[dreyfus lion "d" logo] (reg.tm)
[dreyfus logo] (reg.tm)
DREYFUS STRATEGIC GOVERNMENTS
INCOME, INC.
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
SUB-INVESTMENT ADVISOR
Sinopia Asset Management
66 Rue de la Chaussee d'Antin
Paris, France 75009
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
& REGISTRAR
Mellon Bank, N.A.
85 Challenger Road
Ridgefield Park, NJ 07660
Printed in U.S.A. 854SA985
Strategic
Governments
Income, Inc.
Semi-Annual
Report
May 31, 1998
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 the six-month reporting period ended May 31, 1998.
Your Fund produced a total return, including share price changes and dividend
income generated, of 6.01% .* During the reporting period, the Fund produced
income dividends of approximately $0.812 per share, representing an annualized
distribution rate per share of 17.33%.**
The Economy
In recent months, economic developments overseas began to assert a more
vigorous influence on the U.S. economy. The first quarter of the 1998 calendar
year saw the U.S. trade deficit rising to a new high. Exports contracted due to
reduced foreign demand for U.S. products, which resulted in a marked rise in
business inventories; that could create a drag on future production as
stockpiles are depleted. At the same time, imports surged. Spurred by a strong
U.S. dollar and robust consumer spending, the increase in cheaper imports helped
dampen domestic inflation since American producers had to restrain their prices
in order to remain competitive. The suppressive effect of the trade deficit on
both domestic production and prices has been fortuitously in concert with the
direction of Federal Reserve Board (the Fed) monetary policy.
The financial difficulties that began in Asia last year have now spread to
Latin America and beyond. That tenuous situation and the continued economic
instability in Russia have contributed to the Fed's status quo policy in
monetary matters since the Fed is concerned that any increase in short-term
interest rates would further unsettle world markets. The last increase in
short-term rates came in March 1997 when the Federal Open Market Committee (the
policy-making arm of the Fed) raised the target rate for Federal Funds by one
quarter of a percent to 5.5%. (The Federal Funds rate is the rate of interest
that banks charge each other for the use of Federal Funds.)
Consumers, spurred by real wage gains and a healthy job market, continued to
spend freely in the retail sector, giving retailers some of their best months in
a decade. In the early years of the current eight-year economic expansion, the
retail portion of our economy at times had lagged since consumers feared job
insecurity and a resurgence of inflation. The buoyant stock market, low
unemployment rate and absence of inflation, however, encouraged consumers to
spend. The market for so-called "big ticket" items has been strong: the housing
market was solid throughout the reporting period and continues to be, while car
and truck sales are at ten-year highs.
Unemployment (4.3% at the end of the reporting period) is at a 28-year low.
Inflation, at both consumer and producer levels, has been dormant. Workers are
benefiting from having their wages rise faster than inflation. The most recently
reported statistics on hourly wages (through April) revealed that over the
previous 12 months, wages rose 4.4% while the Consumer Price Index increased but
1.4%. The tight labor market and upward pressure on wages, because of their
potential for rekindling inflation, have been major concerns of the Federal
Reserve. This current wage rate increase of 4.4%, compared to 3.7% and 3.1% in
the two previous years, illustrates the upward trend of wages.
Over the past few years, gains in worker productivity (output per hour of
work) have offset any incipient price pressures from rising wages. Enhanced by
the widespread use of technology, productivity rose 1.7% last year and 1.9% in
1996, compared to an average increase of only 1% for the period 1974-1995. These
gains are a key factor in the continuation of our high-growth, low-inflation
economy. However, productivity gains slowed to 1.1% during the first quarter,
the slowest pace in over a year. So far, our economy has been in a charmed
circle where even international financial crises have proven supportive of our
economic policies. As always, we remain alert for warning signs that the
delicate balance that now prevails in our economy might be disturbed.
Market Environment
The bond market has been very strong from a fundamental point of view.
Everything from reduced supply of U.S. Treasury debt, to the Asian crisis, to
falling commodity prices have worked in the bond market's favor.
