UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-2642
The Corporate Fund Accumulation Program, Inc.
Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
The Corporate Fund Accumulation Program, Inc., 800 Scudders Mill
Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/02
Date of reporting period: 01/01/02 - 12/31/02
Item 1 - Is shareholder report attached? - Y
(BULL LOGO)
Merrill Lynch Investment Managers
Annual Report
December 31, 2002
The Corporate Fund
Accumulation
Program, Inc.
www.mlim.ml.com
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. The
Corporate Fund Accumulation Program is only open to holders of units
of Corporate Income Fund, International Bond Fund and Corporate
Investment Trust Fund for reinvestment of distributions on those
units. The investment objective of the Program is to provide
shareholders with a high level of current income by investing in
long- and intermediate-term bonds that are primarily corporate bonds
or notes. 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:
Investment Environment
The increasing use of quantitative models, which link the behavior
of corporate bonds to stock prices, brought a serious focus on stock
prices by more bond market participants in 2002. Many thought the
equity market would bounce off the low established at the end of
2001 after the Dow Jones Industrial Average (Dow) closed at 8,232 on
September 21. A new low established in July 2002 upset the slow but
positive growth story and had most investors suddenly contemplating
a double-dip recession for 2002. The period between the July low and
October was rocky in all markets. In particular, the automobile
manufacturers hit new lows. Despite increasing sales coupled with
extended incentives, Ford Motor Company's common stock dipped to
$7.15 per share. Fears about pension plan funding added to a
difficult business environment and hurt many companies with generous
employee benefit programs. On October 9, 2002, the Dow hit a new low
to close at 7,270. Fortunately, favorable third-quarter earnings
announcements helped by easy year-over-year comparisons, prompted a
recovery from that point. Assisted by the Federal Reserve Board's
surprise interest rate cut of one-half of 1% in November 2002, the
stock market improved and carried a general rally in the bond market
through the end of the year.
The year 2002 will be a year for the record books. The false starts
from equity market bottoms wrecked havoc with prognosticators. The
overall geopolitical risk and corporate governance issues added
further uncertainty to an already skittish market. Finally, the 50
basis point (.50%) interest rate cut by the Federal Reserve Board in
November 2002 contributed to a relatively stable fourth quarter
netting a mere five basis point widening for the corporate bond
market for the year.
Certainly, no summary of 2002 is complete without a discussion of
the ramifications of Enron Corporation. The general lack of trust
sparked by the bankruptcy and investigation of the seventh-largest
company in the United States plagued shaky markets. As corporate
managements were taken to task, the overall market bifurcated,
causing sharp downward spirals on suspicion of wrongdoing as
investors fled any taint to find solace in higher-rated securities.
Similarly, the rise in prices of bonds of those companies who were
quick to establish their conservative past accounting practices was
equally dramatic.
The difficult credit environment is illustrated by the actions of
the rating agencies. Moody's Investors Service (Moody's) recorded
282 investment-grade downgrades for the year, which was 19% higher
than 2001. The downgrade list was dominated by electric power,
telecommunications and technology companies without which downgrades
would have shown a 9% decline from the prior year. Investment-grade
upgrades totaled only 40 as global defaults also hit a peak in 2002.
Fiscal Year in Review
For the 12 months ended December 31, 2002, The Corporate Fund
Accumulation Program, Inc. had a total investment return of +9.60%,
based on a change in per share net asset value from $20.91 to
$21.84, and assuming reinvestment of $1.016 per share income
dividends. This compares to the +12.61% total return for the
unmanaged benchmark Merrill Lynch U.S. Corporate A - AA Rated Index
for the same period. (Complete performance information can be found
on pages 3 and 4 of this report to shareholders.)
The Program began the year with 25% of its assets invested in
securities rated Baa by Moody's and BBB by Standard & Poor's.
Securities rated below A are not in the A-rated index used as a
benchmark for the Program. The better related performance of higher-
rated securities more than offset the additional yield earned on BBB-
rated issues and the Program therefore underperformed the benchmark.
