SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant / /
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Dreyfus GNMA Fund, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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* Set forth the amount on which the filing fee is calculated and state
how it was determined.
DREYFUS GNMA FUND, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders:
A Special Meeting of Stockholders of Dreyfus GNMA Fund, Inc.
(the "Fund") will be held at the offices of The Dreyfus Corporation, 200 Park
Avenue, 7th Floor West, Room 7G, New York, New York, on Tuesday, October 14,
1997 at 3:00 p.m., for the following purposes:
1. To approve changes to certain of the Fund's investment restrictions.
2. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Stockholders of record at the close of business on August 20,
1997 will be entitled to receive notice of and to vote at the meeting.
By Order of the Board
John E. Pelletier
Secretary
New York, New York
August 25, 1997
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WE NEED YOUR PROXY VOTE IMMEDIATELY
A STOCKHOLDER MAY THINK HIS OR HER VOTE IS NOT IMPORTANT, BUT IT IS
VITAL. BY LAW, THE MEETING OF STOCKHOLDERS OF THE FUND WILL HAVE TO BE
ADJOURNED WITHOUT CONDUCTING ANY BUSINESS IF LESS THAN A QUORUM IS
REPRESENTED. IN THAT EVENT, THE FUND WOULD CONTINUE TO SOLICIT VOTES IN
AN ATTEMPT TO ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL TO
ENABLE THE FUND TO HOLD THE MEETING AS SCHEDULED, SO PLEASE RETURN YOUR
PROXY CARD IMMEDIATELY. YOU AND ALL OTHER STOCKHOLDERS WILL BENEFIT FROM
YOUR COOPERATION.
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DREYFUS GNMA FUND, INC.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, OCTOBER 14, 1997
This proxy statement is furnished in connection with a
solicitation of proxies by the Board of Dreyfus GNMA Fund, Inc. (the "Fund")
to be used at the Special Meeting of Stockholders (the "Meeting") of the Fund
to be held on Tuesday, October 14, 1997 at 3:00 p.m., at the offices of The
Dreyfus Corporation, 200 Park Avenue, 7th Floor West, New York, New York, for
the purposes set forth in the accompanying Notice of Special Meeting of
Stockholders. Stockholders of record at the close of business on August 20,
1997 are entitled to receive notice of and to vote at the Meeting.
Stockholders are entitled to one vote for each Fund share held and fractional
votes for each fractional Fund share held. Shares represented by executed and
unrevoked proxies will be voted in accordance with the specifications made
thereon. If the enclosed form of proxy is executed and returned, it
nevertheless may be revoked by another proxy or by letter or telegram
directed to the Fund, which must indicate the stockholder's name and account
number. To be effective, such revocation must be received before the Meeting.
In addition, any stockholder who attends the Meeting in person may vote by
ballot at the Meeting, thereby canceling any proxy previously given. As of
August 4, 1997, 187,730 shares of the Fund's common stock were issued and
outstanding.
It is estimated that proxy materials will be mailed to
stockholders of record on or about August 25, 1997. The Fund's principal
executive offices are located at 200 Park Avenue, New York, New York 10166.
COPIES OF THE FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS ARE AVAILABLE
UPON REQUEST, WITHOUT CHARGE, BY WRITING TO THE FUND AT 144 GLENN CURTISS
BOULEVARD, UNIONDALE, NEW YORK 11556-0144, OR BY CALLING TOLL-FREE
1-800-645-6561.
PROPOSAL 1: APPROVAL OF CHANGES TO CERTAIN OF THE FUND'S INVESTMENT
RESTRICTIONS.
INTRODUCTION
The Fund currently seeks to achieve its investment objective
of providing 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 ("GNMA"). It currently is a
fundamental policy of the Fund to invest at least 65% of the value of its net
assets (except when maintaining a temporary defensive position) in "GNMA
Certificates" (popularly called "Ginnie Maes"). The Fund also may invest in
other securities issued or guaranteed by the U.S. Government or issued by its
agencies or instrumentalities that are backed by the full faith and credit of
the U.S. Government, and may enter into repurchase agreements with respect
thereto. For temporary defensive purposes, the Fund's entire portfolio may be
so invested. In addition, the Fund may engage in various investment
techniques, such as leveraging, writing covered call options and forward roll
transactions as described in its current Prospectus.
This Proposal does not involve any change to the Fund's
investment objective. The Fund would continue to invest at least 65% (or such
higher percentage as may be required by rule or regulation of the Securities
and Exchange Commission) of its net assets in Ginnie Maes. Management
believes, however, that the Fund's remaining assets may be invested more
effectively if the permissible investments and investment techniques are
broadened to include those described below. Each of the Fund's principal
competitors has the power to purchase many of the proposed securities and to
engage in many of the proposed investment techniques.
