The
Corporate
Fund
Accumulation
Program,
Inc.
Annual Report
December 31, 1998
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Program unless
accompanied or preceded by the Program's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
The Corporate Fund
Accumulation Program, Inc.
Box 9011
Princeton, NJ 08543-9011
Printed on post-consumer recycled paper
To Our Shareholders:
For the year ended December 31, 1998, The Corporate Fund
Accumulation Program, Inc. provided a total investment return of
+8.24%, based on a change in per share net asset value from $21.13
to $21.62, and assuming reinvestment of $1.204 per share income
dividends. For the six months ended December 31, 1998, the Program
had a total investment return of +4.14%, based on a change in per
share net asset value from $21.40 to $21.62, and assuming
reinvestment of $0.652 per share income dividends.
Portfolio Matters
During the second half of 1998, the bond market was characterized by
very contrasting operating environments. As we entered the period,
investment-grade bonds were negatively impacted by the serious
liquidity issues that faced the high-yield and emerging markets
sectors. At the same time, the US Treasury market was rallying
sharply with the intermediate-term sector of the curve benefiting
the most. Although the Federal Reserve Board aggressively moved to
lower short-term interest rates during the last quarter of 1998, the
overall trend in US interest rates was an upward flattening shift in
the entire Treasury yield curve, with the five-year sector impacted
the most. As a result, fixed-income markets exhibited a significant
degree of volatility, with yield spread relationships among the
various product groups fluctuating with shifting market conditions.
In the investment-grade corporate bond market, yield spreads
relative to US Treasury securities initially widened over the
overwhelming pressure arising from the global liquidity crisis and
the de-leveraging of financial markets. This was followed by the re-
narrowing of yield spreads as a result of the monetary policy
easings by the Federal Reserve Board. By the end of the year, yield
spread relationships had retraced approximately 60% from the widest
levels reached during 1998.
During this period, we shifted our investment focus to reemphasize
Treasury securities to help insulate the Program against widening
yield spreads and declining market liquidity. At this point, we
further reduced the Program's exposure to the financial services
sector as well as to commodity-based companies that might experience
problems as resource-rich, cash-strapped countries flooded the
market with those commodities. Additionally, we maintained our under-
weighted position in high-end retailers and money center banks. In
the months ahead, we expect to add to our existing positions in
discount retailers, telecommunication providers, diversified
regional banks and utilities.
Following the first two of three Federal Reserve Board monetary
policy easings, we decided to focus on the asset reallocation
process in late October and sought to take advantage of the very
attractive opportunities that had developed in the corporate bond
market. Since liquidity was still a concern, we limited our new
investments to larger, higher-rated issues. The strategy of selling
Treasury positions in favor of corporate securities proved correct
as corporate yield spreads tightened approximately 30 basis points -
60 basis points (0.30%--0.60%), on average, across the investment-
grade universe. Recent additions to the Program's holdings included
Associates Corp. of North America, Anheuser-Busch Companies and
Raytheon Co. as well as Canadian government issues.
The Treasury market lost momentum after the November Federal Open
Market Committee meeting, indicating that the central bank
implemented a shift from an easing bias to neutral posture. The
Treasury market sold off during the third week of December, although
the backup was short-lived as investors quickly found value in the
higher yields that developed. Throughout this period, we maintained
a duration that was in keeping with the Program's benchmark, the
Merrill Lynch Corporate Master Index.
Fiscal Year in Review
For the 12 months ended December 31, 1998, the Program's total
return of +8.24% performed in line with the total return of +8.72%
for the unmanaged benchmark Merrill Lynch Corporate Master Index.
Industry selection within the corporate bond market benefited the
Program as we underweighted those groups that experienced the
greatest amount of yield spread widening, including brokerage firms,
Yankee issues, money center banks, cyclicals and companies with
significant exposure to the Pacific Basin. Furthermore, the Program
maintained a 3%--5% position in US Treasury securities, a sector
that outperformed corporate bonds during the year. During the year,
the Program's overall performance was helped by its limited position
(15%--20% underweighted relative to the Index) in BBB-rated
corporate securities, a sector that produced the lowest returns
within the investment-grade spectrum. Conversely, overall
performance was somewhat negatively impacted by the underperformance
of our commercial mortgage-backed securities and home equity loans
relative to corporate debt. After the close of the fiscal year,
these securities began to show better relative performance.
