DREYFUS GNMA FUND, INC.
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for the Dreyfus GNMA Fund, Inc.
For its annual reporting period ended April 30, 1997 your Fund achieved a
total return, including share price changes and interest income, of 6.17%.*
Income dividends paid from net investment income during the period amounted
to $.927, representing a distribution rate per share of 6.42%.**
Economic Review
The U.S. economy just kept rolling ahead over the reporting period.
Inflation remained subdued. The unemployment rate fell to its lowest level in
24 years, and a surge in tax revenues meant good news for the
Administration's budget reduction program. Overall, the economic news has
been stellar.
The economy grew at a robust 5.6% annual rate during the first quarter of
1997, the best quarter in nine years. Aided by falling energy prices, and
with no sign of shortages of raw materials, inflation remained in check. On
the consumer level, the Consumer Price Index (CPI) increases remained below
3%. Excluding volatile food and energy prices, the CPI is actually slowing
down so far this year, running at an annual rate of 2.5%. Inflation has been
further restrained by the strong dollar which has moderated the price of
imports and eased potential strains on domestic production capacity.
The strong economy has put increasing numbers of people to work. This
tightening of the labor market has been a key factor in the implementation of
monetary policy by the Federal Reserve Board's Open Market Committee (FOMC).
The unemployment rate has been less than 5.5% since June 1996, the lowest
sustained rate since the late 1980s. The rate fell to 4.9% in April of this
year. So far, neither strong economic growth nor wage increases have resulted
in any price pressure at the consumer level. Through the first quarter (the
latest available data), total employment costs (including wages and benefits)
rose about the same as inflation.
Renewed confidence, spurred by increasing job security and low inflation,
has resulted in a surge in consumer spending. In the first quarter of this
year, spending rose 6.4%, almost double the rate of the previous year's
fourth quarter. The combined six-month performance was the largest increase
in consumer spending over the past ten years. Retail sales have increased in
the early part of this year as well; first quarter results were sharply
higher than in the last quarter of 1996. Not surprisingly, industrial
production has been building momentum over the reporting period. The latest
report on capacity utilization indicated the highest level in two years. So
far, while the potential exists for production bottlenecks, prices for raw
materials and worker wage demands have remained modest.
Continued economic growth and the resulting rise in tax revenues have
slashed further the Federal budget deficit. Administration officials estimate
that this year's deficit will be about $75 billion, its lowest level in
twenty-three years. Such good news on the deficit could make it easier to
obtain Congressional approval of the bipartisan plan to balance the budget by
2002.
While we seem to be enjoying the best of all possible economic worlds,
the potential for future inflation is what concerns the Fed. Such concern
resulted in the March decision by the FOMC, the policy-making arm of the
Federal Reserve, to raise the Federal Funds rate one-quarter of a percentage
point to 5.50%. (The Federal Funds rate is the rate of
interest banks charge each other for overnight loans.) The traditional
assumption that strong economic growth and low unemployment will eventually
result in rising inflation still drives the Fed's monetary policy
initiatives. There is little reason to suspect that the Fed will soon change
this policy, although with the economy seeming to enjoy strong growth without
surging inflation, the FOMC may be reluctant to raise rates again in the
immediate future.
Market Environment
This environment of strong economic fundamentals and a preemptive Fed
monetary policy has led to a somewhat depressed fixed income market. The
yield on the ten-year Treasury has moved consistently higher; from November
29, 1996 to April 30, 1997 the ten-year Treasury yield increased 71 basis
points to 6.75% from 6.04%. This dramatic increase in yield has resulted in
negative returns over the last six months on Treasury bond market indices.
With the Fed likely to continue fighting inflation vigorously, market
sentiment will remain cautious, with a bias toward higher interest rates.
This environment of higher rates and a preemptive Fed policy affects the
mortgage-backed securities market, and therefore GNMAs, in a different way.
Higher interest rates and negative Treasury returns imply lower levels of
returns for mortgage-backed securities. But investors have some advantages in
the mortgage market over other fixed income investments. With rising interest
rates, mortgage-backed securities tend to remain more stable, and hence their
spread to Treasuries becomes tighter. As a result, GNMAs have outperformed
Treasuries over the last six-month period, and are likely to continue this
outperformance if interest rates continue to increase. Of course, past
performance is no guarantee of future results, and there can be no guarantee
as to future economic or market events, or as to investment performance.
