-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TFp3Q+RWy2wJNSB0WU4VKa8Miqs1BzqlvZLAcsdoemUkZBiVW/n58EnQ7VF2e2F6 JpW//KovmefmDkCM1Z0JfQ== 0000909012-03-000169.txt : 20030228 0000909012-03-000169.hdr.sgml : 20030228 20030228172542 ACCESSION NUMBER: 0000909012-03-000169 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030228 EFFECTIVENESS DATE: 20030228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROGRESSIVE RETURN FUND INC CENTRAL INDEX KEY: 0000854580 IRS NUMBER: 510323965 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05891 FILM NUMBER: 03587701 BUSINESS ADDRESS: STREET 1: C/O BEAR STEARNS FUNDS MANAGEMENT INC STREET 2: 383 MADISON AVENUE - 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10179 BUSINESS PHONE: 2122722093 MAIL ADDRESS: STREET 1: C/O BEAR STEARNS FUNDS MANAGEMENT INC STREET 2: 383 MADISON AVENUE - 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10179 FORMER COMPANY: FORMER CONFORMED NAME: PORTUGAL FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 t300139.txt PROGRESSIVE RETURN FUND, INC. ================================================================================ PROGRESSIVE RETURN FUND, INC. ANNUAL REPORT DECEMBER 31, 2002 ================================================================================ CONTENTS Letter to Shareholders 1 Portfolio Summary 3 Schedule of Investments 4 Statement of Assets and Liabilities 8 Statement of Operations 9 Statements of Changes in Net Assets 10 Financial Highlights 11 Notes to Financial Statements 12 Report of Independent Accountants 16 Results of Special Meeting of Stockholders 17 Tax Information 17 Additional Information Regarding the Fund's Directors and Officers 18 Description of Dividend Reinvestment & Cash Purchase Plan 21 Summary of General Information 23 Shareholder Information 23 Privacy Policy Notice 24 LETTER TO SHAREHOLDERS January 24, 2003 Dear Fellow Shareholders, We are pleased to report the annual results of Progressive Return Fund, Inc. (the "Fund"). As of December 31, 2002 the net assets stood at $23.6 million and the Net Asset Value (NAV) per share was $20.52. The market price ended the year at $18.95 a share, after adjusting for a one-for-four reverse stock split. The share price represents a discount of 7.7% to NAV, an improvement compared to a discount of 9.6% at the beginning of the year, while averaging 9.8% for the year. Distributions to shareholders during the year totaled $11.61 per share, all of which was designated as return-of-capital. The total investment return for a shareholder who reinvested his distributions was (20.3)%, outperforming the Fund's benchmark S&P 500 Index, which returned (22.1)% for the year. The Fund outperformed the previous year as well with an investment return of 4.0% versus (11.9)% for the S&P 500 Index. Cornerstone Advisors, Inc. assumed portfolio management responsibilities for the Fund almost two years ago, and its goal is to add value by continuing to outperform the Fund's benchmark. This will be accomplished by focusing on portfolio performance, minimizing expenses, and taking advantage of the Fund's discount to benefit its shareholders. The Fund attempts to enhance its portfolio performance by exploiting temporary and occasional undervaluation in certain securities that represent different parts of a fully diversified U.S. stock portfolio. The magnitude and availability of such opportunities are unpredictable, and therefore their contribution to enhanced portfolio performance may vary considerably from year to year. The strategies of portfolio selection are also enhanced by other techniques that accrue to the benefit of shareholders, including expense control, share buybacks, and large distributions. EXPENSE CONTROL Over the past year, we have paid special attention to reducing Fund operating expenses substantially. In addition, Cornerstone Advisors, Inc. has extended its voluntary agreement to waive a substantial portion of its management fees to the extent that monthly operating expenses exceed a monthly rate of 0.1%. This effort demonstrates how seriously the investment manager views keeping expenses under control. These efforts create a lower expense ratio than would otherwise be the case, resulting in what we believe to be one of the lowest expense ratios among comparable closed-end funds. BUYBACKS AND DISTRIBUTIONS The most significant contribution to Fund performance over the last two years has been the result of various actions taken by the Fund's board and management that are designed to exploit the Fund's discount. First, substantial repurchase of shares in the open market has enhanced NAV performance and reduced the supply of shares available for sale, thus changing the demand/supply balance and reducing the discount. Second, this year the board has established