Report of Independent Auditors
Board of Directors and Stockholder
Central Investment Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Central Investment Fund, Inc. as of
December 31, 1998, and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the period March 24,
1998 (commencement of operations) to December 31, 1998. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification of investments
owned as of December 31, 1998, 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1998 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Central Investment Fund, Inc. at December 31, 1998, the results of
its operations, changes in its net assets, and its financial highlights for
the period March 24, 1998 (commencement of operations) to December 31, 1998,
in conformity with generally accepted accounting principles.
February 12, 1999
Central Investment Fund, Inc.
Statement of Assets and Liabilities
December 31, 1998
Assets
Investments, at fair value (cost $459,333,812) 515,287,749
Dividends receivable 641,452
Interest receivable 8,212
Total assets 515,937,413
Liabilities
Cash 10
Accrued expenses 66,673
Notes payable (Note 5) 480,500
Accrued interest expense 14,148
Total liabilities 561,331
Net assets 515,376,082
Net assets are represented by:
Common stock at par value, $.01 per share, 199,998,000 shares
authorized, 25,742,144.95 shares issued and outstanding 257,421
Additional paid-in capital 459,193,783
Accumulated net realized loss (29,059)
Net unrealized appreciation of investments 55,953,937
Net assets 515,376,082
Net asset value per common shares outstanding 20.02
See accompanying notes.
Central Investment Fund, Inc.
Statement of Operations
For the period from March 24, 1998 (commencement of operations)
to December 31, 1998
Investment income:
Dividend income 6,201,713
Interest income 40,843
Total investment income 6,242,556
Expenses:
Administration fee (Note 2) 179,181
Investment management fee (Note 2) 35,708
Broker dealer fee on AMPS 327,800
Rating agencies fees 60,000
Legal fees 49,539
Auction agent fee 8,750
Independent accountants 24,271
Interest expense 37,506
Insurance 5,147
Directors fees and expenses 8,954
Other expenses 125
Total expenses 736,981
Net investment income 5,505,975
Net realized and unrealized gains (losses) on
investments:
Net realized loss on investments (29,059)
Net unrealized appreciation of
investments 55,953,937
Net increase in net assets resulting from
operations $ 61,430,453
See accompanying notes.
Central Investment Fund, Inc.
Statement of Changes in Net Assets
For the period from March 24, 1998 (commencement of operations) to
December 31, 1998
From operations:
Net investment income 5,505,575
Net realized loss on investments (29,059)
Net change in unrealized appreciation
of investments 55,953,937
Increase in net assets resulting from operations 61,430,453
Dividends from net investment income:
Auction market preferred stock (5,475,820)
Common stock (29,755)
(5,505,575)
Decrease in net assets resulting from
distributions to stockholders (5,505,575)
Increase (decrease) from capital transactions:
Issuance of auction market preferred stock 200,000,000
Issuance of common stock 257,421
Additional paid-in capital 459,193,783
Redemption of auction market preferred
stock (200,000,000)
459,451,204
Total increase in net assets 515,376,082
Net assets:
Beginning of period -
End of period 515,376,082
See accompanying notes.
Central Investment Fund, Inc.
Notes to Financial Statements
December 31, 1998
1. Organization and Significant Accounting Policies
On January 7, 1999 the Board of Directors approved a Plan of Liquidation and
Dissolution for the Fund. Management is in the process of liquidating and
winding-up the Fund.
The Central Investment Fund, Inc. (the "Fund") is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Fund commenced investment operations on March 24, 1998.
The Fund's objective is long-term capital appreciation with income as a
secondary objective. The Fund's investments consist primarily of common stocks
of large and medium capitalization U.S. companies. The Fund's investment
portfolio must conform to certain rating agency asset coverage tests so long
as the Fund has preferred stock outstanding.
On the date of commencement, the Fund issued $200 million of Auction Market
Preferred Stock ("AMPS") and received securities with an aggregate fair value
of $457,421,449 from a collective trust fund for employee benefit plans in
exchange for 25,742,144.95 shares of common stock and $200 million in cash.
