EXHIBIT 17(e)
QUALITY BOND
PORTFOLIO
The Asset
Program, Inc.
FUND LOGO
Semi-Annual Report
July 31, 2000
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.
Quality Bond Portfolio
The Asset Program, Inc.
Box 9011
Princeton, NJ
08543-9011
QUALITY BOND PORTFOLIO
Officers and
Directors
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Christopher G. Ayoub, Senior Vice President
R. Elise Baum, Senior Vice President
Robert C. Doll, Jr., Senior Vice President
Lawrence R. Fuller, Senior Vice President
Gregory Mark Maunz, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Thomas R. Robinson, Senior Vice President
Donald C. Burke, Vice President and Treasurer
Allan J. Oster, Secretary
Barbara G. Fraser, Secretary of The Asset Program, Inc. has recently
retired. The Fund's Board of Directors wishes Ms. Fraser well in her
retirement.
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
DEAR SHAREHOLDER
During the six-month period ended July 31, 2000, fixed-income
markets remained volatile as the yield curve maintained an inverted
shape. The front end of the Treasury yield curve suffered as price
movement remained under pressure when investors demanded greater
premiums to account for expected increases in the Federal Reserve
Board's overnight rates. Throughout the first half of the period,
the forward Federal Funds market continually reflected 50 basis
points-75 basis points (0.50% - 0.75%) of expected tightening in the
six-month rolling contract. (The forward Federal Funds market
provides an indication to buyers and sellers of Federal Funds as to
what the Federal Funds rate is expected to be at some point in the
future, while a six-month rolling contract is an indication of what
investors expect the Federal Funds level to be in six months.) On
the other hand, long-term interest rates were favorably influenced
by two separate sets of events. Inflationary fears, which greatly
influence yields on the long end of the curve have, for the most
part, been contained as a result of the Federal Reserve Board's
restrictive monetary policy. Second, a supply imbalance, brought on
by the combination of reduced new issuance and a Treasury buyback
program, produced a strong bid for securities in the 20-year--
30-year sector.
Federal Reserve Board monetary policy remained focused on the need
to provide for a slowing in the US economy, which grew at an
alarming 7.3% in the fourth quarter of 1999. Although first quarter
of 2000 growth slowed to 4.8% (adjusted to include benchmark
revisions), second quarter preliminary gross domestic product came
in at 5.2%, which was above both investor expectations and the
Federal Reserve Board's comfort range of 3.5%--4%. Consumer spending
continues to fuel the economic fires, although recent reports such
as new housing sales and auto purchases have led many to conclude
that the Federal Reserve Board should achieve a soft landing of the
economy. Consumers have clearly benefited from low unemployment
rates and the wealth effect generated from a strong stock market,
although if stock market trends mirror the uninspired results
reported during the first half of 2000, consumers may slow spending.
Additionally, consumer confidence was affected by the dotcom sector
and "new economy" sell-off, given the implications that high levels
of leverage (for example, margin on brokerage accounts and credit
card debt) have on consumer balance sheets. If the Federal Reserve
Board's monetary policy were to produce something greater than a
soft landing, or should financial assets experience a sustained
correction in value, this could translate into a weakening of the
economic landscape.
Although inflation has been well contained for the most part, the
scope of the global recovery has led to fears of rekindling
inflation. Commodity pressures, as measured by the
Commodities Research Bureau Index, have been building since the
beginning of the year. Of prime concern has been a surge in the
price of oil, spurred on not only by the Organization of Petroleum
Exporting Countries' production limitations, but also on
expectations of increased demand by recovering economies. With
respect to wage inflation, whether one evaluates wage pressures via
hourly earnings, real earnings or employment cost measures, the
results currently point to controlled inflation. The ability to
export manufacturing capacity, combined with the high levels of
productivity, has served to limit the impact of low unemployment.
Furthermore, inflation, as measured by both the producer price index
and consumer price index, remains well within acceptable levels and
clearly points to a lack of pricing pressures. Notwithstanding the
inflation outlook, we expect the Federal Reserve Board to remain
focused on the need to slow economic momentum. The Federal Reserve
Board raised the Federal Funds rate by a more aggressive 0.50% at
its May Federal Open Market Committee (FOMC) meeting. This move put
the overnight rate at 6.50%, up 175 basis points in the past year.
