Dreyfus
GNMA Fund, Inc.
ANNUAL REPORT
April 30, 1999
(R) [Dreyfus Logo]
<PAGE>
Year 2000 Issues
(Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
<PAGE>
Contents
THE FUND
- --------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
13 Statement of Financial Futures
14 Statement of Assets and Liabilities
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Financial Highlights
18 Notes to Financial Statements
24 Report of Independent Auditors
FOR MORE INFORMATION
- --------------------------------------------------------
Back Cover
<PAGE>
Dreyfus GNMA Fund, Inc. The Fund
LETTER FROM THE PRESIDENT
- -------------------------
Dear Shareholder:
We are pleased to present this annual report for Dreyfus GNMA Fund, Inc.,
covering the 12-month period from May 1, 1998 through April 30, 1999. Inside,
you'll find valuable information about how the Fund was managed during the
period, including a discussion with the Fund's portfolio manager, Michael Hoeh,
a member of the Dreyfus Taxable Fixed Income Team.
Despite heightened volatility in fixed-income markets during the first half of
the reporting period, the past year has generally been rewarding for
fixed-income investors. U.S. Treasury securities rallied strongly while other
higher-yielding bonds declined during the summer of 1998 as investors worldwide
sought safety in high-quality securities amid economic uncertainty in Japan,
Russia and Asia. The subsequent lowering of short-term interest rates by the
Federal Reserve Board and other central banks appear to have helped many
developed nations withstand the effects of economic weakness in these regions.
Fixed-income securities provided mixed results in this economic climate. While
U.S. Treasury securities rallied strongly last summer, they subsequently gave
back most of their gains. Prices of other types of bonds fell sharply last
summer, but later performed well when investors shifted assets back into bond
market sectors they had previously avoided. Accordingly, U.S. Treasury
securities led the fixed-income markets during the first half of the reporting
period, while corporate bonds, mortgage-backed securities, asset-backed
securities and U.S. dollar-denominated foreign bonds provided attractive returns
over the second half.
We appreciate your confidence, and we look forward to your continued
participation in Dreyfus GNMA Fund, Inc.
Sincerely,
/s/ Stephen E. Canter
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
May 13, 1999
2
<PAGE>
DISCUSSION OF FUND PERFORMANCE
- ------------------------------
Michael Hoeh, Portfolio Manager
Dreyfus Taxable Fixed Income Team
How did Dreyfus GNMA Fund, Inc. perform
relative to its benchmark?
For the 12-month period ended April 30, 1999, Dreyfus GNMA Fund, Inc. achieved a
total return of 3.17%, including share price changes and dividend income.1 In
comparison, the Lehman Brothers GNMA Index, the Fund's benchmark, returned
6.17%.2 Income dividends paid from net investment income during the period
amounted to $0.91, representing a distribution rate per share of 6.26%.3
Early in the fiscal year, the Fund's performance was strong. Later in 1998,
however, during the liquidity crisis of September and October of 1998, the
Fund's share price declined much more dramatically than the value of many of its
competitors. Since November 1, 1998, on an aggregate basis, the Fund's return
has surpassed its benchmark averages. Our asset allocation and duration strategy
contributed to the recent rebound over the past five to six months.
What is the Fund's investment approach?
The Fund invests primarily in GNMA (Government National Mortgage Association)
and GNMA-related securities. The remainder is allocated to other
mortgage-related debt. The Fund's goal is to provide a high level of current
income consistent with capital preservation.
We use a four-step investment approach:
* Prepayment trend analysis. We carefully review prepayment indicators, as an
increase in this trend would cause a decline in dividend income levels payable
by the Fund.
* Option-adjusted spread analysis. This tool compares the "optionality"
of different mortgage-backed securities with "now optionable"
securities (such as U.S. Treasuries). Homeowners have
The Fund 3
<PAGE>
DISCUSSION OF FUND PERFORMANCE (continued)
the right to prepay their mortgage at any time. This essentially gives a call
option to the homeowner, exercisable against the mortgage-backed securities
investor. Using this tool helps us determine whether it is advisable to
purchase optionable securities.
