UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05150
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Cornerstone Strategic Value Fund, Inc.
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(Exact name of registrant as specified in charter)
383 Madison Avenue, New York, NY 10179
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(Address of principal executive offices) (Zip code)
Jodi B. Levine
383 Madison Avenue, New York, NY 10179
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(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 272-2889
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Date of fiscal year end: December 31, 2005
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Date of reporting period: January 1, 2005 - June 30, 2005
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Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
CORNERSTONE STRATEGIC
VALUE FUND, INC.
JUNE 30, 2005
This update contains the following two documents:
o Letter from the Fund's President
o Semi-Annual Report to Shareholders
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LETTER FROM THE FUND'S PRESIDENT
July 29, 2005
Dear Fellow Shareholders:
Following is the semi-annual report for Cornerstone Strategic Value Fund, Inc.,
(the "Fund"), for the six months ended June 30, 2005. At the end of the period,
the Fund's net assets were $142.2 million and the Net Asset Value per share was
$5.84. The share price closed at $7.19. After reflecting the reinvestment of
monthly distributions (some of which may be classified as a return-of-capital
after year-end) totaling $0.52 per share, the Fund achieved a total investment
return at market value of (7.98)% for the six months ended June 30, 2005.
ECONOMIC AND MARKET SUMMARY
Although there were few surprises during the first six months of 2005, the
fundamentals of the economy remained healthy while the financial markets were
down. The economy posted a solid 3.8% annual growth rate, as measured by Gross
Domestic Product, during the first quarter of the year and a 3.4% rate during
the second quarter. This is particularly impressive in view of the difficult
conditions caused by persistently high crude oil prices and increasing
short-term interest rates. Even so, all of the major market indices were down
for the first six months of the year. Although concerns about the war in Iraq
have receded somewhat, institutional and private investors are now focused on
whether economic growth and earnings growth can be sustained if energy prices
remain high. The Federal Reserve has continued its policy of raising short-term
interest rates by 0.25% at each of its open market committee meetings. The
federal-funds rate now stands at 3.25% after the ninth quarter point increase in
a row. In its most recent assessment, the Federal Reserve noted that
inflationary pressures have stayed elevated, although they are under control.
The Federal Reserve has signaled that it will probably continue its policy of
tightening short-term rates through the end of the year. Although there has been
some improvement in capital spending in corporate America, most companies have
continued to stockpile cash, which remains at historically high levels. As
always, the financial markets will be looking carefully at future earnings
growth and the ability of the economy to sustain strong earnings in the future.
Most commentators anticipate modest, single-digit gains in the major market
indices through the end of the year.
DISTRIBUTION POLICY
The Fund has continued its policy of regular distributions to shareholders. The
Board of Directors and Cornerstone Advisors, Inc. regard this policy as an
important feature of the management philosophy of the Fund. It is an important
tool for enhancing shareholder value by creating liquidity for individual
investors and flexibility in managing their investment in the Fund. We believe
that many investors are willing to accept the inherent volatility of an equity
portfolio, but would prefer to have a predictable and stable cash flow as well,
either to take in cash or to reinvest in shares of the Fund. The Fund's
distribution policy is designed to address this issue.
Pursuant to the distribution policy, the Fund pays a substantial, fixed monthly
distribution. At the end of each year, each shareholder receives a final
determination of the total distribution attributable to income, capital gains,
or return-of-capital. The allocation among these categories may vary greatly
from year to year depending on portfolio performance. It is important for
shareholders to consult their tax advisor on proper recognition of the
return-of-capital distributions with regard to the cost basis of their shares.
I
LETTER FROM THE FUND'S PRESIDENT (CONCLUDED)
The Fund's investment focus is to generate total investment returns that exceed
the amount of the distributions, although there can be no guarantee that this
will be achieved. To the extent that the amount of distributions taken in cash
exceeds the total net investment returns of the Fund, the assets of the Fund
will decline. If the total net investment returns exceed the amount of cash
distributions, the assets of the Fund will increase. Either way, the Fund's
shareholders have complete flexibility to take their distributions in cash or to
reinvest in Fund shares through the Fund's Dividend Reinvestment Plan, and they
can change this election as often as they desire. Shareholders may find that
recent changes in this Plan make it even more beneficial for them and are
encouraged to consider the reinvestment option for their distributions.
OUTLOOK
We believe that the Fund's broadly diversified portfolio continues to be
well-positioned to take advantage of the current economic recovery. Through the
first six months of the year, the Fund's portfolio contained a significant
percentage of small-cap stocks. Many analysts believe that the small-cap sector
is nearing the end of its run, and we will be looking for opportunities to
reposition this portion of the portfolio into large-cap securities which may be
undervalued relative to their small-cap counterparts. Although the small-cap
sector has continued to do well in recent months, it has been noted that
small-cap companies will be more vulnerable than the large-cap sector to the
continued rise in short-term interest rates, which could have a dampening effect
on future small-cap performance. The investment manager also attempts to enhance
portfolio performance by taking advantage of temporary and occasional pricing
inefficiencies in certain securities. In addition to its small-cap component,
the Fund continues to hold positions in selected closed-end funds. The
availability and magnitude of such opportunities are unpredictable, and
therefore, their effect on possible portfolio performance may vary considerably
from year to year.
We expect continued strength in the economy and in the prospects for measured
growth in the financial markets. The Fund's Board of Directors, its officers,
and its Investment Manager realize that the Fund's shareholders have placed
their trust in us. We know you have a choice, we appreciate your support, and we
look forward to continuing our service to you in the future.
Sincerely,
/s/ Ralph W. Bradshaw
Ralph W. Bradshaw
President
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS, IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
THIS LETTER FROM THE FUND'S PRESIDENT IS NOT PART OF THE SEMI-ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS.
