Dreyfus
Strategic Governments
Income, Inc.
SEMIANNUAL REPORT May 31, 2000
(reg.tm)
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
Contents
THE FUND
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2 Letter from the President
3 Discussion of Fund Performance
6 Statement of Investments
10 Statement of Financial Futures
11 Statement of Assets and Liabilities
12 Statement of Operations
13 Statement of Changes in Net Assets
14 Financial Highlights
15 Notes to Financial Statements
25 Officers and Directors
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus Strategic Governments Income, Inc.
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, 1999
through May 31, 2000. Inside you'll find valuable information about how the fund
was managed during the reporting period, including a discussion with Gerald
Thunelius, portfolio manager and a member of the Dreyfus Taxable Fixed Income
Team that manages the fund.
Tighter monetary policy adversely affected most but not all sectors of the bond
market over the past six months. This was primarily a result of efforts by the
Federal Reserve Board to forestall a potential reemergence of inflationary
pressures. The Federal Reserve Board raised short-term interest rates three
times during the reporting period. Short-term interest rates were raised by a
total of 1.75 percentage points since June 1999.
While higher interest rates generally led to an erosion of most bond prices,
U.S. Treasury securities represented a notable exception. These direct
obligations of the federal government rose primarily because of reduced supply
amid robust demand from domestic and foreign investors.
We appreciate your confidence over the past six months and we look forward to
your continued participation in Dreyfus Strategic Governments Income, Inc
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
June 15, 2000
DISCUSSION OF FUND PERFORMANCE
Gerald Thunelius, Portfolio Manager Dreyfus Taxable Fixed Income Team
How did Dreyfus Strategic Governments Income, Inc. perform relative to its
benchmark?
For the six-month reporting period ended May 31, 2000, Dreyfus Strategic
Governments Income, Inc. achieved a 1.69% total return.(1) In contrast, the
Salomon Smith Barney World Government Bond Index (currency hedged), produced a
total return of 3.63% for the same period.(2)
We attribute the fund' s performance to our security selection strategy in a
difficult investment environment. Most bond prices continued to erode as the
Federal Reserve Board (the "Fed") continued to tighten monetary policy in an
attempt to relieve inflationary pressures. However, the market for U.S.
Government agency securities was subject to its own political and economic
influences, which benefited the fund's holdings of direct obligations of the
U.S. Government.
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, we invest primarily in
securities issued or guaranteed by the U.S. Government or its agencies, as well
as in securities issued by foreign governments and any of their political
sub-divisions or agencies. The fund will invest a minimum of 65% of its total
assets in the securities of U.S. and foreign governments. The fund may also
invest up to 35% of its total assets in other debt securities, including those
issued by non-governmental issuers in the United States.
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 invest The Fun
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
ment 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, can perform well
over time.
What other factors influenced the fund's performance?
The fund was adversely influenced by higher interest rates over the past six
months. When the reporting period began on December 1, 1999, investors had
become concerned over strong economic growth and high levels of consumer
spending. In addition, there were concerns that historically low levels of
unemployment could rekindle long-dormant inflationary pressures, especially with
rising wages in a tight job market. In an attempt to ease these pressures, the
Fed raised short-term interest rates three times during the reporting period,
causing most bond prices to fall, including those of many of the fund's
holdings. When added to the three interest-rate hikes implemented before the
reporting period began, the Fed has raised interest rates a total of 1.75
percentage points since June 1999.
The fund' s performance was positively affected by certain global developments.
Emerging market securities came under pressure as concerns that the Fed would
slow global growth mounted. The fund normally holds 10-15% of its assets in
select emerging markets. However, we had reduced exposure down to 5%. Because
the fund had decreased its exposure to emerging market securities, this
development benefited the fund's performance.
What is the fund's current strategy?
