NEXTGEN COLLEGE INVESTING PLAN PROGRAM DESCRIPTION

AND

PARTICIPATION AGREEMENT

September 20, 2010

CLIENT DIRECT SERIES

The NextGen College Investing Plan is a Section 529 Program administered by the Finance Authority of Maine. Merrill Lynch, Pierce, Fenner & Smith Incorporated is the Program Manager of the NextGen College Investing Plan. This Program Description and Participation Agreement contains information you should know before participating in the Program, including information about fees, expenses and risks. Please read it before you invest and keep it for future reference. Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or passed upon the adequacy of this Program Description and the Participation Agreement. Any representation to the contrary is a criminal offense. These securities have not been registered with the U.S. Securities and Exchange Commission or any state securities commission.

This Program Description and Participation Agreement will be updated from time to time to reflect changes to the Program and is subject to change without notice. The information contained in this Program Description and Participation Agreement amends and supersedes all information contained in prior Program Descriptions and Participation Agreements. Participants should rely only on the information contained in this Program Description and Participation Agreement. No one is authorized to provide information that is different from the information contained in this Program Description and Participation Agreement. The Client Direct Series of the NextGen College Investing Plan (offered through this Program Description) offers a variety of investment options directly through the Finance Authority of Maine and Maine Distribution Agents. The Client Select Series of the NextGen College Investing Plan (offered through a different program description) offers different fees, sales charges, expenses and investment options exclusively through financial advisors. Program accounts are not bank deposits, are not insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration, are not debt or obligations of, or guaranteed by, any bank or other financial institution or the Finance Authority of Maine, the State of Maine, the Program Manager, BlackRock Investment Management, LLC, Massachusetts Financial Services Company, Franklin Templeton Investments, or Maine Distribution Agents. Participation in the Program involves investment risks, including the possible loss of principal.

Where to Obtain More Information, Forms or Ask Questions: The Program Manager may be contacted at Merrill Lynch, College Plan Services, P.O. Box 1518, Pennington, NJ 08534-1518, or at (877) 4-NEXTGEN (463-9843). FAME may be contacted at P.O. Box 949, Augusta, ME 04332-0949, or at (800) 228-3734. You can also contact your Maine Distribution Agent, or visit the Programs Web site located at [Link].

Section 529 Qualified Tuition Programs are intended to be used only to save for qualified higher education expenses. These Programs are not intended to be used, nor should they be used, by any taxpayer for the purpose of evading federal or state taxes or tax penalties. In addition, in order to comply with requirements of the U.S. Treasury Department and Internal Revenue Service (IRS), we advise you that this Program Description (i) is not intended as individual tax advice to any person (including any Participant or Designated Beneficiary), (ii) is provided as general information in connection with the promotion or marketing of the Program and (iii) is not provided or intended to be used, and cannot be used, by any taxpayer, for the purpose of avoiding U.S. tax penalties. Taxpayers may wish to seek tax advice from an independent tax advisor based on their own particular circumstances.

FINANCE AUTHORITY OF MAINE PRIVACY POLICY

Protecting the privacy of your personal information is important to us at the Finance Authority of Maine. We collect nonpublic personal information about you from the following sources: Information we receive from you on applications, correspondence, communications and other forms. Information about your transactions with respect to your Account. We do not disclose any nonpublic personal information about you or our other current or former customers to anyone, except as permitted by law. We never rent or sell your name or personal financial information. (We do share such information with our contractors and agents such as Merrill Lynch and any Maine Distribution Agent for your Account, and as needed to administer your Account transactions in conformance with law.) We restrict access to nonpublic personal information about you to our employees who need to know the information, and to contractors and agents in order to provide service to you. We maintain physical, electronic and procedural safeguards in compliance with federal regulations to safeguard your nonpublic personal information.

BANK OF AMERICA PRIVACY POLICY

Account owners will receive the Bank of America Privacy Policy (the "Privacy Policy") at the time a NextGen College Investing Plan Account is opened and as required by law. The Privacy Policy describes Bank of America's policies applicable to U.S. consumers across a number of Bank of America companies. Except for Program Accounts opened in connection with a Merrill Lynch Financial Advisor, no Bank of America company (as defined in the Privacy Policy), including but not limited to Merrill Lynch, will use Customer Information (as defined in the Privacy Policy) provided in connection with Program Accounts to make nonProgram direct marketing offers by postal mail, telephone and/or e-mail. Accordingly, for Participants and Designated Beneficiaries with Program Accounts that were not opened in connection with a Merrill Lynch Financial Advisor, no action is required in order to prevent direct marketing offers from such Bank of America companies. You are encouraged to read the complete Privacy Policy as it contains other important information, including how Bank of America collects, manages and protects your Customer Information and what actions you can take. If you would like a copy of the Privacy Policy, please call 1-888-341-5000 or visit Bank of America's Web site at [Link]/privacy.

THIS PAGE IS INTENTIONALLY LEFT BLANK

NEXTGEN COLLEGE INVESTING PLAN PROGRAM DESCRIPTION

CLIENT DIRECT SERIES

September 20, 2010

THIS PAGE IS INTENTIONALLY LEFT BLANK

TABLE OF CONTENTS
Finance Authority of Maine Privacy Policy ................... 3 Bank of America Privacy Policy .................................... 3 Program Highlights........................................................ 8 Key Terms..................................................................... 10 Participation and Accounts Establishing an Account ........................................... 13 Contributions.............................................................14 Ownership of Contributions ...................................... 16 Change of Designated Beneficiary............................ 16 Successor Participants ............................................. 17 Investment of Contributions...................................... 17 Statements and Reports ............................................18 Other Provisions ....................................................... 18 Withdrawals ............................................................. 18 Qualified Withdrawals............................................... 19 Non-Qualified Withdrawals and the Additional Tax .... 20 Qualifying Rollovers to Other Section 529 Programs... 20 Residual Account Balances and Termination............. 21 Community Property................................................. 21 Penalties for Misrepresentation ................................ 21 The NextGen Portfolios Investment Options .................................................. 21 Portfolio Series......................................................... 22 Portfolio Allocations.................................................. 22 Portfolio Investments ............................................... 23 Portfolio Selection .................................................... 23 Program Fees and Expenses Portfolio Investment Fees and Expenses................... 24 Annual Asset-Based and Other Fees......................... 24 Client Direct Series................................................... 25 Adjustment of Management Fee............................... 26 Other Compensation................................................. 26 Investment Cost Charts ............................................ 26 Cost Example Principal Plus Portfolio .................... 27 Exchanges of Existing Account Assets to Another Portfolio ............................................... 27 Tax Treatment of Investments and Withdrawals General .................................................................... 28 Federal Taxation of Section 529 Programs .............. 28 Taxation by Maine .................................................... 30 Taxation by Other States .......................................... 30 Tax Reports and Filings ............................................ 31 Program and Portfolio Risks and Other Considerations ............................................... 32 Investment Risks of Underlying Funds................... 34 Investment Risks of BlackRock iShares Portfolios Investments........................................... 37 Investment Risks of Principal Plus Portfolio Investments .......................................................... 37 The Program and the Program Fund The Program ............................................................ 38 The Program Fund ................................................... 38 The Investment Fund................................................ 38 Special Benefits Available to Maine Residents .......... 38 Program Management and Administration General .................................................................... 39 Finance Authority of Maine ....................................... 39 The Treasurer ........................................................... 39 Advisory Committee ................................................. 39 Merrill Lynch and FDS .............................................. 39 Sub-Advisors............................................................ 40 The Program Management Agreement Services and Terms.................................................. 40 Standard of Care ...................................................... 40 Termination of Agreement ........................................ 40 Audits....................................................................... 40 Miscellaneous Securities Laws........................................................ 41 Method of Offering ................................................... 41 Continuing Disclosure............................................... 41 SIPC Insurance and Additional Coverage .................. 41 Obtaining Additional Information About the Program... 41 NextGen Portfolios Performance and Investments General .................................................................... 42 Age-Based Diversified Portfolios............................... 42 Diversified Portfolios................................................. 42 Single Fund Portfolio ................................................ 42 Principal Plus Portfolio.............................................. 42 BlackRock Portfolios................................................. 44 Cash Allocation Account ........................................... 50 iShares Portfolios ..................................................... 51 Franklin Templeton Portfolio ..................................... 57 MFS Portfolio............................................................ 63 Principal Plus Portfolio.............................................. 66 Participation Agreement.............................................. 69

PROGRAM HIGHLIGHTS
The NextGen College Investing Plan was established by the State of Maine to encourage investing to pay for Qualified Higher Education Expenses (as defined below). These Program Highlights only summarize certain features of the Program. More detailed information about the Program, including establishing a NextGen Account, the Portfolios, fees and expenses, investment risks, and tax consequences, are described in the pages that follow. Please read this entire Program Description and the Participation Agreement carefully before investing and keep them for future reference. Certain Key Terms used in this Program Description and the Participation Agreement are defined beginning on page 10. Program Administrator Program Manager; Portfolio Servicing Agent The Finance Authority of Maine administers the Program. Merrill Lynch is responsible for the day-to-day operation of the Program as well as the marketing and distribution of the Program. Financial Data Services, Inc., an affiliate of Merrill Lynch, provides certain administrative services to the Program. The Program is available (without restriction on state of residence or income) to: Individuals who are at least 18 years of age and have a valid social security number. Custodial and trust accounts and state or local government or tax-exempt organizations described in section 501(c)(3) of the Code or certain other entities, with a valid taxpayer identification number. The Designated Beneficiary (i.e., the individual for whom Qualified Higher Education Expenses are expected to be paid) may be any individual, regardless of age, with a valid social security number, including the Participant. The Participant: Retains control of how and when Account assets are used. May change the Designated Beneficiary. May take Non-Qualified Withdrawals, subject to applicable federal and state income taxes on earnings and a 10% additional federal tax on earnings.
For More Information

Page 39 Page 39

Participant (Account Owner) Eligibility

Page 13

Designated Beneficiary Eligibility

Page 13

Control of Account

Page 16

Contributions

Initial Contribution - $250 minimum (no such minimum when funding an Account through payroll deduction or automated Contributions and in certain other circumstances). Subsequent Contributions - $50 minimum.

Page 14

Maximum Contribution Limit Qualified Withdrawals

$340,000 per Designated Beneficiary (adjusted periodically).

Page 15

Assets in an Account can be used to pay for Qualified Higher Education Expenses (see definition on page 19) at any eligible post-secondary school in the U.S. or abroad. Available by contacting FAME or the Program Manager directly, or through certain Maine Distribution Agents. 9 investment options managed by BlackRock, MFS and Franklin Templeton, as well as the Principal Plus Portfolio: 2 Age-Based Diversified Portfolio Options 5 Diversified Portfolio Options 1 Single Fund Portfolio Option 1 Principal Plus Portfolio

Page 19

Client Direct Series

Page 21

Investment Options

Pages 21-23

PROGRAM HIGHLIGHTS
For More Information

Fees and Charges

Total Annual Asset-Based Fees, which include Program Fees and Underlying Fund expenses, vary based on the Portfolio option selected. Range of Total Annual Asset-Based Fees* 0.20% - 0.99%

Pages 24-27

Client Direct Series Units Other fees and charges may apply. Investment Risks and Other Considerations

*As a percentage of a Portfolios average annual net assets.

Assets in an Account are not guaranteed, and an Account may lose money. Federal and state tax laws may change and may adversely affect certain tax advantages of an investment in the Program. Investment options, Sub-Advisors, fees and expenses may change. Contributions to an Account may affect the eligibility of the Designated Beneficiary or the Participant for federal and state benefits, such as financial aid or Medicaid. Account earnings accrue federal income tax-free. No federal income tax on the earnings portion of Qualified Withdrawals. No federal gift tax on Contributions up to $65,000 ($130,000 for spouses electing to split gifts) subject to certain limitations. Contributions are generally considered completed gifts for federal gift and estate tax purposes. Contributions are generally not included in the Participants estate for federal estate tax purposes. Portfolio performance information as of June 30, 2010 for those Portfolios in operation as of that date is contained in this Program Description. Updated Portfolio performance information for all Portfolios will be available on the Programs Web site at [Link]. Past Portfolio performance is not indicative of future Portfolio performance. BlackRock Portfolios Performance Franklin Templeton Portfolio Performance MFS Portfolio Performance Principal Plus Portfolio Performance State tax treatment varies from state to state. If Maine is not a Participants home state, the Participant should contact his or her home states Section 529 Program to learn more about potential favorable state tax treatment or other benefits offered by such home state for investing in that states Section 529 Program. A tax deduction of $250 per Designated Beneficiary for Contributions to any Section 529 Program by Maine taxpayers. State tax deduction, Maine Matching Grant Programs, Harold Alfond College Challenge Grant, Account Maintenance Fee waiver, Maine Administration Fee rebate program, and Maine Scholarship Programs.

Pages 32-37

Federal Tax Treatment

Pages 28-30

Portfolio Performance

Page 46 Page 58 Page 63 Page 67 Pages 30-31

State Tax Treatment

Maine State Tax Treatment Special Benefits Available to Maine Residents

Page 30

Page 38

KEY TERMS
Note: Other terms are defined elsewhere in this Program Description Account The repository of all Contributions and Units identified by a formal record of transactions with respect to a particular Participant and Designated Beneficiary. The Program application which is used to establish an Account. A Portfolio for which the assets are invested in a combination of Underlying Funds, based on the age of the Designated Beneficiary specified for such Portfolio. The Cash Allocation Account is a separate account that seeks current income, preservation of capital and liquidity. This Account is invested directly in a diversified portfolio of money market securities and Maine CDs. The Internal Revenue Code of 1986, as amended. The amount contributed to an Account by a Participant or other source. The individual whose Qualified Higher Education Expenses are expected to be paid from the Account, or if the Participant is a state or local government or qualifying tax-exempt organization operating a scholarship program, the recipient of a scholarship paid from the Account. A Portfolio for which assets are invested in one or more Portfolio Investments, in accordance with a fixed asset allocation specified for such Portfolio. Accredited post-secondary educational institutions offering credit toward a bachelors degree, an associates degree, a graduate level or professional degree, or another recognized post-secondary credential which are eligible to participate in certain federal student financial aid programs. This includes certain proprietary institutions, foreign institutions and post-secondary vocational institutions. The Finance Authority of Maine, which is the administrator of the Program. Financial Data Services, Inc., an affiliate of Merrill Lynch, which serves as Portfolio Servicing Agent for the Program. The portion of the Program Fund invested in the Portfolio Investments. Certificates of deposit issued by Maine financial institutions. Participating broker-dealers located in Maine (other than Merrill Lynch) and participating Maine financial institutions. Merrill Lynch, Pierce, Fenner & Smith Incorporated, which serves as Program Manager of the Program. The individual or entity establishing an Account or any successor to such individual or entity. The contract between the Participant and FAME, which establishes the Account and the obligations of FAME and the Participant, as amended. One of the NextGen Portfolios established within the Investment Fund to which Contributions may be allocated, and that are invested in Portfolio Investments. 10

Account Application Age-Based Diversified Portfolio "Cash Allocation Account"

Code Contribution Designated Beneficiary

Diversified Portfolio

Eligible Institutions of Higher Education

FAME FDS

Investment Fund Maine CDs Maine Distribution Agent

Merrill Lynch

Participant Participation Agreement

Portfolio

KEY TERMS
Note: Other terms are defined elsewhere in this Program Description Portfolio Investments Principal Plus Portfolio Investments Program The Underlying Funds and/or the Principal Plus Portfolio Investments, as applicable. The guaranteed investment contracts issued by one or more insurance companies, investments in the Cash Allocation Account, corporate fixed-income investments and/or similar instruments. The Maine College Savings Program (also known as the NextGen College Investing Plan). As of the date of this Program Description, the Program includes the Client Direct Series described in this Program Description and a Client Select Series that is offered through financial advisors and described in a separate program description. This current NextGen College Investing Plan Client Direct Series Program Description and any effective supplements to it. The Maine College Savings Program Fund. The company that is responsible for the day-to-day operation of the Program as well as its marketing and distribution. Currently, Merrill Lynch is the Program Manager. Expenses including tuition, fees, and the cost of books, supplies and certain equipment required for the enrollment or attendance of a Designated Beneficiary (including expenses for special needs services in the case of a special needs beneficiary) at an Eligible Institution of Higher Education, along with room and board expenses (for students attending at least half-time, subject to certain limitations under Section 529 of the Code). In calendar years 2009 and 2010 only, unless extended by Congress, Qualified Higher Education Expenses also include expenses for the purchase of certain computer technology or equipment (as defined in Section 170(e)(6)(F)(i) of the Code) or Internet access and related services, if such technology, equipment or services are to be used primarily by the Designated Beneficiary while enrolled at an Eligible Institution of Higher Education. However, expenses for computer technology and equipment do not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in use. Withdrawals from an Account that are used to pay the Qualified Higher Education Expenses of the Designated Beneficiary. A qualified tuition program established under and operated in accordance with Section 529 of the Code. A Portfolio for which assets are invested in one Underlying Fund. A registered investment adviser, other than the Program Manager, that recommends Underlying Funds and the allocation of such Underlying Funds for one or more Portfolios comprised of Underlying Funds advised by such investment adviser or any of its affiliates. The Treasurer of Maine. One or more mutual funds, exchange traded funds or separate accounts in which assets of Portfolios (other than the Principal Plus Portfolio) are invested. Interests in a Portfolio that are purchased with Contributions to an Account. 11

Program Description

Program Fund Program Manager

Qualified Higher Education Expenses

Qualified Withdrawals

Section 529 Program

Single Fund Portfolio Sub-Advisor

Treasurer Underlying Funds

Units

THIS PAGE IS INTENTIONALLY LEFT BLANK

12

PARTICIPATION AND ACCOUNTS

PARTICIPATION AND ACCOUNTS
Accounts may be established by a Participant with a valid social security or taxpayer identification number without regard to residency, domicile or income level of the Participant or Designated Beneficiary. A Participant must be at least 18 years of age to establish an Account; there is no age restriction for a Designated Beneficiary. to open an Account through a power of attorney. However, FAME and the Program Manager reserve the right to take instructions from a Participants agent only if the Participant is incompetent. A copy of the power of attorney must be presented to the Program Manager. If applicable, the power of attorney must be durable, and must include other language acceptable to the Program Manager including the power to make or revoke gifts.

Establishing an Account
Account Application To establish an Account, a Participant must complete an Account Application and consent and agree to the terms and conditions of the Participation Agreement. Either FAME or the Program Manager may require the completion of certain other documents for an Account to be established. There is no fee or charge for establishing an Account. Accounts will not be established, orders will not be executed, and the Account Application and Contribution amount will be returned if the Account Application is not complete. Signing an Account Application acknowledges receipt of this Program Description and Participation Agreement and acceptance of the terms and conditions of the Participation Agreement. There may be only one Participant and one Designated Beneficiary for each Account. A Successor Participant (defined below) may be identified for an Account on the Account Application. There is no limit to the number of Accounts that a Participant can open. Identifying a Designated Beneficiary On the Account Application a Participant (other than a state or local government or tax-exempt organization described in section 501(c)(3) of the Code opening a Scholarship Account as described below) must identify a Designated Beneficiary whose Qualified Higher Education Expenses are expected to be paid from the Account. There is no limit on the number of Accounts that can be opened for the same Designated Beneficiary by a single Participant or different Participants. The Designated Beneficiary may be the Participant or any other individual. There is no requirement that the Participant and Designated Beneficiary be related by blood or marriage. Accounts Opened by Trustees, Custodians, Guardians, and Conservators An authorized trustee or custodian must be identified if Contributions to an Account come from an existing trust or custodial account. Trustees opening an Account on behalf of a trust must provide representations or documentation concerning the trustees authority or such other matters as required by the Program Manager. In addition, guardians and conservators may open an Account provided copies of the applicable governing documents are acceptable to the Program Manager. Powers of Attorney A Participant may authorize another individual or entity to exercise his or her rights over an Account or
13

Scholarship Accounts Accounts may be established by state or local governments or tax-exempt organizations described in section 501(c)(3) of the Code and most types of legal entities, including trusts, whose purposes and powers so permit. As a Participant, a government or tax-exempt organization may establish an Account as part of a scholarship program operated by such government or organization (a Scholarship Account). Governments and tax-exempt organizations may designate a Diversified Portfolio, Single Fund Portfolio, an Age-Based Diversified Portfolio or any combination of Portfolios in which Contributions to a Scholarship Account are to be invested. Contributions to such Scholarship Accounts will be permitted even if they cause the balance of the Account to exceed the Programs maximum Contribution limit. Questions regarding the establishment of Scholarship Accounts should be addressed to the Program Manager at (877) 4-NEXTGEN (463-9843) or a Maine Distribution Agent. Selection of Investment Option(s) Investment option(s) and the percentage of each Contribution to be allocated to the Portfolio(s) selected must be indicated on the Account Application, except as noted in Harold Alfond College Challenge Grant Investment Option below. The total allocation may not exceed 100%. All subsequent Contributions will be invested in the selected Portfolio(s) and at the designated allocations until a new designated allocation is selected by the Participant. See Investment and Account Balances-Investment Changes for information about changing existing investment allocations and/or changing the investment allocation of future Contributions. Harold Alfond College Challenge Grant Investment Option The Harold Alfond College Challenge Grant is further described in THE PROGRAM AND THE PROGRAM FUND Special Benefits Available to Maine Residents. No initial or subsequent Contributions are required to obtain this benefit. An Account Application submitted for the purpose of obtaining this benefit will be accepted without investment option(s) selected. However, any Contributions received with such an Account Application submitted until October 20, 2010, and subsequent Contributions, will be allocated 100% to and invested in the appropriate BlackRock Age-Based Portfolio, unless and until a different investment allocation for existing and/or future Contributions is directed by the Participant. Any Contributions received with such an Account Application submitted beginning October 21, 2010, and subsequent Contributions, will be allocated 100% to and invested in the appropriate BlackRock iShares Age-Based Portfolio, unless and until a different investment allocation for existing and/or future Contributions is directed by the Participant.

PARTICIPATION AND ACCOUNTS

See Investment and Account Balances Investment Changes for information about changing existing investment allocations and/or changing the investment allocation of future Contributions. Where to send Contributions Participants should mail an initial or subsequent Contribution(s) by check to Merrill Lynch College Plan Services, P.O. Box 1518, Pennington, NJ 08534-1518. A Maine resident Participant may also send an initial or subsequent Contribution(s) by check to FAME. Returned Checks A fee of $20, which may be deducted from the Account, is charged for each check returned to the Program due to insufficient funds in an account on which the check is drawn.

Request for Duplicate Statements A Participant may identify an interested party to receive duplicate Account statements. The interested party cannot initiate, approve or otherwise authorize any transactions or changes to the Account. Personal Information Establishment of an Account is subject to acceptance by the Program Manager, including the verification of a Participants identity and other information in compliance with the requirements of the USA PATRIOT Act and other applicable law. If a Participant does not provide the information as requested on the Account Application, the Program Manager may refuse to open an Account for the Participant. If reasonable efforts to verify this information are unsuccessful, the Program Manager may take certain actions regarding the Account without prior notice to the Participant, including, among others, rejecting Contributions and withdrawal and transfer requests, suspending Account services, or closing the Account. Units redeemed as a result of closing an Account will be valued at the Units Net Asset Value next calculated after the Program Manager closes the Account. The risk of market loss, tax implications, and any other expenses, as a result of the liquidation, will be solely the Participants responsibility.

Contributions
Contributions must be made by personal check, cashiers check or money order (collectively, check), direct deposit through payroll deduction or through an automated method for making Contributions from a bank account through the Programs Automated Funding Service (AFS). All Contributions must be in U.S. dollars. A Participant will receive statements confirming the investment of his or her Contributions (and including such other information as may be required by law).

Automatic Funds Transfer from Checking/Savings Account In General A Participant may authorize the Program Manager to perform automated, periodic debits to make Contributions to an Account from a checking or savings account at a financial institution (including certain accounts held at Merrill Lynch). An authorization to perform automated, periodic deposits will remain in effect until the Program Manager has received notification of its termination. A Participant or the Program Manager may terminate the enrollment in the Programs AFS at any time. Any termination of such service initiated by a Participant must be in writing and will become effective as soon as the Program Manager has had a reasonable amount of time to act on it. The Program does not impose a fee for enrolling in the Programs AFS; however, the institution from which the funds are being debited may charge a fee. Please check with the institution.
Initial Contribution There is no initial Contribution amount required when AFS is established for an Account. To initiate this Contribution method, a Participant must complete the AFS section of the Account Application or request and complete the Merrill Lynch Automated Funds Service Enrollment and Authorization Form. Subsequent Contributions Subsequent automated Contributions must be at least $50 monthly. A Participant electing to have Contributions invested in more than one Portfolio must allocate a minimum of $25 per Portfolio.

Contributions by Check Initial Contributions A Participant making an initial Contribution by check must generally include an initial minimum amount of $250 with his or her Account Application, and check(s) should be made payable to NextGen FBO [Name of Designated Beneficiary]. A separate check must be provided for each Account Application. The initial minimum amount will be reduced for a Participant receiving a Maine Initial Matching Grant or the Harold Alfond College Challenge Grant. See THE PROGRAM AND THE PROGRAM FUND-Special Benefits Available to Maine Residents.
Subsequent Contributions A Participant wishing to make subsequent Contributions by check must contribute a minimum of $50 (and must allocate a minimum of $25 per Portfolio) and check(s) should be made payable to NextGen FBO [NextGen Account Number]. A separate check must be provided for each Account receiving a subsequent Contribution. 14

Payroll Deduction Individuals and employees of employers offering the Program as an employee benefit may make an automatic, periodic Contribution to Account(s) through Payroll Direct Deposit. No initial Contribution is required when a Participant chooses to fund an Account through Payroll Direct Deposit. The minimum Contribution through Payroll Direct Deposit is $50 monthly (required minimum allocation of $25 per Portfolio). Employers willing to process Payroll Direct Deposit Contributions must be able to meet the Program Managers operational and administrative requirements. Participants who wish to make such Contributions should verify with their employer that the employer is willing to process Contributions through Payroll Direct Deposit.

PARTICIPATION AND ACCOUNTS

Contribution Method Check Automated Funding Service or Payroll Direct Deposit Minimum Initial Contribution $250*
(must allocate a minimum of $25 per Portfolio)

Minimum Subsequent Contribution $50

(must allocate a minimum of $25 per Portfolio)

None

$50 monthly
(must allocate a minimum of $25 per Portfolio)

* The minimum Contribution may be reduced or waived in certain circumstances.

Rollover Contributions Rollovers from Another States Section 529 Program Rollover Contributions directly from another Section 529 Program to an established Account may be initiated by executing the NextGen College Investing Plan Transfer In Form and providing a statement issued by the distributing Section 529 Program that shows the principal and earnings portions of the Contribution.
Rollover Contributions from another Section 529 Program sent directly to a Participant must be accompanied by the NextGen College Investing Plan Incoming Rollover Form (Incoming Rollover Form) and a statement issued by the distributing Section 529 Program that shows the principal and earnings portions of the Contribution. Rollover Contributions to an Account from another Section 529 Program are federal income tax-free only if the rollover is into: an Account for the same Designated Beneficiary, and there have been no other Section 529 Program rollovers within the immediately preceding 12 months for the same Designated Beneficiary, or an Account for a Designated Beneficiary who is a Member of the Family (defined below) of the Designated Beneficiary of the rolled-over account (see TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS Federal Taxation of Section 529 Programs Federal Gift, Estate and Generation Skipping Transfer Taxes for a discussion of possible gift or generation-skipping transfer tax consequences). Rollovers from Coverdell Education Savings Accounts Coverdell Education Savings Account (Coverdell ESA) assets can be rolled over to an Account. In order to take advantage of a tax-free rollover from a Coverdell ESA, the rollover Contribution must be accompanied by an Incoming Rollover Form. An account statement issued by the financial institution that acted as trustee or custodian of the Coverdell ESA that shows the principal and earnings portions of the rollover Contribution must also be provided to the Program Manager. Rollovers from Qualified U.S. Savings Bonds Assets invested in certain U.S. savings bonds can be rolled-over to an Account. In order to take advantage of a tax-free rollover in connection with the liquidation of Series EE or Series I bonds, the rollover Contribution must be accompanied by an Incoming Rollover 15

Form. In addition, an account statement or IRS Form 1099INT issued by the financial institution that redeemed the bonds showing the interest portion of the redemption proceeds must also be provided to the Program Manager. Tax and Other Considerations Rollovers require the liquidation of assets and the contribution of cash to an Account. Rollover Contributions to an Account must be made within 60 days of the liquidation and withdrawal of such assets from another account. If the Participant effects a qualifying rollover, the withdrawal from the originating Section 529 Program account will not be subject to federal income tax or the 10% additional federal tax on earnings. Until a statement issued by the distributing Section 529 Program, trustee or custodian of the Coverdell ESA or financial institution that redeemed the U.S. savings bonds showing the principal and earnings portion of the Contribution is received, the Program will treat the entire amount of the rollover Contribution as earnings in the receiving Account for tax purposes. A Participant may be required to provide certain documentation to the distributing Section 529 Program.

