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PROSPECTUS AUGUST 26, 1994
DREYFUS ASSET ALLOCATION FUND, INC.
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DREYFUS ASSET ALLOCATION FUND, INC. (THE "FUND") IS AN OPEN-END,
NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. THE
FUND PERMITS YOU TO INVEST IN THREE SEPARATE NON-DIVERSIFIED PORTFOLIOS
(EACH, A "PORTFOLIO"): DREYFUS TOTAL RETURN PORTFOLIO, WHICH SEEKS TO
MAXIMIZE TOTAL RETURN; DREYFUS INCOME PORTFOLIO, WHICH SEEKS TO MAXIMIZE
CURRENT INCOME, WITH A SECONDARY GOAL OF CAPITAL APPRECIATION; AND DREYFUS
GROWTH PORTFOLIO, WHICH SEEKS CAPITAL APPRECIATION. EACH PORTFOLIO WILL
FOLLOW AN INVESTMENT STRATEGY THAT ACTIVELY ALLOCATES THE PORTFOLIO'S ASSETS
AMONG COMMON STOCKS, U.S. TREASURY NOTES AND BONDS AND SHORT-TERM MONEY
MARKET INSTRUMENTS. IN ADDITION TO USUAL INVESTMENT PRACTICES, EACH PORTFOLIO
MAY USE SPECULATIVE INVESTMENT TECHNIQUES SUCH AS SHORT-SELLING, BORROWING
FOR INVESTMENT PURPOSES, AND FUTURES AND OPTIONS TRANSACTIONS.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY IMPOSED BY THE FUND. YOU CAN PURCHASE OR REDEEM SHARES BY
TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES EACH PORTFOLIO.
EACH PORTFOLIO BEARS CERTAIN COSTS PURSUANT TO A DISTRIBUTION PLAN
ADOPTED IN ACCORDANCE WITH RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF
1940 AND A SHAREHOLDER SERVICES PLAN.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
PART B (ALSO KNOWN AS THE STATEMENT OF ADDITIONAL INFORMATION), DATED
AUGUST 26, 1994, WHICH MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER
DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE
OF INTEREST TO SOME INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY,
WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK
11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 666.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 3
CONDENSED FINANCIAL INFORMATION................... 4
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 16
HOW TO BUY FUND SHARES............................ 17
SHAREHOLDER SERVICES.............................. 19
HOW TO REDEEM FUND SHARES ........................ 22
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN... 24
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 25
PERFORMANCE INFORMATION........................... 26
GENERAL INFORMATION............................... 27
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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This Page Left Intentionally Blank
Page 2
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
DREYFUS DREYFUS DREYFUS
TOTAL RETURN INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------
<S> <C> <C> <C>
Management Fees..................................... .75% .75% .75%
12b-1 Fees.......................................... .50% .50% .50%
Other Expenses...................................... .61% .61% .61%
Total Operating Expenses............................ 1.86% 1.86% 1.86%
Example:
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 YEAR.............................................. $ 19 $ 19 $ 19
3 YEARS............................................. $ 58 $ 58 $ 58
5 YEARS............................................. $101 $101 $101
10 YEARS............................................ $218 $218 $218
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, EACH PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis. Long-term investors could pay more in 12b-1 fees than the economic
equivalent of paying a front-end sales charge. Other Expenses and total
Operating Expenses for each Portfolio are based on estimated amounts. The
information in the foregoing table does not reflect any fee waivers or
expense reimbursement arrangements that may be in effect. Certain Service
Agents (as defined below) may charge their clients direct fees for effecting
transactions in Portfolio shares; such fees are not reflected in the
foregoing table. For a further description of the various costs and expenses
incurred in the operation of the Fund, as well as expense reimbursement or
waiver arrangements, see "Management of the Fund," "How to Buy Fund Shares"
and "Distribution Plan and Shareholder Services Plan."
Page 3
CONDENSED FINANCIAL INFORMATION
The information in the following table for the Dreyfus Total Return
Portfolio has been audited by Ernst & Young LLP, the Fund's independent
auditors, whose report thereon appears in the Statement of Additional
Information. Further financial data and related notes for the Dreyfus Total
Return Portfolio are included in the Statement of Additional, available upon
request. No financial data is available for the Dreyfus Income Portfolio and
the Dreyfus Growth Portfolio which had not commenced operations as of the
date of this Prospectus.
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 the period July 1, 1993 (commencement
of operations) to April 30, 1994 for the Dreyfus Total Return Portfolio. This
information has been derived from information provided in the Dreyfus Total
Return Portfolio's financial statements.
<TABLE>
<CAPTION>
PER SHARE DATA:
<S> <C>
Net asset value, beginning of period......................................................... $12.50
--------
INVESTMENT OPERATIONS:
Investment income--net ...................................................................... .24
Net realized and unrealized (loss) on investments............................................ (.11)
--------
TOTAL FROM INVESTMENT OPERATIONS............................................................. .13
--------
DISTRIBUTIONS:
Dividends from investment income-net........................................................... (.13)
Dividends from net realized gain on investments................................................ (.01)
--------
TOTAL DISTRIBUTIONS.......................................................................... (.14)
--------
Net asset value, end of period................................................................. $12.49
=======
TOTAL INVESTMENT RETURN .99%*
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...................................................... .16%*
Ratio of net investment income to average net assets......................................... 2.48%*
Decrease reflected in above expense ratio due to
undertakings by The Dreyfus Corporation...................................................... 1.58%*
Portfolio Turnover Rate...................................................................... --
Net Assets, end of period (000's omitted).................................................... $51,063
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* Not annualized.
</TABLE>
Further information about the performance of the Dreyfus Total Return
Portfolio is contained in the Fund's annual report which may be obtained
without charge by writing to the address or calling the number set forth on
the cover page of this Prospectus.
DESCRIPTION OF THE FUND
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios. Each Portfolio is treated as a separate entity for
certain matters under the Investment Company Act of 1940 and for other
purposes, and a shareholder of one Portfolio is not deemed to be a
shareholder of any other Portfolio. As described below, for certain matters
Fund shareholders vote together as a group; as to others they vote separately
by Portfolio.