* Cash flow structure analysis. We review cash flows of different types of
securities. During the past six months, our analysis indicated that GNMA project
loans had a strong cash flow which is a favorable sign. Because these loans do
not allow prepayments, they provided protection against prepayment risk and
helped improve the Fund's overall return.
* Total-rate-of-return scenarios. We calculate expected rates of return for
each security over a six-month time horizon. This helps us estimate whether a
security is or is not likely to be able to surpass the return generated from its
benchmark.
What other factors influenced the Fund's performance?
At the beginning of the fiscal year, the Fund had a significant emphasis in
three sectors other than traditional GNMAs: commercial and residential
mortgage-backed securities, and asset-backed securities. This allocation
contributed positively to performance through the summer.
As the year progressed, several events precipitated a crisis in global
bond markets: Russia defaulted on its sovereign debt, Japanese banks
declared bankruptcy, and Long Term Capital Management, a large hedge fund that
had invested heavily in emerging market debt, experienced significant losses.
In an attempt to recover, the large hedge fund sold its most liquid
holdings--nearly $10 billion in mortgage-related securities, which prompted
U.S. fixed-income investors to panic and join in on the selling.
During this selling period, those credit-sensitive sectors mentioned just above
suffered the most. While their fundamentals remained strong, their decline was
due to an oversupply in the market. The Fund had higher exposure to commercial
and residential mortgage-backed
4
<PAGE>
securities than most other GNMA funds, so that the across-the-board price
declines that occurred in these sectors caused the Fund's share prices to
decline more sharply than those competitor funds.
As market conditions changed, we adjusted the Fund's strategy. As
credit-sensitive sectors fell out of favor, we reduced their weighting. We also
shortened the Fund's duration, making it less sensitive to changes in interest
rates. Since October, credit-sensitive securities have recouped approximately
90% of their value. As they recovered and interest-rate risk diminished, we
extended the Fund's duration beyond that of the benchmark, which is currently
2.96 years. Both of these strategies--maintaining a more modest amount of
credit-sensitive securities (while selling into a rally in that sector) in the
Fund and lengthening duration--boosted the Fund's performance toward fiscal
year-end.
What is the Fund's current strategy?
Despite their volatility in 1998, we believe that credit-sensitive securities
still offer good value. In our view, the credit and liquidity risks they entail
generally will offset the prepayment risk that predominates most GNMA funds,
under normal market conditions. Of course, under more extreme market conditions,
like last fall's liquidity crisis, the value of these holdings may be severely
affected. While we are reducing and diversifying the Fund's overall risk
profile, we also continue to invest in a moderate amount of credit-sensitive
securities. Within this sector, we are currently focusing on commercial
mortgage-backed securities, which we believe still offer an income advantage for
GNMA investors at this time.
May 13, 1999
1 Total return includes reinvestment of dividends and any capital gains paid.
2 SOURCE: LEHMAN BROTHERS--The Lehman Brothers GNMA Index is an unmanaged, total
return performance benchmark for the GNMA market, consisting of 15- and
30-year fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association.
3 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.
The Fund 5
<PAGE>
FUND PERFORMANCE
[Insert Chart]
$23,785
Lehman Brothers GNMA Index*
$21,019
Dreyfus GNMA Fund, Inc.
Comparison of change in value of $10,000 investment in the Fund and the Lehman
Brothers GNMA Index
- ----------------------------------------------------------------------
Average Annual Total Returns as of 4/30/99
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------
Fund 3.17% 6.70% 7.71%
* Source: Lehman Brothers.
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus GNMA Fund, Inc. on
4/30/89 to a $10,000 investment made in the Lehman Brothers GNMA Index (the
"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
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 $100
million. The Index does not take into account charges, fees and other expenses.
These factors can contribute to the Index potentially out performing the Fund.
Further information relating to Fund performance, including expense
reimbursements, if applicable, is contained in the Financial Highlights section
of the Prospectus and elsewhere in this report.
