================================================================================
CORNERSTONE STRATEGIC
VALUE FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2001
================================================================================
CONTENTS
Letter to Shareholders .................................................... 1
Portfolio Summary ......................................................... 4
Schedule of Investments ................................................... 5
Statement of Assets and Liabilities ....................................... 10
Statement of Operations ................................................... 11
Statement of Changes in Net Assets ........................................ 12
Financial Highlights ...................................................... 13
Notes to Financial Statements ............................................. 14
Results of Annual Meeting of Stockholders ................................. 17
Description of Dividend Reinvestment & Cash Purchase Plan ................. 18
Privacy Policy Notice ..................................................... 20
Summary of General Information ............................................ 21
Shareholder Information ................................................... 21
================================================================================
LETTER TO SHAREHOLDERS
August 2, 2001
Dear Fellow Shareholders:
Our report for Cornerstone Strategic Value Fund, Inc. (the "Fund"), formerly the
Clemente Strategic Value Fund, Inc., covering the six months ended June 30,
2001, follows. At the end of the period, the Fund's net assets were $38.4
million. Net Asset Value ("NAV") per share was $9.68, as compared to $11.31 at
December 31, 2000. Following the direction of the Board of Directors (the
"Board") and a vote of the shareholders at the Fund's annual meeting in April,
the Fund replaced its investment adviser and the portfolio composition changed
under the new management by Cornerstone Advisors, Inc. Individual holdings were
spread across a much broader range of U.S. and non-U.S. equities.
ECONOMIC AND MARKET SUMMARY
The economic revival, that started way back in 1991 and grew into the longest
peacetime expansion in the history of the U.S., stalled alarmingly in the first
quarter. One industry after another found itself with excess capacity and
withering profits, leading to decreases in capital spending and significant
layoffs.
The market downturn was broader and heavier than most expected, with few
industry segments spared. The Dow Jones Industrial Average dropped 8%, the S&P
500 declined 12% and the NASDAQ Composite dove 25% for the first quarter.
Financials, capital goods, and health care were particularly weak and technology
staged a major retreat. Outside the U.S., the picture was not pretty either,
with many stock markets around the world plunging to depths not seen for years.
The Morgan Stanley Capital International Europe Australasia Far East Index was
down 14% in U.S. dollar terms by quarter's end.
As we ended the second quarter, the Federal Reserve had just completed the sixth
interest rate cut of 2001. The three cuts made during this latest quarter
slashed an additional 1.25% from rates, following up on the three made in the
first quarter that totaled 1.5%. But the latest 1/4 point cut in late June,
which brought the Fed funds rate down to a seven year low of only 3.75%, was
treated with general disappointment by the market, even though the pace and
depth of the Fed's reductions has been historically fast and deep. There has
generally been a lag of at least six months before the impact of any rate cut is
fully felt. As we approached the six-month point since the first of these cuts,
most analysts remained mildly optimistic that growth would pick up soon, at
least by the latter half of the year. However, as more economic data and
corporate profit reports continued to roll in, doubts increased that the U.S.
economy will indeed be able to get back on its feet by the end of 2001.
Happily, all major U.S. stock indices did enjoy a rebound in the second quarter
- the Dow Jones Industrial Average bounced back 6%; the S&P 500 was up 5%; the
NASDAQ Composite was up 17%. However, even after these rebounds, all these same
indices remained mired in negative territory for the year, still down 3%, 7% and
13%, respectively, with almost all of the rebound occurring only in April.
Unfortunately, many global developed markets continued to deteriorate, as the
dollar remained strong.
================================================================================
1
LETTER TO SHAREHOLDERS (CONTINUED)
PORTFOLIO PERFORMANCE
Portfolio performance reflected these market moves with a steep drop in the
first quarter that recovered somewhat in the second. Damage to the Fund's
portfolio in the first quarter was significant. Although returns were helped by
the positive moves of AOL Time Warner Inc. and WorldCom, Inc., many of the other
larger positions declined. The substantial drop in the value of Analog Devices,
Inc. ("ADI") and Morgan Stanley Dean Witter & Co. ("MWD") reflected the broader
retreat in Technology and Financials. (Both of these issues recovered much of
their loss with strong gains in the second quarter). Internationally, first
quarter performance was hurt by major declines in Korea Telecom Corporation,
Vodafone Group plc, and STMicroelectronics N.V. (none of which recovered through
the end of the half). The transition into a broader range of holdings allowed
the domestic markets to lift returns for the second quarter. In addition to
recoveries by ADI and MWD, performance was also helped by Tyco International
Ltd.'s strong move. The portfolio's international exposure was reduced as
telecom issues continued to retreat, Europe showed few signs of recovery, and
Asia's initial out-performance began to slow.
