Dreyfus
BASIC
GNMA
Fund
Annual Report
December 31, 1997
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to report the performance for Dreyfus BASIC GNMA Fund for the
12-month period ended December 31, 1997. Your Fund produced a total return of
9.55%* compared to 9.53% for the Lehman Brothers GNMA Index.** Income dividends
paid from net investment income during the 12-month period amounted to
approximately $0.986 per share, representing a distribution rate per share of
6.34%.***
ECONOMIC REVIEW
Inflation seems to have lost its terrors. Not since the oil price collapse in
1986 has it been so restrained. As the economy approached the end of its
seventh consecutive year of expansion, inflation seemed to become even more
subdued. During the last quarter of 1997, the rate of increases in consumer
prices fell below the 2% level. Producer prices actually fell at an annual rate
of 1.2% over the first 11 months of the year.
An ongoing fear in financial markets has been that the Federal Reserve
Board's (the "Fed") unremitting fight against inflation could lead to further
increases in interest rates. Yet the Federal Open Market Committee (FOMC), the
policy-making arm of the Fed, has raised interest rates just once in over two
years, a period roughly coinciding with the latest surge of economic growth. The
last increase occurred on March 25, 1997 when the FOMC increased the Federal
Funds rate by a modest one quarter of a percentage point to 5.50%. (The Federal
Funds rate is the rate of interest that banks charge one another for overnight
loans.) Investor concern about additional monetary restraint centers on the low
unemployment rate of just 4.6%, a 24-year low as of the fourth quarter of 1997.
In particular, there were fears that wages would rise at a rate that could
rekindle inflation.
Not surprisingly, an almost ideal economic climate -- plentiful jobs, low
interest rates and dwindling inflation -- has put consumers in an ebullient
mood. Though holiday retail sales were below expectations, spending in the third
quarter grew at the strongest pace in five years. Since consumer spending
accounts for two thirds of all economic activity, consumer attitudes are
important indicators of future economic conditions. The Conference Board (a
business-sponsored research group) reported in December that its Index of
Consumer Confidence rose to its highest level since 1969. So far, the serious
economic developments in Asia have not had an inhibiting effect on consumer
attitudes.
The Asian financial crisis, while bound to affect the import/export segment
of our economy, may also afford the Fed additional flexibility in implementing
monetary policy. While the Fed is concerned about the potential resurgence of
inflation, lower-priced Asian imports may counteract upward pressure on the rate
of U.S. inflation. Moreover, with our economic expansion mature by any
historical precedent (it's the second longest peacetime expansion in this
century), a slackening in overseas demand for U.S. products, combined with the
lower-priced imports, may help contain economic growth without additional
monetary tightening by the Fed. Regardless, we believe that given current market
conditions, it is unlikely that the Fed would raise interest rates and further
unsettle the international financial markets while Asian countries struggle to
stabilize their currencies in relation to the U.S. dollar. Perhaps the biggest
uncertainty ahead is the extent to which the Asian turmoil will affect the U.S.
economy. We are particularly vigilant for developments abroad that might have
either negative or positive consequences for the Fund. The trouble in Asia shows
the close and sensitive relationship between our economy and the economies
around the globe.
MARKET ENVIRONMENT
The fourth quarter of 1997 was a pivotal time for interest rates. The 10-year
Treasury note managed to cross the 6.00% level (generally considered a
psychological barrier), ending the quarter at 5.74%. This is the lowest absolute
level of rates seen since October 1993. The decline in rates occurred largely
due to pressure from international markets. October saw a 50% correction to the
Hong Kong stock market, which triggered a general flight-to-quality movement
among asset allocators, taking place worldwide. Hence many worried investors
sought the credit protection and capital protection of the U.S. Treasury market.
As U.S. Treasuries rallied to new lows in interest rates, so did corporate
bonds and mortgage-backed securities. In general, mortgage-backed securities
performed strongly, with the Salomon Brothers Mortgage Index posting a 2.35%
gain for the fourth quarter. While values increased, the spread over U.S.
Treasuries on both mortgage-backed securities and corporate bonds widened. This
lag typically occurs when the market begins to demand a higher yield spread for
taking on either corporate credit or mortgage prepayment risk. In line with the
market trend, spreads on both GNMAs and CMOs were wider by 10 to 25 basis points
versus comparable-term U.S. Treasuries. With the Mortgage Bankers Association
refinancing index (a forward-looking indicator) also hitting an all-time high,
mortgage-backed securities investors continued to sell these securities in favor
of prepayment protected fixed-income securities.
