The
Municipal
Fund
Accumulation
Program,
Inc.
Annual Report
December 31, 1996
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Program unless
accompanied or preceded by the Program's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
The Municipal Fund
Accumulation Program, Inc.
Box 9011
Princeton, NJ 08543-9011
To Our Shareholders:
For the year ended December 31, 1996, The Municipal Fund
Accumulation Program, Inc.'s net annualized yield was 5.18%. The
Program's total investment return for the 12-month period ended
December 31, 1996 was +3.36%, based on the change in per share net
asset value from $19.22 to $18.85, and assuming reinvestment of
$0.979 per share income dividends.
<PAGE>
For the six months ended December 31, 1996, The Municipal Fund
Accumulation Program, Inc.'s net annualized yield was 5.07%. The
Program's total investment return for the six-month period ended
December 31, 1996 was +4.91%, based on the change in per share net
asset value from $18.44 to $18.85, and assuming reinvestment of
$0.485 per share income dividends.
The Municipal Market Environment
Long-term tax-exempt bond yields moved slightly lower during the six-
month period ended December 31, 1996. As measured by the Bond Buyer
Revenue Bond Index, yields on A-rated uninsured municipal revenue
bonds declined an additional 8 basis points (0.08%) to end the 1996
calendar year at 5.92%. Tax-exempt bond yields initially had
declined to approximately 5.80% by late November. However, Federal
Reserve Board Chairman Alan Greenspan's comments regarding possible
excesses in the US equity market and an "uncertain" inflationary
outlook rekindled investors' earlier concerns and fixed-income
interest rates rose for the remainder of the six-month period. US
Treasury bond yields exhibited a more significant decline during the
December quarter, falling approximately 35 basis points to 6.54% at
December 31, 1996.
Much of the tax-exempt bond market's strong technical position --
one of the primary reasons for the improvement in municipal bond
yields in 1996 -- remained intact. Over the last year, approximately
$180 billion in long-term municipal securities was issued, an
increase of approximately 15% versus the same period a year ago.
Much of this increase was the result of issuers seeking to refinance
their existing higher-couponed debt as interest rates declined in
1995 and early 1996. As interest rates rose, these financings became
increasingly economically impractical and issuance declined. Over
the last six months, approximately $90 billion in long-term tax-
exempt securities was underwritten, essentially unchanged versus the
comparable period a year earlier. Over the last three months, $53
billion in tax-exempt securities was issued, also unchanged versus
the December 31, 1995 quarter. The municipal bond market's recent
underperformance relative to Treasury issues was the result of a
number of other factors. Among other things, as tax-exempt bond
yields declined below 6%, in the past some investors temporarily
have lost interest in the municipal bond market. As interest rates
continue to decline, as they did at the end of 1994 and throughout
1995, investors quickly adjusted to the new levels.
<PAGE>
In addition, the Presidential and Congressional elections this past
November resurrected some investor concerns regarding continued
Federal deficit reduction and potential legislative restrictions
upon the municipal bond market. This situation is similar to that at
the beginning of 1996 when tax-exempt bond yields were negatively
impacted by speculation that legislation reducing the tax advantages
of municipal bonds would be introduced to aid further deficit
reductions. Also, earlier fears that the Democratic party could
regain control of both houses of Congress, as well as maintain the
White House, may have caused some investors to wait until after the
elections before allocating investment funds into the municipal bond
market.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 90% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive
than they were mid-year when yield ratios had declined to
approximately 85%. For example, to an investor in the maximum
Federal income tax bracket, current tax-exempt bond yields represent
a taxable equivalent yield of approximately 9.75%.
Looking forward, the supply of new bond issuance for 1997 is
expected to be very similar to that of 1996, with most annual
estimates falling in the $170 billion -- $175 billion range.
Investor demand is also expected to remain strong, with 1997 total
municipal redemptions (refundings, maturities and coupon payments)
in the $175 billion -- $185 billion range. This overall balance
suggests that the positive technical backdrop the municipal bond
market enjoyed in 1996 could continue in 1997. However, it is likely
that seasonal factors will temporally distort this overall balanced
technical scenario. During periods of reduced bond issuance, such as
January and July on a historical basis, the ease and ability to
purchase tax-advantaged products at their current attractive levels
may be greatly restricted.
Fiscal Year in Review
Over the six months ended December 31, 1996, we slowly shifted The
Municipal Fund Accumulation Program, Inc. away from the defensive
posture we had adopted during the first half of 1996 toward a more
neutral structuring. This change in outlook toward the market came
about largely because of our belief that long-term interest rates
had already discounted an unlikely tightening of monetary policy by
the end of the summer. By August, long-term interest rates rose
substantially in response to above-trend economic growth during the
first half of the year, thereby setting the stage for a pause in
growth and a subsequent bond market rally. To better participate in
a potential rally, we pursued a strategy designed to increase the
Program's sensitivity to changes in interest rates. This entailed
changing the portfolio mix to increase the percentage of long
duration securities to seek to enhance potential total return.
