48 Wall Street, 22nd Floor, New York, New York
|
10005
|
(Address of principal executive offices)
|
(Zip code)
|
AST Fund Solutions, LLC, 48 Wall Street, 22nd Floor, New York, New York
|
10005
|
(Name and address of agent for service)
|
ITEM 1.
|
REPORTS TO STOCKHOLDERS.
|
CONTENTS
Portfolio Summary |
1 |
Schedule of Investments |
2 |
Statement of Assets and Liabilities |
7 |
Statement of Operations |
8 |
Statement of Changes in Net Assets |
9 |
Financial Highlights |
10 |
Notes to Financial Statements |
11 |
Report of Independent Registered Public Accounting Firm |
16 |
2016 Tax Information |
17 |
Additional Information Regarding the Fund’s Directors and Corporate Officers |
18 |
Description of Dividend Reinvestment Plan |
20 |
Proxy Voting and Portfolio Holdings Information |
22 |
Summary of General Information |
22 |
Stockholder Information |
22 |
Cornerstone Total Return Fund, Inc. |
SECTOR ALLOCATION
Sector |
Percent of |
Closed-End Funds |
25.1 |
Information Technology |
15.6 |
Financials |
10.9 |
Health Care |
9.8 |
Industrials |
8.3 |
Consumer Discretionary |
8.1 |
Consumer Staples |
7.5 |
Energy |
5.8 |
Materials |
2.0 |
Telecommunication Services |
1.9 |
Utilities |
1.7 |
Exchange-Traded Funds |
1.6 |
Other |
1.3 |
Real Estate |
0.4 |
TOP TEN HOLDINGS, BY ISSUER*
|
Holding |
Sector |
Percent of |
1. |
Alphabet Inc. |
Information Technology |
3.2 |
2. |
Microsoft Corporation |
Information Technology |
3.0 |
3. |
Johnson & Johnson |
Health Care |
2.5 |
4. |
Exxon Mobil Corporation |
Energy |
2.2 |
5. |
General American Investors Company, Inc. |
Closed-End Funds |
2.2 |
6. |
General Electric Company |
Industrials |
2.1 |
7. |
Adams Diversified Equity Fund, Inc. |
Closed-End Funds |
1.9 |
8. |
Alpine Global Total Dynamic Dividend Fund |
Closed-End Funds |
1.9 |
9. |
JPMorgan Chase & Co. |
Financials |
1.8 |
10. |
International Business Machines |
Information Technology |
1.7 |
* |
Excludes short-term investments. |
1 |
Cornerstone Total Return Fund, Inc. |
Description |
No. of |
Value |
||||||
EQUITY SECURITIES — 98.70% |
||||||||
CLOSED-END FUNDS — 25.12% |
||||||||
CORE — 9.03% |
||||||||
Adams Diversified Equity Fund, Inc. |
259,671 |
$ |
3,300,418 |
|||||
General American Investors Company, Inc. |
117,983 |
3,672,811 |
||||||
Liberty All-Star Equity Fund |
523,884 |
2,703,241 |
||||||
Royce Micro-Cap Trust, Inc. |
129,683 |
1,054,323 |
||||||
Royce Value Trust |
157,726 |
2,111,951 |
||||||
Source Capital, Inc. |
28,938 |
1,039,453 |
||||||
Tri-Continental Corporation |
68,395 |
1,508,110 |
||||||
15,390,307 |
||||||||
DEVELOPED MARKET — 0.30% |
||||||||
Aberdeen Singapore Fund, Inc. |
23,724 |
205,450 |
||||||
Swiss Helvetia Fund, Inc. (The) |
30,567 |
312,089 |
||||||
517,539 |
||||||||
EMERGING MARKETS — 1.55% |
||||||||
Aberdeen Chile Fund, Inc. |
35,386 |
210,901 |
||||||
First Trust/Aberdeen Emerging Opportunity Fund |
23,365 |
324,773 |
||||||
Mexico Fund, Inc. (The) |
14,458 |
203,424 |
||||||
Morgan Stanley China A Share Fund, Inc. |
89,800 |
1,525,702 |
||||||
Templeton Dragon Fund, Inc. |
20,400 |
334,152 |
||||||
Turkish Investment Fund, Inc. (The) |
5,456 |
36,992 |
||||||
2,635,944 |
||||||||
GLOBAL — 5.53% |
||||||||
Alpine Global Dynamic Dividend Fund |
33,506 |
293,848 |
||||||
Alpine Global Total Dynamic Dividend Fund |
420,852 |
3,190,058 |
||||||
Clough Global Opportunities Fund |
280,985 |
|
2,514,816 |
|||||
Delaware Enhanced Global Dividend and Income Fund |
58,606 |
592,507 |
||||||
Eaton Vance Tax-Advantaged Global Dividend Income Fund |
11,600 |
163,212 |
||||||
Gabelli Global Small and Mid Cap Value Trust (The) |
28,020 |
297,012 |
||||||
Gabelli Global Utility & Income Trust (The) |
8,203 |
137,810 |
||||||
GDL Fund (The) |
96,213 |
946,736 |
||||||
Lazard Global Total Return and Income Fund, Inc. |
2,220 |
30,503 |
||||||
Royce Global Value Trust, Inc. |
50,533 |
408,307 |
||||||
Wells Fargo Advantage Global Dividend Opportunity Fund |
154,185 |
840,308 |
||||||
9,415,117 |
||||||||
GLOBAL INCOME — 0.07% |
||||||||
Legg Mason BW Global Income Opportunities Fund Inc. |
10,100 |
119,483 |
||||||
INCOME & PREFERRED STOCK — 0.63% |
||||||||
LMP Capital and Income Fund Inc. |
80,839 |
1,074,350 |
||||||
NATURAL RESOURCES — 2.34% |
||||||||
Adams Natural Resources Fund, Inc. |
88,552 |
1,786,094 |
||||||
BlackRock Resources & Commodities Strategy Trust |
266,250 |
2,201,887 |
||||||
3,987,981 |
See accompanying notes to financial statements.
2 |
Cornerstone Total Return Fund, Inc. |
Description |
No. of |
Value |
||||||
OPTION ARBITRAGE/OPTIONS STRATEGIES — 1.52% |
||||||||
AllianzGI NFJ Dividend, Interest & Premium Strategy Fund |
175,112 |
$ |
2,208,162 |
|||||
Eaton Vance Tax-Managed Diversified Equity Income Fund |
10,100 |
104,535 |
||||||
Voya Global Advantage and Premium Opportunity Fund |
29,137 |
286,417 |
||||||
2,599,114 |
||||||||
PACIFIC EX JAPAN — 0.12% |
||||||||
Aberdeen Greater China Fund, Inc. |
21,853 |
189,903 |
||||||
Thai Fund, Inc. (The) |
1,100 |
8,360 |
||||||
198,263 |
||||||||
REAL ESTATE — 3.95% |
||||||||
Alpine Global Premier Properties Fund |
400,001 |
2,052,005 |
||||||
CBRE Clarion Global Real Estate Income Fund |
258,918 |
1,890,101 |
||||||
Cohen & Steers Preferred Securities and Income Fund, Inc. |
112,200 |
2,144,142 |
||||||
RMR Real Estate Income Fund |
31,211 |
638,577 |
||||||
6,724,825 |
||||||||
SECTOR EQUITY — 0.08% |
||||||||
Nuveen Real Asset Income and Growth Fund |
8,200 |
129,068 |
||||||
TOTAL CLOSED-END FUNDS |
42,791,991 |
|||||||
CONSUMER DISCRETIONARY — 8.11% |
||||||||
Amazon.com, Inc. * |
2,000 |
1,499,740 |
||||||
CBS Corporation |
6,000 |
381,720 |
||||||
Carnival Corporation |
5,000 |
260,300 |
||||||
Chipotle Mexican Grill, Inc. * |
800 |
301,856 |
||||||
Delphi Automotive PLC |
3,000 |
|
202,050 |
|||||
Expedia, Inc. |
3,000 |
339,840 |
||||||
Home Depot, Inc. (The) |
10,000 |
1,340,800 |
||||||
Marriott International, Inc. |
6,000 |
496,080 |
||||||
Mattel, Inc. |
5,000 |
137,750 |
||||||
McDonald's Corporation |
11,600 |
1,411,952 |
||||||
Netflix, Inc. * |
5,000 |
619,000 |
||||||
Newell Brands Inc. |
7,000 |
312,550 |
||||||
O’Reilly Automotive, Inc. * |
1,000 |
278,410 |
||||||
Ross Stores, Inc. |
6,000 |
393,600 |
||||||
Starbucks Corporation |
18,000 |
999,360 |
||||||
Target Corporation |
8,000 |
577,840 |
||||||
Time Warner, Inc. |
7,000 |
675,710 |
||||||
Twenty-First Century Fox, Inc. |
8,500 |
231,625 |
||||||
Twenty-First Century Fox, Inc. - Class A |
14,000 |
392,560 |
||||||
V.F. Corporation |
6,000 |
320,100 |
||||||
Viacom, Inc. - Class B |
5,000 |
175,500 |
||||||
Walt Disney Company (The) |
21,500 |
2,240,730 |
||||||
Yum! Brands, Inc. |
3,500 |
221,655 |
||||||
13,810,728 |
||||||||
CONSUMER STAPLES — 7.53% |
||||||||
Altria Group, Inc. |
21,000 |
1,420,020 |
||||||
Clorox Company (The) |
2,000 |
240,040 |
||||||
Coca-Cola Company (The) |
30,000 |
1,243,800 |
||||||
Colgate-Palmolive Company |
10,000 |
654,400 |
||||||
ConAgra Foods, Inc. |
4,500 |
177,975 |
||||||
General Mills, Inc. |
5,000 |
308,850 |
||||||
Kellogg Company |
5,000 |
368,550 |
||||||
Kimberly-Clark Corporation |
2,000 |
228,240 |
||||||
Kraft Heinz Company (The) |
8,000 |
698,560 |
See accompanying notes to financial statements.
