-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AGgTi8DdjDSN2oZ3Z7WWxC19cXq/C7alu9vlfFuiOxb8Sdcmaiy/S03DsX88hQMb yeCuxJu0oOqZ6npH4HbQrw== 0000900092-00-000030.txt : 20000221 0000900092-00-000030.hdr.sgml : 20000221 ACCESSION NUMBER: 0000900092-00-000030 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE FUND ACCUMULATION PROGRAM INC CENTRAL INDEX KEY: 0000024858 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132895756 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02642 FILM NUMBER: 549415 BUSINESS ADDRESS: STREET 1: P O BOX 9011 CITY: PRINCETON STATE: NJ ZIP: 08543 BUSINESS PHONE: 6092823319 FORMER COMPANY: FORMER CONFORMED NAME: CORPORATE FUND INVESTMENT ACCUMULATION P DATE OF NAME CHANGE: 19771115 N-30D 1 ANNUAL The Corporate Fund Accumulation Program Inc. Annual Report December 31, 1999 This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Program unless accompanied or preceded by the Program's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. The Corporate Fund Accumulation Program, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper To Our Shareholders: For the year ended December 31, 1999, The Corporate Fund Accumulation Program, Inc. provided a total investment return of - -3.14%, based on a change in per share net asset value from $21.62 to $19.77, and assuming reinvestment of $1.181 per share income dividends. For the six months ended December 31, 1999, the Program had a total investment return of -0.18%, based on a change in per share net asset value from $20.45 to $19.77, and assuming reinvestment of $0.645 per share income dividends. Market Review During the year ended December 31, 1999, the fixed-income markets were very volatile as interest rates developed a trend toward significantly higher levels. For example, the 30-year US Treasury bond, which began the period at 5.10%, was approximately 6.50% by year-end. Market expectations that the Federal Reserve Board would move to tighten monetary policy in the face of inflationary fears and strong economic growth worldwide, led to the rise in Treasury yields. Although inflationary pressures have been relatively well contained because of significant improvements in productivity, gross domestic product (GDP) growth and the correlating effect it has had on the labor market prompted the Federal Reserve Board to raise interest rates by 0.75% during the period. For all intent, this shift in monetary policy served to reverse the accommodative policy that was implemented during the financial crises of 1998. Despite the second quarter slowdown in GDP growth to 1.8%, economic activity remained extremely robust throughout most of 1999, as highlighted by the strong rebound in third quarter GDP to 5.7%. Consumer spending continued to lead the way, although recent reports related to housing and auto purchases are beginning to show the effect of higher interest rates. Consumers continued to benefit from low unemployment rates and the wealth effect generated from a strong stock market, although most of the gains have been limited to only a few sectors with performance in many of the established industries lagging. Overseas, Asian countries at the heart of the crises in 1998 continued to recover. This global recovery has at times led to fears of a rekindling of inflation. Commodities, such as copper, aluminum, plywood and other building materials, as well as chemicals gained in price. More importantly, oil prices surged, spurred on mainly by an agreement by the Organization of Petroleum Exporting Countries to limit production, but also on expectations of increased demand by recovering economies. Wage inflation continued to be of concern given the level of unemployment that the economy has achieved. However, inflation as measured by both the price producer index and consumer price index remains well within acceptable levels for the most part, with productivity measurements still extremely favorable. Beyond the gain in interest rates, the market environment was still being influenced by a flight