N-30D 1 t24625.txt SEMI ANNUAL REPORT 6/30/02 ================================================================================ PROGRESSIVE RETURN FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 2002 ================================================================================ CONTENTS Letter to Shareholders .................................................... 1 Portfolio Summary ......................................................... 3 Schedule of Investments ................................................... 4 Statement of Assets and Liabilities ....................................... 8 Statement of Operations ................................................... 9 Statement of Changes in Net Assets ........................................ 10 Financial Highlights ...................................................... 11 Notes to Financial Statements ............................................. 12 Results of Annual Meeting of Stockholders ................................. 16 Description of Dividend Reinvestment & Cash Purchase Plan ................. 17 Summary of General Information ............................................ 19 Shareholder Information ................................................... 19 Privacy Policy Notice ..................................................... 20 ================================================================================ LETTER TO SHAREHOLDERS July 26, 2002 Dear Fellow Shareholder: Our semi-annual report for Progressive Return Fund, Inc. (the "Fund"), covering the six months ended June 30, 2002 follows. At the end of the period, the Fund's net assets were $28.5 million and the Net Asset Value ("NAV") per share was $24.80. The share price on the New York Stock Exchange closed at $23.40, representing a discount to NAV of 5.65%. The Fund's total return investment approach added several fixed-income positions to the broadly diversified equity holdings in the portfolio. ECONOMIC AND MARKET SUMMARY The first half of 2002 was marked by a continued retreat from the highs of 2000. Stocks finished flat for the first quarter, only to resume the decline through the second quarter and retest the lows set in the near panic selling immediately following the September 11th tragedy. With concerns surrounding the war on terrorism, earnings disappointments, loss of stock analyst credibility, and reports of corporate malfeasance, investors' increasing pessimism was reflected in the market slide. Not surprisingly, global investors reacted by shifting their emphasis away from the falling U.S. market. The U.S. dollar also staged a substantial retreat against the euro and the yen. In dollar terms, this strengthened the generally flat performance of equities in Japan and dampened the broad market declines in Europe. The relative benefit for these markets may be short-lived, however, as the export components of these same economies face more competitive U.S. suppliers at home and abroad. Short-term interest rates remained steady throughout the period as the Federal Reserve held their benchmark rate at a low 1.75%, in contrast to the multiple rate cuts in 2001. Weak expectations for bonds were overcome by the negative sentiment in the equity markets that drove many to seek safer investments. PORTFOLIO PERFORMANCE For the first half of 2002, the Fund posted a (13.31)% total return on NAV as compared with the S&P 500 Index return of (13.15)%. While there was some variation among sectors, stocks finished the first quarter essentially flat. They maintained some balance as the positives in energy, consumer staples and materials offset declines in technology and telecommunications. During the second quarter, however, most sectors bowed to overwhelming market pressures. Energy and materials finished the half holding slight gains for the year, but technology and telecommunications suffered additional declines of more than 20% for the quarter. This left them with substantial negatives for the period as scandal complicated a difficult quarter for business. OUTLOOK Cautious optimism describes our view for the remainder of the year. The economy shows signs of a modest recovery even as terrorism concerns continue and consumer confidence remains weak. Retail sales have increased. Earnings comparisons are beginning to look better. Encouraging data for manufacturers shows that the sharp declines in the rate of capital spending for 2001 are turning favorably for 2002. Letter to Shareholders (concluded) ================================================================================ 1 LETTER TO SHAREHOLDERS (concluded) U.S. exporters look forward to opportunities for growth as the falling dollar makes their products increasingly competitive. Low mortgage rates have helped keep the U.S. housing market strong and personal income growth compares favorably to the rate of inflation. Our economy is still strong and growing, despite the interruption of a mild recession. The Federal Reserve (the "Fed") and others in the government aim to keep the fragile recovery going until the economy can stand on its own. Time has proven that betting against the Fed is unprofitable. Market uncertainty creates investment opportunity as thankfully few of the most-feared scenarios actually occur. In the short-term, larger companies often benefit most from a falling dollar as their competitive positions improve. They also benefit as safety concerns lead investors to the relative stability of size. We expect large-cap U.S. stocks, which have been under pressure since 2000, to provide attractive returns on a risk/reward basis over the longer-term. SEEKING TO PRODUCE VALUE We are working to provide value to our shareholders. Recently, additional steps have been taken to benefit the owners of our Fund. On June 25, 2002, the Board approved a monthly distribution policy with a fixed payout. These distributions allow shareholders to receive substantial portions of their investment in cash or to continue their holdings in the Fund's stock by reinvesting in new shares. This policy gives flexibility to our owners and we believe that it will have a continuing positive influence on the level of the Fund's discount to NAV. Over the past year, diligent attention to Fund expenses has reduced them substantially. In addition, Cornerstone Advisors, Inc., the Fund's investment manager, has voluntarily agreed to waive a substantial portion of its management fees to the extent that monthly operating expenses exceed 0.10%. This effort demonstrates how seriously the investment manager views keeping expenses under control and will result in a lower expense ratio than would otherwise be the case. In pursuing the goal of lowering costs, the Board is also studying the possibility of merger among other closed-end funds affiliated with the investment manager to further reduce expenses. We believe that these steps will help control the discount and lead to our Fund having one of the lowest expense ratios among comparable closed-end funds. 