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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
CORNERSTONE STRATEGIC VALUE FUND, INC.
(Exact name of registrant as specified in charter)
383 Madison Avenue, New York, New York 10179
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(Address of principal executive offices) (Zip code)
Jodi Levine
383 Madison Avenue, New York, New York 10179
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(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 272-3550
Date of fiscal year end: December 31, 2005
Date of reporting period: December 31, 2005
Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
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ITEM 1. REPORTS TO STOCKHOLDERS.
The report of Cornerstone Strategic Value Fund, Inc. (the "Registrant")
to stockholders for the year ended December 31, 2005 follows.
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CORNERSTONE STRATEGIC
VALUE FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2005
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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 12
Tax Information 13
Additional Information Regarding the Fund's
Directors and Corporate Officers 14
Description of Dividend Reinvestment Plan 17
Proxy Voting and Portfolio Holdings Information 19
Privacy Policy Notice 19
Summary of General Information 20
Shareholder Information 20
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CORNERSTONE STRATEGIC VALUE FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2005 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Financials 20.0
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Information Technology 15.1
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Healthcare 12.6
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Consumer Discretionary 10.7
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Industrials 10.5
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Consumer Staples 10.3
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Energy 9.1
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Utilities 3.5
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Telecommunication Services 2.9
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Materials 2.3
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Closed-End Domestic Funds 2.2
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Other 0.8
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. General Electric Co. Industrials 3.6
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2. Exxon Mobil Corp. Energy 3.4
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3. Microsoft Corp. Information Technology 2.7
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4. Citigroup Inc. Financials 2.6
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5. Procter & Gamble Co. (The) Consumer Staples 2.2
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6. EMC Corp. Information Technology 2.1
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7. Bank of America Corp. Financials 1.8
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8. American International Group, Inc. Financials 1.8
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9. Johnson & Johnson Healthcare 1.8
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10. Pfizer Inc. Healthcare 1.7
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1
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2005
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No. of
Description Shares Value
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EQUITY SECURITIES - 99.39%
CLOSED-END DOMESTIC FUNDS - 2.21%
Tri-Continental Corp. 77,000 $ 1,430,660
Zweig Fund, Inc. 176,600 932,448
Other Closed-End
Domestic Funds (a) 724,845
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3,087,953
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CONSUMER DISCRETIONARY - 10.67%
Comcast Corp., Class A + 35,037 909,561
eBay, Inc. + 19,000 821,750
Home Depot, Inc. (The) 30,600 1,238,688
Time Warner Inc. 76,000 1,325,440
Other Consumer
Discretionary (a) 10,610,494
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14,905,933
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CONSUMER STAPLES - 10.33%
Altria Group, Inc. 29,300 2,189,296
Coca-Cola Co. (The) 32,500 1,310,075
PepsiCo, Inc. 24,800 1,465,184
Procter & Gamble Co. (The) 53,297 3,084,830
Wal-Mart Stores, Inc. 39,800 1,862,640
Other Consumer Staples (a) 4,526,042
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14,438,067
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ENERGY - 9.12%
ChevronTexaco Corp. 27,532 1,562,992
ConocoPhillips 17,974 1,045,727
Exxon Mobil Corp. 84,000 4,718,280
Schlumberger Ltd. 11,000 1,068,650
Other Energy (a) 4,344,949
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12,740,598
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FINANCIALS - 19.96%
American International
Group, Inc. 37,531 2,560,740
Bank of America Corp. 55,616 2,566,678
Citigroup Inc. 74,300 3,605,779
Freddie Mac 14,500 947,575
No. of
Description Shares Value
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FINANCIALS (CONTINUED)
Goldman Sachs
Group, Inc. (The) 7,300 $ 932,283
JPMorgan Chase & Co. 48,332 1,918,297
Morgan Stanley 15,500 879,470
U.S. Bancorp ^ 28,401 848,906
Wachovia Corp. ^ 22,600 1,194,636
Wells Fargo & Co. 24,200 1,520,486
Other Financials (a) 10,908,663
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27,883,513
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HEALTHCARE - 12.62%
Abbott Laboratories ^ 21,000 828,030
Amgen Inc. + 18,900 1,490,454
Eli Lilly & Co. 14,500 820,555
Johnson & Johnson 40,900 2,458,090
Medtronic, Inc. 21,500 1,237,755
Merck & Co. Inc. 28,000 890,680
Pfizer Inc. ^ 99,660 2,324,071
UnitedHealth Group Inc. 23,000 1,429,220
Wyeth 19,200 884,544
Other Healthcare (a) 5,268,027
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17,631,426
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INDUSTRIALS - 10.44%
Boeing Company (The) 11,700 821,808
General Electric Co. 141,700 4,966,585
Tyco International Ltd. 33,397 963,837
United Parcel
Service, Inc., Class B 16,300 1,224,945
Other Industrials (a) 6,604,458
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14,581,633
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INFORMATION TECHNOLOGY - 15.10%
Cisco Systems, Inc. + 96,400 1,650,368
Dell Inc. + 29,700 890,703
EMC Corp. + 212,648 2,896,266
Intel Corp. 82,500 2,059,200
International Business
Machines Corp. 21,000 1,726,200
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See accompanying notes to financial statements
2
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2005(CONTINUED)
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No. of
Description Shares Value
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INFORMATION TECHNOLOGY (CONTINUED)
Microsoft Corp. 142,100 $ 3,715,915
QUALCOMM Inc. ^ 21,000 904,680
Other Information
Technology (a) 7,254,019
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21,097,351
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MATERIALS - 2.28%
Total Materials (a) 3,177,109
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REAL ESTATE INVESTMENT TRUSTS - 0.22%
Total Real Estate
Investment Trusts (a) 306,520
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TELECOMMUNICATION SERVICES - 2.92%
AT&T Inc. 48,364 1,184,434
Sprint Corp. 38,446 898,099
Verizon
Communications Inc. ^ 37,100 1,117,452
Other Telecommunication
Services (a) 875,700
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4,075,685
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UTILITIES - 3.52%
Total Utilities (a) 4,926,918
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TOTAL EQUITY SECURITIES
(cost - $126,420,026) 138,852,706
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Principal
Amount
Description (000's) Value
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SHORT-TERM INVESTMENTS - 2.11%
REPURCHASE AGREEMENTS - 2.11%
Bear, Stearns & Co. Inc.*
(Agreement dated 12/31/05
to be repurchased at
$2,945,898) (b) $ 2,945 $ 2,944,899
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TOTAL SHORT-TERM INVESTMENTS
(cost - $2,944,899) 2,944,899
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TOTAL INVESTMENTS - 101.50%
(cost - $129,364,925) 141,797,605
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LIABILITIES IN EXCESS OF
OTHER ASSETS - (1.50)% (2,091,489)
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NET ASSETS - 100.00% $ 139,706,116
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+ Non-income producing security.