We reduced our BBB holdings and continued our purchase of high-
quality names in banking, defense and consumer non-cyclicals in the
second half of the year. We sold what we believed to be fully
appreciated securities such as real estate investment trusts and
some high-quality retail bonds. This summer, the auto manufacturing
sector became another casualty of extreme uncertainties in the
economy. Concerns about waning consumer demand despite 0% financing
incentives widened the spreads of Ford Motor Company, the bond
market's largest issuer. General Motors Acceptance Corporation bonds
moved in sympathy as further doubts about pension funding estimates
came to the fore. The rating agencies moved the ratings of these two
largest domestic auto manufacturers out of the single-A rating
category, prompting more selling by investors as these issues
dropped out of many rule-based indexes. We reduced or eliminated our
exposure to several of the worrisome names replacing them with
Lockheed Martin Corporation, Wells Fargo Company, Motiva Enterprises
LLC and Coca-Cola Enterprises. Additionally, we decreased our
holdings in J.P. Morgan Chase & Co. while increasing our exposure to
Citigroup Inc. and Allstate Corp., among others. We are selectively
adding exposure in hard-hit sectors such as telecommunications and
media.
For 2003, we expect gross domestic product growth to be in the
2% - 2.5% range with slow but positive trends revealed in many
previously hard-hit sectors. The questions about geopolitical risk
remain. We believe that a quick resolution to the issues with Iraq,
a return to work in the near term for oil workers in Venezuela, as
well as a diplomatic solution to the situation in North Korea are
events already priced into the market. Since we believe it is
unlikely that all of these difficult situations will be resolved in
the first quarter, we continue to be cautious with portfolio assets.
We believe that there will be time to find opportunities as these
difficult global problems are addressed.
In Conclusion
On September 30, 2002, the Program's Board of Directors approved a
plan of reorganization, subject to shareholder approval and certain
other conditions, between the Program and the Core Bond Portfolio of
Merrill Lynch Bond Fund, Inc. (the "Core Bond Portfolio") whereby
the Core Bond Portfolio will acquire all of the assets and will
assume all of the liabilities of the Program in exchange for newly
issued shares of the Core Bond Portfolio.
We thank you for your investment in The Corporate Fund Accumulation
Program, Inc.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Melinda A. Raso)
Melinda A. Raso
Vice President and
Portfolio Manager
(Robert R. Peterson Jr.)
Robert R. Peterson Jr.
Vice President and
Portfolio Manager
February 3, 2003
The Corporate Fund Accumulation Program, Inc.
About Fund Performance
None of the past results shown should be considered a representation
of future performance. Performance results do not reflect the
deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Figures shown in
each of the following 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.
Recent Performance Results
6-Month 12-Month Standardized
As of December 31, 2002 Total Return Total Return 30-Day Yield
The Corporate Fund Accumulation Program, Inc.* + 7.16% + 9.60% 3.79%
ML U.S. Corporate A-AAA Rated Index** + 8.34 +12.61 --
*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.
**This unmanaged Index is comprised of bonds rated A-AAA, of all
maturities.
The Corporate Fund Accumulation Program, Inc.
Total Return Based on a $10,000 Investment
A line graph illustrating the growth of a $10,000 investment in
The Corporate Fund Accumulation Program, Inc.++ compared to a
similar investment in ML U.S. Corporate A-AAA Rated Index++++.
Values illustrated are as follows :
The Coporate Fund Accumulation Program, Inc++
Date Value
December 1992 $10,000.00
December 1993 $11,220.00
December 1994 $10,571.00
December 1995 $12,690.00
December 1996 $12,904.00
December 1997 $13,975.00
December 1998 $15,127.00
December 1999 $14,652.00
December 2000 $16,001.00
December 2001 $17,332.00
December 2002 $18,996.00
ML U.S. Corporate A-AAA Rated Index++++
Date Value
December 1992 $10,000.00
December 1993 $11,212.00
December 1994 $10,806.00
December 1995 $13,116.00
December 1996 $13,535.00
December 1997 $14,896.00
December 1998 $16,309.00
December 1999 $15,919.00
December 2000 $17,504.00
December 2001 $19,404.00
December 2002 $21,851.00
++Assuming transaction costs and other operating expenses, including
advisory fees and reimbursement of all expenses. 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 bonds rate A-AAA, of all
maturities.
Past performance is not predictive of future results.
The Corporate Fund Accumulation Program, Inc.
