AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996
SECURITIES ACT FILE NO. 2-57442
INVESTMENT COMPANY ACT FILE NO. 811-2694
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 21 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
AMENDMENT NO. 18
(CHECK APPROPRIATE BOX OR BOXES) /X/
-------------------
THE MUNICIPAL FUND ACCUMULATION
PROGRAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
BOX 9011 08543-9011
PRINCETON, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2000
ARTHUR ZEIKEL
THE MUNICIPAL FUND ACCUMULATION PROGRAM, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
Copies to:
<TABLE>
<S> <C>
PHILIP L. KIRSTEIN, ESQ. LEONARD B. MACKEY, JR., ESQ.
FUND ASSET MANAGEMENT, L.P. ROGERS & WELLS
BOX 9011 200 PARK AVENUE
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, N.Y. 10166
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES SHARES OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED BEING REGISTERED PER SHARE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Shares of Common Stock, par value
$0.01 per share...................... 5,314,773 $ 18.42 $ 289,986 * $100**
============================================================================================================
</TABLE>
*(1) The calculation of the maximum aggregate offering price is made as of
April 25, 1996 pursuant to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 7,324,857 Shares of Common Stock.
*(3) 2,025,230 Shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company Act of
1940 in previous filings during Registrant's current fiscal year.
**(4) 5,299,627 Shares redeemed during Registrant's previous fiscal year are
being used for the reduction of the registration fee in this Post-Effective
Amendment.
-------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON FEBRUARY 24, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE MUNICIPAL FUND ACCUMULATION PROGRAM, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
------------------------------------------- -------------------------------------------
<S> <C> <C>
PART A
1. Cover Page................................. Cover Page
2. Synopsis................................... Fee Table
3. Financial Highlights....................... Financial Highlights; Additional
Information-- Performance Data
4. General Description of Registrant.......... The Program; Investment Objectives and
Policies; Additional Information
5. Management of the Fund..................... Fee Table; Management of the Program;
Portfolio Transactions
5A. Management's Discussion of Fund
Performance................................ *
6. Capital Stock and Other Securities......... Taxes and Distributions; Additional
Information
7. Purchase of Securities Being Offered....... Fee Table; The Program; Additional
Information
8. Redemption or Repurchase................... Fee Table; Redemption of Shares and
Exchange Privilege
9. Pending Legal Proceedings.................. *
PART B
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Index
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Objectives and Policies;
Investment Restrictions; Portfolio
Transactions
14. Management of the Fund..................... Directors and Officers
15. Control Persons and Principal Holders of
Securities................................. *
16. Investment Advisory and Other Services..... Investment Advisory Agreement
17. Brokerage Allocation and Other Practices... Portfolio Transactions
18. Capital Stock and Other Securities......... *
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Net Asset Value; Redemption of Shares
20. Tax Status................................. Taxes and Distributions
21. Underwriters............................... *
22. Calculation of Performance Data............ Performance Data
23. Financial Statements....................... Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
- ------------
* Item inapplicable or answer negative.
<PAGE>
THE MUNICIPAL FUND
INVESTMENT ACCUMULATION PROGRAM
- --------------------------------------------------------------------------------
Shares of
Common Stock Prospectus dated April 26, 1996
- --------------------------------------------------------------------------------
THE PROGRAM
The Municipal Fund Accumulation Program, Inc. (the "Program") is an open-end
management investment company whose primary investment objective is to obtain
tax-exempt income through investment in a diversified portfolio of state,
municipal and public authority bonds not less than 75% of which will at the time
of acquisition be rated "A" or better and all of which will at the time of
acquisition be rated "BBB" or better by Standard & Poor's Rating Group or "Baa"
or better by Moody's Investors Service, Inc., the interest on which Bonds is
exempt from all federal income tax under existing law in the opinion of
recognized bond counsel to the issuing governmental authorities. The Program
intends to qualify to pay "exempt-interest" dividends as permitted by the Tax
Reform Act of 1986. Such dividends reflecting tax-exempt interest received by
the Program will be tax-exempt in the hands of the Shareholders, except possibly
where such Shareholder might be deemed to be a "substantial user," as defined in
the Internal Revenue Code, or subject to alternative minimum tax. Such dividends
may, however, be subject to state and local taxes. Any capital gain realized on
Shares of the Program is, however, subject to tax (see "Taxes and Distributions"
below). For information on the Program's investment objectives and policies,
please see "Investment Objectives and Policies" on page 6. The Shares of the
Program are redeemable at any time at the net asset value next determined after
the receipt of the redemption request, which value may be more or less than the
amount paid for the Shares. Shares in any Shareholder's account which has a
value of less than $500 may be involuntarily redeemed if reinvestment of
distributions on Units is discontinued. See "Redemption of Shares and Exchange
Privilege" below.
Shares of the Program are offered hereby without sales charge to the holders
of Units of certain series of Defined Asset Funds--Municipal Investment Trust
Fund described below under the caption "The Program" in order to provide a means
for the automatic reinvestment of distributions of interest income, capital
gains and principal on such Units in Shares of the Program on the Terms and
Conditions of Participation set forth herein. The address of the Program is Box
9011, Princeton, New Jersey 08543-9011, and its telephone number is (609)
282-2000.
-------------------
INVESTMENT ADVISER
FUND ASSET MANAGEMENT, L.P.
ADMINISTRATORS
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
SMITH BARNEY INC.
-------------------
This Prospectus sets forth in concise form the information about the Program
that a prospective investor should know before investing in the Program.
Investors should read and retain this Prospectus for future reference.
Additional information about the Program has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated April 26,
1996, and is available upon request and without charge, by calling or writing
the Program at the address and telephone number set forth above. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-TIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES:
- ---------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases.................................... None
Deferred Sales Charge........................................................ None
Sales Charge Imposed on Dividend Reinvestments............................... None
Redemption Fee............................................................... None
Exchange Fee................................................................. None
<CAPTION>
ANNUAL PROGRAM OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
FOR THE YEAR ENDED DECEMBER 31, 1995:
- ---------------------------------------
<S> <C> <C>
Management Fees.............................................................. 0.50%(a)
12b-1 Fees................................................................... None
Other Expenses
Transfer Agency and Custodian Fees................................. 0.30%
Other Fees......................................................... 0.06%
-----
Total Other Expenses................................................. 0.36%
-----
Total Program Operating Expenses............................................. 0.86%
-----
-----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE:
--------
<S> <C> <C> <C> <C>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
--------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
An investor would pay the
following expenses on a $1,000
investment, assuming an operating
expense ratio of 0.86% and a 5%
annual return throughout the
periods........................... $8.78 $ 27.44 $ 47.68 $ 106.08
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a Shareholder in the Program will bear directly or
indirectly.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission regulations. The Example should not be considered a
representation of past or future expenses or annual rates of return and actual
expenses or annual rates of return may be more or less than those assumed for
purposes of the Example.
- ---------
(a) See "Management of the Program -- Advisory and Administration Arrangements"
on page 10.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Program by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended
December 31, 1995 and the independent auditors' report thereon are included in
the Statement of Additional Information.
The following per share data and ratios have been derived from information
provided in the financial statements:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year... $ 17.51 $ 19.79 $ 18.93 $ 18.63 $ 17.83 $ 18.09 $ 17.76 $ 17.44 $ 18.69 $ 17.71
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment
income--net......... 1.01 1.03 1.09 1.15 1.23 1.30 1.31 1.33 1.37 1.43
Realized and
unrealized gain
(loss) on
investments--net.... 1.71 (2.28) 1.11 .30 .80 (.26) .33 .27 (1.19) .98
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... 2.72 (1.25) 2.20 1.45 2.03 1.04 1.64 1.60 .18 2.41
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment
income--net......... (1.01) (1.03) (1.09) (1.15) (1.23) (1.30) (1.31) (1.28) (1.43) (1.43)
Realized gain on
investments--net.... -- -- (.25) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions....... (1.01) (1.03) (1.34) (1.15) (1.23) (1.30) (1.31) (1.28) (1.43) (1.43)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end
of year............. $ 19.22 $ 17.51 $ 19.79 $ 18.93 $ 18.63 $ 17.83 $ 18.09 $ 17.76 $ 17.44 $ 18.69
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT
RETURN:
Based on net asset
value per share..... 15.88% (6.44%) 11.99% 8.08% 11.83% 6.03% 9.61% 9.48% 1.12% 14.16%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement....... .86% .89% .86% .88% .91% .97% 1.04% 1.02% 1.05% 1.07%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Expenses............. .86% .89% .86% .88% .91% .97% 1.04% 1.02% 1.05% 1.13%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment
income--net......... 5.40% 5.54% 5.52% 6.15% 6.76% 7.23% 7.25% 7.53% 7.66% 7.83%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of
year (in
thousands).......... $581,679 $537,197 $639,588 $536,952 $435,224 $359,291 $319,641 $288,274 $269,598 $249,787
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Portfolio turnover... 56% 61% 23% 24% 36% 20% 41% 46% 21% 38%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
Further information about the Program's performance is contained in the
Program's Annual Report, which can be obtained, without charge, upon request.
3
<PAGE>
THE PROGRAM
IN GENERAL--The primary investment objective of the Program is to obtain
tax-exempt income through investment in a diversified portfolio (the
"Portfolio") of interest bearing long- and intermediate-term state, municipal
and public authority bonds, the interest on which is, in the opinion of bond
counsel to the issuing authorities, exempt from federal income tax (see
"Investment Objectives and Policies"). This investment objective is a
fundamental policy of the Program.
Defined Asset Funds--Municipal Investment Trust Fund (the "Unit Trust
Funds") consist of a number of different unit investment trusts holding
portfolios of state, municipal and public authority bonds. The Program has been
formed to facilitate reinvestment of distributions on units (the "Units") of the
various series of the Unit Trust Funds. Since the Program is an open-end
investment company, the shares of capital stock, $.0l par value, of the Program
(the "Shares") are redeemable by the holder at the net asset value next
determined after the receipt of the redemption request in proper form.
TERMS AND CONDITIONS OF PARTICIPATION--All persons who are or who become
registered holders of Units of series of the Unit Trust Funds offering a
reinvestment option are eligible to participate in the Program and are herein
called "Holders." Holders include brokers or nominees of banks and other
financial institutions which are or become registered holders of Units. Such
eligibility is subject to the terms and conditions of participation (the "Terms
and Conditions") set forth under this caption.
Distributions on Units of series of the Unit Trust Funds offering a
reinvestment option will be paid in cash unless Holders elect to reinvest such
distributions in the Program by sending a notice in writing to the Program
Agent. Each Holder participating in the Program will receive a copy of the
current Program prospectus (this "Prospectus") and a form of notice of election;
a Holder not participating in the Program may request a copy of the Prospectus.
The notice of election accompanying this Prospectus may be used by Holders of
Units to elect to participate in the Program or to change a previous election.
Notice of any change in the basis of participation or of election to participate
in the Program must be received by the Program Agent in writing at least ten
days prior to the Record Day for the first distribution to which such notice is
to apply.
Under these Terms and Conditions, both distributions of interest income and
distributions of capital gains, if any, and principal (or either such type of
distribution) on Units of Holders participating in the Program will be invested
without sales charge in Shares. Holders who are participating in the Program and
whose Units are therefore subject to these Terms and Conditions are herein
called "Shareholders." The Bank of New York (110 Washington Street, New York,
New York 10286) will act as the program agent (the "Agent") for the
Shareholders. All securities, cash and other similar assets of the Program will
be held by the Agent as custodian. The Agent also acts as the Program's dividend
disbursing agent, transfer agent and registrar and performs certain other
services for the Program.
Under these Terms and Conditions, each distribution of interest income and
capital gains, if any, and principal on a Shareholder's Units, will, on the date
of such distribution, automatically be received by the Agent on behalf of such
Shareholder and applied to purchase Shares at net asset value, without sales
charge. In the case of Holders of Units whose distributions of principal are
being invested in the Program, the proceeds of redemption or payment at maturity
of securities held in the unit investment
4
<PAGE>
trust represented by the Holder's Units will be invested in Shares, rather than
being distributed in cash to the Holder. Net interest income, after expenses,
received by the Program on obligations in its portfolio will be distributed by
the Program monthly and net realized capital gains, if any, will be distributed
at least annually. Such distributions will be reinvested automatically in Shares
of the Program unless the Shareholder elects, by written notice to the Agent,
not to have such distributions reinvested in Shares (see "Taxes and
Distributions").
The Program has qualified and intends to continue to qualify (1) for the tax
treatment applicable to "regulated investment companies" under the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) to pay "exempt-interest"
dividends as permitted under the Code. Pursuant to such qualification, if the
Program distributes to Shareholders (without regard to designated capital gains
distributions) an amount equal to or in excess of the sum of 90% of its
investment company taxable income and 90% of its net tax-exempt interest income,
such "exempt-interest" dividends reflecting tax-exempt interest received by the
Program will be tax-exempt in the hands of Shareholders, except possibly where a
Shareholder might be deemed to be a "substantial user," as defined in the Code,
or subject to alternative minimum tax. The Program will not be subject to
federal income tax on such part of its net capital gains, if any, as it
distributes to Shareholders, although it may be subject to certain state and
local taxes. For these purposes, any capital gains of the Program which are
reinvested are considered to have been distributed (see "Taxes and
Distributions").
In addition to their right to redeem their Shares and receive a payment
equal to the net asset value thereof (see "Redemption of Shares and Exchange
Privilege"), Shareholders may at any time, by so notifying the Agent in writing
(the Agent will deliver a copy of such notice to the trustee for the respective
series of the Unit Trust Funds), elect to (1) terminate their participation in
the Program and thereafter receive all distributions on their Units in cash,
(ii) terminate their participation in part as to distributions of capital gains
and principal on their Units and thereafter receive distributions in cash out of
the principal accounts for the respective series or (iii) terminate their
participation in part as to distributions of interest on their Units and
thereafter receive future distributions in cash out of the interest accounts for
the respective series.
All the costs of establishing, administering and offering the Program and
these Terms and Conditions are borne by the Program subject to the limitation on
expenses referred to in the Statement of Additional Information under
"Investment Advisory Agreement." The administrators of the Program (the
"Administrators") are Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities Incorporated ("Prudential"), Dean
Witter Reynolds Inc. ("Dean Witter"), and Smith Barney Inc. ("Smith Barney"),
which are current sponsors of Unit Trust Funds. The investment adviser to the
Program (the "Adviser") is Fund Asset Management, L.P., Box 9011, Princeton, New
Jersey 08543-9011, a registered investment adviser and an affiliate of Merrill
Lynch. The Adviser receives as annual compensation, payable monthly, for its
services in connection with the Program a fee of 0.5% of the average net assets
of the Program. The Administrators receive from the Adviser as annual
compensation, payable monthly, for their services in connection with the Program
a fee of 0.2% of the average net assets of the Program (see "Management of the
Program--Advisory and Administration Arrangements"). Reference is made to the
Statement of Additional Information which contains a more complete description
of the advisory and administration arrangements of the Program.
5
<PAGE>
The Agent will mail to each Shareholder a report of each transaction
undertaken for such Shareholder in receiving distributions on Units and
purchasing Shares. Distributions on Units which are applied to purchase Shares
are considered to have been distributed to Shareholders for federal income tax
purposes, and all taxes which are payable in respect to such distributions must
be paid by Shareholders regardless of participation in the Program.
On tender for redemption of any or all of his Shares, a Shareholder will be
entitled to receive within seven days a payment representing the net asset value
of the Shares (including fractional Shares), provided that such right of
redemption may be suspended or postponed under certain circumstances described
under "Redemption of Shares and Exchange Privilege."
If the Holder is a broker or a nominee of a bank or another financial
institution, the trustee and Agent will apply these Terms and Conditions on the
basis of the respective numbers of Units certified from time to time by such
Holder to be the total numbers of Units registered in such Holder's name and
held for the accounts of beneficial owners who are to participate in the
Program, upon the several bases of participation offered by the Program at the
time. It is anticipated, however, that, due to administrative problems connected
with Units held in "street name" other than by Merrill Lynch, such Units will be
registered in the names of the beneficial owners thereof unless such owners
elect not to participate in the Program.
Merrill Lynch or its nominee holds in its name Program Shares for the
accounts of customers whose Unit Trust Series are held in Merrill Lynch accounts
and who elect to reinvest in the Program. These Shares may be transferred to an
account in the customer's name with the Agent upon request. Merrill Lynch
maintains records identifying the names and addresses of these customers and
their Share balances, and will be compensated for these services by the Agent at
the Agent's sole expense. During the year ended December 31, 1995, the Agent
paid Merrill Lynch $636,593 for these services.