OUTLOOK
It is already apparent that early optimism on third quarter recovery was
premature. As the second half of 2001 unfolds, equities will remain under
pressure from earnings disappointments. Continuing threats to the U.S. economy
remain, such as the possibility of decline in consumer spending, lack of
recovery in business capital expenditures, or emerging weakness in other parts
of the world. Globally, Europe will continue to face lower growth with little
hope of significant central bank rate reduction. Japan's new Prime Minister
faces the daunting task of cleaning up a banking mess without further damaging a
burdened economy entering its fourth recession in a decade. Asia's other
export-driven economies will continue to feel the effects of cooling demand.
But indications are indeed growing that the U.S. economic downturn is nearing a
bottom and we may see a return of more acceptable growth in 2002, possibly even
by the earlier part of the year. Much about today's economic outlook for the
U.S. remains positive. Inflation is still under control, the unemployment rate
remains low and the positive effects of past interest rate cuts are beginning to
be felt. Furthermore, additional reduction in interest rates can now be
expected, the impact of recent tax rate cuts will start to be felt soon, and
energy costs have been dropping, all of which should provide a further boost to
economic growth.
We believe there is an increasing feeling that the worst may be behind us. The
stock market record of the past few years suggests that there are some eternal
truths in equity investing, and that our consistent, more conservative
strategies did not go out of style with the "new economy". We continue to
believe that our more conservative 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 our
shareholders in this environment.
================================================================================
2
LETTER TO SHAREHOLDERS (CONCLUDED)
The Board continues to emphasize using the Fund's unique advantages to enhance
long-term capital appreciation.
-- The investment flexibility recently given by the stockholders has
enabled substantial change in the Fund's holdings. This has allowed
the portfolio to be much more diversified; thus moderating the
negative volatility that often accompanies narrowly focused
objectives.
-- The program of repurchasing the Fund's shares has continued. Through
June 30, 2001, a total of 1,926,340 shares have been bought by the
Fund, representing 32.05% of the shares outstanding at the start of
the program. (Prior to the repurchase program, the Fund held 117,600
in treasury.) 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 NAV per share. This program has also provided
additional liquidity for those shareholders desiring to sell their
shares in the Fund.
-- The expense ratio has been substantially reduced. Working with the new
investment adviser, the Board has overseen changes in and by a number
of providers to improve the scope and cost of services to the Fund. In
addition, the investment management agreement recently approved by
shareholders provides for a waiver of management fees if Fund expenses
exceed certain limits.
We believe that we have positioned Cornerstone Strategic Value Fund, Inc. 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
================================================================================
3
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2001 (UNAUDITED)
--------------------------------------------------------------------------------
TOP TEN, BY SECTOR
PERCENT OF
SECTOR NET ASSETS
--------------------------------------------------------------------------------
1 Drugs (Major Pharmaceuticals) 12.5
--------------------------------------------------------------------------------
2 Manufacturing (Diversified) 7.9
--------------------------------------------------------------------------------
3 Insurance (Property-Casualty) 6.2
--------------------------------------------------------------------------------
4 Foods 5.3
--------------------------------------------------------------------------------
5 Computers (Software & Services) 5.3
--------------------------------------------------------------------------------
6 Electronics (Semiconductors) 5.1
--------------------------------------------------------------------------------
7 Retail (Home Shopping) 5.0
--------------------------------------------------------------------------------
8 Financial (Diversified) 3.8
--------------------------------------------------------------------------------
9 Telephone 3.8
--------------------------------------------------------------------------------
10 Computers (Hardware) 3.5
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1 Pfizer Inc. Drugs (Major Pharmaceuticals) 6.5
--------------------------------------------------------------------------------
2 Home Depot, Inc. (The) Retail (Home Shopping) 5.0
--------------------------------------------------------------------------------
3 Sysco Corp. Foods 4.7
--------------------------------------------------------------------------------
4 General Electric Co. Manufacturing (Diversified) 4.4
--------------------------------------------------------------------------------
5 American International Group, Inc. Insurance (Property-Casualty) 3.6
--------------------------------------------------------------------------------
6 Microsoft Corp. Computers (Software & Services) 3.3
--------------------------------------------------------------------------------
7 Exxon Mobil Corp. Oil (Domestic Integrated) 2.8
--------------------------------------------------------------------------------
8 Analog Devices, Inc. Electronics (Semiconductors) 2.5
--------------------------------------------------------------------------------
9 Citigroup Inc. Insurance (Property-Casualty) 2.4
--------------------------------------------------------------------------------
10 Tyco International Ltd. Manufacturing (Diversified) 2.3
--------------------------------------------------------------------------------
================================================================================
4
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2001 (UNAUDITED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.00%
BERMUDA - 2.27%
BASIC MATERIALS - 2.27%
Manufacturing (Diversified) - 2.27%
Tyco International Ltd.