6
<PAGE>
STATEMENT OF INVESTMENTS
April 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal
Bonds and Notes--111.0% Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agencies/
Mortgage-Backed Securities--84.8%
Government National Mortgage Association I:
6% 32,500,000 a 31,486,260
6.5% 97,440,000 a 96,891,413
6.5%, 9/15/2008-3/15/2029 97,051,137 b 98,166,827
7% 14,000,000 a 14,205,520
7%, 11/15/2022-12/15/2023 27,351,531 27,936,068
7.5% 11,150,000 a 11,491,413
7.5%, 8/15/2000-12/15/2023 136,793,583 142,211,998
8%, 4/15/2008-12/15/2022 47,154,632 b 49,548,209
8.5%, 2/15/2006-12/15/2022 40,181,155 b 42,960,031
9%, 7/15/2001-12/15/2022 37,175,980 40,023,872
9.5%, 1/15/2016-11/15/2024 25,051,786 27,248,013
11%, 9/15/2000-1/15/2001 88,777 93,826
582,263,450
Government National Mortgage Association II:
6.5%, 2/20/2027-9/20/2027 1,129,207 c 1,148,613
9%, 3/20/2016 1,227,323 1,309,014
9.5%, 2/20/2016-2/20/2025 2,670,273 2,861,120
10.5%, 7/20/2013-9/20/2018 2,149,315 2,335,007
7,653,754
Government National Mortgage Association I,
Graduated Payment Mortgage:
10.25%, 8/15/2018-10/15/2018 80,180 87,821
10.75%, 3/15/2010-2/15/2016 260,639 286,968
12.25%, 3/15/2015 32,542 36,894
411,683
Government National Mortgage Association II,
Graduated Payment Mortgage,
11.75%, 6/20/2015-1/20/2016 166,578 186,359
Government National Mortgage Association I,
Construction Loans:
6.5% 10,236,267 a 9,961,167
6.5%, 2/15/2001 7,689,533 7,482,877
6.75% 12,286,824 a 12,220,075
6.75%, 7/15/2000-3/15/2040 7,089,875 7,061,233
</TABLE>
The Fund 7
<PAGE>
STATEMENT OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal
Bonds and Notes (continued) Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agencies/
Mortgage-Backed Securities (continued)
Government National Mortgage Association I,
Construction Loans (continued):
6.875% 3,465,094 a 3,479,171
6.875%, 2/15/2040 4,004,906 4,021,176
7.25% 430,740 a 449,046
7.25%, 7/15/2000 7,461,860 7,778,990
52,453,735
Government National Mortgage Association I,
Project Loans:
5.95%, 11/15/2033 4,538,681 a 4,402,521
6.3%, 11/15/2038 21,280,440 a 21,240,433
6.315%, 10/15/2033 1,506,386 1,505,437
6.355%, 8/15/2024 3,367,183 3,372,436
6.36%, 2/15/2037 20,422,929 20,314,279
6.375%, 10/15/2033-1/15/2034 20,920,461 20,897,563
6.38%, 9/15/2033 8,463,335 8,518,854
6.4%, 10/15/2033-9/15/2038 12,782,162 12,660,827
6.41%, 8/15/2028 1,846,526 1,863,828
6.47%, 9/15/2033 3,208,191 3,247,267
6.5%, 12/15/2023-10/15/2033 44,673,851 45,191,582
6.55%, 7/15/2033 7,989,442 8,126,700
6.6%, 9/15/2019-9/15/2030 9,227,576 b 9,429,384
6.625%, 6/15/2028-10/15/2033 22,891,389 23,390,519
6.75%, 10/15/2033-1/15/2034 13,964,061 14,291,111
6.95%, 12/15/2038 9,181,536 9,488,474
7.25%, 5/15/2033 6,983,116 7,371,517
215,312,732
Federal Home Loan Mortgage Corp.:
Real Estate Mortgage Investment Conduit,
Stripped Securities, Interest Only Class:
Ser. 1379, Cl. T, 7.5%, 2021 10,000,000 d 1,454,000
Ser. 1583, Cl. ID, 7%, 2023 5,059,464 d 1,207,138
Ser. 1628, Cl. MA, 6.5%, 2022 9,296,380 d 1,109,755
Ser. 1829, Cl. I, 6.5%, 2017 4,383,220 d 404,078
Ser. 1882, Cl. PK, 7%, 2026 3,181,482 d 812,519