Experience may indicate that changes in these Terms and Conditions are
desirable or that this offering should be terminated. Such changes may be made
or this offering may be terminated at the direction of the Board of Directors of
the Program (the "Board") without notice to any Shareholder. The Board may at
any time appoint a substitute Agent or an additional agent to act for the
Program.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Program is to obtain tax-exempt
income through investment in the Portfolio, which is comprised of interest
bearing long- and intermediate-term state, municipal and public authority bonds
(including private activity bonds), the interest on which is, in the opinion of
bond counsel to the issuing authorities, exempt from federal income tax (herein
called "Bonds"), considering the following factors, among others:
(i) the quality of the Bonds, (a) not less than 75% of which
(determined on the basis of current value) will at the time of acquisition
be rated "A" or better by Standard & Poor's Rating Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's") and all of which
will at such time be rated "BBB" or better by Standard & Poor's or "Baa" or
better by Moody's (under current market and other conditions, the Board has
determined that all of the Bonds in which the
6
<PAGE>
Program invests will at the time of acquisition be rated "A" or better by
either of such rating agencies). (See "Description of Bond Ratings" in the
Statement of Additional Information for a description of the rating
categories);
(ii) the yield and price of the Bonds relative to other Bonds of
comparable quality and maturity; and
(iii) the diversification of the Bonds as to purpose of issue and
location of issuer, taking into account the availability in the market of
issues which meet the Program's quality, rating, yield and price criteria.
Also included within the general category of Bonds are participation
certificates in a lease, an installment purchase contract or a conditional sales
contract (hereinafter collectively called "lease obligations") entered into by a
state or political subdivision to finance the acquisition or construction of
equipment, land or facilities. Although lease obligations do not constitute
general obligations of the issuer for which the lessee's unlimited taxing power
is pledged, a lease obligation is frequently backed by the lessee's covenant to
budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the lessee has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. These securities represent a relatively new type of financing
that has not yet developed the depth of marketability associated with more
conventional securities. Certain investments in lease obligations may be
illiquid. The Program may not invest in illiquid lease obligations if such
investments, together with all other illiquid investments, would exceed 15% of
the Program's net assets. The Program may, however, invest without regard to
such limitation in lease obligations which the Adviser, pursuant to guidelines
which have been adopted by the Board of Directors and subject to the supervision
of the Board, determines to be liquid. The Adviser will deem lease obligations
liquid if they are publicly offered and have received an investment grade rating
of Baa or better by Moody's, or BBB or better by Standard & Poor's.
An investment in the Program should be made with an understanding of the
risks which an investment in fixed-rate long- and intermediate-term debt
obligations may entail, including the risk that the value of the Portfolio, and
hence the net asset value of the Shares, will decline with increases in interest
rates. Interest rates and, thus, the value of fixed rate debt obligations have
fluctuated substantially in recent periods and may continue to do so in the
future. Investors are referred to the Statement of Additional Information for a
discussion of certain risks associated with investing in such obligations.
The yields on Bonds are dependent on a variety of factors, including general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of Moody's and Standard & Poor's represent their opinions as
to the quality of the Bonds which they undertake to rate. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, Bonds with the same maturity, coupon and rating may have
different yields, while Bonds of the same maturity and coupon with different
ratings may have the same yield.
7
<PAGE>
While the Program will invest the proceeds of the sale of its Shares (and
other cash proceeds such as those generated by redemptions, maturities or sales
of Portfolio securities) as promptly as possible, some short period of time may
elapse between the time the Program receives such proceeds and the time such
proceeds are invested by the Program. However, the Program reserves the right to
extend such period for defensive purposes. During such period such proceeds may
be held in cash or invested in temporary investments (principally state,
municipal and public authority notes and bonds) that have credit
characteristics, in the opinion of the Adviser, similar to those provided for
other Portfolio securities and the interest income on which is, in the opinion
of counsel to the issuing authorities, exempt from federal income tax. The
Program will not invest in short-term obligations other than those on which the
interest income is, in the opinion of counsel to the issuing authorities, exempt
from federal income tax.
The fact that a Bond may cease to be rated or that its rating may be reduced
below the ratings referred to above will not require that it be eliminated from
the Portfolio but will be considered by the Adviser in determining whether it
should be retained or sold.
A portion of the Program's assets may be invested in Bonds rated BBB by
Standard & Poor's or Baa by Moody's. Although Bonds rated BBB by Standard &
Poor's normally exhibit adequate protection parameters, they entail a greater
degree of risk and are of a more speculative nature than obligations rated in
the higher categories. Therefore, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt obligations in this category than in higher rated
categories. Bonds rated Baa by Moody's are also speculative in nature and entail
greater risks than those rated in the higher categories. Although interest
payments and principal security may appear adequate for the present, certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. See "Description of Bond Ratings" in the Statement of
Additional Information for a description of rating categories.
At the time that Bonds are originally issued, opinions relating to the
validity of such Bonds and to the exemption of interest thereon from federal
income taxes are rendered by counsel to the respective issuing authorities.
Neither the Program nor the Adviser nor the Administrators nor the Agent, nor
their counsel, will make any review of the proceedings relating to the issuance
of the Bonds or the basis for such opinions.
The ability of the Program to purchase Bonds otherwise considered to be
desirable investments will be limited by prohibitions under the Investment
Company Act of 1940 against the Program's purchasing Bonds from affiliates of
the Adviser or, except in the limited circumstances permitted under the
applicable rules of the Securities and Exchange Commission, from underwriting
accounts for new issues of Bonds in which affiliates of the Adviser are involved
as an underwriter. (See Portfolio Transactions".)
The Investment Company Act of 1940 requires a statement of the policies of
investment companies with respect to concentration in the securities of any
industry or industries. The Program does not intend to concentrate its
investments in the obligations of any one state.
The Program may not be an appropriate investment medium for entities which
are "substantial users" of facilities financed by "private activity bonds" or
for investors who are "related persons" thereof within the meaning of Section
147(a) of the Code.
8
<PAGE>
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Bonds or for making available to municipal issuers alternative
sources of funds or credit which might result in substantial amounts of
financing being made available from other sources--such as the issuance of
taxable bonds accompanied by a partial federal subsidy of interest payments
thereon. Similar proposals may be advanced in the future. If these proposals or
similar proposals were to be enacted, the availability of Bonds for investment
by the Program and the value of the Program's Portfolio would be affected.
Additionally, the Program would reevaluate its investment objectives and
policies and consider changes in the structure of the Program, subject to any
applicable requirement for Shareholder approval. See "Taxes and Distributions"
for a discussion of the effects of recent legislation on investments in
tax-exempt securities.
Forward Commitments. The Program may purchase Bonds on a forward commitment
basis and may purchase or sell such securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Program with
payment and delivery taking place in the future to secure what is considered an
advantageous yield and price to the Program at the time of entering into the
transaction. The Program will maintain a segregated account with its custodian
of cash or liquid, high grade municipal securities in an aggregate equal at all
times to the amount of its commitments in connection with such delayed delivery
and purchase transactions. The value of the security on the delivery date may be
more or less than its purchase price due to fluctuating interest rates.
INVESTMENT RESTRICTIONS
The Program has adopted a number of restrictions and policies related to the
investment of its assets and its activities which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Program's outstanding voting securities. Investors are referred to the Statement
of Additional Information for a complete description of such restrictions and
policies.
MANAGEMENT OF THE PROGRAM
DIRECTORS
The Directors of the Program consist of six individuals, five of whom are
not "interested persons" of the Program as defined in the Investment Company Act
of 1940. The Directors of the Program are responsible for the overall
supervision of the operations of the Program and perform the various duties
imposed on the directors of investment companies by the Investment Company Act
of 1940. The Board of Directors elects officers of the Program annually.
The Directors of the Program and their principal employment are as follows:
<TABLE>
<S> <C>
ARTHUR ZEIKEL*--President of the Adviser and its affiliate, Merrill Lynch Asset
Management ("MLAM"); President and Director of Princeton Services, Inc.
("Princeton Services"); Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co."); Director of Merrill Lynch Funds Distributor, Inc. (the
"Distributor").
RONALD W. FORBES--Professor of Finance, School of Business, State University
of New York at Albany.
CYNTHIA A. MONTGOMERY--Professor of Finance, Harvard Business School.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
CHARLES C. REILLY--Self-employed financial consultant; former President and Chief
Investment Officer of Verus Capital, Inc., former Senior Vice President of
Arnhold and S. Bleichroeder, Inc.; Adjunct Professor, Columbia University
Graduate School of Business.
KEVIN A. RYAN--Professor of Education, Boston University; Founder and current
Director of the Boston University Center for the Advancement of Ethics and
Character.
RICHARD R. WEST--Professor of Finance, and former Dean New York University
Leonard N. Stern School of Business Administration.
</TABLE>
- --------------
* Interested person, as defined in the Investment Company of 1940, of the
Program.
ADVISORY AND ADMINISTRATION ARRANGEMENTS
The investment adviser to the Program is Fund Asset Management, L.P. ("FAM"
or the "Adviser"). The address of FAM is Box 9011, Princeton, New Jersey
08543-9011. FAM or its affiliate, Merrill Lynch Asset Management, L.P. ("MLAM"),
acts as the investment adviser for more than 130 other registered investment
companies. FAM or MLAM also offers portfolio management and portfolio analysis
services to individuals and institutions. As of March 31, 1996, FAM and MLAM had
a total of approximately $207.7 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates of
FAM.
FAM (the general partner of which is Princeton Services, Inc., a
wholly-owned subsidiary of Merrill Lynch & Co., Inc.) is itself a wholly-owned
affiliate of Merrill Lynch & Co., Inc. and has its principal place of business
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
FAM, subject to the general supervision of the Program's Board of Directors,
manages the Portfolio of the Program in accordance with its investment
objectives and policies and furnishes to the Program investment advice. In
addition, FAM together with the Administrators of the Program are responsible
for the overall management of the Program's business affairs. The Administrators
are Merrill Lynch, of which FAM is an affiliate, Prudential, Dean Witter and
Smith Barney. The Administrators perform certain management services necessary
for the operation of the Program and provide all the office space, facilities
and necessary personnel for such services. For the performance of these
services, FAM pays the Administrators an aggregate monthly fee at the annual
rate of 0.2% of the Program's average daily net assets. The fee so payable by
the Adviser will be allocated among the Administrators in the following
respective percentages: Merrill Lynch, 48%; Prudential, 21%; Dean Witter, 21%;
and Smith Barney, 10%. The Administrators have also undertaken to reimburse the
Adviser in proportion to such monthly fee for the purpose of the Adviser's
reimbursement of the Program. The Adviser's reimbursement obligations are
described more fully in the Statement of Additional Information.
For the year ended December 31, 1995, FAM received advisory fees from the
Program in the amount of $2,794,839, representing 0.50% of the Program's average
net assets.
The Program is obligated to pay certain expenses incurred in its operations,
including, among other things, the investment advisory fee, legal and auditing
fees, fees and expenses of unaffiliated Directors, custodian and transfer agency
fees, accounting and pricing costs, and certain of the costs of printing proxy
statements, shareholder reports, prospectuses and statements of additional
information. For the
10
<PAGE>
year ended December 31, 1995, the Program's total expenses were $4,830,146
(representing 0.86% of its average net assets).
William Michael Petty is the Portfolio Manager for the Program and is
responsible for the day-to-day management of the Program. Mr. Petty has been
employed by the Manager since 1993 as Vice President and was an Assistant Vice
President thereof from 1992 to 1993. Prior thereto, he was a Municipal Bond
Broker with J.J. Kenny Municipal Bond Brokers from 1990 to 1992.
CODE OF ETHICS
The Board of Directors of the Program has adopted a Code of Ethics under
Rule17j-l of the Investment Company Act of 1940 which incorporates the Code of
Ethics of the Adviser (together, the "Codes"). The Codes significantly restrict
the personal investing activities of all employees of the Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Program within periods of trading by the
Program in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
REDEMPTION OF SHARES AND EXCHANGE PRIVILEGE
Redemption. Shareholders have the right to redeem their Shares at net asset
value by surrendering the certificates therefor properly endorsed with the
signatures guaranteed by an "eligible guarantor institution" as such term is
defined by Rule 17Ad-15 of the Securities Exchange Act of 1934, the existence
and validity of which may be verified by the Agent through the use of industry
publications, together with a request for redemption at the office of the Agent,
The Bank of New York, 110 Washington Street, New York, New York 10286. If
certificates have not been issued, only delivery of the request for redemption
(with signature guaranteed as set forth above) is required. The Program has
arranged, however, for an exemption from the signature guarantee requirement for
redemptions involving less than $ 5,000 on the date of receipt by the Agent of
all the necessary documents where the proceeds are to be reinvested through one
of the Administrators in units of Municipal Investment Trust Fund, The
Government Securities Income Fund, The Corporate Income Fund, The Equity Income
Fund or The International Bond Fund (the "Unit Trust") which are to be
registered in the names of the registered owners of the Shares. This exemption
may be reduced or eliminated without prior notice. A guarantee of each
Shareholder's signature is required for all redemptions, regardless of the
amount involved, where the proceeds are to be paid to Shareholders or where the
units of the Unit Trusts to be purchased are to be registered in names different
from those of the registered owners of the Shares.
11
<PAGE>
The redemption price will be the net asset value next determined after
either (i) the certificates are tendered for redemption or (ii) if no
certificates have been issued, a request for redemption is received in good
order as set forth above. The price received upon redemption may be more or less
than the amount paid by the Shareholder depending on the net asset value of the
Shares at the time of redemption. Payment of the redemption price must be made
within seven days after proper tender unless further postponement is permissible
under the Investment Company Act of 1940, by reason of closing of or restriction
of trading on the New York Stock Exchange, or other emergency, as explained in
the Statement of Additional Information.
Any of the Administrators may accept orders from dealers with whom they have
satisfactory agreements for the repurchase of Shares held by Holders. Repurchase
orders received by the dealer prior to the close of business on the New York
Stock Exchange (generally 4:00 P.M., New York City time) on any business day and
transmitted by the Administrator prior to the close of its business day
(generally 4:00 P.M., New York City time) are redeemed at the price determined
as of the close of business on the New York Stock Exchange on such day.
Repurchase orders received after the close of business on the New York Stock
Exchange on any business day are redeemed at a price determined as of the close
of business on the New York Stock Exchange on the next business day. It is the
responsibility of the dealers to transmit orders so that they will be received
by the Administrator prior to its close of business. This repurchase arrangement
is discretionary and may be withdrawn. There is no additional charge by the
Program for repurchases.
Under certain circumstances, the Program reserves the right to redeem Shares
in accounts of less than $500 upon 30 days' notice. For further information, see
the Statement of Additional Information, "Redemption of Shares."
Exchange Privilege. Shareholders who have owned Shares for at least 60 days
have an exchange privilege (the "Exchange Privilege") with shares of The
Corporate Fund Accumulation Program, Inc. (the "Other Program"). Shares with an
aggregate net asset value of at least $1,000 are required to qualify for the
Exchange Privilege. Exchanges between the Program and the Other Program will be
at their respective net asset values. The investment objectives of the Other
Program differ from those of the Program, and Shareholders should obtain a
currently effective prospectus for the Other Program before effecting any
exchange.
Exercise of the Exchange Privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short- or long-term capital
gain or loss may be realized. The exchange privilege is available only to
Shareholders residing in states where the Other Program is qualified for sale. A
non-corporate Shareholder of the Program who exercises the Exchange Privilege
may be required to certify to the Other Program his Social Security Number or
Taxpayer Identification Number and that he is not subject to the backup
withholding tax if he wishes to avoid a 31% backup withholding tax on
distributions made to him by the Other Program.
This Exchange Privilege may be modified or terminated at any time. The
Program reserves the right to limit the number of times an investor may exercise
the Exchange Privilege. To exercise the Exchange Privilege, a Shareholder should
contact one of the Administrators, who will advise the Program and the Other
Program of the exchange, or the Shareholder may write to the Agent requesting
that the exchange be effected. Such letter must be signed exactly as the account
is registered with
12
<PAGE>
signatures guaranteed by a member firm of a national or regional stock exchange
or any commercial bank or trust company. Shareholders with Shares for which
certificates have not been issued may exercise the Exchange Privilege by wire
through their securities dealers. The Program reserves the right to require a
properly completed Exchange Application.
