N-30D 1 ml6777.txt CORPORATE FUND ACCUMULATION PROGRAM (BULL LOGO) Merrill Lynch Investment Managers Annual Report December 31, 2001 The Corporate Fund Accumulation Program, Inc. www.mlim.ml.com 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. The Corporate Fund Accumulation Program is only open to holders of units of Corporate Income Fund, International Bond Fund and Corporate Investment Trust Fund for reinvestment of distributions on those units. The investment objective of the Program is to provide shareholders with a high level of current income by investing in long and intermediate-term bonds that are primarily corporate bonds or notes. 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: Market Review As we entered 2001, it seemed almost inconceivable that the US economy would enter a recession given the strong performance of the economy in 1999 and 2000. In fact in the United States, growth was as strong as 5.6% in the second quarter of 2000 and 4.1% for the year while global growth was a solid 4.6%. However, as the US economy slowed, corporations began to dramatically cut capital investment and a series of events began to unfold, which led to massive corporate restructurings. This restructuring resulted in corporations acting aggressively to reduce costs and improve margins. Business inventories were reduced by $125 billion in the first three quarters of the year and the unemployment rate rose from 3.9% to 5.8%. The manufacturing sector also continued to deteriorate as The National Association of Purchasing Managers Index declined to 39.82 at October 31, 2001. In addition, business and consumer confidence plunged and retail sales also showed huge declines. As the year came to a close, some of these indicators have rebounded off their lows. In response to the economy's weakness, both the Federal Reserve Board and Congress implemented an unprecedented double dose of monetary and fiscal stimulus. As the economy slowed and officially entered a recession in March, according to the National Bureau of Economic Research, the Federal Reserve Board implemented a program of monetary easing that lowered the Federal Fund overnight lending rate from 6.5% to 1.75%. As expected, the aggressive easing led to a dramatic steepening of the yield curve as two-year Treasury rates plunged more than 200 basis points (2.00%) from 5.15% to 3%, while the 30-year Treasury bond ended up virtually unchanged from beginning year levels (5.44% to 5.47%). Surprisingly, the housing market held up very well as demand for new and existing homes remained strong throughout the year. With the benchmark 10-year Treasury note dropping approximately 80 basis points from the start of the year, mortgage rates followed suit, thereby providing the consumer with the financial impetus to seek out home ownership. Congress also reacted remarkably quickly in passing a tax cut to be phased in over six years and a tax rebate that injected $40 billion into consumers' pockets. Congress also implemented a $65 billion ($15 billion to the airline industry and $50 billion to general business) emergency relief package after the tragic events of September 11 to those industries directly affected by the terrorist attacks. This fiscal policy shift, along with the weak economy, has caused the government to become a net borrower as opposed to a net lender. On the international front, the story was similar to the United States although the jury is still out on whether the United Kingdom and Eurozone countries will be able to avoid a recession. At December 31, 2001, growth slowed from 2.9% to 2.1% and from 3.4% to 1.5%, respectively, for the regions. In the Eurozone, interest rates were reduced by 150 basis points and in the United Kingdom, rates were reduced by 200 basis points, which has helped temper the extent to which their economies have declined. However, critics have argued that their policy response was not as aggressive as it should have been and may have only served to put off the recessionary environment. Japan continues to be mired in a recession as structural reforms in their banking system have yet to take place and a more immediate threat continues to be deflation. In the end, global economic weakness will only serve to make the US recovery that much more difficult as export growth will be curtailed. Fiscal Year in Review During the 12-month period ended December 31, 2001, the Program had a total return of +8.32% compared to +10.86% for