The
Corporate
Fund
Accumulation
Program,
Inc.
Annual Report
December 31, 1997
<PAGE>
To Our Shareholders:
For the year ended December 31, 1997, The Corporate Fund Accumulation Program,
Inc. provided a total investment return of +8.30%, based on a change in per
share net asset value from $20.69 to $21.13, and assuming reinvestment of $1.220
per share income dividends.
For the six-month period ended December 31, 1997, The Corporate Fund
Accumulation Program, Inc. provided a total investment return of +5.77%, based
on a change in per share net asset value from $20.62 to $21.13, and assuming
reinvestment of $0.664 per share income dividends.
Fiscal Year in Review
During the first quarter of the fiscal year ended December 31, 1997,
fixed-income markets fell on concerns of growing inflationary pressures. We
shortened the duration of the Program to 4.6 years by increasing the Program's
cash reserves to 7% of net assets. At the end of March, the Federal Reserve
Board launched a preemptive strike against inflationary pressures by raising the
Federal Funds rate by 25 basis points (0.25%). Interest rates peaked in
mid-April, then dropped through the second quarter. This rally was fueled by a
significant change in expectations regarding the economy and more optimistic
outlook for inflation. At this time, we decided to maintain a duration-neutral
posture for the Program, based on the volatility that characterized the market.
Accordingly, we set a range of 4.5 years-4.6 years for the Program's duration.
The Program's performance was hurt by our desire to keep a relatively high
percent (8%) of the Program's net assets in cash reserves in response to our
concerns regarding volatility.
The market continued to rally until the middle of the summer. We extended the
upper limit of our duration range to 4.7 years and lengthened our positions
accordingly, primarily by reducing the Program's cash reserve position to 4% of
net assets. Our industrial sector and quality mixes remained neutral to the
Index. The market fell sharply in August as a result of employment and
purchasing manager reports. These figures suggested substantially stronger
consumer spending in the third quarter. The market rallied again in September on
the belief that the Federal Reserve Board would not move to tighten interest
rates again in 1997. Prices then began to fall in early October in response to
concerns about employment and wage pressure, but reversed direction and rose
sharply in the middle of the month because of concerns about the Asian currency
crisis. The US Treasury market has been viewed as a "safe haven" for assets. By
the end of the fiscal year, bond yields were at their lowest levels of the year.
We extended the Program's duration to 5.85 years in order to seek to participate
in this rally. As a result of these strategies, the Program's total return rose
to +8.30% for the year ended December 31, 1997.
Portfolio Matters
A strong rally in bond prices in September, which was encouraged by low
inflation data, brought the yield on the 30-year Treasury bond to 6.23% by the
beginning of October. This rally lasted from the middle of September through the
first week of October, and was mirrored by the gains of the stock market, which
soared from 7660 to 8178 as measured by the Dow Jones Industrial Average (DJIA).
On October 8, 1997, Federal Reserve Board Chairman Alan Greenspan expressed
concern before the House Budget Committee that the demand for labor was
outpacing the supply, with the resulting pressure likely to push up wages and
prices. He suggested that the Federal Reserve Board would tighten monetary
policy before it would allow this to happen. Bond prices slumped, and the yield
on the long-term Treasury bond jumped from 6.23% to 6.43% in three days. Then,
on October 23, 1997, the Thai baht collapsed and the
1
<PAGE>
Asian currency markets declined rapidly. On the following Monday, the New York
Stock Exchange saw the DJIA fall 554 points on a record volume of 1.2 billion
shares. A worldwide "flight to quality" caused both foreign and domestic
investors to seek shelter in the US Treasury market.
The yield on the long-term bond fell from 6.43% to 6.15%. Gross domestic product
(GDP) figures for the third calendar quarter of 1997 were released indicating a
slightly larger-than-expected increase of 3.5% as compared to 3.3% in the second
calendar quarter. The GDP price deflator rose only 1.4% for the third calendar
quarter against a 1.8% increase in the second calendar quarter. This was the
lowest quarterly increase since the second quarter of 1964. The long-term bond
finished the month with a 6.16% yield. November and December witnessed a
continuation of the flight to quality into US bonds. The Treasury yield curve
flattened from 53 basis points to 28 basis points between 2-year-30-year issues.
