MUNICIPAL FUND ACCUMULATION PROGRAM INC, 485APOS, 1999-03-01

MUNICIPAL FUND ACCUMULATION PROGRAM INC
485APOS, 1999-03-01

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999

SECURITIES ACT FILE NO. 2-57442
INVESTMENT COMPANY ACT FILE NO. 811-2694
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 24 /X/

AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 21 /X/

(CHECK APPROPRIATE BOX OR BOXES)
------------------------

THE MUNICIPAL FUND ACCUMULATION
PROGRAM, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2000

ARTHUR ZEIKEL
THE MUNICIPAL FUND ACCUMULATION PROGRAM, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
MICHAEL J. HENNEWINKEL, ESQ. LEONARD B. MACKEY, JR., ESQ.
FUND ASSET MANAGEMENT, L.P. ROGERS & WELLS LLP
BOX 9011 200 PARK AVENUE
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, N.Y. 10166
</TABLE>

------------------------

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):

/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.

IF APPROPRIATE, CHECK THE FOLLOWING BOX:

/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
------------------------

Title of Securities Being Registered: Common Stock
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any such State.

[LOGO]

SUBJECT TO COMPLETION, DATED MARCH 1, 1999
PRELIMINARY PROSPECTUS

The Municipal Fund Investment Accumulation Program

April [], 1999

This Prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep it
for future reference.

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.

<PAGE>
Table of Contents

KEY FACTS
[GRAPHIC] ---------------------------------------------------------------------

The Municipal Fund Investment Accumulation Program at a Glance 2

Risk/Return Bar Chart 3

Fees and Expenses 4

DETAILS ABOUT THE PROGRAM

[GRAPHIC] ---------------------------------------------------------------------

How the Program Invests 6

Investment Risks 7

YOUR ACCOUNT
[GRAPHIC] ---------------------------------------------------------------------

Participation in the Program 11

How to Buy, Sell, Transfer and Exchange Shares 12

MANAGEMENT OF THE PROGRAM

[GRAPHIC] ---------------------------------------------------------------------

Fund Asset Management 15

Financial Highlights 18

FOR MORE INFORMATION
[GRAPHIC] ---------------------------------------------------------------------

Shareholder Reports Back Cover

Statement of Additional Information Back Cover

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

<PAGE>
[GRAPHIC] Key Facts

In an effort to help you better understand the many concepts involved in
making an investment decision, we have defined highlighted terms in this
prospectus in the sidebar.

Municipal Bond -- a debt obligation issued by or on behalf of a governmental
entity or other qualifying issuer that pays interest exempt from Federal income
tax.

Investment Grade -- any of the four highest debt obligation ratings by
recognized rating agencies, including Moody's Investors Service, Inc., Standard
& Poor's or Fitch IBCA, Inc.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM AT A GLANCE

What is the Program?

The Program invests distributions made to holders of units of Municipal
Investment Trust Fund and Defined Asset Funds --Municipal Insured Series.
Holders of units of these unit trust funds may elect to have their
distributions reinvested in shares of the Program rather than paid in cash. The
Program is not open to investment by persons who are not holders of units of
the participating unit trust funds, and investments in the Program are limited
to reinvestment of distributions.

What are the Program's investment objective and goals?

The investment objective of the Program is to provide shareholders with income
exempt from Federal income tax through investment in a diversified portfolio of
interest bearing long- and intermediate-term municipal bonds, the interest on
which is, in the opinion of bond counsel to the issuing government authorities,
exempt from Federal income tax. In other words, the Program's main goal is to
generate current income that is exempt from Federal income tax. The Program
cannot guarantee that it will achieve its goal.

What are the Program's main investment strategies?

The Program invests primarily in a portfolio of municipal bonds. These may be
obligations of a variety of issuers including states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities. Except during temporary
defensive periods, the Program will invest in long-and intermediate-term
municipal bonds. The Program will invest in investment grade obligations and
when purchasing investments at least 75% will be in obligations in the three
highest rating categories. When choosing investments, the Program management
considers various factors, including the credit quality of issuers, yield
analysis, diversification and call features of the obligations.

What are the main risks of investing in the Program?
As with any mutual fund, the value of the Program's investments -- and
therefore the value of the Program's shares -- may go up or down. These changes
may occur in response to interest rate changes or other factors that may affect
a particular issuer or obligation. Generally, when interest rates go up, the
value of debt instruments like municipal bonds goes down.
If the value of the Program's investments goes down, you may lose money.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

2
<PAGE>

[GRAPHIC] Key Facts

Who should invest?

Investment in shares of the Program provides for the automatic reinvestment of
distributions made to holders of units of certain unit trust funds. The Program
may be an appropriate investment for you if you:

o Want to automatically reinvest distributions you receive from a
participating unit trust fund;

o Are looking for income that is exempt from Federal income tax;

o Want a professionally managed portfolio without the administrative
burdens of direct investments in municipal bonds;

o Are looking for liquidity;

o Can tolerate the risk of loss caused by changes in interest rates
or adverse changes in the price of bonds in general.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

3
<PAGE>
[GRAPHIC] Key Facts

RISK/RETURN BAR CHART

The bar chart and table shown below provide an indication of the risks of
investing in the Program. The bar chart shows changes in the Program's
performance for the past ten calendar years. The table compares the average
annual total returns of the Program's shares for one, five and ten years with
those of the Lehman Brothers Municipal Bond Index. How the Program performed in
the past is not necessarily an indication of how the Program will perform in
the future.

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- - ---- ---- ---- ---- ---- ---- ---- ---- ---- ----

During the ten-year period shown in the bar chart, the highest return for a
quarter was 6.27% (quarter ended March 31, 1995) and the lowest return for a
quarter was -5.95% (quarter ended March 31, 1994).

<TABLE>
<CAPTION>
Average Annual Total
Returns (for the
calendar year ended Past Past Past
December 31, 1998) One Year Five Years Ten Years
- - ---------------------------------------------------------------------------------------

<S> <C> <C> <C>
The Municipal Fund Investment
Accumulation Program 5.35% 5.04% 7.23%
- - ---------------------------------------------------------------------------------------

Lehman Brothers Municipal Bond Index* 6.48% 6.22% 8.21%
- - ---------------------------------------------------------------------------------------
</TABLE>

* This unmanaged index consists of long-term revenue bonds, prerefunded bonds,
general obligation bonds and insured bonds. Past performance is not predictive
of future performance.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM FEES AND EXPENSES

4
<PAGE>
[GRAPHIC] Key Facts

UNDERSTANDING
EXPENSES

Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:

Expenses paid directly by the shareholder:

Shareholder fees -- these include sales charges which you may pay when you buy
or sell shares of the Program.

Expenses paid indirectly by the shareholder (These costs are deducted from the
Program's total assets):

Annual Program Operating Expenses -- expenses that cover the costs of
operating the Program.

Management Fee -- a fee paid to the Investment Adviser for managing the
Program.

FEES AND EXPENSES

This table shows the different fees and expenses that you may pay if you buy
and hold shares of the Program. Future expenses may be greater or less than
those indicated below.

<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment):
- - -----------------------------------------------------------------------------------

Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering price) None
- - -----------------------------------------------------------------------------------

Maximum Deferred Sales Charge (Load) (as
a percentage of original purchase price or
redemption proceeds, whichever is lower) None

Maximum Sales Charge (Load) imposed on
Dividend Reinvestments None

Redemption Fee None

Exchange Fee None

Maximum Account Fee None

Annual Program Operating Expenses (expenses that are
deducted from Fund assets):

Management Fee 0.50%

Distribution and/or Service (12b-1) Fees None
Other Expenses (including transfer agency fees) 0.26%
- - -----------------------------------------------------------------------------------

Total Annual Program Operating Expenses 0.76%
- - -----------------------------------------------------------------------------------
</TABLE>

Example:

This example is intended to help you compare the cost of investing in the
Program with the cost of investing in other mutual funds.

This example assumes that you invest $10,000 in the Program for the time
periods indicated, that your investment has a 5% return each year and that the
Program's operating expenses remain the same. This assumption is not meant to
indicate you will receive a 5% annual rate of return. Your annual return may be
more or less than the 5% used in this example. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
- - -------------------------------------------------------------------------------

$77 $243 $422 $942
- - -------------------------------------------------------------------------------

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

5
<PAGE>
[GRAPHIC] Details About the Program

ABOUT THE
PORTFOLIO MANAGER

Roberto Roffo is the portfolio manager of the Program. Mr. Roffo has been a
Vice President of Merrill Lynch Asset Management since 1996 and an Assistant
Vice President since 1993.

ABOUT THE INVESTMENT ADVISER
The Program is managed by Fund Asset Management, L.P.

HOW THE PROGRAM INVESTS

The Program's investment objective is to seek to
provide shareholders with income, the interest on which is, in the opinion of
bond counsel to the issuer, exempt from Federal income tax. In other words, the
Program's main goal is to generate current income that is exempt from Federal
income tax. The Program invests primarily in interest bearing long- and
intermediate-term investment grade municipal bonds. The municipal bonds may be
obligations of a variety of issuers including governmental entities or other
qualifying issuers. Issuers may be states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities.

The Program may invest in either fixed rate or variable rate obligations. The
Program will purchase investment grade obligations and at the time of purchase
at least 75% will be rated in the three highest rating categories by recognized
rating agencies. Under current market and other conditions, the Board of
Directors of the Program has determined that the Program will not purchase
municipal bonds if one or more of the recognized rating agencies has rated the
debt obligation below investment grade. However, the Program may continue to
hold municipal bonds that, after being purchased by the Program, are downgraded
to a rating below that which the Program invests.

As a temporary measure for defensive purposes, or to provide liquidity, the
Program may invest without limitation in short-term tax-exempt instruments.
Short-term investments may limit the potential for income on your shares.

The Program's investments may include private activity bonds that may subject
certain shareholders to an alternative minimum tax.

The Program may make forward commitments. For further information on these
investments, see the Statement of Additional Information.

Program management considers a variety of factors when choosing investments,
such as:

o Credit Quality of Issuers - based on bond ratings and other factors including
economic and financial conditions.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

6
<PAGE>

o Yield Analysis - takes into account factors such as the different yields
available on different types of obligations and the shape of the yield
curve (longer term obligations typically have higher yields).

o Diversification - the Program will not concentrate its investments on the
obligations of any one state, by attempting to diversify its investments
as to purpose of issue and location of issuer, taking into consideration
availability in the market of investments meeting the Program's other
investment criteria.

In addition, Program management considers the availability of features that
protect against an early call of a bond by the issuer.

INVESTMENT RISKS
- - -------------------------------------------------------------------------------

This section contains a summary discussion of the general risks of investing in
the Program. As with any mutual fund, there can be no guarantee that the
Program will meet its goals or that the Program's performance will be positive
for any period of time.

Bond Market and Selection Risk--Bond market risk is the risk that the bond
market will go down in value, including the possibility that the market will go
down sharply and unpredictably. Selection risk is the risk that the investments
that Program management selects will underperform the market or other funds
with similar investment objectives and investment strategies.

Credit Risk -- Credit risk is the risk that the issuer will be unable to pay
the interest or principal when due. The degree of credit risk depends on both
the financial condition of the issuer and the terms of the obligation.

Interest Rate Risk -- Interest rate risk is the risk that prices of municipal
bonds generally increase when interest rates decline and decrease when interest
rates increase. Prices of longer term securities generally change more in
response to interest rate changes than prices of shorter term securities.

Call and Redemption Risk -- A bond's issuer may call a bond for redemption
before it matures. If this happens to a bond the Program holds, the Program may
lose income and may have to invest the proceeds in bonds with lower yields.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

7
<PAGE>

[GRAPHIC] Details About the Program

Risks associated with certain types of obligations in which the Program may
invest include:

General Obligation Bonds -- The faith, credit and taxing power of the
municipality that issues a general obligation bond secures payment of interest
and repayment of principal. Timely payments depend on the issuer's credit
quality, ability to raise tax revenues and ability to maintain an adequate tax
base. Insured Municipal Bonds--Bonds purchased by the Program may be covered by
insurance that guarantees timely interest payments and repayment of principal
on maturity. If a bond's insurer fails to fulfill its obligations or loses its
credit rating, the value of the bond could drop.

Revenue Bonds -- Payments of interest and principal on revenue bonds are made
only from the revenues generated by a particular facility, class of facilities
or the proceeds of a special tax or other revenue source. These payments depend
on the money earned by the particular facility or class of facilities.

Industrial Development Bonds -- Industrial development bonds are one type of
revenue bond. Municipalities and other public authorities issue industrial
development bonds to finance development of industrial facilities for use by a
private enterprise. The private enterprise pays the principal and interest on
the bond, and the issuer does not pledge its faith, credit and taxing power for
repayment. If the private enterprise defaults on its payments, the Program may
not receive any income or get its money back from the investment.

Moral Obligation Bonds--Moral obligation bonds are generally issued by special
purpose public authorities of a state or municipality. If the issuer is unable
to meet its obligations, the repayment of these bonds becomes a moral
commitment, but not a legal obligation, of the state or municipality.

Municipal Lease Obligations--In a municipal lease obligation, the issuer agrees
to budget for and appropriate municipal funds to make payments due on the lease
obligation. However, this does not ensure that funds will actually be
appropriated in future years. The issuer does not pledge its unlimited taxing
power for payment of the lease obligation, but the leased property secures the
obligation. In addition, the proceeds of a sale may not cover the Program's
loss.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

8
<PAGE>

When-Issued Securities, Delayed-Delivery Securities and Forward
Commitments--When-issued and delayed-delivery securities and forward
commitments involve the risk that the security the Program buys will lose value
prior to its delivery. There also is the risk that the security will not be
issued or that the other party will not meet its obligation, in which case the
Program loses the investment opportunity of the assets it has set aside to pay
for the security and any gain in the security's price.

Variable Rate Demand Obligations--Variable rate demand obligations (VRDOs) are
floating rate securities that combine an interest in a long term municipal bond
with a right to demand payment before maturity from a bank or other financial
institution. If the bank or financial institution is unable to pay, the Program
may lose money.

Illiquid Investments--The Program may invest up to 15% of its assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If the Program
buys illiquid securities it may be unable to quickly resell them or may be able
to sell them only at a price below current value.

Borrowing and Leverage--The Program may borrow for temporary emergency purposes
including to meet redemptions. Borrowing may exaggerate changes in the net
asset value of Program shares and in the yield on the Program's portfolio.
Borrowing will cost the Program interest expense and other fees. The costs of
borrowing may reduce the Program's return. Certain securities that the Program
buys may create leverage including, for example, when-issued securities and
forward commitments.