the Merrill Lynch Corporate A-AAA Rated Index. The Program's performance compared to the benchmark was negatively impacted as a result of the Program's allocation to the BBB segment of the investment-grade corporate market. (Complete performance information can be found on pages 3 and 4 of this report to shareholders.) With respect to security-specific issues, we added to positions in several sectors including energy-related industries, real estate investment trusts, electric and gas utilities, defense contractors, life insurers, cable/media companies, telecommunications and domestic banks. In all cases, these sectors possessed strong relative value attributes, and we were either positive on the outlook for that sector and/or had a favorable view on the prevailing operating picture with respect to interest margins and cash flows factors. However, we continued to liquidate some of our positions in several industries including consumer finance companies, railroads, non-discount retailers, auto manufacturers, hotel and lodging and airlines. For these sectors, we believe operating margins will remain under pressure, which in turn will weaken cash flow positions. Those sectors we continued to avoid for the most part included property and casualty insurers, tobacco, metals and mining, auto part manufacturers and gaming and leisure. While the corporate market was riddled with issuers experiencing ratings downgrades and deteriorating credit fundamentals, the Program was able to avoid the majority of negative credit events during the year. Unfortunately, the Program did have a position in Nortel Networks Corporation, which suffered price erosion following the considerable difficulties that Internet providers faced during 2001. Although we had eliminated the majority of the Program's airline exposure prior to September 11 as a result of our concern relative to general business conditions within the industry, we chose to maintain our holdings in Southwest Airlines Co. given its strong operating track record and financial strength. The terrorist events of September 11 exacted a significant toll on the industry and Southwest Airlines has shared in that suffering as well. Although our bonds did not drop in price as sharply as other airline bonds, prevailing spreads warrant that we hold onto our securities in anticipation of an eventual turnaround. While corporate spreads have rebounded somewhat following the events of September 11, we believe that additional spread compression is possible as corporate profitability begins to marginally improve during 2002. Additionally, given our outlook relative to the shape of the yield curve and a shift in Federal Reserve Board monetary policy to a neutral position, corporate securities should perform well in the coming year. Accordingly, we will continue to invest a portion of the Program's assets in the BBB category to take advantage of the higher yields and greater potential for price performance. In Conclusion 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 7, 2002 The Corporate Fund Accumulation Program, Inc. Important Tax Information (unaudited) All of the net investment income distributions paid monthly by The Corporate Fund Accumulation Program, Inc. during its taxable year ended December 31, 2001 qualify as tax-exempt interest dividends for Federal income tax purposes. Additionally, there were no capital gain distributions paid by the Fund during the year. Please retain this information for your records. About Fund Performance None of the past results shown should be considered a representation of future performance. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the "Recent Performance Results" and "Average Annual Total Return" tables assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Recent Performance Results
6-Month 12-Month Standardized As of December 31, 2001 Total Return Total Return 30-Day Yield The Corporate Fund Accumulation Program, Inc.* + 4.80% + 8.32% 4.50% ML Corporate A-AAA Rated Index** + 5.28 +10.86 -- *Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. **This unmanaged Index is comprised of bonds rated A-AAA, of all maturities.