Ser. 1969, Cl. PI, 7%, 2009 6,024,676 d 664,823
Ser. 1998, Cl. PK, 7%, 2026 13,327,078 d 2,398,874
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal
Bonds and Notes (continued) Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agencies/
Mortgage-Backed Securities (continued)
Federal Home Loan Mortgage Corp.:
Real Estate Mortgage Investment Conduit,
Stripped Securities, Interest Only Class (continued):
Ser. 1999, Cl. QK, 7%, 2025 9,514,950 d 1,432,286
Ser. 2021, Cl. PS, 6.5%, 2026 10,917,075 d 2,198,917
Ser. 2043, Cl. IE, 6.5%, 2023 29,993,269 d 5,530,009
Ser. 2065, Cl. PH, 6.5%, 2021 4,642,230 d 870,418
Structured Pass-Through Securities,
Ser. T-14, Cl. A-5, 6.4%, 2028 13,289,000 11,982,940
30,065,757
Federal National Mortgage Association:
6.82%, 2028 3,559,089 3,672,430
Stripped Securities, Interest Only Class:
Ser. 1993-133, Cl. HA, 9.96%, 2022 8,200,000 d 2,156,600
Ser. 1997-16, Cl. PJ, 7%, 2026 9,002,787 d 1,583,928
Ser. 1997-40, Cl. PI, 7%, 2027 31,676,142 d 7,275,614
Ser. 1997-84, Cl. PI, 6.5%, 2021 2,414,201 d 554,759
Ser. 1997-85, Cl. PI, 7%, 2018 17,980,858 d 2,888,175
18,131,506
Total U.S. Government Agencies/
Mortgage-Backed Securities 906,478,976
Asset-Backed Securities--6.9%
ACLB Business Loan Receivables Trust,
Ser. 1998-1, Cl. A-1, 6.435%, 2019 9,550,586 e 9,404,343
Copelco Capital Funding,
Ser. 1999-A, Cl. A-5, 5.95%, 2004 18,000,000 e 18,028,125
Discover Card Master Trust I,
Ser. 1999-4, Cl. A, 5.65%, 2004 8,500,000 e 8,388,438
Equivantage Home Equity Loan Trust:
Ser. 1996-2, Cl. A-4, 8.05%, 2027 6,251,000 e 6,456,977
Ser. 1997-1, Cl. A-4, 7.275%, 2028 7,000,000 e 7,206,535
The Money Store Home Equity Trust,
Ser. 1997-D, Cl. AF-7, 6.485%, 2038 7,225,000 e 7,240,714
Nomura Depositor Trust,
Ser. 1998-ST1, Cl. A-3, 5.506%, 2003 7,500,000 e,f 7,436,719
</TABLE>
The Fund 9
<PAGE>
STATEMENT OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal
Bonds and Notes (continued) Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset-Backed Securities (continued)
Residential Asset Securities,
Ser. 1997-KS4, Cl. AI-5, 6.98%, 2027 10,000,000 e 10,069,250
Total Asset-Backed Securities 74,231,101
Commercial Mortgage Pass-Through Ctfs.--12.7%
Asset Securitization,
Ser. 1997-D5, Cl. A-2, 7.069%, 2041 11,450,781 f 11,123,360
BTC Mortgage Investors Trust,
Ser. 1997-S1, Cl. C, 6.645%, 2009 20,000,000 e 19,987,500
CS First Boston Mortgage Securities,
Ser. 1998-C1, Cl. C, 6.78%, 2009 32,000,000 b 32,094,240
DLJ Commercial Mortgage,
Ser. 1998-ST2A, Cl. A-3, 5.988%, 2000 20,846,000 e,f 20,872,057
GS Mortgage Securities Corp. II,
Ser. 1998-FL1, Cl. C, 5.428%, 2000 16,000,000 e,f 15,930,000
Library Tower Trust I,
Ser. 1998-I, Cl. B, 6.66%, 2029 6,500,000 e,f 6,398,405
Merrill Lynch Mortgage Investors,
Ser. 1997-SD1, Cl. F, 5.45%, 2010 5,000,000 e,f 4,839,063
Nomura Asset Securities,
Ser. 1998-D6, Cl. A-3, 7.226%, 2028 25,000,000 b,f 24,496,094
Total Commercial Mortgage Pass-Through Ctfs. 135,740,719
Residential Mortgage Pass-Through Ctfs.--4.1%
BA Mortgage Securities,
Ser. 1998-2, Cl. B-1, 6.5%, 2013 446,321 434,885
Blackrock Capital Finance,
