Cornerstone
Strategic Value Fund, Inc.
78,089,258 Rights for 26,029,753 Shares of Common Stock
Cornerstone Strategic Value Fund, Inc. (the
“Fund”) is issuing non-transferable rights (“Rights”) to its holders of record of shares (“Shares”)
of common stock (“Common Stock”) (such holders hereinafter referred to as “Stockholders”, and the shares
of Common Stock, the “Shares”) which Rights will allow Stockholders to subscribe for new Shares (the “Offering”).
For every three (3) Rights a Stockholder receives, such Stockholder will be entitled to buy one (1) new Share. Each Stockholder
will receive one Right for each outstanding Share it owns on April 16, 2021 (the “Record Date”). Fractional Shares
will not be issued upon the exercise of the Rights. Accordingly, the number of Rights to be issued to a Stockholder on the Record
Date will be rounded up to the nearest whole number of Rights evenly divisible by three. Stockholders on the Record Date may purchase
Shares not acquired by other Stockholders in this Rights offering, subject to certain limitations discussed in this Prospectus.
Additionally, if there are not enough unsubscribed Shares to honor all additional subscription requests, the Fund may, in its sole
discretion, issue additional Shares up to 100% of the Shares available in the Offering to honor additional subscription requests.
See “The Offering” below.
The Rights are non-transferable, and may not
be purchased or sold. Rights will expire without residual value at the Expiration Date (defined below). The Rights will not be
listed for trading on the NYSE American LLC (“NYSE American”), and there will not be any market for trading Rights.
The Shares to be issued pursuant to the Offering will be listed for trading on the NYSE American, subject to the NYSE American
being officially notified of the issuance of those Shares. On April 9, 2021, the last reported net asset value (“NAV”)
per Share was $10.02 and the last reported sales price per Share on the NYSE American was $13.60, which represents a 35.73% premium
to the Fund’s NAV per Share. The subscription price per Share (the “Subscription Price”) will be the greater
of (i) 107% of NAV per Share as calculated at the close of trading on the date of expiration of the Offering and (ii) 80% of the
market price per Share at such time. The considerable number of shares that may be issued as a result of the Offering may cause
the premium above NAV at which the Fund’s shares are currently trading to decline, especially if stockholders exercising
the Rights attempt to sell sizeable numbers of shares immediately after such issuance.
STOCKHOLDERS WHO CHOOSE TO EXERCISE THEIR
RIGHTS WILL NOT KNOW THE SUBSCRIPTION PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH RIGHTS BECAUSE THE OFFERING WILL EXPIRE (I.E.,
CLOSE) PRIOR TO THE AVAILABILITY OF THE FUND’S NAV AND OTHER RELEVANT MARKET INFORMATION ON THE EXPIRATION DATE. ONCE A STOCKHOLDER
SUBSCRIBES FOR SHARES AND THE FUND RECEIVES PAYMENT, SUCH STOCKHOLDER WILL NOT BE ABLE TO WITHDRAW HIS, HER OR ITS SUBSCRIPTION
OR CHANGE HIS, HER OR ITS DECISION. THE OFFERING WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 14, 2021 (THE “EXPIRATION
DATE”), UNLESS EXTENDED, AS DISCUSSED IN THIS PROSPECTUS.
The offering may substantially dilute the voting
power of Stockholders who do not fully exercise their Rights since they will own a smaller proportionate interest in the Fund upon
completion of the offering.
The Fund is a diversified, closed-end management
investment company. The Fund’s investment objective is to seek long-term capital appreciation through investing primarily
in the equity securities of U.S. and non-U.S. companies. There can be no assurance that the Fund’s objective will be achieved.
For more information, please call AST Fund
Solutions, LLC (the “Information Agent”) toll free at (800) 581-3949.
Investing in the Fund involves risks. See
“Risk Factors” on page 32 of this prospectus.
|
|
Estimated
Subscription
Price(1)
|
|
|
Estimated Sales
Load
|
|
|
Estimated
Proceeds to
the Fund(2)(3)
|
|
Per Share
|
|
$
|
10.88
|
|
|
|
None
|
|
|
$
|
283,203,707
|
|
Total
|
|
$
|
10.88
|
|
|
|
None
|
|
|
$
|
283,203,707
|
|
(1)
|
Because the Subscription Price will not be determined until after printing and distribution of this prospectus, the “Estimated Subscription Price” above is an estimate of the subscription price based on the Fund’s per-Share NAV and market price at the close of trading on April 9, 2021. See “The Offering - Subscription Price” and “The Offering - Payment for Shares.”
|
(2)
|
Proceeds to the Fund are before deduction of expenses incurred by the Fund in connection with the Offering, such expenses are estimated to be approximately $246,016 or approximately $0.002 per Share, if fully subscribed. The calculation of the per Share amount does not take into account the Over-Subscription Shares. Funds received prior to the final due date of this Offering will be deposited in a segregated account pending allocation and distribution of Shares. Interest, if any, on subscription monies will be paid to the Fund regardless of whether Shares are issued by the Fund; interest will not be used as credit toward the purchase of Shares.
|
(3)
|
Fees and expenses incurred by the Fund in connection with the Offering are estimated to be approximately $246,016 or approximately $0.002 per Share, if fully subscribed. Proceeds to the Fund, after deduction of such fees and expenses incurred by the Fund in connection with the Offering, are estimated to be approximately $282,957,692 or approximately $2.72 per Share, if fully subscribed. The calculation of the per Share amounts indicated above do not take into account the Over- Subscription Shares.
|
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is April 16,
2021.
The Fund’s Shares are listed on the NYSE
American under the ticker symbol “CLM.”
Investment Adviser. Cornerstone Advisors,
LLC (the “Investment Adviser”) acts as the Fund’s investment adviser. See “Management of the Fund.”
As of December 31, 2020, the Investment Adviser managed one other closed-end fund with combined assets with the Fund of approximately
$1,164.3 million. The Investment Adviser’s address is 1075 Hendersonville Road, Suite 250, Asheville, North Carolina, 28803.
This prospectus sets forth concisely the
information about the Fund that you should know before deciding whether to invest in the Fund. A Statement of Additional
Information, dated April 16, 2021 (the “Statement of Additional Information”), and other materials, containing
additional information about the Fund, have been filed with the Securities and Exchange Commission (the “SEC”). The
Statement of Additional Information is incorporated by reference in its entirety into this prospectus, which means it is considered
to be part of this prospectus. You may obtain a free copy of the Statement of Additional Information, the table of contents of which
is on page 56 of this prospectus, and other information filed with the SEC, by calling toll free (800) 581-3949 or by writing to the
Fund c/o Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246 or by visiting the Fund’s website at
www.cornerstonestrategicvaluefund.com. The Fund files annual and semi-annual stockholder reports, proxy statements and other
information with the SEC. You can obtain this information or the Fund’s Statement of Additional Information or any information
regarding the Fund filed with the SEC from the SEC’s website at www.sec.gov.
The Fund’s Shares do not represent a
deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any governmental agency.
You should rely only on the information
contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information.
We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus. The Fund will amend this prospectus if, during
the period this prospectus is required to be delivered, there are any material changes to the facts stated in this prospectus subsequent
to the date of this prospectus.
TABLE OF CONTENTS
|
Page
|
SUMMARY
|
1
|
SUMMARY OF FUND EXPENSES
|
12
|
THE FUND
|
13
|
THE OFFERING
|
13
|
FINANCIAL HIGHLIGHTS
|
22
|
USE OF PROCEEDS
|
25
|
INVESTMENT OBJECTIVE AND POLICIES
|
25
|
RISK FACTORS
|
32
|
LISTING OF SHARES
|
40
|
MANAGEMENT OF THE FUND
|
40
|
DETERMINATION OF NET ASSET VALUE
|
42
|
DISTRIBUTION POLICY
|
43
|
DISTRIBUTION REINVESTMENT PLAN
|
46
|
CERTAIN ADDITIONAL MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
|
48
|
DESCRIPTION OF CAPITAL STRUCTURE
|
52
|
LEGAL MATTERS
|
55
|
REPORTS TO STOCKHOLDERS
|
55
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
55
|
ADDITIONAL INFORMATION
|
55
|
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
|
56
|
SUMMARY
This summary does not contain all of the
information that you should consider before investing in the Fund. You should review the more detailed information contained or
incorporated by reference in this prospectus and in the Statement of Additional Information, particularly the information set forth
under the heading “Risk Factors.”
A 1-for-4 reverse stock split (the “Reverse Stock Split”)
was announced on October 14, 2014 and became effective on December 29, 2014. All share and per share amounts in this prospectus
prior to December 29, 2014 have been adjusted to reflect this Reverse Stock Split.
The Fund
|
Cornerstone Strategic Value Fund, Inc. is a diversified, closed-end management investment company. It was incorporated in Maryland on May 1, 1987 and commenced investment operations on June 30, 1987. The Fund’s Shares of Common Stock are traded on the NYSE American under the ticker symbol “CLM”. As of December 31, 2020, the Fund had 77,475,671 Shares issued and outstanding.
|
The Offering
|
The Fund is issuing non-transferable rights
(“Rights”) to its Stockholders as of the close of business on April 16, 2021 which Rights will allow Stockholders to
subscribe for an aggregate of 26,029,753 Shares (the “Offering”). For every three (3) Rights a Stockholder receives,
such Stockholder will be entitled to buy one (1) new Share at a subscription price equal to the greater of (i) 107% of NAV of the
Shares as calculated on the Expiration Date and (ii) 80% of the market price at the close of trading on such date. Each Stockholder
will receive one Right for each outstanding Share he or she owns on the Record Date (the “Basic Subscription”). Fractional
Shares will not be issued upon the exercise of the Rights. Accordingly, the number of Rights to be issued to a Stockholder as of
the Record Date will be rounded up to the nearest whole number of Rights evenly divisible by three. Stockholders as of the Record
Date may purchase Shares not acquired by other Stockholders in this Rights offering, subject to certain limitations discussed in
this prospectus. Additionally, if there are not enough unsubscribed Shares to honor all over-subscription requests, the Fund may,
in its discretion, issue additional Shares up to 100% of the Shares available in the Offering to honor additional subscription
requests.
Shares will be issued within the 15-day period
immediately following the record date of the Fund’s monthly distribution and Stockholders exercising rights will not be entitled
to receive such distribution with respect to the shares issued pursuant to such exercise.
The Fund previously conducted a rights offering
that expired on July 20, 2018 (the “2018 Offering”) and included similar terms and conditions as this Offering. Pursuant
to the 2018 Offering, the Fund issued 26,784,596 Shares (11,930,479 Shares of which were Over-Subscription Shares) in fulfillment
of Basic Subscription requests at a subscription price of $13.46 per Share, for a total offering of $360,520,662.
The Fund previously conducted a rights offering
that expired on August 25, 2017 (the “2017 Offering”) and included similar terms and conditions as this Offering. Pursuant
to the 2017 Offering, the Fund issued 14,454,716 Shares (4,787,408 Shares of which were Over-Subscription Shares) in fulfillment
of Basic Subscription requests at a subscription price of $13.86 per Share, for a total offering of $200,342,364.
The Fund previously conducted a rights offering
that expired on October 21, 2016 (the “2016 Offering”) and included similar terms and conditions as this Offering.
Pursuant to the 2016 Offering, the Fund issued 6,783,942 Shares in fulfillment of Basic Subscription requests at a subscription
price of $14.11 per Share, for a total offering of $95,721,421.
|
|
The Fund previously conducted a rights offering
that expired on November 29, 2013 (the “2013 Offering”) and included similar terms and conditions as this Offering.
Pursuant to the 2013 Offering, which was fully subscribed, the Fund issued 3,158,284 Shares (1,579,142 Shares of which were Over-Subscription
Shares) at a subscription price of $23.68 per Share, for a total offering of $74,788,165.
Prior to 2013 Offering, the Fund previously
conducted a rights offering that expired on December 21, 2012 (the “2012 Offering”) and included similar terms and
conditions as this Offering. Pursuant to the 2012 Offering, the Fund issued 970,072 Shares in fulfillment of Basic Subscription
requests at a subscription price of $23.96 per Share, for a total offering of $23,242,931.
Prior to the 2012 Offering, the Fund previously
conducted a rights offering that expired on December 16, 2011 (the “2011 Offering”) and included similar terms and
conditions as this Offering. Pursuant to the 2011 Offering, which was fully subscribed, the Fund issued 1,433,722 Shares (716,861
Shares of which were Over-Subscription Shares) at a subscription price of $24.36 per Share, for a total offering of $34,925,455.
Prior to the 2011 Offering, the Fund conducted
a rights offering that expired on December 10, 2010 (the “2010 Offering”) and included similar terms and conditions
as this Offering. Pursuant to the 2010 Offering, the Fund issued 358,457 Shares in fulfillment of Basic Subscription requests at
a subscription price of $32.96 per Share, for a total offering of $11,812,869.
Use of proceeds from the 2018 Offering, 2017
Offering, the 2016 Offering, the 2013 Offering, the 2012 Offering, the 2011 Offering, and the 2010 Offering (collectively, the
“Prior Rights Offerings”) have been used, and the use of proceeds from the current Offering and any future rights offerings
may be used, to maintain the Fund’s Distribution Policy (as defined below) by providing funding for future distributions,
which may constitute a return of its Stockholders’ capital. A “return of capital” is treated as a non-dividend
distribution for tax purposes and is not subject to current tax. A return of capital reduces a Stockholder’s tax cost basis
in Fund shares.
|
How to Exercise Rights
|
Stockholders may exercise Rights by filling in and signing the reverse side of the Subscription Certificate and delivering the completed and signed Subscription Certificate and payment for the Shares to the Subscription Agent, American Stock Transfer & Trust Company, LLC. If you have any questions regarding the Rights, please contact the Information Agent (AST Fund Solutions, LLC) at (800) 581-3949 or your broker or nominee. See “The Offering”
|
|
|
|
|
|
|
|
|
Purpose of the Offering
|
At meetings held on February 19, 2021 and March
31, 2021, the Board of Directors considered, in addition to other factors, the success of the Prior Rights Offerings, and determined
that the current Offering was in the best interests of the Fund and its Stockholders to increase the assets of the Fund. The primary
reasons include:
|
|
●
|
The Basic Subscription will provide existing
Stockholders an opportunity to purchase additional Shares at a price that is potentially below market value without incurring any
commission or transaction charges.
|
|
●
|
Raising more cash will better position the Fund to take advantage of investment opportunities that exist or may arise, however, as has been the case with Prior Rights Offerings, a portion of the increase in the Fund’s assets will also be used to maintain the Fund’s managed distribution policy (the “Distribution Policy”) (see discussion below).
|
|
●
|
Increasing the Fund’s assets will provide
the Fund additional flexibility in maintaining the Fund’s Distribution Policy. This policy permits Stockholders to receive
a predictable level of cash flow and some liquidity periodically with respect to their Shares without having to sell Shares. Previously,
the Fund’s investments have not provided adequate income to meet the requirements of the Fund’s Distribution Policy,
therefore, the Fund has made return of capital distributions to maintain the Fund’s Distribution Policy. Specifically, Stockholders
should be aware that a majority of the distributions that the Funds made to its Stockholders for 2016, 2019 and 2020 consisted
of a return of its Stockholder’s capital, and not of income or gains generated from the Fund’s investment portfolio.
For 2017, a portion of the distributions that the Fund made to its Stockholders consisted of a return of its Stockholders’
capital, and not of income or gains generated from the Fund’s investment portfolio. For 2018, substantially all of the distributions
that the Fund made to its Stockholders consisted of a return of its Stockholders’ capital, and not of income or gains generated
from the Fund’s investment portfolio.
|
|
●
|
Increasing Fund assets may lower the Fund’s
expenses as a proportion of net assets because the Fund’s fixed costs would be spread over a larger asset base. There can
be no assurance that by increasing the size of the Fund, the Fund’s expense ratio will be lowered. However, increasing the
Fund’s assets results in a benefit to the Fund’s Investment Adviser because the Management fee that is paid to the
Investment Adviser increases as the Fund’s net assets increase.
|
|
●
|
The Offering is expected to be anti-dilutive
with respect to the net asset value per share, but not to voting, to all Stockholders, including those electing not to participate.
The Offering is expected to be “anti-dilutive” with respect to net asset value per share because it is expected that
the net asset value per share will increase as a result of the Offering. This expectation is based on the fact that all the costs
of the Offering will be borne by the Stockholders whether or not they exercise their Rights, because the Offering price is set
at a premium to NAV and the estimated expenses incurred for the Offering will be more than offset by the increase in the net assets
of the Fund such that non-participating Stockholders will receive an increase in their net asset value, so long as the number of
Shares issued to participating Stockholders is not materially less than a full exercise of the Basic Subscription amount. Historically,
all Prior Rights Offerings have been anti- dilutive with respect to net asset value per share. Stockholders have exercised not
only the basic subscription but also a significant percentage of the additional subscription shares offered. The Offering is expected
to be dilutive with respect to Stockholder’s voting percentages because Stockholders electing not to participate in the Offering
will own a smaller percentage of the total number of shares outstanding after the completion of the Offering.
|
|
●
|
Because the Offering will increase the Fund’s outstanding Shares, it may increase the number of Stockholders over the long term, which could increase the level of market interest in and visibility of the Fund and improve the trading liquidity of the Shares on the NYSE American.
|
Investment Objective and Policies
|
The Fund’s investment objective is to seek long-term capital appreciation through investment in equity securities of U.S. and non-U.S. companies. There is no assurance that the Fund will achieve its investment objective. The Fund’s investment objective and some of its investment policies are considered fundamental policies and may not be changed without Stockholder approval. The Statement of Additional Information contains a list of the fundamental and non-fundamental investment policies of the Fund under the heading “Investment Restrictions.”
During periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial portion of its net assets in cash or cash equivalents.
|
Investment Strategies
|
The Fund’s portfolio, under normal market
conditions, will consist principally of the equity securities of U.S. and non-U.S. companies. Currently, the Fund primarily invests
in companies with large capitalizations, however, the Fund may invest in companies of all capitalization ranges. The Fund invests
in common stocks and may also invest in preferred stocks, rights, warrants and securities convertible into common stocks that are
listed on stock exchanges or traded over the counter.
In determining which securities to buy for
the Fund’s portfolio, the Investment Adviser uses a balanced approach, including “value” and “growth”
investing by seeking out companies at reasonable prices, without regard to sector or industry, which demonstrate favorable long-term
growth characteristics. Valuation and growth characteristics may be considered for purposes of selecting potential investment securities.
In general, valuation analysis is used to determine the inherent value of the company by analyzing financial information such as
a company’s price to book, price to sales, return on equity, and return on assets ratios; and growth analysis is used to
determine a company’s potential for long-term dividends and earnings growth due to market-oriented factors such as growing
market share, the launch of new products or services, the strength of its management and market demand. Fluctuations in these characteristics
may trigger trading decisions to be made by the Investment Adviser.
Although the Fund has the ability to invest
a significant portion of its assets in non-U.S. companies, the Fund has consistently maintained the investment of at least 95%
of its assets in U.S. listed companies for the last decade.
The Fund may invest without limitation in other
closed-end investment companies and Exchange-Traded Funds (“ETFs”), provided that the Fund limits its investment in
securities issued by other investment companies so that not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund. As a stockholder in any investment company, the Fund will bear its ratable share of the investment
company’s expenses and would remain subject to payment of the Fund’s advisory and administrative fees with respect
to the assets so invested.
The Fund may invest up to 15% of its assets
in illiquid U.S. and non-U.S. securities, provided that the Fund may not invest more than 3% of the Fund’s assets in the
securities of companies that, at the time of investment, had less than a year of operations, including operations of predecessor
companies. The Fund will invest only in such illiquid securities that, in the opinion of Fund management, present opportunities
for substantial growth over a period of two to five years.
To comply with provisions of the 1940 Act,
on any matter upon which the Fund is solicited to vote as a shareholder in an investment company in which it invests, the Investment
Adviser votes such shares in the same general proportion as shares held by other shareholders of that investment company. The Fund
does not and will not invest in any other closed-end funds managed by the Investment Adviser.
|
|
The Fund may, without limitation, hold cash
or invest in assets in money market instruments, including U.S. and non-U.S. government securities, high grade commercial paper
and certificates of deposit and bankers’ acceptances issued by U.S. and non-U.S. banks having deposits of at least $500 million.
The Fund’s annual portfolio turnover
rate is expected to continue to be relatively low, ranging between 10% and 90%.
|
Investment Adviser and Fee
|
At the Fund’s annual meeting of stockholders
held on April 16, 2019, stockholders of the Fund approved a new investment management agreement with Cornerstone Advisors Asset
Management LLC, which agreement became effective May 1, 2019. Cornerstone Advisors Asset Management LLC’s name changed to
Cornerstone Advisors, LLC on June 25, 2019.
Cornerstone Advisors, LLC (the “Investment
Adviser”), the investment adviser of the Fund, is registered with the Securities and Exchange Commission (“SEC”)
as an investment adviser under the Investment Advisers Act of 1940, as amended. As of December 31, 2020, the Investment Adviser
managed one other closed-end fund with combined assets with the Fund, of approximately $1,164.3 million.
The Investment Adviser is entitled to receive
a monthly fee at the annual rate of 1.00% of the Fund’s average weekly net assets. See “Management of the Fund.”
|
Administrator and Fund Accounting Agent
|
Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Suite 450, Cincinnati, OH (“Ultimus”) serves as the Fund’s administrator and accounting agent. Under the fund accounting and administration agreement with the Fund, Ultimus is responsible for generally managing the administrative affairs of the Fund, including supervising the preparation of reports to Stockholders, reports to and filings with the SEC and materials for meetings of the Board. Ultimus is also responsible for calculating the net asset value per share and maintaining the financial books and records of the Fund. Ultimus is entitled to receive a base fee of $5,000 per month plus an asset-based fee of 0.05% of the first $250 million of average daily net assets, 0.04% of such assets greater than $250 million to $1 billion, 0.03% of such assets greater than $1 billion to $2 billion and 0.02% of such assets in excess of $2 billion.
|
Custodian and Transfer Agent
|
U.S. Bank National Association serves as the Fund’s custodian and American Stock Transfer and Trust Company, LLC serves as the Fund’s transfer agent. See “Management of the Fund”.
|
Closed-End Fund Structure
|
Closed-end funds differ from open-end management investment companies (commonly referred to as mutual funds) in that closed- end funds do not redeem their shares at the option of the stockholder and generally list their shares for trading on a securities exchange. By comparison, mutual funds issue securities that are redeemable daily at net asset value at the option of the stockholder and typically engage in a continuous offering of their shares. Mutual funds are subject to continuous asset in-flows and out-flows that can complicate portfolio management, whereas closed-end funds generally can stay more fully invested in securities consistent with the closed-end fund’s investment objectives and policies. In addition, in comparison to open-end funds, closed-end funds have greater flexibility in the employment of financial leverage and in the ability to make certain types of investments, including investments in illiquid securities.
Although the Fund’s Shares have frequently traded at a premium to its net asset value during the past several years, shares of closed- end funds frequently trade at a discount from their net asset value. In recognition of the possibility that the Shares might trade at a discount to net asset value and that any such discount may not be in the interest of Stockholders, the Fund’s Board of Directors, in consultation with the Investment Adviser, may, from time to time, review possible actions to reduce any such discount, including considering open market repurchases or tender offers for the Fund’s Shares. There can be no assurance that the Board of Directors will decide to undertake any of these actions or that, if undertaken, such actions would result in the Shares trading at a price equal to or close to net asset value per Share.
In addition, the Fund’s Distribution Policy may continue to be an effective action to counter a trading discount. See “Distribution Policy.”
The Board of Directors may also consider the conversion of the Fund to an open-end investment company. The Board of Directors believes, however, that the closed-end structure is desirable, given the Fund’s investment objective and policies. Investors should assume, therefore, that it is highly unlikely that the Board of Directors would vote to convert the Fund to an open-end investment company.
|
Summary of Principal Risks
|
Investing in the Fund involves risks, including
the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. Therefore,
before investing you should consider carefully the following principal risks that you assume when you invest in the Fund.
Stock Market Volatility. Stock
markets can be volatile. In other words, the prices of stocks can rise or fall rapidly in response to developments affecting a
specific company or industry, or to changing economic, political or market conditions. The Fund is subject to the general risk
that the value of its investments may decline if the stock markets perform poorly. There is also a risk that the Fund’s investments
will underperform either the securities markets generally or particular segments of the securities markets.
Market Disruption and Geopolitical Risk.
The Fund is subject to the risk that geopolitical events will disrupt securities markets and adversely affect global economies
and markets. The current novel coronavirus (“COVID-19") global pandemic and the aggressive responses taken by many governments,
including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, as well as the forced or voluntary closure of, or operational changes to, many retail and other businesses, have
had and may continue to have negative impacts, and in many cases severe negative impacts, on markets worldwide. War, terrorism,
and related geopolitical events (and their aftermath) have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on U.S. and world economies and markets generally. Likewise, natural and environmental disasters,
such as, for example, earthquakes, fires, floods, hurricanes, tsunamis and weather-related phenomena generally, as well as the
spread of infectious illness or other public health issues, including widespread epidemics or pandemics such as the COVID-19 outbreak
in 2020, and systemic market dislocations can be highly disruptive to economies and markets. Those events as well as other changes
in non-U.S. and domestic economic and political conditions also could adversely affect individual issuers or related groups of
issuers, securities markets, interest rates, credit ratings, inflation, investor sentiment, and other factors affecting the value
of Fund investments.
Issuer Specific Changes. Changes
in the financial condition of an issuer, changes in the specific economic or political conditions that affect a particular type
of security or issuer, and changes in general economic or political conditions can affect the credit quality or value of an issuer’s
securities. Lower-quality debt securities tend to be more sensitive to these changes than higher-quality debt securities.
Closed-End Fund Risk. 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.
Common Stock Risk. The Fund will
invest a significant portion of its net assets in common stocks. Common stocks represent an ownership interest in a company. The
Fund may also invest in securities that can be exercised for or converted into common stocks (such as convertible preferred stock).
Common stocks and similar equity securities are more volatile and more risky than some other forms of investment. Therefore, the
value of your investment in the Fund may sometimes decrease instead of increase. Common stock prices fluctuate for many reasons,
including changes in investors’ perceptions of the financial condition of an issuer, the general condition of the relevant
stock market or when political or economic events affecting the issuers occur. In addition, common stock prices may be sensitive
to rising interest rates, as the costs of capital rise for issuers. Because convertible securities can be converted into equity
securities, their values will normally increase or decrease as the values of the underlying equity securities increase or decrease.
The common stocks in which the Fund will invest are structurally subordinated to preferred securities, bonds and other debt instruments
in a company’s capital structure in terms of priority to corporate income and assets and, therefore, will be subject to greater
risk than the preferred securities or debt instruments of such issuers.
|
|
Defensive Positions. During periods
of adverse market or economic conditions, the Fund may temporarily invest all or a substantial portion of its assets in cash or
cash equivalents. The Fund would not be pursuing its investment objective in these circumstances and could miss favorable market
developments.
Foreign Securities Risk. Investments
in securities of non-U.S. issuers involve special risks not presented by investments in securities of U.S. issuers, including the
following: less publicly available information about companies due to less rigorous disclosure or accounting standards or regulatory
practices; the impact of political, social or diplomatic events, including war; possible seizure, expropriation or nationalization
of the company or its assets; possible imposition of currency exchange controls; and changes in foreign currency exchange rates.
These risks are more pronounced to the extent that the Fund invests a significant amount of its investments in companies located
in one region. These risks may be greater in emerging markets and in less developed countries. For example, prior governmental
approval for foreign investments may be required in some emerging market countries, and the extent of foreign investment may be
subject to limitation in other emerging countries. With respect to risks associated with changes in foreign currency exchange rates,
the Fund does not expect to engage in foreign currency hedging transactions. See “Foreign Currency Risk.”
Global Market Risk. An investment
in Fund shares is subject to investment risk, including the possible loss of the entire principal amount invested. The Fund is
subject to the risk that geopolitical and other similar events will disrupt the economy on a national or global level. For instance,
war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic developments, public
health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters can
all negatively impact the securities markets.
|
|
Managed Distribution Risk. Under
the Fund’s Distribution Policy, the Fund makes monthly distributions to Stockholders at a rate that may include periodic
distributions of its net income and net capital gains (“Net Earnings”), or from return-of-capital. 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 Stockholders.
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,
including securities purchased with the proceeds of the Offering, 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. The Fund adopted the Distribution Policy in 2002, and during recent years the Fund’s distributions
have exceeded its Net Earnings. The Fund may use the proceeds of the Offering to maintain the Distribution Policy by providing
funding for future distributions, which may constitute a return of capital to Stockholders and lower the tax basis in their Shares
which, for the taxable Stockholders, will defer any potential gains until the Shares are sold. For the taxable Stockholders, the
portion of distribution that constitutes ordinary income and/or capital gains is taxable to such Stockholders in the year the distribution
is declared. A return of capital is non-taxable to the extent of the Stockholder’s basis in the shares. The Stockholders
would reduce their basis in the Shares by the amount of the distribution and therefore may result in an increase in the amount
of any taxable gain on a subsequent disposition of such Shares, even if such Shares are sold at a loss to the Stockholder’s
original investment amount. Any return of capital will be separately identified when Stockholders receive their tax statements.
Any return of capital that exceeds cost basis may be treated as capital gain. Stockholders are advised to consult with their own
tax advisers with respect to the tax consequences of their investment in the Fund. Furthermore, the Fund may need to raise additional
capital in order to maintain the Distribution Policy.
Management Risk. The Fund is
subject to management risk because it is an actively managed portfolio. The Fund’s successful pursuit of its investment objective
depends upon the Investment Adviser’s ability to find and exploit market inefficiencies with respect to undervalued securities.
