The
Municipal
Fund
Accumulation
Program,
Inc.
Semi-Annual Report
June 30, 1998
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
Printed on post-consumer recycled paper
To Our Shareholders:
For the six-month period ended June 30, 1998, The Municipal Fund
Accumulation Program, Inc.'s net annualized yield was 4.82%. The
Program's total investment return for the six-month period ended
June 30, 1998 was +2.08%, based on a change in per share net asset
value from $19.22 to $19.02, and assuming reinvestment of $0.517 per
share income dividends and $0.077 per share capital gains
distributions. (Additional performance information can be found on
page 3 of this report to shareholders.)
The Municipal Market Environment
During the six-month period ended June 30, 1998, long-term tax-
exempt revenue bond yields were little changed. Throughout the
period, the near absence of inflationary pressures continued to
support low interest rates. However, consistently strong domestic
economic growth has caused some investors to fear that the Federal
Reserve Board will be forced eventually to raise short-term interest
rates. Such action would be taken to ensure that the US economy's
present rate of growth would decelerate before any inflationary
pressures could develop. These concerns pushed bond yields modestly
higher by late April.
However, the weakening financial conditions in many Asian countries
subsequently calmed investor fears of Federal Reserve Board
intervention, and fixed-income prices again moved higher. Long-term
uninsured municipal bond yields, as measured by the Bond Buyer
Revenue Bond Index, fell approximately 5 basis points (0.05%) to end
the June quarter at 5.34%. As in late 1997 and early 1998, US
Treasury bond yields benefited from a "flight to quality" as foreign
investors were drawn to the relative safe haven of US Government
securities. Long-term USTreasury bond yields declined approximately
30 basis points to end the June quarter at 5.62%.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. These supply pressures have
prevented tax-exempt bond yields from declining as much as US
Treasury bond yields. During the first six months of 1998, more than
$145 billion in new tax-exempt bonds were under-written, an increase
of over 50% compared to the same period a year ago. During the
quarter ended June 30, 1998, municipalities issued over $75 billion
in new securities, an increase of more than 35% compared to the same
three-month period in 1997. Additionally, corporate issuers have
also viewed current interest rate levels as an opportunity to issue
significant amounts of taxable securities. Thus far in 1998, over
$500 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 70% compared to the same
period a year ago. This sizeable corporate bond issuance has tended
to both support generally higher fixed-income yields and reduce the
demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely
to be maintained. Continued increases in bond issuance will require
lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refinancings.
Preliminary estimates for 1998 total municipal bond issuance are
presently in the $200 billion--$225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in
the year. Earlier this year, municipal bond investors received
approximately $30 billion in coupon payments, bond maturities and
proceeds from early redemptions. The demand generated by these
assets has helped to offset the increase in supply seen thus far in
1998. Historically, the month of July tends to be a period of strong
investor demand as seasonal factors generate strong income flows.
It is also possible that at least some of the recent economic
strength seen in the United States will be reversed in the coming
months. A particularly mild winter has been partially responsible
for a strong housing sector, as well as other construction
industries. This past winter's economic strength may have borrowed
from future quarters' growth. This recent strong trend may not be
sustained and may lead to weaker construction growth later this
year. Additionally, strong economic growth in 1997 and the increased
use of electronic tax filings have resulted in larger and earlier
Federal and state income tax refunds to many individuals. These
refunds appear to have supported strong consumer spending in recent
months, but may be borrowing against weaker spending later this
year.
The continued impact of the Asian financial crisis on the US
domestic economy's future growth remains unclear. Current Asian
economic conditions continue to reflect ongoing weakness. Recent
trade data indicated that reduced US exports to these countries may
have lowered US economic growth by as much as 2% in the first
quarter of 1998. Since further trade deterioration is possible in
the coming months, we do not believe that the Federal Reserve Board
will be willing to raise interest rates, barring a dramatic and
unexpected resurgence of domestic inflation.
