The
Municipal
Fund
Accumulation
Program,
Inc.
Annual Report
December 31, 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 year ended December 31, 1998, The Municipal Fund
Accumulation Program, Inc.'s net annualized yield was 4.72%. The
Program's total investment return for the 12-month period ended
December 31, 1998 was +5.35%, based on a change in per share net
asset value from $19.22 to $18.50, and assuming reinvestment of
$1.241 per share income dividends and $0.477 per share capital gains
distributions.
For the six months ended December 31, 1998, The Municipal Fund
Accumulation Program, Inc.'s net annualized yield was 4.50%. The
Program's total investment return for the six-month period ended
December 31, 1998 was +3.20%, based on a change in per share net
asset value from $19.02 to $18.50, and assuming reinvestment of
$0.723 per share income dividends and $0.400 per share capital gains
distributions.
The Municipal Market Environment
During the six months ended December 31, 1998, long-term bond yields
generally declined. Modest domestic economic growth coupled with a
continued lack of inflationary pressures has allowed bond yields to
continue the decline seen for most of 1998. The US Treasury market
has also continued to benefit from its "safe-haven" status. The
earlier turmoil in foreign markets, especially in Russia and Brazil,
remains unresolved. The declines in foreign economies also have led
to reduced demand for US exports. This reduction has forced some US
manufacturers to scale back production and initiate significant
contractions in employment. Concerns that the declines in the US
manufacturing sector seen thus far would intensify and spread to the
service sector of the US economy led the Federal Reserve Board to
lower short-term interest rates in September, October and November.
These actions were taken in large part to ensure that US economic
growth would remain at least at its current level of growth. During
the six months ended December 31, 1998, US Treasury bond yields
declined over 50 basis points (0.50%) to end the year at 5.09%. Long-
term uninsured municipal revenue bond yields, as measured by the
Bond Buyer Revenue Bond Index, fell 10 basis points to end the six-
month period at 5.26%.
One of the two principal themes characterizing the municipal bond
market for much of the past year has been the significant increase
in new municipal bond issuance. Over $285 billion in new long-term
tax-exempt bonds were underwritten in 1998, an increase of almost
30% relative to 1997 levels. As tax-exempt bond yields declined in
recent years, increasingly lower municipal bond yields were required
to refinance existing debt. Consequently, the rate of increase in
municipal bond issuance has begun to slow in recent quarters. During
the last six months of 1998, nearly $135 billion in new tax-exempt
bonds were issued, an increase of nearly 10% as compared to the same
period a year earlier. During the three months ended December 31,
1998, $68 billion in new municipal bonds were underwritten, an
increase of just over 5% as compared to the quarter ended December
31, 1997. Unless municipal bond yields decline dramatically in 1999,
new bond issuance in 1999 seems unlikely to match 1998 levels.
The second and perhaps more striking theme during the past year has
been the dramatic underperformance of the municipal bond market. At
the end of 1998, long-term tax-exempt bond yields were at attractive
yield ratios relative to US Treasury securities of comparable
maturities (103%), matching their least expensive level of the year.
Municipal bond yield ratios have averaged approximately 95% for the
last six months and 92% for all of 1998. During 1997, tax-exempt
bond yield ratios averaged 84%. It is likely that the combination of
the increase in new-issue volume and the safe-haven status of US
Treasury securities has driven municipal bond yield ratios to their
present attractive levels. Should new-issue volume decline or
foreign financial markets regain stability in 1999, tax-exempt bond
yield ratios could be expected to quickly return to their more
historic levels (85%--88%).
Looking ahead, the expected combination of moderate economic growth
in the United States and continued negligible inflation suggest a
relatively stable interest rate environment into early 1999.
However, it is likely that foreign financial markets will again be a
critical factor in determining US bond yields. At this time, it
appears that there is little immediate risk of any significant
increase in long-term bond yields.
Fiscal Year in Review
For the fiscal year ended December 31, 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 12-month 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.
While the overall trend in interest rates for the 12-month period
was down, market volatility created a trading range. Interest rates
fluctuated rapidly during the period as opinions on inflation and
whether the Federal Reserve Board was going to lower interest rates
changed. Overall, we believed that inflation was not a problem and
positioned the Program to benefit from a decline in interest rates.
