THE CORPORATE FUND
INVESTMENT ACCUMULATION PROGRAM
- --------------------------------------------------------------------------------
Shares of
Common Stock Prospectus dated April 29, 1994
- --------------------------------------------------------------------------------
THE PROGRAM
The Corporate Fund Accumulation Program, Inc. (the "Program") is an open-end
management investment company whose primary investment objective is to obtain a
high level of current income through investment in a portfolio of long and
intermediate term corporate debt obligations (i) not less than 75% of which will
at the time of acquisition be rated "A" or better and all of which will at the
time of acquisition be rated "BBB" or better by Standard & Poor's Corporation or
Fitch Investors Service, Inc. or "Baa" or better by Moody's Investors Service,
Inc. or (ii) which will have, in the opinion of the investment adviser referred
to below, similar credit characteristics. The Shares of the Program are
redeemable at any time at the net asset value next determined after the receipt
of the redemption request, which value may be more or less than the amount paid
for the Shares. Shares in any Shareholder's account which has a value of less
than $500 may be involuntarily redeemed if reinvestment of distributions on
Units is discontinued. See "Redemption of Shares and Exchange Privilege" below.
Shares of the Program are offered hereby without sales charge to the holders of
Units of certain series of Unit Investment Trusts described below 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
DEAN WITTER REYNOLDS INC.
SMITH BARNEY SHEARSON INC.
------------------------
This Prospectus sets forth in concise form the information about the Program
that a prospective investor should know before investing in the Program.
Investors should read and retain this Prospectus for future reference.
Additional information about the Program has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated April 29,
1994, and is available upon request and without charge, by calling or writing
the Program at the address and telephone number set forth above. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-TIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
THE CORPORATE FUND ACCUMULATION PROGRAM, INC.
CROSS REFERENCE SHEET
<TABLE> <CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
------------------------------------------------------ ------------------------------------------------------
<S> <C> <C>
PART A
1. Cover Page............................................ Cover Page
2. Synopsis.............................................. Fee Table
3. Financial Highlights.................................. Financial Highlights; Additional Information--
Performance Data
4. General Description of Registrant..................... The Program; Investment Objectives and Policies;
Additional Information
5. Management of the Fund................................ Fee Table; Management of the Program; Portfolio
Transactions
6. Capital Stock and Other Securities.................... Taxes and Distributions; Additional Information
7. Purchase of Securities Being Offered.................. Fee Table; The Program; Additional Information
8. Redemption or Repurchase.............................. Fee Table; Redemption of Shares and Exchange Privilege
9. Pending Legal Proceedings............................. *
PART B
10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Index
12. General Information and History....................... General Information
13. Investment Objectives and Policies.................... Investment Objectives and Policies; Investment
Restrictions; Portfolio Transactions
14. Management of the Fund................................ Directors and Officers
15. Control Persons and Principal Holders of Securities... *
16. Investment Advisory and Other Services................ Investment Advisory Agreement
17. Brokerage Allocation and Other Practices.............. Portfolio Transactions
18. Capital Stock and Other Securities.................... *
19. Purchase, Redemption and Pricing of Securities Being
Offered............................................... Net Asset Value; Redemption of Shares
20. Tax Status............................................ Taxes and Distributions
21. Underwriters.......................................... *
22. Calculation of Performance Data....................... Performance Data
23. Financial Statements.................................. Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
- ---------------
* Item inapplicable or answer negative.
<PAGE>
FEE TABLE
<TABLE> <CAPTION>
SHAREHOLDER TRANSACTION EXPENSES:
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases........................................................ None
Deferred Sales Charge............................................................................ None
Sales Charge Imposed on Dividend Reinvestments................................................... None
Redemption Fee................................................................................... None
Exchange Fee..................................................................................... None
ANNUAL PROGRAM OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
FOR THE YEAR ENDED DECEMBER 31, 1993:
- -------------------------------------------------------------------------------------------
Management Fees.................................................................................. 0.50%(a)
12b-1 Fees....................................................................................... None
Other Expenses
Shareholder Servicing and Custodian Fees............................................ 0.35%
Other Fees.......................................................................... 0.23%
Total Other Expenses................................................................... 0.58%
---------
Total Program Operating Expenses................................................................. 1.08%
---------
---------
</TABLE>
<TABLE> <CAPTION>
EXAMPLE:
- ------------------------------------------
CUMULATIVE EXPENSES PAID FOR THE PERIOD
OF:
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment, assuming
an operating expense ratio of 1.08% and a
5% annual return throughout the periods... $ 11.01 $ 34.35 $ 59.55 $ 131.72
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a Shareholder in the Program will bear directly or
indirectly.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission regulations. The Example should not be considered a
representation of past or future expenses or annual rates of return and actual
expenses or annual rates of return may be more or less than those assumed for
purposes of the Example.
- ------------
(a) See "Management of the Program -- Advisory and Administration Arrangements"
on page 9.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been examined in
conjunction with the annual audits of the financial statements of the Program by
Deloitte & Touche, independent auditors. Financial statements for the year ended
December 31, 1993 and the independent auditors' report thereon are included in
the Statement of Additional Information.
The following per share data and ratios have been derived from information
provided in the financial statements:
<TABLE> <CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year.................... $ 21.22 $ 21.76 $ 20.24 $ 20.54 $ 19.75 $ 19.97 $ 21.71 $ 20.88 $ 19.10
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment income--net..... 1.31 1.46 1.52 1.67 1.64 1.67 1.66 1.85 2.04
Realized and unrealized
gain (loss) on
investments--net........... 1.24 (.03) 1.51 (.28) .81 (.22) (1.51) .83 1.78
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations................. 2.55 1.43 3.03 1.39 2.45 1.45 .15 2.68 3.82
--------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND
DISTRIBUTIONS:
Investment income--net... (1.29) (1.47) (1.51) (1.69) (1.66) (1.67) (1.73) (1.85) (2.04)
Realized gain on
investments--net........... (.93) (.50) -- -- -- -- (.16) -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions.............. (2.22) (1.97) (1.51) (1.69) (1.66) (1.67) (1.89) (1.85) (2.04)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
year....................... $ 21.55 $ 21.22 $ 21.76 $ 20.24 $ 20.54 $ 19.75 $ 19.97 $ 21.71 $ 20.88
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:
Based on net asset value
per share.................. 12.20% 6.88% 15.60% 7.19% 12.87% 7.47% 0.85% 13.42% 21.21%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement.............. 1.08% 1.12% 1.16% 1.29% 1.26% 1.24% 1.17% 1.17% 1.21%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Expenses................... 1.08% 1.12% 1.16% 1.29% 1.26% 1.35% 1.20% 1.22% 1.37%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment income--net..... 5.74% 6.72% 7.25% 8.18% 8.27% 8.13% 7.99% 8.59% 10.21%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............. $ 115,367 $ 90,892 $ 82,663 $ 76,298 $ 82,738 $ 77,389 $ 87,482 $ 92,272 $ 76,349
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Portfolio turnover......... 132% 65% 87% 107% 126% 158% 107% 87% 133%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
- ---------------------------
<S> <C>
1984
- ---------------------------
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year.................... $ 18.83
---------
Investment income--net..... 2.13
Realized and unrealized
gain (loss) on
investments--net........... .28
---------
Total from investment
operations................. 2.41
---------
LESS DIVIDENDS AND
DISTRIBUTIONS:
Investment income--net... (2.14)
Realized gain on
investments--net........... --
---------
Total dividends and
distributions.............. (2.14)
---------
Net asset value, end of
year....................... $ 19.10
---------
---------
TOTAL INVESTMENT RETURN:
Based on net asset value
per share.................. 14.00%
---------
---------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement.............. 1.26%
---------
---------
Expenses................... 1.41%
---------
---------
Investment income--net..... 11.46%
---------
---------
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............. $ 60,986
---------
---------
Portfolio turnover......... 106%
---------
---------
</TABLE>
Further information about the Program's performance is contained in the
Program's Annual Report, which can be obtained, without charge, upon request.
3
<PAGE>
THE PROGRAM
IN GENERAL--The primary investment objective of the Program is to provide a
high level of current income to its shareholders through investment in a
diversified portfolio (the "Portfolio") of long-and intermediate-term
fixed-interest bearing debt obligations issued primarily by corporations (see
"Investment Objectives and Policies" and the discussion therein of concentration
of the portfolio). This investment objective is a fundamental policy of the
Program.
Defined Asset Funds--The Corporate Income Fund, the Corporate Investment
Trust Fund and Liberty Street Trust (the "Unit Trust Funds") consist of a number
of different unit investment trusts holding portfolios of fixed income
securities issued primarily by corporations. The Program has been formed to
facilitate reinvestment of distributions on units (the "Units") of the various
series of the Unit Trust Funds which hold long and intermediate term corporate
debt securities and corporate cumulative preferred stocks. Since the Program is
an open-end investment company, the shares of capital stock, $.01 par value, of
the Program (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
current Program prospectus (this "Prospectus") and a form of notice of election;
a Holder not participating in the Program may request a copy of the Prospectus.