a monthly distribution policy with a high fixed payout. These distributions - -------------------------------------------------------------------------------- 1 LETTER TO SHAREHOLDERS (CONCLUDED) 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 great flexibility to shareholders, while providing general market incentive for discount reduction. Closed-end funds that maintain high payouts regardless of market conditions have shown a history of reducing or eliminating discounts, sometimes causing shares to trade at premiums. Furthermore, the distributions for 2002 are classified as return-of-capital, which defers capital gains taxes until significant profits are realized in future periods. ECONOMIC AND MARKET SUMMARY Many of the uncertainties that have depressed the financial markets for the past two years are still with us. World crisis in Afghanistan and Iraq have alternated headlines with the progressive uncovering of corporate fraud and greed among some of the largest companies in America, further burdening an already weak economy. Continued consumer spending and an active market for homes, however, provided some encouragement and much needed support. Like the U.S., most of the major global indices were down substantially. Some Asian economies turned in relatively strong performance, but even with the Euro's rise to a three year high against the dollar, many investors in Europe still finished behind the weak U.S. financial markets. Those seeking safer investments drove short-term Treasury yields down and prices up as they sought a safe haven from the volatility of equity markets. In recent months, the prospect of deflation has replaced inflation as a cause for concern. Short-term interest rates remained low through the year as the Federal Reserve reduced its benchmark rate to 1.25%. Most economists see mixed signals with regard to the overall health of the economy, but it is encouraging that we have finally seen a positive quarter after so many negative quarters. Some analysts have seen the beginnings of a foundation for a gradual recovery in the financial markets. However, it is likely that any strong positive turn in the markets will probably be delayed until there is a decisive resolution to the problem in Iraq. In any case, we are confident that our portfolio is well positioned with the strongest companies in our economy, and that our efforts to control expenses and reduce the discount will enhance long-term returns for our shareholders. 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 DECEMBER 31, 2002 (UNAUDITED) - -------------------------------------------------------------------------------- TOP TEN, BY SECTOR Percent of Sector Net Assets - -------------------------------------------------------------------------------- 1. Financials 17.9 2. Healthcare 14.6 3. Consumer Discretionary 13.4 4. Information Technology 12.9 5. Industrials 11.4 6. Consumer Staples 9.3 7. Energy 6.1 8. Telecommunication Services 5.9 9. Closed-end Domestic Funds 3.0 10. Utilities 2.4 TOP TEN HOLDINGS, BY ISSUER Percent of Holding Sector Net Assets ------------------------------------------------------------------------- 1. Microsoft Corp. Information Technology 3.8 2. General Electric Co. Industrials 3.0 3. John Hancock Bank & Thrift Closed-end Opportunity Fund Domestic Funds 3.0 4. Exxon Mobil Corp. Energy 2.9 5. Wal-Mart Stores, Inc. Consumer Discretionary 2.9 6. Merck & Co. Inc. Healthcare 2.5 7. Citigroup Inc. Financials 2.5 8. Pfizer Inc. Healthcare 2.0 9. Johnson & Johnson Healthcare 1.8 10. International Business Machines Corp. Information Technology 1.8 3
- -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2002 - -------------------------------------------------------------------------------- NO. OF VALUE DESCRIPTION SHARES (NOTE A) - -------------------------------------------------------------------------------- EQUITY SECURITIES - 98.84% CLOSED-END DOMESTIC FUNDS - 2.96% John Hancock Bank & Thrift Opportunity Fund 92,600 $698,204 ---------- CONSUMER DISCRETIONARY - 13.41% AOL Time Warner Inc.+ 14,250 186,675 Best Buy Co., Inc.+ 1,250 30,188 CarMax, Inc.+ 313 5,597 Carnival Corp. 2,700 67,365 Circuit City Stores, Inc. 1,000 7,420 Clear Channel Communications, Inc.+ 2,700 100,683 Comcast Corp., Class A+ 3,655 86,148 Comcast Corp., Special Class A+ 4,100 92,618 Costco Wholesale Corp.+ 2,500 70,150 CVS Corp. 1,000 24,970 Delphi Corp. 2,600 20,930 Dollar General Corp. 1,500 17,925 Eastman Kodak Co. 1,400 49,056 Federated Department Stores, Inc.+ 1,000 28,760 Ford Motor Co. 5,800 53,940 Gannett Co., Inc. 1,000 71,800 Gap, Inc. (The) 2,500 38,800 General Motors Corp. 2,600 95,836 Harley-Davidson, Inc. 1,400 64,680 Hilton Hotels Corp. 1,700 21,607 Home Depot, Inc. (The) 7,500 179,700 Kohl's Corp.