This suggested some foreign central bank selling of issues with short-term
maturities to shore up weak currencies and private sector purchasing of the
long-term issues to increase dollar-denominated investments. By the end of the
year, the yield on the long-term Treasury bond was 5.92%.
In Conclusion
We appreciate your ongoing investment in The Corporate Fund Accumulation
Program, Inc., and we look forward to assisting you with your financial needs in
our upcoming semi-annual report to shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Jay C. Harbeck
Jay C. Harbeck
Senior Vice President and
Portfolio Manager
February 6, 1998
Officers and Directors
Arthur Zeikel--President and Director
Ronald W. Forbes--Director
Cynthia A. Montgomery--Director
Charles C. Reilly--Director
Kevin A. Ryan--Director
Richard R. West--Director
Terry K. Glenn--Executive Vice President
Jay C. Harbeck--Senior Vice President
Joseph T. Monagle Jr.--Senior Vice President
Donald C. Burke--Vice President
Gerald M. Richard--Treasurer
Susan B. Baker--Secretary
Custodian and Transfer Agent
The Bank of New York
90 Washington Street
New York, NY 10286
2
<PAGE>
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Total Return Based on a $10,000 Investment
================================================================================
[LINE GRAPH OMITTED]
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the ML C0A0 Corporate Master Bond Index. Beginning
and ending values are:
12/87 12/97
The Corporate Fund Accumulation
Program, Inc.*+ $10,000 $22,389
ML C0A0 Corporate Master Bond Index $10,000 $26,157
* Assuming transaction costs and other operating expenses, including advisory
fees.
+ The Corporate Fund Accumulation Program, Inc. invests in long- and
intermediate-term fixed-interest bearing debt obligations.
++ This unmanaged Index is comprised of all industrial bonds rated BBB3 or
higher, 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 12/31/97 +8.30%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/97 +6.93
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/97 +8.42
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments December 31, 1997
================================================================================
<TABLE>
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
US Government Obligations
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
US Government US Treasury Bonds:
Obligations-- AAA Aaa $ 500,000 6.50% due 11/15/2026.......................... $ 494,197 $ 533,750
2.1% AAA Aaa 400,000 6.625% due 2/15/2027.......................... 409,143 434,248
AAA Aaa 500,000 6.375% due 8/15/2027.......................... 514,365 527,345
- -----------------------------------------------------------------------------------------------------------------------------------
Total US Government Obligations--2.1%............ 1,417,705 1,495,343
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds & Notes
- -----------------------------------------------------------------------------------------------------------------------------------
Asset-Backed AAA Aaa 2,000,000 First Bank Corporate Card Securities Master
Securities+-- Trust, 6.40% due 2/15/2003....................... 1,997,891 2,016,240
2.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Banks & A+ Aa3 2,000,000 BankAmerica Corp., 7.125% due 5/12/2005.......... 1,978,635 2,075,020
Thrifts--10.6% A A2 400,000 First Chicago Corp., 8.875% due 3/15/2002........ 435,647 437,640
A- A2 2,000,000 First Interstate Bancorp, 9.90% due 11/15/2001... 2,214,217 2,244,920
BBB A2 750,000 Fleet Capital Trust II, 7.92% due 12/11/2026..... 743,337 790,995
A- A3 1,000,000 HSBC Americas Inc., 7% due 11/01/2006............ 992,571 1,017,370
BBB+ A2 1,000,000 Mellon Capital II, 7.995% due 1/15/2027.......... 954,629 1,073,620
----------- ----------
7,319,036 7,639,565