The notice of election accompanying this Prospectus may be used by Holders of
Units to elect to participate in the Program or to change a previous election.
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 or
dividend 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 (110
Washington Street, New York, New York 10286) 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 or dividend
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
4
<PAGE>
Unit Trust Funds 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 Distributions").
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"), 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 series or (iii) terminate their
participation in part as to distributions of interest or dividends on their
Units and thereafter receive future distributions in cash out of the interest or
dividend accounts for the respective series.
All the costs of establishing, administering and offering the Program and
these Terms and Conditions are borne by the Program subject to the limitation on
expenses referred to in the Statement of Additional Information under
"Investment Advisory Agreement." The administrators of the Program (the
"Administrators") are Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities Incorporated ("Prudential"), Dean
Witter Reynolds Inc. ("Dean Witter"), and Smith Barney Shearson Inc. ("Smith
Barney Shearson"), which are current sponsors of The Corporate Income Fund and
Liberty Street Trust. Prudential is the sponsor of outstanding series of the
Corporate Investment Trust Fund. The investment adviser to the Program (the
"Adviser") is Fund Asset Management, L.P., 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 "Management of the
Program -- Advisory and Administration Arrangements"). Reference is made to the
Statement of Additional Information, which contains a more complete description
of the advisory and administration arrangements of the Program.
The Agent will mail to each Shareholder a report of each transaction
undertaken for such Shareholder in receiving distributions on Units 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."
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
5
<PAGE>
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 Series 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 at
the Agent's sole expense. During the year ended December 31, 1993, the Agent
paid Merrill Lynch $136,487.33 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.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Program is to provide a high level
of current income to its Shareholders through investment in the Portfolio, which
is comprised of long-and intermediate-term fixed-interest bearing debt
obligations issued primarily by corporations, considering the following factors,
among others:
(i) the quality of the debt obligations, (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 Corporation
("Standard & Poor's"), Fitch Investors Service, Inc. ("Fitch") 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 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 debt obligations in which the Program
invests will at the time of acquisition be rated "A" or better by one or
more of such rating agencies or will have, in the opinion of the Adviser,
similar credit characteristics) (see "Ratings of Corporate Obligations" in
the Statement of Additional Information for a description of rating
categories);
(ii) the yield and price of the debt obligations relative to other
debt securities of comparable quality and maturity; and
(iii) the diversification of the debt obligations, subject to the
considerations as to concentration of the Portfolio discussed below, taking
into account the availability on the market of issues in various utility
and industry classifications 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 period such proceeds may
be held in cash or invested in temporary investments (short-term governmental
obligations, commercial paper, and other short-term
6
<PAGE>
obligations such as certificates of deposit, bankers acceptances and repurchase
agreements) which have credit characteristics, in the opinion of the Adviser,
similar to those provided for other Portfolio securities.
Other than the short-term obligations referred to in the preceding
paragraph, the debt obligations in the Portfolio will consist of bonds,
debentures, notes or other straight debt obligations (payable in United States
dollars and not having any equity conversion or other equity features) which may
be secured or unsecured, or may be subordinated to other indebtedness. The fact
that a debt obligation 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.
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 Portfolio, and
hence the net asset value of the Shares, will decline with increases in interest
rates. Interest rates and, thus, the value of fixed-rate debt obligations have
fluctuated substantially in recent periods and may continue to do so in the
future.
A portion of the Program's assets may be invested in debt obligations rated
BBB by Standard & Poor's or Fitch or Baa by Moody's. Although debt obligations
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. Debt obligations rated Baa by
Moody's are also speculative in nature and entail greater risks than those rated
in the 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
"Ratings of Corporate Obligations" in the Statement of Additional Information
for a description of rating categories.)
The Program will not follow a policy of seeking to concentrate its
investments in any particular industry or industries but rather will attempt to
purchase for the Portfolio the most attractive investments available on the
market from time to time without regard to the industrial classification of the
issuers thereof. Such policy may not be changed without the vote of a majority
of the Shareholders.
OTHER PORTFOLIO STRATEGIES
Repurchase Agreements. The Program may invest in obligations which are
subject to repurchase agreements with any member bank of the Federal Reserve
System or primary dealer in U.S. Treasury securities. Under such repurchase
agreements, the bank or primary dealer agrees, upon entering into the contract,
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such periods. In the
event of default by a bank or dealer under a repurchase agreement, the Program
may suffer time delays and incur costs or possible losses in connection with
such transactions.
Forward Commitments. The Program may purchase U.S. Government securities
and corporate debt obligations on a forward commitment basis and may purchase or
sell such securities for delayed delivery. These transactions occur when
securities are purchased or sold by the Program with payment
7
<PAGE>
and delivery taking place in the future to secure what is considered an
advantageous yield and price to the Program at the time of entering into the
transaction. The Program will maintain a segregated account with its custodian
of cash or liquid, high-grade securities in an aggregate equal at all times to
the amount of its commitments in connection with such delayed delivery and
purchase transactions. The value of the security on the delivery date may be
more or less than its purchase price due to fluctuating interest rates.
Foreign Securities. Up to 25% of the Program's total assets may be
invested in debt obligations of foreign obligors, which may involve certain
investment risks that are different from those of domestic issues. Such risks
include future political and economic developments, foreign governmental
restrictions and less publicly available information about a foreign obligor.
Reference is made to the Statement of Additional Information for a more complete
description of such risks.
Restricted Securities. Up to 10% of the Program's total assets may be
invested in "restricted securities." Investment in restricted securities may
involve certain risks associated with such securities' lack of marketability.
Sales of restricted securities may produce less favorable prices than the sale
of unrestricted securities due to greater costs associated with these sales.
Reference is made to the Statement of Additional Information for a more complete
description of restricted securities.
Portfolio Turnover Rate. The Program's investment adviser generally does
not anticipate that the portfolio turnover rate of the Program will exceed 200%.
For the year ended December 31, 1992, the Program's portfolio turnover rate was
65%. For the year ended December 31, 1993 it was 132%. As a consequence of a
higher portfolio turnover rate, the Program will have higher transactions costs.
INVESTMENT RESTRICTIONS
The Program has adopted a number of restrictions and policies related to
the investment of its assets and its activities which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Program's outstanding voting securities. Investors are referred to the Statement
of Additional Information for a complete description of such restrictions and
policies.
MANAGEMENT OF THE PROGRAM
DIRECTORS
The Directors of the Program consist of six individuals, five of whom are
not "interested persons" of the Program as defined in the Investment Company Act
of 1940. 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
of 1940. The Board of Directors elects officers of the Program annually.
The Directors of the Program and their principal employment are as follows:
ARTHUR ZEIKEL*--President, Director and Chief Investment Officer of the
Adviser and Merrill Lynch Asset Management since 1977. Executive Vice
President of Merrill Lynch & Co., Inc. since 1990; Executive Vice
President of Merrill Lynch, Pierce, Fenner & Smith Incorporated since
1990 and a Senior Vice President thereof from 1985 to 1990.
RONALD W. FORBES--Professor of Finance, School of Business, State
University of New York at Albany.
8
<PAGE>
CYNTHIA A. MONTGOMERY--Professor, Harvard Business School.
CHARLES C. REILLY--Adjunct Professor, Columbia University Graduate
School
of Business.
KEVIN A. RYAN--Professor of Education at Boston University since 1982.
Founder and current Director of the Boston University Center for the
Advancement of Ethics and Character.
RICHARD R. WEST--Professor of Finance, and Dean from 1984 to 1993, New
York
University Leonard N. Stern School of Business
Administration.
- ------------------------
* Interested person, as defined in the Investment Company Act of 1940, of the
Program.
ADVISORY AND ADMINISTRATION ARRANGEMENTS
The investment adviser to the Program is Fund Asset Management, L.P.
("FAM"). The address of FAM is Box 9011, Princeton, New Jersey 08543-9011. FAM
or, its affiliate, Merrill Lynch Asset Management, L.P. ("MLAM"), acts as the
investment adviser for more than 90 other registered investment companies.
Effective January 1, 1994, FAM was reorganized as a Delaware limited
partnership. FAM (the general partner of which is Princeton Services, Inc., a
wholly-owned subsidiary of Merrill Lynch & Co., Inc.) is itself a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. and has its principal place of business
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Prior to the
reorganization, the Adviser was a Delaware corporation known as Fund Asset
Management, Inc., which was incorporated in 1976. The reorganization did not
result in a change to the Adviser's management or personnel, nor did the
reorganization cause any adverse change to the Adviser's financial condition.