+ 1,000 55,950 Limited Brands 2,500 34,825 Lowe's Companies, Inc. 2,500 93,750 Marriott International, Inc., Class A 1,100 36,157 Mattel, Inc. 1,500 28,725 May Department Stores Co. (The) 1,400 32,172 McDonald's Corp. 4,000 64,320 Monsanto Co. 580 11,165 - -------------------------------------------------------------------------------- NO. OF VALUE DESCRIPTION SHARES (NOTE A) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (CONTINUED) NIKE, Inc., Class B 1,300 $ 57,811 Omnicom Group Inc. 1,600 103,360 Sears, Roebuck & Co. 1,600 38,320 Staples, Inc.+ 1,500 27,450 Starbucks Corp.+ 1,700 34,646 Target Corp. 4,100 123,000 TJX Companies, Inc. (The) 2,500 48,800 Toys "R" Us, Inc.+ 1,000 10,000 Tribune Co. 1,000 45,460 Viacom Inc., non-voting Class B+ 5,400 220,104 Wal-Mart Stores, Inc. 13,500 681,885 Walt Disney Co. (The) 6,500 106,015 --------- 3,168,763 --------- CONSUMER STAPLES - 9.25% Anheuser-Busch Companies, Inc. 2,500 121,000 Archer-Daniels-Midland Co. 3,045 37,758 Campbell Soup Co. 2,000 46,940 Coca-Cola Co. (The) 6,300 276,066 Coca-Cola Enterprises Inc. 1,500 32,580 Colgate-Palmolive Co. 2,600 136,318 ConAgra Foods, Inc. 2,500 62,525 Del Monte Foods Co.+ 714 5,498 Gillette Co. (The) 3,000 91,080 H.J. Heinz Co. 1,600 52,592 J.M. Smucker Co. (The) 70 2,787 Kimberly-Clark Corp. 2,500 118,675 Kroger Co. (The)+ 1,300 20,085 Pepsi Bottling Group 1,000 25,700 PepsiCo, Inc. 5,600 236,432 Philip Morris Companies Inc. 6,900 279,657 Proctor & Gamble Co. (The) 4,000 343,760 Safeway Inc.+ 2,500 58,400 Sara Lee Corp. 1,300 29,263 Sysco Corp. 2,500 74,475 Walgreen Co. 4,600 134,274 --------- 2,185,865 --------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO. OF VALUE DESCRIPTION SHARES (NOTE A) - -------------------------------------------------------------------------------- ENERGY - 6.13% Andarko Petroleum Corp. 1,200 $ 57,480 Baker Hughes Inc. 1,100 35,409 Burlington Resources Inc. 1,000 42,650 CenterPoint Energy, Inc. 1,400 11,900 ChevronTexaco Corp. 4,325 287,526 ConocoPhillips 2,509 121,410 El Paso Corp. 2,500 17,400 Exxon Mobil Corp. 19,800 691,812 Marathon Oil Corp. 1,500 31,935 Reliant Resources, Inc. + 1,104 3,533 Schlumberger Ltd. 2,600 109,434 Unocal Corp. 1,200 36,696 --------- 1,447,185 --------- FINANCIALS - 17.85% AFLAC Inc. 2,600 78,312 Allstate Corp. (The) 3,300 122,067 American Express Co. 4,100 144,935 American International Group, Inc. 5,989 346,464 AmSouth Bancorp 1,800 34,560 Aon Corp. 1,200 22,668 Bank of America Corp. 4,300 299,151 Bank of New York Co., Inc. (The) 3,400 81,464 Bank One Corp. 2,800 102,340 Charles Schwab Corp. (The) 3,500 37,975 Charter One Financial, Inc. 1,102 31,660 Citigroup Inc. 16,500 580,635 Fannie Mae 1,500 96,495 Fifth Third Bancorp 2,000 117,100 FleetBoston Financial Corp. 4,100 99,630 Franklin Resources, Inc. 1,200 40,896 Freddie Mac 3,100 183,055 Goldman Sachs Group, Inc. (The) 1,500 102,150 Hartford Financial Services Group, Inc. (The) 1,000 45,430 Household International, Inc. 2,500 69,525 John Hancock Financial Services, Inc. 2,500 69,750 J.P. Morgan Chase & Co. 6,200 148,800 - -------------------------------------------------------------------------------- NO. OF VALUE DESCRIPTION SHARES (NOTE A) - -------------------------------------------------------------------------------- FINANCIALS (CONTINUED) Lehman Brothers Holdings Inc. 1,100 $ 58,619 Marsh & McLennan Companies, Inc. 2,600 120,146 MBNA Corp. 2,100 39,942 Mellon Financial Corp. 2,500 65,275 Merrill Lynch & Co., Inc. 3,700 140,415 MetLife, Inc. 3,500 94,640 Moody's Corp. 1,000 41,290 Morgan Stanley 2,500 99,800 Northern Trust Corp. 1,000 35,050 Principal Financial Group 2,500 75,325 St. Paul Companies, Inc. (The) 1,000 34,050 Synovus Financial Corp. 1,300 25,220 Travelers Property Casualty Corp., Class A+ 712 10,431 Travelers Property Casualty Corp., Class B+ 1,464 21,448 UnumProvident Corp. 1,100 19,294 U.S. Bancorp 6,201 131,585 Washington Mutual, Inc. 2,800 96,684 Wells Fargo & Co. 5,400 253,098 --------- 4,217,374 --------- HEALTHCARE - 14.58% Abbott Laboratories 5,000 200,000 Advanced Medical Optics, Inc.+ 222 2,657 Allergan, Inc. 1,000 57,620 Amgen Inc.+ 4,300 207,862 Baxter International Inc. 2,800 78,400 Becton, Dickinson & Co. 1,200 36,828 Boston Scientific Corp.+ 1,500 63,780 Bristol-Myers Squibb Co. 6,400 148,160 Cardinal Health, Inc. 1,950 115,421 Eli Lilly & Co. 2,800 177,800 Guidant Corp.+ 1,400 43,190 HCA Inc. 1,500 62,250 Healthsouth Corp.+ 1,800 7,560 Johnson & Johnson 8,000 429,680 McKesson Corp. 1,300 35,139 MedImmune, Inc+ 1,000 27,170 Medtronic, Inc. 4,000 182,400 See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2002 - -------------------------------------------------------------------------------- NO. OF VALUE DESCRIPTION SHARES (NOTE A) - -------------------------------------------------------------------------------- HEALTHCARE (CONTINUED) Merck & Co. Inc. 10,500 $594,405 Pfizer Inc. 15,100 461,607 Pharmacia Corp. 3,400 142,120 Schering-Plough Corp. 4,200 93,240 Tenet Healthcare Corp.