Management believes that in a rapidly changing market it is
important for the Fund to have the flexibility to purchase a variety of
instruments because while under certain market conditions certain types of
securities may be deemed most appropriate for purchase by the Fund, under
other market conditions other types of securities may be deemed preferable.
By expanding the universe of securities the Fund may purchase and the
investment techniques in which the Fund may engage, the Fund's management
will be given the opportunity to adjust the Fund's portfolio from time to
time in such manner as it then deems appropriate. The proposed securities in
which the Fund would become entitled to invest and the investment techniques
in which the Fund would be entitled to engage are described below and in the
Appendix to this Proxy Statement.
The Fund's management also believes it appropriate to modify
certain other investment restrictions (which are fundamental policies) and
change certain fundamental policies to non-fundamental policies. The
Investment Company Act of 1940, as amended (the "1940 Act"), requires that a
relatively limited number of investment policies and restrictions be
designated as fundamental policies which may not be changed without
stockholder approval. These policies relate to (a) the classification and
subclassification under the 1940 Act within which the Fund may operate, (b)
borrowing money, (c) issuing senior securities, (d) engaging in the business
of underwriting securities issued by other persons, (e) concentrating
investments in a particular industry or group of industries, (f) purchasing
and selling real estate or commodities, (g) making loans to other persons,
and (h) changing the nature of the business so as to cease to be an
investment company. When the Fund was formed, the Board designated a number
of other policies as fundamental, in large part in response to certain
regulatory requirements or business or industry conditions that no longer
exist, and adopted certain restrictions which now are believed to be unduly
restrictive.
If this Proposal is approved, the Fund would be permitted to invest
in the mortgage-related securities and engage in the investment techniques
described below and in the Appendix to this Proxy Statement. In addition, the
Fund would adopt as fundamental only those restrictions which are required to
be such under the 1940 Act, and the remaining restrictions would be adopted
as non-fundamental policies. The Board recommends an additional fundamental
policy be adopted by the Fund, which responds to a technical requirement
under the 1940 Act, to prohibit the Fund from issuing any senior security as
defined in the 1940 Act, except to the extent resulting from any other
permitted activity of the Fund. Fundamental policies cannot be changed
without approval by the holders of a majority (as defined in the 1940 Act) of
the Fund's outstanding shares, while non-fundamental policies may be changed
by vote of a majority of the Fund's Board members at any time.
To enable the Fund to invest in this manner, the Fund's Board,
at a meeting held on July 23, 1997, unanimously approved changes in the
Fund's investment restrictions and directed that this Proposal be submitted
to stockholders for their approval.
CHANGES TO MANAGEMENT POLICIES
If this Proposal is approved, the Fund will continue to invest
at least 65% of its net assets (except when maintaining a temporary defensive
position) in Ginnie Maes. The Fund reserves the right to increase such
percentage without stockholder approval to the extent required by rule or
regulation of the Securities and Exchange Commission. The Fund would be
permitted to invest the remainder of its assets in the following portfolio
securities and engage in the following additional investment techniques. FOR
A MORE DETAILED DISCUSSION OF THE ADDITIONAL PORTFOLIO SECURITIES AND
INVESTMENT TECHNIQUES AND THEIR RELATED RISKS, SEE THE APPENDIX TO THIS PROXY
STATEMENT.
ADDITIONAL PORTFOLIO SECURITIES
The additional portfolio securities are mortgage-related and
asset-backed securities, each of which are a form of derivative.
Mortgage-related securities are collateralized by pools of mortgages
assembled as securities for sale to investors by various governmental,
government-related and private organizations. These additional securities
include:
* COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a multiclass
bond backed by a pool of mortgage pass-through certificates or mortgage loans.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date; these
characteristics will vary from one tranche to another. One or more tranches
of a CMO may have coupon rates which reset periodically at a specified
increment over an index or indexes. The Fund also may invest in inverse
floating rate CMOs. Many inverse floating rate CMOs have coupons that move
inversely to a multiple of the applicable indexes.
* STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities can be bonds or pass-through securities and are created by
segregating the cash flows from underlying mortgage loans or mortgage
securities to create two or more new securities, each with a specified
percentage of the underlying security's principal or interest payments. When
securities are completely stripped, all of the interest is distributed to
holders of one type of security, known as an interest-only security, or IO,
and all of the principal is distributed to holders of another type of
security, known as a principal-only security, or PO.