Such situations occur infrequently and sporadically and may be difficult to predict, and may not result in a favorable pricing
opportunity that allows the Investment Adviser to fulfill the Fund’s investment objective. The Investment Adviser’s
security selections and other investment decisions might produce losses or cause the Fund to underperform when compared to other
funds with similar investment goals. If one or more key individuals leave the employ of the Investment Adviser, the Investment
Adviser may not be able to hire qualified replacements, or may require an extended time to do so. This could prevent the Fund from
achieving its investment objective. The Investment Adviser may also benefit from the Offering because its fee is based on the assets
of the Fund, which could be perceived as a conflict of interest.
Other Investment Company Securities Risk.
The Fund invests in the securities of other closed-end investment companies and in ETFs. Investing in other investment
companies and ETFs involves substantially the same risks as investing directly in the underlying instruments, but the total return
on such investments at the investment company level may be reduced by the operating expenses and fees of such other investment
companies, including advisory fees. To the extent the Fund invests a portion of its assets in investment company securities, those
assets will be subject to the risks of the purchased investment company’s portfolio securities, and a stockholder in the
Fund will bear not only his proportionate share of the expenses of the Fund, but also, indirectly, the expenses of the purchased
investment company. There can be no assurance that the investment objective of any investment company or ETF in which the Fund
invests will be achieved.
|
Managed Distribution Policy
|
Effective June 25, 2002, the Fund initiated
a fixed monthly distribution to Stockholders. On November 29, 2006, the 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 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 the Board’s 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, and will be distributed as either 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. As shown
on page 35 in the table which identifies the constituent components of the Fund’s distributions under its Managed
Distribution Policy for years 2016-2020, a majority of the distributions that the Fund made to its Stockholders for 2016, 2019
and 2020 consisted of a return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment
portfolio, and substantially all of the distributions that the Fund made to its Stockholders for 2018 consisted of a return of
its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio. For 2017, a portion
of the distributions that the made to its Stockholders consisted of a return of its Stockholders’ capital, and not of income
or gains generated from the Fund’s investment portfolio. Although return of capital distributions may not be taxable, such
distributions may reduce a Stockholder’s cost basis in his or her Shares, and therefore may result in an increase in the
amount of any taxable gain on a subsequent disposition of such Shares, even if such Shares are sold at a loss to the Stockholder’s
original investment amount. The Fund plans to maintain the Distribution Policy even if a return-of-capital distribution would exceed
an investor’s tax basis and therefore be a taxable distribution.
On August 7, 2020, the Board of Directors of
the Fund determined that the distribution percentage for the calendar year 2021 would remain at 21%, which was the same distribution
percentage used in 2020, which was then be applied to the net asset value of the Fund at the end of October 2020 to determine the
distribution amounts for calendar year 2021. During 2021, the Board of Directors of the Fund will make a determination regarding
the distribution percentage for 2022 which will then be applied to the net asset value of the Fund at the end of October 2021 to
determine the distribution amounts for calendar year 2022. The distribution percentage is not a function of, nor is it related
to, the investment return on the Fund’s portfolio.
|
|
To the extent necessary to meet the amounts
distributed under the Fund’s Distribution Policy, portfolio securities, including those purchased with the proceeds of this
Offering, may be sold to the extent adequate income is not available. Sustaining the Distribution Policy could require the Fund
to raise additional capital in the future.
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 Shares. The Fund determines annually whether to distribute any net realized long-term capital gains
in excess of net realized short-term capital losses, including capital loss carryovers, if any. To the extent that the Fund’s
taxable income in any calendar year exceeds the aggregate amount distributed pursuant to the Distribution Policy, an additional
distribution may be made to avoid the payment of a 4% U.S. federal excise tax, and to the extent that the aggregate amount distributed
in any calendar year exceeds the Fund’s taxable income, the amount of that excess may constitute a return-of-capital for
tax purposes. Dividends and distributions to Stockholders are recorded by the Fund on the ex-dividend date.
|
Distribution Reinvestment Plan
|
Unless a Stockholder elects otherwise, the Stockholder’s distributions will be reinvested in additional Shares under the Fund’s distribution reinvestment plan. Stockholders who elect not to participate in the Fund’s distribution reinvestment plan will receive all distributions in cash paid to the Stockholder of record (or, if the Shares are held in street or other nominee name, then to such nominee). See “Distribution Reinvestment Plan.”
|
Stock Purchases and Tenders
|
The Board of Directors may consider repurchasing the Fund’s Shares in the open market or in private transactions, or tendering for Shares, in an attempt to reduce or eliminate a market value discount from net asset value, if one should occur. There can be no assurance that the Board of Directors will determine to effect any such repurchase or tender or that it would be effective in reducing or eliminating any market value discount.
|
SUMMARY OF FUND EXPENSES
The following table shows Fund expenses that you as an investor in the Fund’s Shares will bear directly or indirectly.
Stockholder Transaction Expenses
|
|
Sales load
|
None
|
Offering expenses (1)
|
0.03%
|
Distribution Reinvestment Plan fees
|
None
|
Annual Expenses (as a percentage of net assets attributable to the Shares)
|
|
Management fees
|
1.00%
|
Other expenses (2)
|
0.14%
|
Acquired Fund fees and expenses (3)
|
0.20%
|
Total Annual Expenses
|
1.34%
|
Example (4)
The following example illustrates the hypothetical
expenses (including estimated expenses with respect to year 1 of this Offering of approximately $250,000) that you would pay on
a $1,000 investment in the Shares, assuming (i) annual expenses of 1.34% of net assets attributable to the Shares and (ii) a 5%
annual return:
|
1 Year
|
3 Years
|
5 Years
|
10 Years
|
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return
|
$14
|
$42
|
$73
|
$161
|
(1)
|
Assuming the Fund will have 104,119,010 Shares outstanding if fully subscribed and Offering expenses to be paid by the Fund are estimated to be approximately $246,016 or approximately $0.002 per Share. If the Offering is not fully subscribed, the Offering expenses percentage (and per Share amount) may increase.
|
(2)
|
“Other Expenses” are based upon gross estimated amounts for the current fiscal year and include, among other expenses, administration and fund accounting fees. The Fund has no current intention to borrow money for investment purposes and has adopted a fundamental policy against selling securities short.
|
(3)
|
The Fund invests in other closed-end investment companies and ETFs (collectively, the “Acquired Funds”). The Fund’s stockholders indirectly bear a pro rata portion of the fees and expenses of the Acquired Funds in which the Fund invests. Acquired Fund fees and expenses are based on estimated amounts for the current fiscal year.
|
(4)
|
The example assumes that the estimated “Other Expenses” set forth in the Annual Expenses table remain the same each year and that all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. The example further assumes that the Fund uses no leverage, as currently intended and the Fund does not intent to utilize any leverage within one year from the effective date of this Registration Statement. Moreover, the Fund’s actual rate of return will vary and may be greater or less than the hypothetical 5% annual return.
|
The purpose of the above table is to help a Stockholder understand
the fees and expenses that such Stockholder would bear directly or indirectly. The example should not be considered a representation
of actual future expenses. Actual expenses may be higher or lower than those shown.
THE FUND
The Fund is a diversified, closed-end management
investment company. The Fund was organized as a Maryland corporation on May 1, 1987. The Fund’s principal office is located
c/o Ultimus Fund Solutions, LLC at 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246, and its telephone number is (866) 668-6558.
THE OFFERING
Terms of the Offering. The Fund
is issuing to Record Date Stockholders (i.e., Stockholders who hold Shares on the Record Date) non-transferable Rights to subscribe
for Shares. Each Record Date Stockholder is being issued one non-transferable Right for every one Share owned on the Record Date.
The Rights entitle a Record Date Stockholder to acquire one Share at the Subscription Price for every three Rights held. Fractional
Shares will not be issued upon the exercise of the Rights. Accordingly, the number of Rights to be issued to a Record Date Stockholder
on the Record Date will be rounded up to the nearest whole number of Rights evenly divisible by three. Rights may be exercised
at any time during the Subscription Period which commences on or about April 29, 2021 and ends at 5:00 p.m., New York City time,
on May 14, 2021 unless extended by the Fund. See “Expiration of the Offering.” The right to acquire one additional
Share for every three Rights held during the Subscription Period at the Subscription Price is hereinafter referred to as the “Basic
Subscription.”
In addition to the Basic Subscription, Record
Date Stockholders who exercise all of their Rights are entitled to subscribe for Shares which were not otherwise subscribed for
by others in the Basic Subscription (the “Additional Subscription Privilege”). If sufficient Shares are not available
to honor all requests under the Additional Subscription Privilege, the Fund may, in its discretion, issue additional Shares up
to 100% of the Shares available in the Offering (or 26,029,752 Shares for a total of 52,059,505 Shares) (the “Over-Subscription
Shares”) to honor additional subscription requests, with such Shares subject to the same terms and conditions of the Offering.
See “Additional Subscription Privilege” below. For purposes of determining the maximum number of Shares a Stockholder
may acquire pursuant to the Offering, broker- dealers whose Shares are held of record by any Nominee will be deemed to be the holders
of the Rights that are issued to such Nominee on their behalf. The term “Nominee” shall mean, collectively, CEDE &
Company (“Cede”), as nominee for the Depository Trust Company (“DTC”), or any other depository or nominee.
Shares acquired pursuant to the Additional Subscription Privilege are subject to allotment and will be distributed on a pro rata
basis if allotment does not exist to fulfill all requests, which is more fully discussed below under “Additional Subscription
Privilege.”
SHARES WILL BE ISSUED WITHIN THE 15-DAY PERIOD
IMMEDIATELY FOLLOWING THE RECORD DATE OF THE FUND’S MONTHLY DISTRIBUTION AND STOCKHOLDERS EXERCISING RIGHTS WILL NOT BE ENTITLED
TO RECEIVE SUCH DISTRIBUTION WITH RESPECT TO THE SHARES ISSUED PURSUANT TO SUCH EXERCISE.
Rights will be Evidenced by Subscription
Certificates. The number of Rights issued to each Record Date Stockholder will be stated on the Subscription Certificates
delivered to the Record Date Stockholder. The method by which Rights may be exercised and Shares paid for is set forth below in
“Method of Exercising Rights” and “Payment for Shares.” A RIGHTS HOLDER WILL HAVE NO RIGHT TO RESCIND A
PURCHASE AFTER THE SUBSCRIPTION AGENT HAS RECEIVED PAYMENT. See “Payment for Shares” below.
The Rights are non-transferable and may not
be purchased or sold. Rights will expire without residual value at the Expiration Date. The Rights will not be listed for trading
on the NYSE American, and there will not be any market for trading Rights. The Shares to be issued pursuant to the Offering will
be listed for trading on the NYSE American, subject to the NYSE American being officially notified of the issuance of those Shares.
Purpose of the Offering. At meetings
held on February 19, 2021 and March 31, 2021, the Board considered, in addition to other factors, the success of the Prior Rights
Offerings, and determined that the current Offering was in the best interests of the Fund and its existing Stockholders to increase
the assets of the Fund and approved the current Offering. The primary reasons include:
|
-
|
The Basic Subscription will provide existing Stockholders an opportunity to purchase additional Shares at a price that is potentially below market value without incurring any commission or transaction charges.
|
|
-
|
Raising more cash will better position the Fund to take advantage of investment opportunities that exist or may arise, however as has been the case with Prior Rights Offerings, a portion of the increase in the Fund’s assets will also be used to maintain the Fund’s Distribution Policy. Since the Fund adopted the Distribution Policy, the Fund’s investments have failed to provide adequate net income or net capital gains to meet the requirements of the Fund’s Distribution Policy and the Fund has made return of capital distributions to maintain its Distribution Policy.
|
|
-
|
Increasing the Fund’s assets will provide the Fund additional flexibility in maintaining the Fund’s Distribution Policy. The Distribution Policy permits Stockholders to receive a predictable level of cash flow and some liquidity periodically with respect to their Shares without having to sell Shares. Stockholders should be aware that a majority of the distributions that the Fund made to its Stockholders for the 2016, 2019 and 2020 consisted of a return of its Stockholder’s capital, and not of income or gains generated from the Fund’s investment portfolio. For 2018 substantially all of the distributions that the Fund made to its Stockholders consisted of a return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio. For 2017, a portion of the distributions that the Fund made to its Stockholders consisted of a return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio.
|
|
-
|
Increasing Fund assets may lower the Fund’s expenses as a proportion of net assets because the Fund’s fixed costs would be spread over a larger asset base. There can be no assurance that by increasing the size of the Fund, the Fund’s expense ratio will be lowered. However, increasing the Fund’s assets results in a benefit to the Fund’s Investment Investment Adviser because the Management fee that is paid to the Investment Adviser increases as the Fund’s net assets increase.
|
|
-
|
Because the Offering will increase the Fund’s outstanding Shares, it may increase the number of Stockholders over the long term, which could increase the level of market interest in and visibility of the Fund and improve the trading liquidity of the Shares on the NYSE American.
|
|
-
|
The Board expects the Offering to be anti-dilutive with respect to net asset value per share, but not to voting, to all Stockholders. Those Stockholders electing not to participate will not be diluted, notwithstanding the fact that all the costs of the Offering will be borne by the Stockholders whether or not they exercise their Rights, because the Offering price is set at a premium to NAV and the estimated expenses incurred for the Offering will be more than offset by the increase in the net assets of the Fund such that non-participating Stockholders will receive an increase in their net asset value, so long as the number of Shares issued to participating Stockholders is not materially less than a full exercise of the Basic Subscription amount. Historically, all Prior Rights Offerings have been anti- dilutive with respect to the net asset value per share. Stockholders have exercised not only the basic subscription but also a significant percentage of the additional subscription shares offered. The Offering is expected to be dilutive with respect to Stockholder’s voting percentages because Stockholders electing not to participate in the Offering will own a smaller percentage of the total number of shares outstanding after the completion of the Offering.
|
Board Considerations in Approving the
Offering. At meetings held on February 19, 2021 and March 31, 2021, the Board considered the approval of the Offering.
In considering whether or not to approve the Offering, the Board relied on materials and information prepared and presented by
the Fund’s management at such meeting and discussions at that time. Based on such materials and their deliberations at this
meeting, the Board determined that it would be in the best interests of the Fund and its Stockholders to conduct the Offering in
order to increase the assets of the Fund available for current and future investment opportunities. In making its determination,
the Board considered the various factors set forth in “The Offering – Purpose of the Offering”. The Board also
considered a number of other factors, including the success of the 2010 Offering, the 2011 Offering, the 2012 Offering, the 2013
Offering, the 2016 Offering, the 2017 Offering and the 2018 Offering (collectively, the “Prior Rights Offerings”) and
that the Prior Rights Offerings were anti-dilutive to Stockholders with respect to value, the ability of the Investment Adviser
to invest the proceeds of the Offering, the Fund’s assets, including those resulting from Prior Rights Offerings, have been
used to maintain the Fund’s Distribution Policy because a portion of the assets raised in the rights offering may be utilized
to maintain monthly distributions and the potential effect of the Offering on the Fund’s stock price and adherence to the
terms of the Fund’s exemptive relief, which restricts a public offering of its common stock. The Board considered that, during
the course of each of the Prior Rights Offerings, the Fund’s market price declined, however the Board noted that the Fund
continued at all times during the 2018 Offering and most of the time since the 2018 Offering’s conclusion to sell at a premium
to NAV, and the market price, after adjusting for distributions, has approached the level that it was prior to the 2018 Offering.
When considering the potential effect of the Offering on the Fund’s stock price, the Board took into account the 2018 Offering,
including the positive impact it had on the Fund’s net asset value per share and the short-term price effect. The Board concluded
that the impact on the Fund’s price was uncertain and, regardless of the potential impact, the Offering was in the best interest
of the Stockholders. As a result of these considerations, the Board determined that it was appropriate and in the best interest
of the Fund and its Stockholders to proceed with the Offering, while continuing with the Distribution Policy.
At a meeting held on February 19, 2021 the
Board unanimously voted to approve the terms of the Offering and, at a meeting held on March 31, 2021, the Board voted to approve
updated pricing terms for the Offering. One of the Fund’s Directors who voted to authorize the Offering is affiliated with
the Investment Adviser and, therefore, could benefit indirectly from the Offering. The other seven directors are not “interested
persons” of the Fund within the meaning of the 1940 Act. The Investment Adviser may also benefit from the Offering because
its fee is based on the assets of the Fund. It is not possible to state precisely the amount of additional compensation the Investment
Adviser might receive as a result of the Offering because it is not known how many Shares will be subscribed for and the proceeds
of the Offering will be invested in additional portfolio securities, which will fluctuate in value. It is likely that affiliates
of the Investment Adviser who are also Stockholders will participate in the Offering and, accordingly, will receive the same benefits
of acquiring Shares as other Stockholders.
There can be no assurance that the Fund or
its Stockholders will achieve any of the foregoing objectives or benefits through the Offering.
The Fund may, in the future, choose to make
additional rights offerings from time to time for a number of Shares and on terms that may or may not be similar to the Offering.
Any such future rights offerings will be made in accordance with the then applicable requirements of the 1940 Act and the Securities
Act.
Notice of NAV Decline. If the
Shares begin to trade at a discount, the Board may make a determination whether to discontinue the Offering, provided that the
Fund, as required by the SEC’s registration form, will suspend the Offering until it amends this prospectus if, subsequent
to the date of this prospectus, the Fund’s NAV declines more than 10% from its NAV as of that date. Accordingly, the Expiration
Date would be extended and the Fund would notify Record Date Stockholders of the decline and permit Stockholders to cancel their
exercise of Rights.
The Subscription Price. The
Subscription Price for the Shares to be issued under the Offering will be equal to the greater of (i) 107% of NAV per Share as
calculated at the close of trading on the Expiration Date or (ii) 80% of the market price per Share at such time. For example, if
the Offering were held using the “Estimated Subscription Price” (i.e., an estimate of the Subscription Price based on
the Fund’s per-share NAV and market price at the end of business on April 9, 2021 ($10.02 and $13.60, respectively),
the Subscription Price would be $10.88 per share (80% of $13.60).
Additional Subscription Privilege.
If all of the Rights initially issued are not exercised, any Shares for which subscriptions have not been received will be offered,
by means of the Additional Subscription Privilege, to Record Date Stockholders who have exercised all of the Rights initially issued
to them and who wish to acquire more than the number of Shares for which the Rights held by them are exercisable. Record Date Stockholders
who exercise all of their Rights will have the opportunity to indicate on the Subscription Certificate how many unsubscribed Shares
they are willing to acquire pursuant to the Additional Subscription Privilege.
If enough unsubscribed Shares remain after
the Basic Subscriptions have been exercised, all additional subscription requests will be honored in full. If there are not enough
unsubscribed Shares to honor all additional subscription requests, the Fund may, in its discretion, issue additional Shares up
to 100% of Shares available in the Offering to honor Additional Subscription Privilege requests (defined above as the “Over-Subscription
Shares”), with such Shares subject to the same terms and conditions of the Offering. In the event that the Subscription Price
is less than the Estimated Subscription Price, Over-Subscription Shares may be used by the Fund to fulfill any Shares subscribed
for under the Basic Subscription. The method by which any unsubscribed Shares or Over-Subscription Shares (collectively, the “Excess
Shares”) will be distributed and allocated pursuant to the Additional Subscription Privilege is as follows:
|
(i)
|
If there are sufficient Excess Shares to satisfy all additional subscriptions by Stockholders exercising their rights under the Additional Subscription Privilege, each such Stockholder shall be allotted the number of Shares which the Stockholder requested.
|
|
(ii)
|
If the aggregate number of Shares subscribed for under the Additional Subscription Privilege exceeds the number of Excess Shares, the Excess Shares will be allocated to Record Date Stockholders who have exercised all of their Rights in accordance with their Additional Subscription Privilege request.
|
|
(iii)
|
If there are not enough Excess Shares to fully satisfy all Additional Subscription Privilege requests by Record Date Stockholders pursuant to paragraph (ii) above, the Excess Shares will be allocated among Record Date Stockholders who have exercised all of their Rights in proportion, not to the number of Shares requested pursuant to the Additional Subscription Privilege, but to the number of Rights exercised by them under their Basic Subscription Rights; provided, however, that no Stockholder shall be allocated a greater number of Excess Shares than such Record Date Stockholder paid for and in no event shall the number of Shares allocated in connection with the Additional Subscription Privilege exceed 100% of the Shares available in the Offering. The formula to be used in allocating the Excess Shares under this paragraph is as follows: (Rights Exercised by over-subscribing Record Date Stockholder divided by Total Rights Exercised by all over-subscribing Record Date Stockholders) multiplied by Excess Shares Remaining.
|
The percentage of Excess Shares each over-subscriber
may acquire will be rounded up to result in delivery of whole Shares (fractional Shares will not be issued).
The forgoing allocation process may involve
a series of allocations in order to assure that the total number of Shares available for over-subscription are distributed on a
pro-rata basis. The Fund will not offer or sell any Shares which are not subscribed for under the Basic Subscription or the Additional
Subscription Privilege. The Additional Subscription Privilege may result in additional dilution of a Stockholder’s ownership
percentage and voting rights.
The Fund will not offer or sell any Shares
which are not subscribed for under the Basic Subscription or the Additional Subscription Privilege.
Expiration of the Offering. The
Offering will expire at 5:00 p.m., New York City time, on the Expiration Date (May 14, 2021), unless extended by the Fund (the
“Extended Expiration Date”). Rights will expire on the Expiration Date or Extended Expiration Date, as the case may
be, and thereafter may not be exercised.
Method of Exercising Rights.
Rights may be exercised by filling in and signing the reverse side of the Subscription Certificate and mailing it in the envelope
provided, or otherwise delivering the completed and signed Subscription Certificate to the Subscription Agent, together with payment
for the Shares as described below under “Payment for Shares.” Rights may also be exercised through a Rights holder’s
broker, who may charge the Rights holder a servicing fee in connection with such exercise.
In the event that the Estimated Subscription
Price is more than the Subscription Price on the Expiration Date, any resulting excess amount paid by a Stockholder towards the
purchase of Shares in the Offering will be applied by the Fund towards the purchase of additional Shares under the Basic Subscription
or, if such Stockholder has exercised all of the Rights initially issued to such Stockholder under the Basic Subscription, towards
the purchase of an additional number of Shares pursuant to the Additional Subscription Privilege. Any Stockholder who desires that
such excess not be treated by the Fund as a request by the Stockholder to acquire additional Shares in the Offering and that such
excess be refunded to the Stockholder must so indicate in the space provided on the Subscription Certificate.
Completed Subscription Certificates must be
received by the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date (or Extended Expiration Date,
as the case may be). The Subscription Certificate and payment should be delivered to the Subscription Agent at the following address:
If by first class mail:
|
If by mail or overnight courier:
|
|
|
American Stock Transfer & Trust Company, LLC
|
American Stock Transfer & Trust Company, LLC
|
6201 15th Avenue
|
6201 15th Avenue
|
Brooklyn, New York 11219
|
Brooklyn, New York 11219
|
Attn: Corporate Actions
|
Attn: Corporate Actions
|
Subscription Agent. The Subscription
Agent is American Stock Transfer & Trust Company, LLC, with an address at 6201 15th Avenue, Brooklyn, New York 11219.
The Subscription Agent will receive from the Fund an amount estimated to be $25,000, comprised of the fee for its services and
the reimbursement for certain expenses related to the Offering. INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD BE DIRECTED TO THE INFORMATION
AGENT, AST FUND SOLUTIONS, LLC, AT (800) 581-3949; HOLDERS MAY ALSO CONSULT THEIR BROKERS OR NOMINEES.
Payment for Shares. Payment for
Shares shall be calculated by multiplying the Estimated Subscription Price by the sum of (i) the number of Shares intended to be
purchased in the Basic Subscription (e.g., the number of Rights exercised divided by three), plus (ii) the number of additional
Shares intended to be over-subscribed under the Additional Subscription Privilege. For example, based on the Estimated Subscription
Price of $10.88 per Share, if a Stockholder receives 300 Rights and wishes to subscribe for 100 Shares in the Basic Subscription,
and also wishes to over-subscribe for 50 additional Shares under the Additional Subscription Privilege, such Stockholder would
remit payment in the amount of $1,632.00 ($1,088.00+$544.00).
Record Date Stockholders who wish to acquire
Shares in the Basic Subscription or pursuant to the Additional Subscription Privilege must, together with the properly completed
and executed Subscription Certificate, send payment for the Shares acquired in the Basic Subscription and any additional Shares
subscribed for pursuant to the Additional Subscription Privilege, to the Subscription Agent based on the Estimated Subscription
Price of $10.88 per Share. To be accepted, such payment, together with the Subscription Certificate, must be received by the Subscription
Agent prior to 5:00 p.m., New York City time, on the Expiration Date, or Extended Expiration Date, as the case may be.
If the Estimated Subscription Price is greater
than the actual per Share purchase price, the excess payment will be applied toward the purchase of unsubscribed Shares to the
extent that there remain sufficient unsubscribed Shares available after the Basic Subscription and Additional Subscription Privilege
allocations are completed. To the extent that sufficient unsubscribed Shares are not available to apply all of the excess payment
toward the purchase of unsubscribed Shares, available Shares will be allocated in the manner consistent with that described in
the section entitled “Additional Subscription Privilege” above.
PAYMENT MUST ACCOMPANY ANY SUBSCRIPTION CERTIFICATE
FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
Within five (5) business days following the
Expiration Date or Extended Expiration Date as the case may be, a confirmation will be sent by the Subscription Agent to each Stockholder
(or, if the Shares on the Record Date are held by Cede or any other depository or nominee, to Cede or such other depository or
nominee). The date of the confirmation is referred to as the “Confirmation Date.” The confirmation will show (i) the
number of Shares acquired pursuant to the Basic Subscription; (ii) the number of Shares, if any, acquired pursuant to the Additional
Subscription Privilege; (iii) the per Share and total purchase price for the Shares; and (iv) any additional amount payable by
such Stockholder to the Fund (i.e., if the Estimated Subscription Price was less than the Subscription Price on the Expiration
Date) or any excess to be refunded by the Fund to such Stockholder (i.e., if the Estimated Subscription Price was more than the
Subscription Price on the Expiration Date and the Stockholder indicated on the Subscription Certificate that such excess not be
treated by the Fund as a request by the Stockholder to acquire additional Shares in the Offering). Any additional payment required
from a Stockholder must be received by the Subscription Agent prior to 5:00 p.m., New York City time, on the date specified as
the deadline for final payment for Shares, and any excess payment to be refunded by the Fund to such Stockholder will be mailed
by the Subscription Agent within ten (10) business days after the Confirmation Date. All payments by a Stockholder must be made
in United States Dollars by money order or by checks drawn on banks located in the continental United States payable to “American
Stock Transfer & Trust Company, LLC as Subscription Agent”.
Issuance and delivery of certificates for the
Shares subscribed for are subject to collection of funds and actual payment by the subscribing Stockholder.
The Subscription Agent will deposit all checks
received by it prior to the final due date into a segregated account pending distribution of the Shares from the Offering. Any
interest earned on such account will accrue to the benefit of the Fund and investors will not earn interest on payments submitted
nor will interest be credited toward the purchase of Shares.
YOU WILL HAVE NO RIGHT TO RESCIND YOUR SUBSCRIPTION
AFTER THE SUBSCRIPTION AGENT HAS RECEIVED THE SUBSCRIPTION CERTIFICATE.
If a Record Date Stockholder who acquires Shares
pursuant to the Basic Subscription or the Additional Subscription Privilege does not make payment of any amounts due, the Fund
reserves the right to take any or all of the following actions: (i) find other purchasers for such subscribed-for and unpaid-for
Shares; (ii) apply any payment actually received by it toward the purchase of the greatest whole number of Shares which could be
acquired by such holder upon exercise of the Basic Subscription or the Additional Subscription Privilege; (iii) sell all or a portion
of the Shares actually purchased by the holder in the open market, and apply the proceeds to the amounts owed; or (iv) exercise
any and all other rights or remedies to which it may be entitled, including, without limitation, the right to set off against payments
actually received by it with respect to such subscribed Shares and to enforce the relevant guaranty of payment.
Holders who hold Shares for the account of
others, such as brokers, trustees, or depositaries for securities, should notify the respective beneficial owners of the Shares
as soon as possible to ascertain the beneficial owners’ intentions and to obtain instructions with respect to the Rights.
If the beneficial owner so instructs, the record holder of the Rights should complete Subscription Certificates and submit them
to the Subscription Agent with the proper payment. In addition, beneficial owners of Shares or Rights held through such a holder
should contact the holder and request the holder to effect transactions in accordance with the beneficial owner’s instructions.
The instructions accompanying the Subscription
Certificates should be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE FUND OR THE INVESTMENT
ADVISER.
The method of delivery of Subscription Certificates
and payment of the Subscription Price to the Subscription Agent will be at the election and risk of the Rights holders, but if
sent by mail it is recommended that the certificates and payments be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to the Subscription Agent and clearance of payment
prior to 5:00 p.m., New York City time, on the Expiration Date. Because uncertified personal checks may take at least five (5)
business days to clear, each Record Date Stockholder participating in the Offering is strongly urged to pay, or arrange for payment,
by means of a certified or cashier’s check or money order.
All questions concerning the timeliness, validity,
form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and binding.
The Fund in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within
such time as it may determine, or reject the purported exercise of any Right. If the Fund elects in its sole discretion to waive
any defect or irregularity, it may do so on a case-by-case basis which means that not all defects or irregularities may be waived,
if at all, or waived in the same manner as with other defects or irregularities. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within such time as the Fund determines in its sole discretion.
Neither the Fund nor the Subscription Agent will be under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for failure to give such notification.
Delivery of the Shares. The Shares
purchased pursuant to the Basic Subscription will be delivered to subscribers in book-entry form as soon as practicable after the
corresponding Rights have been validly exercised and full payment for the Shares has been received and cleared. The Shares purchased
pursuant to the Additional Subscription Privilege will be delivered to subscribers in book-entry form as soon as practicable after
the Expiration Date and after all allocations have been conducted.
