DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on Dreyfus Strategic
Governments Income, Inc. for its six-month reporting period ended May 31,
1997. Your Fund produced a total return including bond price changes and
interest income of 2.01%,* and the annualized distribution rate per share is
9.81% for this period.**
Economic Review
Plentiful jobs and low inflation spurred consumer confidence to its
highest level in 27 years by the end of the reporting period, May 31, 1997.
Economic growth surged 5.6% in the first quarter of this year, sharply higher
than the 3.8% rate in the last quarter of 1996. With unemployment at its
lowest level in 23 years, there was fear that without some preemptive
tightening in monetary policy, inflationary pressures would resume. As a
precaution, in March 1997, the Federal Open Market Committee, the policy-making
arm of the Federal Reserve Board (the "Fed"), raised the Federal Funds rate
one quarter of a percentage point to 5.50%. It was the first hike in
short-term rates in over two years. (The Federal Funds rate is the rate of
interest banks charge each other for overnight loans.) Fed Chairman Greenspan
likened the increase to "the small immediate discomfort of a vaccination
against the possibility of getting a serious disease." Subsequent to the
March rate increase, signs of inventory accumulation and some moderation in
retail sales may have helped stay the Fed from implementing additional
increases in short-term interest rates.
The great difference between the present economic expansion and most
previous ones is the absence of inflation in the later stage. The economy is
now in its seventh year of expansion, an expansion devoid of any appreciable
resurgence in inflation. The Producer Price Index, a measure of prices paid
by manufacturers and an indicator of so-called pipeline inflation, declined
over the first four months of this year and has risen less than 1% over the
previous 12 months. The rise in inflation on the consumer level has been
similarly subdued. The Consumer Price Index increased a modest 2.5% over the
12-month period ending in April.
On another front, the tight labor market has spawned fears that rising
wages would provide an inflationary stimulus to the economy. So far this has
not occurred. The Employment Cost Index, a gauge of wage and benefit
increases, has remained below 3%. The bipartisan budget agreement recently
reached between the Clinton Administration and the Republican Congressional
leadership has also eased inflationary fears.
The economic confidence of consumers is readily understandable. The
exceptionally low unemployment rate has combined with a strong economy that
has expanded with unusual vigor. But, despite huge business investment in
technology to improve productivity, we believe it would be folly to assume
that the economy's capacity for noninflationary growth is unlimited.
Consumers enjoying both job stability and rising personal incomes could
increase their spending to levels that would strain production and bring on
inflation or the Fed could again tighten credit, perhaps in another
precautionary move.
Market Environment
The technical factors in the U.S. bond market have recently been quite
positive and have pushed interest rates lower. There is a reduced deficit,
which in turn has meant less issuance of debt by the Treasury this year. A
balanced budget appears achievable in the foreseeable future and should
continue to reduce issuance. U.S. interest rates are currently higher than
almost all other developed countries, making our rates attractive globally.
The dollar continues to remain strong. Last, commodity prices have been
drifting lower.
At the consumer level, we believe the interest rate outlook currently
looks positive too. Bank lending criteria, especially in the credit card
arena, are becoming more stringent. The primary reason for that is the
continued rise of consumer delinquencies. Retail sales, as well as car sales,
have become more sluggish. In fact, some of last year's better-selling
vehicles now have strong sales promotion incentives in order to attract
customers. Some of these incentives offer interest-free loans for two
years. This suggests that auto dealers, as well as retailers, are having
trouble clearing 1997 inventory.
Portfolio Overview
In light of the above examples, we currently have positioned the Fund
to take advantage of a falling interest rate environment. This includes
extending the maturity of the Fund as of July 14, 1997 to a 9.3-year average
life, which makes the effective duration 6.06 years.***
As of July 14, 1997, we decreased our non-dollar holdings by
approximately 7%. The reason for this small allocation back to the dollar is
the technical positives we mentioned above. We also continue to hedge
currencies back to dollars in view of the performance of the dollar. As for
our non-dollar allocation, we have an underweighting in Japan and a modest
overweighting in both Italy and Spain, which we compare to the J.P. Morgan
Global Government Bond Index.
