<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
FILE NO. 2-60367
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 24 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
</TABLE>
AMENDMENT NO. 21
(CHECK APPROPRIATE BOX OR BOXES)
------------------------------
THE GNMA FUND INVESTMENT
ACCUMULATION PROGRAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
P.O. BOX 9051 08543-9051
PRINCETON, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-8501
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)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
/ / ON MAY 1, 1998 PURSUANT TO PARAGRAPH (B)
/X/ 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE
FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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. Front and Back Cover Pages............................ Cover Pages
2. Risk/Return Summary: Investments, Risks and
Performance......................................... The Program at a Glance
3. Risk/Return Summary; Fee Table........................ Fees and Expenses of the Program
4. Investment Objectives, Principal Investment Strategies
and Related Risks................................... How the Program Invests
5. Management's Discussion of Fund Performance........... Annual Report dated December 31, 1998**
6. Management, Organization and Capital Structure........ Program Administration and Expenses
7. Shareholder Information............................... How to Participate in the Program
8. Distribution Arrangements............................. *
9. Financial Highlights Information...................... Financial Highlights
PART B
10. Cover Page and Table of Contents...................... Cover Page, Back Cover
11. Fund History.......................................... General Information
12. Description of the Fund............................... Investment Policies and Restrictions
13. Management of the Fund................................ Directors and Officers
14. Control Persons and Principal Holders of Securities... Directors and Officers
15. Investment Advisory and Other Services................ Administration Agreement, General Information, Back
Cover
16. Brokerage Allocation and Other Practices.............. Portfolio Transactions
17. Capital Stock and Other Securities.................... General Information
18. Purchase, Redemption and Pricing of Shares............ Net Asset Value, Terms and Conditions of
Participation, Redemption
19. Taxation of the Fund.................................. Federal Taxes
20. Underwriters.......................................... *
21. Calculations of Performance Data...................... *
22. Financial Statements.................................. Annual Report dated December 31, 1998**
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 INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1999
PRELIMINARY PROSPECTUS
[LOGO]
The GNMA Fund Investment
Accumulation Program, Inc.
The Program seeks safety of capital and current
income. It invests primarily in mortgage-backed
debt securities guaranteed by the Government
National Mortgage Association.
The Program is designed as an option to reinvest
income and principal distributed on units of
GNMA and other government securities series of
Corporate Income Fund and Government Securities
Income Fund. The Program has no sales charge,
distribution fee or investment advisory fee.
_May 1, 1999_
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD
KNOW BEFORE INVESTING, INCLUDING INFORMATION ABOUT
RISKS. PLEASE READ IT BEFORE YOU INVEST AND KEEP
IT FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
Defined Asset Funds-SM-
For more than 25 years, Defined Asset Funds has been a leader in unit investment
trust research and product innovation. Our family of "Defined-SM-" Funds helps
investors work toward their financial goals with a full range of quality
investments, including municipal, corporate and government bond portfolios, as
well as domestic and international equity portfolios.
Defined Asset Funds offer a number of advantages:
- Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
- Preselected Portfolios: We choose the stocks and bonds in advance, so you
know what you're investing in.
- Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
- Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, tolerance for risk or time horizon,
there's probably a Defined Asset Fund that suits your investment style. Your
financial professional can help you select a Defined Asset Fund that works best
for your investment portfolio.
CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C> <C>
The Program at a Glance.................................. 3
Fees and Expenses of the Program......................... 5
How the Program Invests.................................. 6
How to Participate in the Program........................ 7
Program Administration and Expenses...................... 9
Financial Highlights..................................... 10
For More Information..................................... Back
Cover
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
THE PROGRAM AT A GLANCE
What are the Program's objectives and goals?
The Program seeks safety of capital and current income. It invests primarily in
Ginnie Maes, a type of government backed debt security. We cannot assure that
the Program will fulfill these objectives.
What are the Program's main investment strategies?
- The Program has no investment adviser.
- The Bank of New York, as Transaction Agent, invests available cash from
share sales and payments on Ginnie Maes, primarily in additional Ginnie
Maes.
- When the Program needs cash to redeem shares, we can sell securities.
What are the main risks?
You can lose money with the Program. Reasons include:
- When interest rates rise, prices of Program shares tend to fall.
When interest rates fall:
- Ginnie Maes may pay out more principal (as homeowners pay down their
mortgages). You could lose some of any premium paid.
- As we reinvest this principal at lower interest rates, interest income per
share declines.
- Homeowners may prepay principal on Ginnie Maes at any time without penalty.
This limits share price increases.
Who should invest?
