DREYFUS BASIC GNMA FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus Basic GNMA
Fund. For its annual reporting period ended December 31, 1996, your Fund
produced a total return of 4.81%*, as compared to the Lehman Brothers GNMA
Index total return of 5.53% for the same period. ** Income dividends of
approximately $.985 per share were paid, which is equivalent to an annualized
distribution rate per share of 6.45%.***
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.
During the fiscal year, inflation at the consumer level of the economy
remained in the 3% range, and was 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 0.1% in November and a mere
0.6% 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 remained 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 appeared to have underlying
strength: monthly increases in workers added to payrolls moved 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 yields remained stable; the yield on the
30-year Treasury remained in a trading range of 75 basis points. One of the
more technical aspects stabilizing interest rates was an inflow of demand
from foreign investors. In particular, Japanese investors more than doubled
their investment in the U.S. bond markets over the last half of 1996. With
the Dollar/Yen exchange rates aiding this flow, our expectations are for
continued stability in U.S. interest rates. Additionally, if the Federal
Reserve remains on the sidelines for the first quarter of 1997 as it did in
1996, this should cause interest rate volatility to trend lower.
1996 was a year when investors continued to demand higher yielding
assets. Investors turned to mortgage securities because stable long-term
interest rates and lower volatility created a favorable environment. With
interest rates remaining
in a tight range, there was less incentive for homeowners to refinance their
mortgages. Homeowner loan refinancings are the primary contributor of
mortgage prepayments. Therefore less homeowner refinancing creates more
stable yields and greater demand for mortgage securities. This increased
demand for mortgage securities occurred during a year when the supply was
low.
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. The
portfolio is positioned with expectations that demand from overseas will
continue to sustain the 10- and 30-year Treasury rates and that the yield
curve will also flatten. We have increased our total mortgage holdings. Also,
the duration of the Fund was increased to 4.72, approximately one year longer
in duration than the Lehman Brothers GNMA Index at 3.69. 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 30-year 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, on December 31, 1996, the Fund held a 15% weighting in GNMA II
5.50% ARMS and a 3% weighting in GNMA II 5.00% ARMS. These are discount
dollar-priced securities where their coupon adjusts annually based on the
level of the one-year constant maturity U.S. Treasury plus a 150 basis-point
margin. For a low duration product, in our opinion, GNMA II ARMS offer a very
attractive yield. These securities tend to have short durations and we
believe could pose less interest rate risk to the investor than fixed rate
mortgage securities. Additionally, GNMA II ARMS have historically increased
in value when interest rate volatility has declined and the yield curve has
flattened. To purchase these positions we utilized cash and we also sold a
combination of seasoned 30-year GNMA 7% and seasoned 15-year GNMA 7%.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We appreciate your continued
confidence in the Fund and in The Dreyfus Corporation.
Very truly yours,
(Garitt A. Kono.Signature Logo)
Garitt A. Kono
Portfolio Manager
January 15, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
**SOURCE: LIPPER ANALYTICAL SERVICES, INC. _ 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 securities backed
by mortgage pools of the Government National Mortgage Association.
*** Distribution rate per share is based upon dividends per share paid
from net investment income during the period (annualized), divided by the net
asset value per share at the end of the period.
<TABLE>
<CAPTION>
DREYFUS BASIC GNMA FUND DECEMBER 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS BASIC GNMA
FUND AND
THE LEHMAN BROTHERS GNMA INDEX
$23,185
Lehman Brothers
GNMA Index*
Dollars
$21,546
Dreyfus BASIC GNMA
Fund
*Source: Lehman Brothers
Average Annual Total Returns
One Year Ended Five Years Ended From Inception (8/5/87)
December 31, 1996 December 31, 1996 to December 31, 1996
------------------- ------------------- -------------------------
<S> <C> <C>
4.81% 7.09% 8.50%
</TABLE>
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus BASIC GNMA Fund
on 8/5/87 (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 7/31/87 is used as the beginning value on 8/5/87. All dividends and
capital gain distributions are reinvested.
The Fund invests primarily in Ginnie Maes and its performance shown in the
line graph takes into account all applicable fees and expenses. Unlike the
Fund, the Lehman Brothers GNMA Index is an unmanaged total return performance
benchmark for the GNMA market, consisting of 15- and 30-year fixed-rate GNMA
securities. All issues have at least one year to maturity and an outstanding
par value of at least $100 million. The Index does not take into account
charges, fees and other expenses. These factors can contribute to the Index
potentially outperforming the Fund. Further information relating to Fund
performance, including expense reimbursements, if applicable, is contained in
the Financial Highlights section of the Prospectus and elsewhere in this
report.