Maximum Contribution Currently, Contributions will be permitted if they do not cause the aggregate balance of all Accounts in the Program for the same Designated Beneficiary (regardless of Participant) to exceed $340,000. FAME expects to adjust the Contribution limit annually, effective on or about January 1, but reserves the right to effect adjustments on other dates. Excess Contributions The Program Manager may return all or any part of a Contribution or the principal portion of a Contribution, rollover or transfer that exceeds the maximum allowable Contribution limit (Excess Contribution). Excess Contributions may be subject to a penalty imposed by FAME, which may be deducted from the Account. The maximum allowable Contribution limit is based on the aggregate balance of all Account(s) for the same Designated Beneficiary (regardless of Participant), not on the aggregate Contributions made to Accounts. Year-End Contributions Contributions for any calendar year must be received by the Program Manager by 4:00 P.M. Eastern Local Time on the last business day of the year. Contributions postmarked in a calendar year and received by the Program Manager in the next calendar year will not be included as Contributions in the prior calendar year. Year-end Contributions received by the Program Manager that do not include all necessary documentation in good order will not be credited to an Account for that calendar year.

PARTICIPATION AND ACCOUNTS

UGMA/UTMA Custodians under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act of any state (UGMA/UTMA) must execute Account Applications as UGMA/UTMA custodians to contribute UGMA/UTMA property to the Account. All Contributions to an Account held by a UGMA/UTMA custodian will be treated by the Program as being subject to the applicable UGMA/UTMA. Participants who are UGMA/UTMA custodians but also wish to retain control and ownership of other non UGMA/UTMA assets in the Program, without being subject to the UGMA/UTMA, must establish separate Accounts for such non UGMA/UTMA assets.
A Participant maintaining an Account as a UGMA/UTMA custodian may not change the Designated Beneficiary of the Account, may not transfer ownership of the Account to anyone other than a successor UGMA/UTMA custodian or the Designated Beneficiary, and must notify the Program Manager when a successor UGMA/UTMA custodian is appointed or when the custodianship terminates under the UGMA/UTMA (at which time the successor custodian or Designated Beneficiary will become the Participant of the Account). Because only cash Contributions to an Account are permitted, UGMA/UTMA assets outside the Program may need to be liquidated in order to contribute them to an Account, which may have income tax consequences. Also, because the Designated Beneficiary of an Account under the UGMA/UTMA is the sole beneficial owner of the Account, any tax consequences associated with the Account, including any withdrawals from the Account, will be imposed on the Designated Beneficiary (and not the UGMA/UTMA custodian who is the Participant and legal owner of the Account). disbursed from an Account to such Institution with respect to the Qualified Higher Education Expenses paid to the Institution at the time each disbursement is made to the Institution, subject to any applicable refund policy or other policies of the Institution. Although contributions under the Maine Matching Grant Program or the Maine First Step Grant Program or the Harold Alfond College Challenge Grant may appear on a Participants Account statement and such contributions may be included in the Accounts activity or portfolio value, they are not considered to be Contributions held in the Account. Contributions under the Maine Matching Grant Program, the Maine First Step Grant Program, and the Harold Alfond College Challenge Grant are not owned by the Participant, and may only be used to pay the Qualified Higher Education Expenses of the Designated Beneficiary. See THE PROGRAM AND THE PROGRAM FUND Special Benefits Available to Maine Residents. Any individual or entity may make Contributions to an Account. Only the Participant will receive confirmation of Account transactions. Individuals or entities other than the Participant that contribute funds to an Account will have no subsequent control over those Contributions. Only the Participant may direct transfers, rollovers, investment changes (as permitted under federal law), withdrawals and changes in the Participant or Designated Beneficiary.

Change of Designated Beneficiary

General Section 529 of the Code and the Proposed Regulations (defined on page 32) generally allow for changes of the Designated Beneficiary without federal income tax consequences, so long as the new Designated Beneficiary is a Member of the Family (defined below) of the current Designated Beneficiary. Special rules apply to Accounts established by UGMA/UTMA custodians. In addition, no federal gift tax or any generation-skipping transfer tax will result provided the new Designated Beneficiary is a Member of the Family of the current Designated Beneficiary and is assigned to the same generation as or a higher generation than the current Designated Beneficiary. Any change of the Designated Beneficiary to an individual who is not a Member of the Family of the current Designated Beneficiary should be treated as a Non-Qualified Withdrawal. See TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS - Federal Taxation of Section 529 Programs.
To initiate a change of Designated Beneficiary to a Member of the Family of the current Designated Beneficiary, the Participant must complete and provide a NextGen College Investing Plan Change of Designated Beneficiary Form (and any additional required documentation) to the Program Manager. The change will be made upon the Program Managers acceptance and processing of a properly completed form. A Participant also may achieve a change of Designated Beneficiary by transferring part of the assets in an existing Account to another Account for the benefit of a different Designated Beneficiary. If this is a new Account, this will require completion of an Account Application Form as well as a Change of Designated Beneficiary Form. There is no fee or charge for changing a Designated Beneficiary. 16

Contribution Policies Following receipt of Contributions by check or by transfer of funds electronically, the Program reserves the right, subject to applicable law, to not allow withdrawals of those funds (or their equivalent) for up to 15 calendar days for checks, and up to 6 business days for electronic transfers.
A Contribution, rollover or transfer may be refused if FAME reasonably believes that (i) the purpose is for other than funding the Qualified Higher Education Expenses of the Designated Beneficiary of an Account, (ii) there appears to be an abuse of the Program, or (iii) such transaction is unlawful. The Program may not be able to determine that a specific Contribution, rollover or transfer is for other than funding the Qualified Higher Education Expenses of a Designated Beneficiary, abusive or unlawful. The Program therefore makes no representation that all such Contributions, rollovers or transfers can or will be rejected.

Ownership of Contributions
Under Maine law, the Participant retains ownership of all Contributions made to an Account and all earnings credited to such Account up to the date withdrawn for payment of the Designated Beneficiarys Qualified Higher Education Expenses or otherwise transferred to someone other than the Participant. Special rules apply to Accounts established by UGMA/UTMA custodian Participants. An Eligible Institution of Higher Education obtains ownership of the amounts

PARTICIPATION AND ACCOUNTS

A Participant may choose to reinvest amounts currently held in an Account to any of the available Portfolio(s) when changing the Designated Beneficiary for an Account. If the Participants Account is currently invested in an Age-Based Diversified Portfolio, the Program Manager will reinvest such amounts in a new Age-Based Diversified Portfolio (of Underlying Funds managed by the same Sub-Advisor) based on the age of the new Designated Beneficiary, unless otherwise instructed by the Participant. event the surviving spouse is not the natural or adoptive parent of the Designated Beneficiary and the Designated Beneficiary is not a minor, the Designated Beneficiary will become the Participant for the Account. In the event there is no surviving spouse who is a parent of the Designated Beneficiary and the Designated Beneficiary is a minor, the Designated Beneficiarys custodial guardian will become the Participant for the Account. If the Designated Beneficiary has more than one custodial guardian, the guardian born earlier in the calendar year will become the Participant for the Account. If the Designated Beneficiary predeceases the Participant or dies in a manner that it cannot be determined who died first, the estate of the Designated Beneficiary will become the Participant for the Account.

Member of the Family A Member of the Family is the Designated Beneficiarys:

Father or mother, or an ancestor of either; Son or daughter, or a descendant of either; Stepfather or stepmother; Stepson or stepdaughter; Brother, sister, stepbrother or stepsister; Brother or sister of the father or mother; Brother-in-law, sister-in-law, son-in-law, daughter-in-law, father-in-law or mother-in-law; Son or daughter of a brother or sister; Spouse or the spouse of any of the foregoing individuals; or First cousin. For purposes of determining who is a Member of the Family, a legally adopted child or foster child of an individual is treated as the child of such individual by blood relationship, and a brother or sister includes a brother or sister by half blood.

Lifetime Transfers A Participant may transfer ownership of an Account, without penalty, to another individual or entity to be the Participant in the Program. A transfer of ownership of an Account does not require a change of the Designated Beneficiary. A transfer of ownership of an Account will only be effective if it is irrevocable and transfers all rights, title, interest and power over the Account. A transfer of ownership of an Account may have income or gift tax consequences; contact a tax advisor before transferring ownership of an Account. To transfer ownership of an Account call the Program Manager at (877) 4-NEXTGEN (463-9843).

Investment of Contributions
The Program Manager will generally credit Contributions to an Account as of the business day received by the Program Manager. Contributions are invested on the next business day following the credit of the Contribution to the Account. The Program Manager will separately maintain each Account, but Contributions to an Account will be commingled with Contributions to other Accounts for purposes of investment.

Successor Participants
Death or Incapacity A Participant may designate a successor Participant (Successor Participant). The Successor Participant shall assume all of the rights, title and interest of the current Participant with respect to an Account (including the right to withdraw assets from the Account or change the Designated Beneficiary) upon the death or incapacity of the current Participant. Such designation must be in writing and is not effective until received by the Program Manager. Special rules apply to UGMA/UTMA Accounts. The Successor Participant will be required to provide the Program Manager with a certified copy of a death certificate in the case of the death of a Participant or an acceptable medical authorization or court order in the case of the incapacity of a Participant and such other information as the Program Manager requires prior to taking any action regarding the Account. A designation of a Successor Participant that is executed by a Participant prior to his or her death or incapacity and is accepted following the Participants death or incapacity will govern all directions with respect to the Account following (but not prior to) the Program Managers acceptance of the designation. In the event no Successor Participant is named on the Account Application or on another form accepted by the Program Manager, or the named Successor Participant predeceases the Participant or does not accept ownership of the Account, the surviving spouse of the Participant, provided he or she is the natural or adoptive parent of the Designated Beneficiary, will become the Participant for the Account. In the
17

Investment Changes A Participant may change how previous Contributions (and any earnings thereon) have been allocated among the available Portfolio options for all Accounts in the Program for the same Designated Beneficiary once per calendar year or upon a change of the Designated Beneficiary. However, the investment allocation of future Contributions can be changed at any time. A Participant holding multiple Accounts for the same Designated Beneficiary must submit investment change instructions, if any, for all such Accounts on the same day, in order for all the changes to count as just one investment change (in the aggregate) for these purposes.
Currently, investment change requests must be in writing on an Investment Change Form; however, the Program Manager may waive this requirement or provide additional means for providing investment change instructions. An investment change will not affect instructions on how additional Contributions to an Account should be allocated. Investment changes may take up to five business days to process after they are received in good form by the Program Manager, particularly during periods of market volatility and at year-end.

PARTICIPATION AND ACCOUNTS

Net Asset Value The Program Manager calculates a Net Asset Value for each Unit of a particular Portfolio, after 4:00 P.M. Eastern Local Time, on each day that the New York Stock Exchange is open for trading. Net Asset Value is computed by dividing the value of each Portfolio Investment held in a Portfolio, plus any receivables and less any liabilities of such Portfolio, by the number of outstanding Units. The Net Asset Value for purposes of calculating the investment or reinvestment of Contributions to an Account will be the Net Asset Value calculated for the business day on which Contributions are invested or reinvested as described in this Program Description.
Beneficiary of such Accounts is a child, stepchild, grandchild or step grandchild of the Participant (a legally adopted child or a foster child of a Participant is treated as a child of such Participant by blood). All Contributions to all Accounts for a single Designated Beneficiary listed in the paragraph above, if made at least 720 days before the filing of a bankruptcy petition by a Participant, are not considered part of the Participants bankruptcy estate, and thus are not generally available to creditors in bankruptcy. A Participant filing a bankruptcy petition must report to the bankruptcy court any interest that the Participant has in a Section 529 Program.

Statements and Reports

The Program Manager will keep accurate and detailed records of all transactions concerning Accounts and will provide each Participant with periodic statements of each Account. If a Participant does not write to the Program Manager to object to a statement within 60 days after it has been sent to such Participant, such Participant will be considered to have approved it and to have released FAME and the Program Manager from all responsibility for matters covered by the statement. Each Participant agrees to provide all information FAME or the Program Manager may need to comply with any legal requirements.

Account Duration There is no specific deadline for the use of assets in an Account to pay for Qualified Higher Education Expenses. However, FAME reserves the right to establish a maximum duration for an Account.

Withdrawals
In General A Participant may direct a withdrawal from an Account at any time by notifying the Program Manager by telephone or in writing. Generally, only the Participant of an Account may direct withdrawals from the Account. The frequency of withdrawals in a single month may be limited. A minimum withdrawal amount may also be established.
To request a withdrawal by telephone, a Participant should contact the Program Manager at 1-877-4-NEXTGEN (463-9843). To authorize a withdrawal by telephone, a Participant should have the following information available: (i) Account number; (ii) amount to be distributed; and (iii) Portfolios to be liquidated. Written requests for withdrawals from an Account must be submitted on a NextGen College Investing Plan Withdrawal Request Form; however, the Program Manager may waive this requirement or provide additional means for withdrawal requests. Following the acceptance and processing of a properly completed withdrawal request by the Program Manager, the proceeds delivered to the payee will be calculated at the next Net Asset Value for a Unit of a particular Portfolio applicable to a withdrawal calculated for such Unit of such Portfolio. During periods of market volatility and at year end, withdrawal requests may take up to five business days to process following receipt of a withdrawal request. When a withdrawal is processed by check, the check will generally be drawn on a bank in New York City, where the Program Managers headquarters are located and where most securities transactions are settled. If a withdrawal is processed by wire transfer, the Program Manager will automatically charge a fee of $30 for this service in addition to the requested amount. This fee may be deducted from the withdrawal proceeds. Alternatively, this fee may be added to the amount requested to be withdrawn from an Account. Although a Participant designates the Portfolio(s) from which a particular withdrawal is made, special rules apply if the dollar 18

Other Provisions
Prohibition Against Assignment, Transfer or Pledging as Security Neither an Account nor any portion thereof may be assigned, transferred or pledged as security (including as collateral for a loan used to make Contributions to the Account) either by the Participant or the Designated Beneficiary of the Account. Limitations on Satisfaction of Judgments - Maine Law Under Maine law, all assets in, or credited to, an Account are not subject to levy, execution, judgment or other operation of law, garnishment or other judicial enforcement, and such assets are not an asset or property of either the Participant or the Designated Beneficiary for purposes of Maine insolvency laws. A Participant, however, should consult an attorney regarding the potential treatment of an Account in a specific situation under Maine or other applicable law. Treatment of Account Assets under Federal Bankruptcy Law Federal bankruptcy law provides that Contributions to an Account that are made less than 365 days before the date of the filing of a bankruptcy petition by a Participant are part of the Participants bankruptcy estate, and thus available to creditors.
Contributions to all Accounts for a single Designated Beneficiary made between 365 days and 720 days before the filing of a bankruptcy petition by a Participant are not considered part of the Participants bankruptcy estate to the extent the aggregate of such Contributions does not exceed $5,850, and thus such Contributions that do not exceed $5,850 are not generally available to creditors in bankruptcy; provided that (i) such Contributions do not exceed the Programs maximum Contribution limit, and (ii) the Designated

PARTICIPATION AND ACCOUNTS

amount of the withdrawal request is equal to or greater than the market value of the Units held in such Portfolio(s). In such cases, the Program Manager will process the withdrawal request as follows: 1. The Program Manager will sell all of the Units held in the Portfolio(s) selected by the Participant for full withdrawal (starting with the Portfolios with the smallest market value). 2. If the requested withdrawal amount is not satisfied, the Program Manager will sell Units held in the other Portfolio(s) selected by the Participant starting with the Portfolios with the highest market value. If the same withdrawal dollar amount is requested from two or more Portfolios, the Program Manager will sell Units held in the Portfolio with the highest market value, which could result in full liquidation of all Units in such Portfolio or a liquidation of Units only in that Portfolio. 3. In order to satisfy adjustments to a withdrawal request (for example, when the market value of Units has changed between the date of the withdrawal request and the processing date), the Program Manager will sell Units held in the Portfolio(s) selected by the Participant for full withdrawal. In order to satisfy any remaining adjustments, the Program Manager will sell Units held in the other Portfolio(s) selected by the Participant starting with the Portfolio with the highest market value. 4. If the requested withdrawal amount is not satisfied after selling all of the Units held in the Portfolio(s) selected by the Participant, the Program Manager will sell Units in other Portfolio(s) held in the Participants Account starting with the Portfolio with the highest market value. If the requested withdrawal amount would not be satisfied after selling all of the Units in all of the Portfolio(s) held in a Participants Account, the withdrawal request will not be processed and the Participant will be notified that there are insufficient assets in the Account to process the withdrawal request. If at any point in the process outlined above the requested withdrawal amount is satisfied, no further Portfolio Units will be sold. Withdrawal requests generally will not be processed on the same day that other withdrawal requests, exchanges among Portfolios or annual Account Maintenance Fee deductions are processed. distributee; for all other distributions, the Participant is considered the distributee. Upon receipt of the Form 1099-Q, the taxpayer will need to determine whether the distributions were used for Qualified Higher Education Expenses. If so, there is nothing to report; if the distributions were not used exclusively for Qualified Higher Education Expenses, then the taxpayer will need to report only the earnings portion of any nonqualified distributions on his or her federal income tax forms, and may incur a 10% additional federal tax on such earnings. See TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS - Federal Taxation of Section 529 Programs - Contributions, Earnings, and Withdrawals.

Recordkeeping Although the Program Manager does not require any documentation from a Participant directing a withdrawal from an Account other than a NextGen College Investing Plan Withdrawal Request Form, distributees should retain all receipts for Qualified Higher Education Expenses with their other important tax documents. The Program is not responsible for determining whether a withdrawal is a Qualified Withdrawal or Non-Qualified Withdrawal (each as defined below).

Qualified Withdrawals
A withdrawal used to pay Qualified Higher Education Expenses is a Qualified Withdrawal.

Qualified Higher Education Expenses Qualified Higher Education Expenses include:

tuition, fees and the costs of books, supplies and equipment required for the enrollment or attendance of a Designated Beneficiary at an Eligible Institution of Higher Education; the actual costs of room and board of a Designated Beneficiary living in campus owned or operated housing or an amount equal to the allowance for room and board included in the cost of attendance of the Eligible Institution of Higher Education incurred while attending on at least a half-time basis; expenses for special needs services in the case of a special needs Designated Beneficiary which are incurred in connection with enrollment or attendance at an Eligible Institution of Higher Education; and in calendar years 2009 and 2010 only, unless extended by Congress, expenses paid or incurred for the purchase of certain computer technology or equipment (as defined in Section 170(e)(6)(F)(i) of the Code) or Internet access and related services, if such technology, equipment or services are to be used primarily by the Designated Beneficiary while enrolled at an Eligible Institution of Higher Education. Expenses for computer technology and equipment do not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in use. A Designated Beneficiary will be considered to be enrolled at least half-time if the Designated Beneficiary is enrolled for at least half 19

Tax Reporting For purposes of determining whether a withdrawal is taxable and/or subject to the 10% additional federal tax on earnings, the Participant must determine whether the withdrawal is made for the payment of Qualified Higher Education Expenses as defined under the Code and/or fits within certain exceptions as discussed below.
On or before January 31 of each calendar year, the Program will send Form 1099-Q to each distributee for any withdrawals made from an Account in the previous calendar year. If a withdrawal is made payable to the Eligible Institution of Higher Education for the Designated Beneficiary or directly to the Designated Beneficiary, then the Designated Beneficiary is considered the

PARTICIPATION AND ACCOUNTS

the full-time academic workload for the course of study the Designated Beneficiary is pursuing, as determined under the standards of the Eligible Institution of Higher Education where the Designated Beneficiary is enrolled. The Institutions standard for a full-time workload must equal or exceed a standard established by the U.S. Department of Education under the Higher Education Act of 1965, as amended through June 7, 2001. The Designated Beneficiary need not be enrolled on at least a half-time basis to use a Qualified Withdrawal to pay for expenses relating to tuition, fees, books, supplies and equipment or, in the case of a special needs Designated Beneficiary, expenses for special needs services. additional federal tax on earnings. Alternatively, the Participant can request the return of the Account balance, the earnings portion of which will be subject to federal income tax and may be subject to a 10% additional federal tax. Another option would be to initiate a change of Designated Beneficiary, as described in Change of Designated Beneficiary. Special rules apply to Accounts established by UGMA/UTMA custodians.

Eligible Institutions of Higher Education Generally, an accredited post-secondary educational institution offering credit toward a bachelors degree, an associates degree, a graduate level or professional degree, or another recognized postsecondary credential, including certain proprietary institutions, foreign institutions and post-secondary vocational institutions, is an Eligible Institution of Higher Education provided it is eligible to participate in U.S. Department of Education student financial assistance programs.

Disability of Designated Beneficiary If the Designated Beneficiary becomes disabled within the meaning of section 72(m)(7) of the Code, the Participant may exercise one or more of the following options. The Participant may request the return of all or a portion of the Account balance, in which case the earnings portion will be subject to federal income tax and possibly state income tax on the earnings portion of the withdrawal, without imposition of the 10% additional federal tax. Alternatively, the Participant may initiate a change of Designated Beneficiary, as described in Change of Designated Beneficiary. Special rules apply to Accounts established by UGMA/UTMA custodians. Receipt of Scholarship If the Designated Beneficiary receives a qualified scholarship, Account funds up to the amount of the scholarship can be withdrawn by the Participant, subject to federal income tax and possibly state income tax on the earnings portion of the withdrawal, without imposition of the 10% additional federal tax. Special rules apply to Accounts established by UGMA/UTMA custodians. Under the Proposed Regulations, a qualified scholarship includes certain educational assistance allowances under federal law and certain payments for educational expenses, or attributable to attendance at certain educational institutions, that are exempt from federal income tax. You should consult a qualified tax advisor to determine whether a particular payment or benefit constitutes a qualified scholarship. Attendance at Certain Specified Military Academies If the Designated Beneficiary attends the United States Military Academy, the United States Naval Academy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy, Account funds may be withdrawn, subject to federal income tax and possibly state income tax on the earnings portion of the withdrawal, without imposition of the 10% additional federal tax on earnings to the extent the withdrawal does not exceed the costs of qualifying expenses attributable to such attendance.

Non-Qualified Withdrawals and the Additional Tax

General A Non-Qualified Withdrawal is any withdrawal from an Account other than a Qualified Withdrawal or a qualifying rollover. The earnings portion of a Non-Qualified Withdrawal is subject to federal and applicable state income tax and, in most cases, a 10% additional federal tax on earnings. Exceptions to the Additional Tax There is an exception to the 10% additional federal tax imposed for any withdrawal on account of:
the death of the Designated Beneficiary if paid to the Designated Beneficiarys estate; the disability of the Designated Beneficiary within the meaning of section 72(m)(7) of the Code; the receipt of a scholarship by the Designated Beneficiary to the extent the amount withdrawn does not exceed the amount of such scholarship; the use of Hope Scholarship tax credits (also known as American Opportunity tax credits for 2009 and 2010) or Lifetime Learning tax credits (together Education Tax Credits) as allowed under federal income tax law; or the attendance of the Designated Beneficiary at certain specified military academies.

Qualifying Rollovers to Other Section 529 Programs

Requests for withdrawals from an Account for the purpose of a rollover to an account in another Section 529 Program must be submitted on a NextGen College Investing Plan Withdrawal Request Form. If the Participant effects a qualifying rollover, the withdrawal will not be subject to federal income tax or the 10% additional federal tax on earnings if properly completed. Special rules apply to Accounts established by UGMA/UTMA custodians. 20

Death of Designated Beneficiary In the event of the death of the Designated Beneficiary, the Participant may exercise one or more of the following options. The Participant may request payment of the Account balance to the Designated Beneficiarys estate in which case the earnings portion will be subject to federal income tax and possibly state income tax on the earnings portion of the withdrawal, without imposition of the 10%

THE NEXTGEN PORTFOLIOS

Residual Account Balances and Termination
Residual Account Balances If the Designated Beneficiary graduates from an Eligible Institution of Higher Education, or chooses not to pursue higher education, and funds remain in an Account, the Participant has three options. First, the Participant may request that all or any portion of the remaining funds be withdrawn and paid (less any fees and expenses) to either the Participant or the Designated Beneficiary. This withdrawal may be treated as a Non-Qualified Withdrawal (subject to federal and any applicable state income tax, and possibly the 10% additional federal tax, on earnings). Second, the Participant may authorize a change of Designated Beneficiary for the remaining funds in the Account. See Change of Designated Beneficiary. Special rules apply to Accounts established by UGMA/UTMA custodians. Third, the Participant may keep the funds in the Account to pay future Qualified Higher Education Expenses, such as graduate or professional school expenses, of the Designated Beneficiary. Termination The Participant may at any time close an Account by providing a NextGen College Investing Plan Withdrawal Request Form to the Program Manager, requesting that all the remaining funds be withdrawn and paid (less any fees and expenses) to either the Participant or the Designated Beneficiary. This withdrawal may be treated as a Non-Qualified Withdrawal (subject to federal and any applicable state income tax, and possibly the 10% additional federal tax, on earnings). FAME may terminate an Account at any time and for any reason, including if it determines that: (i) the Designated Beneficiary of an Account does not attend an Eligible Institution of Higher Education; (ii) a Participant has changed Designated Beneficiaries of an Account primarily to avoid or significantly defer federal or state income tax; or (iii) the assets in an Account are too small to be economically administered. Upon termination of an Account by FAME, the Program Manager shall liquidate the investments in the Account and distribute the balance to the Participant, less any fees and expenses. This withdrawal may be treated as a Non-Qualified Withdrawal (subject to federal and any applicable state income tax and possibly the 10% additional federal tax on earnings).

THE NEXTGEN PORTFOLIOS

Contributions made to an Account on behalf of a Designated Beneficiary are invested in one or more Portfolios based on an election on the Account Application (or any change to such election) made by a Participant. Assets of Portfolios are then invested in one or more Portfolio Investments recommended by the Program Manager or a Sub-Advisor that reflect the investment strategies of the respective Portfolios, which FAME reviews and approves. There is no assurance that the strategy of any Portfolio will be successful. Participation in the Program is not considered to be part of an investment advisory service. Accordingly, the Participant will be responsible for monitoring and making investment decisions concerning his or her Account. A Participant should consider which investment options are most appropriate given the other resources expected to be available to fund the Designated Beneficiarys Qualified Higher Education Expenses, the age of the Designated Beneficiary, and the anticipated date of first use of funds in the Account for the Designated Beneficiary. A Participant should also consider the limited ability to change investment options for Contributions (and any earnings thereon) that have already been invested in an Account. Portfolios generally invest in one or more mutual funds, exchange traded funds or separate accounts managed by one of the Client Direct Series three Sub-Advisors: BlackRock Investment Management, LLC, or its affiliates (BlackRock), Massachusetts Financial Services Company (MFS), and Franklin Templeton Investments (Franklin Templeton). The Principal Plus Portfolio will invest in one or more guaranteed investment contracts issued by one or more insurance companies, the Cash Allocation Account, corporate fixed-income investments and/or similar instruments.

Investment Options
The Client Direct Series currently consists of two Age-Based Diversified Portfolios, five Diversified Portfolio options, one Single Fund Portfolio, and a Principal Plus Portfolio. A Participant may choose from among one or more of the Portfolios. None of the Portfolios has been designed to provide any particular total return over any particular time period or investment horizon.

Community Property
A resident of a state that has a community property law should consult his or her legal advisor for advice concerning the application of that law with respect to Accounts and related Contributions to and withdrawals from Accounts. Community property issues are beyond the scope of this Program Description.

Penalties for Misrepresentations

In the event a Participant makes any material misrepresentations or provides any erroneous information in any communication with FAME or the Program Manager, including, without limitation, on the Account Application or any Account maintenance and servicing form, FAME may terminate a Participants Account and charge fees or expenses in addition to a 15% penalty on the investment earnings of the Account. 21

Age-Based Diversified Portfolios The Age-Based Diversified Portfolios are invested in a manner that seeks to balance risk and expected returns of the Underlying Funds with the time periods remaining until a typical Designated Beneficiary is expected to need assets for Qualified Higher Education Expenses. The AgeBased Diversified Portfolios for the benefit of younger Designated Beneficiaries (for example, the BlackRock Age-Based 0-7 Years Portfolio) generally are more heavily invested in Underlying Funds that invest in equity securities, while Age-Based Diversified Portfolios for older Designated Beneficiaries (for example, the

THE NEXTGEN PORTFOLIOS

BlackRock Age-Based 20+ Years Portfolio) generally are more heavily invested in Underlying Funds that invest in fixed income securities, including money market securities. Please note that the age ranges in the names of the Age-Based Diversified Portfolios indicate the ages of the Designated Beneficiaries for whom such Portfolios may be appropriate; they do not refer to the number of years remaining until a typical Designated Beneficiary is expected to need such assets for Qualified Higher Education Expenses. There is no guarantee that investing in the Age-Based Diversified Portfolios will ensure investment gain, or protect against investment losses over time. For a description of the current Underlying Funds in each respective Age-Based Diversified Portfolio, see NEXTGEN PORTFOLIOS-PERFORMANCE AND INVESTMENTS. If the Designated Beneficiary is likely to need Portfolio assets at an earlier or later date than a typical Designated Beneficiary is expected to need Portfolio assets, you may want to consider whether the Age-Based Diversified Portfolios are appropriate for your Designated Beneficiary. terminate, reorganize or cease accepting new Contributions. See PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS Program and Portfolio Risks and Other Considerations Limitations on Investment Direction. For more details concerning each Age-Based Diversified Portfolio, Diversified Portfolio, Single Fund Portfolio and Principal Plus Portfolio, see NEXTGEN PORTFOLIOS-PERFORMANCE AND INVESTMENTS.