from quality. This is in stark reversal of the flight-to-quality trades we saw in the third quarter of 1998. On the corporate bond front, by mid-year, underwriting activity increased significantly as issuers sought to get their funding programs in before the final quarter of 1999. Corporate yield spreads relative to US Treasury securities, which began 1999 on a positive trend, widened across all sectors during the period from May through September. However, since late September, corporate yield spreads tightened following a sooner-than-expected drop in new underwriting activity. Furthermore, investors began to pump new money into the investment-grade sector given the higher yields and strong relative value attributes. With respect to sector performance, Yankee or foreign issues outperformed the domestic issues and bonds rated BBB outperformed those rated A or better on both a price and total return basis. Fiscal Year in Review Our investment strategy for the Program, relative to the unmanaged benchmark Merrill Lynch US Corporate A--AAA Rated Index, remained somewhat conservative given the outlook for higher interest rates and wider yield spreads. From a duration perspective, we maintained a duration that was modestly shorter (0.15 years--0.25 years) than the Index. Initially, it was our strategy to bring duration closer to the Index when the yields would climb closer to the high end of the expected range. By early August, we began to reallocate a portion of assets away from corporate bonds and into cash and Treasury issues, in preparation for year-end liquidity needs. Initially, we shifted approximately 10% of the Program's holdings into this sector, although improved fundamentals within the investment-grade market prompted a partial reallocation back into high-grade, large benchmark issues. By December 31, 1999, allocations to cash and Treasury issues were brought down to about 5%. With respect to the Program's corporate holdings, we remained committed to the bigger, more liquid issues as well as an emphasis on issues that provided higher coupons. As part of our liquidity strategy, we have attempted to consolidate industry holdings into the benchmark issues. Although this came at modest yield concessions, we believed this was the prudent course of action as a result of Year 2000 computer uncertainties. Given the increased supply and higher rate environment, many of the new corporate transactions were done at larger-than-anticipated yield spread concessions in order to attract investors. In light of the temporary supply factor and wider spreads, we believed corporate bonds possessed some very attractive long-term relative value attributes. Accordingly, during the final quarter of 1999, we continued to redirect excess assets back to corporate bonds in an effort to enhance income. The Program held overweighted positions in electric utilities, finance companies, cable and media entities, retailers, energy- related issuers, airlines and defense contractors and information technology entities for most of the period. During the latter part of the period, we began to reduce our holdings in defense issues, high-end retailers, airlines and real estate investment trusts. However, we concentrated on adding to positions in domestic banks, supermarkets, railroads and metals/mining companies. The Program continues to be underweighted in property and casualty insurers and health care companies. For the 12 months ended December 31, 1999, the Program had a total return of -3.14% compared to a -2.39% total return for the unmanaged benchmark Merrill Lynch US Corporate A--AAA Rated Index and a -2.57% total return for the Lipper Corporate A Rated Group. Relative to the Merrill Lynch US Corporate A--AAA Rated Index, the Program's performance was favorably impacted by a 10% allocation to corporate bonds rated BBB/Baa. During 1999, the Merrill Lynch Corporate BBB Rated Index outperformed the Merrill Lynch US Corporate A--AAA Rated Index by 1.56%. However, as outlined in the Program's prospectus, we