At the time of this letter, it is very hard to find any sentiment regarding
the bond market that is not bullish. There are several themes which have
produced this optimism in the bond market. The first is that Japan will never
put forth a credible financial package, which is a key element to ending the
Asian crisis. Second, OPEC members will never actually adhere to any agreed upon
cutbacks in oil production, which will keep oil prices from rising. Also, yields
remain too high on a global basis. On the domestic front, inflation is viewed as
nonexistent, and most forecasters are signaling it might never reappear. The
manufacturing sector of the U.S. economy, while representing only one-fifth of
the total economic output, has been signaling much slower growth ahead.
Investors are extrapolating from this trend that the rest of the economy will be
slowing shortly.
The 30-year Treasury bond is trading in a range of 5.5% to 5.85%. Currently,
the yield is in the lower end of that range. The above-mentioned themes have
been talked about enough that one could assume that at the moment they are
priced into yield levels and are the cause of yields to drop.
When viewing the above bond market themes, you can see that they are somewhat
intertwined. If one of them were to change, the others would change, too. The
Japanese fiscal reform or policy change could have the biggest effect on the
direction of the others. While it will take years for recoveries to be in place
for Asia, the direction is important. If the fiscal package from Japan is
credible and sizable, the financial markets will begin to assume that the worst
is behind. This will in turn lift commodity prices as people anticipate a
greater need in the future. The zero inflation scenario could be hindered by any
rise in commodity prices. In fact, core inflation in the U.S. has been moving
up. If it were not for the Asian crisis' effect on commodity prices, fewer
people would be proclaiming inflation is dead.
While only time will tell, the external pressure being exerted on Japan to
reform is great by any historical standards. It is our opinion that Japan will
reform sooner than the markets are anticipating, but we are less enthusiastic
about the prediction that rates will fall precipitously further without more
defining news on the bond market themes discussed above.
Portfolio Overview
In light of our apprehension for a continued bond market rally, we believe
that a neutral stance in duration is warranted. At this time, going forward, we
anticipate that the target duration will be in the area of 5.5 years. Over the
last 12 months the duration of the fund has been as high as 6.5 years, which has
worked out well as rates have declined over that time.
During the reporting period, we positioned the Fund in an effort to take
advantage of a flatter yield curve, which worked well. However, we believe that
positioning the Fund for a steepening yield curve might be warranted in the
future. The reasons for this are twofold. First, if inflation picks up, even
minimally, we expect 30 year treasury bonds to underperform (inflation will eat
away at longer maturities). Or, if the economy really does slow down, we believe
that the Fed will remove their tightening bias which could help shorter
maturities to outperform. Second, in economic slowdowns banks generally tend to
invest capital because loan demand slows. This could mean better buying of
shorter-dated securities.
Our emerging markets position was pared back prior to the beginning of the
Asian crisis. We did make new positions at the peak of crisis in November as
most emerging markets were selling at favorable prices, which worked out
exceptionally well for the Fund. We have since decreased Latin America exposure
and have added to some Asian positions. Most particular of these is Korea, which
is in the midst of a very difficult economic period. We believe that Korea has
taken appropriate steps that can put it on the road to recovery. Also, the
Korean population has endured great pain as the events of the crisis unfolded.
Sometimes this can be a precursor to the electorate demanding reform with
respect to such problems. This is not the case for Japan, where the population
has not felt discomfort to such a degree.
To be consistent with our bond market outlook, during the reporting period we
re-deployed assets taken out of emerging markets and placed them in the
corporate bond sector in looking to benefit from dynamic market forces.
We believe the more difficult task we are faced with for the Fund this year is
the direction of the dollar. Over the last two years, gains from our currency
hedging strategy, and to a lesser degree our options strategies were beneficial
to the Fund. Last year, in particular, our strategies worked out quite well. Our
strategy of hedging back to the dollar worked well because the dollar
continuously strengthened. However, this year we find the dollar, at best, to be
fairly valued. At worst, it could be considered overvalued relative to most
other currencies. This is a dramatic change from just a few years ago. As a
result we are currently reviewing, and restructuring some of our strategies in
light of this changing environment.
Very truly yours,
[Gerald E, Thunelius signature logo}
Gerald E. Thunelius
Portfolio Manager
June 18, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid,
based upon net asset value per share.
** Distribution rate per share is based upon dividends per share paid from net
investment income during the period (annualized), divided by the market price
per share at the end of the period.