Our emerging markets exposure has gone through several significant
changes. We moved out of emerging market securities entirely before the Fed
raised rates in February. This turned out to be a timely decision, as the
emerging markets went through some turmoil after the interest rate hike. We
entered the market again in March but in a much smaller fashion. Country
allocations in decreasing order of size were Mexico (1.3%), Colombia (.06%),
and Venezuela (.03%). You can see from the percentages we are very light in
such holdings. We would consider changing this allocation if and when an
opportunity presents itself.
We will be monitoring a variety of factors and indicators in order to
determine whether to readjust our current outlook. These would include
consumer and foreign economies; if either were to start to appear much
stronger, we would consider such a readjustment.
We appreciate your investment in Dreyfus Strategic Governments Income,
Inc., and we want to assure you that we are working in the Fund's best
interest.
Very truly yours,
[Gerald E. Thunelius signature logo]
Gerald E. Thunelius
Portfolio Manager, Taxable Fixed Income
The Dreyfus Corporation
July 14, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** 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 at the end of the period.
***Portfolio composition, maturity and duration are subject to change at any
time.
The J.P. Morgan Global Government Bond Index is an index portfolio that
measures returns on bonds from 13 world markets, hedged into U.S. dollars.
This index includes a U.S. Bonds component. The index does not reflect
account charges, fees or other expenses.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF INVESTMENTS MAY 31, 1997 (UNAUDITED)
Principal
Bonds and Notes-101.4% Amount Value
------- -------
<S> <C> <C> <C>
Banking and Finance-4.7% American International Group,
Bonds, 11.70%, 2001............... $ 1,777,778 (a) $ 2,091,112
Credit Local de France,
Bonds, 9 5/8%, 2000............... 726,269 (b) 809,337
General Electric Capital,
Deb., 7%, 2000.................... 353,957 (c) 397,848
KfW International Finance,
Gtd. Bonds, 6%, 1999.............. 1,291,990 (d) 1,438,146
Societe Nationale des Chemins de fer Francais,
Sr. Bonds, 5 1/4%, 2005........... 2,123,743 (c) 2,357,356
-------
7,093,799
-------
Foreign/
Governmental-38.0% Australia Commonwealth Government,
Bonds, 8 3/4%, 2001............... 3,803,500 (e) 4,082,563
Belgium Kingdom Bonds:
7 3/4%, 2000...................... 2,272,082 (f) 2,512,923
9%, 2003.......................... 1,704,061 (f) 2,024,255
Bundesrepublik Deutschland,
Bonds, 9%, 2000................... 3,518,030 (g) 4,024,626
Canada Government Bonds:
9 3/4%, 2000...................... 1,452,538 (b) 1,652,989
8 3/4%, 2005...................... 1,452,538 (b) 1,677,957
France O.A.T., Deb.:
10%, 2000......................... 1,301,857 (h) 1,508,331
8 1/2%, 2003...................... 2,256,553 (h) 2,639,038
8 1/2%, 2023...................... 1,649,019 (h) 2,026,809
German Unity Bonds,
8 3/4%, 2001...................... 2,931,692 (g) 3,381,999
Kingdom of Denmark, Bonds,
7%, 2007.......................... 1,538,225 (i) 1,582,679
Republic of Austria, Deb.:
6 1/4%, 2003...................... 3,617,571 (d) 4,449,613
7 1/4%, 2007...................... 5,863,383 (g) 6,394,019
Republic of Ireland, Deb.,
7 3/8%, 2002...................... 1,415,829 (c) 1,716,692
Spain Government, Deb.:
12 1/4%, 2000..................... 2,768,166 (j) 3,255,916
10.30%, 2002...................... 2,768,166 (j) 3,292,733
10%, 2005......................... 2,768,166 (j) 3,349,342
Sweden Government, Deb.,
6%, 2005.......................... 2,840,542 (k) 2,697,094
United Kingdom Gilt Edged Securities:
10 1/2%, 1999..................... 820,000 (l) 872,788
9 1/2%, 2005...................... 1,148,000 (l) 1,303,698
9%, 2011.......................... 1,312,000 (l) 1,505,931
United Mexican States, Global Bonds,
11 1/2%, 2026..................... 2,000,000 2,225,000
-------
58,176,995
-------
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF INVESTMENTS (CONTINUED) MAY 31, 1997 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
------- -------
Foreign/
Supranational-4.6% European Investment Bank, Notes:
12 3/4%, 2000..................... $ 2,370,370 (a) $ 2,714,075
12.20%, 2003...................... 3,555,556 (a) 4,368,889
-------
7,082,964
-------
Health Care-1.0% Merck & Co.,
Medium-Term Notes, Ser. B, 5.76%, 1999 1,500,000 (m) 1,530,000
-------
U.S. Government
Agencies-47.4% Federal Farm Credit, Real Yield Securities,
3%, 2/14/2002..................... 1,000,000 (n) 974,710
Federal Home Loan Banks, CPI Indexed Bonds,
3.15%, 2/15/2002.................. 10,000,000 (n) 9,775,000
Federal Home Loan Mortgage Corp.:
9%, 2/1/2025-5/1/2025............. 10,452,924 (o) 11,058,093
Gtd. REMIC Pass-Through Ctfs.,
Ser. 51, Cl. E, 10%, 7/15/2020.... 9,351,756 10,123,276
REMIC Trust, Pass-Through Ctfs.
