Dreyfus
Strategic Governments
Income, Inc.
SEMIANNUAL REPORT
May 31, 1999
<PAGE>
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured
* Not Bank-Guaranteed
* May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
<PAGE>
Contents
THE FUND
- -------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Statement of Investments
10 Statement of Financial Futures
11 Statement of Options Written
12 Statement of Assets and Liabilities
13 Statement of Operations
14 Statement of Changes in Net Assets
15 Financial Highlights
16 Notes to Financial Statements
FOR MORE INFORMATION
- --------------------------------------------------------
Back Cover
<PAGE>
Dreyfus
Strategic Governments Income, Inc. The Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus Strategic
Governments Income, Inc., covering the six-month period from December 1, 1998
through May 31, 1999. Inside, you'll find valuable information about how the
fund was managed during the reporting period, including a discussion with the
fund's portfolio manager, Gerald Thunelius.
Lower short-term interest rates adopted by the Federal Reserve Board and other
central banks in the fall of 1998 appear to have helped many developed nations
withstand the effects of economic weakness in Japan, Asia and Latin America. At
the same time, the U.S. economy entered its eighth year of expansion in an
environment characterized by low inflation and high levels of consumer spending.
Fixed-income securities provided mixed results in this economic climate. U.S.
Treasury securities gave back most of the gains they achieved last summer when
stocks and other types of bonds fell. Other types of bonds performed well,
however, as investors shifted assets back into bond market sectors they had
previously avoided. Accordingly, many corporate bonds, mortgage-backed
securities, asset-backed securities and U.S. dollar-denominated foreign bonds
provided relatively attractive returns over the reporting period.
We appreciate your confidence over the past six months, and we look forward to
your continued participation in Dreyfus Strategic Governments Income, Inc.
Sincerely,
/s/ Stephen E. Canter
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
June 14, 1999
<PAGE>
DISCUSSION OF FUND PERFORMANCE
Gerald Thunelius, Portfolio Manager
How did Dreyfus Strategic Governments Income, Inc. perform relative to its
benchmark?
For the six-month period ended May 31, 1999, Dreyfus Strategic Governments
Income, Inc. produced a total return of 1.86%.1 In comparison, the fund's
benchmark, the Salomon Smith Barney World Government Bond Index (currency
hedged), produced a total return of 1.16% for the same six-month period.2
What is the fund's investment approach?
The fund seeks to provide as high a level of current income as is consistent
with the preservation of capital. To pursue this goal, it invests primarily in
securities issued or guaranteed by the U.S. government or its agencies as well
as in securities issued by one or more foreign governments and any of their
political sub-divisions or agencies. The fund invests at least 65% of its total
assets in the securities of U.S. and foreign governments and may invest up to
50% of its total assets in foreign government securities.
When choosing securities, we first examine U.S. and global economic
conditions and other market factors to determine the likely direction of
long- and short-term interest rates. Using a research-driven investment
process, we then attempt to identify potentially profitable sectors before they
are widely perceived by the market. Finally, we look for underpriced or
mispriced securities within those sectors that, in our opinion, are likely to
perform well over time.
What other factors influenced the fund's performance?
Our U.S. bond holdings produced mixed results during the six-month reporting
period. Most significantly, U.S. Treasury securities suffered as investors who
had flocked to these direct obligations of the federal government during last
year's "flight to quality" shifted their assets to
The Fund 3
<PAGE>
DISCUSSION OF FUND PERFORMANCE (continued)
higher yielding segments of the marketplace. This was especially true in April
and May, when the international bond markets began to show improvement.
The portfolio's foreign bonds also produced mixed returns. On one hand, the fund
benefited from its holdings in Korea, Panama, Spain, Greece and Turkey. Our
Korean holdings produced the strongest returns over the past six months. That's
because even though Korea had already made dramatic progress toward financial
reform, their bond prices rose further when many other Asian economies began to
rebound in the early part of this year. Panama and Spain have both benefited
from strong exports as global growth has improved, while Greece and Turkey both
initiated aggressive reforms in the hope of becoming part of the European
Monetary Union (EMU). Unfortunately, neither Greece nor Turkey was able to meet
the deadline for this first round of EMU entries, but their efforts resulted in
stronger economies.
