The
Municipal
Fund
Accumulation
Program,
Inc.
Annual Report
December 31, 1997
<PAGE>
To Our Shareholders:
================================================================================
For the year ended December 31, 1997, The Municipal Fund Accumulation Program,
Inc.'s net annualized yield was 4.98%. The Program's total investment return for
the 12-month period ended December 31, 1997 was +8.29%, based on a change in per
share net asset value from $18.85 to $19.22, and assuming reinvestment of $0.958
per share income dividends and $0.185 per share capital gains distributions.
For the six months ended December 31, 1997, The Municipal Fund Accumulation
Program, Inc.'s net annualized yield was 4.89%. The Program's total investment
return for the six-month period ended December 31, 1997 was +5.49%, based on a
change in per share net asset value from $18.86 to $19.22, and assuming
reinvestment of $0.477 per share income dividends and $0.185 per share capital
gains distributions.
The Municipal Market Environment
During the six months ended December 31, 1997, long-term fixed-income bond
yields declined to their lowest levels in nearly four years. A continued
positive domestic inflationary environment provided much of the support for the
bond market's improvement through early October 1997. However, during the last
two months of 1997, the turmoil in the world's financial markets, particularly
in the Asian equity market, has produced major declines in bond yields. Since
October 31, 1997, the US Treasury bond market has been the beneficiary of a
significant flight to quality mainly by foreign investors whose own domestic
markets have remained very volatile. Prior to the initial decline in the Asian
equity markets, yields on US Treasury bond had declines similar to those
experienced in the long-term tax-exempt market. During this time, yields in both
markets fell by 25 basis points-35 basis points (0.25%-0.35%). For the six
months ended December 31, 1997, long-term US Treasury bond yields declined over
85 basis points to end the year at 5.91%. Tax-exempt revenue bond yields,
however, have exhibited lesser declines. As measured by the Bond Buyer Revenue
Bond Index, long-term municipal bond yields declined almost 40 basis points to
5.40% for the same period, their lowest level since October 1993.
The increase in new municipal bond issuance over the past six months has
prevented the tax-exempt bond market from more closely mirroring the yield
declines exhibited by its taxable counterpart. During the last six months, over
$120 billion in new long-term municipal bonds were underwritten, an increase of
over 30% compared to the same period in 1996. As interest rates have continued
to decline in recent months, new tax-exempt bond issuance has remained strong.
During December, over $21 billion in new long-term municipal securities were
underwritten. This represented an increase of 9% over the December 1996 level
and was the largest December issuance since 1993.
In our opinion, the recent correction in world equity markets has enhanced the
near-term prospects for continued low, if not declining, interest rates in the
United States. It is likely that the recent correction will result in slower US
domestic growth in the coming months. This decline is likely to be generated in
part by reduced US export growth. Additionally, some decline in consumer
spending can also be expected in response to reduced consumer confidence.
Perhaps more importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be unwilling to
raise interest rates until the full impact of the equity market's corrections
can be established.
All these factors suggest that over the near term, interest rates, including
tax-exempt bond yields, are unlikely to rise by any appreciable amount. It is
probable, however, that
1
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municipal bond yields will remain under some relative pressure as a result of
continued strong new-issue supply. However, the recent pace of municipal bond
issuance is likely to be unsustainable. Continued increases in bond issuance
will require lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refunding. Preliminary estimates
of 1998 total municipal bond issuance are presently in the $195 billion-$220
billion range. These estimates suggest that recent supply pressures are likely
to abate somewhat next year, or at least, exert only minimal technical pressures
during 1998. Additionally, municipal bond investors are expected to receive
approximately $23 billion in January coupon payments, bond maturities and
proceeds from early redemptions. Such assets should serve to intensify investor
demand in the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the end of
December) any further pressure on the municipal market may well represent an
attractive investment opportunity.
Fiscal Year in Review
For the 12 months ended December 31, 1997, the Program was managed with the
intent of sustaining an appealing level of tax-exempt income while
simultaneously pursuing an above-average total return. We began the 12-month
period optimistic that interest rates would decline as a result of the
attractive 6.90% yield on US Treasury bonds and correspondingly high yields on
municipal bonds. This optimism on interest rates proved well founded as these
securities provided a steady level of income as interest rates declined about 60
basis points from July 1997 to December 1997. While the overall trend in
interest rates was down for the year, market volatility created a trading range
in which the Program was managed. Interest rates fluctuated rapidly for the year
as opinions changed on inflation and whether the Federal Reserve Board was going
to raise interest rates.
