Edgar Filing: PROGRESSIVE RETURN FUND INC

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PROGRESSIVE RETURN FUND, INC.

ANNUAL REPORT
DECEMBER 31, 2002

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CONTENTS

Letter to Shareholders 1

Portfolio Summary 3

Schedule of Investments 4

Statement of Assets and Liabilities 8

Statement of Operations 9

Statements of Changes in Net Assets 10

Financial Highlights 11

Notes to Financial Statements 12

Report of Independent Accountants 16

Results of Special Meeting of Stockholders 17

Tax Information 17

Additional Information Regarding the Fund's Directors and Officers 18

Description of Dividend Reinvestment & Cash Purchase Plan 21

Summary of General Information 23

Shareholder Information 23

LETTER TO SHAREHOLDERS

January 24, 2003

Dear Fellow Shareholders,

We are pleased to report the annual results of Progressive Return Fund, Inc.
(the "Fund"). As of December 31, 2002 the net assets stood at $23.6 million and
the Net Asset Value (NAV) per share was $20.52. The market price ended the year
at $18.95 a share, after adjusting for a one-for-four reverse stock split. The
share price represents a discount of 7.7% to NAV, an improvement compared to a
discount of 9.6% at the beginning of the year, while averaging 9.8% for the
year. Distributions to shareholders during the year totaled $11.61 per share,
all of which was designated as return-of-capital. The total investment return
for a shareholder who reinvested his distributions was (20.3)%, outperforming
the Fund's benchmark S&P 500 Index, which returned (22.1)% for the year. The
Fund outperformed the previous year as well with an investment return of 4.0%
versus (11.9)% for the S&P 500 Index. Cornerstone Advisors, Inc. assumed
portfolio management responsibilities for the Fund almost two years ago, and
its goal is to add value by continuing to outperform the Fund's benchmark. This
will be accomplished by focusing on portfolio performance, minimizing expenses,
and taking advantage of the Fund's discount to benefit its shareholders.

The Fund attempts to enhance its portfolio performance by exploiting temporary
and occasional undervaluation in certain securities that represent different
parts of a fully diversified U.S. stock portfolio. The magnitude and
availability of such opportunities are unpredictable, and therefore their
contribution to enhanced portfolio performance may vary considerably from year
to year. The strategies of portfolio selection are also enhanced by other
techniques that accrue to the benefit of shareholders, including expense
control, share buybacks, and large distributions.

EXPENSE CONTROL

Over the past year, we have paid special attention to reducing Fund operating
expenses substantially. In addition, Cornerstone Advisors, Inc. has extended
its voluntary agreement to waive a substantial portion of its management fees
to the extent that monthly operating expenses exceed a monthly rate of 0.1%.
This effort demonstrates how seriously the investment manager views keeping
expenses under control. These efforts create a lower expense ratio than would
otherwise be the case, resulting in what we believe to be one of the lowest
expense ratios among comparable closed-end funds.

BUYBACKS AND DISTRIBUTIONS

The most significant contribution to Fund performance over the last two years
has been the result of various actions taken by the Fund's board and management
that are designed to exploit the Fund's discount. First, substantial repurchase
of shares in the open market has enhanced NAV performance and reduced the
supply of shares available for sale, thus changing the demand/supply balance
and reducing the discount. Second, this year the board has established a
monthly distribution policy with a high fixed payout. These distributions

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1

LETTER TO SHAREHOLDERS (CONCLUDED)

allow shareholders to receive substantial portions of their investment in cash
or to continue their holdings in the Fund's stock by reinvesting in new shares.
This policy gives great flexibility to shareholders, while providing general
market incentive for discount reduction. Closed-end funds that maintain high
payouts regardless of market conditions have shown a history of reducing or
eliminating discounts, sometimes causing shares to trade at premiums.
Furthermore, the distributions for 2002 are classified as return-of-capital,
which defers capital gains taxes until significant profits are realized in
future periods.

ECONOMIC AND MARKET SUMMARY

Many of the uncertainties that have depressed the financial markets for the
past two years are still with us. World crisis in Afghanistan and Iraq have
alternated headlines with the progressive uncovering of corporate fraud and
greed among some of the largest companies in America, further burdening an
already weak economy. Continued consumer spending and an active market for
homes, however, provided some encouragement and much needed support.

Like the U.S., most of the major global indices were down substantially. Some
Asian economies turned in relatively strong performance, but even with the
Euro's rise to a three year high against the dollar, many investors in Europe
still finished behind the weak U.S. financial markets.

Those seeking safer investments drove short-term Treasury yields down and
prices up as they sought a safe haven from the volatility of equity markets. In
recent months, the prospect of deflation has replaced inflation as a cause for
concern. Short-term interest rates remained low through the year as the Federal
Reserve reduced its benchmark rate to 1.25%.

Most economists see mixed signals with regard to the overall health of the
economy, but it is encouraging that we have finally seen a positive quarter
after so many negative quarters. Some analysts have seen the beginnings of a
foundation for a gradual recovery in the financial markets. However, it is
likely that any strong positive turn in the markets will probably be delayed
until there is a decisive resolution to the problem in Iraq. In any case, we
are confident that our portfolio is well positioned with the strongest
companies in our economy, and that our efforts to control expenses and reduce
the discount will enhance long-term returns for our shareholders.

The Fund's board of directors, its officers, and its investment manager are
mindful of the trust that the Fund's shareholders have placed in us. We know
you have a choice, we appreciate your support, and we look forward to
continuing our service to you in the future.

Sincerely,

/s/ Ralph W. Bradshaw
Ralph W. Bradshaw
Chairman

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PROGRESSIVE RETURN FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2002 (UNAUDITED)
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TOP TEN, BY SECTOR
Percent of
Sector Net Assets
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1. Financials 17.9
2. Healthcare 14.6
3. Consumer Discretionary 13.4
4. Information Technology 12.9
5. Industrials 11.4
6. Consumer Staples 9.3
7. Energy 6.1
8. Telecommunication Services 5.9
9. Closed-end Domestic Funds 3.0
10. Utilities 2.4

TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
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1. Microsoft Corp. Information Technology 3.8
2. General Electric Co. Industrials 3.0
3. John Hancock Bank & Thrift Closed-end
Opportunity Fund Domestic Funds 3.0
4. Exxon Mobil Corp. Energy 2.9
5. Wal-Mart Stores, Inc. Consumer Discretionary 2.9
6. Merck & Co. Inc. Healthcare 2.5
7. Citigroup Inc. Financials 2.5
8. Pfizer Inc. Healthcare 2.0
9. Johnson & Johnson Healthcare 1.8
10. International Business Machines Corp. Information Technology 1.8