STATEMENT OF ADDITIONAL INFORMATION
- - -------------------------------------------------------------------------------

If you would like further information about the Program, including how it
invests, please see the Statement of Additional Information.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

<PAGE>
[GRAPHIC] Your Account

PARTICIPATION IN THE PROGRAM

The purpose of the Program is to permit you to reinvest distributions you
receive on units you hold of various series of certain unit trust funds. The
unit trust funds include all series of Municipal Investment Trust Fund and
Defined Asset Funds Municipal Insured Series. Distributions will be paid to you
in cash unless you elect to reinvest the distributions in shares of the Program
by sending a notice in writing to the program agent. The program agent is The
Bank of New York (P.O. Box 974, Wall Street Station, New York, N.Y.
10286-0974). You may also change an election you have made to participate in
the Program by notifying the program agent in writing. Notices received by the
program agent will be effective for the first distribution having a record date
at least 10 days after receipt.

Distributions on units of the unit trust funds may consist of interest income,
or capital gains or principal on the units. You may elect to have some or all
of these distributions reinvested in shares of the Program. Any distribution
that you elect to have reinvested in shares of the Program will be
automatically reinvested by the program agent on your behalf on the date the
distribution is made. On that date, the distribution will be applied to the
purchase of shares of the Program at net asset value, without a sales charge.
If you have elected for distributions of principal on your units to be invested
in shares of the Program, the proceeds of redemption or payment at maturity of
securities held in the unit trust fund represented by your units will be
invested in shares of the Program, rather than being distributed in cash to
you.

The program agent will mail to you a report of each distribution that is
reinvested in shares of the Program. Even though distributions are being
reinvested in shares of the Program, for federal income tax purposes, you will
be considered to have received those distributions.

The Board of Directors of the Program may decide to change the terms of
investment in shares of the Program or terminate the Program entirely without
notice to you. In addition, the Board of Directors of the Program may appoint a
substitute program agent or an additional program agent.

The administrators of the Program are Merrill Lynch, Pierce Fenner & Smith
Incorporated, Prudential Securities Incorporated, Morgan Stanley Dean Witter
Inc. and Salomon Smith Barney Inc. The administrators are the sponsors of the
unit trust funds.

For further details of the terms and conditions of the Program see the
Statement of Additional Information.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

<PAGE>
[GRAPHIC] Your Account

HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES

The chart below summarizes how to buy, sell, transfer and exchange shares of
the Program.

<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buy Shares First, you decide whether you Refer to the description of the Program on page 11. Be sure to read
want to participate in the this prospectus carefully.
Program.
--------------------------------------------------------------------------------------------------------------
Next, determine what distributions Distributions from the unit trust funds may consist of interest
from the unit trust funds you want income, capital gains or principal. You may reinvest the distributions
to reinvest. of interest income or of capital gains or of principal, or you may
reinvest all distributions.
--------------------------------------------------------------------------------------------------------------
Notify the program agent of your The notice must be in writing and received by the program agent at
election to reinvest some or all least ten days before the record date for the first distribution you
distributions you receive from the want to have reinvested.
unit trust funds.
--------------------------------------------------------------------------------------------------------------
Decide whether your shares will be Consult your securities dealer. Under certain circumstances, your
held in an account with your securities dealer may not be able to hold your shares in your account
securities dealer or with the with the securities dealer.
program agent.
- - -----------------------------------------------------------------------------------------------------------------------------------
Add to Your Purchase additional shares. Once you have elected to participate in the Program, distributions
Investment from the unit trust funds that you have elected to have reinvested in
the Program will be automatically reinvested. If you have not already
elected to have all distributions reinvested, you may notify the
program agent that you wish to reinvest more of your distributions.
--------------------------------------------------------------------------------------------------------------
Acquire additional shares All dividends and capital gains distributions are automatically
through the Program's automatic reinvested without a sales charge.
dividend reinvestment plan.
- - -----------------------------------------------------------------------------------------------------------------------------------
Stop Reinvesting Notify the program agent in Your election to stop reinvesting some or all distributions from the
Distributions in writing. unit trust funds in shares of the Program will be effective for any
shares of the distribution that has a record date that is more than ten days after
Program the program agent receives your written notice.
- - -----------------------------------------------------------------------------------------------------------------------------------
Transfer Shares Transfer to a participating You may transfer your shares of the Program only to another securities
to Another securities dealer dealer that has entered into an agreement with Merrill Lynch, Pierce,
Securities Dealer Fenner & Smith Incorporated. All future trading of these assets must
be coordinated by the receiving firm.
--------------------------------------------------------------------------------------------------------------
Transfer to a non-participating You must either:
securities dealer. o Transfer your shares to an account with the program agent; or
o Sell your shares.
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

11
<PAGE>

Securities dealers may charge a fee to process a redemption of shares.
No processing fee is charged if you redeem shares held by the program
agent.

The Program may reject an order to sell shares under certain
circumstances.
--------------------------------------------------------------------------------------------------------------
Sell through the program You may sell shares held at the program agent by writing to the program
agent. agent at the address on the inside back cover of this prospectus.
With certain exceptions described in the Statement of Additional
Information, all shareholders on the account must sign the letter and
signatures must be guaranteed. If you hold stock certificates, return
the certificates with the letter. The program agent will normally mail
redemption proceeds within seven days following receipt of a properly
completed request.

If you hold share certificates, they must be delivered to the program
agent before they can be converted. Check with the program agent or
your securities dealer for details.
- - -----------------------------------------------------------------------------------------------------------------------------------
Exchange Your You may exchange your shares You can exchange your shares of the Program for shares of The
Shares for shares of another program. Corporate Fund Accumulation Program, Inc. You must have held the
Be sure to read that program's shares used in the exchange for at least 60 calendar days before you
prospectus. can exchange to the other program.

To exercise the exchange privilege, you should contact one of the
Administrators or the program agent.

Although there is currently no limit on the number of exchanges that
you can make, the exchange privilege may be modified or terminated at
any time in the future.
- - -----------------------------------------------------------------------------------------------------------------------------------

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

<PAGE>

[GRAPHIC] Your Account

Net Asset Value -- the market value of the Program's total assets after
deducting liabilities, divided by the number of shares outstanding.

Dividends -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Program shares as they are paid.

HOW SHARES ARE PRICED

Each distribution on your units will automatically be applied to purchase
shares at net asset value. When you buy shares, you pay the net asset value.
This is the offering price. Shares are also redeemed at their net asset value.
The Program calculates its net asset value (generally by using market
quotations) each day the New York Stock Exchange is open, fifteen minutes after
the close of business on the Exchange (the Exchange generally closes at 4:00
p.m. Eastern time). The net asset value used in determining your price is the
one calculated after your purchase or redemption order is placed.

DIVIDENDS AND TAXES

The Program will distribute any net investment income monthly, and any net
realized capital gains at least annually. The Program may also pay a special
distribution at the end of the calendar year to comply with Federal tax
requirements. If you would like to receive dividends in cash, contact the
Program Agent.

Taxes -- To the extent that the dividends distributed by the Program are from
municipal bond interest income, they are exempt from Federal income tax.
However, certain investors may be subject to alternative minimum tax on
dividends received from the Program. Interest income from other investments may
produce taxable distributions.

Generally, within 60 days after the end of the Program's taxable year, the
Program will tell you the amount of exempt-interest dividends, ordinary income
dividends and capital gains dividends you received that year. Capital gain
dividends are taxable as long term capital gains to you, regardless of how long
you have held your shares. The tax treatment of dividends from the Program
is the same whether you choose to receive distributions in cash or to have them
reinvested in shares of the Program.

By law, the Program must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.

If you redeem Program shares or exchange them for shares of The Corporate Fund
Accumulation Program, Inc., any gain on the transaction may be subject to
Federal income tax.

This section summarizes some of the consequences of an investment in the
Program under current Federal tax laws. It is not a substitute for personal tax
advice. Consult your personal tax adviser about the potential tax consequences
to you of an investment in the Program under all applicable tax laws.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

<PAGE>

[GRAPHIC] Management of the Program

FUND ASSET MANAGEMENT

Fund Asset Management, the Program's Investment Adviser, manages the Program's
investments under the overall supervision of the Program's Board of Directors.
The Investment Adviser has the responsibility for making all investment
decisions for the Program. The Program has agreed to pay the Investment Adviser
a fee at the annual rate of 0.50% of the average daily net assets of the
Program. For the fiscal year ended December 31, 1998, the Investment Adviser
received a fee of $[ ].

Fund Asset Management is part of Merrill Lynch Asset Management Group, which had
approximately $507 billion in investment company and other portfolio assets
under management as of January 1999. This amount includes assets managed for
Merrill Lynch affiliates.

The Program is also obligated to pay certain expenses incurred in its
operations, including fees of the program agent, legal and auditing fees, fees
and expenses of unaffiliated Directors, custodian and transfer agency fees,
accounting and pricing costs, and certain of the costs of printing proxy
statements, shareholder reports, prospectuses and statements of additional
information. For the fiscal year ended December 31, 1998, the Program's total
expenses were $[ ] (representing [ ]% of its average net assets).

The Investment Adviser, together with the Administrators of the Program,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Prudential Securities
Incorporated, Morgan Stanley Dean Witter Inc., and Salomon Smith Barney Inc.,
is also responsible for the overall management of the Program's business
operations. The Administrators perform certain management services necessary
for the operation of the Program and provide office space, facilities and
necessary personnel for such services. For these services, the Investment
Adviser pays the Administrators an aggregate monthly fee at the annual rate of
0.20% of the Program's average daily net assets.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM
14

<PAGE>

[GRAPHIC] Management of the Program

A Note About Year 2000

Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Program could be adversely
affected if the computer systems used by the Program's management or other
Program service providers do not properly address this problem before January 1,
2000. The Program's management expects to have addressed this problem before
then, and does not anticipate that the services it provides will be adversely
affected. The Program's other service providers have told the Program management
that they also expect to resolve the Year 2000 Problem, and Program management
will continue to monitor the situation as the Year 2000 approaches. However, if
the problem has not been fully addressed, the Program could be negatively
affected. The Year 2000 Problem could also have a negative impact on the issuers
of securities in which the Program invests, and this could hurt the Program's
investment returns.

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

<PAGE>

This Page Intentionally Left Blank

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

16
<PAGE>

[GRAPHIC] Management of the Program

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Program's
financial performance for the past five years. Certain information reflects
financial results for a single Program share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Program (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Program's financial statements, are included in the Program's annual report
to shareholders, which is available upon request.

</TABLE>
<TABLE>
<CAPTION>

For the Year Ended December 31,
-----------------------------------------------------------------------------------
Increase (Decrease) in
Net Asset Value: 1998 1997 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:

Net asset value, beginning of year $ $ 18.85 $ 19.22 $ 17.51 $ 19.79
Investment income--net .96 .98 1.01 1.03

Realized and unrealized
gain (loss) on investments--net .56 (.37) 1.71 (2.28)

Total from investment operations 1.52 .61 2.72 (1.25)
Less dividends and distributions:
Investment income--net (.96) (.98) (1.01) (1.03)
Realized gain on investments-net (.19) -- -- --
Total dividends and distributions (1.15) (.98) (1.01) (1.03)
Net asset value, end of year $ $ 19.22 $ 18.85 $ 19.22 $ 17.51

Total Investment Return:

Based on net asset value per share % 8.29% 3.36% 15.88% (6.44)%

Ratios to Average Net Assets:
Expenses % .72% .83% .86% .89%
Investment income--net % 5.05% 5.18% 5.40% 5.54%
Supplemental Data:

Net assets, end of year (in thousands) $ $ 543,595 $ 551,849 $ 581,679 $ 537,197

Portfolio turnover % 131% 72% 56% 61%
</TABLE>

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM POTENTIAL

17
<PAGE>

-------------------------------
POTENTIAL
INVESTORS
Elect to have unit trust fund
distributions reinvested in the
Program (two options).
-------------------------------

1 2

-------------------------- --------------------------
ADMINISTRATORS (SEE PROGRAM AGENT
BELOW) OR OTHER SECURITIES The Bank of New York
DEALERS 101 Barclay Street
Arranges for reinvestment. New York, New York 10007
-------------------------- Performs recordkeeping and
reporting services.
--------------------------

----------------------
THE PROGRAM
The Board of Directors
oversees the Program.
----------------------

------------------------ --------------------------
COUNSEL CUSTODIAN AND DIVIDEND
ROGERS & WELLS LLP DISBURSING AGENT
200 Park Avenue The Bank of New York
New York, New York 10166 101 Barclay Street
Provides legal advice New York, New York 10007
to the Program. Holds the Program's assets
------------------------ for safekeeping.
--------------------------

-------------------------------- --------------------------------
INDEPENDENT AUDITORS INVESTMENT ADVISER
Deloitte & Touche LLP Fund Asset
117 Campus Drive Management, L.P.
Princeton, New Jersey 08540-6400
Audits the financial ADMINISTRATIVE OFFICES
statements of the Program on 800 Scudders Mill Road
behalf of the shareholders. Plainsboro, New Jersey 08536
--------------------------------
MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011

TELEPHONE NUMBER
1-609-282-2000
Manages the Program's
day-to-day activities.
--------------------------------

-----------------------------------------
ADMINISTRATORS
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Prudential Securities Incorporated
Morgan Stanley Dean Witter Inc.
Salomon Smith Barney Inc.
Assists in supervising all aspects of the
Program's operations.
-----------------------------------------

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM

<PAGE>
[LOGO]
[GRAPHIC] FOR MORE INFORMATION

Shareholder Reports

Additional information about the Program's The Municipal
investments is available in the Program's annual Fund Investment
and semi-annual reports to shareholders. In the Accumulation Program
Program's annual report you will find a discussion
of the market conditions and investment strategies
that significantly affected the Program's
performance during its last fiscal year. You may
obtain these reports at no cost by calling
1-800-456-4587 ext. 789.

The Program will send you one copy of each
shareholder report and certain other mailings,
regardless of the number of Program accounts you
have. To receive separate shareholder reports for
each account, write to the Program Agent at its
mailing address. Include your name, address, tax
identification number and brokerage or Program
account number. If you have any questions, please
call your securities dealer or the Program Agent
at 1-800-221-7771.

Statement of Additional Information The Program's
Statement of Additional Information contains
further information about the Program and is
incorporated by reference (legally considered to
be part of this prospectus). You may request a
free copy by writing the Program at The Bank of
New York, 101 Barclay Street, New York, New York
10007 or by calling 1-800-221-7771.

Contact your securities dealer or the Program at
the telephone number or address indicated on the
inside back cover of this prospectus if you have
any questions.

