AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1996
FILE NO. 2-60367
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 21 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
AMENDMENT NO. 18
(CHECK APPROPRIATE BOX OR BOXES)
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THE GNMA FUND INVESTMENT
ACCUMULATION PROGRAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 9051 08543-9051
PRINCETON, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-8717
MICHAEL J. PERINI, PRESIDENT
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
P.O. BOX 9051, PRINCETON, N.J. 08543-9051
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
COUNSEL FOR THE PROGRAM:
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, N.Y. 10017
ATTENTION: PIERRE DE SAINT PHALLE
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of rule 485
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THIS REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON FEBRUARY 27, 1996.
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<PAGE>
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<S> <C> <C>
PART A
1. Cover Page................................. Cover Page
2. Synopsis................................... Fee Table
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... Investment Policies and Considerations,
General Information, Cover Page
5. Management of the Fund..................... Fee Table, General Information, Back Cover
5A. Management Discussion of Fund
Performance................................ Annual Report dated December 31, 1995**
6. Capital Stock and Other Securities......... General Information, Distributions and
Taxes
7. Purchase of Securities Being Offered....... Terms and Conditions of Participation, Back
Cover
8. Redemption or Repurchase................... Redemption
9. Pending Legal Proceedings.................. *
PART B
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Back Cover
12. General Information and History............ *
13. Investment Objectives and Policies......... Investment Policies and Restrictions
14. Management of the Fund..................... Directors and Officers
15. Control Persons and Principal Holders of
Securities................................. Directors and Officers
16. Investment Advisory and Other Services..... Administration Agreement, General
Information, Back Cover
17. Brokerage Allocation....................... Portfolio Transactions
18. Capital Stock and Other Securities......... *
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Net Asset Value, Redemption
20. Tax Status................................. Federal Taxes
21. Underwriters............................... *
22. Calculations of Performance Data........... *
23. Financial Statements....................... Annual Report dated December 31, 1995**
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
- ------------
* Item inapplicable or answer negative.
** Incorporated by reference in Statement of Additional Information.
<PAGE>
THE GNMA FUND
INVESTMENT ACCUMULATION PROGRAM, INC.
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Shares of
Common Stock Prospectus dated April 29, 1996
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The GNMA Fund Investment Accumulation Program, Inc. (the "Program") is a mutual
fund whose primary investment objectives are to obtain safety of capital and
current income through investment in a portfolio consisting primarily of
mortgage-backed securities of the modified pass-through type fully guaranteed as
to principal and interest by The Government National Mortgage Association
("GNMA"). The full faith and credit of the United States is pledged to the
payment of the GNMA guarantee but the Shares of the Program, as such, are not
backed by such full faith and credit. There are, of course, market risks
inherent in any investment in long-term securities, and there can be no
assurance that the Program will attain its objectives. The Program will purchase
and sell mortgage-backed securities and may incur profits or losses on these
transactions. Shares of the Program are redeemable at any time at the net asset
value next determined after receipt of a proper redemption request, which value
may be more or less than the amount paid for the Shares. Shares in any
Participant's account which has a value of less than $500 may be involuntarily
redeemed if reinvestment of distributions on Units is discontinued. See
"Redemption".
Shares of the Program are offered hereby without sales charge or investment
management advisory fee to holders of Units of GNMA and certain other Series of
Corporate Income Fund and Government Securities Income Fund in order to provide
a means for the automatic reinvestment of distributions of interest income and
principal and capital gains on those Units in Shares of the Program on the Terms
and Conditions of Participation set forth herein. The address of the Program is
P.O. Box 9051, Princeton, N.J. 08543-9051 and its telephone number is (609)
282-8500.
This prospectus sets forth concisely the information about the Program that a
prospective investor ought to know before investing in the Program. Investors
should read and retain this prospectus for future reference. A Statement of
Additional Information dated April 29, 1996, containing additional and more
detailed information about the Program, has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference. It and the
Program's annual report for the year ended December 31, 1995 can be obtained
without charge by writing or calling the Program at the address and telephone
number set forth above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
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Maximum Sales Load Imposed on Purchases.................................. None
Maximum Sales Load Imposed on Reinvested Dividends....................... None
Deferred Sales Load...................................................... None
ANNUAL PROGRAM OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
FOR THE YEAR ENDED DECEMBER 31, 1995:
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Management Fees.......................................................... None
Rule 12b-1 Fees.......................................................... None
Other Expenses
Administration Fees............................................. 0.20
Shareholder Servicing and Custodian Fees........................ 0.26
Other Expenses.................................................. 0.12
Total Other Expenses.............................................. 0.58%
Total Program Operating Expenses......................................... 0.58%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment, assuming
the 1995 operating expense ratio and a 5%
annual return throughout the periods..... $5.93 $18.58 $32.38 $72.58
</TABLE>
The Fee Table above is intended to assist investors in understanding the
costs and expenses that an investor in the Program will bear directly or
indirectly. See General Information-Administration Agreement.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission regulations. The Example should not be considered a
representation of past or future expenses or annual rate of return; the actual
expenses and annual rate of return may be more or less than those assumed for
purposes of the Example.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Program by Deloitte &
Touche LLP, independent auditors. Financial statements for year ended December
31, 1995 and the independent auditors' report thereon appear in the annual
report of the Program for the year ended December 31, 1995, which has been
incorporated by reference into the Statement of Additional Information.
The following per share data and ratios have been derived from information
provided in the financial statements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
SELECTED DATA
FOR A SHARE
OF CAPITAL
STOCK
OUTSTANDING
THROUGHOUT
EACH YEAR:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning of
Year....... $ 19.24 $ 21.39 $ 21.66 $ 22.00 $ 21.00 $ 20.81 $ 19.95 $ 20.28 $ 21.58 $ 21.60
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income From
Investment
Operations:
Net
Investment
Income...... 1.41 1.43 1.53 1.72 1.83 1.87 1.95 1.93 1.96 2.09
Net Realized
and
Unrealized
Gain (Loss)
on
Investments.. 1.87 (2.14) (0.20) (0.34) 1.02 0.15 0.76 (0.31) (1.18) (0.02)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations 3.28 (0.71) 1.33 1.38 2.85 2.02 2.71 1.62 0.78 2.07
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dividend
Distributions
from Net
Investment
Income...... (1.42) (1.44) (1.60) (1.72) (1.85) (1.83) (1.85) (1.95) (2.08) (2.09)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset
Value, End
of Year..... $ 21.10 $ 19.24 $ 21.39 $ 21.66 $ 22.00 $ 21.00 $ 20.81 $ 19.95 $ 20.28 $ 21.58
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL
INVESTMENT
RETURN...... 17.54% (3.36)% 6.32% 6.58% 14.27% 10.20% 14.21% 8.18% 3.33% 10.12%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
SIGNIFICANT
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Year
(in
thousands).. $220,198 $204,032 $222,493 $174,838 $169,889 $158,471 $162,624 $170,265 $181,097 $179,826
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating
Expenses to
Average Net
Assets...... 0.58% 0.59% 0.62% 0.67% 0.65% 0.81% 1.04% 1.03% 0.78% 0.76%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net
Investment
Income to
Average Net
Assets...... 6.92% 7.12% 7.00% 7.90% 8.57% 9.10% 9.25% 9.44% 9.49% 9.75%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Portfolio
Turnover
Rate........ 0% 0% 0% 0% 0% 0% 0% 1% 2% 0%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF AVERAGE NUMBER
DEBT AVERAGE AMOUNT OF REGISTRANT'S
OUTSTANDING OF DEBT SHARES AVERAGE AMOUNT
AT END OF OUTSTANDING OUTSTANDING OF DEBT PER SHARE
YEAR PERIOD DURING THE PERIOD DURING THE PERIOD DURING THE PERIOD
- ---- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1987............................. $ 980,585 $ 2,326,090 $ 8,858,950 $0.26
1988............................. 3,449,434 5,517,788 8,657,390 0.64
1989............................. 2,471,885 5,642,000 8,126,612 0.69
1990............................. 3,279,477 1,169,000 7,624,749 0.15
1991............................. 0 679,000 7,484,492 0.09
1992............................. 0 1,850,000 7,821,894 0.24
</TABLE>
Since December 31, 1992 the Program has not had any outstanding debt.
Further information about the performance of the Program is contained in the
1995 Annual Report, which can be obtained without charge upon request.
TERMS AND CONDITIONS OF PARTICIPATION
All persons who are or who become registered holders of units (the "Units")
of any Series ("Unit Trust Series") of Corporate Income Fund or Government
Securities Income Fund offering reinvestment in the Program are eligible to
participate in the Program and are herein called "Holders". Holders include
brokers or nominees of banks and other financial institutions which are or
become registered holders of Units. Such eligibility is subject to the terms and
conditions of participation (the "Terms and Conditions") set forth under this
caption.
Distributions on Units of Unit Trust Series will be paid in cash unless
Holders elect to reinvest such distributions in the Program by sending a notice
in writing to the Program Agent. Each Holder participating in the Program will
receive a copy of the current Program prospectus; a Holder not participating in
the Program may request a copy of this prospectus. The notice of election
accompanying this prospectus may be used by Holders of Units to elect to
participate in the Program or to change a previous election. Notice of any
change in the basis of participation or of election to participate in the
Program must be received by the Program Agent in writing at least ten days prior
to the Record Day for the first distribution to which such notice is to apply.
Distributions being reinvested (both on Unit Trust Series and on the
Program) purchase full and fractional Shares (without sales charge) at their net
asset value, as determined by an evaluator based on quotes on comparable
securities, computed at 3:30 p.m. New York time on the distribution date.
