N-CSR 1 t305112.txt CLM ============================================================================== 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) 305 Madison Avenue, New York, New York 10165 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Gary A. Bentz 305 Madison Avenue, New York, New York 10165 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (513) 326-3597 Date of fiscal year end: December 31, 2008 Date of reporting period: December 31, 2008 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. The report of Cornerstone Strategic Value Fund, Inc. (the "Registrant") to stockholders for the year ended December 31, 2008 follows. CORNERSTONE STRATEGIC VALUE FUND, INC. ANNUAL REPORT DECEMBER 31, 2008 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 Report of Independent Registered Public Accounting Firm 14 Results of Special Meeting of Stockholders 15 Tax Information 16 Additional Information Regarding the Fund's Directors and Corporate Officers 17 Description of Dividend Reinvestment Plan 20 Proxy Voting and Portfolio Holdings Information 22 Privacy Policy Notice 22 Summary of General Information 23 Shareholder Information 23 ================================================================================ -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- SECTOR ALLOCATION Percent of Sector Net Assets -------------------------------------------------------------------------------- Healthcare 14.2 -------------------------------------------------------------------------------- Information Technology 13.8 -------------------------------------------------------------------------------- Consumer Staples 12.7 -------------------------------------------------------------------------------- Energy 12.2 -------------------------------------------------------------------------------- Financials 11.6 -------------------------------------------------------------------------------- Industrials 9.6 -------------------------------------------------------------------------------- Closed-End Funds 7.4 -------------------------------------------------------------------------------- Consumer Discretionary 7.3 -------------------------------------------------------------------------------- Utilities 4.1 -------------------------------------------------------------------------------- Telecommunication Services 3.5 -------------------------------------------------------------------------------- Materials 2.5 -------------------------------------------------------------------------------- Other 1.1 -------------------------------------------------------------------------------- TOP TEN HOLDINGS, BY ISSUER Percent of Holding Sector Net Assets -------------------------------------------------------------------------------- 1. Exxon Mobil Corporation Energy 5.2 -------------------------------------------------------------------------------- 2. Procter & Gamble Company (The) Consumer Staples 2.7 -------------------------------------------------------------------------------- 3. Wal-Mart Stores, Inc. Consumer Staples 2.6 -------------------------------------------------------------------------------- 4. JPMorgan Chase & Co. Financials 2.5 -------------------------------------------------------------------------------- 5. Liberty All-Star Equity Fund Closed-End Funds 2.5 -------------------------------------------------------------------------------- 6. AT&T Inc. Telecommunication Services 2.3 -------------------------------------------------------------------------------- 7. Johnson & Johnson Healthcare 2.3 -------------------------------------------------------------------------------- 8. Walt Disney Company (The) Consumer Discretionary 2.3 -------------------------------------------------------------------------------- 9. Microsoft Corporation Information Technology 2.1 -------------------------------------------------------------------------------- 10. Wells Fargo & Company Financials 2.1 -------------------------------------------------------------------------------- ================================================================================ 1
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2008 -------------------------------------------------------------------------------- No. of Description Shares Value -------------------------------------------------------------------------------- EQUITY SECURITIES - 99.11% CLOSED-END FUNDS - 7.37% Adams Express Company (a) 49,500 $ 397,485 Advent/Claymore Enhanced Growth & Income Fund 61,070 495,278 Liberty All-Star Equity Fund 417,530 1,461,355 Liberty All-Star Growth Fund, Inc. 266,201 692,122 Zweig Fund, Inc. 401,750 1,157,040 Other Closed-End Funds (b) 182,799 ------------ 4,386,079 ------------ CONSUMER DISCRETIONARY - 7.31% McDonald's Corporation 9,900 615,681 Walt Disney Company (The) 59,200 1,343,248 Other Consumer Discretionary ^(b) 2,389,613 ------------ 4,348,542 ------------ CONSUMER STAPLES - 12.67% Coca-Cola Company (The) 20,000 905,400 Colgate-Palmolive Company 8,900 610,006 Kroger Co. (The) 13,800 364,458 PepsiCo, Inc. 7,100 388,867 Procter & Gamble Company (The) 26,297 1,625,680 Wal-Mart Stores, Inc. 27,100 1,519,226 Other Consumer Staples (b) 2,124,823 ------------ 7,538,460 ------------ ENERGY - 12.17% Chevron Corporation 17,032 1,259,857 ConocoPhillips 10,474 542,553 Exxon Mobil Corporation 39,000 3,113,370 Occidental Petroleum Corporation 10,500 629,895 Other Energy ^(b) 1,697,886 ------------ 7,243,561 ------------ FINANCIALS - 11.58% JPMorgan Chase & Co. 47,632 1,501,837 PNC Financial Services Group, Inc. 7,600 372,400 T. Rowe Price Group Inc. 11,000 389,840 No. of Description Shares Value -------------------------------------------------------------------------------- FINANCIALS (CONTINUED) Travelers Companies, Inc. (The) 12,476 $ 563,915 Wells Fargo & Company 42,900 1,264,692 Other Financials (b) 2,796,397 ------------ 6,889,081 ------------ HEALTHCARE - 14.25% Abbott Laboratories 11,200 597,744 Amgen Inc. * 9,900 571,725 Becton, Dickinson and Company 7,900 540,281 Bristol-Myers Squibb Company 30,500 709,125 Gilead Sciences, Inc. * 7,000 357,980 Johnson & Johnson 22,900 1,370,107 Medtronic, Inc. 14,500 455,590 Merck & Co. Inc. 17,500 532,000 Pfizer Inc. 23,560 417,248 UnitedHealth Group Incorporated 19,500 518,700 Wyeth 11,200 420,112 Other Healthcare (b) 1,992,612 ------------ 8,483,224 ------------ INDUSTRIALS - 9.62% Burlington Northern Santa Fe Corporation 5,400 408,834 General Electric Company 56,900 921,780 United Technologies Corporation 7,500 402,000 Other Industrials ^(b) 3,990,771 ------------ 5,723,385 ------------ INFORMATION TECHNOLOGY - 13.84% Apple, Inc. * 8,500 725,475 Cisco Systems, Inc. * 47,900 780,770 EMC Corporation * 47,148 493,640 Google Inc. * 3,000 922,950 Hewlett-Packard Company 16,900 613,301 Intel Corporation 60,500 886,930 International Business Machines Corporation 10,600 892,096 Microsoft Corporation 65,200 1,267,488 ================================================================================ See accompanying notes to financial statements. 