurements for disclosure purposes.
Inputs refer broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk, for example,
the risk inherent in a particular valuation technique used to measure fair value
including such a pricing model and/or the risk inherent in the inputs to the
valuation technique. Inputs may be observable or unobservable. Observable inputs
are inputs that reflect the assumptions market participants would use in pricing
the asset or liability developed based on market data obtained from sources
independent of the reporting entity. Unobservable inputs are inputs that reflect
the reporting entity's own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. The three-tier hierarchy of inputs
is summarized in the three broad Levels listed below.
o Level 1 - quoted prices in active markets for identical investments
o Level 2 - other significant observable inputs (including quoted prices
for similar investments, interest rates, prepayment speeds, credit
risk, etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in deter- mining the fair value of investments)
The inputs or methodology used in valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of December 31, 2008 in valuing
the Fund's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
--------------------------------------------------------------------------------
Level 1 - Quoted
Prices $21,315,156 --
Level 2 - Other
Significant
Observable Inputs 564,297 --
Level 3 - Significant
Unobservable Inputs -- --
----------- -----------
Total $21,879,453 --
=========== ===========
---------
* Other financial instruments include futures, forwards and swap contracts.
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, 2008.
================================================================================
10
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
NOTE D. AGREEMENTS
Cornerstone serves as the Fund's Investment Manager with respect to all
investments. As compensation for its investment management services, Cornerstone
receives from the Fund, an annual fee, calculated weekly and paid monthly, equal
to 1.00% of the Fund's average weekly net assets. During the year ended December
31, 2008, Cornerstone voluntarily agreed to waive its management fees from the
Fund to the extent that the Fund's net monthly operating expenses (including
basic legal fees but excluding other legal and extraordinary expenses) exceed a
rate of 0.125% of average net assets. For the year ended December 31, 2008,
Cornerstone earned $339,439 for investment management services, of which it
waived $57,412. The Investment Manager may discontinue such undertaking at any
time during the fiscal year without notice to fund shareholders.
Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY,
are expense offsets of $33,039 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $52,492 for the year ended December 31,
2008 for legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas
R. Westle, partner of Blank, served as Secretary of the Fund until February 15,
2008.
NOTE E. AFFILIATED INVESTMENTS
Transactions in affiliates for the yeaended December 31, 2008 were as follows:
ADAMS PETROLEUM &
EXPRESS RESOURCES
COMPANY CORPORATION
------- -----------
Market value at
beginning of year $ 994,048 $ 115,980
========= =========
Shares at beginning
of year 70,400 3,000
Shares purchased
during the year 13,600 --
Shares sold during
the year (11,000) --
--------- ---------
Shares at end of year 73,000 3,000
========= =========
Dividend income earned
during the year 32,396 1,140
========= =========
Cost of purchases
during the year 106,632 --
Proceeds from sales
during the year 132,089 --
Net realized loss
during the year (5,421) --
Market value at
end of year $ 586,190 $ 58,170
========= =========
NOTE F. INVESTMENT IN SECURITIES
For the year ended December 31, 2008, purchases and sales of securities, other
than short-term invest- ments, were $5,346,260 and $13,912,833 respectively.
================================================================================
11
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
NOTE G. SHARES OF COMMON STOCK
The Fund has 15,000,000 shares of common stock authorized and 2,773,704 shares
outstanding at December 31, 2008. As of that date, three individuals that
control Cornerstone owned 10,955 shares in the Fund.
Transactions in common stock for the year ended December 31, 2008 were as
follows+:
Shares at beginning of year 2,671,569
Shares newly issued in
reinvestment of dividends
and distributions 102,212
Shares paid in cash in
lieu of fractional
shares from the reverse
stock split (77)
----------
Shares at end of year 2,773,704
==========
--------
+ Share amounts reflect the one-for-two reverse stock split that was
effective December 23, 2008.
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, 2008. No limit has
been placed on the number of shares to be repurchased by the Fund other than
those imposed by federal securities laws.
To the extent such purchases are made they will be in accordance with federal
securities laws, with shares repurchased held in treasury for future use by the
Fund.
NOTE I. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33(1)/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount.
The value of securities on loan to brokers at December 31, 2008, was $329,055.
During the year ended December 31, 2008, the Fund earned $9,922 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.
================================================================================
12
--------------------------------------------------------------------------------
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The tax character of dividends and distributions paid during the
years ended December 31, for the Fund were as follows:
ORDINARY INCOME RETURN-OF-CAPITAL
--------------- -----------------
2008 2007 2008 2007
---- ---- ---- ----
$ 334,663 $513,683 $10,218,473 $10,698,032
At December 31, 2008 the components of the accumulated deficit on a tax basis,
for the Fund were as follows:
Accumulated net realized loss $(4,814,930)
Other accumulated losses (246,727)
Net unrealized depreciation (4,450,931)
-----------
Total accumulated deficit $(9,512,588)
===========
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, 2008, the Fund decreased net realized loss by $12,449,240 and
decreased paid-in-capital by $12,449,240. 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"). For the tax period ended December 31, 2008, the Fund incurred
Post-October losses in the amount of $246,727.