* FNMA AND FHLMC SECURITIES. Securities issued by government-related
organizations include FNMA and FHLMC securities. FNMA securities include
Fannie Maes, which are mortgage-related securities issued or guaranteed
by the Federal National Mortgage Association ("FNMA"). FHLMC securities
include Freddie Macs or PCs, which are issued or guaranteed by the Federal
Home Loan Mortgage Corporation ("FHLMC"). Fannie Maes and Freddie Macs are
not backed by or entitled to the full faith and credit of the United States.
l PRIVATE ENTITY MORTGAGE-RELATED SECURITIES. These mortgage-related
securities are issued by commercial banks, savings and loan institutions,
mortgage bankers, private mortgage insurance companies and other
non-governmental issuers.
l ASSET-BACKED SECURITIES. These securities include debt securities
and securities with debt-like characteristics that use securitization
techniques similar to those used for mortgage-related securities. The
collateral for these securities may include home equity loans and mobile
home loans.
ADDITIONAL INVESTMENT TECHNIQUES
* OPTIONS AND FUTURES TRANSACTIONS. In addition to writing covered
call options, which the Fund currently may do, the Fund proposes to purchase
and write (i.e., sell) call or put options with respect to specific securities
and purchase cash-settled options on interest rate swaps. The Fund also
proposes to enter into futures contracts and options on futures contracts.
The principal reason for writing options is to realize income in the form of
premiums. The Fund would purchase options and enter into futures transactions
as a substitute for a comparable market position in the underlying securities
or for hedging purposes.
* SHORT-SELLING. The Fund proposes to engage in short sales transactions
in which the Fund sells a security it does not own in anticipation of a
decline in the market value of the security. To complete the transaction, the
Fund must borrow the security to make delivery to the buyer.
* LENDING PORTFOLIO SECURITIES. To increase its income, the Fund proposes
to lend securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
CORRESPONDING CHANGES IN INVESTMENT RESTRICTIONS
If this Proposal is approved by stockholders, the Fund's
current Investment Restrictions numbered 2, 3, 5, 6, 7 and 10 (proposed to be
renumbered as Investment Restrictions 1, 2, 4, 5, 6 and 9) will be revised to
reflect the Fund's proposed management policies described in this proxy
statement, and generally to clarify the extent to which the Fund may invest
in certain types of securities or engage in various investment techniques.
Investment Restriction No. 1, proposed to be renumbered as
Investment Restriction No. 11, which prohibits the Fund from investing in
certain types of securities (other than those described herein), would not be
changed, but would be designated a non-fundamental policy of the Fund. This
Investment Restriction is not required by the Securities and Exchange
Commission or state regulators and, as a non-fundamental policy, would give
the Fund the flexibility to respond to new investment opportunities that are
consistent with the Fund's investment objective and management policies,
subject to prior Board approval.
Investment Restriction No. 4, proposed to be renumbered as
Investment Restriction No. 3, which prohibits the Fund from acting as an
underwriter of securities of other issuers, will be revised to provide an
exception to the extent the Fund may be deemed an underwriter by virtue of
disposing of portfolio securities. Without this revision, the Fund could be
unnecessarily restricted in its ability to dispose of certain portfolio
securities.
New Investment Restriction No. 7, which prohibits the Fund
from issuing any senior security, will be added to comply with a technical
requirement under the 1940 Act.
Investment Restriction No. 8, which prohibits the Fund from
investing in companies for the purpose of exercising control, will be
deleted. This Investment Restriction was adopted to comply with certain state
securities law requirements which are no longer in effect.
Investment Restriction No. 9, proposed to be renumbered as
Investment Restriction No. 8, which prohibits the Fund from investing in
securities of other investment companies, except as they may be acquired as
part of a merger, consolidation or acquisition of assets, will be amended to
permit the acquisition of securities of other investment companies to the
extent permitted under the 1940 Act. Under the 1940 Act, purchases of the
securities of other investment companies, subject to certain exceptions, are
limited to a maximum of (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's total assets with respect to any
one investment company and (iii) 10% of the Fund's total assets in the
aggregate. In addition, Investment Restriction number 9, as proposed to be
changed herein, will be designated a non-fundamental policy of the Fund.
Investments in the securities of other investment companies may involve the
duplication of advisory fees and certain other expenses. Nonetheless, the
Board believes that these changes will provide the Fund greater flexibility
to respond to regulatory and other developments.
If approved by stockholders, the Fund's Investment Restrictions
would read as follows (new language is underscored and language to be deleted
is in brackets):
The Fund may NOT:
1[2]. Borrow money, except to the extent permitted under the 1940
Act (which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's assets). FOR PURPOSES OF THIS INVESTMENT RESTRICTION, THE ENTRY
INTO OPTIONS, FORWARD CONTRACTS, FUTURES CONTRACTS, INCLUDING THOSE RELATING
TO INDEXES, AND OPTIONS ON FUTURES CONTRACTS OR INDEXES SHALL NOT CONSTITUTE
BORROWING.