During most of the six-month reporting period, we currently have continued to
maintain the fund' s average duration -- a measure of sensitivity to changing
interest rates -- at a level that is consistent with the Salomon Smith Barney
World Government Bond Index (currency hedged) . This "neutral" duration
management strategy is designed to
manage the level of interest-rate risk within the portfolio, while enabling us
to seek what we believe are good investment opportunities through our sector
allocation strategy.
From a sector allocation standpoint, we have increased our holdings of U.S.
Government agency securities -- such as those issued by Government National
Mortgage Association (" Ginnie Mae"). At the same time, we have maintained our
holdings of Federal Home Loan Corporation ("Freddie Mac") and Federal National
Home Mortgage Association ("Fannie Mae") securities. As of May 31, 2000, we have
invested approximately 4% of the fund's assets in inflation protected securities
such as U.S. Treasury Inflation Protection Securities ("TIPS") which we believe
can provide attractive investment opportunities if the economy remains strong
and interest rates continue to rise.
June 15, 2000
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
BASED UPON NET ASSET VALUE PER SHARE.
(2) SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- REFLECTS REINVESTMENT OF
DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE SALOMON SMITH
BARNEY WORLD GOVERNMENT BOND INDEX (CURRENCY HEDGED) IS AN UNMANAGED,
FIXED-INCOME INDEX AND A MARKET CAPITALIZATION BENCHMARK THAT TRACKS THE
PERFORMANCE AND COVERS DEBT ISSUES OF 14 GOVERNMENT BOND MARKETS.
The Fund
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STATEMENT OF INVESTMENTS
May 31, 2000 (Unaudited)
STATEMENT OF INVESTMENTS
Principal
BONDS AND NOTES--94.2% Amount (a) Value ($)
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BANKING AND FINANCE--4.4%
Bangko Sentral Philipinas,
Bonds, 8.6%, 2027 2,500,000 1,656,250
Credit Local de France,
Bonds, 9.625%, 2000 CAD 1,000,000 672,993
DLJ,
Medium-Term Notes, .4%, 2000 2,500,000 (b) 2,536,868
Mannesmann Finance,
Bonds, 4.75%, 2009 EUR 1,500,000 1,243,884
6,109,995
FOREIGN/GOVERNMENTAL--39.5%
Belgium Kingdom Bonds,
9%, 2003 EUR 2,478,935 2,545,585
Bulgaria Government,
Ser. A, Bonds, 7.063%, 2024 1,500,000 (c) 1,132,500
Canada Government Bonds:
9.75%, 2000 CAD 2,000,000 1,365,314
8.75%, 2005 CAD 2,000,000 1,494,645
Federative Republic of Brazil:
Bonds, 8%, 2014 2,426,420 1,713,659
Bonds, 12.25%, 2030 2,750,000 2,433,750
France O.A.T., Deb.:
8.5%, 2003 EUR 781,837 798,428
8.5%, 2008 EUR 1,800,000 2,052,029
8.5%, 2023 EUR 1,143,368 1,459,965
Government of New Zealand Bonds,
Ser. 1106, 8%, 2006 NZD 1,500,000 722,403
Hellenic Republic of Greece:
Bonds, 8.6%, 2008 GRD 400,000,000 1,278,708
Bonds, 6.3%, 2009 GRD 310,000,000 872,620
Kingdom of Denmark Bonds:
4%, 2002 DKK 7,000,000 853,272
7%, 2007 DKK 9,000,000 1,214,282
Republic of Argentina:
Notes, 14.10%, 2002 4,000,000 (c) 3,890,000
Ser. B, Discount Notes, 0%, 2001 3,000,000 2,775,000
Republic of Austria,
Deb., 6.25%, 2003 JPY 720,000,000 7,920,782
Republic of Italy Bonds,
