fp0005843_nq.htm
 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
 
Investment Company Act file number     811-02363         
 
Cornerstone Total Return Fund, Inc.
(Exact name of registrant as specified in charter)
 
225 Pictoria Drive, Suite 450        Cincinnati, Ohio
45246
(Address of principal executive offices)
(Zip code)
 
Theresa M. Bridge
 
Ultimus Fund Solutions, LLC     225 Pictoria Drive, Suite 450  Cincinnati, OH 45246
(Name and address of agent for service)
 
Registrant's telephone number, including area code: (513) 587-3400         
 
Date of fiscal year end:      December 31, 2012         
 
Date of reporting period:    September 30, 2012         
 
Form N-Q is to be used by management investment companies other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to Rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
 
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q 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. § 3507.
 
 
 
 
 
Item 1.  Schedule of Investments.
 
CORNERSTONE TOTAL RETURN FUND, INC.
  
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2012 (Unaudited)
  
   
Description
  
No. of Shares
    
Value
  
EQUITY SECURITIES - 99.63%
            
CLOSED-END FUNDS - 22.84%
            
CORE - 0.15%
            
General American Investors Company, Inc.
     1,834     $ 53,333  
                 
CORPORATE DEBT FUNDS INVESTMENT GRADE-RATED - 1.86%
                
Federated Enhanced Treasury Income Fund
     9,183       131,317  
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund
     11,100       149,295  
Western Asset/Claymore Inflation-Linked Securities & Income Fund
     29,732       394,544  
              675,156  
DEVELOPED MARKET - 0.53%
                
Japan Smaller Capitalization Fund, Inc.
     23,533       169,202  
Singapore Fund, Inc. (The)
     1,600       22,112  
              191,314  
GLOBAL - 3.40%
                
AGIC Global Equity & Convertible Income Fund
     10,400       139,568  
Clough Global Equity Fund
     4,923       63,605  
Clough Global Opportunities Fund
     60,413       706,832  
First Trust Active Dividend Income Fund
     19,814       167,825  
Lazard World Dividend & Income Fund, Inc.
     12,700       154,432  
              1,232,262  
GLOBAL INCOME - 1.07%
                
Nuveen Multi-Currency Short-Term Government Income Fund
     29,414       388,265  
                 
INCOME & PREFERRED STOCK - 0.72%
                
Zweig Total Return Fund, Inc. (The)
     20,804       263,379  
                 
OPTION ARBITRAGE/OPTIONS STRATEGIES - 14.07%
                
BlackRock Enhanced Equity Dividend Trust
     15,600       117,936  
BlackRock International Growth and Income Trust
     61,500       448,335  
Eaton Vance Enhanced Equity Income Fund
     45,872       508,262  
Eaton Vance Enhanced Equity Income Fund II
     48,428       536,582  
Eaton Vance Risk-Managed Diversified Equity Income Fund
     80,913       852,014  
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
     40,300       524,303  
 
See accompanying notes to schedule of investments.
 
 
 
 
 
CORNERSTONE TOTAL RETURN FUND, INC.
  
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2012 (Unaudited) (Continued)
  
   
Description
  
No. of Shares
    
Value
  
OPTION ARBITRAGE/OPTIONS STRATEGIES (Continued)
            
Eaton Vance Tax-Managed Diversified Equity Income Fund
     66,439     $ 631,835  
Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund
     29,700       329,670  
Eaton Vance Tax-Managed Global Diversified Equity Income Fund
     119,344       1,051,420  
ING Global Advantage and Premium Opportunity Fund
     8,500       100,640  
              5,100,997  
REAL ESTATE - 0.96%
                
Neuberger Berman Real Estate Securities Income Fund Inc.
     73,524       347,033  
                 
