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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5891
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PROGRESSIVE RETURN FUND, INC.
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(Exact name of registrant as specified in charter)
383 MADISON AVENUE, NEW YORK, NY 10179
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(Address of principal executive offices) (Zip code)
Jodi B. Levine 383 MADISON AVE, NEW YORK, NY
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-272-3550
Date of fiscal year end: DECEMBER 31, 2003
-----------------
Date of reporting period: JANUARY 1, 2003 THROUGH DECEMBER 31, 2003
-----------------------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Include a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1).
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PROGRESSIVE RETURN FUND, INC.
DECEMBER 31, 2003
This update contains the following two documents:
- Letter from the Fund's Chairman
- Annual Report to Shareholders
================================================================================
LETTER FROM THE FUND'S CHAIRMAN
January 23, 2004
Dear Fellow Shareholders:
We present the following annual report for Progressive Return Fund, Inc. (the
"Fund"), covering the year ended December 31, 2003. At the end of the period,
the Fund's net assets were $26.1 million and the Net Asset Value ("NAV") per
share was $22.32. The share price closed at $29.20 and the Fund's price discount
to NAV improved from a discount of 7.65% at the beginning of the year to a
premium of 30.82% at the end. After reflecting the reinvestment of monthly
distributions totaling $3.22 per share, the Fund achieved a total investment
return at market value of 77.39% for the year ended December 31, 2003.
CREATING VALUE
The Fund has made substantial progress in creating value for its shareholders
under the leadership of its Board. By combining the voluntary waiver of a
portion of management fees by the Fund's investment manager with a concerted
effort to reduce expenses, the overall expense ratio dropped to 1.2% for the
year.
In 2002, the Fund committed to an aggressive fixed, monthly distribution policy
designed to provide significant flexibility to all of the Fund's shareholders.
It is our belief that shareholders are well served by this policy that provides
regular distributions in both up and down markets. We are proud of this
innovative concept and believe it has contributed significantly to the Fund's
positive performance.
Over the long-run, a well-managed, diversified equity portfolio provides the
best risk/reward tradeoff for many investors. Long-term equity returns are
generally found to be higher than those with fixed-income or balanced programs
and favorable tax treatment on capital gains makes the net returns even better
for taxable investors. The Fund's distribution policy recognizes that many
investors are willing to accept the potentially higher asset volatility in this
approach, but would prefer that stable distributions were available to them each
year to either reinvest or utilize for other purposes of their choosing.
Shortly after the end of the year, it is determined what portion of these
distributions is attributable to income, capital gains, or return-of-capital.
This year, the Fund's asset base grew even though a large portion of the year's
distribution was classified as a tax favored return-of-capital. It is important
for shareholders to consult their tax advisor on proper recognition of the
return-of-capital distributions with regard to the cost basis of their shares.
Each shareholder has the option to receive their distributions in cash or new
shares of the Fund and may change this election whenever they wish. It is a goal
that long-term investment returns will exceed the level of distributions, but
there is no guarantee that this goal will be met. If the amount of distributions
taken in cash exceeds the total investment return of the Fund, the assets of the
Fund will decline. If the total investment return of the Fund exceeds the amount
of cash distributions, as it did in 2003, the assets of the Fund will increase.
The distributions of those who chose to reinvest in 2003 participated in the
Fund's strong market performance. We encourage you to consider the reinvestment
option for your distributions from the Fund.
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1
LETTER FROM THE FUND'S CHAIRMAN (CONTINUED)
ECONOMIC AND MARKET SUMMARY
Following an early period of uncertainty related to the war in Iraq, the global
economy performed much better than expected a year ago. After shrugging off Iraq
related concerns, the major market indices closed out 2003 strongly positive. In
addition to good global news, stocks responded to a fast-recovering economy,
benign inflation, and rising profits. In a reversal of the situation for 2002,
almost every area of the U.S. equity market was up at the end of 2003. Tax cuts,
increased government spending, and the Federal Reserve's accommodative policy
toward low interest rates all contributed to boost economic activity. The U.S.
economy seemed to be running wide-open as the GDP grew at an almost unheard of
annualized rate of 8.2% in the third quarter.
In spite of all the good news, both the economy and the markets face risk.
Stimulus may generate enough growth to reawaken inflation concerns and lead to
increased interest rates. Prices for many equities, which are high relative to
earnings, may be vulnerable to even small disappointments. Significantly, the
unemployment level remained surprisingly high, though it dropped near the end of
the year. In spite of this, consumer confidence continues to improve as many
continue to anticipate job growth.
PORTFOLIO PERFORMANCE
Continuing the broadly diversified approach, the Fund's portfolio performed well
in this year's market climb, turning in double digit performance and comparing
well with its benchmark S&P 500 Index return of 28.7%. We believe that this
approach has served well through both up and down markets of recent years and
will continue to benefit the Fund and its stockholders for the long-term.
The investment manager attempts to enhance portfolio performance by taking
advantage of temporary and occasional pricing inefficiencies in certain
securities. To that end, the percentage of the portfolio represented by
discounted closed-end funds increased. The availability and magnitude of such
opportunities are unpredictable, and therefore, their effect on possible
portfolio out-performance may vary considerably from year to year.
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2
LETTER FROM THE FUND'S CHAIRMAN (CONCLUDED)
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
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
THIS LETTER FROM THE FUND'S CHAIRMAN IS NOT A PART OF THE ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS.
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3
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PROGRESSIVE RETURN FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2003
========================================
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CONTENTS
Portfolio Summary 1
Schedule of Investments 2
Statement of Assets and Liabilities 7
Statement of Operations 8
Statement of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 11
Report of Independent Accountants 16
Tax Information 17
Additional Information Regarding the Fund's Directors and Officers 18
Description of Dividend Reinvestment Plan 21
Summary of General Information 23
Shareholder Information 23
Privacy Policy Notice 24
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PROGRESSIVE RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2003 (UNAUDITED)
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TOP TEN, BY SECTOR
Percent of
Sector Net Assets
------- ----------------------------------------------------------------------
1. Financials 19.6
------- ----------------------------------------------------------------------
2. Information Technology 16.7
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3. Consumer Discretionary 13.4
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4. Healthcare 12.9
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5. Industrials 11.3
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6. Consumer Staples 7.9
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7. Energy 6.1
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8. Telecommunication Services 3.7
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9. Closed-End Domestic Funds 3.6
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10. Materials 2.3
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TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. General Electric Co. Industrials 3.1
------- ----------------------------------------------------------------------
2. Microsoft Information Technology 3.0
Corp.
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3. Pfizer Inc. Healthcare 2.7
------- ----------------------------------------------------------------------
4. Exxon Mobil Corp. Energy 2.6
------- ----------------------------------------------------------------------
5. Citigroup Inc. Financials 2.4
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6. Tri-Continental Corp. Closed-End Domestic Funds 2.4
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7. Wal-Mart Stores, Inc. Consumer Discretionary 2.2
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8. Intel Corp. Information Technology 2.2
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9. International Business
Machines Corp. Information Technology 2.0
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10. Cisco Systems, Inc. Information Technology 1.8
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1
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2003
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No. of Value
Description Shares (Note A)
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EQUITY SECURITIES - 99.52%
CLOSED-END DOMESTIC FUNDS - 3.64%
Tri-Continental Corp. 38,000 $ 623,200
Zweig Fund, Inc. 66,200 324,380
---------------------
947,580
---------------------
CONSUMER DISCRETIONARY - 13.40%
Best Buy Co., Inc. 1,250 65,300
Carnival Corp. 2,700 107,271
Circuit City Stores, Inc. 1,000 10,130
Clear Channel
Communications, Inc. 2,700 126,441
Comcast Corp., Class A + 3,655 120,140
Comcast Corp., Special Class A+ 4,100 128,248
CVS Corp. 1,000 36,120
Delphi Corp. 2,600 26,546
Eastman Kodak Co. 1,400 35,938
Federated Department Stores, Inc. 1,000 47,130
Ford Motor Co. 5,800 92,800
Gap, Inc. (The) 2,500 58,025
General Motors Corp. 2,600 138,840
Harley-Davidson, Inc. 1,400 66,542
Hilton Hotels Corp. 1,700 29,121
Home Depot, Inc. (The) 7,500 266,175
Kohl's Corp. + 1,000 44,940
Limited Brands 2,500 45,075
Lowe's Companies, Inc. 2,500 138,475
Marriott International, Inc., Class A 1,100 50,820
Mattel, Inc. 1,500 28,905
May Department Stores Co. (The) 1,400 40,698
McDonalds Corp. 4,000 99,320
Monsanto Co. 580 16,692
NIKE, Inc., Class B 1,300 88,998
Omnicom Group Inc. 600 52,398
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (CONTINUED)
Sears, Roebuck & Co. 1,600 $ 72,784
Staples, Inc. + 1,500 40,950
Starbucks Corp. + 1,700 56,202
Target Corp. 1,600 61,440
Time Warner Inc. + 14,250 256,358
TJX Companies, Inc. (The) 2,500 55,125
Toys "R" Us, Inc.+ 1,000 12,640
Viacom Inc., non-voting Class B 5,400 239,652
Walt Disney Co. (The) 6,500 151,645
Wal-Mart Stores, Inc. 11,000 583,550
-----------------
3,491,434
-----------------
CONSUMER STAPLES - 7.86%
Altria Group, Inc. 4,400 239,448
Anheuser-Busch Companies, Inc. 2,500 131,700
Archer-Daniels-Midland Co. 3,045 46,345
Campbell Soup Co. 2,000 53,600
Coca-Cola Co. (The) 6,300 319,725
Coca-Cola Enterprises Inc. 1,500 32,805
Colgate-Palmolive Co. 1,100 55,055
ConAgra Foods, Inc. 2,500 65,975
Gillette Co. (The) 3,000 110,190
H.J. Heinz Co. 1,600 58,288
Kimberly-Clark Corp. 2,500 147,725
Kroger Co. (The) + 1,300 24,063
Pepsi Bottling Group, Inc. 1,000 24,180
PepsiCo, Inc. 4,000 186,480
Procter & Gamble Co. (The) 3,000 299,640
Safeway Inc.+ 2,500 54,775
Sara Lee Corp. 1,300 28,223
Sysco Corp. 2,500 93,075
Walgreen Co. 2,100 76,398
-----------------
2,047,690
-----------------
See accompanying notes to financial statements.
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2
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2003 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
ENERGY - 6.10%
Anadarko Petroleum Corp. 1,200 $ 61,212
Baker Hughes Inc. 1,100 35,376
CenterPoint Energy, Inc. 1,400 13,566
ChevronTexaco Corp. 4,325 373,637
ConocoPhillips 2,509 164,515
El Paso Corp. 2,500 20,475
Exxon Mobil Corp. 16,500 676,500
Marathon Oil Corp. 1,500 49,635
Reliant Resources, Inc. + 1,104 8,125
Schlumberger Ltd. 2,600 142,272
Unocal Corp. 1,200 44,196
-------------------
1,589,509
-------------------
FINANCIALS - 19.65%
AFLACCInc. - 19.65% 2,600 94,068
Allstate Corp. (The) 3,300 141,966
American Express Co. 4,100 197,743
American International Group, Inc. 5,989 396,951
Aon Corp. 1,200 28,728
Bank of America Corp. 4,300 345,849
Bank of New York Co., Inc. 3,400 112,608
Bank One Corp. 2,800 127,652
Charles Schwab Corp. (The) 3,500 41,440
Citigroup Inc. 13,000 631,020
Fannie Mae 1,500 112,590
Fifth Third Bancorp 2,000 118,200
FleetBoston Financial Corp. 4,100 178,965
Franklin Resources, Inc. 1,200 62,472
Freddie Mac 1,600 93,312
Goldman Sachs Group, Inc. (The) 1,500 148,095
Hartford Financial
Services Group, Inc. (The) 1,000 59,030
HSBC Holdings plc ADR 1,337 105,382
John Hancock Financial Services, Inc. 2,500 93,750
J. P. Morgan Chase & Co. 6,200 227,726
No. of Value
Description Shares (Note A)
------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
Lehman Brothers Holdings Inc. 1,100 $ 84,942
Marsh & McLennan
Companies, Inc. 2,600 124,514
MBNA Corp. 2,100 52,185
Mellon Financial Corp. 2,500 80,275
Merrill Lynch & Co., Inc. 3,700 217,005
MetLife, Inc. 3,500 117,845
Morgan Stanley 2,500 144,675
National City Corp. 2,500 84,850
Northern Trust Corp. 1,000 46,420
St. Paul Companies, Inc. (The) 1,000 39,650
Travelers Property Casualty Corp.,
Class A 712 11,947
Travelers Property Casualty Corp.,
Class B 1,464 24,844
UnumProvident Corp. 1,100 17,347
U.S. Bancorp 6,201 184,666
Wachovia Corp. 3,000 139,770
Washington Mutual, Inc. 2,800 112,336
Wells Fargo & Co. 5,400 318,006
-----------------
5,118,824
-----------------
HEALTHCARE - 12.91%
Abbott Laboratories 3,000 139,800
Allergan, Inc. 1,000 76,810
Amgen Inc. + 4,300 265,740
Baxter International Inc. 2,800 85,456
Becton, Dickinson & Co. 1,200 49,368
Boston Scientific Corp. + 2,000 73,520
Bristol-Myers Squibb Co. 6,400 183,040
Cardinal Health, Inc. 1,950 119,262
Eli Lilly & Co. 2,800 196,924
Guidant Corp. 1,400 84,280
HCA Inc. 1,500 64,440
HEALTHSOUTH Corp. + 1,800 8,244
See accompanying notes to financial statements.