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS MAY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes--94.3%
Amount Value
- -----------------------------------------------------
_____________
_____________ ____________
Banking and Finance--5.0% American International Group,
Bonds, 11.70%, 2001
$....1,704,497 (a) $ 2,080,552
BT Capital Trust,
Gtd. Sub. Capital Income Securities,
Ser. B1 7.90%, 2027
2,000,000 2,108,110
Credit Local de France,
Bonds, 9.625%, 2000
686,389 (b) 743,016
Fuji Finance,
Gtd. Floating Rate Notes, 6.425%, 2049
2,000,000 (c) 1,680,000
KfW International Finance,
Gtd. Bonds, 6%, 1999
1,079,914 (d) 1,169,006
_____________
7,780,684
_____________
Foreign--3.1% Korea Electric Power,
Deb., 7.75%, 2013
4,000,000 3,116,668
Discount Notes, Zero Coupon, 2016
5,256,000 (e) 776,721
Power Finance, Ltd.,
Notes, 7.50%, 2009
1,000,000 (f) 832,500
_____________
4,725,889
_____________
Foreign/Governmental--36.5% Belgium Kingdom Bonds:
7.75%, 2000
2,172,113 (g) 2,351,095
9%, 2003
1,629,085 (g) 1,934,538
Canada Government Bonds:
9.75%, 2000
1,372,778 (b) 1,666,347
8.75%, 2005
1,372,778 (b) 1,521,587
France O.A.T., Deb.:
8.50%, 2003
2,169,378 (h) 2,542,511
8.50%, 2023
1,585,315 (h) 2,246,233
German Unity Bonds,
8.75%, 2001
2,800,336 (i) 3,166,900
Government of New Zealand,
Bonds, 8%, 2006
1,068,800 (j) 1,176,834
Kingdom of Denmark Bonds,
7%, 2007
1,470,199 (k) 1,676,468
Republic of Argentina,
Floating Rate Notes;
9.15%, 2002
5,000,000 (c) 4,881,250
8.726%, 2005
5,000,000 (c) 5,031,250
Republic of Austria, Deb.:
6.25%, 2003
3,023,758 (d) 3,843,952
7.25%, 2007
5,600,672 (i) 6,500,280
Republic of Colombia, Notes,
8.375%, 2027
3,000,000 2,733,939
Spain Government, Deb.:
10.30%, 2002
2,637,305 (l) 3,185,073
10%, 2005
1,977,979 (l) 2,552,186
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS MAY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes (continued)
Amount Value
- -----------------------------------------------------
_____________ _____________
Foreign/Governmental (continued) Sweden Government, Deb.,
6%, 2005
$.....892,129 (m) $ 947,173
United Kingdom Gilt Edged Securities:
10.50%, 1999
815,750 (n) 842,006
9.50%, 2005
2,773,550 (n) 3,333,460
9%, 2011
3,263,000 (n) 4,231,703
_____________
56,364,785
_____________
Foreign/Supranational--6.5% European Investment Bank, Notes:
12.75%, 2000
2,272,663 (a) 2,570,950
12.20%, 2003
4,545,325 (a) 5,937,332
International Bank for Reconstruction
and Development,
Notes, 6%, 2005
1,349,073 (o) 1,602,699
_____________
10,110,981
_____________
Insurance--2.8% Equitable Life Assurance Society of the
U.S.,
Surplus Notes, 7.70%, 2015
2,000,000 (f) 2,195,524
Hartford Life,
Notes, 7.10%, 2007
2,000,000 2,096,066
_____________
4,291,590
_____________
Publishing/Newspapers--.7% A.H. Belo,
Sr. Notes, 6.875%, 2002
1,000,000 1,027,914
_____________
U.S. Government Agencies--22.5% Federal Farm Credit, Real Yield Securities,
3%, 2/14/2002
1,000,000 (p) 968,370
Federal Home Loan Mortgage Corp.:
Gtd. REMIC Pass-Through Ctfs.,
Ser. 51, Cl. E, 10%, 7/15/2020
7,314,050 7,980,214
REMIC Trust, Pass-Through Ctfs.
