STEAMBOAT CAPITAL PARTNERS, LLC

708 THIRD AVENUE, 5TH FLOOR NEW YORK, NY 10017 T: (212) 209-3924

July 20, 2012 Mr. Norm Champ Director of Division of Investment Management U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Dear Mr. Champ, Congratulations on your recent appointment as director of the Investment Management division at the SEC. I run a small investment partnership in New York and I would like to bring some facts about the Cornerstone Funds (the Cornerstone Total Return Fund, the Cornerstone Strategic Value Fund and the Cornerstone Progressive Return Fund, trading under the ticker symbols CRF, CLM, and CFP, respectively, and managed by Ralph Bradshaw) to your attention. I believe that the Cornerstone Funds should be examined by the SEC due to the deceptive nature of their distribution policy, the opacity and lack of communication from management and the recent capital markets transactions the Funds have engaged in. I believe that the Cornerstone Funds are perhaps exploiting less sophisticated investors through a deceitful operation that gives excessive compensation to management with negative investment results for the Funds investors. Though it does not appear that the Cornerstone Funds are violating securities laws, per se, they are essentially a publicly traded Ponzi scheme. I am passing along this information so that, to the extent that you deem appropriate, you may assist in protecting the innocent investors (both current and prospective) in the Cornerstone Funds. Thank you for your time and attention to this matter and please do not hesitate to contact me with any comments or questions. Respectfully,

Parsa Kiai

Summary Information

CRF CLM CFP Cornerstone Cornerstone Cornerstone Total Return Strategic Progessive Fund Value Fund Return Fund Balance Sheet (as of 3/31/12) ($ in millions, except for per share data) Total Equity Securities Cash Total Investments Liabilities in Excess of Other Assets Net Assets Shares Outstanding NAV / Share (as of balance sheet date) NAV / Share (as 6/29/12) Market Price (as of 6/29/12) Premium / Discount (1) Pro forma for rights offering in May 2012.

CFP PF (1)

Total

$38.1 0.3 38.4 (0.1) 38.4 6.6 $5.82 $5.38 6.39 18.8%

$92.0 0.9 92.9 0.1 93.1 14.4 $6.48 $5.99 7.13 19.0%

$81.1 2.2 83.2 (0.7) 82.5 15.7 $5.26

$114.2 2.2 116.4 (0.7) 115.7 20.9 $5.52 $4.93 5.30 7.5%

$244.4 3.4 247.8 (0.7) 247.1

The Cornerstone Funds are closed-end funds trading at significant premium to NAV because of their deceptive distribution policy Most closed-end funds trade at a discount to their NAV because there is the added layer of expenses and, generally, active managers do not outperform the market over the long term. For example, out of the 627 closed end mutual funds in Barrons weekly listing1 (excluding the Cornerstone funds), 60% of the funds traded at NAV or at a discount to NAV. Among General Equity Funds, 97% (excluding the Cornerstone Funds) trade at NAV or at a discount to NAV.
Barron's Closed End Funds Weekly Listing General Equity Funds General Equity Funds (excluding Cornerstone) Specialized Equity Funds Income & Preferred Stock Funds Convertible Sec's. Funds World Equity Funds U.S. Mortgage Bond Funds Investment Grade Bond Funds Loan Participation Funds High Yield Bond Funds Other Domestic Taxable Bond Funds World Income Funds National Muni Bond Funds Single State Muni Bond Total # of Funds 34 31 90 22 11 69 12 27 22 48 21 23 113 135 627 % at Median Premium Premium 12% 15% 3% 2% 29% 50% 27% 9% 42% 30% 27% 85% 48% 35% 54% 47% 40% 5% 6% 9% 3% 6% 4% 1% 4% 8% 3% 3% 3% 4% % at NAV Median or Discount Discount 88% (12)% 97% (12)% 71% 50% 73% 91% 58% 70% 73% 15% 52% 65% 46% 53% 60% (9)% (5)% (7)% (9)% (9)% (7)% (3)% (6)% (5)% (6)% (2)% (2)% (5)%

The three Cornerstone Funds, however, trade at premiums ranging from 8 19%. We believe the reason is that the Cornerstone Funds follow a managed distribution policy where the fund makes regular distributions to investors, regardless of the underlying investment performance. Managed distribution funds are a somewhat controversial topic in the closed-end fund community. Closed-end funds often live and die by their distributions so some fund managers have adopted the policy of having regular monthly distributions in order to smooth out the market performance and to reduce2 (or eliminate) the discount to NAV of their funds. Sophisticated investors understand that only dividends that come from investment income or capital gains are truly earned but history shows that funds with regular, stable distributions (regardless of whether they are earned or simply a return of capital) tend to trade at lower discounts (or even premiums) to NAV. Given this phenomena, the opportunity exists for less scrupulous fund managers to use managed distribution policies to artificially boost the market price of their funds, raise additional capital and earn increased fees. The need for increased disclosure for managed distribution funds is a topic we will revisit later on. We believe some unsophisticated investors may think that the Cornerstone Funds generous 18% yield is a dividend, when in fact it is largely a return-of-capital distribution and they are simply being given
1 2

http://online.barrons.com/public/page/9_0204-closedendfundweekly.html http://www.gabelli.com/Gab_pdf/articles/clef_200604.pdf

