================================================================================
PROGRESSIVE RETURN FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2001
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CONTENTS
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Letter to Shareholders .................................................... 1
Portfolio Summary ......................................................... 4
Schedule of Investments ................................................... 5
Statement of Assets and Liabilities ....................................... 12
Statement of Operations ................................................... 13
Statement of Changes in Net Assets ........................................ 14
Financial Highlights ...................................................... 15
Notes to Financial Statements ............................................. 16
Report of Independent Accountants ......................................... 20
Description of Dividend Reinvestment & Cash Purchase Plan ................. 21
Additional Information Regarding the Fund's Directors and Officers ........ 22
Summary of General Information ............................................ 24
Shareholder Information ................................................... 24
Privacy Policy Notice ..................................................... 25
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LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
January 31, 2002
Dear Fellow Shareholder:
Our annual report for Progressive Return Fund, Inc. (the "Fund") covering the
year ended December 31, 2001 follows. At the end of the year, the Fund's net
assets were $41.8 million and the Net Asset Value ("NAV") per share was $9.90.
The discount from NAV at which the Fund's shares traded improved markedly to
9.60% at the end of the year from 23.20% at the beginning of the year.
Investment focus changed to a much broader diversification in U.S. and non-U.S.
equities. Early in the year, officers of the Fund managed the portfolio
internally. Shareholders confirmed the choice of Cornerstone Advisors, Inc. as
investment manager at the Fund's annual meeting in April 2001.
ECONOMIC AND MARKET SUMMARY
Investors in 2001 faced a very difficult year as the market continued the
decline that started in 2000. As the economy stalled into recession in March and
earnings disappointments flooded the news, even aggressive support by the
Federal Reserve in lowering short-term interest rates had limited effect. The
tragic events of September 11th finally pushed markets into a tumultuous, but
brief, free-fall.
The negative momentum accelerated in the third quarter with the S&P 500 Index
posting a decline of 14.9%, its biggest quarterly drop since the crash of 1987,
and leaving this U.S. equity index down 21.2% for the first nine months of 2001.
The sorry state of the economy was confirmed by a 1.3% quarterly decline in the
U.S. Gross Domestic Product (GDP), the broadest gauge of economic health. Even
an encouraging rebound in the fourth quarter still left the index down 13.0% for
all of 2001. Most sectors returned double-digit losses with telecommunications,
information technology, and utilities hit particularly hard. With recession
dampening exports, and currencies weakening against the dollar, most
international markets fared even worse. The Morgan Stanley Capital International
Europe Australasia Far East Index, representing developed global markets,
tumbled 22.6% for the year.
However, as economic data comes in for the fourth quarter, the outlook for
economic recovery looks increasingly positive. The GDP increased 0.2% in this
final quarter of 2001, defying economists' previous expectations for a decline
of 1.0%. Nevertheless, this still left GDP up only 1.1% for the year, a weak
performance not seen since the 0.5% decline in 1991, in the midst of the last
recession. Fourth quarter economic activity was aided by rising government
spending, as the war on terrorism continued, as well as by continuing strong
consumer spending on items such as automobiles. Government spending grew 9.2%,
the biggest rise in fifteen years. Total consumer spending jumped 5.4%, with
durable goods purchases rising a sizzling 38.4%, the largest increase since
1986. As a result, companies saw their inventories drop by an amazing $120.6
billion in the quarter, the largest decline ever recorded. Unlike households,
businesses continued to keep a tight rein on spending. Plant and equipment
expenditures dove 12.8% in the fourth quarter, which followed a drop of 8.5% in
the third quarter.
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1
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LETTER TO SHAREHOLDERS (CONTINUED)
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PORTFOLIO PERFORMANCE
In this challenging climate, the Fund posted a -11.62% total return on NAV for
the year. By comparison, the S&P 500 Index fell 13.0% during the same period.
Moving the portfolio from the beginning of the year focus in international
equities to more broadly diversified U.S. equities proved to be beneficial. This
reduction in international exposure allowed the Fund to avoid much of the
adverse currency impact from the strong dollar and to concentrate on domestic
equities.
In spite of the generally disappointing performance in information technology,
several of our largest positions in this sector proved to be strong performers
and finished the year with solid gains. As in the first half of the year, the
Fund benefited from the positive performance of several investments in financial
services. Investments in consumer sectors, including retail and healthcare
products, also produced positive returns for both the second half and for the
full year.
OUTLOOK
The Federal Reserve was impressed enough by positive signs in the economy that
it brought an end to the year-long campaign of interest rate cuts. At their just
completed meeting on January 30, 2002, policymakers left their benchmark rate
unchanged at 1.75%, a 40-year low. The Fed did, however, reiterate its
long-standing warning that economic weakness, not possible future inflation,
remains the main concern for the U.S. economy.
Going forward, we believe there is increasing evidence that the economy may have
bottomed out and will begin to recover in the first half of 2002. Last quarter's
unprecedented depletion of business inventories bodes well for a rebound.
Companies will need to ramp up production significantly to replace these
depleted goods, helping to fuel GDP growth for future quarters. Unemployment is
likely to edge up slightly in the first quarter of 2002, possibly to 5.9%, the
highest level in almost seven years, even as the rate of job losses slows and
the economic outlook continues to brighten. This expected bottoming out of job
losses should be a firm signal that the recession has ended and economic
recovery is firmly at hand.
We see that the stock market record of the past few years supports time-tested
principles of equity investing and are confident that our strategies, which are
consistent and conservative, will prove their worth. We continue to maintain
that our approach involving a long-term perspective, with an emphasis on broad
diversification, balanced asset allocation and liquidity, and our current U.S.
equity focus, are appropriate for the shareholders of our Fund. The Board
continues to emphasize using the Fund's unique advantages to enhance long-term
capital appreciation. Under the Board's leadership:
- The investment manager was able to use the investment flexibility
given by the stockholders to broadly diversify the Fund's holdings.
- The program of repurchasing the Fund's shares has continued. Through
December 31, 2001, a total of 1,126,900 shares had been bought by the Fund,
representing 21.04% of the shares outstanding at the start of the program. In
effect, this repurchasing of shares at a discount allows the Fund to purchase
its portfolio at below market prices. It has provided a direct benefit to those
remaining as shareholders by increasing the Fund's NAV. It has also provided
additional liquidity for those shareholders desiring to sell their Fund shares.
================================================================================
2
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LETTER TO SHAREHOLDERS (CONCLUDED)
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- The level of expenses has been substantially reduced. Even with the
lower level of assets, the expense ratio has dropped. An emphasis on
cost control, changes in service providers, and fee waivers by the
investment manager all helped to keep costs lower than in the past.
