As filed with the Securities and Exchange Commission on April 30, 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
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22 [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
TERRY K. GLENN
The Corporate Fund Accumulation Program, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey 08536
(Name and Address of Agent for Service)
----------------------
Copies to:
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
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It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1999 pursuant to paragraph (b)
[ ] 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>
[LOGO] Merrill Lynch
The Corporate Fund Investment Accumulation Program
April 30, 1999
The Corporate Fund Investment Accumulation Program is only open to holders of
units of Corporate Income Fund, International Bond Fund and Corporate Investment
Trust Fund for reinvestment of distributions on those units.
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
[CLIPART] KEY FACTS
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The Corporate Fund Investment Accumulation Program
at a Glance ................................................... 3
Risk/Return Bar Chart ........................................... 5
Fees and Expenses ............................................... 6
[CLIPART] DETAILS ABOUT THE PROGRAM
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How the Program Invests ......................................... 7
Investment Risks ................................................ 8
[CLIPART] YOUR ACCOUNT
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Participation in the Program .................................... 16
How to Buy, Sell, Transfer and Exchange Shares .................. 18
[CLIPART] MANAGEMENT OF THE PROGRAM
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Fund Asset Management ........................................... 21
Financial Highlights ............................................ 23
[CLIPART] 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 [CLIPART]
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.
Yield -- a fixed income security's annualized income stream divided by the
security's current price, which represents the security's current expected rate
of return.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM AT A GLANCE
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What is the Corporate Fund Investment Accumulation Program (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 is the Program's investment objective?
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.
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 primarily 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 that meet the
Program's investment criteria. When choosing investments, the Program management
considers various factors, including credit quality of issuers, yield analysis,
and diversification.
What are the main risks of investing in the Program?
The main risks of investing in the Program are:
o Market and selection risk
o Credit risk o Interest rate risk
o Foreign market risk
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM 3
<PAGE>
[CLIPART] Key Facts
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, including
financial condition, that may affect a particular issuer or obligation.
Generally, when interest rates go up, the value of fixed-income instruments goes
down. Bonds with longer maturities are affected more by changes in interest
rates than bonds with shorter maturities. The Program faces additional risks
when it invests in foreign instruments, including changes in foreign currency
exchange rates, liquidity risk and 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.
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.
4 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
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.
1989 12.87%
1990 7.19%
1991 15.60%
1992 6.86%
1993 12.20%
1994 (5.78%)
1995 20.05%
1996 1.69%
1997 8.30%
1998 8.24%
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). The year-to-date return as
of March 31, 1999 was (1.12%).
Average Annual Total
Returns (for the
calendar year ended Past Past Past
December 31, 1998) One Year Five Years Ten Years
- --------------------------------------------------------------------------------
The Corporate Fund Investment
Accumulation Program 8.24% 6.16% 8.50%
- --------------------------------------------------------------------------------
Merrill Lynch Corporate Master
Bond Index* 8.72% 7.83% 9.98%
- --------------------------------------------------------------------------------
*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 5
<PAGE>
[CLIPART] 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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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 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 by illustrating the
costs to you if you redeem after one, three, five and ten years.
This example assumes that you invest $10,000 in the Program for the time periods
indicated, that dividends are reinvested, 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
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6 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
Details About the Program [CLIPART]
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.
HOW THE PROGRAM INVESTS
- --------------------------------------------------------------------------------
The investment objective of the Program is to seek to provide shareholders with
a high level of current income. The Program invests in a diversified portfolio
of fixed-income securities, primarily corporate bonds. The fixed-income
securities will be payable in U.S. dollars and will not have any equity
conversion or other equity features. Such securities may be secured or
unsecured, or may be subordinated to other indebtedness. The Program may also
invest in collateralized mortgage obligations.
The Program will invest its total assets in fixed-income securities. The Program
will only invest in investment grade securities and 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 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. This policy adopted by the Board of Directors is
discretionary and may be changed from time to time.
The Program may invest up to 25% of its assets in foreign securities that meet
the Program's investment criteria.
At times the Program may have a high portfolio turnover rate which may result in
higher trading costs and adverse tax consequences.
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. During defensive
periods the Program may not achieve its investment objective.
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 the financial condition of the issuer and general economic
conditions.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM 7
<PAGE>
[CLIPART] Details About the Program
ABOUT THE
INVESTMENT ADVISER
The Program is managed by Fund Asset Management, L.P.
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 (yields on obligations having the same credit characteristics but
different maturities--longer term obligations typically have higher
yields).
o Diversification -- The Program will not concentrate its investments in a
single industry. The Program seeks to achieve this by attempting to
diversify its investments, while taking into consideration the
availability of investments meeting the Program's other investment
criteria.