Given this, and combined with a slowing of economic momentum, the
Federal Reserve Board kept interest rates the same at its June FOMC
meeting, although future increases are still a possibility.
On the corporate bond front, new issuance, which was minimal as the
new year started, began to pick up during the second quarter,
although aggregate levels are still below forecast expectations.
Investor appetite for investment-grade corporate bonds was somewhat
uninspired, given the intent of Federal Reserve Board policy and the
lack of liquidity being provided by the market makers. As a result,
yield spreads trended toward historical highs during this period,
despite a strong business environment and record levels of corporate
profitability. Toward the end of the six-month period, and led by
the compression in swap spreads (that is, the difference in basis
points at which an AA-rated bank could issue debt relative to a
similar maturity Treasury security), corporate bond spreads narrowed
as investors perceived the Federal Reserve Board may be nearing the
end of the push to raise short-term interest rates. This, combined
with very attractive absolute yields, has encouraged some new money
to flow into this sector, a trend we believe may continue as we move
through the second half of the year. As a result, yield spreads on
corporate securities have narrowed.
Portfolio Matters
Consistent with our earlier strategy, we continued to seek out
higher coupon securities with a spread to US Treasury issues given
our cautious outlook. We also remained committed to the bigger, more
liquid issues, particularly within the corporate bond arena. Given
the lack of reasonable liquidity within the investment-grade market,
the larger global bonds provided a better investment balance with
respect to yield and spread volatility. In line with our expectation
relative to the direction of interest rates, we maintained the
Portfolio's duration slightly short of the duration of the Merrill
Lynch Corporate Master Index. The Portfolio took on a much more
barbelled structure as we sold securities in the two-year - five-
year maturity range, with proceeds used to build cash balances. In
early June, we shifted to a more bulleted structure, given our
belief that interest rates may have peaked. Additionally, we sold
the Portfolio's longer-dated Treasury securities, with proceeds
redirected into the corporate spread market, given our expectations
for this sector to outperform in the coming months.
With respect to security-specific issues, the Portfolio held an
overweighted position in energy-related issuers (primarily
integrated oil and gas producers), securities firms, defense
contractors, electric utilities, independent finance companies and
railroads. During the later part of the period, we began to reduce
the Portfolio's holdings in retailers and airlines. We looked to add
to positions in defense contractors, industrials, telecommunications
companies and life insurers. We continue to underweight the
Portfolio in paper and pulp producers, property and casualty
insurers and healthcare companies. Going forward, we intend to look
to reverse an overweighting we had in the finance sector, with
reallocation back to the industrial companies, a sector that we have
underweighted for the past year. Spreads for industrials have become
very attractive to us, and we want to be in a position to benefit
from any cyclical upswing in that sector. Accordingly, we expect to
take these two sectors to a market neutral-weighted position.