- The Fund made a distribution in excess of net investment income of
$1.00 per share which was declared on December 14, 2001 with an
ex-date of December 29, 2001. Tax treatment of such distribution will
be determined at the end of the Fund's December 31, 2002 fiscal year
upon which time the Fund will furnish tax documentation, as necessary.
The Fund's dividend reinvestment plan gives shareholders the choice
between receiving their distributions in cash or reinvesting in shares
issued from the Fund's treasury share balance.
We believe that our highly diversified portfolio will enable Progressive Return
Fund, Inc. to produce excellent returns for the long-term investor. We know you
have a choice, we thank you for your support, and we look forward to continuing
to serve you in the future.
Sincerely,
/s/ RALPH W. BRADSHAW
---------------------
Ralph W. Bradshaw
Chairman
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3
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PROGRESSIVE RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2001 (UNAUDITED)
--------------------------------------------------------------------------------
TOP TEN, BY SECTOR
Percent of
Sector Net Assets
--------------------------------------------------------------------------------
1. Drugs (Major Pharmaceuticals) 11.5
--------------------------------------------------------------------------------
2. Manufacturing (Diversified) 7.5
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3. Computers (Software & Services) 7.3
--------------------------------------------------------------------------------
4. Computers (Hardware) 5.8
--------------------------------------------------------------------------------
5. Insurance (Property-Casualty) 4.9
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6. Banks (Money Center) 4.2
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7. Oil (International Integrated) 3.9
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8. Telephone 3.6
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9. Retail (Discounters) 3.4
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10. Electronics (Semiconductors) 3.4
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. Microsoft Corp. Computers (Software & Services) 5.4
--------------------------------------------------------------------------------
2. General Electric Co. Manufacturing (Diversified) 4.3
--------------------------------------------------------------------------------
3. International Business
Machines Corp. Computers (Hardware) 4.2
--------------------------------------------------------------------------------
4. Pfizer Inc. Drugs (Major Pharmaceuticals) 2.8
--------------------------------------------------------------------------------
5. Citigroup Inc. Insurance (Property-Casualty) 2.8
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6. Wal-Mart Stores, Inc. Retail (Discounters) 2.8
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7. Intel Corp. Electronics (Semiconductors) 2.3
--------------------------------------------------------------------------------
8. Royal Dutch Petroleum Co. Oil (International Integrated) 2.2
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9. John Hancock Bank & Thrift
Opportunity Fund Closed-End Domestic Funds 2.0
--------------------------------------------------------------------------------
10. Johnson & Johnson Drugs (Major Pharmaceuticals) 2.0
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4
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
EQUITY SECURITIES - 108.88%
BERMUDA - 1.25%
CAPITAL GOODS - 1.25%
MANUFACTURING (DIVERSIFIED) - 1.25%
Tyco International Ltd. .........................
(cost - $478,612) ............................. 8,897 $ 524,033
----------
CANADA - 0.27%
BASIC MATERIALS - 0.27%
ALUMINUM - 0.13%
Alcan Inc. ...................................... 1,500 53,895
----------
GOLD & PRECIOUS METALS - 0.14%
Barrick Gold Corp. .............................. 2,589 41,295
Placer Dome Inc. ................................ 1,500 16,365
----------
57,660
----------
Total Basic Materials ........................... 111,555
----------
Total Canada (cost - $102,219) .................. 111,555
----------
FRANCE - 0.71%
COMMUNICATION SERVICES - 0.71%
TELECOMMUNICATIONS (CELLULAR) - 0.71%
Alcatel SA, ADR
(cost - $305,685) ............................. 18,000 297,900
----------
GERMANY - 0.56%
CAPITAL GOODS - 0.56%
MANUFACTURING (DIVERSIFIED) - 0.56%
Siemens AG, ADR
(cost - $285,275) ............................. 3,600 235,728
----------
NETHERLANDS - 3.21%
CONSUMER STAPLES - 0.62%
FOODS - 0.62%
Unilever NV, NY Shares .......................... 4,500 259,245
----------
ENERGY - 2.59%
OIL (INTERNATIONAL INTEGRATED) - 2.25%
Royal Dutch Petroleum Co., NY Shares ............ 19,200 941,184
----------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.34%
Schlumberger Ltd. ............................... 2,600 142,870
----------
Total Energy .................................... 1,084,054
----------
Total Netherlands
(cost - $1,532,738) ........................... 1,343,299
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
PANAMA - 0.18%
CONSUMER STAPLES - 0.18%
ENTERTAINMENT - 0.18%
Carnival Corp. (cost - $80,421) ................. 2,700 $ 75,816
----------
UNITED STATES - 102.70%
BASIC MATERIALS - 2.35%
ALUMINUM - 0.35%
Alcoa Inc. ...................................... 4,200 149,310
----------
CHEMICALS (DIVERSIFIED) - 1.27%
Air Products & Chemicals, Inc. .................. 1,100 51,601
Dow Chemical Co. (The) .......................... 4,100 138,498
E.I. Du Pont de Nemours & Co. ................... 7,200 306,072
Rohm & Hass Co. ................................. 1,000 34,630
----------
530,801
----------
PAPER & FOREST PRODUCTS - 0.73%
International Paper Co. ......................... 2,500 100,875
Kimberly-Clark Corp. ............................ 2,500 149,500
Weyerhaeuser Co. ................................ 1,000 54,080
----------
304,455
----------
Total Basic Materials ........................... 984,566
----------
CAPITAL GOODS - 7.92%
AEROSPACE/DEFENSE - 0.90%
General Dynamics Corp. .......................... 2,600 207,064
Lockheed Martin Corp. ........................... 2,500 116,675
Raytheon Co. .................................... 1,600 51,952
----------
375,691
----------
ELECTRICAL EQUIPMENT - 0.46%
Motorola, Inc. .................................. 10,000 150,200
Solectron Corp.+ ................................ 3,700 41,736
----------
191,936
----------
MACHINERY (DIVERSIFIED) - 0.54%
Caterpillar Inc. ................................ 1,600 83,600
Deere & Co. ..................................... 1,100 48,026
Illinois Tool Works Inc. ........................ 1,400 94,808
----------
226,434
----------
================================================================================
See accompanying notes to financial statements.
