As filed with the Securities and Exchange Commission on March 31, 2021
1933 Act File No. 333-253310
1940 Act File No. 811-05150
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
Check appropriate box or boxes
[X] | REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
[ ] | PRE-EFFECTIVE AMENDMENT NO. 1 | |
[ ] | POST-EFFECTIVE AMENDMENT NO. __ |
and
[X] | REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
[X] | AMENDMENT NO. 19 |
Cornerstone Strategic Value Fund, Inc.
(Registrant Exact Name of as Specified in Charter)
225 Pictoria Drive, Suite 450, Cincinnati, OH 45246
(Address of Principal Executive Offices)
(866) 668-6558
(Registrant’s Telephone Number, including Area Code)
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
[ ] | The only securities being registered on the form are being offered pursuant to a dividend or interest reinvestment plan. |
[ ] | Any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, (“Securities Act”) other than securities offered in connection with a dividend reinvestment plan. |
[ ] | This form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto. |
[ ] | This form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. |
[ ] | This form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
It is proposed that this filing will become effective (check appropriate box):
[X] | when declared effective pursuant to section 8(c) of the Securities Act |
If appropriate, check the following box:
[ ] | This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement]. |
[ ] | This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: _______. |
[ ] | This form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. |
[ ] | This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. |
Check each box that appropriately characterizes the Registrant:
[X] | Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (the “Investment Company Act”)). |
[ ] | Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act. |
[ ] | Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). |
[X] | A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
[ ] | Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
[ ] | Emerging Growth Company (as defined by Rule 12b-2 under the Securities and Exchange Act of 1934). |
[ ] | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. |
[ ] | New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Securities
Being Registered |
Amount Being
Registered(1) |
Proposed Maximum
Offering Price Per Unit |
Proposed Maximum
Aggregate Offering Price(2) |
Amount of
Registration Fee(3) |
Common Stock, $0.001 par value per share | 52,059,505 | $10.69 | $556,516,109 | $60,715.91 |
Rights to purchase common stock(4) | 78,089,258 | — | — | — |
(1) | Includes 26,029,753 shares subject to the additional subscription privilege. |
(2) | Estimated solely for the purpose of calculating fee as required by Rule 457(o) under the Securities Act of 1933 based upon the closing price reported on the New York Stock Exchange consolidated reporting system of $13.36 on March 26, 2021. |
(3) | $109.10 of which was previously paid. |
(4) | Evidencing the rights to subscribe for shares of common stock of the Registrant being registered herewith. Pursuant to Rule 457(g) of the Securities Act of 1933, no separate registration fee is required for the rights because the rights are being registered on the same registration statement as the common stock of the Registrant underlying the rights. |
Pursuant to Rule 473 under the Securities Act of 1933, as amended, the Registrant hereby amends the Registration Statement to delay its effective date until the Registrant shall file a further amendment that specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
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 March 26, 2021, the last reported net asset value (“NAV”) per Share was $9.74 and the last reported sales price per Share on the NYSE American was $13.36, which represents a 37.17% 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) |
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Per Share | $ | 10.69 | None | $ | 278,258,054 | |||||||
Total | $ | 10.69 | None | $ | 278,258,054 |
(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 March 26, 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 $278,012,038 or approximately $2.67 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 [●], 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 [●], 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 OBJECTIVES 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. |
1
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. |
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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” | |
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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:
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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.
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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).
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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.
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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.
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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.
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● | 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. |
3
Investment Objective and Policies
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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. |
4
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%. |
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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.” |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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.
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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. |
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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.
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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 March 26, 2021 ($9.74 and $13.36, respectively), the Subscription Price would be $10.69 per share (80% of $13.36).
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. |
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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:
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.
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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 $10.69 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 $1,603.50 ($1,069.00 plus $534.50).
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 $10.69 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.
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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.
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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).
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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.
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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 $10.69, the annual compensation to be received by the Investment Adviser would be increased by approximately $2,782,581. 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 $5,565,161. 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.
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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. |
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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. |
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USE OF PROCEEDS
If fully-subscribed, the net proceeds of the Offering will be approximately $278,012,039 or approximately $2.67 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.”
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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. |
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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.
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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.
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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.
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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.
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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.
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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.
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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 $250,000 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.
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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.
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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.
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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:
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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 |
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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.
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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.
55
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 |
56
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 |
57
Not part of the Prospectus
58
Cornerstone Strategic Value Fund, Inc.
78,089,258 Rights for
26,029,753 Shares of Common Stock
PROSPECTUS
[●], 2021
STATEMENT OF ADDITIONAL INFORMATION
[●], 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 [●], 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. |
B-1
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.
B-2
INDEPENDENT DIRECTORS | |||||
NAME AND
ADDRESS* (BIRTHDATE) |
POSITION(S) HELD WITH FUND |
TERM OF
TIME SERVED
|
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 |
B-3
INDEPENDENT DIRECTORS | |||||
NAME AND
ADDRESS* (BIRTHDATE) |
POSITION(S) HELD WITH FUND |
TERM OF
TIME SERVED
|
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
|
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 |
B-4
INDEPENDENT DIRECTORS | |||||
NAME AND
ADDRESS* (BIRTHDATE) |
POSITION(S) HELD WITH FUND |
TERM OF
TIME SERVED
|
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 |
B-5
INTERESTED DIRECTOR | |||||
NAME AND
ADDRESS* (BIRTHDATE) |
POSITION(S) HELD WITH FUND |
TERM OF
TIME SERVED
|
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.
B-6
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.
B-7
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.
B-8
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. |
B-9
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.
* | 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.
B-10
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.
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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.
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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.
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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 $392,866, respectively.
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Information regarding the Fund’s custodian, transfer agent and independent public accounting firm is described in the Prospectus.
PORTFOLIO MANAGER
Ralph W. Bradshaw is the portfolio manager responsible for the day-to-day management of the Fund (the “Portfolio Manager In addition, Mr. Bradshaw may consult with Joshua G. Bradshaw and Daniel W. Bradshaw, co-portfolio managers of the Fund, regarding investment decisions. The following table shows the number of other accounts managed by Mr. Bradshaw and the total assets in the accounts managed within various categories as of December 31, 2020.
ADVISORY FEE BASED ON PERFORMANCE | ||||
TYPE OF ACCOUNTS | NUMBER OF ACCOUNTS |
TOTAL ASSETS
($ 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.
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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 [●] 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.
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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.
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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; |
● | an insurance company; |
● | 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. |
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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.
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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.
B-20
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.
B-21
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.
B-22
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.
B-23
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.
B-24
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.
B-25
PART C
OTHER INFORMATION
Item 25. Financial Statements and Exhibits
(1) | Financial Statements (included in Part B) |
Portfolio Summary as of December 31, 2020*
Schedule of Investments as of December 31, 2020*
Statement of Assets and Liabilities as of December 31, 2020*
Statement of Operations for the year ended December 31, 2020*
Statement of Changes in Net Assets for the years ended December
31, 2019 and 2020*
Financial Highlights*
Notes to Financial Statements*
Report of Independent Registered Public Accounting Firm*
* | Incorporated by reference to the Fund’s Annual Report on Form N-CSR for the year ended December 31, 2020 filed on March 4, 2021 (File No. 811-05150). |
(2) | Exhibits |
(a)(i) | Amended and Restated Articles of Incorporation (1) |
(a)(ii) | Articles of Amendment (2) |
(a)(iii) | Articles of Amendment (3) |
(a)(iv) | Articles of Amendment (4) |
(b) | Amended and Restated Bylaws (13) |
(c) | Not applicable |
(d) | Form of Non-Transferable Subscription Rights Certificate (13) |
(e) | Distribution Reinvestment Plan (5) |
(f) | Not applicable |
(g) | Investment Management Agreement between the Fund and Cornerstone Advisors, LLC (6) |
(h) | Not applicable |
(i) | Not applicable |
(j) | Custody Agreement between the Fund and U.S. Bank National Association (7) |
(k)(i) | Transfer Agent Servicing Agreement between the Fund and American Stock Transfer and Trust Company, LLC (8) |
(k)(ii) | Administration and Fund Accounting Agreement (9) |
(l) | Opinion and Consent of Counsel (13) |
(m) | Not applicable |
(n) | Consent of Independent Auditor (13) |
(o) | Not applicable |
(p) | Not applicable |
(q) | Not applicable |
(r)(i) | Code of Ethics of the Fund (10) |
(r)(ii) | Code of Ethics of the Investment Adviser (13) |
(s) | (i) Powers of Attorney for Matthew W. Morris, Scott B. Rogers, Andrew A. Strauss and Glenn W. Wilcox, Sr. (13) |
(ii) Powers of Attorney for Robert E. Dean, Marcia E. Malzahn and Frank J. Maresca (11) |
(t) | Form of Indemnity Agreement (12) |
(u) | Information Agent Agreement (13) |
(v) | Subscription Agent Agreement (13) |
(1) | Incorporated by reference to the Fund’s Proxy Statement on Schedule 14A filed on April 15, 1999, Exhibit A (File No. 811-05150). |
(2) | Incorporated by reference to the Fund’s Registration Statement on Form N-14 8C filed on April 22, 2004, Exhibit 1-A (File No. 333-114747). |
(3) | Incorporated by reference to the Fund’s Form 497 filed on May 6, 2004, Exhibit D (File No. 333-113046). |
(4) | Incorporated by reference to the Fund’s Registration Statement on Form N-2 Filed on June 7, 2018, Exhibit 2(a)(iv) (File No. 811-05150). |
(5) | Incorporated by reference to the Fund’s Annual Report to Stockholders for the period ended December 31, 2020 filed on March 4, 2021 (File No. 811-05150). |
(6) | Incorporated by reference to the Fund’s Proxy Statement on Schedule 14A filed on February 22, 2019, Exhibit A (File No. 811-05150). |
(7) | Incorporated by reference to the Fund’s Registration Statement on Form N-2 filed June 28, 2011 (File No. 811-05150). |
(8) | Incorporated by reference to the Fund’s Registration Statement on Form N-2 Filed on August 5, 2016, Exhibit 2(k)(i) (File No. 811-05150). |
(9) | Incorporated by reference to the Fund’s Registration Statement on Form N-2 Filed on June 7, 2018, Exhibit 2(k)(ii) (File No. 811-05150). |
(10) | Incorporated by reference to the Fund’s Annual Report to Stockholders for the period ended December 31, 2020 filed on March 4, 2021 (File No. 811-05150). |
(11) | Incorporated by reference to the Fund’s Registration Statement on Form N-2 filed on February 19, 2021, Exhibit 2(s)(iii) (File No. 811-05150). |
(12) | Incorporated by reference to the Fund’s Registration Statement on Form N-2 Filed on August 5, 2016, Exhibit 2(t) (File No. 811-05150). |
(13) | To be filed herewith. |
Item 26. Marketing Arrangements
Not applicable.
Item 27. Other Expenses of Issuance and Distribution
The approximate expenses in connection with the offering are as follows:
Information Agent’s Fees and Expenses | $ | 11,500 | ||
Subscription Agent’s Fees and Expenses | 26,200 | |||
Auditing Fees and Expenses | 1,600 | |||
Registration Fees | 60,716 | |||
Legal Fees and Expenses | 30,000 | |||
Printing, Typesetting, and Edgar Fees | 110,000 | |||
Miscellaneous | 6,000 | |||
$ | 246,016 |
Item 28. Persons Controlled by or Under Common Control With Registrant
None.
Item 29. Number of Holders of Securities
Set forth below is the number of record holders as of January 31, 2021, of each class of securities of the Registrant:
Title of Class |
Number of
Record Holders |
Common Stock, par value $0.001 | 283 |
Item 30. Indemnification
Section 2-418 of the Maryland General Corporation Law and Article X of the Registrant’s By-laws (incorporated by reference as an Exhibit 2(b) to this Registration Statement) provide for indemnification of directors and officers of the Registrant, and employees and agents of the Registrant as determined by the Board of Directors. The Investment Management Agreement (incorporated by reference as an Exhibit 2(g) to this Registration Statement) provides for indemnification of Cornerstone Advisors, LLC, the Fund’s investment adviser. The Registrant has entered into an indemnification agreement with each of the independent directors in connection with their agreement to serve on the Registrant’s Board of Directors. The Registrant’s directors and officers are insured under a standard investment company errors and omissions insurance policy covering loss incurred by reason of negligent errors and omissions committed in their official capacities.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the “Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 31. Business and Other Connections of Investment Adviser
Cornerstone Advisors, LLC manages one other closed-end fund. A description of any other business, profession, vocation, or employment of a substantial nature in which the investment adviser, and each director, executive officer or partner of the investment adviser is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in the Statement of Additional Information contained in this Registration Statement in the section entitled “Management.”
Item 32. Location of Accounts and Records
All applicable accounts, books and documents required to be maintained by the Registrant by Section 31(a) of the 1940 Act and the rules promulgated thereunder are in the possession and custody of the Registrant’s administrator, Ultimus Fund Solutions, LLC, located at 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246.
Item 33. Management Services
Not applicable.
Item 34. Undertakings
1. | The Registrant undertakes to suspend the offering of its Rights until the prospectus is amended if (1) subsequent to the effective date of this registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus. |
2. | Not applicable. |
3. | Not applicable. |
4. | The Registrant undertakes that: |
(a) | for the purpose of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 424(b)(1) under the 1933 Act shall be deemed to be part of this registration statement as of the time it was declared effective; and |
(b) | for the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
5. | Not applicable. |
6. | Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. |
7. | The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, its Statement of Additional Information. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the city of New York, and the State of New York on the 31st day of March, 2021.
CORNERSTONE STRATEGIC VALUE FUND, INC. | |||
By: | /s/ Ralph W. Bradshaw | ||
Name: Ralph W. Bradshaw | |||
Title: President and Chairman of the Board of Directors
(Principal Executive Officer) |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Ralph W. Bradshaw | President and Chairman of the Board of Directors (Principal Executive Officer) | March 31, 2021 | ||
Ralph W. Bradshaw | ||||
/s/ Theresa M. Bridge | Treasurer (Principal Financial Officer) and Principal Accounting Officer | March 31, 2021 | ||
Theresa M. Bridge | ||||
/s/ Robert E. Dean* | Director | March 31, 2021 | ||
Robert E. Dean | ||||
/s/ Marcia E. Malzahn* | Director | March 31, 2021 | ||
Marcia E. Malzahn | ||||
/s/ Frank J. Maresca* | Director | March 31, 2021 | ||
Frank J. Maresca | ||||
/s/ Matthew W. Morris* | Director | March 31, 2021 | ||
Matthew W. Morris | ||||
/s/ Scott B. Rogers* | Director | March 31, 2021 | ||
Scott B. Rogers | ||||
/s/ Andrew A. Strauss* | Director | March 31, 2021 | ||
Andrew A. Strauss | ||||
/s/ Glenn W. Wilcox, Sr.* | Director | March 31, 2021 | ||
Glenn W. Wilcox, Sr. |
*By: | /s/ Ralph W. Bradshaw | |
Ralph W. Bradshaw Power of Attorney |
INDEX TO EXHIBITS
AMENDED AND RESTATED BY-LAWS
of
CORNERSTONE STRATEGIC VALUE FUND, INC.
A Maryland Corporation
Amended and Restated as of August 7, 2020
1
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL
Section 1.01 Name. The name of the Corporation (the “Corporation”) is
CORNERSTONE STRATEGIC VALUE FUND, INC.
Section 1.02 Principal Offices. The principal office of the Corporation in the State of Maryland shall be located at such place as the Board of Directors may designate. The Corporation may, in addition, establish and maintain such other offices and places of business as the Board of Directors may, from time to time, determine.
Section 1.03 Seal. The corporate seal of the Corporation shall be circular in form and shall bear the name of the Corporation, the year of its incorporation, and the word “Maryland.” The form of the seal shall be subject to alteration by the Board of Directors and the seal may be used by causing it or a facsimile to be impressed or affixed or printed or otherwise reproduced. Any officer or director of the Corporation shall have authority to affix the corporate seal of the Corporation to any document requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01 Annual Meetings. An annual meeting of stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on the date and at the time and place set by the Board of Directors. Any business of the Corporation may be transacted at an annual meeting without being specifically designated in the notice unless otherwise provided by statute, the charter of the Corporation (the “Charter”) or these Bylaws.
Section 2.02 Special Meetings.
(a) General. Each of the chairman of the board, president, or any vice president, or a majority of the Board of Directors may call a special meeting of stockholders. Except as provided in paragraph (4) of Section 2.02(b), a special meeting of stockholders shall be held on the date and at the time and place set by the chairman of the board, president, or any vice president, or the Board of Directors, whoever has called the meeting. Subject to Section 2.02, a special meeting of stockholders shall also be called by the secretary of the Corporation to act on any matter that may properly be considered at a meeting of stockholders upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast on such matter at such meeting.
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(b) Stockholder-Requested Special Meetings.
