Annual Report and Accounts

Progressive Euro Alt. Portfolio Ltd
16 December 2004

PROGRESSIVE EUROPEAN ALTERNATIVE PORTFOLIO LMITED

Preliminary announcement of results for the year ended 30 September 2004.

KEY FEATURES

INVESTMENT OBJECTIVE

The Company's objectives are to achieve:

•       Positive annual returns in all market conditions

•       Significantly higher returns than the composite European equity market* 
        over the medium term, with less variability of returns

* as measured by the FTSE Eurotop 300 Index in Euros.

PERFORMANCE
                                                      At 30 September   At 30 September       At launch**
                                                                 2004              2003

Net asset value ('NAV') per share                             103.21p            99.30p            97.21p
Share price                                                    99.00p            98.50p           100.00p


** on 19 December 2002 (after share issue expenses)


CHAIRMAN'S STATEMENT

This is the second Annual Report to the shareholders of Progressive European Alternative Investments Limited ('PEAPL')
which was incorporated on 9 July 2002 and listed on the London Stock Exchange on 19 December 2002.

Since launch, over 21 months ago, the Company's portfolio of investments in hedge funds selected by your Manager has
become well established. The Company's portfolio has been designed in accordance with the prospectus, to produce
absolute gains irrespective of the direction of the underlying European stock markets in which these funds invest. The
holdings within the Company's portfolio are now very similar to those of the European Masters Fund, an open-ended
investment company managed by Progressive Alternative Investments Limited ('PAIL' or 'the Manager'), on which the
original investment proposition was based. As a consequence the performance of both companies has converged over the
last 6 months.

During the period under review the portfolio has produced positive returns with little volatility. In both of these
regards the Company has performed in line with its stated objectives at the time of launch.  However, in the short term
the Company has been unable to match the return of the Eurotop 300 Index which fell heavily and then rebounded strongly
in 2003 from very depressed levels.

Performance

In the final quarter of 2003, which was also the start of the Company's financial year, the 2003 rally in European
stock markets, which had started in April, came to an end. In this quarter the Eurotop 300 returned 11.4% and since
then returns have been far more muted. Hedge fund managers generally produced consistent, if rather dull, returns over
the Company's financial year. Although they did not match market returns in the strong first quarter, most moved ahead
gradually during the year. By and large the returns of the managers selected for the PEAPL portfolio have clustered
around the average, with few outliers.

In a year where the markets were first concerned about rising interest rates and then pre-occupied with rising energy
prices, it is perhaps not surprising that many managers have adopted a fairly cautious stance which has held back the
potential returns for their funds. In this year, as with last, the overall result was a small gain, with a very low
level of volatility in the net asset value ('nav') per share of the Company. The Company's nav rose to £16.8 million at
30 September 2004, from £16.2 million at 30 September 2003. The corresponding figures for nav per share were 103.21p
and 99.30p. This represents an increase of 3.9% in the nav per share over the course of the year.

The Board and the Company's Manager are aware that investors had expected to see higher returns than those achieved to
date. The portfolio was initially constructed during a period when European stock markets had already dropped
significantly and were continuing to fall. The underlying managers' reaction to this ongoing decline had been to reduce
their net long market exposure which, at the time of launch, stood at around 15%. During the first 3 months of the
Company's life the managers performed a sound job in preserving its assets by having minimal exposure to the markets
and going long of defensive stocks. When stocks began to rebound in mid-March 2003, and subsequently rocketed up in
April by over 10%, most managers were caught on the wrong foot. Further, they were not prepared to respond to this move
in the short term through fear of the move turning out to be merely a rally in a bear market. When there was evidence
to show that this rally was more substantial than they initially thought, they scrambled to increase net exposure, but
by now most of the rise had been missed, and their performance markedly lagged that of the Eurotop 300 Index. Markets
then trended sideways for a few weeks, lulling the managers into a false sense of security by suggesting that the rise
was petering out. In response, they slightly reduced their net long positions. Stocks then rose again, although less
strongly, and managers struggled, due to their low market exposure, to keep up with the rise, although less so this
time. Recently, during more stable times, managers have produced returns more in line with expectation, using market
exposure of only 35%.

We believe that in today's more normal conditions hedge funds will be able to achieve acceptable returns with low
volatility for investors. The exceptional behaviour of markets in the first 9 months of the Company's life created a
very tough environment for managers trying to protect assets and also match the returns of the Eurotop 300 index.  Only
those with almost perfect timing could have achieved this feat which called for them to move their portfolios
dramatically from a position of virtually zero market exposure to one of high exposure and all in a matter of a few
days.

Dividend

The Company's investments aim to provide capital growth rather than pay dividends.  As a result, the Company received a
limited amount of income during the period and incurred a net revenue loss.  Therefore the directors do not recommend
that the Company pays a final dividend.

Management arrangements

The Board has reviewed whether to retain Progressive Alternative Investments Limited ('PAIL') as the Manager of PEAPL.
We have concluded that, given the short time which has elapsed since the portfolio was set up, and considering the
results achieved to date, it is in the best interests of shareholders to continue with PAIL's appointment.

Outlook

There is no doubt that economic recovery in Europe is being affected by the large rise in the oil price this year.
Unlike in the 1970's and 80's, the policy response from governments to rising energy costs has been to cap, or even
reduce, interest rates. In the present environment, where cost cutting rather than sales growth appears to be the order
of the day and consumers are heavily over-borrowed, to raise interest rates would be very deflationary indeed. When
there is clear evidence that the commodity cycle has turned down markets should rebound strongly.

