Cornerstone
Total Return Fund, Inc.
64,056,602
Rights for 21,352,201 Shares of Common Stock
Cornerstone
Total Return Fund, Inc. (the “Fund”) is issuing non-transferable rights (“Rights”) to its holders of record
of shares of common stock (“Common Stock”) (such holders hereinafter referred to as “Stockholders” and
the shares of Common Stock, the “Shares”) which Rights will allow Stockholders to subscribe for new Shares (the “Offering”).
For every three (3) Rights a Stockholder receives, such Stockholder will be entitled to buy one (1) new Share. Each Stockholder
will receive one Right for each outstanding Share it owns on April 18, 2022 (the “Record Date”). Fractional Shares
will not be issued upon the exercise of the Rights. Accordingly, the number of Rights to be issued to a Stockholder on the Record
Date will be rounded up to the nearest whole number of Rights evenly divisible by three. Stockholders on the Record Date may purchase
Shares not acquired by other Stockholders in this Rights offering, subject to certain limitations discussed in this Prospectus.
Additionally, if there are not enough unsubscribed Shares to honor all additional subscription requests, the Fund may, in its
sole discretion, issue additional Shares up to 50% of the Shares available in the Offering to honor additional subscription requests.
See “The Offering” below.
The
Rights are non-transferable, and may not be purchased or sold. Rights will expire without residual value at the Expiration Date
(defined below). The Rights will not be listed for trading on the NYSE American LLC (“NYSE American”), and there will
not be any market for trading Rights. The Shares to be issued pursuant to the Offering will be listed for trading on the NYSE
American, subject to the NYSE American being officially notified of the issuance of those Shares. On April 8, 2022, the last reported
net asset value (“NAV”) per Share was $8.65 and the last reported sales price per Share on the NYSE American was $13.61,
which represents a 57.34% premium to the Fund’s NAV per Share. The subscription price per Share (the “Subscription
Price”) will be the greater of (i) 112% of NAV per Share as calculated at the close of trading on the date of expiration
of the Offering and (ii) 65% of the market price per Share at such time. The considerable number of Shares that may be issued
as a result of the Offering may cause the premium above NAV at which the Fund’s Shares are currently trading to decline,
especially if Stockholders exercising the Rights attempt to sell sizeable numbers of shares immediately after such issuance.
STOCKHOLDERS
WHO CHOOSE TO EXERCISE THEIR RIGHTS WILL NOT KNOW THE SUBSCRIPTION PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH RIGHTS BECAUSE
THE OFFERING WILL EXPIRE (I.E., CLOSE) PRIOR TO THE AVAILABILITY OF THE FUND’S NAV AND OTHER RELEVANT MARKET INFORMATION
ON THE EXPIRATION DATE. ONCE A STOCKHOLDER SUBSCRIBES FOR SHARES AND THE FUND RECEIVES PAYMENT, SUCH STOCKHOLDER WILL NOT BE ABLE
TO WITHDRAW HIS, HER OR ITS SUBSCRIPTION OR CHANGE HIS, HER OR ITS DECISION. THE OFFERING WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MAY 20, 2022 (THE “EXPIRATION DATE”), UNLESS EXTENDED, AS DISCUSSED IN THIS PROSPECTUS.
The
offering may substantially dilute the voting power of Stockholders who do not fully exercise their Rights since they will own
a smaller proportionate interest in the Fund upon completion of the offering.
The
Fund is a diversified, closed-end management investment company. The Fund’s investment objective is capital appreciation
with current income as a secondary objective. The Fund seeks to achieve its objectives by investing primarily in U.S. and non-U.S.
companies. There can be no assurance that the Fund’s objective will be achieved.
For
more information, please call AST Fund Solutions, LLC (the “Information Agent”) toll free at (866) 406-2285.
Investing
in the Fund involves risks. See “Risk Factors” on page 32
of this prospectus.
| |
Estimated
Subscription
Price (1) |
Estimated
Sales Load |
Estimated
Proceeds to
the Fund (2)(3) |
| Per
Share |
$9.69 |
None |
$206,902,824 |
| Total |
$9.69 |
None |
$206,902,824 |
| (1) |
Because the Subscription
Price will not be determined until after printing and distribution of this prospectus, the “Estimated Subscription Price”
above is an estimate of the subscription price based on the Fund’s per-Share NAV and market price at the close of trading
on April 8, 2022. See “The Offering - Subscription Price” and “The Offering - Payment for Shares.” |
| (2) |
Proceeds to the
Fund are before deduction of expenses incurred by the Fund in connection with the Offering, such expenses are estimated to
be approximately $249,409 or approximately $0.003 per Share, if fully subscribed. The calculation of the per Share amount
does not take into account the Over-Subscription Shares. Funds received prior to the final due date of this Offering will
be deposited in a segregated account pending allocation and distribution of Shares. Interest, if any, on subscription monies
will be paid to the Fund regardless of whether Shares are issued by the Fund; interest will not be used as credit toward the
purchase of Shares. |
| (3) |
Fees and expenses
incurred by the Fund in connection with the Offering are estimated to be approximately $249,409 or approximately $0.003 per
Share, if fully subscribed. Proceeds to the Fund, after deduction of such fees and expenses incurred by the Fund in connection
with the Offering, are estimated to be approximately $206,653,415 or approximately $2.42 per Share, if fully subscribed. The
calculation of the per Share amounts indicated above do not take into account the Over- Subscription Shares. |
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is April 13, 2022.
The
Fund’s Shares are listed on the NYSE American under the ticker symbol “CRF.”
Investment
Adviser. Cornerstone Advisors, LLC (the “Investment Adviser”) acts as the Fund’s investment adviser.
See “Management of the Fund.” As of December 31, 2021, the Investment Adviser managed one other closed-end fund
with combined assets with the Fund of approximately $1,855.3 million. The Investment Adviser’s address is 1075
Hendersonville Road, Suite 250, Asheville, North Carolina, 28803. This prospectus sets forth concisely the information about
the Fund that you should know before deciding whether to invest in the Fund. A Statement of Additional Information, dated
April 13, 2022 (the “Statement of Additional Information”), and other materials, containing additional
information about the Fund, have been filed with the Securities and Exchange Commission (the “SEC”). The
Statement of Additional Information is incorporated by reference in its entirety into this prospectus, which means it is
considered to be part of this prospectus. You may obtain a free copy of the Statement of Additional Information, the table of
contents of which is on page 57 of this prospectus, and other
information filed with the SEC, by calling toll free (866) 406-2285 or by writing to the Fund c/o Ultimus Fund Solutions,
LLC, 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246, or by visiting the Fund’s website at
www.cornerstonetotalreturnfund.com. The Fund files annual and semi-annual stockholder reports, proxy statements and other
information with the SEC. You can obtain this information or the Fund’s Statement of Additional Information or any
information regarding the Fund filed with the SEC from the SEC’s website at www.sec.gov.
The
Fund’s Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured
depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any governmental agency.
You
should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to
provide you with different information. We are not making an offer to sell these securities in any jurisdiction where the offer
or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus. The
Fund will amend this prospectus if, during the period this prospectus is required to be delivered, there are any material changes
to the facts stated in this prospectus subsequent to the date of this prospectus.
TABLE
OF CONTENTS
| |
Page |
| SUMMARY |
1 |
| SUMMARY
OF FUND EXPENSES |
12 |
| THE
FUND |
13 |
| THE
OFFERING |
13 |
| FINANCIAL
HIGHLIGHTS |
22 |
| USE
OF PROCEEDS |
25 |
| INVESTMENT
OBJECTIVE AND POLICIES |
25 |
| RISK
FACTORS |
32 |
| LISTING
OF SHARES |
40 |
| MANAGEMENT
OF THE FUND |
40 |
| DETERMINATION
OF NET ASSET VALUE |
43 |
| DISTRIBUTION
POLICY |
44 |
| DISTRIBUTION
REINVESTMENT PLAN |
47 |
| CERTAIN
ADDITIONAL MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS |
49 |
| DESCRIPTION
OF CAPITAL STRUCTURE |
53 |
| LEGAL
MATTERS |
56 |
| REPORTS
TO STOCKHOLDERS |
56 |
| INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM |
56 |
| ADDITIONAL
INFORMATION |
56 |
| TABLE
OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION |
57 |
SUMMARY
This
summary does not contain all of the information that you should consider before investing in the Fund. You should review the more
detailed information contained or incorporated by reference in this prospectus and in the Statement of Additional Information,
particularly the information set forth under the heading “Risk Factors.”
A
1-for-4 reverse stock split (the “Reverse Stock Split”) was announced on October 14, 2014 and became effective on
December 29, 2014. All share and per share amounts in this prospectus prior to December 29, 2014 have been adjusted to reflect
this Reverse Stock Split.
| The
Fund |
Cornerstone
Total Return Fund, Inc. is a diversified, closed-end management investment company. It was incorporated in New York on March
16, 1973 and commenced investment operations on May 15, 1973. The Fund’s Shares are traded on the NYSE American under
the ticker symbol “CRF.” As of December 31, 2021, the Fund had 63,297,395 Shares issued and outstanding. |
| The
Offering |
The
Fund is issuing non-transferable rights (“Rights”) to its Stockholders as
of the close of business on April 18, 2022 (the “Record Date”) which Rights
will allow Stockholders to subscribe for an aggregate of 21,352,201 Shares (the “Offering”).
For every three (3) Rights a Stockholder receives, such Stockholder will be entitled
to buy one (1) new Share at a subscription price equal to the greater of (i) 112% of
NAV of the Shares as calculated on the Expiration Date (or Extended Expiration Date,
as the case may be) and (ii) 65% of the market price at the close of trading on such
date. Each Stockholder will receive one Right for each outstanding Share he or she owns
on the Record Date (the “Basic Subscription”). Fractional Shares will not
be issued upon the exercise of the Rights. Accordingly, the number of Rights to be issued
to a Stockholder as of the Record Date will be rounded up to the nearest whole number
of Rights evenly divisible by three. Stockholders as of the Record Date may purchase
Shares not acquired by other Stockholders in this Rights offering, subject to certain
limitations discussed in this prospectus. Additionally, if there are not enough unsubscribed
Shares to honor all over-subscription requests, the Fund may, in its discretion, issue
additional Shares up to 50% of the Shares available in the Offering to honor additional
subscription requests.
Shares
will be issued within the 15-day period immediately following the record date of the Fund’s monthly distribution
and Stockholders exercising rights will not be entitled to receive such distribution with respect to the shares issued
pursuant to such exercise.
The
Fund previously conducted a rights offering that expired on May 14, 2021 (the “2021 Offering”) and included
similar terms and conditions as this Offering. Pursuant to the 2021 Offering, the Fund issued 20,584,726 Shares (6,833,697
Shares of which were Over-Subscription Shares) at a subscription price of $10.23 per Share, for a total offering of $210,581,747.
Prior
to the 2021 Offering, the Fund conducted a rights offering that expired on July 20, 2018 (the “2018 Offering”) and
included similar terms and conditions as this Offering. Pursuant to the 2018 Offering, the Fund issued 15,050,616 Shares (7,525,308
Shares of which were Over-Subscription Shares) at a subscription price of $13.09 per Share, for a total offering of $197,012,563. |
| |
Prior
to the 2018 Offering, the Fund conducted a rights offering that expired on August 25,
2017 (the “2017 Offering”) and included similar terms and conditions as this
Offering. Pursuant to the 2017 Offering, which was fully subscribed, the Fund issued
8,798,352 Shares (4,399,176 Shares of which were Over-Subscription Shares) at a subscription
price of $13.41 per Share, for a total offering of $117,985,900.
Prior
to the 2017 Offering, the Fund conducted a rights offering that expired on October 21, 2016 (the “2016 Offering”)
and included similar terms and conditions as this Offering. Pursuant to the 2016 Offering, which was fully subscribed,
the Fund issued 5,196,240 Shares (2,598,120 Shares of which were Over-Subscription Shares) at a subscription price of
$13.69 per Share, for a total offering of $71,136,525.
Prior
to the 2016 Offering, the Fund conducted a rights offering that expired on August 14, 2015 (the “2015 Offering”) and
included similar terms and conditions as this Offering. Pursuant to the 2015 Offering, which was fully subscribed, the Fund issued
3,027,098 Shares (1,513,549 Shares of which were Over-Subscription Shares) at a subscription price of $17.06 per Share, for a
total offering of $51,642,292. |
| |
Prior
to the 2015 Offering, the Fund conducted a rights offering that expired on November 29,
2013 (the “2013 Offering”) and included similar terms and conditions as this
Offering. Pursuant to the 2013 Offering, which was fully subscribed, the Fund issued
1,723,096 Shares (861,548 Shares of which were Over-Subscription Shares) at a subscription
prices of $21.36 per Share, for a total offering of $36,805,331.
Prior
to the 2013 Offering, the Fund conducted a rights offering that expired on December 21, 2012 (the “2012 Offering”)
and included similar terms and conditions as this Offering. Pursuant to the 2012 Offering, which was fully subscribed,
the Fund issued 841,130 Shares (279,448 Shares of which were Over-Subscription Shares) at a subscription price of $21.32
per Share, for a total offering of $17,932,897.
Prior
to the 2012 Offering, the Fund conducted a rights offering that expired on December 16, 2011 (the “2011 Offering”)
and included similar terms and conditions as this Offering. Pursuant to the 2011 Offering, which was fully subscribed,
the Fund issued 657,003 Shares (328,501 Shares of which were Over-Subscription Shares) at a subscription price of $22.16
per Share, for a total offering of $14,559,175.
Prior
to the 2011 Offering, the Fund conducted a rights offering that expired on December 10, 2010 (the “2010 Offering”)
and included similar terms and conditions as this Offering. Pursuant to the 2010 Offering, which was fully subscribed, the Fund
issued 251,596 Shares (11,588 Shares of which were Over-Subscription Shares) at a subscription price of $28.92 per Share, for
a total offering of $7,275,425. |
| |
Use
of Proceeds from the 2021 Offering, 2018 Offering, 2017 Offering, the 2016 Offering, the 2015 Offering, the 2013 Offering, the
2012 Offering, the 2011 Offering, and the 2010 Offering (collectively, the “Prior Rights Offerings”) have been used,
and the use of proceeds from the current Offering and any future rights offerings may be used, to maintain the Fund’s Distribution
Policy (as defined below) by providing funding for future distributions, which may constitute a return of its Stockholders’
capital.
A “return of capital” is treated as a non-dividend
distribution for tax purposes and is not subject to current tax. A return of capital reduces a Stockholder’s tax cost basis
(but not below zero) in Fund shares.
|
| How
to Exercise Rights |
Stockholders
may exercise Rights by filling in and signing the reverse side of the Subscription Certificate and delivering the completed
and signed Subscription Certificate and payment for the Shares to the Subscription Agent, American Stock Transfer & Trust
Company, LLC. If you have any questions regarding the Rights, please contact the Information Agent (AST Fund Solutions, LLC)
at (866) 406-2285 or your broker or nominee. See “The Offering” |
| Purpose
of the Offering |
At
a meeting held on February 18, 2022, the Board of Directors considered, in addition to
other factors, the success of the Prior Rights Offerings, and determined that the current
Offering was in the best interests of the Fund and its Stockholders to increase the assets
of the Fund. The primary reasons include:
●
The Basic Subscription will provide existing Stockholders an opportunity to purchase additional Shares at a price that
is potentially below market value without incurring any commission or transaction charges.
●
Raising more cash will better position the Fund to take advantage of investment opportunities that exist or may arise,
however as has been the case with Prior Rights Offerings, a portion of the increase in the Fund’s assets will also
be used to maintain the Fund’s managed distribution policy (the “Distribution Policy”)(see discussion
below).
●
Increasing the Fund’s assets will provide the Fund additional flexibility in maintaining the Fund’s Distribution Policy.
This policy permits Stockholders to receive a predictable level of cash flow and some liquidity periodically with respect to their
Shares without having to sell Shares. Previously, the Fund’s investments have not provided adequate income to meet the requirements
of the Fund’s Distribution Policy, therefore, the Fund has made return of capital distributions to maintain the Fund’s
Distribution Policy. Specifically, Stockholders should be aware that a majority of the distributions that the Funds made to its
Stockholders for 2020 consisted of a return of its Stockholder’s capital, and not of income or gains generated from the
Fund’s investment portfolio, For the years 2018 and 2019 substantially all of the distributions that the Fund made to its
Stockholders consisted of a return of its Stockholders’ capital, and not of income or gains generated from the Fund’s
investment portfolio. For 2017 and 2021, a portion of the distributions that the Fund made to its Stockholders consisted of a
return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio. |
| |
●
Increasing Fund assets may lower the Fund’s expenses as a proportion of net assets
because the Fund’s fixed costs would be spread over a larger asset base. There
can be no assurance that by increasing the size of the Fund, the Fund’s expense
ratio will be lowered. However, increasing the Fund’s assets results in a benefit
to the Fund’s Investment Adviser because the Management fee that is paid to the
Investment Adviser increases as the Fund’s net assets increase.
●
Because the Offering will increase the Fund’s outstanding Shares, it may increase the number of Stockholders over
the long term, which could increase the level of market interest in and visibility of the Fund and improve the trading
liquidity of the Shares on the NYSE American.
●
The Offering is expected to be anti-dilutive with respect to the net asset value per share, but not to voting, to all Stockholders,
including those electing not to participate. The Offering is expected to be “anti-dilutive” with respect to net asset
value per share because it is expected that the net asset value per share will increase as a result of the Offering. This expectation
is based on the fact that all the costs of the Offering will be borne by the Stockholders whether or not they exercise their Rights,
because the Offering price is set at a premium to NAV and the estimated expenses incurred for the Offering will be more than offset
by the increase in the net assets of the Fund such that non- participating Stockholders will receive an increase in their net
asset value, so long as the number of Shares issued to participating Stockholders is not materially less than a full exercise
of the Basic Subscription amount. Historically, all Prior Rights Offerings have been anti-dilutive with respect to the net asset
value per share. Stockholders have exercised not only the basic subscription but also a significant percentage of the additional
subscription shares offered. The Offering is expected to be dilutive with respect to Stockholder’s voting percentages because
Stockholders electing not to participate in the Offering will own a smaller percentage of the total number of shares outstanding
after the completion of the Offering. |
| Investment
Objective and Policies |
The
Fund’s investment objective is capital appreciation with current income as a secondary
objective.
There
is no assurance that the Fund will achieve its investment objective. The Fund’s investment objective and some of
its investment policies are considered fundamental policies and may not be changed without Stockholder approval. The Statement
of Additional Information contains a list of the fundamental and non-fundamental investment policies of the Fund under
the heading “Investment Restrictions.”
During
periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial portion of its net assets
in cash or cash equivalents. |
| Investment
Strategies |
The
Fund’s portfolio, under normal market conditions, consists principally of the equity securities of large, mid and small-
capitalization companies. Equity securities in which the Fund may invest include common and preferred stocks, convertible
securities, warrants and other securities having the characteristics of common stocks, such as American Depositary Receipts
(“ADRs”) and International Depositary Receipts (“IDRs”). |
| |
The
Fund may invest without limitation in other closed-end investment companies and exchange-traded
funds (“ETFs”), provided that the Fund limits its investment in securities
issued by other investment companies so that not more than 3% of the outstanding voting
stock of any one investment company will be owned by the Fund. As a stockholder in any
investment company, the Fund will bear its ratable share of the investment company’s
expenses and would remain subject to payment of the Fund’s advisory and administrative
fees with respect to the assets so invested. The Fund will not invest in private investment
companies in excess of 15% of the Fund’s assets and any such investment will count
towards the calculation of the 20% limitation on investments in illiquid securities.
The
Fund may invest a portion of its assets in U.S. dollar denominated debt securities when the Investment Adviser believes
that it is appropriate to do so in order to achieve the Fund’s secondary investment objective (e.g., when interest
rates are high in comparison to anticipated returns on equity investments). Debt securities in which the Fund may invest
include U.S. dollar denominated bank, corporate or government bonds, notes, and debentures of any maturity determined
by the Investment Adviser to be suitable for investment by the Fund. The Fund may invest in the securities of issuers
that it determines to be suitable for investment by the Fund regardless of their rating, provided, however, that the Fund
may not invest directly in debt securities that are determined by the Investment Adviser to be rated below “BBB”
by Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies (“S&P”) or Moody’s
Investor Services, Inc. (“Moody’s”), commonly referred to as “junk bonds.”
In
determining which securities to buy for the Fund’s portfolio, the Investment Adviser uses a balanced approach, including
“value” and “growth” investing by seeking out companies at reasonable prices, without regard to sector
or industry, which demonstrate favorable long-term growth characteristics. Valuation and growth characteristics may be considered
for purposes of selecting potential investment securities. In general, valuation analysis is used to determine the inherent value
of the company by analyzing financial information such as a company’s price to book, price to sales, return on equity, and
return on assets ratios; and growth analysis is used to determine a company’s potential for long-term dividends and earnings
growth due to market-oriented factors such as growing market share, the launch of new products or services, the strength of its
management and market demand. Fluctuations in these characteristics may trigger trading decisions to be made by the Investment
Adviser. |
| |
To
comply with provisions of the 1940 Act, on any matter upon which the Fund is solicited to vote as a shareholder in an investment
company in which it invests, the Investment Adviser votes such shares in the same general proportion as shares held by other
shareholders of that investment company. The Fund does not and will not invest in any other closed-end funds managed by the
Investment Adviser. |
| |
The
Fund may, without limitation, hold cash or invest in assets in money market instruments,
including U.S. and non-U.S. government securities, high grade commercial paper and certificates
of deposit and bankers’ acceptances issued by U.S. and non-U.S. banks having deposits
of at least $500 million.
The
Fund may invest up to 20% of its assets in illiquid U.S. securities. The Fund will invest only in such illiquid securities
that, in the opinion of the Investment Adviser, present opportunities for substantial growth over a period of two to five
years.
With
respect to 75% of its total assets, the Fund may not purchase a security, other than securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, if as a result of such purchase, more than 5% of the value of
the Fund’s total assets would be invested in the securities of any one issuer, or the Fund would own more than 10%
of the voting securities of any one issuer.
The
Fund’s annual portfolio turnover rate is expected to continue to be relatively low, normally ranging between 10% and 90%. |
| Investment
Adviser and Fee |
Cornerstone
Advisors, LLC. (the “Investment Adviser”), the investment adviser of the
Fund, is registered with the Securities and Exchange Commission (“SEC”) as
an investment adviser under the Investment Advisers Act of 1940, as amended. As of December
31, 2021, the Investment Adviser managed one other closed-end fund with combined assets
with the Fund, of approximately $1,855.3 million.
The
Investment Adviser is entitled to receive a monthly fee at the annual rate of 1.00% of the Fund’s average weekly net assets.
See “Management of the Fund.” |
| Administrator
and Fund Accounting Agent |
Ultimus
Fund Solutions, LLC, 225 Pictoria Drive, Suite 450, Cincinnati, OH (“Ultimus”) serves as the Fund’s administrator
and accounting agent. Under the fund accounting and administration agreement with the Fund, Ultimus is responsible for generally
managing the administrative affairs of the Fund, including supervising the preparation of reports to Stockholders, reports
to and filings with the SEC and materials for meetings of the Board. Ultimus is also responsible for calculating the net asset
value per share and maintaining the financial books and records of the Fund. Ultimus is entitled to receive a base fee of
$5,000 per month plus an asset-based fee of 0.05% of the first $250 million of average daily net assets, 0.04% of such assets
greater than $250 million to $1 billion, 0.03% of such assets greater than $1 billion to $2 billion and 0.02% of such assets
in excess of $2 billion. |
| Custodian
and Transfer Agent |
U.S.
Bank National Association serves as the Fund’s custodian and American Stock Transfer and Trust Company, LLC serves as
the Fund’s transfer agent. See “Management of the Fund”. |
| Closed-End
Fund Structure |
Closed-end
funds differ from open-end management investment companies (commonly referred to as mutual funds) in that closed- end funds
do not redeem their shares at the option of the stockholder and generally list their shares for trading on a securities exchange.
By comparison, mutual funds issue securities that are redeemable daily at net asset value at the option of the stockholder
and typically engage in a continuous offering of their shares. Mutual funds are subject to continuous asset in-flows and out-flows
that can complicate portfolio management, whereas closed-end funds generally can stay more fully invested in securities consistent
with the closed-end fund’s investment objectives and policies. In addition, in comparison to open-end funds, closed-end
funds have greater flexibility in the employment of financial leverage and in the ability to make certain types of investments,
including investments in illiquid securities. |
| |
Although
the Fund’s Shares have frequently traded at a premium to its net asset value during
the past several years, shares of closed-end funds frequently trade at a discount from
their net asset value. In recognition of the possibility that the Shares might trade
at a discount to net asset value and that any such discount may not be in the interest
of Stockholders, the Fund’s Board of Directors, in consultation with the Investment
Adviser, may, from time to time, review possible actions to reduce any such discount,
including considering open market repurchases or tender offers for the Fund’s Shares.
There can be no assurance that the Board of Directors will decide to undertake any of
these actions or that, if undertaken, such actions would result in the Shares trading
at a price equal to or close to net asset value per Share.
In
addition, the Fund’s Distribution Policy may continue to be an effective action to counter a trading discount. See
“Distribution Policy.”
The
Board of Directors may also consider the conversion of the Fund to an open-end investment company. The Board of Directors believes,
however, that the closed-end structure is desirable, given the Fund’s investment objective and policies. Investors should
assume, therefore, that it is highly unlikely that the Board of Directors would vote to convert the Fund to an open-end investment
company. |
| Summary
of Principal Risks |
Investing
in the Fund involves risks, including the risk that you may receive little or no return
on your investment or that you may lose part or all of your investment. Therefore, before
investing you should consider carefully the following principal risks that you assume
when you invest in the Fund.
Stock
Market Volatility. Stock markets can be volatile. In other words, the prices of stocks can rise or fall rapidly
in response to developments affecting a specific company or industry, or to changing economic, political or market conditions.
The Fund is subject to the general risk that the value of its investments may decline if the stock markets perform poorly.
There is also a risk that the Fund’s investments will underperform either the securities markets generally or particular
segments of the securities markets.
Market
Disruption and Geopolitical Risk. The Fund is subject to the risk that geopolitical events will disrupt securities markets
and adversely affect global economies and markets. The current novel coronavirus (“COVID-19”) global pandemic and
the aggressive responses taken by many governments, including closing borders, restricting international and domestic travel,
and the imposition of prolonged quarantines or similar restrictions, as well as the forced or voluntary closure of, or operational
changes to, many retail and other businesses, have had and may continue to have negative impacts, and in many cases severe negative
impacts, on markets worldwide. War, terrorism, and related geopolitical events (and their aftermath) have led, and in the future
may lead, to increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets
generally. Likewise, natural and environmental disasters, such as, for example, earthquakes, fires, floods, hurricanes, tsunamis
and weather-related phenomena generally, as well as the spread of infectious illness or other public health issues, including
widespread epidemics or pandemics such as the COVID-19 outbreak in 2020, and systemic market dislocations can be highly disruptive
to economies and markets. Those events as well as other changes in non-U.S. and domestic economic and political conditions also
could adversely affect individual issuers or related groups of issuers, securities markets, interest rates, credit ratings, inflation,
investor sentiment, and other factors affecting the value of Fund investments. |
| |
Issuer
Specific Changes. Changes in the financial condition of an issuer, changes in
the specific economic or political conditions that affect a particular type of security
or issuer, and changes in general economic or political conditions can affect the credit
quality or value of an issuer’s securities. Lower-quality debt securities tend
to be more sensitive to these changes than higher-quality debt securities.
Closed-End
Fund Risk. 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. |
| |
Common
Stock Risk. The Fund will invest a significant portion of its net assets in common
stocks. Common stocks represent an ownership interest in a company. The Fund may also
invest in securities that can be exercised for or converted into common stocks (such
as convertible preferred stock). Common stocks and similar equity securities are more
volatile and more risky than some other forms of investment. Therefore, the value of
your investment in the Fund may sometimes decrease instead of increase. Common stock
prices fluctuate for many reasons, including changes in investors’ perceptions
of the financial condition of an issuer, the general condition of the relevant stock
market or when political or economic events affecting the issuers occur. In addition,
common stock prices may be sensitive to rising interest rates, as the costs of capital
rise for issuers. Because convertible securities can be converted into equity securities,
their values will normally increase or decrease as the values of the underlying equity
securities increase or decrease. The common stocks in which the Fund will invest are
structurally subordinated to preferred securities, bonds and other debt instruments in
a company’s capital structure in terms of priority to corporate income and assets
and, therefore, will be subject to greater risk than the preferred securities or debt
instruments of such issuers.
Defensive
Positions. During periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial
portion of its net assets in cash or cash equivalents. The Fund would not be pursuing its investment objective in these
circumstances and could miss favorable market developments.
Foreign
Securities Risk. Investments in securities of non-U.S. issuers involve special risks not presented by investments in securities
of U.S. issuers, including the following: less publicly available information about companies due to less rigorous disclosure
or accounting standards or regulatory practices; the impact of political, social or diplomatic events, including war; possible
seizure, expropriation or nationalization of the company or its assets; possible imposition of currency exchange controls; and
changes in foreign currency exchange rates. These risks are more pronounced to the extent that the Fund invests a significant
amount of its investments in companies located in one region. These risks may be greater in emerging markets and in less developed
countries. F or example, prior governmental approval for foreign investments may be required in some emerging market countries,
and the extent of foreign investment may be subject to limitation in other emerging countries. With respect to risks associated
with changes in foreign currency exchange rates, the Fund does not expect to engage in foreign currency hedging transactions. |
| |
Global
Market Risk. An investment in Fund shares is subject to investment risk, including
the possible loss of the entire principal amount invested. The Fund is subject to the
risk that geopolitical and other similar events will disrupt the economy on a national
or global level. For instance, war, terrorism, market manipulation, government defaults,
government shutdowns, political changes or diplomatic developments, public health emergencies
(such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental
disasters can all negatively impact the securities markets.
Managed
Distribution Risk. Under the Fund’s 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.
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 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, including securities purchased with the proceeds of the Offering, 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. The Fund adopted the Distribution Policy in 2002, and during recent years the
Fund’s distributions have exceeded its Net Earnings. The Fund may use the proceeds of the Offering to maintain the Distribution
Policy by providing funding for future distributions, which may constitute a return of capital to Stockholders and lower the tax
basis in their Shares which, for the taxable Stockholders, will defer any potential gains until the Shares are sold. For the taxable
Stockholders, the portion of distribution that constitutes ordinary income and/or capital gains is taxable to such Stockholders
in the year the distribution is declared. A return of capital is non-taxable to the extent of the Stockholder’s basis in
the shares. The Stockholders would reduce their basis (but not below zero) in the Shares by the amount of the distribution and
therefore may result in an increase in the amount of any taxable gain on a subsequent disposition of such Shares, even if such
Shares are sold at a loss to the Stockholder’s original investment amount. Any return of capital will be separately identified
when Stockholders receive their tax statements. Any return of capital that exceeds cost basis may be treated as capital gain.