NO. OF VALUE
DESCRIPTION SHARES (NOTE A)
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EQUITY SECURITIES - 98.84%

CLOSED-END DOMESTIC FUNDS - 2.96%

John Hancock Bank &
Thrift Opportunity Fund 92,600 $698,204
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CONSUMER DISCRETIONARY - 13.41%
AOL Time Warner Inc.+ 14,250 186,675
Best Buy Co., Inc.+ 1,250 30,188
CarMax, Inc.+ 313 5,597
Carnival Corp. 2,700 67,365
Circuit City Stores, Inc. 1,000 7,420
Clear Channel
Communications, Inc.+ 2,700 100,683
Comcast Corp., Class A+ 3,655 86,148
Comcast Corp.,
Special Class A+ 4,100 92,618
Costco Wholesale Corp.+ 2,500 70,150
CVS Corp. 1,000 24,970
Delphi Corp. 2,600 20,930
Dollar General Corp. 1,500 17,925
Eastman Kodak Co. 1,400 49,056
Federated Department
Stores, Inc.+ 1,000 28,760
Ford Motor Co. 5,800 53,940
Gannett Co., Inc. 1,000 71,800
Gap, Inc. (The) 2,500 38,800
General Motors Corp. 2,600 95,836
Harley-Davidson, Inc. 1,400 64,680
Hilton Hotels Corp. 1,700 21,607
Home Depot, Inc. (The) 7,500 179,700
Kohl's Corp.+ 1,000 55,950
Limited Brands 2,500 34,825
Lowe's Companies, Inc. 2,500 93,750
Marriott International, Inc.,
Class A 1,100 36,157
Mattel, Inc. 1,500 28,725
May Department
Stores Co. (The) 1,400 32,172
McDonald's Corp. 4,000 64,320
Monsanto Co. 580 11,165

CONSUMER DISCRETIONARY (CONTINUED)

NIKE, Inc., Class B 1,300 $ 57,811
Omnicom Group Inc. 1,600 103,360
Sears, Roebuck & Co. 1,600 38,320
Staples, Inc.+ 1,500 27,450
Starbucks Corp.+ 1,700 34,646
Target Corp. 4,100 123,000
TJX Companies, Inc. (The) 2,500 48,800
Toys "R" Us, Inc.+ 1,000 10,000
Tribune Co. 1,000 45,460
Viacom Inc., non-voting
Class B+ 5,400 220,104
Wal-Mart Stores, Inc. 13,500 681,885
Walt Disney Co. (The) 6,500 106,015
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3,168,763
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CONSUMER STAPLES - 9.25%
Anheuser-Busch
Companies, Inc. 2,500 121,000
Archer-Daniels-Midland Co. 3,045 37,758
Campbell Soup Co. 2,000 46,940
Coca-Cola Co. (The) 6,300 276,066
Coca-Cola Enterprises Inc. 1,500 32,580
Colgate-Palmolive Co. 2,600 136,318
ConAgra Foods, Inc. 2,500 62,525
Del Monte Foods Co.+ 714 5,498
Gillette Co. (The) 3,000 91,080
H.J. Heinz Co. 1,600 52,592
J.M. Smucker Co. (The) 70 2,787
Kimberly-Clark Corp. 2,500 118,675
Kroger Co. (The)+ 1,300 20,085
Pepsi Bottling Group 1,000 25,700
PepsiCo, Inc. 5,600 236,432
Philip Morris Companies Inc. 6,900 279,657
Proctor & Gamble Co. (The) 4,000 343,760
Safeway Inc.+ 2,500 58,400
Sara Lee Corp. 1,300 29,263
Sysco Corp. 2,500 74,475
Walgreen Co. 4,600 134,274
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2,185,865
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See accompanying notes to financial statements.
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NO. OF VALUE
DESCRIPTION SHARES (NOTE A)
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ENERGY - 6.13%
Andarko Petroleum Corp. 1,200 $ 57,480
Baker Hughes Inc. 1,100 35,409
Burlington Resources Inc. 1,000 42,650
CenterPoint Energy, Inc. 1,400 11,900
ChevronTexaco Corp. 4,325 287,526
ConocoPhillips 2,509 121,410
El Paso Corp. 2,500 17,400
Exxon Mobil Corp. 19,800 691,812
Marathon Oil Corp. 1,500 31,935
Reliant Resources, Inc. + 1,104 3,533
Schlumberger Ltd. 2,600 109,434
Unocal Corp. 1,200 36,696
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1,447,185
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FINANCIALS - 17.85%
AFLAC Inc. 2,600 78,312
Allstate Corp. (The) 3,300 122,067
American Express Co. 4,100 144,935
American International
Group, Inc. 5,989 346,464
AmSouth Bancorp 1,800 34,560
Aon Corp. 1,200 22,668
Bank of America Corp. 4,300 299,151
Bank of New York
Co., Inc. (The) 3,400 81,464
Bank One Corp. 2,800 102,340
Charles Schwab Corp. (The) 3,500 37,975
Charter One Financial, Inc. 1,102 31,660
Citigroup Inc. 16,500 580,635
Fannie Mae 1,500 96,495
Fifth Third Bancorp 2,000 117,100
FleetBoston Financial Corp. 4,100 99,630
Franklin Resources, Inc. 1,200 40,896
Freddie Mac 3,100 183,055
Goldman Sachs
Group, Inc. (The) 1,500 102,150
Hartford Financial Services
Group, Inc. (The) 1,000 45,430
Household International, Inc. 2,500 69,525
John Hancock Financial
Services, Inc. 2,500 69,750
J.P. Morgan Chase & Co. 6,200 148,800