(cost - $602,800) ................................ 16,000 $ 872,000
----------
CANADA - 0.22%
TECHNOLOGY - 0.22%
COMMUNICATION EQUIPMENT - 0.22%
Nortel Networks Corp.
(cost - $146,546) ................................ 9,400 85,446
----------
NETHERLANDS - 1.72%
CONSUMER STAPLES - 0.31%
FOODS - 0.31%
Unilever NV, NY Shares ........................... 2,000 119,140
----------
ENERGY - 1.41%
OIL (INTERNATIONAL INTEGRATED) - 1.14%
Royal Dutch Petroleum Co., NY Shares ............. 7,500 437,025
----------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.27%
Schlumberger Ltd. ................................ 2,000 105,300
----------
Total Energy ..................................... 542,325
----------
Total Netherlands (cost - $658,515) .............. 661,465
----------
PANAMA - 0.17%
CONSUMER STAPLES - 0.17%
ENTERTAINMENT - 0.17%
Carnival Corp. (cost - $58,107) .................. 2,100 64,470
----------
UNITED STATES - 94.62%
BASIC MATERIALS - 1.52%
ALUMINUM - 0.32%
Alcoa Inc. ....................................... 3,100 122,140
----------
CHEMICALS (DIVERSIFIED) - 0.74%
Dow Chemical Co. (The) ........................... 3,200 106,400
E.I. du Pont de Nemours & Co. .................... 3,700 178,488
----------
284,888
----------
PAPER & FOREST PRODUCTS - 0.46%
International Paper Co. .......................... 2,000 71,400
Kimberly-Clark Corp. ............................. 1,900 106,210
----------
177,610
----------
Total Basic Materials ............................ 584,638
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
CAPITAL GOODS - 6.82%
AEROSPACE/DEFENSE - 0.43%
Boeing Co. (The) ................................. 3,000 $ 166,800
----------
ELECTRICAL EQUIPMENT - 0.39%
Motorola, Inc. ................................... 6,600 109,296
Solectron Corp.+ ................................. 2,200 40,260
----------
149,556
----------
MACHINERY (DIVERSIFIED) - 0.17%
Caterpillar Inc. ................................. 1,300 65,065
----------
MANUFACTURING (DIVERSIFIED) - 5.59%
Dover Corp. ...................................... 700 26,355
General Electric Co. ............................. 34,500 1,681,875
Honeywell International Inc. ..................... 2,800 97,972
Masco Corp. ...................................... 1,700 42,432
Minnesota Mining & Manufacturing Company (3M) .... 1,500 171,150
United Technologies Corp. ........................ 1,700 124,542
----------
2,144,326
----------
OFFICE EQUIPMENT & SUPPLIES - 0.06%
Xerox Corp. ...................................... 2,400 22,968
----------
WASTE MANAGEMENT - 0.18%
Waste Management, Inc. ........................... 2,200 67,804
----------
Total Capital Goods .............................. 2,616,519
----------
COMMUNICATION SERVICES - 5.90%
TELECOMMUNICATIONS (CELLULAR) - 0.41%
Nextel Communications, Inc., Class A+ ............ 2,800 49,000
Palm, Inc.+ ...................................... 2,000 12,140
Sprint Corp. (PCS Group)+ ........................ 3,400 82,110
WorldCom, Inc. (MCI Group)+ ..................... 900 14,490
----------
157,740
----------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.72%
AT&T Corp. ....................................... 12,500 275,000
Sprint Corp. ..................................... 3,100 66,216
WorldCom, Inc. (WorldCom Group) .................. 22,500 319,500
----------
660,716
----------
================================================================================
See accompanying notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2001 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
TELEPHONE - 3.77%
BellSouth Corp. .................................. 6,600 $ 265,782
Qwest Communications International Inc. .......... 5,700 181,659
SBC Communications Inc. .......................... 12,400 496,744
Verizon Communications Inc. ...................... 9,400 502,900
----------
1,447,085
----------
Total Communication Services ..................... 2,265,541
----------
CONSUMER CYCLICALS - 8.57%
AUTO PARTS & EQUIPMENT - 0.08%
Delphi Automotive Systems Corp. .................. 2,000 31,860
----------
AUTOMOBILES - 0.75%
Ford Motor Co. ................................... 6,700 164,485
General Motors Corp. ............................. 1,900 122,265
----------
286,750
----------
RETAIL (DISCOUNTERS) - 2.30%
Target Corp. ..................................... 3,200 110,720
Wal-Mart Stores, Inc. ............................ 15,800 771,040
----------
881,760
----------
RETAIL (HOME SHOPPING) - 4.99%
Home Depot, Inc. (The) ........................... 41,100 1,913,205
----------
RETAIL (SPECIALTY-APPAREL) - 0.23%
Gap, Inc. (The) .................................. 3,100 89,900
----------
SERVICES (ADVERTISING/MARKETING) - 0.08%
Interpublic Group of Companies Inc. (The) ........ 1,100 32,285
----------
SERVICES (COMMERCIAL & CONSUMER) - 0.14%
Cendant Corp.+ ................................... 2,700 52,650
----------
Total Consumer Cyclicals ......................... 3,288,410
----------
CONSUMER STAPLES - 14.55%
BEVERAGES (ALCOHOLIC) - 0.34%
Anheuser-Busch Companies, Inc. ................... 3,200 131,840