Portfolio Series
A particular NextGen Series may not offer some or all Portfolios available through the other Series. Although each of the Series may offer the same Portfolios, expenses associated with the Client Select Series may be higher than those associated with the Client Direct Series. The Client Select Series is available by contacting a Merrill Lynch Financial Advisor, or through certain Maine Distribution Agents. Each Series may be offered through additional or different distribution channels, as determined by FAME and the Program Manager.

Diversified Portfolios The Diversified Portfolios are invested in a combination of Portfolio Investments that is consistent with the sector allocation of each Portfolio. Within the equity securities segment of a Diversified Portfolio, if any, investments will be allocated among Portfolio Investments investing in domestic equity and international equity investments. Within the fixed income segment of a Diversified Portfolio, if any, investments will be allocated among Portfolio Investments investing in investment grade debt, non-investment grade debt and money market securities. Certain Diversified Portfolios invest a segment of their assets in an Underlying Fund that invests primarily in Real Estate Investment Trusts. For a description of the current Portfolio Investments in each respective Diversified Portfolio, see NEXTGEN PORTFOLIOS-PERFORMANCE AND INVESTMENTS. Single Fund Portfolio The Single Fund Portfolio is invested in only one Underlying Fund. For a description of the current Portfolio Investment in the Single Fund Portfolio, see NEXTGEN PORTFOLIOS-PERFORMANCE AND INVESTMENTS. Principal Plus Portfolio Prior to November 20, 2010, the Principal Plus Portfolio is expected to invest exclusively in a single guaranteed investment contract (GIC) issued by an insurance company. Thereafter, the Principal Plus Portfolio expects to begin allocating a portion of its assets to the Cash Allocation Account, although the Principal Plus Portfolio retains the ability to invest in one or more other GICs issued by other insurance companies, corporate fixed-income investments and/or similar instruments.
A Participant may choose to invest new Contributions in any of the investment options, but may only change how previous Contributions (and any earnings thereon) have been allocated among the available Portfolio options for all Accounts for the same Designated Beneficiary once per calendar year or upon a change of the Designated Beneficiary. Portfolios may merge, 22

Portfolio Allocations
FAME is responsible for structuring the Portfolios, the assets of which are part of the Investment Fund. The Program Manager or a Sub-Advisor provides recommendations as to both the investment sectors in which assets of each Portfolio are allocated and the specific Portfolio Investments for each such sector of each Portfolio. For this purpose, the investment sectors are: domestic equity, international equity, investment grade debt, noninvestment grade debt and money market securities. The Program Manager or a Sub-Advisor may recommend a Portfolio Investment with a global investment objective for use in the international equity investment sector. In accordance with the investment strategies described in this Program Description, certain Portfolios may only be invested in one or a limited number of specific sectors. Under the Program Management Agreement, FAME may: (i) approve any proposed sector allocation or combination of Portfolio Investments recommended by the Program Manager or a Sub-Advisor; (ii) request that the Program Manager or a SubAdvisor deliver a revised proposed sector allocation or a different combination of proposed Portfolio Investments; or (iii) object to any proposed sector allocation or combination of Portfolio Investments. In the event that the Program Manager or a SubAdvisor and FAME disagree as to any proposed sector allocation or a combination of Portfolio Investments, the parties must mutually agree upon a third party arbiter who shall recommend a proposed sector allocation or a combination of Portfolio Investments. Unless FAME objects to the arbiters recommendation of sector allocations or Portfolio Investments, such recommendations will become the approved allocation or approved Portfolio Investments. If FAME objects to the arbiters

THE NEXTGEN PORTFOLIOS

recommendation, FAME will determine the sector allocations or combination of Portfolio Investments. It is anticipated that the sector allocations and combination of Portfolio Investments will be reviewed annually and may change from year to year. In particular, the current target Underlying Fund allocation and current target asset allocation may be changed at any time. The Program Manager or a Sub-Advisor may from time to time recommend a revised sector allocation or a revised combination of Portfolio Investments. FAME will determine whether to approve any such recommendation. It is anticipated that Portfolios will be re-balanced to reflect each new allocation. market securities and Maine CDs. BlackRock is responsible for the selection and management of the money market securities in the Cash Allocation Account, other than Maine CDs. The Treasurer will select the financial institutions from which any Maine CDs are purchased and is responsible for ensuring that any Maine CDs are insured by the Federal Deposit Insurance Corporation or are fully collateralized. The Treasurer will also determine the percentage of the assets of the Cash Allocation Account that is invested in Maine CDs. Currently, it is anticipated that a maximum of 10 percent (10%) of the assets of the Cash Allocation Account will be invested in Maine CDs. The Cash Allocation Account is not a registered mutual fund.

Portfolio Investments
Underlying Funds The assets of each Portfolio are invested in Underlying Funds in accordance with the sector allocation and Underlying Fund determinations made by FAME.
Under the terms of the Program Management Agreement and Sub-Advisory Agreements, the Underlying Funds proposed by the Program Manager or any Sub-Advisor for the Investment Fund are expected to be mutual funds, exchange traded funds or separate accounts managed by a Sub-Advisor. See THE PROGRAM MANAGEMENT AGREEMENT. FAME may select Underlying Funds that are not managed by a Sub-Advisor if there are no available Underlying Funds managed by a Sub-Advisor within a particular investment sector that meet certain performance standards set forth in the Program Management Agreement. FAME has approved one Underlying Fund, the Cash Allocation Account, for the Principal Plus Portfolio, as well as Portfolios investing in cash equivalent securities. The assets of the Cash Allocation Account are invested in a diversified portfolio of money

Principal Plus Portfolio Investments The assets of the Principal Plus Portfolio are invested in Principal Plus Portfolio Investments selected by FAME. Prior to November 20, 2010, the Principal Plus Portfolio is expected to invest exclusively in a single guaranteed investment contract (GIC) issued by an insurance company. Thereafter, the Principal Plus Portfolio expects to begin allocating a portion of its assets to the Cash Allocation Account, although the Principal Plus Portfolio retains the ability to invest in one or more other GICs issued by other insurance companies, corporate fixed-income investments and/or similar instruments. The Program Manager provides administrative services with respect to the Principal Plus Portfolio and performs credit analyses on the issuers of GICs.

Portfolio Selection
A Participant may select one or more Age-Based Diversified Portfolio, Diversified Portfolio, Single Fund Portfolio or Principal Plus Portfolio investment options for Contributions made to his or her Account(s). For more information about the Portfolio options currently available, see NEXTGEN PORTFOLIOS-PERFORMANCE AND INVESTMENTS.

Age-Based Diversified Portfolios

BlackRock Age-Based Portfolios iShares Age-Based Portfolios

Diversified Portfolios
BlackRock 100% Equity Portfolio iShares Diversified Equity Portfolio iShares Diversified Fixed Income Portfolio Franklin Templeton Balanced Portfolio MFS Fixed Income Portfolio

Single Fund Portfolio

BlackRock Equity Index Portfolio

Principal Plus Portfolio Principal Plus Portfolio

23

PROGRAM FEES AND EXPENSES

PROGRAM FEES AND EXPENSES
Each Account bears certain on-going Portfolio fees, which are charged against the assets of the Portfolios, to provide for the costs associated with the distribution, servicing and administration of the Account. These Portfolio fees will reduce the value of the Account as they are incurred. Shares of Underlying Funds held by a Portfolio may be liquidated to pay Portfolio fees charged to the Portfolio. Accounts also will indirectly bear the fees and expenses, if any, of the Portfolio Investments in which the Portfolios invest. In addition to these fees and expenses, certain Accounts will bear an annual Account Maintenance Fee of $25 (the Account Maintenance Fee), which may be waived in certain circumstances, and whole or fractional Units in the Accounts may be liquidated to pay the annual Account Maintenance Fee. The Portfolio fees and expenses described below are subject to change from time to time.

Management and Portfolio Servicing Fees Merrill Lynch is entitled to receive a management fee for acting as Program Manager (the Management Fee). FDS is entitled to receive a portfolio servicing fee for acting as Portfolio Servicing Agent to the Program (the Portfolio Servicing Fee). In addition, FAME receives an administration fee for acting as administrator of the Program (the "Maine Administration Fee"). Currently, the Maine Administration Fee is only assessed on certain Portfolios. The Program Manager may also receive compensation from SubAdvisors or from Portfolio Investments. Annual Account Maintenance Fee and Other Fees There is a $25 annual Account Maintenance Fee, waived under certain circumstances described below. For purposes of calculating the Account Maintenance Fee, a fee year is used. Each fee year begins on the first day of the calendar quarter in which the Account is established and ends on the day before the anniversary of that date. For example, if the Account is established on April 14, the fee year would begin on April 1 and end on March 31. The Account Maintenance Fee is charged approximately 30 days after the end of the fee year.
The Account Maintenance Fee may be waived for certain Accounts, including: (i) all Accounts established where either the Participant or the Designated Beneficiary is a resident of Maine; (ii) if total Contributions to the Account made during a fee year are at least $2,500; or (iii) the value of the Account at the end of a fee year is at least $20,000. The Account Maintenance Fee may be waived or reduced in other instances as determined by the Program Manager. If an Account that is subject to an Account Maintenance Fee is closed or transferred before the Account Maintenance Fee is charged, the Account Maintenance Fee for such year will be $6.25 for each whole or partial calendar quarter of the final fee year. When the fees described in this paragraph are charged and an Account holds Units of more than one Portfolio, the largest Portfolio position, based on dollar value, will be liquidated first. Accounts with $25 or less will be closed to pay the Account Maintenance Fee. See PARTICIPATION AND ACCOUNTSContributions-Deposits by Check-Returned Checks and PARTICIPATION AND ACCOUNTS-Withdrawals-In General. Account Maintenance Fee Non-Sufficient Funds Fee Wire Transfer Fee $25 $20 $30

Portfolio Investment Fees and Expenses

Each Portfolio indirectly bears its proportional share of the fees and expenses incurred by the Portfolio Investments in which it invests. Accordingly, each Portfolios investment return will be net of both the fees and expenses of the Portfolio Investments and the Portfolio fees described herein.

Annual Asset-Based and Other Fees

Underlying Fund Expenses All Portfolios (except the Principal Plus Portfolio, which does not invest in mutual funds, and the iShares Age-Based Portfolios, the iShares Diversified Equity Portfolio and the iShares Diversified Fixed Income Portfolio, which invest in Underlying Funds that are exchange traded funds) invest in the Institutional Class shares of their Underlying Funds. For Portfolios that invest in more than one Underlying Fund, the Underlying Fund expenses are based on a weighted average of each Underlying Funds expense ratio that corresponds to the Portfolios target asset allocation. Each Portfolios target asset allocation for Portfolio Investments is effective as of the Program Description date, and each Portfolios fees and expenses are based on the most recent fiscal year reported upon in the Underlying Fund(s) most recent prospectus as of June 30, 2010.

24

PROGRAM FEES AND EXPENSES

CLIENT DIRECT SERIES
Unless waived, a $25 Annual Account Maintenance Fee Applies 1 Portfolios incur the following Annual Asset-Based Fees2
Estimated Management Underlying Fee4 3 Fund Expenses BlackRock Portfolios BlackRock Age-Based 0-7 Years Portfolio BlackRock Age-Based 8-10 Years Portfolio BlackRock Age-Based 11-13 Years Portfolio BlackRock Age-Based 14-16 Years Portfolio BlackRock Age-Based 17-19 Years Portfolio BlackRock Age-Based 20+ Years Portfolio BlackRock 100% Equity Portfolio BlackRock Equity Index Portfolio iShares Age-Based 0-7 Years Portfolio iShares Age-Based 8-10 Years Portfolio iShares Age-Based 11-13 Years Portfolio iShares Age-Based 14-16 Years Portfolio iShares Age-Based 17-19 Years Portfolio iShares Age-Based 20+ Years Portfolio iShares Diversified Equity Portfolio iShares Diversified Fixed Income Portfolio Franklin Templeton Portfolio Franklin Templeton Balanced Portfolio MFS Portfolio MFS Fixed Income Portfolio Principal Plus Portfolio Principal Plus Portfolio
1 2 3

Additional Investor Expenses Sales Charges

Maine Total Annual Portfolio Administration Asset-Based Servicing Fee Fee5 Fees6

0.75% 0.68% 0.56% 0.45% 0.65% 0.50% 0.79% 0.35% 0.24% 0.24% 0.24% 0.24% 0.20% 0.16% 0.23% 0.26% 0.74% 0.70% 0.00%

0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.07% 0.21% 0.21% 0.21% 0.21% 0.21% 0.21% 0.21% 0.21% 0.10% 0.10% 0.10%

0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.00% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%

N/A N/A N/A N/A N/A N/A N/A N/A 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% N/A N/A N/A

0.95% 0.88% 0.76% 0.65% 0.85% 0.70% 0.99% 0.42% 0.60% 0.60% 0.60% 0.60% 0.56% 0.52% 0.59% 0.62% 0.94% 0.90% 0.20%

none none none none none none none none none none none none none none none none none none none

4 5

This fee may be waived in certain circumstances. Expressed as an annual percentage of the average daily net assets of each Portfolio. For Portfolios that invest in more than one Underlying Fund, the Underlying Fund fees and expenses are based on a weighted average of each Underlying Funds expense ratio that corresponds to the Portfolios target asset allocation. Each Portfolios target asset allocation for Portfolio Investments is effective as of the Program Description date, and each Portfolios fees and expenses are based on the Underlying Funds or Funds most recent prospectus as of June 30, 2010. Underlying Fund fee and expense information may change from time to time. Updated expense information, if any, will be available on the Internet at [Link] or from the Program Manager by calling (877) 4-NEXTGEN (463-9843). The Management Fee for any Portfolio may be voluntarily reduced at any time on a temporary or permanent basis by the Program Manager. FAME expects to provide a rebate approximately equal to the Maine Administration Fee for all Accounts with Maine Participants or Maine Designated Beneficiaries with a minimum aggregate balance of $1,000 at the end of the calendar year. Annual Asset-Based Fees are subject to change at any time, and are assessed against assets over the course of the year and do not include sales charges or the annual Account Maintenance Fee. See Investment Cost Charts on page 31 for the approximate cost of investing in the Programs Portfolios over 1-, 3-, 5- and 10-year periods.

25

PROGRAM FEES AND EXPENSES

Adjustment of Management Fee
If FAME exercises its rights in any Program year (July 1 June 30) to approve a combination of Portfolio Investments (the Approved Portfolio Investments) for a Portfolio that is different than the combination of Portfolio Investments proposed by the Program Manager (the Proposed Portfolio Investments), the Management Fee payable during the next Program year with respect to such Portfolio may be adjusted either (i) downwards by the amount that the aggregate expense ratio of the Approved Portfolio Investments exceeds the aggregate expense ratio of the Proposed Portfolio Investments, but not in excess of 0.21%, or (ii) upwards by the amount that the aggregate expense ratio of the Proposed Portfolio Investments exceeds the aggregate expense ratio of the Approved Portfolio Investments, but not in excess of 0.21%.

Investment Cost Charts

The following table compares the approximate costs of investing in the Client Direct Series Portfolios (other than the Principal Plus Portfolio). As a result of changes in fees and expenses over time, a Participants actual cost may be higher or lower. The following table is based on the following assumptions: A $10,000 Contribution invested for the time periods shown. Reflects Portfolio Fees and the Underlying Fund expenses. A 5% annually compounded rate of return on the net amount invested throughout the time periods shown. The fees and expenses described in this Program Description apply for all periods shown. The $25 annual Account Maintenance Fee is not included. All Units are redeemed at the end of the period shown for Qualified Higher Education Expenses (this table does not consider the impact of any potential state or federal taxes on the redemption).

Other Compensation
FAME and the Treasurer have authorized the Program Manager and/or its affiliates, with the prior notice to each of FAME and the Treasurer, to receive certain payments from the Sub-Advisors or from Portfolio Investments or the providers of the Principal Plus Portfolio Investments for a variety of services with respect to Program assets invested in the Underlying Funds or Principal Plus Portfolio Investments. The Program Manager provides various sub-transfer agency and other related administrative services with respect to Underlying Funds positions. These services include, for example, processing purchases, redemptions, and exchanges, dividend reinvestments, consolidated statements, tax reporting, and other recordkeeping. The Program Manager also provides a variety of marketing services and other support to Sub-Advisors. These services include, but are not limited to, review and implementation of features of Underlying Funds; strategic planning support to assist Sub-Advisors; making available employees for education regarding Underlying Funds; sales related reports and other information. In consideration for these services, the Program Manager receives compensation from Sub-Advisors, Portfolio Investments or the providers of the Principal Plus Portfolio Investments of up to 0.30% of the average annual amount invested by the Portfolios in the Portfolio Investments. Because different Sub-Advisors and Portfolio Investments may be subject to different fee arrangements, the Program Manager has agreed to advise FAME and the Treasurer in writing of each specific fee arrangement prior to the initiation or amendment thereof and to provide FAME and the Treasurer with such additional information as either may reasonably request with respect to any such arrangement.

26

PROGRAM FEES AND EXPENSES

Cost of a $10,000 Contribution:
Client Direct Series Portfolios BlackRock Portfolios BlackRock Age-Based 0-7 Years Portfolio BlackRock Age-Based 8-10 Years Portfolio BlackRock Age-Based 11-13 Years Portfolio BlackRock Age-Based 14-16 Years Portfolio BlackRock Age-Based 17-19 Years Portfolio BlackRock Age-Based 20+ Years Portfolio BlackRock 100% Equity Portfolio BlackRock Equity Index Portfolio iShares Age-Based 0-7 Years Portfolio iShares Age-Based 8-10 Years Portfolio iShares Age-Based 11-13 Years Portfolio iShares Age-Based 14-16 Years Portfolio iShares Age-Based 17-19 Years Portfolio iShares Age-Based 20+ Years Portfolio iShares Diversified Equity Portfolio iShares Diversified Fixed Income Portfolio Franklin Templeton Portfolio Franklin Templeton Balanced Portfolio MFS Portfolio MFS Fixed Income Portfolio $95 $295 $513 $1,139 $99 $309 $537 $1,191 $100 $93 $79 $68 $89 $74 $104 $44 $63 $63 $63 $63 $59 $55 $62 $65 $311 $290 $248 $213 $278 $231 $325 $138 $128 $128 $128 $128 $120 $112 $127 $132 $539 $504 $432 $371 $484 $402 $564 $242 $196 $196 $196 $196 $184 $172 $194 $203 $1,195 $1,119 $963 $830 $1,075 $898 $1,250 $543 $267 $267 $267 $267 $250 $234 $265 $276 1 Year 3 Years 5 Years 10 Years

Cost Example Principal Plus Portfolio

The following table shows the approximate costs of investing in the Principal Plus Portfolio. A Participants actual cost may be higher or lower. The following table is based on the following assumptions: A $10,000 Contribution invested for the time periods shown. Reflects Portfolio Fees.

A 3.00% annually compounded rate of return on the net amount invested throughout each period shown. The fees and expenses described in this Program Description apply for all periods shown. The $25 annual Account Maintenance Fee is not included. All Units are redeemed at the end of the period shown for Qualified Higher Education Expenses (this table does not consider the impact of any potential state or federal taxes on the redemption).

Cost of a $10,000 Contribution:

Client Direct Series Principal Plus Portfolio 1 Year $21 3 Years $64 5 Years $109 10 Years $234

Exchanges of Existing Account Assets to Another Portfolio

Current Account assets may be reallocated once each calendar year or upon a change of the Designated Beneficiary. Client Direct Series Units may only be exchanged for Client Direct Series Units in another Portfolio.

27

TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS

TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS
This Program Description (i) is not intended as individual tax advice to any person (including any Participant or Designated Beneficiary), (ii) is provided as general information in connection with the promotion or marketing of the Program and (iii) is not provided or intended to be used, and cannot be used, by any taxpayer, for the purpose of avoiding U.S. tax penalties. A taxpayer should seek advice based on the taxpayers particular circumstances from an independent tax advisor. modify the Program within the constraints of applicable law to enable the Program to continue to meet the requirements of Section 529 of the Code.

Federal Taxation of Section 529 Programs

The following discussion is based on the Code, Proposed Regulations, IRS published guidance and interpretations of applicable federal and Maine law existing on the date of this Program Description and Participation Agreement. It is possible that Congress, the Treasury Department, the IRS, or the courts may take actions that will affect the Code and Proposed Regulations and interpretations thereof. FAME and the Program Manager intend to modify the Program from time to time within the constraints of applicable law to enable the Program to continue to meet the requirements of Section 529 of the Code. In the event that the Program, as currently structured or as subsequently modified, does not meet the requirements of Section 529 of the Code for any reason, the tax consequences to Participants and Designated Beneficiaries will differ from those described below. Future state legislation may likewise affect the state tax treatment of Participants and Designated Beneficiaries in connection with the Program. See Taxation by Other States.

General
The following discussion is a summary of certain aspects of federal and state income taxation and federal and state estate and gift taxation relating to contributions to and withdrawals from Section 529 Programs. It is not exhaustive and is not intended as tax advice. The federal and state tax consequences associated with an investment in the Program are complex, and a Participant should consult a tax advisor regarding the application of the pertinent tax rules to his or her particular circumstances. The IRS issued Proposed Regulations on August 24, 1998 (the Proposed Regulations), which will remain pending until withdrawn or until final regulations are issued under Section 529 of the Code. The Program as described in this Program Description and Participation Agreement has been designed to comply with Section 529 of the Code and the Proposed Regulations (to the extent not inconsistent with subsequent tax legislation and guidance from the IRS). The preamble that accompanied the Proposed Regulations states that taxpayers may rely on the Proposed Regulations. However, the Proposed Regulations do not reflect significant changes made to Section 529 of the Code since their issuance and subsequent guidance from the IRS on Section 529 Programs. Consequently, it is not likely that the Proposed Regulations will be issued as final regulations in their current form. It is not possible to predict the effect of amendment or withdrawal of the Proposed Regulations upon the Program or when final regulations may be issued. On January 18, 2008, the IRS issued an Advance Notice of Proposed Rulemaking with respect to Section 529 of the Code. However, this Advance Notice did not specify when final regulations would be issued or provide new separate guidance from the IRS. FAME has received a private letter ruling from the IRS that the Program is a qualified tuition program and exempt from federal income tax under Section 529 of the Code. (A copy of the letter ruling may be obtained on the Programs Web site at [Link].) The ruling expressly states that final regulations have not been issued under Section 529 and that such regulations, when issued, could affect the validity of the ruling. If necessary, FAME and the Program Manager intend to

Contributions, Earnings and Withdrawals Contributions to Section 529 Programs are not deductible for federal income tax purposes. Earnings that accumulate in an account and are not withdrawn are not subject to federal income tax. In addition, earnings on contributions are not subject to federal income tax to the extent that they are withdrawn from an account and used for Qualified Higher Education Expenses of the designated beneficiary.
While qualified withdrawals are exempt from federal income tax, the earnings portion of non-qualified withdrawals will generally be subject to federal income tax and a 10% additional federal tax on earnings. If the amount withdrawn exceeds the designated beneficiarys Qualified Higher Education Expenses, the amount includible as ordinary income in computing the distributees federal taxable income is the earnings portion of the withdrawal reduced by an amount which bears the same ratio to the earnings portion of the amount withdrawn as the designated beneficiarys Qualified Higher Education Expenses paid by the withdrawal from the account bears to the amount of such withdrawal. Withdrawals not used for Qualified Higher Education Expenses consist of two parts for federal income tax purposes. A part of the withdrawal will be treated as a non-taxable return of principal and the remainder will be treated as a taxable withdrawal of earnings. The earnings portion of a withdrawal will be treated as income to the individual who is considered to have received the distribution. A 10% additional federal tax also will be imposed on the earnings portion of the non-qualified withdrawal; however, there are certain exceptions to the imposition of the additional tax. The exceptions are: (i) withdrawals paid to the designated beneficiarys estate made on account of the death of the designated beneficiary; (ii) withdrawals made on account of the

28

TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS

disability (within the meaning of section 72(m)(7) of the Code) of the designated beneficiary; (iii) withdrawals made on account of a scholarship received by the designated beneficiary, provided withdrawals do not exceed the amount of the scholarship; (iv) withdrawals made on account of a reduction in the amount of Qualified Higher Education Expenses solely because of expenses taken into account in determining the Education Tax Credits allowed under federal income tax law and (v) withdrawals made on account of the attendance of the designated beneficiary at certain specified military academies. Qualifying rollovers are not subject to federal income tax or the 10% additional federal tax on earnings. See PARTICIPATION AND ACCOUNTS - Non-Qualified Withdrawals and the Additional Tax. For purposes of calculating the earnings portion of withdrawals from an account, withdrawals from all of the account owners accounts of which an individual is a designated beneficiary will be treated as one account and, except to the extent provided by the IRS, all withdrawals during a taxable year will be treated as one withdrawal. The calculation of earnings is made at the time each withdrawal is made. the portion representing contributions will be added to the contributions portion of the account.

Series EE and Series I Bonds Interest on Series EE bonds issued after December 31, 1989, as well as interest on all Series I bonds, may be completely or partially excluded from federal income tax if bond proceeds are used to pay certain Qualified Higher Education Expenses at an Eligible Institution of Higher Education or are contributed to a Section 529 Program or a Coverdell ESA in the same calendar year the bonds are redeemed. Certain income and other limitations apply, and you should consult with a qualified tax adviser. If appropriate documentation is received by the Section 529 Program receiving the proceeds of the sale of Series EE or Series I bonds, the original purchase price of the bonds redeemed and contributed to the Section 529 Program will be added to the contributions portion of the receiving account, with the interest added to earnings. Federal Gift, Estate and Generation-Skipping Transfer Taxes Contributions (other than most rollover contributions) to a Section 529 Program are generally considered completed gifts to the designated beneficiary for federal gift, estate and generationskipping transfer (GST) tax purposes and are thus eligible for the annual gift and GST tax exclusions, which is currently $13,000 per recipient per year (or $26,000 per recipient per year, in the case of a married couple electing to split gifts on a duly filed gift tax return). Except as described in the following paragraph, if the contributor were to die while assets remained in an account, the value of the account would not be included in the contributors gross estate.
In general, contributions (other than rollover contributions) to a Section 529 Program are completed gifts in the year of contribution that qualify for the gift tax annual exclusion and GST tax exclusion, currently $13,000 per year per beneficiary, available under the Code. However, if a contribution in a single year is greater than $13,000, the contributor may elect to prorate the contribution against the annual exclusion ratably over a fiveyear period. Thus, a contributor who makes a $65,000 ($130,000 in the case of a married couple electing to split gifts on a duly filed gift tax return) contribution in a year, makes the election and makes no other gifts to the designated beneficiary during that calendar year or the next four calendar years would not incur a gift or GST tax as a result of the contribution. Any excess over the $65,000 (or $130,000, as the case may be) would be treated as a taxable gift in the calendar year of the contribution. However, if a contributor dies before the first day of the fifth calendar year, the portion of the contribution allocable to the calendar years after that of the contributors death would be includible in the contributors estate for federal estate tax and, if applicable, GST tax purposes. The gift tax annual exclusion is periodically adjusted for inflation. If the $13,000 annual exclusion is increased during the five-year period after an election is made an additional contribution can be made in any one or more of the remaining years without gift 29

Rollovers between Section 529 Programs A Section 529 Program account owner may roll over all or part of the balance of an account to another Section 529 Program that accepts rollovers without subjecting the rollover amount to federal income tax, provided certain conditions are met: (i) the amount withdrawn must be placed in another Section 529 Program within 60 days of the withdrawal; and (ii) the designated beneficiary of the receiving Section 529 Program account must be the same designated beneficiary (with no other rollover to a Section 529 Program having occurred for the same designated beneficiary in the preceding 12 months) or else a Member of the Family of the current designated beneficiary. Provided appropriate documentation is received by the Section 529 Program receiving the rollover, the portion of the rollover which represents earnings will be added to the earnings portion of the receiving account and amounts representing contributions will be added to the contribution portion of the receiving Section 529 Program account. See PARTICIPATION AND ACCOUNTS - Change of Designated Beneficiary for the definition of Member of the Family and see Federal Gift, Estate and Generation Skipping Transfer Taxes for certain additional information about changes of designated beneficiaries. Rollovers from Coverdell Education Savings Accounts The Code provides that for purposes of determining whether a distribution from a Coverdell ESA is includible in gross income, any amount contributed to a Section 529 Program may be treated as a qualified education expense of the designated beneficiary. Therefore, amounts held in a Coverdell ESA may be rolled over to a Section 529 Program account for the same designated beneficiary without subjecting the rollover amount to federal income tax or penalties. Provided appropriate documentation is received by the Section 529 Program receiving the rollover, the portion of the rollover representing earnings in the Coverdell ESA will be added to the earnings portion of the receiving account and

TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS

or GST tax consequences up to the difference between the adjusted exclusion amount and the pro-rated amount of the original contribution attributed to such year. The five-year election must be made on a federal gift tax return by a contributor (and his or her spouse with respect to a contribution considered to be made one-half by each spouse) for the calendar year in which the contribution is made. If the designated beneficiary for an account is changed to, or amounts in an account are rolled over to an account for, a new designated beneficiary who is a Member of the Family of the current designated beneficiary and is assigned to the same or higher generation as the current designated beneficiary for GST tax purposes, there will be no gift or GST tax consequences. If the new designated beneficiary is a Member of the Family of the current designated beneficiary but is assigned to a younger generation than the current designated beneficiary for GST tax purposes, the change of designated beneficiary will be deemed a gift from the current designated beneficiary to the new designated beneficiary for federal gift and GST tax purposes, in which case the five-year election discussed above may be available for such purposes. (If the new designated beneficiary is not a Member of the Family of the current designated beneficiary, the income and transfer tax consequences are uncertain but may be substantial and adverse, and the Program will not knowingly permit a change of Designated Beneficiary to, or a rollover to an account for, someone who is not a Member of the Family of the current Designated Beneficiary.) The gross estate of a designated beneficiary of a Section 529 Program may include the value of any interest the designated beneficiary has in the Section 529 Program or amounts distributed on account of the designated beneficiarys death. If the account owner and the designated beneficiary are the same person, the value of the account will be includible in the account owner/designated beneficiarys gross estate.