+ 2,250 36,900 UnitedHealth Group Inc. 1,000 83,500 Wyeth 4,200 157,080 --------- 3,444,769 --------- INDUSTRIALS - 11.44% 3M Co. 1,200 147,960 Automatic Data Processing, Inc. 2,900 113,825 Boeing Co. (The) 2,600 85,774 Burlington Northern Sante Fe Corp. 1,900 49,419 Caterpillar Inc. 1,600 73,152 Cendant Corp.+ 3,300 34,584 Concord EFS, Inc.+ 2,500 39,350 CSX Corp. 1,000 28,310 Emerson Electric Co. 2,000 101,700 FedEx Corp. 1,000 54,220 General Dynamics Corp. 600 47,622 General Electric Co. 28,700 698,845 Honeywell International Inc. 3,600 86,400 IMS Health Inc. 1,400 22,400 Illinois Tools Works Inc. 1,400 90,804 Imagistics International, Inc.+ 88 1,760 Ingersoll-Rand Co., Class A 1,000 43,060 Lockheed Martin Corp. 2,500 144,375 Masco Corp. 2,500 52,625 Paychex, Inc. 1,700 47,430 Pitney Bowes Inc. 1,100 35,926 Raytheon Co. 1,600 49,200 Southwest Airlines Co. 3,750 52,125 Tyco International Ltd. 6,397 109,261 Union Pacific Corp. 1,000 59,870 United Parcel Service, Inc., Class B 3,500 220,780 United Technologies Corp. 2,500 154,850 Waste Management, Inc. 2,500 57,300 --------- 2,702,927 --------- - -------------------------------------------------------------------------------- NO. OF VALUE DESCRIPTION SHARES (NOTE A) - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY - 12.86% Adobe Systems Inc. 1,100 $ 27,401 Agere Systems Inc., Class A+ 125 180 Agere Systems Inc., Class B+ 3,068 4,295 Agilent Technologies, Inc.,+ 1,500 26,940 Altera Corp.+ 1,900 23,446 Analog Devices, Inc.+ 1,700 40,579 Apple Computer, Inc.+ 1,500 21,495 Applied Materials, Inc.+ 4,900 63,847 Computer Associates International, Inc. 2,700 36,450 Dell Computer Corp.+ 7,200 192,528 Electronic Arts Inc.+ 1,000 49,770 Electronic Data Systems Corp. 2,500 46,075 EMC Corp.+ 7,000 42,980 Hewlett-Packard Co. 8,100 140,616 Intel Corp. 21,600 336,312 International Business Machines Corp. 5,500 426,250 Linear Technology Corp. 1,500 38,580 LSI Logic Corp.+ 1,500 8,655 Maxim Intergrated Products, Inc. 1,300 42,952 Micron Technology, Inc.+ 2,600 25,324 Microsoft Corp.+ 17,300 894,410 Motorola, Inc. 7,100 61,415 NVIDIA Corp.+ 1,000 11,510 Oracle Corp.+ 17,800 192,240 QUALCOMM Inc.+ 1,500 54,585 Skyworks Solutions, Inc.+ 386 3,327 Solectron Corp.+ 3,700 13,135 SunGard Data Systems Inc.+ 2,500 58,900 Sun Microsystems, Inc.+ 10,000 31,100 Texas Instruments Inc. 5,400 81,054 Yahoo! Inc.+ 2,500 40,875 --------- 3,037,226 --------- MATERIALS - 2.12% Alcoa Inc. 4,200 95,676 Dow Chemical Co. (The) 2,700 80,190 E.I. du Pont de Nemours & Co. 3,300 139,920 Georgia-Pacific Corp. 1,000 16,160 International Paper Co. 2,500 87,425 Rohm & Haas Co. 1,000 32,480 Weyerhaeuser Co. 1,000 49,210 --------- 501,061 --------- See accompanying notes for financial statements. - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. SCHEDULE OF INVESTMENTS - DECEMBER 31, 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO. OF VALUE DESCRIPTION SHARES (NOTE A) - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES - 5.86% ALLTEL Corp. 1,500 $ 76,500 AT&T Corp. 2,260 59,009 AT&T Wireless Services Inc.+ 8,534 48,217 BellSouth Corp. 6,000 155,220 Cisco Systems, Inc.+ 23,500 307,850 Lucent Technologies Inc.+ 11,600 14,616 Nextel Communications, Inc., Class A+ 2,600 30,030 SBC Communications Inc. 10,700 290,077 Sprint Corp. (FON Group) 4,000 57,920 Sprint Corp. (PCS Group)+ 1,800 7,884 Verizon Communications Inc. 8,700 337,125 --------- 1,384,448 --------- UTILITIES - 2.38% American Electric Power Company, Inc. 1,500 40,995 Dominion Resources, Inc. 1,100 60,390 Duke Energy Corp. 2,500 48,850 Edison International+ 1,500 17,775 Exelon Corp. 1,500 79,155 FPL Group, Inc. 1,000 60,130 NiSource Inc. 1,000 20,000 PG&E Corp.+ 1,800 25,020 Progress Energy, Inc. 1,000 43,350 Public Service Enterprises Group Inc. 1,000 32,100 Sempra Energy 1,000 23,650 Southern Co. (The) 2,500 70,975 TXU Corp. 1,200 22,416 Xcel Energy, Inc. 1,600 17,600 --------- 562,406 --------- TOTAL EQUITY SECURITIES - 98.84% (cost - $32,456,792) 23,350,228 --------- - -------------------------------------------------------------------------------- PRINCIPAL VALUE DESCRIPTION AMOUNT (NOTE A) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT - 1.74% REPURCHASE AGREEMENT - 1.74% Bear, Stearns & Co. Inc. (Agreement dated 12/31/02 to be repurchased at $411,204), 1.10%, 01/02/03 (cost - $411,179) (Note F) $411 $ 411,179 TOTAL INVESTMENTS - 100.58% ---------- (cost - $32,867,971) (Notes A,C) 23,761,407 ---------- LIABILITIES IN EXCESS OF OTHER ASSETS - (0.58)% (136,565) ---------- NET ASSETS - 100.00% $23,624,842 =========== + Non-income producing security.