These factors suggest that over the near term, interest rates in
general are unlikely to rise by any appreciable amount. Recent
supply pressures have caused municipal bond yield ratios to rise
relative to US Treasury bond yields. At June 30, 1998, long-term tax-
exempt bond yields were at attractive yield ratios relative to US
Treasury securities of comparable maturities (over 90%), well in
excess of their expected range of 85%--88%. Tax-exempt bond yield
ratios rarely exceeded 90% in the 1980s and 1990s. Previous
instances have usually been associated with potential changes in
Federal tax codes that would have adversely affected the tax-favored
status of municipal bonds. The present situation has developed
largely because of a temporary supply imbalance. These imbalances
should soon be corrected as tax-exempt bond issuance slows from its
current rapid pace later this year. Any further pressure on the
municipal market may well represent a very attractive investment
opportunity.
Portfolio Strategy
For the six-month period ended June 30, 1998, we managed the Program
with the intent of sustaining an appealing level of tax-exempt
income while simultaneously seeking to achieve an above-average
total return. During the period, our strategy was to maintain a
fully invested position and use any dips in the market to
aggressively restructure the Program while using market rallies to
sell more aggressively structured bonds.
As the overall trend in interest rates for the six-month period was
down, market volatility created a trading range. Interest rates
fluctuated rapidly during the period as opinions vacillated on
inflation and whether the Federal Reserve Board was going to raise
interest rates. Overall, we believed that inflation was not a
problem and therefore positioned the Program to benefit from a
decline in interest rates. As a result of this strategy, the Program
had an above-average total return and yield relative to the industry
average of comparable tax-exempt funds.
Looking ahead, we believe that interest rates will continue to
fluctuate until a sustained slowdown in the US economy drives them
lower. To that end, our strategy will concentrate on extending
duration on any market back-ups to seek to enhance the total return
of the Program.
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,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Roberto Roffo)
Roberto Roffo
Vice President and Portfolio Manager
August 10, 1998
The Municipal Fund Accumulation Program, Inc.
Average Annual Total Return
Period Covered % Return
Year Ended 6/30/98 +7.69%
Five Years Ended 6/30/98 +5.26
Ten Years Ended 6/30/98 +7.39
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
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of June 30, 1998 (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama-- Huntsville, Alabama, Health Care Authority (c):
1.8% AAA Aaa $ 5,000 (Health Care Facilities), Series B, 6.625% due
6/01/2004 (b) $ 5,703
AAA Aaa 4,050 Series A, 5% due 6/01/2023 3,935
Arkansas-- AAA NR* 3,055 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) 3,307
California-- AAA Aaa 2,825 Anaheim, California, Public Financing Authority, Lease
12.9% Revenue Bonds (Public Improvements Project), Senior Series A,
5% due 3/01/2037 (i) 2,743
AA- Aa 4,955 California HFA, Home Mortgage Revenue Bonds, AMT, Series
F-1, 7% due 8/01/2026 5,364
