<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997
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. 22 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
AMENDMENT NO. 19
(Check appropriate box or boxes) /X/
------------------------
THE MUNICIPAL FUND ACCUMULATION
PROGRAM, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
BOX 9011 08543-9011
PRINCETON, NEW JERSEY (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
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
TITLE OF SECURITIES SHARES OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED BEING REGISTERED PER SHARE OFFERING PRICE* REGISTRATION FEE
<S> <C> <C> <C> <C>
Shares of Common Stock, par
value $0.01 per share..... 7,668,195 $ 18.47 $ 329,985.02 $ 100
</TABLE>
*(1) The calculation of the maximum aggregate offering price is made as of
April 23, 1997 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 7,650,329 Shares of Common Stock.
(3) None of the 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) 7,650,329 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 20, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 25, 1997
- --------------------------------------------------------------------------------
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 of 1986, as amended, 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 25,
1997, 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 SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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, 1996:
- --------------------------------------------------------------------------
<S> <C> <C>
Management Fees.................................................................. 0.50%(a)
12b-1 Fees....................................................................... None
Other Expenses
Transfer Agency and Custodian Fees.................................. 0.27%
Other Fees.......................................................... 0.06%
---------
Total Other Expenses..................................................... 0.33%
---------
Total Program Operating Expenses................................................. 0.83%
---------
---------
</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 0.83% and a 5%
annual return throughout the
periods........................... $8 $26 $46 $103
</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 fiscal year ended
December 31, 1996 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 Program's audited financial statements:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <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..... $ 19.22 $ 17.51 $ 19.79 $ 18.93 $ 18.63 $ 17.83 $ 18.09 $ 17.76 $ 17.44
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment
income--net........... .98 1.01 1.03 1.09 1.15 1.23 1.30 1.31 1.33
Realized and unrealized
gain (loss) on
investments--net...... (.37) 1.71 (2.28) 1.11 .30 .80 (.26) .33 .27
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations............ .61 2.72 (1.25) 2.20 1.45 2.03 1.04 1.64 1.60
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment
income--net......... (.98) (1.01) (1.03) (1.09) (1.15) (1.23) (1.30) (1.31) (1.28)
Realized gain on
investments--net.... -- -- -- (.25) -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions......... (.98) (1.01) (1.03) (1.34) (1.15) (1.23) (1.30) (1.31) (1.28)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
year.................. $ 18.85 $ 19.22 $ 17.51 $ 19.79 $ 18.93 $ 18.63 $ 17.83 $ 18.09 $ 17.76
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:
Based on net asset value
per share............. 3.36% 15.88% (6.44%) 11.93% 8.08% 11.83% 6.03% 9.61% 9.48%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ .83% .86% .89% .86% .88% .91% .97% 1.04% 1.02%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment
income--net........... 5.18% 5.40% 5.54% 5.52% 6.15% 6.76% 7.23% 7.25% 7.53%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands)........ $ 551,849 $ 581,679 $ 537,197 $ 639,588 $ 536,952 $ 435,224 $ 359,291 $ 319,641 $ 288,274
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Portfolio turnover...... 72% 56% 61% 23% 24% 36% 20% 41% 46%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1987
---------
<S> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year..... $ 18.69
---------
Investment
income--net........... 1.37
Realized and unrealized
gain (loss) on
investments--net...... (1.19)
---------
Total from investment
operations............ .18
---------
Less dividends and
distributions:
Investment
income--net......... (1.43)
Realized gain on
investments--net.... --
---------
Total dividends and
distributions......... (1.43)
---------
Net asset value, end of
year.................. $ 17.44
---------
---------
TOTAL INVESTMENT RETURN:
Based on net asset value
per share............. 1.12%
---------
---------
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 1.05%
---------
---------
Investment
income--net........... 7.66%
---------
---------
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands)........ $ 269,598
---------
---------
Portfolio turnover...... 21%
---------
---------
</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"); a Holder not participating in
the Program may request a copy of the Prospectus. Holders of Units may elect to
participate in the Program or to change a previous election by notice in writing
to the program agent. Notice of any change in the basis of participation or of
election to participate in the Program must be received by the program agent in
writing at least ten days prior to the Record Day for the first distribution to
which such notice is to apply.
Under these Terms and Conditions, both distributions of interest 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 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
4
<PAGE>
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 (i) 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 (i) terminate their participation in
the Program and thereafter receive all distributions on their Units in cash,
(ii) terminate their participation in part as to distributions of capital gains
and principal on their Units and thereafter receive distributions in cash out of
the principal accounts for the respective unit trust funds or (iii) terminate
their participation in part as to distributions of interest on their Units and
thereafter receive future distributions in cash out of the interest accounts for
the respective series.
All the costs of establishing and administering the Program and these Terms
and Conditions are borne by the Program. The administrators of the Program (the
"Administrators") are Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities Incorporated ("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.
The Agent will mail to each Shareholder a report of each transaction
undertaken for such Shareholder in receiving distributions and purchasing
Shares. Distributions on Units which are applied to purchase Shares are
considered to have been distributed to Shareholders for federal income tax
purposes,
5
<PAGE>
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 Funds are held in Merrill Lynch accounts
and who elect to reinvest in the Program. These Shares may be transferred to an
account in the customer's name with the Agent upon request. Merrill Lynch
maintains records identifying the names and addresses of these customers and
their Share balances, and will be compensated for these services by the Agent at
the Agent's sole expense. During the fiscal year ended December 31, 1996, the
Agent paid Merrill Lynch $32,232 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 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);
6
<PAGE>
(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 BBB or better by Standard & Poor's, or Baa or better by Moody'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.
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
7
<PAGE>
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, as amended, 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, as amended, 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 that
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.
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
8
<PAGE>
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 securities in an aggregate amount 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, as amended. 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, as amended. 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, L.P. ("MLAM"); President and Director of Princeton Services, Inc.
("Princeton Services"); Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co."); and 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 Competition and Strategy, Harvard Business
School.
CHARLES C. REILLY--Former Adjunct Professor, Columbia University Graduate School
of Business.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
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--Dean Emeritus, New York University Leonard N. Stern School of
Business Administration.
</TABLE>
- --------------
*Interested person, as defined in the Investment Company of 1940, as
amended, 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, 1997, FAM and MLAM had
a total of approximately $247.2 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 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%.