TAXES AND DISTRIBUTIONS
The Program has qualified and intends to continue to qualify for the special
tax treatment applicable to "regulated investment companies" under the Code. If
the Program qualifies as a "regulated investment company" and makes
distributions to Shareholders (without regard to designated capital gain
dividends) in an amount equal to or exceeding the sum of 90% of its investment
company taxable income and 90% of its net interest income from tax-exempt
obligations, it will not be subject to federal income tax on such part of its
net ordinary income or net realized capital gains, if any, as it distributes to
Shareholders. The Program expects to distribute monthly substantially all of its
net interest income, after expenses. Net realized capital gains, if any, will be
distributed at least annually. Such distributions of net interest income and net
realized capital gains will be reinvested in additional Shares in the Program
unless the Shareholder elects to receive such distributions in cash.
Distributions of net interest income to be reinvested in additional Shares, or
to be received in cash if elected, will be made on the 15th day of the month, or
on the next succeeding business day if the 15th falls on a holiday or weekend,
for the accounts of Shareholders of record on the preceding business day of such
month.
A 4% non-deductible excise tax is imposed on a regulated investment company,
such as the Program, if the company does not distribute to its shareholders an
amount equal to at least 98% of the investment company's ordinary income for the
calendar year, plus at least 98% of the company's capital gain net income for
the one-year period ending on October 31 of such calendar year. In addition, an
amount equal to any of the investment company's undistributed ordinary income or
capital gain net income from the previous calendar year must also be distributed
to avoid the excise tax. The excise tax is imposed on the amount by which a
company does not meet the foregoing distribution requirements. The excise tax
will not, however, apply to the tax-exempt income of a regulated investment
company, such as the Program, that pays "exempt-interest" dividends. In
addition, if the Program has taxable income that would be subject to the excise
tax, the Program intends to distribute such income so as to avoid payment of the
excise tax.
The Program intends to qualify to pay "exempt-interest" dividends as defined
in the Code. If it so qualifies, dividends or any part thereof (other than any
short- or long-term capital gain distributions) paid by the Program which are
attributable to interest on tax-exempt obligations and are designated by the
Program as exempt-interest dividends in a written notice mailed to the Program's
Shareholders within 60 days after the close of its taxable year may be treated
by Shareholders for all purposes as items of interest excludable from their
gross income under Section 103(a) of the Code. However, a Shareholder is advised
to consult his tax adviser with respect to whether exempt-interest dividends are
excludable under Section 103(a) if received by a Shareholder who would be
treated as a "substantial user" under Section 147(a)(1) of the Code if such
Shareholder held the tax-exempt obligations directly. A Shareholder may not
deduct interest on indebtedness incurred or continued to purchase or carry
Shares to the extent attributable to exempt-interest dividends.
13
<PAGE>
Distributions to Shareholders of net short-term capital gains, if any,
including distributions which are reinvested in additional Shares in the
Program, will generally be taxable as ordinary income. Distributions reflecting
net long-term capital gains (designated as such by the Program) will be taxable
to Shareholders as long-term capital gains regardless of the Shareholders'
holding period of the Shares. The Tax Reform Act of 1986 (the "1986 Act")
eliminated the distinction between long- and short-term capital gains for
taxable years starting after 1987; both are now taxable at a maximum rate of 28%
to individual Shareholders and 35% for corporate Shareholders. If a Shareholder
receives a capital gain dividend and has held Shares of the Program for six
months or less, any loss on the sale of such Shares shall, to the extent of the
capital gain dividends paid on such shares, be treated as a long-term capital
loss. If the Shareholder receives an exempt-interest dividend on Shares and
holds those Shares for six months or less, any loss on the sale of such Shares
shall, to the extent of the amount of such exempt interest dividend, be
disallowed.
Some Shareholders may be subject to a 31% withholding on reportable
dividends, capital gains distributions and redemption payments ("backup
withholding"). Backup withholding is not required with respect to dividends
representing "exempt-interest." Generally, Shareholders subject to backup
withholding will be those for whom a certified Taxpayer Identification Number
("TIN") is not on file with the Program, or who, to the Program's knowledge,
have furnished an incorrect TIN or with respect to whom the Internal Revenue
Service has advised the Program that there must be backup withholding. When
establishing an account, an investor must certify under penalties of perjury
that the TIN is correct and that he is not subject to backup withholding.
The recipient of tax-exempt income is required to report such income on his
federal income tax return. The disclosure of such amount is for informational
purposes only.
A Shareholder may be subject to alternative minimum tax to the extent the
Program holds private activity bonds and a corporate Shareholder's alternative
minimum taxable income may be increased to the extent of exempt interest
dividends received from the Program. The Program expects that it may hold
private activity bonds; however, an individual shareholder filing a joint return
who (with his or her spouse) does not have any tax preference items subject to
the alternative minimum tax other than income received from the Program derived
from private activity bonds would have to receive more than $40,000 of such
income from the Program before becoming subject to the alternative minimum tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. For
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Regulations
are subject to change by legislative or administrative action. The Statement of
Additional Information sets forth additional information regarding other tax
aspects of an investment in the Program.
STATE AND LOCAL TAXES--The exemption of interest income (including
exempt-interest dividends) for federal income tax purposes does not necessarily
result in exemption under the income or other tax laws of any state or local
taxing authority. Each Shareholder is advised to consult his own tax adviser in
this regard.
State and local taxing authorities may enact legislation which may require
the Program to withhold a portion of dividends paid or credited to Shareholders.
14
<PAGE>
PORTFOLIO TRANSACTIONS
The Program will follow a policy that it will place securities transactions
with a broker or dealer only if it expects to obtain the most favorable prices
and executions of orders. Transactions in debt securities are generally made
through securities dealers acting as principals, although the Program may
purchase or sell such securities in brokerage transactions and affiliates of the
Adviser may act as brokers therein if the Program expects thereby to obtain the
most favorable price and execution. The Program has obtained an exemptive order
permitting it to engage in certain principal transactions involving high quality
short-term municipal Bonds. The Adviser is responsible for making Portfolio
investment decisions on behalf of the Program and effecting Portfolio
transactions with or through securities dealers, subject to the general
supervision of the officers and directors of the Program.
ADDITIONAL INFORMATION
NET ASSET VALUE
The net asset value per Share of the Program is determined by dividing the
net assets of the Program by the number of its outstanding Shares. The net
assets of the Program are its gross assets less its liabilities as determined in
accordance with generally accepted accounting principles. The Program has made
arrangements with Kenny S&P Evaluation Services, a division of Kenny Information
Systems Inc. ("Kenny") to furnish to the Program and the Agent, on each day that
the New York Stock Exchange is open for trading immediately after the
declaration of dividends, estimated values (as of 15 minutes after the close of
business on the New York Stock Exchange, generally 4:00 P.M., New York City
time) of Portfolio securities for purposes of computation of net asset value of
Shares. The Board has examined the methods to be used by Kenny in estimating the
value of Portfolio securities and believes that such methods will reasonably and
fairly approximate the price at which Portfolio securities may be sold and will
result in a good faith determination of the fair value of such securities;
however, there is no assurance that the Portfolio securities can be sold at the
prices at which they are valued. During the fiscal year ended December 31, 1995,
the Program made payments of $30,401 to Kenny for such service. For information
concerning the method used by Kenny to value Portfolio securities, see "Net
Asset Value" in the Statement of Additional Information.
PERFORMANCE DATA
The Program may from time to time include its average annual total return
and yield in advertisements or information furnished to present or prospective
shareholders. Both total return and yield figures are based on the Program's
historical performance and are not intended to indicate future performance.
Average annual total return and yield are determined in accordance with formulas
specified by the Securities and Exchange Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based upon
net investment income and any capital gains or losses on portfolio investments
over such periods) that would equate the initial amount invested to the
redeemable value of such investments at the end of each period. Average annual
total return will be computed assuming all dividends and distributions are
reinvested and taking into account all applicable recurring and nonrecurring
expenses.
15
<PAGE>
Yield quotations will be computed based on a 30-day period by dividing the
net income earned during the period based on the yield to maturity of each
security held by the Program by the average daily number of shares outstanding
during the period that were entitled to receive dividends times the maximum
offering price per share on the last day of the period.
The Program's average annual total return and yield will vary depending upon
market conditions, the securities comprising the Program's Portfolio, the
Program's operating expenses and the amount of net capital gains or losses
realized by the Program during the period. An investment in the Program will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost.
On occasion, the Program may compare its performance to that of the Standard
& Poor's 500 Composite Stock Price Index, the Value Line Composite Index, the
Dow Jones Industrial Average, or performance data published by Lipper Analytical
Services, Inc., Morningstar Publications, Inc., Money Magazine, U.S. News &
World Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine
and Fortune Magazine. From time to time, the Program may include the Program's
Morningstar risk-adjusted performance ratings in advertisements or supplemental
sales literature. As with other performance data, performance comparisons should
not be considered indicative of the Program's relative performance for any
future period.
ORGANIZATION OF THE PROGRAM
The Program, an open-end diversified management investment company
registered under the Investment Company Act of 1940, was incorporated in
Maryland on October 11, 1976. When issued, the Shares of the Program will be
fully paid and non-assessable, have no preference, pre-emptive, conversion,
exchange or similar rights and will be freely transferable.
The Program does not intend to hold meetings of shareholders unless under
the Investment Company Act of 1940 shareholders are required to act on any of
the following matters: (i) election of directors; (ii) approval of an investment
advisory agreement; (iii) approval of a distribution agreement; and (iv)
ratification of selection of independent accountants. Shares do not have
cumulative voting rights, and the holders of more than 50% of the Shares of the
Program voting for the election of directors can elect all of the directors of
the Program if they choose to do so and in such event the holders of the
remaining Shares would not be able to elect any directors.
For further information concerning the organization of the Program, see the
Statement of Additional Information.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Princeton, New Jersey, has been selected as the
independent auditors of the Program and is responsible for auditing the annual
financial statements of the Program.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
The Bank of New York, New York, New York, acts as Custodian of the Program's
assets and as its Transfer Agent and Dividend Disbursing Agent.
16
<PAGE>
LEGAL COUNSEL
Rogers & Wells, New York, New York, is counsel for the Program and passes
upon legal matters for the Program in connection with the Shares offered by this
Prospectus.
REPORTS TO SHAREHOLDERS
The fiscal year of the Program ends on December 31 of each year. The Program
will send to its Shareholders at least semi-annually reports showing the
Program's Portfolio and other information. An annual report containing financial
statements, audited by independent auditors, will be sent to Shareholders each
year.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and the Investment Company Act of 1940, with respect
to the securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Statement of Additional Information, dated April 26, 1996, which forms a
part of the Registration Statement, is incorporated by reference into this
Prospectus. The Statement of Additional Information may be obtained without
charge as provided on the cover page of this Prospectus. The Registration
Statement, including the exhibits filed therewith, may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
17
<PAGE>
[This page is intentionally left blank.]
18
<PAGE>
AUTHORIZATION FOR INVESTMENT IN THE MUNICIPAL FUND ACCUMULATION PROGRAM, INC.
IF YOU WOULD LIKE TO PARTICIPATE IN THE MUNICIPAL FUND INVESTMENT ACCUMULATION
PROGRAM, YOU MUST COMPLETE, SIGN AND RETURN THIS CARD.
PLEASE DO NOT RETURN THIS CARD IF YOU ARE ALREADY A PARTICIPANT, UNLESS YOU WISH
TO CHANGE YOUR REINVESTMENT OPTION.
UNIT TRUST SERIES AS SHOWN ON ACCOUNT STATEMENT OR CERTIFICATE: (PLEASE PRINT ON
THE LINE BELOW)
- --------------------------------------------------------------------------------
I hereby acknowledge receipt of the prospectus of The Municipal Fund
Accumulation Program, Inc. (the "Program") and authorize the Trustee of the
Series designated above to pay distributions on my Units as indicated below
(distributions to be reinvested in the Program will be paid for my account to
The Bank of New York as Program Agent):
<TABLE>
<S> <C> <C>
Principal distributions (including capital gains) (check one): / / in cash / / reinvested in the Program
Interest distributions (check one): / / in cash / / reinvested in the Program
</TABLE>
<TABLE>
<S> <C>
My name (please print) -------------------------------------------------------------------------------
My address (please print) -------------------------------------------------------------------------------
street
-------------------------------------------------------------------------------
city, state, zip code
The account number for my units -------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(Registered Holder Signature)
-------------------------------------------------------------------------------
(Registered Holder Signature)
(Two signatures required if joint tenancy)
Date , 19
----------------------- -------
</TABLE>
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the line on the reverse side, tape,
and mail with the Trustee's address displayed on the outside.
<PAGE>
------------------------------------------ NO POSTAGE
BUSINESS REPLY MAIL NECESSARY
FIRST CLASS PERMIT NO. 6665 NEW YORK, N.Y. IF MAILED
------------------------------------------ IN THE
UNITED STATES
POSTAGE WILL BE PAID BY ADDRESSEE
-------------
INVESTMENT ACCUMULATION PROGRAM (MITF) -------------
THE BANK OF NEW YORK -------------
UNIT INVESTMENT TRUST DEPARTMENT -------------
PO BOX 974 -------------
WALL STREET STATION -------------
NEW YORK, N.Y. 10268-0974 -------------
- --------------------------------------------------------------------------------
(FOLD ALONG THIS LINE.)
<PAGE>
THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM
PRINCIPAL OFFICE OF THE FUND
Box 9011
Princeton, New Jersey 08543-9011
(609) 282-2000
INVESTMENT ADVISER
Fund Asset Management, L.P.
Box 9011
Princeton, New Jersey 08543-9011
(609) 282-2000
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
The Bank of New York
90 Washington Street
12th Floor
New York, New York 10286
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
<PAGE>
- ------------------------------------------
PROSPECTUS
- ------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY THE
INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS, AND ANY MUNICIPAL
INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON FUND
AS HAVING BEEN AUTHORIZED BY THE PROGRAM.
THIS PROSPECTUS DOES NOT CONSTITUTE AN INVESTMENT
OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ACCUMULATION
ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE. PROGRAM
- ------------------------------------------
INDEX
- ------------------------------------------
PAGE ----------------------------------
---- PROSPECTUS DATED APRIL 26, 1996
----------------------------------
FEE TABLE............................. 2
FINANCIAL HIGHLIGHTS.................. 3
THE PROGRAM........................... 4
INVESTMENT OBJECTIVES AND POLICIES.... 6
MANAGEMENT OF THE PROGRAM............. 9
REDEMPTION OF SHARES AND EXCHANGE
PRIVILEGE........................... 11
TAXES AND DISTRIBUTIONS............... 13
PORTFOLIO TRANSACTIONS................ 15 BOX 9011
PRINCETON, NEW JERSEY 08543-9011
ADDITIONAL INFORMATION................ 15 (609) 282-2000
- --------------------------------------
<PAGE>
THE MUNICIPAL FUND
INVESTMENT ACCUMULATION PROGRAM
- --------------------------------------------------------------------------------
Statement of
Shares of Additional Information
Common Stock Dated April 26, 1996
- --------------------------------------------------------------------------------
The Municipal Fund Accumulation Program, Inc. (the "Program") is an open-end
management investment company whose primary objective is to obtain tax-exempt
income through investment in a diversified portfolio (the "Portfolio") of state,
municipal and public authority bonds. Shares of the Program are offered without
sales charge to the holders of Units of certain series of Unit Investment Trusts
described in the Prospectus in order to provide a means for the automatic
reinvestment of distributions of interest or dividend income and capital gains
and principal on such Units in Shares of the Program on the Terms and Conditions
of Participation set forth in the Prospectus. The address of the Program is Box
9011, Princeton, New Jersey 08543-9011, and its telephone number is (609)
282-2000.
-------------------
INVESTMENT ADVISER
FUND ASSET MANAGEMENT, L.P.
ADMINISTRATORS
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
SMITH BARNEY INC.
-------------------
This Statement of Additional Information of the Program is not a prospectus
and should be read in conjunction with the Prospectus of the Program (the
"Prospectus") dated April 26, 1996, which has been filed with the Securities and
Exchange Commission and can be obtained without charge by calling or by writing
the Program at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Program is to obtain tax-exempt
income through investment in a diversified portfolio of interest bearing long-
and intermediate-term state, municipal and public authority bonds, the interest
on which is, in the opinion of bond counsel to the issuing authorities, exempt
from federal income tax ("Municipal Bonds" or "Bonds"). Reference is made to
"Investment Objectives and Policies" in the Prospectus for a discussion of the
investment objectives and policies of the Program.
