<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
SECURITIES ACT FILE NO. 2-57060
INVESTMENT COMPANY ACT FILE NO. 811-2642
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 25 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 21 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
THE CORPORATE FUND ACCUMULATION
PROGRAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2000
ARTHUR ZEIKEL
THE CORPORATE FUND ACCUMULATION PROGRAM, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. HENNEWINKEL, ESQ. LEONARD B. MACKEY, JR., ESQ.
FUND ASSET MANAGEMENT, L.P. ROGERS & WELLS LLP
BOX 9011 200 PARK AVENUE
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, N.Y. 10166
</TABLE>
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
------------------------
Title of Securities Being Registered: Common Stock
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any such State.
[LOGO]
SUBJECT TO COMPLETION, DATED MARCH 1, 1999
PRELIMINARY PROSPECTUS
The Corporate Fund Investment Accumulation Program
April [], 1999
This Prospectus contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for future
reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Table of Contents
PAGE
KEY FACTS
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The Corporate Fund Investment Accumulation Program at a Glance ............. 2
Risk/Return Bar Chart ...................................................... 4
Fees and Expenses .......................................................... 5
DETAILS ABOUT THE PROGRAM
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How the Program Invests .................................................... 6
Investment Risks ........................................................... 7
YOUR ACCOUNT
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Participation in the Program ............................................... 15
How to Buy, Sell, Transfer and Exchange Shares ............................. 17
MANAGEMENT OF THE PROGRAM
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Fund Asset Management ...................................................... 20
Financial Highlights ....................................................... 22
FOR MORE INFORMATION
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Shareholder Reports ................................................ Back Cover
Statement of Additional Information ................................ Back Cover
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
Key Facts
In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined the highlighted terms in this prospectus
in the sidebar.
Fixed-Income Securities -- securities that pay a fixed rate of interest or a
fixed dividend.
Corporate Bonds or Notes -- fixed-income debt securities issued by corporations,
as distinct from securities issued by a government or its agencies or
instrumentalities.
Investment Grade -- any of the four highest debt obligation ratings by
recognized rating agencies, including Moody's Investors Service, Inc., Standard
& Poor's or Fitch IBCA, Inc.
Foreign Securities -- securities issued by a foreign corporation or government,
as distinct from securities issued by a U.S. corporation or the U.S. government.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM AT A GLANCE
What is the Program?
The Program invests distributions made to holders of units of the Corporate
Income Fund, International Bond Fund and the Corporate Investment Trust Fund.
Holders of units of these unit trust funds may elect to have their distributions
reinvested in shares of the Program rather than paid in cash. The Program is not
open to investment by persons who are not holders of units of the participating
unit trust funds and investments in the Program are limited to reinvestment of
distributions.
What are the Program's objectives and goals?
The investment objective of the Program is to provide shareholders with a high
level of current income by investing in long-and intermediate-term fixed-income
securities that are primarily corporate bonds. In other words, the Program's
main goal is to generate current income. The Program cannot guarantee that it
will achieve its goal.
What are the Program's main investment strategies?
The Program invests primarily in a diversified portfolio of long- and
intermediate-term fixed-income securities. The Program will invest at least 80%
of its total assets in corporate bonds. The Program will only invest in
investment grade securities and when purchasing investments at least 75% of the
securities in which the Program will invest will be in the three highest rating
categories. The Program may also invest up to 25% of its total assets in foreign
securities. When choosing investments, the Program management considers various
factors, including credit quality of issuers, yield analysis, diversification,
and industry classification.
What are the main risks of investing in the Program?
As with any mutual fund, the value of the Program's investments, and therefore
the value of Program shares, may go up or down. These changes may occur in
response to interest rate changes or in response to other factors that may
affect a particular issuer or obligation. Generally, when interest rates go up,
the value of fixed-income instruments goes down. The Program faces additional
risks when it invests in foreign instruments, including the possibility of
substantial volatility due to adverse political, economic or other developments.
If the value of the Program's investments goes down, you may lose money.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
2
<PAGE>
Key Facts
The Program may invest its assets in foreign securities, which may involve
additional risks beyond those of U.S. Securities, such as changes in foreign
currency exchange rates, liquidity risk, and political, social and economic
instability.
Who should invest?
Investment in shares of the Program provides for the automatic reinvestment of
distributions made to holders of units of certain unit trust funds. The Program
may be an appropriate investment for you if you:
o Want to automatically reinvest distributions you receive from a
participating unit trust fund.
o Are looking for an investment that provides income.
o Want a professionally managed and diversified portfolio without the
administrative burdens of direct investments in corporate bonds.
o Are willing to accept the risk of loss of income and principal, caused
by negative economic developments, changes in interest rates or
adverse changes in the price of bonds in general.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
3
<PAGE>
Key Facts
RISK/RETURN BAR CHART
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The bar chart and table shown below provide an indication of the risks of
investing in the Program. The bar chart shows changes in the Program's
performance for the past ten calendar years. The table compares the average
annual total returns of the Program's shares for one, five and ten years with
those of the Merrill Lynch Corporate Master Bond Index. How the Program
performed in the past is not necessarily an indication of how the Program will
perform in the future.
[THE FOLLOWING WAS PRESENTED AS A BAR CHART IN THE PRINTED MATERIALS.]
12.87% 7.19% 15.60% 6.86% 12.20% -5.78% 20.05% 1.69% 8.30% 8.24%
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the ten-year period shown in the bar chart, the highest return for a
quarter was 7.40% (quarter ended June 30, 1989) and the lowest return for a
quarter was -4.75% (quarter ended March 31, 1994).
Average Annual Total
Returns (for the
calendar year ended Past Past Past
December 31, 1998) One Year Five Years Ten Years
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The Corporate Fund Accumulation Program 8.24% 6.16% 8.50%
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Merrill Lynch Corporate Master
Bond Index* 8.72% 7.83% 9.98%
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* This unmanaged Index is comprised of all industrial bonds rated BBB3 or
higher, of all maturities. Past performance is not predictive of future
performance.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
4
<PAGE>
Key Facts
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid directly by the shareholder:
Shareholder fees -- fees paid directly from your investment. These include sales
charges which you may pay when you buy or sell shares of the Program.
Expenses paid indirectly by the shareholder (These costs are deducted from the
Program's total assets):
Annual Program Operating Expenses -- expenses that cover the costs of operating
the Program.
Management Fee -- a fee paid to the Investment Adviser for managing the Program.
FEES AND EXPENSES
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This table shows the different fees and expenses that you may pay if you buy and
hold shares of the Program. Future expenses may be greater or less than those
indicated below.
Shareholder Fees
(fees paid directly from your investment):
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Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering price) None
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Maximum Deferred Sales Charge (Load) (as
a percentage of original purchase price or
redemption proceeds, whichever is lower) None
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Maximum Sales Charge (Load) imposed on
Dividend Reinvestments None
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Redemption Fee None
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Exchange Fee None
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Maximum Account Fee None
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Annual Program Operating Expenses
(expenses that are deducted from Fund
assets):
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Management Fee 0.50%
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Distribution and/or Service (12b-1) Fees None
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Other Expenses (including transfer agency fees) 0.50%
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Total Annual Program Operating Expenses 1.00%
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Example:
This example is intended to help you compare the cost of investing in the
Program with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Program for the time
periods indicated, that your investment has a 5% return each year and that the
Program's operating expenses remain the same. This assumption is not meant to
indicate you will receive a 5% annual rate of return. Your annual return may be
more or less than the 5% used in this example. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- - --------------------------------------------------------------------------------
$ 102 $ 318 $ 552 $ 1225
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
5
<PAGE>
Details About the Program
ABOUT THE
PORTFOLIO MANAGER
Christopher G. Ayoub is a Senior Vice President and portfolio manager of the
Program. Mr. Ayoub has served as First Vice President of Merrill Lynch Asset
Management since 1997, was a Vice President from 1985 to 1997, and Assistant
Vice President from 1984 to 1985.
ABOUT THE
INVESTMENT ADVISER
The Program is managed by Fund Asset Management, L.P.
HOW THE PROGRAM INVESTS
The investment objective of the Program is to seek to provide shareholders with
a high level of current income. In other words, the Program's main goal is to
generate current income. The Program invests in a diversified portfolio of
fixed-income securities, such as corporate and government issued bonds,
asset-backed securities, debentures, notes and other debt obligations. Such
securities may be secured or unsecured, or may be subordinated to other
indebtedness.
The Program will invest its total assets in corporate bonds. The Program will
only invest in investment grade securities and at the time of purchase at least
75% of the securities in which the Program will invest will, at the time of
acquisition, be rated in the three highest rating categories ("A" or better).
Under current market and other conditions, the Board of Directors of the Program
has determined that the Program will not purchase fixed-income securities if one
or more of the recognized rating agencies has rated the security below
investment grade. However, the Program may continue to hold securities which,
after being purchased by the Program, are downgraded to a rating below that
which the Program primarily invests. The Program does not intend to invest in
common stocks or other equity securities.
As a temporary measure for defensive purposes, or to provide liquidity, the
Program may invest without limitation in short-term instruments. Short-term
investments may limit the potential for income on your shares.
The Program may invest up to 25% of its assets in foreign securities.
The Program may also lend its portfolio securities, invest in repurchase
agreements and make forward commitments. For further information on these
investments, see the Statement of Additional Information.
Program management considers a variety of factors when choosing investments,
such as:
o Credit Quality of Issuers--based on bond ratings and other factors including
economic and financial conditions.
o Yield Analysis--takes into account factors such as the different yields
available on different types of obligations and the shape of the yield curve
(longer term obligations typically have higher yields).
o Diversification--The Program will not concentrate its investments in a single
industry, attempting to diversify its investments, taking into consideration
availability in the market of investments meeting the Program's other
investment criteria.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
6
<PAGE>
INVESTMENT RISKS
- - --------------------------------------------------------------------------------
This section contains a summary discussion of the general risks of investing in
the Program. As with any mutual fund, there can be no guarantee that the Program
will meet its goals or that the Program's performance will be positive for any
period of time.
Market and Selection Risk--Market risk is the risk that the bond markets will go
down in value, including the possibility that the markets will go down sharply
and unpredictably. Selection risk is the risk that the investments that Program
management selects will underperform the market or other funds with similar
investment objectives and investment strategies.
Credit Risk--Credit risk is the risk that the issuer of debt securities will be
unable to pay the interest or principal when due. The degree of credit risk
depends on both the financial condition of the issuer and the terms of the
obligation. This risk will be greater for the portion of the Program's assets
that are invested in debt securities rated "BBB" by Standard & Poor's or Fitch
or "Baa" by Moody's.
Interest Rate Risk--Interest rate risk is the risk that prices of fixed-income
securities generally increase when interest rates decline and decrease when
interest rates increase. Prices of longer term securities generally change more
in response to interest rate changes than prices of shorter term securities.
Risks associated with certain types of obligations in which the Program may
invest include:
Foreign Market Risk--Because the Program may invest in foreign securities, the
Program offers you more diversification than an investment only in the United
States since prices of securities traded on foreign markets have often, though
not always, moved counter to prices in the United States. Foreign security
investment, however, involves special risks not present in U.S. investments that
can increase the chances that the Program will lose money. In particular, the
Program is subject to the risk that because there are generally fewer investors
on foreign exchanges and a smaller number of shares traded each day, it may make
it difficult for the Program to buy and sell securities on those exchanges. In
addition, prices of foreign securities may go up and down more than prices of
securities traded in the United States.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
7
<PAGE>
Details About the Program
Foreign Economy Risk--The economies of certain foreign markets often do not
compare favorably with that of the United States with respect to such issues as
growth of gross national product, reinvestment of capital, resources, and
balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, changes in international trading patterns trade barriers, and
other protectionist or retaliatory measures. Investments in foreign markets may
also be adversely affected by governmental actions such as the imposition of
capital controls, nationalization of companies or industries, expropriation of
assets, or the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain industries. Any of these
actions could severely affect security prices, impair the Program's ability to
purchase or sell foreign securities or transfer the Program's assets or income
back into the United States, or otherwise adversely affect the Program's
operations. Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government securities,
difficulties in enforcing favorable legal judgments in foreign courts, and
political and social instability. Legal remedies available to investors in
certain foreign countries may be less extensive than those available to
investors in the United States or other foreign countries.
Currency Risk and Exchange Risk--Securities in which the Program invests are
usually denominated or quoted in currencies other than the U.S. dollar. Changes
in foreign currency exchange rates will affect the value of the securities of
the Program. Generally, when the U.S. dollar rises in value against a foreign
currency, your investment in a security denominated in that currency loses value
because the currency is worth fewer U.S. dollars. Similarly when the U.S. dollar
deceases in value against a foreign currency, your investment in a security
denominated in that currency gains value because the currency is worth more U.S.
dollars. This risk is generally known as "currency risk" which is the
possibility that a stronger U.S. dollar will reduce returns for U.S. investors
investing overseas and a weak U.S. dollar will increase returns for U.S.
investors investing overseas.