Federal Income Tax Consequences Associated
with the Offering. The following is a general summary of the significant federal income tax consequences of the receipt
of Rights by a Record Date Stockholder and a subsequent lapse or exercise of such Rights. The discussion is based upon applicable
provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated thereunder,
and other authorities currently in effect but does not address any state, local, or foreign tax consequences of the Offering. Each
Stockholder should consult its own tax advisor regarding specific questions as to federal, state, local, or foreign taxes. Each
Stockholder should also review the discussion of certain U.S. federal income tax considerations affecting it and the Fund set forth
under “Certain Additional Material United States Federal Income Tax Considerations.”
For purposes of the following discussion, the
term “Old Share” shall mean a currently outstanding Share with respect to which a Right is issued and the term “New
Share” shall mean a newly issued Share that Record Date Stockholders receive upon the exercise of their Rights.
For all Record Date Stockholders:
Neither the receipt nor the exercise of Rights
by a Record Date Stockholder will result in taxable income to such Stockholder for federal income tax purposes regardless of whether
or not the Stockholder makes the below-described election which is available under Section 307(b)(2) of the Code (a “Section
307(b)(2) Election”).
If the fair market value of the Rights
distributed to all of the Record Date Stockholders is 15% or more of the total fair market value of all of the Fund’s
outstanding Shares on the date of distribution, or if a Record Date Stockholder makes a Section 307(b)(2) Election for the
taxable year in which such Rights were received, the Record Date Stockholder’s federal income tax basis in any Right
received pursuant to the Offering for purposes of determining gain or loss on a later sale or exercise of such Rights will be
equal to a portion of the Record Date Stockholder’s existing federal income tax basis in the related Old Share
determined in the manner described below. If made, a Section 307(b)(2) Election is irrevocable and effective with respect to
all Rights received by a Record Date Stockholder. A Section 307(b)(2) Election is made by attaching a statement to the Record
Date Stockholder’s federal income tax return for the taxable year of the Record Date (which is the same as the year as
when the Rights were received). A Record Date Stockholder must retain a copy of the Section 307(b)(2) Election and the tax
return with which the Section 307(b)(2) Election was filed in order to substantiate the use of an allocated basis upon
subsequent disposition of the New Shares. Record Date Stockholders should carefully review the differing federal income tax
consequences described below before deciding whether or not to make a Section 307(b)(2) Election.
For Record Date Stockholders When the Fair
Market Value of Rights Distributed Equals or Exceeds 15% of the Total Fair Market Value of the Fund’s Shares or When Making
a 307(b)(2) Election:
Lapse of Rights. If the fair market
value of rights distributed equals or exceeds 15% of the total fair market value of the Shares or if a Record Date Stockholder
makes a Section 307(b)(2) Election, no taxable loss will be realized for federal income tax purposes if the Record Date Stockholder
retains a Right but allows it to lapse without exercise. Moreover, the existing federal income tax basis of the related Old Share
will not be reduced if such lapse occurs (i.e., upon the lapse of any Right received pursuant to this Offering, any portion of
the Record Date Stockholder’s U.S. federal income tax basis in such Record Date Stockholder’s Old Share that would
have been allocated to such Right if such Right had been sold or exercised rather than allowed to lapse shall continue to be included
in the Record Date Stockholder’s U.S. federal income tax basis in such Record Date Stockholder’s Old Share).
Exercise of Rights. If a Record Date
Stockholder exercises a Right, the Record Date Stockholder’s existing federal income tax basis in the related Old Share must
be allocated between such Right and the Old Share in proportion to their respective fair market values as of the date of distribution
of such Rights (effectively reducing the Record Date Stockholder’s basis in their Old Share). Upon such exercise of the Record
Date Stockholder’s Rights, the New Shares received by the Record Date Stockholder pursuant to such exercise will have a federal
income tax basis equal to the sum of the basis of such Rights as described in the previous sentence and the Subscription Price
paid for the New Shares (as increased by any servicing fee charged to the Record Date Stockholder by his broker, bank or trust
company and other similar costs). If the Record Date Stockholder subsequently sells such New Shares (and holds such Shares as capital
assets at the time of their sale), the Record Date Stockholder will recognize a capital gain or loss equal to the difference between
the amount received from the sale of the New Shares and the Record Date Stockholder’s federal income tax basis in the New
Shares as described above. Such capital gain or loss will be long-term capital gain or loss if the New Shares are sold more than
one year after the date that the New Shares are acquired by the Record Date Stockholder.
For Record Date Stockholders Not Making
a Section 307(b)(2) Election When the Fair Market Value of the Rights Distributed is Less than 15% of the Total Fair Market Value
of the Fund’s Outstanding Shares:
Lapse of Rights. If the fair market
value of the Rights distributed is less than 15% of the total fair market value of the outstanding Shares and a Record Date Stockholder
does not make a Section 307(b)(2) Election for the taxable year in which such Rights were received, no taxable loss will be realized
for federal income tax purposes if the Record Date Stockholder retains a Right but allows it to lapse without exercise. Moreover,
the federal income tax basis of the related Old Share will not be reduced if such lapse occurs.
Exercise of Rights. If a non-electing
Record Date Stockholder exercises his Rights, the federal income tax basis of the related Old Shares will remain unchanged and
the New Shares will have a federal income tax basis equal to the Subscription Price paid for the New Shares (as increased by any
servicing fee charged to the Record Date Stockholder by his broker, bank or trust company and other similar costs). If the Record
Date Stockholder subsequently sells such New Shares (and holds such Shares as capital assets at the time of their sale), the Record
Date Stockholder will recognize a capital gain or loss equal to the difference between the amount received from the sale of the
New Shares and the stockholder’s federal income tax basis in the New Shares as described above. Such capital gain or loss
will be long-term capital gain or loss if the New Shares are sold more than one year after the Record Date Stockholder acquires
the New Shares.
Employee Plan Considerations.
Record Date Stockholders that are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), including corporate savings and 401(k) plans, Keogh Plans of self-employed individuals and Individual Retirement
Accounts (“IRA”) (each a “Benefit Plan” and collectively, “Benefit Plans”), should be aware
that additional contributions of cash in order to exercise Rights may be treated as Benefit Plan contributions and, when taken
together with contributions previously made, may subject a Benefit Plan to excise taxes for excess or nondeductible contributions.
In the case of Benefit Plans qualified under Section 401(a) of the Code, additional cash contributions could cause the maximum
contribution limitations of Section 415 of the Code or other qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their counsel prior to making such contributions.
Benefit Plans and other tax exempt entities,
including governmental plans, should also be aware that if they borrow in order to finance their exercise of Rights, they may become
subject to the tax on unrelated business taxable income (“UBTI”) under Section 511 of the Code. If any portion of an
IRA is used as security for a loan, the portion so used is also treated as distributed to the IRA depositor.
ERISA contains prudence and diversification
requirements and ERISA and the Code contain prohibited transaction rules that may impact the exercise of Rights. Among the prohibited
transaction exemptions issued by the Department of Labor that may exempt a Benefit Plan’s exercise of Rights are Prohibited
Transaction Exemption 84-24 (governing purchases of shares in investment companies) and Prohibited Transaction Exemption 75-1 (covering
sales of securities).
Due to the complexity of these rules and the
penalties for noncompliance, Benefit Plans should consult with their counsel regarding the consequences of their exercise of Rights
under ERISA and the Code.
Benefit to the Investment Adviser.
The Investment Adviser will benefit from the Offering because its fees are based on the average total net assets of the Fund. It
is not possible to state precisely the amount of additional compensation the Investment Adviser will receive as a result of the
Offering because the proceeds of the Offering will be invested in additional portfolio securities that will fluctuate in value.
However, if all Rights are exercised at the Estimated Subscription Price of $10.88, the annual compensation to be received by the
Investment Adviser would be increased by approximately $2,832,037. If the Fund issues all of the Over-Subscription Shares, the
annual compensation to be received by the Investment Adviser would be increased by an additional $5,664,074. One of the Fund’s
Directors who voted to approve the Offering is an “interested person” of the Investment Adviser within the meaning
of the 1940 Act. This Director, Mr. Ralph Bradshaw, could benefit indirectly from the Offering because of his beneficial interest
in the Investment Adviser. The other Directors were aware of the potential benefit to the Investment Adviser (and indirectly to
Mr. Bradshaw), but nevertheless concluded that the Offering was in the best interest of the Fund’s Stockholders.
The Fund may, in the future and at its discretion,
choose to make additional rights offerings from time to time for a number of Shares and on terms which may or may not be similar
to the Offering. Any such future rights offerings will be made in accordance with the 1940 Act and the Securities Act. Under the
laws of Maryland, the state in which the Fund is incorporated, under certain circumstances, the Board is authorized to approve
rights offerings without obtaining Stockholder approval. The staff of the SEC has interpreted the 1940 Act as not requiring stockholder
approval of a rights offering at a price below the then current NAV so long as certain conditions are met, including a good faith
determination by the fund’s board of directors that such offering would result in a net benefit to the Fund’s existing
stockholders.
Use of Proceeds from Prior Rights Offerings.
Use of proceeds from the Prior Rights Offerings have been, and the use of proceeds from the current Offering and any future rights
offerings, may be used to maintain the Fund’s Distribution Policy by providing funding for future distributions, which may
constitute a return of its Stockholders’ capital.
FINANCIAL HIGHLIGHTS
Set forth below is, for each year indicated,
per share operating performance data for one share of the Fund’s common stock (“Share”), total investment return,
ratios to average net assets and other supplemental data. This information has been derived from the financial statements and market
price data for the Fund’s Shares. The financial highlights for the fiscal year ended December 31, 2020 have been audited
by Tait, Weller & Baker LLP, independent registered public accounting firm. The financial statements and notes thereto for
the fiscal year ended December 31, 2020, together with the report thereon of the Fund’s independent registered public accounting
firm, are incorporated by reference in the SAI and are available without charge by visiting the Fund’s website at www.cornerstonestrategicvaluefund.com,
by calling toll free (866) 668-6558 or by writing to the Fund c/o Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Suite 450, Cincinnati,
OH 45246.
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
PER SHARE OPERATING PERFORMANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
10.80
|
|
|
$
|
10.50
|
|
|
$
|
13.55
|
|
|
$
|
13.24
|
|
|
$
|
15.11
|
|
Net investment income #
|
|
|
0.05
|
|
|
|
0.10
|
|
|
|
0.11
|
|
|
|
0.15
|
|
|
|
0.23
|
|
Net realized and unrealized gain/(loss) on investments
|
|
|
1.31
|
|
|
|
2.66
|
|
|
|
(0.85
|
)
|
|
|
2.65
|
|
|
|
1.01
|
|
Net increase/(decrease) in net assets resulting from operations
|
|
|
1.36
|
|
|
|
2.76
|
|
|
|
(0.74
|
)
|
|
|
2.80
|
|
|
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and distributions to stockholders: Net investment income
|
|
|
(0.05)
|
|
|
|
(0.10
|
)
|
|
|
(0.11
|
)
|
|
|
(0.13
|
)
|
|
|
(0.22
|
)
|
Net realized capital gains
|
|
|
(0.78)
|
|
|
|
(0.52
|
)
|
|
|
(0.26
|
)
|
|
|
(1.29
|
)
|
|
|
(0.71
|
)
|
Return-of-capital
|
|
|
(1.40)
|
|
|
|
(1.84
|
)
|
|
|
(2.47
|
)
|
|
|
(1.37
|
)
|
|
|
(2.47
|
)
|
Total dividends and distributions to stockholders
|
|
|
(2.23)
|
|
|
|
(2.46
|
)
|
|
|
(2.84
|
)
|
|
|
(2.79
|
)
|
|
|
(3.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive effect due to shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights offering
|
|
|
—
|
|
|
|
—
|
|
|
|
0.53
|
|
|
|
0.30
|
|
|
|
0.29
|
|
Reinvestment of dividends and distributions
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
Common stock repurchases
|
|
|
0.00
|
+
|
|
|
—
|
|
|
|
0.00
|
+
|
|
|
—
|
|
|
|
—
|
|
Total common stock transactions
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.53
|
|
|
|
0.30
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
9.93
|
|
|
$
|
10.80
|
|
|
$
|
10.50
|
|
|
$
|
13.55
|
|
|
$
|
13.24
|
|
Market value, end of year
|
|
$
|
11.73
|
|
|
$
|
11.21
|
|
|
$
|
11.18
|
|
|
$
|
15.47
|
|
|
$
|
15.17
|
|
Total investment return (a)
|
|
|
31.58
|
%
|
|
|
25.42
|
%
|
|
|
(9.44
|
)%
|
|
|
25.48
|
%
|
|
|
23.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS/SUPPLEMENTAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000 omitted)
|
|
$
|
769,031
|
|
|
$
|
810,598
|
|
|
$
|
762,236
|
|
|
$
|
596,439
|
|
|
$
|
380,024
|
|
Ratio of net expenses to average net assets, net of fee waivers and fees paid indirectly, if any(b)
|
|
|
1.14%
|
|
|
|
1.13
|
%(d)
|
|
|
1.14
|
%
|
|
|
1.20
|
%
|
|
|
1.25
|
%
|
Ratio of net expenses to average net assets, net of fee waivers and fees paid indirectly, if any(b)
|
|
|
1.14%
|
|
|
|
1.13
|
%(d)
|
|
|
1.14
|
%
|
|
|
1.20
|
%
|
|
|
1.25
|
%
|
Ratio of net investment income to average net assets (c)
|
|
|
0.47%
|
|
|
|
0.95
|
%(d)
|
|
|
0.84
|
%
|
|
|
1.13
|
%
|
|
|
1.66
|
%
|
Portfolio turnover rate
|
|
|
95%
|
|
|
|
45
|
%
|
|
|
58
|
%
|
|
|
81
|
%
|
|
|
88
|
%
|
#
|
Based on average shares outstanding.
|
+
|
Amount rounds to less than $0.01 per share.
|
(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 do not include expenses of investment companies in which the Fund invests.
|
(c)
|
Recognition of net investment income by the Fund may be affected by the timing of the declaration of dividends, if any, by investment companies in
which the Fund invests.
|
(d)
|
Includes the reimbursement of proxy solicitation costs by the investment manager. If these costs had not been reimbursed by the investment manager, the ratio of expenses to average net assets would have been 1.14% for the year ended December 31, 2019.
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2015
|
|
|
|
2014*
|
|
|
|
2013*
|
|
|
|
2012*
|
|
|
|
2011*
|
|
PER SHARE OPERATING PERFORMANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
20.54
|
|
|
$
|
22.72
|
|
|
$
|
22.72
|
|
|
$
|
24.52
|
|
|
$
|
30.20
|
|
Net investment income #
|
|
|
0.17
|
|
|
|
0.32
|
|
|
|
0.40
|
|
|
|
0.44
|
|
|
|
0.28
|
|
Net realized and unrealized gain/(loss) on investments
|
|
|
(1.18
|
)
|
|
|
2.10
|
|
|
|
3.80
|
|
|
|
2.76
|
|
|
|
(0.16
|
)
|
Net increase/(decrease) in net assets resulting from operations
|
|
|
(1.01
|
)
|
|
|
2.42
|
|
|
|
4.20
|
|
|
|
3.20
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and distributions to stockholders: Net investment income
|
|
|
(0.17
|
)
|
|
|
(0.32
|
)
|
|
|
(0.40
|
)
|
|
|
(1.48
|
)
|
|
|
(0.52
|
)
|
Net realized capital gains
|
|
|
(0.44
|
)
|
|
|
(1.52
|
)
|
|
|
(1.76
|
)
|
|
|
(0.76
|
)
|
|
|
—
|
|
Return-of-capital
|
|
|
(3.81
|
)
|
|
|
(2.76
|
)
|
|
|
(2.76
|
)
|
|
|
(3.08
|
)
|
|
|
(5.60
|
)
|
Total dividends and distributions to stockholders
|
|
|
(4.42
|
)
|
|
|
(4.60
|
)
|
|
|
(4.92
|
)
|
|
|
(5.32
|
)
|
|
|
(6.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive effect due to shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights offering
|
|
|
—
|
|
|
|
—
|
|
|
|
0.72
|
|
|
|
0.32
|
|
|
|
0.20
|
|
Reinvestment of dividends and distributions
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.12
|
|
Common stock repurchases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total common stock transactions
|
|
|
0.00
|
+
|
|
|
0.00
|
+
|
|
|
0.72
|
|
|
|
0.32
|
|
|
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
15.11
|
|
|
$
|
20.54
|
|
|
$
|
22.72
|
|
|
$
|
22.72
|
|
|
$
|
24.52
|
|
Market value, end of year
|
|
$
|
15.66
|
|
|
$
|
20.02
|
|
|
$
|
26.40
|
|
|
$
|
24.00
|
|
|
$
|
26.36
|
|
Total investment return (a)
|
|
|
0.21
|
%
|
|
|
(6.29
|
)%
|
|
|
36.67
|
%
|
|
|
13.33
|
%
|
|
|
(11.11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS/SUPPLEMENTAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000 omitted)
|
|
$
|
323,477
|
|
|
$
|
168,287
|
|
|
$
|
180,372
|
|
|
$
|
105,704
|
|
|
$
|
88,111
|
|
Ratio of net expenses to average net assets, net of fee waivers and fees paid indirectly, if any(b)
|
|
|
1.31
|
%(d)
|
|
|
1.33
|
%
|
|
|
1.33
|
%
|
|
|
1.40
|
%
|
|
|
1.55
|
%
|
Ratio of net expenses to average net assets, net of fee waivers and fees paid indirectly, if any(b)
|
|
|
1.31
|
%(d)
|
|
|
1.33
|
%
|
|
|
1.33
|
%
|
|
|
1.40
|
%
|
|
|
1.55
|
%
|
Ratio of net investment income to average net assets (c)
|
|
|
0.97
|
%(d)
|
|
|
1.47
|
%
|
|
|
1.69
|
%
|
|
|
1.83
|
%
|
|
|
0.98
|
%
|
Portfolio turnover rate
|
|
|
88
|
%
|
|
|
51
|
%
|
|
|
48
|
%
|
|
|
41
|
%
|
|
|
38
|
%
|
*
|
Effective December 29, 2014, a reverse split of 1:4 occurred. All per share amounts have been restated according to the terms of the reverse split.
|
#
|
Based on average shares outstanding.
|
+
|
Amount rounds to less than $0.01 per share.
|
(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 do not include expenses of investment companies in which the Fund invests.
|
(c)
|
Recognition of net investment income by the Fund may be affected by the timing of the declaration of dividends, if any, by investment companies in
which the Fund invests.
|
(d)
|
Includes reorganization costs. Without these costs, ratio of expenses to average net assets, net of fee waivers and fees paid indirectly, if any, ratio of expenses to average net assets, excluding fee waivers and fees paid indirectly, if any, and ratio of net investment income to average net assets would have been 1.22%, 1.22% and 1.06% for the year ended December 31, 2015, respectively.
|
USE OF PROCEEDS
If fully-subscribed, the net proceeds of the
Offering will be approximately $282,957,692 or approximately $2.72 per Share. The net proceeds of the Offering will be invested
in accordance with the Fund’s investment objective and policies (as stated below) as soon as practicable after completion
of the Offering and, to the extent necessary, net proceeds of the Offering will allow the Fund to maintain its Distribution Policy.
The Fund currently anticipates being able to invest a substantial portion of the net proceeds within one month after the completion
of the Offering. Pending investment of the net proceeds in accordance with the Fund’s investment objective and policies,
the Fund will invest in money market securities or money market mutual funds. Investors should expect, therefore, that before the
Fund has fully invested the proceeds of the Offering in accordance with its investment objective and policies, the Fund’s
net asset value would earn interest income at a modest rate. To the extent adequate income is not available, portfolio securities,
including those purchased with proceeds of the Offering, may be sold to meet the amounts distributed under the Fund’s Distribution
Policy.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund’s investment objective is to
seek long-term capital appreciation through investment primarily in equity securities of U.S. and non-U.S. companies which Fund
management believes have demonstrated fundamental investment value and favorable growth prospects, as determined by the Investment
Adviser. The Fund’s investment objective and some of its investment policies are considered fundamental policies and may
not be changed without Stockholder approval.
Investment Strategies
The Fund’s portfolio, under normal market
conditions, will consist principally of the equity securities of U.S. and non-U.S. companies. Currently, the Fund primarily invests
in companies with large capitalizations, however, the Fund may invest in companies of all capitalization ranges. The Fund invests
in common stocks and may also invest in preferred stocks, rights, warrants and securities convertible into common stocks that are
listed on stock exchanges or traded over the counter. The Fund may, without limitation, hold cash or invest in assets in money
market instruments, including U.S. and non-U.S. government securities, high grade commercial paper and certificates of deposit
and bankers’ acceptances issued by U.S. and non-U.S. banks having deposits of at least $500 million. In addition, the Fund
may engage in hedging transactions to reduce its company market and currency exchange exposure.
In determining which securities to buy for
the Fund’s portfolio, the Investment Adviser uses a balanced approach, including “value” and “growth”
investing by seeking out companies at reasonable prices, without regard to sector or industry, which demonstrate favorable long-term
growth characteristics. Valuation and growth characteristics may be considered for purposes of selecting potential investment securities.
In general, valuation analysis is used to determine the inherent value of the company by analyzing financial information such as
a company’s price to book, price to sales, return on equity, and return on assets ratios; and growth analysis is used to
determine a company’s potential for long-term dividends and earnings growth due to market-oriented factors such as growing
market share, the launch of new products or services, the strength of its management and market demand. Fluctuations in these characteristics
may trigger trading decisions to be made by the Investment Adviser.
Although the Fund has the ability to invest
a significant portion of its assets in non-U.S. companies, the Fund has consistently maintained the investment of at least 95%
of its assets in U.S. listed companies since June 30, 2001.
The Fund may invest without limitation in other
closed-end investment companies and ETFs, provided that the Fund limits its investment in securities issued by other investment
companies so that not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund. As
a stockholder in any investment company, the Fund will bear its ratable share of the investment company’s expenses and would
remain subject to payment of the Fund’s advisory and administrative fees with respect to the assets so invested.
To comply with provisions of the 1940 Act,
on any matter upon which the Fund is solicited to vote as a stockholder in an investment company in which it invests, the Investment
Adviser votes such shares in the same general proportion as shares held by other stockholders of that investment company. The Fund
does not and will not invest in any other closed-end funds managed by the Investment Adviser.
The Fund may invest up to 15% of its assets
in illiquid U.S. and non-U.S. securities, provided that the Fund may not invest more than 3% of the Fund’s assets in the
securities of companies that, at the time of investment, had less than a year of operations, including operations of predecessor
companies. The Fund will invest only in such illiquid securities that, in the opinion of the Investment Adviser, present opportunities
for substantial growth over a period of two to five years.
The Fund’s investment policies emphasize
long-term investment in securities. Therefore, the Fund’s annual portfolio turnover rate is expected to continue to be relatively
low, ranging between 10% and 90%. Higher portfolio turnover rates resulting from more actively traded portfolio securities generally
result in higher transaction costs, including brokerage commissions and related capital gains or losses.
The Fund’s foregoing investment policies
may be changed by the Fund’s Board of Directors without Stockholder vote.
Although the Fund does not anticipate having
any securities lending income during the current calendar year, the Fund may lend the securities that it owns to others, which
would allow the Fund the opportunity to earn additional income. Although the Fund will require the borrower of the securities to
post collateral for the loan in accordance with market practice and the terms of the loan will require that the Fund be able to
reacquire the loaned securities if certain events occur, the Fund is still subject to the risk that the borrower of the securities
may default, which could result in the Fund losing money, which would result in a decline in the Fund’s net asset value.
The Fund may, from time to time, take temporary
defensive positions that are inconsistent with the Fund’s principal investment strategies in attempting to respond to adverse
market, economic, political or other conditions. During such times, the Fund may temporarily invest up to 100% of its assets in
cash or cash equivalents, including money market instruments, prime commercial paper, repurchase agreements, Treasury bills and
other short-term obligations of the U. S. Government, its agencies or instrumentalities. In these and in other cases, the Fund
may not achieve its investment objective.
The Investment Adviser may invest the Fund’s
cash balances in any investments it deems appropriate. The Investment Adviser expects that such investments will primarily be pursuant
to a repurchase agreement, however such investments may also be made in, without limitation and as permitted under the 1940 Act,
money market funds, additional repurchase agreements, U.S. Treasury and U.S. agency securities, municipal bonds and bank accounts.
Any income earned from such investments is ordinarily reinvested by the Fund in accordance with its investment program. Many of
the considerations entering into the Investment Adviser’s recommendations and the portfolio manager’s decisions are
subjective.
The Fund has no current intent to use leverage;
however, the Fund reserves the right to utilize limited leverage through issuing preferred shares. The Fund also may borrow money
in amounts not exceeding 10% of its total assets (including the amount borrowed) for temporary or emergency purposes, including
the payment of dividends and the settlement of securities transactions, which otherwise might require untimely dispositions of
Fund securities. In addition, the Fund may incur leverage through the use of investment management techniques (e.g., “uncovered”
sales of put and call options, futures contracts and options on futures contracts). In order to hedge against adverse market shifts
and for non-hedging, speculative purposes, the Fund may utilize up to 5% of its net assets to purchase put and call options on
securities or stock indices.
Portfolio Investments
Common Stocks
The Fund will invest in common stocks. Common
stocks represent an ownership interest in an issuer. While offering greater potential for long-term growth, common stocks are more
volatile and more risky than some other forms of investment. Common stock prices fluctuate for many reasons, including adverse
events, such as an unfavorable earnings report, changes in investors’ perceptions of the financial condition of an issuer
or the general condition of the relevant stock market, or when political or economic events affecting the issuers occur. In addition,
common stock prices may be sensitive to rising interest rates as the costs of capital rise and borrowing costs increase.
Other Closed-End Investment Companies
The Fund may invest without limitation in other
closed-end investment companies, provided that the Fund limits its investment in securities issued by other investment companies
so that not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund. There can be
no assurance that the investment objective of any investment company in which the Fund invests will be achieved. 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.
Exchange Traded Funds
The Fund may invest in ETFs, which are investment
companies that aim to track or replicate a desired index, such as a sector, market or global segment. ETFs are passively managed
and their shares are traded on a national exchange. ETFs do not sell individual shares directly to investors and only issue their
shares in large blocks known as “creation units.” The investor purchasing a creation unit may sell the individual shares
on a secondary market. Therefore, the liquidity of ETFs depends on the adequacy of the secondary market. There can be no assurance
that an ETF’s investment objective will be achieved, as ETFs based on an index may not replicate and maintain exactly the
composition and relative weightings of securities in the index. ETFs are subject to the risks of investing in the underlying securities.
The Fund, as a holder of the securities of the ETF, will bear its pro rata portion of the ETF’s expenses, including advisory
fees. These expenses are in addition to the direct expenses of the Fund’s own operations.
Foreign Securities
The Fund may invest in foreign securities,
including direct investments in securities of foreign issuers that are traded on a U.S. securities exchange or over the counter
and investments in depository receipts, such as American depositary receipts (“ADRs”), exchange-traded funds (“ETFs”)
and other closed-end investment companies that represent indirect interests in securities of foreign issuers. The Fund is not limited
in the amount of assets it may invest in such foreign securities. These investments involve risks not associated with investments
in the United States, including the risk of fluctuations in foreign currency exchange rates, unreliable and untimely information
about the issuers and political and economic instability. These risks could result in the Investment Adviser’s misjudging
the value of certain securities or in a significant loss in the value of those securities.
The value of foreign securities is affected
by changes in currency rates, foreign tax laws (including withholding tax), government policies (in this country or abroad), relations
between nations and trading, settlement, custodial and other operational risks. In addition, the costs of investing abroad are
generally higher than in the United States, and foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than markets in the United States. As an alternative to holding foreign traded securities, the Fund may
invest in dollar-denominated securities of foreign companies that trade on U.S. exchanges or in the U.S. over-the-counter market
(including depositary receipts as described below, which evidence ownership in underlying foreign securities), and ETFs as described
below.
Because foreign companies are not subject to
uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S.
companies, there may be less publicly available information about a foreign company than about a domestic company. Volume and liquidity
in most foreign debt markets is less than in the United States and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. There is generally less government supervision and regulation of securities
exchanges, broker dealers and listed companies than in the United States. Mail service between the United States and foreign countries
may be slower or less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Payment for securities before delivery may be required. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability,
or diplomatic developments which could affect investments in those countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. Foreign securities markets, while growing in volume and
sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly
those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies.
The Fund may purchase ADRs, international depositary
receipts (“IDRs”) and global depository receipts (“GDRs”) which are certificates evidencing ownership of
shares of foreign issuers and are alternatives to purchasing directly the underlying foreign securities in their national markets
and currencies. However, such depository receipts continue to be subject to many of the risks associated with investing directly
in foreign securities. These risks include foreign exchange risk as well as the political and economic risks associated with the
underlying issuer’s country. ADRs, IDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are established without
the participation of the issuer. Unsponsored receipts may involve higher expenses, they may not pass-through voting or other stockholder
rights, and they may be less liquid. Less information is normally available on unsponsored receipts.
Dividends paid on foreign securities may not
qualify for the reduced federal income tax rates applicable to qualified dividends under the Code. As a result, there can be no
assurance as to what portion of the Fund’s distributions attributable to foreign securities will be designated as qualified
dividend income. See “Certain Additional Material United States Federal Income Tax Considerations.”
Emerging Market Securities
The Fund may invest up to 5% of its net assets
in emerging market securities, although through its investments in ETFs, other investment companies or depository receipts that
invest in emerging market securities, up to 20% of the Fund’s assets may be invested indirectly in issuers located in emerging
markets. The risks of foreign investments described above apply to an even greater extent to investments in emerging markets. The
securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities
markets of the United States and developed foreign markets. Disclosure and regulatory standards in many respects are less stringent
than in the United States and developed foreign markets. There also may be a lower level of monitoring and regulation of securities
markets in emerging market countries and the activities of investors in such markets and enforcement of existing regulations has
been extremely limited. Many emerging countries have experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have very negative effects on
the economies and securities markets of certain emerging countries. Economies in emerging markets generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls,
managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which
they trade. The economies of these countries also have been and may continue to be adversely affected by economic conditions in
the countries in which they trade. The economies of countries with emerging markets may also be predominantly based on only a few
industries or dependent on revenues from particular commodities. In addition, custodial services and other costs relating to investment
in foreign markets may be more expensive in emerging markets than in many developed foreign markets, which could reduce the Fund’s
income from such securities.