INVESTMENT OBJECTIVES -- Dreyfus Total Return Portfolio seeks to maximize
total return, consisting of capital appreciation and current income. Dreyfus
Income Portfolio seeks to maximize current income, with a secondary goal of
capital appreciation. Dreyfus Growth Portfolio seeks capital appreciation.
Each Portfolio's investment objective cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940)
of such Portfolio's outstanding voting shares. There can be no assurance that
a Portfolio's investment objective will be achieved.
Page 4
MANAGEMENT POLICIES -- Each Portfolio seeks to achieve its investment
objective by following an asset allocation strategy that contemplates shifts,
which may be frequent, among common stocks, U.S. Treasury Notes and Bonds
with remaining maturities at the time of purchase of at least one year, and
short-term money market instruments. The Portfolios differ only with respect
to their asset class weightings and, in the case of the Dreyfus Growth
Portfolio, the types of common stocks in which it may invest.
The following table sets forth for each Portfolio the asset classes,
benchmark percentages and asset class strategy ranges within which The
Dreyfus Corporation intends to manage the Portfolio's assets:
<TABLE>
<CAPTION>
DREYFUS TOTAL DREYFUS INCOME DREYFUS GROWTH
RETURN PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------- -------------------------- ----------------------------
ASSET BENCHMARK STRATEGY BENCHMARK STRATEGY BENCHMARK STRATEGY
CLASS PERCENTAGE RANGE PERCENTAGE RANGE PERCENTAGE RANGE
- ------ ------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks 55% 40-70% 35% 25-45% 80% 65-95%
U.S. Treasury Notes and
Bonds 35% 25-50% 55% 45-70% -- --
Short-Term Money Market
Instruments 10% 0-15% 10% 0-15% -- --
Debt Instruments (consisting -- -- -- -- 20% 5-35%
of U.S. Treasury Notes and
Bonds and Short-Term Money
Market Instruments)
</TABLE>
The Dreyfus Corporation has broad latitude in selecting the class of
investments and market sectors in which each Portfolio will invest. Under
normal market conditions, The Dreyfus Corporation expects to adhere to the
asset class strategy ranges set forth above; however, it reserves the right
to vary the asset class mix and the percentage of securities invested in any
asset class or market form the benchmark percentages and asset class strategy
ranges set forth above as the risk/return characteristics of either markets
or asset classes, as assessed by The Dreyfus Corporation, vary over time. None
of the Portfolios will be managed as a balanced portfolio. The asset
allocation mix for each Portfolio will be determined by The Dreyfus
Corporation at any given time in light of its assessment of current economic
conditions and investment opportunities. Some of the factors that The Dreyfus
Corporation may consider in determining each Portfolio's asset allocation mix
include the following: (1) level and direction of long-term interest rates
versus short-term interest rates; (2) historical investment returns for each
asset class in which the Portfolio can invest relative to the prevailing
business cycle; and (3) general economic conditions, such as current inflation
, unemployment and capacity utilization figures, that could affect
investments. The asset allocation mix selected will be a primary determinant
of a Portfolio's investment performance. Under certain market conditions,
limiting a Portfolio's asset allocation among these asset classes may inhibit
its ability to achieve its investment objective.
COMMON STOCKS -- The common stocks in which the Dreyfus Total Return
Portfolio and the Dreyfus Income Portfolio invest will consist of those
included in the Standard & Poor's 500 Stock Index (the "S&P 500 Index").* The
S&P 500 Index is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The composition of the S&P 500 Index
is determined by Standard & Poor's Corporation based on such factors as the
market capitalization and trading activity of each stock and its adequacy as a
representative of stocks in a particular industry group, and may be changed
from time to time. The common stocks in which the Dreyfus Growth Portfolio
invests will consist of those included in the Wilshire 5000 Index. The
Wilshire 5000 Index is composed of all publically-traded commons stocks in
the United States. The Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's Corporation or Wilshire Associates.
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*"Standard & Poor's," "S&PRegistration Mark" and "S&P 500Registration
Mark" are trademarks of Standard & Poor's Corporation.
Page 5
U.S. TREASURY NOTES AND BONDS -- Each Portfolio invests in U.S. Treasury
Notes and Bonds with remaining maturities at the time of purchase by the
Portfolio of at least one year. Under normal circumstances, the
dollar-weighted average maturity of this portion of each Portfolio's investmen
ts is expected to range between 3 and 10 years.
MONEY MARKET INSTRUMENTS -- The short-term money market instruments in which
each Portfolio invests will consist of U.S. Government securities, bank
obligations, including certificates of deposit, time deposits and bankers'
acceptances and other short-term obligations of domestic or foreign banks,
domestic savings and loan associations and other banking institutions having
total assets in excess of $1 billion, commercial paper and repurchase
agreements, as set forth under "Certain Portfolio Securities" below. For
temporary defensive purposes, a Portfolio may invest up to 100% of its assets
in money market instruments, but at no time will such Portfolio's investments
in bank obligations, including time deposits, exceed 25% of its assets.
INVESTMENT TECHNIQUES -- Each Portfolio also may engage in various investment
and hedging techniques such as leveraging, short-selling, options and futures
transactions, and lending portfolio securities, each of which involves risk.
See "Risk Factors" below. Options and futures transactions involve so-called
"derivative securities."
LEVERAGE THROUGH BORROWING -- Each Portfolio may borrow for investment
purposes. This borrowing, which is known as leveraging, generally will be
unsecured, except to the extent a Portfolio enters into reverse repurchase
agreements described below. The Investment Company Act of 1940 requires each
Portfolio to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of
the amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Portfolio may be required to sell
some of its portfolio holdings within three days to reduce the debt and
restore the 300% asset coverage, even though it may be disadvantageous from
an investment standpoint to sell securities at that time. Leveraging may
exaggerate the effect on net asset value of any increase or decrease in the
market value of the Portfolio's investment securities. Money borrowed for
leveraging will be subject to interest costs that may or may not be recovered
by appreciation of the securities purchased; in certain cases, interest costs
may exceed the return received on the securities purchased. Each Portfolio
also may be required to maintain minimum average balances in connection with
such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing
over the stated interest rate.