See accompanying notes to financial statemetns. - -------------------------------------------------------------------------------- 7
- -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2002 - -------------------------------------------------------------------------------- ASSETS Investments, at value (Cost $32,867,971) (Notes A, G) $ 23,761,407 Cash collateral received for securities loaned (Note E) 86,887 Receivables: Investments sold 51,325 Dividends 37,967 Interest 320 Prepaid expenses 7,351 ------------ Total Assets 23,945,257 ------------ LIABILITIES Payables: Upon return of securities loaned (Note E) 86,887 Investments purchased 79,218 Capital stock repurchased 58,541 Investment management fee (Note B) 17,829 Other accrued expenses 77,940 ------------ Total Liabilities 320,415 ------------ NET ASSETS (applicable to 1,151,324 shares of common stock outstanding) $ 23,624,842 ============ NET ASSET VALUE PER SHARE ($23,624,842 / 1,151,324) $ 20.52 ============ NET ASSETS CONSISTS OF Capital stock, $0.001 par value; 1,151,324 shares issued and outstanding (100,000,000 shares authorized) $ 1,151 Paid-in capital 46,048,658 Cost of 9,093 shares repurchased (172,403) Accumulated net realized loss on investments (13,146,000) Net unrealized depreciation in value of investments (9,106,564) ------------ Net assets applicable to shares outstanding $ 23,624,842 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 8
- -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2002 - -------------------------------------------------------------------------------- INVESTMENT LOSS Income (Note A): Dividends $ 489,213 Interest 18,963 Less: Foreign taxes withheld (1,477) ----------- Total Investment Income 506,699 ----------- Expenses: Investment management fees (Note B) 301,557 Legal and audit fees (Note B) 78,435 Merger fees 77,513 Directors' fees 53,601 Administration fees 50,000 Accounting fees 29,828 Printing 28,502 Transfer agent fees 24,665 NYSE listing fees 23,750 Insurance 9,519 Custodian fees 8,369 Other 12,548 ----------- Total Expenses 698,287 Less: Management fee waivers (Note B) (97,990) Less: Fees paid indirectly (Note B) (28,805) ----------- Net Expenses 571,492 ----------- Net Investment Loss (64,793) ----------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss from investments (974,824) Net change in unrealized depreciation in value of investments (7,187,168) ----------- Net realized and unrealized loss on investments (8,161,992) ----------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(8,226,785) ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 9
- -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, ------------------ 2002 2001 ---- ---- DECREASE IN NET ASSETS Operations: Net in vestment in come/(loss) $ (64,793) $ 7,386 Net realized loss on in vestments (974,824) (4,384,728) Net change in unrealized depreciation in value of investments (7,187,168) (2,439,912) ------------ ------------ Net decrease in net assets resulting from operations (8,226,785) (6,817,254) ------------ ------------ Distributions to shareholders (Note A, G): Return-of-capital (12,692,520) (4,228,516) ------------ ------------ Capital stock transactions* (N ote D): Proceeds from 59,181 shares issued from treasury in reinvestment of distributions 1,815,669 -- Proceeds from 52,350 shares newly issued in reinvestment of distributions 1,216,519 -- Cash paid in-lieu of an aggregate of 36 fractional shares (1,000) -- Cost of 17,300 and 50,975 shares repurchased, respectively (334,483) (1,947,040) ------------ ------------ Net increase/(decrease) in net assets resulting from capital stock transactions 2,696,705 (1,947,040) ------------ ------------ Total decrease in net assets (18,222,600) (12,992,810) ------------ ------------ NET ASSETS Beginning of year 41,847,442 54,840,252 ------------ ------------ End of year $ 23,624,842 $ 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 year indicated. This information has been derived from information provided in the financial statements and market price data for the Fund's shares.
FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000 1999 1998 1997 1996 1995 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year $ 39.60 $ 49.48 $ 61.84 $ 73.24 $ 77.80 $ 69.72 $ 53.16 $ 57.32 Net investment income/ (loss) (0.06)# -#* (0.04)# 0.36# 0.48 0.20 0.44 0.68 Net realized and unrealized gain/(loss) on investments and foreign currency related translations, if any (7.22) (6.20) (12.68) (3.60) 17.80 24.48 16.44 (4.12) Net increase/(decrease) in net assets resulting from operations (7.28) (6.20) (12.72) (3.24) 18.28 24.68 16.88 (3.44) Dividends and distributions to shareholders: Net investment income -- -- --* (0.32) (0.28) (0.04) (0.32) (0.60) Net realized gain on investments and foreign currency related transactions -- -- (1.04) (8.32) (22.48) (16.52) -- (0.12) Return of capital (11.61) (4.00) -- -- -- -- -- -- Total dividends and distributions to shareholders (11.61) (4.00) (1.04) (8.64) (22.76) (16.56) (0.32) (0.72) Capital stock transactions; Anti-dilutive effect due to capital stock repurchased 0.04 0.32 1.40 0.48 -- -- -- -- Dilutive effect due to shares issued in reinvestment of dividends and distributions (0.23) -- -- -- (0.08) (0.04) -- -- Total capital stock transactions (0.19) 0.32 1.40 0.48 (0.08) (0.04) -- -- Net asset value, end of year $ 20.52 $ 39.60 $ 49.48 $ 61.84 $ 73.24 $ 77.80 $ 69.72 $ 53.16 Market value, end of year $ 18.950 $35.800 $ 38.000 $52.252 $ 62.500 $ 63.252 $55.000 $ 44.500 Total investment return (a) (20.28)% 4.04% (27.27)% (1.84)% 32.56% 43.21% 24.28% (18.65)% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000 omitted) $ 23,625 $ 41,847 54,840 $ 78,609 $98,084 $103,444 $ 92,399 $70,431 Ratio of expenses to average net assets, net of fee waivers, if any 1.90%(b) 1.63%(b) 2.46% 2.10% 1.50% 1.56% 1.62% 1.58% Ratio of expenses to average net assets, excluding fee waivers, if any 2.31%(c) 1.73%(c) 2.65% 2.28% 1.66% 1.73% 1.81% 1.76% Ratio of expenses to average net assets, net of fee waivers but excluding fees paid indirectly, if any 1.99% 1.72% -- -- -- -- -- -- Ratio of net investment income/(loss) to average net assets (0.21)% 0.02% (0.06)% 0.59% 0.51% 0.23% 0.75% 1.18% Portfolio turnover rate 29.91% 36.17% 38.13% 39.60% 48.52% 72.25% 35.94% 35.73% 1994 1993 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year $ 50.08 $ 35.60 Net investment income/ (loss) 0.24 0.28 Net realized and unrealized gain/(loss) on investments and foreign currency related translations, if any 7.24 14.20 Net increase/(decrease) in net assets resulting from operations 7.48 14.48 Dividends and distributions to shareholders: Net investment income (0.24) -- Net realized gain on investments and foreign currency related transactions -- -- Return of capital -- -- Total dividends and distributions to shareholders (0.24) -- Capital stock transactions; Anti-dilutive effect due to capital stock repurchased -- -- Dilutive effect due to shares issued in reinvestment of dividends and distributions -- -- Total capital stock transactions -- -- Net asset value, end of year $ 57.32 $ 50.08 Market value, end of year $ 55.500 $56.500 Total investment return (a) (1.35)% 76.56% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000 omitted) $ 75,908 $66,351 Ratio of expenses to average net assets, net of fee waivers, if any 1.41% 1.97% Ratio of expenses to average net assets, excluding fee waivers, if any 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 0.43% 0.66% Portfolio turnover rate 15.47% 24.47% 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. (b) Expenses are net of fees paid indirectly. (c) Expenses exclude fees paid indirectly. See accompanying notes to financial statements.
11 - -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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. 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 shall be 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 December 31, 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 seller's 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 daily, the 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 PROGRESSIVE RETURN FUND, INC. 12 - -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 relieve it from all or substantially all U.S. federal income and excise taxes. 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, h t e 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 lo ng-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. Effective July 1, 2002, Cornerstone has voluntarily agreed to waive its management fees to the Fund to the extent monthly operating expenses exceed 0.10% of average net assets calculated monthly. Such undertaking continued through the end of 2002 and Cornerstone has voluntarily agreed to continue the undertaking until December 2003. For the year ended December 31, 2002, Cornerstone earned $301,557, for investment management services of which it waived $97,990. Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY, are expense offsets of $28,805 arising from credits earned on portfolio transactions executed with a broker, pursuant to a directed brokerage arrangement. The Fund paid or accrued approximately $87,000, of which $25,000 was attributable to merger expense, for the year ended December 31, 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 December 31, 2002, pursuant to regulatory filings, a single shareholder and his affiliates owned approximately 60% of the outstanding shares of the Fund based on a Schedule 13G/A filing with the Securities and Exchange Commission filed on February 7, 2003. 13 - -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- For the year ended December 31, 2002, purchases and sales of securities, other than short-term investments, were $9,051,526 and $23,034,757, respectively. 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 year ended December 31, 2002, the Fund repurchased 17,300 of its shares for a total cost of $334,483 at a weighted average discount of 11.70% from net asset value. The discount of the individual repurchases ranged from 7.11% - 15.58%. 