However, there is no limitation on the sales charge, if any, at which Shares may
be offered or the types of investors to whom offerings may be made in the
future. Subject to standards of valuation established and monitored from time to
time by the Program's Board of Directors, the Evaluator determines the value of
the Securities in the Program's portfolio, generally by obtaining quotes on
comparable securities on the basis of the price at which it believes the Program
could sell those securities. The net asset value is computed by adding to the
value of the Securities in the Program's portfolio any cash and other assets,
subtracting liabilities including accrued expenses and dividing by the number of
Shares outstanding.
Holders who are participating in the Program and whose Units are therefore
subject to these Terms and Conditions are herein called "Participants". The Bank
of New York acts as the Program Agent (the "Agent") for the Participants. All
securities, cash and other similar assets of the Program are held by the Agent
as custodian. The Agent also acts as the Program's dividend disbursing agent,
transfer agent and registrar; Transaction Agent in executing purchases and sales
of Securities for the Program's portfolio and performs certain other services
for the Program.
Under these Terms and Conditions, each distribution on a Participant's Units
being reinvested on the date of such distribution will automatically be received
by the Agent on behalf of such Participant and applied to purchase Shares at net
asset value, without sales charge. In the case of Holders whose distributions of
principal are being invested in the Program, the proceeds of redemption or
payment at
4
<PAGE>
maturity of securities held in the Unit Trust Series represented by the Holder's
Units will be invested in Shares, rather than being distributed in cash to the
Holder. Distributions by the Program of its net ordinary income and its capital
gain net income will be reinvested in the same manner unless the Participant
elects, by written notice to the Agent, not to have such distributions
reinvested in Shares (see "Distributions and Taxes").
In addition to their right to redeem their Shares and receive a payment
equal to the net asset value thereof (see "Redemption"), Participants may, by
notice in writing received by the Agent at least ten days prior to the record
day applicable to the distribution (the Agent will deliver a copy of such notice
to the trustee for the respective Unit Trust Series), elect to (i) terminate
their participation in the Program and thereafter receive all distributions on
their Units in cash, (ii) terminate their participation as to distributions of
principal on their Units and thereafter receive distributions in cash out of the
capital accounts for the respective Unit Trust Series or (iii) terminate their
participation as to distributions of net interest income on their Units and
thereafter receive future distributions in cash out of the income accounts for
the respective Unit Trust Series.
All the costs of administering and offering the Program and these Terms and
Conditions are borne by the Program subject to the assumption of certain
expenses referred to herein under "General Information" by the Administrators
and the Sponsors. The Administrators of the Program (the "Administrators") are
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Prudential
Securities Incorporated, Dean Witter Reynolds Inc. and Smith Barney Inc., who
along with PaineWebber Incorporated, are current Sponsors of Unit Trust Series.
The Administrators receive from the Program as annual compensation, payable
monthly, for their services in connection with the Program an aggregate
administration fee of 0.2% of the average net assets of the Program (see
"Administration Agreement").
The Agent will mail to each Participant a report of each transaction
undertaken for the Participant in receiving distributions and purchasing Shares.
Distributions on Units which are applied to purchase Shares are considered to
have been distributed to Participants for Federal income tax purposes and all
taxes which are payable in respect to those distributions must be paid by
Participants regardless of participation in the Program. Semi-annual financial
statements of the Program, including its portfolio and information relating to
net asset value per Share, are distributed to Participants.
If the Holder is a broker or a nominee of a bank or another financial
institution the Trustee and Agent will apply these Terms and Conditions on the
basis of the respective numbers of Units certified from time to time by that
Holder to be the total numbers of Units registered in its name and held for the
accounts of beneficial owners who are to participate in the Program, upon the
several bases of participation offered by the Program at the time. It is
anticipated, however, that, due to administrative problems connected with Units
held in "street name" other than by Merrill Lynch, Units may be registered in
the names of the beneficial owners thereof unless such owners elect not to
participate in the Program. The Agent establishes an account for each
Participant under which his Shares are held for safekeeping unless requested by
the Participant to issue certificates for his Shares.
Merrill Lynch or its nominee holds in its name Program Shares for the
accounts of customers whose Unit Trust Series are held in Merrill Lynch accounts
and who elect to reinvest in the Program. These Shares may be transferred to an
account in the customer's name with the Agent upon request. Merrill Lynch
maintains records identifying the names and addresses of these customers and
their Share balances, and will be compensated for these services by the Agent at
the Agent's sole expense. During the year ended December 31, 1995, the Agent
paid Merrill Lynch $144,591 for these services.
Experience may indicate that changes in these Terms and Conditions are
desirable or that this offering should be terminated. Such changes may be made
or this offering may be terminated at the direction of the Board of Directors
(the "Board") of the Program without notice to any Participant. The Board may at
any time appoint a substitute Agent, Transaction Agent or an additional agent to
act for the Program.
5
<PAGE>
INVESTMENT POLICIES AND CONSIDERATIONS
In seeking to obtain safety of capital and current income, the Program's
portfolio will consist primarily of mortgage-backed securities of the modified
pass-through type fully guaranteed as to principal and interest by GNMA ("Ginnie
Maes"). However, the Administrators may direct from time to time that some of
the Program's assets be maintained in cash or U.S. Treasury Bills ("Bills") with
a maturity of not more than 30 days from the date of purchase.
The Ginnie Maes are modified pass-through certificates, each representing an
interest in a pool of mortgages on residential housing. Timely payment of
principal and interest on those mortgages is guaranteed by GNMA whose
guarantees, in the opinion of an Assistant Attorney General of the United
States, "constitute general obligations of the United States backed by its full
faith and credit." The Bills are direct obligations of the United States, backed
by its full faith and credit. However, the value of these securities is subject
to fluctuations based on changing market interest rates. An investment in the
Program should be made with an understanding of the risks which an investment in
fixed-rate long-term debt obligations without prepayment protection may entail,
including the risk that the value of the portfolio and hence of the Shares will
decline with increases in interest rates and that payments of principal may be
received sooner than anticipated, especially if interest rates decline. The
Administrators cannot predict future economic policies or their consequences or,
therefore, the course or extent of interest rate fluctuations in the future.
Holders of Ginnie Maes, including the Program, receive monthly distributions
of interest due on the underlying mortgages, scheduled payments of principal on
an amortized basis, and any prepayments. All of the mortgages in the pools
relating to the Ginnie Maes in the portfolio are subject to prepayment without
any significant premium or penalty at the option of the mortgagors (i.e., the
homeowners). A number of factors, including mortgage market interest rates and
homeowners' mobility, will affect the average life of the Ginnie Maes in the
Portfolio. Accordingly, it is not possible to predict meaningfully prepayment
levels regarding the Ginnie Maes in the Portfolio. It should be noted, however,
that the potential for appreciation on Ginnie Maes which could otherwise be
expected to result from a decline in interest rates may be limited by any
increased prepayments by mortgagors as interest rates decline. Prepayments of
principal on Ginnie Maes purchased at a premium over par will result in some
loss on investment while prepayments on Ginnie Maes purchased at a discount from
par will result in some gain on investment. If interest rates rise, the
prepayment risk of higher yielding, premium Ginnie Maes and the prepayment
benefit for lower yielding, discount Ginnie Maes will be reduced. Higher coupon
premium Ginnie Maes are more likely to prepay than lower coupon, discount Ginnie
Maes. Although the Program will reinvest payments and prepayments of principal
in additional Ginnie Maes, there is no assurance that the interest rate at the
time of reinvestment will be as advantageous as that on the securities being
paid or prepaid. Further information concerning the nature and life of Ginnie
Maes is included in the Statement of Additional Information.
The Program is authorized to borrow money from banks. Borrowings are limited
to 33 1/3% of the current value of total assets (including the borrowing) less
liabilities (excluding any borrowing) and will be reduced within three days
(excluding Sundays and holidays) or longer if permitted by the Securities and
Exchange Commission if at any time borrowings exceed this limit. Any pledge or
hypothecation of Program assets will only be made in connection with a
borrowing, limited to 33 1/3% of the value of Program assets computed on the
same basis. Borrowing may take the form of a sale of a Ginnie Mae accompanied by
a simultaneous agreement as to its repurchase. It is presently intended that
borrowings would be made only as an alternative to the sale of Ginnie Maes to
meet redemptions and not to raise additional cash for investment. However, this
practice could cause changes in the Program's share price to be magnified with
changes in interest rates. Any investment gains made with borrowed monies in
excess of interest paid (including a higher yield on the securities held than
the interest cost) would cause the net asset value of Program shares to rise
faster than would otherwise be the case. On the other hand, if the investment
performance of the securities so held fails to cover their cost (including
interest on the
6
<PAGE>
AUTHORIZATION FOR INVESTMENT IN
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
IF YOU WOULD LIKE TO PARTICIPATE IN THE GNMA FUND INVESTMENT ACCUMULATION PRO-
GRAM, YOU MUST COMPLETE, SIGN AND RETURN THIS CARD.
PLEASE DO NOT RETURN THIS CARD IF YOU ARE ALREADY A PARTICIPANT, UNLESS YOU
WISH TO CHANGE YOUR REINVESTMENT OPTION.
Unit Trust Series as shown on account statement or certificate: (please print
on the line below)
- --------------------------------------------------------------------------------
I hereby acknowledge receipt of the prospectus of the GNMA Fund Investment
Accumulation Program, Inc. (the "Program") and authorize the Trustee of the
Series designated above to pay distributions on my Units as indicated below
(distributions to be reinvested in the Program will be paid for my account to
The Bank of New York as Program Agent):
<TABLE>
<S> <C> <C>
Principal distributions (including
capital gains ) (check one): [ ] in cash [ ] reinvested in the Program
Interest distributions (check one): [ ] in cash [ ] reinvested in the Program
</TABLE>
<TABLE>
<S> <C>
My name (please print) ---------------------------------------------------------
My address (please print) ---------------------------------------------------------
street
---------------------------------------------------------
city, state, zip code
The account number for my units ---------------------------------------------------------
---------------------------------------------------------
(Registered Holder Signature)
---------------------------------------------------------
Registered Holder Signature)
(Two signatures required if joint tenancy)
Date ___________________________, 19____
</TABLE>
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the lines on the reverse side, tape, and mail
with the Trustee's address displayed on the outside.
