<PAGE>
THE GNMA FUND INVESTMENT
ACCUMULATION PROGRAM, INC.
LOGO
SEMI-ANNUAL REPORT
JUNE 30, 1996
<PAGE>
To Our Shareholders:
We are pleased to present the shareholder report for The GNMA Fund
Investment Accumulation Program, Inc. for the six months ended June 30, 1996.
During the period, the Program generated annualized net investment income
of 6.77% as a percentage of average net assets and paid dividends of $0.69 per
share.
During the first six months of the year, interest rates on 30 year Treasury
securities increased from 6.01% in early January to 6.95% at the end of June.
Correspondingly, GNMA current coupons rose from 6.50% and 7.00% at the beginning
of the year to 7.50% and 8.00% at the end of June. Principal pay downs of the
GNMA pools held in the Program were high throughout the six months period,
averaging $2.6 million per month. Purchases of program shares averaged $3.3
million per month and redemptions averaged $3.7 million per month.
Cash balances available and reserved for the purchase of GNMAs on their
corresponding settlement dates were invested in Short Term Treasury Bills. This
contributed $34,090 of income to the Program.
This Program should continue to provide a good means of compounding
distributions from your unit trust holdings through its monthly dividend, and
barring any dramatic change in interest rates should provide investors with
attractive returns in the future.
Thank you for including Defined Asset Funds and The GNMA Fund Investment
Accumulation Program, Inc. among your investment portfolio.
Officers and Directors Sincerely,
Michael J. Perini-President and Director
Leonard I. Shankman-Director
Robert A. Kavesh-Director
Philip G. Milot-Vice President
Teresa A. Koncick-Secretary
Gerard J. Fenerty-Treasurer /s/ Michael J. Perini
President
Custodian and Transfer Agent
The Bank of New York
P.O. Box 974 Wall Street Station
New York, N.Y. 10268-0974
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
INTEREST VALUE (NOTE
SECURITY DESCRIPTION RATE RANGE OF MATURITIES FACE AMOUNT* COST* 1A)
- ------------------------------------------- ----------- ------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 6.50% 05/15/23-03/15/26 $ 26,272,838 $ 26,482,395 $ 24,477,527
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.00 03/15/22-04/15/26 73,023,731 73,801,879 70,124,981
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.50 02/15/22-12/15/25 39,733,390 40,149,164 39,199,135
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.00 05/15/17-07/15/26 22,027,695 22,205,275 22,247,795
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.50 06/15/16-05/15/25 16,292,450 16,499,753 16,770,910
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.00 04/15/16-10/15/21 9,449,217 9,477,159 9,897,979
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.50 10/15/09-11/15/20 10,048,264 10,068,099 10,748,448
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 10.00 10/15/15-06/15/18 6,276,375 6,298,748 6,845,133
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 11.50 04/15/13-12/15/15 2,937,221 2,875,541 3,342,907
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 12.00 02/15/13-11/15/15 1,332,869 1,344,967 1,535,291
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 12.50 04/15/13 15,148 15,382 17,628
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.00 04/15/13 49,048 50,299 57,447
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.50 05/15/11 21,726 20,322 25,528
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 14.50 04/15/13 19,848 20,639 23,427
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 15.00 06/15/13 179,425 188,194 212,057
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 16.00 12/15/11-04/15/12 248,173 258,234 293,928
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 17.00 10/15/11-01/15/12 959,288 1,016,067 1,138,550
07/18/96 2,150,000 2,146,447 2,146,447
United States Treasury Bills
-------------- -------------- --------------
$ 211,036,706 $ 212,918,564**$ 209,105,118
Total Investments--100%......................................................
--------------
-------------- --------------
--------------
223,168
Other Assets in Excess of Liabilities--0%....................................................................
--------------
Net Assets--Equivalent to $20.27 net asset value per share on 10,329,341 shares of capital stock
$ 209,328,286
outstanding--100%............................................................................................
--------------
--------------
</TABLE>
* Original face amounts and related costs are reduced by principal payment
pass-throughs.
** Aggregate cost for Federal tax purposes was $212,918,564.
See Notes to Financial Statements.
