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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05150
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CORNERSTONE STRATEGIC VALUE FUND, INC.
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(Exact name of registrant as specified in charter)
260 MADISON AVENUE, 8TH FLOOR NEW YORK, NEW YORK 10016
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(Address of principal executive offices) (Zip code)
Frank J. Maresca
ULTIMUS FUND SOLUTIONS, LLC 260 MADISON AVENUE, 8TH FLOOR NEW YORK, NY 10016
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(Name and address of agent for service)
Registrant's telephone number, including area code: 646-881-4985
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Date of fiscal year end: DECEMBER 31, 2009
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Date of reporting period: DECEMBER 31, 2009
---------------------------------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Director and President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Gary A. Bentz Chief Compliance Officer,
Secretary, and
Assistant Treasurer
William A. Clark Vice President
Frank J. Maresca Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 28801
ADMINISTRATOR INDEPENDENT REGISTERED
Ultimus Fund Solutions, LLC PUBLIC ACCOUNTING FIRM
260 Madison Avenue Tait, Weller & Baker LLP
8th Floor 1818 Market Street
New York, NY 10016 Suite 2400
Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
JPMorgan Chase Bank, N.A. Blank Rome LLP Bank, N.A.
14201 North Dallas Pkwy. 405 Lexington
Second Floor New York, NY 10174
Dallas, TX 75254
EXECUTIVE OFFICES
260 Madison Avenue
8th Floor
New York, NY 10016
For shareholder inquiries, registered shareholders should call
(800) 937-5449. For general inquiries, please call (513) 326-3597.
CLM
LISTED
ALTERNEXT
================================================================================
CORNERSTONE STRATEGIC
VALUE FUND, INC.
DECEMBER 31, 2009
This update contains the following two documents:
o Letter from the Funds
o Annual Report to Shareholders
================================================================================
LETTER FROM THE FUND'S PRESIDENT
January 27, 2010
Dear Fellow Shareholders:
Following is the annual report for Cornerstone Strategic Value Fund, Inc., (the
"Fund"), for the year ended December 31, 2009. At the end of the year, the
Fund's net assets were $57.4 million and the Net Asset Value per share was
$8.24. The share price closed at $11.61. After reflecting the reinvestment of
monthly distributions totaling $2.09 per share, the Fund achieved a total
investment return at market value of 89.55% for the year ended December 31,
2009.
ECONOMIC AND MARKET SUMMARY
After hitting bottom in the first quarter, the economy staged a tenuous and
partial recovery during the rest of the year. Economic health as measured by
Gross Domestic Product ("GDP") has gradually improved, measuring (5.5%), (0.7%),
and 2.2% for the first three quarters respectively. Most economists expect even
stronger positive growth in the 4th quarter. However, many of the systemic
problems that created the hardest domestic and worldwide recession in half a
century still remain to one degree or another. Most agree that the strong,
though controversial intervention by the government in the form of the Troubled
Asset Relief Program, the government stimulus package, and other programs to
subsidize the severely damaged real estate markets over the last year has
averted a full blown depression. The program aimed at supporting the housing
market through the purchase of $1.25 trillion of mortgage-backed securities,
originally set to expire at the end of 2009, was extended through March 2010.
Separately, the tax credit program for first-time homebuyers was extended into
the first half of 2010. Both of these programs have aided the crippled
residential real estate industry in a tentative recovery. The real estate
markets, whose collapse triggered the recession, still face significant
headwinds. Residential foreclosures reached a record 2.8 million in 2009, and
there are more to come in 2010. Separately, the commercial real estate industry,
approximately one-third the size of the residential market, is headed for a
round of mid-term loan renewals in the next 24 months in an environment where
commercial real estate prices are down over 40% since October 2007. Given the
tenuous state of economic recovery, there remains significant uncertainty
regarding the ability of the economy to sustain a continued recovery in the
absence of federal assistance.
At the same time, the equity markets have been more robust in their recovery,
which is not unusual since the financial markets tend to be forward looking as a
rule. The major market indices and most sectors of the financial markets have
shown very strong growth following the lows at the end of the first quarter. It
has been noted that a significant part of this growth has been driven by two
factors, first, a natural reaction to what was later perceived as a
panic-driven, over-sold market, and second, the effects of various forms of
government stimulus which propped up consumers and businesses in certain sectors
through deficit spending. Although earnings and productivity have improved to
some degree, it has been observed that these results owe more to very strong
cost control measures, through reduction of inventories and personnel layoffs,
rather than a return of strong consumer demand. It remains unclear whether the
economy can sustain these positive trends after government stimulus is
withdrawn.
For the time being, the Federal Reserve has been aggressive in its monetary
policy. Short-term interest rates have remained near zero with the federal funds
rate set between 0% and 0.25%. Although many have voiced concern over the latent
inflationary pressures of the excess liquidity resulting from the Fed's
policies, inflation has remained subdued, and the Fed has indicated that it does
not anticipate a change in monetary policy until the recovery shows signs of
sustaining itself through normal economic activity.
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ii
LETTER FROM THE FUND'S PRESIDENT (CONTINUED)
MANAGED DISTRIBUTION POLICY
The Fund has maintained its policy of regular distributions to shareholders
which continues to be popular with investors. These distributions are not tied
to the Fund's investment income and capital gains and do not represent yield or
investment return on the Fund's portfolio. The policy of maintaining regular
monthly distributions is designed to enhance shareholder value by increasing
liquidity for individual investors and providing greater flexibility to manage
their investment in the Fund. As always, shareholders have the option of taking
their distributions in cash or reinvesting them in shares of the Fund pursuant
to the Fund's reinvestment plan.
Pursuant to the Fund's distribution policy, the monthly distribution amount for
the year 2010 was reset to $0.1398 per share. The Board of Directors approved a
distribution percentage of 21% of net assets for the calendar year 2010; under
this policy this annual percentage rate was applied to the Fund's NAV at the end
of October, 2009 in order to determine the monthly distribution amount for 2010.
The Board of Directors believes that the Fund's distribution policy maintains a
stable, high rate of distribution for shareholders. As always, the monthly
distributions are reviewed and approved periodically by the Board throughout the
year and are subject to change at the discretion of the Board. In addition,
shareholders should read the disclosure notes in the Fund's report for details
on the Fund's distribution policy and reinvestment plan.
As in previous years, shareholders receive a final determination of the total
distribution attributable to income, capital gains, or return-of-capital after
the end of each year. The allocation among these categories may vary greatly
from year to year. In any given year, there can be no guarantee that the Fund's
investment returns will exceed the amount of the distributions. To the extent
that the amount of distributions taken in cash exceeds the total net investment
returns of the Fund, the assets of the Fund will decline. If the total net
investment returns exceed the amount of cash distributions, the assets of the
Fund will increase. Either way, the Fund's individual shareholders have complete
flexibility to take their distributions in cash or to reinvest in Fund shares
through the Fund's reinvestment plan, and they can change this election as often
as they desire.
Under the managed distribution policy, the Fund makes monthly distributions to
shareholders 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 Fund shareholders. If this were
to be the case, the Fund's assets would be depleted, and there is no guarantee
that the Fund would be able to replace the assets. In addition, in order to make
such distributions, the Fund may have to sell a portion of its investment
portfolio at a time when independent investment judgment might not dictate such
action. Furthermore, such assets used to make distributions will not be
available for investment pursuant to the Fund's investment objective.
OUTLOOK
The Federal Reserve, the Treasury, and most economists have cautioned that the
economy is still frail and that the recovery in 2010 will continue with only
modest gains. As noted, the residential real estate industry is expected to
continue its slow recovery, and the commercial real estate industry must
negotiate refinancing on significantly devalued properties. Financial
institutions will come under renewed pressure
--------------------------------------------------------------------------------
iii
LETTER FROM THE FUND'S PRESIDENT (CONCLUDED)
during this period. Predictions of growth in GDP for 2010 range between 2% and
3%. After the substantial, though partial recovery in the financial markets
during 2009, the major market indices seem to have established a limited trading
range around current levels, and many expect a correction in the range of 5% to
10% before continuing in recovery. In spite of the gains made in 2009, investors
appear to be waiting to see if the economic recovery can sustain itself as the
government stimulus initiatives are discontinued. Investors are still holding a
tremendous amount of cash, but most will probably remain on the sidelines until
unemployment, typically a lagging indicator, shows signs of improvement.
Although there was a marginal improvement in unemployment in the 4th quarter,
from 10.2% to 10.0%, most observers expect that unemployment will continue to
move upward during the 1st quarter of 2010 before growth in employment begins to
turn positive sometime within the next six months. Recovery to nominal full
employment is expected to take another eighteen to twenty-four months.
Businesses need to begin rehiring personnel and restocking seriously depleted
inventories before investors have full confidence in self-sustaining growth. We
hope and anticipate that these trends will become established by the middle of
2010.