<PAGE>
<TABLE>
<S> <C>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
BUSINESS REPLY MAIL UNITED STATES
FIRST CLASS PERMIT NO. 644 NEW YORK, N.Y.
----------------
----------------
----------------
----------------
POSTAGE WILL BE PAID BY ADDRESSEE ----------------
----------------
----------------
THE CHASE MANHATTAN BANK, N.A. (GNMA) ----------------
UNIT TRUST DEPARTMENT ----------------
BOX 2051 ----------------
NEW YORK, NEW YORK 10081
</TABLE>
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(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
borrowings) to the Program, the net asset value of Program shares would decrease
faster than would otherwise be the case. This factor is known as "leverage" and
can involve greater risk than a fund which does not retain investments in excess
of its currently available funds.
The foregoing policies under this caption are fundamental and can only be
changed with a vote of Participants. Additional policies and restrictions of the
Program which are fundamental policies are described in the Statement of
Additional Information.
It is the general policy to hold portfolio securities until maturity unless
cash is required. Therefore, the Program's portfolio turnover rate has been
minimal. See Supplementary Financial Information, above.
REDEMPTION
Shares may be redeemed by a request in writing to The Bank of New York, P.O.
Box 974, Wall Street Station, New York, N.Y. 10268-0974, accompanied by any
outstanding certificates for Shares being redeemed. The request or each
certificate must be signed by the record owner or owners, with each signature
guaranteed by an eligible guarantor institution (as defined in Rule 17Ad-15 of
the Securities Exchange Act of 1934). However, no guarantee is currently
required for redemptions of less than $5,000 where the proceeds are to be
reinvested through one of the Administrators in Units of a Unit Trust Series or
certain other unit investment trusts sponsored by them and those Units are to be
registered in the same name(s). The Program Agent may request further
documentation from corporations, retirement plans, executors, administrators,
trustees or guardians.
Alternatively, repurchases may be effected, at no extra charge by the
Program, through dealers with whom any of the Administrators have satisfactory
agreements, provided that the same day price will be received only on orders
received by the dealer before 3:30 p.m. and by the Administrator prior to the
close of its business on that day (4:00 p.m., New York time). It is the
responsibility of the dealer to transmit orders so that they will be received by
the Administrator prior to its close of business. This arrangement is
discretionary and may be withdrawn.
The price received will be the net asset value next calculated (at 3:30 p.m.
New York time each day except days on which the New York Stock Exchange is
closed and Martin Luther King's birthday, Columbus Day and Veterans' Day) after
receipt of the redemption request in proper form, and may be more or less than
the amount paid by the Participant depending on the net asset value of the
Shares at the time of redemption. Payment of the redemption price must be made
within seven days after receipt of proper tender unless postponement is
permissible under the Investment Company Act of 1940 by reason of closing of or
restriction of trading on the New York Stock Exchange, or other emergency as
determined by the Securities and Exchange Commission. If a Participant
discontinues reinvestment of distributions on Unit Trust Series in the Program
when the value of his Shares is less than $500, the Program reserves the right
to redeem his Shares after 30 days' notice. For further information, see
Redemption in the Statement of Additional Information.
DISTRIBUTIONS AND TAXES
The Program expects to distribute on the 23rd of each month to Participants
of record on the 22nd day of that month all of its net ordinary income and to
distribute annually its capital gain net income so it will not pay any income
taxes or the excise tax on certain undistributed income of "regulated investment
companies". Distributions will be reinvested in additional Shares at net asset
value unless the Participant elects in writing to receive cash. Whether or not
reinvested, distributions of net ordinary income and short-term capital gains
are taxable to Participants as ordinary income (not eligible for the
dividends-received deduction for corporations). Distributions of long-term
capital gains (designated as such by the Program) are taxable to Participants as
long-term capital gain, regardless of how long the
7
<PAGE>
Shares have been held. However, Participants who are not subject to tax on their
income will not be required to pay taxes on such amounts distributed to them.
Participants are informed after each year of the amount and character of
distributions. Distributions may also be subject to state and local taxes.
Participants should consult their own tax advisers regarding specific questions
as to Federal, state and local taxes.
Certain Participants may be subject to a 31% withholding on reportable
dividends, capital gains distributions and redemption payments ("backup
withholding"). Generally, Participants subject to backup withholding will be
those for whom a certified Taxpayer Identification Number is not on file with
the Program, or who, to the Program's knowledge, have furnished an incorrect
number or with respect to whom the Internal Revenue Service has advised the
Program that there must be backup withholding. When establishing an account, an
investor must certify under penalties of perjury that such number is correct and
that he is not subject to backup withholding.
Foreign Participants should be aware that distributions from the Fund
generally will be subject to a withholding tax of 30%, or a lower treaty rate,
and should consult their own tax advisers to determine whether an investment in
the Program is appropriate.
The Statement of Additional Information sets forth additional information
regarding tax aspects of an investment in the Fund.
GENERAL INFORMATION
The Program, a diversified, open-end management investment company, was
incorporated in Maryland on November 17, 1977. Its business and affairs are
managed under the direction of its Board of Directors, consisting of three
individuals (one of whom is an officer and employee of one of the
Administrators). The Board is responsible for the overall supervision of the
operations of the Program, elects the officers of the Program annually and
performs the various duties required of directors of investment companies by the
Investment Company Act of 1940. The Statement of Additional Information contains
further information regarding the directors and officers of the Program.
The Program is authorized to issue 25 million shares ("Shares") of common
stock, $.01 par value each. When issued, Shares are fully paid and
non-assessable, participate equally in distributions and in assets upon
liquidation, and have equal, non-cumulative voting rights (thus Participants
holding more than 50% of the Shares could elect all of the Directors). The
Shares have no preference, preemptive, conversion, exchange or similar rights
and will be freely transferable. The Program does not intend to hold meetings of
stockholders unless under the Investment Company Act of 1940 stockholders are
required to act on any of the following matters: (i) election of directors, (ii)
approval of an investment advisory agreement, (iii) ratification of the
selection of independent auditors, (iv) approval of a distribution agreement or
(v) approval of an administration agreement.
Administration Agreement --The Program has retained the Administrators to
supervise the Program's operations (excepting executions of portfolio
transactions by the Transaction Agent). The Administrators are obligated to
provide at their expense personnel to perform, subject to the authority of the
Program's Board of Directors, overall management of the Program's business
affairs, office space and related services. The Sponsors of the Unit Trust
Series have agreed for the present to pay the expenses of Program prospectuses
used in connection with the distribution and sales of Shares. The other costs
and expenses of the Program, including the Administrators' and Agent's fees,
printing and mailing and interest expenses, are borne by the Program. For their
services, the Administrators receive a fee, payable in monthly instalments, of
0.2% annually of the value of the Program's average daily net assets. Further
information about the terms of the Administration Agreement is contained in the
Statement of Additional Information. For the year ended December 31, 1995, the
Program's total expenses were $1,246,238 (representing 0.58% of its average net
assets), of which $427,683 was paid as Administration Agreement fees.
8
<PAGE>
Transaction Agent--The Transaction Agent is responsible for effecting
transactions of purchases and sales for the Program's portfolio, subject to the
general supervision of the Program's Board of Directors. The Program has a
policy that securities transactions are placed with a broker or dealer only if
the Transaction Agent expects to obtain the most favorable prices and executions
of orders. As transactions in securities of the type held by the Program are
generally made through securities dealers acting as principal and, as outlined
in the Statement of Additional Information, the Program is prohibited from
engaging in securities transactions with any of the Administrators or their
affiliates acting as principal (as contrasted to acting as a broker), it is not
expected that any substantial amount of these transactions will be effected with
any of those firms.
Securities acquired shall be backed by pools of mortgages with the longest
average maturities reasonably available and, among those securities, those with
the highest yield to maturity. Securities sold shall be those backed by pools of
mortgages with the shortest average maturity in the Portfolio and, out of those
securities, those with lowest yields to maturity (determined as provided in the
Transaction Agency Agreement) shall be sold first. Net cash available for
investment and net cash requirements will be determined taking into account cash
generated by the issuance of Shares and by the receipt of the proceeds of
maturities and redemptions of securities in the Program and the cash
requirements of the Program for cash distributions, redemptions of Shares and
expenses of the Program. The Administrators may establish levels from time to
time at which uninvested cash in the Program and the amounts of maturities of
Bills shall be maintained taking into account estimated net cash available for
investment and net cash requirements, the anticipated size of individual
purchase and sale transactions and the costs associated therewith and other
factors which they deem to be relevant.
Since the type and maturity of the Ginnie Maes and Bills which are to be
purchased for the Portfolio are specifically fixed by the investment policies of
the Program, the Transaction Agent has no investment discretion but merely
performs the administrative function of selecting from among the Ginnie Maes and
Bills offered from time to time which satisfy the Program's investment criteria
the particular investments which offer the highest yields to maturity
(determined as provided in the Transaction Agency Agreement) to the Program,
taking into account the policy to achieve most favorable prices and executions.
In purchasing and selling securities for the account of the Program, the
Transaction Agent will receive transaction fees not exceeding those fees
customarily and regularly charged to other accounts maintained by it for similar
services.
Because securities to be purchased and sold, reflecting cash available, are
selected by formula, there is no investment discretion and the Program has no
investment adviser. However, Philip G. Milot, Vice President of the Program
since July 1992 and Vice President, Defined Asset Funds Division, Merrill Lynch,
Pierce, Fenner & Smith Incorporated for more than five years, advises the
Transaction Agent with respect to the solicitation of bids to buy and sell
securities subject to that formula and as to which dealer should effect the
transactions.