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements.
Security Valuation
Investments in securities traded on a national securities exchange (or
reported on the Nasdaq National Market) are valued at the last reported sales
price on the primary exchange on which the securities are traded. Temporary
investments are valued at amortized cost which approximates fair value.
Security Transactions
Security transactions are accounted for on a trade date plus one business day
basis which does not differ materially from a trade date basis. The cost of
securities sold is determined using the identified cost method. Dividend
income is recorded on ex-dividend date and interest income is recorded on the
accrual basis.
1. Organization and Significant Accounting Policies (continued)
Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distribute its
taxable income to stockholders. Therefore, no provision for Federal income
tax is required.
Distribution of Income and Gains
The Fund distributes substantially all of its taxable income in excess of the
dividends paid to the preferred stockholders to the common stockholder.
Dividends to the common stockholder are declared and paid at least annually.
Net realized capital gains, if any, are generally distributed annually.
The character of income and gains distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Amounts distributed in excess of taxable income and net realized
capital gains, if any, are considered a return of capital.
Use of Estimates
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial
markets and any other parameters used in determining these estimates could
cause actual results to differ from these amounts.
2. Related Party Transactions
A collective trust fund for employee benefit plans is the sole common
stockholder of the Fund. Certain officers and directors of the Fund are
affiliated with the common stockholder. No fees or expenses were paid to the
affiliated officers and directors.
For the period from March 24, 1998 (commencement of operations) to December
31, 1998, dividends to the common stockholder amounted to $29,755.
2. Related Party Transactions (continued)
Comerica Bank serves as both custodian and administrator for the Fund and
receives a fee based on a percentage of net assets outstanding at the end of
the fiscal year. The annual fee as a percentage of net assets at December 31,
1998 was 0.06%. An affiliate of Comerica Bank serves as investment advisor to
the Fund. The annual investment management fee is 0.01% of average equity
investments. The administration and management fees are calculated, accrued
and paid on a monthly basis.
3. Investment Transactions
The aggregate cost of securities purchased and the aggregate proceeds of
securities sold excluding short-term securities, for the year ended December
31, 1998 were $1,503,563 and $1,880,632, respectively.
As of December 31, 1998, the net unrealized appreciation of $55,953,937 is
comprised of aggregate gross unrealized appreciation and depreciation of
investments of $80,056,062 and $24,102,125, respectively.
4. Auction Market Preferred Stock ("AMPS")
During the period from March 24, 1998 to December 31, 1998 the Fund issued and
redeemed 1,000 shares of Series A and 1,000 shares of Series B AMPS.
Each series of AMPS was redeemable at the option of the Fund in whole, but not
in part, at a price of $100,000 per share plus accumulated and unpaid
dividends. Dividends were cumulative from the date of original issue and were
paid every 49 days at a rate set through Dutch Auction. The Fund was subject
to certain asset coverage tests, and the AMPS were subject to mandatory
redemption if the tests were not met.
In addition, the AMPS were subject to mandatory redemption if the Fund ceased
to qualify as a regulated investment company or if Merrill Lynch, Pierce,
Fenner & Smith Incorporated ceased to be the broker dealer. The liquidation
value under mandatory redemption of the AMPS was $100,000 per share plus
accumulated and unpaid dividends.
5. Notes Payable
As of December 31, 1998, the Fund had $480,500 of principal notes outstanding
to investors. The notes are due on March 24, 2023 and bear interest at a
floating rate. As of December 31, 1998, the Fund was paying interest at 10.00%
per annum.
6. Year 2000 (Unaudited)
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the advisor/administrator and other service providers do not properly
process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem". The
advisor/administrator is taking steps that it believes are reasonably designed
to address the Year 2000 Problem with respect to computer systems that it uses
and to obtain reasonable assurances that comparable steps are being taken by
the Fund's other major service providers. At this time, however, there can be
no assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Central Investment Fund, Inc.