----------
BEVERAGES (NON-ALCOHOLIC) - 1.64%
Coca-Cola Co. (The) .............................. 9,000 405,000
PepsiCo., Inc. ................................... 5,100 225,420
----------
630,420
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
BROADCASTING (TV, CABLE, RADIO) - 2.76%
AOL Time Warner Inc.+ ............................ 14,700 $ 779,100
----------
CLEAR CHANNEL
Communications, Inc.+ ............................ 2,100 131,670
Comcast Corp., Special Class A+ .................. 3,300 143,220
----------
1,053,990
----------
ENTERTAINMENT - 1.35%
Viacom Inc., non-voting Class B+ ................. 6,000 310,500
Walt Disney Co. (The) ............................ 7,200 208,008
----------
518,508
----------
FOODS - 4.98%
Archer-Daniels-Midland Co. ....................... 2,300 29,900
ConAgra Foods, Inc. .............................. 1,900 37,639
Sara Lee Corp. ................................... 2,800 53,032
Sysco Corp. ...................................... 65,800 1,786,470
----------
1,907,041
----------
PERSONAL CARE - 1.39%
Colgate-Palmolive Co. ............................ 2,000 117,980
Gillette Co. (The) ............................... 3,800 110,162
Procter & Gamble Co. (The) ....................... 4,800 306,240
----------
534,382
----------
RESTAURANTS- 0.32%
McDonald's Corp. ................................. 4,600 124,476
----------
RETAIL (DRUG STORES) - 0.32%
Walgreen Co. ..................................... 3,600 122,940
----------
RETAIL (FOOD CHAINS) - 0.41%
Kroger Co. (The)+ ................................ 2,900 72,500
Safeway Inc.+ .................................... 1,800 86,400
----------
158,900
----------
TOBACCO - 1.04%
Philip Morris Companies Inc. ..................... 7,900 400,925
----------
Total Consumer Staples ........................... 5,583,422
----------
ENERGY - 5.79%
OIL (DOMESTIC INTEGRATED) - 2.78%
Exxon Mobil Corp. ........................ 12,200 1,065,670
----------
OIL (INTERNATIONAL INTEGRATED) - 0.71%
Chevron Corp. ............................ 2,300 208,150
Conoco Inc., Class B ..................... 2,200 63,580
----------
271,730
----------
================================================================================
See accompanying notes to financial statements.
6
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2001 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.82%
Anadarko Petroleum Corp. ......................... 900 $ 48,627
Enron Corp. ...................................... 2,700 132,300
Texaco Inc. ...................................... 2,000 133,200
----------
314,127
----------
OIL & GAS (REFINING & MINING) - 1.48%
Halliburton Co. .................................. 16,000 569,600
----------
Total Energy ..................................... 2,221,127
----------
FINANCIAL - 17.65%
Banks (Major Regional) - 1.49%
Bank One Corp. ................................... 4,100 146,780
Fifth Third Bancorp .............................. 2,000 120,100
Mellon Financial Corp. ........................... 1,800 82,800
National City Corp. .............................. 2,200 67,716
U.S. Bancorp ..................................... 6,700 152,693
----------
570,089
----------
BANKS (MONEY CENTER) - 3.30%
Bank of America Corp. ............................ 5,400 324,162
Bank of New York Co., Inc. (The)+ ............... 2,600 124,800
First Union Corp. ................................ 3,600 125,784
FleetBoston Financial Corp. ...................... 3,900 153,855
J.P. Morgan Chase & Co. .......................... 6,000 267,600
Wells Fargo & Co. ................................ 5,800 269,294
----------
1,265,495
----------
CONSUMER FINANCE - 1.04%
American Express Co. ............................. 4,600 178,480
Household International, Inc. .................... 1,800 120,060
MBNA Corp. ....................................... 3,000 98,850
----------
397,390
----------
DIVERSIFIED - 3.79%
Fannie Mae ....................................... 2,500 175,000
Freddie Mac ...................................... 3,700 315,055
Morgan Stanley Dean Witter & Co. ................. 15,000 963,450
----------
1,453,505
----------
INSURANCE (BROKERS) - 0.26%
Marsh & McLennan Companies, Inc. ................. 1,000 101,000
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INSURANCE (LIFE & HEALTH) - 0.59%
AFLAC Inc. ....................................... 1,900 $ 59,831
American General Corp. ........................... 1,800 83,610
MetLife, Inc. .................................... 2,700 83,646
----------
227,087
----------
INSURANCE (PROPERTY-CASUALTY) - 6.25%
Allstate Corp. (The) ............................. 2,700 118,773
American International Group, Inc. ............... 16,000 1,376,000
Citigroup Inc. ................................... 17,100 903,564
----------
2,398,337
----------
INVESTMENT BANKING & BROKERAGE - 0.62%
Charles Schwab Corp. (The) ....................... 4,700 71,910
Merrill Lynch & Co., Inc. ........................ 2,800 165,900
----------
237,810
----------
SAVINGS & LOANS - 0.31%
Washington Mutual, Inc. .......................... 3,150 118,283