As a result of this strategy, The Municipal Fund Accumulation
Program, Inc.'s total return for the 12-month period ended December
31, 1998 was +5.35%. As of December 31, 1998, the Program's 12-month
net annualized yield and standardized 30-day yield were 4.72% and
4.09%, respectively.
Looking ahead, it is our opinion that interest rates will 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
February 5, 1999
The Municipal Fund Accumulation Program, Inc.
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in The Municipal
Fund Accumulation Program, Inc. compared to growth of an investment
in the Lehman Brothers Municipal Bond Index. Beginning and ending
values are:
12/88 12/98
The Municipal Fund Accumulation
Program Inc.++-- $10,000 $20,100
Lehman Brothers Municipal
Bond Index++++ $10,000 $22,025
[FN]
++Assuming transaction costs and other operating expenses, including
advisory fees. The Municipal Fund Accumulation Program, Inc. invests
in long-term and intermediate-term state, municipal and public
authority bnds (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 12/31/98 +5.35%
Five Years Ended 12/31/98 +5.04
Ten Years Ended 12/31/98 +7.23
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)
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
UPDATES Unit Priced Demand Adjustable
Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1998 (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Arizona-- Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds
1.9% (Catholic Healthcare West Project), Series A:
A A2 $ 5,000 5% due 7/01/2016 $ 4,917
A A2 5,000 5% due 7/01/2021 4,852
California-- AAA Aaa 2,935 Brea, California, Public Financing Authority, Lease Revenue
12.9% Refunding Bonds, 5% due 7/01/2021 (f) 2,921
California Educational Facilities Authority, Revenue Refunding
Bonds (California Institute of Technology):
AAA Aaa 9,605 4.50% due 10/01/2027 8,897
AAA Aaa 10,000 4.25% due 10/01/2028 8,866
AA- Aa2 4,955 California HFA, Home Mortgage Revenue Bonds, AMT, Series F-1,
7% due 8/01/2026 (d) 5,387
A A2 5,000 California Health Facilities Finance Authority Revenue Bonds
(Catholic Healthcare West), Series A, 5% due 7/01/2028 4,817
California State Public Works Board, Lease Revenue Bonds:
A A1 2,000 (California State University), Series C, 5.40% due 10/01/2022 2,085
A Aaa 8,000 (Department of Corrections), Series A, 6.875% due
11/01/2004 (a) 9,431
AAA Aaa 21,535 California State, Refunding, GO, UT, 4.25% due 10/01/2026 (f) 19,109
AAA Aaa 1,250 M-S-R Public Power Agency, California, Revenue Refunding Bonds
(San Juan Project), Series D, 6.75% due 7/01/2020 (f)(h) 1,524
AAA Aaa 1,000 Mojave, California, Water Agency Refunding Bonds (Improvement
District--Morongo Basin), 5.80% due 9/01/2022 (c) 1,080
AAA Aaa 4,000 Tustin, California, Special Tax Community Facilities District
No. 88-1, Refunding (Unified School District), 4.375% due
9/01/2019 (e) 3,707
Colorado-- AAA Aaa 5,100 Denver, Colorado, City and County Airport Revenue Bonds, AMT,
1.0% Series A, 5% due 11/15/2025 (e) 4,964
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 (b) 2,260
AA Aa2 3,825 Connecticut State, HFA, Housing Mortgage Revenue Bonds (Finance
Program), Sub-Series B-1, 6.125% due 5/15/2018 4,095
AAA Aaa 3,000 Connecticut State, Health and Educational Facilities Authority
Revenue Bonds (Norwalk Hospital), Series D, 6.25% due
7/01/2022 (f) 3,267
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1998 (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Florida-- NR* VMIG1++ $ 1,500 Jacksonville, Florida, Health Facilities Authority, Hospital
