<PAGE>
THE GNMA FUND INVESTMENT
ACCUMULATION PROGRAM, INC.
[LOGO]
ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM
AND THE SALOMON BROTHERS 30 YEAR GNMA INDEX
<S> <C> <C>
Salomon Brothers 30 Year GNMA GNMA IAP
1989 $10,000 $10,000
1990 $11,092 $11,034
1991 $12,860 $12,603
1992 $13,836 $13,413
1993 $14,758 $14,288
1994 $14,569 $13,808
1995 $17,037 $16,230
1996 $17,994 $16,942
1997 $19,684 $18,494
1998 $21,026 $19,792
1999 $21,445 $19,905
Salomon Brothers 30 Year GNMA
GNMA IAP
Year End
GNMA FUND'S AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDING 12/31/99
1 YEAR 0.57%
5 YEAR 7.59%
10 YEAR 7.13%
</TABLE>
2
<PAGE>
To Our Shareholders:
We are pleased to present the shareholder report for The GNMA Fund
Investment Accumulation Program, Inc. for the year ended December 31, 1999.
During the year, the Program generated net investment income of 6.37% as a
percentage of average net assets and paid dividends of $1.27 per share.
During the year, interest rates on 30 year Treasury securities fluctuated
from a low of 5% in January to a high of 6% in December. GNMA current coupons
purchased for the Program fluctuated from a low of 6.00% to a high of 7.5%.
While principal pay downs of the GNMA pools held in the Program averaged $3.6
million per month during the first six months of the year, pay downs decreased
to $2.3 million per month during the last six months of the year. Purchases of
Program shares averaged $2.2 million per month and redemptions averaged $2.9
million per month.
Cash balances available and reserved for the purchase of GNMAs on their
corresponding settlement dates were invested in Short Term Treasury Bills. This
contributed $77,169 of income to the Program.
This Program should continue to provide a good means of compounding
distributions from your unit trust holdings through its monthly dividend, and
barring any dramatic change in interest rates should provide investors with
attractive returns in the future.
Thank you for including Defined Asset Funds and The GNMA Fund Investment
Accumulation Program, Inc. among your investment portfolio.
<TABLE>
<S> <C>
Officers and Directors Sincerely,
Michael J. Perini-President and Director
Leonard I. Shankman-Director
Robert A. Kavesh-Director /s/Michael J. Perini
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
</TABLE>
3
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST RANGE OF FACE VALUE
SECURITY DESCRIPTION RATE MATURITIES AMOUNT* COST* (NOTE 1A)
-------------------- -------- ---------- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 6.00% 10/15/28-02/15/29 $ 23,035,477 $ 22,794,854 $ 20,981,472
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 6.50 05/15/23-04/15/29 42,726,127 42,787,683 40,149,229
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 7.00 03/15/22-07/15/29 62,621,853 63,022,926 60,534,479
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 7.50 02/15/22-12/15/29 28,641,738 28,807,909 28,352,342
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 8.00 03/15/17-11/15/26 11,158,563 11,234,819 11,281,776
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 8.50 06/15/16-05/15/25 5,493,875 5,554,034 5,659,262
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 9.00 04/15/16-10/15/21 3,230,812 3,237,242 3,385,959
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 9.50 10/15/09-11/15/20 3,199,180 3,203,455 3,410,393
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 10.00 10/15/15-06/15/18 2,125,141 2,132,134 2,308,075
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 11.50 04/15/13-12/15/15 1,057,199 1,039,725 1,175,521
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 12.00 02/15/13-11/15/15 565,068 568,832 636,044
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 13.00 04/15/13 18,974 19,351 21,457
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 13.50 05/15/11 8,639 8,212 9,906
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 14.50 04/15/13 18,594 19,180 21,556
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 15.00 06/15/13 101,968 105,922 118,024
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 16.00 12/15/11-04/15/12 94,394 97,331 111,557
Government National Mortgage Association, Modified
Pass-Through Mortgage-Backed Securities 17.00 10/15/11-01/15/12 373,110 390,515 451,921
------------ ------------ ------------
Total Investments--99%.............................................................. $184,470,712 $185,024,124** $178,608,973
============ ============
Other Assets in Excess of Liabilities--1%........................................................................ 2,280,735
------------
Net Assets--Equivalent to $19.95 net asset value per share on 9,066,722 shares of capital stock $180,889,708
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.