For the fiscal year ended December 31, 1996, FAM received advisory fees from
the Program in the amount of $2,806,869, 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 fiscal year ended December 31, 1996, the Program's total
expenses were $4,665,233 (representing 0.83% 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 MLAM 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.
10
<PAGE>
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, as amended, 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, as amended, the
existence and validity of which may be verified by the Agent through the use of
industry publications, together with a request for redemption at the office of
the Agent, The Bank of New York, Dividend Reinvestment, P.O. Box 1958, Newark,
NJ 07101-9774. If certificates have not been issued, only delivery of the
request for redemption (with signature guaranteed as set forth above) is
required. The Program has arranged, however, for an exemption from the signature
guarantee requirement for redemptions involving less than $5,000 on the date of
receipt by the Agent of all the necessary documents where the proceeds are to be
reinvested through one of the Administrators in units of Municipal Investment
Trust Fund, Government Securities Income Fund, Corporate Income Fund, Defined
Asset Funds, Equity Investor Fund or International Bond Fund (the "Unit 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, as amended, 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
12
<PAGE>
be effected. Such letter must be signed exactly as the account is registered
with signatures guaranteed by a member firm of a national or regional stock
exchange or any commercial bank or trust company. Shareholders with Shares for
which certificates have not been issued may exercise the Exchange Privilege by
wire through their securities dealers. The Program reserves the right to require
a properly completed Exchange Application.
TAXES AND 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, 1996,
the Program made payments of $20,984 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
15
<PAGE>
computed assuming all dividends and distributions are reinvested and taking into
account all applicable recurring and nonrecurring expenses.
Yield quotations will be computed based on a 30-day period by dividing the
net income earned during the period based on the yield to maturity of each
security held by the Program by the average daily number of shares outstanding
during the period that were entitled to receive dividends times the maximum
offering price per share on the last day of the period.
The Program's average annual total return and yield will vary depending upon
market conditions, the securities comprising the Program's Portfolio, the
Program's operating expenses and the amount of net capital gains or losses
realized by the Program during the period. An investment in the Program will
fluctuate and an investor's Shares, when redeemed, may be worth more or less
than their original cost.
On occasion, the Program may compare its performance to that of the Standard
& Poor's 500 Composite Stock Price Index, the Value Line Composite Index, the
Dow Jones Industrial Average, 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, as amended, 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, as amended, 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.
16
<PAGE>
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.
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, as amended, and the Investment Company Act of 1940,
as amended, 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 25, 1997, 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>
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18
<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 INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
PROGRAM. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
------------------------------------------
INDEX
--------------------------------
<TABLE>
<CAPTION>
PAGE
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<S> <C>
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
Additional Information.......................... 15
</TABLE>
------------------------------------------
THE
MUNICIPAL
FUND
INVESTMENT
ACCUMULATION
PROGRAM
--------------------------
PROSPECTUS DATED APRIL 25, 1997
--------------------------------------
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2000
<PAGE>
THE MUNICIPAL FUND
INVESTMENT ACCUMULATION PROGRAM
---------------------------------------------------------
Shares of Statement of Additional Information
Common Stock Dated April 25, 1997
- --------------------------------------------------------------------------------
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 25, 1997, 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 current 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 been initiated in a number of
states. Decisions in some states have been reached holding such school financing
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<PAGE>
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 securities
having a market value at all times until the delivery date at least equal to the
amount of its commitment in connection with such delayed delivery and purchase
transactions. Although the Program will generally enter into forward commitments
with the intention of acquiring securities for its Portfolio, the Program may
dispose of a commitment prior to settlement if the 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 defensive purposes and in anticipation of a rise in interest rates to sell
Portfolio securities and invest the proceeds temporarily in
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<PAGE>
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 fiscal years ended December 31, 1996 and
1995, the Portfolio turnover rates were 72% and 56%, 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 estate or interests therein or issued
by companies, including real estate investment trusts, which deal in real
estate or interests therein;
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<PAGE>
(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.
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
5
<PAGE>
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 fiscal year ended December 31, 1996, such reimbursement
amounted to $73,485. For the fiscal years ended December 31, 1994, 1995 and
1996, the advisory fees paid by the Program to the Adviser aggregated
$2,893,985, $2,794,839 and $2,806,869, respectively.
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, 1997. 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 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, 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.
6
<PAGE>
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%.
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
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<PAGE>
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.
<TABLE>
<CAPTION>
NAME CAPACITY ADDRESS
- ----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Arthur Zeikel (64) President and Director(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
OCCUPATION: President of Fund Asset Management, L.P. ("FAM" or 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") since 1977.
<TABLE>
<S> <C> <C>
Ronald W. Forbes (56) Director (2) 1400 Washington Avenue
Albany, New York 12222
</TABLE>
OCCUPATION: Professor of Finance, School of Business, State University of New
York at Albany since 1989; Member, Task Force on Municipal Securities Markets,
Twentieth Century Fund.
<TABLE>
<S> <C> <C>
Cynthia A. Montgomery (44) Director (2) Harvard Business School
Soldiers Field Road
Boston, Massachusetts 02163
</TABLE>
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 since 1990
and Director of Newell Co. since 1995.
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<PAGE>
<TABLE>
<CAPTION>
NAME CAPACITY ADDRESS
- ----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Charles C. Reilly (65) Director (2) 9 Hampton Harbor Road
Hampton Bays, New York 11946
</TABLE>
OCCUPATION: Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television since 1986.
<TABLE>
<S> <C> <C>
Kevin A. Ryan (64) Director (2) 127 Commonwealth Avenue
Chestnut Hill, Massachusetts 02167
</TABLE>
OCCUPATION: Founder, current Director and Professor of The Boston University
Center for Advancement of Ethics and Character; Professor of Education at Boston
University since 1982; formerly taught on the faculties of The University of
Chicago, Stanford University and Ohio State University.
<TABLE>
<S> <C> <C>
Richard R. West (59) Director (2) Box 604
Genoa, Nevada 89411
</TABLE>
OCCUPATION: Professor of Finance since 1984, and Dean from 1984 to 1993, and
currently Dean Emeritus of New York University Leonard N. Stern School of
Business Administration; Director of Bowne & Co., Inc., (financial printers),
Vornado, Inc. (real estate holding company), Smith-Corona Corporation
(manufacturer of typewriters and word processors), and Alexander's Inc. (real
estate holding company).
<TABLE>
<S> <C> <C>
Terry K. Glenn (56) Executive Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
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.