California State Public Works Board, Lease Revenue Bonds:
A A2 2,000 (California State University), Series C, 5.40% due 10/01/2022 2,036
A Aaa 8,000 (Department of Corrections--Monterey County--Soledad II),
Series A, 6.875% due 11/01/2004 (b) 9,319
AAA Aaa 1,240 (Various California State University Projects), Series A,
6.70% due 10/01/2002 (b) 1,391
A+ A 1,625 (Various California State University Projects), Series A,
6.30% due 10/01/2004 (b) 1,836
AAA Aaa 1,270 (Various University of California Projects), Series A,
6.60% due 12/01/2002 (b) 1,424
A+ A1 4,450 California State, Refunding, GO, UT, 5% due 2/01/2025 4,351
AAA Aaa 3,000 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Refunding Bonds, Proposition A--
First Tier, Senior Series A, 5.25% due 7/01/2027 (c) 3,010
AA- A1 5,260 Los Angeles County, California, Transportation Commission,
Sales Tax Revenue Refunding Bonds, Series B, 6.50% due 7/01/2013 5,642
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) 1,491
AAA Aaa 5,500 San Diego, California, Special Tax, Refunding (Community
Facilities District No. 1), 4.75% due 9/01/2020 (c) 5,228
AAA Aaa 18,000 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Refunding Bonds, 4.75% due 7/01/2023 (e) 17,006
AAA Aaa 5,025 Stockton, California, Revenue Bonds (Wastewater Treatment Plant
Expansion), COP, Series A, 6.80% due 9/01/2004 (b)(d) 5,818
Watsonville, California, Water Revenue Refunding Bonds (c):
AAA Aaa 350 4.50% due 5/15/2009 348
AAA Aaa 400 4.75% due 5/15/2011 400
AAA Aaa 375 4.80% due 5/15/2012 373
AAA Aaa 525 4.90% due 5/15/2013 523
AAA Aaa 430 4.90% due 5/15/2014 426
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of June 30, 1998 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Colorado-- AA+ NR* $ 2,205 Colorado HFA, S/F Program, AMT, Series D-3, 7.20% due 8/01/2023 $ 2,336
1.1% AAA Aaa 3,000 University of Colorado, Hospital Authority Revenue Bonds,
Series A, 6.25% due 11/15/2002 (b)(e) 3,307
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) 2,249
AA Aa 3,825 Connecticut State, HFA, Housing Mortgage Revenue Bonds (Finance
Program), Sub-Series B-1, 6.125% due 5/15/2018 4,063
AAA Aaa 3,000 Connecticut State, Health and Educational Facilities Authority
Revenue Bonds (Norwalk Hospital), Series D, 6.25% due 7/01/2022 (c) 3,247
Delaware-- AAA Aaa 2,000 Delaware River and Bay Authority, Delaware, Revenue Refunding
0.3% Bonds, 4.75% due 1/01/2024 (c) 1,886
Florida--7.6% AAA Aaa 25,695 Florida State Turnpike Authority, Turnpike Revenue Refunding
Bonds, Series A, 4.75% due 7/01/2021 (d) 24,402
Miami--Dade County, Florida, Special Obligation Refunding
Bonds, Series A (c)(j):
AAA Aaa 7,000 5.57% due 10/01/2021 2,037
AAA Aaa 8,775 5.579% due 10/01/2022 2,416
Tampa, Florida, Health System Revenue Bonds (Catholic Health)(c):
AAA Aaa 9,340 Series A-1, 4.875% due 11/15/2023 8,946
AAA Aaa 2,500 Series A-3, 4.75% due 11/15/2028 2,334
Georgia-- A+ A3 10,460 Georgia Municipal Electric Authority, Power Revenue Bonds,
3.4% Series Y, 6.50% due 1/01/2017 12,098
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) 5,780
Illinois--3.0% AA- Aa3 5,000 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake), Series B, 6.40% due 9/01/2031 5,569
NR* VMIG1++ 10,200 Illinois Health Facilities Authority Revenue Bonds (Resurrection
Health Care System), VRDN, 4.15% due 5/01/2011 (h) 10,200
Indiana--1.5% NR* Aaa 4,315 Indiana State Educational Facilities Authority Revenue Bonds