(1) Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary of the Corporation (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Board of Directors set a record date to determine the stockholders entitled to request a special meeting (the “Request Record Date”). The Record Date Request Notice shall set forth the purpose of the meeting and the matter(s) proposed to be acted on at the meeting, shall be signed by one or more stockholders of record as of the date of signature (or their agents duly authorized in a writing accompanying the Record Date Request Notice), shall bear the date of signature of each such stockholder (or such agent) and shall set forth all information relating to each such stockholder and each matter proposed to be acted on at the meeting that would be required to be disclosed in connection with the solicitation of proxies for the election of directors in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such a solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”). Upon receiving the Record Date Request Notice, the Board of Directors may set a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after 5:00 p.m., Eastern Time, on the date on which the resolution setting the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution setting the Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which a Record Date Request Notice is received by the secretary of the Corporation.
(2) In order for any stockholder to request a special meeting to act on any matter that may properly be considered at a meeting of stockholders, one or more written requests for a special meeting (collectively, the “Special Meeting Request”) signed by stockholders of record (or their agents duly authorized in a writing accompanying the request) as of the Request Record Date entitled to cast not less than a majority of all of the votes entitled to be cast on such matter at such meeting (the “Special Meeting Percentage”) shall be delivered to the secretary of the Corporation. In addition, the Special Meeting Request shall (a) set forth the purpose of the meeting and the matter(s) proposed to be acted on at it (which shall be limited to those lawful matters set forth in the Record Date Request Notice received by the secretary of the Corporation), (b) bear the date of signature of each such stockholder (or such agent) signing the Special Meeting Request, (c) set forth (i) the name and address, as they appear in the Corporation’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed), (ii) the class, series and number of all shares of stock of the Corporation which are owned (beneficially or of record) by each such stockholder and (iii) the nominee holder for, and number of, shares of stock of the Corporation owned beneficially but not of record by such stockholder, (d) be sent to the secretary of the Corporation by registered mail, return receipt requested, and (e) be received by the secretary of the Corporation within 60 days after the Request Record Date. Any requesting stockholder (or agent duly authorized in a writing accompanying the revocation of the Special Meeting Request) may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary of the Corporation.
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(3) The secretary of the Corporation shall inform the requesting stockholder(s) of the reasonably estimated cost of preparing and mailing or delivering the notice of the meeting (including, without limitation, the Corporation’s proxy materials). The secretary of the Corporation shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 2.02(b), the secretary of the Corporation receives payment from the requesting stockholder(s) of such reasonably estimated cost prior to the preparation and mailing or delivery of such notice of the meeting.
(4) In the case of any special meeting called by the secretary of the Corporation upon the request of stockholders (a “Stockholder-Requested Meeting”), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder-Requested Meeting shall be not more than 90 days after the record date for such meeting (the “Meeting Record Date”); and provided further that if the Board of Directors fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary of the Corporation (the “Delivery Date”), a date and time for a Stockholder-Requested Meeting, then such meeting shall be held at 2:00 p.m., local time, on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder-Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive office of the Corporation. In setting a date for a Stockholder-Requested Meeting, the Board of Directors may consider such factors as it deems relevant, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for the meeting and any plan of the Board of Directors to call an annual meeting or a special meeting. In the case of any Stockholder-Requested Meeting, if the Board of Directors fails to set a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. The Board of Directors may revoke the notice for any Stockholder-Requested Meeting in the event that the requesting stockholders fail to comply with the provisions of paragraph (3) of this Section 2.02(b).
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(5) If written revocations of the Special Meeting Request have been delivered to the secretary of the Corporation and the result is that stockholders of record (or their agents duly authorized in writing), as of the Request Record Date, entitled to cast less than the Special Meeting Percentage have delivered, and not revoked, requests for a special meeting on the matter to the secretary of the Corporation: (i) if the notice of meeting has not already been delivered, the secretary of the Corporation shall refrain from delivering the notice of the meeting and send to all requesting stockholders that have not revoked such requests written notice of any revocation of a request for a special meeting on the matter, or (ii) if the notice of meeting has been delivered and if the secretary of the Corporation first sends to all requesting stockholders that have not revoked requests for a special meeting on the matter written notice of any revocation of a request for the special meeting and written notice of the Corporation’s intention to revoke the notice of the meeting or for the chairman of the meeting to adjourn the meeting without action on the matter, (A) the secretary of the Corporation may revoke the notice of the meeting at any time before ten days before the commencement of the meeting or (B) the chairman of the meeting may call the meeting to order and adjourn the meeting sine die without acting on the matter. Any request for a special meeting received after a revocation by the secretary of the Corporation of a notice of a meeting shall be considered a request for a new special meeting.
(6) The chairman of the board, president, or any vice president, or the Board of Directors may appoint a regionally or nationally recognized independent inspector of elections to act as the agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary of the Corporation. For the purpose of permitting the inspector to perform such review, no such purported Special Meeting Request shall be deemed to have been delivered to the secretary of the Corporation until the earlier of (i) five Business Days after receipt by the secretary of the Corporation of such purported request and (ii) such date as the independent inspector certifies to the Corporation that the valid requests received by the secretary of the Corporation represent, as of the Request Record Date, stockholders of record entitled to cast not less than the Special Meeting Percentage. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
(7) Notwithstanding anything in these Bylaws to the contrary, except as otherwise determined by the chairman of the meeting, if none of the stockholders signing the Special Meeting Request appears in person (or sends a representative who is qualified under Maryland law to act on behalf of a signing stockholder) to present the election of each nominee for director or the proposal of business proposed, as applicable, to be brought before the Stockholder-Requested Meeting, such proposed nominee or business shall not be considered at the Stockholder-Requested Meeting, and any proxies in respect of such matter shall be disregarded.
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(8) For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday, a federal holiday or a day on which the national securities exchange or over-the-counter market on which the shares of stock of the Corporation are listed is authorized or obligated by law or executive order to close.
Section 2.03 Notice of Meetings. Not less than ten nor more than 90 days before each meeting of stockholders, the secretary of the Corporation shall give to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote but that is entitled to notice of the meeting notice in writing or by electronic transmission stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, by mail, by presenting it to such stockholder personally, by leaving it at the stockholder’s residence or usual place of business, by electronic transmission or by any other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation, with postage thereon prepaid. If transmitted electronically, such notice shall be deemed to be given when transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. The Corporation may give a single notice to all stockholders that share an address, which single notice shall be effective as to any stockholder at such address, unless a stockholder objects to receiving such single notice or revokes a prior consent to receiving such single notice. Notice of adjournment of a stockholders’ meeting to another time (not more than 120 days after the original record date) or place need not be given, if such time and place are announced at the meeting. Failure to give notice of any meeting to one or more stockholders, or any irregularity in such notice, shall not affect the validity of any meeting fixed in accordance with this Article II or the validity of any proceedings at any such meeting.
Subject to Section 2.04(a), any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice. The Corporation may postpone or cancel a meeting of stockholders by making a public announcement (as defined in Section 2.04(c)(3)) of such postponement or cancellation prior to the meeting. Notice of the date, time and place to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this section.
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Section 2.04 Nominations and Proposals by Stockholders
(a) Annual Meetings of Stockholders.
(1) Nomination of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation (A) that is a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the annual meeting, at the time of giving of notice by the stockholder as provided for in this Section 2.04 of the individual so nominated or of any such other business and at the time of the annual meeting, including any postponement or adjournment, (B) that is entitled to vote at the meeting in the election of each person so nominated or on any such other business and (C) that has complied with this Section 2.04.
(2) For nominations to the Board of Directors or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 2.04, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and such other business must otherwise be a proper matter for action by stockholders. To be timely, a stockholder’s notice must set forth all information required under this Section 2.04 and must be delivered to the secretary of the Corporation at the principal executive office of the Corporation by not earlier than the 150th day nor later than 5:00 p.m., Eastern Time, on the 120th day prior to the first anniversary of the date of the proxy statement (as defined in Section 2.04(c)(3)) for the most recent annual meeting; provided, however, that in connection with the Corporation’s first annual meeting or in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, in order for notice by the stockholder to be timely, such notice must be so delivered not earlier than the 120th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to the date of such annual meeting, as originally convened, or the tenth day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of a postponement of such annual meeting or of an adjournment or postponement of an annual meeting to a later date or time commence a new time period for the giving of a stockholder’s notice described above.
(3) A stockholder’s notice to be proper must set forth
(i) as to each person whom the stockholder proposes to nominate for election or reelection as a director (each, a “Proposed Nominee”),
(A) all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act and
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(B) whether such stockholder believes that the Proposed Nominee is, or is not, an “interested person” of the Corporation, as defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”), and information regarding such Proposed Nominee that is sufficient, in the discretion of the Board of Directors or any committee thereof or any authorized officer of the Corporation, to make such determination;
(ii) as to any other business that the stockholder proposes to bring before the meeting, a description of such business, the stockholder’s reasons for proposing such business at the meeting and any material interest in such business of such stockholder and of each beneficial owner, if any, on whose behalf the proposal is made, and of any Stockholder Associated Person (as defined below), individually or in the aggregate, including, without limitation, any anticipated benefit to the stockholder or the Stockholder Associated Person and each beneficial owner, if any, therefrom;
(iii) as to the stockholder giving the notice and each beneficial owner, if any, on whose behalf the nomination or proposal is made, and any Proposed Nominee and any Stockholder Associated Person,
(A) the name and address of such stockholder, as they appear on the Corporation’s stock ledger, and current name and address, if different, of such beneficial owner,
(B) the class, series and number of shares of stock or other securities of the Corporation or any affiliate thereof (collectively, the “Company Securities”), if any, which are owned beneficially or of record by such stockholder, beneficial owner, Proposed Nominee or Stockholder Associated Person, the date on which each such Company Security was acquired and the investment intent of such acquisition, and any short interest (including opportunity to profit or share in any benefit from any decrease in the price of such stock or other security) in any Company Securities of any such person,
(C) the nominee holder for, and number of, any Company Securities owned beneficially but not of record by such stockholder, Proposed Nominee or Stockholder Associated Person,
(D) whether and the extent to which such stockholder, Proposed Nominee or Stockholder Associated Person, directly or indirectly (through brokers, nominees or otherwise), is subject to or during the last twelve months has engaged in any hedging, derivative or other transaction or series of transactions or entered into any other agreement, arrangement or understanding (including any short interest, any borrowing or lending of securities or any proxy or voting agreement), the effect or intent of which is to (I) manage risk or benefit of changes in the price of Company Securities or any security of any other closed-end investment company (a “Peer Group Company”) for such stockholder, Proposed Nominee or Stockholder Associated Person or (II) increase or decrease the voting power of such stockholder, Proposed Nominee or Stockholder Associated Person in the Corporation or any affiliate thereof (or, as applicable, in any Peer Group Company) disproportionately to such person’s economic interest in the Company Securities (or, as applicable, in any Peer Group Company), and
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(E) any substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with the Corporation), by security holdings or otherwise, of such stockholder, Proposed Nominee or Stockholder Associated Person, in the Corporation or any affiliate thereof, other than an interest arising from the ownership of Company Securities where such stockholder, Proposed Nominee or Stockholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series,
(iv) as to the stockholder giving the notice, any Stockholder Associated Person with an interest or ownership referred to in clauses (ii) or (iii) of this paragraph (a)(3) of this Section 2.04 and any Proposed Nominee,
(A) the name and address of such stockholder, as they appear on the Corporation’s stock ledger, and the current name and business address, if different, of each such Stockholder Associated Person and any Proposed Nominee and
(B) the investment strategy or objective, if any, of such stockholder and each such Stockholder Associated Person that is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such stockholder and each such Stockholder Associated Person; and
(v) to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder’s notice.
(4) Such stockholder’s notice shall, with respect to any Proposed Nominee, be accompanied by a certificate executed by the Proposed Nominee (A) certifying that such Proposed Nominee (i) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation in connection with service or action as a director that has not been disclosed to the Corporation and (ii) will serve as a director of the Corporation if elected; and (B) attaching a completed Proposed Nominee questionnaire (which questionnaire shall be provided by the Corporation, upon request, by the stockholder providing the notice and shall include all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act or would be required pursuant to the rules of any national securities exchange or over-the-counter market on which the shares of stock owned by the stockholder are listed).
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(5) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 2.04 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement by the Corporation of such action or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the date of the proxy statement (as defined in Section 2.04(c)(3)) for the most recent annual meeting, a stockholder’s notice required by this Section 2.04(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if the notice is delivered to the secretary of the Corporation at the principal executive offices of the Corporation not later than 5:00 p.m., Eastern Time, on the tenth day immediately following the day on which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) provided that the special meeting has been called in accordance with Section 2.02 for the purpose of electing directors, by any stockholder of the Corporation (A) that is a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the special meeting, at the time of giving of notice provided for in this Section 2.04 and at the time of the special meeting, including any postponement or adjournment, (B) that is entitled to vote at the meeting in the election of each individual so nominated and (C) that has complied with this Section 2.04. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more individuals to the Board of Directors, any such stockholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Corporation’s notice of meeting, if the stockholder’s notice, containing the information required by paragraphs (a)(3) and (4) of this Section 2.04 shall be delivered to the secretary of the Corporation at the principal executive office of the Corporation not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The public announcement of a postponement or adjournment of a special meeting shall not commence a new time period for the giving of a stockholder’s notice as described above.
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(c) General.
(1) If information submitted pursuant to this Section 2.04 by any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall be inaccurate in any material respect, such information may be deemed not to have been provided in accordance with this Section 2.04. Any such stockholder shall notify the Corporation of any inaccuracy or change (within two Business Days of becoming aware of such inaccuracy or change) in any such information. Upon written request by the secretary of the Corporation or the Board of Directors, any such stockholder shall provide, within five Business Days of delivery of such request (or such other period as may be specified in such request), (A) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the Corporation, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 2.04, and (B) a written update of any information (including, if requested by the Corporation, written confirmation by such stockholder that it continues to intend to bring such nomination or other business proposal before the meeting) submitted by the stockholder pursuant to this Section 2.04 as of an earlier date. If a stockholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with this Section 2.04.
(2) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.04 shall be eligible for election as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.04. The chairman of the meeting shall have the power and duty to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.04.
(3) For purposes of this Section 2.04, (a) “the date of the proxy statement” shall have the same meaning as “the date of the company’s proxy statement released to shareholders” as used in Rule 14a-8(e) promulgated under the Exchange Act, as interpreted by the Securities and Exchange Commission (the “SEC”) from time to time, (b) “public announcement” shall mean disclosure (i) in a press release either transmitted to the principal securities exchange on which shares of the Corporation’s common stock are traded or reported by a recognized news service or (ii) in a document publicly filed by the Corporation with the SEC and (c) “Stockholder Associated Person” of any stockholder shall mean (i) any person acting in concert with such stockholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder (other than a stockholder that is a depositary) and (iii) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such stockholder or such Stockholder Associated Person.
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(4) Notwithstanding the foregoing provisions of this Section 2.04, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act with respect to the matters set forth in this Section 2.04. Nothing in this Section 2.04 shall be deemed to affect any right of a stockholder to request inclusion of a proposal in, nor the right of the Corporation to omit a proposal from, the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act. Nothing in this Section 2.04 shall require disclosure of revocable proxies received by the stockholder or Stockholder Associated Person pursuant to a solicitation of proxies after the filing of an effective Schedule 14A by such stockholder or Stockholder Associated Person under Section 14(a) of the Exchange Act.
Section 2.05 Organization and Conduct. Every meeting of stockholders shall be conducted by an individual appointed by the Board of Directors to be chairman of the meeting or, in the absence of such appointment or appointed individual, by the chairman of the board or, in the case of a vacancy in the office or absence of the chairman of the board, by one of the following officers present at the meeting in the following order: the vice chairman of the board, if there is one, the chief executive officer, the president, any vice presidents in their order of rank and seniority, the secretary of the Corporation, any other officers of the Corporation in their order of rank and seniority, or, in the absence of such officers, a chairman chosen by the stockholders by the vote of a majority of the votes cast by stockholders present in person or by proxy. The secretary of the Corporation, or, in the secretary’s absence, an assistant secretary, or, in the absence of both the secretary of the Corporation and assistant secretaries, an individual appointed by the Board of Directors or, in the absence of such appointment, an individual appointed by the chairman of the meeting shall act as secretary. In the event that the secretary of the Corporation presides at a meeting of stockholders, an assistant secretary, or, in the absence of all assistant secretaries, an individual appointed by the Board of Directors or the chairman of the meeting, shall record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of the chairman and without any action by the stockholders, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies and such other individuals as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies and other such individuals as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments; (e) determining when and for how long the polls should be opened and when the polls should be closed; (f) maintaining order and security at the meeting; (g) removing any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; (h) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (i) complying with any state and local laws and regulations concerning safety and security. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
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Section 2.06 Voting. A plurality of all votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect a director. Each stockholder shall be entitled to one vote for each share, and a proportionate vote for each portion of a share, of stock of the Corporation validly issued and outstanding and held by such stockholder, except that no shares held by the Corporation shall be entitled to a vote. Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. Except as otherwise specifically provided by statute or the Charter or these Bylaws, all matters shall be decided by a vote of the majority of the votes validly cast. The vote upon any question or in any election shall be by ballot whenever requested by any person entitled to vote, but, unless such a request is made, voting may be conducted in any way approved at the meeting.
