[Federal Register Volume 69, Number 140 (Thursday, July 22, 2004)]
[Notices]
[Pages 43868-43870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16746]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26496; 812-13061]


Cornerstone Strategic Value Fund, Inc., et al.; Notice of 
Application

July 16, 2004.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 19(b) of the Act and rule 19b-1 under the Act.

-----------------------------------------------------------------------

    Summary of Application: Cornerstone Strategic Value Fund, Inc. 
(``Cornerstone Value''), Cornerstone Total Return Fund, Inc. 
(``Cornerstone Return'') and Progressive Return Fund, Inc. 
(``Progressive'') (collectively, the ``Applicants'' or ``Funds'') 
request an order to permit them to make periodic distributions of long-
term capital gains, as often as monthly, so long as they maintain in 
effect a distribution policy calling for periodic distributions with 
respect to their common stock of a fixed percentage per year of the net 
asset value or market price per share of the common stock or a fixed 
dollar amount each taxable year (``Distribution Policy'').
    Filing Dates: The application was filed on January 20, 2004, and 
amended on July 13, 2004.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving Applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on August 10, 2004 and should be accompanied by proof of 
service on Applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicant, c/o Ralph W. Bradshaw, Bear Stearns Funds 
Management Inc., 383 Madison Avenue, New York, New York 10179.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Office of 
Investment Company Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street NW., Washington, 
DC 20549-0102 (tel. 202-942-8090).
    Applicants' Representations:
    1. Cornerstone Value is organized as a Maryland corporation and is 
registered under the Act as a closed-end diversified management 
investment company. Cornerstone Return is organized as a New York 
corporation and is registered under the Act as a closed-end diversified 
management investment company. Progressive is organized as a Maryland 
corporation and is registered under the Act as a closed-end non-
diversified management investment company. Cornerstone Value's 
investment objective is long-term capital appreciation primarily 
through investment in equity securities of companies listed in the 
United States. Cornerstone Value has one class of common stock that is 
listed and traded on the American Stock Exchange (``AMEX''). 
Cornerstone Return's investment objective is to seek total return 
consisting of capital appreciation and current income by investing 
primarily in equity securities of U.S. and non-U.S. issuers whose 
securities trade on a U.S. exchange, over-the-counter, or as American 
Depositary Receipts or other form of depositary receipts that trade in 
the U.S. Cornerstone Return has one class of common stock that is 
listed and traded on the AMEX. Progressive's investment objective is to 
seek total return

[[Page 43869]]

