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OMB Number: 3235-0570
Expires: August 31, 2011
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hours per response: 18.9
Investment Company Act file number 811-22066
---------
CORNERSTONE PROGRESSIVE TOTAL RETURN FUND
(Exact name of registrant as specified in charter)
260 MADISON AVENUE, 8th FLOOR NEW YORK, NEW YORK 10016
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(Address of principal executive offices) (Zip code)
Frank J. Maresca
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ULTIMUS FUND SOLUTIONS, LLC 260 MADISON AVENUE, 8th FLOOR, NEW YORK, NY 10016
(Name and address of agent for service)
Registrant's telephone number, including area code: 646-881-4985
--------------
Date of fiscal year end: DECEMBER 31, 2009
---------------------------------------------
Date of reporting period: DECEMBER 31, 2009
---------------------------------------------
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.
================================================================================
TRUSTEES AND CORPORATE OFFICERS
Ralph W. Bradshaw Chairman of the Board of
Trustees and President
Thomas H. Lenagh Trustee
Edwin Meese III Trustee
Scott B. Rogers Trustee
Andrew A. Strauss Trustee
Glenn W. Wilcox, Sr. Trustee
Gary A. Bentz Chief Compliance Officer,
Secretary, and
Assistant Treasurer
William A. Clark Vice President
Frank J. Maresca Treasurer
STOCK TRANSFER AGENT
INVESTMENT MANAGER AND REGISTRAR
Cornerstone Advisors, Inc. American Stock
One West Pack Square Trust Co.
Suite 1650 59 Maiden Lane
Asheville, NC 28801 New York, NY 28801
ADMINISTRATOR INDEPENDENT REGISTERED
Ultimus Fund Solutions, LLC PUBLIC ACCOUNTING FIRM
260 Madison Avenue Tait, Weller & Baker LLP
8th Floor 1818 Market Street
New York, NY 10016 Suite 2400
Philadelphia, PA 19103
CUSTODIAN LEGAL COUNSEL
JPMorgan Chase Bank N.A. Blank Rome LLP Bank, N.A.
14201 North Dallas Pkwy. 405 Lexington
Second Floor New York, NY 10174
Dallas, TX 75254
EXECUTIVE OFFICES
260 Madison Avenue
8th Floor
New York, NY 10016
For shareholder inquiries, registered shareholders should call
(800) 937-5449. For general inquiries, please call (513) 326-3597.
CFP
LISTED
ALTERNEXT
================================================================================
CORNERSTONE PROGRESSIVE
RETURN FUND
DECEMBER 31, 2009
This update contains the following two documents:
o Letter from the Funds
o Annual Report to Shareholders
================================================================================
LETTER FROM THE FUND'S PRESIDENT
January 27, 2010
Dear Fellow Shareholders:
Following is the annual report for Cornerstone Progressive Return Fund, (the
"Fund"), for the year ended December 31, 2009. At the end of the year, the
Fund's net assets were $58.7 million and the Net Asset Value per share was
$6.28. The share price closed at $8.90. After reflecting the reinvestment of
monthly distributions totaling $2.46 per share, the Fund achieved a total
investment return at market value of 65.40% for the year ended December 31,
2009.
ECONOMIC AND MARKET SUMMARY
The recession bottomed out in the 4th quarter of 2008 and 1st quarter of 2009.
Economic health as measured by Gross Domestic Product ("GDP") has gradually
improved, measuring (5.5%), (0.7%), and 2.2% for the first three quarters
respectively, and most economists expect even stronger positive growth in the
4th quarter. Unfortunately, many of the systemic problems that created the most
severe recession since the Great Depression still remain to one degree or
another. The unprecedented and controversial intervention by the government in
the form of the Troubled Asset Relief Program, the government stimulus package,
and other programs to subsidize the severely damaged real estate markets over
the last year has averted a full blown depression. Although some of these
programs were scheduled to expire in 2009, a few have been extended into 2010,
specifically, the Fed's purchase of $1.25 trillion of mortgage-backed securities
and the tax credit program for first-time homebuyers. Both of these programs
have aided the crippled residential real estate industry in making a tentative
recovery. There are, however, significant headwinds remaining. Residential
foreclosures reached a record 2.8 million in 2009, and there are more to come in
2010. Separately, the commercial real estate industry, approximately one-third
the size of the residential market, is headed for a round of mid-term loan
renewals in the next 24 months in an environment where commercial real estate
prices are down over (40%) since October 2007. In spite of the promising trends
established in the last three quarters, there still remains significant
uncertainty regarding the ability of the economy to sustain a continued recovery
in the absence of federal assistance.
The equity markets as leading indicators have exhibited more strength in their
recovery. Following the low point in March, the major market indices and most
sectors of the financial markets have bounced back with surprising growth. Many
observers are quick to point out that a significant part of this recovery in
equity valuations has been fueled from two sources, first, a natural reaction to
what was later perceived as a panic-driven, over-sold market in 2008 and the
first quarter of 2009, and second, the effects of various forms of government
stimulus which propped up consumers and businesses in certain sectors through
deficit spending. Although earnings and productivity recovered in many business
sectors, it has been observed that these results owed more to very strong cost
control measures, through reduction of inventories and personnel layoffs, rather
than strong consumer demand. It remains unclear whether the economy can sustain
these positive trends after government stimulus is withdrawn.
For the time being, the Federal Reserve has been aggressive in its monetary
policy. Short-term interest rates have remained near zero with the federal funds
rate set between 0% and 0.25%. Although many have voiced concern over the latent
inflationary pressures of the excess liquidity resulting from the Fed's
policies, inflation has remained subdued, and the Fed has indicated that it does
not anticipate a change in monetary policy until the recovery shows signs of
sustaining itself through normal economic activity.
--------------------------------------------------------------------------------
ii
LETTER FROM THE FUND'S PRESIDENT (CONTINUED)
MANAGED DISTRIBUTION POLICY
The Fund maintains a policy of regular distributions to shareholders which has
been popular with investors. These distributions are not tied to the Fund's
investment income and capital gains and do not represent yield or investment
return on the Fund's portfolio. The policy of maintaining regular monthly
distributions is designed to enhance shareholder value by increasing liquidity
for individual investors and providing greater flexibility to manage their
investment in the Fund. Shareholders have the option of taking their
distributions in cash or reinvesting them in shares of the Fund pursuant to the
Fund's reinvestment plan.
The Board of Trustees believes that the Fund's distribution policy maintains a
stable, high rate of distribution for shareholders. The monthly distributions
are reviewed and approved periodically by the Board throughout the year and are
subject to change at the discretion of the Board. In addition, shareholders
should read the disclosure notes in the Fund's report for details on the Fund's
distribution policy and reinvestment plan.
Shareholders receive a final determination of the total distribution
attributable to income, capital gains, or return-of-capital after the end of
each year. The allocation among these categories may vary greatly from year to
year. In any given year, there can be no guarantee that the Fund's investment
returns will exceed the amount of the distributions. To the extent that the
amount of distributions taken in cash exceeds the total net investment returns
of the Fund, the assets of the Fund will decline. If the total net investment
returns exceed the amount of cash distributions, the assets of the Fund will
increase. Either way, the Fund's individual shareholders have complete
flexibility to take their distributions in cash or to reinvest in Fund shares
through the Fund's reinvestment plan, and they can change this election as often
as they desire.
Under the managed distribution policy, the Fund makes monthly distributions to
shareholders at a rate that may include periodic distributions of its net income
and net capital gains, ("Net Earnings"), or from return-of-capital. For any
fiscal year where total cash distributions exceeded Net Earnings (the "Excess"),
the Excess would decrease the Fund's total assets and, as a result, would have
the likely effect of increasing the Fund's expense ratio. There is a risk that
the total Net Earnings from the Fund's portfolio would not be great enough to
offset the amount of cash distributions paid to Fund shareholders. If this were
to be the case, the Fund's assets would be depleted, and there is no guarantee
that the Fund would be able to replace the assets. In addition, in order to make
such distributions, the Fund may have to sell a portion of its investment
portfolio at a time when independent investment judgment might not dictate such
action. Furthermore, such assets used to make distributions will not be
available for investment pursuant to the Fund's investment objective.
OUTLOOK
In spite of the strong gains in the equity markets in 2009, the Federal Reserve
and Treasury have cautioned that the economy still faces significant challenges
and that the recovery in 2010 will be modest, at best. The credit markets are
still partially frozen as banks are reluctant to embrace an aggressive lending
policy until there is more clarity regarding the strength of the economic
recovery and federal regulatory intervention. Predictions of growth in GDP for
2010 range between 2% and 3%. Following the strong gains in the stock market
over the last nine months, many now expect a correction in the range of 5% to
10% before continuing in recovery. In recent weeks, the markets appear to have
reached a plateau, waiting to see if the economic recovery is self-sustaining as
government subsidies are discontinued. Investors are still holding a tremendous
--------------------------------------------------------------------------------
iii
LETTER FROM THE FUND'S PRESIDENT (CONCLUDED)
amount of cash, but most will probably remain on the sidelines until
unemployment, a lagging indicator, shows signs of improvement. Unemployment now
stands at 10%, and most experts expect that it will continue to move upward
during the 1st quarter of 2010 before growth in employment begins to turn
positive sometime within the next six months. Recovery to nominal full
employment is expected to take another eighteen to twenty-four months. In order
to restore confidence to the markets, investors need to see a return to consumer
financial health and business rehiring personnel and restocking seriously
depleted inventories. We hope and anticipate that these trends will become
established by the middle of 2010.