On the other hand, our investments in Poland and Uruguay provided lackluster
returns. Bonds in Poland have suffered because of the country's fiscal problems
and, most recently, as a result of the war in Kosovo. Investments in Uruguay,
often referred to as the "Switzerland of Latin America," provided disappointing
results during the period. As the region's emerging markets made quick
recoveries from January's Brazilian currency devaluation, the "flight to
quality" that might have otherwise used Uruguay as a safe haven never took
place.
4
<PAGE>
What is the fund's current strategy?
We have maintained a neutral average duration -- which is a measure of
sensitivity to changes in interest rates -- because we do not believe that
investors have been adequately compensated for taking on the risks of
longer-term securities. We also reduced the portfolio's exposure to non-dollar
investments by about 15%, based on evidence supporting a strong U.S. dollar
relative to major foreign currencies. At the same time, we slightly increased
our exposure to U.S Treasury securities, preferring to add more liquidity to the
portfolio while we wait to see how the global bond market conditions evolve.
June 14, 1999
1 Total return includes reinvestment of dividends and any capital gains paid.
2 SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- The Salomon Smith Barney World
Government Bond Index (currency hedged) is a market-capitalization-weighted
benchmark that tracks the performance of 18 government bond markets.
The Fund 5
<PAGE>
STATEMENT OF INVESTMENTS
May 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Bonds and Notes--93.8% Amount ($) Value ($)
- --------------------------------------------------------------------------------
Banking and Finance--9.8%
Banco Comercial,
Bonds, 8.875%, 2009a 2,500,000 2,443,750
Banco Nacional de Mexico,
Bonds, 7.25%, 2004 5,000,000 4,431,250
Bangko Sentral Philipinas,
Bonds, 8.6%, 2027 2,500,000 2,031,250
Credit Local de France,
Bonds, 9.625%, 2000b 678,104 712,083
KfW International Finance,
Gtd. Bonds, 6%, 1999c 2,219,482 2,284,726
Korea Development Bank,
Notes, 7.125%, 2004 2,500,000 2,431,215
14,334,274
Foreign--5.1%
Korea Electric Power:
Deb., 7.75%, 2013 7,000,000 6,450,493
Discount Notes, 7.95%, 2096d 5,256,000 997,163
7,447,656
Foreign/Governmental--49.4%
Belgium Kingdom Bonds,
9%, 2003e 2,580,571 3,104,099
Canada Government Bonds:
9.75%, 2000b 1,356,208 1,448,336
8.75%, 2005b 1,356,208 1,601,465
Federative Republic of Brazil:
Floating Rate Notes, 5.938%, 2009f 5,000,000 3,218,750
Global Bonds, 10.125%, 2027 2,500,000 1,828,126
France O.A.T., Deb.:
8.5%, 2003e 2,063,092 2,455,701
8.5%, 2008e 1,873,800 2,496,779
8.5%, 2023e 1,190,245 1,757,632
Hellenic Republic of Greece:
Bonds, 6.3%, 2009g 3,201,537 3,308,715
Bonds, 8.6%, 2008g 1,280,615 1,503,606
Ivory Coast,
Floating Rate Notes, 2%, 2018f 2,000,000 520,000
Jordan,
Floating Rate Notes, 5.5%, 2023f 2,000,000 1,190,000
Kingdom of Denmark Bonds,
7%, 2007h 1,260,681 1,488,035
6
<PAGE>
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Principal
Bonds and Notes (continued) Amount ($) Value ($)
- --------------------------------------------------------------------------------
Foreign/Governmental (continued)
Poland, Ser. PDI,
Floating Rate Bonds, 5%, 2014f 2,000,000 1,780,000
Republic of Austria,
Deb., 6.25%, 2003c 2,630,497 3,287,225
Republic of Colombia:
Notes, 8.66%, 2004i 4,000,000 3,600,008
Global Bonds, 9.75%, 2009 3,000,000 2,568,750
Republic of Costa Rica,
Notes, 9.335%, 2009a 9,000,000 8,662,500
Republic of Panama,
Global Bonds, 8.875%, 2027 2,000,000 1,735,000
Republic of Turkey,
Bonds, 12%, 2003j 2,000,000 1,990,000
Republic of Venezuela, Ser. C,
Floating Rate Deb., 6.375%, 2003f 2,500,000 1,750,000
Republica Oriental del Uruguay,
Bonds:
7.25%, 2009 2,500,000 2,350,000
Ser. B, 6.75%, 2021 (Units)k 3,000,000 2,580,000
Spain Government,
Deb., 10%, 2005e 2,815,441 3,746,648
Sweden Government,
Deb., 6%, 2005l 2,322,395 2,545,426