SECTOR EQUITY - 0.08%
                
Gabelli Healthcare & WellnessRx Trust (The)
     3,079       28,050  
                 
TOTAL CLOSED-END FUNDS
       8,279,789  
                 
CONSUMER DISCRETIONARY - 8.64%
                
Bed Bath & Beyond, Inc. *
     2,500       157,500  
CBS Corporation - Class B
     3,000       108,990  
Comcast Corporation - Class A
     4,012       143,509  
Comcast Corporation - Special Class A
     4,250       147,900  
DIRECTV *
     4,000       209,840  
Gap, Inc.
     1,500       53,670  
Home Depot, Inc. (The)
     4,000       241,480  
Lowe's Companies, Inc.
     5,000       151,200  
Macy's, Inc.
     3,000       112,860  
McDonald's Corporation
     2,500       229,375  
News Corporation - Class B
     2,500       62,000  
Target Corporation
     3,500       222,145  
Time Warner Cable, Inc.
     2,000       190,120  
Time Warner, Inc.
     4,666       211,510  
TJX Companies, Inc. (The)
     5,000       223,950  
Viacom Inc. - Class B
     3,000       160,770  
Walt Disney Company (The)
     6,500       339,820  
Yum! Brands, Inc.
     2,500       165,850  
              3,132,489  
 
See accompanying notes to schedule of investments.
 
 
 
 
 
CORNERSTONE TOTAL RETURN FUND, INC.
  
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2012 (Unaudited) (Continued)
  
   
Description
  
No. of Shares
    
Value
  
CONSUMER STAPLES - 8.47%
            
Altria Group, Inc.
     7,000     $ 233,730  
Coca-Cola Company (The)
     20,000       758,600  
CVS Caremark Corporation
     7,000       338,940  
Kimberly-Clark Corporation
     1,000       85,780  
Kraft Foods Inc. - Class A
     3,000       124,050  
Kroger Company (The)
     3,000       70,620  
Philip Morris International, Inc.
     2,500       224,850  
Reynolds American Inc.
     1,200       52,008  
Wal-Mart Stores, Inc.
     16,000       1,180,800  
              3,069,378  
ENERGY - 8.95%
                
Anadarko Petroleum Corporation
     1,000       69,920  
Chevron Corporation
     7,500       874,200  
ConocoPhillips
     6,000       343,080  
EOG Resources, Inc.
     1,000       112,050  
Exxon Mobil Corporation
     12,000       1,097,400  
Halliburton Company
     2,000       67,380  
Marathon Oil Corporation
     4,900       144,893  
Phillips 66
     3,000       139,110  
Schlumberger Limited
     4,500       325,485  
Williams Companies, Inc.
     2,000       69,940  
              3,243,458  
FINANCIALS - 10.51%
                
AFLAC, Inc.
     3,000       143,640  
Allstate Corporation (The)
     2,500       99,025  
American Express Company
     6,000       341,160  
BB&T Corporation
     3,000       99,480  
Capital One Financial Corporation
     2,500       142,525  
Discover Financial Services
     4,000       158,920  
Fifth Third Bancorp
     7,000       108,570  
Franklin Resources, Inc.
     1,000       125,070  
JPMorgan Chase & Co.
     15,200       615,296  
Marsh & McLennan Companies, Inc.
     4,000       135,720  
MetLife, Inc.
     5,500       189,530  
SunTrust Banks, Inc.
     3,000       84,810  
U.S. Bancorp
     12,500       428,750  
Wells Fargo & Company
     33,000       1,139,490  
              3,811,986  
HEALTH CARE - 10.02%
                
Abbott Laboratories
     6,000       411,360  
Amgen Inc.
     4,000       337,280  
Baxter International, Inc.
     1,200       72,312  
 
See accompanying notes to schedule of investments.
 
 
 
 
 
CORNERSTONE TOTAL RETURN FUND, INC.
  