2[3]. [Sell securities short or] Purchase securities on margin, BUT
THE FUND MAY MAKE MARGIN DEPOSITS IN CONNECTION WITH TRANSACTIONS IN OPTIONS,
FORWARD CONTRACTS, FUTURES CONTRACTS, INCLUDING THOSE RELATED TO INDEXES, AND
OPTIONS ON FUTURES CONTRACTS OR INDEXES [or write or purchase put or call
options or combinations thereof, except that the Fund may write and sell
covered call option contracts on securities owned by the Fund not exceeding
20% of the value of its net assets at the time such option contracts are
written. In connection with the writing of covered call options, the Fund may
pledge assets to an extent not greater than 20% of the value of its net assets
at the time such options are written].
3[4]. Underwrite the securities of other issuers, EXCEPT TO THE
EXTENT THE FUND MAY BE DEEMED AN UNDERWRITER UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, BY VIRTUE OF DISPOSING OF PORTFOLIO SECURITIES.
4[5]. Purchase or sell real estate, real estate investment trust
securities, commodities, or oil and gas interests, provided that the Fund may
purchase [Ginnie Maes without limitation] AND SELL SECURITIES THAT ARE SECURED
BY REAL ESTATE OR ISSUED BY COMPANIES THAT INVEST OR DEAL IN REAL ESTATE OR
ACQUIRE REAL ESTATE AS A RESULT OF OWNERSHIP OF SUCH SECURITIES OR
INSTRUMENTS, AND PROVIDED FURTHER THAT THE FUND MAY PURCHASE AND SELL OPTIONS,
FORWARD CONTRACTS, FUTURES CONTRACTS, INCLUDING THOSE RELATING TO INDEXES, AND
OPTIONS ON FUTURES CONTRACTS OR INDEXES.
5[6]. Make loans to others, except through the purchase of debt
obligations referred to in the Prospectus OR THE ENTRY INTO REPURCHASE
AGREEMENTS. HOWEVER, THE FUND MAY LEND ITS PORTFOLIO SECURITIES IN AN AMOUNT
NOT TO EXCEED 33-1/3% OF THE VALUE OF ITS TOTAL ASSETS. ANY LOANS OF PORTFOLIO
SECURITIES WILL BE MADE ACCORDING TO GUIDELINES ESTABLISHED BY THE SECURITIES
AND EXCHANGE COMMISSION AND THE FUND'S BOARD.
6[7]. Invest more than 25% of THE VALUE OF its TOTAL assets in THE
securities of issuers in any SINGLE industry, provided that there shall be no
limitation on the purchase of [Ginnie Maes or other] securities issued[,] OR
guaranteed [or backed] by the U.S. Government, [as described in the Prospectus]
ITS AGENCIES OR INSTRUMENTALITIES. FOR PURPOSES OF THIS INVESTMENT RESTRICTION,
SECURITIES AND INSTRUMENTS BACKED DIRECTLY OR INDIRECTLY BY REAL ESTATE AND
REAL ESTATE MORTGAGES AND SECURITIES OF COMPANIES ENGAGED IN THE REAL ESTATE
BUSINESS ARE NOT CONSIDERED AN INDUSTRY.
7. ISSUE ANY SENIOR SECURITY (AS SUCH TERM IS DEFINED IN
SECTION 18(F) OF THE 1940 ACT), EXCEPT TO THE EXTENT THAT THE ACTIVITIES
PERMITTED IN INVESTMENT RESTRICTION NOS. 1, 2, 4 AND 9 MAY BE DEEMED TO GIVE
RISE TO A SENIOR SECURITY.
[8. Invest for the purpose of exercising control.]
8[9]. Invest in securities of other investment companies, except
TO THE EXTENT PERMITTED UNDER THE 1940 ACT [as they may be acquired as part of
a merger, consolidation or acquisition of assets].
9[10]. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except to the extent necessary to secure permitted borrowings AND TO
THE EXTENT RELATED TO THE DEPOSIT OF ASSETS IN ESCROW IN CONNECTION WITH THE
PURCHASE OF SECURITIES ON A WHEN-ISSUED OR DELAYED-DELIVERY BASIS AND
COLLATERAL AND INITIAL OR VARIATION MARGIN ARRANGEMENTS WITH RESPECT TO
OPTIONS, FORWARD CONTRACTS, FUTURES CONTRACTS, INCLUDING THOSE RELATED TO
INDEXES, AND OPTIONS ON FUTURES CONTRACTS OR INDEXES.