In Conclusion
Looking ahead, we expect the financial markets to remain extremely
volatile with liquidity remaining at a premium. Although we do not
expect the US economy to enter a deep recessionary environment, we
believe that the Federal Reserve Board will move back to a more
accommodative posture as we head into the second quarter of 1999 and
as the domestic economy begins to slow. The Federal Reserve Board is
clearly concerned about the global credit crunch that has developed
as well as the negative implications that could arise as the global
financial markets deleverage. However, the US Treasury market may
well come under near-term pressure as investors focus on the newly
launched euro and the recent strength in the yen relative to the US
dollar. Accordingly, we will continue to emphasize liquidity and
high-quality issues in our investment strategy.
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,
(Arthur Zeikel)
Arthur Zeikel
President
(Christopher G. Ayoub)
Christopher G. Ayoub
Senior Vice President and Portfolio Manager
(Jay C. Harbeck)
Jay C. Harbeck
Senior Vice President and Portfolio Manager
January 29, 1999
On January 29, 1999, Jay C. Harbeck retired as Senior Vice President
and Portfolio Manager of The Corporate Fund Accumulation Program,
Inc. His colleagues at Merrill Lynch Asset Management, L.P. join the
Program's Board of Directors in wishing Mr. Harbeck well in his
retirement.
The Corporate Fund Accumulation Program, Inc.
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Program
compared to growth of an investment in the ML COAO Corporate Master
Bond Index. Beginning and ending values are:
12/88 12/98
The Corporate Fund Accumulation
Program, Inc.*++ $10,000 $22,610
ML COAO Corporate Master Bond Index $10,000 $25,910
[FN]
++Assuming transaction costs and other operating expenses, including
advisory fees. The Corporate Fund Accumulation Program, Inc. invests
in long-term and intermediate-term fixed-interest bearing debt
obligations issued primarily by corporations.
++++This unmanaged Index is comprised of all industrial bonds rated BBB3
or higher, of all maturities.
Past performance is not predictive of future performance.
The Corporate Fund Accumulation Program, Inc.
Average Annual Total Return
Period Covered % Return
Year Ended 12/31/98 +8.24%
Five Years Ended 12/31/98 +6.16
Ten Years Ended 12/31/98 +8.50
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments December 31, 1998
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
US Government & Agency Obligations
US AAA Aaa $ 800,000 Government National Mortgage Association,
Government & 6.375% due 11/20/2026++ $ 793,975 $ 807,496
Agency AAA Aaa 500,000 US Treasury Bonds, 5.50% due 8/15/2028 527,936 523,360
Obligations-- US Treasury Notes:
4.1% AAA Aaa 1,000,000 6.50% due 8/15/2005 1,079,084 1,099,060
AAA Aaa 500,000 4.75% due 11/15/2008 504,218 503,905
Total US Government & Agency
Obligations--4.1% 2,905,213 2,933,821
Sovereign Bonds & Notes
Yankee AA- A1 500,000 Province of Manitoba, 5.50% due 10/01/2008 (a) 496,891 504,605
Sovereign*-- A+ A2 500,000 Province of Quebec, 8.80% due 4/15/2003 (a) 541,320 561,065
1.5%
Total Sovereign Bonds & Notes--1.5% 1,038,211 1,065,670
Corporate Bonds & Notes