5.125%, 2003 JPY 270,000,000 2,857,399
Principal
BONDS AND NOTES (CONTINUED) Amount (a) Value ($)
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FOREIGN/GOVERNMENTAL (CONTINUED)
Spain Government:
Deb., 10%, 2005 EUR 3,504,554 3,899,418
Deb., 10.15%, 2006 EUR 3,000,000 3,445,263
Deb., 8.2%, 2009 EUR 2,500,000 2,779,343
Sweden Government,
Ser. 1035, Deb., 6%, 2005 SEK 6,000,000 689,954
United Kingdom Gilt Edged Securities:
9.5%, 2005 GBP 600,000 1,038,417
9%, 2011 GBP 250,000 493,613
United Mexican States,
Notes, 9.875%, 2010 5,000,000 4,975,000
54,701,349
FOREIGN/SUPRANATIONAL--5.7%
European Investment Bank:
Notes, 12.2%, 2003 ITL 7,000,000,000 3,940,349
Notes, 3%, 2006 JPY 160,000,000 1,645,966
International Bank for Reconstruction and Development,
Notes, 5.25%, 2002 JPY 230,000,000 2,329,626
7,915,941
U.S. GOVERNMENTS--22.2%
U.S. Treasury Bonds:
10%, 5/15/2010 2,500,000 2,832,675
10.375%, 11/15/2009 6,000,000 6,807,120
U.S. Treasury Inflation Protection Securities:
3.625%, 7/15/2002 2,000,000 (d) 2,119,319
3.875%, 4/15/2029 3,500,000 (d) 3,579,620
U.S. Treasury Notes,
7%, 7/15/2006 15,000,000 15,311,550
30,650,284
U.S. GOVERNMENT AGENCIES--8.2%
Federal Farm Credit, Real Yield Securities,
2.775%, 2/14/2002 1,000,000 (c,e) 977,300
Federal National Mortgage Association,
Notes, 7.25%, 1/15/2010 8,000,000 7,878,176
Tennessee Valley Authority,
Valley Indexed Principal Securities,
3.375%, 1/15/2007 2,655,650 (d) 2,438,763
11,294,239
The Fund
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount (a) Value ($)
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U.S. GOVERNMENT AGENCIES/MORTGAGE-BACKED--13.7%
Federal Home Loan Mortgage Corp.:
Gtd. REMIC Pass-Through Ctfs.,
Ser. 51, Cl. E, 10%, 7/15/2020 3,553,000 3,708,231
REMIC Trust, Pass-Through Ctfs.
(Collateralized by FHLMC Pass-Through Ctfs.),
Ser. 2153, Cl. Pl, 6.5%, 3/15/2016
(Interest Only Obligation) 7,000,000 (f) 1,452,193
Federal National Mortgage Association:
8%, 12/1/2025 672,330 670,857
Gtd. REMIC Pass-Through Ctfs.,
Ser. 1988-16, Cl. B, 9.5%, 6/25/2018 1,778,715 1,852,301
U.S. Government Gtd. Development,
Participation Ctfs.
(Gtd. By Small Business Administration):
Ser. 1994-20K, 8.65%, 11/1/2014 3,534,537 3,642,702
Ser. 1994-20L, 8.4%, 12/1/2014 6,123,529 6,252,267
Ser. 1997-20J, 6.55%, 10/1/2017 1,483,393 1,390,267
18,968,818
YANKEE--.5%
Pemex Finance,
Ser. 2000-1, Cl. A2, 7.8%, 2013 750,000 (b) 730,500
TOTAL BONDS AND NOTES
(cost $139,759,080) 130,371,126
Principal
SHORT-TERM INVESTMENTS--3.6% Amount (a) Value ($)
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U.S. GOVERNMENT AGENCIES--3.3%
Federal Home Loan Banks,
Discount Notes, 6.27%, 6/1/2000 4,470,000 4,470,000
U.S. TREASURY BILLS--.3%
5.65%, 7/20/2000 220,000 (g) 218,489
5.64%, 7/27/2000 205,000 (g) 203,370
5.51%, 8/17/2000 35,000 (g) 34,594
456,453
TOTAL SHORT-TERM INVESTMENTS
(cost $4,926,111) 4,926,453
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TOTAL INVESTMENTS (cost $144,685,191) 97.8% 135,297,579
CASH AND RECEIVABLES (NET) 2.2% 3,024,952
NET ASSETS 100.0% 138,322,531
(A) PRINCIPAL AMOUNT WILL BE IN U.S. DOLLARS UNLESS OTHERWISE NOTED.