3
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Identified Cost $212,918,564) (Note 1a)................................ $ 209,105,118
Cash......................................................................................... 3,593,006
Interest Receivable.......................................................................... 1,337,222
Other........................................................................................ 2,937
-----------------
Total Assets.............................................................................. 214,038,283
-----------------
LIABILITIES:
Payable for Securities Purchased............................................................. 4,321,366
Accounts Payable and Accrued Expenses........................................................ 213,430
Payable for Capital Stock Reacquired......................................................... 141,227
Payable to Administrators (Note 2)........................................................... 33,974
-----------------
Total Liabilities......................................................................... 4,709,997
-----------------
NET ASSETS (Equivalent to $20.27 net asset value per share on 10,329,341
shares of capital stock outstanding) (Note 4)............................................. $ 209,328,286
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
INCOME:
Interest Income and Premium Amortization (Note 1c).......................... $ 7,857,771
EXPENSES:
Custodian, Transfer and Dividend Disbursing Agent Fees...................... $ 278,885
Administration Fee (Note 2)................................................. 212,007
Printing and Mailing........................................................ 94,741
Professional Fees........................................................... 33,759
Other....................................................................... 12,400
Directors' Fees & Expenses.................................................. 5,500 637,292
--------------- ----------------
Net Investment Income.................................................... 7,220,479
UNREALIZED LOSS ON INVESTMENTS:
Unrealized Appreciation (Depreciation) of Investments:
Beginning of Year........................................................ 4,910,082
End of Year.............................................................. (3,813,446)
---------------
Increase in Unrealized Depreciation......................................... (8,723,528)
----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $ (1,503,049)
----------------
----------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
------------------ --------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income.................................................. $ 7,220,479 $ 14,789,514
Net Equalization (Credits) included in the Price of Capital Stock Sold
and Reacquired (Note 1d)............................................... (65,326) (128,760)
Increase in Unrealized Appreciation/(Depreciation) of Investments...... (8,723,528) 19,663,568
------------------ --------------------
Net Increase/(Decrease) in Net Assets Derived from Operations.......... (1,568,375) 34,324,322
------------------ --------------------
Dividends to Shareholders (Note 5)..................................... (7,125,861) (14,708,106)
------------------ --------------------
Capital Share Transactions (Exclusive of Net Equalization Debits
Allocated to Undistributed Net Investment Income) (Note 4):
Net Proceeds from Sale of Capital Stock................................ 13,287,848 27,435,407
Net Asset Value of Shares Issued to Shareholders in Reinvestment of
Dividends............................................................ 6,593,110 13,695,215
------------------ --------------------
19,880,958 41,130,622
Cost of Capital Stock Reacquired....................................... (22,056,080) (44,581,192)
------------------ --------------------
Increase/(Decrease) in Net Assets from Capital Stock Transactions...... (2,175,122) (3,450,570)
------------------ --------------------
Total Increase/(Decrease) in Net Assets................................ (10,869,358) 16,165,646
NET ASSETS:
Beginning of Year...................................................... 220,197,644 204,031,998
------------------ --------------------
End of Period (including undistributed net investment income of
$864,786 in 1996 and $835,494 in 1995 and accumulated realized
capital losses of $88,774 in 1996 and 1995).......................... $ 209,328,286 $ 220,197,644
------------------ --------------------
------------------ --------------------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED DATA FOR A SHARE OF
CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
Net Asset Value, Beginning of
Year........................... $ 21.10 $ 19.24 $ 21.39 $ 21.66 $ 22.00 $ 21.00
------------------ ------------ ------------ ------------ ------------ ------------
Income From Investment Operations
Net Investment Income............ 0.70 1.41 1.43 1.53 1.72 1.83
Net Realized and Unrealized Gain
(Loss) on Investments.......... (0.84) 1.87 (2.14) (0.20) (0.34) 1.02
------------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations.................. (0.14) 3.28 (0.71) 1.33 1.38 2.85
------------------ ------------ ------------ ------------ ------------ ------------
Dividend Distributions from Net
Investment Income (0.69) (1.42) (1.44) (1.60) (1.72) (1.85)
------------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period... $ 20.27 $ 21.10 $ 19.24 $ 21.39 $ 21.66 $ 22.00
------------------ ------------ ------------ ------------ ------------ ------------
------------------ ------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN.......... (0.64%)+ 17.54% (3.36%) 6.32% 6.58% 14.27%
------------------ ------------ ------------ ------------ ------------ ------------
------------------ ------------ ------------ ------------ ------------ ------------
SIGNIFICANT RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of Period (in
thousands)..................... $ 209,328 $ 220,198 $ 204,032 $ 222,493 $ 174,838 $ 169,889
------------------ ------------ ------------ ------------ ------------ ------------
------------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses to Average Net
Assets......................... 0.60%* 0.58% 0.59% 0.62% 0.67% 0.65%
------------------ ------------ ------------ ------------ ------------ ------------
------------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income to Average
Net Assets..................... 6.77%* 6.92% 7.12% 7.00% 7.90% 8.57%
------------------ ------------ ------------ ------------ ------------ ------------
------------------ ------------ ------------ ------------ ------------ ------------
Portfolio Turnover Rate.......... 0% 0% 0% 0% 0% 0%
------------------ ------------ ------------ ------------ ------------ ------------
------------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
* Annualized
+ Aggregate Total Investment Return
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GNMA Fund Investment Accumulation Program, Inc. (the 'Program') was
incorporated under Maryland law on November 17, 1977 and commenced operations on
April 24, 1978. The Program is registered under the Investment Company Act of
1940 as an open-end management company.
The following is a summary of significant accounting policies consistently
followed by the Program.
(a) Investments are valued by the Program's pricing
agent, Interactive Data Services, Inc. These
values are not necessarily bids or actual last
sale prices but are estimates of the prices at
which the pricing agent believes the Program
could sell such investment securities.