In Conclusion
We appreciate your investment in Quality Bond Portfolio of The Asset
Program, Inc., and we look forward to sharing our investment outlook
and strategies with you in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Christopher G. Ayoub)
Christopher G. Ayoub
Senior Vice President and
Portfolio Manager
September 11, 2000
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These classes of shares automatically
convert to Class D Shares after approximately 10 years. (There is no
initial sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders. The Fund's Investment Adviser voluntarily waived a
portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
Recent
Performance
Results*
6 Month 12 Month Since
Total Total Inception Standardized
As of July 31, 2000 Return Return Total Return 30-day Yield
Class A Shares +3.86% +4.20% +34.94% 7.20%
Class B Shares +3.37 +3.42 +29.12 6.75
Class C Shares +3.34 +3.37 +28.66 6.70
Class D Shares +3.62 +3.94 +33.12 6.96
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Quality Bond Portfolio's since inception date is 2/01/95.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 6/30/00 +2.59% -1.52%
Five Years Ended 6/30/00 +5.49 +4.63
Inception (2/01/95) to 6/30/00 +5.50 +4.70
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 6/30/00 +1.93% -1.88%
Five Years Ended 6/30/00 +4.68 +4.68
Inception (2/01/95) to 6/30/00 +4.67 +4.67
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 6/30/00 +1.88% +0.92%
Five Years Ended 6/30/00 +4.62 +4.62
Inception (2/01/95) to 6/30/00 +4.60 +4.60
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
One Year Ended 6/30/00 +2.44% -1.66%
Five Years Ended 6/30/00 +5.25 +4.39
Inception (2/01/95) to 6/30/00 +5.26 +4.46
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Bonds & Notes Value
Aluminum--2.5% A+ A1 $325,000 Alcoa, Inc., 7.375% due 8/01/2010 $ 325,266
Asset-Backed AAA Aaa 150,000 The Money Store Home Equity Trust, 6.225% due 9/15/2023 146,042
Securities*--1.1%
Banking--20.1% A A1 250,000 Bank of New York Company, Inc., 7.875% due 11/15/2002 253,430
A- A1 150,000 Bank One Corp., 7.875% due 8/01/2010 148,852
A+ Aa2 500,000 BankAmerica Corp., 5.875% due 2/15/2009 445,045
A- A1 300,000 First Chicago Bank, 8.25% due 6/15/2002 304,059
A A2 250,000 First National Bank of Boston, 7.375% due 9/15/2006 245,885
A A1 200,000 Firstar Bank NA, 7.125% due 12/01/2009 192,006
BBB+ A3 300,000 Great Western Bank, 9.875% due 6/15/2001 305,622
BBB a1 300,000 KeyCorp Capital I, 7.519% due 7/01/2028 (a) 287,430
BBB+ Baa1 250,000 MBNA America Bank NA, 7.10% due 6/10/2004 (a) 250,628
A Aa3 200,000 Wells Fargo Company, 8.375% due 5/15/2002 203,714
------------
2,636,671
Finance--2.6% BBB+ Baa1 150,000 Comdisco Inc., 6% due 1/30/2002 143,596
A- A3 210,000 Heller Financial Inc., 7.375% due 11/01/2009 199,117
------------
342,713
Finance-- A A2 225,000 Bear Stearns Companies, Inc., 7.625% due 2/01/2005 223,841
Other--14.9% A aa2 100,000 Citigroup Capital II, 7.75% due 12/01/2036 89,856
A- A3 38,000 Donaldson, Lufkin & Jenrette Inc., 6.875% due 11/01/2005 36,481
BBB+ A3 150,000 ERP Operating LP, 7.125% due 10/15/2017 130,050
A+ A1 400,000 Goldman Sachs Group, Inc., 7.625% due 8/17/2005 399,808
A A3 250,000 Lehman Brothers Holdings, Inc., 6.625% due 2/05/2006 235,870
AA- Aa3 250,000 Morgan Stanley, Dean Witter Corp., 7.75% due 6/15/2005 252,618
AA- Aa3 200,000 Morgan Stanley, Dean Witter, Discover & Co.,
7.125% due 1/15/2003 199,676
BBB+ Baa1 275,000 Paine Webber Group Inc., 9.25% due 12/15/2001 281,333
A Aa3 100,000 Salomon Smith Barney Holdings, Inc., 7.125% due 10/01/2006 97,611
------------
1,947,144
