PREMIER GNMA FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Premier GNMA Fund.
For its annual reporting period ended December 31, 1996, your Fund paid
income dividends of approximately $.884 per share for Class A shares, $.810
per share for Class B shares and $.773 per share for Class C shares,
producing annualized distribution rates per share of 5.86%, 5.62% and 5.36%,
respectively.* During this 12-month period, the Fund produced total returns
of 4.25%, 3.71% and 3.44% for Class A, Class B and Class C shares,
respectively.** The Fund's benchmark, the Lehman Brothers GNMA Index (the
"Index"), returned 5.53% during the same time period.***
THE ECONOMY
Over the reporting period, the economy has grown moderately, showing
little evidence of accelerating inflation despite the robust pace of new job
creation and the low unemployment rate. It was fear of accelerating inflation
that prompted a sharp rise in long-term interest rates earlier in the year.
However, by year-end, long-term rates had fallen by one half of one percent
(50 basis points) from last summer's peak. Contributing to the drop in rates
was the decision of the Open Market Committee of the Federal Reserve Board
(the "Fed") to leave short-term interest rates unchanged.
Inflation at the consumer level of the economy remains in the 3% range,
which has been accompanied by a comparably benign inflation picture at the
production level of the economy as well. The so-called "core" Producer Price
Index (it excludes the energy and food components because of their
volatility) rose just .1% in November and a mere .6% for the previous 12
months. Producers appeared to have little ability to pass on price increases
to their customers, a reason cited by the Fed as evidence of the lack of
rising price inflation.
Despite the sanguine price environment, consumers remained wary spenders
and modest borrowers, and retail sales growth has been moderate.
Nevertheless, the renewed decline in mortgage rates spurred the housing
market: existing home sales in November increased for the first time in six
months. New housing starts also rose sharply, with the November increase the
largest monthly rise since July 1995. Job growth still appears to have
underlying strength: monthly increases in workers added to payrolls could
also move higher. The recent unemployment rate rose slightly, but still
remained near a seven-year low.
Lending optimism to the prospect for continued economic growth was the
report from The Conference Board - a private research group - that its Index
of Leading Economic Indicators rose for the tenth consecutive month in
November. An increase in this Index generally correlates with economic
expansion over the next three to twelve months. Manufacturing remained firm
all year: both factory orders and industrial production rose moderately.
Despite this overall strength in production, there were some signs of
moderation at year-end. Inventories have built up and orders for durable
goods - those items intended to last three or more years - declined.
Last year, high employment, low inflation and moderate economic growth
stayed the Fed's hand from raising interest rates. The economy is now in the
sixth year of this business cycle and we remain alert to signs of the
potential rekindling of inflationary pressures.
MARKET ENVIRONMENT
In the second half of 1996 interest rates remained stable. The yield on
the 30-year Treasury has remained in a trading range of 75 basis points. One
of the more technical aspects stabilizing interest rates has been an inflow
of demand from foreign investors. In particular, Japanese investors have more
than doubled their investment in the U.S. bond markets over the last few
quarters of 1996. With the current Dollar/Yen exchange rates continuing to
aid this flow, our expectations are for continued stability in U.S. interest
rates. With expectations that demand from overseas will continue to sustain
the 10- and 30-year Treasury rates, it is our expectation that the yield
curve will flatten. Additionally, with a high likelihood that the Federal
Reserve will remain on the sidelines for the first quarter of 1997, our
outlook is that interest rate volatility will trend lower.
This outlook of stable longer-term interest rates and lower volatility
has strong implications for the mortgage securities market. If interest rates
remain in a tight range, there is a decreased likelihood for a homeowner to
refinance a mortgage. Homeowner loan refinancing is one of the primary
reasons for mortgage-backed securities prepayments. Less homeowner
refinancing will maintain more predictable yields on all mortgage securities.
Hence it is our expectation that this environment of stable interest rates
will cause the yield spread over Treasuries in the GNMA market to begin to
tighten due to added prepayment certainty.
THE PORTFOLIO
During most of 1996 the portfolio was positioned defensively. Hence, with
a shorter duration than the Index and an emphasis on premium seasoned
securities, the Fund had strong performance in the second and third quarter.
Unfortunately this same portfolio strategy proved less than optimal for the
fourth quarter. The 10-year Treasury rallied from 6.60% in early October to a
low of 6.10% in early December; this caused some premium securities to
experience faster prepayments and widening yield spreads.