Ser. 1997-R3, Cl. B-2, 7.25%, 2028 12,657,238 e 11,529,953
GE Capital Mortgage Services:
Ser. 1997-13, Cl. B-1, 6.75%, 2012 474,476 445,713
Ser. 1998-1, Cl. B-1, 6.75%, 2013 951,670 921,408
Ser. 1998-16:
Cl. B-1, 6.5%, 2013 609,163 579,802
Cl. M, 6.5%, 2013 1,827,493 1,761,375
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal
Bonds and Notes (continued) Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Residential Mortgage Pass-Through Ctfs. (continued)
Norwest Asset Securities,
Ser. 1997-20, Cl. B-1, 6.75%, 2012 963,787 935,365
Ser. 1998-9:
Cl. B-1, 6.5%, 2028 3,266,233 3,119,939
Cl. B-2, 6.5%, 2028 3,129,769 2,967,397
Ser. 1998-14, Cl. B-2, 6.5%, 2013 1,447,966 1,350,561
PNC Mortgage Securities,
Ser. 1998-2:
Cl. 3B-2, 6.75%, 2013 742,362 746,802
Cl. 4B-2, 6.75%, 2027 660,035 629,505
Ser. 1998-11, Cl. 2B-2, 6.25%, 2013 514,787 493,070
Prudential Home Mortgage Securities,
Ser. 1995-7, Cl. B-1, 7%, 2025 3,906,818 e 3,996,285
Ser. 1996-8, Cl. B-1, 6.75%, 2026 2,611,302 2,536,593
Residential Funding Mortgage Securities I:
Ser. 1996-S7, Cl. M-2, 7%, 2026 4,807,612 4,691,028
Ser. 1997-S10, Cl. M-2, 7%, 2012 852,829 856,442
Ser. 1997-S11, Cl. M-2, 7%, 2012 716,868 719,876
Ser. 1997-S16, Cl. M-2, 6.75%, 2012 1,204,333 1,208,525
Ser. 1998-S1, Cl. M-2, 6.5%, 2013 1,071,702 1,042,402
Ser. 1998-S14, Cl. M-2, 6.5%, 2013 1,658,195 1,636,896
Ser. 1998-S16:
Cl. M-1, 6.5%, 2013 1,043,463 1,024,452
Cl. M-2, 6.5%, 2013 372,734 362,291
Total Residential Mortgage Pass-Through Ctfs. 43,990,565
U.S. Governments--2.5%
U.S. Treasury Bonds,
5.25%, 2/15/2029 13,000,000 12,217,920
U.S. Treasury Notes,
4.875%, 3/31/2001 15,000,000 14,946,600
Total U.S. Governments 27,164,520
Total Bonds and Notes
(cost $1,191,189,807) 1,187,605,881
</TABLE>
The Fund 11
<PAGE>
STATEMENT OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal
Short-Term Investments--4.6% Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements--4.5%
Bear, Stearns & Co.,
4.78% Dated 4/30/1999, Due 5/3/1999 in
the amount of $47,797,032 (fully
collateralized by $47,615,000,
U.S. Treasury Notes due 12/31/1999,
value $48,748,240) 47,778,000 47,778,000
U.S. Treasury Bills--.1%
4.35%, 6/10/1999 1,100,000 g 1,094,683
Total Short-Term Investments
(cost $48,872,867) 48,872,683
- ---------------------------------------------------------------------------------------------------
Total Investments
(cost $1,240,062,674) 115.6% 1,236,478,564
Liabilities, Less Cash and Receivables (15.6%) (168,131,398)
Net Assets 100.0% 1,068,347,166
<FN>
a Purchased on a forward commitment basis.
b Securities held in whole or in part by the custodian in a segregated account
as collateral for securities purchased on a forward commitment basis.
c Adjustable rate mortgage-interest rate subject to change periodically.
d Reflects notional face.
e Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At April 30, 1999 these securities
amounted to $157,784,364, or 14.8% of net assets.
f Variable rate security--interest rate subject to change periodically.
g Held by the custodian in a segregated account as collateral for open financial futures positions.