Information about the Program (including the
Statement of Additional Information) can be
reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the public
reference room. This information is also available
on the SEC's Internetsite at http://www.sec.gov
and copies may be obtained upon payment of a
duplicating fee by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
IN THIS PROSPECTUS. NO ONE IS AUTHORIZED TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM INFORMATION CONTAINED IN THIS PROSPECTUS.

Investment Company Act file #811-2694
(Copyright)Fund Asset Management, L.P.

April , 1999

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
such State.

STATEMENT OF ADDITIONAL INFORMATION

THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM
Shares of Common Stock

------------------------

The Municipal Fund Accumulation Program, Inc. (the "Program") is an
open-end management investment company whose primary objective is to obtain
tax-exempt income through investment in a diversified portfolio (the
"Portfolio"), of state, municipal and public authority bonds. Shares of the
Program are offered without sales charge to the holders of Units of certain
series of Unit Trust Funds described in the Prospectus in order to provide a
means for the automatic reinvestment of distributions of interest or dividend
income and capital gains and principal on such Units in Shares of the Program on
the Terms and Conditions of Participation set forth herein. The address of the
Program is Box 9011, Princeton, New Jersey 08543-9011, and its telephone number
is (609) 282-2000.

------------------------

INVESTMENT ADVISER
FUND ASSET MANAGEMENT, L.P.
ADMINISTRATORS
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
MORGAN STANLEY DEAN WITTER INC.
SALOMON SMITH BARNEY INC.

------------------------

This Statement of Additional Information of the Program is not a prospectus and
should be read in conjunction with the Prospectus of the Program (the
"Prospectus") dated April [ ], 1999, which has been filed with the Securities
and Exchange Commission and can be obtained without charge by calling or by
writing the Program at the above telephone number or address. The Prospectus is
incorporated by reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by reference into the
Prospectus. The Program's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.

------------------------

The date of this Statement of Additional Information is April [ ], 1999.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Program................................................................................................ 2
In General............................................................................................... 2
Terms and Conditions of Participation.................................................................... 2
Investment Objective and Policies.......................................................................... 4
Risk Factors and Special Considerations Relating to Municipal Bonds...................................... 5
Description of Municipal Bonds........................................................................... 6
Description of Short-Term Investment ................................................................... 8
Portfolio Management and Turnover Rate................................................................... 8
Investment Restrictions.................................................................................... 9
Investment Advisory and Administration Agreements.......................................................... 10
Investment Advisory Agreement............................................................................ 11
Code of Ethics........................................................................................... 12
Administration Agreement................................................................................. 12
Management of the Program.................................................................................. 14
Directors and Officers................................................................................... 14
Remuneration of Directors................................................................................ 15
Net Asset Value............................................................................................ 15
Redemption of Shares....................................................................................... 16
Exchange Privilege......................................................................................... 17
Taxes and Dividends........................................................................................ 17
Portfolio Transactions..................................................................................... 20
Performance Data........................................................................................... 21
General Information........................................................................................ 22
Organization of the Program.............................................................................. 22
Description of Shares.................................................................................... 22
Independent Auditors..................................................................................... 22
Custodian, Transfer, Program and Dividend Disbursing Agent............................................... 22
Legal Counsel............................................................................................ 22
Reports to Shareholders.................................................................................. 22
Shareholder Inquiries.................................................................................... 23
Additional Information................................................................................... 23
Financial Statements....................................................................................... 23
Description of Bond Ratings................................................................................ 23
</TABLE>

<PAGE>
THE PROGRAM

IN GENERAL

The primary investment objective of the Program, is to obtain tax-exempt
income through investment in a diversified portfolio (the "Portfolio") of
interest bearing long-and intermediate-term state, municipal and public
authority bonds, the interest on which is, in the opinion of bond counsel to the
issuing authorities, exempt from federal income tax (see "Investment Objectives
and Policies" herein and "How the Program Invests" in the Prospectus for a
discussion of the investment objectives and policies of the Program). This
investment objective is a fundamental policy of the Program.

The shares of capital stock, $.01 par value, of the Program ("Shares") are
offered hereby without sales charge to the holders of units ("Units") of all
series of Municipal Investment Trust Fund (the "Unit Trust Funds") and Defined
Asset Funds--Municipal Insured Series. The Unit Trust Funds consist of a number
of different unit investment trusts holding portfolios of state, municipal and
public authority bonds. The Program has been formed to facilitate reinvestment
of distributions on units (the "Units") of the various series of the Unit Trust
Funds. Since the Program is an open-end investment company, the Shares are
redeemable by the holder at the net asset value next determined after the
receipt of the redemption request in proper form.

TERMS AND CONDITIONS OF PARTICIPATION

All persons who are or who become registered holders of Units of series of
the Unit Trust Funds offering a reinvestment option are eligible to participate
in the Program and are herein called "Holders." Holders include brokers or
nominees of banks and other financial institutions which are or become
registered holders of Units. Such eligibility is subject to the terms and
conditions of participation (the "Terms and Conditions") set forth under this
caption.

Distributions on Units of series of the Unit Trust Funds offering a
reinvestment option will be paid in cash unless Holders elect to reinvest such
distributions in the Program by sending a notice in writing to the program
agent. Each Holder participating in the Program will receive a copy of the
Program's prospectus (the "Prospectus") and may request a copy of the Program's
Statement of Additional Information (this "SAI"); a Holder not participating in
the Program may request a copy of the Prospectus and this SAI. Holders of Units
may elect to participate in the Program or to change a previous election by
notice in writing to the program agent. Notice of any change in the basis of
participation or of election to participate in the Program must be received by
the program agent in writing at least ten days prior to the Record Day for the
first distribution to which such notice is to apply.

Under these Terms and Conditions, both distributions of interest income and
distributions of capital gains, if any, and principal (or either such type of
distribution) on Units of Holders participating in the Program will be invested
without sales charge in Shares. Holders who are participating in the Program and
whose Units are therefore subject to these Terms and Conditions are herein
called "Shareholders." The Bank of New York (P.O. Box 974, Wall Street Station,
New York, New York 10286-0974) will act as the program agent (the "Agent") for
the Shareholders. All securities, cash and other similar assets of the Program
will be held by the Agent as custodian. The Agent also acts as the Program's
dividend disbursing agent, transfer agent and registrar and performs certain
other services for the Program.

Under these Terms and Conditions, each distribution of interest income and
capital gains, if any, and principal on a Shareholder's Units, will, on the date
of such distribution, automatically be received by the Agent on behalf of such
Shareholder and applied to purchase Shares at net asset value, without sales
charge. In the case of Holders of Units whose distributions of principal are
being invested in the Program, the proceeds of redemption or payment at maturity
of securities held in the unit investment trust represented by the Holder's
Units will be invested in Shares, rather than being distributed in cash to the
Holder. Net interest income, after expenses, received by the Program on
obligations in its portfolio will be distributed by the Program monthly and net
realized capital gains, if any, will be distributed at least annually. Such
distributions will be reinvested automatically in Shares of the Program unless
the Shareholder elects, by written notice to the Agent, not to have such
distributions reinvested in Shares (see "Taxes and Dividends" herein).

The Program has qualified and intends to continue to qualify (i) for the
tax treatment applicable to "regulated investment companies" under the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) to pay "exempt-interest"
dividends as permitted under the Code. Pursuant to such qualification, if the
Program distributes to Shareholders (without regard to designated capital gains
distributions) an amount equal to

2
<PAGE>

or in excess of the sum of 90% of its investment company taxable income and 90%
of its net tax-exempt interest income, such "exempt-interest" dividends
reflecting tax-exempt interest received by the Program will be tax-exempt in the
hands of Shareholders, except possibly where a Shareholder might be deemed to be
a "substantial user," as defined in the Code, or subject to alternative minimum
tax. The Program will not be subject to federal income tax on such part of its
net capital gains, if any, as it distributes to Shareholders, although it may be
subject to certain state and local taxes. For these purposes, any capital gains
of the Program which are reinvested are considered to have been distributed (see
"Taxes and Distributions" herein).

In addition to their right to redeem their Shares and receive a payment
equal to the net asset value thereof (see "Redemption of Shares and Exchange
Privilege" herein), Shareholders may at any time, by so notifying the Agent in
writing (the Agent will deliver a copy of such notice to the trustee for the
respective series of the Unit Trust Funds), elect to (i) terminate their
participation in the Program and thereafter receive all distributions on their
Units in cash, (ii) terminate their participation in part as to distributions of
capital gains and principal on their Units and thereafter receive distributions
in cash out of the principal accounts for the respective Unit Trust Funds or
(iii) terminate their participation in part as to distributions of interest on
their Units and thereafter receive future distributions in cash out of the
interest accounts for the respective series.

All the costs of establishing and administering the Program and these Terms
and Conditions are borne by the Program. The administrators of the Program (the
"Administrators") are Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities Incorporated, Morgan Stanley Dean
Witter Inc., and Salomon Smith Barney Inc., which are sponsors of Unit Trust
Funds. The investment adviser to the Program is Fund Asset Management, L.P. (the
"Adviser" or "FAM"), Box 9011, Princeton, New Jersey 08543-9011, a registered
investment adviser and an affiliate of Merrill Lynch. The Adviser receives as
annual compensation, payable monthly, for its services in connection with the
Program a fee of 0.5% of the average net assets of the Program. The
Administrators receive from the Adviser as annual compensation, payable monthly,
for their services in connection with the Program a fee of 0.2% of the average
net assets of the Program (see "Investment Advisory and Administration
Agreements")

The Agent will mail to each Shareholder a report of each transaction
undertaken for such Shareholder in receiving distributions and purchasing
Shares. Distributions on Units which are applied to purchase Shares are
considered to have been distributed to Shareholders for federal income tax
purposes, and all taxes which are payable in respect to such distributions must
be paid by Shareholders regardless of participation in the Program.

On tender for redemption of any or all of his Shares, a Shareholder will be
entitled to receive within seven days a payment representing the net asset value
of the Shares (including fractional Shares), provided that such right of
redemption may be suspended or postponed under certain circumstances described
under "Redemption of Shares and Exchange Privilege" herein

If the Holder is a broker or a nominee of a bank or another financial
institution, the trustee and Agent will apply these Terms and Conditions on the
basis of the respective numbers of Units certified from time to time by such
Holder to be the total numbers of Units registered in such Holder's name and
held for the accounts of beneficial owners who are to participate in the
Program, upon the several bases of participation offered by the Program at the
time. It is anticipated, however, that, due to administrative problems connected
with Units held in "street name" other than by Merrill Lynch, such Units will be
registered in the names of the beneficial owners thereof unless such owners
elect not to participate in the Program.

Merrill Lynch or its nominee holds in its name Program Shares for the
accounts of customers whose Unit Trust Funds are held in Merrill Lynch accounts
and who elect to reinvest in the Program. These Shares may be transferred to an
account in the customer's name with the Agent upon request. Merrill Lynch
maintains records identifying the names and addresses of these customers and
their Share balances, and will be compensated for these services by the Agent
out of fees it receives from the Program. During the fiscal year ended
December 31, 1998, the Agent paid Merrill Lynch $[ ] for these services.

Experience may indicate that changes in these Terms and Conditions are
desirable or that this offering should be terminated. Such changes may be made
or this offering may be terminated at the direction of the Board of Directors of
the Program (the "Board") without notice to any Shareholder. The Board may at
any time appoint a substitute agent or an additional agent to act for the
Program.

3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Program is to obtain tax-exempt
income through investment in a diversified portfolio (the "Portfolio") of
interest bearing long- and intermediate-term state, municipal and public
authority bonds, the interest on which is, in the opinion of bond counsel to the
issuing authorities, exempt from federal income tax ("Municipal Bonds" or
"Bonds").

GENERAL

In making the Program's investments in Municipal Bonds, the Adviser
considers the following factors, among others:

(i) the quality of the bonds, (a) not less than 75% of which
(determined on the basis of current value) will at the time of acquisition
be rated "A" or better by Standard & Poor's Rating Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's") and all of which
will at such time be rated "BBB" or better by Standard & Poor's or Fitch
IBCA, Inc. ("Fitch"), or "Baa" or better by Moody's or (b) which will have,
in the opinion of the Adviser, similar credit characteristics. (Under
current market and other conditions, the Board has determined that all of
the Bonds in which the Program invests will at the time of acquisition be
rated "BBB" or "Baa" or better by either of such rating agencies or will
have, in the opinion of the Adviser, similar credit characteristics. No
split-rating below "BBB" or "Baa" by one or more of such rating agencies at
the time of the acquisition will be permitted). (See "Description of Bond
Ratings" for a description of the rating categories);

(ii) the yield and price of the Bonds relative to other Bonds of
comparable quality and maturity; and

(iii) the diversification of the Bonds as to purpose of issue and
location of issuer, taking into account the availability in the market of
issuers which meet the Program's quality, rating, yield and price criteria.

While the Program will invest the proceeds of the sale of its Shares (and
other cash proceeds such as those generated by redemptions, maturities or sales
of portfolio securities) as promptly as possible, some short period of time may
elapse between the time the Program receives such proceeds and the time such
proceeds are invested by the Program. However, the Program reserves the right to
extend such period for defensive purposes. During such periods such proceeds may
be held in cash or invested in temporary investments (principally state,
municipal and public authority notes, bonds and commercial paper) ("Temporary
Investments") that have credit characteristics, in the opinion of the Adviser,
similar to those provided for other portfolio securities and the interest income
on which is, in the opinion of counsel to the issuing authorities, exempt from
federal income tax. The Program will not invest in short-term obligations other
than those on which the interest income is, in the opinion of counsel to the
issuing authorities, exempt from federal income tax. The Fund may also invest in
variable rate demand obligations ("VRDOs") and VRDOs in the form of particpation
interests ("Participating VRDOs") in variable rate tax-exempt obligations held
by a financial institution.

The fact that a Bond may cease to be rated or that its rating may be
reduced below the ratings referred to above will not require that it be
eliminated from the Portfolio but will be considered by the Adviser in
determining whether it should be retained or sold.

A portion of the Program's assets may be invested in Bonds rated BBB by
Standard & Poor's or Fitch or Baa by Moody's. Although Bonds rated BBB by
Standard & Poor's or Fitch normally exhibit adequate protection parameters, they
entail a greater degree of risk and are of a more speculative nature than
obligations rated in the higher categories. Therefore, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt obligations in this
category than in higher rated categories. Bonds rated Baa by Moody's are also
speculative in nature and entail greater risks than those rated in higher
categories. Although interest payments and principal security may appear
adequate for the present, certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. See "Description of
Bond Ratings" for a description of rating categories.