II
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CORNERSTONE STRATEGIC
VALUE FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2005
================================================================================
CONTENTS
Portfolio Summary 1
Summary Schedule of Investments 2
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8
Results of Annual Meeting of Stockholders 12
Description of Dividend Reinvestment Plan 13
Investment Management Agreement Approval Disclosure 15
Proxy Voting and Portfolio Holdings Information 16
Privacy Policy Notice 16
Summary of General Information 17
Shareholder Information 17
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CORNERSTONE STRATEGIC VALUE FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2005 (UNAUDITED)
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SECTOR ALLOCATION
Percent of
Sector Net Assets
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Financials 19.5
Consumer Discretionary 14.5
Information Technology 14.5
Healthcare 12.3
Industrials 10.7
Energy 8.4
Consumer Staples 6.5
Materials 5.6
Telecommunication Services 2.6
Utilities 2.5
Closed-End Domestic Funds 2.3
Other 0.6
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Exxon Mobil Corp. Energy 3.2
2. General Electric Co. Industrials 3.0
3. Microsoft Corp. Information Technology 2.5
4. Citigroup Inc. Financials 2.4
5. FMC Technologies, Inc. Energy 2.1
6. EMC Corp. Information Technology 2.1
7. Wal-Mart Stores Inc. Consumer Discretionary 2.0
8. Pfizer Inc. Healthcare 1.9
9. Fairchild Semiconductor
International, Inc. Information Technology 1.9
10. Johnson & Johnson Healthcare 1.9
1
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
-----------------------------------------------------------------------------
EQUITY SECURITIES - 99.65%
CLOSED-END DOMESTIC FUNDS - 2.25%
Tri-Continental Corp. 77,000 $ 1,371,370
Zweig Fund, Inc. 176,600 944,810
Other Closed-End
Domestic Funds (a) 887,765
------------
3,203,945
------------
CONSUMER DISCRETIONARY - 14.55%
Comcast Corp., Class A + 31,537 968,186
Furniture Brands
International, Inc. 52,200 1,128,042
Gildan Activewear Inc.,
Class A + 88,600 2,334,610
Home Depot, Inc. (The) 30,600 1,190,340
United Natural Foods, Inc. + 57,400 1,743,238
Wal-Mart Stores, Inc. 59,800 2,882,360
Other Consumer
Discretionary (a) 10,436,842
------------
20,683,618
------------
CONSUMER STAPLES - 6.56%
Altria Group, Inc. 29,300 1,894,538
PepsiCo, Inc. 24,800 1,337,464
Procter & Gamble Co. (The) 37,600 1,983,400
Other Consumer Staples (a) 4,117,819
------------
9,333,221
------------
ENERGY - 8.41%
ChevronTexaco Corp. 19,330 1,080,934
Exxon Mobil Corp. 80,000 4,597,600
FMC Technologies, Inc. + 93,300 2,982,801
Western Gas Resources, Inc. 50,800 1,772,920
Other Energy (a) 1,530,243
------------
11,964,498
------------
FINANCIALS - 19.45%
Affiliated Managers
Group, Inc. + 30,300 2,070,399
American International
Group, Inc. 37,531 2,180,551
Bank of America Corp. 55,616 2,536,646
Citigroup Inc. 74,300 3,434,889
First Marblehead
Corp. (The) + 40,700 1,426,942
Freddie Mac 14,500 945,835
JPMorgan Chase & Co. 30,332 1,071,326
Wachovia Corp. 22,600 1,120,960
Wells Fargo & Co. 24,200 1,490,236
Other Financials (a) 11,387,376
------------
27,665,160
------------
HEALTHCARE - 12.27%
Abbott Laboratories 21,000 1,029,210
Amgen Inc. + 18,900 1,142,694
Cooper Companies,
Inc. (The) 40,500 2,464,830
Edwards Lifesciences
Corp. + 39,200 1,686,384
Johnson & Johnson 40,900 2,658,500
Pfizer Inc. 99,660 2,748,623
UnitedHealth Group Inc. 23,000 1,199,220
Wyeth 19,200 854,400
Other Healthcare (a) 3,658,184
------------
17,442,045
------------
INDUSTRIALS - 10.74%
General Electric Co. 122,700 4,251,555
Shuffle Master, Inc. + 48,300 1,353,849
Tyco International Ltd. 33,397 975,192
United Parcel Service,
Inc., Class B 16,300 1,127,308
Other Industrials (a) 7,563,111
------------
15,271,015
------------
See accompanying notes to financial statements.
2
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CORNERSTONE STRATEGIC VALUE FUND, INC.
SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2005 (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
-----------------------------------------------------------------------------
INFORMATION TECHNOLOGY - 14.54%
Cisco Systems, Inc. + 96,400 $ 1,842,204
Dell Inc. + 29,700 1,173,447
EMC Corp. + 212,648 2,915,404
Fairchild Semiconductor
International, Inc. + 180,500 2,662,375
Intel Corp. 65,500 1,706,930
International Business
Machines Corp. 21,000 1,558,200
Microsoft Corp. 142,100 3,529,764
Other Information
Technology (a) 5,293,185
------------
20,681,509
------------
MATERIALS - 5.59%
Joy Global Inc. 60,000 2,015,400
Packaging Corporation
of America 70,700 1,488,235
Peabody Energy Corp. 34,400 1,790,176
Steel Dynamics, Inc. 61,900 1,624,875
Other Materials (a) 1,029,754
------------
7,948,440
------------
REAL ESTATE INVESTMENT TRUSTS - 0.20%
Total Real Estate
Investment Trusts (a) 4,000 289,960
------------
TELECOMMUNICATION SERVICES - 2.56%
Verizon Communications Inc. 37,100 1,281,805
Other Telecommunication
Services (a) 2,350,812
------------
3,632,617
------------
UTILITIES - 2.53%
Total Utilities (a) 3,602,547
------------
TOTAL EQUITY SECURITIES
(cost - $120,033,444) 141,718,575
------------
Principal
Amount
Description (000's) Value
-----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.64%
REPURCHASE AGREEMENTS - 8.64%
Bear, Stearns & Co. Inc. *
(Agreement dated 6/30/05
to be repurchased at
$12,289,135) (b) $ 12,288 $ 12,288,052
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $12,288,052) 12,288,052
------------
TOTAL INVESTMENTS - 108.29%
(cost - $132,321,496) 154,006,627
------------
LIABILITIES IN EXCESS OF
OTHER ASSETS - (8.29)% (11,795,693)
------------
NET ASSETS - 100.00% $142,210,934
============
----------
+ Non-income producing security.
* Includes investment purchased with cash collateral received for securities
on loan.
(a) Represents issues not identified as a top 50 holding in terms of market
value and issues or issuers not exceeding 1% of net assets individually or
in the aggregate, respectively, as of June 30, 2005.
(b) At June 30, 2005, the maturity date for all repurchase agreements held was
07/01/05, with interest rates ranging from 1.6875% to 3.375% and
collateralized by $12,647,358 in U.S. Treasury Bonds and U.S. Treasury
STRIPS.
See accompanying notes to financial statements.