Governmental Supervision and Regulation/Accounting Standards--Many foreign
governments supervise and regulate brokers and the sale of securities less than
the United States does. Other countries may not have laws to protect investors
the way that the U.S. securities laws do. For example, some foreign countries
may have no laws or rules against
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
8
<PAGE>
insider trading. Insider trading occurs when a person buys or sells a company's
securities based on non-public information about that company. Accounting
standards in other counties are not necessarily the same as in the United
States. If the accounting standards in another country do not require as much
detail as U.S. accounting standards, it may be harder for Program management to
completely and accurately determine a company's financial condition. Also.
brokerage commissions and other costs of buying or selling securities often are
higher in foreign countries than they are in the United States. This reduces the
amount the Program can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United States--The Program
generally holds the foreign securities in which it invests outside the United
States in foreign banks and securities depositories. Some foreign banks and
securities depositories may be recently organized or new to the foreign custody
business. In addition, there may be limited or no regulatory oversight over
their operations. Also, the laws of certain countries may put limits on the
Program's ability to recover its assets if a foreign bank, depository or issuer
of a security, or any of their agents, goes bankrupt. In addition, it is often
more expensive for the Program to buy, sell and hold securities in certain
foreign markets than in the U.S. The increased expense of investing in foreign
markets reduces the amount the Program can earn on its investments and typically
results in a higher operating expense ratio for the Program than investment
companies invested only in the United States.
Settlement and clearance procedures in certain foreign markets differ
significantly from those in the United States. Foreign settlement and clearance
procedures and trade regulations also may involve certain risks (such as delays
in payment for or delivery of securities) not typically involved with the
settlement of U.S. investments. Communications between the United States and
emerging market countries may be unreliable, increasing the risk of delayed
settlements or losses of security certificates. Settlements in certain foreign
countries at times have not kept pace with the number of securities
transactions; these problems may make it difficult for the Program to carry out
transactions. If the Program cannot settle or is delayed in settling a purchase
of securities, it may miss attractive investment opportunities and certain of
its assets may be uninvested with no return earned for some period. If the
Program cannot settle or is delayed in settling a sale of securities, it may
lose money if the value of the security then declines or, if it has contracted
to sell the security to another party, the Program could be liable to that party
for any losses incurred.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
9
<PAGE>
Details About the Program
Dividends or interest on, or proceeds from sales of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax considerations may
apply.
Emerging Markets Risk--The risks of foreign investments are usually much greater
for emerging markets. Investments in emerging markets may be considered
speculative. Emerging markets include those in countries defined as emerging or
developing by the World Bank, the International Finance Corporation, or the
United Nations. Emerging markets are riskier because they develop unevenly and
may never fully develop. They are more likely to experience hyperinflation and
currency devaluations, which adversely affects returns to U.S. investors. In
addition. the securities markets in many of these countries have far lower
trading volumes and less liquidity than developed markets. Since these markets
are so small, they may be more likely to suffer sharp and frequent price changes
or long-term price depression because of adverse publicity, investor
perceptions, or the actions of a few large investors. In addition, traditional
measures of investment value used in the United States, such as price to
earnings ratios, may not apply to certain small markets.
Many emerging markets have histories of political instability and abrupt changes
in policies. As a result, their governments are more likely to take actions that
are hostile or detrimental to private enterprise or foreign investment than
those of more developed countries. Certain emerging markets may also face other
significant internal or external risks, including the risk of war, and ethnic,
religious, and racial conflicts. In addition, governments in many emerging
market countries participate to a significant degree in their economies and
securities markets, which may impair investment and economic growth.
Sovereign Debt--The Program may invest in sovereign debt securities issued or
guaranteed by foreign government entities. Investments in sovereign debt
subjects the Program to a higher degree of risk that a government entity may
delay or refuse payment of interest or repayment of principal on its sovereign
debt. A government may fail to make payment for many reasons including cash flow
problems, lack of foreign exchange, political constraints, the relative size of
its debt positions to its economy or its failure to put in place economic
reforms required by the International Monetary Fund or other multilateral
agencies as a condition to their contributions to the government entity. If a
government entity fails to make its payments, the
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
10
<PAGE>
Program may be requested to extend the period in which the government entity
must pay and to make further loans to the government entity. There is no
bankruptcy proceeding by which all or part of sovereign debt that a government
entity has not repaid may be collected.
European Economic and Monetary Union ("EMU")--Certain European countries have
agreed to enter into EMU in an effort to, among other things, reduce barriers
between countries, increase competition among companies, reduce government
subsidies in certain industries, and reduce or eliminate currency fluctuations
among these countries. Among other things, EMU establishes a single common
European currency (the "euro") that was introduced on January 1, 1999 and is
expected to replace the existing national currencies of all EMU participants by
July 1, 2002. Upon introduction of the euro, certain securities (beginning with
government and corporate bonds) will be redenominated in the euro, and,
thereafter, will be listed, trade and make dividend and other payments only in
euros. Although EMU is generally expected to have a beneficial effect, it could
negatively affect the Program in a number of situations, including as follows:
o Withdrawal from EMU by a participating country could also have a
negative effect on the Program's investments. for example if
securities redenominated in euros are transferred back into that
country's national currency.
o Computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency. Like other investment
companies and business organizations, the Program could be adversely
affected if the systems used by the Investment Adviser, the Program's
other service providers, or entities with which the Program or its
service providers do business do not properly recognize the euro as a
distinct currency.
These issues may negatively affect the operations of the companies the Program
invests in as well.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
11
<PAGE>
Details About the Program
Collateralized Mortgage Obligations--The Program may invest in collateralized
mortgage obligations ("CMOs"), which are pass-through securities collateralized
by mortgage pools. CMOs are created by dividing the principal and interest
payments collected on a pool of mortgages into several revenue streams
(tranches) with different priority rights to portions of the underlying mortgage
payments. In general, mortgage backed securities represent the right to
receive a portion of principal and/or interest payments made on a pool of
residential or commercial mortgage loans. When interest rates fall, borrowers
may refinance or otherwise repay principal on their mortgages earlier than
scheduled. When this happens, certain types of mortgage backed securities will
be paid off more quickly than originally anticipated and the Program has to
invest the proceeds in securities with lower yields. This risk is known as
"prepayment risk." When interest rates rise. certain types of mortgage backed
securities will be paid off more slowly than originally anticipated and the
value of these securities will fall. This risk is known as extension risk.
Because of prepayment risk and extension risk, mortgage backed securities react
differently to changes in interest rates than other fixed income securities.
Small movements in interest rates (both increase and decrease) may quickly and
significantly reduce the value of certain mortgage backed securities.
Most mortgage backed securities are issued by federal government agencies, such
as the Government National Mortgage Association (Ginnie Mae), the Federal Home
Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage
Associations (Fannie Mae). Principal and interest payments on mortgage backed
securities issued by federal government agencies are guaranteed by either the
federal government or a government agency. This means that such securities have
very little credit risk. Other mortgage backed securities are issued by private
corporations rather than federal agencies. Private mortgage backed securities
have credit risk as well as prepayment risk and extension risk.
Certain CMO tranches may represent a right to receive interest only (IOs),
principal only (POs) or an amount that remains after other floating-rate
tranches are paid (an inverse floater). These securities are frequently referred
to as "mortgage derivatives" and may be extremely sensitive to changes in
interest rates. If the Program invests in CMO tranches (including CMO tranches
issued by government agencies) and interest rates move in a manner not
anticipated by Program management, it is possible that the Program could lose
all or substantially all of its investment.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
12
<PAGE>
Restricted Securities--The Program may invest up to 10% of its total assets in
restricted securities. Restricted securities have contractual or legal
restrictions on their resale. They include private placement securities that the
Program buys directly from the issuer. Private placement and other restricted
securities may not be listed on an exchange and may have no active trading
market.
Restricted securities may be illiquid. The Program may be unable to sell them on
short notice or may be able to sell them only at a price below current value.
The Program may get only limited information about the issuer, so may be less
able to predict a loss. In addition, if Program management receives material
adverse non public information about the issuer, the Program will not be able to
sell the security.
When-Issued Securities, Delayed-Delivery Securities and Forward
Commitments--When-issued and delayed-delivery securities and forward commitments
involve the risk that the security the Program buys will lose value prior to its
delivery. There also is the risk that the security will not be issued or that
the other party will not meet its obligation. If this occurs, the Program both
loses the investment opportunity for the assets it has set aside to pay for the
security and any gain in the security's price.
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. The bank or dealer agrees to
repurchase the security from the Program at a set time and price, which sets the
yield. If the bank or dealer defaults, the Program may suffer time delays and
incur costs and possible losses.
Securities Lending--The Program may lend securities to financial institutions
which provide government securities as collateral. Securities lending involves
the risk that the borrower may fail to return the securities in a timely manner
or at all. As a result, the Program may lose money and there may be a delay in
recovering the loaned securities. The Program could also lose money if it does
not recover the securities and the value of the collateral falls. These events
could trigger tax consequences to the Program.
Illiquid Investments--The Program may invest up to 15% of its assets in illiquid
securities that it cannot easily resell within seven days at current value or
that have contractual or legal restrictions on resale. If the Program buys
illiquid securities it may be unable to quickly resell them or may be able to
sell them only at a price below current value.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
13
<PAGE>
Details About the Program
Borrowing and Leverage--The Program may borrow for temporary emergency purposes
including to meet redemptions. Borrowing may exaggerate changes in the net asset
value of Program shares and in the yield on the Program's portfolio. Borrowing
will cost the Program interest expense and other fees. The costs of borrowing
may reduce the Program's return. Certain securities that the Program buys may
create leverage including, for example, when-issued securities and forward
commitments.
STATEMENT OF ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------
If you would like further information about the Program, including how it
invests, please see the Statement of Additional Information.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
14
<PAGE>
Your Account
PARTICIPATION IN THE PROGRAM
The purpose of the Program is to permit you to reinvest distributions you
receive on units you hold of certain unit trust funds. The unit trust funds
include all series of the Corporate Income Fund, International Bond Fund and the
Corporate Investment Trust Fund. Distributions will be paid to you in cash
unless you elect to reinvest the distributions in shares of the Program by
sending written notice to the program agent. The program agent is The Bank of
New York, 101 Barclay Street, New York, N.Y. 10007. You may also change an
election you have made to participate in the Program by notifying the program
agent. Notices received by the program agent will be effective for the first
distribution having a record date at least 10 days after receipt.
Distributions on units of the unit trust funds may consist of interest income or
capital gains or principal on the units. You may elect to have some or all of
these distributions reinvested in shares of the Program. Any distribution that
you elect to have reinvested in shares of the Program will be automatically
reinvested by the program agent on your behalf on the date the distribution is
made. On that date, the distribution will be applied to the purchase of shares
of the Program at net asset value, without a sales charge. If you have elected
for distributions of principal on your units to be invested in shares of the
Program, the proceeds of redemption or payment at maturity of securities held in
the unit trust fund represented by your units will be invested in shares of the
Program, rather than being distributed in cash to you.
The program agent will mail to you a report of each distribution that is
reinvested in shares of the Program. Even though distributions are being
reinvested in shares of the Program, for federal income tax purposes, you will
be considered to have received those distributions.
The Board of Directors of the Program may decide to change the terms of
investment in shares of the Program or terminate the Program entirely without
notice to you. In addition, the Board of Directors of the Program may appoint a
substitute program agent or an additional program agent
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
15
<PAGE>
Your Account
The administrators of the Program are Merrill Lynch, Pierce Fenner & Smith
Incorporated, Prudential Securities Incorporated, Morgan Stanley Dean Witter
Inc. and Salomon Smith Barney Inc. The Administrators are the sponsors of the
unit trust funds.
For further details of the terms and conditions of the Program see the Statement
of Additional Information.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
16
<PAGE>
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart below summarizes how to buy, sell, transfer and exchange shares of the
Program
<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buy Shares First, decide whether you want to Refer to the description of the Program on pages
participate in the Program 15-16. Be sure to read this prospectus carefully.
-----------------------------------------------------------------------------------------------------
Next, determine what distributions from Distributions from the unit trust funds may
the unit trust funds you want to consist of interest income, capital gains or
reinvest. principal. You may reinvest the distributions of
interest income or of capital gains or of
principal, or you may reinvest all distributions.
-----------------------------------------------------------------------------------------------------
Notify the program agent of your The notice must be in writing and received by the
election to reinvest some or all program agent at least ten days before the record
distributions you receive from the unit date for the first distribution you want to have
trust funds. reinvested.