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NO. OF VALUE
DESCRIPTION SHARES (NOTE A)
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FINANCIALS (CONTINUED)
Lehman Brothers
Holdings Inc. 1,100 $ 58,619
Marsh & McLennan
Companies, Inc. 2,600 120,146
MBNA Corp. 2,100 39,942
Mellon Financial Corp. 2,500 65,275
Merrill Lynch & Co., Inc. 3,700 140,415
MetLife, Inc. 3,500 94,640
Moody's Corp. 1,000 41,290
Morgan Stanley 2,500 99,800
Northern Trust Corp. 1,000 35,050
Principal Financial Group 2,500 75,325
St. Paul Companies, Inc. (The) 1,000 34,050
Synovus Financial Corp. 1,300 25,220
Travelers Property Casualty
Corp., Class A+ 712 10,431
Travelers Property Casualty
Corp., Class B+ 1,464 21,448
UnumProvident Corp. 1,100 19,294
U.S. Bancorp 6,201 131,585
Washington Mutual, Inc. 2,800 96,684
Wells Fargo & Co. 5,400 253,098
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4,217,374
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HEALTHCARE - 14.58%
Abbott Laboratories 5,000 200,000
Advanced Medical Optics, Inc.+ 222 2,657
Allergan, Inc. 1,000 57,620
Amgen Inc.+ 4,300 207,862
Baxter International Inc. 2,800 78,400
Becton, Dickinson & Co. 1,200 36,828
Boston Scientific Corp.+ 1,500 63,780
Bristol-Myers Squibb Co. 6,400 148,160
Cardinal Health, Inc. 1,950 115,421
Eli Lilly & Co. 2,800 177,800
Guidant Corp.+ 1,400 43,190
HCA Inc. 1,500 62,250
Healthsouth Corp.+ 1,800 7,560
Johnson & Johnson 8,000 429,680
McKesson Corp. 1,300 35,139
MedImmune, Inc+ 1,000 27,170
Medtronic, Inc. 4,000 182,400

See accompanying notes to financial statements.
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PROGRESSIVE RETURN FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2002
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NO. OF VALUE
DESCRIPTION SHARES (NOTE A)
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HEALTHCARE (CONTINUED)
Merck & Co. Inc. 10,500 $594,405
Pfizer Inc. 15,100 461,607
Pharmacia Corp. 3,400 142,120
Schering-Plough Corp. 4,200 93,240
Tenet Healthcare Corp.+ 2,250 36,900
UnitedHealth Group Inc. 1,000 83,500
Wyeth 4,200 157,080
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3,444,769
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INDUSTRIALS - 11.44%
3M Co. 1,200 147,960
Automatic Data Processing, Inc. 2,900 113,825
Boeing Co. (The) 2,600 85,774
Burlington Northern
Sante Fe Corp. 1,900 49,419
Caterpillar Inc. 1,600 73,152
Cendant Corp.+ 3,300 34,584
Concord EFS, Inc.+ 2,500 39,350
CSX Corp. 1,000 28,310
Emerson Electric Co. 2,000 101,700
FedEx Corp. 1,000 54,220
General Dynamics Corp. 600 47,622
General Electric Co. 28,700 698,845
Honeywell International Inc. 3,600 86,400
IMS Health Inc. 1,400 22,400
Illinois Tools Works Inc. 1,400 90,804
Imagistics International, Inc.+ 88 1,760
Ingersoll-Rand Co., Class A 1,000 43,060
Lockheed Martin Corp. 2,500 144,375
Masco Corp. 2,500 52,625
Paychex, Inc. 1,700 47,430
Pitney Bowes Inc. 1,100 35,926
Raytheon Co. 1,600 49,200
Southwest Airlines Co. 3,750 52,125
Tyco International Ltd. 6,397 109,261
Union Pacific Corp. 1,000 59,870
United Parcel Service, Inc.,
Class B 3,500 220,780
United Technologies Corp. 2,500 154,850
Waste Management, Inc. 2,500 57,300
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2,702,927
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NO. OF VALUE
DESCRIPTION SHARES (NOTE A)
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INFORMATION TECHNOLOGY - 12.86%
Adobe Systems Inc. 1,100 $ 27,401
Agere Systems Inc., Class A+ 125 180
Agere Systems Inc., Class B+ 3,068 4,295
Agilent Technologies, Inc.,+ 1,500 26,940
Altera Corp.+ 1,900 23,446
Analog Devices, Inc.+ 1,700 40,579
Apple Computer, Inc.+ 1,500 21,495
Applied Materials, Inc.+ 4,900 63,847
Computer Associates
International, Inc. 2,700 36,450
Dell Computer Corp.+ 7,200 192,528
Electronic Arts Inc.+ 1,000 49,770
Electronic Data Systems Corp. 2,500 46,075
EMC Corp.+ 7,000 42,980
Hewlett-Packard Co. 8,100 140,616
Intel Corp. 21,600 336,312
International Business
Machines Corp. 5,500 426,250
Linear Technology Corp. 1,500 38,580
LSI Logic Corp.+ 1,500 8,655
Maxim Intergrated Products, Inc. 1,300 42,952
Micron Technology, Inc.+ 2,600 25,324
Microsoft Corp.+ 17,300 894,410
Motorola, Inc. 7,100 61,415
NVIDIA Corp.+ 1,000 11,510
Oracle Corp.+ 17,800 192,240
QUALCOMM Inc.+ 1,500 54,585
Skyworks Solutions, Inc.+ 386 3,327
Solectron Corp.+ 3,700 13,135
SunGard Data Systems Inc.+ 2,500 58,900
Sun Microsystems, Inc.+ 10,000 31,100
Texas Instruments Inc. 5,400 81,054
Yahoo! Inc.+ 2,500 40,875
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3,037,226
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MATERIALS - 2.12%
Alcoa Inc. 4,200 95,676
Dow Chemical Co. (The) 2,700 80,190
E.I. du Pont de Nemours & Co. 3,300 139,920
Georgia-Pacific Corp. 1,000 16,160
International Paper Co. 2,500 87,425
Rohm & Haas Co. 1,000 32,480
Weyerhaeuser Co. 1,000 49,210
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501,061
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See accompanying notes for financial statements.
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NO. OF VALUE
DESCRIPTION SHARES (NOTE A)
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TELECOMMUNICATION SERVICES - 5.86%
ALLTEL Corp. 1,500 $ 76,500
AT&T Corp. 2,260 59,009
AT&T Wireless Services Inc.+ 8,534 48,217
BellSouth Corp. 6,000 155,220
Cisco Systems, Inc.+ 23,500 307,850
Lucent Technologies Inc.+ 11,600 14,616
Nextel Communications, Inc.,
Class A+ 2,600 30,030
SBC Communications Inc. 10,700 290,077
Sprint Corp. (FON Group) 4,000 57,920
Sprint Corp. (PCS Group)+ 1,800 7,884
Verizon Communications Inc. 8,700 337,125
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1,384,448
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UTILITIES - 2.38%
American Electric Power
Company, Inc. 1,500 40,995
Dominion Resources, Inc. 1,100 60,390
Duke Energy Corp. 2,500 48,850
Edison International+ 1,500 17,775
Exelon Corp. 1,500 79,155
FPL Group, Inc. 1,000 60,130
NiSource Inc. 1,000 20,000
PG&E Corp.+ 1,800 25,020
Progress Energy, Inc. 1,000 43,350
Public Service Enterprises
Group Inc. 1,000 32,100
Sempra Energy 1,000 23,650
Southern Co. (The) 2,500 70,975
TXU Corp. 1,200 22,416
Xcel Energy, Inc. 1,600 17,600
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562,406
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TOTAL EQUITY SECURITIES - 98.84%
(cost - $32,456,792) 23,350,228
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PRINCIPAL VALUE
DESCRIPTION AMOUNT (NOTE A)
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SHORT-TERM INVESTMENT - 1.74%
REPURCHASE AGREEMENT - 1.74%
Bear, Stearns & Co. Inc.
(Agreement dated 12/31/02
to be repurchased at
$411,204), 1.10%, 01/02/03
(cost - $411,179) (Note F) $411 $ 411,179
TOTAL INVESTMENTS - 100.58% ----------
(cost - $32,867,971) (Notes A,C) 23,761,407
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LIABILITIES IN EXCESS OF
OTHER ASSETS - (0.58)% (136,565)
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NET ASSETS - 100.00% $23,624,842
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+ Non-income producing security.

