N-CSR 1 t306287.txt CLM OMB APPROVAL OMB Number: 3235-0570 Expires: January 31, 2014 Estimated average burden hours per response: 20.6 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) 350 Jericho Turnpike, Suite 206 Jericho, New York 11753 ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Frank J. Maresca Ultimus Fund Solutions, LLC 350 Jericho Turnpike, Suite 206 Jericho, New York 11753 -------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (513) 326-3597 Date of fiscal year end: December 31, 2010 Date of reporting period: December 31, 2010 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. 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 Tax Information 15 Additional Information Regarding the Fund's Directors and Corporate Officers 16 Description of Dividend Reinvestment Plan 19 Proxy Voting and Portfolio Holdings Information 21 Privacy Policy Notice 22 Summary of General Information 25 Shareholder Information 25 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. PORTFOLIO SUMMARY -- AS OF DECEMBER 31, 2010 (UNAUDITED) -------------------------------------------------------------------------------- SECTOR ALLOCATION Percent of Sector Net Assets -------------------------------------------------------------------------------- Closed-End Funds 17.2 -------------------------------------------------------------------------------- Information Technology 15.5 -------------------------------------------------------------------------------- Financials 11.7 -------------------------------------------------------------------------------- Energy 9.1 -------------------------------------------------------------------------------- Healthcare 8.6 -------------------------------------------------------------------------------- Consumer Discretionary 8.6 -------------------------------------------------------------------------------- Industrials 8.1 -------------------------------------------------------------------------------- Consumer Staples 8.0 -------------------------------------------------------------------------------- Materials 2.9 -------------------------------------------------------------------------------- Utilities 2.6 -------------------------------------------------------------------------------- Telecommunication Services 2.4 -------------------------------------------------------------------------------- Other 5.3 -------------------------------------------------------------------------------- TOP TEN HOLDINGS, BY ISSUER Percent of Holding Sector Net Assets -------------------------------------------------------------------------------- 1. Exxon Mobil Corporation Energy 3.4 -------------------------------------------------------------------------------- 2. Eaton Vance Risk-Managed Diversified Equity Income Fund Closed-End Funds 3.0 -------------------------------------------------------------------------------- 3. Apple, Inc. Information Technology 3.0 -------------------------------------------------------------------------------- 4. Eaton Vance Tax-Managed Diversified Equity Income Fund Closed-End Funds 2.6 -------------------------------------------------------------------------------- 5. Microsoft Corporation Information Technology 2.2 -------------------------------------------------------------------------------- 6. JPMorgan Chase & Company Financials 2.0 -------------------------------------------------------------------------------- 7. Alpine Total Dynamic Dividend Fund Closed-End Funds 2.0 -------------------------------------------------------------------------------- 8. International Business Machines Corporation Information Technology 1.9 -------------------------------------------------------------------------------- 9. Google, Inc. -- Class A Information Technology 1.9 -------------------------------------------------------------------------------- 10. AT&T, Inc. Telecommunication Services 1.7 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS -- AS OF DECEMBER 31, 2010 -------------------------------------------------------------------------------- No. of Description Shares Value -------------------------------------------------------------------------------- EQUITY SECURITIES - 94.70% CLOSED-END FUNDS - 17.22% CORE - 3.80% Adams Express Company (The)(a) 48,400 $ 518,848 General American Investors Company, Inc. 18,300 490,806 Liberty All-Star Equity Fund 160,130 789,441 Other Core(b) 644,100 ----------- 2,443,195 ----------- CORPORATE DEBT FUNDS INVESTMENT GRADE-RATED -- 1.63% AllianceBernstein Income Fund 87,230 691,734 Other Corporate Debt Funds Investment Grade-Rated(b) 355,076 ----------- 1,046,810 ----------- DEVELOPED MARKET - 0.06% Total Developed Market(b) 36,780 ----------- GLOBAL - 2.03% Alpine Total Dynamic Dividend Fund 213,412 1,263,399 Other Global(b) 39,100 ----------- 1,302,499 ----------- GLOBAL INCOME - 0.47% Total Global Income (b) 302,940 ----------- HIGH CURRENT YIELD (LEVERAGED) -- 0.13% Other High Current Yield (Leveraged)(b) 89,941 ----------- OPTION ARBITRAGE/OPTIONS STRATEGIES - 7.02% Eaton Vance Risk-Managed Diversified Equity Income Fund 146,464 1,945,042 Eaton Vance Tax-Managed Diversified Equity Income Fund 147,120 1,663,927 Eaton Vance Tax-Managed Global Diversified Equity Income Fund 58,000 610,740 Other Option Arbitrage/ Options Strategies(b) 289,955 ----------- 4,509,664 ----------- No. of Description Shares Value -------------------------------------------------------------------------------- REAL ESTATE - 0.55% Other Real Estate(b) $ 355,270 ----------- SECTOR EQUITY - 1.18% Petroleum & Resources Corporation(a) 7,600 205,276 Other Sector Equity(b) 548,974 ----------- 754,250 ----------- VALUE - 0.35% Other Value(b) 225,179 ----------- TOTAL CLOSED-END FUNDS 11,066,528 ----------- CONSUMER DISCRETIONARY - 8.62% Amazon.com, Inc. * 3,000 540,000 McDonald's Corporation 11,400 875,064 Target Corporation 8,800 529,144 Yum! Brands, Inc. 9,000 441,450 Other Consumer Discretionary(b) 3,156,037 ----------- 5,541,695 ----------- CONSUMER STAPLES - 8.01% Altria Group, Inc. 20,800 512,096 Coca-Cola Company (The) 13,500 887,895 Procter & Gamble Company (The) 16,297 1,048,386 Wal-Mart Stores, Inc. 10,100 544,693 Other Consumer Staples(b) 2,156,104 ----------- 5,149,174 ----------- ENERGY - 9.11% Chevron Corporation 10,732 979,295 ConocoPhillips 14,974 1,019,730 Exxon Mobil Corporation 29,936 2,188,920 Halliburton Company 9,700 396,051 Marathon Oil Corporation 11,500 425,845 Schlumberger Ltd. 6,000 501,000 Other Energy(b) 343,350 ----------- 5,854,191 ----------- FINANCIALS - 11.68% Goldman Sachs Group, Inc. (The) 5,000 840,800 JPMorgan Chase & Company 30,132 1,278,199 -------------------------------------------------------------------------------- See accompanying notes to financial statements. 2 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. SUMMARY SCHEDULE OF INVESTMENTS -- AS OF DECEMBER 31, 2010 (CONCLUDED) -------------------------------------------------------------------------------- No. of Description Shares Value -------------------------------------------------------------------------------- FINANCIALS (CONTINUED) PNC Financial Services Group, Inc. 7,600 $ 461,472 Travelers Companies, Inc. (The) 9,476 527,908 Wells Fargo & Company 21,400 663,186 Other Financials (b) 3,734,361 ----------- 7,505,926 ----------- HEALTH CARE - 8.63% Abbott Laboratories 9,200 440,772 Bristol-Myers Squibb Company 19,000 503,120 Johnson & Johnson 13,400 828,790 Merck & Company, Inc. 15,267 550,223 UnitedHealth Group, Inc. 11,000 397,210 Other Health Care(b) 2,827,739 ----------- 5,547,854 ----------- INDUSTRIALS - 8.08% Caterpillar, Inc. 5,300 496,398 Deere & Company 6,500 539,825 General Electric Company 46,900 857,801 United Technologies Corporation 5,000 393,600 Other Industrials (b) 2,905,823 ----------- 5,193,447 ----------- INFORMATION TECHNOLOGY - 15.47% Apple, Inc.