At the time that Bonds are originally issued, opinions relating to the
validity of such Bonds and to the exemption of interest thereon from federal
income taxes are rendered by counsel to the respective issuing

4
<PAGE>

authorities. Neither the Program nor the Adviser nor the Administrators nor the
Agent, nor their counsel, will make any review of the proceedings relating to
the issuance of the Bonds or the basis for such opinions.

The Program does not intend to concentrate its investments in obligations
of any one state.

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL BONDS

The risks and special considerations involved in investment in Municipal
Bonds vary with the types of instruments being acquired. See "Investment
Objective and Policies--Description of Municipal Bonds".

The value of Municipal Bonds generally may be affected by uncertainties in
the municipal markets as a result of legislation or litigation changing the
taxation of Municipal Bonds or the rights of Municipal Bond holders in the event
of a bankruptcy. Municipal bankruptcies are rare and certain provisions of the
U.S. Bankruptcy Code governing such bankruptcies are unclear. Further, the
application of state law to Municipal Bond issuers could produce varying results
among the states or among Municipal Bond issuers within a state. These
uncertainties could have a significant impact on the prices of the Municipal
Bonds in which the Program invests.

The suitability for any particular investor of a purchase of shares of the
Program will depend upon, among other things, such investor's investment
objectives and such investor's ability to accept the risks of investing in such
markets, including the loss of principal.

As discussed in the Prospectus, an investment in the Program should be made
with an understanding of the risks which an investment in fixed-rate long- and
intermediate-term debt obligations may entail, including the risk that the value
of the Program's portfolio, and hence the net asset value of the Shares, will
decline with increases in interest rates. Interest rates and, thus, the value of
the fixed rate debt obligations, have fluctuated substantially in recent periods
and may continue to do so in the future.

The yields on Bonds are dependent on a variety of factors, including
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, the maturity of the obligation and rating
of the issue. The ratings of Moody's and Standard & Poor's and Fitch represent
their opinions as to the quality of the Bonds which they undertake to rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, Bonds with the same maturity, coupon and
rating may have different yields, while Bonds of the same maturity and coupon
with different ratings may have the same yield.

Litigation challenging the validity under state constitutions of present
systems of financing public education has been initiated in a number of states.
Decisions in some states have been reached holding such school financing in
violation of state constitutions. In addition, legislation to effect changes in
public school financing has been introduced in a number of states. The Program
is unable to predict the outcome of the pending litigation and legislation in
this area and what effect, if any, resulting changes in the sources of funds,
including proceeds from property taxes applied to the support of public schools,
may have on any school Bonds which may be in the Portfolio.

Certain of the Bonds in the Portfolio may be bonds of issuers (including
California issuers) who rely in whole or in part on ad valorem real property
taxes as a source of revenue. An amendment to the constitution of the State of
California approved in 1978, commonly referred to as "Proposition 13," provides
for strict limitations on such ad valorem real property taxes and has had a
significant impact on the taxing powers of local governments and on the
financial conditions of school districts and local governments in California. As
of the date hereof, none of the Bonds in the Portfolio and none of the ratings
thereof have been directly affected by Proposition 13, but there is no assurance
that there will be no such adverse effects in the future. Similar proposals, in
the form of state legislative proposals or voter initiatives, to limit ad
valorem real property taxes have been introduced in various other states. It is
not possible at this time to predict the final impact of Proposition 13, or of
similar future legislative or constitutional measures, on school districts and
local governments or on their abilities to make future payments on their
outstanding debt obligations.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Bonds or for making available to municipal issuers alternative
sources of funds or credit which might result in substantial amounts of
financing being made available

5
<PAGE>

from other sources--such as the issuance of taxable bonds accompanied by a
partial federal subsidy of interest payments thereon. Similar proposals may be
advanced in the future. If these proposals or similar proposals were to be
enacted, the availability of Bonds for investment by the Program and the value
of the Program's Portfolio would be affected. Additionally, the Program would
reevaluate its investment objectives and policies and consider changes in the
structure of the Program, subject to any applicable requirement for Shareholder
approval.

Description of Municipal Bonds.

Set forth below is a detailed description of the Municipal Bonds and
Temporary Investments in which the Program may invest. Information with respect
to ratings assigned to tax-exempt obligations that the Program may purchase is
set forth under the heading "Description of Bond Ratings". See "How the Program
Invests" in the Prospectus.

The Tax Reform Act of 1986 (the "1986 Act") made substantial changes to the
rules regarding the tax treatment of state and local government bonds. Among
other changes, the 1986 Act narrowed the scope of state and local government
bonds which qualify for exemption, and introduced the concept of "private
activity bonds" to replace the prior law concept of "industrial development
bonds." In addition to investing in Bonds which are subject to the current rules
under the 1986 Act and subsequent legislation, the Program holds and will
continue to hold Bonds, including industrial development bonds, which were
issued prior to the 1986 Act and which continue to be tax-exempt.

The types of Bonds which may be purchased for the Portfolio include debt
obligations issued to obtain funds for various public purposes, including, among
other purposes, the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
street and water and sewer works. Other such public purposes include the
refunding of outstanding obligations and obtaining funds for general operating
expenses and lending to other public institutions and facilities. In addition,
certain types of private activity bonds are issued by or on behalf of public
authorities to obtain funds to provide privately-operated housing facilities,
airport, public transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Such obligations are included
within the types of Bonds which may be acquired by the Program if the interest
paid thereon is exempt from federal income tax in the opinion of counsel for the
issuing governmental authority. Other types of private activity bonds, the
proceeds of which are used for the acquisition, construction, reconstruction or
improvement of privately-operated manufacturing facilities, may also qualify for
such tax exemption, although the current federal tax laws place substantial
limitations on the size of such issues.

General Obligation Bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. The taxing power of any governmental entity may be
limited, however, by provisions of its state constitution or laws, and an
entity's creditworthiness will depend on many factors, including potential
erosion of its tax base due to population decline, natural disasters, decline in
the state's industrial base or inability to attract new industries, economic
limits on the ability to tax without eroding the tax base, state legislative
proposals or voter initiatives to limit ad valorem real property taxes and the
extent to which the entity relies on Federal or state aid, access to capital
markets or other factors beyond the state's or entity's control. Accordingly,
the capacity of the issuer of a general obligation bond as to the timely payment
of interest and the repayment of principal when due is affected by the issuer's
maintenance of its tax base.

Revenue Bonds. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as
payments from the user or the facility being financed; accordingly the timely
payment of interest and the repayment of principal in accordance with the terms
of the revenue or special obligation bond is a function of the economic
viability of such facility or such revenue source.

IDBs and Private Activity Bonds. The Program may purchase IDBs and private
activity bonds. IDBs and private activity bonds are, in most cases, tax-exempt
securities issued by states, municipalities or public authorities to provide
funds, usually through a loan or lease arrangement, to a private entity for the
purpose of financing construction or improvement of a facility to be used by the
entity. Such bonds are secured primarily by revenues derived from loan
repayments or lease payments due from the entity which may or may not be
guaranteed by a parent company or otherwise secured. IDBs and private activity
bonds generally are not secured by a pledge of the taxing power of the issuer of
such bonds. Therefore, an investor should be aware that

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repayment of such bonds generally depends on the revenues of a private entity
and be aware of the risks that such an investment may entail. Continued ability
of an entity to generate sufficient revenues for the payment of principal and
interest on such bonds will be affected by many factors including the size of
the entity, capital structure, demand for its products or services, competition,
general economic conditions, government regulation and the entity's dependence
on revenues for the operation of the particular facility being financed. The
Program may not be an appropriate investment medium for entities that are a
"substantial user of facilities" financed by private activity bonds or for
investors who are "related persons" thereof within the meaning of Section 147(a)
of the Code.

"Moral Obligation" Bonds. The Program also may invest in the "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.

Municipal Lease Obligations. Also included within the general category of
Bonds are participation certificates in a lease, an installment purchase
contract or a conditional sales contract (hereinafter collectively called "lease
obligations") entered into by a state or political subdivision to finance the
acquisition or construction of equipment, land or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
lessee's unlimited taxing power is pledged, a lease obligation is frequently
backed by the lessee's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the lessee has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional securities. Certain
investments in lease obligations may be illiquid. The Program may not invest in
illiquid lease obligations if such investment, together with all other illiquid
investments, would exceed 15% of the Program's net assets. The Program may,
however, invest without regard to such limitation in lease obligations which the
Adviser, pursuant to guidelines which have been adopted by the Board of
Directors and subject to the supervision of the Board, determines to be liquid.
The Adviser will deem lease obligations liquid if they are publicly offered and
have received an investment grade rating of BBB or better by Standard & Poor's
or Fitch, or Baa or better by Moody's. Unrated lease obligations, or those rated
below investment grade, will be considered liquid if the obligations come to the
market through an underwritten public offering and at least two dealers are
willing to give competitive bids. In reference to the latter, the Adviser must,
among other things, also review the creditworthiness of the entity obligated to
make payment under the lease obligation and make certain specified
determinations based on such factors as the existence of a rating or credit
enhancement such as insurance, the frequency of trades or quotes for the
obligation and the willingness of dealers to make a market in the obligation.

Forward Commitments. Municipal Bonds may be purchased or sold on a delayed
delivery basis or may be purchased on a forward commitment basis at fixed
purchase terms with periods of up to 45 days between the commitment and
settlement dates. The purchase will be recorded on the date the Program enters
into the commitment and the value of the security will thereafter be reflected
in the calculation of the Program's net asset value. The value of the security
on the delivery date may be more or less than its purchase price. A separate
account of the Program will be established with The Bank of New York (101
Barclay Street, New York, New York 10007, the custodian (the "Custodian") and
Agent for the Program, consisting of cash or liquid securities having a market
value at all times until the delivery date at least equal to the amount of its
commitment in connection with such delayed delivery and purchase transactions.
Although the Program will generally enter into forward commitments with the
intention of acquiring securities for its Portfolio, the Program may dispose of
a commitment prior to settlement if the Adviser deems it appropiate to do so.
There can, of course, be no assurance that the judgments upon which these
techniques are based will be accurate or that such techniques when applied will
be effective. The Program will enter into forward commitment or delayed delivery
arrangements only with respect to securities in which it may otherwise invest.

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<PAGE>

Description of Short-Term Investments

The Program may invest in short-term tax-exempt instruments subject to the
limitations set forth above and in the Prospectus under "How the Fund Invests".
The tax-exempt money market securities may include municipal notes, municipal
commercial paper, municipal bonds with a remaining maturity of less than one
year, variable rate demand notes and participations therein.

Municipal Notes. Municipal notes are shorter term municipal debt
obligations. They may provide interim financing in anticipation of tax
collection, bond sales or revenue receipts. If there is a shortfall in the
anticipated proceeds, the note may not be fully repayed and the Program may lose
money.

Municipal Commercial Paper. Municipal commercial paper is generally
unsecured and issued to meet short-term financing needs. The lack of security
presents some risk of loss to the Program.

Variable Rate Demand Obligations. VRDOs are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand on the part of the holder thereof to receive
payment of the unpaid balance plus accrued interest upon a short notice period
not to exceed seven days. There is, however, the possibility that because of
default or insolvency the demand feature of VRDOs and Participating VRDOs may
not be honored. The interest rates are adjustable at intervals (ranging from
daily to up to one year) to some prevailing market rate for similar investments,
such adjustment formula being calculated to maintain the market value of the
VRDOs, at approximately the par value of the VRDOs on the adjustment date. The
adjustments typically are based upon the Public Securities Association Index or
some other appropriate interest rate adjustment index. The Program may invest in
all types of tax-exempt instruments currently outstanding or to be issued in the
future which satisfy the short-term maturity and quality standards of the
Program.

Participating VRDOs provide the Program with a specific undivided interest
(up to 100%) of the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the Participating VRDOs from
the financial institution upon a specified number of days notice, not to exceed
seven days. In addition, the Participating VRDO is backed by an irrevocable
letter of credit or guaranty of the financial institution. The Program would
have an undivided interest in the underlying obligation and thus participate on
the same basis as the financial institution in such obligation except that the
financial institution typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment. The Program has been advised by its counsel
that the Program should be entitled to treat the income received on
Participating VRDOs as interest from tax-exempt obligations.

VRDOs that contain an unconditional right of demand to receive payment of
the unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed to be illiquid securities. A VRDO with a demand notice
period exceeding seven days will therefore be subject to the Program's
restriction on illiquid investments unless, in the judgment of the Board, such
VRDO is liquid. The Board may adopt guidelines and delegate to the Adviser the
daily function of determining and monitoring liquidity of such VRDOs. The Board,
however, will retain sufficient oversight and will be ultimately responsible for
such determinations.

The short-term tax-exempt instruments in which the Program may invest
will be in the following rating categories at the time of purchase: MIG-1/VMIG-1
through MIG-4/VMIG-4 for notes and VRDOs and Prime-1 through Prime-3 for
commercial paper (as determined by Moody's), SP-1 through SP-2 for notes and A-1
through A-3 for VRDOs and commercial paper (as determined by S&P), or F-1
through F-3 for notes, VRDOs and commercial paper (as determined by Fitch).
Temporary investments, if not rated, must be of comparable quality in the
opinion of the Adviser. In addition, the Program reserves the right to invest
temporarily a greater portion of its assets in temporary investments for
defensive purposes, when, in the judgment of the Adviser, market conditions
warrant.

PORTFOLIO MANAGEMENT AND TURNOVER RATE

The Program will attempt to attain its investment objectives by careful
initial selection of Bonds with a view to holding them for investment. However,
the Program reserves the right to sell Portfolio securities whenever it deems
such action advisable to maintain competitive yields or to protect capital in
the event the business of an issuer has deteriorated or, in the opinion of the
Adviser, is likely to deteriorate or when the period of time to maturity on
Portfolio securities has shortened to such an extent as to make it undesirable,
in the opinion of the Adviser, to retain such securities in the Portfolio or
when it believes that it is desirable for defensive purposes and in anticipation
of a rise in interest rates to sell Portfolio securities

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<PAGE>

and invest the proceeds temporarily in short-term obligations which have credit
characteristics, in the opinion of the Adviser, similar to those provided for
other Portfolio securities and the interest income on which is, in the opinion
of counsel to the issuing authorities, exempt from federal income tax. Portfolio
turnover rate is calculated by dividing the lesser of purchases or sales (not
including purchases or sales of short-term obligations and subsequent
reinvestments in Bonds as described above) of Portfolio securities for the year
by the monthly average value of Portfolio securities.