In many cases, governments of emerging countries
continue to exercise significant control over their economies, and government actions relative to the economy, as well as economic
developments generally, may affect the Fund’s investments in those countries. In addition, there is a heightened possibility
of expropriation or confiscatory taxation, imposition of withholding taxes on interest payments, or other similar developments
that could affect investments in those countries. There can be no assurance that adverse political changes will not cause the Fund
to suffer a loss of any or all of its investments.
Preferred Stocks
The Fund may invest in preferred stocks. Preferred
stock, like common stock, represents an equity ownership in an issuer. Generally, preferred stock has a priority of claim over
common stock in dividend payments and upon liquidation of the issuer. Unlike common stock, preferred stock does not usually have
voting rights. Preferred stock in some instances is convertible into common stock. Although they are equity securities, preferred
stocks have characteristics of both debt and common stock. Like debt, their promised income is contractually fixed. Like common
stock, they do not have rights to precipitate bankruptcy proceedings or collection activities in the event of missed payments.
Other equity characteristics are their subordinated position in an issuer’s capital structure and that their quality and
value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows.
Distributions on preferred stock must be declared
by the board of directors and may be subject to deferral, and thus they may not be automatically payable. Income payments on preferred
stocks may be cumulative, causing dividends and distributions to accrue even if not declared by the company’s board or otherwise
made payable, or they may be non-cumulative, so that skipped dividends and distributions do not continue to accrue. There is no
assurance that dividends on preferred stocks in which the Fund invests will be declared or otherwise made payable. The Fund may
invest in non-cumulative preferred stock, although the Investment Adviser would consider, among other factors, their non-cumulative
nature in making any decision to purchase or sell such securities.
Shares of preferred stock have a liquidation
value that generally equals the original purchase price at the date of issuance. The market values of preferred stock may be affected
by favorable and unfavorable changes impacting the issuers’ industries or sectors, including companies in the utilities and
financial services sectors, which are prominent issuers of preferred stock. They may also be affected by actual and anticipated
changes or ambiguities in the tax status of the security and by actual and anticipated changes or ambiguities in tax laws, such
as changes in corporate and individual income tax rates, and in the dividends received deduction for corporate taxpayers or the
lower rates applicable to certain dividends.
Because the claim on an issuer’s earnings
represented by preferred stock may become onerous when interest rates fall below the rate payable on the stock or for other reasons,
the issuer may redeem preferred stock, generally after an initial period of call protection in which the stock is not redeemable.
Thus, in declining interest rate environments in particular, the Fund’s holdings of higher dividend -paying preferred stocks
may be reduced and the Fund may be unable to acquire securities paying comparable rates with the redemption proceeds.
Other Securities
Although it has no current intention do so
to any material extent, the Investment Adviser may determine to invest the Fund’s assets in some or all of the following
securities from time to time.
Corporate Bonds, Government Debt Securities
and Other Debt Securities
The Fund may invest in corporate bonds, debentures
and other debt securities or in investment companies which hold such instruments. Debt securities in which the Fund may invest
may pay fixed or variable rates of interest. Bonds and other debt securities generally are issued by corporations and other issuers
to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and normally must repay the amount
borrowed on or before maturity. Certain debt securities are “perpetual” in that they have no maturity date.
The Fund may invest in government debt securities,
including those of emerging market issuers or of other non-U.S. issuers. These securities may be U.S. dollar- denominated or non-U.S.
dollar-denominated and include: (a) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or
other governments with taxing authority or by their agencies or instrumentalities; and (b) debt obligations of supranational entities.
Government debt securities include: debt securities issued or guaranteed by governments, government agencies or instrumentalities
and political subdivisions; debt securities issued by government owned, controlled or sponsored entities; interests in entities
organized and operated for the purpose of restructuring the investment characteristics issued by the above noted issuers; or debt
securities issued by supranational entities such as the World Bank or the European Union. The Fund may also invest in securities
denominated in currencies of emerging market countries. Emerging market debt securities generally are rated in the lower rating
categories of recognized credit rating agencies or are unrated and considered to be of comparable quality to lower rated debt securities.
A non-U.S. issuer of debt or the non-U.S. governmental authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due, and the Fund may have limited resources in the event of a default. Some of these risks
do not apply to issuers in large, more developed countries. These risks are more pronounced in investments in issuers in emerging
markets or if the Fund invests significantly in one country.
The Fund will not invest directly in debt securities
rated below investment grade (i.e., securities rated lower than Baa by Moody’s Investors Service, Inc. (“Moody’s”)
or lower than BBB by Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. (“S&P”),
or their equivalent as determined by the Investment Adviser. These securities are commonly referred to as “junk bonds.”
The foregoing credit quality policy applies only at the time a security is purchased, and the Fund is not required to dispose of
securities already owned by the Fund in the event of a change in assessment of credit quality or the removal of a rating.
Convertible Securities
The Fund may invest in convertible securities.
Convertible securities include fixed income securities that may be exchanged or converted into a predetermined number of shares
of the issuer’s underlying common stock at the option of the holder during a specified period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures, units consisting of “usable” bonds and
warrants or a combination of the features of several of these securities. The investment characteristics of each convertible security
vary widely, which allows convertible securities to be employed for a variety of investment strategies.
The Fund will exchange or convert convertible
securities into shares of underlying common stock when, in the opinion of the Investment Adviser, the investment characteristics
of the underlying common shares will assist the Fund in achieving its investment objective. The Fund may also elect to hold or
trade convertible securities. In selecting convertible securities, the Investment Adviser evaluates the investment characteristics
of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular convertible security, the Investment Adviser considers numerous
factors, including the economic and political outlook, the value of the security relative to other investment alternatives, trends
in the determinants of the issuer’s profits, and the issuer’s management capability and practices.
Illiquid Securities
Illiquid securities are securities that are
not readily marketable. Illiquid securities include securities that have legal or contractual restrictions on resale, and repurchase
agreements maturing in more than seven days. Illiquid securities involve the risk that the securities will not be able to be sold
at the time desired or at prices approximating the value at which the Fund is carrying the securities. Where registration is required
to sell a security, the Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed
when it decided to sell. The Fund may invest up to 15% of the value of its net assets in illiquid securities. Restricted securities
for which no market exists and other illiquid investments are valued at fair value as determined in accordance with procedures
approved and periodically reviewed by the Board of Directors.
Rule 144A Securities
The Fund may invest in restricted securities
that are eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended, (the “1933 Act”).
Generally, Rule 144A establishes a safe harbor from the registration requirements of the 1933 Act for resale by large institutional
investors of securities that are not publicly traded. The Investment Adviser determines the liquidity of the Rule 144A securities
according to guidelines adopted by the Board of Directors. The Board of Directors monitors the application of those guidelines
and procedures. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the
Fund’s 15% limit on investments in illiquid securities.
Warrants
The Fund may invest in equity and index warrants
of domestic and international issuers. Equity warrants are securities that give the holder the right, but not the obligation, to
subscribe for equity issues of the issuing company or a related company at a fixed price either on a certain date or during a set
period. Changes in the value of a warrant do not necessarily correspond to changes in the value of its underlying security. The
price of a warrant may be more volatile than the price of its underlying security, and a warrant may offer greater potential for
capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the
underlying security and do not represent any rights in the assets of the issuing company. A warrant ceases to have value if it
is not exercised prior to its expiration date. These factors can make warrants more speculative than other types of investments.
The sale of a warrant results in a long or short-term capital gain or loss depending on the period for which the warrant is held.
RISK FACTORS
An investment in the Fund’s Shares
is subject to risks. The value of the Fund’s investments will increase or decrease based on changes in the prices of the
investments it holds. You could lose money by investing in the Fund. By itself, the Fund does not constitute a balanced investment
program. You should consider carefully the following principal risks before investing in the Fund. There may be additional risks
that the Fund does not currently foresee or consider material. You may wish to consult with your legal or tax advisors, before
deciding whether to invest in the Fund. This section describes the principal risk factors associated with investment in the Fund
specifically, as well as those factors generally associated with investment in an investment company with investment objectives,
investment policies, capital structure or trading markets similar to the Fund’s. Each risk summarized below is a risk of
investing in the Fund and different risks may be more significant at different times depending upon market conditions or other
factors.
Risks Related to the Offering
Decline in Trading Price. If
the Fund's trading price declines below the Subscription Price, you will suffer an immediate unrealized loss.
Value versus Subscription Price.
The Subscription Price was not determined based on established criteria for valuation, such as expected future performance, cash
flows or financial condition. You should not rely on the Subscription Price to bear a relationship to those criteria or to be a
guaranty of the value of the Fund.
Termination of Offering.
The Fund's Board of Directors may terminate the offering at any time. If the decision is made to terminate the offering, the Fund has no obligation to you except to return, without interest, your subscription payments.
Rejection of Exercise of Subscription
Rights. Rights holders who desire to purchase shares in the offering must act promptly to ensure that all required forms
and payments are actually received by the Subscription Agent before the Expiration Date of the offering, unless extended. If you
are a beneficial owner of shares of common stock, you must act promptly to ensure that your broker, custodian bank or other nominee
acts for you and that all required forms and payments are actually received by the Subscription Agent before the Expiration Date.
The Fund will not be responsible if your broker, custodian or nominee fails to ensure that all required forms and payments are actually
received by the Subscription Agent before the Expiration Date. If you fail to complete and sign the required subscription forms,
send an incorrect payment amount or otherwise fail to follow the subscription procedures that apply to your exercise in the offering,
the Subscription Agent may, depending on the circumstances, reject your subscription or accept it only to the extent of the payment
received. Neither the Fund nor the Subscription Agent undertakes to contact you concerning an incomplete or incorrect subscription form
or payment, nor is the Fund under any obligation to correct such forms or payments. The Fund has the sole discretion to determine whether
a subscription exercise properly follows the subscription procedures.
Dilution of Ownership and Voting Interest.
As a result of the terms of this offer, Stockholders who do not fully exercise their Rights will, upon completion of this offer,
(i) own a smaller proportional interest in the Fund than they owned prior to the offer and (ii) have a smaller proportional voting
interest in the Fund than they had prior to the offer.
Principal Risks
Stock Market Volatility. Stock
markets can be volatile. In other words, the prices of stocks can rise or fall rapidly in response to developments affecting a
specific company or industry, or to changing economic, political or market conditions. The Fund is subject to the general risk
that the value of its investments may decline if the stock markets perform poorly. There is also a risk that the Fund’s investments
will underperform either the securities markets generally or particular segments of the securities markets.
Market Disruption and Geopolitical Risk.
The Fund is subject to the risk that geopolitical events will disrupt securities markets and adversely affect global economies
and markets. The current novel coronavirus (“COVID-19") global pandemic and the aggressive responses taken by many governments,
including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, as well as the forced or voluntary closure of, or operational changes to, many retail and other businesses, have
had and may continue to have negative impacts, and in many cases severe negative impacts, on markets worldwide. War, terrorism,
and related geopolitical events (and their aftermath) have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on U.S. and world economies and markets generally. Likewise, natural and environmental disasters,
such as, for example, earthquakes, fires, floods, hurricanes, tsunamis and weather-related phenomena generally, as well as the
spread of infectious illness or other public health issues, including widespread epidemics or pandemics such as the COVID-19 outbreak
in 2020, and systemic market dislocations can be highly disruptive to economies and markets. Those events as well as other changes
in non-U.S. and domestic economic and political conditions also could adversely affect individual issuers or related groups of
issuers, securities markets, interest rates, credit ratings, inflation, investor sentiment, and other factors affecting the value
of Fund investments.
The COVID-19 outbreak in 2020 has resulted
in continued travel restrictions and disruptions, closed borders, enhanced health screenings at ports of entry and elsewhere, disruption
of and delays in healthcare service preparation and delivery, quarantines, event cancellations and restrictions, service cancellations
or reductions, disruptions to business operations, supply chains and customer activity, lower consumer demand for goods and services,
as well as general concern and uncertainty that has negatively affected the economic environment. The impact of this outbreak and
any other epidemic or pandemic that may arise in the future could adversely affect the economies of many nations or the entire
global economy, the financial performance of individual issuers, borrowers and sectors and the health of capital markets and other
markets generally in potentially significant and unforeseen ways. This crisis or other public health crises may also exacerbate
other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak
and its effects cannot be determined with certainty. The foregoing could lead to a significant economic downturn or recession,
increased market volatility, a greater number of market closures, higher default rates and adverse effects on the values and liquidity
of securities or other assets. Such impacts, which may vary across asset classes, may adversely affect the performance of the Fund
and a stockholder’s investment in the Fund.
Issuer Specific Changes. Changes
in the financial condition of an issuer, changes in the specific economic or political conditions that affect a particular type
of security or issuer, and changes in general economic or political conditions can affect the credit quality or value of an issuer’s
securities. Lower-quality debt securities tend to be more sensitive to these changes than higher-quality debt securities.
Closed-End Fund Risk. 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.
Common Stock Risk. The Fund will
invest a significant portion of its net assets in common stocks. Common stocks represent an ownership interest in a company. The
Fund may also invest in securities that can be exercised for or converted into common stocks (such as convertible preferred stock).
Common stocks and similar equity securities are more volatile and more risky than some other forms of investment. Therefore, the
value of your investment in the Fund may sometimes decrease instead of increase. Common stock prices fluctuate for many reasons,
including changes in investors’ perceptions of the financial condition of an issuer, the general condition of the relevant
stock market or when political or economic events affecting the issuers occur. In addition, common stock prices may be sensitive
to rising interest rates, as the costs of capital rise for issuers. Because convertible securities can be converted into equity
securities, their values will normally increase or decrease as the values of the underlying equity securities increase or decrease.
The common stocks in which the Fund will invest are structurally subordinated to preferred securities, bonds and other debt instruments
in a company’s capital structure in terms of priority to corporate income and assets and, therefore, will be subject to greater
risk than the preferred securities or debt instruments of such issuers.
Defensive Positions. During periods
of adverse market or economic conditions, the Fund may temporarily invest all or a substantial portion of its net assets in cash
or cash equivalents. The Fund would not be pursuing its investment objective in these circumstances and could miss favorable market
developments.
Foreign Securities Risk. Investments
in securities of non-U.S. issuers involve special risks not presented by investments in securities of U.S. issuers, including the
following: less publicly available information about companies due to less rigorous disclosure or accounting standards or regulatory
practices; the impact of political, social or diplomatic events, including war; possible seizure, expropriation or nationalization
of the company or its assets; possible imposition of currency exchange controls; and changes in foreign currency exchange rates.
These risks are more pronounced to the extent that the Fund invests a significant amount of its investments in companies located
in one region. These risks may be greater in emerging markets and in less developed countries. For example, prior governmental
approval for foreign investments may be required in some emerging market countries, and the extent of foreign investment may be
subject to limitation in other emerging countries. With respect to risks associated with changes in foreign currency exchange rates,
the Fund does not expect to engage in foreign currency hedging transactions. See “Foreign Currency Risk.”
Global Market Risk. An investment
in Fund shares is subject to investment risk, including the possible loss of the entire principal amount invested. The Fund is
subject to the risk that geopolitical and other similar events will disrupt the economy on a national or global level. For instance,
war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic developments, public
health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters can
all negatively impact the securities markets.
Managed Distribution Policy Risk. Under
the Fund’s Distribution Policy, the Fund makes monthly distributions to Stockholders at a rate that may include periodic
distributions of its net income and net capital gains (“Net Earnings”), or from return-of-capital. 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 Stockholders.
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,
including securities purchased with the proceeds of the Offering, 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. Distributions may constitute a return of capital to Stockholders and lower the tax basis in their Shares
which, for the taxable Stockholders, will defer any potential gains until the Shares are sold. For the taxable Stockholders, the
portion of distribution that constitutes ordinary income and/or capital gains is taxable to such Stockholders in the year the distribution
is declared. A return of capital is non-taxable to the extent of the Stockholder’s basis in the shares. The Stockholders
would reduce their basis in the Shares by the amount of the distribution and therefore may result in an increase in the amount
of any taxable gain on a subsequent disposition of such Shares, even if such Shares are sold at a loss to the Stockholder’s
original investment amount. Any return of capital will be separately identified when Stockholders receive their tax statements.
Any return of capital that exceeds cost basis may be treated as capital gain. Stockholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund. The Fund may need to raise additional capital in
order to maintain the Distribution Policy.
The following table is provided to demonstrate
the historical components of the Distribution Policy. The average annual returns indicated below include the return of Stockholders’
capital invested in the Fund. A return of capital distribution does not reflect positive investment performance. Stockholders should
not draw any conclusions about the Fund’s investment performance from the amount of its managed distributions or from the
terms of the Distribution Policy. The Fund’s managed distribution rates do not correlate to the Fund’s total return
based on NAV because the Fund’s Distribution Policy maintains a stable, high rate of distribution to its Stockholders, and
such distributions are not tied to the Fund’s investment income or capital gains and do not represent yield or investment
return on the Fund’s portfolio.
Cornerstone Strategic Value Fund, Inc.
Managed Distributions Paid and NAV Returns from
2016 through 2020
Years
|
|
|
NAV
Per
Share
|
|
|
Average
Annual
Return*
|
|
|
Average
Annual
Return**
|
|
|
Managed Distribution
Per Share
|
|
|
Return-of-
Capital
Distribution
|
|
|
Capital Gains
Distribution
|
|
|
Net
Investment
Income
Distribution
|
|
|
Gross
Expense
Ratios
|
|
2016
|
|
|
$
|
13.24
|
|
|
|
11.92
|
%
|
|
|
10.15
|
%
|
|
$
|
3.40
|
|
|
$
|
2.47
|
|
|
$
|
0.71
|
|
|
$
|
0.22
|
|
|
|
1.25
|
%
|
2017
|
|
|
|
13.55
|
|
|
|
25.93
|
|
|
|
23.42
|
|
|
|
2.79
|
|
|
|
1.37
|
|
|
|
1.29
|
|
|
|
0.13
|
|
|
|
1.20
|
|
2018
|
|
|
|
10.50
|
|
|
|
(2.90
|
)
|
|
|
(1.56
|
)
|
|
|
2.84
|
|
|
|
2.47
|
|
|
|
0.26
|
|
|
|
0.11
|
|
|
|
1.14
|
|
2019
|
|
|
|
10.80
|
|
|
|
28.66
|
|
|
|
26.32
|
|
|
|
2.46
|
|
|
|
1.84
|
|
|
|
0.52
|
|
|
|
0.10
|
|
|
|
1.13
|
|
2020
|
|
|
|
9.93
|
|
|
|
15.63
|
|
|
|
12.53
|
|
|
|
2.22
|
|
|
|
1.40
|
|
|
|
0.73
|
|
|
|
0.09
|
|
|
|
1.14
|
|
*
|
Includes the reinvestments of distributions in accordance with the operations of Fund’s distribution reinvestment plan.
|
**
|
Includes distributions received but not reinvested.
|
Management Risk. The Fund is
subject to management risk because it is an actively managed portfolio. The Fund’s successful pursuit of its investment objective
depends upon the Investment Adviser’s ability to find and exploit market inefficiencies with respect to undervalued securities.
Such situations occur infrequently and sporadically and may be difficult to predict and may not result in a favorable pricing opportunity
that allows the Investment Adviser to fulfill the Fund’s investment objective. The Investment Adviser’s security selections
and other investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar
investment goals. If one or more key individuals leave the employ of the Investment Adviser, the Investment Adviser may not be
able to hire qualified replacements or may require an extended time to do so. This could prevent the Fund from achieving its investment
objective. The Investment Adviser may also benefit from the Offering because its fee is based on the assets of the Fund, which
could be perceived as a conflict of interest.
Other Investment Company Securities Risk.
The Fund may invest in the securities of other closed-end investment companies and in ETFs. Investing in other investment
companies and ETFs involves substantially the same risks as investing directly in the underlying instruments, but the total return
on such investments at the investment company level may be reduced by the operating expenses and fees of such other investment
companies, including advisory fees. To the extent the Fund invests a portion of its assets in investment company securities, those
assets will be subject to the risks of the purchased investment company’s portfolio securities, and a stockholder in the
Fund will bear not only his proportionate share of the expenses of the Fund, but also, indirectly the expenses of the purchased
investment company. There can be no assurance that the investment objective of any investment company or ETF in which the Fund
invests will be achieved.
Although the Fund currently does not intend
to use financial leverage, the securities of other investment companies in which the Fund invests may be leveraged, which will
subject the Fund to the risks associated with the use of leverage. Such risks include, among other things, the likelihood of greater
volatility of the net asset value and market price of such shares; the risk that fluctuations in interest rates on the borrowings
of such investment companies, or in the dividend rates on preferred shares that they must pay, will cause the yield on the shares
of such companies to fluctuate more than the yield generated by unleveraged shares; and the effect of leverage in a declining market,
which is likely to cause a greater decline in the net asset value of such shares than if such companies did not use leverage, which
may result in a greater decline in the market price of such shares.
Non-Principal Risks
In addition to the principal risks set forth
above, the following additional risks may apply to an investment in the Fund.
Anti-Takeover Provisions. The
Fund’s Charter and Bylaws include provisions that could limit the ability of other persons or entities to acquire control
of the Fund or to cause it to engage in certain transactions or to modify its structure.
Convertible Securities Risk. The
value of a convertible security, including, for example, a warrant, is a function of its “investment value” (determined
by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion
privilege) and its “conversion value” (the security’s worth, at market value, if converted into the underlying
common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors
may also have an effect on the convertible security’s investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases
as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption
at the option of the issuer at a price established in the convertible security’s governing instrument. If a convertible security
held by the Fund is called for redemption, the Fund will be required to permit the issuer to redeem the security, convert it into
the underlying common stock or sell it to a third party. Any of these actions could have an adverse effect on the Fund’s
ability to achieve its investment objective.
Credit Risk. Fixed income securities
rated B or below by S&Ps or Moody’s may be purchased by the Fund. These securities have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of those issuers to make principal
or interest payments, as compared to issuers of more highly rated securities.
Debt Security Risk. In addition
to interest rate risk, call risk and extension risk, debt securities are also subject to the risk that they may also lose value
if the issuer fails to make principal or interest payments when due, or the credit quality of the issuer falls.
Extension Risk. The Fund is subject
to the risk that an issuer will exercise its right to pay principal on an obligation held by that Fund (such as mortgage-backed
securities) later than expected. This may happen when there is a rise in interest rates. These events may lengthen the duration
(i.e. interest rate sensitivity) and potentially reduce the value of these securities.
Foreign Currency Risk. Although
the Fund will report its net asset value and pay expenses and distributions in U.S. dollars, the Fund may invest in foreign securities
denominated or quoted in currencies other than the U.S. dollar. Therefore, changes in foreign currency exchange rates will affect
the U.S. dollar value of the Fund’s investment securities and net asset value. For example, even if the securities prices
are unchanged on their primary foreign stock exchange, the Fund’s net asset value may change because of a change in the rate
of exchange between the U.S. dollar and the trading currency of that primary foreign stock exchange. Certain currencies are more
volatile than those of other countries and Fund investments related to those countries may be more affected. Generally, if a foreign
currency depreciates against the dollar (i.e., if the dollar strengthens), the value of the existing investment in the securities
denominated in that currency will decline. When a given currency appreciates against the dollar (i.e., if the dollar weakens),
the value of the existing investment in the securities denominated in that currency will rise. Certain foreign countries may impose
restrictions on the ability of foreign securities issuers to make payments of principal and interest to investors located outside
of the country, due to a blockage of foreign currency exchanges or otherwise.
Illiquid Securities. The Fund
may invest up to 15% of its respective net assets in illiquid securities. Illiquid securities may offer a higher yield than securities
which are more readily marketable, but they may not always be marketable on advantageous terms. The sale of illiquid securities
often requires more time and results in higher brokerage charges or dealer discounts than does the sale of securities eligible
for trading on national securities exchanges or in the over-the-counter markets. A security traded in the U.S. that is not registered
under the Securities Act will not be considered illiquid if Fund management determines that an adequate investment trading market
exists for that security. However, there can be no assurance that a liquid market will exist for any security at a particular time.
Interest Rate Risk. Debt securities
have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest
rates rise and can rise when interest rates fall. Securities with longer maturities and mortgage securities can be more sensitive
to interest rate changes although they usually offer higher yields to compensate investors for the greater risks. The longer the
maturity of the security, the greater the impact a change in interest rates could have on the security’s price. In addition,
short-term and long-term interest rates do not necessarily move in the same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates and long-term securities tend to react to changes in long-term interest rates.
Investment in Small and Mid-Capitalization
Companies. The Fund may invest in companies with mid or small sized capital structures (generally a market capitalization
of $5 billion or less). Accordingly, the Fund may be subject to the additional risks associated with investment in these companies.
The market prices of the securities of such companies tend to be more volatile than those of larger companies. Further, these securities
tend to trade at a lower volume than those of larger more established companies. If the Fund is heavily invested in these securities
and the value of these securities suddenly declines, that Fund will be susceptible to significant losses.
Leverage Risk. Utilization of
leverage is a speculative investment technique and involves certain risks to the holders of common stock. These include the possibility
of higher volatility of the net asset value of the common stock and potentially more volatility in the market value of the common
stock. So long as the Fund is able to realize a higher net return on its investment portfolio than the then current cost of any
leverage together with other related expenses, the effect of the leverage will be to cause holders of common stock to realize higher
current net investment income than if the Fund were not so leveraged. On the other hand, to the extent that the then current cost
of any leverage, together with other related expenses, approaches the net return on the Fund’s investment portfolio, the
benefit of leverage to holders of common stock will be reduced, and if the then current cost of any leverage were to exceed the
net return on the Fund’s portfolio, the Fund’s leveraged capital structure would result in a lower rate of return to
Stockholders than if the Fund were not so leveraged. There can be no assurance that the Fund’s leverage strategy will be
successful.
Market Discount from Net Asset Value.
Shares of closed-end investment companies frequently trade at a discount from their net asset value. This characteristic
is a risk separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment
activities and may be greater for investors expecting to sell their Shares in a relatively short period following completion of
the Offering. The net asset value of the Shares will be reduced immediately following the offering as a result of the payment of
certain costs of the Offering. Whether investors will realize gains or losses upon the sale of the Shares will depend not upon
the Fund’s net asset value but entirely upon whether the market price of the Shares at the time of sale is above or below
the investor’s purchase price for the Shares. Because the market price of the Shares will be determined by factors such as
relative supply of and demand for the Shares in the market, general market and economic conditions, and other factors beyond the
control of the Fund, the Fund cannot predict whether the Shares will trade at, below or above net asset value.
Over-the-Counter Bulletin Board Markets.
The Fund may invest in companies whose stock is trading on the over-the-counter Bulletin Board which have only a limited
trading market. A more active trading market may never develop. The Fund may be unable to sell its investments in these companies
on any particular day due to the limited trading market.
Portfolio Turnover Risk. The
Investment Adviser cannot predict the Fund’s securities portfolio turnover rate with certain accuracy, but anticipates that
its annual portfolio turnover rate will range between 10% and 90% under normal market conditions. However, it could be materially
higher under certain conditions. Higher portfolio turnover rates could result in corresponding increases in brokerage commissions
and may generate short-term capital gains taxable as ordinary income.
Preferred Securities Risk. Investment
in preferred securities carries risks including credit risk, deferral risk, redemption risk, limited voting rights, risk of subordination
and lack of liquidity. Fully taxable or hybrid preferred securities typically contain provisions that allow an issuer, at its discretion,
to defer distributions for up to 20 consecutive quarters. Traditional preferreds also contain provisions that allow an issuer,
under certain conditions to skip (in the case of “noncumulative preferreds”) or defer (in the case of “cumulative
preferreds”), dividend payments. If the Fund owns a preferred security that is deferring its distributions, the Fund may
be required to report income for tax purposes while it is not receiving any distributions. Preferred securities typically contain
provisions that allow for redemption in the event of tax or security law changes in addition to call features at the option of
the issuer. In the event of a redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred
securities typically do not provide any voting rights, except in cases when dividends are in arrears beyond a certain time period,
which varies by issue. Preferred securities are subordinated to bonds and other debt instruments in a company’s capital structure
in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than those
debt instruments. Preferred securities may be substantially less liquid than many other securities, such as U.S. government securities,
corporate debt or common stocks. Dividends paid on preferred securities will generally not qualify for the reduced federal income
tax rates applicable to qualified dividends under the Code. See “Certain Additional Material United States Federal Income
Tax Considerations.”
Repurchase Agreement Risk. The
Fund does not enter into nor does it currently intend to enter into repurchase agreements, however, if the Fund were to enter into
repurchase agreements, the Fund could suffer a loss if the proceeds from a sale of the securities underlying a repurchase agreement
to which it is a party turns out to be less than the repurchase price stated in the agreement. In addition, repurchase agreements
may involve risks in the event of default or insolvency of the seller, including possible delays or restrictions upon the Fund’s
ability to dispose of the underlying securities.
Securities Lending Risk. Securities
lending is subject to the risk that loaned securities may not be available to the Fund on a timely basis and the Fund may, therefore,
lose the opportunity to sell the securities at a desirable price. Any loss in the market price of securities loaned by the Fund
that occurs during the term of the loan would be borne by the Fund and would adversely affect the Fund’s performance. Also,
there may be delays in recovery, or no recovery, of securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially while the loan is outstanding. The Fund retains the right to recall securities that it lends
to enable it to vote such securities if it determines such vote to be material. Despite its right to recall securities lent, there
can be no guarantee that recalled securities will be received timely to enable the Fund to vote those securities. The Fund does
not anticipate having any securities lending income during the current calendar year.
LISTING OF SHARES
The Fund’s Shares trade on the NYSE American
under the ticker symbol “CLM,” and are required to meet the NYSE American’s continued listing requirements.
