================================================================================
CORNERSTONE STRATEGIC
VALUE FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2002
================================================================================
CONTENTS
Letter to Shareholders .................................................... 1
Portfolio Summary ......................................................... 3
Schedule of Investments ................................................... 4
Statement of Assets and Liabilities ....................................... 7
Statement of Operations ................................................... 8
Statement of Changes in Net Assets ........................................ 9
Financial Highlights ...................................................... 10
Notes to Financial Statements ............................................. 11
Description of Dividend Reinvestment & Cash Purchase Plan ................. 15
Summary of General Information ............................................ 17
Shareholder Information ................................................... 17
Privacy Policy Notice ..................................................... 18
================================================================================
LETTER TO SHAREHOLDERS
July 26, 2002
Dear Fellow Shareholder:
Our semi-annual report for Cornerstone Strategic Value Fund, Inc. (the "Fund"),
covering the six months ended June 30, 2002 follows. At the end of the period,
the Fund's net assets were $29.4 million and the Net Asset Value ("NAV") per
share was $7.73. The share price on the New York Stock Exchange closed at $6.65,
representing a discount to NAV of 13.97%. The investment approach continued to
focus on a broad diversification in U.S. and non-U.S. equities.
ECONOMIC AND MARKET SUMMARY
The first half of 2002 was marked by a continued retreat from the highs of 2000.
Stocks finished flat for the first quarter, only to resume the decline through
the second quarter and retest the lows set in the near panic selling immediately
following the September 11th tragedy. With concerns surrounding the war on
terrorism, earnings disappointments, loss of stock analyst credibility, and
reports of corporate malfeasance, investors' increasing pessimism was reflected
in the market slide.
In contrast to multiple interest rate cuts by the Federal Reserve in 2001, the
short-term benchmark rate remained at a very low 1.75%. Fears of a bear market
in bonds were overcome by the negative sentiment in the equity markets that
drove many to seek safer investments.
As international investors reacted to the negatives in the U.S. market, the
dollar also retreated against the euro and the yen. In dollar terms, this
strengthened the generally flat performance of equities in Japan and dampened
the broad market retreats in Europe. However, this relative benefit may be
short-lived as the export components of these same economies may face more
competitive U.S. suppliers at home and abroad.
PORTFOLIO PERFORMANCE
For the first half of 2002, the Fund posted a (15.98)% total return on NAV for
the year as compared with the S&P 500 Index return of (13.15)%.
Through the first quarter, stocks were able to maintain some balance as the
positives in energy, consumer staples and materials offset declines in
technology and telecommunications.
Most sectors, bowing to market pressures, retreated in the second quarter.
Sentiment was so negative that some of the portfolio's positions in consumer
areas were punished even with positive news. Energy and materials finished the
first half of 2002 holding slight gains for the year. Technology and
telecommunications suffered additional declines of more than 20% for the
quarter, leaving them with substantial negatives.
================================================================================
1
LETTER TO SHAREHOLDERS (CONCLUDED)
OUTLOOK
We are cautiously optimistic about the remainder of the year. The economy shows
signs of a modest recovery even as terrorism concerns continue and consumer
confidence remains weak. Retail sales have increased. Earnings comparisons are
beginning to look better. Encouraging data for manufacturers shows that the
sharp declines in the rate of capital spending for 2001 are turning favorably
for 2002. U.S. exporters look forward to opportunities for growth as the falling
U.S. dollar makes their products increasingly competitive. Low mortgage rates
have helped keep the U.S. housing market strong and personal income growth
compares favorably to the rate of inflation.
Uncertainty creates anxiety for investors but, at the same time, it also creates
opportunity. Larger companies often benefit most from a falling U.S. dollar as
their competitive positions improve. They also benefit as safety concerns lead
investors to the relative stability of size. In the longer-term, we expect
large-cap U.S. stocks, which have been under pressure since 2000, to provide
solid returns at a reasonable price.
SEEKING TO PRODUCE VALUE
We are working to provide value to our shareholders. The Fund's level of
discount has improved over the past year but has, nevertheless, remained
stubbornly high. It became apparent to us that more needed to be done in order
to reduce the discount level and several steps have recently been taken.
On June 2, 2002, the Board approved a monthly distribution policy with a fixed
payout. These distributions allow shareholders to receive substantial portions
of their investment in cash or to continue their holdings in the Fund's stock by
reinvesting in new shares. This policy gives flexibility to our owners and we
believe that it will have a continuing positive influence on the level of the
Fund's discount to NAV.