5
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 5.71%
General Electric Co. ............................ 45,400 $1,819,632
Honeywell International Inc. .................... 3,600 121,752
Masco Corp. ..................................... 2,500 61,250
Minnesota Mining & Manufacturing Co. (3M) ....... 1,900 224,599
United Technologies Corp. ....................... 2,500 161,575
----------
2,388,808
----------
OFFICE EQUIPMENT & SUPPLIES - 0.10%
Imagistics International Inc.+ .................. 88 1,087
Pitney Bowes Inc. ............................... 1,100 41,371
----------
42,458
----------
WASTE MANAGEMENT - 0.21%
Waste Management, Inc. .......................... 2,800 89,348
----------
Total Capital Goods ............................. 3,314,675
----------
CLOSED-END FUNDS - 2.03%
CLOSED-END DOMESTIC FUNDS - 2.03%
John Hancock Bank & Thrift Opportunity Fund ..... 103,000 850,780
----------
COMMUNICATION SERVICES - 6.05%
TELECOMMUNICATIONS (CELLULAR) - 0.66%
ALLTEL Corp. .................................... 1,500 92,595
AT&T Wireless Services Inc.+ .................... 5,534 79,524
Sprint Corp. (PCS Group)+ ....................... 4,300 104,963
----------
277,082
----------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.76%
AT&T Corp. ...................................... 21,200 384,568
Sprint Corp. .................................... 4,000 80,320
WorldCom, Inc. (WorldCom Group)+ ................ 19,200 270,336
----------
735,224
----------
TELEPHONE - 3.63%
BellSouth Corp. ................................. 8,500 324,275
SBC Communications Inc. ......................... 15,500 607,135
Verizon Communications Inc. ..................... 12,400 588,504
----------
1,519,914
----------
Total Communication Services .................... 2,532,220
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
CONSUMER CYCLICALS - 10.23%
AUTO PARTS & Equipment - 0.28%
Delphi Automotive Systems Corp. ................. 2,600 $ 35,516
Johnson Controls, Inc. .......................... 1,000 80,750
----------
116,266
----------
AUTOMOBILES - 0.81%
Ford Motor Co. .................................. 8,600 135,192
General Motors Corp. ............................ 2,600 126,360
Harley-Davidson, Inc. ........................... 1,400 76,034
----------
337,586
----------
BUILDING MATERIALS - 0.07%
Georgia-Pacific Corp. ........................... 1,000 27,610
----------
CONSUMER (JEWELRY, NOVELTIES) - 0.10%
Mattel, Inc. .................................... 2,500 43,000
----------
HOUSEHOLD FURNISHINGS & APPAREL - 0.19%
Bed Bath & Beyond Inc.+ ......................... 1,300 44,070
Newell Rubbermaid Inc. .......................... 1,300 35,841
----------
79,911
----------
LODGING & HOTELS - 0.15%
Hilton Hotels Corp. ............................. 1,700 18,564
Marriott International, Inc., Class A ........... 1,100 44,715
----------
63,279
----------
PUBLISHING (NEWSPAPERS) - 0.32%
Gannett Co., Inc. ............................... 1,200 80,676
Tribune Co. ..................................... 1,400 52,402
----------
133,078
----------
RETAIL (BUILDING SUPPLIES) - 0.80%
Lowe's Companies, Inc. .......................... 7,200 334,152
----------
RETAIL (COMPUTERS & ELECTRONICS) - 0.51%
Best Buy Co., Inc. .............................. 2,500 186,200
Circuit City Stores-Circuit City Group .......... 1,000 25,950
----------
212,150
----------
================================================================================
See accompanying notes to financial statements.
6
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.81%
Federated Department Stores, Inc.+ .............. 1,000 $ 40,900
J.C. Penney Co., Inc. ........................... 1,300 34,970
Kohl's Corp.+ ................................... 3,000 211,320
May Department Stores Co. (The) ................. 1,400 51,772
----------
338,962
----------
RETAIL (DISCOUNTERS) - 3.36%
Dollar General Corp. ............................ 1,500 22,350
Kmart Corp.+ .................................... 2,500 13,650
Target Corp. .................................... 4,100 168,305
TJX Companies, Inc. (The) ....................... 1,300 51,818
Wal-Mart Stores, Inc. ........................... 20,000 1,151,000
----------
1,407,123
----------
RETAIL (GENERAL MERCHANDISE) - 0.18%
Sears, Roebuck & Co. ............................ 1,600 76,224
----------
RETAIL (HOME SHOPPING) - 1.26%
Home Depot, Inc. (The) .......................... 10,300 525,403
----------
RETAIL (SPECIALTY) - 0.22%
Office Depot, Inc.+ ............................. 1,400 25,956
Staples, Inc.+ .................................. 2,500 46,750
Toys "R" Us, Inc.+ .............................. 1,000 20,740
----------
93,446
----------
SERVICES (ADVERTISING/MARKETING) - 0.34%
Omnicom Group Inc. .............................. 1,600 142,960
----------
SERVICES (COMMERCIAL & CONSUMER) - 0.66%
Cendant Corp.+ .................................. 3,300 64,713
Concord EFS, Inc. ............................... 2,500 81,950
H&R Block, Inc. ................................. 1,000 44,700
IMS Health Inc. ................................. 1,400 27,314
Paychex, Inc. ................................... 1,700 59,568
----------
278,245
----------
TEXTILES (APPAREL) - 0.17%
Nike, Inc., Class B ............................. 1,300 73,112
----------
Total Consumer Cyclicals ........................ 4,282,507
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
CONSUMER STAPLES - 12.66%
BEVERAGES (ALCOHOLIC) - 0.44%
Anheuser-Busch
Companies, Inc. ................................. 4,100 $ 185,361
----------
BEVERAGES (NON-ALCOHOLIC) - 2.15%
Coca-Cola Co. (The) ............................. 11,300 532,795
Coca-Cola Enterprises Inc. ...................... 2,500 47,350
PepsiCo, Inc. ................................... 6,600 321,354
----------
901,499
----------
BROADCASTING (TV, CABLE, RADIO) - 2.20%
AOL Time Warner Inc.+ ........................... 19,850 637,185
Clear Channel Communications, Inc.+ ............. 2,700 137,457
Comcast Corp., Special Class A+ ................. 4,100 147,600
----------
922,242
----------
DISTRIBUTORS (FOOD & HEALTH) - 0.27%
Costco Wholesale Corp.+ ......................... 2,500 110,950
----------
ENTERTAINMENT - 1.45%
Viacom Inc., non-voting Class B+ ................ 6,900 304,635
Walt Disney Co. (The) ........................... 14,500 300,440
----------
605,075
----------
FOODS - 1.38%
Archer-Daniels-Midland Co. ...................... 3,045 43,696
Campbell Soup Co. ............................... 2,000 59,740
ConAgra Foods, Inc. ............................. 2,500 59,425
General Mills, Inc. ............................. 1,300 67,613
H.J. Heinz Co. .................................. 1,600 65,792
Kellogg Co. ..................................... 1,900 57,190
Sara Lee Corp. .................................. 3,800 84,474
SYSCO Corp. ..................................... 3,100 81,282
Wrigley (William) Jr. Co. ....................... 1,100 56,507
----------
575,719
----------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.10%
Clorox Co. (The) ................................ 1,100 43,505
----------
================================================================================
See accompanying notes to financial statements.