The other positive for the mortgage market has been the dramatic decrease
in interest rate volatility. Interest rate volatility has decreased to its
lowest level in over three years, and as volatility has decreased, the
valuation of mortgage-backed securities has improved. This also has
contributed to the outperformance of GNMAs over Treasuries during the last 6
months.
The Portfolio
During this period of changes in the economic fundamentals, there have
been several adjustments to the portfolio. The most significant change was
the decrease in the Fund's duration from slightly longer than our current
benchmark, the Lehman Brothers GNMA Index, to matching that Index.
Unfortunately this adjustment of duration was not implemented at the
beginning of the rise in interest rates, and that led the Fund to
underperform the Lehman GNMA Index during the months of February and March.
The shortening of duration was accomplished by selling a combination of
newly issued GNMA 7.50% 30-year securities and 30-year Treasury bonds. The
proceeds were reinvested in shorter duration securities: specifically, GNMA
15-year 6.50% and shorter duration Treasuries. The 15-year GNMAs have less
interest rate sensitivity and still provide a high level of yield to the
investor. If the market continues to experience rising interest rates, more
investors may well look for protection in the 15-year GNMA market, which
could increase demand and improve the valuation of this sector.
Another significant change to the portfolio has been the addition of a
10% position in GNMA project loans. GNMA projects are securities backed by
multifamily loans on HUD-sponsored low income housing projects. These
securities have all the standard government guarantees of single family GNMAs
but offer the investor higher yield and explicit call protection from
borrower prepayments.Since they are trading at 100 basis points over
Treasuries, by holding thesesecurities the investor gains enhanced yield as
well as this explicit call protection. With these changes now in place, the
Fund is positioned to perform well, given our current market environment
outlook.
Very Truly Yours,
[Michael Hoeh signature logo]
Michael Hoeh
Portfolio Manager
May 16, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** Distribution rate per share is based upon dividends per share paid
from net investment income during the period, divided by the net asset value
per share at the end of the period.
DREYFUS GNMA FUND, INC. APRIL 30, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS GNMA FUND, INC. AND THE LEHMAN BROTHERS
GNMA INDEX
LEHMAN
PERIOD BROTHERS DREYFUS
GNMA INDEX * GNMA FUND
4/30/87 10,000 10,000
4/30/88 10,903 10,703
4/30/89 11,816 11,245
4/30/90 13,109 12,207
4/30/91 15,221 13,970
4/30/92 17,001 15,317
4/30/93 18,822 16,971
4/30/94 18,834 17,091
4/30/95 20,450 18,083
4/30/96 22,278 19,549
4/30/97 24,066 20,755
*Source: Lehman Brothers
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS GNMA FUND,
INC. AND
THE LEHMAN BROTHERS GNMA INDEX
$24,066
Lehman Brothers
GNMA Index*
Dollars
$20,755
Dreyfus GNMA Fund
*Source: Lehman Brothers
Average Annual Total Returns
One Year Ended Five Years Ended Ten Years Ended
April 30, 1997 April 30, 1997 April 30, 1997
________________ ________________ ________________
6.17% 6.27% 7.58%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus GNMA Fund, Inc.
on 4/30/87 to a $10,000 investment made in the Lehman Brothers GNMA Index on
that date. All dividends and capital gain distributions are reinvested.
The Fund invests primarily in Ginnie Maes and its performance shown in the
line graph takes into account all applicable fees and expenses. Unlike the
Fund, the Lehman Brothers GNMA Index is an unmanaged total return performance
benchmark for the GNMA market, consisting of 15- and 30-year fixed-rate GNMA
securities. All issues have at least one year to maturity and an outstanding
par value of at least $100 million. The Index does not take into account
charges, fees and other expenses. These factors can contribute to the Index
potentially outperforming the Fund. Further information relating to Fund
performance, including expense reimbursements, if applicable, is contained in
the Financial Highlights section of the Prospectus and elsewhere in this
report.
<TABLE>
<CAPTION>
DREYFUS GNMA FUND, INC.