Over the past year, diligent attention to Fund expenses has reduced them
substantially. In addition, Cornerstone Advisors, Inc., the Fund's investment
manager, has voluntarily agreed to waive a substantial portion of its management
fees to the extent that monthly operating expenses exceed 0.10%. This effort
demonstrates how seriously the manager views keeping expenses under control and
it will result in a lower expense ratio than would otherwise be the case. In
pursuing the goal of lowering costs, the Board is also studying the possibility
of a merger with other closed-end funds affiliated with the manager to further
reduce expenses. We believe that these steps will reduce the price discount to
NAV and lead to our Fund having one of the lowest expense ratios among
comparable closed-end funds.
The Board of Directors, the officers and the investment manager of our Fund are
very aware of the trust that the Fund's shareholders have placed 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
Chairman
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2
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
TOP TEN SECTORS
Percent of
Sector Net Assets
--------------------------------------------------------------------------------
1. Financials 17.7
--------------------------------------------------------------------------------
2. Consumer Staples 13.9
--------------------------------------------------------------------------------
3. Information Technology 12.6
--------------------------------------------------------------------------------
4. Consumer Discretionary 12.3
--------------------------------------------------------------------------------
5. Healthcare 12.2
--------------------------------------------------------------------------------
6. Industrials 10.4
--------------------------------------------------------------------------------
7. Energy 8.0
--------------------------------------------------------------------------------
8. Telecommunication Services 4.5
--------------------------------------------------------------------------------
9. Materials 2.7
--------------------------------------------------------------------------------
10. Utilities 2.4
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Sysco Corp. Consumer Staples 6.1
--------------------------------------------------------------------------------
2. Home Depot, Inc. (The) Consumer Discretionary 5.1
--------------------------------------------------------------------------------
3. Pfizer Inc. Healthcare 4.4
--------------------------------------------------------------------------------
4. Microsoft Corp. Information Technology 3.8
--------------------------------------------------------------------------------
5. General Electric Co. Industrials 3.4
--------------------------------------------------------------------------------
6. Wal-Mart Stores, Inc. Consumer Discretionary 3.0
--------------------------------------------------------------------------------
7. American International Group, Inc. Financials 2.7
--------------------------------------------------------------------------------
8. ChevronTexaco Corp. Energy 2.4
--------------------------------------------------------------------------------
9. Citigroup Inc. Financials 2.3
--------------------------------------------------------------------------------
10. Exxon Mobil Corp. Energy 2.1
--------------------------------------------------------------------------------
================================================================================
3
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
EQUITY SECURITIES - 98.09%
CLOSED-END DOMESTIC FUNDS - 1.32%
Gabelli Global Multimedia Trust, Inc. ............ 16,000 $ 112,000
John Hancock Bank & Thrift Opportunity Fund ...... 32,500 276,575
388,575
CONSUMER DISCRETIONARY - 12.32%
AOL Time Warner Inc. + ........................... 2,500 36,775
Carnival Corp. ................................... 2,100 58,149
Clear Channel Communications, Inc. + ............. 2,100 67,242
Delphi Corp. ..................................... 2,000 26,400
Ford Motor Co. ................................... 6,500 104,000
Gannett Co., Inc. ................................ 2,000 151,800
General Motors Corp. ............................. 1,900 101,555
Home Depot, Inc. (The) ........................... 41,100 1,509,603
McDonald's Corp. ................................. 4,600 130,870
Omnicom Group Inc. ............................... 1,000 45,800
Target Corp. ..................................... 3,200 118,848
Viacom Inc., non-voting Class B+ ................. 6,000 266,220
Wal-Mart Stores, Inc. ............................ 15,800 869,158
Walt Disney Co. (The) ............................ 7,200 136,080
----------
3,622,500
----------
CONSUMER STAPLES - 13.92%
Anheuser-Busch Companies, Inc. ................... 3,200 160,000
Archer-Daniels-Midland Co. ....................... 2,415 30,888
Coca-Cola Co. (The) .............................. 9,000 504,000
Colgate-Palmolive Co. ............................ 2,000 100,100
ConAgra Foods, Inc. .............................. 1,900 52,535