Overall the Program was positioned to benefit from a decline in interest rates
because of our belief that inflation was not a threat. This strategy worked well
for the 12-month period ended December 31, 1997 as interest rates fell about 100
basis points. The interest rate decline was the result of various circumstances,
such as low inflation and the volatility created by the Asian stock market and
currency crisis. Because of the strategy we employed throughout the fiscal year,
the Program had a competitive total return and yield relative to the industry
average of similar tax-exempt municipal bond funds.
In Conclusion
We appreciate your ongoing interest in The Municipal Fund Accumulation Program,
Inc., and we look forward to assisting you with your financial needs in the
months and years to come.
Sincerely,
/s/ Arthur Zeikel
- -----------------------
Arthur Zeikel
President
/s/ Vincent R. Giordano
- -----------------------
Vincent R. Giordano
Senior Vice President
/s/ Roberto Roffo
- -----------------------
Roberto Roffo
Vice President and Portfolio Manager
February 3, 1998
2
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The Municipal Fund Accumulation Program, Inc.
Total Return Based on a $10,000 Investment
================================================================================
The Municipal Fund Accumulation Program, Inc.*+
Lehman Brothers General Municipal Bond Index++
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Lehman Brothers General Municipal Bond Index.
Beginning and ending values are:
12/87 12/97
- ------- -------
$10,000 $20,888
$10,000 $22,787
* 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.
- --------------------------------------------------------------------------------
The Municipal Fund Accumulation Program, Inc.
Average Annual Total Return
================================================================================
- ------------------------------------------
Period Covered % Return
- ------------------------------------------
Year Ended 12/31/97 +8.29%
- ------------------------------------------
Five Years Ended 12/31/97 +6.32
- ------------------------------------------
Ten Years Ended 12/31/97 +7.65
- ------------------------------------------
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The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1997 (in Thousands)
====================================================================================================================================
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
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<S> <C> <C> <C> <C> <C>
Alabama-- AAA Aaa $ 5,000 Huntsville, Alabama, Health Care Authority Revenue Bonds
3.2% (Health Care Facilities), Series B, 6.625% due 6/01/2004 (b)(c) ............. $ 5,728
AAA Aaa 11,800 Huntsville, Alabama, Health Care Authority, Series A,
5% due 6/01/2023 (c)......................................................... 11,436
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Arkansas-- AAA NR* 3,080 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)...................................................... 3,343
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California-- AAA Aaa 5,000 Anaheim, California, Public Finance Authority, Lease Revenue Bonds
7.4% (Public Improvements Project), Senior Series A, 5% due 3/01/2037 (i)......... 4,841
AA- Aa 4,955 California HFA, Home Mortgage Revenue Bonds, AMT, Series F-1,
7% due 8/01/2026............................................................. 5,374
A Aaa 8,000 California State Public Works Board, Lease Revenue Bonds
(Department of Corrections--Monterey County--Soledad II),
Series A, 6.875% due 11/01/2004 (b).......................................... 9,388
AA- A1 5,260 Los Angeles County, California, Transportation Commission Sales
Tax, Revenue Refunding Bonds, Series B, 6.50% due 7/01/2013.................. 5,653
AAA Aaa 1,250 M-S-R Public Power Agency, California, Revenue Refunding Bonds
(San Juan Project), 6.75% due 7/01/2020 (a)(c)............................... 1,511
AA Aa2 8,000 Metropolitan Water District, Southern California Waterworks Revenue
Bonds, Series A, 5% due 7/01/2037............................................ 7,772
AAA Aaa 5,025 Stockton, California, COP, Revenue Bonds (Wastewater Treatment
Plant Expansion), Series A, 6.80% due 9/01/2024 (d).......................... 5,702
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Colorado-- AA+ NR* 2,465 Colorado HFA, S/F Program, AMT, Series D-3, 7.20% due 8/01/2023.............. 2,604
4.0% AAA Aaa 4,920 Douglas County, Colorado, School District No. RE1 (Douglas and Elbert
Counties Improvement), Series A, 6.50% due 12/15/2004 (b)(c)................. 5,612
AAA Aaa 2,500 Garfield, Pitkin and Eagle Counties, Colorado, School District No. RE1
(Roaring Fork), UT, 6.60% due 6/15/2004 (b)(c)............................... 2,846
A1+ VMIG1+ 10,805 Moffat County, Colorado, PCR, Refunding (PacifiCorp Projects),
VRDN, 4.25% due 5/01/2013 (e)(h)............................................. 10,805
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Connecticut-- AAA Aaa 2,000 Connecticut State Development Authority, Water Facility, Revenue
1.8% Refunding Bonds (Connecticut Water Company Project),
6.65% due 12/15/2020 (e)..................................................... 2,250
AA Aa2 3,825 Connecticut State, HFA, Housing Mortgage Revenue Bonds (Finance
Program), Sub-Series B-1, 6.125% due 5/15/2018............................... 4,070
AAA Aaa 3,000 Connecticut State Health and Educational Facilities Authority Revenue
Bonds (Norwalk Hospital), Series D, 6.25% due 7/01/2022 (c).................. 3,251
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</TABLE>
Portfolio Abbreviations
================================================================================
To simplify the listings of The Municipal Fund Accumulation Program, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list below.