Incorporating our economic outlook and market environment analysis into
managing the portfolio, we have made a number of adjustments to the Fund. In
December, we increased our total mortgage holdings. Also, the duration of the
Fund was increased to one quarter of a year longer than the Index. This was
accomplished by lowering the Fund's exposure to 30-year GNMA 7.0% securities
issued in 1994 and 1993, while increasing our exposure to U.S. Treasuries.
Another significant change in the portfolio has been the addition of GNMA
II adjustable rate mortgage-backed securities, better known as ARMS. In
particular, the Fund now holds a 20% weighting in GNMA II ARMS. These are
discount dollar-priced securities where the interest rate adjusts annually
based on the level of the one-year constant maturity Treasury security plus a
150 basis-point margin. Because of their short duration, GNMA ARMS carry a
low level of interest rate risk but offer a very attractive yield.
Additionally, GNMA ARMS increase in value when interest rate volatility
declines and the yield curve flattens. To purchase these positions we
utilized cash and we also sold a combination of seasoned 30-year GNMA 7%
securities and seasoned 15-year GNMA 7% securities. It is hoped, over the
next year or two, all other things remaining stable, that this strategy will
result in strong total returns for our shareholders. Of course, we will
adjust the portfolio as circumstances warrant.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We hope they are informative.
Please know that we greatly appreciate your continued confidence in the Fund
and in the Dreyfus Corporation.
Very truly yours,
[Michael Hoeh signature logo]
Michael Hoeh
Portfolio Manager
January 15, 1997
New York, N.Y.
* Distribution rate per share is based upon dividends per share paid from
net investment income during the period (annualized), divided by the maximum
offering price per share at the end of the period, in the case of Class A
shares, or the net asset value per share at the end of the period in the case
of Class B and Class C shares.
**Total return includes reinvestment of dividends and any capital gains paid
without taking into account the maximum initial sales charge in the case of
Class A shares or the applicable contingent deferred sales charge imposed on
redemptions in the case of Class B and Class C shares.
*** Source: LIPPER ANALYTICAL SERVICES, INC. - The Lehman Brothers GNMA
Index is an unmanaged total return performance benchmark for the GNMA market,
consisting of 15- and 30-year fixed rate GNMA securities backed by mortgage
pools of the Government National Mortgage Association.
PREMIER GNMA FUND DECEMBER 31, 1996
[Exhibit A]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN PREMIER GNMA FUND
CLASS A SHARES AND
THE LEHMAN BROTHERS GNMA INDEX
$23,167
Lehman Brothers
GNMA Index*
Dollars
$21,850
Premier GNMA Fund
(Class A Shares)
*Source: Lehman Brothers
[Exhibit A]
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Shares Class B Shares
____________________________________________________________ __________________________________________________________________
% Return Reflecting
% Return Applicable Contingent
Reflecting % Return Deferred Sales
% Return Without Maximum Initial Assuming No Charge Upon
Period Ended 12/31/96 Sales Charge Sales Charge (4.5%) Period Ended 12/31/96 Redemption Redemption*
_____________________ ____________ ____________________ _____________________ __________ ___________________
<S> <C> <C> <C> <C> <C>
1 Year 4.25% (0.44)% 1 Year 3.71% (0.21)%
5 Years 6.13 5.16 From Inception (1/15/93) 5.33 4.70
From Inception (1/29/87) 8.70 8.20
Class C Shares
_____________________________________________________________
% Return Reflecting
Applicable Contingent
% Return Deferred Sales
Assuming Charge Upon
Period Ended 12/31/96 No Redemption Redemption**
_____________________ ______________ __________________
1 Year 3.44% 2.46%
From Inception (10/16/95) 4.89 4.89
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Class A shares of
Premier GNMA Fund on 1/29/87 (Inception Date) to a $10,000 investment made in
the Lehman Brothers GNMA Index on that date. For comparative purposes, the
value of the Index on 1/31/87 is used as the beginning value on 1/29/87. All
dividends and capital gain distributions are reinvested. Performance for
Class B and Class C shares will vary from the performance of Class A shares
shown above due to differences in charges and expenses.
The Fund invests primarily in Ginnie Maes and its performance shown in the
line graph takes into account the maximum initial sales charge on Class A
shares and all other applicable fees and expenses. Unlike the Fund, the
Lehman Brothers GNMA Index is an unmanaged total return performance benchmark
for the GNMA market, consisting of 15-and 30-year fixed rate GNMA securities.