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. Sincerely, /s/ RALPH W. BRADSHAW --------------------- Ralph W. Bradshaw Chairman ================================================================================ 2 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. PORTFOLIO SUMMARY - AS OF JUNE 30, 2002 (UNAUDITED) -------------------------------------------------------------------------------- TOP TEN SECTORS Percent of Sector Net Assets -------------------------------------------------------------------------------- 1 Financials 15.7 -------------------------------------------------------------------------------- 2 Healthcare 13.3 -------------------------------------------------------------------------------- 3 Consumer Discretionary 13.3 -------------------------------------------------------------------------------- 4 Information Technology 12.2 -------------------------------------------------------------------------------- 5 Industrials 10.6 -------------------------------------------------------------------------------- 6 Consumer Staples 8.5 -------------------------------------------------------------------------------- 7 Energy 7.5 -------------------------------------------------------------------------------- 8 U.S. Government Obligations 5.1 -------------------------------------------------------------------------------- 9 Telecommunication Services 4.2 -------------------------------------------------------------------------------- 10 Materials 3.0 -------------------------------------------------------------------------------- TOP TEN HOLDINGS, BY ISSUER Percent of Holding Sector Net Assets -------------------------------------------------------------------------------- 1. U.S. Treasury Notes U.S. Government Obligations 5.1 -------------------------------------------------------------------------------- 2. Microsoft Corp. Information Technology 3.3 -------------------------------------------------------------------------------- 3. General Electric Co. Industrials 2.9 -------------------------------------------------------------------------------- 4. Exxon Mobil Corp. Energy 2.8 -------------------------------------------------------------------------------- 5. John Hancock Bank & Thrift Opportunity Fund Closed-End Domestic Funds 2.8 -------------------------------------------------------------------------------- 6. Wal-Mart Stores, Inc. Consumer Discretionary 2.6 -------------------------------------------------------------------------------- 7. Citigroup Inc. Financials 2.2 -------------------------------------------------------------------------------- 8. Merck & Co., Inc. Healthcare 1.9 -------------------------------------------------------------------------------- 9. Pfizer Inc. Healthcare 1.9 -------------------------------------------------------------------------------- 10. Johnson & Johnson Healthcare 1.8 -------------------------------------------------------------------------------- ================================================================================ 3
-------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - JUNE 30, 2002 (UNAUDITED) -------------------------------------------------------------------------------- No. of Value Description Shares (Note A) -------------------------------------------------------------------------------- EQUITY SECURITIES - 93.98% CLOSED-END DOMESTIC FUNDS - 2.77% John Hancock Bank & Thrift Opportunity Fund ...... 92,600 $ 788,026 ---------- CONSUMER DISCRETIONARY - 13.34% AOL Time Warner Inc.+ ............................ 14,250 209,618 Bed, Bath & Beyond Inc.+ ......................... 1,300 49,062 Best Buy Co., Inc.+ .............................. 1,250 45,375 Carnival Corp. ................................... 2,700 74,763 Circuit City Stores-Circuit City Group ........... 1,000 18,750 Clear Channel Communications, Inc.+ .............. 2,700 86,454 Comcast Corp., Special Class A+ .................. 4,100 96,063 Delphi Corp. ..................................... 2,600 34,320 Dollar General Corp. ............................. 1,500 28,545 Eastman Kodak Co. ................................ 1,400 40,838 Federated Department Stores, Inc.+ ............... 1,000 39,700 Ford Motor Co. ................................... 5,800 92,800 Gannett Co., Inc. ................................ 1,200 91,080 General Motors Corp. ............................. 2,600 138,970 Harley-Davidson, Inc. ............................ 1,400 71,778 Hilton Hotels Corp. .............................. 1,700 23,630 Home Depot, Inc. (The) ........................... 7,500 275,475 J.C. Penney Co., Inc. ............................ 1,300 28,626 Johnson Controls, Inc. ........................... 1,000 81,610 Limited Brands ................................... 2,500 53,250 Lowe's Companies, Inc. ........................... 2,600 118,040 Marriott International, Inc., Class A ............ 1,100 41,855 Mattel, Inc. ..................................... 2,500 52,525 May Department Stores Co. (The) .................. 1,400 46,102 McDonald's Corp. ................................. 4,000 113,800 Newell Rubbermaid Inc. ........................... 1,300 45,578 Nike, Inc., Class B .............................. 1,300 69,745 Office Depot, Inc.+ .............................. 1,400 23,520 Omnicom Group Inc. ............................... 1,600 73,280 No. of Value Description Shares (Note A) -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (CONTINUED) Sears, Roebuck & Co. ............................. 1,600 $ 86,880 Staples, Inc.+ ................................... 2,500 49,250 Starbucks Corp.+ ................................. 1,700 42,245 Target Corp. ..................................... 4,100 152,274 TJX Companies, Inc. .............................. 2,600 50,986 Toys "R" Us, Inc.+ ............................... 1,000 17,470 Tribune Co. ...................................... 1,400 60,900 Viacom Inc., non-voting Class B+ ................. 6,900 306,153 Wal-Mart Stores, Inc. ............................ 13,500 742,635 Walt Disney Co. (The) ............................ 6,500 122,850 ---------- 3,796,795 ---------- CONSUMER STAPLES - 8.47% Anheuser-Busch Companies, Inc. ................... 1,600 80,000 Archer-Daniels-Midland Co. ....................... 3,045 38,946 Avon Products, Inc. .............................. 1,200 62,688 Campbell Soup Co. ................................ 2,000 55,320 Clorox Co. (The) ................................. 1,100 45,485 Coca-Cola Co. (The) .............................. 8,800 492,800 Coca-Cola Enterprises Inc. ....................... 2,500 55,200 Colgate-Palmolive Co. ............................ 2,600 130,130 ConAgra Foods, Inc. .............................. 2,500 69,125 General Mills, Inc. .............................. 1,300 57,304 Gillette Co. (The) ............................... 3,000 101,610 H.J. Heinz Co. ................................... 1,600 65,760 J.M. Smucker Co. (The) ........................... 70 2,389 Kellogg Co. ...................................... 1,900 68,134 Kimberly-Clark Corp. ............................. 2,500 155,000 Kroger Co. (The)+ ................................ 1,300 25,870 Philip Morris Companies Inc. ..................... 6,900 301,392 Safeway Inc.+ .................................... 2,500 72,975 Sara Lee Corp. ................................... 3,800 78,432 Sysco Corp. ...................................... 