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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.
383 MADISON AVENUE, NEW YORK, NY 10179
------------------------------------------------
(Address of principal executive offices) (Zip code)
Jodi B. Levine - 383 MADISON AVE, NEW YORK, NY
-----------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-272-3550
Date of fiscal year end: DECEMBER 31, 2004
------------------------------------
Date of reporting period: JANUARY 1, 2004 THROUGH JUNE 30, 2004
-------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
CORNERSTONE STRATEGIC
VALUE FUND, INC.
JUNE 30, 2004
This update contains the following two documents:
o Letter from the Fund's President
o Semi-Annual Report to Shareholders
================================================================================
LETTER FROM THE FUND'S PRESIDENT
July 30, 2004
Dear Fellow Shareholders:
Enclosed is the semi-annual report for Cornerstone Strategic Value Fund, Inc.,
(the "Fund" or "CLM"), for the six months ended June 30, 2004. At the end of the
period, the Fund's net assets were $154.3 million and the Net Asset Value per
share was $6.53. The share price closed at $8.04. After reflecting the
reinvestment of monthly distributions totaling $0.52 per share, the Fund
achieved a total investment return at market value of (5.17)% for the six months
ended June 30, 2004.
RECENT EVENTS: TWO SUCCESSFUL MERGERS/CLM BECOMES A LARGER, STRONGER FUND
We are pleased to announce the successful completion of the mergers of two
closed-end funds with and into your Fund. In the month of June, shareholders of
Progressive Return Fund, Inc. ("PGF") and Investors First Fund, Inc. ("MGC")
voted to merge the assets of their respective funds into CLM. The shareholders
of CLM also voted to approve the two mergers, and as a result, CLM increased its
net asset base by more than six times from approximately $25 million to $154
million immediately following the merger. We want to welcome the former
shareholders of MGC and PGF to the new and stronger CLM, and we believe that the
benefits of economies of scale resulting from these mergers will accrue to the
advantage of each of the former shareholder groups.
As you know, all three funds involved in these mergers shared most of the same
Board members in their respective Boards of Directors. These gentlemen and
Cornerstone Advisors, Inc., the Fund's investment manager, share a common
investment oversight philosophy founded on shareholder advocacy and value
enhancement. Among other things, these management principals include a
dedication to expense control and a commitment to a managed distribution policy
that has been so popular with the shareholders of all three funds. The larger
asset base of CLM following the mergers will facilitate the continued
implementation of these policies. It should be noted that the first trading day
of the newly merged CLM was June 28, 2004. The market price of CLM suffered a
certain dislocation in the week following the merger because of the difference
in the premium levels at which each of the funds were trading, combined with the
uncertainties surrounding an anticipated interest rate increase by the Federal
Reserve. As a result, the market price of CLM was temporarily depressed at the
end of the period. Within a week or so after the mergers, however, the Fund's
price had recovered substantially.
--------------------------------------------------------------------------------
i
LETTER FROM THE FUND'S PRESIDENT (CONTINUED)
CONTINUED DISTRIBUTIONS
The Board of Directors and Cornerstone Advisors, Inc. take this opportunity to
reiterate their dedication to the policy of regular distributions to
shareholders. The managed distribution policy is regarded as a primary feature
of the management philosophy of the Fund and an important tool for enhancing
shareholder value. Industry experience indicates that closed-end fund investors
benefit from programs that provide the option of having regular distributions.
Our conclusion is that many investors are willing to accept the inherent
volatility of an equity portfolio, but would prefer to have a predictable and
stable cash flow as well, either to reinvest in new shares of the Fund or to
take in cash. This policy also helps to stabilize the discount structure of the
Fund.
Pursuant to this policy, the Fund is paying out a substantial, fixed monthly
distribution. At the end of each year, each shareholder receives a final
determination of the total distribution attributable to income, capital gains or
return-of-capital. The allocation among these categories may vary greatly from
year to year depending on portfolio performance. The Fund's investment focus is
to generate total investment returns that exceed the amount of the
distributions, although there can be no guarantee that this will be achieved. To
the extent that the amount of distributions taken in cash exceeds the total
investment returns of the Fund, the assets of the Fund will decline. If the
total investment returns exceed the amount of cash distribu tions, the assets of
the Fund will increase. Either way, the Fund's shareholders have complete
flexibility to take their distributions in cash or to reinvest in Fund shares,
and they can change this election as often as they desire. Shareholders are
encouraged to consider the reinvestment option for their distributions.
ECONOMIC AND MARKET SUMMARY
The U.S. economy continued its measured recovery throughout the first half of
the year, although the stock indices remained locked in a narrow trading range.
The Federal Reserve finally announced a much anticipated short-term interest
rate increase at the end of June. Chairman Greenspan indicated that the general
"softness" of the economy during the first six months of the year would probably
give way to a more robust expansion during the second half and that the rate
increase was a pre-emptive control on anticipated future growth of the economy.