(Collateralized by FHLMC Pass-Through Ctfs.)
Ser. 1611, Cl. L, 7%, 11/15/2023
(Interest Only Obligation).................... (p) 2,150,000
Federal National Mortgage Association:
8%, 12/1/2025..................... 1,835,955 1,869,792
CPI Indexed Notes, 3.14%, 3/13/2002 3,900,000 (n) 3,822,117
Gtd. REMIC Pass-Through Ctfs.,
Ser. 1988-16, Cl. B., 9 1/2%, 6/25/2018 4,821,542 5,128,819
Government National Mortgage Association I:
7 1/2%, 10/15/2023................ 3,172,695 3,178,628
10%, 5/15/1998.................... 20,879 21,354
Tennessee Valley Authority Power Bonds,
Inflation-indexed Power Securities,
Ser. A, 3 3/8%, 2007.............. 10,000,000 (n) 9,722,500
U.S. Government Gtd. Development,
Participation Ctfs.
(Gtd. by U.S. Small Business Administration):
Ser. 1994-20K, Cl. 1, 8.65%, 11/1/2014 5,415,101 5,825,025
Ser. 1994-20L, Cl. 1, 8.40%, 12/1/2014 8,422,113 8,940,073
-------
72,589,387
-------
U.S. Government-5.7% U.S. Treasury Bonds,
13 3/4%, 8/15/2004................ 6,250,000 (q) 8,765,625
-------
TOTAL BONDS AND NOTES
(cost $160,394,871)............... $155,238,770
=======
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF INVESTMENTS (CONTINUED) MAY 31, 1997 (UNAUDITED)
Options-.3% Contracts Value
------- -------
Call Options; U.S. Treasury Notes, 6 1/4%, 2/15/2007,
February '98 @ $99.375............ 100 $ 106,250
U.S. Treasury Notes, 6 1/4%, 2/15/2007,
March '98 @ $97.719............... 100 161,719
U.S. Treasury Notes, 6 1/4%, 2/15/2007,
March '98 @ $97.813............... 100 157,812
-------
TOTAL OPTIONS
(cost $635,938)................... $ 425,781
=======
Principal
Short-Term Investments-4.2% Amount Value
------- -------
U.S. Government
Agencies-3.4% Student Loan Marketing Association,
5.55%, 6/2/1997................... $ 5,240,000 $ 5,239,192
-------
U.S. Treasury Bills-.8% 5.15%, 7/24/1997................... 391,000 388,240
5.13%, 8/7/1997..................... 310,000 307,291
5.12%, 8/21/1997.................... 380,000 375,907
5.03%, 8/28/1997.................... 172,000 169,951
-------
1,241,389
-------
TOTAL SHORT-TERM INVESTMENTS
(cost $6,479,775)................. $ 6,480,581
=======
TOTAL INVESTMENTS (cost $167,510,584).................................... 105.9% $162,145,132
==== ========
LIABILITIES, LESS CASH AND RECEIVABLES................................... (5.9%) $ (9,013,200)
==== ========
NET ASSETS............................................................... 100.0% $153,131,932
==== ========
Notes to Statements of Investments:
(a) Denominated in Italian Lire.
(b) Denominated in Canadian Dollars.
(c) Denominated in Swiss Francs.