Financial A+ Aa3 100,000 Associates Corporation of North America,
Services-- 7.40% due 5/15/2006 98,837
Consumer--11.0% Ford Motor Credit Company:
A A2 500,000 7.50% due 3/15/2005 497,160
A A2 100,000 7.875% due 6/15/2010 100,211
AAA Aaa 245,000 General Electric Capital Corp., 8.50% due 7/24/2008 264,509
General Motors Acceptance Corp.:
A A2 200,000 8.75% due 7/15/2005 209,194
A A2 300,000 6.15% due 4/05/2007 274,704
------------
1,444,615
Industrial-- BBB- Ba1 250,000 Flowers Industries Inc., 7.15% due 4/15/2028 178,800
Consumer Goods-- BBB- Baa3 100,000 Fred Meyer Inc., 7.45% due 3/01/2008 96,133
3.7% AA Aa2 200,000 Wal-Mart Stores, Inc., 8.50% due 9/15/2024 211,418
------------
486,351
Industrial-- AA+ Aa1 175,000 BP America Inc., 9.375% due 11/01/2000 175,912
Energy--4.7% A- A3 460,000 Burlington Resources, 7.375% due 3/01/2029 438,716
------------
614,628
Industrial-- AA- Aa2 150,000 Hewlett-Packard Company, 7.15% due 6/15/2005 150,392
Manufacturing-- A A2 200,000 Honeywell International, 7.50% due 3/01/2010 200,496
10.8% BBB- Baa3 500,000 Lockheed Martin Corporation, 8.50% due 12/01/2029 515,600
A+ A1 100,000 Motorola Inc., 7.50% due 5/15/2025 100,106
BBB- Baa2 200,000 Raytheon Company, 7.90% due 3/01/2003 (b) 201,500
A+ A2 250,000 United Technologies Corporation, 6.625% due 11/15/2004 246,205
------------
1,414,299
Industrial-- A A2 200,000 Computer Sciences Corp., 6.25% due 3/15/2009 179,148
Services--4.3% A A2 182,600 Disney Custom Repackaged Asset Vehicle-403,
6.85% due 1/10/2007 (b) 179,423
BBB Baa2 100,000 Time Warner Entertainment Co., 8.375% due 3/15/2023 103,664
BBB Baa3 100,000 Time Warner Inc., 7.75% due 6/15/2005 100,842
------------
563,077
Transportation-- BBB+ Baa2 50,000 Burlington Northern Santa Fe, 6.75% due 3/15/2029 42,910
4.3% BBB Baa2 250,000 CSX Corp., 7.90% due 5/01/2017 240,922
AA+ Aa3 300,000 Continental Airlines, 7.056% due 3/15/2011 282,948
------------
566,780
US Government AAA Aaa 320,000 US Treasury Bonds, 5.25% due 2/15/2029 288,851
Obligations--3.2% AAA Aaa 125,000 US Treasury Notes, 6.25% due 7/31/2002 124,902
------------
413,753
Utilities-- AA- A1 200,000 AT&T Corporation, 6.50% due 3/15/2029 168,002
Communications-- AA- Aa3 100,000 Ameritech Capital Funding, 6.45% due 1/15/2018 86,939
8.4% BB Ba2 250,000 Frontier Corp., 6% due 10/15/2013 (a) 224,333
A+ Aa3 120,000 GTE California Inc., 5.50% due 1/15/2009 103,886
A+ A2 150,000 GTE Corp., 6.84% due 4/15/2018 137,352
A- A3 200,000 MCI WorldCom Inc., 6.125% due 4/15/2012 195,856
BBB+ Baa1 200,000 Sprint Capital Corporation, 6.125% due 11/15/2008 178,440
------------
1,094,808
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Bonds & Notes Value
Utilities-- BBB+ Baa1 $100,000 Commonwealth Edison, Inc., 7% due 7/01/2005 $ 97,961
Electric--5.7% A+ A1 100,000 Consolidated Edison, Inc., 6.25% due 2/01/2008 91,981
A A3 175,000 Duke Capital Corp., 7.50% due 10/01/2009 173,357
A A1 250,000 Mississippi Power, 6.05% due 5/01/2003 241,965
A A2 150,000 Virginia Electric & Power Co., 8.625% due 10/01/2024 147,998
------------
753,262
Total Investments in Corporate Bonds & Notes
(Cost--$13,272,323)--97.3% 12,749,409
SHORT-TERM
SECURITIES Issue
Commercial 345,000 General Electric Capital Corp., 6.64% due 8/01/2000 345,000
Paper**--2.6%
Total Investments in Short-Term Securities
(Cost--$345,000)--2.6% 345,000
Total Investments (Cost--$13,617,323)--99.9% 13,094,409
Other Assets Less Liabilities--0.1% 17,175
------------
Net Assets--100.0% $ 13,111,584
============
(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.
*Subject to principal paydowns.
**Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Portfolio.
See Notes to Financial Statements.