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 investment objective 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 lower-rated debt securities (by Standard & Poor's, Fitch or
Moody's) than higher rated debt securities.
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.
8 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
Risks associated with certain types of obligations in which the Program may
invest include:
Foreign Market Risk -- Foreign security investment 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. Prices
of securities traded on foreign markets have often, but not always, moved
counter to prices 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 and 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 -- Certain securities in which the Program
invests may be denominated or quoted in currencies other than the U.S. dollar.
Changes in foreign currency exchange rates will affect the value
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM 9
<PAGE>
[CLIPART] Details About the Program
of such 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 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.
10 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
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
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM 11
<PAGE>
[CLIPART] Details About the Program
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 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
entered into EMU in an effort to, among other things, reduce barriers between
countries, and reduce or eliminate currency fluctuations among these countries.
EMU has established a single common European currency (the "euro"), which 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) were
redenominated in the euro, and will now 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 If the transition to the euro does not proceed as planned.
o If a participating country withdraws from EMU and securities redenominated
in euros are transferred back into that country's national currency.
12 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
o If computer, accounting, and trading 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 recognize the euro as
a distinct currency.
These issues may negatively affect the operations of the companies the Program
invests in as well.
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.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM 13
<PAGE>
[CLIPART] Details About 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. Interest rates on inverse floaters, for example, vary inversely
with a short-term floating rate (which may be reset periodically by a dutch
auction, a remarketing agent or by reference to a short-term interest rate
index). Interest rates on inverse floaters will decrease when short-term rates
increase, and will increase when short-term rates decrease. These securities
have the effect of providing a degree of investment leverage. In response to
changes in market interest rates or other market conditions, the value of an
inverse floater may increase or decrease at a multiple of the increase or
decrease in the value of the underlying securities. The values of inverse
floaters are therefore more volatile than their underlying securities. 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 -- 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.
14 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
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 net assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If the Program
buys illiquid securities it may be unable to quickly resell them or may be able
to sell them only at a price below current value.
Borrowing and Leverage -- The Program may borrow for temporary emergency
purposes including to meet redemptions. Borrowing may exaggerate changes in the
net asset value of Program shares and in the yield on the Program's portfolio.
Borrowing will cost the Program interest expense and other fees. The costs of
borrowing may reduce the Program's return. Certain securities that the Program
buys may create leverage including, for example, when-issued securities and
forward commitments.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
If you would like further information about the Program, including how it
invests, please see the Statement of Additional Information.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM 15
<PAGE>
Your Account [CLIPART]
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 on units held by you 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. Your initial notice and notice of any change must be received by the
program agent at least 10 days prior to the record date of the first
distribution that you want such change to apply to.
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 to you in cash.
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.
16 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
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 17
<PAGE>
[CLIPART] Your Account
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares of the
Program.
<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buy Shares First, you decide whether Refer to the description of the Program on pageS 16-17.
you want to participate Be sure to read this prospectus carefully.
in the Program.
-------------------------------------------------------------------------------------------
Next, determine what Distributions from the unit trust funds may consist
distributions from the unit of interest income, capital gains or principal. You
trust funds you want to may reinvest the distributions of interest income or
reinvest. of capital gains or of principal, or you may reinvest
all distributions.
-------------------------------------------------------------------------------------------
Notify the program agent of The notice must be in writing and received by the
your election to reinvest program agent at least ten days before the record
some or all distributions date for the first distribution you want to have
you receive from the unit reinvested.
trust funds.
-------------------------------------------------------------------------------------------
Decide whether your shares Consult your securities dealer. Under certain
will be held in an account circumstances, your securities dealer may not be able
with your securities dealer to hold your shares in your account with the securities
or with the program agent. dealer.
- -----------------------------------------------------------------------------------------------------------------
Add to Your Purchase additional shares Once you have elected to participate in the Program,
Investment 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 of your distributions from the unit
trust funds reinvested, you may notify the program
agent that you wish to reinvest more of your
distributions.
-------------------------------------------------------------------------------------------
Acquire additional shares All dividends and capital gains distributions on shares
through the Program's of the Program are automatically reinvested in additional
automatic dividend shares of the Program without a sales charge.
reinvestment plan.
- -----------------------------------------------------------------------------------------------------------------
Stop Reinvesting Notify the program agent Your election to stop reinvesting some or all distributions
Distributions in in writing. from the unit trustfunds in shares of the Program will
Shares of the Program be effective for any 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
to Another securities dealer. another securities dealer that has entered into an
Securities Dealer agreement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated. All future trading of these assets must
be coordinated by the receiving firm.