3,100 84,382 Unilever NV, NY Shares ........................... 2,000 129,600 Walgreen Co. ..................................... 4,600 177,698 Wm. Wrigley Jr. Co. .............................. 1,100 60,885 ---------- 2,411,125 ---------- ================================================================================ See accompanying notes to financial statements. 4 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - JUNE 30, 2002 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- No. of Value Description Shares (Note A) -------------------------------------------------------------------------------- ENERGY - 7.49% Andarko Petroleum Corp. .......................... 1,200 $ 59,160 Baker Hughes Inc. ................................ 1,100 36,619 Burlington Resources Inc. ........................ 1,000 38,000 ChevronTexaco Corp. .............................. 4,325 382,762 Conoco Inc. ...................................... 2,800 77,840 El Paso Corp. .................................... 2,500 51,525 Exxon Mobil Corp. ................................ 19,800 810,216 Marathon Oil Corp. ............................... 1,500 40,680 Occidental Petroleum Corp. ....................... 1,700 50,983 Phillips Petroleum Co. ........................... 1,200 70,656 Royal Dutch Petroleum Co., NY Shares ............. 6,300 348,201 Schlumberger Ltd. ................................ 2,600 120,900 Unocal Corp. ..................................... 1,200 44,328 ---------- 2,131,870 ---------- FINANCIALS - 15.66% AFLAC Inc. ....................................... 2,600 83,200 Allstate Corp. (The) ............................. 3,300 122,034 American Express Co. ............................. 4,100 148,912 American International Group, Inc. ............... 5,989 408,629 AmSouth Bancorp .................................. 1,800 40,284 Aon Corp. ........................................ 1,200 35,376 Bank of New York Co., Inc. (The) ................. 3,400 114,750 Bank One Corp. ................................... 2,800 107,744 Charles Schwab Corp. (The) ....................... 3,500 39,200 Charter One Financial, Inc. ...................... 1,050 36,099 Citigroup Inc. ................................... 16,500 639,375 Fannie Mae ....................................... 1,500 110,625 Fifth Third Bancorp .............................. 2,500 166,625 FleetBoston Financial Corp. ...................... 4,100 132,635 Franklin Resources, Inc. ......................... 1,200 51,168 Freddie Mac ...................................... 3,100 189,720 H&R Block Inc. ................................... 1,000 46,150 Hartford Financial Services Group, Inc. (The) .... 1,000 59,470 Household International, Inc. .................... 2,500 124,250 Huntington Bancshares Inc. ....................... 1,200 23,304 J.P. Morgan Chase & Co. .......................... 6,200 210,304 Lehman Brothers Holdings Inc. .................... 1,100 68,772 Marsh & McLennan Companies, Inc. ................. 1,300 125,580 No. of Value Description Shares (Note A) -------------------------------------------------------------------------------- FINANCIALS (CONTINUED) MBNA Corp. ....................................... 1,400 $ 46,298 Mellon Financial Corp. ........................... 2,500 78,575 Merrill Lynch & Co., Inc. ........................ 3,700 149,850 MetLife, Inc. .................................... 3,500 100,800 Morgan Stanley ................................... 2,500 107,700 Northern Trust Corp. ............................. 1,000 44,060 Regions Financial Corp. .......................... 1,000 35,150 St. Paul Companies, Inc. (The) ................... 1,000 38,920 Synovus Financial Corp. .......................... 1,300 35,776 UnumProvident Corp. .............................. 1,100 27,995 U.S. Bancorp ..................................... 6,201 144,793 Wachovia Corp. ................................... 4,000 152,720 Washington Mutual, Inc. .......................... 3,750 139,163 Wells Fargo & Co. ................................ 5,400 270,324 ---------- 4,456,330 ---------- HEALTHCARE - 13.34% Abbott Laboratories .............................. 5,000 188,250 Allergan, Inc. ................................... 1,000 66,750 Amgen Inc.+ ...................................... 3,300 138,204 Baxter International Inc. ........................ 2,800 124,432 Becton, Dickinson & Co. .......................... 1,200 41,340 Boston Scientific Corp.+ ......................... 2,500 73,300 Bristol-Myers Squibb Co. ......................... 6,400 164,480 Cardinal Health, Inc. ............................ 1,950 119,750 Eli Lilly & Co. .................................. 2,800 157,920 Genzyme Corp.+ ................................... 2,500 48,100 Guidant Corp.+ ................................... 1,400 42,322 HCA Inc. ......................................... 2,500 118,750 Healthsouth Corp.+ ............................... 1,800 23,022 Johnson & Johnson ................................ 9,778 510,998 McKesson Corp. ................................... 1,300 42,510 MedImmune, Inc.+ ................................. 1,000 26,400 Medtronic, Inc. .................................. 3,000 128,550 Merck & Co. Inc. ................................. 10,500 531,720 Pfizer Inc. ...................................... 15,100 528,500 Pharmacia Corp. .................................. 3,400 127,330 Schering-Plough Corp. ............................ 4,200 103,320 Tenet Healthcare Corp.+ .......................... 1,500 107,325 UnitedHealth Group Inc. .......................... 1,500 137,325 Wyeth ............................................ 4,200 215,040 Zimmer Holdings, Inc.+ ........................... 890 31,737 ---------- 3,797,375 ---------- ================================================================================ See accompanying notes to financial statements. 5 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - JUNE 30, 2002 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- No. of Value Description Shares (Note A) -------------------------------------------------------------------------------- INDUSTRIALS - 10.57% 3M Co. ........................................... 1,900 $ 233,700 Automatic Data Processing, Inc. .................. 2,900 126,295 Burlington Northern Santa Fe Corp. ............... 1,900 57,000 Caterpillar Inc. ................................. 1,600 78,320 Cendant Corp.+ ................................... 3,300 52,404 Concord EFS, Inc.+ ............................... 2,500 75,350 CSX Corp. ........................................ 1,000 34,810 Deere & Co. ...................................... 1,100 52,690 Emerson Electric Co. ............................. 2,000 107,020 FedEx Corp. ...................................... 1,300 69,420 First Data Corp. ................................. 3,800 143,108 General Dynamics Corp. ........................... 600 63,810 General Electric Co. ............................. 28,700 833,735 Honeywell International Inc. ..................... 3,600 126,828 Illinois Tool Works Inc. ......................... 1,400 96,488 Imagistics International Inc.+ ................... 