<PAGE>
THE CORPORATE FUND
INVESTMENT ACCUMULATION PROGRAM
---------------------------------------------------------
Shares of
Common Stock Prospectus dated April 25, 1997
- --------------------------------------------------------------------------------
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. For more information on the Program's
investment objectives and policies, please see "Investment Objectives and
Policies" on page 6. 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 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 25,
1997, 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 SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<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, 1996:
- -----------------------------------------
Management Fees.................................................................. 0.50%(a)
12b-1 Fees....................................................................... None
Other Expenses
Shareholder Servicing and Custodian Fees............................ 0.35%
Other Fees.......................................................... 0.27%
Total Other Expenses..................................................... 0.62%
---------
Total Program Operating Expenses................................................. 1.12%
---------
---------
</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 1.12% and a 5%
annual return throughout the
periods........................... $ 11 $ 36 $ 62 $ 136
</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 audited in conjunction
with the annual audits of the financial statements of the Program by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year ended
December 31, 1996 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 Program's audited financial statements:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
<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................. $ 21.59 $ 19.14 $ 21.55 $ 21.22 $ 21.76 $ 20.24 $ 20.54 $ 19.75 $ 19.97
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment income--net.... 1.23 1.28 1.18 1.31 1.46 1.52 1.67 1.64 1.67
Realized and unrealized
gain (loss) on
investments--net........ (.90) 2.45 (2.41) 1.24 (.03) 1.51 (.28) .81 (.22)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations.............. .33 3.73 (1.23) 2.55 1.43 3.03 1.39 2.45 1.45
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment
income--net............. (1.23) (1.28) (1.18) (1.29) (1.47) (1.51) (1.69) (1.66) (1.67)
Realized gain on
investments-- net....... -- -- -- (.93) (.50) -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions........... (1.23) (1.28) (1.18) (2.22) (1.97) (1.51) (1.69) (1.66) (1.67)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
year.................... $ 20.69 $ 21.59 $ 19.14 $ 21.55 $ 21.22 $ 21.76 $ 20.24 $ 20.54 $ 19.75
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:
Based on net asset value
per share............... 1.69% 20.05% (5.78%) 12.20% 6.86% 15.60% 7.19% 12.87% 7.47%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement........... 1.12% 1.01% 1.10% 1.08% 1.12% 1.16% 1.29% 1.26% 1.24%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Expenses.................. 1.12% 1.01% 1.10% 1.08% 1.12% 1.16% 1.29% 1.26% 1.35%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment income--net.... 5.84% 6.23% 5.80% 5.74% 6.72% 7.25% 8.18% 8.27% 8.13%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands).......... $ 77,748 $ 85,402 $ 82,887 $ 115,367 $ 90,892 $ 82,663 $ 76,298 $ 82,738 $ 77,389
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Portfolio turnover........ 77% 104% 122% 132% 65% 87% 107% 126% 158%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
- --------------------------
1987
<S> <C>
- --------------------------
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year................. $ 21.71
---------
Investment income--net.... 1.66
Realized and unrealized
gain (loss) on
investments--net........ (1.51)
---------
Total from investment
operations.............. .15
---------
Less dividends and
distributions:
Investment
income--net............. (1.73)
Realized gain on
investments-- net....... (.16)
---------
Total dividends and
distributions........... (1.89)
---------
Net asset value, end of
year.................... $ 19.97
---------
---------
TOTAL INVESTMENT RETURN:
Based on net asset value
per share............... 0.85%
---------
---------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement........... 1.17%
---------
---------
Expenses.................. 1.20%
---------
---------
Investment income--net.... 7.99%
---------
---------
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands).......... $ 87,482
---------
---------
Portfolio turnover........ 107%
---------
---------
</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 and the Corporate Investment
Trust Fund (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"); a Holder not participating in
the Program may request a copy of the Prospectus. Holders of Units may elect to
participate in the Program or to change a previous election by notice in writing
to the program agent. Notice of any change in the basis of participation or of
election to participate in the Program must be received by the program agent in
writing at least ten days prior to the Record Day for the first distribution to
which such notice is to apply.
Under these Terms and Conditions, both distributions of interest 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 (P.O. Box 974, Wall Street
Station, New York, New York 10286-0974) will act as the program agent (the
"Agent") for the Shareholders. All securities, cash and other similar assets of
the Program will be held by the Agent as custodian. The Agent also acts as the
Program's dividend disbursing agent, transfer agent and registrar and performs
certain other services for the Program.
Under these Terms and Conditions, each distribution of interest 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
4
<PAGE>
the Program, the proceeds of redemption or payment at maturity of securities
held in the 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 unit trust funds 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 and administering the Program and these Terms
and Conditions are borne by the Program. The administrators of the Program (the
"Administrators") are Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities Incorporated ("Prudential"), Dean
Witter Reynolds Inc. ("Dean Witter"), and Smith Barney Inc. ("Smith Barney"),
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 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."
5
<PAGE>
If the Holder is a broker or a nominee of a bank or another financial
institution, the trustee and Agent will apply these Terms and Conditions on the
basis of the respective numbers of Units certified from time to time by such
Holder to be the total numbers of Units registered in such Holder's name and
held for the accounts of beneficial owners who are to participate in the
Program, upon the several bases of participation offered by the Program at the
time. It is anticipated, however that, due to administrative problems connected
with Units held in "street name," other than by Merrill Lynch, such Units will
be registered in the names of the beneficial owners thereof unless such owners
elect not to participate in the Program.