Section 2.07 Stockholders Entitled to Vote. If, pursuant to Section 7.05 hereof, a record date has been set for the determination of stockholders entitled to notice of or to vote at any meeting of stockholders, each stockholder of the Corporation shall be entitled to vote, in person or by proxy, each share of stock standing in his, her or its name on the books of the Corporation on such record date and outstanding at the time of the meeting. If no record date has been set for the determination of stockholders, the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day on which notice of the meeting is mailed or the thirtieth day before the meeting, whichever is later.
Section 2.08 Voting of Stock by Certain Holders. Stock of the Corporation registered in the name of a corporation, partnership, trust, limited liability company or other entity, if entitled to be voted, may be voted by the president or a vice president, general partner, trustee or managing member thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any director or fiduciary may vote stock registered in the name of such person in the capacity of such director or fiduciary, either in person or by proxy.
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Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders that may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date, the time after the record date within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt by the Corporation of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the holder of record of the specified stock in place of the stockholder that makes the certification.
Section 2.09 Proxies. A holder of record of shares of stock of the Corporation may cast votes in person or by proxy executed by the stockholder or by the stockholder’s duly authorized agent in any manner permitted by law. Such proxy or evidence of authorization of such proxy shall be filed with the secretary of the Corporation before or at the meeting. No proxy shall be valid more than eleven months after its date unless otherwise provided in the proxy.
Section 2.10 Quorum. The presence at any meeting of stockholders, in person or by proxy, of stockholders entitled to cast a majority of the all the votes entitled to be cast at such meeting shall constitute a quorum, except as provided in the Charter with respect to any matter which requires approval by a separate vote of one or more series or classes of stock. In the absence of a quorum, the chairman of the meeting may adjourn the meeting sine die or from time to time. Any business that might have been transacted at the meeting originally called may be transacted at any such adjourned meeting at which a quorum is present.
The stockholders present either in person or by proxy, at a meeting which has been duly called and at which a quorum has been established, may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough stockholders to leave fewer than would be required to establish a quorum.
Section 2.11 Stock Ledger and List of Stockholders. It shall be the duty of the secretary or assistant secretary of the Corporation to cause an original or duplicate stock ledger to be maintained at the office of the Corporation’s transfer agent.
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Section 2.12 Inspector. The Board of Directors or the chairman of the meeting may appoint, before or at the meeting, an inspector for the meeting and any successor to the inspector. Except as otherwise provided by the chairman of the meeting, the inspector, if any, shall (i) determine the number of shares of stock represented at the meeting, in person or by proxy, and the validity and effect of proxies, (ii) receive and tabulate all votes, ballots or consents, (iii) report such tabulation to the chairman of the meeting, (iv) hear and determine all challenges and questions arising in connection with the right to vote, and (v) do such acts as are proper to fairly conduct the election or vote. Each such report shall be in writing and signed by the inspector. The report of the inspector on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all the powers of the Corporation except those powers vested solely in the stockholders of the Corporation by statute, the Charter or these Bylaws.
Section 3.02 Number, Election and Term of Directors. The number of directors shall be fixed from time to time by resolution of the Board of Directors adopted by a majority of the directors then in office; provided, however, that the number of directors shall in no event be fewer than the minimum number required by the Maryland General Corporation Law (the “MGCL”), nor more than 15. The directors (other than any director elected solely by holders of one or more classes or series of preferred stock in connection with dividend arrearages) shall be classified, with respect to the terms for which they severally hold office, into three classes, as determined by the Board of Directors, as nearly equal in size as is practicable, designated as Class I, Class II and Class III. At each annual meeting of the stockholders, the successors to the class of directors whose term expires at such meeting shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders following the meeting at which they were elected and until their successors are duly elected and qualify.
Section 3.03 Resignation. A director of the Corporation may resign at any time by giving notice (in writing or by electronic transmission) of his or her resignation to the Board of Directors or the chairman of the board or to the president or the secretary of the Corporation. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. Acceptance of a resignation shall not be necessary to make it effective unless the resignation states otherwise.
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Section 3.04 Vacancies. If for any reason any or all of the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder. Subject to the provisions of the Investment Company Act, any vacancy on the Board of Directors, whether arising from death, resignation, removal or any other cause except an increase in the number of directors, shall be filled by a vote of the majority of the remaining directors even if that majority is less than a quorum, provided that no vacancy shall be filled by action of the remaining directors if, after the filling of the vacancy, fewer than two-thirds of the directors then holding office shall have been elected by the stockholders of the Corporation. A majority of the entire Board of Directors may fill a vacancy that results from an increase in the number of directors. In the event that at any time a vacancy exists in any directorship that may not be filled by the remaining directors, a special meeting of the stockholders shall be held as promptly as possible and in any event within 60 days, for the purpose of filling the vacancy. Any individual appointed by the Board of Directors to fill a vacancy shall serve only until the next annual meeting of stockholders of the Corporation and until a successor has been elected and qualifies or until his or her earlier resignation or removal. Any director elected by the stockholders to fill a vacancy shall hold office for the balance of the term of the director whose death, resignation or removal occasioned the vacancy and until a successor has been elected and qualifies or until his or her earlier resignation or removal.
Section 3.05 Regular Meetings. The Board of Directors may provide, by resolution, the time and place of regular meetings of the Board of Directors without other notice than such resolution.
Subject to the Investment Company Act, directors or any committee designated by the Board of Directors may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting.
Section 3.06 Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the chairman of the board, the president, any two officers, or by a majority of directors, at the time and place specified in the respective notices of such meetings.
Section 3.07 Notice. Notice of any special meeting of the Board of Directors shall be delivered personally or by telephone, electronic mail, facsimile transmission, courier or United States mail to each director at his or her business or residence address. Notice by personal delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by United States mail shall be given at least three Business Days prior to the meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone notice shall be deemed to be given when the director or his or her agent is personally given such notice in a telephone call to which the director or his or her agent is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. Notice by United States mail shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.
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Section 3.08 Waiver of Notice. No notice of any special meeting need be given to any director who attends such meeting in person or to any director who waives notice of such meeting in writing (which waiver shall be filed with the records of such meeting), whether before or after the time of the meeting.
Section 3.09 Quorum and Voting. At all meetings of the Board of Directors, the presence of a majority of directors then in office shall constitute a quorum for the transaction of business, provided that there shall be present no fewer than one-third of the total number of directors fixed pursuant to Section 3.02 nor fewer than two directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting, from time to time, until a quorum shall be present. Notice of the time and place of any adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called. The action of a majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors unless the concurrence of a greater proportion is required for such action by statute, the Charter or these Bylaws, provided that, if, pursuant to applicable law, the Charter or these Bylaws, the vote of a majority or other percentage of a particular group of directors is required for action, a quorum must also include a majority or such other percentage of such group. If enough directors have withdrawn from a meeting to leave fewer than required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the Charter or these Bylaws.
Section 3.10 Organization. At each meeting of the Board of Directors, the chairman of the board or, in the absence of the chairman, the vice chairman of the board, if any, shall act as chairman of the meeting. In the absence of both the chairman and vice chairman of the board, the chief executive officer or, in the absence of the chief executive officer, the president or, in the absence of the president, a director chosen by a majority of the directors present, shall act as chairman of the meeting. The secretary or, in his or her absence, an assistant secretary of the Corporation, or, in the absence of the secretary and all assistant secretaries of the Corporation, an individual appointed by the chairman of the meeting, shall act as secretary of the meeting.
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Section 3.11 Compensation. Directors shall not receive any stated salary for their services as directors but, by resolution of the Board of Directors, may receive compensation per year and/or per meeting and for any service or activity they performed or engaged in as directors. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof and for their expenses, if any; but nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.
Section 3.12 Reliance. Each director and officer of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be entitled to rely on any information, opinion, report or statement, including, without limitation, any financial statement or other financial data, prepared or presented by an officer or employee of the Corporation whom the director or officer reasonably believes to be reliable and competent in the matters presented, by a lawyer, certified public accountant or other person, as to a matter which the director or officer reasonably believes to be within the person’s professional or expert competence, or, with respect to a director, by a committee of the Board of Directors on which the director does not serve, as to a matter within its designated authority, if the director reasonably believes the committee to merit confidence.
Section 3.13 Ratification. The Board of Directors or the stockholders may ratify and make binding on the Corporation any action or inaction by the Corporation or its officers to the extent that the Board of Directors or the stockholders could have originally authorized the matter. Moreover, any action or inaction questioned in any proceeding commenced by a stockholder in the right or on behalf of the Corporation or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a director, officer or stockholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the stockholders, and if so ratified, shall have the same force and effect as if the questioned action or inaction had been originally duly authorized, and such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.
Section 3.14 Action Without a Meeting. Subject to the Investment Company Act, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if written consents thereto are signed by all directors or such committee members and such written consents are filed with the minutes of proceedings of the Board or such committee.
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Section 3.15 Emergency Provisions. Notwithstanding any other provision in the Charter or these Bylaws, this Section 3.15 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors under Article III of these Bylaws cannot readily be obtained (an “Emergency”). During any Emergency, unless otherwise provided by the Board of Directors, (i) a meeting of the Board of Directors or a committee thereof may be called by any director or officer by any means feasible under the circumstances; (ii) notice of any meeting of the Board of Directors during such an Emergency may be given less than 24 hours prior to the meeting to as many directors and by such means as may be feasible at the time, including, without limitation, publication, television or radio; and (iii) the number of directors necessary to constitute a quorum shall be one-third of the entire Board of Directors.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01 Number, Tenure and Qualifications. By resolution adopted by the Board of Directors, the Board may designate one or more committees including, without limitation, an Executive Committee, each consisting of one or more directors. Each member of a committee shall be a director and shall hold office during the pleasure of the Board. The chairman of the board, if any, and the president shall be members of the Executive Committee. Except as may be otherwise provided by the Board of Directors, in the absence of any member of any committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another director to act in the place of such absent member.
Section 4.02 Powers of the Executive Committee. Unless otherwise provided by resolution of the Board of Directors, when the Board of Directors is not in session the Executive Committee shall have and may exercise all powers of the Board of Directors in the management of the business and affairs of the Corporation that may lawfully be exercised by a committee of the Board of Directors.
Section 4.03 Other Committees of the Board of Directors. To the extent provided by resolution of the Board, other committees shall have and may exercise any of the powers that may lawfully be granted to the Executive Committee.
Section 4.04 Meetings. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority of the committee members present at a meeting shall be the act of such committee. The Board of Directors may designate a chairman of any committee, and such chairman or, in the absence of a chairman, any two members of any committee (if there are at least two members of the committee) may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another director to act in the place of such absent member.
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Subject to the Investment Company Act, members of a committee of the Board of Directors may participate in a meeting of such committee by means of a conference telephone or similar communications equipment by means which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting.
Section 4.05 Proceedings, Quorum and Manner of Acting. In the absence of an appropriate resolution of the Board of Directors, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable, provided that a majority of the members of the committee shall constitute a quorum. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum may appoint a member of the Board of Directors to act in the place of such absent member.
Section 4.06 Consent by Committees Without a Meeting. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent to such action is given in writing or by electronic transmission by each member of the committee and is filed with the minutes of proceedings of such committee.
Section 4.07 Vacancies. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to appoint the chair of any committee, to fill any vacancy, to designate an alternate member to replace any absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 5.01 General. The officers of the Corporation shall be a president, a secretary and a treasurer, and may include one or more vice presidents, assistant secretaries or assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.13 hereof. The Board of Directors may elect, but shall not be required to elect, a chairman of the board. Each officer shall serve until his or her successor is elected and qualifies or until his or her death, or his or her resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.
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Section 5.02 Election, Term of Office and Qualifications. The officers of the Corporation (except those appointed pursuant to Section 5.13 hereof) shall be chosen by the Board of Directors at its first meeting or such subsequent meetings as shall be held prior to its first annual meeting, and thereafter annually at its annual meeting. If any officers are not chosen at any annual meeting, such officers may be chosen at any subsequent regular or special meeting of the Board. Except as provided in Section 5.03, 5.04 and 5.05 hereof, each officer chosen by the Board of Directors shall hold office until the next annual meeting of the Board of Directors and until his or her successor shall have been elected and qualified. Any person may hold one or more offices of the Corporation except the offices of president and vice president; provided that a person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. The chairman of the board shall be chosen from among the directors of the Corporation and may hold such offices only so long as they continue to be directors. No other officer need be a director.
Section 5.03 Resignation. Any officer may resign his or her office at any time by delivering a resignation to the Board of Directors, the chairman of the board, the president, the secretary, or any assistant secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.
Section 5.04 Removal. Any officer may be removed from office, whenever in the Board’s judgment the best interest of the Corporation will be served thereby, by the vote of a majority of the Board of Directors given at any regular meeting or any special meeting called for such purposes, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. In addition, any officer or agent appointed in accordance with the provisions of Section 5.13 hereof may be removed, either with or without cause, by any officer upon whom such power of removal shall have been conferred by the Board of Directors.
Section 5.05 Vacancies and Newly Created Offices. If any vacancy shall occur in any office by reason of death, resignation, removal, disqualification or other cause, or if any new office shall be created, such vacancies or newly created offices may be filled by the Board of Directors at any regular or special meeting or, in the case of any office created pursuant to Section 5.13 hereof, by any officer upon whom such power shall have been conferred by the Board of Directors.
Section 5.06 Chairman of the Board. The Board of Directors may designate from among its members a chairman of the board, who shall not, solely by reason of these Bylaws, be an officer of the Corporation. The Board of Directors may designate the chairman of the board as an executive or non-executive chairman. The chairman of the board shall preside over the meetings of the Board of Directors. The chairman of the board shall perform such other duties as may be assigned to him or her by these Bylaws or the Board of Directors.
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Section 5.07 Chief Financial Officer. The Board of Directors may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as determined by the Board of Directors or the chief executive officer.
Section 5.08 Chief Compliance Officer. The Board of Directors may designate a chief compliance officer. The chief compliance officer shall have the responsibilities and duties as determined by the Board of Directors or the chief executive officer.
Section 5.09 President. In the absence of a chief executive officer, the president shall be the chief executive officer of the Corporation and, in the absence of the chairman of the board or if no chairman of the board has been chosen, he or she shall preside at all stockholders’ meetings and at all meetings of the Board of Directors and shall in general exercise the powers and perform the duties of the chairman of the board. Subject to the supervision of the Board of Directors, these Bylaws or any other law, he or she shall have general charge of the business, affairs and property of the Corporation and general supervision over its officers, employees and agents. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time.
Section 5.10 Vice President. The Board of Directors may from time to time, designate and elect one or more vice presidents who shall have such powers and perform such duties as from time to time may be assigned to them by the Board of Directors or the president.
Section 5.11 Secretary. The secretary shall attend to the giving and serving of all notices of the Corporation and shall record all proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose. He or she shall keep in safe custody the seal of the Corporation, and shall have charge of the records of the Corporation, including, without limitation, the stock books and such other books and papers as the Board of Directors may direct and such books, reports, certificates and other documents required by law to be kept, all of which shall at all reasonable times be open to inspection by any director. He or she shall perform such other duties as appertain to his or her office or as may be required by the Board of Directors.
Section 5.12 Treasurer. The Treasurer shall, subject to the order of the Board of Directors and subject to any arrangement made by the Board with a bank or trust company as custodian pursuant to the provisions of the Charter, have the care and custody of the money, funds, portfolio securities, valuable papers and documents of the Corporation, and shall have and exercise under the supervision of the Board of Directors all powers and duties commonly incident to his office and as provided by law, including the power to endorse for deposit or collection all notices, checks and other instruments payable to the Corporation or its order. He shall keep accurate books of account of the Corporation’s transactions which shall be the property of the Corporation and which together with all other property of the Corporation in his possession shall be subject at all times to the inspection and control of the Board of Directors. He shall deposit all funds of the Corporation in such bank, or banks, trust company or trust companies or such firm or firms doing a banking business as the Board of Directors shall designate.
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Section 5.13 Subordinate Officers. The Board of Directors from time to time may appoint such other officers or agents as it may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Board of Directors may determine. The Board of Directors from time to time may delegate to one or more officers or agents the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties.
Section 5.14 Remuneration. The salaries or other compensation of the officers of the Corporation shall be fixed from time to time by resolution of the Board of Directors, except that the Board of Directors may by resolution delegate to any person or group of persons the power to fix the salaries or other compensation of any subordinate officers or agents appointed in accordance with the provisions of Section 5.13 hereof.
Section 5.15 Surety Bonds. The Board of Directors may require any officer or agent of the Corporation to execute a bond (including, without limitation, any bond required by the Investment Company Act) to the Corporation in such sum and with such surety or sureties as the Board of Directors may determine, conditioned upon the faithful performance of his or her duties to the Corporation, including, without limitation, responsibility for negligence and for the accounting of any of the Corporation’s property, funds or securities that may come into his or her hands.