<TABLE>
<CAPTION>
DREYFUS BASIC GNMA FUND
STATEMENT OF INVESTMENTS DECEMBER 31, 1996
Principal
Bonds and Notes_121.4% Amount Value
------------ -----------
<S> <C> <C>
Mortgage-Backed Securities_97.2%
Government National Mortgage Association I:
6 1/2% (a)................................................................ $ 3,500,000 $ 3,328,255
7 1/2% (a)................................................................ 3,500,000 3,492,335
7 1/2%, 8/15/2025 (b)..................................................... 3,615,723 3,632,641
7 1/2%, 11/15/2010-7/15/2023.............................................. 4,061,643 4,110,681
8%, 2/15/2025 (b)......................................................... 2,191,161 2,245,244
8%, 6/15/2017-4/15/2022................................................... 867,632 892,382
8 1/2%, 8/15/2018-3/15/2022............................................... 1,913,590 2,003,424
9%, 5/15/2016-11/15/2022.................................................. 2,011,988 2,145,790
9 1/2%, 1/15/2017-12/15/2021.............................................. 1,702,949 1,850,091
------------
23,700,843
------------
Government National Mortgage Association II:
5% (a,c).................................................................. 1,000,000 975,000
5 1/2% (a,c).............................................................. 8,933,001 8,847,783
9%, 3/20/2016-7/20/2025................................................... 2,130,367 2,233,802
9 1/2%, 9/20/2021-12/20/2021.............................................. 321,167 346,482
------------
12,403,067
------------
Government National Mortgage Association I,
Project Loan:
7%, 4/15/2021-1/15/2036................................................... 1,884,972 1,836,969
7 1/8% (a)................................................................ 2,000,000 1,965,000
7 1/4% (a)................................................................ 8,718,200 8,628,228
9 1/4%, 10/15/2023........................................................ 955,904 1,021,919
------------
13,452,116
------------
Federal Home Loan Mortgage Corp.,
Real Estate Mortgage Investment Conduit:
Ser. 86, Cl. F,
9%, 10/15/2020 (b)...................................................... 300,000 324,780
Ser. 128, Cl. H,
8 3/4%, 9/15/2019 (b)................................................... 440,282 447,653
Ser. 1030, Cl. E,
9%, 3/15/2019 (b)....................................................... 480,469 490,064
Ser. 1092, Cl. J,
8 1/2%, 5/15/2020 (b)................................................... 1,000,000 1,032,660
Ser. 1455, Cl. K,
7%, 6/15/2020 (b)....................................................... 1,500,000 1,483,875
------------
3,779,032
------------
Federal National Mortgage Association:
7.13%, 1/1/2012........................................................... 2,500,000 2,500,000
Real Estate Mortgage Investment Conduit;
Cl. G27-E,
8 1/2%, 2/25/2018 (b)................................................... 181,824 181,878
------------
2,681,878
------------
Total Mortgage-Backed Securities............................................ 56,016,936
============
DREYFUS BASIC GNMA FUND
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
Principal
Bonds and Notes (continued) Amount Value
-------------- -------------
U.S. Treasury Notes_24.2%
5 3/4%, 12/31/1998 (b).................................................... $ 7,000,000 $ 6,984,141
6 1/8%, 12/31/2001 (b).................................................... 7,000,000 6,974,844
------------
13,958,985
============
TOTAL BONDS AND NOTES
(cost $69,898,391)........................................................ $ 69,975,921
============
Short-Term Investments_25.3%
Repurchase Agreements:
Lanston (Aubrey G.) & Co., Inc., 5 3/4%
Dated 12/31/1996, Due 1/2/1997 in the amount of $7,302,332 (fully
collateralized
by $7,291,000 U.S. Treasury Notes, 6 1/2%, 4/30/1997, value $7,394,952) (b) $ 7,300,000 $ 7,300,000
Nikko Securties Co. International, Inc., 5 3/4%
Dated 12/31/1996, Due 1/2/1997 in the amount of $7,302,332 (fully
collateralized
by $7,372,000 U.S. Treasury Notes, 5 3/8%, 11/30/1997, value $7,372,279) (b) 7,300,000 7,300,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $14,600,000)........................................................ $ 14,600,000
============
TOTAL INVESTMENTS
(cost $84,498,391)........................................................ 146.7% $ 84,575,921
====== =============
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (46.7%) $(26,910,459)
====== =============
NET ASSETS.................................................................. 100.0% $ 57,665,462
====== =============
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.