88 1,889 IMS Health Inc. .................................. 1,400 25,130 Ingersoll-Rand Co., Class A ...................... 1,000 45,660 Masco Corp. ...................................... 2,500 67,775 Norfolk Southern Corp. ........................... 1,800 42,084 Paychex, Inc. .................................... 1,700 53,193 Pitney Bowes Inc. ................................ 1,100 43,692 Raytheon Co. ..................................... 1,600 65,200 Southwest Airlines Co. ........................... 3,750 60,600 Tyco International Ltd. .......................... 6,397 86,423 Union Pacific Corp. .............................. 1,100 69,608 United Technologies Corp. ........................ 2,500 169,750 Vivendi Universal SA, ADR ........................ 2,500 53,750 Waste Management, Inc. ........................... 2,800 72,940 ---------- 3,008,672 ---------- INFORMATION TECHNOLOGY - 12.25% Adobe Systems Inc. ............................... 1,100 31,350 Agere Systems Inc., Class B + .................... 3,069 4,604 Altera Corp.+ .................................... 1,900 25,840 Analog Devices, Inc.+ ............................ 1,700 50,490 Apple Computer, Inc.+ ............................ 1,500 26,580 Applied Materials, Inc.+ ......................... 7,400 140,748 Cisco Systems, Inc.+ ............................. 23,500 327,825 Computer Associates International, Inc. .......... 2,700 42,903 No. of Value Description Shares (Note A) -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (CONTINUED) Compuware Corp.+ ................................. 1,700 $ 10,319 Conexant Systems, Inc.+ .......................... 1,100 1,782 Electronic Data Systems Corp. .................... 2,500 92,875 Hewlett-Packard Co. .............................. 8,100 123,768 Intel Corp. ...................................... 21,600 394,632 International Business Machines Corp. ............ 5,500 396,000 Intuit Inc.+ ..................................... 2,000 99,440 Linear Technology Corp. .......................... 1,500 47,145 LSI Logic Corp.+ ................................. 1,500 13,125 Lucent Technologies Inc.+ ........................ 11,600 19,256 Maxim Integrated Products, Inc.+ ................. 1,300 49,829 Micron Technology, Inc.+ ......................... 2,600 52,572 Microsoft Corp.+ ................................. 17,300 936,276 Motorola, Inc. ................................... 7,100 102,382 NVIDIA Corp.+ .................................... 1,000 17,180 Oracle Corp.+ .................................... 17,800 168,566 PerkinElmer, Inc. ................................ 1,000 11,050 QUALCOMM Inc.+ ................................... 1,500 41,235 Sanmina-SCI Corp.+ ............................... 3,000 18,930 Skyworks Solutions, Inc.+ ........................ 386 2,143 Solectron Corp.+ ................................. 3,700 22,755 Sun Microsystems, Inc.+ .......................... 10,000 50,100 Texas Instruments Inc. ........................... 5,400 127,980 Yahoo! Inc.+ ..................................... 2,500 36,900 3,486,580 MATERIALS - 2.96% Air Products & Chemicals, Inc. ................... 1,100 55,517 Alcan Inc. ....................................... 1,500 56,280 Alcoa Inc. ....................................... 4,200 139,230 Barrick Gold Corp. ............................... 2,589 49,165 Dow Chemical Co. (The) ........................... 4,100 140,958 E.I. du Pont de Nemours & Co. .................... 3,300 146,520 Georgia-Pacific Corp. ............................ 1,000 24,580 International Paper Co. .......................... 2,500 108,950 Placer Dome Inc. ................................. 1,500 16,815 Rohm & Haas Co. .................................. 1,000 40,490 Weyerhaeuser Co. ................................. 1,000 63,850 ---------- 842,355 ---------- ================================================================================ See accompanying notes to financial statements. 6 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - JUNE 30, 2002 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- No. of Value Description Shares (Note A) -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES - 4.21% Alcatel SA, ADR .................................. 8,400 $ 59,724 ALLTEL Corp. ..................................... 1,500 70,500 AT&T Corp. ....................................... 11,300 120,910 AT&T Wireless Services Inc.+ ..................... 5,534 32,374 BellSouth Corp. .................................. 6,000 189,000 SBC Communications Inc. .......................... 10,700 326,350 Sprint Corp. (FON Group) ......................... 4,000 42,440 Sprint Corp. (PCS Group)+ ........................ 1,800 8,046 Verizon Communications Inc. ...................... 8,700 349,305 ---------- 1,198,649 ---------- UTILITIES - 2.92% American Electric Power Co., Inc. .................................. 1,500 60,030 Consolidated Edison, Inc. ........................ 1,000 41,750 Dominion Resources, Inc. ......................... 1,100 72,578 Duke Energy Corp. ................................ 2,500 77,750 Edison International+ ............................ 1,500 25,500 Entergy Corp. .................................... 1,100 46,684 Exelon Corp. ..................................... 1,500 78,450 FirstEnergy Corp. ................................ 1,100 36,718 Mirant Corp.+ .................................... 1,232 8,994 NiSource Inc. .................................... 1,000 21,830 PG&E Corp.+ ...................................... 1,800 32,202 Progress Energy, Inc. ............................ 1,000 52,010 Public Service Enterprises Group Inc. ............ 1,000 43,300 Reliant Energy, Inc. ............................. 1,400 23,660 Sempra Energy .................................... 1,000 22,130 Southern Co. (The) ............................... 3,100 84,940 TXU Corp. ........................................ 1,200 61,680 Williams Companies, Inc. (The) ................... 2,500 14,975 Xcel Energy, Inc. ................................ 1,600 26,832 ---------- 832,013 ---------- TOTAL EQUITY SECURITIES (cost - $32,698,482) ........................ 26,749,790 ---------- Principal Value Description Amount (Note A) -------------------------------------------------------------------------------- FIXED INCOME SECURITIES - 5.05% U.S. GOVERNMENT OBLIGATIONS - 5.05% U.S. TREASURY NOTES - 5.05% 3.00%, 01/31/04 .................................. $500 $ 503,260 4.75%, 02/15/04 .................................. 500 517,244 5.25%, 05/15/04 .................................. 400 418,074 ---------- TOTAL FIXED INCOME SECURITIES (cost - $1,439,859) 1,438,578 ---------- SHORT-TERM INVESTMENT -1.01% REPURCHASE AGREEMENT - 1.01% Bear, Stearns & Co. Inc. (Agreement dated 06/28/02 to be repurchased at $287,616), 1.92%, 07/01/02 (cost - $287,570) (Note F) 288 287,570 ---------- TOTAL INVESTMENTS - 100.04% (cost - $34,425,911) (Notes A,C) ................................. 28,475,938 ---------- LIABILITIES IN EXCESS OF CASH & other assets - (0.04)% ......................... (10,942) ---------- NET ASSETS - 100.00% ............................. $28,464,996 =========== --------- + Non-income producing security. ADR American Depositary Receipts.