^ Security or a portion thereof is out on loan.
* Includes investments purchased with cash collateral received for securities
on loan.
(a) Represents issues 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, 2005.
(b) At December 31, 2005, the maturity date for all repurchase agreements held
was 01/03/06, with interest rates ranging from 2.00% to 4.00%, and
collateralized by $3,035,279 in U.S. Treasury Bonds.
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See accompanying notes to financial statements.
3
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CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2005
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ASSETS
Investments, at value, including
collateral for securities on loan of
$1,708,575 (Cost $129,364,925) (1) $ 141,797,605
Receivables:
Securities sold 178,970
Dividends 177,445
Interest 4,855
Prepaid expenses 1,994
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Total Assets 142,160,869
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LIABILITIES
Payables:
Upon return of securities loaned 1,708,575
Securities purchased 537,266
Investment management fees 114,157
Directors' fees 28,161
Other accrued expenses 66,594
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Total Liabilities 2,454,753
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NET ASSETS (applicable to 24,710,305
shares of common stock outstanding) $ 139,706,116
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NET ASSET VALUE PER SHARE
($139,706,116 / 24,710,305) $ 5.65
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NET ASSETS CONSISTS OF
Capital stock, $0.001 par value;
24,710,305 shares issued and outstanding
(100,000,000 shares authorized) $ 24,710
Paid-in capital 159,540,411
Cost of 2,239,440 shares repurchased (26,999,661)
Accumulated net realized loss on investments (5,292,024)
Net unrealized appreciation in value of investments 12,432,680
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Net assets applicable to shares outstanding $ 139,706,116
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(1) Includes securities out on loan to brokers with a market value of
$1,685,896.
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See accompanying notes to financial statements.
4
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CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2005
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INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $428) $ 2,506,367
Securities lending 38,615
Interest 34,513
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Total Investment Income 2,579,495
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Expenses:
Investment management fees 1,446,817
Administration fees 144,796
Legal and audit fees 113,957
Directors' fees 108,000
Printing 41,533
Accounting fees 40,933
Custodian fees 26,072
Transfer agent fees 22,999
Stock exchange listing fees 16,087
Insurance 7,199
Miscellaneous 4,000
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Total Expenses 1,972,393
Less: Management fee waivers (153,244)
Less: Fees paid indirectly (74,407)
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Net Expenses 1,744,742
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Net Investment Income 834,753
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments 27,008,793
Net change in unrealized appreciation in value of investments (22,438,516)
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Net realized and unrealized gain on investments 4,570,277
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,405,030
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See accompanying notes to financial statements.
5
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CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
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For the Years Ended
December 31,
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2005 2004
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INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income $ 834,753 $ 646,242
Net realized gain/(loss) from investments 27,008,793 (127,914)
Net change in unrealized appreciation
in value of investments (22,438,516) 12,198,020
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Net increase in net assets resulting
from operations 5,405,030 12,716,348
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Dividends and distributions to shareholders:
Net investment income (980,195) (729,442)
Net realized capital gains (24,369,995) --
Return-of-capital -- (13,677,285)
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Total dividends and distributions to shareholders (25,350,190) (14,406,727)
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Capital stock transactions:
Net assets received in conjunction
with Merger Agreement -- 127,962,525
Proceeds from 832,602 and 263,935 shares newly issued
in reinvestment of dividends and distributions,
respectively 4,961,290 1,852,533
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Net increase in net assets resulting
from capital stock transactions 4,961,290 129,815,058
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Total increase/(decrease) in net assets (14,983,870) 128,124,679
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NET ASSETS
Beginning of year 154,689,986 26,565,307
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End of year $ 139,706,116 $ 154,689,986
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See accompanying notes to financial statements
6
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CORNERSTONE STRATEGIC VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
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Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
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For the Years Ended December 31,
2005 2004 2003 2002 2001
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year $ 6.48 $ 6.90 $ 6.41 $ 9.20 $ 11.31
--------- -------- -------- -------- ---------
Net investment income/(loss) # 0.03 0.05 0.04 (0.01) (0.06)
Net realized and unrealized gain/(loss)
on investments and foreign currency
related translations 0.18 0.55 1.44 (2.29) (2.13)
--------- -------- -------- -------- ---------
Net increase/(decrease) in net assets
resulting from operations 0.21 0.60 1.48 (2.30) (2.19)
--------- -------- -------- -------- ---------
Dividends and distributions to shareholders:
Net investment income (0.04) (0.05) (0.04) -- --
Net realized gain on investments and
foreign currency related transactions (1.00) -- -- -- --
Return-of-capital -- (0.99) (0.95) (0.50) --
--------- -------- -------- -------- ---------
Total dividends and distributions to shareholders (1.04) (1.04) (0.99) (0.50) --
--------- -------- -------- -------- ---------
Capital stock transactions:
Anti-dilutive effect due to capital
stock repurchased -- -- -- 0.02 0.08
Anti-dilutive/(dilutive) effect due to shares issued
in reinvestment of dividends and distributions -- 0.02 -- (0.01) --
--------- -------- -------- -------- ---------
Total capital stock transactions -- 0.02 -- 0.01 0.08
--------- -------- -------- -------- ---------
Net asset value, end of year $ 5.65 $ 6.48 $ 6.90 $ 6.41 $ 9.20
========= ======== ======== ======== =========
Market value, end of year $ 7.05 $ 8.51 $ 9.00 $ 5.85 $ 8.05
========= ======== ======== ======== =========
Total investment return (a) (1.32)% 8.38% 77.69% (20.85)% (23.98)%
========= ======== ======== ======== =========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 139,706 $ 154,690 $ 26,565 $ 24,376 $ 35,256
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.20% 1.28% 1.20% 1.80% 1.77%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 1.36% 1.50% 1.59% 2.17% 2.11%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.26% 1.36% 1.25% 1.86% 1.95%
Ratio of net investment income/(loss) to
average net assets 0.58% 0.73% 0.68% (0.13)% (0.64)%
Portfolio turnover rate 21.60% 39.05% 11.88% 29.63% 59.83%
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# Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in market
price of a share during the year and assumes reinvestment of dividends and
distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions.