See accompanying notes to financial statemetns.
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PROGRESSIVE RETURN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2002
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ASSETS

Investments, at value (Cost $32,867,971) (Notes A, G) $ 23,761,407
Cash collateral received for securities loaned (Note E) 86,887
Receivables:
Investments sold 51,325
Dividends 37,967
Interest 320
Prepaid expenses 7,351
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Total Assets 23,945,257
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LIABILITIES
Payables:
Upon return of securities loaned (Note E) 86,887
Investments purchased 79,218
Capital stock repurchased 58,541
Investment management fee (Note B) 17,829
Other accrued expenses 77,940
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Total Liabilities 320,415
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NET ASSETS (applicable to 1,151,324 shares of common stock outstanding) $ 23,624,842
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NET ASSET VALUE PER SHARE ($23,624,842 / 1,151,324) $ 20.52
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NET ASSETS CONSISTS OF
Capital stock, $0.001 par value; 1,151,324 shares issued and outstanding
(100,000,000 shares authorized) $ 1,151
Paid-in capital 46,048,658
Cost of 9,093 shares repurchased (172,403)
Accumulated net realized loss on investments (13,146,000)
Net unrealized depreciation in value of investments (9,106,564)
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Net assets applicable to shares outstanding $ 23,624,842
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See accompanying notes to financial statements.

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PROGRESSIVE RETURN FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2002
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INVESTMENT LOSS
Income (Note A):
Dividends $ 489,213
Interest 18,963
Less: Foreign taxes withheld (1,477)
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Total Investment Income 506,699
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Expenses:
Investment management fees (Note B) 301,557
Legal and audit fees (Note B) 78,435
Merger fees 77,513
Directors' fees 53,601
Administration fees 50,000
Accounting fees 29,828
Printing 28,502
Transfer agent fees 24,665
NYSE listing fees 23,750
Insurance 9,519
Custodian fees 8,369
Other 12,548
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Total Expenses 698,287
Less: Management fee waivers (Note B) (97,990)
Less: Fees paid indirectly (Note B) (28,805)
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Net Expenses 571,492
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Net Investment Loss (64,793)
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NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investments (974,824)
Net change in unrealized depreciation in value of investments (7,187,168)
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Net realized and unrealized loss on investments (8,161,992)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(8,226,785)
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See accompanying notes to financial statements.

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PROGRESSIVE RETURN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
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FOR THE YEARS
ENDED DECEMBER 31,
------------------
2002 2001
---- ----
DECREASE IN NET ASSETS
Operations:

Net in vestment in come/(loss) $ (64,793) $ 7,386
Net realized loss on in vestments (974,824) (4,384,728)
Net change in unrealized depreciation in value of
investments (7,187,168) (2,439,912)
------------ ------------

Net decrease in net assets resulting from operations (8,226,785) (6,817,254)
------------ ------------

Distributions to shareholders (Note A, G):
Return-of-capital (12,692,520) (4,228,516)
------------ ------------
Capital stock transactions* (N ote D):

Proceeds from 59,181 shares issued from treasury in
reinvestment of distributions 1,815,669 --

Proceeds from 52,350 shares newly issued in reinvestment of
distributions 1,216,519 --

Cash paid in-lieu of an aggregate of 36 fractional shares (1,000) --

Cost of 17,300 and 50,975 shares repurchased, respectively (334,483) (1,947,040)
------------ ------------

Net increase/(decrease) in net assets resulting from
capital stock transactions 2,696,705 (1,947,040)
------------ ------------

Total decrease in net assets (18,222,600) (12,992,810)
------------ ------------

NET ASSETS
Beginning of year 41,847,442 54,840,252
------------ ------------

End of year $ 23,624,842 $ 41,847,442
============ ============

* Shares are adjusted for the one-for-four reverse stock split that was
effective May 6, 2002.

See accompanying notes to financial statements.
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10

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PROGRESSIVE RETURN FUND, INC.
FINANCIAL HIGHLIGHTS(ss).
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Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.

FOR THE YEARS ENDED DECEMBER 31,

2002 2001 2000 1999 1998 1997 1996 1995
PER SHARE OPERATING
PERFORMANCE
Net asset value,

beginning of year $ 39.60 $ 49.48 $ 61.84 $ 73.24 $ 77.80 $ 69.72 $ 53.16 $ 57.32
Net investment income/
(loss) (0.06)# -#* (0.04)# 0.36# 0.48 0.20 0.44 0.68
Net realized and
unrealized
gain/(loss)
on investments
and foreign currency
related translations,
if any (7.22) (6.20) (12.68) (3.60) 17.80 24.48 16.44 (4.12)
Net increase/(decrease)
in net assets
resulting from
operations (7.28) (6.20) (12.72) (3.24) 18.28 24.68 16.88 (3.44)

Dividends and distributions to
shareholders:
Net investment income -- -- --* (0.32) (0.28) (0.04) (0.32) (0.60)
Net realized gain on
investments and
foreign currency
related transactions -- -- (1.04) (8.32) (22.48) (16.52) -- (0.12)
Return of capital (11.61) (4.00) -- -- -- -- -- --
Total dividends and
distributions to
shareholders (11.61) (4.00) (1.04) (8.64) (22.76) (16.56) (0.32) (0.72)