7
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
PERSONAL CARE - 2.06%
Avon Products, Inc. ............................. 1,200 $ 55,800
Colgate-Palmolive Co. ........................... 2,600 150,150
Gillette Co. (The) .............................. 5,500 183,700
Procter & Gamble Co. (The) ...................... 6,000 474,780
----------
864,430
----------
RESTAURANTS - 0.49%
McDonald's Corp. ................................ 6,500 172,055
Starbucks Corp.+ ................................ 1,700 32,385
----------
204,440
----------
RETAIL (DRUG STORES) - 0.37%
Walgreen Co. .................................... 4,600 154,836
----------
RETAIL (FOOD CHAINS) - 0.63%
Albertson's, Inc. ............................... 2,500 78,725
Kroger Co. (The)+ ............................... 3,800 79,306
Safeway Inc.+ ................................... 2,500 104,375
----------
262,406
----------
TOBACCO - 1.12%
Philip Morris Companies Inc. .................... 10,200 467,670
----------
Total Consumer Staples .......................... 5,298,133
----------
ENERGY - 4.63%
OIL (DOMESTIC INTEGRATED) - 1.86%
Exxon Mobil Corp. ............................... 19,800 778,140
----------
OIL (INTERNATIONAL INTEGRATED) - 1.67%
ChevronTexaco Corp. ............................. 6,925 620,549
Conoco Inc. ..................................... 2,800 79,240
----------
699,789
----------
OIL & GAS (DRILLING & EXPLORATION) - 0.36%
Baker Hughes Inc. ............................... 4,100 149,527
----------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.25%
Anadarko Petroleum Corp. ........................ 1,200 68,220
Burlington Resources Inc. ....................... 1,000 37,540
----------
105,760
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
OIL & GAS (REFINING & MINING) - 0.49%
Occidental Petroleum Corp. ...................... 1,700 $ 45,101
Phillips Petroleum Co. .......................... 1,200 72,312
Unocal Corp. .................................... 1,200 43,284
USX-Marathon Group .............................. 1,500 45,000
----------
205,697
----------
Total Energy .................................... 1,938,913
----------
FINANCIAL - 17.61%
BANKS (MAJOR REGIONAL) - 2.58%
AmSouth Bancorp ................................. 1,800 34,020
Bank One Corp. .................................. 5,300 206,965
BB&T Corp. ...................................... 1,900 68,609
Fifth Third Bancorp ............................. 2,500 153,950
Huntington Bancshares Inc. ...................... 1,200 20,628
Mellon Financial Corp. .......................... 2,500 94,050
National City Corp. ............................. 2,800 81,872
Northern Trust Corp. ............................ 1,000 60,220
PNC Financial Services Group .................... 1,400 78,680
Regions Financial Corp. ......................... 1,000 30,040
SouthTrust Corp. ................................ 1,500 37,005
Synovus Financial Corp. ......................... 1,300 32,565
U.S. Bancorp .................................... 8,701 182,112
----------
1,080,716
----------
BANKS (MONEY CENTER) - 4.22%
Bank of America Corp. ........................... 7,400 465,830
Bank of New York Co., Inc. (The) ................ 3,400 138,720
FleetBoston Financial Corp. ..................... 4,100 149,650
J.P. Morgan Chase & Co. ......................... 8,700 316,245
KeyCorp ......................................... 2,000 48,680
SunTrust Banks, Inc. ............................ 1,400 87,780
Wachovia Corp. .................................. 6,500 203,840
Wells Fargo & Co. ............................... 8,100 351,945
----------
1,762,690
----------
CONSUMER FINANCE - 1.19%
American Express Co. ............................ 6,100 217,709
Household International, Inc. ................... 2,500 144,850
MBNA Corp. ...................................... 3,900 137,280
----------
499,839
----------
================================================================================
See accompanying notes to financial statements.
8
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
DIVERSIFIED - 1.91%
Fannie Mae ...................................... 4,000 $ 318,000
Freddie Mac ..................................... 3,100 202,740
Morgan Stanley Dean Witter & Co. ................ 5,000 279,700
----------
800,440
----------
INSURANCE (BROKERS) - 0.95%
Hartford Financial Services Group, Inc. (The) ... 4,100 257,603
Marsh & McLennan Companies, Inc. ................ 1,300 139,685
----------
397,288
----------
INSURANCE (LIFE & HEALTH) - 0.59%
AFLAC Inc. ...................................... 2,600 63,856
Aon Corp. ....................................... 1,200 42,624
MetLife, Inc. ................................... 3,500 110,880
UnumProvident Corp. ............................. 1,100 29,161
----------
246,521
----------
INSURANCE (PROPERTY-CASUALTY) - 4.85%
Allstate Corp. (The) ............................ 3,300 111,210
American International Group, Inc. .............. 8,989 713,727
Citigroup Inc. .................................. 23,000 1,161,040
St. Paul Companies, Inc. (The) .................. 1,000 43,970
----------
2,029,947
----------
INVESTMENT BANKING & BROKERAGE - 0.86%
Charles Schwab Corp. (The) ...................... 6,000 92,820
Lehman Brothers Holdings Inc. ................... 1,100 73,480
Merrill Lynch & Co., Inc. ....................... 3,700 192,844
----------
359,144
----------
INVESTMENT MANAGEMENT - 0.10%
Franklin Resources, Inc. ........................ 1,200 42,324
----------
SAVINGS & LOANS - 0.36%
Charter One Financial, Inc. ..................... 1,050 28,506
Washington Mutual, Inc. ......................... 3,750 122,625
----------
151,131
----------
Total Financial ................................. 7,370,040
----------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
HEALTHCARE - 14.95%
BIOTECHNOLOGY - 0.75%
Amgen Inc.+ ..................................... 4,700 $ 265,268
MedImmune, Inc.+ ................................ 1,000 46,350
----------
311,618
----------
DRUGS (GENERIC) - 0.42%
Cardinal Health, Inc. ........................... 1,950 126,087
McKesson Corp. .................................. 1,300 48,620
----------
174,707
----------
DRUGS (MAJOR PHARMACEUTICALS) - 11.52%
Abbott Laboratories ............................. 7,100 395,825
Allergan, Inc. .................................. 1,000 75,050
American Home Products Corp. .................... 6,000 368,160
Bristol-Myers Squibb Co. ........................ 8,900 453,900
Eli Lilly & Co. ................................. 5,300 416,262
Johnson & Johnson ............................... 13,878 820,190
Merck & Co., Inc. ............................... 10,500 617,400
Pfizer Inc. ..................................... 29,700 1,183,545
Pharmacia Corp. ................................. 5,900 251,635
Schering-Plough Corp. ........................... 6,700 239,927
----------
4,821,894
----------
HOSPITAL MANAGEMENT - 0.44%
HCA Inc. ........................................ 2,500 96,350
Tenet Healthcare Corp.+ ......................... 1,500 88,080
----------
184,430
----------
MANAGED CARE - 0.26%
UnitedHealth Group Inc. ......................... 1,500 106,155
----------
MEDICAL PRODUCTS - 1.50%
Baxter International Inc. ....................... 2,800 150,164
Becton, Dickinson & Co. ......................... 1,200 39,780
Boston Scientific Corp.+ ........................ 2,500 60,300
Guidant Corp.+ .................................. 1,400 69,720
Medtronic, Inc. ................................. 5,500 281,655
Zimmer Holdings, Inc.+ .......................... 890 27,181
----------
628,800
----------
SPECIALIZED SERVICES - 0.06%
Healthsouth Corp.+ .............................. 1,800 26,676
----------
Total Healthcare ................................ 6,254,280
----------
================================================================================
See accompanying notes to financial statements.