All issues have at least one year to maturity and an outstanding par value of
at least $100 million. The Index does not take into account charges, fees and
other expenses. These factors can contribute to the Index potentially
outperforming the Fund. Further information relating to Fund performance,
including expense reimbursements, if applicable, is contained in the
Financial Highlights section of the Prospectus and elsewhere in this report.
* The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
PREMIER GNMA FUND
STATEMENT OF INVESTMENTS DECEMBER 31, 1996
Principal
Bonds and Notes-126.2% Amount Value
__________ ___________
Mortgage-Backed Securities-106.4%
Government National Mortgage Association I:
6 1/2% (a)................................................................ $ 9,500,000 $ 9,033,835
7 1/2% (a)................................................................ 9,500,000 9,479,195
7 1/2%, 8/15/2023 (b)..................................................... 7,521,582 7,566,185
7 1/2%, 3/15/2002-7/15/2023............................................... 15,638,835 15,824,909
8%, 2/15/2025 (b)......................................................... 2,366,460 2,424,864
8%, 4/15/2017-1/15/2022................................................... 1,343,653 1,383,752
8 1/2%, 10/15/2017-12/15/2022............................................. 5,962,436 6,216,823
9%, 4/15/2016-12/15/2022.................................................. 8,049,719 8,565,210
9 1/2%, 10/15/2016-1/15/2025.............................................. 8,952,688 9,731,310
10%, 10/15/2016-10/15/2020................................................ 1,040,354 1,147,313
10 1/2%, 2/15/2016-8/15/2019.............................................. 409,866 455,845
11%, 2/15/2010-8/15/2019.................................................. 2,275,636 2,542,836
11 1/2%, 1/15/2013........................................................ 111,238 122,466
____________
74,494,543
____________
Government National Mortgage Association II:
5% (a,c).................................................................. 3,500,000 3,412,500
5 1/2% (a,c).............................................................. 33,265,002 32,946,776
9%, 7/20/2025 (b)......................................................... 7,993,981 8,376,174
11%, 12/20/2013-10/20/2015................................................ 1,918,359 2,099,394
____________
46,834,844
____________
Government National Mortgage Association I,
Project Loan:
6 3/4% (a)................................................................ 4,210,000 4,075,785
7%, 1/15/2036 (b)......................................................... 2,617,122 2,550,856
7%, 4/15/2021............................................................. 990,305 964,924
7 1/4% (a)................................................................ 9,820,000 9,718,657
7 1/2% (a)................................................................ 3,481,900 3,504,741
7 1/2%, 10/15/2030-12/15/2031............................................. 13,533,903 13,585,957
9 1/4%, 10/15/2023........................................................ 4,779,522 5,109,596
____________
39,510,516
____________
Total Mortgage-Backed Securities............................................ 160,839,903
============
U.S. Treasury Notes-19.8%
5 3/4%, 12/31/1998 (b).................................................... 14,000,000 13,968,282
6 1/8%, 12/31/2001........................................................ 16,000,000 15,942,501
____________
Total U.S. Treasury Notes................................................... 29,910,783
============
TOTAL BONDS AND NOTES
(cost $189,735,431)....................................................... $190,750,686
============
PREMIER GNMA FUND
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
Principal
Short-Term Investments-21.8% Amount Value
____________ ____________
U.S. Treasury Bills:
4.98%, 3/6/1997 (b)....................................................... $ 31,953,000 $ 31,671,175
5.30%, 3/13/1997 (b)...................................................... 1,213,000 1,201,125
____________
TOTAL SHORT-TERM INVESTMENTS
(cost $32,872,300)........................................................ $ 32,872,300
============
TOTAL INVESTMENTS
(cost $222,607,731)....................................................... 148.0% $223,622,986
====== ============
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (48.0%) $ (72,505,823)
====== ============
NET ASSETS.................................................................. 100.0% $151,117,163
====== ============
Notes to Statement of Investments:
(a) Purchased on a forward commitment basis.
(b) Held 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.
See notes to financial statements.