Gillette Co. (The) ............................... 3,800 128,706
J.M. Smucker Co. (The) ........................... 96 3,276
Kimberly-Clark Corp. ............................. 1,900 117,800
PepsiCo, Inc. .................................... 5,100 245,820
Philip Morris Companies Inc. ..................... 7,900 345,072
Proctor & Gamble Co. (The) ....................... 4,800 428,640
Sara Lee Corp. ................................... 2,800 57,792
Sysco Corp. ...................................... 65,800 1,791,076
Unilever NV, NY Shares ........................... 2,000 129,600
----------
4,095,305
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
Andarko Petroleum Corp. .......................... 900 $ 44,370
Baker Hughes Inc. ................................ 2,500 83,225
ChevronTexaco Corp. .............................. 7,840 693,840
Conoco Inc. ...................................... 2,200 61,160
El Paso Corp. .................................... 2,500 51,525
Exxon Mobil Corp. ................................ 15,400 630,168
Marathon Oil Corp. ............................... 2,500 67,800
Occidental Petroleum Corp. ....................... 2,500 74,975
Phillips Petroleum Co. ........................... 2,500 147,200
Royal Dutch Petroleum Co., NY Shares ............. 7,500 414,525
Schlumberger Ltd. ................................ 2,000 93,000
----------
2,361,788
----------
FINANCIALS - 17.74%
AFLAC Inc. ....................................... 1,900 60,800
American Express Co. ............................. 4,600 167,072
American International Group, Inc. ............... 11,542 787,511
Bank of America Corp. ............................ 5,400 379,944
Bank One Corp. ................................... 4,100 157,768
BB&T Corp. ....................................... 1,600 61,760
Citigroup Inc. ................................... 17,100 662,625
Fannie Mae ....................................... 3,700 272,875
Fifth Third Bancorp .............................. 2,000 133,300
FleetBoston Financial Corp. ...................... 3,900 126,165
Freddie Mac ...................................... 2,500 153,000
Hartford Financial Services Group, Inc. (The) .... 2,500 148,675
Household International, Inc. .................... 1,800 89,460
J.P. Morgan Chase & Co. .......................... 6,000 203,520
Marsh & McLennan Companies, Inc. ................. 2,000 193,200
MBNA Corp. ....................................... 3,000 99,210
Mellon Financial Corp. ........................... 1,800 56,574
MetLife, Inc. .................................... 2,700 77,760
Morgan Stanley ................................... 7,000 301,560
National City Corp. .............................. 2,200 73,150
PNC Financial Services Group ..................... 1,100 57,508
SouthTrust Corp. ................................. 2,500 65,300
State Street Corp. ............................... 2,500 111,750
SunTrust Banks, Inc. ............................. 1,100 74,492
U.S. Bancorp ..................................... 6,700 156,445
Wachovia Corp. ................................... 3,600 137,448
Washington Mutual, Inc. .......................... 3,150 116,897
Wells Fargo & Co. ................................ 5,800 290,348
----------
5,216,117
----------
================================================================================
See accompanying notes to financial statements.
4
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2002 (unaudited)(CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
HEALTHCARE - 12.19%
Abbott Laboratories .............................. 5,300 $ 199,545
Baxter International Inc. ........................ 2,500 111,100
Boston Scientific Corp. + ........................ 2,500 73,300
Cardinal Health, Inc. ............................ 2,500 153,525
Eli Lilly & Co. .................................. 4,000 225,600
Genzyme Corp. + .................................. 2,500 48,100
HCA Inc. ......................................... 2,000 95,000
Healthsouth Corp. + .............................. 2,500 31,975
Johnson & Johnson ................................ 9,200 480,792
Medtronic, Inc. .................................. 4,300 184,255
Merck & Co. Inc. ................................. 2,500 126,600
Pfizer Inc. ...................................... 37,000 1,295,000
Schering-Plough Corp. ............................ 2,500 61,500
UnitedHealth Group Inc. .......................... 2,500 228,875
Wyeth ............................................ 4,800 245,760
Zimmer Holdings, Inc. + .......................... 710 25,319
----------
3,586,246
----------
INDUSTRIALS - 10.41%
3M Co. ........................................... 1,500 184,500
Automatic Data Processing, Inc. .................. 2,000 87,100
Boeing Co. (The) ................................. 6,000 270,000
Burlington Northern Santa Fe Corp. ............... 2,500 75,000
Caterpillar Inc. ................................. 1,300 63,635
Cendant Corp. + .................................. 2,700 42,876
Concord EFS, Inc. + .............................. 2,500 75,350