(University of Notre Dame Project), 6.70% due 3/01/2004 (b) 4,919
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 1,202
AA NR* 1,865 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 2,065
Louisiana-- AAA Aaa 2,900 New Orleans, Louisiana, Refunding, 6.125% due 10/01/2016 (e) 3,190
0.6%
Maine--0.9% AA Aa2 4,480 Maine State Housing Authority, Mortgage Purchase, Series D,
6.80% due 11/15/2025 4,810
Massachu- Massachusetts Bay Transportation Authority, Refunding Bonds
setts--6.6% (General Transportation System), Series A (c):
AAA Aaa 8,000 4.75% due 3/01/2021 7,579
AAA Aaa 12,200 4.50% due 3/01/2026 11,045
A+ Aa 3,000 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 38, 7.20% due 12/01/2026 3,266
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of June 30, 1998 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Massachu- Massachusetts State Health and Educational Facilities
setts Authority Revenue Bonds (c):
(concluded) AAA Aaa $2,550 (Northeastern University), Series E, 6.55% due 10/01/2022 $ 2,809
AAA Aaa 1,390 (University Hospital), Series C, 7.25% due 7/01/2019 1,492
A1+ VMIG1++ 300 Massachusetts State Industrial Finance Agency, PCR,
Refunding (Holyoke Water Power Company), VRDN, Series A,
3.20% due 5/01/2022 (h) 300
AAA Aaa 1,000 Massachusetts State Port Authority Revenue Bonds, 13% due
7/01/2013 (a) 1,712
AAA Aaa 7,055 Massachusetts State Water Resources Authority, Refunding,
Series B, 5% due 3/01/2022 (c) 6,887
Michigan-- Michigan State Strategic Fund, Limited Obligation Revenue
0.9% Refunding Bonds (Detroit Edison Company):
AAA Aaa 1,000 (Plantation Project), 6.875% due 12/01/2021 (d) 1,092
AAA Aaa 2,000 Series BB, 7% due 5/01/2021 (e) 2,525
AAA Aaa 1,000 Series CC, 6.95% due 9/01/2021 (d) 1,089
Minnesota-- AA Aa2 4,005 Minnesota State, HFA, S/F Mortgage, AMT, Series M, 6.70%
0.8% due 7/01/2026 4,266
Montana-- AA+ Aa2 4,385 Montana State Housing Board, S/F Program, AMT, Series B-2,
0.9% 6.90% due 6/01/2025 4,748
Nevada-- AAA Aaa 2,000 Clark County, Nevada, PCR, Refunding (Nevada Power Company
0.9% Project), Series B, 6.60% due 6/01/2019 (d) 2,187
AAA Aaa 2,210 Nevada Housing Division, S/F Program, AMT, Series E, 7.05% due
4/01/2027 2,377
New AAA Aaa 2,000 New Hampshire Higher Educational and Health Facilities
Hampshire-- Authority, Revenue Refunding Bonds (University System of
0.4% New Hampshire), 6.25% due 7/01/2020 (c) 2,165
New Jersey-- Casino Reinvestment Development Authority, New Jersey, Parking
4.8% Fee Revenue Bonds, Series A (i):
AAA Aaa 2,500 5.20% due 10/01/2008 2,630
AAA Aaa 3,000 5.25% due 10/01/2014 3,063
AAA Aaa 5,000 New Jersey EDA, Revenue Refunding Bonds (RWJ Health Care
Corporation), 6.50% due 7/01/2024 (i) 5,564
AAA Aaa 1,000 New Jersey Health Care Facilities Financing Authority, Revenue
Refunding Bonds (Hackensack Medical Center), 6.625% due
7/01/2001 (b)(d) 1,091
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) 1,629
A+ Aa 5,000 New Jersey Sports and Exposition Authority (State Contract),
Series A, 6.50% due 3/01/2019 5,467
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) 3,246
AA A1 2,500 Rutgers State University, New Jersey, Refunding (State
University of New Jersey), Series A, 6.50% due 5/01/2018 2,720
New Mexico-- A1+ P1 3,200 Hurley, New Mexico, PCR (Kennecott Santa Fe), VRDN, 4.10% due
0.6% 12/01/2015 (h) 3,200