Among the forms of borrowing in which each Portfolio may engage is
the entry into reverse repurchase agreements with banks, brokers or dealers.
These transactions involve the transfer by a Portfolio of an underlying debt
instrument in return for cash proceeds based on a percentage of the value of
the security. The Portfolio retains the right to receive interest and
principal payments on the security. At an agreed upon future date, the
Portfolio repurchases the security at principal, plus accrued interest. In
certain types of agreements, there is no agreed upon repurchase date and
interest payments are calculated daily, often based on the prevailing
overnight repurchase rate. Each Portfolio will maintain in a segregated
custodial account cash or U.S. Government securities or other high quality
liquid debt securities at least equal to the aggregate amount of its reverse
repurchase obligations, plus accrued interest, in certain cases, in
accordance with releases promulgated by the Securities and Exchange
Commission. The Securities and Exchange Commission views reverse repurchase
transactions as collateralized borrowings by the Portfolio that enters into
them. These agreements, which are treated as if reestablished each day, are
expected to provide the Portfolios with a flexible borrowing tool.
SHORT-SELLING -- Each Portfolio may make short sales, which are transactions
in which the Portfolio sells a security it does not own in anticipation of a
decline in the market value of that security. To complete such a transaction,
the Portfolio must borrow the security to make delivery to the buyer. The
Portfolio then is obligated to replace the security borrowed by purchasing it
at the market price at the
Page 6
time of replacement. The price at such time may be more or less than the price
at which the security was sold by the Portfolio. Until the security is
replaced, the Portfolio is required to pay to the lender amounts equal to any
dividends, interest or other distributions which accrue during the period of
the loan. To borrow the security, the Portfolio also may be required to pay a
premium, which would increase the cost of the security sold. The proceeds of
the short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out.
Until a Portfolio closes its short position or replaces the borrowed
security, the Portfolio will: (a) maintain a segregated account, containing
cash or U.S. Government securities, at such a level that (i) the amount
deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii)
the amount deposited in the segregated account plus the amount deposited with
the broker as collateral will not be less than the market value of the
security at the time it was sold short; or (b) otherwise cover its short
position.
A Portfolio will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale and the
date on which the Portfolio replaces the borrowed security. A Portfolio will
realize a gain if the security declines in price between those dates. This
result is the opposite of what one would expect from a cash purchase of a
long position in a security. The amount of any gain will be decreased, and
the amount of any loss increased, by the amount of any premium or amounts in
lieu of dividends, interest or other distributions the Portfolio may be
required to pay in connection with a short sale.
Each Portfolio may purchase call options to provide a hedge against
an increase in the price of a security sold short by the Portfolio. When a
Portfolio purchases a call option it has to pay a premium to the person
writing the option and a commission to the broker selling the option. If the
option is exercised by the Portfolio, the premium and the commission paid may
be more than the amount of the brokerage commission charged if the security
were to be purchased directly. See "Call and Put Options on Specific
Securities" below.
The Fund anticipates that the frequency of short sales on behalf of a
Portfolio will vary substantially under different market conditions, and it
does not intend that any specified portion of a Portfolio's assets, as a
matter of practice, will be invested in short sales. However, no securities
will be sold short by a Portfolio if, after effect is given to any such short
sale, the total market value of all securities sold short by the Portfolio
would exceed 25% of the value of its net assets. No Portfolio may sell short
the securities of any single issuer on a national securities exchange to the
extent of more than 5% of the value of its net assets. No Portfolio may
sell short the securities of any class of an issuer to the extent, at the
time of the transaction, of more than 5% of the outstanding securities of
that class.
In addition to the short sales discussed above, each Portfolio may
make short sales "against the box," a transaction in which the Portfolio
enters into a short sale of a security which the Portfolio owns. The proceeds
of the short sale will be held by a broker until the settlement date at which
time the Portfolio delivers the security to close the short position. The
Portfolio receives the net proceeds from the short sale. At no time will a
Portfolio have more than 15% of the value of its net assets in deposits on
short sales against the box.
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES -- Each Portfolio may invest up
to 5% of its assets, represented by the premium paid, in the purchase of call
and put options in respect of specific securities (or groups or "baskets" of
specific securities) in which the Portfolio may invest. Each Portfolio may
write covered call and put option contracts to the extent of 20% of the value
of its net assets at the time such option contracts are written. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security or securities at the exercise price
at any time during the option period. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy,
the underlying security or securities at the exercise price at any time
during the option period. A covered call option sold by a Portfolio, which is
a call option with respect to which the
Page 7
Portfolio owns the underlying security or securities, exposes the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or securities or
to possible continued holding of a security or securities which might
otherwise have been sold to protect against depreciation in the market price
thereof. A covered put option sold by a Portfolio exposes the Portfolio during
the term of the option to a decline in price of the underlying security or
securities. A put option sold by a Portfolio is covered when, among other
things, cash or liquid securities are placed in a segregated account with the
Fund's custodian to fulfill the obligation undertaken.
To close out a position when writing covered options, a Portfolio may
make a "closing purchase transaction," which involves purchasing an option on
the same security or securities with the same exercise price and expiration
date as the option which it has previously written. To close out a position
as a purchaser of an option, a Portfolio may make a "closing sale
transaction," which involves liquidating the Portfolio's position by selling
the option previously purchased. A Portfolio will realize a profit or loss
from a closing purchase or sale transaction depending upon the difference
between the amount paid to purchase an option and the amount received from
the sale thereof.
The Fund intends to treat options in respect of specific securities
that are not traded on a national securities exchange and the securities
underlying covered call options written by the Portfolios as illiquid
securities. See "Certain Portfolio Securities_Illiquid Securities" below.
Each Portfolio will purchase options only to the extent permitted by
the policies of state securities authorities in states where shares of such
Portfolio are qualified for offer and sale.