At December 31, 2008, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $4,814,930, of which $1,170,157 expires in 2009, $425,706
expires in 2011, $358,321 expires in 2012, $420,772 expires in 2013, $57,090
expires in 2014, and $2,382,884 expires in 2016.
At December 31, 2008, 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 $26,331,832, $2,156,460,
$(6,608,839), and $(4,452,379), respectively.
NOTE K. SUBSEQUENT EVENTS
Effective February 13, 2009, Kayadti A. Madison resigned as Treasurer. Effective
that same day Gary A. Bentz was appointed as Assistant Treasurer.
Effective February 28, 2009, Ultimus Fund Solutions, LLC replaced Bear Stearns
Funds Management Inc. as Fund Administrator.
================================================================================
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Cornerstone Total Return Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of
Cornerstone Total Return Fund, Inc., including the schedule of investments as of
December 31, 2008, 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, 2008, 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, 2008, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 24, 2009
================================================================================
14
RESULTS OF SPECIAL MEETING OF STOCKHOLDERS (UNAUDITED)
On October 15, 2008, a Special Meeting of Stockholders of Cornerstone Total
Return Fund, Inc. was held and the following matter was voted upon based on
5,439,506 shares of common stock outstanding on August 18, 2008:
(1) To approve a one-for-two reverse stock split of the Fund's issued and
outstanding shares of common stock and the amendment to the Certificate
of Incorporation.
FOR AGAINST ABSTAIN
--- ------- -------
3,698,538 992,559 52,716
================================================================================
15
2008 TAX INFORMATION (UNAUDITED)
Cornerstone Total Return Fund, Inc. (the "Fund") is required by Subchapter M of
the Internal Revenue Code of 1986, as amended, to advise its shareholders within
60 days of the Fund's year end (December 31, 2008) as to the U.S. federal tax
status of the dividends and distributions received by the Fund's shareholders in
respect of such fiscal year. The $10,553,156 in dividend and distributions paid
to shareholders in respect of such year, is represented by $334,663 of ordinary
income, and $10,218,473 of return-of-capital.
As indicated in this notice, significant portions of the Fund's distributions
for 2008 were comprised of a return-of-capital; accordingly these distributions
do NOT represent yield or investment return on the Fund's portfolio.
During the year ended December 31, 2008 the following dividends and
distributions per share were paid by the Fund:
SOURCES OF DIVIDENDS AND DISTRIBUTIONS (PER SHARE AMOUNTS)+
PAYMENT DATES: 1/31/08 2/29/08 3/31/08 4/30/08 5/30/08 6/30/08
-------------- ------- ------- ------- ------- ------- -------
Ordinary Income(1) $ 0.0051 $ 0.0051 $ 0.0051 $ 0.0051 $ 0.0051 $ 0.0051
Return-of-Capital(2) 0.1571 0.1571 0.1571 0.1571 0.1571 0.1571
-------- -------- -------- -------- -------- --------
Total: $ 0.1622 $ 0.1622 $ 0.1622 $ 0.1622 $ 0.1622 $ 0.1622
======== ======== ======== ======== ======== ========
PAYMENT DATES: 7/31/08 8/29/08 9/30/08 10/31/08 11/28/08 12/19/08
-------------- ------- ------- ------- -------- -------- --------
Ordinary Income(1) $ 0.0051 $ 0.0051 $ 0.0051 $ 0.0051 $ 0.0051 $ 0.0051
Return-of-Capital(2) 0.1571 0.1571 0.1571 0.1571 0.1571 0.1571
-------- -------- -------- -------- -------- --------
Total: $ 0.1622 $ 0.1622 $ 0.1622 $ 0.1622 $ 0.1622 $ 0.1622
======== ======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------
+ Per share amounts do not reflect the one-for-two reverse stock split
that was effective December 23, 2008.
(1) ORDINARY INCOME DIVIDENDS - This is the total per share amount of
ordinary income dividends and short-term capital gain distributions
(if applicable) included in the amount reported in Box 1a on Form
1099-DIV.
(2) 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.
The Fund has met the requirements to pass through all (100%) of its ordinary
income dividends as qualified dividends, which are subject to a maximum tax rate
of 15%. This is reported in Box 1b on Form 1099-DIV. Ordinary income dividends
should be reported as dividend income on Form 1040. Please note that to utilize
the lower tax rate for qualifying dividend income, shareholders generally must
have held their shares in the Fund for at least 61 days during the 121 day
period beginning 60 days before the ex-dividend date.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of the actual ordinary income dividend paid by the Fund. They will
generally not be entitled to foreign tax credit or deduction for the withholding
taxes paid by the Fund.
In general, distributions received by tax-exempt recipients (e.g., IRA's and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund.