Capital stock transactions;
Anti-dilutive effect
due to capital
stock repurchased 0.04 0.32 1.40 0.48 -- -- -- --
Dilutive effect due to
shares issued
in reinvestment
of dividends and
distributions (0.23) -- -- -- (0.08) (0.04) -- --
Total capital stock
transactions (0.19) 0.32 1.40 0.48 (0.08) (0.04) -- --
Net asset value, end of year $ 20.52 $ 39.60 $ 49.48 $ 61.84 $ 73.24 $ 77.80 $ 69.72 $ 53.16
Market value, end of year $ 18.950 $35.800 $ 38.000 $52.252 $ 62.500 $ 63.252 $55.000 $ 44.500
Total investment return (a) (20.28)% 4.04% (27.27)% (1.84)% 32.56% 43.21% 24.28% (18.65)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000 omitted) $ 23,625 $ 41,847 54,840 $ 78,609 $98,084 $103,444 $ 92,399 $70,431
Ratio of expenses to
average net assets,
net of fee waivers,
if any 1.90%(b) 1.63%(b) 2.46% 2.10% 1.50% 1.56% 1.62% 1.58%
Ratio of expenses to
average net assets,
excluding fee waivers,
if any 2.31%(c) 1.73%(c) 2.65% 2.28% 1.66% 1.73% 1.81% 1.76%
Ratio of expenses to
average net assets,
net of fee waivers
but excluding fees
paid indirectly, if any 1.99% 1.72% -- -- -- -- -- --
Ratio of net investment
income/(loss) to
average net assets (0.21)% 0.02% (0.06)% 0.59% 0.51% 0.23% 0.75% 1.18%
Portfolio turnover rate 29.91% 36.17% 38.13% 39.60% 48.52% 72.25% 35.94% 35.73%

1994 1993
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of year $ 50.08 $ 35.60
Net investment income/
(loss) 0.24 0.28
Net realized and
unrealized
gain/(loss)
on investments
and foreign currency
related translations,
if any 7.24 14.20
Net increase/(decrease)
in net assets
resulting from
operations 7.48 14.48

Dividends and distributions to
shareholders:
Net investment income (0.24) --
Net realized gain on
investments and
foreign currency
related transactions -- --
Return of capital -- --
Total dividends and
distributions to
shareholders (0.24) --

Capital stock transactions;
Anti-dilutive effect
due to capital
stock repurchased -- --
Dilutive effect due to
shares issued
in reinvestment
of dividends and
distributions -- --
Total capital stock
transactions -- --
Net asset value, end of year $ 57.32 $ 50.08
Market value, end of year $ 55.500 $56.500
Total investment return (a) (1.35)% 76.56%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000 omitted) $ 75,908 $66,351
Ratio of expenses to
average net assets,
net of fee waivers,
if any 1.41% 1.97%
Ratio of expenses to
average net assets,
excluding fee waivers,
if any 1.59% 2.00%
Ratio of expenses to
average net assets,
net of fee waivers
but excluding fees
paid indirectly, if any -- --
Ratio of net investment
income/(loss) to
average net assets 0.43% 0.66%
Portfolio turnover rate 15.47% 24.47%

ss Per share amounts prior to May 6, 2002 have been restated to reflect a
one-for-four reverse stock split.
# Based on average shares outstanding.
* Amount is less than $0.01 per share.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends
and distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions.
(b) Expenses are net of fees paid indirectly.
(c) Expenses exclude fees paid indirectly. See accompanying notes to financial
statements.

--------------------------------------------------------------------------------
PROGRESSIVE RETURN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE A. SIGNIFICANT ACCOUNTING POLICIES

Progressive Return Fund, Inc. (the "Fund") was incorporated in Maryland on
August 11, 1989 and commenced investment operations on November 9, 1989. Its
investment objective is to seek total return, consisting of capital appreciation
and current income through investing substantially all of its assets in equity
securities of U.S. and non-U.S. companies and U.S. dollar denominated debt
securities. The Fund is registered under the Investment Company Act of 1940, as
amended, as a closed-end, non-diversified management investment company.

The following is a summary of significant accounting policies consistently
followed by the Fund:

MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that may affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.

PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities shall be valued at the closing price
on the exchange or market on which the security is primarily traded ("Primary
Market"). If the security did not trade on the Primary Market, it shall be
valued at the closing price on another exchange where it trades. If there are no
such sale prices, the value shall be the most recent bid, and if there is no
bid, the security shall be valued at the most recent asked. If no pricing
service is available and there are more than two dealers, the value shall be the
mean of the highest bid and lowest ask. If there is only one dealer, then the
value shall be the mean if bid and ask are available, otherwise the value shall
be the bid. All other securities and assets are valued as determined in good
faith by the Board of Directors. Short-term investments having a maturity of 60
days or less are valued on the basis of amortized cost. The Board of Directors
has established general guidelines for calculating fair value of not readily
marketable securities. At December 31, 2002, the Fund held no securities valued
in good faith by the Board of Directors. The net asset value per share of the
Fund is calculated weekly and on the last business day of the month with the
exception of those days on which the New York Stock Exchange is closed.

REPURCHASE AGREEMENTS: The Fund has agreed to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an
agreed-upon time and price ("repurchase agreements"). The financial institutions
with whom the Fund enters into repurchase agreements are banks and
broker/dealers, which Cornerstone Advisors, Inc. (the Fund's "Manager" or
"Cornerstone") considers creditworthy. The seller under a repurchase agreement
will be required to maintain the value of the securities as collateral, subject
to the agreement at not less than the repurchase price plus accrued interest.
Cornerstone monitors daily, the mark-to-market of the value of the collateral,
and, if necessary, requires the seller to maintain additional securities, so
that the value of the collateral is not less than the repurchase price. Default
by or bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delays in connection with the disposition of
the underlying securities.

INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification PROGRESSIVE RETURN FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED) method for both financial reporting
and income tax purposes. Interest income is recorded on an accrual basis;
dividend income is recorded on the ex-dividend date.

TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.

DISTRIBUTIONS OF INCOME AND GAINS: Effective June 25, 2002, the Fund initiated a
fixed, monthly distribution to shareholders. To the extent that these
distributions exceed the current earnings of the Fund, the balance will be
generated from sales of portfolio securities held by the Fund, which will either
be short-term or long-term capital gains or a tax-free return-of-capital. Prior
thereto, h t e Fund distributed at least annually to shareholders, substantially
all of its net investment income and net realized short-term capital gains, if
any. The Fund determines annually whether to distribute any net realized lo
ng-term capital gains in excess of net realized short-term capital losses,
including capital loss carryovers, if any. An additional distribution may be
made to the extent necessary to avoid the payment of a 4% U.S. federal excise
tax. Dividends and distributions to shareholders are recorded by the Fund on the
ex-dividend date.

The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
federal income tax purposes due to U.S. generally accepted accounting
principles/tax differences in the character of income and expense recognition.