3 |
Cornerstone Total Return Fund, Inc. |
Description |
No. of |
Value |
||||||
CONSUMER STAPLES (Continued) |
||||||||
Lamb Weston Holdings, Inc. |
667 |
$ |
25,233 |
|||||
Molson Coors Brewing Company |
2,000 |
194,620 |
||||||
Monster Beverage Corporation * |
6,000 |
266,040 |
||||||
PepsiCo, Inc. |
3,000 |
313,890 |
||||||
Philip Morris International Inc. |
15,000 |
1,372,350 |
||||||
Procter & Gamble Company (The) |
29,000 |
2,438,320 |
||||||
Reynolds American Inc. |
14,000 |
784,560 |
||||||
Sysco Corporation |
4,000 |
221,480 |
||||||
Wal-Mart Stores, Inc. |
27,000 |
1,866,240 |
||||||
12,823,168 |
||||||||
ENERGY — 5.85% |
||||||||
Baker Hughes Incorporated |
3,000 |
194,910 |
||||||
Chevron Corporation |
18,000 |
2,118,600 |
||||||
Concho Resources Inc. * |
2,000 |
265,200 |
||||||
Exxon Mobil Corporation |
42,000 |
3,790,920 |
||||||
Halliburton Company |
10,000 |
540,900 |
||||||
Occidental Petroleum Corporation |
5,900 |
420,257 |
||||||
ONEOK, Inc. |
1,400 |
80,374 |
||||||
Phillips 66 |
6,000 |
518,460 |
||||||
Pioneer Natural Resources Company |
2,000 |
360,140 |
||||||
Schlumberger Limited |
20,000 |
1,679,000 |
||||||
9,968,761 |
||||||||
EXCHANGE-TRADED FUNDS — 1.57% |
||||||||
SPDR S&P 500 ETF Trust |
12,000 |
2,682,360 |
||||||
FINANCIALS — 10.89% |
||||||||
Aflac Incorporated |
5,000 |
348,000 |
||||||
Allstate Corporation (The) |
4,000 |
296,480 |
||||||
American International Group, Inc. |
9,000 |
587,790 |
||||||
Bank of America Corporation |
20,000 |
|
442,000 |
|||||
Berkshire Hathaway Inc. - Class B * |
14,000 |
2,281,720 |
||||||
Capital One Financial Corporation |
5,000 |
436,200 |
||||||
Chubb Limited |
5,203 |
687,420 |
||||||
Citigroup Inc. |
36,700 |
2,181,081 |
||||||
CME Group Inc. |
4,000 |
461,400 |
||||||
Discover Financial Services |
4,000 |
288,360 |
||||||
Franklin Resources, Inc. |
11,000 |
435,380 |
||||||
Goldman Sachs Group, Inc. (The) |
7,000 |
1,676,150 |
||||||
JPMorgan Chase & Co. |
35,000 |
3,020,150 |
||||||
Loews Corporation |
4,000 |
187,320 |
||||||
M&T Bank Corporation |
3,000 |
469,290 |
||||||
MetLife, Inc. |
14,000 |
754,460 |
||||||
Progressive Corporation (The) |
5,000 |
177,500 |
||||||
Prudential Financial, Inc. |
4,000 |
416,240 |
||||||
State Street Corporation |
6,000 |
466,320 |
||||||
Torchmark Corporation |
1,600 |
118,016 |
||||||
Unum Group |
2,700 |
118,611 |
||||||
U.S. Bancorp |
17,000 |
873,290 |
||||||
Wells Fargo & Company |
33,000 |
1,818,630 |
||||||
18,541,808 |
||||||||
HEALTH CARE — 9.78% |
||||||||
Abbott Laboratories |
21,000 |
806,610 |
||||||
Anthem, Inc. |
4,000 |
575,080 |
||||||
Baxter International Inc. |
8,000 |
354,720 |
||||||
Boston Scientific Corporation * |
10,000 |
216,300 |
||||||
Bristol-Myers Squibb Company |
22,000 |
1,285,680 |
||||||
Celgene Corporation * |
7,000 |
810,250 |
||||||
Cigna Corporation |
4,000 |
533,560 |
See accompanying notes to financial statements.
4 |
Cornerstone Total Return Fund, Inc. |
Description |
No. of |
Value |
||||||
HEALTH CARE (Continued) |
||||||||
Eli Lilly and Company |
7,000 |
$ |
514,850 |
|||||
Johnson & Johnson |
37,000 |
4,262,770 |
||||||
Medtronic Plc |
13,000 |
925,990 |
||||||
Merck & Company, Inc. |
38,000 |
2,237,060 |
||||||
Mylan N.V. * |
4,000 |
152,600 |
||||||
Pfizer Inc. |
74,200 |
2,410,016 |
||||||
Stryker Corporation |
6,000 |
718,860 |
||||||
Thermo Fisher Scientific Inc. |
6,000 |
846,600 |
||||||
16,650,946 |
||||||||
INDUSTRIALS — 8.33% |
||||||||
3M Company |
8,000 |
1,428,560 |
||||||
AdvanSix Inc. * |
320 |
7,085 |
||||||
Boeing Company (The) |
7,000 |
1,089,760 |
||||||
Caterpillar Inc. |
7,000 |
649,180 |
||||||
Danaher Corporation |
9,000 |
700,560 |
||||||
Deere & Company |
6,000 |
618,240 |
||||||
Emerson Electric Co. |
7,000 |
390,250 |
||||||
Fortive Corporation |
3,500 |
187,705 |
||||||
General Dynamics Corporation |
3,000 |
517,980 |
||||||
General Electric Company |
112,100 |
3,542,360 |
||||||
Johnson Controls International plc |
6,000 |
247,140 |
||||||
Lockheed Martin Corporation |
4,500 |
1,124,730 |
||||||
Raytheon Company |
4,000 |
568,000 |
||||||
United Parcel Service, Inc. |
10,100 |
1,157,864 |
||||||
United Technologies Corporation |
14,000 |
1,534,680 |
||||||
Waste Management, Inc. |
6,000 |
425,460 |
||||||
14,189,554 |
||||||||
INFORMATION TECHNOLOGY — 15.59% |
||||||||
Accenture plc - Class A |
9,500 |
1,112,735 |
||||||
Activision Blizzard, Inc. |
6,700 |
241,937 |
||||||
Adobe Systems Incorporated * |
6,000 |
617,700 |
||||||
Alphabet Inc. - Class A * |
1,000 |
|
792,450 |
|||||
Alphabet Inc. - Class C * |
6,002 |
4,632,464 |
||||||
Automatic Data Processing, Inc. |
6,500 |
668,070 |
||||||
Broadcom Limited |
6,200 |
1,095,974 |
||||||
Cisco Systems, Inc. |
50,000 |
1,511,000 |
||||||
Corning Incorporated |
13,000 |
315,510 |
||||||
eBay Inc. * |
7,000 |
207,830 |
||||||
Facebook, Inc. * |
19,900 |
2,289,495 |
||||||
Fidelity National Information Services, Inc. |
4,000 |
302,560 |
||||||
International Business Machines |
17,000 |
2,821,830 |
||||||
Microsoft Corporation |
83,600 |
5,194,904 |
||||||
Oracle Corporation |
45,700 |
1,757,165 |
||||||
Paychex, Inc, |
2,600 |
158,288 |
||||||
PayPal Holdings, Inc. * |
14,000 |
552,580 |
||||||
QUALCOMM Incorporated |
8,000 |
521,600 |
||||||
salesforce.com, inc. * |
5,000 |
342,300 |
||||||
Symantec Corporation |
7,000 |
167,230 |
||||||
Visa Inc. |
16,000 |
1,248,320 |
||||||
26,551,942 |
||||||||
MATERIALS — 1.99% |
||||||||
Air Products & Chemicals, Inc. |
2,000 |
287,640 |
||||||
Dow Chemical Company (The) |
11,000 |
629,420 |
||||||
E. I. du Pont de Nemours and Company |
10,000 |
734,000 |
||||||
Freeport-McMoRan Inc. |
18,100 |
238,739 |
||||||
Monsanto Company |
5,000 |
526,050 |
||||||
Newmont Mining Corporation |
5,000 |
170,350 |
||||||
Nucor Corporation |
3,300 |
196,416 |
||||||
Praxair, Inc. |
5,000 |
585,950 |
See accompanying notes to financial statements.
5 |
Cornerstone Total Return Fund, Inc. |
Description |
No. of |
Value |
||||||
MATERIALS (Continued) |
||||||||
Versum Materials, Inc. |
1,000 |
$ |
28,070 |
|||||
3,396,635 |
||||||||
REAL ESTATE — 0.41% |
||||||||
American Tower Corporation |
4,000 |
422,720 |
||||||
Weyerhaeuser Company |
9,000 |
270,810 |
||||||
693,530 |
||||||||
TELECOMMUNICATION SERVICES — 1.85% |
||||||||
AT&T, Inc. |
54,103 |
2,301,001 |
||||||
Verizon Communications, Inc. |
16,000 |
854,080 |
||||||
3,155,081 |
||||||||
UTILITIES — 1.68% |
||||||||
American Electric Power Company, Inc. |
5,000 |
314,800 |
||||||
Dominion Resources, Inc. |
3,000 |
229,770 |
||||||
Duke Energy Corporation |
8,600 |
667,532 |
||||||
Edison International |
2,000 |
143,980 |
||||||
NextEra Energy, Inc. |
4,000 |
477,840 |
||||||
PPL Corporation |
5,000 |
170,250 |
||||||
Public Service Enterprises Group, Inc. |
4,000 |
175,520 |
||||||
Southern Company (The) |
9,400 |
462,386 |
||||||
Xcel Energy Inc. |
5,500 |
223,850 |
||||||
2,865,928 |
||||||||
TOTAL EQUITY SECURITIES |
||||||||
(cost - $155,029,647) |
168,122,432 |
|||||||
SHORT-TERM INVESTMENT — 2.26% |
||||||||
MONEY MARKET FUND — 2.26% |
||||||||
Fidelity Institutional Money Market Government Portfolio - Class I, 0.39%^ (cost - $3,847,513) |
3,847,513 |
$ |
3,847,513 |
|||||
TOTAL INVESTMENTS — 100.96% |
||||||||
(cost - $158,877,160) |
171,969,945 |
|||||||
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.96)% |
(1,633,043 |
) |
||||||
NET ASSETS — 100.00% |
$ |
170,336,902 |
* |
Non-income producing security. |
^ |
The rate shown is the 7-day effective yield as of December 31, 2016. |
See accompanying notes to financial statements.
6 |
Cornerstone Total Return Fund, Inc. |
ASSETS |
||||
Investments, at value (cost – $158,877,160) (Notes B and C) |
$ |
171,969,945 |
||
Cash |
266,045 |
|||
Receivables: |
||||
Dividends |
345,001 |
|||
Prepaid expenses |
2,087 |
|||
Total Assets |
172,583,078 |
|||
LIABILITIES |
||||
Payables: |
||||
Investments purchased |
1,966,722 |
|||
Investment management fees (Note D) |
150,291 |
|||
Directors’ fees and expenses |
19,909 |
|||
Administration fees (Note D) |
12,183 |
|||
Other accrued expenses |
97,071 |
|||
Total Liabilities |
2,246,176 |
|||
NET ASSETS (applicable to 13,064,730 shares of common stock) |
$ |
170,336,902 |
||
NET ASSET VALUE PER SHARE ($170,336,902 ÷ 13,064,730) |
$ |
13.04 |
||
NET ASSETS CONSISTS OF |
||||
Common stock, $0.01 par value; 13,064,730 shares issued and outstanding (50,000,000 shares authorized) |
130,647 |
|||
Paid-in capital |
157,114,902 |
|||
Accumulated net realized loss on investments |
(1,432 |
) |
||
Net unrealized appreciation in value of investments |
13,092,785 |
|||
Net assets applicable to shares outstanding |
$ |
170,336,902 |
See accompanying notes to financial statements.
7 |
Cornerstone Total Return Fund, Inc. |
INVESTMENT INCOME |
||||
Income: |
||||
Dividends |
$ |
2,895,251 |
||
Expenses: |
||||
Investment management fees (Note D) |
1,176,172 |
|||
Administration fees (Note D) |
88,214 |
|||
Directors’ fees and expenses |
87,180 |
|||
Printing |
41,935 |
|||
Legal and audit fees |
41,890 |
|||
Accounting fees |
41,751 |
|||
Transfer agent fees |
41,098 |
|||
Custodian fees |
21,760 |
|||
Insurance |
8,123 |
|||
Stock exchange listing fees |
5,907 |
|||
Miscellaneous |
6,566 |
|||
Total Expenses |
1,560,596 |
|||
Net Investment Income |
1,334,655 |
|||
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS |
||||
Net realized gain from investments |
8,500,715 |
|||
Capital gain distributions from regulated investment companies |
821,560 |
|||
Net change in unrealized appreciation in value of investments |
(621,155 |
) |
||
Net realized and unrealized gain/(loss) on investments |
8,701,120 |
|||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ |
10,035,775 |
See accompanying notes to financial statements.
