N-CSRS 1 t302780.txt ================================================================================ -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811- 05150 Cornerstone Strategic Value Fund, Inc. (Exact name of registrant as specified in charter) 383 Madison Avenue, New York, New York 10179 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Jodi Levine 383 Madison Avenue, New York, NY 10179 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (212) 272-3550 Date of fiscal year end: December 31, 2006 Date of reporting period: June 30, 2006 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, 2006 ================================================================================ ================================================================================ CORNERSTONE STRATEGIC VALUE FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 2006 ================================================================================ 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 11 Description of Dividend Reinvestment Plan 12 Investment Management Agreement Approval Disclosure 13 Proxy Voting and Portfolio Holdings Information 14 Privacy Policy Notice 14 Summary of General Information 15 Shareholder Information 15 ================================================================================ -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. PORTFOLIO SUMMARY - AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- SECTOR ALLOCATION Percent of Sector Net Assets -------------------------------------------------------------------------------- Financials 20.2 -------------------------------------------------------------------------------- Information Technology 14.2 -------------------------------------------------------------------------------- Healthcare 12.8 -------------------------------------------------------------------------------- Industrials 11.5 -------------------------------------------------------------------------------- Consumer Discretionary 10.4 -------------------------------------------------------------------------------- Energy 9.8 -------------------------------------------------------------------------------- Consumer Staples 9.7 -------------------------------------------------------------------------------- Utilities 3.3 -------------------------------------------------------------------------------- Telecommunication Services 3.3 -------------------------------------------------------------------------------- Materials 2.4 -------------------------------------------------------------------------------- Closed-End Domestic Funds 1.5 -------------------------------------------------------------------------------- Other 0.9 -------------------------------------------------------------------------------- TOP TEN HOLDINGS, BY ISSUER Percent of Holding Sector Net Assets -------------------------------------------------------------------------------- 1. Exxon Mobil Corporation Energy 3.9 -------------------------------------------------------------------------------- 2. General Electric Company Industrials 2.9 -------------------------------------------------------------------------------- 3. Bank of America Corporation Financials 2.5 -------------------------------------------------------------------------------- 4. Microsoft Corporation Information Technology 2.1 -------------------------------------------------------------------------------- 5. Johnson & Johnson Healthcare 1.9 -------------------------------------------------------------------------------- 6. Citigroup Inc. Financials 1.8 -------------------------------------------------------------------------------- 7. EMC Corporation Information Technology 1.8 -------------------------------------------------------------------------------- 8. Procter & Gamble Company (The) Consumer Staples 1.7 -------------------------------------------------------------------------------- 9. American International Group, Inc. Financials 1.7 -------------------------------------------------------------------------------- 10. Altria Group, Inc. Consumer Staples 1.6 -------------------------------------------------------------------------------- ================================================================================ 1 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- No. of Description Shares Value -------------------------------------------------------------------------------- EQUITY SECURITIES - 99.57% CLOSED-END DOMESTIC FUNDS - 1.49% Zweig Fund, Inc. ^ 176,600 $ 941,278 Other Closed-End Domestic Funds (a) 1,011,967 ------------- 1,953,245 ------------- CONSUMER DISCRETIONARY - 10.37% Home Depot, Inc. (The) 28,100 1,005,699 Time Warner Inc. 76,000 1,314,800 Other Consumer Discretionary (a) 11,305,373 ------------- 13,625,872 ------------- CONSUMER STAPLES - 9.73% Altria Group, Inc. 29,300 2,151,499 Coca-Cola Company (The) 23,500 1,010,970 PepsiCo, Inc. ^ 24,800 1,488,992 Procter & Gamble Company (The) 41,297 2,296,113 Wal-Mart Stores, Inc. 39,800 1,917,166 Other Consumer Staples (a) 3,929,436 ------------- 