are limited with respect to our overall exposure to securities rated less than A. As a result, on average, the Lipper group had the advantage of a greater allocation to the BBB sector, thereby achieving a slightly better return. In Conclusion Looking ahead, we have formulated an investment strategy based upon our belief that the long-term trend will be toward lower interest rates and a flatter yield curve as the economy slows during the second half of 2000. With respect to corporate bonds, we are looking for yield spread relationships to exhibit further improvement as we proceed through the first quarter of 2000. However, in the near term, the US Treasury market will remain under pressure with the Federal Reserve Board likely moving short-term interest rates higher in the coming months. We appreciate your investment in The Corporate Fund Accumulation Program, Inc., and we look forward to assisting you with your investment needs in the months and years ahead. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Christopher G. Ayoub) Christopher G. Ayoub Senior Vice President and Portfolio Manager February 10, 2000 The Corporate Fund Accumulation Program, Inc. Total Return Based on a $10,000 Investment A line graph depicting the growth of an investment in the Program compared to growth of an investment in the ML Corporate Master Bond Index and the Merrill Lynch US Corporate A--AAA Rated Index. Beginning and ending values are: 12/88 12/98 The Corporate Fund Accumulation Program, Inc.*++ $10,000 $19,403 ML Corporate Master Bond Index++++ $10,000 $22,277 ML US Corporate A--AAA Rated Index++++++ $10,000 $22,078 ++Assuming transaction costs and other operating expenses, including advisory fees. The Corporate Fund Accumulation Program, Inc. invests in long-term and intermediate-term fixed interest-bearing debt obligations issued primarily by corporations. ++++This unmanaged Index is comprised of all industrial bonds rated BBB3 or higher, of all maturities. ++++++This unmanaged Index is comprised of bonds rated A--AAA, of all maturities. Past performance is not predictive of future performance. The Corporate Fund Accumulation Program, Inc. Average Annual Total Return Period Covered % Return Year Ended 12/31/99 -3.14% Five Years Ended 12/31/99 +6.75 Ten Years Ended 12/31/99 +6.85 The Corporate Fund Accumulation Program, Inc. Schedule of Investments December 31, 1999
S&P Moody's Face Industry Rating Rating Amount Issue Value US Government Obligations US AAA Aaa $1,000,000 US Treasury Bonds, 5.25% due 2/15/2029 $ 826,870 Government US Treasury Notes: Obligations-- AAA Aaa 500,000 6.25% due 10/31/2001 500,080 5.0% AAA Aaa 850,000 5.875% due 11/15/2004 833,399 AAA Aaa 500,000 6% due 8/15/2004 492,185 AAA Aaa 500,000 6% due 8/15/2009 484,375 Total US Government Obligations (Cost 3,221,365)--5.0% 3,136,909 Sovereign Bonds & Notes Yankee AA- Aa3 500,000 Province of Manitoba, 5.50% due 10/01/2008 (1) 442,440 Sovereigns++-- A+ A2 500,000 Province of Quebec, 8.80% due 4/15/2003 (1) 525,545 1.5% Total Sovereign Bonds & Notes (Cost 1,029,901)--1.5% 967,985 Corporate Bonds & Notes Asset-Backed AA+ Aa3 1,000,000 Continental Airlines, 7.056% due 9/15/2009 950,600 Securities**-- 1.5% Banks & A+ Aa2 1,000,000 BankAmerica Corporation, 7.125% due 5/12/2005 988,280 Thrifts-- A A1 1,500,000 Chase Manhattan Corporation, 7.25% due 6/01/2007 1,479,045 15.8% A A1 400,000 First Chicago Corp., 8.875% due 3/15/2002 414,120 A A1 2,000,000 First Interstate/Wells Fargo Company, 9.90% due 11/15/2001 2,096,380 BBB+ a2 750,000 Fleet Capital Trust II, 7.92% due 12/11/2026 689,918 A A2 1,000,000 HSBC Americas Inc., 7% due 11/01/2006 963,690 A A1 1,000,000 HSBC Holdings PLC, 7.50% due 7/15/2009 988,020 A- a2 1,000,000 Mellon Capital II, 7.995% due 1/15/2027 947,410 Merita Bank Ltd.: A- A2 500,000 6.50% due 1/15/2006 472,835 A- A2 1,000,000 6.50% due 4/01/2009 912,980 ----------- 9,952,678 Electronic A+ A1 400,000 Motorola Inc., 7.50% due 5/15/2025 391,868 Components-- 0.6% Financial A+ A1 1,000,000 Ford Motor Credit Co., 7.75% due 3/15/2005 1,018,460 Services-- A A2 1,000,000 General Motors Acceptance Corp., 9% due 10/15/2002 1,047,570 Captive--3.3% ----------- 2,066,030 Financial Associates Corporation of North America: Services-- AA- Aa3 500,000 7.40% due 5/15/2006 501,190 Consumer-- AA- Aa3 1,000,000 6.95% due 11/01/2018 923,130 3.8% A+ A2 1,000,000 Equitable Life Assurance Society of the US, 7.70% due 12/01/2015 (b) 978,243 ----------- 2,402,563