their own money back. While Cornerstone does disclose the minimum required details of the managed distribution policy in their SEC filings and press releases, we believe that the funds are targeting individual investors who are being misled and think they are receiving a stable source of income. For example, in the May 4, 2012 press release titled Cornerstone Funds Announce Continuing Monthly Distributions, the Fund states that each Fund's Board remains convinced that its stockholders are well served by a policy of regular distributions which increase liquidity and provide flexibility to individual stockholders in managing their investment. Notwithstanding our jaded view of their distribution strategy, the Cornerstone Funds trade at a premium even relative to other peers who also follow a managed distribution policy. The table to the right shows the total distributions for funds that follow a managed distribution policy, highlighting both the earned yield (the component of the distribution that comes from investment income and realized capital gains) and the return of capital yield (the component that is simply a liquidation of some assets). Notably, most of the funds do not trade at a premium to NAV. The reason may be in their investor bases. Of the funds listed (other than the Cornerstone funds), publicly disclosed ownership by institutions that are required to file with the SEC amounts to 23% of the shares outstanding suggesting that there is a significant level of sophisticated investors that understand that the return-of-capital component is not a true yield and are therefore unwilling to afford the funds a premium market valuation. The Cornerstone funds, however, have much lower public ownership levels suggesting that their investor base is much more retailoriented and perhaps less sophisticated.
Managed Distribution Peers CRF Public Ownership 23.4% 7.0%
Selected Managed Distribution Funds ASG BTO CII DDF DNI DVM FUND GAB GCV GDV GGE GGT GHI GIFD GLU GUT HQH HQL IAF JTA MFV MSP RCG RMT RVT SGL SOR TSI USA ZF ZTR Median

Earned Return of Yield Capital 0.0% 0.5% 2.4% 5.4% 5.4% 1.1% 0.3% 1.3% 1.8% 2.1% 1.3% 0.0% 4.6% 4.3% 2.8% 2.7% 0.0% 0.0% 3.4% 3.1% 5.7% 0.1% 0.0% 0.4% 0.6% 4.0% 0.4% 9.6% 0.3% 0.3% 1.7% 1.3% 0.3% 1.7% 10.3% 1.7% 6.8% 5.0% 9.0% 3.7% 4.6% 5.6% 6.5% 9.6% 7.3% 4.2% 6.3% 13.2% 4.3% 2.1% 3.3% 4.8% 8.0% 10.4% 8.5% 6.0% 4.2% 9.3% 0.0% 5.8% 5.6% 5.3% 5.7% 7.7% 6.9% 10.3% 9.8% 6.0% 19.8% 18.5% 10.7% 18.5%

Total Yield 6.8% 5.4% 11.4% 9.1% 10.0% 6.7% 6.8% 10.9% 9.0% 6.3% 7.6% 13.2% 9.0% 6.4% 6.1% 7.5% 8.0% 10.4% 12.0% 9.1% 9.9% 9.4% 0.0% 6.2% 6.3% 9.2% 6.1% 17.3% 7.3% 10.6% 11.5% 9.0% 20.2% 20.3% 21.0% 20.3%

Premium / (Discount) (6.9)% (9.5)% (7.5)% (6.2)% (12.1)% (2.1)% (9.9)% 3.9% (0.2)% (10.7)% (10.8)% (7.5)% (4.4)% (17.6)% 0.1% 44.6% (7.5)% (3.2)% 8.8% (9.7)% 5.4% (13.3)% (29.4)% (10.5)% (12.2)% (4.1)% (7.8)% (3.9)% (11.6)% (12.6)% (12.9)% (7.5)% 18.2% 19.2% 10.3% 18.2%

CLM 6.6%

CFP 2.2%

CRF CLM CFP Cornerstone Funds

Source: Closed End Funds Association, Bloomberg L.P. and SEC filings

Cornerstone is run by a dishonest management team with excessive compensation and misleading investor communication Cornerstones management team, led by Portfolio Manager Ralph Bradshaw, and investment staff appear not only to be mediocre investors (which may be excusable), but greedy, deceptive and manipulative towards their fund investors (which is not). Investment Performance Cornerstones investment performance has been pedestrian underperforming the market in the long run, approximately by the cost of their expense ratio. We shall see later on that this is by design as their portfolio essentially mimics the S&P 500, but comes burdened with substantial management fees.
Investment Returns S&P 500 Total Return CRF Investment Returns CLM Investment Returns CFP Investment Returns (CFP from inception in Sept 2007) Dividends & Distributions CRF Total Yield (1) CLM Total Yield CFP Total Yield CRF Earned Yield (2) CLM Earned Yield CFP Earned Yield 2002 (22.1)% (18.7)% (25.0)% 2003 28.7% 23.2% 23.1% 2004 10.9% 7.0% 8.7% 2005 4.9% 1.9% 3.2% 2006 15.8% 12.3% 12.6% 2007 5.5% 3.8% 5.3% (1.9)% 2008 (37.0)% (32.5)% (29.8)% (31.8)% 2009 26.5% 16.6% 18.1% 22.1% 2010 15.1% 9.5% 10.0% 18.5% 2011 2.1% 1.1% 0.4% 0.2% Annualized 2.9% 1.0% 1.2% (0.3)%