MANAGEMENT OF THE FUND
Directors and Officers
The Board of Directors is responsible for the
overall management of the Fund, including supervision of the duties performed by the Investment Adviser. There are six Directors
of the Fund, one of which is an “interested person” (as defined in the 1940 Act) of the Fund. The Directors are responsible
for the Fund’s overall management, including adopting the investment and other policies of the Fund, electing and replacing
officers and selecting and supervising the Fund’s Investment Adviser. The name and business address of the Directors and
officers of the Fund and their principal occupations and other affiliations during the past five years, as well as a description
of committees of the Board of Directors, are set forth under “Management” in the Statement of Additional Information.
Investment Adviser
At the Fund’s annual meeting of stockholders
held on April 16, 2019, stockholders of the Fund approved a new investment management agreement with Cornerstone Advisors Asset
Management LLC, which agreement became effective May 1, 2019. Cornerstone Advisors Asset Management LLC subsequently changed its
name to Cornerstone Advisors, LLC. Prior to May 1, 2019, the Fund was managed by Cornerstone Advisors, Inc. (the “Former
Investment Adviser”).
Cornerstone Advisors, LLC (the “Investment
Adviser”), 1075 Hendersonville Road, Suite 250, Asheville, North Carolina 28803, is a limited liability company organized
under the laws of North Carolina and serves as the Fund’s investment adviser. The Investment Adviser is registered with the
SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. The Investment Adviser manages one other closed-end
fund with combined assets with the Fund, of approximately $1,164.3 million, as of December 31, 2020.
Under the general supervision of the Fund’s
Board of Directors, the Investment Adviser carries out the investment and reinvestment of the net assets of the Fund, continuously
furnishes an investment program with respect to the Fund, determines which securities should be purchased, sold or exchanged, and
implements such determinations. The Investment Adviser furnishes to the Fund investment advice and office facilities, equipment
and personnel for servicing the investments of the Fund. The Investment Adviser compensates all Directors and officers of the Fund
who are members of the Investment Adviser’s organization and who render investment services to the Fund, and will also compensate
all other Investment Adviser personnel who provide research and investment services to the Fund. In return for these services,
facilities and payments, the Fund has agreed to pay the Investment Adviser as compensation under the Investment Management Agreement
a monthly fee computed at the annual rate of 1.00% of the average weekly net assets of the Fund. The total estimated annual expenses
of the Fund are set forth in the section titled “Summary of Fund Expenses.”
The Board of Directors annually considers the
continuance of the Investment Management Agreement. A discussion regarding the basis for the Board of Directors’ approval
on February 5, 2021 of the continuance of the Investment Management Agreement between the Fund and the Investment Adviser will
be available in the Fund’s semi-annual report to Stockholders for the six-month period ended June 30, 2021.
During the last three fiscal years, the Fund
paid the Investment Adviser (and Former Investment Adviser, as noted) the following amounts as compensation:
|
|
Fiscal Year Ended December 31,
|
|
|
|
2020
|
|
|
2019(1)
|
|
|
2018(2)
|
|
Management Fees Earned
|
|
$
|
7,398,443
|
|
|
$
|
8,048,500
|
|
|
$
|
7,067,013
|
|
Management Fee Paid
|
|
$
|
7,398,443
|
|
|
$
|
8,048,500
|
|
|
$
|
7,067,013
|
|
(1)
|
Includes $2,452,522 fees paid to the Former Investment Adviser for the period ending April 30, 2019.
|
(2)
|
Paid to the Former Investment Adviser.
|
Portfolio Manager
Ralph W. Bradshaw has been the Fund’s
portfolio manager (the “Portfolio Manager”) for over ten years. Mr. Bradshaw, President of Cornerstone Advisors, LLC,
is the President and Chairman of the Board of Directors of the Fund. In addition, Mr. Bradshaw may consult with Joshua G. Bradshaw
and Daniel W. Bradshaw, co-portfolio managers of the Fund, regarding investment decisions. In carrying out responsibilities for
the management of the Fund’s portfolio of securities, the Portfolio Manager has primary responsibility. The Investment Adviser
may create a portfolio management team by assigning additional portfolio managers. In cases where the team might not be in agreement
with regard to an investment decision, Mr. Bradshaw has ultimate authority to decide the matter. The Statement of Additional Information
provides additional information about the Portfolio Manager’s compensation, other accounts managed by the Portfolio Manager,
and the Portfolio Manager’s ownership of securities in the Fund.
Administrator and Fund Accounting Agent
Ultimus Fund Solutions, LLC, located at 225
Pictoria Drive, Suite 450, Cincinnati, OH (“Ultimus”) serves as the administrator and funding accounting agent to the
Fund. Under the fund accounting and administration agreement with the Fund, Ultimus is responsible for generally managing the administrative
affairs of the Fund, including supervising the preparation of reports to Stockholders, reports to and filings with the SEC and
materials for meetings of the Board. Ultimus is also responsible for calculating the net asset value per share and maintaining
the financial books and records of the Fund. Ultimus is entitled to receive a base fee of $5,000 per month plus an asset-based
fee of 0.05% of the first $250 million of average daily net assets, 0.04% of such assets greater than $250 million to $1 billion,
0.03% of such assets greater than $1 billion to $2 billion and 0.02% of such assets in excess of $2 billion.
Custodian and Transfer Agent
U.S. Bank N.A., located at 425 Walnut Street,
Cincinnati, Ohio 45202, is the custodian of the Fund and maintains custody of the securities and cash of the Fund.
American Stock Transfer and Trust Co., LLC,
with an address at 6201 15th Avenue, Brooklyn, New York 11219, serves as the transfer agent and dividend paying agent of the Fund.
Fund Expenses
The Investment Adviser is obligated to pay
expenses associated with providing the services contemplated by the Investment Management Agreement, including compensation of
and office space for its officers and employees connected with investment and economic research, trading and investment management
and administration of the Fund. The Fund is not obligated to pay the fees of any Director of the Fund who is affiliated with the
Investment Adviser.
Ultimus is obligated to pay expenses
associated with providing the services contemplated by the fund accounting and administration agreement, including
compensation of and office space for Ultimus’ officers and employees and administration of the Fund. The Fund is not
obligated to pay the fees of any Director or officer of the Fund who is affiliated with Ultimus.
The Fund pays all other
expenses incurred in the operation of the Fund including, among other things, (i) expenses for legal and independent
accountants’ services, (ii) costs of printing proxies, share certificates and reports to stockholders, (iii) charges of
the custodian and transfer agent in connection with the Fund’s Distribution Reinvestment Plan, (iv) fees and expenses
of independent Directors, (v) printing costs, (vi) membership fees in trade association, (vii) fidelity bond coverage for the
Fund’s officers and Directors, (viii) errors and omissions insurance for the Fund’s officers and Directors, (ix)
brokerage costs and listing fees and expenses charged by NYSE American, (x) taxes and (xi) other extraordinary or
non-recurring expenses and other expenses properly payable by the Fund. The expenses incident to the Offering and issuance of
Shares to be issued by the Fund will be recorded as a reduction of capital of the Fund attributable to the Shares.
The Fund’s annual operating expenses
for the fiscal year ended December 31, 2020 were approximately $8,429,000. No assurance can be given, in light of the Fund’s
investment objectives and policies, however, that future annual operating expenses will not be substantially more or less than
this estimate.
Offering expenses relating to the Fund’s
Shares, estimated at approximately $246,015 be payable upon completion of the Offering and will be deducted from the proceeds of
the Offering.
The Investment Management Agreement authorizes
the Investment Adviser to select brokers or dealers (including affiliates) to arrange for the purchase and sale of Fund securities,
including principal transactions. Any commission, fee or other remuneration paid to an affiliated broker or dealer is paid in compliance
with the Fund’s procedures adopted in accordance with Rule 17e-1 under the 1940 Act.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of the Fund is
determined weekly and on the last business day of each month, as of the close of regular trading on the NYSE American (normally,
4:00 p.m., Eastern time). In computing net asset value, portfolio securities of the Fund are valued at their current market values
determined on the basis of market quotations. If market quotations are not readily available, securities are valued at fair value
as determined by the Board of Directors. The Fund’s investments in closed-end funds or ETFs whose shares are listed on a
national securities exchange are valued using the market price at the close of the NYSE American or such other exchange on which
they are listed. Private funds and non-traded closed-end funds are fair valued based on the Fund’s fair valuation policies
and procedures. Fair valuation involves subjective judgments, and it is possible that the fair value determined for a security
may differ materially from the value that could be realized upon the sale of the security. Non-dollar-denominated securities are
valued as of the close of the NYSE American at the closing price of such securities in their principal trading market, but may
be valued at fair value if subsequent events occurring before the computation of net asset value materially have affected the value
of the securities.
Trading may take place in foreign issues held
by the Fund at times when the Fund is not open for business. As a result, the Fund’s net asset value may change at times
when it is not possible to purchase or sell shares of the Fund. The Fund may use a third party pricing service to assist it in
determining the market value of securities in the Fund’s portfolio. The Fund’s net asset value per Share is calculated
by dividing the value of the Fund’s total assets (the value of the securities the Fund holds plus cash or other assets, including
interest accrued but not yet received), less accrued expenses of the Fund, less the Fund’s other liabilities by the total
number of Shares outstanding.
Readily marketable portfolio securities listed
on the NYSE American are valued, except as indicated below, at the last sale price reflected on the consolidated tape at the close
of the NYSE American 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 American 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 NASDAQ Official Closing
Price. Readily marketable securities traded in the over-the counter market, including listed securities whose primary market is
believed by the Investment Adviser 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.
DISTRIBUTION POLICY
The Fund initiated a fixed, monthly distribution
to stockholders in 2002 which, with interim adjustments and extensive disclosure, continues to be a high-level managed distribution
policy. The Distribution Policy has been maintained through the historic economic volatility, increased regulatory scrutiny and
challenging markets of the intervening years.
During recent years, the Fund’s investments
made in accordance with its objective have failed to provide adequate income to meet the requirements of the Distribution Policy.
Nevertheless, the Board continues to believe that the Fund’s objective and strategy are complementary to the Fund’s
commitment, through the Distribution Policy, to provide regular distributions which increase liquidity and provide flexibility
to individual Stockholders. The Investment Adviser seeks to achieve net investment returns that exceed the amount of the Fund’s
managed distributions, although there is no guarantee that the Investment Adviser will be successful in this regard.
What are the features of the Distribution
Policy?
The Distribution Policy provides a regular
monthly distribution to Stockholders that is adjusted through an annual resetting of the monthly distribution amount per share
based on the Fund’s net asset value on the last business day in October. The terms of the Distribution Policy have been reviewed
and are approved at least annually by the Fund’s Board and can be modified at the Board’s discretion. To the extent
that distributions exceed the current Net Earnings of the Fund, the balance of the amounts paid out will be generated from sales
of portfolio securities held by the Fund and will be distributed either as short-term or long-term capital gains or a tax-free
return-of- capital. Although return of capital distributions may not be taxable, such distributions may reduce a Stockholder’s
cost basis in his or her Shares, and therefore may result in an increase in the amount of any taxable gain on a subsequent disposition
of such Shares, even if such Shares are sold at a loss to the Stockholder’s original investment amount. 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. As shown on page 35 in the table which identifies the constituent components of
the Fund’s distributions under its Managed Distribution Policy for years 2016-2020, a majority of the distributions that
the Fund made to its Stockholders for 2016, 2019 and 2020 consisted of a return of its Stockholders’ capital, and not of
income or gains generated from the Fund’s investment portfolio, and substantially all of the distributions that the Fund
made to its Stockholders for 2018 consisted of a return of its Stockholders’ capital, and not of income or gains generated
from the Fund’s investment portfolio. For 2017, a portion of the distributions that the made to its Stockholders consisted
of a return of its Stockholders’ capital, and not of income or gains generated from the Fund’s investment portfolio.
A return-of-capital distribution reduces the tax basis of an investor’s shares in the Fund. The Fund plans to maintain the
Distribution Policy even if a return-of-capital distribution would exceed an investor’s tax basis and therefore be a taxable
distribution. The Board currently 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 Stockholders and to disclose that portion of the distribution
that is classified as ordinary income. Although it has no current intention to do so, the Board may terminate the Distribution
Policy at any time and such termination may have an adverse effect on the market price for the Fund’s Shares.
What are the benefits of the Distribution
Policy?
The Distribution Policy historically has maintained
a stable, high rate of distribution. The Board remains convinced that the Fund’s Stockholders are well served by a policy
of regular distributions which increase liquidity and provide flexibility to individual Stockholders in managing their investments.
Stockholders have the option of reinvesting all or a portion of these distributions in additional Shares through the Fund’s
distribution reinvestment plan or receiving them in cash. For more information regarding the Fund’s distribution reinvestment
plan, Stockholders should carefully read the description of the distribution reinvestment plan contained in the Fund’s Reports
to Stockholders.
What are the risks of the Distribution
Policy?
The Fund makes level distributions on a monthly
basis and these distributions are not tied to the Fund’s net investment income and capital gains and may not represent yield
or investment return on the Fund’s portfolio. Under the Distribution Policy, the Fund makes monthly distributions to Stockholders
at a rate that may include periodic distributions of its Net Earnings or a return of capital. As noted above, Stockholders have
the option of reinvesting all or a portion of these distributions in additional shares of the Fund through the Fund’s distribution
reinvestment plan or receiving them in cash. In any fiscal year where total cash distributions exceed Net Earnings and unrealized
gain or loss for the year, such excess will decrease the Fund’s total assets and, as a result, will have the likely effect
of increasing the Fund’s expense ratio. There is a risk that the total Net Earnings and unrealized gain or loss for years
from the Fund’s portfolio would not be great enough to fully offset the amount of cash distributions paid to Fund stockholders.
If this were to be the case, the Fund’s assets would be partially reduced by an equal amount, 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 need to sell a portion
of its investment portfolio at a time when independent investment judgment might not dictate such action. Furthermore, the cash
used to make distributions will not be available for investment pursuant to the Fund’s investment objective.
Funds maintain varying degrees of cash
levels pursuant to market conditions and the judgment of the portfolio manager. In addition, portfolio managers must raise
cash periodically to cover operating expenses. For any fund, to the extent that cash is held at any given time for operating
expenses or other purposes, it will not be available for investment pursuant to that fund’s investment objective. In
addition to these general cash requirements, a fund’s distribution policy may also require that securities be sold to
raise cash for those stockholders who elect to take cash distributions rather than reinvest in shares of the fund, in which
case, it will also not be available for investment pursuant to the fund’s investment objective. It is possible that a
situation will occur where the Distribution Policy contributes to a reduction of assets over an extended period of time such
that the assets of the Fund are reduced to a point where the Fund would no longer be economically viable. In such event, the
Fund would need to take additional actions, which may include, for example, liquidation or merger, to address the situation.
While this is one of the risk factors of any managed distribution policy, including the Distribution Policy, it is important
to note that the Distribution Policy was not designed to be a mechanism for the dissolution of the Fund or a short-term
liquidation policy, and it is not the intention of the Board to allow the Fund to self-liquidate through the unsupervised
effects of the Distribution Policy. The Board monitors the Distribution Policy and the Fund’s asset levels regularly,
and remains ready to modify the terms of the Distribution Policy if, in its judgment, the Board believes it is in the best
interests of the Fund and its Stockholders. The Board may consider additional rights offerings in the future.
A
return-of-capital distribution reduces the tax basis of an investor’s Shares, which may make record-keeping by certain
Stockholders more difficult.
The Fund discloses the characterization of
its distributions in notices to Stockholders and press releases to the public. Notwithstanding these communications, it is possible
that the Distribution Policy may create potential confusion in the marketplace as to whether the Fund’s distributions are
comprised of income or return of capital and how such characterization may influence the market price of the Fund’s Shares.
For the years 2016-2020, the Fund’s distributions
under the Distribution Policy were characterized, on an annual basis, as set forth on the table below:
Cornerstone Strategic Value Fund, Inc.
|
|
Dividend and Distributions Paid from 2016 through 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
Return-of-Capital
|
|
Years
|
|
|
Total
Dividends and
Distributions
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
2016
|
|
|
$
|
77,460,037
|
|
|
$
|
21,159,907
|
|
|
|
27.32
|
%
|
|
$
|
56,300,130
|
|
|
|
72.68
|
%
|
2017
|
|
|
|
94,415,301
|
|
|
|
48,183,699
|
|
|
|
51.03
|
|
|
|
46,231,602
|
|
|
|
48.97
|
|
2018
|
|
|
|
158,625,475
|
|
|
|
20,320,936
|
|
|
|
12.81
|
|
|
|
138,304,539
|
|
|
|
87.19
|
|
2019
|
|
|
|
181,607,411
|
|
|
|
45,786,447
|
|
|
|
25.21
|
|
|
|
135,820,964
|
|
|
|
74.79
|
|
2020
|
|
|
|
169,115,831
|
|
|
|
62,663,445
|
|
|
|
37.05
|
|
|
|
106,452,386
|
|
|
|
62.95
|
|
Unless the registered owner of Shares elects
to receive cash, all distributions declared on the Fund’s Shares will be automatically reinvested in additional Shares. See
“Distribution Reinvestment Plan”.
In order to maintain the Distribution Policy,
the Fund applied for and received an exemption from the requirements of Section 19(b) of the 1940 Act and Rule 19b-1 thereunder
permitting the Fund to make periodic distributions of long-term capital gains, provided that the Distribution Policy calls for
periodic (e.g., quarterly/monthly) distributions in an amount equal to a fixed percentage of the Fund’s average net asset
value over a specified period of time or market price per Share at or about the time of distribution or pay-out of a level dollar
amount.
The Distribution Policy results in the payment
of approximately the same amount per share to the Fund’s Stockholders each month. These distributions are not to be tied
to the Fund’s investment income and capital gains and do not represent yield or investment return on the Fund’s portfolio.
Section 19(a) of the 1940 Act and Rule 19a-1 thereunder require the Fund to provide a written statement accompanying any such payment
that adequately discloses its source or sources, other than net investment income. Thus, if the source of some or all of the dividend
or other distribution were the original capital contribution of the Stockholder, and the payment amounted to a return of capital,
the Fund would be required to provide written disclosure to that effect. Nevertheless, persons who periodically receive the payment
of a dividend or other distribution may be under the impression that they are receiving net profits when they are not. Stockholders
should read any written disclosure provided pursuant to Section 19(a) and Rule 19a-1 carefully, and should not assume that the
source of any distribution from the Fund is net profit. A return of capital distribution does not reflect positive investment performance.
Stockholders should not draw any conclusions about the Fund’s investment performance from the amount of its managed distributions
or from the terms of the Distribution Policy. When the Fund issues a written disclosure pursuant to Section 19(a) and Rule 19a-1,
the Fund will refer to such a notice as a “Rule 19a-1 Notice Accompanying Distribution Payment”. In addition, the Fund
will refer to the return of capital distributions as “Paid-in-capital” which will be presented under the “Source
of Payment” heading in such notice.
On August 7, 2020, the Board of Directors of
the Fund determined that the distribution percentage for the calendar year 2021 would remain at 21%, which was the same distribution
percentage used in 2020, which was then applied to the net asset value of the Fund at the end of October 2020 to determine the
distribution amounts for calendar year 2021. During 2021, the Board of Directors of the Fund will make a determination regarding
the distribution percentage for 2022 which will then be applied to the net asset value of the Fund at the end of October 2021 to
determine the distribution amounts for calendar year 2022. The distribution percentage is not a function of, nor is it related
to, the investment return on the Fund’s portfolio.
The Board of Directors reserves the right to
change the Distribution Policy from time to time.
DISTRIBUTION REINVESTMENT PLAN
The Fund operates a distribution reinvestment
plan (the “Plan”), administered by American Stock Transfer & Trust Company, LLC (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.
Stockholders automatically participate in the
Fund’s Plan, unless and until an election is made to withdraw from the Plan on behalf of such participating Stockholder.
Stockholders who do not wish to have Distributions automatically reinvested should so notify the Agent at 6201 15th Avenue, Brooklyn,
NY 11219. Under the Plan, the Fund’s Distributions to Stockholders are reinvested in full and fractional Shares as described
below.
When the Fund declares a Distribution, the
Agent, on the Stockholder’s behalf, will (i) receive additional authorized shares from the Fund either newly issued or repurchased
from Stockholders by the Fund and held as treasury stock (“Newly Issued Shares”) or (ii) purchase outstanding shares
on the open market, on the NYSE American or elsewhere, with cash allocated to it by the Fund (“Open Market Purchases”).
The method for determining the number of Newly
Issued Shares received when Distributions are reinvested will be determined by dividing the amount of the Distribution either by
the Fund’s last reported net asset value per share or by a price equal to the average closing price of the Fund over the
five trading days preceding the payment date of the Distribution, whichever is lower. However, if the last reported net asset value
of the Fund’s Shares is higher than the average closing price of the Fund over the five trading days preceding the payment
date of the Distribution (i.e., the Fund is selling at a discount), Shares may be acquired by the Agent in Open Market Purchases
and allocated to the reinvesting Stockholders based on the average cost of such Open Market Purchases. Upon notice from the Fund,
the Agent will receive the Distribution in cash and will purchase shares of common stock in the open market, on the NYSE American
or elsewhere, for the participants’ accounts, except that the Agent will endeavor to terminate purchases in the open market
and cause the Fund to issue the remaining shares if, following the commencement of the purchases, the market value of the shares,
including brokerage commissions, exceeds the net asset value at the time of valuation. These remaining shares will be issued by
the Fund at a price equal to the net asset value at the time of valuation.
In a case where the Agent has terminated open
market purchases and caused the issuance of remaining shares by the Fund, the number of shares received by the participant in respect
of the Distribution will be based on the weighted average of prices paid for shares purchased in the open market, including brokerage
commissions, and the price at which the Fund issues the remaining shares. To the extent that the Agent is unable to terminate purchases
in the open market before the Agent has completed its purchases, or remaining shares cannot be issued by the Fund because the Fund
declared a Distribution payable only in cash, and the market price exceeds the net asset value of the shares, the average share
purchase price paid by the Agent may exceed the net asset value of the shares, resulting in the acquisition of fewer shares than
if the Distribution had been paid in shares issued by the Fund.
Whenever the Fund declares a Distribution and
the last reported 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.
Registered Stockholders who do not wish to
have their Distributions automatically reinvested should so notify the Fund in writing. If a Stockholder has not elected to receive
cash Distributions and the Agent does not receive notice of an election to receive cash Distributions prior to the record date
of any Distribution, the Stockholder will automatically receive such Distributions in additional Shares.
Participants in the Plan may withdraw from
the Plan by providing written notice to the Agent at least 30 days prior to the applicable Distribution payment date. The Agent
will maintain all Stockholder accounts in the Plan and furnish written confirmations of all transactions in the accounts, including
information needed by Stockholders 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 Stockholder’s proxy will include those Shares purchased
pursuant to the Plan. The Agent will distribute all proxy solicitation materials to participating Stockholders.
In the case of Stockholders, 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 Stockholder as representing the total amount
of Shares registered in the Stockholder’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 participant’s
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.
Participants may at any time sell some or all
of their shares though the Agent. Shares may be sold via the internet at www.astfinancial.com or by calling the toll free number
(866) 668-6558. Participants can also use the tear off portion attached to the bottom of their statement and mail the request to
American Stock Transfer and Trust Company LLC, 6201 15th Avenue, Brooklyn, NY 11219. There is a commission of $0.05 per share.
All correspondence concerning the Plan should
be directed to the Agent at 6201 15th Avenue, Brooklyn, NY 11219. Certain transactions can be performed online at www.astfinancial.com
or by calling the toll free number (866) 668-6558.
CERTAIN ADDITIONAL MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary discussion of
certain U.S. federal income tax consequences that may be relevant to a Stockholder that acquires, holds and/or disposes of
the Fund’s Shares, and reflects provisions of the Code, existing Treasury regulations, rulings published by the
Internal Revenue Service ( the “IRS”), and other applicable authority, as of the date of this prospectus. These
authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following
discussion is only a summary of some of the important tax considerations generally applicable to investments in the Fund and
the discussion set forth herein does not constitute tax advice. Except as expressly provided below, this discussion addresses
only the U.S. federal income tax consequences of an investment by U.S. Holders (as defined in the Statement of Additional
Information) and assumes that such Stockholders will hold Shares as capital assets, which generally means as property held
for investment. For more detailed information regarding tax considerations, see the Statement of Additional Information under
the heading “Certain Material United States Federal Income Tax Consequences.” There may be other tax
considerations applicable to particular investors. In addition, income earned through an investment in the Fund may be
subject to state, local and foreign taxes.
Taxation as a Regulated Investment Company
The Fund intends to elect to be treated and
to qualify each year for taxation as a regulated investment company (a “RIC”) under Subchapter M of the Code. In order
for the Fund to qualify as a RIC, it must, among other requirements, meet income and asset diversification tests each year. If
the Fund so qualifies and satisfies certain distribution requirements, the Fund (but not its Stockholders) will not be subject
to federal income tax to the extent it distributes its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital loss) in a timely manner to its Stockholders in the form of dividends or capital
gain distributions. The Code imposes a 4% nondeductible excise tax on RICs, such as the Fund, to the extent they do not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates meeting these distribution requirements.
The Fund intends to make monthly distributions
of investment company taxable income after payment of the Fund’s operating expenses. Unless a Stockholder is ineligible to
participate or elects otherwise, all distributions will be automatically reinvested in additional Shares pursuant to the Fund’s
distribution reinvestment plan (the “Plan”). For U.S. federal income tax purposes, all dividends are generally taxable
whether a Stockholder takes them in cash or they are reinvested pursuant to the Plan in additional Shares. Distributions of the
Fund’s investment company taxable income (including short-term capital gains) will generally be treated as ordinary income
to the extent of the Fund’s current and accumulated earnings and profits. Distributions of the Fund’s net capital gains
(“capital gain dividends”), if any, are taxable to Stockholders as long-term capital gains, regardless of the length
of time Shares have been held by Stockholders. Distributions, if any, in excess of the Fund’s earnings and profits will first
reduce the adjusted tax basis of a holder’s Shares and, after that basis has been reduced to zero, will constitute capital
gains to the Stockholder (assuming the Shares are held as a capital asset). See below for a summary of the maximum tax rates applicable
to capital gains (including capital gain dividends). A corporation that owns Shares generally will not be entitled to the dividends
received deduction with respect to all of the dividends it receives from the Fund. Fund dividend payments that are attributable
to qualifying dividends received by the Fund from certain domestic corporations may be designated by the Fund as being eligible
for the dividends received deduction. There can be no assurance as to what portion of Fund dividend payments may be classified
as qualifying dividends. With respect to the monthly distributions of investment company taxable income described above, it may
be the case that any such distributions would result in a return of capital to the Stockholder. The determination of the character
for U.S. federal income tax purposes of any distribution from the Fund (i.e., ordinary income dividends, capital gains dividends,
qualifying dividends, return of capital distributions) will be made as of the end of the Fund’s taxable year. Generally,
no later than 60 days after the close of its taxable year, the Fund will provide Stockholders with a written notice designating
the amount of any capital gain distributions or other distributions. See “Distribution Policy” for a more complete
description of such returns and the risks associated with them.
The Fund may elect to retain its net capital
gain or a portion thereof for investment and be taxed at corporate rates on the amount retained. In such case, it may designate
the retained amount as undistributed capital gains in a notice to its Stockholders who will be treated as if each received a distribution
of such Stockholder’s pro rata share of such gain, with the result that each Stockholder will (i) be required to report such
Stockholder’s pro rata share of such gain on such Stockholder’s tax return as long- term capital gain, (ii) receive
a refundable tax credit for such Stockholder’s pro rata share of tax paid by the Fund on the gain and (iii) increase the
tax basis for such Stockholder’s Shares by an amount equal to the deemed distribution less the tax credit.
Under current law, certain income distributions
paid by the Fund to individual taxpayers may be taxed at rates equal to those applicable to net long-term capital gains (generally,
20%). This tax treatment applies only if certain holding period and other requirements are satisfied by the Stockholder with respect
to its Shares, and the dividends are attributable to qualified dividends received by the Fund itself. For this purpose, “qualified
dividends” means dividends received by the Fund from certain United States corporations and certain qualifying foreign corporations,
provided that the Fund satisfies certain holding period and other requirements in respect of the stock of such corporations. In
the case of securities lending transactions, payments in lieu of dividends are not qualified dividends. The Fund’s dividends,
other than qualified dividends and capital gain dividends, will be fully taxable at ordinary income tax rates unless further legislative
action is taken. While certain income distributions to Stockholders may qualify as qualified dividends, the Fund’s seeks
to provide dividends regardless of whether they so qualify. As additional special rules apply to determine whether a distribution
will be a qualified dividend, investors should consult their tax advisors. Investors should also see the Fund’s Statement
of Additional Information under the heading “Certain Material United States Federal Income Tax Consequences” for more
information relating to qualified dividends.
Dividends and interest received, and gains
realized, by the Fund on foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions (collectively “foreign taxes”) that would reduce the return on its securities. Tax conventions between
certain countries and the United States, however, may reduce or eliminate foreign taxes, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors. If more than 50% of the value of the Fund’s net assets
at the close of its taxable year consists of securities of foreign corporations, it will be eligible to, and may, file an election
with the IRS that will enable Stockholders, in effect, to receive the benefit of the foreign tax credit with respect to any foreign
taxes paid by the Fund. Pursuant to the election, the Fund would treat those taxes as dividends paid to Stockholders and each Stockholder
(1) would be required to include in gross income, and treat as paid by such Stockholder, a proportionate share of those taxes,
(2) would be required to treat such share of those taxes and of any dividend paid by the Fund that represents income from foreign
or U.S. possessions sources as such stockholder’s own income from those sources, and, if certain conditions are met, (3)
could either deduct such Stockholder’s proportionate share of the foreign taxes deemed paid in computing taxable income or,
alternatively, use the foregoing information in calculating the foreign tax credit against such Stockholder’s federal income
tax liability. The Fund will report to Stockholders shortly after each taxable year their respective shares of foreign taxes paid
and the income from sources within, and taxes paid to, foreign countries and U.S. possessions if it makes this election.