================================================================================ See accompanying notes to financial statements. 7
-------------------------------------------------------------------------------- Progressive Return Fund, Inc. Statement of Assets and Liabilities - June 30, 2002 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments, at value (Cost $34,425,911) (Note A) ............ $ 28,475,938 Cash collateral received for securities loaned (Note E) ...... 167,478 Receivables: Dividends ............................................ 35,183 Interest ............................................. 18,624 Prepaid expenses ............................................. 17,395 ------------ Total Assets ................................................. 28,714,618 ------------ LIABILITIES Payables: Upon return of securities loaned (Note E) ............ 167,478 Investment management fees (Note B) .................. 24,230 Other accrued expenses ............................... 57,914 ------------ Total Liabilities ............................................ 249,622 ------------ NET ASSETS (applicable to 1,147,786 shares of common stock outstanding) ............................... $ 28,464,996 ============ NET ASSET VALUE PER SHARE ($28,464,996 ./. 1,147,786) ........ $ 24.80 ============ NET ASSETS CONSISTS OF Capital stock, $0.004 par value; 1,147,786 shares outstanding (100,000,000 shares authorized) ...................................... $ 4,591 Paid-in capital .............................................. 62,788,936 Distributions in excess of net investment income ............. (15,149,979) Accumulated net realized loss on investments ................. (13,228,579) Net unrealized depreciation in value of investments .......... (5,949,973) ------------ Net assets applicable to shares outstanding .................. $ 28,464,996 ============
================================================================================ See accompanying notes to financial statements. 8
-------------------------------------------------------------------------------- Progressive Return Fund, Inc. Statement of Operations - for the Six Months Ended June 30, 2002 (unaudited) -------------------------------------------------------------------------------- INVESTMENT LOSS Income (Note A): Dividends ............................................ $ 255,396 Interest ............................................. 6,045 Less: Foreign taxes withheld ......................... (1,254) ----------- Total Investment Income .............................. 260,187 ----------- Expenses: Investment management fees (Note B) .................. 175,390 Audit and legal fees (Note B) ........................ 52,809 Directors' fees ...................................... 31,891 Administration fees .................................. 24,795 Printing ............................................. 18,348 Accounting fees ...................................... 15,048 Transfer agent fees .................................. 14,760 NYSE listing fees .................................... 13,986 Custodian fees ....................................... 5,439 Insurance ............................................ 4,240 Other ................................................ 8,944 ----------- Total Expenses ....................................... 365,650 Less: Fees paid indirectly (Note B) ................. (18,365) ----------- Net Expenses ................................. 347,285 ----------- Net Investment Loss .................................. (87,098) ----------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss from investments ........................... (1,057,403) Net change in unrealized depreciation in value of investments ................................. (4,030,577) ----------- Net realized and unrealized loss on investments .............. (5,087,980) ----------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $(5,175,078) ===========
================================================================================ See accompanying notes to financial statements. 9
-------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- For the Six Months For the Ended Year Ended June 30, 2002 December 31, (unaudited) 2001 ------------- ------------ DECREASE IN NET ASSETS Operations: Net investment income/(loss) .................. $ (87,098) $ 7,386 Net realized loss on investments .............. (1,057,403) (4,384,728) Net change in unrealized appreciation/ (depreciation) in value of investments ...... (4,030,577) (2,439,912) ------------ ------------ Net decrease in net assets resulting from operations ................... (5,175,078) (6,817,254) ------------ ------------ Distributions to shareholders (Note A): In excess of net investment income ............ (10,841,751) (4,228,516) ------------ ------------ Capital stock transactions* (Note D): Proceeds from 51,575 shares issued from treasury in reinvestment of distributions ... 1,963,915 -- Proceeds from 39,718 shares newly issued in reinvestment of distributions ............... 688,343 -- Cash paid in-lieu of an aggregate of 36 fractional shares ........................... (1,000) -- Cost of 600 and 50,975 shares repurchased, respectively ................................ (16,875) (1,947,040) ------------ ------------ Net increase/(decrease) in net assets resulting from capital stock transactions ............... 2,634,383 (1,947,040) ------------ ------------ Total decrease in net assets .................. (13,382,446) (12,992,810) ------------ ------------ NET ASSETS Beginning of period ................................... 41,847,442 54,840,252 ------------ ------------ End of period ......................................... $ 28,464,996 $ 41,847,442 ============ ============ --------------------------------------------------------------------------------------- * Shares are adjusted for the one-for-four reverse stock split that was effective May 6, 2002.
================================================================================ See accompanying notes to financial statements. 10
-------------------------------------------------------------------------------- Progressive Return Fund, Inc. Financial Highlights ss -------------------------------------------------------------------------------- Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements and market price data for the Fund's shares. -------------------------------------------------------------------------------- For the Six Months Ended June 30, 2002 For the Years Ended December 31, --------------------------------------------------------------- (unaudited) 2001 2000 1999 1998 ----------- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period ....... $ 39.60 $ 49.48 $ 61.84 $ 73.24 $ 77.80 Net investment income/(loss) ............... (0.08)# - #* (0.04)# 0.36# 0.48 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions ............... (4.52) (6.20) (12.68) 17.80 24.48 Net increase/(decrease) in net assets resulting from operations .......... (4.60) (6.20) (12.72) 18.28 24.68 Dividends and distributions to shareholders: Net investment income .............. -- -- --* (0.32) (0.28) Net realized gain on investments and foreign currency related transactions ............... -- -- (1.04) (8.32) In excess of net investment income . (10.00) (4.00) -- -- -- Total dividends and distributions to shareholders .................... (10.00) (4.00) (1.04) (8.64) (22.76) Capital stock transactions: Anti-dilutive effect due to capital stock repurchased .......... --* 0.32 1.40 0.48 -- Dilutive effect due to shares issued in reinvestment of dividends (0.20) -- -- -- (0.08) Total capital stock transactions ........... (0.20) 0.32 1.40 0.48 (0.08) Net asset value, end of period ............. $ 24.80 $ 39.60 $ 49.48 $ 61.84 $ 73.24 Market value, end of period ................ $ 23.400 $ 35.800 $ 38.000 $ 52.252 $ 62.500 Total investment return (a) ................ (9.53)% 4.04% (27.27)% (1.84)% 32.56% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) .... $ 28,465 $ 41,847 $ 54,840 $ 78,609 $ 98,084 Ratio of expenses to average net assets, net of fee waivers, if any ......... 1.98%(b)(d) 1.63%(b) 2.46% 2.10% 1.50% Ratio of expenses to average net assets, excluding fee waivers, if any ...... 2.09%(c)(d) 1.73%(c) 2.65% 2.28% 1.66% Ratio of expenses to average net assets, net of fee waivers but excluding fees paid indirectly, if any ....... 2.09%(d) 1.72% -- -- -- Ratio of net investment income/(loss) to average net assets .............. (0.50)%(d) 0.02% (0.06)% 0.59% 0.51% Portfolio turnover rate .................... 6.35% 36.17% 38.13% 39.60% 48.52% 1997 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- Net asset value, beginning of period ....... $ 69.72 $ 53.16 $ 57.32 $ 50.08 $ 35.60 $ 43.08 Net investment income/(loss) ............... 0.20 0.44 0.68 0.24 0.28 0.44 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions ............... 24.48 16.44 (4.12) 7.24 14.20 (7.68) Net increase/(decrease) in net assets resulting from operations .......... 24.68 16.88 (3.44) 7.48 14.48 (7.24) Dividends and distributions to shareholders: Net investment income .............. (0.04) (0.32) (0.60) (0.24) -- (0.24) Net realized gain on investments and foreign currency related transactions ............... (16.52) -- (0.12) -- -- -- In excess of net investment income . -- -- -- -- -- -- Total dividends and distributions to shareholders .................... (16.56) (0.32) (0.72) (0.24) -- (0.24) Capital stock transactions: Anti-dilutive effect due to capital stock repurchased .......... -- -- -- -- -- -- Dilutive effect due to shares issued in reinvestment of dividends (0.04) -- -- -- -- -- Total capital stock transactions ........... (0.04) -- -- -- -- -- Net asset value, end of period ............. $ 77.80 $ 69.72 $ 53.16 $ 57.32 $ 50.08 $ 35.60 Market value, end of period ................ $ 63.252 $ 55.000 $ 44.500 $ 55.500 $ 56.500 $ 32.000 Total investment return (a) ................ 43.21% 24.28% (18.65)% (1.35)% 76.56 (17.34)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) .... $ 103,444 $ 92,399 $ 70,431 $ 75,908 $ 66,351 $ 47,134 Ratio of expenses to average net assets, net of fee waivers, if any ......... 1.56% 1.62% 1.58% 1.41% 1.97% 1.92% Ratio of expenses to average net assets, excluding fee waivers, if any ...... 1.73% 1.81% 1.76% 1.59% 2.00% -- Ratio of expenses to average net assets, net of fee waivers but excluding fees paid indirectly, if any ....... -- -- -- -- -- -- Ratio of net investment income/(loss) to average net assets .............. 0.23% 0.75% 1.18% 0.43% 0.66% 1.07% Portfolio turnover rate .................... 72.25% 35.94% 35.73% 15.47% 24.47% 39.07% ------------------------------------------------------------------------------------------------------------------------------------ ss. Per share amounts prior to May 6, 2002 have been restated to reflect a one-for-four reverse stock split. # Based on average shares outstanding. * Amount is 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. Total investment returns for periods of less than one year are not annualized. (b) Expenses are net of fees paid indirectly. (c) Expenses exclude fees paid indirectly. (d) Annualized.