As you know, the Fund's holdings represent a widely diversified portfolio of
predominantly large-cap companies. The large-cap sector has tended to consist of
well-capitalized established companies which exhibit a greater degree of
defensive strength during difficult market conditions. In addition to this, the
investment manager attempts to enhance portfolio performance by taking advantage
of temporary and occasional pricing inefficiencies in certain securities. The
availability and magnitude of such opportunities are unpredictable, and their
effect on possible portfolio performance may vary considerably from year to
year. We remain confident that the Fund's portfolio is well-positioned to
weather the current market volatility and to participate in the recovery when it
occurs.
The Fund's Board of Directors, its officers, and its investment manager are very
conscious of the fact that investors have placed their trust in us. Thank you
for your support. We know you have a choice, and we look forward to continuing
our service to you in the future.
Sincerely,
/s/ RALPH W. BRADSHAW
---------------------
Ralph W. Bradshaw
President
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMES-TICAND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'SINVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
THIS LETTER FROM THE FUND'S PRESIDENT IS NOT A PART OF THE ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS.
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iv
CONTENTS
Portfolio Summary 1
Summary Schedule of Investments 2
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
Report of Independent Registered Public Accounting Firm 14
Tax Information 15
Additional Information Regarding the Fund's Directors
and Corporate Officers 16
Description of Dividend Reinvestment Plan 19
Proxy Voting and Portfolio Holdings Information 21
Privacy Policy Notice 21
Summary of General Information 22
Shareholder Information 22
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--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2009 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Information Technology 18.6
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Financials 12.7
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Healthcare 11.6
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Energy 11.0
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Consumer Staples 10.5
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Industrials 9.5
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Consumer Discretionary 8.9
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Closed-End Funds 7.4
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Utilities 3.4
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Materials 3.1
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Telecommunication Services 2.8
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Other 0.5
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Exxon Mobil Corporation Energy 4.3
--------------------------------------------------------------------------------
2. International Business
Machines Corporation Information Technology 3.0
--------------------------------------------------------------------------------
3. Microsoft Corporation Information Technology 3.0
--------------------------------------------------------------------------------
4. JPMorgan Chase & Company Financials 2.5
--------------------------------------------------------------------------------
5. Liberty All-Star Equity Fund Closed-End Funds 2.3
--------------------------------------------------------------------------------
6. Apple, Inc. Information Technology 2.2
--------------------------------------------------------------------------------
7. Google, Inc. - Class A Information Technology 2.2
--------------------------------------------------------------------------------
8. Johnson & Johnson Healthcare 2.0
--------------------------------------------------------------------------------
9. Procter & Gamble Company (The) Consumer Staples 1.9
--------------------------------------------------------------------------------
10. Zweig Fund, Inc. (The) Closed-End Funds 1.9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.44%
CLOSED-END FUNDS - 7.37%
CORE
Liberty All-Star Equity Fund 302,030 $ 1,307,790
Liberty All-Star Growth Fund 283,601 952,899
Zweig Fund, Inc. (The) 323,850 1,071,944
Other Core (a)(b) 902,139
------------
4,234,772
------------
CONSUMER DISCRETIONARY - 8.85%
Amazon.com, Inc. * 3,000 403,560
McDonald's Corporation 11,400 711,816
Target Corporation 12,800 619,136
Walt Disney Company (The) ^ 12,700 409,575
Other Consumer Discretionary ^ (a) 2,940,533
------------
5,084,620
------------
CONSUMER STAPLES - 10.54%
Altria Group, Inc. 31,800 624,234
Coca-Cola Company (The) 15,000 855,000
Procter & Gamble Company (The) 18,297 1,109,347
Wal-Mart Stores, Inc. 16,100 860,545
Other Consumer Staples ^ (a) 2,607,447
------------
6,056,573
------------
ENERGY - 10.99%
Chevron Corporation 8,032 618,384
Conocophillips 14,974 764,722
Exxon Mobil Corporation ^ 36,500 2,488,935
Marathon Oil Corporation 11,500 359,030
Occidental Petroleum Corporation 5,000 406,750
Schlumberger Ltd. ^ 6,000 390,540
Other Energy (a) 1,286,107
------------
6,314,468
------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
FINANCIALS - 12.65%
Charles Schwab Corporation (The) 22,000 $ 414,040
Goldman Sachs Group, Inc. (The) 5,000 844,200
JPMorgan Chase & Company 35,132 1,463,951
PNC Financial Services Group, Inc. ^ 7,600 401,204
Travelers Companies, Inc. (The) 9,476 472,473
Wells Fargo & Company 28,900 780,011
Other Financials ^ (a) 2,892,799
------------
7,268,678
------------
HEALTHCARE - 11.58%
Abbott Laboratories 9,200 496,708
Amgen, Inc. * 6,700 379,019
Bristol-Myers Squibb Company 19,000 479,750
Johnson & Johnson 17,400 1,120,734
Medtronic, Inc. 8,000 351,840
Merck & Company, Inc. 15,267 557,857
Pfizer, Inc. 32,622 593,394
Other Health Care ^ (a) 2,672,335
------------
6,651,637
------------
INDUSTRIALS - 9.50%
3M Company 4,400 363,748
Burlington Northern Santa Fe Corporation 3,900 384,618
Deere & Company 6,500 351,585
General Electric Company 56,900 860,897
United Technologies Corporation 5,000 347,050
Other Industrials ^(a) 3,151,529
------------
5,459,427
------------
INFORMATION TECHNOLOGY - 18.64%
Apple, Inc. * 5,900 1,244,074
Cisco Systems, Inc. * 38,900 931,266
EMC Corporation * 21,148 369,455
--------------------------------------------------------------------------------
See accompanyng notes to financial statements.
2
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Google, Inc. - Class A * 2,000 $ 1,239,960
Hewlett-Packard Company 7,900 406,929
Intel Corporation 50,500 1,030,200
International Business Machines Corporation 13,100 1,714,790
Microsoft Corporation 56,200 1,713,538
Oracle Corporation 22,272 546,555
QUALCOMM, Inc. 10,000 462,600
Other Information Technology ^ (a) 1,047,027
------------
10,706,394
------------
MATERIALS - 3.12%
Freeport-McMoRan
Copper & Gold, Inc. 5,000 401,450
Praxair, Inc. 6,500 522,015
Other Materials ^ (a) 870,290
------------
1,793,755
------------
REAL ESTATE INVESTMENT TRUST - 0.00%
Total Real Estate
Investment Trust ^ (a) 1,117
------------
TELECOMMUNICATION SERVICES - 2.84%
AT&T, Inc. 37,039 1,038,203
Verizon Communications, Inc. 17,800 589,714
------------
1,627,917
------------
UTILITIES - 3.36%
Other Utilities ^ (a) 1,927,985
------------
TOTAL EQUITY SECURITIES
(cost - $53,492,174) 57,127,343
------------
SHORT-TERM INVESTMENTS - 15.03%
MONEY MARKET SECURITY - 2.47%
JPMorgan U.S. Government Money Market Fund 1,416,729 1,416,729
------------
Principal
Amount
Description (000's) Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 12.56%
J.P. Morgan Securities Inc.+++
(Agreement dated 12/31/2009
to be repurchased at $7,208,261) $ 7,208 $ 7,208,132
J.P. Morgan Securities Inc.+
(Agreement dated 12/31/2009
to be repurchased at $7,813) 8 7,813
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $8,632,675) 8,632,674
------------
TOTAL INVESTMENTS - 114.47%
(cost - $62,124,849) 65,760,017
------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (14.47)% (8,313,253)
------------
NET ASSETS - 100.00% $ 57,446,764
============
----------
(a) Represents issuers not identified as a top 50 holding in terms of market
value and issues or issuers not exceeding 1% of net assets individually
or in the aggregate, respectively, as of December 31, 2009.
(b) Affiliated investment. The Fund holds 0.46% (based on net assets) of
Adams Express Company. A Director of the Fund also serves as a director
to such company. During the year ended December 31, 2009 the Fund sold
23,100 shares of this security. There were no purchases during this
period.
* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ The maturity date for all repurchase agreements held was January 4,
2010, with interest rates ranging from 0.01% to 0.16% and collateralized
by $7,428,035 in U.S. Treasury Notes maturing August 15, 2018. Stated
interest rate, before rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities
on loan.
--------------------------------------------------------------------------------
See accompanyng notes to financial statements.