-----------------------------------------------------------------------------------------------------
Decide whether your shares will be held Consult your securities dealer. Under certain
in an account with your securities circumstances, your securities dealer may not be
dealer or with the program agent. able to hold your shares in your account with the
securities dealer.
- - -------------------------------------------------------------------------------------------------------------------------
Add to Your Purchase additional shares. Once you have elected to participate in the
Investment Program, distributions from the unit trust funds
that you have elected to have reinvested in the
Program will be automatically reinvested. If you
have not already elected to have all distributions
reinvested, you may notify the program agent that
you wish to reinvest more of your distributions.
-----------------------------------------------------------------------------------------------------
Acquire additional shares through the All dividends and capital gains distributions are
Program's automatic dividend automatically reinvested without a sales charge.
reinvestment plan.
- - -------------------------------------------------------------------------------------------------------------------------
Stop Reinvesting Notify the program agent in Your election to stop reinvesting some or all
Distributions in writing. distributions from the unit trust funds in shares
Shares of the of the Program will be effective for any
Program distribution that has a record date that is more
than ten days after the program agent receives
your written notice.
- - -------------------------------------------------------------------------------------------------------------------------
Transfer Shares Transfer to a participating You may transfer your shares of the Program only
to Another securities dealer to another securities dealer that has entered into
Securities Dealer an agreement with Merrill Lynch, Pierce, Fenner &
Dealer Smith Incorporated. All future trading of these assets
must be coordinated by the receiving firm.
-----------------------------------------------------------------------------------------------------
Transfer to a non-participating securities You must either:
dealer. o Transfer your shares to an account with the
program agent; or
o Sell your shares.
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
17
<PAGE>
Your Account
<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sell Your Shares Have your securities dealer submit your The price of your shares is based on the next
sales order to one of the calculation of net asset value after your order is
Administrators. placed. For your redemption request to be priced
at the net asset value on the day of your request,
you must submit your request to your dealer prior
to that day's close of business on the New York
Stock Exchange (generally 4:00 p.m. Eastern time).
Any redemption request placed from a dealer after
that time will be priced at the net asset value at
the close of business on the next business day.
Dealers must submit redemption requests to one of
the Administrators prior to the close of business
on the New York Stock Exchange.
Securities dealers may charge a fee to process a
redemption of shares. No processing fee is charged
if you redeem shares held by the program agent.
The Program may reject an order to sell shares
under certain circumstances.
----------------------------------------------------------------------------------------------------
Sell through the program agent. You may sell shares held at the program agent by
writing to the program agent at the address on the
inside back cover of this prospectus. With certain
exceptions described in the Statement of
Additional Information, all shareholders on the
account must sign the letter and signatures must
be guaranteed. If you hold stock certificates,
return the certificates with the letter. The
program agent will normally mail redemption
proceeds within seven days following receipt of a
properly completed request.
If you hold share certificates, they must be
delivered to the program agent before they can be
converted. Check with the program agent or your
securities dealer for details.
- - ------------------------------------------------------------------------------------------------------------------------
Exchange Your You may exchange your shares for shares You can exchange your shares of the Program for
Shares of another program. Be sure to read that shares of The Municipal Fund Accumulation Program,
program's prospectus. Inc. You must have held the shares used in the
exchange for at least 60 calendar days before you
can exchange to the other program.
To exercise the exchange privilege, you should
contact one of the administrators or the program
agent.
Although there is currently no limit on the number
of exchanges that you can make, the exchange
privilege may be modified or terminated at any
time in the future.
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
18
<PAGE>
Net Asset Value -- the market value of the Program's total assets after
deducting liabilities, divided by the number of shares outstanding.
Dividends -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Program shares as they are paid.
HOW SHARES ARE PRICED
Each distribution on your units will automatically be applied to purchase shares
at net asset value. Shares are also redeemed at their net asset value, minus any
applicable deferred sales charge. The Program calculates its net asset value
(generally by using market quotations) each day the New York Stock Exchange is
open, fifteen minutes after the close of business on the Exchange (the Exchange
generally closes at 4:00 p.m. Eastern time). The net asset value used in
determining your price is the one calculated after your purchase or redemption
order is placed.
DIVIDENDS AND TAXES
The Program will distribute any net investment income monthly, and any net
realized capital gains annually. If you would like to receive dividends in
cash, contact the program agent.
You will pay tax on dividends from the Program whether you receive them in cash
or additional shares. If you redeem Program shares or exchange them for shares
of The Municipal Fund Accumulation Program, any gain on the transaction may be
subject to tax. The Program intends to make distributions that will either be
taxed as ordinary income or capital gains.Capital gain dividends are generally
taxed at different rates than ordinary income dividends.
By law, the Program must withhold 31% of your dividends if you have not provided
a taxpayer identification number or social security number.
This section summarizes some of the consequences under current federal tax law
of an investment in the Program. It is not a substitute for personal tax advice.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Program under all applicable tax laws.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
19
<PAGE>
Management of the Program
FUND ASSET MANAGEMENT
Fund Asset Management, the Program's Investment Adviser, manages the Program's
investments under the overall supervision of the Program's Board of Directors.
The Investment Adviser has the responsibility for making all investment
decisions for the Program. The Investment Adviser has a sub-advisory agreement
with Merrill Lynch Asset Management U.K. Limited, an affiliate, under which the
Investment Adviser may pay a fee for services it receives. The Program has
agreed to pay the Investment Adviser a fee at the annual rate of 0.50% of the
average daily net assets of the Program. For the fiscal year ended December 31,
1998, the Investment Adviser received a fee of $[ ].
Fund Asset Management is part of Merrill Lynch Asset Management Group, which had
approximately $507 billion in investment company and other portfolio assets
under management as of January 1999. This amount includes assets managed for
Merrill Lynch affiliates.
The Program is also obligated to pay certain expenses incurred in its
operations, including fees of the program agent, legal and auditing fees, fees
and expenses of unaffiliated Directors, custodian and transfer agency fees,
accounting and pricing costs, and certain of the costs of printing proxy
statements, shareholder reports, prospectuses and statements of additional
information. For the fiscal year ended December 31, 1998, the Program's total
expenses were $[ ] (representing 1.00% of its average net assets).
The Investment Adviser, together with the Administrators of the Program, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Prudential Securities Incorporated,
Morgan Stanley Dean Witter Inc., and Salomon Smith Barney Inc. are responsible
for the overall management of the Program's business operations. The
Administrators perform certain management services necessary for the operation
of the Program and provide all the office space, facilities and necessary
personnel for such services. For these services, the Investment Adviser pays the
Administrators an aggregate monthly fee at the annual rate of 0.20% of the
Program's average daily net assets.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
20
<PAGE>
A Note About Year 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Program could be adversely
affected if the computer systems used by the Program's management or other
Program service providers do not properly address this problem before
January 1, 2000. The Program's management expects to have addressed this problem
before then, and does not anticipate that the services it provides will be
adversely affected. The Program's other service providers have told the Program
management that they also expect to resolve the Year 2000 Problem, and Program
management will continue to monitor the situation as the Year 2000 approaches.
However, if the problem has not been fully addressed, the Program could be
negatively affected. The Year 2000 Problem could also have a negative impact on
the companies in which the Program invests, and this could hurt the Program's
investment returns.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
21
<PAGE>
Management of the Program
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Program's
financial performance for the past five years. Certain information reflects
financial results for a single Program share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Program (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Program's financial statements, are included in the Program's annual report
to shareholders, which is available upon request.
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------
Increase (Decrease) in
Net Asset Value 1998 1997 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ $ 20.69 $ 21.59 $ 19.14 $ 21.55
- - -------------------------------------------------------------------------------------------------------------------
Investment income--net 1.22 1.23 1.28 1.18
- - -------------------------------------------------------------------------------------------------------------------
Realized and unrealized
gain (loss) on investments--net .44 (.90) 2.45 (2.41)
- - -------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.66 .33 3.73 (1.23)
- - -------------------------------------------------------------------------------------------------------------------
Less dividends from investment income--net (1.22) (1.23) (1.28) (1.18)
- - -------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ $ 21.13 $ 20.69 $ 21.59 $ 19.14
- - -------------------------------------------------------------------------------------------------------------------
Total Investment Return:
Based on net asset value per share 8.30% 1.69% 20.05% (5.78%)
- - -------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .99% 1.12% 1.01% 1.10%
- - -------------------------------------------------------------------------------------------------------------------
Investment income--net 5.84% 5.84% 6.23% 5.80%
- - -------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of year (in thousands) $ $ 72,381 $ 77,748 $ 85,402 $ 82,887
- - -------------------------------------------------------------------------------------------------------------------
Portfolio turnover 90% 77% 104% 122%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
THE CORPORATE FUND INVESTMENTACCUMULATION PROGRAM
22
<PAGE>
-------------------------------
POTENTIAL
INVESTORS
Elect to have unit trust fund
distributions reinvested in the
Program (two options).
-------------------------------
1 2
-------------------------- --------------------------
ADMINISTRATORS (SEE PROGRAM AGENT
BELOW) OR OTHER SECURITIES The Bank of New York
DEALERS 101 Barclay Street
Arranges for reinvestment. New York, New York 10007
-------------------------- Performs recordkeeping and
reporting services.
--------------------------
----------------------
THE PROGRAM
The Board of Directors
oversees the Program.
----------------------
------------------------ --------------------------
COUNSEL CUSTODIAN AND DIVIDEND
ROGERS & WELLS LLP DISBURSING AGENT
200 Park Avenue The Bank of New York
New York, New York 10166 101 Barclay Street
Provides legal advice New York, New York 10007
to the Program. Holds the Program's assets
------------------------ for safekeeping.
--------------------------
-------------------------------- --------------------------------
INDEPENDENT AUDITORS INVESTMENT ADVISER
Deloitte & Touche LLP Fund Asset
117 Campus Drive Management, L.P.
Princeton, New Jersey 08540-6400
Audits the financial ADMINISTRATIVE OFFICES
statements of the Program on 800 Scudders Mill Road
behalf of the shareholders. Plainsboro, New Jersey 08536
--------------------------------
MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-609-282-2000
Manages the Program's
day-to-day activities.
--------------------------------
-----------------------------------------
ADMINISTRATORS
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Prudential Securities Incorporated
Morgan Stanley Dean Witter Inc.
Salomon Smith Barney Inc.
Assists in supervising all aspects of the
Program's operations.
-----------------------------------------
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
23
<PAGE>
For More Information
Shareholder Reports
Additional information about the Program's investments is available in the
Program's annual and semi-annual reports to shareholders. In the Program's
annual report you will find a discussion of the market conditions and investment
strategies that significantly affected the Program's performance during its last
fiscal year. You may obtain these reports at no cost by calling 1-800-456-4587
ext 789.
The Program will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Program accounts you have. To receive
separate shareholder reports for each account, write to the Program Agent at its
mailing address. Include your name, address, tax identification number and
brokerage or Program account number. If you have any questions, please call your
securities dealer or the Program Agent at 1-800-221-7771
Statement of Additional Information
The Program's Statement of Additional Information contains further information
about the Program and is incorporated by reference (legally considered to be
part of this prospectus). You may request a free copy by writing the Program at
The Bank of New York 101 Barclay Street, New York, New York 10007 or by calling
1-800-221-7771.
Contact your securities dealer or the Program at the telephone number or address
indicated on the inside back cover of this prospectus if you have any questions.
Information about the Program (including the Statement of Additional
Information) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the
public reference room. This information is also available on the SEC's Internet
site at http://www.sec.gov and copies may be obtained upon payment of a
duplicating fee by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with information that is different from information
contained in this Prospectus
Investment Company Act file #811-2642
(C)Fund Asset Management, L.P.
[LOGO] Merrill Lynch
The Corporate Fund Investment Accumulation Program
April , 1999
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such State.
STATEMENT OF ADDITIONAL INFORMATION
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
Shares of Common Stock
------------------------
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 diversified portfolio (the
"Portfolio"), of long- and intemediate-term corporate debt obligations. Shares
of the Program are offered without sales charge to the holders of Units of
certain series of Unit Trust Funds described in the Prospectus in order to
provide a means for the automatic reinvestment of distributions of interest or
dividend income and capital gains and principal on such Units in Shares of the
Program on the Terms and Conditions of Participation set forth herein. The
address of the Program is Box 9011, Princeton, New Jersey 08543-9011, and its
telephone number is (609) 282-2000.
------------------------
INVESTMENT ADVISER
FUND ASSET MANAGEMENT, L.P.
ADMINISTRATORS
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
MORGAN STANLEY DEAN WITTER INC.
SALOMON SMITH BARNEY INC.