The investment advisor believes that the current environment has created unusual
opportunities in the area of closed-end funds, and you will note that over the
last year the percentage of closed-end funds in the portfolio has increased
accordingly. This trend may continue depending on market conditions. The
availability and magnitude of such opportunities are unpredictable, and their
effect on possible portfolio performance may vary considerably from year to
year. Other than certain concentration limits, the Fund does not have any
restriction on the percentage of closed-end funds that it can hold in its
portfolio. These holdings represent a very widely diversified range of equity
and fixed-income portfolios offering attractive opportunities. The balance of
the Fund's portfolio consists primarily of a diversified set of large-cap,
blue-chip securities. The investment advisor believes that the combination of
these elements represents a defensive investment platform that is
well-positioned to benefit from the eventual economic recovery.
The Fund's Board of Trustees, its officers, and its investment manager thank you
for your support. All are very conscious of the fact that investors have placed
their trust in us. We know you have a choice, and we look forward to continuing
our service to you in the future.
Sincerely,
/s/ RALPH W. BRADSHAW
---------------------
Ralph W. Bradshaw
President
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTICAND 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 PRESIDENT IS NOT A PART OF THE ANNUAL REPORT TO
SHAREHOLDERS THAT FOLLOWS.
--------------------------------------------------------------------------------
iv
CONTENTS
Portfolio Summary 1
Summary Schedule of Investments 2
Statement of Assets and Liabilities 5
Statement of Operations 6
Statement of Changes in Net Assets 7
Financial Highlights 8
Notes to Financial Statements 9
Report of Independent Registered Public Accounting Firm 15
Tax Information 16
Additional Information Regarding the Fund's Trustees and Corporate Officers 17
Description of Dividend Reinvestment Plan 20
Proxy Voting and Portfolio Holdings Information 22
Privacy Policy Notice 22
Summary of General Information 23
Shareholder Information 23
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
SECTOR ALLOCATION
Percent of
Sector Net Assets
--------------------------------------------------------------------------------
Closed-End Funds 89.3
--------------------------------------------------------------------------------
Information Technology 1.9
--------------------------------------------------------------------------------
Financials 1.5
--------------------------------------------------------------------------------
Healthcare 1.5
--------------------------------------------------------------------------------
Consumer Staples 1.1
--------------------------------------------------------------------------------
Energy 1.0
--------------------------------------------------------------------------------
Industrials 1.0
--------------------------------------------------------------------------------
Consumer Discretionary 0.6
--------------------------------------------------------------------------------
Telecommunication Services 0.3
--------------------------------------------------------------------------------
Materials 0.2
--------------------------------------------------------------------------------
Other 1.6
--------------------------------------------------------------------------------
TOP TEN HOLDINGS, BY ISSUER
Percent of
Holding Sector Net Assets
--------------------------------------------------------------------------------
1. NFJ Dividend, Interest &
Premium Strategy Fund Closed-End Funds 14.8
--------------------------------------------------------------------------------
2. Royce Value Trust, Inc. Closed-End Funds 6.5
--------------------------------------------------------------------------------
3. Gabelli Dividend & Income Trust Closed-End Funds 5.7
--------------------------------------------------------------------------------
4. Liberty All-Star Equity Fund Closed-End Funds 4.6
--------------------------------------------------------------------------------
5. Morgan Stanley China A Share Fund, Inc. Closed-End Funds 4.4
--------------------------------------------------------------------------------
6. H&Q Healthcare Investors Closed-End Funds 3.3
--------------------------------------------------------------------------------
7. Gabelli Global Gold Natural Resources &
Income Trust Closed-End Funds 3.3
--------------------------------------------------------------------------------
8. Tri-Continental Corporation Closed-End Funds 2.7
--------------------------------------------------------------------------------
9. Calamos Strategic Total Return Fund Closed-End Funds 2.5
--------------------------------------------------------------------------------
10. Adams Express Company (The) Closed-End Funds 2.4
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
EQUITY SECURITIES - 98.30%
CLOSED-END FUNDS - 89.25%
CONVERTIBLE SECURITIES - 3.81%
Advent Claymore Convertible
Securities & Income Fund 87,900 $ 1,368,603
Calamos Convertible &
High Income Fund 41,135 475,109
Nicholas-Applegate Equity &
Convertible Income Fund 23,700 392,472
------------
2,236,184
------------
CORE - 23.47%
Adams Express Company
(The) (a) 141,606 1,430,221
Blue Chip Value Fund 242,850 764,977
DWS Dreman Value Income
Edge Fund 37,100 447,797
General American Investors
Company, Inc. 17,585 412,544
Liberty All-Star Equity Fund 616,599 2,669,874
Liberty All-Star Growth Fund 227,300 763,728
Royce Micro-Cap Trust, Inc. 146,356 1,081,571
Royce Value Trust, Inc. 351,402 3,795,142
Source Capital, Inc. 19,100 822,064
Tri-Continental Corporation 138,534 1,595,912
------------
13,783,830
------------
CORPORATE DEBT FUNDS
BBB-RATED - 0.63%
BlackRock Core Bond Trust 18,200 216,398
Other Corporate Debt Funds
BBB-Rated (b) 155,290
------------
371,688
------------
DEVELOPED MARKET - 0.66%
Other Developed Market (b) 390,617
------------
EMERGING MARKETS - 0.18%
Other Emerging Markets (b) 107,466
------------
GENERAL BOND - 0.02%
Total General Bond (b) 13,549
------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
GLOBAL - 1.23%
Clough Global Equity Fund 28,936 $ 410,312
Lazard World Dividend &
Income Fund, Inc. 28,049 312,746
------------
723,058
------------
GLOBAL INCOME - 0.24%
Total Global Income (b) 139,520
HIGH CURRENT YIELD (LEVERAGED) - 2.12%
Franklin Universal Trust 81,100 470,380
Other High Current Yield
(Leveraged) (b) 774,181
------------
1,244,561
------------
INCOME & PREFERRED STOCK - 10.00%
BlackRock Preferred &
Corporate Income
Strategies Fund, Inc. 26,600 222,376
BlackRock Preferred
Opportunity Trust 44,800 460,096
Calamos Strategic Total
Return Fund 167,938 1,469,457
John Hancock Preferred
Income Fund 49,300 843,030
John Hancock Preferred
Income Fund II 27,379 466,264
LMP Capital & Income
Fund, Inc. 110,762 1,146,387
Preferred Income
Strategies Fund 109,331 1,026,618
Other Income & Preferred
Stock (b) 238,349
------------
5,872,577
------------
LOAN PARTICIPATION - 3.65%
BlackRock Defined
Opportunity Credit Trust 41,100 491,556
BlackRock Diversified Income
Strategies Fund, Inc. 32,900 314,524
First Trust/Four Corners
Senior Floating Rate
Income Fund II 109,103 1,298,326
Other Loan Participation (b) 40,160
------------
2,144,566
------------
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
2
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONTINUED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
CLOSED-END FUNDS (CONTINUED)
OPTION ARBITRAGE/OPTIONS
STRATEGIES - 14.84%
NFJ Dividend, Interest &
Premium Strategy Fund 590,800 $ 8,714,300
------------
PACIFIC EX JAPAN - 6.19%
Malaysia Fund, Inc. 29,300 221,215
Morgan Stanley China A
Share Fund, Inc. 83,152 2,608,478
Thai Fund, Inc. (The) 69,120 617,242
Other Pacific Ex Japan (b) 190,323
------------
3,637,258
------------
REAL ESTATE - 1.96%
Alpine Global Premier
Properties Fund 76,700 477,841
Cohen & Steers Quality
Income Realty Fund, Inc. 47,200 286,504
Cohen & Steers REIT &
Preferred Income Fund, Inc. 31,400 324,990
Other Real Estate (b) 62,694
------------
1,152,029
------------
SECTOR EQUITY - 12.08%
Gabelli Global Gold Natural
Resources & Income Trust 117,000 1,911,780
H&Q Healthcare Investors 161,489 1,916,874
H&Q Life Sciences Investors 104,590 987,330
John Hancock Bank and
Thrift Opportunity Fund 95,120 1,341,192
Macquarie Global
Infrastructure Total
Return Fund, Inc. 44,934 712,204
Other Sector Equity (a) (b) 226,280
------------
7,095,660
------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
U.S. MORTGAGE - 1.86%
BlackRock Income Trust, Inc. 100,474 $ 639,015
First Trust/FIDAC Mortgage
Income Fund 24,731 451,093
------------
1,090,108
------------
VALUE - 6.31%
Gabelli Dividend &
Income Trust 256,950 3,368,614
Royce Focus Trust, Inc. 53,014 335,579
------------
3,704,193
------------
TOTAL CLOSED-END FUNDS 52,421,164
------------
CONSUMER DISCRETIONARY - 0.59%
Other Consumer
Discretionary ^ (b) 348,426
------------