8 |
Cornerstone Total Return Fund, Inc. |
For the Years Ended December 31, |
||||||||
2016 |
2015 |
|||||||
INCREASE IN NET ASSETS |
||||||||
Operations: |
||||||||
Net investment income |
$ |
1,334,655 |
$ |
798,841 |
||||
Net realized gain from investments |
9,322,275 |
1,653,955 |
||||||
Net change in unrealized appreciation in value of investments |
(621,155 |
) |
(2,813,330 |
) |
||||
Net increase (decrease) in net assets resulting from operations |
10,035,775 |
(360,534 |
) |
|||||
Dividends and distributions to stockholders (Note B): |
||||||||
Net investment income |
(1,273,915 |
) |
(798,841 |
) |
||||
Net realized gains |
(9,344,509 |
) |
(1,674,771 |
) |
||||
Return-of-capital |
(18,258,684 |
) |
(19,586,472 |
) |
||||
Total dividends and distributions to stockholders |
(28,877,108 |
) |
(22,060,084 |
) |
||||
Common stock transactions: |
||||||||
Proceeds from rights offering of 5,196,240 and 3,027,098 shares of newly issued common stock, respectively |
71,136,525 |
51,642,292 |
||||||
Offering expenses associated with rights offerings |
(109,436 |
) |
(117,077 |
) |
||||
Proceeds from 207,514 and 156,817 shares newly issued in reinvestment of dividends and distributions, respectively |
2,819,947 |
2,548,964 |
||||||
Net increase in net assets from common stock transactions |
73,847,036 |
54,074,179 |
||||||
Total increase in net assets |
55,005,703 |
31,653,561 |
||||||
NET ASSETS |
||||||||
Beginning of year |
115,331,199 |
83,677,638 |
||||||
End of year |
$ |
170,336,902 |
$ |
115,331,199 |
See accompanying notes to financial statements.
9 |
Cornerstone Total Return Fund, Inc. |
Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for each year indicated. This information has been derived from information provided in the financial statements and market price data for the Fund’s shares. |
For the Years Ended December 31, |
||||||||||||||||||||
2016 |
2015 |
2014* |
|
2013* |
|
2012* |
|
|||||||||||||
PER SHARE OPERATING PERFORMANCE |
||||||||||||||||||||
Net asset value, beginning of period |
$ |
15.05 |
$ |
18.69 |
$ |
20.56 |
$ |
20.36 |
$ |
21.88 |
||||||||||
Net investment income/(loss) # |
0.15 |
0.14 |
0.16 |
0.24 |
0.20 |
|||||||||||||||
Net realized and unrealized gain/(loss) on investments |
0.83 |
(0.25 |
) |
2.15 |
3.76 |
2.48 |
||||||||||||||
Net increase/(decrease) in net assets resulting from operations |
0.98 |
(0.11 |
) |
2.31 |
4.00 |
2.68 |
||||||||||||||
Dividends and distributions to stockholders: |
||||||||||||||||||||
Net investment income |
(0.15 |
) |
(0.14 |
) |
(0.16 |
) |
(0.92 |
) |
(1.24 |
) |
||||||||||
Net realized capital gain |
(1.08 |
) |
(0.30 |
) |
(0.82 |
) |
(0.80 |
) |
— |
|||||||||||
Return-of-capital |
(2.12 |
) |
(3.54 |
) |
(3.20 |
) |
(2.64 |
) |
(3.44 |
) |
||||||||||
Total dividends and distributions to stockholders |
(3.35 |
) |
(3.98 |
) |
(4.18 |
) |
(4.36 |
) |
(4.68 |
) |
||||||||||
Common stock transactions: |
||||||||||||||||||||
Anti-dilutive effect due to shares issued: |
||||||||||||||||||||
Rights offering |
0.36 |
0.45 |
— |
0.56 |
0.48 |
|||||||||||||||
Reinvestment of dividends and distributions |
0.00 |
+ |
0.00 |
+ |
0.00 |
+ |
0.00 |
+ |
0.00 |
+ |
||||||||||
Total common stock transactions |
0.36 |
0.45 |
0.00 |
+ |
0.56 |
0.48 |
||||||||||||||
Net asset value, end of period |
$ |
13.04 |
$ |
15.05 |
$ |
18.69 |
$ |
20.56 |
$ |
20.36 |
||||||||||
Market value, end of period |
$ |
15.07 |
$ |
16.89 |
$ |
19.41 |
$ |
24.20 |
$ |
21.40 |
||||||||||
Total investment return (a) |
13.88 |
% |
10.28 |
% |
(0.68 |
)% |
40.08 |
% |
11.16 |
% |
||||||||||
RATIOS/SUPPLEMENTAL DATA |
||||||||||||||||||||
Net assets, end of period (000 omitted) |
$ |
170,337 |
$ |
115,331 |
$ |
83,678 |
$ |
89,147 |
$ |
51,575 |
||||||||||
Ratio of expenses to average net assets, net of fee waivers and fees paid indirectly, if any (b) |
1.33 |
% |
1.35 |
% |
1.44 |
% |
1.46 |
% |
1.73 |
% |
||||||||||
Ratio of expenses to average net assets, excluding fee waivers and fees paid indirectly, if any (b) |
1.33 |
% |
1.35 |
% |
1.44 |
% |
1.46 |
% |
1.73 |
% |
||||||||||
Ratio of net investment income/(loss) to average net assets (d) |
1.12 |
% |
0.86 |
% |
0.84 |
% |
1.13 |
% |
0.85 |
% |
||||||||||
Portfolio turnover rate |
64 |
% |
53 |
% |
32 |
% |
48 |
% |
45 |
% |
* |
Effective December 29, 2014, a reverse split of 1:4 occurred. All per share amounts have been restated according to the terms of the reverse split. |
# |
Based on average shares outstanding. |
+ |
Amount rounds to less than $0.01 per share. |
(a) |
Total investment return at market value is based on the changes in market price of a share during the period and assumes reinvestment of dividends and distributions, if any, at actual prices pursuant to the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions. |
(b) |
Expenses do not include expenses of investments companies in which the Fund invests. |
(c) |
Annualized. |
(d) |
Recognition of net investment income/(loss) by the Fund may be affected by the timing of the declaration of dividends, if any, by investment companies in which the Fund invests. |
See accompanying notes to financial statements.
10 |
Cornerstone Total Return Fund, Inc. |
NOTE A. ORGANIZATION
Cornerstone Total Return Fund, Inc. (the “Fund”) was incorporated in New York on March 16, 1973 and commenced investment operations on May 15, 1973. Its investment objective is to seek capital appreciation with current income as a secondary objective. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, diversified management investment company. As an investment company, the Fund follows the accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 “Financial Services – Investment Companies”.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
Management Estimates: The Fund is an investment company that applies the accounting and reporting guidance issued in Topic 946 by the U.S. Financial Accounting Standards Board. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Subsequent Events: The Fund has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through the date its financial statements were issued. Based on this evaluation, no additional disclosures or adjustments were required to such financial statements.
Portfolio Valuation: Investments are stated at value in the accompanying financial statements. Readily marketable portfolio securities listed on the New York Stock Exchange (“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 NASDAQ Official Closing Price.
Readily marketable securities traded in the over-the counter market, including listed securities whose primary market is believed by Cornerstone Advisors, Inc. (the “Investment Manager” or “Cornerstone”) to be over-the-counter, are valued at the mean of the current bid and asked prices as reported by the NASDAQ or, in the case of securities not reported by the NASDAQ or a comparable source, as the Board of Directors deem appropriate to reflect their fair market value. Where securities are traded on more than one exchange and also over-the-counter, the securities will generally be valued using the quotations the Board of Directors believes reflect most closely the value of such securities. At December 31, 2016 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 is closed.
The Fund is exposed to financial market risks, including the valuations of its investment portfolio. During the year ended December 31, 2016, the Fund did not invest in derivative instruments or engage in hedging activities.
11 |
Cornerstone Total Return Fund, Inc. |
Investment Transactions and Investment Income: Investment transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is recorded on an accrual basis; dividend income is recorded on the ex-dividend date.
Risks Associated with Investments in Other Closed-end Funds: Closed-end investment companies are subject to the risks of investing in the underlying securities. The Fund, as a holder of the securities of the closed-end investment company, will bear its pro rata portion of the closed-end investment company’s expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund’s own operations.
Taxes: No provision is made for U.S. federal income or excise taxes as it is the Fund’s intention to continue to qualify as a regulated investment company and to make the requisite distributions to its stockholders which will be sufficient to relieve it from all or substantially all U.S. federal income and excise taxes.
The Accounting for Uncertainty in Income Taxes Topic of the FASB Accounting Standards Codification defines the threshold for recognizing the benefits of tax-return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is more than 50 percent likely to be realized. The Fund’s policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statement of Operations. As of December 31, 2016, the Fund does not have any interest or penalties associated with the underpayment of any income taxes. Management reviewed any uncertain tax positions for open tax years 2013 through 2015, and for the year ended December 31, 2016. There was no material impact to the financial statements.
Distributions to Stockholders: Effective January 2002, the Fund initiated a fixed, monthly distribution to stockholders. On November 29, 2006, this distribution policy was updated to provide for the annual resetting of the monthly distribution amount per share based on the Fund’s net asset value on the last business day in each October. The terms of the distribution policy will be reviewed and approved at least annually by the Fund’s Board of Directors and can be modified at their discretion. To the extent that these distributions exceed the current earnings of the Fund, the balance will be generated from sales of portfolio securities held by the Fund, which will either be short-term or long- term capital gains, or a tax-free return-of-capital. To the extent these distributions are not represented by net investment income and capital gains, they will not represent yield or investment return on the Fund’s investment portfolio. The Fund plans to maintain this distribution policy even if regulatory requirements would make part of a return-of-capital, necessary to maintain the distribution, taxable to stockholders and to disclose that portion of the distribution that is classified as ordinary income. Although it has no current intention to do so, the Board may terminate this distribution policy at any time and such termination may have an adverse effect on the market price for the Fund’s common shares. The Fund determines annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses, including capital loss carryovers, if any. To the extent that the Fund’s taxable income in any calendar year exceeds the aggregate amount distributed pursuant to this distribution policy, an additional distribution may be made to avoid the payment of a 4% U.S. federal excise tax, and to the extent that the aggregate amount distributed in any calendar year exceeds the Fund’s taxable income, the amount of that excess may constitute a return-of-capital for tax purposes. A return-of-capital distribution reduces the cost basis of an investor’s shares in the Fund. Dividends and distributions to stockholders are recorded by the Fund on the ex-dividend date.
12 |
Cornerstone Total Return Fund, Inc. |
Managed Distribution Risk: Under the managed distribution policy, the Fund makes monthly distributions to stockholders at a rate that may include periodic distributions of its net income and net capital gains (“Net Earnings”), or from return- of-capital. If, for any fiscal year where total cash distributions exceeded Net Earnings (the “Excess”), the Excess would decrease the Fund’s total assets and, as a result, would have the likely effect of increasing the Fund’s expense ratio. There is a risk that the total Net Earnings from the Fund’s portfolio would not be great enough to offset the amount of cash distributions paid to Fund stockholders. If this were to be the case, the Fund’s assets would be depleted, and there is no guarantee that the Fund would be able to replace the assets. In addition, in order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such action. Furthermore, such assets used to make distributions will not be available for investment pursuant to the Fund’s investment objective.
NOTE C. FAIR VALUE
As required by the Fair Value Measurement and Disclosures Topic of the FASB Accounting Standards Codification, the Fund has performed an analysis of all assets and liabilities measured at fair value to determine the significance and character of all inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.
● |
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 December 31, 2016 in valuing the Fund’s investments carried at value:
Valuation Inputs |
Investments |
Other |
||||||
Level 1 – Quoted Prices |
||||||||
Equity Investments |
$ |
168,122,432 |
$ |
— |
||||
Short-Term Investments |
3,847,513 |
— |
||||||
Level 2 – Other Significant Observable Inputs |
— |
— |
||||||
Level 3 – Significant Unobservable Inputs |
— |
— |
||||||
Total |
$ |
171,969,945 |
$ |
— |
* |
Other financial instruments include futures, forwards and swap contracts. |
The breakdown of the Fund’s investments into major categories is disclosed in its Schedule of Investments.
During the year ended December 31, 2016 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 December 31, 2016.