Financial Highlights
For the period from March 24, 1998 (commencement
of operations) to December 31, 1998
For a share of common stock outstanding
throughout the period:
Net asset value, beginning of period $10.00
Net investment income 0.21
Net realized and unrealized gains
on investments 2.17
Total from investment operations 2.38
Capital contribution 7.85
Less distributions from net investment
income:
Common stock equivalent of dividends
paid to AMPS holders (0.21)
Dividends paid to common stockholder 0
Total distributions (0.21)
Net asset value, end of period $20.02
Total investment return 23.80%(1)
Ratios/supplemental data:
Net assets at end of period (000s) $515,376
Average net assets (000s) $464,048
Ratio of expenses to average net assets
applicable to common stock (3) 0.16%(2)
Ratio of net investment income to average net
assets applicable to common stock (3) 1.19%(2)
Portfolio turnover 0.32%
Asset coverage per AMPS share, end of period -
AMPS shares outstanding -
Asset coverage for notes payable, end of period 107258%
Notes payable, end of period $480,500
(1)Total investment return for the period, not annualized.
(2)Annualized.
(3)Ratios are calculated on the basis of income and expenses applicable to
both the common and preferred stock relative to the average net assets
of the common stockholder. Ratios do not reflect the effect of dividend
payments to AMPS holders.
See accompanying notes.
CENTRAL INVESTMENT FUND, INC.
Portfolio of Investments
December 31, 1998
No. of
Shares Market Value
COMMON STOCK
BUILDING AND CONSTRUCTION 1.68%
BUILDING MATERIALS
7,000 GEORGIA PACIFIC CORP 409,937.50
110,600 HOME DEPOT 6,767,337.50
25,000 MASCO CORP 718,750.00
INDUSTRIAL CHEMICALS
13,500 PPG INDUS INC 786,375.00
TOTAL BUILDING AND CONSTRUCTION $8,682,400.00
CHEMICALS AND DRUGS 15.78%
CHEMICALS
17,100 DOW CHEMICAL CO 1,555,031.25
85,600 DUPONT DENEMOURS & CO 4,542,150.00
5,900 EASTMAN CHEMICAL 264,025.00
DRUGS
115,600 ABBOT LABS 5,664,400.00
6,500 ALZA CORP CL A 339,625.00
98,200 AMERICAN HOME PRODUCTS 5,529,887.50
75,200 BRISTOL MYERS SQUIBB CO 10,062,700.00
83,900 LILLY ELI & CO 7,456,612.50
90,600 MERCK & CO., INC 13,380,487.50
97,800 PFIZER INC 12,267,787.50
38,400 PHARMACIA & UPJOHN INC 2,174,400.00
110,800 SCHERING PLOUGH 6,121,700.00
61,800 WARNER-LAMBERT 4,646,587.50
COSMETICS
20,000 AVON PRODUCTS INC 885,000.00
8,300 INTL FLAVORS & FRAGRANCES 366,756.25
HEALTH PRODUCTS/CARE
21,200 BAXTER INTL INC. 1,363,425.00
84,800 GILLETTE CO 4,096,900.00