CONSUMER STAPLES - 1.13%
Procter & Gamble
Company (The) 5,233 317,277
Other Consumer Staples (b) 344,968
------------
662,245
------------
ENERGY - 0.98%
Exxon Mobil Corporation ^ 8,475 577,910
------------
FINANCIALS - 1.51%
Other Financials ^ (b) 886,446
------------
HEALTHCARE - 1.50%
Becton, Dickinson
and Company 3,000 236,580
Johnson & Johnson 8,000 515,280
Other Healthcare (b) 131,940
------------
883,800
------------
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
SUMMARY SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009 (CONCLUDED)
--------------------------------------------------------------------------------
No. of
Description Shares Value
--------------------------------------------------------------------------------
INDUSTRIALS - 1.02%
Other Industrials (b) $ 595,985
------------
INFORMATION TECHNOLOGY - 1.92%
Cisco Systems, Inc. ^ * 18,470 442,172
Google, Inc. - Class A * 532 329,829
Other Information
Technology (b) 352,953
------------
1,124,954
------------
MATERIALS - 0.15%
Total Materials (b) 89,845
------------
TELECOMMUNICATION SERVICES - 0.25%
Total Telecommunication
Services (b) 149,085
------------
TOTAL EQUITY SECURITIES
(cost - $52,272,181) 57,739,860
------------
SHORT-TERM INVESTMENTS - 6.07%
MONEY MARKET SECURITY - 4.19%
JPMorgan U.S. Government
Money Market Fund 2,460,622 2,460,622
------------
Principal
Amount
Description (000's) Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 1.88%
J.P. Morgan Securities Inc.+++
(Agreement dated 12/31/2009 to be
repurchased at $1,068,893) $ 1,069 $ 1,068,874
------------
J.P. Morgan Securities Inc.+
(Agreement dated 12/31/2009 to be
repurchased at $34,644) 35 34,644
------------
TOTAL SHORT-TERM INVESTMENTS
(cost - $3,564,140) 3,564,140
------------
TOTAL INVESTMENTS - 104.37%
(cost - $55,836,320) 61,304,000
------------
LIABILITIES IN EXCESS OF
OTHER ASSETS - (4.37)% (2,565,608)
------------
NET ASSETS - 100.00% $ 58,738,392
============
-------
(a) Affiliated investment. The Fund holds 2.43% and 0.16% (based on net
assets) of Adams Express Company and Petroleum & Resources Corporation,
respectively. A Trustee of the Fund also serves as a director to such
companies. During the year ended December 31, 2009 there were purchases
of 143,624 shares and sales of 2,018 shares of Adams Express Company and
purchases of 4,000 shares of Petroleum & Resources Corporation. There
were no sales of Petroleum & Resources Corporation during the year.
(b) Represents issuers not identified as a top 50 holding in terms of market
value and issues or issuers not exceeding 1% of net assets individually
or in the aggregate, respectively, as December 31, 2009.
* Non-income producing security.
^ Security or a portion thereof is out on loan.
+ The maturity date for all repurchase agreements held was January 4,
2010, with interest rates ranging from 0.01% to 0.16% and collateralized
by $1,140,382 in U.S. Treasury Notes maturing August 15, 2018. Stated
interest rate, before rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities
on loan.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
4
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2009
--------------------------------------------------------------------------------
ASSETS
Investments, at value, including collateral for securities on loan of $1,068,874:
Unaffiliated issuers (cost - $54,603,481)(1) $ 59,873,779
Affiliated issuer (cost - $1,232,839) 1,430,221
------------
Total investments (cost - $55,836,320) 61,304,000
Receivables:
Dividends 588,204
Investments sold 457,963
Prepaid expenses 2,806
------------
Total Assets 62,352,973
------------
LIABILITIES
Payables:
Dividends 1,901,049
Upon return of securities loaned 1,068,874
Investments purchases 525,300
Investment management fees 49,096
Trustees' fees 19,793
Other accrued expenses 50,469
------------
Total Liabilities 3,614,581
------------
NET ASSETS (applicable to 9,347,026 shares of common stock outstanding) $ 58,738,392
============
NET ASSET VALUE PER SHARE ($58,738,392/9,347,026) $ 6.28
============
NET ASSETS CONSISTS OF
Paid-in capital $ 93,139,951
Accumulated net realized loss on investments (39,869,239)
Net unrealized appreciation in value of investments 5,467,680
------------
Net assets applicable to shares outstanding $ 58,738,392
============
--------
(1) Includes securities out on loan to brokers with a market value of $1,031,621.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
5
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2009
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (including $9,443 earned from affiliated issuer) $ 2,279,975
Securities lending 4,777
-----------
Total Investment Income 2,284,752
-----------
Expenses:
Investment management fees 583,494
Trustees' fees 80,284
Administration fees 58,389
Legal and audit fees 50,151
Accounting fees 41,731
Printing 23,499
Custodian fees 18,481
Transfer agent fees 16,561
Stock exchange listing fees 9,942
Insurance 7,829
Miscellaneous 4,449
-----------
Total Expenses 894,810
Less: Management fee waivers (950)
Less: Fees paid indirectly (86,940)
-----------
Net Expenses 806,920
-----------
Net Investment Income 1,477,832
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized loss from unaffiliated investments (20,306,191)
Net realized gain from affiliated investments 42,235
Net change in unrealized depreciation in value of investments 33,599,505
-----------
Net realized and unrealized gain on investments 13,335,549
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 14,813,381
============
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
6
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended December 31,
-------------------------------
2009 2008
------------ ------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income $ 1,477,832 $ 1,494,151
Net realized loss from investments (20,263,956) (19,605,283)
Net change in unrealized appreciation/(depreciation)
in value of investments 33,599,505 (23,781,155)
------------ ------------
Net increase/(decrease) in net assets resulting
from operations 14,813,381 (41,892,287)
------------ ------------
Dividends and distributions to shareholders:
Net investment income (1,477,832) (1,494,151)
Return-of-capital (21,498,436) (21,470,420)
------------ ------------
Total dividends and distributions to shareholders (22,976,268) (22,964,571)
------------ ------------
Common share transactions:
Proceeds from 10,294 and 3,066 shares newly issued in
reinvestment of dividends and distributions, respectively 90,582 39,846
------------ ------------
Total decrease in net assets (8,072,305) (64,817,012)
------------ ------------
NET ASSETS
Beginning of year 66,810,697 131,627,709
------------ ------------
End of year $ 58,738,392 $ 66,810,697
============ ============
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
For the For the Period
Years Ended Sept. 10, 2007*
December 31, through
2009 2008 Dec. 31, 2007
----- ----- --------------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year $ 7.16 $ 14.10 $ 14.96^
--------- -------- -------
Net investment income # 0.16 0.16 0.06
Net realized and unrealized gain/(loss) on investments 1.42 (4.64) (0.35)
--------- -------- -------
Net increase/(decrease) in net assets resulting from operations 1.58 (4.48) (0.29)
--------- -------- -------
Dividends and distributions to shareholders:
Net investment income (0.16) (0.16) (0.06)
Net realized capital gains -- -- (0.15)
Return-of-capital (2.30) (2.30) (0.41)
--------- -------- -------
Total dividends and distributions to shareholders (2.46) (2.46) (0.62)
--------- -------- -------
Capital stock transactions:
Anti-dilutive effect due to issuance of common shares -- -- 0.05
Anti-dilutive effect due to shares issued in
reinvestment of dividends and distributions+ -- -- --
--------- -------- -------
Total capital stock transactions -- -- 0.05
--------- -------- -------
Net asset value, end of period $ 6.28 $ 7.16 $ 14.10
========= ======== =======
Market value, end of period $ 8.90 $ 7.10 $ 16.75
========= ======== =======
Total investment return (a) 65.40% (47.53)% 16.02%(b)
========= ======== =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 58,738 $ 66,811 $131,628
Ratio of expenses to average net assets,
net of fee waivers, if any (c)(f) 1.39% 1.25% 1.29%(e)
Ratio of expenses to average net assets,
excluding fee waivers, if any (d)(f) 1.54% 1.32% 1.42%(e)
Ratio of expenses to average net assets,
net of fee waivers, if any (d)(f) 1.54% 1.32% 1.42%(e)
Ratio of net investment income to average net assets 2.54% 1.48% 1.46%(e)
Portfolio turnover rate 115.99% 20.19% 6.77%(b)
--------------------------------------------------------------------------------
* Commencement of operations.
^ Based on $15.00 per share publica offering price less $0.04 per
sharee of offering expenses related to the Fund's initial public
offering. # Based on average shares outstanding.
+ Amount rounds to less than $0.01.
(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) Not annualized
(c) Expenses are net of fees paid indirectly.
(d) Expenses exclude the reduction for fees paid indirectly.