We offer Program shares to holders of many Defined Asset Funds. You may choose
to reinvest interest or principal distributed on your units or both. The Program
may be an appropriate investment if you:
- Are looking for attractive current income.
- Want the credit safety of a portfolio of U.S. government-backed debt.
The Program is not appropriate if you cannot tolerate any principal risk, or
early returns of principal, or if you want a speculative investment to take
advantage of market price movements.
3
<PAGE>
How has the Program performed in the past?
The bar chart and table below provide an indication of the risks of investing in
the Program. The bar chart shows changes in the Program's performance each year
over the last ten years. Average annual total returns show how Program returns
compared to the Salomon Brothers 30 Year GNMA Index. How the Program performed
in the past does not necessarily indicate how it will perform in the future.
Change in Value of an Investment in the Program
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14.21% 10.34% 14.22% 6.43% 6.52% -3.36% 17.54% 4.39% 9.16% 7.02%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 7.90% (quarter ending
June 30, 1989) and the lowest return for a quarter was -3.40% (quarter ending
March 31, 1994).
<TABLE>
<S> <C> <C> <C>
Average Annual Total Past One Year Past 5 Years Past 10 Years
Returns
(for the periods ending
December 31, 1998)
The Program 7.02% 6.73% 8.49%
SB 30 Year GNMA Index 6.82% 7.34% 9.29%
</TABLE>
4
<PAGE>
FEES AND EXPENSES OF THE PROGRAM
<TABLE>
<CAPTION>
Shareholder Fees (fees paid directly from your
investment):
- ----------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases.........
None
Maximum Deferred Sales Charge (Load)..................... None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends.............................................. None
Redemption Fee........................................... None
<CAPTION>
Annual Program Operating Expenses (expenses
that are deducted from Program assets):
- ----------------------------------------------
<S> <C> <C>
Management Fees.......................................... None
Distribution (12b-1) Fees................................ None
Other Expenses........................................... 0.56%
Administration Fees......................... 0.20%
Shareholder Servicing and Custodian Fees.... 0.26
Other Expenses.............................. 0.10
Total Annual Program Operating Expenses.................. 0.56%
</TABLE>
Examples:
These Examples are intended to help you compare the cost of investing in the
Program with the cost of investing in other mutual funds.
The Examples assume that you invest $10,000 in the Program for the time periods
indicated, that your investment has a 5% return each year and the Program's
operating expenses remain the same. This assumption is not meant to indicate
that you will receive a 5% annual rate of return; your return may be more or
less than the 5% used in this example. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$57 $179 $313 $701
</TABLE>
5
<PAGE>
HOW THE PROGRAM INVESTS
The Program invests primarily in Ginnie Maes. These are debt securities, pools
of mortgages on one- to four-family houses, that pay interest and principal
monthly. The Government National Mortgage Association (or GNMA, a U.S.
government corporation) guarantees timely interest and principal payments on the
Ginnie Maes.
Is the Program managed?
There is no investment adviser. We buy Ginnie Maes when the Program has
available cash. We sell them when it needs cash--not because of market changes.
When we expect to need cash soon, the Program may hold this cash or buy U.S.
Treasury bills payable within 30 days.
The Bank of New York as Transaction Agent buys Ginnie Maes with the longest
average maturities-- that is, new issues--and the highest available yields.
Maturity is the date when a debt obligation becomes due. Any Treasury bills will
mature by the next monthly distribution date.
We generally hold securities until they mature. If the Program needs cash before
then, the Bank can sell Ginnie Maes with the shortest average maturities--that
is, the oldest issues--and the lowest yields.
We place securities transactions with dealers for the most favorable prices and
executions of orders. Timothy J. Mahoney, Vice President of the Program since
February 1999 and Manager of Defined Asset Funds' purchasing department, assists
the Bank in determining which securities the Program's investment formula
requires it to buy or sell and which dealers to use. Mr. Mahoney has been with
the purchasing department for more than five years.
What are your risks of owning Program shares?
We cannot assure you that the Program will achieve its objectives or that its
share price will not decline. The principal risks of investing in the Program
flow from changing interest rates:
- If rates rise, the Program will continue to hold securities with lower rates
and your income will lag the current interest rates. Also, the market value
of those securities will decline; you could lose part of your investment if
you sell your shares when interest rates are higher.
- If rates fall, the Program for some time will continue to pay dividends at
rates above the market. However, as the Ginnie Maes return principal and we
invest money from new share sales, dividend income will decline. Also,
principal payments on the Ginnie Maes may increase as homeowners refinance
their mortgages at lower rates. The Program reinvests this principal at
lower rates, which also reduces income. Because Ginnie Maes have no
prepayment penalties, they tend to sell at smaller premiums than on debt
obligations of comparable interest rates and maturities that are not
currently callable. Share prices will not rise as much as on non-callable
bonds.