INVESTMENT RESTRICTIONS

The following investment restrictions are deemed fundamental policies of
the Program and may be changed only by the vote of the lesser of (1) the holders
of 67% of the Program's outstanding voting securities present at a meeting if
the holders of more than 50% of such outstanding voting securities are present
in person or by proxy or (2) the holders of more than 50% of the Program's
outstanding voting securities.

The Program will not:

(1) invest in securities or other investments other than Bonds and
short-term tax exempt securities, the interest on which is, in the opinion
of counsel to the issuing authorities, exempt from federal income tax;

(2) purchase securities on margin (but the Program may obtain such
short term credits as may be necessary for the clearance of purchases and
sales of securities), make short sales of securities, maintain a short
position or write or purchase put or call options;

(3) borrow money, except from banks as a temporary measure for
emergency purposes, where such borrowings would not exceed 5% of its total
assets (taken at current value);

(4) pledge assets except to secure indebtedness permitted by
(3) above, with pledged assets to be no more than 10% of its total net
assets (taken at current value);

(5) purchase any security if as a result (a) more than 5% of the
Program's total assets (taken at current value) would be invested in
securities of the issuer thereof (other than securities issued or
guaranteed by the United States government) or (b) the Program would hold
more than 10% of any class of securities of the issuer thereof other than
securities issued or guaranteed by the United States government (taking all
debt issued as a single class) or more than 10% of the voting securities of
the issuer thereof;

(6) invest for the purpose of exercising control or management of any
company;

(7) invest in securities of other investment companies, except as
part of a merger, consolidation, purchase of assets or similar transaction
approved by the Program's Shareholders;

(8) make investments in oil, gas or other mineral exploration
programs, commodities, commodity contracts or real estate, although the
Program may invest in securities secured by real estate or interests
therein or issued by companies, including real estate investment trusts,
which deal in real estate or interests therein;

(9) act as an underwriter except as it may be deemed such in a sale
of restricted securities;

(10) participate on a joint (or joint and several) basis in any
trading account in securities (the "bunching" of orders for the sale or
purchase of Portfolio securities with other funds or accounts advised or
sponsored by the Adviser or any of its affiliates to reduce brokerage
commissions or otherwise to achieve the best overall execution not being
considered participation in a trading account in securities);

(11) purchase or retain securities of an issuer if, to the knowledge
of the Program, an officer or director of the Program or the Adviser owns
beneficially more than 1/2 of 1% of such shares or securities of such
issuer and all such directors and officers owning more than 1/2 of 1% of
such shares or securities together own more than 5% of such shares or
securities; or

(12) make loans, except through the purchase of debt obligations.

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<PAGE>
Except in the case of the restriction set forth in clause (11), the
foregoing percentages will apply at the time of the purchase of a security and
shall not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of a purchase of such security.

For purposes of the investment restrictions set forth in clause (8), the
term "exploration programs" includes oil, gas or other mineral leases, as well
as exploration programs.

Because of the affiliation of Merrill Lynch with the Adviser, the Program
is prohibited from engaging in certain transactions involving Merrill Lynch or
its affiliates except pursuant to an exemptive order under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). See "Portfolio
Transactions." Without such an exemptive order the Program would be prohibited
from engaging in portfolio transactions with Merrill Lynch or any of its
affiliates acting as principal.

Illiquid Securities. The Program may invest up to 15% of its net assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. Liquidity of a security relates to the ability to dispose
easily of the security and the price to be obtained upon disposition of the
security, which may be less than would be obtained for a comparable more liquid
security. Illiquid securities may trade at a discount from comparable, more
liquid investments. Investment of the Program's assets in illiquid securities
may restrict the ability of the Program to dispose of its investments in a
timely fashion and for a fair price as well as its ability to take advantage of
market opportunities. The risks associated with illiquidity will be particularly
acute where the Program's operations require cash, such as when the Program
redeems shares or pays dividends, and could result in the Program borrowing to
meet short-term cash requirements or incurring capital losses on the sale of
illiquid investments.

Borrowing and Leverage. The use of leverage by the Program creates an
opportunity for greater total return, but, at the same time, creates special
risks. For example, leveraging may exaggerate changes in the net asset value of
Program shares and in the yield on the Program's portfolio. Although the
principal of such borrowings will be fixed, the Program's assets may change in
value during the time the borrowings are outstanding. Borrowings will create
interest expenses for the Program which can exceed the income from the assets
purchased with the borrowings. To the extent the income or capital appreciation
derived from securities purchased with borrowed funds exceeds the interest the
Program will have to pay on the borrowings, the Program's return will be greater
than if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such borrowed funds is not
sufficient to cover the cost of borrowing, the return to the Program will be
less than if leverage had not been used, and therefore the amount available for
distribution to shareholders as dividends and other distributions will be
reduced. In the latter case, the Investment Adviser in its best judgment
nevertheless may determine to maintain the Program's leveraged position if it
expects that the benefits to the Program's shareholders of maintaining the
leveraged position will outweigh the current reduced return.

INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS

INVESTMENT ADVISORY AGREEMENT

Pursuant to an Investment Advisory Agreement (the "Agreement"), the
Adviser has agreed, subject at all times to the general supervision of the
Board, to (1) manage the Portfolio of the Program in accordance with its
investment objectives and policies and furnish to the Program investment advice
and (2) (a) assist in supervising all aspects of the Program's operations
including coordinating all matters relating to the functions of the Agent,
Custodian and other parties performing operational functions for the Program;
(b) provide the Program, at the Adviser's expense, with the services of such
persons competent to perform such administrative and clerical functions as are
necessary in order to provide effective administration of the Program, including
duties in connection with Shareholder relations, reports, redemption requests
and account adjustments and the maintenance of certain non-accounting Program
books and records; (c) provide the Program, at the Adviser's expense, with
adequate office space and related services; (d) supervise and administer the
operation of the Exchange Privilege referred to in "Redemption of Shares" and
"Exchange Privilege"; and (e) to the extent required by then current federal
securities laws, regulations thereunder or interpretations thereof, pay for the
printing of all Program prospectuses used in connection with the distribution
and sale of the Shares (a regulation permits investment companies to pay such
expenses only when an agreement to that effect has been approved by shareholders
and subject to various other conditions). In return the Program has agreed to
pay a fee each month to

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<PAGE>

the Adviser at the annual rate of 0.5% of the value of the Program's average
daily net assets from the beginning of the year to the end of such month. For
the fiscal years ended December 31, 1996, 1997 and 1998, the advisory fees paid
by the Program to the Adviser aggregated $2,806,869, $2,678,488 and
$[ ], respectively.

The Program pays all the other costs and expenses incurred in connection
with its organization and operations, including: fees of the program agent,
transfer agent, custodian and dividend disbursing agent; costs of printing and
mailing stock certificates, shareholder reports, proxy materials and (except to
the extent borne by the Adviser or the Administrators) prospectuses and
statements of additional information; legal and auditing fees; costs and
expenses of the sale, issue and redemption of its Shares (including fees and
expenses of registering the Shares under federal and state securities laws);
fees and expenses of unaffiliated directors; costs of accounting and pricing
services (including the daily calculation of net asset value); interest,
brokerage costs, insurance and taxes. Accounting services are provided for the
Program by the Adviser, and the Program reimburses the Adviser for its costs in
connection with such services. For the fiscal year ended December 31, 1998, such
reimbursement amounted to and $[ ]. For the fiscal year ended December 31,
1998, the Program's total expenses were [ ] (representing [ ]% of its
average net assets).

The Agreement provides that the use of the name "The Municipal Fund
Investment Accumulation Program" by the Program is non-exclusive and that the
Adviser may allow other persons, including other investment companies, to use
the name. The name may also be withdrawn by the Adviser, in which event the
Adviser has agreed to present the question of continuing the Agreement to a vote
of the Shareholders.

The Agreement will continue from year to year if approved at least annually
either (i) by a vote of a majority of the Program's Shares or (ii) by the Board
and, in each case, by the vote of a majority of those directors who are not
parties to the Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval. It was approved
by Shareholders on June 5, 1987 and by the Board (including all of the
non-interested directors) on [March 30, 1999]. The Agreement provides that the
Adviser shall have no liability to the Program or any Shareholder for any error
of judgment, mistake of law or any loss arising out of any investment, or for
any other act or omission in the performance by the Adviser of its duties under
the Agreement, except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Adviser's part or from reckless disregard by
the Adviser of its obligations and duties under the Agreement. The Agreement
automatically terminates upon its assignment, is terminable, without penalty, by
the Board or by vote of the holders of a majority of the Shares on 60 days'
notice to the Adviser and by the Adviser on 90 days' notice to the Program. The
Adviser's right to terminate could operate to the disadvantage of or work a
hardship on the Program.

THE ADVISER

The Adviser to the Program is Fund Asset Management, L.P. (the general
partner of which is Princeton Services Inc., a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is itself a wholly-owned
affiliate of ML & Co. and has its principal place of business at 800 Scudders
Mill Road, Plainsboro, New Jersey 08536. ML & Co. has its principal place of
business at World Financial Center, North Tower, 250 Vesey Street, New York, New
York, 10281.

FAM is part of the Merrill Lynch Asset Management Group ("AMG"), which acts
as the investment adviser for more than 100 other registered investment
companies and also offers portfolio management and portfolio analysis services
to individual and institutional accounts. As of Janaury 1999, AMG had a total
of approximately $507 billion in investment company and other portfolio assets
under management, including assets managed for certain affiliates.

The Agreement is non-exclusive, and the Adviser, as well as certain of its
affiliates, is in the business of furnishing investment advice to individuals,
institutional clients and other investment companies, including other investment
accumulation programs. The fees charged to these clients vary in accordance with
the type of client and services rendered. Merrill Lynch, an affiliate of the
Adviser, is engaged in the underwriting, securities and commodities brokerage
business and is a member organization of the New York Stock Exchange, other
major securities exchanges and commodity exchanges, and the National Association
of Securities Dealers, Inc. Merrill Lynch Asset Management, L.P. ("MLAM"), an
affiliate of the Adviser, is an indirect wholly-owned affiliate of ML & Co.
and is engaged in the investment advisory business.

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<PAGE>
Securities held by the Program may also be held by other funds or accounts
for which the Adviser acts as adviser or by its investment advisory clients. If
purchases or sales of securities for the Program or other funds or accounts for
which it acts or for their clients arise for consideration at or about the same
time, the Adviser will attempt, subject to applicable laws and regulations, to
allocate equitably portfolio transactions among the Program and the portfolios
of its other investment funds or accounts whenever decisions are made to
purchase or sell securities for the Program and one or more of such other funds
or accounts simultaneously. In making such allocations, the main factors to be
considered will be the respective investment objectives of the Program and such
other funds and accounts, the relative size of the portfolio holdings of the
same or comparable securities, the availability of cash for investment by the
Program and such other funds and accounts, the size of investments held by the
Program and such other funds and accounts, and opinions of the persons
responsible for recommending investments to the Program and such other funds and
accounts. While this procedure could have a detrimental effect on the price and
amount of the securities available to the Program from time to time, it is the
opinion of the Board that the benefits available from the Adviser's organization
will outweigh any disadvantage that may arise from exposure to simultaneous
transactions. To the extent that transactions on behalf of more than one client
of the Adviser during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price.

CODE OF ETHICS

The Board of Directors of the Program has adopted a Code of Ethics under
Rule 17j-1 of the Investment Company Act, which incorporates the Code of Ethics
of the Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Adviser and, as described
below, impose additional, more onerous, restrictions on the Program's investment
personnel.

The Codes require that all employees of the Adviser preclear any personal
securities investments (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Program within periods of trading by the
Program in the same (or equivalent) security (15 or 30 days depending upon the
transaction).

ADMINISTRATION AGREEMENT

The Adviser has entered into an agreement (the "Administration Agreement")
with the Administrators for the performance by them, at their expense, on behalf
of the Adviser of the administrative functions described in clause (2) of the
first paragraph under "Investment Advisory Agreement" which the Adviser is
obligated to perform and has agreed to pay to the Administrators an aggregate
monthly fee at the annual rate of 0.2% of the value of the Program's average
daily net assets from the beginning of the year to the end of such month. The
fee so payable by the Adviser will be allocated among the Administrators in the
following respective percentages: Merrill Lynch, 48%; Prudential, 21%; Morgan
Stanley Dean Witter, 21%; and Salomon Smith Barney, 10%.

Merrill Lynch has been appointed by the other Administrators as agent for
purposes of taking any action under the Administration Agreement with respect to
the Program by power of attorney executed by such Administrators and filed with
the Program and the Agent. Provision is also made under the Administration
Agreement that if the Administrators are unable to agree in respect to action to
be taken jointly by them thereunder and cannot agree as to which Administrators
shall continue to act as Administrators, then Merrill Lynch shall continue to
act as sole Administrator. Similarly, if one or more of the Administrators fail
to perform their duties under the Administration Agreement or become incapable
of acting or become bankrupt or if their affairs are taken over by public
authorities, then each such Administrator shall be automatically discharged
under the Administration Agreement, and the remaining Administrators shall act
as sole Administrators. In addition, the Administration Agreement is terminable,
without penalty, by the Adviser on 60 days' notice to the Administrators and by
the Administrators, acting as a group, on 90 days' notice to the Adviser. The
Administrators' right to terminate could operate to the disadvantage of or work
a hardship on the Program.

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<PAGE>
The Administration Agreement is non-exclusive, and the Administrators, as
well as their affiliates, may furnish similar administrative services to other
clients, including other investment accumulation programs. The fees charged to
these clients may vary in accordance with the type of client and services
rendered. Each of the Administrators has acted as sponsor of a number of series
of the Corporate Income Fund, the Municipal Income Fund, the Municipal
Investment Trust Fund, Liberty Street Trust (Corporate Monthly Payment Series or
Municipal Monthly Payment Series) or the International Bond Fund and other
series of these unit investment trust investment companies and proposes to act
in the future as a sponsor of new series thereof. Each of the Administrators has
also acted as principal underwriter and managing underwriter of other investment
companies. Each Administrator, in addition to participating as a member of
various selling groups or as an agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of securities
of such companies and sells securities to such companies in its capacity as
broker or dealer in securities.

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<PAGE>

MANAGEMENT OF THE PROGRAM

DIRECTORS AND OFFICERS

Responsibility for the Program's management rests with the Board, which
meets at least quarterly to oversee the implementation of the Program's
investment policies and which must approve the renewal of the Agreement. The
Directors of the Program consist of six individuals, five of whom are
"interested persons" of the Program as defined in the Investment Company Act.
The Directors of the Program are responsible for the overall supervision of the
operations of the Program and perform the various duties imposed on the
directors of investment companies by the Investment Company Act. The Board of
Directors elects officers of the Program annually.

