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CORNERSTONE STRATEGIC
VALUE FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2001
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CONTENTS
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Letter to Shareholders .................................................... 1
Portfolio Summary ......................................................... 4
Schedule of Investments ................................................... 5
Statement of Assets and Liabilities ....................................... 9
Statement of Operations ................................................... 10
Statement of Changes in Net Assets ........................................ 11
Financial Highlights ...................................................... 12
Notes to Financial Statements ............................................. 13
Report of Independent Accountants ......................................... 16
Description of Dividend Reinvestment & Cash Purchase Plan ................. 17
Additional Information Regarding the Fund's Directors and Officers ........ 18
Summary of General Information ............................................ 20
Shareholder Information ................................................... 20
Privacy Policy Notice ..................................................... 21
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LETTER TO SHAREHOLDERS
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January 31, 2002
Dear Fellow Shareholder:
Our annual report for Cornerstone Strategic Value Fund, Inc. (the "Fund"),
formerly Clemente Strategic Value Fund, Inc., covering the year ended December
31, 2001 follows. At the end of the year, the Fund's net assets were $35.3
million and the Net Asset Value ("NAV") per share was $9.20. The share price
closed at $8.05 on the New York Stock Exchange. Clemente Capital, Inc. was
replaced and shareholders confirmed a change of management by choosing
Cornerstone Advisors, Inc. as investment manager at the Fund's annual meeting.
The investment approach continued to focus on a broad diversification in U.S.
and non-U.S. equities.
ECONOMIC AND MARKET SUMMARY
The year 2001 proved to be very difficult for investors as the market continued
the decline started in 2000. The Federal Reserve reduced its benchmark rate even
more aggressively than in recent downturns to a 40-year low of 1.75% at
year-end. However, the flood of earnings disappointments and steady erosion in
confidence pushed the markets down.
Reactions to the tragic events of September 11th accelerated negative momentum
in the third quarter. The S&P 500 Index posted a decline of 14.9%, its biggest
quarterly drop since the crash of 1987, and left the index down 21.2% for the
first nine months of the year. The sorry state of the economy was confirmed by a
1.3% quarterly decline in the U.S. Gross Domestic Product (GDP), the broadest
gauge of economic health.
Markets began to strengthen through the fourth quarter. Even this encouraging
rebound still left the S&P 500 Index down 13.0% for all of 2001. Even with a
rebound in the fourth quarter, most sectors returned double-digit losses with
telecommunications, information technology and utilities hit particularly hard.
With recession dampening exports and currencies weakening against the U.S.
dollar, most international markets fared even worse. The Morgan Stanley Capital
International Europe Australasia Far East Index, representing developed global
markets, tumbled 22.6% for the year.
Data for the fourth quarter also shows signs of future recovery. The GDP
increased 0.2% in this final quarter of 2001, defying economists' previous
expectations for a decline of 1.0%. Nevertheless, this still left GDP up only
1.1% for the year, a weak performance not seen since the 0.5% decline in 1991,
in the midst of the last recession. Fourth quarter economic activity was aided
by rising government spending, as the war on terrorism continued, as well as by
continuing strong consumer spending on items such as automobiles. Government
spending grew 9.2%, the biggest rise in 15 years. Total consumer spending jumped
5.4%, with durable goods purchases rising a sizzling 38.4%, the largest increase
since 1986. As a result, companies saw their inventories drop by an amazing
$120.6 billion in the quarter, the largest decline ever recorded. Unlike
households, businesses continued to keep a tight rein on spending. Plant and
equipment expenditures dove 12.8% in the fourth quarter, which followed a drop
of 8.5% in the third quarter.
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1
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LETTER TO SHAREHOLDERS (CONTINUED)
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PORTFOLIO PERFORMANCE
In this challenging environment, the Fund posted a -18.66% total return on NAV
for the year. By comparison, the S&P 500 Index fell 13.0% during the same
period. Toward the end of the year, the Fund began to recover some of its first
quarter losses, where the negatives of the market were magnified by a rapidly
widening discount that fell past 20% but finished the year at 12.5%. The
portfolio restructuring that took place after the change of managers broadened
the exposure to U.S. equities and reduced the exposure to international
equities. This reduction in international exposure allowed the Fund to avoid
much of the adverse currency impact from the strong U.S. dollar.
In the midst of this challenging climate, there were a number of positive
performers. Healthcare held generally steady through the final half of the year
while industrials and consumer discretionary sectors followed substantial losses
in the third quarter with substantial gains in the fourth. Utilities and
information technology were the hardest hit sectors for the year. The damage,
however, was not spread evenly as some of the largest positions in these areas
turned in strong performances and positive gains.
OUTLOOK
At its just completed meeting, the Federal Reserve was impressed enough by
positive signs in the economy that it brought an end to the year-long campaign
of interest rate cuts, leaving their benchmark rate unchanged. Policymakers did,
however, reiterate their long-standing warning that economic weakness, not
possible future inflation, remains the main concern for the U.S. economy.
We believe there is increasing evidence that the economy may have bottomed out
and will begin to recover in the first half of 2002. Last quarter's
unprecedented depletion of business inventories bodes well for a rebound.
Companies will need to ramp up production significantly to replace these
depleted goods, helping to fuel GDP growth for future quarters. Unemployment is
likely to edge up slightly in the first quarter of 2002, possibly to 5.9%, the
highest level in almost seven years, even as the rate of job losses slows and
the economic outlook continues to brighten. This expected bottoming out of job
losses should be a firm signal that the recession has ended and economic
recovery is firmly at hand.
The stock market record of the past few years supports time-tested principles of
equity investing and we are confident that our consistent and conservative
strategies will continue to prove their worth. We maintain that our approach
involving a long-term perspective, with an emphasis on broad diversification,
balanced asset allocation and liquidity, and our current U.S. equity focus, are
appropriate for the shareholders of our Fund.
