The
Corporate
Fund
Accumulation
Program,
Inc.
Semi-Annual Report
June 30, 1999
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Program unless
accompanied or preceded by the Program's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
The Corporate Fund
Accumulation Program, Inc.
Box 9011
Princeton, NJ 08543-9011
Printed on post-consumer recycled paper
To Our Shareholders:
For the six months ended June 30, 1999, The Corporate Fund
Accumulation Program, Inc. provided a total investment return of
- -2.97%, based on a change in per share net asset value from $21.62
to $20.45, and assuming reinvestment of $0.536 per share income
dividends. Additional performance information can be found on page 3
of this report to shareholders.
The Environment
During the six months ended June 30, 1999, the US fixed-income
market was characterized by a dramatic shift in investor psychology
that saw a flight-to-quality mentality transformed into a flight-
from-quality bias. Specifically, interest rates trended higher and
the yield curve flattened as investors priced in the possibility
that the Federal Reserve Board would seek to tighten monetary policy
by mid-year. The Federal Reserve Board's shift in policy toward a
tightening bias was being driven by its concern that the domestic
economy was growing at a pace sufficient to rekindle the
inflationary fires. Furthermore, many investors were convinced that
the liquidity problems that had developed as a result of both the
deterioration of the emerging market economies and the excessive
amount of financial leverage in the system were now behind us. On
June 30, 1999, the Federal Reserve Board raised its overnight funds
rate by 0.25% to 5.00% and simultaneously shifted to a neutral
posture.
As we entered the six-month period ended June 30, 1999, the overall
tone of the Treasury market was relatively upbeat since most
investors were expecting technical conditions to remain strong and
the Federal Reserve Board to continue on an accommodative road as
the domestic economy began to feel the negative impact of the rising
trade deficit. Although the Federal Reserve Board had moved from an
accommodative bias to a neutral posture, investors still believed it
was possible for the Federal Funds rate to reach 4% by mid-year
since the economic environment slowed down. However, this optimism
would not last as first quarter US gross domestic product growth
rose an unexpectedly strong 4.5%, spurred on by consumer spending,
which jumped 6.7%. Clearly, consumers were benefiting from a low
unemployment rate and the wealth effect generated from a booming
stock market.
Overseas, Asian countries, at the heart of the crises in 1998,
exhibited the beginnings of economic recovery. This global recovery
led to fears of a rekindling of inflation. Commodities, such as
copper, gained in price. More importantly, the price of oil surged,
spurred on mainly by an agreement by the Organization of Petroleum
Exporting Countries (OPEC) to limit production, but also on
expectations of increased demand by recovering economies. While the
reported producer price index for April showed only a 0.2% increase
(excluding food and energy), the core consumer price index (CPI)
rose a greater-than-expected 0.7% for April, well above expectations
and the largest increase since April 1989. At this point, most
investors believed the Federal Reserve Board would raise short-term
interest rates by at least 25 basis points at the late June Federal
Open Market Committee (FOMC) meeting.
Although investors were relieved to see a complete reversal of
April's inflationary picture in May and June (particularly as the
CPI was unchanged), most investors still believed the Federal
Reserve Board would remain committed to a course of tighter monetary
policy. The forward market, which had priced in approximately 120
basis points prior to the most recent inflationary release, still
projected a 50 basis point--75 basis point aggregate move by the
Federal Reserve Board at mid-month. The yield on the 30-year
Treasury bond, which began the year at 5%, traded to a high of 6.17%
in June. At that time we were not surprised by the Federal Reserve
Board's increase of 25 basis points at its June 30, 1999 FOMC
meeting, followed by a wait-and-see attitude to gauge the strength
of the economy and any inflationary pressures that may build.