- ------------------------------------------------------------------------------------------------------------------
Transfer to a You must either:
non-participating securities o Transfer your shares to an account with the program
dealer. agent; or
o Sell your shares.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
18 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sell Your Shares Have your securities dealer The price of your shares is based on the next calculation of
submit your sales order to net asset value after your order is placed. For your
one of the Administrators. 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 You may sell shares held at the program agent by writing to
agent. 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 You can exchange your shares of the Program for shares of
Shares for shares of another program. The Municipal Fund Accumulation Program, Inc. You must have
Be sure to read that held the shares used in the exchange for at least 60
program's prospectus. 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 19
<PAGE>
[CLIPART] Your Account
Net Asset Value -- the market value of the Program's total assets
after deducting liabilities, divided by the number of shares outstanding.
Dividends -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Program shares as they paid.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
HOW SHARES ARE PRICED
Each distribution on your units will automatically be applied to purchase shares
at net asset value. This is the offering price. Shares are also redeemed at
their net asset value. The Program calculates its net asset value (generally by
using market quotations) each day the New York Stock Exchange is open, fifteen
minutes after the close of business on the Exchange (the Exchange generally
closes at 4:00 p.m. Eastern time). The net asset value used in determining your
price is the next net asset value 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.
20 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
Management of the Program [CLIPART]
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 $355,894.
Fund Asset Management is part of Merrill Lynch Asset Management Group, which had
approximately $515 billion in investment company and other portfolio assets
under management as of March 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 $714,516 (representing 1.00% of its average daily 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 21
<PAGE>
[CLIPART] Management of the Program
A Note About Year 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Program could be adversely
affected if the computer systems used by the Program's management or other
Program service providers do not properly address this problem before January 1,
2000. The Program's management expects to have addressed this problem before
then, and does not anticipate that the services it provides will be adversely
affected. The Program's other service providers have told the Program management
that they also expect to resolve the Year 2000 Problem, and Program management
will continue to monitor the situation as the Year 2000 approaches. However, if
the problem has not been fully addressed, the Program could be negatively
affected. The Year 2000 Problem could also have a negative impact on the
companies in which the Program invests. The negative impact may be greater for
companies in foreign markets, especially emerging markets, since they may be
less prepared for the Year 2000 Problem than domestic companies and managers. If
the companies in which the Fund invests have Year 2000 Problems, the Program
could be adversely affected.
22 THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
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 $ 21.13 $ 20.69 $ 21.59 $ 19.14 $ 21.55
- ---------------------------------------------------------------------------------------------------------------------------
Investment income--net 1.19 1.22 1.23 1.28 1.18
- ---------------------------------------------------------------------------------------------------------------------------
Realized and unrealized
gain (loss) on investments--net .50 .44 (.90) 2.45 (2.41)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.69 1.66 .33 3.73 (1.23)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends from investment
income--net (1.20) (1.22) (1.23) (1.28) (1.18)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 21.62 $ 21.13 $ 20.69 $ 21.59 $ 19.14
- ---------------------------------------------------------------------------------------------------------------------------
Total Investment Return:
- ---------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 8.24% 8.30% 1.69% 20.05% (5.78%)
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses 1.00% .99% 1.12% 1.01% 1.10%
- ---------------------------------------------------------------------------------------------------------------------------
Investment income--net 5.60% 5.84% 5.84% 6.23% 5.80%
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 71,131 $72,381 $77,748 $85,402 $ 82,887
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 66% 90% 77% 104% 122%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Based on average shares outstanding.
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM 23
<PAGE>
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THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
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THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<PAGE>
(This page intentionally left blank)
THE CORPORATE FUND INVESTMENT ACCUMULATION PROGRAM
<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 DEALERS The Bank of New York
101 Barclay Street
Arranges for reinvestment. New York, New York 10007
- ----------------------------------
Performs recordkeeping and
reporting services.
--------------------------
- ------------------------ ---------------------- ---------------------------
COUNSEL THE PROGRAM CUSTODIAN AND DIVIDEND
DISBURSING AGENT
Rogers & Wells llp The Board of Directors
200 Park Avenue oversees the Program. The Bank of New York
New York, New York 10166 ----------------------- 101 Barclay Street
New York, New York 10007
Provides legal advice
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 800 Scudders Mill Road
on 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
<PAGE>
For More Information [CLIPART]
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 following address and
telephone number if you have any shareholder inquiries or would like to request
other information about the Program. The address of the Program is P.O. Box
9011, Princeton, New Jersey 08543-9011, and its telephone number is (609)
282-2000.