================================================================================
16
ADDITIONALINFORMATION 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 the President, Cornerstone Advisors, Inc.; 2001 3
Bradshaw** Board of Financial Consultant; President and
(Dec.1950) Directors and Director of Cornerstone Strategic
President Value Fund, Inc.; President and Trustee
of Cornerstone Progressive Return Fund.
Thomas H. Director; Audit, Independent Financial Adviser; Director 2002 3
Lenagh Nominating and of Photonics Products Group; Director of
(Nov. 1924) Corporate Cornerstone Strategic Value Fund, Inc.;
Governance Trustee of Cornerstone Progressive
Committee Return Fund; Director of Adams Express
Member Company and Petroleum and Resources
Corporation.
Edwin Director; Audit, Distinguished Fellow, The Heritage 2001 3
Meese III Nominating and Foundation Washington D.C.;
(Dec. 1931) Corporate Distinguished Visiting Fellow at the
Governance Hoover Institution, Stanford University;
Committee Senior Adviser, Revelation L.P.; Director of
Member Cornerstone Strategic Value Fund, Inc.;
Trustee of Cornerstone Progressive
Return Fund.
Scott B. Director; Audit, Chairman, Board of Health Partners, 2001 3
Rogers Nominating and Inc.; Chief Executive Officer, Asheville
(July 1955) Corporate Buncombe Community Christian
Governance Ministry; and President, ABCCM
Committee Doctor's Medical Clinic; Appointee, NC
Member Governor's Commission on Welfare to
Work; Director of Cornerstone
Strategic Value Fund, Inc.; Trustee of
Cornerstone Progressive Return Fund.
================================================================================
17
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPORATE OFFICERS (UNAUDITED) (CONTINUED)
NUMBER OF
PORTFOLIOS IN
NAME AND POSITION FUND COMPLEX
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS
------------------------------------------------------------------------------------------------------------
Andrew A. Director; Attorney and senior member of Strauss 2001 3
Strauss Chairman of & Associates, P.A., Attorneys, Asheville
(Nov.1953) Nominating and and Hendersonville, NC; previous
Corporate President of White Knight Healthcare,
Governance Inc. and LMV Leasing, Inc., a wholly
Committee and owned subsidiary of Xerox Credit
Audit Committee Corporation; Director of Cornerstone
Member Strategic Value Fund, Inc.; Trustee of
Cornerstone Progressive Return Fund.
Glenn W. Director; Chairman of the Board, Tower 2001 3
Wilcox,Sr. Chairman of Associates, Inc.; Chairman of the Board
(Dec.1931) Audit Committee, and Chief Executive Officer of Wilcox
Nominating and Travel Agency, Inc.; Director of
Corporate Cornerstone Strategic Value Fund, Inc.;
Governance Trustee of Cornerstone Progressive
Committee Return Fund.
Member
================================================================================
18
ADDITIONALINFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPOROFFICERS (UNAUDITED) (CONCLUDED)
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
------------------------------------------------------------------------------------------------------------
Gary A. Chief Chairman and Chief Financial Officer of 2004, 2008,
Bentz Compliance Cornerstone Advisors, Inc.; previous 2009
(June 1956) Officer, Director, Vice President and Treasurer of the
Secretary, Fund and Cornerstone Strategic Value Fund,
and Assistant Inc., Financial Consultant, C.P.A., Chief
Treasurer Compliance Officer, Secretary, and Assistant
Treasurer of Cornerstone Strategic Value
Fund, Inc. and Cornerstone Progressive
Return Fund.
William A. Vice President Director and Stockholder of Cornerstone 2004
Clark Advisors, Inc.; Vice President and former
(Oct. 1945) Director of Cornerstone Strategic Value Fund,
Inc.; Vice President and former Trustee of
Cornerstone Progressive Return Fund;
Financial Consultant; former Director of
Investors First Fund, Inc.
-------------------------------------------------------------------------------------------------------------
* The mailing address of each Director and/or Officer with respect to
the Fund's operation is 305 Madison Ave., New York, NY 10165.
** Designates a director who is an "interested person" of the Fund as
defined by the Investment Company Act of 1940, as amended. Mr.
Bradshaw is an interested person of the Fund by virtue of his current
position with the Investment Advisor of the Fund.
================================================================================
19
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Cornerstone Total Return Fund, Inc. (the "Fund") operates a Dividend
Reinvestment Plan (the "Plan"), sponsored and administered by American Stock
Transfer & Trust Company (the "Agent"), pursuant to which the Fund's income
dividends or capital gains or other distributions (each, a "Distribution" and
collectively, "Distributions"), net of any applicable U.S. withholding tax, are
reinvested in shares of the Fund.
Shareholders automatically participate in the Fund's Plan, unless and until an
election is made to withdraw from the Plan on behalf of such participating
shareholder. Shareholders who do not wish to have Distributions automatically
reinvested should so notify their broker, or if a registered shareholder, the
Agent in writing at P.O. Box 922, Wall Street Station, New York, New York
10269-0560. Such written notice must be received by the Agent prior to the
record date of the Distribution or the shareholder will receive such
Distribution in shares through the Plan. Under the Plan, the Fund's
Distributions to shareholders are reinvested in full and fractional shares as
described below.