* 5,900 1,903,104 Cisco Systems, Inc.* 29,400 594,762 Google, Inc. - Class A * 2,000 1,187,940 Hewlett-Packard Company 11,400 479,940 Intel Corporation 39,500 830,685 International Business Machines Corporation 8,100 1,188,756 Microsoft Corporation 51,200 1,429,504 Oracle Corporation 25,272 791,014 QUALCOMM, Inc. 10,000 494,900 Other Information Technology (b) 1,037,349 ----------- 9,937,954 ----------- No. of Description Shares Value -------------------------------------------------------------------------------- MATERIALS - 2.93% E.I. Du Pont de Nemours & Company 9,500 $ 473,860 Freeport-McMoRan Copper & Gold, Inc. 5,000 600,450 Praxair, Inc. 6,500 620,555 Other Materials (b) 184,356 ----------- 1,879,221 ----------- REAL ESTATE INVESTMENT TRUST - 0.00% Total Real Estate Investment Trust (b) 1,393 ----------- TELECOMMUNICATION SERVICES - 2.36% AT&T, Inc. 37,039 1,088,206 Verizon Communications, Inc. 12,000 429,360 ----------- 1,517,566 ----------- UTILITIES - 2.59% Other Utilities (b) 1,662,079 ----------- TOTAL EQUITY SECURITIES (cost - $51,914,107) 60,857,028 ----------- SHORT-TERM INVESTMENTS - 7.30% MONEY MARKET SECURITY - 7.30% JPMorgan U.S. Government Money Market Fund (cost - $ 4,690,985) 4,690,985 4,690,985 ----------- TOTAL INVESTMENTS - 102.00% (cost - $56,605,092) 65,548,013 ----------- LIABILITIES IN EXCESS OF OTHER ASSETS - (2.00)% (1,282,324) ----------- NET ASSETS - 100.00% $64,265,689 =========== -------------- (a) Affiliated investment. The Fund holds 0.81% and 0.32% (based on net assets) of Adams Express Company and Petroleum & Resources Corporation, respectively. A director of the Fund also serves as a director to such companies. During the year ended December 31, 2010 there were additional purchases of 22,000 shares of Adams Express and 7,600 shares of Petroleum & Resources Corporation with a cost of $218,433 and $168,587, respectively. There were no sales of either of these securities. (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 December 31, 2010. * Non-income producing security. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 3 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2010 -------------------------------------------------------------------------------- ASSETS Investments, at value: Unaffiliated issuers (cost - $55,895,782) $ 64,823,889 Affiliated issuers (cost - $709,310) 724,124 ------------ Total investments (cost - $56,605,092) 65,548,013 Receivables: Dividends 77,409 Prepaid expenses 3,168 ------------ Total Assets 65,628,590 ------------ LIABILITIES Payables: Securities purchased 1,224,773 Investment management fees 47,608 Directors' fees 26,000 Administration fees 5,008 Other accrued expenses 59,512 ------------ Total Liabilities 1,362,901 ------------ NET ASSETS (applicable to 8,511,413 shares of common stock outstanding) $ 64,265,689 ============ NET ASSET VALUE PER SHARE ($64,265,689 (divided by) 8,511,413) $ 7.55 ============ NET ASSETS CONSISTS OF Capital stock, $0.001 par value; 8,511,413 shares issued and outstanding (100,000,000 shares authorized) $ 8,511 Paid-in capital 59,531,436 Accumulated net realized loss on investments (4,217,179) Net unrealized appreciation in value of investments 8,942,921 ------------ Net assets applicable to shares outstanding $ 64,265,689 ============ -------------------------------------------------------------------------------- See accompanying notes to financial statements. 4 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2010 -------------------------------------------------------------------------------- INVESTMENT INCOME Income: Dividends from non-affiliated investments (including tax withheld of $94) $1,322,287 Dividends from affiliated investments 5,348 Securities lending 796 ---------- Total Investment Income 1,328,431 ---------- Expenses: Investment management fees 532,131 Directors' fees 106,804 Legal and audit fees 86,884 Administration fees 58,297 Printing 44,838 Accounting fees 41,736 Transfer agent fees 20,905 Custodian fees 12,963 Stock exchange listing fees 9,045 Insurance 6,527 Miscellaneous 3,209 ---------- Total Expenses 923,339 Less: Fees paid indirectly (4,097) ---------- Net Expenses 919,242 ---------- Net Investment Income 409,189 ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from unaffiliated investments 29,336 Capital gain distributions from regulated investment companies 6,811 Capital gain distributions from affiliated regulated investment companies 23,408 Net change in unrealized appreciation in value of investments 5,307,753 ---------- Net realized and unrealized gain on investments 5,367,308 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,776,497 ========== -------------------------------------------------------------------------------- See accompanying notes to financial statements. 5
-------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- For the Years Ended December 31, -------------------------------- 2010 2009 ------------ ------------ INCREASE/(DECREASE) IN NET ASSETS Operations: Net investment income $ 409,189 $ 430,985 Net realized gain from investments 59,555 36,794 Net change in unrealized appreciation/(depreciation) in value of investments 5,307,753 10,628,356 ------------ ------------ Net increase in net assets resulting from operations 5,776,497 11,096,135 ------------ ------------ Dividends and distributions to shareholders: Net investment income (468,744) (430,985) Return-of-capital (11,304,528) (14,022,576) ------------ ------------ Total dividends and distributions to shareholders (11,773,272) (14,453,561) ------------ ------------ Capital stock transactions: Proceeds from rights offerings of 1,433,827 and 0 shares of newly issued common stock, respectively 11,812,869 -- Offering expenses associated with the rights offering (90,887) -- Proceeds from 108,178 and 133,707 shares newly issued in reinvestment of dividends and distributions, respectively 1,093,718 1,294,627 ------------ ------------ Net increase in net assets from capital stock transactions 12,815,700 1,294,627 ------------ ------------ Total increase/(decrease) in net assets 6,818,925 (2,062,799) ------------ ------------ NET ASSETS Beginning of year 57,446,764 59,509,563 ------------ ------------ End of year $ 64,265,689 $ 57,446,764 ============ ============