Merrill Lynch or its nominee holds in its name Program Shares for the
accounts of customers whose Unit Trust Funds are held in Merrill Lynch accounts
and who elect to reinvest in the Program. These Shares may be transferred to an
account in the customer's name with the Agent upon request. Merrill Lynch
maintains records identifying the names and addresses of these customers and
their Share balances, and will be compensated for these services by the Agent at
the Agent's sole expense. During the fiscal year ended December 31, 1996, the
Agent paid Merrill Lynch $15,512 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 Rating Group ("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.
6
<PAGE>
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 obligations such as
short-term floating rate instruments, 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
7
<PAGE>
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 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 securities in
an aggregate amount 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.
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.
8
<PAGE>
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, as amended. 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, as amended. 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 of the Adviser and its affiliate, Merrill Lynch
Asset Management, L.P. ("MLAM"); President and Director of Princeton
Services, Inc. ("Princeton Services"); Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co."); and Director of the Merrill
Lynch Funds Distributor, Inc. (the "Distributor").
RONALD W. FORBES--Professor of Finance, School of Business, State
University of New York at Albany.
CYNTHIA A. MONTGOMERY--Professor of Competition and Strategy, Harvard
Business School.
CHARLES C. REILLY--Former Adjunct Professor, Columbia University Graduate
School
of Business.
KEVIN A. RYAN--Professor of Education, Boston University; Founder and
current Director of the Boston University Center for the Advancement of
Ethics and Character.
RICHARD R. WEST--Dean Emeritus, New York University Leonard N. Stern
School of Business Administration.
- -------------------
* Interested person, as defined in the Investment Company Act of 1940, as
amended, of the Program.
ADVISORY AND ADMINISTRATION ARRANGEMENTS
The investment adviser to the Program is Fund Asset Management, L.P. ("FAM"
or the "Adviser"). 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 130 other registered investment
companies. FAM or MLAM also offers portfolio management and portfolio analysis
services to individuals and institutions. As of March 31, 1997, FAM and MLAM had
a total of approximately $247.2 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates of
FAM.
FAM (the general partner of which is Princeton Services, Inc., a
wholly-owned subsidiary of Merrill Lynch & Co., Inc.) is itself a wholly-owned
affiliate of Merrill Lynch & Co., Inc. and has its principal place of business
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
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
9
<PAGE>
the overall management of the Program's business affairs. The Administrators are
Merrill Lynch, of which FAM is an affiliate, Prudential, Dean Witter and Smith
Barney. 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 Smith
Barney, 10%.
For the fiscal year ended December 31, 1996, FAM received advisory fees from
the Program in the amount of $405,367 representing 0.50% of the Program's
average daily net assets.
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 fiscal year ended December 31, 1996, the Program's total
expenses were $909,199 (representing 1.12% of its average net assets).
Jay C. Harbeck has served as the Program's Portfolio Manager since January
1, 1992, and is primarily responsible for the Program's day-to-day management.
He has served as Vice President of MLAM since 1986.
CODE OF ETHICS
The Board of Directors of the Program has adopted a Code of Ethics under
Rule 17j-1 of the Investment Company Act of 1940, as amended, which incorporates
the Code of Ethics of the Adviser (together, the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of the
Adviser and, as described below, impose additional, more onerous, restrictions
on fund investment personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investments (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Program within periods of trading by the
Program in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
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, as amended,
10
<PAGE>
the existence and validity of which may be verified by the Agent through the use
of industry publications, together with a request for redemption at the office
of the Agent, The Bank of New York, (P.O. Box 974, Wall Street Station, New
York, New York 10286-0974). If certificates have not been issued, only delivery
of the request for redemption (with signature guaranteed as set forth above) is
required. The Program has arranged, however, for an exemption from the signature
guarantee requirement for redemptions involving less than $5,000 on the date of
receipt by the Agent of all the necessary documents where the proceeds are to be
reinvested through one of the Administrators in units of Municipal Investment
Trust Fund, Government Securities Income Fund, Corporate Income Fund, Defined
Asset Funds, Equity Investor Fund or International Bond Fund (the "Unit Trusts")
which are to be registered in the names of the registered owners of the Shares.
This exemption may be reduced or eliminated without prior notice. A guarantee of
each Shareholder's signature is required for all redemptions, regardless of the
amount involved, where the proceeds are to be paid to Shareholders or where the
units of the Unit Trusts to be purchased are to be registered in names different
from those of the registered owners of the Shares.
The redemption price will be the net asset value next determined after
either (i) the certificates are tendered for redemption or (ii) if no
certificates have been issued, a request for redemption is received in good
order as set forth above. The price received upon redemption may be more or less
than the amount paid by the Shareholder depending on the net asset value of the
Shares at the time of redemption. Payment of the redemption price must be made
within seven days after proper tender unless further postponement is permissible
under the Investment Company Act of 1940, as amended, 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 the close of business on the New York
Stock Exchange (generally 4:00 P.M., New York City time) on any business day and
transmitted by the Administrator prior to the close of its business day
(generally 4:00 P.M., New York City time) are redeemed at the price determined
as of the close of business on the New York Stock Exchange on such day.