----------
Total Financial .................................. 6,768,996
----------
HEALTH CARE - 13.90%
BIOTECHNOLOGY - 0.55%
Amgen Inc.+ ...................................... 3,500 212,380
----------
DRUGS (MAJOR PHARMACEUTICALS) - 12.50%
Abbott Laboratories .............................. 5,300 254,453
American Home Products Co. ....................... 4,800 280,512
Bristol-Myers Squibb Co. ......................... 7,100 371,330
Eli Lilly & Co. .................................. 4,000 296,000
Johnson & Johnson ................................ 9,200 460,000
Merck & Co., Inc. ................................ 3,800 242,858
Pfizer Inc. ...................................... 62,000 2,483,100
Pharmacia Corp. .................................. 4,800 220,560
Schering-Plough Corp. ............................ 5,200 188,448
----------
4,797,261
----------
HOSPITAL MANAGEMENT - 0.24%
HCA Inc. ......................................... 2,000 90,380
----------
MEDICAL PRODUCTS - 0.61%
Guidant Corp.+ ................................... 1,000 36,000
Medtronic, Inc. .................................. 4,300 197,843
----------
233,843
----------
Total Health Care ................................ 5,333,864
----------
================================================================================
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2001 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
TECHNOLOGY - 17.88%
COMMUNICATION EQUIPMENT - 0.89%
ADC Telecommunications, Inc.+ .................... 2,700 $ 17,820
Corning Inc ...................................... 6,200 103,602
Lucent Technologies Inc. ......................... 10,700 66,340
Qualcomm Inc.+ ................................... 2,600 152,048
----------
339,810
----------
COMPUTERS (HARDWARE) - 3.44%
Compaq Computer Corp. ............................ 5,300 82,097
Dell Computer Corp.+ ............................. 8,300 217,045
Hewlett-Packard Co. .............................. 6,300 180,180
International Business Machines Corp. ............ 5,900 666,700
Sun Microsystems, Inc.+ .......................... 11,400 179,208
----------
1,325,230
----------
COMPUTERS (NETWORKING) - 1.16%
Cisco Systems, Inc+ .............................. 24,400 444,080
----------
COMPUTERS (SOFTWARE & SERVICES) - 5.27%
Computer Associates International, Inc. .......... 2,100 75,600
Emc Corp+ ........................................ 7,600 220,780
McDATA Corp., Class A+ ........................... 1,111 19,498
Microsoft Corp.+ ................................. 17,600 1,284,800
Oracle Corp.+ .................................... 20,300 385,700
Yahoo! Inc.+ ..................................... 1,900 37,981
----------
2,024,359
----------
ELECTRONICS (COMPONENT DISTRIBUTION) - 0.24%
Emerson Electric Co. ............................. 1,500 90,750
----------
ELECTRONICS (SEMICONDUCTORS) - 5.08%
Analog Devices, Inc.+ ............................ 22,000 951,500
Intel Corp. ...................................... 26,000 760,500
Micron Technology, Inc.+ ......................... 2,000 82,200
Texas Instruments Inc. ........................... 4,900 154,350
----------
1,948,550
----------
EQUIPMENT (SEMICONDUCTORS) - 0.50%
Agilent Technologies, Inc.+ ...................... 1,800 58,500
Applied Materials, Inc.+ ......................... 2,700 132,570
----------
191,070
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.30%
Automatic Data Processing, Inc. .................. 10,000 $ 497,000
----------
Total Technology ................................. 6,860,849
----------
TRANSPORTATION - 0.21%
AIRLINES - 0.13%
Southwest Airlines Co. ........................... 2,700 49,923
----------
RAILROADS - 0.08%
Norfolk Southern Corp. ........................... 1,400 28,980
----------
Total Transportation ............................. 78,903
----------
UTILITIES - 1.83%
ELECTRIC COMPANIES - 1.36%
AES Corp. (The)+ ................................. 1,900 81,795
American Electric Power Co., Inc. ................ 1,200 55,404
Dominion Resources, Inc. ......................... 1,000 60,130
Duke Energy Corp. ................................ 2,800 109,228
Exelon Corp. ..................................... 1,200 76,944
Reliant Energy, Inc. ............................. 1,100 35,431
Southern Co. (The) ............................... 2,400 55,800
TXU Corp. ........................................ 1,000 48,190
----------
522,922
----------
NATURAL GAS - 0.25%
El Paso Corp. .................................... 1,800 94,572
----------
POWER PRODUCTS (INDEPENDENT) - 0.22%
Calpine Corp.+ ................................... 1,100 41,580
Mirant Corp.+ .................................... 1,300 44,720
----------
86,300
----------
Total Utilities .................................. 703,794
----------
Total United States
(cost - $30,730,057) ........................... 36,306,063
----------
Total Equity Securities
(cost - $32,196,025) ........................... 37,989,444
----------
================================================================================
See accompanying notes to financial statements.