<TABLE>
<S> <C> <C>
Vincent R. Giordano (52) Senior Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
OCCUPATION: Senior Vice President of the Adviser and MLAM since 1984; Senior
Vice President of Princeton Services since 1993; Vice President of the Adviser
from 1980 to 1984.
<TABLE>
<S> <C> <C>
Donald C. Burke (36) Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
OCCUPATION: Vice President and Director of Taxation of the Adviser since 1990.
<TABLE>
<S> <C> <C>
Kenneth A. Jacob (46) Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
OCCUPATION: Vice President of the Adviser and MLAM since 1984.
9
<PAGE>
<TABLE>
<CAPTION>
NAME CAPACITY ADDRESS
- ----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
William M. Petty (35) Vice President(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
OCCUPATION: Vice President of MLAM since 1993 and Portfolio Manager of the Fund
since 1992.
<TABLE>
<S> <C> <C>
Gerald M. Richard (47) Treasurer(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
OCCUPATION: Senior Vice President and Treasurer of the Adviser and MLAM since
1984; Senior Vice President and Treasurer of Princeton Services since 1993; Vice
President of the Distributor since 1981; Treasurer since 1984 and employee of
the Distributor since 1978.
<TABLE>
<S> <C> <C>
Susan B. Baker (39) Secretary(1)(2) 800 Scudders Mill Road
Plainsboro, New Jersey 08536
</TABLE>
OCCUPATION: Vice President of the Adviser since 1993; attorney associated with
the Adviser since 1987.
- ------------------------
(1) Interested person, as defined in the Investment Company Act of 1940, as
amended, of the Program.
(2) The Directors and officers of the Program are Directors or officers of
certain other investment companies for which the Adviser or MLAM acts as
investment adviser.
Set forth below is a chart showing the aggregate compensation paid by the
Program to each of its Directors (for the fiscal year ended December 31, 1996
and, for the calendar year ended December 31, 1996, 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 $ 142,500
Cynthia A. Montgomery(1).................... $ 2,900 None $ 142,500
Charles C. Reilly(1)........................ $ 3,900 None $ 293,833
Kevin A. Ryan(1)............................ $ 2,900 None $ 142,500
Richard R. West(1).......................... $ 2,900 None $ 269,833
</TABLE>
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(1) The Directors serve on the boards of other MLAM/FAM Advised Funds as
follows: Mr. Forbes (23 registered investment companies consisting of 36
portfolios), Ms. Montgomery (23 registered investment companies consisting
of 36 portfolios), Mr. Reilly (41 registered investment companies
consisting of 54 portfolios), Mr. Ryan (23 registered investment companies
consisting of 36 portfolios) and Mr. West (41 registered investment
companies consisting of 54 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, 1997, shares of the
Program owned by all officers and directors of the Program as a group aggregated
less than 1% of the total of such shares then outstanding. The Program pays each
non-interested 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
10
<PAGE>
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 fiscal year ended December 31, 1996, such fees
and expenses to the five non-interested directors of the Program aggregated
$16,100.
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.
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.
11
<PAGE>
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.
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
12
<PAGE>
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. 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
13
<PAGE>
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, 1994, 1995 and 1996, the Program did not pay any brokerage
commissions.
Under the Investment Company Act of 1940, as amended, 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, 1994, 1995 and 1996, 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, as amended, 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.
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>
10-YEAR PERIOD
YEAR ENDED 5-YEAR PERIOD ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ------------------- -------------------
<S> <C> <C> <C>
Average Annual
Total Return (a)........................ 3.36% 6.28% 6.91%
</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
14
<PAGE>
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, 1996
and the related statements of operations for the year then ended and of changes
in net assets for each of the years in the two-year period ended December 31,
1996 and the financial highlights for each of the years in the five-year period
ended December 31, 1996 as stated in their report appearing herein, and such
financial statements have been included herein in reliance upon such report
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.
- ------------------------
* As described by the rating companies themselves.
15
<PAGE>
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 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
16
<PAGE>
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, 1996, 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, 1996 by correspondence with the custodian and broker. 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, 1996, the results of its
operations, and 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 3, 1997
18
<PAGE>
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 Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (in Thousands)