(d) Denominated in Japanese Yen.
(e) Denominated in Australian Dollars.
(f) Denominated in Belgian Francs.
(g) Denominated in German Deutsche Marks.
(h) Denominated in French Francs.
(i) Denominated in Danish Krone.
(j) Denominated in Spanish Pesetas.
(k) Denominated in Swedish Krona.
(l) Denominated in British Pounds.
(m) Reflects date security can be redeemed at holders' option; the
stated maturity date is 5/3/2037.
(n) Variable rate security-base interest rate shown-adjustment to
interest rate linked to the Consumer Price Index.
(o) Purchased on a forward commitment basis.
(p) Notional face $5,000,000.
(q) Partially held by the custodian in a segregated account as
collateral for open Financial Futures positions.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF OPTIONS WRITTEN MAY 31, 1997 (UNAUDITED)
Call Options
- - --------------
Issue Contracts Value
- - ------ ---------- ----------
<S> <C> <C>
U.S. Treasury Notes, 6 1/4%, 2/15/2007, February '98 @ $102.797................ 100 $ 40,625
U.S. Treasury Notes, 6 1/4%, 2/15/2007, March '98 @ $101.50.................... 100 61,719
U.S. Treasury Notes, 6 1/4%, 2/15/2007, March '98 @ $101.719................... 100 58,594
-----
(Premiums received $303,125)................................................. $160,938
=====
Put Options
- - --------------
Issue Contracts
- - ------ ----------
U.S. Treasury Notes, 6 1/4%, 2/15/2007, February '98 @ $93.828................. 100 $130,469
U.S. Treasury Notes, 6 1/4%, 2/15/2007, March '98 @ $92.875.................... 100 136,718
U.S. Treasury Notes, 6 1/4%, 2/15/2007, March '98 @ $93........................ 100 109,375
-----
(Premiums received $325,000)................................................. $376,562
=====
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF FINANCIAL FUTURES MAY 31, 1997 (UNAUDITED)
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures Long Contracts by Contracts Expiration at 5/31/97
- - ---------------------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Swiss Government 10yr Bond................... 3 $ 258,516 June '97 $12,424
United Kingdom 15yr Gilt..................... 7 644,890 June '97 (359)
U.S. Treasury 30yr Bonds..................... 25 2,740,625 September '97 23,438
----
$35,503
====
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1997 (UNAUDITED)
Cost Value
------- -------
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $167,510,584 $162,145,132
Interest receivable........................ 3,540,386
Receivable for futures variation margin-Note 3(a) 21,523
Prepaid expenses and other assets.......... 9,514
-------
165,716,555
-------
LIABILITIES: Due to The Dreyfus Corporation............. 91,052
Cash overdraft due to Custodian............ 242,864
Payable for investment securities purchased 11,040,248
Net unrealized (depreciation) on forward
currency exchange contracts-Note 3(a)...... 574,556
Outstanding call options written, at value
(premiums received $628,125)-see statement.. 537,500
Accrued expenses........................... 98,403
-------
12,584,623
-------
NET ASSETS.................................................................. $153,131,932
=======
REPRESENTED BY: Paid-in capital............................ $161,164,920
Accumulated distributions in excess of
investment income-net....................... (1,720,265)
Accumulated net realized gain (loss) on investments and
foreign currency transactions............... (498,843)
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions
(including $35,503 net unrealized appreciation
on financial futures)-Note 3(b)..................