Average Annual Total Return
Period Covered % Return
One Year Ended 12/31/02 +9.60%
Five Years Ended 12/31/02 +6.33
Ten Years Ended 12/31/02 +6.63
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 2002
S&P Moody's Face
Industry Rating++ Rating++ Amount Issue Value
U.S. Government Obligations
U.S. Government AAA Aaa $ 315,000 U.S. Treasury Bonds, 5.375% due 2/15/2031 $ 343,399
Obligations-- U.S. Treasury Notes:
1.8% AAA Aaa 100,000 4.375% due 8/15/2012 104,527
AAA Aaa 500,000 4% due 11/15/2012 507,070
Total U.S. Government Obligations
(Cost--$932,688)--1.8% 954,996
Corporate Bonds
Aerospace & BBB- Baa3 250,000 Raytheon Company, 6.75% due 3/15/2018 261,988
Defense--0.5%
Automotive & BBB Baa2 100,000 Delphi Auto Systems Corporation, 6.55% due 6/15/2006 105,439
Equipment-- BBB Baa1 535,000 Ford Motor Company, 7.45% due 7/16/2031 465,380
1.1% -----------
570,819
Banks & A- A2 1,000,000 BB&T Corporation, 6.50% due 8/01/2011 1,129,429
Thrifts--22.7% A Aa3 603,000 Bank of America Corporation, 7.40% due 1/15/2011 710,313
A+ Aa3 500,000 The Bank of New York, 5.20% due 7/01/2007 538,237
A Aa3 800,000 Bank One Corp., 6.875% due 8/01/2006 899,314
A+ Aa2 1,400,000 BankAmerica Corp., 5.875% due 2/15/2009 1,536,235
Citigroup Inc.:
AA- Aa1 950,000 5.70% due 2/06/2004 988,149
A+ Aa2 355,000 6.625% due 6/15/2032 387,563
A A1 800,000 FleetBoston Financial Corp., 7.25% due 9/15/2005 885,822
A A2 660,000 J.P. Morgan Chase & Co., 6.625% due 3/15/2012 715,319
A A2 400,000 Mellon Financial Co., 6.875% due 3/01/2003 403,268
A- A2 500,000 Regions Financial Corporation, 6.375% due 5/15/2012 557,632
A Aa3 1,000,000 Royal Bank of Scotland PLC, 5% due 10/01/2014 1,006,770
A+ A1 500,000 State Street Corporation, 7.65% due 6/15/2010 599,971
BBB+ A3 400,000 Washington Mutual Inc., 7.50% due 8/15/2006 449,784
Wells Fargo Company:
A+ Aa2 400,000 7.25% due 8/24/2005 449,009
A+ Aa2 1,000,000 5.125% due 2/15/2007 1,074,014
-----------
12,330,829
Beverage BBB+ Baa2 500,000 Coors Brewing Company, 6.375% due 5/15/2012 558,772
Brewing &
Distilling--1.0%
Commercial BBB Baa1 958,000 Cendant Corporation, 6.875% due 8/15/2006 994,080
Services &
Supplies--1.8%
Financial BBB A3 218,000 Ford Motor Credit Company, 7.375% due 2/01/2011 211,981
Services-- General Motors Acceptance Corporation:
Captive--2.6% BBB A2 1,000,000 7.75% due 1/19/2010 1,046,890
BBB A2 181,000 8% due 11/01/2031 181,986
-----------
1,440,857
Financial A+ A1 500,000 American General Finance, 5.375% due 9/01/2009 525,343
Services-- Countrywide Home Loan:
Consumer-- A A3 400,000 5.25% due 6/15/2004 416,025
4.3% A A3 1,000,000 5.625% due 5/15/2007 1,069,624
Household Financial Corporation:
A- A2 100,000 7.875% due 3/01/2007 111,704
A- A2 200,000 6.75% due 5/15/2011 213,238
-----------
2,335,934
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 2002 (continued)
S&P Moody's Face
Industry Rating++ Rating++ Amount Issue Value
Corporate Bonds (continued)
Financial Boeing Capital Corporation:
Services-- A+ A3 $ 130,000 7.10% due 9/27/2005 $ 140,818
Other--16.8% A+ A3 500,000 5.80% due 1/15/2013 506,403
A A2 750,000 CIT Group Inc., 7.375% due 4/02/2007 817,657
A+ A2 500,000 Caterpillar Financial Services Corporation, 3.67% due
10/04/2007 499,757
A+ Aa3 20,000 Credit Suisse First Boston Inc., 6.125% due 11/15/2011 20,868
AAA Aaa 250,000 General Electric Capital Corporation, 6.75% due 3/15/2032 276,397
Goldman Sachs Group, Inc.:
A+ Aa3 700,000 7.625% due 8/17/2005 789,432
A+ Aa3 300,000 6.875% due 1/15/2011 334,872
AA- A1 250,000 International Lease Finance Corporation, 5.50% due 6/07/2004 258,296
Lehman Brothers Holdings, Inc.:
A A2 600,000 6.625% due 4/01/2004 632,541
A A2 400,000 7% due 2/01/2008 452,223
A A2 709,000 7.875% due 8/15/2010 838,889