STATEMENT OF INVESTMENTS APRIL 30, 1997
Principal
Bonds and Notes_114.0% Amount Value
______________ ______________
<S> <C> <C>
Mortgage-Backed Securities_99.2%
Government National Mortgage Association I:
6 1/2% (a)................................................................ $ 159,000,000 $ 155,172,870
6 1/2%, 11/15/2008-10/15/2010............................................. 30,314,644 29,779,398
7% (a).................................................................... 19,000,000 18,910,890
7 1/2%, 8/15/2000-8/15/2025............................................... 152,012,063 151,564,257
8% (a).................................................................... 178,750,000 181,318,638
8%, 4/15/2008-2/15/2025................................................... 121,004,513 123,540,738
8 1/2%, 2/15/2006-12/15/2022.............................................. 76,244,631 79,345,665
9%, 7/15/2001-12/15/2022.................................................. 69,683,370 74,213,098
9 1/2%, 1/15/2016-11/15/2024.............................................. 82,787,936 89,649,573
10%, 11/15/2009-10/15/2020................................................ 32,185,898 35,525,185
10 1/2%, 11/15/2013-6/15/2021............................................. 23,658,333 26,268,083
11%, 7/15/1999-9/15/2019.................................................. 33,082,860 36,856,753
11 1/2%, 3/15/2010-7/15/2019.............................................. 13,628,781 15,352,042
12%, 2/15/2015............................................................ 38,120 43,325
______________
1,017,540,515
______________
Government National Mortgage Association II:
5 1/2%, 11/20/2026-2/20/2027 (b).......................................... 4,867,710 4,809,965
6 1/2%, 1/20/2026-3/20/2027............................................... 64,406,301 60,290,347
7 1/2% (a)................................................................ 10,000,000 9,615,600
9%, 3/20/2016............................................................. 2,006,733 2,126,495
9 1/2%, 2/20/2016-2/20/2025............................................... 6,465,303 6,942,798
10 1/2%, 7/20/2013-9/20/2018.............................................. 4,337,479 4,772,568
12%, 9/20/2013-12/20/2015................................................. 885,073 1,001,298
13 1/2%, 7/20/2014-6/20/2015.............................................. 718,708 830,553
______________
90,389,624
______________
Government National Mortgage Association I,
Graduated Payment Mortgage:
10 1/4%, 7/15/2018-10/15/2018........................................... 222,454 245,115
10 3/4%, 3/15/2010-2/15/2016............................................ 491,427 544,408
11%, 9/15/2010-3/15/2011................................................ 301,242 332,589
11 1/4%, 7/15/2015-12/15/2015........................................... 1,270,498 1,411,041
12 1/4%, 2/15/2014-3/15/2015............................................ 68,230 77,527
______________
2,610,680
______________
Government National Mortgage Association II,
Graduated Payment Mortgage:
11 1/4%, 4/20/2014-1/20/2016............................................ 326,228 362,316
11 3/4%, 6/20/2015-1/20/2016............................................ 238,126 266,923
______________
629,239
______________
Government National Mortgage Association I,
Project Loans:
7%, 6/15/2020-9/15/2035................................................. 20,228,085 19,538,914
7 1/4%, 8/15/2018....................................................... 2,968,795 2,916,841
7.40%, 4/01/2032........................................................ 8,806,800 8,715,914
DREYFUS GNMA FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1997
Principal
Bonds and Notes (continued) Amount Value
____________ ____________
Mortgage-Backed Securities (continued)
Government National Mortgage Association I,
Project Loans (continued):
7 1/2% (a).............................................................. $ 10,729,300 $ 10,645,396
7 1/2%, 7/15/2023-11/15/2031............................................ 6,351,360 6,321,050
