Cornerstone Funds Announce Continuing Monthly Distributions and Change in March 2024 Payable Date
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Insights
When assessing the distribution declarations by Cornerstone Strategic Value Fund, Inc. and Cornerstone Total Return Fund, Inc., it is crucial to understand the mechanics behind closed-end funds (CEFs) and their distribution policies. CEFs typically trade on an exchange and can offer distributions composed of income, capital gains, or return-of-capital. A return-of-capital distribution, while not immediately taxable, reduces an investor's cost basis, which can have tax implications upon sale of the shares.
These funds' policies to reset distribution amounts based on net asset value (NAV) can lead to variability in the income stream, which could impact investor sentiment and fund attractiveness. The announcement that a portion of distributions may be a return-of-capital indicates that the funds may not be generating enough income or capital gains to cover distributions, which can be a red flag for potential asset depletion over time. This could affect the funds' long-term sustainability and might prompt investors to re-evaluate the funds' health and management strategies.
CEFs like CLM and CRF can provide investors with liquidity and regular income, which can be particularly appealing in volatile markets. However, the reliance on return-of-capital distributions suggests that the funds' portfolios may not be performing at a level that supports the distributions solely through investment income and realized gains. Investors often look for CEFs that can sustain distributions through income and gains, as this indicates a stronger portfolio performance.
Additionally, the funds' ability to invest in other investment companies introduces a layer of fees that can potentially erode returns. This, combined with the fact that CEFs often trade at a discount to NAV, requires a nuanced understanding of the funds' intrinsic value versus market price. For shareholders, the option to reinvest distributions or receive cash provides flexibility but also necessitates a closer look at the potential dilutive effect of reinvestment plans on the value of existing shares.
From a tax perspective, distributions designated as return-of-capital are not subject to immediate taxation but affect the stockholder's cost basis. This can be advantageous in the short term but requires careful tax planning to understand the long-term implications, especially when considering the eventual sale of the shares. The tax-reporting information provided by the funds after year-end will be critical for shareholders to determine the exact tax treatment of the distributions received.
Given the complexity of taxation in relation to investment funds, particularly those that return capital to shareholders, it is important for investors to consult with tax professionals to ensure compliance and optimize tax strategies in line with their investment objectives.
NEW YORK, Feb. 12, 2024 (GLOBE NEWSWIRE) -- Cornerstone Strategic Value Fund, Inc. (NYSE American: CLM) (CUSIP: 21924B302) and Cornerstone Total Return Fund, Inc. (NYSE American: CRF) (CUSIP: 21924U300), (individually the “Fund” or, collectively, the “Funds”), each a closed-end management investment company, announced that in keeping with each Fund’s previously adopted monthly distribution policy, each Fund is declaring the following distributions.
| Record Date | Payable Date | Per Share | ||
| CLM | April 15, 2024 | April 30, 2024 | ||
| CLM | May 15, 2024 | May 31, 2024 | ||
| CLM | June 14, 2024 | June 28, 2024 | ||
| CRF | April 15, 2024 | April 30, 2024 | ||
| CRF | May 15, 2024 | May 31, 2024 | ||
| CRF | June 14, 2024 | June 28, 2024 | ||
In addition, the March 2024 monthly distribution payable date has been changed to March 28, 2024. The record date of March 15, 2024 and the per share amounts previously reported are unchanged.
Each Fund’s distribution policy provides for the resetting of the monthly distribution amount per share (“Distribution Amount”) annually, based on each Fund’s net asset value on the last business day of October and the annualized distribution percentage approved by the respective Board of Directors (individually the “Board”, or collectively, the “Boards”).
Each Board believes each Fund’s distribution policy maintains a stable, high rate of distribution. These distributions are not tied to each Fund’s investment income or capital gains and do not represent yield or investment return on each Fund’s portfolio. The Distribution Amount from one calendar year to the next will increase or decrease based on the change in each Fund’s net asset value. The terms of each distribution policy are reviewed and approved at least annually by each Fund’s Board and may be modified at their discretion for the benefit of each Fund and its stockholders.
Each Fund’s Board remains convinced its stockholders are well served by a policy of regular distributions which increase liquidity and provide flexibility to individual stockholders in managing their investment in each Fund. Stockholders have the option of reinvesting these distributions in additional shares of their Fund or receiving them in cash. Stockholders may consider reinvesting their regular distributions through their Fund’s dividend reinvestment plan, which may at times provide additional benefit to stockholders who participate in their Fund’s plan. Stockholders should carefully read the description of the dividend reinvestment plan contained in each Fund's report to stockholders.
Under each Fund’s distribution policy, each Fund may distribute to stockholders each month a minimum fixed percentage per year of the net asset value or market price per share of its common stock or at least a minimum fixed dollar amount per year. In determining to adopt this policy, the Board of each Fund sought to make regular monthly distributions throughout the year. Under each policy, each Fund’s distributions will consist either of (1) earnings, (2) capital gains, or (3) return-of-capital, or some combination of one or more of these categories. A return-of-capital is the return of a portion of the stockholder’s original investment.