Fund Asset Management, Inc. was a wholly-owned subsidiary of Merrill Lynch
Investment Management, Inc., which did business as Merrill Lynch Asset
Management. MLAM was a wholly-owned subsidiary of Merrill Lynch & Co., Inc.
prior to its reorganization, which was similar to that of FAM, and continues to
be after its reorganization.
FAM, subject to the general supervision of the Program's Board of
Directors, manages the Portfolio of the Program in accordance with its
investment objectives and policies and furnishes to the Program investment
advice. In addition, FAM together with the Administrators of the Program are
responsible for the overall management of the Program's business affairs. The
Administrators are Merill Lynch, of which FAM is an affiliate, Prudential, Dean
Witter and Shearson Lehman. The Administrators perform certain management
services necessary for the operation of the Program and provide all the office
space, facilities and necessary personnel for such services. For the performance
of these services, FAM pays the Administrators an aggregate monthly fee at the
annual rate of 0.2% of the Program's average daily net assets. The fee so
payable by the Adviser will be allocated among the Administrators in the
following respective percentages: Merrill Lynch, 48%; Prudential, 21%; Dean
Witter, 21%; and Shearson Lehman, 10%. The Administrators have also undertaken
to reimburse the Adviser in proportion to such monthly fee for the purpose of
the Adviser's reimbursement of the Program. The Adviser's reimbursement
obligations are described more fully in the Statement of Additional Information.
For the year ended December 31, 1993, FAM received advisory fees from the
Program in the amount of $515,901 representing 0.50% of the Program's average
daily net assets.
9
<PAGE>
The Program is obligated to pay certain expenses incurred in its
operations, including, among other things, the investment advisory fee, 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 year ended December 31, 1993, the Program's
total expenses were $1,113,571 (representing 1.08% of its average net assets).
None of the Program's investment advisory fees were reimbursed by FAM.
Jay C. Harbeck has served as the Program's Portfolio Manager since January
1, 1992, and is primarily responsible for the Fund's day-to-day management. He
has served as Vice President of MLAM since 1986.
REDEMPTION OF SHARES AND EXCHANGE PRIVILEGE
Redemption. 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, 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, 110 Washington Street, New York, New York 10286. 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, The
Government Securities Income Fund, The Corporate Income Fund, The Equity Income
Fund or The 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 of 1940, by reason of closing of or restriction
of trading on the New York Stock Exchange, or other emergency, as explained in
the Statement of Additional Information.
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 4:00 P.M. on any business day
and transmitted by the Administrator prior to the close of its business day
(4:00 P.M. New York City time) are redeemed at the price determined as of 4:00
P.M. on such day. Repurchase orders received after 4:00 P.M. on any business day
are redeemed at a price determined as of 4:00 P.M. on the next business day. It
is the responsibility of the dealers to transmit orders so that they will be
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.
Under certain circumstances, the Program reserves the right to redeem
Shares in accounts of less than $500 upon 30 days' notice. For further
information, see the Statement of Additional Information, "Redemption of
Shares."
10
<PAGE>
Exchange Privilege. Shareholders who have owned Shares for at least 60
days have an exchange privilege (the "Exchange Privilege") with shares of The
Municipal 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
non-corporate 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 such 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 DISTRIBUTIONS
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 (the "Code"). If the Program qualifies
as a "regulated investment company" and distributes to Shareholders 90% or more
of its investment company taxable income (without regard to designated capital
gain dividends), it will not be subject to federal income tax on such part of
its net investment income or net realized capital gains, if any, as it
distributes to Shareholders. The Program expects to distribute monthly
substantially all of its net investment income, after expenses. Net realized
capital gains, if any, will be distributed at least annually. Such distributions
of net investment 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 investment 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 the next succeeding business day if the 15th falls on
a weekend or holiday, for the accounts of Shareholders of record on the
preceding business day of such month.
The Code imposes a 4% nondeductible excise tax on a regulated investment
company, such as the Program, if its does not distribute 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
11
<PAGE>
imposed on the amount by which a regulated investment company does not meet the
foregoing distribution requirements.
Distributions to Shareholders of net investment income and 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.
Distributions reflecting net long-term capital gains (designated as such by the
Program) will be taxable to Shareholders as long-term capital gains.
Some Shareholders may be subject to a 31% withholding on reportable
dividends, capital gains distributions and redemption payments ("backup
withholding"). 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.
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. The Statement of
Additional Information sets forth additional information regarding other tax
aspects of an investment in the Program.
Dividends and capital gain distributions may also be subject to state and
local taxes.
Shareholders are urged to consult their own tax counsel or other tax
advisers regarding specific questions as to federal, state or local taxes.
PORTFOLIO TRANSACTIONS
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 the affiliates of
the Adviser may act as brokers therein if the Program expects thereby to obtain
the most favorable price and execution. However, since, as outlined in the
Statement of Additional Information, the Program is prohibited from engaging in
securities transactions with the affiliates of the Adviser acting as principal,
it is not expected that any substantial amount of the Program's transactions
will be effected through such affiliates. 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.
ADDITIONAL INFORMATION
NET ASSET VALUE
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. The Program's
securities (other than short-term obligations but including listed issues) may
be valued on the basis of prices furnished by one or more pricing services which
determine prices for normal institutional-size
12
<PAGE>
trading units of such securities. The Program has made arrangements with Merrill
Lynch Securities Pricing Service ("MLSPS") to furnish to the Program and the
Agent, on each day that the New York Stock Exchange is open for trading
immediately after the declaration of dividends, estimated values (as of 4:00
P.M.) of Portfolio securities for purposes of computation of net asset value of
Shares. The Board has examined the methods to be used by MLSPS 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. During the year ended December 31, 1993, the
Fund used the pricing services of Interactive Data Services, Inc. and made no
payment to MLSPS for such service. For information concerning the method used by
MLSPS to value Portfolio securities, see "Net Asset Value" in the Statement of
Additional Information.
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 investment 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, 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 and Fortune Magazine. 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 representative of the Program's relative
performance for any future period.
13
<PAGE>
ORGANIZATION OF THE PROGRAM
The Program, an open-end diversified management investment company
registered under the Investment Company Act of 1940, was incorporated in
Maryland on June 9, 1976. When issued, the Shares of the Program will be fully
paid and non-assessable, have no preference, pre-emptive, conversion, exchange
or similar rights and will be freely transferable.
The Program does not intend to hold meetings of shareholders unless under
the Investment Company Act of 1940 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 agreement; and (iv)
ratification of selection of independent auditors. Shares do not have cumulative
voting rights and the holders of more than 50% of the Shares of the Program
voting for the election of 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.
For further information concerning the organization of the Program, see the
Statement of Additional Information.
INDEPENDENT AUDITORS
Deloitte & Touche, Princeton, New Jersey, has been selected as the
independent auditors of the Program and is responsible for auditing the annual
financial statements of the Program.
CUSTODIAN, TRANSFER 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 and Dividend Disbursing Agent.
LEGAL COUNSEL
Rogers & Wells, New York, New York, is counsel for the Program and passes
upon legal matters for the Program in connection with the Shares offered by this
Prospectus.
REPORTS TO SHAREHOLDERS
The fiscal year of the Program ends on December 31 of each year. The
Program will send to its Shareholders at least semi-annually reports showing the
Program's Portfolio and other information. An annual report containing financial
statements, audited by independent auditors, will be sent to Shareholders each
year.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and the Investment Company Act of 1940, with respect
to the securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Statement of Additional Information, dated April 29, 1994, which forms
a part of the Registration Statement, is incorporated by reference into this
Prospectus. The Statement of Additional Information may be obtained without
charge as provided on the cover page of this Prospectus. The Registration
Statement, including the exhibits filed therewith, may be examined at the office
of the Securities and Exchange Commission in Washington, D. C.
14
<PAGE>
AUTHORIZATION FOR INVESTMENT IN THE CORPORATE FUND ACCUMULATION
PROGRAM, INC.
IF YOU WOULD LIKE TO PARTICIPATE IN THE CORPORATE FUND INVESTMENT ACCUMULATION
PROGRAM, YOU MUST COMPLETE, SIGN AND RETURN THIS CARD.
PLEASE DO NOT RETURN THIS CARD IF YOU ARE ALREADY A PARTICIPANT, UNLESS YOU WISH
TO CHANGE YOUR REINVESTMENT OPTION.