3
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2009
--------------------------------------------------------------------------------
ASSETS
Investments, at value, including collateral
for securities on loan of $7,208,132:
Unaffiliated issuers (cost - $61,802,559)(1) $ 65,493,377
Affiliated issuer (cost - $322,290) 266,640
------------
Total investments (cost - $62,124,849) 65,760,017
Receivables:
Dividends 124,000
Prepaid expenses 3,010
------------
Total Assets 65,887,027
------------
LIABILITIES
Payables:
Upon return of securities loaned 7,208,132
Dividends 1,097,241
Investment management fees 47,577
Directors' fees 25,978
Other accrued expenses 61,335
------------
Total Liabilities 8,440,263
------------
NET ASSETS (applicable to 6,969,408 shares of
common stock outstanding) $ 57,446,764
============
NET ASSET VALUE PER SHARE ($57,446,764/6,969,408) $ 8.24
============
NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 6,969,408 shares
issued and outstanding (100,000,000 shares
authorized) $ 6,969
Paid-in capital 58,272,016
Accumulated net realized loss on investments (4,467,389)
Net unrealized appreciation in value of investments 3,635,168
------------
Net assets applicable to shares outstanding $ 57,446,764
============
---------
(1) Includes securities out on loan to brokers with a market value of
$6,994,832.
--------------------------------------------------------------------------------
See accompanyng notes to financial statements.
4
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC V ALUE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2009
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (including $5,518 earned from affiliated issuer) $ 1,404,637
Securities lending 5,659
------------
Total Investment Income 1,410,296
------------
Expenses:
Investment management fees 545,334
Legal and audit fees 246,202
Directors' fees 108,935
Administration fees 54,811
Printing 39,848
Accounting fees 38,438
Transfer agent fees 20,084
Custodian fees 18,002
Stock exchange listing fees 11,001
Insurance 7,354
Miscellaneous 3,701
------------
Total Expenses 1,093,710
Less: Management fee waivers (28,834)
Less: Fees paid indirectly (85,565)
------------
Net Expenses 979,311
------------
Net Investment Income 430,985
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain from unaffiliated investments 107,408
Net realized loss from affiliated investments (70,614)
Net change in unrealized depreciation in value of investments 10,628,356
------------
Net realized and unrealized gain on investments 10,665,150
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 11,096,135
============
--------------------------------------------------------------------------------
See accompanyng notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended December 31,
-------------------------------
2009 2008
------------- -------------
DECREASE IN NET ASSETS
Operations:
Net investment income $ 430,985 $ 984,743
Net realized loss from investments 36,794 (3,732,751)
Net change in unrealized appreciation/(depreciation)
in value of investments 10,628,356 (33,698,235)
------------- -------------
Net increase/(decrease) in net assets
resulting from operations 11,096,135 (36,446,243)
------------- -------------
Dividends and distributions to shareholders:
Net investment income (430,985) (984,743)
Return-of-capital (14,022,576) (27,088,110)
------------- -------------
Total dividends and distributions to shareholders (14,453,561) (28,072,853)
------------- -------------
Capital stock transactions:
Cash in lieu of fractional shares from the reverse stock split -- (544)
Proceeds from 133,707 and 196,609 shares newly issued in
reinvestment of dividends and distributions, respectively 1,294,627 3,761,155
------------- -------------
Total capital stock transactions 1,294,627 3,760,611
------------- -------------
Total decrease in net assets (2,062,799) (60,758,485)
------------- -------------
NET ASSETS
Beginning of year 59,509,563 120,268,048
------------- -------------
End of year $ 57,446,764 $ 59,509,563
============= =============
--------------------------------------------------------------------------------
See accompanyng notes to financial statements.
6
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
For the Years Ended December 31,*
------------------------------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- --------- --------- ---------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year $ 8.71 $ 18.12 $ 21.28 $ 22.60 $ 25.92
-------- -------- --------- --------- ---------
Net investment income # 0.06 0.15 0.16 0.20 0.12
Net realized and unrealized
gain/(loss) on investments 1.52 (5.55) 0.96 2.64 0.72
-------- -------- --------- --------- ---------
Net increase/(decrease) in net assets
resulting from operations 1.58 (5.40) 1.12 2.84 0.84
-------- -------- --------- --------- ---------
Dividends and distributions to shareholders:
Net investment income (0.06) (0.15) (0.16) (0.16) (0.16)
Net realized capital gains -- -- (1.32) -- (4.00)
Return-of-capital (2.03) (4.01) (3.00) (4.00) --
-------- -------- --------- --------- ---------
Total dividends and distributions
to shareholders (2.09) (4.16) (4.48) (4.16) (4.16)
-------- -------- --------- --------- ---------
Capital stock transactions:
Anti-dilutive effect due to shares issued in
reinvestment of dividends and distributions 0.04 0.15 0.20 -- --
-------- -------- --------- --------- ---------
Net asset value, end of year $ 8.24 $ 8.71 $ 18.12 $ 21.28 $ 22.60
======== ======== ========= ========= =========
Market value, end of year $ 11.61 $ 7.62 $ 20.20 $ 33.80 $ 28.20
======== ======== ========= ========= =========
Total investment return (a) 89.55% (49.92)% (29.04)% 45.36% (1.32)%
======== ======== ========= ========= =========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 57,447 $ 59,510 $ 120,268 $ 136,344 $ 139,706
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.80% 1.40% 1.23% 1.22% 1.20%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 2.01% 1.54% 1.35% 1.32% 1.36%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.95% 1.44% 1.25% 1.25% 1.26%
Ratio of net investment income to
average net assets 0.79% 1.08% 0.86% 0.85% 0.58%
Portfolio turnover rate 10.81% 13.24% 10.38% 10.59% 21.60%
--------------------------------------------------------------------------------
* Effective December 23, 2008, a reverse stock split of 1:4 occurred. All
per share amounts have been restated according to the terms of the
split.
# Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in
market price of a share during the 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 are net of fees paid indirectly.
(c) Expenses exclude the reduction for fees paid indirectly.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE A. ORGANIZATION
Cornerstone Strategic Value Fund, Inc. (the "Fund") was incorporated in Maryland
on May 1, 1987 and commenced investment operations on June 30, 1987. Its
investment objective is to seek long-term capital appreciation through
investment primarily in equity securities of U.S. and non-U.S. companies. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make certain estimates and assumptions that may
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
SUBSEQUENT EVENTS: The Fund has evaluated the need for additional disclosures
and/or adjustments resulting from subsequent events through February 24, 2010,
the date the financial statements were issued. Based on this evaluation, no
additional disclosures or adjustments were required to the financial statements
as of December 31, 2009.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. Readily marketable portfolio securities listed on the NYSE
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the NYSE on the business day as of which such
value is being determined. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices on such day. If no
bid or asked prices are quoted on such day or if market prices may be unreliable
because of events occurring after the close of trading, then the security is
valued by such method as the Board of Directors shall determine in good faith to
reflect its fair market value. Readily marketable securities not listed on the
NYSE but listed on other domestic or foreign securities exchanges are valued in
a like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the consolidated tape at the close of the
exchange representing the principal market for such securities. Securities
trading on the Nasdaq Stock Market, Inc. ("NASDAQ") are valued at the closing
price. Readily marketable securities traded in the over-the counter market,
including listed securities whose primary market is believed by Cornerstone
Advisors, Inc. (the "Investment Manager" or "Cornerstone") to be
over-the-counter, are valued at the mean of the current bid and asked prices as
reported by the NASDAQ or, in the case of securities not reported by the NASDAQ
or a comparable source, as the Board of Directors deem appropriate to reflect
their fair market value. Where securities are traded on more than one exchange
and also over-the-counter, the securities will generally be valued using the
quotations the Board of Directors believes reflect most closely the value of
such securities.
At December 31, 2009, the Fund held no securities valued in good faith by the
Board of Directors. The net asset value per share of the Fund is calculated
weekly and on the last business day of the month with the exception of those
days on which the NYSE Alternext US LLC is closed.
The Fund is exposed to financial market risks, including the valuations of its
investment portfolio. Forthe year ended December 31, 2009, the Fund did not
engage in derivative instruments and other hedging activities.
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 Cornerstone considers creditworthy. The seller under a
repurchase agreement will be required to maintain the
--------------------------------------------------------------------------------
8
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
value of the securities as collateral, subject to the agreement at not less than
the repurchase price plus accrued interest. Cornerstone monitors the
mark-to-market of the value of the collateral, and, if necessary, requires the
seller to maintain additional securities, so that the value of the collateral is
not less than the repurchase price. Default by or bankruptcy of the seller
would, however, expose the Fund to possible loss because of adverse market
action or delays in connection with the disposition of the underlying
securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
The Accounting for Uncertainty in Income Taxes Topic of the FASB Accounting
Standards Codification defines the threshold for recognizing the benefits of
tax-return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and requires measurement of a tax position
meeting the more-likely-than-not criterion, based on the largest benefit that is
more than 50 percent likely to be realized. The Fund's policy is to classify
interest and penalties associated with underpayment of federal and state income
taxes, if any, as income tax expense on its Statement of Operations. As of
December 31, 2009, the Fund does not have any interest or penalties associated
with the under-payment of any income taxes. Management reviewed any uncertain
tax positions for open tax years 2006 through 2009. The Fund has had discussions
with the Internal Revenue Service's New York Regional Office regarding a
technical tax issue relating to whether the Fund's historic dividend
reinvestment plan may have resulted in a violation of certain Subchapter M
requirements of the Internal Revenue Code for certain prior tax years. The Fund
and the Internal Revenue Service have reached a tentative agreement to resolve
this matter through the issuance of a closing letter that, if finalized in its
current form, will avoid any material negative tax impact to the Fund. Pursuant
to this tentative agreement, the Investment Manager will be responsible for
paying any amount owing to the Internal Revenue Service. There was no material
impact to the financial statements or, other than as described herein, the
disclosures thereto as a result of the adoption of this pronouncement.