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
PROSPECTUS
The Corporate Fund Investment Accumulation Program
April 30, 1999
<PAGE>
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 intermediate-term fixed-interest bearing debt
obligations primarily issued by corporations. 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 30, 1999, which has been filed with the
Securities and Exchange Commission and can be obtained without charge by calling
or by writing the Program at the above telephone number or address. The
Prospectus is incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is incorporated by
reference into the Prospectus. The Program's audited financial statements are
incorporated in this Statement of Additional Information by reference to its
1998 annual report to shareholders. You may request a copy of the annual report
at no charge by calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m.
on any business day.
--------------------
The date of this Statement of Additional Information is April 30, 1999.
<PAGE>
TABLE OF CONTENTS
Page
----
The Program .............................................................. 2
In General ............................................................ 2
Terms and Conditions of Participation ................................. 2
Investment Objectives and Policies ....................................... 3
General ............................................................... 4
Risk Factors and Special Considerations Relating
to Foreign Securities ............................................... 5
Risk Factors and Special Considerations Relating to
Other Portfolio Securities .......................................... 7
Portfolio Management and Turnover Rate ................................ 9
Investment Restrictions .................................................. 10
Investment Advisory and Administration Agreements ........................ 11
Investment Advisory Agreement ......................................... 11
The Adviser ........................................................... 12
Code of Ethics ........................................................ 13
Administration Agreement ............................................. 14
Management of the Program ................................................ 14
Directors and Officers ................................................ 14
Net Asset Value .......................................................... 17
Redemption of Shares ..................................................... 17
Exchange Privilege ....................................................... 18
Taxes and Dividends ...................................................... 19
State and Local Taxes ................................................. 20
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 ......................................................... 23
Reports to Shareholders ............................................... 23
Shareholder Inquiries ................................................. 23
Additional Information ................................................ 23
Financial Statements ..................................................... 23
Appendix: Description of Corporate Bond Ratings .......................... A-1
<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 (101 Barclay Street, New
York, New York 10007) 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).
2
<PAGE>
In addition to their right to redeem their Shares and receive a payment
equal to the net asset value thereof (see "Redemption of Shares" and "Exchange
Privilege" herein), Shareholders may at any time, by so notifying the Agent in
writing (the Agent will deliver a copy of such notice to the trustee for the
respective series of the Unit Trust Funds), elect to (i) terminate their
participation in the Program and thereafter receive all distributions on their
Units in cash, (ii) terminate their participation in part as to distributions of
capital gains and principal on their Units and thereafter receive distributions
in cash out of the principal accounts for the respective Unit Trust Funds or
(iii) terminate their participation in part, as to distributions of interest on
their Units and thereafter receive future distributions in cash out of the
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
been titled 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 owner
select 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 $87,604 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.
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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 ("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 Appendix: "Description
of Corporate Bond Ratings" 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
maybe 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
maybe 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
Appendix: "Description of Corporate Bond Ratings" 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. Certain securities in which the Program
invests may be denominated or quoted in currencies other than the U.S. dollar.
Changes in foreign currency exchange rates will affect the value of such
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 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.
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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 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"). 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) were
redenominated in the euro, and, will now be listed, traded, and make dividend
and other payments only in euros.
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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 herein.
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 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,
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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. Interest rates on inverse floaters, for example, vary inversely
with a short-term floating rate (which may be reset periodically by a dutch
auction, a remarketing agent or by reference to a short-term interest rate
index). Interest rates on inverse floaters will decrease when short-term rates
increase, and will increase when short-term rates decrease. These securities
have the effect of providing a degree of investment leverage. In response to
changes in market interest rates or other market conditions, the value of an
inverse floater may increase or decrease at a multiple of the increase or
decrease in the value of the underlying securities. The values of inverse
floaters are therefore more volatile than their underlying securities. 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 freely
tradable in their primary markets offshore. 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
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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.
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.
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.
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
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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 66% 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);
(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;
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(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.
The Program does not have a policy with respect to the issuance of senior
securities. However, the Program currently does not intend to issue any senior
securities.
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."