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2012 (Unaudited) (Continued)
  
   
Description
  
No. of Shares
    
Value
  
HEALTH CARE (Continued)
            
Bristol-Myers Squibb Company
     6,000     $ 202,500  
Covidien plc
     2,000       118,840  
Eli Lilly & Company
     2,500       118,525  
Express Scripts Holding Company *
     1,620       101,525  
Johnson & Johnson
     6,500       447,915  
McKesson Corporation
     2,500       215,075  
Merck & Company, Inc.
     16,000       721,600  
Pfizer, Inc.
     16,462       409,081  
Stryker Corporation
     1,000       55,660  
Thermo Fisher Scientific Inc.
     2,000       117,660  
UnitedHealth Group, Inc.
     5,500       304,755  
              3,634,088  
INDUSTRIALS - 7.40%
                
Boeing Company (The)
     2,000       139,240  
Caterpillar Inc.
     3,000       258,120  
CSX Corporation
     6,000       124,500  
Cummins Inc.
     1,000       92,210  
Deere & Company
     2,500       206,225  
General Electric Company
     22,000       499,620  
Honeywell International Inc.
     4,000       239,000  
ITT Corporation
     2,900       58,435  
Lockheed Martin Corporation
     2,500       233,450  
Norfolk Southern Corporation
     2,000       127,260  
Northrop Grumman Corporation
     1,500       99,645  
Raytheon Company
     2,000       114,320  
Union Pacific Corporation
     2,500       296,750  
United Technologies Corporation
     2,500       195,725  
              2,684,500  
INFORMATION TECHNOLOGY - 14.47%
                
Apple Inc.
     3,000       2,001,780  
Automatic Data Processing, Inc.
     1,000       58,660  
Cisco Systems, Inc.
     8,000       152,720  
eBay Inc. *
     7,000       338,870  
International Business Machines Corporation
     5,000       1,037,250  
Microsoft Corporation
     36,000       1,072,080  
Oracle Corporation
     18,600       585,714  
              5,247,074  
MATERIALS - 2.63%
                
Air Products & Chemicals, Inc.
     1,500       124,050  
CF Industries Holdings, Inc.
     600       133,344  
Dow Chemical Company (The)
     6,000       173,760  
E.I. du Pont de Nemours and Company
     4,800       241,296  
 
See accompanying notes to schedule of investments.
 
 
 
 
 
CORNERSTONE TOTAL RETURN FUND, INC.
  
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2012 (Unaudited) (Concluded)
  
   
Description
  
No. of Shares
    
Value
  
MATERIALS (Continued)
            
Freeport-McMoRan Copper & Gold, Inc.
     5,000     $ 197,900  
International Paper Company
     2,300       83,536  
              953,886  
TELECOMMUNICATION SERVICES - 2.83%
                
AT&T, Inc.
     17,589       663,105  
Verizon Communications, Inc.
     8,000       364,560  
              1,027,665  
UTILITIES - 2.87%
                
AES Corporation (The) *
     4,600       50,462  
Consolidated Edison, Inc.
     1,000       59,890  
Duke Energy Corporation
     2,200       142,560  
Exelon Corporation
     3,500       124,530  
FirstEnergy Corporation
     2,000       88,200  
NextEra Energy, Inc.
     2,000       140,660  
Sempra Energy
     1,500       96,735  
Southern Company (The)
     4,000       184,360  
Xcel Energy, Inc.
     5,500       152,405  
              1,039,802  
                 
TOTAL EQUITY SECURITIES (cost - $30,615,288)
       36,124,115  
                 
SHORT-TERM INVESTMENTS - 0.43%
                
MONEY MARKET FUNDS - 0.43%
                
Fidelity Institutional Money Market Government Portfolio - Class I, 0.01%^ (cost - $155,741)
     155,741       155,741  
                 
TOTAL INVESTMENTS - 100.06% (cost - $30,771,029)
       36,279,856  
                 
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.06)%
       (23,044 )
                 
NET ASSETS - 100.00%
     $ 36,256,812  
 
*   Non-income producing security.
^   Variable rate security.  The rate shown is the 7-day effective yield as of September 30, 2012.
 
 
 
 
 
CORNERSTONE TOTAL RETURN FUND, INC.
NOTES TO SCHEDULE OF INVESTMENTS
September 30, 2012 (UNAUDITED)
 
Federal Income Tax Cost: The following information is computed on a tax basis for each item as of September 30, 2012:
 
Cost of portfolio investments
   $ 30,778,153  
Gross unrealized appreciation
   $ 6,135,346  
Gross unrealized depreciation
     (633,643 )
Net unrealized appreciation
   $ 5,501,703  
 
The difference between the federal income tax cost of portfolio investments and the Schedule of Investments cost for the Fund is due to certain timing differences in the recognition of capital gains or losses under income tax regulations and generally accepted accounting principles.  These “book/tax” differences are temporary in nature and are due to the tax deferral of losses on wash sales.
 
