THE GNMA FUND INVESTMENT
ACCUMULATION PROGRAM, INC.
LOGO
ANNUAL REPORT
DECEMBER 31, 1995
<PAGE>
Comparison of the Change in Value of a $10,000 Investment in the
GNMA Fund Investment Accumulation Program and the
Salomon Brothers 30 Year GNMA Index
A comparison chart is included here with points plotted comparing changes in
value for Salomon Brothers 30 Year GNMA Index with that of a $10,000 investment
in The GNMA Fund Investment Accumulation Program, as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salomon
Brothers
30 Year
GNMA $10,000 $11,200 $11,400 $12,600 $15,000 $16,000 $18,000 $20,000 $22,000 $20,000 $25,114
GIAP 10,000 11,000 11,200 12,400 14,800 15,800 17,500 18,000 20,000 18,800 22,814
-------------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Year End
</TABLE>
Average Annual Total Return for Periods ending 12/31/95
1 year ended 17.54%
5 years ended 8.02%
10 years ended 8.59%
The Program is not managed and past performance is no guarantee of future
results.
<PAGE>
To Our Shareholders:
We are pleased to present the shareholder report for The GNMA Fund
Investment Accumulation Program, Inc. for the year ended December 31, 1995.
During the year, the Program generated net investment income of 6.92% as
a percentage of average net assets and paid dividends of $1.42 per share. The
Program's per share net asset value rose from $19.24 to $21.10, reflecting the
generally favorable pattern of the market during the year of 1995. Total
Investment Return for the GNMA Fund Investment Accumulation Program, Inc. for
the year was 17.54%, based on the change in per share net asset value, and
assuming reinvestment of dividends.
During the year, interest rates on 30 year Treasury securities decreased
from 7.89% in early January to 6.01% at the end of December. Correspondingly,
GNMA current coupons dropped from 8.50% and 9.00% at the beginning of the year
to 6.5% and 7.00% at the end of December. Principal pay downs of the GNMA
pools held in the Program were low throughout the year, averaging $1.3 million
during the first half of the year, followed by slightly over $2 million during
the second half of the year. Purchases of shares averaged $3.4 million per
month and redemptions averaged $3.7 million per month.
The Transaction Agency Agreement provides for the purchase of Short Term
Treasury Bills with uninvested cash. Accordingly, cash balances available and
reserved for the purchase of GNMAs on their corresponding settlement dates
were so invested. This action contributed $42,375 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 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>
<TABLE><CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST RANGE OF VALUE
SECURITY DESCRIPTION RATE MATURITIES FACE AMOUNT* COST* (NOTE 1A)
-------------------- ------- ---------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C>
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 6.50% 05/15/23-11/15/23 $ 24,912,495 $ 25,224,732 $ 24,741,222
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.00 03/15/22-03/15/24 69,494,783 70,296,993 70,385,151
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.50 02/15/22-12/15/25 41,588,204 42,030,023 42,809,858
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.00 04/15/21-05/15/24 17,077,227 17,190,203 17,803,009
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.50 06/15/16-05/15/25 19,424,920 19,673,303 20,408,306
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.00 04/15/16-10/15/21 10,633,533 10,666,672 11,274,862
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.50 10/15/09-11/15/20 11,677,276 11,703,339 12,542,118
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 10.00 10/15/15-06/15/18 7,196,815 7,221,739 7,911,998
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 11.50 04/15/13-12/15/15 3,406,115 3,333,230 3,891,487
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 12.00 02/15/13-11/15/15 1,699,288 1,713,939 1,961,083
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 12.50 04/15/13 15,278 15,521 17,823
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.00 04/15/13 49,790 51,097 58,472
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.50 05/15/11 26,230 24,478 30,902
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 14.50 04/15/13 19,980 20,799 23,639
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 15.00 06/15/13 180,577 189,662 213,871
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 16.00 12/15/11-04/15/12 341,797 356,057 405,671
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 17.00 10/15/11-01/15/12 1,091,558 1,155,875 1,298,272
-------------- -------------- --------------
Total Investments--98%....................................................... $ 208,835,866 $ 210,867,662 **$215,777,744
============== ==============
Other Assets in Excess of Liabilities--2%.................................................................... 4,419,900
---------
Net Assets--Equivalent to $21.10 net asset value per share on 10,435,330 shares of capital stock
outstanding--100%............................................................................................ $220,197,644
==============
</TABLE>
* Original face amounts and related costs are reduced by principal payment
pass-throughs.