------------------------
This Statement of Additional Information of the Program is not a prospectus
and should be read in conjunction with the Prospectus of the Program (the
"Prospectus") dated April [ ], 1999, which has been filed with the Securities
and Exchange Commission and can be obtained without charge by calling or by
writing the Program at the above telephone number or address. The Prospectus is
incorporated by reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by reference into this
Prospectus. The Program's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
------------------------
The date of this Statement of Additional Information is April [ ], 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Program................................................................................................ 2
Investment Objective and Policies.......................................................................... 3
General.................................................................................................. 3
Risk Factors and Special Considerations Relating to Foreign Securities................................... 5
Risk Factors and Special Considerations Relating to Other Portfolio Securities........................... 7
Investment Restrictions.................................................................................... 9
Investment Advisory and Administration Agreements.......................................................... 11
Investment Advisory Agreement............................................................................ 11
The Adviser.............................................................................................. 12
Code of Ethics........................................................................................... 13
Administration Agreement................................................................................. 13
Management of the Program.................................................................................. 15
Directors and Officers................................................................................... 15
Net Asset Value............................................................................................ 16
Redemption of Shares....................................................................................... 17
Exchange Privilege......................................................................................... 18
Taxes and Dividends........................................................................................ 19
Portfolio Transactions..................................................................................... 20
Performance Data........................................................................................... 21
General Information........................................................................................ 22
Organization of the Program.............................................................................. 22
Description of Shares.................................................................................... 22
Independent Auditors..................................................................................... 22
Custodian, Transfer, Program and Dividend Disbursing Agent............................................... 22
Legal Counsel............................................................................................ 22
Reports to Shareholders.................................................................................. 22
Shareholder Inquiries.................................................................................... 23
Additional Information................................................................................... 23
Financial Statements....................................................................................... 23
Ratings of Corporate Obligations........................................................................... 23
</TABLE>
<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" herein and "How the Program Invests" in the
Prospectus for a discussion of the investment objectives and policies of the
Program). This investment objective is a fundamental policy of the Program.
The Corporate Income Fund, International Bond 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. 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
Program's prospectus (the "Prospectus") and may request a copy of the Program's
Statement of Additional Information (the "SAI"); a Holder not participating in
the Program may request a copy of the Prospectus and this SAI. Holders of Units
may elect to participate in the Program or to change a previous election by
notice in writing to the program agent. Notice of any change in the basis of
participation or of election to participate in the Program must be received by
the program agent in writing at least ten days prior to the Record Day for the
first distribution to which such notice is to apply.
Under these Terms and Conditions, both distributions of interest 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 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 Dividends" herein).
In addition to their right to redeem their Shares and receive a payment
equal to the net asset value thereof (see "Redemption of Shares" and "Exchange
Privilege" herein), Shareholders may at any time, by so notifying the Agent in
writing (the Agent will deliver a copy of such notice to the trustee for the
respective series of the Unit Trust Funds), elect to (i) terminate their
participation in the Program and thereafter receive all distributions on their
Units in cash, (ii) terminate their participation in part as to distributions of
capital gains and principal on
2
<PAGE>
their Units and thereafter receive distributions in cash out of the principal
accounts for the respective Unit Trust Funds or (iii) terminate their
participation in part, as to distributions of interest on their Units and
thereafter receive future distributions in cash out of the income accounts for
the respective series.
All the costs of establishing and administering the Program and these Terms
and Conditions are borne by the Program. The administrators of the Program (the
"Administrators") are Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities Incorporated, Morgan Stanley Dean
Witter Inc., and Salomon Smith Barney Inc., which are sponsors of the Corporate
Income Fund and International Bond Fund. Prudential is the sponsor of
outstanding series of the Corporate Investment Trust Fund. The investment
adviser to the Program is Fund Asset Management, L.P. (the "Adviser" or "FAM"),
Box 9011, Princeton, New Jersey 08543-9011, a registered investment adviser and
an affiliate of Merrill Lynch. The Adviser receives as annual compensation,
payable monthly, for its services in connection with the Program a fee of 0.5%
of the average net assets of the Program. The Administrators receive from the
Adviser as annual compensation, payable monthly, for their services in
connection with the Program a fee of 0.2% of the average net assets of the
Program (see "Investment Advisory and Administration Agreements").
The Agent will mail to each Shareholder a report of each transaction
undertaken for such Shareholder in receiving distributions and purchasing
Shares. Distributions on Units which are applied to purchase Shares are
considered to have been distributed to Shareholders for federal income tax
purposes, and all taxes which are payable in respect to such distributions must
be paid by Shareholders regardless of participation in the Program.
On tender for redemption of any or all of his Shares, a Shareholder will be
entitled to receive within seven days a payment representing the net asset value
of the Shares (including fractional Shares), provided that such right of
redemption may be suspended or postponed under certain circumstances described
under "Redemption of Shares" and "Exchange Privilege" herein.
If the Holder is a broker or a nominee of a bank or another financial
institution, the trustee and Agent will apply these Terms and Conditions on the
basis of the respective numbers of Units certified from time to time by such
Holder to be the total numbers of Units registered in such Holder's name and
held for the accounts of beneficial owners who are to participate in the
Program, upon the several bases of participation offered by the Program at the
time. It is anticipated, however that, due to administrative problems connected
with Units held in "street name," other than by Merrill Lynch, such Units will
be registered in the names of the beneficial owners thereof unless such owners
elect not to participate in the Program.
Merrill Lynch or its nominee holds in its name Program Shares for the
accounts of customers whose Unit Trust Funds are held in Merrill Lynch accounts
and who elect to reinvest in the Program. These Shares may be transferred to an
account in the customer's name with the Agent upon request. Merrill Lynch
maintains records identifying the names and addresses of these customers and
their Share balances, and will be compensated for these services by the Agent
out of the fees it receives from the Program. During the fiscal year ended
December 31, 1998, the Agent paid Merrill Lynch $[ ] for these services.
Experience may indicate that changes in these Terms and Conditions are
desirable or that this offering should be terminated. Such changes may be made
or this offering may be terminated at the direction of the Board of Directors of
the Program (the "Board") without notice to any Shareholder. The Board may at
any time appoint a substitute Agent or an additional agent to act for the
Program.
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.
GENERAL
In making the Program's investments, the Adviser considers 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 Ratings Group
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("Standard & Poor's"), Fitch IBCA, 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 "BBB" or "Baa" or better by such
rating agencies or will have, in the opinion of the Adviser, similar credit
characteristics. No split-rating below "BBB" or "Baa" by one or more of
such rating agencies at the time of acquisition will be permitted) (see
"Ratings of Corporate Obligations" below for a description of rating
categories);
(ii) the yield and price of the debt obligations relative to other
debt securities of comparable quality and maturity; and
(iii) the diversification of the debt obligations, subject to the
considerations as to concentration of the Portfolio discussed below, taking
into account the availability on the market of issues in various utility
and industry classifications which meet the Program's quality, rating,
yield and price criteria.
While the Program will invest the proceeds of the sale of its Shares (and
other cash proceeds such as those generated by redemptions, maturities or sales
of portfolio securities) as promptly as possible, some short period of time may
elapse between the time the Program receives such proceeds and the time such
proceeds are invested by the Program. However, the Program reserves the right to
extend such period for defensive purposes. During such period such proceeds may
be held in cash or invested in temporary investments (short-term governmental
obligations, commercial paper, and other short-term 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" below 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.
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RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES
Foreign Market Risk. Because the Program may invest in foreign securities,
the Program offers you more diversification than an investment only in the
United States since prices of securities traded on foreign markets have often,
though not always, moved counter to prices in the United States. Foreign
security investment, however, involves special risks not present in U.S.
investments that can increase the chances that the Program will lose money. In
particular, the Program is subject to the risk that because there are generally
fewer investors on foreign exchanges and a smaller number of shares traded each
day, it may make it difficult for the Program to buy and sell securities on
those exchanges. In addition, prices of foreign securities may go up and down
more than prices of securities traded in the United States.
Foreign Economy Risk. The economies of certain foreign markets often do
not compare favorably with that of the United States with respect to such issues
as growth of gross national product, reinvestment of capital, resources, and
balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, changes in international trading patterns, trade barriers, and
other protectionist or retaliatory measures. Investments in foreign markets may
also be adversely affected by governmental actions such as the imposition of
capital controls, nationalization of companies or industries, expropriation of
assets, or the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain industries. Any of these
actions could severely affect security prices, impair the Program's ability to
purchase or sell foreign securities or transfer the Program's assets or income
back into the United States, or otherwise adversely affect the Program's
operations. Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government securities,
difficulties in enforcing favorable legal judgments in foreign courts, and
political and social instability. Legal remedies available to investors in
certain foreign countries may be less extensive than those available to
investors in the United States or other foreign countries.
Currency Risk and Exchange Risk. Securities in which the Program invests
are usually denominated or quoted in currencies other than the U.S. dollar.
Changes in foreign currency exchange rates will affect the value of the
securities of the Program. Generally, when the U.S. dollar rises in value
against a foreign currency, your investment in a security denominated in that
currency loses value because the currency is worth fewer U.S. dollars. Similarly
when the U.S. dollar decreases in value against a foreign currency, your
investment in a security denominated in that currency gains value because the
currency is worth more U.S. dollars. This risk is generally known as "currency
risk" which is the possibility that a stronger U.S. dollar will reduce returns
for U.S. investors investing overseas and a weak U.S. dollar will increase
returns for U.S. investors investing overseas.
Governmental Supervision and Regulation/Accounting Standards. Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less than the United States does. Other countries may not have laws
to protect investors the way that the U.S. securities laws do. For example, some
foreign countries may have no laws or rules against insider trading. Insider
trading occurs when a person buys or sells a company's securities based on
non-public information about that company. Accounting standards in other
countries are not necessarily the same as in the United States. If the
accounting standards in another country do not require as much detail as U.S.
accounting standards, it may be harder for the Program management to completely
and accurately determine a company's financial condition. Also, brokerage
commissions and other costs of buying or selling securities often are higher in
foreign countries than they are in the United States. This reduces the amount
the Program can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United States. The
Program generally holds the foreign securities in which it invests outside the
United States in foreign banks and securities depositories. Some foreign banks
and securities depositories may be recently organized or new to the foreign
custody business. In addition, there may be limited or no regulatory oversight
over their operations. Also, the laws of certain countries may put limits on the
Program's ability to recover its assets if a foreign bank, depository or issuer
of a security, or any of their agents, goes bankrupt. In addition, it is often
more expensive for the Program to buy, sell and hold securities in certain
foreign markets than in the U.S. The increased expense of investing in foreign
markets reduces the
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amount the Program can earn on its investments and typically results in a higher
operating expense ratio for the Program than investment companies invested only
in the United States.
Settlement and clearance procedures in certain foreign markets differ
significantly from those in the United States. Foreign settlement and clearance
procedures and trade regulations also may involve certain risks (such as delays
in payment for or delivery of securities) not typically involved with the
settlement of U.S. investments. Communications between the United States and
emerging market countries may be unreliable, increasing the risk of delayed
settlements or losses of security certificates. Settlements in certain foreign
countries at times have not kept pace with the number of securities
transactions; these problems may make it difficult for the Program to carry out
transactions. If the Program cannot settle or is delayed in settling a purchase
of securities, it may miss attractive investment opportunities and certain of
its assets may be uninvested with no return earned for some period. If the
Program cannot settle or is delayed in settling a sale of securities, it may
lose money if the value of the security then declines or, if it has contracted
to sell the security to another party, the Program could be liable to that party
for any losses incurred.
Dividends or interest on, or proceeds from sales of, foreign securities may
be subject to foreign withholding taxes, and special U.S. tax considerations may
apply.
Emerging Markets Risk. The risks of foreign investments are usually much
greater for emerging markets. Investments in emerging markets may be considered
speculative. Emerging markets include those in countries defined as emerging or
developing by the World Bank, the International Finance Corporation, or the
United Nations. Emerging markets are riskier because they develop unevenly and
may never fully develop. They are more likely to experience hyperinflation and
currency devaluations, which adversely affects returns to U.S. investors. In
addition, the securities markets in many of these countries have far lower
trading volumes and less liquidity than developed markets. Since these markets
are so small, they may be more likely to suffer sharp and frequent price changes
or long-term price depression because of adverse publicity, investor
perceptions, or the actions of a few large investors. In addition, traditional
measures of investment value used in the United States, such as price to
earnings ratios, may not apply to certain small markets.
Many emerging markets have histories of political instability and abrupt
changes in policies. As a result, their governments are more likely to take
actions that are hostile or detrimental to private enterprise or foreign
investment than those of more developed countries. Certain emerging markets may
also face other significant internal or external risks, including the risk of
war, and ethnic, religious, and racial conflicts. In addition, governments in
many emerging market countries participate to a significant degree in their
economies and securities markets, which may impair investment and economic
growth.