United Kingdom Gilt Edged Securities:
9.5%, 2005m 960,600 1,174,664
9%, 2011m 1,601,000 2,180,494
United Mexican States:
Global Bonds, 11.5%, 2026 2,000,000 2,202,500
Ser. XW, Global Bonds, 10.375%, 2009 4,000,000 3,980,000
72,054,459
Foreign/Supranational--4.8%
European Investment Bank,
Notes, 12.2%, 2003n 3,763,423 4,908,033
International Bank for Reconstruction
and Development,
Notes, 5.25%, 2002c 1,890,670 2,155,307
7,063,340
U.S. Government Agencies--18.4%
Federal Farm Credit,
Real Yield Securities,
2.169%, 2/14/2002o 1,000,000 973,410
The Fund 7
<PAGE>
STATEMENT OF INVESTMENTS (Unaudited) (continued)
- --------------------------------------------------------------------------------
Principal
Bonds and Notes (continued) Amount ($) Value ($)
- --------------------------------------------------------------------------------
U.S. Government Agencies (continued)
Federal Home Loan Mortgage Corp.:
Gtd. REMIC Pass-Through Ctfs.,
Ser. 51, Cl. E, 10%, 7/15/2020 5,071,136 5,476,624
REMIC Trust, Pass-Through Ctfs.
(Collateralized by FHLMC
Pass-Through Ctfs.):
Ser. 1611, Cl. L, 7%, 11/15/2023
(Interest Only Obligation)p 5,000,000 1,509,375
Ser. 1978, Cl. PJ, 7%, 3/15/2026
(Interest Only Obligation)p 5,130,500 1,537,303
Federal National Mortgage Association:
8%, 12/1/2025 861,205 897,532
Gtd. REMIC Pass-Through Ctfs.,
Ser. 1988-16, Cl. B., 9.5%,
6/25/2018 2,373,616 2,508,961
U.S. Government Gtd. Development,
Participation Ctfs.
(Gtd. by U.S. Small Business
Administration):
Ser 1994-20K, 8.65%, 11/1/2014 4,625,194 4,935,990
Ser 1994-20L, 8.4%, 12/1/2014 6,979,663 7,376,573
Ser 1997-20J, 6.55%, 10/1/2017 1,615,791 1,603,215
26,818,983
U.S. Government--6.3%
U.S. Treasury Notes:
5.25%, 5/15/2004 1,500,000 1,478,775
5.625%, 2/15/2006 300,000 297,579
5.5%, 5/15/2009 7,500,000 7,431,825
9,208,179
Total Bonds and Notes
(cost $143,402,211) 136,926,891
- --------------------------------------------------------------------------------
Options--0.0% Contracts Value ($)
Call Options;
U.S. Treasury Notes, 4.75%, 11/15/2008,
December '99 @ $100.375
(cost $207,188) 85 13,430
8
<PAGE>
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Principal
Short-Term Investments--1.4% Amount ($) Value ($)
- --------------------------------------------------------------------------------
U.S. Government Agencies--.6%
Federal Home Loan Banks,
Discount Notes, 4.68%, 6/1/1999 872,000 872,000
U.S. Treasury Bills-.8%
4.48%, 6/3/1999q 240,000 239,875
4.21%, 6/10/1999q 390,000 389,421
4.43%, 6/17/1999q 23,000 22,947
4.46%, 7/1/1999q 100,000 99,602
4.42%, 7/8/1999q 400,000 398,066
1,149,911
Total Short-Term Investments
(cost $2,022,296) 2,021,911
- --------------------------------------------------------------------------------
Total Investments (cost $145,631,695) 95.2% 138,962,232
Cash and Receivables (Net) 4.8% 7,074,993
Net Assets 100.0% 146,037,225
a 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, 1999 these securities
amounted to $11,106,250 or 7.6% of net assets.
b Converted to U.S. Dollars from Canadian Dollars.
c Converted to U.S. Dollars from Japanese Yen.
d Zero coupon until a specified date at which time the stated coupon rate
becomes effective until maturity.
e Converted to U.S. Dollars from Euro.
f Variable rate security--interest rate subject to periodic change.
g Converted to U.S. Dollars from Greek Drachmas.
h Converted to U.S. Dollars from Danish Krone.
i Reflects date security can be redeemed at holder's option; the stated maturity
is 10/7/2016.
j Reflects date security can be redeemed at holder's option; the stated
maturity is 12/15/2008.
k With value recovery rights attached.
l Converted to U.S. Dollars from Swedish Krona.
m Converted to U.S. Dollars from British Pounds.
n Converted to U.S. Dollars from Italian Lire.
o Variable rate security-adjustment to interest rate linked to the Consumer
Price Index.
p Notional face amount shown.
q Held by the custodian in a segregated account as collateral for open
financial futures positions.