DISTRIBUTIONS TO SHAREHOLDERS: Effective June 25, 2002, the Fund initiated a
fixed, monthly distribution to shareholders. On November 29, 2006, this
distribution policy was updated to provide for the annual resetting of the
monthly distribution amount per share based on the Fund's net asset value on the
last business day in each October. The terms of the distribution policy will be
reviewed and approved at least annually by the Fund's Board of Directors and can
be modified at their discretion. To the extent that these distributions exceed
the current earnings of the Fund, the balance will be generated from sales of
portfolio securities held by the Fund, which will either be short-term or
long-term capital gains or a tax-free return-of-capital. To the extent these
distributions are not represented by net investment income and capital gains,
they will not represent yield or investment return on the Fund's investment
portfolio. The Fund plans to maintain this distribution policy even if
regulatory requirements would make part of a return-of-capital, necessary to
maintain the distribution, taxable to shareholders and to disclose that portion
of the distribution that is classified as ordinary income. Although it has no
current intention to do so, the Board may terminate this distribution policy at
any time and such termination may have an adverse effect on the market price for
the Fund's common shares. The Fund determines
--------------------------------------------------------------------------------
9
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
annually whether to distribute any net realized long-term capital gains in
excess of net realized short-term capital losses, including capital loss
carryovers, if any. To the extent that the Fund's taxable income in any calendar
year exceeds the aggregate amount distributed pursuant to this distribution
policy, an additional distribution may be made to avoid the payment of a 4% U.S.
federal excise tax, and to the extent that the aggregate amount distributed in
any calendar year exceeds the Fund's taxable income, the amount of that excess
may constitute a return-of-capital for tax purposes. A return-of-capital
distribution reduces the cost basis of an investor's shares in the Fund.
Dividends and distributions to shareholders are recorded by the Fund on the
ex-dividend date.
MANAGED DISTRIBUTION RISK: Under the managed distribution policy, the Fund makes
monthly distributions to shareholders 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
Fund shareholders. If this were to be the case, the Fund's assets would be
depleted, and there is no guarantee that the Fund would be able to replace the
assets. In addition, in order to make such distributions, the Fund may have to
sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Furthermore, such assets used to make
distributions will not be available for investment pursuant to the Fund's
investment objective.
NOTE C. FAIR VALUE
As required by the Fair Value Measurement and Disclosures Topic of the FASB
Accounting Standards Codification, the Fund has performed an analysis of all
assets and liabilities measured at fair value to determine the significance and
character of all inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value into the following three broad categories.
o Level 1 - quoted unadjusted prices for identical instruments in active
markets to which the Fund has access at the date of measurement.
o Level 2 - quoted prices for similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which all significant inputs
and significant value drivers are observable in active markets. Level 2
inputs are those in markets for which there are few transactions, the
prices are not current, little public information exists or instances
where prices vary substantially over time or among brokered market
makers.
o Level 3 - model derived valuations in which one or more significant
inputs or significant value drivers are unobservable. Unobservable
inputs are those inputs that reflect the Fund's own assumptions that
market participants would use to price the asset or liability based on
the best available information.
The following is a summary of the inputs used as of December 31, 2009 in valuing
the Fund's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
Level 1 - Quoted Prices
Equity Investments $57,127,343 --
Short-Term Investments 8,632,674
Level 2 - Other Significant
Observable Inputs -- --
Level 3 - Significant
Unobservable Inputs -- --
----------- -----------
Total $65,760,017 --
=========== ===========
------
* Other financial instruments include futures, forwards
and swap contracts.
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Fund did not have any assets or liabilities that were measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) at December
31, 2009.
NEW ACCOUNTING PRONOUNCEMENT: In January 2010, the FASB Accounting Standards
Board issued Accounting Standards Update ("ASU") No. 2010-06 "Improving
Disclosures about Fair Value Measurements". ASU 2010-06 amends FASB Accounting
Standards Codification Topic, Fair Value Measurements and Disclosures, to
require additional disclosures regarding fair value measurements. Certain
disclosures required by ASU No. 2010-06 are effective for interim and annual
reporting periods beginning after December 15, 2009, and other required
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years. Management is currently
evaluating the impact ASU No. 2010-06 will have on its financial statement
disclosures.
NOTE D. AGREEMENTS
Certain officers of the Fund are also officers of Cornerstone or Ultimus Fund
Solutions, LLC ("Ultimus"). Such officers are paid no fees by the Fund for
serving as officers of the Fund.
INVESTMENT MANAGEMENT AGREEMENT
Cornerstone serves as the Fund's Investment Manager with respect to all
investments. As compensation for its investment management services, Cornerstone
receives from the Fund, an annual fee, calculated weekly and paid monthly, equal
to 1.00% of the Fund's average weekly net assets. During the year ended December
31, 2009, Cornerstone voluntarily agreed to waive its management fees from the
Fund to the extent that the Fund's net monthly operating expenses (including
basic legal fees but excluding other legal and extraordinary expenses) exceeded
a monthly rate of 0.11% and 0.125% of average annual weekly net assets, through
February 28, 2009, and thereafter, respectively. For the year ended December 31,
2009, Cornerstone earned $545,334 for investment management services, of which
it waived $28,834. Effective July 1, 2009 the Investment Manager discontinued
such undertaking.
Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY,
are expense offsets of $85,565 arising from credits earned on portfolio
transactions executed with brokers, pursuant to directed brokerages arrangement.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement, Ultimus supplies executive,
administrative and regulatory services for the Fund. 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 monthly fee at an
annual rate of 0.100% of its average daily net assets up to $250 million and
0.075% of such assets in excess of $250 million, subject to an annual minimum
fee of $50,000.
FUND ACCOUNTING AGREEMENT
Under the terms of the Fund Accounting Agreement, Ultimus calculates the net
asset value per share and maintains the financial books and records of the Fund.
For the performance of these services, the Fund pays Ultimus a base fee of
$2,500 per month plus an asset based fee of 0.010% of the first $500 million of
average daily net assets and 0.005% of such assets in excess of $500 million.
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
NOTE E. AFFILIATED INVESTMENTS
Transactions in affiliates for the year ended December 31, 2009 were as follows:
ADAMS
EXPRESS
COMPANY
---------
Market value at beginning of year $ 397,485
=========
Shares at beginning of year 49,500
Shares purchased during the year --
Shares sold during the year (23,100)
---------
Shares at end of year 26,400
=========
Dividend income earned
during the year $ 5,518
=========
Cost of purchases during the year --
Proceeds from sales during the year $ 204,542
Net realized loss during the year $ (70,614)
Market value at end of year $ 226,640
NOTE F. INVESTMENT IN SECURITIES
For the year ended December 31, 2009, purchases and sales of securities, other
than short-term investments, were $5,861,559 and $17,989,728 respectively.
NOTE G. SHARES OF COMMON STOCK
The Fund has 100,000,000 shares of common stock authorized and 6,969,408 shares
outstanding at December 31, 2009. Transactions in common stock for the year
ended December 31, 2009 were as follows:
Shares at beginning of year 6,835,701
Shares newly issued in reinvestment
of dividends and distributions 133,707
---------
Shares at end of year 6,969,408
=========
NOTE H. SHARE REPURCHASE PROGRAM
As has been done in the past to enhance shareholder value, pursuant to Section
23 of the Investment Company Act of 1940, as amended, the Fund may again in the
future purchase shares of its common stock on the open market from time to time,
at such times, and in such amounts as may be deemed advantageous to the Fund.
Nothing herein shall be considered a commitment to purchase such shares. The
Fund had no repurchases during the year ended December 31, 2009. 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 are made in accordance with federal securities laws, with shares
repurchased held in treasury effective January 1, 2002, for future use by the
Fund.
NOTE I. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33(1)/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount.
The market value of securities on loan to brokers at December 31, 2009, was
$6,994,832. During the year ended December 31, 2009, the Fund earned $5,659 in
securities lending income which is included under the caption SECURITIES LENDING
in the Statement of Operations.