NOTE B. AGREEMENTS

Cornerstone serves as the Fund's investment manager with respect to all
investments. As compensation for its investment management services, Cornerstone
receives from the Fund an annual fee, calculated weekly and paid monthly, equal
to 1.00% of the Fund's average weekly net assets. Effective July 1, 2002,
Cornerstone has voluntarily agreed to waive its management fees to the Fund to
the extent monthly operating expenses exceed 0.10% of average net assets
calculated monthly. Such undertaking continued through the end of 2002 and
Cornerstone has voluntarily agreed to continue the undertaking until December
2003. For the year ended December 31, 2002, Cornerstone earned $301,557, for
investment management services of which it waived $97,990.

Included in the Statement of Operations, under the caption FEES PAID INDIRECTLY,
are expense offsets of $28,805 arising from credits earned on portfolio
transactions executed with a broker, pursuant to a directed brokerage
arrangement.

The Fund paid or accrued approximately $87,000, of which $25,000 was
attributable to merger expense, for the year ended December 31, 2002 for legal
services to Spitzer & Feldman P.C., counsel to the Fund. Mr. Westle, a partner
of the firm, serves as secretary of the Fund.

At December 31, 2002, pursuant to regulatory filings, a single shareholder and
his affiliates owned approximately 60% of the outstanding shares of the Fund
based on a Schedule 13G/A filing with the Securities and Exchange Commission
filed on February 7, 2003.

For the year ended December 31, 2002, purchases and sales of securities, other
than short-term investments, were $9,051,526 and $23,034,757, respectively.

NOTE D. SHARE REPURCHASE PROGRAM

On October 21, 1998, the Fund announced that its Board of Directors had
authorized the repurchase of up to 15% of the Fund's outstanding common stock,
for purposes of enhancing shareholder value. The Fund's Board had authorized
management of the Fund to repurchase such shares in open market transactions at
prevailing market prices from time to time in a manner consistent with the Fund
continuing to seek to achieve its investment objectives. The Board's actions
were taken in light of the significant discounts at which the Fund's shares were
trading. It is intended both to provide additional liquidity to those
shareholders that elect to sell their shares and to enhance the net asset value
of the shares held by those shareholders that maintain their investment.

Effective October 22, 1999, the Fund committed to engage in an enhanced and
aggressive repurchase program of the Fund's shares whenever those shares trade
at more than a nominal discount to net asset value. Shares will be repurchased
in open market transactions at prevailing market prices from time to time in a
manner consistent with the Fund continuing to seek its investment objective. The
repurchase program will be subject to review by the Board of Directors of the
Fund.

For the year ended December 31, 2002, the Fund repurchased 17,300 of its shares
for a total cost of $334,483 at a weighted average discount of 11.70% from net
asset value. The discount of the individual repurchases ranged from 7.11% -
15.58%. For the year ended December 31, 2001, the Fund repurchased 50,975 of its
shares for a total cost of $1,947,040 at a weighted average discount of 15.67%
from net asset value. The discount of the individual repurchases ranged from
8.26% - 20.86%. No limit has been placed on the number of shares to be purchased
by the Fund other than those imposed by federal securities laws. All purchases
are made in accordance with federal securities laws, with shares repurchased
held in treasury, effective January 1, 2002.

NOTE E. SECURITIES LENDING

To generate additional income, the Fund may lend up to 33 1/3% of its total
assets. The Fund receives payments from borrowers equivalent to the dividends
and interest that would have been earned on securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Loans are subject
to termination by the Fund or the borrower at any time, and are therefore, not
considered to be illiquid investments. Loans of securities are required at all
times to be secured by collateral equal to at least 100% of the market value of
securities on loan. However, in the event of default or bankruptcy of the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. In the event that the borrower fails to return
securities, and collateral maintained by the lender is insufficient to cover the
value of loaned securities, the borrower is obligated to pay the amount of the
shortfall (and interest thereon) to the Fund. However, there can be no assurance
the Fund can recover this amount. The value of securities on loan to brokers and
the related collateral received at December 31, 2002 was $83,884 and $86,887,
respectively. Any cash collateral received is reinvested into repurchase

agreements, which in turn is collateralized by various U.S. Government and
Agency securities.

During the year ended December 31, 2002, the Fund earned $644 in securities
lending income which is included under the caption INTEREST in the Statement of
Operations.

NOTE F. COLLATERAL FOR REPURCHASE AGREEMENT

Listed below is the collateral associated with the repurchase agreement with
Bear, Stearns & Co. Inc. outstanding at December 31, 2002.

PRINCIPAL AMOUNT MARKET
ISSUER (000'S) MATURITY VALUE
------ --------- ---------- ---------
United States Treasury Bond
(interest only) $1,015 2/15/20 $ 420,017
=========
NOTE G. FEDERAL INCOME TAXES

Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of losses deferred due to wash sales and
Post-October losses (as later defined), and excise tax regulations. At December
31, 2002, the components of distributable earnings on a tax basis, for the Fund
were as follows:

Capital loss carryforward $(13,146,000)
Unrealized depreciation (9,106,564)
------------
Total loss $(22,252,564)
============
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred and treated as occurring on the first day of the
following tax year ("Post-October losses"). For the tax period ended December
31, 2002, the Fund did not realize any of these losses.

At December 31, 2002, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $13,146,000 of which $1,587,989 expires in 2008,
$10,192,955 expires in 2009 and $1,365,056 expires in 2010.

At December 31, 2002, the identified cost for federal income tax purposes, as
well as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized depreciation from investments were $32,867,971, $34,629, $(9,141,193)
and $(9,106,564), respectively.

At December 31, 2002, the Fund reclassified $64,793 from net investment loss to
paid-in capital and $4,221,130 from distributions in excess of net investment
income to paid-in capital, to adjust for current period permanent book/tax
differences. In addition, the Fund reclassified a gain of $293,451 from shares
repurchased to paid-in capital. Net assets were not affected by these
reclassifications. All distributions made in 2002 and 2001 were return of
capital for tax purposes.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors Progressive Return Fund,
Inc. New York, New York

We have audited the accompanying statement of assets and liabilities of
Progressive Return Fund, Inc., including the schedule of investments, as of
December 31, 2002, and the related statement of operations, the statement of
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended December 31, 2001 and the financial
highlights for each of the nine years in the period then ended have been
audited by other auditors, whose report dated February 18, 2002 expressed an
unqualified opinion on such financial statement and financial highlights.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of December 31, 2002 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Progressive Return Fund, Inc. as of December 31, 2002, the results of its
operations, the changes in its net assets, and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.