Unit Trust Series as shown on account statement or certificate: (please print on
the line below)
- --------------------------------------------------------------------------------
I hereby acknowledge receipt of the prospectus of The Corporate Fund
Accumulation Program, Inc. (the "Program") and authorize the Trustee
of the Series designated above to pay distributions on my Units as indicated
below (distributions to be reinvested in the Program will be paid for my account
to The Bank of New York as Program Agent):
Principal distributions (including / / in cash / / reinvested in the Program
capital gains) (check one):
Interest distributions (check one): / / in cash / / reinvested in the Program
My name (please print)
------------------------------------------
My address (please print) ------------------------------------------
street
------------------------------------------
city, state, zip code
The account number for my units
------------------------------------------
------------------------------------------
(Registered Holder Signature)
------------------------------------------
(Registered Holder Signature)
(Two signatures required if joint tenancy)
Date , 19
---------------------------------- ------
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the line on the reverse side, tape
and mail with the Trustee's address displayed on the outside.
<PAGE>
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
<PAGE>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS PERMIT NO. 1313 NEW YORK, N.Y.
---------------------
---------------------
---------------------
---------------------
---------------------
---------------------
---------------------
---------------------
---------------------
---------------------
POSTAGE WILL BE PAID BY ADDRESSEE
INVESTMENT ACCUMULATION PROGRAM (CIF)
THE BANK OF NEW YORK
UNIT INVESTMENT DEPARTMENT
P.O. BOX 974
WALL STREET STATION
NEW YORK, N.Y. 10268-0974
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
PRINCIPAL OFFICE OF THE FUND
Box 9011
Princeton, New Jersey 08543-9011
(609) 282-2000
INVESTMENT ADVISER
Fund Asset Management, L.P.
Box 9011
Princeton, New Jersey 08543-9011
(609) 282-2000
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
The Bank of New York
110 Washington Street
New York, New York 10286
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
INDEPENDENT AUDITORS
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
<PAGE>
- ----------------------------------------------------
PROSPECTUS
- ----------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PROGRAM. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON
TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
- ----------------------------------------------------
INDEX
- ----------------------------------------------------
PAGE
-----------
FEE TABLE...................................... 2
FINANCIAL HIGHLIGHTS........................... 3
THE PROGRAM.................................... 4
INVESTMENT OBJECTIVES AND POLICIES............. 6
MANAGEMENT OF THE PROGRAM...................... 8
REDEMPTION OF SHARES AND EXCHANGE PRIVILEGE.... 10
TAXES AND DISTRIBUTIONS........................ 11
PORTFOLIO TRANSACTIONS......................... 12
12
ADDITIONAL INFORMATION.........................
- -----------------------------------------------
THE
CORPORATE
FUND
INVESTMENT
ACCUMULATION
PROGRAM
----------------------------------------------------
PROSPECTUS DATED APRIL 29, 1994
----------------------------------------------------
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2000
<PAGE>
THE CORPORATE FUND
INVESTMENT ACCUMULATION PROGRAM
- --------------------------------------------------------------------------------
Shares of Statement of Additional Information
Common Stock Dated April 29, 1994
- --------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc. (the "Program") is an
open-end management investment company whose primary objective is to obtain a
high level of current income through investment in a portfolio (the "Portfolio")
of long-and intermediate-term corporate debt obligations. Shares of the Program
are offered without sales charge to the holders of Units of certain series of
Unit Investment Trusts 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 in the Prospectus. 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
DEAN WITTER REYNOLDS INC.
SMITH BARNEY SHEARSON 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 29, 1994, 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. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Program is to provide a high level
of current income to its Shareholders through investment in the Portfolio which
is comprised of long-and intermediate-term fixed-interest bearing debt
obligations issued primarily by corporations. Reference is made to "Investment
Objectives and Policies" in the Prospectus for a discussion of the investment
objectives and policies of the Program.
OTHER PORTFOLIO STRATEGIES
Foreign Securities. Up to 25% of the Program's total assets (taken at
current value) may be invested in debt obligations of foreign obligors, which
may involve investment risks that are different from those of domestic issues,
including future political and economic developments and the possible imposition
of withholding taxes on interest income, exchange controls or other foreign
governmental restrictions. In addition, it may be more difficult to enforce a
judgment against a foreign obligor, there may be less publicly available
information about a foreign obligor than about a domestic issuer, and foreign
obligors are not generally subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to domestic issuers. The foregoing percentage limitation shall not be considered
to be violated unless a violation occurs immediately after and as a result of an
acquisition of securities.
Restricted Securities. Up to 10% of the Program's total assets (taken at
current value) may be invested in "restricted securities." Such securities are
acquired in private placement transactions, directly from the issuer or from
security holders, frequently at higher yields than comparable publicly traded
securities. Privately placed securities are not readily marketable and
ordinarily can be sold by the Program only in privately negotiated transactions
to a limited number of purchasers or in public offerings made pursuant to an
effective registration statement under the Securities Act of 1933. Private sales
require negotiations with one or more purchasers and may produce less favorable
prices than the sale of comparable unrestricted securities. Public sales
generally involve the time and expense of preparing and processing a
registration statement under the Securities Act of 1933 and may involve the
payment of underwriting commissions. Accordingly, the proceeds from the sale of
restricted securities may be less than the proceeds from the sale of securities
of the same class which are freely marketable. The foregoing percentage
limitation shall not be considered to be violated unless a violation occurs
immediately after and as a result of such acquisition of securities.
Repurchase Agreements. The Program may invest in obligations which are
subject to repurchase agreements with any member bank of the Federal Reserve
System or primary dealer in U.S. Treasury securities. A repurchase agreement is
an instrument under which the purchaser (i.e., the Program) acquires the
obligation (debt security) and the seller agrees, at the time of the sale, to
repurchase the obligation at a mutually agreed upon time and price, thereby
determining the yield during the purchaser's holding period. This results in a
fixed rate of return insulated from market fluctuations during such period.
Repurchase agreements usually are for short periods, such as under one week.
Repurchase agreements are considered to be collateralized loans by the Program
under the Investment Company Act of 1940, and the Program will require the
seller to provide additional collateral if the market value of the securities
falls below the repurchase price at any time during the term of the repurchase
agreement. If a repurchase agreement is construed to be a collateralized loan,
the underlying securities will not be considered to be owned by the Program but
only to constitute collateral for the seller's obligation to pay the repurchase
price and in the event of a default by the seller, the Program may suffer time
delays and incur costs or losses in connection with the disposition of the
collateral.
2
<PAGE>
Repurchase agreements will be entered into for periods not to exceed 30 days and
only with respect to obligations in which the Program may otherwise invest.
Management of the Program does not intend to enter into repurchase agreements
with greater than seven days maturity, if, at the time of such investment, more
than 10% of the total assets of the Program would be so invested.
Forward Commitments. U.S. Government securities and corporate debt
obligations 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 (110 Washington Street, New York, New York 10286), the
custodian (the "Custodian") and agent (the "Agent") for the Program, consisting
of cash or liquid, high-grade 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 investment adviser to the Program, Fund Asset
Management, L.P. (the "Adviser") deems it appropriate 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 as described under
"Investment Objectives and Policies" in the Prospectus.
The Program may invest in collateralized mortgage obligations ("CMOs"),
which are mortgage pass-through securities collateralized by mortgage pools.
CMOs are issued in several classes with different maturities by governmental or
non-governmental entities such as banks and other mortgage lenders. Many issuers
or servicers of CMOs guarantee timely payment of interest and principal on the
securities, whether or not payments are made when due on the underlying
mortgages. This kind of guarantee generally increases the quality of a security,
but does not mean that the security's market value and yield will not change.
Although certain CMOs technically may be regarded as investment companies under
the Investment Company Act of 1940, they will not be regarded as investment
companies for purposes of the investment restriction set forth in clause (7)
below.
PORTFOLIO MANAGEMENT AND TURNOVER RATE--The Program will attempt to attain
its investment objectives by careful initial selection of obligations with a
view to holding them for investment. However, the Program reserves the right to
sell Portfolio obligations 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 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. 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
long-or intermediate-term Portfolio securities as described above) of Portfolio
securities for the year by the monthly average value of Portfolio securities.
For the years ended December 31, 1993 and 1992, the Portfolio turnover rates
were 132% and 65%, respectively.
3
<PAGE>
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 long-and
intermediate-term fixed interest bearing debt obligations and temporary
investments (see "Investment Objectives and Policies" in the Program's
Prospectus);
(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 25% of the
Program's total assets (taken at market value at the time of each
investment) would be invested in a single industry, (utilities will be
divided according to their services; for example, gas, gas transmission,
electric and telephone each will be considered a separate industry for
purposes of this restriction; also, banking and finance will be considered
two different industries for purposes of this restriction), (b) 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), (c) the Program would hold
more than 10% of any class of securities of the issuer thereof (taking all
debt issues as a single class) or more than 10% of the voting securities of
the issuer thereof or (d) more than 20% of the Program's total assets
(taken at current value) would be invested in securities of other than
corporate issuers (for purposes of this restriction, securities issued by
supra-national organizations and agencies of foreign governments, in each
case if organized as a corporation, will be considered securities offered
by corporate issuers);
(6) invest for the purpose of exercising control over 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) purchase a restricted security if as a result more than 10% of
the Program's total assets (taken at current value) would be invested in
restricted securities;
4
<PAGE>
(11) purchase a security issued by an obligor which is not
incorporated in the United States or any state thereof if as a result more
than 25% of the Program's total assets (taken at current value) would be
invested in such securities;
(12) participate on a joint (or a 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 best overall execution not being
considered participation in a trading account in securities);
(13) 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 the 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;
(14) purchase securities of any company which has (with predecessors)
a record of less than three years' continuing operations if as a result
more than 5% of the total assets of the Program (taken at current value)
would be invested in such securities; or
(15) make loans, except that the Program may (a) purchase obligations
in private placements (the purchase of obligations in other situations not
being considered the making of a loan), and (b) make loans of up to 33 1/3%
of its portfolio securities.