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2
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LETTER TO SHAREHOLDERS (CONCLUDED)
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The Board continues to emphasize using the Fund's unique advantages to enhance
long-term capital appreciation. Under the Board's leadership:
- The manager was able to use the investment flexibility given by the
stockholders to broadly diversify the Fund's holdings. We believe that this
diversification will help to minimize the volatility resulting from more
narrowly focused investments and to improve the long-term performance.
- The program of repurchasing the Fund's shares has continued. Through
December 31, 2001, a total of 2,059,840 shares had been bought by the Fund,
representing 34.27% of the shares outstanding at the start of the program.
In effect, this repurchasing of shares at a discount allows the Fund to
purchase its portfolio at below market prices. It has provided a direct
benefit to those remaining as shareholders by increasing the Fund's net
asset value per share. It has also provided additional liquidity for those
shareholders desiring to sell their shares in the Fund.
- The level of expenses has been substantially reduced. An emphasis on cost
control, changes in service providers, and fee waivers by the investment
manager all helped to keep costs lower than in the past. We expect to see
additional savings as we continue this effort.
We believe that our highly diversified approach to portfolio management will
enable Cornerstone Strategic Value Fund to produce excellent returns for the
long-term investor. We know you have a choice, we thank you for your support,
and we look forward to continuing to serve you in the future.
Sincerely,
/s/ RALPH W. BRADSHAW
---------------------
Ralph W. Bradshaw
Chairman
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3
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CORNERSTONE STRATEGIC VALUE FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2001 (UNAUDITED)
--------------------------------------------------------------------------------
TOP TEN, BY SECTOR
Percent of
Sector Net Assets
--------------------------------------------------------------------------------
1. Drugs (Major Pharmaceuticals) 12.1
--------------------------------------------------------------------------------
2. Manufacturing (Diversified) 8.3
--------------------------------------------------------------------------------
3. Insurance (Property-Casualty) 6.5
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4. Retail (Home Shopping) 5.9
--------------------------------------------------------------------------------
5. Foods 5.6
--------------------------------------------------------------------------------
6. Electronics (Semiconductors) 5.5
--------------------------------------------------------------------------------
7. Computers (Software & Services) 4.5
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8. Banks (Money Center) 3.5
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9. Telephone 3.4
--------------------------------------------------------------------------------
10. Oil (International Integrated) 3.2
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Pfizer Inc. Drugs (Major Pharmaceuticals) 6.4
--------------------------------------------------------------------------------
2. Home Depot, Inc. (The) Retail (Home Shopping) 5.9
--------------------------------------------------------------------------------
3. SYSCO Corp. Foods 4.9
--------------------------------------------------------------------------------
4. General Electric Co. Manufacturing (Diversified) 3.9
--------------------------------------------------------------------------------
5. American International
Group, Inc. Insurance (Property-Casualty) 3.8
--------------------------------------------------------------------------------
6. Microsoft Corp. Computers (Software & Services) 3.3
--------------------------------------------------------------------------------
7. Analog Devices, Inc. Electronics (Semiconductors) 2.8
--------------------------------------------------------------------------------
8. Tyco International Ltd. Manufacturing (Diversified) 2.7
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9. Wal-Mart Stores, Inc. Retail (Discounters) 2.6
--------------------------------------------------------------------------------
10. Citigroup Inc. Insurance (Property-Casualty) 2.4
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4
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.51%
BERMUDA - 2.67%
CAPITAL GOODS - 2.67%
MANUFACTURING (DIVERSIFIED) - 2.67%
Tyco International Ltd. .........................
(cost - $602,800) .......................... 16,000 $ 942,400
----------
NETHERLANDS - 1.68%
CONSUMER STAPLES - 0.33%
FOODS - 0.33%
Unilever NV, NY Shares .......................... 2,000 115,220
----------
ENERGY - 1.35%
OIL (INTERNATIONAL INTEGRATED) - 1.04%
Royal Dutch Petroleum Co., NY Shares ............ 7,500 367,650
----------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.31%
Schlumberger Ltd. ............................... 2,000 109,900
----------
Total Energy .................................... 477,550
----------
Total Netherlands
(cost - $658,515) .......................... 592,770
----------
PANAMA - 0.17%
CONSUMER STAPLES - 0.17%
ENTERTAINMENT - 0.17%
Carnival Corp. ..................................
(cost - $58,107) ........................... 2,100 58,968
----------
UNITED STATES - 94.99%
BASIC MATERIALS - 2.13%
Aluminum - 0.31%
Alcoa Inc. ...................................... 3,100 110,205
----------
CHEMICALS (DIVERSIFIED) - 0.99%
Dow Chemical Co. (The) .......................... 5,700 192,546
E.I. du Pont de Nemours & Co. ................... 3,700 157,287
----------
349,833
----------
METALS MINING - 0.12%
Inco Ltd.+ ...................................... 2,500 42,350
----------
PAPER & Forest Products - 0.71%
International Paper Co. ......................... 2,000 80,700
Kimberly-Clark Corp. ............................ 1,900 113,620
Weyerhaeuser Co. ................................ 1,000 54,080
----------
248,400
----------
Total Basic Materials ........................... 750,788
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
CAPITAL GOODS - 7.21%
AEROSPACE/DEFENSE - 0.66%
Boeing Co. (The) ................................ 6,000 $ 232,680
----------
ELECTRICAL EQUIPMENT - 0.28%
Motorola, Inc. .................................. 6,600 99,132
----------
MACHINERY (DIVERSIFIED) - 0.19%
Caterpillar Inc. ................................ 1,300 67,925
----------
MANUFACTURING (DIVERSIFIED) - 5.66%
Dover Corp. ..................................... 700 25,949
General Electric Co. ............................ 34,500 1,382,760
Honeywell International Inc. .................... 2,800 94,696
Masco Corp. ..................................... 1,700 41,650
Minnesota Mining & Manufacturing Co. (3M) ....... 1,500 177,315
United Technologies Corp. ....................... 4,200 271,446
----------
1,993,816
----------
WASTE MANAGEMENT - 0.42%
Waste Management, Inc. .......................... 4,700 149,977
----------
Total Capital Goods ............................. 2,543,530
----------
CLOSED-END FUNDS - 0.65%
CLOSED-END DOMESTIC FUNDS - 0.65%
Gabelli Global Multimedia Trust, Inc. ........... 6,000 54,060
John Hancock Bank & Thrift Opportunity Fund ..... 21,000 173,460
----------
Total Closed-End Funds .......................... 227,520
----------
COMMUNICATION SERVICES - 6.28%
TELECOMMUNICATIONS (CELLULAR) - 1.07%
ALLTEL Corp. .................................... 2,500 154,325
AT&T Wireless Services Inc.+ .................... 9,022 129,646
Sprint Corp. (PCS Group)+ ....................... 3,400 82,994
WorldCom, Inc., (MCI Group) ..................... 900 11,430
----------
378,395
----------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.85%
AT&T Corp. ...................................... 15,000 272,100
Sprint Corp. .................................... 3,100 62,248
WorldCom, Inc., (WorldCom Group)+ ............... 22,500 316,800
----------
651,148
----------
================================================================================
See accompanying notes to financial statements.