In the meantime the directors believe that this portfolio of hedge funds will continue to protect and enhance your
investment. We expect this to be achieved by continued investment in well-managed hedge funds which have strong risk
control mechanisms in place.

Annual General Meeting

The Annual General Meeting of the Company will be held on 25 January 2005 at 10 a.m at 1 Le Marchant Street, St Peter
Port, Guernsey.


Christopher Clark
16 December 2004


STATEMENT OF TOTAL RETURN
(incorporating the profit and loss account*)
For the year ended 30 September 2004
                                                2004                         2003
                                      Revenue  Capital    Total    Revenue   Capital     Total
                                        £'000    £'000    £'000      £'000     £'000     £'000
Gains/(losses) on  investments

- realised                                  -       64       64          -       (8)       (8)
- unrealised                                -      804      804          -       698       698
Capital gains/(losses) on                   -      157      157          -      (43)      (43)
currency movements
Net gains                                   -    1,025    1,025          -       647       647
Income                                     22        -       22         25         -        25

Investment management fee                   -    (209)    (209)          -     (158)     (158)
Other expenses                          (200)        -    (200)      (166)         -     (166)
Return on ordinary activities           (178)      816      638      (141)       489       348
before finance costs and
taxation
Interest payable and similar              (2)        -      (2)        (7)         -       (7)
charges
Return on ordinary activities           (180)      816      636      (148)       489       341
before taxation
Taxation                                    -        -        -          -         -         -
Return on ordinary activities           (180)      816      636      (148)       489       341
after taxation
Dividends payable                           -        -        -          -         -         -
Transfer (from)/to reserves             (180)      816      636      (148)       489       341

Return per Redeemable                 (1.10)p    5.01p    3.91p    (0.91)p     3.00p     2.09p
Preference Share


* The revenue column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

The comparatives relate to the period from incorporation on 9 July 2002 to 30 September 2003.  Business operations
commenced on 19 December 2002.


BALANCE SHEET
At 30 September 2004
                                                                            2004            2003
                                                                           £'000           £'000

FIXED ASSETS
Investments                                                               16,432          15,582

CURRENT ASSETS
Amounts due from brokers                                                     589             422
Other debtors                                                                 13              35
Cash at bank and in hand                                                       -             252
                                                                             602             709

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Accrued liabilities                                                         (79)           (104)
Bank overdraft                                                             (132)               -
                                                                           (211)           (104)

NET CURRENT ASSETS                                                           391             605

TOTAL NET ASSETS                                                          16,823          16,187

CAPITAL AND RESERVES

Share capital                                                                163             163
Share premium account                                                      7,614           7,614
Share purchase reserve                                                     8,069           8,069
Realised capital reserve                                                   (201)           (157)
Unrealised capital reserve                                                 1,506             646
Revenue reserve                                                            (328)           (148)
SHAREHOLDERS' FUNDS                                                       16,823          16,187

Net assets per Redeemable Preference Share                               103.21p          99.30p                 


CASH FLOW STATEMENT
For the year ended 30 September 2004

                                                                     2004             2003
                                                                    £'000            £'000

NET CASH OUTFLOW FROM OPERATING ACTIVITIES                          (138)            (624)

SERVICING OF FINANCE
Interest paid on overdraft facility                                   (2)              (7)

FINANCIAL INVESTMENT
Payments to acquire fixed asset investments                       (6,694)         (23,815)
Receipts on disposal of fixed asset investments                     6,450            8,852

NET CASH FLOW FROM INVESTING ACTIVITIES                             (244)         (14,963)

NET CASH FLOW BEFORE FINANCING                                      (384)         (15,594)

FINANCING
Issue of Share Capital (net of expenses)                                -           15,846

NET CASH FLOW FROM FINANCING                                            -           15,846

(DECREASE) / INCREASE IN CASH                                       (384)              252


The comparatives relate to the period from incorporation on 9 July 2002 to 30 September 2003.  Business operations
commenced on 19 December 2002.


NOTES

The Company is a closed-ended investment company incorporated and resident in Guernsey.

The Company's investments are in hedge funds which may be denominated in or exposed to either Euros or US dollars. The
Company uses foreign exchange forward currency contracts to seek to ensure that its net exposure to currency other than
sterling does not at any time exceed 15 per cent. of the Company's net assets.

This report has been prepared in accordance with applicable United Kingdom accounting standards and with the Statement
of Recommended Practice 'Financial Statements of Investment Trust Companies ('SORP').  The accounts have been prepared
in accordance with the SORP as it is considered best practice.  The Company is not an investment trust and as an
overseas company does not meet all the criteria set out in the SORP.

These financial statements are not the Company's statutory accounts.  The annual report will be sent to shareholders
and copies will be made available to the public at the registered office of the Company and at the address of the UK
Administration Agent.

The Company was incorporated on 9 July 2002.  Business operations commenced on 19 December 2002.

SECRETARY, ADMINISTRATOR & REGISTERED OFFICE
Legis Corporate Services Limited
1 Le Marchant Street
St Peter Port
Guernsey
GY1 4HP

UK ADMINISTRATION AGENT
Cavendish Administration Limited
Crusader House
145-157 St John Street
London
EC1V 4RU


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