STOCK INDEX OPTIONS -- Each Portfolio may purchase and write put and call
options on stock indexes listed on U.S. securities exchanges or traded in the
over-the-counter market. A stock index fluctuates with changes in the market
values of the stocks included in the index.
The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in the Portfolio's
investments correlate with price movements of the stock index selected.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether a Portfolio
will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment, rather than movements in the price of a particular stock.
Accordingly, successful use by each Portfolio of options on stock indexes
will be subject to The Dreyfus Corporation's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting
changes in the price of individual stocks.
When a Portfolio writes an option on a stock index, the Portfolio
will place in a segregated account with the Fund's custodian cash or liquid
securities in an amount at least equal to the market value of the underlying
stock index and will maintain the account while the option is open or
otherwise will cover the transaction.
FUTURES TRANSACTIONS -- IN GENERAL -- The Fund is not a commodity pool.
However, as a substitute for a comparable market position in the underlying
securities and for hedging purposes, each Portfolio may engage in futures and
options on futures transactions as described below.
Each Portfolio's commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations promulgated
by the Commodity Futures Trading Commission. In addition, a Portfolio may not
engage in such transactions if the sum of the amount of initial margin
deposits and premiums paid for unexpired commodity options, other than for
bona fide hedging transactions, would exceed 5% of the liquidation value of
the Portfolio's assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5%. Pursuant to
regulations and/or published positions of the Securities and Exchange
Commission, each Portfolio may be required to segregate cash or high quality
money market
Page 8
instruments in connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity. To the
extent a Portfolio engages in the use of futures and options on futures other
than for bona fide hedging purposes, the Portfolio may be subject to
additional risk.
Initially, when purchasing or selling futures contracts a Portfolio
will be required to deposit with the Fund's custodian in the broker's name an
amount of cash or cash equivalents up to approximately 10% of the contract
amount. This amount is subject to change by the exchange or board of trade on
which the contract is traded and members of such exchange or board of trade
may impose their own higher requirements. This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the
futures position, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and from the broker will
be made daily as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking-to-market." At
any time prior to the expiration of a futures contract, the Portfolio may
elect to close the position by taking an opposite position at the then
prevailing price, which will operate to terminate the Portfolio's existing
position in the contract.
Although each Portfolio intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be
given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount
of fluctuation permitted in futures contract prices during a single trading
day. Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit or trading may be
suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting a Portfolio to substantial losses. If it
is not possible, or the Portfolio determines not, to close a futures position
in anticipation of adverse price movements, the Portfolio will be required to
make daily cash payments of variation margin. In such circumstances, an
increase in the value of the portion of a Portfolio's securities being
hedged, if any, may offset partially or completely losses on the futures
contract. However, no assurance can be given that the price of the securities
being hedged will correlate with the price movements in a futures contract
and thus provide an offset to losses on the futures contract.
In addition, to the extent the Portfolio is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect correlation
between securities owned by the Portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective in that, for example, losses on
the portfolio securities may be in excess of gains on the futures contract or
losses on the futures contract may be in excess of gains on the portfolio
securities that were the subject of the hedge. In futures contracts based on
indexes, the risk of imperfect correlation increases as the composition of
the Portfolio's securities vary from the composition of the index. In an
effort to compensate for the imperfect correlation of movements in the price
of the securities being hedged and movements in the price of futures
contracts, the Portfolio may buy or sell futures contracts in a greater or
lesser dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the futures contract has been less or greater
than that of the securities. Such "over hedging" or "under hedging" may
adversely affect a Portfolio's net investment results if market movements are
not as anticipated when the hedge is established.
Successful use of futures by a Portfolio also is subject to The
Dreyfus Corporation's ability to predict correctly movements in the direction
of the market or interest rates. For example, if a Portfolio has hedged
against the possibility of a decline in the market adversely affecting the
value of securities held in its portfolio and prices increase instead, the
Portfolio will lose part or all of the benefit of the increased value of
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet
Page 9
daily variation margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the rising market.
The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a
long position if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
on the futures contract.
Call options sold by a Portfolio with respect to futures contracts
will be covered by, among other things, entering into a long position in the
same contract at a price no higher than the strike price of the call option,
or by ownership of the instruments underlying, or instruments the prices of
which are expected to move relatively consistently with the instruments
underlying, the futures contract. Put options sold by a Portfolio with
respect to futures contracts will be covered in the same manner as put
options on specific securities as described above.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES -- Each Portfolio may
purchase and sell stock index futures contracts and options on stock index
futures contracts.
A stock index future obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of
the last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying stocks in the index is made.
With respect to stock indexes that are permitted investments, each Portfolio
intends to purchase and sell futures contracts on the stock index for which
it can obtain the best price with consideration also given to liquidity.
The price of stock index futures may not correlate perfectly with the
movement in the stock index because of certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the index
and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS -- Each Portfolio may invest in interest rate futures contracts and
options on interest rate futures contracts as a substitute for a comparable
market position and to hedge against adverse movements in interest rates.
To the extent a Portfolio has invested in interest rate futures
contracts or options on interest rate futures contracts as a substitute for a
comparable market position, the Portfolio will be subject to the investment
risks of having purchased the securities underlying the contract.
Each Portfolio may purchase call options on interest rate futures
contracts to hedge against a decline in interest rates and may purchase put
options on interest rate futures contracts to hedge its portfolio securities
against the risk of rising interest rates.
Each Portfolio may sell call options on interest rate futures
contracts to partially hedge against declining prices of its portfolio
securities. If the futures price at expiration of the option is below the
exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in such Portfolio's holdings. Each Portfolio may sell put options on
interest rate futures contracts to hedge against increasing prices of the
securities which
Page 10
are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price,
the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option sold by a
Portfolio is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and
changes in the value of its futures positions, a Portfolio's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of its portfolio securities.