TAIT, WELLER & BAKER

Philadelphia, Pennsylvania February 12, 2003

RESULTS OF SPECIAL MEETING OF STOCKHOLDERS (UNAUDITED)

On October 11, 2002, the Special Meeting of Stockholders of Progressive Return
Fund, Inc. (the "Fund") was held and the following matters were voted upon:

1. To approve the Merger Agreement and Plan of Reorganization.

FOR AGAINST ABSTAIN
193,069 580,718 1,707

2. In the event that Merger Agreement and Plan or Reorganization is
approved, then to amend the Articles of Incorporation to change the
name of the Fund from "Progressive Return Fund, Inc." to "Progressive
Total Return Fund, Inc."

FOR AGAINST ABSTAIN
764,381 8,870 2,243

TAX INFORMATION (UNAUDITED)

Progressive Return Fund, Inc. (the "Fund") is required by Subchapter M of the
Internal Revenue Code of 1986, as amended, to advise its shareholders within 60
days of the Fund's year end (December 31, 2002) as to the U.S. federal tax
status of distributions received by the Fund's shareholders in respect of such
fiscal year. During the year ended December 31, 2002 the following
distributions per share were paid by the Fund:

Payment Date: 1/11/02 3/4/02 5/31/02 7/31/02
Return-of-Capital: $ 4.00 $ 8.00 $ 2.00 $ 0.2675

Payment Date: 8/30/02 9/30/02 10/31/02 11/29/02 12/31/02
Return-of-Capital: $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675 $ 0.2675

These distributions represent a return of your investment and those
distributions made prior to May 31, 2002 have been adjusted for the
one-for-four reverse stock split that was effective May 6, 2002. As
return-of-capital distributions, they are not taxed as ordinary income
dividends and are sometimes referred to as tax-free dividends or nontaxable
distributions. A return-of-capital distribution reduces th e cost basis of your
shares in the Fund. Notification for calendar year 2002 was mailed in January
2003. The notification along with Form 1099-DIV reflects the amount to be used
by calendar year taxpayers on their U.S. federal income tax returns.

Foreign shareholders generally will not be subject to U.S. withholding tax on
the amount of their non-taxable distributions.

In general, distributions received by tax exempt recipients (e.g., IRA's and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g. corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.

Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Fund.

ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED)

POSITION(S) PRINCIPAL OCCUPATION POSITION WITH
NAME AND ADDRESS (AGE) HELD WITH FUND OVER LAST 5 YEARS FUND SINCE
----------------------------------------------------------------------------------------------------------------------------

Ralph W. Bradshaw* (52) Chairman of the President, Director and Shareholder of 1999; current term
One West Pack Square Board of Cornerstone Advisors, Inc.; Financial ends at the 2005
Suite 1650 Directors and Consultant; Vice President, Deep Discount Annual Meeting.
Asheville, NC 28801 President Advisors, Inc. (1993-1999); Previous
Director of The Austria Fund, Inc.;
Director of The SMALLCap Fund, Inc.,
Cornerstone Total Return Fund, Inc., and
Cornerstone Strategic Value Fund, Inc.

Thomas H. Lenagh (80) Director Chairman of the Board of Inrad Corp.; 2001; current
13 Allen's Corner Rd. Independent Financial Adviser; Director of term ends at the
Flemington, NJ 08822 Cornerstone Strategic Value Fund, Inc., 2004 Annual
Cornerstone Total Return Fund, Inc., Meeting.
Gintel Fund, The Adams Express
Company and Petroleum and Resources
Corporation

Edwin Meese III (71) Director Distinguished Fellow, The Heritage 2001; current
The Heritage Foundation Foundation, Washington D.C.; term ends at the
214 Massachusetts Ave. NE Distinguished Visiting Fellow at the 2005 Annual
Washington D.C. 20002 Hoover Institution, Stanford University; Meeting.
Distinguished Senior Fellow at the
Institute of United States Studies,
University of London; Formerly U.S.
Attorney General under President Ronald
Reagan; Director of Cornerstone Total
Return Fund, Inc. and Cornerstone
Strategic Value Fund, Inc.

ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED)
(CONTINUED)

Scott B. Rogers (47) Director Chief Executive Officer, Asheville 2000; current
30 Cumberland Ave. Buncombe Community Christian Ministry; term ends at the
Asheville, NC 28801 President, ABCCM Doctor's Medical 2003 Annual
Clinic; Director, Southeastern Jurisdiction Meeting.
Urban Networkers; Director, A-B Vision
Board, Appointee, NC Governor's
Commission on Welfare to Work;
Chairman and Director, Recycling
Unlimited; Director, Interdenominational
Ministerial Alliance; Director of
Cornerstone Strategic Value Fund, Inc. and
Cornerstone Total Return Fund, Inc.

Andrew A. Strauss (49) Director Attorney and senior member of Strauss & 2000; current
77 Central Avenue Associates, P.A., Attorneys, Asheville and term ends at the
Suite F Hendersonville, NC; previous President of 2004 Annual
Asheville, NC 28801 White Knight Healthcare, Inc. and LMV Meeting.
Leasing, Inc., a wholly owned subsidiaryof
Xerox Credit Corporation; Director of
Cornerstone Strategic Value Fund, Inc.,
Cornerstone Total Return Fund, Inc., The
SMALLCap Fund, Inc., Memorial Mission
Hospital Foundation, Deerfield Episcopal
Retirement Community and Asheville
Symphony.

Glenn W. Wilcox, Sr. (71) Director Chairman of the Board and Chief 2000; current
One West Pack Square Executive Officer of Wilcox Travel term ends at
Suite 1700 Agency, Inc.; Director, Champion the 2003
Asheville, NC 28801 Industries, Inc.; Chairman of Tower Annual
Associates, Inc. (a real estate venture); Meeting.
Director, Wachovia Corp.; Board Trustee
and Chairman, Appalachian State
University; Board Trustee and Director,
Mars Hill College; Director of The
SMALLCap Fund, Inc., Cornerstone
Strategic Value Fund, Inc., and
Cornerstone Total Return Fund, Inc.

ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED)
(CONCLUDED)

Gary A. Bentz* (46) Director, Vice Chief Financial Officer and Shareholder of Director since
One West Pack Square President and Cornerstone Advisors, Inc.; Previous 2002; current term
Suite 1650 Treasurer Director of The Austria Fund, Inc.; Financial ends at the 2003
Asheville, NC 28801 Consultant, Certified Public Accountant; Annual Meeting,
Chief Financial Officer of Deep Discount Vice President and
Advisors, Inc. (1993-2000); Director, Vice Treasurer since
President and Treasurer of Cornerstone 2001
Total Return Fund, Inc. and Cornerstone
Strategic Value Fund, Inc.