Except in the case of the restriction set forth in clause (13), 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.
Lending of Program Securities. Subject to investment restriction (15)
above, the Program may from time to time lend securities from its portfolio to
brokers, dealers and financial institutions and receive as collateral cash or
United States Treasury securities which at all times while the loan is
outstanding will be maintained in amounts equal to at least 100% of the current
market value of the loaned securities. Any cash collateral will be invested in
short-term securities, which will increase the current income of the Program.
Such loans, which will not have terms longer than 30 days, will be terminable
at any time. The Program will have the right to regain record ownership of
loaned securities to exercise beneficial rights such as voting rights,
subscription rights and rights of dividends, interest or other distributions.
The Program may pay reasonable fees to persons unaffiliated with the Program
for services in arranging such loans. In the event of a default by the borrower,
the Program may suffer time delays and incur costs or possible losses in
connection with the disposition of the collateral.
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT--Pursuant to an Investment Advisory Agreement
(the "Agreement"), the Adviser has agreed, subject at all times to 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
5
<PAGE>
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" in the Program's Prospectus; 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 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.
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 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 year ended December 31, 1993, such reimbursement
amounted to $35,280. Under current requirements of certain states in which the
Shares were registered for sale in this offering, the Adviser must reimburse the
Program for advisory fees received by it from the Program to the extent that the
Program's expenses (including the advisory fee but excluding interest, taxes,
brokerage fees and extraordinary expenses) exceed in any fiscal year 2.5% of the
Program's first $30,000,000 of average daily net assets, 2.0% of average daily
net assets in excess of $30,000,000 but not exceeding $100,000,000 and 1.5% of
average daily net assets above $100,000,000 for such fiscal year. No fee payment
will be made to the Adviser during any fiscal year which would cause such
expenses to exceed the foregoing expense limitations applicable at the time of
such payment, and any required reimbursements will be made promptly at the end
of such fiscal year. For the years ended December 31, 1991, 1992 and 1993, the
advisory fees paid by the Program to the Adviser aggregated $384,888, $429,287
and $515,901, respectively, none of which was reimbursed by the Adviser.
The Agreement provides that the use of the name "The Corporate 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 most
recently approved by Shareholders on June 5, 1987 and by the Board (including
all of the non-interested directors) on March 16, 1994. 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
6
<PAGE>
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-- Effective January 1, 1994, the Adviser, was reorganized as a
Delaware limited partnership. FAM (the general partner of which is Princeton
Services Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc.) is itself
a wholly-owned subsidiary of Merrill Lynch & Co., Inc. and has its principal
place of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
Merrill Lynch & Co., Inc. has its principal place of business at 250 Vesey
Street, New York, New York 10281. Prior to the reorganization, the Adviser was a
Delaware corporation known as Fund Asset Management, Inc., which was
incorporated in 1976. The reorganization did not result in a change to the
Adviser's management or personnel, nor did the reorganization cause any adverse
change to the Adviser's financial condition. Fund Asset Management, Inc. was a
wholly-owned subsidiary of Merrill Lynch Investment Management, Inc., which did
business as Merrill Lynch Asset Management. Merrill Lynch Asset Management, L.P.
was a wholly-owned subsidiary of Merrill Lynch & Co., Inc. prior to its
reorganization, which was similar to that of FAM, and continues to be after its
reorganization.
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, Inc.,
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 subsidiary of
Merrill Lynch & Co., Inc. and is engaged in the investment advisory business.
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.
7
<PAGE>
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%; Dean Witter, 21%; and Smith Barney Shearson, 10%. In order
to comply with the expense limitation requirements described above under the
caption "Investment Advisory Agreement," the Administrators have undertaken to
reimburse the Adviser in proportion to such monthly fee for the purpose of the
Adviser's reimbursement of the Program in the manner described under such
caption.
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.
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.
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. Listed
below are the directors and officers of the Program (who also serve in similar
capacities in other open-end management investment companies for which Fund
Asset Management, L.P. or MLAM is investment adviser), their addresses and
principal occupations during the past five years.
8
<PAGE>
<TABLE> <CAPTION>
NAME CAPACITY ADDRESS
- ------------------------------------ ------------------------------ -------------------------------------------
<S> <C> <C>
Arthur Zeikel* President and Director(1) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Occupation: President, Director and Chief Investment Officer of the Adviser since 1977; President of MLAM since
1977 and Director and Chief Investment Officer since 1976; Executive Vice President of Merrill Lynch & Co.,
Inc. and Merrill Lynch since 1990 and Senior Vice President from 1985 to 1990; President and Director of
Princeton Services, Inc. since 1993; and Director of Merrill Lynch Funds Distributor, Inc.
Ronald W. Forbes Director(1) 1400 Washington Avenue
Albany, New York 12222
Occupation: Professor of Finance, School of Business, State University of New York at Albany since 1989 and
Associate Professor prior thereto; Member, Task Force on Municipal Securities Markets, Twentieth Century
Fund; Consultant, Public Finance Banking, Smith Barney Shearson Inc.
Cynthia A. Montgomery Director(1) Harvard Business School
Soldiers Field Road
Boston, Massachusetts 02163
Occupation: 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.
Charles C. Reilly Director(1) 9 Hampton Harbor Road
Hampton Bays, New York 11946
Occupation: Adjunct Professor, Columbia University Graduate School of Business since 1990; Adjunct Professor,
Wharton School, University of Pennsylvania during 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.
Kevin A. Ryan Director(1) 127 Commonwealth Avenue
Chestnut Hill, Massachusetts 02167
Occupation: Professor of Education at Boston University since 1982. Founder and current Director of The Boston
University Center for Advancement of Ethics and Character. Formerly taught on the faculties of the
University of Chicago, Stanford University and The Ohio State University.
Richard R. West Director(1) 482 Tepi Drive
Southbury, Connecticut 06488
Occupation: Professor of Finance, and Dean from 1984 to 1993, New York University Leonard N. Stern School of
Business Administration; Professor of Finance at the Amos Tuck School of Business Administration, Dartmouth
College, from 1976 to 1984 and Dean from 1976 to 1983. Director, Vornado Realty Trust (real estate holding
company), Bowne & Co., Inc. (printer), Alexanders, Inc. (department stores), and Smith Corona Corporation
(manufacturer of typewriters and word processors).
Terry K. Glenn* Executive Vice President 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Occupation: Executive Vice President of the Adviser and MLAM since 1983 and Director since 1992; President of
Merrill Lynch Funds Distributor, Inc. since 1986 and Director thereof since 1991; President of Princeton
Administrators, Inc. since 1988; Director of Financial Data Services, Inc. since 1985; Executive Vice
President and Director of Princeton Services since 1993.
</TABLE>
9
<PAGE>
<TABLE> <CAPTION>
NAME CAPACITY ADDRESS
- ------------------------------------ ------------------------------ -------------------------------------------
<S> <C> <C>
N. John Hewitt* Senior Vice President(1) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Occupation: Senior Vice President of the Adviser and MLAM since 1981.
Jay C. Harbeck* Vice President(1) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Occupation: Vice President of MLAM since 1986 and Fixed Income Portfolio Manager since 1986.
Donald C. Burke* Vice President(1) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Occupation: Vice President of MLAM since 1990; employee of Deloitte & Touche from 1982 to 1990.
Gerald M. Richard* Treasurer(1) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Occupation: Senior Vice President and Treasurer of MLAM and the Adviser since 1984; Vice President of Merrill
Lynch Funds Distributor, Inc. since 1981 and Treasurer since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993.
Susan B. Baker* Secretary(1) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Occupation: Vice President of MLAM since 1993; attorney associated with the Adviser and MLAM since 1987;
attorney in private practice from 1985 to 1987.
</TABLE>
- ------------
* Interested person, as defined in the Investment Company Act of 1940, of
the Program.
(1) Each of Messrs. Zeikel and Glenn is a director or trustee and officer,
Messrs. Forbes, Reilly, Ryan,West and Ms. Montgomery are directors or trustees,
and the officers of the Program are officers, of certain other investment
companies for which the Adviser or MLAM acts as investment adviser.