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama-- AAA Aaa $ 5,720 Alabama Private Colleges and Universities Facilities
2.4% Authority Revenue Bonds (Tuskegee University
Project), Series A, 5.75% due 9/01/2026 (i) $ 5,770
AA A1 2,000 Birmingham, Alabama, Crossover Refunding Bonds, 8%
due 10/01/2015 2,099
AAA Aaa 5,000 Huntsville, Alabama, Health Care Authority Revenue Bonds
(Health Care Facilities), Series B, 6.625% due 6/01/2023 (c) 5,503
Arkansas-- AAA NR* 3,125 Arkansas State Development Finance Authority, S/F Mortgage
0.6% Revenue Bonds (Mortgage-Backed Securities Program), Series
C, 6.60% due 7/01/2017 (g) 3,284
California AA- Aa 4,955 California HFA, Home Mortgage Revenue Bonds, AMT, Series F-1,
- --7.7% 7% due 8/01/2026 5,271
A+ A1 2,500 California State, GO, UT, 6.25% due 9/01/2012 2,757
California State Public Works Board, Lease Revenue Bonds,
Series A:
A Aaa 8,000 (Department of Corrections-Monterey County-Soledad II),
6.875% due 11/01/2004 (b) 9,340
A Aaa 5,000 (Secretary of State), 6.75% due 12/01/2002 (b) 5,682
AAA Aaa 4,000 (Various University of California Projects), 6.40% due
12/01/2016 (e) 4,401
AAA Aaa 2,000 Los Angeles County, California, COP (Correctional Facilities
Project), 6.50% due 9/01/2000 (b)(c) 2,189
AA- A1 5,260 Los Angeles County, California, Transportation Commission
Sales Tax Revenue Refunding Bonds, Series B, 6.50% due
7/01/2013 5,579
AAA Aaa 1,250 M-S-R Public Power Agency, California, Revenue Refunding
Bonds (San Juan Project), 6.75% due 7/01/2020 (c) 1,470
AAA Aaa 5,025 Stockton, California, COP (Wastewater Treatment Plant
Expansion), Series A, 6.80% due 9/01/2024 (d) 5,731
Colorado-- AA NR* 2,700 Colorado HFA, S/F Mortgage Program Revenue Bonds, AMT, Series
2.6% D-3, 7.20% due 8/01/2023 (j) 2,809
AA Aa 2,940 Colorado Springs, Colorado, Utilities Revenue Refunding Bonds,
Series A, 6.50% due 11/15/2015 3,161
Douglas County, Colorado, School District No. RE1, Improvement
Bonds (Douglas and Elbert Counties), Series A (c):
AAA Aaa 4,920 6.50% due 12/15/2004 (b) 5,559
AAA Aaa 80 6.50% due 12/15/2016 87
AAA Aaa 2,500 Garfield, Pitkin and Eagle Counties, Colorado, Roaring Fork
School District No. RE1, UT, 6.60% due 6/15/2004 (b)(c) 2,824
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Connecticut AAA Aaa $ 2,000 Connecticut State Development Authority, Water Facility,
- --3.2% Revenue Refunding Bonds (Connecticut Water Company Project),
6.65% due 12/15/2020 (e) $ 2,205
AA Aa 3,825 Connecticut State, HFA, Housing Mortgage Revenue Bonds
(Finance Program), Sub-Series B-1, 6.125% due 5/15/2018 3,921
Connecticut State, Health and Educational Facilities Authority
Revenue Bonds:
AAA Aaa 4,600 (Cherry Brook Nursing Home), 6% due 11/01/2022 (e) 4,738
AAA Aaa 3,000 (Norwalk Hospital), Series D, 6.25% due 7/01/2022 (c) 3,177
AAA Aaa 3,500 Connecticut State, Special Tax Obligation Revenue Bonds,
Series B, 6.10% due 10/01/2011 (d) 3,707
District of A1+ VMIG1++ 1,200 District of Columbia, General Fund Recovery, VRDN, UT, Series
Columbia-- B-1, 4.30% due 6/01/2003 (h) 1,200
1.2% A+ A3 5,000 District of Columbia Revenue Bonds (Howard University),
Series A, 7.25% due 10/01/2020 5,385
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 1,885
AAA Aaa 2,000 Florida State Board of Education, Capital Outlay (Public
Education), Series B, 6.70% due 6/01/2001 (b) 2,199
Georgia-- Metropolitan Atlanta, Georgia, Rapid Transit Authority, Sales
5.0% Tax Revenue Bonds (b):
AAA Aaa 5,000 Second Indenture, Series A, 6.90% due 7/01/2004 (c) 5,792
AA- A1 8,200 Series O, 6.55% due 7/01/2001 9,038
A+ A 10,460 Municipal Electric Authority, Georgia, Special Obligation
Revenue Bonds, Fifth Crossover Series, Project One, 6.50% due
1/01/2017 (a) 11,458
AAA Aaa 1,500 Richmond County, Georgia, Water and Sewer Revenue Refunding
and Improvement Bonds, Series A, 5.25% due 10/01/2028 (d) 1,443
Illinois-- Cook County, Illinois, GO, UT:
3.7% AAA Aaa 10,000 Refunding (Capital Improvement), 5.875% due 11/15/2022 (d) 10,101
AAA Aaa 4,800 Series A, 6.60% due 11/15/2022 (c) 5,241
A1+ Aa3 5,000 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake), Series B, 6.40% due 9/01/2031 5,142
Indiana-- AA Aa3 6,000 Indiana Health Facility Financing Authority, Hospital Revenue
3.1% Refunding Bonds (Clarian Health Partners, Inc.), 5.50% due
2/15/2016 5,776
NR* Aaa 4,315 Indiana State Educational Facilities Authority Revenue Bonds
(University of Notre Dame Project), 6.70% due 3/01/2025 4,775
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 1,149
A+ A1 2,250 Indiana Transportation Finance Authority, Highway Revenue
Bonds, Series A, 8.125% due 6/01/1998 (b) 2,420
A+ NR* 2,865 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 3,112
Kentucky-- AAA A 3,000 Kentucky State Turnpike Authority, Economic Development Road
0.6% Revenue Bonds, Series A, 8.25% due 7/01/1997 (b) 3,129
Louisiana-- AAA Aaa 5,000 New Orleans, Louisiana, Public Improvement Bonds, UT, 7% due
1.7% 9/01/2002 (b)(d) 5,593
AAA Aaa 3,400 New Orleans, Louisiana, Refunding, 6.125% due 10/01/2016 (e) 3,599
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Maine--0.9% AA- Aa $ 4,480 Maine State Housing Authority, Mortgage Purchase, Series D,
6.80% due 11/15/2025 $ 4,690
Massachu- A1+ VMIG1++ 700 Massachusetts Municipal Wholesale Electric Company, Power
setts--6.6% Supply System Revenue Bonds, VRDN, Series C, 4% due
7/01/2019 (h) 700
AAA Aaa 9,520 Massachusetts State, HFA, M/F Housing Refunding Bonds,
Series A, 6.10% due 7/01/2015 (c) 9,750
A+ Aa 3,000 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 38, 7.20% due 12/01/2026 3,213
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
A+ A1 5,900 (Brigham and Womens Hospital Issue), Series D, 6.75% due
