ICA-Merrill Lynch Project : Junk-Bond Fund Is Aimed at S

ICA Capital Markets, a subsidiary of Imperial Corp. of America, and Merrill Lynch & Co. are underwriting a junk-bond mutual fund that will be aimed at small to mid-size savings and loans, the companies said Tuesday. The fund will be managed by ICA’s Caywood-Christian Capital Management subsidiary and marketed by Merrill Lynch, a spokesman said.

The high-yield fund is designed to provide “a high level of current income” to S&Ls; whose accounts are insured by the Federal Deposit Insurance Corp., according to a prospectus. The fund will include both rated and non-rated non-convertible corporate securities.

Merrill Lynch and San Diego-based ICA hope the fund will draw $1 billion.

An ICA spokesman declined to comment on fee income that the fund will generate for it.

“Compared with higher-rated, lower-yielding, fixed-income securities, portfolio securities of the fund may be subject to greater risk of loss of income and principal and greater risk of increases and decreases in net asset value,” according to the fund prospectus.

The fund would qualify as a legal investment for federally chartered S&Ls;, according to a legal opinion sought by Caywood-Christian.

Consequently, S&Ls; that invest assets in the fund--and that follow applicable accounting regulations--would not prompt additional regulatory scrutiny through their involvement in the junk bond market, according to the prospectus.

However, S&Ls; can invest no more than 5% of their total assets in the fund, according to the prospectus.

The minimum investment for the fund will be $1 million.

To reduce risks, the fund will generally limit investments in a single industry to less that 15% of the fund’s assets.

Some large S&Ls; are heavily involved in the high-yield junk bond market. For example, at ICA’s Imperial Savings of California subsidiary, junk bonds account for $1.5 billion of the S&L;’s $12.3 billion in assets.

Caywood-Christian has $2.5 billion in assets under management, largely for thrifts. However, that total includes $1.5 billion of assets under management for Imperial Savings.