Because GNMA guarantees to pay promptly principal and interest on the Ginnie
Maes, backed by the full faith and credit of the U.S. government, and Treasury
bills are direct obligations of the U.S., credit risk on these investments is
minimal. However, Program shares are not backed by the U.S.
The Program's Statement of Additional Information, which is available on
request, contains further information about the Program's investments and the
risks they may entail.
6
<PAGE>
HOW TO PARTICIPATE IN THE PROGRAM
The Program allows you to reinvest distributions you receive on units of some
series of The Corporate Income Fund and The Government Securities Income Fund.
This option, if available, is described in the prospectus of that series. You
are paid in cash unless you elect to reinvest. The registered owner can elect to
reinvest or change a previous election by sending written notice to the Program
Agent, The Bank of New York, at P.O. Box 974, Wall Street Station, New York,
N.Y. 10286-0974. A notice will be effective only if received by the Bank at
least 10 days before the record day for the first distribution to which it
applies; notices received within 10 days will apply to later distributions.
Unit trust distributions may consist of interest income or capital gains or
principal. You may reinvest either income, or capital gains and principal
distributions, or both, in Program shares. When you elect to reinvest, the Bank
uses the distributions on your behalf to buy shares of the Program, without
sales charge, on the distribution date. If you elect to reinvest principal
distributions on your units, your proceeds from redeeming units and payments
from maturity of securities held in the unit trust will be reinvested in Program
shares--not distributed in cash.
The Bank mails a report of each unit trust distribution that you reinvest in
Program shares. Even when you reinvest distributions in Program shares, for
federal income tax purposes you are subject to tax on those distributions.
Shareholders also receive semi-annual financial statements of the Program and a
copy of the Program's current prospectus.
The Program's Board of Directors may change the terms for investing in the
Program or terminate the Program entirely at any time without advance notice to
you. The Board also may appoint a different Program Agent or an additional agent
for the Program.
See the Program's Statement of Additional Information for further details of the
terms and conditions of the Program.
To Buy Shares
Registered holders of units of many GNMA and other government securities unit
investment trusts, including brokers and nominees of banks or other financial
institutions that are registered holders of those units, may elect to reinvest
in shares of the Program as described in the unit trust's prospectus. There is
no sales charge or distribution fee. Unless the electing holder specifies to
receive cash, income and other distributions on Program shares will also be
reinvested in additional shares. The Program may reject orders to buy shares.
The Administrators may redeem shares in any account worth less than $500 if the
shareholder is no longer reinvesting distributions on units.
To Sell Your Shares
Registered owners may redeem Program shares on any business day--whenever the
New York Stock Exchange is open for trading except Columbus Day and Veterans'
Day. The owner must submit a written request to the Program Agent, P.O. Box 974,
New York, NY 10268-0974, accompanied by any outstanding certificates for shares
being redeemed. The request or each certificate must be signed by each record
owner, with each signature guaranteed by an eligible guarantor institution. The
Program Agent may request further documents from corporations, retirement plans,
executors, administrators,
7
<PAGE>
trustees and guardians. For shares held through brokers, banks or other
financial intermediaries you must instruct the registered owner to submit the
redemption request. The Program Agent mails payment within 7 days after receipt
of a properly completed redemption request.
A dealer having a satisfactory agreement with the Administrators may repurchase
your shares, at no extra charge by the Program. Repurchases are made at the same
day's price when the order is placed before 3:30 p.m. Eastern time. The dealer
is responsible for transmitting the order so an Administrator receives it before
the close of business (4 p.m. Eastern time) on that day. Dealers may charge a
fee to repurchase shares; no fee is payable when you redeem shares held by the
Program Agent.
You may transfer your Program shares only to another securities dealer that has
entered into a satisfactory agreement with the Administrators. The receiving
firm must coordinate all future trading of those shares.
How Shares are Priced
You can buy and sell Program shares at the net asset value, without any sales
charge, next computed after the order is received in proper form. Interactive
Data Corporation, an independent evaluator, determines the share price at 3:30
p.m. Eastern time on each business day. The price is based on quotes for
comparable securities using pricing methods developed by Interactive. The
Program's Board of Directors has examined these pricing methods and believes
that these methods reasonably and fairly approximate the prices at which the
securities may be sold and result in a good faith determination of the fair
value of the securities held by the Program. However, the Board cannot assure
that portfolio securities could be sold at these prices.
Dividends, Capital Gains and Taxes
The Program distributes any net investment income monthly, and any net realized
capital gains annually. If you want to receive dividends or distributions in
cash, contact the Program Agent.