8
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2001 (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
Principal
Amount Value
Description (000's) (Note A)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 1.08%
REPURCHASE AGREEMENT - 1.08%
Bear, Stearns & Co. Inc.
(Agreement dated 06/29/01 to
be repurchased at $423,637),
3.97%, 07/02/01
(cost - $414,531) (Note F) ....................... $415 $ 414,531
----------
TOTAL INVESTMENTS - 100.08%
(cost - $32,610,556) (Notes A, C) .............. 38,403,975
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS - (0.08)% (29,523)
----------
NET ASSETS - 100.00% $38,374,452
===========
----------
+ Security is non-income producing.
================================================================================
See accompanying notes to financial statements.
9
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2001 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $32,610,556) (Note A) ........... $ 38,403,975
Cash collateral received for securities loaned (Note E) ...... 588,747
Receivables:
Dividends ............................................ 20,182
Interest ............................................. 1,988
Prepaid expenses ............................................. 23,379
------------
Total Assets ................................................. 39,038,271
------------
LIABILITIES
Payables:
Upon return of securities loaned (Note E) ............ 588,747
Investment management fees (Note B) .................. 27,157
Capital stock repurchased (Note D) ................... 4,970
Other accrued expenses ............................... 42,945
------------
Total Liabilities ............................................ 663,819
------------
NET ASSETS (applicable to 3,966,060 shares
of common stock outstanding) ............................ $ 38,374,452
============
NET ASSET VALUE PER SHARE ($38,374,452 / 3,966,060) .......... $ 9.68
============
NET ASSETS CONSISTS OF
Capital stock, $0.01 par value;
3,966,060 shares outstanding
(25,000,000 shares authorized) .......................... $ 39,661
Paid-in capital .............................................. 48,561,038
Cost of 2,043,940 shares repurchased ......................... (25,555,396)
Accumulated net investment loss .............................. (370,481)
Accumulated net realized gain on investments ................. 9,906,211
Net unrealized appreciation in value of investments .......... 5,793,419
------------
Net assets applicable to shares outstanding .................. $ 38,374,452
============
================================================================================
See accompanying notes to financial statements.
10
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT LOSS Income (Note A):
Dividends .............................................. $ 167,335
Interest ............................................... 22,782
Less: Foreign taxes withheld ........................... (1,250)
-----------
Total Investment Income ................................ 188,867
-----------
Expenses:
Investment management fees (Note B) .................... 202,576
Audit and legal fees (Note B) ......................... 94,834
Administration fees .................................... 36,148
Directors' fees ........................................ 25,123
Printing ............................................... 18,316
Custodian fees ......................................... 16,977
NYSE listing fees ..................................... 11,201
Accounting fees ........................................ 5,395
Transfer agent fees .................................... 4,870
Insurance .............................................. 2,562
Other .................................................. 12,466
-----------
Total Expenses ................................. 430,468
Less: Fees paid indirectly (Note B) ............ (38,872)
Less: Management fee waivers (Note B) .......... (8,510)
-----------
Net Expenses ........................................... 383,086
-----------
Net Investment Loss .................................... (194,219)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized gain from investments ............................. 2,268,834
Net change in unrealized appreciation in value of investments .. (8,744,460)
-----------
Net realized and unrealized loss on investments ................ (6,475,626)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $(6,669,845)
===========
================================================================================
See accompanying notes to financial statements.