consisting of capital appreciation and current income by investing 
primarily in equity securities of U.S. and non-U.S. companies and U.S. 
dollar denominated debt securities. Progressive has one class of common 
stock that is listed and traded on the AMEX. Cornerstone Advisors, Inc. 
(``Cornerstone Advisors''), an investment adviser registered under the 
Investment Advisers Act of 1940, serves as the Funds' investment 
adviser.
    2. On June 25, 2002, the board of directors (``Board'') of 
Cornerstone Value (``Cornerstone Value Board''), including all of the 
directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act (``Independent Directors''), of Cornerstone Value, 
adopted a Distribution Policy, pursuant to which Cornerstone Value 
would make monthly distributions equal to $0.0825 per share. On 
September 24, 2003, the Cornerstone Value Board established the amount 
per share for December 2003 and the 2004 monthly distributions at 
$0.087 per share. On December 27, 2001, the Board of Cornerstone Return 
(``Cornerstone Return Board''), including all of the Independent 
Directors, adopted a Distribution Policy, pursuant to which Cornerstone 
Return made regular monthly distributions equal to $0.165 per share. On 
September 24, 2003, the Cornerstone Return Board established the amount 
per share for the December 2003 and 2004 monthly distributions at 
$0.176 per share. On June 25, 2002, the Board of Progressive 
(``Progressive Board''), including all of the Independent Directors, 
adopted a Distribution Policy, pursuant to which Progressive made 
regular monthly distributions equal to $0.2675 per share. On September 
24, 2003, the Progressive Board established the amount per share for 
the December 2003 and the 2004 monthly distributions at $0.282.
    3. Applicants request relief to permit the Funds, so long as each 
maintains in effect a Distribution Policy, to make periodic long-term 
capital gains distributions, as often as monthly, on their outstanding 
common stock.
    Applicants' Legal Analysis:
    1. Section 19(b) of the Act provides that a registered investment 
company may not, in contravention of such rules, regulations, or orders 
as the Commission may prescribe, distribute long-term capital gains 
more often than once every twelve months. Rule 19b-1(a) under the Act 
permits a registered investment company, with respect to any one 
taxable year, to make one capital gains distribution, as defined in 
section 852(b)(3)(C) of the Internal Revenue Code of 1986, as amended 
(the ``Code''). Rule 19b-1(a) also permits a supplemental distribution 
to be made pursuant to section 855 of the Code not exceeding 10% of the 
total amount distributed for the year. Rule 19b-1(f) permits one 
additional long-term capital gains distribution to be made to avoid the 
excise tax under section 4982 of the Code.
    2. Applicants assert that rule 19b-1 under the Act, by limiting the 
number of net long-term capital gains distributions that a Fund may 
make with respect to any one year, would prevent the normal and 
efficient operation of a Distribution Policy whenever the Fund's 
realized net long-term capital gains in any year exceed the total of 
the fixed regular periodic distributions that may include such capital 
gains under the rule. Applicants state that rule 19b-1 thus may force 
the fixed regular periodic distributions to be funded with returns of 
capital (to the extent net investment income and realized short-term 
capital gains are insufficient to fund the distribution), even though 
realized net long-term capital gains otherwise would be available. 
Applicants further assert that, to distribute all of a Fund's long-term 
capital gains within the limits in rule 19b-1, the Fund may be required 
to make total distributions in excess of the annual amount called for 
by the Distribution Policy or retain and pay taxes on the excess 
amount. Applicants assert that the application of rule 19b-1 to each 
Fund's Distribution Policy may create pressure to limit the realization 
of long-term capital gains based on considerations unrelated to 
investment goals.
    3. Applicants submit that one of the concerns leading to the 
enactment of section 19(b) and the adoption of the rule was that 
shareholders might be unable to distinguish between frequent 
distributions of capital gains and dividends from investment income. 
Applicants state that the proposed Distribution Policies, including the 
fact that the distributions called for by the Distribution Policies 
will include returns of capital to the extent that the Funds' net 
investment income and net realized capital gains are insufficient to 
meet the minimum percentage dividend, will be fully described in each 
of the Funds' periodic reports to shareholders. Applicants state that, 
in accordance with rule 19a-1 under the Act, a statement showing the 
source of the distribution will accompany each distribution (or the 
confirmation of the reinvestment thereof under the Funds' dividend 
reinvestment plans). Applicants state that the amount and source of 
each distribution received during the calendar year will be included 
with the Funds' IRS Form 1099-DIV reports of distributions during the 
year, which will be sent to each shareholder who received distributions 
(including shareholders who have sold shares during the year). 
Applicants state that this information also will be included in each 
Fund's annual report to shareholders.
    4. Another concern underlying section 19(b) and rule 19b-1 is that 
frequent capital gains distributions could facilitate improper 
distribution practices, including, in particular, the practice of 
urging an investor to purchase fund shares on the basis of an upcoming 
distribution (``selling the dividend''), where the dividend results in 
an immediate corresponding reduction in NAV and would be, in effect, a 
return of the investor's capital. Applicants submit that this concern 
does not apply to closed-end investment companies, such as the Funds, 
which do not continuously distribute their shares. In addition, 
Applicants state that any rights offering by a Fund will be timed so 
that shares issuable upon exercise of the rights will be issued only in 
the 15-day period immediately following the record date for the 
declaration of a monthly dividend, or in the six-week period 
immediately following the record date of a quarterly dividend. Thus, 
Applicants state that, in a rights offering, the abuse of selling the 
dividend could not occur as a matter of timing. Any rights offering 
also will comply with all relevant Commission and staff guidelines. In 
determining compliance with these guidelines, the Boards will consider, 
among other things, the brokerage commissions that would be paid in 
connection with the offering. Any offering by the Funds of transferable 
rights will comply with any applicable National Association of 
Securities Dealers, Inc. rules regarding the fairness of compensation.
    5. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or class or classes of any persons, 
securities or transactions from any provision of the Act, or from any 
rule thereunder, if such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. For 
the reasons stated above, the Applicants believe that the requested 
relief satisfies this standard.
    Applicants' Condition:
    Applicants agree that any order granting the requested relief shall 
terminate with respect to an Applicant upon the effective date of a 
registration statement under the Securities Act of

[[Page 43870]]

1933 for any future public offering by the Applicant of its common 
shares other than:
    (i) A rights offering to holders of the Applicant's common stock, 
in which (a) shares are issued only within the 15-day period 
immediately following the record date of a monthly dividend, or within 
the six-week period following the record date of a quarterly dividend, 
(b) the prospectus for such rights offering makes it clear that 
shareholders exercising rights will not be entitled to receive such 
dividend with respect to shares issued pursuant to such rights 
offering, and (c) the Applicant has not engaged in more than one rights 
offering during any given calendar year; or
    (ii) An offering in connection with a merger, consolidation, 
acquisition, spin-off or reorganization of the Applicant; unless the 
Applicant has received from the staff of the Commission written 
assurance that the order will remain in effect.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16746 Filed 7-21-04; 8:45 am]
BILLING CODE 8010-01-P