2002 10.8% 5.4% 0.0% 1.0% 0.0%

2003 15.4% 15.4% 0.0% 0.6% 0.6%

2004 15.2% 15.1% 0.0% 0.7% 0.7%

2005 16.5% 16.0% 0.0% 0.5% 16.0%

2006 19.3% 18.4% 0.0% 0.8% 0.7%

2007 21.1% 21.1% 4.1% 1.0% 7.0% 1.4%

2008 22.9% 23.0% 17.4% 0.7% 0.8% 1.1%

2009 24.5% 24.0% 34.4% 0.0% 0.7% 2.2%

2010 20.3% 20.4% 24.5% 0.0% 0.8% 18.2%

2011 20.2% 20.3% 21.0% 0.3% 1.7% 10.3%

Average 18.6% 17.9% 10.1% 0.6% 2.9% 6.7%

(1) Total yield includes dividends from net investment income and net realized capital gains along with return-of-capital distributions, as part of a managed distribution policy. (2) Earned yield includes only dividends from net investment income and net realized capital gains. NAV Premium/(Discount) CRF CLM CFP 2002 (12.0)% (8.6)% 2003 29.2% 30.4% 2004 40.6% 31.3% 2005 34.3% 24.8% 2006 93.5% 58.8% 2007 2008 2009 43.1% 40.9% 41.7% 2010 18.5% 17.1% 26.4% 2011 9.1% 7.5% 20.8% Average 27.0% 20.1% 21.4%

15.3% (1.9)% 11.5% (12.5)% 18.8% (0.8)%

Management Spin However, as noted earlier, management has followed a generous distribution policy that has allowed the Cornerstone funds to trade at substantial premiums to NAV except in periods of market distress. We believe that the Portfolio Manager (who manages nearly $250 million in assets) is sophisticated enough to understand the difference between an earned dividend and a return-of-capital and the real reason behind the aggressive distribution policy is to mislead investors. Managements Interests not aligned with Fund investors Despite the generous yield offered by the funds, the manager of the fund has not chosen to invest his own money alongside investors, even though he has been paid handsomely for his mediocre investment management services. A $120,000 investment pales in comparison to the nearly $9 million that has been earned in investment management fees over the past 5 year.

2007 Investment Management Fees CRF CLM CFP Total $496,035 1,306,006 389,242 2,191,283

2008 $339,439 906,969 1,006,426 2,252,834

2009 $195,144 545,334 583,494 1,323,972

2010 $496,035 531,131 538,817 1,565,983

2011 $241,064 598,937 730,851 1,570,852

Total $1,767,717 3,888,377 3,248,830 8,904,924

Dollar Range of Equity Securities in the Fund Ralph Bradshaw CRF $10k-$50k $10k-$50k CLM $10k-$50k $10k-$50k CFP $10k-$50k $10k-$50k Total Over $100k Over $100k Actual Ownership Disclosed in Recent Prospectuses CRF CLM CFP

$10k-$50k $10k-$50k $10k-$50k Over $100k Date 11/21/11 11/21/11 5/24/12

$10k-$50k $10k-$50k $10k-$50k Over $100k Shares 4,729 7,292 7,192

$10k-$50k $10k-$50k $10k-$50k Over $100k Price $6.39 7.13 5.30

$10k-$50k $10k-$50k $10k-$50k Over $100k Value $30,218 51,992 38,118 120,328

Management has effectively shut off communication with investors Cornerstone management has very poor communication with investors and there seems to be a disturbing pattern of when management decides to share an annual investment letter with investors. The Cornerstone Funds do not maintain a website, do not discuss their investment strategy or philosophy and do not take calls from investors. Calls placed to the company telephone number listed in press releases go automatically to a recorded voicemail3. When we left a message, we were contacted later that day by the Fund Administrator (Ultimus Fund Solutions) who notified us neither they nor the Cornerstone management would provide us with any investor letters, reports, commentary or other information besides what was disclosed in the regulatory filings. By contrast, the vast majority of other closed-end fund portfolio managers (including nearly all of the other funds mentioned in this report) maintain a website, provide commentary on their investment results and are accessible to investors in their respective funds. The information that the Cornerstone funds do disclose in the regulatory filings is the bare minimum, except for two instances where the portfolio manager wrote a letter to investors in 2003 and 2009. Unsurprisingly, those were two best years of the funds investment results (though in both cases, the investment results underperformed the S&P 500; the market price of the funds, however, significantly outperformed as a discount to NAV turned into a substantial premium).

The number and address listed for the fund have changed numerous times recently. The number listed on the most recent annual reports (2011, 2010) is the Cincinnati branch of the Funds Adminstrator, Ultimus Fund Solutions. The number listed on the 2009 annual report (646-881-4985) has a recording that states the number is an unattended voicemail box and provides a personal email for the Ultimus agent listed in the filing. The number listed in the 2007 and prior filings (212-272-3550) is now a JP Morgan number where the woman at the number states that she routinely gets calls for the Cornerstone Funds by mistake and she directs them to dial 800-937-5449 (which is the American Stock Transfer & Trust, the stock transfer agent & registrar for Cornerstone). Several other filings as recently as 2009 refer to another number (212-652-6155) that is not in service.

Investor Communications Letter Written to Investors? CRF CLM CFP % Return S&P 500 CRF NAV CLM NAV CFP NAV CRF Market Price (1) CLM Market Price (1) CFP Market Price

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

N N

Y Y

N N

N N

N N

N N

N N N

Y Y Y

N N N

N N N

(22.1)% (18.7)% (25.0)%

28.7% 23.2% 23.1%

10.9% 7.0% 8.7%

4.9% 1.9% 3.2%

15.8% 12.3% 12.6%

5.5% 3.8% 5.3% (1.9)% (43.2)% (31.3)%

(37.0)% (32.5)% (29.8)% (31.8)% (49.5)% (50.1)% (48.2)%

26.5% 16.6% 18.1%

15.1% 9.5% 10.0% 18.5% (3.2)% (4.9)% 3.7%

2.1% 1.1% 0.4% 0.2% (1.6)% (3.0)% 0.9%

(19.5)% (20.9)%

83.3% 78.0%

12.9% 6.7%

(5.5)% (4.6)%

50.0% 37.7%

64.4% 87.7% 62.7%

(1) Market price returns is total return include all dividends and distributions (including return of capital).