You will pay tax on dividends and distributions from the Program whether you
receive them in cash or additional shares. If you redeem shares, any gain on the
transaction may be subject to tax. The Program Agent sends a tax information
statement on distributions shortly after the end of each year.
By law, the Program must withhold 31% of your distributions and proceeds unless
you have provided a taxpayer identification number or social security number.
The Program withholds a tax of 30% (or lower treaty rate) on distributions to
foreign shareholders.
This section summarizes some of the consequences under current federal tax law
of investing in the Program. It is no substitute for personal tax advice.
Consult your personal tax adviser about the potential consequences of investing
in the Program under all applicable tax laws.
8
<PAGE>
PROGRAM ADMINISTRATION AND EXPENSES
The Administrators supervise the Program's business operations. They perform
certain management services necessary for operating the Program and provide
office space, facilities and personel to perform these services. The Program
Administrators are Merrill Lynch, Pierce, Fenner & Smith Incorporated, P.O. Box
9051, Princeton, NJ 08543; Prudential Securities Incorporated, One New York
Plaza, New York, NY 10292; Dean Witter Reynolds, Inc., Two World Trade Center,
New York, NY 10048; and Salomon Smith Barney Inc., 388 Greenwich Street, New
York, NY 10013. Merrill Lynch is agent for the other Administrators. The
Administrators are the sponsors of the unit trust funds, along with PaineWebber
Incorporated. The Program pays these Administrators monthly for their services
an aggregate fee equal to 0.20% annually of the Program's average daily net
assets.
The Program also pays other expenses of its operations, including fees to The
Bank of New York as Program Agent, Custodian, Transfer Agent, dividend
disbursing agent and Transaction Agent; certain costs of printing and mailing
prospectuses and statements of additional information, shareholder reports,
proxy statements and other notices; legal and auditing fees; interest expense
and insurance premiums; and the fees and expenses of unaffiliated directors.
The address of the Program is P.O. Box 9051, Princeton, NJ 08543-9051 and its
telephone number is (609) 282-8501.
A Note about Year 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the year 2000 from the year 1900,
commonly called the "Year 2000 Problem". The Program could be adversely affected
if the computer systems used by the Program Agent, the Administrators or its
other service providers do not properly address this problem by January 1, 2000.
The Program's Board of Directors is monitoring actions taken and planned to
address this problem before then, and does not anticipate that the services to
the Program will be adversely affected. The service providers have told the
Program's officers that they also expect to resolve the year 2000 Problem, and
these officers will continue to monitor the situation as January 1, 2000
approaches. However, if the problem has not been fully addressed, the Program
could be adversely affected. The Year 2000 Problem could also have a negative
impact on servicing the mortgages and mortgage pools that generate the Program's
income, and this could affect Program investment returns.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Program's
financial performance for the past five years. Certain information reflects
financial results for a single Program share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Program, assuming all dividends and distributions were reinvested. This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Program's financial statements, are included in the Program's annual report
to shareholders, which is available upon request.
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................... $ 21.03 $ 20.59 $ 21.10 $ 19.24 $ 21.39
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................................. 1.33 1.40 1.41 1.41 1.43
Net Gains or Losses on Securities
(both realized and unrealized)...................................... 0.09 0.43 (0.53) 1.87 (2.14)
-------- -------- -------- -------- --------
Total from Investment Operations...................................... 1.42 1.83 0.88 3.28 (0.71)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net investment income)................................ (1.36) (1.39) (1.39) (1.42) (1.44)
-------- -------- -------- -------- --------
Net asset value, end of year.......................................... $ 21.09 $ 21.03 $ 20.59 $ 21.10 $ 19.24
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN
(BASED ON NET ASSET VALUE PER SHARE)................................ 7.02% 9.16% 4.39% 17.54% (3.36)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.56% 0.57% 0.57% 0.58% 0.59%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net investment income................................................. 6.29% 6.74% 6.84% 6.92% 7.12%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)................................ $200,394 $201,790 $207,769 $220,198 $204,032
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Portfolio turnover.................................................... 0% 0% 0% 0% 0%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
10
<PAGE>
Statement of Additional Information
The Program's Statement of Additional Information contains further information
about the Program and is incorporated by reference (legally considered to be
part of this prospectus).
Shareholder Reports
Additional information about the Program's investments is available in the
Program's annual and semi-annual reports to shareholders. In the Program's
annual report you will find a discussion of the market conditions and investment
strategies that significantly affected the Program's performance during its last
fiscal year.
The Program will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Program accounts you have. To receive
separate shareholder reports for each account, call your Financial Consultant or
write to the Bank of New York at its mailing address. Include your name,
address, tax identification number and brokerage or mutual fund account number.