23,200 TENET HEALTHCARE CORP 609,000.00
TOTAL CHEMICALS AND DRUGS $81,326,475.00
CONSUMER PRODUCTS 12.83%
CONFECTIONS AND BEVERAGES
37,000 ANHEUSER-BUSCH COS 2,428,125.00
187,000 COCA COLA CO 12,505,625.00
114,700 PEPSICO INC 4,695,531.25
PACKAGED FOOD
34,500 CAMPBELL SOUP CO 1,897,500.00
36,000 CONAGRA 1,134,000.00
27,600 HEINZ H J CO 1,562,850.00
31,100 KELLOGG CO 1,061,287.50
183,300 PHILLIP MORRIS CO INC 9,806,550.00
10,500 QUAKER OATS CO 624,750.00
71,600 SARA LEE CORP 2,018,225.00
PAPER
22,900 INTERNATIONAL PAPER CO 1,026,206.25
42,000 KIMBERLY CLARK CORP 2,289,000.00
15,100 WEYERHAEUSER CO 767,268.75
PRINTING AND PUBLISHING
21,500 GANNETT CO., INC 1,386,750.00
7,500 MCGRAW-HILL COMPANIES INC 764,062.50
87,400 TIME WARNER INC 5,424,262.50
OTHER CONSUMER PRODUCTS
22,400 COLGATE PALMOLIVE CO 2,080,400.00
30,900 MINNESOTA MNG & MFR 2,197,762.50
101,500 PROCTER & GAMBLE CO 9,268,218.75
13,900 UST INC 484,762.50
PHOTOGRAPHY
24,600 EASTMAN KODAK CO. 1,771,200.00
APPAREL
22,000 NIKE INC CL B 892,375.00
TOTAL CONSUMER PRODUCTS $66,086,712.50
DURABLE GOODS 22.22%
AEROSPACE-AIRCRAFT
75,600 BOEING CO 2,466,450.00
14,700 LOCKHEED MARTIN CORP 1,245,825.00
12,400 TEXTRON INC 941,625.00
17,600 UNITED TECHNOLOGIES CORP 1,914,000.00
AGRICULTURAL MACHINERY
28,200 CATERPILLAR INC 1,297,200.00
18,900 DEERE & CO 626,062.50
AUTOMOBILE AND PARTS
24,051 DAIMLERCHRYSLER AG 2,310,399.19
90,700 FORD MTR CO 5,322,956.25
53,500 GENERAL MTRS CORP 3,828,593.75
13,500 GENUINE PARTS CO 451,406.25
12,900 TENNECO INC 439,406.25
9,300 TRW INC 522,543.75
ELECTRICAL
16,600 AMP INC 864,237.50
33,500 EMERSON ELEC CO 2,026,750.00
9,600 HONEYWELL INC 723,000.00
ELECTRONICS
5,800 EATON CORP 409,987.50
247,500 GENERAL ELECTRIC CO 25,260,468.75
12,000 GENERAL MILLS INC 933,000.00
123,700 INTEL CORP 14,666,181.25
45,100 MOTOROLA INC 2,753,918.75
INDUSTRIAL MACHINERY
9,100 COOPER INDUS INC 433,956.25
OFFICE EQUIPMENT AND SUPPLIES
73,500 IBM COMMON 13,579,125.00
21,900 PITNEY BOWES INC 1,446,768.75
24,600 XEROX CORP. 2,902,800.00
RUBBER
11,800 GOODYEAR TIRE & RUBBER 595,162.50
OTHER DURABLE GOODS
42,700 ALLIED-SIGNAL INC 1,892,143.75
17,500 CORNING INCORPORATED 787,500.00
COMPUTERS AND SOFTWARE
22,600 AUTOMATIC DATA PROC 1,812,237.50
114,500 COMPAQ COMPUTER CORP 4,801,843.75
78,600 HEWLETT PACKARD CO 5,369,362.50
18,900 UNISYS CORP 650,868.75
TELECOMMUNICATIONS
98,400 LUCENT TECHNOLOGIES INC 10,824,000.00
16,250 SPRINT CORP PCS GROUP 375,781.25
TOTAL DURABLE GOODS $114,475,561.69
FINANCIAL 18.07%
BANKS