Sovereign Debt. The Program may invest in sovereign debt securities issued
or guaranteed by foreign government entities. Investment in sovereign debt
subjects the Program to a higher degree of risk that a government entity may
delay or refuse payment of interest or repayment of principal on its sovereign
debt. A government may fail to make payment for many reasons including cash flow
problems, lack of foreign exchange, political constraints, the relative size of
its debt positions to its economy or its failure to put in place economic
reforms required by the International Monetary Fund or other multilateral
agencies as a condition to their contributions to the government entity. If a
government entity fails to make its payments, the Program may be requested to
extend the period in which the goverment entity must pay and to make further
loans to the government entity. There is no bankruptcy proceeding by which all
or part of sovereign debt that a government entity has not repaid may be
collected.
European Economic and Monetary Union ("EMU"). For a number of years,
certain European countries have been seeking economic unification that would,
among other things, reduce barriers between countries, increase competition
among companies, reduce government subsidies in certain industries, and reduce
or eliminate currency fluctuations among these European countries. The Treaty on
European Union (the "Maastricht Treaty") seeks to set out a framework for the
European Economic and Monetary Union ("EMU") among the countries that comprise
the European Union ("EU"). Among other things, EMU establishes a single common
European currency (the "euro") that was introduced on January 1, 1999 and is
expected to replace the existing national currencies of all EMU participants by
July 1, 2002. Upon implementation of EMU, certain securities issued in
participating EU countries (beginning with government and corporate bonds) will
be
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redenominated in the euro, and, thereafter, will be listed, traded, and make
dividend and other payments only in euros.
No assurance can be given that the changes planned for the EU can be
successfully implemented or that these changes will result in the economic and
monetary unity and stability intended. There is a possibility that EMU will be
implemented but not completed or will be completed but then partially or
completely unwound. Because any participating country may opt out of EMU within
the first three years, it is also possible that a significant participant could
choose to abandon EMU, which could diminish its credibility and influence. Any
of these occurrences could have adverse effects on the markets of both
participating and non-participating countries, including sharp appreciation or
depreciation of participants' national currencies and a significant increase in
exchange rate volatility, a resurgence in economic protectionism, an undermining
of confidence in the European markets, an undermining of European economic
stability, the collapse or slowdown of the drive toward European economic unity,
and/or reversion of the attempts to lower government debt and inflation rates
that were introduced in anticipation of EMU. Also, withdrawal from EMU at any
time after conversion by an initial participant could cause disruption of the
financial markets as securities redenominated in euros are transferred back into
that country's national currency, particularly if the withdrawing country is a
major economic power. Such developments could have an adverse impact on the
Program's investments in Europe generally or in specific countries participating
in EMU. Gains or losses from euro conversion may be taxable to Program
shareholders under foreign or, in certain limited circumstances, U.S. tax laws.
In addition, computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency. Like other investment companies and
business organizations, the Program could be adversely affected if the computer,
accounting, and trading systems used by the Investment Adviser, the Program's
service providers, or other entities with which the Program or its service
providers do business do not properly recognize the euro as a distinct currency.
These issues may negatively affect the operations of the companies the
Program invests in as well.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO OTHER PORTFOLIO SECURITIES
Collateralized Mortgage Obligations. 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. CMOs are created by dividing
the principal and interest payments collected on a pool of mortgages into
several revenue streams (tranches) with different priority rights to portions of
the underlying mortgage payments. Although certain CMOs technically may be
regarded as investment companies under the Investment Company Act, they will not
be regarded as investment companies for purposes of the investment restriction
set forth in clause (7) on page 10.
In general, mortgage-backed securities are "pass-through" securities,
meaning that principal and interest payments made by the borrower on the
underlying mortgages are passed through to the Program. The value of
mortgage-backed securities, like that of traditional fixed-income securities,
typically increases when interest rates fall and decreases when interest rates
rise. However, mortgage-backed securities differ from traditional fixed-income
securities because of their potential for prepayment without penalty. The price
paid by the Program for its mortgage-backed securities, the yield the Program
expects to receive from such securities and the average life of the securities
are based on a number of factors, including the anticipated rate of prepayment
of the underlying mortgages. In a period of declining interest rates, borrowers
may prepay the underlying mortgages more quickly than anticipated, thereby
reducing the yield to maturity and the average life of the mortgage-backed
securities. Moreover, when the Program reinvests the proceeds of a prepayment in
these circumstances, it will likely receive a rate of interest that is lower
than the rate on the security that was prepaid. To the extent that the Program
purchases mortgage-backed securities at a premium, mortgage foreclosures and
principal prepayments may result in a loss to the extent of the premium paid. If
the Program buys such securities at a discount, both scheduled payments of
principal and unscheduled prepayments will increase current and total returns
and will accelerate the
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recognition of income which, when distributed to shareholders, will be taxable
as ordinary income. In a period of rising interest rates, prepayments of the
underlying mortgages may occur at a slower than expected rate, creating maturity
extension risk. This particular risk may effectively change a security that was
considered short or intermediate-term at the time of purchase into a long-term
security. Since long-term securities generally fluctuate more widely in response
to changes in interest rates than shorter-term securities, maturity extension
risk could increase the inherent volatility of the Program.
Certain CMO tranches may represent a right to receive interest only (IOs),
principal only (POs) or an amount that remains after other floating-rate
tranches are paid (an inverse floater). These securities are frequently referred
to as "mortgage derivatives" and may be extremely sensitive to changes in
interest rates. If the Program invests in CMO tranches (including CMO tranches
issued by government agencies) and interest rates move in a manner not
anticipated by Program management, it is possible that the Program could lose
all or substantially all of its investment.
Restricted Securities. Up to 10% of the Program's total assets (taken at
current value) may be invested in "restricted securities." These securities are
not registered under the Securities Act of 1933, as amended (the "Securities
Act"). Restricted securities may be sold in private placement transactions
between the issuers and their purchasers and may be neither listed on an
exchange nor traded in other established markets. In many cases, privately
placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly traded securities.
To the extent that privately placed securities may be resold in privately
negotiated transactions, the prices realized from the sales, due to illiquidity,
could be less than those originally paid by the Program or less than their fair
market value. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by the Program are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Program
may be required to bear the expenses of registration. Certain of the Program's
investments in private placements may consist of direct investments and may
include investments in smaller, less-seasoned issuers, which may involve greater
risks. These issuers may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group. In making
investments in such securities, the Program may obtain access to material
nonpublic information which may restrict the Program's ability to conduct
portfolio transactions in such securities.
The Program may purchase restricted securities that can be offered and sold
to "qualified institutional buyers" under Rule 144A under the Securities Act.
The Board has determined to treat as liquid Rule 144A securities that are either
(i) freely tradable in their primary markets offshore or (ii) non-investment
grade debt securities which the Adviser determines are as liquid as
publicly-registered non-investment grade debt securities. The Board has adopted
guidelines and delegated to the Manager the daily function of determining and
monitoring liquidity of restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations. Since
it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will continue to develop,
the Board will carefully monitor the Program's investments in these securities.
This investment practice could have the effect of increasing the level of
liquidity in the Program to the extent that qualified institutional buyers
become for a time uninterested in purchasing these securities.
Repurchase Agreements. The Program may invest in obligations that 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, as amended (the "Investment Company
Act"), and the Program will require the seller to provide additional collateral
if the market value of the securities falls below the repurchase price at any
time during the term of the repurchase agreement. If a repurchase agreement is
construed to be a collateralized loan, the underlying securities will not be
considered to be owned by the Program but only to constitute collateral for the
seller's obligation to pay the repurchase price and in the event of a default by
the seller, the Program may suffer time delays and incur costs or losses in
connection with the disposition of the collateral. 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.
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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 (101 Barclay Street, New York, New York 10007), the
custodian (the "Custodian") and Agent for the Program, consisting of cash or
liquid securities having a market value at all times until the delivery date at
least equal to the amount of its commitment in connection with such delayed
delivery and purchase transactions. Although the Program will generally enter
into forward commitments with the intention of acquiring securities for its
portfolio, the Program may dispose of a commitment prior to settlement if the
Adviser deems it 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.
PORTFOLIO MANAGEMENT AND TURNOVER RATE
The Program will attempt to attain its investment objectives by careful
initial selection of obligations with a view to holding them for investment.
However, the Program reserves the right to sell Portfolio obligations whenever
it deems such action advisable to maintain competitive yields or to protect
capital in the event the business of an issuer has deteriorated or, in the
opinion of the Adviser, is likely to deteriorate or when the period of time to
maturity on Portfolio securities has shortened to such an extent as to make it
undesirable, in the opinion of the Adviser, to retain such securities in the
Portfolio or when it believes that it is desirable for defensive purposes and in
anticipation of a rise in interest rates to sell Portfolio securities and invest
the proceeds temporarily in short-term obligations which have credit
characteristics, in the opinion of the Adviser, similar to those provided for
other Portfolio securities. Portfolio turnover rate is calculated by dividing
the lesser of purchases or sales (not including purchases or sales of short-term
obligations and subsequent reinvestments in long- or intermediate-term Portfolio
securities as described above) of Portfolio securities for the year by the
monthly average value of Portfolio securities. For the fiscal years ended
December 31, 1998 and 1997, the Portfolio turnover rates were [ ]% and 90%,
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;
(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);
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(5) purchase any security if as a result (a) more than 25% of the
Program's total assets (taken at market value at the time of each
investment) would be invested in a single industry, (utilities will be
divided according to their services; for example, gas, gas transmission,
electric and telephone each will be considered a separate industry for
purposes of this restriction; also, banking and finance will be considered
two different industries for purposes of this restriction), (b) more than
5% of the Program's total assets (taken at current value) would be invested
in securities of the issuer thereof (other than securities issued or
guaranteed by the United States government), (c) the Program would hold
more than 10% of any class of securities of the issuer thereof (taking all
debt issues as a single class) or more than 10% of the voting securities of
the issuer thereof or (d) more than 20% of the Program's total assets
(taken at current value) would be invested in securities of other than
corporate issuers (for purposes of this restriction, securities issued by
supra-national organizations and agencies of foreign governments, in each
case if organized as a corporation, will be considered securities offered
by corporate issuers);
(6) invest for the purpose of exercising control over or management
of any company;
(7) invest in securities of other investment companies, except as
part of a merger, consolidation, purchase of assets or similar transaction
approved by the Program's Shareholders;
(8) make investments in oil, gas or other mineral exploration
programs, commodities, commodity contracts or real estate, although the
Program may invest in securities secured by real estate or interests
therein or issued by companies, including real estate investment trusts,
which deal in real estate or interests therein;
(9) act as an underwriter except as it may be deemed such in a sale
of restricted securities;
(10) purchase a restricted security if as a result more than 10% of
the Program's total assets (taken at current value) would be invested in
restricted securities;
(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.
Because of the affiliation of Merrill Lynch with the Adviser, the Program
is prohibited from engaging in certain transactions involving Merrill Lynch or
its affiliates. See "Portfolio Transactions."
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Illiquid Securities. The Program may invest up to 15% of its net assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. Liquidity of a security relates to the ability to dispose
easily of the security and the price to be obtained upon disposition of the
security, which may be less than would be obtained for a comparable more liquid
security. Illiquid securities may trade at a discount from comparable, more
liquid investments. Investment of the Program's assets in illiquid securities
may restrict the ability of the Program to dispose of its investments in a
timely fashion and for a fair price as well as its ability to take advantage of
market opportunities. The risks associated with illiquidity will be particularly
acute where the Program's operations require cash, such as when the Program
redeems shares or pays dividends, and could result in the Program borrowing to
meet short-term cash requirements or incurring capital losses on the sale of
illiquid investments.
Borrowing and Leverage. The use of leverage by the Program creates an
opportunity for greater total return, but, at the same time, creates special
risks. For example, leveraging may exaggerate changes in the net asset value of
Program shares and in the yield on the Program's Portfolio. Although the
principal of such borrowings will be fixed, the Program's assets may change in
value during the time the borrowings are outstanding. Borrowings will create
interest expenses for the Program which can exceed the income from the assets
purchased with the borrowings. To the extent the income or capital appreciation
derived from securities purchased with borrowed funds exceeds the interest the
Program will have to pay on the borrowings, the Program's return will be greater
than if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such borrowed funds is not
sufficient to cover the cost of borrowing, the return to the Program will be
less than if leverage had not been used, and therefore the amount available for
distribution to shareholders as dividends and other distributions will be
reduced. In the latter case, the Adviser in its best judgment nevertheless may
determine to maintain the Program's leveraged position if it expects that the
benefits to the Program's Shareholders of maintaining the leveraged position
will outweigh the current reduced return.