The Fund will inform its Stockholders of the
source and tax status of all distributions promptly after the close of each calendar year.
The Fund may invest in other RICs. In general,
the Code taxes a RIC which satisfies certain requirements as a pass-through entity by permitting a qualifying RIC to deduct dividends
paid to its stockholders in computing the RIC’s taxable income. A qualifying RIC is also generally permitted to pass through
the character of certain types of its income when it makes distributions. For example, a RIC may distribute ordinary dividends
to its stockholders, capital gain dividends, or other types of dividends which effectively pass through the character of the RIC’s
income to its stockholders, including the Fund.
Taxation of Sales, Exchanges or Other Dispositions
Selling Stockholders will generally recognize
gain or loss in an amount equal to the difference between the Stockholder’s adjusted tax basis in the Shares sold and the
amount received in exchange therefor. If the Shares are held as a capital asset, the gain or loss will be a capital gain or loss.
Under current law, the maximum tax rate applicable to capital gains recognized by individuals and other non-corporate taxpayers
is (i) the same as the maximum ordinary income tax rate for gains recognized on the sale of capital assets held for one year or
less or (ii) generally, 20% for gains recognized on the sale of capital assets held for more than one year (as well as certain
capital gain dividends). Any loss on a disposition of Shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends received with respect to those Shares. The use of capital losses is subject to
limitations. For purposes of determining whether Shares have been held for six months or less, the holding period is suspended
for any periods during which the Stockholder’s risk of loss is diminished as a result of holding one or more other positions
in substantially similar or related property, or through certain options or short sales. Any loss realized on a sale or exchange
of Shares will be disallowed to the extent those Shares are replaced by other substantially identical Shares within a period of
61 days beginning 30 days before and ending 30 days after the date of disposition of the Shares (whether through the reinvestment
of distributions, which could occur, for example, if the Stockholder is a participant in the Plan or otherwise). In that event,
the basis of the replacement Shares will be adjusted to reflect the disallowed loss.
An investor should be aware that, if Shares
are purchased shortly before the record date for any taxable dividend (including a capital gain dividend), the purchase price likely
will reflect the value of the dividend and the investor then would receive a taxable distribution likely to reduce the trading
value of such Shares, in effect resulting in a taxable return of some of the purchase price. Taxable distributions to individuals
and certain other non-corporate Stockholders, including those who have not provided their correct taxpayer identification number
and other required certifications, may be subject to “backup” federal income tax withholding currently equal to 24%.
An investor should also be aware that the benefits
of the reduced tax rate applicable to long-term capital gains and qualified dividend income may be impacted by the application
of the alternative minimum tax to individual stockholders.
If the Fund utilizes leverage through borrowing,
it may be restricted by loan covenants with respect to the declaration of, and payment of, dividends in certain circumstances.
Limits on the Fund’s payments of dividends may prevent the Fund from meeting the distribution requirements, described above,
and may, therefore, jeopardize the Fund’s qualification for taxation as a RIC and possibly subject the Fund to the 4% excise
tax. The Fund will endeavor to avoid restrictions on its ability to make dividend payments.
Information Reporting
Section 6045B of the Code generally imposes
certain reporting requirements on the Fund with respect to any organizational action that affects the tax basis of the Shares for
U.S. federal income tax purposes. The Fund has historically made return of capital distributions (“ROC Distributions”)
to certain Stockholders and, to the extent such payments continue, the Fund will generally be required to file IRS Form 8937, Report
of Organizational Actions Affecting Basis of Securities (“Form 8937"), with the IRS and deliver an information statement
to certain Stockholders, subject to certain exceptions. Generally, the Fund must file Form 8937 with the IRS on or before the
45th day following the corporate action or, if earlier, January 15 of the year following the calendar year of the corporate action.
In addition, the Fund must furnish the same information to certain Stockholders on or before January 15 of the year following the
calendar year of the corporate action. However, the Fund generally would not be required to file Form 8937 or furnish this information
to Stockholders provided it posts the requisite information on its primary public website by the due date for filing Form 8937
with the IRS and such information is available on its website (or any successor organization’s website) for 10 years.
As the Fund will generally not be able to determine
whether a distribution during the year will be out of its earnings and profits (and, therefore, whether such distribution should
be treated as a dividend or a ROC Distribution for these purposes) until the close of the tax year, the Fund does not intend to
file Form 8937 until after the end of the current calendar year. Based on the limited interpretive guidance currently available,
the Fund believes that its treatment of ROC Distributions and its current intended action regarding Form 8937 continue to be consistent
with the requirements of Form 8937, Section 6045B and the Treasury Regulations thereunder. The Fund intends to utilize its best
efforts to determine the tax characterization of the Fund’s distributions as soon as practicable following the close of the
year and timely comply with the abovementioned Section 6045B requirements, to the extent applicable. The Fund and its management
do not believe that the Fund will be subject to substantial penalties if it utilizes its best efforts to determine the tax characteristics
of its distributions as soon as practicable following the close of the year to comply with Form 8937 and Section 6045B. The Fund
may be subject to substantial penalties to the extent that it fails to timely comply with its Section 6045B reporting obligations.
Each Stockholder is urged to consult its own tax advisor regarding the application of Section 6045B to its individual circumstances.
A copy of the Fund’s most recently filed Form 8937 is available on the Fund’s website, www.cornerstonestrategicvaluefund.com.
Net Investment Income Tax
A U.S. Holder (as defined in the Fund’s
Statement of Additional Information under the heading “Certain Material United States Federal Income Tax Consequences”)
that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will
be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable
year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold
(which, in the case of individuals, will be between $125,000 and $250,000 depending on the individual’s circumstances). A
U.S. Holder’s “net investment income” may generally include portfolio income (such as interest and dividends),
and income and net gains from an activity that is subject to certain passive activity limitations, unless such income or net gains
are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain
passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you should consult your tax advisors
regarding the applicability of the Net Investment Income Tax to your ownership and disposition of shares of the Fund.
Payments to Foreign Financial Institutions
Sections 1471 through 1474 of the Code (provisions
commonly referred to as “FATCA”), and Treasury regulations promulgated thereunder, generally provide that a 30% withholding
tax may be imposed on payments of U.S. source income, including U.S. source interest and dividends, to certain non-U.S. entities
unless such entities enter into an agreement with the IRS to disclose the name, address and taxpayer identification number of certain
U.S. persons that own, directly or indirectly, interests in such entities, as well as certain other information relating to such
interests. While withholding under FATCA would have also applied to payments of gross proceeds from the sale or other disposition
of Shares on or after January 1, 2019, recently proposed Treasury regulations eliminate FATCA withholding on payments of gross
proceeds entirely. The preamble to these proposed regulations indicates that taxpayers may rely on them pending their finalization.
Non-U.S. Holders are encouraged to consult with their own tax advisors regarding the possible implications and obligations of FATCA.
Other Taxation
The Fund’s Stockholders may be subject to state, local and
foreign taxes on its distributions. Stockholders are advised to consult their own tax advisors with respect to the particular tax
consequences to them of an investment in the Fund.
The foregoing briefly summarizes some of the
important federal income tax consequences to Stockholders of investing in the Shares, reflects the federal tax law as of the date
of this prospectus, and except as expressly provided herein, does not address special tax rules applicable to certain types of
investors, such as corporate, tax exempt and foreign investors. Investors should consult their tax advisers regarding other federal,
state or local tax considerations that may be applicable in their particular circumstances, as well as any proposed tax law changes.
DESCRIPTION OF CAPITAL STRUCTURE
The Fund is a corporation established under
the laws of the State of Maryland upon the filing of its Charter on May 1, 1987. The Fund commenced investment operations on June
30, 1987. The Fund intends to hold annual meetings of its Stockholders in compliance with the requirements of the NYSE American.
As of December 31, 2020, the Fund had 77,475,671 Shares issued and outstanding.
Common Stock
The Charter, which has been filed with the
SEC, permits the Fund to issue 200,000,000 shares of stock, with a par value of $0.001. Fractional shares are permitted. Each Share
represents an equal proportionate interest in the net assets of the Fund with each other Share. Holders of Shares will be entitled
to the payment of dividends when declared by the Board of Directors. See “Distribution Policy.” Each whole Share shall
be entitled to one vote as to matters on which it is entitled to vote pursuant to the terms of the Charter on file with the SEC.
Upon liquidation of the Fund, after paying or adequately providing for the payment of all liabilities of the Fund, and upon receipt
of such releases, indemnities and refunding agreements as they deem necessary for the protection of the Directors, the Board may
distribute the remaining net assets of the Fund among its Stockholders. Shares are not liable to further calls or to assessment
by the Fund. There are no pre-emptive rights associated with Shares.
The Fund has no present intention of offering
additional Shares, except as described herein in connection with the exercise of the Rights. Other offerings of its Shares, if
made, will require approval of the Board of Directors. Any additional offering will not be sold at a price per Share below the
then current net asset value (exclusive of underwriting discounts and commissions) except in connection with an offering to existing
Stockholders or with the consent of a majority of the Fund’s outstanding Shares.
The Fund generally will not issue share certificates.
The Fund’s Transfer Agent will maintain an account for each Stockholder upon which the registration and transfer of Shares
are recorded, and transfers will be reflected by bookkeeping entry, without physical delivery. The Transfer Agent will require
that a Stockholder provide requests in writing, accompanied by a valid signature guarantee form, when changing certain information
in an account such as wiring instructions or telephone privileges.
Outstanding Securities
The following table sets forth certain information
regarding our authorized shares and shares outstanding as of December 31, 2020.
(1)
|
(2)
|
(3)
|
(4)
|
Title of Class
|
Amount Authorized
|
Amount Held By Registrant or for its Account
|
Amount Outstanding Exclusive of Amount Shown Under (3)
|
Common Stock, par
value $0.001 per share
|
200,000,000
|
0
|
77,475,671
|
Trading and Net Asset Value Information
In the past, the Shares have traded at both
a premium and at a discount in relation to NAV. Although the Shares recently have been trading at a premium above NAV, there can
be no assurance that this premium will continue after the Offering or that the Shares will not again trade at a discount. Shares
of closed-end investment companies such as the Fund frequently trade at a discount from NAV. See “Risk Factors.” The
Shares are listed and traded on the NYSE American. The average weekly trading volume of the Shares on the NYSE American during
the calendar year ended December 31, 2020 was 3,472,902 Shares.
The following table shows for the quarters
indicated: (i) the high and low sale price of the Shares on the NYSE American; (ii) the high and low NAV per Share; and (iii) the
high and low premium or discount to NAV at which the Shares were trading (as a percentage of NAV):
Fiscal Quarter Ended
|
|
|
High Close
|
|
|
Low Close
|
|
|
High NAV
|
|
|
Low NAV
|
|
|
Premium/
(Discount) to
High NAV
|
|
|
Premium/
(Discount) to
Low NAV
|
|
12/31/2020
|
|
|
$
|
11.73
|
|
|
$
|
10.55
|
|
|
$
|
9.95
|
|
|
$
|
9.15
|
|
|
|
17.29
|
%
|
|
|
21.31
|
%
|
9/30/2020
|
|
|
|
11.46
|
|
|
|
10.38
|
|
|
|
10.28
|
|
|
|
9.43
|
|
|
|
8.85
|
|
|
|
10.07
|
|
6/30/2020
|
|
|
|
10.96
|
|
|
|
7.66
|
|
|
|
9.80
|
|
|
|
8.14
|
|
|
|
11.84
|
|
|
|
8.35
|
|
3/31/2020
|
|
|
|
11.83
|
|
|
|
6.26
|
|
|
|
10.97
|
|
|
|
7.55
|
|
|
|
7.84
|
|
|
|
(14.57
|
)
|
12/31/2019
|
|
|
|
11.38
|
|
|
|
10.97
|
|
|
|
10.84
|
|
|
|
10.45
|
|
|
|
3.69
|
|
|
|
6.22
|
|
9/30/2019
|
|
|
|
12.03
|
|
|
|
11.09
|
|
|
|
11.27
|
|
|
|
10.42
|
|
|
|
6.74
|
|
|
|
9.21
|
|
6/30/2019
|
|
|
|
12.45
|
|
|
|
11.18
|
|
|
|
11.45
|
|
|
|
10.63
|
|
|
|
7.69
|
|
|
|
11.29
|
|
3/31/2019
|
|
|
|
12.58
|
|
|
|
11.16
|
|
|
|
11.31
|
|
|
|
10.50
|
|
|
|
9.37
|
|
|
|
8.29
|
|
Recent Rights Offerings
The 2018 Offering expired on July 20, 2018
and included similar terms and conditions as this Offering. Pursuant to the 2018 Offering, which was fully subscribed, the Fund
issued 26,784,596 Shares (11,930,479 Shares of which were Over-Subscription Shares) in fulfillment of Basic Subscription requests
at a subscription price of $13.46 per Share, for a total offering of $360,520,662.
The 2017 Offering expired on August 25, 2017
and included similar terms and conditions as this Offering. Pursuant to the 2017 Offering, which was fully subscribed, the Fund
issued 14,454,716 Shares (4,787,408 Shares of which were Over-Subscription Shares) in fulfillment of Basic Subscription requests
at a subscription price of $13.86 per Share, for a total offering of $200,342,364
The 2016 Offering expired on October 21, 2016
and included similar terms and conditions as this Offering. Pursuant to the 2016 Offering, which was fully subscribed, the Fund
issued 6,783,942 Shares in fulfillment of Basic Subscription requests at a subscription price of $14.11 per Share, for a total
offering of $95,721,421.
The 2013 Offering expired on November 29, 2013
and included similar terms and conditions as this Offering. Pursuant to the 2013 Offering, which was fully subscribed, the Fund
issued 3,158,284 Shares (1,579,142 Shares of which were Over-Subscription Shares) at a subscription price of $23.68 per Share,
for a total offering of $74,788,165.
The 2012 Offering expired on December 21, 2012
and included similar terms and conditions as this Offering. Pursuant to the 2012 Offering, the Fund issued 970,072 Shares in fulfillment
of Basic Subscription requests at a subscription price of $23.96 per Share, for a total offering of $23,242,931.
The 2011 Offering expired on December 16, 2011
and included similar terms and conditions as this Offering. Pursuant to the 2011 Offering, which was fully subscribed, the Fund
issued 1,433,722 Shares (716,861 Shares of which were Over-Subscription Shares) at a subscription price of $24.36 per Share, for
a total offering of $34,925,455.
The 2010 Offering expired on December 10, 2010
and included similar terms and conditions as this Offering. Pursuant to the 2010 Offering, the Fund issued 358,457 Shares in fulfillment
of Basic Subscription requests at a subscription price of $32.96 per Share, for a total offering of $11,812,869.
Repurchase of Shares
The Fund may, pursuant to Section 23 of the
Investment Company Act, purchase Shares 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. During the year ended December
31, 2020, the Fund repurchased 299,198 shares at an average price of $6.81 per share. 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 will be made in accordance
with federal securities laws, with Shares repurchased held in treasury for future use by the Fund. In determining to repurchase
Shares, the Board of Directors, in consultation with the Investment Adviser, will consider such factors as the market price of
the Shares, the net asset value of the Shares, the liquidity of the assets of the Fund, effect on the Fund’s expenses, whether
such transactions would impair the Fund’s status as a regulated investment company or result in a failure to comply with
applicable asset coverage requirements, general economic conditions and such other events or conditions, which may have a material
effect on the Fund’s ability to consummate such transactions.
Additional Provisions of the Charter
and By-laws
A Director may be removed from office without
cause, at any time by a written instrument signed or adopted by a vote of the holders of at least a majority of the shares of the
Fund that are entitled to vote in the election of such Director. The Charter requires the favorable vote of the holders of at least
66 2/3% of the outstanding shares of each class of the Fund, voting as a class, then entitled to vote to approve, adopt or authorize
certain transactions with 5%-or-greater holders of the Fund’s outstanding shares and their affiliates or associates, unless
two-thirds of the Board of Directors have approved by resolution a memorandum of understanding with such holders, in which case
normal voting requirements would be in effect. For purposes of these provisions, a 5%-or-greater holder of outstanding shares (a
“Principal Stockholder”) refers to any person who, whether directly or indirectly and whether alone or together with
its affiliates and associates, beneficially owns 5% or more of the outstanding shares of beneficial interest of the Fund. The transactions
subject to these special approval requirements are: (i) the merger or consolidation of the Fund or any subsidiary of the Fund with
or into any Principal Stockholder; (ii) the issuance of any securities of the Fund to any Principal Stockholder for cash (other
than pursuant to any automatic distribution reinvestment plan or pursuant to any offering in which such Principal Stockholder acquires
securities that represent no greater a percentage of any class or series of securities being offered than the percentage of any
class of shares beneficially owned by such Principal Stockholder immediately prior to such offering or, in the case of securities,
offered in respect of another class or series, the percentage of such other class or series beneficially owned by such Principal
Stockholder immediately prior to such offering); (iii) the sale, lease or exchange of all or any substantial part of the assets
of the Fund to any Principal Stockholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating
for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve
month period); and (iv) the sale, lease or exchange to the Fund or any subsidiary thereof, in exchange for securities of the Fund,
of any assets of any Principal Stockholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating
for the purposes of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve
month period).
LEGAL MATTERS
Certain legal matters in connection with the
Shares will be passed upon for the Fund by Blank Rome LLP, located at 1271 Avenue of the Americas, New York, New York 10020.
REPORTS TO STOCKHOLDERS
The Fund sends its Stockholders unaudited semi-annual
and audited annual reports, including a list of investments held.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Tait, Weller & Baker LLP is the independent
registered public accounting firm for the Fund and will audit the Fund’s financial statements. Tait, Weller & Baker LLP
is located at Two Liberty Place, 50 South 16th Street, Suite 2900, Philadelphia, PA 19102 .
ADDITIONAL INFORMATION
The prospectus and the Statement of Additional
Information do not contain all of the information set forth in the Registration Statement that the Fund has filed with the SEC
(file No. 811-05150). The complete Registration Statement may be obtained from the SEC at www.sec.gov. See the cover page of this
Prospectus for information about how to obtain a paper copy of the Registration Statement or Statement of Additional Information
without charge.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION
|
Page
|
FORWARD-LOOKING STATEMENTS
|
B-1
|
INVESTMENT RESTRICTIONS
|
B-1
|
NON-FUNDAMENTAL POLICIES
|
B-2
|
MANAGEMENT
|
B-2
|
EXECUTIVE OFFICERS
|
B-9
|
CODE OF ETHICS
|
B-12
|
PROXY VOTING PROCEDURES
|
B-13
|
INVESTMENT ADVISORY AND OTHER SERVICES
|
B-14
|
PORTFOLIO MANAGER
|
B-15
|
ALLOCATION OF BROKERAGE
|
B-16
|
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
|
B-17
|
FINANCIAL STATEMENTS
|
B-25
|
OTHER INFORMATION
|
B-25
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
B-25
|
THE FUND’S PRIVACY POLICY
FACTS
|
WHAT DOES CORNERSTONE STRATEGIC VALUE FUND, INC. (“CORNERSTONE” OR THE “FUND”), AND SERVICE PROVIDERS TO THE FUND, ON THE FUND’S BEHALF, 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 depends on the product or service you have with us. This information can include:
● Social Security number
● account balances
● account transactions
● transaction history
● wire transfer instructions
● 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.
|
Reasons we can share your personal information
|
Does Cornerstone share?
|
Can you limit this sharing?
|
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus
|
Yes
|
No
|
For our marketing purposes – to offer our products and services to you
|
No
|
We don’t share
|
For joint marketing with other financial companies
|
No
|
We don’t share
|
For our affiliates’ everyday business purposes – information about your transactions and experiences
|
Yes
|
No
|
For our affiliates’ everyday business purposes – information about your creditworthiness
|
No
|
We don’t share
|
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 (866) 668-6558
|
What we do
|
Who is providing this notice?
|
Cornerstone Strategic Value Fund, Inc. (“Cornerstone” or the “Fund”)
|
How does the Fund, and the Fund’s service providers, on the Fund’s behalf, protect my personal information?
|
To protect your personal information from unauthorized access and
use, we and our service providers use security measures that comply with federal law. These measures include computer safeguards
and secured files and buildings.
|
How does the Fund, and the Fund’s service providers, on the Fund’s behalf, collect my personal information?
|
We collect your personal information, for example, when you:
▪ open an account
▪ provide account information
▪ give us your contact information
▪ make a wire transfer
We also collect your information from others, such as credit bureaus,
affiliates, or other companies.
|
Why can’t I limit all sharing?
|
Federal law gives you the right to limit only
▪ sharing for affiliates’ everyday business purposes
– information about your creditworthiness
▪ affiliates from using your information to market to you
▪ 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.
▪ Cornerstone Advisors, LLC. and Cornerstone Total Return
Fund, Inc.
|
Nonaffiliates
|
Companies not related by common ownership or control. They can be
financial and nonfinancial companies.
▪ Cornerstone 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.
▪ Cornerstone does not jointly market.
|
Not part of the Prospectus
Cornerstone Strategic
Value Fund, Inc.
78,089,258 Rights
for
26,029,753 Shares
of Common Stock
PROSPECTUS
APRIL 16, 2021
STATEMENT OF ADDITIONAL INFORMATION
April 16, 2021
CORNERSTONE STRATEGIC VALUE FUND, INC.
C/O ULTIMUS FUND SOLUTIONS, LLC
225 PICTORIA DRIVE, SUITE 450
CINCINNATI, OH 45246
THIS STATEMENT OF ADDITIONAL INFORMATION (“SAI”)
IS NOT A PROSPECTUS. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF CORNERSTONE STRATEGIC VALUE FUND, INC. (THE “FUND”),
DATED April 16, 2021 (THE “PROSPECTUS”), AS IT MAY BE SUPPLEMENTED FROM TIME
TO TIME. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SAI HAVE THE MEANINGS GIVEN TO THEM IN THE PROSPECTUS.
A COPY OF THE PROSPECTUS MAY BE OBTAINED
WITHOUT CHARGE BY CALLING THE FUND TOLL FREE AT (800) 581-3949 OR BY VISITING THE FUND’S WEBSITE AT WWW.CORNERSTONESTRATEGICVALUEFUND.COM.
THE REGISTRATION STATEMENT OF WHICH THE PROSPECTUS IS A PART CAN BE REVIEWED AND COPIED AT THE PUBLIC REFERENCE ROOM OF THE SECURITIES
AND EXCHANGE COMMISSION (THE “SEC”) AT 100 F STREET NE, WASHINGTON, D.C. YOU MAY OBTAIN INFORMATION ON THE OPERATION
OF THE PUBLIC REFERENCE ROOM BY CALLING THE SEC AT (800) SEC-0330. THE FUND’S FILINGS WITH THE SEC ARE ALSO AVAILABLE TO
THE PUBLIC ON THE SEC’S WEBSITE AT WWW.SEC.GOV. COPIES OF THESE FILINGS MAY BE OBTAINED, AFTER PAYING A DUPLICATING FEE,
BY ELECTRONIC REQUEST AT THE FOLLOWING E-MAIL ADDRESS: PUBLICINFO@SEC.GOV, OR BY WRITING THE SEC’S PUBLIC REFERENCE SECTION,
100 F ST. NE, WASHINGTON, D.C. 20549-0102.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION
|
Page
|
FORWARD-LOOKING STATEMENTS
|
B-1
|
INVESTMENT RESTRICTIONS
|
B-1
|
NON-FUNDAMENTAL POLICIES
|
B-2
|
MANAGEMENT
|
B-2
|
EXECUTIVE OFFICERS
|
B-9
|
CODE OF ETHICS
|
B-12
|
PROXY VOTING PROCEDURES
|
B-13
|
INVESTMENT ADVISORY AND OTHER SERVICES
|
B-14
|
PORTFOLIO MANAGER
|
B-15
|
ALLOCATION OF BROKERAGE
|
B-16
|
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
|
B-17
|
FINANCIAL STATEMENTS
|
B-25
|
OTHER INFORMATION
|
B-25
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
B-25
|
FORWARD-LOOKING STATEMENTS
This SAI contains or incorporates by reference
“forward-looking statements” (within the meaning of the federal securities laws) that involve risks and uncertainties.
Forward-looking statements are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933.
These statements describe our plans, strategies and goals and our beliefs and assumptions concerning future economic or other conditions
and the outlook for the Fund, based on currently available information. In this SAI, words such as “anticipates,” “believes,”
“expects,” “objectives,” “goals,” “future,” “intends,” “seeks,”
“will,” “may,” “could,” “should,” and similar expressions are used in an effort
to identify forward-looking statements, although some forward-looking statements may be expressed differently.
The Fund’s actual results could differ
materially from those anticipated in the forward-looking statements because of various risks and uncertainties, including the factors
set forth in the section headed “Risk Factors” in the Fund’s prospectus and elsewhere in the prospectus and this
SAI. You should consider carefully the discussions of risks and uncertainties in the “Risk Factors” section in the
prospectus. The forward-looking statements contained in this SAI are based on information available to the Fund on the date of
this SAI, and the Fund assumes no obligation to update any such forward-looking statements, except as required by law.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment
restrictions that may not be changed without the prior approval of the holders of a majority of the Fund’s outstanding voting
securities. For purposes of the restrictions listed below, all percentage limitations, with the exception of the percentage limitation
listed in 2 below, apply immediately after a purchase or initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any security from the Fund’s portfolio. Fund policies
which are not fundamental may be modified by the Board of Directors if, in the reasonable exercise of the Board’s business
judgment, modification is determined to be necessary or appropriate to carry out the Fund’s objective. Under its fundamental
restrictions, the Fund may not:
1.
|
With respect to 75% of its total assets, purchase a security, other than securities issued or guaranteed by the U.S. Government or securities of other regulated investment companies, if as a result of such purchase, more than 5% of the value of that Fund’s total assets would be invested in the securities of any one issuer, or that Fund would own more than 10% of the voting securities of any one issuer.
|
2.
|
Invest 25% or more of the total value of its assets in a single industry. This restriction does not apply to investments in United States Government securities.
|
3.
|
Issue senior securities, borrow or pledge its assets, except that the Fund may borrow from a bank for temporary or emergency purposes or for the clearance of transactions in amounts not exceeding 10% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) and may also pledge its assets to secure such borrowings. Additional investments will not be made when borrowings exceed 5% of the Fund’s assets.
|
4.
|
Make short sales of securities or maintain a short position in any security.
|
5.
|
Purchase securities on margin, except such short-term credits as may be necessary or routine for the clearance or settlement of transactions and the maintenance of margin with respect to forward contracts or other hedging transactions.
|
6.
|
Underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under the 1933 Act in selling portfolio securities.
|
7.
|
Purchase or sell commodities or real estate, except that the Fund may invest in securities secured by real estate or interests in real estate or in securities issued by companies, including real estate investment trusts, that invest in real estate or interests in real estate, and may purchase and sell forward contracts on foreign currencies to the extent permitted under applicable law.
|
8.
|
Make investments for the purpose of exercising control over, or management of, the issuers of any securities.
|
9.
|
Make loans except insofar as permitted under the 1940 Act.
|
NON-FUNDAMENTAL POLICIES
The following policies of the Fund are non-fundamental and may be
changed by the Fund’s Board of Directors without stockholder vote. Under its non-fundamental restrictions, the Fund may not:
1.
|
Invest in more than 3% of any one investment company’s total outstanding stock.
|
2.
|
Invest more than 15% of its assets in illiquid U.S. and non-U.S. securities and may not invest more than 3% of the Fund’s assets in the securities of companies that, at the time of investment, had less than a year of operations, including operations of predecessor companies.
|
MANAGEMENT
The Board of Directors of the Fund (the “Board”)
has the responsibility for the overall management of the Fund, including general supervision and review of the Fund’s investment
activities and its conformity with Maryland law and the policies of the Fund. The Board elects the officers of the Fund, who are
responsible for administering the Fund’s day-to-day operations.
The Directors, including the Directors who are not interested persons
of the Fund, as that term is defined in the 1940 Act (“Independent Directors”), and executive officers of the Fund,
their ages and principal occupations during the past five years are set forth below.
INDEPENDENT DIRECTORS
|
NAME AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S) HELD
WITH FUND
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX**
OVERSEEN BY
DIRECTOR
|
OTHER DIRECTORSHIPS
HELD BY DIRECTOR
|
Glenn W. Wilcox, Sr.