================================================================================ See accompanying notes to financial statements. 11 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- NOTE A. SIGNIFICANT ACCOUNTING POLICIES Progressive Return Fund, Inc. (the "Fund") was incorporated in Maryland on August 11, 1989 and commenced investment operations on November 9, 1989. As a result of a Special Meeting of Stockholders held on December 15, 2000, the Fund, formerly known as The Portugal Fund, Inc., changed its name and investment objective. Its investment objective is to seek total return, consisting of capital appreciation and current income through investing substantially all of its assets in equity securities of U.S. and non-U.S. companies and U.S. dollar denominated debt securities. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management investment company. The following is a summary of significant accounting policies consistently followed by the Fund: MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. PORTFOLIO VALUATION: Investments are stated at value in the accompanying financial statements. All equity securities are valued at the closing price on the exchange or market on which the security is primarily traded ("Primary Market"). If the security did not trade on the Primary Market, it shall be valued at the closing price on another exchange where it trades. If there are no such sale prices, the value shall be the most recent bid, and if there is no bid, the security shall be valued at the most recent asked. If no pricing service is available and there are more than two dealers, the value shall be the mean of the highest bid and lowest ask. If there is only one dealer, then the value shall be the mean if bid and ask are available, otherwise the value shall be the bid. All other securities and assets are valued as determined in good faith by the Board of Directors. Short-term investments having a maturity of 60 days or less are valued on the basis of amortized cost. The Board of Directors has established general guidelines for calculating fair value of not readily marketable securities. At June 30, 2002, the Fund held no securities valued in good faith by the Board of Directors. The net asset value per share of the Fund is calculated weekly and on the last business day of the month with the exception of those days on which the New York Stock Exchange is closed. REPURCHASE AGREEMENTS: The Fund has agreed to purchase securities from financial institutions subject to the sellers agreement to repurchase them at an agreed-upon time and price ("repurchase agreements"). The financial institutions with whom the Fund enters into repurchase agreements are banks and broker/dealers, which Cornerstone Advisors, Inc. (the Fund's "Manager" or "Cornerstone") considers creditworthy. The seller under a repurchase agreement will be required to maintain the value of the securities as collateral, subject to the agreement at not less than the repurchase price plus accrued interest. Cornerstone monitors the daily mark-to-market of the value of the collateral, and, if necessary, requires the seller to maintain additional securities, so that the value of the collateral is not less than the repurchase price. Default by or bankruptcy of the seller would, however, expose the Fund to possible loss because of adverse market action or delays in connection with the disposition of the underlying securities. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is recorded on an accrual basis; dividend income is recorded on the ex-dividend date. TAXES: No provision is made for U.S. federal income or excise taxes as it is the Fund's intention to continue to qualify as a regulated investment company and to make the requisite distributions to its shareholders which will be sufficient to ================================================================================ 12 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- relieve it from all or substantially all U.S. federal income and excise taxes. For U.S. federal income tax purposes, realized capital or foreign exchange losses incurred after October 31, 2001 within the prior fiscal year are deemed to arise on the first day of the current fiscal year. The Fund elected to defer such losses of $263,892. At December 31, 2001, the Fund had a capital loss carryforward of $11,780,944, of which $1,587,989 expires in 2008 and $10,192,955 expires in 2009. Differences between capital loss carryforwards on a book and tax basis primarily relate to timing of the recognition of losses for U.S. federal income tax purposes. There is no undistributable ordinary income on a tax basis. DISTRIBUTIONS OF INCOME AND GAINS: Effective June 25, 2002, the Fund initiated a fixed, monthly distribution to shareholders. 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, which will either be short-term or long-term capital gains or a tax-free return of capital. Prior thereto, the Fund distributed at least annually to shareholders, substantially all of its net investment income and net realized short-term capital gains, if any. 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. An additional distribution may be made to the extent necessary to avoid the payment of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are recorded by the Fund on the ex-dividend date. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for U.S. federal income tax purposes due to U.S. generally accepted accounting principles/tax differences in the character of income and expense recognition. NOTE B. AGREEMENTS Cornerstone serves as the Fund's investment manager with respect to all investments. As compensation for its investment management services, Cornerstone receives from the Fund an annual fee, calculated weekly and paid monthly, equal to 1.00% of the Fund's average weekly net assets. For the six months ended, Cornerstone earned $175,390 for investment management services. Included in the Statement of Operations, under the caption Fees paid indirectly, are expense offsets of $18,365 arising from credits earned on portfolio transactions executed with a broker, pursuant to a directed brokerage arrangement. The Fund paid or accrued approximately $41,460 for the six months ended June 30, 2002 for legal services to Spitzer & Feldman P.C., counsel to the Fund. Mr. Westle, a partner of the firm, serves as secretary of the Fund. At June 30, 2002, pursuant to regulatory filings, a single shareholder owned approximately 33% of the outstanding shares of the Fund based on a Schedule 13D/A filing with the Securities and Exchange Commission on July 9, 2002. NOTE C. INVESTMENT IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at June 30, 2002 was $34,425,911. Accordingly, the net unrealized depreciation of investments of $5,949,973 was composed of gross appreciation of $1,104,245 for those investments having an excess of value over cost and gross depreciation of $7,054,218 for those investments having an excess of cost over value. For the six months ended June 30, 2002, purchases and sales of securities, other than short-term investments, were $2,214,983 and $14,502,879, respectively. ================================================================================ 13 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- NOTE D. SHARE REPURCHASE PROGRAM On October 21, 1998, the Fund announced that its Board of Directors had authorized the repurchase of up to 15% of the Fund's outstanding common stock, for purposes of enhancing shareholder value. The Fund's Board had authorized management of the Fund to repurchase such shares in open market transactions at prevailing market prices from time to time in a manner consistent with the Fund continuing to seek to achieve its investment