Asset-Backed AA Aa2 500,000 CIT Group Home Equity Loan Trust, 6.44%
Securities++-- due 11/15/2027 499,813 502,360
5.6% AAA Aaa 1,000,000 First Bank, Corporate Card MasterTrust, 6.40%
due 2/15/2003 999,151 1,027,600
AAA Aaa 464,544 First Greensboro Home Equity Loan Trust,
6.55% due 12/25/2029 464,544 461,931
AAA Aaa 1,000,000 IMC Home Equity Loan Trust, 6.36% due
8/20/2022 999,811 1,009,420
NR++++ A2 1,000,000 Mortgage Capital Funding, Inc., 6.726% due
6/18/2008 1,009,629 1,021,797
----------- -----------
3,972,948 4,023,108
Banks & A+ Aa2 1,000,000 BankAmerica Corporation, 7.125% due
Thrifts--9.5% 5/12/2005 990,768 1,070,180
A A1 400,000 First Chicago Corp., 8.875% due 3/15/2002 428,007 439,140
A A2 2,000,000 First Interstate/Wells Fargo Company, 9.90%
due 11/15/2001 2,164,038 2,237,640
BBB+ a2 750,000 Fleet Capital Trust II, 7.92% due 12/11/2026 743,567 832,875
A- A3 1,000,000 HSBC Americas Inc., 7% due 11/01/2006 993,412 1,047,180
A- a2 1,000,000 Mellon Capital II, 7.995% due 1/15/2027 956,190 1,111,860
----------- -----------
6,275,982 6,738,875
Financial A+ A2 1,000,000 Chrysler Financial Corp., 9.50% due
Services-- 12/15/1999 1,030,343 1,039,220
Captive-- A A1 1,000,000 Ford Motor Credit Company, 7.75% due
6.1% 3/15/2005 999,433 1,108,730
General Motors Acceptance Corp.:
A A2 1,000,000 9% due 10/15/2002 1,092,272 1,117,090
A A2 1,000,000 7.125% due 5/01/2003 1,036,374 1,058,770
----------- -----------
4,158,422 4,323,810
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (continued) December 31, 1998
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Corporate Bonds & Notes (continued)
Financial A+ A1 $ 100,000 Allstate Corp., 6.75% due 5/15/2018 $ 99,972 $ 103,933
Services-- AA- Aa3 1,000,000 Associates Corp. of North America, 6.95% due
Consumer-- 11/01/2018 994,170 1,065,580
6.1% A A2 1,000,000 Beneficial Corporation, 6.80% due 9/16/2003 1,000,000 1,036,888
A A2 1,000,000 Equitable Life Assurance Society of the US,
7.70% due 12/01/2015+++ 993,948 1,096,950
A- Baa1 1,000,000 Finova Capital Corp., 6.15% due 3/31/2003 999,493 1,005,440
----------- -----------
4,087,583 4,308,791
Financial A Baa1 500,000 Lehman Brothers Inc., 7.36% due 12/15/2003 509,641 517,315
Services-- AA Aa2 750,000 MBIA, Inc., 7.15% due 7/15/2027 748,252 803,475
Other-- A+ Aa3 800,000 Morgan Stanley, Dean Witter, Discover & Co.,
8.2% 8.33% due 1/15/2007 922,323 917,856
BBB+ Baa1 1,000,000 Paine Webber Group Inc., 8.875% due
3/15/2005 997,475 1,123,100
A Aa3 1,000,000 Salomon Smith Barney Holdings, Inc., 7.375%
due 5/15/2007 1,000,575 1,077,210
BBB+ Baa1 750,000 Simon Debartolo Group LP, 7.375% due
6/15/2018 745,195 698,775
BBB Baa2 750,000 Spieker Properties LP, 7.35% due 12/01/2017 757,653 709,159
----------- -----------
5,681,114 5,846,890
Industrial-- A+ A1 1,000,000 Anheuser-Busch Companies, 6.50% due
Consumer-- 1/01/2028 1,002,998 1,056,700
1.5%
Industrial-- A A2 2,000,000 Bass America, Inc., 6.625% due 3/01/2003 1,946,956 2,017,260
Consumer A A2 445,587 Disney-Custom Repackaged Asset Vehicle-403,
Goods-- 6.85% due 1/10/2007+++++ 445,349 462,297
15.1% A- Baa1 1,200,000 Goodrich (BF) Co., 7% due 4/15/2038 1,193,054 1,201,092
AAA Aaa 2,000,000 Johnson & Johnson, 8.72% due 11/01/2024 2,018,453 2,388,540