DREYFUS BASIC GNMA FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
Cost Value
-------------- -------------
ASSETS: Investments in securities_Note 1(a,b)
(including Repurchase Agreements of $14,600,000) $ 84,498,391 $ 84,575,921
Cash....................................... 258,112
Receivable for investment securities sold.. 24,875,382
Interest receivable........................ 315,141
Receivable for shares of Beneficial Interest subscribed 98,959
Paydowns receivable........................ 21,218
Prepaid expenses........................... 15,970
------------
110,160,703
------------
LIABILITIES: Due to The Dreyfus Corporation and affiliates 47,522
Payable for investment securities purchased 52,317,278
Payable for shares of Beneficial Interest redeemed 74,117
Accrued expenses........................... 56,324
------------
52,495,241
------------
NET ASSETS.................................................................. $ 57,665,462
==============
REPRESENTED BY: Paid-in capital............................ $ 57,220,184
Accumulated net realized gain (loss) on investments 367,748
Accumulated net unrealized appreciation (depreciation)
on investments_Note 4...................... 77,530
------------
NET ASSETS.................................................................. $ 57,665,462
==============
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST
AUTHORIZED) ........................................... 3,809,797
NET ASSET VALUE, offering and redemption price per share.................... $15.14
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS BASIC GNMA FUND
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
INCOME Interest Income............................ $ 3,949,047
EXPENSES: Management fee_Note 3(a)................... $ 331,359
Shareholder servicing costs_Note 3(b)...... 179,207
Trustees' fees and expenses_Note 3(c)...... 37,107
Audit fees................................. 25,640
Custodian fees_Note 3(b)................... 20,301
Registration fees.......................... 19,357
Legal fees................................. 17,575
Prospectus and shareholders' reports....... 3,570
Miscellaneous.............................. 13,585
-----------
Total Expenses....................... 647,701
Less_reduction in management fee due to
undertaking_Note 3(a).................. (288,728)
-----------
Net Expenses......................... 358,973
-----------
INVESTMENT INCOME_NET....................................................... 3,590,074
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS_Note 4:
Net realized gain (loss) on investments.... $ 560,242
Net unrealized appreciation (depreciation) on investments (1,566,344)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... (1,006,102)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 2,583,972
===========
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS BASIC GNMA FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 1996 December 31, 1995
------------------- -------------------
OPERATIONS:
Investment income_net.......................................... $ 3,590,074 $ 3,425,681
Net realized gain (loss) on investments........................ 560,242 1,605,147
Net unrealized appreciation (depreciation) on investments...... (1,566,344) 2,562,661
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations 2,583,972 7,593,489
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income_net.......................................... (3,609,453) (3,415,254)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold.................................. 18,750,779 22,533,965
Dividends reinvested........................................... 2,422,189 2,239,783
Cost of shares redeemed........................................ (18,096,600) (18,274,607)
-------------- --------------
Increase (Decrease) in Net Assets from Beneficial Interest Transactions 3,076,368 6,499,141
-------------- --------------
Total Increase (Decrease) in Net Assets.................... 2,050,887 10,677,376
NET ASSETS:
Beginning of Period............................................ 55,614,575 44,937,199
-------------- --------------
End of Period.................................................. $ 57,665,462 $ 55,614,575
============== ===============
UNDISTRIBUTED INVESTMENT INCOME_NET.............................. ___ $ 19,379
-------------- --------------
Shares Shares
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Shares sold.................................................... 1,243,306 1,509,390
Shares issued for dividends reinvested......................... 161,081 150,171
Shares redeemed................................................ (1,200,815) (1,227,891)
-------------- --------------
Net Increase (Decrease) in Shares Outstanding................ 203,572 431,670
============== ==============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC 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.