12,794,176 ------------- ENERGY - 9.80% Chevron Corporation 27,532 1,708,636 ConocoPhillips 17,974 1,177,836 Exxon Mobil Corporation 84,000 5,153,400 Occidental Petroleum Corporation 8,000 820,400 Schlumberger Limited ^ 22,000 1,432,420 Other Energy (a) 2,583,528 ------------- 12,876,220 ------------- FINANCIALS - 20.23% American Express Company 19,600 1,043,112 American International Group, Inc. ^ 37,531 2,216,206 Bank of America Corporation 67,938 3,267,818 Citigroup Inc. 49,300 2,378,232 Freddie Mac 14,500 826,645 Goldman Sachs Group, Inc. (The) ^ 7,300 1,098,139 JPMorgan Chase & Co. 40,132 1,685,544 Merrill Lynch & Co., Inc. 10,700 744,292 Metlife, Inc. ^ 15,200 778,392 Morgan Stanley 15,500 979,755 U.S. Bancorp 28,401 877,023 Wachovia Corporation 22,600 1,222,208 Wells Fargo & Company 24,200 1,623,336 Other Financials (a) 7,838,871 ------------- 26,579,573 ------------- HEALTHCARE - 12.82% Abbott Laboratories ^ 28,000 1,221,080 Amgen Inc. + 18,900 1,232,847 Bristol-Myers Squibb Company 30,500 788,730 Johnson & Johnson ^ 40,900 2,450,728 Medtronic, Inc. 21,500 1,008,780 Pfizer Inc. ^ 77,560 1,820,333 UnitedHealth Group Incorporated 23,000 1,029,940 Wyeth 19,200 852,672 Other Healthcare (a) 6,437,387 ------------- 16,842,497 ------------- INDUSTRIALS - 11.53% 3M Co. ^ 15,400 1,243,858 Boeing Company (The) ^ 11,700 958,347 Caterpillar Inc. 11,800 878,864 General Electric Company 115,500 3,806,880 Other Industrials (a) 8,271,199 ------------- 15,159,148 ------------- ================================================================================ See accompanying notes to financial statements. 2 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS - JUNE 30, 2006 (UNAUDITED)(CONCLUDED) -------------------------------------------------------------------------------- No. of Description Shares Value -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY - 14.16% Cisco Systems, Inc. + 96,400 $ 1,882,692 EMC Corporation + 212,648 2,332,749 Hewlett-Packard Company ^ 27,900 883,872 Intel Corporation ^ 82,500 1,563,375 International Business Machines Corporation ^ 12,600 967,932 Microsoft Corporation 120,900 2,816,970 QUALCOMM Inc. 21,000 841,470 Other Information Technology (a) 7,326,236 ------------- 18,615,296 ------------- MATERIALS - 2.40% Total Materials (a) 3,151,889 ------------- REAL ESTATE INVESTMENT TRUSTS - 0.41% Total Real Estate Investment Trusts (a) 539,110 ------------- TELECOMMUNICATION SERVICES - 3.29% AT&T Inc. ^ 48,364 1,348,872 BellSouth Corporation 23,000 832,600 Sprint Nextel Corporation ^ 38,446 768,536 Verizon Communications Inc. ^ 30,900 1,034,841 Other Telecommunication Services (a) 334,103 ------------- 4,318,952 ------------- UTILITIES - 3.34% Total Utilities (a) 4,391,786 ------------- TOTAL EQUITY SECURITIES (cost - $116,572,604) 130,847,764 ------------- Principal Amount Description (000's) Value -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 1.75% REPURCHASE AGREEMENTS - 1.75% Bear, Stearns & Co. Inc. + (b) (Agreement dated 6/30/2006 to be repurchased at $2,302,578) $ 2,302 $ 2,301,892 ------------- TOTAL SHORT-TERM INVESTMENTS (cost - $2,301,892) 2,301,892 ------------- TOTAL INVESTMENTS - 101.32% (cost - $118,874,496) 133,149,656 ------------- LIABILITIES IN EXCESS OF OTHER ASSETS - (1.32)% (1,737,955) ------------- NET ASSETS - 100.00% $ 131,411,701 ============= --------- + Non-income producing security. ^ Security or a portion thereof is out on loan. + Includes investments 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, 2006. (b) At June 30, 2006, the maturity date for all repurchase agreements held was July 3, 2006, with interest rates ranging from 2.66% to 5.31%, and collateralized by $2,371,096 in U.S. Treasury Bond STRIPs. ================================================================================ See accompanying notes to financial statements. 3
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- ASSETS Investments, at value, including collateral for securities on loan $1,718,389 (Cost $118,874,496)(1) $ 133,149,656 Receivables: Dividends 139,192 Interest 2,608 Prepaid expenses 14,254 ------------- Total Assets 133,305,710 ------------- LIABILITIES Payables: Upon return of securities loaned 1,718,389 Investment management fees 97,402 Directors' fees 28,385 Other accrued expenses 49,833 ------------- Total Liabilities 1,894,009 ------------- NET ASSETS (applicable to 25,138,175 shares of common stock outstanding) $ 131,411,701 ============= NET ASSET VALUE PER SHARE ($131,411,701 ./. 25,138,175) $ 5.23 ============= NET ASSETS CONSISTS OF Capital stock, $0.001 par value; 25,138,175 shares issued and outstanding (100,000,000 shares authorized) $ 25,138 Paid-in capital 139,981,964 Cost of 1,236,852 shares repurchased (17,516,253) Accumulated net realized loss on investments (5,354,308) Net unrealized appreciation in value of investments 14,275,160 ------------- Net assets applicable to shares outstanding $ 131,411,701 ============= ------------ (1) Includes securities out on loan to brokers with a market value of $ 1,712,428.