A A1 1,125,000 May Department Stores Company, 10.625%
due 11/01/2010 1,324,936 1,560,847
A A2 1,000,000 Phillip Morris Companies, Inc., 9% due
1/01/2001 1,008,073 1,067,640
A- A2 2,000,000 Sears, Roebuck & Co., 6.25% due 1/15/2004 1,992,652 2,048,920
----------- -----------
9,929,473 10,746,596
Industrial-- AA+ Aa1 1,500,000 BP America Inc., 9.375% due 11/01/2000 1,567,531 1,610,445
Energy-- AA- Aa3 500,000 Dresser Industries, Inc., 7.60% due 8/15/2096 498,580 589,640
3.1% ----------- -----------
2,066,111 2,200,085
Industrial-- BBB+ A3 2,000,000 Applied Materials, Inc., 7.125% due 10/15/2017 2,028,376 1,936,080
Manufactur- A+ A2 500,000 Chrysler Corp., 7.45% due 3/01/2027 497,718 573,935
ing--6.5% A+ A1 1,000,000 International Business Machines Corp., 6.50%
due 1/15/2028 1,031,271 1,049,590
BBB Baa1 1,000,000 Raytheon Co., 7% due 11/01/2028 999,513 1,052,820
----------- -----------
4,556,878 4,612,425
Industrial-- BBB Baa1 2,000,000 Dillards, Inc., 6.08% due 8/01/2010 1,999,729 2,004,200
Services-- AAA Aaa 500,000 Merck & Co. Inc., 5.95% due 12/01/2028 504,181 499,125
3.5% ----------- -----------
2,503,910 2,503,325
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (concluded) December 31, 1998
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Corporate Bonds & Notes (concluded)
Transporta- A- A3 $1,000,000 Southwest Airlines Co., 7.875% due
tion--1.6% 9/01/2007 $ 995,717 $ 1,117,880
Utilities-- AAA Aaa 500,000 BellSouth Telecommunications, 8.25% due
Communica- 7/01/2032 540,512 557,445
tions--6.9% AA- A2 2,000,000 GTE California, Inc., 8.07% due 4/15/2024 2,131,536 2,220,240
AA- A1 1,000,000 Pacific Bell, 6.875% due 8/15/2006 1,040,662 1,090,810
BBB+ Baa2 1,000,000 WorldCom Inc., 6.40% due 8/15/2005 998,092 1,039,320
----------- -----------
4,710,802 4,907,815
Utilities-- A- A3 1,500,000 Detroit Edison Company, 7.22% due
Electric-- 8/01/2002 1,541,434 1,581,450
5.9% A- A3 500,000 Pennsylvania Power & Light Co., 6.125% due
5/01/2006 499,725 507,435
A- A3 1,000,000 Rochester Gas & Electric, 5.84% due
12/22/2008 1,000,000 993,438
A A2 1,000,000 Virginia Electric & Power Co., 8.625% due
10/01/2024 983,423 1,150,650
----------- -----------
4,024,582 4,232,973
Yankee AA- Aa3 2,000,000 ABN-AMRO Bank N.V., 7% due 4/01/2008 (b) 2,046,531 2,148,640
Corporates*-- BBB Baa2 750,000 Canadian National Railway Co., 6.90% due
11.6% 7/15/2028 (c) 746,827 779,850
A A1 1,000,000 Ford Capital B.V., 9.50% due 6/01/2010 (b) 1,091,139 1,307,450
A+ A1 1,500,000 Grand Metropolitan Investment Corp., 9% due
8/15/2011 (b) 1,789,183 1,901,670
A+ A2 2,000,000 Hydro-Quebec, 7.375% due 2/01/2003 (c) 2,028,127 2,129,360
----------- -----------
7,701,807 8,266,970
Total Corporate Bonds & Notes--91.2% 61,668,327 64,886,243
Short-Term Securities
Repurchase 1,126,000 Warburg Dillion Read LLC, purchased on
Agreements**--1.6% 12/31/1998 to yield 4.75% to 1/04/1999 1,126,000 1,126,000
Total Short-Term Securities--1.6% 1,126,000 1,126,000
Total Investments--98.4% $66,737,751 70,011,734
===========
Other AssetsLess Liabilities--1.6% 1,119,143
-----------
Net Assets--100.0% $71,130,877
===========
<FN>
*Corresponding industry groups for foreign bonds which are
denominated in US dollars:
(a)Government entity.