10[11]. 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.
11[1]. Purchase common stocks, preferred stocks, warrants or other
equity securities, or purchase corporate bonds or debentures, state bonds,
municipal bonds or industrial revenue bonds.
Investment Restrictions numbered 1 through 7 would be
fundamental policies of the Fund which cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting shares. Investment Restrictions numbered 8 through 11
would not be fundamental policies and may be changed by vote of a majority of
the Fund's Board members at any time.
Vote Required and Board Members' Recommendation
Approval of this Proposal requires the affirmative vote of (a)
67% of the Fund's voting securities present at the Meeting, if the holders of
more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the Fund's outstanding voting
securities, whichever is less.
THE FUND'S BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
CHANGES TO CERTAIN OF THE FUND'S FUNDAMENTAL POLICIES AND INVESTMENT
RESTRICTIONS.
ADDITIONAL INFORMATION
Dreyfus, located at 200 Park Avenue, New York, New York 10166,
serves as the Fund's investment adviser.
Premier Mutual Fund Services, Inc., with principal offices at
60 State Street, Boston, Massachusetts 02109, serves as the Fund's
distributor.
Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus,
P.O. Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer
and dividend disbursing agent.
Mellon Bank, N.A., Dreyfus' parent, One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, acts as custodian of the Fund's investments.
VOTING INFORMATION
In addition to the use of the mails, proxies may be solicited
personally, by telephone or by telegraph, and the Fund may pay persons
holding Fund shares in their names or those of their nominees for their
expenses in sending soliciting materials to their principals.
If a proxy is properly executed and returned accompanied by
instructions to withhold authority to vote, represents a broker "non-vote"
(that is, a proxy from a broker or nominee indicating that such person has
not received instructions from the beneficial owner or other person entitled
to vote Fund shares on a particular matter with respect to which the broker
or nominee does not have a discretionary power) or is marked with an
abstention (collectively, "abstentions"), the Fund shares represented thereby
will be considered to be present at the Meeting for purposes of determining
the existence of a quorum for the transaction of business. Abstentions will
not constitute a vote "for" or "against" a matter and will be disregarded in
determining the "votes cast" on an issue. For this reason, abstentions will
have the effect of a "no" vote for the purpose of obtaining requisite
approval for the proposals.
If a quorum is not present at the Meeting, or if a quorum is
present but sufficient votes to approve the Proposal are not received, the
persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies. In determining whether to adjourn
the Meeting, the following factors may be considered: the nature of the
Proposal, the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
information to be provided to stockholders with respect to the reasons for the
solicitation. Any adjournment will require the affirmative vote of a majority
of those shares affected by the adjournment that are represented at the
Meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote "FOR" the
proposals in favor of such adjournment, and will vote those proxies required
to be voted "AGAINST" the proposals against any adjournment. A quorum is
constituted by the presence in person or by proxy of the holders of at least
33-1/3% of the Fund's outstanding shares entitled to vote at the Meeting.
OTHER MATTERS
The Fund's Board is not aware of any other matters which may
come before the Meeting. However, should any such matters properly come
before the Meeting, it is the intention of the persons named in the
accompanying form of proxy to vote the proxy in accordance with their
judgment on such matters.
NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES
AND THEIR NOMINEES
Please advise the Fund, in care of Dreyfus Transfer, Inc.,
Attention: Dreyfus GNMA Fund, Inc., P.O. Box 9671, Providence, Rhode Island
02940-9671, whether other persons are the beneficial owners of Fund shares
for which proxies are being solicited from you, and, if so, the number of
copies of the proxy statement and other soliciting material you wish to
receive in order to supply copies to the beneficial owners of Fund shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO COMPLETE,
SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED STAMPED ENVELOPE.
Dated: August 25, 1997
APPENDIX
If Proposal 1 is approved, the Fund would be permitted to
invest up to 35% of its net assets in the portfolio securities described
below. In addition, the Fund would be permitted to engage in the various
additional investment techniques described below.