STATEMENT OF ASSETS ANDLIABILITIES
As of July 31, 2000
Assets: Investments, at value (identified cost--$13,617,323) $ 13,094,409
Cash 707
Receivables:
Interest $ 230,016
Securities sold 134,319
Investment adviser 52,643 416,978
------------
Prepaid registration fees and other assets 29,747
--------------
Total assets 13,541,841
--------------
Liabilities: Payables:
Securities purchased 274,144
Capital shares redeemed 53,145
Dividends to shareholders 26,552
Distributor 7,755 361,596
------------
Accrued expenses and other liabilities 68,661
--------------
Total liabilities 430,257
--------------
Net Assets: Net assets $ 13,111,584
==============
Net Assets Class A Shares of capital stock, $.10 par value,
Consist of: 6,250,000 shares authorized $ 665
Class B Shares of capital stock, $.10 par value,
6,250,000 shares authorized 98,072
Class C Shares of capital stock, $.10 par value,
6,250,000 shares authorized 38,395
Class D Shares of capital stock, $.10 par value,
6,250,000 shares authorized 5,338
Paid-in capital in excess of par 14,506,410
Accumulated realized capital losses on investments--net (1,014,382)
Unrealized depreciation on investments--net (522,914)
--------------
Net assets $ 13,111,584
==============
Net Asset Class A--Based on net assets of $61,124 and 6,645
Value: shares outstanding $ 9.20
==============
Class B--Based on net assets of $9,025,646 and 980,719
shares outstanding $ 9.20
==============
Class C--Based on net assets of $3,533,541 and 383,955
shares outstanding $ 9.20
==============
Class D--Based on net assets of $491,273 and 53,382
shares outstanding $ 9.20
==============
See Notes to Financial Statements.
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
STATEMENT OF OPERATIONS
For the Six Months Ended July 31, 2000
Investment Income: Interest and discount earned $ 519,019
Loaned securities 1,730
-------------
Total income 520,749
-------------
Expenses: Account maintenance and distribution fees--Class B $ 35,939
Investment advisory fees 35,039
Registration fees 31,650
Transfer agent fees--Class B 26,957
Account maintenance and distribution fees--Class C 15,286
Transfer agent fees--Class C 12,176
Printing and shareholder reports 8,717
Accounting services 8,481
Professional fees 7,824
Custodian fees 7,314
Pricing fees 2,762
Transfer agent fees--Class D 1,275
Account maintenance fees--Class D 669
Directors' fees and expenses 575
Transfer agent fees--Class A 180
Other 1,251
-------------
Total expenses before reimbursement 196,095
Reimbursement of expenses (144,217)
-------------
Total expenses after reimbursement 51,878
-------------
Investment income--net 468,871
-------------
Realized & Realized loss on investments--net (368,148)
Unrealized Change in unrealized depreciation on investments--net 376,540
Gain (Loss) on -------------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 477,263
=============
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
July 31, January 31,
Increase (Decrease) in Net Assets: 2000 2000
Operations: Investment income--net $ 468,871 $ 1,124,368
Realized loss on investments--net (368,148) (649,434)
Change in unrealized appreciation/depreciation on investments--net 376,540 (1,211,968)
------------- -------------
Net increase (decrease) in net assets resulting from operations 477,263 (737,034)
------------- -------------
Dividends to Investment income--net:
Shareholders: Class A (2,800) (6,456)
Class B (320,159) (742,992)
Class C (126,701) (288,913)
Class D (19,211) (86,007)
------------- -------------
Net decrease in net assets resulting from dividends
to shareholders (468,871) (1,124,368)
------------- -------------
Capital Share Net decrease in net assets derived from capital
Transactions: share transactions (2,309,007) (854,873)
------------- -------------
Net Assets: Total decrease in net assets (2,300,615) (2,716,275)
Beginning of period 15,412,199 18,128,474
------------- -------------
End of period $ 13,111,584 $ 15,412,199
============= =============
See Notes to Financial Statements.