11
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the For the
Six Months Ended Year Ended
June 30, 2001 December 31,
(unaudited) 2000
---------------- ------------
DECREASE IN NET ASSETS
Operations:
Net investment loss .............................. $ (194,219) $ (645,795)
Net realized gain on investments and
foreign currency related transactions .......... 2,268,834 7,637,069
Net change in unrealized appreciation in
value of investments and
translation of other assets and liabilities
denominated in foreign currency ................ (8,744,460) (15,452,439)
Federal income tax on undistributed realized gains -- (3,177,964)
------------ ------------
Net decrease in net assets resulting
from operations ...................... (6,669,845) (11,639,129)
------------ ------------
Distributions to shareholders (Note A):
Net realized gain on investments and
foreign currency related transactions .......... -- (4,351,786)
------------ ------------
Capital stock transactions (Note D):
Cost of 101,200 and 361,800
shares repurchased, respectively ............... (936,078) (4,232,705)
------------ ------------
Total decrease in net assets ..................... (7,605,923) (20,223,620)
------------ ------------
NET ASSETS
Beginning of period ...................................... 45,980,375 66,203,995
------------ ------------
End of period ............................................ $ 38,374,452 $ 45,980,375
============ ============
================================================================================
See accompanying notes to financial statements.
12
--------------------------------------------------------------------------------
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, 2001 For the Years Ended December 31,
(unaudited) 2000 1999 1998 1997
----------- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ... $ 11.31 $ 14.95 $ 14.52 $ 11.53 $ 10.10
Net investment income/(loss) ........... (0.05)# (0.94)# (0.19)# (0.09)# (0.05)
Net realized and unrealized gain/(loss)
on investments and foreign currency
related translations ................... (1.61) (1.81) 4.39 2.96 2.36
Net increase/(decrease) in net assets
from operations ........................ (1.66) (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
shares repurchased ..................... 0.03 0.12 0.10 0.12 --
Net asset value, end of period ......... $ 9.68 $ 11.31 $ 14.95 $ 14.52 $ 11.53
Market value, end of period ............ $ 8.350 $ 10.590 $ 14.250 $ 12.880 $ 9.440
Total investment return (a) ............ (21.15)% (28.10)% 40.74% 36.42% 37.62%
RATIOS/SUPPLEMENTA DATA
Net assets, end of period (000 omitted) $ 38,374 $ 45,980 $ 66,204 $ 79,060 $ 67,951
Ratio of expenses to average net assets,
net of fee waivers, if any ..... 1.89%(b)(c) 1.72%(c) 1.55%(c) 1.91% 1.74%
Ratio of expenses to average net assets,
excluding fee waivers, if any .. 2.13%(b)(d) 1.83%(d) 1.64%(d) -- --
Ratio of net investment income/(loss)
to average net assets .......... (0.96)%(b) (1.12)% (0.59)% (0.69)% (0.46)%
Portfolio turnover rate ................ 49.33% 28.26% 101.54% 50.39% 81.56%
For the Years Ended December 31,
--------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
Net asset value, beginning of period ... $ 10.65 $ 10.73 $ 12.36 $ 9.43 $ 10.82 $ 9.79
Net investment income/(loss) ........... (0.03) -- (0.03) 0.02 0.01 (0.01)
Net realized and unrealized gain/(loss)
on investments and foreign currency
related translations ................... 0.41 0.42 (0.64) 3.56 (0.35) 1.39
Net increase/(decrease) in net assets
from operations ........................ 0.38 0.42 (0.67) 3.58 (0.34) 1.38
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) (0.35)
Total dividends and distributions
to shareholders ........................ (0.93) (0.50) (0.96) (0.65) (1.05) (0.35)
Anti-dilutive effect due to capital
shares repurchased ..................... -- -- -- -- -- --
Net asset value, end of period ......... $ 10.10 $ 10.65 $ 10.73 $ 12.36 $ 9.43 $ 10.82
Market value, end of period ............ $ 7.500 $ 8.375 $ 8.500 $ 11.250 $ 7.750 $ 9.125
Total investment return (a) ............ 0.64% 4.59% (15.91)% 53.55% (3.56)% 11.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 59,520 $ 62,781 $ 63,216 $ 72,830 $ 55,540 $ 63,763
Ratio of expenses to average net assets,
net of fee waivers, if any ..... 1.53% 1.58% 1.75% 1.68% 2.29% 2.74%
Ratio of expenses to average net assets,
excluding fee waivers, if any .. -- -- -- -- -- --
Ratio of net investment income/(loss)
to average net assets .......... (0.25)% (0.02)% (0.25)% 0.16% 0.10% (0.11)%
Portfolio turnover rate ................ 120.66% 84.98% 81.73% 125.31% 82.49% 66.11%
------------------------------------------------------------------------------------------------------------------------------------
# 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) Annualized.
(c) Expenses are net of fees paid indirectly.