AMT Alternative Minimum Tax (subject to)
COP Certificate of Participation
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
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
4
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The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1997 (in Thousands)
====================================================================================================================================
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Delaware-- AAA Aaa $ 2,000 Delaware River and Bay Authority, Delaware, Revenue Refunding Bonds,
0.3% 4.75% due 1/01/2024 (c)...................................................... $ 1,897
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District of A+ A3 6,000 District of Columbia Revenue Bonds (Howard University), Series A,
Columbia-- 7.25% due 10/01/2020......................................................... 6,534
1.2%
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Florida-- A1+ VMIG1+ 4,000 Dade County, Florida, Water and Sewer System Revenue Bonds,
6.8% VRDN, 3.80% due 10/05/2022 (d)(h)............................................ 4,000
AAA Aaa 2,000 Florida State Board of Education, Capital Outlay (Public Education),
Series B, 6.70% due 6/01/2001 (b)............................................ 2,186
AAA Aaa 25,695 Florida State Turnpike Authority, Turnpike Revenue Refunding Bonds,
Series A, 4.75% due 7/01/2021 (d)............................................ 24,472
Miami--Dade County, Florida, Special Obligation, Refunding Bonds,
Series A (c)(j):
AAA Aaa 7,000 5.57% due 10/01/2021....................................................... 1,957
AAA Aaa 8,775 5.579% due 10/01/2022...................................................... 2,320
A-1 VMIG1+ 2,000 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES,
3.90% due 12/01/2015 (h)..................................................... 2,000
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Georgia-- A+ VMIG1+ 1,100 Burke County, Georgia, Development Authority, PCR, Refunding
3.9% (Georgia Power Company--Vogtle), VRDN, Fifth Series,
4.35% due 9/01/2025 (h)...................................................... 1,100
A-1 VMIG1+ 2,000 Floyd County, Georgia, Development Authority, PCR (Georgia
Power Company Plant--Hammond Project), VRDN,
4.35% due 9/01/2026 (h)...................................................... 2,000
AAA Aaa 5,000 Metropolitan Atlanta, Georgia, Rapid Transit Authority, Sales Tax Revenue
Bonds, Second Indenture, Series A, 6.90% due 7/01/2004 (b)(c)................ 5,812
A+ A3 10,460 Municipal Electric Authority, Georgia, Special Obligation, Fifth Crossover
Series, Project One, 6.50% due 1/01/2017..................................... 12,117
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Illinois--2.0% AAA Aaa 4,800 Cook County, Illinois, UT, Series A, 6.60% due 11/15/2002 (b)(c)............. 5,385
A1+ Aa3 5,000 Illinois Development Finance Authority Revenue Bonds (Presbyterian
Home Lake), Series B, 6.40% due 9/01/2031.................................... 5,482
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Indiana-- NR* Aaa 4,315 Indiana State Educational Facilities Authority Revenue Bonds
1.5% (University of Notre Dame Project), 6.70% due 3/01/2004 (b).................. 4,943
AA- 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.......................................................... 1,196
A+ NR* 1,865 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020..................................... 2,072
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Kentucky-- AAA Aaa 6,000 Jefferson County, Kentucky, Health Facilities Revenue Refunding
1.1% Bonds (Alliant Health System, Inc.), 5.125% due 10/01/2027 (c)............... 5,914
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Louisiana-- AAA Aaa 5,000 New Orleans, Louisiana, Public Improvement Bonds, UT, 7%
1.6% due 9/01/2002 (b)(d)......................................................... 5,592
AAA Aaa 2,900 New Orleans, Louisiana, Refunding, 6.125% due 10/01/2016 (e)................. 3,174
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Maine--0.9% NR* Aa2 4,480 Maine State Housing Authority, Mortgage Purchase, Series D,
6.80% due 11/15/2025......................................................... 4,798
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Massachu- AAA Aaa 9,520 Massachusetts State, HFA, M/F Housing Refunding Bonds, Series A,
setts--9.4% 6.10% due 7/01/2015 (c)...................................................... 10,083