The stock indices were slightly mixed, with the Dow Industrials basically flat
and the S&P 500 up 3.44% for the period. Even so, the S&P 500 Index has given up
these gains in the weeks following the end of the quarter, and remains negative
and uncertain at the end of July.
Both the economy and the financial markets continue to be indirectly, but
strongly influenced by our foreign policy and military commitments overseas as
well as the uncertainties surrounding the federal budget. The ebb and flow of
corporate earnings reports from one period to the next have remained a primary
driver of stock market activity. Finally, the uncertainties surrounding the
hotly contested presidential election later this year may keep many companies
and investors on the side lines for the next quarter. As though waiting for the
other shoe to drop, many companies have continued to stock-pile cash, the
largest cash reserves in 40 years, without committing to new investment in
machinery and equipment.
ii
--------------------------------------------------------------------------------
LETTER FROM THE FUND'S PRESIDENT (CONCLUDED)
Many analysts believe, along with Chairman Greenspan, that the economy will
continue its recovery at a modest pace. We believe that our broadly diversified
portfolio is well-positioned to benefit from this economic recovery. 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
therefore, their effect on possible portfolio performance may vary considerably
from year to year.
Once again, we are very excited about the prospects for CLM with its stronger
asset base following the mergers. We welcome the many new shareholders to the
CLM family and 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, DOMESTIC AND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT 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 SEMI-ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS.
--------------------------------------------------------------------------------
iii
================================================================================
CORNERSTONE STRATEGIC
VALUE FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2004
================================================================================
CONTENTS
Portfolio Summary 1
Schedule of Investments 2
Statement of Assets and Liabilities 6
Statement of Operations 7
Statement of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 10
Results of Annual Meeting of Stockholders 14
Description of Dividend Reinvestment Plan 15
Summary of General Information 17
Shareholder Information 17
Proxy Voting Back Cover
Privacy Policy Notice Back Cover
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
TOP TEN, BY SECTOR
Percent of
Sector Net Assets
---------------------------------------------------------------------------------------------------------------
1. Information Technology 18.1
---------------------------------------------------------------------------------------------------------------
2. Financials 16.8
---------------------------------------------------------------------------------------------------------------
3. Healthcare 12.5
---------------------------------------------------------------------------------------------------------------
4. Consumer Discretionary 12.5
---------------------------------------------------------------------------------------------------------------
5. Industrials 10.7
---------------------------------------------------------------------------------------------------------------
6. Materials 8.9
---------------------------------------------------------------------------------------------------------------
7. Energy 6.4
---------------------------------------------------------------------------------------------------------------
8. Consumer Staples 5.3
---------------------------------------------------------------------------------------------------------------
9. Telecommunication Services 2.0
---------------------------------------------------------------------------------------------------------------
10. Closed-End Domestic Funds 2.0
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
---------------------------------------------------------------------------------------------------------------
1. United Natural Foods, Inc. Consumer Discretionary 3.0