PREMIER GNMA FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
Cost Value
____________ ____________
ASSETS: Investments in securities-See Statement of Investments $222,607,731 $223,622,986
Cash....................................... 232,974
Receivable for investment securities sold.. 33,912,403
Interest receivable........................ 887,145
Receivable for shares of Beneficial Interest subscribed 14,037
Prepaid expenses........................... 35,325
____________
258,704,870
____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates 101,239
Due to Distributor......................... 39,984
Payable for investment securities purchased 106,559,427
Payable for shares of Beneficial Interest redeemed 788,071
Accrued expenses........................... 98,986
____________
107,587,707
____________
NET ASSETS.................................................................. $151,117,163
============
REPRESENTED BY: Paid-in capital............................ $157,542,138
Accumulated net realized gain (loss) on investments (7,440,230)
Accumulated net unrealized appreciation (depreciation)
on investments-Note 4...................... 1,015,255
____________
NET ASSETS.................................................................. $151,117,163
============
NET ASSET VALUE PER SHARE
_________________________
Class A Class B Class C
____________ ___________ _____________
Net Assets.................................................. $111,267,360 $39,833,121 $16,682
Shares Outstanding.......................................... 7,742,344 2,769,266 1,160
NET ASSET VALUE PER SHARE................................... $14.37 $14.38 $14.38
======== ====== ======
See notes to financial statements.
PREMIER GNMA FUND
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
INCOME Interest Income............................ $11,741,130
EXPENSES: Management fee-Note 3(a)................... $ 896,510
Shareholder servicing costs-Note 3(c)...... 564,661
Distribution fees-Note 3(b)................ 203,757
Professional fees.......................... 53,041
Custodian fees-Note 3(c)................... 51,172
Registration fees.......................... 48,775
Trustees' fees and expenses-Note 3(d)...... 35,291
Prospectus and shareholders' reports....... 16,290
Miscellaneous.............................. 31,301
____________
Total Expenses......................... 1,900,798
____________
INVESTMENT INCOME-NET....................................................... 9,840,332
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ 1,437,681
Net unrealized appreciation (depreciation) on investments (5,001,934)
_____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... (3,564,253)
____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 6,276,079
============
See notes to financial statements.
PREMIER GNMA FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 1996 December 31, 1995
_____________________ _____________________
OPERATIONS:
Investment income-net............................................... $ 9,840,332 $ 11,179,371
Net realized gain (loss) on investments............................. 1,437,681 6,055,099
Net unrealized appreciation (depreciation) on investments........... (5,001,934) 8,010,015
_____________________ _____________________
Net Increase (Decrease) in Net Assets Resulting from Operations 6,276,079 25,244,485
_____________________ _____________________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net:
Class A shares.................................................... (7,540,292) (8,886,343)
Class B shares.................................................... (2,299,266) (2,293,017)
Class C shares.................................................... (774) (11)
_____________________ _____________________
Total Dividends............................................... (9,840,332) (11,179,371)
_____________________ _____________________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares.................................................... 14,387,058 16,093,996
Class B shares.................................................... 4,915,210 8,057,178
Class C shares.................................................... 16,094 1,000
Dividends reinvested:
Class A shares.................................................... 5,148,131 6,027,082
Class B shares.................................................... 1,540,231 1,439,805
Class C shares.................................................... 774 11
Cost of shares redeemed:
Class A shares.................................................... (40,109,763) (40,036,785)
Class B shares.................................................... (7,695,736) (6,333,160)
Class C shares.................................................... (1,004) __
_____________________ _____________________
Increase (Decrease) in Net Assets from Beneficial
Interest Transactions (21,799,005) (14,750,873)
_____________________ _____________________
Total Increase (Decrease) in Net Assets..................... (25,363,258) (685,759)
NET ASSETS:
Beginning of Period................................................. 176,480,421 177,166,180
_____________________ _____________________
End of Period....................................................... $151,117,163 $176,480,421
==================== ======================
SEE NOTES TO FINANCIAL STATEMENTS.
PREMIER GNMA FUND
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Shares
_____________________________________________
Year Ended Year Ended
December 31, 1996 December 31, 1995
___________________ ___________________
CAPITAL SHARE TRANSACTIONS:
Class A
________
Shares sold.................................................... 1,005,176 1,144,697
Shares issued for dividends reinvested......................... 359,656 424,403
Shares redeemed................................................ (2,801,148) (2,840,710)
_________________ __________________
Net Increase (Decrease) in Shares Outstanding (1,436,316) (1,271,610)
================= ==================
Class B
________
Shares sold.................................................... 340,609 567,691
Shares issued for dividends reinvested......................... 107,520 101,147
Shares redeemed................................................ (537,054) (446,457)
_________________ __________________
Net Increase (Decrease) in Shares Outstanding (88,925) 222,381
================= ==================
Class C*
________
Shares sold.................................................... 1,107 69
Shares issued for dividends reinvested......................... 54 1
Shares redeemed................................................ (71) __
_________________ __________________
Net Increase (Decrease) in Shares Outstanding 1,090 70
================= ==================
*From October 16, 1995 (commencement of initial offering) to December 31,
1995.