5
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
TELEPHONE - 3.36%
BellSouth Corp. ................................. 6,600 $ 251,790
SBC Communications Inc. ......................... 12,400 485,708
Verizon Communications Inc. ..................... 9,400 446,124
----------
1,183,622
----------
Total Communication Services .................... 2,213,165
----------
CONSUMER CYCLICALS - 10.14%
AUTO PARTS & EQUIPMENT - 0.08%
Delphi Automotive Systems Corp. ................. 2,000 27,320
----------
AUTOMOBILES - 0.55%
Ford Motor Co. .................................. 6,500 102,180
General Motors Corp. ............................ 1,900 92,340
----------
194,520
----------
BUILDING MATERIALS - 0.08%
Georgia-Pacific Corp. ........................... 1,000 27,610
----------
PUBLISHING (NEWSPAPERS) - 0.38%
Gannett Co., Inc. ............................... 2,000 134,460
----------
RETAIL (DISCOUNTERS) - 2.95%
Target Corp. .................................... 3,200 131,360
Wal-Mart Stores, Inc. ........................... 15,800 909,290
----------
1,040,650
----------
RETAIL (HOME SHOPPING) - 5.95%
Home Depot, Inc. (The) .......................... 41,100 2,096,511
----------
SERVICES (COMMERCIAL & CONSUMER) - 0.15%
Cendant Corp.+ .................................. 2,700 52,947
----------
Total Consumer Cyclicals ........................ 3,574,018
----------
CONSUMER STAPLES - 13.91%
BEVERAGES (ALCOHOLIC) - 0.41%
Anheuser-Busch Companies, Inc. .................. 3,200 144,672
----------
BEVERAGES (NON-ALCOHOLIC) - 1.91%
Coca-Cola Co. (The) ............................. 9,000 424,350
PepsiCo, Inc. ................................... 5,100 248,319
----------
672,669
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
BROADCASTING (TV, CABLE, RADIO) - 1.98%
AOL Time Warner Inc.+ ........................... 14,700 $ 471,870
Clear Channel Communications, Inc.+ ............. 2,100 106,911
Comcast Corp., Special Class A+ ................. 3,300 118,800
----------
697,581
----------
ENTERTAINMENT - 1.17%
Viacom Inc., non-voting Class B+ ................ 6,000 264,900
Walt Disney Co. (The) ........................... 7,200 149,184
----------
414,084
----------
FOODS - 5.30%
Archer-Daniels-Midland Co. ...................... 2,415 34,655
ConAgra Foods, Inc. ............................. 1,900 45,163
Sara Lee Corp. .................................. 2,800 62,244
SYSCO Corp. ..................................... 65,800 1,725,276
----------
1,867,338
----------
PERSONAL CARE - 1.76%
Colgate-Palmolive Co. ........................... 2,000 115,500
Gillette Co. (The) .............................. 3,800 126,920
Procter & Gamble Co. (The) ...................... 4,800 379,824
----------
622,244
----------
RESTAURANTS - 0.35%
McDonald's Corp. ................................ 4,600 121,762
----------
TOBACCO - 1.03%
Philip Morris Companies Inc. .................... 7,900 362,215
----------
Total Consumer Staples .......................... 4,902,565
----------
ENERGY - 4.72%
OIL (DOMESTIC INTEGRATED) - 1.72%
Exxon Mobil Corp. ............................... 15,400 605,220
----------
OIL (INTERNATIONAL INTEGRATED) - 2.17%
ChevronTexaco Corp. ............................. 7,840 702,542
Conoco Inc. ..................................... 2,200 62,260
----------
764,802
----------
OIL & GAS (DRILLING & EXPLORATION) - 0.26%
Baker Hughes Inc. ............................... 2,500 91,175
----------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.14%
Anadarko Petroleum Corp. ........................ 900 51,165
----------
================================================================================
See accompanying notes to financial statements.