---------------------------------------------------------------------------------------------------------------
2. Cooper Companies, Inc. (The) Healthcare 2.5
---------------------------------------------------------------------------------------------------------------
3. Peabody Energy Corp. Materials 2.4
---------------------------------------------------------------------------------------------------------------
4. DSP Group, Inc. Industrials 2.4
---------------------------------------------------------------------------------------------------------------
5. Joy Global Inc. Materials 2.2
---------------------------------------------------------------------------------------------------------------
6. Fairchild Semiconductor International, Inc. Information Technology 2.1
---------------------------------------------------------------------------------------------------------------
7. Pfizer Inc. Healthcare 2.1
---------------------------------------------------------------------------------------------------------------
8. Exxon Mobil Corp. Energy 2.0
---------------------------------------------------------------------------------------------------------------
9. Edwards Lifesciences Corp. Healthcare 2.0
---------------------------------------------------------------------------------------------------------------
10. EMC Corp. Information Technology 2.0
--------------------------------------------------------------------------------
1
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
EQUITY SECURITIES - 96.28%
CLOSED-END DOMESTIC FUNDS - 1.95%
Adams Express Co. 49,500 $ 629,640
General American
Investors Co., Inc. 3,000 90,420
Salomon Brothers
Fund, Inc. (The) 11,900 145,775
Tri-Continental Corp. 77,000 1,295,910
Zweig Fund, Inc. 176,600 852,978
----------
3,014,723
----------
CONSUMER DISCRETIONARY - 12.47%
Bed Bath & Beyond Inc. + 1,000 38,450
Best Buy Co., Inc. 2,250 114,165
Carnival Corp. 6,800 319,600
Circuit City Stores, Inc. 1,000 12,950
Clear Channel
Communications, Inc. 4,800 177,360
Comcast Corp., Class A + 20,537 575,652
Comcast Corp.,
Special Class A + 4,100 113,201
Costco Wholesale Corp. 1,500 61,605
CVS Corp. 2,500 105,050
Delphi Corp. 7,600 81,168
Eastman Kodak Co. 1,400 37,772
Federated Department
Stores, Inc. 1,000 49,100
Ford Motor Co. 18,300 286,395
Fortune Brands, Inc. 1,000 75,430
Furniture Brands
International, Inc. 81,100 2,031,555
Gannett Co., Inc. 2,000 169,700
Gap, Inc. (The) 5,200 126,100
General Motors Corp. 6,500 302,835
Gildan Activewear Inc.,
Class A + 47,900 1,374,730
Goodyear Tire
& Rubber Co. (The) + 4,500 40,905
Harley-Davidson, Inc. 4,400 272,536
Hilton Hotels Corp. 3,200 59,712
Home Depot, Inc. (The) 22,600 795,520
Kohl's Corp. + 1,000 42,280
Lowe's Companies, Inc. 5,000 262,750
Marriott International, Inc.,
Class A 2,100 104,748
Mattel, Inc. 1,500 27,375
May Department
Stores Co. (The) 2,400 65,976
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (CONTINUED)
McDonald's Corp. 10,100 $ 262,600
Monsanto Co. 580 22,330
NIKE, Inc., Class B 2,300 174,225
Omnicom Group Inc. 1,600 121,424
Reebok International Ltd. 1,500 53,970
Rockwell Automation, Inc. 2,500 93,775
Sears, Roebuck & Co. 1,600 60,416
Staples, Inc. 3,000 87,930
Starbucks Corp. + 2,900 126,092
Target Corp. 11,800 501,146
Time Warner Inc. + 57,750 1,015,245
Toys R Us, Inc. + 1,000 15,980
United Natural Foods, Inc. + 158,400 4,579,344
Viacom Inc.,
non-voting Class B 23,900 853,708
Wal-Mart Stores, Inc. 55,300 2,917,628
Walt Disney Co. (The) 23,700 604,113
Yum! Brands, Inc. + 1,000 37,220
----------
19,251,766
----------
CONSUMER STAPLES - 5.27%
Albertson's, Inc. 2,500 66,350
Altria Group, Inc. 9,300 465,465
Anheuser-Busch
Companies, Inc. 6,700 361,800
Archer-Daniels-Midland Co. 5,460 91,619
Campbell Soup Co. 2,000 53,760
Coca-Cola Co. (The) 24,800 1,251,904
Coca-Cola Enterprises Inc. 1,500 43,485
Colgate-Palmolive Co. 2,100 122,745
ConAgra Foods, Inc. 4,400 119,152
General Mills, Inc. 2,500 118,825
Gillette Co. (The) 12,600 534,240
H.J. Heinz Co. 1,600 62,720
Kimberly-Clark Corp. 3,400 223,992
Kroger Co. (The) + 4,800 87,360
Pepsi Bottling
Group, Inc. (The) 1,000 30,540
PepsiCo, Inc. 15,600 840,528
Performance Food
Group Co. + 39,300 1,043,022
Procter & Gamble Co. (The) 37,600 2,046,944
Safeway Inc. 2,500 63,350
Sara Lee Corp. 4,300 98,857
Sysco Corp. 5,800 208,046
Walgreen Co. 5,300 191,913
----------