The contents of these two, intermittent and deviously timed letters is also disconcerting. The Jan 23, 2004 investor letter4 reads (selected passages):
Dear Fellow Shareholders: We present the following annual report for Cornerstone Strategic Value Fund, Inc. (the "Fund"), covering the year ended December 31, 2003. At the end of the period, the Fund's net assets were $26.6 million and the Net Asset Value ("NAV") per share was $6.90. The share price closed at $9.00 and the Fund's price discount to NAV improved from 8.7% at the beginning of the year to a premium of 30.4% at the end. After reflecting the reinvestment of monthly distributions totaling $0.99 per share, the Fund achieved a total investment return at market value of 77.7% for the year ended December 31, 2003. CREATING VALUE Under the leadership of the Board of Directors, the Fund has made substantial progress in creating value for its shareholders. A concerted effort to reduce expenses, coupled with the Fund's investment manager volunteering to waive substantial management fees, held the overall expense ratio to 1.2% for the year. As you are aware, the Fund instituted an aggressive fixed, monthly distribution policy in 2002 designed to provide significant flexibility to all of the Fund's shareholders. It is our belief that shareholders are well served by this policy that provides regular distributions whether markets are up or down. We are proud of this innovative concept and believe it has contributed significantly to the Fund's positive performance. Over the long-run, a well-managed, diversified equity portfolio provides the best risk/reward tradeoff for many investors. Longterm equity returns are generally found to be higher than those with fixed-income or balanced programs and favorable tax treatment on capital gains makes the net returns even better for taxable investors. The Fund's distribution policy recognizes that many investors are willing to accept the potentially higher asset volatility in this approach, but would prefer that stable distributions were available to them each year to either reinvest or utilize for other purposes of their choosing. PORTFOLIO PERFORMANCE The Fund's broadly diversified portfolio performed well in this year's market climb, turning in double digit performance and comparing well with its benchmark S&P 500 Index return of 28.7%. We believe that this approach has served well through both up and down markets of recent years and will continue to benefit the Fund and its stockholders for the long-term. The investment manager attempts to enhance portfolio performance by taking advantage of temporary and occasional pricing inefficiencies in certain securities. To that end, the percentage of the portfolio represented by discounted closed-end funds

http://www.sec.gov/Archives/edgar/data/33934/000090901204000168/t300864.txt

increased. The availability and magnitude of such opportunities are unpredictable, and therefore, their effect on possible portfolio out-performance may vary considerably from year to year. The Fund's Board of Directors, its officers, and its investment manager are mindful of the trust that the Fund's shareholders have placed in us. We know you have a choice, we appreciate your support, and we look forward to continuing our service to you in the future.

Likewise, the Jan 27, 2010 letter5 reads (selected passages):

Dear Fellow Shareholders: Following is the annual report for Cornerstone Strategic Value Fund, Inc., (the "Fund"), for the year ended December 31, 2009. At the end of the year, the Fund's net assets were $57.4 million and the Net Asset Value per share was $8.24. The share price closed at $11.61. After reflecting the reinvestment of monthly distributions totaling $2.09 per share, the Fund achieved a total investment return at market value of 89.55% for the year ended December 31, 2009. The Fund has maintained its policy of regular distributions to shareholders which continues to be popular with investors. These distributions are not tied to the Fund's investment income and capital gains and do not represent yield or investment return on the Fund's portfolio. The policy of maintaining regular monthly distributions is designed to enhance shareholder value by increasing liquidity for individual investors and providing greater flexibility to manage their investment in the Fund. As always, shareholders have the option of taking their distributions in cash or reinvesting them in shares of the Fund pursuant to the Fund's reinvestment plan. As you know, the Fund's holdings represent a widely diversified portfolio of predominantly large-cap companies. The large-cap sector has tended to consist of well-capitalized established companies which exhibit a greater degree of defensive strength during difficult market conditions. In addition to this, the investment manager attempts to enhance portfolio performance by taking advantage of temporary and occasional pricing inefficiencies in certain securities. The availability and magnitude of such opportunities are unpredictable, and their effect on possible portfolio performance may vary considerably from year to year. We remain confident that the Fund's portfolio is well-positioned to weather the current market volatility and to participate in the recovery when it occurs. The Fund's Board of Directors, its officers, and its investment manager are very conscious of the fact that investors have placed their trust in us. Thank you for your support. We know you have a choice, and we look forward to continuing our service to you in the future.