6
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
OIL & GAS (REFINING & MINING) - 0.43%
Phillips Petroleum Co. .......................... 2,500 $ 150,650
----------
Total Energy .................................... 1,663,012
----------
FINANCIAL - 16.56%
BANKS (MAJOR REGIONAL) - 1.92%
Bank One Corp. .................................. 4,100 160,105
BB&T Corp. ...................................... 1,600 57,776
Fifth Third Bancorp ............................. 2,000 123,160
Mellon Financial Corp. .......................... 1,800 67,716
National City Corp. ............................. 2,200 64,328
PNC Financial Services Group .................... 1,100 61,820
U.S. Bancorp .................................... 6,700 140,231
----------
675,136
----------
BANKS (MONEY CENTER) - 3.52%
Bank of America Corp. ........................... 5,400 339,930
Bank of New York Co., Inc. (The) ................ 2,600 106,080
FleetBoston Financial Corp. ..................... 3,900 142,350
J.P. Morgan Chase & Co. ......................... 6,000 218,100
SunTrust Banks, Inc. ............................ 1,100 68,970
Wachovia Corp. .................................. 3,600 112,896
Wells Fargo & Co. ............................... 5,800 252,010
----------
1,240,336
----------
CONSUMER FINANCE - 1.06%
American Express Co. ............................ 4,600 164,174
Household International, Inc. ................... 1,800 104,292
MBNA Corp. ...................................... 3,000 105,600
----------
374,066
----------
DIVERSIFIED - 1.93%
Fannie Mae ...................................... 3,700 294,150
Freddie Mac ..................................... 2,500 163,500
Morgan Stanley Dean Witter & Co. ................ 4,000 223,760
----------
681,410
----------
INSURANCE (BROKERS) - 0.30%
Marsh & McLennan Companies, Inc. ................ 1,000 107,450
----------
INSURANCE (LIFE & HEALTH) - 0.38%
AFLAC Inc. ...................................... 1,900 46,664
MetLife, Inc. ................................... 2,700 85,536
----------
132,200
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 6.54%
Allstate Corp. (The) ............................ 2,700 $ 90,990
American International Group, Inc. .............. 17,042 1,353,135
Citigroup Inc. .................................. 17,100 863,208
----------
2,307,333
----------
INVESTMENT BANKING & BROKERAGE - 0.62%
Charles Schwab Corp. (The) ...................... 4,700 72,709
Merrill Lynch & Co., Inc. ....................... 2,800 145,936
----------
218,645
----------
SAVINGS & LOANS - 0.29%
Washington Mutual, Inc. ......................... 3,150 103,005
----------
Total Financial ................................. 5,839,581
----------
HEALTHCARE - 13.57%
BIOTECHNOLOGY - 0.56%
Amgen Inc.+ ..................................... 3,500 197,540
----------
DRUGS (MAJOR PHARMACEUTICALS) - 12.10%
Abbott Laboratories ............................. 5,300 295,475
American Home Products Corp. .................... 4,800 294,528
Bristol-Myers Squibb Co. ........................ 7,100 362,100
Eli Lilly & Co. ................................. 4,000 314,160
Johnson & Johnson ............................... 9,200 543,720
Pfizer Inc. ..................................... 57,000 2,271,450
Schering-Plough Corp. ........................... 5,200 186,212
----------
4,267,645
----------
HOSPITAL MANAGEMENT - 0.22%
HCA Inc. ........................................ 2,000 77,080
----------
MEDICAL PRODUCTS - 0.69%
Medtronic, Inc. ................................. 4,300 220,203
Zimmer Holdings, Inc.+ .......................... 710 21,683
----------
241,886
----------
Total Healthcare ................................ 4,784,151
----------
TECHNOLOGY - 17.63%
COMMUNICATION EQUIPMENT - 0.57%
Lucent Technologies Inc. ........................ 10,700 67,303
QUALCOMM Inc.+ .................................. 2,600 131,300
----------
198,603
----------
================================================================================
See accompanying notes to financial statements.
7
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 3.17%
Dell Computer Corp.+ ............................ 8,300 $ 225,594
Hewlett-Packard Co. ............................. 6,300 129,402
International Business Machines Corp. ........... 5,900 713,664
Sun Microsystems, Inc.+ ......................... 4,000 49,360
----------
1,118,020
----------
COMPUTERS (NETWORKING) - 1.26%
Cisco Systems, Inc.+ ............................ 24,400 441,884
----------
COMPUTERS (SOFTWARE & SERVICES) - 4.48%
Computer Associates International, Inc. ......... 2,100 72,429
McDATA Corp., Class A+ .......................... 1,111 27,220
Microsoft Corp.+ ................................ 17,600 1,166,352
Oracle Corp.+ ................................... 20,300 280,343
Yahoo! Inc.+ .................................... 1,900 33,706
----------
1,580,050
----------
ELECTRONICS (COMPONENT DISTRIBUTION) - 0.24%
Emerson Electric Co. ............................ 1,500 85,650
----------
ELECTRONICS (SEMICONDUCTORS) - 5.48%
Analog Devices, Inc.+ ........................... 22,000 976,580
Intel Corp. ..................................... 26,000 817,700
Texas Instruments Inc. .......................... 4,900 137,200
----------
1,931,480
----------
EQUIPMENT (SEMICONDUCTORS) - 0.45%
Agilent Technologies, Inc.+ ..................... 1,800 51,318
Applied Materials, Inc.+ ........................ 2,700 108,270
----------
159,588
----------
SERVICES (DATA PROCESSING) - 1.98%
Automatic Data Processing, Inc. ................. 10,000 589,000
Electronic Data Systems Corp. ................... 1,600 109,680
----------
698,680
----------
Total Technology ................................ 6,213,955
----------
TRANSPORTATION - 0.21%
AIRLINES - 0.14%
Southwest Airlines Co. .......................... 2,700 49,896
----------
RAILROADS - 0.07%
Norfolk Southern Corp. .......................... 1,400 25,662
----------
Total Transportation ............................ 75,558
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
UTILITIES - 1.98%
ELECTRIC COMPANIES - 1.74%
American Electric Power Co., Inc. ............... 1,200 $ 52,236
Dominion Resources, Inc. ........................ 1,000 60,100
Duke Energy Corp. ............................... 5,600 219,856
FirstEnergy Corp. ............................... 2,500 87,450
Scottish Power plc ADR .......................... 4,000 86,800
Southern Co. (The) .............................. 2,400 60,840
TXU Corp. ....................................... 1,000 47,150
----------
614,432
----------
NATURAL GAS - 0.18%
Williams Companies, Inc. (The) .................. 2,500 63,800
----------
POWER PRODUCTS (INDEPENDENT) - 0.06%
Mirant Corp.+ ................................... 1,300 20,826
----------
Total Utilities ................................. 699,058
----------
Total United States
(cost - $28,772,357) ....................... 33,486,901
----------
Total Equity Securities
(cost - $30,091,779) ....................... 35,081,039
----------
Principal
Amount
(000's)
SHORT-TERM INVESTMENT - 0.78%
REPURCHASE AGREEMENT - 0.78%
Bear, Stearns & Co. Inc.