(b) Expenses are net of fees paid indirectly.
(c) Expenses exclude the reduction for fees paid indirectly.
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See accompanying notes to financial statements.
7
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CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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NOTE A. SIGNIFICANT ACCOUNTING POLICIES
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 in equity securities of companies listed in the United States. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company. On June 25, 2004, the
Fund consummated tax-free mergers with Progressive Return Fund, Inc. ("PGF") and
Investors First Fund, Inc. ("MGC") (collectively, the "Predecessor Funds").
Pursuant to the terms of the agreements governing the mergers, each share of
common stock of the Predecessor Funds was converted into an equivalent dollar
amount of full shares of common stock of the Fund, based on the net asset values
of the Fund, MGC and PGF as of June 25, 2004 ($6.47, $10.42 and $20.96,
respectively), resulting in a conversion ratio of 1.6094 and 3.2378 shares of
the Fund for each share of MGC and PGF, respectively. This resulted in the
issuance of 15,955,350 and 3,808,891 Fund shares for MGC and PGF, respectively.
Cash was paid in lieu of fractional shares. Net assets of the Fund, MGC and PGF
as of the merger date were $25,105,399, $103,302,250 and $24,660,275, including
unrealized appreciation/(depreciation) of $2,516,413, $23,078,675 and
$(2,519,953), respectively. In addition, PGF's net assets included undistributed
capital losses of $13,754,555. Total net assets after the merger were
$153,067,924.
The following is a summary of significant accounting policies consistently
followed by the Fund:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make certain estimates and assumptions that may
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities shall be valued at the closing price
on the exchange or market on which the security is primarily traded ("Primary
Market"). If the security did not trade on the Primary Market, it shall be
valued at the closing price on another exchange where it trades. If there are no
such sale prices, the value shall be the most recent bid, and if there is no
bid, the security shall be valued at the most recent asked. If no pricing
service is available and there are more than two dealers, the value shall be the
mean of the highest bid and lowest ask. If there is only one dealer, then the
value shall be the mean if bid and ask are available, otherwise the value shall
be the bid. All other securities and assets are valued as determined in good
faith by the Board of Directors. Short-term investments having a maturity of 60
days or less are valued on the basis of amortized cost. Securities and assets
for which market quotations are not readily available are valued at their fair
value as determined in good faith under procedures established by and under the
general supervision of the Board. Fair valuation methodologies and procedures
may include, but are not limited to: analysis and review of financial and
non-financial information abut the company; comparisons to the valuation and
changes in valuation of similar securities, including reference to special
reports prepared by analysts and or reports published in the financial press,
the financial conditions and prospects of the issuer available, including
considering any recent management or capital structure changes or other recent
events that may impact the price of the security; and evaluation of any other
information that could be indicative of the value of the security. At December
31, 2005, 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
American Stock Exchange, LLC is closed.
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8
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CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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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 Advisors, Inc. (the Fund's "Investment
Manager" or "Cornerstone") considers creditworthy. The seller under a repurchase
agreement will be required to maintain the value of the securities as
collateral, subject to the agreement at not less than the repurchase price plus
accrued interest. Cornerstone monitors daily, 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.
DISTRIBUTIONS OF INCOME AND GAINS: Effective June 25, 2002, the Fund initiated a
fixed, monthly distribution to shareholders. 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 annually whether to distribute any
net realized long-term capital gains in excess of net realized short-term
capital losses, including capital loss carryovers, if any. To the extent that
the Fund's taxable income in any calendar year exceeds the aggregate amount
distributed pursuant to this distribution policy, an additional distribution may
be made to avoid the payment of a 4% U.S. federal excise tax, and to the extent
that the aggregate amount distributed in any calendar year exceeds the Fund's
taxable income, the amount of that excess may constitute a return-of-capital for
tax purposes. A return-of-capital distribution reduces the cost basis of an
investor's shares in the Fund. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
NOTE B. AGREEMENTS
Cornerstone serves as the Fund's Investment Manager with respect to all
investments. As compensation for its investment management services, Cornerstone
receives from the Fund, an annual fee, calculated weekly and paid monthly, equal
to 1.00% of the Fund's average weekly net assets. During the year ended December
31, 2005, Cornerstone volun-
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9
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CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
tarily agreed to waive its management fees from the Fund to the extent that
monthly operating expenses exceed a rate of 0.10% of average net assets
calculated monthly. For the year 2006, Cornerstone undertakes to waive its
advisory fees to the extent that the Fund's net monthly operating expenses
(including basic legal fees but excluding other legal expenses) exceed a
specified rate of average net assets of 0.10%. For the year ended December 31,
2005, Cornerstone earned $1,446,817 for investment management services, of which
it waived $153,244. The Investment Manager may discontinue such undertaking at
any time during the fiscal year without notice to fund shareholders.
Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY,
are expense offsets of $74,407 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $95,955 for the year ended December 31,
2005 for legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas
R. Westle, partner of Blank, serves as Secretary of the Fund.
NOTE C. INVESTMENT IN SECURITIES
For the year ended December 31, 2005, purchases and sales of securities, other
than short-term investments, were $31,215,063 and $51,120,254 respectively.
NOTE D. SECURITIES LENDING
To generate additional income, the Fund may lend up to 10% of its total assets.
The Fund receives payments from borrowers equivalent to the dividends and
interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount. The value of securities on loan to brokers at
December 31, 2005, was $1,685,896.
During the year ended December 31, 2005, the Fund earned $38,615 in securities
lending income which is included under the caption Interest in the Statement of
Operations.
