In 2003, the SEC adopted Rule 206(4)-6 which states that it is a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of section 206(4) of the Act for an investment adviser to exercise voting authority with respect to client securities, unless:
When Do These Procedures Apply
Cornerstone applies these policies and procedures when it has either discretionary authority on an account (and proxy voting has not been otherwise delegated) or when it has specifically agreed in writing with the client to exercise proxy voting authority over the client's securities. The rule does not apply, however, in instances where Cornerstone provides clients with advice about voting proxies but does not have authority to vote the proxies.
How Cornerstone Votes Client Proxies
Cornerstone will designate authorized persons from time to time who will have the authority to sign proxies. The designated person will always vote proxies in the best economic interest of the client. However, the designated person can consider other factors by agreement with the client or to comply with statutory requirements.
One of the primary factors Cornerstone considers when determining the desirability of investing in a particular company is the quality and depth of that company's management. Accordingly, the recommendation of a company's management on any issue is a factor that Cornerstone considers in determining how proxies should be voted. However, Cornerstone does not consider recommendations from management to be determinative of Cornerstone's ultimate decision. As a matter of practice, the votes with respect to most issues are cast in accordance with the position of the company's management. Each issue, however, is considered on its own merits, and Cornerstone will not support the position of a company's management in any situation where it determines that the ratification of management's position would adversely affect the investment merits of owning that company's shares.
Resolving Conflicts of interest
In the event that Cornerstone may have a potential conflict of interest in voting proxies, it will disclose such conflict to the client and obtain consent before voting. If consent is not granted, Cornerstone will abstain from voting and notify the client in writing.
Upon request, either written or verbal, Cornerstone must disclose to clients the actual proxy votes cast on the client's behalf. Cornerstone will disseminate this information via email, fax, or mail.
Upon request, either written or verbal, Cornerstone must provide clients with a copy of these proxy voting policies and procedures, either via email, fax, or mail.
Cornerstone discloses to its clients annually how a client can obtain a copy of the Adviser's proxy voting policy, and how the client can obtain information on how its securities were voted. This disclosure is included in the yearly Offering Memorandum document sent to all clients. A copy of this document is saved under H:\Compliance\Supervisory Activity\Annual Supervisory Activities\Annual Offer.
All proxy-related records must be maintained for five years, at the principal place of business for at least the first two and optionally at an off-site storage facility for the remaining three years. The following documents are retained by Cornerstone: (i) proxy voting policies and procedures; (ii) proxy statements received regarding client securities; (iii) records of votes cast on behalf of clients; (iv) records of client requests for proxy voting information and Cornerstone's response (including written notification of a conflict of interest and subsequent recourse), and (v) any documents prepared by Cornerstone that were material to making a decision how to vote, or that memorialized the basis for the decision.