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 8.26% - 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 are made in accordance with federal securities laws, with shares repurchased held in treasury, effective January 1, 2002. NOTE E. SECURITIES LENDING To generate additional income, the Fund may lend up to 33 1/3% 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 December 31, 2002 was $83,884 and $86,887, respectively. Any cash collateral received is reinvested into repurchase 14 - -------------------------------------------------------------------------------- PROGRESSIVE RETURN FUND, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- agreements, which in turn is collateralized by various U.S. Government and Agency securities. During the year ended December 31, 2002, the Fund earned $644 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 December 31, 2002. PRINCIPAL AMOUNT MARKET ISSUER (000'S) MATURITY VALUE - ------ --------- ---------- --------- United States Treasury Bond (interest only) $1,015 2/15/20 $ 420,017 ========= NOTE G. FEDERAL INCOME TAXES Income and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments of losses deferred due to wash sales and Post-October losses (as later defined), and excise tax regulations. At December 31, 2002, the components of distributable earnings on a tax basis, for the Fund were as follows: Capital loss carryforward $(13,146,000) Unrealized depreciation (9,106,564) ------------ Total loss $(22,252,564) ============ Under current tax law, certain capital losses realized after October 31 within a taxable year may be deferred and treated as occurring on the first day of the following tax year ("Post-October losses"). For the tax period ended December 31, 2002, the Fund did not realize any of these losses. At December 31, 2002, the Fund had a capital loss carryforward for U.S. federal income tax purposes of $13,146,000 of which $1,587,989 expires in 2008, $10,192,955 expires in 2009 and $1,365,056 expires in 2010. At December 31, 2002, the identified cost for federal income tax purposes, as well as the gross unrealized appreciation from investments for those securities having an excess of value over cost, gross unrealized depreciation from investments for those securities having an excess of cost over value and the net unrealized depreciation from investments were $32,867,971, $34,629, $(9,141,193) and $(9,106,564), respectively. At December 31, 2002, the Fund reclassified $64,793 from net investment loss to paid-in capital and $4,221,130 from distributions in excess of net investment income to paid-in capital, to adjust for current period permanent book/tax differences. In addition, the Fund reclassified a gain of $293,451 from shares repurchased to paid-in capital. Net assets were not affected by these reclassifications. All distributions made in 2002 and 2001 were return of capital for tax purposes. 15 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Progressive Return Fund, Inc. New York, New York We have audited the accompanying statement of assets and liabilities of Progressive Return Fund, Inc., including the schedule of investments, as of December 31, 2002, and the related statement of operations, the statement of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended December 31, 2001 and the financial highlights for each of the nine years in the period then ended have been audited by other auditors, whose report dated February 18, 2002 expressed an unqualified opinion on such financial statement and financial highlights. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Progressive Return Fund, Inc. as of December 31, 2002, the results of its operations, the changes in its net assets, and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 12, 2003 16 RESULTS OF SPECIAL MEETING OF STOCKHOLDERS (UNAUDITED) On October 11, 2002, the Special Meeting of Stockholders of Progressive Return Fund, Inc. (the "Fund") was held and the following matters were voted upon: 1. To approve the Merger Agreement and Plan of Reorganization. FOR AGAINST ABSTAIN 193,069 580,718 1,707 2. In the event that Merger Agreement and Plan or Reorganization is approved, then to amend the Articles of Incorporation to change the name of the Fund from "Progressive Return Fund, Inc." to "Progressive Total Return Fund, Inc." FOR AGAINST ABSTAIN 764,381 8,870 2,243 TAX INFORMATION (UNAUDITED) Progressive Return Fund, Inc. (the "Fund") is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of the Fund's year end (December 31, 2002) as to the U.S. federal tax status of distributions received by the Fund's shareholders in respect of such fiscal year. During the year ended December 31, 2002 the following distributions per share were paid by the Fund: Payment Date: 1/11/02 3/4/02 5/31/02 7/31/02 Return-of-Capital: $ 4.00 $ 8.00 $ 2.00 $ 0.2675 Payment Date: 8/30/02 9/30/02 10/31/02 11/29/02 12/31/02 Return-of-Capital: $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675 These distributions represent a return of your investment and those distributions made prior to May 31, 2002 have been adjusted for the one-for-four reverse stock split that was effective May 6, 2002. As return-of-capital distributions, they are not taxed as ordinary income dividends and are sometimes referred to as tax-free dividends or nontaxable distributions. A return-of-capital distribution reduces th e cost basis of your shares in the Fund. Notification for calendar year 2002 was mailed in January 2003. The notification along with Form 1099-DIV reflects the amount to be used by calendar year taxpayers on their U.S. federal income tax returns. Foreign shareholders generally will not be subject to U.S. withholding tax on the amount of their non-taxable distributions. In general, distributions received by tax exempt recipients (e.g., IRA's and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g. corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. 17 ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED)
POSITION(S) PRINCIPAL OCCUPATION POSITION WITH NAME AND ADDRESS (AGE) HELD WITH FUND OVER LAST 5 YEARS FUND SINCE - ---------------------------------------------------------------------------------------------------------------------------- Ralph W. Bradshaw* (52) Chairman of the President, Director and Shareholder of 1999; current term One West Pack Square Board of Cornerstone Advisors, Inc.; Financial ends at the 2005 Suite 1650 Directors and Consultant; Vice President, Deep Discount Annual Meeting. Asheville, NC 28801 President Advisors, Inc. (1993-1999); Previous Director of The Austria Fund, Inc.; Director of The SMALLCap Fund, Inc., Cornerstone Total Return Fund, Inc., and Cornerstone Strategic Value Fund, Inc. Thomas H. Lenagh (80) Director Chairman of the Board of Inrad Corp.; 2001; current 13 Allen's Corner Rd. Independent Financial Adviser; Director of term ends at the Flemington, NJ 08822 Cornerstone Strategic Value Fund, Inc., 2004 Annual Cornerstone Total Return Fund, Inc., Meeting. Gintel Fund, The Adams Express Company and Petroleum and Resources Corporation Edwin Meese III (71) Director Distinguished Fellow, The Heritage 2001; current The Heritage Foundation Foundation, Washington D.C.; term ends at the 214 Massachusetts Ave. NE Distinguished Visiting Fellow at the 2005 Annual Washington D.C. 20002 Hoover Institution, Stanford University; Meeting. Distinguished Senior Fellow at the Institute of United States Studies, University of London; Formerly U.S. Attorney General under President Ronald Reagan; Director of Cornerstone Total Return Fund, Inc. and Cornerstone Strategic Value Fund, Inc.