Given the current economic environment and the composition of each Fund’s portfolio, a portion of each Fund’s distributions made during the current calendar year is expected to consist of a return of the stockholder’s capital. Accordingly, these distributions should not be confused with yield or investment return on each Fund’s portfolio. The final composition of the distributions for 2024 cannot be determined until after the end of the year and is subject to change depending on market conditions during the year and the magnitude of income and realized gains for the year.
In any given year, there can be no guarantee each Fund’s investment returns will exceed the amount of the net distributions. To the extent the amount of distributions paid to stockholders in cash exceeds the total net investment returns of the Fund, the assets of a Fund will decline. If the total net investment returns exceed the amount of cash distributions, the assets of a Fund will increase. Distributions designated as return-of-capital are not taxed as ordinary income dividends and are referred to as tax-free dividends or nontaxable distributions. A return-of-capital distribution reduces the cost basis of a stockholder’s shares in the Fund. Stockholders can expect to receive tax-reporting information for 2024 distributions by the middle of February 2025 indicating the exact composition per share of the distributions received during the calendar year. Stockholders should consult their tax advisor for proper tax treatment of each Fund’s distributions.
Volatility in the world economy helps to create what Cornerstone Advisors, LLC (the “Adviser”) views as significant opportunities through investments in closed-end funds. In addition to holding closed-end funds which invest substantially all of their assets in equity securities, the Adviser may also choose to take advantage of situations in funds which invest in fixed income or other investment categories. Closed-end funds, with their broadly diversified holdings, enhance diversification within each Fund’s portfolio.
Investing in other investment companies involves substantially the same risks as investing directly in the underlying instruments, but the total return on such investments at the investment company level is reduced by the operating expenses and fees of such other investment companies, including advisory fees. To the extent each Fund invests 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 their proportionate share of the expenses of a Fund, but also, indirectly the expenses of the purchased investment company. There can be no assurance the investment objective of any investment company in which a Fund invests will be achieved.
Under the managed distribution policy, each Fund makes monthly distributions to stockholders at a rate which may include periodic distributions of its net income and net capital gains (“Net Earnings”), or from return-of-capital. If, for any fiscal year where total cash distributions exceeded Net Earnings (the "Excess"), the Excess would decrease each Fund's total assets and, as a result, would have the likely effect of increasing each Fund's expense ratio. There is a risk the total Net Earnings from each Fund’s portfolio would not be great enough to offset the amount of cash distributions paid to Fund stockholders. If this were to occur, a Fund’s assets would be depleted, and there is no guarantee a Fund would be able to replace the assets. In addition, in order to make such distributions, a Fund may have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such action. Furthermore, such assets used to make distributions will not be available for investment pursuant to the Fund’s investment objective.
Each Fund’s Board has previously approved a share repurchase program. The share repurchase program authorizes management to make open market purchases, from time to time. Such purchases may be made opportunistically at certain discounts to net asset value per share when management reasonably believes such repurchases may enhance stockholder value. There is no assurance each Fund will purchase any shares or the share repurchase program will have an impact on the liquidity or value of the respective Fund or the Fund’s shares. To the extent each Fund engages in share repurchase activity, such activity will be disclosed in each Fund’s stockholder reports for the relevant fiscal period.
Cornerstone Strategic Value Fund, Inc. and Cornerstone Total Return Fund, Inc. are traded on the NYSE American LLC under the trading symbols “CLM” and “CRF”, respectively. For more information regarding each Fund please visit www.cornerstonestrategicvaluefund.com and www.cornerstonetotalreturnfund.com.
Past performance is no guarantee of future performance. An investment in a Fund is subject to certain risks, including market risk. In general, shares of closed-end funds often trade at a discount from their net asset value and at the time of sale may be trading on the exchange at a price which is more or less than the original purchase price or the net asset value. A stockholder should carefully consider a Fund’s investment objective, risks, charges and expenses. Please read a Fund’s disclosure documents before investing.
In addition to historical information, this release contains forward-looking statements, which may concern, among other things, domestic and foreign markets, industry and economic trends and developments and government regulation and their potential impact on a Fund’s investment portfolio. These statements are subject to risks and uncertainties, including the factors set forth in each Fund’s disclosure documents, filed with the U.S. Securities and Exchange Commission, and actual trends, developments and regulations in the future, and their impact on the Fund could be materially different from those projected, anticipated or implied. Each Fund has no obligation to update or revise forward-looking statements.
FAQ
What are the record and payable dates for CLM's distributions in April, May, and June 2024?
What is the distribution amount per share for CLM in April, May, and June 2024?
What is the distribution policy reset based on for each Fund?
What are the types of distributions under each Fund's policy?
What are the risks associated with stockholders receiving distributions exceeding Net Earnings?