Repurchase orders received after the close of business on the New York Stock
Exchange on any business day are redeemed at a price determined as of the close
of business on the New York Stock Exchange 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."
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.
11
<PAGE>
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 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.
12
<PAGE>
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 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 15 minutes after the close of business on the
New York Stock Exchange, generally 4:00 P.M., New York City time) 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
13
<PAGE>
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 fiscal year ended December 31, 1996,
the Program made payments of $3,118 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 indicative of the Program's relative performance for any
future period.
ORGANIZATION OF THE PROGRAM
The Program, an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended, 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.
14
<PAGE>
The Program does not intend to hold meetings of shareholders unless under
the Investment Company Act of 1940, as amended, 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 LLP, 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, as amended, and the Investment Company Act of 1940,
as amended, 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 25, 1997, 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.
15
<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
101 Barclay Street
New York, New York 10007
(800) 221-7771
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
INDEPENDENT AUDITORS
Deloitte & Touche LLP
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
--------------------------------
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
FEE TABLE....................................... 2
FINANCIAL HIGHLIGHTS............................ 3
THE PROGRAM..................................... 4
INVESTMENT OBJECTIVES AND POLICIES.............. 6
MANAGEMENT OF THE PROGRAM....................... 9
REDEMPTION OF SHARES AND EXCHANGE PRIVILEGE..... 10
TAXES AND DISTRIBUTIONS......................... 12
PORTFOLIO TRANSACTIONS.......................... 13
ADDITIONAL INFORMATION.......................... 13
</TABLE>
------------------------------------------
THE
CORPORATE
FUND
INVESTMENT
ACCUMULATION
PROGRAM
--------------------------
PROSPECTUS DATED APRIL 25, 1997
--------------------------------------
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 25, 1997
- --------------------------------------------------------------------------------
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 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 25, 1997, 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
2
<PAGE>
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. 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 (90 Washington Street, 12th Floor, New York, New York
10286), the custodian (the "Custodian") and agent (the "Agent") for the Program,
consisting of cash or liquid securities having a market value at all times until
the delivery date at least equal to the amount of its commitment in connection
with such delayed delivery and purchase transactions. Although the Program will
generally enter into forward commitments with the intention of acquiring
securities for its portfolio, the Program may dispose of a commitment prior to
settlement if the 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, as amended, 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
3
<PAGE>
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 fiscal years ended December 31, 1996 and 1995, the Portfolio turnover
rates were 77% and 104%, respectively.
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;
4
<PAGE>
(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;
(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
5
<PAGE>
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 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 fiscal year ended December 31, 1996, such
reimbursement amounted to $35,910. For the fiscal years ended December 31, 1994,
1995, and 1996, the advisory fees paid by the Program to the Adviser aggregated
$475,257, $415,822, and $405,367 respectively.
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
6
<PAGE>
on June 5, 1987 and by the Board (including all of the non-interested directors)
on March 12, 1997. The Agreement provides that the Adviser shall have no
liability to the Program or any Shareholder for any error of judgment, mistake
of law or any loss arising out of any investment, or for any other act or
omission in the performance by the Adviser of its duties under the Agreement,
except for liability resulting from willful misfeasance, bad faith or gross
negligence on the Adviser's part or from reckless disregard by the Adviser of
its obligations and duties under the Agreement. The Agreement automatically
terminates upon its assignment, is terminable, without penalty, by the Board or
by vote of the holders of a majority of the Shares on 60 days' notice to the
Adviser and by the Adviser on 90 days' notice to the Program. The Adviser's
right to terminate could operate to the disadvantage of or work a hardship on
the Program.
THE ADVISER--The Adviser to the Program is FAM (the general partner of which
is Princeton Services Inc., a wholly-owned subsidiary of Merrill Lynch & Co.,
Inc.), which 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 World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281.
The Agreement is non-exclusive, and the Adviser, as well as certain of its
affiliates, is in the business of furnishing investment advice to individuals,
institutional clients and other investment companies, including other investment
accumulation programs. The fees charged to these clients vary in accordance with
the type of client and services rendered. Merrill Lynch, an affiliate of the
Adviser, is engaged in the underwriting, securities and commodities brokerage
business and is a member organization of the New York Stock Exchange, other
major securities exchanges and commodity exchanges, and the National Association
of Securities Dealers, Inc. Merrill Lynch Asset Management, L.P. ("MLAM"), an
affiliate of the Adviser, is an indirect wholly-owned affiliate of 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, 10%.
Merrill Lynch has been appointed by the other Administrators as agent for
purposes of taking any action under the Administration Agreement with respect to
the Program by power of attorney executed by such Administrators and filed with
the Program and the Agent. Provision is also made under the Administration
Agreement that if the Administrators are unable to agree in respect to action to
be taken jointly by them thereunder and cannot agree as to which Administrators
shall continue to act as Administrators, then Merrill Lynch shall continue to
act as sole Administrator. Similarly, if one or more of the Administrators fail
to perform their duties under the Administration Agreement or become incapable
of acting or become bankrupt or if their affairs are taken over by public
authorities, then each such Administrator shall be automatically discharged
under the Administration Agreement, and the remaining Administrators shall act
as sole Administrators. In addition, the Administration Agreement is terminable,
without penalty, by the Adviser on 60 days' notice to the Administrators and by
the Administrators, acting as a group, on 90 days' notice to the Adviser. The
Administrators' right to terminate could operate to the disadvantage of or work
a hardship on the Program.