See notes to financial statements.
PREMIER GNMA FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Class A Shares
____________________________________________________________________
Year Ended December 31,
____________________________________________________________________
PER SHARE DATA: 1996 1995 1994 1993 1992
________ ________ ________ ________ ________
Net asset value, beginning of period......... $14.66 $13.54 $14.84 $14.90 $15.30
________ ________ ________ ________ ________
Investment Operations:
Investment income-net........................ .88 .91 .88 .95 1.10
Net realized and unrealized gain (loss)
on investments............................. (.29) 1.12 (1.30) .24 (.15)
________ ________ ________ ________ ________
Total from Investment Operations............. .59 2.03 (.42) 1.19 .95
________ ________ ________ ________ ________
Distributions:
Dividends from investment income-net......... (.88) (.91) (.88) (.95) (1.10)
Dividends from net realized gain on investments - - - (.30) (.25)
________ ________ ________ ________ ________
Total Distributions.......................... (.88) (.91) (.88) (1.25) (1.35)
________ ________ ________ ________ ________
Net asset value, end of period............... $14.37 $14.66 $13.54 $14.84 $14.90
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN*......................... 4.25% 15.43% (2.91%) 8.20% 6.50%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... 1.04% 1.03% .94% .78% .71%
Ratio of net investment income
to average net assets...................... 6.17% 6.45% 6.20% 6.24% 7.23%
Decrease reflected in above expense ratios
due to undertakings by the Manager......... - - .06% .22% .36%
Portfolio Turnover Rate...................... 267.22% 349.24% 427.27% 274.95% 60.12%
Net Assets, end of period (000's Omitted).... $111,267 $134,545 $141,456 $197,239 $163,967
* Exclusive of sales load.
See notes to financial statements.
PREMIER GNMA FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Class B Shares Class C Shares
__________________________________________________ _______________________
Year Ended December 31, Year Ended December 31,
__________________________________________________ _______________________
PER SHARE DATA: 1996 1995 1994 1993(1) 1996 1995(2)
________ _______ _______ _______ ________ _______
Net asset value, beginning of period $14.67 $13.55 $14.84 $14.98 $14.67 $14.48
_______ ______ ______ ______ _______ ______
Investment Operations:
Investment income-net............. .81 .84 .80 .83 .77 .16
Net realized and unrealized gain (loss)
on investments.................. (.29) 1.12 (1.29) .16 (.29) .19
_______ ______ ______ ______ _______ ______
Total from Investment Operations.. .52 1.96 (.49) .99 .48 .35
_______ ______ ______ ______ _______ ______
Distributions:
Dividends from investment income-net (.81) (.84) (.80) (.83) (.77) (.16)
Dividends from net realized gain
on investments.................. -- -- -- (.30) -- --
_______ ______ ______ ______ _______ ______
Total Distributions............... (.81) (.84) (.80) (1.13) (.77) (.16)
_______ ______ ______ ______ _______ ______
Net asset value, end of period.... $14.38 $14.67 $13.55 $14.84 $14.38 $14.67
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN(3)............ 3.71% 14.83% (3.39%) 7.03%(4) 3.44% 11.47%(4)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets 1.55% 1.55% 1.51% 1.30%(4) 1.79% 1.79%(4)
Ratio of net investment income
to average net assets........... 5.65% 5.89% 5.61% 5.38%(4) 5.42% 5.25%(4)
Decrease reflected in above expense ratios
due to undertakings by the Manager -- -- .05% .20%(4) -- --
Portfolio Turnover Rate........... 267.22% 349.24% 427.27% 274.95% 267.22% 349.24%
Net Assets, end of period (000's Omitted) $39,833 $41,934 $35,710 $29,648 $17 $1
(1) From January 15, 1993 (commencement of initial offering) to December 31, 1993.
(2) From October 16, 1995 (commencement of initial offering) to
December 31, 1995.
(3) Exclusive of sales load.
(4) Annualized.
</TABLE>
See notes to financial statements.
PREMIER GNMA FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier GNMA Fund (the "Fund") is registered under the Investment Company
Act of 1940 ("Act") as a diversified open-end management investment company.