7/01/2024 6,326
AAA Aaa 2,550 (Northeastern University), Series E, 6.55% due 10/01/2022 (c) 2,799
AAA Aaa 1,390 (University Hospital), Series C, 7.25% due 7/01/2019 (c) 1,528
NR* MIG1++ 1,500 Massachusetts State Industrial Finance Agency, Health Care
Facility Revenue Bonds (Beverly Enterprises, Inc.), VRDN,
4.20% due 4/01/2009 (h) 1,500
A1+ VMIG1++ 300 Massachusetts State Industrial Finance Agency, PCR, Refunding
(Holyoke Water Power Company), VRDN, Series A, 3.95% due
5/01/2022 (h) 300
NR* NR* 4,000 Massachusetts State Industrial Finance Agency Revenue Bonds
(Newbury College Issue), VRDN, 3.95% due 6/01/2021 (h) 4,000
AAA Aaa 1,000 Massachusetts State Port Authority Revenue Bonds, 13% due
7/01/2013 (a) 1,687
AA- A1 4,560 Massachusetts State Special Obligation Revenue Bonds,
Series A, 5.80% due 6/01/2014 4,637
Michigan-- Michigan State Hospital Finance Authority Revenue Bonds
2.5% (Henry Ford Health Systems), Series A:
AAA Aa 1,500 7% due 7/01/2000 (b) 1,654
AA Aa 6,500 Refunding, 5.25% due 11/15/2020 6,231
Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds (Detroit Edison Co. Project):
AAA Aaa 1,000 6.875% due 12/01/2021 (d) 1,110
AAA Aaa 2,000 Series BB, 7% due 5/01/2021 (e) 2,416
AAA Aaa 1,000 Series CC, 6.95% due 9/01/2021 (d) 1,098
AA Aaa 1,250 Royal Oak, Michigan, Hospital Finance Authority, Hospital
Revenue Bonds (William Beaumont Hospital), Series D, 6.75% due
1/01/2001 (b) 1,376
Minnesota-- AA Aa 4,115 Minnesota State, HFA, S/F Mortgage, AMT, Series M, 6.70% due
0.8% 7/01/2026 4,267
Montana-- AA+ Aa 4,950 Montana State Housing Board, S/F Program, AMT, Series B-2,
0.9% 6.90% due 6/01/2025 5,202
Nevada--1.2% AAA Aaa 2,000 Clark County, Nevada, PCR, Refunding (Nevada Power Company
Project), Series B, 6.60% due 6/01/2019 (d) 2,192
NR* NR* 2,000 Clark County, Nevada, School District (School Improvement),
Series A, 8% due 3/01/1998 (b) 2,132
AAA Aaa 2,240 Nevada Housing Division, S/F Housing Division Program, AMT,
Series E, 7.05% due 4/01/2027 2,366
New AAA Aaa 2,000 New Hampshire Higher Educational and Health Facilities
Hampshire-- Authority, Revenue Refunding Bonds (University System of New
0.4% Hampshire), 6.25% due 7/01/2020 (c) 2,108
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Jersey AAA Aaa $ 4,670 Highland Park, New Jersey, Refunding (School District),
- --6.0% 5.125% due 2/15/2025 (c) $ 4,424
Jersey City, New Jersey, GO (School District), UT (b):
AA A 2,900 6.65% due 2/15/2002 3,225
AA A 3,030 6.65% due 2/15/2002 3,370
AAA Aaa 5,000 New Jersey EDA, Revenue Refunding Bonds (RWJ Health Care
Corporation), 6.50% due 7/01/2024 (i) 5,411
AAA Aaa 1,000 New Jersey Health Care Facilities Financing Authority, Revenue
Refunding Bonds (Hackensack Medical Center), 6.625% due
7/01/2017 (d) 1,079
AAA Aaa 1,500 New Jersey Sports and Exposition Authority, Luxury Tax Revenue
Refunding Bonds (Convention Center), Series A, 6.25% due
7/01/2020 (c) 1,594
A+ Aa 5,000 New Jersey Sports and Exposition Authority (State Contract),
Series A, 6.50% due 3/01/2019 5,322
AAA Aaa 3,000 New Jersey State Educational Facilities Authority Revenue Bonds
(Trenton State College), Series A, 5.10% due 7/01/2021 (c) 2,841
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) 3,181
AA A1 2,500 Rutgers State University, New Jersey, Refunding (State
University of New Jersey), Series A, 6.50% due 5/01/2018 2,691
New Mexico A1+ P1 3,000 Farmington, New Mexico, PCR, Refunding (Arizona Public
- --1.5% Service Co.), VRDN, Series A, 4.15% due 5/01/2024 (h) 3,000
AAA Aaa 5,000 Los Alamos County, New Mexico, Utility System Revenue
Refunding Bonds, Series A, 6% due 7/01/2009 (i) 5,280
New York-- New York City, New York, GO, UT:
15.5% BBB+ Aaa 3,000 Series A, 8% due 8/15/2001 (b) 3,483
BBB+ Baa1 3,000 Series C, Sub-Series C-1, 7.50% due 8/01/2020 3,347
BBB+ Baa1 680 Series D, 7.50% due 2/01/2002 (b) 780
BBB+ Baa1 1,320 Series D, 7.50% due 2/01/2016 1,462
BBB+ Baa1 2,500 Series D, 7.50% due 2/01/2019 2,769
A- A 2,500 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Series A, 6% due
6/15/2025 2,536
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 3,000 (Consolidated City University System), Third Generation,
Series 1, 5.375% due 7/01/2025 (e) 2,902
AA Aa 1,000 (Cornell University), Series A, 7.375% due 7/01/2030 1,105
BBB+ Baa1 3,250 Refunding (State University Educational Facilities),
Series B, 7% due 5/15/2016 3,484
AAA Aa 1,000 (Saint Vincent Hospital and Medical Center), 7.40% due
8/01/2030 (f) 1,119
New York State Environmental Facilities Corporation, PCR,
State Water Revolving Fund:
A Aa 1,425 (New York City Municipal), Series A, 7% due 6/15/2012 1,571
A- Aa 4,050 Refunding (New York City Municipal Water), Series A, 5.875%
due 6/15/2014 4,168
A Aa 1,800 Series A, 7.50% due 6/15/2012 1,985
AA- Aa 500 Series B, 7.50% due 3/15/2011 538
A- A 1,520 New York State, GO, UT, 6.25% due 6/15/2024 1,591
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
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) Series A:
A A $11,650 6.875% due 4/01/2002 (b) $ 13,114
A A 5,000 6.50% due 4/01/2020 5,398
New York State Medical Care Facilities Finance Agency Revenue
Bonds, Series A:
AAA Aaa 1,515 (Mental Health Services Facilities Improvement), 7.80% due
2/15/1999 (b) 1,658
AAA Aaa 3,500 (New York Hospital Mortgage), 6.80% due 8/15/2024 (e)(f) 3,899
NR* Aa 3,750 New York State Mortgage Agency Revenue Refunding Bonds
(Homeowner Mortgage), Series 61, 5.80% due 10/01/2017 3,753
A- A1 5,325 Triborough Bridge and Tunnel Authority, New York, Refunding
(Special Obligations), Series B, 6.875% due 1/01/2015 5,841
Triborough Bridge and Tunnel Authority, New York, Revenue