A+ Aa 3,000 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 38, 7.20% due 12/01/2026.............................................. 3,264
</TABLE>
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The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1997 (in Thousands)
====================================================================================================================================
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Massachusetts Massachusetts State Health and Educational Facilities Authority
(concluded) Revenue Bonds:
AAA A1 $ 5,900 (Brigham and Women's Hospital Issue), Series D,
6.75% due 7/01/2001 (b).................................................... $ 6,502
AAA Aaa 2,550 (Northeastern University), Series E, 6.55% due 10/01/2022 (c).............. 2,815
AAA Aaa 1,390 (University Hospital), Series C, 7.25% due 7/01/2019 (c)................... 1,507
A1+ VMIG1+ 300 Massachusetts State Industrial Finance Agency, PCR, Refunding
(Holyoke Water Power Company), VRDN, Series A, 3.90% due 5/01/2022 (h)....... 300
Massachusetts State Port Authority Revenue Bonds:
AAA Aaa 1,000 13% due 7/01/2013 (a)...................................................... 1,732
AA- Aa3 14,780 Series A, 5% due 7/01/2027................................................. 14,337
Massachusetts State Water Resource Authority, General Revenue
Refunding Bonds (c):
AAA Aaa 3,500 Series A, 6% due 8/01/2004 (b)............................................. 3,882
AAA Aaa 7,055 Series B, 5% due 3/01/2022................................................. 6,862
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Michigan-- Michigan State Strategic Fund, Limited Obligation Revenue
1.1% Refunding Bonds (Detroit Edison Company):
AAA Aaa 1,000 (Plantation Project), 6.875% due 12/01/2021 (d)............................ 1,098
AAA Aaa 2,000 Series BB, 7% due 5/01/2021 (e)............................................ 2,536
AAA Aaa 1,000 Series CC, 6.95% due 9/01/2021 (d)......................................... 1,096
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)...................................................... 1,366
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Minnesota-- AA+ Aa2 4,005 Minnesota State, HFA, S/F Mortgage, AMT, Series M,
0.8% 6.70% due 7/01/2026.......................................................... 4,275
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Missouri-- AAA Aaa 4,805 Sikeston, Missouri, Electric Revenue Refunding Bonds,
0.9% 5% due 6/01/2022 (c)......................................................... 4,725
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Montana-- AA+ Aa2 4,565 Montana State Housing Board, S/F Program, AMT, Series B-2,
0.9% 6.90% due 6/01/2025.......................................................... 4,917
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Nevada-- AAA Aaa 2,000 Clark County, Nevada, PCR, Refunding (Nevada Power Company
0.8% Project), Series B, 6.60% due 6/01/2019 (d).................................. 2,188
AAA Aaa 2,230 Nevada Housing Division, S/F Program, AMT, Series E,
7.05% due 4/01/2027.......................................................... 2,406
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New AAA Aaa 2,000 New Hampshire Higher Educational and Health Facilities Authority,
Hampshire-- Revenue Refunding Bonds (University System of New Hampshire),
0.4% 6.25% due 7/01/2020 (c)...................................................... 2,171
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New Jersey-- Casino Reinvestment Development Authority, New Jersey,
5.9% Parking Fee Revenue Bonds, Series A (i):
AAA Aaa 2,500 5.20% due 10/01/2008....................................................... 2,628
AAA Aaa 3,000 5.25% due 10/01/2014....................................................... 3,058
Jersey City, New Jersey, GO (School District), UT (b):
AA Aa3 2,900 6.65% due 2/15/2002........................................................ 3,219
AA Aa3 3,030 6.65% due 2/15/2002........................................................ 3,363
AAA Aaa 5,000 New Jersey EDA, Revenue Refunding Bonds (RWJ Health Care
Corporation), 6.50% due 7/01/2024 (i)........................................ 5,588
AAA Aaa 1,000 New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds (Hackensack Medical Center),
6.625% due 7/01/2017 (d) .................................................... 1,088
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)............................................................ 1,638
</TABLE>
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The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1997 (in Thousands)