4
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Identified Cost $185,024,124) (Note
1a)..................................................... $178,608,973
Cash...................................................... 1,460,180
Interest Receivable....................................... 1,095,617
Other..................................................... 5,866
------------
Total Assets............................................ 181,170,636
------------
LIABILITIES:
Payable for Capital Stock Reacquired...................... 12,462
Accounts Payable and Accrued Expenses..................... 237,416
Payable to Administrators (Note 2)........................ 31,050
------------
Total Liabilities....................................... 280,928
------------
NET ASSETS (Equivalent to $19.95 net asset value per share
on 9,066,722
shares of capital stock outstanding) (Note 4)........... $180,889,708
============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
INCOME:
Interest Income and Premium Amortization (Note 1c)........ $ 13,111,561
EXPENSES:
Custodian, Transfer and Dividend Disbursing Agent Fees.... $ 481,238
Administration Fee (Note 2)............................... 383,552
Printing and Mailing...................................... 150,920
Professional Fees......................................... 89,144
Other..................................................... 11,700
Directors' Fees & Expenses................................ 11,000 1,127,554
------------ ------------
Net Investment Income................................... 11,984,007
UNREALIZED GAIN ON INVESTMENTS:
Unrealized Appreciation of Investments:
Beginning of Year....................................... 4,375,869
End of Year............................................. (6,415,151)
------------
Decrease in Unrealized Appreciation....................... (10,791,020)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 1,192,987
============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................... $ 11,984,007 $ 12,630,693
Net Equalization (Debits) included in the Price of Capital
Stock Sold and Reacquired (Note 1d)....................... (136,389) (93,690)
Increase/(Decrease) in Unrealized Appreciation of
Investments............................................... (10,791,020) 915,099
------------- -------------
Net Increase in Net Assets Derived from Operations.......... 1,056,598 13,452,102
------------- -------------
Dividends to Shareholders (Note 5).......................... (11,757,579) (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..................... 15,243,877 17,497,431
Net Asset Value of Shares Issued to Shareholders in
Reinvestment of Dividends................................. 10,626,699 12,490,344
------------- -------------
25,870,576 29,987,775
Cost of Capital Stock Reacquired............................ (34,673,616) (31,966,135)
------------- -------------
Decrease in Net Assets from Capital Stock Transactions...... (8,803,040) (1,978,360)
------------- -------------
Total Decrease in Net Assets................................ (19,504,020) (1,395,940)
NET ASSETS:
Beginning of Year........................................... 200,393,728 201,789,668
------------- -------------
End of Year (including undistributed net investment income
of $777,481 in 1999 and $687,441 in 1998 and accumulated
realized capital losses of $55,675 in 1999 and $64,369 in
1998)..................................................... $ 180,889,708 $ 200,393,728
============= =============
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
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THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED DATA FOR A SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR:
Net Asset Value, Beginning of Year................ $ 21.09 $ 21.03 $ 20.59 $ 21.10 $ 19.24
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income............................. 1.28 1.33 1.40 1.41 1.41
Net Realized and Unrealized Gain (Loss) on
Investments..................................... (1.15) 0.09 0.43 (0.53) 1.87
-------- -------- -------- -------- --------
Total From Investment Operations................ .13 1.42 1.83 0.88 3.28
-------- -------- -------- -------- --------
Dividend Distributions from Net Investment
Income.......................................... (1.27) (1.36) (1.39) (1.39) (1.42)
-------- -------- -------- -------- --------
Net Asset Value, End of Year...................... $ 19.95 $ 21.09 $ 20.03 $ 20.59 $ 21.10
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN........................... 0.57% 7.02% 9.16% 4.39% 17.54%
======== ======== ======== ======== ========
SIGNIFICANT RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(in thousands).................................. $180,890 $200,394 $201,790 $207,769 $220,198
======== ======== ======== ======== ========
Operating Expenses to Average Net Assets.......... 0.60% 0.56% 0.57% 0.57% 0.58%
======== ======== ======== ======== ========
Net Investment Income to Average Net Assets....... 6.37% 6.29% 6.74% 6.84% 6.92%
======== ======== ======== ======== ========
Portfolio Turnover Rate........................... 0% 0% 0% 0% 0%
======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
8
<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.
<TABLE>
<S> <C>
(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.
</TABLE>
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 year ended December 31, 1999 purchases, excluding short-term
securities, totalled $30,460,871. There were no sales of securities.
9
<PAGE>
- --------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARES
The Articles of Incorporation authorize the Program to issue 25,000,000 shares
of a single class. At December 31, 1999, paid-in capital amounted to
$186,583,052. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Shares sold................................................. 746,206 834,609
Shares issued to shareholders in reinvestment of
dividends................................................. 521,730 595,789
---------- ----------
Total....................................................... 1,267,936 1,430,398
Shares reacquired........................................... (1,702,879) (1,523,507)
---------- ----------
Net decrease................................................ (434,943) (93,109)
========== ==========
</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
December 31, 1999, the Program had a capital loss carryforward of approximately
$56,000 (expiring in 2000), which will be available to offset a like amount of
future taxable gains.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The GNMA Fund Investment Accumulation Program,
Inc. as of December 31, 1999, the related statements of operations for the year
then ended and changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. These financial statements and the financial
highlights are the responsibility of the Program's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The GNMA Fund
Investment Accumulation Program, Inc. as of December 31, 1999, the results of
its operations, the changes in its net assets, and the financial highlights for
the respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 25, 2000
11