Each Portfolio also may sell options on interest rate futures
contracts as part of closing purchase transactions to terminate its options
positions. No assurance can be given that such closing transactions can be
effected or that there will be a correlation between price movements in the
options on interest rate futures and price movements in a Portfolio's
securities which are the subject of the hedge. In addition, a Portfolio's
purchase of such options will be based upon predictions as to anticipated inte
rest rate trends, which could prove to be inaccurate.
FUTURE DEVELOPMENTS -- Each Portfolio may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other derivative investments which are not presently contemplated for
use by the Fund or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with the
Portfolio's investment objective and legally permissible for the Portfolio.
Before entering into such transactions or making any such investment on
behalf of a Portfolio, the Fund will provide appropriate disclosure in its
prospectus.
LENDING PORTFOLIO SECURITIES -- From time to time, each Portfolio may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
Such loans may not exceed 33-1/3% of the value of such Portfolio's total
assets. In connection with such loans, the Portfolio will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Each Portfolio can
increase its income through the investment of such collateral. The Portfolio
engaging in the portfolio loan transaction continues to be entitled to
payments in amounts equal to the interest, dividends or other distributions
payable on the loaned security and receives interest on the amount of the
loan. Such loans will be terminable at any time upon specified notice. A
Portfolio might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Portfolio.
FORWARD COMMITMENTS -- Each Portfolio may purchase debt securities on a
when-issued or forward commitment basis, which means that the price is fixed
at the time of commitment, but delivery and payment ordinarily take place a
number of days after the date of the commitment to purchase. A Portfolio will
make commitments to purchase such securities only with the intention of
actually acquiring the securities, but the Portfolio may sell these
securities before the settlement date if it is deemed advisable. A Portfolio
will not accrue income in respect of a security purchased on a when-issued or
forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other debt securities held by the Portfolios are subject to changes
in value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based upon
the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on
a when-issued or forward commitment basis may expose a Portfolio to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing debt securities on a when-issued or forward commitment basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of each Portfolio consisting of
cash, cash equivalents or U.S. Government securities or other high quality
liquid debt securities
Page 11
at least equal at all times to the amount of the when-issued or forward
commitments will be established and maintained at the Fund's custodian bank.
Purchasing debt securities on a when-issued or forward commitment basis when
a Portfolio is fully or almost fully invested may result in greater potential
fluctuation in the value of the Portfolio's net assets and its net asset
value per share.
CERTAIN PORTFOLIO SECURITIES
U.S. GOVERNMENT SECURITIES -- Each Portfolio may purchase securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
which include U.S. Treasury securities that differ in their interest rates,
maturities and times of issuance. Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of greater than ten
years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. Principal and interest may fluctuate based on generally recognized
reference rates or the relationship of rates. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so,
because the U.S. Government is not obligated to do so by law.
ZERO COUPON SECURITIES -- Each Portfolio may invest in zero coupon U.S.
Treasury securities, which are Treasury Notes and Bonds that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Each Portfolio also may invest in zero coupon
securities issued by corporations and financial institutions which constitute
a proportionate ownership of the issuer's pool of underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and is sold at a discount to its face value at maturity. The amount of
the discount fluctuates with the market price of the security. The market
prices of zero coupon securities generally are more volatile than the market
prices of securities that pay interest periodically and are likely to respond
to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
REPURCHASE AGREEMENTS -- Repurchase agreements involve the acquisition by a
Portfolio of an underlying debt instrument, subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the instrument at a fixed
price, usually not more than one week after its purchase. The Fund's
custodian or subcustodian will have custody of, and will hold in a segregated
account, securities acquired by a Portfolio under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Portfolio which enters into them. In
an attempt to reduce the risk of incurring a loss on a repurchase agreement,
each Portfolio will enter into repurchase agreements only with domestic banks
with total assets in excess of $1 billion or primary government securities
dealers reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Portfolio may invest, and will require
that additional securities be deposited with it if the value of the
securities purchased should decrease below resale price. The Dreyfus
Corporation will monitor on an ongoing basis the value of the collateral to
assure that it always equals or exceeds the repurchase price. Certain costs
may be incurred in connection with the sale of the securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller
of the securities, realization on the securities by the Portfolio may be
delayed or limited. The Fund will consider on an ongoing basis the
creditworthiness of the institutions with which a Portfolio enters into
repurchase agreements.
Page 12
BANK OBLIGATIONS -- Each Portfolio may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings
and loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries
of domestic banks, and domestic and foreign branches of foreign banks, the
Fund may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations
of U.S. domestic issuers. Such risks include possible future political and
economic developments, the possible imposition of foreign withholding taxes
on interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by each Portfolio will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. No Portfolio will
invest more than 15% of the value of its net assets in time deposits that are
illiquid and in other illiquid securities.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of
the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS -- Commercial
paper consists of short-term, unsecured promissory notes issued to finance
short-term credit needs. The commercial paper purchased by a Portfolio will
consist only of direct obligations which, at the time of their purchase, are
(a) rated not lower than Prime-1 by Moody's Investors Service, Inc.
("Moody's"), A-1 by S&P, F-1 by Fitch Investors Service, Inc. ("Fitch") or
Duff-1 by Duff & Phelps, Inc. ("Duff"), (b) issued by companies having an
outstanding unsecured debt issue currently rated not lower than Aa3 by
Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined by The
Dreyfus Corporation to be of comparable quality to those rated obligations
which may be purchased by the Portfolio. Each Portfolio may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of one year, but which permit
the holder to demand payment of principal at any time or at specified
intervals. Variable rate demand notes include variable amount master demand
notes, which are obligations that permit a Portfolio to invest fluctuating
amounts at varying rates of interest pursuant to direct arrangements between
the Portfolio, as lender, and the borrower. These notes permit daily changes
in the amounts borrowed. As mutually agreed between the parties, the
Portfolio may increase the amount under the notes at any time up to the full
amount provided by the note agreement, or decrease the amount, and the
borrower may repay up to the full amount of the note without penalty. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus accrued
interest, at any time. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Portfolio's
right to redeem is dependent on the ability of the borrower to pay principal
and interest on demand. In connection with floating and variable rate demand
obligations, The Dreyfus Corporation will consider, on an ongoing basis,
earning power, cash flow and other liquidity ratios of the borrower, and the
borrower's ability to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies, and a Portfolio may
invest in them only if at the time of an investment the borrower meets the
criteria set forth above for other commercial paper issuers.