--------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------
NOTE J. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of losses deferred due to wash sales and
Post-October losses (as later defined), and excise tax regulations.
The tax character of dividends and distributions paid during
the years ended December 31, for the Fund were as follows:
ORDINARY INCOME RETURN-OF-CAPITAL
--------------- -----------------
2009 2008 2009 2008
---- ---- ---- ----
$430,985 $984,743 $14,022,576 $27,088,110
At December 31, 2009 the components of the accumulated deficit on tax basis, for
the Fund were as follows:
Capital loss carryforward $ (4,467,228)
Net unrealized appreciation 3,635,007
------------
Total distributable earnings $ (832,221)
===========
Accounting principles generally accepted in the United States of America require
that certain components of net assets relating to permanent differences be
reclassified between financial and tax reporting. These reclassifications have
no effect on net assets or net asset value per share. For the year ended
December 31, 2009, the Fund decreased net realized loss by $1,139,305 and
decreased paid-in capital by $1,139,305. Under current tax law, certain capital
losses realized after October 31 within a taxable year may be deferred and
treated as occurring on the first day of the following tax year ("Post-October
losses"). The Fund incurred no such loss.
At December 31, 2009, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $4,467,228 of which $250,210 expires in 2010, $484,687
expires in 2011, $3,297,622 expires in 2016, and $434,709 expires in 2017.
At December 31, 2009, the identified cost for federal income tax purposes, as
well as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized appreciation from investments were $62,125,010, $8,503,083,
$(4,868,076) and $3,635,007, respectively.
--------------------------------------------------------------------------------
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Cornerstone Strategic Value Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of
Cornerstone Strategic Value Fund, Inc., including the summary schedule of
investments as of December 31, 2009, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009, by correspondence with the custodian.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cornerstone Strategic Value Fund, Inc. as of December 31, 2009, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 24, 2010
--------------------------------------------------------------------------------
14
2009 TAX INFORMATION (UNAUDITED)
Cornerstone Strategic Value Fund, Inc. (the "Fund") is required by Subchapter M
of the Internal Revenue Code of 1986, as amended, to advise its shareholders
within 60 days of the Fund's year end (December 31, 2009) as to the federal tax
status of the dividends and distributions received by the Fund's shareholders in
respect of such fiscal year. The $14,453,561 in dividends and distributions paid
to shareholders in respect of such year, is represented by $430,985 of ordinary
income, and $14,022,576 of return-of-capital. As indicated in this notice,
significant portions of the Fund's distributions for 2009 were comprised of a
return-of-capital; accordingly these distributions do NOT represent yield or
investment return on the Fund's portfolio.
SOURCES OF DIVIDENDS AND DISTRIBUTIONS (PER SHARE AMOUNTS)
PAYMENT DATES: 1/30/09 2/27/09 3/31/09 4/30/09 5/29/09 6/30/09
-------- -------- -------- -------- -------- --------
Ordinary Income(1) $ 0.0054 $ 0.0054 $ 0.0054 $ 0.0054 $ 0.0054 $ 0.0054
Return-of-Capital(2) 0.1692 0.1692 0.1692 0.1692 0.1692 0.1692
-------- -------- -------- -------- -------- --------
Total: $ 0.1746 $ 0.1746 $ 0.1746 $ 0.1746 $ 0.1746 $ 0.1746
======== ======== ======== ======== ======== ========
PAYMENT DATES: 7/31/09 8/31/09 9/30/09 10/30/09 11/30/09 12/31/09
-------- -------- -------- -------- -------- --------
Ordinary Income(1) $ 0.0054 $ 0.0054 $ 0.0054 $ 0.0054 $ 0.0054 $ 0.0054
Return-of-Capital(2) 0.1692 0.1692 0.1692 0.1692 0.1692 0.1692
-------- -------- -------- -------- -------- --------
Total: $ 0.1746 $ 0.1746 $ 0.1746 $ 0.1746 $ 0.1746 $ 0.1746
======== ======== ======== ======== ======== ========
--------------------------------------------------------------------------------
(1) ORDINARY INCOME DIVIDENDS - This is the total per share amount of
ordinary income dividends and short-term capital gain distributions (if
applicable) included in the amount reported in Box 1a on Form 1099-DIV.
(2) RETURN-OF-CAPITAL - This is the per share amount of return-of-capital,
or sometimes called nontaxable, distributions reported in Box 3 - under
the title "Nondividend distributions" - on Form 1099-DIV. This amount
should NOT be reported as taxable income on your current return. Rather,
it should be treated as a reduction in the original cost basis of your
investment in the Fund.
The Fund has met the requirements to pass through all (100%) of its ordinary
income dividends as qualified dividends, which are subject to a maximum federal
tax rate of 15%. This is reported in Box 1b on Form 1099-DIV. Ordinary income
dividends should be reported as dividend income on Form 1040. Please note that
to utilize the lower tax rate for qualifying dividend income, shareholders
generally must have held their shares in the Fund for at least 61 days during
the 121 day period beginning 60 days before the ex-dividend date.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of the actual ordinary income dividend paid by the Fund.
In general, distributions received by tax-exempt recipients (e.g., IRA's and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting. They
will generally not be entitled to foreign tax credit or deduction for the
withholding taxes paid by the Fund.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund.
--------------------------------------------------------------------------------
15
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPORATE OFFICERS (UNAUDITED)
NUMBER OF
PORTFOLIOS IN
NAME AND POSITION FUND COMPLEX
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS
------------------------------------------------------------------------------------------------------------------
Ralph W. Chairman of President, Cornerstone Advisors, Inc.; 1998 3
Bradshaw** the Board of Financial Consultant; President and
(Dec. 1950) Directors and Director of Cornerstone Total Return
President Fund, Inc.; President and Trustee of
Cornerstone Progressive Return Fund.
Thomas H. Director; Audit, Director of Cornerstone Total Return 1987 3
Lenagh Nominating Fund, Inc.; Trustee of Cornerstone
(Nov. 1924) and Corporate Progressive Return Fund; Director of
Governance Adams Express Company, Petroleum
Committee & Resources Corporation and PPGI
Member Industries.
Edwin Director; Audit, Distinguished Fellow, The Heritage 2001 3
Meese III Nominating Foundation Washington D.C.;
(Dec. 1931) and Corporate Distinguished Visiting Fellow at the
Governance Hoover Institution, Stanford University;
Committee Senior Adviser, Revelation L.P.; Director
Member of Cornerstone Total Return Fund, Inc.;
Trustee of Cornerstone Progressive
Return Fund.
Scott B. Rogers Director; Audit, Chairman, Board of Health Partners, 2000 3
(July 1955) Nominating Inc.; Chief Executive Officer, Asheville
and Corporate Buncombe Community Christian
Governance Ministry; and President, ABCCM
Committee Doctor's Medical Clinic; Appointee, NC
Member Governor's Commission on Welfare
to Work; Director of Cornerstone
Total Return Fund, Inc.; Trustee of
Cornerstone Progressive Return Fund.
--------------------------------------------------------------------------------
16
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPORATE OFFICERS (UNAUDITED) (CONTINUED)
NUMBER OF
PORTFOLIOS IN
NAME AND POSITION FUND COMPLEX
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS
------------------------------------------------------------------------------------------------------------------
Andrew A. Director; Attorney and senior member of Strauss & 2000 3
Strauss Chairman of Associates, P.A., Attorneys, Asheville and
(Nov. 1953) Nominating Hendersonville, NC; previous President
and Corporate of White Knight Healthcare, Inc. and
Governance LMV Leasing, Inc., a wholly owned
Committee and subsidiary of Xerox Credit Corporation;
Audit Committee Director of Cornerstone Total Return
Member Fund, Inc.; Trustee of Cornerstone
Progressive Return Fund.
Glenn W. Director; Chairman of the Board, Tower 2000 3
Wilcox, Sr. Chairman of Associates, Inc.; Chairman of the
(Dec. 1931) Audit Committee Board and Chief Executive Officer of
Nominating Wilcox Travel Agency, Inc.; Director of
and Corporate Cornerstone Total Return Fund, Inc.;
Governance Trustee of Cornerstone Progressive
Committee Return Fund.
Member
--------------------------------------------------------------------------------
17
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPORATE OFFICERS (UNAUDITED) (CONCLUDED)
NAME AND POSITION
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE
--------------------------------------------------------------------------------------------------------------------
Gary A. Bentz Chief Compliance Chairman and Chief Financial Officer of 2004, 2008,
(June 1956) Officer, Secretary, Cornerstone Advisors, Inc.; previous Director, 2009
and Assistant Vice President and Treasurer of the Fund
Treasurer and Cornerstone Total Return Fund, Inc.;
Financial Consultant, C.P.A.; Chief Compliance
Officer, Secretary, and Assistant Treasurer
of Cornerstone Total Return Fund, Inc. and
Cornerstone Progressive Return Fund.