MUNICIPAL BONDS--The Tax Reform Act of 1986 (the "1986 Act") made
substantial changes to the rules regarding the tax treatment of state and local
government bonds. Among other changes, the 1986 Act narrowed the scope of state
and local government bonds which qualify for exemption, and introduced the
concept of "private activity bonds" to replace the prior law concept of
"industrial development bonds." In addition to investing in Bonds which are
subject to the new rules under the 1986 Act and subsequent legislation, the
Program holds and will continue to hold Bonds, including industrial development
bonds, which were issued prior to the 1986 Act and which continue to be
tax-exempt.
The types of Bonds which may be purchased for the Portfolio include debt
obligations issued to obtain funds for various public purposes, including, among
other purposes, the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
street and water and sewer works. Other such public purposes include the
refunding of outstanding obligations and obtaining funds for general operating
expenses and lending to other public institutions and facilities. In addition,
certain types of private activity bonds are issued by or on behalf of public
authorities to obtain funds to provide privately-operated housing facilities,
airport, public transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Such obligations are included
within the types of Bonds which may be acquired by the Program if the interest
paid thereon is exempt from federal income tax in the opinion of counsel for the
issuing governmental authority. Other types of private activity bonds, the
proceeds of which are used for the acquisition, construction, reconstruction or
improvement of privately-operated manufacturing facilities, may also qualify for
such tax exemption, although the current federal tax laws place substantial
limitations on the size of such issues.
The two principal classifications of Bonds which may be acquired for the
Portfolio are "general obligation" and "revenue" Bonds. General obligation Bonds
are secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue Bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Private activity bonds are in most cases revenue Bonds and do not generally
constitute the pledge of the credit of the issuer of such Bonds. There are, of
course, variations in the security of Bonds, both within a particular
classification and between classifications, depending on numerous factors. The
Portfolio may also include "moral obligation" Bonds. If an issuer of moral
obligation Bonds is unable to meet its obligations, the repayment of such Bonds
becomes a moral commitment but not a legal obligation of the state or
municipality in question.
As discussed in the Prospectus, investment in Municipal Bonds may entail
certain risks. Litigation challenging the validity under state constitutions of
present systems of financing public education has
2
<PAGE>
been initiated in a number of states. Decisions in some states have been reached
holding such school financing in violation of state constitutions. In addition,
legislation to effect changes in public school financing has been introduced in
a number of states. The Program is unable to predict the outcome of the pending
litigation and legislation in this area and what effect, if any, resulting
changes in the sources of funds, including proceeds from property taxes applied
to the support of public schools, may have on any school Bonds which may be in
the Portfolio.
Certain of the Bonds in the Portfolio may be bonds of issuers (including
California issuers) who rely in whole or in part on ad valorem real property
taxes as a source of revenue. An amendment to the constitution of the State of
California approved in 1978, commonly referred to as "Proposition 13," provides
for strict limitations on such ad valorem real property taxes and has had a
significant impact on the taxing powers of local governments and on the
financial conditions of school districts and local governments in California. As
of the date hereof, none of the Bonds in the Portfolio and none of the ratings
thereof have been directly affected by Proposition 13, but there is no assurance
that there will be no such adverse effects in the future. Similar proposals, in
the form of state legislative proposals or voter initiatives, to limit ad
valorem real property taxes have been introduced in various other states. It is
not possible at this time to predict the final impact of Proposition 13, or of
similar future legislative or constitutional measures, on school districts and
local governments or on their abilities to make future payments on their
outstanding debt obligations.
Forward Commitments. Municipal Bonds may be purchased or sold on a delayed
delivery basis or may be purchased on a forward commitment basis at fixed
purchase terms with periods of up to 45 days between the commitment and
settlement dates. The purchase will be recorded on the date the Program enters
into the commitment and the value of the security will thereafter be reflected
in the calculation of the Program's net asset value. The value of the security
on the delivery date may be more or less than its purchase price. A separate
account of the Program will be established with The Bank of New York (110
Washington Street, New York, New York 10286), the custodian (the "Custodian")
and agent (the "Agent") for the Program, consisting of cash or liquid high-grade
Municipal Bonds having a market value at all times until the delivery date at
least equal to the amount of its commitment in connection with such delayed
delivery and purchase transactions. Although the Program will generally enter
into forward commitments with the intention of acquiring securities for its
Portfolio, the Program may dispose of a commitment prior to settlement if the
investment adviser to the Program, Fund Asset Management, L.P. (the "Adviser")
deems it appropriate to do so. There can, of course, be no assurance that the
judgments upon which these techniques are based will be accurate or that such
techniques when applied will be effective. The Program will enter into forward
commitment or delayed delivery arrangements only with respect to securities in
which it may otherwise invest as described under "Investment Objectives and
Policies" in the Prospectus.
PORTFOLIO MANAGEMENT AND TURNOVER RATE--The Program will attempt to attain
its investment objectives by careful initial selection of Bonds with a view to
holding them for investment. However, the Program reserves the right to sell
Portfolio securities whenever it deems such action advisable to maintain
competitive yields or to protect capital in the event the business of an issuer
has deteriorated or, in the opinion of the Adviser, is likely to deteriorate or
when the period of time to maturity on Portfolio securities has shortened to
such an extent as to make it undesirable, in the opinion of the Adviser, to
retain such securities in the Portfolio or when it believes that it is desirable
for
3
<PAGE>
defensive purposes and in anticipation of a rise in interest rates to sell
Portfolio securities and invest the proceeds temporarily in short-term
obligations which have credit characteristics, in the opinion of the Adviser,
similar to those provided for other Portfolio securities and the interest income
on which is, in the opinion of counsel to the issuing authorities, exempt from
federal income tax. Portfolio turnover rate is calculated by dividing the lesser
of purchases or sales (not including purchases or sales of short-term
obligations and subsequent reinvestments in Bonds as described above) of
Portfolio securities for the year by the monthly average value of Portfolio
securities. For the years ended December 31, 1995 and 1994, the Portfolio
turnover rates were 56% and 61%, respectively.
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies of the
Program and may be changed only by the vote of the lesser of (1) the holders of
67% of the Program's outstanding voting securities present at a meeting if the
holders of more than 50% of such outstanding voting securities are present in
person or by proxy or (2) the holders of more than 50% of the Program's
outstanding voting securities.
The Program will not:
(1) invest in securities or other investments other than Bonds and
temporary investments, the interest on which is, in the opinion of counsel
to the issuing authorities, exempt from federal income tax (see "Investment
Objectives and Policies" in the Prospectus);
(2) purchase securities on margin (but the Program may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities), make short sales of securities, maintain a short
position or write or purchase put or call options;
(3) borrow money, except from banks as a temporary measure for
emergency purposes, where such borrowings would not exceed 5% of its total
assets (taken at current value);
(4) pledge assets except to secure indebtedness permitted by (3) above,
with pledged assets to be no more than 10% of its total net assets (taken at
current value);
(5) purchase any security if as a result (a) more than 5% of the
Program's total assets (taken at current value) would be invested in
securities of the issuer thereof (other than securities issued or guaranteed
by the United States government) or (b) the Program would hold more than 10%
of any class of securities of the issuer thereof other than securities
issued or guaranteed by the United States government (taking all debt issued
as a single class) or more than 10% of the voting securities of the issuer
thereof;
(6) invest for the purpose of exercising control or management of any
company;
(7) invest in securities of other investment companies, except as part
of a merger, consolidation, purchase of assets or similar transaction
approved by the Program's Shareholders;
(8) make investments in oil, gas or other mineral exploration programs,
commodities, commodity contracts or real estate, although the Program may
invest in securities secured by real
4
<PAGE>
estate or interests therein or issued by companies, including real estate
investment trusts, which deal in real estate or interests therein;
(9) act as an underwriter except as it may be deemed such in a sale of
restricted securities;
(10) participate on a joint (or joint and several) basis in any trading
account in securities (the "bunching" of orders for the sale or purchase of
Portfolio securities with other funds or accounts advised or sponsored by
the Adviser or any of its affiliates to reduce brokerage commissions or
otherwise to achieve the best overall execution not being considered
participation in a trading account in securities);
(11) purchase or retain securities of an issuer if, to the knowledge of
the Program, an officer or director of the Program or the Adviser owns
beneficially more than 1/2 of 1% of such shares or securities of such issuer
and all such directors and officers owning more than 1/2 of 1% of such
shares or securities together own more than 5% of such shares or securities;
or
(12) make loans, except through the purchase of debt obligations.
Except in the case of the restriction set forth in clause (11), the
foregoing percentages will apply at the time of the purchase of a security and
shall not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of a purchase of such security.
For purposes of the investment restrictions set forth in clause (8), the
term "exploration programs" includes oil, gas or other mineral leases, as well
as exploration programs.
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT--Pursuant to an Investment Advisory Agreement
(the "Agreement") the Adviser has agreed, subject at all times to the Board, to
(1) manage the Portfolio of the Program in accordance with its investment
objectives and policies and furnish to the Program investment advice and (2) (a)
assist in supervising all aspects of the Program's operations including
coordinating all matters relating to the functions of the Agent, Custodian and
other parties performing operational functions for the Program; (b) provide the
Program, at the Adviser's expense, with the services of such persons competent
to perform such administrative and clerical functions as are necessary in order
to provide effective administration of the Program, including duties in
connection with Shareholder relations, reports, redemption requests and account
adjustments and the maintenance of certain non-accounting Program books and
records; (c) provide the Program, at the Adviser's expense, with adequate office
space and related services; (d) supervise and administer the operation of the
Exchange Privilege referred to in "Redemption of Shares and Exchange Privilege"
in the Program's Prospectus; and (e) to the extent required by then current
federal securities laws, regulations thereunder or interpretations thereof, pay
for the printing of all Program prospectuses used in connection with the
distribution and sale of the Shares (a regulation permits investment companies
to pay such expenses only when an agreement to that effect has been approved by
shareholders and subject to various other conditions). In return the Program has
agreed to pay a fee each month to the Adviser at the annual rate of 0.5% of the
value of the Program's average daily net assets from the beginning of the year
to the end of such month.
5
<PAGE>
The Program pays all the other costs and expenses incurred in connection
with its organization and operations, including: fees of the Program Agent,
Transfer Agent, Custodian and dividend disbursing agent; costs of printing and
mailing stock certificates, shareholder reports, proxy materials and (except to
the extent borne by the Adviser or the Administrators) prospectuses and
statements of additional information; legal and auditing fees; costs and
expenses of the sale, issue and redemption of its Shares (including fees and
expenses of registering the Shares under federal and state securities laws);
fees and expenses of unaffiliated directors; costs of accounting and pricing
services (including the daily calculation of net asset value); interest,
brokerage costs, insurance and taxes. Accounting services are provided for the
Program by the Adviser, and the Program reimburses the Adviser for its costs in
connection with such services. For the year ended December 31, 1995, such
reimbursement amounted to $71,292. Under current requirements of certain states
in which the Shares were registered for sale in this offering, the Adviser must
reimburse the Program for advisory fees received by it from the Program to the
extent that the Program's expenses (including the advisory fee but excluding
interest, taxes, brokerage fees and extraordinary expenses) exceed in any fiscal
year 2.5% of the Program's first $30,000,000 of average daily net assets, 2.0%
of average daily net assets in excess of $30,000,000 but not exceeding
$100,000,000 and 1.5% of average daily net assets above $100,000,000 for such
fiscal year. No fee payment will be made to the Adviser during any fiscal year
which would cause such expenses to exceed the foregoing expense limitations
applicable at the time of such payment, and any required reimbursements will be
made promptly at the end of such fiscal year. For the years ended December 31,
1993, 1994 and 1995, the advisory fees paid by the Program to the Adviser
aggregated $2,960,370, $2,893,985 and $2,794,839, respectively, none of which
was reimbursed by the Adviser.
The Agreement provides that the use of the name "The Municipal Fund
Investment Accumulation Program" by the Program is non-exclusive and that the
Adviser may allow other persons, including other investment companies, to use
the name. The name may also be withdrawn by the Adviser, in which event the
Adviser has agreed to present the question of continuing the Agreement to a vote
of the Shareholders.
The Agreement will continue from year to year if approved at least annually
either (i) by a vote of a majority of the Program's Shares or (ii) by the Board
and, in each case, by the vote of a majority of those directors who are not
parties to the Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval. It was most
recently approved by Shareholders on June 5, 1987 and by the Board (including
all of the non-interested directors) on March 12, 1996. The Agreement provides
that the Adviser shall have no liability to the Program or any Shareholder for
any error of judgment, mistake of law or any loss arising out of any investment,
or for any other act or omission in the performance by the Adviser of its duties
under the Agreement, except for liability resulting from willful misfeasance,
bad faith or gross negligence on the Adviser's part or from reckless disregard
by the Adviser of its obligations and duties under the Agreement. The Agreement
automatically terminates upon its assignment, is terminable, without penalty, by
the Board or by vote of the holders of a majority of the Shares on 60 days'
notice to the Adviser and by the Adviser on 90 days' notice to the Program. The
Adviser's right to terminate could operate to the disadvantage of or work a
hardship on the Program.
THE ADVISER--The Adviser to the Program is FAM (the general partner of which
is Princeton Services Inc., a wholly-owned subsidiary of Merrill Lynch & Co.,
Inc.), which is itself a wholly-owned
6
<PAGE>
affiliate of Merrill Lynch & Co., Inc. and has its principal place of business
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Merrill Lynch & Co.,
Inc. has its principal place of business at World Financial Center, North Tower,
250 Vesey Street, New York, New York, 10281.
The Agreement is non-exclusive, and the Adviser, as well as certain of its
affiliates, is in the business of furnishing investment advice to individuals,
institutional clients and other investment companies, including other investment
accumulation programs. The fees charged to these clients vary in accordance with
the type of client and services rendered. Merrill Lynch, an affiliate of the
Adviser, is engaged in the underwriting, securities and commodities brokerage
business and is a member organization of the New York Stock Exchange, Inc.,
other major securities exchanges and commodity exchanges, and the National
Association of Securities Dealers, Inc. Merrill Lynch Asset Management, L.P.
("MLAM"), an affiliate of the Adviser, is an indirect wholly-owned affiliate of
Merrill Lynch & Co., Inc. and is engaged in the investment advisory business.
Securities held by the Program may also be held by other funds or accounts
for which the Adviser acts as adviser or by its investment advisory clients. If
purchases or sales of securities for the Program or other funds or accounts for
which it acts or for their clients arise for consideration at or about the same
time, the Adviser will attempt, subject to applicable laws and regulations, to
allocate equitably portfolio transactions among the Program and the portfolios
of its other investment funds or accounts whenever decisions are made to
purchase or sell securities for the Program and one or more of such other funds
or accounts simultaneously. In making such allocations, the main factors to be
considered will be the respective investment objectives of the Program and such
other funds and accounts, the relative size of the portfolio holdings of the
same or comparable securities, the availability of cash for investment by the
Program and such other funds and accounts, the size of investments held by the
Program and such other funds and accounts, and opinions of the persons
responsible for recommending investments to the Program and such other funds and
accounts. While this procedure could have a detrimental effect on the price and
amount of the securities available to the Program from time to time, it is the
opinion of the Board that the benefits available from the Adviser's organization
will outweigh any disadvantage that may arise from exposure to simultaneous
transactions. To the extent that transactions on behalf of more than one client
of the Adviser during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price.
ADMINISTRATION AGREEMENT--The Adviser has entered into an agreement (the
"Administration Agreement") with the Administrators for the performance by them,
at their expense, on behalf of the Adviser of the administrative functions
described in clause (2) of the first paragraph under "Investment Advisory
Agreement" which the Adviser is obligated to perform and has agreed to pay to
the Administrators an aggregate monthly fee at the annual rate of 0.2% of the
value of the Program's average daily net assets from the beginning of the year
to the end of such month. The fee so payable by the Adviser will be allocated
among the Administrators in the following respective percentages: Merrill Lynch,
48%; Prudential, 21%; Dean Witter, 21%; and Smith Barney, 10%. In order to
comply with the expense limitation requirements described above under the
caption "Investment Advisory Agreement," the Administrators have undertaken to
reimburse the Adviser in proportion to such monthly fee for the purpose of the
Adviser's reimbursement of the Program in the manner described under such
caption.