When the Fund declares a Distribution the Agent, on the shareholder's behalf,
will (i) receive additional authorized shares from the Fund either newly issued
or repurchased from shareholders by the Fund and held as treasury stock ("Newly
Issued Shares") or (ii) purchase outstanding shares on the open market, on the
NYSE Alternext US LLC or elsewhere, with cash allocated to it by the Fund ("Open
Market Purchases").
The method for determining the number of shares to be received when
Distributions are reinvested will vary depending upon whether the net asset
value of the Fund's shares is higher or lower than its market price. If the net
asset value of the Fund's shares is lower than its market price, the number of
Newly Issued Shares received will be determined by dividing the amount of the
Distribution either by the Fund's net asset value per share or by 95% of its
market price, whichever is higher. If the net asset value of the Fund's shares
is higher than its market price, shares acquired by the Agent in Open Market
Purchases will be allocated to the reinvesting shareholders based on the average
cost of such Open Market Purchases.
Whenever the Fund declares a Distribution and the net asset value of the Fund's
shares is higher than its market price, the Agent will apply the amount of such
Distribution payable to Plan participants of the Fund in Fund shares (less such
Plan participant's pro rata share of brokerage commissions incurred with respect
to Open Market Purchases in connection with the reinvestment of such
Distribution) to the purchase on the open market of Fund shares for such Plan
participant's account. Such purchases will be made on or after the payable date
for such Distribution, and in no event more than 30 days after such date except
where temporary curtailment or suspension of purchase is necessary to comply
with applicable provisions of federal securities laws. The Agent may aggregate a
Plan participant's purchases with the purchases of other Plan participants, and
the average price (including brokerage commissions) of all shares purchased by
the Agent shall be the price per share allocable to each Plan participant.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Distribution payment date.
When a Participant withdraws from the Plan, or upon suspension or termination of
the Plan at the sole discretion of the Fund's Board of Directors, certificates
for whole shares credited to his or her account under the Plan will, upon
request, be issued. Whether or not a participant requests that certificates for
whole shares be issued, a cash payment will be made for any fraction of a share
credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of the Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned.
================================================================================
20
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)(CONCLUDED)
The Agent will distribute all proxy solicitation materials to participating
shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the shareholder's name and held for the account of
beneficial owners participating in the Plan.
Neither the Agent nor the Fund shall have any responsibility or liability beyond
the exercise of ordinary care for any action taken or omitted pursuant to the
Plan, nor shall they have any duties, responsibilities or liabilities except
such as expressly set forth herein. Neither shall they be liable hereunder for
any act done in good faith or for any good faith omissions to act, including,
without limitation, failure to terminate a participants account prior to receipt
of written notice of his or her death or with respect to prices at which shares
are purchased or sold for the participants account and the terms on which such
purchases and sales are made, subject to applicable provisions of the federal
securities laws.
The automatic reinvestment of Distributions will not relieve participants of any
federal, state or local income tax that may be payable (or required to be
withheld) on such Distributions.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan.
All correspondence concerning the Plan should be directed to the Agent at P.O.
Box 922, Wall Street Station, New York, New York 10269-0560. Certain
transactions can be performed online at www.amstock.com or by calling the toll
free number 877-864-4833.
================================================================================
21
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how Cornerstone Total Return Fund, Inc. (the "Fund") voted
proxies related to its portfolio securities during the 12-month period ended
June 30 of each year as well as the policies and procedures that the Fund uses
to determine how to vote proxies relating to its portfolio securities are
available by calling (513) 326-3597 or on the website of the Securities and
Exchange Commission, http://www.sec.gov.
This report incorporates a Summary Schedule of Investments for the Fund. A
complete Schedule of Investments for the Fund may be obtained free of charge by
contacting the Fund at (513) 326-3597. The Fund files a complete schedule of its
portfolio holdings for the first and third quarters of its fiscal year with the
SEC on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling (202) 551-8090.
PRIVACY POLICY NOTICE (UNAUDITED)
The following is a description of Cornerstone Total Return Fund, Inc.'s (the
"Fund") policies regarding disclosure of nonpublic personal information that you
provide to the Fund or that the Fund collects from other sources. In the event
that you hold shares of the Fund through a broker-dealer or other financial
intermediary, the privacy policy of the financial intermediary would govern how
your nonpublic personal information would be shared with unaffiliated third
parties.
CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the following
nonpublic personal information about you:
1. Information from the Consumer: this category includes information the Fund
receives from you on or in applications or other forms, correspondence, or
conversations (such as your name, address phone number, social security
number, assets, income and date of birth); and
2. Information about the Consumer's transactions: this category includes
information about your transactions with the Fund, its affiliates, or
others (such as your account number and balance, payment history, parties
to transactions, cost basis information, and other financial information).
CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose any
nonpublic personal information about their current or former shareholders to
unaffiliated third parties, except as required or permitted by law. The Fund is
permitted by law to disclose all of the information it collects, as described
above, to its service providers (such as the Fund's custodian, administrator and
transfer agent) to process your transactions and otherwise provide services to
you.
CONFIDENTIALITY AND SECURITY. The Fund restricts access to your nonpublic
personal information to those persons who require such information to provide
products or services to you. The Fund maintains physical, electronic and
procedural safeguards that comply with federal standards to guard your nonpublic
personal information.
================================================================================
22
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
Cornerstone Total Return Fund, Inc. is a closed-end, diversified investment
company whose shares trade on the NYSE Alternext US LLC. Its investment
objective is to seek capital appreciation with current income as a secondary
objective by investing primarily in U.S. and non-U.S. companies. The Fund is
managed by Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the NYSE Alternext US LLC (symbol "CRF"). The share price
is published in: The NEW YORK TIMES (daily) under the designation "Cnrstn TR"
and THE WALL STREET JOURNAL (daily) and BARRON'S (each Monday) under the
designation "CornstnTtlRtn." The net asset value per share is available weekly
and may be obtained by contacting the Fund at the general inquiry phone number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE TOTAL RETURN FUND, INC. MAY
FROM TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. It is not a prospectus, circular
or representation intended for use in the purchase or sale of shares of the Fund
or of any securities mentioned in the report.
--------------------------------------------------------------------------------
================================================================================
23
================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Gary A. Bentz Chief Compliance Officer,
Secretary, and
Assistant Treasurer
William A. Clark Vice President
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock Transfer &
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 10038
INDEPENDENT REGISTERED
ADMINISTRATOR PUBLIC ACCOUNTING FIRM
Ultimus Fund Solutions, LLC Tait, Weller & Baker LLP
305 Madison Avenue 1818 Market Street
New York, NY 10165 Suite 2400
Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Blank Rome LLP
101 Carnegie Center 405 Lexington Avenue
Princeton, NJ 08540 New York, NY 10174
EXECUTIVE OFFICES
305 Madison Avenue
New York, NY 10165
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (513) 326-3597.
CRF
LISTED
ALTERNEXT.
CORNERSTONE TOTAL RETURN FUND, INC.
ITEM 2. CODE OF ETHICS.
(a) As of the end of the period covered by this report, the Registrant has
adopted a code of ethics that applies to the Registrant's principal executive
officer, principal accounting officer, and persons performing similar functions.
(c) and (d). During the period covered by this report, there was no amendment
to, and no waiver granted from, any provision of the code of ethics that applies
to the Registrant's principal executive officer, principal accounting officer,
and persons performing similar functions.
(f)(1) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit
(EX-99.CODE ETH) a copy of its code of ethics that applies to its principal
executive officer, principal financial officer, and persons performing similar
functions.
(f)(3) The Registrant undertakes to provide to any person without charge, upon
request, a copy of its code of ethics. This can be accomplished by calling the
Registrant at (513) 326-3597.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The registrant's board of directors has determined that it does not have
an audit committee financial expert serving on its audit committee.
(a)(2) Not applicable
(a)(3) At this time, the registrant believes that the experience provided by
each member of the audit committee together offer the registrant adequate
oversight for the registrant's level of financial complexity.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) through (d). The information in the table below is provided for services
rendered to the registrant by its independent registered public accounting firm,
Tait, Weller & Baker LLP for the Registrant's fiscal years ended December 31,
2008 and December 31, 2007.
2008 2007
------- -------
Audit Fees $14,100 $13,600
Audit-related Fees -- --
Tax Fees (1) 3,000 2,700
All Other Fees -- --
------- -------
Total $17,100 $16,300
======= =======
(1) Tax services in connection with the registrant's excise tax calculations and
review of the registrant's applicable tax returns.
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
Before the auditor is (i) engaged by the Registrant to render audit, audit
related or permissible non-audit services to the Registrant or (ii) with respect
to non-audit services to be provided by the auditor to the Registrant's
investment adviser or any entity in the investment Registrant complex, if the
nature of the services provided relate directly to the operations or financial
reporting of the Registrant, either: (a) the Audit Committee shall pre-approve
such engagement; or (b) such engagement shall be entered into pursuant to
pre-approval policies and procedures established by the Audit Committee. Any
such policies and procedures must be detailed as to the particular service and
not involve any delegation of the Audit Committee's responsibilities to the
Registrant's investment adviser. The Audit Committee may delegate to one or more
of its members the authority to grant pre-approvals. The pre-approval policies
and procedures shall include the requirement that the decisions of any member to
whom authority is delegated under this provision shall be presented to the full
Audit Committee at its next scheduled meeting. Under certain limited
circumstances, pre-approvals are not required if certain de minimis thresholds
are not exceeded, as such thresholds are set forth by the Audit Committee and in
accordance with applicable SEC rules and regulations.