Bonds (General Purpose):
A+ Aa 2,940 Series B, 5.20% due 1/01/2022 2,800
A+ Aa 5,100 Series X, 6.625% due 1/01/2012 5,802
A+ Aa 9,575 Series X, 6.50% due 1/01/2019 10,344
New York & AA- A1 12,750 Port Authority of New York and New Jersey, Consolidated
New Jersey Bonds, 72nd Series, 7.35% due 10/01/2002 (b) 14,664
- --2.7%
North BBB Aaa 1,330 North Carolina Eastern Municipal Power Agency, Power System
Carolina-- Revenue Refunding Bonds, Series A, 6.50% due 1/01/2018 (a) 1,515
2.8% AAA Aaa 9,550 North Carolina State, Capital Improvement Bond, Series A,
4.70% due 2/01/2004 9,662
AA- Aa 3,500 Pitt County, North Carolina, Revenue Refunding Bonds (Pitt
County Memorial Hospital), 5.25% due 12/01/2021 3,294
AA Aa 1,000 University of North Carolina, Hospital Revenue Bonds (Chapel
Hill University, Board of Governors), 6% due 2/15/2024 1,015
Ohio--1.6% AAA Aaa 3,000 Hamilton, Ohio, Electric System Mortgage Revenue Bonds,
Series B, 8% due 10/15/1998 (b)(d) 3,266
A1+ P1 5,300 Ohio State, PCR, Refunding (Sohio Air Project-BP Petroleum),
VRDN, 4.15% due 5/01/2022 (h) 5,300
Oregon-- AAA Aaa 9,850 Oregon Health Sciences, University Revenue Bonds, Series A,
1.7% 5.75% due 7/01/2021 (c)(k) 2,561
AA Aa 6,500 Oregon State Board of Higher Education, Series A, 6% due
8/01/2026 6,716
Pennsylvania AAA Aaa 2,750 Allegheny County, Pennsylvania, Hospital Development Authority
- --3.2% Revenue Bonds (Children's Hospital of Pittsburgh), 5.30% due
7/01/2026 (c) 2,611
AAA Aaa 2,500 Altoona, Pennsylvania, City Authority, Water Revenue Bonds,
Series A, 6.50% due 11/01/2019 (d) 2,765
A- NR* 4,750 Montgomery County, Pennsylvannia, IDA, Retirement Community
Revenue Bonds (Adult Communities Total Services), Series B,
5.75% due 11/15/2017 4,558
AAA Aaa 3,355 North Penn, Pennsylvania, Water Authority Revenue Bonds, 7%
due 11/01/2004 (b)(d) 3,897
AAA Aaa 4,000 Philadelphia, Pennsylvania, School District, Series B, 5.50%
due 9/01/2025 (e) 3,940
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Puerto Rico AAA NR* $ 2,000 Puerto Rico Commonwealth, Public Improvement, GO, 7.70%
- --0.4% due 7/01/2000 (b) $ 2,266
Rhode AAA Aaa 2,500 Rhode Island Port Authority and Economic Development
Island--0.5% Corporation, Revenue Refunding Bonds (Shepard Building
Project), Series B, 6.75% due 6/01/2025 (e) 2,805
South Piedmont Municipal Power Agency, South Carolina, Electric
Carolina-- Revenue Refunding Bonds (d):
1.1% AAA Aaa 3,000 6.75% due 1/01/2019 3,477
AAA Aaa 1,890 Series A, 6.50% due 1/01/2014 2,114
AAA Aaa 320 Series A, 6.50% due 1/01/2014 (a) 360
Texas--6.4% AAA Aaa 2,000 Austin, Texas, Utility Systems, Combined Revenue Refunding
Bonds, Prior Lien, 6.50% due 5/15/2001 (b)(e) 2,199
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) 2,147
Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds:
AAA Aaa 2,870 (Hermann Hospital Project), 6.375% due 10/01/2024 (c) 3,065
A1+ NR* 2,500 (Methodist Hospital), VRDN, 4.25% due 12/01/2025 (h) 2,500
Harris County, Texas, Toll Road Sub-Lien, Revenue Refunding
Bonds, UT:
AAA NR* 1,250 8.125% due 8/01/1998 (b) 1,354
AA Aa 3,000 6.75% due 8/01/2014 3,261
AAA Aaa 4,700 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Company Project), 6.55% due 10/01/2022 (d) 5,159
AAA Aaa 5,300 San Antonio, Texas, Water Revenue Refunding Bonds, 6.50% due
5/15/2010 (c) 5,782
AAA Aaa 2,000 Texas Municipal Power Agency Revenue Bonds, 14.625% due
3/01/1997 (b) 2,036
AA Aa 1,000 Texas State, Refunding (Veterans Land), UT, 6.50% due
12/01/2021 1,059
AA Aa 2,155 Texas State Veterans' Housing Assistance Fund II, AMT, UT,
Series A, 7% due 12/01/2025 2,276
AAA Aa1 4,800 Texas Water Development Board Revenue Bonds (State Revolving
Fund), Senior-Lien, Series B, 5.125% due 7/15/2018 4,571
Utah--0.6% Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, Series D:
A+ Aa 2,300 5% due 7/01/2021 2,093
A+ Aa 1,000 8.625% due 7/01/2021 1,042
Vermont-- AA Aa3 11,000 Vermont Educational and Health Buildings, Financing Agency
1.9% Revenue Bonds (Middlebury College Project), 5.375% due
11/01/2026 10,588
Virginia-- AA Aa 4,500 Henrico County, Virgina, IDA, Public Facility Lease Revenue
2.2% Bonds (Henrico County Regional Jail Project), 7% due 8/01/2013 5,044
AAA Aaa 2,750 Virginia State Board of Transportation Contract Revenue Bonds
(Route 28 Project), 7.80% due 3/01/1998 (b) 2,930
Virginia State Housing Development Authority, Commonwealth
Mortgage:
AA+ Aa1 1,620 Series C, Sub-Series C-3, 6% due 1/01/2017 1,652
AA+ Aa1 2,500 Series D, Sub-Series D-1, 6.10% due 1/01/2019 2,550
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (concluded) (in Thousands)
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Washington AA+ Aa1 $ 4,000 Seattle, Washington, Refunding Bonds, 6.50% due 3/01/2017 $ 4,224
- --1.8% AAA Aaa 3,000 Tacoma, Washington, Refuse Utility Revenue Bonds, 7% due
12/01/2019 (e) 3,432
AA Aa 2,000 Washington State, GO, Series A, 6.75% due 2/01/2015 2,313
West AAA Aaa 5,185 West Virginia State, Series O, 5% due 11/01/2021 (d) 4,826
Virginia--
0.9%
Wisconsin-- Wisconsin Housing and EDA, Home Ownership Revenue Bonds,
2.5% Series 1:
AA Aa 1,000 6.75% due 9/01/2015 1,045
AA Aa 4,990 6.75% due 9/01/2017 5,210
AAA Aaa 2,000 Wisconsin Public Power System Inc., Power Supply System
Revenue Bonds, Series A, 7.40% due 7/01/2000 (b)(e) 2,234
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) 5,389
Total Investments (Cost--$508,293)--99.1% 546,617
Other Assets Less Liabilities--0.9% 5,232
--------
Net Assets--100.0% $551,849
========
</TABLE>
(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
the prevailing market rate. The interest rate shown is the rate in
effect at December 31, 1996.