Emerson Electric Co. ............................. 1,500 80,265
FedEx Corp. ...................................... 1,000 53,400
First Data Corp. ................................. 5,000 188,300
General Electric Co. ............................. 34,500 1,002,225
Honeywell International Inc. ..................... 2,800 98,644
Masco Corp. ...................................... 1,700 46,087
Norfolk Southern Corp. ........................... 1,400 32,732
Paychex, Inc. .................................... 2,500 78,225
Southwest Airlines Co. ........................... 2,700 43,632
Tyco International Ltd. .......................... 12,500 168,875
Union Pacific Corp. .............................. 1,000 63,280
United Technologies Corp. ........................ 4,200 285,180
Waste Management, Inc. ........................... 4,700 122,435
----------
3,061,741
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY - 12.56%
Agere Systems Inc., Class B+ ..................... 2,831 $ 4,246
Agilent Technologies, Inc. + ..................... 1,800 42,984
Analog Devices, Inc. + ........................... 10,000 297,000
Apple Computer, Inc. + ........................... 2,500 44,300
Applied Materials, Inc. + ........................ 5,400 102,708
Cisco Systems, Inc. + ............................ 24,400 340,380
Computer Associates International, Inc. .......... 2,500 39,725
Dell Computer Corp. + ............................ 8,300 216,962
Hewlett-Packard Co. .............................. 2,800 42,784
Intel Corp. ...................................... 26,000 475,020
International Business Machines Corp. ............ 8,400 604,800
Lucent Technologies Inc. + ....................... 10,700 17,762
Microsoft Corp. + ................................ 20,600 1,114,872
Motorola, Inc. ................................... 6,600 95,172
Oracle Corp. + ................................... 6,300 59,661
Sanmina-SCI Corp. + .............................. 2,500 15,775
Siebel Systems, Inc. + ........................... 2,500 35,550
Texas Instruments Inc. ........................... 4,900 116,130
Yahoo! Inc. + .................................... 1,900 28,044
----------
3,693,875
----------
MATERIALS - 2.70%
Air Products & Chemicals, Inc. ................... 1,000 50,470
Alcoa Inc. ....................................... 3,100 102,765
Barrick Gold Corp. ............................... 2,500 47,475
Dow Chemical Co. (The) ........................... 5,700 195,966
E.I. du Pont de Nemours & Co. .................... 3,700 164,280
Georgia-Pacific Corp. ............................ 1,000 24,580
Inco Ltd. + ...................................... 2,500 56,675
International Paper Co. .......................... 2,000 87,160
Weyerhaeuser Co. ................................. 1,000 63,850
----------
793,221
----------
TELECOMMUNICATION SERVICES - 4.52%
ALLTEL Corp. ..................................... 2,500 117,500
AT&T Corp. ....................................... 5,000 53,500
AT&T Wireless Services Inc. + .................... 3,022 17,679
BellSouth Corp. .................................. 4,000 126,000
SBC Communications Inc. .......................... 19,900 606,950
Sprint Corp. (FON Group) ......................... 3,000 31,830
Verizon Communications Inc. ...................... 9,400 377,410
----------
1,330,869
----------
================================================================================
See accompanying notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2002 (unaudited)(CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
UTILITIES - 2.38%
American Electric
Power Co., Inc. .................................. 1,200 $ 48,024
Dominion Resources, Inc. ......................... 1,000 65,980
Duke Energy Corp. ................................ 5,600 174,160
Edison International+ ............................ 2,500 42,500
FirstEnergy Corp. ................................ 2,500 83,450
Reliant Energy, Inc. ............................. 2,500 42,250
Scottish Power plc ADR ........................... 4,000 85,600
Southern Co. (The) ............................... 2,400 65,760
TXU Corp. ........................................ 1,000 51,400
Xcel Energy, Inc. ................................ 2,500 41,925
----------
701,049
----------
TOTAL EQUITY SECURITIES
(cost - $28,336,352) ............................. 28,851,286
----------
Principal
Amount Value
Description (000's) (Note A)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 2.07%
REPURCHASE AGREEMENT - 2.07%
Bear, Stearns & Co. Inc.
(Agreement dated 06/28/02 to
be repurchased at $622,242),
1.92%, 07/01/02
(cost - $609,778) (Note F) ............. $610 $ 609,778
----------
TOTAL INVESTMENTS - 100.16%
(cost - $28,946,130) (Notes A, C) ................ 29,461,064
-----------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS - (0.16)% (47,288)
-----------
NET ASSETS - 100.00% $29,413,776
===========
+ Security is non-income producing.
ADR American Depositary Receipts.
================================================================================
See accompanying notes to financial statements.