Stockholders are advised to consult with their own tax advisers with respect to the tax consequences of their investment in the
Fund. Furthermore, the Fund may need to raise additional capital in order to maintain the Distribution Policy. |
| |
Management
Risk. The Fund is subject to management risk because it is an actively managed
portfolio. The Fund’s successful pursuit of its investment objective depends upon
the Investment Manager’s ability to find and exploit market inefficiencies with
respect to undervalued securities. Such situations occur infrequently and sporadically
and may be difficult to predict and may not result in a favorable pricing opportunity
that allows the Investment Manager to fulfill the Fund’s investment objective.
The Investment Manager’s security selections and other investment decisions might
produce losses or cause the Fund to underperform when compared to other funds with similar
investment goals. If one or more key individuals leave the employ of the Investment Manager,
the Investment Manager may not be able to hire qualified replacements or may require
an extended time to do so. This could prevent the Fund from achieving its investment
objective.
Other
Investment Company Securities Risk. The Fund invests in the securities of other closed-end investment companies and in
ETFs. Investing in other investment companies and ETFs involves substantially the same risks as investing directly in the underlying
instruments, but the total return on such investments at the investment company level may be reduced by the operating expenses
and fees of such other investment companies, including advisory fees. To the extent the Fund invests a portion of its assets in
investment company securities, those assets will be subject to the risks of the purchased investment company’s portfolio
securities, and a Stockholder in the Fund will bear not only his proportionate share of the expenses of the Fund, but also, indirectly
the expenses of the purchased investment company. There can be no assurance that the investment objective of any investment company
or ETF in which the Fund invests will be achieved. |
| Managed
Distribution Policy |
Effective
June 25, 2002, the Fund initiated a fixed monthly distribution to Stockholders. On November 29, 2006, the 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 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 the Board’s 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, and will be distributed as either 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. As shown on page 35
in the table which identifies the constituent components of the Fund’s distributions under its Managed Distribution
Policy for years 2017-2021, a majority of the distributions that the Fund made to its Stockholders for 2020 consisted of a
return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio,
and substantially all of the distributions that the Fund made to its Stockholders for the years 2018 and 2019 consisted of
a return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio.
For 2017 and 2021, a portion of the distributions that the made to its Stockholders consisted of a return of its Stockholders’
capital, and not of income or gains generated from the Fund’s investment portfolio. Although return of capital distributions
may not be taxable, such distributions may reduce a Stockholder’s cost basis on his or her Shares, and therefore may
result in an increase in the amount of any taxable gain on a subsequent disposition of such Shares, even if such Shares are
sold at a loss to the Stockholder’s original investment amount. The Fund plans to maintain the Distribution Policy even
if a return-of-capital distribution would exceed an investor’s tax basis and therefore be a taxable distribution. |
| |
On
August 6, 2021, the Board of Directors of the Fund determined that the distribution percentage
for the calendar year 2022 would remain at 21%, which was the same distribution percentage
used in 2021, which was then applied to the net asset value of the Fund at the end of
October 2021 to determine the distribution amounts for calendar year 2022. During 2022,
the Board of Directors of the Fund will make a determination regarding the distribution
percentage for 2023 which will then be applied to the net asset value of the Fund at
the end of October 2022 to determine the distribution amounts for calendar year 2023.
The distribution percentage is not a function of, nor is it related to, the investment
return on the Fund’s portfolio.
To
the extent necessary to meet the amounts distributed under the Fund’s Distribution Policy, portfolio securities,
including those purchased with the proceeds of this Offering, may be sold to the extent adequate income is not available.
Sustaining the Distribution Policy could require the Fund to raise additional capital in the future.
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 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 the
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. Dividends and distributions to Stockholders are recorded by the Fund on the
ex-dividend date. |
| Distribution
Reinvestment Plan |
Unless
a Stockholder elects otherwise, the Stockholder’s distributions will be reinvested in additional Shares under the Fund’s
distribution reinvestment plan. Stockholders who elect not to participate in the Fund’s distribution reinvestment plan
will receive all distributions in cash paid to the Stockholder of record (or, if the Shares are held in street or other nominee
name, then to such nominee). See “Distribution Reinvestment Plan.” |
| Stock
Purchases and Tenders |
The
Board of Directors may consider repurchasing the Fund’s Shares in the open market or in private transactions, or tendering
for Shares, in an attempt to reduce or eliminate a market value discount from net asset value, if one should occur. There
can be no assurance that the Board of Directors will determine to effect any such repurchase or tender or that it would be
effective in reducing or eliminating any market value discount |
SUMMARY
OF FUND EXPENSES
The
following table shows Fund expenses that you as an investor in the Fund’s Shares will bear directly or indirectly.
| Stockholder
Transaction Expenses |
|
| Sales
load |
None |
| Offering
expenses (1) |
0.05% |
| Distribution
Reinvestment Plan fees |
None |
| Annual
Expenses (as a percentage of net assets attributable to the Shares) |
|
| Management
fees |
1.00% |
| Other
expenses (2) |
0.15% |
| Acquired
Fund fees and expenses (3) |
0.18% |
| Total
Annual Expenses |
1.33% |
Example
(4)
The
following example illustrates the hypothetical expenses (including estimated expenses with respect to year 1 of this Offering
of approximately $249,409) that you would pay on a $1,000 investment in the Shares, assuming (i) annual expenses of 1.33% of net
assets attributable to the Shares and (ii) a 5% annual return:
| |
1
Year |
3
Years |
5
Years |
10
Years |
| You
would pay the following expenses on a $1,000 investment, assuming a 5% annual return |
$14 |
$42 |
$73 |
$160 |
| (1) |
Assuming the Fund
will have 85,408,803 Shares outstanding if fully subscribed and Offering expenses to be paid by the Fund are estimated to
be approximately $249,409 or approximately $0.003 per Share. If the Offering is not fully subscribed, the Offering expenses
percentage (and per Share amount) may increase. |
| (2) |
“Other Expenses”
are based upon gross estimated amounts for the current fiscal year and include, among other expenses, administration and fund
accounting fees. The Fund has no current intention to borrow money for investment purposes and has adopted a fundamental policy
against selling securities short. |
| (3) |
The Fund invests
in other closed-end investment companies and ETFs (collectively, the “Acquired Funds”). The Fund’s stockholders
indirectly bear a pro rata portion of the fees and expenses of the Acquired Funds in which the Fund invests. Acquired Fund
fees and expenses are based on estimated amounts for the current fiscal year. |
| (4) |
The example assumes
that the estimated “Other Expenses” set forth in the Annual Expenses table remain the same each year and that
all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed.
The example further assumes that the Fund uses no leverage, as currently intended and the Fund does not intend to utilize
any leverage within one year from the effective date of this Registration Statement. Moreover, the Fund’s actual rate
of return will vary and may be greater or less than the hypothetical 5% annual return. |
The purpose of the above table is to help a Stockholder understand
the fees and expenses that such Stockholder would bear directly or indirectly. The example should not be considered a representation
of actual future expenses. Actual expenses may be higher or lower than those shown.
THE
FUND
The
Fund is a diversified, closed-end management investment company. The Fund was organized as a New York corporation on March 16,
1973. The Fund’s principal office is located c/o Ultimus Fund Solutions, LLC at 225 Pictoria Drive, Suite 450, Cincinnati,
OH 45246, and its telephone number is (866) 668-6558.
THE
OFFERING
Terms
of the Offering. The Fund is issuing to Record Date Stockholders (i.e., Stockholders who hold Shares on the Record Date)
non-transferable Rights to subscribe for Shares. Each Record Date Stockholder is being issued one non-transferable Right for every
one Share owned on the Record Date. The Rights entitle a Record Date Stockholder to acquire one Share at the Subscription Price
for every three Rights held. Fractional Shares will not be issued upon the exercise of the Rights. Accordingly, the number of
Rights to be issued to a Record Date Stockholder on the Record Date will be rounded up to the nearest whole number of Rights evenly
divisible by three. Rights may be exercised at any time during the Subscription Period which commences on or about April 29, 2022
and ends at 5:00 p.m., New York City time, on May 20, 2022, unless extended by the Fund. See “Expiration of the Offering.”
The right to acquire one additional Share for every three Rights held during the Subscription Period at the Subscription Price
is hereinafter referred to as the “Basic Subscription.”
In
addition to the Basic Subscription, Record Date Stockholders who exercise all of their Rights are entitled to subscribe for Shares
which were not otherwise subscribed for by others in the Basic Subscription (the “Additional Subscription Privilege”).
If sufficient Shares are not available to honor all requests under the Additional Subscription Privilege, the Fund may, in its
discretion, issue additional Shares up to 50% of the Shares available in the Offering (or 10,676,100 Shares for a total of 32,028,301
Shares) (the “Over-Subscription Shares”) to honor additional subscription requests, with such Shares subject to the
same terms and conditions of this Offering. See “Additional Subscription Privilege” below. For purposes of determining
the maximum number of Shares a Stockholder may acquire pursuant to the Offering, broker-dealers whose Shares are held of record
by any Nominee will be deemed to be the holders of the Rights that are issued to such Nominee on their behalf. The term “Nominee”
shall mean, collectively, CEDE & Company (“Cede”), as nominee for the Depository Trust Company (“DTC”),
or any other depository or nominee. Shares acquired pursuant to the Additional Subscription Privilege are subject to allotment
and will be distributed on a pro rata basis if allotment does not exist to fulfill all requests, which is more fully discussed
below under “Additional Subscription Privilege.”
SHARES
WILL BE ISSUED WITHIN THE 15-DAY PERIOD IMMEDIATELY FOLLOWING THE RECORD DATE OF THE FUND’S MONTHLY DISTRIBUTION AND STOCKHOLDERS
EXERCISING RIGHTS WILL NOT BE ENTITLED TO RECEIVE SUCH DISTRIBUTION WITH RESPECT TO THE SHARES ISSUED PURSUANT TO SUCH EXERCISE.
Rights
will be Evidenced by Subscription Certificates. The number of Rights issued to each Record Date Stockholder will be stated
on the Subscription Certificates delivered to the Record Date Stockholder. The method by which Rights may be exercised and Shares
paid for is set forth below in “Method of Exercising Rights” and “Payment for Shares.” A RIGHTS HOLDER
WILL HAVE NO RIGHT TO RESCIND A PURCHASE AFTER THE SUBSCRIPTION AGENT HAS RECEIVED PAYMENT. See “Payment for Shares”
below.
The
Rights are non-transferable and may not be purchased or sold. Rights will expire without residual value at the Expiration Date
(or Extended Expiration Date, as the case may be). The Rights will not be listed for trading on the NYSE American, and there will
not be any market for trading Rights. The Shares to be issued pursuant to the Offering will be listed for trading on the NYSE
American, subject to the NYSE American being officially notified of the issuance of those Shares.
Purpose
of the Offering. At a meeting held on February 18, 2022, the Board considered, in addition to other factors, the success
of the Prior Rights Offerings, and determined that the current Offering was in the best interests of the Fund and its existing
Stockholders to increase the assets of the Fund and approved the current Offering. The primary reasons include:
| - |
The Basic Subscription
will provide existing Stockholders an opportunity to purchase additional Shares at a price that is potentially below market
value without incurring any commission or transaction charges. |
| - |
Raising more cash
will better position the Fund to take advantage of investment opportunities that exist or may arise, however as has been the
case with Prior Rights Offerings, a portion of the increase in the Fund’s assets will also be used to maintain the Fund’s
Distribution Policy. Since the Fund adopted the Distribution Policy, the Fund’s investments have failed to provide adequate
net income or net capital gains to meet the requirements of the Fund’s Distribution Policy and the Fund has made return
of capital distributions to maintain its Distribution Policy. |
| - |
Increasing the Fund’s
assets will provide the Fund additional flexibility in maintaining the Fund’s Distribution Policy. The Distribution
Policy permits Stockholders to receive a predictable level of cash flow and some liquidity periodically with respect to their
Shares without having to sell Shares. Stockholders should be aware that a majority of the distributions that the Fund made
to its Stockholders for 2020 consisted of a return of its Stockholder’s capital, and not of income or gains generated
from the Fund’s investment portfolio. For the years 2018 and 2019 substantially all of the distributions that the Fund
made to its Stockholders consisted of a return of its Stockholders’ capital, and not of income or gains generated from
the Fund’s investment portfolio. For 2017 and 2021, a portion of the distributions that the Fund made to its Stockholders
consisted of a return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment
portfolio. |
| - |
Increasing Fund
assets may lower the Fund’s expenses as a proportion of net assets because the Fund’s fixed costs would be spread
over a larger asset base. There can be no assurance that by increasing the size of the Fund, the Fund’s expense ratio
will be lowered. However, increasing the Fund’s assets results in a benefit to the Fund’s Investment Adviser because
the Management fee that is paid to the Investment Adviser increases as the Fund’s net assets increase. |
| - |
Because the Offering
will increase the Fund’s outstanding Shares, it may increase the number of Stockholders over the long term, which could
increase the level of market interest in and visibility of the Fund and improve the trading liquidity of the Shares on the
NYSE American. |
| - |
The Board expects
the Offering to be anti-dilutive with respect to net asset value per share, but not to voting, to all Stockholders. Those
Stockholders electing not to participate will not be diluted, notwithstanding the fact that all the costs of the Offering
will be borne by the Stockholders whether or not they exercise their Rights, because the Offering price is set at a premium
to NAV and the estimated expenses incurred for the Offering will be more than offset by the increase in the net assets of
the Fund such that non-participating Stockholders will receive an increase in their net asset value, so long as the number
of Shares issued to participating Stockholders is not materially less than a full exercise of the Basic Subscription amount.
Historically, all Prior Rights Offerings have been anti-dilutive with respect to the net asset value per share. Stockholders
have exercised not only the basic subscription but also a significant percentage of the additional subscription shares offered.
The Offering is expected to be dilutive with respect to Stockholder’s voting percentages because Stockholders electing
not to participate in the Offering will own a smaller percentage of the total number of shares outstanding after the completion
of the Offering. |
Board
Considerations in Approving the Offering. At a meeting held on February 18, 2022, the Board considered the approval of
the Offering. In considering whether or not to approve the Offering, the Board relied on materials and information prepared and
presented by the Fund’s management at such meeting and discussions at that time. Based on such materials and their deliberations
at this meeting, the Board determined that it would be in the best interests of the Fund and its Stockholders to conduct the Offering
in order to increase the assets of the Fund available for current and future investment opportunities. In making its determination,
the Board considered the various factors set forth in “The Offering - Purpose of the Offering”. The Board also considered
a number of other factors, including the success of the 2010 Offering, the 2011 Offering, the 2012 Offering, the 2013 Offering,
the 2015 Offering, the 2016 Offering, the 2017 Offering, the 2018 Offering and the 2021 Offering (collectively, the “Prior
Rights Offerings”) and that the Prior Rights Offerings were anti-dilutive to Stockholders with respect to value, the ability
of the Investment Adviser to invest the proceeds of the Offering, the Fund’s assets, including those resulting from Prior
Rights Offerings, have been used to maintain the Fund’s Distribution Policy because a portion of the assets raised in the
rights offering may be utilized to maintain monthly distributions and the potential effect of the Offering on the Fund’s
stock price and adherence to the terms of the Fund’s exemptive relief, which restricts a public offering of its common stock.
The Board considered that, during the course of each of the Prior Rights Offerings, the Fund’s market price declined; however
the Board noted that the Fund continued at all times during the 2021 Offering and all of the time since the 2021 Offering’s
conclusion to sell at a premium to NAV, and the current market price, after adjusting for distributions, exceeded the level that
it was prior to the 2021 Offering. When considering the potential effect of the Offering on the Fund’s stock price, the
Board took into account the 2021 Rights Offering, including the positive impact it had on the Fund’s net asset value per
share and the short-term price effect. The Board concluded that the impact on the Fund’s price was uncertain and, regardless
of the potential impact, the Offering was in the best interests of the Stockholders. As a result of these considerations, the
Board determined that it was appropriate and in the best interest of the Fund and its Stockholders to proceed with the Offering,
while continuing with the Distribution Policy.
At
a meeting held on February 18, 2022, the Board voted to approve the terms of the Offering. Two of the Fund’s Directors are
affiliated with the Investment Adviser and, therefore, could benefit indirectly from the Offering. The other six directors are
not “interested persons” of the Fund within the meaning of the 1940 Act. The Investment Adviser may also benefit from
the Offering because its fee is based on the assets of the Fund. It is not possible to state precisely the amount of additional
compensation the Investment Adviser might receive as a result of the Offering because it is not known how many Shares will be
subscribed for and the proceeds of the Offering will be invested in additional portfolio securities, which will fluctuate in value.
It is likely that affiliates of the Investment Adviser who are also Stockholders will participate in the Offering and, accordingly,
will receive the same benefits of acquiring Shares as other Stockholders.
There
can be no assurance that the Fund or its Stockholders will achieve any of the foregoing objectives or benefits through the Offering.
The
Fund may, in the future, choose to make additional rights offerings from time to time for a number of Shares and on terms that
may or may not be similar to this Offering. Any such future rights offerings will be made in accordance with the then applicable
requirements of the 1940 Act and the Securities Act.
Notice
of NAV Decline. If the Shares begin to trade at a discount, the Board may make a determination whether to discontinue
the Offering, provided that the Fund, as required by the SEC’s registration form, will suspend the Offering until it amends
this prospectus if, subsequent to the date of this prospectus, the Fund’s NAV declines more than 10% from its NAV as of
that date. Accordingly, the Expiration Date would be extended and the Fund would notify Record Date Stockholders of the decline
and permit Stockholders to cancel their exercise of Rights.
The
Subscription Price. The Subscription Price for the Shares to be issued under the Offering will be equal to the greater
of (i) 112% of NAV per Share as calculated at the close of trading on the Expiration Date (or Extended Expiration Date, as the
case may be) or (ii) 65% of the market price per Share at such time. For example, if the Offering were held using the “Estimated
Subscription Price” (i.e., an estimate of the Subscription Price based on the Fund’s per-share NAV and market price
at the end of business on April 8, 2022 ($8.65 and $13.61, respectively), the Subscription Price would be $9.69 per share (112%
of $8.65).
Additional
Subscription Privilege. If all of the Rights initially issued are not exercised, any Shares for which subscriptions have
not been received will be offered, by means of the Additional Subscription Privilege, to Record Date Stockholders who have exercised
all of the Rights initially issued to them and who wish to acquire more than the number of Shares for which the Rights held by
them are exercisable. Record Date Stockholders who exercise all of their Rights will have the opportunity to indicate on the Subscription
Certificate how many unsubscribed Shares they are willing to acquire pursuant to the Additional Subscription Privilege.
If
enough unsubscribed Shares remain after the Basic Subscriptions have been exercised, all additional subscription requests will
be honored in full. If there are not enough unsubscribed Shares to honor all additional subscription requests, the Fund may, in
its discretion, issue additional Shares up to 50% of Shares available in the Offering to honor Additional Subscription Privilege
requests (defined above as the “Over-Subscription Shares”), with such Shares subject to the same terms and conditions
of the Offering. In the event that the Subscription Price is less than the Estimated Subscription Price, Over-Subscription Shares
may be used by the Fund to fulfill any Shares subscribed for under the Basic Subscription. The method by which any unsubscribed
Shares or Over-Subscription Shares (collectively, the “Excess Shares”) will be distributed and allocated pursuant
to the Additional Subscription Privilege is as follows:
| (i) |
If there are sufficient
Excess Shares to satisfy all additional subscriptions by Stockholders exercising their rights under the Additional Subscription
Privilege, each such Stockholder shall be allotted the number of Shares which the Stockholder requested. |
| (ii) |
If the aggregate
number of Shares subscribed for under the Additional Subscription Privilege exceeds the number of Excess Shares, the Excess
Shares will be allocated to Record Date Stockholders who have exercised all of their Rights in accordance with their Additional
Subscription Privilege request. |
| (iii) |
If there are not
enough Excess Shares to fully satisfy all Additional Subscription Privilege requests by Record Date Stockholders pursuant
to paragraph (ii) above, the Excess Shares will be allocated among Record Date Stockholders who have exercised all of their
Rights in proportion, not to the number of Shares requested pursuant to the Additional Subscription Privilege, but to the
number of Rights exercised by them under their Basic Subscription Rights; provided, however, that no Stockholder shall be
allocated a greater number of Excess Shares than such Record Date Stockholder paid for and in no event shall the number of
Shares allocated in connection with the Additional Subscription Privilege exceed 50% of the Shares available in the Offering.
The formula to be used in allocating the Excess Shares under this paragraph is as follows: (Rights Exercised by over-subscribing
Record Date Stockholder divided by Total Rights Exercised by all over-subscribing Record Date Stockholders) multiplied by
Excess Shares remaining. |
The
percentage of Excess Shares each over-subscriber may acquire will be rounded up to result in delivery of whole Shares (fractional
Shares will not be issued).
The
foregoing allocation process may involve a series of allocations in order to assure that the total number of Shares available
for over-subscription are distributed on a pro-rata basis. The Fund will not offer or sell any Shares which are not subscribed
for under the Basic Subscription or the Additional Subscription Privilege. The Additional Subscription Privilege may result in
additional dilution of a Stockholder’s ownership percentage and voting rights.
The
Fund will not offer or sell any Shares which are not subscribed for under the Basic Subscription or the Additional Subscription
Privilege.
Expiration
of the Offering. The Offering will expire at 5:00 p.m., New York City time, on the Expiration Date (May 20, 2022), unless
extended by the Fund (the “Extended Expiration Date”). Rights will expire on the Expiration Date or Extended Expiration
Date, as the case may be, and thereafter may not be exercised.
Method
of Exercising Rights. Rights may be exercised by filling in and signing the reverse side of the Subscription Certificate
and mailing it in the envelope provided, or otherwise delivering the completed and signed Subscription Certificate to the Subscription
Agent, together with payment for the Shares as described below under “Payment for Shares.” Rights may also be exercised
through a Rights holder’s broker, who may charge the Rights holder a servicing fee in connection with such exercise.
In
the event that the Estimated Subscription Price is more than the Subscription Price on the Expiration Date (or Extended Expiration
Date, as the case may be), any resulting excess amount paid by a Stockholder towards the purchase of Shares in the Offering will
be applied by the Fund towards the purchase of additional Shares under the Basic Subscription or, if such Stockholder has exercised
all of the Rights initially issued to such Stockholder under the Basic Subscription, towards the purchase of an additional number
of Shares pursuant to the Additional Subscription Privilege. Any Stockholder who desires that such excess not be treated by the
Fund as a request by the Stockholder to acquire additional Shares in the Offering and that such excess be refunded to the Stockholder
must so indicate in the space provided on the Subscription Certificate.
Completed
Subscription Certificates must be received by the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration
Date (or Extended Expiration Date as the case may be). The Subscription Certificate and payment should be delivered to the Subscription
Agent at the following address:
| If by first class mail: |
If by mail or overnight
courier: |
American
Stock Transfer & Trust Company, LLC
6201
15th Avenue
Brooklyn,
New York 11219
Attn:
Corporate Actions |
American
Stock Transfer & Trust Company, LLC
6201
15th Avenue
Brooklyn,
New York 11219
Attn:
Corporate Actions |
Subscription
Agent. The Subscription Agent is American Stock Transfer & Trust Company, LLC, with an address at 6201 15th Avenue,
Brooklyn, New York 11219. The Subscription Agent will receive from the Fund an amount estimated to be $27,500, comprised of the
fee for its services and the reimbursement for certain expenses related to the Offering. INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD
BE DIRECTED TO THE INFORMATION AGENT, AST FUND SOLUTIONS, LLC, AT (866) 406-2285; HOLDERS MAY ALSO CONSULT THEIR BROKERS OR NOMINEES.
Payment
for Shares. Payment for Shares shall be calculated by multiplying the Estimated Subscription Price by the sum of (i) the
number of Shares intended to be purchased in the Basic Subscription (e.g., the number of Rights exercised divided by three), plus
(ii) the number of additional Shares intended to be over-subscribed under the Additional Subscription Privilege. For example,
based on the Estimated Subscription Price of $9.69 per Share, if a Stockholder receives 300 Rights and wishes to subscribe for
100 Shares in the Basic Subscription, and also wishes to over-subscribe for 50 additional Shares under the Additional Subscription
Privilege, such Stockholder would remit payment in the amount of $1,453.50 ($969.00 plus $484.50).
Record
Date Stockholders who wish to acquire Shares in the Basic Subscription or pursuant to the Additional Subscription Privilege must,
together with the properly completed and executed Subscription Certificate, send payment for the Shares acquired in the Basic
Subscription and any additional Shares subscribed for pursuant to the Additional Subscription Privilege, to the Subscription Agent
based on the Estimated Subscription Price of $10.04 per Share. To be accepted, such payment, together with the Subscription Certificate,
must be received by the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date, or Extended Expiration
Date, as the case may be.
If
the Estimated Subscription Price is greater than the actual per Share purchase price, the excess payment will be applied toward
the purchase of unsubscribed Shares to the extent that there remain sufficient unsubscribed Shares available after the Basic Subscription
and Additional Subscription Privilege allocations are completed. To the extent that sufficient unsubscribed Shares are not available
to apply all of the excess payment toward the purchase of unsubscribed Shares, available Shares will be allocated in the manner
consistent with that described in the section entitled “Additional Subscription Privilege” above.
PAYMENT
MUST ACCOMPANY ANY SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
Within
five (5) business days following the Expiration Date or Extended Expiration Date, as the case may be, a confirmation will be sent
by the Subscription Agent to each Stockholder (or, if the Shares on the Record Date are held by Cede or any other depository or
nominee, to Cede or such other depository or nominee). The date of the confirmation is referred to as the “Confirmation
Date.” The confirmation will show (i) the number of Shares acquired pursuant to the Basic Subscription; (ii) the number
of Shares, if any, acquired pursuant to the Additional Subscription Privilege; (iii) the per Share and total purchase price for
the Shares; and (iv) any additional amount payable by such Stockholder to the Fund (i.e., if the Estimated Subscription Price
was less than the Subscription Price on the Expiration Date, as the case may be) or any excess to
be refunded by the Fund to such Stockholder (i.e., if the Estimated Subscription Price was more than the Subscription Price on
the Expiration Date (or Extended Expiration Date, as the case may be) and the Stockholder indicated on the Subscription Certificate
that such excess not be treated by the Fund as a request by the Stockholder to acquire additional Shares in the Offering). Any
additional payment required from a Stockholder must be received by the Subscription Agent prior to 5:00 p.m., New York City time,
on the date specified as the deadline for final payment for Shares, and any excess payment to be refunded by the Fund to such
Stockholder will be mailed by the Subscription Agent within ten (10) business days after the Confirmation Date. All payments by
a Stockholder must be made in United States Dollars by money order or by checks drawn on banks located in the continental United
States payable to “American Stock Transfer & Trust Company, LLC as Subscription Agent”.
Issuance
and delivery of certificates for the Shares subscribed for are subject to collection of funds and actual payment by the subscribing
Stockholder.
The
Subscription Agent will deposit all checks received by it prior to the final due date into a segregated account pending distribution
of the Shares from the Offering. Any interest earned on such account will accrue to the benefit of the Fund and investors will
not earn interest on payments submitted nor will interest be credited toward the purchase of Shares.
YOU
WILL HAVE NO RIGHT TO RESCIND YOUR SUBSCRIPTION AFTER THE SUBSCRIPTION AGENT HAS RECEIVED THE SUBSCRIPTION CERTIFICATE.
If
a Record Date Stockholder who acquires Shares pursuant to the Basic Subscription or the Additional Subscription Privilege does
not make payment of any amounts due, the Fund reserves the right to take any or all of the following actions: (i) find other purchasers
for such subscribed-for and unpaid-for Shares; (ii) apply any payment actually received by it toward the purchase of the greatest
whole number of Shares which could be acquired by such holder upon exercise of the Basic Subscription or the Additional Subscription
Privilege; (iii) sell all or a portion of the Shares actually purchased by the holder in the open market, and apply the proceeds
to the amounts owed; or (iv) exercise any and all other rights or remedies to which it may be entitled, including, without limitation,
the right to set off against payments actually received by it with respect to such subscribed Shares and to enforce the relevant
guaranty of payment.
Holders
who hold Shares for the account of others, such as brokers, trustees, or depositaries for securities, should notify the respective
beneficial owners of the Shares as soon as possible to ascertain the beneficial owners’ intentions and to obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the record holder of the Rights should complete Subscription
Certificates and submit them to the Subscription Agent with the proper payment. In addition, beneficial owners of Shares or Rights
held through such a holder should contact the holder and request the holder to effect transactions in accordance with the beneficial
owner’s instructions.
The
instructions accompanying the Subscription Certificates should be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION
CERTIFICATES TO THE FUND OR THE INVESTMENT ADVISER.
The
method of delivery of Subscription Certificates and payment of the Subscription Price to the Subscription Agent will be at the
election and risk of the Rights holders, but if sent by mail it is recommended that the certificates and payments be sent by registered
mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the
Subscription Agent and clearance of payment prior to 5:00 p.m., New York City time, on the Expiration Date (or Extended Expiration
Date, as the case may be). Because uncertified personal checks may take at least five (5) business days to clear, each Record
Date Stockholder participating in the Offering is strongly urged to pay, or arrange for payment, by means of a certified or cashier’s
check or money order.
All
questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund,
whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or permit
a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right.
If the Fund elects in its sole discretion to waive any defect or irregularity, it may do so on a case-by-case basis which means
that not all defects or irregularities may be waived, if at all, or waived in the same manner as with other defects or irregularities.
Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such
time as the Fund determines in its sole discretion. Neither the Fund nor the Subscription Agent will be under any duty to give
notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability
for failure to give such notification.
Delivery
of the Shares. The Shares purchased pursuant to the Basic Subscription will be delivered to subscribers in book-entry
form as soon as practicable after the corresponding Rights have been validly exercised and full payment for the Shares has been
received and cleared. The Shares purchased pursuant to the Additional Subscription Privilege will be delivered to subscribers
in book-entry form as soon as practicable after the Expiration Date (or Extended Expiration Date, as the case may be) and after
all allocations have been conducted.