5.4% Revenue Refunding Bonds (Genesis Rehabilitation Hospital),
VRDN, 3.70% due 5/01/2021 (g) $ 1,500
AAA Aaa 25,000 Sarasota County, Florida, Public Hospital Board, Revenue
Refunding Bonds (Sarasota Memorial Hospital), Series B, 5.50%
due 7/01/2028 (f) 26,958
Georgia-- A A3 10,460 Georgia Municipal Electric Authority, Power Revenue Bonds,
2.3% Series Y, 6.50% due 1/01/2017 12,300
Illinois-- AA- Aa3 5,000 Illinois Development Finance Authority Revenue Bonds
1.2% (Presbyterian Home Lake Project), Series B, 6.40% due 9/01/2031 5,617
A1+ VMIG1++ 700 Illinois Health Facilities Authority, Revenue Refunding Bonds
(University of Chicago Hospitals), VRDN, 4.10% due 8/01/2026 (f)(g) 700
Indiana-- NR* Aaa 4,315 Indiana State Educational Facilities Authority Revenue Bonds
1.6% (University of Notre Dame Project), 6.70% due 3/01/2004 (a) 4,951
AAA Aa3 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 1,215
AA NR* 1,865 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 2,060
Louisiana-- AAA Aaa 2,900 New Orleans, Louisiana, Refunding, 6.125% due 10/01/2016 (b) 3,208
0.6%
Massachu- AAA Aaa 12,200 Massachusetts Bay Transportation Authority, Refunding (General
setts--3.4% Transportation System), Series A, 4.50% due 3/01/2026 (f) 11,205
A+ Aa3 3,000 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 38, 7.20% due 12/01/2026 3,277
AAA Aaa 2,550 Massachusetts State Health and Educational Facilities Authority
+ Revenue Bonds (Northeastern University), Series E, 6.55% due
10/01/2022 (f) 2,819
AA- VMIG1++ 300 Massachusetts State Industrial Finance Agency, PCR, Refunding
(Holyoke Water Power Company), VRDN, Series A, 3.70% due
5/01/2022 (g) 300
Michigan-- Michigan State Strategic Fund, Limited Obligation Revenue
1.8% Refunding Bonds (Detroit Edison Company):
AAA Aaa 2,000 Series BB, 7% due 5/01/2021 (b) 2,545
A1+ P1 7,000 VRDN, Series CC, 4.10% due 9/01/2030 (g) 7,000
Minnesota-- AA+ Aa2 3,835 Minnesota State, HFA, S/F Mortgage, AMT, Series M, 6.70% due
0.8% 7/01/2026 4,099
Montana-- AA+ Aa1 3,395 Montana State Housing Board, S/F Program, AMT, Series B-2,
0.7% 6.90% due 6/01/2025 (d) 3,690
Nevada--2.8% AAA Aaa 2,000 Clark County, Nevada, PCR, Refunding (Nevada Power Company
Project), Series B, 6.60% due 6/01/2019 (c) 2,197
A A2 10,000 Henderson, Nevada, Health Care Facilities Revenue Bonds
(Catholic Healthcare West), 5.375% due 7/01/2026 10,071
AAA Aaa 2,195 Nevada Housing Division, S/F Program, AMT, Senior Series E,
7.05% due 4/01/2027 (d) 2,368
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 (f) 2,178
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 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 Jersey-- Black Horse Pike, New Jersey, Regional School District, GO (c):
17.6% AAA Aaa $ 2,370 4.75% due 12/01/2014 $ 2,380
AAA Aaa 2,780 4.75% due 12/01/2016 2,772
AAA Aaa 1,175 4.75% due 12/01/2017 1,167
NR* Aaa 5,500 Mount Holly, New Jersey, Municipal Utilities Authority, Sewer
Revenue Bonds, 4.75% due 12/01/2028 (f) 5,300
NR* Aaa 1,345 Mount Holly, New Jersey, Municipal Utilities Authority, Sewer
Revenue Refunding Bonds, 5% due 12/01/2016 1,332
New Brunswick, New Jersey, Housing Authority, Lease Revenue
Refunding Bonds (Rutgers University) (c):
AAA Aaa 1,405 5% due 7/01/2013 1,447
AAA Aaa 2,000 4.625% due 7/01/2024 1,883
AAA Aaa 5,000 New Jersey EDA, Revenue Refunding Bonds (RWJ Health Care
Corporation), 6.50% due 7/01/2024 (e) 5,619
AAA Aaa 2,265 New Jersey Health Care Facilities Authority Revenue Bonds
(Virtua Health Issue), 4.75% due 7/01/2018 (e) 2,209
New Jersey Health Care Facilities Financing Authority, Revenue