(e) Annualized (f) Expense does not include expense of investment
companies in which the Fund invests.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE A. ORGANIZATION
Cornerstone Progressive Return Fund (the "Fund") was organized as a Delaware
statutory trust on April 26, 2007 and commenced investment operations on
September 10, 2007. Prior to such date it had no operations other than the sale
and issuance of 6,668 shares at an aggregate purchase price of $100,020 on July
20, 2007. Its investment objective is to provide long-term total return. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
closed-end, diversified management investment company.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
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.
SUBSEQUENT EVENTS: The Fund has evaluated the need for additional disclosures
and/or adjustments resulting from subsequent events through February 24, 2010,
the date the financial statements were issued. Based on this evaluation, no
additional disclosures or adjustments were required to the financial statements
as of December 31, 2009.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. Readily marketable portfolio securities listed on the NYSE
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the NYSE on the business day as of which such
value is being determined. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices on such day. If no
bid or asked prices are quoted on such day or if market prices may be unreliable
because of events occurring after the close of trading, then the security is
valued by such method as the Board of Trustees shall determine in good faith to
reflect its fair market value. Readily marketable securities not listed on the
NYSE but listed on other domestic or foreign securities exchanges are valued in
a like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the consolidated tape at the close of the
exchange representing the principal market for such securities. Securities
trading on the Nasdaq Stock Market, Inc. ("NASDAQ") are valued at the closing
price.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by Cornerstone Advisors, Inc.
(the "Investment Manager" or "Cornerstone") to be over-the-counter, are valued
at the mean of the current bid and asked prices as reported by the NASDAQ or, in
the case of securities not reported by the NASDAQ or a comparable source, as the
Board of Trustees deem appropriate to reflect their fair market value. Where
securities are traded on more than one exchange and also over-the-counter, the
securities will generally be valued using the quotations the Board of Trustees
believes reflect most closely the value of such securities.
At December 31, 2009, the Fund held no securities valued in good faith by the
Board of Trustees. 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 NYSE Alternext US LLC is closed.
The Fund is exposed to financial market risks, including the valuations of its
investment portfolio. For the year ended December 31, 2009, the Fund did not
engage in derivative instruments and other hedging activities.
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
--------------------------------------------------------------------------------
9
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
and broker/dealers, which Cornerstone considers creditworthy. The seller under a
repurchase agreement will be required to maintain the value of the securities as
collateral, subject to the agreement at not less than the repurchase price plus
accrued interest. Cornerstone monitors the mark-to-market of the value of the
collateral, and, if necessary, requires the seller to maintain additional
securities, so that the value of the collateral is not less than the repurchase
price. Default by or bankruptcy of the seller would, however, expose the Fund to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying securities.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
RISKS ASSOCIATED WITH INVESTMENTS IN OTHER CLOSED-END FUNDS: Closed-end
investment companies are subject to the risks of investing in the underlying
securities. The Fund, as a holder of the securities of the closed-end investment
company, will bear its pro rata portion of the closed-end investment company's
expenses, including advisory fees. These expenses are in addition to the direct
expenses of the Fund's own operations.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention 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.
The Accounting for Uncertainty in Income Taxes Topic of the FASB Accounting
Standards Codification defines the threshold for recognizing the benefits of
tax-return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and requires measurement of a tax position
meeting the more-likely-than-not criterion, based on the largest benefit that is
more than 50 percent likely to be realized. The Fund's policy is to classify
interest and penalties associated with underpayment of federal and state income
taxes, if any, as income tax expense on its Statement of Operations. As of
December 31, 2009, the Fund does not have any interest or penalties associated
with the under-payment of any income taxes.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund makes a level distribution to its
shareholders each month pursuant to a managed distribution policy adopted by the
Board of Trustees ("Managed Distribution Policy"). To the extent these
distributions are not represented by net investment income and capital gains,
they will not represent yield or investment return on the Fund's portfolio. The
level distribution rate may be modified by the Board of Trustees from time to
time. If, for any monthly distribution, investment company taxable income, if
any (which term includes net short-term capital gain), and net tax-exempt
income, if any, is less than the amount of the distribution, the difference will
generally be a tax-free return of capital distributed from the Fund's assets.
The Fund's final distribution for each calendar year is expected to include any
remaining investment company taxable income and net tax exempt income
undistributed during the year, as well as all net capital gain realized during
the year.
However, if they determine it is appropriate to do so, the Board of Trustees may
elect to not distribute realized gains and to pay taxes incurred. In general,
the total distributions made in any taxable year (other than distributions of
net capital gain or return of capital) would be treated as ordinary dividend
income to the extent of the Fund's current and accumulated earnings and profits.
Distributions in excess of the earnings and profits would first be a tax-free
return of capital to the extent of the adjusted tax basis in the shares.
The Managed Distribution Policy described above would result in the payment of
approximately the same amount or percentage to the Fund's
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
shareholders each month. These distributions will not be tied to the Fund's
investment income and capital gains and will not represent yield or investment
return on the Fund's portfolio. Section 19(a) of the 1940 Act and Rule 19a-1
thereunder require the Fund to provide a written statement accompanying any such
payment that adequately discloses its source or sources, other than net
investment income. Thus, if the source of some or all of the dividend or other
distribution were the original capital contribution of the shareholder, and the
payment amounted to a return of capital, the Fund would be required to provide
written disclosure to that effect. Nevertheless, persons who periodically
receive the payment of a dividend or other distribution may be under the
impression that they are receiving net profits when they are not. Shareholders
should read any written disclosure provided pursuant to Section 19(a) and Rule
19a-1 carefully, and should not assume that the source of any distribution from
the Fund is net profit.
The Board of Trustees reserves the right to change the monthly distribution
policy from time to time.
MANAGED DISTRIBUTION RISK: Under the managed distribution policy, the Fund makes
monthly distributions to shareholders at a rate that may include periodic
distributions of its net income and net capital gains, ("Net Earnings"), or from
return-of-capital. For any fiscal year where total cash distributions exceeded
Net Earnings (the "Excess"), the Excess would decrease the Fund's total assets
and, as a result, would have the likely effect of increasing the Fund's expense
ratio. There is a risk that the total Net Earnings from the Fund's portfolio
would not be great enough to offset the amount of cash distributions paid to
Fund shareholders. If this were to be the case, the Fund's assets would be
depleted, and there is no guarantee that the Fund would be able to replace the
assets. In addition, in order to make such distributions, the Fund may have to
sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Furthermore, such assets used to make
distributions will not be available for investment pursuant to the Fund's
investment objective.
NOTE C. FAIR VALUE
As required by the Fair Value Measurement and Disclosures Topic of the FASB
Accounting Standards Codification, the Fund has performed an analysis of all
assets and liabilities measured at fair value to determine the significance and
character of all inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value into the following three broad categories.
o Level 1 - quoted unadjusted prices for identical instruments in active
markets to which the Fund has access at the date of measurement.
o Level 2 - quoted prices for similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which all significant inputs
and significant value drivers are observable in active markets. Level 2
inputs are those in markets for which there are few transactions, the
prices are not current, little public information exists or instances
where prices vary substantially over time or among brokered market
makers.
o Level 3 - model derived valuations in which one or more significant
inputs or significant value drivers are unobservable. Unobservable
inputs are those inputs that reflect the Fund's own assumptions that
market participants would use to price the asset or liability based on
the best available information.
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The following is a summary of the inputs used as of December 31, 2009 in valuing
the Fund's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
Level 1 - Quoted Prices
Equity Investments $ 57,739,860 --
Short-Term Investments 3,564,140
Level 2 - Other Significant
Observable Inputs -- --
Level 3 - Significant
Unobservable Inputs -- --
-------------- -------------
Total $ 61,304,000 --
============== =============
--------
* Other financial instruments include futures, forwards and swap contracts.
The Fund did not have any assets or liabilities that were measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) at December
31, 2009.
NEW ACCOUNTING PRONOUNCEMENT: In January 2010, the FASB Accounting Standards
Board issued Accounting Standards Update ("ASU") No. 2010-06 "Improving
Disclosures about Fair Value Measurements". ASU 2010-06 amends FASB Accounting
Standards Codification Topic, Fair Value Measurements and Disclosures, to
require additional disclosures regarding fair value measurements. Certain
disclosures required by ASU No. 2010-06 are effective for interim and annual
reporting periods beginning after December 15, 2009, and other required
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years. Management is currently
evaluating the impact ASU No. 2010-06 will have on its financial statement
disclosures.
NOTE D. AGREEMENTS
Certain officers of the Fund are also officers of Cornerstone or Ultimus Fund
Solutions, LLC ("Ultimus"). Such officers are paid no fees by the Fund for
serving as officers of the Fund.
INVESTMENT MANAGEMENT AGREEMENT
Cornerstone serves as the Fund's Investment Adviser 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 June 1, 2009,
Cornerstone voluntarily agreed to waive its management fees from the Fund to the
extent that the Fund's net monthly operating expenses (including basic legal
fees but excluding other legal and extraordinary expenses) exceeded a monthly
rate of 0.125% of average annual weekly net assets. For the year ended December
31, 2009, Cornerstone earned $583,494 for investment management services of
which it waived $950. The Investment 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 $86,940 arising from credits earned on portfolio
transactions executed with brokers, pursuant to directed brokerage arrangements.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement, Ultimus supplies executive,
administrative and regulatory services for the Fund. Ultimus supervises the
preparation of reports to stockholders for the Fund, reports to and filings with
the Securities and Exchange Commission and materials for meetings of the Board
of Directors. For these services, the Fund pays Ultimus a monthly fee at an
annual rate of 0.100% of its average daily net assets up to $250 million and
0.075% of such assets in excess of $250 million, subject to an annual minimum
fee of $50,000.
