<PAGE>
THE GNMA FUND INVESTMENT
ACCUMULATION PROGRAM, INC.
LOGO
SEMI-ANNUAL REPORT
JUNE 30, 1999
<PAGE>
To Our Shareholders:
We are pleased to present the shareholder report for The GNMA Fund
Investment Accumulation Program, Inc. for the six-month period ended June 30,
1999.
During the period, the Program generated annualized net investment income
of 6.24% as a percentage of average net assets and paid dividends of $0.63 per
share.
During the period, interest rates on 30 year Treasury securities fluctuated
from a high of over 6.17% in late June to a low of 5.06% in January. GNMA
current coupons purchased for the Program fluctuated from a low of 6.00% to a
high of 7.00%. While principal pay downs of the GNMA pools held in the Program
averaged $3.7 million per month during the last six months of 1998, pay downs
decreased slightly to $3.6 million per month during the first six months of the
year. Purchases of Program shares averaged $2.4 million per month and
redemptions averaged $2.8 million per month, during the first six months of
1999.
Cash balances available and reserved for the purchase of GNMAs on their
corresponding settlement dates were invested in Short Term Treasury Bills. This
contributed $58,554 of income to the Program.
This Program should continue to provide a good means of compounding
distributions from your unit trust holdings through its monthly dividend, and
barring any dramatic change in interest rates should provide investors with
attractive returns in the future.
Many computer systems use only two digits to designate years and may not be
able to distinguish the year 2000 from the year 1900 (often 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 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 the
Program's investment returns.
Thank you for including Defined Asset Funds and The GNMA Fund Investment
Accumulation Program, Inc. among your investment portfolio.
Officers and Directors Sincerely,
Michael J. Perini-President and Director
Leonard I. Shankman-Director
Robert A. Kavesh-Director
Timothy J. Mahoney-Vice President
Teresa A. Koncick-Secretary
Gerard J. Fenerty-Treasurer Michael J. Perini
President
Custodian and Transfer Agent
The Bank of New York
P.O. Box 974 Wall Street Station
New York, N.Y. 10268-0974
2
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
INTEREST VALUE (NOTE
SECURITY DESCRIPTION RATE RANGE OF MATURITIES FACE AMOUNT* COST* 1A)
- ------------------------------------------- ----------- ------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 6.00% 10/15/28-02/15/29 $ 23,411,242 $ 23,163,138 $ 21,972,083
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 6.50 05/15/23-04/15/29 44,992,230 45,059,737 43,427,535
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.00 03/15/22-06/15/29 67,091,110 67,536,524 66,381,286
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.50 02/15/22-07/15/27 23,751,305 23,958,856 24,046,083
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.00 03/15/17-11/15/26 12,624,160 12,711,877 12,992,179
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.50 06/15/16-05/15/25 6,499,290 6,571,957 6,813,811
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.00 04/15/16-10/15/21 3,772,975 3,781,493 4,009,122
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.50 10/15/09-11/15/20 3,997,023 3,999,776 4,311,009
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 10.00 10/15/15-06/15/18 2,447,101 2,456,281 2,675,875
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 11.50 04/15/13-12/15/15 1,286,635 1,264,132 1,453,081
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 12.00 02/15/13-11/15/15 659,730 664,123 750,512
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.00 04/15/13 19,272 19,669 22,532
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.50 05/15/11 9,571 9,077 11,278
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 14.50 04/15/13 18,816 19,431 22,481
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 15.00 06/15/13 104,074 108,261 123,880
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 16.00 12/15/11-04/15/12 97,657 100,822 119,066
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 17.00 10/15/11-01/15/12 437,059 458,583 544,245
07/22/99 3,055,000 3,047,693 3,047,345
United States Treasury Bills
-------------- -------------- --------------
$ 194,274,250 $ 194,931,430 $ 192,723,403
Total Investments--1.005%....................................................
--------------
-------------- --------------
--------------
(1,121,155)
Other Assets in Excess of Liabilities--(.005)%...............................................................
--------------
Net Assets--Equivalent to $20.40 net asset value per share on 9,393,932 shares of capital stock
$ 191,602,248
outstanding--100%............................................................................................
--------------
--------------
</TABLE>
* Original face amounts and related costs are reduced by principal payment
pass-throughs.
** Aggregate cost for Federal tax purposes.
See Notes to Financial Statements.