The Corporate Fund Accumulation Program, Inc. Total Return Based on a $10,000 Investment A line graph illustrating the growth of a $10,000 investment in The Corporate Fund Accumulation Program, Inc.++ compared to a similar investment in ML US Corporate A-AAA Rated Index++++. Values illustrated are as follows : The Coporate Fund Accumulation Program, Inc++ Date Value December 1991 $10,000.00 December 1992 $10,686.00 December 1993 $11,990.00 December 1994 $11,297.00 December 1995 $13,562.00 December 1996 $13,791.00 December 1997 $14,936.00 December 1998 $16,167.00 December 1999 $15,659.00 December 2000 $17,101.00 December 2001 $18,524.00 ML US Corporate A-AAA Rated Index++++ Date Value December 1991 $10,000.00 December 1992 $10,882.00 December 1993 $12,200.00 December 1994 $11,758.00 December 1995 $14,271.00 December 1996 $14,726.00 December 1997 $16,207.00 December 1998 $17,744.00 December 1999 $17,320.00 December 2000 $19,045.00 December 2001 $21,112.00 ++Assuming transaction costs and other operating expenses, including advisory fees and reimbursement of all expenses. 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 bonds rate A-AAA, of all maturities. Past performance is not predictive of future results. Average Annual Total Return Period Covered % Return One Year Ended 12/31/01 +8.32% Five Years Ended 12/31/01 +6.08 Ten Years Ended 12/31/01 +6.36 The Corporate Fund Accumulation Program, Inc. Schedule of Investments as of December 31, 2001
S&P Moody's Face Industry Rating Rating Amount Issue Value Aerospace & BBB- Baa3 $ 150,000 Northop Grumman Corporation, 7.125% due 2/15/2011 $ 156,591 Defense--1.7% Raytheon Company: BBB- Baa3 250,000 6.50% due 7/15/2005 256,793 BBB- Baa3 250,000 6.75% due 3/15/2018 239,423 A+ A2 350,000 United Technology Corporation, 6.35% due 3/01/2011 355,803 ----------- 1,008,610 Automotive & BBB Baa2 100,000 Delphi Auto Systems Corporation, 6.55% due 6/15/2006 99,315 Equipment-- BBB+ A3 535,000 Ford Motor Company, 7.45% due 7/16/2031 490,879 1.0% ----------- 590,194 Banks & A- A1 400,000 Banc One Corp., 8% due 4/29/2027 447,592 Thrifts-- A Aa3 603,000 Bank of America Corporation, 7.40% due 1/15/2011 646,802 14.2% Bank One Corp.: A Aa3 800,000 6.875% due 8/01/2006 851,776 A- A1 200,000 7.875% due 8/01/2010 220,874 A+ Aa2 1,400,000 BankAmerica Corp., 5.875% due 2/15/2009 1,385,020 Citigroup Inc.: AA- Aa1 950,000 5.70% due 2/06/2004 986,053 AA- Aa1 275,000 6.50% due 1/18/2011 283,297 A A1 800,000 FleetBoston Financial Corp., 7.25% due 9/15/2005 861,032 A A1 500,000 HSBC Holding PLC, 7.50% due 7/15/2009 537,350 A A2 400,000 Mellon Financial Co., 6.875% due 3/01/2003 416,456 BBB+ A3 400,000 Washington Mutual Inc., 7.50% due 8/15/2006 431,448 Wells Fargo Company: A+ Aa2 400,000 7.25% due 8/24/2005 430,220 A+ Aa2 900,000 5.90% due 5/21/2006 929,205 ----------- 8,427,125 Cable BBB- Baa3 280,000 Clear Channel Communications, 7.875% due 6/15/2005 293,168 Television Comcast Cable Communications: Services-- BBB Baa2 150,000 6.375% due 1/30/2006 154,306 1.2% BBB Baa2 250,000 6.75% due 1/30/2011 250,975 ----------- 698,449 Canadian BBB- Baa3 1,000,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 (2) 1,046,730 Corporates*-- BBB+ Baa2 310,000 Potash Corporation of Saskatchewan, 7.75% due 2.3% 5/31/2011 (2) 329,722 ----------- 1,376,452 Financial Ford Motor Credit Company: Services-- BBB+ A2 615,000 7.50% due 6/15/2003 635,529 Captive--8.1% BBB+ A2 1,500,000 6.875% due 2/01/2006 1,499,475 BBB+ A2 218,000 7.375% due 2/01/2011 215,122 General Motors Acceptance Corporation: BBB+ A2 1,033,000 6.85% due 6/17/2004 1,074,051 BBB+ A2 1,129,000 7.75% due 1/19/2010 1,176,858 BBB+ A2 181,000 8% due 11/01/2031 183,116 ----------- 4,784,151 Financial A A3 400,000 Countrywide Home Loan, 5.25% due 6/15/2004 407,636 Services-- Household Financial Corporation: Consumer-- A A2 1,200,000 6.50% due 1/24/2006 1,233,708 3.3% A A2 100,000 7.875% due 3/01/2007 109,179 A A2 200,000 6.75% due 5/15/2011 199,012 ----------- 1,949,535
The Corporate Fund Accumulation Program, Inc. Schedule of Investments as of December 31, 2001 (continued)
S&P Moody's Face Industry Rating Rating Amount Issue Value Financial AA- A3 $ 130,000 Boeing Capital Corporation, 7.10% due 9/27/2005 $ 136,544 Services-- CIT Group Inc.: Other-- A+ A2 700,000 5.625% due 5/17/2004 719,705 16.7% A+ A2 200,000 6.50% due 2/07/2006 207,596 Commercial Credit Co.: AA- Aa1 400,000 6.75% due 7/01/200 424,168 AA- Aa1 500,000 10% due 5/15/2009 606,655 AA- Aa3 250,000 Credit Suisse First Boston Inc., 6.125% due 11/15/2011 244,011 General Electric Capital Corp.: AAA Aaa 400,000 6.75% due 9/11/2003 424,076 AAA Aaa 400,000 7.375% due 1/19/2010 444,720 Goldman Sachs Group, Inc.: A+ A1 700,000 7.625% due 8/17/2005 752,115 A+ A1 300,000 6.875% due 1/15/2011 