The Corporate Fund Accumulation Program, Inc. Schedule of Investments (continued) December 31, 1999
S&P Moody's Face Industry Rating Rating Amount Issue Value Corporate Bonds & Notes (continued) Financial BBB+ A3 $ 750,000 ERP Operating LP, 7.125% due 10/15/2017 $ 654,675 Services-- AAA Aaa 900,000 Florida Windstorm Under, 7.125% due 2/25/2019 (b) 825,969 Other--8.5% Lehman Brothers Holdings, Inc.: A A3 500,000 7.125% due 9/15/2003 491,900 A A3 500,000 7.625% due 6/01/2006 496,030 A+ Aa3 1,000,000 Morgan Stanley, Dean Witter, 7.125% due 1/15/2003 999,210 A+ Aa3 800,000 Morgan Stanley Group, 8.33% due 1/15/2007 839,104 BBB+ Baa1 1,000,000 PaineWebber Group Inc., 8.875% due 3/15/2005 1,049,450 ----------- 5,356,338 Industrial-- A+ A1 1,000,000 Anheuser-Busch Companies Inc., 6.50% due 1/01/2028 869,480 Consumer-- 1.4% Industrial-- BBB Baa1 1,500,000 Dillard's, Inc., 6.08% due 8/01/2010 (a) 1,492,950 Consumer A A2 407,138 Disney Custom Repackaged Asset Vehicle-403, 6.85% due Goods--13.3% 1/10/2007 (b)** 399,606 AAA Aaa 2,000,000 Johnson & Johnson, 8.72% due 11/01/2024 2,188,600 A+ A1 1,125,000 May Department Stores Company, 10.625% due 11/01/2010 1,387,800 A A2 1,000,000 Phillip Morris Companies, Inc., 9% due 1/01/2001 1,013,800 A- A3 2,000,000 Sears, Roebuck & Co., 6.25% due 1/15/2004 1,898,280 ----------- 8,381,036 Industrial-- AA+ Aa1 1,500,000 BP America Inc., 9.375% due 11/01/2000 1,532,970 Energy-- A- A3 1,000,000 Burlington Resources, 7.375% due 3/01/2029 935,610 6.1% AA- Aa3 500,000 Dresser Industries, Inc., 7.60% due 8/15/2096 477,095 A- A3 1,000,000 Murphy Oil Corporation, 7.05% due 5/01/2029 898,770 ----------- 3,844,445 Industrial-- A+ A1 500,000 Chrysler Corp., 7.45% due 3/01/2027 484,505 Manufacturing-- NR* NR* 700,000 Jones Apparel Group, 7.875% due 6/15/2006 679,625 5.7% A A2 2,000,000 Textron Inc., 6.375% due 7/15/2004 1,928,640 A+ A2 500,000 United Technologies Corporation, 6.625% due 11/15/2004 491,020 ----------- 3,583,790 Industrial-- A A2 1,000,000 Computer Sciences Corp., 6.25% due 3/15/2009 909,300 Services-- 1.4% Transporta- A- A3 1,000,000 Southwest Airlines Co., 7.875% due 9/01/2007 998,870 tion--1.6% Utilities-- AA- A1 500,000 AT&T Corporation, 6% due 3/15/2009 453,560 Communica- AA+ Aa3 500,000 Ameritech Capital Funding, 6.45% due 1/15/2018 441,130 tions--6.0% AA- A2 2,000,000 GTE California, Inc., 8.07% due 4/15/2024 1,940,100 AA- Aa3 1,000,000 Pacific Bell, 6.875% due 8/15/2006 972,070 ----------- 3,806,860 Utilities-- A- A3 1,500,000 Detroit Edison Company, 7.22% due 8/01/2002 1,497,135 Electric-- A A3 500,000 Duke Capital Corp., 7.50% due 10/01/2009 494,180 6.9% AA- A1 1,000,000 PG&E Corp., 7.25% due 8/01/2026 903,300 A- A3 500,000 Pennsylvania Power & Light Co., 6.125% due 5/01/2006 (a) 496,275 A A2 1,000,000 Virginia Electric & Power Co., 8.625% due 10/01/2024 1,004,300 ----------- 4,395,190
The Corporate Fund Accumulation Program, Inc. Schedule of Investments (concluded) December 31, 1999
S&P Moody's Face Industry Rating Rating Amount Issue Value Corporate Bonds & Notes (concluded) Yankee AA- Aa3 $1,000,000 ABN-AMRO Bank NV (Chicago), 7% due 4/01/2008 (2) $ 958,760 Corporates++-- BBB+ Baa3 1,000,000 Fairfax Financial Holdings Ltd., 7.375% due 4/15/2018 (2) 792,280 11.9% A+ A1 1,000,000 Ford Capital BV, 9.50% due 6/01/2010 (2) 1,123,940 A+ A1 1,500,000 Grand Metropolitan Investment Corp., 9% due 8/15/2011 (2) 1,667,370 A+ A2 2,000,000 Hydro-Quebec, 7.375% due 2/01/2003 (3) 2,011,440 A- A3 1,000,000 Israel Electric Corp. Ltd., 7.75% due 3/01/2009 (3)(b) 966,896 ------------ 7,520,686 Total Corporate Bonds & Notes (Cost $57,225,459)--87.8% 55,429,734 Short-Term Securities Repurchase 2,581,000 Warburg Dillon Read LLC, purchased on 12/31/1999 to yield Agreements***--4.1% 2.70% to 1/03/2000 2,581,000 Total Short-Term Securities (Cost--$2,581,000)--4.1% 2,581,000 Total Investments(Cost--$64,057,725)--98.4% 62,115,628 Other Assets Less Liabilities--1.6% 1,034,793 ------------ Net Assets-- 100.0% $ 63,150,421 ============ *Not Rated. **Subject to principal paydowns. ***Repurchase Agreements are fully collateralized by US Government Obligations. (a)Floating rate note. (b)The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. ++Corresponding industry groups for foreign bonds: (1)Government entity. (2)Financial institution. (3)Industrial; other. Ratings of issues shown have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc. Statement of Assets and Liabilities as of December 31, 1999 Assets: Investments, at value (identified cost--$64,057,725) $ 62,115,628 Interest receivable 1,227,902 Prepaid registration fees and other assets 47,528 ------------ Total assets 63,391,058 ------------ Liabilities: Payables: Capital shares redeemed $ 97,846 Investment adviser 30,242 Dividends 275 128,363 ------------ Accrued expenses and other liabilities 112,274 ------------ Total liabilities 240,637 ------------ Net Assets $ 63,150,421 ============ Net Assets Consist of: Common Stock, $.01 par value, 50,000,000 shares authorized $ 31,949 Paid-in capital in excess of par 66,851,849 Accumulated distributions in excess of investment income--net (180) Accumulated realized capital losses on investments--net (1,791,100) Unrealized depreciation on investments--net (1,942,097) ------------ Net Assets--Equivalent to $19.77 per share based on 3,194,874 shares outstanding $ 63,150,421 ============ See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc. Statement of Operations for the Year Ended December 31, 1999 Investment Income: Interest and premium and discount earned $ 4,588,799 Expenses: Investment advisory fees $ 337,564 Transfer agent fees 196,489 Professional fees 62,884 Printing and shareholder reports 53,121 Accounting services 40,381 Registration fees 26,828 Custodian fees 12,194 Directors' fees and expenses 9,114 Pricing fees 4,457 Other 4,264 ------------ Total expenses 747,296 ------------ Investment income--net 3,841,503 ------------ Realized & Unrealized Loss on Investments--Net: Realized loss on investments--net (832,984) Change in unrealized appreciation/depreciation on investments--net (5,216,080) ------------ Net Decrease in Net Assets Resulting from Operations $ (2,207,561) ============ See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc. Statements of Changes in Net Assets
For the Year Ended December 31, Increase (Decrease) in Net Assets: 1999 1998 Operations: Investment income--net $ 3,841,503 $ 3,988,778 Realized gain (loss) on investments--net (832,984) 803,278 Change in unrealized appreciation/depreciation on investments--net (5,216,080) 851,467 ------------ ------------ Net increase (decrease) in net assets resulting from operations (2,207,561) 5,643,523 ------------ ------------ Dividends & Distributions to Shareholders: Investment income--net (3,841,598) (3,988,781) In excess of investment income--net (180) -- ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (3,841,778) (3,988,781) ------------ ------------ Capital Share Transactions: Net decrease in net assets resulting from capital share transactions (1,931,117) (2,904,537) ------------ ------------ Net Assets: Total decrease in net assets (7,980,456) (1,249,795) Beginning of year 71,130,877 72,380,672 ------------ ------------ End of year* $ 63,150,421 $ 71,130,877 ============ ============ *Undistributed (accumulated distributions in excess of) investment income--net $ (180) $ 95 ============ ============ See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc. Financial Highlights