3
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CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $132,321,496) $154,006,627
Receivables:
Dividends 149,052
Interest 4,957
Prepaid expenses 17,091
------------
Total Assets 154,177,727
------------
LIABILITIES
Payables:
Upon return of securities loaned 11,789,698
Investment management fees 109,268
Directors' fees 27,929
Other accrued expenses 39,898
------------
Total Liabilities 11,966,793
------------
NET ASSETS (applicable to 24,336,069 shares of common
stock outstanding) $142,210,934
============
NET ASSET VALUE PER SHARE ($142,210,934 / 24,336,069) $ 5.84
============
NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 24,336,069 shares
outstanding (100,000,000 shares authorized) $ 24,336
Paid-in capital 157,554,682
Cost of 2,239,440 shares repurchased (26,999,661)
Distributions in excess of net investment income (3,006,837)
Accumulated net realized loss on investments (7,046,717)
Net unrealized appreciation in value of investments 21,685,131
------------
Net assets applicable to shares outstanding $142,210,934
============
See accompanying notes to financial statements.
4
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CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $203) $ 1,175,217
Interest 32,265
------------
Total Investment Income 1,207,482
------------
Expenses:
Investment management fees 730,837
Administration fees 73,060
Directors' fees 53,556
Legal and audit fees 33,015
Accounting fees 20,176
Printing 18,357
Custodian fees 14,165
Transfer agent fees 11,405
Stock exchange listing fees 5,279
Insurance 2,910
Miscellaneous 4,240
------------
Total Expenses 967,000
Less: Management fee waivers (52,632)
Less: Fees paid indirectly (26,898)
------------
Net Expenses 887,470
------------
Net Investment Income 320,012
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized gain from investments 10,159,692
Net change in unrealized appreciation in value of investments (13,186,065)
------------
Net realized and unrealized loss on investments (3,026,373)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (2,706,361)
============
See accompanying notes to financial statements.
5
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months
Ended For the Year
June 30, 2005 Ended
(unaudited) December 31, 2004
------------------ -----------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income $ 320,012 $ 646,242
Net realized gain/(loss) from investments 10,159,692 (127,914)
Net change in unrealized appreciation in value of investments (13,186,065) 12,198,020
------------ ------------
Net increase/(decrease) in net assets resulting from operations (2,706,361) 12,716,348
------------ ------------
Dividends and distributions to shareholders:
Net investment income (320,012) (729,442)
Net realized capital gains (9,240,930) --
Return-of-capital (3,006,837) (13,677,285)
------------ ------------
Total dividends and distributions to shareholders (12,567,779) (14,406,727)
------------ ------------
Capital stock transactions:
Net assets received in conjunction with Merger Agreement -- 127,962,525
Proceeds from 458,366 and 263,935 shares newly issued
in reinvestment of dividends and distributions, respectively 2,795,088 1,852,533
------------ ------------
Net increase in net assets resulting from capital stock transactions 2,795,088 129,815,058
------------ ------------
Total increase/(decrease) in net assets (12,479,052) 128,124,679
------------ ------------
NET ASSETS
Beginning of period 154,689,986 26,565,307
------------ ------------
End of period $142,210,934 $154,689,986
============ ============
See accompanying notes to financial statements.
6
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CORNERSTONE STRATEGIC VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
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Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each 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 For the Years Ended December 31,
June 30, 2005 ------------------------------------------------------------
(unaudited) 2004 2003 2002 2001 2000
----------- -------- -------- -------- -------- --------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 6.48 $ 6.90 $ 6.41 $ 9.20 $ 11.31 $ 14.95
-------- -------- -------- -------- -------- --------
Net investment income/(loss) # 0.01 0.05 0.04 (0.01) (0.06) (0.94)
Net realized and unrealized gain/(loss)
on investments and foreign currency
related translations (0.13) 0.55 1.44 (2.29) (2.13) (1.81)
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from operations (0.12) 0.60 1.48 (2.30) (2.19) (2.75)
-------- -------- -------- -------- -------- --------
Dividends and distributions to shareholders:
Net investment income (0.01) (0.05) (0.04) -- -- --
Net realized gain on investments and
foreign currency related transactions (0.38) -- -- -- -- (1.01)
Return-of-capital (0.13) (0.99) (0.95) (0.50) -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions to
shareholders (0.52) (1.04) (0.99) (0.50) -- (1.01)
-------- -------- -------- -------- -------- --------
Capital stock transactions:
Anti-dilutive effect due to capital
stock repurchased -- -- -- 0.02 0.08 0.12
Anti-dilutive/(dilutive) effect due to
shares issued in reinvestment of
dividends and distributions -- 0.02 -- (0.01) -- --
-------- -------- -------- -------- -------- --------
Total capital stock transactions -- 0.02 -- 0.01 0.08 0.12
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 5.84 $ 6.48 $ 6.90 $ 6.41 $ 9.20 $ 11.31
======== ======== ======== ======== ======== ========
Market value, end of period $ 7.19 $ 8.51 $ 9.00 $ 5.85 $ 8.05 $ 10.590
======== ======== ======== ======== ======== ========
Total investment return (a)(b) (7.98)% 8.38% 77.69% (20.85)% (23.98)% (19.28)%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $142,211 $154,690 $ 26,565 $ 24,376 $ 35,256 $ 45,980
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.21%(e) 1.28% 1.20% 1.80% 1.77% 1.72%
Ratio of expenses to average net assets,
excluding fee waivers, if any (d) 1.31%(e) 1.50% 1.59% 2.17% 2.11% 1.83%
Ratio of expenses to average net assets,
net of fee waivers, if any (d) 1.24%(e) 1.36% 1.25% 1.86% 1.95% 1.72%
Ratio of net investment income/(loss) to
average net assets 0.43%(e) 0.73% 0.68% (0.13)% (0.64)% (1.12)%
Portfolio turnover rate 4.71% 39.05% 11.88% 29.63% 59.83% 28.26%
----------
# Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends
and distributions, if any, at actual prices pursuant to the Fund's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
(b) For the year ended December 31, 2000, the Fund paid federal taxes on
realized long-term capital gains. Total investment return, assuming
reinvestment of distributions and federal taxes paid on long-term capital
gains, is (13.88)%.
(c) Expenses are net of fees paid indirectly.
(d) Expenses exclude the reduction for fees paid indirectly.
(e) Annualized.
See accompanying notes to financial statements.
7
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CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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NOTE A. SIGNIFICANT ACCOUNTING POLICIES
Cornerstone Strategic Value Fund, Inc. (the "Fund") was incorporated in Maryland
on May 1, 1987 and commenced investment operations on June 30, 1987. Its
investment objective is to seek long-term capital appreciation through
investment in equity securities of companies listed in the United States. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company. On June 25, 2004, the
Fund consummated tax-free mergers with Progressive Return Fund, Inc. ("PGF") and
Investors First Fund, Inc. ("MGC") (collectively, the "Predecessor Funds").