(b)Financial institution.
(c)Industrial; other.
**Repurchase Agreements are fully collateralized by USGovernment
Obligations.
++Subject to principal paydowns.
++++Not rated.
+++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.
</TABLE>
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Statement of Assets and Liabilities as of December 31, 1998
<S> <C> <C>
Assets:
Investments, at value (identified cost--$66,737,751) (Note 1a) $ 70,011,734
Receivables:
Interest $ 1,207,674
Capital shares sold 27,596 1,235,270
------------
Prepaid registration fees and other assets (Note 1e) 112,884
------------
Total assets 71,359,888
------------
Liabilities:
Payables:
Investment adviser (Note 2) 29,972
Capital shares redeemed 26,300 56,272
------------
Accrued expenses and other liabilities 172,739
------------
Total liabilities 229,011
------------
Net Assets $ 71,130,877
============
Net Assets Consist of:
Common Stock, $.01 par value, 50,000,000 shares authorized $ 32,907
Paid-in capital in excess of par 68,782,007
Undistributed investment income--net 95
Accumulated realized capital losses on investments--net (Note 5) (958,115)
Unrealized appreciation on investments--net 3,273,983
------------
Net Assets--Equivalent to $21.62 per share based on 3,290,672 shares outstanding $ 71,130,877
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Statement of Operations for the Year Ended December 31, 1998
<S> <C> <C>
Investment Income (Note 1d):
Interest and premium and discount earned $ 4,703,294
Expenses:
Investment advisory fees (Note 2) $ 355,894
Transfer agent fees 172,948
Printing and shareholder reports 67,290
Professional fees 40,366
Registration fees (Note 1e) 29,731
Accounting services (Note 2) 21,190
Custodian fees 12,057
Directors' fees and expenses 8,330
Pricing fees 4,054
Other 2,656
------------
Total expenses 714,516
------------
Investment income--net 3,988,778
------------
Realized & Unrealized Gain on Investments--Net (Notes 1d & 3):
Realized gain on investments--net 803,278
Change in unrealized appreciation on investments--net 851,467
------------
Net Increase in Net Assets Resulting from Operations $ 5,643,523
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C>
Operations:
Investment income--net $ 3,988,778 $ 4,290,507
Realized gain on investments--net 803,278 4,240
Change in unrealized appreciation on investments--net 851,467 1,474,823
------------ ------------
Net increase in net assets resulting from operations 5,643,523 5,769,570
------------ ------------
Dividends to Shareholders (Note 1f):
Investment income--net (3,988,781) (4,290,410)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (3,988,781) (4,290,410)
------------ ------------
Capital Share Transactions (Note 4):
Net decrease in net assets resulting from capital share transactions (2,904,537) (6,846,909)
------------ ------------
Net Assets:
Total decrease in net assets (1,249,795) (5,367,749)
Beginning of year 72,380,672 77,748,421
------------ ------------
End of year* $ 71,130,877 $ 72,380,672
============ ============
<FN>
*Undistributed investment income--net (Note 1g) $ 95 $ --
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Financial Highlights
<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: 1998++ 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 21.13 $ 20.69 $ 21.59 $ 19.14 $ 21.55
-------- -------- -------- -------- --------
Investment income--net 1.19 1.22 1.23 1.28 1.18
Realized and unrealized gain (loss) on investments--net .50 .44 (.90) 2.45 (2.41)
-------- -------- -------- -------- --------
Total from investment operations 1.69 1.66 .33 3.73 (1.23)
-------- -------- -------- -------- --------
Less dividends from investment income--net (1.20) (1.22) (1.23) (1.28) (1.18)
-------- -------- -------- -------- --------
Net asset value, end of year $ 21.62 $ 21.13 $ 20.69 $ 21.59 $ 19.14
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 8.24% 8.30% 1.69% 20.05% (5.78%)
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses 1.00% .99% 1.12% 1.01% 1.10%
======== ======== ======== ======== ========
Investment income--net 5.60% 5.84% 5.84% 6.23% 5.80%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $ 71,131 $ 72,381 $ 77,748 $ 85,402 $ 82,887
======== ======== ======== ======== ========
Portfolio turnover 66% 90% 77% 104% 122%
======== ======== ======== ======== ========
<FN>
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
The Corporate Fund Accumulation Program, Inc.