CAD--CANADIAN DOLLARS
DKK--DANISH KRONE
EUR--EUROS
GBP--BRITISH POUNDS
GRD--GREEK DRACHMAS
ITL--ITALIAN LIRE
JPY--JAPANESE YEN
NZD--NEW ZEALAND DOLLARS
SEK--SWEDISH KRONA
(B) 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, 2000, THESE
SECURITIES AMOUNTED TO $3,267,368 OR 2.4% OF NET ASSETS.
(C) VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(D) PRINCIPAL AMOUNT FOR ACCRUAL PURPOSES IS PERIODICALLY ADJUSTED BASED ON
CHANGES TO THE CONSUMER PRICE INDEX.
(E) WITH VALUE RECOVERY RIGHTS ATTACHED.
(F) NOTIONAL FACE AMOUNT SHOWN.
(G) HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN
FINANCIAL FUTURES POSITIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
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The Fund
STATEMENT OF FINANCIAL FUTURES
May 31, 2000 (Unaudited)
Unrealized
Market Value Appreciation
Covered by (Depreciation)
Contracts Contracts ($) Expiration at 5/31/00 ($)
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FINANCIAL FUTURES LONG
U.S. Treasury 5 year Notes 148 14,443,875 September 2000 33,531
U.S. Treasury 10 year Notes 185 17,904,531 September 2000 81,766
U.S. Treasury 30 year Bonds 13 1,243,125 September 2000 (2,031)
Euro Bond 49 4,886,994 September 2000 118,461
United Kingdom 15 year Gilt 15 2,520,793 September 2000 50,574
282,301
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000 (Unaudited)
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 144,685,191 135,297,579
Cash 4,622,062
Interest receivable 2,811,637
Receivable for futures variation margin--Note 3(a) 315,011
Prepaid expenses and other assets 26,322
143,072,611
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LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 86,214
Payable for investment securities purchased 3,901,252
Net unrealized (depreciation) on forward currency
exchange contracts--Note 3(a) 658,225
Accrued expenses 104,389
4,750,080
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NET ASSETS ($) 138,322,531
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COMPOSITION OF NET ASSETS ($):
Paid-in capital 160,194,917
Accumulated distributions in excess of investment income--net (3,160,389)
Accumulated net realized gain (loss) on investments
and foreign currency transactions (8,926,821)
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions
(including $282,301 net unrealized
appreciation on financial futures) (9,785,176)
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NET ASSETS ($) 138,322,531
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SHARES OUTSTANDING
(100 million shares of $.001 par value Common Stock authorized) 14,640,617
--------------------------------------------------------------------------------
NET ASSET VALUE, per share ($) 9.45
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2000 (Unaudited)
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INVESTMENT INCOME ($):
INTEREST INCOME (net of $6,283 foreign taxes witheld at source) 5,097,991
EXPENSES:
Management fee--Note 2(a) 490,849
Directors' fees and expenses--Note 2(b) 30,906
Professional fees 17,495
Shareholders' reports 16,383
Custodian fees 15,983
Registration fees 6,065
Miscellaneous 6,924
TOTAL EXPENSES 584,605
INVESTMENT INCOME--NET 4,513,386
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 3 ($):
Net realized gain (loss) on investments and foreign
currency transactions (including options written) (1,503,304)
Net realized gain (loss) on financial futures (855,585)
Net realized gain (loss) on forward currency exchange contracts 3,952,490
NET REALIZED GAIN (LOSS) 1,593,601
Net unrealized appreciation (depreciation) on investments,
options written and foreign currency transactions (including
$447,273 net unrealized appreciation on financial futures) (4,777,328)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (3,183,727)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 1,329,659
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
May 31, 2000 Year Ended
(Unaudited) November 30, 1999
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 4,513,386 10,181,059
Net realized gain (loss) on investments 1,593,601 (2,435,580)
Net unrealized appreciation (depreciation)
on investments (4,777,328) (3,685,483)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 1,329,659 4,059,996
--------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (5,490,232) (10,010,460)
Tax return of capital -- (970,003)
TOTAL DIVIDENDS (5,490,232) (10,980,463)
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,160,573) (6,920,467)
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NET ASSETS ($):
Beginning of Period 142,483,104 149,403,571
END OF PERIOD 138,322,531 142,483,104
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
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FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods 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 and market price data for the fund's shares.