<PAGE>
PORTFOLIO OVERVIEW
The Fund is currently positioned for both a continued rally in the U.S.
Treasury market, as well as a wave of mortgage prepayments. Accordingly, we have
increased the duration of the entire fund to be 10% longer than the Lehman
Brothers GNMA Index. Hence the duration of the Fund was 3.35 years at the end
of the year.
Also, in order to position the Fund to take advantage of the oncoming
prepayment wave, we have sought to invest in more call-protected mortgage
products. So we added to the Fund's commercial mortgaged-backed securities,
which have at least 5 years of lockout from any type of prepayment. These
securities have tightened versus U.S. Treasuries during the fourth quarter as
investor demand for high yielding, call-protected mortgage-backed securities
increased.
We have also added to the Fund's non-agency mortgage positions, most notably
in both single A and BBB rated residential and commercial mortgage-backed
securities. These securities trade at a discount to par, and several of the
underlying loans in the commercial mortgage-backed securities have prepayment
lockouts for up to 10 years. If the market continues to rally, we would expect
these securities to maintain their yields, while collateral would underperform
due to loan prepayments. Since these securities also offer a higher yield and a
better structure than fixed rate agency GNMA collateral, we continue to add
these to the Fund's investments.
Lastly, we have also added adjustable rate GNMA securities to the Fund. In
this market, we have chosen the discount GNMA 5.5% and 6% new issue pools. At
their discount dollar price, they will benefit the Fund if mortgage prepayments
continue to rise, and they offer an attractive yield for short duration
securities. We purchased these securities while decreasing the Treasury holdings
of the Fund. They are also expected to perform strongly if interest rate
volatility decreases, which we think could happen if investors start to see
signs that the Asian markets are beginning to stabilize.
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,
/S/ MICHAEL HOEH
Michael Hoeh
Portfolio Manager
January 20, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** SOURCE: Lehman Brothers--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, divided by the net asset value per
share at the end of the period, adjusted for capital gain distributions.
<PAGE>
Dreyfus BASIC GNMA Fund December 31, 1997
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS BASIC GNMA FUND
AND THE LEHMAN BROTHERS GNMA INDEX
Dollars
$24,640
Lehman Brothers
GNMA Index*
$22,750
Dreyfus
BASIC GNMA Fund
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN DREYFUS BASIC GNMA FUND AND
THE LEHMAN BROTHERS GNMA INDEX
EXHIBIT A:
LEHMAN
BROTHERS DREYFUS
PERIOD GNMA BASIC
INDEX * GNMA FUND
12/31/87 10,000 10,000
12/31/88 10,880 11,056
12/31/89 12,587 11,987
12/31/90 13,918 13,015
12/31/91 16,151 14,745
12/31/92 17,348 15,779
12/31/93 18,489 17,160
12/31/94 18,211 16,991
12/31/95 21,317 19,814
12/31/96 22,496 20,768
12/31/97 24,640 22,750
*Source: Lehman Brothers
*Source: Lehman Brothers
Average Annual Total Returns
- -------------------------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
December 31, 1997 December 31, 1997 December 31, 1997
----------------- ----------------- -----------------
9.55% 7.59% 8.57%
- --------------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus BASIC GNMA Fund on
12/31/87 to a $10,000 investment made in the Lehman Brothers GNMA Index on that
date. All dividends and capital gain distributions are reinvested.
The Fund invests primarily in Ginnie Maes and its performance shown in the line
graph takes into account all applicable fees and expenses. Unlike the Fund, the
Lehman Brothers GNMA Index is an unmanaged total return performance benchmark
for the GNMA market, consisting of 15- and 30-year fixed-rate GNMA securities.
All issues have at least one year to maturity and an outstanding par value of at
least $100 million. The Index does not take into account charges, fees and other
expenses. These factors can contribute to the Index potentially outperforming
the Fund. Further information relating to Fund performance, including expense
reimbursements, if applicable, is contained in the Financial Highlights section
of the Prospectus and elsewhere in this report.