Page 13
ILLIQUID SECURITIES -- Each Portfolio may invest up to 15% of the value of
its net assets in securities as to which a liquid trading market does not
exist, provided such investments are consistent with the Portfolio's
investment objective. Such securities may include securities that are not
readily marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain options traded
in the over-the-counter market and securities used to cover such options. As
to these securities, a Portfolio is subject to a risk that should the
Portfolio desire to sell them when a ready buyer is not available at a price
the Fund deems representative of their value, the value of the Portfolio's
net assets could be adversely affected.
CERTAIN FUNDAMENTAL POLICIES
Each Portfolio may (i) borrow money to the extent permitted under the
Investment Company Act of 1940; and (ii) invest up to 25% of the value of its
total assets in the securities of issuers in a single industry, provided that
there is no such limitation on investments in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. This paragraph
describes fundamental policies that cannot be changed as to a Portfolio
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940) of such Portfolio's outstanding voting shares. See
"Investment Objective and Management Policies_Investment Restrictions" in the
Fund's Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each Portfolio may (i) purchase securities of any company having less
than three years' continuous operation (including operations of any
predecessors) if such purchase does not cause the value of such Portfolio's
investments in all such companies to exceed 5% of the value of its total
assets; (ii) pledge, hypothecate, mortgage or otherwise encumber its assets,
but only to secure permitted borrowings; and (iii) invest up to 15% of the
value of its net assets in repurchase agreements providing for settlement in
more than seven days after notice and in other illiquid securities. See
"Investment Objective and Management Policies_Investment Restrictions" in the
Fund's Statement of Additional Information.
RISK FACTORS
CERTAIN INVESTMENT TECHNIQUES -- The use of investment techniques such as
short-selling, engaging in financial futures and options transactions,
leverage through borrowing, purchasing securities on a forward commitment
basis and lending portfolio securities involves greater risk than that
incurred by many other funds with a similar objective. Using these techniques
may produce higher than normal portfolio turnover and may affect the degree
to which a Portfolio's net asset value fluctuates. Portfolio turnover may
vary from year to year, as well as within a year. Under normal market
conditions, the portfolio turnover rate of a Portfolio generally will not
exceed 100%. Higher portfolio turnover rates are likely to result in
comparatively greater brokerage commissions or transaction costs. See
"Portfolio Transactions" in the Fund's Statement of Additional Information.
Each Portfolio's ability to engage in certain short-term transactions
may be limited by the requirement that, to qualify as a regulated investment
company, the Portfolio must earn less than 30% of its gross income from the
disposition of securities held for less than three months. This 30% test
limits the extent to which a Portfolio may sell securities held for less than
three months, effect short sales of securities held for less than three
months, write options expiring in less than three months and invest in
certain futures contracts, among other strategies. However, portfolio
turnover will not otherwise be a limiting factor in making investment
decisions.
EQUITY SECURITIES -- Investors should be aware that equity securities
fluctuate in value, often based on factors unrelated to the value of the
issuer of the securities, and that fluctuations can be pronounced. Changes in
the value of a Portfolio's equity securities will result in changes in the
value of the Portfolio's shares and thus the Portfolio's yield and total
return to investors.
FIXED-INCOME SECURITIES -- Investors should be aware that even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities are inversely affected
Page 14
by changes in interest rates and, therefore, are subject to the risk of
market price fluctuations. Thus, if interest rates have increased from the
time a security was purchased, such security, if sold, might be sold at a
price less than its cost. Similarly, if interest rates have declined from the
time a security was purchased, such security, if sold, might be sold at a
price greater than its cost. In either instance, if the security was purchased
at face value and held to maturity, no gain or loss would be realized. The
value of U.S. Treasury securities also will be affected by the supply and
demand, as well as the perceived supply and demand, for such securities.
FOREIGN SECURITIES -- Since the stocks of some foreign issuers are included
in the S&P 500 Index and the Wilshire 5000 Index, a Portfolio's investments
may contain securities of such foreign issuers which may subject the
Portfolio to additional investment risks with respect to those securities
that are different in some respects from those incurred by a fund which
invests only in securities of domestic issuers. Such risks include future
political and economic developments, the possible imposition of withholding
taxes on income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect an investment in these securities and the
possible seizure or nationalization of foreign deposits. No Portfolio will
invest more than 20% of the value of its assets in the common stocks of
foreign issuers. See "Certain Portfolio Securities_Bank Obligations" above.
OTHER INVESTMENT CONSIDERATIONS -- Each Portfolio's net asset value per share
is not fixed and should be expected to fluctuate. You should purchase
Portfolio shares only as a supplement to an overall investment program and
only if you are willing to undertake the risks involved.
Federal income tax law requires the holder of a zero coupon security
or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, each Portfolio may be required to distribute such
income accrued with respect to these securities and may have to dispose of
such securities under disadvantageous circumstances in order to generate cash
to satisfy these distribution requirements.
Each Portfolio's classification as a "non-diversified" investment
company means that the proportion of the Portfolio's assets that may be
invested in the securities of a single issuer is not limited by the
Investment Company Act of 1940. A "diversified" investment company is
required by the Investment Company Act of 1940 generally, with respect to 75%
of its total assets, to invest not more than 5% of such assets in the
securities of a single issuer and to hold not more than 10% of the
outstanding voting securities of a single issuer. However, each Portfolio
intends to conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"), which requires that, at the end of each quarter of its taxable year,
(i) at least 50% of the market value of the Portfolio's total assets be
invested in cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securitie
s of any one issuer limited for the purposes of this calculation to an amount
not greater than 5% of the value of the Portfolio's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of the Portfolio's total assets be invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies). Since a relatively high percentage of
each Portfolio's assets may be invested in the securities of a limited number
of issuers, some of which may be within the same industry or economic sector,
the Portfolio's securities may be more susceptible to any single economic,
political or regulatory occurrence than the securities of a diversified
investment company.