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3
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2003 (CONTINUED)
--------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
-------------------------------------------------------------------------------
HEALTHCARE (CONTINUED)
Johnson & Johnson 7,500 $ 387,450
McKesson Corp. 1,300 41,808
Medco Health Solutions, Inc. + 964 32,766
Medtronic, Inc. 4,000 194,440
Merck & Co. Inc. 5,500 254,100
Pfizer Inc. 19,860 701,654
Schering-Plough Corp. 4,200 73,038
Tenet Healthcare Corp.+ 2,250 36,113
UnitedHealth Group Inc. 2,000 116,360
Wyeth 4,200 178,290
---------------------
3,362,903
---------------------
INDUSTRIALS - 11.33%
3M Co. 2,400 204,072
Automatic Data Processing, Inc. 2,900 114,869
Boeing Co. (The) 2,600 109,564
Caterpillar Inc. 1,600 132,832
Cendant Corp. + 3,300 73,491
Concord EFS, Inc. + 2,500 37,100
CSX Corp. 1,000 35,940
Emerson Electric Co. 2,000 129,500
FedEx Corp. 1,000 67,500
General Dynamics Corp. 600 54,234
General Electric Co. 26,200 811,676
Honeywell International Inc. 2,000 66,860
Illinois Tool Works Inc. 1,400 117,474
IMS Health Inc. 1,400 34,804
Lockheed Martin Corp. 2,500 128,500
Masco Corp. 2,500 68,525
Paychex, Inc. 1,700 63,240
Raytheon Co. 1,600 48,064
Southwest Airlines Co. 3,750 60,525
Tyco International Ltd. 6,397 169,521
Union Pacific Corp. 1,000 69,480
United Parcel Service, Inc., Class B 2,500 186,375
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
United Technologies Corp. 100 $ 94,770
Waste Management, Inc. 2,500 74,000
-----------------
2,952,916
-----------------
INFORMATION TECHNOLOGY - 16.66%
Adobe Systems Inc. 1,100 43,230
Agere Systems Inc., Class A + 125 381
Agere Systems Inc., Class B + 3,068 8,897
Agilent Technologies, Inc. + 1,500 43,860
Altera Corp. + 1,900 43,130
Analog Devices, Inc. 1,700 77,605
Apple Computer, Inc.+ 1,500 32,055
Applied Materials, Inc. + 4,900 110,005
Cisco Systems, Inc. + 19,500 473,655
Computer Associates
International, Inc. 2,700 73,818
Dell Inc. + 4,700 159,612
Electronic Arts Inc. + 2,000 95,560
Electronic Data Systems Corp. 2,500 61,350
EMC Corp. + 4,500 58,140
Hewlett-Packard Co. 8,100 186,057
Intel Corp. 17,600 566,720
International Business Machines Corp. 5,500 509,740
Linear Technology Corp. 1,500 63,105
LSI Logic Corp.+ 1,500 13,305
Maxim Integrated Products, Inc. 1,300 64,740
Micron Technology, Inc. + 2,600 35,022
Microsoft Corp. 28,100 773,874
Motorola, Inc. 7,100 99,897
NVIDIA Corp.+ 1,000 23,250
Oracle Corp. + 17,800 234,960
QUALCOMM Inc. 1,500 80,895
Solectron Corp. + 3,700 21,867
SunGard Data Systems, Inc. + 2,500 69,275
Sun Microsystems, Inc. + 10,000 44,900
See accompanying notes to financial statements.
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4
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2003 (CONTINUED)
-------------------------------------------------------------------------------
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Texas Instruments Inc. 5,400 $ 158,652
Yahoo! Inc. + 2,500 112,925
-------------------
4,340,482
-------------------
MATERIALS - 2.32%
Alcoa Inc. 4,200 159,600
Dow Chemical Co. (The) 2,700 112,239
E. I. du Pont de Nemours & Co. 3,300 151,437
Georgia-Pacific Corp. 1,000 30,670
International Paper Co. 2,500 107,775
Rohm & Haas Co. 1,000 42,710
-------------------
604,431
-------------------
TELECOMMUNICATION SERVICES - 3.70%
ALLTEL Corp. 1,500 69,870
AT&T Corp. 2,260 45,878
AT&T Wireless Services Inc. + 8,534 68,187
BellSouth Corp. 6,000 169,800
Lucent Technologies Inc. + 11,600 32,944
Nextel Communications, Inc.,
Class A + 2,500 70,150
SBC Communications Inc. 8,200 213,774
Sprint Corp. (FON Group) 4,000 65,680
Sprint Corp. (PCS Group)+ 1,800 10,116
Verizon Communications Inc. 6,200 217,496
-------------------
963,895
-------------------
UTILITIES - 1.95%
American Electric Power Co., Inc. 1,500 45,765
Dominion Resources, Inc. 1,100 70,213
Duke Energy Corp. 2,500 51,125
Edison International + 1,500 32,895
Exelon Corp. 1,500 99,540
FPL Group, Inc. 1,000 65,420
No. of Value
Description Shares (Note A)
--------------------------------------------------------------------------------
UTILITIES (CONTINUED)
Progress Energy, Inc. 1,000 $ 45,260
Public Service Enterprises
Group Inc. 1,000 43,800
TXU Corp. 1,200 28,464
Xcel Energy, Inc. 1,600 27,168
----------------
509,650
----------------
TOTAL EQUITY SECURITIES
(cost - $29,137,485) 25,929,314
----------------
Principal
Amount
(000's)
----------
SHORT-TERM INVESTMENTS - 2.22%
REPURCHASE AGREEMENTS - 2.22%
Bear, Stearns & Co. Inc.
(Agreement dated 12/31/03 to
be repurchased at $138,241),
0.85%, 01/02/04 (Note F) $ 138 138,234
Bear, Stearns & Co. Inc.
(Agreement dated 12/31/03 to
be repurchased at $438,926),
1.06%*, 01/02/04 ** (Note E) 439 438,900
Bear, Stearns & Co. Inc.
(Agreement dated 12/31/03 to
be repurchased at $2,278),
0.94%*, 01/02/04 ** (Note E) 2 2,278
---------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $579,412) 579,412
---------------
See accompanying notes to financial statements.
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5
PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2003 (CONCLUDED)
--------------------------------------------------------------------------------
Value
Description (Note A)
--------------------------------------------------------------------------------
TOTAL INVESTMENTS - 101.74%
(cost - $29,716,897) (Notes A, E, F, G) $ 26,508,726
---------------
LIABILITIES IN EXCESS OF OTHER
ASSETS - (1.74)% (452,814)
---------------
NET ASSETS - 100.00% $ 26,055,912
================
----------
+ Non-income producing security.
* Stated interest rate, before rebate earned
by borrower of securities on loan.
** Represents investment purchased with cash
collateral received for securities on loan.
ADR American Depositary Receipts.
See accompanying notes to financial statements.
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6
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PROGRESSIVE RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2003
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $29,716,897) (Notes A, E, F, G) $ 26,508,726
Receivables:
Dividends 36,023
Interest 112
Prepaid expenses 671
--------------
Total Assets 26,545,532
--------------
LIABILITIES
Payables:
Upon return of securities loaned (Note E) 441,178
Investment management fees (Note B) 17,148
Other accrued expenses 31,294
--------------
Total Liabilities 489,620
--------------
NET ASSETS (applicable to 1,167,477 shares of common stock outstanding) $ 26,055,912
==============
NET ASSET VALUE PER SHARE ($26,055,912 / 1,167,477) $22.32
======
NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 1,167,477 shares issued and outstanding
(100,000,000 shares authorized) $ 1,167
Paid-in capital 42,839,458
Cost of 9,093 shares repurchased (172,403)
Accumulated net realized loss on investments (13,404,139)
Net unrealized depreciation in value of investments (3,208,171)
--------------
Net assets applicable to shares outstanding $ 26,055,912
==============
See accompanying notes to financial statements.
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7
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PROGRESSIVE RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2003
-------------------------------------------------------------------------------
INVESTMENT INCOME
Income (Note A):
Dividends $ 438,724
Interest 4,064
------------
Total Investment Income 442,788
------------
Expenses:
Investment management fees (Note B) 240,927
Administration fees 50,000
Accounting fees 25,682
Transfer agent fees 18,537
Legal and audit fees (Note B) 17,340
Directors' fees 15,098
Stock exchange listing fees 14,374
Insurance 5,214
Custodian fees 4,921
Printing 781
Miscellaneous 533
------------
Total Expenses 393,407
Less: Management fee waivers (Note B) (96,295)
Less: Fees paid indirectly (Note B) (9,030)
------------
Net Expenses 288,082
------------
Net Investment Income 154,706
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investments (258,139)
Net change in unrealized depreciation in value of investments 5,898,393
------------
Net realized and unrealized gain on investments
5,640,254
------------
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,794,960
=========
See accompanying notes to financial statements.
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8
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PROGRESSIVE RETURN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Years Ended
December 31,
------------------------------------
2003 2002
------------- ---------------
INCREASE/(DECREASE) IN NET ASSETS Operations:
Net investment income/(loss) $ 154,706 $ (64,793)
Net realized loss from investments (258,139) (974,824)
Net change in unrealized depreciation in value of
investments 5,898,393 (7,187,168)
------------- ---------------
Net increase/(decrease) in net assets resulting from 5,794,960 (8,226,785)
operations
------------- ---------------
Dividends and distributions to shareholders (Notes A, G):
Net investment income (154,706) -
Return-of-capital (3,581,925) (12,692,520)
------------- ---------------
Total dividends and distributions to shareholders (3,736,631) (12,692,520)
------------- ---------------
Capital stock transactions* (Note D):
Proceeds from 59,181 shares issued from treasury in
reinvestment of distributions - 1,815,669
Proceeds from 16,153 and 52,350 shares newly issued in
reinvestment of dividends, respectively 372,741 1,216,519
Cash paid in-lieu of an aggregate of 36 fractional shares - (1,000)
Cost of 17,300 shares repurchased - (334,483)
------------- ---------------
Net increase in net assets resulting from
capital stock transactions 372,741 2,696,705
------------- ---------------
Total increase/(decrease) in net assets 2,431,070 (18,222,600)
------------- ---------------
NET ASSETS
Beginning of year 23,624,842 41,847,442
------------- ---------------
End of year $ 26,055,912 $ 23,624,842
============= ===============
----------
* For the year ended December 31, 2002, shares are adjusted for the
one-for-four reverse stock split that was effective May 6, 2002.
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
9
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
FINANCIAL HIGHLIGHTSss.