Code of Ethics--The Program has adopted a code of ethics containing
provisions reasonably necessary to prevent its access persons from engaging in
any act, practice or course of conduct which would operate as a fraud or deceit
on the Program. The code is intended to provide guidance to personnel as to the
minimum standards of conduct in personal securities transactions that are
consistent with the Administrators' responsibilities to their clients and
Program Holders and to provide assurance that those persons are in a position to
act in the best interests of the Program and Holders. Access persons are
required to preclear personal transactions in most securities (excepting
securities issued by the U.S. or its agencies) and to report any executions of
those transactions. Certain limitations are also imposed on timing of personal
investments. The Compliance Director will prepare an annual report for the
Program's Board of Directors of any changes to the procedures and any violations
requiring significant remedial action.
The names and addresses of the Administrators and Agent are on the back
cover of this prospectus.
Participants who have questions concerning their account or wish to obtain
additional information about the Program can write the Program at the address on
the back cover.
9
<PAGE>
- -------------------------------------------
PROSPECTUS DATED APRIL 29, 1996
- -------------------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE THE
GNMA INFORMATION INCLUDED IN THE REGISTRATION GNMA
STATEMENT FILED WITH THE SECURITIES AND INVESTMENT
EXCHANGE COMMISSION UNDER THE SECURITIES ACCUMULATION
ACCUMULATION ACT OF 1933 AND THE INVESTMENT PROGRAM
COMPANY ACT OF 1940 WITH RESPECT TO THE SHARES
OFFERED HEREBY, CERTAIN PORTIONS OF WHICH HAVE P.O. BOX 9051
BEEN OMITTED PURSUANT TO THE RULES AND PRINCETON, N.J. 08543-9051
REGULATIONS OF THE COMMISSION. THE (609) 282-8500
REGISTRATION STATEMENT INCLUDING THE
STATEMENT OF ADDITIONAL INFORMATION AND THE
EXHIBITS FILED THEREWITH MAY BE EXAMINED AT THE ADMINISTRATORS:
OFFICE OF THE COMMISSION IN WASHINGTON, Merrill Lynch, Pierce,
D.C. STATEMENTS CONTAINED IN THIS PROSPEC- Fenner & Smith
TUS AND THE STATEMENT OF ADDITIONAL INFORMA- Incorporated
TION AS TO THE CONTENTS OF ANY CONTRACT OR P.O. Box 9051
OTHER DOCUMENT REFERRED TO ARE NECESSARILY Princeton, N.J. 08543-9051
NOT COMPLETE, AND IN EACH INSTANCE, REFERENCE (609) 282-8500
IS MADE TO THE COPY OF SUCH CONTRACT
OR OTHER DOCUMENT FILED AS AN EXHIBIT TO THE Prudential Securities
REGISTRATION STATEMENT OF WHICH THIS PRO- Incorporated
SPECTUS FORMS A PART, EACH SUCH STATEMENT One Seaport Plaza
BEING QUALIFIED IN ALL RESPECTS BY SUCH 199 Water Street
REFERENCE. New York, N.Y. 10292
(212) 776-1000
- -------------------------------------------
Dean Witter Reynolds Inc.
INDEX Two World Trade Center--59th Floor
New York, N.Y. 10048
- ------------------------------------------- (212) 392-2222
PAGE
----
FEE TABLE............................ 2
FINANCIAL HIGHLIGHTS................. 3 Smith Barney Inc.
TERMS AND CONDITIONS OF PARTICIPATION... 4 388 Greenwich Street
INVESTMENT POLICIES AND CONSIDERATIONS.. 6 23rd Floor
REDEMPTION.............................. 7 New York, N.Y. 10013
DISTRIBUTIONS AND TAXES.............. 7 (800) 223-2532
GENERAL INFORMATION.................. 8
PROGRAM AND TRANSACTION AGENT:
- ------------------------------------------- The Bank of New York
101 Barclay Street
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMA- New York, N.Y. 10007
TION OR TO MAKE ANY REPRESENTATIONS NOT 1-(800) 221-7771
CONTAINED IN THIS PROSPECTUS, AND ANY INFOR
MATION OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN INDEPENDENT AUDITORS
AUTHORIZED. THIS PROSPECTUS DOES NOT FOR THE PROGRAM:
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION Deloitte & Touche LLP
OF AN OFFER TO BUY, SECURITIES IN ANY STATE TO 117 Campus Drive
ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE Princeton, N.J. 08540
SUCH OFFER IN SUCH STATE.
<PAGE>
THE GNMA FUND
INVESTMENT ACCUMULATION PROGRAM, INC.
- --------------------------------------------------------------------------------
Shares of Statement of Additional Information
Common Stock dated April 29, 1996
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus dated April 29, 1996 (the "Prospectus")
of The GNMA Fund Investment Accumulation Program, Inc. (the "Program"). The
Statement of Additional Information is not authorized for distribution unless
accompanied or preceded by the annual report of the Program for the year ended
December 31, 1995, which contains certified financial statements of the Program
and is hereby incorporated by reference. The Prospectus can be obtained without
charge by writing Merrill Lynch, Pierce, Fenner & Smith Incorporated, Attention:
Unit Investment Trusts, P.O. Box 9051, Princeton, N.J. 08543-9051 or calling
(609) 282-8501.
INVESTMENT POLICIES AND RESTRICTIONS
As described in the Prospectus, the Program seeks to obtain safety of
capital and current income through investment in a portfolio consisting
primarily of mortgage-backed securities fully guaranteed as to principal and
interest by GNMA ("Ginnie Maes"). The Ginnie Maes and Treasury Bills held by the
Program are sometimes referred to herein as the "Securities". See Investment
Policies and Considerations.
Set forth below is a brief description of the current method of origination
of Ginnie Maes; their nature, including the guarantee of the Government National
Mortgage Association ("GNMA"); the basis of selection and acquisition of the
Ginnie Maes held by the Program; and the expected life of the Ginnie Maes.
Origination of Ginnie Maes--The pool of mortgages that is to underlie a
particular new issue of Ginnie Maes, such as those held by the Program, is
assembled by the proposed issuer of these Ginnie Maes. This issuer is typically
a mortgage banking firm, savings institutions or commercial bank and in every
instance must be a mortgagee approved by and in good standing with the Federal
Housing Administration ("FHA"). In addition, GNMA imposes its own criteria on
the eligibility of issuers, including a net worth requirement and a requirement
that a principal element of its business operation be the origination or
servicing of mortgage loans.
The mortgages which are to compose the new pool may have been originated by
the issuer itself in its capacity as a mortgage lender, or they may be acquired
by the issuer from a third party, such as another mortgage banker, a banking
institution, the Veterans Administration ("VA"), which in certain instances acts
as a direct lender and thus originates its own mortgages, or one of several
other governmental agencies. All mortgages in any given pool will be insured
under the National Housing Act, as amended ("FHA-insured") or Title V of the
Housing Act of 1949 ("FMHA-insured") or insured or guaranteed under Chapter 37
of Title 38, U.S.C. ("VA-guaranteed"); will have a date for the first scheduled
monthly payment of principal that is not more than 24 months prior to the issue
date of the Ginnie Maes to be issued; will have homogeneity as to interest rate,
maturity and type of dwelling (e.g., project mortgages on apartment projects and
hospitals will not be mixed with 1- to 4-family mortgages); and will meet
additional criteria of GNMA. All mortgages in the pools backing the Ginnie Maes
in the Program's portfolio are on 1- to 4-family dwellings (amortizing over a
period of up to 30 years) and the average maturities of the mortgages in those
pools shall be the longest reasonably available on the market to the Transaction
Agent at the time of acquisition. In general, the mortgages in these pools
provide for equal monthly payments over the life of the mortgage (aside from
prepayments), designed to repay the principal of the mortgage over this period,
together with interest at a fixed rate on the unpaid balance.
<PAGE>
In seeking GNMA approval of a new pool, the issuer files with GNMA an
application containing information concerning itself, describing generally the
pooled mortgages, and requesting that GNMA approve the issue and issue its
commitment (subject to its satisfaction with the mortgage documents and other
relevant documentation) to guarantee the timely payment of principal of and
interest on the Ginnie Maes to be issued by the issuer on the basis of that
pool. If the application is in order, GNMA issues its commitment, assigning a
GNMA pool number to the pool. Upon completion of the required documentation,
including detailed information as to the underlying mortgages, a custodial
agreement with a Federal or state regulated financial institution satisfactory
to GNMA pursuant to which the underlying mortgages will be held in safekeeping,
and a detailed guarantee agreement between GNMA and the issuer, the issuance of
the Ginnie Maes is permitted, and GNMA, upon their issuance, endorses its
guarantee thereon. The aggregate principal amount of Ginnie Maes issued will be
equal to the then aggregate unpaid principal balances of the pooled mortgages.
The interest rate borne by the Ginnie Maes is currently fixed at .5 of 1% below
the interest rate of the pooled 1- to 4-family mortgages, the differential being
applied to the payment of servicing and custodial charges as well as GNMA's
guarantee fee.
Nature of Ginnie Maes and GNMA Guarantee--All of the Ginnie Maes held by the
Program are of the "modified pass-through" type, the terms of which provide for
timely monthly payments by the issuers to the registered holders (including the
Program) of their pro rata shares of the scheduled principal payments, whether
or not collected by the issuers, on account of the mortgages backing these
Ginnie Maes, plus any prepayments of principal of such mortgages received, and
interest (net of the servicing and other charges described above) on the
aggregate unpaid principal balance of these Ginnie Maes, whether or not interest
on account of these mortgages has been collected by the issuers. Ginnie Maes are
guaranteed by GNMA as to timely payment of principal and interest. Funds
received by the issuers on account of the mortgages backing the several issues
of the Ginnie Maes are intended to be sufficient to make the required payments
of principal of and interest on these Ginnie Maes but, if these funds are
insufficient for that purpose, the guarantee agreements between the issuers and
GNMA require the issuers to make advances sufficient for these payments. If the
issuers fail to make these payments, GNMA will do so. The full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under the guarantee. The payment cycle of Ginnie Maes is 45
days between the date of security issuance and the first investor payments.