NOTE E. 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
--------------- -----------------
2005 2004 2005 2004
---- ---- ---- ----
$980,195 $729,442 -- $13,677,285
LONG-TERM CAPITAL GAINS
-----------------------
2005 2004
---- ----
$24,369,995 --
At December 31, 2005, the components of distributable earnings on a tax basis,
for the Fund were as follows:
Accumulated net realized loss $ (5,292,024)
Unrealized appreciation 12,432,680
------------
Total distributable earnings $ 7,140,656
============
================================================================================
10
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Fund reclassified $145,442 from distributions in excess of net investment
income and $34,657 from accumulated net realized loss to paid-in capital to
adjust for certain permanent book/tax differences.
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred and treated as occurring on the first day of the
following tax year ("Post-October losses"). For the tax period ended December
31, 2005, the Fund did not incur Post-October losses. At December 31, 2005, the
Fund had a capital loss carryforward for U.S. federal income tax purposes of
$5,292,024 of which $2,547,381 expires in 2008, $1,281,365 expires in 2009,
$693,207 expires in 2010, $635,700 expires in 2011 and $134,371 expires in 2012.
At December 31, 2005, 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 $129,364,925, $18,929,755,
$(6,497,075) and $12,432,680, respectively.
================================================================================
11
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 schedule of investments as
of December 31, 2005, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four 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. The financial highlights for the year ended December 31, 2001 have been
audited by other auditors, whose report dated February 8, 2002 expressed an
unqualified opinion on such financial highlights.
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. We were
not engaged to perform an audit of the Fund's 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. Our procedures included confirmation of securities owned as of
December 31, 2005 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. 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, 2005, 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 four 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 7, 2006
================================================================================
12
2005 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, 2005) as to the U.S. federal
tax status of the dividends and distributions received by the Fund's
shareholders in respect of such fiscal year. During the year ended December 31,
2005 the following dividends and distributions per share were paid by the Fund:
SOURCES OF DIVIDENDS AND DISTRIBUTIONS
(PER SHARE AMOUNTS)
PAYMENT DATES: 1/31/05 2/28/05 3/31/05 4/29/05 5/31/05 6/30/05
------- ------- ------- ------- ------- -------
Ordinary Income(1) $ 0.003 $ 0.003 $ 0.003 $ 0.003 $ 0.003 $ 0.003
Long-term Capital Gains(2) $ 0.084 $ 0.084 $ 0.084 $ 0.084 $ 0.084 $ 0.084
------- ------- ------- ------- ------- -------
Total: $ 0.087 $ 0.087 $ 0.087 $ 0.087 $ 0.087 $ 0.087
======= ======= ======= ======= ======= =======
PAYMENT DATES: 7/31/05 8/31/05 9/30/05 10/31/05 11/30/05 12/30/05
------- ------- ------- -------- -------- --------
Ordinary Income(1) $ 0.003 $ 0.003 $ 0.003 $ 0.003 $ 0.003 $ 0.003
Long-term Capital Gains(2) $ 0.084 $ 0.084 $ 0.084 $ 0.084 $ 0.084 $ 0.084
------- ------- ------- ------- ------- -------
Total: $ 0.087 $ 0.087 $ 0.087 $ 0.087 $ 0.087 $ 0.087
======= ======= ======= ======= ======= =======
--------------------------------------------------------------------------------------------------------
(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) LONG-TERM CAPITAL GAINS- This is the per share amount of the total
long-term capital gain distributions reported in Box 2a on Form 1099-DIV.
The Fund has met the requirements to pass through all of its (100%) 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.
Long-term capital gain distributions arise from gains on securities held by the
Fund for more than one year. They are subject to a maximum federal rate of 15%.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their distribution(s).
In general, distributions received by tax-exempt recipients (e.g., IRA's and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund.
================================================================================
13
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
(AGE)* HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS
--------------------------------------------------------------------------------------------------------------------
Ralph W. Chairman of the President, Cornerstone Advisors, Inc.; 1998 2
Bradshaw** Board of Financial Consultant; previous Director
(55) Directors and of The Austria Fund, Inc.; President
President and Director of Cornerstone Total
Return Fund, Inc.
William A. Director and Vice Director and Stockholder of 2004 2
Clark** President Cornerstone Advisors, Inc., former
(60) financial consultant of Deep Discount
Advisors, Inc.; previous Director of
The Austria Fund, Inc.; Director of
Cornerstone Total Return Fund, Inc.
Glenn W. Director; Audit Chairman of the Board and Chief 2000 2
Wilcox, Sr. Committee Executive Officer of Wilcox Travel
(74) Chairman, Agency, Inc.; Director, Champion
Nominating and Industries, Inc.; Chairman of Tower
Corporate Associates, Inc. (a real estate venture);
Governance Director of Wachovia Corp. WNC
Committee Regional Advisory Board; Director and
Member Chairman of Audit Committee of
Cornerstone Total Return Fund, Inc.
Thomas H. Director; Audit, Chairman of the Board of Photonics 1987 2
Lenagh Nominating and Products Group; Independent Financial
(83) Corporate Adviser; Director of The Adams Express
Governance Company and Petroleum and Resources
Committee Corporation; Director of Cornerstone
Member Total Return Fund, Inc.
Edwin Director; Audit, Distinguished Fellow, The Heritage 2001 2
Meese III Nominating and Foundation, Washington D.C.;
(74) Corporate Distinguished Visiting Fellow at the
Governance Hoover Institution, Stanford University;
Committee Senior Adviser, Revelation L.P .; formerly
Member U.S. Attorney General under President
Ronald Reagan; Director of Carrington
Laboratories Inc.; Director of
Cornerstone Total Return Fund, Inc.
================================================================================
14
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
(AGE)* HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS
----------------------------------------------------------------------------------------------------------------------
Scott B. Rogers Director; Audit, Chief Executive Officer, Asheville 2000 2
(50) Nominating and Buncombe Community Christian
Corporate Ministry; President, ABCCM Doctor's
Governance Medical Clinic; Appointee, NC
Committee Governor's Commission on Welfare to
Member Work; Chairman and Director, Recycling
Unlimited; Director of A-B Vision Board,
Interdenominational Ministerial Alliance,
Faith Partnerships, Inc.; Director of
Cornerstone Total Return Fund, Inc.