BBB Baa2 500,000 MBNA America Bank NA, 6.625% due 6/15/2012 508,948
A+ A1 1,000,000 Mellon Funding Corporation, 4.875% due 6/15/2007 1,056,357
A+ Aa3 900,000 Morgan Stanley, Dean Witter, Discover & Co., 7.125% due
1/15/2003 901,270
AA- Aa1 1,000,000 Salomon Smith Barney Holdings, 5.875% due 3/15/2006 1,080,580
-----------
9,115,308
Foods--5.0% A+ A1 285,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 284,373
Coca-Cola Enterprises:
A A2 500,000 4.375% due 9/15/2009 515,072
A A2 250,000 6.125% due 8/15/2011 276,273
A- A2 230,000 Kraft Foods Inc., 4.625% due 11/01/2006 241,812
A A1 670,000 Pepsi Bottling Holdings Inc., 5.625% due 2/17/2009 (a) 730,099
BBB Baa3 650,000 Tyson Foods, Inc., 6.625% due 10/01/2004 691,119
-----------
2,738,748
Forest BBB Baa2 250,000 Weyerhaeuser Company, 5.95% due 11/01/2008 266,874
Products--0.5%
Industrial-- Anheuser-Busch Companies Inc.:
Consumer A+ A1 380,000 7.50% due 3/15/2012 468,236
Goods--4.4% A+ A1 250,000 6% due 11/01/2041 264,091
AA- Aa3 500,000 Colgate-Palmolive Company, 5.98% due 4/25/2012 557,059
A- A3 1,000,000 Kohl's Corporation, 6.30% due 3/01/2011 1,108,680
-----------
2,398,066
Industrial-- AA+ Aa1 100,000 Atlantic Richfield, 5.90% due 4/15/2009 111,321
Energy--2.3% Conoco Inc.:
A- A3 180,000 5.90% due 4/15/2004 188,423
A- A3 100,000 6.95% due 4/15/2029 113,338
A+ A1 130,000 Consolidated Edison Inc., 7.15% due 12/01/2009 153,176
BBB Baa2 47,000 Duke Energy Field Services, 8.125% due 8/16/2030 47,707
BBB- Baa3 200,000 Ocean Energy Inc., 7.25% due 10/01/2011 228,057
BBB Baa1 360,000 Progress Energy Inc., 5.85% due 10/30/2008 381,129
-----------
1,223,151
Industrial-- A- A2 500,000 Alcan Inc., 6.45% due 3/15/2011 558,521
Manufacturing--
1.0%
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 2002 (continued)
S&P Moody's Face
Industry Rating++ Rating++ Amount Issue Value
Corporate Bonds (continued)
Industrial-- A+ A1 $ 640,000 First Data Corporation, 6.75% due 7/15/2005 $ 696,541
Services-- BBB+ Baa1 200,000 Time Warner Entertainment, 7.25% due 9/01/2008 216,949
3.6% Viacom Inc.:
A- A3 500,000 5.625% due 8/15/2012 533,416
A- A3 410,000 7.875% due 7/30/2030 510,380
-----------
1,957,286
Insurance-- Allstate Corp.:
2.5% A+ A1 1,000,000 6.75% due 5/15/2018 1,092,778
A+ A1 250,000 6.125% due 12/15/2032 254,677
-----------
1,347,455
Manufacturing-- BBB Baa2 1,000,000 Lockheed Martin Corporation, 8.50% due 12/01/2029 1,341,642
2.5%
Oil--2.9% A- A3 500,000 ConocoPhillips, 3.625% due 10/15/2007 (a) 504,239
A+ A1 500,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 499,167
A- Baa1 500,000 Murphy Oil Corporation, 6.375% due 5/01/2012 549,502
-----------
1,552,908
Oil BBB+ Baa1 500,000 Anadarko Petroleum Corporation, 5% due 10/01/2012 506,107
Exploration &
Production--
0.9%
Real Estate BBB Baa2 1,000,000 Cabot Industrial Properties LP, 7.125% due 5/01/2004 1,039,783
Investment BBB+ Baa1 350,000 Duke Realty LP, 7.375% due 9/22/2005 380,695
Trust--3.2% BBB+ Baa1 310,000 EOP Operating LP, 7.375% due 11/15/2003 322,557
-----------
1,743,035
Special AA Aa3 1,000,000 Principal Life Global, 6.25% due 2/15/2012 (a) 1,059,991
Services--1.9%
Supranational-- A A2 575,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 602,800
1.1%
Tools--0.9% A A2 500,000 Stanley Works, 4.90% due 11/01/2012 (a) 510,524
Transporta- AAA Aaa 500,000 Continental Airlines, 6.563% due 2/15/2012 (b) 534,419
tion--2.9% Southwest Airlines Co.:
A Baa1 630,000 8% due 3/01/2005 697,111
A Baa1 300,000 7.875% due 9/01/2007 337,632
-----------
1,569,162
Utilities-- A A2 300,000 Alltel Corporation, 7% due 7/01/2012 345,737
Communi- AA- Aa3 400,000 Ameritech Capital Funding, 6.45% due 1/15/2018 433,430
cations--5.4% A+ Aa3 300,000 BellSouth Corporation, 6% due 10/15/2011 328,975