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
11
<PAGE>
all aspects of the Program's operations including coordinating all matters
relating to the functions of the Agent, Custodian and other parties performing
operational functions for the Program; (b) provide the Program, at the Adviser's
expense, with the services of such persons competent to perform such
administrative and clerical functions as are necessary in order to provide
effective administration of the Program, including duties in connection with
Shareholder relations, reports, redemption requests and account adjustments and
the maintenance of certain non-accounting Program books and records; (c) provide
the Program, at the Adviser's expense, with adequate office space and related
services; (d) supervise and administer the operation of the Exchange Privilege
referred to in "Redemption of Shares" and "Exchange Privilege"; and (e) to the
extent required by then current federal securities laws, regulations thereunder
or interpretations thereof, pay for the printing of all Program prospectuses
used in connection with the distribution and sale of the Shares (a regulation
permits investment companies to pay such expenses only when an agreement to that
effect has been approved by shareholders and subject to various other
conditions). In return the Program has agreed to pay a fee each month to 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 $355,894
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 $21,190. For the fiscal year ended December 31, 1998,
the Program's total expenses were $714,516 representing 1.00% 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 30, 1999. The Agreement provides that the
Adviser shall have no liability to the Program or any Shareholder for any error
of judgment, mistake of law or any loss arising out of any investment, or for
any other act or omission in the performance by the Adviser of its duties under
the Agreement, except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Adviser's part or from reckless disregard by
the Adviser of its obligations and duties under the Agreement. The Agreement
automatically terminates upon its assignment, is terminable, without penalty, by
the Board or by vote of the holders of a majority of the Shares on 60 days'
notice to the Adviser and by the Adviser on 90 days' notice to the Program. The
Adviser's right to terminate could operate to the disadvantage of or work a
hardship on the Program.
The Adviser
The Adviser to the Program is Fund Asset Management, L.P.("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.
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<PAGE>
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 March 1999, AMG had a
total of approximately $515 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 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. During its fiscal years ended December 31, 1996, 1997 and
1998, the Program did not pay any sub-advisory fees to MLAM U.K. The address of
MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England. 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.
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.
13
<PAGE>
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Program within periods of trading by the
Program in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
Administration Agreement
The Adviser has entered into an agreement (the "Administration Agreement")
with the Administrators for the performance by them, at their expense, on behalf
of the Adviser of the administrative functions described in clause (2) of the
first paragraph under "Investment Advisory Agreement" which the Adviser is
obligated to perform and has agreed to pay to the Administrators an aggregate
monthly fee at the annual rate of 0.2% of the value of the Program's average
daily net assets from the beginning of the year to the end of such month. The
fee so payable by the Adviser will be allocated among the Administrators in the
following respective percentages: Merrill Lynch, 48%; Prudential, 21%; Morgan
Stanley Dean Witter, 21%; and Salomon Smith Barney, 10%.
Merrill Lynch has been appointed by the other Administrators as agent for
purposes of taking any action under the Administration Agreement with respect to
the Program by power of attorney executed by such Administrators and filed with
the Program and the Agent. Provision is also made under the Administration
Agreement that if the Administrators are unable to agree in respect to action to
be taken jointly by them thereunder and cannot agree as to which Administrators
shall continue to act as Administrators, then Merrill Lynch shall continue to
act as sole Administrator. Similarly, if one or more of the Administrators fail
to perform their duties under the Administration Agreement or become incapable
of acting or become bankrupt or if their affairs are taken over by public
authorities, then each such Administrator shall be automatically discharged
under the Administration Agreement, and the remaining Administrators shall act
as sole Administrators. In addition, the Administration Agreement is terminable,
without penalty, by the Adviser on 60 days' notice to the Administrators and by
the Administrators, acting as a group, on 90 days' notice to the Adviser. The
Administrators' right to terminate could operate to the disadvantage of or work
a hardship on the Program.
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.
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 seven 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.
14
<PAGE>
The Directors and Officers of the Program, their addresses, ages and their
principal occupations for at least the last five years are set forth below.
<TABLE>
Position Held
Name, Address and Age with Fund Principal Occupation(s) During Past Five Years
- ------------------------------ ------------- ----------------------------------------------------
<S> <C> <C>
TERRY K. GLENN (58) President and Executive Vice President of the Adviser and MLAM
800 Scudders Mill Road Director(1)(2) since 1983; Executive Vice President and Director of
Plainsboro, New Jersey 08536 Princeton Services, Inc. ("Princeton Services") since
1993; President of Princeton Funds Distributor, Inc.
(the "Distributor") since 1986 and Director thereof
since 1991; President of Princeton Administrators,
L.P. since 1988.
RONALD W. FORBES (58) Director(2) Associate Professor of Finance, School of Business,
1400 Washington Avenue State University of New York at Albany since 1989;
Albany, New York 12222 Consultant, Urban Institute, Washington, D.C. since
1995.
CYNTHIA A. MONTGOMERY (46) Director(2) Professor, Harvard Business School, since 1989;
Harvard Business School Associate Professor, J.L. Kellog Graduate School of
Soldiers Field Road Management, Northwestern University from 1985 to
Boston, Massachusetts 02163 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) Self-employed financial consultant since 1990;
9 Hampton Harbor Road President and Chief Investment Officer of Verus
Hampton Bays, New York 11946 Capital, Inc. from 1979 to 1990;Senior Vice President
of Arnhold and S. Bleichroeder, Inc. from 1973 to
1990; Adjunct Professor, Columbia University
Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of
Pennsylvania from 1989 to 1990; Partner, Small Cities
Cable Television from 1986 to 1997.