Thomas R. Westle (49) Secretary Partner, Spitzer & Feldman P.C. (May 2000
405 Park Avenue 1998-present); Secretary of Cornerstone
New York, NY 10022 Strategic Value Fund, Inc. and Cornerstone
Total Return Fund, Inc.

* Designates a director who is an "interested person" of the Fund as defined by
the Investment Company Act of 1940. Messrs. Bradshaw and B entz are int erestedp
ersons of th e Fund by virtue of their current positions with the Investment
Manager of the Fund.

DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED)

Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment & Cash Purchase
Plan (the "Plan"), unless and until an election is made to withdraw from the
Plan on behalf of such participating shareholders. Shareholders who do not wish
to have distributions automatically reinvested should so notify American Stock
Transfer & Trust Co. (the "Agent") at 59 Maiden Lane, New York, NY 10038. Under
the Plan, all of the Fund's dividends and other distributions to shareholders
are reinvested in full and fractional Shares as described below.

When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Dividend" and collectively, "Dividends"), the Agent, on
the shareholders' behalf, will: (i) receive additional authorized shares from
the Fund either newly issued or repurchased from shareholders by the Fund and
held as treasury stock ("Newly Issued Shares") or, (ii) at the sole discretion
of the Board of Directors, be authorized to purchase outstanding shares on the
open market, on the American Stock Exchange or elsewhere, with cash allocated to
it by the Fund ("Open Market Purchases").

Shares acquired by the Agent in Open Market Purchases will be allocated to the
reinvesting shareholders based on the average cost of such Open Market
Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at a price equal to the average closing price of the
Fund over the five trading days preceding the payment date of such dividend.

Registered shareholders who acquire their shares through Open Market Purchases
and who do not wish to have their Dividends automatically reinvested should so
notify the Fund in writing. If a Shareholder has not elected to receive cash
Dividends and the Agent does not receive notice of an election to receive cash
Dividends prior to the record date of any dividend, the shareholder will
automatically receive such Dividends in additional Shares.

Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Dividend payment date.
When a participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares credited to his/her account under
the Plan will, upon request, be issued. Whether or not a participant requests
that certificates for whole shares be issued, a cash payment will be made for
any fraction of a Share credited to such account.

The Agent will maintain all shareholder accounts in the Plan and furnish written
confirmations of all transactions in the accounts, including information needed
by shareholders for personal and tax records. The Agent will hold shares in the
account of each Plan participant in non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. Each participant, nevertheless, has the right to receive
certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating shareholders.

In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the Shareholder's name and held for the account of
beneficial owners participating in the Plan.

There will be no charge to participants for reinvesting Dividends other than
their share of brokerage commissions as discussed below. The Agent's fees for
administering the Plan and handling the reinvestment of Dividends will be paid
by the Fund. Each participant's account will be DESCRIPTION OF DIVIDEND
REINVESTMENT & CASH PURCHASE PLAN (UNAUDITED) (CONCLUDED) charged a pro-rata
share of brokerage commissions incurred with respect to the Agent's Open Market
Purchases in connection with the reinvestment of Dividends.

Brokerage charges for purchasing small amounts of shares for individual accounts
through the Plan are expected to be less than the usual brokerage charges for
such transactions because the Agent will be purchasing shares for all the
participants in blocks and pro-rating the lower commission that may be
attainable.

The automatic reinvestment of Dividends will not relieve participants of any
income tax that may be payable on such Dividends. Participants who receive
shares pursuant to the Plan as described above will recognize taxable income in
the amount of the fair market value of those shares. In the case of non-U.S.
participants whose Dividends are subject to U.S. income tax withholding and in
the case of participants subject to 30% federal backup withholding, the Agent
will reinvest Dividends after deduction of the amount required to be withheld.

The Fund reserves the right to amend or terminate the Plan by written notice to
participants. All correspondence concerning the Plan should be directed to the
Agent at the address referred to in the first paragraph of this section.

SUMMARY OF GENERAL INFORMATION

The Fund - Progressive Return Fund, Inc. is a closed-end, non-diversified
management investment company whose shares trade on the American Stock Exchange.
Its investment objective is to seek total return, consisting of capital
appreciation and current income by investing primarily all of its assets in
equity securities of U.S. and non-U.S. issuers whose securities trade on a U.S.
securities exchange or over the counter or as American Depositary Receipts or
other forms of depositary receipts which trade in the United States. The Fund is
managed by Cornerstone Advisors, Inc.

SHAREHOLDER INFORMATION

Effective February 21, 2003, the Fund is listed on the American Stock Exchange
(symbol "PGF"). The share price is published in: THE NEW YORK TIMES (daily)
under the designation "ProgRetFd" and THE WALL STREET JOURNAL (daily) and
BARRON'S (each Monday) under the designation "PrgrssvRetFd." The net asset value
per share is published under "Closed-End Funds" each Sunday in THE NEW YORK
TIMES and each Monday in THE WALL STREET JOURNAL and BARRON'S under the
designation "ProgresvFd ."

--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT PROGRESSIVE RETURN FUND, INC. MAY FROM
TIME TO TIME PURCHASE SHARES OF ITS CAPITAL STOCK IN THE OPEN MARKET.
--------------------------------------------------------------------------------

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.

PROGRESSIVE RETURN FUND, INC.

================================================================================

DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Directors and
President
Gary A. Bentz Director, Vice President
and Treasurer
Thomas H. Lenagh Director
Edwin Meese III Director
Scott B. Rogers Director
Andrew A. Strauss Director
Glenn W. Wilcox, Sr. Director
Thomas R. Westle Secretary

STOCK TRANSFER AGENT AND
INVESTMENT MANAGER REGISTRAR

Cornerstone Advisors, Inc. American Stock Transfer
One West Pack Square & Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 10038

ADMINISTRATOR INDEPENDENT ACCOUNTANTS
Bear Stearns Funds Tait, Weller & Baker
Management Inc. 1818 Market Street
383 Madison Avenue Suite 2400
New York, NY 10179 Philadelphia, PA 19103

CUSTODIAN LEGAL COUNSEL
Custodial Trust Company Spitzer & Feldman P.C.
101 Carnegie Center 405 Park Avenue
Princeton, NJ 08540 New York, NY 10022

EXECUTIVE OFFICES
383 Madison Avenue
New York, NY 10179

For shareholder inquiries, registered shareholders should call (800) 937-5449.
For general inquiries, please call (212) 272-2093.

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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. PROGRESSIVE RETURN FUND, INC.