309,216 AAA Aaa 550,000 Heller Financial Inc., 7.875% due 5/15/2003 586,058 AA- A1 250,000 International Lease Finance Corporation, 5.50% due 6/07/2004 252,480 Lehman Brothers Holdings, Inc.: A A2 600,000 6.625% due 4/01/2004 632,010 A A2 400,000 7% due 2/01/2008 418,840 A A2 709,000 7.875% due 8/15/2010 768,797 AA- Aa3 900,000 Morgan Stanley, Dean Witter, Discover & Co., 7.125% due 1/15/2003 940,401 AA- Aa3 300,000 National Rural Utilities, 5.25% due 7/15/2004 307,059 AA- Aa1 1,000,000 Salomon Smith Barney Holdings, 5.875% due 3/15/2006 1,024,960 Texaco Capital Inc.: AA Aa3 100,000 8.625% due 6/30/2010 117,473 AA Aa3 50,000 8.625% due 11/15/2031 64,315 A+ A1 500,000 Verizon Global Funding Corporation, 6.75% due 12/01/2005 527,220 ----------- 9,908,419 Foods--4.2% A A2 250,000 Coca-Cola Enterprises, 6.125% due 8/15/2011 251,210 A- A2 230,000 Kraft Foods Inc., 4.625% due 11/01/2006 225,080 BBB- Baa3 410,000 Kroger Company, 7.50% due 4/01/2031 426,088 A A1 670,000 Pepsi Bottling Holdings Inc., 5.625% due 2/17/2009 (a) 665,469 BBB Baa2 250,000 Safeway Inc., 6.50% due 3/01/2011 254,758 BBB Baa3 650,000 Tyson Foods Inc., 6.625% due 10/01/2004 (a) 667,570 ----------- 2,490,175 Forest A- A3 250,000 Weyerhaeuser Company, 5.95% due 11/01/2008 (a) 243,516 Products-- 0.4% Gas BBB Baa2 103,000 The Coastal Corporation, 6.50% due 6/01/2008 99,909 Transmission BBB+ A3 280,000 Consolidated Natural Gas, 5.375% due 11/01/2006 275,663 --0.6% ----------- 375,572 Industrial-- Anheuser-Busch Companies Inc.: Consumer A+ A1 380,000 7.50% due 3/15/2012 426,991 Goods-- A+ A1 250,000 6% due 11/01/2041 231,387 7.4% A- A3 1,000,000 Kohl's Corporation, 6.30% due 3/01/2011 1,011,095 A Baa1 1,000,000 Tyco International Group SA, 6.125% due 1/15/2009 985,300 Wal-Mart Stores, Inc.: AA Aa2 1,000,000 6.875% due 8/10/2009 1,072,160 AA Aa2 550,000 7.55% due 2/15/2030 634,997 ----------- 4,361,930 Industrial-- A- A3 95,000 Apache Corporation, 7.625% due 7/01/2019 102,186 Energy--3.3% Atlantic Richfield Company: AA+ Aa1 100,000 5.90% due 4/15/2009 99,750 AA+ Aa1 60,000 8.44% due 2/21/2012 71,228
The Corporate Fund Accumulation Program, Inc. Schedule of Investments as of December 31, 2001 (continued)
S&P Moody's Face Industry Rating Rating Amount Issue Value Industrial-- BBB+ Baa1 $ 100,000 Burlington Resources Inc., 6.68% due 2/15/2011 $ 99,085 Energy Conoco Inc.: (concluded) BBB+ Baa1 180,000 5.90% due 4/15/2004 185,945 BBB+ Baa1 100,000 6.95% due 4/15/2029 101,773 A+ A1 130,000 Consolidated Edison Inc., 7.15% due 12/01/2009 136,081 BBB Baa2 47,000 Duke Energy Field Services, 8.125% due 8/16/2030 48,051 BBB Baa2 29,000 El Paso Energy Corporation, 8.05% due 10/15/2030 29,737 BBB- Baa2 260,000 FirstEnergy Corp., 6.45% due 11/15/2011 254,553 BBB- Baa3 200,000 Ocean Energy Inc., 7.25% due 10/01/2011 206,000 BBB Baa1 360,000 Progress Energy Inc., 5.85% due 10/30/2008 351,576 BBB Baa2 250,000 Williams Companies, Inc., 7.625% due 7/15/2019 247,138 ----------- 1,933,103 Industrial-- Candia Corp.: Manufacturing A- A2 500,000 6.45% due 3/15/2011 507,870 --1.7% A- A2 65,000 7.25% due 3/15/2031 68,639 A+ A1 200,000 IBM Corporation, 5.375% due 2/01/2009 195,216 BBB- Baa2 200,000 Martin Marietta Corp., 7.375% due 4/15/2013 206,208 ----------- 977,933 Industrial-- AOL Time Warner Inc.: Services-- BBB+ Baa1 200,000 6.125% due 4/15/2006 204,616 4.6% BBB+ Baa1 310,000 7.625% due 4/15/2031 328,070 A+ A1 640,000 First Data Corporation, 6.75% due 7/15/2005 677,248 BBB- Baa3 460,000 News America Inc., 7.25% due 5/18/2018 441,890 BBB+ Baa2 360,000 Tele-Communications Inc., 8.25% due 1/15/2003 373,964 BBB+ Baa1 200,000 Time Warner Entertainment, 7.25% due 9/01/2008 213,038 A- A3 410,000 Viacom Inc., 7.875% due 7/30/2030 452,620 ----------- 2,691,446 Insurance-- A+ A1 1,000,000 Allstate Corp., 6.75% due 5/15/2018 978,130 2.6% A+ A1 230,000 John Hancock Financial Services, 5.625% due 12/01/2008 226,786 MetLife Inc.: A A1 90,000 5.25% due 12/01/2006 89,848 A A1 240,000 6.125% due 12/01/2011 237,950 ----------- 1,532,714 Medical-- AAA Aaa 200,000 Bristol-Myers Squibb, 4.75% due 10/01/2006 198,066 1.3% Tenet Healthcare Corporation (a): BBB Baa3 300,000 5.375% due 11/15/2006 293,434 BBB Baa3 320,000 6.875% due 11/15/2031 294,485 ----------- 785,985 Metals--0.3% Alcoa Inc.: A+ A1 105,000 2.28% due 12/06/2004 104,975 A+ A1 84,000 6% due 1/15/2012 83,391 ----------- 188,366 Pipelines-- BBB Baa2 550,000 El Paso Corporation, 7% due 5/15/2011 537,389 0.9% Real Estate BBB+ Baa1 490,000 Avalonbay Communities, Real Estate Investment Investment Trusts (REITS), 6.625% due 9/15/2011 477,451 Trust--3.3% EOP Operating LP: BBB+ Baa1 310,000 7.375% due 11/15/2003 325,937 BBB+ Baa1 160,000 7.75% due 11/15/2007 170,854 BBB+ Baa1 940,000 Prologis Trust, 7% due 10/01/2003 976,209 ----------- 1,950,451