Six Months Ended
May 31, 2000 Year Ended November 30,
----------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
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PER SHARE DATA ($):
Net asset value,
beginning of period 9.73 10.20 10.81 10.76 10.66 9.85
Investment Operations:
Investment income--net .31(a) .70(a) .70(a) .69(a) .72(a) .71
Net realized and unrealized gain
(loss) on investments (.21) (.42) (.12) .18 .13 .82
Total from Investment Operations .10 .28 .58 .87 .85 1.53
Distributions:
Dividends from investment
income--net (.38) (.69) (1.14) (.67) (.74) (.71)
Dividends in excess of investment
income--net -- -- (.05) (.15) (.01) (.01)
Tax return of capital -- (.06) -- -- -- --
Total Distributions (.38) (.75) (1.19) (.82) (.75) (.72)
Net asset value, end of period 9.45 9.73 10.20 10.81 10.76 10.66
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Market value, end of period 77/8 81/4 93/16 99/16 93/8 91/8
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TOTAL RETURN (%)(B) .10(c) (2.21) 8.75 11.32 11.37 8.80
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RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average
net assets .83(c) .95 .90 .92 .90 .94
Ratio of net investment income
to average net assets 6.42(c) 6.97 6.65 6.48 6.91 7.56
Portfolio Turnover Rate 213.33(d) 480.07 559.75 337.41 328.37 91.27
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Net Assets, end of period
($ x 1,000) 138,323 142,483 149,404 158,328 157,527 156,083
(A) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(B) CALCULATED BASED ON MARKET VALUE.
(C) ANNUALIZED.
(D) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
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"), which is a wholly-owned subsidiary of Mellon Financial
Corporation. 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 Directors. 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 valuations are valued at
fair value as determined in good faith under the direction of the Board of
Directors. 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 The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
are primarily traded or at the last sales price on the national 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 $20,308 during the period ended May 31,
2000 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
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 the net asset value per share is less than
95% of the market value, shares will be issued by the fund at 95% of the 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 31, 2000, the Board of Directors declared a cash dividend of $.0625 per
share from investment income-net, payable on June 28, 2000 to shareholders of
record as of the close of business on June 14, 2000.
(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 $10,333,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to November 30, 1999. This
amount is calculated based on Federal income tax regulations which may differ
from financial reporting in accordance with generally accepted accounting
principles. If not The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
applied, $4,384,000 of the carryover expires in fiscal 2002, $18,000 expires in
fiscal 2003, $831,000 expires in fiscal 2004, $811,000 expires in fiscal 2006
and $4,289,000 expires in fiscal 2007.