(Agreement dated 12/31/01 to
be repurchased at $276,152), 1.65%, 01/02/02
(cost - $276,127) (Note F) ...................... $276 276,127
----------
TOTAL INVESTMENTS - 100.29%
(cost - $30,367,906) (Notes A, C) ............... 35,357,166
----------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS - (0.29)% (101,114)
----------
NET ASSETS - 100.00% $35,256,052
===========
-------------
+ Security is non-income producing.
ADR American Depositary Receipts.
================================================================================
See accompanying notes to financial statements.
8
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CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2001
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $30,367,906) (Note A) ............ $ 35,357,166
Cash collateral received for securities loaned (Note E) ...... 138,721
Receivables:
Dividends ............................................ 27,773
Interest ............................................. 307
Prepaid expenses ............................................. 2,955
------------
Total Assets ................................................. 35,526,922
------------
LIABILITIES
Payables:
Upon return of securities loaned (Note E) ............ 138,721
Investment management fees (Note B) .................. 24,718
Capital shares repurchased (Note D) .................. 12,824
Other accrued expenses ............................... 94,607
------------
Total Liabilities ............................................ 270,870
------------
NET ASSETS (applicable to 3,832,560 shares
of common stock outstanding) ............................ $ 35,256,052
============
NET ASSET VALUE PER SHARE ($35,256,052 / 3,832,560) .......... $ 9.20
============
NET ASSETS CONSISTS OF
Capital stock, $0.01 par value;
3,832,560 shares outstanding
(25,000,000 shares authorized) .......................... $ 38,326
Paid-in capital .............................................. 57,277,113
Cost of 2,177,440 shares repurchased ......................... (26,579,917)
Accumulated net realized loss on investments ................. (468,730)
Net unrealized appreciation in value of investments .......... 4,989,260
------------
Net assets applicable to shares outstanding .................. $ 35,256,052
============
================================================================================
See accompanying notes to financial statements.
9
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CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------------------------------
INVESTMENT LOSS
Income (Note A):
Dividends .............................................. $ 402,428
Interest ............................................... 30,952
Less: Foreign taxes withheld ........................... (2,087)
-----------
Total Investment Income ................................ 431,293
-----------
Expenses:
Investment management fees (Note B) .................... 381,800
Audit and legal fees (Note B) .......................... 133,170
Directors' fees ........................................ 70,047
Administration fees .................................... 61,354
Printing ............................................... 58,270
NYSE listing fees ...................................... 25,000
Custodian fees ......................................... 21,647
Accounting fees ........................................ 20,154
Insurance .............................................. 9,187
Transfer agent fees .................................... 7,880
Other .................................................. 15,397
-----------
Total Expenses ......................................... 803,906
Less: Fees paid indirectly (Note B) .................... (69,714)
Less: Management fee waivers (Note B) .................. (58,679)
-----------
Net Expenses ................................... 675,513
-----------
Net Investment Loss .................................... (244,220)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized gain from investments ............................. 1,031,962
Net change in unrealized appreciation in value of investments .. (9,548,619)
-----------
Net realized and unrealized loss on investments ................ (8,516,657)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $(8,760,877)
===========
================================================================================
See accompanying notes to financial statements.
10
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Years Ended
December 31,
--------------------
2001 2000
----- -------
DECREASE IN NET ASSETS
Operations:
Net investment loss .............................. $ (244,220) $ (645,795)
Net realized gain on investments and
foreign currency related transactions .......... 1,031,962 7,637,069
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities denominated
in foreign currency ............................ (9,548,619) (15,452,439)
Federal income tax on undistributed realized gains -- (3,177,964)
------------ ------------
Net decrease in net assets resulting
from operations ...................... (8,760,877) (11,639,129)
------------ ------------
Distributions to shareholders (Note A):
Net realized gain on investments and
foreign currency related transactions .......... -- (4,351,786)
------------ ------------
Capital share transactions (Note D):
Cost of 234,700 and 361,800 shares
repurchased, respectively ...................... (1,963,446) (4,232,705)
------------ ------------
Total decrease in net assets ..................... (10,724,323) (20,223,620)
------------ ------------
NET ASSETS
Beginning of year ........................................ 45,980,375 66,203,995
------------ ------------
End of year .............................................. $ 35,256,052 $ 45,980,375
============ ============
================================================================================
See accompanying notes to financial statements.