So after six years of giving investors the silent treatment, the only thing the portfolio manager could come up with is recycling the same passage about attempting to enhance portfolio performance by taking advantage of temporary and occasional pricing inefficiencies and thanking investors for the trust placed in the Fund? From the date of the first letter (Jan 23, 2004) to the date of the second letter (Jan 27, 2010), the experience that investors in the fund had was truly horrific on an absolute basis, even more so on a relative basis with the S&P 500 and the absolute worst compared to how the portfolio manager fared.

http://www.sec.gov/Archives/edgar/data/33934/000090901210000190/t305755.txt

Cornerstone Peformance Between Investor Letters From 1/23/04 to 1/27/10 CRF CLM S&P 500 Total Investment Management Expenses Incurred

Price Change (70.9)% (67.3)% (5.9)%

Total Return (22.1)% (7.3)% 6.2%

Annualized Return (4.1)% (1.3)% 1.0%

$2,736,101 from CRF 6,442,910 from CLM 9,179,011 Total

Cornerstones unsustainable distributions are now supported by new capital in Ponzi scheme manner For most of the past few years, the Cornerstone funds had simply paid the excess of their distributions over earned income from the capital account in the fund but that has changed recently. Cornerstone is now financing the distributions with funds directly raised by additional capital mostly through rights offerings done with existing investors. The definition of a Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation.
Distribution Financing ($ in millions) Cornerstone Total Return Fund (CRF) Net Asset Value - Beginning Net Investment Results (1) Total Dividends & Distributions Rights Offerings & Reinvested Dividends (2) Net Asset Value - Ending Expense Ratio Cornerstone Strategic Value Fund (CLM) Net Asset Value - Beginning Net Investment Results (1) Total Dividends & Distributions Rights Offerings & Reinvested Dividends (2) Net Asset Value - Ending Expense Ratio Cornerstone Progressive Return Fund (CFP) (3) Net Asset Value - Beginning Net Investment Results (1) Total Dividends & Distributions Rights Offerings & Reinvested Dividends (3) Net Asset Value - Ending Expense Ratio (4) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$39.5 (7.8) (5.1) 33.5 60.2 1.5%

$60.2 14.0 (9.3) 0.9 65.6 1.2%

$65.6 4.7 (10.0) 1.1 61.4 1.4%

$61.4 1.2 (10.3) 1.9 54.2 1.5%

$54.2 6.8 (10.7) 2.1 52.4 1.4%

$52.4 2.0 (11.2) 2.2 45.4 1.5%

$45.4 (14.9) (10.6) 1.6 21.5 1.7%

$21.5 3.6 (5.3) 0.6 20.4 2.8%

$20.4 2.0 (4.2) 7.7 25.9 2.3%

$25.9 0.4 (5.2) 14.9 36.0 1.9%

$35.3 (8.8) (1.9) (0.2) 24.4 1.8%

$24.4 5.7 (3.8) 0.3 26.6 1.2%

$26.6 12.7 (14.4) 129.8 154.7 1.3%

$154.7 5.4 (25.4) 5.0 139.7 1.2%

$139.7 17.9 (26.2) 5.0 136.3 1.2%

$136.3 7.2 (29.1) 5.8 120.3 1.2%

$120.3 (36.4) (28.1) 3.8 59.5 1.4%

$59.5 11.1 (14.5) 1.3 57.4 1.8%

$57.4 5.8 (11.8) 12.8 64.3 1.7%

$64.3 1.1 (13.1) 35.8 88.1 1.6%

$0.1 (2.5) (5.5) 139.5 131.6 1.3%

$131.6 (41.9) (23.0) 0.0 66.8 1.3%

$66.8 14.8 (23.0) 0.1 58.7 1.4%

$58.7 10.8 (14.4) 0.2 55.3 1.5%

$55.3 (1.6) (16.1) 40.9 78.4 1.3%

(1) Net investment income and realized and unrealized gains and losses. (2) CRF 2002 and CLM 2004 reflect assets associated in merger with other investment vehicles. (3) CFP from inception in Sept 2007 and reflects IPO and secondary offering in 2007. (4) CFP's expense ratio does not include expenses of investment companies in which the fund invests. The ratio becomes 2.51% once those fees are included.

The Cornerstone funds can most aptly be labeled Ponzi schemes now. The most obvious answer as to why Cornerstone management has resorted to this is because it appears that the aggregate assets of the operations were decreasing to the point where it became more difficult to absorb the compensation expenses for the portfolio manager (which are by far the largest expenses of the operation).

Statement of Operations - 2011 Investment Income Investment Management Fees Director's Fees Administration Fees Legal & Audit Fees Accounting Fees Printing Transfer Agent Custodian Fees Insurance Stock Exchange Listing Fees Misc. Net Investment Income Investment Management (% of Total Exp)

CRF $527,276 (241,064) (52,698) (36,917) (35,412) (29,801) (27,782) (13,000) (6,802) (4,330) (3,000) (2,964) $73,506 53.1%

CLM $1,514,992 (598,937) (101,700) (59,893) (47,170) (42,157) (32,898) (18,428) (9,820) (7,795) (7,278) (3,800) $585,116 64.4%

CFP $2,552,528 (730,851) (77,031) (73,103) (46,340) (47,502) (27,902) (16,553) (22,909) (9,760) (4,181) 108,053 $1,604,449 77.1%

Indeed, the Cornerstone funds outline the expense absorption as one of the primary reasons for the rights offerings now. From the May 24, 2012 prospectus6 for the Cornerstone Progressive Total Return Fund offering, it states:
The Board of Trustees of the Fund has determined that it would be in the best interests of the Fund and its Shareholders to increase the assets of the Fund. The primary reasons include: The Basic Subscription will provide existing Shareholders 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. Increasing the Funds assets will provide the Fund additional flexibility in maintaining the Distribution Policy (see discussion below), which seeks to provide Shareholders a predictable level of cash flow and some liquidity periodically with respect to their Shares without having to sell Shares. Increasing Fund assets may lower the Funds expenses as a proportion of net assets because the Funds fixed costs would be spread over a larger asset base. There can be no assurance that by increasing the size of the Fund, the Funds expense ratio will be lowered. Because the Offering will increase the Funds outstanding Shares, it may increase the number of Shareholders 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 MKT. The Offering is expected to be anti-dilutive to all Shareholders, including those electing not to participate, because 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 Shareholders will receive an increase in their net asset value, so long as the number of Shares issued to participating Shareholders is not materially less than a full exercise of the Basic Subscription amount.