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.
8
<PAGE>
DIRECTORS AND OFFICERS
Responsibility for the Program's management rests with the Board, which
meets at least quarterly to oversee the implementation of the Program's
investment policies and which must approve the renewal of the Agreement. The
Directors and Officers of the Program, their ages, and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive Officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
<TABLE>
<CAPTION>
NAME CAPACITY ADDRESS
- ------------------------------------ -------------------------------- -----------------------------------------
<S> <C> <C>
Arthur Zeikel* (64) President and Director(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
OCCUPATION: President of Fund Asset Management, L.P. ("FAM" or the "Adviser") (which term as used herein
includes its corporate predecessors) since 1977; President of Merrill Lynch Asset Management, L.P. ("MLAM")
(which term as used herein includes its corporate predecessors) since 1977; President and Director of
Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice President of Merrill Lynch & Co.,
Inc. ("ML & Co.") since 1990; Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor") since
1977.
Ronald W. Forbes (56) Director(2) 1400 Washington Avenue
Albany, New York 12222
OCCUPATION: Professor of Finance, School of Business, State University of New York at Albany since 1989;
Member, Task Force on Municipal Securities Markets, Twentieth Century Fund.
Cynthia A. Montgomery (44) Director(2) 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 since 1990 and
Director of Newell Co. since 1995.
Charles C. Reilly (65) Director(2) 9 Hampton Harbor Road
Hampton Bays, New York 11946
OCCUPATION: Self-employed financial consultant since 1990; President and Chief Investment Officer of Verus
Capital, Inc. from 1979 to 1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to
1990; Adjunct Professor, Columbia University Graduate School of Business from 1990 to 1991; Adjunct
Professor, Wharton School, University of Pennsylvania from 1989 to 1990; Partner, Small Cities Cable
Television since 1986.
Kevin A. Ryan (64) Director(2) 127 Commonwealth Avenue
Chestnut Hill, Massachusetts 02167
OCCUPATION: Founder, current Director and Professor of The Boston University Center for Advancement of Ethics
and Character; Professor of Education at Boston University since 1982; formerly taught on the faculties of
The University of Chicago, Stanford University and Ohio State University.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME CAPACITY ADDRESS
- ------------------------------------ -------------------------------- -----------------------------------------
<S> <C> <C>
Richard R. West (59) Director(2) Box 604
Genoa, Nevada 89411
OCCUPATION: Professor of Finance since 1984, and Dean from 1984 to 1993, and currently Dean Emeritus of New
York University Leonard N. Stern School of Business Administration; Director of Bowne & Co., Inc. (financial
printers), Vornado, Inc. (real estate holding company), Smith-Corona Corporation (manufacturer of
typewriters and word processors) and Alexanders Inc. (real estate holding company).
Terry K. Glenn (56) Executive Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
OCCUPATION: Executive Vice President of the Adviser and MLAM since 1983; Executive Vice President and Director
of Princeton Services since 1993; President of the Distributor since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988.
Joseph T. Monagle, Jr. (48) Senior Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
OCCUPATION: Senior Vice President of the Adviser and MLAM since 1990; Vice President of MLAM from 1978 to 1990;
Senior Vice President of Princeton Services since 1993.
Jay C. Harbeck (62) Vice President(1)(2) 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 (36) Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
OCCUPATION: Vice President and Director of Taxation of the Adviser since 1990.
Gerald M. Richard (47) Treasurer(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
OCCUPATION: Senior Vice President and Treasurer of the Adviser and MLAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor since 1981; Treasurer since
1984 and employee of the Distributor since 1978.
Susan B. Baker (39) Secretary(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
OCCUPATION: Vice President of the Adviser since 1993; attorney associated with the Adviser since 1987.
</TABLE>
- -------------------
(1) Interested person, as defined in the Investment Company Act of 1940, as
amended, of the Program.
(2) The Directors and officers of the Program are Directors or officers of
certain other investment companies for which the Adviser or MLAM acts as
investment adviser.
10
<PAGE>
Set forth below is a chart showing the aggregate compensation paid by the
Program to each of its Directors for the fiscal year ended December 31, 1996
and, for the calendar year ended December 31, 1996, the total compensation paid
to each Director of the Program by the Program and by other investment companies
advised by the Adviser or MLAM for their services as Directors or Trustees of
such investment companies.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT BENEFITS FROM PROGRAM AND
AGGREGATE COMPENSATION ACCRUED AS PART FUND COMPLEX
NAME OF DIRECTOR FROM THE PROGRAM OF PROGRAM EXPENSES PAID TO DIRECTORS
- ------------------------------------------------ ----------------------- ------------------- -----------------
<S> <C> <C> <C>
Ronald W. Forbes(1)............................. $ 2,900 None $ 142,500
Cynthia A. Montgomery(1)........................ $ 2,900 None $ 142,500
Charles C. Reilly(1)............................ $ 3,900 None $ 293,833
Kevin A. Ryan(1)................................ $ 2,900 None $ 142,500
Richard R. West(1).............................. $ 2,900 None $ 269,833
</TABLE>
- -------------------
(1) The Directors serve on the boards of other MLAM/FAM Advised Funds as
follows: Mr. Forbes (23 registered investment companies consisting of 36
portfolios), Ms. Montgomery (23 registered investment companies consisting
of 36 portfolios), Mr. Reilly (41 registered investment companies
consisting of 54 portfolios), Mr. Ryan (23 registered investment companies
consisting of 36 portfolios) and Mr. West (41 registered investment
companies consisting of 54 portfolios).