3
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
ASSETS:
<S> <C>
Investments at Value (Identified Cost $194,931,430) (Note 1a)................................ $ 192,723,403
Cash......................................................................................... 1,155,545
Interest Receivable.......................................................................... 1,134,026
Other........................................................................................ 2,400
-----------------
Total Assets.............................................................................. 195,015,374
-----------------
LIABILITIES:
Payable for Securities Purchased............................................................. 3,012,103
Payable for Capital Stock Reacquired......................................................... 241,890
Accounts Payable and Accrued Expenses........................................................ 127,645
Payable to Administrators (Note 2)........................................................... 31,488
-----------------
Total Liabilities......................................................................... 3,413,126
-----------------
NET ASSETS (Equivalent to $20.40 net asset value per share on 9,393,932
shares of capital stock outstanding) (Note 4)............................................. $ 191,602,248
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
NET INVESTMENT INCOME:
INCOME:
<S> <C>
Interest Income and Premium Amortization (Note 1c).......................... $ 6,574,987
EXPENSES:
Custodian, Transfer and Dividend Disbursing Agent Fees...................... $ 245,477
Administration Fee (Note 2)................................................. 195,378
Printing and Mailing........................................................ 97,208
Professional Fees........................................................... 36,550
Other....................................................................... 11,467
Directors' Fees & Expenses.................................................. 5,500 591,580
--------------- ----------------
Net Investment Income.................................................... 5,983,407
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Unrealized Appreciation (Depreciation) of Investments:
Beginning of Period...................................................... 4,375,869
End of Period............................................................ (2,208,026)
---------------
Increase in Unrealized Depreciation......................................... (6,583,895)
----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $ (600,488)
----------------
----------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
-------------------- --------------------
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C>
Net Investment Income................................................ $ 5,983,407 $ 12,630,693
Net Equalization (Debits) included in the Price of Capital Stock Sold
and Reacquired (Note 1d)............................................. (62,515) (93,690)
Increase in Unrealized Depreciation of Investments................... (6,583,895) 915,099
-------------------- --------------------
Net Decrease in Net Assets Derived from Operations................... (663,003) 13,452,102
-------------------- --------------------
Dividends to Shareholders (Note 5)................................... (5,899,683) (12,869,683)
-------------------- --------------------
Capital Share Transactions (Exclusive of Net Equalization Debits
Allocated to Undistributed Net Investment Income) (Note 4):
Net Proceeds from Sale of Capital Stock.............................. 8,896,963 17,497,431
Net Asset Value of Shares Issued to Shareholders in Reinvestment of
Dividends.......................................................... 5,331,245 12,490,344
-------------------- --------------------
14,228,208 29,987,775
Cost of Capital Stock Reacquired..................................... (16,457,002) (31,966,135)
-------------------- --------------------
Decrease in Net Assets from Capital Stock Transactions............... (2,228,794) (1,978,360)
-------------------- --------------------
Total Decrease in Net Assets......................................... (8,791,480) (1,395,940)
NET ASSETS:
Beginning of Year.................................................... 200,393,728 201,789,668
-------------------- --------------------
End of Period (including undistributed net investment income of
$708,650 in 1999 and $687,441 in 1998 and accumulated realized
capital losses of $64,369 in 1999 and 1998)........................ $ 191,602,248 $ 200,393,728
-------------------- --------------------
-------------------- --------------------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
SELECTED DATA FOR A SHARE OF CAPITAL
STOCK OUTSTANDING THROUGHOUT EACH
YEAR:
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year..... $ 21.09 $ 21.03 $ 20.59 $ 21.10 $ 19.24 $ 21.39
------------ ------------ ------------ ------------ ------------ ------------
Income From Investment Operations
Net Investment Income.................. 0.63 1.33 1.40 1.41 1.41 1.43
Net Realized and Unrealized Gain (Loss)
on Investments (0.69) 0.09 0.43 (0.53) 1.87 (2.14)
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment Operations..... (0.06) 1.42 1.83 0.88 3.28 (0.71)
------------ ------------ ------------ ------------ ------------ ------------
Dividend Distributions from Net
Investment Income.................... (0.63) (1.36) (1.39) (1.39) (1.42) (1.44)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 20.40 $ 21.09 $ 21.03 $ 20.59 $ 21.10 $ 19.24
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN................ (0.31%) 7.02% 9.16% 4.39% 17.54% (3.36%)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
SIGNIFICANT RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in thousands)....................... $ 191,602 $ 200,394 $ 201,790 $ 207,769 $ 220,198 $ 204,032
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses to Average Net
Assets............................... 0.62%* 0.56% 0.57% 0.57% 0.58% 0.59%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income to Average Net
Assets............................... 6.24%* 6.29% 6.74% 6.84% 6.92% 7.12%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Portfolio Turnover Rate................ 0% 0% 0% 0% 0% 0%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
* Annualized
Aggregate Total Investment Return
See Notes to Financial Statements.