7
<PAGE>
Merrill Lynch has been appointed by the other Administrators as agent for
purposes of taking any action under the Administration Agreement with respect to
the Program by power of attorney executed by such Administrators and filed with
the Program and the Agent. Provision is also made under the Administration
Agreement that if the Administrators are unable to agree in respect to action to
be taken jointly by them thereunder and cannot agree as to which Administrators
shall continue to act as Administrators, then Merrill Lynch shall continue to
act as sole Administrator. Similarly, if one or more of the Administrators fail
to perform their duties under the Administration Agreement or become incapable
of acting or become bankrupt or if their affairs are taken over by public
authorities, then each such Administrator shall be automatically discharged
under the Administration Agreement, and the remaining Administrators shall act
as sole Administrators. In addition, the Administration Agreement is terminable,
without penalty, by the Adviser on 60 days' notice to the Administrators and by
the Administrators, acting as a group, on 90 days' notice to the Adviser. The
Administrators' right to terminate could operate to the disadvantage of or work
a hardship on the Program.
The Administration Agreement is non-exclusive, and the Administrators, as
well as their affiliates, may furnish similar administrative services to other
clients, including other investment accumulation programs. The fees charged to
these clients may vary in accordance with the type of client and services
rendered. Each of the Administrators has acted as sponsor of a number of series
of the Corporate Income Fund, the Municipal Income Fund, the Municipal
Investment Trust Fund, Liberty Street Trust (Corporate Monthly Payment Series or
Municipal Monthly Payment Series) or the International Bond Fund and other
series of these unit investment trust investment companies and proposes to act
in the future as a sponsor of new series thereof. Each of the Administrators has
also acted as principal underwriter and managing underwriter of other investment
companies. Each Administrator, in addition to participating as a member of
various selling groups or as an agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of securities
of such companies and sells securities to such companies in its capacity as
broker or dealer in securities.
DIRECTORS AND OFFICERS
Responsibility for the Program's management rests with the Board, which
meets at least quarterly to oversee the implementation of the Program's
investment policies and which must approve the renewal of the Agreement. The
Directors and Officers of the Program, their ages, and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
NAME CAPACITY ADDRESS
---- -------- -------
Arthur Zeikel (63) President and 800 Scudders Mill Road
Director(1)(2) Plainsboro, New Jersey
08536
Occupation: President of the Adviser (which term as used herein includes its
corporate predecessors) since 1977; President of Merrill Lynch Asset
Management, L.P. ("MLAM") (which term as used herein includes its corporate
predecessors) since 1977; President and Director of Princeton Services,
Inc. ("Princeton Services") since 1993; Executive Vice President of Merrill
Lynch & Co., Inc. ("ML & Co.") since 1990; and Director of Merrill Lynch
Funds Distributor, Inc. (the "Distributor").
8
<PAGE>
NAME CAPACITY ADDRESS
---- -------- -------
Ronald W. Forbes (55) Director 1400 Washington Avenue
Albany, New York 12222
Occupation: Associate Professor of Finance, School of Business, State University
of New York at Albany since 1989 and Associate Professor prior thereto; Member,
Task Force on Municipal Securities Markets, Twentieth Century Fund; Consultant,
Public Finance Banking, Lehman Brothers, Inc..
Cynthia A. Montgomery (43) Director Harvard Business
School
Soldiers Field Road
Boston, Massachusetts
02163
Occupation: Professor, Harvard Business School, since 1989; Associate Professor,
J.L. Kellog Graduate School of Management, Northwestern University from 1985 to
1989; Assistant Professor, Graduate School of Business Administration, The
University of Michigan, from 1979 to 1985; Director, UNUM Corporation and Newell
Co.
Charles C. Reilly (64) Director 9 Hampton Harbor Road
Hampton Bays, New York
11946
Occupation: Adjunct Professor, Columbia University Graduate School of Business
since 1990; Adjunct Professor, Wharton School, University of Pennsylvania during
1990; President and Chief Investment Officer of Verus Capital, Inc. from 1979 to
1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to
1990; Director, Harvard Business School Alumni Association; Director, Small
Cities Cablevision.
Kevin A. Ryan (63) Director 127 Commonwealth Avenue
Chestnut Hill,
Massachusetts 02167
Occupation: Founder, current Director and Professor of The Boston University
Center for Advancement of Ethics and Character; Professor of Education at Boston
University from 1982 to 1994; formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.
Richard R. West (58) Director 287 Genoa Springs Drive
Genoa, Nevada
89411
Occupation: Professor of Finance and Dean from 1984 to 1993 at New York
University Leonard N. Stern School of Business Administration; Professor of
Finance from 1976 to 1984 and Dean from 1976 to 1983, the Amos Tuck School of
Business Administration; Director of Vornado Realty Trust (real estate holding
company), Bowne & Co., Inc. (printer), Alexander's, Inc. (department stores) and
Smith-Corona Corporation (manufacturer of typewriters and word processors).
9
<PAGE>
NAME CAPACITY ADDRESS
---- -------- -------
Terry K. Glenn (55) Executive Vice Presi- 800 Scudders Mill Road
dent(1)(2) Plainsboro, New Jersey
08536
Occupation: Executive Vice President of the Adviser and MLAM since 1983;
Executive Vice President and Director of Princeton Services since 1993;
President of the Distributor since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988.
Vinceton R. Giordano (51) Senior Vice President 800 Scudders Mill Road
Plainsboro, New Jersey
08536
Occupation: Senior Vice President of the Adviser and MLAM since 1984 and Vice
President from 1980 to 1984; Portfolio Manager of MLAM since 1977.
Donald C. Burke (35) Vice President(1)(2) 800 Scudder Mill Road
Plainsboro, New Jersey
08536
Occupation: Vice President of MLAM since 1990; employee of Deloitte & Touche LLP
from 1982 to 1990.
Kenneth A. Jacob (45) Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey
08536
Occupation: Vice President of MLAM since 1984 and Portfolio Manager since 1982;
employed by MLAM since 1978.
William M. Petty (34) Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey
08536
Occupation: Vice President of MLAM since 1993 and Portfolio Manager since 1992.
Gerald M. Richard (46) Treasurer(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey
08536
Occupation: Senior Vice President and Treasurer of MLAM and the Adviser since
1984; Vice President of Merrill Lynch Funds Distributor, Inc. since 1981 and
Treasurer since 1984; Senior Vice President and Treasurer of Princeton Services
since 1993.
Susan B. Baker (38) Secretary(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey
08536
Occupation: Vice President of MLAM since 1993; attorney associated with the
Adviser and MLAM since 1987; attorney in private practice from 1985 to 1987.
- ------------
(1) Interested person, as defined in the Investment Company Act of 1940, of the
Program.
(2) The officers of the Program are officers of certain other investment
companies for which the Adviser or MLAM acts as investment adviser.
10
<PAGE>
Set forth below is a chart showing the aggregate compensation paid by the
Program to each of its Directors (for the fiscal year ended December 31, 1995
and, for the calendar year ended December 31, 1995, the total compensation paid
to each Director of the Program by the Program and by other investment companies
advised by the Adviser or MLAM for their services as Directors or Trustees of
such investment companies.
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION FROM
RETIREMENT BENEFITS PROGRAM AND FUND
AGGREGATE COMPENSATION ACCRUED AS PART OF COMPLEX PAID TO
NAME OF DIRECTOR FROM THE PROGRAM PROGRAM EXPENSES DIRECTORS
- ---------------- ---------------------- ------------------- -----------------------
<S> <C> <C> <C>
Ronald W. Forbes(1).............. $2,900 None $ 147,100
Cynthia A. Montgomery(1)......... $2,900 None $ 147,100
Charles C. Reilly(1)............. $2,900 None $ 269,600
Kevin A. Ryan(1)................. $2,900 None $ 147,100
Richard R. West(1)............... $3,900 None $ 294,600
</TABLE>
- ------------
(1) In addition to the Program, the Directors serve on the boards of other
MLAM/FAM Advised Funds as follows: Ronald W. Forbes (37 funds and
portfolios), Cynthia A. Montgomery (37 funds and portfolios), Charles C.
Reilly (55 funds and portfolios), Kevin A. Ryan (37 funds and portfolios)
and Richard R. West (55 funds and portfolios).
The Program has an Audit Committee consisting of all the directors of the
Program who are not interested persons of the Program.
REMUNERATION OF OFFICERS AND DIRECTORS--On March 31, 1996, shares of the
Program owned by all officers and directors of the Program as a group aggregated
less than 1/4 of 1% of the total of such shares then outstanding. The Program
pays each unaffiliated director an annual fee of $800 plus $400 per quarterly
meeting attended and an annual fee of $500 for serving on the Program's Audit
Committee, except for the Chairman of the Audit Committee who receives an annual
fee of $1,000. The Program will also pay the out-of-pocket expenses of such
directors relating to attendance at Meetings. For the year ended December 31,
1995, such fees and expenses to the five unaffiliated directors of the Program
aggregated $15,943.
NET ASSET VALUE
The net asset value per Share of the Program is determined by dividing the
net assets of the Program by the number of its outstanding Shares. The net
assets of the Program are its gross assets less its liabilities as determined in
accordance with generally accepted accounting principles. It is the ultimate
responsibility of the Board to establish standards for the valuation of the
Portfolio securities for purposes of determining net asset value of the Program.
The Program has made arrangements with Kenny S&P Evaluation Services, a division
of Kenny Information Systems, Inc., 65 Broadway, New York, New York 10006
("Kenny"), to furnish to the Program and the Agent, on each day that the New
York Stock Exchange is open for trading immediately after the declaration of
dividends, estimated values (as of 15 minutes after the close of business on the
New York Stock Exchange, generally 4:00 P.M., New York City time) of Portfolio
securities for purposes of computation of net asset value of the Shares. The New
York Stock Exchange is not open for trading on the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. The Board has examined the methods to
be used by Kenny in estimating the value of Portfolio securities and believes
that such methods will reasonably and fairly approximate the price at which
Portfolio securities may be sold and will result in a good faith determination
of the fair value of such securities; however, there is no assurance that the
Portfolio securities can be sold at the prices at which they are valued.
11
<PAGE>
Due to the nature of the secondary market for Municipal Bonds it is unlikely
that current last sale transactions or unsolicited bids will be regularly
available for most of the securities in the Portfolio. The method used by Kenny
to value such Portfolio securities is to obtain "quotes" on comparable
securities of comparable quality and to value such Portfolio securities
similarly. These values are not bids or actual last sale prices but are
estimates of the price at which Kenny believes the Program could sell such
Portfolio securities.
Portfolio securities with respect to which a last sale transaction is
available will be valued by Kenny at such last sales transaction unless in its
judgment such last sale transaction does not fairly and accurately represent the
price at which such Portfolio securities may be sold. If there are current
unsolicited bids outstanding for Portfolio securities with respect to which
there are no such last sale transactions, Kenny will value such Portfolio
securities within the range of bid and asked prices it considers best to
represent the price at which such Portfolio securities can be sold in light of
the then existing circumstances, unless in its judgment such range does not
fairly and accurately represent the range in which such Portfolio securities may
be sold.
REDEMPTION OF SHARES
The right of redemption may be suspended during any period when the New York
Stock Exchange is closed, other than customary weekend and holiday closings;
when trading on such Exchange is restricted or an emergency exists, in each case
as determined by rules and regulations of the Securities and Exchange
Commission; or during any period when the Securities and Exchange Commission has
by order permitted such suspension.
The Program has elected to be obligated to pay in cash redemptions during
any 90-day period for any one Shareholder up to the lesser of $250,000 or 1% of
the Program's net asset value. Payments in excess of such amount will normally
be made in cash. If, however, the Board determines that liquidation of the
Program's holdings is impracticable or that such payment in cash would be
adverse to the interests of the remaining Shareholders, such payment may be made
in whole or in part in Portfolio securities. The value of any Portfolio
securities distributed in payment for tendered Shares will be deemed to be their
value used in determining the net asset value of the Shares at the time they
were tendered for redemption. If securities rather than cash are distributed,
the Shareholder will incur brokerage charges or their equivalent in dealer
markdowns in liquidating these securities.
Due to the high cost of maintaining Shareholder accounts of less than $500,
the Program reserves the right to redeem Shares in any account for their then
current net asset value (which will be paid promptly to the Shareholder), if at
any time the total investment of such Shareholder does not have a net asset
value of at least $500 due to Shareholder redemptions and the Shareholder owns
no Units or has elected that no distributions on any Units owned by such
Shareholder be invested in Shares. Before any such redemption is effected, the
Shareholder will be given 30 days' notice, during which period he will be
entitled to elect to have distributions on Units owned by such Shareholder
invested in Shares or to purchase Shares to bring his account up to a net asset
value of $500 and thereby avoid such redemption.
12
<PAGE>
TAXES AND DISTRIBUTIONS
Reference is made to "Taxes and Distributions" on page 13 of the Prospectus.
Distributions to Shareholders of net investment income and net short-term
capital gains, if any, including distributions which are reinvested in
additional Shares in the Program, will generally be taxable as ordinary income.
Such distributions will constitute dividends for federal income tax purposes,
but, since no portion will arise from dividends, it is anticipated that such
distributions will not qualify for the 70% dividends-received deduction for
corporations.
Distributions of long-term capital gains (designated as such by the Program)
will be taxable to Shareholders as long-term capital gains at a maximum rate of
28% for non-corporate Shareholders and a maximum rate of 35% for corporate
Shareholders, regardless of the length of time a Shareholder has held his
Shares. In the event of the redemption of Shares, gain, if any, reflecting
accrued but undistributed net interest income thereon may be subject to taxation
as (depending on the length of time the Shareholder has held the redeemed
Shares) long- or short-term capital gains.
No later than 60 days after the end of each calendar year, the Program will
send to Shareholders a written notice required by the Internal Revenue Code of
1986, as amended (the "Code") designating the amount of its dividends which
constitute "exempt-interest dividends," the amount which is taxable as ordinary
income and the amount which is taxable as long-term capital gain.
Every person required to file a tax return must disclose on such return the
amount of exempt-interest dividends received from the Program during the taxable
year. The disclosure of such amount is for informational purposes only. In
addition, with respect to a Shareholder who receives exempt-interest dividends
on shares held for less than six months, any loss on the sale or exchange of
such shares will, to the extent of the amount of such exempt-interest dividends,
be disallowed.
Interest income with respect to certain tax-exempt bonds, known as "private
activity bonds," is a preference item for purposes of the corporate and
individual alternative minimum tax. To the extent that the Program invests in
private activity bonds, Shareholders will have preference items attributable to
their proportionate shares of the interest income received by the Program from
such bonds. In addition, for purposes of calculating the corporate alternative
minimum tax, a corporation is required to increase its alternative minimum
taxable income by 75% of the amount by which adjusted current earnings exceed
alternative minimum taxable income (determined without regard to this provision
or net operating losses). Under this provision, interest income from tax-exempt
bonds held by the Program would increase the alternative minimum taxable income
of corporate Shareholders.
Any dividend declared by the Program in October, November or December of any
year and made payable to Shareholders of record in such month will be deemed to
be received on December 31 of such year if actually paid during the following
January.
A deductible environmental tax is imposed on a corporation's alternative
minimum taxable income (computed without regard to either the alternative tax
net operating loss deduction or the environmental tax deduction) at a rate of
$12 per $10,000 (0.12%) of alternative minimum taxable income in excess of
$2,000,000. The tax will be imposed even if the corporation is not required to
pay an alternative minimum tax because the corporation's regular income tax
liability exceeds its minimum tax liability.
13
<PAGE>
The Program is not subject to the tax. The tax is imposed on the Program's
corporate Shareholders, however, and exempt-interest dividends paid by the
Program that create alternative minimum tax preferences for corporate
Shareholders will be subject to the tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Regulations
are subject to change by legislative or administrative action. See "Taxes and
Distributions" in the Prospectus for information as to state and local taxes.