-------------------------------------------------------------------------------- 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,* ------------------------------------------------- 2010 2009 2008 2007 2006 ------- ------ ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year $ 8.24 $ 8.71 $ 18.12 $ 21.28 $ 22.60 ------- ------ ------- ------- ------- Net investment income # 0.06 0.06 0.15 0.16 0.20 Net realized and unrealized gain/(loss) on investments 0.76 1.52 (5.55) 0.96 2.64 ------- ------ ------- ------- ------- (Net increase/(decrease) in net assets) resulting from operations 0.82 1.58 (5.40) 1.12 2.84 ------- ------ ------- ------- ------- Dividends and distributions to shareholders: Net investment income (0.07) (0.06) (0.15) (0.16) (0.16) Net realized capital gains -- -- -- (1.32) -- Return-of-capital (1.61) (2.03) (4.01) (3.00) (4.00) ------- ------ ------- ------- ------- Total dividends and distributions to shareholders (1.68) (2.09) (4.16) (4.48) (4.16) ------- ------ ------- ------- ------- Capital stock transactions: Anti-dilutive effect due to shares issued: Rights offering 0.13 -- -- -- -- Reinvestment of dividends and distributions 0.04 0.04 0.15 0.20 -- ------- ------ ------- ------- ------- Total anti-dilutive effect due to shares issued 0.17 0.04 0.15 0.20 -- Net asset value, end of year $ 7.55 $ 8.24 $ 8.71 $ 18.12 $ 21.28 ======= ====== ======= ======= ======= Market value, end of year $ 8.84 $11.61 $ 7.62 $ 20.20 $ 33.80 ======= ====== ======= ======= ======= Total investment return(a) (10.19)% 89.55% (49.92)% (29.04)% 45.36% ======= ====== ======= ======= ======= RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000 omitted) $64,266 $57,447 $59,510 $120,268 $136,344 (Ratio of expenses to average net assets, net of fee waivers, if any (b)(c) 1.73% 1.80% 1.40% 1.23% 1.22% (Ratio of expenses to average net assets, excluding fee waivers, if any (c)(d) 1.74% 2.01% 1.54% 1.35% 1.32% (Ratio of expenses to average net assets, net of fee waivers, if any (c)(d) 1.74% 1.95% 1.44% 1.25% 1.25% (Ratio of net investment income to average net assets 0.77% 0.79% 1.08% 0.86% 0.85% Portfolio turnover rate 25.28% 10.81% 13.24% 10.38% 10.59% -------------------------------------------------------------------------------- * Effective December 23, 2008, a reverse stock split of 1:4 occurred. All per share amounts have been restated according to the terms of the 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 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 do not include expenses of investments companies in which the Fund invests. (d) 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 conformity 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. SUBSEQUENT EVENTS: The Fund has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through the date its financial statements were issued. Based on this evaluation, no additional disclosures or adjustments were required to such financial statements. 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 Manager" 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, 2010, 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 Amex LLC is closed. The Fund is exposed to financial market risks, including the valuations of its investment portfolio. For the year ended December 31, 2010, the Fund did not engage in derivative instruments and other hedging activities. 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 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 -------------------------------------------------------------------------------- 8 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- 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. RISKS ASSOCIATED WITH INVESTMENTS IN OTHER CLOSED-END FUNDS: Closed-end investment companies are subject to the risks of investing in the underlying securities. The Fund, as a holder of the securities of the closed-end investment company, will bear its pro rata portion of the closed-end investment company's expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund's own operations. 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. The Accounting for Uncertainty in Income Taxes Topic of the FASB Accounting Standards Codification defines the threshold for recognizing the benefits of tax-return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is more than 50 percent likely to be realized. The Fund's policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statement of Operations. As of December 31, 2010, the Fund does not have any interest or penalties associated with the under-payment of any income taxes. Management reviewed any uncertain tax positions for open tax years 2007 through 2009; or expected to be taken in the Fund's 2010 tax return. There was no material impact to the financial statements or, other than as described below, the disclosures thereto as a result of the adoption of this pronouncement. The Fund and the Investment Manager have entered into a closing letter 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 closing letter avoids any potential material negative tax impact to the Fund. Pursuant to the closing letter, the Investment Manager paid any settlement amount owed to the Internal Revenue Service. 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 maintain the distribution, taxable to shareholders and to disclose that portion of the distribution that is -------------------------------------------------------------------------------- 9 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- 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. MANAGED DISTRIBUTION RISK: Under the managed distribution policy, the Fund makes monthly distributions to shareholders at a rate that may include periodic distributions of its net income and net capital gains, ("Net Earnings"), or from return-of-capital. If, for any fiscal year where total cash distributions exceeded Net Earnings (the "Excess"), the Excess would decrease the Fund's total assets and, as a result, would have the likely effect of increasing the Fund's expense ratio. There is a risk that the total Net Earnings from the Fund's portfolio would not be great enough to offset the amount of cash distributions paid to Fund shareholders. If this were to be the case, the Fund's assets would be depleted, and there is no guarantee that the Fund would be able to replace the assets. In addition, in order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such action. Furthermore, such assets used to make distributions will not be available for investment pursuant to the Fund's investment objective. NOTE C. FAIR VALUE As required by the Fair Value Measurement and Disclosures Topic of the FASB Accounting Standards Codification, the Fund has performed an analysis of all assets and liabilities measured at fair value to determine the significance and character of all inputs to their fair value determination. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories. o Level 1 - quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement. o Level 2 - quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few trans- actions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers. o Level 3 - model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Fund's own assumptions that market participants would use to price the asset or liability based on the best available information. -------------------------------------------------------------------------------- 10 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- The following is a summary of the inputs used as of December 31, 2010 in valuing the Fund's investments carried at value: INVESTMENTS IN OTHER FINANCIAL VALUATION INPUTS SECURITIES INSTRUMENTS* -------------------------------------------------------------------------------- Level 1 - Quoted Prices Equity Investments $60,857,028 -- Short-Term Investments 4,690,985 Level 2 - Other Significant Observable Inputs -- -- Level 3 - Significant Unobservable Inputs -- -- ----------- ----------- Total $65,548,013 -- =========== =========== --------- * Other financial instruments include futures, forwards and swap contracts. The breakdown of the Fund's investments into major categories is disclosed in its Summary Schedule of Investments. During the year ended December 31, 2010 the Fund did not have any significant transfers in and out of Level 1 or Level 2. 