The Program has an Audit Committee consisting of all the directors of the
Program who are not interested persons of the Program.
REMUNERATION OF OFFICERS AND DIRECTORS--On March 31, 1994, shares of the
Program owned by all officers and directors of the Program as a group aggregated
less than 1/4 of 1% of the total of such shares then outstanding. The Program
pays each unaffiliated director an annual fee of $800 plus $400 per quarterly
meeting attended and an annual fee of $500 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. For the year ended December 31,
1993, such fees and expenses to the five unaffiliated directors of the Program
aggregated $12,920.
NET ASSET VALUE
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 Merrill Lynch Securities Pricing Service
("MLSPS") to furnish to the Program and the Agent, on each day that the New York
Stock Exchange is open for trading immediately after the declaration of
10
<PAGE>
dividends, estimated values (as of 4:00 P.M.) of Portfolio securities for
purposes of computation of net asset value of the Shares. The New York Stock
Exchange is not open for trading on the following holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. The Board has examined the methods to be
used by the pricing services 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.
Portfolio securities (other than short-term obligations but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, portfolio
securities are valued at the last sale price on the exchange that is the primary
market for such securities, or the last quoted bid price for those securities
for which the over-the-counter market is the primary market or for listed
securities in which there were no sales during the day. The value of interest
rate swaps, caps and floors is determined in accordance with a formula and then
confirmed periodically by obtaining a bank quotation. Positions in options are
valued at the last sale price on the market where any such option is principally
traded. Obligations with remaining maturities of 60 days or less are valued at
amortized cost unless this method no longer produces fair valuations. Repurchase
agreements are valued at cost plus accrued interest. Securities for
which there exist no price quotations or valuations and all other assets are
valued at fair value as determined in good faith by or on behalf of the Board of
Directors of the Program.
REDEMPTION OF SHARES
The right of redemption may be suspended during any period when the New
York Stock Exchange 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
11
<PAGE>
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.
TAXES AND DISTRIBUTIONS
Reference is made to "Taxes and Distributions" on page 11 of the
Prospectus.
Distributions to Shareholders of net investment income and net short-term
capital gains, if any, including distributions which are reinvested in
additional Shares of the Program will be taxable as ordinary income to such
Shareholders. To the extent that such distributions of interest and net short-
term capital gains, if any, to a Shareholder during any year are in excess of
that Shareholder's share of the Program's current and accumulated earnings and
profits, the amount of such distributions will be treated as a return of capital
and will reduce the Shareholder's basis in his Shares. To the extent such
distributions exceed the Shareholder's basis, they will be taxed as gain on the
sale or exchange of the Shares (generally, capital gain), long-term if the
Shareholder has held his Shares as a capital asset for more than twelve months.
Distributions which are taxable as ordinary income to Shareholders will
constitute dividends for federal income tax purposes; however, it is anticipated
that most if not all of 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 at a
maximum rate of 28% for non-corporate Shareholders and a maximum rate of 34% for
corporate Shareholders, regardless of the length of time a Shareholder has held
his Shares. 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. The federal tax status of each year's
distributions will be reported to Shareholders.
Dividends declared by the Fund 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.
If a Shareholder's holding period in his Shares is six months or less, any
capital loss realized from a sale or exchange of such Shares must be treated as
long-term capital loss to the extent of capital gains dividends received with
respect to such Shares.
Dividends may be subject to a 30% United States withholding tax under the
existing provisions of the Code applicable to foreign individuals and trusts,
estates, partnerships and corporations unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty. Shareholders who are
nonresident aliens or foreign entities are urged to consult their own tax
advisers concerning the applicability of the United States withholding 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.
12
<PAGE>
STATE AND LOCAL TAXES --Distributions by the Program may also be subject to
state and local taxation.
State and local taxing authorities may enact legislation which may require
the Program to withhold a portion of dividends paid or credited to Shareholders.
PORTFOLIO TRANSACTIONS
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 its fiscal years ended
December 31, 1991, 1992 and 1993, the Program did not pay any brokerage
commissions.
The Program is prohibited from engaging in certain transactions involving
the Adviser or any of its affiliates. Prohibited transactions include portfolio
transactions with affiliates of the Adviser acting as principal. In underwritten
offerings in which such affiliates participate as an underwriter, the Program
may only purchase securities from a member of the underwriting or selling group
not affiliated with the Program or the Adviser, and subject to various other
conditions. An affiliate of the Adviser acts as an underwriter in a substantial
number of underwritten offerings of obligations. While the Program's inability
to purchase obligations from affiliates of the Adviser acting as principal or,
except in the limited circumstances permitted by the applicable Securities and
Exchange Commission rules, in underwritten offerings in which such affiliates
are involved, will limit the number of underwritten offerings in which the
Program can purchase obligations and may have an adverse effect upon the ability
of the Program to obtain best price in the purchase of obligations, the Program
does not anticipate that this will materially interfere with its ability to
purchase obligations in accordance with the investment objectives and policies
referred to above.
13
<PAGE>
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. 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, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
------------------- --------------------- ---------------------
<S> <C> <C> <C>
Average Annual Total Return(a)....... 12.20% 10.90% 11.04%
</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 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
DESCRIPTION OF SHARES--The Program is authorized to issue a total of
50,000,000 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.
AUDITORS AND FINANCIAL STATEMENTS--Deloitte & Touche, independent auditors
for the Program, have audited the statement of assets and liabilities, including
the schedule of investments, of the Program as of December 31, 1993 and the
related statements of operations for the year then ended and of changes in net
assets for the years ended December 31, 1993 and 1992 and the financial
highlights for each of the years in the five year period ended December 31, 1993
as stated in their report appearing herein, and such financial statements have
been included herein in reliance upon such report given upon the authority of
that firm as experts in accounting and auditing. The Program will issue to
Shareholders
14
<PAGE>
semi-annual and annual reports containing financial statements including
information relating to net asset value per share and income and expense.
LEGAL COUNSEL--Rogers & Wells, New York, New York, is counsel for the
Program.
RATINGS OF CORPORATE OBLIGATIONS*
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.
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.
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.
- ------------
*As described by the rating companies themselves.
15
<PAGE>
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
16
<PAGE>
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
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.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the bond 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 issue ranks in the lower end of its generic rating category.
17
<PAGE>
The Corporate Fund Accumulation Program, Inc.