Federal
Income Tax Consequences Associated with the Offering. The following is a general summary of the significant federal income
tax consequences of the receipt of Rights by a Record Date Stockholder and a subsequent lapse or exercise of such Rights. The
discussion is based upon applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the
Treasury Regulations promulgated thereunder, and other authorities currently in effect but does not address any state, local,
or foreign tax consequences of the Offering. Each Stockholder should consult its own tax advisor regarding specific questions
as to federal, state, local, or foreign taxes. Each Stockholder should also review the discussion of certain U.S. federal income
tax considerations affecting it and the Fund set forth under “Certain Additional Material United States Federal Income Tax
Considerations.”
For
purposes of the following discussion, the term “Old Share” shall mean a currently outstanding Share with respect to
which a Right is issued and the term “New Share” shall mean a newly issued Share that Record Date Stockholders receive
upon the exercise of their Rights.
For
all Record Date Stockholders:
Neither
the receipt nor the exercise of Rights by a Record Date Stockholder will result in taxable income to such stockholder for federal
income tax purposes regardless of whether or not the stockholder makes the below-described election which is available under Section
307(b)(2) of the Code (a “Section 307(b)(2) Election”).
If
the fair market value of the Rights distributed to all of the Record Date Stockholders is 15% or more of the total fair market
value of all of the Fund’s outstanding Shares on the date of distribution, or if a Record Date Stockholder makes a Section
307(b)(2) Election for the taxable year in which such Rights were received, the Record Date Stockholder’s federal income
tax basis in any Right received pursuant to the Offering for purposes of determining gain or loss on a later sale or exercise
of such Rights will be equal to a portion of the Record Date Stockholder’s existing federal income tax basis in the related
Old Share determined in the manner described below. If made, a Section 307(b)(2) Election is irrevocable and effective with respect
to all Rights received by a Record Date Stockholder. A Section 307(b)(2) Election is made by attaching a statement to the Record
Date Stockholder’s federal income tax return for the taxable year of the Record Date (which is the same as the year as when
the Rights were received). A Record Date Stockholder must retain a copy of the Section 307(b)(2) Election and the tax return with
which the Section 307(b)(2) Election was filed in order to substantiate the use of an allocated basis upon subsequent disposition
of the New Shares. Record Date Stockholders should carefully review the differing federal income tax consequences described below
before deciding whether or not to make a Section 307(b)(2) Election.
For
Record Date Stockholders When the Fair Market Value of Rights Distributed Equals or Exceeds 15% of the Total Fair Market Value
of the Fund’s Shares or When Making a 307(b)(2) Election:
Lapse
of Rights. If the fair market value of rights distributed equals or exceeds 15% of the total fair market value of the Shares
or if a Record Date Stockholder makes a Section 307(b)(2) Election, no taxable loss will be realized for federal income tax purposes
if the Record Date Stockholder retains a Right but allows it to lapse without exercise. Moreover, the existing federal income
tax basis of the related Old Share will not be reduced if such lapse occurs (i.e., upon the lapse of any Right received pursuant
to this Offering, any portion of the Record Date Stockholder’s U.S. federal income tax basis in such Record Date Stockholder’s
Old Share that would have been allocated to such Right if such Right had been sold or exercised rather than allowed to lapse shall
continue to be included in the Record Date Stockholder’s U.S. federal income tax basis in such Record Date Stockholder’s
Old Share).
Exercise
of Rights. If a Record Date Stockholder exercises a Right, the Record Date Stockholder’s existing federal income tax
basis in the related Old Share must be allocated between such Right and the Old Share in proportion to their respective fair market
values as of the date of distribution of such Rights (effectively reducing the Record Date Stockholder’s basis in their
Old Share). Upon such exercise of the Record Date Stockholder’s Rights, the New Shares received by the Record Date Stockholder
pursuant to such exercise will have a federal income tax basis equal to the sum of the basis of such Rights as described in the
previous sentence and the Subscription Price paid for the New Shares (as increased by any servicing fee charged to the Record
Date Stockholder by his broker, bank or trust company and other similar costs). If the Record Date Stockholder subsequently sells
such New Shares (and holds such Shares as capital assets at the time of their sale), the Record Date Stockholder will recognize
a capital gain or loss equal to the difference between the amount received from the sale of the New Shares and the Record Date
Stockholder’s federal income tax basis in the New Shares as described above. Such capital gain or loss will be long-term
capital gain or loss if the New Shares are sold more than one year after the date that the New Shares are acquired by the Record
Date Stockholder.
For
Record Date Stockholders Not Making a Section 307(b)(2) Election When the Fair Market Value of the Rights Distributed is Less
than 15% of the Total Fair Market Value of the Fund’s Outstanding Shares:
Lapse
of Rights. If the fair market value of the Rights distributed is less than 15% of the total fair market value of the outstanding
Shares and a Record Date Stockholder does not make a Section 307(b)(2) Election for the taxable year in which such Rights were
received, no taxable loss will be realized for federal income tax purposes if the Record Date Stockholder retains a Right but
allows it to lapse without exercise. Moreover, the federal income tax basis of the related Old Share will not be reduced if such
lapse occurs.
Exercise
of Rights. If a non-electing Record Date Stockholder exercises his Rights, the federal income tax basis of the related Old
Shares will remain unchanged and the New Shares will have a federal income tax basis equal to the Subscription Price paid for
the New Shares (as increased by any servicing fee charged to the Record Date Stockholder by his broker, bank or trust company
and other similar costs). If the Record Date Stockholder subsequently sells such New Shares (and holds such Shares as capital
assets at the time of their sale), the Record Date Stockholder will recognize a capital gain or loss equal to the difference between
the amount received from the sale of the New Shares and the stockholder’s federal income tax basis in the New Shares as
described above. Such capital gain or loss will be long-term capital gain or loss if the New Shares are sold more than one year
after the Record Date Stockholder acquires the New Shares.
Employee
Plan Considerations. Record Date Stockholders that are employee benefit plans subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), including corporate savings and 401(k) plans, Keogh Plans of self-employed
individuals and Individual Retirement Accounts (“IRA”) (each a “Benefit Plan” and collectively, “Benefit
Plans”), should be aware that additional contributions of cash in order to exercise Rights may be treated as Benefit Plan
contributions and, when taken together with contributions previously made, may subject a Benefit Plan to excise taxes for excess
or nondeductible contributions. In the case of Benefit Plans qualified under Section 401(a) of the Code, additional cash contributions
could cause the maximum contribution limitations of Section 415 of the Code or other qualification rules to be violated. Benefit
Plans contemplating making additional cash contributions to exercise Rights should consult with their counsel prior to making
such contributions.
Benefit
Plans and other tax exempt entities, including governmental plans, should also be aware that if they borrow in order to finance
their exercise of Rights, they may become subject to the tax on unrelated business taxable income (“UBTI”) under Section
511 of the Code. If any portion of an IRA is used as security for a loan, the portion so used is also treated as distributed to
the IRA depositor.
ERISA
contains prudence and diversification requirements and ERISA and the Code contain prohibited transaction rules that may impact
the exercise of Rights. Among the prohibited transaction exemptions issued by the Department of Labor that may exempt a Benefit
Plan’s exercise of Rights are Prohibited Transaction Exemption 84-24 (governing purchases of shares in investment companies)
and Prohibited Transaction Exemption 75-1 (covering sales of securities).
Due
to the complexity of these rules and the penalties for noncompliance, Benefit Plans should consult with their counsel regarding
the consequences of their exercise of Rights under ERISA and the Code.
Benefit
to the Investment Adviser. The Investment Adviser will benefit from the Offering because its fees are based on the average
total net assets of the Fund. It is not possible to state precisely the amount of additional compensation the Investment Adviser
will receive as a result of the Offering because the proceeds of the Offering will be invested in additional portfolio securities
that will fluctuate in value. However, if all Rights are exercised at the Estimated Subscription Price of $9.69, the annual compensation
to be received by the Investment Adviser would be increased by approximately $2,069,028. If the Fund issues all of the Over-Subscription
Shares, the annual compensation to be received by the Investment Adviser would be increased by an additional $3,103,542. Two of
the Fund’s Directors are “interested persons” of the Investment Adviser within the meaning of the 1940 Act.
These Directors, Ralph Bradshaw and Daniel Bradshaw, could benefit indirectly from the Offering because of his beneficial interest
in the Investment Adviser. The other Directors were aware of the potential benefit to the Investment Adviser (and indirectly to
Mr. Ralph Bradshaw and Mr. Daniel Bradshaw), but nevertheless concluded that the Offering was in the best interest of the Fund’s
Stockholders.
The
Fund may, in the future and at its discretion, choose to make additional rights offerings from time to time for a number of Shares
and on terms which may or may not be similar to the Offering. Any such future rights offerings will be made in accordance with
the 1940 Act and the Securities Act. Under the laws of New York, the state in which the Fund is incorporated, under certain circumstances,
the Board is authorized to approve rights offerings without obtaining Stockholder approval. The staff of the SEC has interpreted
the 1940 Act as not requiring stockholder approval of a rights offering at a price below the then current NAV so long as certain
conditions are met, including a good faith determination by the fund’s board of directors that such offering would result
in a net benefit to the Fund’s existing stockholders.
Use
of Proceeds from Prior Rights Offerings. Use of proceeds from the Prior Rights Offerings have been, and the use of proceeds
from the current Offering and any future rights offerings, may be used to maintain the Fund’s Distribution Policy by providing
funding for future distributions, which may constitute a return of its Stockholders’ capital.
FINANCIAL
HIGHLIGHTS
Set
forth below is, for each year indicated, per share operating performance data for one share of the Fund’s common stock (“Share”),
total investment return, ratios to average net assets and other supplemental data. This information has been derived from the
financial statements and market price data for the Fund’s Shares. The financial highlights for the fiscal year ended December
31, 2021 have been audited by Tait, Weller & Baker, LLP, independent registered public accounting firm. The financial statements
and notes thereto for the fiscal year ended December 31, 2021, together with the report thereon of Tait, Weller & Baker, LLP,
are incorporated by reference in the SAI and are available without charge by visiting the Fund’s website at www.cornerstonetotalreturnfund.com,
by calling toll free (866) 668-6558 or by writing to the Fund c/o Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Suite 450,
Cincinnati, OH 45246.
| |
|
For
the Years Ended December 31, |
|
| |
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
| PER SHARE OPERATING PERFORMANCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net asset value, beginning
of year |
|
$ |
9.56 |
|
|
$ |
10.46 |
|
|
$ |
10.15 |
|
|
$ |
13.18 |
|
|
$ |
13.04 |
|
| Net investment income # |
|
|
0.01 |
|
|
|
0.04 |
|
|
|
0.10 |
|
|
|
0.10 |
|
|
|
0.13 |
|
| Net realized and unrealized gain/(loss) on investments |
|
|
1.82 |
|
|
|
1.21 |
|
|
|
2.59 |
|
|
|
(0.94 |
) |
|
|
2.41 |
|
| Net increase/(decrease) in net assets resulting
from operations |
|
|
1.83 |
|
|
|
1.25 |
|
|
|
2.69 |
|
|
|
(0.84 |
) |
|
|
2.54 |
|
| Dividends and distributions to stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income |
|
|
(0.01 |
) |
|
|
(0.04 |
) |
|
|
(0.10 |
) |
|
|
(0.10 |
) |
|
|
(0.12 |
) |
| Net realized capital gains |
|
|
(1.12 |
) |
|
|
(0.58 |
) |
|
|
(0.43 |
) |
|
|
(0.32 |
) |
|
|
(1.33 |
) |
| Return-of-capital |
|
|
(0.71 |
) |
|
|
(1.54 |
) |
|
|
(1.85 |
) |
|
|
(2.34 |
) |
|
|
(1.30 |
) |
| Total dividends and distributions to stockholders |
|
|
(1.84 |
) |
|
|
(2.16 |
) |
|
|
(2.38 |
) |
|
|
(2.76 |
) |
|
|
(2.75 |
) |
| Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Anti-dilutive effect due to shares issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rights offering |
|
|
0.33 |
|
|
|
— |
|
|
|
— |
|
|
|
0.57 |
|
|
|
0.35 |
|
| Reinvestment of dividends and distributions |
|
|
0.00 |
+ |
|
|
0.00 |
+ |
|
|
0.00 |
+ |
|
|
0.00 |
+ |
|
|
0.00 |
+ |
| Common stock repurchases |
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.00 |
+ |
|
|
— |
|
| Total common stock transactions |
|
|
0.33 |
|
|
|
0.01 |
|
|
|
0.00 |
+ |
|
|
0.57 |
|
|
|
0.35 |
|
| Net asset value, end of year |
|
$ |
9.88 |
|
|
$ |
9.56 |
|
|
$ |
10.46 |
|
|
$ |
10.15 |
|
|
$ |
13.18 |
|
| Market value, end of year |
|
$
|
13.75 |
|
|
$ |
11.40 |
|
|
$ |
10.99 |
|
|
$ |
11.11 |
|
|
$ |
15.29 |
|
| Total investment return (a) |
|
|
45.50 |
% |
|
|
30.70 |
% |
|
|
23.68 |
% |
|
|
(8.89 |
)% |
|
|
25.13 |
% |
| RATIOS/SUPPLEMENTAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net assets, end of year (000 omitted) |
|
$ |
625,215 |
|
|
$ |
391,374 |
|
|
$ |
415,560 |
|
|
$ |
389,231 |
|
|
$ |
293,792 |
|
| Ratio of net expenses to average net assets,
net of fee waivers and fees paid indirectly, if any(b) |
|
|
1.15 |
% |
|
|
1.19 |
% |
|
|
1.17 |
%(d) |
|
|
1.18 |
% |
|
|
1.22 |
% |
| Ratio of net expenses to average net assets,
net of fee waivers and fees paid indirectly, if any(b) |
|
|
1.15 |
% |
|
|
1.19 |
% |
|
|
1.17 |
%(d) |
|
|
1.18 |
% |
|
|
1.22 |
% |
| Ratio of net investment income to average net
assets (c) |
|
|
0.17 |
% |
|
|
0.43 |
% |
|
|
0.96 |
%(d) |
|
|
0.86 |
% |
|
|
0.99 |
% |
| Portfolio turnover rate |
|
|
77 |
% |
|
|
104 |
% |
|
|
46 |
% |
|
|
57 |
% |
|
|
71 |
% |
| # |
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 investment companies in which the Fund invests. |
| (c) |
Recognition of net
investment income by the Fund may be affected by the timing of the declaration of dividends, if any, by investment companies
in which the Fund invests. |
| (d) |
Includes the reimbursement
of proxy solicitation costs by the Investment Adviser. If these costs had not been reimbursed by the Investment Adviser, the
ratio of expenses to average net assets would have been 1.19% for the year ended December 31, 2019. |
| |
|
For
the Years Ended December 31, |
|
| |
|
|
2016 |
|
|
|
2015 |
|
|
|
2014* |
|
|
|
2013* |
|
|
|
2012* |
|
| PER SHARE OPERATING PERFORMANCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net asset value, beginning of year |
|
$ |
15.05 |
|
|
$ |
18.69 |
|
|
$ |
20.56 |
|
|
$ |
20.36 |
|
|
$ |
21.88 |
|
| Net investment income # |
|
|
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 gains |
|
|
(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 |
+ |
| Common stock repurchases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total common stock transactions |
|
|
0.36 |
|
|
|
0.45 |
|
|
|
0.00+
|
|
|
|
0.56 |
|
|
|
0.48 |
|
| Net asset value, end of year |
|
$ |
13.04 |
|
|
$ |
15.05 |
|
|
$ |
18.69 |
|
|
$ |
20.56 |
|
|
$ |
20.36 |
|
| Market value, end of year |
|
$ |
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 year (000 omitted) |
|
$ |
170,337 |
|
|
$ |
115,331 |
|
|
$ |
83,678 |
|
|
$ |
89,147 |
|
|
$ |
51,575 |
|
| Ratio of net 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 net 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 net investment income to average net
assets (c) |
|
|
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 investment companies in which the Fund invests. |
| (c) |
Recognition of net
investment income by the Fund may be affected by the timing of the declaration of dividends, if any, by investment companies
in which the Fund invests. |
USE
OF PROCEEDS
If
fully-subscribed, the net proceeds of the Offering will be approximately $206,653,415 or approximately $2.42 per Share. The net
proceeds of the Offering will be invested in accordance with the Fund’s investment objective and policies (as stated below)
as soon as practicable after completion of the Offering and, to the extent necessary, net proceeds of the Offering will allow
the Fund to maintain its Distribution Policy. The Fund currently anticipates being able to invest a substantial portion of the
net proceeds within one month after the completion of the Offering. Pending investment of the net proceeds in accordance with
the Fund’s investment objective and policies, the Fund will invest in money market securities or money market mutual funds.
Investors should expect, therefore, that before the Fund has fully invested the proceeds of the Offering in accordance with its
investment objective and policies, the Fund’s net asset value would earn interest income at a modest rate. To the extent
adequate income is not available, portfolio securities, including those purchased with proceeds of the Offering, may be sold to
meet the amounts distributed under the Fund’s Distribution Policy.
INVESTMENT
OBJECTIVE AND POLICIES
Investment
Objective
The
Fund’s investment objective is to seek capital appreciation with current income as a secondary objective. The Fund seeks
to achieve its objectives by investing primarily in U.S. and non-U.S. companies. The Fund’s objectives are fundamental and
may not be changed without stockholder approval.
Investment
Strategies
The
Fund’s portfolio, under normal market conditions, will consist principally of the equity securities of large, mid and small-capitalization
companies. Equity securities in which the Fund may invest include common and preferred stocks, convertible securities, warrants
and other securities having the characteristics of common stocks, such as ADRs and IDRs. The Fund may, however, invest a portion
of its assets in U.S. dollar denominated debt securities when the Investment Adviser believes that it is appropriate to do so
in order to achieve the Fund’s secondary investment objective, for example, when interest rates are high in comparison to
anticipated returns on equity investments. Debt securities in which the Fund may invest include U.S. dollar denominated bank,
corporate or government bonds, notes, and debentures of any maturity determined by the Investment Adviser to be suitable for investment
by the Fund. The Fund may invest in the securities of issuers that it determines to be suitable for investment by the Fund regardless
of their rating, provided, however, that the Fund may not invest directly in debt securities that are determined by the Investment
Adviser to be rated below “BBB” by S&P or Moody’s, commonly referred to as “junk bonds.”
The
Investment Adviser utilizes a balanced approach, including “value” and “growth” investing by seeking out
companies at reasonable prices, without regard to sector or industry, which demonstrate favorable long-term growth characteristics.
Valuation and growth characteristics may be considered for purposes of selecting potential investment securities. In general,
valuation analysis is used to determine the inherent value of the company by analyzing financial information such as a company’s
price to book, price to sales, return on equity, and return on assets ratios; and growth analysis is used to determine a company’s
potential for long-term dividends and earnings growth due to market-oriented factors such as growing market share, the launch
of new products or services, the strength of its management and market demand. Fluctuations in these characteristics may trigger
trading decisions to be made by the Investment Adviser with respect to the Fund’s portfolio.
The
Fund may invest without limitation in other closed-end investment companies, provided that the Fund limits its investment in securities
issued by other investment companies so that not more than 3% of the outstanding voting stock of any one investment company will
be owned by the Fund. As a stockholder in any investment company, the Fund will bear its ratable share of the investment company’s
expenses and would remain subject to payment of the Fund’s advisory and administrative fees with respect to the assets so
invested.
To
comply with provisions of the 1940 Act, on any matter upon which the Fund is solicited to vote as a shareholder in an investment
company in which it invests, the Investment Adviser votes such shares in the same general proportion as shares held by other shareholders
of that investment company. The Fund will not invest in any other closed- end funds managed by the Investment Adviser.
The
Fund may invest up to 20% of its assets in illiquid U.S. securities. The Fund will invest only in such illiquid securities that,
in the opinion of the Investment Adviser, present opportunities for substantial growth over a period of two to five years.
The
Fund’s investment policies emphasize long-term investment in securities. Therefore, the Fund’s annual portfolio turnover
rate is expected to continue to be relatively low, normally ranging between 10% and 90%. Higher portfolio turnover rates resulting
from more actively traded portfolio securities generally result in higher transaction costs, including brokerage commissions and
related capital gains or losses.
The
Fund’s foregoing investment policies may be changed by the Fund’s Board of Directors without Stockholder vote.
Although
the Fund does not anticipate having any securities lending income during the current calendar year, the Fund may lend the securities
that it owns to others, which would allow the Fund the opportunity to earn additional income. Although the Fund will require the
borrower of the securities to post collateral for the loan in accordance with market practice and the terms of the loan will require
that the Fund be able to reacquire the loaned securities if certain events occur, the Fund is still subject to the risk that the
borrower of the securities may default, which could result in the Fund losing money, which would result in a decline in the Fund’s
net asset value.
The
Fund may, from time to time, take temporary defensive positions that are inconsistent with the Fund’s principal investment
strategies in attempting to respond to adverse market, economic, political or other conditions. During such times, the Fund may
temporarily invest up to 100% of its assets in cash or cash equivalents, including money market instruments, prime commercial
paper, repurchase agreements, Treasury bills and other short-term obligations of the U. S. Government, its agencies or instrumentalities.
In these and in other cases, the Fund may not achieve its investment objective.
The
Investment Adviser may invest the Fund’s cash balances in any investments it deems appropriate. Such investments may include,
without limitation and as permitted under the 1940 Act, money market funds, U.S. Treasury and U.S. agency securities, municipal
bonds, repurchase agreements and bank accounts. Many of the considerations entering into the Investment Adviser’s recommendations
and the portfolio manager’s decisions are subjective.
The
Fund has no current intent to use leverage; however, the Fund may borrow money to purchase securities provided that the amount
borrowed does not exceed 20% of its total assets (including the amount borrowed) at the time of borrowing and for temporary or
emergency purposes in an amount not exceeding 5% of its total assets (including the amount borrowed) at the time of borrowing.
The Fund has no current intent to use leverage; however, the Fund reserves the right to utilize limited leverage through issuing
preferred shares. The Fund also may borrow money in amounts not exceeding 10% of its total assets (including the amount borrowed)
for temporary or emergency purposes, including the payment of dividends and the settlement of securities transactions, which otherwise
might require untimely dispositions of Fund securities. In addition, the Fund may incur leverage through the use of investment
management techniques (e.g., “uncovered” sales of put and call options, futures contracts and options on futures contracts).
In order to hedge against adverse market shifts and for non-hedging, speculative purposes, the Fund may utilize up to 5% of its
net assets to purchase put and call options on securities or stock indices.
Portfolio
Investments
Common
Stocks
The
Fund will invest in common stocks. Common stocks represent an ownership interest in an issuer. While offering greater potential
for long-term growth, common stocks are more volatile and more risky than some other forms of investment. Common stock prices
fluctuate for many reasons, including adverse events, such as an unfavorable earnings report, changes in investors’ perceptions
of the financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events
affecting the issuers occur. In addition, common stock prices may be sensitive to rising interest rates as the costs of capital
rise and borrowing costs increase.
Other
Closed-End Investment Companies
The
Fund may invest without limitation in other closed-end investment companies, provided that the Fund limits its investment in securities
issued by other investment companies so that not more than 3% of the outstanding voting stock of any one investment company will
be owned by the Fund. There can be no assurance that the investment objective of any investment company in which the Fund invests
will be achieved. 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.
Exchange
Traded Funds
The
Fund may invest in certain ETFs, which are investment companies that aim to track or replicate a desired index, such as a sector,
market or global segment. ETFs are passively managed and their shares are traded on a national exchange. ETFs do not sell individual
shares directly to investors and only issue their shares in large blocks known as “creation units.” The investor purchasing
a creation unit may sell the individual shares on a secondary market. Therefore, the liquidity of ETFs depends on the adequacy
of the secondary market. There can be no assurance that an ETF’s investment objective will be achieved, as ETFs based on
an index may not replicate and maintain exactly the composition and relative weightings of securities in the index. ETFs are subject
to the risks of investing in the underlying securities. The Fund, as a holder of the securities of the ETF, will bear its pro
rata portion of the ETF’s expenses, including advisory fees. These expenses are in addition to the direct expenses of the
Fund’s own operations.
Foreign
Securities
The
Fund may invest in foreign securities, including direct investments in securities of foreign issuers that are traded on a U.S.
securities exchange or over the counter and investments in depository receipts (such as ADRs) and other closed-end investment
companies that represent indirect interests in securities of foreign issuers. The Fund is not limited in the amount of assets
it may invest in such foreign securities. These investments involve risks not associated with investments in the United States,
including the risk of fluctuations in foreign currency exchange rates, unreliable and untimely information about the issuers and
political and economic instability. These risks could result in the Investment Adviser’s misjudging the value of certain
securities or in a significant loss in the value of those securities.
The
value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax), government
policies (in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks.
In addition, the costs of investing abroad are generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than markets in the United States. As an alternative
to holding foreign traded securities, the Fund may invest in dollar-denominated securities of foreign companies that trade on
U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts as described below, which evidence ownership
in underlying foreign securities), and ETFs as described below.
Because
foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly available information about a foreign company than
about a domestic company. Volume and liquidity in most foreign debt markets is less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of comparable U.S. companies. There is generally less
government supervision and regulation of securities exchanges, broker dealers and listed companies than in the United States.
Mail service between the United States and foreign countries may be slower or less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Payment
for securities before delivery may be required. In addition, with respect to certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or diplomatic developments which could affect investments
in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments
position. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies.
The
Fund may purchase ADRs, IDRs and global depository receipts (“GDRs”) which are certificates evidencing ownership of
shares of foreign issuers and are alternatives to purchasing directly the underlying foreign securities in their national markets
and currencies. However, such depository receipts continue to be subject to many of the risks associated with investing directly
in foreign securities. These risks include foreign exchange risk as well as the political and economic risks associated with the
underlying issuer’s country. ADRs, IDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are established without
the participation of the issuer. Unsponsored receipts may involve higher expenses, they may not pass-through voting or other stockholder
rights, and they may be less liquid. Less information is normally available on unsponsored receipts.
Dividends
paid on foreign securities may not qualify for the reduced federal income tax rates applicable to qualified dividends under the
Code. As a result, there can be no assurance as to what portion of the Fund’s distributions attributable to foreign securities
will be designated as qualified dividend income. See “Certain Additional Material United States Federal Income Tax Considerations.”
Emerging
Market Securities
The
Fund may invest up to 5% of its net assets in emerging market securities, although through its investments in ETFs, other investment
companies or depository receipts that invest in emerging market securities, up to 20% of the Fund’s assets may be invested
indirectly in issuers located in emerging markets. The risks of foreign investments described above apply to an even greater extent
to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid,
and more volatile than the securities markets of the United States and developed foreign markets. Disclosure and regulatory standards
in many respects are less stringent than in the United States and developed foreign markets. There also may be a lower level of
monitoring and regulation of securities markets in emerging market countries and the activities of investors in such markets and
enforcement of existing regulations has been extremely limited. Many emerging countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets of certain emerging countries. Economies in emerging
markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely
by trade barriers, exchange controls, managed adjustments in relative currency values, and other protectionist measures imposed
or negotiated by the countries with which they trade. The economies of these countries also have been and may continue to be adversely
affected by economic conditions in the countries in which they trade. The economies of countries with emerging markets may also
be predominantly based on only a few industries or dependent on revenues from particular commodities. In addition, custodial services
and other costs relating to investment in foreign markets may be more expensive in emerging markets than in many developed foreign
markets, which could reduce the Fund’s income from such securities.
In
many cases, governments of emerging countries continue to exercise significant control over their economies, and government actions
relative to the economy, as well as economic developments generally, may affect the Fund’s investments in those countries.
In addition, there is a heightened possibility of expropriation or confiscatory taxation, imposition of withholding taxes on interest
payments, or other similar developments that could affect investments in those countries. There can be no assurance that adverse
political changes will not cause the Fund to suffer a loss of any or all of its investments.
Preferred
Stocks
The
Fund may invest in preferred stocks. Preferred stock, like common stock, represents an equity ownership in an issuer. Generally,
preferred stock has a priority of claim over common stock in dividend payments and upon liquidation of the issuer. Unlike common
stock, preferred stock does not usually have voting rights. Preferred stock in some instances is convertible into common stock.
Although they are equity securities, preferred stocks have characteristics of both debt and common stock. Like debt, their promised
income is contractually fixed. Like common stock, they do not have rights to precipitate bankruptcy proceedings or collection
activities in the event of missed payments. Other equity characteristics are their subordinated position in an issuer’s
capital structure and that their quality and value are heavily dependent on the profitability of the issuer rather than on any
legal claims to specific assets or cash flows.
Distributions
on preferred stock must be declared by the Board of Directors and may be subject to deferral, and thus they may not be automatically
payable. Income payments on preferred stocks may be cumulative, causing dividends and distributions to accrue even if not declared
by the company’s board or otherwise made payable, or they may be non-cumulative, so that skipped dividends and distributions
do not continue to accrue. There is no assurance that dividends on preferred stocks in which the Fund invests will be declared
or otherwise made payable. The Fund may invest in non-cumulative preferred stock, although the Investment Adviser would consider,
among other factors, their non-cumulative nature in making any decision to purchase or sell such securities.
Shares
of preferred stock have a liquidation value that generally equals the original purchase price at the date of issuance. The market
values of preferred stock may be affected by favorable and unfavorable changes impacting the issuers’ industries or sectors,
including companies in the utilities and financial services sectors, which are prominent issuers of preferred stock. They may
also be affected by actual and anticipated changes or ambiguities in the tax status of the security and by actual and anticipated
changes or ambiguities in tax laws, such as changes in corporate and individual income tax rates, and in the dividends received
deduction for corporate taxpayers or the lower rates applicable to certain dividends.
Because
the claim on an issuer’s earnings represented by preferred stock may become onerous when interest rates fall below the rate
payable on the stock or for other reasons, the issuer may redeem preferred stock, generally after an initial period of call protection
in which the stock is not redeemable. Thus, in declining interest rate environments in particular, the Fund’s holdings of
higher dividend paying preferred stocks may be reduced and the Fund may be unable to acquire securities paying comparable rates
with the redemption proceeds.
Other
Securities
Although
it has no current intention do so, the Investment Adviser may determine to invest the Fund’s assets in some or all of the
following securities from time to time.
Corporate
Bonds, Government Debt Securities and Other Debt Securities
The
Fund may invest in corporate bonds, debentures and other debt securities, and in investment companies holding such instruments.
Debt securities in which the Fund may invest may pay fixed or variable rates of interest. Bonds and other debt securities generally
are issued by corporations and other issuers to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and normally must repay the amount borrowed on or before maturity. Certain debt securities are “perpetual”
in that they have no maturity date.