(Dec. 1931)
|
Director; Audit Committee and Nominating and Corporate Governance Committee Member
|
Since 2000
(Until 2022)
|
For more than the past five (5) years, Chairman of the Board of Tower Associates, Inc. (real estate investments); Chairman of the Board of Wilcox Travel Agency, Inc.; Chairman of the Board of Blue Ridge Printing Co., Inc. (since January 2019); Director of Champion Industries, Inc. (commercial printing); Director of Cornerstone Total Return Fund, Inc.
|
2
|
Director of Champion Industries, Inc.
|
Andrew A. Strauss
(Nov. 1953)
|
Director; Chairman of Nominating and Corporate Governance Committee and Audit Committee Member
|
Since 2000
(Until 2022)
|
For more than the past five (5) years, Attorney and senior member of Strauss & Associates PLLC (a law firm); Director of Cornerstone Total Return Fund, Inc.
|
2
|
None
|
INDEPENDENT DIRECTORS
|
NAME AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S) HELD
WITH FUND
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX**
OVERSEEN BY
DIRECTOR
|
OTHER DIRECTORSHIPS
HELD BY DIRECTOR
|
Scott B. Rogers
(July 1955)
|
Director; Audit, Nominating and Corporate Governance Committee Member
|
Since 2000
(Until 2021)
|
For more than the past five (5) years, Chief Executive Officer, Asheville Buncombe Community Christian Ministry (“ABCCM”); President, ABCCM Doctor’s Medical Clinic; Director of Faith Partners Incorporated; Member of North Carolina Governor’s Council on Homelessness (from July 2014); Director of Cornerstone Total Return Fund, Inc.
|
2
|
None
|
Robert E. Dean
(April 1951)
|
Director; Audit, Nominating and Corporate Governance Committee Member
|
Since 2014
(until 2021)
|
For more than the past five (5) years, Director of National Bank Holdings Corp.; Director of Cornerstone Total Return Fund, Inc.
|
2
|
Director, National Bank Holdings Corp.
|
Matthew W. Morris
(May 1971)
|
Director; Audit, Nominating and Corporate Governance Committee Member
|
Since 2017
(until 2021)
|
For more than the past five (5) years, Chief Executive Officer, Stewart Information Services Corporation (a title insurance and real estate services firm), Director of Cornerstone Total Return Fund, Inc.
|
2
|
Stewart Information Services Corporation
|
INDEPENDENT DIRECTORS
|
NAME AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S) HELD
WITH FUND
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX**
OVERSEEN BY
DIRECTOR
|
OTHER DIRECTORSHIPS
HELD BY DIRECTOR
|
Marcia E. Malzahn
(Apr. 1966)
|
Director; Audit, Nominating and Corporate Governance Committee Member
|
Since 2019
(until 2023)
|
President and Founder of Malzahn Strategic (management consulting for community banks); President of National Speakers Association, Minnesota Chapter; Director of Village Bank, Blaine, Minnesota; Director of Cornerstone Total Return Fund, Inc.
|
2
|
None
|
Frank J. Maresca
(Oct. 1958)
|
Director; Chairman of Audit Committee, Nominating and Corporate Governance Committee Member
|
Since 2020
(until 2021)
|
Vice President of Mutual Funds, Broadridge Financial Solutions, Inc. (since February 2018); Executive Vice President, AST Fund Solutions, LLC (February 2012 – February 2018); Treasurer, The Asia Pacific Fund, Inc. (July 2016 – February 2018); Treasurer, the Fund and Cornerstone Total Return Fund, Inc. (April 2013 – February 2018); Director of Cornerstone Total Return Fund, Inc.
|
2
|
None
|
INTERESTED DIRECTOR
|
NAME AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S) HELD
WITH FUND
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
SINCE
|
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX**
OVERSEEN BY
DIRECTOR
|
OTHER DIRECTORSHIPS
HELD BY DIRECTOR
|
Ralph W. Bradshaw
(Dec. 1950)***
|
Chairman of the Board of Directors and President
|
Since 1998 (Until 2020)
|
President, Cornerstone Advisors, LLC since 2019; President, Cornerstone Advisors, Inc. (2001-2019); Financial Consultant; President and Director of Cornerstone Total Return Fund, Inc.
|
2
|
None
|
*
|
The mailing address of each Director and officer is c/o Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Cincinnati, OH 45246.
|
**
|
As of December 31, 2020, the Fund Complex is comprised of the Fund and Cornerstone Total Return Fund, Inc. both of which are managed by Cornerstone Advisors LLC. Each of the above Directors oversees all of the Funds in the Fund Complex.
|
***
|
Mr. Bradshaw is an “interested person” as defined in the Investment Company Act of 1940 because of his affiliation with Cornerstone Advisors LLC.
|
The Board believes that the significance of
each Director’s experience, qualifications, attributes or skills is an individual matter (meaning that experience that is
important for one Director may not have the same value for another) and that these factors are best evaluated at the Board level,
with no single Director, or particular factor, being indicative of the Board’s effectiveness. The Board determined that each
of the Directors is qualified to serve as a Director of the Fund based on a review of the experience, qualifications, attributes
and skills of each Director. In reaching this determination, the Board has considered a variety of criteria, including, among other
things: character and integrity; ability to review critically, evaluate, question and discuss information provided, to exercise
effective business judgment in protecting stockholder interests and to interact effectively with the other Directors, the Investment
Adviser, other service providers, counsel and the independent registered accounting firm (“independent auditors”);
and willingness and ability to commit the time necessary to perform the duties of a Director. Each Director’s ability to
perform his duties effectively is evidenced by his experience or achievements in the following areas: management or board experience
in the investment management industry or companies or organizations in other fields, educational background and professional training;
and experience as a Director of the Fund. In addition, the Board values the diverse skill sets and experiences that each Director
contributes. The Board considers that its diversity as a whole is as a result of a combination of Directors who are working in
the private, as opposed to public, sector, those that are retired from professional work and the various perspectives that each
Director provides as a result of his present experiences and his background. Information discussing the specific experience, skills,
attributes and qualifications of each Director which led to the Board’s determination that the Director should serve in this
capacity is provided below.
RALPH W. BRADSHAW. Mr. Bradshaw has served
as the President of Cornerstone Advisors, LLC (the “Investment Adviser”) since 2019. From 2001 to 2019, Mr. Bradshaw
was the co-founder and President of Cornerstone Advisors, Inc., the Fund’s former investment adviser (the “Former Investment
Adviser”). He brings over 20 years of extensive investment management experience and also formerly served as a director of
several other closed-end funds. Prior to founding the Former Investment Adviser, he served in consulting and management capacities
for registered investment advisory firms specializing in closed-end fund investments. His experiences include developing and implementing
successful trading strategies with a variety of underlying portfolios containing domestic and international equity and fixed-income
investments. In addition, he has been a financial consultant and has held managerial positions or operated small businesses in
several industries. Mr. Bradshaw holds a B.S. in Chemical Engineering and an M.B.A. Mr. Bradshaw provides the Board with effective
business judgment and an ability to interact effectively with the other Directors, as well as with the other service providers,
counsel and the Fund’s independent auditor. Mr. Bradshaw commits a significant amount of time to the Fund as a Director and
Officer, in addition to serving as President of the Investment Adviser. The Board values his strong moral character and integrity.
ROBERT E. DEAN. Mr. Dean is a private investor.
From October 2000 to December 2003, Mr. Dean was with Ernst & Young Corporate Finance LLC, a wholly owned broker-dealer subsidiary
of Ernst & Young LLP, serving as a Senior Managing Director and member of the Board of Managers from December 2001 to December
2003. From June 1976 to September 2000, Mr. Dean practiced corporate, banking and securities law with Gibson, Dunn & Crutcher
LLP. Mr. Dean was Partner-in-Charge of the Orange County, California office from 1993 to 1996 and was a member of the law firm’s
Executive Committee from 1996 to 1999. Since June 2009, Mr. Dean has served as a director of National Bank Holdings Corporation
(NYSE:NBHC), a bank holding company, serving as chairman of the Nominating and Governance Committee and a member of the Audit &
Risk and Compensation Committees. Mr. Dean holds a Bachelor of Arts degree from the University of California, Irvine and a Juris
Doctor degree from the University of Minnesota Law School. Mr. Dean’s substantial experience in the public capital markets
and merger and acquisition transactions, regulatory matters and public company corporate governance matters qualifies him to serve
on the Board of Directors of the Fund. The Board values his strong moral character and integrity.
MARCIA E. MALZAHN. Ms. Malzahn is the president
and founder of Malzahn Strategic, a community financial institution consultancy focused on strategic planning, enterprise risk
management, treasury management, and talent management. Ms. Malzahn has over 20 years of banking experience and has served on the
Board of Village Bank in Blaine, Minnesota as the Audit & Risk Committee Chair since 2019. Ms. Malzahn is the recipient of
several professional awards, is a published author, and an international bilingual professional speaker. She holds a B.A. in business
management from Bethel University, is a certified life coach, Certified Community Bank Director, and is a graduate and faculty
member of the Graduate School of Banking in Madison, Wisconsin. The Board values her strong moral character and integrity.
FRANK J. MARESCA. Mr. Maresca is a vice president
of mutual funds at Broadridge Financial Solutions, Inc. (NYSE:BR), a provider of investor communications and technology-driven
solutions to banks, broker-dealers and corporate issuers. Mr. Maresca is a financial services and investment management professional
with over 40 years’ experience in U.S. registered investment companies, asset management and asset servicing industries.
Previously, was an executive vice president at AST Fund Solutions, LLC where he created and headed the fund administration group,
as well as overseeing business development of all services provided to closed-end funds and business development companies. Mr.
Maresca received his BBA in public accounting from Hofstra University and is a CPA (inactive). Mr. Maresca has demonstrated his
willingness to commit the time necessary to serve as an effective Director. The Board values his strong moral character and integrity.
MATTHEW W. MORRIS. Mr. Morris is the Chief
Executive Officer for Stewart Information Services Corporation (NYSE:STC), a title insurance and real estate services firm with
over 6,500 associates and annual revenues exceeding $2 billion. Mr. Morris provides strategic leadership, focusing on the allocation
of resources and operational strategies to maximize growth and stockholder value. Mr. Morris originally joined the company in 2004
as Senior Vice President, Planning & Development. Previously, he was the Director of a strategic litigation-consulting firm,
offering trial and settlement sciences and crisis management. Mr. Morris received his BBA in Organizational Behavior and Business
Policy from Southern Methodist University and his MBA from the University of Texas with a concentration in Finance. Mr. Morris
is a member of the Young Presidents Organization, and the C Club of Houston while also serving on several non-profit boards including
Greater Houston Partnership, Homes for Hope, Houston Baptist University and Campus Outreach. Mr. Morris has indicated his willingness
to commit the time necessary to serve as an effective Director. The Board values his strong moral character and integrity.
SCOTT B. ROGERS. Reverend Rogers has been the
Executive Director of a regional community ministry organization for over 30 years. In addition to the leadership and management
skills obtained through this work, he contributes a non-profit perspective and community insight to the Board’s discussions
and deliberations, which provides desirable diversity. Mr. Rogers provides the Board with effective business judgment and an ability
to interact effectively with the other Directors, as well as with the Investment Adviser, other service providers, counsel and
the Fund’s independent auditor. Mr. Rogers has demonstrated a willingness to commit the time necessary to serve as an effective
Director. The Board values his strong moral character and integrity.
ANDREW A. STRAUSS. Mr. Strauss is an experienced
attorney with a securities law background. He currently manages a law firm specializing in estate planning, probate and estate
administration. In addition, Mr. Strauss served in an executive capacity with a large public company for over nine years. He is
a graduate of the Wharton School of the University of Pennsylvania and Georgetown University Law Center. Mr. Strauss provides the
Board with effective business judgment and an ability to interact effectively with the other Directors, as well as with the Investment
Adviser, other service providers, counsel and the Fund’s independent auditor. Mr. Strauss has demonstrated a willingness
to commit the time necessary to serve as an effective Director. The Board values his strong moral character and integrity.
GLENN W. WILCOX, SR. Mr. Wilcox has been a
business owner for over 55 years. He has previous business experience in real estate development, radio and oil and gas exploration
industries. He serves on the board of directors and audit committee of another public company. From 1996 until 2004, Mr. Wilcox
was a member of the board of Appalachian State University, and was chairman of the board from 2001-2003. He has been a private
investor in public equities for over 50 years. Mr. Wilcox provides the Board with effective business judgment and an ability to
interact effectively with the other Directors, as well as with the Investment Adviser, other service providers, counsel and the
Fund’s independent auditor. Mr. Wilcox has demonstrated a willingness to commit the time necessary to serve as an effective
Director. The Board values his strong moral character and integrity.
Specific details regarding each Director’s
principal occupations during the past five years are included in the table above. The summaries set forth above as to the experience,
qualifications, attributes and/or skills of the Directors do not constitute holding out the Board or any Director as having any
special expertise or experience, and do not impose any greater responsibility or liability on any such person or on the Board as
a whole than would otherwise be the case.
The following table sets forth, for each Director,
the aggregate dollar range of equity securities owned of the Fund and of all Funds overseen by each Director in the Fund Complex
as of December 31, 2020. The information as to beneficial ownership is based on statements furnished to the Fund by each Director.
NAME OF DIRECTOR
|
DOLLAR RANGE OF EQUITY
SECURITIES IN THE FUND
|
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES
|
INDEPENDENT DIRECTORS
|
|
|
Robert E. Dean
|
None
|
None
|
Marcia E. Malzahn
|
None
|
None
|
Frank J. Maresca
|
None
|
None
|
Edwin Meese III *
|
None
|
None
|
Scott B. Rogers
|
None
|
None
|
Matthew W. Morris
|
Over $100,000
|
Over $100,000
|
Andrew A. Strauss
|
None
|
None
|
Glenn W. Wilcox Sr.
|
$10,001 - $50,000
|
$50,001 - $100,000
|
INTERESTED DIRECTOR
|
|
|
Ralph W. Bradshaw
|
Over $100,000
|
Over $100,000
|
*
|
Mr. Meese retired as a Director of the Fund on January 10, 2020. The information provided above regarding Mr. Meese’s ownership is as of January 10, 2020.
|
EXECUTIVE OFFICERS
The Board elects the officers of the Fund annually. In addition
to Mr. Bradshaw, the current principal officers of the Fund are:
NAME AND
ADDRESS*
(BIRTHDATE)
|
POSITION(S) HELD
WITH FUND
|
TERM OF OFFICE
AND LENGTH OF
TIME SERVED
|
PRINCIPAL OCCUPATION(S)
DURING PAST 5 YEARS
|
Rachel L. McNabb (Apr. 1980)
|
Chief Compliance Officer
|
Since 2018
|
Internal Audit Managing Senior of Camden Property Trust; Chief Compliance Officer of Cornerstone Advisors, LLC; Chief Compliance Officer of Cornerstone Total Return Fund, Inc.
|
Hoyt M. Peters (Sep. 1963)
|
Secretary and Assistant Treasurer
|
Since 2019 and 2013, respectively
|
Vice President of AST Fund Solutions, LLC (2013-2018); Secretary of The Asia Pacific Fund, Inc. (2016-2018); Associate of Cornerstone Advisors, Inc. (June 2018 - December 2018); Vice President of Cornerstone Advisors, LLC (since January 2019); Secretary (since February 2019) and Assistant Treasurer of Cornerstone Total Return Fund, Inc.
|
Theresa M. Bridge (Dec. 1969)
|
Treasurer
|
Since 2018
|
Vice President and Director of Financial Administration of Ultimus Fund Solutions, LLC; Treasurer of Cornerstone Total Return Fund, Inc.
|
*
|
The mailing address of each officer is c/o Ultimus Fund Solutions, LLC, 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246.
|
COMPENSATION
The Fund pays an annual fee in the amount of
$35,000 to each Director who is not an officer or employee of the Investment Adviser (or any affiliated company of the Investment
Adviser) or of Ultimus Fund Solutions, LLC. All Directors are reimbursed by the Fund for all reasonable out-of-pocket expenses
incurred relating to attendance at meetings of the Board of Directors or committee meetings.
The table set forth below includes information
regarding compensation from the Fund and other funds in the Fund Complex for each of the Directors during the year ended December
31, 2020. This information does not reflect any additional monies received for a named individual serving in any other capacity
to the Fund. Please note that the Fund has no bonus, profit sharing, pension or retirement plans, none of the officers of the Fund
receive compensation from the Fund, nor does any person affiliated with the Fund receive compensation in excess of $60,000 from
the Fund.
NAME OF PERSON, POSITION
|
AGGREGATE
COMPENSATION
FROM FUND
|
PENSION OR
RETIREMENT
BENEFITS
ACCRUED AS PART
OF FUND EXPENSES
|
ESTIMATED
ANNUAL BENEFITS
UPON RETIREMENT
|
TOTAL
COMPENSATION
FROM FUND AND
FUND COMPLEX
PAID TO
DIRECTORS*
|
INDEPENDENT DIRECTORS
|
|
|
|
|
Robert E. Dean
|
$35,000
|
None
|
None
|
$60,000
|
Marcia E. Malzahn
|
$27,486
|
None
|
None
|
$47,119
|
Frank J. Maresca
|
$5,231
|
None
|
None
|
$8,967
|
Edwin Meese III **
|
$9,712
|
None
|
None
|
$16,649
|
Matthew W. Morris
|
$35,000
|
None
|
None
|
$60,000
|
Scott B. Rogers
|
$35,000
|
None
|
None
|
$60,000
|
Andrew A. Strauss
|
$35,000
|
None
|
None
|
$60,000
|
Glenn W. Wilcox, Sr.
|
$35,000
|
None
|
None
|
$60,000
|
INTERESTED DIRECTOR
|
Ralph W. Bradshaw
|
$0
|
None
|
None
|
$0
|
*
|
For compensation purposes, the Fund Complex refers to the Fund and Cornerstone Total Return Fund, Inc., both of which were managed by Cornerstone Advisors, LLC during the year ended December 31, 2020.
|
**
|
Mr. Meese retired as a Director of the Fund on January 10, 2020.
|
DIRECTOR TRANSACTIONS WITH FUND AFFILIATES
As of December 31, 2020, neither the Independent
Directors nor members of their immediate family owned securities beneficially or of record in Cornerstone Advisors, LLC, or any
affiliate thereof. Furthermore, over the past five years, neither the Independent Directors nor members of their immediate family
have any direct or indirect interest, the value of which exceeds $120,000, in Cornerstone Advisors, LLC or any affiliate thereof.
In addition, since the beginning of the last two fiscal years, neither the Independent Directors nor members of their immediate
family have conducted any transactions (or series of transactions) or maintained any direct or indirect relationship in which the
amount involved exceeds $120,000 and to which Cornerstone Advisors, LLC or any affiliate thereof, the Fund, an officer of the Fund,
an investment company which the Cornerstone Advisors, LLC advises or an officer thereof was a party.
BOARD COMPOSITION AND LEADERSHIP STRUCTURE
The Board consists of eight individuals, one
of whom is an Interested Director. The Chairman of the Board, Mr. Bradshaw, is the Interested Director and is the President of
the Fund, the President of the Investment Adviser, and is the President and a director of Cornerstone Total Return Fund, Inc. The
Board does not have a lead independent director. Because the Board believes that its structure is sufficient to ensure active participation
by all of its members and at the same time rely on the expertise and knowledge of Mr. Bradshaw as the Chairman of the Board.
The Board believes that its leadership structure
facilitates the orderly and efficient flow of information to the Directors from the Investment Adviser and other service providers
with respect to services provided to the Fund, potential conflicts of interest that could arise from these relationships and other
risks that the Fund may face. The Board further believes that its structure allows all of the Directors to participate in the full
range of the Board’s oversight responsibilities. The Board believes that the orderly and efficient flow of information and
the ability to bring each Director’s talents to bear in overseeing the Fund’s operations is important, in light of
the size and complexity of the Fund and the risks that the Fund faces. The Board and its committees review their structure regularly,
to help ensure that it remains appropriate as the business and operations of the Fund and the environment in which the Fund operates
changes.
Currently, the Board has an Audit Committee
and a Nominating and Corporate Governance Committee. The responsibilities of each committee and its members are described below.
The Board and each committee convened four (4) times during the 2020 calendar year (including regularly scheduled and special meetings).
Each of the Directors attended at least seventy-five (75%) percent of the meetings held during the period for which he or she was
a member.
THE AUDIT COMMITTEE
The Fund has a standing Audit Committee (the
“Audit Committee”), which is comprised of Messrs. Dean, Maresca, Morris, Rogers, Strauss and Wilcox, Sr. and Ms. Malzahn,
all of whom are Directors who are not interested persons of the Fund, as such term is defined in Section 2(a)(19) of the Investment
Company Act. The Audit Committee has a written charter. The principal functions of the Audit Committee include but are not limited
to, (i) the oversight of the accounting and financial reporting processes of the Fund and its internal control over financial reporting;
(ii) the oversight of the quality and integrity of the Fund’s financial statements and the independent audit thereof; and
(iii) the approval, prior to the engagement of, the Fund’s independent registered public accounting firm and, in connection
therewith, to review and evaluate the qualifications, independence and performance of the Fund’s independent registered public
accounting firm. The Audit Committee convened 4 times during the 2020 calendar year.
The Board has determined that Mr. Maresca is
an Audit Committee Financial Expert, as such term is defined in Section 407 of the Sarbanes-Oxley Act of 2002.
THE NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE
The Fund has a standing Nominating and Corporate
Governance Committee (the “N&CG Committee”), which is comprised of Messrs. Dean, Maresca, Morris, Rogers, Strauss,
and Wilcox, Sr. and Ms. Malzahn, all of whom are Independent Directors. The N&CG Committee has a written charter. In addition
to its responsibility to oversee the corporate governance of the Fund, the N&CG Committee’s principal function is to
identify and select qualified candidates for the Board who have exhibited strong decision making ability, substantial business
experience, relevant knowledge of the investment company industry (including closed-end funds), skills or technological expertise
and exemplary personal integrity and reputation. In addition, the N&CG Committee seeks candidates that have experience and
knowledge involving all of the service providers of a registered investment company.
The N&CG Committee will consider all nominees
recommended by stockholders of the Fund, so long as stockholders send their recommendations in writing to the Secretary of the
Fund in a manner consistent with the Fund’s By-laws. Specifically, the N&CG Committee assesses all director nominees
taking into account several factors, including, but not limited to, issues such as the current needs of the Board and the nominee’s:
(i) integrity, honesty, and accountability; (ii) successful leadership experience and strong business acumen; (iii) forward-looking,
strategic focus; (iv) collegiality; (v) independence and absence of conflicts of interests; and (vi) ability to devote necessary
time to meet Director responsibilities. The N&CG Committee does not have a policy with regard to considering diversity when
identifying candidates for election, but would expect to consider racial, gender and professional experience diversity when identifying
future candidates. The N&CG Committee will ultimately recommend nominees that it believes will enhance the Board’s ability
to effectively oversee, in an effective manner, the affairs and business of the Fund. The N&CG Committee will consider and
evaluate stockholder-recommended candidates by applying the same criteria used to evaluate director-recommended candidates. The
deadline for submitting a stockholder proposal for inclusion in the Fund’s proxy statement and proxy for the Fund’s
2022 annual meeting of stockholders pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, is
October 29, 2021. Stockholders wishing to submit proposals or director nominations that are to be included in such proxy statement
and proxy must have delivered notice to the Secretary at the principal executive offices of the Fund not later than the close of
business on October 29, 2021. Stockholders are also advised to review the Fund’s By-laws, which contain additional requirements
with respect to advance notice of stockholder proposals and director nominations. The N&CG Committee convened 4 times during
the 2020 calendar year.
BOARD’S ROLE IN RISK OVERSIGHT OF
THE FUND
The Board oversees risk management for the
Fund directly and, as to certain matters, through its Audit and N&CG Committees. The Board exercises its oversight in this
regard primarily through requesting and receiving reports from and otherwise working with the Fund’s senior officers (including
the Fund’s Chief Compliance Officer), portfolio management personnel of the Investment Adviser, the Fund’s independent
auditors, legal counsel and personnel from the Fund’s other service providers. At its regular quarterly meetings, the Board
receives a report regarding risks applicable to the Fund presented by the Investment Adviser and the Chief Compliance Officer.
The Board has adopted, on behalf of the Fund, and periodically reviews with the assistance of the Fund’s Chief Compliance
Officer, policies and procedures designed to address certain risks associated with the Fund’s activities. In addition, the
Investment Adviser and the Fund’s other service providers also have adopted policies, processes and procedures designed to
identify, assess and manage certain risks associated with the Fund’s activities, and the Board receives reports from service
providers with respect to the operation of these policies, processes and procedures as required and/or as the Board deems appropriate.
The Board does not believe that a separate Risk Oversight Committee is necessary for effective risk oversight at this time, but
intends to continuously evaluate how it assesses risk and will consider again in the future whether any changes to their current
structure are prudent.
CODE OF ETHICS
The Investment Adviser and the Fund have each
adopted a Code of Ethics, pursuant to Section 204A and Rule 204A-1 under the Investment Advisers Act of 1940 and Rule 17j-1 under
the 1940 Act, respectively. Each Code of Ethics applies to the personal investing activities of the Directors, officers and certain
employees of the Fund or the Investment Adviser (“Access Persons”), as applicable. Rule 17j-1 and each Code of Ethics
are designed to prevent unlawful practices in connection with the purchase or sale of securities by Access Persons. Each Code of
Ethics permits Access Persons to trade securities for their own accounts, including securities that may be purchased or held by
the Fund, and generally requires them to report their personal securities transactions and holdings. The Fund’s Code of Ethics
is included as an exhibit to the Fund’s registration statement, which will be on file with the SEC, and available as described
on the cover page of this SAI. The Investment Adviser’s and the Fund’s Codes of Ethics may also be reviewed and copied
at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may
be obtained by calling the SEC at (800) SEC-0330. The Codes of Ethics are also available on the EDGAR Database on the SEC’s
website at www.sec.gov, and copies of the Codes of Ethics may be obtained, after paying a duplicating fee, by electronic request
at the following E-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102.
PROXY VOTING PROCEDURES
PROXY VOTING POLICIES AND PROCEDURES
The Fund provides a voice on behalf of stockholders
of the Fund. The Fund views the proxy voting process as an integral part of the relationship with the Fund. The Fund has delegated
its authority to vote proxies to the Investment Adviser, subject to the supervision of the Board of Directors. The Investment Adviser
has entered into an arrangement with Glass, Lewis & Co., LLC. (“Glass Lewis”) whereby Glass Lewis votes all of
the Fund’s portfolio companies’ proxy statements and records all of the proxy votes for compilation in the Form N-PX.
The Fund believes that by engaging Glass Lewis, the Fund is in a better position to monitor corporate actions, analyze proxy proposals,
make voting decisions and ensure that proxies are submitted promptly. The fundamental purpose of Glass Lewis’ Voting Policy
Guidelines is to ensure that each vote will be in a manner that reflects the best interest of the Fund and its stockholders, and
that maximizes the value of the Fund’s investment.
POLICIES OF THE INVESTMENT ADVISER
The Investment Adviser has a contractual arrangement,
on behalf of the Fund, with Glass Lewis for proxy voting services related to Fund portfolio holdings. It is the Investment Adviser’s
policy to vote all proxies received by the Fund in a timely manner. Upon receiving each proxy, Glass Lewis will vote for, against
or abstain on each of the issues presented in accordance with the proxy voting guidelines adopted by the Fund. With respect to
shares of other investment companies, Glass Lewis will vote such shares in the same general proportion as shares held by other
stockholders of that investment company. The Investment Adviser will work with Glass Lewis to ensure that all other shares can
be voted in the same general proportion as shares held by other stockholders of the applicable company.
CONFLICTS OF INTEREST
The Investment Adviser’s duty is to vote
in the best interests of the Fund’s stockholders. The Investment Adviser believes that, by instructing Glass Lewis to vote
shares in the same general proportion as shares held by other stockholders of the applicable company or investment company, it
will avoid potential conflicts of interest between the Investment Adviser’s interests and the Fund’s interests. However,
if a potential conflict of interest does arise, if the Investment Adviser believes it is in the Fund’s best interest to depart
from the guidelines provided, the Investment Adviser will vote the securities and instruct accordingly and disclose the conflict
to the Fund’s Board of Directors.
MORE INFORMATION
The actual voting records relating to the Fund’s
portfolio securities during the most recent 12-month period ended June 30th are available without charge, upon request, by calling
toll free (866) 668-6558, or by visiting the Fund’s website www.cornerstonestrategicvaluefund.com. The Fund’s reports
filed with the SEC are also available on the SEC’s website at www.sec.gov. In addition, a copy of the Fund’s proxy
voting policies and procedures is available by calling toll free (866) 668-6558 and will be sent within three business days of
receipt of such request.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES
The management of the Fund is supervised by
the Board of Directors. Cornerstone Advisors, LLC provides investment advisory services to the Fund pursuant to an investment management
agreement entered into with the Fund (an “Investment Management Agreement”).
The Investment Adviser, located at 1075 Hendersonville
Road, Suite 250, Asheville, North Carolina, 28803, is a North Carolina limited liability company. It was formed on January 29,
2019 for the purpose of providing investment advisory and management services to investment companies. The Investment Adviser is
owned by the Cornerstone Trust, a trust established on January 29, 2019. The trustees of the Cornerstone Trust include, but are
not limited to, Messrs. Ralph W. Bradshaw, Joshua G. Bradshaw and Daniel W. Bradshaw.
Under the general supervision of the Fund’s
Board of Directors, the Investment Adviser carries out the investment and reinvestment of the net assets of the Fund, continuously
furnishes an investment program with respect to the Fund, determines which securities should be purchased, sold or exchanged, and
implements such determinations. The Investment Adviser furnishes to the Fund investment advice and office facilities, equipment
and personnel for servicing the investments of the Fund.
The annual percentage rate and method used
in computing the investment advisory fee of the Fund is described in the Prospectus.
The Investment Management Agreement is terminable,
without penalty, on sixty days’ written notice, by a vote of the holders of a majority of the Fund’s outstanding shares,
by the Directors of the Fund or by the Investment Adviser. The Investment Management Agreement provides that it will automatically
terminate in the event of its assignment. The Investment Management Agreement provides in substance that the Investment Adviser
shall not be liable for any action or failure to act in accordance with its duties thereunder in the absence of willful misfeasance,
bad faith or gross negligence on the part of the Investment Adviser or of reckless disregard of its obligations thereunder.
ADMINISTRATIVE AND FUND ACCOUNTING SERVICES
Under the Administration and Fund Accounting
Agreement, Ultimus Fund Solution, LLC (“Ultimus”, located at 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246, supplies
executive, administrative and regulatory services for the Fund. Theresa M. Bridge, the Fund’s Treasurer, is a Vice President
and Director of Financial Administration of Ultimus. 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 base fee of $5,000 per month plus an asset based fee of 0.05% of the first $250 million of average
daily net assets, 0.04% of such assets greater than $250 million to $1 billion, 0.03% of such assets greater than $1 billion to
$2 billion and 0.02% of such assets in excess of $2 billion. For the years 2018, 2019 and 2020, the Fund paid Ultimus $284,232,
$406,940 and $392,866, respectively.
Information regarding the Fund’s custodian,
transfer agent and independent public accounting firm is described in the Prospectus.