(Collateralized by FHLMC Pass-
Through Ctfs.):
Ser. 1611, Cl. L, 7%, 11/15/2023
(Interest Only Obligation)
5,000,000 (q) 2,007,850
Ser. 1978, Cl. PJ, 7% 3/15/2026
(Interest Only Obligation)
5,130,500 (q) 2,174,562
Federal National Mortgage Association :
8%, 12/1/2025
1,412,237 1,471,368
Gtd. REMIC Pass-Through Ctfs.,
Ser. 1988-16, Cl. B., 9.50%,
6/25/2018 3,605,975 3,892,687
U.S. Government Gtd. Development,
Participation Ctfs.
(Gtd. by U.S. Small Business
Administration):
Ser 1994-20K, Cl. 1, 8.65%, 11/1/2014
5,226,750 5,766,151
Ser 1994-20L, Cl. 1, 8.40%, 12/1/2014
7,930,426 8,678,028
Ser 1997-20J, Cl. 1, 6.55%, 10/1/2017
1,711,000 1,740,087
_____________
34,679,317
_____________
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS MAY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes (continued)
Amount Value
- -----------------------------------------------------
_____________
_____________ _____________
U.S. Government --17.2% U.S. Treasury Bonds:
11.625%, 11/15/2004
$....7,000,000 $ 9,244,690
10.375%, 11/15/2009
2,500,000 3,119,175
6.125%, 11/15/2027
4,500,000 4,705,110
U.S. Treasury Inflation Protection
Securities,
3.625%, 4/15/2028
5,000,000 (p) 4,986,779
U.S. Treasury Notes:
5.50%, 3/31/2003
2,000,000 1,993,960
5.75%, 4/30/2003
2,500,000 2,518,950
_____________
26,568,664
_____________
TOTAL BONDS AND NOTES
(cost $149,117,100)
$145,549,824
==============
Options--.1%
Contracts
- -------------------------------------------------------------------------------
- --------
_____________
Call Options; U.S. Treasury Notes, 5.50%, 2/15/2008,
April '99 @ $99.125
(cost $250,781)
150 $ 237,000
=============
Principal
Short-Term Investments--4.3%
Amount
- -------------------------------------------------------------------------------
- --------
_____________
U.S. Government Agencies--1.9% Federal Home Loan Mortgage,
5.45%, 6/1/1998
$....2,967,000 $ 2,967,000
_____________
U.S. Treasury Bills--2.3% 4.98%, 7/2/1998
800,000 796,864
4.93%, 7/23/1998
1,400,000 (r) 1,390,368
4.93%, 8/6/1998
215,000 213,099
4.94%, 8/27/1998
1,216,000 1,201,627
_____________
3,601,958
_____________
TOTAL SHORT-TERM INVESTMENTS
(cost $6,568,140)
$ 6,568,958
=============
TOTAL INVESTMENTS (cost $155,936,021)
98.7% $152,355,782
======= =============
CASH AND RECEIVABLES (NET)
1.3% $ 1,956,209
======= =============
NET ASSETS
100.0% $154,311,991
======= =============
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
Notes to Statements of Investments:
- -----------------------------------------------------------------------------
(a) Converted to U.S. Dollars from Italian Lire.
(b) Converted to U.S. Dollars from Canadian Dollars.
(c) Variable rate security-interest rate subject to periodic change.
(d) Converted to U.S. Dollars from Japanese Yen.
(e) Zero coupon until year shown at which time a stated coupon rate
becomes effective.
(f)Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 1998 these
securities amounted to $3,028,024 or 2.0% of net assests.
(g) Converted to U.S. Dollars from Belgian Francs.
(h) Converted to U.S. Dollars from French Francs.
(i) Converted to U.S. Dollars from German Deutsche Marks.
(j) Converted to U.S. Dollars from New Zealand Dollars.
(k) Converted to U.S. Dollars from Danish Krone.
(l) Converted to U.S. Dollars from Spanish Pesetas.
(m) Converted to U.S. Dollars from Swedish Krona.
(n) Converted to U.S. Dollars from British Pounds.
(o) Converted to U.S. Dollars from Swiss Francs.
(p) Variable rate security-base interest rate shown-adjustment to interest
rate linked to the Consumer Price Index.
(q) Notional face amount shown.
(r)Partially held by the custodian in a segregated account as collateral for
open Financial Futures positions.