GNMA is a wholly-owned U.S. government corporation within the Department of
Housing and Urban Development. GNMA is authorized by Section 306(g) of Title III
of the National Housing Act to guarantee the timely payment of principal of and
interest on certificates which are based on and backed by pools of residential
mortgage loans insured or guaranteed by FHA, the Farmers' Home Administration
("FMHA") or the VA. In order to meet its obligation under its guarantee, GNMA
may issue its general obligations to the United States Treasury. In the event it
is called upon at any time to make good its guarantee, GNMA has the full power
and authority to borrow from the Treasury of the United States, if necessary,
amounts sufficient to make payments of principal and interest on the Ginnie
Maes. Section 306(g) provides further that the full faith and credit of the
United States is pledged to the payment of all amounts which may be required to
be paid under any guarantee under that subsection. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that these
guarantees "constitute general obligations of the United States backed by its
full faith and credit."*
The Ginnie Maes are based upon and backed by the aggregate indebtedness
secured by the underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages
and, except to the extent of funds received by the issuers on account of these
mortgages, the Ginnie Maes do not constitute a
- ------------
* Any statement in the Prospectus or the Statement of Additional Information
that a Ginnie Mae is backed by the full faith and credit of the United States
is based upon the opinion of an Assistant Attorney General of the United
States and should be so construed.
2
<PAGE>
liability of nor evidence any recourse against the issuers, but recourse thereon
is solely against GNMA. Holders of Ginnie Maes have no security interest in or
lien on the pooled mortgages.
The GNMA guarantees referred to herein relate only to payment of principal
of and interest on the Ginnie Maes in the portfolio and not to the Shares in the
Program.
Neither the Agent nor the Administrators shall be liable in any way for any
default, failure or defect in any Ginnie Mae.
Life of the Ginnie Maes--In actual operation, payments received in respect
of the mortgages underlying the Ginnie Maes will consist of a portion
representing interest and a portion representing principal. Although the
aggregate monthly payment made by the obligor on each mortgage remains constant
(aside from optional prepayments of principal), in the early years the larger
proportion of each payment will represent interest, while in later years, the
proportion representing interest will decline and the proportion representing
principal will increase, although, of course, the interest rate remains
constant. Moreover, by reason of optional prepayments, payments in the early
years on mortgages in the pools may be substantially in excess of those required
by the amortization schedules of these mortgages; conversely, payments in later
years may be substantially less since the aggregate unpaid principal balances of
the underlying mortgages may have been greatly reduced.
Monthly payments and prepayments of principal are made to the Agent in
respect of the mortgages underlying the Ginnie Maes held by the Program. The
proceeds of payments, prepayments and sales received by the Agent (less certain
amounts deducted as described under Federal Taxes) will be reinvested and not
paid out to Participants (except for capital gain and on redemption of Shares).
While the mortgages on 1- to 4-family dwellings underlying the Ginnie Maes are
amortized over a period of up to 30 years, it has been the experience of the
mortgage industry that the average life of comparable mortgages, owing to
prepayments, is much less. Pricing of Ginnie Maes has been based upon yield
assumptions grounded in the historical experience of the FHA relating to 30 year
mortgages on
1- to 4-family dwellings at various interest rates (which, in general, have been
lower than the rates of the Ginnie Maes held by the Program). Yield tables for
Ginnie Maes utilize a 12-year average life assumption for Ginnie Mae pools of 30
year mortgages on 1- to 4-family dwellings. This assumption was derived from the
FHA experience relating to prepayments on such mortgages during the period from
the mid 1950's to the mid 1970's. This 12 year average life assumption was
calculated in respect of a period during which mortgage lending rates were
fairly stable. That assumption is probably no longer an accurate measure of the
average life of Ginnie Maes or their underlying single family mortgage pools.
Today, research analysts use complex formulae to scrutinize the prepayments of
mortgage pools in an attempt to predict more accurately the average life of
Ginnie Maes. Generally speaking, a number of factors, including mortgage market
interest rates and homeowner mobility, will affect the average life of the
Ginnie Maes held by the Program. Changes in prepayment patterns, which are
influenced by changes in housing cycles and mortgage refinancing, could
influence yield assumptions used in pricing the securities. Shifts in prepayment
patterns are influenced by changes in housing cycles and mortgage refinancing
and are also subject to certain limitations on the gathering of the data; it is
impossible to predict how new statistics will affect the yield assumptions that
determine mortgage industry norms and pricing of Ginnie Maes. Moreover, there is
no assurance that the pools of mortgage loans relating to the Ginnie Maes held
by the Program will conform to prepayment experience as reported by GNMA on a
periodic basis, or the prepayment experience of other mortgage lenders.
Accordingly, it is not possible to predict meaningfully prepayment levels on
Ginnie Maes in the Program. While the value of the underlying Securities
generally fluctuates inversely with changes in interest rates, it should also be
noted that their potential for appreciation, which could otherwise be expected
to result from a decline in interest rates, may tend to be limited by any
increased prepayments by mortgagors as interest rates decline.
3
<PAGE>
Portfolio Transactions--Pursuant to the provisions of the Transaction Agency
Agreement, Ginnie Maes satisfying the criteria referred to above will be
purchased for the account of the Program by the Transaction Agent on a regular
basis out of the net cash available to the Program for investment. Similarly,
Ginnie Maes will be sold for the account of the Program by the Transaction Agent
on a regular basis to satisfy the net cash requirements of the Program as
described in the Prospectus.
Under existing regulatory prohibitions the Program may not on a principal
basis purchase securities from the Administrators or their affiliates or, except
in the limited circumstances permitted by applicable rules of the Securities and
Exchange Commission, from underwriting syndicates in which they participate.
Although the Administrators and their affiliates are major factors in the market
for mortgage-backed securities, this market is so large that it is not believed
that the Program's ability to purchase these securities for its portfolio will
be significantly affected by these prohibitions.
The market for Ginnie Maes is very broad and liquid and, accordingly, it is
not anticipated that the Transaction Agent will experience any difficulty in
purchasing or selling Ginnie Maes for the account of the Program in accordance
with the procedures described in the Prospectus.
Investment Restrictions--The following investment restrictions are deemed
fundamental policies of the Program and may be changed only by the vote of the
lesser of (1) the holders of 67% of the Program's outstanding voting securities
present at a meeting if the holders of more than 50% of the Program's
outstanding voting securities are present in person or by proxy or (2) the
holders of more than 50% of the Program's outstanding voting securities.
The Program will not:
(1) invest in securities or other investments other than Treasury Bills
and Ginnie Maes of the type described in the Prospectus;
(2) borrow money, except from banks and in an amount not to exceed
immediately after such borrowing 33 1/3% of the current value of its total
assets (including the amount borrowed) less its liabilities (not including
any borrowings) nor pledge or hypothecate any assets except in connection
with such a borrowing and in amounts not to exceed 33 1/3% of its total
assets, computed on the same basis; in the event that the value of the
Fund's assets, as so computed, at any time is less than 300% of the amount
of borrowings outstanding, within three days thereafter (excluding Sundays
and holidays) or such longer period as the Securities and Exchange
Commission may prescribe, the borrowings shall be reduced to within that
limit;
(3) make loans, except through the purchase of obligations in direct
placements (the purchase of obligations in other situations not being
considered the making of a loan);
(4) act as a statutory underwriter of securities, except to the extent
the Program may be deemed to be an underwriter in connection with the sale
of Ginnie Maes held by it, or purchase or sell real estate (except
investments in mortgage-backed securities as described in the Prospectus),
commodities or commodity contracts; or
(5) enter into forward purchase agreements.
ADMINISTRATION AGREEMENT
All aspects of the Program's operations including coordinating all matters
relating to the functions of the Agent and any other parties performing
operational functions for the Program, shall be supervised by the Administrators
- -- Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Prudential Securities Incorporated, Dean Witter Reynolds Inc. and Smith Barney
Inc. The Administrators shall (a) provide the Program, at the Administrators'
expense, with the services of such
4
<PAGE>
persons competent to perform such administrative and clerical functions as are
necessary in order to provide effective administration of the Program including
duties in connection with Participant relations, reports, redemption requests
and account adjustments; (b) provide the Program, at the Administrators'
expense, with adequate office space and related services; and (c) to the extent
required by then current Federal securities laws, regulations thereunder or
interpretations thereof, pay for the printing of all Program prospectuses used
in connection with the distribution and sale of the Shares. (Investment
companies may pay these expenses only when an agreement to that effect has been
approved by Participants and subject to various other conditions. The Sponsors
of the Unit Trust Series for which the Program serves as a reinvestment vehicle
have agreed to pay these expenses as long as the Program and the Administrators
are prohibited from doing so without such an agreement. The Program has not
directly or indirectly paid these expenses.) The names of directors and officers
of the Program who are affiliated with any of the Administrators are asterisked
under "Directors and Officers" below. The Program has agreed to pay a monthly
administration fee to the Administrators at the annual rate of 0.2% of the value
of the Program's average daily net assets from the beginning of the year to the
end of such month. Such fees aggregated $398,371, $428,191 and $427,683 during
1993-1995, respectively. The fee so payable is allocated among the four
Administrators in the following respective percentages: Merrill Lynch, 58%;
Prudential Securities, 16%; Dean Witter Reynolds, 16%; and Smith Barney, 10%.