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 sub-advised
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, 2000, the
fund was charged $4,634 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, 2000, amounted to $287,069,106 and $285,120,162, respectively.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
The following summarizes open forward currency exchange contracts at May 31,
2000:
Foreign Unrealized
Forward Currency Currency Appreciation
Exchange Contracts Amounts Proceeds ($) Value ($) (Depreciation) ($)
------------------------------------------------------------------------------------------------------------------------------------
SALES:
British Pounds,
expiring 8/24/2000 1,050,000 1,569,120 1,576,020 (6,900)
Canadian Dollars,
expiring 8/24/2000 5,630,000 3,765,634 3,771,922 (6,288)
Danish Krone,
expiring 8/24/2000 17,090,000 2,082,039 2,154,687 (72,648)
Euro,
expiring 8/24/2000 18,000,000 16,360,200 16,961,222 (601,022)
Greek Drachmas,
expiring 7/24/2000 790,000,000 2,115,127 2,192,131 (77,004)
New Zealand Dollars,
expiring 8/24/2000 1,600,000 735,200 733,529 1,671
Japanese Yen,
expiring 8/24/2000 1,660,000,000 15,780,968 15,657,053 123,915
Swedish Krona,
expiring 8/24/2000 6,350,000 694,315 714,264 (19,949)
TOTAL (658,225)
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.
The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
The following summarizes the fund' s call/put options written for the period
ended May 31, 2000:
Options Terminated
-----------------------------------------
Number of Premiums Net Realized
Contracts Received ($) Cost ($) (Loss) ($)
------------------------------------------------------------------------------------------------------------------------------------
OPTIONS WRITTEN:
Contracts outstanding
November 30, 1999 170 207,188
Contracts written 150 123,047
Contracts terminated:
Closed 150 123,047 208,594 (85,547)
Expired 170 207,187 207,187 --
Contracts outstanding
May 31, 2000 -- --
</TABLE>
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 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, 2000 are set forth in the Statement of Financial Futures.
(b) At May 31, 2000, accumulated net unrealized depreciation on investments,
financial futures, and forward currency exchange contracts was $9,763,536,
consisting of $1,074,157 gross unrealized appreciation and $10,837,693 gross
unrealized depreciation.
At May 31, 2000, 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).
NOTE 4--Subsequent Event:
On June 22, 2000, the Board of Directors of the fund approved a proposal to
merge the fund into Dreyfus A Bonds Plus, Inc., an open-end investment company
("merger proposal"). On June 27, 2000, the Board of Directors of Dreyfus A Bonds
Plus, Inc. approved the merger proposal. The merger proposal must be approved by
the stockholders of the fund.
The merger proposal provides that the fund exchange all of its assets at net
asset value, subject to liabilities, for shares of Dreyfus A Bonds Plus, Inc.
Those shares would then be distributed pro rata to stockholders of the fund so
that each stockholder receives a number of Dreyfus A Bonds Plus, Inc. shares
equal to the aggregate net asset value of the stockholder's fund shares. The
fund then would be delisted from the New York Stock Exchange and subsequently
dissolved. A prospectus/proxy describing the merger proposal and Dreyfus A Bonds
Plus, Inc. will be sent to fund stockholders, and the merger The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
proposal voted on at a special meeting of stockholders. The affirmative vote of
the holders of a majority of the outstanding stock of the fund is required to
approve the merger proposal.
If stockholders do not approve the merger proposal, the fund anticipates holding
its annual stockholder meeting promptly after the special meeting. The fund is
required to present stockholders at its annual stockholder meeting with a
proposal to convert the fund to an open-end investment company because its
market price per share traded at an average discount of more than 10% to net
asset value per share for the last 12 calendar weeks of 1999.
NOTES
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
Stephen E. Canter
Executive Vice President
Gerald E. Thunelius
Vice President
Mark N. Jacobs
Vice President and Treasurer
Joseph Connelly
Secretary
John B. Hammalian
Assistant Secretary
Steven F. Newman
Assistant Secretary
Michael A. Rosenberg
Assistant Treasurer
William McDowell
PORTFOLIO MANAGERS
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.
The Fund
For More Information
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 Adviser
Sinopia Asset Management
66 Rue de la Chaussee d'Antin
Paris, France 75009
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent,
Dividend Disbursing Agent
& Registrar
Mellon Bank, N.A.
85 Challenger Road
Ridgefield Park, NJ 07660
(c) 2000 Dreyfus Service Corporation 429SA005