The
Fund may invest in government debt securities, including those of emerging market issuers or of other non-U.S. issuers. These
securities may be U.S. dollar- denominated or non-U.S. dollar-denominated and include: (a) debt obligations issued or guaranteed
by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities;
and (b) debt obligations of supranational entities. Government debt securities include: debt securities issued or guaranteed by
governments, government agencies or instrumentalities and political subdivisions; debt securities issued by government owned,
controlled or sponsored entities; interests in entities organized and operated for the purpose of restructuring the investment
characteristics issued by the above noted issuers; or debt securities issued by supranational entities such as the World Bank
or the European Union. The Fund may also invest in securities denominated in currencies of emerging market countries. Emerging
market debt securities generally are rated in the lower rating categories of recognized credit rating agencies or are unrated
and considered to be of comparable quality to lower rated debt securities. A non-U.S. issuer of debt or the non-U.S. governmental
authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the
Fund may have limited resources in the event of a default. Some of these risks do not apply to issuers in large, more developed
countries. These risks are more pronounced in investments in issuers in emerging markets or if the Fund invests significantly
in one country.
The
Fund will not invest directly in debt securities rated below investment grade (i.e., securities rated lower than “Baa”
by Moody’s Investors Service, Inc. (“Moody’s”) or lower than “BBB” by Standard & Poor’s
Rating Services, a division of The McGraw-Hill Companies, Inc. (“S&P”)), or their equivalent as determined by
the Investment Adviser. These securities are commonly referred to as “junk bonds.” The foregoing credit quality policy
applies only at the time a security is purchased, and the Fund is not required to dispose of securities already owned by the Fund
in the event of a change in assessment of credit quality or the removal of a rating.
Convertible
Securities
The
Fund may invest in convertible securities and in investment companies holding such instruments. Convertible securities include
fixed income securities that may be exchanged or converted into a predetermined number of shares of the issuer’s underlying
common stock at the option of the holder during a specified period. Convertible securities may take the form of convertible preferred
stock, convertible bonds or debentures, units consisting of “usable” bonds and warrants or a combination of the features
of several of these securities. The investment characteristics of each convertible security vary widely, which allows convertible
securities to be employed for a variety of investment strategies.
The
Fund will exchange or convert convertible securities into shares of underlying common stock when, in the opinion of the Investment
Adviser, the investment characteristics of the underlying common shares will assist the Fund in achieving its investment objective.
The Fund may also elect to hold or trade convertible securities. In selecting convertible securities, the Investment Adviser evaluates
the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the Investment
Adviser considers numerous factors, including the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer’s profits, and the issuer’s management capability
and practices.
Illiquid
Securities
Illiquid
securities are securities that are not readily marketable. Illiquid securities include securities that have legal or contractual
restrictions on resale, and repurchase agreements maturing in more than seven days. Illiquid securities involve the risk that
the securities will not be able to be sold at the time desired or at prices approximating the value at which the Fund is carrying
the securities. Where registration is required to sell a security, the Fund may be obligated to pay all or part of the registration
expenses, and a considerable period may elapse between the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. The Fund may invest up to 20% of the value of its net assets
in illiquid securities. Restricted securities for which no market exists and other illiquid investments are valued at fair value
as determined in accordance with procedures approved and periodically reviewed by the Board of Directors.
Rule
144A Securities
The
Fund may invest in restricted securities that are eligible for resale pursuant to Rule 144A under the Securities Act of 1933,
as amended, (the “1933 Act”). Generally, Rule 144A establishes a safe harbor from the registration requirements of
the 1933 Act for resale by large institutional investors of securities that are not publicly traded. The Investment Adviser determines
the liquidity of the Rule 144A securities according to guidelines adopted by the Board of Directors. The Board of Directors monitors
the application of those guidelines and procedures. Securities eligible for resale pursuant to Rule 144A, which are determined
to be liquid, are not subject to the Fund’s 20% limit on investments in illiquid securities.
Warrants
The
Fund may invest in equity and index warrants of domestic and international issuers. Equity warrants are securities that give the
holder the right, but not the obligation, to subscribe for equity issues of the issuing company or a related company at a fixed
price either on a certain date or during a set period. Changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security,
and a warrant may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to
dividends or voting rights with respect to the underlying security and do not represent any rights in the assets of the issuing
company. A warrant ceases to have value if it is not exercised prior to its expiration date. These factors can make warrants more
speculative than other types of investments. The sale of a warrant results in a long or short-term capital gain or loss depending
on the period for which the warrant is held.
Repurchase
Agreements
The
Fund has agreed to purchase securities from financial institutions subject to the seller’s agreement to repurchase them
at an agreed-upon time and price (“repurchase agreements”). The financial institutions with whom the Fund enters into
repurchase agreements are banks and broker/dealers, which the Investment Adviser considers creditworthy. The seller under a repurchase
agreement will be required to maintain the value of the securities as collateral, subject to the agreement at not less than the
repurchase price plus accrued interest. The Investment Adviser monitors the mark-to-market of the value of the collateral, and,
if necessary, requires the seller to maintain additional securities, so that the value of the collateral is not less than the
repurchase price. Default by or bankruptcy of the seller would, however, expose the Fund to possible loss because of adverse market
action or delays in connection with the disposition of the underlying securities.
RISK
FACTORS
An
investment in the Fund’s Shares is subject to risks. The value of the Fund’s investments will increase or decrease
based on changes in the prices of the investments it holds. You could lose money by investing in the Fund. By itself, the Fund
does not constitute a balanced investment program. You should consider carefully the following principal risks before investing
in the Fund. There may be additional risks that the Fund does not currently foresee or consider material. You may wish to consult
with your legal or tax advisors, before deciding whether to invest in the Fund. This section describes the principal risk factors
associated with investment in the Fund specifically, as well as those factors generally associated with investment in an investment
company with investment objectives, investment policies, capital structure or trading markets similar to the Fund’s. Each
risk summarized below is a risk of investing in the Fund and different risks may be more significant at different times depending
upon market conditions or other factors.
Risks
Related to the Offering
Decline
in Trading Price. If the Fund’s trading price declines below the Subscription Price, you will suffer an immediate
unrealized loss.
Value
versus Subscription Price. The Subscription Price was not determined based on established criteria for valuation, such
as expected future performance, cash flows or financial condition. You should not rely on the Subscription Price to bear a relationship
to those criteria or to be a guarantee of the value of the Fund.
Termination
of Offering. The Fund’s Board of Directors may terminate the offering at any time. If the decision is made to terminate
the offering, the Fund has no obligation to you except to return, without interest, your subscription payments.
Rejection
of Exercise of Subscription Rights. Rights holders who desire to purchase shares in the offering must act promptly to
ensure that all required forms and payments are actually received by the Subscription Agent before the Expiration Date of the
offering, unless extended. If you are a beneficial owner of shares of common stock, you must act promptly to ensure that your
broker, custodian bank or other nominee acts for you and that all required forms and payments are actually received by the Subscription
Agent before the Expiration Date. The Fund will not be responsible if your broker, custodian or nominee fails to ensure that all
required forms and payments are actually received by the Subscription Agent before the Expiration Date. If you fail to complete
and sign the required subscription forms, send an incorrect payment amount or otherwise fail to follow the subscription procedures
that apply to your exercise in the offering, the Subscription Agent may, depending on the circumstances, reject your subscription
or accept it only to the extent of the payment received. Neither the Fund nor the Subscription Agent undertakes to contact you
concerning an incomplete or incorrect subscription form or payment, nor is the Fund under any obligation to correct such forms
or payments. The Fund has the sole discretion to determine whether a subscription exercise properly follows the subscription procedures.
Dilution
of Ownership and Voting Interest. As a result of the terms of this offer, Stockholders who do not fully exercise their
Rights will, upon completion of this offer, (i) own a smaller proportional interest in the Fund than they owned prior to the offer
and (ii) have a smaller proportional voting interest in the Fund than they had prior to the offer.
Principal
Risks
Stock
Market Volatility. Stock markets can be volatile. In other words, the prices of stocks can rise or fall rapidly in response
to developments affecting a specific company or industry, or to changing economic, political or market conditions. The Fund is
subject to the general risk that the value of its investments may decline if the stock markets perform poorly. There is also a
risk that the Fund’s investments will underperform either the securities markets generally or particular segments of the
securities markets.
Market
Disruption and Geopolitical Risk. The Fund is subject to the risk that geopolitical events will disrupt securities markets
and adversely affect global economies and markets. The novel coronavirus (“COVID-19”) global pandemic and the aggressive
responses taken by many governments, including closing borders, restricting international and domestic travel, and the imposition
of prolonged quarantines or similar restrictions, as well as the forced or voluntary closure of, or operational changes to, many
retail and other businesses, have had and may continue to have negative impacts, and in many cases severe negative impacts, on
markets worldwide. War, terrorism, and related geopolitical events (and their aftermath) have led, and in the future may lead,
to increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets generally.
Likewise, natural and environmental disasters, such as, for example, earthquakes, fires, floods, hurricanes, tsunamis and weather-related
phenomena generally, as well as the spread of infectious illness or other public health issues, including widespread epidemics
or pandemics such as the COVID-19 outbreak in 2020, and systemic market dislocations can be highly disruptive to economies and
markets. Those events as well as other changes in non-U.S. and domestic economic and political conditions also could adversely
affect individual issuers or related groups of issuers, securities markets, interest rates, credit ratings, inflation, investor
sentiment, and other factors affecting the value of Fund investments.
The
COVID-19 outbreak in 2020 has resulted in continued travel restrictions and disruptions, closed borders, enhanced health screenings
at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, quarantines, event cancellations
and restrictions, service cancellations or reductions, disruptions to business operations, supply chains and customer activity,
lower consumer demand for goods and services, as well as general concern and uncertainty that has negatively affected the economic
environment. The impact of this outbreak and any other epidemic or pandemic that may arise in the future could adversely affect
the economies of many nations or the entire global economy, the financial performance of individual issuers, borrowers and sectors
and the health of capital markets and other markets generally in potentially significant and unforeseen ways. This crisis or other
public health crises may also exacerbate other pre-existing political, social and economic risks in certain countries or globally.
The duration of the COVID-19 outbreak and its effects cannot be determined with certainty. The foregoing could lead to a significant
economic downturn or recession, increased market volatility, a greater number of market closures, higher default rates and adverse
effects on the values and liquidity of securities or other assets. Such impacts, which may vary across asset classes, may adversely
affect the performance of the Fund and a stockholder’s investment in the Fund.
Issuer
Specific Changes. Changes in the financial condition of an issuer, changes in the specific economic or political conditions
that affect a particular type of security or issuer, and changes in general economic or political conditions can affect the credit
quality or value of an issuer’s securities. Lower-quality debt securities tend to be more sensitive to these changes than
higher-quality debt securities.
Closed-End
Fund Risk. 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.
Common
Stock Risk. The Fund will invest a significant portion of its net assets in common stocks. Common stocks represent an
ownership interest in a company. The Fund may also invest in securities that can be exercised for or converted into common stocks
(such as convertible preferred stock). Common stocks and similar equity securities are more volatile and more risky than some
other forms of investment. Therefore, the value of your investment in the Fund may sometimes decrease instead of increase. Common
stock prices fluctuate for many reasons, including changes in investors’ perceptions of the financial condition of an issuer,
the general condition of the relevant stock market or when political or economic events affecting the issuers occur. In addition,
common stock prices may be sensitive to rising interest rates, as the costs of capital rise for issuers. Because convertible securities
can be converted into equity securities, their values will normally increase or decrease as the values of the underlying equity
securities increase or decrease. The common stocks in which the Fund will invest are structurally subordinated to preferred securities,
bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and assets and,
therefore, will be subject to greater risk than the preferred securities or debt instruments of such issuers.
Defensive
Positions. During periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial
portion of its net assets in cash or cash equivalents. The Fund would not be pursuing its investment objective in these circumstances
and could miss favorable market developments.
Foreign
Securities Risk. Investments in securities of non-U.S. issuers involve special risks not presented by investments in securities
of U.S. issuers, including the following: less publicly available information about companies due to less rigorous disclosure
or accounting standards or regulatory practices; the impact of political, social or diplomatic events, including war; possible
seizure, expropriation or nationalization of the company or its assets; possible imposition of currency exchange controls; and
changes in foreign currency exchange rates. These risks are more pronounced to the extent that the Fund invests a significant
amount of its investments in companies located in one region. These risks may be greater in emerging markets and in less developed
countries. For example, prior governmental approval for foreign investments may be required in some emerging market countries,
and the extent of foreign investment may be subject to limitation in other emerging countries. With respect to risks associated
with changes in foreign currency exchange rates, the Fund does not expect to engage in foreign currency hedging transactions.
See “Foreign Currency Risk”.
Global
Market Risk. An investment in Fund shares is subject to investment risk, including the possible loss of the entire principal
amount invested. The Fund is subject to the risk that geopolitical and other similar events will disrupt the economy on a national
or global level. For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes
or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and
natural/environmental disasters can all negatively impact the securities markets.
Managed
Distribution Policy Risk. The Fund’s Distribution Policy 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.
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 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, including securities purchased with the proceeds of the Offering, 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. Distributions may constitute a return of capital to Stockholders and lower
the tax basis in their Shares which, for the taxable Stockholders, will defer any potential gains until the Shares are sold. For
the taxable Stockholders, the portion of distribution that constitutes ordinary income and/or capital gains is taxable to such
Stockholders in the year the distribution is declared. A return of capital is non-taxable to the extent of the Stockholder’s
basis in the shares. The Stockholders would reduce their basis (but not below zero) in the Shares by the amount of the distribution
and therefore may result in an increase in the amount of any taxable gain on a subsequent disposition of such Shares, even if
such Shares are sold at a loss to the Stockholder’s original investment amount. Any return of capital will be separately
identified when Stockholders receive their tax statements. Any return of capital that exceeds cost basis may be treated as capital
gain. Stockholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the
Fund. The Fund may need to raise additional capital in order to maintain the Distribution Policy.
The
following table is provided to demonstrate the historical components of the Distribution Policy. The average annual returns indicated
below include the return of Stockholders’ capital invested in the Fund. A return of capital distribution does not reflect
positive investment performance. Stockholders should not draw any conclusions about the Fund’s investment performance from
the amount of its managed distributions or from the terms of the Distribution Policy. The Fund’s managed distribution rates
do not correlate to the Fund’s total return based on NAV because the Fund’s Distribution Policy maintains a stable,
high rate of distribution to its Stockholders, and such distributions are not tied to the Fund’s investment income or capital
gains and do not represent yield or investment return on the Fund’s portfolio.
Cornerstone
Total Return Fund, Inc.
Managed
Distributions Paid and NAV Returns from 2017 through 2021
| Years |
|
|
NAV
Per
Share |
|
|
Average
Annual
Return* |
|
|
Average
Annual
Return** |
|
|
Managed
Distribution
Per
Share |
|
|
Return-of-
Capital
Distribution |
|
|
Capital
Gains
Distribution |
|
|
Net
Investment
Income
Distribution |
|
|
Gross
Expense
Ratios |
|
| 2017 |
|
|
$ |
13.18 |
|
|
|
24.66 |
% |
|
|
22.14 |
% |
|
$ |
2.75 |
|
|
$ |
1.30 |
|
|
$ |
1.33 |
|
|
$ |
0.12 |
|
|
|
1.22 |
% |
| 2018 |
|
|
|
10.15 |
|
|
|
(3.43 |
) |
|
|
(2.04 |
) |
|
|
2.76 |
|
|
|
2.34 |
|
|
|
0.32 |
|
|
|
0.10 |
|
|
|
1.18 |
|
| 2019 |
|
|
|
10.46 |
|
|
|
28.85 |
|
|
|
26.52 |
|
|
|
2.38 |
|
|
|
1.85 |
|
|
|
0.43 |
|
|
|
0.10 |
|
|
|
1.17 |
|
| 2020 |
|
|
|
9.56 |
|
|
|
15.16 |
|
|
|
12.00 |
|
|
|
2.16 |
|
|
|
1.54 |
|
|
|
0.58 |
|
|
|
0.04 |
|
|
|
1.19 |
|
| 2021 |
|
|
|
9.88 |
|
|
|
24.67 |
|
|
|
22.64 |
|
|
|
1.84 |
|
|
|
0.71 |
|
|
|
1.12 |
|
|
|
0.01 |
|
|
|
1.15 |
|
| * |
Includes the reinvestments
of distributions in accordance with the operations of Fund’s distribution reinvestment plan. |
| ** |
Includes distributions
received but not reinvested. |
Management
Risk. The Fund is subject to management risk because it is an actively managed portfolio. The Fund’s successful
pursuit of its investment objective depends upon the Investment Adviser’s ability to find and exploit market inefficiencies
with respect to undervalued securities. Such situations occur infrequently and sporadically and may be difficult to predict and
may not result in a favorable pricing opportunity that allows the Investment Adviser to fulfill the Fund’s investment objective.
The Investment Adviser’s security selections and other investment decisions might produce losses or cause the Fund to underperform
when compared to other funds with similar investment goals. If one or more key individuals leave the employ of the Investment
Adviser, the Investment Adviser may not be able to hire qualified replacements or may require an extended time to do so. This
could prevent the Fund from achieving its investment objective. The Investment Adviser may also benefit from the Offering because
its fee is based on the assets of the Fund, which could be perceived as a conflict of interest.
Other
Investment Company Securities Risk. The Fund may invest in the securities of other closed-end investment companies and
in ETFs. Investing in other investment companies and ETFs involves substantially the same risks as investing directly in the underlying
instruments, but the total return on such investments at the investment company level may be reduced by the operating expenses
and fees of such other investment companies, including advisory fees. To the extent the Fund invests a portion of its assets in
investment company securities, those assets will be subject to the risks of the purchased investment company’s portfolio
securities, and a Stockholder in the Fund will bear not only his proportionate share of the expenses of the Fund, but also, indirectly
the expenses of the purchased investment company. There can be no assurance that the investment objective of any investment company
or ETF in which the Fund invests will be achieved.
Although
the Fund currently does not intend to use financial leverage, the securities of other investment companies in which the Fund invests
may be leveraged, which will subject the Fund to the risks associated with the use of leverage. Such risks include, among other
things, the likelihood of greater volatility of the net asset value and market price of such shares; the risk that fluctuations
in interest rates on the borrowings of such investment companies, or in the dividend rates on preferred shares that they must
pay, will cause the yield on the shares of such companies to fluctuate more than the yield generated by unleveraged shares; and
the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of such shares
than if such companies did not use leverage, which may result in a greater decline in the market price of such shares.
Non-Principal
Risks
In
addition to the principal risks set forth above, the following additional risks may apply to an investment in the Fund.
Anti-Takeover
Provisions. The Fund’s Charter and Bylaws include provisions that could limit the ability of other persons or entities
to acquire control of the Fund or to cause it to engage in certain transactions or to modify its structure.
Convertible
Securities Risk. The value of a convertible security, including, for example, a warrant, is a function of its “investment
value” (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that
do not have a conversion privilege) and its “conversion value” (the security’s worth, at market value, if converted
into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the
issuer and other factors may also have an effect on the convertible security’s investment value. The conversion value of
a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative
to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the
conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its
conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors
place value on the right to acquire the underlying common stock while holding a fixed income security.
A
convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s
governing instrument. If a convertible security held by the Fund is called for redemption, the Fund will be required to permit
the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions
could have an adverse effect on the Fund’s ability to achieve its investment objective.
Credit
Risk. Fixed income securities rated B or below by S&Ps or Moody’s may be purchased by the Fund. These securities
have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened
capacity of those issuers to make principal or interest payments, as compared to issuers of more highly rated securities.
Debt
Security Risk. In addition to interest rate risk, call risk and extension risk, debt securities are also subject to the
risk that they may also lose value if the issuer fails to make principal or interest payments when due, or the credit quality
of the issuer falls.
Extension
Risk. The Fund is subject to the risk that an issuer will exercise its right to pay principal on an obligation held by
that Fund (such as mortgage-backed securities) later than expected. This may happen when there is a rise in interest rates. These
events may lengthen the duration (i.e. interest rate sensitivity) and potentially reduce the value of these securities.
Foreign
Currency Risk. Although the Fund will report its net asset value and pay expenses and distributions in U.S. dollars, the
Fund may invest in foreign securities denominated or quoted in currencies other than the U.S. dollar. Therefore, changes in foreign
currency exchange rates will affect the U.S. dollar value of the Fund’s investment securities and net asset value. For example,
even if the securities prices are unchanged on their primary foreign stock exchange, the Fund’s net asset value may change
because of a change in the rate of exchange between the U.S. dollar and the trading currency of that primary foreign stock exchange.
Certain currencies are more volatile than those of other countries and Fund investments related to those countries may be more
affected. Generally, if a foreign currency depreciates against the dollar (i.e., if the dollar strengthens), the value of the
existing investment in the securities denominated in that currency will decline. When a given currency appreciates against the
dollar (i.e., if the dollar weakens), the value of the existing investment in the securities denominated in that currency will
rise. Certain foreign countries may impose restrictions on the ability of foreign securities issuers to make payments of principal
and interest to investors located outside of the country, due to a blockage of foreign currency exchanges or otherwise.
Illiquid
Securities. The Fund may invest up to 20% of its respective net assets in illiquid securities. Illiquid securities may
offer a higher yield than securities which are more readily marketable, but they may not always be marketable on advantageous
terms. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts than
does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. A security
traded in the U.S. that is not registered under the Securities Act will not be considered illiquid if Fund management determines
that an adequate investment trading market exists for that security. However, there can be no assurance that a liquid market will
exist for any security at a particular time.
Interest
Rate Risk. Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise and can rise when interest rates fall. Securities with longer maturities and mortgage
securities can be more sensitive to interest rate changes although they usually offer higher yields to compensate investors for
the greater risks. The longer the maturity of the security, the greater the impact a change in interest rates could have on the
security’s price. In addition, short-term and long-term interest rates do not necessarily move in the same amount or the
same direction. Short-term securities tend to react to changes in short-term interest rates and long-term securities tend to react
to changes in long-term interest rates.
Investment
in Small and Mid-Capitalization Companies. The Fund may invest in companies with mid or small sized capital structures
(generally a market capitalization of $5 billion or less). Accordingly, the Fund may be subject to the additional risks associated
with investment in these companies. The market prices of the securities of such companies tend to be more volatile than those
of larger companies. Further, these securities tend to trade at a lower volume than those of larger more established companies.
If the Fund is heavily invested in these securities and the value of these securities suddenly declines, that Fund will be susceptible
to significant losses.
Leverage
Risk. Utilization of leverage is a speculative investment technique and involves certain risks to the holders of common
stock. These include the possibility of higher volatility of the net asset value of the common stock and potentially more volatility
in the market value of the common stock. So long as the Fund is able to realize a higher net return on its investment portfolio
than the then current cost of any leverage together with other related expenses, the effect of the leverage will be to cause holders
of common stock to realize higher current net investment income than if the Fund were not so leveraged. On the other hand, to
the extent that the then current cost of any leverage, together with other related expenses, approaches the net return on the
Fund’s investment portfolio, the benefit of leverage to holders of common stock will be reduced, and if the then current
cost of any leverage were to exceed the net return on the Fund’s portfolio, the Fund’s leveraged capital structure
would result in a lower rate of return to Stockholders than if the Fund were not so leveraged. There can be no assurance that
the Fund’s leverage strategy will be successful.
Market
Discount from Net Asset Value. Shares of closed-end investment companies frequently trade at a discount from their net
asset value. This characteristic is a risk separate and distinct from the risk that the Fund’s net asset value could decrease
as a result of its investment activities and may be greater for investors expecting to sell their Shares in a relatively short
period following completion of the Offering. The net asset value of the Shares will be reduced immediately following the Offering
as a result of the payment of certain costs of the Offering. Whether investors will realize gains or losses upon the sale of the
Shares will depend not upon the Fund’s net asset value but entirely upon whether the market price of the Shares at the time
of sale is above or below the investor’s purchase price for the Shares. Because the market price of the Shares will be determined
by factors such as relative supply of and demand for the Shares in the market, general market and economic conditions, and other
factors beyond the control of the Fund, the Fund cannot predict whether the Shares will trade at, below or above net asset value.
Over-the-Counter
Bulletin Board Markets. The Fund may invest in companies whose stock is trading on the over-the-counter bulletin board
which have only a limited trading market. A more active trading market may never develop. The Fund may be unable to sell its investments
in these companies on any particular day due to the limited trading market.
Portfolio
Turnover Risk. The Investment Adviser cannot predict the Fund’s securities portfolio turnover rate with certain
accuracy, but anticipates that its annual portfolio turnover rate will normally range between 10% and 90% under normal market
conditions. However, it could be materially higher under certain conditions. Higher portfolio turnover rates could result in corresponding
increases in brokerage commissions and may generate short-term capital gains taxable as ordinary income.
Preferred
Securities Risk. Investment in preferred securities carries risks including credit risk, deferral risk, redemption risk,
limited voting rights, risk of subordination and lack of liquidity. Fully taxable or hybrid preferred securities typically contain
provisions that allow an issuer, at its discretion, to defer distributions for up to 20 consecutive quarters. Traditional preferreds
also contain provisions that allow an issuer, under certain conditions to skip (in the case of “noncumulative preferreds”)
or defer (in the case of “cumulative preferreds”), dividend payments. If the Fund owns a preferred security that is
deferring its distributions, the Fund may be required to report income for tax purposes while it is not receiving any distributions.
Preferred securities typically contain provisions that allow for redemption in the event of tax or security law changes in addition
to call features at the option of the issuer. In the event of a redemption, the Fund may not be able to reinvest the proceeds
at comparable rates of return. Preferred securities typically do not provide any voting rights, except in cases when dividends
are in arrears beyond a certain time period, which varies by issue. Preferred securities are subordinated to bonds and other debt
instruments in a company’s capital structure in terms of priority to corporate income and liquidation payments, and therefore
will be subject to greater credit risk than those debt instruments. Preferred securities may be substantially less liquid than
many other securities, such as U.S. government securities, corporate debt or common stocks. Dividends paid on preferred securities
will generally not qualify for the reduced federal income tax rates applicable to qualified dividends under the Code. See “Certain
Additional Material United States Federal Tax Considerations.”
Real
Estate Investment Trust (“REIT”) Risk. Investments in REITs will subject the Fund to various risks. The first,
real estate industry risk, is the risk that REIT share prices will decline because of adverse developments affecting the real
estate industry and real property values. In general, real estate values can be affected by a variety of factors, including supply
and demand for properties, the economic health of the country or of different regions, and the strength of specific industries
that rent properties. REITs often invest in highly leveraged properties. The second risk is the risk that returns from REITs,
which typically are small or medium capitalization stocks, will trail returns from the overall stock market. The third, interest
rate risk, is the risk that changes in interest rates may hurt real estate values or make REIT shares less attractive than other
income producing investments. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation.
Qualification
as a REIT under the Code in any particular year is a complex analysis that depends on a number of factors. There can be no assurance
that the entities in which the Fund invests with the expectation that they will be taxed as a REIT will qualify as a REIT. An
entity that fails to qualify as a REIT would be subject to a corporate level tax, would not be entitled to a deduction for dividends
paid to its stockholders and would not pass through to its stockholders the character of income earned by the entity. If the Fund
were to invest in an entity that failed to qualify as a REIT, such failure could drastically reduce the Fund’s yield on
that investment.
REITs
can be classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest primarily in real property and earn rental
income from leasing those properties. They may also realize gains or losses from the sale of properties. Equity REITs will be
affected by conditions in the real estate rental market and by changes in the value of the properties they own. Mortgage REITs
invest primarily in mortgages and similar real estate interests and receive interest payments from the owners of the mortgaged
properties. They are paid interest by the owners of the financed properties. Mortgage REITs will be affected by changes in creditworthiness
of borrowers and changes in interest rates. Hybrid REITs invest both in real property and in mortgages. Equity and mortgage REITs
are dependent upon management skills, may not be diversified and are subject to the risks of financing projects.
Dividends
paid by REITs will not generally qualify for the reduced U.S. federal income tax rates applicable to qualified dividends under
the Code.
The
Fund’s investment in REITs may include an additional risk to Stockholders. Some or all of a REIT’s annual distributions
to its investors may constitute a non-taxable return of capital. Any such return of capital will generally reduce the Fund’s
basis in the REIT investment, but not below zero. To the extent the distributions from a particular REIT exceed the Fund’s
basis in such REIT, the Fund will generally recognize gain. In part because REIT distributions often include a nontaxable return
of capital, Fund distributions to Stockholders may also include a nontaxable return of capital. Stockholders that receive such
a distribution will also reduce their tax basis in their shares of the Fund, but not below zero. To the extent the distribution
exceeds a Stockholder’s basis in the Fund shares, such Stockholder will generally recognize capital gain.
Repurchase
Agreement Risk. The Funds does not enter into nor does it currently intend to enter into repurchase agreements, however,
if the Fund were to enter into repurchase agreements, the Fund could suffer a loss if the proceeds from a sale of the securities
underlying a repurchase agreement to which it is a party turns out to be less than the repurchase price stated in the agreement.
In addition, repurchase agreements may involve risks in the event of default or insolvency of the seller, including possible delays
or restrictions upon the Fund’s ability to dispose of the underlying securities.
Securities
Lending Risk. Securities lending is subject to the risk that loaned securities may not be available to the Fund on a timely
basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. Any loss in the market price
of securities loaned by the Fund that occurs during the term of the loan would be borne by the Fund and would adversely affect
the Fund’s performance. Also, there may be delays in recovery, or no recovery, of securities loaned or even a loss of rights
in the collateral should the borrower of the securities fail financially while the loan is outstanding. The Fund retains the right
to recall securities that it lends to enable it to vote such securities if it determines such vote to be material. Despite its
right to recall securities lent, there can be no guarantee that recalled securities will be received timely to enable the Fund
to vote those securities. The Fund does not anticipate having any securities lending income during the current calendar year.
LISTING
OF SHARES
The
Fund’s Shares trade on the NYSE American under the ticker symbol “CRF,” and are required to meet the NYSE American’s
continued listing requirements.
MANAGEMENT
OF THE FUND
Directors
and Officers
The
Board of Directors is responsible for the overall management of the Fund, including supervision of the duties performed by the
Investment Adviser. There are eight Directors of the Fund, two of which are “interested persons” (as defined in the
1940 Act) of the Fund. The Directors are responsible for the Fund’s overall management, including adopting the investment
and other policies of the Fund, electing and replacing officers and selecting and supervising the Fund’s Investment Adviser.
The name and business address of the Directors and officers of the Fund and their principal occupations and other affiliations
during the past five years, as well as a description of committees of the Board of Directors, are set forth under “Management”
in the Statement of Additional Information.