====================================================================================================================================
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Jersey A+ Aa $ 5,000 New Jersey Sports and Exposition Authority (State Contract), Series A,
(concluded) 6.50% due 3/01/2019........................................................ $ 5,473
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)....................... 3,257
AA A1 2,500 Rutgers State University, New Jersey, Refunding (State University
of New Jersey), Series A, 6.50% due 5/01/2018................................ 2,730
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New Mexico-- A1+ P1 3,100 Hurley, New Mexico, PCR (Kennecott Santa Fe), VRDN,
0.6% 4.25% due 12/01/2015 (h)..................................................... 3,100
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New York-- AAA Aaa 9,250 Metropolitan Transportation Authority, New York, Commuter Facilities
19.7% Revenue Bonds, Series E, 5% due 7/01/2021 (e)................................ 9,087
AAA Aaa 2,000 Metropolitan Transportation Authority, New York, Transportation Facilities
Revenue Refunding Bonds, Series B-2, 5% due 7/01/2020 (c).................... 1,966
New York City, New York, GO, UT:
BBB+ Aaa 3,000 Series A, 8% due 8/15/2001 (b)............................................. 3,434
BBB+ Aaa 2,820 Series C, Sub-Series C-1, 7.50% due 8/01/2002 (b).......................... 3,245
BBB+ Baa1 180 Series C, Sub-Series C-1, 7.50% due 8/01/2020.............................. 204
BBB+ Aaa 1,820 Series D, 7.50% due 2/01/2002 (b).......................................... 2,073
BBB+ Aaa 2,240 Series D, 7.50% due 2/01/2002 (b).......................................... 2,552
BBB+ Baa1 180 Series D, 7.50% due 2/01/2016.............................................. 202
BBB+ Baa1 260 Series D, 7.50% due 2/01/2019.............................................. 292
New York City, New York, Municipal
Water Finance Authority, Water and
Sewer System Revenue Bonds:
A- A2 8,000 Series A, 5.50% due 6/15/2023.............................................. 8,087
A- A2 3,000 Series B, 5.75% due 6/15/2029.............................................. 3,149
New York State Dormitory Authority Revenue Bonds:
AA Aa2 1,000 (Cornell University), Series A, 7.375% due 7/01/2030....................... 1,093
AAA Aaa 3,123 (Mental Health Services Facilities Improvement), Series D,
5.125% due 8/15/2027 (i)................................................... 3,078
A- A3 15,000 Refunding (State University Educational Facilities),
5% due 5/15/2017........................................................... 14,698
A- A3 3,250 Refunding (State University Educational Facilities), Series B,
7% due 5/15/2016........................................................... 3,504
AAA Aa2 1,000 (Saint Vincent Hospital and Medical Center), 7.40% due 8/01/2030 (f)....... 1,112
New York State Environmental Facilities Corporation, PCR, State
Water Revolving Fund (New York City Municipal Water), Series A:
A Aa2 1,425 7% due 6/15/2001 (b)....................................................... 1,582
A Aa2 2,720 Refunding, 5.875% due 6/15/2014............................................ 2,917
A A2 1,520 New York State, GO, UT, 6.25% due 6/15/2024.................................. 1,650
New York State Local Government Assistance Corporation:
AAA Aaa 13,965 Refunding, Series B, 4.875% due 4/01/2020 (c).............................. 13,513
AAA Aaa 2,000 Refunding, Series C, 5% due 4/01/2021 (c).................................. 1,951
A+ A3 5,000 Series A, 6.50% due 4/01/2001 (b).......................................... 5,454
AAA Aaa 3,500 New York State Medical Care Facilities Finance Agency Revenue Bonds
(New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (e)(f)........... 3,979
AAA Aaa 1,940 Syracuse, New York, Housing Mortgage Authority Revenue Bonds
(Loretto Rest), Series A, 5.70% due 8/01/2027 (e)(f)......................... 2,046
A+ Aa3 9,575 Triborough Bridge and Tunnel Authority, New York, General Purpose
Revenue Bonds, Series X, 6.50% due 1/01/2019................................. 10,459
A- A1 5,325 Triborough Bridge and Tunnel Authority, New York, Special Obligation
Refunding Bonds, Series B, 6.875% due 1/01/2015.............................. 5,799
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The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1997 (in Thousands)
====================================================================================================================================