The Program has an Audit Committee consisting of all the directors of the
Program who are not interested persons of the Program.
REMUNERATION OF OFFICERS AND DIRECTORS--On March 31, 1997, shares of the
Program owned by all officers and directors of the Program as a group aggregated
less than 1% of the total of such shares then outstanding. The Program pays each
non-interested 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 fiscal year ended December 31, 1996,
such fees and expenses to the five non-interested directors of the Program
aggregated $15,936.
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
dividends, estimated values (as of 15 minutes after the close of business on the
New York Stock Exchange, generally 4:00 P.M., New York City time) of Portfolio
securities for purposes of computation of net asset value of the Shares. The New
11
<PAGE>
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 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
12
<PAGE>
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 12 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 35% 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
13
<PAGE>
pertinent Code sections and the Treasury Regulations promulgated thereunder. The
Code and these Regulations are subject to change by legislative or
administrative action.
STATE AND LOCAL TAXES --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, 1994, 1995 and 1996 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.
14
<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, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
------------------- --------------------- -----------------------
<S> <C> <C> <C>
Average Annual
Total Return (a)...................... 1.69% 6.64% 7.65%
</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 LLP, 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, 1996
and the related statements of operations for the year then ended and of changes
in net assets for each of the years in the two-year period ended December 31,
1996 and the
15
<PAGE>
financial highlights for each of the years in the five year period ended
December 31, 1996 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 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.
- -------------------
*As described by the rating companies themselves.
16
<PAGE>
AA rated bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change
over the term of the issue.
A rated bonds are considered to be investment grade and of good quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB rated bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The
obligor's ability to pay interest and repay principal is not strong and is
considered likely to be affected over time by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the life of
the issue and repay principal when due.
CCC rated bonds may have certain characteristics which, with the passing of
time, could lead to the possibility of default on either principal or interest
payments.
CC rated bonds are minimally protected. Default in payment of interest
and/or principal seems probable.
C rated bonds are in actual or imminent default in payment of interest or
principal.
DDD, DD, D rated bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and should be valued
only on the basis of their value in liquidation or reorganization of the
obligor.
+ (Plus) or - (Minus) signs after bond and preferred stock rating symbols
(from "AA" to "B") indicate relative standing within a rating category. They are
refinements more closely reflecting strengths and weaknesses and are not to be
used as trend indicators.
MOODY'S--Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
17
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
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.
18
<PAGE>
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, 1996, 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, 1996 by correspondence with the custodian and brokers. 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, 1996, 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.
Deloitte & Touche LLP
Princeton, New Jersey
February 3, 1997
19
<PAGE>
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments December 31, 1996
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
US Government Obligations
US Government US Treasury Notes:
Obligations-- AAA Aaa $2,000,000 6.25% due 8/31/2000 $ 2,013,626 $ 2,007,500
3.9% AAA Aaa 1,000,000 7.875% due 8/15/2001 1,079,910 1,065,940
Total US Government Obligations--3.9% 3,093,536 3,073,440
Corporate Bonds & Notes
Banks & A+ A1 2,000,000 BankAmerica Corp., 7.125% due 5/12/2005 1,975,735 2,015,080
Thrifts--18.1% A- A2 1,500,000 Chase Manhattan Bank Corp., 8.65% due
2/13/1999 1,558,680 1,570,035
A+ A1 1,000,000 Citicorp., 8.80% due 2/01/2000 1,000,000 1,001,950
BBB+ A3 2,000,000 First Interstate Bancorp, 9.90% due
11/15/2001 2,261,189 2,263,940
BBB+ A1 1,250,000 First Union Capital, 7.85% due 1/01/2027+++ 1,247,825 1,247,825
AA- Aa2 1,000,000 JPM Capital Trust, 7.54% due 1/15/2027 1,000,000 977,290