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of June 30, 1998 (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-- AAA Aaa $ 5,000 Long Island Power Authority, New York, Electric System Revenue
26.8% Bonds, Series A, 5.50% due 12/01/2029 (c) $ 5,137
AAA Aaa 7,560 Metropolitan Transportation Authority, New York, Transportation
Facilities Revenue Refunding Bonds, Series A, 4.75% due
7/01/2024 (c) 7,134
New York City, New York, GO, UT:
A A2 1,520 6.25% due 6/15/2024 1,671
BBB+ A3 180 Series C, Sub-Series C-1, 7.50% due 8/01/2020 202
BBB+ A3 180 Series D, 7.50% due 2/01/2016 199
BBB+ A3 260 Series D, 7.50% due 2/01/2019 288
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds:
AAA Aaa 14,000 Series A, 6% due 6/15/2005 (b) 15,607
AAA Aaa 8,000 Series A, 5.50% due 6/15/2023 (e) 8,211
AAA Aaa 1,475 Series B, 5.50% due 6/15/2027 (c) 1,526
AA Aa3 14,000 New York City, New York, Transitional Finance Authority Revenue
Bonds, Future Tax Secured, Series B, 4.50% due 11/15/2027 12,580
New York State Dormitory Authority Revenue Bonds:
AA Aa2 1,000 (Cornell University), Series A, 7.375% due 7/01/2030 1,080
NR* Aaa 2,570 (Ithaca College), 5% due 7/01/2026 (e) 2,508
AAA Aaa 4,300 Refunding (City University System), Third Generation Resources,
Series 1, 5.50% due 7/01/2024 (c) 4,452
AAA Aaa 10,000 Refunding (New York and Presbyterian Hospitals), 4.75% due
8/01/2027 (e)(f) 9,364
A- A3 3,250 Refunding (State University Educational Facilities), Series B,
7% due 5/15/2016 3,461
AAA Aa2 1,000 (Saint Vincent Hospital and Medical Center), 7.40% due
8/01/2030 (f) 1,105
AAA Aaa 16,000 (Sloan Kettering Memorial Cancer Center), 5.50% due
7/01/2023 (c) 17,135
AAA Aaa 10,000 (State University Educational Facilities), Series A, 4.75%
due 5/15/2025 (c) 9,428
AAA Aaa 5,500 New York State, HFA, Service Contract Obligation Revenue Bonds,
Series C, 6.30% due 9/15/2002 (b) 6,075
New York State Medical Care Facilities Finance Agency Revenue
Bonds, Series A (b):
AAA Aaa 1,250 (New York Downtown Hospital), 6.70% due 2/15/2005 1,444
AAA Aaa 3,500 (New York Hospital Mortgage), 6.80% due 2/15/2005 (e)(f) 4,064
NR* Aa2 10,705 New York State Power Authority, Revenue and General Purpose
Bonds, Series Y, 6.75% due 1/01/2001 (b) 11,592
AAA Aaa 1,940 Syracuse, New York, Housing Authority, Mortgage Revenue Bonds
(Loretto Rest), Series A, 5.70% due 8/01/2027 (e)(f) 2,054
A+ Aa3 9,575 Triborough Bridge and Tunnel Authority, New York, General
Purpose Revenue Bonds, Series X, 6.50% due 1/01/2019 10,380
A- A1 5,325 Triborough Bridge and Tunnel Authority, New York, Special
Obligation Refunding Bonds, Series B, 6.875% due 1/01/2015 5,755
New York & AA- A1 1,815 Port Authority of New York and New Jersey, Consolidated Bonds,
New Jersey-- 111th Series, 5% due 10/01/2032 1,767
0.3%
North AAA Aaa 1,330 North Carolina Eastern Municipal Power Agency, Power System
Carolina-- Revenue Refunding Bonds, Series A, 6.50% due 1/01/2018 (a) 1,589
0.5% AA Aa3 1,000 University of North Carolina, Hospital Revenue Bonds (Chapel
Hill University, Board of Governors), 6% due 2/15/2024 1,065
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of June 30, 1998 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
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 $ 2,159
A1+ Aaa 1,000 Scioto County, Ohio, Hospital Facilities Revenue Bonds (VHA
Central Inc. Capital Asset), VRDN, Series E, 3.50% due
12/01/2025 (e)(h) 1,000
Oregon--0.6% AAA Aaa 10,000 Oregon Health Sciences, University Revenue Bonds, Series A,