As required by the Fair Value Measurement and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, the Fund has performed an analysis of all assets and liabilities measured at fair value to determine the significance and character of all inputs to their fair value determination.
 
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.
 
·
Level 1 – quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement.
 
·
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.
 
·
Level 3 – model derived valuations in which one or more significant inputs or significant value drivers are unobservable.  Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.
 
 
 
 
 
The following is a summary of the inputs used as of September 30, 2012 in valuing the Fund’s investments carried at value:
 
VALUATION INPUTS
  
INVESTMENTS
IN
SECURITIES
    
OTHER
FINANCIAL
INSTRUMENTS*
  
             
Level 1 - Quoted Prices
            
  Equity Investments
  
$
        36,124,115
    
$
                       -
  
  Short-Term Investments
    
             155,741
      
                       -
  
Level 2 - Other Significant Observable Inputs
    
                     -
      
                       -
  
Level 3 – Significant Unobservable Inputs
    
                     -
      
                       -
  
Total
  
$
        36,279,856
    
$
                       -
  
 
* Other financial instruments include futures, forwards and swap contracts, if any.

The breakdown of the Fund’s investments into major categories is disclosed in its Schedule of Investments.
 
As of September 30, 2012, the Fund did not have any transfers in and out of any Level.
 
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 September 30, 2012.
 
The disclosures for the Fund’s fiscal year beginning January 1, 2012 relate to presenting separately any Level 3 purchases, sales, issuances and settlements on a gross basis instead of one net amount.  Management will continue to evaluate the impact of ASU No. 2010-6 for the required disclosures.

The Fund is exposed to financial market risks, including the valuations of its investment portfolio.  During the nine months ended September 30, 2012, the Fund did not engage in derivative instruments and other hedging activities.
 
The Fund has evaluated the need for additional disclosures and/or adjustments resulting through the date its financial statements were issued.  Based on this evaluation, no additional disclosures or adjustments were required to such Schedule of Investments.
 
Securities valuation policies and other investment related disclosures are hereby incorporated by reference to the Fund’s semi-annual report previously filed with the Securities and Exchange Commission on the Form N-CSR on September 4, 2012 with a file number 811-02363.
 
Other information regarding the Fund is available in the Fund’s most recent semi-annual report filed with the Securities and Exchange Commission on the Form N-CSR on September 4, 2012, file number 811-02363.  This information is also available to registered shareholders by calling (800) 937-5449.  For general inquiries, please call (513) 326-3597.  This information is also available on the website of the Securities and Exchange Commission – http://www.sec.gov.
 
 
 
 
 
Item 2.  Controls and Procedures.
 
(a)   Based on their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing date of this report, the registrant’s principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are reasonably designed and are operating effectively to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this report is being prepared, and that such information is recorded, processed, summarized, and reported on a timely basis.
 
(b)   There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
Item 3.  Exhibits.
 
File as exhibits as part of this Form a separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)):  Attached hereto

 
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
(Registrant) Cornerstone Total Return Fund, Inc.         
 
By (Signature and Title)*
/s/ Ralph W. Bradshaw
  
   
Ralph W. Bradshaw, President and Chairman
  
   
(Principal Executive Officer)
  
       
Date
November 26, 2012
    
       
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
       
By (Signature and Title)*
/s/ Ralph W. Bradshaw
  
   
Ralph W. Bradshaw, President and Chairman
  
   
(Principal Executive Officer)
  
       
Date
November 26, 2012
    
       
By (Signature and Title)*
/s/ Theresa M. Bridge
  
   
Theresa M. Bridge, Treasurer
(Principal Financial Officer)
  
       
Date
November 26, 2012
    
 
* Print the name and title of each signing officer under his or her signature.