Certain Current Federal Tax Treatment Relating to Section 529 Programs Scheduled to Expire After 2010 Unless further action is taken by Congress, after December 31, 2010, a 6% excise tax would apply to contributions made to a Coverdell ESA in the same year as a contribution to a Section 529 Program for the same designated beneficiary.

Taxation by Maine
Under Maine law, the assets of the Program Fund, all Program earnings and income from operations are exempt from all taxation by the State of Maine or any of its political subdivisions. Maine law also provides that a deposit to any Account, transfer of that Account to a Successor Participant, designation of a successor Designated Beneficiary of that Account, credit of Program earnings to that Account or distribution from that Account used for the purposes of paying Qualified Higher Education Expenses of the Designated Beneficiary of that Account does not subject that Participant, the estate of that Participant or any Designated Beneficiary to any Maine income or estate tax liability. Maine law further provides, however, that, in the event of cancellation or termination of a Participation Agreement and distribution of funds to a Participant, the increase in value over the amount deposited in the Account by the Participant may be taxable to that Participant in the year distributed. Individuals who file individual Maine state income tax returns will be able to deduct up to $250 per Designated Beneficiary per tax year for their total, combined contributions to any Section 529 Program during that tax year. The deduction is not available to taxpayers with federal adjusted gross income over $100,000 (single or married filing separately) or $200,000 (married filing jointly or head of household).

Taxation by Other States

If the Program is not the home state plan of both the Participant and the Designated Beneficiary, the Participant should be aware of the following: Depending upon the laws of the Participants home state or the Designated Beneficiarys home state, favorable state tax treatment or other benefits offered by such home state for investing in Section 529 Programs may be available only if the Participant invests in that home states Section 529 Program. Any state-based benefits offered with respect to a particular Section 529 Program should be one of the many appropriately weighted factors to be considered in making an investment decision. The Participant should consult with tax or other advisors to learn more about how state-based benefits (including any limitations) would apply to the Participants specific circumstances and the Participant may also wish to contact the Participants home state or any other Section 529 Program to learn more about the features, benefits and limitations of that states Section 529 Program. 30

Coverdell ESAs and Education Tax Credits Amounts may be contributed to a Coverdell ESA and a Section 529 Program in the same year for the account of the same designated beneficiary without imposition of a penalty. Taxpayers meeting certain income threshold and other requirements may be eligible to take an Education Tax Credit against their federal income tax liability for certain education expenses. Taxpayers receiving tax-free distributions from a Section 529 Program for qualified education expenses will not be able to claim an Education Tax Credit for the same expenses. Furthermore, expenses used in determining the allowed Education Tax Credits will reduce the amount of a designated beneficiarys Qualified Higher Education Expenses to be paid from a Section 529 Program account and may result in a taxable withdrawal. A Participant should consult a tax advisor regarding his or her eligibility to contribute to a Coverdell ESA, the availability of Education Tax Credits and the coordination of rules applicable to Coverdell ESAs, Section 529 Programs and the Education Tax Credits.

TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS

Designated Beneficiaries and/or other distributees should likewise consult tax or other advisors with respect to state-based benefits and state tax treatment. The consequences to a Participant or Designated Beneficiary of taking withdrawals from an Account, and the treatment of earnings that accumulate in an Account and are not withdrawn, will vary from state to state. In general, if a states income tax law conforms to the federal income tax law, a Participant who is a resident of the state should not recognize income on earnings that accumulate in an Account and are not withdrawn. When assets are withdrawn from an Account, the earnings portion should be tax-free to the extent used to pay the Qualified Higher Education Expenses of the Designated Beneficiary. However, it is possible that a state whose income tax laws otherwise conform to the federal income tax law may assess state tax on withdrawals, transfers and/or rollovers differently than under federal income tax law. If a states definition of taxable income or adjusted gross income does not conform to the federal definition and the state does not have an explicit provision addressing the tax consequences of Section 529 Programs, the tax consequences to a Participant, other contributor (if any) or Designated Beneficiary may be unclear. In such cases, the earnings on an Account may be included in the Participants or Designated Beneficiarys state taxable income when earned or withdrawn.

Tax Reports and Filings

The Program Manager will report all distributions from an Account to the IRS, the Participant and any other required persons, if any, to the extent required by federal, state or local law. Under federal law, the Program Manager will report to the IRS on IRS Form 1099-Q gross distributions from an Account during the calendar year along with information regarding the earnings and basis (i.e., contributions) portions of the amount distributed. By January 31 of the year following the distribution, the Participant (or Designated Beneficiary, in the case of distributions made directly to the Designated Beneficiary or to an Eligible Educational Institution for the benefit of the Designated Beneficiary) will receive a copy of such Form 1099-Q or an acceptable substitute statement. Participants and Designated Beneficiaries should check with their tax advisors about the tax impact to them of any distributions from an Account and about what, if any, information must be reported on a tax return. Because it is the responsibility of the distributee receiving Form 1099-Q to determine whether distributions from an Account result in federal and/or state tax liability and/or the 10% additional federal tax on earnings, Participants and Designated Beneficiaries should retain adequate records, invoices or other documents and information to support any exemption from federal and/or state taxes as well as any exemption from the 10% additional federal tax on earnings, as applicable.

31

PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS

PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS
A Participant should carefully consider the matters set forth below in addition to the other information contained or referred to in this Program Description and the Participation Agreement in evaluating the establishment of an Account and the making of Contributions. The contents of this Program Description or the Participation Agreement should not be construed as legal, financial or tax advice. A Participant should consult his or her own attorneys and financial and tax advisors as to legal, financial and tax advice.
PERFORMANCE AND INVESTMENTS. Any Portfolio may at any time be merged, terminated, reorganized or cease issuing new Units. Any Portfolio Fee structure may at any time be terminated or modified. Any such action affecting a Portfolio may result in a Participants Contributions being reinvested in a Portfolio different from the Portfolio in which Contributions were originally invested. With certain limited exceptions, the Participant is not permitted to withdraw funds from the Account without imposition of federal and applicable state income tax, and the 10% additional federal tax on earnings, except for application to the Qualified Higher Education Expenses of the Designated Beneficiary.

Program and Portfolio Risks and Other Considerations

Accounts are subject to certain risks associated with participation in the Program. In addition, certain Portfolios are more subject to certain risks than are other Portfolios. Portfolios investing in Underlying Funds are subject to certain risks associated with investing in Underlying Funds. See Investment Risks of Underlying Funds. Portfolios investing in Principal Plus Portfolio Investments are subject to certain risks associated with investing in Principal Plus Portfolio Investments. See Investment Risks of Principal Plus Portfolio Investments. A Participant should consider such risks in light of the possibility that they may arise at any time during the period an Account is open. Except to the extent permitted by federal tax law, a Participant cannot direct the investment of Contributions to an Account. Non-Qualified Withdrawals are subject to income taxes and may be subject to the 10% additional federal tax on earnings.

Effect of Investment Strategy and Inflation on Qualified Higher Education Expenses Contributions to an Account are limited to amounts projected to be sufficient to permit all Accounts established for a Designated Beneficiary to fund Qualified Higher Education Expenses for such Designated Beneficiary for a five-year period of undergraduate attendance and a two year period of graduate attendance. However, the balance in an Account or Accounts maintained on behalf of a Designated Beneficiary may or may not be adequate to cover the Qualified Higher Education Expenses of that Designated Beneficiary, even if Contributions to an Account are made in the maximum amount per Designated Beneficiary permitted under the Program. In addition, the level of future inflation in Qualified Higher Education Expenses is uncertain and could exceed the rate of investment return earned by any or all of the Portfolios over the corresponding periods. There is no obligation on the part of any educational institution to maintain a rate of increase in Qualified Higher Education Expenses which is in any way related to Portfolio investment results.
The investment strategy of the Age-Based Diversified Portfolio investment option seeks to balance risk and expected returns of the Portfolio Investments with the time periods remaining until a typical Designated Beneficiary is expected to need assets for Qualified Higher Education Expenses. In general, the asset allocation strategy for each of the Age-Based Diversified Portfolio investment option is expected to become increasingly conservative over time. The investment strategies of the Diversified Portfolio, Single Fund Portfolio and Principal Plus Portfolio investment options vary significantly from each other and from that of the Age-Based Diversified Portfolio investment options. The strategies of the Diversified Portfolio, Single Fund Portfolio and Principal Plus Portfolio investment options are not currently expected to change over time. Further, Diversified Portfolio, Single Fund Portfolio and Principal Plus Portfolio investment options may have more concentration risk. None of the Diversified Portfolios and Single Fund Portfolios investing exclusively in Underlying Funds that invest in equity securities will provide for capital preservation at any particular time and the Diversified Portfolio investing exclusively in Underlying Funds that invest in fixed income securities will not seek capital appreciation. Portfolios that primarily invest in Underlying Funds investing in equity securities may underperform certain other Portfolios, particularly if equity securities generally underperform other asset classes for any 32

No Guarantee of Income or Principal The investments made by a Participant or others in Accounts are subject to market, interest rate and other investment risks, including the loss of principal. The value of an Account may increase or decrease, based on the return of the Portfolio(s) to which Contributions have been allocated, and the value of an Account may be more or less than the total Contributions to the Account. None of the State of Maine, FAME, the Treasurer, any agency or instrumentality of Maine, Merrill Lynch, FDS, BlackRock, or any Sub-Advisor or any of their affiliates, any agent or representative retained in connection with the Program or any other person, is an insurer of, makes any guarantee of or has any legal or moral obligation to insure the ultimate payout of any or all of the amount of any Contribution to an Account or that there will be any investment return, or investment return at any particular level, with respect to any Account. Limitations on Investment Direction FAME, not a Participant, determines the investment allocations for the Portfolio(s) to which Contributions are allocated and selects Portfolio Investments for such Portfolio(s). These determinations are effected from time to time as described under THE NEXTGEN PORTFOLIOS PORTFOLIO ALLOCATIONS and NEXTGEN PORTFOLIOS

PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS

particular period of time. Portfolios that primarily invest in Underlying Funds investing in fixed income securities may underperform certain other Portfolios, particularly if fixed income securities generally underperform other asset classes for any particular period of time. A Participant selecting Portfolios that invest in Underlying Funds investing in equity securities should carefully review the investment risks applicable to Underlying Funds investing in equity securities. See Investment Risks of Underlying Funds Underlying Funds Investing in Equity Securities. A Participant selecting Portfolios that invest in Underlying Funds investing in fixed income securities should carefully review the investment risks applicable to Underlying Funds investing in fixed income securities. See Investment Risks of Underlying Funds Underlying Funds Investing in Fixed Income Securities (Including Money Market Securities). A Participant selecting the Principal Plus Portfolio should carefully review the investment risks described under the heading Investment Risks of Principal Plus Portfolio Investments. ability to participate in any such enhancement. The Portfolio fees and other charges described in this Program Description and the Participation Agreement are subject to change at any time.

Status of Applicable Law and Regulations Final regulations under Section 529 of the Code or other administrative guidance or court decisions might be issued which could adversely impact the federal tax consequences or requirements with respect to the Program or Contributions to, or distributions from, Accounts. Congress could also amend Section 529 of the Code or other federal law, and states could amend state law, in a manner that would materially change or eliminate the federal or state tax treatment described in this Program Description. There can be no assurance that such changes in law will not adversely affect the value to any Participant or Designated Beneficiary of participation in the Program. It is not possible to determine the effects, if any, on the Program of such changes.
Under certain circumstances, neither FAME nor the Program Manager is required to continue the Program. Changes in the law governing the federal and/or state tax consequences described above might necessitate material changes to the Program for the anticipated federal tax consequences to apply.

Education Savings and Investment Alternatives A number of other Section 529 Programs and education savings and investment programs are currently available to a Participant. These programs may offer benefits, including state tax benefits, to some or all Participants or Designated Beneficiaries that are not available under the terms of the Program or applicable law. See TAX TREATMENT OF INVESTMENTS AND WITHDRAWALS Taxation by Other States. If a Participant or Designated Beneficiary is not a Maine resident, the state(s) where he or she lives or pays taxes may offer one or more direct sold, advisor/broker sold or prepaid tuition Section 529 Programs, and those programs may offer the Participant or Designated Beneficiary state or local income tax or other benefits not available through the Program. For instance, several states offer unlimited state income tax deductions for contributions to their own states Section 529 Program. Such deductions may not be available for Contributions under this Program. Other Section 529 Programs may involve fees and expenses that are more or less than those borne by Accounts under the Program and may involve investment consequences (such as recapture of deductions previously taken) that differ. Accordingly, a Participant should consider other investment alternatives before establishing an Account in the Program. Investment options also differ by Section 529 Programs.
Amounts may currently be contributed in the same year to an Account and a Coverdell ESA for the same Designated Beneficiary, without imposition of a penalty. However, unless Congress enacts legislation to the contrary, after December 31, 2010, a 6% excise tax would apply to Contributions made to a Coverdell ESA in the same year as a Contribution to an Account for the same Designated Beneficiary.

Treatment for Federal, State and Institutional Financial Aid Purposes The treatment of Account assets may have a material adverse effect on the Designated Beneficiarys eligibility to receive assistance under various federal, state, and institutional financial aid programs. For federal financial aid purposes, beginning July 1, 2009 (pursuant to the College Cost Reduction and Access Act of 2007), Account assets will be considered (i) assets of a students parent, if the student is a dependent student and the owner of the Account is the parent or the student, or (ii) assets of the student, if the student is the owner of the Account and not a dependent student. For purposes of financial aid programs offered by states and educational institutions, the treatment of Account assets may follow or differ from the treatment described above for federal financial aid purposes. Participants and Designated Beneficiaries are advised to consult a financial aid professional and/or the state or educational institution offering a particular financial aid program, to determine how assets held in an Account may affect eligibility for financial aid. Medicaid and Other Federal and State Non-Educational Benefits The effect of owning Account balances on eligibility for Medicaid or other state and federal benefits is uncertain. It is possible that assets held in an Account will be viewed as a countable resource in determining a Participants financial eligibility for Medicaid. Withdrawals from an Account during certain periods may also have the effect of delaying the disbursement of Medicaid payments. A Participant should consult a tax advisor to determine how assets held in an Account may affect eligibility for Medicaid or other state and federal noneducational benefits. No Guarantee of Performance Performance information for the Portfolios should not be viewed as a prediction of future performance
33

Potential Program Enhancements/Changes FAME may offer changes to the Program, including additional investment options. A Participant who has established Accounts prior to the time an enhancement is made available may be limited in his or her

PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS

of any Portfolio. In view of the anticipated periodic determinations of investment allocations and Portfolio Investments for each Portfolio, the future investment results of any Portfolio cannot be expected, for any period, to be similar to the past performance of any other Portfolios or combination of Underlying Funds.

Certain Considerations in Connection with the Termination of the Program Management Agreement and Successor Program Managers A new Program Manager and Portfolio Servicing Agent may be appointed either upon expiration of the current term of the Program Management Agreement or earlier in the event Merrill Lynch, FDS or FAME terminates the Program Management Agreement prior to its current term. See THE PROGRAM MANAGEMENT AGREEMENT. Merrill Lynch would be eligible for selection as the new Program Manager after the end of the term. Regardless of whether Merrill Lynch or some other entity is the new Program Manager, the fee and compensation structure of the new Program Manager and Portfolio Servicing Agent might be higher or different, respectively, than the Management Fee and Portfolio Servicing Fee. In addition, a successor Program Manager may achieve different investment results than might have been achieved by Merrill Lynch. No Guarantees by an Eligible Institution of Higher Education There is no guarantee that: (i) any Designated Beneficiary will be admitted to any Eligible Institution of Higher Education; (ii) assuming a Designated Beneficiary is admitted to an Eligible Institution of Higher Education, that the Designated Beneficiary will be permitted to continue to attend such institution; (iii) any Designated Beneficiary will be treated as a state resident of any state for tuition or any other purpose; or (iv) any Designated Beneficiary will graduate or receive a degree from an Eligible Institution of Higher Education.

Underlying Funds Investing in Equity Securities Market and Selection Risk Market risk is the risk that the stock 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 an Underlying Fund selects will underperform the market or other funds with similar investment objectives and investment strategies. The investment advisors of the Underlying Funds may emphasize a particular investment style (such as growth or value style investing). The success of these styles varies at different times and the style of a particular advisor may lead to investments that decline in value or do not achieve anticipated results.
Terrorist attacks in the United States and abroad, and the continued threat thereof, and related events, including U.S. military actions in Iraq and continued unrest in the Middle East, have led to increased short term market volatility and may have long term effects on U.S. and world economies and markets. The Program does not know the extent to which and how long the securities markets may be affected by such events and cannot predict the effects of such events on the economies of the U.S. or of other countries, or on Portfolio Investments. Risk of Small Capitalization and Emerging Growth Securities Small capitalization or emerging growth companies may have limited product lines or markets. They may be less financially secure than larger, more established companies. They may depend on a small number of key personnel. If a product fails, or if management changes, or there are other adverse developments, an Underlying Funds investment in a small cap or emerging growth company may lose substantial value. Small capitalization or emerging growth securities generally trade in lower volumes and are subject to greater and more unpredictable price changes than larger capitalization securities or the stock market as a whole. Geographic Concentration Risk An Underlying Fund that invests a substantial amount of its assets in issuers located in a single country or a limited number of countries assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. Emerging Markets Risk Foreign investment risk may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. For example, many developing countries have, in the past, experienced high rates of inflation, expropriated assets or sharply devalued currencies against the U.S. dollar, thereby causing the value of investments in companies located in those countries to decline. Transaction costs are often higher in developing countries and there may be delays in settlement procedures. 34

Investment Risks of Underlying Funds

Accounts are subject to a variety of investment risks which will vary based on the sector allocations of the different Portfolios and the particular Underlying Funds selected by FAME for the Portfolios. Set forth below is a summary of certain investment risks to which specific categories of Underlying Funds may be subject, followed by a summary of general risks to which Underlying Funds may be subject. The Underlying Funds may be subject to additional risks that are not set forth below. A Participant should review the principal risks to which particular Underlying Funds may be subject, described in NEXTGEN PORTFOLIOS PERFORMANCE AND INVESTMENTS in this Program Description. Additionally, each Underlying Funds current prospectus and statement of additional information contains additional information not set forth in this Program Description, which may identify additional principal risks to which the respective Underlying Fund may be subject. You may request a copy of any Underlying Funds current prospectus and statement of additional information, or an Underlying Funds most recent semi-annual or annual report, by contacting the Sub-Advisor directly. Information on how to do so with respect to each SubAdvisor is included in NEXTGEN PORTFOLIOS PERFORMANCE AND INVESTMENTS in this Program Description.

PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS

Investing in a Master Portfolio Investors in a feeder fund will acquire an indirect interest in the corresponding master portfolio. Each portfolio accepts investments from other feeder funds, and all the feeders of a given Portfolio bear the portfolios expenses in proportion to their assets. This structure may enable the funds to reduce costs through economies of scale. A larger investment portfolio may also reduce certain transaction costs to the extent that contributions to and redemptions from the portfolio from different feeders may offset each other and produce a lower net cash flow. However, each feeder can set its own transaction minimums, fund-specific expenses, and other conditions. This means that one feeder could offer access to the same portfolio on more attractive terms, or could experience better performance, than another feeder. In addition, large purchases or redemptions by one feeder fund could negatively affect the performance of other feeder funds that invest in the same portfolio. Whenever a portfolio holds a vote of its feeder funds, the fund investing in that portfolio will pass the vote through to its own shareholders. Smaller feeder funds may be harmed by the actions of larger feeder funds. For example, a larger feeder fund could have more voting power than a smaller feeder fund over the operations of its portfolio. A fund may withdraw from its master portfolio at any time and may invest all of its assets in another pooled investment vehicle or retain an investment adviser to manage the funds assets directly. the proceeds in bonds with lower yields. This risk, which is known as prepayment risk, may particularly affect asset-backed securities. In a period of declining interest rates, borrowers may pay what they owe on the underlying assets more quickly than anticipated. Extension Risk Extension risk is the risk that, when interest rates rise, certain obligations will be paid off more slowly than anticipated and the value of these securities will fall. Risk of Non-investment Grade Bonds Non-investment grade bonds (also referred to as junk bonds) are debt securities that are rated below investment grade by the rating agencies or are unrated securities that an Underlying Funds management believes are of comparable quality. Although non-investment grade bonds generally pay higher rates of interest than investment grade bonds, they are high-risk investments that may cause income and principal losses for the Underlying Fund. Non-investment grade bonds generally experience more price volatility than higher rated debt securities. In the event of an issuers bankruptcy, claims of other creditors may have priority over the claims of noninvestment grade bond holders, leaving few or no assets available to repay non-investment grade bond holders. Non-investment grade bonds may be subject to greater prepayment risk than higher rated debt securities. Underlying Funds investing in the non-investment grade bonds may invest in distressed securities, which are securities that are subject to bankruptcy proceedings or are in default, or are at risk of being in default. Considerations Relating to the Cash Allocation Account As described under BLACKROCK PORTFOLIOS Cash Allocation Account, a portion of the assets of the Cash Allocation Account may be invested in Maine CDs. Such investments are generally limited to not more than 10% of the assets of the Cash Allocation Account, but there is no prescribed limit on such investments. To the extent that the yield on Maine CDs is less than the yield on the money market securities in which the assets of the Cash Allocation Account would otherwise be invested, the yield of Portfolios investing in the Cash Allocation Account will be reduced. Mortgage Securities and Asset-Backed Securities Risk Mortgage securities differ from conventional debt securities because principal is paid back over the life of the security rather than at maturity. An Underlying Fund may receive unscheduled prepayments of principal before the securitys maturity date due to voluntary prepayments, refinancing or foreclosure on the underlying mortgage loans. To the Underlying Fund this means a loss of anticipated interest and a portion of its principal investment represented by any premium the Underlying Fund may have paid. Mortgage prepayments generally increase when interest rates fall. 35

Underlying Funds Investing in Fixed Income Securities (Including Money Market Securities) Market and Selection Risk Underlying Funds investing in fixed income securities are subject to both market risk and selection risk as described above.
Credit Risk Credit risk is the risk that an issuer will be unable to pay interest or repay principal when due. The degree of credit risk depends on both the financial condition of the issuer and the terms of the obligation. Interest Rate Risk Interest rate risk is the risk that prices of bonds generally increase when interest rates decline and decrease when interest rates increase. Prices of longer-term obligations generally change more in response to interest rate changes than prices of shorterterm obligations. Generally, a rise in interest rates will cause the market value of a fixed rate obligation to fall, while a decline in interest rates will cause the market value of a fixed rate obligation to rise. Debt securities purchased at a premium or discount from their principal amount may respond differently to changes in interest rates. Redemption and Prepayment Risk A bonds issuer may call a bond for redemption before it matures. If this happens to a bond the Underlying Fund holds, the Underlying Fund may lose income and may have to invest

PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS

Mortgage securities also are subject to extension risk. An unexpected rise in interest rates could reduce the expected rate of prepayments on mortgage securities and extend their anticipated life. This could cause the price of the mortgage securities and the Underlying Funds share price to fall and would make the mortgage securities more sensitive to interest rate changes. Issuers of asset-backed securities may have limited ability to enforce the security interest in the underlying assets, and credit enhancements provided to support the securities, if any, may be inadequate to protect investors in the event of default. Like mortgage securities, assetbacked securities are subject to prepayment and extension risks. Maturity Risk Fixed income securities with shorter maturities will generally be less volatile but provide lower returns than fixed income securities with longer maturities. The average maturity of an Underlying Funds fixed income investments will affect the volatility of the Underlying Funds share price. Short Sale Risk Potential losses from a short sale are unlimited if the short sale cannot be closed out. Liquidity of a security relates to the ability to easily dispose 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. Such investments may affect the Underlying Funds ability to realize its net asset value in the event of a voluntary or involuntary liquidation of its assets. Risk of Borrowing and Leverage Certain Underlying Funds may borrow for investment purposes or for temporary emergency purposes including to meet redemptions. Borrowing may exaggerate changes in the net asset value of the Underlying Funds shares and in the return on the Underlying Funds investments. Borrowing will cost the Underlying Fund interest expense and other fees. The costs of borrowing may reduce the Underlying Funds return. Certain securities that the Underlying Funds buy may create leverage including, for example, options. Derivatives An Underlying Fund may use derivative instruments, including futures, forwards, options, indexed securities, inverse securities and swaps. Derivatives are financial instruments whose value is derived from another security, a commodity (such as oil or gas) or an index such as the Standard & Poors 500 Composite Stock Price Index. Derivatives allow an Underlying Fund to increase or decrease its risk exposure more quickly and efficiently than other types of instruments. Derivatives are volatile and involve significant risks, including credit, currency, leverage, liquidity and interest rate risks. Non-diversification Risk A non-diversified Underlying Fund may invest a greater percentage of its assets in the obligations of a single issuer than a diversified Underlying Fund, and consequently is more susceptible than a diversified Underlying Fund to any economic, political or regulatory occurrence that affects an individual issuer. Risk of Indexed and Inverse Floating Rate Securities An Underlying Fund may invest in securities whose potential returns are directly related to changes in an underlying index or interest rate, known as indexed securities. An Underlying Fund also may invest in securities whose return is inversely related to changes in an interest rate (inverse floaters). In general, income on inverse floaters will decrease when interest rates increase and increase when interest rates decrease. Indexed securities and inverse floaters are derivative securities and can be considered speculative. Indexed and inverse securities involve credit risk, and certain indexed and inverse securities may involve currency risk, leverage risk and liquidity risk. As a result, the market value of such securities will generally be more volatile than that of fixed rate securities.

General Investment Risks Applicable to the Underlying Funds Index Fund Selection Risk and Other Index Fund Considerations Index funds are subject to a special selection risk. This is the risk that the funds, which may not fully replicate the relevant index, may perform differently from the securities in the index. Index funds generally do not attempt to hedge against adverse market movements and may decline in value more than other mutual funds in the event of a general market decline. In addition, an index fund has operating and other expenses that an index does not have. As a result, an index fund will tend to underperform the index to some degree over time.
Foreign Investment Risk Investments by an Underlying Fund outside the United States involve special risks not present in U.S. investments that can increase the chances that an Underlying Fund will lose money. In particular, changes in foreign currency exchange rates will affect the value of securities denominated in a particular currency. Investments in foreign markets also may be affected by economic or political developments or by governmental actions such as the imposition of capital controls, expropriation of assets or the imposition of punitive taxes. Other foreign market risks include foreign exchange control, settlement and custody issues, the limited size of many trading markets and the limited availability of legal remedies to investors. Risk of Illiquid Securities An Underlying Fund may invest a portion of its assets in securities that lack a secondary trading market or are otherwise considered illiquid.