objectives. The Board's actions were taken in light of the significant discounts at which the Fund's shares were trading. It is intended both to provide additional liquidity to those shareholders that elect to sell their shares and to enhance the net asset value of the shares held by those shareholders that maintain their investment. Effective October 22, 1999, the Fund committed to engage in an enhanced and aggressive repurchase program of the Fund's shares whenever those shares trade at more than a nominal discount to net asset value. Shares will be repurchased in open market transactions at prevailing market prices from time to time in a manner consistent with the Fund continuing to seek its investment objective. The repurchase program will be subject to review by the Board of Directors of the Fund. For the six months ended June 30, 2002, the Fund repurchased 600 of its shares for a total cost of $16,875 at a weighted average discount of 9.61% from net asset value. The discount of the individual repurchases ranged from 7.98% - 12.77%. For the year ended December 31, 2001, the Fund repurchased 50,975 of its shares for a total cost of $1,947,040 at a weighted average discount of 15.67% from net asset value. The discount of the individual repurchases ranged from 8.62% - 20.86%. No limit has been placed on the number of shares to be purchased 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, effective January 1, 2001. NOTE E. SECURITIES LENDING To generate additional income, the Fund may lend up to 331/3% of its total assets. The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn interest on the investment of cash collateral. Loans are subject to termination by the Fund or the borrower at any time, and are therefore, not considered to be illiquid investments. Loans of securities are required at all times to be secured by collateral equal to at least 100% of the market value of securities on loan. However, in the event of default or bankruptcy of the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. In the event that the borrower fails to return securities, and collateral maintained by the lender is insufficient to cover the value of loaned securities, the borrower is obligated to pay the amount of the shortfall (and interest thereon) to the Fund. However, there can be no assurance the Fund can recover this amount. The value of securities on loan to brokers and the related collateral received at June 30, 2002 was $159,201 and $167,478, respectively. Any cash collateral received is reinvested into repurchase agreements, which in turn are collateralized by various U.S. Government and Agency securities. During the six months ended June 30, 2002, the Fund earned $463 in securities lending income which is included under the caption Interest in the Statement of Operations. NOTE F. COLLATERAL FOR REPURCHASE AGREEMENT Listed below is the collateral associated with the repurchase agreement with Bear, Stearns & Co. Inc. outstanding at June 30, 2002. PRINCIPAL TOTAL AMOUNT MARKET ISSUER (000'S) MATURITY VALUE ------ ------- -------- ----- United States Treasury Bond (interest only) .................... $1,185 02/15/26 $294,354 ======== ================================================================================ 14 -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- NOTE G. SUBSEQUENT EVENTS Effective July 1, 2002, Cornerstone has voluntarily agreed to waive its management fees to the Fund to the extent that monthly operating expenses exceed 0.1% of net assets, calculated monthly. On August 2, 2002, the Fund's Board of Directors approved the merger (the "Merger") of Corner-stone Strategic Value Fund, Inc. ("CLM") with and into the Fund. If the Merger receives shareholder approval, CLM will cease to exist, and the Fund will be the surviving legal corporation and each share of common stock of CLM will be converted into an equivalent dollar amount of full shares of common stock of the Fund based on the relative net asset values of the Fund and CLM. The Fund will not issue any fractional shares to CLM shareholders that do not participate in its dividend reinvestment plan. The Fund's transfer agent will aggregate the fractional shares, sell the resulting full shares on the New York Stock Exchange at the current market price for the shares and remit the cash proceeds to CLM's shareholders in proportion to their fractional shares. Consummation of the Merger is subject to a number of conditions, including shareholder approval and certain regulatory approvals. Upon consummation of the Merger, the Fund expects to change its name to "Progressive Total Return Fund, Inc." ================================================================================ 15 RESULTS OF ANNUAL MEETING OF STOCKHOLDERS (UNAUDITED) On April 18, 2002, the Annual Meeting of Stockholders of Progressive Return Fund, Inc. (the "Fund") was held and the following matters were voted upon: (1) To elect two Class II Directors until the year 2005 Annual Meeting. NAME OF CLASS II DIRECTORS FOR AGAINST -------------------------- --- ------- Edwin Meese III 3,924,941 105,495 Ralph W. Bradshaw 3,925,816 104,620 (2) To ratify the selection of Tait, Weller & Baker as the Fund's independent accountants for the year ending December 31, 2002. FOR AGAINST ABSTAIN --- ------- ------- 3,927,496 98,791 4,146 (3) To approve a one-for-four reverse stock split of the Fund's issued and outstanding shares of common stock and the amendment to the Articles of Incorporation. FOR AGAINST ABSTAIN --- ------- ------- 3,898,774 129,255 2,404 ================================================================================ 16 DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED) Shareholders who have Shares registered directly in their own names automatically participate in the Fund's Dividend Reinvestment & Cash Purchase Plan (the "Plan"), unless and until an election is made to withdraw from the Plan on behalf of such participating shareholders. Shareholders who do not wish to have distributions automatically reinvested should so notify American Stock Transfer & Trust Co. (the "Agent") at 59 Maiden Lane, New York, NY 10038. Under the Plan, all of the Fund's dividends and other distributions to shareholders are reinvested in full and fractional Shares as described below. When the Fund declares an income dividend or a capital gain or other distribution (each, a "Dividend" and collectively, "Dividends"), the Agent, on the shareholders' behalf, will: (i) receive additional authorized shares from the Fund either newly issued or repurchased from shareholders by the Fund and held as treasury stock ("Newly Issued Shares") or, (ii) at the sole discretion of the Board of Directors, be authorized to purchase outstanding shares on the open market, on the NYSE or elsewhere, with cash allocated to it by the Fund ("Open Market Purchases"). Shares acquired by the Agent in Open Market Purchases will be allocated to the reinvesting shareholders based on the average cost of such Open Market Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the reinvesting shareholders at a price equal to the average closing price of the Fund over the five trading days preceding the payment date of such dividend. Registered shareholders who acquire their shares through Open Market Purchases and who do not wish to have their Dividends automatically reinvested should so notify the Fund in writing. If a Shareholder has not elected to receive cash Dividends and the Agent does not receive notice of an election to receive cash Dividends prior to the record date of any Dividend, the shareholder will automatically receive such Dividends 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 Dividend payment date. When a participant withdraws from the Plan, or upon