If you have any questions, please call your Financial Consultant or the Bank of
New York at 1-800-221-7771.
You may request a free copy of any of these documents by writing the Program at
P.O. Box 9051, Princeton, N.J. 08543-9051, or calling 1-800-221-7771.
Contact your Financial Consultant or the Program at the telephone number or
address indicated if you have any questions.
Information about the Program (including the Statement of Additional
Information) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Call 1-800 SEC-0330 for information on the operation of the
public reference room. This information is also available on the SEC's Internet
site at http://www.sec.gov and copies may be obtained upon payment of a
duplicating fee by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009.
You should rely only on information in this prospectus. No one is authorized to
give you any information that is different.
Investment Company Act file #811-2788
[LOGO]
The GNMA
Fund Investment
Accumulation
Program, Inc.
_May 1, 1999_
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
THE GNMA FUND
INVESTMENT ACCUMULATION PROGRAM, INC.
---------------------------------------------------------
Shares of Statement of Additional Information
Common Stock dated May 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus dated May 1, 1999 (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, 1998, which contains certified financial statements of the Program
and is hereby incorporated by reference. The Prospectus can be obtained without
charge by calling (800) 221-7771. The Statement of Additional Information has
been incorporated by reference into the Program's prospectus.
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.
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
<PAGE>
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 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.
- ------------------------
* 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>
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.
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 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.,
homeowners). A number of factors, including mortgage market interest rates and
homeowners' mobility, will affect the average life of the Ginnie Maes held by
the Program. Accordingly, it is not possible to predict meaningfully prepayment
levels regarding these Ginnie Maes. It should be noted, however, that the
potential for appreciation on Ginnie
3
<PAGE>
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.
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.
BORROWING--The Program is authorized to borrow money from banks. Borrowings
are limited to 33% 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 the borrowings exceed this
limit. Any pledge or hypothecation of Program assets will only be made in
connection with a borrowing, limited to 33% 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 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.
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;
4
<PAGE>
(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
Salomon Smith Barney Inc. The Administrators shall (a) provide the Program, at
the Administrators' expense, with the services of such 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 $421,285, $404,394 and $401,721 during
1996-1998, respectively. The fee so payable is allocated among the four
Administrators in the following respective percentages: Merrill Lynch, 58%;
Prudential Securities, 16%; Dean Witter, 16%; and Salomon 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 Sponsors of Defined Asset Funds have agreed for the present to pay the
expenses of Program prospectuses used in connection with distribution and sales
of Program shares. 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
Sponsors) 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
5
<PAGE>
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 18,
1998. 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 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. Salomon
Smith Barney Inc., an investment banking and securities broker-dealer firm, is
an indirect wholly-owned subsidiary of Citigroup 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
6
<PAGE>
Inc., a principal operating subsidiary of Morgan Stanley, Dean Witter & 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.
Merrill Lynch or its nominee holds in its name Program shares for the
accounts of customers whose unit trusts 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 Program 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
Program Agent out of fees it receives from the Program. During the year ended
December 31, 1998, the Program Agent paid Merrill Lynch $127,898 for these
services.
7
<PAGE>
DIRECTORS AND OFFICERS
The ultimate responsibility for the Program's administration rests with its
Board of Directors, which meets at least quarterly to oversee the implementation
of the Program's policies and which must approve the renewal of the
Administration Agreement. The Directors of the Program are three individuals,
two of whom are not "interested persons" of the Program as defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
Directors are responsible for the overall supervision of the operations of the
Program and perform the various duties imposed on the directors of investment
companies by the Investment Company Act. The Board of Directors elects officers
of the Program annually.
Listed below are the directors and officers of the Program, their ages,
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* (51)................... President and Director 1st Vice President, Senior Director of
P.O. Box 9051 Defined Asset Funds Division, Merrill
Princeton, N.J. 08543-9051 Lynch, Pierce, Fenner & Smith Incor-
porated (securities firm)
Leonard I. Shankman (79).................. Director Private Investor; Director, Standard
P.O. Box M Security Life Insurance Co. of New York
Millbrook, N.Y. 12545
Robert A. Kavesh (71)..................... Director Marcus Nadler Professor of Finance and
Stern School of Business Economics, Stern School of Business of New
New York University York University; Director, Del
44 West 4th Street Laboratories, Inc. (cosmetics and
New York, New York 10012-1126 pharmaceuticals). Trustee, Neuberger &
Berman Income Funds.