ARTICLE VI
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 6.01 General. The Board of Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Corporation when duly authorized or ratified by action of the Board of Directors or a manager acting within the scope of its authority pursuant to a management agreement and executed by the chief executive officer, the president or any other person authorized by the Board of Directors or such a manager.
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Section 6.02 Checks, Notes, Drafts, etc. So long as the Corporation shall employ a custodian to keep custody of the cash and securities of the Corporation, all checks and drafts for the payment of money by the Corporation may be signed in the name of the Corporation by the custodian. Except as otherwise authorized by the Board of Directors, all requisitions or orders for the assignment of securities standing in the name of the custodian or its nominee, or for the execution of powers to transfer the same, shall be signed in the name of the Corporation by the president or a vice president and by the treasurer or an assistant treasurer. Promissory notes, checks or drafts payable to the Corporation may be endorsed only to the order of the custodian or its nominee and only by the treasurer or president or a vice president or by such other person or persons as shall be authorized by the Board of Directors.
Section 6.03 Voting of Securities. Unless otherwise ordered by the Board of Directors, the president or any vice president shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meeting of stockholders of any company in which the Corporation may hold stock. At any such meeting such officer shall possess and may exercise (in person or by proxy) any and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may by resolution from time to time confer like powers upon any other person or persons.
ARTICLE VII
CAPITAL STOCK
Section 7.01 Certificate of Stock. Except as may be otherwise provided by the Board of Directors, the shares of the Corporation’s stock shall be uncertificated, and shall be entered in the books of the Corporation and registered as they are issued. In the event that the Corporation issues shares of stock represented by certificates, such certificates shall be in such form as prescribed by the Board of Directors or a duly authorized officer, shall contain the statements and information required by the MGCL and shall be signed by the officers of the Corporation in the manner permitted by the MGCL. In the event that the Corporation issues shares of stock without certificates, to the extent then required by the MGCL, the Corporation shall provide to the record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates, including, without limitation, the name of the stockholder, the class of stock and number of shares it represents, and any restrictions on the transfer or registration of such shares of stock. There shall be no differences in the rights and obligations of stockholders based on whether or not their shares are represented by certificates. Every certificate returned to the Corporation shall be marked “Cancelled” with the date of cancellation.
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Any officer of the Corporation may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, destroyed, stolen or mutilated, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, destroyed, stolen or mutilated; provided, however, if such shares have ceased to be certificated, no new certificate shall be issued unless requested in writing by such stockholder and the Board of Directors or an officer of the Corporation has determined that such certificates may be issued. Unless otherwise determined by an officer of the Corporation, the owner of such lost, destroyed, stolen or mutilated certificate or certificates, or his or her legal representative, shall be required, as a condition precedent to the issuance of a new certificate or certificates, to give the Corporation a bond in such sums as it may direct as indemnity against any claim that may be made against the Corporation.
Section 7.02 Transfer of Capital Stock.
(a) Transfers of shares of the stock of the Corporation shall be made on the books of the Corporation by the holder of record thereof (in person or by his or her attorney thereunto duly authorized by a power of attorney duly executed in writing and filed with the Secretary of the Corporation) upon presentation of such evidence of transfer as the Board of Directors, an officer of the Corporation, or the Corporation’s transfer agent may prescribe and, if such shares are certificated, upon surrender of certificates duly endorsed. The issuance of a new certificate upon the transfer of certificated shares is subject to the determination of the Board of Directors or an officer of the Corporation that such shares shall no longer be represented by certificates. Upon the transfer of any uncertificated shares, to the extent then required by the MGCL, the Corporation or the Corporation’s transfer agent shall provide to the record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates.
(b) The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Maryland. Notwithstanding the foregoing, transfers of shares of any class or series of stock will be subject in all respects to the Charter and all of the terms and conditions contained therein.
Section 7.03 Transfer Agents and Registrars. The Board of Directors may, from time to time, appoint or remove transfer agents and/or registrars of transfers of shares of stock of the Corporation, and it may appoint the same person as both transfer agent and registrar. The Corporation shall maintain, or shall cause its transfer agent to maintain, at the Corporation’s principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate stock ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder. Such stock ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection.
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Section 7.04 Transfer Regulations. The shares of stock of the Corporation may be freely transferred, and the Board of Directors may, from time to time, adopt rules and regulations with reference to the method of transfer of the shares of stock of the Corporation.
Section 7.05 Fixing of Record Date. The Board of Directors may set in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or any postponement or adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, provided that such record date shall not be a date more than 90 nor less than ten days prior to the date on which the particular action requiring such determination of stockholders is to be taken. In such case only such stockholders as shall be stockholders of record on the record date so set shall be entitled to such notice of, and to vote at, such meeting or adjournment, or to give such consent, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, or to take such other action, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any such record date. When a record date for the determination of stockholders entitled to notice of and to vote at any meeting of stockholders has been set as provided in this Section 7.05, such record date shall continue to apply to the meeting if postponed or adjourned, except if the meeting is postponed or adjourned or postponed to a date more than 120 days after the record date originally set for the meeting, in which case a new record date for such meeting may be determined as set forth herein.
Section 7.06 Fractional Stock; Issuance of Units. The Board of Directors may authorize the Corporation to issue fractional shares of stock or authorize the issuance of scrip, all on such terms and under such conditions as it may determine. Notwithstanding any other provision of the Charter or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.
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ARTICLE VIII
DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS
Section 8.01 General. The Board of Directors, in its absolute discretion, may prescribe and shall set forth in a duly adopted resolution of the Board such bases and times for determining the per share net asset value of the outstanding shares of capital stock of the Corporation or net income, or the declaration and payment of dividends and distributions, as they may deem necessary or desirable. Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the provisions of law and the Charter.
Section 8.02 Contingencies. Before payment of any dividend or other distribution, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine, and the Board of Directors may modify or abolish any such reserve.
ARTICLE IX
FISCAL YEAR
Section 9.01 Fiscal Year. The fiscal year of the Corporation shall, unless otherwise ordered by the Board of Directors, be twelve calendar months beginning on the first day of January in each year and ending on the last day of the following December.
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01 Indemnification of Directors and Officers. To the maximum extent permitted by Maryland law in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director or officer of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise or employee benefit plan and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity. The rights to indemnification and advance of expenses provided by the Charter and these Bylaws shall vest immediately upon election of a director or officer. The Corporation may, with the approval of its Board of Directors, provide such indemnification and advance for expenses to an individual who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation. Any indemnification or advance of expenses made pursuant to this Article shall be subject to applicable requirements of the Investment Company Act, including, without limitation, any written interpretation thereof by the SEC or its staff. The indemnification and payment or reimbursement of expenses provided in these Bylaws shall not be deemed exclusive of or limit in any way other rights to which any person seeking indemnification or payment or reimbursement of expenses may be or may become entitled under any bylaw, resolution, insurance, agreement or otherwise.
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Section 10.02 Insurance of Officers, Directors, Employees and Agents. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or while a director, officer, employee or agent of the Corporation is or was serving at the request of the Corporation as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise or employee benefit plan against any liability asserted against and incurred by such person in any such capacity or arising out of such person’s position.
Section 10.03 Effect of Amendment or Repeal. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Charter or these Bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
ARTICLE XI
CUSTODY OF SECURITIES
Section 11.01 Employment of a Custodian. The Corporation shall place and at all times maintain in the custody of a custodian (including, without limitation, any sub-custodian for the custodian) all funds, securities and similar investments owned by the Corporation. The custodian (and any sub-custodian) shall be an institution conforming to the requirements of Section 17(f) of the Investment Company Act. The custodian shall be appointed from time to time by the Board of Directors, which shall fix its remuneration.
Section 11.02 Termination of Custodian Agreement. Upon termination of the custodian agreement or inability of the custodian to continue to serve, the Board of Directors shall promptly appoint a successor custodian, but in the event that no successor custodian can be found who has the required qualifications and is willing to serve, the Board of Directors shall call as promptly as possible a special meeting of the stockholders to determine whether the Corporation shall function without a custodian or shall be liquidated. If so directed by vote of the holders of a majority of the outstanding shares of stock entitled to vote of the Corporation, the custodian shall deliver and pay over all property of the Corporation held by it as specified in such vote.
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ARTICLE XII
MISCELLANEOUS
Section 12.01 Powers of the Board of Directors. All corporate powers and authority of the Corporation (except as at the time otherwise provided by statute, by the Charter or by these Bylaws) shall be vested in and exercised by the Board of Directors. The Corporation may enter into one or more contracts for exclusive or non-exclusive advisory or management services with any partnership, corporation, trust, association or other organization (such entity hereinafter referred to as the “Investment Adviser”), every such contract to comply with any provisions governing such a contract contained in the Investment Company Act, or exemptive order granted thereunder, all as from time to time amended; and any such contract may contain such other terms as the stockholders or the Board of Directors may approve, including, without limitation, the granting of authority to the Investment Adviser to determine which securities shall be purchased or sold by the Corporation and what portion of its assets shall be held unvested, which authority shall include the power to make changes in the Corporation’s investments, subject always to the Corporation’s stated investment objectives, policies and restrictions as from time to time amended and to the direction of the Board. The Board of Directors shall have authority to appoint an underwriter or distributor or distributors or an agent or agents for the sale of shares of common stock of the Corporation and to pay such underwriter, distributor or distributors and agent or agents such compensation as the Board of Directors shall deem appropriate, and to enter into such contract or contracts with such underwriter, distributor or distributors and agent or agents as the Board of Directors may in its discretion deem reasonable and proper. Any such contract may be made with the Investment Adviser or any firm or corporation in which any director or directors may be interested.
ARTICLE XIII
AMENDMENTS
Section 13.01 General. Except as provided in Section 13.02 hereof, all Bylaws of the Corporation, whether adopted by the Board of Directors or the stockholders, shall be subject to amendment, alteration or repeal, and new Bylaws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the Corporation entitled to vote, at any annual or special meeting the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new Bylaw; or
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(b) the directors, at any regular or special meeting the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new Bylaw.
Section 13.02 By Stockholders Only.
(a) No amendment of any section of these Bylaws shall be made except by the stockholders of the Corporation if the Bylaws provide that such section may not be amended, altered or repealed except by the stockholders.
(b) From and after the issue of any shares of the capital stock of the Corporation, no amendment of this Article XIII shall be made except by the stockholders of the Corporation.
ARTICLE XIV
WAIVER OF NOTICE
Whenever any notice of a meeting is required to be given pursuant to the Charter or these Bylaws or pursuant to applicable law, a signed waiver thereof in writing or by electronic transmission, given by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice of such meeting, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
ARTICLE XV
EXCLUSIVE FORUM FOR CERTAIN LITIGATION
Unless the Corporation consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of any duty owed by any director, officer or agent of the Corporation to the Corporation or to the stockholders of the Corporation, (c) any action asserting a claim against the Corporation or any director, officer or agent of the Corporation arising pursuant to any provision of the MGCL, the Charter or these Bylaws, or (d) any action asserting a claim against the Corporation or any director, officer or agent of the Corporation that is governed by the internal affairs doctrine.
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DELIVERY OPTIONS FOR SUBSCRIPTION RIGHTS CERTIFICATE
Delivery other than in the manner or to the addresses listed below will not constitute valid delivery.
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY.
FORM 1-EXERCISE OF SUBSCRIPTION RIGHTS
To subscribe for shares pursuant to your Basic Subscription Right, please complete lines (a) and (c) and sign under Form 4 below. To subscribe for shares pursuant to your Additional Subscription Privilege, please also complete line (b) and sign under Form 4 below. To the extent you subscribe for more Shares than you are entitled under either the Basic Subscription Right or the Additional Subscription Privilege, you will be deemed to have elected to purchase the maximum number of shares for which you are entitled to subscribe under the Basic Subscription Right or Additional Subscription Privilege, as applicable.
(a) EXERCISE OF BASIC SUBSCRIPTION RIGHT:
I apply for | shares × | $[ ] | = $ | |||
(no. of new shares) | (estimated subscription price) | (amount enclosed) |
(b) EXERCISE OF ADDITIONAL SUBSCRIPTION PRIVILEGE
If you have exercised your Basic Subscription Right in full and wish to subscribe for additional shares in an amount equal to up to 100% of the shares of Common Stock for which you are otherwise entitled to subscribe pursuant to your Additional Subscription Privilege:
I apply for | shares × | $[ ] | = $ | |||
(no. of new shares) | (estimated subscription price) | (amount enclosed) |
(c) Total Amount of Payment Enclosed = $ |
METHOD OF PAYMENT (CHECK ONE)
[ ] | Check or bank draft payable to “American Stock Transfer & Trust Company, LLC as Subscription Agent.” |
[ ] | Wire transfer of immediately available funds directly to the account maintained by American Stock Transfer & Trust Company, LLC, as Subscription Agent, for purposes of accepting subscriptions in this Rights Offering at JPMorgan Chase Bank, 55 Water Street, New York, New York 10005, ABA #021000021, Account # 530-354616 American Stock Transfer FBO Cornerstone Strategic Value Fund, Inc., with reference to the rights holder's name. |
IMPORTANT: In the event that the Estimated Subscription Price is more than the Subscription Price on the Expiration Date, any resulting excess amount paid by you towards the purchase of Shares in this Rights Offering will be applied by the Fund towards the purchase of additional Shares under the Basic Subscription Privilege or, if you have exercised all of the Rights initially issued to you under the Basic Subscription Privilege, towards the purchase of an additional number of Shares pursuant to the Additional Subscription Privilege. If you desire that such excess not be treated by the Fund as a request to acquire additional Shares in the Rights Offering, and that such excess be refunded to you, you must place an “X” in the box at the end of this sentence: [ ]
FORM 2-DELIVERY TO DIFFERENT ADDRESS
If
you wish for the Common Stock underlying your subscription rights, a
certificate representing unexercised subscription rights or the proceeds of any sale of subscription rights to be delivered to
an address different from that shown on the face of this Subscription Rights Certificate, please enter the alternate address below,
sign under Form 3 and have your signature guaranteed under Form 4.
FORM 3-SIGNATURE
TO SUBSCRIBE: I acknowledge that I have received the Prospectus for this Rights Offering and I hereby irrevocably subscribe for the number of shares indicated above on the terms and conditions specified in the Prospectus.
Signature(s): |
IMPORTANT: The signature(s) must correspond with the name(s) as printed on the reverse of this Subscription Rights Certificate in every particular, without alteration or enlargement, or any other change whatsoever.
FORM 4-SIGNATURE GUARANTEE
This form must be completed if you have completed any portion of Forms 2 or 3.
Signature Guaranteed: | |
(Name of Bank or Firm) |
By: | |
(Signature of Officer) |
IMPORTANT: The signature(s) should be guaranteed by an eligible guarantor institution (bank, stock broker, savings & loan association or credit union) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15.
FOR INSTRUCTIONS ON THE USE OF CORNERSTONE STRATEGIC VALUE FUND, INC. SUBSCRIPTION RIGHTS CERTIFICATES, CONSULT AST FUND SOLUTIONS, LLC, THE INFORMATION AGENT, AT (800) 581-3949.
EXHIBIT 2(l)
March 31, 2021
Cornerstone Strategic Value Fund, Inc.
c/o Ultimus Fund Solutions, LLC
225 Pictoria Drive, Suite 450
Cincinnati, OH 45246
Ladies and Gentlemen:
We have acted as counsel to Cornerstone Strategic Value Fund, Inc. (the “Fund”), a Maryland corporation, in connection with the Registration Statement on Form N-2 filed with the Securities and Exchange Commission on February 19, 2021, as amended on March 31, 2021 (as amended, the “Registration Statement”). The Registration Statement covers up to an aggregate of 52,059,505 shares of common stock (including shares subject to an additional subscription privilege) par value $0.001 per share (the “Shares”) to be sold pursuant to the exercise of non-transferable rights (the “Rights”) to be issued to the holders of record of outstanding shares of common stock of the Fund as of the close of business on April 16, 2021. The Rights entitle such stockholders to purchase one Share of the Fund for every three Rights held.
For purposes of rendering this opinion, our examination of documents has been limited to the examination of executed or conformed counterparts, or copies otherwise proved to our satisfaction, of the following documents:
a) | The Registration Statement; |
b) | The Amended and Restated Articles of Incorporation, as amended, of the Fund filed as an exhibit to the Registration Statement; |
c) |
The Amended and Restated By-Laws of the Fund, filed as an exhibit to the Registration Statement;
|
d) |
An Officer’s Certificate dated the date hereof, certifying as to, among other things, the resolutions of the Board of Directors of the Fund adopted at a meetings held on February 19, 2021 and March 31, 2021 with respect to the Registration Statement; and
|
e) | The form of non-transferable subscription rights certificate filed as an exhibit to the Registration Statement. |
For purposes of this opinion letter, we have not reviewed any documents other than those documents listed in paragraphs (a) through (e). In particular, we have not reviewed any document (other than the documents listed in paragraphs (a) through (e) above) that may be referred to in or incorporated by reference into any document reviewed by us. We have assumed that there exists no provision in any document that we have not reviewed that is inconsistent with the opinions stated herein. We have conducted no independent factual investigation of our own, but rather have relied solely upon the foregoing documents, the statements and information set forth therein, and the additional factual matters stated or assumed herein, all of which we have assumed to be true, complete and accurate in all respects.