7
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GNMA Fund Investment Accumulation Program, Inc. (the 'Program') was
incorporated under Maryland law on November 17, 1977 and commenced operations on
April 24, 1978. The Program is registered under the Investment Company Act of
1940 as an open-end management company.
The following is a summary of significant accounting policies consistently
followed by the Program.
(a) Investments are valued by the Program's pricing
agent, Interactive Data Services, Inc. These
values are not necessarily bids or actual last
sale prices but are estimates of the prices at
which the pricing agent believes the Program
could sell such investment securities.
(b) It is the Program's policy to comply with the
requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute all of its income to its
shareholders. Therefore, no Federal income tax
provision is required.
(c) Security transactions are recorded on the date
the securities are purchased or sold (the trade
date). Interest income including amortization of
discount less premium amortization is recorded as
earned. Dividend distributions to shareholders
are recorded on the ex-dividend date.
(d) The Program follows the accounting practice known
as 'Equalization' by which a portion of the
proceeds from sales and costs of reacquiring
capital shares, equivalent on a per share basis
to the amount of distributable net investment
income on the date of the transaction, is
credited or charged to undistributed net
investment income. As a result, undistributed net
investment income per share is unaffected by
sales or reacquisitions of capital stock.
(e) Prepaid registration fees are charged to expense
as the related shares are issued or over the
period of registration, whichever is applicable.
2. ADMINISTRATION AGREEMENT
The Program has entered into an Administration Agreement with Merrill Lynch,
Pierce, Fenner & Smith, Incorporated ('MLPF&S'), Prudential Securities Inc.,
Dean Witter Reynolds, Inc. and Salomon Smith Barney Inc. (the 'Administrators'),
whereby the Administrators perform certain administrative duties for the
Program. For these services, the Administrators receive a monthly fee from the
Program equal to 0.2% on an annual basis of the Program's average daily net
assets and have agreed to reimburse the Program to the extent the Program's
expenses (excluding interest, taxes, brokerage fees and extraordinary items such
as litigation costs) exceed the lesser of (i) 1 1/2% of the first $30 million of
the average daily net assets of the Program and 1% of the average daily net
assets in excess thereof, or (ii) 25% of the Program's investment income.
Certain officers and/or directors of the Program are officers of MLPF&S.
3. PURCHASES AND SALES OF SECURITIES
During the period ended June 30, 1999 purchases, excluding short-term
securities, totalled $23,377,667. There were no sales of securities.
8
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARES
The Articles of Incorporation authorize the Program to issue 25,000,000 shares
of a single class. At June 30, 1999, paid-in capital amounted to $193,407,882.
Transactions in shares were as follows:
<TABLE>
SIX MONTHS
YEAR ENDED
ENDED DECEMBER 31,
------------------------------
JUNE 30, 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Shares sold..................................................... 429,500 834,609 815,853
Shares issued to shareholders in reinvestment of dividends...... 257,440 595,789 595,291
-------------- -------------- --------------
Total........................................................... 686,940 1,430,398 1,411,144
Shares reacquired............................................... (794,673) (1,523,507) (1,906,541)
-------------- -------------- --------------
Net decrease.................................................... (107,733) (93,109) (495,397)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
5. DIVIDENDS AND DISTRIBUTIONS
The Program distributes, monthly, substantially all of its net investment
income. Net realized capital gains, if any, are distributed annually. At June
30, 1999, the Program had a capital loss carryforward of approximately $65,000
($9,000 in 1999 and $56,000 in 2000), which will be available to offset a like
amount of future taxable gains.
6. CASH OVERDRAFT
Under the terms of an agreement between the Program Agent ('Agent') and the
Program, overdrafts by the Program are deemed to be loans by the Agent payable
on demand and bearing interest at the GNMA Repurchase Agreement Rate. Such
overdrafts are secured by a lien on the Program's property in the Agent's
possession or control.
The Program did not have any overdrafts outstanding as of June 30, 1999.
9