Timothy J. Mahoney* (37).................. Vice President** Director, Manager of Purchasing Department
P.O. Box 9051 of Defined Asset Funds Division, Merrill
Princeton, N.J. 08543-9051 Lynch, Pierce, Fenner & Smith Incorporated
(securities firm); with the Purchasing
Department for more than five years.
Gerard J. Fenerty* (61)................... Treasurer Director, Chief Administrative Officer and
P.O. Box 9051 formerly Comptroller, Defined Asset Funds
Princeton, N.J. 08543-9051 Division, Merrill Lynch, Pierce, Fenner &
Smith Incorporated (securities firm)
Teresa A. Koncick* (41)................... Secretary Vice President and Senior Counsel of
P.O. Box 9051 Defined Asset Funds Division, Merrill
Princeton, NJ 08543-9051 Lynch, Pierce, Fenner & Smith Incor-
porated (securities firm)
</TABLE>
- ------------------------
* An interested person of the Program, as defined in the Investment Company
Act.
** Mr. Mahoney 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.
8
<PAGE>
The Program's Audit Committee consists of the directors who are not
interested persons of the Program. On March , 1999, 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. These directors are not directors of any other
funds in the same fund complex. For the year ended December 31, 1998, the fees
aggregated $11,000.
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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas; and the following Federal holidays: 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 Corporation (the "Evaluator"), 100 William
Street, New York, New York 10038 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.
TERMS AND CONDITIONS OF PARTICIPATION
Shares of the Program ("Shares") are offered to facilitate reinvestment of
distributions on units of GNMA and other government securities Series of
Corporate Income Fund and Government Securities Income Fund that specify
reinvestment in the Program ("Reinvesting Series"). All persons who are
registered holders of units of any Reinvesting Series are eligible to reinvest
in Shares. These include brokers or nominees of banks and other financial
institutions which are or become registered holders of
9
<PAGE>
Units in Reinvesting Series. This eligibility is subject to the terms and
conditions ("Terms and Conditions") set forth below.
If the shareholder is a broker or nominee of a bank or other financial
institution, the trustee and the Agent will apply these Terms and Conditions on
the basis of the respective numbers of Units certified from time to time by that
shareholder to be the total numbers of Units registered in that shareholder's
name and held for the accounts of beneficial owners who have chosen 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 will be registered in the names of the beneficial owners unless
those owners elect not to participate in the Program.
Distributions on Units of a Reinvestment Series will be paid in cash unless
the registered holder elects to reinvest those distributions by sending a notice
in writing to the Agent. Each electing holder will receive a copy of the
Program's prospectus; others may request a copy of the prospectus. Holders of
those Units may elect to reinvest or to change a previous election by notice in
writing to the Agent. Written notice of any election or change in election must
be received by the Agent at least ten days before the Record Day for the first
distribution to which the notice is to apply.
Under these Terms and Conditions, both distributions of interest and of
capital gains, if any, and principal on Units participating in the Program will
be invested without sales charge in Shares. The Bank of New York, P.O. Box 974,
New York, New York 10286-0974, acts as Agent. 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,
and performs certain other services for the Program.
Each distribution of interest, capital gains and principal on Units to be
reinvested will, on the date of the distribution, automatically be received by
the Agent on behalf of the shareholder and applied to purchase Shares at net
asset value, without sales charge. If a holder of Units of a Reinvesting Series
has elected to reinvest principal distributions, the proceeds of redemption or
payment at maturity of securities held in the Reinvesting Series will be
invested in Shares, rather than being distributed in cash to the holder. Net
interest income, after expenses, received by the Program on obligations in its
portfolio will be distributed monthly by the Program and net realized capital
gains, if any, will be distributed at least annually. These distributions will
be reinvested automatically in Program Shares unless the shareholder elects, by
written notice to the Agent, not to have these distributions reinvested.
In addition to their right to redeem Shares and receive a payment equal to
the net asset value thereof, shareholders may at any time, by notifying the
Agent in writing (the Agent will deliver a copy of such notice to the trustee
for the respective Reinvesting 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 capital
gains and principal on their Units and thereafter receive distributions in cash
out of the principal accounts of the respective Reinvesting Series, or (iii)
terminate their participation in part, as to distributions of interest on their
Units and thereafter receive future distributions in cash out of the income
accounts of those Series.
All the costs of establishing and administering the Program and these Terms
and Conditions are borne by the Program.
The Agent will mail to each registered owner a report of each transaction
undertaken for that owner in receiving distributions and purchasing Shares.
Distributions on Units which are applied to purchase Shares are considered to
have been distributed to the shareholder for federal income tax purposes, and
all taxes which are payable in respect of those distributions must be paid by
the shareholder, regardless of whether they are reinvested in the Program.