Investment decisions for each Portfolio are made independently from
those of other investment companies advised by The Dreyfus Corporation.
However, if such other investment companies are prepared to invest in, or
desire to dispose of, securities of the type in which a Portfolio invests at
the same
Page 15
time as such Portfolio, available investments or opportunities for
sales will be allocated equitably to each investment company. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by the Portfolio or the price paid or received by the Portfolio.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New
York 10166, was formed in 1947 and serves as the Fund's investment adviser.
The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As
of August 31, 1994, The Dreyfus Corporation managed or administered
approximately $70 billion in assets for more than 1.9 million investor
accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the overall authority of the Fund's Board of Directors in
accordance with Maryland law. The primary portfolio manager of each Portfolio
is Ernest G. Wiggins, Jr. He has held that position since May 12, 1994 and
has been an employee of The Dreyfus Corporation since December 1993. From
1992 to December 1993, Mr. Wiggins was President of Gabelli International
and, prior thereto, he held various positions with Fidelity Management and
Research Company. The Fund's other portfolio managers are identified under
"Management of the Fund" in the Fund's Statement of Additional Information.
The Dreyfus Corporation also provides research services for the Fund as well
as for other funds advised by The Dreyfus Corporation through a professional
staff of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, Mellon managed more than $130 billion in assets as of July
31, 1994, including approximately $6 billion in mutual fund assets. As of
June 30, 1994, various subsidiaries of Mellon provided non-investment
services, such as custodial or administration services, for approximately
$747 billion in assets, including $97 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate of .75 of 1% of
the value of each Portfolio's average daily net assets. The management fee is
higher than that paid by most other investment companies. From time to time,
The Dreyfus Corporation may waive receipt of its fees and/or voluntarily
assume certain expenses of the Fund, which would have the effect of lowering
the overall expense ratio of the Fund and increasing yield to investors at
the time such amounts are waived or assumed, as the case may be. The Fund
will not pay The Dreyfus Corporation at a later time for any amounts it may
waive, nor will the Fund reimburse The Dreyfus Corporation for any amounts it
may assume. For the period July 1, 1993 (commencement of operations) through
April 30, 1994, no management fee was paid by the Fund with respect to the
Dreyfus Total Return Portfolio pursuant to an undertaking by The Dreyfus
Corporation.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by The Dreyfus Corporation.
The expenses borne by the Fund include: organizational costs, taxes,
interest, loan commitment fees, interest and distributions paid on securities
sold short, brokerage fees and commissions, if any, fees of Directors who are
not officers, directors, employees or holders of 5% or more of the
outstanding voting securities of The Dreyfus Corporation, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory fees,
charges of
Page 16
custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining the Fund's existence, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders' reports
and meetings, costs of preparing and printing certain prospectuses and
statements of additional information, and any extraordinary expenses.
Expenses attributable to a particular Portfolio are charged against the
assets of that Portfolio; other expenses of the Fund are allocated between
the Portfolios on the basis determined by the Board of Directors, including,
but not limited to, proportionately in relation to the net assets of each
Portfolio.
In addition, the Fund is subject to an annual distribution fee for
advertising, marketing and distributing Portfolio shares and an annual
service fee for ongoing personal services relating to shareholder accounts
and services related to the maintenance of shareholder accounts. See
"Distribution Plan and Shareholder Services Plan."
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 110 Washington Street, New York, New York 10286, is the
Fund's Custodian.
HOW TO BUY FUND SHARES
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of Institutional Administration
Services, Inc., a provider of mutual fund administration services, the parent
company of which is Boston Institutional Group, Inc.
You can purchase Portfolio shares through the Distributor or certain
financial institutions, securities dealers and other industry professionals
(collectively, "Service Agents") that have entered into agreements with the
Distributor. Stock certificates are issued only upon your written request. No
certificates are issued for fractional shares. The Fund reserves the right to
reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at least
$100. The initial investment must be accompanied by the Fund's Account
Application. For full-time or part-time employees of The Dreyfus Corporation
or any of its affiliates or subsidiaries, directors of The Dreyfus
Corporation, Board members of a fund advised by The Dreyfus Corporation,
including members of the Fund's Board, or the spouse or minor child of any of
the foregoing, the minimum initial investment is $1,000. For full-time or
part-time employees of The Dreyfus Corporation or any of its affiliates or
subsidiaries who elect to have a portion of their pay directly deposited into
their Fund account, the minimum initial investment is $50. The Fund reserves
the right to offer Portfolio shares without regard to minimum purchase
requirements to employees participating in certain qualified or non-qualified
employee benefit plans or other programs where contributions or account
information can be transmitted in a manner and form acceptable to the Fund.
The Fund reserves the right to vary further the initial and subsequent
investment minimum requirements at any time.
You may purchase Portfolio shares by check or wire, or through the
Dreyfus TELETRANSFER Privilege described below. Checks should be made payable
to "The Dreyfus Family of Funds," or, if for Dreyfus retirement plan
accounts, to "The Dreyfus Trust Company, Custodian." Payments to open new
accounts which are mailed should be sent to The Dreyfus Family of Funds, P.O.
Box 9387, Providence,
Page 17
Rhode Island 02940-9387, together with your Account
Application. For subsequent investments, your Fund account number should
appear on the check and an investment slip should be enclosed and sent to The
Dreyfus Family of Funds, P.O. Box 105, Newark, New Jersey 07101-0105. For
Dreyfus retirement plan accounts, both initial and subsequent investments
should be sent to The Dreyfus Trust Company, Custodian, P.O. Box 6427,
Providence, Rhode Island 02940-6427. Neither initial nor subsequent
investments should be made by third party check. Purchase orders may be
delivered in person only to a Dreyfus Financial Center. THESE ORDERS WILL BE
FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, together with the applicable
Portfolio's DDA# as shown below, for purchase of Portfolio shares in your
name:
DDA# 8900118202/Dreyfus Asset Allocation Fund, Inc./Dreyfus Total
Return Portfolio
DDA# 8900104481/Dreyfus Asset Allocation Fund, Inc./Dreyfus Income
Portfolio
DDA# 8900104503/Dreyfus Asset Allocation Fund, Inc./Dreyfus Growth
Portfolio
The wire must include your Fund account number (for new accounts, your
Taxpayer Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in this
Prospectus, and, to the extent permitted by applicable regulatory authority,
may charge their clients direct fees which would be in addition to any
amounts which might be received under the Shareholder Services Plan. Each
Service Agent has agreed to transmit to its clients a schedule of such fees.