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
STATEMENT OF OPTIONS WRITTEN MAY 31, 1998 (UNAUDITED)
Call Options
____________
Issuer
Contracts Value
_____
_________ _________
U.S. Treasury Notes, 5.50%, 2/15/2008, April '99 @ $101.75
(Premiums received $128,906)
150 $115,900
=========
Put Options
____________
Issuer
Contracts Value
_____
_________ _________
U.S. Treasury Notes, 5.50%, 2/15/2008, April '99 @ $94.156
(Premiums received $121,875)
150 $ 83,100
=========
STATEMENT OF FINANCIAL FUTURES
MAY 31, 1998 (UNAUDITED)
Market Value Unrealized
Covered Appreciation
Financial Futures (Long) Contracts by
Contracts Expiration at 5/31/98
___________________ _____________
_____________ _____________ _____________
U.S. Treasury 5 year Notes 345 $
37,680,469 June '98 $ 59,203
United Kingdom 15 year Gilt 6
535,078 September '98 2,056
_____________
$ 61,259
_____________
_____________
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures (Short) Contracts by
Contracts Expiration at 5/31/98
_____________________ _____________
_____________ _____________ _____________
U.S. Treasury 10 year Notes 75 $
8,484,375 September '98 $ 1,172
U.S. Treasury 30 year Bonds 150
18,225,000 September '98 (9,484)
_____________
$ (8,312)
==============
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1998 (UNAUDITED)
Cost Value
_____________ _____________
_
ASSETS: Investments in securities--See Statement of
Investments $155,936,021 $152,355,782
Interest receivable
3,314,778
Net unrealized appreciation on forward
currency exchange contracts--Note 3(a)
174,642
_____________
155,845,202
_____________
LIABILITIES: Due to The Dreyfus Corporation
116,418
Cash overdraft due to Custodian
859,583
Payable for futures variation margin--Note
3(a)
22,887
Payable for forward currency exchange
contracts
closed--Note 3(a)
208,716
Outstanding options written, at value
(premiums received $250,781)
--see Statement of Options Written
199,050
Accrued expenses and other liabilities
126,557
_____________
1,533,211
_____________
NET ASSETS
$154,311,991
=============
REPRESENTED BY: Paid-in capital
$161,164,920
Accumulated distributions in excess of
investment income--net
(290,873)
Accumulated net realized gain (loss) on
investments and foreign currency transactions
(3,261,137)
Accumulated net unrealized appreciation
(depreciation) on investments, options written
and foreign currency transactions (including
$52,947 net unrealized appreciation on financial
futures)--Notes 3(b)
(3,300,919)
_____________
NET ASSETS
$154,311,991
=============
SHARES OUTSTANDING
(100 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED)
14,640,617
NET ASSET VALUE per share
$10.54
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
INVESTMENT INCOME
INCOME Interest Income
$5,854,361
EXPENSES: Management fee--Note 2(a)
$ 540,189
Custodian fees
49,087
Professional fees
39,135
Shareholders' reports
35,236
Directors' fees and expenses--Note 2(b)
31,382
Shareholder servicing costs
23,562
Registration fees
12,130
___________
Total Expenses
730,721
___________
INVESTMENT INCOME--NET
5,123,640
___________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 3:
Net realized gain (loss) on investments and foreign currency
transactions (including options transactions) $ 179,527
Net realized gain (loss) on financial futures
390,010
Net realized gain (loss) on forward currency
exchange contracts
1,444,549
___________
Net Realized Gain (Loss)
2,014,086
Net unrealized appreciation (depreciation) on
investments,
options written and foreign currency
transactions
(including $100,058 net unrealized
appreciation on
financial futures)
741,901
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
2,755,987
___________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$7,879,627
===========
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
May 31, 1998 Year Ended
(Unaudited) November 30,
1997
________________ ________________
OPERATIONS:
Investment income--net
$ 5,123,640 $ 10,032,165
Net realized gain (loss) on investments
2,014,086 11,714,328
Net unrealized appreciation (depreciation) on investments
741,901 (8,903,962)
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations
7,879,627 12,842,531
_____________ _____________
DISTRIBUTIONS TO SHAREHOLDERS:
From investment income--net
(11,895,503) (9,891,371)
In excess of investment income--net
- -- (2,150,539)
_____________ _____________
Total Distributions
(11,895,503) (12,041,910)
_____________ _____________
Total Increase (Decrease) in Net Assets
(4,015,876) 800,621
NET ASSETS:
Beginning of Period
158,327,867 157,527,246
_____________ _____________
End of Period
$154,311,991 $158,327,867
============= =============
UNDISTRIBUTED INVESTMENT INCOME (DISTRIBUTIONS IN EXCESS OF INVESTMENT INCOME)-
- -NET $ (290,873) $ 6,480,990
_____________ _____________
SEE NOTES TO FINANCIAL STATEMENTS.