Pursuant to the terms of the agreements governing the mergers, each share of
common stock of the Predecessor Funds was converted into an equivalent dollar
amount of full shares of common stock of the Fund, based on the net asset values
of the Fund, MGC and PGF as of June 25, 2004 ($6.47, $10.42 and $20.96,
respectively), resulting in a conversion ratio of 1.6094 and 3.2378 shares of
the Fund for each share of MGC and PGF, respectively. This resulted in the
issuance of 15,955,350 and 3,808,891 Fund shares for MGC and PGF, respectively.
Cash was paid in lieu of fractional shares. Net assets of the Fund, MGC and PGF
as of the merger date were $25,105,399, $103,302,250 and $24,660,275, including
unrealized appreciation/(depreciation) of $2,516,413, $23,078,675 and
$(2,519,953), respectively. In addition, PGF's net assets included undistributed
capital losses of $13,754,555. Total net assets after the merger were
$153,067,924.
The following is a summary of significant accounting policies consistently
followed by the Fund:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make certain estimates and assumptions that may
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities will 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 will be valued
at the closing price on another exchange where it trades. If there are no such
sale prices, the value will be the most recent bid, and if there is no bid, the
security will be valued at the most recent asked. If no pricing service is
available and there are more than two dealers, the value will be the mean of the
highest bid and lowest ask. If there is only one dealer, then the value will be
the mean if bid and ask are available, otherwise the value will 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, 2005, the Fund held no securities valued in good faith
by the Board of Directors. The net asset value per share of the Fund is
calculated weekly and on the last business day of the month with the exception
of those days on which the American Stock Exchange, LLC is closed.
REPURCHASE AGREEMENTS: The Fund has agreed to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an
agreed-upon time and price ("repurchase agreements"). The financial institutions
with whom the Fund enters into repurchase agreements are banks and
broker/dealers, which Cornerstone Advisors, Inc. (the Fund's "Investment
Manager" or "Cornerstone") considers creditworthy. The seller under a repurchase
agreement will be required to maintain the value of the securities as
collateral, subject to the agreement at not less than the repurchase price plus
accrued interest. Cornerstone monitors daily, the mark-to-market of the value of
the collateral, and, if necessary, requires the seller to maintain additional
securities, so that the value of the collateral is not less than the repurchase
price.
8
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
Default by or bankruptcy of the seller would, however, expose the Fund to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
DISTRIBUTIONS OF INCOME AND GAINS: Effective June 25, 2002, the Fund initiated a
fixed, monthly distribution to shareholders. To the extent that these
distributions exceed the current earnings of the Fund, the balance will be
generated from sales of portfolio securities held by the Fund, which will either
be short-term or long-term capital gains or a tax-free return-of-capital. To the
extent these distributions are not represented by net investment income and
capital gains, they will not represent yield or investment return on the Fund's
investment portfolio. The Fund plans to maintain this distribution policy even
if regulatory requirements would make part of it a return-of-capital, necessary
to maintain the distribution, taxable to shareholders and to disclose that
portion of the distribution that is classified as ordinary income. Although it
has no current intention to do so, the Board may terminate this distribution
policy at any time and such termination may have an adverse effect on the market
price for the Fund's common shares. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. To the
extent that the Fund's taxable income in any calendar year exceeds the aggregate
amount distributed pursuant to this distribution policy, an additional
distribution may be made to avoid the payment of a 4% U.S. federal excise tax,
and to the extent that the aggregate amount distributed in any calendar year
exceeds the Fund's taxable income, the amount of that excess may constitute a
return-of-capital for tax purposes. A return-of-capital distribution reduces the
cost basis of an investor's shares in the Fund. Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend date.
NOTE B. AGREEMENTS
Cornerstone serves as the Fund's Investment Manager with respect to all
investments. As compensation for its investment management services, Cornerstone
receives from the Fund, an annual fee, calculated weekly and paid monthly, equal
to 1.00% of the Fund's average weekly net assets. Cornerstone has voluntarily
agreed to continue to waive its management fees from the Fund to the extent that
monthly operating expenses exceed 0.10% of average net assets calculated
monthly. For the six months ended June 30, 2005, Cornerstone earned $730,837 for
investment management services, of which it waived $52,632. The Investment
Manager may discontinue such undertaking at any time during the fiscal year
without notice to fund shareholders.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $26,898 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid approximately $24,088 for the six months ended June 30, 2005 for
legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas R.
Westle, partner of Blank, serves as Secretary of the Fund.
9
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
NOTE C. INVESTMENT IN SECURITIES
For the six months ended June 30, 2005, purchases and sales of securities, other
than short-term investments, were $6,923,530 and $16,397,156 respectively.
NOTE D. SHARE REPURCHASE PROGRAM
As has been done in the past to enhance shareholder value, pursuant to Section
23 of the Investment Company Act of 1940, as amended, the Fund may again in the
future purchase shares of its common stock on the open market from time to time,
at such times, and in such amounts as may be deemed advantageous to the Fund.
Nothing herein shall be considered a commitment to purchase such shares. For the
six months ended June 30, 2005, the Fund had no repurchases. No limit has been
placed on the number of shares to be repurchased by the Fund other than those
imposed by federal securities laws.
All purchases are made in accordance with federal securities laws, with shares
repurchased held in treasury effective January 1, 2002.
NOTE E. SECURITIES LENDING
To generate additional income, the Fund may lend up to 10% of its total assets.
The Fund receives payments from borrowers equivalent to the dividends and
interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount. The value of securities on loan to brokers at
June 30, 2005, was $11,488,760.
During the six months ended June 30, 2005, the Fund earned $16,694 in securities
lending income which is included under the caption INTEREST in the Statement of
Operations.
NOTE F. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of losses deferred due to wash sales and
Post-October losses (as later defined), and excise tax regulations.
The tax character of dividends and distributions paid during the
year ended December 31, 2004 for the Fund were as follows:
ORDINARY INCOME RETURN-OF-CAPITAL
--------------- -----------------
$729,442 $13,677,285
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred and treated as occurring on the first day of the
following tax year ("Post-October losses"). For the tax period ended December
31, 2004, the Fund incurred and elected to defer net realized losses from
investments of $73,676.
10
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
At December 31, 2004, the Fund had a capital loss carryforward for
U.S. federal income tax purposes of $7,891,803 of which $1,587,987 expires in
2007, $3,559,173 expires in 2008, $1,281,365 expires in 2009, $693,207 expires
in 2010, $635,700 expires in 2011 and $134,371 expires in 2012.
At June 30, 2005, the identified cost for federal income tax purposes, as well
as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized appreciation from investments were $132,321,496, $28,615,041,
$(6,929,910) and $21,685,131, respectively.