36

PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS

Real Estate Investment Risk Investment in equity securities in the real estate sector is subject to many of the same risks associated with the direct ownership of real estate, such as adverse changes in national, state or local real estate conditions (resulting from, for example, oversupply of or reduced demand for space and changes in market rental rates); obsolescence or reduced desirability of properties; general economic conditions; catastrophic events or other casualty or condemnation losses; changes in the availability, cost and terms of mortgage funds; and the impact of tax, environmental, and other laws. In recent years, investments in the real estate sector have generally experienced a significant decline in value. Frequent or Active Trading Risk Short-term or active trading may increase a Funds expenses and have adverse tax consequences for the Fund. It can also cause a greater amount of the Funds distributions to be ordinary income rather than long term capital gains. Active trading also involves market risk and selection risk. such Underlying Funds on a stock exchange, it is possible that the Program Manager may be considered to benefit from such transactions if it or any of its affiliates are indirectly involved in the trade on the stock exchange. Index Tracking Risk An ETF Portfolios ability to track its Underlying Fund(s) may be affected by such factors as fees and expenses, rounding of prices, daily contributions/redemptions, asset levels and cash balances. Additionally, because the ETF Portfolios invest primarily in Underlying Funds that are index-based, they are subject to the risks described above in Index Fund Selection Risk and Other Index Fund Considerations.

Investment Risks of Principal Plus Portfolio Investments

Accounts investing in the Principal Plus Portfolio are subject to a variety of investment risks based on the particular Principal Plus Portfolio Investments selected by FAME. Set forth below is a summary of certain investment risks to which Principal Plus Portfolio Investments may be subject. Non-diversification Because the Principal Plus Portfolio is expected to invest exclusively in a single guaranteed investment contract (GIC) prior to November 20, 2010, and thereafter is expected to continue to maintain its investment in that GIC, the Principal Plus Portfolio is nondiversified. A non-diversified Portfolio has more risk than a diversified Portfolio. No Third-Party Guarantees None of the State of Maine, FAME, the Treasurer, the Program or the Program Manager guarantee the principal of Contributions to the Principal Plus Portfolio, returns thereon or any rate of return. Failure to Perform There is a risk that an insurance company could fail to perform its obligations under a GIC for financial or other reasons. Such a failure could result in a loss by an affected Participant of all or part of his or her Account balances invested in the Principal Plus Portfolio. No Minimum Rate of Return While a GIC is designed to provide a minimum rate of return on the amount invested in the GIC before the deduction of fees and expenses, because the Principal Plus Portfolio does not expect to invest exclusively in GICs effective November 20, 2010, the Principal Plus Portfolio will not provide a minimum overall rate of return after such date. In addition to the applicable investment risks described above, because the Principal Plus Portfolio will begin allocating a portion of its assets to the Cash Allocation Account beginning November 20, 2010, it will be subject to the risks described above in Underlying Funds Investing in Fixed Income Securities (Including Money Market Securities), including but not limited to Considerations Relating to the Cash Allocation Account. 37

Investment Risks of BlackRock iShares Portfolios Investments

In addition to the applicable investment risks described above, Accounts investing in the BlackRock iShares Portfolios (the ETF Portfolios) are subject to a variety of investment risks particular to exchange-traded index funds. Set forth below is a summary of certain investment risks to which the ETF Portfolios may be subject. Exchange Trading Risk The ETF Portfolios invest primarily in shares of Underlying Funds that are exchange-traded funds that, unlike mutual funds, are listed and traded on securities exchanges. There can be no assurance that an active trading market for these particular Underlying Funds will develop or be maintained. Secondary market trading in such Underlying Funds may be halted by a national securities exchange because of market conditions or for other reasons. There can be no assurance that the requirements necessary to maintain the listing of the shares of such Underlying Funds will continue to be met or will remain unchanged. BlackRock will purchase or sell shares of such Underlying Funds on the stock exchange on behalf of the ETF Portfolios at prices that, depending on market supply and demand, may be significantly higher or lower than the Underlying Funds most recently determined net asset value, which could affect the performance of the ETF Portfolios. Potential Conflicts of Interest The Program Manager and/or its affiliates may be buying or selling shares of such Underlying Funds at the same time the ETF Portfolios are selling or buying such shares. Although BlackRock has procedures governing its purchases and sales of shares of

THE PROGRAM AND THE PROGRAM FUND

THE PROGRAM AND THE PROGRAM FUND
The Program
The Program was established to encourage the investment of funds to be used for higher education expenses at Eligible Institutions of Higher Education.

Maine First Step Grant Program This benefit is no longer available for babies born on or after January 1, 2009. Maine Matching Grant Program Currently, if either the Participant or the Designated Beneficiary is a Maine resident and if the Participants family federal adjusted gross income was $75,000 or less for the previous tax year, the Account may be eligible for the Maine Matching Grant Program. A Participant may apply for an Initial Matching Grant in an amount to be determined annually by FAME when opening a new Account with only $50. No Initial Contribution is required to obtain the Initial Matching Grant if subsequent Contributions are made through payroll deduction or Automatic Funds Transfer. FAME may also offer an Annual Matching Grant to an existing Account which has received at least $50 in Contributions in a calendar year, in an amount and up to a maximum amount for any one Designated Beneficiary to be determined annually by FAME. No Annual Matching Grant is available for Contributions made in 2010. Other terms and conditions apply. Harold Alfond College Challenge Grant A $500 grant is available from the Alfond Scholarship Foundation for each Maine resident child named as the Designated Beneficiary of an Account before the child's first birthday. No initial or additional Contribution is required to receive the Harold Alfond College Challenge Grant. Other conditions apply. Account Maintenance Fee Waived for Maine Residents The $25 annual Account Maintenance Fee is waived on Accounts when either the Participant or the Designated Beneficiary is a Maine resident. Maine Administration Fee Rebate Program If either the Participant or the Designated Beneficiary is a Maine resident, and the Account was subject to the annual Maine Administration Fee, an amount approximately equal to the Maine Administration Fee paid during the year is automatically rebated back to the Account in January of the following year. (Only Accounts with a balance of $1,000 or more are eligible.) Maine Scholarship Programs FAME has opened Accounts to provide scholarships to eligible Maine students, to certain individuals in Maines incumbent workforce seeking to save for additional education, including training and retraining, and to the dependant child or children of Maine resident members of the U.S. armed services killed while deployed in support of combat operations in Iraq or Afghanistan during certain periods of time. Investments in Maine Financial Institutions A percentage of the cash portion of the Investment Fund is invested in Maine CDs.
For more information about special benefits available to Maine residents, call FAME at 1-800-228-3734.

The Program Fund

Maine law provides that the Treasurer shall invest and reinvest the Program Fund for the benefit of the Program on behalf of Participants and Designated Beneficiaries, under the direction of FAME and with the advice of the Advisory Committee. The Treasurer is the chair of the Advisory Committee. Amounts paid into the Program Fund generally consist of Contributions made by a Participant to the Accounts in the Investment Fund, Program Fund earnings, and any other money that has been appropriated, granted, gifted or otherwise made available for deposit in the Program Fund. All money in the Program Fund is required to be continuously applied by FAME to administer the Program and for no other purpose. Under Maine law, assets of the Program Fund must at all times be preserved, invested and expended only for purposes of the Program and must be held for the benefit of Participants and Designated Beneficiaries. Assets may not be transferred or used by the State of Maine or FAME for any purposes other than the purposes of the Program. Maine law provides that FAME may use amounts in the Program Fund to administer the Program, including to rebate fees paid by a Participant or any class of Participants, to match Contributions by a Participant or any class of Participants or to provide scholarships to certain Designated Beneficiaries. See Special Benefits Available to Maine Residents.

The Investment Fund

The Investment Fund is the portion of the Program Fund invested in Underlying Funds through Contributions to Accounts. Accounts are established by a Participant pursuant to a Participation Agreement for purposes of investing Contributions in one or more Portfolios. Interests in Portfolios purchased with Contributions are represented by Units. See PROGRAM FEES AND EXPENSES.

Special Benefits Available to Maine Residents

Any program that provides a benefit to Maine residents may at any time be modified, added or terminated, without prior notice.

State Tax Deduction Individuals who file individual Maine state income tax returns will be able to deduct up to $250 per Designated Beneficiary per tax year for their total, combined contributions to any Section 529 Program during that tax year. The deduction is not available to taxpayers with federal adjusted gross incomes over $100,000 (single or married filing separately) or $200,000 (married filing joint or head of household).

38

PROGRAM MANAGEMENT AND ADMINISTRATION

PROGRAM MANAGEMENT AND ADMINISTRATION
General
FAME administers the Program. The Program Fund is held by the Treasurer. Maine law requires that amounts deposited in the Program Fund be invested in a reasonable manner to achieve the objectives of the Program and with the discretion and care of a prudent person in similar circumstances with similar objectives. Maine law also requires that due consideration be given to rate of return, term or maturity, diversification and liquidity of investments within the Program Fund or any account in the Program Fund pertaining to the projected disbursements and expenditures from the Program Fund and the expected payments, deposits, contributions and gifts to be received. FAME is authorized under Maine law to enter into contracts for any services it determines necessary for the effective and efficient operation of the Program, which may include investment advisory and managerial services. Merrill Lynch has been selected to serve as the Program Manager.

The Treasurer
The Treasurer is an officer of the State of Maine established in the Maine Constitution. The Treasurer is chosen biennially, at the first session of the Maine legislature, by a joint ballot of the Maine Senators and Representatives in convention, and serves until his or her successor is elected. In general, the Treasurer is the Maine officer responsible for investment, debt and cash management.

Advisory Committee
The Advisory Committee provides advice to FAME on the operation of the Program and investment of the Program Fund. The Advisory Committee consists of seven members, as follows: the Treasurer (who chairs the Advisory Committee), two members with experience in and knowledge of institutional investment of funds, two members representing institutions of higher education with experience in and knowledge of higher education financial and investment matters, one member with knowledge of student financial assistance and one member from at large. All members, except the Treasurer, are appointed by the Governor.

Finance Authority of Maine

FAME was established by statute in 1983 as a body corporate and politic and a public instrumentality of the State of Maine. It consists of 15 voting members, as follows: the Commissioner of Economic and Community Development; the Treasurer; one natural resources commissioner designated by the Governor; and twelve members appointed by the Governor (including a certified public accountant, an attorney, a commercial banker, two veterans, two persons knowledgeable in the field of natural resources enterprises or financing; an individual knowledgeable in the field of student financial assistance and an individual knowledgeable in the field of higher education), which appointments are subject to confirmation by the Maine legislature. The chief executive officer of FAME is nominated by the Governor and confirmed by the Maine legislature. The exercise by FAME of its powers is deemed and held to be the performance of essential governmental functions. FAME has been entrusted by the Maine legislature with responsibility for the administration of numerous programs that are important to the economy of Maine in addition to the Program. Other than a Participants right to access the assets in his or her Account, no Participant or Designated Beneficiary has access or rights to any assets of FAME or the State of Maine. The principal office of FAME is located in Augusta, Maine. FAME has established rules for the implementation of the Program, which are set forth in Chapter 611 of the Rules of FAME, as amended from time to time (the Rule).

Merrill Lynch and FDS

Merrill Lynch and FDS are wholly-owned subsidiaries of Bank of America Corporation. Merrill Lynch provides investment management, securities brokerage, investment banking and numerous other financial services, with more than $1.4 trillion in total client assets as of June 30, 2010. Merrill Lynch offers individual securities, mutual funds, annuities, life insurance, trusts and various types of retirement vehicles and is a leading provider of 401(k) retirement savings plan services and Individual Retirement Accounts (IRAs). Merrill Lynch is a registered broker-dealer and investment adviser, a member of industry self-regulatory organizations, including the Financial Industry Regulatory Authority, the New York Stock Exchange and other exchanges, and is a member of the Securities Investor Protection Corporation (SIPC). Merrill Lynch is also regulated by the U.S. Securities and Exchange Commission (SEC) and by each states securities regulator. FDS is a Florida corporation with its principal place of business located in Jacksonville, Florida. FDS is a transfer agent registered with the SEC and performs transfer agent and shareholder servicing functions for Merrill Lynch and its affiliates. Neither Merrill Lynch nor FDS is a bank, and securities offered by Merrill Lynch, unless otherwise indicated, are not backed or guaranteed by any bank, nor are they insured by the Federal Deposit Insurance Corporation (FDIC).

39

THE PROGRAM MANAGEMENT AGREEMENT

Sub-Advisors
Currently, the Client Direct Series has three Sub-Advisors: BlackRock, MFS and Franklin Templeton. FAME may terminate the Sub-Advisory Agreement with MFS or Franklin Templeton at any time. Merrill Lynch & Co., Inc. has a substantial financial interest in BlackRock, Inc. Consistent with the corporate relationships between Merrill Lynch and BlackRock and applicable law, management and employees of BlackRock may be provided a level of access to Merrill Lynchs employees and information that is not available to affiliated persons of Portfolio Investments sponsored, managed, or distributed by other asset management companies. Merrill Lynch may receive more economic benefits with respect to Portfolios invested in Portfolio Investments sponsored, managed and/or distributed by companies such as BlackRock in which Merrill Lynch has an economic interest as those companies receive compensation for providing investment advisory, administrative, transfer agency, distribution and/or other services to such Portfolio Investments. FAME and the Treasurer, when the same shall become due and payable under the Program Management Agreement; and (ii) the full and prompt performance and observance of all obligations on the part of FDS and BANA pursuant to the Program Management Agreement. Merrill Lynch may periodically propose to FAME and the Treasurer that the Program be amended to include one or more additional Portfolios.

Standard of Care
Merrill Lynch, FDS and the Sub-Advisors are responsible for, and must apply due diligence to effect, the performance of the Services under the Program Management Agreement in accordance with certain applicable legal requirements and the more favorable of certain Merrill Lynch and FDS practices or of certain financial services industry practices.

Termination of Agreement
Each of FAME, FDS and Merrill Lynch may terminate the Program Management Agreement at any time, in response to a material breach, after providing notice and an opportunity to cure. FAME may also terminate in the event subsequent federal legislation makes it unreasonable for FAME or the Treasurer to continue the Program. Merrill Lynch or FDS may also terminate if: (i) Maine adopts legislation providing that FAME, or any successor to its functions, shall no longer be authorized to administer the Program and the Program Fund; or (ii) subsequent Maine legislation adversely affects the ability of Merrill Lynch or FDS to continue to provide the Services or to receive applicable fees. See PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS - Program and Portfolio Risks and Other Considerations - Certain Considerations in Connection with the Termination of the Program Management Agreement and Successor Program Managers. The Sub-Advisory Agreements with each of the Sub-Advisors of the Portfolios may be terminated upon 60 days notice.

THE PROGRAM MANAGEMENT AGREEMENT

Services and Terms
On May 27, 1999, FAME, the Treasurer, Merrill Lynch and FDS entered into the Program Management Agreement (the Program Management Agreement), which provides that Merrill Lynch and FDS will serve as the Program Manager and the Portfolio Servicing Agent, respectively, through June 30, 2014. Under the Program Management Agreement, Merrill Lynch and FDS will perform certain administrative, recordkeeping and investment services, and will market and distribute the Program (collectively, the Services). Merrill Lynch and FDS are permitted to delegate certain of their responsibilities to their affiliates without the prior consent of FAME or the Treasurer. Merrill Lynch has duly delegated certain of its investment advisory responsibilities to BlackRock. Merrill Lynch has delegated certain fund accounting and custody services to Bank of America, N.A. ("BANA"), an affiliate of Bank of America Corporation. No delegation or assignment by Merrill Lynch or FDS shall relieve Merrill Lynch and FDS of any of their responsibilities under the Program Management Agreement. Merrill Lynch has irrevocably and unconditionally guaranteed to FAME and the Treasurer: (i) the full and prompt payment when due of any payments required to be credited or made by FDS under the Program Management Agreement to any Account, or to

Audits
Pursuant to the Program Management Agreement and the SubAdvisory Agreements, Merrill Lynch, FDS, the Sub-Advisors and FAME have agreed to cooperate to generate annual audited financial statements of the Portfolios and the Investment Fund. Beginning with the year ending June 30, 2010, such audited financial statements will be provided by PricewaterhouseCoopers LLP, an independent public accountant. Prior thereto, such audited financial statements were provided by another independent public accountant. A copy of the Programs most recent Annual Report is available by request from the Program Manager at (877) 4-NEXTGEN (463-9843), and is available on the Programs Web site at [Link].

40

MISCELLANEOUS
MISCELLANEOUS
Securities Laws
The staff of the SEC has advised FAME that it will not recommend any enforcement action to the Commission if, among other things, the Participation Agreements and the interests in the Program represented by Accounts which are established thereby are distributed in reliance upon the exemption from registration provided in section 3(a)(2) under the Securities Act of 1933, as amended, in reliance on an opinion of counsel to that effect. modify its provisions for release of information pursuant to the Continuing Disclosure Certificate to the extent not inconsistent with the valid and effective provisions of Rule 15c2-12.

SIPC Insurance and Additional Coverage

The securities and cash held in an Account are protected by the Securities Investor Protection Corporation (SIPC) for up to $500,000 (inclusive of up to a maximum of $100,000 cash). In addition, Merrill Lynch has obtained "excess-SIPC" coverage from Lloyd's of London. The Lloyd's policy provides further protection for each customer (including up to $1.9 million for cash), subject to an aggregate loss limit of $1 billion for all customer claims. Neither SIPC protection nor the additional "excess-SIPC" coverage applies to deposits made through a bank deposit program or to other assets that are not securities. Each Account held by a separate customer (as defined by applicable law) is treated separately for purposes of the above protection. You may obtain further information about SIPC, including the SIPC Brochure, via SIPC's website at [Link] or calling SIPC at (202) 371-8300.

Method of Offering
Participation Agreements and Investment Fund interests may be offered by FAME and the Program Managers registered sales agents, and by Maine Distribution Agents. Certain officers and employees of FAME and of the Office of the Treasurer may, in the course of their official duties and without compensation, offer and sell Participation Agreements and Investment Fund interests without registering with the SEC as a broker-dealer. A Participant whose Accounts are established as a result of an offer by FAME or Maine Distribution Agents will be considered a broker-dealer customer of the Program Manager to the extent required by law.

Continuing Disclosure
To comply with Rule 15c2-12(b)(5) of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended (Rule 15c2-12), FAME has executed a Continuing Disclosure Certificate (the Continuing Disclosure Certificate) for the benefit of Participants. Under the Continuing Disclosure Certificate, FAME will provide certain financial information and operating data (the Annual Information) relating to the Program, and FAME will provide notices of the occurrence of certain enumerated events set forth in the Continuing Disclosure Certificate, if material. The Annual Information will be filed by or on behalf of the Program with each Nationally Recognized Municipal Securities Information Repository (the NRMSIRs) and with any Maine information depository. Notices of certain enumerated events will be filed by or on behalf of the Program with the NRMSIRs or the Municipal Securities Rulemaking Board and with any Maine information depository. The respective directors, officers, members and employees of FAME shall have no liability for any act or failure to act under the Continuing Disclosure Certificate. FAME reserves the right to

Obtaining Additional Information About the Program

References made herein to certain documents and reports are summaries thereof which are not complete or definitive, and reference is made to those documents and reports for full and complete information as to the contents thereof. Individuals or entities having questions concerning the Program, including procedures for opening an Account, or wishing to request Account Applications, Account maintenance forms or a copy of the Programs most recent Annual Report should call the Program Manager toll free at (877) 4-NEXTGEN (463-9843), access the Programs Web site located at [Link] or contact their Maine Distribution Agent. Questions or requests for information also may be addressed in writing to Merrill Lynch, College Plan Services, P.O. Box 1518, Pennington, NJ 085341518. FAME may be contacted at P.O. Box 949, Augusta, ME 04332-0949. For information about benefits available to Maine residents, contact FAME at (800) 228-3734.

41

NEXTGEN PORTFOLIOS PERFORMANCE AND INVESTMENTS

NEXTGEN PORTFOLIOS PERFORMANCE AND INVESTMENTS
General
Each Portfolio offers a separate investment strategy. The Programs investment alternatives currently consist of Age-Based Diversified Portfolio options, Diversified Portfolio options, a Single Fund Portfolio, and the Principal Plus Portfolio. The performance of each Portfolio (other than the Principal Plus Portfolio, which invests in Principal Plus Portfolio Investments) depends on the weighted average performance of the Underlying Funds in which it invests. The value of Units in each Portfolio varies from day to day. A Participant does not have any direct beneficial interests in the Underlying Fund(s) held by a Portfolio and, accordingly, has no rights as an owner or shareholder of such Underlying Fund(s). For the two business days prior to an Age-Based Exchange, a Participant may not: move any Account assets to another Program Account; move any assets invested in another Program Account into the Account; direct any withdrawals from any Portfolio in the Account; roll any Account assets into another Section 529 Program. Age-Based Exchanges will continue until Units of an Age-Based Diversified Portfolio are exchanged for an equal dollar value of Units of the last Age-Based Diversified Portfolio in the sequence, in which assets will remain invested until withdrawn or reinvested. The assets held within each Age-Based Diversified Portfolio will be invested in different investment sectors depending on the ages of the Designated Beneficiaries assigned to that Portfolio. For example, an Age-Based Diversified Portfolio designed for very young Designated Beneficiaries will typically invest most of its assets in equity Underlying Funds. By contrast, an Age-Based Diversified Portfolio designed for Designated Beneficiaries close to college age will typically invest a smaller portion of its assets in equity Underlying Funds and a greater portion of its assets in fixed income Underlying Funds.

Age-Based Diversified Portfolios

Selecting Age-Based Diversified Portfolios will provide for a changing investment allocation based on the age of the Designated Beneficiary that appears on the Account Application. Participants that are state or local governments or tax-exempt organizations described in section 501(c)(3) of the Code may select any Age-Based Diversified Portfolio without designating a beneficiary. The assets of each Age-Based Diversified Portfolio are expected to be invested in a combination of Underlying Funds that is periodically adjusted. Contributions to an Age-Based Diversified Portfolio will remain assigned to that Portfolio until the Designated Beneficiarys age has exceeded the maximum age for that particular Age-Based Diversified Portfolio. At that time, Units in that Age-Based Diversified Portfolio are automatically redeemed and reinvested in the next Age-Based Diversified Portfolio in the applicable Age-Based Diversified Portfolio sequence on the business day prior to the birthday of the Designated Beneficiary (an Age-Based Exchange). Units in the new Age-Based Diversified Portfolio will be posted in the Account on the Designated Beneficiarys birthday. If the Designated Beneficiarys birthday falls on a weekend or holiday, then the Units in the new Age-Based Diversified Portfolio will be posted in the Account on the first business day after the Designated Beneficiarys birthday. For the five business days prior to an Age-Based Exchange, Contributions that are made to an Age-Based Diversified Portfolio within an Account will be held and invested in the next Age-Based Diversified Portfolio in the Age-Based Diversified Portfolio sequence.

Diversified Portfolios
Diversified Portfolios may invest in designated allocations of Underlying Funds. Each Diversified Portfolio will have a different investment strategy. The Underlying Funds in which the Diversified Portfolios invest and the percentage of assets targeted for equity, fixed income, real estate and cash equivalent Underlying Funds are reviewed at least annually and may change.

Single Fund Portfolio

The Single Fund Portfolio invests in a single Underlying Fund. The Single Fund Portfolio will be reviewed at least annually.

Principal Plus Portfolio

The Principal Plus Portfolio invests in guaranteed investment contracts issued by one or more insurance companies, the Cash Allocation Account, corporate fixed-income investments and/or similar instruments.

42

THIS PAGE IS INTENTIONALLY LEFT BLANK

43

BLACKROCK PORTFOLIOS
General Substantially all of the assets of each BlackRock Portfolio are invested in either Institutional Class shares of the underlying BlackRock mutual funds or in iShares Exchange Traded Funds that are recommended by BlackRock for that Portfolio and approved by FAME for use in the BlackRock Portfolios. A portion of certain BlackRock Portfolios may be held in the Cash Allocation Account as described under THE NEXTGEN PORTFOLIOS.
All of these Underlying Funds in which BlackRock Portfolios invest are currently managed by BlackRock. BlackRock and its affiliates had approximately $3.15 trillion in assets under management as of June 30, 2010. BlackRock manages 102 mutual funds and 205 iShares Exchange Traded Funds as of June 30, 2010.

BLACKROCK PORTFOLIOS
The following charts illustrate the current target asset allocation of each BlackRock Age-Based Diversified Portfolio other than the iShares Portfolios which begin on page 51.

Investment Grade Fixed Income 20%

Investment Grade Fixed Income 40%

Domestic Equity 48%

Domestic Equity 36%

International Equity 16% Investment Grade Fixed Income 55%

Domestic Equity 64%

International Equity 12%

BlackRock Age-Based 8-10 Years Portfolio

International Equity 9%

BlackRock Age-Based 0-7 Years Portfolio

BlackRock Age-Based 11-13 Years Portfolio

Domestic Equity 24%

Cash Allocation Account 15%

Domestic Equity 16% International Equity 4%

Domestic Equity 4% Investment Grade Fixed Income 30%

International Equity 6% Investment Grade Fixed Income 70%

BlackRock Age-Based 14-16 Years Portfolio

International Equity 1% Investment Grade Fixed Income 65%

BlackRock Age-Based 17-19 Years Portfolio

Cash Allocation Account 65%

BlackRock Age-Based 20+ Years Portfolio

44

BLACKROCK PORTFOLIOS
The following charts illustrate the current target asset allocation of the BlackRock Diversified Portfolio and the Single Fund Portfolio other than the iShares Portfolios which begin on page 51.

International Equity 20%

Domestic Equity 80%

BlackRock 100% Equity Portfolio BlackRock Equity Index Portfolio

Current Target Underlying Fund Allocations The following charts illustrate the current target asset allocations and the current target Underlying Fund allocations within those target asset allocations for the BlackRock Portfolios other than the iShares Portfolios which begin on page 51. This information is presented for informational purposes only.

BlackRock
Underlying Fund Age-Based 0-7 Years Portfolio Age-Based 8-10 Years Portfolio Age-Based Age-Based Age-Based Age-Based 11-13 Years 14-16 Years 17-19 Years 20+ Years Portfolio Portfolio Portfolio Portfolio

Domestic Equity Funds BlackRock Basic Value Fund, Inc. BlackRock Capital Appreciation Fund BlackRock Large Cap Core Fund BlackRock S&P 500 Index Fund
1

13% 13% 13% 13% 6% 6% 8% 8% 0% 20% 0% 0%

9.5% 9.5% 9.5% 9.5% 5% 5% 6% 6% 0% 35% 5% 0%

7% 7% 7% 8% 3.5% 3.5% 4% 5% 0% 35% 20% 0%

5% 5% 5% 4% 2.5% 2.5% 3% 3% 0% 35% 35% 0%

3% 3% 3% 4% 1.5% 1.5% 2% 2% 30% 35% 0% 15%

1% 1% 1% 1% 0% 0% 0% 1% 20% 10% 0% 65%

BlackRock Value Opportunities Fund, Inc. BlackRock Small Cap Growth Fund II BlackRock International Value Fund BlackRock International Index Fund BlackRock Short Term Bond Fund BlackRock Total Return Fund BlackRock Bond Portfolio Cash Allocation Account
1

International Equity Funds

Investment Grade Fixed Income Funds

Cash Allocation Account

S&P 500 is a registered trademark of The McGraw-Hill Companies.

45

BLACKROCK PORTFOLIOS
Current Target Underlying Fund Allocations The following charts illustrate the current target asset allocations and the current target Underlying Fund allocations within those target asset allocations for the BlackRock Portfolios other than the iShares Portfolios which begin on page 51. This information is presented for informational purposes only.

BlackRock
Underlying Fund 100% Equity Portfolio Domestic Equity Funds BlackRock Basic Value Fund, Inc. BlackRock Capital Appreciation Fund BlackRock Large Cap Core Fund BlackRock S&P 500 Index Fund
1

Equity Index Portfolio

16% 16% 16% 16% 8% 8% International Equity Funds 10% 10%

0% 0% 0% 100% 0% 0% 0% 0%

BlackRock Value Opportunities Fund, Inc. BlackRock Small Cap Growth Fund II BlackRock International Value Fund BlackRock International Index Fund
1

S&P 500 is a registered trademark of The McGraw-Hill Companies.

Historical Investment Performance The following tables summarize the average annual total return after deducting ongoing Portfolio fees of each BlackRock Portfolio, other than the iShares Portfolios, in existence as of June 30, 2010. The $25 annual Account Maintenance Fee, which is waived in certain circumstances, is not included in the returns set forth below. If that fee were reflected, returns would be less than those shown. Updated performance data will be available on the Internet at

[Link] or from the Program Manager by calling (877) 4-NEXTGEN (463-9843). Each BlackRock Portfolios fiscal year runs from July 1 to June 30, which also is the Programs fiscal year. The performance data relating to the BlackRock Portfolios set forth below is for the limited time period presented and is not indicative of the future performance of the BlackRock Portfolios.