5.88% due 7/01/2021 (c)(j) 3,056
Pennsylva- AAA Aaa 7,000 Allegheny County, Pennsylvania, Hospital Development Authority,
nia--4.4% Health System Revenue Refunding Bonds (Catholic Health East),
Series A, 4.875% due 11/15/2026 (e) 6,639
Altoona, Pennsylvania, City Water Authority Revenue Bonds,
Series A (d):
AAA Aaa 2,460 6.50% due 11/01/2004 (b) 2,807
AAA Aaa 40 6.50% due 11/01/2019 45
AAA Aaa 4,000 Erie, Pennsylvania, City School District, UT, Series A, 5.75%
due 5/01/2006 (b)(c) 4,381
AA Aa2 10,000 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds (University of Pennsylvania
Trustees), 4.75% due 7/15/2033 9,285
Rhode AAA Aaa 2,500 Rhode Island Port Authority and Economic Development Corporation,
Island-- Revenue Refunding Bonds (Shepard Building Project), Series B,
0.5% 6.75% due 6/01/2004 (b)(e) 2,868
South AAA Aaa 5,000 Florence County, South Carolina, Hospital Revenue Refunding
Carolina-- Bonds (McLeod Regional Medical Center Project), Series A, 4.75%
2.1% due 11/01/2027 (c) 4,667
Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds (d):
AAA Aaa 3,000 6.75% due 1/01/2019 3,656
AAA Aaa 1,890 Series A, 6.50% due 1/01/2014 2,232
AAA Aaa 320 Series A, 6.50% due 1/01/2014 (a) 379
Texas--6.1% 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) 2,188
AAA Aaa 5,455 Brownsville, Texas, Independent School District, UT, 4.75%
due 8/15/2023 5,145
NR* Aaa 4,490 Edcouch Elsa, Texas, Independent School District, UT, 4.75% due
8/15/2022 4,240
AA Aa2 4,000 Garland, Texas, Refunding and Improvement, UT, 4.50% due 2/15/2019 3,655
AAA Aaa 2,870 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Hermann Hospital Project), 6.375% due
10/01/2004 (b)(c) 3,223
AAA Aaa 2,250 Hurst Euless Bedford, Texas, Independent School District,
Refunding, UT, 4.75% due 8/15/2028 2,111
AAA Aaa 4,700 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Company Project), 6.55% due 10/01/2022 (d) 5,148
AAA Aaa 2,985 San Antonio, Texas, Water Revenue Bonds, 6.50% due 5/15/2010 (c) 3,257
AA Aa2 1,000 Texas State, Refunding (Veterans' Land), UT, 6.50% due 12/01/2021 1,090
AA Aa2 2,155 Texas State Veterans' Housing Assistance Fund II, AMT, UT,
Series A, 7% due 12/01/2025 2,330
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of June 30, 1998 (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Virginia-- AA Aa2 $4,500 Henrico County, Virgina, IDA, Public Facility Lease Revenue
2.4% Bonds (Henrico County Regional Jail Project), 7% due 8/01/2013 $ 5,246
Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 1,620 Series C, Sub-Series C-3, 6% due 1/01/2017 1,711
AA+ Aa1 2,500 Series D, Sub-Series D-1, 6.10% due 1/01/2019 2,645
NR* Aaa 2,750 Virginia State Public Facilities, UT, 6.50% due 6/01/2003 (b) 3,082
Washington-- AA+ Aa1 4,000 Seattle, Washington, Refunding, 6.50% due 3/01/2017 4,276
1.5% AAA Aaa 3,000 Tacoma, Washington, Refuse Utility Revenue Bonds, 7% due
12/01/2004 (b)(e) 3,508
Wisconsin-- Wisconsin Housing and EDA, Home Ownership Revenue Bonds,
2.2% Series 1:
AA Aa 1,000 6.75% due 9/01/2015 1,059
AA Aa 4,990 6.75% due 9/01/2017 5,284
AAA Aaa 5,000 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Children's Hospital of Wisconsin Inc. Project),
6.50% due 8/15/2002 (b)(d) 5,532
Total Investments (Cost--$500,907)--99.4% 527,656
Other Assets Less Liabilities--0.6% 3,400
--------
Net Assets--100.0% $531,056
========
<FN>
(a)Escrowed to maturity.