The Directors and Officers of the Program, their ages, and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.

ARTHUR ZEIKEL (66)--President and Director (1)(2)--Chairman of the Adviser
and MLAM from 1997 to 1999; President of MLAM and FAM from 1977 to 1997;
Chairman of Princeton Services from 1997 to 1999 and Director thereof from 1993
to 1999; President of Princeton Services, Inc. ("Princeton Services") from 1993
to 1997; Executive Vice President of ML & Co. from 1990 to 1999.

RONALD W. FORBES (58)--Director(2)--1400 Washington Avenue, Albany, New
York 12222. Associate Professor of Finance, School of Business, State University
of New York at Albany since 1989; Consultant, Urban Institute, Washington, D.C.
since 1995.

CYNTHIA A. MONTGOMERY (46)--Director(2)--Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163. Professor, Harvard Business School,
since 1989; Associate Professor, J.L. Kellog Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor, Graduate School
of Business Administration, The University of Michigan from 1979 to 1985;
Director, UNUM Corporation since 1990 and Director of Newell Co. since 1995.

CHARLES C. REILLY (67)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
New York 11946. Self-employed financial consultant since 1990; President and
Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television from 1986 to 1997.

KEVIN A. RYAN (66)--Director(2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Founder, current Director of The Boston University Center
for Advancement of Ethics and Character; Professor of Education at Boston
University since 1982; formerly taught on the faculties of The University of
Chicago, Stanford University and Ohio State University.

RICHARD R. WEST (61)--Director(2)--Box 604, Genoa, Nevada 89411. Professor
of Finance since 1984, and Dean from 1984 to 1993, and currently Dean Emeritus
of New York University Leonard N. Stern School of Business Administration;
Director of Bowne & Co., Inc., Vornado Realty Trust, Inc., Smith-Corona
Corporation and Alexander's Inc.

TERRY K. GLENN (58)--Executive Vice President(1)(2)--800 Scudders Mill
Road, Plainsboro, New Jersey 08536. Executive Vice President of the Adviser and
MLAM since 1983; Executive Vice President and Director of Princeton Services
since 1993; President of Merrill Lynch Funds Distributor, Inc. (the
"Distributor") since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.

VINCENT R. GIORDANO (54)--Senior Vice President(1)(2)--800 Scudders Mill
Road, Plainsboro, New Jersey 08536. Senior Vice President of the Adviser and
MLAM since 1984; Senior Vice President of Princeton Services since 1993; Vice
President of the Adviser from 1980 to 1984.

DONALD C. BURKE (38)--Vice President and Treasurer(1)(2)--800 Scudders Mill
Road, Plainsboro, New Jersey 08536. Senior Vice President and Treasurer of the
Adviser and MLAM since 1999; Senior Vice President and Treasurer of Princeton
Services; Vice President of Princeton Funds Distributor, Inc. since 1999; First
Vice President of MLAM from 1997 to 1999; Vice President of MLAM from 1990 to
1997.

14
<PAGE>

KENNETH A. JACOB (48)--Vice President(1)(2)--800 Scudders Mill Road,
Plainsboro, New Jersey 08536. First Vice President of the Adviser and MLAM since
1984.

ROBERTO ROFFO (33)--Vice President(1)(2)--800 Scudders Mill Road,
Plainsboro, New Jersey 08536. Vice President of MLAM since 1993 and Portfolio
Manager of the Program since 1997.

SUSAN B. BAKER (41)--Secretary(1)(2)--800 Scudders Mill Road, Plainsboro,
New Jersey 08536. Director (Legal Advisory) of the Adviser since 1999; Vice
President of the Adviser since 1993; attorney associated with the Adviser since
1987.

- - ------------------
(1) Interested person, as defined in the Investment Company Act, of the Program.

(2) The Directors and officers of the Program are Directors or officers of
certain other investment companies for which the Adviser or MLAM acts as
investment adviser.

Set forth below is a chart showing the aggregate compensation paid by the
Program to each of its non-affiliated Directors (for the fiscal year ended
December 31, 1998 and, for the calendar year ended December 31, 1998, the total
compensation paid to each Director of the Program by the Program and by other
investment companies advised by the Adviser or MLAM for their services as
Directors or Trustees of such investment companies).

<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE PENSION OR FROM PROGRAM AND
COMPENSATION RETIREMENT BENEFITS FUND COMPLEX
FROM THE ACCRUED AS PART OF PAID TO
NAME OF DIRECTOR PROGRAM PROGRAM EXPENSES DIRECTORS
- - -------------------------------------- ------------ ------------------- ------------------
<S> <C> <C> <C>
Ronald W. Forbes(1)................... $1,500 None $192,567
Cynthia A. Montgomery(1).............. $1,500 None $192,567
Charles C. Reilly(1).................. $2,500 None $362,858
Kevin A. Ryan(1)...................... $1,500 None $192,567
Richard R. West(1).................... $1,500 None $330,125
</TABLE>

- - ------------------

(1) The Directors serve on the boards of other MLAM/FAM Advised Funds as
follows: Mr. Forbes (37 registered investment companies consisting of 50
portfolios), Ms. Montgomery (37 registered investment companies consisting
of 50 portfolios), Mr. Reilly (56 registered investment companies consisting
of 69 portfolios), Mr. Ryan (37 registered investment companies consisting
of 50 portfolios) and Mr. West (58 registered investment companies
consisting of 83 portfolios).

The Program has an Audit Committee consisting of all the directors of the
Program who are not interested persons of the Program.

REMUNERATION OF DIRECTORS--On March 31, 1999, shares of the Program owned
by all officers and directors of the Program as a group aggregated less than 1%
of the total of such shares then outstanding. The Program pays each
non-affiliated director an annual fee of $800 plus $100 per quarterly meeting
attended and an annual fee of $300 for serving on the Program's Audit Committee,
except for the Chairman of the Audit Committee who receives an annual fee of
$1,000. The Program will also pay the out-of-pocket expenses of such directors
relating to attendance at Meetings.

NET ASSET VALUE

Reference is made to "How Shares are Priced" in the Prospectus.

The net asset value per Share of the Program is determined by dividing the
net assets of the Program by the number of its outstanding Shares. The net
assets of the Program are its gross assets less its liabilities as determined in
accordance with generally accepted accounting principles. It is the ultimate
responsibility of the Board to establish standards for the valuation of the
Portfolio securities for purposes of determining net asset value of the Program.
The Program has made arrangements with Kenny S&P Evaluation Services, a division
of Kenny Information Systems, Inc., 65 Broadway, New York, New York 10006
("Kenny"), to furnish to the Program and the Agent, on each day that the New
York Stock Exchange (the "NYSE") is open for trading immediately after the
declaration of dividends, estimated values (as of 15 minutes after the close of
business on

15
<PAGE>
the NYSE, generally 4:00 P.M., New York City time) of Portfolio securities for
purposes of computation of net asset value of the Shares. The NYSE is not open
for trading on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. The Board has examined the methods to be
used by Kenny in estimating the value of Portfolio securities and believes that
such methods will reasonably and fairly approximate the price at which Portfolio
securities may be sold and will result in a good faith determination of the fair
value of such securities; however, there is no assurance that the Portfolio
securities can be sold at the prices at which they are valued.

Due to the nature of the secondary market for Municipal Bonds it is
unlikely that current last sale transactions or unsolicited bids will be
regularly available for most of the securities in the Portfolio. The method used
by Kenny to value such Portfolio securities is to obtain "quotes" on comparable
securities of comparable quality and to value such Portfolio securities
similarly. These values are not bids or actual last sale prices but are
estimates of the price at which Kenny believes the Program could sell such
Portfolio securities.

Portfolio securities with respect to which a last sale transaction is
available will be valued by Kenny at such last sales transaction unless in its
judgment such last sale transaction does not fairly and accurately represent the
price at which such Portfolio securities may be sold. If there are current
unsolicited bids outstanding for Portfolio securities with respect to which
there are no such last sale transactions, Kenny will value such Portfolio
securities within the range of bid and asked prices it considers best to
represent the price at which such Portfolio securities can be sold in light of
the then existing circumstances, unless in its judgment such range does not
fairly and accurately represent the range in which such Portfolio securities may
be sold.

REDEMPTION OF SHARES

Shareholders have the right to redeem their Shares at net asset value by
surrendering the certificates therefor properly endorsed with the signatures
guaranteed by an "eligible guarantor institution" as such term is defined by
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, the existence
and validity of which may be verified by the Agent through the use of industry
publications, together with a request for redemption at the office of the Agent,
The Bank of New York, (P.O. Box 974, Wall Street Station, New York, New York
10286-0974). If certificates have not been issued, only delivery of the request
for redemption (with signature guaranteed as set forth above) is required. The
Program has arranged, however, for an exemption from the signature guarantee
requirement for redemptions involving less than $5,000 on the date of receipt by
the Agent of all the necessary documents where the proceeds are to be reinvested
through one of the Administrators in units of Municipal Investment Trust Fund,
Government Securities Income Fund, Corporate Income Fund, Defined Asset Funds,
Equity Investor Fund or International Bond Fund (the "Unit Trusts") which are to
be registered in the names of the registered owners of the Shares. This
exemption may be reduced or eliminated without prior notice. A guarantee of each
Shareholder's signature is required for all redemptions, regardless of the
amount involved, where the proceeds are to be paid to Shareholders or where the
units of the Unit Trusts to be purchased are to be registered in names different
from those of the registered owners of the Shares.

The redemption price will be the net asset value next determined after
either (i) the certificates are tendered for redemption or (ii) if no
certificates have been issued, a request for redemption is received in good
order as set forth above. The price received upon redemption may be more or less
than the amount paid by the Shareholder depending on the net asset value of the
Shares at the time of redemption. Payment of the redemption price must be made
within seven days after proper tender unless further postponement is permissible
under the Investment Company Act by reason of closing of or restriction of
trading on the NYSE or other emergency.

Any of the Administrators may accept orders from dealers with whom they
have satisfactory agreements for the repurchase of Shares held by Holders.
Repurchase orders received by the dealer prior to the close of business on the
NYSE (generally 4:00 P.M., New York City time) on any business day and
transmitted by the Administrator prior to the close of its business day
(generally 4:00 P.M., New York City time) are redeemed at the price determined
as of the close of business on the NYSE on such day. Repurchase orders received
after the close of business on the NYSE on any business day are redeemed at a
price determined as of the close of business on the NYSE on the next business
day. It is the responsibility of the dealers to transmit orders so that they
will be

16
<PAGE>

received by the Administrator prior to its close of business. This repurchase
arrangement is discretionary and may be withdrawn. There is no additional charge
by the Program for repurchases.

The right of redemption may be suspended during any period when the NYSE is
closed, other than customary weekend and holiday closings; when trading on such
exchange is restricted or an emergency exists, in each case as determined by
rules and regulations of the Securities and Exchange Commission; or during any
period when the Securities and Exchange Commission has by order permitted such
suspension.

The Program has elected to be obligated to pay in cash redemptions during
any 90-day period for any one Shareholder up to the lesser of $250,000 or 1% of
the Program's net asset value. Payments in excess of such amount will normally
be made in cash. If, however, the Board determines that liquidation of the
Program's holdings is impracticable or that such payment in cash would be
adverse to the interests of the remaining Shareholders, such payment may be made
in whole or in part in Portfolio securities. The value of any Portfolio
securities distributed in payment for tendered Shares will be deemed to be their
value used in determining the net asset value of the Shares at the time they
were tendered for redemption. If securities rather than cash are distributed,
the Shareholder will incur brokerage charges or their equivalent in dealer
markdowns in liquidating these securities.

Due to the high cost of maintaining Shareholder accounts of less than $500,
the Program reserves the right to redeem Shares in any account for their then
current net asset value (which will be paid promptly to the Shareholder), if at
any time the total investment of such Shareholder does not have a net asset
value of at least $500 due to Shareholder redemptions and the Shareholder owns
no Units or has elected that no distributions on any Units owned by such
Shareholder be invested in Shares. Before any such redemption is effected, the
Shareholder will be given 30 days' notice, during which period he will be
entitled to elect to have distributions on Units owned by such Shareholder
invested in Shares or to purchase Shares to bring his account up to a net asset
value of $500 and thereby avoid such redemption.

EXCHANGE PRIVILEGE

Shareholders who have owned Shares for at least 60 days have an exchange
privilege (the "Exchange Privilege") with shares of The Corporate Fund
Accumulation Program, Inc. (the "Other Program"). Shares with an aggregate net
asset value of at least $1,000 are required to qualify for the Exchange
Privilege. Exchanges between the Program and the Other Program will be at their
respective net asset values. The investment objectives of the Other Program
differ from those of the Program, and Shareholders should obtain a currently
effective prospectus for the Other Program before effecting any exchange.

Exercise of the Exchange Privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short- or long-term capital
gain or loss may be realized. The exchange privilege is available only to
Shareholders residing in states where the Other Program is qualified for sale. A
noncorporate Shareholder of the Program who exercises the Exchange Privilege may
be required to certify to the Other Program his Social Security Number or
Taxpayer Identification Number and that he is not subject to the backup
withholding tax if he wishes to avoid a 31% backup withholding tax on
distributions made to him by the Other Program.

This Exchange Privilege may be modified or terminated at any time. The
Program reserves the right to limit the number of times an investor may exercise
the Exchange Privilege. To exercise the Exchange Privilege, a Shareholder should
contact one of the Administrators, who will advise the Program and the Other
Program of the exchange, or the Shareholder may write to the Agent requesting
that the exchange be effected. Such letter must be signed exactly as the account
is registered with signatures guaranteed by a member firm of a national or
regional stock exchange or any commercial bank or trust company. Shareholders
with Shares for which certificates have not been issued may exercise the
Exchange Privilege by wire through their securities dealers. The Program
reserves the right to require a properly completed Exchange Application.

TAXES AND DIVIDENDS

The Program has qualified and intends to continue to qualify for the
special tax treatment applicable to "regulated investment companies" under the
Internal Revenue Code of 1986, as amended. If the Program qualifies as a
"regulated investment company" and makes distributions to Shareholders (without
regard to designated capital gain dividends) in an amount equal to or exceeding
the sum of 90% of its investment

17
<PAGE>

company taxable income and 90% of its net interest income from tax-exempt
obligations, it will not be subject to federal income tax on such part of its
net ordinary income or net realized capital gains, if any, as it distributes to
Shareholders. The Program expects to distribute monthly substantially all of its
net interest income, after expenses. Net realized capital gains, if any, will be
distributed at least annually. Such distributions of net interest income and net
realized capital gains will be reinvested in additional Shares in the Program
unless the Shareholder elects to receive such distributions in cash.
Distributions of net interest income to be reinvested in additional Shares, or
to be received in cash if elected, will be made on the 15th day of the month, or
on the next succeeding business day if the 15th falls on a holiday or weekend,
for the accounts of Shareholders of record on the preceding business day of such
month.