================================================================================ See accompanying notes to financial statements. 4
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT INCOME Income: Dividends $ 1,370,937 Securities lending 34,871 Interest 1,184 ----------- Total Investment Income 1,406,992 ----------- Expenses: Investment management fees 683,271 Administration fees 68,326 Directors' fees 54,052 Legal and audit fees 34,876 Printing 25,291 Accounting fees 19,702 Transfer agent fees 11,405 Custodian fees 10,084 Stock exchange listing fees 7,989 Insurance 4,067 Miscellaneous 1,240 ----------- Total Expenses 920,303 Less: Management fee waivers (67,632) Less: Fees paid indirectly (7,875) ----------- Net Expenses 844,796 ----------- Net Investment Income 562,196 ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized loss from investments (62,284) Net change in unrealized appreciation in value of investments 1,842,480 ----------- Net realized and unrealized gain on investments 1,780,196 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,342,392 ===========
================================================================================ 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, 2006 Ended (unaudited) December 31, 2005 --------------- ----------------- DECREASE IN NET ASSETS Operations: Net investment income $ 562,196 $ 834,753 Net realized gain/(loss) from investments (62,284) 27,008,793 Net change in unrealized appreciation in value of investments 1,842,480 (22,438,516) ------------- ------------- Net increase in net assets resulting from operations 2,342,392 5,405,030 ------------- ------------- Dividends and distributions to shareholders: Net investment income (562,196) (980,195) Net realized capital gains -- (24,369,995) Return-of-capital (12,424,982) -- ------------- ------------- Total dividends and distributions to shareholders (12,987,178) (25,350,190) ------------- ------------- Capital stock transactions: Proceeds from 427,870 and 832,602 shares newly issued in reinvestment of dividends and distributions, respectively 2,350,371 4,961,290 ------------- ------------- Total decrease in net assets (8,294,415) (14,983,870) ------------- ------------- NET ASSETS Beginning of period 139,706,116 154,689,986 ------------- ------------- End of period $ 131,411,701 $ 139,706,116 ============= =============
================================================================================ See accompanying notes to financial statements. 6
------------------------------------------------------------------------------------------------------------------------------- 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, 2006 For the Years Ended December 31, ------------------------------------------------------------------------- (unaudited) 2005 2004 2003 2002 2001 -------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $ 5.65 $ 6.48 $ 6.90 $ 6.41 $ 9.20 $ 11.31 ----------- ----------- ----------- ----------- ---------- ---------- Net investment income/(loss) # 0.02 0.03 0.05 0.04 (0.01) (0.06) Net realized and unrealized gain/(loss) on investments and foreign currency related translations 0.08 0.18 0.55 1.44 (2.29) (2.13) ----------- ----------- ----------- ----------- ---------- ---------- Net increase/(decrease) in net assets resulting from operations 0.10 0.21 0.60 1.48 (2.30) (2.19) ----------- ----------- ----------- ----------- ---------- ---------- Dividends and distributions to shareholders: Net investment income (0.02) (0.04) (0.05) (0.04) -- -- Net realized gain on investments and foreign currency related transactions -- (1.00) -- -- -- -- Return-of-capital (0.50) -- (0.99) (0.95) (0.50) -- ----------- ----------- ----------- ----------- ---------- ---------- Total dividends and distributions to (0.52) (1.04) (1.04) (0.99) (0.50) -- ----------- ----------- ----------- ----------- ---------- ---------- shareholders Capital stock transactions: Anti-dilutive effect due to capital stock repurchased -- -- -- -- 0.02 0.08 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 ----------- ----------- ----------- ----------- ---------- ---------- Net asset value, end of period $ 5.23 $ 5.65 $ 6.48 $ 6.90 $ 6.41 $ 9.20 =========== =========== =========== =========== ========== ========== Market value, end of period $ 7.19 $ 7.05 $ 8.51 $ 9.00 $ 5.85 $ 8.05 =========== =========== =========== =========== ========== ========== Total investment return (a) 12.06% (1.32)% 8.38% 77.69% (20.85)% (23.98)% =========== =========== =========== =========== ========== ========== RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 131,412 $ 139,706 $ 154,690 $ 26,565 $ 24,376 $ 35,256 Ratio of expenses to average net assets, net of fee waivers, if any (b) 1.23%(d) 1.20% 1.28% 1.20% 1.80% 1.77% Ratio of expenses to average net assets, excluding fee waivers, if any (c) 1.34%(d) 1.36% 1.50% 1.59% 2.17% 2.11% Ratio of expenses to average net assets, net of fee waivers, if any (c) 1.24%(d) 1.26% 1.36% 1.25% 1.86% 1.95% Ratio of net investment income/(loss) to average net assets 0.82%(d) 0.58% 0.73% 0.68% (0.13)% (0.64)% Portfolio turnover rate 3.67% 21.60% 39.05% 11.88% 29.63% 59.83% --------------------------------------------------------------------------------------------------------------------------------- # 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) Expenses are net of fees paid indirectly. (c) Expenses exclude the reduction for fees paid indirectly. (d) Annualized.