11
RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED)
On May 10, 2005, the Annual Meeting of Stockholders of Cornerstone Strategic
Value Fund, Inc. was held and the following matter was voted upon:
(1) To approve the re-election of two Class I Directors until the year 2008
Annual Meeting.
NAME OF CLASS I DIRECTORS FOR WITHHOLD
------------------------- --- --------
Ralph W. Bradshaw 22,986,107 190,879
Edwin Meese III 22,894,990 281,996
12
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Shareholders who have shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment Plan (the "Plan"),
unless and until an election is made to withdraw from the Plan on behalf of such
participating shareholders. Shareholders who do not wish to have distributions
automatically reinvested should so notify American Stock Transfer & Trust Co.
(the "Agent") at P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or
call (877) 248-6416. Under the Plan, all of the Fund's dividends and other
distributions to shareholders are reinvested in full and fractional shares as
described below.
When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Distribution" and collectively, "Distributions"), the
Agent, on the shareholders' behalf, will: (i) receive additional authorized
shares from the Fund either newly issued or repurchased from shareholders by the
Fund and held as treasury stock ("Newly Issued Shares") or, (ii) at the sole
discretion of the Board of Directors, be authorized to purchase outstanding
shares on the open market, on the American Stock Exchange, LLC or elsewhere,
with cash allocated to it by the Fund ("Open Market Purchases").
Shares acquired by the Agent in Open Market Purchases will be allocated to the
reinvesting shareholders based on the average cost of such Open Market
Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at the lower of (i) a price equal to the average
closing price of the Fund over the five trading days preceding the payment of
such distribution, or (ii) the net asset value of the Fund as last determined
prior to such payment date.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Distributions automatically reinvested should
so notify the Fund in writing. If a Shareholder has not elected to receive cash
Distributions and the Agent does not receive notice of an election to receive
cash Distributions prior to the record date of any distribution, the shareholder
will automatically receive such Distributions in additional shares.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Distribution payment date.
When a participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares credited to his/her account under
the Plan will, upon request, be issued. Whether or not a participant requests
that certificates for whole shares be issued, a cash payment will be made for
any fraction of a Share credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of each Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the Shareholder's name and held for the account of
beneficial owners participating in the Plan.
There will be no charge to participants for reinvesting Distributions other than
their share of brokerage commissions as discussed below. The Agent's fees for
administering the Plan and handling the reinvestment of Distributions will be
paid by the
13
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
Fund. Each participant's account will be charged a pro-rata share of brokerage
commissions incurred with respect to the Agent's Open Market Purchases in
connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of shares for individual accounts
through the Plan are expected to be less than the usual brokerage charges for
such transactions because the Agent will be purchasing shares for all the
participants in blocks and pro-rating the lower commission that may be
attainable.
The automatic reinvestment of Distributions will not relieve participants of any
income tax that may be payable on such Distributions. Participants who receive
shares pursuant to the Plan as described above will recognize taxable income in
the amount of the fair market value of those shares. In the case of non-U.S.
participants whose Distributions are subject to U.S. income tax withholding and
in the case of participants subject to 28% federal backup withholding, the Agent
will reinvest Distributions after deduction of the amount required to be
withheld.
The Fund reserves the right to amend or terminate the Plan by written notice to
participants. All correspondence concerning the Plan should be directed to the
Agent at the address referred to in the first paragraph of this section.
14
INVESTMENT MANAGEMENT AGREEMENT APPROVAL DISCLOSURE (UNAUDITED)
The Board of Directors including, the Independent Directors, (the "Board") of
the Cornerstone Strategic Value Fund, Inc.(the "Fund") considers the approval of
the Investment Management Agreement (the "Agreement") between Cornerstone
Advisors, Inc. (the "Investment Manager") and the Fund on an annual basis. The
most recent approval of the Agreement occurred at a meeting of the Board held on
February 25, 2005.
In determining whether to approve the Agreement, the Board requested and
received extensive materials and information from the Investment Manager to
assist them in considering the approval of the continuance of the Agreement.
Based on their review of the information requested and provided, and the
discussions with management of the Investment Manager, the Board determined that
the approval of the Agreement was consistent with the best interests of the Fund
and its shareholders, and would enable the Fund to continue to receive high
quality services at a cost that is appropriate, reasonable, and in the best
interests of the Fund and its shareholders. The Board made these determinations
on the basis of the following factors, among others: (1) the nature and quality
of the services provided by the Investment Manager; (2) the cost to the
Investment Manager for providing such services, with special attention to the
Investment Manager's profitability (and whether the Investment Manager realizes
any economies of scale); (3) the direct and indirect benefits received by the
Investment Manager from its relationship with the Fund and the other investment
company advised by the Investment Manager; and (4) comparative information as to
the management fees, expense ratios and performance of other similarly situated
closed-end investment companies.
The materials provided by the Investment Manager to the Board described the
services provided by the Investment Manager to the Fund and included an overview
of the Investment Manager and its investment process and policies, including the
Investment Manager's extensive knowledge and experience in the closed-end fund
industry. The Board also discussed the knowledge of the Investment Manager with
respect to managing the Fund's monthly distribution policy and the extent to
which such policy contributes to the current premium of the Fund's market price
to its net asset value. The Board also favorably received the Investment
Manager's continued commitment to voluntarily waive its management fees from the
Fund to the extent that monthly operating expenses exceed 0.10% of average net
assets calculated monthly. The Board also reviewed and discussed a comparison of
the Fund's performance with comparable closed-end funds and a comparison of the
Fund's expense ratios and management fees with those comparable funds.
Additionally, the Investment Manager presented an analysis of its profitability
based on its contractual relationship with the Fund and the other investment
company advised by the Investment Manager.
The Board carefully evaluated this information, taking into consideration many
factors including, the overall high quality of the personnel, operations,
financial condition, investment management capabilities, methodologies, and
performance of the Investment Manager, and was advised by independent legal
counsel with respect to its deliberations. Based on its review of the
information requested and provided, the Board determined that the investment
management fees payable to the Investment Manager under the Agreement are fair
and reasonable in light of the services to be provided, the anticipated costs of
these services, the profitability of the Investment Manager's relationship with
the Fund, and the comparability of the proposed fee to fees paid by comparable
closed-end funds. The Board determined that the Agreement is consistent with the
best interests of the Fund and its shareholders, and enables the Fund to receive
high quality services at a cost that is appropriate, reasonable, and in the best
interests of the Fund and its shareholders.
Accordingly, in light of the above considerations and such other factors and
information it considered relevant, the Board by a unanimous vote of those
present in person at the meeting (including a separate vote of the Independent
Directors present in person at the meeting) approved the continuance of the
Agreement with respect to the Fund.