Refunding Bonds (Saint Barnabas Health), Series B:
AAA Aaa 3,000 5.25% due 7/01/2013 3,133
AAA Aaa 18,000 4.75% due 7/01/2028 17,137
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 (f) 1,639
AAA Aaa 3,000 New Jersey State Housing and Mortgage Finance Agency Revenue
Bonds (Home Buyer), Series L, 6.65% due 10/01/2014 (f) 3,281
AAA Aaa 23,250 New Jersey State Transportation Trust Fund, Transportation
System Authority Revenue Bonds, Series A, 4.50% due
6/15/2019 (e) 21,928
AA A1 2,500 Rutgers State University, New Jersey, Refunding (State
University of New Jersey), Series A, 6.50% due 5/01/2018 2,723
AA A1 9,165 Rutgers State University, New Jersey, Series A, 4.75% due
5/01/2029 8,774
AA+ Aaa 10,000 Union County, New Jersey, Utilities Authority County Deficiency,
Refunding, AMT, Series A2, 5% due 6/15/2028 9,977
New Mexico-- A1+ Aa2 2,700 Hurley, New Mexico, PCR (Kennecott Santa Fe), UPDATES, 4.10%
0.5% due 12/01/2015 (g) 2,700
New York-- AAA VMIG1++ 1,000 Long Island Power Authority, New York, Electric System Revenue
25.6% Bonds, VRDN, Series 7, 4.05% due 4/01/2025 (f)(g) 1,000
AAA Aaa 5,000 Long Island Power Authority, New York, Electric System Revenue
Refunding Bonds, Series A, 5.50% due 12/01/2029 (f) 5,187
AAA Aaa 4,225 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Refunding Bonds (Service Contract), Series
Q, 5.125% due 7/01/2012 (b) 4,418
AAA Aaa 7,560 Metropolitan Transportation Authority, New York, Transportation
Facilities Revenue Refunding Bonds, Series A, 4.75% due
7/01/2024 7,232
New York City, New York, GO:
A- A3 50 Series C, Sub-Series C-1, 7.50% due 8/01/2020 56
A- A3 35 Series D, 7.50% due 2/01/2019 39
A A2 6,750 New York City, New York, IDA, Special Facilities Revenue Bonds
(British Airways PLC Project), AMT, 5.25% due 12/01/2032 6,728
New York City, New York, Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds:
AAA Aaa 8,000 Series A, 5.50% due 6/15/2023 (b) 8,328
AAA Aaa 1,475 Series B, 5.50% due 6/15/2027 (f) 1,550
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 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 AA Aa3 $14,000 New York City, New York, Transitional Finance Authority Revenue
(concluded) Bonds (Future Tax Secured), Series B, 4.50% due 11/15/2027 $ 12,826
AAA Aaa 11,125 New York State Dormitory Authority, Lease Revenue Bonds
(Municipal Health Facilities Improvement Program), Series 1,
4.75% due 1/15/2029 (e) 10,570
New York State Dormitory Authority Revenue Bonds (f):
AAA Aaa 16,000 (Sloan Kettering Cancer Memorial), 5.50% due 7/01/2023 17,397
AAA Aaa 3,000 (State University Athletic Facilities), 5.25% due 7/01/2013 3,168
New York State Dormitory Authority, Revenue Refunding Bonds:
AAA Aaa 3,000 (835 Schools Program), Issue 2, Series F, 5.25% due
7/01/2018 (b) 3,086
AAA Aaa 4,300 (City University Systems), Third Generation Resources,
Series 1, 5.50% due 7/01/2024 (f) 4,522
AAA Aaa 3,000 (New York and Presbyterian Hospitals), Series A, 4.75% due
8/01/2027 (b)(d) 2,849
AAA Aaa 3,750 (New York Medical College), 4.75% due 7/01/2027 (f) 3,578
AAA Aaa 3,000 (State University Educational Facilities), Series A, 4.75%
due 5/15/2025 (f) 2,863
A A2 1,415 New York State, GO, 6.25% due 6/15/2024 1,572
New York State Medical Care Facilities Finance Agency Revenue
Bonds, Series A (a):
AAA Aaa 1,250 (New York Downtown Hospital), 6.70% due 2/15/2005 1,454
AAA Aaa 3,500 (New York Hospital Mortgage), 6.80% due 2/15/2005 (b)(d) 4,091
AAA Aaa 18,070 Port Authority of New York and New Jersey, Consolidated Revenue
Bonds, 116th Series, 4.375% due 10/01/2033 (c) 16,121