See notes to financial statements.
The Fund 9
<PAGE>
STATEMENT OF FINANCIAL FUTURES
May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Unrealized
Market Value Appreciation
Covered by (Depreciation)
Contracts Contracts ($) Expiration at 5/31/99 ($)
- -----------------------------------------------------------------------------------------
Financial Futures Long
<S> <C> <C> <C> <C>
U.S. Treasury 30 Year Bonds 227 26,665,406 September '99 (58,523)
Australian 10 Year Bonds 5 467,891 June '99 (11,934)
Euro Bond 41 5,115,727 June '99 (63,092)
United Kingdom 15 Year Gilt 5 921,378 June '99 (47,893)
Financial Futures Short
U.S. Treasury 2 Year Notes 50 10,403,125 September '99 (5,469)
U.S. Treasury 5 Year Notes 395 43,048,828 September '99 179,609
U.S. Treasury 10 Year Notes 7 780,719 September '99 5,961
(1,341)
</TABLE>
See notes to finanacial statements
10
<PAGE>
Statement of Options Written
May 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Call Options
Issuer Contracts Value ($)
- --------------------------------------------------------------------------------
U.S. Treasury Notes, 4.75%, 11/15/2008,
December '99 @ $104.78125 85 2,040
Put Options
Issuer
- --------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds, July '99 @ $118 150 189,844
U.S. Treasury Notes, 4.75%, 11/15/2008,
December '99 @ $95.125 85 336,855
(Premiums received $383,375) 528,739
See notes to financial statements.
The Fund 11
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Cost Value
- --------------------------------------------------------------------------------
Assets ($):
Investments in securities--See Statement of
Investments 145,631,695 138,962,232
Receivable for investment securities sold 4,316,907
Interest receivable 3,446,763
Net unrealized appreciation on forward currency
exchange contracts--Note 3(a) 446,885
Prepaid expenses and other receivables 25,735
147,198,522
- --------------------------------------------------------------------------------
Liabilities ($):
Due to The Dreyfus Corporation 93,180
Cash overdraft due to Custodian 24,219
Outstanding options written, at value (premiums
received $383,375)
--see Statement of Options Written 528,739
Payable for forward currency exchange contracts--Note 3(a) 323,209
Payable for futures variation margin--Note 3(a) 21,789
Accrued expenses and other liabilities 170,161
1,161,297
- --------------------------------------------------------------------------------
Net Assets ($) 146,037,225
- --------------------------------------------------------------------------------
Composition of Net Assets ($):
Paid-in capital 161,164,920
Accumulated distributions in excess of investment income--net (2,931,736)
Accumulated net realized gain (loss) on investments, options and
foreign currency transactions (5,804,127)
Accumulated net unrealized appreciation (depreciation) on
investments, options written and foreign currency transactions
[including ($1,341) net unrealized depreciation on financial
futures]--Note 3(b) (6,391,832)
- --------------------------------------------------------------------------------
Net Assets ($) 146,037,225
- --------------------------------------------------------------------------------
Shares Outstanding
(100 million shares of $.001 par value Common Stock authorized) 14,640,617
Net Asset Value, per share ($) 9.97
See notes to financial statements.
12
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income ($):
- --------------------------------------------------------------------------------
Interest Income 5,739,600
Expenses:
Management fee--Note 2(a) 519,400
Shareholder servicing costs 42,928
Shareholders' reports 33,612
Directors' fees and expenses--Note 2(b) 30,809
Professional fees 29,946
Custodian fees 26,699
Registration fees 12,130
Miscellaneous 11,437
Total Expenses 706,961
Investment Income--Net 5,032,639
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments--Note 3 ($):
Net realized gain (loss) on investments and foreign currency
transactions (including options written) 380,271
Net realized gain (loss) on financial futures (547,757)
Net realized gain (loss) on forward currency exchange
contracts 2,328,199
Net Realized Gain (Loss) 2,160,713
Net unrealized appreciation (depreciation) on investments,
options written and foreign currency transactions
[including ($87,883) net unrealized (depreciation) on
financial futures] (5,069,467)
Net Realized and Unrealized Gain (Loss) on Investments (2,908,754)
Net Increase in Net Assets Resulting from Operations 2,123,885
See notes to financial statements.