(b)Prerefunded.
(c)MBIA Insured.
(d)FGIC Insured.
(e)AMBAC Insured.
(f)FHA Insured.
(g)GNMA/FNMA Collateralized.
(h)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at June 30, 1998.
(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.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Statement of Assets and Liabilities As of June 30, 1998
<S> <C> <C>
Assets:
Investments, at value (identified cost--$500,907,010) (Note 1a) $527,655,750
Receivables:
Interest $ 9,190,514
Securities sold 25,000
Capital shares sold 8,494 9,224,008
------------
Prepaid registration fees and other assets (Note 1d) 20,977
------------
Total assets 536,900,735
------------
Liabilities:
Payables:
Securities purchased 5,213,589
Investment adviser (Note 2) 218,473
Capital shares redeemed. 158,068 5,590,130
------------
Accrued expenses and other liabilities 254,550
------------
Total liabilities 5,844,680
------------
Net Assets $531,056,055
============
Net Assets Consist of:
Common Stock, $0.01 par value, 100,000,000 shares authorized $ 279,198
Paid-in capital in excess of par 492,174,053
Undistributed investment income--net 990,476
Undistributed realized capital gains on investments--net 10,863,588
Unrealized appreciation on investments--net 26,748,740
------------
Net Assets:
Equivalent to $19.02 per share based on 27,919,796 shares outstanding $531,056,055
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Statement of Operations For the Six Months Ended June 30, 1998
<S> <C> <C>
Investment Income (Note 1c):
Interest and premium and discount earned $ 14,344,069
Expenses:
Investment advisory fees (Note 2) $ 1,322,396
Transfer agent fees 501,232
Accounting services (Note 2) 38,899
Custodian fees 23,511
Professional fees 20,662
Registration fees (Note 1d) 18,755
Printing and shareholder reports 18,208
Pricing services 10,187
Directors' fees and expenses 4,372
Other 4,536
------------
Total expenses 1,962,758
------------
Investment income--net 12,381,311
Realized & Unrealized Gain (Loss) on Investments (Notes 1c & 3):
Realized gain on investments--net 10,860,131
Change in unrealized appreciation on investments--net (12,046,170)
------------
Net Increase in Net Assets Resulting from Operations $ 11,195,272
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
For the Six For the
The Municipal Fund Accumulation Program, Inc. Months Ended Year Ended
Statements of Changes in Net Assets June 30, 1998 Dec. 31, 1997
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 12,381,311 $ 27,041,719
Realized gain on investments--net 10,860,131 14,714,958
Change in unrealized appreciation on investments--net (12,046,170) 470,433
------------ ------------
Net increase in net assets resulting from operations 11,195,272 42,227,110
------------ ------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (12,632,831) (27,042,103)
Realized gain on investments--net (3,976,715) (5,189,519)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (16,609,546) (32,231,622)
------------ ------------
Capital Share Transactions (Note 4):
Net decrease in net assets resulting from capital share transactions (7,124,893) (18,249,666)
------------ ------------
Net Assets:
Total decrease in net assets (12,539,167) (8,254,178)
Beginning of period 543,595,222 551,849,400
------------ ------------
End of period* $531,056,055 $543,595,222
============ ============
<FN>
*Undistributed investment income--net $ 990,476 $ 1,241,996
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Financial Highlights
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.22 $ 18.85 $ 19.22 $ 17.51 $ 19.79
-------- -------- -------- -------- --------
Investment income--net .45 .96 .98 1.01 1.03
Realized and unrealized gain (loss) on investments--net (.06) .56 (.37) 1.71 (2.28)
-------- -------- -------- -------- --------
Total from investment operations .39 1.52 .61 2.72 (1.25)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.45) (.96) (.98) (1.01) (1.03)
Realized gain on investments--net (.14) (.19) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.59) (1.15) (.98) (1.01) (1.03)
-------- -------- -------- -------- --------
Net asset value, end of period $ 19.02 $ 19.22 $ 18.85 $ 19.22 $ 17.51