(e)(2) None of the services provided to the Registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) There were no non-audit fees billed by Tait, Weller & Baker LLP for services
rendered to the Registrant, the Registrant's investment advisor (not including
any sub-advisor whose role is primarily portfolio management and is
subcontracted with or overseen by another investment advisor) or any entity
controlling, controlled by, or under common control with the investment advisor
that provides ongoing services to the Registrant for the Registrant's last two
fiscal years (December 31, 2007 and December 31, 2008).
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities and
Exchange Act of 1934, as amended. Glenn Wilcox (Chair), Edwin Meese, Thomas
Lenagh, Andy Strauss and Scott 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, 2008
No. of
Description Shares Value
-------------------------------------------------- -------------------------
EQUITY SECURITIES - 99.12%
CLOSED-END FUNDS - 9.59%
Adams Express Company (a) 73,000 $ 586,190
Alpine Global Premier Properties Fund 8,000 31,600
Blue Chip Value Fund, Inc. 27,000 63,450
Boulder Total Return Fund, Inc. 7,500 73,950
Central Europe and Russia Fund, Inc. (The) 2,500 41,075
Denali Fund (The) 8,500 89,165
Dreman/Claymore Dividend & Income Fund 56,500 106,785
Gabelli Global Multimedia Trust, Inc. 5,500 24,475
General American Investors Company, Inc. 4,000 69,600
H&Q Healthcare Investors 14,400 159,408
H&Q Life Sciences Investors 9,000 77,760
Japan Equity Fund Inc. 13,000 64,480
Liberty All-Star Equity Fund 37,000 129,500
Liberty All-Star Growth Fund, Inc. 76,075 197,795
Petroleum & Resources Corporation (a) 3,000 58,170
Templeton Emerging Markets Fund 3,000 27,300
Zweig Fund, Inc. 85,000 244,800
Zweig Total Return Fund, Inc. (The) 5,000 16,850
----------
2,062,353
----------
CONSUMER DISCRETIONARY - 7.62%
Amazon.com, Inc. * 2,500 128,200
Bed Bath & Beyond Inc. ^ * 2,500 63,550
Comcast Corporation, Class A 9,012 152,123
Comcast Corporation, Special Class A 4,250 68,637
DIRECTV Group, Inc. (The) ^ * 4,000 91,640
Ford Motor Company ^ * 5,000 11,450
Gap, Inc. (The) 3,000 40,170
Goodyear Tire & Rubber Company (The) * 2,500 14,925
Home Depot, Inc. (The) 5,000 115,100
Lowe's Companies, Inc. 5,000 107,600
Mattel, Inc. 1,500 24,000
McDonald's Corporation 3,100 192,789
News Corporation, Class B ^ 2,500 23,925
NIKE, Inc., Class B ^ 2,500 127,500
Omnicom Group Inc. 3,000 80,760
Pulte Homes, Inc. 2,500 27,325
Staples, Inc. 3,150 56,448
Time Warner Inc. 8,000 80,480
TJX Companies, Inc. (The) 2,500 51,425
Walt Disney Company (The) 8,000 181,520
----------
1,639,567
----------
CONSUMER STAPLES - 12.29%
Altria Group, Inc. 5,000 75,300
Archer-Daniels-Midland Company 2,500 72,075
Coca-Cola Company (The) 5,000 226,350
Colgate-Palmolive Company 1,000 68,540
ConAgra Foods, Inc. 2,500 41,250
CVS Caremark Corporation 4,175 119,989
H.J. Heinz Company 2,700 101,520
Kraft Foods Inc, Class A 5,328 143,057
Kroger Co. (The) 3,600 95,076
PepsiCo, Inc. 3,000 164,310
Philip Morris International Inc. 5,700 248,007
Procter & Gamble Company (The) 8,472 523,739
Sara Lee Corporation 2,500 24,475
Walgreen Co. 1,600 39,472
Wal-Mart Stores, Inc. 12,500 700,750
----------
2,643,910
----------
ENERGY - 12.10%
Chesapeake Energy Corporation 2,500 40,425
Chevron Corporation 5,068 374,880
Devon Energy Corporation 2,500 164,275
El Paso Corporation 5,000 39,150
EOG Resources, Inc. 1,000 66,580
Exxon Mobil Corporation 15,000 1,197,450
Halliburton Company 2,500 45,450
Occidental Petroleum Corp. 2,500 149,975
Peabody Energy Corporation 2,500 56,875
Schlumberger Limited 5,000 211,650
Spectra Energy Corporation ^ 2,500 39,350
Transocean Ltd. * 1,000 47,250
Weatherford International Ltd. * 2,000 21,640
Williams Companies, Inc. (The) 2,500 36,200
XTO Energy, Inc. 3,125 110,219
----------
2,601,369
----------
FINANCIALS - 10.95%
Aflac Inc. 1,500 68,760
Aon Corporation 2,500 114,200
Bank of America Corporation 10,521 148,136
Bank of New York Mellon Corporation 2,800 79,324
BB&T Corporation ^ 2,000 54,920
Charles Schwab Corporation (The) 8,200 132,594
Chubb Corporation (The) 2,000 102,000
Goldman Sachs Group, Inc. (The) 1,000 84,390
Hudson City Bancorp, Inc. 2,500 39,900
JPMorgan Chase & Co. 18,200 573,846