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
FINANCIAL HIGHLIGHTS
Class A
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
July 31, For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 9.19 $ 10.21 $ 10.10 $ 9.79 $ 10.27
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .33 .68 .66 .69 .68
Realized and unrealized gain (loss)
on investments--net .01 (1.02) .18 .31 (.44)
-------- -------- -------- -------- --------
Total from investment operations .34 (.34) .84 1.00 .24
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.33) (.68) (.66) (.69) (.68)
Realized gain on investments--net -- -- (.07) -- (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.33) (.68) (.73) (.69) (.72)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.20 $ 9.19 $ 10.21 $ 10.10 $ 9.79
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.86%++ (3.39%) 8.57% 10.59% 2.51%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .00%* .00% .00% .00% .00%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.95%* 1.77% 2.00% 2.62% 3.23%
======== ======== ======== ======== ========
Investment income--net 7.41%* 7.12% 6.56% 7.01% 6.85%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 61 $ 83 $ 84 $ 1,214 $ 2,254
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.25% 137.15% 123.80% 114.61% 91.10%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Aggregate total investment return.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (continued)
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
July 31, For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 9.20 $ 10.21 $ 10.09 $ 9.79 $ 10.27
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .30 .60 .58 .60 .59
Realized and unrealized gain (loss)
on investments--net --++ (1.01) .19 .30 (.44)
-------- -------- -------- -------- --------
Total from investment operations .30 (.41) .77 .90 .15
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.30) (.60) (.58) (.60) (.59)
Realized gain on investments--net -- -- (.07) -- (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.30) (.60) (.65) (.60) (.63)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.20 $ 9.20 $ 10.21 $ 10.09 $ 9.79
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.37%+++ (4.01%) 7.88% 9.55% 1.62%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .75%* .75% .75% .75% .78%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.78%* 2.58% 2.71% 3.51% 4.08%
======== ======== ======== ======== ========
Investment income--net 6.66%* 6.31% 5.74% 6.14% 6.00%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 9,026 $ 10,579 $ 11,874 $ 6,095 $ 4,824
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.25% 137.15% 123.80% 114.61% 91.10%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
FINANCIAL HIGHLIGHTS (continued)
Class C
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
July 31, For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 9.20 $ 10.21 $ 10.09 $ 9.79 $ 10.27
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .29 .60 .58 .60 .58
Realized and unrealized gain (loss)
on investments--net --++ (1.01) .19 .30 (.44)
-------- -------- -------- -------- --------
Total from investment operations .29 (.41) .77 .90 .14
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.29) (.60) (.58) (.60) (.58)
Realized gain on investments--net -- -- (.07) -- (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.29) (.60) (.65) (.60) (.62)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.20 $ 9.20 $ 10.21 $ 10.09 $ 9.79
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.34%+++ (4.06%) 7.83% 9.46% 1.55%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .80%* .80% .80% .80% .85%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.91%* 2.70% 2.82% 3.60% 4.15%
======== ======== ======== ======== ========
Investment income--net 6.61%* 6.26% 5.69% 6.05% 5.93%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 3,534 $ 4,160 $ 4,587 $ 2,814 $ 1,885
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.25% 137.15% 123.80% 114.61% 91.10%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (concluded)
Class D
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
July 31, For the Year Ended January 31,
Per Share Net asset value, beginning of period $ 9.20 $ 10.21 $ 10.09 $ 9.79 $ 10.27
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .32 .65 .63 .66 .65
Realized and unrealized gain (loss)
on investments--net --++ (1.01) .19 .30 (.44)
-------- -------- -------- -------- --------
Total from investment operations .32 (.36) .82 .96 .21
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.32) (.65) (.63) (.66) (.65)
Realized gain on investments--net -- -- (.07) -- (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.32) (.65) (.70) (.66) (.69)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.20 $ 9.20 $ 10.21 $ 10.09 $ 9.79
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.62%+++ (3.53%) 8.41% 10.21% 2.25%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .25%* .25% .25% .25% .16%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.20%* 1.97% 2.08% 2.90% 3.47%
======== ======== ======== ======== ========
Investment income--net 7.16%* 6.77% 6.21% 6.75% 6.62%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 491 $ 590 $ 1,583 $ 609 $ 452
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.25% 137.15% 123.80% 114.61% 91.10%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Quality Bond Portfolio (the "Portfolio") is part of The Asset
Program, Inc. (the "Program") (formerly Merrill Lynch Asset Builder
Program, Inc.), which is registered under the Investment Company Act
of 1940 as an open-end management investment company. The Portfolio
is classified as diversified. The Portfolio's financial statements
are prepared in accordance with accounting principles generally
accepted in the United States of America, 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 Portfolio offers four classes of shares under
the Merrill Lynch Select Pricing SM System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of Class B
and Class C may be subject to a contingent deferred sales charge.