(d) Expenses exclude fees paid indirectly.
================================================================================
See accompanying notes to financial statements.
13
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
The 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 June 30, 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 "Adviser" 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 marks to market daily 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.
================================================================================
14
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
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 or foreign exchange
losses incurred after October 31, 2000 within the prior fiscal year are deemed
to arise on the first day of the current fiscal year. The Fund elected to defer
such capital loss of $1,500,693.
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 carryovers, 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.
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 adviser
with respect to all investments. As compensation for its advisory 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. Cornerstone has
voluntarily agreed to limit the Fund's annual operating expenses (excluding
interest, taxes, brokerage commissions, legal fees, 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 June 30, 2001, Cornerstone earned $97,689 for investment
advisory services, of which Cornerstone waived $8,510.
For the period January 1, 2001 through April 18, 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 $78,665. 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 $38,872 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement. Of this amount, $34,921 was used to offset administration fees.
The Fund paid or accrued approximately $67,400 for the six months ended June 30,
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.
================================================================================
15
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
NOTE C. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at June 30,
2001 was $32,610,556. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$5,793,419 was composed of gross appreciation of $6,652,540 for those
investments having an excess of value over cost and gross depreciation of
$859,121 for those investments having an excess of cost over value.
For the six months ended June 30, 2001, purchases and sales of securities, other
than short-term investments, were $20,188,615 and $24,474,555, 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 six months ended June 30,
2001, the Fund repurchased 101,200 of its shares for a total cost of $936,078 at
a weighted average discount of 13.47% from net asset value. The discount of
individual repurchases ranged from 6.22% - 21.29%. 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 the 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 it's 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 June 30, 2001 was $568,452 and $588,747,
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 period ended June 30, 2001, the Fund earned $200 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 June 30, 2001.
Principal Total
Amount Market
Issuer (000's) Yield Maturity Value
------ ------- ----- -------- -----
United States Treasury Bond,
Interest Only $1,925 5.43% 11/15/26 $423,500
================================================================================
16
--------------------------------------------------------------------------------
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
--------------------------------------------------------------------------------
On April 19, 2001, the Annual Meeting of Stockholders of Cornerstone Strategic
Value Fund, Inc. (the "Fund") was held and the following matters were voted
upon:
(1) To elect two Class I Directors until the year 2002 Annual Meeting, two
Class II Directors until the year 2003 Annual Meeting and two Class
III Directors until the year 2004 Annual Meeting.
NAME OF CLASS I DIRECTORS FOR ABSTAIN
------------------------- --- -------
Ralph W. Bradshaw 3,029,773 612,600
Edwin Meese III 3,028,124 614,249
NAME OF CLASS II DIRECTORS FOR ABSTAIN
-------------------------- --- -------
Thomas H. Lenagh 3,029,173 613,200
Scott B. Rogers 3,028,913 613,460
NAME OF CLASS III DIRECTORS FOR ABSTAIN
--------------------------- --- -------
Andrew A. Strauss 3,029,773 612,600
Glenn W. Wilcox, Sr. 3,029,373 613,000
(2) To approve a new investment management agreement between Cornerstone
Advisors, Inc. and the Fund.
FOR AGAINST ABSTAIN
--- ------- -------
2,101,840 615,542 33,973
(3) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants for the year ending December 31, 2001.
FOR AGAINST ABSTAIN
--- ------- -------
3,507,302 113,289 21,781
================================================================================
17
--------------------------------------------------------------------------------
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.
================================================================================
18
--------------------------------------------------------------------------------
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)(CONCLUDED)
--------------------------------------------------------------------------------
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 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 30.5% 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.
================================================================================
19
--------------------------------------------------------------------------------
PRIVACY POLICY NOTICE
--------------------------------------------------------------------------------
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
================================================================================
20
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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."
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
================================================================================
21
================================================================================
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 ADVISER SHAREHOLDER SERVICING AGENT
Cornerstone Advisors, Inc. American Stock Transfer & Trust Co.
One West Pack Square 59 Maiden Lane
Suite 1650 New York, NY 10038
Asheville, NC 28801
ADMINISTRATOR INDEPENDENT ACCOUNTANTS
Bear Stearns Funds PricewaterhouseCoopers LLP
Management Inc. Two Commerce Square
575 Lexington Avenue Philadelphia, PA 19103
New York, NY 10022
CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Spitzer & Feldman P.C.
101 Carnegie Center 405 Park Avenue
Princeton, NJ 08540 New York, NY 10022
EXECUTIVE OFFICES
575 Lexington Avenue
New York, NY 10022
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. 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.
CORNERSTONE STRATEGIC VALUE FUND, INC.