PORTFOLIO MANAGER
Ralph W. Bradshaw is the portfolio manager
responsible for the day-to-day management of the Fund (the “Portfolio Manager In addition, Mr. Bradshaw may consult with
Joshua G. Bradshaw and Daniel W. Bradshaw, co-portfolio managers of the Fund, regarding investment decisions. The following table
shows the number of other accounts managed by Mr. Bradshaw and the total assets in the accounts managed within various categories
as of December 31, 2020.
|
|
|
ADVISORY FEE BASED ON PERFORMANCE
|
TYPE OF ACCOUNTS
|
NUMBER OF ACCOUNTS
|
TOTAL ASSETS
($ IN MILLIONS)
|
NUMBER OF ACCOUNTS
|
TOTAL ASSETS
|
Registered Investment Companies
|
1
|
391.4
|
0
|
0
|
Other Pooled Investments
|
0
|
0
|
0
|
0
|
Other Accounts
|
0
|
0
|
0
|
0
|
CONFLICTS OF INTEREST
Conflicts of interest may arise because the
Fund’s Portfolio Manager has day-to-day management responsibilities with respect to the Fund and one other account (i.e.,
Cornerstone Total Return Fund, Inc.). These potential conflicts include:
LIMITED RESOURCES. The Portfolio Manager
cannot devote his full time and attention to the management of each of the accounts that he manages. Accordingly, the Portfolio
Manager may be limited in his ability to identify investment opportunities for each of the accounts that are as attractive as might
be the case if the Portfolio Manager was to devote substantially more attention to the management of a single account. The effects
of this potential conflict may be more pronounced where the accounts have different investment strategies.
LIMITED INVESTMENT OPPORTUNITIES. The
other investment fund of the Investment Adviser may have investment objectives and policies similar to those of the Fund. The Investment
Adviser may, from time to time, make recommendations which result in the purchase or sale of a particular security by its other
investment fund simultaneously with the Fund. If transactions on behalf of more than one investment fund during the same period
increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price
or quantity. It is the policy of the Investment Adviser to allocate advisory recommendations and the placing of orders in a manner
that it believes is equitable to the accounts involved, including the Fund. When more than one investment fund of the Investment
Adviser is purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged
as to price. See “Allocation of Brokerage”.
DIFFERENT INVESTMENT STRATEGIES. The
accounts managed by the Portfolio Manager have differing investment strategies. If the Portfolio Manager determines that an investment
opportunity may be appropriate for only some of the accounts or decides that certain of the accounts should take different positions
with respect to a particular security, the Portfolio Manager may effect transactions for one or more accounts which may affect
the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other
accounts.
SELECTION OF BROKERS. The Portfolio
Manager selects the brokers that execute securities transactions for the accounts that he supervises, including the Fund. See “Allocation
of Brokerage.”
Where conflicts of interest arise between the
Fund and other accounts managed by the Portfolio Manager, the Portfolio Manager will use good faith efforts so that the Fund will
not be treated materially less favorably than other accounts.
COMPENSATION
The Portfolio Manager’s compensation
will be made up of a fixed salary amount which is not based on the value of the assets in the Fund’s portfolio.
SECURITIES OWNED IN THE FUND BY PORTFOLIO
MANAGERS
As of the date of this SAI, the Portfolio Manager
owned 40,339 shares of the Fund. See “Director Ownership of Fund Shares.”
ALLOCATION OF BROKERAGE
Decisions regarding the placement of orders
to purchase and sell investments for the Fund are made by the Investment Adviser, subject to the supervision of the Board of Directors.
A substantial portion of the transactions in equity securities for the Fund will occur on domestic stock exchanges. Transactions
on stock exchanges involve the payment of brokerage commissions. In transactions on stock exchanges in the United States and some
foreign exchanges, these commissions are negotiated. However, on many foreign stock exchanges these commissions are fixed. In the
case of securities traded in the foreign and domestic over-the-counter markets, there is generally no stated commission, but the
price usually includes an undisclosed commission or markup. Over-the-counter transactions will generally be placed directly with
a principal market maker, although the Fund may place an over-the-counter order with a broker-dealer if a better price (including
commission) and execution are available.
It is anticipated that most purchase and sale
transactions involving fixed income securities will be with the issuer or an underwriter or with major dealers in such securities
acting as principals. Such transactions are normally effected on a net basis and generally do not involve payment of brokerage
commissions. However, the cost of securities purchased from an underwriter usually includes a commission paid by the issuer to
the underwriter. Purchases or sales from dealers will normally reflect the spread between the bid and ask price.
The policy of the Fund regarding transactions
for purchases and sales of securities is that primary consideration will be given to obtaining the most favorable prices and efficient
executions of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the Fund’s
policy is to pay commissions which are considered fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Board of Directors of the Fund believes that a requirement always to seek the lowest
commission cost could impede effective management and preclude the Fund and the Investment Adviser from obtaining high quality
brokerage and research services. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, the
Investment Adviser may rely on its experience and knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable.
In seeking to implement the Fund’s policies,
the Investment Adviser will place transactions with those brokers and dealers who it believes provide the most favorable prices
and which are capable of providing efficient executions. If the Investment Adviser believes such price and execution are obtainable
from more than one broker or dealer, it may give consideration to placing transactions with those brokers and dealers who also
furnish research or research related services to the Fund or the Investment Adviser. Such services may include, but are not limited
to, any one or more of the following: information as to the availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investments; and appraisals or evaluations of securities. The information and services received
by the Investment Adviser from brokers and dealers may be of benefit in the management of accounts of other clients and may not
in all cases benefit the Fund directly. While such services are useful and important in supplementing its own research and facilities,
the Investment Adviser believes the value of such services is not determinable and does not significantly reduce its expenses.
The Fund has adopted procedures under Rule
17a-7 of the 1940 Act to permit purchase and sales transactions to be effected between the Fund and other accounts that are managed
by the Investment Adviser. The Fund may from time to time engage in such transactions in accordance with these procedures.
Securities considered as investments for the
Fund may also be appropriate for other investment accounts managed by the Investment Adviser or its affiliates. Whenever decisions
are made to buy or sell securities by the Fund and one or more of such other accounts simultaneously, the Investment Adviser will
allocate the security transactions (including “hot” issues) in a manner which it believes to be equitable under the
circumstances. As a result of such allocations, there may be instances where the Fund will not participate in a transaction that
is allocated among other accounts. If an aggregated order cannot be filled completely, allocations will generally be made on a
pro rata basis. An order may not be allocated on a pro rata basis where, for example: (i) consideration is given to an account
with specialized investment policies that coincide with the particulars of a specific investment; (ii) pro rata allocation would
result in odd-lot or de minimis amounts being allocated to a portfolio or other client; or (iii) where the Investment Adviser reasonably
determines that departure from a pro rata allocation is advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the Fund from time to time, it is the opinion of the Directors
of the Fund that the benefits from the Investment Adviser’s organization outweigh any disadvantage that may arise from exposure
to simultaneous transactions.
During the fiscal years ended December 31,
2018, 2019 and 2020, the Fund paid $25,928, $25,343 and $153,839 respectively, in brokerage commissions.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY DISCUSSION OF
THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE RELEVANT TO A STOCKHOLDER OF ACQUIRING, HOLDING AND DISPOSING OF
SHARES OF THE FUND. THIS DISCUSSION DOES NOT ADDRESS THE SPECIAL TAX RULES APPLICABLE TO CERTAIN CLASSES OF INVESTORS, SUCH AS
TAX-EXEMPT ENTITIES, FOREIGN INVESTORS (EXCEPT AS EXPRESSLY PROVIDED BELOW), INSURANCE COMPANIES AND FINANCIAL INSTITUTIONS. THIS
DISCUSSION ADDRESSES ONLY U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. STOCKHOLDERS WHO HOLD THEIR SHARES AS CAPITAL ASSETS AND
DOES NOT ADDRESS ALL OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE RELEVANT TO PARTICULAR STOCKHOLDERS IN LIGHT OF THEIR
INDIVIDUAL CIRCUMSTANCES. IN ADDITION, THE DISCUSSION DOES NOT ADDRESS ANY STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, AND IT DOES
NOT ADDRESS ANY U.S. FEDERAL TAX CONSEQUENCES OTHER THAN U.S. FEDERAL INCOME TAX CONSEQUENCES. THE DISCUSSION IS BASED UPON PRESENT
PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), THE REGULATIONS PROMULGATED THEREUNDER, AND
JUDICIAL AND ADMINISTRATIVE RULING AUTHORITIES, ALL OF WHICH ARE SUBJECT TO CHANGE OR DIFFERING INTERPRETATIONS (POSSIBLY WITH
RETROACTIVE EFFECT). NO ATTEMPT IS MADE TO PRESENT A DETAILED EXPLANATION OF ALL U.S. FEDERAL INCOME TAX CONCERNS AFFECTING THE
FUND AND ITS STOCKHOLDERS, AND THE DISCUSSION SET FORTH HEREIN DOES NOT CONSTITUTE TAX ADVICE. INVESTORS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES TO THEM OF INVESTING IN THE FUND, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS, INCLUDING COMPREHENSIVE UNITED
STATES FEDERAL INCOME TAX REFORM CURRENTLY BEING DISCUSSED BY THE UNITED STATES CONGRESS.
The discussion primarily describes the U.S. federal
income tax treatment of a U.S. Holder and, unless expressly provided, does not discuss the application of these rules to a Non-U.S.
Holder. A “U.S. Holder” means a beneficial owner of the Fund’s shares that is any of the following for U.S. federal
income tax purposes:
|
●
|
An individual who is a citizen or resident of the United States or someone treated as a U.S. citizen for U.S. federal income tax purposes;
|
|
●
|
A corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
|
|
●
|
An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
|
|
●
|
A trust if: (a) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (b) the trust was in existence on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations (as defined below) to be treated as a U.S. person.
|
For purposes of this summary, the term “Non-U.S.
Holder” means a beneficial owner of the Fund’s shares that is not a U.S. Holder.
In addition, the possible application of U.S.
federal estate or gift taxes or any aspect of state, local, or non-U.S. tax laws is not considered. This summary does not address
all aspects of U.S. federal income taxation that may be important to a particular U.S. Holder in light of its investment or tax
circumstances or to a U.S. Holder that is subject to special tax rules, including if the Stockholder is:
|
●
|
a dealer in securities or currencies;
|
|
●
|
a financial institution;
|
|
●
|
a regulated investment company;
|
|
●
|
a real estate investment trust;
|
|
●
|
a tax-exempt organization;
|
|
●
|
a person holding shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;
|
|
●
|
a trader in securities that has elected the mark-to-market method of accounting for its securities;
|
|
●
|
a person liable for alternative minimum tax;
|
|
●
|
a partnership or other pass-through entity for U.S. federal income tax purposes; or
|
|
●
|
a U.S. Holder whose “functional currency” is not the U.S. dollar.
|
If an entity treated as a partnership for U.S.
federal income tax purposes holds shares, the U.S. federal income tax treatment of a partner in the partnership will generally
depend upon the status of the partner and the activities of the partnership. A Stockholder that is a partnership and partners in
such partnership should consult their own tax advisors regarding the U.S. federal income tax consequences of holding and disposing
of the shares.
Prospective U.S. Holders are urged to consult
their tax advisors as to the particular tax consequences of purchasing, owning and disposing of the shares, including the application
of U.S. federal, state and local tax laws.
Taxation as a Regulated Investment Company
The Fund intends to elect to be treated and
to qualify each year as a regulated investment company (a “RIC”) under the Code. Accordingly, the Fund must, among
other things, (i) derive in each taxable year at least 90% of its gross income (including tax-exempt interest) from (a) dividends,
interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities
or foreign currencies, or other income (including but not limited to gain from forward contracts) derived with respect to its business
of investing in such stock, securities or currencies; and (b) net income from interests in “qualified publicly traded partnerships”
(as defined in the Code); (ii) diversify its holdings so that, at the end of each quarter of each taxable year (a) at least 50%
of the value of the Fund’s total assets is represented by cash and cash items, U.S. government securities, the securities
of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer,
to an amount not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding voting
securities of such issuer and (b) not more than 25% of the value of the Fund’s total assets is invested in the securities
(other than U.S. government securities and the securities of other regulated investment companies) of (I) any one issuer; (II)
any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related
trades or businesses or (III) any one or more “qualified publicly traded partnerships” (as defined in the Code); and
(iii) distribute at least 90% of its investment company taxable income (as defined in the Code, but without regard to the deduction
for dividends paid) and 90% of its tax-exempt interest income (net of certain deductions and amortizable bond premiums) for such
taxable year in accordance with the timing requirements imposed by the Code, so as to maintain its RIC status and to avoid paying
any U.S. federal income tax. For purposes of the 90% of gross income requirement described above, the Code expressly provides the
U.S. Treasury with authority to issue regulations that would exclude foreign currency gains from qualifying income if such gains
are not directly related to the Fund’s business of investing in stock or securities. While to date the U.S. Treasury has
not exercised this regulatory authority, there can be no assurance that it will not issue regulations in the future (possibly with
retroactive application) that would treat some or all of the Fund’s foreign currency gains as non-qualifying income. To the
extent it qualifies for treatment as a RIC and satisfies the above-mentioned distribution requirements, the Fund will not be subject
to U.S. federal income tax on income paid to its stockholders in the form of dividends or capital gain distributions.
In order to avoid incurring a U.S. federal
excise tax obligation, the Code requires that the Fund distribute (or be deemed to have distributed) by December 31 of each calendar
year an amount at least equal to the sum of (i) 98% of its ordinary income for such year and (ii) 98.2% of its capital gain net
income (which is the excess of its realized capital gain over its realized capital loss), generally computed on the basis of the
one-year period ending on October 31 of such year, after reduction by any available capital loss carryforwards, plus (iii) 100%
of any ordinary income and capital gain net income from previous years (as previously computed) that were not paid out during such
years and on which the Fund paid no U.S. federal income tax.
Failure to Qualify as a RIC
If the Fund does not qualify as a RIC for any
taxable year, the Fund’s taxable income will be subject to corporate income taxes, and all distributions from earnings and
profits, including distributions of net capital gain (if any), will be taxable to the U.S. Holder as ordinary income. Such distributions
generally will be eligible (i) for the dividends received deduction in the case of corporate U.S. Holders and (ii) for treatment
as “qualified dividends” as discussed below, in the case of individual U.S. Holders provided certain holding period
and other requirements are met, as described below. In addition, in order to requalify for taxation as a RIC, the Fund may be required
to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions.
Taxation of Distributions to U.S. Holders
Distributions from the Fund, except in the
case of distributions of qualified dividend income or capital gain dividends, as described below, generally will be taxable to
U.S. Holders as ordinary dividend income to the extent of the Fund’s current and accumulated earnings and profits. Distributions
of net capital gains (that is, the excess of net gains from the sale of capital assets held more than one year over net losses
from the sale of capital assets held for not more than one year) properly designated as capital gain dividends (“Capital
Gain Dividends”) will be taxable to U.S. Holders as long-term capital gain, regardless of how long a U.S. Holder has held
the shares in the Fund.
If a U.S. Holder’s distributions are
automatically reinvested pursuant to the Plan and the Plan Administrator invests the distribution in shares acquired on behalf
of the U.S. Holder in open-market purchases, for U.S. federal income tax purposes, the U.S. Holder will generally be treated as
having received a taxable distribution in the amount of the cash dividend that the U.S. Holder would have received if the U.S.
Holder had elected to receive cash. If a U.S. Holder’s distributions are automatically reinvested pursuant to the Plan and
the Plan Administrator invests the distribution in newly issued shares of the Fund, the U.S. Holder will generally be treated as
receiving a taxable distribution equal to the fair market value of the stock the U.S. Holder receives.
Under current law, certain income distributions
paid by the Fund to individual taxpayers are taxed at rates equal to those applicable to net long-term capital gains (generally,
20%). This tax treatment applies only if certain holding period requirements and other requirements are satisfied by the U.S. Holder
and the dividends are attributable to qualified dividend income received by the Fund itself. For this purpose, “qualified
dividend income” means dividends received by the Fund from certain United States corporations and qualifying foreign corporations,
provided that the Fund satisfies certain holding period and other requirements in respect of the stock of such corporations. For
these purposes, a “qualified foreign corporation” means any foreign corporation if (i) such corporation is incorporated
in a possession of the United States, (ii) such corporation is eligible for benefits of a qualified comprehensive income tax treaty
with the United States and which includes an exchange of information program, or (iii) the stock of such corporation with respect
to which such dividend is paid is readily tradable on an established securities market in the United States. A “qualified
foreign corporation” does not include any foreign corporation which for the taxable year of the corporation in which the
dividend was paid, or the preceding taxable year, is a “passive foreign investment company” (as defined in the Code).
In the case of securities lending transactions, payments in lieu of dividends are not qualified dividends. The Fund’s dividends,
other than qualified dividends and capital gains dividends, will be fully taxable at ordinary income tax rates unless further Congressional
legislative action is taken.
A dividend will not be treated as qualified
dividend income (whether received by the Fund or paid by the Fund to a stockholder) if (1) the dividend is received with respect
to any share held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which
such share becomes ex- dividend with respect to such dividend, (or fewer than 91 days during the associated 181-day period in the
case of certain preferred stocks), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale
or otherwise) to make related payments with respect to positions in substantially similar or related property, or (3) if the recipient
elects to have the dividend treated as investment income for purposes of the limitation on deductibility of investment interest.
Distributions of income by the Fund, other than qualified dividend income and capital gains dividends, are taxed as ordinary income,
at rates currently up to 37% for taxpayers other than corporations.
We cannot assure you as to what percentage
of the dividends paid on the shares will consist of qualified dividend income or long-term capital gains, both of which are taxed
at lower rates for individuals than are ordinary income and short-term capital gains.
Dividends and interest received, and gains
realized, by the Fund on foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions (collectively “foreign taxes”) that would reduce the return on its securities. Tax conventions between
certain countries and the United States, however, may reduce or eliminate foreign taxes, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors. If more than 50% of the value of the Fund’s total
assets at the close of its taxable year consists of securities of foreign corporations, it will be eligible to, and may, file an
election with the Internal Revenue Service (the “IRS”) that will enable its U.S. Holders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign taxes paid by the Fund. Pursuant to the election, the Fund would
treat those taxes as dividends paid to its U.S. Holders and each U.S. Holder (1) would be required to include in gross income,
and treat as paid by such U.S. Holder, a proportionate share of those taxes, (2) would be required to treat such share of those
taxes and of any dividend paid by the Fund that represents income from foreign or U.S. possessions sources as such U.S. Holder’s
own income from those sources, and, if certain conditions are met, (3) could either deduct the U.S. Holder’s proportionate
share of the foreign taxes deemed paid in computing taxable income or, alternatively use the foregoing information in calculating
the foreign tax credit against such U.S. Holder’s federal income tax liability (but IRA accounts may not be able to use the
foreign tax credit). The Fund will report to its stockholders shortly after each taxable year their respective shares of foreign
taxes paid and the income from sources within, and taxes paid to, foreign countries and U.S. possessions if it makes this election.
The rules relating to the foreign tax credit are complex. Each stockholder should consult his own tax adviser regarding the potential
application of foreign tax credits.
If the Fund acquires any equity interest in
certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends,
certain rents and royalties, or capital gains) or that hold at least 50% of their assets in investments producing such passive
income (“passive foreign investment companies”), the Fund could be subject to U.S. federal income tax and additional
interest charges on “excess distributions” received from such companies or on gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed to its stockholders. The Fund would not be able
to pass through to its stockholders any credit or deduction for such a tax. An election may generally be available that would ameliorate
these adverse tax consequences, but any such election could require the Fund to recognize taxable income or gain (subject to tax
distribution requirements) without the concurrent receipt of cash and would require certain information to be furnished by the
foreign corporation, which may not be provided. These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund may limit and/or manage its holdings in passive foreign investment companies to limit its tax liability
or maximize its return from these investments. Dividends paid by passive foreign investment companies will not qualify as qualified
dividend income eligible for taxation at reduced tax rates.
If the Fund utilizes leverage through borrowing,
it may be restricted by loan covenants with respect to the declaration of, and payment of, dividends in certain circumstances.
Limits on the Fund’s payments of dividends may prevent the Fund from meeting the distribution requirements, described above,
and may, therefore, jeopardize the Fund’s qualification for taxation as a RIC and possibly subject the Fund to the 4% excise
tax. The Fund will endeavor to avoid restrictions on its ability to make dividend payments.
Taxation of Sales, Exchanges, or Other Dispositions
The sale, exchange or redemption of Fund shares
may give rise to a gain or loss. Such gain or loss would generally be treated as capital gain or loss if the Fund shares are held
as a capital asset. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital
gain or loss if the shares have been held for more than one year. Otherwise, the gain or loss on the taxable disposition of Fund
shares will be treated as short-term capital gain or loss. The maximum capital gain rate applicable to individuals is 20%. Any
loss realized upon the sale or exchange of Fund shares with a holding period of 6 months or less will be treated as a long- term
capital loss to the extent of any capital gain distributions received with respect to such shares. The use of capital losses is
subject to limitations. In addition, all or a portion of a loss realized on a redemption or other disposition of Fund shares may
be disallowed under “wash sale” rules to the extent the shares disposed of are replaced with other substantially identical
shares (whether through the reinvestment of distributions or otherwise) within a 61-day period beginning 30 days before the redemption
of the loss shares and ending 30 days after such date. Any disallowed loss will result in an adjustment to the stockholder’s
tax basis in some or all of the other shares acquired.
Dividends and distributions on the Fund’s
shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund’s realized
income and gains, even though such dividends and distributions may economically represent a return of a particular stockholder’s
investment. Such distributions are likely to occur in respect of shares purchased at a time when the Fund’s net asset value
reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed
even when the Fund’s net asset value also reflects unrealized losses. Certain distributions declared in October, November
or December and paid in the following January will be taxed to stockholders as if received on December 31 of the year in which
they were declared. In addition, certain other distributions made after the close of a taxable year of the Fund may be “spilled
back” and treated as paid by the Fund (except for purposes of the 4% excise tax) during such taxable year. In such case,
stockholders will nevertheless be treated as having received such dividends in the taxable year in which the distributions were
actually made.
Information Reporting and Backup Withholding
Generally, information reporting requirements
will apply to distributions on our common shares or proceeds on the disposition of our common shares or warrants paid within the
U.S. (and, in certain cases, outside the U.S.) to U.S. Holders. Such payments will generally be subject to backup withholding tax
at the rate of 24% if: (a) a U.S. Holder fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number
to the payor (generally on Form W-9), as required by the Code and Treasury Regulations, (b) the IRS notifies the payor that the
U.S. Holder’s taxpayer identification number is incorrect, (c) a U.S. Holder is notified by the IRS that it has previously
failed to properly report interest and dividend income, or (d) a U.S. Holder fails to certify, under penalty of perjury, that such
U.S. Holder has furnished its correct U.S. taxpayer identification number. However, certain exempt persons generally are excluded
from these information reporting and backup withholding rules. A Non-U.S. Holder will not be subject to backup withholding on dividends
paid to such Non-U.S. Holder as long as such Non-U.S. Holder certifies under penalty of perjury (generally on the applicable IRS
Form W-8) that it is a Non-U.S. Holder (and the applicable withholding agent does not have actual knowledge or reason to know that
such Non-U.S. Holder is a United States person as defined under the Code), or such Non-U.S. Holder otherwise establishes an exemption.
Depending on the circumstances, information reporting and backup withholding may apply to the proceeds received from a sale or
other disposition of shares unless the beneficial owner certifies under penalty of perjury that it is a Non-U.S. Holder (and the
applicable withholding agent does not have actual knowledge or reason to know that the beneficial owner is a United States person
as defined under the Code), or such owner otherwise establishes an exemption.
Under
Treasury regulations, if a U.S. Holder recognizes a loss on disposition of the Fund’s shares of $2 million or more for an
individual stockholder or $10 million or more for a corporate stockholder (excluding
S corporations), the U.S. Holder generally must file with the IRS a disclosure statement on Form 8886 except to the extent such
losses are from assets that have a qualifying basis and meet certain other requirements. Direct stockholders of portfolio securities
are in many cases excepted from this reporting requirement, but under current guidance, stockholders of a regulated investment
company are not excepted. Future guidance may extend the current exception from this reporting requirement to stockholders of most
or all regulated investment companies. In addition, pursuant to recently enacted legislation, significant penalties may be imposed
for the failure to comply with the reporting requirements. The fact that a loss is reportable under these regulations does not
affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Stockholders should consult their
tax advisers to determine the applicability of these regulations in light of their individual circumstances.
The foregoing discussion does not address the
special tax rules applicable to certain classes of investors, such as tax-exempt entities, foreign investors, insurance companies
and financial institutions. Stockholders should consult their own tax advisers with respect to special tax rules that may apply
in their particular situations, as well as the state, local, and, where applicable, foreign tax consequences of investing in the
Fund.
The Fund will inform stockholders of the source
and tax status of all distributions promptly after the close of each calendar year. The IRS currently requires that a RIC that
has two or more classes of stock allocate to each such class proportionate amounts of each type of its income (such as ordinary
income, capital gains, dividends qualifying for the dividends received deduction and qualified dividend income) based upon the
percentage of total dividends paid out of earnings or profits to each class for the tax year. Accordingly, if the Fund issues preferred
shares in the future, the Fund intends each year to allocate capital gain dividends, dividends qualifying for the dividends received
deduction and dividends derived from qualified dividend income, if any, between its common shares and preferred shares in proportion
to the total dividends paid out of earnings or profits to each class with respect to such tax year.
Taxation of Non-U.S. Shareholders
Dividends paid to a Non-U.S. Holder generally
will be subject to U.S. withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. If a Non-U.S.
Holder is eligible for a reduced rate of withholding tax under an applicable tax treaty, the Non-U.S. Holder will be required to
provide an applicable IRS Form W-8 certifying its entitlement to benefits under the treaty in order to obtain a reduced rate of
withholding tax. However, if the distributions are effectively connected with a U.S. trade or business of the Non-U.S. Holder (or,
if an income tax treaty applies, attributable to a permanent establishment in the United States of the Non-U.S. Holder), then the
distributions will be subject to U.S. federal income tax at the rates applicable to U.S. persons, plus, in certain cases where
the Non-U.S. Holder is a corporation, a branch profits tax at a 30% rate (or lower rate provided in an applicable treaty). If the
Non-U.S. Holder is subject to such U.S. income tax on a distribution, then the Fund is not required to withhold U.S. federal tax
if the Non-U.S. Holder complies with applicable certification and disclosure requirements.
Special certification requirements apply to
a Non-U.S. Holder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisors.
Section 871(k) of the Code provides certain
“look-through” treatment to Non-U.S. Holders, permitting interest-related dividends and short-term capital gains not
to be subject to U.S. withholding tax.
Special U.S. federal income tax rules will
apply to Non-U.S. Holders that hold shares in the Fund.
Non-U.S. Holders should consult their own tax
advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
Net Investment Income Tax
A U.S. Holder that is an individual or estate,
or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the
lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the excess of the
U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which, in the case of individuals,
will be between $125,000 and $250,000 depending on the individual’s circumstances). A U.S. Holder’s “net investment
income” may generally include portfolio income (such as interest and dividends), and income and net gains from an activity
that is subject to certain passive activity limitations, unless such income or net gains are derived in the ordinary course of
the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If
you are a U.S. Holder that is an individual, estate or trust, you should consult your tax advisors regarding the applicability
of the net investment income tax to your ownership and disposition of shares of the Fund.
Payments to Foreign Financial Institutions
Sections 1471 through 1474 of the Code (provisions
commonly referred to as “FATCA”), and Treasury regulations promulgated thereunder, generally provide that a 30% withholding
tax may be imposed on payments of U.S. source income, including U.S. source interest and dividends, to certain non-U.S. entities
unless such entities enter into an agreement with the IRS to disclose the name, address and taxpayer identification number of certain
U.S. persons that own, directly or indirectly, interests in such entities, as well as certain other information relating to such
interests. While withholding under FATCA would have also applied to payments of gross proceeds from the sale or other disposition
of Shares on or after January 1, 2019, recently proposed Treasury regulations eliminate FATCA withholding on payments of gross
proceeds entirely. The preamble to these proposed regulations indicates that taxpayers may rely on them pending their finalization.
Non-U.S. Holders are encouraged to consult with their own tax advisors regarding the possible implications and obligations of FATCA.
STATE AND LOCAL TAXES
Stockholders should consult their own tax advisers
as to the state or local tax consequences of investing in the Fund.
THE FOREGOING SUMMARY OF U.S. FEDERAL INCOME
TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. IT DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A STOCKHOLDER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. PROSPECTIVE STOCKHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES THAT WOULD RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE SHARES, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS (INCLUDING ESTATE AND
GIFT TAX RULES) AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
FINANCIAL STATEMENTS
The financial statements included in the Fund’s
Annual Report for the year ended December 31, 2020 and its unaudited Semi-Annual Report for the period ended June 30, 2020, filed
with the Securities and Exchange Commission on March 4, 2021 and August 24, 2020, respectively (File No. 811-05150), are herein
incorporated by reference.
OTHER INFORMATION
The Fund is a Maryland corporation. Pursuant
to the Fund’s Amended and Restated By-Laws, the Fund will indemnify, to the fullest extent permitted by the Maryland General
Corporation Law (the “MGCL”) and the 1940 Act, every person who is, or has been, a director or officer of the Fund
against liability and all expenses reasonably incurred or paid by him in connection with a claim, action, suit or proceeding in
which he becomes involved by virtue of being a director or officer of the Fund and amounts paid or incurred in settlement of such
claim, action, suit or proceeding. The Fund may also indemnify its employees and agents and make advances to them for reasonable
expenses to the extent permitted by the MGCL, the 1933 Act and the 1940 Act.
The Fund’s Prospectus and this SAI do
not contain all of the information set forth in the Registration Statement that the Fund has filed with the SEC. The complete Registration
Statement may be obtained as described on the cover page of this SAI.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Tait, Weller & Baker LLP is the independent
registered public accounting firm for the Fund and provides audit services, tax return preparation and assistance with respect
to the preparation of filings with the SEC.
Cornerstone Strategic Va... (AMEX:CLM)
Historical Stock Chart
From Aug 2024 to Sep 2024
Cornerstone Strategic Va... (AMEX:CLM)
Historical Stock Chart
From Sep 2023 to Sep 2024