6
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $28,946,130) (Note A) .................... $ 29,461,064
Cash collateral received for securities loaned (Note E) ............... 127,098
Receivables:
Dividends ..................................................... 29,350
Interest ...................................................... 918
Prepaid expenses ...................................................... 33,057
------------
Total Assets .......................................................... 29,651,487
------------
LIABILITIES
Payables:
Upon return of securities loaned (Note E) ..................... 127,098
Investment management fees (Note B) ........................... 24,845
Capital stock repurchased (Note D) ............................ 200
Other accrued expenses ........................................ 85,568
------------
Total Liabilities ..................................................... 237,711
------------
NET ASSETS (applicable to 3,805,860 shares of common stock outstanding) $ 29,413,776
============
NET ASSET VALUE PER SHARE ($29,413,776 ./. 3,805,860) ................. $ 7.73
============
NET ASSETS CONSISTS OF
Capital stock, $0.01 par value; 3,805,860 shares outstanding
(25,000,000 shares authorized) ................................ $ 38,059
Paid-in capital ....................................................... 57,277,380
Cost of 2,204,140 shares repurchased .................................. (26,790,440)
Accumulated net investment loss ....................................... (75,964)
Accumulated net realized loss on investments .......................... (1,550,193)
Net unrealized appreciation in value of investments ................... 514,934
------------
Net assets applicable to shares outstanding ........................... $ 29,413,776
============
================================================================================
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT LOSS Income (Note A):
Dividends ............................................... $ 236,248
Interest ................................................ 3,925
Less: Foreign taxes withheld ............................ (1,241)
-----------
Total Investment Income ................................. 238,932
-----------
Expenses:
Investment management fees (Note B) ..................... 164,694
Audit and legal fees (Note B) ........................... 46,334
Directors' fees ......................................... 25,491
Administration fees ..................................... 24,795
Printing ................................................ 17,900
Accounting fees ......................................... 14,516
NYSE listing fees ....................................... 13,820
Insurance ............................................... 5,992
Custodian fees .......................................... 4,570
Transfer agent fees ..................................... 3,571
Other ................................................... 3,545
-----------
Total Expenses .......................................... 325,228
Less: Fees paid indirectly (Note B) ..................... (10,332)
-----------
Net Expenses .................................... 314,896
-----------
Net Investment Loss ..................................... (75,964)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investments .............................. (1,081,463)
Net change in unrealized appreciation in value of investments .. (4,474,326)
-----------
Net realized and unrealized loss on investments ................. (5,555,789)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $(5,631,753)
===========
================================================================================
See accompanying notes to financial statements.
8
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the For the
Six Months Ended Year Ended
June 30, 2002 December 31,
(unaudited) 2001
----------- ----
DECREASE IN NET ASSETS
Operations:
Net investment loss ......................................... $ (75,964) $ (244,220)
Net realized gain/(loss) on investments ..................... (1,081,463) 1,031,962
Net change in unrealized appreciation in value of investments (4,474,326) (9,548,619)
------------ ------------
Net decrease in net assets resulting from operations (5,631,753) (8,760,877)
------------ ------------
Capital stock transactions (Note D):
Cost of 26,700 and 234,700 shares repurchased, respectively . (210,523) (1,963,446)
------------ ------------
Total decrease in net assets ................................ (5,842,276) (10,724,323)
------------ ------------
NET ASSETS
Beginning of period ................................................. 35,256,052 45,980,375
------------ ------------
End of period ....................................................... $ 29,413,776 $ 35,256,052
============ ============
================================================================================
See accompanying notes to financial statements.