It is the Fund’s policy to recognize transfers into and out of any Level at the end of the reporting period.
13 |
Cornerstone Total Return Fund, Inc. |
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent). The amendments apply to reporting entities that elect to measure the fair value of an investment using the net asset value per share (or its equivalent) practical expedient. The ASU is essentially effective for public entities beginning in 2016 and for all other entities beginning in 2017, but earlier application is permitted. Although still evaluating the potential impacts of ASU 2015-07 to the Fund, the Investment Manager does not expect the adoption of the ASU to have an effect on the Fund.
On October 13, 2016, the Securities and Exchange Commission (the “SEC”) adopted new rules and forms and amended existing rules and forms which are intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to improve the quality of information that funds provide to investors, including modifications to Regulation S-X which would require standardized, enhanced disclosure about derivatives in investment company financial statements. In an effort to enhance monitoring and regulation, the new rules and forms will allow the SEC to more effectively collect and use data reported by funds. The compliance dates of the modifications to Regulation S-X are August 1, 2017 and other amendments and rules are generally June 1, 2018 and December 1, 2018. Management is currently evaluating the impacts to the financial statement disclosures, if any.
NOTE D. AGREEMENTS WITH AFFILIATES
At December 31, 2016 certain officers of the Fund are also officers of Cornerstone or AST Fund Solutions, LLC (“AFS”). Such officers are paid no fees by the Fund for serving as officers of the Fund.
Investment Management Agreement
Cornerstone serves as the Fund’s Investment Manager with respect to all investments. As compensation for its investment management services, Cornerstone receives from the Fund an annual fee, calculated weekly and paid monthly, equal to 1.00% of the Fund’s average weekly net assets. For the year ended December 31, 2016 Cornerstone earned $1,176,172 for investment management services.
Administration Agreement
Under the terms of the administration agreement, AFS supplies executive, administrative and regulatory services for the Fund. AFS supervises the preparation of reports to shareholders for the Fund, reports to and filings with the Securities and Exchange Commission and materials for meetings of the Board of Directors. For these services, the Fund pays AFS a monthly fee at an annual rate of 0.075% of its average daily net assets, subject to an annual minimum fee of $50,000. AFS has agreed to discount the annual minimum fee to $30,000 and such discount will remain in place until an amended fee is agreed upon. For the year ended December 31, 2016, AFS earned $88,214 as administrator.
NOTE E. INVESTMENT IN SECURITIES
For the year ended December 31, 2016, purchases and sales of securities, other than short-term investments, were $120,482,066 and $74,446,043, respectively.
14 |
Cornerstone Total Return Fund, Inc. |
NOTE F. SHARES OF COMMON STOCK
The Fund has 50,000,000 shares of common stock authorized and 13,064,730 shares issued and outstanding at December 31, 2016. Transactions in common stock for the year ended December 31, 2016 were as follows:
Shares at beginning of year |
7,660,976 |
|||
Shares newly issued from rights offering |
5,196,240 |
|||
Shares newly issued in reinvestment of dividends and distributions |
207,514 |
|||
Shares at end of year |
13,064,730 |
NOTE G. 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.
The tax character of dividends and distributions paid to stockholders during the years ended December 31, 2016 and December 31, 2015 was as follows:
2016 |
2015 |
|||||||
Ordinary Income |
$ |
2,137,494 |
$ |
798,841 |
||||
Long-Term Capital Gains |
8,480,930 |
1,674,771 |
||||||
Return-of-Capital |
18,258,684 |
19,586,472 |
||||||
Total Distributions |
$ |
28,877,108 |
$ |
22,060,084 |
At December 31, 2016, the components of accumulated earnings on a tax basis for the Fund were as follows:
Net unrealized appreciation |
$ |
13,091,353 |
||
Total accumulated earnings |
$ |
13,091,353 |
GAAP requires 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, 2016, the Fund decreased accumulated net realized loss on investments by $60,740 and decreased undistributed net investment income by $60,740 on the Statement of Assets and Liabilities. Under current tax law, certain capital losses realized after October 31 within a taxable year may be deferred and treated as occurring on the first day of the following tax year (“Post-October losses”). The Fund incurred no such losses during the year ended December 31, 2016.
The following information is computed on a tax basis for each item as of December 31, 2016:
Cost of portfolio investments |
$ |
158,878,592 |
||
Gross unrealized appreciation |
$ |
15,452,735 |
||
Gross unrealized depreciation |
(2,361,382 |
) |
||
Net unrealized appreciation |
$ |
13,091,353 |
The difference between book-basis and tax-basis unrealized appreciation is attributable to the tax deferral of losses on wash sales.
15 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Cornerstone Total Return Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of the Cornerstone Total Return Fund, Inc. (the “Fund”), including the schedule of investments as of December 31, 2016, 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, 2016, by correspondence with the custodian and brokers or through other appropriate auditing procedures where confirmations from brokers were unable to be obtained. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Cornerstone Total Return Fund, Inc. as of December 31, 2016, 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 21, 2017
16 |
2016 Tax Information (unaudited)
This notification along with Form 1099-DIV reflects the amount to be used by calendar year taxpayers on their U.S. federal income tax returns. As indicated in this notice, a portion of the Fund’s distributions for 2016 were comprised of a return-of-capital; accordingly these distributions do not represent yield or investment return on the Fund’s portfolio.
SOURCES OF DIVIDENDS AND DISTRIBUTIONS |
||||||||||||||||||||||||
Payment Dates: |
1/29/16 |
2/29/16 |
3/31/16 |
4/29/16 |
5/31/16 |
6/30/16 |
||||||||||||||||||
Ordinary Income (1) |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
||||||||||||
Return-of-Capital (2) |
0.1765 |
0.1765 |
0.1765 |
0.1765 |
0.1765 |
0.1765 |
||||||||||||||||||
Capital Gain (3) |
0.0820 |
0.0820 |
0.0820 |
0.0820 |
0.0820 |
0.0820 |
||||||||||||||||||
Total |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
||||||||||||
Payment Dates: |
7/29/16 |
8/31/16 |
9/30/16 |
10/31/16 |
11/30/16 |
12/30/16 |
||||||||||||||||||
Ordinary Income (1) |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
$ |
0.0207 |
||||||||||||
Return-of-Capital (2) |
0.1765 |
0.1765 |
0.1765 |
0.1765 |
0.1765 |
0.1765 |
||||||||||||||||||
Capital Gain (3) |
0.0820 |
0.0820 |
0.0820 |
0.0820 |
0.0820 |
0.0820 |
||||||||||||||||||
Total |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
$ |
0.2792 |
Notes:
(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. |
(3) |
Capital Gains Distributions – This is the total per share amount of capital gain distribution included in the amount reported in Box 2a on Form 1099-DIV. |
The Fund has met the requirements to pass through 99.64% of its ordinary income dividends as qualified dividends, which are subject to a maximum federal tax rate of 23.8% (20% qualified dividends maximum long-term capital gain rate plus 3.8% Medicare tax). 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, stockholders 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.
Long-term capital gain distributions arise from gains on securities held by the Fund for more than one year. They are subject to a maximum federal rate of 20% (23.8%, reflecting 3.8% Medicare tax on income exceeding certain threshold amounts).
Foreign stockholders will generally be subject to U.S. withholding tax on the amount of the actual ordinary income dividend 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.
Stockholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund.
17 |
Additional Information Regarding the Fund’s Directors
and Corporate Officers (unaudited)
Name and |
Position(s) |
Principal Occupation |
Position with Fund Since |
Ralph W. Bradshaw** |
Chairman of the Board of Directors and President |
President, Cornerstone Advisors, Inc.; Financial Consultant; President and Director of Cornerstone Strategic Value Fund, Inc. |
2001 |
Robert E. Dean |
Director; Audit, Nominating and Corporate Governance Committee Member |
Director, National Bank Holdings Corp.; Director of Cornerstone Strategic Value Fund, Inc. |
2014 |
Edwin Meese III |
Director; Audit, Nominating and Corporate Governance Committee Member |
Ronald Reagan Distinguished Fellow Emeritus, The Heritage Foundation Washington D.C.; Distinguished Visiting Fellow at the Hoover Institution, Stanford University; Director of Cornerstone Strategic Value Fund, Inc. |
2001 |
Scott B. Rogers |
Director; Audit, Nominating and Corporate Governance Committee Member |
Director, Board of Health Partners, Inc.; Chief Executive Officer, Asheville Buncombe Community Christian Ministry (“ABCCM”); President, ABCCM Doctor's Medical Clinic; Member of North Carolina Governor’s Council on Homelessness (from July 2014); Director of Cornerstone Strategic Value Fund, Inc. |
2001 |
Andrew A. Strauss |
Director; Chairman of Nominating and Corporate Governance Committee and Audit Committee Member |
Attorney and senior member of Strauss & Associates, P.A., Attorneys; Director of Cornerstone Strategic Value Fund, Inc. |
2001 |
Glenn W. Wilcox, Sr. |
Director; Chairman of Audit Committee, Nominating and Corporate Governance Committee Member |
Chairman of the Board of Tower Associates, Inc.; Chairman of the Board of Wilcox Travel Agency, Inc.; Director of Champion Industries, Inc.; Director of Cornerstone Strategic Value Fund, Inc. |
2001 |
18 |
Additional Information Regarding the Fund’s Directors
and Corporate Officers (unaudited) (concluded)
Name and |
Position(s) |
Principal Occupation |
Position with Fund Since |
Gary A. Bentz |
Chief Compliance Officer, Secretary, and Assistant Treasurer |
Chairman and Chief Financial Officer of Cornerstone Advisors, Inc.; Financial Consultant, C.P.A., Chief Compliance Officer, Secretary, and Assistant Treasurer of Cornerstone Strategic Value Fund, Inc. |
2004, 2008, 2009 |
Frank J. Maresca |
Treasurer |
Executive Vice President of AST Fund Solutions, LLC (since February 2012), Executive Vice President of Ultimus Fund Solutions, LLC (from March 2009-February 2012) previous Executive Director, JP Morgan Chase & Co.; Treasurer of The Asia Pacific Fund, Inc. (since July 2016); Treasurer of Cornerstone Strategic Value Fund, Inc. (from May 2009 through February 2012 and since April 2013) |
2013 |
* |
The mailing address of each Director and/or Officer with respect to the Fund’s operation is 48 Wall Street, 22nd floor, New York, NY 10005. |
** |
Designates a director who is an “interested person” of the Fund as defined by the Investment Company Act of 1940, as amended. Mr. Bradshaw is an interested person of the Fund by virtue of his current position with the Investment Adviser of the Fund. |
19 |
Description of Dividend Reinvestment Plan (unaudited)
Cornerstone Total Return Fund, Inc. (the “Fund”) operates a Dividend Reinvestment Plan (the “Plan”), administered by American Stock Transfer & Trust Company, LLC (the “Agent”), pursuant to which the Fund’s income dividends or capital gains or other distributions (each, a “Distribution” and collectively, “Distributions”), net of any applicable U.S. withholding tax, are reinvested in shares of the Fund.
Stockholders automatically participate in the Fund’s Plan, unless and until an election is made to withdraw from the Plan on behalf of such participating stockholder. Stockholders who do not wish to have Distributions automatically reinvested should so notify the Agent at P.O. Box 922, Wall Street Station, New York, New York 10269-0560. Under the Plan, the Fund’s Distributions to stockholders are reinvested in full and fractional shares as described below.
When the Fund declares a Distribution the Agent, on the stockholder’s behalf, will (i) receive additional authorized shares from the Fund either newly issued or repurchased from stockholders by the Fund and held as treasury stock (“Newly Issued Shares”) or (ii) purchase outstanding shares on the open market, on the NYSE MKT or elsewhere, with cash allocated to it by the Fund (“Open Market Purchases”).