Portfolio Matters
Our investment strategy for the Program can best be characterized as
cautiously optimistic. With the trend toward higher interest rates
during the June quarter, we maintained a slightly lower duration
(0.05 year--0.15 year) than the unmanaged benchmark Merrill Lynch
Corporate A-AAA Rated Index for much of the period. (At the
beginning of the year, we changed the Program's benchmark Index from
the unmanaged Merrill Lynch Corporate Master Bond Index to the
Merrill Lynch Corporate A-AAA Index. We believe that this Index
provides a better comparison for the Program's relative
performance.) Given the negative investor sentiment, we raised our
expectations for the trading band for 30-year US Treasury bond
yields to the 5.75%--6.25% range by the second quarter. We believed
that the foundation for a slowdown in the economy had already been
laid given the higher prevailing interest rates and the potential
negative impact of recent stock market volatility on consumer
spending.
Consistent with this strategy, we continued to seek out higher-
coupon issues. We also remained committed to the bigger, more liquid
corporate bonds. We have kept our Treasury holdings to a minimum and
expect to continue to do so as we focus on enhancing the Program's
income stream. Furthermore, we believe that productivity
enhancements and corporate profitability should be sufficient to
produce tighter long-term yield spreads over the long term for
corporate issues relative to Treasury issues, although spreads are
expected to continue to widen through the second half of 1999.
During the June quarter, we began to add investments in energy-
related issuers, paper producers and chemical companies. These areas
experienced improved fundamentals, yet still retained very
attractive yield advantages relative to US Treasury issues. Although
we intended to bring these areas up to a neutral benchmark
weighting, finding securities proved challenging as a result of
small supply and sporadic new issuance. During the latter part of
the period, we slightly reduced the Program's position in real
estate investment trusts given the strong performance during early
1999. However, we still have an overweighted position relative to
the Index since we believe this sector will continue to perform
well.
In Conclusion
We appreciate your ongoing interest 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
August 11, 1999
The Corporate Fund Accumulation Program, Inc.
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on The Corporate Fund Accumulation
Program, Inc.'s Board of Directors. We are pleased to announce that
Terry K. Glenn has been elected President and Director of the
Program. Mr. Glenn has held the position of Executive Vice President
of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Program's Board of
Directors in wishing him well in his retirement from Merrill Lynch
and are pleased that he will continue as a member of the Program's
Board of Directors.
The Corporate Fund Accumulation Program, Inc.
Average Annual Total Return
Period Covered % Return
Year Ended 6/30/99 + 1.05%
Five Years Ended 6/30/99 + 6.84
Ten Years Ended 6/30/99 + 7.32
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments June 30, 1999
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
US Government Obligations
US Government AAA Aaa $ 500,000 US Treasury Notes, 6.25% due 10/31/2001 $ 518,338 $ 507,110
Obligations--
0.7%
Total US Government Obligations--0.7% 518,338 507,110