** Aggregate cost for Federal tax purposes was $210,867,662.
See Notes to Financial Statements.
4
<PAGE>
<TABLE><CAPTION>
- ------------------------------------------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at Value (Identified Cost $210,867,662) (Note 1a)................................ $215,777,744
Cash......................................................................................... 3,316,637
Interest Receivable.......................................................................... 1,357,015
Other........................................................................................ 1,082
--------------
Total Assets.............................................................................. 220,452,478
--------------
LIABILITIES:
Accounts Payable and Accrued Expenses........................................................ 137,958
Payable for Capital Stock Reacquired......................................................... 79,785
Payable to Administrators (Note 2)........................................................... 37,091
--------------
Total Liabilities......................................................................... 254,834
--------------
NET ASSETS (Equivalent to $21.10 net asset value per share on 10,435,330
shares of capital stock outstanding) (Note 4)............................................. $220,197,644
==============
See Notes to Financial Statements.
</TABLE>
5
<PAGE>
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME:
INCOME:
Interest Income and Premium Amortization (Note 1c).......................... $ 16,035,752
EXPENSES:
Custodian, Transfer and Dividend Disbursing Agent Fees...................... $ 553,913
Administration Fee (Note 2)................................................. 427,683
Printing and Mailing........................................................ 178,372
Professional Fees........................................................... 61,757
Other....................................................................... 15,513
Directors' Fees & Expenses.................................................. 9,000 1,246,238
------------ -------------
Net Investment Income.................................................... 14,789,514
UNREALIZED GAIN ON INVESTMENTS:
Unrealized Appreciation (Depreciation) of Investments:
Beginning of Year........................................................ (14,753,486)
End of Year.............................................................. 4,910,082
------------
Increase in Unrealized Appreciation......................................... 19,663,568
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $34,453,082
=============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE><CAPTION>
- ----------------------------------------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994
------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income.................................................. $ 14,789,514 $ 15,240,068
Net Equalization (Credits) included in the Price of Capital Stock Sold
and Reacquired (Note 1d)............................................. (128,760) (111,761)
Increase in Unrealized Appreciation/(Depreciation) of Investments...... 19,663,568 (22,874,888)
------------- ----------------
Net Increase/(Decrease) in Net Assets Derived from Operations.......... 34,324,322 (7,746,581)
------------- ----------------
Dividends to Shareholders (Note 5)..................................... (14,708,106) (15,165,651)
------------- ----------------
Capital Share Transactions (Exclusive of Net Equalization Debits
Allocated to Undistributed Net Investment Income) (Note 4):
Net Proceeds from Sale of Capital Stock................................ 27,435,407 48,135,347
Net Asset Value of Shares Issued to Shareholders in Reinvestment of
Dividends............................................................ 13,695,215 14,290,406
------------- ----------------
41,130,622 62,425,753
Cost of Capital Stock Reacquired....................................... (44,581,192) (57,974,709)
------------- ----------------
Increase/(Decrease) in Net Assets from Capital Stock Transactions...... (3,450,570) 4,451,044
------------- ----------------
Total Increase/(Decrease) in Net Assets................................ 16,165,646 (18,461,188)
NET ASSETS:
Beginning of Year...................................................... 204,031,998 222,493,186
------------- ----------------
End of Year (including undistributed net investment income of $835,494
in 1995 and $877,526 in 1994 and accumulated realized capital losses
of $88,774 in 1995 and $254,586 in 1994)............................. $ 220,197,644 $ 204,031,998