- -----------------------------------------------------------------------------------------------------------------------------------
Financial BBB+ A3 2,000,000 Applied Materials Inc., 7.125% due 10/15/2017.... 2,029,091 2,031,400
Services-- A A3 500,000 Chrysler Corporation, 7.45% due 3/01/2027........ 497,637 534,530
Captive--11.4% A A3 1,000,000 Chrysler Financial Corp., 9.50% due 12/15/1999... 1,060,246 1,061,960
A A1 1,000,000 Ford Motor Credit Co., 7.75% due 3/15/2005....... 999,342 1,072,910
A- A3 1,000,000 General Motors Acceptance Corp., 6.625%
due 10/01/2002................................... 998,776 1,013,730
AA+ Baa2 1,500,000 McDonnell Douglas Financial Corp., 6.13%
due 12/23/1998................................... 1,498,318 1,482,480
A A2 1,000,000 Weyerhaeuser Co., 7.25% due 7/01/2013............ 1,041,858 1,047,950
----------- ----------
8,125,268 8,244,960
- -----------------------------------------------------------------------------------------------------------------------------------
Financial A A2 1,000,000 Beneficial Corporation, 6.80% due 9/16/2003...... 1,000,000 1,014,631
Services-- A+ A1 1,000,000 Commercial Credit Corp., 6% due 4/15/2000........ 986,082 995,700
Consumer-- Equitable Life Assurance Society of the US++:
6.3% A A2 500,000 6.95% due 12/01/2005.......................... 476,513 509,090
A A2 1,000,000 7.70% due 12/01/2015.......................... 993,591 1,070,719
A- Baa1 1,000,000 Finova Capital Corp., 6.55% due 11/15/2002....... 1,002,632 1,010,480
----------- ----------
4,458,818 4,600,620
- -----------------------------------------------------------------------------------------------------------------------------------
Financial A A2 500,000 Bear Stearns Companies, Inc., 6.70%
Services-- due 8/01/2003.................................... 468,039 505,230
Other--10.7% A+ A1 2,000,000 Dean Witter, Discover & Co., 6.75%
due 8/15/2000.................................... 1,996,044 2,027,520
AA Aa2 750,000 MBIA, Inc., 7.15% due 7/15/2027.................. 748,191 795,563
BBB+ Baa1 1,000,000 PaineWebber Group Inc., 8.875%
due 3/15/2005.................................... 997,069 1,119,120
A A2 1,000,000 Salomon Smith Barney Holdings, Inc., 7.375%
due 5/15/2007.................................... 1,000,624 1,047,710
AA- Aa3 2,000,000 Travelers Corp. (The), 7.875% due 5/15/2025...... 2,027,149 2,236,540
----------- ----------
7,237,116 7,731,683
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (continued) December 31, 1997
================================================================================
<TABLE>
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds & Notes (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Industrial-- AA- Aa3 $1,500,000 Archer-Daniels-Midland Company, 7.125%
Consumer due 3/01/2013...................................... $ 1,569,278 $ 1,585,455
Goods--16.7% A+ A1 2,000,000 Bass America, Inc., 6.625% due 3/01/2003........... 1,934,226 2,030,860
A A2 481,262 +Disney Enterprises Inc., 6.85% due 1/10/2007++..... 480,973 489,357
A A2 500,000 J.C. Penney Company, Inc., 7.95%
due 4/01/2017...................................... 551,692 559,030
AAA Aaa 2,000,000 Johnson & Johnson, 8.72% due 11/01/2024............ 2,018,646 2,298,800
A A2 1,125,000 May Department Stores Company (The),
10.625% due 11/01/2010............................. 1,334,625 1,507,286
A A2 1,000,000 Philip Morris Companies, Inc., 9%
due 1/01/2001...................................... 1,011,625 1,068,440
A- A2 1,500,000 Sears, Roebuck & Co., 6.25% due 1/15/2004.......... 1,483,637 1,491,720
A A2 1,000,000 Walt Disney Co. (Class B), 6.75% due 3/30/2006..... 1,025,108 1,032,090
----------- ----------
11,409,810 12,063,038
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial-- AA Aa2 1,500,000 BP America, 9.375% due 11/01/2000.................. 1,601,038 1,625,100
Energy--5.1% AA- A1 1,500,000 Consolidated Natural Gas Co., 6.80%