William A. Clark Vice President Director and Stockholder of Cornerstone 2004
(Oct. 1945) Advisors, Inc.; Vice President and former
Director of Cornerstone Total Return Fund,
Inc.; Vice President and former Trustee
of Cornerstone Progressive Return Fund;
Financial Consultant; former Director of
Investors First Fund, Inc.
Frank J. Maresca Treasurer Executive Vice President of Ultimus Fund 2009
(Oct. 1958) Solutions, LLC (since March 2009); previous
Executive Director, JP Morgan Chase & Co.
(since June 2008); previous President of Bear
Stearns Funds Management, Inc.; previous
Senior Managing Director of Bear Stearns
& Co., Inc.; Treasurer of Cornerstone Total
Return Fund, Inc. and Cornerstone Progressive
Return Fund (since May 2009).
--------------------------------------------------------------------------------
* The mailing address of each Director and/or Officer with respect to the
Fund's operation is 260 Madison Ave., New York, NY 10016.
** Designates a director who is an "interested person" of the Fund as
defined by the Investment Company Act of 1940, as amended. Mr. Bradshaw
is an interested person of the Fund by virtue of his current position
with the Investment Adviser of the Fund.
--------------------------------------------------------------------------------
18
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Cornerstone Strategic Value Fund, Inc. (the "Fund") operates a Dividend
Reinvestment Plan (the "Plan"), sponsored and administered by American Stock
Transfer & Trust Company (the "Agent"), pursuant to which the Fund's income
dividends or capital gains or other distributions (each, a "Distribution" and
collectively, "Distributions"), net of any applicable U.S. withholding tax, are
reinvested in shares of the Fund.
Shareholders automatically participate in the Fund's Plan, unless and until an
election is made to withdraw from the Plan on behalf of such participating
shareholder. Shareholders who do not wish to have Distributions automatically
reinvested should so notify their broker, or if a registered shareholder, the
Agent in writing at P.O. Box 922, Wall Street Station, New York, New York
10269-0560. Such written notice must be received by the Agent prior to the
record date of the Distribution or the shareholder will receive such
Distribution in shares through the Plan. Under the Plan, the Fund's
Distributions to shareholders are reinvested in full and fractional shares as
described below.
When the Fund declares a Distribution the Agent, on the shareholder's behalf,
will (i) receive additional authorized shares from the Fund either newly issued
or repurchased from shareholders by the Fund and held as treasury stock ("Newly
Issued Shares") or (ii) purchase outstanding shares on the open market, on the
NYSE Alternext US LLC or elsewhere, with cash allocated to it by the Fund ("Open
Market Purchases").
The method for determining the number of shares to be received when
Distributions are reinvested will vary depending upon whether the net asset
value of the Fund's shares is higher or lower than its market price. If the net
asset value of the Fund's shares is lower than its market price, the number of
Newly Issued Shares received will be determined by dividing the amount of the
Distribution either by the Fund's net asset value per share or by 95% of its
market price, whichever is higher. If the net asset value of the Fund's shares
is higher than its market price, shares acquired by the Agent in Open Market
Purchases will be allocated to the reinvesting shareholders based on the average
cost of such Open Market Purchases.
Whenever the Fund declares a Distribution and the net asset value of the Fund's
shares is higher than its market price, the Agent will apply the amount of such
Distribution payable to Plan participants of the Fund in Fund shares (less such
Plan participant's pro rata share of brokerage commissions incurred with respect
to Open Market Purchases in connection with the reinvestment of such
Distribution) to the purchase on the open market of Fund shares for such Plan
participant's account. Such purchases will be made on or after the payable date
for such Distribution, and in no event more than 30 days after such date except
where temporary curtailment or suspension of purchase is necessary to comply
with applicable provisions of federal securities laws. The Agent may aggregate a
Plan participant's purchases with the purchases of other Plan participants, and
the average price (including brokerage commissions) of all shares purchased by
the Agent shall be the price per share allocable to each Plan participant.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Distribution payment date.
When a Participant withdraws from the Plan, or upon suspension or termination of
the Plan at the sole discretion of the Fund's Board of Directors, certificates
for whole shares credited to his or her account under the Plan will, upon
request, be issued. Whether or not a participant requests that certificates for
whole shares be issued, a cash payment will be made for any fraction of a share
credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of the Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right
--------------------------------------------------------------------------------
19
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
to receive certificates for whole shares owned. The Agent will distribute all
proxy solicitation materials to participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the shareholder's name and held for the account of
beneficial owners participating in the Plan.
Neither the Agent nor the Fund shall have any responsibility or liability beyond
the exercise of ordinary care for any action taken or omitted pursuant to the
Plan, nor shall they have any duties, responsibilities or liabilities except
such as expressly set forth herein. Neither shall they be liable hereunder for
any act done in good faith or for any good faith omissions to act, including,
without limitation, failure to terminate a participants account prior to receipt
of written notice of his or her death or with respect to prices at which shares
are purchased or sold for the participants account and the terms on which such
purchases and sales are made, subject to applicable provisions of the federal
securities laws.
The automatic reinvestment of Distributions will not relieve
participants of any federal, state or local income tax that may be payable (or
required to be withheld) on such Distributions.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan. All
correspondence concerning the Plan should be directed to the Agent at P.O. Box
922, Wall Street Station, New York, New York 10269-0560. Certain transactions
can be performed online at www.amstock.com or by calling the toll free number
877-864-4833.
--------------------------------------------------------------------------------
20
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how Cornerstone Strategic Value Fund, Inc. (the "Fund")
voted proxies related to its portfolio securities during the 12-month period
ended June 30 of each year as well as the policies and procedures that the Fund
uses to determine how to vote proxies relating to its portfolio securities are
available by calling (513) 326-3597 or on the website of the Securities and
Exchange Commission, http://www.sec.gov.
This report incorporates a Summary Schedule of Investments for the Fund. A
complete Schedule of Investments for the Fund may be obtained free of charge by
contacting the Fund at (513) 326-3597. The Fund files a complete schedule of its
portfolio holdings for the first and third quarters of its fiscal year with the
SEC on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling (202) 551-8090.
PRIVACY POLICY NOTICE (UNAUDITED)
The following is a description of Cornerstone Strategic Value Fund, Inc.'s (the
"Fund") policies regarding disclosure of nonpublic personal information that you
provide to the Fund or that the Fund collects from other sources. In the event
that you hold shares of the Fund through a broker-dealer or other financial
intermediary, the privacy policy of the financial intermediary would govern how
your nonpublic personal information would be shared with unaffiliated third
parties.
CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the following
nonpublic personal information about you:
1. Information from the Consumer: this category includes information the
Fund receives from you on or in applications or other forms,
correspondence, or conversations (such as your name, address phone
number, social security number, assets, income and date of birth); and
2. Information about the Consumer's transactions with the Fund and its
affiliates: this category includes information about your transactions
with the Fund, its affiliates, or others (such as your account number
and balance, payment history, parties to transactions, cost basis
information, and other financial information).
CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose any
nonpublic personal information about their current or former shareholders to
unaffiliated third parties, except as required or permitted by law. The Fund is
permitted by law to disclose all of the information it collects, as described
above, to its service providers (such as the Fund's custodian, administrator and
transfer agent) to process your transactions and otherwise provide services to
you.
CONFIDENTIALITY AND SECURITY. The Fund restricts access to your nonpublic
personal information to those persons who require such information to provide
products or services to you. The Fund maintains physical, electronic and
procedural safeguards that comply with federal standards to guard your nonpublic
personal information.
--------------------------------------------------------------------------------
21
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
Cornerstone Strategic Value Fund, Inc. is a closed-end, diversified investment
company whose shares trade on the NYSE Alternext US LLC. Its investment
objective is to seek long-term capital appreciation through investment primarily
in equity securities of U.S. and non-U.S. companies. The Fund is managed by
Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the NYSE Alternext US LLC (symbol "CLM"). The previous
week's net asset value per share, market price, and related premium or discount
are published each Monday in THE WALL STREET JOURNAL under the designation
"CornstnStrat" and BARRON'S under the designation "Cornerstone Str Val". Such
information is available weekly and may be obtained by contacting the Fund at
the general inquiry phone number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE STRATEGIC VALUE FUND, INC. MAY
FROM TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. It is not a prospectus, circular
or representation intended for use in the purchase or sale of shares of the Fund
or of any securities mentioned in the report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
22
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CORNERSTONE STRATEGIC VALUE FUND, INC.
ITEM 2. CODE OF ETHICS.
(a) As of the end of the period covered by this report, the Registrant has
adopted a code of ethics that applies to the Registrant's principal executive
officer, principal accounting officer, and persons performing similar functions.
(c) and (d). During the period covered by this report, there was no amendment
to, and no waiver granted from, any provision of the code of ethics that applies
to the Registrant's principal executive officer, principal accounting officer,
and persons performing similar functions.