See notes to financial statements.
</FN>
</TABLE>
12
<PAGE>
STATEMENT OF FINANCIAL FUTURES
April 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Market Value Unrealized
Covered Appreciation
Contracts by Contracts ($) Expiration at 4/30/99 ($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Futures Short
U.S. Treasury 5 year Notes 11 1,222,547 June `99 6,016
U.S. Treasury 10 year Notes 639 73,285,313 June `99 704,062
710,078
</TABLE>
The Fund 13
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Cost Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets ($):
Investments in securities--See Statement of
Investments--Note 1(b) 1,240,062,674 1,236,478,564
Cash 1,183,380
Receivable for investment securities sold 11,819,177
Interest receivable 7,437,960
Receivable for futures variation margin--Note 4(a) 771,180
Paydowns receivable 222,921
Receivable for shares of Common Stock subscribed 52,926
Prepaid expenses 90,222
1,258,056,330
- ---------------------------------------------------------------------------------------------------
Liabilities ($):
Due to The Dreyfus Corporation and affiliates 780,496
Due to Distributor 31,327
Payable for investment securities purchased 187,850,976
Payable for shares of Common Stock redeemed 582,526
Accrued expenses 463,839
189,709,164
- ---------------------------------------------------------------------------------------------------
Net Assets ($) 1,068,347,166
- ---------------------------------------------------------------------------------------------------
Composition of Net Assets ($):
Paid-in capital 1,134,731,947
Accumulated undistributed investment income--net 8,657,196
Accumulated net realized gain (loss) on investments (72,167,945)
Accumulated net unrealized appreciation (depreciation)
on investments (including $710,078 net unrealized
appreciation on financial futures)--Note 4(b) (2,874,032)
- ---------------------------------------------------------------------------------------------------
Net Assets ($) 1,068,347,166
- ---------------------------------------------------------------------------------------------------
Shares Outstanding
(1.1 billion shares of $.01 par value Common Stock authorized) 73,499,795
Net Asset Value, offering and redemption price per share ($) 14.54
</TABLE>
See notes to financial statements.
14
<PAGE>
STATEMENT OF OPERATIONS
Year Ended April 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Investment Income ($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income 82,930,299
Expenses:
Management fee--Note 3(a) 6,741,733
Shareholder servicing costs--Note 3(b) 3,256,954
Interest expense--Note 2 2,794,255
Custodian fees--Note 3(b) 191,025
Prospectus and shareholders' reports--Note 3(b) 77,732
Professional fees 76,911
Directors' fees and expenses--Note 3(c) 54,780
Registration fees 39,225
Loan commitment fees--Note 2 4,218
Miscellaneous 119,360
Total Expenses 13,356,193
Investment Income--Net 69,574,106
- ---------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments--Note 4:
Net realized gain (loss) on investments 4,135,929
Net realized gain (loss) on financial futures (11,811,840)
Net Realized Gain (Loss) (7,675,911)
Net unrealized appreciation (depreciation) on investments
(including $1,164,765 net unrealized appreciation on financial futures) (26,810,826)
Net Realized and Unrealized Gain (Loss) on Investments (34,486,737)
Net Increase in Net Assets Resulting From Operations 35,087,369
</TABLE>
See notes to financial statements.