Average Annual Total Return* as of June 30, 2010 Commencement of Operations 04/30/07 04/30/07 04/30/07 04/30/07 04/30/07 04/30/07 04/30/07 04/30/07

1 Year Age-Based Diversified Portfolios BlackRock Age-Based Age 0-7 Years Portfolio BlackRock Age-Based Age 8-10 Years Portfolio BlackRock Age-Based Age 11-13 Years Portfolio BlackRock Age-Based Age 14-16 Years Portfolio BlackRock Age-Based Age 17-19 Years Portfolio BlackRock Age-Based Age 20+ Years Portfolio Diversified Portfolio BlackRock 100% Equity Portfolio Single Fund Portfolio BlackRock Equity Index Portfolio 14.04% 12.04% 12.57% 13.44% 12.98% 11.02% 8.32% 4.52%

3 Years -9.09% -6.69% -4.33% -2.12% -0.17% 1.15% -10.58% -10.10%

Since Inception -7.92% -5.82% -3.68% -1.70% 0.09% 1.28% -9.26% -9.11%

* Average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. (Cumulative total return reflects actual change in the value of an investment over a given period.) Average annual total return smoothes out variations in performance; it is not the same as actual year-by-year results. Returns covering periods of less than one year represent cumulative total returns.

46

BLACKROCK PORTFOLIOS
Summary of Investment Objectives and Policies of the Underlying Funds for the BlackRock Portfolios The following descriptions summarize the investment goals and policies of the Underlying Funds in which the BlackRock Portfolios, other than the iShares Portfolios, are currently invested. The descriptions also identify certain principal risks to which particular Underlying Funds may be subject. Additional discussion of risks related to the various categories of Underlying Funds is set forth under PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS. The Underlying Funds investment strategies are subject to change.
These summaries are qualified in their entirety by reference to the detailed information included in each Underlying Funds current prospectus and statement of additional information, which contain additional information not summarized herein and which may identify additional principal risks to which the respective Underlying Fund may be subject. You may request a copy of any Underlying Funds current prospectus and statement of additional information, or an Underlying Funds most recent semi-annual or annual report by calling (800) 441-7762 or by locating it on BlackRocks Web site at [Link].

DOMESTIC EQUITY FUNDS

BlackRock Basic Value Fund, Inc.
Investment Objectives, Strategy and Policies The Funds investment objective is growth of capital. The Fund also seeks income, but its investments emphasize growth of capital more than income. The Fund tries to achieve its objective by investing in a diversified portfolio consisting primarily of common stocks. In selecting securities, Fund management emphasizes stocks that it believes are undervalued. Fund management places particular emphasis on companies with below-average price/earnings ratios that may pay above-average dividends. Fund management also may determine that a company is undervalued if its stock price is down because of temporary factors from which Fund management believes the company will recover. As a result, the Fund may invest a large portion of its net assets in stocks that have weak research ratings. The Fund focuses its investments on companies with a market capitalization over $5 billion. The Fund may invest up to 25% of its total assets in the securities of foreign companies. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments, value investments and to the risks of investment in foreign securities. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments, growth investments and to the risks of Mid Cap securities.

BlackRock Large Cap Core Fund

Investment Objectives, Strategy and Policies The investment objective of the Fund is to seek long-term capital growth. The Fund invests all of its assets in the Master Large Cap Core Portfolio of the Master Large Cap Series LLC (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio tries to achieve its objective by investing primarily in a diversified portfolio of equity securities of large cap companies, selected from companies in the Russell 1000 Index, that management believes have sustainable earnings growth with current momentum at attractive price valuations. Management combines a quantitative model that employs various factors with fundamental analysis to find these large cap companies. The Master Portfolio's evaluation of the prospects for a company's industry or market sector is an important factor in evaluating a particular company's earnings prospects. A company's stock is considered to be undervalued when its price is less than what management believes it is worth. The Master Portfolio may purchase common stock, preferred stock, convertible securities and other instruments. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments, and investing in the Master Portfolio. The Fund cannot guarantee that it will achieve its investment objective. As with any fund, the value of a Funds investments and, therefore, the value of the Funds shares may fluctuate. These changes may occur because a particular market in which the Fund invests is rising or falling. In addition, there are specific factors that may affect the value of a particular security. Also, Fund management may select securities that underperform the markets, the relevant indices or securities selected by other funds with similar investment objectives and investment strategies. If the value of a Funds investments goes down, you may lose money. The Fund follows an investing style that emphasizes growth and value investments.
47

BlackRock Capital Appreciation Fund

Investment Objectives, Strategy and Policies The Funds investment objective is long-term growth of capital. The Fund tries to achieve its objective by investing in a diversified portfolio consisting primarily of common stocks. The Fund generally invests total assets in the following equity securities: (i) common stock; (ii) convertible preferred stock; (iii) securities convertible into common stock; and (iv) rights to subscribe to common stock. Of these securities the Fund generally invests in common stock. In selecting securities, Fund management emphasizes common stock of companies that have above-average rates of earnings growth. Fund management believes that the common stock of companies with above-average rates of earnings growth frequently have the potential for above-average increases in price. The Fund may invest in companies of any size but emphasizes common stock of companies that have a medium to large stock market capitalization (current, approximately $2 billion or more).

BLACKROCK PORTFOLIOS
BlackRock S&P 500 Index Fund
Investment Objectives, Strategy and Policies The investment objective of the Fund is to match the performance of the Standard & Poors 500 Composite Stock Price Index (the S&P 500) as closely as possible before the deduction of Fund expenses. The S&P 500 is a market-weighted index composed of 500 common stocks issued by large-capitalization U.S. companies in a wide range of businesses. The Fund may also invest in derivative instruments linked to the S&P 500. At times the Fund may not invest in all of the common stocks in the S&P 500, or in the same weightings as in the S&P 500. At those times, the Fund chooses investments so that the market capitalizations, industry weighting and other fundamental characteristics of the stocks and derivative instruments chosen are similar to the S&P 500 as a whole. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the risks and special considerations associated with investing in an index fund.
dominant positions in developing industries, have strong management and demonstrate successful product development and marketing capabilities. The Fund will invest primarily in U.S. companies that do most of their business in the United States, but may invest a portion of its assets in foreign companies.

Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the special risks of investing in smaller and emerging growth companies and foreign securities and derivatives.

BlackRock Small Cap Growth Fund II

Investment Objectives, Strategy and Policies The investment objective of the Fund is to seek long-term capital growth. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. The Fund tries to achieve its objective by investing primarily in a diversified portfolio of equity securities of small cap companies located in the U.S. that Fund management believes have above average prospects for earnings growth. The Fund also may invest in securities that Fund management believes are undervalued. In addition, the Fund may invest up to 10% of its assets in stocks of companies of any market capitalization located outside the U.S. The Fund's evaluation of the prospects for a company's industry or market sector is an important factor in evaluating a particular company's earnings prospects. A company's stock is considered to be undervalued when its price is less than what Fund management believes it is worth. The Fund may purchase common stock, preferred stock, convertible securities and other instruments. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the special risks of investing in smaller and emerging growth companies, convertible securities, derivatives and foreign securities.

BlackRock Value Opportunities Fund, Inc.

Investment Objectives, Strategy and Policies The investment objective of the Fund is to seek long term growth of capital. The Fund tries to achieve its objective by investing primarily in a diversified portfolio of securities, primarily common stock, of relatively small companies that Fund management believes have special investment value and emerging growth companies regardless of size. Fund management will look for companies that have long-term potential to grow in size or to become more profitable or that the stock market may value more highly in the future. Fund management seeks to invest in small companies that are trading at the low end of their historical price-book value or enterprise value-sales ratios, and that possess a specific catalyst for stock price appreciation. Fund management also seeks to invest in emerging growth companies that occupy

INTERNATIONAL EQUITY FUNDS

BlackRock International Index Fund
Investment Objectives, Strategy and Policies The investment objective of the International Index Fund is to match the performance of the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (Capitalization Weighted) Index in U.S. dollars with net dividends (the EAFE Index) as closely as possible before the deduction of Fund expenses. The Fund invests in a statistically selected sample of equity securities included in the EAFE Index and in derivative instruments correlated with components of the EAFE Index. The Fund will, under normal circumstances, invest in all of the countries represented in the EAFE Index. The Fund may not, however, invest in all of the companies within a country represented in the EAFE Index, or in the same weightings as in the EAFE Index. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the risks and
48 special considerations associated with investing in an index fund. The Fund may also invest in foreign securities and is subject to risks associated with investments in these securities. In addition, as a non-diversified fund, the Fund may have more risk than diversified funds.

BlackRock International Value Fund

Investment Objectives, Strategy and Policies The Funds investment objective is to seek current income and long-term growth of income, accompanied by growth of capital. The Fund invests primarily in stocks of companies in developed countries located outside the United States. The Fund may purchase common stock, depository receipts, preferred stock and convertible securities. Normally, the Fund invests at least 80% of its total assets in stocks that pay dividends. In investing the

BLACKROCK PORTFOLIOS
INTERNATIONAL EQUITY FUNDS
Funds assets, Fund management follows a value investing style. This means that Fund management buys stocks that it believes are currently undervalued by the market and thus have a lower price than their true worth.

Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments and to the risk of investment in foreign securities. In addition, the Fund is subject to risks associated with value investing, depository receipts and convertible securities.

INVESTMENT GRADE FIXED INCOME FUNDS

BlackRock Short Term Bond Fund
Investment Objectives, Strategy and Policies The investment objective of the Fund is to seek to maximize total return, consistent with income generation and prudent investment management. Under normal circumstances, the Fund normally invests at least 80% of its assets in bonds and maintains an average portfolio duration that is within 20% of the duration of its benchmark. The Fund only buys securities that are rated investment grade at the time of purchase by at least one major rating agency or determined by the Fund management team to be of similar quality. In addition, the Funds dollar-weighted average maturity will be between 3 and 10 years.
The Fund selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, collateralized mortgage obligations, asset-backed securities and corporate bonds. The Fund invests primarily in dollar-denominated investment grade bonds, but may invest up to 10% of its assets in non-dollar denominated bonds and bonds of emerging market issuers. The Fund also invests in derivatives and may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques such as reverse repurchase agreements or dollar rolls. The Fund may engage in active and frequent trading of portfolio securities to achieve its primary investment strategies. securities, preferred securities and government obligations. Both U.S. and foreign companies and governments may issue these securities. Under normal circumstances, the Fund invests at least 80% of its assets in bonds and invests primarily in investment grade fixedincome securities. The Fund may invest in fixed income securities of any duration or maturity. The Fund will invest most of its assets in securities issued by U.S. issuers, but may also invest a portion of its assets in securities issued by foreign issuers. The Fund may also invest in derivative securities for hedging purposes or to increase the return on its investments.

Principal Risks of Investing The Fund is subject to the risks of fixed income investments, including credit risk, interest rate risk, borrowing risk, derivatives risk, dollar rolls risk, emerging markets risk, leverage risk, market and selection risk, and U.S. government issuer risk. The Fund may invest in mortgage-backed and asset-backed securities. In addition to the normal fixed income investment risks, these securities are subject to prepayment risk and extension risk, and may involve more volatility than other bonds of similar maturities. The Fund is also subject to the special risks associated with investments in foreign securities, derivatives, and sovereign debt. High portfolio turnover resulting from active and frequent trading results in higher mark ups and other transaction costs and can result in a greater amount of dividends from ordinary income rather than capital gains.

Principal Risks of Investing The Fund is subject to the risks of fixed income investments, such as interest rate risk and credit [Link] Fund may invest its assets in foreign securities, which may involve additional risks beyond those of U.S. securities, such as changes in foreign currency exchange rates, liquidity risk, and political, social and economic instability. In addition, because the Fund may invest a substantial portion of its assets in derivative instruments, the Fund is exposed to the risks associated with such investments. Derivatives may be volatile and involve significant risks, including credit risk, counterparty risk (the risk that the counterparty in a transaction will be unable to honor its obligations), leverage risk (the risk that relatively small market movements may result in large changes in the value of an investment) and liquidity risk (the risk that certain securities may be difficult or impossible to sell at the time or price that the seller would like). The Fund may invest in mortgage-backed and asset backed securities, which may be subject to prepayment risk (when interest rates fall) or extension risk (when interest rates rise). The Fund is also subject to the special risks associated with investments in foreign securities, derivatives, junk bonds and sovereign debt.

BlackRock Bond Portfolio

Investment Objectives, Strategy and Policies The investment objective of the Fund is to seek to maximize total return, consistent with income generation and prudent investment management. Under normal circumstances, the Fund normally invests at least 80% of its assets in bonds and maintains an average portfolio duration that is within 20% of the duration of its benchmark. The Fund only buys securities that are rated investment grade at the time of purchase by at least one major rating agency or determined by the Fund management team to be of similar quality. In addition, the Funds dollar-weighted average maturity will be between 3 and 10 years.
The Fund selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, collateralized mortgage obligations, 49

BlackRock Total Return Fund

Investment Objectives, Strategy and Policies The primary objective of the Total Return Fund is to realize a total return that exceeds that of the Barclays Capital U.S. Aggregate Index. The Fund typically invests more than 90% of its assets in a diversified portfolio of fixed income securities such as corporate bonds and notes, mortgage backed securities, asset-backed securities, convertible

BLACKROCK PORTFOLIOS
INVESTMENT GRADE FIXED INCOME FUNDS
asset-backed securities and corporate bonds. The Fund invests primarily in dollar-denominated investment grade bonds, but may invest up to 10% of its assets in non-dollar denominated bonds and bonds of emerging market issuers. The Fund also invests in derivatives and may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques such as reverse repurchase agreements or dollar rolls. The Fund may engage in active and frequent trading of portfolio securities to achieve its primary investment strategies. income investments, including credit risk, interest rate risk, borrowing risk, derivatives risk, dollar rolls risk, emerging markets risk, leverage risk, market and selection risk, and U.S. government issuer risk. The Fund may invest in mortgage-backed and asset-backed securities. In addition to the normal fixed income investment risks, these securities are subject to prepayment risk and extension risk, and may involve more volatility than other bonds of similar maturities. The Fund is also subject to the special risks associated with investments in foreign securities, derivatives, and sovereign debt. High portfolio turnover resulting from active and frequent trading results in higher mark ups and other transaction costs and can result in a greater amount of dividends from ordinary income rather than capital gains.

Principal Risks of Investing The Fund is subject to the risks of fixed

NON-INVESTMENT GRADE FIXED INCOME FUND

BlackRock High Income Fund
Investment Objectives, Strategy and Policies The investment objective of the Funds Investment Grade Portfolio is current income. The Fund also seeks capital appreciation when consistent with its primary goal of current income. The Fund invests at least 80% of its assets primarily in a diversified portfolio of fixed income securities that are rated in the lower rating categories of the recognized rating agencies (Baa or lower by Moodys or BBB or lower by S&P or Fitch), or unrated securities that Fund management believes are of comparable quality. Securities rated below Baa by Moody's or below BBB by S&P or Fitch are commonly known as junk bonds. The Fund may also invest in foreign securities and secondary market purchases of corporate loans. The Fund may invest in fixed income securities of any duration or maturity. The Fund may invest in derivative securities for hedging purposes or to increase the return on investments. Principal Risks of Investing The Fund may invest its assets in foreign securities, which may involve additional risks beyond those of U.S. securities, such as changes in foreign currency exchange rates, liquidity risk, and political, social and economic instability. In addition, because the Fund may invest a substantial portion of its assets in derivative instruments, the Fund is exposed to the risks associated with such investments. Derivatives may be volatile and involve significant risks, including credit risk, counterparty risk (the risk that the counterparty in a transaction will be unable to honor its obligations), leverage risk (the risk that relatively small market movements may result in large changes in the value of an investment) and liquidity risk (the risk that certain securities may be difficult or impossible to sell at the time or price that the seller would like). The Fund is subject to the general risks of fixed income investments such as interest rate risk and credit risk and to the separate risks associated with junk bonds. The Fund is also subject to the risk of investing in corporate loans.

CASH ALLOCATION ACCOUNT

Many of the Portfolios invest in the Cash Allocation Account.

Investment Objectives The Cash Allocation Account is a separate account that seeks current income, preservation of capital and liquidity. The Cash Allocation Account is invested directly in a diversified portfolio of money market securities, and Maine CDs. The Cash Allocation Account is not a registered mutual fund. Principal Risks of Investing An investment in the Cash Allocation Account is not insured or guaranteed by any government agency, Bank of America, the Program Manager, the Sub-Advisors or

FAME and involves credit and interest rate risks. Investment in Maine CDs involve some of the special considerations discussed under PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS-Investment Risks of Underlying Funds Underlying Funds Investing in Fixed Income Securities (Including Money Market Securities).

Composition Since September 5, 2001, the Cash Allocation Account has been invested in securities substantially similar to those held by the Retirement Reserves Money Fund (the Money Fund), and Maine CDs.

Average Annual Total Return as of June 30, 2010 1 Year Cash Allocation Account 0.12% 3 Years 1.95% 5 Years 2.87% Since Inception 2.10% Commencement of Operations September 5, 2001*

* From August 5, 1999 through September 4, 2001, the Cash Allocation Account was invested in Class II shares of the Money Fund. For the period August 5, 1999 through September 4, 2001, the average annual total return of the Money Funds Class II shares was 5.28%.

50

BLACKROCK PORTFOLIOS
iSHARES PORTFOLIOS
The following charts illustrate the current target asset allocation of each iShares Age-Based Portfolio.

Investment Grade Fixed Income 20% Real Estate 6%

Investment Grade Fixed Income 40%

Domestic Equity 33%

International Equity 16%

Domestic Equity 44% Domestic Equity 58% Real Estate 4% International Equity 12%

Investment Grade Fixed Income 55%

International Equity 9% Real Estate 3%

iShares Age-Based 0-7 Years Portfolio

iShares Age-Based 8-10 Years Portfolio

iShares Age-Based 11-13 Years Portfolio

Domestic Equity 22%

Domestic Equity 15% International Equity 4% Real Estate 1%

Domestic Equity 4% International Equity 1%

International Equity 6% Real Estate 2% Investment Grade Fixed Income 70%

iShares Age-Based 14-16 Years Portfolio

Investment Grade Fixed Income 80%

iShares Age-Based 17-19 Years Portfolio

Investment Grade Fixed Income 95%

iShares Age-Based 20+ Years Portfolio

51

BLACKROCK PORTFOLIOS
The following charts illustrate the current target asset allocation of each iShares Diversified Portfolio.

Real Estate 7% International Equity 20%

Non-Investment Grade Fixed Income 20%

Domestic Equity 73%

iShares Diversified Equity Portfolio

Investment Grade Fixed Income 80%

iShares Diversified Fixed Income Portfolio

Current Target Underlying Fund Allocations The following chart illustrates the current target asset allocations and the current target Underlying Fund allocations within those target asset allocations for the iShares Age-Based Portfolios. This information is presented for informational purposes only.

iShares Age-Based Portfolios

Underlying Fund Age-Based 0-7 Years Portfolio Age-Based 8-10 Years Portfolio Age-Based Age-Based Age-Based Age-Based 11-13 Years 14-16 Years 17-19 Years 20+ Years Portfolio Portfolio Portfolio Portfolio

Domestic Equity Funds iShares Russell 1000 Index Fund iShares Russell 2000 Index Fund iShares MSCI EAFE Index Fund iShares MSCI Emerging Markets Index Fund iShares Cohen & Steers Realty Majors Index Fund iShares Barclays Aggregate Bond Fund iShares Barclays Short Treasury Bond Fund iShares Barclays 1-3 Year Treasury Bond Fund 48% 10% 12% 4% 6% 20% 0% 0% 36% 8% 9% 3% Real Estate Fund 4% 40% 0% 0% 3% 55% 0% 0% 2% 70% 0% 0% 1% 35% 15% 30% 0% 10% 65% 20% Investment Grade Fixed Income Funds 27% 6% 7% 2% 18% 4% 5% 1% 12% 3% 3% 1% 3% 1% 1% 0%

International Equity Funds

52

BLACKROCK PORTFOLIOS
Current Target Underlying Fund Allocations The following charts illustrate the current target asset allocations and the current target Underlying Fund allocations within those target asset allocations for the iShares Diversified Portfolios. This information is presented for informational purposes only.

iShares
Underlying Fund Diversified Equity Portfolio Domestic Equity Funds iShares Russell 1000 Index Fund iShares Russell 2000 Index Fund iShares MSCI EAFE Index Fund iShares MSCI Emerging Markets Index Fund Real Estate Fund iShares Cohen & Steers Realty Majors Index Fund iShares Barclays Aggregate Bond Fund iShares Barclays Short Treasury Bond Fund iShares Barclays 1-3 Year Treasury Bond Fund iShares iBoxx $ High Yield Corporate Bond Fund 7% 0% 0% 0% 0% Non-Investment Grade Fixed Income Fund 20% 0% 40% 1% 39% Investment Grade Fixed Income Funds 60% 13% International Equity Funds 16% 4% 0% 0% 0% 0% Diversified Fixed Income Portfolio

Historical Investment Performance Since the iShares Portfolios will commence operations on September 20, 2010, no performance information for these Portfolios is presented. Portfolio performance information will be available on the Programs website at [Link]. Past performance information for the iShares Portfolios is not indicative of the future performance of the iShares Portfolios. Summary of Investment Objectives and Policies of the Underlying Funds for the iShares Portfolios An index is a group of securities that an index provider selects as representative of a market, market segment or specific industry sector. The index provider determines the relative weightings of the securities in the index and publishes information regarding the market value of the index. Each Underlying Fund of the iShares Portfolios (other than the Cash Allocation Account) (an "Underlying ETF") is an index fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of a particular index (its Underlying Index) as developed by an index provider.
Each Underlying ETF's index generally includes investments in securities that correspond generally to one of the below asset classes, as set forth in the tables on the previous pages. The asset classes are defined as follows: U.S. Equities U.S. domiciled publicly traded common stocks. International Equities Non-U.S. domiciled publicly traded common stocks. Real Estate Property and real estate as represented by REITs. Fixed Income Bonds and other income-producing debt securities. BlackRock Fund Advisors ("BFA"), the investment adviser to each Underlying ETF, is a subsidiary of BlackRock Institutional Trust Company, N.A. ("BTC"). BFA and its affiliates are not affiliated with the index provider. 53

Principal Investment Strategies of the Underlying ETFs BFA uses a passive or indexing approach to achieve each Underlying ETF's investment objective. Unlike many investment companies, the Underlying ETFs do not try to beatthe indexes they track and do not seek temporary defensive positions when markets decline or appear overvalued. Indexing may eliminate the chance that the Fund will substantially outperform its Underlying Index but also may reduce some of the risks of active management, such as poor security selection. Factors such as the fees and expenses of an Underlying Fund, rounding of prices, and changes to an index and regulatory policies, may affect the advisors ability to achieve close correlation with an index. Therefore, the return of an Underlying Fund that seeks to track an index may deviate from that of the index. All Underlying ETFs may invest a portion of their assets in futures contracts, options on futures contracts, options, and swaps related to its Underlying Index, as well as cash and cash equivalents, including shares of money market funds affiliated with BFA. For all Underlying ETFs, BFA uses a representative sampling indexing strategy. These summaries are qualified in their entirety by reference to the detailed information included in each Underlying Funds current prospectus and statement of additional information, which contain additional information not summarized herein and which may identify additional principal risks to which the respective Underlying Fund may be subject. You may request a copy of any Underlying Funds current prospectus and statement of additional information, or an Underlying Funds most recent semi-annual or annual report. BFA, the investment adviser of iShares Funds, is located at 400 Howard Street, San Francisco, CA 94105. Additional information about iShares Funds is available free of charge by calling toll-free: 1-800iShares (1-800-474-2737) or by visiting [Link].

BLACKROCK PORTFOLIOS
iSHARES FUNDS
iShares Russell 1000 Index Fund
Investment Objectives, Strategy and Policies iShares Russell 1000 Index Fund seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Russell 1000 Index (the Russell 1000). The Russell 1000 is a float-adjusted capitalization-weighted index of equity securities issued by the approximately 1,000 largest issuers in the Russell 3000 Index. The Russell 1000 measures the performance of the large-capitalization sector of the U.S. equity market. The Fund may also invest any portion of its assets in securities not included in the Russell 1000, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of money market funds. The Fund may not invest in all of the equity securities in the Russell 1000, or in the same weightings as in the Russell 1000. The Fund chooses investments that are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the Russell 1000 as a whole. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the risks and special considerations associated with investing in an index fund.
the price and yield performance, before fees and expenses, of the MSCI EAFE Index (the MSCI EAFE). The MSCI EAFE has been developed by MSCI as an equity benchmark for international stock performance. The MSCI EAFE includes stocks from Europe, Australasia and the Far East and as of September 30, 2009, consisted of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The Fund may also invest in American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) or European Depositary Receipts (EDRs) representing securities in the MSCI EAFE Index, in securities not included in the MSCI EAFE, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of money market funds. The Fund may not invest in all of the equity securities in the MSCI EAFE, or in the same weightings as in the MSCI EAFE. The Fund chooses investments that are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the MSCI EAFE as a whole.

iShares Russell 2000 Index Fund

Investment Objectives, Strategy and Policies The iShares Russell 2000 Index Fund seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Russell 2000 Index (the Russell 2000). The Russell 2000 is a capitalization-weighted index of equity securities issued by the approximately 2,000 smallest issuers in the Russell 3000 Index. The Underlying Index measures the performance of the smallcapitalization sector of the U.S. equity market. The Fund may also invest in securities not included in the Russell 2000, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of money market funds. The Fund may not invest in all of the equity securities in the Russell 2000, or in the same weightings as in the Russell 2000. The Fund chooses investments that are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the Russell 2000 as a whole. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the risks and special considerations associated with investing in an index fund.

Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the risks and special considerations associated with investing in foreign securities and an index fund.

iShares MSCI Emerging Markets Index Fund

Investment Objectives, Strategy and Policies The iShares MSCI Emerging Markets Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index. The iShares MSCI Emerging Markets Index Fund generally will invest at least 90% of its assets in securities of the MSCI Emerging Markets Index or in ADRs and GDRs representing such securities. In order to improve portfolio liquidity and give the fund the flexibility to comply with the requirements of the U.S. Internal Revenue Code and other regulatory requirements and to manage future corporate actions and index changes in smaller markets, the iShares MSCI Emerging Markets Index Fund may invest the remainder of its securities that are not included in the MSCI Emerging Markets Index or in ADRs and GDRs representing such securities. The iShares MSCI Emerging Markets Index Fund may invest the remainder of its assets in other iShares funds that seek to track the performance of equity securities of constituent countries of the MSCI Emerging Markets Index. BFA will not charge portfolio management fees on that portion of the Funds assets invested in shares of other iShares funds. The MSCI Emerging Markets Index was developed by MSCI as an equity benchmark for international stock performance. The MSCI
54

iShares MSCI EAFE Index Fund

Investment Objectives, Strategy and Policies The iShares MSCI EAFE Index Fund seeks results that correspond generally to

BLACKROCK PORTFOLIOS
Emerging Markets Index is designed to measure equity market performance in the global emerging markets. in the Barclays Aggregate Bond Index, and in cash and highquality, liquid short-term instruments, including shares of money market funds, for example, in order to reflect various corporate actions (such as mergers) and other changes in the Barclays Aggregate Bond Index (such as reconstitutions, additions and deletions). The Fund may not invest in all of the bonds in the Barclays Aggregate Bond Index, or in the same weightings as in the Barclays Aggregate Bond Index.

Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the risks and special considerations associated with investing in foreign securities, including emerging market securities, and an index fund.

iShares Cohen & Steers Realty Majors Index Fund

Investment Objectives, Strategy and Policies The iShares Cohen & Steers Realty Majors Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Cohen & Steers Realty Majors Index. The Cohen & Steers Realty Majors Index consists of selected U.S. REITs. The objective of the Cohen & Steers Realty Majors Index is to represent relatively large and liquid REITs that may benefit from future consolidation and securitization of the U.S. real estate industry. REITs are selected for inclusion in the Cohen & Steers Realty Majors Index based on a rigorous review of several factors, including management, portfolio quality, and sector and geographic diversification. The Cohen & Steers Realty Majors Index is weighted according to the total market value of each REITs outstanding shares and is adjusted quarterly so that no REIT represents more than 8% of the Cohen & Steers Realty Majors Index. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the risks and special considerations associated with investing in real estate and an index fund.