The Corporate Fund Accumulation Program, Inc. Schedule of Investments as of December 31, 2001 (concluded)
S&P Moody's Face Industry Rating Rating Amount Issue Value Transportation Southwest Airlines Co.: --1.6% A Baa1 $ 630,000 8% due 3/01/2005 $ 659,238 A Baa1 300,000 7.875% due 9/01/2007 307,347 ----------- 966,585 Utilities-- BBB+ A3 600,000 AT&T Corporation, 6% due 3/15/2009 570,642 Communi- AA- Aa3 400,000 Ameritech Capital Funding, 6.45% due 1/15/2018 395,080 cations--9.0% A+ Aa3 300,000 BellSouth Corporation, 6% due 10/15/2011 298,641 A+ A2 300,000 GTE Corporation, 6.84% due 4/15/2018 298,938 Qwest Capital Funding: BBB+ Baa1 210,000 7% due 8/03/2009 203,973 BBB+ Baa1 800,000 7.90% due 8/15/2010 813,870 AA- Aa3 200,000 SBC Communications Inc., 6.25% due 3/15/2011 203,600 BBB+ Baa1 400,000 Sprint Capital Corporation, 5.70% due 11/15/2003 409,852 A+ Aa2 1,000,000 Verizon of Pennsylvania, 5.65% due 11/15/2011 960,590 WorldCom, Inc.: BBB+ A3 500,000 8% due 5/15/2006 536,800 BBB+ A3 100,000 7.50% due 5/15/2011 102,408 BBB+ A3 500,000 8.25% due 5/15/2031 527,215 ----------- 5,321,609 Utilities-- BBB+ Baa1 260,000 Dominion Resources Inc., 8.125% due 6/15/2010 284,625 Electric--2.5% A A1 260,000 Mississippi Power, 6.05% due 5/01/2003 264,285 South Carolina Electric & Gas: A A1 590,000 7.50% due 6/15/2005 634,775 A A1 260,000 6.70% due 2/01/2011 263,666 ----------- 1,447,351 Yankee A A1 200,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 (1) 210,386 Corporates*-- A- Baa1 400,000 British Telecom PLC, 8.375% due 12/15/2010 (3) 441,944 4.7% BBB+ A3 300,000 Daimler-Chrysler NA Holdings, 6.40% due 5/15/2006 (2) 299,598 A- A3 200,000 Deutsche Telekom International Finance, 7.75% due 6/15/2005 (3) 214,058 BBB+ Baa1 100,000 France Telecom, 8.50% due 3/01/2031 (a)(3) 114,161 BBB+ Baa2 400,000 Korea Development Bank, 7.125% due 4/22/2004 (1) 422,132 A A2 200,000 Norsk Hydro A/S, 6.36% due 1/15/2009 (2) 200,208 A+ A2 200,000 Telefonica Europe BV, 7.35% due 9/15/2005 (3) 210,614 A A2 607,000 Vodafone Group PLC, 7.75% due 2/15/2010 (3) 664,562 ----------- 2,777,663 Total Corporate Bonds & Notes (Cost--$56,854,839)--96.9% 57,324,723 Short-Term Securities Repurchase 1,045,000 UBS Warburg Corp. LLC, purchased on 12/31/2001 to yield Agreements**--1.7% 1.70% to 1/02/2002 1,045,000 Total Short-Term Securities (Cost--$1,045,000)--1.7% 1,045,000 Total Investments (Cost--$57,899,839)--98.6% 58,369,723 Other Assets Less Liabilities--1.4% 809,131 ----------- Net Assets--100.0% $59,178,854 =========== *Corresponding industry groups for foreign bonds: (1)Financial institution. (2)Industrial; other. (3)Telecommunications. **Repurchase Agreements are fully collateralized by US Government Obligations. (a)The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. 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, 2001 Assets: Investments, at value (identified cost--$57,899,839) $ 58,369,723 Interest receivable 1,108,711 Prepaid registration fees and other assets 101,983 ------------ Total assets 59,580,417 ------------ Liabilities: Payables: Capital shares redeemed $ 213,652 Custodian bank 60,877 Investment adviser 24,941 299,470 ------------ Accrued expenses 102,093 ------------ Total liabilities 401,563 ------------ Net Assets $ 59,178,854 ============ Net Assets Consist of: Common Stock, $.01 par value, 50,000,000 shares authorized $ 28,299 Paid-in capital in excess of par 59,572,847 Undistributed investment income--net $ 7 Accumulated realized capital losses on investments--net (892,183) Unrealized appreciation on investments--net 469,884 ------------ Total accumulated losses--net (422,292) ------------ Net Assets--Equivalent to $20.91 per share based on 2,829,872 shares outstanding $ 59,178,854 ============ See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc. Statement of Operations for the Year Ended December 31, 2001 Investment Income: Interest $ 3,797,780 Expenses: Investment advisory fees $ 297,308 Transfer agent fees 215,475 Professional fees 62,782 Printing and shareholder reports 42,915 Accounting services 29,546 Registration fees 26,326 Custodian fees 15,929 Directors' fees and expenses 11,894 