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. In
addition, the Program may negotiate a rate of premium to be received by the
Program as a flat fee. Such loans, which will not have terms longer than
30 days, will be terminable at any time. The Program will have the right to
regain record ownership of loaned securities to exercise beneficial rights such
as voting rights, subscription rights and rights of dividends, interest or other
distributions. The Program may pay reasonable fees to persons unaffiliated with
the Program for services in arranging such loans. In the event of a default by
the borrower, the Program may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral.
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement (the "Agreement"), the
Adviser has agreed, subject at all times to the general supervision of the
Board, to (1) manage the Portfolio of the Program in accordance with its
investment objectives and policies and furnish to the Program investment advice
and (2) (a) assist in supervising all aspects of the Program's operations
including coordinating all matters relating to the functions of the Agent,
Custodian and other parties performing operational functions for the Program;
(b) provide the Program, at the Adviser's expense, with the services of such
persons competent to perform such administrative and clerical functions as are
necessary in order to provide effective administration of the Program, including
duties in connection with Shareholder relations, reports, redemption requests
and account adjustments and the maintenance of certain non-accounting Program
books and records; (c) provide the Program, at the Adviser's expense, with
adequate office space and related services; (d) supervise and administer the
operation of the Exchange Privilege referred to in "Redemption of Shares" and
"Exchange Privilege"; and (e) to the extent required by then current federal
securities laws, regulations thereunder or interpretations thereof, pay for the
11
<PAGE>
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. For the fiscal years ended December 31, 1996, 1997 and 1998, the
advisory fees paid by the Program to the Adviser aggregated $405,367, $367,625
and $[ ] respectively.
The Program pays all the other costs and expenses incurred in connection
with its organization and operations, including: fees of the program agent,
transfer agent, custodian and dividend disbursing agent; costs of printing and
mailing stock certificates, shareholder reports, proxy materials and (except to
the extent borne by the Adviser or the Administrators) prospectuses and
statements of additional information; legal and auditing fees; costs and
expenses of the sale, issue and redemption of its Shares (including fees and
expenses of registering the Shares under federal and state securities laws);
fees and expenses of unaffiliated directors; costs of accounting and pricing
services (including the daily calculation net asset value); interest, brokerage
costs, insurance and taxes. Accounting services are provided for the Program by
the Adviser, and the Program reimburses the Adviser for its costs in connection
with such services. For the fiscal year ended December 31, 1998, such
reimbursement amounted to $ . For the fiscal year ended December 31, 1998,
the Program's total expenses were [ ] representing [ ]% of its
average net assets.
The Agreement provides that the use of the name "The 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 approved
by Shareholders on June 5, 1987 and by the Board (including all of the
non-interested directors) on [March 11, 1998]. The Agreement provides that the
Adviser shall have no liability to the Program or any Shareholder for any error
of judgment, mistake of law or any loss arising out of any investment, or for
any other act or omission in the performance by the Adviser of its duties under
the Agreement, except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Adviser's part or from reckless disregard by
the Adviser of its obligations and duties under the Agreement. The Agreement
automatically terminates upon its assignment, is terminable, without penalty, by
the Board or by vote of the holders of a majority of the Shares on 60 days'
notice to the Adviser and by the Adviser on 90 days' notice to the Program. The
Adviser's right to terminate could operate to the disadvantage of or work a
hardship on the Program.
THE ADVISER
The Adviser to the Program is Fund Asset Management, L.P.("FAM")
(the general partner of which is Princeton Services Inc., a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co.")), which is itself a
wholly-owned subsidiary of ML & Co. and has its principal place of business at
800 Scudders Mill Road, Plainsboro, New Jersey 08536. ML & Co. has its principal
place of business at World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. Similarly, the following entities may be considered
"controlling persons" of MLAM U.K.: Merrill Lynch Europe Limited (MLAM U.K.'s
parent), a subsidiary of ML International Holdings, a subsidiary of Merrill
Lynch International, Inc. a subsidiary of ML & Co.
FAM is part of the Merrill Lynch Asset Management Group ("AMG"), which acts
as the investment adviser for more than 100 other registered investment
companies. FAM or MLAM also offers portfolio management and portfolio analysis
services to individual and institutional accounts. As of January 1999, AMG had
a total of approximately $507 billion in investment company and other portfolio
assets under management, including assets managed for certain affiliates.
The Adviser has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with MLAM U.K., an indirect, wholly-owned subsidiary of ML & Co.,
and an affiliate of the Adviser pursuant to which the Adviser pays MLAM U.K. a
fee for providing investment advisory services to the Adviser with respect to
the Program in an amount to be determined from time to time by the
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<PAGE>
Adviser and MLAM U.K. but in no event in excess of the amount that the Adviser
actually receives for providing services to the Program pursuant to the
Investment Advisory Agreement. The address of MLAM U.K. is Milton Gate, 1 Moor
Lane, London EC2Y 9HA, England.
The Agreement is non-exclusive, and the Adviser, as well as certain of its
affiliates, is in the business of furnishing investment advice to individuals,
institutional clients and other investment companies, including other investment
accumulation programs. The fees charged to these clients vary in accordance with
the type of client and services rendered. Merrill Lynch, an affiliate of the
Adviser, is engaged in the underwriting, securities and commodities brokerage
business and is a member organization of the New York Stock Exchange, other
major securities exchanges and commodity exchanges, and the National Association
of Securities Dealers, Inc. Merrill Lynch Asset Management, L.P. ("MLAM"), an
affiliate of the Adviser, is an indirect wholly-owned affiliate of ML & Co., and
is engaged in the investment advisory business.
Securities held by the Program may also be held by other funds or accounts
for which the Adviser acts as adviser or by its investment advisory clients. If
purchases or sales of securities for the Program or other funds or accounts for
which it acts or for their clients arise for consideration at or about the same
time, the Adviser will attempt, subject to applicable laws and regulations, to
allocate equitably portfolio transactions among the Program and the portfolios
of its other investment funds or accounts whenever decisions are made to
purchase or sell securities for the Program and one or more of such other funds
or accounts simultaneously. In making such allocations, the main factors to be
considered will be the respective investment objectives of the Program and such
other funds and accounts, the relative size of the portfolio holdings of the
same or comparable securities, the availability of cash for investment by the
Program and such other funds and accounts, the size of investments held by the
Program and such other funds and accounts, and opinions of the persons
responsible for recommending investments to the Program and such other funds and
accounts. While this procedure could have a detrimental effect on the price and
amount of the securities available to the Program from time to time, it is the
opinion of the Board that the benefits available from the Adviser's organization
will outweigh any disadvantage that may arise from exposure to simultaneous
transactions. To the extent that transactions on behalf of more than one client
of the Adviser during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price.
CODE OF ETHICS
The Board has adopted a Code of Ethics under Rule 17j-1 of the Investment
Company Act, which incorporates the Code of Ethics of the Adviser (together, the
"Codes"). The Codes significantly restrict the personal investing activities of
all employees of the Adviser and, as described below, impose additional, more
onerous, restrictions on the Program's investment personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investments (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Program within periods of trading by the
Program in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
ADMINISTRATION AGREEMENT
The Adviser has entered into an agreement (the "Administration Agreement")
with the Administrators for the performance by them, at their expense, on behalf
of the Adviser of the administrative functions described in clause (2) of the
first paragraph under "Investment Advisory Agreement" which the Adviser is
obligated to perform and has agreed to pay to the Administrators an aggregate
monthly fee at the annual rate of 0.2% of the value of the Program's average
daily net assets from the beginning of the year to the end of such month. The
fee so payable by the Adviser will be allocated among the Administrators in the
following respective percentages: Merrill Lynch, 48%; Prudential, 21%; Morgan
Stanley Dean Witter, 21%; and Salomon Smith Barney, 10%.
Merrill Lynch has been appointed by the other Administrators as agent for
purposes of taking any action under the Administration Agreement with respect to
the Program by power of attorney executed by such
13
<PAGE>
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.
14
<PAGE>
MANAGEMENT OF THE PROGRAM
DIRECTORS AND OFFICERS
Responsibility for the Program's management rests with the Board, which
meets at least quarterly to oversee the implementation of the Program's
investment policies and which must approve the renewal of the Agreement. The
Directors of the Program consist of six individuals, five of whom are not
"interested persons" of the Program as defined in the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Directors of the Program
are responsible for the overall supervision of the operations of the Program and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act. The Board elects officers of the Program annually.
The Directors and Officers of the Program, their ages, and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive Officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (66)--President and Director(1)(2)--Chairman of the Adviser
and MLAM from 1997 to 1999; President of MLAM and FAM from 1977 to 1997;
Chairman of Princeton Services from 1997 to 1999 and Director thereof from 1993
to 1999; President of Princeton Services, Inc. ("Princeton Services") from 1993
to 1997; Executive Vice President of ML & Co. from 1990 to 1999.
RONALD W. FORBES (58)--Director(2)--1400 Washington Avenue, Albany, New
York 12222. Associate Professor of Finance, School of Business, State University
of New York at Albany since 1989; Consultant, Urban Institute, Washington, D.C.
since 1995.
CYNTHIA A. MONTGOMERY (46)--Director(2)--Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163. Professor, Harvard Business School,
since 1989; Associate Professor, J.L. Kellog Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor, Graduate School
of Business Administration, The University of Michigan from 1979 to 1985;
Director, UNUM Corporation since 1990 and Director of Newell Co. since 1995.
CHARLES C. REILLY (67)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
New York 11946. Self-employed financial consultant since 1990; President and
Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television since 1986.
KEVIN A. RYAN (66)--Director(2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. 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.
RICHARD R. WEST (61)--Director(2)--Box 604, Genoa, Nevada 89411. Professor
of Finance since 1984, and Dean from 1984 to 1993, and currently Dean Emeritus
of New York University Leonard N. Stern School of Business Administration;
Director of Bowne & Co., Inc., Vornado Realty Trust, Inc. and Alexanders Inc.
TERRY K. GLENN (58)--Executive Vice President(1)(2)--800 Scudders Mill
Road, Plainsboro, New Jersey 08536. Executive Vice President of the Adviser and
MLAM since 1983; Executive Vice President and Director of Princeton Services
since 1993; President of Merrill Lynch Funds Distributor, Inc. (the
"Distributor") since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
JOSEPH T. MONAGLE, JR. (50)--Senior Vice President(1)(2)--800 Scudders Mill
Road, Plainsboro, New Jersey 08536. Senior Vice President of the Adviser and
MLAM since 1990; Department
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<PAGE>
Head of the Global Fixed Income Division of the Adviser and MLAM since 1997;
Senior Vice President of Princeton Services since 1993.
CHRISTOPHER G. AYOUB (43)--Senior Vice President(1)(2)--800 Scudders Mill
Road, Plainsboro, New Jersey 08536. First Vice President of MLAM since 1998.
Vice President of MLAM from 1985 to 1998.
DONALD C. BURKE (38)--Vice President and Treasurer(1)(2)--800
Scudders Mill Road, Plainsboro, New Jersey 08536. Senior Vice President and
Treasurer of the Adviser and MLAM since 1999; Senior Vice President and
Treasurer of Princeton Services; Vice President of Princeton Funds Distributor,
Inc. since 1999; First Vice President of MLAM from 1997 to 1999; Vice President
of MLAM from 1990 to 1997.
SUSAN B. BAKER (41)--Secretary(1)(2)--800 Scudders Mill Road, Plainsboro,
New Jersey 08536. Director (Legal Advisory) of the advisor since 1999; Vice
President of the Adviser since 1993; attorney associated with the Adviser since
1987.
- - ------------------
(1) Interested person, as defined in the Investment Company Act, of the Program.
(2) The Directors and officers of the Program are Directors or officers of
certain other investment companies for which the Adviser or MLAM acts as
investment adviser.
Set forth below is a chart showing the aggregate compensation paid by the
Program to each of its non-affiliated Directors for the fiscal year ended
December 31, 1998 and, for the calendar year ended December 31, 1998, the total
compensation paid to each Director of the Program by the Program and by other
investment companies advised by the Adviser or MLAM for their services as
Directors or Trustees of such investment companies.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE PENSION OR FROM PROGRAM AND
COMPENSATION RETIREMENT BENEFITS FUND COMPLEX
FROM THE ACCRUED AS PART OF PAID TO
NAME OF DIRECTOR PROGRAM PROGRAM EXPENSES DIRECTORS
- - -------------------------------------- ------------ ------------------- ------------------
<S> <C> <C> <C>
Ronald W. Forbes(1)................... $1,500 None $192,567
Cynthia A. Montgomery(1).............. $1,500 None $192,567
Charles C. Reilly(1).................. $2,500 None $362,858
Kevin A. Ryan(1)...................... $1,500 None $192,567
Richard R. West(1).................... $1,500 None $330,125
</TABLE>
- - ------------------
(1) The Directors serve on the boards of other MLAM/FAM Advised Funds as
follows: Mr. Forbes (37 registered investment companies consisting of
50 portfolios), Ms. Montgomery (37 registered investment companies
consisting of 50 portfolios), Mr. Reilly (56 registered investment companies
consisting of 69 portfolios), Mr. Ryan (37 registered investment companies
consisting of 50 portfolios) and Mr. West (58 registered investment
companies consisting of 83 portfolios).