2 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2008 (CONTINUED) -------------------------------------------------------------------------------- No. of Description Shares Value -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (CONTINUED) Oracle Corporation * 26,272 $ 465,803 QUALCOMM Inc. 10,000 358,300 Other Information Technology (b) 831,401 ------------ 8,238,154 ------------ MATERIALS - 2.49% Monsanto Company 5,660 398,181 Other Materials (b) 1,082,820 ------------ 1,481,001 ------------ REAL ESTATE INVESTMENT TRUST - 0.18% Total Real Estate Investment Trust (b) 2,000 106,260 ------------ TELECOMMUNICATION SERVICES - 3.48% AT&T Inc. 48,539 1,383,362 Verizon Communications Inc. 20,300 688,170 ------------ 2,071,532 ------------ UTILITIES - 4.15% Dominion Resources, Inc. 11,200 401,408 Other Utilities (b) 2,068,768 ------------ 2,470,176 ------------ TOTAL EQUITY SECURITIES (cost - $65,972,643) 58,979,455 ------------ SHORT-TERM INVESTMENTS - 2.54% MONEY MARKET SECURITY - 0.82% JPMorgan U.S. Government Money Market Fund 488,865 488,865 ------------ Principal Amount Description (000s) Value -------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 1.72% J.P. Morgan Securities Inc. +++ (Agreement dated 12/31/2008 to be repurchased at $1,022,750, 0.04%, 1/2/2009, collateralized by $1,057,368 in United States Treasury Notes) $ 1,023 $ 1,022,748 ------------ TOTAL SHORT-TERM INVESTMENTS (cost - $1,511,613) 1,511,613 ------------ TOTAL INVESTMENTS - 101.65% (cost - $67,484,256) 60,491,068 ------------ LIABILITIES IN EXCESS OF OTHER ASSETS - (1.65)% (981,505) ------------ NET ASSETS - 100.00% $ 59,509,563 ============ ------------ ^ Security or a portion thereof is out on loan. * Non-income producing security. ADR American Depositary Receipt + Stated interest rate, before rebate earned by borrower of securities on loan. ++ Represents investment purchased with collateral received for securities on loan. (a) Affiliated investment. The Fund holds 0.67% (based on net assets) of Adams Express Company. A director of the Fund also serves as a director to such company. During the year ended December 31, 2008 there were no purchases or sales of this security. (b) Represents issuers 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 December 31, 2008. ================================================================================ See accompanying notes to financial statements. 3
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2008 -------------------------------------------------------------------------------- ASSETS Investments, at value, including collateral for securities on loan of $1,022,748: Unaffiliated issuers (cost - $66,878,434)(1) $ 60,093,583 Affiliated issuer (cost - $605,822) 397,485 ------------ Total investments (cost - $67,484,256) 60,491,068 Receivables: Dividends 189,433 Interest 933 Prepaid expenses 1,452 ------------ Total Assets 60,682,886 ------------ LIABILITIES Payables: Due to custodian 1,860 Upon return of securities loaned 1,022,748 Investment management fees (net of fee waivers) 42,782 Directors' fees 30,771 Other accrued expenses 75,162 ------------ Total Liabilities 1,173,323 ============ NET ASSETS (applicable to 6,835,701 shares of common stock outstanding) $ 59,509,563 ============ NET ASSET VALUE PER SHARE ($59,509,563 / 6,835,701) $ 8.71 ============ NET ASSETS CONSISTS OF Capital stock, $0.001 par value; 6,835,701 shares issued and outstanding (100,000,000 shares authorized) $ 6,836 Paid-in capital 72,139,403 Accumulated net realized loss on investments (5,643,488) Net unrealized depreciation in value of investments (6,993,188) ------------ Net assets applicable to shares outstanding $ 59,509,563 ============ -------- (1) Includes securities out on loan to brokers with a market value of $1,021,565. ================================================================================ See accompanying notes to financial statements. 4
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2008 -------------------------------------------------------------------------------- INVESTMENT INCOME Income: Dividends (including $24,255 earned from affiliated issuer) $ 2,218,294 Interest 15,915 Securities lending 24,863 ------------ Total Investment Income 2,259,072 ------------ Expenses: Investment management fees 906,969 Legal and audit fees 109,068 Directors' fees 108,619 Administration fees 91,215 Printing 70,941 Accounting fees 35,185 Custodian fees 23,484 Transfer agent fees 19,427 Reverse split fees 18,750 Stock exchange listing fees 9,112 Insurance 6,940 Miscellaneous 4,200 ------------ Total Expenses 1,403,910 Less: Management fee waivers (87,091) Less: Fees paid indirectly (42,490) ------------ Net Expenses 1,274,329 ------------ Net Investment Income 984,743 ------------ NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS Net realized loss from investments (3,741,734) Capital gain distributions from regulated investment companies and real estate investment trust 8,983 Net change in unrealized appreciation in value of investments (33,698,235) ------------ Net realized and unrealized loss on investments (37,430,986) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(36,446,243) ============ ================================================================================ See accompanying notes to financial statements. 5
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- For the Years Ended December 31, --------------------------- 2008 2007 ------------- ------------- DECREASE IN NET ASSETS Operations: Net investment income $ 984,743 $ 1,120,928 Net realized gain/(loss) from investments (3,741,734) 8,478,941 Capital gain distributions from regulated investment companies and real estate investment trust 8,983 50,393 Net change in unrealized appreciation in value of investments (33,698,235) (2,452,733) ------------- ------------- Net increase/(decrease) in net assets resulting from operations (36,446,243) 7,197,529 ------------- ------------- Dividends and distributions to shareholders: Net investment income (984,743) (1,120,928) Net realized capital gains -- (8,509,935) Return-of-capital (27,088,110) (19,451,697) ------------- ------------- Total dividends and distributions to shareholders (28,072,853) (29,082,560) ------------- ------------- Capital stock transactions:* Cash in lieu of 81 fractional shares from the reverse stock split (544) -- Proceeds from 196,609 and 228,404 shares newly issued and/or from treasury in reinvestment of dividends and distributions, respectively 3,761,155 5,808,750 ------------- ------------- Total capital share transactions 3,760,611 5,808,750 ------------- ------------- Total decrease in net assets (60,758,485) (16,076,281) ------------- ------------- NET ASSETS Beginning of year 120,268,048 136,344,329 ------------- ------------- End of year $ 59,509,563 $ 120,268,048 ============= ============= ------------ * Shares are adjusted for the one-for-four reverse stock split that was effective December 23, 2008. ================================================================================ 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 year indicated. This information has been derived from information provided in the financial statements and market price data for the Fund's shares. -------------------------------------------------------------------------------- For the Years Ended December 31, --------------------------------------------------------------- 2008 2007 2006 2005 2004 ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year $ 18.12 $ 21.28 $ 22.60 $ 25.92 $ 27.60 -------- --------- --------- --------- --------- Net investment income # 0.15 0.16 0.20 0.12 0.20 Net realized and unrealized gain/(loss) on investments (5.55) 0.96 2.64 0.72 2.20 -------- --------- --------- --------- --------- Net increase/(decrease) in net assets resulting from operations (5.40) 1.12 2.84 0.84 2.40 -------- --------- --------- --------- --------- Dividends and distributions to shareholders: Net investment income (0.15) (0.16) (0.16) (0.16) (0.20) Net realized capital gains -- (1.32) -- (4.00) -- Return-of-capital (4.01) (3.00) (4.00) -- (3.96) -------- --------- --------- --------- --------- Total dividends and distributions to shareholders (4.16) (4.48) (4.16) (4.16) (4.16) -------- --------- --------- --------- --------- Capital stock transactions: Anti-dilutive effect due to shares issued in reinvestment of dividends and distributions 0.15 0.20 -- -- 0.08 -------- --------- --------- --------- --------- Net asset value, end of year $ 8.71 $ 18.12 $ 21.28 $ 22.60 $ 25.92 ======== ========= ========= ========= ========= Market value, end of year $ 7.62 $ 20.20 $ 33.80 $ 28.20 $ 34.04 ======== ========= ========= ========= ========= Total investment return (a) (49.92) (29.04)% 45.36% (1.32)% 8.38% ======== ========= ========= ========= ========= RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000 omitted) $ 59,510 $ 120,268 $ 136,344 $ 139,706 $ 154,690 Ratio of expenses to average net assets, net of fee waivers, if any (b) 1.40% 1.23% 1.22% 1.20% 1.28% Ratio of expenses to average net assets, excluding fee waivers, if any (c) 1.54% 1.35% 1.32% 1.36% 1.50% Ratio of expenses to average net assets, net of fee waivers, if any (c) 1.44% 1.25% 1.25% 1.26% 1.36% Ratio of net investment income to average net assets 1.08% 0.86% 0.85% 0.58% 0.73% Portfolio turnover rate 13.24% 10.38% 10.59% 21.60% 39.05% ---------- * Per share amounts prior to December 23, 2008 have been restated to reflect a one-for-four reverse stock split. # 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 year 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. ================================================================================ See accompanying notes to financial statements. 7
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE A. ORGANIZATION 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. NOTE B. SIGNIFICANT ACCOUNTING POLICIES 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. Readily marketable portfolio securities listed on the NYSE are valued, except as indicated below, at the last sale price reflected on the consolidated tape at the close of the NYSE on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. If no bid or asked prices are quoted on such day or if market prices may be unreliable because of events occurring after the close of trading, then the security is valued by such method as the Board of Directors shall determine in good faith to reflect its fair market value. Readily marketable securities not listed on the NYSE but listed on other domestic or foreign securities exchanges are valued in a like manner. Portfolio securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined as reflected on the consolidated tape at the close of the exchange representing the principal market for such securities. Securities trading on the Nasdaq Stock Market, Inc. ("NASDAQ") are valued at the closing price. Readily marketable securities traded in the over-the counter market, including listed securities whose primary market is believed by Cornerstone Advisors, Inc. (the "Investment Adviser" or "Cornerstone") to be over-the-counter, are valued at the mean of the current bid and asked prices as reported by the NASDAQ or, in the case of securities not reported by the NASDAQ or a comparable source, as the Board of Directors deem appropriate to reflect their fair market value. Where securities are traded on more than one exchange and also over-the-counter, the securities will generally be valued using the quotations the Board of Directors believes reflect most closely the value of such securities. At December 31, 2008, 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 NYSE Alternext US LLC is closed. On March 19, 2008, Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative instruments and Hedging Activities" ("FAS 161"). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements is not expected to be material. 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. ================================================================================ 8 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- (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 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. 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. In July 2006, the Financial Accounting Standards Board ("FASB") released FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), an interpretation of FASB Statement No. 109. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more likely than not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely than not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is effective during the first required financial reporting period for fiscal years beginning after December 15, 2006. Management adopted FIN 48 on June 29, 2007 and reviewed any uncertain tax positions for open tax years 2005 through 2008. The Fund has initiated discussions with the Internal Revenue Service's New York Regional Office regarding a technical tax issue relating to whether the Fund's historic dividend reinvestment plan may have resulted in a violation of certain Subchapter M requirements of the Internal Revenue Code for certain prior tax years. The outcome of this matter is currently uncertain including, whether ultimately it might negatively affect the tax status of the Fund. The Fund will continue to monitor this matter closely and is pursuing a potential resolution with the Internal Revenue Service by seeking to obtain a closing letter that, if successful, will avoid a material negative tax impact to the Fund. There was no material impact to the financial statements or, other than as described herein, the disclosures thereto as a result of the adoption of this pronouncement. DISTRIBUTIONS TO SHAREHOLDERS: Effective June 25, 2002, the Fund initiated a fixed, monthly distribution to shareholders. On November 29, 2006, this distribution policy was updated to provide for the annual resetting of the monthly distribution amount per share based on the Fund's net asset value on the last business day in each October. The terms of the distribution policy will be reviewed and approved at least annually by the Fund's Board of Directors and can be modified at their discretion. To the extent that these distributions exceed the current earnings of the Fund, the balance will be generated from sales of portfolio securities held by the Fund, which will either be short-term or long-term capital gains or a tax-free return-of-capital. To the extent these distributions are not represented by net investment income and capital gains, they will not represent yield or investment return on the Fund's investment portfolio. The Fund plans to maintain this distribution policy even if regulatory requirements would make part of a return-of-capital, necessary to ================================================================================ 9 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- maintain the distribution, taxable to shareholders and to disclose that portion of the distribution that is classified as ordinary income. Although it has no current intention to do so, the Board may terminate this distribution policy at any time and such termination may have an adverse effect on the market price for the Fund's common shares. The Fund determines annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses, including capital loss carryovers, if any. To the extent that the Fund's taxable income in any calendar year exceeds the aggregate amount distributed pursuant to this distribution policy, an additional distribution may be made to avoid the payment of a 4% U.S. federal excise tax, and to the extent that the aggregate amount distributed in any calendar year exceeds the Fund's taxable income, the amount of that excess may constitute a return-of-capital for tax purposes. A return-of-capital distribution reduces the cost basis of an investor's shares in the Fund. Dividends and distributions to shareholders are recorded by the Fund on the ex-dividend date. NOTE C. FAIR VALUE The Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below. o Level 1 - quoted prices in active markets for identical investments o Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) o Level 3 - significant unobservable inputs (including the Fund's own assumptions in deter- mining the fair value of investments) The inputs or methodology used in valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used as of December 31, 2008 in valuing the Fund's investments carried at value: INVESTMENTS IN OTHER FINANCIAL VALUATION INPUTS SECURITIES INSTRUMENTS* -------------------------------------------------------------------------------- Level 1 - Quoted Prices $58,979,455 -- Level 2 - Other Significant Observable Inputs 1,511,613 -- Level 3 - Significant Unobservable Inputs -- -- ----------- ----------- Total $60,491,068 -- =========== =========== -------- * Other financial instruments include futures, forwards and swap contracts. The Fund did not have any assets or liabilities that were measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 31, 2008. ================================================================================ 10 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE D. 