Independent Auditors' Report
- ------------------------------------------------------------------
The Board of Directors and Shareholders, The Corporate Fund
Accumulation Program, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of The
Corporate Fund Accumulation Program, Inc. as of December 31,
1993, the related statements of operations for the year then
ended and changes in net assets for each of the years in the
two-year period then ended, and financial highlights for each
of the years in the five-year period then ended. These financial
statements and the financial highlights are the responsibility
of the Program's management. Our responsibility is to express
an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at December 31, 1993 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of The Corporate Fund Accumulation Program,
Inc. as of December 31, 1993, the results of its operations, the
changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche
Deloitte & Touche
Princeton, New Jersey
February 4, 1994
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
S&P Moody's Face Value
Rating Rating Amount Issue Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US Government Obligations
- ---------------------------------------------------------------------------------------------------------------------------------
US Government Obligations--7.7%
US Treasury Notes:
NR Aaa $1,500,000 8.25% due 7/15/1998 $ 1,687,080 $ 1,687,965
NR Aaa 1,000,000 5.125% due 11/30/1998 1,004,521 996,870
NR Aaa 3,500,000 8.75% due 8/15/2000 4,151,436 4,131,085
NR Aaa 1,000,000 5.75% due 8/15/2003 995,843 996,560
NR Aaa 1,000,000 7.125% due 2/15/2023 1,128,449 1,082,180
------------ ------------
8,967,329 8,894,660
- ---------------------------------------------------------------------------------------------------------------------------------
Total US Government Obligations--7.7% 8,967,329 8,894,660
- ---------------------------------------------------------------------------------------------------------------------------------
Industry Corporate Bonds & Notes
Banks & Thrifts--14.9%
A- A3 1,000,000 Boatmen's Bancshares, 6.75% due 3/15/2003 1,005,479 1,016,480
First Union Corporation:
A- A3 1,000,000 6.75% due 1/15/1998 997,632 1,039,425
A- A3 465,000 8.125% due 6/24/2002 522,876 515,898
A- A3 3,000,000 Huntington Bancshares, 7.625% due 1/15/2003 3,058,943 3,225,483
BBB+ A3 2,000,000 Meridian Bancorp, 6.625% due 3/15/2003 1,968,761 2,012,046
A- A3 3,000,000 Nationsbank Corp., 6.875% due 2/15/2005 3,159,472 3,057,783
A A2 3,000,000 Norwest Corp., 6.625% due 3/15/2003 3,016,120 3,053,286
A- Baa1 2,000,000 U.S.Bancorp, 7.00% due 3/15/2003 1,995,397 2,068,048
A A2 1,000,000 World Savings & Loan Association, 9.90% due 7/01/2000 1,028,795 1,175,305
------------ ------------
16,753,475 17,163,754
- ---------------------------------------------------------------------------------------------------------------------------------
Financial--Other--6.5%
A A2 3,000,000 Bear Stearns, 6.70% due 8/01/2003 2,985,929 3,002,874
A A3 1,000,000 Dean Witter & Discover, 6.875% due 3/01/2003 1,021,981 1,022,468
BBB+ A3 2,000,000 PaineWebber, 9.25% due 12/15/2001 2,324,501 2,310,640
A+ A3 1,000,000 Torchmark Corp., 9.625% due 5/01/1998 989,782 1,149,771
------------ ------------
7,322,193 7,485,753
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Services--2.8%
A+ A1 2,000,000 American General Finance Corp., 7.45% due 7/01/2002 2,044,003 2,143,340
AA- A1 1,000,000 Associates Corp. of North America, 8.80% due 8/01/1998 1,126,319 1,127,835
------------ ------------
3,170,322 3,271,175
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Services--Captive--0.9%
A A2 1,000,000 Ford Motor Credit Co., 7.75% due 11/15/2002 996,668 1,092,128
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign*--3.5%
A+ A1 1,000,000 Hydro-Quebec (Canada), 8.40% due 1/15/2022 (a) 1,117,704 1,116,178
A+ A1 1,000,000 Korea Development Bank, 7.90% due 2/01/2002 (b) 1,090,205 1,077,001
A+ A1 750,000 Korea Electric Power, 7.75% due 4/01/2013 (c) 767,567 767,260
AA- Aa2 1,000,000 Province of Ontario (Canada), 8.00% due 10/17/2001 (d) 1,074,585 1,101,830
------------ ------------
4,050,061 4,062,269
</TABLE>
19
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (continued) December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
S&P Moody's Face Value
Rating Rating Amount Issue Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds & Notes (continued)
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial--Consumer--8.2%
A+ A1 $2,000,000 Bass America Inc., 8.125% due 3/31/2002 $ 2,068,822 $ 2,212,132
Dillard Department Stores, Inc.:
A+ A2 1,000,000 7.375% due 6/15/1999 1,027,035 1,074,679
A+ A2 1,000,000 7.85% due 10/01/2012 1,033,359 1,080,109
Grand Metropolitan Investment Corp.:
A+ A2 2,000,000 8.625% due 8/15/2001 2,066,097 2,297,066
A+ A2 1,000,000 9.00% due 8/15/2011 1,028,110 1,188,715
Philip Morris Companies, Inc.:
A A2 500,000 9.00% due 1/01/2001 504,319 576,517
A A2 1,000,000 7.25% due 1/15/2003 995,235 1,051,137
------------ ------------
8,722,977 9,480,355
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial--Energy--4.9%
A+ A1 1,000,000 Atlantic Richfield Co., 10.375% due 7/15/1995 1,004,722 1,089,014
AA- A1 1,000,000 BP America Inc., 7.875% due 5/15/2002 1,050,043 1,103,545
A- A3 2,000,000 Burlington Resources, Inc., 9.625% due 6/15/2000 2,343,664 2,384,948
A+ A1 1,000,000 Texaco Capital, 8.00% due 8/01/2032 970,801 1,098,391
------------ ------------
5,369,230 5,675,898
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial--Other--15.2%
AA- Aa2 2,000,000 Archer-Daniels-Midland Co., 6.25% due 5/15/2003 1,989,696 2,018,972
A- A3 1,000,000 Baxter International Inc., 8.125% due 11/15/2001 993,788 1,108,899
A+ A1 3,000,000 Capital Cities/ABC Inc., 8.875% due 12/15/2000 3,171,850 3,504,432
A A2 1,000,000 Communication Satellite, 8.125% due 4/01/2004 1,021,030 1,120,786
A A3 3,000,000 First Data Corp., 6.625% due 4/01/2003 2,994,743 3,040,752
A A2 1,000,000 Ford Capital B.V., 9.875% due 5/15/2002 1,021,129 1,217,962
AAA Aaa 2,000,000 United Parcel Service of America, Inc.,
8.375% due 4/01/2020 1,917,142 2,366,062
A A2 3,000,000 Weyerhaeuser Corp., 7.50% due 3/01/2013 3,170,223 3,151,764
------------ ------------
16,279,601 17,529,629
- ---------------------------------------------------------------------------------------------------------------------------------
Supranational--2.5%
AAA Aaa 2,000,000 International Bank for Reconstruction & Development,
12.375% due 10/15/2002 2,018,251 2,824,686
- ---------------------------------------------------------------------------------------------------------------------------------
Transportation--3.5%
Southwest Airlines Co.:
A- Baa1 2,500,000 9.40% due 7/01/2001 2,999,481 2,938,075
A- Baa1 1,000,000 7.875% due 9/01/2007 993,247 1,084,569
------------ ------------
3,992,728 4,022,644
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities--Communications--5.9%
BBB+ A3 500,000 GTE Corporation, 9.10% due 6/01/2003 565,820 590,020
Pacific Bell, Inc.:
AA- Aa3 1,000,000 8.70% due 6/15/2001 992,172 1,156,801
AA- Aa3 1,000,000 7.25% due 7/01/2002 1,051,180 1,068,719
AA- Aa3 1,000,000 7.125% due 3/15/2026 1,021,789 999,892
Southwestern Bell Telecommunications, Inc.:
A+ A1 2,000,000 6.125% due 3/01/2000 2,009,015 2,030,544
A+ A1 1,000,000 7.00% due 7/01/2015 987,785 1,006,824
------------ ------------
6,627,761 6,852,800
</TABLE>
20
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (concluded) December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
S&P Moody's Face Value
Rating Rating Amount Issue Cost (Note 1a)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds & Notes (concluded)
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities--Electric--10.7%
A- A3 $3,000,000 Georgia Power Co., 6.125% due 9/01/1999 $ 2,967,235 $ 3,044,517
Pacific Gas & Electric Co.:
A A1 1,000,000 7.875% due 3/01/2002 998,303 1,101,170
A A1 2,000,000 6.25% due 8/01/2003 1,997,937 1,980,616
A A1 1,000,000 7.25% due 8/01/2026 1,011,246 986,934
Pennsylvania Power & Light Co.:
A A2 1,000,000 7.75% due 5/01/2002 1,039,328 1,092,055
A A2 2,000,000 6.875% due 2/01/2003 1,990,276 2,066,574
A A2 2,000,000 Virginia Electric & Power Co., 6.625% due 4/01/2003 2,008,726 2,047,952
------------ ------------
12,013,051 12,319,818
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities--Gas--1.7%
AA- A1 2,000,000 Consolidated Natural Gas Co., 5.75% due 8/01/2003 1,982,578 1,931,294
- ---------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds & Notes--81.2% 89,298,896 93,712,203
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Short-Term Securities
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper**--3.1%
General Electric Capital Corp.:
1,000,000 3.40% due 1/04/1994 999,717 999,717
2,527,000 3.20% due 1/07/1994 2,525,652 2,525,652
------------ ------------
3,525,369 3,525,369
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements***--6.8%
3,856,000 Bankers Trust, purchased on 12/31/1993 to yield 3.25% to 1/03/1994 3,856,000 3,856,000
4,000,000 Goldman Sachs & Co., purchased on 12/31/1993 to yield
2.75% to 1/03/1994 4,000,000 4,000,000
------------ ------------
7,856,000 7,856,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities--9.9% 11,381,369 11,381,369
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investments--98.8% $109,647,594 113,988,232
============
Other Assets Less Liabilities--1.2% 1,378,883
------------
Net Assets--100.0% $115,367,115
============
<FN>
- ---------------------------------------------------------------------------------------------------------------------------------
*Corresponding industry groups for foreign bonds which are denominated in US dollars:
(a) Utility--Electric; Owned & Guaranteed by the Province.
(b) Financial Institution; Government-Owned & Guaranteed by Korea.
(c) Utility--Electric; Majority-owned, not guaranteed by the Republic of Korea.
(d) Government entity.
**Commercial Paper is traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Program.
***Repurchase Agreements are fully collateralized by US Government Obligations.
Ratings of issues shown have not been audited by Deloitte & Touche.
See Notes to Financial Statements.