(5,813,880)
-------
NET ASSETS.................................................................. $153,131,932
=======
SHARES OUTSTANDING
(100 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED)............. 14,640,617
NET ASSET VALUE per share................................................... $10.46
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF OPERATIONS SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
INVESTMENT INCOME
INCOME Interest Income............................ $ 5,672,587
EXPENSES: Management fee-Note 2(a)................... $ 537,060
Custodian fees............................. 31,267
Directors' fees and expenses-Note 2(b)..... 31,200
Professional fees.......................... 26,276
Shareholders' reports...................... 26,274
Shareholder servicing costs................ 26,018
Registration fees.......................... 12,130
Miscellaneous.............................. 10,154
------
Total Expenses....................... 700,379
-------
INVESTMENT INCOME-NET....................................................... 4,972,208
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 3:
Net realized gain (loss) on investments and foreign currency
transactions (including options transactions) $ 392,203
Net realized gain (loss) on financial futures (555,149)
Net realized gain (loss) on forward currency
exchange contracts..................... 8,022,125
------
Net Realized Gain (Loss)............. 7,859,179
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions [including ($289,792)
net unrealized (depreciation) on financial futures] (10,675,022)
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... (2,815,843)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 2,156,365
=======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
May 31, 1997 Year Ended
(Unaudited) November 30, 1996
--------- ----------
<S> <C> <C>
OPERATIONS:
Investment income-net........................................... $ 4,972,208 $ 10,583,833
Net realized gain (loss) on investments......................... 7,859,179 1,311,342
Net unrealized appreciation (depreciation) on investments....... (10,675,022) 529,921
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations 2,156,365 12,425,096
------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
From investment income-net...................................... (6,551,679) (10,839,669)
In excess of investment income-net.............................. --- (140,794)
------- -------
Total Distributions........................................... (6,551,679) (10,980,463)
------- -------
Total Increase (Decrease) in Net Assets..................... (4,395,314) 1,444,633
NET ASSETS:
Beginning of Period............................................. 157,527,246 156,082,613
------- -------
End of Period................................................... $153,131,932 $157,527,246
======= =======
(DISTRIBUTIONS IN EXCESS OF INVESTMENT INCOME-NET)................ $ (1,720,265) $ (140,794)
------- -------
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the financial statements and market price
data for the Fund's shares.
Six Months Six Months
Ended Ended
May 31, 1997 Year Ended November 30, November 30, Year Ended May 31,
-------------------------- ----------------------------
PER SHARE DATA: (Unaudited) 1996 1995 1994(1) 1994 1993 1992
------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $10.76 $10.66 $ 9.85 $10.30 $11.03 $11.06 $10.92
---- ---- ---- ---- ---- ---- ----
Investment Operations:
Investment income-net... .34 .72(2) .71 .42 .89 .95 1.01
Net realized and unrealized
gain (loss) on investments (.19) .13(2) .82 (.44) (.70) .02 .19
---- ---- ---- ---- ---- ---- ----
Total from Investment
Operations......... .15 .85(2) 1.53 (.02) .19 .97 1.20
---- ---- ---- ---- ---- ---- ----
Distributions:
Dividends from investment
income-net......... (.45) (.74) (.71) (.28) (.92) (.91) (1.03)
Dividends in excess of
investment income-net - (.01) (.01) - - - -
Dividends from net realized
gain on investments - - - - - (.09) (.03)
Dividends from
paid-in capital.... - - - (.15) - - -
---- ---- ---- ---- ---- ---- ----
Total Distributions.. (.45) (.75) (.72) (.43) (.92) (1.00) (1.06)
---- ---- ---- ---- ---- ---- ----
Net asset value,
end of period...... $10.46 $10.76 $10.66 $ 9.85 $10.30 $11.03 $11.06
==== ==== ==== ==== ==== ==== ====
Market value, end of period $ 9 1/8 $ 9 3/8 $ 9 1/8 $ 9 1/8 $10.00 $ 11 1/2 $ 11 1/2
==== ==== ==== ==== ==== ==== ====
TOTAL INVESTMENT RETURN (3) 4.29%(4) 11.37% 8.80% (8.98%)(4) (5.23%) 9.36% 13.83%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets. .91%(4) .90% .94% .92%(4) .89% .88% .88%
Ratio of net investment income
to average net assets 6.48%(4) 6.91% 7.56% 8.28%(4) 8.18% 8.57% 9.18%
Portfolio Turnover Rate 186.95%(5) 328.37% 91.27% 65.21%(5) 22.76% 43.00% 56.29%
Net Assets, end of period
(000's Omitted).... $153,132 $157,527 $156,083 $145,164 $154,140 $164,174 $163,197
(1) The Fund changed its fiscal year end from May 31 to November 30.
(2) Based on average shares outstanding.
(3) Calculated based on market value.
(4) Annualized.
(5) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Strategic Governments Income, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 ("Act") as a non-diversified
closed-end management investment company. The Fund's investment objective is
to maximize current income to the extent consistent with the preservation of
capital. The Dreyfus Corporation ("Manager") serves as the Fund's investment
adviser. The Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon").