The Program has an Audit Committee consisting of all the directors of the
Program who are not interested persons of the Program.
REMUNERATION OF DIRECTORS--On March 31, 1999, shares of the Program owned
by all officers and directors of the Program as a group aggregated less than 1%
of the total of such shares then outstanding. The Program pays each
non-affiliated director an annual fee of $800 plus $100 per quarterly meeting
attended and an annual fee of $300 for serving on the Program's Audit Committee,
except for the Chairman of the Audit Committee who receives an annual fee of
$1,000. The Program will also pay the out-of-pocket expenses of such directors
relating to attendance at Meetings.
NET ASSET VALUE
Reference is made to "How Shares are Priced" in the Prospectus.
The net asset value per Share of the Program is determined by dividing the
net assets of the Program by the number of its outstanding Shares. The net
assets of the Program are its gross assets less its liabilities as determined in
accordance with generally accepted accounting principles. It is the ultimate
responsibility of the Board to establish standards for the valuation of the
Portfolio securities for purposes of determining net asset value of the Program.
The Program has made arrangements with Merrill Lynch Securities Pricing Service
("MLSPS") to furnish to the Program and the Agent, on each day that the New York
Stock Exchange (the
16
<PAGE>
"NYSE") is open for trading immediately after the declaration of dividends,
estimated values (as of 15 minutes after the close of business on the NYSE,
generally 4:00 P.M., New York City time) of Portfolio securities for purposes of
computation of net asset value of the Shares. The NYSE is not open for trading
on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. The Board has examined the methods to be
used by 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. During the fiscal year ended December 31, 1998, the Program made
payments of $[ ] to MLSPS for such service.
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
Shareholders have the right to redeem their Shares at net asset value by
surrendering the certificates therefor properly endorsed with the signatures
guaranteed by an "eligible guarantor institution" as such term is defined by
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, the existence
and validity of which may be verified by the Agent through the use of industry
publications, together with a request for redemption at the office of the Agent,
The Bank of New York, (P.O. Box 974, Wall Street Station, New York, New York
10286-0974). If certificates have not been issued, only delivery of the request
for redemption (with signature guaranteed as set forth above) is required. The
Program has arranged, however, for an exemption from the signature guarantee
requirement for redemptions involving less than $5,000 on the date of receipt by
the Agent of all the necessary documents where the proceeds are to be reinvested
through one of the Administrators in units of Municipal Investment Trust Fund,
Government Securities Income Fund, Corporate Income Fund, Defined Asset Funds,
Equity Investor Fund or International Bond Fund (the "Unit Trusts") which are to
be registered in the names of the registered owners of the Shares. This
exemption may be reduced or eliminated without prior notice. A guarantee of each
Shareholder's signature is required for all redemptions, regardless of the
amount involved, where the proceeds are to be paid to Shareholders or where the
units of the Unit Trusts to be purchased are to be registered in names different
from those of the registered owners of the Shares.
The redemption price will be the net asset value next determined after
either (i) the certificates are tendered for redemption or (ii) if no
certificates have been issued, a request for redemption is received in good
order as set forth above. The price received upon redemption may be more or less
than the amount paid by the Shareholder depending on the net asset value of the
Shares at the time of redemption. Payment of the redemption price must be made
within seven days after proper tender unless further postponement is permissible
under the Investment Company Act by reason of closing of or restriction of
trading on the NYSE, or other emergency.
Any of the Administrators may accept orders from dealers with whom they
have satisfactory agreements for the repurchase of Shares held by Holders.
Repurchase orders received by the dealer prior to the close of business on the
NYSE (generally 4:00 P.M., New York City time) on any business day and
transmitted by the Administrator prior to the close of its business day
(generally 4:00 P.M., New York City time) are redeemed at the price determined
as of the close of business on the NYSE on such day. Repurchase orders received
after the close of business on the NYSE on any business day are redeemed at a
price determined as of the close of business
17
<PAGE>
on the NYSE 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.
The right of redemption may be suspended during any period when the NYSE is
closed, other than customary weekend and holiday closings; when trading on such
exchange is restricted or an emergency exists, in each case as determined by
rules and regulations of the Securities and Exchange Commission; or during any
period when the Securities and Exchange Commission has by order permitted such
suspension.
The Program has elected to be obligated to pay in cash redemptions during
any 90-day period for any one Shareholder up to the lesser of $250,000 or 1% of
the Program's net asset value. Payments in excess of such amount will normally
be made in cash. If, however, the Board determines that liquidation of the
Program's holdings is impracticable or that such payment in cash would be
adverse to the interests of the remaining Shareholders, such payment may be made
in whole or in part in Portfolio securities. The value of any Portfolio
securities distributed in payment for tendered Shares will be deemed to be their
value used in determining the net asset value of the Shares at the time they
were tendered for redemption. If securities rather than cash are distributed,
the Shareholder will incur brokerage charges or their equivalent in dealer
markdowns in liquidating these securities.
Due to the high cost of maintaining Shareholder accounts of less than $500,
the Program reserves the right to redeem Shares in any account for their then
current net asset value (which will be paid promptly to the Shareholder), if at
any time the total investment of such Shareholder does not have a net asset
value of at least $500 due to Shareholder redemptions and the Shareholder owns
no Units or has elected that no distributions on any Units owned by such
Shareholder be invested in Shares. Before any such redemption is effected, the
Shareholder will be given 30 days' notice, during which period he will be
entitled to elect to have distributions on Units owned by such Shareholder
invested in Shares or to purchase Shares to bring his account up to a net asset
value of $500 and thereby avoid such redemption.
EXCHANGE PRIVILEGE
Shareholders who have owned Shares for at least 60 days have an exchange
privilege (the "Exchange Privilege") with shares of The Municipal Fund
Accumulation Program, Inc. (the "Other Program"). Shares with an aggregate net
asset value of at least $1,000 are required to qualify for the Exchange
Privilege. Exchanges between the Program and the Other Program will be at their
respective net asset values. The investment objectives of the Other Program
differ from those of the Program, and Shareholders should obtain a currently
effective prospectus for the Other Program before effecting any exchange.
Exercise of the Exchange Privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short- or long-term capital
gain or loss may be realized. The exchange privilege is available only to
Shareholders residing in states where the Other Program is qualified for sale. A
noncorporate Shareholder of the Program who exercises the Exchange Privilege may
be required to certify to the Other Program his Social Security Number or
Taxpayer Identification Number and that he is not subject to the backup
withholding tax if he wishes to avoid a 31% backup withholding tax on
distributions made to him by 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.
18
<PAGE>
TAXES AND DIVIDENDS
The Program has qualified and intends to continue to qualify for the
special tax treatment applicable to "regulated investment companies" under the
Internal Revenue Code of 1986, as amended. If the Program qualifies as a
"regulated investment company" and distributes to Shareholders 90% or more of
its investment company taxable income (without regard to designated 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 annually to its
shareholders an amount equal to at least 98% of the investment company's
ordinary income for the calendar year, plus at least 98% of the company's
capital gain net income for the one-year period ending on October 31 of such
calendar year. In addition, an amount equal to any of the investment company's
undistributed ordinary income or capital gain net income from the previous
calendar year must also be distributed to avoid the excise tax. The excise tax
is imposed on the amount by which a regulated investment company does not meet
the foregoing distribution requirements.
Some Shareholders may be subject to a 31% withholding on reportable
dividends, 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.
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 eighteen
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-, mid- 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.
19
<PAGE>
Dividends may be subject to a 30% United States withholding tax under the
existing provisions of the Code applicable to foreign individuals and trusts,
estates, partnerships and corporations unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty. Shareholders who are
nonresident aliens or foreign entities are urged to consult their own tax
advisers concerning the applicability of the United States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Regulations
are subject to change by legislative or administrative action.
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
The Adviser is responsible for making Portfolio investment decisions on
behalf of the Program and effecting Portfolio transactions with or through
securities dealers, subject to the general supervision of the officers and
directors of the Program. The Program will follow a policy that it will place
securities transactions with a broker or dealer only if it expects to obtain the
most favorable prices and executions of orders. Transactions in debt securities
are generally made through securities dealers acting as principals, although the
Program may purchase or sell such securities in brokerage transactions and the
affiliates of the Adviser may act as brokers therein if the Program expects
thereby to obtain the most favorable price and execution.
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, 1996, 1997 and 1998 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.
20
<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. 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, the Merrill Lynch Corporate Master Bond
Index, or performance data published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. When comparing its performance to a
market index, the Program may refer to various statistical measures derived from
historical performance of the Program and the index, such a standard deviation
and beta. From time to time, the Program may include the Program's Morningstar
risk-adjusted performance ratings in advertisements or supplemental sales
literature. As with other performance data, performance comparisons should not
be considered indicative of the Program's relative performance for any future
period.
Set forth below is the Program's average annual total return information for the
periods indicated:
<TABLE>
<CAPTION>
5-YEAR PERIOD 10-YEAR PERIOD
YEAR ENDED ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Average Annual
Total Return (a)................................... [ ]% [ ]% [ ]%
</TABLE>
- - ----------
(a) Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based
upon net investment income and any capital gains or losses on portfolio
investments over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable
recurring and nonrecurring expenses.
The Program may supplement this Statement of Additional Information with
yield quotations to comply with certain regulations issued by the Securities and
Exchange Commission with respect to the advertisement of 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.
21
<PAGE>
GENERAL INFORMATION
ORGANIZATION OF THE PROGRAM
The Program, an open-end diversified management investment company
registered under the Investment Company Act, was incorporated in Maryland on
June 9, 1976. The Program does not intend to hold meetings of shareholders
unless under the Investment Company Act shareholders are required to act on any
of the following matters: (i) election of directors; (ii) approval of an
investment advisory agreement; (iii) approval of a distribution plan; and (iv)
ratification of selection of independent auditors.
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.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, New Jersey 08540-6400 has been
selected as the independent auditors of the Program. The selection of
independent auditors is subject to approval by the non-interested Directors of
the Program. The independent auditors are responsible for auditing the annual
financial statements of the Program.
CUSTODIAN, TRANSFER, PROGRAM AND DIVIDEND DISBURSING AGENT
The Bank of New York, New York, New York, acts as Custodian of the
Program's assets and as its Transfer Agent, Program Agent and Dividend
Disbursing Agent. The Custodian is responsible for safeguarding and controlling
the Program's cash and securities, handling the receipt and delivery of
securities and collecting interest on the Program's investment. The Program
Agent is responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts. See "How to Buy,
Sell, Transfer and Exchange Shares" in the Prospectus.
LEGAL COUNSEL
Rogers & Wells LLP, New York, New York, is counsel for the Program and
passes upon legal matters for the Program in connection with the shares offered
by the Prospectus.
REPORTS TO SHAREHOLDERS
The fiscal year of the Program ends on December 31 of each year. The
Program sends its shareholders, at least semi-annually, reports showing the
Program's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year.
22
<PAGE>
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Program at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Program has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
To the knowledge of the Program, no entity owned beneficially 5% or more of
the Program's shares as of [ ].
FINANCIAL STATEMENTS
The Program's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling 1(800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
RATINGS OF CORPORATE OBLIGATIONS*
STANDARD & POOR'S
AAA--Bonds rated AAA have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being
paid.
D--Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
NR--Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of bond as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
FITCH
AAA rated bonds are considered to be investment grade and of the
highest quality. The obligor has an extraordinary ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA rated bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change
over the term of the issue.
A rated bonds are considered to be investment grade and of good quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
- - ------------------
* As described by the rating companies themselves.
23
<PAGE>
BBB rated bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The
obligor's ability to pay interest and repay principal is not strong and is
considered likely to be affected over time by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the life of
the issue and repay principal when due.
CCC rated bonds may have certain characteristics which, with the passing of
time, could lead to the possibility of default on either principal or interest
payments.
CC rated bonds are minimally protected. Default in payment of interest
and/or principal seems probable.
C rated bonds are in actual or imminent default in payment of interest or
principal.
DDD, DD, D rated bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and should be valued
only on the basis of their value in liquidation or reorganization of the
obligor.