PORTFOLIO TRANSACTIONS
While there is no undertaking or agreement to do so, the Adviser may
allocate securities transactions among various dealers on the basis of
supplementary statistical and research information and price quotation and other
services furnished to the Program or the Adviser. Such statistical and research
information may be used by the Adviser in providing investment advice for all of
the accounts which it manages, and it is not possible to relate the benefits of
such information to any particular account. The Adviser is able to fulfill its
obligations to furnish a continuous investment program to the Program without
such information from dealers. However, the Adviser considers access to such
information to be an important element of financial management. While such
information is considered useful, its value is not determinable and the Adviser
does not feel that such information reduces its expenses. In implementing the
above policies, the Program will not offset brokerage commissions paid to the
affiliates of the Adviser, if any, against advisory fees payable to the Adviser,
nor will it attempt to offset brokerage commissions payable to other brokers
which effect Portfolio transactions for the Program. The Board has considered
the propriety of seeking such offsets and has determined that it is in the best
interest of the Program not to seek such offsets at this time and that it will
reconsider this determination in the future at least annually. The Program may
effect Portfolio transactions conducted on an agency basis through affiliates of
the Adviser provided that, in the judgment of the Adviser, more favorable prices
or executions are not obtainable elsewhere. During the fiscal years ended
December 31, 1993, 1994 and 1995, the Program did not pay any brokerage
commissions.
Under the Investment Company Act of 1940, persons affiliated with the
Program are prohibited from dealing with the Program as a principal in the
purchase and sale of securities for the Program unless such trading is permitted
by an exemptive order issued by the Securities and Exchange Commission. The
Program has obtained an exemptive order permitting it to engage in certain
principal transactions involving high quality short-term tax-exempt securities.
During the years ended December 31, 1993, 1994 and 1995, the Program did not
purchase Municipal Bonds in principal transactions pursuant to the exemptive
order. Affiliated persons of the Program may serve as broker in over-the-counter
transactions conducted on an agency basis. Also, under the Investment Company
Act of 1940, the Program may not purchase Municipal Bonds from any underwriting
syndicate of which Merrill Lynch is a member except pursuant to an exemptive
order or rules adopted by the Securities and Exchange Commission.
14
<PAGE>
PERFORMANCE DATA
The Program may from time to time include its average annual total return
and yield in advertisements or information furnished to present or prospective
shareholders. Set forth below is the Program's average annual total return
information for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED 5-YEAR PERIOD ENDED 10-YEAR PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1995
----------------- ------------------- --------------------
<S> <C> <C> <C>
Average Annual
Total Return (a)............. 15.88% 7.97% 7.98%
</TABLE>
- ---------
(a) Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based upon
net investment income and any capital gains or losses on portfolio investments
over such periods) that would equate the initial amount invested to the
redeemable value of such investment at the end of each period. Average annual
total return is computed assuming all dividends and distributions are reinvested
and taking into account all applicable recurring and nonrecurring expenses.
The Program may supplement this Statement of Additional Information with
yield quotations to comply with certain regulations issued by the Securities and
Exchange Commission with respect to the advertisement of performance. Yield
quotations will be computed based on a 30-day period by dividing the net income
earned during the period based on the yield to maturity of each security held by
the Program by the average daily number of shares outstanding during the period
that were entitled to receive dividends times the maximum offering price per
share on the last day of the period.
GENERAL INFORMATION
DESCRIPTION OF SHARES--The Program is authorized to issue a total of
100,000,000 Shares of $.01 par value each. There is no limitation on the sales
charge, if any, at which the Shares may be offered or the types of investors to
whom offerings may be made. Shares are fully paid and non-assessable when
issued, have no pre-emptive, conversion or exchange rights and are transferable
without restriction. Each Share entitles the holder to one vote at all meetings
of shareholders. Cumulative voting is not permitted. Thus the holders of more
than 50% of the Shares voting for the election of the Directors can elect all of
the Directors of the Program if they choose to do so and in such event the
holders of the remaining Shares would not be able to elect any Directors.
Holders of Shares are entitled to participate equally in dividends and
distributions, and, in addition, in the event of the distribution or liquidation
of the Program the holders of Shares will be entitled to participate equally in
any assets of the Program. Unless requested to do so by a Shareholder, the
Program will not ordinarily issue certificates representing Shares but will
instead establish for each Shareholder through the Agent an account under which
such Shares are held for safekeeping.
AUDITORS AND FINANCIAL STATEMENTS--Deloitte & Touche LLP, independent
auditors for the Program, have audited the statement of assets and liabilities,
including the schedule of investments, of the Program as of December 31, 1995
and the related statements of operations for the year then ended and of changes
in net assets for the years ended December 31, 1995 and 1994 and the financial
highlights for each of the years in the five-year period ended December 31, 1995
as stated in their report appearing herein, and such financial statements have
been included herein in reliance upon such report
15
<PAGE>
given upon the authority of that firm as experts in accounting and auditing. The
Program will issue to Shareholders semi-annual and annual reports containing
financial statements including information relating to net asset value per share
and income and expense.
LEGAL COUNSEL--Rogers & Wells, New York, New York, is counsel for the
Program.
DESCRIPTION OF BOND RATINGS*
STANDARD & POOR'S--AAA--Bonds rated AAA have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C--the rating C is reserved for income bonds on which no interest is being
paid.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
NR--indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of bond as a matter of policy.
Plus (+) or minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings. The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MOODY'S--Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are
- ---------
* As described by the rating companies themselves.
16
<PAGE>
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category, the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
CON.( . . . )--Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
The Municipal Fund Accumulation Program, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Municipal Fund Accumulation Program, Inc. as
of December 31, 1995, the related statements of operations for the year then
ended and changes in net assets for each of the years in the two-year period
then ended, and financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Program's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Municipal Fund
Accumulation Program, Inc. as of December 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 2, 1996
18
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1995 (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama-- AA A1 $ 2,000 Birmingham, Alabama, Crossover Refunding Bonds, 8% due
1.4% 10/01/2015 $ 2,166
AAA Aaa 5,000 Huntsville, Alabama, Health Care Authority Revenue Bonds
(Health Care Facilities), Series B, 6.625% due 6/01/2023 (c) 5,548
Arizona-- A A1 6,500 Phoenix, Arizona, Civic Improvement Corporation, Wastewater
1.0% System, Lease Revenue Refunding Bonds, 4.75% due 7/01/2023 5,937
Arkansas-- AAA NR* 2,625 Arkansas State Development Finance Authority, S/F Mortgage
0.5% Revenue Bonds, Series C, 6.60% due 7/01/2017 (g) 2,793
California-- California HFA, Home Mortgage Revenue Bonds, AMT:
9.5% AA- Aa 3,000 Series A, 7.70% due 8/01/2030 3,187
AA- Aa 4,985 Series F-1, 7% due 8/01/2026 5,301
A A1 2,500 California State, GO, UT, 6.25% due 9/01/2012 2,786
California State Public Works Board, Lease Revenue
Bonds, Series A:
A- A 8,000 (Department of Corrections-Monterey County-Soledad II),
6.875% due 11/01/2014 9,032
A- A 5,000 (Secretary of State), 6.75% due 12/01/2012 5,471
AAA Aaa 4,000 (Various University of California Projects), 6.40%
due 12/01/2016 (e) 4,328
A A1 2,500 California State Various Purpose Bonds, 6.25% due 10/01/2019 2,755
AAA Aaa 2,000 Los Angeles County, California, COP (Correctional Facilities
Project), 6.50% due 9/01/2013 (c) 2,142
AA- A1 5,260 Los Angeles County, California, Transportation Commission Sales
Tax, Revenue Refunding Bonds, Series B, 6.50% due 7/01/2013 5,633
AAA Aaa 1,250 M-S-R Public Power Agency, California, Revenue Refunding Bonds
(San Juan Project), 6.75% due 7/01/2020 (c) 1,518
AAA Aaa 4,500 Pioneers Memorial Hospital District, California, Refunding,
GO, UT, 6.50% due 10/01/2024 (e) 4,946
AA Aa 2,000 San Francisco, California, City and County Public Utilities
Commission, Water Revenue Refunding Bonds, 8% due 11/01/2011 2,182
AAA Aaa 5,025 Stockton, California, COP, Revenue Bonds (Wastewater Treatment
Plant Expansion), Series A, 6.80% due 9/01/2024 (d) 5,703
</TABLE>
Portfolio Abbreviations
To simplify the listings of The Municipal Fund Accumulation Program,
Inc.'s portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below.
AMT Alternative Minimum Tax (subject to)
COP Certificate of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
19
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1995 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Colorado-- AA NR* $ 2,980 Colorado, HFA, S/F Mortgage Program Revenue Bonds, AMT,
2.5% Series D-3, 7.20% due 8/01/2023 $ 3,125
AA Aa 2,940 Colorado Springs, Colorado, Utilities Revenue Refunding Bonds,
Series A, 6.50% due 11/15/2015 3,213
AAA Aaa 5,000 Douglas County, Colorado, School District No. 1 (Douglas
and Elbert Counties Improvement Project), Series A, 6.50% due
12/15/2016 (c) 5,609
AAA Aaa 2,500 Garfield, Pitkin and Eagle Counties, Colorado, Roaring Ford
School District No. 1, UT, 6.60% due 6/15/2004 (b)(c) 2,877
Connecticut AAA Aaa 2,000 Connecticut State Development Authority, Water Facility, Revenue
- --1.1% Refunding Bonds (Connecticut Water Co. Project), 6.65% due
12/15/2020 (e) 2,230
AA Aa 790 Connecticut State, HFA, Housing Mortgage Finance Program Bonds,
Series B-1, Sub-Series B-1, 7.55% due 11/15/2008 829
AAA Aaa 3,500 Connecticut State, Special Tax Obligation Revenue Bonds, Series B,
6.10% due 10/01/2011 (d) 3,776
District of A1 VMIG1++ 2,600 District of Columbia Revenue Bonds (American Association
Columbia-- Advancement of Science-Issue Project), VRDN, 5.05% due
1.3% 10/01/2022 (h) 2,600
AA- A 5,000 District of Columbia Revenue Bonds (Howard University),
Series A, 7.25% due 10/01/2020 5,468
Florida-- A A 1,715 Broward County, Florida, Resource Recovery Revenue Bonds
0.7% (Broward Waste Energy-LP North), 7.95% due 12/01/2008 1,942
AA Aa 2,000 Florida State Board of Education, Public Education Capital
Outlay Bonds, Series B, 6.70% due 6/01/2001 (b) 2,252
Georgia-- Georgia Municipal Electric Authority, Power Revenue Bonds:
7.2% A A 3,000 Crossover Refunding, Series O, 8.125% due 1/01/2017 3,270
A+ Aaa 3,250 Refunding, Series B, 8% due 1/01/1998 (b) 3,564
AA+ Aaa 2,000 Georgia State, GO, Series B, 6.30% due 3/01/2010 2,274
Metropolitan Atlanta, Georgia, Rapid Transit Authority,
Sales Tax Revenue Bonds:
AAA Aaa 5,000 Second Indenture, Series A, 6.90% due 7/01/2020 (c) 5,730
AA- A1 8,200 Series O, 6.55% due 7/01/2020 8,932
AAA Aaa 6,100 Municipal Electric Authority of Georgia, Project One,
Sub-Series A, 6.50% due 1/01/2026 (e) 6,659
A+ A 10,460 Municipal Electric Authority, Georgia, Special Obligation
Revenue Bonds, Fifth Crossover Series, Project One,
6.50% due 1/01/2017 (a) 11,845
Illinois-- AA- Aa3 4,500 Chicago, Illinois, Gas Supply Revenue Refunding Bonds
4.9% (The Peoples Gas Light), Series A, 6.10% due 6/01/2025 4,615
AAA Aaa 4,800 Cook County, Illinois, GO, UT, Series A, 6.60% due
11/15/2022 (c) 5,312
AA Aa2 1,850 Illinois Development Finance Authority, PCR, Refunding
(Central Illinois Public Service Company Project),
Series B, 7.60% due 9/01/2013 2,063
A1+ VMIG1++ 1,800 Illinois Health Facilities Authority Revenue Bonds
(Northwestern Memorial Hospital), VRDN, 5%
due 8/15/2025 (h) 1,800
AAA Aaa 15,000 Illinois State Bonds, Refunding, UT, 5.25%
due 12/01/2020 (d) 14,743
</TABLE>
20
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1995 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Indiana-- NR* Aaa $ 4,315 Indiana State Educational Facilities Authority Revenue Bonds
1.9% (University of Notre Dame Project), 6.70% due 3/01/2025 $ 4,824
A+ A1 1,000 Indiana State Office Building Commission, Capital Complex
Revenue Refunding Bonds (State Office Building-II Facility),
Series D, 6.90% due 7/01/2011 1,173
A+ A1 2,250 Indiana Transportation Finance Authority, Highway Revenue
Refunding Bonds, Series A, 8.125% due 6/01/1998 (b) 2,503
A+ NR* 2,865 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 3,139
Kentucky-- A1+ VMIG1++ 2,000 Kentucky Economic Development Finance Authority Revenue Bonds
1.6% (Sisters of Charity), VRDN, 4.20% due 1/02/1996 (h) 2,000
NR* A 3,000 Kentucky Turnpike Authority, Economic Development Road Revenue
Bonds, Series A, 8.25% due 7/01/1997 (b) 3,252
A+ A 4,000 Kentucky Turnpike Authority, Resource Recovery Road Revenue
Refunding Bonds, Series A, 8% due 7/01/2003 4,293
Louisiana-- AAA Aaa 5,000 New Orleans, Louisiana, Public Improvement Refunding Bonds,
1.0% UT, 7% due 9/01/2002 (b)(d) 5,763
Maine-- AA- A1 4,480 Maine State Housing Authority, Mortgage Purpose Revenue Bonds,
0.8% Series D, 6.80% due 11/15/2025 4,716
Massachu- A+ A1 6,000 Massachusetts Bay Transportation Authority, General
setts--5.4% Transportation System, UT, Series B, 5.875% due 3/01/2019 6,133
Massachusetts State Health and Educational Facilities
Authority Revenue Bonds:
A+ A1 5,900 (Brigham and Women's Hospital Issue), Series D, 6.75%
due 7/01/2024 6,292
AAA Aaa 2,550 (Northeastern University), Series E, 6.55% due
10/01/2022 (c) 2,802
AAA Aaa 1,390 (University Hospital), Series C, 7.25% due 7/01/2019 (c) 1,559
A+ Aa 3,000 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 38, 7.20% due 12/01/2026 3,210
A1+ VMIG1++ 700 Massachusetts State, Municipal Wholesale Electric Company,
Power Supply System Revenue Bonds, VRDN, Series C, 3.875% due
12/27/1995 700
AAA Aaa 1,000 Massachusetts State Port Authority Revenue Bonds, 13% due
7/01/2013(a) 1,749
A+ Aa 4,035 Massachusetts State Water Pollution Abatement Trust Revenue
Bonds (MWRA Loan Program), Series A, 5% due 8/01/2014 (c) 3,928
AAA Aaa 5,000 Massachusetts State Water Reservation Authority Bonds, Series B,
5% due 12/01/2025 (c) 4,762
Michigan-- Michigan State Hospital Finance Authority Revenue Bonds
3.8% (Henry Ford Health Systems), Series A:
AA Aa 1,500 7% due 7/01/2000 (b) 1,696
AA Aa 6,500 Refunding, 5.25% due 11/15/2020 6,328
AA Aa 3,000 Refunding, 5.25% due 11/15/2025 2,876
Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds (Detroit Edison Co. Project):
AAA Aaa 1,000 6.875% due 12/01/2021 (d) 1,119
AAA Aaa 2,000 Series BB, 7% due 5/01/2021 (e) 2,502
AAA Aaa 1,000 Series CC, 6.95% due 9/01/2021 (d) 1,112
AA Aa 1,250 Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds
(William Beaumont Hospital), Series D, 6.75% due 1/01/2020 1,345
NR* VMIG1++ 5,000 University of Michigan, University Hospital Revenue Bonds,
VRDN, Series A, 5% due 12/01/2027 (h) 5,000
</TABLE>
21
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1995 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Minnesota-- AA+ Aa $ 4,310 Minnesota State HFA, S/F Mortgage Revenue Bonds, AMT,
0.8% Series M, 6.70% due 7/01/2026 $ 4,485
Mississippi--
1.0% NR* P1 5,000 Jackson County, Mississippi, Port Facility Revenue
Refunding Bonds(Chevron USA, Inc. Project), VRDN, 4.95%
due 6/01/2023 (h) 5,000
NR* P1 500 Perry County, Mississippi, PCR, Refunding (Leaf River
Forest Project), VRDN, 4.95% due 3/01/2002 (h) 500
Montana-- AA+ Aa 5,210 Montana State Board, S/F Housing Program, AMT, Series B-2,
0.9% 6.90% due 6/01/2025 5,500
Nevada-- AAA Aaa 2,000 Clark County, Nevada, PCR, Refunding (Nevada Power Co.