The allocation of the administration fee among the Administrators is subject to
change in accordance with the provisions of the Administration Agreement.
The Program pays all other costs and expenses incurred in connection with
its organization and operations, including: fees of the Administrators, Agent,
transfer agent, custodian and dividend disbursing agent and Transaction Agent;
costs of printing and mailing stock certificates, Participant reports, proxy
material and (except to the extent borne by the Administrators) prospectuses;
statements of additional information; legal and auditing fees; costs and
expenses of the sale, issue and redemption of its Shares (including fees and
expenses of registering the Shares under Federal and state securities laws);
fees and expenses of unaffiliated directors; costs of accounting and pricing
services (including the daily calculation of net asset value); interest,
brokerage costs, insurance and taxes. If the Program's expenses for any fiscal
year (including the Administrator's fee but excluding interest, taxes, brokerage
fees and extraordinary expenses) exceed the lesser of either (a) 1 1/2% of the
Program's average daily net assets up to $30,000,000 and 1% of its average daily
net assets thereover or (b) 25% of its total investment income, the
Administrators, according to their respective percentages, will reimburse the
Program for such excess.
The Administration Agreement provides that the use of the name "The GNMA
Fund Investment Accumulation Program" by the Program is non-exclusive and that
the Administrators may allow other persons, including other investment
companies, to use that name. The right to use that name may also be withdrawn by
the Administrators, in which event the Administrators have agreed to present the
question of continuing the Administration Agreement to a vote of the
Participants of the Program.
The Administration Agreement will continue from year to year if approved at
least annually either (i) by a vote of a majority of the Shares or (ii) by the
Board of Directors and, in each case, by vote of a majority of those directors
who are not parties to such Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
It was most recently approved by Participants on August 24, 1987 and by the
Board of Directors (including all of the noninterested directors) on August 10,
1995. The Administration Agreement provides that the Administrators shall have
no liability to the Program or any Participant for any error of judgment,
mistake of law or any loss arising out of any act or omission in the performance
by the Administrators of their duties under such Agreement, except for liability
resulting from willful misfeasance, bad faith or gross negligence on the
Administrators' part or from reckless disregard by the Administrators of their
obligations and duties under such Agreement. The Administration Agreement
automatically terminates upon its assignment and is terminable, without penalty,
by the Board of Directors of the Program or by vote of the holders of a majority
of the Shares on 60 days' written notice to the Administrators and by
5
<PAGE>
the Administrators on 90 days' written notice to the Program. The
Administrators' right to terminate could operate to the disadvantage of or work
a hardship on the Program.
Merrill Lynch has been appointed by the other Administrators as agent for
purposes of taking any action under the Administration Agreement with respect to
the Program by power of attorney executed by such Administrators and filed with
the Agent and the Transaction Agent. Provision is also made under the
Administration Agreement that if the Administrators are unable to agree in
respect to action to be taken jointly by them thereunder or cannot agree as to
which Administrators shall continue to act as Administrators, then Merrill Lynch
shall continue to act as sole Administrator. Similarly, if one or more of the
Administrators fail to perform their duties under the Administration Agreement
or become incapable of acting or become bankrupt or if their affairs are taken
over by public authorities, then each such Administrator shall be automatically
discharged under the Administration Agreement, and the remaining Administrators
shall act as sole Administrators.
The Administration Agreement is nonexclusive and the Administrators, as well
as their affiliates, may furnish similar administrative services to other
clients, including other investment accumulation programs. The fees charged to
these clients may vary in accordance with the type of client and services
rendered.
Each Administrator is a Delaware corporation and is engaged in the
underwriting, securities and commodities brokerage business, and is a member of
the New York Stock Exchange, Inc., other major securities exchanges and
commodity exchanges, and the National Association of Securities Dealers, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Asset
Management, a Delaware corporation, each of which is a subsidiary of Merrill
Lynch & Co., Inc., are engaged in the investment advisory business. Smith Barney
Inc., an investment banking and securities broker-dealer firm, is an indirect
wholly-owned subsidiary of The Travelers Inc. Prudential Securities
Incorporated, a wholly-owned subsidiary of Prudential Securities Group Inc. and
an indirect wholly-owned subsidiary of the Prudential Insurance Company of
America, is engaged in the investment advisory business. Dean Witter Reynolds
Inc., a principal operating subsidiary of Dean Witter, Discover & Co., is
engaged in the investment advisory business. Each Administrator, or one of its
predecessor corporations, has acted as Sponsor of a number of series of unit
investment trusts, including GNMA Series. Each has acted as principal
underwriter and managing underwriter of other investment companies. Each
Administrator, in addition to participating as a member of various selling
groups or as an agent of other investment companies, executes orders on behalf
of investment companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity as broker or
dealer in securities.
6
<PAGE>
DIRECTORS AND OFFICERS
The ultimate responsibility for the Program's administration rests with its
Board of Directors, which shall meet at least quarterly to oversee the
implementation of the Program's policies and which must approve the renewal of
the Administration Agreement. Listed below are the directors and officers of the
Program, their addresses and principal occupations during the past five years.
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
NAME AND ADDRESS WITH REGISTRANT PAST FIVE YEARS
---------------- --------------- ----------------------------
<S> <C> <C>
Michael J. Perini*................ President and Director Chairman of Defined Asset Funds
P.O. Box 9051 Division, Merrill Lynch, Pierce,
Princeton, N.J. 08543-9051 Fenner & Smith Incorporated
(securities firm)
Leonard I. Shankman............... Director Private Investor; Director,
P.O. Box M Standard Security Life Insurance
Millbrook, N.Y. 12545 Co. of New York
Robert A. Kavesh.................. Director Marcus Nadler Professor of
Stern School of Business Finance and Economics, Stern
New York University School of Business of New York
44 West 4th Street University; Director, Del
New York, New York 10012-1126 Laboratories, Inc. (cosmetics and
pharmaceuticals). The Greater New
York Mutual Insurance Co.;
Trustee, Neuberger & Berman
Income Funds.
Philip G. Milot*.................. Vice President** Vice President, Manager of
P.O. Box 9051 Purchasing Department of Defined
Princeton, N.J. 08543-9051 Asset Funds Division, Merrill
Lynch, Pierce, Fenner & Smith
Incorporated (securities firm)
Gerard J. Fenerty*................ Treasurer Vice President, Chief Administra-
P.O. Box 9051 tive Officer and formerly
Princeton, N.J. 08543-9051 Comptroller, Defined Asset Funds
Division, Merrill Lynch, Pierce,
Fenner & Smith Incorporated
(securities firm)
Teresa A. Koncick*................ Secretary Vice President and Senior Counsel
P.O. Box 9051 of Defined Asset Funds Division,
Princeton, NJ 08543-9051 Merrill Lynch, Pierce, Fenner &
Smith Incorporated (securities
firm)
</TABLE>
- ------------
* An interested person, as defined in the Investment Company Act of 1940, of
the Program.
** Mr. Milot advises the Transaction Agent with respect to the solicitation of
bids to buy and sell securities on behalf of the Program, subject to the
formula described under Transaction Agent in the Prospectus, and as to which
dealer should effect the transactions.
The Program's Audit Committee consists of the directors who are not
interested persons of the Program. On March 31, 1996, Shares of the Program
owned by all officers and directors of the Program aggregated less than 1% of
the total of such Shares then outstanding. The Program pays each unaffiliated
director an annual fee of $5,500, commencing in 1996. These directors are not
directors of any other funds in the same fund complex. For the year ended
December 31, 1995, the fees aggregated $9,000.
7
<PAGE>
NET ASSET VALUE
The net asset value per Share of the Program is determined on any business
day on which a purchase or redemption order is received, by dividing the net
assets of the Program by the number of its outstanding Shares. The term
"business day", as used in the Prospectus and Statement of Additional
Information, excludes Saturdays, Sundays and the following holidays as observed
by the New York State Exchange: New Year's Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas;
and the following Federal holidays: Martin Luther King's birthday, Columbus Day
and Veterans' Day. The net assets of the Program are its gross assets less its
liabilities as determined in accordance with generally accepted accounting
principles. It is the ultimate responsibility of the Board of Directors of the
Program to establish standards for the valuation of the Portfolio securities for
purposes of determining the net asset value of the Program. The Program has made
arrangements with Interactive Data Services, Inc. (the "Evaluator"), 14 Wall
Street, New York, New York 10005 to furnish to the Program and the Agent on each
business day (as of 3:30 P.M. New York time) estimated values of portfolio
Securities for purposes of computation of net asset value of the Shares. The
Board of Directors has examined the methods used by the Evaluator in estimating
the value of portfolio Securities and believes that such methods reasonably and
fairly approximate the prices at which portfolio Securities may be sold and will
result in a good faith determination of the fair value of the Securities;
however, there is no assurance that the portfolio Securities can be sold at the
prices at which they are valued.
Due to the nature of the secondary market for Ginnie Maes it is unlikely
that current last sale transactions or unsolicited bids will be regularly
available for most of the Securities in the Portfolio. The method used by the
Evaluator to value such portfolio Securities is to obtain "quotes" on other
mortgage-backed securities guaranteed by GNMA with comparable interest rates and
maturities, and to value the Securities similarly. These values are not bids or
actual last sale prices, but are estimates of the price at which the Evaluator
believes the Program could sell such portfolio Securities.
Securities with respect to which a last sale transaction is available shall
be valued by the Evaluator at such last sale transaction unless in its judgment
such last sale transaction does not fairly and accurately represent the price at
which these Securities may be sold. If there are current unsolicited bids
outstanding for portfolio Securities with respect to which there are no such
last sale transactions, the Evaluator will value these Securities within the
range of bid and asked prices it considers to best represent the price at which
these Securities can be sold in light of the then existing circumstances, unless
in its judgment this range does not fairly and accurately represent the range in
which these Securities may be sold.