The method for determining the number of Newly Issued Shares received when Distributions are reinvested will be determined by dividing the amount of the Distribution either by the Fund’s last reported net asset value per share or by a price equal to the average closing price of the Fund over the five trading days preceding the payment date of the Distribution, whichever is lower. However, if the last reported net asset value of the Fund’s shares is higher than the average closing price of the Fund over the five trading days preceding the payment date of the Distribution (i.e., the Fund is selling at a discount), shares may be acquired by the Agent in Open Market Purchases and allocated to the reinvesting stockholders based on the average cost of such Open Market Purchases. Upon notice from the Fund, the Agent will receive the distribution in cash and will purchase shares of common stock in the open market, on the NYSE MKT or elsewhere, for the participants’ accounts, except that the Agent will endeavor to terminate purchases in the open market and cause the Fund to issue the remaining shares if, following the commencement of the purchases, the market value of the shares, including brokerage commissions, exceeds the net asset value at the time of valuation. These remaining shares will be issued by the Fund at a price equal to the net asset value at the time of valuation.
In a case where the Agent has terminated open market purchases and caused the issuance of remaining shares by the Fund, the number of shares received by the participant in respect of the cash dividend or distribution will be based on the weighted average of prices paid for shares purchased in the open market, including brokerage commissions, and the price at which the Fund issues the remaining shares. To the extent that the Agent is unable to terminate purchases in the open market before the Agent has completed its purchases, or remaining shares cannot be issued by the Fund because the Fund declared a dividend or distribution payable only in cash, and the market price exceeds the net asset value of the shares, the average share purchase price paid by the Agent may exceed the net asset value of the shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund.
Whenever the Fund declares a Distribution and the last reported net asset value of the Fund’s shares is higher than its market price, the Agent will apply the amount of such Distribution payable to Plan participants of the Fund in Fund shares (less such Plan participant’s pro rata share of brokerage commissions incurred with respect to Open Market Purchases in connection with the reinvestment of such Distribution) to the purchase on the open market of Fund shares for such Plan participant’s account. Such purchases will be made on or after the payable date for such Distribution, and in no event more than 30 days after such date except where temporary curtailment or suspension of purchase
20 |
Description of Dividend Reinvestment Plan (unaudited) (concluded)
is necessary to comply with applicable provisions of federal securities laws. The Agent may aggregate a Plan participant’s purchases with the purchases of other Plan participants, and the average price (including brokerage commissions) of all shares purchased by the Agent shall be the price per share allocable to each Plan participant.
Registered stockholders who do not wish to have their Distributions automatically reinvested should so notify the Fund in writing. If a stockholder has not elected to receive cash Distributions and the Agent does not receive notice of an election to receive cash Distributions prior to the record date of any Distribution, the stockholder will automatically receive such Distributions in additional shares.
Participants in the Plan may withdraw from the Plan by providing written notice to the Agent at least 30 days prior to the applicable Distribution payment date. The Agent will maintain all stockholder accounts in the Plan and furnish written confirmations of all transactions in the accounts, including information needed by stockholders for personal and tax records. The Agent will hold shares in the account of the Plan participant in non-certificated form in the name of the participant, and each stockholder’s proxy will include those shares purchased pursuant to the Plan. The Agent will distribute all proxy solicitation materials to participating stockholders.
In the case of stockholders, such as banks, brokers or nominees, that hold shares for others who are beneficial owners participating in the Plan, the Agent will administer the Plan on the basis of the number of shares certified from time to time by the record stockholder as representing the total amount of shares registered in the stockholder’s name and held for the account of beneficial owners participating in the Plan.
Neither the Agent nor the Fund shall have any responsibility or liability beyond the exercise of ordinary care for any action taken or omitted pursuant to the Plan, nor shall they have any duties, responsibilities or liabilities except such as expressly set forth herein. Neither shall they be liable hereunder for any act done in good faith or for any good faith omissions to act, including, without limitation, failure to terminate a participants account prior to receipt of written notice of his or her death or with respect to prices at which shares are purchased or sold for the participants account and the terms on which such purchases and sales are made, subject to applicable provisions of the federal securities laws.
The automatic reinvestment of Distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Distributions. The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan.
Participants may at any time sell some or all of their shares though the Agent. Shares may be sold via the internet at www.amstock.com or through the toll free number. Participants can also use the tear off portion attached to the bottom of their statement and mail the request to American Stock Transfer and Trust Company LLC, P.O Box 922 Wall Street Station, New York, N.Y. 10269-0560. There is a fee of $15.00 per transaction and commission of $0.10 per share.
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 (866) 668-6558.
21 |
Proxy Voting and Portfolio Holdings Information (unaudited)
The policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities are available:
● |
without charge, upon request, by calling toll-free (866) 668-6558; and |
● |
on the website of the Securities and Exchange Commission, http://www.sec.gov. |
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent period ended June 30, 2016 is available without charge, upon request, by calling toll-free (866) 668-6558, and on the SEC’s website at http://www.sec.gov or on the Fund’s website at www.cornerstonetotalreturnfund.com (See Form N-PX).
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 Form N-Q is available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the SEC’s Public Reference Room may be obtained by calling toll-free 1-800-SEC-0330.
Summary of General Information (unaudited)
Cornerstone Total Return Fund, Inc. is a closed-end, diversified investment company whose shares trade on the NYSE MKT. Its investment objective is to seek capital appreciation with current income as a secondary objective. The Fund is managed by Cornerstone Advisors, Inc.
Stockholder Information (unaudited)
The Fund is listed on the NYSE MKT (symbol “CRF”). The previous week’s net asset value per share, market price, and related premium or discount are available on the Fund’s website at www.cornerstonetotalreturnfund.com.
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 common stock in the open market. |
22 |
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Cornerstone Total Return Fund, Inc.
ITEM 2.
|
CODE OF ETHICS.
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ITEM 3.
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AUDIT COMMITTEE FINANCIAL EXPERT.
|
ITEM 4.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|
(a)
|
Audit Fees. The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $16,900 and $16,500 with respect to the registrant's fiscal years ended December 31, 2016 and 2015, respectively.
|
(b)
|
Audit-Related Fees. No fees were billed in either of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item.
|
(c)
|
Tax Fees. The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $3,900 and $3,800 with respect to the registrant's fiscal years ended December 31, 2016 and 2015, respectively. The services comprising these fees are the preparation of the registrant's federal and state income and federal excise tax returns.
|
(d)
|
All Other Fees. No fees were billed in either of the last two fiscal years other than the services reported in paragraphs (a) through (c) of this item.
|
(e)(1)
|
Before the principal accountant is engaged by the registrant to render (i) audit, audit-related or permissible non-audit services to the registrant or (ii) non-audit services to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant, either (a) the audit committee shall pre-approve such engagement; or (b) such engagement shall be entered into pursuant to pre-approval policies and procedures established by the audit committee. Any such policies and procedures must be detailed as to the particular service and not involve any delegation of the audit committee's responsibilities to the registrant's investment adviser. The audit committee may delegate to one or more of its members the authority to grant pre-approvals. The pre-approval policies and procedures shall include the requirement that the decisions of any member to whom authority is delegated under this provision shall be presented to the full audit committee at its next scheduled meeting. Under certain limited circumstances, pre-approvals are not required if certain de minimus thresholds are not exceeded, as such thresholds are determined by the audit committee in accordance with applicable Commission regulations.
|
(e)(2)
|
None of the services described in paragraph (b) through (d) of this Item were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
|
(f)
|
Less than 50% of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
|
(g)
|
During the fiscal years ended December 31, 2016 and 2015, aggregate non-audit fees of $3,900 and $3,800, respectively, were billed by the registrant's principal accountant for services rendered to the registrant. No non-audit fees were billed in either of the last two fiscal years by the registrant's principal accountant for services rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant.
|
(h)
|
The principal accountant has not provided any non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant.
|
ITEM 5.
|
AUDIT COMMITTEE OF LISTED REGISTRANTS.
|
(a)
|
The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934. Robert E. Dean, Glenn W. Wilcox, Sr., (Chairman), Edwin Meese III, Andrew A. Strauss and Scott B. Rogers are the members of the registrant's audit committee.
|
(b)
|
Not applicable
|
ITEM 6.
|
SCHEDULE OF INVESTMENTS.
|
(a)
|
Not required
|
ITEM 7.
|
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
|
ITEM 8.
|
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
|
ITEM 9.
|
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
|
ITEM 10.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
ITEM 11.
|
CONTROLS AND PROCEDURES.
|
ITEM 12.
|
EXHIBITS.
|
Exhibit 99.CODE ETH
|
Code of Ethics
|
Exhibit 99.VOTEREG
|
Proxy Voting Policies and Procedures
|
Exhibit 99.CERT
|
Certifications required by Rule 30a-2(a) under the Act
|
Exhibit 99.906CERT
|
Certifications required by Rule 30a-2(b) under the Act
|
By (Signature and Title)*
|
/s/ Ralph W. Bradshaw
|
||
Ralph W. Bradshaw, Chairman and President
|
|||
(Principal Executive Officer)
|
|||
Date
|
March 2, 2017
|
By (Signature and Title)*
|
/s/ Ralph W. Bradshaw
|
||
Ralph W. Bradshaw, Chairman and President
|
|||
(Principal Executive Officer)
|
|||
Date
|
March 2, 2017
|
||
By (Signature and Title)*
|
/s/ Frank J. Maresca
|
||
Frank J. Maresca, Treasurer
|
|||
(Principal Financial Officer)
|
|||
Date
|
March 2, 2017
|
*
|
Print the name and title of each signing officer under his or her signature.
|
|
(1)
|
I have read and I understand the Code of Ethics for Senior Officers adopted by Cornerstone Strategic Value Fund, Inc. and Cornerstone Total Return Fund, Inc. (the “Code of Ethics”);
|
|
(2)
|
I recognize that I am subject to the Code of Ethics;
|
|
(3)
|
I have complied with the requirements of the Code of Ethics during the calendar year ending December 31, _____; and
|
|
(4)
|
I have reported all violations of the Code of Ethics required to be reported pursuant to the requirements of the Code during the calendar year ending December 31, _____.
|
|
|
|
|
|
|
Signature:
|
|
|
Name:
|
|
|
|
|
|
Date:
|
|
|
1
|
NASDAQ originally proposed a five-year look-back period but both it and the NYSE ultimately settled on a three-year look-back prior to finalizing their rules. A five-year standard is more appropriate, in our view, because we believe that the unwinding of conflicting relationships between former management and board members is more likely to be complete and final after five years. However, Glass Lewis does not apply the five-year look-back period to directors who have previously served as executives of the company on an interim basis for less than one year.
|
2
|
If a company does not consider a non-employee director to be independent, Glass Lewis will classify that director as an affiliate.
|
3
|
We allow a five-year grace period for former executives of the company or merged companies who have consulting agreements with the surviving company. (We do not automatically recommend voting against directors in such cases for the first five years.) If the consulting agreement persists after this five-year grace period, we apply the materiality thresholds outlined in the definition of “material.”
|
4
|
This includes a director who serves on a board as a representative (as part of his or her basic responsibilities) of an investment firm with greater than 20% ownership. However, while we will generally consider him/her to be affiliated, we will not recommend voting against unless (i) the investment firm has disproportionate board representation or (ii) the director serves on the audit committee.
|
• |
$50,000 (or where no amount is disclosed) for directors who are paid for a service they have agreed to perform for the company, outside of their service as a director, including professional or other services; or
|
• |
$120,000 (or where no amount is disclosed) for those directors employed by a professional services firm such as a law firm, investment bank, or consulting firm and the company pays the firm, not the individual, for services.5 This dollar limit would also apply to charitable contributions to schools where a board member is a professor; or charities where a director serves on the board or is an executive;6 and any aircraft and real estate dealings between the company and the director’s firm; or
|
• |
1% of either company’s consolidated gross revenue for other business relationships (e.g., where the director is an executive officer of a company that provides services or products to or receives services or products from the company).7
|
5
|
We may deem such a transaction to be immaterial where the amount represents less than 1% of the firm’s annual revenues and the board provides a compelling rationale as to why the director’s independence is not affected by the relationship.