A+ A3 1,170,000 GTE Corporation, 6.84% due 4/15/2018 1,215,148
AA- Aa3 200,000 SBC Communications Inc., 6.25% due 3/15/2011 220,488
BBB- Baa3 400,000 Sprint Capital Corporation, 5.70% due 11/15/2003 398,000
-----------
2,941,778
Utilities-- A A1 260,000 Mississippi Power, 6.05% due 5/01/2003 263,139
Electric--2.2% South Carolina Electric & Gas:
A- A1 590,000 7.50% due 6/15/2005 657,743
A- A1 260,000 6.70% due 2/01/2011 294,917
-----------
1,215,799
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 2002 (concluded)
S&P Moody's Face
Industry Rating++ Rating++ Amount Issue Value
Corporate Bonds (concluded)
Yankee A- A2 $ 200,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 (1) $ 227,486
Corporates*-- BBB+ A3 300,000 Daimler-Chrysler NA Holdings, 6.40% due 5/15/2006 (2) 323,388
1.4% A A2 200,000 Norsk Hydro A/S, 6.36% due 1/15/2009 (2) 216,959
-----------
767,833
Total Corporate Bonds
(Cost--$48,791,662)--95.4% 51,910,267
Partnership
Interest Short-Term Securities
$735,987 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (c) 735,987
Total Short-Term Securities
(Cost--$735,987)--1.4% 735,987
Total Investments (Cost--$50,460,337)--98.6% 53,601,250
Other Assets Less Liabilities--1.4% 784,451
-----------
Net Assets--100.0% $54,385,701
===========
*Corresponding industry groups for foreign bonds:
(1)Financial institution.
(2)Industrial; other.
(a)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(b)AMBAC Insured.
(c)Investments in companies considered to be an affiliate of the
Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
Net Net Interest
Affiliate Activity Cost Income
Merrill Lynch $735,987 $735,987 $965
Liquidity Series,
LLC Cash Sweep
Series I
++Ratings of issues shown are unaudited.
See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc.
Statement of Assets and Liabilities as of December 31, 2002
Assets:
Investments, at value (identified cost--$50,460,337) $ 53,601,250
Receivables:
Interest $ 897,418
Capital shares sold 10,267 907,685
------------
Prepaid registration fees and other assets 58,589
------------
Total assets 54,567,524
------------
Liabilities:
Payables:
Custodian bank 53,757
Capital shares redeemed 26,332
Investment adviser 23,613 103,702
------------
Accrued expenses 78,121
------------
Total liabilities 181,823
------------
Net Assets $ 54,385,701
============
Net Assets Consist of:
Common Stock, $.01 par value, 50,000,000 shares authorized $ 24,897
Paid-in capital in excess of par 52,433,654
Accumulated realized capital losses on investments--net $(1,213,763)
Unrealized appreciation on investments--net 3,140,913
------------
Total accumulated earnings--net 1,927,150
------------
Net Assets--Equivalent to $21.84 per share based on 2,489,731 shares outstanding $ 54,385,701
============
See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc.
Statement of Operations for the Year Ended December 31, 2002
Investment Income:
Interest $ 3,263,509
------------
Expenses:
Investment advisory fees $ 277,187
Transfer agent fees 133,130
Professional fees 45,018
Accounting services 42,199
Printing and shareholder reports 39,780
Registration fees 22,919
Directors' fees and expenses 12,823
Pricing services 12,123
Custodian fees 11,247
Other 12,079
------------
Total expenses 608,505
------------
Investment income--net 2,655,004
------------
Realized & Unrealized Gain (Loss) on Investments--Net:
Realized loss on investments--net (321,580)
Change in unrealized appreciation on investments--net 2,671,029
------------
Total realized and unrealized gain on investments--net 2,349,449
------------
Net Increase in Net Assets Resulting from Operations $ 5,004,453
============
See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc.