Pricing services 11,080 Other 10,033 ------------ Total expenses 723,288 ------------ Investment income--net 3,074,492 ------------ Realized & Unrealized Gain (Loss) on Investments--Net: Realized gain on investments--net 2,507,016 Change in unrealized appreciation on investments--net (804,930) ------------ Net Increase in Net Assets Resulting from Operations $ 4,776,578 ============ 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: 2001 2000 Operations: Investment income--net $ 3,074,492 $ 3,627,080 Realized gain (loss) on investments--net 2,507,016 (1,608,099) Change in unrealized appreciation/depreciation on investments--net (804,930) 3,216,911 ------------- ------------- Net increase in net assets resulting from operations 4,776,578 5,235,892 ------------- ------------- Dividends to Shareholders: Dividends to shareholders from investment income--net (3,074,485) (3,626,900) ------------- ------------- Capital Share Transactions: Net decrease in net assets resulting from capital share transactions (1,490,014) (5,792,638) ------------- ------------- Net Assets: Total increase (decrease) in net assets 212,079 (4,183,646) Beginning of year 58,966,775 63,150,421 ------------- ------------- End of year* $ 59,178,854 $ 58,966,775 ============= ============= *Undistributed investment income--net $ 7 $ -- ============= ============= 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: 2001 2000 1999 1998 1997 Per Share Operating Performance: Net asset value, beginning of year $ 20.34 $ 19.77 $ 21.62 $ 21.13 $ 20.69 --------- --------- --------- --------- --------- Investment income--net 1.08++ 1.21++ 1.17++ 1.19++ 1.22 Realized and unrealized gain (loss) on investments--net .57 .58 (1.84) .50 .44 --------- --------- --------- --------- --------- Total from investment operations 1.65 1.79 (.67) 1.69 1.66 --------- --------- --------- --------- --------- Less dividends: Investment income--net (1.08) (1.22) (1.18) (1.20) (1.22) In excess of investment income--net -- -- --++++ -- -- --------- --------- --------- --------- --------- Total dividends (1.08) (1.22) (1.18) (1.20) (1.22) --------- --------- --------- --------- --------- Net asset value, end of year $ 20.91 $ 20.34 $ 19.77 $ 21.62 $ 21.13 ========= ========= ========= ========= ========= Total Investment Return: Based on net asset value per share 8.32% 9.21% (3.14%) 8.24% 8.30% ========= ========= ========= ========= ========= Ratios to Average Net Assets: Expenses 1.22% 1.10% 1.11% 1.00% .99% ========= ========= ========= ========= ========= Investment income--net 5.17% 6.16% 5.69% 5.60% 5.84% ========= ========= ========= ========= ========= Supplemental Data: Net assets, end of year (in thousands) $ 59,179 $ 58,967 $ 63,150 $ 71,131 $ 72,381 ========= ========= ========= ========= ========= Portfolio turnover 227% 127% 61% 66% 90% ========= ========= ========= ========= ========= ++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 conformity with accounting principles generally accepted in the United States of America, 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 investments--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 exist 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 seller 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). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual 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. (g) Custodian bank--The Program recorded an amount payable to the custodian bank reflecting an overnight overdraft which resulted from a failed trade which settled the next day. The Corporate Fund Accumulation Program, Inc. Notes to Financial Statements (continued) 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. FAM has entered into an Administrative Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Prudential Securities, Inc., Morgan Stanley Dean Witter 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. For the year ended December 31, 2001, the Program paid Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, $6,538 for security price quotations to compute the net asset value of the Program. Prior to January 1, 2001, FAM provided accounting services to the Program at its cost and the Program reimbursed FAM for these services. FAM continues to provide certain accounting services to the Program. The Program reimburses FAM at its cost for such services. For the year ended December 31, 2001, the Program reimbursed FAM an aggregate of $5,169 for the above-described services. The Program entered into an agreement with State Street Bank and Trust Company ("State Street"), effective January 1, 2001, pursuant to which State Street provides certain accounting services to the Program. The Program pays a fee for these services. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2001 were $130,179,634 and $128,837,524, respectively. Net realized gains for the year ended December 31, 2001 and net unrealized gains as of December 31, 2001 were as follows: Realized Unrealized Gains Gains Long-term investments $ 2,507,016 $ 469,884 ----------- ----------- Total $ 2,507,016 $ 469,884 =========== =========== As of December 31, 2001, net unrealized appreciation for Federal income tax purposes aggregated $460,232, of which $861,792 related to appreciated securities and $401,560 related to depreciated securities. The aggregate cost of investments at December 31, 2001 for Federal income tax purposes was $57,909,491. 4. Capital Share Transactions: Transactions in capital shares were as follows: For the Year Ended Dollar December 31, 2001 Shares Amount Shares sold 336,128 $ 6,961,715 Shares issued to shareholders in reinvestment of dividends 138,199 2,855,145 ----------- ------------- Total issued 474,327 9,816,860 Shares redeemed (544,209) (11,306,874) ----------- ------------- Net decrease (69,882) $ (1,490,014) =========== ============= The Corporate Fund Accumulation Program, Inc. Notes to Financial Statements (concluded) For the Year Ended Dollar December 31, 2000 Shares Amount Shares sold 256,146 $ 5,080,657 Shares issued to shareholders in reinvestment of dividends 170,746 3,365,439 ----------- ------------- Total issued 426,892 8,446,096 Shares redeemed (722,012) (14,238,734) ----------- ------------- Net decrease (295,120) $ (5,792,638) =========== ============= 5. Short-Term Borrowings: The Program, along with certain other funds managed by FAM and its affiliates, is a party to a $1,000,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Program may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Program may borrow up to the maximum amount allowable under the Program's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Progam pays a commitment fee of .09% per annum based on the Program's pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November 30, 2001, the credit agreement was renewed for one year under the same terms.The Program did not borrow under the credit agreement during the year ended December 31, 2001. 6. Distributions to Shareholders: On January 15, 2002, an ordinary income dividend of $.041523 was declared. The dividend was paid on January 15, 2002, to shareholders of record on January 15, 2002. The tax character of distributions paid during the fiscal years ended December 31, 2001 and December 31, 2000 was as follows: 12/31/2001 12/31/2000 Distributions paid from: Ordinary income $ 3,074,485 $ 3,626,900 ----------- ------------- Total taxable distributions $ 3,074,485 $ 3,626,900 =========== ============= As of December 31, 2001, the components of accumulated losses on a tax basis were as follows: Undistributed ordinary income--net $ 7 Undistributed long-term capital gains--net -- ------------- Total undistributed earnings--net 7 Capital loss carryforward (882,531)* Unrealized gains--net 460,232** ------------- Total accumulated losses--net $ (422,292) ============= *On December 31, 2001, the Program had a net capital loss carryforward of approximately $882,531, all of which expires in 2008. This amount will be available to offset like amounts of any future taxable gains. **The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of losses on wash sales. 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, 2001, 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 presented. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and 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, 2001 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, 2001, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York February 12, 2002 The Corporate Fund Accumulation Program, Inc. Officers and Directors