Investment
Adviser
At
the Fund’s annual meeting of stockholders held on April 16, 2019, stockholders of the Fund approved a new investment management
agreement with Cornerstone Advisors Asset Management LLC, which agreement became effective May 1, 2019. Cornerstone Advisors Asset
Management LLC subsequently changed its name to Cornerstone Advisors, LLC. Prior to May 1, 2019, the Fund was managed by Cornerstone
Advisors, Inc. (the “Former Investment Adviser”).
Cornerstone
Advisors, LLC (the “Investment Adviser”), 1075 Hendersonville Road, Suite 250, Asheville, North Carolina 28803, is
a limited liability company organized under the laws of North Carolina and serves as the Fund’s investment adviser. The
Investment Adviser is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended.
The Investment Adviser manages one other closed-end fund with combined assets under management with the Fund of approximately
$1,855.3 million, as of December 31, 2021.
Under
the general supervision of the Fund’s Board of Directors, the Investment Adviser carries out the investment and reinvestment
of the net assets of the Fund, continuously furnishes an investment program with respect to the Fund, determines which securities
should be purchased, sold or exchanged, and implements such determinations. The Investment Adviser furnishes to the Fund investment
advice and office facilities, equipment and personnel for servicing the investments of the Fund. The Investment Adviser compensates
all Directors and officers of the Fund who are members of the Investment Adviser’s organization and who render investment
services to the Fund, and will also compensate all other Investment Adviser personnel who provide research and investment services
to the Fund. In return for these services, facilities and payments, the Fund has agreed to pay the Investment Adviser as compensation
under the Investment Management Agreement a monthly fee computed at the annual rate of 1.00% of the average weekly net assets
of the Fund. The total estimated annual expenses of the Fund are set forth in the section titled “Summary of Fund Expenses.”
The
Board of Directors annually considers the continuance of the Investment Management Agreement. A discussion regarding the basis
for the Board of Directors’ approval on February 11, 2022 of the continuance of the Investment Management Agreement between
the Fund and the Investment Adviser will be available in the Fund’s semi-annual report to Stockholders for the six-month
period ended June 30, 2022.
During
the last three fiscal years, the Fund paid the Investment Adviser (and Former Investment Adviser, as noted) the following amounts
as compensation:
| |
|
Fiscal
Year Ended December 31, |
|
| |
|
2021 |
|
|
2020 |
|
|
2019(1) |
|
| Management Fees Earned |
|
$ |
5,305,971 |
|
|
$ |
3,761,166 |
|
|
$ |
4,125,584 |
|
| Management Fees Paid |
|
$ |
5,305,971 |
|
|
$ |
3,761,166 |
|
|
$ |
4,125,584 |
|
| (1) |
Includes $1,364,903
fees paid to the Former Investment Adviser for the period ending April 30, 2019. |
| (2) |
Paid to the Former
Investment Adviser. |
Portfolio
Manager
Ralph
W. Bradshaw has been the Fund’s portfolio manager (the “Portfolio Manager”) for over ten years. Mr. Ralph W.
Bradshaw, President of Cornerstone Advisors, LLC, is the President and Chairman of the Board of Directors of the Fund. In addition,
Mr. Ralph W. Bradshaw may consult with Joshua G. Bradshaw and Daniel W. Bradshaw, co-portfolio managers of the Fund (each, a “Co-Portfolio
Manager”), regarding investment decisions. Mr. Joshua G. Bradshaw has been a Vice President of Cornerstone Advisers, LLC
since 2019 and prior to that he was a Vice President of Cornerstone Advisors, Inc., the Fund’s former investment adviser
from 2016 to 2019. Mr. Daniel W. Bradshaw has been a Director of the Fund since 2021 and a Vice President of Cornerstone Advisers,
LLC since 2019 and prior to that he was at Cornerstone Advisors, Inc., the Fund’s former investment adviser, as a Vice President
from 2018 to 2019 and as an Associate from 2016 to 2017.
In
carrying out responsibilities for the management of the Fund’s portfolio of securities, the Portfolio Manager has primary
responsibility. The Investment Adviser may create a portfolio management team by assigning additional portfolio managers. In cases
where the team might not be in agreement with regard to an investment decision, Mr. Ralph W. Bradshaw has ultimate authority to
decide the matter. The Statement of Additional Information provides additional information about the Portfolio Manager’s
and each Co-Portfolio Manager’s: (i) compensation, (ii) other accounts managed, and (iii) ownership of securities in the
Fund.
Administrator
and Fund Accounting Agent
Ultimus
Fund Solutions, LLC, located at 225 Pictoria Drive, Suite 450, Cincinnati, OH (“Ultimus”) serves as the administrator
and funding accounting agent to the Fund. Under the fund accounting and administration agreement with the Fund, Ultimus is responsible
for generally managing the administrative affairs of the Fund, including supervising the preparation of reports to Stockholders,
reports to and filings with the SEC and materials for meetings of the Board. Ultimus is also responsible for calculating the net
asset value per share and maintaining the financial books and records of the Fund. Ultimus is entitled to receive a base fee of
$5,000 per month plus an asset-based fee of 0.05% of the first $250 million of average daily net assets, 0.04% of such assets
greater than $250 million to $1 billion, 0.03% of such assets greater than $1 billion to $2 billion and 0.02% of such assets in
excess of $2 billion.
Custodian
and Transfer Agent
U.S.
Bank, N.A., located at 425 Walnut Street, Cincinnati, Ohio 45202, is the custodian of the Fund and maintains custody of the securities
and cash of the Fund.
American
Stock Transfer and Trust Co., LLC, with an address at 6201 15th Avenue, Brooklyn, New York 11219, serves as the transfer agent
and dividend paying agent of the Fund.
Fund
Expenses
The
Investment Adviser is obligated to pay expenses associated with providing the services contemplated by the Investment Management
Agreement, including compensation of and office space for its officers and employees connected with investment and economic research,
trading and investment management and administration of the Fund. The Fund is not obligated to pay the fees of any Director of
the Fund who is affiliated with the Investment Adviser.
Ultimus
is obligated to pay expenses associated with providing the services contemplated by the Accounting and Administration Agreement,
including compensation of and office space for Ultimus’ officers and employees and administration of the Fund. The Fund
is not obligated to pay the fees of any Director of the Fund who is affiliated with Ultimus.
The
Fund pays all other expenses incurred in the operation of the Fund including, among other things, (i) expenses for legal and independent
accountants’ services, (ii) costs of printing proxies, share certificates and reports to stockholders, (iii) charges of
the custodian and transfer agent in connection with the Fund’s Distribution Reinvestment Plan, (iv) fees and expenses of
independent Directors, (v) printing costs, (vi) membership fees in trade association, (vii) fidelity bond coverage for the Fund’s
officers and Directors, (viii) errors and omissions insurance for the Fund’s officers and Directors, (ix) brokerage costs
and listing fees and expenses charged by NYSE American, (x) taxes and (xi) other extraordinary or non-recurring expenses and other
expenses properly payable by the Fund. The expenses incident to the Offering and issuance of Shares to be issued by the Fund will
be recorded as a reduction of capital of the Fund attributable to the Shares.
The
Fund’s annual operating expenses for the fiscal year ended December 31, 2021 were approximately $6,088,000. No assurance
can be given, in light of the Fund’s investment objectives and policies, however, that future annual operating expenses
will not be substantially more or less than this estimate.
Offering
expenses relating to the Fund’s Shares, estimated at approximately $258,000 will be payable upon completion of the Offering
and will be deducted from the proceeds of the Offering.
The
Investment Management Agreement authorizes the Investment Adviser to select brokers or dealers (including affiliates) to arrange
for the purchase and sale of Fund securities, including principal transactions. Any commission, fee or other remuneration paid
to an affiliated broker or dealer is paid in compliance with the Fund’s procedures adopted in accordance with Rule 17e-1
under the 1940 Act.
DETERMINATION
OF NET ASSET VALUE
The
net asset value of shares of the Fund is determined weekly and on the last business day of each month, as of the close of regular
trading on the NYSE American (normally, 4:00 p.m., Eastern time). In computing net asset value, portfolio securities of the Fund
are valued at their current market values determined on the basis of market quotations. If market quotations are not readily available,
securities are valued at fair value as determined by the Board of Directors. The Fund’s investments in closed-end funds
or ETFs whose shares are listed on a national securities exchange are valued using the market price at the close of the NYSE American
or such other exchange on which they are listed. Private funds and non-traded closed-end funds are fair valued based on the Fund’s
fair valuation policies and procedures. Fair valuation involves subjective judgments, and it is possible that the fair value determined
for a security may differ materially from the value that could be realized upon the sale of the security. Non-dollar-denominated
securities are valued as of the close of the NYSE American at the closing price of such securities in their principal trading
market, but may be valued at fair value if subsequent events occurring before the computation of net asset value materially have
affected the value of the securities.
Trading
may take place in foreign issuers held by the Fund at times when the Fund is not open for business. As a result, the Fund’s
net asset value may change at times when it is not possible to purchase or sell shares of the Fund. The Fund may use a third party
pricing service to assist it in determining the market value of securities in the Fund’s portfolio. The Fund’s net
asset value per Share is calculated by dividing the value of the Fund’s total assets (the value of the securities the Fund
holds plus cash or other assets, including interest accrued but not yet received), less accrued expenses of the Fund, less the
Fund’s other liabilities by the total number of Shares outstanding.
Readily
marketable portfolio securities listed on the NYSE American are valued, except as indicated below, at the last sale price reflected
on the consolidated tape at the close of the NYSE American 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 American 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 the Investment Adviser 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.
DISTRIBUTION
POLICY
The
Fund initiated a fixed, monthly distribution to stockholders in 2002 which, with interim adjustments and extensive disclosure,
continues to be a high-level managed distribution policy. The Distribution Policy has been maintained through the historic economic
volatility, increased regulatory scrutiny and challenging markets of the intervening years.
During
recent years, the Fund’s investments made in accordance with its objective have failed to provide adequate income to meet
the requirements of the Distribution Policy. Nevertheless, the Board continues to believe that the Fund’s objective and
strategy are complementary to the Fund’s commitment, through the Distribution Policy, to provide regular distributions which
increase liquidity and provide flexibility to individual Stockholders. The Investment Adviser seeks to achieve net investment
returns that exceed the amount of the Fund’s managed distributions, although there is no guarantee that the Investment Adviser
will be successful in this regard.
What
are the features of the Distribution Policy?
The
Distribution Policy provides a regular monthly distribution to Stockholders that is adjusted through an annual resetting of the
monthly distribution amount per share based on the Fund’s net asset value on the last business day in October. The terms
of the Distribution Policy have been reviewed and are approved at least annually by the Fund’s Board and can be modified
at the Board’s discretion. To the extent that distributions exceed the current Net Earnings of the Fund, the balance of
the amounts paid out will be generated from sales of portfolio securities held by the Fund and will be distributed either as short-term
or long-term capital gains or a tax-free return-of- capital. Although return of capital distributions may not be taxable, such
distributions may reduce a Stockholder’s cost basis in his or her Shares, and therefore may result in an increase in the
amount of any taxable gain on a subsequent disposition of such Shares, even if such Shares are sold at a loss to the Stockholder’s
original investment amount. 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. As shown on page 35
in the table which identifies the constituent components of the Fund’s distributions under its Managed Distribution Policy
for years 2017-2021, a majority of the distributions that the Fund made to its Stockholders for 2020 consisted of a return of
its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio, and substantially
all of the distributions that the Fund made to its Stockholders for the years 2018 and 2019 consisted of a return of its Stockholders’
capital, and not of income or gains generated from the Fund’s investment portfolio. For 2017 and 2021, a portion of the
distributions that the made to its Stockholders consisted of a return of its Stockholders’ capital, and not of income or
gains generated from the Fund’s investment portfolio. A return-of-capital distribution reduces the tax basis (but not below
zero) of an investor’s shares in the Fund. The Fund plans to maintain the Distribution Policy even if a return-of- capital
distribution would exceed an investor’s tax basis and therefore be a taxable distribution. The Board currently 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 the Distribution Policy at any time and such termination
may have an adverse effect on the market price for the Fund’s Shares.
What
are the benefits of the Distribution Policy?
The
Distribution Policy historically has maintained a stable, high rate of distribution. The Board remains convinced that the Fund’s
Stockholders are well served by a policy of regular distributions which increase liquidity and provide flexibility to individual
Stockholders in managing their investments. Stockholders have the option of reinvesting all or a portion of these distributions
in additional Shares through the Fund’s distribution reinvestment plan or receiving them in cash. For more information regarding
the Fund’s distribution reinvestment plan, Stockholders should carefully read the description of the distribution reinvestment
plan contained in the Fund’s Reports to Stockholders.
What
are the risks of the Distribution Policy?
The
Fund makes level distributions on a monthly basis and these distributions are not tied to the Fund’s net investment income
and capital gains and may not represent yield or investment return on the Fund’s portfolio. Under the Distribution Policy,
the Fund makes monthly distributions to Stockholders at a rate that may include periodic distributions of its Net Earnings or
a return of capital. As noted above, Stockholders have the option of reinvesting all or a portion of these distributions in additional
shares of the Fund through the Fund’s distribution reinvestment plan or receiving them in cash. In any fiscal year where
total cash distributions exceed Net Earnings and unrealized gain or loss for the year, such excess will decrease the Fund’s
total assets and, as a result, will have the likely effect of increasing the Fund’s expense ratio. There is a risk that
the total Net Earnings and unrealized gain or loss for years from the Fund’s portfolio would not be great enough to fully
offset the amount of cash distributions paid to Fund stockholders. If this were to be the case, the Fund’s assets would
be partially reduced by an equal amount, 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 need to sell a portion of its investment portfolio at a time when independent
investment judgment might not dictate such action. Furthermore, the cash used to make distributions will not be available for
investment pursuant to the Fund’s investment objective.
Funds
maintain varying degrees of cash levels pursuant to market conditions and the judgment of the portfolio manager. In addition,
portfolio managers must raise cash periodically to cover operating expenses. For any fund, to the extent that cash is held at
any given time for operating expenses or other purposes, it will not be available for investment pursuant to that fund’s
investment objective. In addition to these general cash requirements, a fund’s distribution policy may also require that
securities be sold to raise cash for those stockholders who elect to take cash distributions rather than reinvest in shares of
the fund, in which case, it will also not be available for investment pursuant to the fund’s investment objective. It is
possible that a situation will occur where the Distribution Policy contributes to a reduction of assets over an extended period
of time such that the assets of the Fund are reduced to a point where the Fund would no longer be economically viable. In such
event, the Fund would need to take additional actions, which may include, for example, liquidation or merger, to address the situation.
While this is one of the risk factors of any managed distribution policy, including the Distribution Policy, it is important to
note that the Distribution Policy was not designed to be a mechanism for the dissolution of the Fund or a short-term liquidation
policy, and it is not the intention of the Board to allow the Fund to self-liquidate through the unsupervised effects of the Distribution
Policy. The Board monitors the Distribution Policy and the Fund’s asset levels regularly, and remains ready to modify the
terms of the Distribution Policy if, in its judgment, the Board believes it is in the best interests of the Fund and its Stockholders.
The Board may consider additional rights offerings in the future.
A
return-of-capital distribution reduces the tax basis of an investor’s Shares, which may make record-keeping by certain Stockholders
more difficult.
The
Fund discloses the characterization of its distributions in notices to Stockholders and press releases to the public. Notwithstanding
these communications, it is possible that the Distribution Policy may create potential confusion in the marketplace as to whether
the Fund’s distributions are comprised of income or return of capital and how such characterization may influence the market
price of the Fund’s Shares.
For
the years 2017-2021, the Fund’s distributions under the Distribution Policy were characterized, on an annual basis, as set
forth on the table below:
Cornerstone
Strategic Value Fund, Inc.
Dividend
and Distributions Paid from 2017 through 2021
| |
|
Total |
|
Earnings |
|
|
Return-of-Capital |
| Years |
|
Dividends
and
Distributions |
|
Amount |
|
Percent |
|
|
Amount |
|
Percent |
| 2017 |
|
$ |
44,339,805 |
|
$ |
23,475,897 |
|
|
52.95 |
% |
|
$ |
20,863,908 |
|
|
47.05 |
% |
| 2018 |
|
|
79,915,825 |
|
|
12,273,762 |
|
|
15.36 |
|
|
|
67,642,063 |
|
|
84.64 |
|
| 2019 |
|
|
92,906,003 |
|
|
20,636,861 |
|
|
22.21 |
|
|
|
72,269,142 |
|
|
77.79 |
|
| 2020 |
|
|
86,683,427 |
|
|
24,708,045 |
|
|
28.50 |
|
|
|
61,975,382 |
|
|
71.50 |
|
| 2021 |
|
|
98,943,413 |
|
|
60,882,115 |
|
|
61.53 |
|
|
|
38,061,298 |
|
|
38.47 |
|
Unless
the registered owner of Shares elects to receive cash, all distributions declared on the Fund’s Shares will be automatically
reinvested in additional Shares. See “Distribution Reinvestment Plan”.
In
order to maintain the Distribution Policy, the Fund applied for and received an exemption from the requirements of Section 19(b)
of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to make periodic distributions of long-term capital gains, provided
that the Distribution Policy calls for periodic (e.g., quarterly/monthly) distributions in an amount equal to a fixed percentage
of the Fund’s average net asset value over a specified period of time or market price per Share at or about the time of
distribution or pay-out of a level dollar amount.
The
Distribution Policy results in the payment of approximately the same amount per share to the Fund’s Stockholders each month.
These distributions are not to be tied to the Fund’s investment income and capital gains and do not represent yield or investment
return on the Fund’s portfolio. Section 19(a) of the 1940 Act and Rule 19a-1 thereunder require the Fund to provide a written
statement accompanying any such payment that adequately discloses its source or sources, other than net investment income. Thus,
if the source of some or all of the dividend or other distribution were the original capital contribution of the Stockholder,
and the payment amounted to a return of capital, the Fund would be required to provide written disclosure to that effect. Nevertheless,
persons who periodically receive the payment of a dividend or other distribution may be under the impression that they are receiving
net profits when they are not. Stockholders should read any written disclosure provided pursuant to Section 19(a) and Rule 19a-1
carefully, and should not assume that the source of any distribution from the Fund is net profit. A return of capital distribution
does not reflect positive investment performance. Stockholders should not draw any conclusions about the Fund’s investment
performance from the amount of its managed distributions or from the terms of the Distribution Policy. When the Fund issues a
written disclosure pursuant to Section 19(a) and Rule 19a-1, the Fund will refer to such a notice as a “Rule 19a-1 Notice
Accompanying Distribution Payment”. In addition, the Fund will refer to the return of capital distributions as “Paid-in-capital”
which will be presented under the “Source of Payment” heading in such notice.
On
August 6, 2021, the Board of Directors of the Fund determined that the distribution percentage for the calendar year 2022 would
remain at 21%, which was the same distribution percentage used in 2021, which was then applied to the net asset value of the Fund
at the end of October 2021 to determine the distribution amounts for calendar year 2022. During 2022, the Board of Directors of
the Fund will make a determination regarding the distribution percentage for 2023 which will then be applied to the net asset
value of the Fund at the end of October 2022 to determine the distribution amounts for calendar year 2023. The distribution percentage
is not a function of, nor is it related to, the investment return on the Fund’s portfolio.
The
Board of Directors reserves the right to change the Distribution Policy from time to time.
DISTRIBUTION
REINVESTMENT PLAN
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 6201 15th Avenue, Brooklyn, NY 11219. 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 American 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 ice (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 American 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 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 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 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 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.astfinancial.com
or by calling the toll free number (866) 668-6558. 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, 6201 15th Avenue, Brooklyn, NY 11219. There is
a commission of $0.05 per share.
All
correspondence concerning the Plan should be directed to the Agent at 6201 15th Avenue, Brooklyn, NY 11219. Certain transactions
can be performed online at www.astfinancial.com or by calling the toll-free number (866) 668-6558.
CERTAIN
ADDITIONAL MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The
following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a Stockholder that acquires,
holds and/or disposes of the Fund’s Shares, and reflects provisions of the Code, existing Treasury regulations, rulings
published by the Internal Revenue Service (the “IRS”), and other applicable authority, as of the date of this prospectus.
These authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following
discussion is only a summary of some of the important tax considerations generally applicable to investments in the Fund and the
discussion set forth herein does not constitute tax advice. Except as expressly provided below, this discussion addresses only
the U.S. federal income tax consequences of an investment by U.S. Holders (as defined in the Statement of Additional Information)
and assumes that such Stockholders will hold Shares as capital assets, which generally means as property held for investment.
For more detailed information regarding tax considerations, see the Statement of Additional Information under the heading “Certain
Material United States Federal Income Tax Consequences.” There may be other tax considerations applicable to particular
investors. In addition, income earned through an investment in the Fund may be subject to state, local and foreign taxes.
Taxation
as a Regulated Investment Company
The
Fund intends to elect to be treated and to qualify each year for taxation as a regulated investment company (a “RIC”)
under Subchapter M of the Code. In order for the Fund to qualify as a RIC, it must, among other requirements, meet income and
asset diversification tests each year. If the Fund so qualifies and satisfies certain distribution requirements, the Fund (but
not its Stockholders) will not be subject to federal income tax to the extent it distributes its investment company taxable income
and net capital gains (the excess of net long-term capital gains over net short-term capital loss) in a timely manner to its Stockholders
in the form of dividends or capital gain distributions. The Code imposes a 4% nondeductible excise tax on RICs, such as the Fund,
to the extent they do not meet certain distribution requirements by the end of each calendar year. The Fund anticipates meeting
these distribution requirements.
The
Fund intends to make monthly distributions of investment company taxable income after payment of the Fund’s operating expenses.
Unless a Stockholder is ineligible to participate or elects otherwise, all distributions will be automatically reinvested in additional
Shares pursuant to the Fund’s distribution reinvestment plan (the “Plan”). For U.S. federal income tax purposes,
all dividends are generally taxable whether a Stockholder takes them in cash or they are reinvested pursuant to the Plan in additional
Shares. Distributions of the Fund’s investment company taxable income (including short-term capital gains) will generally
be treated as ordinary income to the extent of the Fund’s current and accumulated earnings and profits. Distributions of
the Fund’s net capital gains (“capital gain dividends”), if any, are taxable to Stockholders as long-term capital
gains, regardless of the length of time Shares have been held by Stockholders. Distributions, if any, in excess of the Fund’s
earnings and profits will first reduce the adjusted tax basis of a holder’s Shares and, after that basis has been reduced
to zero, will constitute capital gains to the Stockholder (assuming the Shares are held as a capital asset). See below for a summary
of the maximum tax rates applicable to capital gains (including capital gain dividends). A corporation that owns Shares generally
will not be entitled to the dividends received deduction with respect to all of the dividends it receives from the Fund. Fund
dividend payments that are attributable to qualifying dividends received by the Fund from certain domestic corporations may be
designated by the Fund as being eligible for the dividends received deduction. There can be no assurance as to what portion of
Fund dividend payments may be classified as qualifying dividends. With respect to the monthly distributions of investment company
taxable income described above, it may be the case that any such distributions would result in a return of capital to the Stockholder.
The determination of the character for U.S. federal income tax purposes of any distribution from the Fund (i.e., ordinary income
dividends, capital gains dividends, qualifying dividends, return of capital distributions) will be made as of the end of the Fund’s
taxable year. Generally, no later than 60 days after the close of its taxable year, the Fund will provide Stockholders with a
written notice designating the amount of any capital gain distributions or other distributions. See “Distribution Policy”
for a more complete description of such returns and the risks associated with them.
The
Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed at corporate rates on the amount
retained. In such case, it may designate the retained amount as undistributed capital gains in a notice to its Stockholders who
will be treated as if each received a distribution of such Stockholder’s pro rata share of such gain, with the result that
each Stockholder will (i) be required to report such Stockholder’s pro rata share of such gain on such Stockholder’s
tax return as long-term capital gain, (ii) receive a refundable tax credit for such Stockholder’s pro rata share of tax
paid by the Fund on the gain and (iii) increase the tax basis for such Stockholder’s Shares by an amount equal to the deemed
distribution less the tax credit.
Under
current law, certain income distributions paid by the Fund to individual taxpayers may be taxed at rates equal to those applicable
to net long-term capital gains (generally, 20%). This tax treatment applies only if certain holding period and other requirements
are satisfied by the Stockholder with respect to its Shares, and the dividends are attributable to qualified dividends received
by the Fund itself. For this purpose, “qualified dividends” means dividends received by the Fund from certain United
States corporations (excluding REITs) and certain qualifying foreign corporations, provided that the Fund satisfies certain holding
period and other requirements in respect of the stock of such corporations. In the case of securities lending transactions, payments
in lieu of dividends are not qualified dividends. The Fund’s dividends, other than qualified dividends and capital gain
dividends, will be fully taxable at ordinary income tax rates unless further legislative action is taken. While certain income
distributions to Stockholders may qualify as qualified dividends, the Fund’s seeks to provide dividends regardless of whether
they so qualify. As additional special rules apply to determine whether a distribution will be a qualified dividend, investors
should consult their tax advisors. Investors should also see the Fund’s Statement of Additional Information under the heading
“Certain Material United States Federal Income Tax Consequences” for more information relating to qualified dividends.
Dividends
received by the Fund from REITs generally are not expected to qualify for treatment as qualified dividend income. However, to
the extent the Fund invests in REITs, the Fund may designate dividends it pays to its Stockholders as “Section 199A dividends”
so that individual and non-corporate Stockholders may be eligible for a 20% deduction with respect to such dividends, provided
such Stockholders have satisfied the holding period requirement for the Fund’s Shares and certain other conditions. The
amount of Section 199A dividends that the Fund may pay and report to its Stockholders is limited to the excess of the ordinary
REIT dividends, other than capital gain dividends and portions of REIT dividends designated as qualified dividend income that
the Fund receives from REITs for a taxable year over the Fund’s expenses allocable to such dividends.
Dividends
and interest received, and gains realized, by the Fund on foreign securities may be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions (collectively “foreign taxes”) that would reduce the return on its
securities. Tax conventions between certain countries and the United States, however, may reduce or eliminate foreign taxes, and
many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. If more than 50% of
the value of the Fund’s net assets at the close of its taxable year consists of securities of foreign corporations, it will
be eligible to, and may, file an election with the IRS that will enable Stockholders, in effect, to receive the benefit of the
foreign tax credit with respect to any foreign taxes paid by the Fund. Pursuant to the election, the Fund would treat those taxes
as dividends paid to Stockholders and each Stockholder (1) would be required to include in gross income, and treat as paid by
such Stockholder, a proportionate share of those taxes, (2) would be required to treat such share of those taxes and of any dividend
paid by the Fund that represents income from foreign or U.S. possessions sources as such stockholder’s own income from those
sources, and, if certain conditions are met, (3) could either deduct such Stockholder’s proportionate share of the foreign
taxes deemed paid in computing taxable income or, alternatively, use the foregoing information in calculating the foreign tax
credit against such Stockholder’s federal income tax liability. The Fund will report to Stockholders shortly after each
taxable year their respective shares of foreign taxes paid and the income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election.
The
Fund will inform its Stockholders of the source and tax status of all distributions promptly after the close of each calendar
year.
The
Fund may invest in other RICs. In general, the Code taxes a RIC which satisfies certain requirements as a pass-through entity
by permitting a qualifying RIC to deduct dividends paid to its stockholders in computing the RIC’s taxable income. A qualifying
RIC is also generally permitted to pass through the character of certain types of its income when it makes distributions. For
example, a RIC may distribute ordinary dividends to its stockholders, capital gain dividends, or other types of dividends which
effectively pass through the character of the RIC’s income to its stockholders, including the Fund.
Taxation
of Sales, Exchanges or Other Dispositions
Selling
Stockholders will generally recognize gain or loss in an amount equal to the difference between the Stockholder’s adjusted
tax basis in the Shares sold and the amount received in exchange therefor. If the Shares are held as a capital asset, the gain
or loss will be a capital gain or loss. Under current law, the maximum tax rate applicable to capital gains recognized by individuals
and other non-corporate taxpayers is (i) the same as the maximum ordinary income tax rate for gains recognized on the sale of
capital assets held for one year or less or (ii) generally, 20% for gains recognized on the sale of capital assets held for more
than one year (as well as certain capital gain dividends). Any loss on a disposition of Shares held for six months or less will
be treated as a long-term capital loss to the extent of any capital gain dividends received with respect to those Shares. The
use of capital losses is subject to limitations. For purposes of determining whether Shares have been held for six months or less,
the holding period is suspended for any periods during which the Stockholder’s risk of loss is diminished as a result of
holding one or more other positions in substantially similar or related property, or through certain options or short sales. Any
loss realized on a sale or exchange of Shares will be disallowed to the extent those Shares are replaced by other substantially
identical Shares within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the Shares
(whether through the reinvestment of distributions, which could occur, for example, if the Stockholder is a participant in the
Plan or otherwise). In that event, the basis of the replacement Shares will be adjusted to reflect the disallowed loss.
An
investor should be aware that, if Shares are purchased shortly before the record date for any taxable dividend (including a capital
gain dividend), the purchase price likely will reflect the value of the dividend and the investor then would receive a taxable
distribution likely to reduce the trading value of such Shares, in effect resulting in a taxable return of some of the purchase
price. Taxable distributions to individuals and certain other non-corporate Stockholders, including those who have not provided
their correct taxpayer identification number and other required certifications, may be subject to “backup” federal
income tax withholding currently equal to 24%.
An
investor should also be aware that the benefits of the reduced tax rate applicable to long-term capital gains and qualified dividend
income may be impacted by the application of the alternative minimum tax to individual stockholders.
If
the Fund utilizes leverage through borrowing, it may be restricted by loan covenants with respect to the declaration of, and payment
of, dividends in certain circumstances. Limits on the Fund’s payments of dividends may prevent the Fund from meeting the
distribution requirements, described above, and may, therefore, jeopardize the Fund’s qualification for taxation as a RIC
and possibly subject the Fund to the 4% excise tax. The Fund will endeavor to avoid restrictions on its ability to make dividend
payments.
Information
Reporting
Section
6045B of the Code generally imposes certain reporting requirements on the Fund with respect to any organizational action that
affects the tax basis of the Shares for U.S. federal income tax purposes. The Fund has historically made return of capital distributions
(“ROC Distributions”) to certain Stockholders and, to the extent such payments continue, the Fund will generally be
required to file IRS Form 8937, Report of Organizational Actions Affecting Basis of Securities (“Form 8937”), with
the IRS and deliver an information statement to certain Stockholders, subject to certain exceptions. Generally, the Fund must
file Form 8937 with the IRS on or before the 45th day following the corporate action or, if earlier, January 15 of the year following
the calendar year of the corporate action. In addition, the Fund must furnish the same information to certain Stockholders on
or before January 15 of the year following the calendar year of the corporate action. However, the Fund generally would not be
required to file Form 8937 or furnish this information to Stockholders provided it posts the requisite information on its primary
public website by the due date for filing Form 8937 with the IRS and such information is available on its website (or any successor
organization’s website) for 10 years.