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Investments December 31, 1997
Principal
Bonds and Notes--115.3% Amount Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
U.S. Government Agencies/
Mortgage-Backed Securities--92.2%
Government National Mortgage Association I:
6 1/2%, 10/15/2010-6/15/2011................................................ $ 3,448,186 $ 3,471,731
7%, 6/15/2009............................................................... 891,823 (a) 915,630
7 1/2%, 9/15/2021-12/15/2027................................................ 7,437,538 7,645,520
7 1/2%, 12/15/2023.......................................................... 459,522 (a) 472,875
8%, 4/15/2008-9/15/2008..................................................... 3,383,352 (a) 3,556,928
8%, 1/15/2022-4/15/2022..................................................... 535,333 559,742
8 1/2%, 2/15/2005-3/15/2022................................................. 1,760,893 1,873,599
9%, 5/15/2016-11/15/2022.................................................... 1,542,039 1,674,181
9 1/2%, 1/15/2017-12/15/2021................................................ 820,463 894,287
9 1/2%, 11/15/2017.......................................................... 536,454 (a) 589,091
------------
21,653,584
------------
Government National Mortgage Association I,
Project Loans:
6 3/4%, 1/15/2034........................................................... 489,734 (a) 490,958
7%, 4/15/2037............................................................... 998,168 (a) 1,015,008
7 1/8%, 10/15/2032.......................................................... 499,629 (a) 513,369
7 1/2%, 8/15/2032........................................................... 769,292 (a) 803,187
9 1/4%, 10/15/2023.......................................................... 947,774 (a) 1,024,183
------------
3,846,705
------------
Government National Mortgage Association II:
5 1/2%...................................................................... 13,500,000 (b,c) 13,483,125
6%.......................................................................... 1,500,000 (b,c) 1,511,250
7%, 12/20/2025-9/20/2027.................................................... 7,267,747 7,307,482
9%, 3/20/2016-7/20/2025..................................................... 1,475,808 1,577,334
9 1/2%, 9/20/2021-12/20/2021................................................ 259,658 280,853
------------
24,160,044
------------
Government National Mortgage Association I,
Real Estate Mortgage Investment Conduit,
Collateralized Mortgage Obligations,
Ser. 1997-4, Cl. G, 7 1/2%, 11/16/2024...................................... 1,000,000 (a) 1,023,320
------------
Government National Mortgage Association II,
Real Estate Mortgage Investment Conduit,
Collateralized Mortgage Obligations,
Ser. 1997-2, Cl. K, 7 1/2%, 1/20/2024....................................... 2,780,000 (a) 2,834,766
------------
</TABLE>
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Investments (continued) December 31, 1997
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,
Collateralized Mortgage Obligations:
Ser. 128, Cl. H, 8 3/4%, 9/15/2019....................................... $ 171,921 (a) $ 172,470
Ser. 1030, Cl. E, 9%, 3/15/2019.......................................... 178,270 (a) 179,274
Ser. 1092, Cl. J, 8 1/2%, 5/15/2020...................................... 1,000,000 (a) 1,027,840
Stripped Securities, Interest Only Class:
Ser. 1499, Cl. E, 7%, 4/15/2023.......................................... 864,285 (a,d) 491,683
Ser. 1541, Cl. FA, 7%, 5/15/2019......................................... 4,904,658 (a,d) 1,017,863
Ser. 1547, Cl. B, 7%, 2/15/2022......................................... 1,750,000 (a,d) 436,660
Ser. 1583, Cl. ID, 7%, 2/15/2023......................................... 5,059,464 (a,d) 1,830,261
Ser. 1590, Cl. JA, 6 1/2%, 10/15/2021.................................... 6,000,000 (a,d) 1,544,580
Ser. 1596, Cl. L, 6 1/2%, 12/15/2012..................................... 1,800,000 (a,d) 394,362
Ser. 1916, Cl. PI, 7%, 12/15/2011........................................ 1,437,699 (a,d) 336,192
Ser. 1999, Cl. PW, 7%, 8/15/2026......................................... 1,434,384 (a,d) 369,354
------------
7,800,539
------------
Federal National Mortgage Association:
6.94%....................................................................... 4,300,000 (b) 4,365,844
Real Estate Mortgage Investment Conduit,
Collateralized Mortgage Obligations,