due 12/15/2027..................................... 1,487,868 1,512,195
A Aa3 500,000 Dresser Industries, Inc., 7.60% due 8/15/2096...... 498,565 560,660
----------- ----------
3,587,471 3,697,955
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation-- A- A3 1,000,000 Southwest Airlines Co., 7.875% due 9/01/2007....... 995,223 1,101,570
1.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities-- A Baa1 1,000,000 GTE Corporation, 8.85% due 3/01/1998............... 1,004,660 1,003,680
Communica- AAA Aaa 500,000 Indiana Bell Telephone Co., Inc., 7.30%
tions--4.9% due 8/15/2026..................................... 499,184 546,345
AA Aa3 2,000,000 Southwestern Bell Telecommunications, Inc.,
6.125% due 3/01/2000............................... 2,003,549 2,003,560
----------- ----------
3,507,393 3,553,585
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities-- A- A3 1,500,000 Detroit Edison Co., 7.22% due 8/01/2002............ 1,551,425 1,556,715
Electric--7.9% A+ A1 1,500,000 Georgia Power Co., 6.125% due 9/01/1999............ 1,497,218 1,499,835
AA Aa3 1,000,000 Northern States Power Co., 7.125%
due 7/01/2025...................................... 1,059,783 1,058,790
A- A3 500,000 Pennsylvania Power & Light Co., 6.875%
due 2/01/2003...................................... 507,131 514,495
A A2 1,000,000 Virginia Electric & Power Co., 8.625%
due 10/01/2024..................................... 982,779 1,125,560
----------- ----------
5,598,336 5,755,395
- -----------------------------------------------------------------------------------------------------------------------------------
Yankee AA- Aa2 2,000,000 ABN AMRO Bank N.V., 7% due 4/01/2008 (b)........... 2,050,073 2,064,040
Corporates*-- A A1 1,000,000 Ford Capital B.V., 9.50% due 6/01/2010 (b)......... 1,095,804 1,238,680
12.7% A+ A2 1,500,000 Grand Metropolitan Investment Corp., 9%
due 8/15/2011 (b).................................. 1,803,381 1,805,685
A+ A3 500,000 Hutchison Whampoa Finance Ltd., 6.95%
due 8/01/2007 (b)++................................ 500,175 471,130
A+ A2 2,000,000 Hydro-Quebec, 7.375% due 2/01/2003 (c)............. 2,033,890 2,092,100
A A2 500,000 Petroliam Nasional Berhad, 6.875% due
7/01/2003 (c)++.................................... 496,134 474,766
AA Aa2 1,000,000 Swiss Bank Corp. NY, 7.375% due 6/15/2017 (b)...... 1,065,036 1,069,760
----------- ----------
9,044,493 9,216,161
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (concluded) December 31, 1997
================================================================================
<TABLE>
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds & Notes (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Yankee A+ A2 $ 500,000 Province of Quebec, 8.80% due 4/15/2003 (a)........ $ 549,419 $ 554,380
Sovereign*--
0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds & Notes--91.4%............... 63,830,274 66,175,152
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial 2,000,000 General Electric Capital Corp., 5.40%
Paper**--2.7% due 1/05/1998...................................... 1,998,800 1,998,800
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase 3,026,000 HSBC Holdings PLC, purchased on
Agreements***--4.2% 12/31/1997 to yield 6.57% to 1/02/1998............. 3,026,000 3,026,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities--6.9%.................. 5,024,800 5,024,800
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments--100.4%.......................... $70,272,779 72,695,295
===========
Liabilities in Excess of Other Assets--(0.4%)...... (314,623)
-----------
Net Assets--100.0%................................. $72,380,672
===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Corresponding industry groups for foreign bonds which are denominated in
US dollars:
(a) Government entity.
(b) Financial institution.
(c) Industrial; other.