Principal Risks of Investing The Fund is subject to the risks of fixed income investments as well as the risks and special considerations associated with investing in an index fund.

iShares Barclays Short Treasury Bond Fund

Investment Objectives, Strategy and Policies The investment objective of the Fund is to match the price and yield performance, before fees and expenses, of the Barclays Capital U.S. Short Treasury Bond Index (the Barclays U.S. Short Treasury Bond Index). The Barclays U.S. Short Treasury Bond Index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity of between one and 12 months. The Barclays U.S. Short Treasury Bond Index includes all publiclyissued U.S. Treasury securities that have a remaining maturity of between one and 12 months and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed-rate and nonconvertible. Excluded from the Barclays U.S. Short Treasury Bond Index are certain special issues, such as flower bonds, targeted investor notes, state and local government series bonds and coupon issues that have been stripped from bonds. The Barclays U.S. Short Treasury Bond Index is market capitalization weighted and the securities in the Barclays U.S. Short Treasury Bond Index are updated on the last calendar day of each month. The Fund may also invest in securities not included in the Barclays U.S. Short Treasury Bond Index, and in cash and high-quality, liquid short-term instruments, including shares of money market funds, for example, in order to reflect various corporate actions (such as mergers) and other changes in the Barclays U.S. Short Treasury Bond Index (such as reconstitutions, additions and deletions). The Fund may not invest in all of the bonds in the Barclays U.S. Short Treasury Bond Index, or in the same weightings as in the Barclays U.S. Short Treasury Bond Index. Principal Risks of Investing The Fund is subject to the risks of fixed income investments as well as the risks and special considerations associated with investing in an index fund.

iShares Barclays Aggregate Bond Fund

Investment Objectives, Strategy and Policies The investment objective of the Fund is to match the price and yield performance, before fees and expenses, of the Barclays Capital U.S. Aggregate Bond Index (the Barclays Aggregate Bond Index). The Barclays Aggregate Bond Index measures the performance of the U.S. investment grade bond market, which includes investment grade U.S. Treasury bonds, government-related bonds, investmentgrade corporate bonds, mortgage pass-through securities, commercial mortgage-backed securities and asset-backed securities that are publicly offered for sale in the United States. The securities in the Barclays Aggregate Bond Index have $250 million or more of outstanding face value and have at least one year remaining to maturity. In addition, the securities must be denominated in U.S. dollars and must be fixed-rate and nonconvertible. Certain types of securities, such as state and local government series bonds, structured notes with embedded swaps or other special features, private placements, floating-rate securities and Eurobonds are excluded from the Barclays Aggregate Bond Index. The Barclays Aggregate Bond Index is market capitalization weighted and the securities in the Barclays Aggregate Bond Index are updated on the last calendar day of each month. The Fund may also invest in securities not included
55

iShares Barclays 1-3 Year Treasury Bond Fund

Investment Objectives, Strategy and Policies The investment objective of the Fund is to match the price and yield performance, before fees and expenses, of the Barclays 1-3 Year Treasury Index (the Barclays 1-3 Year Treasury Index). The Barclays 1-3 Year Treasury Index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity of greater than

BLACKROCK PORTFOLIOS
or equal to one year and less than three years. The Barclays 1-3 Year Treasury Index includes all publicly-issued U.S. Treasury securities that have a remaining maturity of greater than or equal to one year and less than three years, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed-rate and non-convertible. Excluded from the Barclays 1-3 Year Treasury Index are state and local government series bonds and coupon issues that have been stripped from bonds. The Barclays 1-3 Year Treasury Index is market capitalization weighted and the securities in the Barclays 1-3 Year Treasury Index are updated on the last calendar day of each month. In addition, the securities must be denominated in U.S. dollars and must be fixed-rate and non-convertible. Excluded from the Barclays 1-3 Year Treasury Index are state and local government series bonds and coupon issues that have been stripped from bonds. The Barclays 1-3 Year Treasury Index is market capitalization weighted and the securities in the Barclays 1-3 Year Treasury Index are updated on the last calendar day of each month. The Fund may also invest in securities not included in the Barclays 1-3 Year Treasury Index, and in cash and highquality, liquid short-term instruments, including shares of money market funds, for example, in order to reflect changes in its Underlying Index (such as reconstitutions, additions and deletions). The Fund may not invest in all of the bonds in the Barclays 1-3 Year Treasury Index, or in the same weightings as in the Barclays 1-3 Year Treasury Index.

Principal Risks of Investing The Fund is subject to the risks of fixed income investments as well as the risks and special considerations associated with investing in an index fund.

iShares iBoxx $ High Yield Corporate Bond Fund

Investment Objectives, Strategy and Policies The Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx $ Liquid High Yield Index (the Underlying Index). The Underlying Index is a rules-based index consisting of liquid U.S. dollardenominated, high yield corporate bonds for sale in the United States, as determined by the Index Provider. The Underlying Index is designed to provide a broad representation of the U.S. dollardenominated high yield liquid corporate bond market. The Underlying Index is a modified market value weighted index. Principal Risks of Investing The Fund is subject to the risks of fixed income investments as well as the risks and special considerations associated with investing in an index fund.

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Cohen & Steers Capital Management, Inc., iBoxx, MSCI Inc., Russell Investment Group or Barclays Capital. None of these companies make any representation regarding the advisability of investing in the Funds. Neither BlackRock Institutional Trust Company, N.A., nor any of their affiliates, are affiliated with the companies listed above. The methodology of the iBoxx $ Liquid High Yield Index is owned by International Index Company Limited, may be covered by one or more patents or pending patent applications, and is provided under license from International Index Company Limited. iShares is a registered trademark of BlackRock Institutional Trust Company, N.A. All other trademarks, servicemarks or registered trademarks are the property of their respective owners.

56

FRANKLIN TEMPLETON PORTFOLIO

FRANKLIN TEMPLETON PORTFOLIO
General Substantially all of the assets of the Franklin Templeton Balanced Portfolio are invested in Institutional Class shares of the Underlying Fund(s) that are recommended by Franklin Templeton and approved by FAME for use. A portion of the Franklin Templeton Balanced Portfolio may be held in the Cash Allocation Account as described under THE NEXTGEN PORTFOLIOS.
All of the Underlying Funds (excluding the Cash Allocation Account) in which the Franklin Templeton Balanced Portfolio invests are currently managed by the advisory subsidiaries of Franklin Resources, Inc. (NYSE: BEN), an investment organization operating as Franklin Templeton Investments, which had $570.5 billion in assets under management as of June 30, 2010. Franklin Templeton currently manages over 132 mutual funds registered under the Investment Company Act of 1940. The following chart illustrates the current target asset allocation of the Franklin Templeton Balanced Portfolio.

Non-Investment Grade Fixed Income 5%

Cash Allocation Account 10%

Investment Grade Fixed Income 35%

Domestic Equity 35% International Equity 15%

Franklin Templeton Balanced Portfolio

Current Target Underlying Fund Allocation The following chart illustrates the current target asset allocation and the current target Underlying Fund allocation within that target asset allocation for the Franklin Templeton Balanced Portfolio. This information is presented for informational purposes only.

Franklin Templeton
Underlying Fund Domestic Equity Funds Franklin Flex Cap Growth Fund Franklin Small-Mid Cap Growth Fund Mutual Shares Fund International Equity Funds Mutual European Fund Templeton Foreign Fund Investment Grade Fixed Income Funds Franklin Total Return Fund Franklin U.S. Securities Fund Templeton Global Bond Fund Non-Investment Grade Fixed Income Funds Franklin Strategic Income Fund Cash Allocation Account Cash Allocation Account 10.00% 5.00% 10.00% 20.00% 5.00% 10.50% 4.50% 12.50% 12.50% 10.00% Balanced Portfolio

57

FRANKLIN TEMPLETON PORTFOLIO

Historical Investment Performance The following table summarizes the average annual total return after deducting ongoing Portfolio fees of the Franklin Templeton Portfolio as of June 30, 2010. The $25 annual Account Maintenance Fee, which is waived in certain circumstances, is not included in the returns set forth below. If that fee were reflected, returns would be less than those shown. Updated performance data will be available on the Internet at [Link] or from the
Program Manager by calling (877) 4-NEXTGEN (463-9843). The Franklin Templeton Portfolios fiscal year runs from July 1 to June 30, which also is the Programs fiscal year. The performance data relating to the Franklin Templeton Portfolio set forth below is for the limited time period presented and is not indicative of the future performance of the Franklin Templeton Portfolio.

Average Annual Total Return* as of June 30, 2010 Commencement of Operations 7/27/09

1 Year Diversified Portfolio Franklin Templeton Balanced Portfolio N/A

Since Inception 8.30%

Summary of Investment Objectives and Policies of the Underlying Funds for the Franklin Templeton Balanced Portfolio The following descriptions summarize the investment goals and policies of the Underlying Funds in which the Franklin Templeton Balanced Portfolio is currently invested. The Cash Allocation Account is described on page 50 of this Program Description. The descriptions also identify certain principal risks to which particular Underlying Funds may be subject. Additional discussion of risks related to the various categories of Underlying Funds is set forth under PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS. The investment strategy and risks of each Underlying Fund is subject to change.

These summaries are qualified in their entirety by reference to the detailed information included in each Underlying Funds current prospectus and statement of additional information, which contain additional information not summarized herein and which may identify additional principal risks to which the respective Underlying Fund may be subject. You may request a copy of any Underlying Funds current prospectus or statement of additional information, or the Underlying Funds most recent semi-annual or annual report by calling Franklin Templeton Investments at 1-800/DIAL BEN (1-800/342-5236) or by locating it on Franklin Templetons Web site at [Link].

DOMESTIC EQUITY FUNDS

Franklin Flex Cap Growth Fund
Investment Objectives, Strategy and Policies The Funds investment goal is capital appreciation. The Fund seeks to meet this goal by investing, under normal market conditions, in equity securities of companies the manager believes have the potential for capital appreciation. The Fund has the flexibility to invest in companies located, headquartered, or operating inside the United States, across the entire market capitalization spectrum from small, emerging growth companies to well-established, large companies. A substantial portion of the Funds investments may be in smaller and mid-sized companies. The Fund may also invest a substantial portion of its assets in equity securities of companies headquartered or conducting a substantial portion of their operations in, or generating a substantial portion of their revenue from businesses within, the state of California. When suitable opportunities are available, the Fund may invest in initial public offerings of securities.
58

Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments. The Fund is also subject to the special risks of investing in smaller, mid-sized, and emerging growth companies. Historically, smaller and mid-sized company securities have been more volatile in price than larger company securities, especially over the short-term. The Fund may have significant investments in the financial services sectors, which includes such issuers as commercial banks, thrift institutions, insurance companies and finance companies. As a result, general market and economic conditions as well as other risks specific to the financial services industry may impact the Funds investments and performance. The Funds investment in technology sectors may be subject to abrupt or erratic price movements and may be more volatile, especially over the shortterm, due to the rapid pace of product change and development affecting such companies. To the extent that the Fund has significant investments in one or a few sectors, it bears more risk than a fund which maintains broad sector diversification.

FRANKLIN TEMPLETON PORTFOLIO

DOMESTIC EQUITY FUNDS
Franklin Small-Mid Cap Growth Fund
Investment Objectives, Strategy and Policies The Funds investment goal is long-term capital growth. The Fund seeks to meet its goal, under normal market conditions, by investing at least 80% of its net assets in the equity securities of smallcapitalization and mid-capitalization companies. For this Fund, mid-capitalization companies are those companies with market capitalization values not exceeding $8.5 billion and small capitalization companies are those companies with market capitalization values that do not exceed: (i) $1.5 billion; or (ii) the highest market capitalization value in the Russell 2000 Index (that index consists of 2,000 small companies that have publicly traded securities); whichever is greater, at the time of purchase. In most instances, the manager intends to hold an investment for further capital growth opportunities even if, through market appreciation, the companys market capitalization value exceeds the small or mid capitalization measures described above. In addition to its main investments, the Fund may invest in equity securities of larger companies. The Fund, from time to time, may have significant portions of its assets in particular sectors such as electronic technology and technology services. Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the special risks of investing in smaller, mid-size and emerging growth companies. To the extent that the Fund has significant investments in one or a few sectors, it bears more risk than a fund which maintains broad sector diversification. The Funds investment in the electronic technology and technology services sectors may be subject to abrupt or erratic price movements and may be more volatile, especially over the short term, due to the rapid pace of product change and development affecting such companies.
undervalued stocks (stocks trading at a discount to intrinsic value). To a lesser extent, the Fund also invests in securities of companies that are involved in restructurings and securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy. The Funds investments in restructuring and distressed companies typically involve the purchase of bank debt, lower rated or defaulted debt securities, comparable unrated debt securities, or other indebtedness. The Fund invests primarily in mid- and large capitalization companies with market capitalization values greater than $1.5 billion. The Fund also may invest a portion of its assets in small capitalization companies. The Fund may also engage from time to time in an arbitrage strategy. When engaging in an arbitrage strategy, the Fund typically buys one security while at the same time selling short another security. The Fund generally buys the security that the manager believes is either cheap relative to the price of the other security or otherwise undervalued, and sells short the security that the manager believes is either expensive relative to the price of the other security or otherwise overvalued. In doing so, the Fund attempts to profit from a perceived relationship between the value of the two securities. The Fund generally engages in an arbitrage strategy in connection with an announced corporate restructuring, such as a merger, acquisition or tender offer, or other corporate action or event. The Fund may also invest up to 35% of its total assets in foreign securities.

Mutual Shares Fund

Investment Objectives, Strategy and Policies The Funds principal investment goal is capital appreciation, which may occasionally be short-term, with a secondary goal of income. The Fund seeks to meet its goal, under normal market conditions, by investing primarily in equity securities (including securities convertible into, or that the manager expects to be exchanged for, common or preferred stock) of companies the manager believes are available at market prices less than their value based on certain recognized or objective criteria (intrinsic value). Following this value-oriented strategy the Fund primarily invests in

Principal Risks of Investing The Fund is subject to the market and selection risks of equity investments as well as the special risks of investing in smaller and emerging growth companies. The Fund may also invest in foreign securities and is subject to risks associated with investment in these securities. The Fund is subject to the special risk of value investments, since these investments may not increase in price as anticipated by the manager, and may decline even further if other investors favor investing in faster-growing companies, or if factors that the Funds manager believes will increase the price do not occur. The Fund is also subject to the risk of fixed income investments, including interest rate risk, income risk and prepayment risk, and the risk of convertible securities. In addition, Fund investments may include companies engaged in mergers, reorganizations or liquidations, as well as lower-rated or defaulted bonds that entail higher credit risks. Changes in an issuers financial strength or in a securitys credit rating may affect a securitys value, and thus, impact Fund performance.

59

FRANKLIN TEMPLETON PORTFOLIO

INTERNATIONAL EQUITY FUNDS
Mutual European Fund
Investment Objectives, Strategy And Policies The Funds principal investment goal is capital appreciation, which may occasionally be short-term, with a secondary goal of income. The Fund seeks to meet its objective, under normal market conditions, by investing at least 80% of its net assets in securities of European companies the manager believes are available at market prices less than their value based on certain recognized or objective criteria (intrinsic value). Following this value-oriented strategy the Fund primarily invests in undervalued stocks (stocks trading at a discount to intrinsic value). To a lesser extent, the Fund also invests in securities of companies that are involved in restructurings and securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy. The Funds investments in restructuring and distressed companies typically involve the purchase of bank debt, lower-rated or defaulted debt securities, comparable unrated debt securities, or other indebtedness. The Fund will normally invest in securities from at least five different countries, although, from time to time, it may invest all of its assets in a single country. The Fund invests primarily in mid- and largecapitalization companies with market capitalization values greater than $1.5 billion. The Fund also may invest a significant portion of its assets in small-capitalization companies. The Fund may also engage from time to time in an arbitrage strategy. When engaging in an arbitrage strategy, the Fund typically buys one security while at the same time selling short another security. The Fund generally buys the security that the manager believes is either cheap relative to the price of the other security or otherwise undervalued, and sells short the security that the manager believes is either expensive relative to the price of the other security or otherwise overvalued. In doing so, the Fund attempts to profit from a perceived relationship between the value of the two securities. The Fund generally engages in an arbitrage strategy in connection with an announced corporate restructuring, such as a merger, acquisition or tender offer, or other corporate action or event. The Fund may also invest up to 20% of its total assets in securities of U.S. issuers, as well as in securities of issuers from Levant, the Middle East and the remaining regions of the world. The Fund generally seeks to hedge (protect) against currency risks, largely using forward currency exchange contracts. Principal Risks Of Investing The Fund is subject to the market and selection risks of equity investments as well as the special risks of investing in smaller and emerging growth companies. The Fund may also invest in foreign securities and is subject to risks associated with investment in these securities. The Fund is subject to the special risk of value investments, since these
investments may not increase in price as anticipated by the manager, and may decline even further if other investors favor investing in faster-growing companies, or if factors that the Funds manager believes will increase the price do not occur. The Fund is subject to greater risk of adverse events which occur in Europe and may experience greater volatility than a fund that is more broadly diversified geographically. In addition, Fund investments may include companies engaged in mergers, reorganizations or liquidations, as well as lower-rated or defaulted bonds that entail higher credit risks. Changes in an issuers financial strength or in a securitys credit rating may affect a securitys value, and thus, impact Fund performance.

Templeton Foreign Fund

Investment Objectives, Strategy And Policies The Funds investment goal is long-term capital growth. The Fund seeks to meet its goal, under normal market conditions, by investing at least 80% of its net assets in foreign securities, which may include emerging markets. Foreign securities means those securities issued by companies: (1) whose principal securities trading markets are outside the U.S.; (2) that derive a significant share of their total revenue from either goods or services produced or sales made in markets outside the U.S.; (3) that have a significant portion of their assets outside the U.S.; (4) that are linked to non-U.S. dollar currencies; or (5) that are organized under the laws of, or with principal offices in, another country. The Fund also invests in American, European and global depository receipts. The Fund may, from time to time, have significant investments in one or more countries or in particular sectors such as technology (including computer hardware and software, electronics, and telecommunications) and financial institutions. Depending upon current market conditions, the Fund generally invests a portion of its total assets in debt securities of companies and governments located anywhere in the world. The Fund may use various derivative strategies and may invest up to 5% of its total assets in swap agreements. Principal Risks Of Investing The Fund is subject to the market and selection risks of equity investments and to the risk of investment in foreign securities. There is a special risk of investing in foreign companies located in developing countries. The Fund is also subject to risks from the use of derivatives. The Fund is also subject to the risk of fixed income investments, including interest rate, income risk and prepayment risk. Because the Fund may from time to time have significant investments in one or a few sectors or countries, it will have more risk than a fund which always maintains broad diversification among sectors and countries. The technology sector has historically been volatile due to the rapid pace of product change and development.

60

FRANKLIN TEMPLETON PORTFOLIO

INVESTMENT GRADE FIXED INCOME FUNDS
Franklin Total Return Fund
Investment Objectives, Strategy And Policies The Funds principal investment goal is to provide high current income, consistent with preservation of capital. Its secondary goal is capital appreciation over the long term. The Fund seeks to achieve its goal, under normal market conditions, by investing at least 80% of its assets in investment grade debt securities. The Fund focuses on government and corporate debt securities and mortgage and asset-backed securities. The mortgage securities purchased by the Fund are generally issued or guaranteed by the U.S. government, its agencies or instrumentalities. These securities may be fixedrate or adjustable rate mortgage securities (ARMS). The Fund may invest up to 20% of total assets in non-investment grade debt securities, including up to 5% in securities rated lower than B by Standard & Poors (S&P) or Moodys, which may include defaulted securities. The Fund may invest up to 20% of its total assets in foreign securities and up to 10% of its total assets in nonU.S. dollar denominated securities. The Fund may also buy and sell financial futures contracts or options on such contracts in order to help manage risk relating to interest rates and other market factors, to increase liquidity, to invest in particular instruments in a more efficient or less expensive way, or to quickly and efficiently cause cash to be invested in the securities markets. Principal Risks Of Investing The Fund is subject to the general risks of fixed income investments, including interest rate risk, income risk and prepayment risk, and credit risk. There are separate risks associated with lower-rated securities which generally have more risk than higher-rated securities. The Fund is also subject to a special risk associated with mortgage securities and asset-backed securities. The Fund is subject to the risk of investment in foreign securities. There is a special risk of investing in foreign companies located in developing countries. The Fund is also subject to risks from the use of derivatives.

Templeton Global Bond Fund

Investment Objectives, Strategy And Policies The Funds investment goal is current income with capital appreciation and growth of income. Under normal market conditions, the Fund invests at least 80% of its net assets in bonds. Bonds include debt securities of any maturity, such as bonds, notes and debentures. In addition, the Funds assets will be invested in issuers located in at least three countries (including the U.S.). Bonds represent an obligation of the issuer to repay a loan of money to it, and generally provide for the payment of interest. Although the Fund may buy bonds rated in any category, it focuses on investment grade bonds. These are issues rated in the top four rating categories by independent rating agencies such as Standard & Poors Ratings Group (S&P) or Moodys Investors Service, Inc. (Moodys) or, if unrated, determined by the Funds manager to be comparable. The Fund may invest up to 25% of its total assets in bonds that are rated below investment grade. Generally, lower rated securities pay higher yields than more highly rated securities to compensate investors for the higher risk. The Fund also may invest a significant portion of its assets in emerging markets. The manager allocates the Funds assets based upon its assessment of changing market, political and economic conditions. It will consider various factors, including evaluation of interest and currency exchange rate changes and credit risks. When the manager believes market or economic conditions are unfavorable for investors, the manager may invest up to 100% of the Funds assets in a temporary defensive manner by holding all or a substantial portion of its assets in cash, cash equivalents or other high quality short-term investments. Temporary defensive investments generally may include shortterm U.S. government securities, commercial paper, short-term bank time deposits, and bankers acceptances. The manager also may invest in these types of securities or hold cash while looking for suitable investment opportunities or to maintain liquidity. In these circumstances, the Fund may be unable to achieve its investment goal. Principal Risks Of Investing The Fund is subject to the general risks of fixed income investments and the separate risks associated with lower-rated securities. These securities generally have more risk than higher-rated securities. The Fund is subject to the risk of investing in foreign securities funds and the special risk of investing in bonds issued by less developed countries, sometimes called emerging markets. This Fund is a nondiversified fund, meaning it may invest a greater portion of its assets in the securities of one or more issuers than a diversified fund. As a result, non-diversified funds have more risk than diversified funds. Because the Fund may from time to time have significant investments in one or a few sectors, it will have more risk than a Fund which always maintains broad diversification among sectors. The managers attempt to keep the Funds portfolio of bonds at an optimum level of interest rate sensitivity may cause the Funds portfolio turnover rate to be high. High turnover will increase the Funds transaction costs.
61

Franklin U.S. Government Securities Fund

Investment Objectives, Strategy And Policies The Funds investment goal is income. Under normal market conditions, the Fund invests at least 80% of its net assets in U.S. government securities. The Fund presently invests substantially all of its assets in Government National Mortgage Association obligations (Ginnie Maes). The Fund may also invest in other U.S. government securities which are backed by the full faith and credit of the U.S. government, such as U.S. Treasury STRIPS, bills, bonds and notes, and in repurchase agreements collateralized by U.S. government securities. The Funds short-term investments include short-term government securities and cash. Principal Risks Of Investing The Fund is subject to the risks of Ginnie Maes, including risks of unscheduled prepayments of principal and changes in the values of such prepayments. The Fund is also subject to the risk of fixed income investments, including interest rate risk, income risk and prepayment risk.

FRANKLIN TEMPLETON PORTFOLIO

NON-INVESTMENT GRADE FIXED INCOME FUND
Franklin Strategic Income Fund
Investment Objectives, Strategy And Policies The Funds principal investment goal is to earn a high level of current income with a secondary goal of capital appreciation over the long term. The Fund seeks to meet this objective by investing, under normal market conditions, at least 65% of its assets in U.S. and foreign debt securities including those of emerging markets. The Fund shifts its investments among: (1) high yield and investment grade corporate bonds and preferred stocks of issuers located in the U.S. and foreign countries, including emerging markets; (2) developed country (non-U.S.) government and agency bonds; (3) emerging market government and agency bonds; (4) U.S. government and agency bonds; (5) mortgage securities and other asset-backed securities; and (6) convertible securities, including bonds and preferred stocks. The Fund may invest significantly in floating and variable interest rate investments and may also invest a portion of its assets in bank loans and loan participations. The Fund may invest up to 100% of its total assets in bonds that are rated below investment grade, sometimes called junk bonds. The Fund generally invests in bonds rated at least Caa by Moodys Investors Service, Inc. or CCC by Standard & Poors Rating Group. The Fund is a non-diversified fund, which means it may invest a greater portion of its assets in the securities of one issuer than a diversified fund. The Fund may have significant investments in one or a few sectors, such as telecommunications. Principal Risks Of Investing The Fund is subject to the general risks of fixed income investments and the separate risks associated with lower-rated securities. These securities generally have more risk than higher-rated securities. The Fund is subject to the risk of investing in foreign securities funds and the special risk of investing in foreign companies located in emerging markets. The Fund is also subject to a special risk associated with mortgage securities and asset-backed securities. In addition, non-diversified funds have more risk than diversified funds. Because the Fund may from time to time have significant investments in one or a few sectors, it will have more risk than a fund which always maintains broad diversification among sectors. The telecommunications sector has historically been volatile due to the rapid pace of product change and development.

62

MFS PORTFOLIO
MFS PORTFOLIO
General All of the assets of the MFS Portfolio are invested in Institutional Class shares of the Underlying Funds that are recommended by MFS for that Portfolio and approved by FAME for use in the MFS Fixed Income Portfolio.
All of these Underlying Funds in which the MFS Fixed Income Portfolio invests are currently managed by MFS or its affiliates. MFS is Americas oldest mutual fund organization. MFS and its affiliates had approximately $183.2 billion in assets under management as of June 30, 2010. MFS and its affiliates currently manage over 130 investment companies registered under the Investment Company Act of 1940. The following chart illustrates the current target asset allocation of the MFS Fixed Income Portfolio.

MFS Fixed Income Portfolio

Current Target Underlying Fund Allocation. The following chart illustrates the current target asset allocation and the current target Underlying Fund allocation within that target asset allocation for the MFS Fixed Income Portfolio. This information is presented for informational purposes only.

MFS
Underlying Fund Investment Grade Fixed Income Funds MFS Government Securities Fund MFS Research Bond Fund Non-Investment Grade Fixed Income Fund MFS High Yield Opportunities Fund 30% 30% 40% Fixed Income Portfolio

Historical Investment Performance The following table summarizes the average annual total return after deducting ongoing Portfolio fees of the MFS Fixed Income Portfolio as of June 30, 2010. The $25 annual Account Maintenance Fee, which is waived in certain circumstances, is not included in the returns set forth below. If that fee were reflected, returns would be less than those shown. Updated performance data will be available on the

Internet at [Link] or from the Program Manager by calling (877) 4-NEXTGEN (463-9843). The MFS Fixed Income Portfolios fiscal year runs from July 1 to June 30, which also is the Programs fiscal year. The performance data relating to the MFS Fixed Income Portfolio set forth below is for the limited time period presented and is not indicative of the future performance of the MFS Fixed Income Portfolio.

Average Annual Total Return* as of June 30, 2010 Commencement of Operations 04/30/07

1 Year Diversified Portfolio MFS Fixed Income Portfolio 17.52%

3 Years 7.04%

Since Inception 6.32%

* Average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. (Cumulative total return reflects actual change in the value of an investment over a given period.) Average annual total return smoothes out variations in performance; it is not the same as actual year-by-year results. Returns covering periods of less than one year represent cumulative total returns.

63

MFS PORTFOLIO
Summary of Investment Objectives and Policies of the Underlying Funds for the MFS Fixed Income Portfolio The following descriptions summarize the investment goals and policies of the Underlying Funds in which the MFS Fixed Income Portfolio is currently invested. The descriptions also identify certain principal risks to which particular Underlying Funds may be subject. Additional discussion of risks related to the various categories of Underlying Funds is set forth under PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS. The investment objective of each Underlying Fund may be changed without shareholder approval. The investment strategy and policies of each Underlying Fund is also subject to change.
These summaries are qualified in their entirety by reference to the detailed information included in each Underlying Funds current prospectus and statement of additional information, which contain additional information not summarized herein and which may identify additional principal risks to which the respective Underlying Fund may be subject. You may request a copy of any Underlying Funds current prospectus and statement of additional information, or an Underlying Funds most recent semi-annual or annual report by calling MFS at 1-800-225-2606 or by locating it on MFS Web site at [Link].

INVESTMENT GRADE FIXED INCOME FUNDS

MFS Government Securities Fund
Investment Objectives, Strategy and Policies The Funds investment objective is to seek total return with an emphasis on current income, but also considering capital appreciation. MFS, the Funds investment adviser, normally invests at least 80% of the Funds net assets in U. S. Government securities. U.S. Government securities are securities issued or guaranteed by the U.S. Treasury, by an agency or instrumentality of the U.S. Government, or by a U.S. Government-sponsored entity. Certain U.S. Government securities are not be supported as to the payment of principal and interest by the full faith and credit of the U.S. Treasury or the ability to borrow from the U.S. Treasury. Some U.S. Government securities are supported as to the payment of principal and interest only by the credit of the entity issuing or guaranteeing the security. MFS generally invests substantially all of the Funds assets in investment grade debt instruments. Debt instruments represent obligations of corporations, governments, and other entities to repay money borrowed. MFS may invest a relatively large percentage of the Funds assets in the debt instruments of a single issuer or a small number of issuers. MFS may use derivatives for any investment purpose, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the Fund, or as alternatives to direct investments. Principal Risks of Investing The Fund is subject to the risk of fixed income investments, including interest rate, credit, maturity and prepayment risk, to issuer focused risk and to active and frequent trading risk, as well as the special risks of mortgagebacked securities, inflation-adjusted debt instruments and derivative securities. In addition, government guarantees apply to the underlying securities only and not to the prices and yields of the managed fund.