9
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
TECHNOLOGY - 20.34%
Communication Equipment - 0.66%
Lucent Technologies Inc. ........................ 11,600 $ 72,964
QUALCOMM Inc.+ .................................. 4,000 202,000
----------
274,964
----------
COMPUTERS (HARDWARE) - 5.78%
Apple Computer, Inc.+ ........................... 1,500 32,850
Dell Computer Corp.+ ............................ 11,800 320,724
Hewlett-Packard Co. ............................. 9,100 186,914
International Business Machines Corp. ........... 14,500 1,753,920
Sun Microsystems, Inc.+ ......................... 10,000 123,400
----------
2,417,808
----------
COMPUTERS (NETWORKING) - 1.30%
Cisco Systems, Inc.+ ............................ 30,000 543,300
----------
COMPUTERS (SOFTWARE & SERVICES) - 7.25%
Adobe Systems Inc. .............................. 1,100 34,155
BMC Software, Inc.+ ............................. 1,100 18,007
Computer Associates International, Inc. ......... 2,700 93,123
Compuware Corp.+ ................................ 1,700 20,043
First Data Corp. ................................ 1,900 149,055
Intuit Inc.+ .................................... 2,000 85,520
Microsoft Corp.+ ................................ 33,800 2,239,926
Oracle Corp.+ ................................... 25,200 348,012
Yahoo! Inc.+ .................................... 2,500 44,350
----------
3,032,191
----------
ELECTRONICS (COMPONENT DISTRIBUTION) - 0.41%
Emerson Electric Co. ............................ 2,000 114,200
Sanmina-SCI Corp.+ .............................. 3,000 59,700
----------
173,900
----------
ELECTRONICS (SEMICONDUCTORS) - 3.36%
Altera Corp.+ ................................... 1,900 40,318
Analog Devices, Inc.+ ........................... 1,700 75,463
Conexant Systems, Inc.+ ......................... 1,100 15,796
Intel Corp. ..................................... 30,200 949,790
LSI Logic Corp.+ ................................ 1,500 23,670
Micron Technology, Inc.+ ........................ 2,600 80,600
Texas Instruments Inc. .......................... 7,900 221,200
----------
1,406,837
----------
Description Shares (Note A)
--------------------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTORS) - 0.66%
Applied Materials, Inc.+ ........................ 3,700 $ 148,370
Linear Technology Corp. ......................... 1,500 58,560
Maxim Integrated Products, Inc.+ ................ 1,300 68,263
----------
275,193
----------
PHOTOGRAPHY/IMAGING - 0.10%
Eastman Kodak Co. ............................... 1,400 41,202
----------
SERVICES (DATA PROCESSING) - 0.82%
Automatic Data Processing, Inc. ................. 2,900 170,810
Electronic Data Systems Corp. ................... 2,500 171,375
342,185
----------
Total Technology ................................ 8,507,580
----------
TRANSPORTATION - 0.77%
AIR FREIGHT - 0.16%
FedEx Corp.+ .................................... 1,300 67,444
----------
AIRLINES - 0.17%
Southwest Airlines Co. .......................... 3,750 69,300
----------
RAILROADS - 0.44%
Burlington Northern
Santa Fe Corp. .................................. 1,900 54,207
CSX Corp. ....................................... 1,000 35,050
Norfolk Southern Corp. .......................... 1,800 32,994
Union Pacific Corp. ............................. 1,100 62,700
----------
184,951
----------
Total Transportation ............................ 321,695
----------
================================================================================
See accompanying notes to financial statements.
10
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2001 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
UTILITIES - 3.16%
ELECTRIC COMPANIES - 2.42%
American Electric Power Co., Inc. ............... 1,500 $ 65,295
Consolidated Edison, Inc. ....................... 1,000 40,360
Dominion Resources, Inc. ........................ 1,100 66,110
Duke Energy Corp. ............................... 9,000 353,340
Edison International+ ........................... 1,500 22,650
Entergy Corp. ................................... 1,100 43,021
Exelon Corp. .................................... 1,500 71,820
FirstEnergy Corp. ............................... 1,100 38,478
NiSource Inc. ................................... 1,000 23,060
Progress Energy, Inc. ........................... 1,000 45,030
Reliant Energy, Inc. ............................ 1,400 37,128
Sempra Energy ................................... 1,000 24,550
Southern Co. (The) .............................. 3,100 78,585
TXU Corp. ....................................... 1,200 56,580
Xcel Energy, Inc. ............................... 1,600 44,384
----------
1,010,391
----------
NATURAL GAS - 0.69%
Dynegy Inc., Class A ............................ 1,500 38,250
El Paso Corp. ................................... 2,500 111,525
PG&E Corp.+ ..................................... 1,800 34,632
Public Service Enterprises Group Inc. ........... 1,000 42,190
Williams Companies, Inc. (The) .................. 2,500 63,800
----------
290,397
----------
POWER PRODUCTS (INDEPENDENT) - 0.05%
Mirant Corp+ .................................... 1,232 19,736
----------
Total Utilities ................................. 1,320,524
----------
Total United States
(cost - $44,698,690) .......................... 42,975,913
----------
Total Equity Securities
(cost - $47,483,640) .......................... 45,564,244
===========
Principal
Amount Value
Description (000's) (Note A)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 1.45%
REPURCHASE AGREEMENT - 1.45%
Bear, Stearns & Co. Inc.
(Agreement dated 12/31/01 to
be repurchased at $606,080),
1.65%, 01/02/02 (cost - $606,024)
(Note F) ........................................ $606 $ 606,024
----------
TOTAL INVESTMENTS - 110.33%
(cost - $48,089,664)
(Notes A, C) ....................................... 46,170,268
----------
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS - (10.33)% .......................... (4,322,826)
NET ASSETS - 100.00% ................................. $41,847,442
===========
----------
+ Security is non-income producing.
ADR American Depositary Receipts.
================================================================================
See accompanying notes to financial statements.
