================================================================================
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
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================================================================================
================================================================================
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.