All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to
the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Portfolio.
(a) Valuation of investments--Portfolio securities that are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. The Portfolio values debt
securities on the basis of valuations provided by dealers or by a
pricing service which uses information with respect to transactions
in such securities, quotations from dealers, market transactions in
comparable securities, various relationships between securities and
yield to maturity. Portfolio securities may be valued on the basis
of prices furnished by one or more pricing services which determine
prices for normal, institutional-size trading units of such
securities using market information, transactions for comparable
securities and various relationships between securities which are
generally recognized by institutional traders. Options written or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Program's
Board of Directors, including valuations furnished by a pricing
service retained by the Fund which may use a matrix system for
valuations.
(b) Derivative financial instruments--The Portfolio may engage in
various portfolio investment strategies to increase or decrease the
level of risk to which the Portfolio is exposed more quickly and
efficiently than transactions in other types of instruments. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the
Portfolio deposits and maintains as collateral such initial margin
as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Portfolio agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation
in value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Portfolio as unrealized
gains or losses. When the contract is closed, the Portfolio records
a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* Options--The Portfolio is authorized to purchase and write call
and put options. When the Portfolio writes an option, an amount
equal to the premium received by the Portfolio is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to
the extent of the premiums received or paid (or loss or gain to the
extent the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Portfolio'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). Dividend income is recorded on the ex-
dividend dates. Interest income (including amortization of 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 and distributions--Dividends from net investment
income are declared daily 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
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of ML & Co., which is the limited partner.
The Program has also entered into a Distribution Agreement and
Distribution Plans with FAM Distributors, Inc. ("FAMD" or the
"Distributor"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
MLIM is responsible for the management of the Portfolio and provides
the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Program. For such
services, the Portfolio pays a monthly fee at the rate of .50% of
the average daily value of the Portfolio's net assets. For the six
months ended July 31, 2000, MLIM had voluntarily waived $35,039 of
management fees and reimbursed the Portfolio for $109,178 of
additional expenses.
Pursuant to the Distribution Plans adopted by the Program in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
the Portfolio pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at
annual rates based upon the average daily net assets of the shares
of the Portfolio as follows:
Account
Maintenance Distribution
Fee Fee
Class B .25% .50%
Class C .25% .55%
Class D .25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, ("MLPF&S"), a subsidiary of ML
& Co., also provides account maintenance and distribution services
to the Program. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended July 31, 2000, FAMD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Portfolio's Class D Shares as follows:
FAMD MLPF&S
Class D $10 $162
For the six months ended July 31, 2000, MLPF&S received contingent
deferred sales charges of $14,902 and $771 relating to transactions
in Class B and Class C Shares of the Portfolio, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Program's transfer agent.
During the six months ended July 31, 2000, the Portfolio paid
Merrill Lynch Security Pricing Service, an affiliate of MLPF&S,
$3,889 for security price quotations to compute the net asset value
of the Portfolio.
Accounting services are provided to the Portfolio by MLIM at cost.
Certain officers and/or directors of the Program are officers and/or
directors of MLIM, PSI, FDS, FAMD, and/or ML & Co.
The Asset Program, Inc., Quality Bond Portfolio, July 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended July 31, 2000 were $6,520,912 and
$8,555,222, respectively.