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, 2010. In January 2010, the FASB Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value Measurements". ASU 2010-06 amends FASB Accounting Standards Codification Topic, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact ASU No. 2010-06 and has determined that it will not have a significant impact on its financial statement disclosures. NOTE D. AGREEMENTS Certain officers of the Fund are also officers of Cornerstone or Ultimus Fund Solutions, LLC ("Ultimus"). Such officers are paid no fees by the Fund for serving as officers of the Fund. Included in the Statement of Operations, under the caption Fees paid indirectly, are expense offsets of $4,097 arising from credits earned on portfolio transactions executed with brokers, pursuant to directed brokerages arrangement. INVESTMENT MANAGEMENT AGREEMENT 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 ended December 31, 2010, Cornerstone earned $532,131 for investment management services. ADMINISTRATION AGREEMENT Under the terms of the Administration Agreement, Ultimus supplies executive, administrative and regulatory services for the Fund. Ultimus supervises the preparation of reports to stockholders for the Fund, reports to and filings with the Securities and Exchange Commission and materials for meetings of the Board of Directors. For these services, the Fund pays Ultimus a monthly fee at an annual rate of 0.100% of its average daily net assets up to $250 million and 0.075% of such assets in excess of $250 million, subject to an annual minimum fee of $50,000. FUND ACCOUNTING AGREEMENT Under the terms of the Fund Accounting Agreement, Ultimus calculates the net asset value per share and maintains the financial books and records of the Fund. For the performance of these services, the Fund pays Ultimus a base fee of $2,500 per month plus an asset based fee of 0.010% of the first $500 million of average daily net assets and 0.005% of such assets in excess of $500 million. -------------------------------------------------------------------------------- 11 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE E. AFFILIATED INVESTMENTS Transactions in affiliates for the year ended December 31, 2010 were as follows: ADAMS PETROLEUM & EXPRESS RESOURCES COMPANY CORPORATION ------------ ------------- Market value at beginning of year $ 266,460 $ -- =========== ============ Shares at beginning of year 26,400 -- Shares purchased during the year 22,000 7,600 Shares sold during the period -- -- ----------- ------------ Shares at end of year 48,400 7,600 =========== ============ Dividend income earned during the year $ 4,664 $ 684 =========== ============ Cost of purchases during the year $ 218,433 $ 168,587 Proceeds from sales during the year -- -- Net realized gain/(loss) during the year -- -- Capital gain distribution $ 16,720 $ 6,688 Market value at end of year $ 518,848 $ 205,276 NOTE F. INVESTMENT IN SECURITIES For the year ended December 31, 2010, purchases and sales of securities, other than short-term investments, were $13,369,749 and $14,862,547 respectively. NOTE G. SHARES OF COMMON STOCK The Fund has 100,000,000 shares of common stock authorized and 8,511,413 shares outstanding at December 31, 2010. Transactions in common stock for the year ended December 31, 2010 were as follows: Shares at beginning of year 6,969,408 Shares newly issued from rights offering 1,433,827 Shares newly issued in reinvestment of dividends and distributions 108,178 --------- Shares at end of year 8,511,413 ========= 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, 2010. 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 Fund had no securities on loan to brokers at December 31, 2010. During the year ended December 31, 2010, the Fund earned $796 in securities lending income which is included under the caption Securities lending in the Statement of Operations. -------------------------------------------------------------------------------- 12 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) -------------------------------------------------------------------------------- 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. The tax character of dividends and distributions paid to stockholders during the years ended December 31, for the Fund were as follows: Ordinary Income Return-of-Capital ------------------------- ---------------------------- 2010 2009 2010 2009 ------- ------ ------ ------ $468,744 $430,985 $11,304,528 $14,022,576 At December 31, 2010 the components of accumulated income on a tax basis, for the Fund were as follows: Capital loss carryforward $ (4,217,018) Net unrealized appreciation 8,924,760 ------------ Total distributable income $ 4,725,742 ============= 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, 2010, the Fund decreased net realized loss by $190,655 and decreased net investment loss by 59,555, and decreased paid in capital by $250,210. 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"). The Fund incurred no such loss. At December 31, 2010, the Fund had a capital loss carryforward for U.S. federal income tax purposes of $4,217,018 of which $484,687 expires in 2011, $3,297,622 expires in 2016, and $434,709 expires in 2017. At December 31, 2010, 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 $56,605,253, $10,668,494, $(1,725,734) and $8,942,760, respectively. NOTE K. SUBSEQUENT EVENTS On February 11, 2011, the Board of Directors approved U.S. Bank, N.A. to replace JPMorgan Chase Bank, N.A. as Custodian. -------------------------------------------------------------------------------- 13 -------------------------------------------------------------------------------- CORNERSTONE STRATEGIC VALUE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors Cornerstone Strategic Value Fund, Inc. Jericho, New York We have audited the accompanying statement of assets and liabilities of Cornerstone Strategic Value Fund, Inc., including the summary schedule of investments as of December 31, 2010, 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, 2010, by correspondence with the custodian and brokers. 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, 2010, 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 28, 2011 -------------------------------------------------------------------------------- 14 2010 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, 2010) as to the federal tax status of the dividends and distributions received by the Fund's shareholders in respect of such fiscal year. The $11,773,272 in dividends and distributions paid to shareholders in respect of such year, is represented by $468,744 of ordinary income, and $11,304,528 of return-of-capital. As indicated in this notice, significant portions of the Fund's distributions for 2010 were comprised of a return-of-capital; accordingly these distributions do not represent yield or investment return on the Fund's portfolio.