MFS Research Bond Fund:

Investment Objectives, Strategy and Policies The Funds investment objective is to seek total return with an emphasis on current income, but also considering capital appreciation. MFS, the Funds investment adviser, normally invests at least 80% of the Funds net assets in debt instruments. Debt instruments represent obligations of corporations, governments, and other entities to repay money borrowed. MFS primarily invests the Funds assets in investment grade debt instruments, but may also invest in lower quality debt instruments. MFS may invest the Funds assets in foreign securities, including emerging market securities. MFS may use derivatives for any investment purpose, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the Fund, or as alternatives to direct investments. A team of investment research analysts selects investments for the Fund. MFS allocates the Funds assets to analysts by sectors of the debt market. Principal Risks of Investing - The Fund is subject to the risk of fixed income investments, including interest rate, credit, maturity, and prepayment risk, to active or frequent trading risk, as well as the special risks of lower-rated securities, foreign securities, including emerging market securities, derivative securities, inflation-adjusted debt instruments and municipal instruments.

64

MFS PORTFOLIO
NON-INVESTMENT GRADE FIXED INCOME FUND
MFS High Yield Opportunities Fund
Investment Objectives, Strategy and Policies The Funds investment objective is to seek total return with an emphasis on high current income, but also considering capital appreciation. MFS, the Fund's investment advisor, normally invests at least 80% of the Funds net assets in high income debt instruments. MFS may invest the Funds assets in other types of debt instruments and equity securities. Debt instruments represent obligations of corporations, governments, and other entities to repay money borrowed. Equity securities include common stocks, preferred stocks, securities convertible into stocks, and depository receipts for those securities. MFS may invest up to 100% of the Fund's assets in lower quality debt instruments. MFS
may invest the Funds assets in foreign securities, including emerging market securities. MFS may use derivatives for any investment purpose, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the Fund, or as alternatives to direct investments.

Principal Risks of Investing The Fund is subject to the general risks of fixed income investments, including interest rate, credit, maturity and prepayment risk, and to active or frequent trading risk, as well as the special risks of investing in lower-rated securities, derivative securities and foreign securities, including emerging market securities. The Fund is also subject to the market and selection risks of equity investments.

65

PRINCIPAL PLUS PORTFOLIO

PRINCIPAL PLUS PORTFOLIO
Investment Objective, Strategy and Policies The Principal Plus Portfolio seeks to provide current income while maintaining stability of principal. The investments of the Principal Plus Portfolio will consist of one or more GICs, investments in the Cash Allocation Account, corporate fixed-income investments and/or similar instruments (Principal Plus Portfolio Investments). While a GIC is designed to provide a minimum rate of return on the amount invested in the GIC before the deduction of fees and expenses, because the Principal Plus Portfolio does not expect to invest exclusively in GICs effective November 20, 2010, the Principal Plus Portfolio will not provide a minimum overall rate of return after such date. The Principal Plus Portfolios investment objective is subject to change. There can be no assurance that the Principal Plus Portfolios investment strategy will be successful.
Under a GIC issued to the Investment Fund, an insurance company guarantees principal, accumulated interest and a future interest rate on amounts invested in that GIC. The guarantees available through such GICs are made by the insurance company to the Investment Fund, not to an individual Participant. The GIC is not a registered mutual fund. None of FAME, the Treasurer, the Program or Merrill Lynch guarantee the principal, accumulated interest or the future interest rate. The GIC purchased as an investment underlying the Principal Plus Portfolio was issued by Transamerica Life Insurance Company (Transamerica). Transamerica guarantees principal, accumulated interest and a future interest rate on amounts invested in that GIC. Transamerica currently holds a credit rating as to its financial strength from Moodys Investors Service, Inc. of Aa3 and from Standard & Poors Rating Group of AA.1 Every March 1, June 1, September 1 and December 1, Transamerica announces the interest rate that it will pay for the next three month period under the GIC for all existing Account balances and Contributions during the period. Transamerica sets the interest rate each period. Transamericas commitment to the Program is based solely on its ability to pay its obligations from its general account. The commitment to the Program is not secured by any collateral. Merrill Lynch manages the Principal Plus Portfolio and performs credit analyses on Transamerica. Certain fees (including the Management Fee and the Portfolio Servicing Fee) will be charged against the assets of the Principal Plus Portfolio.

Principal Risks of Investing The GIC in which the Principal Plus Portfolio invests is subject to the risks of an investment that is non-diversified, has no third-party guarantees, is subject to a failure to perform by the issuer of the GIC investment and termination of the GIC by the issuer. Beginning November 20, 2010, the Principal Plus Portfolio is also subject to the risks associated with the Cash Allocation Account. See PROGRAM AND PORTFOLIO RISKS AND OTHER CONSIDERATIONS Investment Risks of Principal Plus Portfolio Investments.

According to Moodys Investors Service, Inc.s publications, Aa3 is the fourth-highest of 21 ratings and is assigned to insurance companies that offer excellent financial security. Standard & Poor's publications report that the AA rating, the third-highest of 20 ratings, is assigned to insurance companies that have very strong financial security. Neither Moodys nor Standard & Poors makes any representation regarding an investment in the Portfolio.

66

PRINCIPAL PLUS PORTFOLIO

Historical Investment Performance Principal Plus Portfolio The following table summarizes the average annual total return after deducting on-going Portfolio fees of the Principal Plus Portfolio as of June 30, 2010. The $25 annual Account Maintenance Fee, which is waived in certain circumstances, is not included in the returns set forth below. If that fee were reflected, returns would be less than those shown. Updated performance data will be available on the Internet at [Link] or from the Program Manager by calling (877) 4-NEXTGEN (463-9843). The Principal Plus Portfolios fiscal year runs from July 1 to June 30, which also is the Programs fiscal year. The performance data relating to the Principal Client Direct Series
Average Annual Total Return* as of June 30, 2010 Commencement of Operations 04/30/07 Plus Portfolio set forth below is for the limited time period presented and is not indicative of the future performance of the Principal Plus Portfolio. For the periods shown, the Principal Plus Portfolio was invested exclusively in a single GIC issued by an insurance company. Effective November 20, 2010, the Principal Plus Portfolio expects to continue to maintain its investment in that GIC and to invest new Contributions in the Cash Allocation Account. If a portion of the Principal Plus Portfolio had been invested in the Cash Allocation Account during the periods shown, the performance of the Principal Plus Portfolio would have been lower.

1 Year Principal Plus Portfolio 3.11%

3 Years 3.85%

Since Inception 3.88%

* Average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. (Cumulative total return reflects actual change in the value of an investment over a given period.) Average annual total return smoothes out variations in performance; it is not the same as actual year-by-year results.

67

NEXTGEN COLLEGE INVESTING PLAN PARTICIPATION AGREEMENT

September 20, 2010

68

MAINE COLLEGE SAVINGS PROGRAM

A Section 529 Qualified Tuition Program NextGen College Investing Plan Participation Agreement
THIS PARTICIPATION AGREEMENT contains the terms governing the Account to be established by you pursuant to the Maine College Savings Program (the NextGen College Investing Plan or the Program) of the Finance Authority of Maine (FAME). The Program has been designed to qualify for treatment as a qualified tuition program within the meaning of Section 529 of the Internal Revenue Code of 1986, as amended (Section 529 Program). By signing the NextGen College Investing Plan Account Application (the Account Application), you agree to be bound by the terms of this Participation Agreement. 1. Definitions. In this Participation Agreement, the words you, your, or Participant mean the individual who, or entity on whose behalf an individual, has signed the Account Application. The term Designated Beneficiary means (i) the individual identified by you, or (ii) if you are a governmental entity or a tax-exempt organization described in section 501(c)(3) of the Code, the Designated Beneficiary is the individual or individuals named by you at the time you initiate a qualified withdrawal from the Account. The term Merrill Lynch means Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates. The term Act means Chapter 417-E of Title 20-A of the Maine Revised Statutes Annotated of 1964, as amended. The term Program Manager means Merrill Lynch or any successor program manager appointed by FAME. The term Rule means Chapter 611 of the Rules of FAME, as amended from time to time. Other capitalized terms used but not defined in this Participation Agreement shall have the same meaning as in the NextGen College Investing Plan Program Description, as amended from time to time (the Program Description). Unless the context otherwise requires, the term Agreement shall include the Program Description, to the extent not inconsistent with this Participation Agreement. 2. Contributions. Contributions to your Account may be made by check or by electronic funds transfer acceptable to the Program Manager and FAME. Rollover Contributions to your Account must be accompanied by a rollover certification in a form approved by FAME and the Program Manager. Individuals or entities other than you that contribute funds to your Account will have no subsequent control over the Contributions. Only you may direct transfers, rollovers, investment changes (as permitted under federal law), withdrawals and changes in the Designated Beneficiary. (a) The minimum initial Contribution to an Account is $250, and the minimum subsequent Contribution is $50. If you are eligible for an Initial Matching Grant from FAME, the minimum initial and subsequent Contribution is $50. If you are eligible for the Harold Alfond College Challenge Grant, that grant amount may be used to fulfill the initial minimum Contribution requirement. If automatic, periodic Contributions are made through the Program's AFS or through Payroll Direct Deposit, the minimum Contribution is $50 monthly and no minimum initial Contribution amount is required to open an Account. A Participant electing to have Contributions invested in more than one Portfolio must allocate a minimum of $25 per Portfolio. (b) Contributions with respect to all Accounts for the same Designated Beneficiary will not be permitted if they would cause the aggregate balance of all Accounts for the same Designated Beneficiary (regardless of Participant) to exceed the maximum amount periodically established by FAME as the maximum Account balance for a Designated Beneficiary. Any Excess Contribution will be returned by the Program Manager to the contributor. FAME reserves the right to establish a minimum Account balance. (c) A Contribution, rollover or transfer may be refused if FAME reasonably believes that (i) the purpose is for other than funding the Qualified Higher Education Expenses of the Designated Beneficiary of an Account, (ii) there appears to be an abuse of the Program, or (iii) such transaction is unlawful. The Program may not be able to determine that a specific Contribution, rollover or transfer is for other than funding the Qualified Higher Education Expenses of a Designated Beneficiary, abusive or unlawful. The Program therefore makes no representation that all such Contributions, rollovers or transfers can or will be rejected. 3. Investment of Contributions. Your Account will be established by the Program Manager so that Contributions are automatically allocated to the Portfolio(s) selected on the Account Application. For each Diversified Portfolio, Single Fund Portfolio, or Principal Plus Portfolio investment option selected, the Program Manager will automatically invest Contributions to the designated Diversified Portfolio, Single Fund Portfolio, or Principal Plus Portfolio investment option(s). For each Age-Based investment option selected, the Program Manager will 69

MAINE COLLEGE SAVINGS PROGRAM

A Section 529 Qualified Tuition Program
automatically invest Contributions to the applicable AgeBased Diversified Portfolio based upon the date of birth of the Designated Beneficiary (or, if so approved by the Program Manager and FAME, upon the anticipated date of intended use specifically identified by you with respect to the current Designated Beneficiary) that appears on the Account Application (or that is otherwise certified by you). State or local governmental entities or tax-exempt organizations described in section 501(c)(3) of the Code may designate a Diversified Portfolio, a Single Fund Portfolio, an Age-Based Diversified Portfolio, the Principal Plus Portfolio, or any combination of Portfolios in which Contributions are to be invested. FAME reserves the right, but is not obligated, to reassign investments in an AgeBased Diversified Portfolio on the basis of the intended use specifically identified by you with respect to the current Designated Beneficiary (or as otherwise certified by you) if it receives satisfactory assurance that such reassignment would not disqualify the affected Accounts or the Program from treatment, for federal tax purposes, as a Section 529 Program. Initial and subsequent Contributions to your Account will be invested in accordance with the Portfolio(s) selected, and allocations chosen, by you, as described in the Program Description, and Units of the Portfolio(s) (or any successor Portfolio(s)) selected will be allocated to your Account. Your Account will be separately maintained by the Program Manager, but Contributions to your Account will be commingled with amounts credited to other Accounts for purposes of investment. Except to the extent permitted by federal tax law, you may not direct the investment of Contributions to your Account. You are the owner of all Contributions and all Program earnings credited to your Account under this Agreement. However, you understand and agree that you are not the owner of any Maine Matching Grant or Harold Alfond College Challenge Grant contributions and earnings thereon credited to your Account. Notwithstanding anything in this Participation Agreement to the contrary, you understand and agree that if your Account was opened for the purpose of obtaining the Harold Alfond College Challenge Grant, and you did not select investment option(s) on the Account Application, any Contributions received with the Account Application, and/or future Contributions, will be allocated 100% to and invested in the appropriate BlackRock Age-Based Portfolio, for Account Applications received prior to October 21, 2010, and in the appropriate iShares Age-Based Portfolio for Account Applications received beginning October 21, 2010, unless and until you direct differently in accordance with the Program procedures for making investment changes. 4. Withdrawals from Account. Any amount you, your Designated Beneficiary or another person receives from 70 your Account, as directed by you, is called a withdrawal. Withdrawals will be made from your Account after (i) your verbal authorization confirmed via telephone; or (ii) your submission of a NextGen College Investing Plan Withdrawal Request Form (and any additional required documentation) and its acceptance by the Program Manager. Rules and limitations on withdrawals are described in the Program Description under the section titled PARTICIPATION AND ACCOUNTS. 5. Change of Designated Beneficiary. You may request that an individual who is a Member of the Family of your current Designated Beneficiary be substituted as your new Designated Beneficiary by submitting a Change of Designated Beneficiary Form (and any additional required documentation) to the Program Manager. The change will be made upon the Program Managers acceptance of the request. 6. Fees and Expenses. Certain fees (which may be rebated, reduced, waived or changed from time to time) will be charged against the assets of the Portfolios to provide for the costs of administration of the Program and the Accounts. These fees include fees of the Program Manager, Portfolio Servicing Agent and FAME, as more fully described in the Program Description. Accounts will indirectly bear expenses of the Underlying Funds in which the Portfolios invest. In addition, each Account will be subject to such other fees and charges (which may be rebated, reduced, waived or changed from time to time) as described in the Program Description. On-going Portfolio fees and other charges are subject to change at any time. Whole or fractional Units in your Account may be liquidated to pay any fees, expenses or liabilities owed to the Program Manager or FAME. 7. Statements and Reports. The Program Manager will keep accurate and detailed records of all transactions concerning your Account and will provide periodic statements of your Account to you. FAME and the Program Manager will cause reports to be sent to you, the Internal Revenue Service and such other regulatory authorities as required by law. If you do not write to the Program Manager to object to a statement or report within 60 days after it has been sent to you, you will be considered to have approved it and to have released FAME and the Program Manager from all responsibility for matters covered by the statement or report. You agree to provide all information FAME or the Program Manager may need to comply with any legal statement or reporting requirements. You will continue to be responsible for filing your federal tax return and any other reports required of you by law.

MAINE COLLEGE SAVINGS PROGRAM

A Section 529 Qualified Tuition Program
8. Participants Representations. follows: You represent as (a) You have received and read the most current version of the Program Description (including any applicable amendments thereto), have carefully reviewed the information it contains, and agree that its terms are incorporated into this Participation Agreement as if they were set forth herein. (b) You have not relied on any representations or other information, whether oral or written, and whether made by any agent or representative of FAME, the Program Manager, or otherwise, other than as set forth in the Program Description (including any applicable amendments thereto) and in this Participation Agreement. (c) You are opening this Account to provide funds for Qualified Higher Education Expenses of the Designated Beneficiary of the Account. (d) YOU UNDERSTAND THAT THE VALUE OF YOUR ACCOUNT MAY INCREASE OR DECREASE, BASED ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIO(S) TO WHICH CONTRIBUTIONS TO YOUR ACCOUNT HAVE BEEN ALLOCATED, THAT THE VALUE OF YOUR ACCOUNT MAY BE MORE OR LESS THAN THE AMOUNT CONTRIBUTED TO YOUR ACCOUNT, AND THAT NO PERSON MAKES ANY GUARANTEE THAT YOU WILL NOT SUFFER A LOSS OF THE AMOUNT CONTRIBUTED TO THE ACCOUNT OR THAT THE VALUE OF YOUR ACCOUNT WILL BE ADEQUATE TO FUND ACTUAL HIGHER EDUCATION EXPENSES. (e) You understand that: (i) all Portfolio asset allocation and investment decisions will be made by the Treasurer and FAME; (ii) except to the extent permitted by federal law, you cannot direct the investment of any Contributions to your Account (or the earnings on Contributions); and (iii) each Portfolio will invest in Portfolio Investments or Maine CDs. (f) You understand that: (i) the state(s) where you or your Designated Beneficiary reside or pay taxes may offer one or more direct sold, advisor/broker sold or prepaid tuition plans under Section 529 of the Code (each, an In-State Plan); and (ii) such In-State Plans may offer you state income tax or other benefits not available to you through the Program. The Program Description, this Participation Agreement, the Account Application, and the other forms approved for use in connection with the Program do not address taxes imposed by a state other than Maine, or the applicability of state or local taxes other than the Maine income tax to the Program, the Investment Fund, your participation in the Program, your investment in the Investment Fund or your Account. 71 (g) You have considered investing in an In-State Plan and consulted with your tax advisor regarding the state tax consequences of investing in the Program if realizing state or local income tax or other benefits is important to you. (h) You have considered: (i) the availability of alternative education savings and investment programs including other Section 529 Programs available through the Program Manager; (ii) the identity and contract term of the Program Manager; (iii) the impact an investment in the Program may have on eligibility for federal and state financial aid and non-educational benefits, such as Medicaid; (iv) the risks and other considerations of investing in the Program; (v) limitations on Contributions, withdrawals and transfers among the Portfolios; (vi) the Programs fees and expenses; and (vii) the federal, state and local estate and gift tax implications of investing in the Program. (i) You understand that: (i) each of the Diversified Portfolio, Single Fund Portfolio, Principal Plus Portfolio and the Age-Based Diversified Portfolio investment options may not be suitable; and (ii) the Program may not be suitable, for all investors as a means of investing for higher education costs. (j) You understand that: (i) any Portfolio may at any time be merged, terminated, reorganized or cease accepting new Contributions, in FAMEs sole discretion; (ii) any such action affecting a Portfolio may result in your Contributions being reinvested in a Portfolio different from the Portfolio in which your Contributions were originally invested, in FAMEs sole discretion; and (iii) FAME and Merrill Lynch may at any time terminate or modify the Portfolio fee structures. (k) You understand that although you own interests in a Portfolio, you do not have a direct beneficial interest in the Portfolio Investment or Maine CDs held by that Portfolio and, therefore, you do not have the rights of an owner or shareholder of such mutual funds or the other instruments or certificates of deposit. (l) You understand that: (i) once a Contribution is made to an Account, your ability to withdraw funds without penalty or adverse tax consequences will be limited; (ii) the earnings portion of Non-Qualified Withdrawals may be subject to taxes and/or penalties; and (iii) withdrawals may be subject to federal and state income tax withholding. (m)You understand that participation in the Program does not guarantee that any Designated Beneficiary: (i) will be accepted as a student by any Eligible Institution of Higher Education; (ii) if accepted, will be permitted to continue as a student; (iii) will be treated as a state

MAINE COLLEGE SAVINGS PROGRAM

A Section 529 Qualified Tuition Program
resident of any state for tuition purposes; (iv) will graduate from any Eligible Institution of Higher Education; or (v) will receive any particular treatment under applicable state or federal financial aid programs. (n) You understand that FAME or the Program Manager may ask you to provide additional documentation that may be required by applicable law or the Rule, including anti-money laundering laws, in connection with your participation in the Program and you agree to promptly comply with any such requests for additional documents. (o) You have accurately and truthfully completed the Account Application and any other documentation that you have furnished or subsequently furnish in connection with the opening or maintenance of, or any withdrawals from, the Account. (p) You understand that any false statements made by you in connection with the opening of the Account or otherwise will be deemed to be unsworn falsification within the meaning of 17-A Maine Revised Statutes Annotated Section 453 and that FAME and the Program Manager may take such action as is permitted by the Act and the Rule, including termination and distribution of your Account. (q) You understand that purchases and sales of Units held in your Account may be confirmed to you on periodic Account statements in lieu of an immediate confirmation. Only the Participant, and persons designated by the Participant, will receive confirmation of Account transactions. (r) You understand that any Contributions credited to your Account will be deemed by FAME and the Program Manager to have been received from you and that Contributions by third parties may result in adverse tax or other consequences to you or such third parties. (s) You understand that if you open your Account through a Maine Distribution Agent, FAME or the Program Manager may periodically provide such distributor with information regarding your Account. (t) You affirm that if you are entering into this Participation Agreement on behalf of a non-natural person, you have the authority to open your Account for the Designated Beneficiary. (u) You understand that, unless otherwise provided in a written agreement between you and FAME or the Program Manager, no part of your participation in the Program will be considered the provision of an investment advisory service. (v) You understand that you should retain adequate records relating to withdrawals from the Account for your own tax reporting purposes. (w) You understand that if the person establishing the Account is a legal entity, in addition to the items set forth herein, the individual signing the Account Application and entering into this Participation Agreement for the entity represents and warrants that: (i) the entity may legally become, and thereafter be, the Participant; (ii) he or she is duly authorized to so act for the entity; (iii) the Program Description may not discuss tax consequences and other aspects of the Program of particular relevance to the entity and individuals having an interest therein; and (iv) the entity has consulted with and relied on a professional advisor, as deemed appropriate by the entity before becoming a Participant. (x) You understand that in order to help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an Account. When you open an Account, the Program Manager and/or FAME will ask for your name, address, date of birth and other information that will allow the Program Manager and FAME to identify you. The Program Manager or FAME may also ask to see your drivers license or other identifying documents. (y) You (i) are aware that the Program is offered in two separate series, each with its own sales charge, expense structure and investment options, (ii) are aware that the expenses associated with the Client Select Series may be higher than those associated with the Client Direct Series, and (iii) believe that the Client Direct Series is suitable for you. 9. Limitation on Liability. You recognize that FAME, the Treasurer and the Program Manager are relying upon your representations set forth in this Participation Agreement and the Account Application. You agree to repay FAME, the Treasurer or the Program Manager for any liabilities or expenses they may incur as the result of any misstatement or misrepresentation made by you or your Designated Beneficiary, any breach by you or your Designated Beneficiary of the representations contained in this Participation Agreement or any breach by you or your Designated Beneficiary of this Participation Agreement, other than those arising out of FAMEs or the Program Managers failure to perform their duties specified in this Participation Agreement or the Program Description. All of your statements, representations, and agreements shall survive the termination of this Participation Agreement.

72

MAINE COLLEGE SAVINGS PROGRAM

A Section 529 Qualified Tuition Program
10. Duties of FAME, the Treasurer and the Program Manager. None of FAME, the Treasurer or the Program Manager has a duty to perform any action other than those specified in this Participation Agreement or the Program Description. FAME and the Program Manager may accept and rely conclusively on any instructions or other communications reasonably believed to have been given by you or another authorized person and may assume that the authority of any other authorized person continues in effect until they receive written notice to the contrary. None of FAME, the Treasurer or the Program Manager has any duty to determine or advise you of the investment, tax or other consequences of your actions, of their actions in following your directions, or of their failing to act in the absence of your directions. 11. Transfers and Assignments. Transfers of an Account by you to another Participant may only be made in compliance with the Program Description and with applicable law. No Account may be used as security for a loan, and any attempt to do so shall be void. 12. Rules and Regulations. The Account and this Agreement are subject to the Act and the Rule. 13. Effectiveness of this Participation Agreement. This Participation Agreement shall become effective upon the Program Managers acceptance of your Account Application on behalf of FAME, subject to FAMEs right to reject your Account Application if, in processing the Account Application, it is determined that the Account Application has not been fully and properly completed. 14. Amendment/Termination. FAME may at any time: (i) amend the Program or this Participation Agreement (including, but not limited to, any amendment required for the Program to qualify for favorable federal tax treatment as a Section 529 Program) by giving written notice to you, which amendment shall be effective upon the date specified in the notice; or (ii) terminate the Program or this Participation Agreement or cause a distribution to be made from your Account to satisfy applicable laws, including anti-money laundering laws, by giving written notice to you. No provision of this Participation Agreement can be amended or waived except in writing signed by an authorized representative of FAME and the Program Manager. A termination of the Program or this Participation Agreement or such distribution from your Account by FAME may result in a Non-Qualified Withdrawal, unless certain exceptions apply, for which tax on the earnings portion thereof and penalties may be assessed. 15. Binding Nature. This Participation Agreement shall be binding upon the parties and their respective heirs, successors, beneficiaries and permitted assigns. You agree that all of your representations and obligations under this Participation Agreement shall inure to the benefit of the Program Manager as well as to FAME either of whom can rely upon and enforce your representations and obligations contained in this Participation Agreement. 16. Communications. Communications may be sent to you at your permanent address appearing on your Account Application or at such other permanent address as you give to the Program Manager in writing. All communications so sent, whether by mail, facsimile, email, messenger or otherwise, will be considered to have been given to you personally upon such sending, whether or not you actually receive them. FAME and Merrill Lynch, to the extent permitted by FAME, may direct mailings to you or your Designated Beneficiary regarding products or services other than the Program. 17. Extraordinary Events. FAME and the Program Manager shall not be liable for loss caused directly or indirectly by government restrictions, exchange or market rulings, suspension of trading, war, acts of terrorism, strikes or other conditions beyond their control. 18. Severability. If any provision of this Agreement is held to be invalid, illegal, void or unenforceable, by reason of any law, rule, administrative order, or judicial decision, such determination will not affect the validity of the remaining provisions of this Agreement. 19. Headings. The heading of each provision of this Agreement is for descriptive purposes only and shall not be deemed to modify or qualify any of the rights or obligations set forth in each such provision. 20. Governing Law. THIS PARTICIPATION AGREEMENT WILL BE GOVERNED BY MAINE LAW, WITHOUT REGARD TO THE COMMUNITY PROPERTY LAWS OR CHOICE OF LAW RULES OF ANY STATE. 21. Lawsuits Involving Your Account. Except as to controversies arising between you or your Designated Beneficiary and FAME or the Program Manager, FAME or the Program Manager may apply to a court at any time for judicial settlement of any matter involving your Account. If FAME or the Program Manager does so, they must give you or your Designated Beneficiary the opportunity to participate in the court proceeding, but they also can involve other persons. Any expense

73

MAINE COLLEGE SAVINGS PROGRAM

A Section 529 Qualified Tuition Program
incurred by FAME or the Program Manager in legal proceedings involving your Account, including attorneys fees and expenses, are chargeable to your Account and payable by you or your Designated Beneficiary if not paid from your Account. 22. Disputes. In the event of a dispute between you or your Designated Beneficiary and the chief executive officer of FAME, the dispute may be resolved in accordance with the procedures set forth in Section 15 of the Rule. You hereby submit (on behalf of yourself and your Designated Beneficiary) to exclusive jurisdiction of courts in Maine for all legal proceedings arising out of or relating to this Agreement. In any such proceeding, you (on behalf of yourself and your Designated Beneficiary) and FAME each agree to waive your rights to a trial by jury. 23. Arbitration. This Participation Agreement contains a predispute arbitration clause; by signing the Account Application you (on behalf of yourself and your Designated Beneficiary) agree as follows: You; your Designated Beneficiary and Merrill Lynch (each, a party) are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed. Arbitration awards are generally final and binding; a partys ability to have a court reverse or modify an arbitration award is very limited. The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings. The arbitrators do not have to explain the reason(s) for their award. The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry. The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court. The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement. You agree (on behalf of yourself and your Designated Beneficiary) that all controversies that may arise between you or your Designated Beneficiary and Merrill Lynch involving any transaction in your Accounts with the Program or the construction, performance or breach of this Participation Agreement shall be determined by arbitration. Any arbitration pursuant to this provision shall be conducted only before the New York Stock Exchange, Inc., an arbitration facility provided by any other exchange of which Merrill Lynch is a member, or the National Association of Securities Dealers, Inc., but if you fail to make such election by registered letter or telegram addressed to Merrill Lynch at the office where you maintain your Account before the expiration of five days after receipt of a written request from Merrill Lynch to make such election, then Merrill Lynch may make such election. Judgment upon the award of the arbitrators may be entered in any court, state or federal, having jurisdiction. No person shall bring a putative or certified class action to arbitration, nor seek to enforce any predispute arbitration agreement against any person who has initiated in court a putative class action or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; (ii) the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this Participation Agreement except to the extent stated herein.

September 20, 2010 74

THIS PAGE IS INTENTIONALLY LEFT BLANK

75

Merrill Lynch is the marketing name for Merrill Lynch Wealth Management and Merrill Edge which are made available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). Merrill Lynch Wealth Management makes available products and services offered by MLPF&S and other subsidiaries of Bank of America Corporation. Merrill Edge is the marketing name for two businesses: Merrill Edge Advisory Center, which offers team-based advice and guidance brokerage services; and a self-directed online investing platform. Investment products: Are Not FDIC Insured Are Not Bank, State or Federal Guaranteed May Lose Value

MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation.

Program Administrator
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Program Manager
L-09-10

NextGen and NextGen College Investing Plan are registered trademarks of the Finance Authority of Maine. 2010 Finance Authority of Maine. Printed in the U.S.A.

Code:PDCD-0910