Statements of Changes in Net Assets
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 2002 2001
Operations:
Investment income--net $ 2,655,004 $ 3,074,492
Realized gain (loss) on investments--net (321,580) 2,507,016
Change in unrealized appreciation on investments--net 2,671,029 (804,930)
------------ ------------
Net increase in net assets resulting from operations 5,004,453 4,776,578
------------ ------------
Dividends to Shareholders:
Dividends to shareholders from investment income--net (2,655,017) (3,074,485)
------------ ------------
Capital Share Transactions:
Net decrease in net assets resulting from capital share transactions (7,142,589) (1,490,014)
------------ ------------
Net Assets:
Total increase (decrease) in net assets (4,793,153) 212,079
Beginning of year 59,178,854 58,966,775
------------ ------------
End of year* $ 54,385,701 $ 59,178,854
============ ============
*Undistributed investment income--net -- $ 7
============ ============
See Notes to Financial Statements.
The Corporate Fund Accumulation Program, Inc.
Financial Highlights
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: 2002 2001 2000 1999 1998
Per Share Operating Performance:
Net asset value, beginning of year $ 20.91 $ 20.34 $ 19.77 $ 21.62 $ 21.13
-------- -------- -------- -------- --------
Investment income--net++ 1.01 1.08 1.21 1.17 1.19
Realized and unrealized gain (loss) on investments--net .94 .57 .58 (1.84) .50
-------- -------- -------- -------- --------
Total from investment operations 1.95 1.65 1.79 (.67) 1.69
-------- -------- -------- -------- --------
Less dividends:
Investment income--net (1.02) (1.08) (1.22) (1.18) (1.20)
In excess of investment income--net -- -- -- --++++ --
-------- -------- -------- -------- --------
Total dividends (1.02) (1.08) (1.22) (1.18) (1.20)
-------- -------- -------- -------- --------
Net asset value, end of year $ 21.84 $ 20.91 $ 20.34 $ 19.77 $ 21.62
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 9.60% 8.32% 9.21% (3.14%) 8.24%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses 1.10% 1.22% 1.10% 1.11% 1.00%
======== ======== ======== ======== ========
Investment income--net 4.79% 5.17% 6.16% 5.69% 5.60%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $ 54,386 $ 59,179 $ 58,967 $ 63,150 $ 71,131
======== ======== ======== ======== ========
Portfolio turnover 84% 227% 127% 61% 66%
======== ======== ======== ======== ========
++Based on average shares outstanding.
++++Amount is less than $.01 per share.
See Notes to Financial Statements.
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 conformity with accounting
principles generally accepted in the United States of America, 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 investments--Portfolio securities are valued on the
basis of prices furnished by one or more pricing services that
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, 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 exist
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 U.S. 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. If the seller defaults
and the fair value of the collateral declines, liquidation of the
collateral of the Program may be delayed or limited.
(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). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. The Program amortizes all
premiums and discounts on debt securities.
(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) Custodian bank--The Program recorded an amount payable to the
custodian bank reflecting an overnight overdraft which resulted from
a failed trade which settled the next day.
(h) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of net
assets be adjusted to reflect permanent differences between
financial and tax reporting. These reclassifications have no effect
on net assets or net asset value per share. There were no
significant reclassifications in the current year.
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 (continued)
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 .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"), a subsidiary of
ML & Co., Prudential Securities, Inc., Morgan Stanley Dean Witter
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
..20%, on an annual basis, of the Program's average daily net assets.
The Program does not pay this fee; FAM pays this fee directly to the
Administrators.
For the year ended December 31, 2002, the Program paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $3,811 for
security price quotations to compute the net asset value of the
Program.
For the year ended December 31, 2002, the Fund reimbursed FAM $2,633
for certain accounting services.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 2002 were $45,344,423 and
$51,958,121, respectively.