While securities of the type included in the Program's Portfolio involve
minimal risk of loss of principal, due to variations in interest rates the
market value of the Securities and net asset value can be expected to fluctuate
during the period of an investment in the Program.
REDEMPTION
Participants have the right to redeem their Shares at net asset value, as
next determined after receipt of a proper tender, by surrendering the
certificates therefor properly endorsed with the signatures guaranteed by an
eligible guarantor institution together with a request for redemption at the
office of the Agent, The Bank of New York, P.O. Box 974, New York, New York
10268-0974. If certificates have not been issued, only delivery of the request
for redemption (with signature guaranteed as set forth above) is required. The
Program has arranged, however, for an exemption from the signature guarantee
requirement for redemptions involving less than $5,000 on the date of receipt by
the Agent of all the necessary documents where the proceeds are to be reinvested
through one of the Administrators in units of a Series of Government Securities
Income Fund, Municipal Investment Trust Fund, Defined Assets Funds, Corporate
Income Fund, Equity Income Fund or the International Bond Fund which are to be
registered in the names of the registered owners of the Shares. This exemption
may be reduced or eliminated without prior notice. A guarantee of each
Participant's signature is
8
<PAGE>
required for all redemptions, regardless of the amount involved, where the
proceeds are to be paid to Participants or where the units to be purchased are
to be registered in names different from those of the registered owners of the
Shares.
The redemption price will be the net asset value next determined after
either (i) the certificates are tendered for redemption or (ii) if no
certificates have been issued, a request for redemption is received in good
order as set forth above. The price received upon redemption may be more or less
than the amount paid by the Participant depending on the net asset value of the
Shares at the time of redemption. Payment of the redemption price must be made
within seven days after proper tender, except as described below.
The right of redemption may be suspended or payment postponed during any
period when the New York Stock Exchange is closed, other than customary weekend
and holiday closings; when trading on the Exchange is restricted or an emergency
exists, in each case as determined by rules and regulations of the Securities
and Exchange Commission; or during any period when the Securities and Exchange
Commission has by order permitted such suspension.
The Program has elected to be obligated to pay in cash redemptions during
any 90-day period for any one Participant up to the lesser of $250,000 or 1% of
the Program's net asset value. Payments in excess of such amount will normally
be made in cash. If, however, the Board of Directors determines that liquidation
of the Program's holdings is impracticable or that such payment in cash would be
adverse to the interests of the remaining Participants, such payment may be made
in whole or in part in Securities. The value of any Securities distributed in
payment for tendered Shares shall be deemed to be their value used in
determining the net asset value of the Shares at the time they were tendered for
redemption. If Securities rather than cash are distributed, the Participant will
incur brokerage charges or their equivalent in dealer markdowns in liquidating
these Securities.
Any of the Administrators may accept orders from dealers with whom it has
satisfactory agreements for the repurchase of Shares held by Participants.
Repurchase orders received by the dealer prior to 3:30 p.m. on any business day
and by the Administrator prior to the close of its business day (4:00 p.m., New
York City time) are redeemed at the price determined as of 3:30 p.m. on such
day. As orders not received from the dealer by such time will be treated as
being received after 3:30 p.m. and therefore sold at the price next computed
thereafter, it is the responsibility of the dealers to transmit orders so that
they will be received by the Administrator prior to its close of business. This
repurchase arrangement is discretionary and may be withdrawn. There is no
additional charge for repurchases.
Due to the high cost of maintaining Participant accounts of less than $500,
the Program reserves the right to redeem Shares in any account for their then
current net asset value (which will be paid promptly to the Participant) if at
any time the total investment of such Participant does not have a net asset
value of at least $500 and the Participant owns no Units of a Unit Trust Series
or has elected that no distributions on any such Units owned by such Participant
be invested in Shares. Before any such redemption is effected, the Participant
will be given 30 days' written notice, during which period he will be entitled
to elect to have distributions on Units owned by such Participant invested in
Shares or to purchase Shares to bring his account up to a net asset value of
$500 and thereby avoid such redemption.
FEDERAL TAXES
The Program has qualified and intends to continue to qualify for the special
tax treatment applicable to "regulated investment companies" under the Internal
Revenue Code of 1986, as amended (the "Code"). Qualification and election as a
"regulated investment company" involve no supervision of investment policy or
management by any government agency. If the Program qualifies as a "regulated
investment company" and distributes to Participants 90% or more of its taxable
income without regard to its net capital gain (net capital is defined as the
excess of net long-term capital gain over net short-term capital loss), it will
not be subject to Federal income tax on the portion of its taxable income
(including any net capital gain) distributed to Participants in a timely manner.
In addition, the Program will not be subject to the 4% excise tax on certain
undistributed income of "regulated investment
9
<PAGE>
companies" to the extent it distributes to Participants in a timely manner at
least 98% of its taxable income (including any net capital gain). The Program
expects to distribute all its net ordinary income and all its capital gain net
income (i.e., the excess of capital gain over capital loss) in a timely manner.
As a result, it is anticipated that the Program will not be subject to Federal
income tax or the excise tax. Any capital loss is deductible by the Program only
to the extent of capital gain; any excess capital loss may be carried forward to
future taxable years. As of December 31, 1995, the Program had a capital loss
carryforward of approximately $89,000 ($1,000 expiring in 1996, $4,000 in 1997,
$19,000 in 1998, $9,000 in 1999 and $56,000 in 2000), which will be available to
offset a like amount of future capital gains. Although all or a portion of the
Program's taxable income (including any net capital gain) may be distributed
shortly after the end of the calendar year, such a distribution will be treated
for Federal income tax purposes as having been received by Participants during
the calendar year.
Distributions to Participants of the Program's interest income, gain that is
treated as ordinary income under the market discount rules and any net
short-term capital gain in any year will be taxable as ordinary income to
Participants to the extent of the Program's taxable income (without regard to
its net capital gain) for that year. Any excess will be treated as a return of
capital and will reduce the Participant's basis in his Shares and, to the extent
that such distributions exceed his basis, will be treated as a gain from the
sale of his Shares as discussed below. It is anticipated that substantially all
of the distributions of the Program's interest income, ordinary gain and any net
short-term capital gain will be taxable as ordinary income to Participants.
Distributions which are taxable as ordinary income to Participants will
constitute dividends for Federal income tax purposes, but will not be eligible
for the dividends-received deduction for corporations.
Distributions of the Program's net capital gain (designated as capital gain
dividends by the Program) will be taxable to Participants as long-term capital
gain, regardless of the length of time the Participant has held the Shares. A
Participant may also recognize a taxable gain or loss if the Participant sells
or redeems his Shares. Any gain or loss arising from (or treated as arising
from) the sale or redemption of Shares will be a capital gain or loss except in
the case of a dealer or financial institution. Any such capital gain or loss
will be a long-term capital gain or loss if the Participant has held his Shares
for more than one year. However, any capital loss arising from the sale or
redemption of Shares held for six months or less shall be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received; for
this purpose, the special rules of Section 246(c)(3) and (4) of the Code shall
apply in determining the holding period of the Shares. Capital gains are
generally taxed at the same rate as ordinary income. However, the excess of net
long-term capital gains over net short-term capital losses may be taxed at a
lower rate than ordinary income for certain noncorporate taxpayers. The
deduction of capital losses is subject to limitations.
The Federal tax status of each year's distributions will be reported to
Participants and to the Internal Revenue Service. The foregoing discussion
relates only to the Federal income tax status of the Program and to the tax
treatment of distributions by the Program to U.S. Participants. Participants who
are not U.S. citizens or residents should be aware that distributions from the
Program generally will be subject to a withholding tax of 30%, or a lower treaty
rate, and should consult their own tax advisers to determine whether investment
in the Program is appropriate. Distributions may also be subject to state and
local taxation and Participants should consult their own advisers in this
regard.
Distributions from the Program will be taxed in the manner described above
regardless of whether such distributions are actually received by the
Participant or are reinvested in additional Shares.
10
<PAGE>
PORTFOLIO TRANSACTIONS
Transactions in mortgage-backed securities guaranteed by GNMA are generally
made through securities dealers acting as principals, although the Program may
purchase or sell such securities in brokerage transactions. Subject to the power
of the Securities and Exchange Commission to take appropriate exemptive action,
the Program is prohibited from engaging in securities transactions with the
Administrators or any of their affiliates acting as principals (although they
may do so on a brokerage basis) and from purchasing securities in underwritten
offerings in which the Administrators or any of their affiliates participate as
an underwriter. While there is no undertaking or agreement to do so, the
Transaction Agent, which is responsible for selecting securities dealers to
effect transactions for the Program's portfolio, subject to the policy of
seeking the most favorable prices and executions, may allocate securities
transactions among various dealers on the basis of supplementary statistical
information and price quotation and other services furnished to it. Such
statistical information may be used in providing services for all of the
accounts for which it acts and it is not possible to relate the benefits of such
information to any particular account. During its three fiscal years ended
December 31, 1995, the Program did not pay any brokerage commissions.
GENERAL INFORMATION
The Program Agent, whose address appears on the back cover, holds the
Program's assets as custodian. The Program Agent as custodian is authorized to
hold Bills in an account with the U.S. Treasury Book Entry System and Ginnie
Maes in an account with the Participants Trust Company. These accounts will
include only assets held for customers.
Legal Opinion -- The validity of the Shares offered hereby has been passed
upon for the Program by Davis Polk & Wardwell, 450 Lexington Avenue, New York,
New York 10017. Such counsel have relied as to matters of Maryland law on an
opinion of Weinberg & Green LLC, 100 South Charles Street, Baltimore, Maryland
21201. Davis Polk & Wardwell have acted as special counsel in connection with
the public offerings of Units of the Unit Trust Series.