</TABLE>
21
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Statement of Assets and Liabilities as of December 31, 1993
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost--$109,647,594) (Note 1a) $113,988,232
Cash 1,333
Receivables:
Interest $ 2,134,546
Capital shares sold 13,722 2,148,268
------------
Prepaid registration fees and other assets (Note 1d) 17,815
------------
Total assets 116,155,648
------------
Liabilities:
Payables:
Dividends to shareholders (Note 1e) 384,191
Capital shares redeemed 206,065
Investment adviser (Note 2) 46,466 636,722
------------
Accrued expenses and other liabilities 151,811
------------
Total liabilities 788,533
------------
Net Assets $115,367,115
============
Net Assets Consist of:
Common Stock, $.01 par value, 50,000,000 shares authorized $ 53,529
Paid-in capital in excess of par 110,956,139
Undistributed investment income--net 17,696
Accumulated realized capital losses--net (887)
Unrealized appreciation on investments--net 4,340,638
------------
Net Assets--Equivalent to $21.55 net asset value per share based on 5,352,963 shares outstanding $115,367,115
============
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Statement of Operations for the Year Ended December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and premium and discount earned $ 7,036,061
Expenses:
Investment advisory fees (Note 2) $ 515,901
Transfer agent fees 337,249
Printing and shareholder reports 73,738
Professional fees 46,975
Registration fees (Note 1d) 43,736
Accounting services (Note 2) 35,280
Pricing fees 24,269
Custodian fees 19,849
Directors' fees and expenses 12,920
Other 3,654
------------
Total expenses 1,113,571
------------
Investment income--net 5,922,490
Realized & Unrealized Gain on Investments--Net (Notes 1c & 3):
Realized gain on investments--net 4,633,533
Change in unrealized appreciation on investments--net 915,986
------------
Net Increase in Net Assets Resulting from Operations $ 11,472,009
============
See Notes to Financial Statements.
</TABLE>
22
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Statements of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the Year Ended December 31,
Increase (Decrease) in Net Assets: 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Investment income--net $ 5,922,490 $ 5,784,730
Realized gain on investments--net 4,633,533 2,082,581
Change in unrealized appreciation/depreciation on investments--net 915,986 (2,058,824)
------------ ------------
Net increase in net assets resulting from operations 11,472,009 5,808,487
------------ ------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (5,905,595) (5,808,866)
Realized gain on investments--net (4,763,714) (2,088,612)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to shareholders (10,669,309) (7,897,478)
------------ ------------
Capital Share Transactions (Note 4):
Net increase in net assets derived from capital share transactions 23,672,843 10,317,708
------------ ------------
Net Assets:
Total increase in net assets 24,475,543 8,228,717
Beginning of year 90,891,572 82,662,855
------------ ------------
End of year* $115,367,115 $ 90,891,572
============ ============
<FN>
- ---------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net $ 17,696 $ 801
============ ============
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc.
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The following per share data and ratios have been derived For the Year Ended December 31,
from information provided in the financial statements. 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of year $ 21.22 $ 21.76 $ 20.24 $ 20.54 $ 19.75
-------- -------- -------- -------- --------
Investment income--net 1.31 1.46 1.52 1.67 1.64
Realized and unrealized gain (loss) on investments--net 1.24 (.03) 1.51 (.28) .81
-------- -------- -------- -------- --------
Total from investment operations 2.55 1.43 3.03 1.39 2.45
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (1.29) (1.47) (1.51) (1.69) (1.66)
Realized gain on investments--net (.93) (.50) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (2.22) (1.97) (1.51) (1.69) (1.66)
-------- -------- -------- -------- --------
Net asset value, end of year $ 21.55 $ 21.22 $ 21.76 $ 20.24 $ 20.54
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 12.20% 6.88% 15.60% 7.19% 12.87%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses 1.08% 1.12% 1.16% 1.29% 1.26%
======== ======== ======== ======== ========
Investment income--net 5.74% 6.72% 7.25% 8.18% 8.27%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $115,367 $ 90,892 $ 82,663 $ 76,298 $ 82,738
======== ======== ======== ======== ========
Portfolio turnover 132% 65% 87% 107% 126%
======== ======== ======== ======== ========
See Notes to Financial Statements.
</TABLE>
23
<PAGE>
- -------------------------------------------------------------------------------
The Corporate Fund Accumulation Program, Inc. Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Corporate Fund Accumulation Program, Inc. (the "Program") is
registered under the Investment Company Act of 1940 as a
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Program.
(a) Valuation of securities--Portfolio securities are valued by
the Program's pricing agent, Interactive Data Services, Inc.
These values are not bids or actual last sale prices but are
estimates of the price at which the pricing agent believes the
Program could sell such portfolio securities. The Board of
Directors has examined the methods to be used by the Program's
pricing agent 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. Short-term securities are valued at amortized cost,
which approximates market.
(b) Income taxes--It is the Program's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are
charged to expense as the related shares are issued.
(e) Dividends to shareholders--Dividends from net investment
income are declared and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Program has entered into an Investment Advisory Agreement
with Fund Asset Management, Inc. ("FAMI"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. ("MLIM"),
which is an indirect, wholly-owned subsidiary of Merrill Lynch &
Co., Inc.
Effective January 1, 1994, the investment advisory business of
FAMI reorganized from a corporation to a limited partnership. The
general partner of FAMI is Princeton Services, Inc., an indirect
wholly-owned subsidiary of Merrill Lynch & Co.
FAMI is responsible for the management of the Program's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the
Program. For such services, the Program pays a monthly fee of
0.50%, on an annual basis, of the value of the Program's average
daily net assets. The Investment Advisory Agreement obligates
FAMI to reimburse the Program to the extent the Program's
expenses (excluding interest, taxes, brokerage fees and
extraordinary items) exceed 2.5% of the Program's first $30
million of average daily net assets, 2.0% in excess of $30
million but not exceeding $100 million average daily net assets,
and 1.5% of the average daily net assets above $100 million. No
fee payment will be made to the Adviser during any fiscal year
which would cause such expenses to exceed the foregoing expense
limitations applicable at the time of such payment.
FAMI has entered into an Administrative Agreement with Merrill
Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), Prudential
Securities, Inc., Dean Witter Reynolds Inc., and Shearson Lehman
Brothers Inc. (the "Administrators"), whereby the Administrators
perform certain administrative duties on behalf of FAMI.
<PAGE>
The Administrators receive a monthly fee from FAMI equal to
0.20%, on an annual basis, of the Program's average daily net
assets and have agreed to reimburse FAMI for a portion of the
reimbursement of expenses to the Program as described above,
required to be made by FAMI.
Accounting services are provided to the Program by FAMI at cost.
Certain officers and/or directors of the Program are officers
and/or directors of FAMI, MLIM, MLPF&S, and/or Merrill Lynch &
Co., Inc.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended December 31, 1993 were
$144,268,311 and $129,547,172, respectively.
Net realized and unrealized gains (losses) as of December 31,
1993 were as follows:
Realized
Gains Unrealized
(Losses) Gains
Corporate & Government Bonds $ 4,633,650 $ 4,340,638
Short-Term Securities (117) --
----------- -----------
Total $ 4,633,533 $ 4,340,638
=========== ===========
As of December 31, 1993, net unrealized appreciation for Federal
income tax purposes aggregated $4,340,638, of which $4,747,154
related to appreciated securities and $406,516 related to
depreciated securities. The aggregate cost of investments at
December 31, 1993 for Federal income tax purposes was
$109,647,594.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
December 31, 1993 Shares Amount
Shares sold 3,558,780 $79,734,098
Shares issued to shareholders
in reinvestment of dividends and
distributions 458,843 10,088,643
----------- -----------
Total issued 4,017,624 89,822,741
Shares redeemed (2,948,852) (66,149,898)
----------- -----------
Net increase 1,068,771 $23,672,843
=========== ===========
For the Year Ended Dollar
December 31, 1992 Shares Amount
Shares sold 1,792,821 $38,606,717
Shares issued to shareholders
in reinvestment of dividends and
distributions 356,943 7,652,995
----------- -----------
Total issued 2,149,764 46,259,712
Shares redeemed (1,663,828) (35,942,004)
----------- -----------
Net increase 485,936 $10,317,708
=========== ===========
Paid-in capital was decreased by $74,402 as a result of prior
years' permanent tax differences.
<PAGE>
- ----------------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- ----------------------------------------------------
- ----------------------------------------------------
INDEX
- ----------------------------------------------------
PAGE
-----------
Investment Objectives and Policies............. 2
Investment Restrictions........................ 4
Investment Advisory Agreement.................. 5
Directors and Officers......................... 8
Net Asset Value................................ 10
Redemption of Shares........................... 11
Taxes and Distributions........................ 12
Portfolio Transactions......................... 13
Performance Data............................... 14
General Information............................ 14
Ratings of Corporate Obligations............... 15
Independent Auditors' Report................... 18
19
Financial Statements...........................
- -----------------------------------------------
THE
CORPORATE
FUND
INVESTMENT
ACCUMULATION
PROGRAM
----------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 29, 1994
----------------------------------------------------
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2000