1.2% Project), Series B, 6.60% due 6/01/2019 (d) 2,176
NR* NR* 2,000 Clark County, Nevada, School District Improvement Bonds,
Series A, 8% due 3/01/1998 (b) 2,201
AAA Aaa 2,295 Nevada Housing Development, S/F Housing Division Program, AMT,
Series E, 7.05% due 4/01/2027 2,443
New Jersey-- Jersey City, New Jersey, GO (School District), UT:
5.9% AA A 2,900 6.65% due 2/15/2013 3,219
AA A 3,030 6.65% due 2/15/2014 3,364
AAA Aaa 5,000 New Jersey EDA, Revenue Refunding Bonds (RWJ Health Care
Corporation), 6.50% due 7/01/2024 5,556
AAA Aaa 1,000 New Jersey Health Care Facilities, Financing Authority Revenue
Refunding Bonds (Hackensack Medical Center), 6.625% due
7/01/2017 (d) 1,106
New Jersey Sports and Exposition Authority Revenue Bonds,
Series A:
AAA Aaa 1,500 Refunding (Convention Center Luxury Tax), 6.25% due
7/01/2020 (c) 1,609
A+ Aa 5,000 (State Contract), 6.50% due 3/01/2019 5,427
AAA Aaa 5,000 New Jersey State Educational Facilities Authority Revenue Bonds
(Princeton University), Series A, 6% due 7/01/2024 5,242
AAA Aaa 3,000 New Jersey State Housing and Mortgage Finance Agency Revenue
Bonds (Home Buyer), Series L, 6.65% due 10/01/2014 (c) 3,212
BBB+ Baa1 2,000 New Jersey State Turnpike Authority, Turnpike Revenue Refunding
Bonds, Series A, 6.75% due 1/01/2008 2,189
AA A1 2,500 Rutgers State University, New Jersey, Revenue Refunding Bonds
(State University of New Jersey), Series A, 6.50% due 5/01/2018 2,736
New York-- New York City, New York, GO, UT:
18.9% BBB+ Aaa 3,000 Series A, 8% due 8/15/2001(b) 3,605
BBB+ Baa1 3,000 Series C, Sub-Series C-1, 7.50% due 8/01/2020 3,371
BBB+ Baa1 2,000 Series D, 7.50% due 2/01/2016 2,233
BBB+ Baa1 2,500 Series D, 7.50% due 2/01/2019 2,791
AAA VMIG1++ 4,200 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, VRDN, Series C, 4.75%
due 1/02/1996 (d)(h) 4,200
New York State Dormitory Authority Revenue Bonds:
AA Aa 1,000 (Cornell University), Series A, 7.375% due 7/01/2030 1,127
BBB+ Baa1 3,250 Refunding (State University Educational Facilities),
Series B, 7% due 5/15/2016 3,529
AAA Aa 1,000 (Saint Vincent's Hospital and Medical Center),
7.40% due 8/01/2030 (f) 1,140
New York State Environmental Facilities Corporation,
PCR, State Water Revolving Fund:
A Aa 1,425 Series A, 7% due 6/15/2012 1,595
A Aa 1,800 Series A, 7.50% due 6/15/2012 2,014
AA- Aaa 500 Series B, 7.50% due 3/15/2011 548
</TABLE>
22
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1995 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York New York State Local Government Assistance Corporation
(concluded) Revenue Bonds:
A A $ 11,650 Series A, 6.875% due 4/01/2019 $ 13,085
A A 5,000 Series A, 6.50% due 4/01/2020 5,428
A A 5,000 Series D, 5% due 4/01/2023 4,712
A A 5,000 New York State, Local Government Assistance Corporation,
Series A, 5.25% due 4/01/2019 4,846
New York State Medical Care Facilities Finance Agency Revenue
Bonds (Mental Health Services Facility Improvements):
AAA Aaa 1,515 Series A, 7.80% due 2/15/1999 (b) 1,712
BBB+ Baa1 640 Series A, 7.80% due 2/15/2019 714
BBB+ Baa1 600 Series B, 7.875% due 8/15/2020 677
AAA Aaa 3,500 New York State Medical Care Facilities Finance Agency
Revenue Bonds (New York Hospital Mortgage), Series A, 6.80%
due 8/15/2024 (e)(f) 3,997
AA- Aa 13,750 New York State Power Authority, General Purpose Revenue
Refunding Bonds, Series Z, 6.50% due 1/01/2019 14,935
AA- NR* 6,140 New York State Power Authority, Refunding, Series V, 8% due
1/01/1998 (b) 6,733
AAA VMIG1++ 5,200 New York State Thruway Authority, General Revenue Bonds, VRDN,
3.60% due 12/07/1995 (d)(h) 5,200
A- A1 5,325 Triborough Bridge and Tunnel Authority, New York, Refunding
(Special Obligations), Series B, 6.875% due 1/01/2015 5,867
Triborough Bridge and Tunnel Authority, New York, Revenue Bonds
(General Purpose), Series X:
A+ Aa 5,100 6.625% due 1/01/2012 5,947
A+ Aa 9,575 6.50% due 1/01/2019 10,342
New York & AA- A1 12,750 Port Authority of New York and New Jersey, Consolidated
New Jersey-- Revenue Bonds, 72nd Series, 7.35% due 10/01/2002 (b) 15,070
2.6%
North BBB+ Aaa 1,330 North Carolina Eastern Municipal Power Agency, Power
Carolina-- System Revenue Refunding Bonds, Series A, 6.50%
0.9% due 1/01/2018 (a) 1,606
AAA Aaa 3,000 North Carolina Municipal Power Agency No. 1, Revenue Refunding
Bonds (Catawba Electric), 6% due 1/01/2011 (c) 3,292
Ohio--1.9% NR* VMIG1++ 2,100 Cuyahoga County, Ohio, Hospital Revenue Improvement Bonds
(Cleveland University Hospital), VRDN, 4.95% due 1/01/2016 (h) 2,100
AAA Aaa 3,000 Hamilton, Ohio, Electric System Mortgage Revenue Bonds, Series B,
8% due 10/15/1998 (b)(d) 3,372
A1+ VMIG1++ 4,600 Ohio State Air Quality Development Authority, Revenue Refunding
Bonds(Cincinnati Gas & Electric), VRDN, Series B, 4.935%
due 9/01/2030 (h) 4,600
AAA NR* 105 Ohio State Water Development Authority, Revenue Refunding and
Improvement Bonds, 8% due 12/01/2000 (b) 111
AAA Aaa 775 Toledo, Ohio, Sewer System, Revenue Refunding Bonds, Series B,
7.75% due 11/15/2017 (c) 863
Oregon-- AAA Aaa 8,100 Oregon Health Sciences University Revenue Bonds, Series A, 5.75%
0.6% due 7/01/2021 (c)(i) 2,040
AAA Aaa 1,505 Oregon State Department Administrative Services, COP, Series A,
5.50% due 11/01/2020 (c) 1,518
</TABLE>
23
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1995 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Penn- AAA Aaa $ 10,000 Allegheny County, Pennsylvania, Hospital Development
sylvania-- Authority Revenue Bonds (Health Center-University of
3.7% Pittsburgh Medical Center), 5.375% due 12/01/2025 (c) $ 9,868
AAA Aaa 2,500 Altoona, Pennsylvania, City Authority, Water Revenue Bonds,
Series A, 6.50% due 11/01/2019 (d) 2,760
AAA Aaa 4,000 Montgomery County, Pennsylvania, IDA, PCR, Refunding
(Philadelphia Electric Company), Series B, 6.70% due
12/01/2021 (c) 4,416
AAA Aaa 3,355 North Penn, Pennsylvania, Water Authority Revenue Bonds,
7% due 11/01/2004 (b)(d) 3,975
Puerto AAA NR* 2,000 Puerto Rico Commonwealth, Public Improvement, GO, 7.70%
Rico-- due 7/01/2000 (b) 2,328
0.4%
Rhode AAA Aaa 2,500 Rhode Island Port Authority and Economic Development
Island-- Corporation, Revenue Refunding Bonds (Shepard Building Project),
0.5% Series B, 6.75% due 6/01/2025 (e) 2,826
South Piedmont Municipal Power Agency, South Carolina, Electric Revenue
Carolina-- Refunding Bonds (d):
1.0% AAA Aaa 3,000 6.75% due 1/01/2019 3,604
AAA Aaa 2,210 Series A, 6.50% due 6/01/1995 2,562
Texas-- AAA Aaa 2,000 Austin, Texas, Combined Utility Systems Revenue Refunding Bonds,
8.5% Prior Lien, 6.50% due 5/15/2011 (e) 2,194
AAA Aaa 2,000 Brazos River Authority, Texas, Revenue Refunding Bonds
(Houston Light and Power Co.), Series B, 6.375% due 4/01/2012 (c) 2,168
Harris County, Texas, Health Facilities Development Corporation
Hospital Revenue Bonds:
AAA Aaa 2,870 (Hermann Hospital Project), 6.375% due 10/01/2024 (c) 3,086
A1+ NR* 3,000 (Methodist Hospital), VRDN, 5% due 12/01/2025 (h) 3,000
A1+ VMIG1++ 5,000 Harris County, Texas, Health Facilities Development
Corporation, Special Facilities Revenue Bonds (Texas
Medical Center Project), VRDN, 4.95% due 2/15/2022 (h) 5,000
Harris County, Texas, Toll Road Sub-Lien, Refunding, UT:
AA- Aa 3,000 6.75% due 8/01/2014 3,319
AAA NR* 1,250 8.125% due 8/01/1998 (b) 1,400
AA Aa2 3,000 Lower Neches Valley Authority, Texas, Industrial Development
Corporation, Sewer Facilities Revenue Bonds (Mobil Oil Refining
Corp.,Project), AMT, 6.40% due 3/01/2030 3,207
AAA Aaa 4,700 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Company Project), 6.55% due 10/01/2022 (d) 5,136
AAA Aaa 5,300 San Antonio, Texas, Water Revenue Refunding Bonds, 6.50% due
5/15/2010 (c) 5,848
AAA Aaa 2,000 Texas Municipal Power Agency Revenue Bonds, 14.625%
due 3/01/1997 (b) 2,245
AA Aaa 1,000 Texas State, Refunding (Veterans Land), UT, 6.50% due 12/01/2021 1,077
AAA Aaa 7,000 Texas State Turnpike Authority, Dallas, North Thruway Revenue
Bonds (President George Bush Turnpike), 5% due 1/01/2025 (d) 6,726
AA Aa 2,200 Texas State Veterans Housing Assistance, Fund II, AMT, UT,
Series A, 7% due 12/01/2025 2,288
AAA Aa 2,000 Texas Water Development Board, Water Revenue Bonds (State
Revolving Fund-Senior Lien), 6% due 7/15/2013 2,099
</TABLE>
24
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1995 (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Utah-- A1+ VMIG1++ $ 4,000 Emery County, Utah, PCR, Refunding (Pacificorp Projects),
1.8% VRDN, 5% due 11/01/2024 (e)(h) $ 4,000
AA- Aa 1,000 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, Series D, 8.625% due 7/01/2021 1,081
AA Aa 5,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospital Inc.), 6.25% due 2/15/2023 5,139
Virginia-- AAA Aaa 4,700 Alexandria, Virginia, IDA, PCR, Refunding (Potomac Electric
5.4% Project), 5.375% due 2/15/2024 (c) 4,686
AA Aa 4,500 Henrico County, Virginia, IDA, Public Facility, Lease Revenue
Bonds (Henrico County Regional Jail Project), 7% due 8/01/2013 5,271
AAA Aaa 20,500 Upper Occoquan, Virginia, Sewer Authority, Regional Revenue
Bonds, Series A, 4.75% due 7/01/2029 (c) 18,726
AAA Aaa 2,750 Virginia State Transportation Board, Transportation Contract
Revenue Bonds (Rate 28 Project), 7.80% due 3/01/1998(b) 3,021
Washington-- AA+ Aa1 4,000 Seattle, Washington, Refunding Bonds, 6.50% due 3/01/2017 4,298
1.7% AAA Aaa 3,000 Tacoma, Washington, Refuse Utility Revenue Bonds, 7% due
12/01/2019 (e) 3,467
AA Aa 2,000 Washington State, GO, Series A, 6.75% due 2/01/2015 2,379
Wisconsin-- Wisconsin Housing, EDA, Home Ownership Revenue Bonds, Series 1:
2.4% AA Aa 1,000 6.75% due 9/01/2015 1,055
AA Aa 4,990 6.75% due 9/01/2017 5,240
AAA Aaa 2,000 Wisconsin Public Power Incorporated System, Power Supply
System Revenue Bonds, Series A, 7.40% due 7/01/2000 (b)(e) 2,298
AAA Aaa 5,000 Wisconsin State Health and Educational Facilities Authority,
Revenue Bonds (Children's Hospital of Wisconsin Inc.
Project), 6.50% due 8/15/2021 (d) 5,403
--------
Total Investments (Cost--$560,091)--104.7% 609,013
Liabilities in Excess of Other Assets--(4.7%) (27,334)
--------
Net Assets--100.0% $581,679
========
<FN>
(a)Escrowed to maturity.
(b)Prerefunded.
(c)MBIA Insured.
(d)FGIC Insured.
(e)AMBAC Insured.
(f)FHA Insured.
(g)GNMA/FNMA Collateralized.
(h)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at December 31, 1995.
(i)Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Program.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
</FN>
See Notes to Financial Statements.
</TABLE>
25
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Statement of Assets and Liabilities As of December 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$560,090,701) (Note 1a) $609,013,277
Cash 3,137,223
Receivables:
Interest $ 10,449,447
Securities sold 1,110,517
Capital shares sold 65 11,560,029
------------
Prepaid registration fees and other assets (Note 1d) 41,532
------------
Total assets 623,752,061
------------
Liabilities:
Payables:
Securities purchased 41,084,670
Capital shares redeemed. 245,699
Investment adviser (Note 2) 228,100 41,558,469
------------
Accrued expenses and other liabilities 515,014
------------
Total liabilities 42,073,483
------------
Net Assets $581,678,578
============
Net Assets Consist of:
Common Stock, $0.01 par value, 100,000,000 shares authorized $ 302,662
Paid-in capital in excess of par 536,157,531
Undistributed investment income--net 1,144,400
Accumulated realized capital losses on investments--net (Note 5) (4,848,591)
Unrealized appreciation on investments--net 48,922,576
------------
Net Assets:
Equivalent to $19.22 per share based on 30,266,155 shares outstanding $581,678,578
============
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Statement of Operations For the Year Ended December 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and premium and discount earned $ 35,004,215
Expenses:
Investment advisory fees (Note 2) $ 2,794,839
Transfer agent fees 1,628,376
Printing and shareholder reports 135,333
Accounting services (Note 2) 71,292
Registration fees (Note 1d) 61,815
Custodian fees 50,269
Professional fees 41,344
Pricing services 19,278
Directors' fees and expenses 15,943
Other 11,657
------------
Total expenses 4,830,146
------------
Investment income--net 30,174,069
Realized & Unrealized Gain on Investments (Notes 1c & 3):
Realized gain on investments--net 8,961,659
Change in unrealized appreciation on investments--net 43,539,828
------------
Net Increase in Net Assets Resulting from Operations $ 82,675,556
============
See Notes to Financial Statements.