Andrew A. Director; Attorney and senior member of Strauss 2000 2
Strauss Chairman of & Associates, P.A., Attorneys, Asheville
(52) Nominating and and Hendersonville, NC; previous
Corporate President of White Knight Healthcare,
Governance Inc. and LMV Leasing, Inc., a wholly
Committees and owned subsidiary of Xerox Credit
Audit Committee Corporation; Director of Memorial
Member Mission Hospital Foundation, Deerfield
Episcopal Retirement Community and
Asheville Symphony; Director of
Cornerstone Total Return Fund, Inc.
================================================================================
15
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS
AND CORPORATE OFFICERS (UNAUDITED) (CONCLUDED)
NAME AND POSITION
ADDRESS POSITION PRINCIPAL OCCUPATION WITH FUND
(AGE)* HELD WITH FUND OVER LAST 5 YEARS SINCE
-----------------------------------------------------------------------------------------------------------------
Gary A. Bentz** Chief Compliance Chief Financial Officer, Chairman and 2004
(49) Officer Stockholder of Cornerstone Advisors, Inc.;
previous Director, Vice President and
Treasurer of the Fund and Cornerstone Total
Return Fund; previous Director of The Austria
Fund, Inc., Financial Consultant, Certified
Public Accountant; Chief Compliance Officer
of Cornerstone Total Return Fund, Inc.
Thomas R. Westle Secretary Partner, Blank Rome LLP, a law firm; previous 2000
405 Lexington Avenue partner, Spitzer & Feldman P.C., a law firm.
New York, NY 10174
(52)
Jodi B. Levine Treasurer Associate Director, Bear Stearns & Co. Inc. 2004
(36)
------------------------------------------------------------------------------------------------------------------
* The mailing address of each Director and/or Officer with respect to the
Fund's operation is 383 Madison Ave.-23rd Floor, New York, NY 10179,
unless otherwise indicated.
** Designates a director who is an "interested person" of the Fund as defined
by the Investment Company Act of 1940, as amended. Messrs. Bradshaw and
Clark are interested persons of the Fund by virtue of their current
positions with the Investment Manager of the Fund.
================================================================================
16
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment Plan (the "Plan"),
unless and until an election is made to withdraw from the Plan on behalf of such
participating shareholders. Shareholders who do not wish to have distributions
automatically reinvested should so notify American Stock Transfer & Trust Co.
(the "Agent") at P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or
call (877) 248-6416. Under the Plan, all of the Fund's dividends and other
distributions to shareholders are reinvested in full and fractional Shares as
described below.
When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Distribution" and collectively, "Distributions"), the
Agent, on the shareholders' 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) at the sole
discretion of the Board of Directors, be authorized to purchase outstanding
shares on the open market, on the American Stock Exchange, LLC or elsewhere,
with cash allocated to it by the Fund ("Open Market Purchases").
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. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at the lower of (i) a price equal to the average
closing price of the Fund over the five trading days preceding the payment of
such distribution, or (ii) the net asset value of the Fund as last determined
prior to such payment date.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Distributions automatically reinvested should
so notify the Fund in writing. If a Shareholder has not elected to receive cash
Distributions and the Agent does not receive notice of an election to receive
cash Distributions prior to the record date of any distribution, the shareholder
will automatically receive such Distributions in additional Shares.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Distribution payment date.
When a participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares credited to his/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 each Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. 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.
There will be no charge to participants for reinvesting Distributions other than
their share of brokerage commissions as discussed below. The Agent's fees for
administering the Plan and handling the reinvestment of Distributions will be
paid by the
================================================================================
17
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
Fund. Each participant's account will be charged a pro-rata share of brokerage
commissions incurred with respect to the Agent's Open Market Purchases in
connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of shares for individual accounts
through the Plan are expected to be less than the usual brokerage charges for
such transactions because the Agent will be purchasing shares for all the
participants in blocks and pro-rating the lower commission that may be
attainable.
The automatic reinvestment of Distributions will not relieve participants of any
income tax that may be payable on such Distributions. Participants who receive
shares pursuant to the Plan as described above will recognize taxable income in
the amount of the fair market value of those shares. In the case of non-U.S.
participants whose Distributions are subject to U.S. income tax withholding and
in the case of participants subject to 28% federal backup withholding, the Agent
will reinvest Distributions after deduction of the amount required to be
withheld.
The Fund reserves the right to amend or terminate the Plan by written notice to
participants. All correspondence concerning the Plan should be directed to the
Agent at the address referred to in the first paragraph of this section.
================================================================================
18
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how the 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: o by calling (212) 272-3550; o 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 (212) 272-3550.
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
1-800-SEC-0330.
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: this category includes
information about your trans- actions 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.
================================================================================
19
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
The Fund - Cornerstone Strategic Value Fund, Inc. is a closed-end, diversified
investment company whose shares trade on the American Stock Exchange, LLC. Its
investment objective is to seek long-term capital appreciation through
investment in equity securities of companies listed in the United States. The
Fund is managed by Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the American Stock Exchange, LLC (symbol "CLM"). The share
price is published in: THE NEW YORK TIMES (daily) under the designation
"CornerStrt" and THE WALL STREET JOURNAL (daily) and BARRON'S (each Monday)
under the designation "CornstnStrat." The net asset value per share is available
weekly and may be obtained by contacting the Fund at the general inquiry phone
number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE 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.
--------------------------------------------------------------------------------
================================================================================
20
CORNERSTONE STRATEGIC VALUE FUND, INC.
================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
William A. Clark Director and Vice 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
Thomas R. Westle Secretary
Jodi B. Levine Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock Transfer &
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 10038
INDEPENDENT REGISTERED
ADMINISTRATOR PUBLIC ACCOUNTING FIRM
Bear Stearns Funds Tait, Weller & Baker, LLP
Management Inc. 1818 Market Street
383 Madison Avenue Suite 2400
New York, NY 10179 Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Blank Rome LLP
101 Carnegie Center 405 Lexington Avenue
Princeton, NJ 08540 New York, NY 10174
EXECUTIVE OFFICES
383 Madison Avenue
New York, NY 10179
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (212) 272-3550.
AMERICAN
STOCK EXCHANAGE(R)
LISTED
CLM(tm)
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), 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.