9
--------------------------------------------------------------------------------
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, 2002 For the Years Ended December 31,
-----------------------------------------------------------
(unaudited) 2001 2000 1999 1998 1997
----------- ---- ---- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period ....... $ 9.20 $ 11.31 $ 14.95 $ 14.52 $ 11.53 $ 10.10
-------- -------- --------- -------- -------- --------
Net investment income/(loss) ............... (0.02)# (0.06)# (0.94)# (0.19)# (0.09)# (0.05)
Net realized and unrealized gain/(loss)
on investments and foreign currency
related translations ............... (1.46) (2.13) (1.81) 4.39 2.96 2.36
-------- -------- --------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from operations .......... (1.48) (2.19) (2.75) 4.20 2.87 2.31
-------- -------- --------- -------- -------- --------
Dividends and distributions to
shareholders:
Net investment income .............. -- -- -- -- -- --
Net realized gain on investments
and foreign currency related
transactions ............... -- -- (1.01) (3.87) -- (0.88)
-------- -------- --------- -------- -------- --------
Total dividends and distributions
to shareholders .................... -- -- (1.01) (3.87) -- (0.88)
-------- -------- --------- -------- -------- --------
Anti-dilutive effect due to capital
stock repurchased .................. 0.01 0.08 0.12 0.10 0.12 --
-------- -------- --------- -------- -------- --------
Net asset value, end of period ............. $ 7.73 $ 9.20 $ 11.31 $ 14.95 $ 14.52 $ 11.53
======== ======== ========= ======== ======== ========
Market value, end of period ................ $ 6.65 $ 8.05 $ 10.59 $ 14.25 $ 12.88 $ 9.44
======== ======== ========= ======== ======== ========
Total investment return (a) ................ (17.39)% (23.98)% (28.10)% 40.74% 36.42% 37.62%
======== ======== ========= ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) .... $ 29,414 $ 35,256 $ 45,980 $ 66,204 $ 79,060 $ 67,951
Ratio of expenses to average net assets,
net of fee waivers, if any ......... 1.97%(b)(d) 1.77%(b) 1.72%(b) 1.55%(b) 1.91% 1.74%
Ratio of expenses to average net assets,
excluding fee waivers, if any ...... 1.97%(c)(d) 2.11%(c) 1.83%(c) 1.64%(c) -- --
Ratio of expenses to average net assets,
net of fee waivers, but excluding
fees paid indirectly, if any ....... 1.91%(d) 1.95% -- -- -- --
Ratio of net investment income/(loss) to
average net assets ................. (0.46)%(d) (0.64)% (1.12)% (0.59)% (0.69)% (0.46)%
Portfolio turnover ......................... 11.88% 59.83% 28.26% 101.54% 50.39% 81.56%
For the Years Ended December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net asset value, beginning of period ....... $ 10.65 $ 10.73 $ 12.36 $ 9.43 $ 10.82
--------- -------- ------------- ------------- -------------
Net investment income/(loss) ............... (0.03) -- (0.03) 0.02 0.01
Net realized and unrealized gain/(loss)
on investments and foreign currency
related translations ............... 0.41 0.42 (0.64) 3.56 (0.35)
--------- -------- ------------- ------------- -------------
Net increase/(decrease) in net assets
resulting from operations .......... 0.38 0.42 (0.67) 3.58 (0.34)
--------- -------- ------------- ------------- -------------
Dividends and distributions to
shareholders:
Net investment income .............. -- -- -- -- (0.02)
Net realized gain on investments
and foreign currency related
transactions ............... (0.93) (0.50) (0.96) (0.65) (1.03)
--------- -------- ------------- ------------- -------------
Total dividends and distributions
to shareholders .................... (0.93) (0.50) (0.96) (0.65) (1.05)
--------- -------- ------------- ------------- -------------
Anti-dilutive effect due to capital
stock repurchased .................. -- -- -- -- --
--------- -------- ------------- ------------- -------------
Net asset value, end of period ............. $ 10.10 $ 10.65 $ 10.73 $ 12.36 $ 9.43
========= ======== ============= ============= =============
Market value, end of period ................ $ 7.50 $ 8.38 $ 8.50 $ 11.25 $ 7.75
========= ======== ============= ============= =============
Total investment return (a) ................ 0.64% 4.59% (15.91)% 53.55% (3.56)%
========= ======== ============= ============= =============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) .... $ 59,520 $ 62,781 $ 63,216 $ 72,830 $ 55,540
Ratio of expenses to average net assets,
net of fee waivers, if any ......... 1.53% 1.58% 1.75% 1.68% 2.29%
Ratio of expenses to average net assets,
excluding fee waivers, if any ...... -- -- -- -- --
Ratio of expenses to average net assets,
net of fee waivers, but excluding
fees paid indirectly, if any ....... -- -- -- -- --
Ratio of net investment income/(loss) to
average net assets ................. (0.25)% (0.02)% (0.25)% 0.16% 0.10%
Portfolio turnover ......................... 120.66% 84.98% 81.73% 125.31% 82.49%
---------
# Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in
market price of a share during the period and assumes reinvestment of
dividends and distributions, if any, at actual prices pursuant to the
Fund's dividend reinvestment program. Total investment return does not
reflect brokerage commissions. Total investment returns for periods of
less than one year are not annualized.
(b) Expenses are net of fees paid indirectly.
(c) Expenses exclude fees paid indirectly.
(d) Annualized.
================================================================================
See accompanying notes to financial statements.