(i)FSA Insured.
(j)Federally Guaranteed.
(k)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.
See Notes to Financial Statements.
25
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Statement of Assets and Liabilities As of December 31, 1996
<S> <C> <C>
Assets:
Investments, at value (identified cost--$508,292,785) (Note 1a) $546,617,262
Cash 346,097
Receivables:
Interest $ 9,626,479
Securities sold 140,000
Capital shares sold 129,235 9,895,714
------------
Prepaid registration fees and other assets (Note 1d) 44,902
------------
Total assets 556,903,975
------------
Liabilities:
Payables:
Securities purchased 3,775,979
Capital shares redeemed. 376,991
Investment adviser (Note 2) 246,913 4,399,883
------------
Accrued expenses and other liabilities 654,692
------------
Total liabilities 5,054,575
------------
Net Assets $551,849,400
============
Net Assets Consist of:
Common Stock, $0.01 par value, 100,000,000 shares authorized $ 292,717
Paid-in capital in excess of par 517,535,093
Undistributed investment income--net 1,242,380
Accumulated realized capital losses on investments--net (Note 5) (5,545,267)
Unrealized appreciation on investments--net 38,324,477
------------
Net Assets:
Equivalent to $18.85 per share based on 29,271,710 shares outstanding $551,849,400
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Statement of Operations For the Year Ended December 31, 1996
<S> <C> <C>
Investment Income (Note 1c):
Interest and premium and discount earned $ 33,814,509
Expenses:
Investment advisory fees (Note 2) $ 2,806,869
Transfer agent fees 1,483,930
Printing and shareholder reports 97,936
Accounting services (Note 2) 73,485
Registration fees (Note 1d) 61,794
Custodian fees 50,045
Professional fees 42,718
Pricing services 20,984
Directors' fees and expenses 16,100
Other 11,372
------------
Total expenses 4,665,233
------------
Investment income--net 29,149,276
Realized & Unrealized Loss on Investments (Notes 1c & 3):
Realized loss on investments--net (696,677)
Change in unrealized appreciation on investments--net (10,598,099)
------------
Net Increase in Net Assets Resulting from Operations $ 17,854,500
============
See Notes to Financial Statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Statements of Changes in Net Assets
For the
Year Ended
December 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <C> <C>
Operations:
Investment income--net $ 29,149,276 $ 30,174,069
Realized gain (loss) on investments--net (696,677) 8,961,659
Change in unrealized appreciation/depreciation on investments--net (10,598,099) 43,539,828
------------ ------------
Net increase in net assets resulting from operations 17,854,500 82,675,556
------------ ------------
Dividends to Shareholders (Note 1e):
Investment income--net (29,051,296) (30,313,535)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (29,051,296) (30,313,535)
------------ ------------
Capital Share Transactions (Note 4):
Net decrease in net assets resulting from capital share transactions (18,632,382) (7,880,024)
------------ ------------
Net Assets:
Total increase (decrease) in net assets (29,829,178) 44,481,997
Beginning of year 581,678,578 537,196,581
------------ ------------
End of year* $551,849,400 $581,678,578
============ ============
<FN>
*Undistributed investment income--net $ 1,242,380 $ 1,144,400
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Financial Highlights
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: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 19.22 $ 17.51 $ 19.79 $ 18.93 $ 18.63
-------- -------- -------- -------- --------
Investment income--net .98 1.01 1.03 1.09 1.15
Realized and unrealized gain (loss) on investments--net (.37) 1.71 (2.28) 1.11 .30
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Total from investment operations .61 2.72 (1.25) 2.20 1.45
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.98) (1.01) (1.03) (1.09) (1.15)
Realized gain on investments--net -- -- -- (.25) --
-------- -------- -------- -------- --------
Total dividends and distributions (.98) (1.01) (1.03) (1.34) (1.15)
-------- -------- -------- -------- --------
Net asset value, end of year $ 18.85 $ 19.22 $ 17.51 $ 19.79 $ 18.93
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 3.36% 15.88% (6.44%) 11.93% 8.08%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .83% .86% .89% .86% .88%
======== ======== ======== ======== ========
Investment income--net 5.18% 5.40% 5.54% 5.52% 6.15%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $551,849 $581,679 $537,197 $639,588 $536,952
======== ======== ======== ======== ========
Portfolio turnover 72% 56% 61% 23% 24%
======== ======== ======== ======== ========
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.
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 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.
28
<PAGE>
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, 1996 were $378,255,178 and
$402,248,742, respectively.
Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:
Realized Unrealized
Losses Gains
Long-term securities $ (696,677) $38,324,477
----------- -----------
Total $ (696,677) $38,324,477
=========== ===========
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $38,324,477, of which $38,482,556
related to appreciated securities and $158,079 related to
depreciated securities. The aggregate cost of investments at
December 31, 1996 for Federal income tax purposes was $508,292,785.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 5,183,981 $ 96,872,802
Shares issued to
shareholders in
reinvestment of dividends 1,471,903 27,416,058
------------ ------------
Total issued 6,655,884 124,288,860
Shares redeemed (7,650,329) (142,921,242)
------------ ------------
Net decrease (994,445) $(18,632,382)
============ ============
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)
============ ============
5. Capital Loss Carryforward:
As of December 31, 1996, the Program had a net capital loss
carryforward of approximately $5,549,000, of which $4,849,000
expires in 2002 and $700,000 expires in 2004. This amount will be
available to offset like amounts of any future taxable gains.
29
<PAGE>
- ------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- --------------------------------
--------------------------------
INDEX
- --------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Objectives and Policies........... 2
Investment Restrictions...................... 4
Investment Advisory Agreement................ 5
Directors and Officers....................... 8
Net Asset Value.............................. 11
Redemption of Shares......................... 12
Taxes and Distributions...................... 12
Portfolio Transactions....................... 13
Performance Data............................. 14
General Information.......................... 15
Description of Bond Ratings.................. 15
Independent Auditors' Report................. 18
Financial Statements......................... 19
</TABLE>
- ------------------------------------------
THE
MUNICIPAL
FUND
INVESTMENT
ACCUMULATION
PROGRAM
--------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 25, 1997
--------------------------------------
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(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, 1996
Contained in Part B:
Schedule of Investments as of December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statements of Changes in Net Assets for each of the years in the
two-year period ended December 31, 1996
Financial Highlights for each of the years in the five-year period
ended December 31, 1996
(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).