11
--------------------------------------------------------------------------------
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 Years Ended December 31,
2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year ......... $ 11.31 $ 14.95 $ 14.52 $ 11.53 $ 10.10
Net investment income/(loss) ............... (0.06)# (0.94)# (0.19)# (0.09)# (0.05)
Net realized and unrealized
gain/(loss) on investments
and foreign currency
related transactions ..................... (2.13) (1.81) 4.39 2.96 2.36
Net increase/(decrease) in
net assets from operations ............... (2.19) (2.75) 4.20 2.87 2.31
Dividends and distributions to shareholders:
Net investment income .................... -- -- -- -- --
Net realized gain on investments
and foreign currency related
transactions ........................... -- (1.01) (3.87) -- (0.88)
Total dividends and distributions
to shareholders .......................... -- (1.01) (3.87) -- (0.88)
Anti-dilutive effect due to
capital stock repurchased ................ 0.08 0.12 0.10 0.12 --
Net asset value, end of year ............... $ 9.20 $ 11.31 $ 14.95 $ 14.52 $ 11.53
Market value, end of year .................. $ 8.05 $ 10.59 $ 14.25 $ 12.88 $ 9.44
Total investment return (a) ................ (23.98)% (28.10)% 40.74% 36.42% 37.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) ..... $ 35,256 $ 45,980 $ 66,204 $ 79,060 $ 67,951
Ratio of expenses to average net assets,
net of fee waivers, if any ............... 1.77%(b) 1.72%(b) 1.55%(b) 1.91% 1.74%
Ratio of expenses to average net assets,
excluding fee waivers .................... 2.11%(c) 1.83%(c) 1.64%(c) -- --
Ratio of expenses to average net assets, net
of fee waivers, but excluding fees paid
indirectly, if any ....................... 1.95% -- -- -- --
Ratio of net investment income/(loss) to
average net assets ....................... (0.64)% (1.12)% (0.59)% (0.69)% (0.46)%
Portfolio turnover rate .................... 59.83% 28.26% 101.54% 50.39% 81.56%
1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year ......... $ 10.65 $ 10.73 $ 12.36 $ 9.43 $ 10.82
Net investment income/(loss) ............... (0.03) -- (0.03) 0.02 0.01
Net realized and unrealized
gain/(loss) on investments
and foreign currency
related transactions ..................... 0.41 0.42 (0.64) 3.56 (0.35)
Net increase/(decrease) in
net assets from operations ............... 0.38 0.42 (0.67) 3.58 (0.34)
Dividends and distributions to shareholders:
Net investment income .................... -- -- -- -- (0.02)
Net realized gain on investments
and foreign currency related
transactions ........................... (0.93) (0.50) (0.96) (0.65) (1.03)
Total dividends and distributions
to shareholders .......................... (0.93) (0.50) (0.96) (0.65) (1.05)
Anti-dilutive effect due to
capital stock repurchased ................ -- -- -- -- --
Net asset value, end of year ............... $ 10.10 $ 10.65 $ 10.73 $ 12.36 $ 9.43
Market value, end of year .................. $ 7.50 $ 8.38 $ 8.50 $ 11.25 $ 7.75
Total investment return (a) ................ 0.64% 4.59% (15.91)% 53.55% (3.56)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) ..... $ 59,520 $ 62,781 $ 63,216 $ 72,830 $ 55,540
Ratio of expenses to average net assets,
net of fee waivers, if any ............... 1.53% 1.58% 1.75% 1.68% 2.29%
Ratio of expenses to average net assets,
excluding fee waivers .................... -- -- -- -- --
Ratio of expenses to average net assets, net
of fee waivers, but excluding fees paid
indirectly, if any ....................... -- -- -- -- --
Ratio of net investment income/(loss) to
average net assets ....................... (0.25)% (0.02)% (0.25)% 0.16% 0.10%
Portfolio turnover rate .................... 120.66% 84.98% 81.73% 125.31% 82.49%
# 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 program. Total investment return does not reflect brokerage
commissions.
(b) Expenses are net of fees paid indirectly.
(c) Expenses exclude fees paid indirectly.
================================================================================
See accompanying notes to financial statements.
12
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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. As a result
of an Annual Meeting of Stockholders held on April 19, 2001, the Fund, formerly
known as the Clemente Strategic Value Fund, Inc., changed its name. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company.
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
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 December 31, 2001, 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 New York Stock Exchange is closed.
REPURCHASE AGREEMENTS: The Fund has agreed to purchase securities from financial
institutions subject to the sellers 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 "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 the daily 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.
For U.S. federal income tax purposes, realized capital losses incurred after
October 31, 2001 within the current fiscal year are deemed to arise on the first
day of the following fiscal year. The Fund elected to defer such capital losses
of $326,670.
================================================================================
13
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
At December 31, 2001, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $142,060 which expires in 2009. Differences between
capital loss carryforwards on a book and tax basis primarily relate to timing of
the recognition of gains for U.S. federal income tax purposes. There is no
undistributable ordinary income on a tax basis.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders, substantially all of its net investment income and net realized
short-term capital gains, if any. 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 carryforward, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
The character of distributions made during the year from net investment income
or net realized gains 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.
At December 31, 2001, the Fund reclassified within the composition of net assets
permanent book/tax differences from accumulated net investment loss of $420,482
to paid-in capital.
NOTE B. AGREEMENTS
At the Annual Meeting of Stockholders of the Fund held on April 19, 2001,
stockholders approved a new investment management agreement by and between
Cornerstone and the Fund. As a result, Cornerstone commenced its performance of
the investment management services with respect to the Fund's portfolio
securities.
Effective April 19, 2001, 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, retroactive to April
1, 2001, calculated weekly and paid monthly, equal to 1.00% of the Fund's
average weekly net assets. Cornerstone has voluntarily agreed to limit the
Fund's annual operating expenses (excluding interest, taxes, brokerage
commissions, expenditures which are capitalized in accordance with generally
accepted accounting principles, and other extraordinary expenses not incurred in
the ordinary course of such Fund's business) to 1.65% (on an annualized basis)
of the Fund's average net assets for the fiscal period from April 19, 2001
through December 31, 2001. For the period April 19, 2001 through December 31,
2001, Cornerstone earned $276,913 for investment management services, of which
Cornerstone waived $58,679.
For the period January 1, 2001 through March 31, 2001, portfolio securities were
managed by Clemente Capital, Inc. ("Clemente"). Clemente engaged Wilmington
Trust Co. ("Wilmington") as the Fund's sub-investment adviser. As compensation
for its advisory services, Clemente received from the Fund an annual fee,
calculated weekly and paid monthly, equal to 1.00% of the Fund's average weekly
net assets. For this period, Clemente earned $104,887. As compensation for its
sub-advisory services, Wilmington was paid an annual fee calculated weekly and
paid monthly equal to 25% of the net fees payable to the former investment
adviser, Clemente. For this period, Wilmington earned $26,222.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $69,714 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $93,900 for the year ended December 31,
2001 for legal services to Spitzer & Feldman P.C., counsel to the Fund. Mr.