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,
2005 and December 31, 2004.
2005 2004
------- -------
Audit Fees $15,600 $15,000
Audit-related Fees -- --
Tax (1) $ 3,100 $ 3,000
Other -- $ 4,250*
------- -------
Total $18,700 $22,250
======= =======
(1) Tax services in connection with the registrant's excise tax calculations and
review of the registrant's applicable tax returns.
* These fees are related to the mergers of Progressive Return Fund, Inc. and
Investors First Fund, Inc. with and into Cornerstone Strategic Value Fund, Inc.
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
Before the auditor is (i) engaged by the Registrant to render audit,
audit related or permissible non-audit services to the Registrant or (ii) with
respect to non-audit services to be provided by the auditor to the Registrant's
investment adviser or any entity in the investment Registrant complex, if the
nature of the services provided relate directly to the operations or financial
reporting of the Registrant, either: (a) the Audit Committee shall pre-approve
such engagement; or (b) such engagement shall be entered into pursuant to
pre-approval policies and procedures established by the Audit Committee. Any
such policies and procedures must be detailed as to the particular service and
not involve any delegation of the Audit Committee's responsibilities to the
Registrant's investment adviser. The Audit Committee may delegate to one or more
of its members the authority to grant pre-approvals. The pre-approval policies
and procedures shall include the requirement that the decisions of any member to
whom authority is delegated under this provision shall be presented to the full
Audit Committee at its next scheduled meeting. Under certain limited
circumstances, pre-approvals are not required if certain de minimis thresholds
are not exceeded, as such thresholds are set forth by the Audit Committee and in
accordance with applicable SEC rules and regulations.
(e)(2) None of the services provided to the Registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) There were no non-audit fees billed by Tait, Weller & Baker LLP for services
rendered to the Registrant, the Registrant's investment advisor (not including
any sub-advisor whose role is primarily portfolio management and is
subcontracted with or overseen by another investment advisor) or any entity
controlling, controlled by, or under common control with the investment advisor
that provides ongoing services to the Registrant for the Registrant's last two
fiscal years (December 31, 2004 and December 31, 2005).
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities and
Exchange Act of 1934, as amended. Glenn Wilcox (Chair), Edwin Meese, Thomas
Lenagh, Andy Strauss and Scott Rogers are the members of the Registrant's audit
committee.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2005
EQUITY SECURITIES - 99.39% SHARES VALUE
------ -----
CLOSED-END DOMESTIC FUNDS - 2.21%
Adams Express Co. 49,500 $ 621,225
General American Investors Company, Inc. 3,000 103,620
Tri-Continental Corp. 77,000 1,430,660
Zweig Fund, Inc. 176,600 932,448
-----------
3,087,953
===========
CONSUMER DISCRETIONARY - 10.67%
Acco Brands Corporation 235 5,757
Bed Bath & Beyond Inc. + 4,200 151,830
Best Buy Co., Inc. ^ 7,125 309,795
Black & Decker Corp. 3,000 260,880
Carnival Corp. 11,800 630,946
CCE Spinco, Inc. + ^^ 1,100 14,410
Circuit City Stores, Inc. 5,000 112,950
Clear Channel Communications, Inc. 8,800 276,760
Comcast Corp., Class A + 35,037 909,561
D.R. Horton, Inc. 7,000 250,110
Eastman Kodak Co. 1,400 32,760
eBay, Inc. + 19,000 821,750
Federated Department Stores, Inc. 5,526 366,540
Ford Motor Company 26,300 203,036
Fortune Brands, Inc. 3,500 273,070
Gannett Co., Inc. 6,000 363,420
Gap, Inc. (The) ^ 12,200 215,208
Goodyear Tire & Rubber Company (The) + ^ 4,500 78,210
Harley-Davidson, Inc. ^ 4,400 226,556
Hilton Hotels Corp. 11,200 270,032
Home Depot, Inc. (The) 30,600 1,238,688
J.C. Penney Company, Inc. 4,500 250,200
Kohl's Corp. + ^ 5,000 243,000
Lowe's Companies, Inc. ^ 11,200 746,592
Marriott International, Inc., Class A 2,100 140,637
Mattel, Inc. 5,500 87,010
McDonald's Corp. ^ 17,600 593,472
News Corporation, Class A 30,000 466,500
NIKE, Inc., Class B 2,300 199,617
Omnicom Group Inc. 4,100 349,033
Reebok International Ltd. 1,500 87,345
Sears Holdings Corp. + 503 58,112
Staples, Inc. 10,800 245,268
Starbucks Corp. + 10,800 324,108
Target Corporation 11,800 648,646
Time Warner Inc. 76,000 1,325,440
TJX Companies, Inc. (The) 7,000 162,610
Univision Communications Inc., Class A + 7,000 205,730
Viacom Inc., non-voting Class B 23,900 779,140
Walt Disney Co. (The) 29,200 699,924
Yum! Brands, Inc. 6,000 281,280
-----------
14,905,933
===========
CONSUMER STAPLES - 10.33%
Altria Group, Inc. 29,300 2,189,296
Anheuser-Busch Companies, Inc. 16,700 717,432
Archer Daniels Midland Company 5,460 134,644
Campbell Soup Company 2,000 59,540
Coca-Cola Co. (The) 32,500 1,310,075
Coca-Cola Enterprises Inc. 6,500 124,605
Colgate-Palmolive Company 11,100 608,835
ConAgra Foods, Inc. ^ 4,400 89,232
Costco Wholesale Corp. 6,500 321,555
CVS Corp. 5,000 132,100
General Mills, Inc. 9,500 468,540
H.J. Heinz Co. 6,600 222,552
Kimberly-Clark Corporation 6,900 411,585
Kroger Co. (The) + 4,800 90,624
Pepsi Bottling Group, Inc. (The) 4,000 114,440
PepsiCo, Inc. 24,800 1,465,184
Procter & Gamble Co. (The) 53,297 3,084,830
Sara Lee Corp. 11,500 217,350
Sysco Corp. 5,800 180,090
Walgreen Co. 14,300 632,918