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
(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).
(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
<TABLE>
<CAPTION>
NUMBER OF HOLDERS
TITLE OF CLASS AT MARCH 31, 1997
- ------------------------------------------------------------- -------------------------------
<S> <C>
Capital Stock, $.01 par value................................ 61,897
</TABLE>
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 registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers Fund,
Inc., Merrill Lynch Federal Securities
C-2
<PAGE>
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Puerto Rico Tax-Exempt Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and the
Municipal Fund Accumulation Program, Inc.; and the following closed-end
registered investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy
Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund,
Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York
Holdings, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management ("MLAM"), an affiliate of FAM, acts as the
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental
Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Holdings Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin American Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch Utility Income Fund, Inc., and Merrill Lynch Variable Series
Funds, Inc.; and the following closed-end registered 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 is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646.
The address of the Investment Adviser, MLAM, Princeton Services, Inc.
("Princeton Services") and Princeton Administrators, L.P. also is Box 9011,
Princeton, New Jersey 08543-9011. The address of 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
C-3
<PAGE>
Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is North Tower, World
Financial Center, 250 Vesey Street, New York, New York 10281-1213. The address
of Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each officer and director of FAM indicating
each business, profession, vocation or employment of a substantial nature in
which each such person has been engaged since January 1, 1994 for his own
account or in the capacity of director, officer, partner or trustee. In
addition, Messrs. Zeikel, Glenn and Richard hold the same positions with
substantially all of the investment companies described in the preceding
paragraph. Messrs. Giordano, Harvey, 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 FAM or MLAM.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ --------------------------------- ---------------------------------------------
<S> <C> <C>
ML & Co....................... Limited Partner Financial Services Holding Company; Limited
Partner of MLAM.
Princeton Services, Inc....... General Partner General Partner of MLAM.
Arthur Zeikel................. President President of MLAM; President and Director of
Princeton Services; Executive Vice
President of ML & Co.; Director of MLFD;
Executive Vice President of Merrill Lynch.
Terry K. Glenn................ Executive Vice President Executive Vice President of MLAM; Executive
Vice President and Director of Princeton
Services; President and Director of MLFD;
Director of MLFDS; President of Princeton
Administrators, L.P.
Vincent R. Giordano........... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
Elizabeth Griffin............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
Norman R. Harvey.............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
Michael J. Hennewinkel........ Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General Counsel and
General Counsel Secretary of MLAM; Senior Vice President,
and Secretary General Counsel, Director and Secretary of
Princeton Services; Director of MLFD.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ --------------------------------- ---------------------------------------------
Ronald M. Kloss............... Senior Vice President and Senior Vice President and Controller of MLAM;
Controller Senior Vice President and Controller of
Princeton Services.
<S> <C> <C>
Stephen M. M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice President
Princeton Services.
Joseph T. Monagle, Jr......... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
Michael L. Quinn.............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Managing
Director and First Vice President of
Merrill Lynch from 1989 to 1995.
Richard L. Reller............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
Gerald M. Richard............. Senior Vice President and Senior Vice President and Treasurer of MLAM;
Treasurer Senior Vice President and Treasurer of
Princeton Services; Vice President and
Treasurer of MLFD.
Ronald L. Welburn............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
Anthony Wiseman............... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable.
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, as amended, and the rules
thereunder are maintained at the offices of Registrant, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and The Bank of New York, 90 Washington Street,
12th Floor, New York, 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.
C-5
<PAGE>
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, each as amended, the Registrant certifies that
it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933, as amended,
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 25th day of April, 1997.
THE MUNICIPAL FUND ACCUMULATION
PROGRAM, INC.
(Registrant)
By /S/ TERRY K. GLENN
------------------------------------
Terry K. Glenn,
EXECUTIVE VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registrant's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ------------------------------------------ ----------------
<S> <C> <C>
* President and Director (Principal April 25, 1997
................................................... Executive Officer)
(Arthur Zeikel)
* Treasurer (Principal Financial and April 25, 1997
................................................... 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/ TERRY K. GLENN April 25, 1997
...............................................
(Terry K. Glenn)
ATTORNEY-IN-FACT
</TABLE>
C-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS
- -----------
<C> <S>
11 --Consent of Deloitte & Touche LLP......................................................................
27 --Financial Data Schedule...............................................................................
</TABLE>
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Municipal Fund Accumulation Program, Inc.:
We consent to the use in Post-Effective Amendment No. 22 to Registration
Statement No. 2-57442 of our report dated February 3, 1997 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 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THE MUNICIPAL FUND ACCUMULATION PROGRAM, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 508292785
<INVESTMENTS-AT-VALUE> 546617262
<RECEIVABLES> 9895714
<ASSETS-OTHER> 390999
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 556903975
<PAYABLE-FOR-SECURITIES> 3775979
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1278596
<TOTAL-LIABILITIES> 5054575
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 517827810
<SHARES-COMMON-STOCK> 29271710
<SHARES-COMMON-PRIOR> 30266155
<ACCUMULATED-NII-CURRENT> 1242380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5545267)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 38324477
<NET-ASSETS> 551849400
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33814509
<OTHER-INCOME> 0
<EXPENSES-NET> (4665233)
<NET-INVESTMENT-INCOME> 29149276
<REALIZED-GAINS-CURRENT> (696677)
<APPREC-INCREASE-CURRENT> (10598099)
<NET-CHANGE-FROM-OPS> 17854500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29051296)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5183981
<NUMBER-OF-SHARES-REDEEMED> (7650329)
<SHARES-REINVESTED> 1471903
<NET-CHANGE-IN-ASSETS> (29829178)
<ACCUMULATED-NII-PRIOR> 1144400
<ACCUMULATED-GAINS-PRIOR> (4848591)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2806869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4665233
<AVERAGE-NET-ASSETS> 556809872
<PER-SHARE-NAV-BEGIN> 19.22
<PER-SHARE-NII> .98
<PER-SHARE-GAIN-APPREC> (.37)
<PER-SHARE-DIVIDEND> (.98)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.85
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