** Commercial Paper is traded on a discount basis; the interest rate shown is
the discount rate paid at the time of purchase by the Program.
*** Repurchase Agreements are fully collateralized by US Government
Obligations.
+ Subject to principal paydowns.
++ 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.
6
<PAGE>
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Statement of Assets and Liabilities as of December 31, 1997
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Investments, at value (identified cost--$70,272,779) (Note 1a) . $72,695,295
Cash ........................................................... 9,051
Receivables:
Interest ..................................................... $ 1,278,572
Capital shares sold .......................................... 154,604 1,433,176
------------
Prepaid registration fees and other assets (Note 1d) ........... 51,926
-----------
Total assets ................................................... 74,189,448
-----------
Liabilities:
Payables:
Securities purchased ......................................... 1,603,440
Capital shares redeemed ...................................... 43,276
Investment adviser (Note 2) .................................. 32,039
Dividends .................................................... 13,374 1,692,129
------------
Accrued expenses and other liabilities ......................... 116,647
-----------
Total liabilities .............................................. 1,808,776
-----------
Net Assets ..................................................... $72,380,672
===========
Net Assets Consist of:
Common Stock, $.01 par value, 50,000,000 shares authorized ..... $ 34,255
Paid-in capital in excess of par ............................... 71,686,029
Accumulated realized capital losses on investments--net (Note 5) (1,762,128)
Unrealized appreciation on investments--net .................... 2,422,516
-----------
Net Assets--Equivalent to $21.13 per share based on 3,425,496
shares outstanding ............................................. $72,380,672
===========
See Notes to Financial Statements.
</TABLE>
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Statement of Operations for the Year Ended December 31, 1997
================================================================================
Investment Income (Note 1c):
Interest and premium and discount earned.............. $ 5,017,697
Expenses:
Investment advisory fees (Note 2)..................... $ 367,625
Transfer agent fees................................... 178,923
Accounting services (Note 2).......................... 45,195
Professional fees..................................... 42,450
Registration fees (Note 1d)........................... 36,019
Printing and shareholder reports...................... 29,634
Directors' fees and expenses.......................... 13,347
Custodian fees........................................ 5,216
Pricing fees.......................................... 4,509
Other................................................. 4,272
--------
Total expenses........................................ 727,190
-----------
Investment income--net................................ 4,290,507
-----------
Realized & Unrealized Gain on Investments--Net
(Notes 1c & 3):
Realized gain on investments--net..................... 4,240
Change in unrealized appreciation on investments--net. 1,474,823
-----------
Net Increase in Net Assets Resulting from Operations.. $ 5,769,570
===========
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc. For the Year Ended
Statement of Changes in Net Assets December 31,
-------------------------
1997 1996
================================================================================
Increase (Decrease) in Net Assets:
Operations:
Investment income--net................................ $ 4,290,507 $ 4,746,720
Realized gain on investments--net..................... 4,240 1,212,168
Change in unrealized appreciation on investments--net. 1,474,823 (4,788,096)
----------- -----------
Net increase in net assets resulting from operations.. 5,769,570 1,170,792
----------- -----------
Dividends to Shareholders (Note 1e):
Investment income--net................................ (4,290,410) (4,746,847)
----------- -----------
Net decrease in net assets resulting from dividends
to shareholders ...................................... (4,290,410) (4,746,847)
----------- -----------
Capital Share Transactions (Note 4):
Net decrease in net assets resulting from capital
share transactions ................................... (6,846,909) (4,077,674)
------------ -----------
Net Assets:
Total decrease in net assets.......................... (5,367,749) (7,653,729)
Beginning of year..................................... 77,748,421 85,402,150
----------- -----------
End of year........................................... $72,380,672 $77,748,421
=========== ===========
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Financial Highlights
================================================================================
<TABLE>
<CAPTION>
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: 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year............................... $ 20.69 $ 21.59 $ 19.14 $ 21.55 $ 21.22
-------- -------- -------- -------- --------
Investment income--net........................................... 1.22 1.23 1.28 1.18 1.31