SOURCES OF DIVIDENDS AND DISTRIBUTIONS (Per Share Amounts) Payment Dates: 1/29/10 2/26/10 3/31/10 4/30/10 5/28/10 6/30/10 ------- ------- ------- ------- ------- ------- Ordinary Income(1) $0.0049 $0.0049 $0.0049 $0.0049 $0.0049 $0.0049 Return-of-Capital(2) 0.1349 0.1349 0.1349 0.1349 0.1349 0.1349 ------- ------- ------- ------- ------- ------- Total: $0.1398 $0.1398 $0.1398 $0.1398 $0.1398 $0.1398 ======= ======= ======= ======= ======= ======= Payment Dates: 7/30/10 8/31/10 9/30/10 10/29/10 11/30/10 12/31/10 ------- ------- ------- ------- ------- ------- Ordinary Income(1) $0.0049 $0.0049 $0.0049 $0.0049 $0.0049 $0.0049 Return-of-Capital(2) 0.1349 0.1349 0.1349 0.1349 0.1349 0.1349 ------- ------- ------- ------- ------- ------- Total: $0.1398 $0.1398 $0.1398 $0.1398 $0.1398 $0.1398 ======= ======= ======= ======= ======= =======
-------------------------------------------------------------------------------- (1) Ordinary Income Dividend - This is the total per share amount of ordinary income dividends and short-tern capital gain distributions (if appli- cable) 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. 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. They will generally not be entitled to foreign tax credit or deduction for the withholding taxes paid by the Fund. Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. -------------------------------------------------------------------------------- 15
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 ----------------------------------------------------------------------------------------------------- Chairman of President, Cornerstone Advisors, Inc.; 1998 3 Ralph W. the Board of Financial Consultant; President and Bradshaw** Directors and Director of Cornerstone Total Return (Dec. 1950) President Fund, Inc.; President and Trustee of Cornerstone Progressive Return Fund. Thomas H. Director; Audit, Director of Cornerstone Total Return 1987 3 Lenagh Nominating Fund, Inc.; Trustee of Cornerstone (Nov. 1924) and Corporate Progressive Return Fund; Director of Governance Adams Express Company, Petroleum Committee & Resources Corporation and PPGI Member Industries. Edwin Meese III Director; Audit, Independent Financial Advisor; 2001 3 (Dec. 1931) Nominating Director of Photonics Products and Corporate Group; Distinguished Fellow, The Governance Heritage Foundation Washington D.C.; Committee Distinguished Visiting Fellow at the Member Hoover Institution, Stanford University; Senior Adviser, Revelation L.P.; Director 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 Inc.; Chief Executive Officer, Asheville and 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. -------------------------------------------------------------------------------- 16 ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND CORPORATE OFFICERS (UNAUDITED) (CONTINUED) 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; Director of Cornerstone (Nov. 1953) Nominating Total Return Fund, Inc.; Trustee of and Corporate Cornerstone Progressive Return Fund. Governance Committee and Audit Committee Member Glenn W. Director; Chairman of the Board, Tower 2000 3 Wilcox, Sr. Chairman of Associates, Inc.; Chairman of the (Dec. 1931) Audit Committee, Board and Chief Executive Officer of Nominating Wilcox Travel Agency, Inc.; Director of and Corporate Cornerstone Total Return Fund, Inc.; Governance Trustee of Cornerstone Progressive Committee Return Fund. Member -------------------------------------------------------------------------------- 17 ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND CORPORATE OFFICERS (UNAUDITED) (CONCLUDED) NAME AND POSITION ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND (BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE ----------------------------------------------------------------------------------------------------- Gary A. Bentz Chief Compliance Chairman and Chief Financial Officer 2004, 2008, (June 1956) Officer, Secretary, of Cornerstone Advisors, Inc.; Financial 2009 and Assistant Consultant, C.P.A., Chief Compliance Treasurer Officer, Secretary, and Assistant Treasurer of Cornerstone Total Return Fund, Inc. and Cornerstone Progressive Return Fund. Frank J. Maresca Treasurer Executive Vice President of Ultimus Fund 2009 (Oct. 1958) Solutions, LLC (since March 2009); previous Executive Director, JP Morgan Chase & Co. (since June 2008); previous President of Bear Stearns Funds Management, Inc.; previous Senior Managing Director of Bear Stearns & Co., Inc.; Treasurer of Cornerstone Total Retrun Fund, Inc. and Cornerstone Progressive Return Fund (since May 2009).
-------------------------------------------------------------------------------- * The mailing address of each Director and/or Officer with respect to the Fund's operation is 350 Jericho Turnpike, Suite 206, Jericho, NY 11753. ** 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. -------------------------------------------------------------------------------- 18 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 Amex 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 -------------------------------------------------------------------------------- 19 DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED) 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. 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. -------------------------------------------------------------------------------- 20 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 is 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. -------------------------------------------------------------------------------- 21
PRIVACY POLICY (UNAUDITED) FACTS WHAT DOES CORNERSTONE STRATEGIC VALUE FUND, INC. (THE "FUND") DO WITH YOUR PERSONAL INFORMATION? -------------------------------------------------------------------------------- Why? Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. -------------------------------------------------------------------------------- What? The types of personal information we, and our service providers, on our behalf, collect and share depend on the product or service you have with us. This information can include: -------------------------------------------------------------------------------- o Social Security number o account balances o account transactions o transaction history o wire transfer instructions o checking account information When you are no longer our customer, we continue to share your information as described in this notice. How? All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers ' personal information; the reasons the Fund, and our service providers, on our behalf, choose to share; and whether you can limit this sharing. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 22 PRIVACY POLICY (UNAUDITED) (CONTINUED) Reasons we can share your Does the Cornerstone personal information Fund share? Can you limit this sharing? ----------------------------------------------------------------------------------- FOR OUR EVERYDAY BUSINESS PURPOSES Yes No - such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus ----------------------------------------------------------------------------------- FOR OUR MARKETING PURPOSES - to No We don't share offer our products and services to you ----------------------------------------------------------------------------------- FOR JOINT MARKETING WITH OTHER No We don't share FINANCIAL COMPANIES ----------------------------------------------------------------------------------- FOR OUR AFFILIATES' EVERYDAY BUSINESS Yes No PURPOSES - information about your transactions and experiences ----------------------------------------------------------------------------------- FOR OUR AFFILIATES' EVERYDAY BUSINESS No We don't share PURPOSES - information about your creditworthiness ----------------------------------------------------------------------------------- FOR OUR AFFILIATES TO MARKET TO YOU No We don't share ----------------------------------------------------------------------------------- FOR NONAFFILIATES TO MARKET TO YOU No We don't share ----------------------------------------------------------------------------------- QUESTIONS? Call (513) 326-3597. ----------------------------------------------------------------------------------- WHAT WE DO ----------------------------------------------------------------------------------- WHO IS PROVIDING THIS NOTICE? Cornerstone Strategic Value Fund, Inc. (the "Fund") ----------------------------------------------------------------------------------------------- HOW DOES THE FUND AND THE FUND'S To protect your personal information from unauthorized SERVICE PROVIDERS, ON THE FUND'S access and use, we and our service providers use security BEHALF PROTECT MY PERSONAL measures that comply with federal law. These measures INFORMATION? include computer safeguards and secured files and buildings. ----------------------------------------------------------------------------------------------- HOW DOES THE FUND AND THE FUND'S We collect your personal information, for example, when SERVICE PROVIDERS, ON THE FUND'S you: BEHALF COLLECT MY PERSONAL INFORMATION? o open an account o provide account information o give us your contact information o make a wire transfer We also collect your information from others, such as credit bureaus, affiliates, or other companies. ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- 23 PRIVACY POLICY (UNAUDITED) (CONCLUDED) WHY CAN'T I LIMIT ALL SHARING? Federal law gives you the right to limit only o sharing for affiliates' everyday business purposes - information about your creditworthiness o affiliates from using your information to market to you o sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. -------------------------------------------------------------------------------- DEFINITIONS -------------------------------------------------------------------------------- Affiliates Companies related by common ownership or control. They can be financial and nonfinancial companies. o CORNERSTONE ADVISORS, INC. -------------------------------------------------------------------------------- NONAFFILIATES Companies not related by common ownership or control. They can be financial and nonfinancial companies. o THE FUND DOES NOT SHARE WITH NONAFFILIATES, SO THEY CAN MARKET TO YOU. -------------------------------------------------------------------------------- JOINT MARKETING A formal agreement between nonaffiliated financial companies that together market financial products or services to you. o THE FUND DOES NOT JOINTLY MARKET. --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 24 SUMMARY OF GENERAL INFORMATION (UNAUDITED) Cornerstone Strategic Value Fund, Inc. is a closed-end, diversified investment company whose shares trade on the NYSE Amex 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 NYSE Amex LLC (symbol "CLM"). The previous week's net asset value per share, market price, and related premium or discount are available on The Wall Street Journal website at http://online.wsj.com/mdc/public/page/2_3040-CEF34.html under the designation "Cornerstone Strat Value (CLM)" and on the Barron's website at http://online.barrons.com/mdc/public/page/2_3040-CEF34.html under the same designation. 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. -------------------------------------------------------------------------------- 25 CORNERSTONE STRATEGIC VALUE FUND, INC. ITEM 2. CODE OF ETHICS. 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 financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. Pursuant to Item 12(a)(1), a copy of registrant's code of ethics is filed as an exhibit to this Form N-CSR. During the period covered by this report, the code of ethics has not been amended, and the registrant has not granted any waivers, including implicit waivers, from the provisions of the code of ethics. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board of directors has determined that the registrant does not have an audit committee financial expert serving on its audit committee. The audit committee determined that, although none of its members meet the technical definition of an audit committee financial expert, the experience provided by each member of the audit committee together offer the registrant adequate oversight for the registrant's current level of financial complexity. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees. The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $18,500 and $18,100 with respect to the registrant's fiscal years ended December 31, 2010 and 2009, respectively. (b) Audit-Related Fees. No fees were billed in either of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. (c) Tax Fees. The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $3,900 and $3,600 with respect to the registrant's fiscal years ended December 31, 2010 and 2009, respectively. The services comprising these fees are the preparation of the registrant's federal and state income and federal excise tax returns. (d) All Other Fees. No fees were billed in either of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. (e)(1) Before the principal accountant is engaged by the registrant to render (i) audit, audit-related or permissible non-audit services to the registrant or (ii) non-audit services to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to 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 minimus thresholds are not exceeded, as such thresholds are determined by the audit committee in accordance with applicable Commission regulations. (e)(2) None of the services described in paragraph (b) through (d) of this Item were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Less than 50% of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. (g) During the fiscal years ended December 31, 2010 and 2009, aggregate non-audit fees of $3,900 and $3,600, respectively, were billed by the registrant's principal accountant for services rendered to the registrant. No non-audit fees were billed in either of the last two fiscal years by the registrant's principal accountant for services rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant. (h) The principal accountant has not provided any non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. 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. Glenn W. Wilcox, Sr., (Chairman), Edwin Meese, III, Thomas H. Lenagh, Andrew A. Strauss and Scott B. Rogers are the members of the registrant's audit committee. (b) Not applicable ITEM 6. SCHEDULE OF INVESTMENTS. (a)
CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 DESCRIPTION NO. OF SHARES VALUE ----------------------------------------------------------------------------------------------- EQUITY SECURITIES - 94.70% CLOSED-END FUNDS - 17.22% CORE - 3.80% Adams Express Company (The) a) 48,400 $518,848 Gabelli Equity Trust, Inc. 16,323 92,552 General American Investors Company, Inc. 18,300 490,806 Liberty All-Star Equity Fund 160,130 789,441 Royce Micro-Cap Trust, Inc. 4,000 39,200 Royce Value Trust, Inc. 5,000 72,700 SunAmerica Focused Alpha Large-Cap Fund, Inc. 8,000 125,920 Tri-Continental Corporation 22,800 313,728 ----------- 2,443,195 ----------- CORPORATE DEBT FUNDS INVESTMENT GRADE-RATED - 1.63% AllianceBernstein Income Fund 87,230 691,734 Federated Enhanced Treasury Income Fund 17,966 300,032 Invesco Van Kampen Bond Fund 2,953 55,044 ----------- 1,046,810 ----------- DEVELOPED MARKET - 0.06% Japan Equity Fund 6,000 36,780 ----------- GLOBAL - 2.03% Alpine Total Dynamic Dividend Fund 213,412 1,263,399 Clough Global Allocation Fund 2,500 39,100 ----------- 1,302,499 ----------- GLOBAL INCOME - 0.47% Nuveen Multi-Currency Short-Term Government Income Fund 22,000 302,940 ----------- HIGH CURRENT YIELD (LEVERAGED) - 0.13% First Trust Strategic High Income Fund II 8,900 41,652 First Trust Strategic High Income Fund III 11,101 48,289 ----------- 89,941 ----------- OPTION ARBITRAGE/OPTIONS STRATEGIES - 7.02% Dow 30 Enhanced Premium & Income Fund, Inc. 27,934 289,955 Eaton Vance Risk-Managed Diversified Equity Income Fund 146,464 1,945,042 Eaton Vance Tax-Managed Diversified Equity Income Fund 147,120 1,663,927 See accompanying notes to schedule of investments. CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (CONTINUED) CLOSED-END FUNDS (CONTINUED) Eaton Vance Tax-Managed Global Diversified Equity Income Fund 58,000 $610,740 ----------- 4,509,664 ----------- REAL ESTATE - 0.55% Alpine Global Premier Properties Fund 38,000 269,420 LMP Real Estate Income Fund, Inc. 8,500 85,850 ----------- 355,270 ----------- SECTOR EQUITY - 1.18% Cohen & Steers Infrastructure Fund, Inc. 14,500 238,090 Evergreen Utilities and High Income Fund 18,180 210,888 Gabelli Healthcare & Wellness Rx Trust (The) 4,361 30,876 Macquarie Global Infrastructure Total Return Fund, Inc. 4,000 69,120 Petroleum & Resources Corporation (a) 7,600 205,276 ----------- 754,250 ----------- VALUE - 0.35% Claymore Dividend & Income Fund 11,960 179,759 Royce Focus Trust, Inc. 6,000 45,420 ----------- 225,179 ----------- TOTAL CLOSED-END FUNDS 11,066,528 ----------- CONSUMER DISCRETIONARY - 8.62% Amazon.com, Inc. ** Non-income producing security. 3,000 540,000 Best Buy Company, Inc. 6,500 222,885 Comcast Corporation - Class A 14,555 319,773 DIRECTV Group, Inc. (The) - Class A * 4,000 159,720 Family Dollar Stores, Inc. 2,000 99,420 Ford Motor Company * 12,000 201,480 Gap, Inc. (The) 9,200 203,688 Home Depot, Inc. (The) 2,000 70,120 McDonald's Corporation 11,400 875,064 News Corporation - Class A 10,000 145,600 NIKE, Inc. - Class B 4,100 350,222 Starbucks Corporation 2,800 89,964 Target Corporation 8,800 529,144 Time Warner Cable, Inc. 1,966 129,815 Time Warner, Inc. 7,900 254,143 TJX Companies, Inc. (The) 7,000 310,730 Viacom, Inc. - Class B 5,450 215,875 Walt Disney Company (The) 10,200 382,602 See accompanying notes to schedule of investments. CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (CONTINUED) CONSUMER DISCRETIONARY (CONTINUED) Yum! Brands, Inc. 9,000 $441,450 ----------- 5,541,695 ----------- CONSUMER STAPLES - 8.01% Altria Group, Inc. 20,800 512,096 Coca-Cola Company (The) 13,500 887,895 Colgate-Palmolive Company 3,400 273,258 Costco Wholesale Corporation 2,500 180,525 CVS Caremark Corporation 8,430 293,111 General Mills, Inc. 5,000 177,950 H.J. Heinz Company 4,000 197,840 Kraft Foods, Inc. - Class A 6,932 218,427 PepsiCo, Inc. 5,600 365,848 Philip Morris International, Inc. 2,500 146,325 Procter & Gamble Company (The) 16,297 1,048,386 Sysco Corporation 10,300 302,820 Wal-Mart Stores, Inc. 10,100 544,693 ----------- 5,149,174 ----------- ENERGY - 9.11% Chevron Corporation 10,732 979,295 ConocoPhillips 14,974 1,019,730 Exxon Mobil Corporation 29,936 2,188,920 Halliburton Company 9,700 396,051 Marathon Oil Corporation 11,500 425,845 Occidental Petroleum Corporation 3,500 343,350 Schlumberger Ltd. 6,000 501,000 ----------- 5,854,191 ----------- FINANCIALS - 11.68% AFLAC, Inc. 5,500 310,365 Allstate Corporation (The) 6,800 216,784 American Express Company 6,400 274,688 Bank of New York Mellon Corporation (The) 7,754 234,171 BB&T Corporation 3,500 92,015 Capital One Financial Corporation 2,500 106,400 Chubb Corporation (The) 3,500 208,740 Citigroup, Inc. * 60,000 283,800 Franklin Resources, Inc. 1,500 166,815 Goldman Sachs Group, Inc. (The) 5,000 840,800 Hudson City Bancorp, Inc. 15,500 197,470 JPMorgan Chase & Company 30,132 1,278,199 Loews Corporation 2,000 77,820 Marsh & McLennan Companies, Inc. 10,000 273,400 MetLife, Inc. 5,700 253,308 Morgan Stanley 7,500 204,075 See accompanying notes to schedule of investments. CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (CONTINUED) FINANCIALS (CONTINUED) PNC Financial Services Group, Inc. 7,600 $461,472 Prudential Financial, Inc. 4,000 234,840 State Street Corporation 3,000 139,020 T. Rowe Price Group, Inc. 3,000 193,620 Travelers Companies, Inc. (The) 9,476 527,908 U.S. Bancorp 9,901 267,030 Wells Fargo & Company 21,400 663,186 ----------- 7,505,926 ----------- HEALTH CARE - 8.63% Abbott Laboratories 9,200 440,772 Aetna, Inc. 5,000 152,550 Allergan, Inc. 2,500 171,675 Amgen, Inc. * 6,700 367,830 Becton, Dickinson and Company 3,900 329,628 Biogen Idec, Inc. * 4,000 268,200 Bristol-Myers Squibb Company 19,000 503,120 Cardinal Health, Inc. 7,950 304,564 Covidien PLC 2,599 118,670 Eli Lilly & Company 4,700 164,688 Express Scripts, Inc. * 3,000 162,150 Gilead Sciences, Inc. * 6,000 217,440 Johnson & Johnson 13,400 828,790 McKesson Corporation 1,800 126,684 Medtronic, Inc. 6,000 222,540 Merck & Company, Inc. 15,267 550,223 Stryker Corporation 2,000 107,400 UnitedHealth Group, Inc. 11,000 397,210 WellPoint, Inc. * 2,000 113,720 ----------- 5,547,854 ----------- INDUSTRIALS - 8.08% 3M Company 4,400 379,720 Boeing Company (The) 2,200 143,572 Caterpillar, Inc. 5,300 496,398 CSX Corporation 3,500 226,135 Deere & Company 6,500 539,825 Emerson Electric Company 6,000 343,020 General Dynamics Corporation 3,200 227,072 General Electric Company 46,900 857,801 Illinois Tool Works, Inc. 2,500 133,500 Lockheed Martin Corporation 3,000 209,730 Northrop Grumman Corporation 2,500 161,950 Raytheon Company 3,500 162,190 Union Pacific Corporation 4,000 370,640 See accompanying notes to schedule of investments. CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (CONTINUED) INDUSTRIALS (CONTINUED) United Parcel Service, Inc. - Class B 4,100 $297,578 United Technologies Corporation 5,000 393,600 Waste Management, Inc. 6,800 250,716 ----------- 5,193,447 ----------- INFORMATION TECHNOLOGY - 