The following per share data and ratios have been derived from information provided in the financial statements. For the Year Ended December 31, Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997 1996 1995 Per Share Operating Performance: Net asset value, beginning of year $ 21.62 $ 21.13 $ 20.69 $ 21.59 $ 19.14 -------- -------- -------- -------- -------- Investment income--net 1.17 1.19 1.22 1.23 1.28 Realized and unrealized gain (loss) on investments--net (1.84) .50 .44 (.90) 2.45 -------- -------- -------- -------- -------- Total from investment operations (.67) 1.69 1.66 .33 3.73 -------- -------- -------- -------- -------- Less dividends and distributions: Investment income--net (1.18) (1.20) (1.22) (1.23) (1.28) In excess of investment income--net --++++ -- -- -- -- -------- -------- -------- -------- -------- Total dividends and distributions (1.18) (1.20) (1.22) (1.23) (1.28) -------- -------- -------- -------- -------- Net asset value, end of year $ 19.77 $ 21.62 $ 21.13 $ 20.69 $ 21.59 ======== ======== ======== ======== ======== Total Investment Return: Based on net asset value per share (3.14%) 8.24% 8.30% 1.69% 20.05% ======== ======== ======== ======== ======== Ratios to Average Net Assets: Expenses 1.11% 1.00% .99% 1.12% 1.01% ======== ======== ======== ======== ======== Investment income--net 5.69% 5.60% 5.84% 5.84% 6.23% ======== ======== ======== ======== ======== Supplemental Data: Net assets, end of year (in thousands) $ 63,150 $ 71,131 $ 72,381 $ 77,748 $ 85,402 ======== ======== ======== ======== ======== Portfolio turnover 61% 66% 90% 77% 104% ======== ======== ======== ======== ======== ++Based on average shares outstanding. ++++Amount is less than $.01 per share. See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc. Notes to Financial Statements 1. Significant Accounting Policies: The Corporate Fund Accumulation Program, Inc. (the "Program") is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Program's financial statements are prepared in accordance with generally accepted accounting principles, which may require the use of management accruals and estimates. The following is a summary of significant accounting policies followed by the Program. (a) Valuation of securities--Portfolio securities are valued on the basis of prices furnished by one or more pricing services which determine prices for normal, institutional-size trading units. In certain circumstances, portfolio securities are valued at the last sale price on the exchange that is the primary market for such securities, or the last quoted bid price for those securities for which the over-the-counter market is the primary market or for listed securities in which there were no sales during the day. Obligations with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value, unless this method no longer produces fair valuations. Securities for which there exists no price quotations or valuations and all other assets are valued at fair value as determined in good faith by or on behalf of the Board of Directors of the Program. (b) Repurchase agreements--The Program invests in US Government securities pursuant to repurchase agreements. Under such agreements, the counterparty agrees to repurchase the security at a mutually agreed upon time and price. The Program takes possession of the underlying securities, marks to market such securities and, if necessary, receives additions to such securities daily to ensure that the contract is fully collateralized. If the counterparty defaults and the fair value of the collateral declines, liquidation of the collateral of the Program may be delayed or limited. (c) Income taxes--It is the Program's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income (including amortization of premium and discount) is recognized on the accrual basis. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Prepaid registration fees--Prepaid registration fees are charged to expense as the related shares are issued. (f) Dividends to shareholders--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. Distributions in excess of investment income are due primarily to differing tax treatments for post-October losses. 