10
<PAGE>
Experience may indicate that changes in these Terms and Conditions are
desirable or that this offering should be terminated. Those changes may be made
or this offering may be terminated at the direction of the Board of Directors of
the Program without notice to shareholders. The Board may at any time appoint a
substitute or additional agent to act for the Program.
REDEMPTION
Shareholders 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 (as defined by Rule 17Ad-15 under the Securities
Exchange Act of 1934) 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 Investor 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 shareholder's
signature is required for all redemptions, regardless of the amount involved,
where the proceeds are to be paid to shareholders 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 shareholder 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 shareholder 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 shareholders, 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 shareholder 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 shareholders.
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.,
Eastern 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.
11
<PAGE>
Due to the high cost of maintaining 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 shareholder) if at any time the
total investment of such shareholder does not have a net asset value of at least
$500 and the shareholder owns no Units of a Unit Trust Series or has elected
that no distributions on any such Units owned by such shareholder be invested in
Shares. Before any such redemption is effected, the shareholder will be given 30
days' written notice, during which period he will be entitled to elect to have
distributions on Units owned by such shareholder 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 shareholders 90% or more of its
investment company taxable income excluding its net capital gain (i.e., the
excess of its net long-term capital gain over its 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 shareholders in a timely
manner. In addition, the Program will not be subject to the 4% excise tax on
certain undistributed income of "regulated investment 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, 1998, the Program had a capital loss carryforward of
approximately $65,000 ($9,000 expiring 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
shareholders during the calendar year.
Distributions of the Program's net capital gain (designated as capital gain
dividends by the Program) will be taxable to shareholders as long-term capital
gain, regardless of the time the shareholder has held the Shares. Distributions
to shareholders 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 shareholders to the
extent of the Program's taxable income (other than income attributable to its
net capital gain) for that year. Any excess will be treated as a return of
capital and will reduce the shareholder'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 shareholders.
Distributions which are taxable as ordinary income to shareholders will
constitute dividends for federal income tax purposes, but will not be eligible
for the dividends-received deduction for corporations.
A shareholder, other than a dealer or financial institution, will generally
recognize capital gain or loss when the shareholder sells or redeems his Shares.
In the case of a distribution of Securities to a shareholder upon redemption of
his Shares, gain or loss will generally be recognized in an amount equal to the
difference between the investor's tax basis in his Shares and the fair market
value of the Securities received in redemption. Net capital gain may be taxed at
a lower rate than ordinary income for certain noncorporate taxpayers. Any such
capital gain or loss is long-term if the shareholder has held his Shares for
more than one year and short-term if held for one year or less. 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
12
<PAGE>
the extent of the amount of capital gain dividends previously distributed by the
Program to the shareholder; 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. The deduction of capital losses is subject to limitations. Investors
should consult their tax advisers regarding these matters.
The federal tax status of each year's distributions will be reported to
shareholders 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. shareholders. Shareholders 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
applicable treaty rate. Because interest income of the type received by the
Program would generally not be subject to withholding if received directly by a
foreign shareholder, an investment in the Program is likely to be appropriate
for a foreign shareholder only when that foreign shareholder can utilize a
foreign tax credit or corresponding benefit in respect of such withholding tax.
Foreign shareholders 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 shareholders 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
shareholder or are reinvested in additional Shares.
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, 1998, the Program did not pay any brokerage commissions.
GENERAL INFORMATION
The Program is an open-end, diversified, management investment company, and
was incorporated in Maryland on November 17, 1977.
The Program is authorized to issue 25 million shares of common stock, $0.01
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. 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 shareholders unless under
the Investment Company Act shareholders are required to act on any of the
following matters: (1) election of directors, (2) approval of an investment
advisory agreement, distribution agreement or administration agreement, or (3)
ratification of the selection of independent auditors.
13
<PAGE>
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
shareholders and to provide assurance that those persons are in a position to
act in the best interest of the Program and its shareholders. Access persons are
required to preclear personal transactions in most securities (excepting
securities issued by the U.S. and 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 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, 1998
and the related statements of operations for the year then ended and 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, 1998
as stated in their independent auditors' report appearing in the annual report
of the Program for the year ended December 31, 1998 which has been incorporated
by reference in this Statement of Additional Information.