7 5/8%, 12/15/2022-3/15/2032............................................ 9,218,656 9,206,900
7.65%, 5/15/2032........................................................ 7,706,400 7,658,235
7.70% (a)............................................................... 3,956,700 3,983,881
7 3/4% (a).............................................................. 10,164,700 10,293,419
7 3/4%, 6/15/2030....................................................... 7,469,900 7,455,857
7 7/8% (a).............................................................. 1,997,000 2,036,940
7.90% (a)............................................................... 2,780,000 2,807,800
8 1/8%, 6/15/2030....................................................... 19,934,837 20,626,178
9 1/4%, 10/15/2023...................................................... 6,911,274 7,379,928
______________
119,587,253
______________
Total Mortgage-Backed Securities........................................... 1,230,757,311
===============
U.S. Treasury Bonds_2.4%
6 1/4%, 2/15/2007 (c)..................................................... 30,960,000 29,963,475
================
U.S. Treasury Notes_12.4%
5 7/8%, 1/31/1999 (c)..................................................... 78,500,000 78,070,707
6 1/8%, 12/31/2001 (c).................................................... 40,600,000 39,902,188
6 5/8%, 4/30/2002 (c)..................................................... 36,000,000 36,095,627
______________
154,068,522
================
TOTAL BONDS AND NOTES
(cost $1,397,291,484)..................................................... $1,414,789,308
================
Short-Term Investments_15.7%
U.S. Treasury Bills:
5.22%, 5/1/1997 (c)
(cost $194,324,000)....................................................... $ 194,324,000 $ 194,324,000
================
TOTAL INVESTMENTS
(cost $1,591,615,484)................................................... 129.7% $1,609,113,308
======= ===============
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (29.7%) $ (368,654,648)
======= ===============
NET ASSETS.................................................................. 100.0% $1,240,458,660
======= ===============
Notes to Statement of Investments:
(a) Purchased on a forward commitment basis.
(b) Adjustable rate mortgage-interest rate subject to change
periodically.
(c) Held by the custodian in a segregated account as collateral for
securities purchased on a forward commitment basis.
</TABLE>
<TABLE>
<CAPTION>
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS GNMA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1997
Cost Value
_______________ _______________
<S> <C> <C> <C>
ASSETS: Investments in securities_See Statement of Investments $1,591,615,484 $1,609,113,308
Cash....................................... 1,401,467
Receivable for investment securities sold.. 70,377,281
Interest receivable........................ 9,350,974
Receivable for shares of Common Stock subscribed 7,779
Prepaid expenses........................... 37,481
________________
1,690,288,290
________________
LIABILITIES: Due to The Dreyfus Corporation and affiliates 904,511
Due to Distributor......................... 30,382
Payable for investment securities purchased 447,849,731
Payable for shares of Common Stock redeemed 708,670
Accrued expenses........................... 336,336
________________
449,829,630
________________
NET ASSETS.................................................................. $1,240,458,660
=================
REPRESENTED BY: Paid-in capital............................ $1,316,558,224
Accumulated undistributed investment income_net 9,426,745
Accumulated net realized gain (loss) on investments (103,024,133)
Accumulated net unrealized appreciation (depreciation)
......on investments_Note 4 17,497,824
________________
NET ASSETS.................................................................. $1,240,458,660
=================
SHARES OUTSTANDING
(1.1 BILLION SHARES OF $.01 PAR VALUE COMMON STOCK AUTHORIZED).............. 85,883,552
NET ASSET VALUE, offering and redemption price per share.................... $14.44
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS GNMA FUND, INC.