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 Fund's financial statements and market price data for the
Fund's shares.
Six Months Ended
Six Months Ended Year Ended
May 31, 1998 Year Ended November 30, November 30, May 31,
________________________ ________________ _______________
PER SHARE DATA: (Unaudited) 1997 1996
1995 1994(1) 1994 1993
________________ ______ ______
______ ______ ______ ______
Net asset value, beginning
of period $10.81 $10.76 $10.66 $
9.85 $10.30 $11.03 $11.06
______ ______ ______
______ ______ ______ ______
Investment Operations:
Investment income--net .35 .69(2) .72(2)
.71 .42 .89 .95
Net realized and unrealized
gain (loss) on investments .19 .18(2) .13(2)
.82 (.44) (.70) .02
______ ______ ______
______ ______ ______ ______
Total from Investment Operations .54 .87(2) .85(2)
1.53 (.02) .19 .97
______ ______ ______
______ ______ ______ ______
Distributions:
Dividends from investment income--net (.81) (.67) (.74)
(.71) (.28) (.92) (.91)
Dividends in excess of investment
income--net -- (.15) (.01)
(.01) -- -- --
Dividends from net realized gain
on investments -- -- --
- -- -- -- (.09)
Dividends from paid-in capital -- -- --
- -- (.15) -- --
______ ______ ______
______ ______ ______ ______
Total Distributions (.81) (.82) (.75)
(.72) (.43) (.92) (1.00)
______ ______ ______
______ ______ ______ ______
Net asset value, end of period $10.54 $10.81 $10.76
$10.66 $ 9.85 $10.30 $11.03
====== ====== ======
====== ====== ====== ======
Market value, end of period $ 9 3/8 $ 9 9/16 $ 9 3/8 $
9 1/8 $ 9 1/8 $ 10 $11 1/2
====== ====== ======
====== ====== ====== ======
TOTAL INVESTMENT RETURN(3) 13.24%(4) 11.32% 11.37%
8.80% (8.98%)(4) (5.23%) 9.36%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets .95%(4) .92% .90%
.94% .92%(4) .89% .88%
Ratio of net investment income
to average net assets 6.64%(4) 6.48% 6.91%
7.56% 8.28%(4) 8.18% 8.57%
Portfolio Turnover Rate 300.58%(5) 337.41% 328.37%
91.27% 65.21%(5) 22.76% 43.00%
Net Assets, end of period
(000's Omitted) $154,312 $158,328 $157,527
$156,083 $145,164 $154,140 $164,174
- -----------------------------
(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.
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 (" Investment Adviser" ) serves as the Fund's investment
adviser. The Investment Adviser 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 short-term investments other than
U.S. Treasury Bills) 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.
Short-term investments (excluding U.S. Treasury Bills) 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 and 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 period end,
resulting from changes in exchange rates. Such gains and losses are included
with net realizedand 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. Under the terms of the custodian agreement,
the Fund receives net earnings credits based on available cash balances left on
deposit. Income earned under this arrangement is included in interest income.
(D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date.
Dividends from investment income-net are normally declared and paid monthly.
Dividends from net realized capital gain are normally declared and paid
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 29, 1998, the Board of Directors declared a cash dividend of $.0625 per
share from investment income-net, payable on June 26, 1998 to shareholders of
record as of the close of business on June 12, 1998.
(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 $5,233,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to November 30, 1997. If not
applied, $4,384,000 of the carryover expires in fiscal 2002, $18,000 expires
in fiscal 2003 and $831,000 expires in fiscal 2004.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement with the Investment Adviser, 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 Investment Adviser
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 Investment Adviser.
The Fund compensates Mellon, an affiliate of the Investment Adviser, under
a transfer agency agreement for providing personnel and facilities to perform
transfer agency services for the Fund. During the period ended May 31, 1998,
the Fund was charged $20,560 pursuant to the transfer agency agreement.