A 4% non-deductible excise tax is imposed on a regulated investment
company, such as the Program, if the company does not distribute annually to its
shareholders an amount equal to at least 98% of the investment company's
ordinary income for the calendar year, plus at least 98% of the company's
capital gain net income for the one-year period ending on October 31 of such
calendar year. In addition, an amount equal to any of the investment company's
undistributed ordinary income or capital gain net income from the previous
calendar year must also be distributed to avoid the excise tax. The excise tax
is imposed on the amount by which a company does not meet the foregoing
distribution requirements. The excise tax will not, however, apply to the
tax-exempt income of a regulated investment company, such as the Program, that
pays "exempt-interest" dividends. In addition, if the Program has taxable income
that would be subject to the excise tax, the Program intends to distribute such
income so as to avoid payment of the excise tax.

The Program intends to qualify to pay "exempt-interest" dividends as
defined in the Code. If it so qualifies, dividends or any part thereof (other
than any short-, or long-term capital gain distributions) paid by the
Program which are attributable to interest on tax-exempt obligations and are
designated by the Program as exempt-interest dividends in a written notice
mailed to the Program's Shareholders within 60 days after the close of its
taxable year may be treated by Shareholders for all purposes as items of
interest excludable from their gross income under Section 103(a) of the Code.
However, a Shareholder is advised to consult his tax adviser with respect to
whether exempt-interest dividends are excludable under Section 103(a) of the
Code if received by a Shareholder who would be treated as a "substantial user"
under Section 147(a)(1) of the Code if such Shareholder held the tax-exempt
obligations directly. A Shareholder may not deduct interest on indebtedness
incurred or continued to purchase or carry Shares to the extent attributable to
exempt-interest dividends.

Distributions to Shareholders of net short-term capital gains, if any,
including distributions which are reinvested in additional Shares in the
Program, will generally be taxable as ordinary income. Such distributions will
constitute dividends for federal income tax purposes, but, since no portion will
arise from dividends, it is anticipated that such distributions will not qualify
for the 70% dividends-received deduction for corporations. Distributions
reflecting net long-term capital gains (designated as such by the Program) will
be taxable to Shareholders as long-term capital gains regardless of the
Shareholders' holding period of the Shares. The maximum tax rates applicable to
net capital gains recognized by individuals and other non-corporate taxpayers
are the same as ordinary income rates for capital assets held for one year or
less, and 20% for capital assets held for more than 12 months. The maximum tax
rate applicable to net capital gains recognized by corporate taxpayers is 35%.
In the event of the redemption of Shares, gain, if any, reflecting accrued but
undistributed net interest income thereon may be subject to taxation as
(depending on the length of time the Shareholder has held the redeemed Shares)
long-, or short-term capital gains. Shareholders should consult their own tax
advisers regarding the availability and effect of a certain tax election to
mark-to-market shares of Common Stock held on January 1, 2001. Capital gains or
losses recognized by corporate shareholders are subject to tax at the ordinary
income tax rates applicable to corporations. The tax rates for capital gains
described above apply to distributions of capital gains dividends by regulated
investment companies such as the Program as well as to sales and exchanges of
shares in regulated investment companies such as the Program. If a Shareholder
receives a capital gain dividend and has held Shares of the Program for six
months or less, any loss on the sale of such Shares shall, to the extent of the
capital gain dividends paid on such shares, be treated as a long-term capital
loss. If the Shareholder receives an exempt-interest dividend on Shares and
holds those Shares for six months or less, any loss on the sale of such Shares
shall, to the extent of the amount of such exempt interest dividend, be
disallowed.

18
<PAGE>

Any dividend declared by the Program in October, November or December of
any year and made payable to Shareholders of record in such month will be deemed
to be received on December 31 of such year if actually paid during the following
January.

Some Shareholders may be subject to a 31% withholding on reportable
dividends, capital gains distributions and redemption payments ("backup
withholding"). Backup withholding is not required with respect to dividends
representing "exempt-interest." Generally, Shareholders subject to backup
withholding will be those for whom a certified Taxpayer Identification Number
("TIN") is not on file with the Program, or who, to the Program's knowledge,
have furnished an incorrect TIN or with respect to whom the Internal Revenue
Service has advised the Program that there must be backup withholding. When
establishing an account, an investor must certify under penalties of perjury
that the TIN is correct and that he is not subject to backup withholding.

Every person required to file a tax return must disclose on such return the
amount of exempt-interest dividends received from the Program during the taxable
year. The disclosure of such amount is for informational purposes only. No later
than 60 days after the end of each calendar year, the Program will send to
Shareholders a written notice required by the Code designating the amount of its
dividends which constitute "exempt-interest dividends," the amount which is
taxable as ordinary income and the amount which is taxable as long-term capital
gain.

A Shareholder may be subject to alternative minimum tax to the extent the
Program holds private activity bonds and a corporate Shareholder's alternative
minimum taxable income may be increased to the extent of exempt interest
dividends received from the Program. Interest income with respect to certain
tax-exempt bonds, known as private activity bonds, is a preference item for
purposes of the corporate and individual alternative minimum tax. To the extent
that the Program invests in private activity bonds, Shareholders will have
preference items attributable to their proportionate shares of the interest
income received by the Program from such bonds. In addition, for purposes of
calculating the corporate alternative minimum tax, a corporation is required to
increase its alternative minimum taxable income by 75% of the amount by which
adjusted current earnings exceed alternative minimum taxable income (determined
without regard to this provision or net operating losses). Under this provision,
interest income from tax-exempt bonds held by the Program would increase the
alternative minimum taxable income of corporate Shareholders. The Program
expects that it may hold private activity bonds.

A deductible environmental tax is imposed on a corporation's alternative
minimum taxable income (computed without regard to either the alternative tax
net operating loss deduction or the environmental tax deduction) at a rate of
$12 per $10,000 (0.12%) of alternative minimum taxable income in excess of
$2,000,000. The tax will be imposed even if the corporation is not required to
pay an alternative minimum tax because the corporation's regular income tax
liability exceeds its minimum tax liability. The Program is not subject to the
tax. The tax is imposed on the Program's corporate Shareholders, however, and
exempt-interest dividends paid by the Program that create alternative minimum
tax preferences for corporate Shareholders will be subject to the tax.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Regulations
are subject to change by legislative or administrative action.

STATE AND LOCAL TAXES

The exemption of interest income (including exempt-interest dividends)
for federal income tax purposes does not necessarily result in exemption under
the income or other tax laws of any state or local taxing authority. Each
Shareholder is advised to consult his own tax adviser in this regard.

State and local taxing authorities may enact legislation which may require
the Program to withhold a portion of dividends paid or credited to Shareholders.

19
<PAGE>
PORTFOLIO TRANSACTIONS

The Adviser is responsible for making portfolio investment decisions on
behalf of the Program and effecting portfolio transactions with or through
securities dealers, subject to the general supervision of the officers and
directors of the Program. The Program will follow a policy that it will place
securities transactions with a broker or dealer only if it expects to obtain the
most favorable prices and executions of orders. Transactions in debt securities
are generally made through securities dealers acting as principals, although the
Program may purchase or sell such securities in brokerage transactions and
affiliates of the Adviser may act as brokers therein if the Program expects
thereby to obtain the most favorable price and execution. The portfolio
securities of the Program generally are traded on a principal basis and normally
do not involve either brokerage commissions or transfer taxes. The cost of
portfolio securities transactions of the Program primarily consists of dealer or
underwriter spreads. While reasonable competitive spreads or commissions are
sought, the Program will not necessarily be paying the lowest spread or
commission available. Under the Investment Company Act, persons affiliated with
the Program are prohibited from dealing with the Program as a principal in the
purchase and sale of securities for the Program unless such trading is permitted
by an exemptive order issued by the Securities and Exchange Commission. The
Program has obtained an exemptive order permitting it to engage in certain
principal transactions involving high quality short-term Municipal Bonds. During
the years ended December 31, 1996 and 1997, the Program did not purchase
Municipal Bonds in principal transactions pursuant to the exemptive order.
However in 1998, the Program entered into one transaction in which it purchased
$9,994,000 of Municipal Bonds pursuant to the exemptive order. Also, under the
Investment Company Act, the Program may not purchase Municipal Bonds from any
underwriting syndicate of which Merrill Lynch is a member except pursuant to an
exemptive order or rules adopted by the Securities and Exchange Commission.

While there is no undertaking or agreement to do so, the Adviser may
allocate securities transactions among various dealers on the basis of
supplementary statistical and research information and price quotation and other
services furnished to the Program or the Adviser. Such statistical and research
information may be used by the Adviser in providing investment advice for all of
the accounts which it manages, and it is not possible to relate the benefits of
such information to any particular account. The Adviser is able to fulfill its
obligations to furnish a continuous investment program to the Program without
such information from dealers. However, the Adviser considers access to such
information to be an important element of financial management. While such
information is considered useful, its value is not determinable and the Adviser
does not feel that such information reduces its expenses. In implementing the
above policies, the Program will not offset brokerage commissions paid to the
affiliates of the Adviser, if any, against advisory fees payable to the Adviser,
nor will it attempt to offset brokerage commissions payable to other brokers
which effect Portfolio transactions for the Program. The Board has considered
the propriety of seeking such offsets and has determined that it is in the best
interest of the Program not to seek such offsets at this time and that it will
reconsider this determination in the future at least annually. The Program may
effect Portfolio transactions conducted on an agency basis through affiliates of
the Adviser provided that, in the judgment of the Adviser, more favorable prices
or executions are not obtainable elsewhere. During the fiscal years ended
December 31, 1996, 1997 and 1998, the Program did not pay any brokerage
commissions.

An affiliated person of the Program may serve as broker for the Program in
OTC transactions conducted on an agency basis. Certain court decisions have
raised questions as to the extent to which investment companies should seek
exemptions under the Investment Company Act in order to seek to recapture
underwriting and dealer spreads from affiliated entities. The Board has
considered all factors deemed relevant and have made a determination not to seek
such recapture at this time. The Board will reconsider this matter from time to
time.

The Program may not purchase securities, including Municipal Bonds, during
the existence of any underwriting syndicate of which Merrill Lynch is a member
or in a private placement in which Merrill Lynch serve as placement agent except
pursuant to procedures approved by the Board which either comply with rules
adopted by the Commission or with interpretations of the Commission staff. Rule
10f-3 under the Investment Company Act sets forth conditions under which the
Program may purchase Municipal Bonds from an underwriting syndicate of which
Merryll Lynch is a member. The rules sets forth requirements relating to, among
other things, the terms of an issue of Municipal Bonds purchased by the Program,
the amount of Municipal Bonds that may be purchased in any one issue and the
assets of the Program that may be invested in a particular issue.

20
<PAGE>

Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Adviser or an affiliate when one or
more clients of the Adviser or an affiliate are selling the same security. If
purchases or sales of securities arise for consideration at or about the same
time that would involve the Program or other clients or funds for which the
Adviser or an affiliate acts a manager, transactions in such securities will be
made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Adviser or an affiliate during the same period may increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.

PERFORMANCE DATA

The Program may from time to time include its average annual total return
and yield in advertisements or information furnished to present or prospective
shareholders. Both total return and yield figures are based on the Program's
historical performance and are not intended to indicate future performance.
Average annual total return and yield are determined in accordance with formulas
specified by the Securities and Exchange Commission.

Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based upon
net investment income and any capital gains or losses on portfolio investments
over such periods) that would equate the initial amount invested to the
redeemable value of such investments at the end of each period. Average annual
total return will be computed assuming all dividends and distributions are
reinvested and taking into account all applicable recurring and nonrecurring
expenses.

Yield quotations will be computed based on a 30-day period by dividing the
net income earned during the period based on the yield to maturity of each
security held by the Program by the average daily number of shares outstanding
during the period that were entitled to receive dividends times the maximum
offering price per share on the last day of the period.

The Program's average annual total return and yield will vary depending
upon market conditions, the securities comprising the Program's Portfolio, the
Program's operating expenses and the amount of net capital gains or losses
realized by the Program during the period. An investment in the Program will
fluctuate and an investor's Shares, when redeemed, may be worth more or less
than their original cost.

On occasion, the Program may compare its performance to that of the
Standard & Poor's 500 Composite Stock Price Index, the Value Line Composite
Index, the Dow Jones Industrial Average, the Lehman Brothers Municipal Bond
Index or performance data published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. When comparing its performance to a
market index, the Program may refer to various statistical measures derived from
historical performance of the Program and the index, such as standard deviation
and beta. From time to time, the Program may include the Program's Morningstar
risk-adjusted performance ratings in advertisements or supplemental sales
literature. As with other performance data, performance comparisons should not
be considered indicative of the Program's relative performance for any future
period.

Set forth below is the Program's average annual total return information for the
periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED 5-YEAR PERIOD ENDED 10-YEAR PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- ------------------- --------------------
<S> <C> <C> <C>
Average Annual
Total Return (a).............................. [ ]% [ ]% [ ]%
</TABLE>

- - ------------------
(a) Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based
upon net investment income and any capital gains or losses on portfolio
investments over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable
recurring and nonrecurring expenses.

The Program may supplement this Statement of Additional Information with
yield quotations to comply with certain regulations issued by the Securities and
Exchange Commission with respect to the advertisement of

21
<PAGE>
performance. Yield quotations will be computed based on a 30-day period by
dividing the net income earned during the period based on the yield to maturity
of each security held by the Program by the average daily number of shares
outstanding during the period that were entitled to receive dividends times the
maximum offering price per share on the last day of the period.

GENERAL INFORMATION

ORGANIZATION OF THE PROGRAM

The Program, an open-end diversified management investment company
registered under the Investment Company Act was incorporated in Maryland on
October 11, 1976. The Program does not intend to hold meetings of Shareholders
unless under the Investment Company Act Shareholders are required to act on any
of the following matters: (i) election of directors; (ii) approval of an
investment advisory agreement; (iii) approval of a distribution plan or
(iv) ratification of selection of independent accountants.