18 ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED) (CONTINUED)
POSITION(S) PRINCIPAL OCCUPATION POSITION WITH NAME AND ADDRESS (AGE) HELD WITH FUND OVER LAST 5 YEARS FUND SINCE - ---------------------------------------------------------------------------------------------------------------------------- Scott B. Rogers (47) Director Chief Executive Officer, Asheville 2000; current 30 Cumberland Ave. Buncombe Community Christian Ministry; term ends at the Asheville, NC 28801 President, ABCCM Doctor's Medical 2003 Annual Clinic; Director, Southeastern Jurisdiction Meeting. Urban Networkers; Director, A-B Vision Board, Appointee, NC Governor's Commission on Welfare to Work; Chairman and Director, Recycling Unlimited; Director, Interdenominational Ministerial Alliance; Director of Cornerstone Strategic Value Fund, Inc. and Cornerstone Total Return Fund, Inc. Andrew A. Strauss (49) Director Attorney and senior member of Strauss & 2000; current 77 Central Avenue Associates, P.A., Attorneys, Asheville and term ends at the Suite F Hendersonville, NC; previous President of 2004 Annual Asheville, NC 28801 White Knight Healthcare, Inc. and LMV Meeting. Leasing, Inc., a wholly owned subsidiaryof Xerox Credit Corporation; Director of Cornerstone Strategic Value Fund, Inc., Cornerstone Total Return Fund, Inc., The SMALLCap Fund, Inc., Memorial Mission Hospital Foundation, Deerfield Episcopal Retirement Community and Asheville Symphony. Glenn W. Wilcox, Sr. (71) Director Chairman of the Board and Chief 2000; current One West Pack Square Executive Officer of Wilcox Travel term ends at Suite 1700 Agency, Inc.; Director, Champion the 2003 Asheville, NC 28801 Industries, Inc.; Chairman of Tower Annual Associates, Inc. (a real estate venture); Meeting. Director, Wachovia Corp.; Board Trustee and Chairman, Appalachian State University; Board Trustee and Director, Mars Hill College; Director of The SMALLCap Fund, Inc., Cornerstone Strategic Value Fund, Inc., and Cornerstone Total Return Fund, Inc.
19 ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED) (CONCLUDED)
POSITION(S) PRINCIPAL OCCUPATION POSITION WITH NAME AND ADDRESS (AGE) HELD WITH FUND OVER LAST 5 YEARS FUND SINCE - ---------------------------------------------------------------------------------------------------------------------------- Gary A. Bentz* (46) Director, Vice Chief Financial Officer and Shareholder of Director since One West Pack Square President and Cornerstone Advisors, Inc.; Previous 2002; current term Suite 1650 Treasurer Director of The Austria Fund, Inc.; Financial ends at the 2003 Asheville, NC 28801 Consultant, Certified Public Accountant; Annual Meeting, Chief Financial Officer of Deep Discount Vice President and Advisors, Inc. (1993-2000); Director, Vice Treasurer since President and Treasurer of Cornerstone 2001 Total Return Fund, Inc. and Cornerstone Strategic Value Fund, Inc. Thomas R. Westle (49) Secretary Partner, Spitzer & Feldman P.C. (May 2000 405 Park Avenue 1998-present); Secretary of Cornerstone New York, NY 10022 Strategic Value Fund, Inc. and Cornerstone Total Return Fund, Inc.
* Designates a director who is an "interested person" of the Fund as defined by the Investment Company Act of 1940. Messrs. Bradshaw and B entz are int erestedp ersons of th e Fund by virtue of their current positions with the Investment Manager of the Fund. 20 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 American Stock Exchange 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 DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED) (CONCLUDED) 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. 21 Brokerage charges for purchasing 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. 22 SUMMARY OF GENERAL INFORMATION The Fund - Progressive Return Fund, Inc. is a closed-end, non-diversified management investment company whose shares trade on the American Stock Exchange. Its investment objective is to seek total return, consisting of capital appreciation and current income by investing primarily all of its assets in equity securities of U.S. and non-U.S. issuers whose securities trade on a U.S. securities exchange or over the counter or as American Depositary Receipts or other forms of depositary receipts which trade in the United States. The Fund is managed by Cornerstone Advisors, Inc. SHAREHOLDER INFORMATION Effective February 21, 2003, the Fund is listed on the American 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 "ProgresvFd ." - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 23 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. 24 PROGRESSIVE RETURN FUND, INC. ================================================================================ DIRECTORS AND CORPORATE OFFICERS Ralph W. Bradshaw Chairman of the Board of Directors and President Gary A. Bentz Director, Vice President and Treasurer Thomas H. Lenagh Director Edwin Meese III Director Scott B. Rogers Director Andrew A. Strauss Director Glenn W. Wilcox, Sr. Director Thomas R. Westle Secretary STOCK TRANSFER AGENT AND INVESTMENT MANAGER REGISTRAR Cornerstone Advisors, Inc. American Stock Transfer One West Pack Square & Trust Co. Suite 1650 59 Maiden Lane Asheville, NC 28801 New York, NY 10038 ADMINISTRATOR INDEPENDENT ACCOUNTANTS Bear Stearns Funds Tait, Weller & Baker Management Inc. 1818 Market Street 383 Madison Avenue Suite 2400 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. [GRAPHIC OMITTED HERE] This report, including the financial statements herein, is sent to the shareholders of the Fund for their information. 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. -----END PRIVACY-ENHANCED MESSAGE-----