FUND ACCOUNTING AGREEMENT
Under the terms of the Fund Accounting Agreement, Ultimus calculates the net
asset value per share and maintains the financial books and records of the Fund.
For the performance of these services, the Fund pays Ultimus a base fee of
$2,500 per month
--------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
plus an asset based fee of 0.010% of the first $500 million of average daily net
assets and 0.005% of such assets in excess of $500 million.
NOTE E. AFFILIATED INVESTMENTS
Transactions in affiliates for the year ended December 31, 2009 were as follows:
ADAMS PETROLEUM &
EXPRESS RESOURCES
COMPANY CORPORATION
---------- ------------
Market value at beginning of year $ -- $ --
Shares at beginning of year -- --
Shares purchased during the year 143,624 4,000
Shares sold during the year (2,018) --
---------- ------------
Shares at end of year 141,606 4,000
========== ============
Dividend income earned during the year $ 9,443 $ --
========== ============
Cost of purchases during the year $1,249,505 $ 96,133
Proceeds from sales during the year $ 19,251 --
Net realized gain during the year $ 42,235 --
Market value at end of year $1,430,221 $ 94,960
NOTE F. INVESTMENT IN SECURITIES
For the year ended December 31, 2009, purchases and sales of securities, other
than short-term investments, were $67,859,272 and $88,954,939 respectively.
NOTE G. COMMON SHARES OF BENEFICIAL INTEREST
The Fund has 9,347,026 common shares of beneficial interest authorized and
outstanding at December 31, 2009. As of that date, two individuals that control
Cornerstone owned 5,661 shares related to the initial issuance of the seed
capital shares of the Fund.
Transactions in common shares for the year ended December 31, 2009 were as
follows:
Shares at beginning of year 9,336,732
Shares newly issued in reinvestment
of dividends and distributions 10,294
---------
Shares at end of year 9,347,026
=========
NOTE H. SHARE REPURCHASE PROGRAM
Pursuant to Section 23 of the Investment Company Act of 1940, as amended, the
Fund may purchase shares of its common shares of beneficial interest on the open
market from time to time, at such times, and in such amounts as may be deemed
advantageous to the Fund. Nothing herein shall be considered a commitment to
purchase such shares. The Fund had no repurchases during the year ended December
31, 2009. No limit has been placed on the number of shares to be repurchased by
the Fund other than those imposed by federal securities laws.
To the extent such purchases are made they will be in accordance with federal
securities laws, with shares repurchased held in treasury for future use by the
Fund.
NOTE I. 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
--------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------
CORNERSTONE PROGRESSIVE RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
lender is insufficient to cover the market 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, 2009 was $1,031,621.
During the year ended December 31, 2009, the Fund earned $4,777 in securities
lending income which is included under the caption SECURITIES LENDING in the
Statement of Operations.
NOTE J. 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 character of dividends and distributions paid during the years ended
December 31, for the Fund were as follows:
ORDINARY INCOME RETURN-OF-CAPITAL
---------------- ------------------
2009 2008 2009 2008
----- ----- ----- -----
$1,477,832 $1,494,151 $21,498,436 $ 21,470,420
Accumulated net realized loss $(39,795,069)
Net unrealized appreciation 5,393,510
------------
Total accumulated deficit $(34,401,559)
============
Accounting principles generally accepted in the United States of America require
that certain components of net assets relating to permanent differences be
reclassified between financial and tax reporting. These reclassifications have
no effect on net assets or net asset value per share. 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"). The Fund incurred no such loss.
At December 31, 2009, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $39,795,069 of which $8,177,222 expires in 2016 and
$31,617,847, expires in 2017.
At December 31, 2009, 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 $55,910,490, $6,793,495,
$(1,399,985), and $5,393,510, respectively.
--------------------------------------------------------------------------------
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Cornerstone Progressive Return Fund
New York, New York
We have audited the accompanying statement of assets and liabilities of the
Cornerstone Progressive Return Fund (the "Fund"), including the summary schedule
of investments as of December 31, 2009, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
two years in the period then ended and for the period September 10, 2007
(commencement of operations) to December 31, 2007. 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.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009, by correspondence with the custodian
and brokers. 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 the
Cornerstone Progressive Return Fund as of December 31, 2009, the results of its
operations, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years in the
period then ended and for the period September 10, 2007 (commencement of
operations) to December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 24, 2010
--------------------------------------------------------------------------------
15
2009 TAX INFORMATION (UNAUDITED)
Cornerstone Progressive Return Fund (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, 2009) as to the federal tax status
of the dividends and distributions received by the Fund's shareholders in
respect of such fiscal year. The $22,976,268 in dividends and distributions paid
to shareholders in respect of such year, is represented by $1,477,832 of
ordinary income, and $21,498,436 of return-of-capital.
As indicated in this notice, significant portions of the Fund's distributions
for 2009 were comprised of a return-of-capital; accordingly these distributions
do NOT represent yield or investment return on the Fund's portfolio.
SOURCES OF DIVIDENDS AND DISTRIBUTIONS
(PER SHARE AMOUNTS)
PAYMENT DATES: 1/30/09 2/27/09 3/31/09 4/30/09 5/29/09 6/30/09
-------- --------- -------- -------- -------- --------
Ordinary Income(1) $ 0.0141 $ 0.0141 $ 0.0141 $ 0.0141 $ 0.0141 $ 0.0141
Return-of-Capital(2) 0.1909 0.1909 0.1909 0.1909 0.1909 0.1909
-------- --------- -------- -------- -------- --------
Total: $ 0.2050 $ 0.12050 $ 0.2050 $ 0.2050 $ 0.2050 $ 0.2050
======== ========= ======== ======== ======== ========
PAYMENT DATES: 7/31/09 8/31/09 9/30/09 10/30/09 11/30/09 12/31/09
-------- --------- -------- -------- -------- --------
Ordinary Income(1) $ 0.0141 $ 0.0141 $ 0.0141 $ 0.0141 $ 0.0141 $ 0.0141
Return-of-Capital(2) 0.1909 0.1909 0.1909 0.1909 0.1909 0.1909
-------- --------- -------- -------- -------- --------
Total: $ 0.2050 $ 0.2050 $ 0.2050 $ 0.2050 $ 0.2050 $ 0.2050
======== ========= ======== ======== ======== ========
--------
(1) ORDINARY INCOME DIVIDENDS - This is the total per share amount of
ordinary income dividends and short-term capital gain distributions (if
applicable) included in the amount reported in Box 1a on Form 1099-DIV.
(2) RETURN-OF-CAPITAL - This is the per share amount of return-of-capital,
or sometimes called nontaxable, distributions reported in Box 3 - under
the title "Nondividend distributions" - on Form 1099-DIV. This amount
should NOT be reported as taxable income on your current return. Rather,
it should be treated as a reduction in the original cost basis of your
investment in the Fund.
The Fund has met the requirements to pass through all (100%) of its ordinary
income dividends as qualified dividends, which are subject to a maximum federal
tax rate of 15%. This is reported in Box 1b on Form 1099-DIV. Ordinary income
dividends should be reported as dividend income on Form 1040. Please note that
to utilize the lower tax rate for qualifying dividend income, shareholders
generally must have held their shares in the Fund for at least 61 days during
the 121 day period beginning 60 days before the ex-dividend date.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of the actual ordinary income dividend paid by the Fund.
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. They
will generally not be entitled to foreign tax credit or deduction for the
withholding taxes paid by the Fund.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund.
--------------------------------------------------------------------------------
16
ADDITIONAL INFORMATION REGARDING THE FUND'S TRUSTEES
AND CORPORATE OFFICERS (UNAUDITED)
NUMBER OF
PORTFOLIOS IN
NAME AND POSITION FUND COMPLEX
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE TRUSTEES
-------------------------------------------------------------------------------------------------------------------
Ralph W. Chairman of President, Cornerstone Advisors, Inc.; 2007 3
Bradshaw** the Board of Financial Consultant; President and
(Dec. 1950) Trustees and Director of Cornerstone Total Return
President Fund, Inc. and Cornerstone Strategic
Value Fund, Inc.
Thomas H. Trustee; Audit, Director of Cornerstone Total Return 2007 3
Lenagh Nominating Fund, Inc. and Cornerstone Strategic
(Nov. 1924) and Corporate Value Fund, Inc.; Director of Adams
Governance Express Company, Petroleum &
Committee Resources Corporation and PPGI
Member Industries.