14
<PAGE>
- -------------------
STATEMENT OF
ADDITIONAL INFORMATION
DATED MAY 1, 1999
- ---------------------------------
- ---------------------------------
INDEX
- ---------------------------------
<TABLE>
<S> <C>
Page
---------
INVESTMENT POLICIES AND
RESTRICTIONS......................... 1
ADMINISTRATION AGREEMENT............. 5
DIRECTORS AND OFFICERS............... 8
NET ASSET VALUE...................... 9
TERMS AND CONDITIONS OF
PARTICIPATION........................ 9
REDEMPTION........................... 11
FEDERAL TAXES........................ 12
PORTFOLIO TRANSACTIONS............... 13
GENERAL INFORMATION.................. 13
</TABLE>
- -------------------------------------------
THE
GNMA
INVESTMENT
ACCUMULATION
PROGRAM
P.O. Box 9051
Princeton, N.J. 08543-9051
(609) 282-8501
ADMINISTRATORS:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
P.O. Box 9051
Princeton, N.J. 08543-9051
(609) 282-8500
Prudential Securities Incorporated
One New York Plaza
New York, N.Y. 10292
(212) 778-6164
Dean Witter Reynolds Inc.
Two World Trade Center
59th Floor
New York, N.Y. 10048
(212) 392-2222
Salomon Smith Barney Inc.
388 Greenwich Street
23rd Floor
New York, N.Y. 10013
(212) 816-4000
PROGRAM AND TRANSACTION AGENT:
The Bank of New York
101 Barclay Street
New York, N.Y. 10007
1-(800) 221-7771
INDEPENDENT AUDITORS
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 five-year period
ended December 31, 1998.
Contained in Annual Report (incorporated by reference into Part B):
Schedule of Investments as of December 31, 1998
Statement of Assets and Liabilities as of December 31, 1998
Statement of Operations for the year ended December 31, 1998
Statements of Changes in Net Assets for the years ended December 31,
1998 and 1997
Financial Highlights for each of the years in the five-year period
ended December 31, 1998
- ------------------------
(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).
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
(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).
(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
(17) --Financial Data Schedule
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF DECEMBER 31, 1998:
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF FUND HOLDERS
- --------------------------------------------------------------------- -----------------------
<S> <C>
Capital Stock, $.01 per value........................................ 29,506*
</TABLE>
* Including holders whose accounts are held of record by Merrill Lynch,
Pierce, Fenner & Smith, Incorporated.
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.
C-2
<PAGE>
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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 26th day of February, 1999.
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 February 26, 1999
................................................... Executive Officer)
(Michael J. Perini)
/s/ GERARD J. FENERTY Treasurer (Principal Financial and February 26, 1999
................................................... Accounting Officer)
Gerard J. Fenerty
/s/ ROBERT A. KAVESH Director February 26, 1999
...................................................
Robert A. Kavesh
</TABLE>
C-4
<PAGE>
INDEPENDENT AUDITORS' CONSENT
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 24 to Registration Statement No. 2-60367 of our report dated February 22,
1999 appearing in the annual report to shareholders of The GNMA Fund Investment
Accumulation Program, Inc. for the year ended December 31, 1998, 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
February 26, 1999
C-5
<PAGE>
INTERACTIVE DATA
---------------
FINANCIAL TIMES INFORMATION
100 WILLIAM STREET,
15TH FLOOR,
NEW YORK, NY 10038
USA TEL: (212) 771-6551
FAX: (212) 771-6545
Exhibit 4.1
February 26, 1999
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. 24 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,
James Perry
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 190,313,208
<INVESTMENTS-AT-VALUE> 194,689,077
<RECEIVABLES> 1,153,026
<ASSETS-OTHER> 3,517
<OTHER-ITEMS-ASSETS> 4,872,696
<TOTAL-ASSETS> 200,718,316
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 324,588
<TOTAL-LIABILITIES> 324,588
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 195,394,786
<SHARES-COMMON-STOCK> 9,501,665
<SHARES-COMMON-PRIOR> 9,594,774
<ACCUMULATED-NII-CURRENT> 687,441
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (64,369)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,375,869
<NET-ASSETS> 200,393,728
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,763,429
<OTHER-INCOME> 0
<EXPENSES-NET> 1,132,736
<NET-INVESTMENT-INCOME> 12,630,693
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 915,099
<NET-CHANGE-FROM-OPS> 13,545,792
<EQUALIZATION> (93,690)
<DISTRIBUTIONS-OF-INCOME> (12,869,683)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 834,609
<NUMBER-OF-SHARES-REDEEMED> (1,523,507)
<SHARES-REINVESTED> 595,789
<NET-CHANGE-IN-ASSETS> (1,395,940)
<ACCUMULATED-NII-PRIOR> 1,020,122
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,132,736
<AVERAGE-NET-ASSETS> 200,867,269
<PER-SHARE-NAV-BEGIN> 21.03
<PER-SHARE-NII> 1.33
<PER-SHARE-GAIN-APPREC> .09
<PER-SHARE-DIVIDEND> (1.36)
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 21.09
<EXPENSE-RATIO> .56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