A A2 1,000,000 NationsBank Corp., 7.50% due 2/15/1997 999,945 1,001,870
Norwest Corp.:
AA- Aa3 1,000,000 6.25% due 4/15/1999 997,476 1,000,800
A+ A1 2,000,000 6.625% due 3/15/2003 2,009,741 1,965,300
AA+ Aa2 1,000,000 Wachovia Bank, 6.55% due 6/09/1997 999,893 1,004,260
----------- -----------
14,050,484 14,048,350
Financial A+ A1 1,000,000 Ford Motor Credit Co., 7.75% due 3/15/2005 999,251 1,041,450
Services-- General Motors Acceptance Corp.:
Captive--3.3% A- A3 1,000,000 6.625% due 10/01/2002 998,519 993,550
A- A3 500,000 7.40% due 9/01/2025 496,146 494,470
----------- -----------
2,493,916 2,529,470
Financial A+ A1 1,000,000 American General Finance Corp., 7.70% due
Services-- 11/15/1997 996,707 1,013,400
Consumer-- AA- Aa3 1,000,000 Associates Corp. of North America, 5.25%
9.6% due 9/01/1998 983,553 985,390
A+ Aa3 2,000,000 CIT Group Holdings, Inc., 5.764% due
2/28/1997++ 1,999,919 2,000,100
A A2 1,000,000 Commercial Credit Corp., 6% due 4/15/2000 980,005 984,580
Equitable Life Assurance Society of the US++:
A A2 500,000 6.95% due 12/01/2005 473,549 490,490
A A2 1,000,000 7.70% due 12/01/2015 993,233 999,580
A+ A2 1,000,000 Transamerica Finance Corp., 6.80% due
3/15/1999 999,880 1,010,520
----------- -----------
7,426,846 7,484,060
Financial Bear Stearns Companies, Inc.:
Services-- A A2 1,000,000 6.75% due 5/01/2001 997,270 1,002,370
Other--9.8% A A2 500,000 6.70% due 8/01/2003 462,318 491,995
Dean Witter, Discover & Co.:
A A2 2,000,000 6.75% due 8/15/2000 1,994,537 2,014,500
A A2 1,000,000 6.30% due 1/15/2006 996,022 944,672
BBB+ Baa1 1,000,000 PaineWebber Group Inc., 8.875% due 3/15/2005 996,662 1,084,620
A+ A1 2,000,000 Travelers Corp. (The), 7.875% due 5/15/2025 2,027,424 2,088,980
----------- -----------
7,474,233 7,627,137
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (continued) December 31, 1996
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Corporate Bonds & Notes (continued)
Industrial-- A+ A1 $2,000,000 Bass America, Inc., 6.625% due 3/01/2003 $ 1,921,497 $ 1,970,460
Consumer A A2 500,000 Disney Enterprises Inc.***, 6.85% due
Goods--9.3% 1/10/2007+++ 499,666 499,645
AAA Aaa 2,000,000 Johnson & Johnson Co., 8.72% due 11/01/2024 2,018,823 2,225,360
A A2 1,125,000 May Department Stores Company (The), 10.625%
due 11/01/2010 1,343,562 1,455,975
A A2 1,000,000 Philip Morris Companies, Inc., 9% due
1/01/2001 1,014,891 1,075,870
----------- -----------
6,798,439 7,227,310
Industrial-- A- A1 500,000 Dresser Industries, Inc., 7.60% due 8/15/2096 498,551 510,465
Energy--0.7%
Industrial-- Lockheed Martin Corp.:
Other--2.6% BBB+ A3 1,000,000 6.625% due 6/15/1998 999,905 1,007,710
BBB+ A3 1,000,000 6.55% due 5/15/1999 999,620 1,004,670
----------- -----------
1,999,525 2,012,380
Industrial-- A- A2 1,000,000 Columbia/HCA Healthcare Corp., 7.75% due
Services--1.3% 7/15/2036 992,373 1,019,500
Transportation-- Southwest Airlines Co.:
3.4% A- A3 1,500,000 9.40% due 7/01/2001 1,695,629 1,630,500
A- A3 1,000,000 7.875% due 9/01/2007 994,729 1,032,790
----------- -----------
2,690,358 2,663,290
Utilities-- GTE Corporation:
Communica- BBB+ A3 500,000 9.10% due 6/01/2003 549,358 557,745
tions--5.3% BBB+ A3 1,000,000 10.30% due 11/15/2017 1,077,727 1,082,450
AAA Aaa 500,000 Indiana Bell Telephone Co., Inc., 7.30%
due 8/15/2026 499,156 507,420
AA Aa3 2,000,000 Southwestern Bell Telecommunications, Inc.,
6.125% due 3/01/2000 2,005,040 1,987,160
----------- -----------
4,131,281 4,134,775
Utilities-- A+ A1 3,000,000 Georgia Power Co., 6.125% due 9/01/1999 2,984,583 2,983,140
Electric--6.5% AA- A1 1,000,000 Northern States Power Co., 7.125% due
7/01/2025 1,060,533 980,060
A A2 1,000,000 Virginia Electric & Power Co., 8.625% due
10/01/2024 982,136 1,081,898
----------- -----------
5,027,252 5,045,098
Utilities-- AA- A1 2,000,000 Consolidated Natural Gas Co., 8.75% due
Gas--2.7% 6/01/1999 2,066,183 2,103,400
Yankee BBB+ A3 1,000,000 Bangkok Bank Public Company Ltd., 7.25% due
Corporates*-- 9/15/2005 (b)+++ 992,080 977,740
14.4% AA- Aa3 1,500,000 CRA Finance Ltd., 6.50% due 12/01/2003 (c) 1,372,879 1,461,585
A A3 1,000,000 China Light & Power Company, Ltd., 7.50%
due 4/15/2006 (b) 994,061 1,008,320
A+ A2 1,000,000 Grand Metropolitan Investment Corp., 8.625%
due 8/15/2001 (b) 1,017,379 1,079,190
A+ A1 1,000,000 Ford Capital B.V., 9.50% due 6/01/2010 (e) 1,100,107 1,187,660
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Schedule of Investments (concluded) December 31, 1996
S&P Moody's Face Value
Industry Rating Rating Amount Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Corporate Bonds & Notes (concluded)
Yankee BBB+ A3 $1,000,000 HSBC Americas Inc., 7% due 11/01/2006 (b) $ 991,731 $ 987,200
Corporates* A+ A1 1,000,000 Petroliam Nasional Berhad, 6.875%
(concluded) due 7/01/2003+++ 990,862 1,001,430
Pohang Iron & Steel Industries (d):
A+ A2 1,000,000 7.375% due 5/15/2005 1,016,050 1,013,710
A+ A2 1,000,000 7.125% due 11/01/2006 998,889 997,270
A A2 1,500,000 Western Mining, 7.25% due 11/15/2013 (c) 1,518,938 1,486,425
----------- -----------
