August 2, 1994
DREYFUS GNMA FUND, INC.
SUPPLEMENT TO PROSPECTUS DATED JUNE 24, 1994
I. PROPOSED MERGER OF THE DREYFUS CORPORATION
The Fund's adviser, The Dreyfus Corporation ("Dreyfus"), has entered
into an Agreement and Plan of Merger providing for the merger (the
"Merger") of Dreyfus with a subsidiary of Mellon Bank, N.A. ("Mellon").
Following the Merger, it is planned that Dreyfus will be a direct
subsidiary of Mellon. Closing of the Merger is subject to a number
of contingencies, including approvals of the stockholders of Dreyfus
and of Mellon. The Merger is expected to occur in late August 1994,
but could occur significantly later.
The Merger will result in the automatic termination of the Fund's
current investment advisory agreement with Dreyfus, as required by
the Investment Company Act of 1940, as amended. The Merger also will
necessitate implementation of a new Service Plan.
II. RESULTS OF FUND SHAREHOLDER VOTE
THE FOLLOWING INFORMATION SUPPLEMENTS AND SUPERSEDES ANY CONTRARY
INFORMATION CONTAINED IN THE FUND'S PROSPECTUS.
On August 2, 1994, the Fund's shareholders voted to (a) approve (i) a
new investment advisory agreement with Dreyfus and (ii) a new Service
Plan, each to become effective upon consummation of the Merger; and
(b) change certain of the Fund's fundamental policies and investment
restrictions to permit the Fund to (i) borrow money to the extent
permitted under the Investment Company Act of 1940, as amended, (ii)
pledge its assets to the extent necessary to secure borrowings and make
such policy non-fundamental, and (iii) invest up to 15% of the value of
its net assets in illiquid securities and make such policy non-fundamental.
III. REVISED MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH, AND SUPERCEDES ANY CONTRARY INFORMATION IN, THE SECTION IN THE
FUND'S PROSPECTUS ENTITLED "DESCRIPTION OF THE FUND--MANAGEMENT POLICIES."
LEVERAGE THROUGH BORROWING __ The Fund may borrow for investment purposes.
This borrowing, which is known as leveraging, generally will be unsecured,
except to the extent the Fund enters into reverse repurchase agreements
described below. The Investment Company Act of 1940 requires the Fund to
maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell
some of its portfolio holdings within three days to reduce the debt and
restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time.
Leveraging may exaggerate the effect on net asset value of any increase
or decrease in the market value of the Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs that may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased.
The Fund also
(CONTINUED ON REVERSE SIDE)
may be required to maintain minimum average balances in connection with
such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing
over the stated interest rate. Among the forms of borrowing in which the
Fund may engage is the entry into reverse repurchase agreements with
banks, brokers or dealers. These transactions involve the transfer by
the Fund of an underlying debt instrument in return for cash proceeds
based on a percentage of the value of the security. The Fund retains
the right to receive interest and principal payments on the security.
At an agreed upon future date, the Fund repurchases the security at
principal, plus accrued interest. In certain types of agreements,
there is no agreed upon repurchase date and interest payments are
calculated daily, often based on the prevailing overnight repurchase
rate. The Fund will maintain in a segregated custodial account cash
or U.S. Government securities or other high quality liquid debt
securities at least equal to the aggregate amount of its reverse
repurchase obligations, plus accrued interest, in certain cases,
in accordance with releases promulgated by the Securities and
Exchange Commission. The Securities and Exchange Commission
views reverse repurchase transactions as collateralized borrowings
by the Fund. These agreements, which are treated as if reestablished
each day, are expected to provide the Fund with a flexible
borrowing tool.
DOLLAR ROLL TRANSACTIONS __ The Fund may engage in dollar roll
transactions, which is a form of secured borrowing. A dollar roll
transaction involves a sale by the Fund of a security to a financial
institution, such as a bank or broker-dealer, concurrently with an
agreement by the Fund to repurchase a similar security from the
institution at a later date at an agreed-upon price. The securities
that are repurchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages
with different prepayment histories than those sold. Proceeds of the
sale will be invested in additional instruments for the Fund, and the
income from these investments, together with any additional fee income
received on the sale, are expected to generate income for the Fund
exceeding the yield on the securities sold. Dollar roll transactions
involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price of those securities.
265/stkr080294
August 2, 1994
DREYFUS GNMA FUND, INC.
Supplement to the Statement of Additional Information
Dated June 24, 1994
At a meeting of Fund shareholders held on August 2, 1994, shareholders
approved new Investment Restrictions which supersede and replace the Fund's
current Investment Restrictions numbered 2, 3, and 5 in the section in the
Fund's Statement of Additional Information entitled "Investment Objective
and Management Policies--Investment Restrictions." Investment Restriction
number 2 is a fundamental policy and cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of
1940, as amended (the "Act")) of the Fund's outstanding voting shares.
Investment Restrictions numbered 3 and 5 are not fundamental policies and
may be changed by vote of a majority of the Fund's Board of Directors at
any time. The Fund may not:
2. Borrow money, except to the extent permitted under the Act. For
purposes of this investment restriction, entering into options, forward
contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes shall not constitute borrowing.
3. Pledge, mortgage, hypothecate or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings.
5. Enter into repurchase agreements providing for settlement
in more than seven days after notice or purchase securities which are
illiquid if, in the aggregate, more than 15% of the value of the Fund's net
assets would be so invested.
The following information supplements and should be read in
conjunction with the section in the Fund's Statement of Additional
Information entitled "Investment Objective and Management Policies."
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not
readily marketable, the Fund will endeavor to obtain the right to
registration at the expense of the issuer. Generally, there will be a
lapse of time between the Fund's decision to sell any such security and the
registration of the security permitting sale. During any such period, the
price of the securities will be subject to market fluctuations. However,
if a substantial market of qualified institutional buyers develops pursuant
to Rule 144A under the Securities Act of 1933, as amended, for certain
unregistered securities held by the Fund, the Fund intends to treat such
securities as liquid securities in accordance with procedures approved by
the Fund's Board. Because it is not possible to predict with assurance how
the market for restricted securities pursuant to Rule 144A will develop,
the Fund's Board has directed the Manager to monitor carefully the Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
To the extent that, for a period of time, qualified institutional buyers
cease purchasing restricted securities pursuant to Rule 144A, the Fund's
investing in such securities may have the effect of increasing the level of
illiquidity in the Fund's portfolio during such period.