The Fund 15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year Ended April 30,
---------------------------
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operations ($):
Investment income--net 69,574,106 74,650,067
Net realized gain (loss) on investments (7,675,911) 38,532,099
Net unrealized appreciation (depreciation)
on investments (26,810,826) 6,438,970
Net Increase (Decrease) in Net Assets
Resulting from Operations 35,087,369 119,621,136
- --------------------------------------------------------------------------------------------
Net Equalization (Debits)--Note 1(e) (459,399) (695,148)
- --------------------------------------------------------------------------------------------
Dividends to Shareholders From ($):
Investment income--net (69,470,086) (74,369,089)
- --------------------------------------------------------------------------------------------
Capital Stock Transactions ($):
Net proceeds from shares sold 104,458,260 114,622,488
Dividends reinvested 52,915,133 56,722,579
Cost of shares redeemed (226,975,934) (283,568,803)
Increase (Decrease) in Net Assets from
Capital Stock Transactions (69,602,541) (112,223,736)
Total Increase (Decrease) in Net Assets (104,444,657) (67,666,837)
- --------------------------------------------------------------------------------------------
Net Assets ($):
Beginning of Period 1,172,791,823 1,240,458,660
End of Period 1,068,347,166 1,172,791,823
Undistributed investment income--net 8,657,196 9,012,575
- --------------------------------------------------------------------------------------------
Capital Share Transactions (Shares):
Shares sold 7,125,121 7,775,411
Shares issued for dividends reinvested 3,607,778 3,860,656
Shares redeemed (15,495,970) (19,256,753)
Net Increase (Decrease) in Shares Outstanding (4,763,071) (7,620,686)
</TABLE>
See notes to financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the Fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the Fund's financial
statements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended April 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data ($):
Net asset value, beginning
of period 14.99 14.44 14.50 14.32 14.48
Investment Operations:
Investment income--net .92 .91 .92 .96 .98
Net realized and unrealized gain
(loss) on investments (.46) .55 (.05) .18 (.18)
Total from Investment Operations .46 1.46 .87 1.14 .80
Distributions:
Dividends from investment
income--net (.91) (.91) (.93) (.96) (.96)
Net asset value, end of period 14.54 14.99 14.44 14.50 14.32
- -----------------------------------------------------------------------------------------
Total Return (%) 3.17 10.38 6.17 8.11 5.81
- -----------------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of operating expenses to
average net assets .94 .96 .96 .96 .97
- -----------------------------------------------------------------------------------------
Ratio of interest expense and loan
commitment fees to average
net assets .25 -- -- -- --
Ratio of net investment income
to average net assets 6.19 6.16 6.38 6.57 6.90
Portfolio Turnover Rate 206.15 342.71 323.99 144.43 362.70
- -----------------------------------------------------------------------------------------
Net Assets, end of period
($ x 1,000) 1,068,347 1,172,792 1,240,459 1,373,618 1,435,873
</TABLE>
See notes to financial statements.
The Fund 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus GNMA Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended (the "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 (the "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 short-term
investments other than U.S. Treasury Bills and financial futures) 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. Short-term investments, excluding U.S Treasury Bills, are
carried at amortized cost, which approximates value. Financial futures are
valued at the last sale price on the securities exchange on which such
securities are primarily
18
<PAGE>
traded or at the last sales price on the national securities market on each
business day.
(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. Under the terms of custody
agreement, the Fund receives net earnings credits based on available cash
balances left on deposit.
The Fund may enter into repurchase agreements with financial institutions,
deemed to be creditworthy by the Fund's Manager, subject to the seller's
agreement to repurchase and the Fund's agreement to resell such securities at a
mutually agreed upon price. Securities purchased subject to repurchase
agreements are deposited with the Fund's custodian and, pursuant to the terms of
the repurchase agreement, must have an aggregate market value greater than or
equal to the repurchase price plus accrued interest at all times. If the value
of the underlying securities falls below the value of the repurchase price plus
accrued interest, the Fund will require the seller to deposit additional
collateral by the next business day. If the request for additional collateral is
not met, or the seller defaults on its repurchase obligation, the Fund maintains
the right to sell the underlying securities at market value and may claim any
resulting loss against the seller.
(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 of 1986, as amended (the
"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.
The Fund 19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
On April 30, 1999, the Board of Directors declared a cash dividend of $.074 per
share from undistributed investment income-net, payable on May 3, 1999
(ex-dividend date) to shareholders of record as of the close of business on
April 30, 1999.
(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 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 $71,298,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to April 30, 1999, if not
applied, $58,671,000 of the carryover expires in fiscal 2003, $5,711,000 expires
in fiscal 2005 and $6,916,000 expires in fiscal 2007.
(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:
Effective January 15, 1999, the Fund may borrow up to $10 million for leveraging
purposes under a short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be
utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to the
Federal Funds rate in effect at the time of borrowings.