================================================================================ See accompanying notes to financial statements. 7 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- NOTE A. SIGNIFICANT ACCOUNTING POLICIES Cornerstone Strategic Value Fund, Inc. (the "Fund") was incorporated in Maryland on May 1, 1987 and commenced investment operations on June 30, 1987. Its investment objective is to seek long-term capital appreciation through investment primarily in equity securities of U.S. and non-U.S. companies. 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 ("GAAP") requires management to make certain estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. PORTFOLIO VALUATION: Investments are stated at value in the accompanying financial statements. All equity securities shall be valued at the closing price on the exchange or market on which the security is primarily traded ("Primary Market"). If the security did not trade on the Primary Market, it shall be valued at the closing price on another exchange where it trades. If there are no such sale prices, the value shall be the most recent bid, and if there is no bid, the security shall be valued at the most recent asked. If no pricing service is available and there are more than two dealers, the value shall be the mean of the highest bid and lowest ask. If there is only one dealer, then the value shall be the mean if bid and ask are available, otherwise the value shall be the bid. All other securities and assets are valued as determined in good faith by the Board of Directors. Short-term investments having a maturity of 60 days or less are valued on the basis of amortized cost. Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of financial and non-financial information abut the company; comparisons to the valuation and changes in valuation of similar securities, including reference to special reports prepared by analysts and or reports published in the financial press, the financial conditions and prospects of the issuer available, including considering any recent management or capital structure changes or other recent events that may impact the price of the security; and evaluation of any other information that could be indicative of the value of the security. At June 30, 2006, 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. 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. ================================================================================ 8 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- 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 a distribution policy even if regulatory requirements would make part of a return-of-capital, necessary to maintain the distribution, taxable to shareholders and to disclose that portion of the distribution that is classified as ordinary income. Although it has no current intention to do so, the Board may terminate the 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 the 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. For the year 2006, Cornerstone voluntarily agreed to waive its management fees from the Fund to the extent that the Fund's net monthly operating expenses (including basic legal fees but excluding other legal expenses) exceed a rate of 0.10% of average net assets. For the six months ended June 30, 2006, Cornerstone earned $683,271 for investment management services, of which it waived $67,632. 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 $7,875 arising from credits earned on portfolio transactions executed with a broker, pursuant to a directed brokerage arrangement. The Fund paid or accrued approximately $25,604 for the six months ended June 30, 2006 for legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas R. Westle, partner of Blank, serves as Secretary of the Fund. NOTE C. INVESTMENT IN SECURITIES For the six months ended June 30, 2006, purchases and sales of securities, other than short-term investments, were $5,026,535 and $14,811,373 respectively. ================================================================================ 9 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED) -------------------------------------------------------------------------------- NOTE D. SECURITIES LENDING To generate additional income, the Fund may lend up to 33 1/3% 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, 2006, was $1,712,428. NOTE E. 