8,126,617
----------
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
2
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
ENERGY - 6.35%
Anadarko Petroleum Corp. 900 $ 52,740
Baker Hughes Inc. 1,100 41,415
CenterPoint Energy, Inc. 3,900 44,850
ChevronTexaco Corp. 9,665 909,573
ConocoPhillips 6,237 475,821
El Paso Corp. 2,500 19,700
Exxon Mobil Corp. 71,000 3,153,110
FMC Technologies, Inc. + 105,800 3,047,040
Marathon Oil Corp. 1,500 56,760
Reliant Energy Inc. + 1,104 11,956
Schlumberger Ltd. 4,600 292,146
Unocal Corp. 1,200 45,600
Western Gas Resources, Inc. 50,800 1,649,984
----------
9,800,695
----------
FINANCIALS - 16.81%
Affiliated Managers
Group, Inc. + 60,600 3,052,422
AFLAC Inc. 4,500 183,645
Allstate Corp. (The) 5,800 269,990
American Express Co. 10,600 544,628
American International
Group, Inc. 31,031 2,211,890
Aon Corp. 1,200 34,164
Bank of America Corp. 19,808 1,676,153
Bank of New York
Co., Inc. (The) 5,900 173,932
Bank One Corp. 2,600 132,600
Charles Schwab Corp. (The) 6,000 57,660
Citigroup Inc. 51,100 2,376,150
Direct General Corp. 41,000 1,322,660
Fannie Mae 10,200 727,872
Fifth Third Bancorp 4,000 215,120
First Marblehead
Corp. (The) + 73,300 2,951,058
First Niagara
Financial Group, Inc. 84,000 1,008,000
Franklin Resources, Inc. 1,200 60,096
Freddie Mac 6,100 386,130
Goldman Sachs
Group, Inc. (The) 4,800 451,968
Hartford Financial
Services Group, Inc. (The) 1,000 68,740
HSBC Holdings plc, ADR 2,300 172,293
J.P. Morgan Chase & Co. 16,400 635,828
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
Lehman Brothers
Holdings Inc. 1,100 $ 82,775
Manulife Financial Corp. 2,963 120,001
Marsh & McLennan
Companies, Inc. 4,100 186,058
MBNA Corp. 10,100 260,479
Merrill Lynch & Co., Inc. 8,700 469,626
MetLife, Inc. 6,200 222,270
Morgan Stanley 8,000 422,160
National City Corp. 4,700 164,547
Northern Trust Corp. 1,000 42,280
Piper Jaffray Companies, Inc. + 104 4,704
Platinum Underwriters
Holdings, Ltd. 72,600 2,209,218
PNC Financial Services Group 1,100 58,388
Prudential Financial, Inc. 2,500 116,175
St. Paul Travelers
Companies, Inc. (The) 976 39,567
State Street Corp. 1,000 49,040
SunTrust Banks, Inc. 1,100 71,489
UnumProvident Corp. 1,100 17,490
U.S. Bancorp 17,901 493,352
Wachovia Corp. 13,100 582,950
Washington Mutual, Inc. 5,950 229,908
Wells Fargo & Co. 24,200 1,384,966
----------
25,940,442
----------
HEALTHCARE - 12.53%
Abbott Laboratories 14,000 570,640
Allergan Inc. 1,000 89,520
Amgen Inc. + 11,800 643,926
Becton, Dickinson & Co. 1,200 62,160
Boston Scientific Corp. + 6,500 278,200
Bristol-Myers Squibb Co. 14,400 352,800
Cardinal Health, Inc. 2,950 206,647
Cooper Companies, Inc. (The) 60,000 3,790,200
Edwards Lifesciences Corp. + 89,900 3,133,015
Eli Lilly & Co. 9,800 685,118
Guidant Corp. 1,400 78,232
HCA Inc. 3,500 145,565
HEALTHSOUTH Corp. + 4,300 25,585
Hospira, Inc. + 700 19,320
Johnson & Johnson 32,000 1,782,400
McKesson Corp. 2,300 78,959
Medco Health Solutions, Inc. + 1,687 63,263
Medtronic, Inc. 8,300 404,376
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
HEALTHCARE (CONTINUED)
Merck & Co. Inc. 20,500 $ 973,750
Neurocrine Biosciences, Inc. + 31,700 1,643,645
Pfizer Inc. 94,860 3,251,801
Schering-Plough Corp. 11,700 216,216
Tenet Healthcare Corp. + 2,250 30,172
UnitedHealth Group Inc. 5,000 311,250
Wyeth 14,000 506,240
----------
19,343,000
----------
INDUSTRIALS - 10.74%
3M Co. 4,400 396,044
Automatic Data Processing, Inc. 4,900 205,212
Boeing Co. (The) 5,600 286,104
Caterpillar Inc. 2,900 230,376
Cendant Corp. 6,000 146,880
CSX Corp. 1,000 32,770
DSP Group, Inc. + 135,600 3,693,744
Emerson Electric Co. 3,500 222,425
FedEx Corp. 2,000 163,380
General Dynamics Corp. 600 59,580
General Electric Co. 52,700 1,707,480
Heartland Express, Inc. 62,337 1,705,540
Honeywell International Inc. 4,800 175,824
Illinois Tool Works Inc. 2,400 230,136
IMS Health Inc. 1,400 32,816
Leadis Technology Inc. + 11,100 148,851
Lockheed Martin Corp. 4,000 208,320
Masco Corp. 4,200 130,956
Paychex, Inc. 4,200 142,296
Shuffle Master, Inc. + 32,200 1,169,182
Southwest Airlines Co. 6,450 108,166
Swift Transportation Co., Inc. + 67,100 1,204,445
Transocean Inc. + 2,500 72,350
Tyco International Ltd. 8,397 278,277
Union Pacific Corp. 2,000 118,900
United Parcel
Service, Inc., Class B 6,000 451,020
United Technologies Corp. 2,700 246,996
Universal Technical