The Fund 13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months Ended
May 31, 1999 Year Ended
(Unaudited) November 30, 1998
- --------------------------------------------------------------------------------
Operations ($):
Investment income--net 5,032,639 10,142,388
Net realized gain (loss) on investments 2,160,713 (4,401,402)
Net unrealized appreciation (depreciation)
on investments (5,069,467) 2,720,455
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,123,885 8,461,441
- --------------------------------------------------------------------------------
Dividends to Shareholders ($):
From Investment income--net (5,490,231) (16,664,869)
In excess of investment income--net -- (720,868)
Total Distributions (5,490,231) (17,385,737)
Total Increase (Decrease) in Net Assets (3,336,346) (8,924,296)
- --------------------------------------------------------------------------------
Net Assets ($):
Beginning of Period 149,403,571 158,327,867
End of Period 146,037,225 149,403,571
See notes to financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal period indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Six Months
Ended Six Months Year
May 31, Ended Ended
1999 Year Ended November 30, November 30, May 31,
----------------------------
(Unaudited) 1998 1997 1996 1995 1994a 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data ($):
Net asset value, beginning
of period 10.20 10.81 10.76 10.66 9.85 10.30 11.03
Investment Operations:
Investment income--net .34b .70b .69b .72b .71 .42 .89
Net realized and unrealized
gain (loss) on investments (.19) (.12) .18 .13 .82 (.44) (.70)
Total from Investment
Operations .15 .58 .87 .85 1.53 (.02) .19
Distributions:
Dividends from investment
income--net (.38) (1.14) (.67) (.74) (.71) (.28) (.92)
Dividends in excess of
investment income--net -- (.05) (.15) (.01) (.01) -- --
Dividends from paid-in
capital -- -- -- -- -- (.15) --
Total Distributions (.38) (1.19) (.82) (.75) (.72) (.43) (.92)
Net asset value, end of period 9.97 10.20 10.81 10.76 10.66 9.85 10.30
Market Value, end of period 8 7/8 9 3/16 9 9/16 9 3/8 9 1/8 9 1/8 10
- ------------------------------------------------------------------------------------------------------
Total Return (%)c 1.34d 8.75 11.32 11.37 8.80 (8.98)d (5.23)
- ------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to average
net assets .95d .90 .92 .90 .94 .92d .89
Ratio of net investment income
to average net assets 6.78d 6.65 6.48 6.91 7.56 8.28d 8.18
Portfolio Turnover Rate 211.53e 599.75 337.41 328.37 91.27 65.21e 22.76
- ------------------------------------------------------------------------------------------------------
Net Assets, end of period
($ x 1,000) 146,037 149,404 158,328 157,527 156,083 145,164 154,140
</TABLE>
a The fund changed its fiscal year end from May 31 to November 30.
b Based on average shares outstanding.
c Calculated based on market value.
d Annualized.
e Not annualized.
See notes to financial statements.
The Fund 15
<PAGE>
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, as amended (the "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 (excluding short-term
investments, other than U.S.Treasury Bills, options and financial futures) 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 judgement
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. Securities for which there are no such valuations are valued
at fair value as determined in good faith under the direction of the Board of
Trustees. Short-term investments, excluding U.S. Treasury Bills, are carried at
amortized cost, which approximates value. Financial futures and options 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
16
<PAGE>
securities market on each business day. Investments denominated in foreign
currencies are translated to U.S. dollars at the prevailing rates of exchange.
(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 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. Under the terms of the custody agreement, the
fund received net earnings credits of $15,145 during the period ended May 31,
1999 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
annually, but the fund may make distributions on a more frequent basis to comply
with the distribution
The Fund 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
requirements of the Internal Revenue Code of 1986, as amended (the "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 28, 1999, the Board of Directors declared a cash dividend of $.0625 per
share from investment income-net, payable on June 28, 1999 to shareholders of
record as of the close of business on June 14, 1999.
(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 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 $6,044,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to November 30, 1998. The
carryover does not include net realized secu-
18
<PAGE>
rities losses from November 1, 1998 through November 30, 1998 which are
treated, for federal income tax purposes, as arising in fiscal 1999.