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------- --------------------------------------------
For the Years Ended December 31,
-----------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 20.52 $ 39.60 $ 49.48 $ 61.84 $ 73.24
---------- --------- -------- --------- --------
Net investment income/(loss) 0.13# (0.06)# -#* (0.04)# 0.36#
Net realized and unrealized gain/(loss)
on investments and foreign currency
related transactions, if any 4.92 (7.22) (6.20) (12.68) (3.60)
---------- --------- -------- --------- --------
Net increase/(decrease) in net assets
resulting from operations 5.05 (7.28) (6.20) (12.72) (3.24)
---------- --------- -------- --------- --------
Dividends and distributions to shareholders:
Net investment income (0.13) - - -* (0.32)
Net realized gain on investments and
foreign currency related transactions - - - (1.04) (8.32)
Return-of-capital (3.09) (11.61) (4.00) - -
---------- --------- -------- --------- --------
Total dividends and distributions to
shareholders (3.22) (11.61) (4.00) (1.04) (8.64)
---------- --------- -------- --------- --------
Capital stock transactions;
Anti-dilutive effect due to capital
stock repurchased - 0.04 0.32 1.40 0.48
Dilutive effect due to shares issued (0.03) (0.23) - - -
----------
in reinvestment of dividends and
distributions
---------- --------- -------- --------- --------
Total capital stock transactions (0.03) (0.19) 0.32 1.40 0.48
---------- --------- -------- --------- --------
Net asset value, end of year $ 22.32 $ 20.52 $ 39.60 $ 49.48 $ 61.84
========== ========= ======== ========= ========
Market value, end of year $ 29.20 $ 18.95 $ 35.80 $ 38.000 $ 52.252
========== ========= ======== ========= ========
Total investment return (a) 77.39% (20.28)% 4.04% (27.27)% (1.84)%
========== ========= ======== ========= ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 26,056 $ 23,625 $ 41,847 $ 54,840 $ 78,609
Ratio of expenses to average net assets,
net of fee waivers, if any (b) 1.20% 1.90% 1.63% 2.46% 2.10%
Ratio of expenses to average net assets,
excluding fee waivers, if any (c) 1.64% 2.31% 1.73% 2.65% 2.28%
Ratio of expenses to average net assets,
net of fee waivers, if any (c) 1.24% 1.99% 1.72% 2.46% 2.10%
Ratio of net investment income/(loss) to
average net assets 0.64% (0.21)% 0.02% (0.06)% 0.59%
Portfolio turnover 6.01% 29.91% 36.17% 38.13% 39.60%
------------------------------------------------------------------------------------------------------------
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 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 the reduction for fees paid indirectly.
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
Progressive Return Fund, Inc. (the "Fund") was incorporated in Maryland on
August 11, 1989 and commenced investment operations on November 9, 1989. Its
investment objective is to seek total return, consisting of capital appreciation
and current income through investing substantially all of its assets in equity
securities of U.S. and non-U.S. companies and U.S. dollar denominated debt
securities. The Fund is registered under the Investment Company Act of 1940, as
amended, as a closed-end, non-diversified management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make certain estimates and assumptions that may
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities shall be valued at the closing price
on the exchange or market on which the security is primarily traded ("Primary
Market"). If the security did not trade on the Primary Market, it shall be
valued at the closing price on another exchange where it trades. If there are no
such sale prices, the value shall be the most recent bid, and if there is no
bid, the security shall be valued at the most recent asked. If no pricing
service is available and there are more than two dealers, the value shall be the
mean of the highest bid and lowest ask. If there is only one dealer, then the
value shall be the mean if bid and ask are available, otherwise the value shall
be the bid. All other securities and assets are valued as determined in good
faith by the Board of Directors. Short-term investments having a maturity of 60
days or less are valued on the basis of amortized cost. The Board of Directors
has established general guidelines for calculating fair value of not readily
marketable securities. At December 31, 2003, 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 American Stock Exchange, LLC is closed.
REPURCHASE AGREEMENTS: The Fund has agreed to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an
agreed-upon time and price ("repurchase agreements"). The financial institutions
with whom the Fund enters into repurchase agreements are banks and
broker/dealers, which Cornerstone Advisors, Inc. (the Fund's "Manager" or
"Cornerstone") considers creditworthy. The seller under a repurchase agreement
will be required to maintain the value of the securities as collateral, subject
to the agreement at not less than the repurchase price plus accrued interest.
Cornerstone monitors daily, the mark-to-market of the value of the collateral,
and, if necessary, requires the seller to maintain additional securities, so
that the value of the collateral is not less than the repurchase price. Default
by or bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delays in connection with the disposition of
the underlying securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
method for both financial reporting and income tax purposes. Interest income is
recorded on an accrual basis; dividend income is recorded on the ex-dividend
date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
DISTRIBUTIONS OF INCOME AND GAINS: Effective June 25, 2002, the Fund initiated a
fixed, monthly distribution to shareholders. To the extent that these
distributions exceed the current earnings of the Fund, the balance will be
generated from sales of portfolio securities held by the Fund, which will either
be short-term or long-term capital gains or a tax-free return-of-capital. Prior
thereto, 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 dividends and distributions made during the year ended December
31, 2003 from net investment income or net realized gains may differ from their
ultimate characterization for U.S. 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. Cornerstone has voluntarily
agreed to waive its management fees from the Fund to the extent monthly
operating expenses exceed 0.10% of average net assets calculated monthly. For
the year ended December 31, 2003, Cornerstone earned $240,927 for investment
management services of which it waived $96,295. Effective January 1, 2004, the
Manager has voluntarily undertaken to waive its investment management fees to
the extent such total operating expenses exceed an annualized rate of 0.125% in
a month. The Manager may discontinue such undertaking at any time during the
fiscal year without notice to fund shareholders.
Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY,
are expense offsets of $9,030 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.
The Fund paid or accrued approximately $1,328 and $10,281 for the year ended
December 31, 2003 for legal services to Blank Rome LLP ("Blank") and Spitzer &
Feldman P.C. ("Spitzer"), current and former counsel, respectively, to the Fund.
Thomas R. Westle, a current partner of Blank and a former partner of Spitzer,
serves as secretary of the Fund.
At December 31, 2003, pursuant to regulatory filings, a single shareholder and
his affiliates owned approximately 40% of the outstanding shares of the Fund
based on a Schedule 13G/A filing with the Securities and Exchange Commission on
January 8, 2004.
--------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------
NOTE C. INVESTMENT IN SECURITIES
For the year ended December 31, 2003, purchases and sales of securities, other
than short-term investments, were $1,428,946 and $4,490,114 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.
The Fund had no repurchases for the year ended December 31, 2003. For the year
ended December 31, 2002, the Fund repurchased 17,300 of its shares for a total
cost of $334,483 at a weighted average discount of 11.70% from net asset value.
The discount of the individual repurchases ranged from 7.11% - 15.58%. No limit
has been placed on the number of shares to be purchased by the Fund other than
those imposed by federal securities laws.
All purchases are made in accordance with federal securities laws, with shares
repurchased held in treasury, effective January 1, 2002.
NOTE E. SECURITIES LENDING
To generate additional income, the Fund may lend up to 33 1/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount. The value of securities on loan to brokers at
December 31, 2003 was $425,053. Any cash collateral received is reinvested into
repurchase agreements, which in turn are collateralized by various U.S.
Government and Agency securities. These repurchase agreements have been
segregated to satisfy the future commitment to return the cash collateral.
--------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
During the year ended December 31, 2003, the Fund earned $503 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, 2003.
PRINCIPAL
AMOUNT MARKET
ISSUER (000'S) MATURITY VALUE
------ ------- -------- -----
United States
Treasury Bond,
(interest only) $255 11/15/15 $143,109
========
NOTE G. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of losses deferred due to wash sales and
Post-October losses (as later defined), and excise tax regulations.
The tax characteristics of dividends and distributions paid during the year
ended December 31, 2003 were ordinary income and return-of-capital of $154,706
and $3,581,925, respectively.
At December 31, 2003, the components of distributable earnings on a tax basis,
for the Fund were as follows:
Capital loss carryforward $(13,269,868)
Unrealized depreciation (3,208,171)
------------
Total loss $(16,478,039)
============
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred and treated as occurring on the first day of the
following tax year ("Post-October losses"). For the tax period ended December
31, 2003, the Fund incurred and elected to defer net realized losses of
$134,271.
At December 31, 2003, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $13,269,868 of which $1,587,989 expires in 2008,
$10,192,955 expires in 2009, $1,365,056 expires in 2010 and $123,868 expires in
2011.
At December 31, 2003, the identified cost for federal income tax purposes, as
well as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized depreciation from investments were $29,716,897, $1,612,013,
$(4,820,184) and $(3,208,171), respectively.
At December 31, 2003, the Fund reclassified $3,581,925 from distributions in
excess of net investment income to paid-in capital, to adjust for current period
permanent book/tax differences. Net assets were not affected by these
reclassifications.
--------------------------------------------------------------------------------
14
--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
NOTE H. SUBSEQUENT EVENT
During a meeting held on February 20, 2004, the Fund's Board of Directors
approved the merger (the "Merger") of the Fund with and into Cornerstone
Strategic Value Fund, Inc. ("CLM"). If the Merger receives shareholder approval,
the Fund will cease to exist, CLM will be the surviving legal corporation and
each share of common stock of the Fund will be converted into an equivalent
dollar amount of full and fractional shares of common stock of CLM based on the
relative net asset values of the Fund and CLM. CLM will not, however, issue any
fractional shares to the Fund's shareholders that do not participate in the
Fund's dividend reinvestment plan.
For those shareholders not participating in the dividend reinvestment plan,
CLM's transfer agent will aggregate all fractional shares, sell the resulting
full shares on the American Stock Exchange at the current market price for the
shares and remit the cash proceeds to the Fund's shareholders in proportion to
their fractional shares held after the Merger. Consummation of the Merger is
subject to a number of conditions, including shareholder approval and certain
regulatory approvals. Separately, the Board of Directors of Investors First
Fund, Inc. ("MGC") has approved a merger of that fund into CLM, subject to
shareholder and certain comparable regulatory approvals. It is proposed that the
Merger be effective on or about May 28, 2004.
--------------------------------------------------------------------------------
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Progressive Return Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of
Progressive Return Fund, Inc., including the schedule of investments, as of
December 31, 2003, and the related statement of operations for the year then
ended, and the statement of changes in net assets and the financial highlights
for each of the two years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the three years in the period ended December 31, 2001 have been audited by other
auditors, whose report dated February 18, 2002 expressed an unqualified opinion
on such financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Progressive Return Fund, Inc. as of December 31, 2003, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 13, 2004
--------------------------------------------------------------------------------
16
TAX INFORMATION (UNAUDITED)
Progressive Return Fund, Inc. (the "Fund") is required by Subchapter M of the
Internal Revenue Code of 1986, as amended, to advise its shareholders within 60
days of the Fund's year end (December 31, 2003) as to the U.S. federal tax
status of distributions received by the Fund's shareholders in respect of such
fiscal year. During the year ended December 31, 2003, the following dividends
and distributions per share were paid by the Fund:
PAYMENT DATE: 1/31/03 2/28/03 3/31/03 4/30/03 5/30/03 6/30/03
------- ------- ------- ------- ------- -------
Ordinary Income: $ 0.0111 $ 0.0111 $ 0.0111 $ 0.0111 $ 0.0111 $ 0.0111
Return-of-Capital: $ 0.2564 $ 0.2564 $ 0.2564 $ 0.2564 $ 0.2564 $ 0.2564
--------- -------- --------- --------- --------- --------
Total: $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675
--------- -------- --------- --------- --------- --------
PAYMENT DATE: 7/31/03 8/29/03 9/30/03 10/31/03 11/28/03 12/31/03
------- ------- ------- -------- -------- --------
Ordinary Income: $ 0.0111 $ 0.0111 $ 0.0111 $ 0.0111 $ 0.0111 $ 0.0117
Return-of-Capital: $ 0.2564 $ 0.2564 $ 0.2564 $ 0.2564 $ 0.2564 $ 0.2703
--------- -------- --------- --------- --------- --------
Total: $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2820
--------- --------- --------- --------- --------- --------
Ordinary income dividends should be reported as dividend income on Form 1040. To
the extent that the distributions represent a return of your investment they are
not taxed as ordinary income dividends and are sometimes referred to as
nontaxable distributions. A return-of-capital distribution reduces the cost
basis of your shares in the Fund.
The Fund has met the requirements to pass through all ordinary income as
qualified dividends as noted on Box 1B on Form 1099-DIV. Please note that to
utilize the lower tax rate for qualifying dividend income shareholders must have
held their shares in the Fund for 60 days or more.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their distribution(s).