Year Ended December 31,
-------------------------------------------------------------
PER SHARE DATA: 1996 1995 1994 1993 1992
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $15.42 $14.16 $15.39 $15.20 $15.34
--------- --------- --------- --------- ----------
Investment Operations:
Investment income_net........................ .98 1.03 1.08 1.11 1.16
Net realized and unrealized gain (loss)
on investments............................. (.27) 1.25 (1.23) .19 (.14)
--------- --------- --------- --------- ----------
Total from Investment Operations............. .71 2.28 (.15) 1.30 1.02
--------- --------- --------- --------- ----------
Distributions:
Dividends from investment income_net......... (.99) (1.02) (1.08) (1.11) (1.16)
--------- --------- --------- --------- ----------
Net asset value, end of period............... $15.14 $15.42 $14.16 $15.39 $15.20
========= ========= ========= ========= ==========
TOTAL INVESTMENT RETURN.......................... 4.81% 16.62% (.99%) 8.75% 7.02%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... .65% .50% .06% _ _
Ratio of net investment income
to average net assets...................... 6.50% 6.86% 7.34% 7.15% 7.70%
Decrease reflected in above expense ratios
due to undertakings by the Manager......... .52% .78% 1.43% 1.28% 1.42%
Portfolio Turnover Rate...................... 332.96% 254.36% 290.20% 34.02% 30.99%
Net Assets, end of period (000's Omitted).... $57,665 $55,615 $44,937 $54,224 $45,280
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS BASIC GNMA FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus BASIC 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 an investor with as
high a level of current income as is consistent with the preservation of
capital by investing principally in instruments issued by the Government
National Mortgage Association. The Dreyfus Corporation ("Manager") serves as
the Fund's investment adviser. The Manager is a direct subsidiary of Mellon
Bank, N.A. ("Mellon"). Premier Mutual Fund Services, Inc. acts as the
distributor of the Fund's shares, which are sold to the public without a
sales charge.
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.
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: 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.
DREYFUS BASIC 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. During 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 .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 fiscal year the aggregate expenses of the Fund,
exclusive of taxes, brokerage, interest on borrowings and extraordinary
expenses, exceed the expense limitation of any state having jurisdiction over
the Fund, the Fund may deduct from the payment to be made to the Manager
under the Agreement, or the Manager will bear, such excess expense to the
extent required by state law. However, the Manager has undertaken through
June 30, 1998 to reduce the management fee paid by, or reimburse such excess
expenses of the Fund, to the extent that the Fund's aggregate annual expenses
(exclusive of certain expenses as described above) exceed an annual rate of
.65 of 1% of the value of the Fund's average daily net assets. The reduction
in management fee, pursuant to the undertaking, amounted to $288,728 during
the period ended December 31, 1996.
The undertaking may be extended, modified or terminated by the Manager,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager, an
amount not to exceed an annual rate of .25 of 1% of the value of the Fund's
average daily net assets for certain allocated expenses of providing personal
services and/or maintaining shareholder accounts. 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.
During the period ended December 31, 1996, the Fund was charged an aggregate
of $113,809 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 $47,334 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, $11,728 was charged to Mellon pursuant to the custody
agreement.
(C) 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 $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation and the Trustee Emeritus receives 50% of such compensation .
DREYFUS BASIC GNMA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $193,032,358 and $176,812,849,
respectively.
At December 31, 1996, accumulated net unrealized appreciation on
investments was $77,530, consisting of $608,421 gross unrealized appreciation
and $530,891 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).
DREYFUS BASIC GNMA FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS BASIC GNMA FUND
We have audited the accompanying statement of assets and liabilities of
Dreyfus BASIC 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 Dreyfus BASIC 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)
New York, New York
February 5, 1997
(Dreyfus Lion D Logo)
DREYFUS BASIC
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. 080AR9612
(Dreyfus Logo)
BASIC
GNMA
Fund
Annual Report
December 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN DREYFUS BASIC GNMA FUND AND
THE LEHMAN BROTHERS GNMA INDEX
EXHIBIT A:
LEHMAN BROTHERS
PERIOD GNMA DREYFUS BASIC
INDEX * GNMA FUND
8/5/87 10,000 10,000
12/31/87 10,306 10,374
12/31/88 11,213 11,470
12/31/89 12,972 12,436
12/31/90 14,344 13,503
12/31/91 16,646 15,296
12/31/92 17,879 16,370
12/31/93 19,056 17,803
12/31/94 18,769 17,627
12/31/95 21,970 20,556
12/31/96 23,185 21,546
*Source: Lehman Brothers