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
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<S> <C> <C> <C> <C> <C>
New York & Port Authority of New York and New Jersey, Consolidated Bonds,
New Jersey-- 111th Series:
3.9% AA- A1 $ 2,500 5% due 10/01/2022.......................................................... $ 2,468
AA- A1 4,545 5% due 10/01/2027.......................................................... 4,496
AA- A1 14,315 5% due 10/01/2032.......................................................... 14,082
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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)................... 1,598
0.5% AA Aa3 1,000 University of North Carolina, Hospital Revenue Bonds (Chapel Hill
University, Board of Governors), 6% due 2/15/2024............................ 1,062
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Ohio--0.6% AA- Aa3 2,000 Ohio State Water Development Authority, Revenue Refunding Bonds
(Water Development--Dayton Power), Series A, 6.40% due 8/15/2027.............. 2,160
A1+ Aaa 1,000 Scioto County, Ohio, Hospital Facilities Revenue Bonds (VHA Central
Inc. Capital Asset), VRDN, Series E, 4.15% due 12/01/2025 (e)(h)............. 1,000
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Oregon-- AAA Aaa 14,850 Oregon Health Sciences, University Revenue Bonds, Series A,
0.8% 5.83% due 7/01/2021 (c)(j)................................................... 4,394
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Pennsylvania-- Altoona, Pennsylvania, City Authority, Water Revenue Bonds, Series A (d):
0.7% AAA Aaa 2,460 6.50% due 11/01/2004 (b)................................................... 2,817
AAA Aaa 40 6.50% due 11/01/2019....................................................... 45
AA Aa3 1,000 Upper Saint Clair Township, Pennsylvania, School District, Refunding
Bonds, UT, 5.20% due 7/15/2027............................................... 1,007
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Rhode AAA Aaa 2,500 Rhode Island Port Authority and Economic Development Corporation,
Island--0.5% Revenue Refunding Bonds (Shepard Building Project), Series B,
6.75% due 6/01/2004 (b)(e)................................................... 2,881
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South Piedmont Municipal Power Agency, South Carolina, Electric Revenue
Carolina-- Refunding Bonds (d):
1.7% AAA Aaa 3,000 6.75% due 1/01/2019........................................................ 3,693
AAA Aaa 1,890 Series A, 6.50% due 1/01/2014.............................................. 2,230
AAA Aaa 320 Series A, 6.50% due 1/01/2014 (a).......................................... 380
AAA Aaa 3,000 South Carolina State Public Service Authority, Revenue Refunding
Bonds (Santee Cooper), Series A, 5% due 1/01/2029 (c)........................ 2,931
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Tennessee-- AA Aa2 1,000 Metropolitan Government, Nashville and Davidson County,
0.2% Tennessee, UT, 6.125% due 5/15/2002 (b)...................................... 1,093
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Texas--8.2% AAA Aaa 2,000 Austin, Texas, Utility Systems, Combined Revenue Refunding Bonds,
Prior Lien, 6.50% due 5/15/2001 (b)(e)....................................... 2,186
AAA Aaa 2,500 Bexar County, Texas, Health Facilities Development Corporation
Revenue Bonds (Baptist Health System Project), Series B, 5.25%
due 11/15/2031 (c)........................................................... 2,488
AAA Aaa 2,000 Brazos River Authority, Texas, Revenue Refunding Bonds (Houston
Light and Power Company), Series B, 6.375% due 4/01/2012 (c)................. 2,193
NR* Aaa 4,490 Edcouch Elsa, Texas, Independent School District, UT, 4.75%
due 8/15/2022................................................................ 4,235
Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds:
AAA Aaa 2,870 (Hermann Hospital Project), 6.375% due 10/01/2024 (c)...................... 3,166
A1+ NR* 1,400 (Methodist Hospital), VRDN, 4.25% due 12/01/2025 (h)....................... 1,400
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1997 (in Thousands)
====================================================================================================================================
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Texas AAA Aaa $ 4,700 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities Electric
(concluded) Company Project), 6.55% due 10/01/2022 (d)................................... $ 5,156
AAA Aaa 5,300 San Antonio, Texas, Water Revenue Refunding Bonds, 6.50%