Sinopia Asset Management serves as the Fund's sub-investment adviser.
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 (including options and
financial futures, but excluding domestic-debt securities) are valued at the
last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on the last business day of each week and month. Securities not listed on an
exchange or the national securities market, or securities for which there
were no transactions, are valued at the average of the most recent bid and
asked prices. Bid price is used when no asked price is available. Investments
denominated in foreign currencies are translated to U.S. dollars at the
prevailing rates of exchange. Forward currency exchange contracts are valued
at the forward rate.
Most domestic-debt securities (excluding U.S. Government obligations and
short-term investments) are valued on the last business day of each week and
month by an independent pricing service ("Service") approved by the Board of
Directors. Domestic-debt securities 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 domestic-debt 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) FOREIGN CURRENCY TRANSACTIONS: The Fund does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in the market
prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized on securities transactions, the difference between
the amount of interest and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in exchange rates. Such gains and
losses are included with net realized and unrealized gain or loss on
investments.
(C) 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 investments,
is recognized on the accrual basis.
(D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and net short-term realized
capital gain are normally declared and paid monthly. Dividends from net
long-term
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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. This may result in
distributions that are in excess of investment income-net and net realized
gain on a fiscal year basis. 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.
For shareholders who elect to receive their distributions in additional
shares of the Fund, in lieu of cash, such distributions will be reinvested at
the lower of the market price or net asset value per share (but not less than
95% of the market price) based on the record date's respective prices. If the
net asset value per share on the record date is lower than the market price
per share, shares will be issued by the Fund at the record date's net asset
value on the payable date of the distribution. If net asset value per share
is less than 95% of market value, shares will be issued by the Fund at 95% of
market value. If the market price is lower than the net asset value per share
on the record date, Mellon will purchase Fund shares in the open market
commencing on the payable date and reinvest those shares accordingly. As a
result of purchasing Fund shares in the open market, Fund shares outstanding
will not be affected by this form of reinvestment.
On May 30, 1997, the Board of Directors declared a cash dividend of
$.0625 per share from investment income-net, payable on June 27, 1997 to
shareholders of record as of the close of business on June 13, 1997.
(E) 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 $8,313,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to November 30, 1996. If not
applied, $768,000 of the carryover expires in fiscal 2001, $6,651,000 expires
in fiscal 2002, $18,000 expires in fiscal 2003 and $876,000 expires in fiscal
2004.
NOTE 2-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 .70 of 1% of the value of the Fund's
average weekly net assets and is payable monthly.
Pursuant to a Sub-Investment Advisory Agreement between the Manager and
Sinopia Asset Management, the sub-advisory fee is computed at the annual rate
of .20 of 1% of the value of the Fund's average weekly net assets and is
payable monthly by the Manager.
The Fund compensates Mellon, an affiliate 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 $16,105
for the period ended May 31, 1997.
(B) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $4,500 and an attendance fee of $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales of investment securities
(including paydowns), excluding short-term securities, financial futures,
forward currency exchange contracts and options transactions, during the
period ended May 31, 1997, amounted to $297,410,664 and $281,586,946,
respectively.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In addition, the following summarizes open forward currency exchange contracts at May 31, 1997:
Foreign Unrealized
Currency Appreciation
Forward Currency Exchange Contracts Amount Proceeds Value (Depreciation)
- - -------------------------------------- --------- ------- ------- --------------
Sales:
- - ------
<S> <C> <C> <C> <C>
Australian Dollars, expiring 6/13/97. 5,378,805 $ 4,233,120 $ 4,090,581 $ 142,539
Belgian Francs, expiring 6/13/97..... 169,965,313 4,860,074 4,829,932 30,142
British Pounds, expiring 6/13/97..... 2,300,000 3,681,150 3,771,310 (90,160)
Canadian Dollars, expiring 6/13/97... 6,000,000 4,409,171 4,360,782 48,389