57,000 BANK NEW YORK INC 2,294,250.00
22,000 BANKBOSTON CORPORATION 856,625.00
7,400 BANKERS TR NY CORP 632,237.50
63,800 CHASE MANHATTAN CORP NEW 4,342,387.50
73,200 FIRST UNION CORP 4,451,475.00
41,200 FLEET FINANCIAL GROUP INC 1,841,125.00
15,950 HUNTINGTON BANCSHARES INC 479,496.88
33,200 KEYCORP 1,062,400.00
56,850 MBNA CORP 1,417,696.88
19,200 MELLON BANK CORP 1,320,000.00
13,400 MORGAN J P & CO 1,407,837.50
16,000 NATIONAL CITY CORP 1,160,000.00
15,900 SUNTRUST BANKS INC 1,216,350.00
55,800 U.S. BANCORP 1,980,900.00
15,600 WACHOVIA CORP 1,364,025.00
29,250 WASHINGTON MUTUAL INC 1,116,984.38
123,100 WELLS FARGO COMPANY NEW 4,916,306.25
FINANCE COMPANIES
35,100 AMERICAN EXPRESS CO 3,588,975.00
47,542 ASSOCIATES FIRST CAPITAL 2,014,592.25
52,600 FED HOME LN MTG CORP 3,389,412.50
80,200 FEDERAL NATL MTGE ASSN 5,934,800.00
24,300 HOUSEHOLD INTL CORP 962,887.50
44,800 MORGAN ST DE WTR DISC 3,180,800.00
23,100 PNC FINANCIAL 1,250,287.50
HOLDING COMPANY
84,440 BANK ONE CORP 4,311,717.50
130,395 BANKAMERICA CORP NEW 7,839,999.38
172,950 CITIGROUP INC 8,561,025.00
FIRE AND CASUALTY INSURANCE
12,900 CHUBB CORP 836,887.50
10,700 SAFECO CORP 459,431.25
INSURANCE
64,800 ALLSTATE CORP. 2,502,900.00
79,500 AMERICAN INTL GROUP 7,681,687.50
12,700 AON CORP 703,262.50
16,800 CIGNA CORP 1,298,850.00
17,800 HARTFORD FINANCIAL SVCS 976,775.00
19,200 MARSH & MCLENNAN CO. 1,122,000.00
12,600 ST PAUL COS INC 437,850.00
LIFE INSURANCE
19,200 AMERICAN GENERAL CORP 1,497,600.00
7,700 LINCOLN NATL CORP IND 629,956.25
BROKERAGE
25,200 MERRILL LYNCH & CO 1,682,100.00
MISCELLANEOUS
12,900 DUN & BRADSTREET CORP NEW 407,156.25
TOTAL FINANCIAL $93,131,049.77
METALS AND MINING 0.22%
ALUMINUM
13,000 ALUMINUM CO AMER 969,312.50
OTHER METALS
14,600 FREEPORT-MCMORAN COPPER-B 152,387.50
TOTAL METALS AND MINING $1,121,700.00
OIL-ENERGY 6.76%
OIL & GAS PRODUCERS
73,600 AMOCO CORP 4,342,400.00
25,600 OCCIDENTAL PETROLEUM 432,000.00
21,800 USX-MARTHON GROUP COM NEW 656,725.00
NATURAL RESOURCES
24,200 WILLIAMS COS INC-DEL 754,737.50
OIL - DOMESTIC
19,900 PHILLIPS PETE CO 848,237.50
18,600 UNOCAL CORP 542,887.50
OIL - INTERNATIONAL
24,300 ATLANTIC RICHFIELD CO 1,585,575.00
49,700 CHEVRON CORP 4,121,993.75
186,500 EXXON CORP. 13,637,812.50
59,300 MOBIL CORP 5,166,512.50
41,400 TEXACO INC 2,189,025.00
MISCELLANEOUS
17,400 FIRSTENERGY CORP 566,587.50
TOTAL OIL-ENERGY $34,844,493.75
RETAIL 3.99%
DEPARTMENT STORES
33,000 DAYTON HUDSON CORP 1,790,250.00
36,900 K MART 565,031.25
17,500 MAY DEPT STORES CO 1,056,562.50