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 years ended December 31, for the Fund was as follows: ORDINARY INCOME RETURN-OF-CAPITAL --------------- ----------------- 2005 2004 2005 2004 ---- ---- ---- ---- $980,195 $729,442 -- $13,677,285 LONG-TERM CAPITAL GAINS ----------------------- 2005 2004 ---- ---- $24,369,995 -- 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, 2005, the Fund did not incur Post-October losses. At December 31, 2005, the Fund had a capital loss carryforward for U.S. federal income tax purposes of $5,292,024 of which $2,547,381 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, 2006, 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 $118,874,496, $20,003,680, $(5,728,520) and $14,275,160, respectively. ================================================================================ 10 RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED) On April 10, 2006, the Annual Meeting of Stockholders of Cornerstone Strategic Value Fund, Inc. was held and the following matter was voted upon based on 24,773,751 shares of common stock outstanding on February 17, 2006: (1) To approve the re-election of three Class II Directors until the year 2009 Annual Meeting. NAME OF CLASS II DIRECTORS FOR WITHHOLD -------------------------- --- -------- Scott B. Rogers 21,279,926 261,505 William A. Clark 21,289,973 251,458 Thomas H. Lenagh 21,268,411 273,020 ================================================================================ 11 DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) Cornerstone Strategic Value Fund, Inc. (the "Fund") operates a Dividend Reinvestment Plan (the "Plan"), sponsored and administered by American Stock Transfer & Trust Company (the "Agent"), pursuant to which the Fund's dividends and distributions, net of any applicable U.S. withholding tax, are reinvested in shares of the Fund. American Stock Transfer & Trust Company serves as the Agent that administers the Plan for the shareholders in the Plan. Shareholders who have shares registered directly in their own names automatically participate in the Fund's Plan, unless and until an election is made to withdraw from the Plan on behalf of such participating shareholder. Shareholders who do not wish to have distributions automatically reinvested should so notify the Agent at P.O. Box 922, Wall Street Station, New York, New York 10269-0560 or call (877) 248-6416. Under the Plan, the Fund's respective 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 shareholder's 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) 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 shares of the respective Fund over the five trading days preceding the payment date of such Distribution or (ii) the net asset value of the Fund as last determined prior to such payment date. Registered shareholders who acquire their shares through Open Market Purchases and who do not wish to have their Distributions automatically reinvested should so notify the Fund in writing. If a shareholder has not elected to receive cash Distributions and the Agent does not receive notice of an election to receive cash Distributions prior to the record date of any Dividend, the shareholder will automatically receive such Distributions in additional shares. Participants in the Plan may withdraw from the Plan by providing written notice to the Agent at least 30 days prior to the applicable Distribution payment date. When a Participant withdraws from the Plan, or upon termination of the Plan as provided below, certificates for whole shares credited to his/or her account under the Plan will, upon request, be issued. Whether or not a participant requests that certificates for whole shares by 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 the Plan participant in non-certified 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. All correspondence concerning the Plan should be directed to the Agent at P.O. Box 922, Wall Street Station, New York, New York 10269-0560. ================================================================================ 12 INVESTMENT MANAGEMENT AGREEMENT APPROVAL DISCLOSURE (UNAUDITED) The Board of Directors including, the Independent Directors, (the "Board") of 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 17, 2006. 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 (including basic legal fees but excluding other extraordinary legal expenses). 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 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. ================================================================================ 13 PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED) Information regarding how Cornerstone Strategic Value Fund, Inc. (the "Fund") voted proxies related to its portfolio securities during the 12-month period ended June 30 of each year as well as the policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities are available: by calling (212) 272-3550; on the website of the Securities and Exchange Commission, http://www.sec.gov. This 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 (202) 551-8090. 