Wal-Mart Stores, Inc. 39,800 1,862,640
-----------
14,438,067
===========
ENERGY - 9.12%
Anadarko Petroleum Corp. 5,900 559,025
Baker Hughes Inc. ^ 8,100 492,318
ChevronTexaco Corp. 27,532 1,562,992
ConocoPhillips 17,974 1,045,727
Devon Energy Corporation 5,000 312,700
Exxon Mobil Corp. 84,000 4,718,280
FMC Technologies, Inc. + 7,300 313,316
Marathon Oil Corp. 7,500 457,275
Occidental Petroleum Corp. 8,000 639,040
Peabody Energy Corp. ^ 8,000 659,360
Schlumberger Ltd. 11,000 1,068,650
Transocean Inc. + 2,500 174,225
Western Gas Resources, Inc. 11,000 517,990
XTO Energy Inc. 5,000 219,700
-----------
12,740,598
===========
FINANCIALS - 19.96%
AFLAC Inc. 7,000 324,940
Allstate Corp. (The) 9,300 502,851
American Express Company 15,600 802,776
American International Group, Inc. 37,531 2,560,740
Ameriprise Financial, Inc. 3,120 127,920
AONCorporation 4,900 176,155
Bank of America Corp. 55,616 2,566,678
Bank of New York Co., Inc. (The) 11,400 363,090
Charles Schwab Corporation (The) 12,000 176,040
Citigroup Inc. 74,300 3,605,779
Fannie Mae 13,000 634,530
Fifth Third Bancorp 9,000 339,480
Franklin Resources, Inc. ^ 3,700 347,837
Freddie Mac 14,500 947,575
Goldman Sachs Group, Inc. (The) 7,300 932,283
Hartford Financial Services Group, Inc. (The) 6,000 515,340
JPMorgan Chase & Co. 48,332 1,918,297
Lehman Brothers Holding Inc. 3,600 461,412
Marsh & McLennan Companies, Inc. ^ 10,100 320,776
MBNA Corp. 24,600 668,136
Merrill Lynch & Co., Inc. 10,700 724,711
MetLife, Inc. 15,200 744,800
Morgan Stanley 15,500 879,470
National City Corp. 12,700 426,339
Northern Trust Corp. ^ 3,500 181,370
PNC Financial Services Group, Inc. 7,100 438,993
Prudential Financial, Inc. ^ 8,200 600,158
St. Paul Travelers Companies, Inc. (The) 9,476 423,293
State Street Corp. 3,500 194,040
SunTrust Banks, Inc. 7,600 552,976
U.S. Bancorp ^ 28,401 848,906
UnumProvident Corp. 8,100 184,275
Wachovia Corp. ^ 22,600 1,194,636
Washington Mutual, Inc. 15,550 676,425
Wells Fargo & Co. 24,200 1,520,486
-----------
27,883,513
===========
HEALTHCARE - 12.62%
Abbott Laboratories ^ 21,000 828,030
Aetna Inc. 6,000 565,860
Amgen Inc. + 18,900 1,490,454
Applera Corp. - Applied Biosystems Group 8,000 212,480
Becton, Dickinson & Co. 3,900 234,312
Biogen Idec Inc. 8,000 362,640
Boston Scientific Corp. + 12,300 301,227
Bristol-Myers Squibb Co. ^ 30,500 700,890
Cardinal Health, Inc. 5,450 374,687
Caremark Rx, Inc. + 9,000 466,110
Eli Lilly & Co. 14,500 820,555
Guidant Corp. 6,400 414,400
HCA, Inc. 8,500 429,250
Hospira, Inc. + ^ 3,700 158,286
IMS Health Inc. 7,400 184,408
Johnson & Johnson 40,900 2,458,090
McKesson Corp. 2,300 118,657
Medco Health Solutions, Inc. + 6,687 373,135
Medtronic, Inc. 21,500 1,237,755
Merck & Co. Inc. 28,000 890,680
Pfizer Inc. ^ 99,660 2,324,071
Schering-Plough Corp. 17,000 354,450
Tenet Healthcare Corp. + 2,250 17,235
United Health Group Inc. 23,000 1,429,220
Wyeth 19,200 884,544
-----------
17,631,426
===========
INDUSTRIALS - 10.44%
3M Co. 10,400 806,000
Boeing Company (The) 11,700 821,808
Caterpillar Inc. 11,800 681,686
Cendant Corp. 19,000 327,750
CSX Corp. 5,000 253,850
Emerson Electric Co. 8,500 634,950
FedEx Corp. 4,500 465,255
General Dynamics Corp. 3,100 353,555
General Electric Co. 141,700 4,966,585
Honeywell International Inc. 12,500 465,625
Illinois Tool Works Inc. 2,400 211,176
Lockheed Martin Corp. 4,000 254,520
Masco Corp. 4,200 126,798
Northrop Grumman Corp. 5,000 300,550
Rockwell Automation, Inc. 2,500 147,900
Southwest Airlines Co. 6,450 105,973
Tyco International Ltd. 33,397 963,837
Union Pacific Corp. 2,000 161,020
United Parcel Service, Inc., Class B 16,300 1,224,945
United Technologies Corp. 14,400 805,104
Waste Management, Inc. 8,200 248,870
Yellow Roadway Corp. + 5,691 253,876
-----------
14,581,633
===========
INFORMATION TECHNOLOGY - 15.10%
Adobe Systems Inc. 9,200 340,032
Altera Corp. + 3,400 63,002
Analog Devices, Inc. 6,700 240,329
Apple Computer, Inc. + 3,000 215,670
Applied Materials, Inc. 23,800 426,972
Automatic Data Processing, Inc. 9,900 454,311
Cisco Systems, Inc. + 96,400 1,650,368
Corning Inc. + 17,000 334,220
Dell Inc. + 29,700 890,703
Electronic Arts Inc. + 2,000 104,620
Electronic Data Systems Corp. 10,000 240,400
EMC Corp. + 212,648 2,896,266
First Data Corporation 11,324 487,045
Freescale Semiconductor Inc., Class B + 6,512 163,907
Hewlett-Packard Co. 27,900 798,777
Intel Corp. 82,500 2,059,200
International Business Machines Corp. 21,000 1,726,200
Linear Technology Corp. ^ 6,500 234,455
Lucent Technologies Inc. + 10,700 28,462
Maxim Integrated Products, Inc. 2,300 83,352
Micron Technology, Inc. + 11,500 153,065
Microsoft Corp. 142,100 3,715,915
Motorola, Inc. 34,700 783,873
Oracle Corp. + 46,100 562,881
Paychex, Inc. 4,200 160,104
QUALCOMM Inc. ^ 21,000 904,680
Sanmina-SCI Corp. + 5,500 23,430
Siebel Systems, Inc. 2,500 26,450
Solectron Corp. + ^ 3,000 10,980
Sun Microsystems, Inc. + ^ 7,500 31,425
Symantec Corp. + 10,000 175,000
Texas Instruments Inc. ^ 23,900 766,473
Yahoo! Inc. + 8,800 344,784
-----------
21,097,351
===========
MATERIALS - 2.28%
Air Products & Chemicals, Inc. 1,000 59,190
Alcoa Inc. 14,200 419,894
Dow Chemical Co. (The) 15,400 674,828
E.I. du Pont de Nemours & Co. 14,800 629,000
International Paper Co. 10,500 352,905
Monsanto Co. 5,080 393,852
Newmont Mining Corporation 7,000 373,800
Praxair, Inc. ^ 3,000 158,880
Rohm & Haas Co. 1,000 48,420
Weyerhaeuser Co. 1,000 66,340
-----------
3,177,109
===========
REAL ESTATE INVESTMENT TRUSTS- 0.22%