The terms of the rights offering are indeed unusual (unfortunately not to the benefit of the investor). The prospectus states that the actual subscription price per share, as determined on the Expiration Date, will be the greater of (i) 107% of the net asset value per share as calculated at the close of trading on the Expiration Date and (ii) 90% of the market price per share at such time (emphasis added). Cornerstone management is rather astute in structuring the transaction in this manner (as opposed to most rights offerings which are done at a material discount) because they know that their fund trades at a premium and by adding the greater of qualifier to a premium-of-NAV clause, they ensure that the new capital will be NAV accretive. Management can then state that the rights offering may provide shareholders with the opportunity to purchase shares that are potentially below market value and that the offering is anti-dilutive.
6

http://www.sec.gov/Archives/edgar/data/1399186/000139834412001936/fp0004938_497.htm

10

We believe that the sole purpose of the rights offerings is to facilitate the distribution policy and to absorb the expenses and compensation of the portfolio manager. None of the other funds we have come across with managed distribution policies have used rights offerings7 to fund their distributions in the manner that Cornerstone has. Of course, one could argue that managing nearly $250 million requires a lot of work and that Mr. Bradshaw has earned his compensation. Perhaps, but the lack of investor letters, commentary, websites or other signs of investment research, along with the lack of transparency on the size of the investment team adds doubt to that claim. Additionally, a detailed look at the construction of the Cornerstone portfolios suggest that the investment approach may be less actively managed than the compensation may imply. Comparing the holdings of the Cornerstone Total Return Fund and the Cornerstone Strategic Value Fund with the market weightings of the S&P 500 shows a remarkably similar portfolio except one is essentially free and the other two come with nearly 2% expense ratios and must be purchased at premiums to the underlying holdings.
Top 10 Holdings S&P 500 1 2 3 4 5 6 7 8 9 10 Top 10 AAPL XOM MSFT IBM GE T CVX JNJ KO WFC % 4.4% 3.2% 1.9% 1.8% 1.8% 1.7% 1.7% 1.5% 1.4% 1.4% 20.9% CRF AAPL XOM WMT MSFT IBM CVX GOOG JNJ PM Cl. End Fund % 4.5% 3.5% 2.7% 2.6% 2.6% 2.2% 1.8% 1.6% 1.5% 1.5% 24.5% CLM Cl. End Fund AAPL XOM Cl. End Fund Cl. End Fund MSFT WMT CVX GOOG Cl. End Fund % 3.9% 3.6% 3.6% 3.4% 3.0% 2.6% 2.0% 1.9% 1.8% 1.8% 27.6% CFP Cl. End Fund Cl. End Fund Cl. End Fund Cl. End Fund Cl. End Fund Cl. End Fund Cl. End Fund Cl. End Fund Cl. End Fund Cl. End Fund % 4.9% 4.8% 4.8% 4.6% 4.0% 3.2% 3.2% 3.0% 3.0% 3.0% 38.5%

The Cornerstone Progressive Value Fund is different, however, in many respects. For one, it is the newest of the funds, having come public in Sept 2007. The timing of the offering is important. In 2004, the SEC issued a moratorium on new offerings of managed distribution closed-end funds due to concerns around investor disclosure and understanding, though existing closed-end funds were able to maintain their managed distribution policies. The mutual fund industry lobbied against this uneven playing field that disadvantaged new funds and eventually the SEC began granting exemptions to the rule. The other notable difference is that 93% of the assets of the fund are invested in other closed-end funds. At first, it may appear that this is simply an intelligent arbitrage strategy that seeks to invest in assets trading below their NAV. However, a more nuanced (and skeptic) view of the matter suggests another explanation.
7

The Gabelli Equity Trust did conduct a recent rights offering, but for the preferred shares in the closed end fund, not the common shares. Additionally, the rights offering was done at a fixed price and the prospectus offered much more detailed information and a contact number for more information (800-GABELLI): http://www.sec.gov/Archives/edgar/data/794685/000119312512278756/d370639d497.htm

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The closed-end funds selected by the Cornerstone Progressive Value Fund are predominantly other managed distribution funds which like the Cornerstone funds provide a substantial yield that does not come from income or dividends.
Cornerstone Progressive Return Fund - Top 10 Holdings % of CFP Port. 1 2 3 4 5 6 7 8 9 10 EXG ETJ ETW ETY ETV CII EOS CAF BDJ EOI Eaton Vance Tax-Managed Global Diversified Equity Income Fund Eaton Vance Risk-Managed Diversified Equity Income Fund Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund Eaton Vance Tax-Managed Diversified Equity Income Fund Eaton Vance Tax-Managed Buy-Write Opportunities Fund BlackRock Enhanced Capital & Income Fund, Inc. Eaton Vance Enhanced Equity Income Fund II Morgan Stanley China A Share Fund, Inc. BlackRock Enhanced Equity Dividend Trust Eaton Vance Enhanced Equity Income Fund 4.9% 4.8% 4.8% 4.6% 4.0% 3.2% 3.2% 3.0% 3.0% 3.0% 38.5% NAV Premium / (Discount) (16.0)% (16.0)% (14.8)% (15.4)% (11.5)% (7.7)% (12.7)% (10.9)% (11.5)% (13.6)% Total Yield 13.7% 12.4% 11.6% 12.7% 10.8% 11.4% 10.5% 12.1% 9.6% 10.4% Earned Yield 1.7% 0.6% 1.5% 1.0% 0.7% 2.4% 0.3% 0.0% 1.9% 0.5% Return of Capital 12.0% 11.8% 10.1% 11.6% 10.1% 9.0% 10.3% 12.1% 7.6% 9.9%