Institute Inc. + 8,200 327,836
USF Corp. 72,600 2,550,438
Waste Management, Inc. 4,200 128,730
----------
16,575,074
----------
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY - 18.12%
Adobe Systems Inc. 1,100 $ 51,150
Agere Systems Inc., Class A + 240 552
Agere Systems Inc., Class B + 5,898 12,681
Agilent Technologies, Inc. + 3,300 96,624
Altera Corp. + 3,400 75,548
Analog Devices, Inc. 2,700 127,116
Apple Computer, Inc. + 1,500 48,810
Applied Films Corp. + 62,000 1,799,240
Applied Materials, Inc. + 7,800 153,036
Avocent Corp. + 70,500 2,590,170
CACI International Inc.,
Class A + 54,100 2,187,804
Cisco Systems, Inc. + 36,400 862,680
Corning Inc. + 3,000 39,180
Dell Inc. + 11,200 401,184
eBay Inc. + 6,500 597,675
Electronic Arts Inc. + 2,000 109,100
Electronic Data Systems Corp. 3,500 67,025
EMC Corp. + 271,848 3,099,067
Fairchild Semiconductor
International, Inc. + 201,600 3,300,192
First Data Corp. 4,324 192,504
Harris Interactive Inc. + 94,100 632,352
Hewlett-Packard Co. 15,900 335,490
Intel Corp. 34,600 954,960
International Business
Machines Corp. 10,900 960,835
ITT Educational
Services, Inc. + 41,200 1,566,424
Linear Technology Corp. 2,500 98,675
LSI Logic Corp. + 1,500 11,430
Maxim Integrated
Products, Inc. 2,300 120,566
Micron Technology, Inc. + 5,100 78,081
Microsoft Corp. 105,300 3,007,368
Motorola, Inc. 13,700 250,025
NVIDIA Corp. + 1,000 20,500
Oracle Corp. + 26,100 311,373
QUALCOMM Inc. 4,000 291,920
Sanmina-SCI Corp. + 2,500 22,750
Siebel Systems, Inc. + 2,500 26,700
Skyworks Solutions, Inc. 179,100 1,563,543
Solectron Corp. + 6,700 43,349
Sun Microsystems, Inc. + 17,500 75,950
Texas Instruments Inc. 8,800 212,784
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
4
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Yahoo! Inc. + 8,800 $ 319,704
Zoran Corp. + 67,950 1,246,883
----------
27,963,000
----------
MATERIALS - 8.93%
Air Products & Chemicals, Inc. 1,000 52,450
Alcoa Inc. 7,300 241,119
Dow Chemical Co. (The) 5,400 219,780
E.I. du Pont de Nemours & Co. 8,500 377,570
Georgia-Pacific Corp. 2,000 73,960
International Paper Co. 4,500 201,150
Joy Global Inc. 114,100 3,416,154
Packaging Corp. of America 129,600 3,097,440
Peabody Energy Corp. 67,000 3,751,330
Praxair, Inc. 3,000 119,730
Rohm & Haas Co. 1,000 41,580
Steel Dynamics, Inc. + 74,300 2,127,209
Weyerhaeuser Co. 1,000 63,120
----------
13,782,592
----------
REAL ESTATE INVESTMENT TRUSTS - 0.13%
Simon Property Group Inc. 4,000 205,680
----------
TELECOMMUNICATION SERVICES - 2.03%
ALLTEL Corp. 1,500 75,930
AT&T Corp. 4,660 68,176
AT&T Wireless Services Inc. + 26,056 373,122
BellSouth Corp. 20,000 524,400
Lucent Technologies Inc. + 22,300 84,294
Nextel Communications, Inc.,
Class A + 11,000 293,260
SBC Communications Inc. 30,600 742,050
Sprint Corp. (FON Group) 5,400 95,040
Verizon Communications Inc. 24,100 872,179
----------
3,128,451
----------
UTILITIES - 0.95%
American Electric
Power Co., Inc. 2,700 86,400
Dominion Resources, Inc. 2,100 132,468
Duke Energy Corp. 5,300 107,537
Edison International 4,000 102,280
Exelon Corp. 8,000 266,320
FirstEnergy Corp. 2,500 93,525
FPL Group, Inc. 1,000 63,950
Progress Energy, Inc. 1,000 44,050
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
UTILITIES (CONTINUED)
Public Service
Enterprise Group Inc. 1,000 $ 40,030
Scottish Power plc, ADR 4,000 118,040
Southern Co. (The) 8,400 244,860
TXU Corp. 2,200 89,122
Xcel Energy, Inc. 4,100 68,511
----------
1,457,093
----------
TOTAL EQUITY SECURITIES
(cost - $124,235,125) 148,589,133
-----------
Principal
Amount
(000's)
---------
SHORT-TERM INVESTMENTS - 26.08%
REPURCHASE AGREEMENTS - 26.08%
Bear, Stearns & Co. Inc.
(Agreement dated 06/30/04 to
be repurchased at $30,702,271),
1.25%, 07/01/04 (Note F) $ 30,702 30,701,205
Bear, Stearns & Co. Inc.
(Agreement dated 06/30/04 to
be repurchased at $7,825,947),
1.50%*, 07/01/04** (Note E) 7,826 7,825,621
Bear, Stearns & Co. Inc.
(Agreement dated 06/30/04 to
be repurchased at $1,727,970),
0.75%*, 07/01/04** (Note E) 1,728 1,727,934
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $40,254,760) 40,254,760
------------
TOTAL INVESTMENTS - 122.36%
(cost - $164,489,885) (Notes A, E, F, G) 188,843,893
-------------
LIABILITIES IN EXCESS OF
OTHER ASSETS - (22.36)% (34,506,590)
-------------
NET ASSETS - 100.00% $154,337,303
=============
----------
+ Non-income producing security.