11
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2001
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $48,089,664) (Note A) ..................... $ 46,170,268
Cash collateral received for securities loaned (Note E) ............... 755,986
Receivables:
Dividends ..................................................... 44,217
Interest ...................................................... 778
Prepaid expenses ...................................................... 1,211
------------
Total Assets .......................................................... 46,972,460
------------
LIABILITIES
Payables:
Distribution to shareholders (Note A) ......................... 4,228,516
Upon return of securities loaned (Note E) ..................... 755,986
Investment management fees (Note B) ........................... 48,601
Other accrued expenses ........................................ 91,915
------------
Total Liabilities ..................................................... 5,125,018
------------
NET ASSETS (applicable to 4,228,516 shares of common stock outstanding) $ 41,847,442
============
NET ASSET VALUE PER SHARE ($41,847,442 / 4,228,516) ................... $ 9.90
============
NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 4,228,516 shares outstanding
(100,000,000 shares authorized) ............................... $ 4,229
Paid-in capital ....................................................... 62,101,955
Cost of 203,900 shares repurchased .................................... (1,947,040)
Distributions in excess of net investment income ...................... (4,221,130)
Accumulated net realized loss on investments and
foreign currency related transactions ......................... (12,171,176)
Net unrealized depreciation in value of investments ................... (1,919,396)
------------
Net assets applicable to shares outstanding ........................... $ 41,847,442
============
================================================================================
See accompanying notes to financial statements.
12
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income (Note A):
Dividends ............................................ $ 642,453
Interest ............................................. 132,919
Less: Foreign taxes withheld ......................... (3,483)
-----------
Total Investment Income .............................. 771,889
-----------
Expenses:
Investment management fees (Note B) .................. 331,733
Audit and legal fees (Note B) ........................ 122,560
Directors' fees ...................................... 86,809
Administration fees .................................. 58,976
Printing ............................................. 54,029
Accounting fees ...................................... 43,425
Custodian fees ....................................... 30,124
Transfer agent fees .................................. 25,015
NYSE listing fees .................................... 23,873
Insurance ............................................ 15,558
Other ................................................ 17,061
-----------
Total Expenses ....................................... 809,163
Less: Fees paid indirectly (Note B) .................. (42,694)
Less: Management fee waivers (Note B) ................ (1,966)
-----------
Net Expenses ................................. 764,503
-----------
Net Investment Income ................................ 7,386
-----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY RELATED
TRANSACTIONS
Net realized gain/(loss) from:
Investments .......................................... (4,384,962)
Foreign currency related transactions ................ 234
Net change in unrealized appreciation in value
of investments and translation of other
assets and liabilities denominated in
foreign currency .......................................... (2,439,912)
-----------
Net realized and unrealized loss on investments
and foreign currency related transactions ................. (6,824,640)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $(6,817,254)
===========
================================================================================
See accompanying notes to financial statements.
13
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Years Ended
December 31,
2001 2000
----------------------------
DECREASE IN NET ASSETS
Operations:
Net investment income/(loss) .................... $ 7,386 $ (38,625)
Net realized loss on investments and
foreign currency related transactions ......... (4,384,728) (7,140,430)
Reimbursement from adviser ...................... -- 86,640
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities denominated
in foreign currency ........................... (2,439,912) (7,125,666)
------------ ------------
Net decrease in net assets resulting
from operations ..................... (6,817,254) (14,218,081)
------------ ------------
Dividends and distributions to shareholders (Note A):
Net investment income ........................... -- (3,607)
Net realized gain on investments and
foreign currency related transactions ......... -- (1,168,685)
In excess of net investment income .............. (4,228,516) --
------------ ------------
Total dividends and distributions to shareholders (4,228,516) (1,172,292)
------------ ------------
Capital stock transactions (Note D):
Cost of 203,900 and 651,800 shares repurchased,
respectively .................................. (1,947,040) (8,378,956)
------------ ------------
Total decrease in net assets .................... (12,992,810) (23,769,329)
------------ ------------
NET ASSETS
Beginning of year ....................................... 54,840,252 78,609,581
------------ ------------
End of year ............................................. $ 41,847,442 $ 54,840,252
============ ============
================================================================================
See accompanying notes to financial statements.
14
================================================================================
PROGRESSIVE RETURN FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 Years Ended December 31,
2001 2000 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year ................. $ 12.37 $ 15.46 $ 18.31 $ 19.45 $ 17.43
Net investment income/(loss) ....................... -- #* (0.01)# 0.09# 0.12 0.05
Net realized and unrealized gain/(loss) on
investments and foreign currency
related transactions ............................... (1.55) (3.17) (0.90) 4.43+ 6.11+
Net increase/(decrease) in net assets
from operations .................................... (1.55) (3.18) (0.81) 4.55 6.16
Dividends and distributions to shareholders:
Net investment income ...................... -- --* (0.08) (0.07) (0.01)
Net realized gain on investments and foreign
currency related transactions ...... -- (0.26) (2.08) (5.62) (4.13)
In excess of net investment income ......... (1.00) -- -- -- --
Total dividends and distributions to shareholders .. (1.00) (0.26) (2.16) (5.69) (4.14)
Anti-dilutive effect due to capital
stock repurchased .................................. 0.08 0.35 0.12 -- --
Net asset value, end of year ....................... $ 9.90 $ 12.37 $ 15.46 $ 18.31 $ 19.45
Market value, end of year .......................... $ 8.950 $ 9.500 $ 13.063 $ 15.625 $ 15.813
Total investment return (a) ........................ 4.04% (27.27)% (1.84)% 32.56% 43.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) .............. $ 41,847 $ 54,840 $ 78,609 $ 98,084 $ 103,444
Ratio of expenses to average net assets,
net of fee waivers ................................. 1.63%(b) 2.46% 2.10% 1.50% 1.56%
Ratio of expenses to average net assets,
excluding fee waivers, if any ...................... 1.73%(c) 2.65% 2.28% 1.66% 1.73%
Ratio of expenses to average net assets,
net of fee waivers but excluding fees paid
indirectly, if any ................................. 1.72% -- -- -- --
Ratio of net investment income/(loss) to
average net assets ................................. 0.02% (0.06)% 0.59% 0.51% 0.23%
Portfolio turnover rate ............................ 36.17% 38.13% 39.60% 48.52% 72.25%
1996 1995 1994 1993 1992
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year ................. $ 13.29 $ 14.33 $ 12.52 $ 8.90 $ 10.77
Net investment income/(loss) ....................... 0.11 0.17 0.06 0.07 0.11
Net realized and unrealized gain/(loss) on
investments and foreign currency
related transactions ............................... 4.11 (1.03) 1.81 3.55 (1.92)
Net increase/(decrease) in net assets
from operations .................................... 4.22 (0.86) 1.87 3.62 (1.81)
Dividends and distributions to shareholders:
Net investment income ...................... (0.08) (0.15) (0.06) -- (0.06)
Net realized gain on investments and foreign
currency related transactions ...... -- (0.03) -- -- --
In excess of net investment income ......... -- -- -- -- --
Total dividends and distributions to shareholders .. (0.08) (0.18) (0.06) -- (0.06)
Anti-dilutive effect due to capital
stock repurchased .................................. -- -- -- -- --
Net asset value, end of year ....................... $ 17.43 $ 13.29 $ 14.33 $ 12.52 $ 8.90
Market value, end of year .......................... $ 13.750 $ 11.125 $ 13.875 $ 14.125 $ 8.000
Total investment return (a) ........................ 24.28% (18.65)% (1.35)% 76.56% (17.34)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) .............. $ 92,399 $ 70,431 $ 75,908 $ 66,351 $ 47,134
Ratio of expenses to average net assets,
net of fee waivers ................................. 1.62% 1.58% 1.41% 1.97% 1.92%
Ratio of expenses to average net assets,
excluding fee waivers, if any ...................... 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 ................................. 0.75% 1.18% 0.43% 0.66% 1.07%
Portfolio turnover rate ............................ 35.94% 35.73% 15.47% 24.47% 39.07%
-------------
+ Includes $0.02 and $0.01 per share decrease to the Fund's net asset
value resulting from the dilutive impact of shares issued pursuant to
the Fund's dividend reinvestment plan in 1998 and 1997, respectively.