15
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how the Cornerstone Strategic Value Fund, Inc. (the
"Fund") voted proxies related to its portfolio securities during the 12-month
period ended June 30, 2005 as well as the policies and procedures that the Fund
uses to determine how to vote proxies relating to its portfolio securities are
available:
o by calling (212) 272-3550;
o on the website of the Securities and Exchange Commission,
http://www.sec.gov.
The report incorporates a Summary Schedule of Investments for the Fund. A
complete Schedule of Investments for the Fund may be obtained free of charge by
contacting the Fund at (212) 272-3550.
The Fund files a complete schedule of its portfolio holdings for the first and
third quarters of its fiscal year with the SEC on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
PRIVACY POLICY NOTICE (UNAUDITED)
The following is a description of Cornerstone Strategic Value Fund, Inc.'s (the
"Fund") policies regarding disclosure of nonpublic personal information that you
provide to the Fund or that the Fund collects from other sources. In the event
that you hold shares of the Fund through a broker-dealer or other financial
intermediary, the privacy policy of the financial intermediary would govern how
your nonpublic personal information would be shared with unaffiliated third
parties.
CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the following
nonpublic personal information about you:
1. Information from the Consumer: this category includes information
the Fund receives from you on or in applications or other forms,
correspondence, or conversations (such as your name, address, phone
number, social security number, assets, income and date of birth);
and
2. Information about the Consumer's transactions: this category
includes information about your 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.
16
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
The Fund - Cornerstone Strategic Value Fund, Inc. is a closed-end, diversified
investment company whose shares trade on the American Stock Exchange, LLC. Its
investment objective is to seek long-term capital appreciation through
investment in equity securities of companies listed in the United States. The
Fund is managed by Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the American Stock Exchange, LLC (symbol "CLM"). The share
price is published in: THE NEW YORK TIMES (daily) under the designation
"CornerStrt" and THE WALL STREET JOURNAL (daily) and BARRON'S (each Monday)
under the designation "CornstnStrat." The net asset value per share is available
weekly and may be obtained by contacting the Fund at the general inquiry phone
number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE STRATEGIC VALUE FUND, INC. MAY
FROM TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. The financial information
included herein is taken from the records of the Fund without examination by
independent registered public accountants who do not express an opinion thereon.
It is not a prospectus, circular or representation intended for use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
--------------------------------------------------------------------------------
17
CORNERSTONE STRATEGIC VALUE FUND, INC.
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
William A. Clark Director and Vice President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Gary A. Bentz Chief Compliance Officer
Thomas R. Westle Secretary
Jodi B. Levine Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock Transfer &
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 10038
INDEPENDENT REGISTERED
ADMINISTRATOR PUBLIC ACCOUNTING FIRM
Bear Stearns Funds Tait, Weller & Baker
Management Inc. 1818 Market Street
383 Madison Avenue Suite 2400
New York, NY 10179 Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Blank Rome LLP
101 Carnegie Center 405 Lexington Avenue
Princeton, NJ 08540 New York, NY 10174
EXECUTIVE OFFICES
383 Madison Avenue
New York, NY 10179
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (212) 272-3550.
[GRAPHIC]
AMERICAN
STOCK EXCHANGE(R)
LISTED
CLM (TM)
ITEM 2. CODE OF ETHICS.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 6. SCHEDULE OF INVESTMENTS.
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
NO. OF
DESCRIPTION SHARES VALUE
--------------------------------------------------------------------------------
EQUITY SECURITIES - 99.65%
CLOSED-END DOMESTIC FUNDS - 2.25%
Adams Express Co. 49,500 $ 637,065
General American Investors Company, Inc. 3,000 96,000
Salomon Brothers Fund, Inc. (The) 11,900 154,700
Tri-Continental Corp. 77,000 1,371,370
Zweig Fund, Inc. (The) 176,600 944,810
------------
3,203,945
------------
CONSUMER DISCRETIONARY - 14.55%
Bed Bath & Beyond Inc. + 4,200 175,476
Best Buy Co., Inc. 4,750 325,612
Carnival Corp. 11,800 643,690
Circuit City Stores, Inc. 1,000 17,290
Clear Channel Communications, Inc. 8,800 272,184
Comcast Corp., Class A + 31,537 968,186
Costco Wholesale Corp. 6,500 291,330
CVS Corp. 5,000 145,350
Delphi Corporation 7,600 35,340
Eastman Kodak Co. 1,400 37,590
Federated Department Stores, Inc. 1,000 73,280
Ford Motor Company 26,300 269,312
Fortune Brands, Inc. 1,000 88,800
Furniture Brands International, Inc. 52,200 1,128,042
Gannett Co., Inc. 2,000 142,260
Gap, Inc. (The) 12,200 240,950
General Motors Corp. 6,500 221,000
Gildan Activewear Inc., Class A + 88,600 2,334,610
Goodyear Tire & Rubber Company (The) + 4,500 67,050
Harley-Davidson, Inc. 4,400 218,240
Hilton Hotels Corp. 3,200 76,320
Home Depot, Inc. (The) 30,600 1,190,340
J.C. Penney Company, Inc. 4,500 236,610
Kohl's Corp. + 5,000 279,550
Lowe's Companies, Inc. 11,200 652,064
Marriott International, Inc., Class A 2,100 143,262