+ (Plus) or - (Minus) signs after bond and preferred stock rating symbols
(from "AA" to "B") indicate relative standing within a rating category. They are
refinements more closely reflecting strengths and weaknesses and are not to be
used as trend indicators.
MOODY'S
Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very 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.
24
<PAGE>
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.
25
<PAGE>
- - ------------------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- - ------------------------------------------------------
- - ------------------------------------------------------
INDEX
- - ------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Program.................................... 2
Investment Objectives and Policies............. 3
Investment Restrictions........................ 9
Investment Advisory and Administration
Agreements................................... 11
Management of the Program...................... 15
Net Asset Value................................ 16
Redemption of Shares........................... 17
Exchange Privilege............................. 18
Taxes and Dividends............................ 19
Portfolio Transactions......................... 20
Performance Data............................... 21
General Information............................ 22
Financial Statements........................... 23
Ratings of Corporate Obligations............... 23
</TABLE>
------------------------------------------------------
THE
CORPORATE
FUND
INVESTMENT
ACCUMULATION
PROGRAM
------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL [ ], 1999
------------------------------------------------------
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2000
<PAGE>
PART C
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ -----------
<S> <C> <C>
(a1) -- Amended and Restated Articles of Incorporation of Registrant (incorporated by reference to Exhibit 1
to Amendment No. 3 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2642).
(b) -- Articles Supplementary to the Articles of Incorporation of Registrant, dated October 12, 1994
(incorporated by reference to Exhibit (1)(b) to Amendment No. 17 to Form N-1A of Registrant, 1940 Act
File No. 811-2642).
2 -- By-Laws of the Registrant (incorporated by reference to Exhibit 2 to Post-Effective Amendment No. 17
to Form N-1A of Registrant, 1933 Act File No. 2-57060).
3 -- Not applicable.
4 -- Form of Stock Certificate (incorporated by reference to Exhibit 4(a) to Amendment No. 3 to Form
N-8B-1 of Registrant, 1940 Act File No. 811-2642).
5 -- Investment Advisory Agreement (incorporated by reference to Exhibit 5 to Amendment No. 3 to Form
N-8B-1 of Registrant, 1940 Act File No. 811-2642).
5(a) -- Form of Sub-Advisory Agreement between Fund Asset Management U.K. Limited (incorporated by reference
to Exhibit 5(a) to Amendment No. 20 to Form N-1A of Registrant, 1940 Act File No. 811-2642).
6 -- Not applicable.
7 -- Not applicable.
8 -- Custody Agreement between The Bank of New York and Registrant (incorporated by reference to
Exhibit 8 to Amendment No. 3 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2642).
9(a) -- Administration Agreement by and among the Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Prudential-Bache Securities, Inc. and Dean Witter Reynolds Inc. (incorporated by
reference to Exhibit (9)a to Post-Effective Amendment No. 4 to Form N-1 of the Registrant, 1933 Act
File No. 2-57060).
(b) -- Agency Agreement between The Bank of New York and Registrant (incorporated by reference to Exhibit
(9) to Amendment No. 3 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2642).
10 -- Opinion of Rogers & Wells LLP (incorporated by reference to Registrant's Rule 24f-2 Notice).
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant*.
12 -- Not applicable.
13 -- Not applicable.
14 -- Not applicable.
15 -- Not applicable.
16 -- Schedule of Computation of Performance Data in Response to Item 22 (incorporated by reference to
Exhibit 16 to Post-Effective Amendment No. 15 to Registrant's Registration Statement on Form N-1A
(file No. 2-57060)).
27 -- Financial Data Schedule*.
</TABLE>
- - ------------------
* Filed herewith.
C-1
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE PROGRAM
Not applicable.
ITEM 25. INDEMNIFICATION
Article VI of the By-Laws of Registrant is incorporated by reference to
Exhibit (2) to this Post-Effective Amendment No. 21 to Form N-1A of Registrant
(1940 Act File No. 811-2642).
The Maryland statutory indemnification provision is incorporated by
reference to Exhibit (14) to Amendment No. 4 to Form N-8B-1 of Registrant (1940
Act File No. 811-2642).
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Fund Asset Management, L.P. (the "Investment Adviser" or "FAM"), acts as
the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High
Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Puerto Rico Tax-Exempt Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund,
Inc., and the Municipal Fund Accumulation Program, Inc.; and the following
closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate
High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt
Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc. MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III, MuniHoldings Florida Insured Fund IV, MuniHoldings Michigan
Insured Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New
Jersey Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund III, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York Insured Fund
III, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey
Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., and Worldwide Dollar Vest Fund, Inc.
Merrill Lynch Asset Management ("MLAM"), an affiliate of FAM, acts as the
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Growth Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth
Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate Government
Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
C-2
<PAGE>
Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A. Government Reserves,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc.
and Merrill Lynch Variable Series Funds, Inc.; and Hotchkis and Wiley Funds
(advised by Hotchkis and Wiley, a division of MLAM); and the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts
as Subadvisor to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisors Trust.
The address of each of these investment companies is Box 9011, Princeton,
New Jersey 08543-9011. The address of Merrill Lynch Funds for Institutions
Series is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646.
The address of the Investment Adviser, MLAM, Princeton Services, Inc.
("Princeton Services") and Princeton Administrators, L.P. also is Box 9011,
Princeton, New Jersey 08543-9011. The address of Princeton Funds Distributor,
Inc. ("PFD") and Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box
9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML
& Co.") is North Tower, World Financial Center, 250 Vesey Street, New York, New
York 10281-1213. The address of Financial Data Services, Inc. ("FDS") is 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each officer and director of FAM indicating
each business, profession, vocation or employment of a substantial nature in
which each such person has been engaged since January 1, 1994 for his own
account or in the capacity of director, officer, partner or trustee. In
addition, Messrs. Zeikel, Glenn and Burke hold the same positions with
substantially all of the investment companies described in the preceding
paragraph. Messrs. Giordano, Kirstein and Monagle are directors or officers of
one or more of such companies. Mr. Zeikel is president and a director, and
Mr. Burke is treasurer of FAM and MLAM as well as all or substantially all of
the investment companies advised by FAM or MLAM.
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<S> <C> <C>
ML & Co...................... Limited Partner Financial Services Holding Company; Limited Partner of
MLAM.
Princeton Services, Inc...... General Partner General Partner of MLAM.
Arthur Zeikel................ Chairman Chairman of MLAM and FAM; President of MLAM and FAM (from
1977 to 1997); Chairman and Director of Princeton
Services; President of Princeton Services from 1993 to
1997; Executive Vice President of ML & Co. from 1990 to
1999.
Jeffrey M. Peek.............. President President of MLAM; President and Director of Princeton
Services; Executive Vice President of ML & Co.
Terry K. Glenn............... Executive Vice Executive Vice President of MLAM; Executive Vice President
President and Director of Princeton Services; President and Director
of MLFD; Director of FDS; President of Princeton
Administrators, L.P.
Donald C. Burke.............. Senior Vice President Senior Vice President and Treasurer of MLAM; Senior Vice
and Treasurer President and Treasurer of Princeton Services; Vice
President and Treasurer of PFD; First Vice President of
MLAM from 1997-1999; Vice President of MLAM from 1990-
1997.
Linda L. Federici............ Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Vincent R. Giordano.......... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Elizabeth A. Griffin......... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<S> <C> <C>
Michael J. Hennewinkel....... Senior Vice Senior Vice President, Secretary and General Counsel of
President, Secretary MLAM; Senior Vice President of Princeton Services.
and General Counsel
Philip L. Kirstein........... Senior Vice President Senior Vice President of MLAM; Senior Vice President,
Director and Secretary of Princeton Services.
Ronald M. Kloss.............. Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Debra W. Landsman- Senior Vice President Senior Vice President of FAM; Senior Vice President of
Yaros...................... Princeton Services; Vice President of PFD.
Stephen M. M. Miller......... Senior Vice President Executive Vice President of Princeton Administrators,
L.P.; Senior Vice President of Princeton Services
Joseph T. Monagle, Jr........ Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Gregory D. Upah.............. Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Ronald L. Welburn............ Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies; Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund
III, Inc., Income Opportunities Fund 1999, Inc., Income Opporutnities Fund 2000,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Consults International Portfolio, Merrill Lynch Convertible
Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate
High Yield Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill
Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc. Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc., Merrill
Lynch World Income Fund, Inc. and Worldwide DollarVest Fund, Inc. The address of
each of these registered investment companies is P.O. Box 9011, Princeton, New
Jersey 08543-9011. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London
EC2Y 9HA, England.
C-4
<PAGE>
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since October 31,
1995, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Burke are officers
of one or more of the registered investment companies listed in the first two
paragraphs of this Item 28:
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- --------------- ----------------------------------
<S> <C> <C>
Arthur Zeikel................ Director and Chairman Chairman of the Manager and FAM; President of the Manager
and FAM (from 1977 to 1997); Chairman and Director of
Princeton Services; President of Princeton Services (from
1993 to 1997; Executive Vice President of ML & Co.
Alan J. Albert............... Senior Managing Vice President of the Manager.
Director
Nicholas C. D. Hall.......... Director Director of Merrill Lynch Europe PLC; General Counsel of
Merrill Lynch International Private Banking Group.
Donald C. Burke.............. Senior Vice President Senior Vice President and Treasurer of the Adviser and
MLAM; Senior Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of PFD; First Vice
President of MLAM from 1997-1999; Vice President of MLAM
from 1990-1997.
Carol Ann Langham............ Company Secretary None
Debra Anne Searle............ Assistant Company None
Secretary
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of Registrant, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and The Bank of New York, 90 Washington Street,
12th Floor, New York, NY 10286.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under "Management of the Fund--Fund Asset
Management" in the Prospectus constituting Part A of the Registration Statement,
and under "Investment Advisory and Administration Agreements" in the Statement
of Additional Information constituting Part B of the Registration Statement,
Registrant is not a party to any management-related service contract.
C-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO
ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND STATE OF NEW
JERSEY, ON THE 1ST DAY OF MARCH, 1999.
THE CORPORATE FUND ACCUMULATION
PROGRAM, INC.
(Registrant)
By: /s/ TERRY K. GLENN
---------------------------------
Terry K. Glenn
Executive Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Director (Principal Executive
- - ------------------------------------------ Officer)
(Arthur Zeikel)
/s/ DONALD C. BURKE Vice President and Treasurer (Principal March 1, 1999
- - ------------------------------------------ Financial and Accounting Officer)
(Donald C. Burke)
* Director
- - ------------------------------------------
(Ronald W. Forbes)
* Director
- - ------------------------------------------
(Cynthia A. Montgomery)
* Director
- - ------------------------------------------
(Charles C. Reilly)
* Director
- - ------------------------------------------
(Kevin A. Ryan)
* Director
- - ------------------------------------------
(Richard R. West)
*By: /s/ TERRY K. GLENN March 1, 1999
-------------------------------------
(Terry K. Glenn
Attorney-in-Fact)
</TABLE>
C-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- - ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
11 -- Consent of Deloitte & Touche LLP, independent auditors of the Registrant
27 -- Financial Data Schedule
</TABLE>
- - ------------------
<PAGE>
EXHIBIT 11
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Corporate Fund Accumulation Program, Inc.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 25 to Registration Statement No. 2-57060 of our report dated February 8,
1999 appearing in the annual report to shareholders of The Corporate Fund
Accumulation Program, Inc. for the year ended December 31, 1998, and to the
reference to us under the caption "Financial Highlights" in the Propectus, which
is a part of such Registration Statement.
Deloitte & Touche LLP
Princeton, New Jersey
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 66737751
<INVESTMENTS-AT-VALUE> 70011734
<RECEIVABLES> 1235270
<ASSETS-OTHER> 112884
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71359888
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229011
<TOTAL-LIABILITIES> 229011
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68814914
<SHARES-COMMON-STOCK> 3290672
<SHARES-COMMON-PRIOR> 3425496
<ACCUMULATED-NII-CURRENT> 95
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (958115)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3273983
<NET-ASSETS> 71130877
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4703294
<OTHER-INCOME> 0
<EXPENSES-NET> (714516)
<NET-INVESTMENT-INCOME> 3988778
<REALIZED-GAINS-CURRENT> 803278
<APPREC-INCREASE-CURRENT> 851467
<NET-CHANGE-FROM-OPS> 5643523
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3988781)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 561726
<NUMBER-OF-SHARES-REDEEMED> (869838)
<SHARES-REINVESTED> 173288
<NET-CHANGE-IN-ASSETS> (1249795)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1762128)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 355894
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 714516
<AVERAGE-NET-ASSETS> 71178822
<PER-SHARE-NAV-BEGIN> 21.13
<PER-SHARE-NII> 1.19
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> (1.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.62
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