# 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 year 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.
15
--------------------------------------------------------------------------------
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. 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 December 31, 2001, 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
relieve it from all or substantially all U.S. federal income and excise taxes.
For U.S. federal income tax purposes, realized capital losses incurred after
================================================================================
16
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
October 31, 2001 within the current fiscal year are deemed to arise on the first
day of the next fiscal year. The Fund elected to defer such losses of $263,892.
The Fund has 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 gains for U.S. federal income tax purposes. There is no
undistributable ordinary income on a tax basis.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes 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 carryforwards, 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 Board of Directors of the Fund may, if it is determined to be in the best
interest of the Fund and its shareholders, from time to time authorize and
declare distributions that may be substantially characterized as a return of
capital.
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
At the Annual Meeting of Stockholders of the Fund held on April 19, 2001,
stockholders approved a new investment management agreement by and between
Cornerstone and the Fund. As a result, Cornerstone commenced its performance of
the investment management services with respect to the Fund's portfolio
securities, and the temporary internal management of the Fund's portfolio
securities automatically ceased.
Effective April 19, 2001, 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.
Cornerstone has voluntarily agreed to limit the Fund's annual operating expenses
(excluding interest, taxes, brokerage commissions, expenditures which are
capitalized in accordance with generally accepted accounting principles, and
other extraordinary expenses not incurred in the ordinary course of such Fund's
business) to 1.65% (on an annualized basis) of the Fund's average net assets for
the fiscal period from April 19, 2001 through December 31, 2001. For the period
April 19, 2001 through December 31, 2001, Cornerstone earned $331,733 for
investment management services, of which Cornerstone waived $1,966.
For the period January 1, 2001 through April 18, 2001, portfolio securities were
managed by Messrs. Ralph W. Bradshaw and William A. Clark, a current and former
director of the Fund, respectively. Internal management fees for this period of
$30,466 are included in Directors' fees on the Statement of Operations. During
such period the Fund assumed all of its own operating expenses.
Included in the Statement of Operations, under the caption Fees paid indirectly,
are expense offsets of $42,694 arising from credits earned on portfolio
transactions executed with a broker pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $86,000 for the year ended December 31,
2001 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.
================================================================================
17
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
At December 31, 2001, pursuant to regulatory filings, a single shareholder and
his affiliates owned approximately 59% of the outstanding shares of the Fund
based on a Schedule 13G/A filing with the Securities and Exchange Commission on
February 15, 2002.
NOTE C. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at December
31, 2001 was $48,216,238. Accordingly, the net unrealized depreciation of
investments of $2,045,970 was composed of gross appreciation of $2,530,835 for
those investments having an excess of value over cost and gross depreciation of
$4,576,805 for those investments having an excess of cost over value.
For the year ended December 31, 2001, purchases and sales of securities, other
than short-term investments, were $52,474,173 and $16,327,346, 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, 2001, the Fund repurchased 203,900 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%. For the year ended December 31, 2000, the Fund repurchased 651,800 of
its shares for a total cost of $8,378,956 at a weighted average discount of
16.86% from net asset value. The discount of the individual repurchases ranged
from 13.30% - 24.20%. 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 portfolio's
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, 2001 was $717,864 and $755,986,
================================================================================
18
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 year ended December 31, 2001, the Fund earned
$1,630 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, 2001.
Principal
Amount Interest Accrued Market
Issuer (000's) Rate Maturity Interest Value
------ ------- ---- -------- -------- -----
United States
Treasury Bond $605 3.625% 4/15/28 $4,630 $617,475
NOTE G. SETTLEMENT OF LEGAL ACTION
In December 2000, the Fund reached a settlement which was approved by the court
in the class action lawsuit in which it was a defendant along with its former
investment adviser, Credit Suisse Asset Management Inc. ("CSAM") and the Fund's
former directors (Brautigam v. Priest et al.). As a result, the Fund paid to the
plaintiff's attorney $100,000 in fees and expenses and agreed to engage in
certain business practices under the agreed settlement. The complaint, initially
filed on June 10, 1999 in the United States District Court for the District of
Delaware and thereafter transferred to the United States District Court for the
Southern District of New York, alleged that the defendants breached their
fiduciary duties to the Fund in violation of Sections 36 and 48 of the 1940 Act
and Maryland law, by, inter alia, failing to put the interests of the Fund's
shareholders before those of others, failing to take steps to reduce or
eliminate the discount to net asset value at which shares of the Fund trade, and
postponing the annual meeting of the Fund. In addition to plaintiff's attorney's
fees mentioned above, the Fund incurred approximately $200,000 in legal expenses
as a result of the lawsuit, of which approximately $145,000 was reimbursed to
CSAM. Such amounts were accrued and paid by the Fund during the fiscal year
ended December 31, 2000.
19
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders
of Progressive Return Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Progressive Return Fund, Inc.
(the "Fund") at December 31, 2001, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the ten years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2001 by correspondence with the custodian, provided a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 18, 2002
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 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 small amounts of shares for individual accounts through the Plan
================================================================================
21
--------------------------------------------------------------------------------
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)
(CONCLUDED)
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (unaudited)
--------------------------------------------------------------------------------
Name and Position(s) Principal Occupation Position With
Address (Age) Held with Fund Over Last 5 Years Fund Since
------------------------------------------------------------------------------------------------------------------
Ralph W. Bradshaw* (51) Chairman of the President, Director and Shareholder of 1999; current
One West Pack Square Board of Directors Cornerstone Advisors, Inc.; Financial term ends at
Suite 1650 and President Consultant; Vice President, Deep the 2002
Asheville, NC 28801 Discount Advisors, Inc. (1993-1999); Annual
Director of The Austria Fund, Inc., Meeting.