The Fund's investment objective is to provide investors with as high a level
of current income as is consistent with the preservation of capital by
investing principally in instruments issued by the Government National
Mortgage Association. The Dreyfus Corporation ("Manager") serves as the
Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. ("Mellon").
Premier Mutual Fund Services, Inc. (the "Distributor") acts as the
distributor of the Fund's shares. The Fund is authorized to issue an
unlimited number of $.001 par value shares in the following classes of
shares: Class A, Class B and Class C. Class A shares are subject to a sales
charge imposed at the time of purchase, Class B shares are subject to a
contingent deferred sales charge imposed at the time of redemption on
redemptions made within five years of purchase and Class C shares are subject
to a contingent deferred sales charge imposed at the time of redemption on
redemptions made within one year of purchase. Other differences between the
three Classes include the services offered to and the expenses borne by each
Class and certain voting rights.
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: The Fund's investments (excluding U.S.
Government obligations and short-term investments) are valued each business
day by an independent pricing service ("Service") approved by the Board of
Trustees. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Investments in U.S. Government obligations are
valued at the mean between quoted bid and asked prices. Short-term investments
are carried at amortized cost, which approximates value.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income (including, where applicable, amortization of discount on short-term
investments) is recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
The Fund has an unused capital loss carryover of approximately $7,445,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to December 31, 1996. If not
applied, the carryover expires in fiscal 2002.
PREMIER GNMA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-BANK LINE OF CREDIT:
The Fund 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. For the period ended December 31, 1996, the Fund did not
borrow under the line of credit.
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 .55 of 1% of the value
of the Fund's average daily net assets and is payable monthly.
(B) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the
Act, the Fund pays the Distributor for distributing the Fund's Class B and
Class C shares at an annual rate of .50 of 1% of the value of the average
daily net assets of Class B shares and .75 of 1% of the value of the average
daily net assets of Class C shares. During the period ended December 31,
1996, $203,650 was charged to the Fund for the Class B shares and $107 was
charged to the Fund for the Class C shares.
(C) Under the Shareholder Services Plan, the Fund pays the Distributor at
an annual rate of .25 of 1% of the value of the average daily net assets of
Class A, Class B and Class C shares for the provision of certain services.
The services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Fund and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents (a securities dealer, financial institution or other industry
professional) in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. During the period ended December 31,
1996, $305,644, $101,825 and $35 were charged to Class A, B and C shares,
respectively, by the Distributor pursuant to the Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such
compensation amounted to $108,684 during the period ended December 31, 1996.
Effective May 29, 1996, the Fund entered into a custody agreement with
Mellon to provide custodial services for the Fund. During the period ended
December 31, 1996, $27,242 was charged to Mellon pursuant to the custody
agreement.
(D) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the period
ended December 31, 1996, amounted to $445,918,587 and $414,312,666,
respectively.
At December 31, 1996, accumulated net unrealized appreciation on
investments was $1,015,255, consisting of $1,865,966 gross unrealized
appreciation and $850,711 gross unrealized depreciation.
At December 31, 1996, 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).
PREMIER GNMA FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER GNMA FUND
We have audited the accompanying statement of assets and liabilities of
Premier GNMA Fund, including the statement of investments, as of December 31,
1996, 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. Our procedures included verification by
examination of securities held by the custodian as of December 31, 1996 and
confirmation 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 Premier GNMA Fund at December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated years, in conformity with generally accepted accounting
principles.
[Ernst & Young LLP signature logo]
New York, New York
February 7, 1997
Premier GNMA Fund
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 027/614AR9612
Annual Report
Premier
GNMA Fund
December 31, 1996
[Lion2hres logo]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN PREMIER GNMA FUND CLASS A SHARES AND THE LEHMAN
BROTHERS GNMA INDEX
EXHIBIT A:
LEHMAN BROTHERS PREMIER
PERIOD GNMA GNMA FUND
INDEX * (CLASS A SHARES)
1/29/87 10,000 9,552
12/31/87 10,298 10,006
12/31/88 11,205 11,302
12/31/89 12,963 12,716
12/31/90 14,333 14,060
12/31/91 16,633 16,229
12/31/92 17,866 17,284
12/31/93 19,041 18,701
12/31/94 18,755 18,158
12/31/95 21,953 20,959
12/31/96 23,167 21,850
*Source: Lehman Brothers