15.47% Apple, Inc. * 5,900 1,903,104 Cisco Systems, Inc. * 29,400 594,762 Cognizant Technology Solutions Corporation - Class A * 2,500 183,225 Corning, Inc. 12,000 231,840 eBay, Inc. * 2,500 69,575 EMC Corporation * 12,148 278,189 Google, Inc. - Class A * 2,000 1,187,940 Hewlett-Packard Company 11,400 479,940 Intel Corporation 39,500 830,685 International Business Machines Corporation 8,100 1,188,756 Microsoft Corporation 51,200 1,429,504 Oracle Corporation 25,272 791,014 QUALCOMM, Inc. 10,000 494,900 Texas Instruments, Inc. 6,400 208,000 Yahoo!, Inc. * 4,000 66,520 ----------- 9,937,954 ----------- MATERIALS - 2.93% Dow Chemical Company (The) 5,400 184,356 E.I. Du Pont de Nemours & Company 9,500 473,860 Freeport-McMoRan Copper & Gold, Inc. 5,000 600,450 Praxair, Inc. 6,500 620,555 ----------- 1,879,221 ----------- REAL ESTATE INVESTMENT TRUST - 0.00% Simon Property Group, Inc. 14 1,393 ----------- TELECOMMUNICATION SERVICES - 2.36% AT&T, Inc. 37,039 1,088,206 Verizon Communications, Inc. 12,000 429,360 ----------- 1,517,566 ----------- UTILITIES - 2.59% Dominion Resources, Inc. 7,700 328,944 Duke Energy Corporation 15,800 281,398 Exelon Corporation 3,000 124,920 FirstEnergy Corporation 3,000 111,060 Nextera Energy, Inc. 4,000 207,960 PG&E Corporation 3,000 143,520 See accompanying notes to schedule of investments. CORNERSTONE STRATEGIC VALUE FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2010 (CONTINUED) UTILITIES (CONTINUED) Public Service Enterprises Group, Inc. 4,500 $143,145 Southern Company (The) 8,400 321,132 ----------- 1,662,079 ----------- TOTAL EQUITY SECURITIES (cost - $51,914,107) 60,857,028 ----------- SHORT-TERM INVESTMENTS - 7.30% MONEY MARKET SECURITY - 7.30% JPMorgan U.S. Government Money Market Fund (cost - $4,690,985) 4,690,985 $ 4,690,985 ----------- TOTAL INVESTMENTS - 102.00% (cost - $56,605,092) 65,548,013 ----------- LIABILITIES IN EXCESS OF OTHER ASSETS - (2.00)% (1,282,324) ----------- NET ASSETS - 100.00% $64,265,689 =========== See accompanying notes to schedule of investments.
(a) Affiliated investment. The Fund holds 0.81% and 0.32% (based on net assets) of Adams Express Company and Petroleum & Resources Corporation, respectively. A director of the Fund also serves as a director to such companies. During the year ended December 31, 2010 there were additional purchases of 22,000 shares of Adams Express and 7,600 shares of Petroleum & Resources Corporation with a cost of $218,433 and $168,587, respectively. There were no sales of either of these securities. (b) Not applicable 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 the Cornerstone Strategic Value Fund, Inc. (the "Fund"), including the summary schedule of investments as of December 31, 2010, 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, 2010, 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 the Cornerstone Strategic Value Fund, Inc. as of December 31, 2010, 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, 2010 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 28, 2011 ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The registrant and Cornerstone Advisors, Inc., the registrant's investment adviser, share the same proxy voting policies and procedures. The proxy voting policies and procedures of the registrant and Cornerstone Advisors, Inc. are attached as Exhibit 99.VOTEREG. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. (a)(1) All information included in this Item is as of the date of the filing of this Form N-CSR, unless otherwise noted. Ralph W. Bradshaw and is the portfolio manager of the registrant. Mr. Bradshaw has acted as portfolio manager since 2001. Mr. Bradshaw is President and Chief Financial Officer of Cornerstone Advisors, Inc. and serves as President and Chairman of the Board of the registrant, Cornerstone Progressive Return Fund and Cornerstone Total Return Fund, Inc. (a)(2) Ralph W. Bradshaw manages two other closed-end registered investment companies: Cornerstone Progressive Return Fund and Cornerstone Total Return Fund, Inc. As of December 31, 2010, net assets of Cornerstone Progressive Return Fund were $55,276,998 and net assets of Cornerstone Total Return Fund, Inc. were $25,913,220. Mr. Bradshaw manages no accounts except for the registrant, Cornerstone Progressive Return Fund and Cornerstone Total Return Fund, Inc. Mr. Bradshaw manages no accounts where the advisory fee is based on the performance of the account. No material conflicts of interest exist in connection with the portfolio manager's management of the registrant's investments, on the one hand, and the investment of the other accounts included in response to this Item, on the other. (a)(3) Compensation of Ralph W. Bradshaw includes a fixed salary paid by Cornerstone Advisors, Inc. plus his share of the profits of Cornerstone Advisors, Inc. The profitability of Cornerstone Advisors, Inc. is primarily dependent upon the value of the assets of the registrant and other managed accounts. However, compensation is not directly based upon the registrant's performance or on the value of the registrant's assets. (a)(4) The dollar range of equity securities in the registrant beneficially owned by the portfolio manager as of December 31, 2010 is as follows: Ralph W. Bradshaw: $50,001 - $100,000 (b) Not applicable ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. None ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors that have been implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing date of this report, the registrant's principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are reasonably designed and are operating effectively to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this report is being prepared, and that the information required in filings on Form N-CSR is recorded, processed, summarized, and reported on a timely basis. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Attached hereto (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)): Attached hereto (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons: Not applicable (b) Certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)): Attached hereto Exhibit 99.CODE ETH Code of Ethics Exhibit 99.VOTEREG Proxy Voting Policies and Procedures Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act 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. (Registrant) Cornerstone Strategic Value Fund, Inc. ---------------------------------------------------------------- By (Signature and Title)* /s/ Ralph W. Bradshaw ----------------------------------------------------- Ralph W. Bradshaw, Chairman and President (Principal Executive Officer) Date March 8, 2011 ------------------------------------------------- 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 (Signature and Title)* /s/ Ralph W. Bradshaw ------------------------ Ralph W. Bradshaw, Chairman and President (Principal Executive Officer) Date March 8, 2011 By (Signature and Title)* /s/ Frank J. Maresca --------------------- Frank J. Maresca, Treasurer (Principal Financial Officer) Date March 8, 2011 ---------------------------------- * Print the name and title of each signing officer under his or her signature.