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 2.08%+++ 8.29% 3.36% 15.88% (6.44%)
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .74%* .72% .83% .86% .89%
======== ======== ======== ======== ========
Investment income--net 4.68%* 5.05% 5.18% 5.40% 5.54%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $531,056 $543,595 $551,849 $581,679 $537,197
======== ======== ======== ======== ========
Portfolio turnover 83% 131% 72% 56% 61%
======== ======== ======== ======== ========
<FN>
+++Aggregate total investment return.
*Annualized.
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. These unaudited
financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a
normal recurring nature. The following is a summary of significant
accounting policies followed by the Program.
(a) Valuation of securities--Portfolio securities are valued by the
Program's pricing agent, Kenny S&P Evaluation Services ("Kenny").
The method used by Kenny to value the Program's securities is to
obtain "quotes" on comparable securities of comparable quality and
to value such Program securities similarly. These values are not
necessarily bids or actual last sale prices, but are estimates of
the price at which the pricing agent believes the Program could sell
such portfolio securities. The Board of Directors has examined the
methods to be used by the Program's pricing agent in estimating the
value of portfolio securities and believes that such methods will
reasonably and fairly approximate the price at which portfolio
securities may be sold and will result in a good faith determination
of the fair value of such securities.
(b) Income taxes--It is the Program's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (net of amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions to shareholders--Dividends from net
investment income are declared and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Program has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Program's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Program. For such
services, the Program pays a monthly fee of 0.50%, on an annual
basis, of the value of the Program's average daily net assets.
FAM has entered into an Administrative Agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), Prudential Securities, Inc.,
Dean Witter Reynolds Inc., and Smith Barney, Inc. (the
"Administrators"), whereby the Administrators perform certain
administrative duties on behalf of FAM. The Administrators receive a
monthly fee from FAM equal to 0.20%, on an annual basis, of the
Program's average daily net assets.
The Municipal Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
Accounting services are provided to the Program by FAM at cost.
Certain officers and/or directors of the Program are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1998 were $425,919,050 and
$432,135,186, respectively.
Net realized gains for the six months ended June 30, 1998 and net
unrealized gains as of June 30, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term securities $10,860,131 $26,748,740
----------- -----------
Total $10,860,131 $26,748,740
=========== ===========
As of June 30, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $26,748,740, of which $27,414,805 related to
appreciated securities and $666,065 related to depreciated
securities.
The aggregate cost of investments at June 30, 1998 for Federal
income tax purposes was $500,907,010.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Six Months Dollar
Ended June 30, 1998 Shares Amount
Shares sold 1,634,032 $ 31,125,934
Shares issued to share-
holders in reinvestment
of dividends and
distributions 815,262 15,542,238
------------ ------------
Total issued 2,449,294 46,668,172
Shares redeemed (2,818,685) (53,793,065)
------------ ------------
Net decrease (369,391) $ (7,124,893)
============ ============
For the Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 3,747,854 $ 71,019,225
Shares issued to share-
holders 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)
============ ============
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
101 Barclay Street
New York, NY 10007