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 trans- actions 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. ================================================================================ 14 SUMMARY OF GENERAL INFORMATION (UNAUDITED) 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 primarily in equity securities of U.S. and non-U.S. companies. 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. -------------------------------------------------------------------------------- ================================================================================ 15 This page intentionally left blank. 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 LLP Management Inc. 1818 Market Street 383 Madison Avenue Suite 2400 New York, NY 10179 Philadelphia, 19103 PA CUSTODIAN LEGAL COUNSEL Custodial Trust Company Blank Rome LLP 101 Carnegie Center 405 Lexington Avenue Princeton, NJ 08540 New York, NY 10174 EXECUTIVE OFFICES 383 Madison Avenue New York, NY 10179 For shareholder inquiries, registered shareholders should call (800) 937-5449. For general inquiries, please call (212) 272-3550. LOGO AMERICAN STOCK EXCHANGE(r) LISTED CLM -------------------------------------------------------------------------------- ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS.
=================================================================================== CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS -- JUNE 30, 2006 (UNAUDITED) =================================================================================== DESCRIPTION NO. OF SHARES VALUE ----------------------------------------------------------------------------------- EQUITY SECURITIES - 99.57% CLOSED-END DOMESTIC FUNDS - 1.49% Adams Express Company 49,500 $ 637,065 General American Investors Company 3,000 108,300 Tri-Continental Corporation 13,700 266,602 Zweig Fund, Inc. ^ 176,600 941,278 ------------ 1,953,245 ------------ CONSUMER DISCRETIONARY - 10.37% Acco Brands Corporation + 235 5,146 Bed Bath & Beyond Inc. + 4,200 139,314 Best Buy Co., Inc. ^ 7,125 390,735 Black & Decker Corporation (The) 3,000 253,380 Carnival Corporation 11,800 492,532 CBS Corporation ^ 4,450 120,372 Circuit City Stores, Inc. ^ 5,000 136,100 Clear Channel Communications, Inc. ^ 8,800 272,360 Comcast Corporation, Special Class A + 19,037 623,271 D.R. Horton, Inc. 7,000 166,740 Eastman Kodak Company 1,400 33,292 eBay Inc. + 21,500 629,735 Federated Department Stores, Inc. 11,052 404,503 Ford Motor Company ^ 6,000 41,580 Fortune Brands, Inc. 3,500 248,535 Gannett Co., Inc. 6,000 335,580 Gap, Inc. (The) ^ 12,200 212,280 Goodyear Tire & Rubber Company (The) +^ 4,500 49,950 Harley-Davidson, Inc. 4,400 241,516 Hilton Hotels Corporation 11,200 316,736 Home Depot, Inc. (The) 28,100 1,005,699 J.C. Penney Company, Inc. 4,500 303,795 Kohl's Corporation + 5,000 295,600 Live Nation Inc. + 1,100 22,396 Lowe's Companies, Inc. 11,200 679,504 Marriott International, Inc., Class A 4,200 160,104 Mattel, Inc. 5,500 90,805 McDonald's Corporation 17,600 591,360 News Corporation 23,000 441,140 NIKE, Inc. 2,300 186,300 Omnicom Group Inc. 4,100 365,269 Sears Holdings Corporation + 503 77,885 Staples, Inc. 10,800 262,656 Starbucks Corporation + 10,800 407,808 Target Corporation 11,800 576,666 Time Warner Inc. 76,000 1,314,800 TJX Companies, Inc. (The) 7,000 160,020 Univision Communications Inc., Class A + 7,000 234,500 Viacom Inc. + 11,950 428,288 Walt Disney Company (The) 20,200 606,000 Yum! Brands, Inc. ^ 6,000 301,620 ------------ 13,625,872 ------------ CONSUMER STAPLES - 9.73% Altria Group, Inc. 29,300 2,151,499 -1- DESCRIPTION NO. OF SHARES VALUE ----------------------------------------------------------------------------------- Anheuser-Busch Companies, Inc. 6,200 282,658 Archer-Daniels-Midland Company ^ 5,460 225,389 Campbell Soup Company 2,000 74,220 Coca-Cola Company (The) 23,500 1,010,970 Coca-Cola Enterprises Inc. 3,000 61,110 Colgate-Palmolive Company 11,100 664,890 ConAgra Foods, Inc. 4,400 97,284 Costco Wholesale Corporation 6,500 371,345 CVS Corporation 5,000 153,500 General Mills, Inc. ^ 9,500 490,770 H.J. Heinz Company ^ 6,600 272,052 Kroger Co. (The) ^ 4,800 104,928 Pepsi Bottling Group, Inc. (The) 4,000 128,600 PepsiCo, Inc. ^ 24,800 1,488,992 Procter & Gamble Company (The) 41,297 2,296,113 Sara Lee Corporation 11,500 184,230 Sysco Corporation 5,800 177,248 Walgreen Co. 14,300 641,212 Wal-Mart Stores, Inc. 39,800 1,917,166 ------------ 12,794,176 ------------ ENERGY - 9.80% Anadarko Petroleum Corp. 11,800 562,742 Baker Hughes Incorporated 8,100 662,985 Chevron Corporation 27,532 1,708,636 ConocoPhillips 17,974 1,177,836 Devon Energy Corporation ^ 5,000 302,050 Exxon Mobil Corporation 84,000 5,153,400 Hugoton Royalty Trust ^ 298 8,851 Marathon Oil Corp. 7,500 624,750 Occidental