KEVIN A RYAN (66) Director(2) Founder, current Director of The Boston University
127 Commonwealth Avenue Center for Advancement of Ethics and Character;
Chestnut Hill, Massachusetts 02167 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) Professor of Finance since 1984, and Dean from 1984
Box 604, to 1993, and currently Dean Emeritus of New York
Genoa, Nevada 89411 University Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. Vornado
Realty Trust, Inc., Smith-Corona Corporation and
Alexander's Inc.
ARTHUR ZEIKEL (66) Director(1)(2) Chairman of the Adviser and MLAM from 1997 to
300 Woodland Avenue 1999; President of MLAM and FAM from 1977 to
Westfield, New Jersey 07090 1997; Chairman of Princeton Services from 1997 to
1999 and Director thereof from 1993 to 1999;
President of Princeton Services from 1993 to 1997;
Executive Vice President of ML &Co.from 1990 to 1999.
</TABLE>
15
<PAGE>
<TABLE>
Position Held
Name, Address and Age with Fund Principal Occupation(s) During Past Five Years
- ------------------------------ ------------- ----------------------------------------------------
<S> <C> <C>
JOSEPH T. MONAGLE (50) Senior Vice Senior Vice President of the Adviser and MLAM since
800 Scudders Mill Road President(1)(2) 1990; Department Head of the Global Fixed Income
Plainsboro, New Jersey 08536 Income Division of the Adviser and MLAM since
1997; Senior Vice President of Princeton Services
since 1993.
CHRISTOPHER G. AYOUB (43) Senior Vice First Vice President of MLAM since 1998; Vice
800 Scudders Mill Road President(1)(2) President of MLAM from 1985 to 1998.
Plainsboro, New Jersey 08536
DONALD C. BURKE (38) Vice President and Senior Vice President and Treasurer of the Adviser
800 Scudders Mill Road Treasurer(1)(2) and MLAM since 1999; Senior Vice President and
Plainsboro, New Jersey 08536 Treasurer of Princeton Services since 1999; Vice
President of the Distributor since 1999; First Vice
President of the Adviser and MLAM from 1997 to 1999;
Vice President of MLAM from 1990 to 1997.
SUSAN B. BAKER(41) Secretary(1) (2) Director (Legal Advisory) of the Advisor since 1999;
800 Scudders Mill Road Vice President of the Advisor since 1993; attorney
Plainsboro, New Jersey 08536 associated with the Advisor since 1987.
</TABLE>
- ------------
(1) Interested person, as defined in the Investment Company Act, of the Program.
(2) The Directors and officers of the Program are Directors and 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.
Total Compensation
Aggregate Pension Or From Program And
Compensation Retirement Benefits Fund Complex And
From The Accrued As Part Of Paid To
Name Of Director Program Program Expenses Directors
---------------- ------------ ------------------- ----------------
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 $346,125
- --------
(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 82 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.
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<PAGE>
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 "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 $3,791 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, (101 Barclay Street, New York, New York 10007). 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.
17
<PAGE>
The redemption price will be the net asset value next determined after
either (i) the certificates are tendered for redemption or (ii) if no
certificates have been issued, a request for redemption is received in good
order as set forth above. The price received upon redemption may be more or less
than the amount paid by the Shareholder depending on the net asset value of the
Shares at the time of redemption. Payment of the redemption price must be made
within seven days after proper tender unless further postponement is permissible
under the Investment Company Act by reason of closing of or restriction of
trading on the NYSE, or other emergency.
Any of the Administrators may accept orders from dealers with whom they
have satisfactory agreements for the repurchase of Shares held by Holders.
Repurchase orders received by the dealer prior to the close of business on the
NYSE (generally 4:00 P.M., New York City time) on any business day and
transmitted by the Administrator prior to the close of its business day
(generally 4:00 P.M., New York City time) are redeemed at the price determined
as of the close of business on the NYSE on such day. Repurchase orders received
after the close of business on the NYSE on any business day are redeemed at a
price determined as of the close of business on the NYSE on the next business
day. It is the responsibility of the dealers to transmit orders so that they
will be 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.