With respect to all documents examined by us, we have assumed that: (i) all signatures on such documents are genuine; (ii) all documents submitted to us as originals are authentic and complete; and (iii) all documents submitted to us as copies conform to the originals of those documents. We have also assumed and have not verified that each of the statements made by the Fund in the Registration Statement are true, correct and complete, and that any information delivered or otherwise disclosed in the Registration Statement by the Fund is true, correct and complete. We have also assumed that the Registration Statement will be declared effective by the Securities and Exchange Commission.
Based upon the foregoing, and subject to the assumptions, qualifications, and limitations set forth herein, we are of the opinion that:
1. | The Rights have been duly authorized and, (a) when issued in accordance with the Fund’s prospectus forming a part of the Registration Statement (the “Prospectus”) and (b) upon exercise of such Rights in accordance with the terms of the Prospectus, will be valid and binding obligations of the Fund, enforceable against the Fund in accordance with their terms. |
2. | The Shares, when sold, paid for and issued in accordance with the terms of the Prospectus upon the exercise of the Rights, including payment of the subscription price therefor, will be validly issued, fully paid and non-assessable. |
The foregoing opinions are based on and are limited to, the laws of the State of Maryland, as in effect on the date hereof, and we render no opinion with respect to the laws of any other jurisdiction or, without limiting the generality of the foregoing, the effect of the laws of any other jurisdiction.
The opinions expressed in this letter are subject to applicable bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, receivership, moratorium, rearrangement, liquidation, conservatorship and similar laws affecting creditors’ rights and remedies generally; to general principles of equity, including without limitation concepts of materiality and principles of reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
We assume no obligation to update or supplement any of the opinions set forth herein to reflect any changes of law or fact that may occur after the Registration Statement becomes effective.
The foregoing opinions are strictly limited to the matters stated herein, and no other or more extensive opinions are intended or implied or to be inferred beyond the matters expressly stated herein.
We hereby consent to the use of this opinion letter as Exhibit 2(l) to the Registration Statement and to the reference to this Firm in the Prospectus. In giving this consent, we do not hereby concede that we come within the categories of persons whose consent is required by the Securities Act of 1933, as amended, or the general rules and regulations promulgated thereunder. Nothing in this paragraph shall be deemed to change the effective date of this opinion letter.
Very truly yours, | |
/s/ Blank Rome LLP | |
BLANK ROME LLP |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the references to our firm in the Registration Statement on Form N-2/A of Cornerstone Strategic Value Fund, Inc. and to the use of our report dated February 24, 2021 on the financial statements and financial highlights of Cornerstone Strategic Value Fund, Inc. Such financial statements and financial highlights appear in the 2020 Annual Report to Shareholders, which is incorporated by reference into the Statement of Additional Information.
/s/ TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
March 31, 2021
CODE OF ETHICS
1. | Statement of General Principles |
This Code of Ethics (the “Code”) expresses the policy and procedures of Cornerstone Advisors, LLC (the “Adviser”) and is enforced to ensure that no one is taking advantage of their position, or even giving the appearance of placing their own interests above those of the Adviser’s clients including each of the closed-end investment companies for which the Adviser serves or will serve in the future as the investment manager (the “Funds”). Investment advisory personnel must at all levels act as fiduciaries, and as such must place the interests of the Adviser’s clients including, the shareholders of the Funds before their own. Thus, we ask that when contemplating any personal transaction you ask yourself what you would expect or demand if you were a shareholder of a Fund.
This Code is adopted pursuant to Rule 17j-1 (the “Rule”) of the Investment Company Act of 1940 (the “1940 Act”) which makes it unlawful for any affiliated person of a Fund, or any affiliated person of the Adviser, in connection with the purchase or sale, directly or indirectly, by the person of a security held or to be acquired (as defined below) by such Fund:
(i) to employ any device, scheme or artifice to defraud the Fund;
(ii) to make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading;
(iii) to engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or
(iv) to engage in any manipulative practice with respect to the Fund.
In compliance with paragraph (c)(1) of the Rule, this Code has been adopted by the Board of Directors of the Adviser and approved by each of the Boards of Directors of the Funds, including by a majority of each Fund’s Directors who are not “interested persons”, for the purpose of implementing policies and procedures reasonably necessary to prevent Access Persons (as defined below) from engaging in any conduct prohibited by the Rule. We ask that all personnel follow not only the letter of this Code but also abide by the spirit of this Code and the principles articulated herein.
2. | Definitions |
“Access Person” means (i) any trustee, director, officer, general partner or Advisory Person (as defined below) of the Adviser, or (ii) any trustee, director, officer or general partner of a principal underwriter of a Fund who, in the ordinary course of their business, makes, participates in or obtains information regarding the purchase or sale of Covered Securities (as defined below) by a Fund for which the principal underwriter so acts or whose functions or duties as part of the ordinary course of their business relate to the making of any recommendation to the Fund regarding the purchase or sale of Covered Securities or (iii) notwithstanding the provisions of clause (i) above with respect to the Adviser, where the Adviser is primarily engaged in a business or businesses other than advising registered investment companies or other Advisory clients, any director, officer or Advisory Person of the Adviser who, with respect to a Fund, makes any recommendation or participates in the determination of which recommendation shall be made, or whose principal function or duties relate to the determination of which recommendation shall be made to such Fund or who, in connection with their duties, obtains any information concerning Covered Securities recommendations being made by the Adviser.
“Advisory Person” means:
(i) any employee of or consultant to the Adviser (or of any company in a control relationship to the Adviser), who, in connection with his regular functions or duties, makes, participates in or obtains information regarding the purchase or sale of Covered Securities by a Fund or whose functions relate to any recommendations with respect to such purchases or sales and any natural person in a control relationship with the Adviser who obtains information regarding the purchase or sale of Covered Securities;
(ii) any natural person who controls the Adviser and who obtains information (other than publicly available information) concerning recommendations made to a Fund with regard to the purchase or sale of Covered Securities.
“Access Persons” and “Advisory Persons” shall not include any individual who is required to and does file quarterly reports with any sub-adviser, administrator or the principal underwriter of a Fund substantially in conformity with Rule 17j-1 of the 1940 Act or Rule 204-2 of the Investment Advisers Act of 1940, provided however, that the legal compliance officer or president of any sub-adviser, administrator, or the principal underwriter shall (i) file an annual certification with each Board of Directors of a Fund stating that such entity has adopted or approved the continuation of its code of ethics, substantially in the form that was provided to such Board; and (ii) notify the Legal Compliance Officer (as defined below) of any violation of such entity’s code of ethics upon actual knowledge by such compliance officer that a violation had occurred. The Legal Compliance Officer shall report any such violations to each Board of Directors of each Fund in accordance with the provisions of this Code as if the report of the violation(s) had been made under this Code.
“Affiliated Persons” or “Affiliate” means:
(i) any employee or Access Person, and any member of the immediate family (defined as spouse, child mother, father, brother, sister-in-law or any other relative) of any such person who lives in the same household as such person or who is financially dependent upon such person;
(ii) any account for which any of the persons described in D(i) hereof is a custodian, director, trustee or otherwise acting in a fiduciary capacity, or with respect to which any such person either has the authority to make investment decisions or from time to time gives investment advice;
(iii) any partnership, corporation, joint venture, trust or other entity in which any employee of the Adviser or Access Person of the Adviser directly or indirectly, in the aggregate, has a 10% or more beneficial interest or for which any such person is a general partner or an executive officer.
A security is “being considered for purchase or sale” or is “being purchased or sold” when a recommendation to purchase or sell the security has been made and communicated to the Trading Desk, which includes when a Fund has a pending “buy” or “sell” order with respect to a security, and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation.
The term “beneficial ownership” shall be defined in and interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder which, generally speaking, encompasses those situations where the beneficial owner has the right to enjoy some economic benefit from the ownership of a Covered Security regardless of the identity of the registered owner. This would include:
(i) Covered Securities which a person holds for his own benefit either in bearer form, registered in his name or otherwise, regardless of whether the securities are owned individually or jointly;
(ii) Covered Securities held in the name of a member of his immediately family (spouse or minor child) sharing the same household;
(iii) Covered Securities held by a trustee, executor, administrator, custodian or broker;
(iv) Covered Securities owned by a general partnership of which the person is a member or a limited partnership of which such person is a general partner;
(v) Covered Securities held by a corporation (other than with respect to treasury shares of the corporation) of which such person is an officer, director, trustee or 10% stockholder or by a corporation which can be regarded as a personal holding company of a person;
(vi) Covered Securities recently purchased by a person and awaiting transfer into his name;
(vii) Covered Securities held by any other person if, by reason of contract, understanding, relationship, agreement or other arrangement, such person obtains therefrom benefits substantially equivalent to those of ownership or which ; and
(viii) Covered Securities held by such person’s spouse or minor children or any other person, if, even though such person does not obtain therefrom the above-mentioned benefits of ownership, such person can vest or revest title in himself at once or at some future time.
A beneficial owner of a security also includes any person who directly or indirectly, through contract, arrangement, understanding, relationship or otherwise, has or shares voting power and/or investment power with respect to such security. Voting power includes the power to vote, or includes the power to dispose, or to direct disposition of such security.
“Control” shall have the same meaning as set forth in Section 2(a)(9) of the 1940 Act.
“Covered Security” means a security as defined in section 2(a)(36) of the 1940 Act, and shall include any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit of a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call straddle, option, or privilege on any security (including a certificate of deposit) or any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option or privilege entered into in a national securities exchange relating to a foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, or shares of exchange-traded funds (ETFs) that are organized as unit investment trusts (UITs) or ETFs organized as open-end investment companies, any of the foregoing, except, however, that it shall not include:
(i) | Direct obligations of the Government of the United States; |
(ii) | Bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and |
(iii) | Shares issued by open-end investment companies, other than those deemed as reportable funds as defined in Rule 204A-1. |
“Disinterested Director” of a Fund shall mean a director thereof who is not an “interested person” of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.
“Initial Public Offering” (“IPO”) means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.
“Investment Personnel” means:
(i) any employee of the Adviser (or of any company in a control relationship to the Adviser) who, in connection with his regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by a Fund.
(ii) any natural person who controls the Adviser and who obtains information concerning recommendations made to a Fund regarding the purchase or sale of securities by such Fund.
“Legal Compliance Officer” means the Chief Compliance Officer appointed by the Adviser.
“Limited Offering” means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or section 4(6) or pursuant to rule 504, rule 505, or rule 506 under the Securities Act of 1933
“Purchase or sale of a Covered Security” includes, among other things, the writing of an option to purchase or sell a Covered Security.
“Security held or to be acquired” means:
(i) any Covered Security which, within the most recent fifteen (15) days:
(A) | is or has been held by a Fund; or |
(B) | is being or has been considered by a Fund or the Adviser for purchase by the Fund; and |
(ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in paragraph (i) of this definition.
The term “security” shall have the meaning set forth in Section 2(a)(36) of the 1940 Act and shall include any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit of a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call straddle, option, or privilege on any security (including a certificate of deposit) or any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option or privilege entered into in a national securities exchange relating to a foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
3. | Prohibited Transactions |
The prohibitions described below will only apply to a transaction in a Covered Security in which the designated person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership.
A. | Blackout Trading Periods - Access Persons |
No Access Person shall purchase or sell, directly or indirectly, any Covered Security in which he has or by reason of such transaction acquires, any direct or indirect beneficial ownership and which at the time of such purchase or sale is being considered for purchase or sale by a Fund or is being purchased or sold by such Fund before the expiration of five (5) business days during which the Fund is considering the purchase or sale or has a pending buy or sell order in that same Covered Security until that order is executed or withdrawn. Any profits realized on trades within the proscribed periods are required to be disgorged to the Fund. A pending buy or sell order exists when a decision to purchase or sell a Covered Security has been made and communicated to the Legal Compliance Officer.
B. | Blackout Trading Periods – Investment Personnel |
No Investment Personnel shall engage in a purchase or sale, directly or indirectly, of a Covered Security in which he has, or by reason of such transaction acquires, any direct or indirect beneficial ownership within seven (7) calendar days before and after a Fund trades in that Covered Security. Any profits realized on trades within the proscribed periods are required to be disgorged to the Fund. The Legal Compliance Officer may permit exceptions to this prohibition in writing on a case by case basis when no abuse is involved and the circumstances of the subject trade supports an exemption.
C. | Ban on Short-Term Trading Profits |
No Access Person may profit in the purchase and sale, or sale and purchase, of the same (or equivalent) Covered Securities within sixty (60) calendar days if such Covered Securities are held by a Fund. Any profits realized on such short-term trades are required to be disgorged to the Fund. The Legal Compliance Officer may permit exceptions to this prohibition in writing on a case by case basis when no abuse is involved and the circumstances of the subject trade supports an exemption.
D. | Ban on Securities Purchases of an Initial Public Offering |
Investment Personnel may not acquire, directly or indirectly, any beneficial ownership in any securities in an initial public offering without prior approval in writing from the Legal Compliance Officer or other person designated by the Adviser’s Board of Directors. (This prohibition does not apply to start-up seed capital which may be contributed by Investment Personnel to the formation of a new offering, a pre-IPO event before shares of the new fund are offered to other investors, in which case written approval from the Legal Compliance Officer would not be required.) Furthermore, should written consent of a Fund be given, Access Persons are required to disclose such investment when participating in the Fund’s subsequent consideration of an investment in such issuer. In such circumstances, a Fund’s decision to purchase securities of the issuer should be subject to an independent review by Investment Personnel of the Fund with no personal interest in the issuer.
E. | Securities Offered in a Limited Offering |
Investment Personnel may not acquire, directly or indirectly, any beneficial ownership in any securities in a limited offering without the prior written consent of each Fund’s Legal Compliance Officer. Furthermore, should written consent of a Fund be given, Investment Personnel are required to disclose such investment when participating in the Fund’s subsequent consideration of an investment in such issuer. In such circumstances, a Fund’s decision to purchase securities of the issuer should be subject to an independent review by Investment Personnel of the Fund with no personal interest in the issuer.
4. | Exempted Transactions |
A. Subject to compliance with preclearance procedures in accordance with Section 5 below, the prohibitions of Sections 3A, 3B and 3C of this Code shall not apply to:
(i) | Purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control, or in any account of the Access Person which is managed on a discretionary basis by a person other than such Access Person and with respect to which such Access Person does not in fact influence or control such transactions; |
(ii) | Purchases or sales of securities which are not eligible for purchase or sale by a Fund; |
(iii) | Purchases or sales which are nonvolitional on the part of either the Access Person or a Fund. |
(iv) | Purchases which are part of an automatic dividend reinvestment plan; |
(v) | Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; |
(vi) | Any equity securities transaction, or series of related transactions, involving five hundred (500) shares or less in the aggregate, if (i) the Access Person has no prior knowledge of transactions in such security by a Fund and (ii) if the issuer has a market capitalization (outstanding shares multiplied by the current price per share) greater than $1 billion; |
(vii) | Any fixed income securities transaction involving $10,000 principal amount or less, if the Access Person has no prior knowledge of transactions in such securities by the Fund; |
(viii) | Any purchase or sale of a Fund’s shares by an Access Person or any Affiliated Person of the Adviser, directly or indirectly, during any time period that the Board of Directors of such Fund has authorized the Fund to engage in a Share Buyback Program provided that: (i) such Board has determined that any potential harm to the Fund is remote and (ii) proper dissemination of any material non-public information has been made on a timely basis; and |
(ix) | All other transactions contemplated by Access Persons which receive the prior approval of the Legal Compliance Officer in accordance with the preclearance procedures described in Section 5 below. Purchases or sales of specific securities may receive the prior approval of the Legal Compliance Officer because the Legal Compliance Officer has determined that no abuse is involved and that such purchases and sales would be very unlikely to have any economic impact on a Fund or on such Fund’s ability to purchase or sell such securities. |
B. A transaction by Access Persons (other than Investment Personnel) inadvertently effected during the period proscribed in Section 3A will not be considered a violation of the Code and disgorgement will not be required so long as the transaction was effected in accordance with the preclearance procedures described in Section 5 and without prior knowledge of any Fund trading.
C. Notwithstanding Section 4A(ix), the prohibition in Section 3C shall not apply to profits earned from transactions in securities which securities are not the same (or equivalent) to those owned, shorted or in any way traded by a Fund during the sixty (60) day period; provided, however, that if the Legal Compliance Officer determines that a review of the Access Person’s reported personal securities transactions indicates an abusive pattern of short-term trading, the Legal Compliance Officer may prohibit such Access Person from profiting in the purchase and sale, or sale and purchase, of the same (or equivalent) securities within sixty (60) calendar days whether or not such security is the same (or equivalent) to that owned, shorted or in any way traded by a Fund.