If not applied, $4,384,000 of the carryover expires in fiscal 2002,
$18,000 expires in fiscal 2003, $831,000 expires in fiscal 2004 and
$811,000 expires in fiscal 2006.
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, 1999, the
fund was charged $6,817 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, 1999, amounted to $299,602,369 and $304,413,359, respectively.
The Fund 19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following summarizes open forward currency exchange contracts at May 31,
1999:
<TABLE>
<CAPTION>
Foreign Unrealized
Currency Appreciation
Forward Currency Exchange Contracts Amounts Proceeds ($) Value($) (Depreciation)($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
British Pounds,
expiring 8/27/1999 2,185,000 3,536,095 3,496,389 39,706
Canadian Dollars,
expiring 8/27/1999 5,920,000 4,034,209 4,017,142 17,067
Danish Krone,
expiring 8/27/1999 11,160,000 1,605,294 1,570,754 34,540
Euro,
expiring 8/27/1999 17,940,000 19,227,195 18,787,539 439,656
Greek Drachmas,
expiring 7/30/1999 490,000,000 1,592,098 1,556,941 35,157
Japanese Yen,
expiring 8/27/1999 975,000,000 7,950,098 8,112,341 (162,243)
Swedish Krona,
expiring 8/27/1999 22,690,000 2,690,397 2,647,395 43,002
Total 446,885
</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.
20
<PAGE>
The following summarizes the fund's call/put options written for the period
ended May 31, 1999:
Options Terminated
------------------
Net
Number of Premiums Realized
Contracts Received($) Cost($) Gain($)
--------- ---------- ------------------
OPTIONS WRITTEN:
Contracts outstanding
November 30, 1998 -- --
Contracts written 1,157 1,267,658
Contracts terminated:
Closed 837 884,283 743,114 141,169
Contracts outstanding
May 31, 1999 320 383,375
The fund may purchase and write (sell) put and call options in order to gain
exposure to or to 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.
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.
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 under-
The Fund 21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
lying 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, 1999 are set forth in the Statement of Financial Futures.
(b) At May 31, 1999, accumulated net unrealized depreciation on investments,
financial futures, options and forward currency exchange contracts was
$6,391,831, consisting of $1,636,817 gross unrealized appreciation and
$8,028,648 gross unrealized depreciation.
At May 31, 1999, 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).
22
<PAGE>
PROXY RESULTS (Unaudited)
Stockholders voted on the following proposals presented at the annual
stockholders' meeting held on June 11, 1999. 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
to an open-end
investment company 2,192,140 4,849,434 475,596
2. To ratify the selection
of Ernst & Young LLP
as independent auditors
of the fund 12,211,849 168,458 153,684
3. To consider a stockholder
proposal recommending that the
fund's board commit to a program
to repurchase fund shares. 2,035,814 4,910,267 583,388
- --------------------------------------------------------------------------------
Authority
For Withheld
- --------------------------------------------------------------------------------
4. To elect three Class I Directors:*
Joseph S. DiMartino 11,954,162 579,829
Warren B. Rudman 11,951,448 582,543
Sander Vanocur 11,944,836 589,155
* The terms of these Class IDirectors expire in 2002.
The Fund 23
<PAGE>
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
Margaret W. Chambers
Vice President and Assistant Treasurer
John P. Covino
Vice President and Assistant Treasurer
Mary A. Nelson
Vice President and Assistant Treasurer
George A. Rio
Vice President and Assistant Treasurer
Joseph F. Tower, III
Vice President, Assistant Treasurer and
Assistant Secretary
Frederick C. Dey
Vice President, Assistant Treasurer and
Assistant Secretary
Stephanie Pierce
Vice President and Assistant Secretary
Douglas C. Conroy
Vice President and Assistant Secretary
Karen Jacoppo-Wood
Vice President and Assistant Secretary
Christopher J. Kelley
Officers (continued)
Vice President and Assistant Secretary
Kathleen K. Morrisey
Vice President and Assistant Secretary
Elba Vasquez
Portfolio Managers:
Kevin McClintock
Gerald Thunelius
Jean Charles Bertrand
Michel-Andre Levy
Benedicte Maillant
Thierry Mirabe
Pierre Sequier
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 Disbursing 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
Bond 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.
<PAGE>
For More Information
Dreyfus Strategic Governments
Income, Inc.
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Sub-Investment Advisorr
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
(c) 1999 Dreyfus Service Corporation 854SA995