In general, distributions received by tax-exempt recipients (E.G., IRA's and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (E.G., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund.
--------------------------------------------------------------------------------
17
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED)
POSITION(S) PRINCIPAL OCCUPATION POSITION WITH FUND
NAME AND ADDRESS (AGE)* HELD WITH FUND OVER LAST 5 YEARS SINCE
-------------------------------- ------------------- -------------------------------------------- --------------------
Ralph W. Bradshaw** (53) Chairman of the President, Cornerstone Advisors, Inc.; 1999; current term
Board of Financial Consultant; Vice President, Deep ends at the 2005
Directors and Discount Advisors, Inc. (1993-1999); Annual Meeting
President Previous Director of The Austria Fund,
Inc.; Director of Investors First Fund,
Inc., Cornerstone Total Return Fund, Inc.
and Cornerstone Strategic Value Fund, Inc.
Thomas H. Lenagh (81) Director Chairman of the Board of Photonics
Products Group; Independent Financial 2001; current term
Adviser; Director of Investors First Fund, ends at the 2004
Inc.; Cornerstone Total Return Fund, Inc., Annual Meeting
Cornerstone Strategic Value Fund, Inc.,
The Adams Express Company and Petroleum
and Resources Corporation.
Edwin Meese III (72) Director Distinguished Fellow, The Heritage 2001; current
Foundation, Washington D.C.; Distinguished term ends at the
Visiting Fellow at the Hoover Institution, 2005 Annual Meeting
Stanford University; Distinguished Senior
Fellow at the Institute of United States
Studies, University of London; Senior
Adviser, Revelation L.P.; Formerly U.S.
Attorney General under President Ronald
Reagan; Director of Investors First Fund,
Inc., Cornerstone Strategic Value Fund,
Inc. and Cornerstone Total Return Fund,
Inc.
--------------------------------------------------------------------------------
18
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED) (CONTINUED)
POSITION(S) PRINCIPAL OCCUPATION POSITION WITH FUND
NAME AND ADDRESS (AGE)* HELD WITH FUND OVER LAST 5 YEARS SINCE
-------------------------------- ------------------- -------------------------------------------- --------------------
Scott B. Rogers (48) Director Chief Executive Officer, Asheville 2000; current
Buncombe Community Christian Ministry; term ends at the
President, ABCCM Doctor's Medical Clinic; 2006 Annual
Director, Faith Partnerships Inc.; Meeting
Director, A-B Vision Board, Appointee, NC
Governor's Commission on Welfare to Work;
Chairman and Director, Recycling
Unlimited; Director, Interdenominational
Ministerial Alliance; Director of
Cornerstone Strategic Value Fund, Inc. and
Cornerstone Total Return Fund, Inc.
Andrew A. Strauss (50) Director Attorney and senior member of Strauss & 2000; current
Associates, P.A., Attorneys, Asheville and term ends at the
Hendersonville, NC; previous President of 2004 Annual
White Knight Healthcare, Inc. and LMV Meeting
Leasing, Inc., a wholly owned subsidiary
of Xerox Credit Corporation; Director of
Investors First Fund, Inc.; Cornerstone
Total Return Fund, Inc., Cornerstone
Strategic Value Fund, Inc., Investors
First Fund, Inc.; Memorial Mission
Hospital Foundation, Deerfield Episcopal
Retirement Community and Asheville
Symphony.
Glenn W. Wilcox, Sr. (72) Director Chairman of the Board and Chief Executive 2000; current
Officer of Wilcox Travel Agency, Inc.; term ends at
Director, Champion Industries, Inc.; the 2006
Chairman of Tower Associates, Inc. (a real Annual
estate venture); Director and Chairman of Meeting
Audit Committee Investors First Fund,
Inc.; Director, Wachovia Corp.; Board
Trustee Appalachian State University;
Director and Chairman of Audit Committee
of Cornerstone Strategic Value Fund, Inc.
and Cornerstone Total Return Fund, Inc.
--------------------------------------------------------------------------------
19
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------
POSITION(S) PRINCIPAL OCCUPATION POSITION WITH FUND
NAME AND ADDRESS (AGE)* HELD WITH FUND OVER LAST 5 YEARS SINCE
-------------------------------- ------------------- -------------------------------------------- --------------------
Gary A. Bentz** (47) Director, Vice Chief Financial Officer, Chairman Director since
President and and Shareholder of Cornerstone Advisors, 2002; current term
Treasurer Inc.; Previous Director of The Austria ends at the 2006
Fund, Inc.; Financial Consultant, Annual Meeting,
Certified Public Accountant; Chief Vice President and
Financial Officer of Deep Discount Treasurer since
Advisors, Inc. (1993-2000); Director, Vice 2001
President and Treasurer of Cornerstone
Total Return Fund, Inc. and Cornerstone
Strategic Value Fund, Inc.
Thomas R. Westle (50) Secretary Partner, Blank Rome LLP (October 31, 2003 2000
405 Lexington Avenue - Present); prior thereto Partner, Spitzer
New York, NY 10174 & Feldman P.C. (May, 1998 - October 30,
2003).
--------------------------------------------------------------------------------
* The mailing address of each Director with respect to the Fund's operation is
383 Madison Ave. -23rd Floor, New York, NY 10179. **Designates a director who is
an "interested person" of the Fund as defined by the Investment Company Act of
1940, as amended. Messrs. Bradshaw and Bentz are interested persons of the Fund
by virtue of their current positions with the Investment Manager of the Fund.
--------------------------------------------------------------------------------
20
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment 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 P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or
call (877) 248-6416. Under the Plan, all of the Fund's dividends and other
distributions to shareholders are reinvested in full and fractional Shares as
described below.
When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Dividend" and collectively, "Dividends"), the Agent, on
the shareholders' behalf, will: (i) receive additional authorized shares from
the Fund either newly issued or repurchased from shareholders by the Fund and
held as treasury stock ("Newly Issued Shares") or, (ii) at the sole discretion
of the Board of Directors, be authorized to purchase outstanding shares on the
open market, on the American Stock Exchange or elsewhere, with cash allocated to
it by the Fund ("Open Market Purchases").
Shares acquired by the Agent in Open Market Purchases will be allocated to the
reinvesting shareholders based on the average cost of such Open Market
Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at a price equal to the average closing price of the
Fund over the five trading days preceding the payment date of such dividend.
Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Dividends automatically reinvested should so
notify the Fund in writing. If a Shareholder has not elected to receive cash
Dividends and the Agent does not receive notice of an election to receive cash
Dividends prior to the record date of any dividend, the shareholder will
automatically receive such Dividends in additional Shares.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Dividend payment date.
When a participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares credited to his/her account under
the Plan will, upon request, be issued. Whether or not a participant requests
that certificates for whole shares be issued, a cash payment will be made for
any fraction of a Share credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of each Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating shareholders.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the Shareholder's name and held for the account of
beneficial owners participating in the Plan.
There will be no charge to participants for reinvesting Dividends other than
their share of brokerage commissions as discussed below. The Agent's fees for
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21
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
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 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 28% 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.
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22
SUMMARY OF GENERAL INFORMATION
The Fund - Progressive Return Fund, Inc. is a closed-end, non-diversified
management investment company whose shares trade on the American Stock Exchange,
LLC. Its investment objective is to seek total return, consisting of capital
appreciation and current income by investing primarily all of its assets in
equity securities of U.S. and non-U.S. issuers whose securities trade on a U.S.
securities exchange or over the counter or as American Depositary Receipts or
other forms of depositary receipts which trade in the United States. The Fund is
managed by Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION
Effective February 21, 2003, the Fund is listed on the American Stock Exchange,
LLC. (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 available weekly and may be obtained by contacting the Fund at the
general inquiry phone number.
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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.
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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.
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23
PRIVACY POLICY NOTICE
The following is a description of Progressive Return Fund, Inc.'s (the "Fund")
policies regarding disclosure of nonpublic personal information that you provide
to the Fund or that the Fund collects from other sources. In the event that you
hold shares of the Fund through a broker-dealer or other financial intermediary,
the privacy policy of the financial intermediary would govern how your nonpublic
personal information would be shared with unaffiliated third parties.
CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the following
nonpublic personal information about you:
1. Information from the Consumer: this category includes information the
Fund receives from you on or in applications or other forms,
correspondence, or conversations (such as your name, address, phone
number, social security number, assets, income and date of birth); and
2. Information about the Consumer's transactions: this category includes
information about your transactions with the Fund, its affiliates, or
others (such as your account number and balance, payment history,
parties to transactions, cost basis information, and other financial
information).
CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose any
nonpublic personal information about their current or former shareholders to
unaffiliated third parties, except as required or permitted by law. The Fund is
permitted by law to disclose all of the information it collects, as described
above, to its service providers (such as the Fund's custodian, administrator and
transfer agent) to process your transactions and otherwise provide services to
you.
CONFIDENTIALITY AND SECURITY. The Fund restricts access to your nonpublic
personal information to those persons who require such information to provide
products or services to you. The Fund maintains physical, electronic and
procedural safeguards that comply with federal standards to guard your nonpublic
personal information.
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24
PROGRESSIVE RETURN FUND, INC.
25
================================================================================
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board
of Directors and
President
Gary A. Bentz Director, Vice
President
and Treasurer
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Thomas R. Westle Secretary
STOCK TRANSFER AGENT AND
INVESTMENT MANAGER REGISTRAR
Cornerstone Advisors, Inc. American Stock Transfer &
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 10038
ADMINISTRATOR INDEPENDENT ACCOUNTANTS
Bear Stearns Funds Tait, Weller & Baker
Management Inc. 1818 Market Street
383 Madison Avenue Suite 2400
New York, NY 10179 Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Blank Rome LLP
101 Carnegie Center 405 Lexington Avenue
Princeton, NJ 08540 New York, NY 10174
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) 272-3550.
[LOGO APPEARS HERE]
26
ITEM 2. CODE OF ETHICS.
(a) Disclose whether, as of the end of the period covered by the report, the
registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. If the registrant has not adopted such a code of ethics,
explain why it has not done so.
THE REGISTRANT HAS ADOPTED A CODE OF ETHICS APPLICABLE TO ITS CHIEF
EXECUTIVE OFFICER, PRESIDENT, CHIEF FINANCIAL OFFICER, OR PERSONS
PERFORMING SIMILAR FUNCTIONS. A COPY OF THE CODE IS FILED AS EXHIBIT
10(A)(1) TO THIS FORM. THERE WERE NO AMENDMENTS TO THE CODE DURING THE YEAR
ENDED DECEMBER 31, 2003. THERE WERE NO WAIVERS OR IMPLICIT WAIVERS FROM THE
CODE GRANTED BY THE REGISTRANT DURING THE YEAR ENDED DECEMBER 31, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) Disclose that the registrant's board of directors has
determined that the registrant either:
27
(i) Has at least one audit committee financial expert serving on
its audit committee; or
(ii) Does not have an audit committee financial expert serving on
its audit committee.
(2) If the registrant provides the disclosure required by paragraph
(a)(1)(i) of this Item, it must disclose the name of the audit committee
financial expert and whether that person is "independent." In order to be
considered "independent" for purposes of this Item, a member of an audit
committee may not, other than in his or her capacity as a member of the
audit committee, the board of directors, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or
other compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as
defined in Section 2(a)(19) of the Act (15 U.S.C. 80a- 2(a)(19)).
(3) If the registrant provides the disclosure required by paragraph
(a)(1)(ii) of this Item, it must explain why it does not have an audit
committee financial expert.
THE REGISTRANT'S BOARD OF DIRECTORS HAS DETERMINED THAT IT DOES NOT HAVE AN
AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT COMMITTEE. AT THIS
TIME, THE REGISTRANT BELIEVES THAT THE EXPERIENCE PROVIDED BY EACH MEMBER
OF THE AUDIT COMMITTEE TOGETHER OFFER THE REGISTRANT ADEQUATE OVERSIGHT FOR
THE REGISTRANT'S LEVEL OF FINANCIAL COMPLEXITY.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Disclose, under the caption AUDIT FEES, the aggregate fees billed
for each of the last two fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
THE AGGREGATE FEES BILLED FOR PROFESSIONAL SERVICES RENDERED BY ITS INDEPENDENT
ACCOUNTANTS, TAIT WELLER & BAKER, FOR THE AUDITS OF THE REGISTRANT'S ANNUAL AND
SEMI-ANNUAL FINANCIAL STATEMENTS FOR 2003 AND 2002 WERE $11,000 FOR EACH OF THE
TWO YEARS.