Ser. G 1993-35, Cl. G, 6%, 3/25/2019..................................... 1,500,000 1,488,516
Stripped Securities, Interest Only Class:
Ser. 1993-61, Cl. N, 7%, 3/25/2022....................................... 7,218,166 (d) 1,863,369
Ser. 1993-137, Cl. PT, 7%, 6/25/2022..................................... 4,000,000 (d) 1,009,080
------------
8,726,809
------------
Total U.S. Government Agencies/
Mortgage-Backed Securities..................................................... 70,045,767
============
U.S. Government--5.1%
U.S. Treasury Bonds:
6 1/8%, 11/15/2027.......................................................... 2,000,000 2,056,250
6 1/8%, 11/15/2027.......................................................... 1,000,000 (a) 1,028,125
U.S. Treasury Notes,
6 1/8%, 8/15/2007........................................................... 750,000 (a) 770,977
------------
Total U.S. Government.......................................................... 3,855,352
============
</TABLE>
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Investments (continued) December 31, 1997
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Commercial Mortgage-Backed Securities--6.1%
GS Mortgage Securities Corp. II,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-GL, Cl. G, 7.821%, 2030........................................... $ 2,000,000 (c) $ 2,121,250
Merrill Lynch Mortgage Investors,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-SD1, Cl. E, 6.687%, 2010.......................................... 1,500,000 1,501,875
Mortgage Capital Funding,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-MC2, Cl. C, 6.881%, 2007.......................................... 1,000,000 1,005,313
------------
Total Commercial Mortgage-Backed Securities.................................... 4,628,438
============
Residential Mortgage-Backed Securities--11.9%
Norwest Asset Securities,
Mortgage Pass-Through Ctfs.:
Ser. 1997-3:
Cl. B1, 7 1/4%, 2027..................................................... 2,480,953 2,511,964
Cl. B2, 7 1/4%, 2027..................................................... 992,380 992,071
Ser. 1997-7, Cl. B2, 7%, 2027............................................... 794,993 783,592
Ser. 1997-9, Cl. B2, 7%, 2012............................................... 465,948 468,166
Ser. 1997-15, Cl. B2, 6 3/4%, 2012.......................................... 674,682 663,296
Residential Accredit Loans,
Mortgage Asset-Backed Pass-Through Ctfs.,
Ser. 1997-QS6:
Cl. M2, 7 1/2%, 2012..................................................... 1,046,019 1,073,561
Cl. M3, 7 1/2%, 2012..................................................... 679,907 690,508
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs.:
Ser. 1997-S11, Cl. M3, 7%, 2012............................................. 765,488 769,201
Ser. 1997-S19, Cl. M3, 6 1/2%, 2012......................................... 691,000 671,566
Ser. 1997-S21, Cl. M3, 6 1/2%, 2012......................................... 399,400 387,044
------------
Total Residential Mortgage-Backed Securities................................... 9,010,969
============
TOTAL BONDS AND NOTES
(cost $86,683,747).......................................................... $87,540,526
============
</TABLE>
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Investments (continued) December 31, 1997
Principal
Short-Term Investments--9.6% Amount Value
- ------------------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Repurchase Agreements:
Lanston (Aubrey G.) & Co., Inc., 5 1/4%
Dated 12/31/1997, Due 1/2/1998 in the amount of $7,302,129 (fully
collateralized by $7,310,000 U.S. Treasury Notes, 5 1/8%, 3/31/1998, value
$7,401,149)
(cost $7,300,000)........................................................... $ 7,300,000 $ 7,300,000
=============
TOTAL INVESTMENTS
(cost $93,983,747).......................................................... 124.9% $ 94,840,526
======= =============
LIABILITIES, LESS CASH AND RECEIVABLES......................................... (24.9%) $ (18,910,711)
======= =============
NET ASSETS..................................................................... 100.0% $ 75,929,815
======= =============
<FN>
Notes to Statement of Investments:
- ------------------------------------------------------------------------------
(a) Held by the custodian in a segregated account as collateral for securities
purchased on a forward commitment basis.
(b) Purchased on a forward commitment basis.
(c) Adjustable rate mortgage-interest rate subject to change periodically.