Petroleum Corporation 8,000 820,400 Schlumberger Limited ^ 22,000 1,432,420 Transocean Inc. + 2,500 200,800 XTO Energy, Inc. 5,000 221,350 ------------ 12,876,220 ------------ FINANCIALS - 20.23% AFLAC Incorporated 7,000 324,450 Allstate Corporation (The) 9,300 508,989 American Express Company 19,600 1,043,112 American International Group, Inc. ^ 37,531 2,216,206 Ameriprise Financial, Inc. 3,120 139,370 Aon Corporation 4,900 170,618 Bank of America Corporation 67,938 3,267,818 Bank of New York Company, Inc. (The) 11,400 367,080 Charles Schwab Corporation (The) 12,000 191,760 Citigroup Inc. 49,300 2,378,232 Fannie Mae 13,000 625,300 Fifth Third Bancorp 2,500 92,375 Franklin Resources, Inc. ^ 3,700 321,197 Freddie Mac 14,500 826,645 Goldman Sachs Group, Inc. (The) ^ 7,300 1,098,139 Hartford Financial Services Group, Inc. (The) 6,000 507,600 JPMorgan Chase & Co. 40,132 1,685,544 Lehman Brothers Holdings Inc. 7,200 469,080 Marsh & McLennan Companies, Inc. 10,100 271,589 Merrill Lynch & Co., Inc. 10,700 744,292 Metlife, Inc. ^ 15,200 778,392 Morgan Stanley 15,500 979,755 National City Corporation 12,700 459,613 -2- DESCRIPTION NO. OF SHARES VALUE ----------------------------------------------------------------------------------- Northern Trust Corporation 3,500 193,550 PNC Financial Services Group, Inc. 7,100 498,207 Prudential Financial, Inc. 8,200 637,140 St. Paul Travelers Companies, Inc. (The) 9,476 422,440 State Street Corporation ^ 3,500 203,315 SunTrust Banks, Inc. 7,600 579,576 U.S. Bancorp 28,401 877,023 UnumProvident Corporation 8,100 146,853 Wachovia Corporation 22,600 1,222,208 Washington Mutual, Inc. 15,550 708,769 Wells Fargo & Company 24,200 1,623,336 ------------ 26,579,573 ------------ HEALTH CARE - 12.82% Abbott Laboratories ^ 28,000 1,221,080 Aetna Inc. 12,000 479,160 Amgen Inc. + 18,900 1,232,847 Applera Corporation 8,000 258,800 Baxter International Inc. ^ 5,000 183,800 Becton, Dickinson and Company 6,900 421,797 Biogen Idec Inc. + 8,000 370,640 Boston Scientific Corporation + 23,051 388,179 Bristol-Myers Squibb Company 30,500 788,730 Cardinal Health, Inc. 5,450 350,598 Caremark Rx, Inc. + 9,000 448,830 Eli Lilly and Company 11,000 607,970 Gilead Sciences, Inc. + 3,500 207,060 HCA, Inc. ^ 8,500 366,775 Hospira, Inc. + 3,700 158,878 IMS Health Incorporated 7,400 198,690 Johnson & Johnson ^ 40,900 2,450,728 McKesson Corporation 2,300 108,744 Medco Health Solutions, Inc. + 6,687 383,031 Medtronic, Inc. 21,500 1,008,780 Merck & Co. Inc. ^ 20,000 728,600 Pfizer Inc. ^ 77,560 1,820,333 Schering-Plough Corporation 17,000 323,510 Tenet Healthcare Corporation + 2,250 15,705 UnitedHealth Group Incorporated 23,000 1,029,940 WellPoint Inc. + ^ 6,000 436,620 Wyeth 19,200 852,672 ------------ 16,842,497 ------------ INDUSTRIALS - 11.53% 3M Co. ^ 15,400 1,243,858 Boeing Company (The) ^ 11,700 958,347 Caterpillar Inc. 11,800 878,864 Cendant Corporation 28,000 456,120 CSX Corporation 9,000 633,960 Danaher Corporation ^ 3,500 225,120 Emerson Electric Co. 8,500 712,385 FedEx Corp. ^ 4,500 525,870 General Dynamics Corporation 6,200 405,852 General Electric Company 115,500 3,806,880 Honeywell International Inc. 12,500 503,750 Illinois Tool Works Inc. 10,800 513,000 Ingersoll-Rand Company Ltd. Class A 3,500 149,730 Lockheed Martin Corporation 4,000 286,960 Masco Corporation ^ 4,200 124,488 Norfolk Southern Corporation 10,000 532,200 -3- DESCRIPTION NO. OF SHARES VALUE ----------------------------------------------------------------------------------- Northrop Grumman Corporation 5,000 320,300 Rockwell Automation, Inc. 2,500 180,025 Southwest Airlines Co. 6,450 105,586 Textron Inc. 4,500 414,810 Tyco International Ltd. 15,397 423,418 Union Pacific Corporation ^ 2,000 185,920 United Parcel Service, Inc., Class B 5,300 436,349 United Technologies Corporation 11,000 697,620 Waste Management, Inc. ^ 12,200 437,736 ------------ 15,159,148 ------------ INFORMATION TECHNOLOGY - 14.16% Adobe Systems Incorporated 9,200 279,312 Analog Devices, Inc. 9,200 295,688 Apple Computer, Inc. + 3,000 171,360 Applied Materials, Inc. 33,800 550,264 Automatic Data Processing, Inc. 9,900 448,965 Cisco Systems, Inc. + 96,400 1,882,692 Corning Incorporated + 17,000 411,230 Dell Inc. + 18,700 456,467 Electronic Arts Inc. + 5,000 215,200 Electronic Data Systems Corporation 10,000 240,600 EMC Corporation + 212,648 2,332,749 First Data Corporation ^ 11,324 510,033 Freescale Semiconductor Inc., Class B + 6,512 191,453 Hewlett-Packard Company ^ 27,900 883,872 Intel Corporation ^ 82,500 1,563,375 International Business Machines Corporation ^ 12,600 967,932 Linear Technology Corporation 6,500 217,685 Lucent Technologies Inc. + 10,700 25,894 Maxim Integrated Products, Inc. ^ 2,300 73,853 Micron Technology, Inc. + 11,500 173,190 