(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, 1998, amounted to $459,759,403 and
$465,991,788, respectively.
DREYFUS STRATEGIC GOVERNMENTS INCOME, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In addition, the following summarizes open forward currency exchange contracts
at May 31, 1998:
Foreign
Unrealized
Currency
Appreciation
Forward Currency Exchange Contracts Amount
Proceeds Value (Depreciation)
__________________________________ _______________
_____________ _____________ _____________
Sales:
_____
Belgian Franc, expiring 6/18/98 .........................$170,000,000
$ 4,547,886 $ 4,619,502 $ (71,616)
British Pound, expiring 6/18/98 ........................... 5,120,000
8,495,300 8,346,624 148,676
Canadian Dollar, expiring 6/18/98 ....................... 6,000,000
4,252,303 4,120,030 132,273
Danish Krone, expiring 6/18/98 ........................... 10,100,000
1,461,650 1,485,644 (23,994)
French Franc, expiring 6/18/98 ........................... 28,800,000
4,744,646 4,810,262 (65,616)
German Deutsche Mark, expiring 6/18/98 ........... 17,500,000
9,663,170 9,809,967 (146,797)
Italian Lire, expiring 6/18/98 ........................19,375,000,000
10,855,981 11,008,961 (152,980)
Japanese Yen, expiring 6/18/98 .......................... 720,000,000
5,629,398 5,195,341 434,057
New Zealand Dollar, expiring 6/18/98 ................ 2,170,000
1,180,480 1,158,346 22,134
Spanish Peseta, expiring 6/18/98 ...................... 1,006,000,000
6,528,229 6,635,884 (107,655)
Swedish Krona, expiring 6/18/98 .......................... 7,000,000
883,838 892,527 (8,689)
Swiss Franc, expiring 6/18/98 ............................. 2,480,000
1,690,525 1,675,676 14,849
____________
TOTAL.....................................................$ 174,642
============
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, 1998:
Options Terminated
____________________
_____
Net
Number of
Premiums Realized
Contracts
Received Cost Gain (Loss)
__________
__________ __________ __________
OPTIONS WRITTEN:
Contracts outstanding November 30, 1997 ........ 500
$ 600,000
Contracts written ................................................ 790
655,324
____
__________
Contracts terminated:
Closed......................................................... 590
826,418 $1,159,952 ($333,534)
Expired ....................................................... 400
178,125 -- 178,125
____
__________ ___________ __________
Total contracts terminated ....................... 990
1,004,543 $1,159,952 ($155,409)
____
__________ =========== ==========
Contracts outstanding May 31, 1998 ................. 300
$ 250,781
====
==========
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, 1998 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, 1998 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. 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, 1998 are set forth in the Statement of Financial Futures.
(B) At May 31, 1998, accumulated net unrealized depreciation on
investments, financial futures, options and forward currency exchange
contracts was $3,300,919, consisting of $2,662,174 gross unrealized
appreciation and $5,963,093 gross unrealized depreciation.
At May 31, 1998, 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.
- -----------------------------------------------------------------------------
PROXY RESULTS (UNAUDITED)
Stockholders voted on the following proposals presented at the annual
stockholders' meeting held on June 5, 1998. The description of each proposal
and the number of shares voted are as follows:
Shares
___________________________________________________
For Against Abstained
_____________ _____________ _____________
1. To consider a proposal to convert the Fund
from a closed-end investment company
to an open-end investment company
2,641,837 4,845,096 485,985
2. To ratify the selection of Ernst & Young LLP
as independent auditors of the Fund
12,604,319 129,089 186,264
For Authority Withheld
_________________ _________________
3. To elect two Class III Directors:*
Diane Dunst
12,213,593 706,079
Rosalind Gersten Jacobs
12,205,831 713,841
- --------
* The terms of these Class III Directors expire in 2001.
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 Treasurer
Michael S. Petrucelli
Vice President and Assistant Treasurer
Richard W. Ingram
Vice President and Assistant Treasurer
Mary A. Nelson
Vice President and Assistant Secretary
Douglas C. Conroy
Vice President and Assistant Treasurer
Joseph F. Tower, III
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.
- -------------------------------------------------------------------------------