(b) Disclose, under the caption AUDIT-RELATED FEES, the aggregate fees
billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item. Registrants shall describe the nature of the
services comprising the fees disclosed under this category. THERE WERE NO
AUDIT-RELATED FEES IN 2003 AND 2002.
(c) Disclose, under the caption TAX FEES, the aggregate fees billed in
each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the fees
disclosed under this category.
THE AGGREGATE FEES BILLED TO REGISTRANT FOR PROFESSIONAL SERVICES RENDERED BY
TAIT, WELLER & BAKER FOR THE REVIEW OF REGISTRANTS EXCISE TAX CALCULATIONS AND
PREPARATIONS OF FEDERAL, STATE AND EXCISE TAX RETURNS FOR 2003 AND 2002 WERE
$2,000 FOR EACH YEAR OF THE TWO YEARS.
(d) Disclose, under the caption ALL OTHER FEES, the aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant, other than the services reported in paragraphs (a)
through (c) of this Item.
THE AGGREGATE FEES BILLED TO REGISTRANT BY TAIT, WELLER & BAKER LLP OTHER THAN
FOR THE SERVICES REFERENCED ABOVE FOR 2003 WAS $0 AND FOR 2002 WAS $2,500, WHICH
RELATED TO PROPOSED MERGER-RELATED WORK. IN ADDITION, PRICEWATERHOUSECOOPERS LLP
WAS PAID $1,925 FOR MERGER-RELATED WORK COMPLETED IN 2002.
(e) (1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
PURSUANT TO ITS CHARTER, THE REGISTRANT'S AUDIT COMMITTEE PRE-APPROVES ALL AUDIT
SERVICES PROVIDED BY THE REGISTRANT'S PRINCIPAL ACCOUNTANT FOR THE REGISTRANT
AND ALL PERMISSIBLE NON-AUDIT SERVICES PROVIDED BY THE REGISTRANT'S PRINCIPAL
ACCOUNTANT FOR THE REGISTRANT, ITS INVESTMENT ADVISER AND ANY ENTITY
CONTROLLING, CONTROLLED BY, OR UNDER COMMON CONTROL WITH THE INVESTMENT ADVISER
("ADVISER AFFILIATE") THAT PROVIDES ONGOING SERVICES TO THE FUND, IF THE
ENGAGEMENT BY THE INVESTMENT ADVISER OR ADVISER AFFILIATE RELATES DIRECTLY TO
THE OPERATIONS AND FINANCIAL REPORTING OF THE REGISTRANT.
28
(2) Disclose the percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
NO SERVICES INCLUDED IN (B) - (D) ABOVE WERE APPROVED PURSUANT TO PARAGRAPH
(C)(7)(I)(C) OF RULE 2-01 OF REGULATION S-X.
(f) If greater than 50 percent, disclose the percentage of hours
expended on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's full-time,
permanent employees.
NOT APPLICABLE.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
each of the last two fiscal years of the registrant.
THE AGGREGATE FEES BILLED FOR THE MOST RECENT FISCAL YEAR AND THE PRECEDING
FISCAL YEAR BY THE REGISTRANT'S PRINCIPAL ACCOUNTANT FOR NON-AUDIT SERVICES
RENDERED TO THE REGISTRANT, ITS INVESTMENT ADVISER, AND ADVISER AFFILIATE THAT
PROVIDES ONGOING SERVICES TO THE REGISTRANT WERE $2,000 AND $4,500,
RESPECTIVELY. IN ADDITION, PRICEWATERHOUSECOOPERS LLP WAS PAID $1,925 FOR
MERGER-RELATED WORK COMPLETED IN 2002. SUCH AMOUNTS RELATE SOLELY TO THE AMOUNTS
PREVIOUSLY DISCLOSED IN ITEM 4(C) -(D).
(h) Disclose whether the registrant's audit committee of the board of
directors has considered whether the provision of nonaudit services that were
rendered to the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
ALL NON-AUDIT SERVICES RENDERED IN (G) ABOVE WERE PRE-APPROVED BY THE
REGISTRANT'S AUDIT COMMITTEE. TAIT, WELLER & BAKER DID NOT PROVIDE ANY NON-AUDIT
RELATED SERVICES TO THE REGISTRANT'S INVESTMENT ADVISER, OR ANY ENTITY
CONTROLLING, CONTROLLED OR UNDER COMMON CONTROL WITH THE INVESTMENT ADVISER.
ITEMS 5. Audit Committee of Listed Registrants - If the registrant is a listed
issuer as defined in Rule 10A-3 under the Exchange Act (17CRF 240.10A-3) state
whether or not the registrant has a separately-designated standing audit
committee established in accordance with Section 3(a)(58)A of the Exchange Act
(15 U.S.C. 78c(a)(A)). If the registrant has such a committee, however
designated, identify each committee member. If the entire board of directors is
acting as the registrant's audit committee as specified in Section 3(a)(58)(B)
of the Exchange Act (15U.S.C. 78c(a)(58)(B), so state.
THE MEMBERS OF THE AUDIT COMMITTEE ARE GLENN W. WILCOX, SR., THOMAS H. LENAGH,
EDWIN MEESE III, SCOTT B. ROGERS AND ANDREW A. STRAUSS.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. ISS Proxy Voting Guidelines Summary
The following is a condensed version of all proxy voting recommendations
contained in The ISS Proxy Voting
Manual.
1. Operational Items
ADJOURN MEETING
Generally vote AGAINST proposals to provide management with the authority to
adjourn an annual or special meeting absent compelling reasons to support the
proposal.
AMEND QUORUM REQUIREMENTS Vote AGAINST proposals to reduce quorum
requirements for shareholder meetings below a majority of the shares outstanding
unless there are compelling reasons to support the proposal.
AMEND MINOR BYLAWS
Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).
29
CHANGE COMPANY NAME Vote FOR proposals to change the corporate name.
CHANGE DATE, TIME, OR LOCATION OF ANNUAL MEETING
Vote FOR management proposals to change the date/time/location of the annual
meeting unless the proposed change is unreasonable. Vote AGAINST shareholder
proposals to change the date/time/location of the annual meeting unless the
current scheduling or location is unreasonable.
RATIFYING AUDITORS
Vote FOR proposals to ratify auditors, unless any of the following apply:
An auditor has a financial interest in or association with the company, and is
therefore not independent Fees for non-audit services are excessive, or There is
reason to believe that the independent auditor has rendered an opinion which is
neither accurate nor indicative of the company's financial position.
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services. Vote FOR shareholder
proposals asking for audit firm rotation, unless the rotation period is so short
(less than five years) that it would be unduly burdensome to the company.
Transact Other Business Vote AGAINST proposals to approve other business when it
appears as voting item.
2. Board of Directors
Voting on Director Nominees in Uncontested Elections
Votes on director nominees should be made on a CASE-BY-CASE basis, examining the
following factors: composition of the board and key board committees, attendance
at board meetings, corporate governance provisions and takeover activity,
long-term company performance relative to a market index, directors' investment
in the company, whether the chairman is also serving as CEO, and whether a
retired CEO sits on the board. However, there are some actions by directors that
should result in votes being withheld. These instances include directors who:
Attend less than 75 percent of the board and committee meetings without a valid
excuse Implement or renew a dead-hand or modified dead-hand poison pill Ignore a
shareholder proposal that is approved by a majority of the shares outstanding
Ignore a shareholder proposal that is approved by a majority of the votes cast
for two consecutive years Failed to act on takeover offers where the majority of
the shareholders tendered their shares Are inside directors or affiliated
outsiders and sit on the audit, compensation, or nominating committees Are
inside directors or affiliated outsiders and the full board serves as the audit,
compensation, or nominating committee or the company does not have one of these
committees Are audit committee members and the non-audit fees paid to the
auditor are excessive. In addition, directors who enacted egregious corporate
governance policies or failed to replace management as appropriate would be
subject to recommendations to withhold votes.
AGE LIMITS Vote AGAINST
shareholder proposals to impose a mandatory retirement age for outside
directors. Board Size Vote FOR proposals seeking to fix the board size or
designate a range for the board size. Vote AGAINST proposals that give
management the ability to alter the size of the board outside of a specified
range without shareholder approval.
CLASSIFICATION/DECLASSIFICATION OF THE BOARD Vote AGAINST proposals to classify
the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
30
CUMULATIVE VOTING Vote AGAINST proposals to eliminate cumulative
voting.
Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis
relative to the company's other governance provisions. DIRECTOR AND OFFICER
INDEMNIFICATION AND LIABILITY PROTECTION Proposals on director and officer
indemnification and liability protection should be evaluated on a CASE-BY-CASE
basis, using Delaware law as the standard.
Vote AGAINST proposals to eliminate entirely directors' and officers' liability
for monetary damages for violating the duty of care. Vote AGAINST
indemnification proposals that would expand coverage beyond just legal expenses
to acts, such as negligence, that are more serious violations of fiduciary
obligation than mere carelessness. Vote FOR only those proposals providing such
expanded coverage in cases when a director's or officer's legal defense was
unsuccessful if both of the following apply:
The director was found to have acted in good faith and in a manner that he
reasonably believed was in the best interests of the company, and Only if the
director's legal expenses would be covered.
ESTABLISH/AMEND NOMINEE QUALIFICATIONS
Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on how reasonable the criteria are and to what degree they
may preclude dissident nominees from joining the board.
Vote AGAINST shareholder proposals requiring two candidates per board seat.
FILLING VACANCIES/REMOVAL OF DIRECTORS Vote AGAINST proposals that provide that
directors may be removed only for cause. Vote FOR proposals to restore
shareholder ability to remove directors with or without cause.
Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies. Vote FOR proposals that permit
shareholders to elect directors to fill board vacancies.
INDEPENDENT CHAIRMAN (SEPARATE CHAIRMAN/CEO)
Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions
of chairman and CEO be held separately. Because some companies have governance
structures in place that counterbalance a combined position, the following
factors should be taken into account in determining whether the proposal
warrants support:
Designated lead director appointed from the ranks of the independent board
members with clearly delineated duties Majority of independent directors on
board All-independent key committees Committee chairpersons nominated by the
independent directors CEO performance reviewed annually by a committee of
outside directors Established governance guidelines Company performance.
MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES
Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
ISS's definition of independence. Vote FOR shareholder proposals asking that
board audit, compensation, and/or nominating committees be composed exclusively
of independent directors if they currently do not meet that standard.
STOCK OWNERSHIP REQUIREMENTS Generally vote AGAINST shareholder proposals that
mandate a minimum amount of stock that directors must own in order to qualify as
a director or to remain on the board. While ISS favors stock ownership on the
part of directors, the company should determine the appropriate ownership
requirement.
TERM LIMITS Vote AGAINST shareholder proposals to limit the tenure
of outside directors.
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3. PROXY CONTESTS
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Votes in a contested election of directors must be evaluated on a CASE-BY-CASE
basis, considering the following factors: Long-term financial performance of the
target company relative to its industry; management's track record Background to
the proxy contest Qualifications of director nominees (both slates) Evaluation
of what each side is offering shareholders as well as the likelihood that the
proposed objectives and goals can be met; and stock ownership positions.
REIMBURSING PROXY SOLICITATION EXPENSES Voting to reimburse proxy solicitation
expenses should be analyzed on a CASE-BY-CASE basis. In cases where ISS
recommends in favor of the dissidents, we also recommend voting for reimbursing
proxy solicitation expenses. CONFIDENTIAL VOTING Vote FOR shareholder proposals
requesting that corporations adopt confidential voting, use independent vote
tabulators and use independent inspectors of election, as long as the proposal
includes a provision for proxy contests as follows: In the case of a contested
election, management should be permitted to request that the dissident group
honor its confidential voting policy. If the dissidents agree, the policy
remains in place. If the dissidents will not agree, the confidential voting
policy is waived. Vote FOR management proposals to adopt confidential voting.
4. ANTITAKEOVER DEFENSES AND VOTING RELATED ISSUES
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS/NOMINATIONS
Votes on advance notice proposals are determined on a CASE-BY-CASE basis, giving
support to those proposals which allow shareholders to submit proposals as close
to the meeting date as reasonably possible and within the broadest window
possible.