Edwin Trustee; Audit, Distinguished Fellow, The Heritage 2007 3
Meese III Nominating Foundation Washington D.C.;
(Dec. 1931) and Corporate Distinguished Visiting Fellow at the
Governance Hoover Institution, Stanford University;
Committee Senior Adviser, Revelation L.P.; Director of
Member Cornerstone Total Return Fund, Inc. and
Cornerstone Strategic Value Fund, Inc.
Scott B. Rogers Trustee; Audit, Chairman, Board of Health Partners, 2007 3
(July 1955) Nominating Inc.; Chief Executive Officer, Asheville
and Corporate Buncombe Community Christian
Governance Ministry; and President, ABCCM
Committee Doctor's Medical Clinic; Appointee, NC
Member Governor's Commission on Welfare to
Work; Director of Cornerstone Total
Return Fund, Inc. and Cornerstone
Strategic Value Fund, Inc.
--------------------------------------------------------------------------------
17
ADDITIONAL INFORMATION REGARDING THE FUND'S TRUSTEES
AND CORPORATE OFFICERS (UNAUDITED) (CONTINUED)
NUMBER OF
PORTFOLIOS IN
NAME AND POSITION FUND COMPLEX
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND OVERSEEN BY
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE TRUSTEES
------------------------------------------------------------------------------------------------------------------
Andrew A. Trustee; Attorney and senior member of Strauss & 2007 3
Strauss Chairman of Associates, P.A., Attorneys, Asheville and
(Nov. 1953) Nominating Hendersonville, NC; previous President
and Corporate of White Knight Healthcare, Inc. and
Governance LMV Leasing, Inc., a wholly owned
Committees and subsidiary of Xerox Credit Corporation;
Audit Committee Director of Cornerstone Total Return
Member Fund, Inc. and Cornerstone Strategic
Value Fund, Inc.
Glenn W. Trustee; Chairman of the Board, Tower 2007 3
Wilcox, Sr. Chairman of Associates, Inc.; Chairman of the
(Dec. 1931) Audit Committee, Board and Chief Executive Officer of
Nominating Wilcox Travel Agency, Inc.; Director of
and Corporate Cornerstone Total Return Fund, Inc. and
Governance Cornerstone Strategic Value Fund, Inc.
Committee
Member
--------------------------------------------------------------------------------
18
ADDITIONAL INFORMATION REGARDING THE FUND'S TRUSTEES
AND CORPORATE OFFICERS (UNAUDITED) (CONCLUDED)
NAME AND POSITION
ADDRESS* POSITION(S) PRINCIPAL OCCUPATION WITH FUND
(BIRTH DATE) HELD WITH FUND OVER LAST 5 YEARS SINCE
------------------------------------------------------------------------------------------------------------------
Gary A. Bentz Chief Compliance Chairman and Chief Financial Officer of 2007, 2008,
(June 1956) Officer, Secretary, Cornerstone Advisors, Inc.; previous 2009
and Assistant Director, Vice President and Treasurer of
Treasurer Cornerstone Total Return Fund, Inc. and
Cornerstone Strategic Value Fund, Inc.,
Financial Consultant, C.P.A.; Chief Compliance
Officer, Secretary, and Assistant Treasurer
of Cornerstone Total Return Fund, Inc. and
Cornerstone Strategic Value Fund, Inc.
William A. Clark Vice President Director and Stockholder of Cornerstone 2007
(Oct. 1945) Advisors, Inc.; Vice President and former
Director of Cornerstone Strategic Value Fund,
Inc. and Cornerstone Total Return Fund,
Inc.; Financial Consultant; former Director of
Investors First Fund, Inc.
Frank J. Maresca Treasurer Executive Vice President of Ultimus Fund 2009
(Oct. 1958) Solutions, LLC (since March 2009); previous
Executive Director, JP Morgan Chase & Co.
(since June 2008); previous President of Bear
Stearns Funds Management, Inc.; previous
Senior Managing Director of Bear Stearns &
Co., Inc.; Treasurer of Cornerstone Strategic
Value Fund, Inc. and Cornerstone Total Return
Fund, Inc. (since May 2009).
--------------------------------------------------------------------------------
* The mailing address of each Trustee and/or Officer with respect to the
Fund's operation is 260 Madison Ave., New York, NY 10016.
** Designates a trustee who is an "interested person" of the Fund as
defined by the Investment Company Act of 1940, as amended. Mr. Bradshaw
is an interested person of the Fund by virtue of his current position
with the Investment Adviser of the Fund.
--------------------------------------------------------------------------------
19
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Cornerstone Progressive Return Fund (the "Fund") operates a Dividend
Reinvestment Plan (the "Plan"), sponsored and administered by American Stock
Transfer & Trust Company (the "Agent"), pursuant to which the Fund's income
dividends or capital gains or other distributions (each, a "Distribution" and
collectively, "Distributions"), net of any applicable U.S. withholding tax, are
reinvested in shares of the Fund.
Shareholders automatically participate in the Fund's Plan, unless and until an
election is made to withdraw from the Plan on behalf of such participating
shareholder. Shareholders who do not wish to have Distributions automatically
reinvested should so notify their broker, or if a registered shareholder, the
Agent in writing at P.O. Box 922, Wall Street Station, New York, New York
10269-0560. Such written notice must be received by the Agent prior to the
record date of the Distribution or the shareholder will receive such
Distribution in shares through the Plan. Under the Plan, the Fund's
Distributions to shareholders are reinvested in full and fractional shares as
described below.
When the Fund declares a Distribution the Agent, on the shareholder's 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) purchase outstanding shares on the open market, on the
NYSE Alternext US LLC or elsewhere, with cash allocated to it by the Fund ("Open
Market Purchases").
The method for determining the number of shares to be received when
Distributions are reinvested will vary depending upon whether the net asset
value of the Fund's shares is higher or lower than its market price. If the net
asset value of the Fund's shares is lower than its market price, the number of
Newly Issued Shares received will be determined by dividing the amount of the
Distribution either by the Fund's net asset value per share or by 95% of its
market price, whichever is higher. If the net asset value of the Fund's shares
is higher than its market price, 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.
Whenever the Fund declares a Distribution and the net asset value of the Fund's
shares is higher than its market price, the Agent will apply the amount of such
Distribution payable to Plan participants of the Fund in Fund shares (less such
Plan participant's pro rata share of brokerage commissions incurred with respect
to Open Market Purchases in connection with the reinvestment of such
Distribution) to the purchase on the open market of Fund shares for such Plan
participant's account. Such purchases will be made on or after the payable date
for such Distribution, and in no event more than 30 days after such date except
where temporary curtailment or suspension of purchase is necessary to comply
with applicable provisions of federal securities laws. The Agent may aggregate a
Plan participant's purchases with the purchases of other Plan participants, and
the average price (including brokerage commissions) of all shares purchased by
the Agent shall be the price per share allocable to each Plan participant.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Agent at least 30 days prior to the applicable Distribution payment date.
When a Participant withdraws from the Plan, or upon suspension or termination of
the Plan at the sole discretion of the Fund's Board of Trustees, certificates
for whole shares credited to his or 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 the 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
--------------------------------------------------------------------------------
20
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONCLUDED)
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.
Neither the Agent nor the Fund shall have any responsibility or liability beyond
the exercise of ordinary care for any action taken or omitted pursuant to the
Plan, nor shall they have any duties, responsibilities or liabilities except
such as expressly set forth herein. Neither shall they be liable hereunder for
any act done in good faith or for any good faith omissions to act, including,
without limitation, failure to terminate a participants account prior to receipt
of written notice of his or her death or with respect to prices at which shares
are purchased or sold for the participants account and the terms on which such
purchases and sales are made, subject to applicable provisions of the federal
securities laws.
The automatic reinvestment of Distributions will not relieve participants of any
federal, state or local income tax that may be payable (or required to be
withheld) on such Distributions. The Fund reserves the right to amend or
terminate the Plan. There is no direct service charge to participants with
regard to purchases in the Plan.
All correspondence concerning the Plan should be directed to the Agent at P.O.
Box 922, Wall Street Station, New York, New York 10269-0560. Certain
transactions can be performed online at www.amstock.com or by calling the toll
free number 877-864-4833.
--------------------------------------------------------------------------------
21
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how Cornerstone Progressive Return Fund (the "Fund") voted
proxies related to its portfolio securities during the 12-month period ended
June 30 of each year as well as the policies and procedures that the Fund uses
to determine how to vote proxies relating to its portfolio securities are
available by calling (513) 326-3597 or on the website of the Securities and
Exchange Commission, http://www.sec.gov.
This report incorporates a Summary Schedule of Investments for the Fund. A
complete Schedule of Investments for the Fund may be obtained free of charge by
contacting the Fund at (513) 326-3597. The Fund files a complete schedule of its
portfolio holdings for the first and third quarters of its fiscal year with the
SEC on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling (202) 551-8090.
PRIVACY POLICY NOTICE (UNAUDITED)
The following is a description of the Fund's 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 with the Fund and its
affiliates: 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.
--------------------------------------------------------------------------------
22
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
Cornerstone Progressive Return Fund is a closed-end, diversified investment
company whose shares trade on the NYSE Alternext US LLC. Its investment
objective is to provide long-term total return. The Fund is managed by
Cornerstone Advisors, Inc.