Notes to Financial Statements
1. Significant Accounting Policies:
The Corporate Fund Accumulation Program, Inc. (the "Program") is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Program's
financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of
management accruals and estimates. The following is a summary of
significant accounting policies followed by the Program.
(a) Valuation of securities--Portfolio securities are valued on the
basis of prices furnished by one or more pricing services which
determine prices for normal, institutional-size trading units. In
certain circumstances, portfolio securities are valued at the last
sale price on the exchange that is the primary market for such
securities, or the last quoted bid price for those securities for
which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day.
Obligations with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value, unless
this method no longer produces fair valuations. Securities for which
there exists no price quotations or valuations and all other assets
are valued at fair value as determined in good faith by or on behalf
of the Board of Directors of the Program.
(b) Repurchase agreements--The Program invests in US Government
securities pursuant to repurchase agreements. Under such agreements,
the counterparty agrees to repurchase the security at a mutually
agreed upon time and price. The Program takes possession of the
underlying securities, marks to market such securities and, if
necessary, receives additional securities daily to ensure that the
contract is fully collateralized.
(c) Income taxes--It is the Program's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends to shareholders--Dividends from net investment income
are declared and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates.
(g) 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 $735
have been reclassified between accumulated net realized capital
losses and undistributed net investment income and $833 has been
reclassified between paid-in capital in excess of par 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.
The Corporate Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
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 Incorporated ("MLPF&S"), Prudential
Securities, Inc., Dean Witter Reynolds Inc., and Smith Barney, Inc.
(the "Administrators"), whereby the Administrators perform certain
administrative duties on behalf of FAM. The Administrators receive a
monthly fee from FAM equal to 0.20%, on an annual basis, of the
Program's average daily net assets.
During the year ended December 31, 1998, the Program paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $3,791 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, 1998 were $46,242,791 and
$45,485,335, respectively.
Net realized gains for the year ended December 31, 1998 and net
unrealized gains as of December 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $ 803,278 $ 3,273,983
--------- -----------
Total $ 803,278 $ 3,273,983
========= ===========
As of December 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $3,273,983, of which $3,484,780
related to appreciated securities and $210,797 related to
depreciated securities. The aggregate cost of investments at
December 31, 1998 for Federal income tax purposes was $66,737,751.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
December 31, 1998 Shares Amount
Shares sold 561,726 $ 11,965,648
Shares issued to share-
holders in reinvestment of
dividends 173,288 3,700,826
----------- ------------
Total issued 735,014 15,666,474
Shares redeemed (869,838) (18,571,011)
----------- ------------
Net decrease (134,824) $ (2,904,537)
=========== ============
For the Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 613,648 $ 12,746,143
Shares issued to share-
holders 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)
=========== ============
5. Capital Loss Carryforward:
At December 31, 1998, the Program had a net capital loss
carryforward of approximately $958,000, all of which expires in
2002. This amount will be available to offset like amounts of any
future taxable gains.
<AUDIT-REPORT>
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, 1998, 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 responsi-
bility 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, 1998 by correspondence with the custodian and broker. 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,
1998, 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 8, 1999
</AUDIT-REPORT>
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
Christopher G. Ayoub--Senior 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