Net realized losses for the year ended December 31, 2002 and net
unrealized gains as of December 31, 2002 were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (321,580) $ 3,140,913
----------- -----------
Total $ (321,580) $ 3,140,913
=========== ===========
As of December 31, 2002, net unrealized appreciation for Federal
income tax purposes aggregated $3,137,990, of which $3,203,095
related to appreciated securities and $65,105 related to depreciated
securities. The aggregate cost of investments at December 31, 2002
for Federal income tax purposes was $50,463,260.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
December 31, 2002 Shares Amount
Shares sold 165,254 $ 3,480,332
Shares issued to shareholders
in reinvestment of dividends 116,781 2,458,579
------------- -------------
Total issued 282,035 5,938,911
Shares redeemed (622,176) (13,081,500)
------------- -------------
Net decrease (340,141) $ (7,142,589)
============= =============
For the Year Ended Dollar
December 31, 2001 Shares Amount
Shares sold 336,128 $ 6,961,715
Shares issued to shareholders
in reinvestment of dividends 138,199 2,855,145
------------- -------------
Total issued 474,327 9,816,860
Shares redeemed (544,209) (11,306,874)
------------- -------------
Net decrease (69,882) $ (1,490,014)
============= =============
5. Short-Term Borrowings:
The Program, along with certain other funds managed by FAM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank
One, N.A. and certain other lenders. The Program may borrow under
the credit agreement to fund shareholder redemptions and for other
lawful purposes other than for leverage. The Program may borrow up
to the maximum amount allowable under the Program's current
prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits.
The Corporate Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
The Program pays a commitment fee of .09% per annum based on the
Program's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest
at a rate equal to, at each fund's election, the Federal Funds rate
plus .50% or a base rate as determined by Bank One, N.A. On November
29, 2002, the credit agreement was renewed for one year under the
same terms, except that the total commitment was reduced from
$1 billion to $500 million. The Program did not borrow under the
credit agreement during the year ended December 31, 2002.
6. Reorganization Plan:
On September 30, 2002, the Program's Board of Directors approved a
plan of reorganization, subject to shareholder approval and certain
other conditions, between the Program and the Core Bond Portfolio of
Merrill Lynch Bond Fund, Inc. (the "Core Bond Portfolio") whereby
the Core Bond Portfolio will acquire all of the assets and will
assume all of the liabilities of the Program in exchange for newly
issued shares of the Core Bond Portfolio.
7. Distributions to Shareholders:
On January 15, 2003, an ordinary income dividend of $.039918 was
declared. The dividend was paid on January 15, 2003, to shareholders
of record on January 15, 2003.
The tax character of distributions paid during the fiscal years
ended December 31, 2002 and December 31, 2001 was as follows:
12/31/2002 12/31/2001
Distributions paid from:
Ordinary income $ 2,655,017 $ 3,074,485
----------- -----------
Total taxable distributions $ 2,655,017 $ 3,074,485
=========== ===========
As of December 31, 2002, the components of accumulated earnings on a
tax basis were as follows:
Undistributed ordinary income--net $ --
Undistributed long-term capital
gains--net --
------------
Total undistributed earnings--net --
Capital loss carryforward (1,210,840)*
Unrealized gains--net 3,137,990**
------------
Total accumulated earnings--net $ 1,927,150
============
*On December 31, 2002, the Fund had a net capital loss carryforward
of $1,210,840, of which $882,531 expires in 2008 and $328,309
expires in 2010. This amount will be available to offset like
amounts of any future taxable gains.
**The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales.
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, 2002, 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
the financial highlights for each of the years presented. These
financial statements and the financial highlights are the
responsibility of the Program's management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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, 2002 by
correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our 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,
2002, the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 7, 2003
The Corporate Fund Accumulation Program, Inc.
Officers and Directors
Number
of Portfolios Other
in Fund Director-
Position(s) Length Complex ships
Held of Time Overseen Held by
Name, Address & Age with Fund Served Principal Occupation(s) during Past 5 Years by Director Director
Interested Director
Terry K. Glenn* President 1999 to Chairman, Americas Region since 2001 and 117 Funds None
P.O. Box 9011 and present Executive Vice President since 1983 of 162 Portfolios
Princeton, Director and Fund Asset Management ("FAM") and Merrill
NJ 08543-9011 1985 to Lynch Investment Managers, L.P. ("MLIM");
Age: 62 present President of Merrill Lynch Mutual Funds
since 1999; President of FAM Distributors,
Inc. ("FAMD") since 1986 and Director
thereof since 1991; Executive Vice President
and Director of Princeton Services, Inc.
("Princeton Services") since 1993; President
of Princeton Administrators, L.P. since 1988;
Director of Financial Data Services, Inc.
since 1985.
*Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which FAM or MLIM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of each Fund based on his
positions as Chairman (Americas Region) and Executive Vice President
of FAM and MLIM; President of FAMD; Executive Vice President of
Princeton Services; and President of Princeton Administrators, L.P.
The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72. As Fund President, Mr. Glenn serves at the
pleasure of the Board of Directors.