SHAREHOLDER INFORMATION (UNAUDITED)
The Fund is listed on the NYSE Alternext US LLC (symbol "CFP"). The previous
week's net asset value per share, market price, and related premium or discount
are published each Monday in THE WALL STREET JOURNAL under the designation
"CrnrstnPrgRtFd" and BARRON'S under the designation "CornerstoneProgreRet". Such
information is available weekly and may be obtained by contacting the Fund at
the general inquiry phone number.
--------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT CORNERSTONE PROGRESSIVE RETURN FUND MAY
FROM TIME TO TIME PURCHASE ITS SHARES IN THE OPEN MARKET.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 the report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
23
This page intentionally left blank.
CORNERSTONE PROGRESSIVE RETURN FUND
ITEM 2. CODE OF ETHICS.
(a) As of the end of the period covered by this report, the Registrant has
adopted a code of ethics that applies to the Registrant's principal executive
officer, principal accounting officer, and persons performing similar functions.
(c) and (d). During the period covered by this report, there was no amendment
to, and no waiver granted from, any provision of the code of ethics that applies
to the Registrant's principal executive officer, principal accounting officer,
and persons performing similar functions.
(f)(1) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit
(EX-99.CODE ETH) a copy of its code of ethics that applies to its principal
executive officer, principal financial officer, and persons performing similar
functions.
(f)(3) The Registrant undertakes to provide to any person without charge, upon
request, a copy of its code of ethics. This can be accomplished by calling the
Registrant at (513) 326-3597.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
a)(1) The registrant's board of directors has determined that it does not have
an audit committee financial expert serving on its audit committee.
(a)(2) Not applicable
(a)(3) 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) through (d). The information in the table below is provided for services
rendered to the registrant by its independent registered public accounting firm,
Tait, Weller & Baker LLP for the Registrant's fiscal years ended December 31,
2009 and December 31, 2008.
2009 2008
------- -------
Audit Fees $14,100 $14,100
Audit-related Fees -- --
Tax Fees (1) 3,000 3,000
All Other Fees -- --
------- -------
Total $17,100 $17,100
======= =======
(1) Tax services in connection with the registrant's excise tax calculations and
review of the registrant's applicable tax returns.
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
Before the auditor is (i) engaged by the Registrant to render audit, audit
related or permissible non-audit services to the Registrant or (ii) with respect
to non-audit services to be provided by the auditor to the Registrant's
investment adviser or any entity in the investment Registrant complex, if the
nature of the services provided relate directly to the operations or financial
reporting of the Registrant, either: (a) the Audit Committee shall pre-approve
such engagement; or (b) such engagement shall be entered into pursuant to
pre-approval policies and procedures established by the Audit Committee. Any
such policies and procedures must be detailed as to the particular service and
not involve any delegation of the Audit Committee's responsibilities to the
Registrant's investment adviser. The Audit Committee may delegate to one or more
of its members the authority to grant pre-approvals. The pre-approval policies
and procedures shall include the requirement that the decisions of any member to
whom authority is delegated under this provision shall be presented to the full
Audit Committee at its next scheduled meeting. Under certain limited
circumstances, pre-approvals are not required if certain de minimis thresholds
are not exceeded, as such thresholds are set forth by the Audit Committee and in
accordance with applicable SEC rules and regulations.
(e)(2) None of the services provided to the Registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) During the fiscal years ended December 31, 2009 and 2008, aggregate
non-audit fees of $3,000 and $3,000, respectively, were billed by Tait, Weller &
Baker LLP for services rendered to the Registrant. Investment advisor (not
including any sub-advisor whose role is primarily portfolio management and is
subcontracted with or overseen by another investment advisor) or any entity
controlling, controlled by, or under common control with the investment advisor
that provides ongoing services to the Registrant for the Registrant's last two
fiscal years (December 31, 2008 and December 31, 2009).
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities and
Exchange Act of 1934, as amended. Glenn Wilcox (Chair), Edwin Meese, Thomas
Lenagh, Andrew Strauss and Scott Rogers are the members of the Registrant's
audit committee.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a)
CORNERSTONE PROGRESSIVE RETURN FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES - 98.30%
CLOSED-END FUNDS - 89.25%
CONVERTIBLE SECURITIES - 3.81%
Advent Claymore Convertible Securities & Income Fund 87,900 $ 1,368,603
Calamos Convertible & High Income Fund 41,135 475,109
Nicholas-Applegate Equity & Convertible Income Fund 23,700 392,472
-------------
2,236,184
-------------
CORE - 23.47%
Adams Express Company (The) (a) 141,606 1,430,221
Blue Chip Value Fund 242,850 764,977
DWS Dreman Value Income Edge Fund 37,100 447,797
General American Investors Company, Inc. 17,585 412,544
Liberty All-Star Equity Fund 616,599 2,669,874
Liberty All-Star Growth Fund 227,300 763,728
Royce Micro-Cap Trust, Inc. 146,356 1,081,571
Royce Value Trust, Inc. 351,402 3,795,142
Source Capital, Inc. 19,100 822,064
Tri-Continental Corporation 138,534 1,595,912
-------------
13,783,830
-------------
CORPORATE DEBT FUNDS BBB-RATED - 0.63%
BlackRock Core Bond Trust 18,200 216,398
Montgomery Street Income Securities, Inc. 10,600 155,290
-------------
371,688
-------------
DEVELOPED MARKET - 0.67%
European Equity Fund (The) 1,300 9,165
Japan Equity Fund 38,500 201,740
Japan Smaller Capitalization Fund, Inc. 19,100 139,812
Singapore Fund, Inc. (The) 3,000 39,900
-------------
390,617
-------------
EMERGING MARKETS - 0.18%
Latin America Equity Fund, Inc. 1,900 75,126
Morgan Stanley Frontier Emerging Markets Fund 3,000 32,340
-------------
107,466
-------------
GENERAL BOND - 0.02%
MFS Intermarket Income Trust I 1,700 13,549
-------------
GLOBAL - 1.23%
Clough Global Equity Fund 28,936 410,312
See accompanying notes to schedule of investments.
CORNERSTONE PROGRESSIVE RETURN FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009(CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------------------
CLOSED-END FUNDS (CONTINUED)
GLOBAL - 1.23% (CONTINUED)
Lazard World Dividend & Income Fund, Inc. 28,049 $ 312,746
-------------
723,058
-------------
GLOBAL INCOME - 0.24%
Evergreen International Balanced Income Fund 9,874 139,520
-------------
HIGH CURRENT YIELD (LEVERAGED) - 2.12%
BlackRock Debt Strategies Fund, Inc. 47,600 171,360
BlackRock High Income Shares 72,871 137,726
BlackRock High Yield Trust 17,535 105,561
BlackRock Limited Duration Income Trust 9,100 133,497
Blackrock Senior High Income Fund, Inc. 4,964 17,374
First Trust Strategic High Income Fund 71,216 208,663
Franklin Universal Trust 81,100 470,380
-------------
1,244,561
-------------
INCOME & PREFERRED STOCK - 10.00%
BlackRock
Inc. Preferred & Corporate Income Strategies Fund, 26,600 222,376
BlackRock Preferred Opportunity Trust 44,800 460,096
Calamos Strategic Total Return Fund 167,938 1,469,457
John Hancock Preferred Income Fund 49,300 843,030
John Hancock Preferred Income Fund II 27,379 466,264
LMP Capital & Income Fund, Inc. 110,762 1,146,387
Macquarie/First Trust Global
Infrastructure/Utilities Dividend & Income Fund 12,963 160,611
Nuveen Quality Preferred Income Fund II 7,600 55,100
Preferred Income Strategies Fund 109,331 1,026,618
TS&W/Claymore Tax-Advantaged Balanced Fund 2,373 22,638
-------------
5,872,577
-------------
LOAN PARTICIPATION - 3.66%
BlackRock Defined Opportunity Credit Trust 41,100 491,556
BlackRock Diversified Income Strategies Fund, Inc. 32,900 314,524
First Trust/Four Corners Senior Floating Rate Income Fund II 109,103 1,298,326
LMP Corporate Loan Fund, Inc. 4,000 40,160
-------------
2,144,566
-------------
See accompanying notes to schedule of investments.