The interesting aspect of this investment strategy is that it allows the Cornerstone Progressive Fund to report the entire yield on their investment as either investment income, net realized capital gains or capital gains distributions from regulated investment companies. Importantly, all three classifications allow Cornerstone to label the distributions as income when they turn around and distribute it to their investors. For that reason, the characterization of the distributions from Cornerstone Progressive Value appears to be much more heavily weighted towards net investment income than the other two funds.
2011 Distribution Characteristics Net Investment Income Net Realized Capital Gains Return of Capital Total Dividends & Distributions CRF 1.5% 0.0% 98.5% 100.0% CLM 8.5% 0.0% 91.5% 100.0% CFP 49.2% 0.0% 50.8% 100.0%

It is rather ironic that the source that allows the Cornerstone Progressive Fund to trade at a substantial premium to NAV is a handful of managed distribution funds8 that trade at substantial discounts to their own NAV (perhaps, as discussed earlier, because those funds have a significant institutional investor base that is aware of the nature of the distributions). Notwithstanding the fact that the Progressive Fund has found an interesting loophole to exploit, all three funds have become increasingly reliant on capital markets access to maintain their distributions and asset base. Like other Ponzi schemes, the dilution accelerates as the asset base declines but the promised investment returns and distributions are maintained.

We do not have a problem with managed distribution policies, per se. For example, the ten funds listed here appear to conduct themselves with genuine effort in their research operations, maintaining active investor communication and being transparent about their distribution policy. We do have an issue with managers who deceive and seek to manipulate their investors, however.

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Share Count (in millions) Ending 2008 Rights Offering Reinvestment of Dividends Ending 2009 Rights Offering Reinvestment of Dividends Ending 2010 Rights Offering Reinvestment of Dividends Ending 2011 Rights Offering Dilution - 2009 Rights Offering Dilution - 2010 Rights Offering Dilution - 2011 Rights Offering Dilution - 2012 YTD Rights Offering Date of Latest Rights Offering

CRF 2.8 0.1 2.8 1.0 0.1 3.9 2.6 0.1 6.6 0% 35% 67% 0% -

CLM 6.8 0.1 7.0 1.4 0.1 8.5 5.7 0.1 14.4 0% 21% 67% 0% -

CFP 9.3 0.0 9.3 0.0 9.4 6.3 0.1 15.7 0% 0% 67% 34% 5.3 5/22/12

Increased regulatory and investor scrutiny could help prevent further harm to fund investors The SEC has had mixed views on managed distribution policies and the appropriate disclosures that need to be shared with investors. While there has been some recent commentary about the need to prevent abuses and protect investors9 in managed distribution funds, we believe that the SEC should specifically investigate the Cornerstone Funds because of the unique, aggressive and opaque nature of their operations. Not all managed distribution funds are deceitful but the Cornerstone Funds appear to be. In addition to increased regulatory scrutiny, increased investor awareness about managed distribution funds would help to prevent further abuses. Personal finance publications, magazines, newspapers and other media also have a responsibility in educating the investing public about the risks and merits of a managed distribution policy and to the extent that they see fit, the risks associated with Cornerstone Funds.

http://www.sec.gov/news/speech/2011/spch111711epr.htm#P27_7899

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Financial Details:
Summary Financials (per share) Cornerstone Total Return Fund (CRF) (1) Operating Performance NAV Per Share - Beginning Net Investment Income Net Realized & Unrealized Gain Net Increase in NAV from Operations % Return Dividends & Distributions Net Investment Income Net Realized Capital Gains Return of Capital Total Dividends & Distributions Total Yield on Beginning NAV "Earned" Dividend Yield on Beginning NAV Common Stock Transactions Rights Offerings Reinvestment of Dividends & Distributions Total Stock Transactions NAV Per Share - Ending Ending Price Premium / Discount Expense Ratio Investment Management Service Expenses ($) Dollar Range of Equity Securities in the Fund in 2011 (1) Historical numbers reflect 1:2 reverse split in 2008.