</TABLE>
26
<PAGE>
<TABLE>
For the Year
The Municipal Fund Accumulation Program, Inc Ended December 31,
Statements of Changes in Net Assets 1995 1994
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 30,174,069 $ 32,078,217
Realized gain (loss) on investments--net 8,961,659 (13,810,250)
Change in unrealized appreciation on investments--net 43,539,828 (59,047,712)
------------ ------------
Net increase (decrease) in net assets resulting from operations 82,675,556 (40,779,745)
------------ ------------
Dividends to Shareholders (Note 1e):
Investment income--net (30,313,535) (32,226,191)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (30,313,535) (32,226,191)
------------ ------------
Capital Share Transactions (Note 4):
Net decrease in net assets resulting from capital share transactions (7,880,024) (29,385,788)
------------ ------------
Net Assets:
Total increase (decrease) in net assets 44,481,997 (102,391,724)
Beginning of year 537,196,581 639,588,305
------------ ------------
End of year* $581,678,578 $537,196,581
============ ============
<FN>
*Undistributed investment income--net $ 1,144,400 $ 1,283,866
============ ============
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended December 31,
--------------------------------------------------
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 17.51 $ 19.79 $ 18.93 $ 18.63 $ 17.83
-------- -------- -------- -------- --------
Investment income--net 1.01 1.03 1.09 1.15 1.23
Realized and unrealized gain (loss) on investments--net 1.71 (2.28) 1.11 .30 .80
-------- -------- -------- -------- --------
Total from investment operations 2.72 (1.25) 2.20 1.45 2.03
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (1.01) (1.03) (1.09) (1.15) (1.23)
Realized gain on investments--net -- -- (.25) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.01) (1.03) (1.34) (1.15) (1.23)
-------- -------- -------- -------- --------
Net asset value, end of year $ 19.22 $ 17.51 $ 19.79 $ 18.93 $ 18.63
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 15.88% (6.44%) 11.99% 8.08% 11.83%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .86% .89% .86% .88% .91%
======== ======== ======== ======== ========
Investment income--net 5.40% 5.54% 5.52% 6.15% 6.76%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $581,679 $537,197 $639,588 $536,952 $435,224
======== ======== ======== ======== ========
Portfolio turnover 56% 61% 23% 24% 36%
======== ======== ======== ======== ========
See Notes to Financial Statements.
</TABLE>
27
<PAGE>
The Municipal Fund Accumulation Program, Inc.
Notes to Financial Statements
1. Significant Accounting Policies:
The Municipal Fund Accumulation Program, Inc. (the "Program") is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The following
is a summary of significant accounting policies followed by the
Program.
(a) Valuation of securities--Portfolio securities are valued by the
Program's pricing agent, Kenny S&P Evaluation Services ("Kenny").
The method used by Kenny to value the Program's securities is to
obtain "quotes" on comparable securities of comparable quality and
to value such Program securities similarly. These values are not
necessarily bids or actual last sale prices, but are estimates of
the price at which the pricing agent believes the Program could sell
such portfolio securities. The Board of Directors has examined the
methods to be used by the Program's pricing agent in estimating the
value of portfolio securities and believes that such methods will
reasonably and fairly approximate the price at which portfolio
securities may be sold and will result in a good faith determination
of the fair value of such securities.
(b) Income taxes--It is the Program's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (net of amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions to shareholders--Dividends from net
investment income are declared and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement
and Transactions with Affiliates:
The Program has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Program's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Program. For such
services, the Program pays a monthly fee of 0.50%, on an annual
basis, of the value of the Program's average daily net assets. The
Investment Advisory Agreement obligates FAM to reimburse the Program
to the extent the Program's expenses (excluding interest, taxes,
brokerage fees and extraordinary items) exceed 2.5% of the Program's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. No fee payment will be made to the
Adviser during any fiscal year which would cause such expenses to
exceed the foregoing expense limitations applicable at the time of
such payment.
FAM has entered into an Administrative Agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), Prudential Securities, Inc.,
Dean Witter Reynolds Inc., and Smith Barney Shearson, Inc. (the
"Administrators"), whereby the Administrators perform certain
administrative duties on behalf of FAM.
The Administrators receive a monthly fee from FAM equal to 0.20%, on
an annual basis, of the Program's average daily net assets and have
28
<PAGE>
agreed to reimburse FAM for a portion of the reimbursement of
expenses to the Program as described above, required to be made by
FAM.
The Municipal Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
Accounting services are provided to the Program by FAM at cost.
Certain officers and/or directors of the Program are officers and/or
directors of FAM, PSI, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1995 were $301,073,953 and
$316,811,917, respectively.
Net realized and unrealized gains as of
December 31, 1995 were as follows:
Realized Unrealized
Gains Gains
Long-term securities $8,961,659 $48,922,576
---------- -----------
Total $8,961,659 $48,922,576
========== ===========
As of December 31, 1995, net unrealized appreciation for
Federal income tax purposes aggregated $48,922,576, of
which $48,938,844 related to appreciated securities and $16,268
related to depreciated securities. The aggregate cost of investments
at December 31, 1995 for Federal income tax purposes was
$560,090,701.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 5,353,884 $ 98,802,679
Shares issued to
shareholders in
reinvestment of
dividends 1,553,919 28,721,772
----------- -------------
Total issued 6,907,803 127,524,451
Shares redeemed (7,324,857) (135,404,475)
----------- -------------
Net decrease (417,054) $ (7,880,024)
=========== =============
For the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 7,126,473 $ 131,603,572
Shares issued to
shareholders in
reinvestment of
dividends 1,681,732 30,840,576
----------- -------------
Total issued 8,808,205 162,444,148
Shares redeemed (10,439,409) (191,829,936)
----------- -------------
Net increase (1,631,204) $ (29,385,788)
=========== =============
5. Capital Loss Carryforward:
As of December 31, 1995, the Program had a net capital loss
carryforward of approximately $4,849,000, all of which expires in
2002. This amount will be available to offset like amounts of any
future taxable gains.
29
<PAGE>
- ------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- ------------------------------------------
THE
MUNICIPAL
FUND
INVESTMENT
ACCUMULATION
PROGRAM
- ------------------------------------------
INDEX
- ------------------------------------------
PAGE
----
Investment Objectives and
Policies........................... 2
Investment Restrictions............. 4
Investment Advisory Agreement....... 5 -----------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 26, 1996
Directors and Officers.............. 8 -----------------------------------
Net Asset Value..................... 11
Redemption of Shares................ 12
Taxes and Distributions............. 13
Portfolio Transactions.............. 14
Performance Data.................... 15
General Information................. 15
Description of Bond Ratings......... 16
Independent Auditors' Report........ 18 BOX 9011
PRINCETON, NEW JERSEY 08543-9011
Financial Statements................ 19 (609) 282-2000
- ------------------------------------------
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Contained in Part A:
Financial Highlights for each of the years in the ten year period
ended December 31, 1995
Contained in Part B:
Schedule of Investments as of December 31, 1995
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statements of Changes in Net Assets for each of the years in the
two-year period ended December 31, 1995
Financial Highlights for each of the years in the five-year period
ended December 31, 1995
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
(1) (a) --Amended and Restated Articles of Incorporation of Registrant (incorporated by
reference to Exhibit 1 to Amendment No. 2 to Form N-8B-1 of Registrant, 1940 Act
File No. 811-2694).
(b) --Articles Supplementary to the Articles of Incorporation of Registrant, dated
October 12, 1994 (incorporated by reference to Exhibit 1(b) to Amendment No. 17
to Form N-1A of Registrant, 1940 Act File No. 811-2694).
(2) --By-Laws of the Registrant (incorporated by reference to Exhibit 2 to Amendment
No. 17 to Form N-1A of Registrant, 1940 Act File No. 811-2694).
(3) --Not applicable.
(4) --Form of Stock Certificate (incorporated by reference to Exhibit 4(a) to
Amendment No. 2 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2694).
(5) --Investment Advisory Agreement (incorporated by reference to Exhibit 5 to
Amendment No. 2 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2694).
(6) --Not applicable.
(7) --Not applicable.
(8) --Custody Agreement between The Bank of New York and Registrant (incorporated by
reference to Exhibit 8 to Amendment No. 2 to Form N-8B-1 of Registrant, 1940 Act
File No. 811-2694).
(9) (a) --Administration Agreement by and among the Registrant, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Prudential-Bache Securities, Inc. and Dean Witter
Reynolds Inc. (incorporated by reference to Exhibit (9)a to Post-Effective
Amendment No. 4 to Form N-1 of the Registrant, 1933 Act File No. 2-57442).
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
(b) --Agency Agreement between The Bank of New York and Registrant (incorporated by
reference to Exhibit (9) to Amendment No. 2 to Form N-8B-1 of Registrant, 1940
Act File No. 811-2694).
(10) --Opinion of Rogers & Wells (incorporated by reference to Registrant's Rule 24f-2
Notice).
(11) --Consent of Deloitte & Touche LLP, independent auditors for the Registrant (filed
herewith).
(12) --Not applicable.
(13) --Not applicable.
(14) --Not applicable.
(15) --Not applicable.
(16) --Schedule of Computation of Performance Data in Response to Item 22 (incorporated
by reference to Exhibit 16 to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (file No. 2-57442)).
(27) --Financial Data Schedule (filed herewith).
</TABLE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF HOLDERS
TITLE OF CLASS AT MARCH 31, 1996
-------------- ---------------------
Capital Stock, $.01 par value.................. 66,111
Note: The number of holders shown above includes holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith, Incorporated.
ITEM 27. INDEMNIFICATION
Article VI of the By-Laws of Registrant is incorporated by reference to
Exhibit (2) to this Post-Effective Amendment No. 20 to Form N-1A of Registrant
(1940 Act File No. 811-2694).
The Maryland statutory indemnification provision is incorporated by
reference to Exhibit (14) to Amendment No. 2 to Form N-8B-1 of Registrant (1940
Act File No. 811-2694).
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Fund Asset Management, L.P. (the "Investment Adviser" or "FAM"), acts as the
investment adviser for the following open-end investment companies: Merrill
Lynch Basic Value Fund, Inc., CBA Money Fund, CMA Money Fund, CMA Tax-Exempt
Fund, CMA Government Securities Fund, CMA Multi-State Municipal Series Trust,
CMA Treasury Fund, Merrill Lynch World Income Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Special Value
Fund, Inc., The Corporate Fund Accumulation Program, Inc., The Municipal Fund
Accumulation Program, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Financial Institutions Series Trust and
the Merrill Lynch Funds for Institutions Series and the following closed-end
investment companies: Corporate High Yield Fund, Inc., Corporate High Yield Fund
II, Inc., Emerging Tigers Fund, Inc., MuniAssets Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund II, Inc.,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured
Fund,
C-2
<PAGE>
Inc., MuniVest Pennsylvania Insured Fund, Inc., MuniYield Arizona Fund, Inc.,
MuniYield California Insured Fund II, Senior High Income Portfolio, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., Apex Municipal Fund, Inc., and
Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund, III, Inc.,
MuniYield Pennsylvania Fund, Inc., MuniYield Fund, Inc., MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management ("MLAM"), an affiliate of FAM, acts as
investment adviser for the following open-end investment companies: Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fund For Tomorrow, Inc.,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement,
Merrill Lynch HealthCare Fund, Inc., Merrill Lynch Institutional Intermediate
Fund, Merrill Lynch International Equity Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Global Resources Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready
Assets Trust, Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch Utility Fund,
Inc., Merrill Lynch Variable Series Fund, Inc., Merrill Lynch, U.S.A. Government
Reserves and Merrill Lynch U.S. Treasury Money Fund and the following closed-end
investment companies: Convertible Holdings, Inc., Merrill Lynch High Income
Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. The
address of each of these investment companies is Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds for Institutions Series and
Merrill Lynch Institutional Intermediate Fund is One Financial Center, 15th
Floor, Boston, Massachusetts 02111-2665. The address of the Investment Adviser
and MLAM is also Box 9011, Princeton, New Jersey 08543-9011. The address of
Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. is World Financial
Center, North Tower, 250 Vesey Street, New York, New York, 10281. The address of
Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each officer and director of FAM indicating
each business, profession, vocation or employment of a substantial nature in
which each such person has been engaged since January 1, 1993 for his own
account or in the capacity of director, officer, partner or trustee. In
addition, Messrs. Zeikel, Glenn and Richard hold the same positions with
substantially all of the investment companies described in the preceding
paragraph. Messrs. Giordano, Harvey, Hewitt,
C-3
<PAGE>
Kirstein and Monagle are directors or officers of one or more of such companies.
Mr. Zeikel is president and a director, and Mr. Richard is treasurer, of FAM and
MLAM as well as all or substantially all of the investment companies advised by
MLAM.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ -----------------------------------
<S> <C> <C>
Arthur Zeikel........... President and Director President and Director of MLAM;
Executive Vice President of
Merrill Lynch & Co. and of Merrill
Lynch from 1990 to 1995 and
Director of MLFD.
Terry K. Glenn.......... Executive Vice President Executive Vice President of MLAM;
President and Director of MLFD;
Director of Merrill Lynch
Financial Data Services, Inc. and
President of Princeton
Administrators, Inc.
Robert W. Crook......... Senior Vice President Senior Vice President of MLFD since
1990; Vice President of MLFD from
1978 to 1990 and Vice President of
FAM from 1981 to 1990.
Vincent R. Giordano..... Senior Vice President Senior Vice President of MLAM.
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM since
1993; Vice President of MLAM prior
thereto.
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM.
N. John Hewitt.......... Senior Vice President Senior Vice President of MLAM.
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General
General Counsel, Director Counsel, Director and Secretary of
and Secretary MLAM.
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller
of MLAM.
Stephen M. M. Miller.... Senior Vice President Executive Vice President of
Princeton Administrators, L.P. since
1989.
Joseph T. Monagle....... Senior Vice President Senior Vice President of MLAM since
1990; Senior Vice President of
Princeton Services.
Gerald M. Richard....... Senior Vice President and Senior Vice President and Treasurer
Treasurer of MLAM since 1984 and Vice
President and Treasurer of MLFD.
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM.
Anthony Wiseman......... Senior Vice President Senior Vice President of MLAM since
1991; Senior Vice President of
Princeton Services.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
Inapplicable.
C-4
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of Registrant, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536 and The Bank of New York, 90 Washington Street, 12th Floor, New
York, New York 10286.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under "Investment Advisory Agreement" in the
Statement of Additional Information constituting Part B of the Registration
Statement, Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request, and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro, and State of New
Jersey, on the 26th day of April, 1996.
THE MUNICIPAL FUND ACCUMULATION
PROGRAM, INC.
(Registrant)
By /S/ ARTHUR ZEIKEL
...................................
(Arthur Zeikel)
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registrant's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- -----
<S> <C> <C>
/S/ ARTHUR ZEIKEL President and Director (Principal April 26, 1996
.................................................. Executive Officer)
(Arthur Zeikel)
/S/ GERALD M. RICHARD Treasurer (Principal Financial April 26, 1996
.................................................. and Accounting Officer)
(Gerald M. Richard)
* Director
..................................................
(Ronald W. Forbes)
* Director
..................................................
(Cynthia A. Montgomery)
* Director
..................................................
(Charles C. Reilly)
* Director
..................................................
(Kevin A. Ryan)
* Director
..................................................
(Richard R. West)
*By: /S/ GERALD M. RICHARD April 26, 1996
..............................................
(Gerald M. Richard)
Attorney-in-Fact
</TABLE>
C-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- -----
<C> <S> <C>
11 --Consent of Deloitte & Touche LLP...........................................
27 --Financial Data Schedule....................................................
</TABLE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Municipal Fund Accumulation Program, Inc.:
We consent to the use in Post-Effective Amendment No. 21 to Registration
Statement No. 2-57442 of our report dated February 2, 1996 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the references to us under the captions "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration Statement
and "General Information--Auditors and Financial Statements" appearing in the
Statement of Additional Information.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 26, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000202662
<NAME> THE MUNICIPAL FUND ACCUMULATION PROGRAM, INC.
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 560090701
<INVESTMENTS-AT-VALUE> 609013277
<RECEIVABLES> 11560029
<ASSETS-OTHER> 3178755
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 623752061
<PAYABLE-FOR-SECURITIES> 41084670
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 988813
<TOTAL-LIABILITIES> 42073483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 536460193
<SHARES-COMMON-STOCK> 30266155
<SHARES-COMMON-PRIOR> 30683209
<ACCUMULATED-NII-CURRENT> 1144400
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4848591)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48922576
<NET-ASSETS> 581678578
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35004215
<OTHER-INCOME> 0
<EXPENSES-NET> 4830146
<NET-INVESTMENT-INCOME> 30174069
<REALIZED-GAINS-CURRENT> 8961659
<APPREC-INCREASE-CURRENT> 43539828
<NET-CHANGE-FROM-OPS> 82675556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30313535
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5353884
<NUMBER-OF-SHARES-REDEEMED> 7324857
<SHARES-REINVESTED> 1553919
<NET-CHANGE-IN-ASSETS> 44481997
<ACCUMULATED-NII-PRIOR> 1283866
<ACCUMULATED-GAINS-PRIOR> (13810250)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2794839
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4830146
<AVERAGE-NET-ASSETS> 560503295
<PER-SHARE-NAV-BEGIN> 17.51
<PER-SHARE-NII> 1.01
<PER-SHARE-GAIN-APPREC> 1.71
<PER-SHARE-DIVIDEND> 1.01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.22
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