AMEND BYLAWS WITHOUT SHAREHOLDER CONSENT
Vote AGAINST proposals giving the board exclusive authority to amend the bylaws.
Vote FOR proposals giving the board the ability to amend the bylaws in addition
to shareholders.
POISON PILLS
Vote FOR shareholder proposals that ask a company to submit its poison pill for
shareholder ratification. Review on a CASE-BY-CASE basis shareholder proposals
to redeem a company's poison pill. Review on a CASE-BY-CASE basis management
proposals to ratify a poison pill.
SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent. Vote FOR proposals to allow or make easier
shareholder action by written consent. SHAREHOLDER ABILITY TO CALL SPECIAL
MEETINGS Vote AGAINST proposals to restrict or prohibit shareholder ability to
call special meetings. Vote FOR proposals that remove restrictions on the right
of shareholders to act independently of management. SUPERMAJORITY VOTE
REQUIREMENTS Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
5. MERGERS AND CORPORATE RESTRUCTURINGS
APPRAISAL RIGHTS
Vote FOR proposals to restore, or provide shareholders with, rights of
appraisal. ASSET PURCHASES Vote CASE-BY-CASE on asset purchase proposals,
considering the following factors: Purchase price Fairness opinion Financial and
strategic benefits How the deal was negotiated Conflicts of interest Other
alternatives for the business Noncompletion risk.
32
ASSET SALES
Votes on asset sales should be determined on a CASE-BY-CASE basis, considering
the following factors: Impact on the balance sheet/working capital Potential
elimination of diseconomies Anticipated financial and operating benefits
Anticipated use of funds Value received for the asset Fairness opinion How the
deal was negotiated Conflicts of interest.
BUNDLED PROPOSALS
Review on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals. In the
case of items that are conditioned upon each other, examine the benefits and
costs of the packaged items. In instances when the joint effect of the
conditioned items is not in shareholders' best interests, vote against the
proposals. If the combined effect is positive, support such proposals.
CONVERSION OF SECURITIES
Votes on proposals regarding conversion of securities are determined on a
CASE-BY-CASE basis. When evaluating these proposals the investor should review
the dilution to existing shareholders, the conversion price relative to market
value, financial issues, control issues, termination penalties, and conflicts of
interest.
Vote FOR the conversion if it is expected that the company will be subject to
onerous penalties or will be forced to file for bankruptcy if the transaction is
not approved. CORPORATE REORGANIZATION/DEBT RESTRUCTURING/PREPACKAGED BANKRUPTCY
PLANS/REVERSE LEVERAGED BUYOUTS/WRAP PLANS Votes on proposals to increase common
and/or preferred shares and to issue shares as part of a debt restructuring plan
are determined on a CASE-BY-CASE basis, taking into consideration the following:
Dilution to existing shareholders' position Terms of the offer Financial issues
Management's efforts to pursue other alternatives Control issues Conflicts of
interest.
Vote FOR the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved. FORMATION OF HOLDING COMPANY
Votes on proposals regarding the formation of a holding company should be
determined on a CASE-BY-CASE basis, taking into consideration the following:
The reasons for the change
Any financial or tax benefits
Regulatory benefits increases in capital structure Changes to the articles of
incorporation or bylaws of the company.
Absent compelling financial reasons to recommend the transaction, vote AGAINST
the formation of a holding company if the transaction would include either of
the following: Increases in common or preferred stock in excess of the allowable
maximum as calculated by the ISS Capital Structure model Adverse changes in
shareholder rights
33
GOING PRIVATE TRANSACTIONS (LBOS AND MINORITY SQUEEZEOUTS)
Vote going private transactions on a CASE-BY-CASE basis, taking into account the
following: offer price/premium, fairness opinion, how the deal was negotiated,
conflicts of interest, other alternatives/offers considered, and noncompletion
risk.
JOINT VENTURES
Votes CASE-BY-CASE on proposals to form joint ventures, taking into account the
following: percentage of assets/business contributed, percentage ownership,
financial and strategic benefits, governance structure, conflicts of interest,
other alternatives, and noncompletion risk.
LIQUIDATIONS
Votes on liquidations should be made on a CASE-BY-CASE basis after reviewing
management's efforts to pursue other alternatives, appraisal value of assets,
and the compensation plan for executives managing the liquidation. Vote FOR the
liquidation if the company will file for bankruptcy if the proposal is not
approved. MERGERS AND ACQUISITIONS/ ISSUANCE OF SHARES TO FACILITATE MERGER OR
ACQUISITION Votes on mergers and acquisitions should be considered on a
CASE-BY-CASE basis, determining whether the transaction enhances shareholder
value by giving consideration to the following: Prospects of the combined
company, anticipated financial and operating benefits Offer price Fairness
opinion How the deal was negotiated Changes in corporate governance Change in
the capital structure Conflicts of interest.
PRIVATE PLACEMENTS/WARRANTS/CONVERTIBLE DEBENTURES
Votes on proposals regarding private placements should be determined on a
CASE-BY-CASE basis. When evaluating these proposals the investor should review:
dilution to existing shareholders' position, terms of the offer, financial
issues, management's efforts to pursue other alternatives, control issues, and
conflicts of interest. Vote FOR the private placement if it is expected that the
company will file for bankruptcy if the transaction is not approved.
SPINOFFS
Votes on spinoffs should be considered on a CASE-BY-CASE basis depending on: Tax
and regulatory advantages Planned use of the sale proceeds Valuation of spinoff
Fairness opinion Benefits to the parent company Conflicts of interest Managerial
incentives Corporate governance changes Changes in the capital structure.
VALUE MAXIMIZATION PROPOSALS
Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value
by hiring a financial advisor to explore strategic alternatives, selling the
company or liquidating the company and distributing the proceeds to
shareholders. These proposals should be evaluated based on the following
factors: prolonged poor performance with no turnaround in sight, signs of
entrenched board and management, strategic plan in place for improving value,
likelihood of receiving reasonable value in a sale or dissolution, and whether
company is actively exploring its strategic options, including retaining a
financial advisor.
6. STATE OF INCORPORATION
CONTROL SHARE ACQUISITION PROVISIONS
Vote FOR proposals to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to
shareholders. Vote AGAINST proposals to amend the charter to include control
share acquisition provisions. Vote FOR proposals to restore voting rights to the
control shares.
CONTROL SHARE CASHOUT PROVISIONS Vote FOR proposals to opt out
of control share cashout statutes.
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DISGORGEMENT PROVISIONS
Vote FOR proposals to opt out of state disgorgement provisions.
FAIR PRICE PROVISIONS
Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis,
evaluating factors such as the vote required to approve the proposed
acquisition, the vote required to repeal the fair price provision, and the
mechanism for determining the fair price. Generally, vote AGAINST fair price
provisions with shareholder vote requirements greater than a majority of
disinterested shares.
FREEZEOUT PROVISIONS
Vote FOR proposals to opt out of state freezeout provisions.
GREENMAIL
Vote FOR proposals to adopt antigreenmail charter of bylaw amendments or
otherwise restrict a company's ability to make greenmail payments. Review on a
CASE-BY-CASE basis antigreenmail proposals when they are bundled with other
charter or bylaw amendments.
REINCORPORATION PROPOSALS
Proposals to change a company's state of incorporation should be evaluated on a
CASE-BY-CASE basis, giving consideration to both financial and corporate
governance concerns, including the reasons for reincorporating, a comparison of
the governance provisions, and a comparison of the jurisdictional laws. Vote FOR
reincorporation when the economic factors outweigh any neutral or negative
governance changes. STAKEHOLDER PROVISIONS Vote AGAINST proposals that ask the
board to consider nonshareholder constituencies or other nonfinancial effects
when evaluating a merger or business combination.
STATE ANTITAKEOVER STATUTES
Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freezeout provisions, fair price provisions, stakeholder laws, poison
pill endorsements, severance pay and labor contract provisions, antigreenmail
provisions, and disgorgement provisions).
7. CAPITAL STRUCTURE
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
Vote FOR management proposals to reduce the par value of common stock.
Common Stock Authorization Votes on proposals to increase the number of shares
of common stock authorized for issuance are determined on a CASE-BY-CASE basis
using a model developed by ISS. Vote AGAINST proposals at companies with
dual-class capital structures to increase the number of authorized shares of the
class of stock that has superior voting rights. Vote FOR proposals to approve
increases beyond the allowable increase when a company's shares are in danger of
being delisted or if a company's ability to continue to operate as a going
concern is uncertain.
DUAL-CLASS STOCK
Vote AGAINST proposals to create a new class of common stock with superior
voting rights. Vote FOR proposals to create a new class of nonvoting or
subvoting common stock if: It is intended for financing purposes with minimal or
no dilution to current shareholders It is not designed to preserve the voting
power of an insider or significant shareholder ISSUE STOCK FOR USE WITH RIGHTS
PLAN Vote AGAINST proposals that increase authorized common stock for the
explicit purpose of implementing a shareholder rights plan (poison pill).
PREEMPTIVE RIGHTS
Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive
rights. In evaluating proposals on preemptive rights, consider the size of a
company, the characteristics of its shareholder base, and the liquidity of the
stock.
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PREFERRED STOCK
Vote AGAINST proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock). Vote FOR proposals to create "declawed"
blank check preferred stock (stock that cannot be used as a takeover defense).
Vote FOR proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable. Vote AGAINST proposals to
increase the number of blank check preferred stock authorized for issuance when
no shares have been issued or reserved for a specific purpose.
Vote CASE-BY-CASE on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for issue given
a company's industry and performance in terms of shareholder returns.
RECAPITALIZATION
Votes CASE-BY-CASE on recapitalizations (reclassifications of securities),
taking into account the following: more simplified capital structure, enhanced
liquidity, fairness of conversion terms, impact on voting power and dividends,
reasons for the reclassification, conflicts of interest, and other alternatives
considered.
REVERSE STOCK SPLITS
Vote FOR management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced. Vote FOR management
proposals to implement a reverse stock split to avoid delisting. Votes on
proposals to implement a reverse stock split that do not proportionately reduce
the number of shares authorized for issue should be determined on a CASE-BY-CASE
basis using a model developed by ISS. SHARE REPURCHASE PROGRAMS Vote FOR
management proposals to institute open-market share repurchase plans in which
all shareholders may participate on equal terms.
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Vote FOR management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for issuance as
determined using a model developed by ISS.
TRACKING STOCK
Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis,
weighing the strategic value of the transaction against such factors as: adverse
governance changes, excessive increases in authorized capital stock, unfair
method of distribution, diminution of voting rights, adverse conversion
features, negative impact on stock option plans, and other alternatives such as
spinoff.
8. EXECUTIVE AND DIRECTOR COMPENSATION
Votes with respect to compensation plans should be determined on a CASE-BY-CASE
basis. Our methodology for reviewing compensation plans primarily focuses on the
transfer of shareholder wealth (the dollar cost of pay plans to shareholders
instead of simply focusing on voting power dilution). Using the expanded
compensation data disclosed under the SEC's rules, ISS will value every award
type. ISS will include in its analyses an estimated dollar cost for the proposed
plan and all continuing plans. This cost, dilution to shareholders' equity, will
also be expressed as a percentage figure for the transfer of shareholder wealth,
and will be considered long with dilution to voting power.
Cash compensation, and
Categorization of the company as emerging, growth, or mature. These adjustments
are pegged to market capitalization. ISS will continue to examine other features
of proposed pay plans such as administration, payment terms, plan duration, and
whether the administering committee is permitted to reprice underwater stock
options without shareholder approval.
DIRECTOR COMPENSATION
Votes on compensation plans for directors are determined on a CASE-BY-CASE
basis, using a proprietary, quantitative model developed by ISS.
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STOCK PLANS IN LIEU OF CASH Votes for plans which provide participants with the
option of taking all or a portion of their cash compensation in the form of
stock are determined on a CASE-BY-CASE basis. Vote FOR plans which provide a
dollar-for-dollar cash for stock exchange. Votes for plans which do not provide
a dollar-for-dollar cash for stock exchange should be determined on a
CASE-BY-CASE basis using a proprietary, quantitative model developed by ISS.
DIRECTOR RETIREMENT PLANS
Vote AGAINST retirement plans for nonemployee directors.