Sovereign Bonds & Notes
Yankee AA- Aa3 500,000 Province of Manitoba, 5.50% due 10/01/2008 (1) 497,049 457,240
Sovereigns++-- A+ A2 500,000 Province of Quebec, 8.80% due 4/15/2003 (1) 537,104 537,830
1.5%
Total Sovereign Bonds & Notes--1.5% 1,034,153 995,070
Corporate Bonds & Notes
Asset-Backed AA+ Aa3 1,000,000 Continental Airlines, 7.056% due 9/15/2009 1,000,000 1,003,630
Securities*--
1.5%
Banks & A+ Aa2 1,000,000 BankAmerica Corporation, 7.125% due 5/12/2005 991,487 1,011,070
Thrifts--15.1% A A1 1,500,000 Chase Manahattan Corporation, 7.25% due
6/01/2007 1,618,466 1,532,145
A A1 400,000 First Chicago Corp., 8.875% due 3/15/2002 424,040 424,208
A A1 2,000,000 First Interstate/Wells Fargo Company, 9.90%
due 11/15/2001 2,137,790 2,155,880
BBB+ a2 750,000 Fleet Capital Trust II, 7.92% due 12/11/2026 743,681 736,853
A- A3 1,000,000 HSBC Americas Inc., 7% due 11/01/2006 993,828 983,210
A A2 1,000,000 HSBC Holdings, 7.50% due 7/15/2009 995,520 995,520
A- a2 1,000,000 Mellon Capital II, 7.995% due 1/15/2027 956,965 1,006,600
Merita Bank Ltd.:
A- A2 500,000 6.50% due 1/15/2006 485,062 482,150
A- A2 1,000,000 6.50% due 4/01/2009 954,045 947,440
----------- -----------
10,300,884 10,275,076
Financial A+ A1 1,000,000 Chrysler Financial Corp., 9.50% due
Services-- 12/15/1999 1,014,789 1,016,600
Captive--6.1% A A1 1,000,000 Ford Motor Credit Company, 7.75% due
3/15/2005 999,479 1,046,320
General Motors Acceptance Corp.:
A A2 1,000,000 9% due 10/15/2002 1,081,374 1,073,160
A A2 1,000,000 7.125% due 5/01/2003 1,032,669 1,018,880
----------- -----------
4,128,311 4,154,960
Financial A+ A1 100,000 Allstate Corp., 6.75% due 5/15/2018 99,973 94,312
Services-- Associates Corporation of North America:
Consumer-- AA- Aa3 500,000 7.40% due 5/15/2006 542,719 511,345
6.6% AA- Aa3 1,000,000 6.95% due 11/01/2018 994,315 963,500
A+ Aa3 1,000,000 CIT Group Inc., 5.50% due 2/15/2004 996,629 954,340
A A2 1,000,000 Equitable Life Assurance Society of the US,
7.70% due 12/01/2015 (b) 994,126 1,033,425
A A2 1,000,000 Household Finance Corp., 6% due 5/01/2004 999,787 968,903
----------- -----------
4,627,549 4,525,825
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (continued) June 30, 1999
<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 AAA Aaa $ 900,000 Florida Windstorm Under, 7.125% due
Services-- 2/25/2019 (b) $ 895,121 $ 863,458
Other--9.1% Lehman Brothers Holdings, Inc.:
A Baa1 500,000 7.125% due 9/15/2003 507,730 500,490
A Baa1 500,000 7.625% due 6/01/2006 526,295 513,745
A+ Aa3 800,000 Morgan Stanley, Dean Witter, Discover & Co.,
8.33% due 1/15/2007 916,280 865,400
BBB+ Baa1 1,000,000 PaineWebber Group Inc., 8.875% due 3/15/2005 997,677 1,082,060
A Aa3 1,000,000 Salomon Smith Barney Holdings, Inc., 7.375%
due 5/15/2007 1,000,550 1,019,520
BBB+ Baa1 750,000 Simon Debartolo Group LP, 7.375% due
6/15/2018 745,317 685,390
BBB Baa2 750,000 Spieker Properties LP, 7.35% due 12/01/2017 757,557 692,316
----------- -----------
6,346,527 6,222,379
Industrial-- A+ A1 1,000,000 Anheuser-Busch Companies Inc., 6.50% due
Consumer-- 1/01/2028 1,002,980 904,470
2.7% A+ A3 1,000,000 Coca-Cola Enterprises, 6.75% due
9/15/2028 1,063,563 927,660
----------- -----------
2,066,543 1,832,130
Industrial-- A A2 2,000,000 Bass America, Inc., 6.625% due 3/01/2003 1,953,268 1,996,020
Consumer BBB Baa1 1,500,000 Dillard's, Inc., 6.08% due 8/01/2010 (a) 1,499,806 1,494,495
Goods-- A A2 426,754 Disney Custom Repackaged Asset Vehicle-403,