Suffolk County, New York, Series A (c):
AAA Aaa 905 4.75% due 8/01/2020 871
AAA Aaa 915 4.75% due 8/01/2021 877
AAA Aaa 930 4.75% due 8/01/2022 890
AAA Aaa 945 4.75% due 8/01/2023 903
AAA Aaa 1,940 Syracuse, New York, Housing Authority, Mortgage Revenue Bonds
(Loretto Rest), Series A, 5.70% due 8/01/2027 (b)(d) 2,062
A+ Aa3 9,575 Triborough Bridge and Tunnel Authority, New York, General
Purpose Revenue Bonds, Series X, 6.50% due 1/01/2019 10,408
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 (h) 1,613
0.5% AA Aa3 1,000 University of North Carolina, Hospital Revenue Bonds (Chapel
Hill University), 6% due 2/15/2024 1,066
Ohio--0.4% AA- Aa3 2,000 Ohio State Water Development Authority, Revenue Refunding Bonds
(Water Development-Dayton Power), Series A, 6.40% due 8/15/2027 2,148
Pennsylvania-- Altoona, Pennsylvania, City Water Authority Revenue Bonds,
1.4% Series A (c):
AAA Aaa 2,460 6.50% due 11/01/2004 (a) 2,833
AAA Aaa 40 6.50% due 11/01/2019 45
AAA Aaa 4,000 Erie, Pennsylvania, City School District, Series A, 5.75% due
5/01/2006 (a)(f) 4,430
Rhode Island AAA Aaa 2,500 Rhode Island Port Authority and Economic Development Corporation
- --0.6% Revenue Bonds (Shepard Building Project), Series B, 6.75% due
6/01/2004 (a)(b) 2,889
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Schedule of Investments as of December 31, 1998 (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Rating Rating Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
South Piedmont Municipal Power Agency, South Carolina, Electric
Carolina-- Revenue Refunding Bonds (c):
1.2% AAA Aaa $ 3,000 6.75% due 1/01/2019 $ 3,683
AAA Aaa 1,890 Series A, 6.50% due 1/01/2014 2,273
AAA Aaa 320 Series A, 6.50% due 1/01/2014 (h) 386
Texas--7.5% AAA Aaa 10,000 Austin, Texas, Revenue Refunding Bonds (Sub-Lien), Series A,
4.25% due 5/15/2028 (f) 8,761
AAA Aaa 2,000 Brazos River Authority, Texas, Revenue Refunding Bonds (Houston
Light and Power Company), Series B, 6.375% due 4/01/2012 (f) 2,195
AAA Aaa 5,455 Brownsville, Texas, Independent School District, 4.75% due
8/15/2023 5,185
AAA Aaa 4,395 Carrollton, Texas, Independent School District, 4.625% due
2/15/2019 4,161
NR* Aaa 4,490 Edcouch Elsa, Texas, Independent School District, 4.75% due
8/15/2022 4,278
AAA Aaa 2,870 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Hermann Hospital Project), 6.375% due
10/01/2004 (a)(f) 3,252
A1+ NR* 1,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN,
4.10% due 12/01/2025 (g) 1,000
AAA Aaa 4,700 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Company Project), 6.55% due 10/01/2022 (c) 5,179
AAA Aaa 2,985 San Antonio, Texas, Water Revenue Bonds, 6.50% due 5/15/2010 (f) 3,267
AA Aa2 2,090 Texas State Veterans' Housing Assistance Fund II, AMT, Series A,
7% due 12/01/2025 2,269
Virginia-- AA Aa2 4,500 Henrico County, Virgina, IDA, Public Facility Lease Revenue
1.8% Bonds, 7% due 8/01/2013 5,265
Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 1,620 Series C, Sub-Series C-3, 6% due 1/01/2017 1,727
AA+ Aa1 2,500 Series D, Sub-Series D-1, 6.10% due 1/01/2019 2,667
Washington-- AA+ Aa1 4,000 Seattle, Washington, GO, Refunding, 6.50% due 3/01/2017 4,290
1.5% AAA Aaa 3,000 Tacoma, Washington, Refuse Utility Revenue Bonds, 7% due
12/01/2004 (a)(b) 3,538
Wisconsin-- AAA Aaa 5,000 Wisconsin State Health and Educational Facilities Authority
1.1% Revenue Bonds (Children's Hospital of Wisconsin Inc. Project),
6.50% due 8/15/2002 (a)(c) 5,553
Total Investments (Cost--$497,498)--98.3% 516,437
Other Assets Less Liabilities--1.7% 9,146
--------