Westle, a partner of the firm, serves as secretary of the Fund.
================================================================================
14
At December 31, 2001, pursuant to regulatory filings, two shareholders and their
respective affiliates owned approximately 14% and 19% of the outstanding shares
of the Fund based on Schedule 13G/A filings made with the Securities and
Exchange Commission on February 7 and 15, 2001, respectively.
NOTE C. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at December
31, 2001 was $30,367,906. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$4,989,260 was composed of gross appreciation of $6,267,952 for those
investments having and excess of value over cost and gross depreciation of
$1,278,692 for those investments having an excess of cost over value.
For the year ended December 31, 2001, purchases and sales of securities, other
than short-term investments, were $22,751,475 and $27,904,789, respectively.
NOTE D. SHARE REPURCHASE PROGRAM
On October 5, 1998, the Fund commenced a share repurchase program for purposes
of enhancing shareholder value and reducing the discount at which the Fund's
shares traded from their net asset value. For the year ended December 31, 2001,
the Fund repurchased 234,700 of its shares for a total cost of $1,963,446 at a
weighted average discount 14.11% from net asset value. The discount of
individual repurchases ranged from 6.22% - 26.54%. For the year ended December
31, 2000, the Fund repurchased 361,800 of its shares for a total cost of
$4,232,705 at a weighted average discount of 10.67% from net asset value. The
discount of individual repurchases ranged from 2.78% - 21.29%. The Fund expects
to continue to repurchase its outstanding shares at such time and in such
amounts as it believes will further the accomplishment of its foregoing
objectives, subject to review by the Board of Directors. 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 will be made in accordance
with federal securities laws, with shares repurchased held in treasury.
NOTE E. SECURITIES LENDING
To generate additional income, the Fund may lend up to 10% of its portfolio's
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 and
the related collateral received at December 31, 2001, were $132,481 and
$138,721, respectively. Any cash collateral received is reinvested into
repurchase agreements, which in turn are collateralized by various U.S.
Government and Agency securities.
During the year ended December 31, 2001, the Fund earned $747 in securities
lending income which is included under the caption Interest in the Statement of
Operations.
NOTE F. COLLATERAL FOR REPURCHASE AGREEMENT
Listed below is the collateral associated with the repurchase agreement with
Bear, Stearns & Co. Inc. outstanding at December 31, 2001.
Principal
Amount Interest Accrued Market
Issuer (000's) Rate Maturity Interest Value
--------------------------------------------------------------------------------
United States
Treasury Bond $275 3.625% 04/15/28 $2,104 $280,671
================================================================================
15
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders
of Cornerstone Strategic Value Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Cornerstone Strategic Value
Fund, Inc. (the "Fund") at December 31, 2001, 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 ten years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2001 by correspondence with the custodian, provided a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 18, 2002
================================================================================
16
--------------------------------------------------------------------------------
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)
--------------------------------------------------------------------------------
Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment & Cash Purchase
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 59 Maiden Lane, New York, NY 10038. 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 "Dividend" and collectively, "Dividends"), 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 NYSE 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 a price equal to the average closing price of the
Fund over the five trading days preceding the payment date of such dividend.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Dividends automatically reinvested should so
notify the Fund in writing. If a Shareholder has not elected to receive cash
Dividends and the Agent does not receive notice of an election to receive cash
Dividends prior to the record date of any Dividend, the shareholder will
automatically receive such Dividends 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 Dividend 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 Dividends other than
their share of brokerage commissions as discussed below. The Agent's fees for
administering the Plan and handling the reinvestment of Dividends will be paid
by the Fund. Each participant's account will be charged a pro-rata share
================================================================================
17
--------------------------------------------------------------------------------
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)
(CONCLUDED)
--------------------------------------------------------------------------------
of brokerage commissions incurred with respect to the Agent's Open Market
Purchases in connection with the reinvestment of Dividends. 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 Dividends will not relieve participants of any
income tax that may be payable on such Dividends. 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 Dividends are subject to U.S. income tax withholding and in
the case of participants subject to 30% federal backup withholding, the Agent
will reinvest Dividends 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.
------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (unaudited)
------------------------------------------------------------------------------------------------------------------
Name and Position(s) Principal Occupation Position With
Address (Age) Held with Fund Over Last 5 Years Fund Since
Ralph W. Bradshaw* (51) Chairman of the President, Director and Shareholder of 1999; current
One West Pack Square Board of Directors Cornerstone Advisors, Inc.; Financial term ends at
Suite 1650 and President Consultant; Vice President, Deep Discount the 2002
Asheville, NC 28801 Advisors, Inc. (1993-1999); Director of Annual
The Austria Fund, Inc., EIS Fund, Inc., Meeting.
The Cornerstone Strategic Return
Fund, Inc., Progressive Return
Fund, Inc. and The SmallCap Fund.
Thomas H. Lenagh (79) Director Chairman of the Board of Inrad Corp.; 1987; current
13 Allen's Corner Rd. Independent Financial Adviser; Director of term ends at
Flemington, NJ 08822 The Cornerstone Strategic Return Fund, Inc., the 2003
Progressive Return Fund, Inc., Gintel Fund, Annual
The Adams Express Company and Meeting.
Petroleum and Resources Corporation and
ICN Pharmaceuticals International.
=====================================================================================================================
18
------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (unaudited) (continued)
------------------------------------------------------------------------------------------------------------------
Name and Position(s) Principal Occupation Position With
Address (Age) Held with Fund Over Last 5 Years Fund Since
Edwin Meese III (70) Director Distinguished Fellow, The Heritage 2001; current
The Heritage Foundation Foundation, Washington D.C.; Distinguished term ends at
214 Massachusetts Ave NE Visiting Fellow at the Hoover Institution, the 2002
Washington D.C. 20002 Stanford University; Distinguished Senior Annual
Fellow at the Institute of United States Meeting.