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

36.60 0.30 (7.14) (6.84) (18.7)%

25.78 0.16 5.82 5.98 23.2%

27.78 0.20 1.74 1.94 7.0%

25.56 0.12 0.36 0.48 1.9%

21.82 0.18 2.50 2.68 12.3%

20.28 0.14 0.64 0.78 3.8%

17.00 0.12 (5.64) (5.52) (32.5)%

7.75 (0.02) 1.31 1.29 16.6%

7.19 0.68 0.68 9.5%

6.65 0.02 0.05 0.07 1.1%

(0.36) (3.60) (3.96) 10.8% 1.0%

(0.16) (3.82) (3.98) 15.4% 0.6%

(0.20) (4.02) (4.22) 15.2% 0.7%

(0.12) (4.10) (4.22) 16.5% 0.5%

(0.18) (4.04) (4.22) 19.3% 0.8%

(0.14) (0.06) (4.08) (4.28) 21.1% 1.0%

(0.12) (3.77) (3.89) 22.9% 0.7%

(1.90) (1.90) 24.5% 0.0%

(1.46) (1.46) 20.3% 0.0%

(0.02) (1.32) (1.34) 20.2% 0.3%

(0.01) (0.01) 25.79 22.70 (12.0)% 1.5%

27.78 35.90 29.2% 1.2% 609,416

0.03 0.03 25.53 35.90 40.6% 1.4% 618,101

21.82 29.30 34.3% 1.5% 565,218

20.28 39.24 93.5% 1.4% 522,164

0.22 0.22 17.00 19.60 15.3% 1.5% 496,035

0.16 0.16 7.75 7.60 (1.9)% 1.7% 339,439

0.05 0.05 7.19 10.29 43.1% 2.8% 195,144

0.19 0.05 0.24 6.65 7.88 18.5%

0.06 0.03 0.09 5.47 5.97 9.1%

2.3% 1.9% 496,035 241,064 $10,001 - $50,000

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Cornerstone Strategic Value Fund (CLM) (1) (per share) Operating Performance NAV Per Share - Beginning Net Investment Income Net Realized & Unrealized Gain Net Increase in NAV from Operations % Return Dividends & Distributions Net Investment Income Net Realized Capital Gains Return of Capital Total Dividends & Distributions Total Yield on Beginning NAV "Earned" Dividend Yield on Beginning NAV Common Stock Transactions Rights Offerings Reinvestment of Dividends & Distributions Total Stock Transactions NAV Per Share - Ending Ending Price Premium / Discount Expense Ratio Investment Management Service Expenses ($) Dollar Range of Equity Securities in the Fund in 2011 (1) Historical numbers reflect 1:4 reverse split in 2008.

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

36.80 (0.04) (9.16) (9.20) (25.0)%

25.64 0.16 5.76 5.92 23.1%

27.60 0.20 2.20 2.40 8.7%

25.92 0.12 0.72 0.84 3.2%

22.60 0.20 2.64 2.84 12.6%

21.28 0.16 0.96 1.12 5.3%

18.12 0.15 (5.55) (5.40) (29.8)%

8.71 0.06 1.52 1.58 18.1%

8.24 0.06 0.76 0.82 10.0%

7.55 0.07 (0.04) 0.03 0.4%

(2.00) (2.00) 5.4% 0.0%

(0.16) (3.80) (3.96) 15.4% 0.6%

(0.20) (3.96) (4.16) 15.1% 0.7%

(0.16) (4.00) (4.16) 16.0% 16.0%

(0.16) (4.00) (4.16) 18.4% 0.7%

(0.16) (1.32) (3.00) (4.48) 21.1% 7.0%

(0.15) (4.01) (4.16) 23.0% 0.8%

(0.06) (2.03) (2.09) 24.0% 0.7%

(0.07) (1.61) (1.68) 20.4% 0.8%

(0.13) (1.40) (1.53) 20.3% 1.7%

0.02 (0.01) 0.01 25.61 23.40 (8.6)% 1.8%

27.60 36.00 30.4% 1.2% 246,113

0.08 0.08 25.92 34.04 31.3% 1.3% 885,527

22.60 28.20 24.8% 1.2% 1,446,817

21.28 33.80 58.8% 1.2% 1,352,257

0.20 0.20 18.12 20.20 11.5% 1.2% 1,306,006

0.15 0.15 8.71 7.62 (12.5)% 1.4% 906,969

0.04 0.04 8.24 11.61 40.9% 1.8% 545,334

0.13 0.04 0.17 7.55 8.84 17.1%

0.05 0.03 0.08 6.13 6.59 7.5%

1.7% 1.6% 531,131 598,937 $10,001 - $50,000

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Cornerstone Progressive Return Fund (CFP) (per share) Operating Performance NAV Per Share - Beginning Net Investment Income Net Realized & Unrealized Gain Net Increase in NAV from Operations % Return Dividends & Distributions Net Investment Income Net Realized Capital Gains Return of Capital Total Dividends & Distributions Total Yield on Beginning NAV "Earned" Dividend Yield on Beginning NAV Common Stock Transactions Rights Offerings Reinvestment of Dividends & Distributions Total Stock Transactions NAV Per Share - Ending Ending Price Premium / Discount Expense Ratio Investment Management Service Expenses ($) Dollar Range of Equity Securities in the Fund in 2011

Inception (9/10/2007) to 2007

2008

2009

2010

2011

14.96 0.06 (0.35) (0.29) (1.9)%

14.10 0.16 (4.64) (4.48) (31.8)%

7.16 0.16 1.42 1.58 22.1%

6.28 0.13 1.03 1.16 18.5%

5.90 0.12 (0.11) 0.01 0.2%

(0.06) (0.15) (0.41) (0.62) 4.1% 1.4%

(0.16) (2.30) (2.46) 17.4% 1.1%

(0.16) (2.30) (2.46) 34.4% 2.2%

(1.14) (0.40) (1.54) 24.5% 18.2%

(0.61) (0.63) (1.24) 21.0% 10.3%

0.05 0.05 14.10 16.75 18.8% 1.3% 389,242

7.16 7.10 (0.8)% 1.3% 1,006,426

6.28 8.90 41.7% 1.4% 583,494

5.90 7.46 26.4%

0.31 0.02 0.33 5.00 6.04 20.8%

1.5% 1.3% 538,817 730,851 $10,001 - $50,000

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