Number
of Portfolios Other
in Fund Director-
Position(s) Length Complex ships
Held of Time Overseen Held by
Name, Address & Age with Fund Served* Principal Occupation(s) during Past 5 Years by Director Director
Independent Directors
Ronald W. Forbes Director 1980 to Professor Emeritus of Finance, School 45 Funds None
P.O. Box 9095 present of Business, State University of New 54 Portfolios
Princeton, York at Albany since 2000 and Professor
NJ 08543-9095 thereof from 1989 to 2000.
Age: 62
Cynthia A. Montgomery Director 1995 to Professor, Harvard Business School since 45 Funds Unum-
P.O. Box 9095 present 1989. 54 Portfolios Provident
Princeton, Corpora-
NJ 08543-9095 tion;
Age: 50 Newell
Rubber-
maid, Inc.
Charles C. Reilly Director 1990 to Self-employed financial consultant since 45 Funds None
P.O. Box 9095 present 1990. 54 Portfolios
Princeton,
NJ 08543-9095
Age: 71
Kevin A. Ryan Director 1992 to Founder and Director Emeritus of The 45 Funds None
P.O. Box 9095 present Boston University Center for the 54 Portfolios
Princeton, Advancement of Ethics and Character;
NJ 08543-9095 Professor of Education at Boston University
Age: 70 from 1982 to 1999 and ProfessorEmeritus
since 1999.
Roscoe S. Suddarth Director 2000 to President and Chief Executive Officer of 45 Funds None
P.O. Box 9095 present the Middle East Institute from 1995 to 54 Portfolios
Princeton, 2001; Associate with Global Business
NJ 08543-9095 Access Ltd. from 1998 to 2002; Chairman
Age: 67 of the Board of Advisors of the Center for
Contemporary Arab Studies at Georgetown
University and Secretary of the American
Academy of Diplomacy.
The Corporate Fund Accumulation Program, Inc.
Officers and Directors (concluded)
Number
of Portfolios Other
in Fund Director-
Position(s) Length Complex ships
Held of Time Overseen Held by
Name, Address & Age with Fund Served* Principal Occupation(s) during Past 5 Years by Director Director
Independent Directors (concluded)
Richard R. West Director 1980 to Dean Emeritus of New York University, 45 Funds Bowne &
P.O. Box 9095 present Leonard N. Stern School of Business 54 Portfolios Co., Inc.;
Princeton, Administration since 1994. Vornado
NJ 08543-9095 Realty
Age: 64 Trust;
Vornado
Operating
Company;
Alexander's,
Inc.
Edward D. Zinbarg Director 2000 to Retired. 45 Funds None
P.O. Box 9095 present 54 Portfolios
Princeton,
NJ 08543-9095
Age: 68
*The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
Position(s) Length
Held of Time
Name, Address & Age with Fund Served* Principal Occupation(s) during Past 5 Years
Fund Officers
Donald C. Burke Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services
Princeton, and and since 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
NJ 08543-9011 Treasurer 1999 to since 1990.
Age: 42 present
Robert R. Peterson, Jr. Vice 2002 to Managing Director of MLIM since 2000; First Vice President of MLIM
P.O. Box 9011 President present from 1997 to 2000.
Princeton,
NJ 08543-9011
Age: 50
Melinda A. Raso Vice 2002 to Vice President of MLIM since 1984.
P.O. Box 9011 President present
Princeton,
NJ 08543-9011
Age: 47
David Clayton Secretary 2002 to Vice President (Legal Advisory) of MLIM since 2000; Attorney in private
P.O. Box 9011 present practice from 1995 to 2000.
Princeton,
NJ 08543-9011
Age: 35
*Officers of the Fund serve at the pleasure of the Board of
Directors.
Further information about the Fund's Directors is available in the
Fund's Statement of Additional Information, which can be obtained
without charge by calling 1-800-MER-FUND.
Custodian and Transfer Agent
The Bank of New York
90 Washington Street
New York, NY 10286
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (not answered until
July 15, 2003 and only annually for funds)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose
name/independence of more than one financial expert) If no, explain
why not. -N/A (not answered until July 15, 2003 and only annually
for funds)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A.
Item 8--Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal
executive officer or officers and principal financial officer or
officers, or persons performing similar functions, about the
effectiveness of the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c)))
based on their evaluation of these controls and procedures as of a
date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph. N/A.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302
and 906 for CEO/CFO). Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The Corporate Fund Accumulation Program, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
The Corporate Fund Accumulation Program, Inc.
Date: February 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
The Corporate Fund Accumulation Program, Inc.
Date: February 24, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke
Chief Financial Officer of
The Corporate Fund Accumulation Program, Inc.
Date: February 24, 2003