The SmallCap Fund, EIS Fund, Inc.,
The Cornerstone Strategic Return Fund, Inc.,
and Cornerstone Strategic Value Fund, Inc.
Thomas H. Lenagh (79) Director Chairman of the Board of Inrad Corp.; 2001; current
13 Allen's Corner Rd. Independent Financial Adviser; Director of term ends at
Flemington, NJ 08822 The Cornerstone Strategic Return Fund, Inc., the 2004
Cornerstone Strategic Value Fund, Inc., Annual
Gintel Fund, The Adams Express Company Meeting.
and Petroleum and Resources Corporation,
ICN Pharmaceuticals International.
Edwin Meese III (70) Director Distinguished Fellow, The Heritage 1999; current
The Heritage Foundation Foundation, Washington D.C.; Distinguished term ends at
214 Massachusetts Ave NE Visiting Fellow at the Hoover Institution, the 2002
Washington D.C. 20002 Stanford University; Distinguished Senior Annual
Fellow at the Institute of United States Meeting.
Studies, University of London; Formerly U.S.
Attorney General under President Ronald Reagan;
Director of The Cornerstone Strategic Return
Fund, Inc., Cornerstone Strategic Value Fund,
Inc. and Perregrine Corporation (2001).
================================================================================
22
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (unaudited)
(CONTINUED)
--------------------------------------------------------------------------------
Name and Position(s) Principal Occupation Position With
Address (Age) Held with Fund Over Last 5 Years Fund Since
------------------------------------------------------------------------------------------------------------------
Scott B. Rogers (46) Director Chief Executive Officer, Asheville Buncombe 2000; current
30 Cumberland Ave. Community Christian Ministry; President, term ends at
Asheville, NC 28801 ABCCM Doctor's Medical Clinic; Director, the 2003
Southeastern Jurisdiction Urban Networkers; Annual
Director, A-B Vision Board, Appointee, NC Meeting.
Governor's Commission on Welfare to Work;
Chairman and Director, Recycling Unlimited;
Director, Interdenominational Ministerial
Alliance; Director of The Cornerstone Strategic
Return Fund, Inc., Cornerstone Strategic
Value Fund, Inc., and EIS Fund, Inc.
Andrew A. Strauss (48) Director Attorney and senior member of Strauss & 2000; current
77 Central Avenue Associates, P.A., Attorneys, Asheville and term ends at
Suite F Hendersonville, NC; previous President of the 2004
Asheville, NC 28801 White Knight Healthcare, Inc. and LMV Annual
Leasing, Inc., a wholly owned subsidiary of Meeting.
Xerox Credit Corporation; Director of
The Cornerstone Strategic Return Fund, Inc.,
Cornerstone Strategic Value Fund, Inc.,
EIS Fund, Inc., Memorial Mission Hospital
Foundation and Deerfield Episcopal
Retirement Community.
Glenn W. Wilcox, Sr. (70)Director Chairman of the Board and Chief Executive 2000; current
One West Pack Square Officer of Wilcox Travel Agency; Director, term ends at
Suite 1700 Champion Industries, Inc.; Chairman of Tower the 2003
Asheville, NC 28801 Associates, Inc. (a real estate venture); Annual
Member of the Board of Wachovia Corp.; Meeting.
Board Trustee and Chairman, Appalachian
State University; Board Trustee and Director,
Mars Hill College; Director of The Cornerstone
Strategic Return Fund, Inc., Cornerstone Strategic
Value Fund, Inc., and EIS Fund, Inc.
Gary A. Bentz (45) Vice President Director and Shareholder of Cornerstone 2001
One West Pack Square and Treasurer Advisors, Inc.; Independent Financial,
Suite 1650 Accounting, Investment Consultant and
Asheville, NC 28801 Certified Public Accountant; Vice President,
Deep Discount Advisors, Inc. (1993-2000);
Director of The Austria Fund, Inc.; Director,
Vice President and Treasurer of EIS Fund, Inc.;
Vice President and Treasurer of The Cornerstone
Strategic Return Fund, Inc. and Cornerstone
Strategic Value Fund, Inc.
================================================================================
23
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (unaudited)
(CONCLUDED)
--------------------------------------------------------------------------------
Name and Position(s) Principal Occupation Position With
Address (Age) Held with Fund Over Last 5 Years Fund Since
------------------------------------------------------------------------------------------------------------------
Thomas R. Westle (48) Secretary Partner, Spitzer & Feldman P.C. (May 1998 - 2000
405 Park Avenue present) prior thereto; a Partner at Battle
New York, NY 10022 Fowler LLP.
-------------
* Designates a director who is an "interested person" of the Fund as defined by
the Investment Company Act of 1940. Mr. Bradshaw is an interested person of the
Fund by virtue of his current position as Chairman of the Board of Directors and
Investment Manager of the Fund.
--------------------------------------------------------------------------------
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.
On February 13, 2002, the Board of Directors of the Fund adopted certain
amendments to the Fund's Bylaws. The amendments reduce the quorum requirement
for shareholders' meetings from a majority to one-third, and require a
shareholder to provide written notice to the Secretary of the Fund of any
proposal which the shareholder wishes to raise at an annual meeting of
shareholders which was not included in the Fund's proxy materials at least 90
calendar days in advance of the date of the mailing of the notice for the
preceding year's annual meeting. The amendments also impose a 90 calendar day
advance written notice requirement on shareholders who wish to introduce at any
meeting of shareholders a nominee for election as a director. The notice
provisions were adopted to afford shareholders a fair opportunity to present
matters for consideration at annual meetings while ensuring that the Fund and
its directors will have a reasonable opportunity to thoughtfully consider the
matters proposed. Please contact the Secretary of the Fund for additional
information about the advance notice requirements if you are considering
presenting a proposal at an annual meeting.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
================================================================================
24
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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.
May 2001
================================================================================
25
PROGRESSIVE RETURN FUND, INC.
================================================================================
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 SHAREHOLDER SERVICING AGENT
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 PricewaterhouseCoopers LLP
Management Inc. Two Commerce Square
383 Madison Avenue Philadelphia, PA 19103
New York, NY 10179
LEGAL COUNSEL
CUSTODIAN Spitzer & Feldman P.C.
Custodial Trust Company 405 Park Avenue
101 Carnegie Center New York, NY 10022
Princeton, NJ 08540
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. 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.