18,900 PENNEY JC INC 885,937.50
29,600 SEARS ROEBUCK & CO 1,258,000.00
GROCERY
18,600 ALBERTSON'S INC 1,184,587.50
OTHER RETAIL
169,800 WAL MART STORES INC 13,828,087.50
TOTAL RETAIL $20,568,456.25
UTILITIES 11.43%
ELECTRIC
14,300 AMERICAN ELEC PWR INC 672,993.75
11,200 BALTIMORE GAS & ELEC 345,800.00
11,400 CAROLINA PWR & LT CO 536,512.50
16,000 CENTRAL & SOUTH WEST CORP 439,000.00
11,900 CINERGY CORP 409,062.50
17,800 CONSOLIDATED EDISON INC 941,175.00
14,600 DOMINION RES INC-VA 682,550.00
11,000 DTE ENERGY CO 471,625.00
27,200 DUKE POWER CO 1,742,500.00
28,800 EDISON INTERNATIONAL 802,800.00
18,400 ENTERGY CORP NEW 572,700.00
13,800 FPL GROUP INC 850,425.00
9,600 GPU INC 424,200.00
21,400 HOUSTON INDS INC 687,475.00
10,900 NIAGARA MOHAWK PWR 175,762.50
11,200 NORTHERN STS PWR CO 310,800.00
12,500 P P & L RESOURCES INC 348,437.50
22,400 PACIFICORP 471,800.00
16,800 PECO ENERGY CO 699,300.00
33,200 PG&E CORP 1,045,800.00
17,500 PUBLIC SVC ENTERPRISE GRP 700,000.00
52,200 SOUTHERN CO 1,517,062.50
16,400 UNICOM CORPORATION 632,425.00
GAS
7,200 CONSOLIDATED NATL GAS 388,800.00
18,600 TEXAS UTILITIES CO 868,387.50
TELEPHONE
122,800 A T & T 9,240,700.00
13,900 ALLTEL CORP 831,393.75
82,800 AMERITECH CORP NEW 5,247,450.00
117,400 BELL ATLANTIC CORP 6,222,200.00
150,000 BELLSOUTH CORP 7,481,250.00
23,500 ENRON CORP 1,340,968.75
12,400 FRONTIER CORP 421,600.00
72,400 GTE CORP 4,706,000.00
32,500 SPRINT CORP 2,734,062.50
36,500 US WEST INC (NEW) 2,358,812.50
WASTE DESPOSAL
14,700 BROWNING FERRIS IND 418,031.25
24,940 WASTE MANAGEMENT INC NEW 1,162,827.50
TOTAL UTILITIES $58,902,690.00
MISCELLANEOUS 6.57%
BROADCAST/COMMUNICATIONS
53,800 CBS CORP 1,761,950.00
153,300 DISNEY WALT CO 4,599,000.00
BUSINESS SERVICES
61,300 CENDANT CORP 1,168,531.25
FOOD SERVICE
52,100 MCDONALDS CORP 3,992,162.50
MED SERV & SUPPLIES
12,400 HUMANA INC 220,875.00
TRANSPORTATION
13,800 AMR CORP 819,375.00
35,400 BURLINGTON NRTHN SANTA FE 1,194,750.00
16,500 CSX CORP 684,750.00
28,500 NORFOLK SOUTHERN CORP 903,093.75
18,700 UNION PACIFIC CORP 842,668.75
MISCELLANEOUS
35,000 CARNIVAL CORP CL A 1,680,000.00
101,700 JOHNSON & JOHNSON 8,530,087.50
TELECOMMUNICATIONS
138,600 SBC COMMUNICATIONS INC 7,432,425.00
TOTAL MISCELLANEOUS $33,829,668.75
TOTAL COMMON STOCK $512,969,207.71
OTHER
0.45%
CASH EQUIVALENTS
2,318,541 AIM SHORT TERM INV SER 2 2,318,541.15
TOTAL $2,318,541.15
TOTAL OTHER $2,318,541.15
TOTAL INVESTMENTS - 100.00% $515,287,748.86
(cost $459,333,412)
See accompanying notes