As
the Fund will generally not be able to determine whether a distribution during the year will be out of its earnings and profits
(and, therefore, whether such distribution should be treated as a dividend or a ROC Distribution for these purposes) until the
close of the tax year, the Fund does not intend to file Form 8937 until after the end of the current calendar year. Based on the
limited interpretive guidance currently available, the Fund believes that its treatment of ROC Distributions and its current intended
action regarding Form 8937 continue to be consistent with the requirements of Form 8937, Section 6045B and the Treasury Regulations
thereunder. The Fund intends to utilize its best efforts to determine the tax characterization of the Fund’s distributions
as soon as practicable following the close of the year and timely comply with the abovementioned Section 6045B requirements, to
the extent applicable. The Fund and its management do not believe that the Fund will be subject to substantial penalties if it
utilizes its best efforts to determine the tax characteristics of its distributions as soon as practicable following the close
of the year to comply with Form 8937 and Section 6045B. The Fund may be subject to substantial penalties to the extent that it
fails to timely comply with its Section 6045B reporting obligations. Each Stockholder is urged to consult its own tax advisor
regarding the application of Section 6045B to its individual circumstances. A copy of the Fund’s most recently filed Form
8937 is available on the Fund’s website, www.cornerstonetotalreturnfund.com.
Net
Investment Income Tax
A
U.S. Holder (as defined in the Fund’s Statement of Additional Information under the heading “Certain Material United
States Federal Income Tax Consequences”) that is an individual or estate, or a trust that does not fall into a special class
of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s “net
investment income” for the relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income
for the taxable year over a certain threshold (which, in the case of individuals, will be between $125,000 and $250,000 depending
on the individual’s circumstances). A U.S. Holder’s “net investment income” may generally include portfolio
income (such as interest and dividends), and income and net gains from an activity that is subject to certain passive activity
limitations, unless such income or net gains are derived in the ordinary course of the conduct of a trade or business (other than
a trade or business that consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate
or trust, you should consult your tax advisors regarding the applicability of the Net Investment Income Tax to your ownership
and disposition of shares of the Fund.
Payments
to Foreign Financial Institutions
Sections
1471 through 1474 of the Code (provisions commonly referred to as “FATCA”), and Treasury regulations promulgated thereunder,
generally provide that a 30% withholding tax may be imposed on payments of U.S. source income, including U.S. source interest
and dividends, to certain non-U.S. entities unless such entities enter into an agreement with the IRS to disclose the name, address
and taxpayer identification number of certain U.S. persons that own, directly or indirectly, interests in such entities, as well
as certain other information relating to such interests. While withholding under FATCA would have also applied to payments of
gross proceeds from the sale or other disposition of Shares on or after January 1, 2019, recently proposed Treasury regulations
eliminate FATCA withholding on payments of gross proceeds entirely. The preamble to these proposed regulations indicates that
taxpayers may rely on them pending their finalization. Non-U.S. Holders are encouraged to consult with their own tax advisors
regarding the possible implications and obligations of FATCA.
Other
Taxation
The
Fund’s Stockholders may be subject to state, local and foreign taxes on its distributions. Stockholders are advised to consult
their own tax advisors with respect to the particular tax consequences to them of an investment in the Fund.
The
foregoing briefly summarizes some of the important federal income tax consequences to Stockholders of investing in the Shares,
reflects the federal tax law as of the date of this prospectus, and except as expressly provided herein, does not address special
tax rules applicable to certain types of investors, such as corporate, tax exempt and foreign investors. Investors should consult
their tax advisers regarding other federal, state or local tax considerations that may be applicable in their particular circumstances,
as well as any proposed tax law changes.
DESCRIPTION
OF CAPITAL STRUCTURE
The
Fund is a corporation established under the laws of the State of New York upon the filing of its Certificate of Incorporation
on March 16, 1973 (as subsequently amended, the “Charter”). The Fund commenced investment operations on May 15, 1973.
The Fund intends to hold annual meetings of its Stockholders in compliance with the requirements of the NYSE American. As of December
31, 2021, the Fund had 63,297,395 Shares issued and outstanding.
Common
Stock
The Charter, which has been filed with the SEC, permits the Fund to issue 100,000,000 shares of stock, with
a par value of $0.01. Fractional shares are permitted. Each Share represents an equal proportionate interest in the net assets
of the Fund with each other Share. Holders of Shares will be entitled to the payment of dividends when declared by the Board of
Directors. See “Distribution Policy.” Each whole Share shall be entitled to one vote as to matters on which it is
entitled to vote pursuant to the terms of the Charter on file with the SEC. Upon liquidation of the Fund, after paying or adequately
providing for the payment of all liabilities of the Fund, and upon receipt of such releases, indemnities and refunding agreements
as they deem necessary for the protection of the Directors, the Board may distribute the remaining net assets of the Fund among
its Stockholders. Shares are not liable to further calls or to assessment by the Fund. No holder of capital stock of the Fund
has any pre-emptive or preferential or other right of subscription to any shares of any class of stock of the Fund.
The
Fund has no present intention of offering additional Shares, except as described herein in connection with the exercise of the
Rights. Other offerings of its Shares, if made, will require approval of the Board of Directors. Any additional offering will
not be sold at a price per share below the then current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing Stockholders or with the consent of a majority of the Fund’s outstanding
Shares.
The
Fund will not issue share certificates. The Fund’s Transfer Agent will maintain an account for each Stockholder upon which
the registration and transfer of Shares are recorded, and transfers will be reflected by bookkeeping entry, without physical delivery.
The Transfer Agent will require that a Stockholder provide requests in writing, accompanied by a valid signature guarantee form,
when changing certain information in an account such as wiring instructions or telephone privileges.
Outstanding
Securities
The
following table sets forth certain information regarding our authorized shares and shares outstanding as of April 5, 2022.
| (1) |
(2) |
(3) |
(4) |
| Title
of Class |
Amount
Authorized |
Amount
Held By
Registrant
or
for its Account |
Amount
Outstanding
Exclusive of
Amount
Shown Under (3) |
| Common
Stock, par value $0.01 per share |
100,000,000 |
0 |
64,056,602 |
Trading
and Net Asset Value Information
In
the past, the Shares have traded at both a premium and at a discount in relation to NAV. Although the Shares recently have been
trading at a premium above NAV, there can be no assurance that this premium will continue after the Offering or that the Shares
will not again trade at a discount. Although the Fund’s Shares have typically traded at a premium to NAV during the past
several years, Shares of closed-end investment companies such as the Fund frequently trade at a discount from NAV. See “Risk
Factors.” The Shares are listed and traded on the NYSE American. The average weekly trading volume of the Shares on the
NYSE American during the calendar year ended December 31, 2021 was 2,996,873 Shares.
The
following table shows for the quarters indicated: (i) the high and low sale price of the Shares on the NYSE American; (ii) the
high and low NAV per Share; and (iii) the high and low premium or discount to NAV at which the Shares were trading (as a percentage
of NAV):
Fiscal
Quarter
Ended |
High
Close |
Low
Close |
High
NAV |
Low
NAV |
Premium/
(Discount) to High
NAV |
Premium/
(Discount) to Low
NAV |
| 3/31/2022 |
$14.02 |
$12.90
|
$9.88
|
$8.42
|
41.19% |
63.42% |
| 12/31/2021 |
14.12
|
12.49
|
10.12
|
9.56
|
39.53 |
33.58 |
| 9/30/2021 |
13.09
|
11.12
|
10.13
|
9.74
|
28.83
|
31.42
|
| 6/30/2021 |
13.61
|
10.75
|
10.00
|
9.50
|
12.70
|
43.26
|
| 3/31/2021 |
13.42
|
11.40
|
9.70
|
9.24
|
33.30
|
43.51
|
| 12/31/2021 |
11.47
|
10.44
|
9.58
|
8.78
|
16.91
|
24.72
|
| 9/30/2020 |
11.30
|
10.07
|
9.91
|
9.03
|
14.03
|
12.51
|
| 6/30/2020 |
10.59
|
7.49
|
9.38
|
7.80
|
12.90
|
8.08
|
| 3/31/2020 |
11.46
|
5.96
|
10.62
|
7.24
|
7.91
|
(15.33) |
Recent
Rights Offerings
The
2021 Offering expired on May 14, 2021 and included similar terms and conditions as this Offering. Pursuant to the 2021 Offering,
which was fully subscribed, the Fund issued 20,584,726 Shares (6,833,697 Shares of which were Over-Subscription Shares) at a subscription
price of $10.23 per Share, for a total offering of $210,581,747.
The
2018 Offering expired on July 20, 2018 and included similar terms and conditions as this Offering. Pursuant to the 2018 Offering,
which was fully subscribed, the Fund issued 15,050,616 Shares (7,525,308 Shares of which were Over-Subscription Shares) at a subscription
price of $13.09 per Share, for a total offering of $197,012,563.
The
2017 Offering expired on August 25, 2017 and included similar terms and conditions as this Offering. Pursuant to the 2017 Offering,
which was fully subscribed, the Fund issued 8,798,352 Shares (4,399,176 Shares of which were Over-Subscription Shares) at a subscription
price of $13.41 per Share, for a total offering of $117,985,900.
The
2016 Offering expired on October 21, 2016 and included similar terms and conditions as this Offering. Pursuant to the 2016 Offering,
which was fully subscribed, the Fund issued 5,196,240 Shares (2,598,120 Shares of which were Over-Subscription Shares) at a subscription
price of $13.69 per Share, for a total offering of $71,136,525.
The
2015 Offering expired on August 14, 2015 and included similar terms and conditions as this Offering. Pursuant to the 2015 Offering,
which was fully subscribed, the Fund issued 3,027,098 Shares (1,513,549 Shares of which were Over-Subscription Shares) at a subscription
price of $17.06 per Share, for a total offering of $51,642,292.
The
2013 Offering expired on November 29, 2013 and included similar terms and conditions as this Offering. Pursuant to the 2013 Offering,
which was fully subscribed, the Fund issued 1,723,096 Shares (861,548 Shares of which were Over-Subscription Shares) at a subscription
price of $21.36 per Share, for a total offering of $36,805,331.
The
2012 Offering expired on December 21, 2012 and included similar terms and conditions as this Offering. Pursuant to the 2012 Offering,
which was fully subscribed, the Fund issued 841,130 Shares (279,448 Shares of which were Over-Subscription Shares) at a subscription
price of $21.32 per Share, for a total offering of $17,932,897.
The
2011 Offering expired on December 16, 2011 and included similar terms and conditions as this Offering. Pursuant to the 2011 Offering,
which was fully subscribed, the Fund issued 657,003 Shares (328,501 Shares of which were Over-Subscription Shares) at a subscription
price of $22.16 per Share, for a total offering of $14,559,175.
The
2010 Offering expired on December 10, 2010 and included similar terms and conditions as this Offering. Pursuant to the 2010 Offering,
which was fully subscribed, the Fund issued 251,596 Shares (11,588 Shares of which were Over-Subscription Shares) at a subscription
price of $28.92 per Share, for a total offering of $7,275,425.
Repurchase
of Shares
The
Fund may, pursuant to Section 23 of the Investment Company Act, purchase Shares on the open market from time to time, at such
times, and in such amounts as may be deemed advantageous to the Fund. Nothing herein shall be considered a commitment to purchase
such Shares. The Fund had no repurchases during the year ended December 31, 2021. No limit has been placed on the number of Shares
to be repurchased by the Fund other than those imposed by federal securities laws. All purchases will be made in accordance with
federal securities laws, with Shares repurchased held in treasury for future use by the Fund. In determining to repurchase Shares,
the Board of Directors, in consultation with the Investment Adviser, will consider such factors as the market price of the Shares,
the net asset value of the Shares, the liquidity of the assets of the Fund, effect on the Fund’s expenses, whether such
transactions would impair the Fund’s status as a regulated investment company or result in a failure to comply with applicable
asset coverage requirements, general economic conditions and such other events or conditions, which may have a material effect
on the Fund’s ability to consummate such transactions.
Additional
Provisions of the Charter and By-laws
A
Director may be removed from office only for cause, at any time by a written instrument signed or adopted by a vote of the holders
of at least a majority of the shares of the Fund that are entitled to vote in the election of such Director or by not less than
a majority of Directors then in office. The By-laws prohibit the Fund from issuing senior securities. The By-laws also include
certain notice requirements regarding Stockholder nominees for Directors and proposals that may have the effect of delaying a
change of control.
LEGAL
MATTERS
Certain
legal matters in connection with the Shares will be passed upon for the Fund by Blank Rome LLP, located at 1271 Avenue of the
Americas, New York, New York 10020.
REPORTS
TO STOCKHOLDERS
The
Fund sends its Stockholders unaudited semi-annual and audited annual reports, including a list of investments held.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Cohen
& Company, Ltd. is the independent registered public accounting firm for the Fund and will audit the Fund’s financial
statements. Cohen & Company, Ltd. is located at 1350 Euclid Avenue, Suite 800, Cleveland, OH 44115.
ADDITIONAL
INFORMATION
The
prospectus and the Statement of Additional Information do not contain all of the information set forth in the Registration Statement
that the Fund has filed with the SEC file No. 811-02363. The complete Registration Statement may be obtained from the SEC at www.sec.gov.
See the cover page of this Prospectus for information about how to obtain a paper copy of the Registration Statement or Statement
of Additional Information without charge.
TABLE
OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
| |
Page
|
| FORWARD-LOOKING
STATEMENTS |
B-1 |
| INVESTMENT
RESTRICTIONS |
B-1 |
| MANAGEMENT |
B-2 |
| EXECUTIVE
OFFICERS |
B-10 |
| CODE
OF ETHICS |
B-13 |
| PROXY
VOTING PROCEDURES |
B-14 |
| INVESTMENT
ADVISORY AND OTHER SERVICES |
B-15 |
| PORTFOLIO
MANAGER |
B-16 |
| ALLOCATION
OF BROKERAGE |
B-17 |
| CERTAIN
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES |
B-19 |
| FINANCIAL
STATEMENTS |
B-26 |
| OTHER
INFORMATION |
B-26 |
| INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM |
B-27 |
THE
FUND’S PRIVACY POLICY
| FACTS |
WHAT
DOES CORNERSTONE TOTAL RETURN FUND, INC. (“CORNERSTONE” OR THE “FUND”), AND SERVICE PROVIDERS TO THE
FUND, ON THE FUND’S BEHALF, DO WITH YOUR PERSONAL INFORMATION? |
| Why? |
Financial
companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all
sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read
this notice carefully to understand what we do. |
| What? |
●
Social Security number
●
account balances
●
account transactions
●
transaction history
●
wire transfer instructions
●
checking account information
When
you are no longer our customer, we continue to share your information as described in this notice.
The
types of personal information we, and our service providers, on our behalf, collect and share depends on the product or service
you have with us. This information can include: |
How?
|
All
financial companies need to share customers’ personal information to run their everyday business. In the section below,
we list the reasons financial companies can share their customers’ personal information; the reasons the Fund, and our
service providers, on our behalf, choose to share; and whether you can limit this sharing. |
| Reasons
we can share your personal information |
Does
Cornerstone share? |
Can
you limit this sharing? |
For
our everyday business purposes –
such
as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit
bureaus |
Yes |
No |
For
our marketing purposes –
to
offer our products and services to you |
No |
We
don’t share |
| For
joint marketing with other financial companies |
No |
We
don’t share |
For
our affiliates’ everyday business purposes –
information
about your transactions and experiences |
Yes |
No
|
For
our affiliates’ everyday business purposes –
information
about your creditworthiness |
No |
We
don’t share |
| For
our affiliates to market to you |
No |
We
don’t share |
| For
nonaffiliates to market to you |
No |
We
don’t share |
| Questions? |
Call
(866) 668-6558 |
| What
we do |
|
| Who
is providing this notice? Cornerstone Total Return Fund, Inc. (“Cornerstone” or the “Fund”) |
| How
does the Fund, and the Fund’s service providers, on the Fund’s behalf, protect my personal information? |
To
protect your personal information from unauthorized access and use, we and our service providers use security measures that
comply with federal law. These measures include computer safeguards and secured files and buildings. |
| How
does the Fund, and the Fund’s service providers, on the Fund’s behalf, collect my personal information? |
We
collect your personal information, for example, when you:
▪
open an account
▪
provide account information
▪
give us your contact information
▪
make a wire transfer
We
also collect your information from others, such as credit bureaus, affiliates, or other companies. |
| Why
can’t I limit all sharing? |
Federal
law gives you the right to limit only
▪
sharing for affiliates’ everyday business purposes – information about your creditworthiness
▪
affiliates from using your information to market to you
▪
sharing for nonaffiliates to market to you
State
laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
|
| Affiliates |
Companies
related by common ownership or control. They can be financial and nonfinancial companies.
▪
Cornerstone Advisors, LLC and Cornerstone Strategic Value Fund, Inc. |
| Nonaffiliates |
Companies
not related by common ownership or control. They can be financial and nonfinancial companies.
▪
Cornerstone does not share with nonaffiliates so they can market to you. |
| Joint
marketing |
A
formal agreement between nonaffiliated financial companies that together market financial
products or services to you.
▪
Cornerstone does not jointly market. |
Not
part of the Prospectus
Cornerstone
Total Return Fund, Inc.
64,056,602
Rights for
21,352,201
Shares of Common Stock
PROSPECTUS
April
13, 2022
STATEMENT
OF ADDITIONAL INFORMATION
April
13, 2022
CORNERSTONE
TOTAL RETURN FUND, INC.
C/O
ULTIMUS FUND SOLUTIONS, LLC
225
PICTORIA DRIVE, SUITE 450
CINCINNATI,
OH 45246
THIS
STATEMENT OF ADDITIONAL INFORMATION (“SAI”) IS NOT A PROSPECTUS. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
OF CORNERSTONE TOTAL RETURN FUND, INC. (THE “FUND”), DATED APRIL 13, 2022 (THE “PROSPECTUS”), AS IT MAY BE
SUPPLEMENTED FROM TIME TO TIME. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SAI HAVE THE MEANINGS GIVEN TO THEM IN THE PROSPECTUS.
A
COPY OF THE PROSPECTUS MAY BE OBTAINED WITHOUT CHARGE BY CALLING THE FUND TOLL FREE AT (866) 406-2285, BY VISTING THE FUND’S
WEBSITE AT WWW.CORNERSTONETOTALRETURNFUND.COM. THE REGISTRATION STATEMENT OF WHICH THE PROSPECTUS IS A PART CAN BE REVIEWED AND
COPIED AT THE PUBLIC REFERENCE ROOM OF THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) AT 100 F STREET NE, WASHINGTON,
D.C. YOU MAY OBTAIN INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM BY CALLING THE SEC AT (800) SEC-0330. THE FUND’S
FILINGS WITH THE SEC ARE ALSO AVAILABLE TO THE PUBLIC ON THE SEC’S WEBSITE AT WWW.SEC.GOV. COPIES OF THESE FILINGS MAY BE
OBTAINED, AFTER PAYING A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE FOLLOWING E-MAIL ADDRESS: PUBLICINFO@SEC.GOV, OR BY WRITING
THE SEC’S PUBLIC REFERENCE SECTION, 100 F ST. NE, WASHINGTON, D.C. 20549-0102.
TABLE
OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
| |
Page |
| FORWARD-LOOKING
STATEMENTS |
B-1 |
| INVESTMENT
RESTRICTIONS |
B-1 |
| MANAGEMENT |
B-2 |
| EXECUTIVE
OFFICERS |
B-10 |
| CODE
OF ETHICS |
B-13 |
| PROXY
VOTING PROCEDURES |
B-14 |
| INVESTMENT
ADVISORY AND OTHER SERVICES |
B-15 |
| PORTFOLIO
MANAGER |
B-16 |
| ALLOCATION
OF BROKERAGE |
B-17 |
| CERTAIN
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES |
B-19 |
| FINANCIAL
STATEMENTS |
B-26 |
| OTHER
INFORMATION |
B-26 |
| INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM |
B-27 |
FORWARD-LOOKING
STATEMENTS
This
SAI contains or incorporates by reference “forward-looking statements” (within the meaning of the federal securities
laws) that involve risks and uncertainties. Forward-looking statements are excluded from the safe harbor protection provided by
Section 27A of the Securities Act of 1933. These statements describe our plans, strategies and goals and our beliefs and assumptions
concerning future economic or other conditions and the outlook for the Fund, based on currently available information. In this
SAI, words such as “anticipates,” “believes,” “expects,” “objectives,” “goals,”
“future,” “intends,” “seeks,” “will,” “may,” “could,”
“should,” and similar expressions are used in an effort to identify forward-looking statements, although some forward-looking
statements may be expressed differently.
The
Fund’s actual results could differ materially from those anticipated in the forward-looking statements because of various
risks and uncertainties, including the factors set forth in the section headed “Risk Factors” in the Fund’s
prospectus and elsewhere in the prospectus and this SAI. You should consider carefully the discussions of risks and uncertainties
in the “Risk Factors” section in the prospectus. The forward-looking statements contained in this SAI are based on
information available to the Fund on the date of this SAI, and the Fund assumes no obligation to update any such forward-looking
statements, except as required by law.
INVESTMENT
RESTRICTIONS
The
following investment restrictions of the Fund are designated as fundamental policies and as such may not be changed only without
the vote of a majority of the Fund’s outstanding voting securities, which as used in this SAI means the lesser of (i) 67%
of the Fund’s outstanding shares of Common Stock present at a meeting of the holders if more than 50% of the outstanding
shares of Common Stock are present in person or by proxy or (ii) more than 50% of the Fund’s outstanding shares of Common
Stock.
The
Fund shall not:
| (1) |
Issue
any senior securities (as defined in the Investment Company Act of 1940) except insofar as any borrowing permitted by item
2 below might be considered the issuance of senior securities. |
| (2) |
Borrow
money except (a) to purchase securities, provided that the aggregate amount of such borrowings may not exceed 20% of its total
assets, taken at market value at time of borrowing, and (b) from banks for temporary or emergency purposes in an amount not
exceeding 5% of its total assets, taken at market value at time of borrowing. |
| (3) |
Mortgage,
pledge or hypothecate its assets in an amount exceeding 30% of its total assets, taken at market value at time of incurrence. |
| (4) |
Knowingly
invest more than 20% of its total assets, taken at market value at time of investment in securities, subject to legal or contractual
restrictions on resale, including securities which may be sold publicly only if registered under the Securities Act of 1933. |
| (5) |
Act
as an underwriter, except to the extent that, in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter under applicable securities laws. |
| (6) |
Purchase
real estate or interests in real estate, except that the Fund may invest in securities secured by real estate or interests
therein, or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. |
| (7) |
Make
loans, except through the purchase of debt securities and the loaning of its portfolio securities in accordance with the Fund’s
investment policies. |
| (8) |
Invest
in companies for the purpose of exercising control or management. |
| (9) |
Purchase
securities on margin (except that it may obtain such short-term credits as may be necessary for the clearance of purchases
or sales of securities) or make short sales of securities (except for sales “against the box”). |
| (10) |
Purchase
or retain securities of any issuer if, to the Fund’s knowledge, those officers and directors of the Fund or the Investment
Adviser individually owning beneficially more than 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such issuer’s outstanding securities. |
| (11) |
Invest
in commodities or commodity contracts, or write or purchase puts, calls or combinations of both. |
| (12) |
Invest
more than 25% of its total assets, taken at market value at time of purchase, in securities of issuers in any one industry. |
| (13) |
Purchase
securities issued by the Trust Company or any company of which 50% or more of the voting securities are owned by the Trust
Company or an affiliate of the Trust Company, or any investment company (excluding the Fund) or real estate investment trust
managed or advised by the Trust Company or any such company.* |
| (14) |
With
respect to 75% of its total assets, the Fund may not purchase a security, other than securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and securities of other investment companies, if as a result of such purchase,
more than 5% of the value of the Fund’s total assets would be invested in the securities of any one issuer, or the Fund
would own more than 10% of the voting securities of any one issuer. |
| (15) |
Purchase
interests in oil, gas or other mineral exploration programs; however, this limitation will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil, gas or other minerals. |
If
a percentage restriction on investment or utilization of assets set forth in items 3, 4, 10, 12, 13 or 14 above is adhered to
at the time an investment is made, a later change in percentage resulting from, for example, changing values or a change in the
rating of a portfolio security will not be considered a violation. The Fund may exchange securities, exercise any conversion rights
or exercise warrants or other rights to purchase common stock or other equity securities and may hold any such securities so acquired
without regard to the foregoing investment restrictions, but the value of the securities so acquired shall be included in any
subsequent determination of the Fund’s compliance with the 20% limitation referred to in item 2 above.
| * |
Investment
restriction number 13 is no longer applicable to the Fund, as it was written at a time when United States Trust Company of
New York was the investment adviser to the Fund. |
MANAGEMENT
The
Board of Directors of the Fund (the “Board”) has the responsibility for the overall management of the Fund, including
general supervision and review of the Fund’s investment activities and its conformity with New York law and the policies
of the Fund. The Board elects the officers of the Fund, who are responsible for administering the Fund’s day-to-day operations.
The
Directors, including the Directors who are not interested persons of the Fund, as that term is defined in the 1940 Act (“Independent
Directors”), and executive officers of the Fund, their ages and principal occupations during the past five years are set
forth below.
| INDEPENDENT
DIRECTORS |
NAME
AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S)
HELD
WITH
FUND
|
TERM
OF
OFFICE
AND
LENGTH OF TIME
SERVED SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING
PAST 5 YEARS
|
NUMBER
OF
PORTFOLIOS
IN
FUND
COMPLEX**
OVERSEEN
BY DIRECTOR
|
OTHER
DIRECTORSHIPS
HELD
BY
DIRECTOR |
Andrew
A. Strauss
(Nov.
1953)
|
Director;
Chairman of Nominating and Corporate Governance Committee and Audit Committee Member |
Since
2001
(Until
2023)
|
For
more than the past five (5) years, Attorney and senior member of Strauss & Associates PLLC (a law firm); Director of Cornerstone
Strategic Value Fund, Inc. |
2 |
None |
Scott
B. Rogers
(July
1955)
|
Director;
Audit, Nominating and Corporate Governance Committee Member |
Since
2001
(Until
2023)
|
For
more than the past (5) years, ; Chief Executive Officer, Asheville Buncombe Community Christian Ministry (“ABCCM”);
and President, ABCCM Doctor’s Medical Clinic; Director of Faith Partners Incorporated; Member of North Carolina Governor’s
Council on Homelessness (from July 2014) Director of Cornerstone Strategic Value Fund Inc. |
2 |
None |
| INDEPENDENT
DIRECTORS |
NAME
AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S)
HELD
WITH
FUND
|
TERM
OF
OFFICE
AND
LENGTH OF TIME
SERVED SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING
PAST 5 YEARS |
NUMBER
OF
PORTFOLIOS
IN
FUND
COMPLEX**
OVERSEEN
BY DIRECTOR
|
OTHER
DIRECTORSHIPS
HELD
BY
DIRECTOR
|
Robert
E. Dean
(April
1951)
|
Director;
Audit, Nominating and Corporate Governance Committee Member |
Since
2014
(Until
2023) |
For
more than the past (5) years, Director of National Bank Holdings Corp.; Director of Cornerstone Strategic Value Fund, Inc. |
2 |
Director,
National Bank
Holdings
Corp. |
Matthew
W. Morris
(May
1971)
|
Director;
Audit, Nominating and Corporate Governance Committee Member |
Since
2017
(Until
2023) |
Founder
and CEO of Lutroco LLC (a private firm targeting purpose driven strategic investment opportunities )(Jan. 2020 - Present);
President and CEO, Stewart Information Services Corporation (a title insurance and real estate services firm) (Nov. 2011-
Jan. 2020); Director of Cornerstone Strategic Value Fund, Inc. |
2
|
Stabilis
Solutions, Inc.; Stewart Information
Services
Corporation
|
| INDEPENDENT
DIRECTORS |
NAME
AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S)
HELD
WITH
FUND
|
TERM
OF
OFFICE
AND
LENGTH OF TIME
SERVED SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING
PAST 5 YEARS |
NUMBER
OF
PORTFOLIOS
IN
FUND
COMPLEX**
OVERSEEN
BY DIRECTOR
|
OTHER
DIRECTORSHIPS
HELD
BY
DIRECTOR
|
Marcia
E. Malzahn
(Apr.
1966) |
Director;
Audit, Nominating and Corporate Governance Committee Member |
Since
2019
(Until
2023) |
President
and Founder of Malzahn Strategic (management consulting for community banks); Immediate Past-President of National Speakers
Association, Minnesota Chapter; Director of Village Bank, Blaine, Minnesota; Director of Cornerstone Strategic Value Fund,
Inc. |
2 |
None |
Frank
J. Maresca
(Oct.
1958) |
Director;
Chairman of Audit Committee and Nominating and Corporate Governance Committee Member |
Since
2020
(Until
2023) |
Vice
President of Mutual Funds, Broadridge Financial Solutions, Inc. (since February 2018); Executive Vice President, AST Fund
Solutions, LLC (February 2012 – February 2018); Treasurer, The Asia Pacific Fund, Inc. (July 2016 – February 2018);
Treasurer, the Fund and Cornerstone Strategic Value Fund, Inc. (April 2013 – February 2018); Director of Cornerstone
Strategic Value Fund, Inc. |
2 |
None |
| INTERESTED
DIRECTORS*** |
NAME
AND
ADDRESS*
(BIRTHDATE) |
POSITION(S)
HELD
WITH
FUND |
TERM
OF
OFFICE
AND
LENGTH OF TIME
SERVED SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING
PAST 5 YEARS
|
NUMBER
OF
PORTFOLIOS
IN
FUND
COMPLEX**
OVERSEEN
BY DIRECTOR
|
OTHER
DIRECTORSHIPS
HELD
BY
DIRECTOR |
Daniel
W. Bradshaw
(May
1990)****
|
Director;
Assistant Secretary |
2021
(Until
2023)
|
Vice
President of Cornerstone Advisors, LLC; Vice President of Cornerstone Advisors Asset Management LLC (May 1, 2019 - June 24,
2019); Vice President of Cornerstone Advisors, Inc. (Feb. 2018 – Apr. 30, 2019); Associate of Cornerstone Advisors,
Inc. (2016 – Jan. 2017); Assistant Secretary of Cornerstone Strategic Value Fund, Inc. |
1 |
None |
Ralph
W. Bradshaw
(Dec.