============= ================
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
<TABLE><CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C>
SELECTED DATA FOR A SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR:
Net Asset Value, Beginning of Year.............. $ 19.24 $ 21.39 $ 21.66 $ 22.00 $ 21.00
--------- --------- --------- --------- ---------
Income From Investment Operations
- ---------------------------------
Net Investment Income........................... 1.41 1.43 1.53 1.72 1.83
Net Realized and Unrealized Gain (Loss) on
Investments................................... 1.87 (2.14) (0.20) (0.34) 1.02
--------- --------- --------- --------- ---------
Total From Investment Operations.............. 3.28 (0.71) 1.33 1.38 2.85
--------- --------- --------- --------- ---------
Dividend Distributions from Net Investment
Income........................................ (1.42) (1.44) (1.60) (1.72) (1.85)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year.................... $ 21.10 $ 19.24 $ 21.39 $ 21.66 $ 22.00
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN......................... 17.54% (3.36%) 6.32% 6.58% 14.27%
========= ========= ========= ========= =========
SIGNIFICANT RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands).......... $ 220,198 $ 204,032 $ 222,493 $ 174,838 $ 169,889
========= ========= ========= ========= =========
Operating Expenses to Average Net Assets........ 0.58% 0.59% 0.62% 0.67% 0.65%
========= ========= ========= ========= =========
Net Investment Income to Average Net Assets..... 6.92% 7.12% 7.00% 7.90% 8.57%
========= ========= ========= ========= =========
Portfolio Turnover Rate......................... 0% 0% 0% 0% 0%
========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
8
<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 year ended December 31, 1995 purchases, excluding short-term
securities, totalled $16,722,000. There were no sales of securities.
9
<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 December 31, 1995, paid-in capital amounted to
$214,540,842. Transactions in shares were as follo
YEAR ENDED
DECEMBER 31,
---------------------------
1995 1994
---------- -----------
Shares sold....................................... 1,353,002 2,393,786
Shares issued to shareholders in reinvestment
of dividends.................................... 675,903 719,539
---------- ----------
Total............................................. 2,028,905 3,113,325
Shares reacquired................................. (2,198,182) (2,912,779)
---------- ----------
Net increase (decrease)........................... (169,277) 200,546
========== ==========
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
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 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 year ended December 31,
1995.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The GNMA Fund Investment
Accumulation Program, Inc. as of December 31, 1995, the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Program's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at December 31, 1995 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of The GNMA
Fund Investment Accumulation Program, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 12, 1996
11
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 210,867,662
<INVESTMENTS-AT-VALUE> 215,777,744
<RECEIVABLES> 1,357,015
<ASSETS-OTHER> 1,082
<OTHER-ITEMS-ASSETS> 3,316,637
<TOTAL-ASSETS> 220,452,478
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 254,834
<TOTAL-LIABILITIES> 254,834
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214,540,842
<SHARES-COMMON-STOCK> 10,435,330
<SHARES-COMMON-PRIOR> 10,604,607
<ACCUMULATED-NII-CURRENT> 835,494
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88,774)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,910,082
<NET-ASSETS> 220,197,644
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,035,752
<OTHER-INCOME> 0
<EXPENSES-NET> 1,246,238
<NET-INVESTMENT-INCOME> 14,789,514
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 19,663,568
<NET-CHANGE-FROM-OPS> 34,453,082
<EQUALIZATION> (128,760)
<DISTRIBUTIONS-OF-INCOME> (14,708,106)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,353,002
<NUMBER-OF-SHARES-REDEEMED> (2,198,182)
<SHARES-REINVESTED> 675,903
<NET-CHANGE-IN-ASSETS> 16,165,646
<ACCUMULATED-NII-PRIOR> 877,526
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,246,238
<AVERAGE-NET-ASSETS> 213,818,129
<PER-SHARE-NAV-BEGIN> 19.24
<PER-SHARE-NII> 1.41
<PER-SHARE-GAIN-APPREC> 1.87
<PER-SHARE-DIVIDEND> (1.42)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.10
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