10
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
Cornerstone Strategic Value Fund, Inc. (the "Fund") was incorporated in Maryland
on May 1, 1987 and commenced investment operations on June 30, 1987. 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, 2002, the Fund held no securities valued in
good faith by the Board of Directors. The net asset value per share of the Fund
is calculated weekly and on the last business day of the month with the
exception of those days on which the New York Stock Exchange is closed.
REPURCHASE AGREEMENTS: The Fund has agreed to purchase securities from financial
institutions subject to the sellers agreement to repurchase them at an
agreed-upon time and price ("repurchase agreements"). The financial institutions
with whom the Fund enters into repurchase agreements are banks and
broker/dealers, which Cornerstone Advisors, Inc. (the Fund's "Manager" or
"Cornerstone") considers creditworthy. The seller under a repurchase agreement
will be required to maintain the value of the securities as collateral, subject
to the agreement at not less than the repurchase price plus accrued interest.
Cornerstone monitors the daily mark-to-market of the value of the collateral,
and, if necessary, requires the seller to maintain additional securities, so
that the value of the collateral is not less than the repurchase price. Default
by or bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delays in connection with the disposition of
the underlying securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
================================================================================
11
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
For U.S. federal income tax purposes, realized capital losses incurred after
October 31, 2001 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 losses of
$326,670. At December 31, 2001, the Fund had a capital loss carryforward for
U.S. federal income tax purposes of $142,060 which expires in 2009. Differences
between capital loss carryforwards on a book and tax basis primarily relate to
timing of the recognition of losses for U.S. federal income tax purposes. There
is no undistributable ordinary income on a tax basis.
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. Prior
thereto, the Fund distributed 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
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. For the six months ended June
30, 2002, Cornerstone earned $164,694 for investment management services.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $10,332 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $35,900 for the six months ended June 30,
2002 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.
At June 30, 2002, pursuant to regulatory filings, approximately 15% and 37% of
the outstanding shares of the Fund were owned by separate shareholders based on
13G/D filings with the Securities and Exchange Commission on June 7, 2002 and
February 13, 2002, respectively.
NOTE C. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at June 30,
2002 was $28,946,130. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of $514,934
was composed of gross appreciation of $3,489,460 for those investments having an
excess of value over cost and gross depreciation of $2,974,526 for those
investments having an excess of cost over value.
For the six months ended June 30, 2002, purchases and sales of securities, other
than short-term investments, were $3,874,811 and $4,548,775, respectively.
================================================================================
12
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
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,
2002, the Fund repurchased 26,700 of its shares for a total cost of $210,523 at
a weighted average discount of 13.53% from net asset value. The discount of
individual repurchases ranged from 10.68% - 16.35%. For the year ended December
31, 2001, the Fund repurchased 234,700 of its shares for a total cost of
$1,963,446 at a weighted average discount of 14.11% from net asset value. The
discount of individual repurchases ranged from 6.22% - 26.54%. For the year
ended December 31, 2000, the Fund repurchased 361,800 of its shares for a total
cost of $4,232,705 at a weighted average discount of 10.67% from net asset
value. The discount of individual repurchases ranged from 2.78% - 21.29%. The
Fund expects to continue to repurchase its outstanding shares at such time and
in such amounts as it believes will further the accomplishment of its foregoing
objectives, subject to review by the Board of Directors. No limit has been
placed on the number of shares to be purchased by the Fund other than those
imposed by federal securities laws. All purchases will be made in accordance
with federal securities laws, with shares repurchased held in treasury.
NOTE E. SECURITIES LENDING
To generate additional income, the Fund may lend up to 10% of its 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 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, 2002, were $120,887 and $127,098,
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 six months ended June 30, 2002, the Fund earned $253 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, 2002.
PRINCIPAL
AMOUNT MARKET
ISSUER (000'S) MATURITY VALUE
------ ------- -------- -----
United States
Treasury Bond,
(interest only) $2,505 02/15/26 $622,242
========
NOTE G. SUBSEQUENT EVENTS
Effective July 1, 2002, Cornerstone has voluntarily agreed to waive its
management fees to the Fund to the extent that monthly operating expenses exceed
0.1% of net assets calculated monthly.