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1997
INVESTMENT INCOME
INCOME Interest Income............................ $96,713,300
EXPENSES: Management fee_Note 3(a)................... $ 7,906,732
Shareholder servicing costs_Note 3(b)...... 3,938,953
Custodian fees_Note 3(b)................... 332,225
Professional fees.......................... 84,815
Prospectus and shareholders' reports_Note 3(b) 68,246
Directors' fees and expenses_Note 3(c)..... 60,938
Registration fees.......................... 30,022
Loan commitment fees_Note 2................ 7,306
Miscellaneous.............................. 243,070
_____________
Total Expenses......................... 12,672,307
______________
INVESTMENT INCOME_NET....................................................... 84,040,993
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS_Note 4:
Net realized gain (loss) on investments.... $(13,238,014)
Net unrealized appreciation (depreciation)
on investments 8,997,251
_____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... (4,240,763)
______________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $79,800,230
===============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS GNMA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
April 30, 1997 April 30, 1996
__________________ __________________
<S> <C> <C>
OPERATIONS:
Investment income_net.................................................. $ 84,040,993 $ 94,419,978
Net realized gain (loss) on investments................................ (13,238,014) 37,350,721
Net unrealized appreciation (depreciation) on investments.............. 8,997,251 (18,977,802)
__________________ __________________
Net Increase (Decrease) in Net Assets Resulting from Operations...... 79,800,230 112,792,897
__________________ __________________
NET EQUALIZATION (DEBITS)_Note 1(e)...................................... (790,025) (542,312)
__________________ __________________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income_net.................................................. (84,580,270) (94,057,379)
__________________ __________________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.......................................... 74,830,297 94,687,640
Dividends reinvested................................................... 64,574,352 71,629,184
Cost of shares redeemed................................................ (266,994,106) (246,765,286)
__________________ __________________
Increase (Decrease) in Net Assets from Capital Stock Transactions.... (127,589,457) (80,448,462)
__________________ __________________
Total Increase (Decrease) in Net Assets............................ (133,159,522) (62,255,256)
NET ASSETS:
Beginning of Period.................................................... 1,373,618,182 1,435,873,438
__________________ __________________
End of Period.......................................................... $1,240,458,660 $1,373,618,182
================== =================
UNDISTRIBUTED INVESTMENT INCOME_NET...................................... $ 9,426,745 $ 10,756,047
__________________ __________________
Shares Shares
__________________ __________________
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................ 5,183,472 6,485,788
Shares issued for dividends reinvested................................. 4,480,721 4,914,131
Shares redeemed........................................................ (18,525,523) (16,918,960)
__________________ __________________
Net Increase (Decrease) in Shares Outstanding........................ (8,861,330) (5,519,041)
================== =================
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS GNMA FUND, INC.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Year Ended April 30,
_______________________________________________________
PER SHARE DATA: 1997 1996 1995 1994 1993
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $14.50 $14.32 $14.48 $15.35 $14.90
_______ _______ _______ _______ _______
Investment Operations:
Investment income_net........................ .92 .96 .98 .99 1.10
Net realized and unrealized gain (loss)
on investments............................. (.05) .18 (.18) (.87) .46
_______ _______ _______ _______ _______
Total from Investment Operations............. .87 1.14 .80 .12 1.56
_______ _______ _______ _______ _______
Distributions:
Dividends from investment income_net......... (.93) (.96) (.96) (.99) (1.11)
_______ _______ _______ _______ _______
Net asset value, end of period............... $14.44 $14.50 $14.32 $14.48 $15.35
======== ======= ======= ======== ========
TOTAL INVESTMENT RETURN.......................... 6.17% 8.11% 5.81% .71% 10.80%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... .96% .96% .97% .95% .94%
Ratio of net investment income
to average net assets...................... 6.38% 6.57% 6.90% 6.54% 7.20%
Portfolio Turnover Rate...................... 323.99% 144.43% 362.70% 211.40% 155.90%
Net Assets, end of period (000's Omitted).... $1,240,459 $1,373,618 $1,435,873 $1,601,947 $1,857,468
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS GNMA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1_Significant Accounting Policies:
Dreyfus GNMA Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 ("Act") as a diversified open-end management investment
company. The Fund's investment objective is to provide an investor with as
high a level of current income as is consistent with the preservation of
capital by investing principally in instruments issued by the Government
National Mortgage Association. The Dreyfus Corporation ("Manager") serves as
the Fund's investment adviser. The Manager is a direct subsidiary of Mellon
Bank, N.A. ("Mellon"). Premier Mutual Fund Services, Inc. (the "Distributor")
is the distributor of the Fund's shares, which are sold to the public without
a sales load.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding U.S.
Government obligations and short-term investments) are valued each business
day by an independent pricing service ("Service") approved by the Board of
Directors. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Investments in U.S. Government obligations are
valued at the mean between quoted bid and asked prices. Short-term
investments are carried at amortized cost, which approximates value.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income (including, where applicable, amortization of discount on short-term
investments) is recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net are declared and paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
On April 30, 1997, the Board of Directors declared a cash dividend of
$.074 per share from undistributed investment income-net, payable on May 1,
1997 (ex-dividend date) to shareholders of record as of the close of business
on April 30, 1997.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
The Fund has an unused capital loss carryover of approximately
$95,479,000 available for Federal income tax purposes to be applied against
future net securities profits, if any, realized subsequent to April 30, 1997.