During the six-month period ended December 31, 1996, we kept cash
reserves to a minimum level to seek to maintain a competitive
dividend for our shareholders.
<PAGE>
We pursued this strategy without compromising the strong credit
quality characteristics and diversification mix of the portfolio. At
December 31, 1996, fully 94% of the portfolio was invested in
securities rated A or better by at least one of the major rating
agencies. Looking forward as we begin 1997, we again have become
more cautious on the bond market as the economy appears to have
regained some strength after its brief pause during the third
quarter of 1996. As such, we expect to adopt a more neutral approach
to the market until a clearer direction for interest rates emerges
during the new year.
As a result of this strategy, The Municipal Fund Accumulation
Program, Inc. was able to perform better than the industry averages
for both total return and current yield. The total return for the
12-month period ended December 31, 1996 was +3.36% as compared to a
+3.30% average return for all general municipal debt funds and a
+2.83% average return for all insured municipal debt funds. The
12-month current yield for The Municipal Fund Accumulation Program,
Inc. of 5.18% also compares favorably to the averages for all
general municipal debt funds (4.96%) and all insured municipal debt
funds (4.76%). The Program's standardized 30-day yield as of
December 31, 1996 was 4.37%.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
<PAGE>
(William M. Petty)
William M. Petty
Vice President and Portfolio Manager
January 31, 1997
The Municipal Fund Accumulation Program, Inc.
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in The Municipal
Fund Accumulation Program, Inc. compared to growth of an investment
in the Lehman Brothers General Municipal Bond Index: Beginning and
ending values are:
12/86 12/96
Municipal Fund Accumulation
Program, Inc.*++ $10,000 $19,505
Lehman Brothers General
Municipal Bond Index++++ $10,000 $21,181
[FN]
*Assuming transaction costs and other operating expenses, including
advisory fees.
++The Municipal Fund Accumulation Program, Inc. invests in long- and
intermediate-term state, municipal and public authority bonds
(including private activity bonds), the interest on which is exempt
from Federal income tax.
++++This unmanaged Index consists of revenue bonds, general
obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Officers and Directors
<PAGE>
Arthur Zeikel--President and Director
Ronald W. Forbes--Director
Cynthia A. Montgomery--Director
Charles C. Reilly--Director
Kevin A. Ryan--Director
Richard R. West--Director
Terry K. Glenn--Executive Vice President
Vincent R. Giordano--Senior Vice President
Donald C. Burke--Vice President
Kenneth A. Jacob--Vice President
William M. Petty--Vice President
Gerald M. Richard--Treasurer
Susan B. Baker--Secretary
Custodian and Transfer Agent
The Bank of New York
110 Washington Street
New York, New York 10286
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>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (in Thousands)
<CAPTION>
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
<PAGE>
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>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
<CAPTION>
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
<PAGE>
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
<PAGE>
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>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
<CAPTION>
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
<PAGE>
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>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
<CAPTION>
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
<PAGE>
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>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York New York State Local Government Assistance Corporation,
(concluded) 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
<PAGE>
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>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (continued) (in Thousands)
<CAPTION>
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
<PAGE>
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
<PAGE>
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>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1996 (concluded) (in Thousands)
<CAPTION>
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
========
<PAGE>
<FN>
(a)Escrowed to maturity.
(b)Prerefunded.
(c)MBIA Insured.
(d)FGIC Insured.
(e)AMBAC Insured.
(f)FHA Insured.
(g)GNMA/FNMA Collateralized.
(h)The interest rate is subject to change periodically based upon
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.
</TABLE>
<TABLE>
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
============
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
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>
<PAGE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Statements of Changes in Net Assets
<CAPTION>
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>
The Municipal Fund Accumulation Program, Inc.
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 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
-------- -------- -------- -------- --------
<PAGE>
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>
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.
<PAGE>
(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.
The Municipal Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
Accounting services are provided to the Program by FAM at cost.
<PAGE>
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
<PAGE>
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.
<AUDIT-REPORT>
The Municipal Fund Accumulation Program, Inc.
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.
<PAGE>
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
</AUDIT-REPORT>
The Municipal Fund Accumulation Program, Inc.
Important Tax Information (unaudited)
All of the net investment income distributions paid monthly by The
Municipal Fund Accumulation Program, Inc. during its taxable year
ended December 31, 1996 qualify as tax-exempt interest dividends for
Federal income tax purposes. Additionally, there were no capital
gains distributed by the Program during the year.
Please retain this information for your records.