15.6% 6.85% due 1/10/2007 (b)* 426,540 425,559
AAA Aaa 2,000,000 Johnson & Johnson, 8.72% due 11/01/2024 2,018,351 2,261,060
A A1 1,125,000 May Department Stores Company, 10.625% due
11/01/2010 1,319,819 1,450,834
A A2 1,000,000 Phillip Morris Companies, Inc., 9% due 1/01/2001 1,006,183 1,038,390
A- A2 2,000,000 Sears, Roebuck & Co., 6.25% due 1/15/2004 1,993,395 1,959,860
----------- -----------
10,217,362 10,626,218
Industrial-- AA+ Aa1 1,500,000 BP America Inc., 9.375% due 11/01/2000 1,550,024 1,564,680
Energy--4.4% AA- Aa3 500,000 Dresser Industries, Inc., 7.60% due 8/15/2096 498,587 504,310
A- A3 1,000,000 Murphy Oil Corporation, 7.05% due 5/01/2029 996,807 942,410
----------- -----------
3,045,418 3,011,400
Industrial-- BBB+ A3 2,000,000 Applied Materials Inc., 7.125% due 10/15/2017 2,028,003 1,841,040
Manufactur- A+ A1 500,000 Chrysler Corp., 7.45% due 3/01/2027 497,758 503,115
ing--4.5% BBB- Baa2 700,000 Jones Apparel Group, 7.875% due 6/15/2006 (b) 697,606 702,179
----------- -----------
3,223,367 3,046,334
Industrial-- A A2 1,000,000 Computer Sciences Corp., 6.25% due 3/15/2009 995,001 950,078
Services-- A- A3 1,000,000 Dayton Hudson Corp., 6.40% due 2/15/2003 1,029,099 995,350
2.8% ----------- -----------
2,024,100 1,945,428
Transporta- A- A3 1,000,000 Southwest Airlines Co., 7.875% due 9/01/2007 995,962 1,046,970
tion--1.5%
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (concluded) June 30, 1999
<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)
Utilities-- AA+ Aa3 $ 500,000 Ameritech Capital Funding, 6.45% due 1/15/2018 $ 524,726 $ 465,400
Communica- AAA Aaa 500,000 BellSouth Telecommunications, 8.25% due
tions--5.9% 7/01/2032 538,406 507,980
AA- A2 2,000,000 GTE California, Inc., 8.07% due 4/15/2024 2,127,541 2,039,880
AA- A1 1,000,000 Pacific Bell, 6.875% due 8/15/2006 1,038,544 1,013,240
----------- -----------
4,229,217 4,026,500
Utilities-- A- A3 1,500,000 Detroit Edison Company, 7.22% due 8/01/2002 1,536,215 1,529,475
Electric--5.9% AA- A1 1,000,000 PG&E Corp., 7.25% due 8/01/2026 1,033,757 945,340
A- A3 500,000 Pennsylvania Power & Light Co., 6.125% due
5/01/2006 (a) 499,743 500,310
A A2 1,000,000 Virginia Electric & Power Co., 8.625% due
10/01/2024 983,741 1,044,160
----------- -----------
4,053,456 4,019,285
Yankee AA- Aa3 1,000,000 ABN-AMRO Bank NV (Chicago), 7% due
Corporates++-- 4/01/2008 (2) 1,022,343 995,340
12.2% BBB+ Baa3 1,000,000 Fairfax Financial Holdings Ltd., 7.375% due
4/15/2018 (2) 925,311 900,860
A A1 1,000,000 Ford Capital BV, 9.50% due 6/01/2010 (2) 1,088,677 1,158,580
A+ A1 1,500,000 Grand Metropolitan Investment Corp., 9% due
8/15/2011 (2) 1,781,757 1,754,460
A+ A2 2,000,000 Hydro-Quebec, 7.375% due 2/01/2003 (3) 2,025,102 2,055,200
A- A3 1,000,000 Israel Electric Corp. Ltd., 7.75% due
3/01/2009 (3)(b) 999,004 988,910
A- Baa1 500,000 Tyco International Group SA, 6.875% due
1/15/2029 (3) 492,015 455,940
----------- -----------
8,334,209 8,309,290
Total Corporate Bonds & Notes--93.9% 64,592,905 64,045,425
Short-Term Securities
Repurchase 1,623,000 Warburg Dillon Read LLC, purchased on
Agreements ** 6/30/1999 to yield 4.80% to 7/01/1999 1,623,000 1,623,000
- --2.4%
Total Short-Term Securities--2.4% 1,623,000 1,623,000
Total Investments--98.5% $67,768,396 67,170,605
===========
Other Assets Less Liabilities--1.5% 999,451
-----------
Net Assets--100.0% $68,170,056
===========
<FN>
++Corresponding industry groups for foreign bonds which are
denominated in US dollars:
(1)Government entity.