Number of Portfolios in Fund Other Complex Director- Position(s) Length Overseen ships Held of Time by Held by Name, Address & Age with Fund Served Principal Occupation(s) during Past 5 Years Director Director Interested Director Terry K. Glenn* President 1999 to Chairman, Americas Region since 2001, and 196 None 800 Scudders Mill Road and present Executive Vice President since 1983 of Fund Plainsboro, NJ 08536 Director Asset Management ("FAM") and Merrill Lynch Age: 61 Investment Managers, L.P. ("MLIM"); President of Merrill Lynch Mutual Funds since 1999; President of FAM Distributors, Inc. ("FAMD") since 1986 and Director thereof since 1991; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; President of Princeton, Administrators, L.P. since 1988; Director of Financial Data Services, Inc., since 1985. *Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of each Fund based on his positions as Chairman (Americas Region) and Executive Vice President of FAM and MLIM; President of FAMD; Executive Vice President of Princeton Services; and President of Princeton Administrators, L.P. The Director's term is unlimited. Number of Portfolios in Fund Other Complex Director- Position(s) Length Overseen ships Held of Time by Held by Name, Address & Age with Fund Served* Principal Occupation(s) during Past 5 Years Director Director Independent Directors Ronald W. Forbes Director 1977 to Professor Emeritus of Finance, School of 57 None 1400 Washington Avenue present Business, State University of New York at Albany, NY 12222 Albany since 2000 and Professor thereof Age: 61 from 1989 to 2000. Cynthia A. Montgomery Director 1995 to Professor, Harvard Business School since 1989. 57 Unum Harvard Business School present Provident Soldiers Field Road Corpora- Boston, MA 02163 tion; Age: 49 Newell Rubber- maid Inc. Charles C. Reilly Director 1990 to Self-employed financial consultant since 1990. 57 None 9 Hampton Harbor Road present Hampton Bays, NY 11946 Age: 70 Kevin A. Ryan Director 1992 to Founder and currently Director Emeritus of The 57 Charter 127 Commonwealth Ave. present Boston University Center for the Advancement of Education Chestnut Hill, MA 02467 Ethics and Character and Director thereof from Partner- Age: 69 1989 to 1999; Professor from 1982 to 1999 at ship; Boston University. Council for Ethical and Spiritual Education.
The Corporate Fund Accumulation Program, Inc. Officers and Directors (concluded)
Number of Portfolios in Fund Other Complex Director- Position(s) Length Overseen ships Held of Time by Held by Name, Address & Age with Fund Served* Principal Occupation(s) during Past 5 Years Director Director Independent Directors (concluded) Roscoe S. Suddarth Director 2000 to Former President, Middle East Institute from 57 None 7403 MacKenzie Court present 1995 to 2001. Bethesda, MD 20817 Age: 66 Richard R. West Director 1978 to Professor of Finance since 1984, and currently 70 Bowne & Box 604 present Dean Emeritus of New York University Leonard Co., Inc.; Genoa, NV 89411 N. Stern School of Business Administration. Vornado Age: 63 Realty Trust; Alexander's Inc. Edward D. Zinbarg Director 1994 to Self-employed financial consultant since 1994. 57 None 5 Hardwell Road present Short Hills, NJ 07078-2117 Age: 67 *The Director's term is unlimited. Position(s) Length Held of Time Name, Address & Age with Fund Served Principal Occupation(s) during Past 5 Years Fund Officers Donald C. Burke Vice Vice First Vice President of FAM and MLIM since 1997 and the Treasurer P.O. Box 9011 President President thereof since 1999; Senior Vice President and Treasurer of Princeton, NJ 08543-9011 and since Princeton Services since 1999; Vice President of FAMD since 1999; Age: 41 Treasurer 1993 and Vice President of FAM and MLIM from 1990 to 1997; Director of Treasurer Taxation of MLIM since 1990. since 1999 Christopher Ayoub Senior Vice 1998 to Managing Director of the Investment Advisor and certain of its P.O. Box 9011 President present affiliates since 1998; Vice President of the Investment Advisor Princeton, NJ 08543-9011 and certain of its affiliates from 1985 to 1998. Age: 45 Phillip S. Gillespie Secretary 2001 to First Vice President of MLIM since 2001; Director of MLIM P.O. Box 9011 present from 1999 to 2000; Vice President of MLIM in 1999; Attorney Princeton, NJ 08543-9011 associated with the Manager and FAM from 1998 to 1999; Age: 37 Assistant General Counsel LGT Asset Management, Inc. from 1997 to 1998; Senior Counsel and Attorney in the Division of Investment Management and the Office of General Counsel at the US Securities and Exchange Commission from 1993 to 1997.
Further information about the Fund's Directors is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-800-MER-FUND. Custodian and Transfer Agent The Bank of New York 90 Washington Street New York, NY 10286