1950)****
|
Chairman
of the Board of Directors and President |
Since
2001
(Until
2023)
|
President,
Cornerstone Advisors, LLC since 2019; President, Cornerstone Advisors, Inc. (2001-2019); Financial Consultant; President and
Director of Cornerstone Strategic Value Fund, Inc. |
2 |
None |
| * |
The
mailing address of each Director and officer is c/o Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Cincinnati, OH 45246. |
| ** |
As
of the date of this Statement of Additional Information, the Fund Complex is comprised of the Fund and Cornerstone Strategic
Value Fund, Inc. both of which are managed by Cornerstone Advisors, LLC. Each of the above Directors oversees all of the Funds
in the Fund Complex. |
| *** |
Mr.
Ralph Bradshaw and Mr. Daniel Bradshaw are “interested persons” as defined in the Investment Company Act of 1940
because of their affiliation with Cornerstone Advisors, LLC. |
| **** |
Mr.
Ralph Bradshaw is the father of Mr. Daniel Bradshaw. |
The
Board believes that the significance of each Director’s experience, qualifications, attributes or skills is an individual
matter (meaning that experience that is important for one Director may not have the same value for another) and that these factors
are best evaluated at the Board level, with no single Director, or particular factor, being indicative of the Board’s effectiveness.
The Board determined that each of the Directors is qualified to serve as a Director of the Fund based on a review of the experience,
qualifications, attributes and skills of each Director. In reaching this determination, the Board has considered a variety of
criteria, including, among other things: character and integrity; ability to review critically, evaluate, question and discuss
information provided, to exercise effective business judgment in protecting stockholder interests and to interact effectively
with the other Directors, the Investment Adviser, other service providers, counsel and the independent registered accounting firm
(“independent auditors”); and willingness and ability to commit the time necessary to perform the duties of a Director.
Each Director’s ability to perform his duties effectively is evidenced by his experience or achievements in the following
areas: management or board experience in the investment management industry or companies or organizations in other fields, educational
background and professional training; and experience as a Director of the Fund. In addition, the Board values the diverse skill
sets and experiences that each Director contributes. The Board considers that its diversity as a whole is as a result of a combination
of Directors who are working in the private, as opposed to public, sector, those that are retired from professional work and the
various perspectives that each Director provides as a result of his present experiences and his background. Information discussing
the specific experience, skills, attributes and qualifications of each Director which led to the Board’s determination that
the Director should serve in this capacity is provided below.
Daniel
W. Bradshaw. Mr. Bradshaw was an Associate of Cornerstone Advisors, Inc. (the “Former Investment Adviser”) from
2016 through January 2017. He was a Vice President of the “Former Investment Adviser from February 2018 through April 30,
2019. At the Fund’s annual meeting of stockholders held on April 16, 2019, stockholders of the Fund approved a new investment
agreement with Cornerstone Advisors Asset Management LLC, which later changed its name to Cornerstone Advisors, LLC (the “Investment
Adviser”). The new investment management agreement for the Fund became effective May 1, 2019. Mr. Bradshaw has served as
a Vice President of the Investment Adviser since May 1, 2019. He oversees Research at the Investment Adviser and serves as a Co-Portfolio
Manager and Assistant Secretary of the Fund. His experiences include developing and implementing successful trading strategies
with a variety of underlying portfolios. Prior to joining the Former Investment Adviser, he was employed in the wealth management
industry. Mr. Bradshaw holds a B.S. in Finance and Banking from Appalachian State University and is currently completing an M.B.A.
with a concentration in Investment Management at Rice University. Mr. Bradshaw provides the Board with effective business judgment
and an ability to interact effectively with the other Directors, as well as with the other service providers, counsel and the
Fund’s independent auditor. Mr. Bradshaw commits a significant amount of time to the Fund as a Director and Officer, in
addition to serving as a Vice President of the Investment Adviser. The Board values his strong moral character and integrity.
Ralph
W. Bradshaw. Mr. Bradshaw has served as the President of Cornerstone Advisors, LLC (the “Investment Adviser”)
since 2019. From 2001 to 2019, Mr. Bradshaw was the co-founder and President of Cornerstone Advisors, Inc., the Fund’s former
investment adviser (the “Former Investment Adviser”). He brings over 20 years of extensive investment management experience
and also formerly served as a director of several other closed-end funds. Prior to founding the Former Investment Adviser, he
served in consulting and management capacities for registered investment advisory firms specializing in closed-end fund investments.
His experiences include developing and implementing successful trading strategies with a variety of underlying portfolios containing
domestic and international equity and fixed-income investments. In addition, he has been a financial consultant and has held managerial
positions or operated small businesses in several industries. Mr. Bradshaw holds a B.S. in Chemical Engineering and an M.B.A.
Mr. Bradshaw provides the Board with effective business judgment and an ability to interact effectively with the other Directors,
as well as with the other service providers, counsel and the Fund’s independent auditor. Mr. Bradshaw commits a significant
amount of time to the Fund as a Director and Officer, in addition to serving as President of the Investment Adviser. The Board
values his strong moral character and integrity.
Robert
E. Dean. Mr. Dean is a private investor. From October 2000 to December 2003, Mr. Dean was with Ernst & Young Corporate
Finance LLC, a wholly owned broker-dealer subsidiary of Ernst & Young LLP, serving as a Senior Managing Director and member
of the Board of Managers from December 2001 to December 2003. From June 1976 to September 2000, Mr. Dean practiced corporate,
banking and securities law with Gibson, Dunn & Crutcher LLP. Mr. Dean was Partner-in-Charge of the Orange County, California
office from 1993 to 1996 and was a member of the law firm’s Executive Committee from 1996 to 1999. Since June 2009, Mr.
Dean has served as a director of National Bank Holdings Corporation (NYSE:NBHC), a bank holding company, serving as chairman of
the Nominating and Governance Committee and a member of the Audit & Risk and Compensation Committees. Mr. Dean holds a Bachelor
of Arts degree from the University of California, Irvine and a Juris Doctor degree from the University of Minnesota Law School.
Mr. Dean’s substantial experience in the public capital markets and merger and acquisition transactions, regulatory matters
and public company corporate governance matters qualifies him to serve on the Board of Directors of the Fund. The Board values
his strong moral character and integrity.
Marcia
E. Malzahn. Ms. Malzahn is the president and founder of Malzahn Strategic, a community financial institution consultancy focused
on strategic planning, enterprise risk management, treasury management, and talent management. Ms. Malzahn has over 20 years of
banking experience and has served on the Board of Village Bank in Blaine, Minnesota as the Audit & Risk Committee Chair since
2019. Ms. Malzahn is the recipient of several professional awards, is a published author, and an international bilingual professional
speaker. She holds a B.A. in business management from Bethel University, is a certified life coach, Certified Community Bank Director,
and is a graduate and faculty member of the Graduate School of Banking in Madison, Wisconsin. The Board values her strong moral
character and integrity.
Frank
J. Maresca. Mr. Maresca is a vice president of mutual funds at Broadridge Financial Solutions, Inc. (NYSE:BR), a provider
of investor communications and technology-driven solutions to banks, broker-dealers and corporate issuers. Mr. Maresca is a financial
services and investment management professional with over 40 years’ experience in U.S. registered investment companies,
asset management and asset servicing industries. Previously, was an executive vice president at AST Fund Solutions, LLC where
he created and headed the fund administration group, as well as overseeing business development of all services provided to closed-end
funds and business development companies. Mr. Maresca received his BBA in public accounting from Hofstra University and is a CPA
(inactive). Mr. Maresca has demonstrated his willingness to commit the time necessary to serve as an effective Director. The Board
values his strong moral character and integrity.
Matthew
W. Morris. Mr. Morris is the Founder and CEO of Lutroco LLC, a private firm targeting purpose driven strategic investment
opportunities. Mr. Morris is a current Board Member and the former President and CEO of Stewart Information Services Company (NYSE:STC),
a title insurance and real estate services firm. He also serves on the Board of Directors (the "Board") of Stabilis
Solutions, Inc (NSDQ:SLNG) and is on the Board's Audit and Compensation Committees.
Mr. Morris received his BBA in Organizational Behavior and Business Policy from Southern Methodist University and his MBA from
the University of Texas with a concentration in Finance. Mr. Morris has demonstrated his willingness to commit the time
necessary to serve as an effective Director. The Board values his strong moral character and integrity.
Scott
B. Rogers. Reverend Rogers has been the Executive Director of a regional community ministry organization for over 30 years.
In addition to the leadership and management skills obtained through this work, he contributes a non-profit perspective and community
insight to the Board’s discussions and deliberations, which provides desirable diversity. Mr. Rogers provides the Board
with effective business judgment and an ability to interact effectively with the other Directors, as well as with the Investment
Adviser, other service providers, counsel and the Fund’s independent auditor. Mr. Rogers has demonstrated a willingness
to commit the time necessary to serve as an effective Director. The Board values his strong moral character and integrity.
Andrew
A. Strauss. Mr. Strauss is an experienced attorney with a securities law background. He currently manages a law firm specializing
in estate planning, probate and estate administration. In addition, Mr. Strauss served in an executive capacity with a large public
company for over nine years. He is a graduate of the Wharton School of the University of Pennsylvania and Georgetown University
Law Center. Mr. Strauss provides the Board with effective business judgment and an ability to interact effectively with the other
Directors, as well as with the Investment Adviser, other service providers, counsel and the Fund’s independent auditor.
Mr. Strauss has demonstrated a willingness to commit the time necessary to serve as an effective Director. The Board values his
strong moral character and integrity.
Specific
details regarding each Director’s principal occupations during the past five years are included in the table above. The
summaries set forth above as to the experience, qualifications, attributes and/or skills of the Directors do not constitute holding
out the Board or any Director as having any special expertise or experience, and do not impose any greater responsibility or liability
on any such person or on the Board as a whole than would otherwise be the case.
The
following table sets forth, for each Director, the aggregate dollar range of equity securities owned of the Fund and of all Funds
overseen by each Director in the Fund Complex as of December 31, 2021. The information as to beneficial ownership is based on
statements furnished to the Fund by each Director.
| NAME
OF DIRECTOR |
DOLLAR
RANGE OF
EQUITY SECURITIES IN
THE FUND |
AGGREGATE
DOLLAR
RANGE OF EQUITY
SECURITIES IN ALL
REGISTERED
INVESTMENT
COMPANIES OVERSEEN
BY DIRECTOR IN
FAMILY OF
INVESTMENT
COMPANIES |
| INDEPENDENT
DIRECTORS |
|
|
| Robert
E. Dean |
None |
None |
| Marcia
E. Malzahn |
None |
None |
| Frank
J. Maresca |
None |
None |
| Matthew
W. Morris |
Over
$100,000 |
Over
$100,000 |
| Scott
B. Rogers |
None |
None |
| Andrew
A. Strauss |
None |
None |
| Glenn
W. Wilcox Sr.* |
$1
- $10,000 |
Over
$100,000 |
| INTERESTED
DIRECTORS |
|
|
| Daniel
W. Bradshaw |
$51,001-$100,000 |
$51,001-$100,000** |
| Ralph
W. Bradshaw |
Over
$100,000 |
Over
$100,000 |
| * |
Mr.
Wilcox ceased being a Director of the Fund as of April 5, 2022. |
| ** |
Reflects
ownership in the Fund which is the only fund in Family of Investment Companies overseen by Mr. Daniel W. Bradshaw. |
EXECUTIVE
OFFICERS
The
Board elects the officers of the Fund annually. In addition to Mr. Ralph W. Bradshaw, the current principal officers of the Fund
are:
NAME
AND
ADDRESS*
(BIRTHDATE) |
POSITION(S)
HELD WITH
FUND |
TERM
OF
OFFICE
AND
LENGTH OF
TIME
SERVED |
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS |
Rachel
L. McNabb
(Apr.
1980) |
Chief
Compliance Officer |
Since
2018 |
Internal
Audit Managing Senior of Camden Property Trust; Chief Compliance Officer of Cornerstone Advisors, LLC; Chief Compliance Officer
of Cornerstone Strategic Value Fund, Inc. |
Hoyt
M. Peters
(Sep.
1963) |
Secretary
and Assistant Treasurer |
Since
2019 and 2013, respectively |
Vice
President of AST Fund Solutions, LLC (2013–2018); Secretary of The Asia Pacific Fund, Inc. (2016–2018); Associate
of Cornerstone Advisors, Inc. (June 2018 – December 2018); Vice President of Cornerstone Advisors, LLC (since January
2019); Secretary (since February 2019) and Assistant Treasurer of Cornerstone Strategic Value Fund, Inc. |
Brian
J. Lutes
(June
1975) |
Treasurer
(effective Mar. 2, 2022) |
Since
2022 |
Senior
Vice President, Fund Accounting of Ultimus Fund Solutions, LLC; Treasurer (effective March 2, 2022) of Cornerstone Total Return
Fund, Inc. |
| * |
The
mailing address of each officer is c/o Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246. |
COMPENSATION
The
Fund pays an annual fee in the amount of $25,000 to each Director who is not an officer or employee of the Investment Adviser
(or any affiliated company of the Investment Adviser) or of Ultimus Fund Solutions, LLC. All Directors are reimbursed by the Fund
for all reasonable out-of-pocket expenses incurred relating to attendance at meetings of the Board of Directors or committee meetings
The
table set forth below includes information regarding compensation from the Fund and other funds in the Fund Complex for each of
the Directors during the year ended December 31, 2021. This information does not reflect any additional monies received for a
named individual serving in any other capacity to the Fund. Please note that the Fund has no bonus, profit sharing, pension or
retirement plans, none of the officers of the Fund receive compensation from the Fund, nor does any person affiliated with the
Fund receive compensation in excess of $60,000 from the Fund.
| NAME
OF PERSON, POSITION |
AGGREGATE
COMPENSATION
FROM FUND |
PENSION
OR
RETIREMENT
BENEFITS
ACCRUED AS
PART OF
FUND
EXPENSES |
ESTIMATED
ANNUAL
BENEFITS
UPON
RETIREMENT |
TOTAL
COMPENSATION
FROM FUND
AND FUND
COMPLEX PAID
TO DIRECTORS* |
| INDEPENDENT
DIRECTORS |
|
|
|
|
| Robert
E. Dean |
$25,000 |
None |
None |
$60,000 |
| Marcia
E. Malzahn |
$25,000 |
None |
None |
$60,000 |
| Frank
J. Maresca |
$25,000 |
None |
None |
$60,000 |
| Matthew
W. Morris |
$25,000 |
None |
None |
$60,000 |
| Scott
B. Rogers |
$25,000 |
None |
None |
$60,000 |
| Andrew
A. Strauss |
$25,000 |
None |
None |
$60,000 |
| Glenn
W. Wilcox, Sr.** |
$25,000 |
None |
None |
$60,000 |
| INTERESTED
DIRECTORS |
| Daniel
W. Bradshaw |
$0 |
None |
None |
$0 |
| Ralph
W. Bradshaw |
$0 |
None |
None |
$0 |
| * |
For
compensation purposes, the Fund Complex refers to the Fund and Cornerstone Strategic Value Fund, Inc., both of which were
managed by Cornerstone Advisors, LLC during the year ended December 31, 2021. |
| ** |
Mr.
Wilcox ceased being a Director of the Fund as of April 5, 2022. |
DIRECTOR
TRANSACTIONS WITH FUND AFFILIATES
As
of December 31, 2021, neither the Independent Directors nor members of their immediate family owned securities beneficially or
of record in Cornerstone Advisors, LLC, or any affiliate thereof. Furthermore, over the past five years, neither the Independent
Directors nor members of their immediate family have any direct or indirect interest, the value of which exceeds $120,000, in
Cornerstone Advisors, LLC or any affiliate thereof. In addition, since the beginning of the last two fiscal years, neither the
Independent Directors nor members of their immediate family have conducted any transactions (or series of transactions) or maintained
any direct or indirect relationship in which the amount involved exceeds $120,000 and to which Cornerstone Advisors, LLC or any
affiliate thereof, the Fund, an officer of the Fund, an investment company which the Cornerstone Advisors, LLC advises or an officer
thereof was a party.
BOARD
COMPOSITION AND LEADERSHIP STRUCTURE
The
Board consists of eight individuals, two of whom are Interested Directors. The Chairman of the Board, Mr. Ralph Bradshaw, one
of the Interested Directors, is the President of the Fund, the President of the Investment Adviser, and is the President and a
director of Cornerstone Strategic Value Fund, Inc. The other Interested Director, Mr. Daniel Bradshaw, is a Vice President of
the Investment Adviser. The Board does not have a lead independent director because the Board believes that its structure is sufficient
to ensure active participation by all of its members and at the same time rely on the expertise and knowledge of Mr. Ralph Bradshaw
as the Chairman of the Board.
The
Board believes that its leadership structure facilitates the orderly and efficient flow of information to the Directors from the
Investment Adviser and other service providers with respect to services provided to the Fund, potential conflicts of interest
that could arise from these relationships and other risks that the Fund may face. The Board further believes that its structure
allows all of the Directors to participate in the full range of the Board’s oversight responsibilities. The Board believes
that the orderly and efficient flow of information and the ability to bring each Director’s talents to bear in overseeing
the Fund’s operations is important, in light of the size and complexity of the Fund and the risks that the Fund faces. The
Board and its committees review their structure regularly, to help ensure that it remains appropriate as the business and operations
of the Fund and the environment in which the Fund operates changes.
Currently,
the Board has an Audit Committee and a Nominating and Corporate Governance Committee. The responsibilities of each committee and
its members are described below. The Board convened six (6) times during the 2021 calendar year (including regularly scheduled
and special meetings). Each of the Directors attended at least seventy-five (75%) percent of the meetings held during the period
for which he or she was a member.
THE
AUDIT COMMITTEE
The
Fund has a standing Audit Committee (the “Audit Committee”), which is comprised of Messrs. Dean, Maresca, Morris,
Rogers and Strauss and Ms. Malzahn, all of whom are Directors who are not interested persons of the Fund, as such term is defined
in Section 2(a)(19) of the Investment Company Act. The Audit Committee has a written charter. The principal functions of the Audit
Committee include but are not limited to, (i) the oversight of the accounting and financial reporting processes of the Fund and
its internal control over financial reporting; (ii) the oversight of the quality and integrity of the Fund’s financial statements
and the independent audit thereof; and (iii) the approval, prior to the engagement of, the Fund’s independent registered
public accounting firm and, in connection therewith, to review and evaluate the qualifications, independence and performance of
the Fund’s independent registered public accounting firm. The Audit Committee convened five (5) times during the 2021 calendar
year.
The
Board has determined that Mr. Maresca is an Audit Committee Financial Expert, as such term is defined in Section 407 of the Sarbanes-Oxley
Act of 2002.
THE
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The
Fund has a standing Nominating and Corporate Governance Committee (the “N&CG Committee”), which is comprised of
Messrs. Dean, Maresca, Morris, Rogersand Strauss and Ms. Malzahn, all of whom are Independent Directors. The N&CG Committee
has a written charter. In addition to its responsibility to oversee the corporate governance of the Fund, the N&CG Committee’s
principal function is to identify and select qualified candidates for the Board who have exhibited strong decision making ability,
substantial business experience, relevant knowledge of the investment company industry (including closed-end funds), skills or
technological expertise and exemplary personal integrity and reputation. In addition, the N&CG Committee seeks candidates
that have experience and knowledge involving all of the service providers of a registered investment company.
The
N&CG Committee will consider all nominees recommended by stockholders of the Fund, so long as stockholders send their recommendations
in writing to the Secretary of the Fund in a manner consistent with the Fund’s By-laws. Specifically, the N&CG Committee
assesses all director nominees taking into account several factors, including, but not limited to, issues such as the current
needs of the Board and the nominee’s: (i) integrity, honesty, and accountability; (ii) successful leadership experience
and strong business acumen; (iii) forward-looking, strategic focus; (iv) collegiality; (v) independence and absence of conflicts
of interests; and (vi) ability to devote necessary time to meet Director responsibilities. The N&CG Committee does not have
a policy with regard to considering diversity when identifying candidates for election, but would expect to consider racial, gender
and professional experience diversity when identifying future candidates. The N&CG Committee will ultimately recommend nominees
that it believes will enhance the Board’s ability to effectively oversee, in an effective manner, the affairs and business
of the Fund. The N&CG Committee will consider and evaluate stockholder-recommended candidates by applying the same criteria
used to evaluate director-recommended candidates. The deadline for submitting a stockholder proposal for inclusion in the Fund’s
proxy statement and proxy for the Fund’s 2023 annual meeting of stockholders pursuant to Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended, is October 29, 2022. Stockholders wishing to submit proposals or director nominations
that are to be included in such proxy statement and proxy must have delivered notice to the Secretary at the principal executive
offices of the Fund not later than the close of business on October 29, 2022. Stockholders are also advised to review the Fund’s
By-laws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations.
The N&CG Committee convened four (4) times during the 2021 calendar year.
BOARD’S
ROLE IN RISK OVERSIGHT OF THE FUND
The
Board oversees risk management for the Fund directly and, as to certain matters, through its Audit and N&CG Committees. The
Board exercises its oversight in this regard primarily through requesting and receiving reports from and otherwise working with
the Fund’s senior officers (including the Fund’s Chief Compliance Officer), portfolio management personnel of the
Investment Adviser, the Fund’s independent auditors, legal counsel and personnel from the Fund’s other service providers.
At its regular quarterly meetings, the Board receives a report regarding risks applicable to the Fund presented by the Investment
Adviser and the Chief Compliance Officer. The Board has adopted, on behalf of the Fund, and periodically reviews with the assistance
of the Fund’s Chief Compliance Officer, policies and procedures designed to address certain risks associated with the Fund’s
activities. In addition, the Investment Adviser and the Fund’s other service providers also have adopted policies, processes
and procedures designed to identify, assess and manage certain risks associated with the Fund’s activities, and the Board
receives reports from service providers with respect to the operation of these policies, processes and procedures as required
and/or as the Board deems appropriate. The Board does not believe that a separate Risk Oversight Committee is necessary for effective
risk oversight at this time, but intends to continuously evaluate how it assesses risk and will consider again in the future whether
any changes to their current structure are prudent.
CODE
OF ETHICS
The
Investment Adviser and the Fund have each adopted a Code of Ethics, pursuant to Section 204A and Rule 204A-1 under the Investment
Advisers Act of 1940 and Rule 17j-1 under the 1940 Act, respectively. Each Code of Ethics applies to the personal investing activities
of the Directors, officers and certain employees of the Fund or the Investment Adviser (“Access Persons”), as applicable.
Rule 17j-1 and each Code of Ethics are designed to prevent unlawful practices in connection with the purchase or sale of securities
by Access Persons. Each Code of Ethics permits Access Persons to trade securities for their own accounts, including securities
that may be purchased or held by the Fund, and generally requires them to report their personal securities transactions and holdings.
The Fund’s Code of Ethics is included as an exhibit to the Fund’s registration statement, which will be on file with
the SEC, and available as described on the cover page of this SAI. The Investment Adviser’s and the Fund’s Codes of
Ethics may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation
of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. The Codes of Ethics are also available on the
EDGAR Database on the SEC’s website at www.sec.gov, and copies of the Codes of Ethics may be obtained, after paying a duplicating
fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference
Section, Washington, D.C. 20549-0102.
PROXY
VOTING PROCEDURES
PROXY
VOTING POLICIES AND PROCEDURES
The
Fund provides a voice on behalf of stockholders of the Fund. The Fund views the proxy voting process as an integral part of the
relationship with the Fund. The Fund has delegated its authority to vote proxies to the Investment Adviser, subject to the supervision
of the Board of Directors. The Investment Adviser has entered into an arrangement with Glass, Lewis & Co., LLC. (“Glass
Lewis”) whereby Glass Lewis votes all of the Fund’s portfolio companies’ proxy statements and records all of
the proxy votes for compilation in the Form N-PX. The Fund believes that by engaging Glass Lewis, the Fund is in a better position
to monitor corporate actions, analyze proxy proposals, make voting decisions and ensure that proxies are submitted promptly. The
fundamental purpose of Glass Lewis’ Voting Policy Guidelines is to ensure that each vote will be in a manner that reflects
the best interest of the Fund and its stockholders, and that maximizes the value of the Fund’s investment.
POLICIES
OF THE INVESTMENT ADVISER
The
Investment Adviser has a contractual arrangement, on behalf of the Fund, with Glass Lewis for proxy voting services related to
Fund portfolio holdings. It is the Investment Adviser’s policy to vote all proxies received by the Fund in a timely manner.
Upon receiving each proxy, Glass Lewis will vote for, against or abstain on each of the issues presented in accordance with the
proxy voting guidelines adopted by the Fund. With respect to shares of other investment companies, Glass Lewis will vote such
shares in the same general proportion as shares held by other stockholders of that investment company. The Investment Adviser
will work with Glass Lewis to ensure that all other shares can be voted in the same general proportion as shares held by other
stockholders of the applicable company.
CONFLICTS
OF INTEREST
The
Investment Adviser’s duty is to vote in the best interests of the Fund’s stockholders. The Investment Adviser believes
that, by instructing Glass Lewis to vote shares in the same general proportion as shares held by other stockholders of the applicable
company or investment company, it will avoid potential conflicts of interest between the Investment Adviser’s interests
and the Fund’s interests. However, if a potential conflict of interest does arise, if the Investment Adviser believes it
is in the Fund’s best interest to depart from the guidelines provided, the Investment Adviser will vote the securities and
instruct accordingly and disclose the conflict to the Fund’s Board of Directors.
MORE
INFORMATION
The
actual voting records relating to the Fund’s portfolio securities during the most recent 12-month period ended June 30th
are available without charge, upon request, by visiting the Fund’s website at www.cornerstonetotalreturnfund.com, or by
calling toll free (866) 668-6558. The Fund’s reports filed with the SEC and available on the SEC’s website at www.sec.gov.
In addition, a copy of the Fund’s proxy voting policies and procedures is available by calling toll free (866) 668-6558
and will be sent within three business days of receipt of such request.
INVESTMENT
ADVISORY AND OTHER SERVICES
INVESTMENT
ADVISORY SERVICES
The
management of the Fund is supervised by the Board of Directors. Cornerstone Advisors, LLC provides investment advisory services
to the Fund pursuant to an investment management agreement entered into with the Fund (an “Investment Management Agreement”).
The
Investment Adviser, located at 1075 Hendersonville Road, Suite 250, Asheville, North Carolina, 28803, is a North Carolina limited
liability company. It was formed on January 29, 2019 for the purpose of providing investment advisory and management services
to investment companies. The Investment Adviser is owned by the Cornerstone Trust, a trust established on January 29, 2019. The
trustees of the Cornerstone Trust include, but are not limited to, Messrs. Ralph W. Bradshaw, Joshua G. Bradshaw and Daniel W.
Bradshaw.
Under
the general supervision of the Fund’s Board of Directors, the Investment Adviser carries out the investment and reinvestment
of the net assets of the Fund, continuously furnishes an investment program with respect to the Fund, determines which securities
should be purchased, sold or exchanged, and implements such determinations. The Investment Adviser furnishes to the Fund investment
advice and office facilities, equipment and personnel for servicing the investments of the Fund.
The
annual percentage rate and method used in computing the investment advisory fee of the Fund is described in the Prospectus.
The
Investment Management Agreement is terminable, without penalty, on sixty days’ written notice, by a vote of the holders
of a majority of the Fund’s outstanding shares, by the Directors of the Fund or by the Investment Adviser. The Investment
Management Agreement provides that it will automatically terminate in the event of its assignment. The Investment Management Agreement
provides in substance that the Investment Adviser shall not be liable for any action or failure to act in accordance with its
duties thereunder in the absence of willful misfeasance, bad faith or gross negligence on the part of the Investment Adviser or
of reckless disregard of its obligations thereunder.
ADMINISTRATIVE
AND FUND ACCOUNTING SERVICES
Under
the Administration and Fund Accounting Agreement, Ultimus, located at 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246, supplies
executive, administrative and regulatory services for the Fund. Brian J. Lutes, the Fund’s Treasurer, is a Senior Vice President,
Fund Accounting of Ultimus. Ultimus supervises the preparation of reports to stockholders for the Fund, reports to and filings
with the Securities and Exchange Commission and materials for meetings of the Board of Directors. For these services, the Fund
pays Ultimus a base fee of $5,000 per month plus an asset based fee of 0.05% of the first $250 million of average daily net assets,
0.04% of such assets greater than $250 million to $1 billion, 0.03% of such assets greater than $1 billion to $2 billion and 0.02%
of such assets in excess of $2 billion. For the years 2019, 2020 and 2021, the Fund paid Ultimus $250,023, $249,244 and $308,239,
respectively.
Information
regarding the Fund’s custodian, transfer agent and independent public accounting firm is contained in the Prospectus.
PORTFOLIO
MANAGER
Ralph
W. Bradshaw is the portfolio manager responsible for the day-to-day management of the Fund (the “Portfolio Manager”).
In addition, Mr. Bradshaw may consult with Joshua G. Bradshaw and Daniel W. Bradshaw, co-portfolio managers of the Fund (each,
a “Co-Portfolio Manager”), regarding investment decisions. The following table shows the number of other accounts
managed by each of Messrs. Ralph W. Bradshaw, Joshua G. Bradshaw and Daniel W. Bradshawand the total assets in the accounts managed
within various categories as of December 31, 2021.
| |
|
ADVISORY
FEE BASED ON PERFORMANCE |
| TYPE
OF ACCOUNTS |
NUMBER
OF
ACCOUNTS |
TOTAL
ASSETS
($ IN MILLIONS) |
NUMBER
OF
ACCOUNTS
|
TOTAL
ASSETS |
| Registered
Investment Companies |
1 |
$1,229.2
|
0 |
0 |
| Other
Pooled Investments |
0 |
0 |
0 |
0 |
| Other
Accounts |
0 |
0 |
0 |
0 |
CONFLICTS
OF INTEREST
Conflicts
of interest may arise because the Fund’s Portfolio Manager and Co-Portfolio Managers have day-to-day management responsibilities
with respect to the Fund and one other account (i.e., Cornerstone Strategic Value Fund, Inc.). These potential conflicts include:
LIMITED
RESOURCES. The Portfolio Manager and Co-Portfolio Managers cannot devote their full time and attention to the management of
each of the accounts that theymanage. Accordingly, the Portfolio Manager and Co-Portfolio Managers may be limited in their ability
to identify investment opportunities for each of the accounts that are as attractive as might be the case if the Portfolio Manager
and Co-Portfolio Managers were to devote substantially more attention to the management of a single account. The effects of this
potential conflict may be more pronounced where the accounts have different investment strategies.