termination of the Plan as provided below, certificates for whole shares credited to his/her account under the Plan will, upon request, be issued. Whether or not a participant requests that certificates for whole shares be issued, a cash payment will be made for any fraction of a Share credited to such account. The Agent will maintain all shareholder accounts in the Plan and furnish written confirmations of all transactions in the accounts, including information needed by shareholders for personal and tax records. The Agent will hold shares in the account of each Plan participant in non-certificated form in the name of the participant, and each shareholder's proxy will include those shares purchased pursuant to the Plan. Each participant, nevertheless, has the right to receive certificates for whole shares owned. The Agent will distribute all proxy solicitation materials to participating shareholders. In the case of shareholders, 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 shareholder as representing the total amount of shares registered in the Shareholder's name and held for the account of beneficial owners participating in the Plan. There will be no charge to participants for reinvesting Dividends other than their share of brokerage commissions as discussed below. The Agent's fees for administering the Plan and handling the reinvestment of Dividends will be paid by the Fund. Each participant's account will be charged a pro-rata share of brokerage commissions incurred with respect to the Agent's Open Market Purchases in connection with the reinvestment of Dividends. Brokerage charges for purchasing ================================================================================ 17 DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)(CONCLUDED) small amounts of shares for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions because the Agent will be purchasing shares for all the participants in blocks and pro-rating the lower commission that may be attainable. The automatic reinvestment of Dividends will not relieve participants of any income tax that may be payable on such Dividends. Participants who receive shares pursuant to the Plan as described above will recognize taxable income in the amount of the fair market value of those shares. In the case of non-U.S. participants whose Dividends are subject to U.S. income tax withholding and in the case of participants subject to 30% federal backup withholding, the Agent will reinvest Dividends after deduction of the amount required to be withheld. The Fund reserves the right to amend or terminate the Plan by written notice to participants. All correspondence concerning the Plan should be directed to the Agent at the address referred to in the first paragraph of this section. ================================================================================ 18 SUMMARY OF GENERAL INFORMATION The Fund - Progressive Return Fund, Inc. is a closed-end, non-diversified management investment company whose shares trade on the New York Stock Exchange. Its investment objective is to seek total return, consisting of capital appreciation and current income through investing substantially all of its assets in equity securities of U.S. and non-U.S. companies and U.S. dollar denominated debt securities. The Fund is managed by Cornerstone Advisors, Inc. SHAREHOLDER INFORMATION The Fund is listed on the New York Stock Exchange (symbol "PGF"). The share price is published in: The New York Times (daily) under the designation "ProgRetFd" and The Wall Street Journal (daily) and Barron's (each Monday) under the designation "PrgrssvRetFd." The net asset value per share is published under "Closed-End Funds" each Sunday in The New York Times and each Monday in The Wall Street Journal and Barron's under the designation "ProgessvFd." -------------------------------------------------------------------------------- NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THAT PROGRESSIVE RETURN FUND, INC. MAY FROM TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET. -------------------------------------------------------------------------------- ================================================================================ 19 PRIVACY POLICY NOTICE The following is a description of Progressive Return Fund, Inc.'s (the "Fund") policies regarding disclosure of nonpublic personal information that you provide to the Fund or that the Fund collects from other sources. In the event that you hold shares of the Fund through a broker-dealer or other financial intermediary, the privacy policy of the financial intermediary would govern how your nonpublic personal information would be shared with unaffiliated third parties. CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the following nonpublic personal information about you: 1. Information from the Consumer: this category includes information the Fund receives from you on or in applications or other forms, correspondence, or conversations (such as your name, address, phone number, social security number, assets, income and date of birth); and 2. Information about the Consumer's transactions: this category includes information about your transactions with the Fund, its affiliates, or others (such as your account number and balance, payment history, parties to transactions, cost basis information, and other financial information). CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose any nonpublic personal information about their current or former shareholders to unaffiliated third parties, except as required or permitted by law. The Fund is permitted by law to disclose all of the information it collects, as described above, to its service providers (such as the Fund's custodian, administrator and transfer agent) to process your transactions and otherwise provide services to you. CONFIDENTIALITY AND SECURITY. The Fund restricts access to your nonpublic personal information to those persons who require such information to provide products or services to you. The Fund maintains physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information. ================================================================================ 20 This page intentionally left blank. ================================================================================ ================================================================================ DIRECTORS AND CORPORATE OFFICERS Ralph W. Bradshaw Chairman of the Board of Directors and President Thomas H. Lenagh Director Edwin Meese III Director Scott B. Rogers Director Andrew A. Strauss Director Glenn W. Wilcox, Sr. Director Gary A. Bentz Vice President and Treasurer Thomas R. Westle Secretary INVESTMENT MANAGER STOCK TRANSFER AGENT Cornerstone Advisors, Inc. AND REGISTRAR One West Pack Square American Stock Transfer & Suite 1650 Trust Co. Asheville, NC 28801 59 Maiden Lane New York, NY 10038 ADMINISTRATOR Bear Stearns Funds INDEPENDENT ACCOUNTANTS Management Inc. Tait, Weller & Baker 383 Madison Avenue 8 Penn Center New York, NY 10179 Philadelphia, PA 19103 CUSTODIAN LEGAL COUNSEL Custodial Trust Company Spitzer & Feldman P.C. 101 Carnegie Center 405 Park Avenue Princeton, NJ 08540 New York, NY 10022 EXECUTIVE OFFICES 383 Madison Avenue New York, NY 10179 For shareholder inquiries, registered shareholders should call (800) 937-5449. For general inquiries, please call (212) 272-2093. PGF LISTED NYSE(R) This report, including the financial statements herein, is sent to the shareholders of the Fund for their information. The financial information herein is taken from the records of the Fund without examination by independent accountants who do not express an opinion thereon. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report. Progressive Return Fund, Inc.