<PAGE>
THE GNMA FUND INVESTMENT
ACCUMULATION PROGRAM, INC.
[LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 2000
<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,
2000.
During the period, the Program generated annualized net investment income of
6.82% 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 6.75% in late January to a low of 5.80% in April. GNMA
current coupons purchased for the Program remained at a steady 8%. While
principal pay downs of the GNMA pools held in the Program averaged $2.3 million
per month during the last six months of 1999, pay downs decreased to $1.6
million per month during the first six months of 2000. Purchases of Program
shares averaged $1.5 million per month and redemptions averaged $3.0 million per
month, during the first six months of 2000.
Cash balances available and reserved for the purchase of GNMAs on their
corresponding settlement dates were invested in Short Term Treasury Bills. This
contributed $4,831 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.
<TABLE>
<S> <C>
Officers and Directors Sincerely,
Michael J. Perini-President and Director
</TABLE>
[SIGNATURE]
<TABLE>
<S> <C>
Leonard I. Shankman-Director
Robert A. Kavesh-Director
Timothy J. Mahoney-Vice President
</TABLE>
<TABLE>
<S> <C>
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>
2
<PAGE>
--------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
<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 $ 22,487,341 $ 22,255,073 $ 20,717,340
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 6.50 05/15/23-04/15/29 40,810,911 40,865,315 38,740,941
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.00 03/15/22-07/15/29 59,578,587 59,950,669 57,963,590
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 7.50 02/15/22-12/15/29 26,934,482 27,084,871 26,769,455
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.00 03/15/17-05/15/30 11,846,234 11,916,954 11,982,561
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 8.50 06/15/16-05/15/25 5,109,175 5,163,517 5,234,339
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.00 04/15/16-10/15/21 3,046,808 3,052,958 3,148,647
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 9.50 10/15/09-11/15/20 2,939,192 2,942,439 3,055,834
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 10.00 10/15/15-06/15/18 1,905,305 1,911,385 2,014,850
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 11.50 04/15/13-12/15/15 833,900 820,983 918,589
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 12.00 02/15/13-11/15/15 466,300 469,693 515,259
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.00 04/15/13 18,655 19,012 21,314
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 13.50 05/15/11 8,414 8,016 9,750
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 14.50 04/15/13 18,355 18,912 21,361
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 15.00 06/15/13 100,604 104,361 118,712
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 16.00 12/15/11-04/15/12 76,000 78,272 90,439
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed
Securities 17.00 10/15/11-01/15/12 347,532 362,891 423,552
------------ ------------ ------------
Total Investments--99%................................................. $176,527,795 $177,025,321** $171,746,533
============ ============
Other Assets in Excess of Liabilities--1%........................................................... 1,465,709
------------
Net Assets--Equivalent to $20.10 net asset value per share on 8,608,666 shares of capital stock
outstanding--100%................................................................................... $173,212,242
============
</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>
--------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Identified Cost $177,025,321)....... $171,746,533
Interest Receivable....................................... 1,046,907
Cash...................................................... 659,840
Other..................................................... 7,567
------------
Total Assets............................................ 173,460,847
------------
LIABILITIES:
Payable for Capital Stock Reacquired...................... 133,165
Accounts Payable and Accrued Expenses..................... 86,841
Payable to Administrators................................. 28,599
------------
Total Liabilities....................................... 248,605
------------
NET ASSETS (Equivalent to $20.10 net asset value per share
on 8,608,666
shares of capital stock outstanding).................... $173,212,242
============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
--------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
INCOME:
Interest Income and Premium Amortization.................. $ 6,342,474
EXPENSES:
Custodian, Transfer and Dividend Disbursing Agent Fees.... $ 219,646
Administration Fee........................................ 175,550
Printing and Mailing...................................... 40,442
Professional Fees......................................... 20,184
Other..................................................... 12,150
Directors' Fees & Expenses................................ 5,500 473,472
----------- ------------
Net Investment Income................................... 5,869,002