Microsoft Corporation 120,900 2,816,970 Motorola, Inc. 34,700 699,205 Oracle Corporation + 43,872 635,705 Paychex, Inc. 4,200 163,716 QUALCOMM Inc. 21,000 841,470 Sanmina-SCI Corporation + 5,500 25,300 Solectron Corporation + 3,000 10,260 Sun Microsystems, Inc. + 7,500 31,125 Symantec Corporation + 10,000 155,400 Texas Instruments Incorporated 23,900 723,931 Yahoo! Inc. + 18,800 620,400 ------------ 18,615,296 ------------ MATERIALS - 2.40% Air Products & Chemicals, Inc. 1,000 63,920 Alcoa Inc. 14,200 459,512 Dow Chemical Company (The) 15,400 601,062 E. I. du Pont de Nemours and Company 14,800 615,680 International Paper Company ^ 10,500 339,150 Monsanto Company 5,080 427,685 Newmont Mining Corporation 7,000 370,510 Praxair, Inc. 3,000 162,000 Rohm and Hass Company 1,000 50,120 Weyerhaeuser Company 1,000 62,250 ------------ 3,151,889 ------------ REAL ESTATE INVESTMENT TRUST - 0.41% Simon Property Group, Inc. ^ 6,500 539,110 -4- DESCRIPTION NO. OF SHARES VALUE ----------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES - 3.29% ALLTEL Corporation ^ 4,000 255,320 AT&T Inc. ^ 48,364 1,348,872 BellSouth Corporation 23,000 832,600 Embarq Corporation + 1,922 78,783 Sprint Nextel Corporation ^ 38,446 768,536 Verizon Communications Inc. ^ 30,900 1,034,841 ------------ 4,318,952 ------------ UTILITIES - 3.34% American Electric Power Company, Inc. 5,500 188,375 CenterPoint Energy, Inc. 13,900 173,750 Dominion Resources, Inc. 4,600 344,034 Duke Energy Corporation ^ 13,300 390,621 Edison International 4,000 156,000 Exelon Corporation 11,000 625,130 FirstEnergy Corp. 5,000 271,050 FPL Group, Inc. 4,000 165,520 PG&E Corporation 9,000 353,520 Progress Energy, Inc. ^ 3,500 150,045 Public Service Enterprise Group Incorporated 6,000 396,720 Southern Company (The) 11,900 381,395 TXU Corp. ^ 9,400 562,026 Williams Companies, Inc. (The) 10,000 233,600 ------------ 4,391,786 ------------ TOTAL EQUITY SECURITIES (cost - $116,572,604) 130,847,764 ------------ PRINCIPAL AMOUNT (000'S) -------------- SHORT-TERM INVESTMENTS - 1.75% REPURCHASE AGREEMENTS - 1.75% Bear, Stearns & Co. Inc. * ** $ 1,327 1,326,514 (Agreement dated 6/30/2006 to be repurchased at $1,326,807), 2.6562%, 7/3/2006, collateralized by $1,365,340 in U.S. Treasury Bond STRIP) Bear, Stearns & Co. Inc. 584 583,503 (Agreement dated 6/30/2006 to be repurchased at $583,722), 4.5000%, 7/3/2006, collateralized by $601,674 in U.S. Treasury Bond STRIP) Bear, Stearns & Co. Inc. * ** 392 391,875 (Agreement dated 6/30/2006 to be repurchased at $392,048), 5.3125%, 7/3/2006, collateralized by $404,083 in U.S. Treasury Bond STRIP) ------------ TOTAL SHORT-TERM INVESTMENTS (cost - $2,301,892) 2,301,892 ------------ -5- DESCRIPTION NO. OF SHARES VALUE ----------------------------------------------------------------------------------- TOTAL INVESTMENTS - 101.32% (cost - $118,874,496) 133,149,656 ------------ LIABILITIES IN EXCESS OF OTHER ASSETS - (1.32)% (1,737,955) ------------ NET ASSETS - 100.00% $131,411,701 ============ ------------ + 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. ^ Security or a portion thereof is out on loan.
-6- ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANIES AND AFFILIATED PURCHASERS. None. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 11. CONTROLS AND PROCEDURES. (a) The Registrant's principal executive officer and principal financial officer have evaluated the Registrant's disclosure controls and procedures as of a date within 90 days of this filing and have concluded that the Registrant's disclosure controls and procedures are effective, as of such date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The Registrant's principal executive officer and principal financial officer are aware of no changes in the Registrant's internal control over financial reporting that occurred during the Registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Not applicable. (a)(2) Separate certifications of Principal Executive and Financial Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 attached as EX-99.CERT. (b) Certification of Principal Executive and Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906 CERT. -------------------------------------------------------------------------------- -7- SIGNATURES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cornerstone Strategic Value Fund, Inc. By: /S/ RALPH W. BRADSHAW --------------------- Name: Ralph W. Bradshaw Title: Principal Executive Officer Date: August 31, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /S/ RALPH W. BRADSHAW --------------------- Name: Ralph W. Bradshaw Title: Principal Executive Officer Date: August 31, 2006 By: /S/ JODI B. LEVINE ------------------ Name: Jodi B. Levine Title: Principal Financial Officer Date: August 31, 2006 -8-