Realized and unrealized gain (loss) on investments--net.......... .44 (.90) 2.45 (2.41) 1.24
-------- -------- -------- -------- --------
Total from investment operations................................ 1.66 .33 3.73 (1.23) 2.55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net......................................... (1.22) (1.23) (1.28) (1.18) (1.29)
Realized gain on investments--net.............................. -- -- -- -- (.93)
-------- -------- -------- -------- --------
Total dividends and distributions............................... (1.22) (1.23) (1.28) (1.18) (2.22)
-------- -------- -------- -------- --------
Net asset value, end of year.................................... $ 21.13 $ 20.69 $ 21.59 $ 19.14 $ 21.55
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share.............................. 8.30% 1.69% 20.05% (5.78%) 12.20%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses........................................................ .99% 1.12% 1.01% 1.10% 1.08%
======== ======== ======== ======== ========
Investment income--net........................................... 5.84% 5.84% 6.23% 5.80% 5.74%
======== ======== ======== ======== ========
Net assets, end of year (in thousands).......................... $ 72,381 $ 77,748 $ 85,402 $ 82,887 $115,367
======== ======== ======== ======== ========
Portfolio turnover.............................................. 90% 77% 104% 122% 132%
======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
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 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) 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.
(c) 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.
(d) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(e) Dividends to shareholders--Dividends from net investment income are declared
and paid monthly. Distributions of capital gains are recorded on the ex-dividend
dates.
(f) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $97 have been reclassified between accumulated net
realized capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
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 0.50%, 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 Inc. ("MLPF&S"), Prudential Securities, Inc., Dean Witter
Reynolds Inc., and Smith Barney, Inc. (the "Administrators"), whereby the
Administrators perform certain
9
<PAGE>
The Corporate Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
administrative duties on behalf of FAM. The Administrators receive a monthly fee
from FAM equal to 0.20%, on an annual basis, of the Program's average daily net
assets.
During the year ended December 31, 1997, the Program paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $4,798 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, 1997 were $63,049,725 and $70,965,370, respectively.
Net realized and unrealized gains as of December 31, 1997 were as follows:
- ------------------------------------------------------
Realized Unrealized
Gains Gains
- ------------------------------------------------------
Long-term investments.... $ 4,240 $2,422,516
------- ----------
Total.................... $ 4,240 $2,422,516
======= ==========
- ------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $2,422,516, of which $2,490,739 related to appreciated
securities and $68,223 related to depreciated securities. The aggregate cost of
investments at December 31, 1997 for Federal income tax purposes was
$70,272,779.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
- -------------------------------------------------------
For the Year Ended Dollar
December 31, 1997 Shares Amount
- -------------------------------------------------------
Shares sold.............. 613,648 $ 12,746,143
Shares issued to
shareholders in
reinvestment of
dividends................ 193,493 4,015,580
----------- -------------
Total issued............. 807,141 16,761,723
Shares redeemed.......... (1,139,219) (23,608,632)
----------- -------------
Net decrease............. (332,078) $ (6,846,909)
=========== =============
- -------------------------------------------------------
- -------------------------------------------------------
For the Year Ended Dollar
December 31, 1996 Shares Amount
- -------------------------------------------------------
Shares sold.............. 943,053 $ 19,538,783
Shares issued to
shareholders in
reinvestment of
dividends................ 221,170 4,567,096
----------- ------------
Total issued............. 1,164,223 24,105,879
Shares redeemed.......... (1,362,008) (28,183,553)
----------- ------------
Net decrease............. (197,785) $ (4,077,674)
=========== ============
- -------------------------------------------------------
5. Capital Loss Carryforward:
At December 31, 1997, the Program had a net capital loss carryforward of
approximately $1,761,000, all of which expires in 2002. This amount will be
available to offset like amounts of any future taxable gains.
10
<PAGE>
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, 1997, 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 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, 1997 by correspondence with the custodian and brokers. 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, 1997, 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 9, 1998
11
<PAGE>
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
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