Studies, University of London; Formerly U.S.
Attorney General under President Ronald Reagan;
Director of The Cornerstone Strategic Return
Fund, Inc., Progressive Return Fund, Inc.
and Perregrine Corporation (2001).
Scott B. Rogers (46) Director Chief Executive Officer, Asheville Buncombe 2000; current
30 Cumberland Ave. Community Christian Ministry; President, term ends at
Asheville, NC 28801 ABCCM Doctor's Medical Clinic; Director, the 2003
Southeastern Jurisdiction Urban Networkers; Annual
Director, A-B Vision Board, Appointee, NC Meeting.
Governor's Commission on Welfare to Work;
Chairman and Director, Recycling Unlimited;
Director, Interdenominational Ministerial
Alliance; Director of The Cornerstone Strategic
Return Fund, Inc., Progressive Return Fund, Inc.
and EIS Fund, Inc.
Andrew A. Strauss (48) Director Attorney and senior member of Strauss & 2000; current
77 Central Avenue Associates, P.A., Attorneys, Asheville and term ends at
Suite F Hendersonville, NC; previous President of the 2004
Asheville, NC 28801 White Knight Healthcare, Inc. and LMV Annual
Leasing, Inc., a wholly owned subsidiary of Meeting.
Xerox Credit Corporation; Director of
The Cornerstone Strategic Return Fund, Inc.,
Progressive Return Fund, Inc., EIS Fund, Inc.,
Memorial Mission Hospital Foundation and
Deerfield Episcopal Retirement Community.
Glenn W. Wilcox, Sr. (70) Director Chairman of the Board and Chief Executive 2000; current
One West Pack Square Officer of Wilcox Travel Agency; Director, term ends at
Suite 1700 Champion Industries, Inc.; Chairman of the 2004 Annual
Asheville, NC 28801 Tower Associates, Inc. (a real estate Meeting.
venture); Member of the Board of Wachovia Corp.;
Board Trustee and Chairman, Appalachian
State University; Board Trustee and Director,
Mars Hill College; Director of The Cornerstone
Strategic Return Fund, Inc., Progressive
Return Fund, Inc. and EIS Fund, Inc.
=====================================================================================================================
19
------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (unaudited) (concluded)
------------------------------------------------------------------------------------------------------------------
Name and Position(s) Principal Occupation Position With
Address (Age) Held with Fund Over Last 5 Years Fund Since
Gary A. Bentz (45) Vice President Director and Shareholder of Cornerstone 2001
One West Pack Square and Treasurer Advisors, Inc.; Independent Financial,
Suite 1650 Accounting, Investment Consultant and
Asheville, NC 28801 Certified Public Accountant; Vice President,
Deep Discount Advisors, Inc. (1993-2000);
Director of The Austria Fund, Inc.; Director,
Vice President and Treasurer of EIS Fund,
Inc.; Vice President and Treasurer of The
Cornerstone Strategic Return Fund, Inc. and
Progressive Return Fund, Inc.
Thomas R. Westle (48) Secretary Partner, Spitzer & Feldman P.C. (May 1998 - 2000
405 Park Avenue present) prior thereto; a Partner at Battle
New York, NY 10022 Fowler LLP.
* Designates a director who is an "interested person" of the Fund as defined
under the Investment Company Act of 1940. Mr. Bradshaw is an interested person
of the Fund by virtue of his current position as Chairman of the Board of
Directors and Investment Manager of the Fund.
SUMMARY OF GENERAL INFORMATION
The Fund - Cornerstone Strategic Value Fund, Inc. is a closed-end, diversified
investment company whose shares trade on the New York Stock Exchange. Its
investment objective is to seek long-term capital appreciation primarily through
investment in equity securities of companies listed in the United States. The
Fund is managed by Cornerstone Advisors, Inc.
On February 13, 2002, the Board of Directors of the Fund adopted certain
amendments to the Fund's Bylaws. The amendments require a shareholder to provide
written notice to the Secretary of the Fund of any proposal which the
shareholder wishes to raise at an annual meeting of shareholders which was not
included in the Fund's proxy materials at least 90 calendar days in advance of
the date of the mailing of the notice for the preceding year's annual meeting.
The amendments also impose a 90 calendar day advance written notice requirement
on shareholders who wish to introduce at any meeting of shareholders a nominee
for election as a director. The notice provisions were adopted to afford
shareholders a fair opportunity to present matters for consideration at annual
meetings while ensuring that the Fund and its directors will have a reasonable
opportunity to thoughtfully consider the matters proposed. Please contact the
Secretary of the Fund for additional information about the advance notice
requirements if you are considering presenting a proposal at an annual meeting.
SHAREHOLDER INFORMATION
The Fund is listed on the New York Stock Exchange (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 published
under "Closed-End Funds" each Sunday in The New York Times and each Monday in
The Wall Street Journal and Barron's under the designation "CrnstnStrV."
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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.
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PRIVACY POLICY NOTICE
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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.
May 2001
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CORNERSTONE STRATEGIC VALUE FUND, INC.
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DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Gary A. Bentz Vice President and Treasurer
Thomas R. Westle Secretary
INVESTMENT MANAGER SHAREHOLDER SERVICING AGENT
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 PricewaterhouseCoopers LLP
Management Inc. Two Commerce Square
383 Madison Avenue Philadelphia, PA 19103
New York, NY 10179
LEGAL COUNSEL
CUSTODIAN Spitzer & Feldman P.C.
Custodial Trust Company 405 Park Avenue
101 Carnegie Center New York, NY 10022
Princeton, NJ 08540
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) 272-2093.
CLM
LISTED
NYSE(R)
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 this report.