(d) Reflects notional face.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Statement of Securities Sold Short December 31, 1997
Principal
Bonds--2.7% Amount Value
- ------------------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
U.S. Government Agencies/
Mortgage-Backed Securities:
Federal Home Loan Mortgage Corp., 7 1/2%
(proceeds $2,048,021)....................................................... $ 2,000,000 $ 2,046,240
============
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Assets and Liabilities December 31, 1997
Cost Value
------------ -------------
<S> <C> <C> <C>
ASSETS: Investments in securities--
See Statement of Investments--Note 1(b)........ $93,983,747 $94,840,526
Receivable for investment securities sold........ 7,328,491
Receivable from brokers for proceeds on securities
sold short 2,048,021
Interest receivable.............................. 705,615
Receivable for shares of Beneficial Interest subscribed 150,526
Paydowns receivable.............................. 32,720
Prepaid expenses................................. 6,880
Due from The Dreyfus Corporation and affiliates.. 34,819
-------------
105,147,598
-------------
LIABILITIES: Payable for investment securities purchased...... 26,674,775
Securities sold short, at value (proceeds $2,048,021)--
see statement.................................. 2,046,240
Cash overdraft due to Custodian.................. 298,155
Payable for shares of Beneficial Interest redeemed 129,210
Accrued expenses................................. 69,403
-------------
29,217,783
-------------
NET ASSETS..................................................................... $ 75,929,815
=============
REPRESENTED BY: Paid-in capital.................................. $ 74,778,745
Accumulated undistributed investment income-net.. 1,900
Accumulated net realized gain (loss) on investments 295,193
Accumulated net unrealized appreciation (depreciation)
on investments and securities sold short--Note 4(b) 853,977
-------------
NET ASSETS..................................................................... $ 75,929,815
=============
SHARES OUTSTANDING
(unlimited number of $.001 par value shares of Beneficial Interest authorized). 4,954,655
NET ASSET VALUE, offering and redemption price per share....................... $15.32
=======
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Operations Year Ended December 31, 1997
INVESTMENT INCOME
<S> <C> <C>
INCOME Interest Income............................ $4,464,347
EXPENSES: Management fee--Note 3(a).................. $ 376,576
Shareholder servicing costs--Note 3(b)..... 120,778
Registration fees.......................... 42,419
Trustees' fees and expenses--Note 3(c)..... 37,294
Auditing fees.............................. 28,475
Custodian fees--Note 3(b).................. 23,544
Legal fees................................. 15,954
Prospectus and shareholders' reports....... 12,120
Loan commitment fees--Note 2............... 580
Miscellaneous.............................. 12,244
----------
Total Expenses........................... 669,984
Less--reduction in management fee due to
undertaking--Note 3(a)................... (261,446)
----------
Net Expenses............................. 408,538
----------
INVESTMENT INCOME--NET................................................... 4,055,809
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments.... $ 954,499
Net unrealized appreciation (depreciation)
on investments and securities sold short. 776,447
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS................... 1,730,946
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $5,786,755
==========
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Investment income--net................................................. $ 4,055,809 $ 3,590,074
Net realized gain (loss) on investments................................ 954,499 560,242
Net unrealized appreciation (depreciation) on investments.............. 776,447 (1,566,344)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... 5,786,755 2,583,972
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net................................................. (4,053,909) (3,609,453)
Net realized gain on investments....................................... (1,027,054) --
------------ ------------
Total Dividends..................................................... (5,080,963) (3,609,453)
------------ ------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold.......................................... 31,673,859 18,750,779
Dividends reinvested................................................... 3,692,556 2,422,189
Cost of shares redeemed................................................ (17,807,854) (18,096,600)
------------ ------------
Increase (Decrease) in Net Assets from Beneficial Interest Transactions 17,558,561 3,076,368
------------ ------------
Total Increase (Decrease) in Net Assets.......................... 18,264,353 2,050,887
NET ASSETS:
Beginning of Period.................................................... 57,665,462 55,614,575
------------ ------------
End of Period.......................................................... $ 75,929,815 $57,665,462
============ ============
Undistributed investment income-net.................................... $ 1,900 --
============ ============
Shares Shares
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................ 2,070,281 1,243,306
Shares issued for dividends reinvested................................. 241,976 161,081
Shares redeemed........................................................ (1,167,399) (1,200,815)
------------ ------------
Net Increase (Decrease) in Shares Outstanding....................... 1,144,858 203,572
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
PER SHARE DATA: 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $15.14 $15.42 $14.16 $15.39 $15.20