5. | Preclearance |
All Access Persons must preclear with and receive prior approval from the Legal Compliance Officer before purchasing or selling any Covered Security. All approved orders must be executed by the close of business on the day preclearance is granted. If any order is not timely executed, a request for preclearance must be resubmitted.
6. | Reporting |
A. (1) No later than ten (10) days after becoming an Access Person of the Adviser, and thereafter on an annual basis as of December 31 of each year, Access Persons will submit a report, which is current as of a date no more than 45 days prior to the date submitted, disclosing:
(i) the title, number of shares and principal amount of each Covered Security in which the Access Person has any direct or indirect beneficial ownership at the time such person became an Access Person;
(ii) the name of any broker-dealer or bank with whom the Access Person maintains an account in which any securities were held for the direct or indirect benefit of the Access Person; and
(iii) the date that the such report is submitted by the Access Person.
(1) In addition to a signed and dated copy of Attachment C, “Initial Certification,” or Attachment E, “Personal Securities Account Declaration,” as appropriate, these initial and annual reports may be in the form of a separate written report of holdings of Covered Securities, a brokerage statement that discloses such holdings, or some combination thereof.
B. (1) All Access Persons shall report to the Legal Compliance Officer no later than thirty (30) days after the end of each calendar quarter (including those calendar quarters in which no securities transactions were effected) with respect to (A) any transaction during the quarter in any Covered Security in which such Access Person has, or by reason of such transaction acquires, any direct or beneficial ownership in the Covered Security:
(i) the date of the transaction, title, interest rate and maturity rate (if applicable), the number of shares, and the principal amount of each Covered Security involved;
(ii) the nature of the transaction (i.e. purchase, sale, or any other type of acquisition or disposition);
(iii) the price of the Covered Security at which the transaction was effected;
(iv) the nature of the broker, dealer or bank with or through which the transaction was effected; and
(v) the date that the report is submitted by the Access Person; and
(B) with respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person:
(i) | the name of each broker, dealer or bank with whom the Access Person established the account; |
(ii) | the date the account was established; and |
(iii) | the date that the report is submitted by the Access Person, |
provided however, that an Access Person shall not be required to make a report under Sections 6A or 6B hereof with respect to any transaction effected for any account over which such Access Person has no direct control or indirect influence or control.
C. Whenever an Access Person recommends that a Fund purchase or sell a Covered Security, he shall disclose whether he presently owns such security, or whether he is considering its purchase or sale.
D. All personal matters discussed with the Legal Compliance Officer and all confirmations, account statements and personal investment reports shall be kept in confidence, but will be available for inspection by each Board of Directors of each Fund and the Adviser for which such person is an Access Person, and by the appropriate regulatory agencies.
E. All reports submitted to the Legal Compliance Officer pursuant to this Section 6 may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the security to which the report relates.
F. In instances where the Legal Compliance Officer is subject to requirements or restrictions of this Code, the Legal Compliance Officer may fulfill the requirements or seek the remedies provided by reporting to a corporate officer of Cornerstone Advisors who is not the Legal Compliance Officer, or by one delegated by a corporate officer for this purpose. All reports submitted by the Legal Compliance Officer pursuant to this Section 6 shall be subject to the same requirements as detailed in this Section 6 except that any required review will be conducted by a corporate officer of Cornerstone Advisors who is not the Legal Compliance Officer, or by one delegated by a corporate officer for this purpose.
7. | Annual Certification and Certification of Amendments |
On an annual basis and at anytime the Code is amended, Access Persons will be sent a copy of this Code for their review and will be required to acknowledge receipt of the Code and its amendments. Annually Access Persons will be asked to certify that they have read and understand this Code and recognize that they are subject hereto. Access Persons will be further asked to certify annually that they have complied with the requirements of this Code and that they have disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to this Code.
8. | Confidential Status of each Fund’s Portfolio |
The current portfolio positions of each Fund managed, advised and/or administered by the Adviser and current portfolio transactions, programs and analyses must be kept confidential.
If nonpublic information regarding a Fund’s portfolio should become known to any Access Person, whether in the line of duty or otherwise, he should not reveal it to anyone unless it is properly part of his work to do so.
If anyone is asked about a Fund’s portfolio or whether a security has been sold or bought, his reply should be that this is an improper question and that this answer does not mean that a Fund has bought, sold or retained the particular security. Reference, however, may, of course, be made to the latest published report of each Fund’s portfolio.
9. | Nonpublic Material Information |
From time to time the Adviser has circulated and discussed with Access Persons the latest administrative and judicial decisions regarding the absolute prohibition against the use of nonpublic material information, also known as “inside information.” In view of the many forms in which the subject can arise, the Adviser must reiterate that a careful and conservative approach must prevail and no action should be taken where “inside information” may be involved without a thorough review by the Legal Compliance Officer.
Material inside information is any information about a company or the market for the company’s securities which has come directly or indirectly from the company and which has not been disclosed generally to the marketplace, the dissemination of which is likely to affect the market price of any of the company’s securities or is likely to be considered important by reasonable investors, including reasonable speculative investors, in determining whether to trade in such securities.
Information should be presumed “material” if it relates to such matters as dividend increases or decreases, earnings estimates, changes in previously released earnings estimates, significant expansion or curtailment of operations, a significant increase or decline of orders, significant merger or acquisition proposals or agreements, significant new products or discoveries, extraordinary borrowing, major litigation, liquidity problems, extraordinary management developments, purchase or sale of substantial assets, etc.
“Inside information” is information that has not been publicly disclosed. Information received about a company under circumstances which indicate that it is not yet in general circulation and that such information may be attributable, directly or indirectly, to the company (or its insiders) should be deemed to be inside information.
Whenever an Access Person receives material information about a company which he knows or has reason to believe is directly or indirectly attributable to such company (or its insiders), the Access Person must determine that the information is public before trading or recommending trading on the basis of such information or before divulging such information to any person who is not an employee of the Adviser or a party to the transaction. As a rule, one should be able to point to some fact to show that the information is generally available; for example, its announcement on the broad tape or by Reuters, The Wall Street Journal or trade publications. If the Access Person has any question at all as to whether the information is material or whether it is inside and not public, he must resolve the question or questions before trading, recommending trading or divulging the information. If any doubt at all remains, the Access Person must consult with the Legal Compliance Officer.
10. | Gifts - Investment Personnel |
Investment Personnel shall not receive any gift or other thing of more than de minimis value from any person or entity that does business with or on behalf of the Fund. For purposes of this Code, “more than de minimis value” shall mean any gift in excess of a value of $100 per year.
11. | Services as a Director in a Publicly Traded Company |
Access Persons shall not serve on the boards of directors of publicly traded companies, absent prior authorization by the Adviser’s Board of Directors, based upon a determination that the board service would be consistent with the interests of the Adviser or each Fund and its shareholders. When such authorization is provided, the Investment Personnel serving as a director will be isolated from making investment decisions with respect to the pertinent company through “Chinese Wall” or other procedures.
12. | Compliance Review |
A. The Legal Compliance Officer will maintain a list of all Access Persons, will provide each Access Person with a copy of this Code upon request, and will notify each Access Person in writing that such person is an Access Person. Once a person has been so identified, he shall continue to be an Access Person until otherwise notified in writing by the Legal Compliance Officer, provided however, if such person is an Access Person solely because he is a director of the Adviser, such person shall cease to be an Access Person at the time such person ceases to be a director.
B. The Legal Compliance Officer or his designate shall review all personal holdings reports submitted by each Access Person, including confirmations of personal securities transactions, to ensure that no trading has taken place in violation of Rule 17j-1 or the Code. In addition, the Legal Compliance Officer shall compare the reported personal securities transactions with completed and contemplated portfolio transactions of each Fund to determine whether a violation of this Code may have occurred. Before making any determination that a violation has been committed by any person, the Legal Compliance Officer shall give such person an opportunity to supply additional information regarding the transaction in question. The Legal Compliance Officer shall maintain a list of any other such personnel responsible for reviewing transaction and personal holdings reports.
13. | Sanctions |
Any violation of this Code shall be reported on a quarterly basis to each Board of Directors of each Fund and the Adviser in accordance with Section 14 of the Code. A Board of Directors of the Fund or the Adviser, as the case may be, may impose such sanctions as it deems appropriate, including, inter alia, a letter of censure or suspension or termination of employment of the Access Person or a request for disgorgement of any profits received from a securities transaction done in violation of this Code.
14. | Board of Directors Annual Review |
Annually, each Fund’s Board of Directors shall receive a verbal and/or written report, submitted separately or represented within board materials, containing the following:
A. a copy of the existing Code of Ethics from the Legal Compliance Officer;
B. a report completed by the Legal Compliance Officer identifying any issues arising under the Code, including any material violations of the Code during the past year and sanctions imposed in response to such material violations of the Code;
C. A list of recommendations, if any, to change the existing Code of Ethics based upon experience, evolving industry practices or developments in applicable laws or regulations.
15. | A Fund’s Board of Directors’ Annual Approval |
Annually, the Board of Directors of each Fund, including a majority of the Disinterested Directors of the Board, shall approve this Code, and material changes to the Code, if any. Each Fund’s Board of Directors shall approve any material change to this Code made by the Adviser no later than six (6) months after the adoption of the material change, provided, however, that before approving this Code or any amendment to this Code, each such Board shall have received notification from the Adviser that the Adviser has adopted procedures reasonably necessary to prevent Access Persons of the Adviser from violating the Code provided that such material changes require a modification of Adviser’s existing procedures to assure compliance by Access Persons.
16. | Recordkeeping |
This Code, a list of all persons required to make reports hereunder from time to time, a copy of each report made by an Access Person hereunder, a list of all persons responsible for reviewing the reports required hereunder, a record of any decision and the reasons supporting the decision to approve any acquisition or sale by Access Persons of securities in an IPO or limited offering, each memorandum made by the Legal Compliance Officer hereunder and a record of any violations hereof and any sanctions imposed in response to any material violations of the Code shall be maintained by the Adviser as required under the Rule.
17. | Effective Date |
This Code shall be effective as of April 1, 2001.
18. | Executive Guidelines concerning Corporate Governance and Management |
This section of the Code of Ethics is to ensure that the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these persons are employed by the Fund or a third party, promote professional conduct in the practice of corporate governance and management (the “Executives”). The Executives hold an important and elevated role in corporate governance because they are uniquely capable and empowered to ensure that all stockholders interests are appropriately balanced, protected and preserved. This section provides principles to which the Executives are expected to adhere and advocate.
The purpose behind these guidelines is to promote i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; ii) full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Fund; iii) compliance with applicable governmental laws, rule and regulations; iv) the prompt internal reporting of violations of this Code to an appropriate person or persons identified in the Code; and v) accountability for adherence to the Code.
All Executives will:
1. | Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships. |
2. | Provide shareholders with information that is accurate, complete, objective, relevant, timely and understandable. |
3. | Comply with rules and regulations of federal, state, provincial and local governments, and other appropriate private and public regulatory agencies. |
4. | Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated. |
5. | Respect the confidentiality of information acquired in the course of one’s work except when authorized or otherwise legally obligated to disclose. |
6. | Confidential information acquired in the course of one’s work will not be used for personal advantage. |
7. | Share knowledge and maintain skills important and relevant to Adviser’s needs. |
8. | Proactively promote and be an example of ethical behavior as a responsible partner among peers, in the work environment and the community. |
9. | Achieve responsible use of and control over all assets and resources employed or entrusted. |
ATTACHMENT A
Cornerstone Advisors, LLC CODE OF ETHICS --
SPECIAL APPROVAL FORM
1. | The following is a private placement of securities or other investment requiring special approval in which I want to acquire or dispose of Beneficial Ownership: |
Name
of Private
Security or Other Investment |
Date
to be
|
Amount
to
|
Record
|
Purchase
|
How
Acquired
|
Would this investment opportunity be appropriate for a Cornerstone client?
___Yes No
2. | I want to engage in the following outside business activity: |
I certify, as applicable, that I (a) am not aware of any non-public information about the issuer, (b) have made all disclosures required by the Code of Ethics and (c) will comply with all reporting requirements of the Code.
Signature | Date |
Print Name |
_____Approved
_____Not Approved
Designated Supervisory Person | Date |
ATTACHMENT B
Cornerstone Advisors, LLC
CODE OF ETHICS -- PERSONAL TRADING PRECLEARANCE FORM
This form should be filled out completely to expedite approval.
1. | Security: |
Ticker: |
____Purchase Sale
2. | Number of shares/bonds/units/contracts: |
3. | Account Name/Shortname: |
4. | Brokerage Firm and Account Number: |
5. | Why do you want to purchase or sell? Is this an opportunity appropriate for Cornerstone clients? |
6. | Are you aware of a Cornerstone Advisory Person who is buying or selling or who plans to buy or sell this security for his or her personal accounts or Cornerstone clients? |
____Yes No
If yes, who?
7. | If the amount is equal to or less than 500 shares, is the issuer market capitalization greater than $1.0 billion? |
____Yes No
I certify that I (a) am not aware of any material non-public information about the issuer, (b) have made all disclosures required by the Code of Ethics and this trade otherwise complies with the Code, including the prohibition on investments in initial public offerings, and (c) will comply with all reporting requirements of the Code.
Signature of Advisory Person | Date |
Print Name |
_____Approved
_____Not Approved
Designated Supervisory Person | Date - Valid this Business Day Only. |
ATTACHMENT C
Cornerstone Advisors, LLC
CODE OF ETHICS - INITIAL CERTIFICATION
I CERTIFY THAT I:
● | have read and understood the Code of Ethics for Cornerstone Advisors, LLC and recognize that I am subject to its requirements; and |
● | have disclosed or reported all personal securities holdings in which I had any direct or indirect Beneficial Ownership and accounts in which any securities were held for my direct or indirect benefit as of the date I commenced employment with Cornerstone Advisors, LLC or the date I became affiliated with a Cornerstone Client. |
Signature of Access Person | Date |
Print Name |
ATTACHMENT D
Cornerstone Advisors, LLC
CODE OF ETHICS - ANNUAL CERTIFICATION
I CERTIFY THAT I:
● | have read and understood the Code of Ethics for Cornerstone Advisors, LLC and recognize that I am subject to its requirements; and |
● | have complied with all requirements of the Code of Ethics and Policy and Procedures Designed to Detect and Prevent Insider Trading in effect during the year ended December 31, 20 ; and |
● | have disclosed or reported all personal securities transactions in Covered Securities for the year ended December 31, 20 and all personal securities holdings in Covered Securities in which I had any direct or indirect Beneficial Ownership and all accounts in which any Covered Securities were held for my direct or indirect benefit as of December 31, 20 ; and |
Signature of Access Person | Date |
Print Name |
ATTACHMENT D.2
Cornerstone Advisors, LLC
CERTIFICATION OF AMENDMENTS TO THE CODE OF ETHICS
I CERTIFY THAT I:
● | have received the latest amendments to the Code of Ethics dated as of_________________. |
Signature of Access Person | Date |
Print Name |
ATTACHMENT E
Cornerstone Advisors, LLC
CODE OF ETHICS -- PERSONAL SECURITIES ACCOUNT DECLARATION
All Access Persons must complete each applicable item (1, 2, 3 or 4) and sign below, (brokerage statements may be submitted in fulfillment of this requirement).
1. | The following is a list of securities/commodities accounts containing Covered Securities, including a list of those Covered Securities, in which I have Beneficial Ownership: |
Broker/Dealer | Account Title and Number |
2. | The following is a list of securities/commodities accounts containing Covered Securities, including a list of those Covered Securities, in which I had Beneficial Ownership that have been opened or closed in the past year: |
Broker/Dealer | Account Title and Number |
3. | The following is a list of any other Covered Securities or other reportable investment holdings in which I have Beneficial Ownership (for securities held in accounts other than those disclosed in response to items 1 and 2): |
Name
of
Private Security or Other Investment |
Date Acquired |
Amount Held |
Record Owner |
Purchase Price |
How Acquired (Broker/Issuer) |
4. | I do not have Beneficial Ownership in any securities/commodities accounts or otherwise have Beneficial Ownership of any securities or other instruments subject to the Code of Ethics. (Please initial.) |
Initials |
I declare that the information given above is true and accurate:
Signature of Access Person | Date |
Print Name |
ATTACHMENT F
Cornerstone Advisors, LLC
CODE OF ETHICS -- OUTSIDE BUSINESS ACTIVITIES
Outside business activities include, but are not limited to, the following:
● | self-employment; |
● | receiving compensation from another person or company; |
● | serving as an officer, director, partner, or consultant of another business organization (including a family owned company); and |
● | becoming a general or limited partner in a partnership or owning any stock in a business, unless the stock is publicly traded and no control relationship exists. |
Outside business activities include serving with a governmental (federal, state or local) or charitable organization whether or not for compensation.
All Advisory Persons must complete at least one choice (1 or 2) and sign below.