Simon Property Group, Inc. 4,000 306,520
===========
TELECOMMUNICATIONS SERVICES - 2.92%
ALLTEL Corporation 4,000 252,400
AT&T Inc. 48,364 1,184,434
BellSouth Corporation ^ 23,000 623,300
Sprint Corp. 38,446 898,099
Verizon Communications Inc. ^ 37,100 1,117,452
-----------
4,075,685
===========
UTILITIES - 3.52%
American Electric Power Co., Inc. 10,700 396,863
CenterPoint Energy, Inc. ^ 13,900 178,615
Dominion Resources, Inc. 7,100 548,120
Duke Energy Corp. 13,300 365,085
Edison International 4,000 174,440
Exelon Corp. 11,000 584,540
FirstEnergy Corp. 5,000 244,950
FPL Group, Inc. 7,000 290,920
PG&E Corp. Holdings Company ^ 9,000 334,080
Progress Energy, Inc. ^ 3,500 153,720
Public Service Enterprises Group Inc. 6,000 389,820
Southern Co. (The) 11,900 410,907
TXU Corp. ^ 9,400 471,786
Williams Companies, Inc. (The) 10,000 231,700
Xcel Energy, Inc. ^ 8,200 151,372
-----------
4,926,918
===========
TOTAL EQUITY SECURITIES (cost - $126,420,026) 138,852,706
===========
SHORT-TERM INVESTMENTS - 2.11%
PRINCIPAL
REPURCHASE AGREEMENTS - 2.11% AMOUNT (000'S)
--------------
Bear, Stearns & Co. Inc.
(Agreement dated 12/30/05 to be
repurchased $1,236,764) 3.20%,
01/03/06, collateralized by
$1,273,982 in U.S. Treasury Bonds $1,236 1,236,324
Bear, Stearns & Co. Inc. * **
(Agreement dated 12/30/05 to be
repurchased at $900,293), 2.00%,
01/03/06, collateralized by
$928,220 in U.S. Treasury Bonds 900 900,093
Bear, Stearns & Co. Inc. * **
(Agreement dated 12/30/05 to be
repurchased at $808,841), 4.00%,
01/03/06, collateralized by
$833,077 in U.S. Treasury Bonds 808 808,482
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost - $2,944,899) 2,944,899
===========
TOTAL INVESTMENTS - 101.50%
(cost - $129,364,925) 141,797,605
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.50%) (2,091,489)
-------------
NET ASSETS - 100% $139,706,116
=============
--------------------------------------------------------------------
+ Non-income producing security.
^ Security or a portion thereof is out on loan
^^ Effective January 9, 2006, CCE Spinco, Inc. changed its name to Live
Nation, Inc.
* Stated interest rate, before rebate earned by borrower of securities on
loan.
** Represents investment purchased with collateral received for securities on
loan.
ADR American Depository Receipts
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 schedule of investments as
of December 31, 2005, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four 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. The financial highlights for the year ended December 31, 2001 have been
audited by other auditors, whose report dated February 8, 2002 expressed an
unqualified opinion on such financial highlights.
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. We were
not engaged to perform an audit of the Fund's 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. Our procedures included confirmation of securities owned as of
December 31, 2005 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. 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, 2005, 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 four years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of investments in securities
as of December 31, 2005 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 7, 2006
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. Ralph W. Bradshaw occupation for the last five
years is President of Cornerstone Advisors, Inc. and a Financial Consultant.
William A. Clark occupation for the last five years is Director and Stockholder
of Cornerstone Advisors, Inc. and a former financial consultant of Deep Discount
Advisors, Inc.
(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 one other registered closed-end fund.
(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, 2005, 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 $50,001-$100,000 and for William A. Clark it is over
$100,000.
(b) None.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have evaluated the Registrant's disclosure controls and procedures as of a date
within 90 days of this filing and have concluded that the Registrant's
disclosure controls and procedures are effective, as of such date, in ensuring
that information required to be disclosed by the registrant in this Form N-CSR
was recorded, processed, summarized, and reported timely.
(b) The Registrant's principal executive officer and principal financial officer
are aware of no changes in the Registrant's internal control over financial
reporting that occurred during the Registrant's last fiscal half-year that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics attached as EX-99.CODE ETH.
(a)(2) Separate certifications of Principal Executive and Financial Officers
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 attached as
EX-99.CERT.
(b) Certification of Principal Executive and Financial Officers pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906 CERT.
(99) Proxy Voting Policies of the Registrant and Adviser attached as
EX-99.VOTEREG.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By: /S/ RALPH W. BRADSHAW
-------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: March 10, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Cornerstone Strategic Value Fund, Inc.
By: /S/ RALPH W. BRADSHAW
-------------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: March 10, 2006
By: /S/ JODI B. LEVINE
----------------------
Name: Jodi B. Levine
Title: Principal Financial Officer
Date: March 10, 2006