(f)(1) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit
(EX-99.CODE ETH) a copy of its code of ethics that applies to its principal
executive officer, principal financial officer, and persons performing similar
functions.
(f)(3) The Registrant undertakes to provide to any person without charge, upon
request, a copy of its code of ethics. This can be accomplished by calling the
Registrant at (513) 326-3597.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
a)(1) The registrant's board of directors has determined that it does not have
an audit committee financial expert serving on its audit committee.
(a)(2) Not applicable
(a)(3) At this time, the registrant believes that the experience provided by
each member of the audit committee together offer the registrant adequate
oversight for the registrant's level of financial complexity.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) through (d). The information in the table below is provided for services
rendered to the registrant by its independent registered public accounting firm,
Tait, Weller & Baker LLP for the Registrant's fiscal years ended December 31,
2009 and December 31, 2008.
2009 2008
------- -------
Audit Fees $18,100 $18,100
Audit-related Fees -- --
Tax Fees (1) 3,600 3,600
All Other Fees -- --
------- -------
Total $21,700 $21,700
======= =======
(1) Tax services in connection with the registrant's excise tax calculations and
review of the registrant's applicable tax returns.
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
Before the auditor is (i) engaged by the Registrant to render audit, audit
related or permissible non-audit services to the Registrant or (ii) with respect
to non-audit services to be provided by the auditor to the Registrant's
investment adviser or any entity in the investment Registrant complex, if the
nature of the services provided relate directly to the operations or financial
reporting of the Registrant, either: (a) the Audit Committee shall pre-approve
such engagement; or (b) such engagement shall be entered into pursuant to
pre-approval policies and procedures established by the Audit Committee. Any
such policies and procedures must be detailed as to the particular service and
not involve any delegation of the Audit Committee's responsibilities to the
Registrant's investment adviser. The Audit Committee may delegate to one or more
of its members the authority to grant pre-approvals. The pre-approval policies
and procedures shall include the requirement that the decisions of any member to
whom authority is delegated under this provision shall be presented to the full
Audit Committee at its next scheduled meeting. Under certain limited
circumstances, pre-approvals are not required if certain de minimis thresholds
are not exceeded, as such thresholds are set forth by the Audit Committee and in
accordance with applicable SEC rules and regulations.
(e)(2) None of the services provided to the Registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) During the fiscal years ended December 31, 2009 and 2008, aggregate
non-audit fees of $3,600 and $3,600, respectively, were billed by Tait, Weller &
Baker LLP for services rendered to the Registrant. Investment advisor (not
including any sub-advisor whose role is primarily portfolio management and is
subcontracted with or overseen by another investment advisor) or any entity
controlling, controlled by, or under common control with the investment advisor
that provides ongoing services to the Registrant for the Registrant's last two
fiscal years (December 31, 2008 and December 31, 2009).
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities and
Exchange Act of 1934, as amended. Glenn Wilcox (Chair), Edwin Meese, Thomas
Lenagh, Andrew Strauss and Scott Rogers are the members of the Registrant's
audit committee.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a)
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------------------
EQUITY SECURITIES - 99.44%
CLOSED-END FUNDS - 7.37%
CORE - 7.37%
Adams Express Company (The) (a) 26,400 $ 266,640
Advent/Claymore Enhanced Growth & Income Fund 26,561 297,483
BlackRock Dividend Achievers Trust 8,000 75,360
Liberty All-Star Equity Fund 302,030 1,307,790
Liberty All-Star Growth Fund 283,601 952,899
Tri-Continental Corporation 22,800 262,656
Zweig Fund, Inc. (The) 323,850 1,071,944
----------------
4,234,772
----------------
TOTAL CLOSED-END FUNDS 4,234,772
----------------
CONSUMER DISCRETIONARY - 8.85%
Amazon.com, Inc. * 3,000 403,560
Best Buy Company, Inc. 4,500 177,570
Comcast Corporation - Class A 11,555 194,817
DIRECTV Group, Inc. (The) - Class A * 4,000 133,400
Family Dollar Stores, Inc. ^ 2,000 55,660
Gap, Inc. (The) 9,200 192,740
Home Depot, Inc. (The) 2,000 57,860
Lowe's Companies, Inc. 5,900 138,001
McDonald's Corporation 11,400 711,816
News Corporation - Class A 10,000 136,900
NIKE, Inc. - Class B 4,100 270,887
Omnicom Group, Inc. 4,200 164,430
Staples, Inc. ^ 12,800 314,752
Starbucks Corporation ^ * 2,800 64,568
Target Corporation 12,800 619,136
Time Warner Cable, Inc. 1,966 81,373
Time Warner, Inc. * 2,900 84,506
TJX Companies, Inc. (The) ^ 7,000 255,850
Toyota Motor Corporation - ADR ^ 2,500 210,400
Viacom, Inc. - Class B * 5,450 162,029
Walt Disney Company (The) ^ 12,700 409,575
Yum! Brands, Inc. 7,000 244,790
----------------
5,084,620
----------------
CONSUMER STAPLES - 10.54%
Altria Group, Inc. 31,800 624,234
See accompanying notes to schedule of investments.
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------------------
CONSUMER STAPLES (CONTINUED)
Archer-Daniels-Midland Company 3,960 $ 123,988
Coca-Cola Company (The) 15,000 855,000
Colgate-Palmolive Company 3,400 279,310
ConAgra Foods, Inc. 3,400 78,370
CVS Caremark Corporation 8,430 271,530
General Mills, Inc. ^ 2,500 177,025
H.J. Heinz Company 4,000 171,040
Kimberly-Clark Corporation 2,500 159,275
Kraft Foods, Inc. - Class A 10,932 297,132
Kroger Company (The) ^ 8,800 180,664
PepsiCo, Inc. 5,600 340,480
Philip Morris International, Inc. 2,500 120,475
Procter & Gamble Company (The) 18,297 1,109,347
Sysco Corporation ^ 8,300 231,902
Walgreen Company 4,800 176,256
Wal-Mart Stores, Inc. 16,100 860,545
----------------
6,056,573
----------------
ENERGY - 10.99%
Anadarko Petroleum Corporation 2,700 168,534
Baker Hughes, Inc. ^ 8,100 327,888
Chevron Corporation 14,974 764,722
Exxon Mobil Corporation ^ 36,500 2,488,935
Halliburton Company 9,700 291,873
Marathon Oil Corporation 11,500 359,030
Occidental Petroleum Corporation 5,000 406,750
Schlumberger Ltd. ^ 6,000 390,540
Transocean Ltd. * 2,500 207,000
XTO Energy, Inc. 6,250 290,812
----------------
6,314,468
----------------
FINANCIALS - 12.65%
AFLAC, Inc. 5,500 254,375
Allstate Corporation (The) 6,800 204,272
American Express Company 6,400 259,328
Bank of America Corporation 16,138 243,038
Bank of New York Mellon Corporation (The) 7,754 216,879
BB&T Corporation ^ 3,500 88,795
Capital One Financial Corporation 2,500 95,850
Charles Schwab Corporation (The) 22,000 414,040
Chubb Corporation (The) 3,500 172,130
Goldman Sachs Group, Inc. (The) 5,000 844,200
See accompanying notes to schedule of investments.
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
Hudson City Bancorp, Inc. 15,500 $ 212,815
JPMorgan Chase & Company 35,132 1,463,951
Marsh & McLennan Companies, Inc. 10,000 220,800
MetLife, Inc. 5,700 201,495
Morgan Stanley 11,500 340,400
PNC Financial Services Group, Inc. ^ 7,600 401,204
T. Rowe Price Group, Inc. 3,000 159,750
Travelers Companies, Inc. (The) 9,476 472,473
U.S. Bancorp 9,901 222,872
Wells Fargo & Company 28,900 780,011
----------------
7,268,678
----------------
HEALTH CARE - 11.58%
Abbott Laboratories 9,200 496,708
Aetna, Inc. 5,000 158,500
Amgen, Inc. * 6,700 379,019
Baxter International, Inc. 5,000 293,400
Becton, Dickinson and Company 3,900 307,554
Biogen Idec, Inc. * 4,000 214,000
Bristol-Myers Squibb Company 19,000 479,750
Cardinal Health, Inc. 7,950 256,308
Covidien PLC ^ 2,599 124,466
Eli Lilly & Company ^ 4,700 167,837
Gilead Sciences, Inc. * 6,000 259,680
Johnson & Johnson 17,400 1,120,734
McKesson Corporation 2,800 175,000
Medtronic, Inc. 8,000 351,840
Merck & Company, Inc. 15,267 557,857
Pfizer, Inc. 32,622 593,394
Stryker Corporation ^ 3,500 176,295
UnitedHealth Group, Inc. 11,000 335,280
WellPoint, Inc. * 3,500 204,015
----------------
6,651,637
----------------
INDUSTRIALS - 9.50%
3M Company 4,400 363,748
Boeing Company (The) ^ 2,200 119,086
Burlington Northern Santa Fe Corporation 3,900 384,618
Caterpillar, Inc. 5,300 302,047
CSX Corporation 5,000 242,450
Deere & Company 6,500 351,585
Emerson Electric Company 6,000 255,600
General Dynamics Corporation 3,200 218,144
See accompanying notes to schedule of investments.