due 5/15/2010 (c)............................................................ 5,819
AAA Aaa 15,195 Tarrant County, Texas, Health Facilities Development Corporation,
Health System Revenue Refunding Bonds (Texas Health Resources
System), Series A, 5% due 2/15/2026 (c) ..................................... 14,748
AA Aa2 1,000 Texas State Refunding (Veterans' Land), UT, 6.50% due 12/01/2021............. 1,093
AA Aa2 2,155 Texas State Veterans' Housing Assistance Fund II, AMT, UT, Series A,
7% due 12/01/2025............................................................ 2,336
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia-- AA Aa 4,500 Henrico County, Virgina, IDA, Public Facility Lease Revenue Bonds
2.9% (Henrico County Regional Jail Project), 7% due 8/01/2013..................... 5,229
Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 1,620 Series C, Sub-Series C-3, 6% due 1/01/2017................................. 1,712
AA+ Aa1 2,500 Series D, Sub-Series D-1, 6.10% due 1/01/2019.............................. 2,648
AA+ Aa1 5,775 Virginia State, HDA, M/F Housing, Series B, 5.95% due 5/01/2016.............. 6,077
- ------------------------------------------------------------------------------------------------------------------------------------
Washington-- AA+ Aa1 4,000 Seattle, Washington, Refunding, 6.50% due 3/01/2017.......................... 4,277
1.4% AAA Aaa 3,000 Tacoma, Washington, Refuse Utility Revenue Bonds,
7% due 12/01/2004 (b)(e)..................................................... 3,528
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin-- Wisconsin Housing and EDA, Home Ownership Revenue Bonds, Series 1:
2.2% AA Aa 1,000 6.75% due 9/01/2015........................................................ 1,060
AA Aa 4,990 6.75% due 9/01/2017........................................................ 5,289
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)...................................................... 5,455
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$507,104)--100.4%..................................... 545,899
Liabilities in Excess of Other Assets--(0.4%) ................................. (2,304)
--------
Net Assets--100.0%............................................................ $543,595
========
- ------------------------------------------------------------------------------------------------------------------------------------
</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 rates. The interest rate shown is the rate in effect at
December 31, 1997.
(i) FSA Insured.
(j) 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.
9
<PAGE>
- --------------------------------------------------------------------------------
The Municipal Fund Accumulation Program, Inc.
Statement of Assets and Liabilities As of December 31, 1997
================================================================================
Assets:
Investments, at value (identified cost--$507,104,171)
(Note 1a) ............................................ $545,899,081
Receivables:
Interest ............................................ $ 8,422,587
Capital shares sold ................................. 3,306,815
Securities sold ..................................... 2,537,881 14,267,283
-----------
Prepaid registration fees and other assets (Note 1d) . 20,977
------------
Total assets ......................................... 560,187,341
------------
Liabilities:
Payables:
Securities purchased ................................ 13,464,762
Custodian bank (Note 1f)............................. 2,289,825
Capital shares redeemed.............................. 237,553
Investment adviser (Note 2) ......................... 234,745 16,226,885
-----------
Accrued expenses and other liabilities ............... 365,234
------------
Total liabilities .................................... 16,592,119
------------
Net Assets ........................................... $543,595,222
============
Net Assets Consist of:
Common Stock, $0.01 par value, 100,000,000
shares authorized .................................... $ 282,892
Paid-in capital in excess of par .................... 499,295,252
Undistributed investment income--net ................. 1,241,996
Undistributed realized capital gains on
investments--net ..................................... 3,980,172
Unrealized appreciation on investments--net .......... 38,794,910
------------
Net Assets:
Equivalent to $19.22 per share based on 28,289,187
shares outstanding ................................... $543,595,222
============
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
The Municipal Fund Accumulation Program, Inc.