ADDITIONAL PORTFOLIO SECURITIES
Many of the proposed new instruments are derivatives. These
are financial instruments which derive their value, at least in part, from
the performance of an underlying asset, index or interest rate. While
derivatives can be used effectively in furtherance of the Fund's investment
objective, under certain market conditions they can increase the volatility
of the Fund's net asset value, and decrease the liquidity of the Fund's
portfolio and make more difficult the accurate pricing of the Fund's
portfolio.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are
interests in pools of mortgage loans, including mortgage loans made by
savings and loan institutions, mortgage bankers, commercial banks and others,
assembled as securities for sale to investors by various governmental,
government-related and private organizations. In addition to mortgage-related
securities issued by GNMA, which are backed by the full faith and credit of
the United States, the Fund would be permitted to invest in mortgage-related
securities issued or guaranteed by FNMA and FHLMC, private mortgage
pass-through securities and CMOs, including real estate mortgage investment
conduits ("REMICs"). The mortgage-related securities in which the Fund may
invest include those with fixed, floating or variable interest rates, those
with interest rates that change based on multiples of changes in a specified
index of interest rates and those with interest rates that change inversely
to changes in interest rates, as well as stripped mortgage-backed securities.
Investing in mortgage-related securities entails risk. Certain
mortgage-related securities that the Fund would be permitted to purchase,
such as inverse floating rate CMOs, have coupons that move inversely to a
multiple of a specific index which may result in a form of leverage. As with
other interest-bearing securities, the prices of certain mortgage-related
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Fund. Moreover, with respect to
certain stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to fully recoup its initial investment even if the securities
are rated in the highest rating category by a nationally recognized
statistical rating organization. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a mortgage-related
security's expected maturity which generally would cause the value of such
security to fluctuate more widely in response to changes in interest rates.
Were the prepayments on the Fund's mortgage-related securities to decrease
broadly, the Fund's effective duration, and thus sensitivity to interest rate
fluctuations, would increase.
COLLATERALIZED MORTGAGE OBLIGATIONS _ A CMO is a multiclass bond backed by a
pool of mortgage pass-through certificates or mortgage loans. CMOs may be
collateralized by (a) pass-through certificates issued or guaranteed by GNMA,
FNMA or FHLMC, (b) unsecuritized mortgage loans insured by the Federal
Housing Administration or guaranteed by the Department of Veterans' Affairs,
(c) unsecuritized conventional mortgages, (d) other mortgage-related
securities or (e) any combination thereof. Each class of CMOs, often referred
to as a "tranche," is issued at a specific coupon rate and has a stated
maturity or final distribution date; these characteristics will vary from one
tranche to another. Principal prepayments on collateral underlying a CMO may
cause it to be retired substantially earlier than the stated maturities or
final distribution dates. The principal and interest on the underlying
mortgages may be allocated among the several classes of a series of a CMO in
many ways. One or more tranches of a CMO may have coupon rates which reset
periodically at a specified increment over an index, such as the London
Interbank Offered Rate ("LIBOR") (or sometimes more than one index). These
floating rate CMOs typically are issued with lifetime caps on the coupon rate
thereon. The Fund also may invest in inverse floating rate CMOs. Inverse
floating rate CMOs constitute a tranche of a CMO with a coupon rate that
moves in the reverse direction to an applicable index such as the LIBOR.
Accordingly, the coupon rate thereon will increase as interest rates
decrease. Inverse floating rate CMOs are typically more volatile than fixed
or floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move
inversely to a multiple of the applicable indexes. The coupon varying
inversely to a multiple of an applicable index creates a leverage factor. The
markets for inverse floating rate CMOs with highly leveraged characteristics
may at times be very thin. The Fund's ability to dispose of its positions in
such securities will depend on the degree of liquidity in the markets for
such securities. It is impossible to predict the amount of trading interest
that may exist in such securities, and therefore the future degree of
liquidity. It should be noted that inverse floaters based on multiples of a
stated index are designed to be highly sensitive to changes in interest rates
and can subject the holders thereof to extreme reductions of yield and loss
of principal.
STRIPPED MORTGAGE-BACKED SECURITIES _ The Fund also may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are created
by segregating the cash flows from underlying mortgage loans or mortgage
securities to create two or more new securities, each with a specified
percentage of the underlying security's principal or interest payments.
Mortgage securities may be partially stripped so that each investor class
receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type
of security, known as an interest-only security, or IO, and all of the
principal is distributed to holders of another type of security known as a
principal-only security, or PO. Strips can be created in a pass-through
structure or as tranches of a CMO. The yields to maturity on IOs and POs are
very sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may
not fully recoup its initial investment in IOs. Conversely, if the underlying
mortgage assets experience less than anticipated prepayments of principal,
the yield on POs could be materially and adversely affected.
FNMA AND FHLMC SECURITIES _ Mortgage-related securities issued by
government-related organizations include those issued or guaranteed by FNMA
and FHLMC. Securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States. FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to
timely payment of principal and interest by FNMA.