Auditors and Financial Statements -- Deloitte & Touche LLP, independent
auditors for the Program, have audited the statement of assets and liabilities,
including the schedule of investments, of the Program as of December 31, 1995
and the related statements of operations for the year then ended and of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the years in the five year period ended
December 31, 1995 as stated in their independent auditors' report appearing in
the annual report of the Program for the year ended December 31, 1995 which has
been incorporated by reference in this Statement of Additional Information.
11
<PAGE>
- -------------------------------------------
STATEMENT OF THE
ADDITIONAL INFORMATION GNMA
DATED APRIL 29, 1996 INVESTMENT
ACCUMULATION
PROGRAM
- -------------------------------------------
P.O. BOX 9051
PRINCETON, N.J. 08543-9051
(609) 282-8500
ADMINISTRATORS:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
P.O. Box 9051
Princeton, N.J. 08543-9051
(609) 282-8500
Prudential Securities Incorporated
One Seaport Plaza
199 Water Street
New York, N.Y. 10292
(212) 776-1000
Dean Witter Reynolds Inc.
Two World Trade Center
59th Floor
New York, N.Y. 10048
(212) 392-2222
- ------------------------------------------- Smith Barney Inc.
388 Greenwich Street
INDEX 23rd Floor
- ------------------------------------------- New York, N.Y. 10013
(800) 223-2532
PAGE
----
INVESTMENT POLICIES AND RESTRICTIONS... 1 PROGRAM AND TRANSACTION AGENT:
ADMINISTRATION AGREEMENT............... 4 The Bank of New York
DIRECTORS AND OFFICERS................. 7 101 Barclay Street
NET ASSET VALUE........................ 8 New York, N.Y. 10007
1-(800) 221-7771
REDEMPTION............................. 8
FEDERAL TAXES........................ 9
PORTFOLIO TRANSACTIONS............... 11 INDEPENDENT AUDITORS
GENERAL INFORMATION.................. 11 FOR THE PROGRAM:
Deloitte & Touche LLP
- ------------------------------------------- 117 Campus Drive
Princeton, N.J. 08540
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Contained in Part A:
Financial Highlights for each of the years in the ten-year period
ended December 31, 1995.
Contained in Annual Report (incorporated by reference into Part B):
Schedule of Investments as of December 31, 1995
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statements of Changes in Net Assets for the years ended December 31,
1995 and 1994
Financial Highlights for each of the years in the five-year period
ended December 31, 1995
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
<CAPTION>
(1) --Amended and Restated Articles of Incorporation of Registrant (incorporated by
reference to Exhibit 1 to Amendment No. 1 to Form N-8B-1 of Registrant, 1940
Act File No. 811-2788).
<S> <C>
(2) --By-Laws of the Registrant (incorporated by reference to Exhibit 77Q to
Registrant's Form N-SAR for the period ending 12/31/88, 1940 Act File No.
811-2788).
(3) --Not applicable
(4) --Form of Stock Certificate (incorporated by reference to Exhibit 4(a) to
Amendment No. 1 to Form N-8B-1 of Registrant, 1940 Act File No. 811-2788).
(5) --Not applicable
(6) --Not applicable
(7) --Not applicable
(8)(a) --Form of Custody Agreement between The Bank of New York and Registrant
(incorporated by reference to Exhibit (1)(8) to Amendment No. 1 to Form S-5
of the Registrant, 1933 Act File No. 2-60367), subject to Amendatory
Agreements (below).
(b) --Form of Amendatory Agreement dated as of March 18, 1980 between The Bank of
New York and Registrant (incorporated by reference to Exhibit (8)(a) to
Amendment No. 3 to Form N-1 of the Registrant, 1933 Act File No. 2-60367).
(c) --Form of Amendatory Agreement dated as of March 25, 1987 between The Bank of
New York and Registrant (incorporated by reference to Exhibit 8(c) to
Amendment No. 11 to Form N-1A of the Registrant, 1933 Act File No. 2-60367).
(d) --Form of Amendatory Agreement dated as of August 21, 1990 between The Bank of
New York and Registrant (incorporated by reference to Exhibit 8(d) to
Post-Effective Amendment No. 16 to Form N-1A of the Registrant, 1933 Act File
No. 2-60367).
(9)(a) --Form of Administration Agreement by and among the Registrant, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Prudential-Bache Securities Inc., Dean
Witter Reynolds Inc. and Shearson Lehman Brothers Inc. (incorporated by
reference to Exhibit 77Q to Registrant's Form N-SAR for the period ending
12/31/87, 1940 Act File Number 811 -2788).
(b)(1) --Forms of Program Agency Agreement between The Bank of New York and Registrant
(incorporated by reference to Exhibit (1)(9) to Amendment No. 1 to Form S-5
of Registrant, 1933 Act File No. 2-60367), subject to Amendatory Agreement
(below).
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
(b)(2) --Form of Amendatory Agreement dated as of March 18, 1980 between Registrant
and The Bank of New York (incorporated by reference to Exhibit (9)(1) to
Amendment No. 3 to Form N-1 of the Registrant, 1933 Act File No. 2 -60367).
(c) --Form of Transaction Agency Agreement between the Registrant and Bank of New
York dated June 23, 1992 (incorporated by reference to Exhibit 9(c) to
Amendment No. 18 on Form N-1A of the Registrant, 1933 Act File No. 2-60367).
(10) --Opinions of Davis Polk & Wardwell and Weinberg & Green LLC (incorporated by
reference to Registrant's Rule 24f-2 Notice).
(11)(a) --Consent of Deloitte & Touche LLP, independent auditors for the Registrant
(filed herewith) (contained herein as page C-4 of the Registration
Statement).
(b) --Consent of Interactive Data (filed herewith)
(12) --Not applicable
(13) --Not applicable
(14) --Not applicable
(15) --Not applicable
(16) --Not applicable
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF MARCH 29, 1996:
TITLE OF CLASS NUMBER OF FUND HOLDERS
- -------------- ----------------------
Capital Stock, $.01 per value......................... 38,772
ITEM 27. INDEMNIFICATION
Article IX of the By-Laws of Registrant is incorporated by reference to
Exhibit 77Q to Registrant's Form N-SAR for the period ending 12/31/88 (1940 Act
File No. 811-2788).
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Not applicable
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 are maintained at the offices of
Registrant and The Bank of New York.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under "Administration Agreement" in the Statement of
Additional Information constituting Part B of this Registration Statement,
Registrant is not party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request, and without charge.
C-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, The GNMA Fund Investment
Accumulation Program, Inc., certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Township of Plainsboro, and State of New Jersey, on the
29th day of April, 1996.
THE GNMA FUND INVESTMENT ACCUMULATION
PROGRAM, INC.
(Registrant)
By /s/ MICHAEL J. PERINI
...................................
Michael J. Perini
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL J. PERINI President and Director (Principal April 29, 1996
.................................................. Executive Officer)
(Michael J. Perini)
/s/ GERARD J. FENERTY Treasurer (Principal Financial April 29, 1996
.................................................. and Accounting Officer)
Gerard J. Fenerty
/s/ ROBERT A. KAVESH Director April 29, 1996
..................................................
Robert A. Kavesh
/s/ LEONARD I. SHANKMAN Director April 29, 1996
..................................................
Leonard I. Shankman
</TABLE>
C-3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.:
We consent to the incorporation by reference in this Post-Effective
Amendment No. 21 to Registration Statement No. 2-60367 of our report dated
February 12, 1996 appearing in the annual report to shareholders of The GNMA
Fund Investment Accumulation Program, Inc. for the year ended December 31, 1995,
and to the references to us under the captions "Financial Highlights" in the
Prospectus and "General Information--Auditors and Financial Statements" in the
Statement of Additional Information, which are parts of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 26, 1996
C-4
INTERACTIVE DATA
-------------------
FINANCIAL TIMES INFORMATION
14 WALL STREET,
11TH FLOOR,
NEW YORK, NY 10005
USA TEL: (212) 306-6596
FAX: (212) 306-6698
Exhibit 4.1
April 29,1996
Merrill Lynch, Pierce
Fenner & Smith, Inc.
Unit Investment Trust Division
P.O. Box 9051
Princeton, New Jersey 08543-9051
RE: The GNMA Fund Investment Accumulation Program, Inc.
- --------------------------------------------------------------------------------
Gentleman:
We have examined post-effective Amendment No. 21 to the Registration
Statement on Form N-1A (File No. 2-60367) for the above captioned company. We
hereby acknowledge that Interactive Data Corporation is currently acting as the
evaluator for the company. We hereby consent to the use in the Amendment of the
reference to Interactive Data Corporation, as evaluator.
You are hereby authorized to file copies of this letter with the Securities
and Exchange Commission.
Very truly yours,
/s/ James Perry
- ------------------
James Perry
Vice President
<PAGE>
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
April 29, 1996
Re: THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
FILE NO. 2-60367
POST-EFFECTIVE AMENDMENT NO. 21 TO FORM N-1A
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
On behalf of the above-referenced issuer, and as a participant in the EDGAR
project, we transmit via electronic transfer for filing under the Securities Act
of 1933 Amendment No. 21 to the Registration Statement on Form N-1A, to become
effective on April 29, 1996 pursuant to Rule 485(b).
Very truly yours,
/s/ KENNETH H. CHASE
....................................
Kenneth H. Chase
<PAGE>
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
April 29, 1996
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Dear Sirs:
We hereby represent that Post-Effective Amendment No. 21 to the Registration
Statement of the GNMA Fund Investment Accumulation Program, Inc. (File No.
2-60367) does not contain disclosures which would render it ineligible to become
effective pursuant to Rule 485(b) under the Securities Act of 1933.
Very truly yours,
/s/ DAVIS POLK & WARDWELL
.....................................
Davis Polk & Wardwell
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