18
<PAGE>
This Exchange Privilege may be modified or terminated at any time. The
Program reserves the right to limit the number of times an investor may exercise
the Exchange Privilege. To exercise the Exchange Privilege, a Shareholder should
contact one of the Administrators, who will advise the Program and the Other
Program of the exchange, or the Shareholder may write to the Agent requesting
that the exchange be effected. Such letter must be signed exactly as the account
is registered with signatures guaranteed by a member firm of a national or
regional stock exchange or any commercial bank or trust company. Shareholders
with Shares for which certificates have not been issued may exercise the
Exchange Privilege by wire through their securities dealers. The Program
reserves the right to require a properly completed Exchange Application.
TAXES AND DIVIDENDS
The Program has qualified and intends to continue to qualify for the
special tax treatment applicable to "regulated investment companies" under the
Internal Revenue Code of 1986, as amended. If the Program qualifies as a
"regulated investment company" and 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.
19
<PAGE>
Dividends declared by the Fund in October, November or December of any year
and made payable to Shareholders of record in such month will be deemed to be
received on December 31 of such year if actually paid during the following
January.
If a Shareholder's holding period in his Shares is six months or less, any
capital loss realized from a sale or exchange of such Shares must be treated as
long-term capital loss to the extent of capital gains dividends received with
respect to such Shares.
Dividends may be subject to a 30% United States withholding tax under the
existing provisions of the Code applicable to foreign individuals and trusts,
estates, partnerships and corporations unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty. Shareholders who are
nonresident aliens or foreign entities are urged to consult their own tax
advisers concerning the applicability of the United States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Regulations
are subject to change by legislative or administrative action.
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. The portfolio
securities of the Program generally are traded on a principal basis and normally
do not involve either brokerage commissions or transfer taxes. The cost of
portfolio securities transactions of the Program primarily consists of dealer or
underwriter spreads (mark-ups or mark-downs). While reasonable competitive
spreads or commissions are sought, the Program will not necessarily be paying
the lowest spread or commission available.
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.
20
<PAGE>
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.
Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Adviser or an affiliate when one or
more clients of the Adviser or an affiliate are selling the same security. If
purchases or sales of securities arise for consideration at or about the same
time that would involve the Program or other clients or funds for which the
Adviser or an affiliate acts as manager, transactions in such securities will be
made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Adviser or an affiliate during the same period may increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
PERFORMANCE DATA
The Program may from time to time include its average annual total return
and yield in advertisements or information furnished to present or prospective
shareholders. Both total return and yield figures are based on the Program's
historical performance and are not intended to indicate future performance.
Average annual total return and yield are determined in accordance with formulas
specified by the Securities and Exchange Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based upon
net investment income and any capital gains or losses on portfolio investments
over such periods) that would equate the initial amount invested to the
redeemable value of such 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.
21
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Set forth below is the Program's average annual total return information
for the periods indicated:
5-Year Period 10-Year Period
Year Ended Ended Ended
December 31, 1998 December 31, 1998 December 31, 1998
----------------- ----------------- -----------------
Average Annual
Total Return (a) ... 8.24% 6.16% 8.50%
- ---------
(a)Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based upon
net investment income and any capital gains or losses on portfolio
investments over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each period. Average
annual total return is computed assuming all dividends and distributions are
reinvested and taking into account all applicable recurring and nonrecurring
expenses.
The Program may supplement this Statement of Additional Information with
yield quotations to comply with certain regulations issued by the Securities and
Exchange Commission with respect to the advertisement of performance. Yield
quotations will be computed based on a 30-day period by dividing the net income
earned during the period based on the yield to maturity of each security held by
the Program by the average daily number of shares outstanding during the period
that were entitled to receive dividends times the maximum offering price per
share on the last day of the period.
GENERAL INFORMATION
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
22
<PAGE>
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.
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 April 1, 1999.
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.
23
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APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Ratings of Corporate Bonds
Description of Corporate Bond Ratings of Moody's Investors Service, Inc.:
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 that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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 rating
category.
Description of Corporate Bond Ratings of Standard & Poor's Ratings Group:
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-1
<PAGE>
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 Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
B speculative with respect to the issuer's capacity to pay interest and
CCC repay principal in accordance with the terms of the obligation. BB
CC 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 C rating 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 rincipal 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.
Description of Corporate Bond Ratings of Fitch IBCA, Inc.'s ("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.
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.
A-2
<PAGE>
PART C
ITEM 23. Exhibits
Exhibit
Number Description
-------- ----------
1(a) -- 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).
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
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 and Consent of Rogers & Wells LLP*
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(incorporated by reference to Exhibit
27 to Post-Effective Amendment No. 25 to Registant's
Registration Statement on Form N-1A (File No. 2-57060)).