Net Assets--100.0% $525,583
========
<FN>
(a)Prerefunded.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)FHA Insured.
(e)FSA Insured.
(f)MBIA Insured.
(g)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at December 31, 1998.
(h)Escrowed to maturity.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Statement of Assets and Liabilities As of December 31, 1998
<S> <C> <C>
Assets:
Investments, at value (identified cost--$497,497,665) (Note 1a) $516,436,994
Receivables:
Securities sold $ 9,197,205
Interest 7,288,029
Capital shares sold 1,010,371 17,495,605
------------
Prepaid registration fees and other assets (Note 1d) 9,166,369
------------
Total assets 543,098,968
------------
Liabilities:
Payables:
Securities purchased 16,613,995
Capital shares redeemed 265,976
Investment adviser (Note 2) 244,427 17,124,398
------------
Accrued expenses and other liabilities 391,508
------------
Total liabilities 17,515,906
------------
Net Assets $525,583,062
============
Net Assets Consist of:
Common Stock, $0.01 par value, 100,000,000 shares authorized $ 284,169
Paid-in capital in excess of par 500,918,512
Undistributed investment income--net 1,196,697
Undistributed realized capital gains on investments--net 4,244,355
Unrealized appreciation on investments--net 18,939,329
------------
Net Assets:
Equivalent to $18.50 per share based on 28,416,943 shares outstanding $525,583,062
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
The Municipal Fund Accumulation Program, Inc.
Statement of Operations For the Year Ended December 31, 1998
<S> <C> <C>
Investment Income (Note 1c):
Interest and premium and discount earned $ 28,411,476
Expenses:
Investment advisory fees (Note 2) $ 2,680,487
Transfer agent fees 1,021,790
Printing and shareholder reports 117,546
Accounting services (Note 2) 91,338
Custodian fees 46,865
Professional fees 44,655
Registration fees (Note 1d) 38,653
Pricing services 19,690
Directors' fees and expenses 8,980
Other 9,297
------------
Total expenses 4,079,301
------------
Investment income--net 24,332,175
------------
Realized & Unrealized Gain (Loss) on Investments (Notes 1c & 3):
Realized gain on investments--net 23,368,181
Change in unrealized appreciation on investments--net (19,855,581)
------------
Net Increase in Net Assets Resulting from Operations $ 27,844,775
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
The Municipal Fund Accumulation Program, Inc. December 31,
Statements of Changes in Net Assets 1998 1997
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 24,332,175 $ 27,041,719
Realized gain on investments--net 23,368,181 14,714,958
Change in unrealized appreciation on investments--net (19,855,581) 470,433
------------ ------------
Net increase in net assets resulting from operations 27,844,775 42,227,110
------------ ------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (24,377,474) (27,042,103)
Realized gain on investments--net (23,103,998) (5,189,519)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (47,481,472) (32,231,622)
------------ ------------
Capital Share Transactions (Note 4):
Net increase (decrease) in net assets resulting from capital share transactions 1,624,537 (18,249,666)
------------ ------------
Net Assets:
Total decrease in net assets (18,012,160) (8,254,178)
Beginning of year 543,595,222 551,849,400
------------ ------------
End of year* $525,583,062 $543,595,222
============ ============
<FN>
*Undistributed investment income--net $ 1,196,697 $ 1,241,996
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Municipal Fund Accumulation Program, Inc.