On August 2, 2002, the Fund's Board of Directors approved the merger (the
"Merger") of the Fund with and into Progressive Return Fund, Inc. ("PGF"). If
the Merger receives shareholder approval, the Fund will cease to exist, PGF will
================================================================================
13
--------------------------------------------------------------------------------
CORNERSTONE STRATEGIC VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
--------------------------------------------------------------------------------
be the surviving legal corporation and each share of common stock of the Fund
will be converted into an equivalent dollar amount of full shares of common
stock of PGF based on the relative net asset values of the Fund and PGF. PGF
will not issue any fractional shares to the Fund's shareholders that do not
participate in the Fund's dividend reinvestment plan. PGF's transfer agent will
aggregate all fractional shares, sell the resulting full shares on the New York
Stock Exchange at the current market price for the shares and remit the cash
proceeds to the Fund's shareholders in proportion to their fractional shares.
Consummation of the Merger is subject to a number of conditions, including
shareholder approval and certain regulatory approvals. Upon consummation of the
Merger, PGF expects to change its name to "Progressive Total Return Fund, Inc."
================================================================================
14
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)
Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment & Cash Purchase
Plan (the "Plan"), unless and until an election is made to withdraw from the
Plan on behalf of such participating shareholders. Shareholders who do not wish
to have distributions automatically reinvested should so notify American Stock
Transfer & Trust Co. (the "Agent") at 59 Maiden Lane, New York, NY 10038. Under
the Plan, all of the Fund's dividends and other distributions to shareholders
are reinvested in full and fractional Shares as described below.
When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Dividend" and collectively, "Dividends"), the Agent, on
the shareholders' behalf, will: (i) receive additional authorized shares from
the Fund either newly issued or repurchased from shareholders by the Fund and
held as treasury stock ("Newly Issued Shares") or, (ii) at the sole discretion
of the Board of Directors, be authorized to purchase outstanding shares on the
open market, on the NYSE or elsewhere, with cash allocated to it by the Fund
("Open Market Purchases").
Shares acquired by the Agent in Open Market Purchases will be allocated to the
reinvesting shareholders based on the average cost of such Open Market
Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at a price equal to the average closing price of the
Fund over the five trading days preceding the payment date of such dividend.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Dividends automatically reinvested should so
notify the Fund in writing. If a Shareholder has not elected to receive cash
Dividends and the Agent does not receive notice of an election to receive cash
Dividends prior to the record date of any Dividend, the shareholder will
automatically receive such Dividends in additional Shares.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Dividend payment date.
When a participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares credited to his/her account under
the Plan will, upon request, be issued. Whether or not a participant requests
that certificates for whole shares be issued, a cash payment will be made for
any fraction of a Share credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of each Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the Shareholder's name and held for the account of
beneficial owners participating in the Plan.
There will be no charge to participants for reinvesting Dividends other than
their share of brokerage commissions as discussed below. The Agent's fees for
administering the Plan and handling the reinvestment of Dividends will be paid
by the Fund. Each participant's account will be charged a pro-rata share
================================================================================
15
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)(CONCLUDED)
of brokerage commissions incurred with respect to the Agent's Open Market
Purchases in connection with the reinvestment of Dividends. Brokerage charges
for purchasing small amounts of shares for individual accounts through the Plan
are expected to be less than the usual brokerage charges for such transactions
because the Agent will be purchasing shares for all the participants in blocks
and pro-rating the lower commission that may be attainable.
The automatic reinvestment of Dividends will not relieve participants of any
income tax that may be payable on such Dividends. Participants who receive
shares pursuant to the Plan as described above will recognize taxable income in
the amount of the fair market value of those shares. In the case of non-U.S.
participants whose Dividends are subject to U.S. income tax withholding and in
the case of participants subject to 30% federal backup withholding, the Agent
will reinvest Dividends after deduction of the amount required to be withheld.
The Fund reserves the right to amend or terminate the Plan by written notice to
participants. All correspondence concerning the Plan should be directed to the
Agent at the address referred to in the first paragraph of this section.
================================================================================
16
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.
--------------------------------------------------------------------------------
================================================================================
17
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.
================================================================================
18
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================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and President
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Gary A. Bentz Vice President and Treasurer
Thomas R. Westle Secretary
INVESTMENT MANAGER STOCK TRANSFER AGENT
Cornerstone Advisors, Inc. AND REGISTRAR
One West Pack Square American Stock Transfer &
Suite 1650 Trust Co.
Asheville, NC 28801 59 Maiden Lane
New York, NY 10038
ADMINISTRATOR
Bear Stearns Funds INDEPENDENT ACCOUNTANTS
Management Inc. Tait, Weller & Baker
383 Madison Avenue 8 Penn Center
New York, NY 10179 Philadelphia, PA 19103
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
383 Madison Avenue
New York, NY 10179
For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (212) 272-2093.
CLM
LISTED
NYSE(R)
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. 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.