- ---------
* 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 Insured
Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Michigan Insured
Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund III, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York Insured Fund
III, Inc., MuniHoldings Pennsylvania Insured Fund, 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,
C-2
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill
Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series
Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc.; and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley,
a division of MLAM); and the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund, Inc. MLAM also acts as Subadvisor to Merrill Lynch
World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two
investment portfolios of EQ Advisors Trust.
The address of each of these investment companies is Box 9011, Princeton,
New Jersey 08543-9011. The address of Merrill Lynch Funds for Institutions
Series is One Financial Center, 15th Floor, Boston, Massachusetts 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. 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. Glenn is president and a director, and Mr. Burke is treasurer of
FAM and MLAM as well as all or substantially all of the investment companies
advised by FAM or MLAM.
<TABLE>
<CAPTION>
Position With Other Substantial Business,
Name Investment Adviser Profession, Vocation or Employment
- ----- ----------------- --------------------------------
<S> <C> <C>
ML & Co. ................... Limited Partner Financial Services Holding Company; Limited Partner of MLAM.
Princeton Services, Inc. ... General Partner General Partner of MLAM.
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 and Director
President of Princeton Services; President and Director of MLFD; Director of FDS;
President of Princeton Administrators, L.P.
Donald C. Burke ............ Senior Vice President Treasurer and Director of Taxation of MLAM; Senior Vice President
and Treasurer of Princeton Services; Vice President and Treasurer
of PFD; First Vice President of MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997.
Michael G. Clark ........... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services.
Mark A. DeSario ............ Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton
Services.
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.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Position 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-Yaros ... Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton
Services; Vice President of PFD.
Stephen M. M. Miller ...... Senior Vice President Executive Vice President of Princeton Administrators, L.P.; Senior
Vice President 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.
</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. Glenn, 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>
Position With Other Substantial Business,
Name MLAM U.K. Profession, Vocation or Employment
- ----- ------------- ----------------------------------
<S> <C> <C>
Terry K. Glenn ............ Chairman and Executive Vice President of MLAM; Executive Vice
Director President and Director of Princeton Services; President and
Director of PFD; Director of FDS; President of Princeton
Administrators.
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 of the Adviser; Treasurer and Director of
Taxation of MLAM; Senior Vice President and Treasurer of Princeton
Services; Vice President 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, each as amended, the Registrant certifies that
it meets the requirements for effectiveness of this Post-Effective Amendment to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective 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 30th
day of April,1999.
THE CORPORATE FUND ACCUMULATION
PROGRAM, INC.
(Registrant)
By /s/DONALD C. BURKE
-----------------------------
Donald C. Burke,
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ---- ----
* President and Director (Principal
- ------------------------------- Executive Officer)
(Terry K. Glenn)
/s/ DONALD C. BURKE Vice President and Treasurer April 30, 1999
- ------------------------------- (Principal Financial and
(Donald C. Burke) Accounting Officer)
* Director
- -------------------------------
(Ronald W. Forbes)
* Director
- -------------------------------
(Cynthia A. Montgomery)
* Director
- -------------------------------
(Charles C. Reilly)
* Director
- -------------------------------
(Kevin A. Ryan)
* Director
- -------------------------------
(Richard R. West)
*By: /s/DONALD C. BURKE April 30, 1999
- -------------------------------
(Donald C. Burke)
Attorney-in-Fact
C-6
<PAGE>
INDEX TO EXHIBITS
Exhibit
Numbers Description
- -------- ----------
10 -- Opinion and Consent of Rogers & Wells LLP.
11 -- Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
EXHIBIT 10
ROGERS & WELLS LLP
200 Park Avenue
New York, NY 10166
(212) 878-8483
Facsimile (212) 878-8375
April 30, 1999
The Corporate Fund Accumulation Program, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for The Corporate Fund Accumulation Program, Inc., a
corporation organized under the laws of the State of Maryland (the "Fund"). This
opinion is being delivered to you in connection with the filing of a
post-effective amendment (the "Post-Effective Amendment") to the Fund's
registration statement under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, on Form N-1A (File Nos. 2-57060 and
811-2642), as amended (together with the "Post-Effective Amendment", the
"Registration Statement").
We have examined and are familiar with the Articles of Incorporation of the
Fund, the By-Laws of the Fund and such other documents as we have deemed
relevant to the matters referred to in this opinion. As to matters in the
following opinion governed by the laws of the State of Maryland, we have relied
on an opinion of Brown & Wood L.L.P., special Maryland counsel to the Fund.
Based upon the foregoing, in our opinion, the Shares have been duly authorized
for issuance by the Company, and upon issuance and delivery as described in the
Registration Statement, the Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus and
statement of additional information constituting parts thereof. In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Rogers & Wells LLP
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Corporate Fund Accumulation Program, Inc.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 26 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
April 22, 1999