Mortgage-related securities issued or guaranteed by FHLMC
include FHLMC Mortgage Participation Certificates (also known as "Freddie
Macs" or "PCs"). FHLMC is a corporate instrumentality of the United States
created pursuant to an Act of Congress and is owned entirely by Federal Home
Loan Banks. Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee
timely payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
PRIVATE ENTITY SECURITIES _ These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers, and will be
purchased by the Fund only if rated investment grade by a nationally
recognized statistical rating organization. The Fund currently intends,
however, to purchase such securities only if rated "A" or better. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can be
no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance or
guarantee covers the Fund or the price of the Fund's shares. Mortgage-related
securities issued by non-governmental issuers generally offer a higher rate
of interest than government agency and government-related securities because
there are no direct or indirect government guarantees of payment.
ASSET-BACKED SECURITIES _ Asset-backed securities are a form of
derivative. The securitization techniques used for asset-backed securities
are similar to those used for mortgage-related securities. These securities
include debt securities and securities with debt-like characteristics. The
collateral for these securities has included home equity loans, automobile
and credit card receivables, boat loans, computer leases, airplane leases,
mobile home loans, recreational vehicle loans and hospital account
receivables. The Fund may invest in these and other types of asset-backed
securities that may be developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide the
Fund with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
ADDITIONAL INVESTMENT TECHNIQUES
If the Proposal is approved, the Fund would be permitted to
engage in certain options and futures transactions, short-selling, and
lending portfolio securities, as described below.
OPTIONS AND FUTURES TRANSACTIONS. As described in its current
prospectus, the Fund currently may write (i.e., sell) covered call options on
securities it owns. The Fund proposes to engage in other options and futures
transactions described below, which are forms of derivatives.
These derivatives may be purchased on established exchanges or
through privately negotiated transactions referred to as over-the-counter
derivatives. Exchange-traded derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such derivatives. This
guarantee usually is supported by a daily payment system (i.e., variation
margin requirements) operated by the clearing agency in order to reduce
overall credit risk. As a result, unless the clearing agency defaults, there
is relatively little counterparty credit risk associated with derivatives
purchased on an exchange. By contrast, no clearing agency guarantees
over-the-counter derivatives. Therefore, each party to an over-the-counter
derivative bears the risk that the counterparty will default. Accordingly,
The Dreyfus Corporation, the Fund's investment adviser ("Dreyfus"), will
consider the credit-worthiness of counterparties to over-the-counter
derivatives in the same manner as it would review the credit quality of a
security to be purchased by the Fund. Over-the-counter derivatives are less
liquid than exchange-traded derivatives since the other party to the
transaction may be the only investor with sufficient understanding of the
derivative to be interested in bidding for it.
Although the Fund will not be a commodity pool, certain options and
futures transactions subject the Fund to the rules of the Commodity Futures
Trading Commission ("CFTC") which limit the extent to which the Fund can
enter into such transactions. The Fund may invest in futures contracts and
options with respect thereto for hedging purposes without limit. However, the
Fund may not invest in such contracts and options for other purposes if the
sum of the amount of initial margin deposits and premiums paid for unexpired
options with respect to such contracts, other than for bona fide hedging
purposes, exceeds 5% of the liquidation value of the Fund's assets, after
taking into account unrealized profits and unrealized losses on such
contracts and options; provided, however, that in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount may be
excluded in calculating the 5% limitation.
When required by the Securities and Exchange Commission, the Fund
will set aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in these derivatives. To maintain
this required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
derivative position at a reasonable price.
FUTURES CONTRACTS _ The Fund proposes to enter into futures contracts in U.S.
domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange. Engaging in these
transactions involves risk of loss to the Fund which could adversely affect
the value of the Fund's net assets. Although the Fund intends to purchase or
sell futures contracts only if there is an active market for such contracts,
no assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation
of futures positions and potentially subjecting the Fund to substantial
losses.
Successful use of futures by the Fund also is subject to Dreyfus'
ability to predict correctly movements in the direction of the relevant
market, and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example, if
the Fund uses futures to hedge against the possibility of a decline in the
market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit of
the increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets in connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity. The segregation of
such assets will have the effect of limiting the Fund's ability otherwise to
invest those assets.
The Fund also intends to purchase and sell interest rate futures
contracts. An interest rate future obligates the Fund to purchase or sell an
amount of a specific debt security at a future date at a specific price.