(2)Financial institution.
(3)Industrial; other.
*Subject to principal paydowns.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
(a)Floating rate note.
(b)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Statement of Assets and Liabilities as of June 30, 1999
<S> <C> <C>
Assets:
Investments, at value (identified cost--$67,768,396) (Note 1a) $ 67,170,605
Cash 359
Receivables:
Interest $ 1,196,238
Securities sold 933,033 2,129,271
------------
Prepaid registration fees and other assets (Note 1e) 47,907
------------
Total assets 69,348,142
------------
Liabilities:
Payables:
Securities purchased 995,520
Capital shares redeemed 43,422
Investment adviser (Note 2) 30,836 1,069,778
------------
Accrued expenses and other liabilities 108,308
------------
Total liabilities 1,178,086
------------
Net Assets $ 68,170,056
============
Net Assets Consist of:
Common Stock, $.01 par value, 50,000,000 shares authorized $ 33,340
Paid-in capital in excess of par 69,683,089
Undistributed investment income--net 161,680
Accumulated realized capital losses on investments--net (Note 5) (1,110,262)
Unrealized depreciation on investments--net (597,791)
------------
Net Assets--Equivalent to $20.45 per share based on 3,333,967 shares outstanding $ 68,170,056
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Statement of Operations for the Six Months Ended June 30, 1999
<S> <C> <C>
Investment Income (Note 1d):
Interest and premium and discount earned $ 2,296,637
Expenses:
Investment advisory fees (Note 2) $ 173,419
Transfer agent fees 97,244
Printing and shareholder reports 27,997
Professional fees 20,258
Accounting services (Note 2) 19,193
Registration fees (Note 1e) 14,520
Custodian fees 6,250
Directors' fees and expenses 4,427
Pricing fees 2,032
Other 1,813
------------
Total expenses 367,153
------------
Investment income--net 1,929,484
------------
Realized & Unrealized Loss on Investments--Net (Notes 1d & 3):
Realized loss on investments--net (152,146)
Change in unrealized appreciation/depreciation on investments--net (3,871,774)
------------
Net Decrease in Net Assets Resulting from Operations $ (2,094,436)
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: June 30, 1999 Dec. 31, 1998
<S> <C> <C>
Operations:
Investment income--net $ 1,929,484 $ 3,988,778
Realized gain (loss) on investments--net (152,146) 803,278
Change in unrealized appreciation/depreciation on investments--net (3,871,774) 851,467
------------ ------------
Net increase (decrease) in net assets resulting from operations (2,094,436) 5,643,523
------------ ------------
Dividends to Shareholders (Note 1f):
Investment income--net (1,767,899) (3,988,781)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (1,767,899) (3,988,781)
------------ ------------
Capital Share Transactions (Note 4):
Net increase (decrease) in net assets resulting from capital share transactions 901,514 (2,904,537)
------------ ------------
Net Assets:
Total decrease in net assets (2,960,821) (1,249,795)
Beginning of period 71,130,877 72,380,672
------------ ------------
End of period* $ 68,170,056 $ 71,130,877
============ ============
<FN>
*Undistributed investment income--net $ 161,680 $ 95
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Corporate Fund Accumulation Program, Inc.