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 19.22 $ 18.85 $ 19.22 $ 17.51 $ 19.79
-------- -------- -------- -------- --------
Investment income--net .88 .96 .98 1.01 1.03
Realized and unrealized gain (loss) on investments--net .12 .56 (.37) 1.71 (2.28)
-------- -------- -------- -------- --------
Total from investment operations 1.00 1.52 .61 2.72 (1.25)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.88) (.96) (.98) (1.01) (1.03)
Realized gain on investments--net (.84) (.19) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.72) (1.15) (.98) (1.01) (1.03)
-------- -------- -------- -------- --------
Net asset value, end of year $ 18.50 $ 19.22 $ 18.85 $ 19.22 $ 17.51
======== ======== ======== ======== ========
Total Investment Return:
Based on net asset value per share 5.35% 8.29% 3.36% 15.88% (6.44%)
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .76% .72% .83% .86% .89%
======== ======== ======== ======== ========
Investment income--net 4.54% 5.05% 5.18% 5.40% 5.54%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $525,583 $543,595 $551,849 $581,679 $537,197
======== ======== ======== ======== ========
Portfolio turnover 178% 131% 72% 56% 61%
======== ======== ======== ======== ========
See Notes to Financial Statements.
</TABLE>
The Municipal Fund Accumulation Program, Inc.
Notes to Financial Statements
1. Significant Accounting Policies:
The Municipal Fund Accumulation Program, Inc. (the "Program") is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Program's
financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of
management accruals and estimates. 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 Incorporated ("MLPF&S"), Prudential
Securities, Inc., Dean Witter Reynolds Inc., and Salomon Smith
Barney (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.
The Municipal Fund Accumulation Program, Inc.
Notes to Financial Statements (concluded)
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, 1998 were $913,243,034 and
$934,849,672, respectively.
Net realized gains for the year ended December 31, 1998 and net
unrealized gains as of December 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term securities $23,368,181 $18,939,329
----------- -----------
Total $23,368,181 $18,939,329
=========== ===========
As of December 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $18,918,970, of which $20,693,803
related to appreciated securities and $1,774,833 related to
depreciated securities. The aggregate cost of investments at
December 31, 1998 for Federal income tax purposes was $497,518,024.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
December 31, 1998 Shares Amount
Shares sold 3,320,005 $ 63,415,487
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,354,774 44,384,091
------------ ------------
Total issued 5,674,779 107,799,578
Shares redeemed (5,547,023) (106,175,041)
------------ ------------
Net increase 127,756 $ 1,624,537
============ ============
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)
============ ============
The Municipal Fund Accumulation Program, Inc.
Independent Auditors' Report
<AUDIT-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, 1998, 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 responsi-
bility 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, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
The Municipal Fund Accumulation Program, Inc. as of December 31,
1998, 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 5, 1999
</AUDIT-REPORT>
The Municipal Fund Accumulation Program, Inc.
Important Tax Information (unaudited)
All of the net investment income distributions paid monthly by The
Municipal Fund Accumulation Program, Inc. during its taxable year
ended December 31, 1998 qualify as tax-exempt interest dividends for
Federal income tax purposes. Additionally, the following information
summarizes the per share taxable ordinary income and long-term gain
distributions paid by the Program during the year:
Payable Ordinary Long-Term
Date Income Capital Gains*
04/15/98 $.065546 $.077233
12/30/98 $.296784 $.399595
[FN]
*The entire distribution is subject to a 20% tax rate.
Please retain this information for your records.
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