Vote FOR shareholder proposals to eliminate retirement plans for nonemployee
directors. MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS Votes on
management proposals seeking approval to reprice options are evaluated on a
CASE-BY-CASE basis giving consideration to the following:
Historic trading patterns Rationale for the repricing Value-for-value exchange
Option vesting Term of the option Exercise price Participation.
EMPLOYEE STOCK PURCHASE PLANS
Votes on employee stock purchase plans should be determined on a CASE-BY-CASE
basis. Vote FOR employee stock purchase plans where all of the following apply:
Purchase price is at least 85 percent of fair market value Offering period is 27
months or less, and Potential voting power dilution (VPD) is ten percent or
less. Vote AGAINST employee stock purchase plans where any of the following
apply: Purchase price is less than 85 percent of fair market value, or Offering
period is greater than 27 months, or VPD is greater than ten percent INCENTIVE
BONUS PLANS AND TAX DEDUCTIBILITY PROPOSALS (OBRA-RELATED COMPENSATION
PROPOSALS) Vote FOR proposals that simply amend shareholder-approved
compensation plans to include administrative features or place a cap on the
annual grants any one participant may receive to comply with the provisions of
Section 162(m).
Vote FOR proposals to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) unless they are clearly
inappropriate. Votes to amend existing plans to increase shares reserved and to
qualify for favorable tax treatment under the provisions of Section 162(m)
should be considered on a CASE-BY-CASE basis using a proprietary, quantitative
model developed by ISS.
Generally vote FOR cash or cash and stock bonus plans that are submitted to
shareholders for the purpose of exempting compensation from taxes under the
provisions of Section 162(m) if no increase in shares is requested.
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares.) is
401(K) EMPLOYEE BENEFIT PLANS
Vote FOR proposals to implement a 401(k) savings plan for employees.
SHAREHOLDER PROPOSALS REGARDING EXECUTIVE AND DIRECTOR PAY
Generally, vote FOR shareholder proposals seeking additional disclosure of
executive and director pay information, provided the information requested is
relevant to shareholders' needs, would not put the company at a competitive
disadvantage relative to its industry, and is not unduly burdensome to the
company.
Vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.
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Vote AGAINST shareholder proposals requiring director fees be paid in stock
only. Vote FOR shareholder proposals to put option repricings to a shareholder
vote. Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding
executive and director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate outlook.
OPTION EXPENSING
Generally vote FOR shareholder proposals asking the company to expense stock
options, unless the company has already publicly committed to expensing options
by a specific date. PERFORMANCE-BASED STOCK OPTIONS Vote CASE-BY-CASE on
shareholder proposals advocating the use of performance-based stock options
(indexed, premium-priced, and performance-vested options), taking into account:
Whether the proposal mandates that all awards be performance-based
Whether the proposal extends beyond executive awards to those of lower-ranking
employees Whether the company's stock-based compensation plans meet ISS's SVT
criteria and do not violate our repricing guidelines.
GOLDEN AND TIN PARACHUTES
Vote FOR shareholder proposals to require golden and tin parachutes (executive
severance agreements) to be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.
Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden or tin
parachutes. An acceptable parachute should include the following: The parachute
should be less attractive than an ongoing employment opportunity with the firm
The triggering mechanism should be beyond the control of management The amount
should not exceed three times base salary plus guaranteed benefits
9. SOCIAL AND ENVIRONMENTAL ISSUES
CONSUMER ISSUES AND PUBLIC SAFETY
ANIMAL RIGHTS
Vote CASE-BY-CASE on proposals to phase out the use of animals in product
testing, taking into account: The nature of the product and the degree that
animal testing is necessary or federally mandated (such as medical products),
The availability and feasibility of alternatives to animal testing to ensure
product safety, and The degree that competitors are using animal-free testing.
Generally vote FOR proposals seeking a report on the company's animal welfare
standards unless: The company has already published a set of animal welfare
standards and monitors compliance The company's standards are comparable to or
better than those of peer firms, and There are no serious controversies
surrounding the company's treatment of animals
DRUG PRICING Vote CASE-BY-CASE on proposals asking the company to implement
price restraints on pharmaceutical products, taking into account: Whether the
proposal focuses on a specific drug and region Whether the economic benefits of
providing subsidized drugs (e.g., public goodwill) outweigh the costs in terms
of reduced profits, lower R&D spending, and harm to competitiveness
The extent that reduced prices can be offset through the company's marketing
budget without affecting R&D spending
Whether the company already limits price increases of its products Whether the
company already contributes life-saving pharmaceuticals to the needy and Third
World countries The extent that peer companies implement price restraints
Genetically Modified Foods
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Vote CASE-BY-CASE on proposals to label genetically modified (GMO) ingredients
voluntarily in the company's products, or alternatively to provide interim
labeling and eventually eliminate GMOs, taking into account:
The costs and feasibility of labeling and/or phasing out The
nature of the company's business and the proportion of it affected by the
proposal The proportion of company sales in markets requiring labeling or
GMO-free products The extent that peer companies label or have eliminated GMOs
Competitive benefits, such as expected increases in consumer demand for the
company's products The risks of misleading consumers without federally mandated,
standardized labeling Alternatives to labeling employed by the company. Vote FOR
proposals asking for a report on the feasibility of labeling products containing
GMOs.
Vote AGAINST proposals to completely phase out GMOs from the company's products.
Such resolutions presuppose that there are proven health risks to GMOs-an issue
better left to federal regulators-which outweigh the economic benefits derived
from biotechnology. Vote CASE-BY-CASE on reports outlining the steps necessary
to eliminate GMOs from the company's products, taking into account:
The relevance of the proposal in terms of the company's business and
the proportion of it affected by the resolution The extent that peer companies
have eliminated GMOs The extent that the report would clarify whether it is
viable for the company to eliminate GMOs from its products Whether the proposal
is limited to a feasibility study or additionally seeks an action plan and
timeframe actually to phase out GMOs The percentage of revenue derived from
international operations, particularly in Europe, where GMOs are more regulated.
Vote AGAINST proposals seeking a report on the health and environmental effects
of GMOs and the company's strategy for phasing out GMOs in the event they become
illegal in the United States. Studies of this sort are better undertaken by
regulators and the scientific community. If made illegal in the United States,
genetically modified crops would automatically be recalled and phased out.
Handguns Generally vote AGAINST requests for reports on a company's policies
aimed at curtailing gun violence in the United States unless the report is
confined to product safety information.
Criminal misuse of firearms is beyond company control and instead falls within
the purview of law enforcement agencies. Predatory Lending Vote CASE-BY CASE on
requests for reports on the company's procedures for preventing predatory
lending, including the establishment of a board committee for oversight, taking
into account: Whether the company has adequately disclosed mechanisms in place
to prevent abusive lending practices Whether the company has adequately
disclosed the financial risks of its subprime business Whether the company has
been subject to violations of lending laws or serious lending controversies Peer
companies' policies to prevent abusive lending practices.
Tobacco
Most tobacco-related proposals should be evaluated on a CASE-BY-CASE basis,
taking into account the following factors:
Second-hand smoke: Whether the company complies with all local ordinances and
regulations The degree that voluntary restrictions beyond those mandated by law
might hurt the company's competitiveness The risk of any health-related
liabilities. Advertising to youth: Whether the company complies with federal,
state, and local laws on the marketing of tobacco or if it has been fined for
violations Whether the company has gone as far as peers in restricting
advertising Whether the company entered into the Master Settlement Agreement,
which restricts marketing of tobacco to youth
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Whether restrictions on marketing to youth extend to foreign countries Cease
production of tobacco-related products or avoid selling products to tobacco
companies: The percentage of the company's business affected The economic loss
of eliminating the business versus any potential tobacco-related liabilities.
Spinoff tobacco-related businesses: The percentage of the company's business
affected
The feasibility of a spinoff Potential future liabilities related to the
company's tobacco business. Stronger product warnings: Vote AGAINST proposals
seeking stronger product warnings. Such decisions are better left to public
health authorities. Investment in tobacco stocks: Vote AGAINST proposals
prohibiting investment in tobacco equities. Such decisions are better left to
portfolio managers.
ENVIRONMENT AND ENERGY
Arctic National Wildlife Refuge
Vote CASE-BY-CASE on reports outlining potential environmental damage from
drilling in the Arctic National Wildlife Refuge (ANWR), taking into account:
Whether there are publicly available environmental impact reports; Whether the
company has a poor environmental track record, such as violations of federal and
state regulations or accidental spills; and
The current status of legislation regarding drilling in ANWR.
CERES Principles
Vote CASE-BY-CASE on proposals to adopt the CERES Principles, taking into
account:
The company's current environmental disclosure beyond legal requirements,
including environmental health and safety (EHS) audits and reports that may
duplicate CERES
The company's environmental performance record, including violations of federal
and state regulations, level of toxic emissions, and accidental spills
Environmentally conscious practices of peer companies, including endorsement of
CERES Costs of membership and implementation.
Environmental Reports
Generally vote FOR requests for reports disclosing the company's environmental
policies unless it already has well-documented environmental management systems
that are available to the public. Global Warming Generally vote FOR reports on
the level of greenhouse gas emissions from the company's operations and
products, unless the report is duplicative of the company's current
environmental disclosure and reporting or is not integral to the company's line
of business. However, additional reporting may be warranted.
The company's level of disclosure lags that of its competitors, or
The company has a poor environmental track record, such as violations of federal
and state regulations. Recycling Vote CASE-BY-CASE on proposals to adopt a
comprehensive recycling strategy, taking into account:
The nature of the company's business and the percentage affected The extent that
peer companies are recycling The timetable prescribed by the proposal The costs
and methods of implementation Whether the company has a poor environmental track
record, such as violations of federal and state regulations. Renewable Energy
Vote CASE-BY-CASE on proposals to invest in renewable energy sources, taking
into account: The nature of the company's business and the percentage affected
The extent that peer companies are switching from fossil fuels to cleaner
sources The timetable and specific action prescribed by the proposal The costs
of implementation The company's initiatives to address climate change Generally
vote FOR requests for reports on the feasibility of developing renewable energy
sources, unless the report is duplicative of the company's current environmental
disclosure and reporting or is not integral to the company's line of business.
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GENERAL CORPORATE ISSUES
Link Executive Compensation to Social Performance
Vote CASE-BY-CASE on proposals to review ways of linking executive compensation
to social factors, such as corporate downsizings, customer or employee
satisfaction, community involvement, human rights, environmental performance,
predatory lending, and executive/employee pay disparities. Such resolutions
should be evaluated in the context of:
The relevance of the issue to be linked to pay
The degree that social performance is already included in the company's
pay structure and disclosed The degree that social performance is used by peer
companies in setting pay Violations or complaints filed against the company
relating to the particular social performance measure Artificial limits sought
by the proposal, such as freezing or capping executive pay Independence of the
compensation committee Current company pay levels. Charitable/Political
Contributions Generally vote AGAINST proposals asking the company to affirm
political nonpartisanship in the workplace so long as: The company is in
compliance with laws governing corporate political activities, and The company
has procedures in place to ensure that employee contributions to
company-sponsored political action committees (PACs) are strictly voluntary and
not coercive. Vote AGAINST proposals to report or publish in newspapers the
company's political contributions. Federal and state laws restrict the amount of
corporate contributions and include reporting requirements. Vote AGAINST
proposals disallowing the company from making political contributions.
Businesses are affected by legislation at the federal, state, and local level
and barring contributions can put the company at a competitive disadvantage.
Vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating goodwill in the community. In the absence of
bad faith, self-dealing, or gross negligence, management should determine which
contributions are in the best interests of the company. Vote AGAINST proposals
asking for a list of company executives, directors, consultants, legal counsels,
lobbyists, or investment bankers that have prior government service and whether
such service had a bearing on the business of the company. Such a list would be
burdensome to prepare without providing any meaningful information to
shareholders.