* Stated interest rate, before rebate earned by borrower of securities on loan.
** Represents investment purchased with cash collateral received for securities
on loan.
ADR American Depositary Receipts.
See accompanying notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $164,489,885) (Notes A, E, F, G) $ 188,843,893
Receivables:
Dividends 87,914
Interest 10,388
Prepaid expenses 4,635
-------------
Total Assets 188,946,830
-------------
LIABILITIES
Payables:
Investments purchased 24,632,120
Upon return of securities loaned (Note E) 9,553,555
Investment management fees (Note B) 124,869
Directors' Fees 35,012
Other accrued expenses 263,971
-------------
Total Liabilities 34,609,527
-------------
NET ASSETS (applicable to 23,641,918 shares of common stock outstanding) $ 154,337,303
=============
NET ASSET VALUE PER SHARE ($154,337,303 / 23,641,918) $ 6.53
=============
NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 23,641,918 shares outstanding
(100,000,000 shares authorized) $ 23,642
Paid-in capital 173,645,365
Cost of 2,239,440 shares repurchased (26,999,661)
Distributions in excess of net investment loss (2,038,968)
Accumulated net realized loss on investments (14,647,083)
Net unrealized appreciation in value of investments 24,354,008
-------------
Net assets applicable to shares outstanding $ 154,337,303
=============
================================================================================
See accompanying notes to financial statements.
6
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT LOSS
Income (Note A):
Dividends $ 225,070
Interest 4,042
-----------
Total Investment Income 229,112
-----------
Expenses:
Investment management fees (Note B) 146,316
Merger fees 92,000
Administration fees 26,272
Legal and audit fees (Note B) 26,243
Accounting fees 13,813
Directors' fees 12,543
Transfer agent fees 9,430
Printing 6,601
Custodian fees 2,894
Stock exchange listing fees 2,377
Insurance 2,039
Miscellaneous 1,320
-----------
Total Expenses 341,848
Less: Management fee waivers (Note B) (86,196)
Less: Fees paid indirectly (Note B) (2,894)
-----------
Net Expenses 252,758
-----------
Net Investment Loss (23,646)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investments (76,325)
Net change in unrealized appreciation in value of investments 1,680,832
-----------
Net realized and unrealized gain on investments 1,604,507
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,580,861
===========
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Six Months
Ended For the Year
June 30, 2004 Ended
(unaudited) December 31, 2003
INCREASE IN NET ASSETS
Operations:
Net investment income/(loss) $ (23,646) $ 168,247
Net realized loss from investments (76,325) (231,146)
Net change in unrealized appreciation/(depreciation)
in value of investments 1,680,832 5,737,591
------------- ------------
Net increase in net assets resulting from operations 1,580,861 5,674,692
------------- ------------
Dividends and distributions to shareholders (Notes A, G):
Net investment income -- (168,247)
Return-of-capital (2,015,322) (3,636,161)
------------- ------------
Total dividends and distributions to shareholders (2,015,322) (3,804,408)
------------- ------------
Capital stock transactions (Note D):
Net assets received in conjunction with Merger Agreement (Note A) 127,962,525 --
Proceeds from 28,150 and 45,927 shares newly issued
in reinvestment of dividends and distributions, respectively 243,932 319,214
------------- ------------
Net increase in net assets resulting from capital stock transactions 128,206,457 319,214
------------- ------------
Total increase in net assets 127,771,996 2,189,498
------------- ------------
NET ASSETS
Beginning of period 26,565,307 24,375,809
------------- ------------
End of period $ 154,337,303 $ 26,565,307
============= ============
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
--------------------------------------------------------------------------------
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 period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
For the Six
Months Ended
June 30, 2004 For the Years Ended December 31,
(unaudited) 2003 2002 2001 2000 1999
----------- ---- ---- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 6.90 $ 6.41 $ 9.20 $ 11.31 $ 14.95 $ 14.52
-------- -------- -------- --------- --------- ---------
Net investment income/(loss) # -- 0.04 (0.01) (0.06) (0.94) (0.09)
Net realized and unrealized gain/(loss)
on investments and foreign currency
related translations 0.14 1.44 (2.29) (2.13) (1.81) 4.04
-------- ----- ------ ------- -------- ---------
Net increase/(decrease) in net assets
resulting from operations 0.14 1.48 (2.30) (2.19) (2.75) 3.95
-------- ----- ------ ------- -------- ---------
Dividends and distributions to shareholders:
Net investment income -- (0.04) -- -- -- --
Net realized gain on investments and
foreign currency related transactions -- -- -- -- (1.01) (3.87)
Return-of-capital (0.52) (0.95) (0.50) -- -- --
-------- ----- ------ ------- -------- ---------
Total dividends and distributions to
shareholders (0.52) (0.99) (0.50) -- (1.01) (3.87)
-------- ----- ------ ------- -------- ---------
Capital stock transactions:
Anti-dilutive effect due to capital
stock repurchased -- -- 0.02 0.08 0.12 0.35
Dilutive effect due to shares issued
in reinvestment of dividends and distributions 0.01 -- (0.01) -- -- --
-------- ----- ------ ------- -------- ---------
Total capital stock transactions 0.01 -- 0.01 0.08 0.12 0.35