(b) It is the Program's policy to comply with the
requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute all of its income to its
shareholders. Therefore, no Federal income tax
provision is required.
(c) Security transactions are recorded on the date
the securities are purchased or sold (the trade
date). Interest income including amortization of
discount less premium amortization is recorded as
earned. Dividend distributions to shareholders
are recorded on the ex-dividend date.
(d) The Program follows the accounting practice known
as 'Equalization' by which a portion of the
proceeds from sales and costs of reacquiring
capital shares, equivalent on a per share basis
to the amount of distributable net investment
income on the date of the transaction, is
credited or charged to undistributed net
investment income. As a result, undistributed net
investment income per share is unaffected by
sales or reacquisitions of capital stock.
(e) Prepaid registration fees are charged to expense
as the related shares are issued or over the
period of registration, whichever is applicable.
2. ADMINISTRATION AGREEMENT
The Program has entered into an Administration Agreement with Merrill Lynch,
Pierce, Fenner & Smith, Incorporated ('MLPF&S'), Prudential Securities Inc.,
Dean Witter Reynolds, Inc. and Smith Barney Inc. (the 'Administrators'), whereby
the Administrators perform certain administrative duties for the Program. For
these services, the Administrators receive a monthly fee from the Program equal
to 0.2% on an annual basis of the Program's average daily net assets and have
agreed to reimburse the Program to the extent the Program's expenses (excluding
interest, taxes, brokerage fees and extraordinary items such as litigation
costs) exceed the lesser of (i) 1 1/2% of the first $30 million of the average
daily net assets of the Program and 1% of the average daily net assets in excess
thereof, or (ii) 25% of the Program's investment income.
Certain officers and/or directors of the Program are officers and/or directors
of MLPF&S.
3. PURCHASES AND SALES OF SECURITIES
During the period ended June 30, 1996 purchases, excluding short-term
securities, totalled $15,491,000. There were no sales of securities.
8
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARES
The Articles of Incorporation authorize the Program to issue 25,000,000 shares
of a single class. At June 30, 1996, paid-in capital amounted to $212,365,721.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
SIX MONTHS ENDED ------------------------------
JUNE 30, 1996 1995 1994
------------------ -------------- --------------
<S> <C> <C> <C>
Shares sold................................................. 649,229 1,353,002 2,393,786
Shares issued to shareholders in reinvestment of
dividends................................................. 322,048 675,903 719,539
------------------ -------------- --------------
Total....................................................... 971,277 2,028,905 3,113,325
Shares reacquired........................................... (1,077,266) (2,198,182) (2,912,779)
------------------ -------------- --------------
Net increase (decrease)..................................... (105,989) (169,277) 200,546
------------------ -------------- --------------
------------------ -------------- --------------
</TABLE>
5. DIVIDENDS AND DISTRIBUTIONS
The Program distributes, monthly, substantially all of its net investment
income. Net realized capital gains, if any, are distributed annually. At June
30, 1996, 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
taxable gains.
6. CASH OVERDRAFT
Under the terms of an agreement between the Program Agent ('Agent') and the
Program, overdrafts by the Program are deemed to be loans by the Agent payable
on demand and bearing interest at the GNMA Repurchase Agreement Rate. Such
overdrafts are secured by a lien on the Program's property in the Agent's
possession or control.
The Program did not have any overdrafts during the period ended June 30, 1996.
9
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
10
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
11
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 212,918,564
<INVESTMENTS-AT-VALUE> 209,105,118
<RECEIVABLES> 1,337,222
<ASSETS-OTHER> 2,937
<OTHER-ITEMS-ASSETS> 3,593,006
<TOTAL-ASSETS> 214,038,283
<PAYABLE-FOR-SECURITIES> 4,321,366
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 388,631
<TOTAL-LIABILITIES> 4,709,997
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 212,365,721
<SHARES-COMMON-STOCK> 10,329,341
<SHARES-COMMON-PRIOR> 10,435,330
<ACCUMULATED-NII-CURRENT> 864,786
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88,774)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,813,446)
<NET-ASSETS> 209,328,286
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,857,771
<OTHER-INCOME> 0
<EXPENSES-NET> 637,292
<NET-INVESTMENT-INCOME> 7,220,479
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (8,723,528)
<NET-CHANGE-FROM-OPS> (1,503,049)
<EQUALIZATION> (65,326)
<DISTRIBUTIONS-OF-INCOME> (7,125,681)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 649,229
<NUMBER-OF-SHARES-REDEEMED> (1,077,266)
<SHARES-REINVESTED> 322,048
<NET-CHANGE-IN-ASSETS> (10,869,358)
<ACCUMULATED-NII-PRIOR> 835,494
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 637,292
<AVERAGE-NET-ASSETS> 213,183,410
<PER-SHARE-NAV-BEGIN> 21.10
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> (.84)
<PER-SHARE-DIVIDEND> (.69)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.27
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