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
General Electric Company 56,900 $ 860,897
Honeywell International, Inc. 5,000 196,000
Illinois Tool Works, Inc. 2,800 134,372
Lockheed Martin Corporation 3,000 226,050
Norfolk Southern Corporation 5,500 288,310
Northrop Grumman Corporation 2,500 139,625
Raytheon Company 6,000 309,120
Union Pacific Corporation 4,000 255,600
United Parcel Service, Inc. - Class B 4,100 235,217
United Technologies Corporation 5,000 347,050
Waste Management, Inc. 6,800 229,908
----------------
5,459,427
----------------
INFORMATION TECHNOLOGY - 18.64%
Adobe Systems, Inc. * 4,200 154,476
Apple, Inc. * 5,900 1,244,074
Applied Materials, Inc. 10,800 150,552
Automatic Data Processing, Inc. 4,400 188,408
Cisco Systems, Inc. * 38,900 931,266
Corning, Inc. 11,500 222,065
Dell, Inc. * 2,700 38,772
eBay, Inc. * 2,500 58,850
EMC Corporation * 21,148 369,455
Google, Inc. - Class A * 2,000 1,239,960
Hewlett-Packard Company 7,900 406,929
Intel Corporation 50,500 1,030,200
International Business Machines Corporation 13,100 1,714,790
Microsoft Corporation 56,200 1,713,538
Oracle Corporation 22,272 546,555
QUALCOMM, Inc. 10,000 462,600
Texas Instruments, Inc. 6,400 166,784
Yahoo!, Inc. * 4,000 67,120
----------------
10,706,394
----------------
MATERIALS - 3.12%
Alcoa, Inc. 11,400 183,768
Dow Chemical Company (The) ^ 5,400 149,202
E.I. Du Pont de Nemours & Company 9,500 319,865
Freeport-McMoRan Copper & Gold, Inc. 5,000 401,450
Monsanto Company 2,660 217,455
Praxair, Inc. 6,500 522,015
----------------
1,793,755
----------------
See accompanying notes to schedule of investments.
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
-------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 0.00%
Simon Property Group, Inc. ^ 14 $ 1,117
TELECOMMUNICATION SERVICES - 2.84%
AT&T, Inc. 37,039 1,038,203
Verizon Communications, Inc. 17,800 589,714
----------------
1,627,917
----------------
UTILITIES - 3.36%
American Electric Power Company, Inc. 5,000 173,950
Dominion Resources, Inc. 7,700 299,684
Duke Energy Corporation 15,800 271,918
Edison International ^ 3,500 121,730
Exelon Corporation 3,000 146,610
FirstEnergy Corporation 3,000 139,350
FPL Group, Inc. ^ 4,000 211,280
PG&E Corporation ^ 3,000 133,950
Public Service Enterprises Group, Inc. 4,500 149,625
Southern Company (The) ^ 8,400 279,888
----------------
1,927,985
----------------
TOTAL EQUITY SECURITIES (cost - $53,492,174) $ 57,127,343
----------------
SHORT-TERM INVESTMENTS - 15.03%
MONEY MARKET SECURITY - 2.47%
JPMorgan U.S. Government Money Market Fund 1,416,729 1,416,729
----------------
PRINCIPAL AMOUNT
(000'S)
----------------
REPURCHASE AGREEMENTS - 12.56%
J.P. Morgan Securities, Inc. +++
(Agreement dated 12/31/2009 to be
repurchased at $7,208,261) $ 7,208 $ 7,208,132
J.P. Morgan Securities, Inc. +
(Agreement dated 12/31/2009 to be
repurchased at $7,813) 8 7,813
----------------
TOTAL SHORT-TERM INVESTMENTS (cost - $8,632,675) 8,632,674
----------------
TOTAL INVESTMENTS - 114.47% (cost - $62,124,849) 65,760,017
----------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (14.47)% (8,313,253)
----------------
NET ASSETS - 100.00% $ 57,446,764
================
ADR - American Depositary Receipt.
---------------
(a) Affiliated investment. The Fund holds 0.46% (based on net assets) of Adams
Express Company. A trustee of the Fund also serves as a director to such
company. During the year ended December 31, 2009 the Fund sold 13,700 shares of
this security. There were no purchases during this period.
* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ The maturity date for all repurchase agreements held was January 4, 2010, with
interest rates ranging from 0.01% to 0.16% and collateralized by $7,428,035 in
U.S. Treasury Notes maturing August 15, 2018. Stated interest rate, before
rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities on
loan.
See accompanying notes to schedule of investments.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
CORNERSTONE STRATEGIC VALUE FUND, INC.
NEW YORK, NEW YORK
We have audited the accompanying statement of assets and liabilities of
Cornerstone Strategic Value Fund, Inc. (the "Fund"), including the summary
schedule of investments as of December 31, 2009, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cornerstone Strategic Value Fund, Inc. as of December 31, 2009, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Our audits was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of investments in securities
as of December 31, 2009 appearing in Item 6 of this Form N-CSR is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements. This additional information is the responsibility of the
Fund's management. Such information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
TAIT, WELLER & BAKER LLP
PHILADELPHIA, PENNSYLVANIA
FEBRUARY 24, 2010
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant and Cornerstone Advisors, Inc. share the same Proxy Voting
Policies and Procedures. The respective Proxy Voting Policies and Procedures of
the Registrant and Adviser are attached as EXHIBIT99.VOTEREG
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) All information contained in this item and its subparts is as of the date
of this filing, unless otherwise noted. Ralph W. Bradshaw and William A. Clark
are employees of Cornerstone Advisors, Inc. (the Investment Manager) and
portfolio managers of the Fund. Mr. Bradshaw has acted as the portfolio manager
since 2001. Mr. Clark has acted as the portfolio manager since 2003. Ralph W.
Bradshaw's occupation for the last five years is President of Cornerstone
Advisors, Inc. and a Financial Consultant. William A. Clark's occupation for the
last five years is Director and Stockholder of Cornerstone Advisors, Inc. and
Vice President and former Director/Trustee of Cornerstone Total Return Fund,
Inc. and Cornerstone Progressive Return Fund.
(a)(2)(i) Ralph W. Bradshaw and William A. Clark
(a)(2)(ii)(A) Registered Investment Companies - Ralph W. Bradshaw and William A.
Clark each manage two other registered closed-end funds (Cornerstone Total
Return Fund, Inc. and Cornerstone Progressive Return Fund). As of December 31,
2009, the total assets of Cornerstone Total Return Fund, Inc. was $23.2 million.
As of December 31, 2009, the total assets of Cornerstone Progressive Return
Fund, Inc. was $62.4 million.
(a)(2)(ii)(B) Not applicable
(a)(2)(ii)(C) Not applicable
(a)(2)(iii) None. Ralph W. Bradshaw and William A. Clark manage no accounts
where the Advisory Fee is based on the performance of the account.
(a)(2)(iv) None.
(a)(3) As of the most recent fiscal year end December 31, 2009, the compensation
paid to both Ralph W. Bradshaw and William A. Clark was fixed.
(a)(4) The dollar range of equity securities owned in the registrant
beneficially by each portfolio manager is as follows: for Ralph W. Bradshaw it
is in the range of $10,001-$50,000 and for William A. Clark it is in the range
of $10,001-$50,000.
(b) None.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors that have been
implemented after the registrant last provided disclosure in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) or this
Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: EX-99.CODEETH
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): EX-99.CERT
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): EX-99.906CERT
(99) Proxy Voting Policies of the Registrant and Adviser attached as
EX-99.VOTEREG.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) CORNERSTONE STRATEGIC VALUE FUND, INC.
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By (Signature and Title)* /S/ RALPH W. BRADSHAW
-----------------------------------------------------
Ralph W. Bradshaw, Chairman and President
Principal Executive Officer)
Date MARCH 5, 2010
-------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ RALPH W. BRADSHAW
-----------------------------------------------------
Ralph W. Bradshaw, Chairman and President
(Principal Executive Officer)
Date MARCH 5, 2010
---------------------------------------
By (Signature and Title)* /S/ FRANK J. MARESCA
-----------------------------------------------------
Frank J. Maresca, Treasurer
(Principal Financial Officer)
Date MARCH 5, 2010
---------------------------------------
* Print the name and title of each signing officer under his or her signature.