CORNERSTONE PROGRESSIVE RETURN FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009(CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------------------
CLOSED-END FUNDS (CONTINUED)
OPTION ARBITRAGE/OPTIONS STRATEGIES - 14.84%
NFJ Dividend, Interest & Premium Strategy Fund 590,800 $ 8,714,300
-------------
PACIFIC EX JAPAN - 6.19%
Malaysia Fund, Inc. 29,300 221,215
Morgan Stanley China A Share Fund, Inc. 83,152 2,608,478
Taiwan Fund, Inc. 13,300 190,323
Thai Fund, Inc. (The) 69,120 617,242
-------------
3,637,258
-------------
REAL ESTATE - 1.96%
Alpine Global Premier Properties Fund 76,700 477,841
Cohen & Steers Quality Income Realty Fund, Inc. 47,200 286,504
Cohen & Steers REIT & Preferred Income Fund, Inc. 31,400 324,990
RMR Asia Pacific Real Estate Fund 3,701 62,694
-------------
1,152,029
-------------
SECTOR EQUITY - 12.06%
Gabelli Global Gold Natural Resources & Income Trust 117,000 1,911,780
Gabelli Healthcare & Wellness Rx Trust (The) 19,600 131,320
H&Q Healthcare Investors 161,489 1,916,874
H&Q Life Sciences Investors 104,590 987,330
John Hancock Bank and Thrift Opportunity Fund 95,120 1,341,192
Macquarie Global Infrastructure Total Return Fund, Inc. 44,934 712,204
Petroleum & Resources Corporation (a) 4,000 94,960
-------------
7,095,660
-------------
U.S. MORTGAGE - 1.86%
BlackRock Income Trust, Inc. 100,474 639,015
First Trust/FIDAC Mortgage Income Fund 24,731 451,093
-------------
1,090,108
-------------
VALUE - 6.31%
Gabelli Dividend & Income Trust 256,950 3,368,614
Royce Focus Trust, Inc. 53,014 335,579
-------------
3,704,193
-------------
TOTAL CLOSED-END FUNDS 52,421,164
-------------
See accompanying notes to schedule of investments.
CORNERSTONE PROGRESSIVE RETURN FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009(CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 0.59%
Best Buy Company, Inc. 2,000 $ 78,920
Comcast Corporation - Class A 3,358 56,616
Home Depot, Inc. (The) 2,000 57,860
Time Warner, Inc. 2,000 58,280
Walt Disney Company (The) ^ 3,000 96,750
-------------
348,426
-------------
CONSUMER STAPLES - 1.13%
Coca-Cola Company (The) 3,000 171,000
CVS Caremark Corporation 2,746 88,448
H.J. Heinz Company 2,000 85,520
Procter & Gamble Company (The) 5,233 317,277
-------------
662,245
-------------
ENERGY - 0.98%
Exxon Mobil Corporation ^ 8,475 577,910
-------------
FINANCIALS - 1.51%
American Express Company 3,252 131,771
AON Corporation 3,000 115,020
Goldman Sachs Group, Inc. (The) 1,000 168,840
Loews Corporation 2,000 72,700
Public Storage ^ 2,500 203,625
Wells Fargo & Company 7,206 194,490
-------------
886,446
-------------
Becton, Dickinson and Company 3,000 236,580
Johnson & Johnson 8,000 515,280
Medtronic, Inc. 3,000 131,940
-------------
883,800
-------------
INDUSTRIALS - 1.02%
3M Company 1,567 129,544
Danaher Corporation 2,000 150,400
Emerson Electric Company 2,000 85,200
United Technologies Corporation 2,108 146,316
Waste Management, Inc. 2,500 84,525
-------------
595,985
-------------
INFORMATION TECHNOLOGY - 1.92%
AOL, Inc. * 182 4,233
Automatic Data Processing, Inc. 5,000 214,100
Cisco Systems, Inc. ^ * 18,470 442,172
Google, Inc. - Class A * 532 329,829
See accompanying notes to schedule of investments.
CORNERSTONE PROGRESSIVE RETURN FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2009(CONTINUED)
DESCRIPTION NO. OF SHARES VALUE
------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Intel Corporation 6,599 $ 134,620
-------------
1,124,954
-------------
MATERIALS - 0.15%
Freeport-McMoRan Copper & Gold, Inc. 1,119 89,845
-------------
TELECOMMUNICATION SERVICES - 0.25%
Verizon Communications, Inc. 4,500 149,085
TOTAL EQUITY SECURITIES (cost - $52,272,181) $ 57,739,860
-------------
SHORT-TERM INVESTMENTS - 6.07%
MONEY MARKET SECURITY - 4.19%
JPMorgan U.S. Government Money Market Fund 2,460,622 2,460,622
-------------
PRINCIPAL AMOUNT
(000'S)
----------------
REPURCHASE AGREEMENTS - 1.88%
J.P. Morgan Securities, Inc. +++
(Agreement dated 12/31/2009 to be
repurchased at $1,068,893) $ 1,069 $ 1,068,874
J.P. Morgan Securities, Inc. +
(Agreement dated 12/31/2009 to be
repurchased at $34,644) 35 34,644
-------------
TOTAL SHORT-TERM INVESTMENTS (cost - $3,564,140) 3,564,140
-------------
TOTAL INVESTMENTS - 104.37% (cost - $55,836,320) 61,304,000
-------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (4.37)% (2,565,608)
-------------
NET ASSETS - 100.00% $ 58,738,392
=============
See accompanying notes to schedule of investments.
---------------
(a) Affiliated investment. The Fund holds 2.94% (based on net assets) of Adams
Express Company. A trustee of the Fund also serves as a director to such
company. During the year ended December 31, 2009 the Fund sold 13,600 shares of
this security. There were no purchases during the year.
^ Security or a portion thereof is out on loan.
* Non-income producing security.
+ The maturity date for all repurchase agreements held was January 4, 2010, with
interest rates ranging from 0.01% to 0.16% and collateralized by $2,218,562 in
U.S. Treasury Notes maturing August 15, 2018. Stated interest rate, before
rebate earned by borrower of securities on loan.
++ Represents investment purchased with collateral received for securities on
loan.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
CORNERSTONE PROGRESSIVE RETURN FUND
NEW YORK, NEW YORK
We have audited the accompanying statement of assets and liabilities of the
Cornerstone Progressive Return Fund (the "Fund"), including the summary schedule
of investments as of December 31, 2009, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
two years in the period then ended and for the period September 10, 2007
(commencement of operations) to December 31, 2007. 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.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009, by correspondence with the custodian
and brokers. 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 the
Cornerstone Progressive Return Fund as of December 31, 2009, the results of its
operations, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years in the
period then ended and for the period September 10, 2007 (commencement of
operations) to December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of investments in securities
as of December 31, 2009 appearing in Item 6 of this Form N-CSR is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements. This additional information is the responsibility of the
Fund's management. Such information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
TAIT, WELLER & BAKER LLP
PHILADELPHIA, PENNSYLVANIA
FEBRUARY 24, 2010
(b) Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant and Cornerstone Advisors, Inc. share the same Proxy Voting
Policies and Procedures. The respective Proxy Voting Policies and Procedures of
the Registrant and Adviser are attached as EXHIBIT99.VOTEREG
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) All information contained in this item and its subparts is as of the date
of this filing, unless otherwise noted. Ralph W. Bradshaw and William A. Clark
are employees of Cornerstone Advisors, Inc. (the Investment Manager) and
portfolio managers of the Fund. Mr. Bradshaw and Mr. Clark have acted as the
portfolio manager since 2007. Ralph W. Bradshaw's occupation for the last five
years is President of Cornerstone Advisors, Inc. and a Financial Consultant.
William A. Clark's occupation for the last five years is Director and
Stockholder of Cornerstone Advisors, Inc. and Vice President and former
Director Trustee of Cornerstone Total Return Fund, Inc. and Cornerstone
Strategic Value Fund.
(a)(2)(i) Ralph W. Bradshaw and William A. Clark
(a)(2)(ii)(A) Registered Investment Companies - Ralph W. Bradshaw and William A.
Clark each manage two other registered closed-end funds (Cornerstone Total
Return Fund, Inc. and Cornerstone Strategic Value Fund, Inc.). As of December
31, 2009, the total assets of Cornerstone Strategic Value Fund, Inc. was $66.0
million. As of December 31, 2009, the total assets of Cornerstone Total Return
Return Fund, Inc. was $23.2 million.
(a)(2)(ii)(B) Not applicable
(a)(2)(ii)(C) Not applicable
(a)(2)(iii) None. Ralph W. Bradshaw and William A. Clark manage no accounts
where the Advisory Fee is based on the performance of the account.
(a)(2)(iv) None.
(a)(3) As of the most recent fiscal year end December 31, 2009, the compensation
paid to both Ralph W. Bradshaw and William A. Clark was fixed.
(a)(4) The dollar range of equity securities owned in the registrant
beneficially by each portfolio manager is as follows: for Ralph W. Bradshaw it
is in the range of $10,001-$50,000 and for William A. Clark it is in the range
of $0.
(b) None.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors that have been
implemented after the registrant last provided disclosure in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) or this
Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: EX-99.CODEETH
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): EX-99.CERT
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): EX-99.906CERT
(99) Proxy Voting Policies of the Registrant and Adviser attached as
EX-99.VOTEREG.
SIGNATURES
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) CORNERSTONE PROGRESSIVE RETURN FUND
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By (Signature and Title)* /S/ RALPH W. BRADSHAW
-----------------------------------------------------
Ralph W. Bradshaw, Chairman and President
Principal Executive Officer)
Date MARCH 5, 2010
-------------------------------------------
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)
Date MARCH 5, 2010
---------------------------------------
By (Signature and Title)* /S/ FRANK J. MARESCA
-----------------------------------------------------
Frank J. Maresca, Treasurer
(Principal Financial Officer)
Date MARCH 5, 2010
---------------------------------------
* Print the name and title of each signing officer under his or her signature.