Danish Krone, expiring 6/13/97....... 10,800,000 1,655,172 1,662,254 (7,082)
French Francs, expiring 6/13/97...... 39,000,000 6,761,442 6,773,891 (12,449)
German Deutsche Marks, expiring 6/13/97 25,000,000 14,603,657 14,668,779 (65,122)
Italian Lire, expiring 6/13/97....... 16,000,000,000 9,345,794 9,477,831 (132,037)
Japanese Yen, expiring 6/13/97....... . 720,000,000 5,967,675 6,210,109 (242,434)
Spanish Pesetas, expiring 6/13/97.... 1,450,000,000 9,962,212 10,035,297 (73,085)
Swedish Krona, expiring 6/13/97...... 21,700,000 2,824,969 2,802,748 22,221
Swiss Francs, expiring 6/13/97....... 6,500,000 4,412,164 4,607,642 (195,478)
------
TOTAL............................... $(574,556)
======
</TABLE>
The Fund enters into forward currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings. When executing forward currency exchange
contracts, the Fund is obligated to buy or sell a foreign currency at a
specified rate on a certain date in the future. With respect to sales of
forward currency exchange contracts, the Fund would incur a loss if the value
of the contract increases between the date the forward contract is opened and
the date the forward contract is closed. The Fund realizes a gain if the
value of the contract decreases between those dates. With respect to
purchases of forward currency exchange contracts, the Fund would incur a loss
if the value of the contract decreases between the date the forward contract
is opened and the date the forward contract is closed. The Fund realizes a
gain if the value of the contract increases between those dates. The Fund is
also exposed to credit risk associated with counter party nonperformance on
these forward currency exchange contracts which is typically limited to the
unrealized gain on each open contract.
In addition, the following table summarizes the Fund's call/put options
written for the period ended May 31, 1997:
<TABLE>
<CAPTION>
Options Terminated
------------------------------
Net
Number of Premiums Realized
Contracts Received Cost Gain
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
OPTIONS WRITTEN:
Contracts outstanding November 30, 1996..... - $ -
Contracts written........................... 650 640,097
-- -----
Contracts terminated;
Closed.................................... 50 11,972 $2,091 $9,881
-- ----- ==== ====
Contracts outstanding May 31, 1997.......... 600 $628,125
== =====
</TABLE>
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Fund may purchase and write (sell) put and call options in order to
gain exposure to or protect against changes in the market.
As a writer of call options, the Fund receives a premium at the outset
and then bears the market risk of unfavorable changes in the price of the
financial instrument underlying the option. Generally, the Fund would incur a
gain, to the extent of the premium, if the price of the underlying financial
instrument decreases between the date the option is written and the date on
which the option is terminated. Generally, the Fund would realize a loss, if
the price of the financial instrument increases between those dates.
Contracts open at May 31, 1997 are set forth in the Statement of Options
Written.
As a writer of put options, the Fund receives a premium at the outset and
then bears the market risk of unfavorable changes in the price of the
financial instrument underlying the option. Generally, the Fund would incur a
gain, to the extent of the premium, if the price of the underlying financial
instrument increases between the date the option is written and the date on
which the option is terminated. Generally, the Fund would realize a loss, if
the price of the financial instrument decreases between those dates.
Contracts open at May 31, 1997 are set forth in the Statement of Options
Written.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments (see Statement of Financial Futures). Investments in financial
futures require the Fund to "mark to market" on a daily basis, which reflects
the change in the market value of the contracts at the close of each day's
trading. Typically, variation margin payments are received or made to reflect
daily unrealized gains or losses. When the contracts are closed, the Fund
recognizes a realized gain or loss. These investments require initial margin
deposits with a custodian, which consist of cash or cash equivalents, up to
approximately 10% of the contract amount. The amount of these deposits is
determined by the exchange or Board of Trade on which the contract is traded
and is subject to change. Contracts open at May 31, 1997, and their related
unrealized appreciation (depreciation) are set forth in the Statement of
Financial Futures.
(B) At May 31, 1997, accumulated net unrealized depreciation on
investments, financial futures, options and forward currency exchange
contracts was $5,813,880, consisting of $1,269,738 gross unrealized
appreciation and $7,083,618 gross unrealized depreciation.
At May 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).
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
CERTAIN MANAGEMENT POLICY INFORMATION
TREASURY INFLATION PROTECTION SECURITIES-The Fund may purchase U.S.