10,992,976 11,200,530
Yankee BBB A3 1,000,000 People's Republic of China, 6.625% due
Sovereign*-- 1/15/2003 (a) 995,250 980,830
4.6% Province of Quebec (a):
A+ A2 2,000,000 7.50% due 7/15/2002 2,035,231 2,060,800
A+ A2 500,000 8.80% due 4/15/2003 557,013 550,305
----------- -----------
3,587,494 3,591,935
Total Corporate Bonds & Notes--91.6% 70,229,911 71,197,700
Short-Term Securities
Repurchase 1,286,000 UBS Securities Funding, Inc., purchased on
Agreements** 12/31/1996 to yield 6.75% to 1/02/1997 1,286,000 1,286,000
- --1.7%
Total Short-Term Securities--1.7% 1,286,000 1,286,000
Total Investments--97.2% $74,609,447 75,557,140
===========
Other Assets Less Liabilities--2.8% 2,191,281
-----------
Net Assets--100.0% $77,748,421
===========
*Corresponding industry groups for foreign bonds which are
denominated in US dollars:
(a)Government entity.
(b)Financial institution.
(c)Industrial; mining.
(d)Industrial; steel.
(e)Industrial; other.
**Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
***Formerly The Walt Disney Company.
++Floating Rate Note.
+++Restricted security as to resale. The value of the Program's
investment in restricted securities was approximately $5,217,000,
representing 6.7% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Bangkok Bank Public Company Ltd., 7.25% due 9/15/2005 9/22/1995 $ 992,080 $ 977,740
Disney Enterprises Inc., 6.85% due 1/10/2007 12/18/1996 499,666 499,645
Equitable Life Assurance Society of the US:
6.95% due 12/01/2005 10/17/1996 473,549 490,490
7.70% due 12/01/2015 6/11/1996 993,233 999,580
First Union Capital, 7.85% due 1/01/2027 1/27/1996 1,247,825 1,247,825
Petroliam Nasional Berhad, 6.875% due 7/01/2003 7/25/1995 990,862 1,001,430
Total $5,197,215 $5,216,710
========== ==========
</TABLE>
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
22
<PAGE>
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Statement of Assets and Liabilities as of December 31, 1996
<S> <C> <C>
Assets:
Investments, at value (identified cost--$74,609,447) (Note 1a) $ 75,557,140
Receivables:
Securities sold $ 2,295,713
Interest 1,327,512
Capital shares sold 13,496 3,636,721
------------
Prepaid registration fees and other assets (Note 1d) 138,626
------------
Total assets 79,332,487
------------
Liabilities:
Payables:
Securities purchased 1,249,188
Capital shares redeemed 58,672
Investment adviser (Note 2) 34,134 1,341,994
------------
Accrued expenses and other liabilities 242,072
------------
Total liabilities 1,584,066
------------
Net Assets $ 77,748,421
============
Net Assets Consist of:
Common Stock, $.01 par value, 50,000,000 shares authorized $ 37,576
Paid-in capital in excess of par 78,529,617
Accumulated realized capital losses on investments--net (Note 5) (1,766,465)
Unrealized appreciation on investments--net 947,693
------------
Net Assets--Equivalent to $20.69 per share based on 3,757,574 shares outstanding $ 77,748,421
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Statement of Operations for the Year Ended December 31, 1996
<S> <C> <C>
Investment Income (Note 1c):
Interest and premium and discount earned $ 5,655,919
Expenses:
Investment advisory fees (Note 2) $ 405,367
Transfer agent fees 253,609
Printing and shareholder reports 70,744
Registration fees (Note 1d) 50,992
Professional fees 44,942
Accounting services (Note 2) 35,910
Custodian fees 22,720
Directors' fees and expenses 15,936
Pricing fees 4,591
Other 4,388
------------
Total expenses 909,199
------------
Investment income--net 4,746,720
------------
Realized & Unrealized Gain (Loss) on Investments--Net (Notes 1c & 3):
Realized gain on investments--net 1,212,168
Change in unrealized appreciation on investments--net (4,788,096)
------------
Net Increase in Net Assets Resulting from Operations $ 1,170,792
============
See Notes to Financial Statements.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Statements of Changes in Net Assets
For the Year Ended Dec. 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <C> <C>
Operations:
Investment income--net $ 4,746,720 $ 5,184,782
Realized gain on investments--net 1,212,168 1,240,812
Change in unrealized appreciation/depreciation on investments--net (4,788,096) 8,819,279
------------ ------------
Net increase in net assets resulting from operations 1,170,792 15,244,873
------------ ------------
Dividends to Shareholders (Note 1e):
Investment income--net (4,746,847) (5,184,682)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (4,746,847) (5,184,682)
------------ ------------
Capital Share Transactions (Note 4):
Net decrease in net assets resulting from capital share transactions (4,077,674) (7,545,314)
------------ ------------
Net Assets:
Total increase (decrease) in net assets (7,653,729) 2,514,877
Beginning of year 85,402,150 82,887,273
------------ ------------
End of year* $ 77,748,421 $ 85,402,150
============ ============
*Undistributed investment income--net $ -- $ 100
============ ============
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
The Corporate Fund Accumulation Program, Inc.