|
6
|
We will generally take into consideration the size and nature of such charitable entities in relation to the company’s size and industry along with any other relevant factors such as the director’s role at the charity. However, unlike for other types of related party transactions, Glass Lewis generally does not apply a look-back period to affiliated relationships involving charitable contributions; if the relationship between the director and the school or charity ceases, or if the company discontinues its donations to the entity, we will consider the director to be independent.
|
7
|
This includes cases where a director is employed by, or closely affiliated with, a private equity firm that profits from an acquisition made by the company. Unless disclosure suggests otherwise, we presume the director is affiliated.
|
8
|
With a staggered board, if the affiliates or insiders that we believe should not be on the board are not up for election, we will express our concern regarding those directors, but we will not recommend voting against the other affiliates or insiders who are up for election just to achieve two-thirds independence. However, we will consider recommending voting against the directors subject to our concern at their next election if the issue giving rise to the concern is not resolved.
|
9
|
We will recommend voting against an audit committee member who owns 20% or more of the company’s stock, and we believe that there should be a maximum of one director (or no directors if the committee is comprised of less than three directors) who owns 20% or more of the company’s stock on the compensation, nominating, and governance committees.
|
10
|
Ken Favaro, Per-Ola Karlsson and Gary L. Nelson. “The $112 Billion CEO Succession Problem.” (Strategy+Business, Issue 79, Summer 2015).
|
11
|
Spencer Stuart Board Index, 2015, p.20.
|
1. |
A director who fails to attend a minimum of 75% of board and applicable committee meetings, calculated in the aggregate.12
|
2.
|
A director who belatedly filed a significant form(s) 4 or 5, or who has a pattern of late filings if the late filing was the director’s fault (we look at these late filing situations on a case-by-case basis).
|
3.
|
A director who is also the CEO of a company where a serious and material restatement has occurred after the CEO had previously certified the pre-restatement financial statements.
|
4.
|
A director who has received two against recommendations from Glass Lewis for identical reasons within the prior year at different companies (the same situation must also apply at the company being analyzed).
|
5.
|
All directors who served on the board if, for the last three years, the company’s performance has been in the bottom quartile of the sector and the directors have not taken reasonable steps to address the poor performance.
|
• |
At the board level, any changes in directorships, committee memberships, disclosure of related party transactions, meeting attendance, or other responsibilities;
|
12
|
However, where a director has served for less than one full year, we will typically not recommend voting against for failure to attend 75% of meetings. Rather, we will note the poor attendance with a recommendation to track this issue going forward. We will also refrain from recommending to vote against directors when the proxy discloses that the director missed the meetings due to serious illness or other extenuating circumstances.
|
•
|
Any revisions made to the company’s articles of incorporation, bylaws or other governance documents;
|
• |
Any press or news releases indicating changes in, or the adoption of, new company policies, business practices or special reports; and
|
• |
Any modifications made to the design and structure of the company’s compensation program, as well as an assessment of the company’s engagement with shareholders on compensation issues as discussed in the CD&A, particularly following a material vote against a company’s say-on-pay.
|
• |
If there is no committee chair, we recommend voting against the longest-serving committee member or, if the longest-serving committee member cannot be determined, the longest-serving board member serving on the committee (i.e., in either case, the “senior director”); and
|
• |
If there is no committee chair, but multiple senior directors serving on the committee, we recommend voting against both (or all) such senior directors.
|
13
|
Audit Committee Effectiveness – What Works Best.” PricewaterhouseCoopers. The Institute of Internal Auditors Research Foundation. 2005.
|
1. |
All members of the audit committee when options were backdated, there is a lack of adequate controls in place, there was a resulting restatement, and disclosures indicate there was a lack of documentation with respect to the option grants.
|
2.
|
The audit committee chair, if the audit committee does not have a financial expert or the committee’s financial expert does not have a demonstrable financial background sufficient to understand the financial issues unique to public companies.
|
3.
|
The audit committee chair, if the audit committee did not meet at least four times during the year.
|
4.
|
The audit committee chair, if the committee has less than three members.
|
5.
|
Any audit committee member who sits on more than three public company audit committees, unless the audit committee member is a retired CPA, CFO, controller or has similar experience, in which case the limit shall be four committees, taking time and availability into consideration including a review of the audit committee member’s attendance at all board and committee meetings.16
|
14
|
Commission on Public Trust and Private Enterprise. The Conference Board. 2003.
|
15
|
As discussed under the section labeled “Committee Chair,” where the recommendation is to vote against the committee chair but the chair is not up for election because the board is staggered, we do not recommend voting against the members of the committee who are up for election; rather, we will note the concern with regard to the committee chair.
|
16
|
Glass Lewis may exempt certain audit committee members from the above threshold if, upon further analysis of relevant factors such as the director’s experience, the size, industry-mix and location of the companies involved and the director’s attendance at all the companies, we can reasonably determine that the audit committee member is likely not hindered by multiple audit committee commitments.
|
6.
|
All members of an audit committee who are up for election and who served on the committee at the time of the audit, if audit and audit-related fees total one-third or less of the total fees billed by the auditor.
|
7.
|
The audit committee chair when tax and/or other fees are greater than audit and audit-related fees paid to the auditor for more than one year in a row (in which case we also recommend against ratification of the auditor).
|
8.
|
All members of an audit committee where non-audit fees include fees for tax services (including, but not limited to, such things as tax avoidance or shelter schemes) for senior executives of the company. Such services are prohibited by the Public Company Accounting Oversight Board (“PCAOB”).
|
9.
|
All members of an audit committee that reappointed an auditor that we no longer consider to be independent for reasons unrelated to fee proportions.
|
10.
|
All members of an audit committee when audit fees are excessively low, especially when compared with other companies in the same industry.
|
11.
|
The audit committee chair17 if the committee failed to put auditor ratification on the ballot for shareholder approval. However, if the non-audit fees or tax fees exceed audit plus audit-related fees in either the current or the prior year, then Glass Lewis will recommend voting against the entire audit committee.
|
12.
|
All members of an audit committee where the auditor has resigned and reported that a section 10A18 letter has been issued.
|
13.
|
All members of an audit committee at a time when material accounting fraud occurred at the company.19
|
14.
|
All members of an audit committee at a time when annual and/or multiple quarterly financial statements had to be restated, and any of the following factors apply:
|
•
|
The restatement involves fraud or manipulation by insiders;
|
•
|
The restatement is accompanied by an SEC inquiry or investigation;
|
•
|
The restatement involves revenue recognition;
|
•
|
The restatement results in a greater than 5% adjustment to costs of goods sold, operating expense, or operating cash flows; or
|
•
|
The restatement results in a greater than 5% adjustment to net income, 10% adjustment to assets or shareholders equity, or cash flows from financing or investing activities.
|
15.
|
All members of an audit committee if the company repeatedly fails to file its financial reports in a timely fashion. For example, the company has filed two or more quarterly or annual financial statements late within the last five quarters.
|
17
|
As discussed under the section labeled “Committee Chair,” in all cases, if the chair of the committee is not specified, we recommend voting against the director who has been on the committee the longest.
|
18
|
Auditors are required to report all potential illegal acts to management and the audit committee unless they are clearly inconsequential in nature. If the audit committee or the board fails to take appropriate action on an act that has been determined to be a violation of the law, the independent auditor is required to send a section 10A letter to the SEC. Such letters are rare and therefore we believe should be taken seriously.
|
19
|
Research indicates that revenue fraud now accounts for over 60% of SEC fraud cases, and that companies that engage in fraud experience significant negative abnormal stock price declines—facing bankruptcy, delisting, and material asset sales at much higher rates than do non-fraud firms (Committee of Sponsoring Organizations of the Treadway Commission. “Fraudulent Financial Reporting: 1998-2007.” May 2010).
|
16.
|
All members of an audit committee when it has been disclosed that a law enforcement agency has charged the company and/or its employees with a violation of the Foreign Corrupt Practices Act (FCPA).
|
17.
|
All members of an audit committee when the company has aggressive accounting policies and/or poor disclosure or lack of sufficient transparency in its financial statements.
|
18.
|
All members of the audit committee when there is a disagreement with the auditor and the auditor resigns or is dismissed (e.g., the company receives an adverse opinion on its financial statements from the auditor).
|
19.
|
All members of the audit committee if the contract with the auditor specifically limits the auditor’s liability to the company for damages.20
|
20.
|
All members of the audit committee who served since the date of the company’s last annual meeting, and when, since the last annual meeting, the company has reported a material weakness that has not yet been corrected, or, when the company has an ongoing material weakness from a prior year that has not yet been corrected.
|
20
|
The Council of Institutional Investors. “Corporate Governance Policies,” p. 4, April 5, 2006; and “Letter from Council of Institutional Investors to the AICPA,” November 8, 2006.
|
1. |
All members of a compensation committee during whose tenure the committee failed to address shareholder concerns following majority shareholder rejection of the say-on-pay proposal in the previous year. Where the proposal was approved but there was a significant shareholder vote (i.e., greater than 25% of votes cast) against the say-on-pay proposal in the prior year, if the board did not respond sufficiently to the vote including actively engaging shareholders on this issue, we will also consider recommending voting against the chair of the compensation committee or all members of the compensation committee, depending on the severity and history of the compensation problems and the level of shareholder opposition.
|
2.
|
All members of the compensation committee who are up for election and served when the company failed to align pay with performance if shareholders are not provided with an advisory vote on executive compensation at the annual meeting.22
|
3.
|
Any member of the compensation committee who has served on the compensation committee of at least two other public companies that have consistently failed to align pay with performance and whose oversight of compensation at the company in question is suspect.
|
4.
|
All members of the compensation committee (during the relevant time period) if the company entered into excessive employment agreements and/or severance agreements.
|
5.
|
All members of the compensation committee when performance goals were changed (i.e., lowered) when employees failed or were unlikely to meet original goals, or performance-based compensation was paid despite goals not being attained.
|
6.
|
All members of the compensation committee if excessive employee perquisites and benefits were allowed.
|
7.
|
The compensation committee chair if the compensation committee did not meet during the year.
|
8.
|
All members of the compensation committee when the company repriced options or completed a “self tender offer” without shareholder approval within the past two years.
|
9.
|
All members of the compensation committee when vesting of in-the-money options is accelerated.
|
10.
|
All members of the compensation committee when option exercise prices were backdated. Glass Lewis will recommend voting against an executive director who played a role in and participated in option backdating.
|
11.
|
All members of the compensation committee when option exercise prices were spring-loaded or otherwise timed around the release of material information.
|
21
|
As discussed under the section labeled “Committee Chair,” where the recommendation is to vote against the committee chair and the chair is not up for election because the board is staggered, we do not recommend voting against any members of the committee who are up for election; rather, we will note the concern with regard to the committee chair.
|
22
|
If a company provides shareholders with a say-on-pay proposal, we will initially only recommend voting against the company’s say-on-pay proposal and will not recommend voting against the members of the compensation committee unless there is a pattern of failing to align pay and performance and/or the company exhibits egregious compensation practices. However, if the company repeatedly fails to align pay and performance, we will then recommend against the members of the compensation committee in addition to recommending voting against the say-on-pay proposal. For cases in which the disconnect between pay and performance is marginal and the company has outperformed its peers, we will consider not recommending against compensation committee members.
|
12.
|
All members of the compensation committee when a new employment contract is given to an executive that does not include a clawback provision and the company had a material restatement, especially if the restatement was due to fraud.
|
13.