Statement of Operations For the Year Ended December 31, 1997
================================================================================
Investment Income (Note 1c):
Interest and premium and discount earned .............. $ 30,915,910
Expenses:
Investment advisory fees (Note 2) ..................... $ 2,678,488
Transfer agent fees ................................... 861,533
Printing and shareholder reports ...................... 83,234
Accounting services (Note 2) .......................... 70,048
Custodian fees ........................................ 49,273
Registration fees (Note 1d) ........................... 45,473
Professional fees ..................................... 40,330
Pricing services ...................................... 21,872
Directors' fees and expenses .......................... 13,197
Other ................................................. 10,743
-----------
Total expenses ........................................ 3,874,191
------------
Investment income--net ................................ 27,041,719
Realized & Unrealized Gain on Investments
(Notes 1c & 3):
Realized gain on investments--net ..................... 14,714,958
Change in unrealized appreciation on investments--net . 470,433
------------
Net Increase in Net Assets Resulting from Operations .. $ 42,227,110
============
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
For the Year Ended
The Municipal Fund Accumulation Program, Inc. December 31,
------------------------------
Statements of Changes in Net Assets 1997 1996
=======================================================================================================
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net ................................................ $ 27,041,719 $ 29,149,276
Realized gain (loss) on investments--net .............................. 14,714,958 (696,677)
Change in unrealized appreciation on investments--net ................. 470,433 (10,598,099)
------------- -------------
Net increase in net assets resulting from operations .................. 42,227,110 17,854,500
------------- -------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net ................................................ (27,042,103) (29,051,296)
Realized gain on investments--net ..................................... (5,189,519) --
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ........................................ (32,231,622) (29,051,296)
------------- -------------
Capital Share Transactions (Note 4):
Net decrease in net assets resulting from capital share transactions .. (18,249,666) (18,632,382)
------------- -------------
Net Assets:
Total decrease in net assets .......................................... (8,254,178) (29,829,178)
Beginning of year ..................................................... 551,849,400 581,678,578
------------- -------------
End of year .......................................................... $ 543,595,222 $ 551,849,400
============= =============
- -------------------------------------------------------------------------------------------------------
Undistributed investment income--net ................................. $ 1,241,996 $ 1,242,380
============= =============
- -------------------------------------------------------------------------------------------------------
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: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year .................... $ 18.85 $ 19.22 $ 17.51 $ 19.79 $ 18.93
-------- -------- -------- -------- --------
Investment income--net ................................ .96 .98 1.01 1.03 1.09
Realized and unrealized gain (loss) on investments--net .56 (.37) 1.71 (2.28) 1.11
-------- -------- -------- -------- --------
Total from investment operations ...................... 1.52 .61 2.72 (1.25) 2.20
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .............................. (.96) (.98) (1.01) (1.03) (1.09)
Realized gain on investments--net ................... (.19) -- -- -- (.25)
-------- -------- -------- -------- --------
Total dividends and distributions ..................... (1.15) (.98) (1.01) (1.03) (1.34)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 19.22 $ 18.85 $ 19.22 $ 17.51 $ 19.79
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share .................... 8.29% 3.36% 15.88% (6.44%) 11.93%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .............................................. .72% .83% .86% .89% .86%
======== ======== ======== ======== ========
Investment income--net ................................ 5.05% 5.18% 5.40% 5.54% 5.52%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) ................ $543,595 $551,849 $581,679 $537,197 $639,588
======== ======== ======== ======== ========
Portfolio turnover .................................... 131% 72% 56% 61% 23%
======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
11
<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 share holders--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates.
(f) Custodian bank--The Program recorded an amount payable to the Custodian Bank
resulting from a timing difference of capital share transaction settlements.
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
12
<PAGE>
- --------------------------------------------------------------------------------
The Municipal Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
================================================================================
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.
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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1997 were $668,266,109 and $691,571,078, respectively.
Net realized and unrealized gains as of December 31, 1997 were as follows:
- -------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- -------------------------------------------------------------------------------
Long-term securities .............................. $14,714,958 $38,794,910
----------- -----------
Total ............................................. $14,714,958 $38,794,910
=========== ===========
- -------------------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $38,794,910, all of which was related to appreciated
securities. The aggregate cost of investments at December 31, 1997 for Federal
income tax purposes was $507,104,171.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
- -------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1997 Shares Amount
- -------------------------------------------------------------------------------
Shares sold...................................... 3,747,854 $ 71,019,225
--------- ------------
Shares issued to
shareholders in
reinvestment of
dividends and
distributions.................................... 1,548,222 29,326,623
--------- ------------
Total issued..................................... 5,296,076 100,345,848
Shares redeemed.................................. (6,278,599) (118,595,514)
--------- ------------
Net decrease..................................... (982,523) $(18,249,666)
========= ============
- -------------------------------------------------------------------------------
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)
========= ============
13
<PAGE>
- --------------------------------------------------------------------------------
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, 1997, 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, 1997 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, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 4, 1998
- --------------------------------------------------------------------------------
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, 1997
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the Program distributed $.185262 per share of long-term capital
gains to shareholders of record as of December 29, 1997. Of this amount, 93% is
subject to a 20% tax rate and 7% is subject to a 28% tax rate.
Please retain this information for your records.
14
<PAGE>
================================================================================
Officers and Directors
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
Roberto Roffo--Vice President
Gerald M. Richard--Treasurer
Susan B. Baker--Secretary
Custodian and Transfer Agent
The Bank of New York
110 Washington Street
New York, NY 10286
15
<PAGE>
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
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