------ ------ ------ ------ ------
Investment Operations:
Investment income--net............................ .99 .98 1.03 1.08 1.11
Net realized and unrealized gain (loss) on investments .41 (.27) 1.25 (1.23) .19
------ ------ ------ ------ ------
Total from Investment Operations.................. 1.40 .71 2.28 (.15) 1.30
------ ------ ------ ------ ------
Distributions:
Dividends from investment income--net............. (.99) (.99) (1.02) (1.08) (1.11)
Dividends from net realized gain on investments... (.23) -- -- -- --
------ ------ ------ ------ ------
Total Distributions............................... (1.22) (.99) (1.02) (1.08) (1.11)
------ ------ ------ ------ ------
Net asset value, end of period.................... $15.32 $15.14 $15.42 $14.16 $15.39
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN.............................. 9.55% 4.81% 16.62% (.99%) 8.75%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets........... .65% .65% .50% .06% --
Ratio of net investment income to average net assets 6.46% 6.50% 6.86% 7.34% 7.15%
Decrease reflected in above expense ratios due to
undertakings by the Manager.................... .42% .52% .78% 1.43% 1.28%
Portfolio Turnover Rate........................... 534.25% 332.96% 254.36% 290.20% 34.02%
Net Assets, end of period (000's Omitted)......... $75,930 $57,665 $55,615 $44,937 $54,224
</TABLE>
See notes to financial statements.
<PAGE>
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 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. is 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: Investments in securities (excluding U.S. Government
obligations and short-term investments) are valued each business day by an
independent pricing service ("Service") approved by the Board of 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, if any,
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.
<PAGE>
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 $600 million
redemption credit facility ("Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended
December 31, 1997, the Fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management 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 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 taxes, brokerage, interest on borrowings, commitment fees and extraordinary
expenses) 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 $261,446 during the period ended December 31, 1997.
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) Under the 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, 1997, the Fund was charged $57,000 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. During the period
ended December 31, 1997, the Fund was charged $24,827 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement to provide custodial
services for the Fund. During the period ended December 31, 1997, the Fund was
charged $23,544 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.
<PAGE>
Dreyfus BASIC GNMA Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4--Securities Transactions:
(a) The following summarizes the aggregate amount of purchases and sales
(including paydowns) of investment securities and securities sold short,
excluding short-term securities, during the period ended December 31, 1997:
Purchases Sales
------------- -------------
Long transactions........................... $426,777,634 $409,838,149
Short sale transactions..................... -- 2,043,438
------------- -------------
Total.................................... $426,777,634 $411,881,587
============= =============
The Fund is engaged in short-selling which obligates the Fund to replace the
security borrowed by purchasing the security at current market value. The Fund
would incur a loss if the price of the security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
The Fund would realize a gain if the price of the security declines between
those dates. Until the Fund replaces the borrowed security, the Fund will
maintain daily, a segregated account with the custodian, of cash and /or U.S.
Government securities sufficient to cover its short position. Securities sold
short at December 31, 1997, and their related market values and proceeds are
set forth in the Statement of Securities Sold Short.
(b) At December 31, 1997, accumulated net unrealized appreciation on
investments and securities sold short was $853,977, consisting of $1,351,036
gross unrealized appreciation and $497,059 gross unrealized depreciation.
At December 31, 1997, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
<PAGE>
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 statements of investments and securities
sold short, as of December 31, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the years
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held by the custodian as of December 31, 1997 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, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the indicated
years, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 5, 1998
Important Tax Information (Unaudited)
For Federal tax purposes the Fund hereby designates $.042 per share as a
long-term capital gain distribution of the $.088 per share paid on August 29,
1997.
<PAGE>
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. 080AR9712
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN DREYFUS BASIC GNMA FUND AND
THE LEHMAN BROTHERS GNMA INDEX
EXHIBIT A:
LEHMAN
BROTHERS DREYFUS
PERIOD GNMA BASIC
INDEX * GNMA FUND
12/31/87 10,000 10,000
12/31/88 10,880 11,056
12/31/89 12,587 11,987
12/31/90 13,918 13,015
12/31/91 16,151 14,745
12/31/92 17,348 15,779
12/31/93 18,489 17,160
12/31/94 18,211 16,991
12/31/95 21,317 19,814
12/31/96 22,496 20,768
12/31/97 24,640 22,750
*Source: Lehman Brothers