1. | The following are my outside business activities: |
Outside
Business
Activity |
Description
of
Activity |
Approved
By Designated
Supervisory Person (Yes/No) |
2. | I am not involved in any outside business activities. (Please initial) |
Initials |
I declare that the information given above is true and accurate:
Signature of Advisory Person | Date |
Print Name |
ATTACHMENT G
Cornerstone Advisors, LLC
CODE OF ETHICS - CODE REPORTING REVIEW
For the Period Ending____________________
Review of reports under the Code for the following Access Persons were conducted as follows:
Access Person | Reports Received | Review Date | Reviewed by |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the director named below of Cornerstone Strategic Value Fund, Inc., a Maryland corporation, and Cornerstone Total Return Fund, Inc., a New York corporation (the “Funds”), hereby appoints Ralph W. Bradshaw with full power of substitution, his true and lawful attorney to execute in his name, place and stead and on his behalf any and all registration statements on Form N-2 under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended on behalf of the Funds, and any amendments thereto, and to file with the U.S. Securities and Exchange Commission and any other regulatory authority having jurisdiction over the Funds, any such amendment or registration statement and any and all supplements thereto or to any prospectus or statement of additional information forming a part of the registration statement, as well as any and all exhibits and other documents necessary or desirable to the amendment or supplement process. Said attorney shall have full power and authority, with full power of substitution, to do and perform in the name and on behalf of the undersigned every act whatsoever requisite or desirable to be done in the premises in any and all capacities authorized by the Board of Directors for such persons to provide or perform with respect to the Funds, as fully and to all intents and purposes as the undersigned might or could do, the undersigned hereby ratifying and approving all such acts of such attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of March, 2021.
/s/ Matthew W. Morris | ||
Matthew W. Morris, Director |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the director named below of Cornerstone Strategic Value Fund, Inc., a Maryland corporation, and Cornerstone Total Return Fund, Inc., a New York corporation (the “Funds”), hereby appoints Ralph W. Bradshaw with full power of substitution, his true and lawful attorney to execute in his name, place and stead and on his behalf any and all registration statements on Form N-2 under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended on behalf of the Funds, and any amendments thereto, and to file with the U.S. Securities and Exchange Commission and any other regulatory authority having jurisdiction over the Funds, any such amendment or registration statement and any and all supplements thereto or to any prospectus or statement of additional information forming a part of the registration statement, as well as any and all exhibits and other documents necessary or desirable to the amendment or supplement process. Said attorney shall have full power and authority, with full power of substitution, to do and perform in the name and on behalf of the undersigned every act whatsoever requisite or desirable to be done in the premises in any and all capacities authorized by the Board of Directors for such persons to provide or perform with respect to the Funds, as fully and to all intents and purposes as the undersigned might or could do, the undersigned hereby ratifying and approving all such acts of such attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of March, 2021.
/s/ Scott B. Rogers | ||
Scott B. Rogers, Director |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the director named below of Cornerstone Strategic Value Fund, Inc., a Maryland corporation, and Cornerstone Total Return Fund, Inc., a New York corporation (the “Funds”), hereby appoints Ralph W. Bradshaw with full power of substitution, his true and lawful attorney to execute in his name, place and stead and on his behalf any and all registration statements on Form N-2 under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended on behalf of the Funds, and any amendments thereto, and to file with the U.S. Securities and Exchange Commission and any other regulatory authority having jurisdiction over the Funds, any such amendment or registration statement and any and all supplements thereto or to any prospectus or statement of additional information forming a part of the registration statement, as well as any and all exhibits and other documents necessary or desirable to the amendment or supplement process. Said attorney shall have full power and authority, with full power of substitution, to do and perform in the name and on behalf of the undersigned every act whatsoever requisite or desirable to be done in the premises in any and all capacities authorized by the Board of Directors for such persons to provide or perform with respect to the Funds, as fully and to all intents and purposes as the undersigned might or could do, the undersigned hereby ratifying and approving all such acts of such attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of March, 2021.
/s/ Andrew A. Strauss | ||
Andrew A. Strauss, Director |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the director named below of Cornerstone Strategic Value Fund, Inc., a Maryland corporation, and Cornerstone Total Return Fund, Inc., a New York corporation (the “Funds”), hereby appoints Ralph W. Bradshaw with full power of substitution, his true and lawful attorney to execute in his name, place and stead and on his behalf any and all registration statements on Form N-2 under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended on behalf of the Funds, and any amendments thereto, and to file with the U.S. Securities and Exchange Commission and any other regulatory authority having jurisdiction over the Funds, any such amendment or registration statement and any and all supplements thereto or to any prospectus or statement of additional information forming a part of the registration statement, as well as any and all exhibits and other documents necessary or desirable to the amendment or supplement process. Said attorney shall have full power and authority, with full power of substitution, to do and perform in the name and on behalf of the undersigned every act whatsoever requisite or desirable to be done in the premises in any and all capacities authorized by the Board of Directors for such persons to provide or perform with respect to the Funds, as fully and to all intents and purposes as the undersigned might or could do, the undersigned hereby ratifying and approving all such acts of such attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of March, 2021.
/s/ Glenn W. Wilcox, Sr. | ||
Glenn W. Wilcox, Sr., Director |
March 2, 2021
Cornerstone Strategic Value Fund, Inc.
C/o Cornerstone Advisors, Inc.
1075 Hendersonville Road
Suite 250
Ashville, NC 28803
Attn: Mr. Ralph Bradshaw
RE: Cornerstone Strategic Value Fund, Inc. – Rights Offer
Dear Mr. Bradshaw:
This will serve as the Agreement between AST Fund Solutions, LLC (“AST Fund Solutions”) and Cornerstone Strategic Value Fund, Inc. (the “Client”), pursuant to which AST Fund Solutions will serve the Client as Information Agent for a Rights Offer (the “Offer”) for the Client.
1. | Services: |
As Information Agent, AST Fund Solutions will handle the following services and they will be performed promptly and diligently in compliance with all applicable laws and regulations. These services include, but are not limited to:
▪ | Provide strategic counsel to the Client and its advisors on the execution of the steps to best ensure the success of the Offer. |
▪ | Develop a timeline, detailing the logistics and suggested methods for communications regarding the Offer. |
▪ | Coordinate the ordering and receipt of the Depository Trust Company participant list(s) and non-objecting beneficial owner (NOBO) list(s). |
▪ | Typeset and place any summary advertisement in publications selected by the Client. |
▪ | Contact the reorganization departments at all banks and brokerage firms to determine the number of holders and quantity of materials needed. |
▪ | Coordinate the printing of sufficient documents for the eligible universe of holders (if requested). |
▪ | Complete the mailing of needed Offer materials to any registered holders. |
▪ | Distribute the Offer materials to banks and brokers in sufficient quantities for all of their respective holders, and follow up to ensure the correct processing of such by each firm. |
▪ | Distribute the documents directly to the decision maker at each major institutional holder, if any, to avoid the delay associated with the materials being filtered through the holders’ custodian bank or brokerage firm. |
▪ | Establish a dedicated toll-free number to answer questions, provide assistance and fulfill requests for Offer materials. |
▪ | If requested, conduct an outbound phone campaign to the targeted universe of holders to confirm receipt and understanding of the Offer materials. |
▪ | Maintain contact with the bank and broker reorganization departments for ongoing monitoring of responses to the Offer. |
▪ | Provide feedback to the Client and its advisors as to responses to the Offer. |
AST Funds Solutions, LLC ● 48 Wall Street, 22nd. Floor, New York, NY 10005 ● Tel: 212.400.2612 ● www.astfundsolutions.com
2. | Fees and Expenses: |
a) | AST Fund Solutions agrees to complete the work described above for a base fee of $8,500. |
b) | Out-of-pocket expenses incurred by AST Fund Solutions in providing the services described above shall be reimbursed by the Client, and will include such charges as search notification, postage, messengers, warehouse charges and overnight couriers, other expenses incurred by AST Fund Solutions in obtaining or converting depository participant listings, transmissions from Broadridge Financial Solutions (“Broadridge”), shareholder and/or NOBO’s list processing. The estimated amount of such expenses is $750. AST Fund Solutions shall not incur more than $750 of such expenses without prior written approval by the Client. |
c) | If applicable, outgoing calls or received calls for record or beneficial owners of the Client, including NOBO’s, will be charged at a fee of $5.00 per successful contact. A charge of $0.15 per call will be charged for each unsuccessful attempt to contact a shareholder. In addition, directory assistance will be charged at a rate of $0.60 per each look-up. A charge of $0.07 per minute will be invoiced to cover telecommunications line charges incurred during the telephone solicitation campaign in connection with the Offer. AST Fund Solutions may require an advance to cover call center charges prior to the commencement of calls. AST Fund Solutions will notify the Client should such advance be required and a separate invoice will be prepared and sent to the Client. |
d) | A data processing fee of $600 will be incurred for receiving, converting and processing electronic lists of registered holders and or NOBO lists. If such lists are to be used for telephone solicitation efforts, an additional $110.00 per hour will be invoiced for additional data processing time. The fee of $600 would also apply if a dedicated toll free line is set-up to take incoming calls from shareholders. A toll free number would not be assigned without prior consent from the Client. |
3. | Billing and Payment: |
a) | An invoice for the agreed base fee of $8,500 is attached and AST Fund Solutions requires that the signed contract and this base fee be received by our office upon execution of this agreement. Out-of-pocket expenses, fees for completed phone calls, set-up and other fees relating to the toll free number, and charges for telephone look-ups will be invoiced to the Client after the completion of the project. |
b) | Banks, brokers and proxy intermediaries will be directed to send their invoices directly to the Client for payment. AST Fund Solutions will, if requested, assist in reviewing and approving any or all of these invoices. |
c) | AST Fund Solutions reserves the right to receive advance payment for any individual out-of-pocket charge anticipated to exceed $500 before incurring such expense. AST Fund Solutions will advise the Client by e-mail or fax of any such request for an out-of-pocket advance. |
4. | Records: |
Copies of supplier invoices and other back-up material in support of AST Fund Solutions’ out-of-pocket expenses will be promptly provided to the Client upon request.
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AST Funds Solutions, LLC ● 48 Wall Street, 22nd. Floor, New York, NY 10005 ● Tel: 212.400.2612 ● www.astfundsolutions.com
5. | Confidentiality: |
(a) For a period of two (2) years following the termination of this Agreement, AST Fund Solutions agrees to preserve and keep confidential all non-public information developed by it on behalf of the Client or provided to AST Fund Solutions by the Client or its agents or representatives or at the request of the Client or its agents or representatives or any independent parties for AST Fund Solutions’ use in rendering all necessary services hereunder (“Confidential Information”); provided, however that AST Fund Solutions may disclose the Confidential Information after notice to the Client (unless otherwise prohibited) to the extent necessary in order to comply with applicable law, rule or regulation or a subpoena, court order, regulatory agency or stock exchange rule.
(b) | Compliance With Privacy Laws and Regulations |
AST Fund Solutions agrees to take commercially reasonable steps to comply with the requirements of all applicable state and federal laws and regulations regarding the security, protection and confidentiality of personal information, as amended from time to time. AST Fund Solutions further agrees to comply with Massachusetts General Law, c. 93H and implementing regulations thereunder, including 201 CMR 17.00 et. seq. (together with the laws and regulations referenced in the first sentence, collectively, the "Privacy Laws"). AST Fund Solutions agrees to notify the Client promptly of any failure to comply with the Privacy Laws.
To the extent that the Client or Client affiliates (collectively “the Client Affiliates”) provide AST Fund Solutions with or AST Fund Solutions has access to (either orally, in hard copy, electronic format or otherwise) any personal information (as defined in the Privacy Laws) (“PI”), AST Fund Solutions agrees not to disclose or use any such PI for any purpose except to the extent necessary to carry out the purposes for which Client Affiliates disclosed the PI or as permitted by law in the ordinary course of business to carry out those purposes. Unless pre-approved in writing by the Client, AST Fund Solutions further agrees not to disclose PI to any third parties provided, however, that AST Fund Solutions may disclose PI on a "need to know" basis to auditors and attorneys retained by AST Fund Solutions (the "Representatives") that have agreed in writing to keep such information confidential on terms substantially similar to those set forth herein. AST Fund Solutions agrees to cooperate with the Client’s reasonable requests for information concerning AST Fund Solutions’ policies and procedures for the protection and safeguarding of PI.
Any and all data provided to AST Fund Solutions is, and shall remain at all times, the exclusive property of the Client. Subject to any federal, state or regulatory requirements concerning records retention or as otherwise directed by the Client, AST Fund Solutions shall either return or destroy all PI (except for one copy as required by law, regulation or professional standards) once AST Fund Solutions no longer requires the PI to provide the products and/or services hereunder and AST Fund Solutions shall promptly retrieve, deliver, and destroy all data and copies thereof in its possession upon the earliest of the requirements of this Agreement, the Client’s request, or the termination of this Agreement. Notwithstanding any other provision in this Agreement, AST Fund Solutions shall not possess or assert any lien against or to the Client data.
c. | Establishment of a Comprehensive Written Information Security Program |
AST Fund Solutions agrees that it has established and will maintain and comply with written policies and procedures which are reasonably designed to comply with Privacy Laws concerning the protection and safeguarding of PI. Without limiting any requirements under Privacy Laws, such policies and procedures shall address: (i) administrative, technical, and physical safeguards for the protection of the Client records and data that contain PI; (ii) detection of any unauthorized access to or use of PI for unauthorized purposes; and
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AST Funds Solutions, LLC ● 48 Wall Street, 22nd. Floor, New York, NY 10005 ● Tel: 212.400.2612 ● www.astfundsolutions.com
(iii) the proper destruction of such materials so that the information contained therein cannot be practicably read or reconstructed.
In order to aid the Client with its compliance with applicable Privacy Laws, AST Fund Solutions agrees to: (i) upon written request, provide certifications of compliance with Privacy Laws, including without limitation, certification that AST Fund Solutions maintains, monitors and complies with a written information security program which is reasonably designed to comply with applicable Privacy Laws; (ii) allow the Client Affiliates, at their expense, the right to audit AST Fund Solutions’ compliance; and (iii) cooperate with the Client’s reasonable requests for information concerning AST Fund Solutions’ policies and procedures.
d. | Notification of any Security Incident |
AST Fund Solutions agrees that it will notify the Client in writing in the most expedient time possible and without delay of any actual loss of, unauthorized disclosure, access or use of any data or any facilities associated therewith, or any other incident which may compromise the security, integrity or confidentiality of the PI. AST Fund Solutions shall reasonably cooperate with the Client’s investigation and response to each actual threat to the security, confidentiality or integrity of PI.
e. | Restriction on Transferability of Data Furnished by the Client to AST Fund Solutions |
In the event the Client pre-approves AST Fund Solutions disclosing PI to third parties, AST Fund Solutions understands and agrees that this Agreement governs AST Fund Solutions’ right to subcontract, transfer, forward, or in by any means share PI received from the Client. AST Fund Solutions agrees to (i) ensure any person to whom AST Fund Solutions discloses PI is compliant with Privacy Laws, (ii) conduct a reasonable investigation of any person to whom AST Fund Solutions discloses PI to verify that such person with access to PI has the capacity to protect such PI, and (iii) contractually require any person to whom AST Fund Solutions discloses PI to comply with Privacy Laws and provide notification to AST Fund Solutions of any failure to comply with Privacy Laws or any incident that may threaten the confidentiality, security or integrity of PI.
6. | Indemnification: |
(a) The Client agrees to indemnify and hold AST Fund Solutions and all of its affiliates, agents, directors, officers and employees harmless against any loss, claim, demand, action, suit, damage, liability or expense (including, without limitation, reasonable legal and other related fees and expenses (collectively, “Liabilities”) arising out of the performance of this Agreement, including any Liability arising directly from material misstatements or omissions in the applicable Client Prospectuses, Statements of Additional Information, proxy statements, proxy solicitation materials, reports to shareholders or other materials prepared by the Client or its agents (other than AST Fund Solutions) for distribution to the shareholders of the Client, or to the extent arising directly from any negligent actions or inactions by the Client or any of its agents or contractors (other than AST Fund Solutions), in the performance of its duties or obligations under this Agreement, except to the extent that such Liabilities are the result of willful misfeasance, bad faith or gross negligence of AST Fund Solutions, its officers, directors, employees or agents, in the performance of their duties or obligations under this Agreement. At its election, the Client may assume the defense and settlement of any such action. AST Fund Solutions hereby agrees to advise the Client of any such liability or claim promptly after receipt of the notice thereof; provided however, that AST Fund Solutions' right to indemnification hereunder shall not be limited by its failure to promptly advise the Client of any such liability or claim, except to the extent that the Client is prejudiced by such failure. Any settlement, unless it is solely monetary in nature, shall be subject to AST Fund Solutions' prior consent, which consent shall not be unreasonably withheld or delayed.