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. During the year ended December 31, 2008, 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 and extraordinary expenses) exceeded an annual rate of 0.10% and 0.11% of average annual weekly net assets, through February 29, 2008, and thereafter, respectively. For the year ended December 31, 2008, Cornerstone earned $906,969 for investment management services, of which it waived $87,091. 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 $42,490 arising from credits earned on portfolio transactions executed with a broker, pursuant to a directed brokerage arrangement. The Fund paid or accrued approximately $87,608 for the year ended December 31, 2008 for legal services to Blank Rome LLP ("Blank"), counsel to the Fund. Thomas R. Westle, partner of Blank, served as Secretary of the Fund until February 15, 2008. NOTE E. AFFILIATED INVESTMENTS Transactions in affiliates for the yeended December 31, 2008 were as follows: ADAMS EXPRESS COMPANY -------- Market value at beginning of year $698,940 ======== Shares at beginning of year 49,500 Shares purchased during the year -- Shares sold during the year -- -------- Shares at end of year 49,500 ======== Dividend income earned during the year 24,255 ======== Cost of purchases during the year -- Proceeds from sales during the year -- Net realized gain/(loss) during the year -- Market value at end of year $397,485 ======== NOTE F. INVESTMENT IN SECURITIES For the year ended December 31, 2008, purchases and sales of securities, other than short-term investments, were $12,137,958 and $34,882,842 respectively. ================================================================================ 11 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE G. SHARES OF COMMON STOCK The Fund has 100,000,000 shares of common stock authorized and 6,835,701 shares outstanding at December 31, 2008. As of that date, three individuals that control Cornerstone owned 21,371 shares in the Fund. Transactions in common stock for the year ended December 31, 2008 were as follows+: Shares at beginning of year 6,639,173 Shares newly issued in reinvestment of dividends and distributions 196,609 Shares paid in cash in lieu of fractional shares from the reverse stock split (81) --------- Shares at end of year 6,835,701 ========= ------ + Share amounts reflect the one-for-four reverse stock split that was effective December 23, 2008. NOTE H. SHARE REPURCHASE PROGRAM As has been done in the past to enhance shareholder value, pursuant to Section 23 of the Investment Company Act of 1940, as amended, the Fund may again in the future purchase shares of its common stock on the open market from time to time, at such times, and in such amounts as may be deemed advantageous to the Fund. Nothing herein shall be considered a commitment to purchase such shares. The Fund had no repurchases during the year ended December 31, 2008. No limit has been placed on the number of shares to be repurchased by the Fund other than those imposed by federal securities laws. All purchases are made in accordance with federal securities laws, with shares repurchased held in treasury effective January 1, 2002, for future use by the Fund. NOTE I. 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 December 31, 2008, was $1,021,565. During the year ended December 31, 2008, the Fund earned $24,863 in securities lending income which is included under the caption SECURITIES LENDING in the Statement of Operations. NOTE J. 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. ================================================================================ 12 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) -------------------------------------------------------------------------------- The tax character of dividends and distributions paid during the years ended December 31, for the Fund were as follows: ORDINARY INCOME RETURN-OF-CAPITAL --------------- ----------------- 2008 2007 2008 2007 ---- ---- ---- ---- $ 984,743 $3,365,187 $27,088,110 $19,451,697 LONG-TERM CAPITAL GAINS ----------------------- 2008 2007 ---- ---- -- $6,265,676 At December 31, 2008 the components of the accumulated deficit on a tax basis, for the Fund were as follows: Capital loss carryforward $ (5,171,824) Net unrealized depreciation (6,993,188) Other accumulated losses (471,664) ------------ Total distributable earnings $(12,636,676) ============ Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended December 31, 2008, the Fund decreased net realized loss by $1,139,305 and decreased paid-in capital by $1,139,305. 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, 2008, the Fund incurred Post-October losses in the amount of $471,664. At December 31, 2008, the Fund had a capital loss carryforward for U.S. federal income tax purposes of $5,171,824 of which $1,139,305 expires in 2009, $250,210 expires in 2010, $484,687 expires in 2011, and $3,297,622 expires in 2016. These capital loss carryforwards are subject to an annual limitation of $1,139,305 for the year ended December 31, 2009. At December 31, 2008, 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 $67,484,256, $5,679,070, $(12,672,258) and $(6,993,188), respectively. NOTE K. SUBSEQUENT EVENTS Effective February 13, 2009, Kayadti A. Madison resigned as Treasurer. Effective that same day Gary A. Bentz was appointed as Assistant Treasurer. Effective February 28, 2009, Ultimus Fund Solutions, LLC replaced Bear Stearns Funds Management Inc. as Fund Administrator. ================================================================================ 13 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors Cornerstone Strategic Value Fund, Inc. New York, New York We have audited the accompanying statement of assets and liabilities of Cornerstone Strategic Value Fund, Inc., including the schedule of investments as of December 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Cornerstone Strategic Value Fund, Inc. as of December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER LLP Philadelphia, Pennsylvania February 24, 2009 ================================================================================ 14 RESULTS OF SPECIAL MEETING OF STOCKHOLDERS (UNAUDITED) On October 15, 2008, a Special Meeting of Stockholders of Cornerstone Strategic Value Fund, Inc. was held and the following matter was voted upon based on 27,116,390 shares of common stock outstanding on August 18, 2008: (1) To approve a one-for-four reverse stock split of the Fund's issued and outstanding shares of common stock and the amendment to the Articles of Incorporation. FOR AGAINST ABSTAIN 18,127,847 5,121,816 401,958 ================================================================================ 15 2008 TAX INFORMATION (UNAUDITED) Cornerstone Strategic Value Fund, Inc. (the "Fund") is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of the Fund's year end (December 31, 2008) as to the U.S. federal tax status of the dividends and distributions received by the Fund's shareholders in respect of such fiscal year. The $28,072,853 in dividend and distributions paid to shareholders in respect of such year, is represented by $984,743 of ordinary income, and $27,088,110 of return-of-capital. As indicated in this notice, significant portions of the Fund's distributions for 2008 were comprised of a return-of-capital; accordingly these distributions do NOT represent yield or investment return on the Fund's portfolio. During the year ended December 31, 2008 the following dividends and distributions per share were paid by the Fund:
SOURCES OF DIVIDENDS AND DISTRIBUTIONS (PER SHARE AMOUNTS)+ PAYMENT DATES: 1/31/08 2/29/08 3/31/08 4/30/08 5/30/08 6/30/08 -------- -------- -------- -------- -------- -------- Ordinary Income(1) $ 0.0030 $ 0.0030 $ 0.0030 $ 0.0030 $ 0.0030 $ 0.0030 Return-of-Capital(2) 0.0837 0.0837 0.0837 0.0837 0.0837 0.0837 -------- -------- -------- -------- -------- -------- Total: $ 0.0867 $ 0.0867 $ 0.0867 $ 0.0867 $ 0.0867 $ 0.0867 ======== ======== ======== ======== ======== ======== PAYMENT DATES: 7/31/08 8/29/08 9/30/08 10/31/08 11/28/08 12/19/08 -------- -------- -------- -------- -------- -------- Ordinary Income(1) $ 0.0030 $ 0.0030 $ 0.0030 $ 0.0030 $ 0.0030 $ 0.0030 Return-of-Capital(2) 0.0837 0.0837 0.0837 0.0837 0.0837 0.0837 -------- -------- -------- -------- -------- -------- Total: $ 0.0867 $ 0.0867 $ 0.0867 $ 0.0867 $ 0.0867 $ 0.0867 ======== ======== ======== ======== ======== ======== ----------------------------------------------------------------------------------------------------------
+ Per share amounts do not reflect the one-for-four reverse stock split that was effective December 23, 2008. (1) ORDINARY INCOME DIVIDENDS - This is the total per share amount of ordinary income dividends and short-term capital gain distributions (if applicable) included in the amount reported in Box 1a on Form 1099-DIV. (2) RETURN-OF-CAPITAL - This is the per share amount of return-of-capital, or sometimes called nontaxable, distributions reported in Box 3 - under the title "Nondividend distributions" - on Form 1099-DIV. This amount should NOT be reported as taxable income on your current return. Rather, it should be treated as a reduction in the original cost basis of your investment in the Fund. The Fund has met the requirements to pass through all (100%) of its ordinary income dividends as qualified dividends, which are subject to a maximum federal tax rate of 15%. This is reported in Box 1b on Form 1099-DIV. Ordinary income dividends should be reported as dividend income on Form 1040. Please note that to utilize the lower tax rate for qualifying dividend income, shareholders generally must have held their shares in the Fund for at least 61 days during the 121 day period beginning 60 days before the ex-dividend date. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of the actual ordinary income dividend paid by the Fund. They will generally not be entitled to foreign tax credit or deduction for the withholding taxes paid by the Fund. In general, distributions received by tax-exempt recipients (e.g., IRA's and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. ================================================================================ 16
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND CORPORATE OFFICERS (UNAUDITED) NUMBER OF PORTFOLIOS IN NAME AND POSITION FUND COMPLEX ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY (BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS -------------------------------------------------------------------------------------------------------------------- Ralph W. Chairman of the President, Cornerstone Advisors, Inc.; 1998 3 Bradshaw** Board of Financial Consultant; President and (Dec. 1950) Directors and Director of Cornerstone Total Return President Fund, Inc.; President and Trustee of Cornerstone Progressive Return Fund. Thomas H. Director; Audit, Independent Financial Adviser; Director 1987 3 Lenagh Nominating and of Photonics Products Group; Director (Nov. 1924) Corporate of Cornerstone Total Return Fund, Inc.; Governance Trustee of Cornerstone Progressive Committee Return Fund; Director of Adams Express Member Company and Petroleum and Resources Corporation. Edwin Director; Audit, Distinguished Fellow, The Heritage 2001 3 Meese III Nominating and Foundation Washington D.C.; (Dec. 1931) Corporate Distinguished Visiting Fellow at the Governance Hoover Institution, Stanford University; Committee Senior Adviser, Revelation L.P.; Director Member of Cornerstone Total Return Fund, Inc.; Trustee of Cornerstone Progressive Return Fund. Scott B. Rogers Director; Audit, Chairman, Board of Health Partners, 2000 3 (July 1955) Nominating and Inc.; Chief Executive Officer, Asheville Corporate Buncombe Community Christian Governance Ministry; and President, ABCCM Committee Doctor's Medical Clinic; Appointee, NC Member Governor's Commission on Welfare to Work; Director of Cornerstone Total Return Fund, Inc.; Trustee of Cornerstone Progressive Return Fund.
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ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND CORPORATE OFFICERS (UNAUDITED) (CONTINUED) NUMBER OF NUMBER OF PORTFOLIOS IN NAME AND POSITION FUND COMPLEX ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY (BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE DIRECTORS -------------------------------------------------------------------------------------------------------------------- Andrew A. Director; Attorney and senior member of Strauss 2000 3 Strauss Chairman of & Associates, P.A., Attorneys, Asheville (Nov. 1953) Nominating and and Hendersonville, NC; previous Corporate President of White Knight Healthcare, Governance Inc. and LMV Leasing, Inc., a wholly Committee and owned subsidiary of Xerox Credit Audit Committee Corporation; Director of Cornerstone Member Total Return Fund, Inc.; Trustee of Cornerstone Progressive Return Fund. Glenn W. Director; Chairman of the Board, Tower 2000 3 Wilcox, Sr. Chairman of Associates, Inc.; Chairman of the Board (Dec. 1931) Audit Committee and Chief Executive Officer of Wilcox Nominating and Travel Agency, Inc.; Director of Corporate Cornerstone Total Return Fund, Inc.; Governance Trustee of Cornerstone Progressive Committee Return Fund. Member
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ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND CORPORATE OFFICERS (UNAUDITED) (CONCLUDED) NAME AND POSITION ADDRESS* POSITION PRINCIPAL OCCUPATION WITH FUND (BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE ------------------------------------------------------------------------------------------------------------------ Gary A. Bentz Chief Compliance Chairman and Chief Financial Officer of 2004, 2008, (June 1956) Officer, Secretary, Cornerstone Advisors, Inc.; previous Director, 2009 and Assistant Vice President and Treasurer of the Fund and Treasurer Cornerstone Total Return Fund, Inc.; Financial Consultant, C.P.A.; Chief Compliance Officer, Secretary, and Assistant Treasurer of Cornerstone Total Return Fund, Inc. and Cornerstone Progressive Return Fund. William A. Clark Vice President Director and Stockholder of Cornerstone 2004 (Oct. 1945) Advisors, Inc.; Vice President and former Director of Cornerstone Total Return Fund, Inc.; Vice President and former Trustee of Cornerstone Progressive Return Fund; Financial Consultant; former Director of Investors First Fund, Inc.