2. Investment Advisory Agreement and Transactions with Affiliates: The Program has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Program's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Program. For such services, the Program pays a monthly fee of .50%, on an annual basis, of the value of the Program's average daily net assets. The Corporate Fund Accumulation Program, Inc. Notes to Financial Statements (concluded) FAM has entered into an Administrative Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Prudential Securities, Inc., Dean Witter Reynolds Inc., and Smith Barney, Inc. (the "Administrators"), whereby the Administrators perform certain administrative duties on behalf of FAM. The Administrators receive a monthly fee from FAM equal to .20%, on an annual basis, of the Program's average daily net assets. During the year ended December 31, 1999, the Program paid Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, $3,622 for security price quotations to compute the net asset value of the Program. Accounting services are provided to the Program by FAM at cost. Certain officers and/or directors of the Program are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 1999 were $39,383,387 and $42,426,424, respectively. Net realized losses for the year ended December 31, 1999 and net unrealized losses as of December 31, 1999 were as follows: Realized Unrealized Losses Losses Long-term investments $ (832,984) $(1,942,097) ---------- ----------- Total $ (832,984) $(1,942,097) ========== =========== As of December 31, 1999, net unrealized depreciation for Federal income tax purposes aggregated $1,948,618, of which $385,762 related to appreciated securities and $2,334,380 related to depreciated securities. The aggregate cost of investments at December 31, 1999 for Federal income tax purposes was $64,064,246. 4. Capital Share Transactions: Transactions in capital shares were as follows: For the Year Ended Dollar December 31, 1999 Shares Amount Shares sold 582,428 $ 12,100,729 Shares issued to share- holders in reinvestment of dividends 174,464 3,576,975 ----------- ------------ Total issued 756,892 15,677,704 Shares redeemed (852,690) (17,608,821) ----------- ------------ Net decrease (95,798) $ (1,931,117) =========== ============ For the Year Ended Dollar December 31, 1998 Shares Amount Shares sold 561,726 $ 11,965,648 Shares issued to share- holders in reinvestment of dividends 173,288 3,700,826 ----------- ------------ Total issued 735,014 15,666,474 Shares redeemed (869,838) (18,571,011) ----------- ------------ Net decrease (134,824) $ (2,904,537) =========== ============ 5. Capital Loss Carryforward: At December 31, 1999, the Program had a net capital loss carryforward of approximately $1,590,000, of which $958,000 expires in 2002 and $632,000 expires in 2007. This amount will be available to offset like amounts of any future taxable gains. The Corporate Fund Accumulation Program, Inc. Independent Auditors' Report The Board of Directors and Shareholders, The Corporate Fund Accumulation Program, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Corporate Fund Accumulation Program, Inc. as of December 31, 1999, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Program's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1999 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of The Corporate Fund Accumulation Program, Inc. as of December 31, 1999, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey February 7, 2000 Officers and Directors Terry K. Glenn--President and Director Ronald W. Forbes--Director Cynthia A. Montgomery--Director Charles C. Reilly--Director Kevin A. Ryan--Director Richard R. West--Director Arthur Zeikel--Director Christopher G. Ayoub--Senior Vice President Joseph T. Monagle Jr.--Senior Vice President Donald C. Burke--Vice President and Treasurer Ira P. Shapiro--Secretary Custodian and Transfer Agent The Bank of New York 90 Washington Street New York, NY 10286 -----END PRIVACY-ENHANCED MESSAGE-----