DESCRIPTION OF SHARES

The Program is authorized to issue a total of 100,000,000 Shares of $.01
par value each. There is no limitation on the sales charge, if any, at which the
Shares may be offered or the types of investors to whom offerings may be made.
Shares are fully paid and non-assessable when issued, have no pre-emptive,
conversion or exchange rights and are transferable without restriction. Each
Share entitles the holder to one vote at all meetings of shareholders.
Cumulative voting is not permitted. Thus the holders of more than 50% of the
Shares voting for the election of the Directors can elect all of the Directors
of the Program if they choose to do so and in such event the holders of the
remaining Shares would not be able to elect any Directors. Holders of Shares are
entitled to participate equally in dividends and distributions, and, in
addition, in the event of the distribution or liquidation of the Program the
holders of Shares will be entitled to participate equally in any assets of the
Program. Unless requested to do so by a Shareholder, the Program will not
ordinarily issue certificates representing Shares but will instead establish for
each Shareholder through the Agent an account under which such Shares are held
for safekeeping.

INDEPENDENT AUDITORS

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Program. The selection of
independent auditors is subject to approval by the non-interested Directors of
the Program. The independent auditors are responsible for auditing the annual
financial statements of the Program.

CUSTODIAN, TRANSFER, PROGRAM AND DIVIDEND DISBURSING AGENT

The Bank of New York, New York, New York, acts as Custodian of the
Program's assets and as its Transfer Agent, Agent and Dividend
Disbursing Agent. The Custodian is responsible for safeguarding and controlling
the Program's cash and securities, handling the receipt and delivery of
securities and collecting interest on the Program's investments. The Agent is
responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts. See "How to Buy,
Sell, Transfer and Exchange Shares" in the Prospectus.

LEGAL COUNSEL

Rogers & Wells LLP, New York, New York, is counsel for the Program and
passes upon legal matters for the Program in connection with the Shares offered
by the Prospectus.

REPORTS TO SHAREHOLDERS

The fiscal year of the Program ends on December 31 of each year. The
Program sends its Shareholders, at least semi-annually, reports showing the
Program's portfolio and other information. An annual report, containing
financial statements audited by indepedent auditors, is sent to Shareholders
each year.

22
<PAGE>

SHAREHOLDER INQUIRIES

Shareholder inquiries may be addressed to the Program at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.

ADDITIONAL INFORMATION

The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Program has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.

To the knowledge of the Program, no entity owned beneficially 5% or more of
the Program's shares as of [ ].

FINANCIAL STATEMENTS

The Program's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders.

DESCRIPTION OF BOND RATINGS*

STANDARD & POOR'S

AAA--Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.

BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C--the rating C is reserved for income bonds on which no interest is being
paid.

D--Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.

NR--indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of bond as a matter of policy.

Plus (+) or minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

Provisional Ratings. The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.

FITCH

AAA rated bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

- - ------------------
* As described by the rating companies themselves.

23
<PAGE>

AA rated bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change
over the term of the issue.

A rated bonds are considered to be investment grade and of good quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB rated bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with higher ratings.

BB rated bonds are considered speculative and of low investment grade. The
obligor's ability to pay interest and repay principal is not strong and is
considered likely to be affected over time by adverse economic changes.

B rated bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the life of
the issue and repay principal when due.

CCC rated bonds may have certain characteristics which, with the passing of
time, could lead to the possibility of default on either principal or interest
payments.

CC rated bonds are minimally protected. Default in payment of interest
and/or principal seems probable.

C rated bonds are in actual or imminent default in payment of interest or
principal.

DDD, DD, D rated bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and should be valued
only on the basis of their value in liquidation or reorganization of the
obligor.

+(Plus) or - (Minus) signs after bond and preferred stock rating symbols
(from "AA" to "B") indicate relative standing within a rating category. They are
refinements more closely reflecting strengths and weaknesses and are not to be
used as trend indicators.

MOODY'S

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

24
<PAGE>
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category, the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.

CON.( . . . )--Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

SHORT-TERM NOTES

The three ratings of Moody's for short term notes are: MIG 1/VMIG 1, MIG
2/VMIG 2 and MIG3/VMIG 3; MIG 1/VMIG 1 denotes "best quality, enjoying strong
protection from established cash flows;" MIG 2/VMIG2 denotes "high quality" with
ample margins of protection; MIG 3/VMIG 3 notes are of "favorable quality...but
lacking the undeniable strength of the preceding."

25
<PAGE>
- - ------------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- - ------------------------------------------------

- - ------------------------------------------------------
INDEX
- - ------------------------------------------------------

PAGE
----
The Program.................................... 2
Investment Objectives and Policies............. 4
Investment Restrictions........................ 9
Investment Advisory Agreement.................. 10
Management of the Fund......................... 14
Net Asset Value................................ 15
Redemption of Shares........................... 16
Exchange Privilege............................. 17
Taxes and Distributions........................ 17
Portfolio Transactions......................... 20
Performance Data............................... 21
General Information............................ 22
Description of Bond Ratings.................... 23
Financial Statements........................... 23

- - ------------------------------------------------------
THE

MUNICIPAL

FUND

INVESTMENT

ACCUMULATION

PROGRAM

- - ------------------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL [ ], 1999

- - ------------------------------------------------------

BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2000

<PAGE>
PART C

ITEM 23. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
(1)(1a) -- Amended and Restated Articles of Incorporation of Registrant (incorporated by reference to Exhibit 1
to Amendment No. 2 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2694).
(b) -- Articles Supplementary to the Articles of Incorporation of Registrant, dated October 12, 1994
(incorporated by reference to Exhibit 1(b) to Amendment No. 17 to Form N-1A of Registrant, 1940 Act
File No. 811-2694).
(2) -- By-Laws of the Registrant (incorporated by reference to Exhibit 2 to Amendment No. 17 to Form N-1A of
Registrant, 1940 Act File No. 811-2694).
(3) -- Not applicable.
(4) -- Form of Stock Certificate (incorporated by reference to Exhibit 4(a) to Amendment No. 2 to Form
N-8B-1 of Registrant, 1940 Act File No. 811-2694).
(5) -- Investment Advisory Agreement (incorporated by reference to Exhibit 5 to Amendment No. 2 to Form
N-8B-1 of Registrant, 1940 Act File No. 811-2694).
(5)(a) -- Form of SubAdvisory Agreement between Fund Asset Management, L.P. and Merrill Lynch Asset Management
U.K. Limited (incorporated by reference to Exhibit 5(a) to Amendment No. 20 to Form N-1A of
Registrant, 1940 Act File No. 811-2694).
(6) -- Not applicable.
(7) -- Not applicable.
(8) -- Custody Agreement between The Bank of New York and Registrant (incorporated by reference to
Exhibit 8 to Amendment No. 2 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2694).
(9)(a) -- Administration Agreement by and among the Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Prudential-Bache Securities, Inc. and Dean Witter Reynolds Inc. (incorporated by
reference to Exhibit (9)a to Post-Effective Amendment No. 4 to Form N-1 of the Registrant, 1933 Act
File No. 2-57442).
(b) -- Agency Agreement between The Bank of New York and Registrant (incorporated by reference to Exhibit
(9) to Amendment No. 2 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2694).
(10) -- Opinion of Rogers & Wells LLP (incorporated by reference to Registrant's Rule 24f-2 Notice).
(11) -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant* (filed herewith).
(12) -- Not applicable.
(13) -- Not applicable.
(14) -- Not applicable.
(15) -- Not applicable.
(16) -- Schedule of Computation of Performance Data in Response to Item 22 (incorporated by reference to
Exhibit 16 to Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A
(file No. 2-57442)).
(27) -- Financial Data Schedule.*
</TABLE>

- - ------------------

* Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE PROGRAM

Not applicable.

ITEM 25. INDEMNIFICATION

Article VI of the By-Laws of Registrant is incorporated by reference to
Exhibit (2) to this Post-Effective Amendment No. 20 to Form N-1A of Registrant
(1940 Act File No. 811-2694).

The Maryland statutory indemnification provision is incorporated by
reference to Exhibit (14) to Amendment No. 2 to Form N-8B-1 of Registrant (1940
Act File No. 811-2694).

C-1
<PAGE>

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Fund Asset Management, L.P. (the "Investment Adviser" or "FAM"), acts as
the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High
Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Puerto Rico Tax-Exempt Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund,
Inc., and the Municipal Fund Accumulation Program, Inc.; and the following
closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate
High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt
Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc. MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund, III, MuniHoldings Florida Insured Fund IV, MuniHoldings Insured
Fund, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings
New Jersey Insured Fund III, Inc., MuniHoldings New York Fund, Inc.,
MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured Fund II,
Inc., MuniHoldings New York Insured Fund III, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc. and Worldwide Dollar Vest Fund, Inc.

Merrill Lynch Asset Management ("MLAM"), an affiliate of FAM, acts as the
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Growth Fund, Inc., Merrill Lynch Global Holdings Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth
Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate Government
Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series
Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income
Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology
Fund, Inc., Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc., and Merrill Lynch
Variable Series Funds, Inc.; and Hotchkis and Wiley Funds (advised by Hotchkis
and Wiley, a division of MLAM) and the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., and
Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts as subadvisor to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity
Portfolio, two investment portfolios of EQ Advisors Trust.

The address of each of these investment companies is Box 9011, Princeton,
New Jersey 08543-9011. The address of Merrill Lynch Funds for Institutions
Series is One Financial Center, 15th Floor, Boston, Massachusetts

C-2
<PAGE>

02111-2646. The address of the Investment Adviser, MLAM, Princeton Services,
Inc. ("Princeton Services") and Princeton Administrators, L.P. also is Box 9011,
Princeton, New Jersey 08543-9011. The address of Princeton Funds Distributor,
Inc. ("PFD") and Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box
9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML
& Co.") is North Tower, World Financial Center, 250 Vesey Street, New York, New
York 10281-1213. The address of Financial Data Services, Inc. ("FDS") is 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.

Set forth below is a list of each officer and director of FAM indicating
each business, profession, vocation or employment of a substantial nature in
which each such person has been engaged since January 1, 1994 for his own
account or in the capacity of director, officer, partner or trustee. In
addition, Messrs. Zeikel, Glenn and Burke hold the same positions with
substantially all of the investment companies described in the preceding
paragraph. Messrs. Giordano, Kirstein and Monagle are directors or officers of
one or more of such companies. Mr. Zeikel is president and a director, and
Mr. Burke is treasurer, of FAM and MLAM as well as all or substantially all of
the investment companies advised by FAM or MLAM.

<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- - ----------------------------- ---------------------- ----------------------------------------------------------
<S> <C> <C>
ML & Co. Limited Partner Financial Services Holding Company; Limited Partner of
MLAM.
Princeton Services, Inc. General Partner General Partner of MLAM.
Arthur Zeikel Chairman Chairman of MLAM; Chairman and Director of Princeton
Services; President of Princeton Services from 1993 to
1997; Executive Vice President of ML & Co. from 1990 to
1999.
Jeffrey M. Peek President President of MLAM; President and Director of Princeton
Services; Executive Vice President of ML & Co.
Terry K. Glenn Executive Vice Executive Vice President of MLAM; Executive Vice President
President and Director of Princeton Services; President and Director
of MLFD; Director of FDS; President of Princeton
Administrators, L.P.
Donald C. Burke Senior Vice President Senior Vice President and Treasurer of MLAM; Senior Vice
and Treasurer President and Treasurer of Princeton Services; Vice
President and Treasurer of PFD; First Vice President of
MLAM from 1997 to 1999; Vice President of MLAM from 1990
to 1997.
Linda L. Federici Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services.
Vincent R. Giordano Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Elizabeth A. Griffin Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Michael J. Hennewinkel Senior Vice President, Senior Vice President, Secretary and General Counsel of
Secretary and General MLAM; Senior Vice President of Princeton Services.
Counsel
Philip L. Kirstein Senior Vice President Senior Vice President of MLAM; Senior Vice President,
Director and Secretary of Princeton Services.
Ronald M. Kloss Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Deborah W. Landsmann-Yaros Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services; Vice President of PFD.
Stephen M. M. Miller Senior Vice President Executive Vice President of Princeton Administrators,
L.P.; Senior Vice President Princeton Services.
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Brian A. Murdock Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Director of PFD.
</TABLE>

C-3
<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS

Not applicable.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of Registrant, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and The Bank of New York, 101 Barclay Street, New
York, New York 10007.

ITEM 29. MANAGEMENT SERVICES

Other than as set forth under "Management of the Fund--Fund Asset
Management" in the Prospectus constituting Part A of the Registration Statement
and under "Investment Advisory and Administration Agreements" in the Statement
of Additional Information constituting Part B of the Registration Statement,
Registrant is not a party to any management-related service contract.

C-4
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, EACH AS AMENDED, THE REGISTRANT HAS DULY CAUSED
THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND STATE
OF NEW JERSEY, ON THE 1ST DAY OF MARCH, 1999.

THE MUNICIPAL FUND ACCUMULATION
PROGRAM, INC.
(Registrant)

By: /s/ DONALD C. BURKE
--------------------------------
Donald C. Burke
Treasurer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ------------------------------------------ ---------------------------------------- --------------------
<S> <C> <C>
* President and Director (Principal
- - ------------------------------------------ Executive Officer)
(Arthur Zeikel)

/s/ Donald C. Burke Vice President and Treasurer March 1, 1999
- - ------------------------------------------ (Principal Financial and
(Donald C. Burke) Accounting Officer)

* Director
- - ------------------------------------------
(Ronald W. Forbes)

* Director
- - ------------------------------------------
(Cynthia A. Montgomery)

* Director
- - ------------------------------------------
(Charles C. Reilly)

* Director
- - ------------------------------------------
(Kevin A. Ryan)

* Director
- - ------------------------------------------
(Richard R. West)

*By: /s/ DONALD C. BURKE March 1, 1999
-------------------------------------
(Donald C. Burke)
Attorney-in-Fact
</TABLE>

C-5
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- - ------- -----------
<S> <C>
11 Consent of Deloitte & Touche LLP, independent auditors of the Registrant
27 Financial Data Schedule
</TABLE>

<PAGE>
EXHIBIT 11
<PAGE>
EXHIBIT 11

INDEPENDENT AUDITORS' CONSENT

The Municipal Fund Accumulation Program, Inc.:

We consent to the incorporation by reference in this Post-Effective Amendment
No. 24 to Registration Statement No. 2-57442 of our report dated February 5,
1999 appearing in the annual report to shareholders of The Municipal Fund
Accumulation Program, Inc. for the year ended December 31, 1998, and to the
reference to us under the caption "Financial Highlights" in the Prospectus,
which is a part of such Registration Statement.

Deloitte & Touche LLP
Princeton, New Jersey
February 25, 1999

<ARTICLE> 6

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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 497497665
<INVESTMENTS-AT-VALUE> 516436994
<RECEIVABLES> 17495605
<ASSETS-OTHER> 9166369
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<TOTAL-ASSETS> 543098968
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</TABLE>