|
The chair of the compensation committee where the CD&A provides insufficient or unclear information about performance metrics and goals, where the CD&A indicates that pay is not tied to performance, or where the compensation committee or management has excessive discretion to alter performance terms or increase amounts of awards in contravention of previously defined targets.
|
14.
|
All members of the compensation committee during whose tenure the committee failed to implement a shareholder proposal regarding a compensation-related issue, where the proposal received the affirmative vote of a majority of the voting shares at a shareholder meeting, and when a reasonable analysis suggests that the compensation committee (rather than the governance committee) should have taken steps to implement the request.23
|
1. |
All members of the governance committee25 during whose tenure a shareholder proposal relating to important shareholder rights received support from a majority of the votes cast (excluding abstentions and broker non-votes) and the board has not begun to implement or enact the proposal’s subject matter.26 Examples of such shareholder proposals include those seeking a declassified board structure, a majority vote standard for director elections, or a right to call a special meeting. In determining whether a board has sufficiently implemented such a proposal, we will examine the quality of the right enacted or proffered by the board for any conditions that may unreasonably interfere with the shareholders’ ability to exercise the right (e.g., overly restrictive procedural requirements for calling a special meeting).
|
23
|
In all other instances (i.e., a non-compensation-related shareholder proposal should have been implemented) we recommend that shareholders vote against the members of the governance committee.
|
24
|
As discussed in the guidelines section labeled “Committee Chair,” where we would recommend to vote against the committee chair but the chair is not up for election because the board is staggered, we do not recommend voting against any members of the committee who are up for election; rather, we will note the concern with regard to the committee chair.
|
25
|
If the board does not have a committee responsible for governance oversight and the board did not implement a shareholder proposal that received the requisite support, we will recommend voting against the entire board. If the shareholder proposal at issue requested that the board adopt a declassified structure, we will recommend voting against all director nominees up for election.
|
26
|
Where a compensation-related shareholder proposal should have been implemented, and when a reasonable analysis suggests that the members of the compensation committee (rather than the governance committee) bear the responsibility for failing to implement the request, we recommend that shareholders only vote against members of the compensation committee.
|
2.
|
The governance committee chair,27 when the chair is not independent and an independent lead or presiding director has not been appointed.28
|
3.
|
In the absence of a nominating committee, the governance committee chair when there are less than five or the whole nominating committee when there are more than 20 members on the board.
|
4.
|
The governance committee chair, when the committee fails to meet at all during the year.
|
5.
|
The governance committee chair, when for two consecutive years the company provides what we consider to be “inadequate” related party transaction disclosure (i.e., the nature of such transactions and/or the monetary amounts involved are unclear or excessively vague, thereby preventing a shareholder from being able to reasonably interpret the independence status of multiple directors above and beyond what the company maintains is compliant with SEC or applicable stock exchange listing requirements).
|
6.
|
The governance committee chair, when during the past year the board adopted a forum selection clause (i.e., an exclusive forum provision)29 without shareholder approval, or, if the board is currently seeking shareholder approval of a forum selection clause pursuant to a bundled bylaw amendment rather than as a separate proposal.
|
7.
|
All members of the governance committee during whose tenure the board adopted, without shareholder approval, provisions in its charter or bylaws that, through rules on director compensation, may inhibit the ability of shareholders to nominate directors.
|
1. |
All members of the nominating committee, when the committee nominated or renominated an individual who had a significant conflict of interest or whose past actions demonstrated a lack of integrity or inability to represent shareholder interests.
|
2.
|
The nominating committee chair, if the nominating committee did not meet during the year.
|
27
|
As discussed in the guidelines section labeled “Committee Chair,” if the committee chair is not specified, we recommend voting against the director who has been on the committee the longest. If the longest-serving committee member cannot be determined, we will recommend voting against the longest-serving board member serving on the committee.
|
28
|
We believe that one independent individual should be appointed to serve as the lead or presiding director. When such a position is rotated among directors from meeting to meeting, we will recommend voting against the governance committee chair as we believe the lack of fixed lead or presiding director means that, effectively, the board does not have an independent board leader.
|
29
|
A forum selection clause is a bylaw provision stipulating that a certain state, typically where the company is incorporated, which is most often Delaware, shall be the exclusive forum for all intra-corporate disputes (e.g., shareholder derivative actions, assertions of claims of a breach of fiduciary duty, etc.). Such a clause effectively limits a shareholder’s legal remedy regarding appropriate choice of venue and related relief offered under that state’s laws and rulings.
|
30
|
As discussed in the guidelines section labeled “Committee Chair,” where we would recommend to vote against the committee chair but the chair is not up for election because the board is staggered, we do not recommend voting against any members of the committee who are up for election; rather, we will note the concern with regard to the committee chair.
|
3.
|
In the absence of a governance committee, the nominating committee chair31 when the chair is not independent, and an independent lead or presiding director has not been appointed.32
|
4.
|
The nominating committee chair, when there are less than five or the whole nominating committee when there are more than 20 members on the board.33
|
5.
|
The nominating committee chair, when a director received a greater than 50% against vote the prior year and not only was the director not removed, but the issues that raised shareholder concern were not corrected.34
|
31
|
As discussed under the section labeled “Committee Chair,” if the committee chair is not specified, we will recommend voting against the director who has been on the committee the longest. If the longest-serving committee member cannot be determined, we will recommend voting against the longest-serving board member on the committee.
|
32
|
In the absence of both a governance and a nominating committee, we will recommend voting against the board chair on this basis, unless if the chair also serves as the CEO, in which case we will recommend voting against the longest-serving director.
|
33
|
In the absence of both a governance and a nominating committee, we will recommend voting against the board chair on this basis, unless if the chair also serves as the CEO, in which case we will recommend voting against the the longest-serving director.
|
34
|
Considering that shareholder discontent clearly relates to the director who received a greater than 50% against vote rather than the nominating chair, we review the severity of the issue(s) that initially raised shareholder concern as well as company responsiveness to such matters, and will only recommend voting against the nominating chair if a reasonable analysis suggests that it would be most appropriate. In rare cases, we will consider recommending against the nominating chair when a director receives a substantial (i.e., 25% or more) vote against based on the same analysis.
|
35
|
A committee responsible for risk management could be a dedicated risk committee, the audit committee, or the finance committee, depending on a given company’s board structure and method of disclosure. At some companies, the entire board is charged with risk management.
|
1. |
A CFO who is on the board: In our view, the CFO holds a unique position relative to financial reporting and disclosure to shareholders. Due to the critical importance of financial disclosure and reporting, we believe the CFO should report to the board and not be a member of it.
|
36
|
For example, the 2015-2016 NACD Public Company Governance Survey states that, on average, directors spent a total of 248.2 hours annual on board-related matters during the past year, which it describes as a “historically high level” that is significantly above the average hours recorded in 2006. Additionally, the 2015 Spencer Stuart Board Index indicates that the average number of outside board seats held by CEOs of S&P 500 companies is 0.6, down from 0.7 in 2009 and 0.9 in 2004.
|
2.
|
A director who provides — or a director who has an immediate family member who provides — material consulting or other material professional services to the company. These services may include legal, consulting, or financial services. We question the need for the company to have consulting relationships with its directors. We view such relationships as creating conflicts for directors, since they may be forced to weigh their own interests against shareholder interests when making board decisions. In addition, a company’s decisions regarding where to turn for the best professional services may be compromised when doing business with the professional services firm of one of the company’s directors.
|
3.
|
A director, or a director who has an immediate family member, engaging in airplane, real estate, or similar deals, including perquisite-type grants from the company, amounting to more than $50,000. Directors who receive these sorts of payments from the company will have to make unnecessarily complicated decisions that may pit their interests against shareholder interests.
|
4.
|
Interlocking directorships: CEOs or other top executives who serve on each other’s boards create an interlock that poses conflicts that should be avoided to ensure the promotion of shareholder interests above all else.37
|
5.
|
All board members who served at a time when a poison pill with a term of longer than one year was adopted without shareholder approval within the prior twelve months.38 In the event a board is classified and shareholders are therefore unable to vote against all directors, we will recommend voting against the remaining directors the next year they are up for a shareholder vote. If a poison pill with a term of one year or less was adopted without shareholder approval, and without adequate justification, we will consider recommending that shareholders vote against all members of the governance committee. If the board has, without seeking shareholder approval, and without adequate justification, extended the term of a poison pill by one year or less in two consecutive years, we will consider recommending that shareholders vote against the entire board.
|
37
|
We do not apply a look-back period for this situation. The interlock policy applies to both public and private companies. We will also evaluate multiple board interlocks among non-insiders (i.e., multiple directors serving on the same boards at other companies), for evidence of a pattern of poor oversight.
|
38
|
Refer to Section V. Governance Structure and the Shareholder Franchise for further discussion of our policies regarding anti-takeover measures, including poison pills.
|
39
|
The Conference Board, at p. 23 in its May 2003 report “Corporate Governance Best Practices, Id.,” quotes one of its roundtable participants as stating, “[w]hen you’ve got a 20 or 30 person corporate board, it’s one way of assuring that nothing is ever going to happen that the CEO doesn’t want to happen.”
|
1. |
We do not require that controlled companies have boards that are at least two-thirds independent. So long as the insiders and/or affiliates are connected with the controlling entity, we accept the presence of non-independent board members.
|
2.
|
The compensation committee and nominating and governance committees do not need to consist solely of independent directors.
|
• |
We believe that standing nominating and corporate governance committees at controlled companies are unnecessary. Although having a committee charged with the duties of searching for, selecting, and nominating independent directors can be beneficial, the unique composition of a controlled company’s shareholder base makes such committees weak and irrelevant.
|
• |
Likewise, we believe that independent compensation committees at controlled companies are unnecessary. Although independent directors are the best choice for approving and monitoring senior executives’ pay, controlled companies serve a unique shareholder population whose voting power ensures the protection of its interests. As such, we believe that having affiliated directors on a controlled company’s compensation committee is acceptable. However, given that a controlled company has certain obligations to minority shareholders we feel that an insider should not serve on the compensation committee. Therefore, Glass Lewis will recommend voting against any insider (the CEO or otherwise) serving on the compensation committee.
|
3.
|
Controlled companies do not need an independent chair or an independent lead or presiding director. Although an independent director in a position of authority on the board – such as chair or presiding director — can best carry out the board’s duties, controlled companies serve a unique shareholder population whose voting power ensures the protection of its interests.
|
1.
|
The adoption of anti-takeover provisions such as a poison pill or classified board
|
2.
|
Supermajority vote requirements to amend governing documents
|
3.
|
The presence of exclusive forum or fee-shifting provisions
|
4.
|
Whether shareholders can call special meetings or act by written consent
|
5.
|
The voting standard provided for the election of directors
|
6.
|
The ability of shareholders to remove directors without cause
|
7.
|
The presence of evergreen provisions in the Company’s equity compensation arrangements
|
1.
|
Size of the board of directors — The board should be made up of between five and twenty directors.
|
2.
|
The CFO on the board — Neither the CFO of the fund nor the CFO of the fund’s registered investment adviser should serve on the board.
|
3.
|
Independence of the audit committee — The audit committee should consist solely of independent directors.
|
4.
|
Audit committee financial expert — At least one member of the audit committee should be designated as the audit committee financial expert.
|
1. |
Independence of the board — We believe that three-fourths of an investment company’s board should be made up of independent directors. This is consistent with a proposed SEC rule on investment company boards. The Investment Company Act requires 40% of the board to be independent, but in 2001, the SEC amended the Exemptive Rules to require that a majority of a mutual fund board be independent. In 2005, the SEC proposed increasing the independence threshold to 75%. In 2006, a federal appeals court ordered that this rule amendment be put back out for public comment, putting it back into “proposed rule” status. Since mutual fund boards play a vital role in overseeing the relationship between the fund and its investment manager, there is greater need for independent oversight than there is for an operating company board.
|
2.