Net realized losses for the six months ended July 31, 2000 and net
unrealized losses as of July 31, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(368,148) $(522,914)
--------- ---------
Total $(368,148) $(522,914)
========= =========
As of July 31, 2000, net unrealized depreciation for Federal income
tax purposes aggregated $522,914, of which $48,443 related to
appreciated securities and $571,357 related to depreciated
securities. The aggregate cost of investments at July 31, 2000 for
Federal income tax purposes was $13,617,323.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $2,309,007 and $854,873 for the six months ended July 31, 2000
and for the year ended January 31, 2000, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended July 31, 2000 Shares Amount
Shares sold 347 $ 3,195
Shares issued to shareholders in
reinvestment of dividends 70 642
---------- -----------
Total issued 417 3,837
Shares redeemed (2,805) (25,846)
---------- -----------
Net decrease (2,388) $ (22,009)
========== ===========
Class A Shares for the Year Dollar
Ended January 31, 2000 Shares Amount
Shares sold 10,008 $ 98,429
Shares issued to shareholders in
reinvestment of dividends 586 5,576
---------- -----------
Total issued 10,594 104,005
Shares redeemed (9,837) (95,116)
---------- -----------
Net increase 757 $ 8,889
========== ===========
Class B Shares for the Six Months Dollar
Ended July 31, 2000 Shares Amount
Shares sold 18,153 $ 167,172
Shares issued to shareholders in
reinvestment of dividends 26,542 243,748
---------- -----------
Total issued 44,695 410,920
Automatic conversion of shares (539) (4,899)
Shares redeemed (213,806) (1,964,640)
---------- -----------
Net decrease (169,650) $ (1,558,619)
========== ===========
Class B Shares for the Year Dollar
Ended January 31, 2000 Shares Amount
Shares sold 332,118 $ 3,228,519
Shares issued to shareholders in
reinvestment of dividends 60,842 583,546
---------- -----------
Total issued 392,960 3,812,065
Automatic conversion of shares (381) (3,723)
Shares redeemed (405,478) (3,864,990)
---------- -----------
Net decrease (12,899) $ (56,648)
========== ===========
Class C Shares for the Six Months Dollar
Ended July 31, 2000 Shares Amount
Shares sold 19,806 $ 182,829
Shares issued to shareholders in
reinvestment of dividends 10,572 97,094
---------- -----------
Total issued 30,378 279,923
Shares redeemed (98,819) (908,443)
---------- -----------
Net decrease (68,441) $ (628,520)
========== ===========
Class C Shares for the Year Dollar
Ended January 31, 2000 Shares Amount
Shares sold 150,059 $ 1,459,675
Shares issued to shareholders in
reinvestment of dividends 23,797 228,238
---------- -----------
Total issued 173,856 1,687,913
Shares redeemed (170,886) (1,633,535)
---------- -----------
Net increase 2,970 $ 54,378
========== ===========
Class D Shares for the Six Months Dollar
Ended July 31, 2000 Shares Amount
Shares sold 1,178 $ 10,897
Automatic conversion of shares 539 4,899
Shares issued to shareholders in
reinvestment of dividends 1,489 13,673
---------- -----------
Total issued 3,206 29,469
Shares redeemed (14,024) (129,328)
---------- -----------
Net decrease (10,818) $ (99,859)
========== ===========
Class D Shares for the Year Dollar
Ended January 31, 2000 Shares Amount
Shares sold 29,752 $ 293,364
Automatic conversion of shares 381 3,723
Shares issued to shareholders in
reinvestment of dividends 6,207 60,210
---------- -----------
Total issued 36,340 357,297
Shares redeemed (127,227) (1,218,789)
---------- -----------
Net decrease (90,887) $ (861,492)
========== ===========
5. Short-Term Borrowings:
On December 3, 1999, the Portfolio, along with certain other funds
managed by MLIM and its affiliates, entered into a one-year,
unsecured $1,000,000,000 credit agreement with The Bank of New York
and other lenders. The funds may borrow money for temporary or
emergency purposes to meet shareholder redemptions. Each fund may
borrow up to the maximum amount allowable under the fund's current
prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits. The funds
collectively pay a commitment fee of .09% per annum on the available
portion of the facility. Amounts borrowed under the facility bear
interest at the Federal Funds rate plus .50%. The Portfolio did not
borrow from the facility during the six months ended July 31, 2000.
6. Capital Loss Carryforward:
At January 31, 2000, the Portfolio had a net capital loss
carryforward of approximately $305,000, all of which expires in
2008. This amount will be available to offset like amounts of any
future taxable gains.