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AST Funds Solutions, LLC ● 48 Wall Street, 22nd. Floor, New York, NY 10005 ● Tel: 212.400.2612 ● www.astfundsolutions.com
(b) AST Fund Solutions agrees to indemnify and hold the Client and all of its officers, directors and employees harmless against: (i) any Liabilities arising in connection with material misstatements or omissions in any and all proxy solicitation materials (including scripts) prepared by AST Fund Solutions for distribution to the shareholders of the Client and utilized by AST Fund Solutions without the written approval of the Client and any or all representations made by AST Fund Solutions to the extent such representations differ from the proxy solicitation materials; and (ii) any Liabilities resulting from the willful misfeasance, bad faith, or gross negligence of AST Fund Solutions, its officers, directors, employees or agents in the performance of their duties or obligations under this Agreement or from the reckless disregard by AST Fund Solutions, its officers, directors, employees or agents of their duties and obligations under this Agreement. At its election, AST Fund Solutions may assume the defense of any such action. The Client hereby agrees to advise AST Fund Solutions of any such liability or claim promptly after receipt of the notice thereof; provided however, that the Client’s right to indemnification hereunder shall not be limited by its failure to promptly advise AST Fund Solutions of any such liability or claim, except to the extent that AST Fund Solutions is prejudiced by such failure. Any settlement, unless it is solely monetary in nature, shall be subject to the Client’s prior consent, which consent shall not be unreasonably withheld or delayed.
(c) This indemnity shall survive the termination of this Agreement or the resignation or removal of AST Fund Solutions hereunder.
7. | Termination: |
AST Fund Solutions' appointment under this Agreement shall be effective as of the date of this letter and will continue thereafter until the termination or completion of the assignment, or until such date as AST Fund Solutions may complete the duties requested by the Client or its counsel. To the extent the Offer does not occur, AST Fund Solutions will return to the client the Base Fee less any reasonable out-of-pocket expenses incurred by AST Fund Solutions hereunder through the date of the termination hereof.
8. | Governing Law: |
This Agreement will be governed and construed in accordance with the laws of the State of New York for contracts made and to be performed entirely in New York, and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of the parties hereto, except that AST Fund Solutions may neither assign its rights nor delegate its duties without the Client's prior written consent.
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AST Funds Solutions, LLC ● 48 Wall Street, 22nd. Floor, New York, NY 10005 ● Tel: 212.400.2612 ● www.astfundsolutions.com
If you are in agreement with the above, kindly sign a copy of this agreement in the space provided for that purpose below and return copy to us. Additionally, an invoice for the base fee is attached and AST Fund Solutions requires that the base fee be received by it upon execution of this agreement.
Sincerely, | ||
AST FUND SOLUTIONS, LLC | ||
|
||
Name: Sean Butcher | ||
Title: Assistant Vice President |
Agreed to and accepted as of the date set forth on this agreement:
Cornerstone Strategic Value Fund, Inc.
By; | ||
Print Authorized Name & Title | ||
Authorized Signature | ||
Date |
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AST Funds Solutions, LLC ● 48 Wall Street, 22nd. Floor, New York, NY 10005 ● Tel: 212.400.2612 ● www.astfundsolutions.com
BASE FEE INVOICE FOR INFORMATION AGENT SERVICES
Cornerstone Strategic Value Fund, Inc.
Date: | 3-2-2021 | |
Invoice Number: |
TO: |
Cornerstone
Strategic Value Fund, Inc.
C/o Cornerstone Advisors, Inc. 1075 Hendersonville Road Suite 250 Ashville, NC 28803 Attn: Mr. Ralph Bradshaw |
Base Fee for Information Agent Services, an invoice for all out of pocket expenses covered by the Agreement will be sent after the expiration date.
AMOUNT DUE UPON EXECUTION OF THE ABOVE AGREEMENT: | $8,500 |
Please make all checks payable to AST Fund Solutions, LLC and mail to:
AST Fund Solutions, LLC
55 Challenger Road, Suite 201 Ridgefield Park, NJ 07660 |
If you choose to wire the money, our bank information is:
Sovereign
Bank
|
♦ | AST Fund Solutions, LLC Tax ID # is 27-4792784 |
AST Funds Solutions, LLC ● 48 Wall Street, 22nd. Floor, New York, NY 10005 ● Tel: 212.400.2612 ● www.astfundsolutions.com
SUBSCRIPTION AGENT AGREEMENT
This SUBSCRIPTION AGENT AGREEMENT (this “Agreement”) is entered into as of [ ], 2021, by and between American Stock Transfer & Trust Company, LLC (the “Subscription Agent”) and Cornerstone Strategic Value Fund, Inc. (the “Company”).
1. | The Company is issuing (the “Rights Offering”) to the holders of shares of its common stock, par value $0.001 per share (“Common Stock”), on [ ], 2021 (the “Record Date”), rights (“Rights”) to subscribe for shares of Common Stock ("Shares”). Except as set forth in Sections 9 and 10 below, Rights shall cease to be exercisable at 5:00 P.M., New York City time, on [ ], 2021 or such later date of which the Company notifies the Subscription Agent orally and confirms in writing (the “Expiration Date”). Each stockholder will receive one Right for each outstanding Share he or she owns on the Record Date (the “Basic Subscription”). The Rights entitle a stockholder to acquire one Share at the Subscription Price (as defined in the Prospectus) for every three Rights held. Rights are evidenced by non-transferable subscription certificates in registered form (“Subscription Certificates”). Stockholders who exercise all of their Rights are entitled to subscribe for additional Shares which were not otherwise subscribed for by others in the Basic Subscription (the “Additional Subscription Privilege”). The Rights Offering will be conducted in the manner and upon the terms set forth in the Company’s Prospectus dated [ ], 2021 (the “Prospectus”). Any term used but not defined herein shall have the meaning proscribed to it in the Prospectus. |
2. | The Subscription Agent is hereby appointed as subscription agent for the Rights Offering as set forth herein. The Subscription Agent may rely on, and shall be protected in acting upon, any certificate, instrument, opinion, representation, notice letter or other document delivered to it and believed by it to be genuine and to have been signed by the proper party or parties. |
3. | Enclosed herewith are the following, the receipt of which the Subscription Agent acknowledges by its execution hereof: |
(a) | a copy of the Prospectus; |
(b) | the form of Subscription Certificate (with instructions); and |
(c) | resolutions adopted by the board of directors of the Company in connection with the Rights Offering, certified by the secretary of the Company. |
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4. | As soon as is reasonably practical, the Subscription Agent shall mail or cause to be mailed to each holder of Common Stock at the close of business on the Record Date a Subscription Certificate evidencing the Rights to which such holder is entitled a Prospectus and an envelope addressed to the Subscription Agent. Prior to mailing, the Company shall provide the Subscription Agent with blank Subscription Certificates which the Subscription Agent shall prepare and issue in the names of holders of Common Stock of record at the close of business on the Record Date and for the number of Rights to which they are entitled. The Company shall also provide the Subscription Agent with a sufficient number of copies of each of the documents to be mailed with the Subscription Certificates. |
5. | Subscription Procedure. |
(a) | Upon the Subscription Agent’s receipt prior to 5:00 P.M., New York City time, on the Expiration Date (by mail or delivery) of (i) any Subscription Certificate completed and endorsed for exercise, as provided on the reverse side of the Subscription Certificate (except as provided in Section 9 hereof), and (ii) payment in full of the Estimated Subscription Price (as defined in the Prospectus) in U.S. funds by check, bank draft or wire transfer of immediately available funds (without deduction for bank service charges or otherwise), payable to the order of “American Stock Transfer & Trust Company, LLC” the Subscription Agent shall, as soon as practicable after the Expiration Date, perform the procedures described in subsections (b), (c) and (d) below. |
(b) | As soon as practicable after the Expiration Date the Subscription Agent shall calculate the number of Rights to which each subscriber is entitled pursuant to the Basic Subscription and the Additional Subscription Privilege in the manner provided for in the Prospectus. The Additional Subscription Privilege may only be exercised by holders who subscribe to all the Rights that can be subscribed for under the Basic Subscription. |
(c) | Upon calculating the number of Shares to which each subscriber is entitled pursuant to the Additional Subscription Privilege and the amount underpaid or overpaid, if any, by each subscriber, the Subscription Agent shall, as soon as practicable, furnish a list of all such information to the Company. |
(d) | Within five (5) business days following the Expiration Date or Extended Expiration Date as the case may be, the Subscription Agent shall send a confirmation 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 Company (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 Company 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 Company 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 Company to such Stockholder will be mailed by the Subscription Agent within ten (10) business days after the Confirmation Date. 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. |
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(e) | Funds received by the Subscription Agent pursuant to the Basic Subscription and the Additional Subscription Privilege shall be held by it in a segregated account. Upon delivering the securities and refunding subscribers for additional Shares subscribed for but not allocated, if any, the Subscription Agent shall promptly remit to the Company all funds received in payment of the Subscription Price for Shares issued in the Rights Offering. The Subscription Agent will not be obligated to calculate or pay interest to any holder or party. |
6. | Until 5:00 P.M., New York City time, on the third Business Day (as defined below) prior to the Expiration Date, the Subscription Agent shall facilitate subdivision or transfers of Subscription Certificates by issuing new Subscription Certificates in accordance with the instructions set forth on the reverse side of the Subscription Certificates. As used in herein, “Business Day” shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. |
7. | The Company shall have the absolute right to reject any defective exercise of Rights or to waive any defect in exercise. Unless requested to do so by the Company, the Subscription Agent shall not be under any duty to give notification to holders of Subscription Certificates of any defects or irregularities in subscriptions. Subscriptions will not be deemed to have been made until any such defects or irregularities have been cured or waived within such time as the Company shall determine. The Subscription Agent shall as soon as practicable return Subscription Certificates with the defects or irregularities which have not been cured or waived to the holder of the Rights. If any Subscription Certificate is alleged to have been lost, stolen or destroyed, the Subscription Agent should follow the same procedures followed for lost stock certificates representing Common Stock it uses in its capacity as transfer agent for the Company’s Common Stock. |
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8. | [Intentionally Deleted] |
9. | If requested, the Subscription Agent shall deliver to the Company copies of the exercised Subscription Certificates in accordance with written directions received from the Company. The Subscription Agent shall deliver the Shares subscribed for in book-entry form to the subscribers who have duly exercised Rights. |
10. | The Subscription Agent shall notify the Company by telephone on an before the close of business on each Business Day during the period commencing five (5) Business Days after the mailing of the Rights and ending at the Expiration Date (and in the case of guaranteed deliveries ending three (3) Trading Days after the Expiration Date) (a “daily notice”), which notice shall thereafter be confirmed in writing, of (i) the number of Rights exercised an the day covered by such daily notice, (ii) the number of Rights subject to guaranteed exercises on the day covered by such daily notice, (iii) the number of Rights for which defective exercises have been received on the day covered by such daily notice, and (iv) the cumulative total of the information set forth in clauses (i) through (iii) above. At or before 5:00 P.M., New York City time, on the first Trading Day following the Expiration Date the Subscription Agent shall certify in writing to the Company the cumulative total through the Expiration Date of all the information set forth in clauses (i) through (iii) above. At or before 10:00 A.M., New York City time, on the fifth Trading Day following the Expiration Date the Subscription Agent will execute and deliver to the Company a certificate setting forth the number of Rights exercised as to which Subscription Certificates have been timely received. The Subscription Agent shall also maintain and update a listing of holders who have fully or partially exercised their Rights, holders who have transferred their Rights and their transferees, and holders who have not exercised their Rights. The Subscription Agent shall provide the Company or its designees with such information compiled by the Subscription Agent pursuant to this Section 10 as any of them shall request. |
11. | With respect to notices or instructions to be provided by the Company hereunder, the Subscription Agent may rely and act on any written instruction signed by any one or more of the following authorized officers or employees of the Company: |
Name | Title |
Ralph W. Bradshaw | President |
Theresa M. Bridge | Treasurer |
12. | Whether or not the Rights Offering is consummated, the Company agrees to pay the Subscription Agent for services rendered hereunder, as set forth in the schedule attached to this Agreement. |
13. | The Subscription Agent may employ or retain such agents (including but not limited to, vendors, advisors and subcontractors) as it reasonably requires to perform its duties and obligations hereunder; may pay reasonable remuneration for all services so performed by such agents; shall not be responsible for any misconduct on the part of such agents; and in the case of counsel, may rely on the written advice or opinion of such counsel, which shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by the Subscription Agent hereunder in good faith and in accordance with such advice or opinion. Additionally, the Subscription Agent shall identify, report and deliver any unclaimed property and/or payments to all states and jurisdictions for the Company in accordance with applicable abandoned property law. The Subscription Agent shall also provide information agent services to the Company on terms to be mutually agreed upon by the parties hereto. |
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14. | The Company hereby covenants and agrees to indemnify, reimburse and hold the Subscription Agent and its officers, directors, employees and agents harmless against any loss, liability or reasonable expense (including legal and other fees and expenses) incurred by the Subscription Agent arising out of or in connection with entering into this Agreement or the performance of its duties hereunder, except for such losses, liabilities or expenses incurred as a result of its gross negligence, bad faith or willful misconduct. The Company shall not be liable under this indemnity with respect to any claim against the Subscription Agent unless the Company is notified of the written assertion of a claim against it, or of any action commenced against it, promptly after it shall have received any such written information as to the nature and basis of the claim; provided, however, that failure by the Subscription Agent to provide such notice shall not relieve the Company of any liability hereunder if no prejudice occurs. |
In no event shall the Subscription Agent have any liability for any incidental, special, statutory, indirect or consequential damages, or for any loss of profits, revenue, data or cost of cover.
All provisions regarding indemnification, liability and limits thereon shall survive the resignation or removal of the Subscription Agent or the termination of this Agreement.
15. | Any notice or communication by the Subscription Agent or the Company to the other is duly given if in writing and delivered in person or via first class mail (postage prepaid), or overnight air courier to the other’s address. |
If to the Company:
Cornerstone Strategic Value Fund, Inc.
c/o Ultimus Fund Solutions, LLC
225 Pictoria Drive, Suite 450
Cincinnati, OH 45246
Tel: (513) 587-3400
If to the Subscription Agent:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
Attn: Corporate Actions
Tel: (718) 921.8200
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with copy to:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
Attn: General Counsel
Tel: (718) 921.8200
The Subscription Agent and the Company may, by notice to the other, designate additional or different addresses for subsequent notices or communications.
16. | If any provision of this Agreement shall be held illegal, invalid, or unenforceable by any court, this Agreement shall be construed and enforced as if such provision had not been contained herein and shall be deemed an Agreement between us to the full extent permitted by applicable law. |
17. | This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law, and shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. |
18. | Neither this Agreement, nor any rights or obligations hereunder, may be assigned by either party without the written consent of the other party. However, the Subscription Agent may assign this Agreement or any rights granted hereunder, in whole or in part, either to affiliates, another division, subsidiaries or in connection with its reorganization or to successors of all or a majority of the Subscription Agent’s assets or business without the prior written consent of the Company. |
19. | No provision of this Agreement may be amended, modified or waived, except in writing signed by all of the parties hereto. This Agreement may be executed in counterparts, each of which shall be for all purposes deemed an original, but all of which together shall constitute one and the same instrument. |
20. | Nothing herein contained shall amend, replace or supersede any agreement between the Company and the Subscription Agent to act as the Company’s transfer agent, which agreement shall remain of full force and effect. |
[signature page follows]
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This Subscription Agent Agreement has been executed by the parties hereto as of the date first written above.
Cornerstone Strategic Value Fund, Inc. | |||
By: | |||
Name: Ralph W. Bradshaw | |||
Title: President |
Agreed & Accepted:
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
By: | ||
Name: | ||
Title: |
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Fee Schedule
Project fee of $25,000.00.
Plus out-of-pocket and extraordinary expenses
DTC new cusip eligibility fee $1,000.00 (Non-Negotiable)
Additional fee equal to 1/3rd (one-third) of the flat fee for each extension of the Rights Offering, plus reasonable out-of-pocket expenses associated with such extension.
Fees are payable prior to the Launch date
Santander Bank NA.
601 Penn Street
Reading, PA 19601
ABA # 231372691
SWIFT CODE: SVRNUS33
For further credit to: American Stock Transfer & Trust, LLC
6201 15TH Avenue
Brooklyn, NY 11219
Account # 3036002123
Reference: Company name
Attn: Accounts Receivable
The party below is responsible for payment of the fees:
Name: Cornerstone Strategic Value Fund, Inc.
Attention: Ralph Bradshaw
Address: 1075 Hendersonville Road
Address: Suite 250
Address: Asheville, NC 28803
Phone: (828) 255-4833
Email: rbradshaw@cornerstoneadv.com
The fees quoted in this schedule apply to services ordinarily rendered by American Stock Transfer & Trust Company, LLC (“AST”) as paying agent and are subject to adjustment based on final review of documents, or when AST is called upon to undertake unusual duties or responsibilities, or as changes in law, procedures, or the cost of doing business demand. Out-of-pocket expenses include, but are not limited to, 1099’s (calculations, production, print, mail, and IRS reporting), cost basis calculations and reporting, and regulatory mailings. Furthermore, the fees quoted in this schedule are based upon information provided to AST and are subject to change upon modification or supplementation of such information resulting in the provision of additional services by AST. Services in addition to and not contemplated in this Agreement, including, but not limited to, document amendments and revisions, calculations, notices and reports, legal fees and unanticipated transaction costs (including charges for wire transfers, checks, internal transfers and securities transactions) will be billed as extraordinary expenses.
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