Mattel, Inc. 5,500 100,650
May Department Stores Co. 4,900 196,784
McDonald's Corp. 17,600 488,400
Monsanto Co. 580 36,465
News Corporation, Class A 30,000 485,400
NIKE, Inc., Class B 2,300 199,180
Omnicom Group Inc. 4,100 327,426
Reebok International Ltd. 1,500 62,745
Rockwell Automation, Inc. 2,500 121,775
Sears Holdings Corp. + 503 75,385
Staples, Inc. 10,800 230,256
Starbucks Corp. + 5,400 278,964
Target Corporation 11,800 642,038
Time Warner Inc. + 41,000 685,110
TJX Companies, Inc. (The) 7,000 170,450
Toys "R" Us, Inc. + 1,000 26,480
United Natural Foods, Inc. + 57,400 1,743,238
Viacom Inc., non-voting Class B 23,900 765,278
Wal-Mart Stores, Inc. 59,800 2,882,360
Walt Disney Co. (The) 29,200 735,256
Yum! Brands, Inc. 3,000 156,240
------------
20,683,618
------------
CONSUMER STAPLES - 6.56%
Altria Group, Inc. 29,300 1,894,538
Anheuser-Busch Companies, Inc. 8,700 398,025
Archer Daniels Midland Company 5,460 116,735
Campbell Soup Company 2,000 61,540
Coca-Cola Co. (The) 15,500 647,125
Coca-Cola Enterprises Inc. 6,500 143,065
Colgate-Palmolive Company 2,100 104,811
ConAgra Foods, Inc. 4,400 101,904
General Mills, Inc. 2,500 116,975
Gillette Company (The) 12,600 637,938
H.J. Heinz Co. 1,600 56,672
Kimberly-Clark Corporation 6,900 431,871
Kroger Co. (The) + 4,800 91,344
Pepsi Bottling Group, Inc. (The) 4,000 114,440
PepsiCo, Inc. 24,800 1,337,464
Procter & Gamble Co. (The) 37,600 1,983,400
Sara Lee Corp. 11,500 227,815
Sysco Corp. 5,800 209,902
Walgreen Co. 14,300 657,657
------------
9,333,221
------------
ENERGY - 8.41%
Anadarko Petroleum Corp. 900 73,935
Baker Hughes Inc. 1,100 56,276
CenterPoint Energy, Inc. 3,900 51,519
ChevronTexaco Corp. 19,330 1,080,934
ConocoPhillips 12,474 717,130
Exxon Mobil Corp. 80,000 4,597,600
FMC Technologies, Inc. + 93,300 2,982,801
Marathon Oil Corp. 1,500 80,055
Occidental Petroleum Corp. 4,000 307,720
Reliant Energy Inc. + 1,104 13,668
Schlumberger Ltd. 2,000 151,880
Unocal Corp. 1,200 78,060
Western Gas Resources, Inc. 50,800 1,772,920
------------
11,964,498
------------
FINANCIALS - 19.45%
Aetna Inc. 6,000 496,920
Affiliated Managers Group, Inc. + 30,300 2,070,399
AFLAC Inc. 7,000 302,960
Allstate Corp. (The) 9,300 555,675
American Express Company 15,600 830,388
American International Group, Inc. 37,531 2,180,551
Aon Corporation 4,900 122,696
Bank of America Corp. 55,616 2,536,646
Bank of New York Co., Inc. (The) 8,400 241,752
Charles Schwab Corporation (The) 12,000 135,360
Citigroup Inc. 74,300 3,434,889
Fannie Mae 13,000 759,200
Fifth Third Bancorp 9,000 370,890
First Marblehead Corp. (The) + 40,700 1,426,942
Franklin Resources, Inc. 3,700 284,826
Freddie Mac 14,500 945,835
Goldman Sachs Group, Inc. (The) 7,300 744,746
Hartford Financial Services Group, Inc. (The) 6,000 448,680
JPMorgan Chase & Co. 30,332 1,071,326
Lehman Brothers Holding Inc. 3,600 357,408
Manulife Financial Corp. 2,963 141,661
Marsh & McLennan Companies, Inc. 4,100 113,570
MBNA Corp. 12,600 329,616
Merrill Lynch & Co., Inc. 10,700 588,607
MetLife, Inc. 10,200 458,388
Morgan Stanley 15,500 813,285
National City Corp. 9,700 330,964
Northern Trust Corp. 3,500 159,565
Piper Jaffray Companies, Inc. + 104 3,165
PNC Financial Services Group, Inc. 4,100 223,286
Prudential Financial, Inc. 8,200 538,412
St. Paul Travelers Companies, Inc. (The) 9,476 374,586
State Street Corp. 3,500 168,875
SunTrust Banks, Inc. 3,600 260,064
U.S. Bancorp 25,401 741,709
UnumProvident Corp. 1,100 20,152
Wachovia Corp. 22,600 1,120,960
Washington Mutual, Inc. 11,550 469,970
Wells Fargo & Co. 24,200 1,490,236
------------
27,665,160
------------
HEALTHCARE - 12.27%
Abbott Laboratories 21,000 1,029,210
Amgen Inc. + 18,900 1,142,694
Becton, Dickinson & Co. 3,900 204,633
Biogen Idec Inc. 3,000 103,350
Boston Scientific Corp. + 12,300 332,100
Bristol-Myers Squibb Co. 10,500 262,290
Cardinal Health, Inc. 5,450 313,811
Caremark Rx, Inc. + 6,500 289,380
Cooper Companies, Inc. (The) 40,500 2,464,830
Edwards Lifesciences Corp. + 39,200 1,686,384
Eli Lilly & Co. 14,500 807,795
Guidant Corp. 1,400 94,220
HCA, Inc. 3,500 198,345
Hospira, Inc. + 700 27,300
Johnson & Johnson 40,900 2,658,500
McKesson Corp. 2,300 103,017
Medco Health Solutions, Inc. + 1,687 90,018
Medtronic, Inc. 1,500 77,685
Merck & Co. Inc. 20,500 631,400
Pfizer Inc. 99,660 2,748,623
Schering-Plough Corp. 5,000 95,300
Tenet Healthcare Corp. + 2,250 27,540
United Health Group Inc. 23,000 1,199,220
Wyeth 19,200 854,400
------------
17,442,045
------------
INDUSTRIALS - 10.74%
3M Co. 10,400 751,920
Automatic Data Processing, Inc. 4,900 205,653
Boeing Company (The) 11,700 772,200
Caterpillar Inc. 2,900 276,399
Cendant Corp. 14,000 313,180
CSX Corp. 1,000 42,660
Emerson Electric Co. 3,500 219,205
FedEx Corp. 4,500 364,545
General Dynamics Corp. 3,100 339,574
General Electric Co. 122,700 4,251,555
Heartland Express, Inc. 40,435 785,652
Honeywell International Inc. 12,500 457,875
Illinois Tool Works Inc. 2,400 191,232
IMS Health Inc. 1,400 34,678
Lockheed Martin Corp. 4,000 259,480
Masco Corp. 4,200 133,392
Northrop Grumman Corp. 5,000 276,250
Paychex, Inc. 4,200 136,668
PHH Corp. + 700 18,004
Shuffle Master, Inc. + 48,300 1,353,849
Southwest Airlines Co. 6,450 89,848
Transocean Inc. + 2,500 134,925
Tyco International Ltd. 33,397 975,192
Union Pacific Corp. 2,000 129,600
United Parcel Service, Inc., Class B 16,300 1,127,308
United Technologies Corp. 14,400 739,440
Waste Management, Inc. 4,200 119,028
Yellow Roadway Corp. + 15,191 771,703
------------
15,271,015
------------
INFORMATION TECHNOLOGY - 14.54%
Adobe Systems Inc. 2,200 62,964
Agere Systems, Inc. + 24 288
Altera Corp. + 3,400 67,388
Analog Devices, Inc. 2,700 100,737
Apple Computer, Inc. + 3,000 110,430