LABOR STANDARDS AND HUMAN RIGHTS
China Principles
Vote AGAINST proposals to implement the China Principles unless:
There are serious controversies surrounding the company's China operations, and
The company does not have a code of conduct with standards similar to those
promulgated by the International Labor Organization (ILO). Country-specific
human rights reports Vote CASE-BY-CASE on requests for reports detailing the
company's operations in a particular country and steps to protect human rights,
based on: The nature and amount of company business in that country The
company's workplace code of conduct Proprietary and confidential information
involved Company compliance with U.S. regulations on investing in the country
Level of peer company involvement in the country. International Codes of
Conduct/Vendor Standards
Vote CASE-BY-CASE on proposals to implement certain human rights standards at
company facilities or those of its suppliers and to commit to outside,
independent monitoring. In evaluating these proposals, the following should be
considered:
The company's current workplace code of conduct or adherence to other global
standards and the degree they meet the standards promulgated by the proponent
Agreements with foreign suppliers to meet certain workplace standards
41
Whether company and vendor facilities are monitored and how
Company participation in fair labor organizations
Type of business
Proportion of business conducted overseas Countries of operation with known
human rights abuses Whether the company has been recently involved in
significant labor and human rights controversies or violations
Peer company standards and practices
Union presence in company's international factories Generally vote FOR reports
outlining vendor standards compliance unless any of the following apply:
The company does not operate in countries with significant human rights
violations The company has no recent human rights controversies or violations,
or The company already publicly discloses information on its vendor standards
compliance. MacBride Principles
Vote CASE-BY-CASE on proposals to endorse or increase activity on the MacBride
Principles, taking into account:
Company compliance with or violations of the Fair Employment Act of 1989
Company antidiscrimination policies that already exceed the legal requirements
The cost and feasibility of adopting all nine principles The cost of duplicating
efforts to follow two sets of standards (Fair Employment and the MacBride
Principles)
The potential for charges of reverse discrimination
The potential that any company sales or contracts in the rest of
the United Kingdom could be negatively impacted The level of the company's
investment in Northern Ireland The number of company employees in Northern
Ireland The degree that industry peers have adopted the MacBride Principles
Applicable state and municipal laws that limit contracts with companies that
have not adopted the MacBride Principles.
MILITARY BUSINESS
Foreign Military Sales/Offsets
Vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
Landmines and Cluster Bombs
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in antipersonnel landmine production, taking into account: Whether the company
has in the past manufactured landmine components Whether the company's peers
have renounced future production
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in cluster bomb production, taking into account:
What weapons classifications the proponent views as cluster bombs Whether the
company currently or in the past has manufactured cluster bombs or their
components
The percentage of revenue derived from cluster bomb manufacture
Whether the company's peers have renounced future production
Nuclear Weapons Vote AGAINST proposals asking a company to cease production of
nuclear weapons components and delivery systems, including
disengaging from current and proposed contracts. Components and delivery systems
serve multiple military and non-military uses, and withdrawal from these
contracts could have a negative impact on the company's business. Spaced-Based
Weaponization Generally vote FOR reports on a company's involvement in
spaced-based weaponization unless:
The information is already publicly available or
The disclosures sought could compromise proprietary information.
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WORKPLACE DIVERSITY
Board Diversity
Generally vote FOR reports on the company's efforts to diversify the board,
unless:
The board composition is reasonably inclusive in relation to companies of
similar size and business or The board already reports on its nominating
procedures and diversity initiatives. Vote CASE-BY-CASE on proposals asking the
company to increase the representation of women and minorities on the board,
taking into account:
The degree of board diversity Comparison with peer companies Established process
for improving board diversity Existence of independent nominating committee Use
of outside search firm History of EEO violations. Equal Employment Opportunity
(EEO) Generally vote FOR reports outlining the company's affirmative action
initiatives unless all of the following apply: company. Glass Ceiling Generally
vote FOR reports outlining the company's progress towards the Glass Ceiling
Commission's business recommendations, unless: The composition of senior
management and the board is fairly inclusive The company has well-documented
programs addressing diversity initiatives and leadership development The company
already issues public reports on its company-wide affirmative initiatives and
provides data on its workforce diversity, and The company has had no recent,
significant EEO-related violations or litigation Sexual Orientation Vote
CASE-BY-CASE on proposals to amend the company's EEO policy to include sexual
orientation, taking into account: Whether the company's EEO policy is already in
compliance with federal, state and local laws Whether the company has faced
significant controversies or litigation regarding unfair treatment of gay and
lesbian employees
The industry norm for including sexual orientation in EEO statements Existing
policies in place to prevent workplace discrimination based on sexual
orientation Vote AGAINST proposals to extend company benefits to or eliminate
benefits from domestic partners. Benefit decisions should be left to the
discretion of the company.
10. Mutual Fund Proxies Election of Directors Vote to elect directors on a
CASE-BY-CASE basis, considering the following factors:
Board structure Director independence and qualifications
Attendance at board and committee meetings.
Votes should be withheld from directors who: Attend less than 75 percent of the
board and committee meetings without a valid excuse for the absences. Valid
reasons include illness or absence due to company business. Participation via
telephone is acceptable. In addition, if the director missed only one meeting or
one day's meetings, votes should not be withheld even if such absence dropped
the director's attendance below 75 percent. Ignore a shareholder proposal that
is approved by a majority of shares outstanding Ignore a shareholder proposal
that is approved by a majority of the votes cast for two consecutive years Are
interested directors and sit on the audit or nominating committee, or Are
interested directors and the full board serves as the audit or nominating
committee or the company does not have one of these committees.
Convert Closed-end Fund to Open-end Fund
Vote conversion proposals on a CASE-BY-CASE basis, considering the following
factors:
Past performance as a closed end fund
Market in which the fund invests
Measures taken by the board to address the discount Past shareholder activism,
board activity Votes on related proposals. Proxy Contests Votes on proxy
contests should be determined on a CASE-BY-CASE basis, considering the following
factors:
Past performance relative to its peers
Market in which fund invests
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Measures taken by the board to address the issues Strategy of the incumbents
versus the dissidents Independence of directors Experience and skills of
director candidates Governance profile of the company Evidence of management
entrenchment Investment Advisory Agreements Votes on investment advisory
agreements should be determined on a CASE-BY-CASE basis, considering the
following factors:
Proposed and current fee schedules Fund category/investment
objective Performance benchmarks Share price performance compared to peers
Resulting fees relative to peers Assignments (where the advisor undergoes a
change in control) Approve New Classes or Series of Shares Vote FOR the
establishment of new classes or series of shares. Preferred Stock Proposals
Votes on the authorization for or increase in preferred shares should be
determined on a CASE-BY-CASE basis, considering the following factors:
Stated specific financing purpose
Possible dilution for common shares
Whether the shares can be used for antitakeover purposes. 1940 Act Policies
Votes on 1940 Act policies should be determined on a CASE-BY-CASE basis,
considering the following factors:
Potential competitiveness Regulatory developments Current and potential returns
Current and potential risk.
Generally vote FOR these amendments as long as the proposed changes do not
fundamentally alter the investment focus of the fund and do comply with the
current SEC interpretation. Change Fundamental Restriction to Nonfundamental
Restriction Proposals to change a fundamental restriction to a nonfundamental
restriction should be evaluated on a CASE-BY-CASE basis, considering the
following factors:
The fund's target investments
The reasons given by the fund for the change
The projected impact of the change on the portfolio.
Change Fundamental Investment Objective to Nonfundamental
Vote AGAINST proposals to change a fund's fundamental investment objective to
nonfundamental. Name Change Proposals Votes on name change proposals should be
determined on a CASE-BY-CASE basis, considering the following factors:
Political/economic changes in the target market
Consolidation in the target market
Current asset composition
Change in Fund's Subclassification
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Votes on changes in a fund's subclassification should be determined on a
CASE-BY-CASE basis, considering the following factors: Potential competitiveness
Current and potential returns Risk of concentration Consolidation in target
industry Disposition of Assets/Termination/Liquidation Vote these proposals on a
CASE-BY-CASE basis, considering the following factors: Strategies employed to
salvage the company The fund's past performance Terms of the liquidation.
Changes to the Charter Document
Votes on chances to the charter document should be determined on a CASE-BY-CASE
basis, considering the following factors: The degree of change implied by the
proposal The efficiencies that could result The state of incorporation
Regulatory standards and implications.
Vote AGAINST any of the following changes:
Removal of shareholder approval requirement to reorganize or terminate the trust
or any of its series Removal of shareholder approval requirement for amendments
to the new declaration of trust
Removal of shareholder approval requirement to amend me fund's a management
contract, allowing the contract to be modified by the investment manager and the
trust management, as permitted by the 1940 Act Allow the trustees to impose
other fees in addition to sales charges on investment in a fund, such as
deferred sales charges and redemption fees that may be imposed upon redemption
of a fund's shares Removal of shareholder approval requirement to engage in and
terminate subadvisory arrangements Removal of shareholder approval requirement
to change the domicile of the fund Change the Fund's Domicile Vote
reincorporations on a CASE-BY-CASE basis, considering the following factors:
Regulations of both states Required fundamental policies of both states
Increased flexibility available Authorize the Board to Hire and Terminate
Subadvisors Without Shareholder Approval Vote AGAINST proposals authorizing the
board to hire/terminate subadvisors without shareholder approval. Distribution
Agreements Vote these proposals on a CASE-BY-CASE basis, considering the
following factors: Fees charged to comparably sized funds with similar
objectives The proposed distributor's reputation and past performance The
competitiveness of the fund in the industry Terms of the agreement Master-Feeder
Structure Vote FOR the establishment of a master-feeder structure.
Mergers
Vote merger proposals on a CASE-BY-CASE basis, considering the following
factors:
Resulting fee structure
Performance of both funds
Continuity of management personnel
Changes in corporate governance and their impact on shareholder rights.
Shareholder Proposals to Establish Director Ownership Requirement
Generally vote AGAINST shareholder proposals that mandate a specific minimum
amount of stock that directors must own in order to qualify as a director or to
remain on the board. While ISS favors stock ownership on the part of directors,
the company should determine the appropriate ownership requirement. Shareholder
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Proposals to Reimburse Proxy Solicitation Expenses Voting to reimburse proxy
solicitation expenses should be analyzed on a CASE-BY-CASE basis. In cases where
ISS recommends in favor of the dissidents, we also recommend voting for
reimbursing proxy solicitation expenses.
Shareholder Proposals to Terminate Investment Advisor Vote to terminate the
investment advisor on a CASE-BY-CASE basis, considering the following factors:
Performance of the fund's NAV The fund's history of shareholder relations The
performance of other funds under the advisor's management.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(A) AS OF A DATE WITHIN 90 DAYS FROM THE FILING DATE OF THIS REPORT,
THE PRINCIPAL EXECUTIVE OFFICER AND THE PRINCIPAL FINANCIAL OFFICER
CONCLUDED THAT THE REGISTRANT'S DISCLOSURE CONTROLS AND PROCEDURES (AS
DEFINED IN RULE 30A-3(C) UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE
"ACT")) WERE EFFECTIVE BASED ON THEIR EVALUATION OF THE DISCLOSURE
CONTROLS AND PROCEDURES REQUIRED BY RULE 30A-3(B) UNDER THE ACT AND
RULES 13A-15(B) OR 15D-15(B) UNDER THE SECURITIES AND EXCHANGE ACT OF
1934.
(B) THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER
FINANCIAL REPORTING (AS DEFINED IN RULE 30A-3(D) UNDER THE ACT) THAT
OCCURRED DURING THE REGISTRANT'S SECOND FISCAL HALF-YEAR THAT HAVE
MATERIALLY AFFECTED, OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, THE
REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number
the exhibits in the sequence indicated.
(a)(1) The registrant's code of ethics is an exhibit to this
report.
(a)(2) The certifications of the registrant as required by Rule
30a-2(a) under the Act are exhibits to this report.
(b)The certifications of the registrant as required by Rule
30a-2(b) under the Act are an exhibit to this report.
SIGNATURES
[See General Instruction F]
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) PROGRESSIVE RETURN FUND, INC.
By (Signature and Title)* /S/ RALPH W. BRADSHAW
----------------------------------------------------
RALPH W. BRADSHAW,
CHAIRMAN AND PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
Date: March 8, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ RALPH W. BRADSHAW
------------------------------------------------------
RALPH W. BRADSHAW
CHAIRMAN AND PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
46
Date: March 8, 2004
By (Signature and Title)* /S/ GARY A. BENTZ
-----------------------------------------------------
GARY A. BENTZ
PRINCIPAL FINANCIAL OFFICER
Date: March 8, 2004
* Print the name and title of each signing officer under his or her signature.
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