-------- ----- ------ ------- -------- ---------
Net asset value, end of period $ 6.53 $6.90 $ 6.41 $ 9.20 $ 11.31 $ 14.95
======== ===== ====== ====== ======== =========
Market value, end of period $ 8.04 $9.00 $ 5.85 $ 8.05 $ 10.590 $ 14.250
======== ===== ====== ====== ======== =========
Total investment return (a)(b) (5.17)% 77.69% (20.85)% (23.98)% (19.28)% 40.74%
======== ===== ====== ====== ======== =========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $154,337 $26,565 $ 24,376 $ 35,256 $ 45,980 $ 66,204
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.72%(e) 1.20% 1.80% 1.77% 1.72% 1.55%
Ratio of expenses to average net assets,
excluding fee waivers, if any (d) 2.32%(e) 1.59% 2.17% 2.11% 1.83% 1.64%
Ratio of expenses to average net assets,
net of fee waivers, if any (d) 1.74%(e) 1.25% 1.86% 1.95% 1.72% 1.55%
Ratio of net investment income/(loss) to
average net assets (0.16)%(e) 0.68% (0.13)% (0.64)% (1.12)% (0.59)%
Portfolio turnover rate 4.40% 11.88% 29.63% 59.83% 28.26% 101.54%
--------------------------------------------------------------------------------
# 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) For the year ended December 31, 2000, the Fund paid federal taxes on
realized long-term capital gains. Total investment return, assuming
reinvestment of distributions and federal taxes paid on long-term capital
gains, is (13.88)%.
(c) Expenses are net of fees paid indirectly.
(d) Expenses exclude the reduction for fees paid indirectly.
(e) Annualized.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
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 a tax-free merger with the Progressive Return Fund, Inc.
("PGF") and Investors First Fund, Inc. ("MGC") (collectively, the "Predecessor
Funds"). Pursuant to the terms of the agreement governing the merger, 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 net asset value 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, MGC and PGF's net assets included
undistributed capital losses of $0 and $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. The Board of Directors
has established general guidelines for calculating fair value of not readily
marketable securities. At June 30, 2004, 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.
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
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
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.
The character of dividends and distributions made during the six months ended
June 30, 2004 from net investment income or net realized gains, if any, may
differ from their ultimate characterization for U.S. federal income tax purposes
due to U.S. generally accepted accounting principles/tax differences in the
character of income and expense recognition.
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. Through the date of the recent
merger, Cornerstone voluntarily agreed to waive its management fees from the
Fund to the extent that monthly operating expenses exceeded a rate of 0.125% of
average net assets calculated monthly. As a result of the merger costs incurred
by the Fund, Cornerstone has voluntarily undertaken to include such amounts
together with operating expenses in the calculation of the waiver of its
management fee, resulting in no management fees paid to Cornerstone during
several months in the period. For the six months ended June 30,
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
2004, Cornerstone earned $146,316 for investment management services, of which
it waived $86,196. Following the recent merger, Cornerstone has voluntarily
agreed to waive its management fees from the Fund through the end of the fiscal
year to the extent that monthly operating expenses exceed a rate of 0.10% of
average net assets calculated monthly.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $2,894 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $41,324 for the six months ended June 30,
2004 for legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas
R. Westle, partner of Blank, serves as secretary of the Fund.
At June 30, 2004, pursuant to regulatory filings, affiliates owned approximately
30% and 6% of the outstanding shares of the Fund based on Schedule 13G/A filings
with the Securities and Exchange Commission both made on July 7, 2004.
NOTE C. INVESTMENT IN SECURITIES
For the six months ended June 30, 2004, purchases and sales of securities, other
than short-term investments, were $24,872,299 and $1,914,631, respectively.
NOTE D. 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 six months ended June 30, 2004 and during the
year ended December 31, 2003. No limit has been placed on the number of shares
to be purchased 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.
NOTE E. 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
June 30, 2004, was $9,354,729. Any cash collateral received is reinvested into
repurchase agreements, which in turn is collateralized by various U.S.
Government and Agency securities. These repurchase agreements have been
segregated to satisfy the future commitment to return the cash collateral.
During the six months ended June 30, 2004, the Fund earned $1,743 in securities
lending income which is included under the caption Interest in the Statement of
Operations.
--------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
NOTE F. COLLATERAL FOR REPURCHASE AGREEMENT
Listed below is the collateral associated with the repurchase agreement with
Bear, Stearns & Co. Inc. outstanding at June 30, 2004.