OPTIONS _ In addition to writing covered call options, the Fund proposes to
purchase and write (i.e., sell) call or put options with respect to specific
securities. A call option gives the purchaser of the option the right to buy,
and obligates the writer to sell, the underlying security or securities at
the exercise price at any time during the option period, or at a specific
date. Conversely, a put option gives the purchaser of the option the right to
sell, and obligates the writer to buy, the underlying security or securities
at the exercise price at any time during the option period, or at a specific
date.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers
the transaction by segregating cash or other securities. A put option written
by the Fund is covered when, among other things, cash or liquid securities
having a value equal to or greater than the exercise price of the option are
placed in a segregated account with the Fund's custodian to fulfill the
obligation undertaken. The principal reason for writing covered call and put
options is to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. The Fund receives a
premium from writing covered call or put options which it retains whether or
not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease
to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, at
times have rendered certain of the clearing facilities inadequate and resulted
in the institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions in
one or more options. There can be no assurance that similar events, or events
that may otherwise interfere with the timely execution of customers' orders,
will not recur. In such event, it might not be possible to effect closing
transactions in particular options. If, as a covered call option writer, the
Fund is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise or it otherwise
covers its position.
The Fund may purchase cash-settled options on interest rate swaps in
pursuit of its investment objective. A cash-settled option on a swap gives
the purchaser the right, but not the obligation, in return for the premium
paid, to receive an amount of cash equal to the value of the underlying swap
as of the exercise date. These options typically are purchased in privately
negotiated transactions from financial institutions, including securities
brokerage firms.
Successful use by the Fund of options will be subject to Dreyfus'
ability to predict correctly movements in interest rates and prices of
securities underlying options. To the extent Dreyfus' predictions are
incorrect, the Fund may incur losses.
SHORT-SELLING _ The Fund proposes to engage in short sales of
securities. In these transactions, the Fund sells a security it does not own
in anticipation of a decline in the market value of the security. To complete
the transaction, the Fund must borrow the security to make delivery to the
buyer. The Fund is obligated to replace the security borrowed by purchasing
it subsequently at the market price at the time of replacement. The price at
such time may be more or less than the price at which the security was sold by
the Fund, which would result in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not make a
short sale which results in the Fund having sold short in the aggregate more
than 5% of the outstanding securities of any class of an issuer.
The Fund also may make short sales "against the box," in which the
Fund enters into a short sale of a security it owns in order to hedge an
unrealized gain on the security. At no time will more than 15% of the value
of the Fund's net assets be in deposits on short sales against the box.
Until the Fund closes its short position or replaces the borrowed
security, it will: (a) maintain a segregated account, containing permissible
liquid assets, at such a level that the amount deposited in the account plus
the amount deposited with the broker as collateral always equals the current
value of the security sold short; or (b) otherwise cover its short position.
LENDING PORTFOLIO SECURITIES _ The Fund proposes to lend securities
from its portfolio to brokers, dealers and other financial institutions
needing to borrow securities to complete certain transactions. The Fund will
continue to be entitled to payments in amounts equal to the interest, or
other distributions payable on the loaned securities which affords the Fund
an opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 33-1/3%
of the value of the Fund's total assets, and the Fund will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Fund at any time upon specified notice. The Fund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund. In
connection with its securities lending transactions, the Fund may return to
the borrower or a third party which is unaffiliated with the Fund, and which
is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must be
able to terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in connection
with the loan.
DREYFUS GNMA FUND, INC.
The undersigned stockholder of DREYFUS GNMA FUND, INC. (the
"Fund") hereby appoints Elizabeth A. Keeley and Mark A. Karpe and each of them,
the attorneys and proxies of the undersigned, with full power of substitution,
to vote, as indicated herein, all of the shares of the Fund standing in the name
of the undersigned at the close of business on August 20, 1997 at a Special
Meeting of Stockholders to be held at the offices of The Dreyfus Corporation,
200 Park Avenue, 7th Floor West, New York, New York, at 3:00 p.m. on Tuesday,
October 14, 1997, and at any and all adjournments thereof, with all of the
powers the undersigned possesses and especially (but without limiting the
general authorization and power hereby given) to vote as indicated on the
Proposal, as more fully described in the proxy statement for the Meeting.
Please mark boxes in blue or black ink.
1. To change certain of the Fund's Investment Restrictions.
FOR AGAINST ABSTAIN
2. To transact such other business as may properly come
before the Meeting, or any adjournment(s) thereof.
THIS PROXY IS SOLICITED BY THE FUND'S BOARD AND WILL BE VOTED FOR THE ABOVE
PROPOSAL UNLESS OTHERWISE INDICATED.
Signature(s) should be exactly as name or names appearing on this form.
If shares are held jointly, each holder should sign. If signing is by attorney,
executor, administrator, trustee or guardian, please give full title.
Dated: ________________, 1997
_________________________
Signature(s)
_________________________
Signature(s)
Sign, Date and Return this Proxy Card
Promptly Using the Enclosed Envelope.