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Unrealized Appreciation (Depreciation) of Investments:
Beginning of Period..................................... (6,415,151)
End of Period........................................... (5,278,789)
-----------
Decrease in Unrealized Depreciation....................... 1,136,362
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 7,005,364
============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
--------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2000 1999
---------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income................................ $ 5,869,002 $ 11,984,007
Net Equalization (Debits) included in the Price of
Capital Stock Sold and Reacquired.................. (84,117) (136,389)
Decrease in Unrealized Depreciation of Investments... 1,136,362 (10,791,020)
------------ ------------
Net Increase in Net Assets Derived from Operations... 6,921,247 1,056,598
------------ ------------
Dividends to Shareholders............................ (5,543,773) (11,757,579)
------------ ------------
Capital Share Transactions (Exclusive of Net
Equalization Debits Allocated to Undistributed Net
Investment Income):
Net Proceeds from Sale of Capital Stock.............. 4,995,865 15,243,877
Net Asset Value of Shares Issued to Shareholders in
Reinvestment of Dividends.......................... 4,223,376 10,626,699
------------ ------------
9,219,241 25,870,576
Cost of Capital Stock Reacquired..................... (18,274,181) (34,673,616)
------------ ------------
Decrease in Net Assets from Capital Stock
Transactions....................................... (9,054,940) (8,803,040)
------------ ------------
Total Decrease in Net Assets......................... (7,677,466) (19,504,020)
NET ASSETS:
Beginning of Year.................................... 180,889,708 200,393,728
------------ ------------
End of Period (including undistributed net investment
income of $1,018,593 in 2000 and $777,481 in 1999
and accumulated realized capital losses of $55,675
in 2000 and 1999).................................. $173,212,242 $180,889,708
============ ============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
--------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SELECTED DATA FOR A SHARE OF
CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
Net Asset Value, Beginning of
Period....................... $ 19.95 $ 21.09 $ 21.03 $ 20.59 $ 21.10 $ 19.24
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.......... 0.66 1.28 1.33 1.40 1.41 1.41
Net Realized and Unrealized
Gain (Loss) on Investments... 0.12 (1.15) 0.09 0.43 (0.53) 1.87
-------- -------- -------- -------- -------- --------
Total From Investment
Operations................. 0.78 0.13 1.42 1.83 0.88 3.28
-------- -------- -------- -------- -------- --------
Dividend Distributions from Net
Investment Income............ (0.63) (1.27) (1.36) (1.39) (1.39) (1.42)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period....................... $ 20.10 $ 19.95 $ 21.09 $ 20.03 $ 20.59 $ 21.10
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN........ 4.05%+ 0.57% 7.02% 9.16% 4.39% 17.54%
======== ======== ======== ======== ======== ========
SIGNIFICANT RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of Period
(in thousands)............... $173,212 $180,890 $200,394 $201,790 $207,769 $220,198
======== ======== ======== ======== ======== ========
Operating Expenses to Average
Net Assets................... 0.54%* 0.60% 0.56% 0.57% 0.57% 0.58%
======== ======== ======== ======== ======== ========
Net Investment Income to
Average Net Assets........... 6.82%* 6.37% 6.29% 6.74% 6.84% 6.92%
======== ======== ======== ======== ======== ========
Portfolio Turnover Rate........ 0% 0% 0% 0% 0% 0%
======== ======== ======== ======== ======== ========
</TABLE>
* Annualized
+ Aggregate Total Investment Return
See Notes to Financial Statements.
7
<PAGE>
--------------------------------------------------------------------------------
THE GNMA FUND INVESTMENT ACCUMULATION PROGRAM, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GNMA Fund Investment Accumulation Program, Inc. (the 'Program') was
incorporated under Maryland law on November 17, 1977 and commenced operations on
April 24, 1978. The Program is registered under the Investment Company Act of
1940 as an open-end management investment 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 period ended June 30, 2000 purchases, excluding short-term
securities, totalled $1,503,156. 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, 2000, paid-in capital amounted to $177,584,062.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Shares sold...................................... 253,158 746,206 834,609
Shares issued to shareholders in reinvestment of
dividends...................................... 213,188 521,730 595,789
-------- ---------- ----------
Total............................................ 466,346 1,267,936 1,430,398
Shares reacquired................................ (924,402) (1,702,879) (1,523,507)
-------- ---------- ----------
Net decrease..................................... (458,056) (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 June
30, 2000, 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.
9