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 21.59 $ 19.14 $ 21.55 $ 21.22 $ 21.76
-------- -------- -------- -------- --------
Investment income--net 1.23 1.28 1.18 1.31 1.46
Realized and unrealized gain (loss) on investments--net (.90) 2.45 (2.41) 1.24 (.03)
-------- -------- -------- -------- --------
Total from investment operations .33 3.73 (1.23) 2.55 1.43
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (1.23) (1.28) (1.18) (1.29) (1.47)
Realized gain on investments--net -- -- -- (.93) (.50)
-------- -------- -------- -------- --------
Total dividends and distributions (1.23) (1.28) (1.18) (2.22) (1.97)
-------- -------- -------- -------- --------
Net asset value, end of year $ 20.69 $ 21.59 $ 19.14 $ 21.55 $ 21.22
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 1.69% 20.05% (5.78%) 12.20% 6.86%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses 1.12% 1.01% 1.10% 1.08% 1.12%
======== ======== ======== ======== ========
Investment income--net 5.84% 6.23% 5.80% 5.74% 6.72%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $ 77,748 $ 85,402 $ 82,887 $115,367 $ 90,892
======== ======== ======== ======== ========
Portfolio turnover 77% 104% 122% 132% 65%
======== ======== ======== ======== ========
See Notes to Financial Statements.
</TABLE>
24
<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 management investment company. The following
is a summary of significant accounting policies followed by the
Program.
(a) Valuation of securities--Portfolio securities are valued on the
basis of prices furnished by one or more pricing services which
determine prices for normal, institutional-size trading units. In
certain circumstances, portfolio securities are valued at the last
sale price on the exchange that is the primary market for such
securities, or the last quoted bid price for those securities for
which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day.
Obligations with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value, unless
this method no longer produces fair valuations. Securities for which
there exists no price quotations or valuations and all other assets
are valued at fair value as determined in good faith by or on behalf
of the Board of Directors of the Program.
(b) 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, L.P. ("FAM") The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Program's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Program. For such
services, the Program pays a monthly fee of 0.50%, on an annual
basis, of the value of the Program's average daily net assets.
FAM has entered into an Administrative Agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), Prudential Securities, Inc.,
Dean Witter Reynolds Inc., and Smith Barney, Inc. (the "Administrators"),
whereby the Administrators perform certain administrative duties on
behalf of FAM. The Administrators receive a monthly fee from FAM
equal to 0.20%, on an annual basis, of the Program's average daily
net assets.
25
<PAGE>
The Corporate Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
During the year ended December 31, 1996, the Program paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $3,118 for
security price quotations to compute the net assets value of the
Program.
Accounting services are provided to the Program by FAM at cost.
Certain officers and/or directors of the Program are officers and/or
directors of FAM, PSI, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1996 were $59,233,081 and
$62,940,819, respectively.
Net realized and unrealized gains as of December 31, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $1,212,168 $ 947,693
---------- ----------
Total $1,212,168 $ 947,693
========== ==========
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $947,693 of which $1,334,352 related
to appreciated securities and $386,659 related to depreciated
securities. The aggregate cost of investments at December 31, 1996
for Federal income tax purposes was $74,609,447.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 943,053 $ 19,538,783
Shares issued to
shareholders in
reinvestment of
dividends 221,170 4,567,096
------------ ------------
Total issued 1,164,223 24,105,879
Shares redeemed (1,362,008) (28,183,553)
------------ ------------
Net decrease (197,785) $ (4,077,674)
============ ============
For the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 691,078 $ 14,241,386
Shares issued to
shareholders in
reinvestment of
dividends 236,055 4,837,718
------------ ------------
Total issued 927,133 19,079,104
Shares redeemed (1,302,627) (26,624,418)
------------ ------------
Net decrease (375,494) $ (7,545,314)
============ ============
5. Capital Loss Carryforward:
At December 31, 1996, the Program had a net capital loss
carryforward of approximately $1,766,000, all of which expires in
2002. This amount will be available to offset like amounts of any
future taxable gains.
26
<PAGE>
- ------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- --------------------------------
--------------------------------
INDEX
--------------------------------
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Investment Objectives and Policies............. 2
Investment Restrictions........................ 4
Investment Advisory Agreement.................. 6
Directors and Officers......................... 9
Net Asset Value................................ 11
Redemption of Shares........................... 12
Taxes and Distributions........................ 13
Portfolio Transactions......................... 14
Performance Data............................... 15
General Information............................ 15
Ratings of Corporate Obligations............... 16
Independent Auditors' Report................... 19
Financial Statements........................... 20
</TABLE>
----------------------------------------------------
THE
CORPORATE
FUND
INVESTMENT
ACCUMULATION
PROGRAM
--------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 25, 1997
--------------------------------------
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2000