|
When the auditor is not up for ratification — We do not recommend voting against the audit committee if the auditor is not up for ratification. Due to the different legal structure of an investment company compared to an operating company, the auditor for the investment company (i.e., mutual fund) does not conduct the same level of financial review for each investment company as for an operating company.
|
3.
|
Non-independent chair — The SEC has proposed that the chair of the fund board be independent. We agree that the roles of a mutual fund’s chair and CEO should be separate. Although we believe this would be best at all companies, we recommend voting against the chair of an investment company’s nominating committee as well as the board chair if the chair and CEO of a mutual fund are the same person and the fund does not have an independent lead or presiding director. Seven former SEC commissioners support the appointment of an independent chair and we agree with them that “an independent board chair would be better able to create conditions favoring the long-term interests of fund shareholders than would a chair who is an executive of the adviser.” (See the comment letter sent to the SEC in support of the proposed rule at http://www.sec.gov/news/studies/indchair.pdf)
|
4.
|
Multiple funds overseen by the same director — Unlike service on a public company board, mutual fund boards require much less of a time commitment. Mutual fund directors typically serve on dozens of other mutual fund boards, often within the same fund complex. The Investment Company Institute’s (“ICI”) Overview of Fund Governance Practices, 1994-2012, indicates that the average number of funds served by an independent director in 2012 was 53. Absent evidence that a specific director is hindered from being an effective board member at a fund due to service on other funds’ boards, we refrain from maintaining a cap on the number of outside mutual fund boards that we believe a director can serve on.
|
40
|
Lucian Bebchuk, John Coates IV, Guhan Subramanian, “The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants,” 55 Stanford Law Review 885-917 (2002).
|
41
|
Lucian Bebchuk, Alma Cohen, “The Costs of Entrenched Boards” (2004).
|
42
|
Lucian Bebchuk, Alma Cohen and Charles C.Y. Wang, “Staggered Boards and the Wealth of Shareholders: Evidence from a Natural Experiment,” SSRN: http://ssrn.com/abstract=1706806 (2010), p. 26.
|
43
|
Spencer Stuart Board Index, 2013, p. 4
|
44
|
Lucian Bebchuk, John Coates IV and Guhan Subramanian, “The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy”.
|
45
|
Spencer Stuart Board Index, 2015, p. 12.
|
•
|
The nature of the underlying issue;
|
•
|
The benefit to shareholders from implementation of the proposal;
|
• |
The materiality of the differences between the terms of the shareholder proposal and management proposal;
|
• |
The appropriateness of the provisions in the context of a company’s shareholder base, corporate structure and other relevant circumstances; and
|
• |
A company’s overall governance profile and, specifically, its responsiveness to shareholders as evidenced by a company’s response to previous shareholder proposals and its adoption of progressive shareholder rights provisions.
|
1.
|
When audit fees plus audit-related fees total less than the tax fees and/or other non-audit fees.
|
2.
|
Recent material restatements of annual financial statements, including those resulting in the reporting of material weaknesses in internal controls and including late filings by the company where the auditor bears some responsibility for the restatement or late filing.47
|
46
|
“Final Report of the Advisory Committee on the Auditing Profession to the U.S. Department of the Treasury.” p. VIII:20, October 6, 2008.
|
47
|
An auditor does not audit interim financial statements. Thus, we generally do not believe that an auditor should be opposed due to a restatement of interim financial statements unless the nature of the misstatement is clear from a reading of the incorrect financial statements.
|
3.
|
When the auditor performs prohibited services such as tax-shelter work, tax services for the CEO or CFO, or contingent-fee work, such as a fee based on a percentage of economic benefit to the company.
|
4.
|
When audit fees are excessively low, especially when compared with other companies in the same industry.
|
5.
|
When the company has aggressive accounting policies.
|
6.
|
When the company has poor disclosure or lack of transparency in its financial statements.
|
7.
|
Where the auditor limited its liability through its contract with the company or the audit contract requires the corporation to use alternative dispute resolution procedures without adequate justification.
|
8.
|
We also look for other relationships or concerns with the auditor that might suggest a conflict between the auditor’s interests and shareholder interests.
|
• |
The overall design and structure of the company’s executive compensation programs including selection and challenging nature of performance metrics;
|
• |
The implementation and effectiveness of the company’s executive compensation programs including pay mix and use of performance metrics in determining pay levels;
|
•
|
The quality and content of the company’s disclosure;
|
•
|
The quantum paid to executives; and
|
• |
The link between compensation and performance as indicated by the company’s current and past pay-for-performance grades.
|
•
|
Inappropriate peer group and/or benchmarking issues;
|
•
|
Inadequate or no rationale for changes to peer groups;
|
• |
Egregious or excessive bonuses, equity awards or severance payments, including golden handshakes and golden parachutes;
|
•
|
Problematic contractual payments, such as guaranteed bonuses;
|
•
|
Targeting overall levels of compensation at higher than median without adequate justification;
|
•
|
Performance targets not sufficiently challenging, and/or providing for high potential payouts;
|
•
|
Performance targets lowered without justification;
|
•
|
Discretionary bonuses paid when short- or long-term incentive plan targets were not met;
|
•
|
Executive pay high relative to peers not justified by outstanding company performance; and
|
• |
The terms of the long-term incentive plans are inappropriate (please see “Long-Term Incentives” on page 29).
|
•
|
No re-testing or lowering of performance conditions;
|
•
|
Performance metrics that cannot be easily manipulated by management;
|
•
|
Two or more performance metrics;
|
• |
At least one relative performance metric that compares the company’s performance to a relevant peer group or index;
|
•
|
Performance periods of at least three years;
|
• |
Stretching metrics that incentivize executives to strive for outstanding performance while not encouraging excessive risk-taking; and
|
•
|
Individual limits expressed as a percentage of base salary.
|
•
|
The number of shares pledged;
|
•
|
The percentage executives’ pledged shares are of outstanding shares;
|
•
|
The percentage executives’ pledged shares are of each executive’s shares and total assets;
|
•
|
Whether the pledged shares were purchased by the employee or granted by the company;
|
•
|
Whether there are different policies for purchased and granted shares;
|
•
|
Whether the granted shares were time-based or performance-based;
|
•
|
The overall governance profile of the company;
|
• |
The volatility of the company’s stock (in order to determine the likelihood of a sudden stock price drop);
|
•
|
The nature and cyclicality, if applicable, of the company’s industry;
|
•
|
The participation and eligibility of executives and employees in pledging;
|
• |
The company’s current policies regarding pledging and any waiver from these policies for employees and executives; and
|
•
|
Disclosure of the extent of any pledging, particularly among senior executives.
|
•
|
Companies should seek more shares only when needed;
|
• |
Requested share amounts should be small enough that companies seek shareholder approval every three to four years (or more frequently);
|
• |
If a plan is relatively expensive, it should not grant options solely to senior executives and board members;
|
• |
Dilution of annual net share count or voting power, along with the “overhang” of incentive plans, should be limited;
|
• |
Annual cost of the plan (especially if not shown on the income statement) should be reasonable as a percentage of financial results and should be in line with the peer group;
|
•
|
The expected annual cost of the plan should be proportional to the business’s value;
|
• |
The intrinsic value that option grantees received in the past should be reasonable compared with the business’s financial results;
|
•
|
Plans should not permit re-pricing of stock options;
|
•
|
Plans should not contain excessively liberal administrative or payment terms;
|
• |
Plans should not count shares in ways that understate the potential dilution, or cost, to common shareholders. This refers to “inverse” full-value award multipliers;
|
• |
Selected performance metrics should be challenging and appropriate, and should be subject to relative performance measurements; and
|
• |
Stock grants should be subject to minimum vesting and/or holding periods sufficient to ensure sustainable performance and promote retention.
|
•
|
Officers and board members cannot participate in the program;
|
• |
The stock decline mirrors the market or industry price decline in terms of timing and approximates the decline in magnitude;
|
• |
The exchange is value-neutral or value-creative to shareholders using very conservative assumptions and with a recognition of the adverse selection problems inherent in voluntary programs; and
|
• |
Management and the board make a cogent case for needing to motivate and retain existing employees, such as being in a competitive employment market.
|
48
|
Lucian Bebchuk, Yaniv Grinstein and Urs Peyer. “LUCKY CEOs.” November, 2006.
|
49
|
Section 382 of the Internal Revenue Code refers to a “change of ownership” of more than 50 percentage points by one or more 5% shareholders within a three-year period. The statute is intended to deter the “trafficking” of net operating losses.
|
•
|
Is the board sufficiently independent?
|
•
|
Does the company have anti-takeover protections such as a poison pill or classified board in place?
|
• |
Has the board been previously unresponsive to shareholders (such as failing to implement a shareholder proposal that received majority shareholder support)?
|
•
|
Do shareholders have the right to call special meetings of shareholders?
|
•
|
Are there other material governance issues of concern at the company?
|
•
|
Has the company’s performance matched or exceeded its peers in the past one and three years?
|
• |
How has the company ranked in Glass Lewis’ pay-for-performance analysis during the last three years?
|
•
|
Does the company have an independent chair?
|
1. |
Stock Split — We typically consider three metrics when evaluating whether we think a stock split is likely or necessary: The historical stock pre-split price, if any; the current price relative to the company’s most common trading price over the past 52 weeks; and some absolute limits on stock price that, in our view, either always make a stock split appropriate if desired by management or would almost never be a reasonable price at which to split a stock.
|
2.
|
Shareholder Defenses — Additional authorized shares could be used to bolster takeover defenses such as a poison pill. Proxy filings often discuss the usefulness of additional shares in defending against or discouraging a hostile takeover as a reason for a requested increase. Glass Lewis is typically against such defenses and will oppose actions intended to bolster such defenses.
|
3.
|
Financing for Acquisitions — We look at whether the company has a history of using stock for acquisitions and attempt to determine what levels of stock have typically been required to accomplish such transactions. Likewise, we look to see whether this is discussed as a reason for additional shares in the proxy.
|
4.
|
Financing for Operations — We review the company’s cash position and its ability to secure financing through borrowing or other means. We look at the company’s history of capitalization and whether the company has had to use stock in the recent past as a means of raising capital.
|
• |
The authorization to allow share issuances below NAV has an expiration date of one year or less from the date that shareholders approve the underlying proposal (i.e. the meeting date);
|
•
|
The proposed discount below NAV is minimal (ideally no greater than 20%);
|
• |
The board specifies that the issuance will have a minimal or modest dilutive effect (ideally no greater than 25% of the company’s then-outstanding common stock prior to the issuance); and
|
• |
A majority of the company’s independent directors who do not have a financial interest in the issuance approve the sale.
|
1.
|
I have reviewed this report on Form N-CSR of Cornerstone Total Return Fund, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
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(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
|
The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
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(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: March 2, 2017
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/s/ Ralph W. Bradshaw
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|
Ralph W. Bradshaw, Chairman
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||
and President (Principal
|
||
Executive Officer)
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1.
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I have reviewed this report on Form N-CSR of Cornerstone Total Return Fund, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: March 2, 2017
|
/s/ Frank J. Maresca
|
|
Frank J. Maresca, Treasurer
|
||
(Principal Financial Officer)
|
1.
|
The Registrant's periodic report on Form N-CSR for the period ended December 31, 2016 (the "Form N-CSR") fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, as amended; and
|
2.
|
The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
PRINCIPAL EXECUTIVE OFFICER
|
PRINCIPAL FINANCIAL OFFICER
|
||
Cornerstone Total Return Fund, Inc.
|
Cornerstone Total Return Fund, Inc.
|
||
/s/ Ralph W. Bradshaw
|
/s/ Frank J. Maresca
|
||
Ralph W. Bradshaw, President
|
Frank J. Maresca, Treasurer
|
Date:
|
March 2, 2017
|
Date:
|
March 2, 2017
|