Applied Materials, Inc. 7,800 126,204
CACI International Inc., Class A + 9,800 618,968
Cisco Systems, Inc. + 96,400 1,842,204
Corning Inc. + 8,000 132,960
Dell Inc. + 29,700 1,173,447
eBay, Inc. + 19,000 627,190
Electronic Arts Inc. + 2,000 113,220
Electronic Data Systems Corp. 1,000 19,250
EMC Corp. + 212,648 2,915,404
Fairchild Semiconductor International, Inc. + 180,500 2,662,375
First Data Corporation 7,324 293,985
Freescale Semiconductor Inc., Class B + 1,512 32,024
Hewlett-Packard Co. 27,900 655,929
Intel Corp. 65,500 1,706,930
International Business Machines Corp. 21,000 1,558,200
Linear Technology Corp. 2,500 91,725
Maxim Integrated Products, Inc. 2,300 87,883
Micron Technology, Inc. + 2,500 25,525
Microsoft Corp. 142,100 3,529,764
Motorola, Inc. 25,700 469,282
Oracle Corp. + 26,100 344,520
QUALCOMM Inc. 17,000 561,170
Sanmina-SCI Corp. + 5,500 30,085
Siebel Systems, Inc. 2,500 22,250
Solectron Corp. + 3,000 11,370
Sun Microsystems, Inc. + 7,500 27,975
Symantec Corp. + 10,000 217,400
Texas Instruments Inc. 4,900 137,543
Yahoo! Inc. + 8,800 304,920
------------
20,681,509
------------
MATERIALS - 5.59%
Air Products & Chemicals, Inc. 1,000 60,300
Alcoa Inc. 4,200 109,746
Dow Chemical Co. (The) 5,400 240,462
E.I. du Pont de Nemours & Co. 3,800 163,438
Georgia-Pacific Corporation 2,000 63,600
International Paper Co. 4,500 135,945
Joy Global Inc. 60,000 2,015,400
Neenah Paper, Inc. 209 6,473
Packaging Corporation of America 70,700 1,488,235
Peabody Energy Corp. 34,400 1,790,176
Praxair, Inc. 3,000 139,800
Rohm & Haas Co. 1,000 46,340
Steel Dynamics, Inc. 61,900 1,624,875
Weyerhaeuser Co. 1,000 63,650
------------
7,948,440
------------
REAL ESTATE INVESTMENT TRUSTS - 0.20%
Simon Property Group, Inc. 4,000 289,960
------------
TELECOMMUNICATIONS SERVICES - 2.56%
ALLTEL Corporation 4,000 249,120
AT&T Corp. 9,320 177,453
BellSouth Corporation 14,000 371,980
Lucent Technologies Inc. + 10,700 31,137
Nextel Communications, Inc., Class A + 15,500 500,805
SBC Communications Inc. 23,100 548,625
Sprint Corp. 18,800 471,692
Verizon Communications Inc. 37,100 1,281,805
------------
3,632,617
------------
UTILITIES - 2.53%
American Electric Power Co., Inc. 2,700 99,549
Dominion Resources, Inc. 7,100 521,069
Duke Energy Corp. 13,300 395,409
Edison International 4,000 162,200
Exelon Corp. 11,000 564,630
FirstEnergy Corp. 5,000 240,550
FPL Group, Inc. 7,000 294,420
Progress Energy, Inc. 3,500 158,340
Public Service Enterprises Group Inc. 1,000 60,820
Scottish Power plc, ADR 4,000 142,400
Southern Co. (The) 11,900 412,573
TXU Corp. 4,700 390,523
Xcel Energy, Inc. 8,200 160,064
------------
3,602,547
------------
TOTAL EQUITY SECURITIES 141,718,575
(cost - $120,033,444) ------------
PRINCIPAL
AMOUNT
(000'S)
-------
SHORT-TERM INVESTMENTS - 8.64%
REPURCHASE AGREEMENTS - 8.64%
Bear, Stearns & Co. Inc. * ** $ 10,475 10,475,207
(Agreement dated 6/30/05 to be repurchased
at $10,476,189), 3.375%, 07/01/05,
collateralized by $10,780,823 in U.S.
Treasuries
Bear, Stearns & Co. Inc. * ** 1,314 1,314,491
(Agreement dated 6/30/05 to be repurchased
at $1,314,553), 1.6875%, 07/01/05,
collateralized by $1,353,669 in U.S.
Treasury Bonds
Bear, Stearns & Co. Inc. 498 498,354
(Agreement dated 6/30/05 to be repurchased
at $498,393), 2.80%, 07/01/05, collateralized
by $512,866 in U.S. Treasury Bonds
TOTAL SHORT-TERM INVESTMENTS 12,288,052
(cost - $12,288,052) ------------
TOTAL INVESTMENTS - 108.29% 154,006,627
(cost - $132,321,496) ------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (8.29)% (11,795,693)
------------
NET ASSETS - 100.00% $142,210,934
============
----------
+ Non-income producing security.
* Stated interest rate, before rebate earned by borrower of securities on
loan.
** Represents investment purchased with collateral received for securities on
loan.
ADR American Depositary Receipts
See accompanying notes to financial statements.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement not yet effective with respect to the
Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANIES AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which
shareholders may recommend nominees to the registrant's Board of Directors since
the registrant last provided disclosure in response to the requirements of Item
7(d)(2)(ii)(g) of Schedule 14A in its definitive proxy statement dated April 7,
2005.
ITEM 11. CONTROLS AND PROCEDURES.
(a) At a date within 90 days from the filing date of this report, the
principal executive officer and the principal financial officer concluded that
that the registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940 (the "Act")) were effective
based on their evaluation of the disclosure controls and procedures required by
Rule 30a-3 (b) under the Act and Rules 13a-15(b) or 15d-15(b) under the
Securities and Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred
during the second fiscal quarter of the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2)The certifications of the registrant as required by Rule 30a-2(a)
under the Act are exhibits to this report.
(a)(3) Not applicable.
(b) The certifications of the registrant as required by Rule 30a-2(b)
under the Act are an exhibit to this report.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Cornerstone Strategic Value Fund, Inc.
By: /s/ Ralph W. Bradshaw
---------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: September 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Cornerstone Strategic Value Fund, Inc.
By: /s/ Ralph W. Bradshaw
---------------------
Name: Ralph W. Bradshaw
Title: Principal Executive Officer
Date: September 8, 2005
By: /s/ Jodi B. Levine
------------------
Name: Jodi B. Levine
Title: Principal Financial Officer
Date: September 8, 2005