MetLife, Inc. 3,000 104,580
Morgan Stanley 4,000 64,160
State Street Corporation 1,600 62,928
Travelers Companies, Inc. (The) 3,092 139,758
Unum Group 2,500 46,500
U.S. Bancorp 5,000 125,050
Wells Fargo & Company 14,000 412,720
----------
2,353,766
----------
HEALTHCARE - 12.98%
Abbott Laboratories 3,000 160,110
Aetna Inc. 4,000 114,000
Amgen Inc. * 3,000 173,250
Baxter International Inc. 2,500 133,975
Bristol-Myers Squibb Company 4,000 93,000
Celgene Corporation * 2,500 138,200
Express Scripts, Inc. * 1,200 65,976
Gilead Sciences, Inc. * 3,000 153,420
Johnson & Johnson 13,500 807,705
McKesson Corporation 2,500 96,825
Medtronic, Inc. 4,500 141,390
Merck & Co. Inc. 5,000 152,000
Pfizer Inc. 12,000 212,520
St. Jude Medical, Inc. * 2,500 82,400
Stryker Corporation 2,000 79,900
UnitedHealth Group Incorporated 3,500 93,100
Wyeth 2,500 93,775
----------
2,791,546
----------
INDUSTRIALS - 9.97%
Caterpillar Inc. 2,500 111,675
CSX Corporation 5,000 162,350
Danaher Corporation 2,500 141,525
Deere & Company ^ 2,000 76,640
Emerson Electric Co. 2,500 91,525
General Dynamics Corporation 2,500 143,975
General Electric Company 34,000 550,800
Illinois Tool Works Inc. 2,500 87,625
Lockheed Martin Corporation 2,500 210,200
Republic Services, Inc. 1,125 27,889
United Parcel Service, Inc., Class B 4,000 220,640
United Technologies Corporation 4,400 235,840
Waste Management, Inc. 2,500 82,850
----------
2,143,534
----------
INFORMATION TECHNOLOGY - 13.91%
Agilent Technologies Inc. * 2,500 39,075
Apple, Inc. * 2,000 170,700
Automatic Data Processing, Inc. 2,500 98,350
Cisco Systems, Inc. * 13,000 211,900
Corning Incorporated 3,000 28,590
eBay Inc. * 2,500 34,900
EMC Corporation * 8,000 83,760
Google Inc. * 1,000 307,650
Hewlett-Packard Company 5,000 181,450
Intel Corporation 16,000 234,560
International Business Machines Corporation 4,200 353,472
Intuit Inc. * 2,500 59,475
Microsoft Corporation 22,500 437,400
Oracle Corporation * 23,600 418,428
Paychex, Inc. 2,500 65,700
QUALCOMM Inc. 3,800 136,154
Texas Instruments Incorporated 4,000 62,080
Xerox Corporation 3,000 23,910
Xilinx, Inc. 2,500 44,550
----------
2,992,104
----------
MATERIALS - 2.10%
Air Products & Chemicals, Inc. 2,500 125,675
Dow Chemical Company (The) 3,500 52,815
E. I. du Pont de Nemours and Company 2,800 70,840
Freeport-McMoRan Copper & Gold, Inc. 2,500 61,100
Monsanto Company 2,000 140,700
----------
451,130
----------
REAL ESTATE INVESTMENT TRUST - 0.62%
Simon Property Group, Inc. 2,500 132,825
----------
TELECOMMUNICATION SERVICES - 3.51%
AT&T Inc. 17,589 501,286
Verizon Communications Inc. 7,500 254,250
----------
755,536
----------
UTILITIES - 3.48%
American Electric Power Company, Inc. 5,500 183,040
Dominion Resources, Inc. 2,000 71,680
Duke Energy Corporation 6,600 99,066
FirstEnergy Corp. 2,500 121,450
FPL Group, Inc. 1,000 50,330
NiSource Inc. 2,500 27,425
Southern Company (The) 2,500 92,500
Xcel Energy, Inc. 5,500 102,025
----------
747,516
----------
TOTAL EQUITY SECURITIES 21,315,156
----------
(cost - $25,749,449)
SHORT-TERM INVESTMENTS - 2.62%
MONEY MARKET SECURITY - 1.07%
JPMorgan U.S. Government Money Market Fund 230,040 230,040
----------
Principal
Amount
(000's)
---------
REPURCHASE AGREEMENTS - 1.55%
J.P. Morgan Securities Inc. + 3 3,417
(Agreement dated 12/31/2008 to be
repurchased at $3,417, 0.01%, 1/2/2009,
collateralized by $5,011 in United States
Treasury Notes)
J.P. Morgan Securities Inc. + ++ 10 10,390
(Agreement dated 12/31/2008 to be
repurchased at $10,390, 0.02%, 1/2/2009,
collateralized by $15,034 in United States
Treasury Notes)
J.P. Morgan Securities Inc. + ++ 320 320,450
(Agreement dated 12/31/2008 to be
repurchased at $320,451, 0.04%, 1/2/2009,
collateralized by $330,741 in United States
Treasury Notes)
----------
334,257
----------
TOTAL SHORT-TERM INVESTMENTS
(cost - $564,297) 564,297
----------
TOTAL INVESTMENTS - 101.74%
(cost - $26,313,746) 21,879,453
----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.74)% (374,833)
----------
NET ASSETS - 100.00% $ 21,504,620
============
(a) Affiliated investment. The Fund holds 2.73% and 0.27% (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, 2008, 13,600 and 11,000 shares of Adams Express Company
were purchased and sold, respectively.
* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ Stated interest rate, before rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities on
loan.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
CORNERSTONE TOTAL RETURN FUND, INC.
NEW YORK, NEW YORK
We have audited the accompanying statement of assets and liabilities of
Cornerstone Total Return Fund, Inc., including the schedule of investments as of
December 31, 2008, 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, 2008, 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, 2008, 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, 2008 appearing in Item 6 of this Form N-CSR is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements. This additional information is the responsibility of the
Fund's management. Such information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
TAIT, WELLER & BAKER LLP
PHILADELPHIA, PENNSYLVANIA
FEBRUARY 24, 2009
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant and Cornerstone Advisors, Inc. share the same Proxy
Voting Policies and Procedures. The respective Proxy Voting Policies and
Procedures of the Registrant and Adviser are attached as EXHIBIT99.VOTEREG
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) All information contained in this item and its subparts is as of the date
of this filing, unless otherwise noted. Ralph W. Bradshaw and William A. Clark
are employees of Cornerstone Advisors, Inc. (the Investment Manager) and
portfolio managers of the Fund. Mr. Bradshaw has acted as the portfolio manager
since 2002. Mr. Clark has acted as the portfolio manager since 2003. Ralph W.
Bradshaw's occupation for the last five years is President of Cornerstone
Advisors, Inc. and a Financial Consultant. William A. Clark's occupation for the
last five years is Director and Stockholder of Cornerstone Advisors, Inc. and
Vice President and former Director/Trustee of Cornerstone Strategic Value Fund,
Inc. and Cornerstone Progressive Return Fund.
(a)(2)(i) Ralph W. Bradshaw and William A. Clark
(a)(2)(ii)(A) Registered Investment Companies - Ralph W. Bradshaw and
William A. Clark each manage two other registered closed-end funds (Cornerstone
Strategic Value Fund, Inc. and Cornerstone Progressive Return Fund). As of
December 31, 2008, the total assets of Cornerstone Strategic Value Fund, Inc.
was $60.7 million. As of December 31, 2008, the total assets of Cornerstone
Progressive Return Fund, Inc. was $70.0 million.
(a)(2)(ii)(B) Not applicable
(a)(2)(ii)(C) Not applicable
(a)(2)(iii) None. Ralph W. Bradshaw and William A. Clark manage no accounts
where the Advisory Fee is based on the performance of the account.
(a)(2)(iv) None.
(a)(3) As of the most recent fiscal year end December 31, 2008, the compensation
paid to both Ralph W. Bradshaw and William A. Clark was fixed.
(a)(4) The dollar range of equity securities owned in the registrant
beneficially by each portfolio manager is as follows: for Ralph W. Bradshaw it
is in the range of $10,001-$50,000 and for William A. Clark it is in the range
of $10,001-$50,000.
(b) None.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have evaluated the Registrant's disclosure controls and procedures as of a date
within 90 days of this filing and have concluded that the Registrant's
disclosure controls and procedures are effective, as of such date, in ensuring
that information required to be disclosed by the registrant in this Form N-CSR
was recorded, processed, summarized, and reported timely.
(b) The Registrant's principal executive officer and principal financial officer
are aware of no changes in the Registrant's internal control over financial
reporting that occurred during the Registrant's last fiscal half-year that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics attached as EX-99.CODE ETH.
(a)(2) Separate certifications of Principal Executive and Financial Officers
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 attached as
EX-99.CERT.
(b) Certification of Principal Executive and Financial Officers pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906 CERT.
(99) Proxy Voting Policies of the Registrant and Adviser attached as
EX-99.VOTEREG.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By: /S/ RALPH W. BRADSHAW
-------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: March 6, 2009
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.
Cornerstone Total Return Fund, Inc.
By: /S/ RALPH W. BRADSHAW
-------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: March 6, 2009
By: /S/ GARY A. BENTZ
----------------------
Name: Gary A. Bentz
Title: Principal Financial Officer
Date: March 6, 2009