Financial Highlights
<CAPTION>
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 21.62 $ 21.13 $ 20.69 $ 21.59 $ 19.14
-------- -------- -------- -------- --------
Investment income--net .58 1.19 1.22 1.23 1.28
Realized and unrealized gain (loss) on investments--net (1.21) .50 .44 (.90) 2.45
-------- -------- -------- -------- --------
Total from investment operations (.63) 1.69 1.66 .33 3.73
-------- -------- -------- -------- --------
Less dividends from investment income--net (.54) (1.20) (1.22) (1.23) (1.28)
-------- -------- -------- -------- --------
Net asset value, end of period $ 20.45 $ 21.62 $ 21.13 $ 20.69 $ 21.59
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share (2.97%)+++ 8.24% 8.30% 1.69% 20.05%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses 1.06%* 1.00% .99% 1.12% 1.01%
======== ======== ======== ======== ========
Investment income--net 5.56%* 5.60% 5.84% 5.84% 6.23%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 68,170 $71,131 $ 72,381 $ 77,748 $ 85,402
======== ======== ======== ======== ========
Portfolio turnover 40% 66% 90% 77% 104%
======== ======== ======== ======== ========
<FN>
*Annualized.
++Based on average shares outstanding.
+++Aggregate total investment return.
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. These unaudited financial
statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The following is a summary of significant
accounting policies followed by the Program.
(a) Valuation of securities--Portfolio securities are valued on the
basis of prices furnished by one or more pricing services which
determine prices for normal, institutional-size trading units. In
certain circumstances, portfolio securities are valued at the last
sale price on the exchange that is the primary market for such
securities, or the last quoted bid price for those securities for
which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day.
Obligations with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value, unless
this method no longer produces fair valuations. Securities for which
there exists no price quotations or valuations and all other assets
are valued at fair value as determined in good faith by or on behalf
of the Board of Directors of the Program.
(b) Repurchase agreements--The Program invests in US Government
securities pursuant to repurchase agreements. Under such agreements,
the counterparty agrees to repurchase the security at a mutually
agreed upon time and price. The Program takes possession of the
underlying securities, marks to market such securities and, if
necessary, receives additions to such securities daily to ensure
that the contract is fully collateralized.
(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.
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 six months ended June 30, 1999, the Program paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $2,287 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 six months ended June 30, 1999 were $27,245,546 and
$26,427,687, respectively.
Net realized losses for the six months ended June 30, 1999 and net
unrealized losses as of June 30, 1999 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(152,146) $ (597,791)
--------- -----------
Total $(152,146) $ (597,791)
========= ===========
As of June 30, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $597,791, of which $974,124 related to
appreciated securities and $1,571,915 related to depreciated
securities. The aggregate cost of investments at June 30, 1999 for
Federal income tax purposes was $67,768,396.
4. Capital Share Transactions:
Transactions in capital shares were as
follows:
For the Six Months Dollar
Ended June 30, 1999 Shares Amount
Shares sold 399,864 $ 8,444,968
Shares issued to share-
holders in reinvestment of
dividends 78,488 1,647,599
----------- -----------
Total issued 478,352 10,092,567
Shares redeemed (435,057) (9,191,053)
----------- -----------
Net increase 43,295 $ 901,514
=========== ===========
For the Year Ended Dollar
December 31, 1998 Shares Amount
Shares sold 561,726 $11,965,648
Shares issued to share-
holders in reinvestment of
dividends 173,288 3,700,826
----------- -----------
Total issued 735,014 15,666,474
Shares redeemed (869,838) (18,571,011)
----------- -----------
Net decrease (134,824) $(2,904,537)
=========== ===========
5. Capital Loss Carryforward:
At December 31, 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.
Officers and Directors
Terry K. Glenn--President and Director
Ronald W. Forbes--Director
Cynthia A. Montgomery--Director
Charles C. Reilly--Director
Kevin A. Ryan--Director
Richard R. West--Director
Arthur Zeikel--Director
Christopher G. Ayoub--Senior Vice President
Joseph T. Monagle Jr.--Senior Vice President
Donald C. Burke--Vice President and
Treasurer
Ira P. Shapiro--Secretary
Custodian and Transfer Agent
The Bank of New York
90 Washington Street
New York, NY 10286
Gerald M. Richard, Treasurer of The Corporate Fund Accumulation
Program, Inc. has recently retired. His colleagues at Merrill Lynch
Asset Management, L.P. join the Program's Board of Directors in
wishing Mr. Richard well in his retirement.