Treasury securities, including Treasury Inflation-Protection Securities
("TIPS"), which are newly created securities issued by the U.S. Treasury
designed to protect investors against inflation. The interest rate that is
paid semi-annually by TIPS is fixed, and is applied to the principal value
which changes during the period based on changes in a published Consumer
Price Index. Thus, if inflation goes up, the principal and interest payments
on the TIPS also increase, protecting investors from inflationary loss.
During a deflationary period, the principal and interest payments decrease,
although the TIPS' principal will not drop below its face amount at maturity.
In exchange for the inflation protection, TIPS generally pay lower
interest rates than typical Treasury securities. Only if inflation rises will
TIPS offer a higher real yield than a conventional Treasury bond of the same
maturity. In addition, it is not possible to predict with assurance how the
market for TIPS will develop; initially, the secondary market for these
securities may not be as active or liquid as the secondary market for
conventional Treasury securities. Principal appreciation and interest
payments on TIPS will be taxed annually as ordinary interest income for
federal income tax calculations. As a result, any appreciation in principal
must be counted as interest income in the year the increase occurs, even
though the investor will not receive such amounts until the TIPS are sold or
mature. Principal appreciation and interest payments will be exempt from
state and local income taxes.
FORWARD COMMITMENTS-The Fund may purchase or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk
of price fluctuation, and takes such fluctuation into account when
determining its net asset value. Because the Fund is not required to pay for
these securities until the delivery date, these risks are in addition to the
risks associated with the Fund's other investments. If the Fund is fully or
almost fully invested when forward commitment purchases are outstanding, such
purchases may result in a form of leverage. The Fund intends to engage in
forward commitments to increase its portfolio's financial exposure to the
types of securities in which it invests. Leveraging the portfolio in this
manner will increase the Fund's exposure to changes in interest rates and
will increase the volatility of its returns. A segregated account of the Fund
consisting of permissible liquid assets at least equal at all times to the
amount of the Fund's purchase commitments will be established and maintained
at the Fund's custodian bank. At no time will the Fund have more than 33 1/3%
of its assets committed to purchase securities on a forward commitment basis.
OFFICERS AND DIRECTORS
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
200 Park Avenue
New York, NY 10166
Directors
Joseph S. DiMartino, Chairman
David W. Burke
Diane Dunst
Rosalind Gersten Jacobs
Jay I. Meltzer
Daniel Rose
Warren B. Rudman
Sander Vanocur
Officers
President and Treasurer
Marie E. Connolly
Vice President and Secretary
John E. Pelletier
Vice President and Assistant Treasurer
Richard W. Ingram
Vice President and Assistant Treasurer
Mary A. Nelson
Vice President and Assistant Treasurer
Michael S. Petrucelli
Vice President and Assistant Treasurer
Joseph F. Tower, III
Vice President and Assistant Secretary
Mark A. Karpe
Vice President and Assistant Secretary
Elizabeth A. Keeley
Vice President and Assistant Secretary
Douglas C. Conroy
Portfolio Managers
Kevin McClintock
Gerald Thunelius
Jean Charles Bertrand
Michel-Andre Levy
Thierry Mirabe
Jacques Sikarov
Investment Adviser
The Dreyfus Corporation
Sub-Investment Adviser
Sinopia Asset Management
Custodian
The Bank of New York
Counsel
Stroock & Stroock & Lavan LLP
Transfer Agent,
Dividend Distribution Agent
and Registrar
Mellon Bank, N.A.
Stock Exchange Listing
NYSE Symbol: DSI
Initial SEC Effective Date
June 23, 1988
The Net Asset Value appears in the
following publications: Barron's, Closed-End Funds section under
the heading "World Income Funds"
every Monday; Wall Street Journal, Mutual Funds section under the
heading "Closed-End Funds World Income Funds" every Monday;
New York Times, Business Section
under the heading "Closed-End
Funds World Income Funds"
every Sunday.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Fund may purchase shares of its
common stock in the open market when it can do so at prices below the then
current net asset value per share.
Registration Mark
[Dreyfus lion "d" logo]
DREYFUS STRATEGIC GOVERNMENTS
INCOME, INC.
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
AND REGISTRAR
Mellon Bank, N.A.
85 Challenger Road
Ridgefield Park, NJ 07660
Printed in U.S.A. 854SA975
Registration Mark
[Dreyfus logo]
Strategic
Governments
Income, Inc.
Semi-Annual
Report
May 31, 1997