The carryover does not include net realized securities losses from November
1, 1996 through April 30, 1997 which are treated, for Federal income tax
purposes, as arising in fiscal 1998. If not applied, $20,521,000 of the
carryover expires in fiscal 1998, $69,247,000 expires in fiscal 2003 and
$5,711,000 expires in fiscal 2005.
DREYFUS GNMA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(E) EQUALIZATION: The Fund follows the accounting practice known as
"equalization" by which a portion of the amounts received
on issuances and the amounts paid on redemptions of Fund shares (equivalent,
on a per share basis, to the amount of distributable investment income-net on
the date of the transaction) is allocated to undistributed investment
income-net so that undistributed investment income-net per share is
unaffected by Fund shares issued or redeemed.
NOTE 2_Bank Line of Credit:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility ("Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion
of the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of borrowings. For the period ended April
30, 1997, the Fund did not borrow under the Facility.
NOTE 3_Management Fee and Other Transactions With Affiliates:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the value
of the Fund's average daily net assets and is payable monthly. The Agreement
provides that if in any full year the aggregate expenses of the Fund,
exclusive of taxes, brokerage, interest on borrowings, commitment fees and
extraordinary expenses, exceed 11\2% of the value of the Fund's average daily
net assets, the Fund may deduct from payments to be made to the Manager, or
the Manager will bear the amount of such excess to the extent required by
state law. No expense reimbursement was required for the period ended April
30, 1997.
(B) Under the Service Plan (the "Plan") adopted pursuant to Rule 12b-1
under the Act, the Fund (a) reimburses the Distributor for payments to
certain Service Agents (a securities dealer, financial institution or other
industry professional) for distributing the Fund's shares and servicing
shareholder accounts ("Servicing") and (b) pays the Manager, Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager, and any affiliate or
either of them (collectively "Dreyfus") for advertising and marketing
relating to the Fund and for Servicing, at an aggregate annual rate of .20 of
1% of the value of the Fund's average daily net assets. Both the Distributor
and Dreyfus may pay one or more Service Agents a fee in respect of the Fund's
shares owned by shareholders with whom the Service Agent has a Servicing
relationship or for whom the Service Agent is the dealer or holder of record.
Both the Distributor and Dreyfus determine the amounts, if any, to be paid to
Service Agents to which it will make payments and the basis on which such
payments are made. The Plan also separately provides for the Fund to bear the
costs of preparing, printing and distributing certain of the Fund's
prospectuses and statements of additional information and costs associated
with implementing and operating the Plan, not to exceed the greater of
$100,000 or .005 of 1% of the value of the Fund's average daily net assets
for any full fiscal year. During the period ended April 30, 1997, $2,652,885
was charged to the Fund pursuant to the Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such
compensation amounted to $816,287 during the period ended April 30, 1997.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended April 30, 1997,
$297,349 was charged by Mellon pursuant to the custody agreement.
DREYFUS GNMA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(C) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $4,500 and
an attendance fee of $500 per meeting. The Chairman of the Board receives an
additional 25% of such compensation.
NOTE 4_Securities Transactions:
The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the period
ended April 30, 1997, amounted to $4,713,571,327 and $4,615,202,386,
respectively.
At April 30, 1997, accumulated net unrealized appreciation on investments
was $17,497,824, consisting of $24,770,910 gross unrealized appreciation and
$7,273,086 gross unrealized depreciation.
At April 30, 1997, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS GNMA FUND, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS GNMA FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Dreyfus GNMA Fund, Inc., including the statement of investments, as of April
30, 1997, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the years indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and 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
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 and financial highlights. Our procedures included
verification by examination of securities held by the custodian as of April
30, 1997 and of securities not held by the custodian by correspondence with
others. 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus GNMA Fund, Inc. at April 30, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated years, in conformity with generally accepted accounting
principles.
[Ernst & Young LLP signature logo]
New York, New York
June 12, 1997
[Dreyfus lion "d" logo]
Registration Mark
Dreyfus GNMA Fund, Inc.
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 265AR974
[Dreyfus logo]
Registration Mark
GNMA
Fund, Inc.
Annual Report
April 30, 1997