LIMITED
INVESTMENT OPPORTUNITIES. The other investment fund of the Investment Adviser may have investment objectives and policies
similar to those of the Fund. The Investment Adviser may, from time to time, make recommendations which result in the purchase
or sale of a particular security by its other investment fund simultaneously with the Fund. If transactions on behalf of more
than one investment fund during the same period increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity. It is the policy of the Investment Adviser to allocate advisory
recommendations and the placing of orders in a manner that it believes is equitable to the accounts involved, including the Fund.
When more than one investment fund of the Investment Adviser is purchasing or selling the same security on a given day from the
same broker-dealer, such transactions may be averaged as to price. See “Allocation of Brokerage”.
DIFFERENT
INVESTMENT STRATEGIES. The accounts managed by the Portfolio Manager and Co-Portfolio Managers have differing investment strategies.
If the Portfolio Manager and Co-Portfolio Managers determine that an investment opportunity may be appropriate for only some of
the accounts or decide that certain of the accounts should take different positions with respect to a particular security, the
Portfolio Manager and Co-Portfolio Managers may effect transactions for one or more accounts which may affect the market price
of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other accounts.
SELECTION
OF BROKERS. The Portfolio Manager and Co-Portfolio Managers select the brokers that execute securities transactions for the
accounts that he supervises, including the Fund. See “Allocation of Brokerage.”
Where
conflicts of interest arise between the Fund and other accounts managed by the Portfolio Manager and Co-Portfolio Managers, they
will use good faith efforts so that the Fund will not be treated materially less favorably than other accounts.
COMPENSATION
The
Portfolio Manager’s and each Co-Portfolio Manager’s compensation will be made up of a fixed salary amount which is
not based on the value of the assets in the Fund’s portfolio.
SECURITIES
OWNED IN THE FUND BY PORTFOLIO MANAGERS
The
table below sets forth the amount of shares of the Fund owned by the Portfolio Manager and Co-Portfolio Managers as of April 4, 2022.
| NAME |
Number
of Shares |
| Ralph
W. Bradshaw |
33,086 |
| Joshua
G. Bradshaw |
484 |
| Daniel
W. Bradshaw |
5,697 |
ALLOCATION
OF BROKERAGE
Decisions
regarding the placement of orders to purchase and sell investments for the Fund are made by the Investment Adviser, subject to
the supervision of the Board of Directors. A substantial portion of the transactions in equity securities for the Fund will occur
on domestic stock exchanges. Transactions on stock exchanges involve the payment of brokerage commissions. In transactions on
stock exchanges in the United States and some foreign exchanges, these commissions are negotiated. However, on many foreign stock
exchanges these commissions are fixed. In the case of securities traded in the foreign and domestic over-the-counter markets,
there is generally no stated commission, but the price usually includes an undisclosed commission or markup. Over-the-counter
transactions will generally be placed directly with a principal market maker, although the Fund may place an over-the-counter
order with a broker-dealer if a better price (including commission) and execution are available.
It
is anticipated that most purchase and sale transactions involving fixed income securities will be with the issuer or an underwriter
or with major dealers in such securities acting as principals. Such transactions are normally effected on a net basis and generally
do not involve payment of brokerage commissions. However, the cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriter. Purchases or sales from dealers will normally reflect the spread between the
bid and ask price.
The
policy of the Fund regarding transactions for purchases and sales of securities is that primary consideration will be given to
obtaining the most favorable prices and efficient executions of transactions. Consistent with this policy, when securities transactions
are effected on a stock exchange, the Fund’s policy is to pay commissions which are considered fair and reasonable without
necessarily determining that the lowest possible commissions are paid in all circumstances. The Board of Directors of the Fund
believes that a requirement always to seek the lowest commission cost could impede effective management and preclude the Fund
and the Investment Adviser from obtaining high quality brokerage and research services. In seeking to determine the reasonableness
of brokerage commissions paid in any transaction, the Investment Adviser may rely on its experience and knowledge regarding commissions
generally charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
In
seeking to implement the Fund’s policies, the Investment Adviser will place transactions with those brokers and dealers
who it believes provide the most favorable prices and which are capable of providing efficient executions. If the Investment Adviser
believes such price and execution are obtainable from more than one broker or dealer, it may give consideration to placing transactions
with those brokers and dealers who also furnish research or research related services to the Fund or the Investment Adviser. Such
services may include, but are not limited to, any one or more of the following: information as to the availability of securities
for purchase or sale; statistical or factual information or opinions pertaining to investments; and appraisals or evaluations
of securities. The information and services received by the Investment Adviser from brokers and dealers may be of benefit in the
management of accounts of other clients and may not in all cases benefit the Fund directly. While such services are useful and
important in supplementing its own research and facilities, the Investment Adviser believes the value of such services is not
determinable and does not significantly reduce its expenses.
The
Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit purchase and sales transactions to be effected between
the Fund and other accounts that are managed by the Investment Adviser. The Fund may from time to time engage in such transactions
in accordance with these procedures.
Securities
considered as investments for the Fund may also be appropriate for other investment accounts managed by the Investment Adviser
or its affiliates. Whenever decisions are made to buy or sell securities by the Fund and one or more of such other accounts simultaneously,
the Investment Adviser will allocate the security transactions (including “hot” issues) in a manner which it believes
to be equitable under the circumstances. As a result of such allocations, there may be instances where the Fund will not participate
in a transaction that is allocated among other accounts. If an aggregated order cannot be filled completely, allocations will
generally be made on a pro rata basis. An order may not be allocated on a pro rata basis where, for example: (i) consideration
is given to an account with specialized investment policies that coincide with the particulars of a specific investment; (ii)
pro rata allocation would result in odd-lot or de minimis amounts being allocated to a portfolio or other client; or (iii) where
the Investment Adviser reasonably determines that departure from a pro rata allocation is advisable. While these aggregation and
allocation policies could have a detrimental effect on the price or amount of the securities available to the Fund from time to
time, it is the opinion of the Directors of the Fund that the benefits from the Investment Adviser’s organization outweigh
any disadvantage that may arise from exposure to simultaneous transactions.
During
the fiscal years ended December 31, 2019, 2020 and 2021, the Fund paid $12,522, $53,301 and $53,100, respectively, in brokerage
commissions.
CERTAIN
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THE
FOLLOWING IS A SUMMARY DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE RELEVANT TO A STOCKHOLDER OF
ACQUIRING, HOLDING AND DISPOSING OF SHARES OF THE FUND. THIS DISCUSSION DOES NOT ADDRESS THE SPECIAL TAX RULES APPLICABLE TO CERTAIN
CLASSES OF INVESTORS, SUCH AS TAX-EXEMPT ENTITIES, FOREIGN INVESTORS (EXCEPT AS EXPRESSLY PROVIDED BELOW), INSURANCE COMPANIES
AND FINANCIAL INSTITUTIONS. THIS DISCUSSION ADDRESSES ONLY U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. STOCKHOLDERS WHO HOLD
THEIR SHARES AS CAPITAL ASSETS AND DOES NOT ADDRESS ALL OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE RELEVANT TO PARTICULAR
STOCKHOLDERS IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES. IN ADDITION, THE DISCUSSION DOES NOT ADDRESS ANY STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES, AND IT DOES NOT ADDRESS ANY U.S. FEDERAL TAX CONSEQUENCES OTHER THAN U.S. FEDERAL INCOME TAX CONSEQUENCES. THE
DISCUSSION IS BASED UPON PRESENT PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), THE REGULATIONS
PROMULGATED THEREUNDER, AND JUDICIAL AND ADMINISTRATIVE RULING AUTHORITIES, ALL OF WHICH ARE SUBJECT TO CHANGE OR DIFFERING INTERPRETATIONS
(POSSIBLY WITH RETROACTIVE EFFECT). NO ATTEMPT IS MADE TO PRESENT A DETAILED EXPLANATION OF ALL U.S. FEDERAL INCOME TAX CONCERNS
AFFECTING THE FUND AND ITS STOCKHOLDERS, AND THE DISCUSSION SET FORTH HEREIN DOES NOT CONSTITUTE TAX ADVICE. INVESTORS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES TO THEM OF INVESTING IN THE FUND, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS, INCLUDING COMPREHENSIVE
UNITED STATES FEDERAL INCOME TAX REFORM CURRENTLY BEING DISCUSSED BY THE UNITED STATES CONGRESS.
The
discussion primarily describes the U.S. federal income tax treatment of a U.S. Holder and, unless expressly provided, does not
discuss the application of these rules to a Non-U.S. Holder. A “U.S. Holder” means a beneficial owner of the Fund’s
shares that is any of the following for U.S. federal income tax purposes:
| ● |
An
individual who is a citizen or resident of the United States or someone treated as a U.S. citizen for U.S. federal income
tax purposes; |
| ● |
A
corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the United States, any state thereof, or the District of Columbia; |
| ● |
An
estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| ● |
A
trust if: (a) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons
are authorized to control all substantial decisions of the trust, or (b) the trust was in existence on August 20, 1996 and
has a valid election in effect under applicable Treasury Regulations (as defined below) to be treated as a U.S. person. |
For
purposes of this summary, the term “Non-U.S. Holder” means a beneficial owner of the Fund’s shares that is not
a U.S. Holder.
In
addition, the possible application of U.S. federal estate or gift taxes or any aspect of state, local, or non-U.S. tax laws is
not considered. This summary does not address all aspects of U.S. federal income taxation that may be important to a particular
U.S. Holder in light of its investment or tax circumstances or to a U.S. Holder that is subject to special tax rules, including
if the Stockholder is:
| ● |
a
dealer in securities or currencies; |
| ● |
a
financial institution; |
| ● |
a
regulated investment company; |
| ● |
a
real estate investment trust; |
| ● |
a
tax-exempt organization; |
| ● |
a
person holding shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; |
| ● |
a
trader in securities that has elected the mark-to-market method of accounting for its securities; |
| ● |
a
person liable for alternative minimum tax; |
| ● |
a
partnership or other pass-through entity for U.S. federal income tax purposes; or |
| ● |
a
U.S. Holder whose “functional currency” is not the U.S. dollar. |
If
an entity treated as a partnership for U.S. federal income tax purposes holds shares, the U.S. federal income tax treatment of
a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A Stockholder
that is a partnership and partners in such partnership should consult their own tax advisors regarding the U.S. federal income
tax consequences of holding and disposing of the shares.
Prospective
U.S. Holders are urged to consult their tax advisors as to the particular tax consequences of purchasing, owning and disposing
of the shares, including the application of U.S. federal, state and local tax laws.
Taxation
as a Regulated Investment Company
The
Fund intends to elect to be treated and to qualify each year as a regulated investment company (a “RIC”) under the
Code. Accordingly, the Fund must, among other things, (i) derive in each taxable year at least 90% of its gross income (including
tax-exempt interest) from (a) dividends, interest, payments with respect to certain securities loans, and gains from the sale
or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gain from forward
contracts) derived with respect to its business of investing in such stock, securities or currencies; and (b) net income from
interests in “qualified publicly traded partnerships” (as defined in the Code); (ii) diversify its holdings so that,
at the end of each quarter of each taxable year (a) at least 50% of the value of the Fund’s total assets is represented
by cash and cash items, U.S. government securities, the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund’s
total assets and not more than 10% of the outstanding voting securities of such issuer and (b) not more than 25% of the value
of the Fund’s total assets is invested in the securities (other than U.S. government securities and the securities of other
regulated investment companies) of (I) any one issuer; (II) any two or more issuers that the Fund controls and that are determined
to be engaged in the same business or similar or related trades or businesses or (III) any one or more “qualified publicly
traded partnerships” (as defined in the Code); and (iii) distribute at least 90% of its investment company taxable income
(as defined in the Code, but without regard to the deduction for dividends paid) and 90% of its tax-exempt interest income (net
of certain deductions and amortizable bond premiums) for such taxable year in accordance with the timing requirements imposed
by the Code, so as to maintain its RIC status and to avoid paying any U.S. federal income tax. For purposes of the 90% of gross
income requirement described above, the Code expressly provides the U.S. Treasury with authority to issue regulations that would
exclude foreign currency gains from qualifying income if such gains are not directly related to the Fund’s business of investing
in stock or securities. While to date the U.S. Treasury has not exercised this regulatory authority, there can be no assurance
that it will not issue regulations in the future (possibly with retroactive application) that would treat some or all of the Fund’s
foreign currency gains as non-qualifying income. To the extent it qualifies for treatment as a RIC and satisfies the above-mentioned
distribution requirements, the Fund will not be subject to U.S. federal income tax on income paid to its stockholders in the form
of dividends or capital gain distributions.
In
order to avoid incurring a U.S. federal excise tax obligation, the Code requires that the Fund distribute (or be deemed to have
distributed) by December 31 of each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income for such
year and (ii) 98.2% of its capital gain net income (which is the excess of its realized capital gain over its realized capital
loss), generally computed on the basis of the one-year period ending on October 31 of such year, after reduction by any available
capital loss carryforwards, plus (iii) 100% of any ordinary income and capital gain net income from previous years (as previously
computed) that were not paid out during such years and on which the Fund paid no U.S. federal income tax.
Failure
to Qualify as a RIC
If
the Fund does not qualify as a RIC for any taxable year, the Fund’s taxable income will be subject to corporate income taxes,
and all distributions from earnings and profits, including distributions of net capital gain (if any), will be taxable to the
U.S. Holder as ordinary income. Such distributions generally will be eligible (i) for the dividends received deduction in the
case of corporate U.S. Holders and (ii) for treatment as “qualified dividends” as discussed below, in the case of
individual U.S. Holders provided certain holding period and other requirements are met, as described below. In addition, in order
to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay substantial taxes and interest,
and make certain distributions.
Taxation
of Distributions to U.S. Holders
Distributions
from the Fund, except in the case of distributions of qualified dividend income or capital gain dividends, as described below,
generally will be taxable to U.S. Holders as ordinary dividend income to the extent of the Fund’s current and accumulated
earnings and profits. Distributions of net capital gains (that is, the excess of net gains from the sale of capital assets held
more than one year over net losses from the sale of capital assets held for not more than one year) properly designated as capital
gain dividends (“Capital Gain Dividends”) will be taxable to U.S. Holders as long-term capital gain, regardless of
how long a U.S. Holder has held the shares in the Fund.
If
a U.S. Holder’s distributions are automatically reinvested pursuant to the Plan and the Plan Administrator invests the distribution
in shares acquired on behalf of the U.S. Holder in open-market purchases, for U.S. federal income tax purposes, the U.S. Holder
will generally be treated as having received a taxable distribution in the amount of the cash dividend that the U.S. Holder would
have received if the U.S. Holder had elected to receive cash. If a U.S. Holder’s distributions are automatically reinvested
pursuant to the Plan and the Plan Administrator invests the distribution in newly issued shares of the Fund, the U.S. Holder will
generally be treated as receiving a taxable distribution equal to the fair market value of the stock the U.S. Holder receives.
Under
current law, certain income distributions paid by the Fund to individual taxpayers are taxed at rates equal to those applicable
to net long-term capital gains (generally, 20%). This tax treatment applies only if certain holding period requirements and other
requirements are satisfied by the U.S. Holder and the dividends are attributable to qualified dividend income received by the
Fund itself. For this purpose, “qualified dividend income” means dividends received by the Fund from certain United
States corporations (excluding REITs) and qualifying foreign corporations, provided that the Fund satisfies certain holding period
and other requirements in respect of the stock of such corporations. For these purposes, a “qualified foreign corporation”
means any foreign corporation if (i) such corporation is incorporated in a possession of the United States, (ii) such corporation
is eligible for benefits of a qualified comprehensive income tax treaty with the United States and which includes an exchange
of information program, or (iii) the stock of such corporation with respect to which such dividend is paid is readily tradable
on an established securities market in the United States. A “qualified foreign corporation” does not include any foreign
corporation which for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a
“passive foreign investment company” (as defined in the Code). In the case of securities lending transactions, payments
in lieu of dividends are not qualified dividends. The Fund’s dividends, other than qualified dividends and capital gains
dividends, will be fully taxable at ordinary income tax rates unless further legislative action is taken.
A
dividend will not be treated as qualified dividend income (whether received by the Fund or paid by the Fund to a stockholder)
if (1) the dividend is received with respect to any share held for fewer than 61 days during the 121-day period beginning on the
date which is 60 days before the date on which such share becomes ex- dividend with respect to such dividend, (or fewer than 91
days during the associated 181-day period in the case of certain preferred stocks), (2) to the extent that the recipient is under
an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially
similar or related property, or (3) if the recipient elects to have the dividend treated as investment income for purposes of
the limitation on deductibility of investment interest. Distributions of income by the Fund, other than qualified dividend income
and capital gains dividends, are taxed as ordinary income, at rates currently up to 37% for taxpayers other than corporations.
We
cannot assure you as to what percentage of the dividends paid on the shares will consist of qualified dividend income or long-term
capital gains, both of which are taxed at lower rates for individuals than are ordinary income and short-term capital gains.
Dividends
received by the Fund from REITs generally are not expected to qualify for treatment as qualified dividend income. However, to
the extent the Fund invests in REITs, the Fund may designate dividends it pays to its Stockholders as “Section 199A dividends”
so that individual and non-corporate Stockholders may be eligible for a 20% deduction with respect to such dividends, provided
such Stockholders have satisfied the holding period requirement for the Fund’s Shares and certain other conditions. The
amount of Section 199A dividends that the Fund may pay and report to its Stockholders is limited to the excess of the ordinary
REIT dividends, other than capital gain dividends and portions of REIT dividends designated as qualified dividend income that
the Fund receives from REITs for a taxable year over the Fund’s expenses allocable to such dividends.
Dividends
and interest received, and gains realized, by the Fund on foreign securities may be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions (collectively “foreign taxes”) that would reduce the return on its
securities. Tax conventions between certain countries and the United States, however, may reduce or eliminate foreign taxes, and
many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. If more than 50% of
the value of the Fund’s total assets at the close of its taxable year consists of securities of foreign corporations, it
will be eligible to, and may, file an election with the Internal Revenue Service (the “IRS”) that will enable its
U.S. Holders, in effect, to receive the benefit of the foreign tax credit with respect to any foreign taxes paid by the Fund.
Pursuant to the election, the Fund would treat those taxes as dividends paid to its U.S. Holders and each U.S. Holder (1) would
be required to include in gross income, and treat as paid by such U.S. Holder, a proportionate share of those taxes, (2) would
be required to treat such share of those taxes and of any dividend paid by the Fund that represents income from foreign or U.S.
possessions sources as such U.S. Holder’s own income from those sources, and, if certain conditions are met, (3) could either
deduct such U.S. Holder’s proportionate share of the foreign taxes deemed paid in computing taxable income or, alternatively
use the foregoing information in calculating the foreign tax credit against such U.S. Holder’s federal income tax liability
(but IRA accounts may not be able to use the foreign tax credit). The Fund will report to its stockholders shortly after each
taxable year their respective shares of foreign taxes paid and the income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election. The rules relating to the foreign tax credit are complex. Each stockholder should
consult his own tax adviser regarding the potential application of foreign tax credits.
If
the Fund acquires any equity interest in certain foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of their
assets in investments producing such passive income (“passive foreign investment companies”), the Fund could be subject
to U.S. federal income tax and additional interest charges on “excess distributions” received from such companies
or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed
to its stockholders. The Fund would not be able to pass through to its stockholders any credit or deduction for such a tax. An
election may generally be available that would ameliorate these adverse tax consequences, but any such election could require
the Fund to recognize taxable income or gain (subject to tax distribution requirements) without the concurrent receipt of cash
and would require certain information to be furnished by the foreign corporation, which may not be provided. These investments
could also result in the treatment of associated capital gains as ordinary income. The Fund may limit and/or manage its holdings
in passive foreign investment companies to limit its tax liability or maximize its return from these investments. Dividends paid
by passive foreign investment companies will not qualify as qualified dividend income eligible for taxation at reduced tax rates.
If
the Fund utilizes leverage through borrowing, it may be restricted by loan covenants with respect to the declaration of, and payment
of, dividends in certain circumstances. Limits on the Fund’s payments of dividends may prevent the Fund from meeting the
distribution requirements, described above, and may, therefore, jeopardize the Fund’s qualification for taxation as a RIC
and possibly subject the Fund to the 4% excise tax. The Fund will endeavor to avoid restrictions on its ability to make dividend
payments.
Taxation
of Sales, Exchanges, or Other Dispositions
The
sale, exchange or redemption of Fund shares may give rise to a gain or loss. Such gain or loss would generally be treated as capital
gain or loss if the Fund shares are held as a capital asset. In general, any gain or loss realized upon a taxable disposition
of shares will be treated as long-term capital gain or loss if the shares have been held for more than one year. Otherwise, the
gain or loss on the taxable disposition of Fund shares will be treated as short-term capital gain or loss. The maximum capital
gain rate applicable to individuals is 20%. Any loss realized upon the sale or exchange of Fund shares with a holding period of
6 months or less will be treated as a long-term capital loss to the extent of any capital gain distributions received with respect
to such shares. The use of capital losses is subject to limitations. In addition, all or a portion of a loss realized on a redemption
or other disposition of Fund shares may be disallowed under “wash sale” rules to the extent the shares disposed of
are replaced with other substantially identical shares (whether through the reinvestment of distributions or otherwise) within
a 61-day period beginning 30 days before the redemption of the loss shares and ending 30 days after such date. Any disallowed
loss will result in an adjustment to the stockholder’s tax basis in some or all of the other shares acquired.
Dividends
and distributions on the Fund’s shares are generally subject to federal income tax as described herein to the extent they
do not exceed the Fund’s realized income and gains, even though such dividends and distributions may economically represent
a return of a particular stockholder’s investment. Such distributions are likely to occur in respect of shares purchased
at a time when the Fund’s net asset value reflects gains that are either unrealized or realized but not distributed. Such
realized gains may be required to be distributed even when the Fund’s net asset value also reflects unrealized losses. Certain
distributions declared in October, November or December and paid in the following January will be taxed to stockholders as if
received on December 31 of the year in which they were declared. In addition, certain other distributions made after the close
of a taxable year of the Fund may be “spilled back” and treated as paid by the Fund (except for purposes of the 4%
excise tax) during such taxable year. In such case, stockholders will nevertheless be treated as having received such dividends
in the taxable year in which the distributions were actually made.
Information
Reporting and Backup Withholding
Generally,
information reporting requirements will apply to distributions on our common shares or proceeds on the disposition of our common
shares or warrants paid within the U.S. (and, in certain cases, outside the U.S.) to U.S. Holders. Such payments will generally
be subject to backup withholding tax at the rate of 24% if: (a) a U.S. Holder fails to furnish such U.S. Holder’s correct
U.S. taxpayer identification number to the payor (generally on Form W-9), as required by the Code and Treasury Regulations, (b)
the IRS notifies the payor that the U.S. Holder’s taxpayer identification number is incorrect, (c) a U.S. Holder is notified
by the IRS that it has previously failed to properly report interest and dividend income, or (d) a U.S. Holder fails to certify,
under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number. However, certain
exempt persons generally are excluded from these information reporting and backup withholding rules. A Non-U.S. Holder will not
be subject to backup withholding on dividends paid to such Non-U.S. Holder as long as such Non-U.S. Holder certifies under penalty
of perjury (generally on the applicable IRS Form W-8) that it is a Non-U.S. Holder (and the applicable withholding agent does
not have actual knowledge or reason to know that such Non-U.S. Holder is a United States person as defined under the Code), or
such Non-U.S. Holder otherwise establishes an exemption. Depending on the circumstances, information reporting and backup withholding
may apply to the proceeds received from a sale or other disposition of shares unless the beneficial owner certifies under penalty
of perjury that it is a Non-U.S. Holder (and the applicable withholding agent does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.
Under
Treasury regulations, if a U.S. Holder recognizes a loss on disposition of the Fund’s shares of $2 million or more for an
individual stockholder or $10 million or more for a corporate stockholder (excluding S corporations), the U.S. Holder generally
must file with the IRS a disclosure statement on Form 8886 except to the extent such losses are from assets that have a qualifying
basis and meet certain other requirements. Direct stockholders of portfolio securities are in many cases excepted from this reporting
requirement, but under current guidance, stockholders of a regulated investment company are not excepted. Future guidance may
extend the current exception from this reporting requirement to stockholders of most or all regulated investment companies. In
addition, pursuant to recently enacted legislation, significant penalties may be imposed for the failure to comply with the reporting
requirements. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the
taxpayer’s treatment of the loss is proper. Stockholders should consult their tax advisers to determine the applicability
of these regulations in light of their individual circumstances.
The
foregoing discussion does not address the special tax rules applicable to certain classes of investors, such as tax-exempt entities,
foreign investors, insurance companies and financial institutions. Stockholders should consult their own tax advisers with respect
to special tax rules that may apply in their particular situations, as well as the state, local, and, where applicable, foreign
tax consequences of investing in the Fund.
The
Fund will inform stockholders of the source and tax status of all distributions promptly after the close of each calendar year.
The IRS currently requires that a RIC that has two or more classes of stock allocate to each such class proportionate amounts
of each type of its income (such as ordinary income, capital gains, dividends qualifying for the dividends received deduction
and qualified dividend income) based upon the percentage of total dividends paid out of earnings or profits to each class for
the tax year. Accordingly, if the Fund issues preferred shares in the future, the Fund intends each year to allocate capital gain
dividends, dividends qualifying for the dividends received deduction and dividends derived from qualified dividend income, if
any, between its common shares and preferred shares in proportion to the total dividends paid out of earnings or profits to each
class with respect to such tax year.
Taxation
of Non-U.S. Shareholders
Dividends
paid to a Non-U.S. Holder generally will be subject to U.S. withholding tax at a 30% rate or a reduced rate specified by an applicable
income tax treaty. If a Non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable tax treaty, the
Non-U.S. Holder will be required to provide an applicable IRS Form W-8 certifying its entitlement to benefits under the treaty
in order to obtain a reduced rate of withholding tax. However, if the distributions are effectively connected with a U.S. trade
or business of the Non-U.S. Holder (or, if an income tax treaty applies, attributable to a permanent establishment in the United
States of the Non-U.S. Holder), then the distributions will be subject to U.S. federal income tax at the rates applicable to U.S.
persons, plus, in certain cases where the Non-U.S. Holder is a corporation, a branch profits tax at a 30% rate (or lower rate
provided in an applicable treaty). If the Non-U.S. Holder is subject to such U.S. income tax on a distribution, then the Fund
is not required to withhold U.S. federal tax if the Non-U.S. Holder complies with applicable certification and disclosure requirements.
Special
certification requirements apply to a Non-U.S. Holder that is a foreign partnership or a foreign trust, and such entities are
urged to consult their own tax advisors.
Section
871(k) of the Code provides certain “look-through” treatment to Non-U.S. Holders, permitting interest-related dividends
and short-term capital gains not to be subject to U.S. withholding tax.
Special
U.S. federal income tax rules will apply to Non-U.S. Holders that hold shares in the Fund.
Non-U.S.
Holders should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may
be relevant to them.
Net
Investment Income Tax
A
U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from
such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” for the
relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a
certain threshold (which, in the case of individuals, will be between $125,000 and $250,000 depending on the individual’s
circumstances). A U.S. Holder’s “net investment income” may generally include portfolio income (such as interest
and dividends), and income and net gains from an activity that is subject to certain passive activity limitations, unless such
income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that
consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you should
consult your tax advisors regarding the applicability of the Net Investment Income Tax to your ownership and disposition of shares
of the Fund.
Payments
to Foreign Financial Institutions
Sections
1471 through 1474 of the Code (provisions commonly referred to as “FATCA”), and Treasury regulations promulgated thereunder,
generally provide that a 30% withholding tax may be imposed on payments of U.S. source income, including U.S. source interest
and dividends, to certain non-U.S. entities unless such entities enter into an agreement with the IRS to disclose the name, address
and taxpayer identification number of certain U.S. persons that own, directly or indirectly, interests in such entities, as well
as certain other information relating to such interests. While withholding under FATCA would have also applied to payments of
gross proceeds from the sale or other disposition of Shares on or after January 1, 2019, recently proposed Treasury regulations
eliminate FATCA withholding on payments of gross proceeds entirely. The preamble to these proposed regulations indicates that
taxpayers may rely on them pending their finalization. Non-U.S. Holders are encouraged to consult with their own tax advisors
regarding the possible implications and obligations of FATCA.
STATE
AND LOCAL TAXES
Stockholders
should consult their own tax advisers as to the state or local tax consequences of investing in the Fund.
THE
FOREGOING SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. IT DOES NOT
DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A STOCKHOLDER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES
AND INCOME TAX SITUATION. PROSPECTIVE STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES THAT
WOULD RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SHARES, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS (INCLUDING ESTATE AND GIFT TAX RULES) AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER
TAX LAWS.
FINANCIAL
STATEMENTS
The
financial statements included in the Fund’s Annual Report for the year ended December 31, 2021 and its unaudited Semi-Annual Report for the period ended June 30, 2021, filed with the Securities and Exchange Commission on March 2, 2022 and August 23,
2021, respectively (File No. 811-05150), are herein incorporated by reference.
OTHER
INFORMATION
The
Fund is a New York corporation. Pursuant to the Fund’s By-Laws, the Fund will indemnify, to the fullest extent permitted
by applicable law, any person made, or threatened to be made, a party to an action or proceeding, whether civil or criminal (including
an action or proceeding by or in the right of the Fund or any other corporation or other enterprise which any director or officer
of the Fund served in any capacity at the request of the Fund) by reason of the fact that he, his testator or his intestate was
a director or officer of the Fund or served at the request of the Fund against judgments, fines, settlement fees and reasonable
expenses, including attorney’s fees. This indemnification right includes the right to be paid advances of any expenses incurred
by such person in connection with an action, suit or proceeding consistent with applicable law at that time. However, the Fund
is not required to indemnify a person in connection with a settlement of a pending or threatened action or proceeding or any other
disposition other than a final adjudication, unless the Fund has consented to such settlement. Furthermore, the Fund is not obligated
to indemnify a person to the extent such person is indemnified under an insurance policy.
The
Fund’s Prospectus and this SAI do not contain all of the information set forth in the Registration Statement that the Fund
has filed with the SEC. The complete Registration Statement may be obtained as described on the cover page of this SAI.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Cohen
& Company, Ltd. is the independent registered public accounting firm for the Fund and provides audit services, tax return preparation
and assistance with respect to the preparation of filings with the SEC.
B-27
Cornerstone Total Return (AMEX:CRF)
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Cornerstone Total Return (AMEX:CRF)
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From Feb 2024 to Feb 2025