-------------------------------------------------------------------------------- * The mailing address of each Director and/or Officer with respect to the Fund's operation is 305 Madison Ave., New York, NY 10165. ** Designates a director who is an "interested person" of the Fund as defined by the Investment Company Act of 1940, as amended. Mr. Bradshaw is an interested person of the Fund by virtue of his current position with the Investment Adviser of the Fund. ================================================================================ 19 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 income dividends or capital gains or other distributions (each, a "Distribution" and collectively, "Distributions"), net of any applicable U.S. withholding tax, are reinvested in shares of the Fund. Shareholders 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 their broker, or if a registered shareholder, the Agent in writing at P.O. Box 922, Wall Street Station, New York, New York 10269-0560. Such written notice must be received by the Agent prior to the record date of the Distribution or the shareholder will receive such Distribution in shares through the Plan. Under the Plan, the Fund's Distributions to shareholders are reinvested in full and fractional shares as described below. When the Fund declares a Distribution 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 NYSE Alternext US LLC or elsewhere, with cash allocated to it by the Fund ("Open Market Purchases"). The method for determining the number of shares to be received when Distributions are reinvested will vary depending upon whether the net asset value of the Fund's shares is higher or lower than its market price. If the net asset value of the Fund's shares is lower than its market price, the number of Newly Issued Shares received will be determined by dividing the amount of the Distribution either by the Fund's net asset value per share or by 95% of its market price, whichever is higher. If the net asset value of the Fund's shares is higher than its market price, 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. Whenever the Fund declares a Distribution and the net asset value of the Fund's shares is higher than its market price, the Agent will apply the amount of such Distribution payable to Plan participants of the Fund in Fund shares (less such Plan participant's pro rata share of brokerage commissions incurred with respect to Open Market Purchases in connection with the reinvestment of such Distribution) to the purchase on the open market of Fund shares for such Plan participant's account. Such purchases will be made on or after the payable date for such Distribution, and in no event more than 30 days after such date except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities laws. The Agent may aggregate a Plan participant's purchases with the purchases of other Plan participants, and the average price (including brokerage commissions) of all shares purchased by the Agent shall be the price per share allocable to each Plan participant. 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 suspension or termination of the Plan at the sole discretion of the Fund's Board of Directors, 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 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 the 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. ================================================================================ 20 DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED) 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. Neither the Agent nor the Fund shall have any responsibility or liability beyond the exercise of ordinary care for any action taken or omitted pursuant to the Plan, nor shall they have any duties, responsibilities or liabilities except such as expressly set forth herein. Neither shall they be liable hereunder for any act done in good faith or for any good faith omissions to act, including, without limitation, failure to terminate a participants account prior to receipt of written notice of his or her death or with respect to prices at which shares are purchased or sold for the participants account and the terms on which such purchases and sales are made, subject to applicable provisions of the federal securities laws. The automatic reinvestment of Distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Distributions. The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases 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. Certain transactions can be performed online at www.amstock.com or by calling the toll free number 877-864-4833. ================================================================================ 21 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 (513) 326-3597 or 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 (513) 326-3597. 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. ================================================================================ 22 SUMMARY OF GENERAL INFORMATION (UNAUDITED) Cornerstone Strategic Value Fund, Inc. is a closed-end, diversified investment company whose shares trade on the NYSE Alternext US LLC. Its investment objective is to seek long-term capital appreciation through investment primarily in equity securities of U.S. and non-U.S. com3panies. The Fund is managed by Cornerstone Advisors, Inc. SHAREHOLDER INFORMATION (UNAUDITED) The Fund is listed on the NYSE Alternext US LLC (symbol "CLM"). The previous week's net asset value per share, market price, and related premium or discount are published each Monday in THE WALL STREET JOURNAL under the designation "CornstnStrat" and BARRON'S under the designation "Cornerstone Str Val". Such information 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. 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 the report. -------------------------------------------------------------------------------- ================================================================================ 23 ================================================================================ 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 Chief Compliance Officer, Secretary, and Assistant Treasurer William A. Clark Vice President 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 Ultimus Fund Solutions, LLC Tait, Weller & Baker LLP 305 Madison Avenue 1818 Market Street New York, NY 10165 Suite 2400 Philadelphia, PA 19103 CUSTODIAN LEGAL COUNSEL Custodial Trust Company Blank Rome LLP 101 Carnegie Center 405 Lexington Avenue Princeton, NJ 08540 New York, NY 10174 EXECUTIVE OFFICES 305 Madison Avenue New York, NY 10165 For shareholder inquiries, registered shareholders should call (800) 937-5449. For general inquiries, please call (513) 326-3597. CLM LISTED ALTERNEXT CORNERSTONE STRATEGIC VALUE FUND, INC. ITEM 2. CODE OF ETHICS. (a) As of the end of the period covered by this report, the Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal accounting officer, and persons performing similar functions. (c) and (d). During the period covered by this report, there was no amendment to, and no waiver granted from, any provision of the code of ethics that applies to the Registrant's principal executive officer, principal accounting officer, and persons performing similar functions. (f)(1) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit (EX-99.CODE ETH) a copy of its code of ethics that applies to its principal executive officer, principal financial officer, and persons performing similar functions. (f)(3) The Registrant undertakes to provide to any person without charge, upon request, a copy of its code of ethics. This can be accomplished by calling the Registrant at (513) 326-3597. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant's board of directors has determined that it does not have an audit committee financial expert serving on its audit committee. (a)(2) Not applicable (a)(3) At this time, the registrant believes that the experience provided by each member of the audit committee together offer the registrant adequate oversight for the registrant's level of financial complexity. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) through (d). The information in the table below is provided for services rendered to the registrant by its independent registered public accounting firm, Tait, Weller & Baker LLP for the Registrant's fiscal years ended December 31, 2008 and December 31, 2007. 2008 2007 ------- ------- Audit Fees $18,100 $17,200 Audit-related Fees -- -- Tax Fees (1) 3,600 3,500 All Other Fees -- -- ------- ------- Total $21,700 $20,700 ======= ======= (1) Tax services in connection with the registrant's excise tax calculations and review of the registrant's applicable tax returns. (e)(1) Audit Committee Pre-Approval Policies and Procedures. Before the auditor is (i) engaged by the Registrant to render audit, audit related or permissible non-audit services to the Registrant or (ii) with respect to non-audit services to be provided by the auditor to the Registrant's investment adviser or any entity in the investment Registrant complex, if the nature of the services provided relate directly to the operations or financial reporting of the Registrant, either: (a) the Audit Committee shall pre-approve such engagement; or (b) such engagement shall be entered into pursuant to pre-approval policies and procedures established by the Audit Committee. Any such policies and procedures must be detailed as to the particular service and not involve any delegation of the Audit Committee's responsibilities to the Registrant's investment adviser. The Audit Committee may delegate to one or more of its members the authority to grant pre-approvals. The pre-approval policies and procedures shall include the requirement that the decisions of any member to whom authority is delegated under this provision shall be presented to the full Audit Committee at its next scheduled meeting. Under certain limited circumstances, pre-approvals are not required if certain de minimis thresholds are not exceeded, as such thresholds are set forth by the Audit Committee and in accordance with applicable SEC rules and regulations. (e)(2) None of the services provided to the Registrant described in paragraphs (b)-(d) of Item 4 were pre-approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X. (f) No disclosures are required by this Item 4(f). (g) There were no non-audit fees billed by Tait, Weller & Baker LLP for services rendered to the Registrant, the Registrant's investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor) or any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the Registrant for the Registrant's last two fiscal years (December 31, 2007 and December 31, 2008). (h) No disclosures are required by this Item 4(h). ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. (a) The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934, as amended. Glenn Wilcox (Chair), Edwin Meese, Thomas Lenagh, Andy Strauss and Scott Rogers are the members of the Registrant's audit committee. (b) Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS.
CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2008 No. of Description Shares Value ------------------------------------------------------ --------------------- EQUITY SECURITIES - 99.11% CLOSED-END FUNDS - 7.37% Adams Express Company (a) 49,500 $ 397,485 Advent/Claymore Enhanced Growth & Income Fund 61,070 495,278 Dreman/Claymore Dividend & Income Fund 69,100 130,599 General American Investors Company, Inc. 3,000 52,200 Liberty All-Star Equity Fund 417,530 1,461,355 Liberty All-Star Growth Fund, Inc. 266,201 692,122 Zweig Fund, Inc. 401,750 1,157,040 ---------- 4,386,079 ---------- CONSUMER DISCRETIONARY - 7.31% Amazon.com, Inc. * 3,000 153,840 Comcast Corporation, Class A 11,555 195,048 DIRECTV Group, Inc. (The) * ^ 4,000 91,640 Gap, Inc. (The) 9,200 123,188 Home Depot, Inc. (The) 2,000 46,040 Johnson Controls, Inc. 3,500 63,560 Lowe's Companies, Inc. 5,900 126,968 McDonald's Corporation 9,900 615,681 News Corporation, Class A 10,000 90,900 NIKE, Inc., Class B ^ 6,100 311,100 Omnicom Group Inc. 6,200 166,904 Staples, Inc. 10,800 193,536 Starbucks Corporation * 2,800 26,488 Target Corporation 6,800 234,804 Time Warner Inc. 23,500 236,410 TJX Companies, Inc. (The) 3,000 61,710 Toyota Motor Corporation ADR 2,500 163,600 Viacom Inc., Class B * 5,450 103,877 Walt Disney Company (The) 59,200 1,343,248 ---------- 4,348,542 ---------- CONSUMER STAPLES - 12.67% Altria Group, Inc. 13,300 200,298 Archer-Daniels-Midland Company 3,960 114,167 Coca-Cola Company (The) 20,000 905,400 Colgate-Palmolive Company 8,900 610,006 ConAgra Foods, Inc. 7,400 122,100 CVS Caremark Corporation 10,430 299,758 General Mills, Inc. 2,500 151,875 H.J. Heinz Company 4,000 150,400 Kimberly-Clark Corporation 2,500 131,850 Kraft Foods Inc, Class A 10,932 293,524 Kroger Co. (The) 13,800 364,458 PepsiCo, Inc. 7,100 388,867 Philip Morris International Inc. 7,300 317,623 Procter & Gamble Company (The) 26,297 1,625,680 Sysco Corporation 9,800 224,812 Walgreen Co. 4,800 118,416 Wal-Mart Stores, Inc. 27,100 1,519,226 ---------- 7,538,460 ---------- ENERGY - 12.17% Baker Hughes Incorporated 10,600 339,942 Chevron Corporation 17,032 1,259,857 ConocoPhillips 10,474 542,553 ENSCO International Incorporated 2,500 70,975 Exxon Mobil Corporation 39,000 3,113,370 Halliburton Company 13,200 239,976 Marathon Oil Corp. 11,500 314,640 Noble Corporation ^ 2,500 55,150 Occidental Petroleum Corporation 10,500 629,895 Schlumberger Limited 8,000 338,640 Transocean Ltd. * 2,500 118,125 XTO Energy, Inc. 6,250 220,438 ---------- 7,243,561 ---------- FINANCIALS - 11.58% Aflac, Inc. 7,000 320,880 Allstate Corporation (The) 6,800 222,768 American Express Company 6,400 118,720 Bank of America Corporation 16,138 227,223 Bank of New York Mellon Corporation 5,754 163,011 Capital One Financial Corporation 2,500 79,725 Charles Schwab Corporation (The) 22,000 355,740 Goldman Sachs Group, Inc. (The) 2,800 236,292 Hudson City Bancorp, Inc. 9,000 143,640 JPMorgan Chase & Co. 47,632 1,501,837 Marsh & McLennan Companies, Inc. 10,000 242,700 MetLife, Inc. 5,700 198,702 Morgan Stanley 7,000 112,280 PNC Financial Services Group, Inc. 7,600 372,400 Prudential Financial, Inc. 4,200 127,092 T. Rowe Price Group Inc. 11,000 389,840 Travelers Companies, Inc. (The) 12,476 563,915 U.S. Bancorp 9,901 247,624 Wells Fargo & Company 42,900 1,264,692 ---------- 6,889,081 ---------- HEALTHCARE - 14.25% Abbott Laboratories 11,200 597,744 Aetna Inc. 11,000 313,500 Amgen Inc. * 9,900 571,725 Baxter International Inc. 5,000 267,950 Becton, Dickinson and Company 7,900 540,281 Biogen Idec Inc. * 3,000 142,890 Bristol-Myers Squibb Company 30,500 709,125 Cardinal Health, Inc. 7,950 274,036 Covidien Limited 2,599 94,188 Eli Lilly and Company 4,700 189,269 Gilead Sciences, Inc. * 7,000 357,980 Johnson & Johnson 22,900 1,370,107 McKesson Corporation 2,800 108,444 Medtronic, Inc. 14,500 455,590 Merck & Co. Inc. 17,500 532,000 Pfizer Inc. 23,560 417,248 Schering-Plough Corporation 18,500 315,055 Stryker Corporation 3,500 139,825 UnitedHealth Group Incorporated 19,500 518,700 WellPoint Inc. * 3,500 147,455 Wyeth 11,200 420,112 ---------- 8,483,224 ---------- INDUSTRIALS - 9.62% 3M Co. 4,400 253,176 Boeing Company (The) 4,200 179,214 Burlington Northern Santa Fe Corporation 5,400 408,834 Caterpillar Inc. 6,800 303,756 CSX Corporation 6,500 211,055 Danaher Corporation 3,500 198,135 Deere & Company ^ 8,000 306,560 Emerson Electric Co. 8,400 307,524 FedEx Corp. 2,000 128,300 General Dynamics Corporation 3,200 184,288 General Electric Company 56,900 921,780 Honeywell International Inc. 5,000 164,150 Illinois Tool Works Inc. 4,800 168,240 Lockheed Martin Corporation 4,000 336,320 Norfolk Southern Corporation 5,500 258,775 Northrop Grumman Corporation 2,500 112,600 Raytheon Company 3,000 153,120 Union Pacific Corporation 4,000 191,200 United Parcel Service, Inc., Class B 4,100 226,156 United Technologies Corporation 7,500 402,000 Waste Management, Inc. ^ 9,300 308,202 ---------- 5,723,385 ---------- INFORMATION TECHNOLOGY - 13.84% Adobe Systems Incorporated * 4,200 89,418 Apple, Inc. * 8,500 725,475 Applied Materials, Inc. 17,800 180,314 Automatic Data Processing, Inc. 4,400 173,096 Cisco Systems, Inc. * 47,900 780,770 Corning Incorporated 16,500 157,245 Dell Inc. * 4,700 48,128 eBay Inc. * 2,500 34,900 EMC Corporation * 47,148 493,640 Google Inc. * 3,000 922,950 Hewlett-Packard Company 16,900 613,301 Intel Corporation 60,500 886,930 International Business Machines Corporation 10,600 892,096 Microsoft Corporation 65,200 1,267,488 Nortel Networks Corporation * 660 172 Oracle Corporation * 26,272 465,803 QUALCOMM Inc. 10,000 358,300 Texas Instruments Incorporated 6,400 99,328 Yahoo! Inc. * 4,000 48,800 ---------- 8,238,154 ---------- MATERIALS - 2.49% Alcoa Inc. 20,400 229,704 Dow Chemical Company (The) 5,400 81,486 E. I. du Pont de Nemours and Company 9,500 240,350 Freeport-McMoRan Copper & Gold, Inc. 5,000 122,200 International Paper Company 7,000 82,600 Monsanto Company 5,660 398,181 Praxair, Inc. 5,500 326,480 ---------- 1,481,001 ---------- REAL ESTATE INVESTMENT TRUST - 0.18% Simon Property Group, Inc. 2,000 106,260 ---------- TELECOMMUNICATION SERVICES - 3.48% AT&T Inc. 48,539 1,383,362 Verizon Communications Inc. 20,300 688,170 ---------- 2,071,532 ---------- UTILITIES - 4.15% American Electric Power Company, Inc. 8,000 266,240 Dominion Resources, Inc. 11,200 401,408 Duke Energy Corporation 15,800 237,158 Edison International 6,500 208,780 Exelon Corporation 3,000 166,830 FirstEnergy Corp. 5,000 242,900 FPL Group, Inc. 4,000 201,320 PG&E Corporation 5,000 193,550 Public Service Enterprise Group Incorporated 7,000 204,190 Southern Company (The) 9,400 347,800 ---------- 2,470,176 ---------- TOTAL EQUITY SECURITIES (cost - $65,972,643) 58,979,455 ---------- SHORT-TERM INVESTMENTS - 2.54% MONEY MARKET SECURITY - 0.82% JPMorgan U.S. Government Money Market Fund 488,865 488,865 ---------- Principal Amount (000's) ----------- REPURCHASE AGREEMENT - 1.72% J.P. Morgan Securities Inc. + ++ (Agreement dated 12/31/2008 to be repurchased at $1,022,750, 0.04%, 1/2/2009, collateralized by $1,057,368 in United States Treasury Notes) $ 1,023 1,022,748 ------------ TOTAL SHORT-TERM INVESTMENTS (cost - $1,511,613) 1,511,613 ------------ TOTAL INVESTMENTS - 101.65% (cost - $67,484,256) 60,491,068 ------------ LIABILITIES IN EXCESS OF OTHER ASSETS - (1.65)% (981,505) ------------ NET ASSETS - 100.00% $ 59,509,563 ============ ------------------------------ (a) Affiliated investment. The Fund holds 0.67% (based on net assets) of Adams Express Company. A director of the Fund also serves as a director to such company. During the fiscal year ended December 31, 2008 there were no purchases or sales of this security. * Non-income producing security. ^ Security or a portion thereof is out on loan. ADR American Depositary Receipt + Stated interest rate, before rebate earned by borrower of securities on loan. ++ Represents investment purchased with collateral received for securities on loan.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE SHAREHOLDERS AND BOARD OF DIRECTORS CORNERSTONE STRATEGIC VALUE FUND, INC. NEW YORK, NEW YORK We have audited the accompanying statement of assets and liabilities of Cornerstone Strategic Value Fund, Inc., including the schedule of investments as of December 31, 2008, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Cornerstone Strategic Value Fund, Inc. as of December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of investments in securities as of December 31, 2008 appearing in Item 6 of this Form N-CSR is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the Fund's management. Such information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. TAIT, WELLER & BAKER LLP PHILADELPHIA, PENNSYLVANIA FEBRUARY 24, 2009 ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The Registrant and Cornerstone Advisors, Inc. share the same Proxy Voting Policies and Procedures. The respective Proxy Voting Policies and Procedures of the Registrant and Adviser are attached as EXHIBIT99.VOTEREG ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. (a)(1) All information contained in this item and its subparts is as of the date of this filing, unless otherwise noted. Ralph W. Bradshaw and William A. Clark are employees of Cornerstone Advisors, Inc. (the Investment Manager) and portfolio managers of the Fund. Mr. Bradshaw has acted as the portfolio manager since 2001. Mr. Clark has acted as the portfolio manager since 2003. Ralph W. Bradshaw's occupation for the last five years is President of Cornerstone Advisors, Inc. and a Financial Consultant. William A. Clark's occupation for the last five years is Director and Stockholder of Cornerstone Advisors, Inc. and Vice President and former Director/Trustee of Cornerstone Total Return Fund, Inc. and Cornerstone Progressive Return Fund. (a)(2)(i) Ralph W. Bradshaw and William A. Clark (a)(2)(ii)(A) Registered Investment Companies - Ralph W. Bradshaw and William A. Clark each manage two other registered closed-end funds (Cornerstone Total Return Fund, Inc. and Cornerstone Progressive Return Fund). As of December 31, 2008, the total assets of Cornerstone Total Return Fund, Inc. was $22.5 million. As of December 31, 2008, the total assets of Cornerstone Progressive Return Fund, Inc. was $70.0 million. (a)(2)(ii)(B) Not applicable (a)(2)(ii)(C) Not applicable (a)(2)(iii) None. Ralph W. Bradshaw and William A. Clark manage no accounts where the Advisory Fee is based on the performance of the account. (a)(2)(iv) None. (a)(3) As of the most recent fiscal year end December 31, 2008, the compensation paid to both Ralph W. Bradshaw and William A. Clark was fixed. (a)(4) The dollar range of equity securities owned in the registrant beneficially by each portfolio manager is as follows: for Ralph W. Bradshaw it is in the range of $10,001-$50,000 and for William A. Clark it is in the range of $10,001-$50,000. (b) None. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY 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) Code of Ethics attached as EX-99.CODE ETH. (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. (99) Proxy Voting Policies of the Registrant and Adviser attached as EX-99.VOTEREG. 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. By: /S/ RALPH W. BRADSHAW ------------------------- Name: Ralph W. Bradshaw Title: Principal Executive Officer Date: March 6, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Cornerstone Strategic Value Fund, Inc. By: /S/ RALPH W. BRADSHAW ------------------------- Name: Ralph W. Bradshaw Title: Principal Executive Officer Date: March 6, 2009 By: /S/ GARY A. BENTZ ---------------------- Name: Gary A. Bentz Title: Principal Financial Officer Date: March 6, 2009