Prior to January 15, 1999, the Fund participated with other Dreyfus-managed
funds in a $600 million redemption credit facility ("Facility") primarily to be
utilized for temporary or emergency purposes,
20
<PAGE>
including the financing of redemptions. In connection therewith, the Fund had
agreed to pay commitment fees on its pro rata portion of the Facility. Interest
was charged to the Fund at rates based on prevailing market rates in effect at
the time of borrowings.
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. No expense reimbursement was required for the period
ended April 30, 1999.
(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 of 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
The Fund 21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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, 1999, the Fund was charged $2,266,986 pursuant to the Plan.
Effective May 1, 1999, the Fund's Board of Directors approved amendments to the
Fund's Plan adopted under Rule 12b-1, under which the Fund was charged at an
aggregate annual rate of .20 of 1% of the value of the Fund's average daily net
assets. The Plan was amended to provide only for reimbursement of costs
chargeable to the Fund, under the Plan at an amount not to exceed an annual rate
of .20 of 1% of the value of the Fund's average daily net assets.
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. During the period
ended April 30, 1999, the Fund was charged $686,073 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended April 30, 1999, the Fund was
charged $191,025 pursuant to the custody agreement.
(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:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities and financial futures,
during the period ended April 30, 1999 amounted to $2,713,110,650 and $
2,720,189,911, respectively.
The Fund may invest in financial futures contracts in order to gain exposure to
or protect against changes in the market. The Fund is
22
<PAGE>
exposed to market risk as a result of changes in the value of the underlying
financial instruments. Investments in financial futures require the Fund to
"mark to market" on a daily basis, which reflects the change in the market
value of the contracts at the close of each day's trading. Accordingly,
variation margin payments are received or made to reflect daily unrealized
gains or losses. When the contracts are closed, the Fund recognizes a realized
gain or loss. These investments require initial margin deposits with a
custodian, which consist of cash or cash equivalents, up to approximately 10%
of the contract amount. The amount of these deposits is determined by the
exchange or Board of Trade on which the contract is traded and is subject to
change. Contracts open at April 30, 1999, are set forth in the Statement of
Financial Futures.
(b) At April 30, 1999, accumulated net unrealized depreciation on investments
and financial futures was $2,874,032, consisting of $17,469,377 gross unrealized
appreciation and $20,343,409 gross unrealized depreciation.
At April 30, 1999, 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).
NOTE 5--Reverse Repurchase Agreements:
The Fund may enter into reverse repurchase agreements with banks, brokers or
dealers. This form of borrowing involves the transfer by the Fund of an
underlying debt instrument in return for cash proceeds based on a percentage of
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. Reverse repurchase
agreements may subject the Fund to interest rate risk and counter party credit
risk.
As of April 30, 1999, the Fund had no reverse repurchase agreements outstanding.
The average daily amount outstanding during the period ended April 30, 1999 was
approximately $51,943,745, with a related weighted average annualized interest
rate of 5.38%.
The Fund 23
<PAGE>
REPORT OF 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 statements of investments and financial futures,
as of April 30, 1999, 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, 1999 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, 1999, 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
New York, New York
June 11, 1999
24
<PAGE>
For More Information
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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
By telephone
Call 1-800-645-6561
By mail Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
By E-mail Send your request
to [email protected]
On the Internet Information
can be viewed online or
downloaded from:
http://www.dreyfus.com
Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
(C) 1999, Dreyfus Service Corporation 265AR994
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS GNMA FUND, INC. AND THE LEHMAN BROTHERS
GNMA INDEX
EXHIBIT A:
PERIOD LEHMAN BROTHERS DREYFUS
GNMA INDEX * GNMA FUND, INC.
4/30/89 10,000 10,000
4/30/90 11,094 10,855
4/30/91 12,882 12,423
4/30/92 14,388 13,621
4/30/93 15,930 15,092
4/30/94 15,939 15,199
4/30/95 17,307 16,081
4/30/96 18,854 17,385
4/30/97 20,367 18,457
4/30/98 22,404 20,373
4/30/99 23,785 21,019
*Source: Lehman Brothers