Principal
Amount Market
Issuer (000's) Maturity Value
------ ------- -------- -----
United States
Treasury Note,
(principal only) $5,490 11/15/05 $5,323,488
==========
United States
Treasury Bond,
(interest only) $50,000 05/15/21 $19,654,500
==========
United States
Treasury Bond,
(interest only) $13,230 08/15/17 $6,605,210
==========
United States
Treasury Bond,
(interest only) $15 08/15/17 $7,489
==========
United States
Treasury Note,
(principal only) $5 11/15/05 $4,848
==========
NOTE G. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of losses deferred due to wash sales and
Post-October losses (as later defined), and excise tax regulations.
The tax character of dividends and distributions paid during the year ended
December 31, 2003 were ordinary income and return-of-capital of $168,247 and
$3,636,161, respectively.
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, 2003, the Fund incurred and elected to defer net realized losses from
investments of $80,133.
At December 31, 2003, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $736,070 of which $142,060 expires in 2009, $442,997
expires in 2010 and $151,013 expires in 2011.
At June 30, 2004, 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 $164,489,885, $29,742,651,
$(5,388,643) and $24,354,008, respectively.
--------------------------------------------------------------------------------
13
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On June 17, 2004, the Annual Meeting of Stockholders of Cornerstone Strategic
Value Fund, Inc. (the "Fund") was held and the following matters were voted
upon:
1. To approve a Merger Agreement and Plan of Reorganization whereby Progressive
Return Fund, Inc. will merge with and into the Fund in accordance with the
Maryland General Corporation Law.
FOR AGAINST WITHHOLD
--- ------- --------
2,275,125 129,900 22,630
2. To approve a Merger Agreement and Plan of Reorganization whereby Investors
First Fund, Inc. will merge with and into the Fund in accordance with the
Maryland General Corporation Law.
FOR AGAINST WITHHOLD
--- ------- --------
2,262,919 133,260 31,476
3. To approve an amendment to the Articles of Incorporation increasing the
amount of the authorized shares of the Fund and changing the par value of
the Fund's common stock; and
FOR AGAINST WITHHOLD
--- ------- --------
3,376,606 237,342 80,412
4. To approve the re-election of two Class III Directors until the year 2007
Annual Meeting and the reelection of one Class II Director until the year
2006 Annual Meeting.
NAME OF CLASS II DIRECTOR FOR WITHHOLD
------------------------- --- --------
William A. Clark 3,587,886 106,474
NAME OF CLASS III DIRECTORS FOR WITHHOLD
--------------------------- --- --------
Andrew A. Strauss 3,587,886 106,474
Glenn W. Wilcox, Sr. 3,587,307 107,053
--------------------------------------------------------------------------------
14
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 dividend, 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 Fund. Each participant's account will be charged a pro-rata share of
brokerage commissions incurred
--------------------------------------------------------------------------------
15
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
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.
--------------------------------------------------------------------------------
16
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. The financial information
included herein is taken from the records of the Fund without examination by
independent accountants who do not express an opinion thereon. 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 this report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
17
PROXY VOTING (UNAUDITED)
The policies and procedures that Cornerstone Strategic Value Fund, Inc. 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.
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 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.
--------------------------------------------------------------------------------
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
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
ADMINISTRATOR INDEPENDENT ACCOUNTANTS
Bear Stearns Funds Tait, Weller & Baker
Management Inc. 1818 Market Street
383 Madison Avenue Suite 2400
New York, NY 10179 Philadelphia, 19103
PA
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.
ITEM 2. CODE OF ETHICS.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 6. SCHEDULE OF INVESTMENTS
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASERS
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 9. 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 since
the registrant last provided disclosure in response to the requirements of Item
7(d)(2)(ii)(g) of Schedule 14A in its definitive proxy statement dated May 7,
2004.
ITEM 10. CONTROLS AND PROCEDURES.
(a) As of a date within 90 days from the filing date of this report,
the principal executive officer and principal financial officer
concluded that the Registrant's Disclosure Controls and Procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act")) were effective based on their evaluation of the disclosure
controls and procedures required by Rule 30a-3(b) under the Act and
Rules 13a-15(b) or 15d-15(b) under the Securities and Exchange Act of
1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the registrant's second fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number
the exhibits in the sequence indicated.
(a)(1) Not applicable.
(a)(2) The certifications of the registrant as required by Rule
30a-2(a) under the Act are exhibits to this report.
(a)(3) Not applicable.
(b)The certifications of the registrant as required by Rule
30a-2(b) under the Act are an exhibit to this report.
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.
By (Signature and Title)* /S/ RALPH W. BRADSHAW
----------------------------
RALPH W. BRADSHAW,
CHAIRMAN AND PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
Date: September 9, 2004
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: September 9, 2004
By (Signature and Title)* /S/ JODI B. LEVINE
------------------
JODI B. LEVINE
TREASURER (PRINCIPAL FINANCIAL OFFICER)
Date: September 9, 2004