You should consult your Service Agent in this regard.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Portfolio shares by employees participating
in qualified or non-qualified employee benefit plans or other programs where
(i) the employers or affiliated employers maintaining such plans or programs
have a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds one million dollars ("Eligible Benefit
Plans"). The determination of the number of employees eligible for
participation in a plan or program shall be made on the date Fund shares are
first purchased by or on behalf of employees participating in such plan or
program and on each subsequent January 1st. All present holdings of shares of
funds in the Dreyfus Family of Funds by Eligible Benefit Plans will be
aggregated to determine the fee payable with respect to each purchase of
Portfolio shares. The Distributor reserves the right to cease paying these
fees
Page 18
at any time. The Distributor will pay such fees from its own funds,
other than amounts received from the Fund, including past profits or any
other source available to it.
Shares of each Portfolio are sold on a continuous basis at net asset
value per share next determined after an order in proper form is received by
the Transfer Agent or other agent. Net asset value per share is determined as
of the close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m., New York time), on each day the New York Stock Exchange
is open for business. For purposes of determining net asset value, options
and futures contracts will be valued 15 minutes after the close of trading on
the floor of the New York Stock Exchange. Net asset value per share is
computed by dividing the value of the Portfolio's net assets (i.e., the value
of its assets less liabilities) by the total number of such Portfolio's
shares outstanding. Each Portfolio's investments are valued each business day
generally by using available market quotations or at fair value which may be
determined by one or more pricing services approved by the Board of
Directors. For further information regarding the methods employed in valuing
the Portfolios' investments, see "Determination of Net Asset Value" in the
Fund's Statement of Additional Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE
You may purchase Fund shares (minimum $500, maximum $150,000 per day)
by telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between the bank account designated in one of these documents and
your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Portfolio shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those in
this Prospectus. You should consult your Service Agent in this regard.
EXCHANGE PRIVILEGE
The Exchange Privilege enables you to purchase, in exchange for
shares of a Portfolio, shares in one of the other Portfolios or shares of
certain other funds managed or administered by The Dreyfus Corporation, to
the extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this Privilege, you should consult your Service Agent or
the Distributor to determine if it is available and whether any conditions
are imposed on its use.
To use this Privilege, you or your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing, by
wire or by telephone. If you previously have established the Telephone
Exchange Privilege, you may telephone exchange instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. See
"How to Redeem Fund Shares_Procedures." Before any exchange into a fund
offered by another prospectus, you must obtain and should review a copy of the
current prospectus of the fund into which the exchange is being made.
Prospectuses may be obtained from the Distributor. Except in the case of
Personal Retirement Plans,
Page 19
the shares being exchanged must have a current value of at least $500;
furthermore, when establishing a new account by exchange, the shares being
exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. Telephone
exchanges may be made only if the appropriate "YES" box has been checked on
the Account Application, or a separate signed Shareholder Services Form is on
file with the Transfer Agent. Upon an exchange into a new account, the
following shareholder services and privileges, as applicable and where
available, will be automatically carried over to the fund into which
the exchange is made: the Exchange Privilege, Wire Redemption Privilege,
Telephone Redemption Privilege, Dreyfus TELETRANSFER Privilege and the
dividend/capital gain distribution option (except for Dreyfus Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the fund from
which you are exchanging were: (a) purchased with a sales load, (b) acquired
by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with respect
to the foregoing categories of shares. To qualify, at the time of your
exchange you must notify the Transfer Agent or your Service Agent must notify
the Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal fee in accordance with rules promulgated by the
Securities and Exchange Commission. The Fund reserves the right to reject any
exchange request in whole or in part. The Exchange Privilege may be modified
or terminated at any time upon notice to shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
a Portfolio, in shares of one of the other Portfolios or shares of certain
other funds in the Dreyfus Family of Funds of which you are currently an
investor. The amount you designate, which can be expressed either in terms of
a specific dollar or share amount ($100 minimum), will be exchanged
automatically on the first and/or fifteenth day of the month according to the
schedule you have selected. Shares will be exchanged at the then-current net
asset value; however, a sales load may be charged with respect to exchanges
into funds sold with a sales load. See "Shareholder Services" in the
Statement of Additional Information. The right to exercise this Privilege may
be modified or cancelled by the Fund or the Transfer Agent. You may modify or
cancel your exercise of this Privilege at any time by mailing written
notification to The Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode
Island 02940-9671. The Fund may charge a service fee for the use of this
Privilege. No such fee currently is contemplated. The exchange of shares of
one fund for shares of another is treated for Federal income tax purposes as
a sale of the shares given in exchange by the shareholder and, therefore, an
exchanging shareholder may realize a taxable gain or loss. For more
information concerning this Privilege and the funds in the Dreyfus Family of
Funds eligible to participate in this Privilege, or to obtain a Dreyfus
Auto-Exchange Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Portfolio
shares (minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Shares of a Portfolio are purchased by
transferring funds from the bank account designated by you. At your option,
the bank
Page 20
account designated by you will be debited in the specified amount,
and Portfolio shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only an account maintained at
a domestic financial institution which is an Automated Clearing House member
may be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder account,
you must file an authorization form with the Transfer Agent. You may obtain
the necessary authorization form from the Distributor. You may cancel your
participation in this Privilege or change the amount of purchase at any time
by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Portfolio shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
Fund account. You may deposit as much of such payments as you elect. To
enroll in Dreyfus Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in the Privilege. The appropriate form may be obtained
from the Distributor. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency.
Further, the Fund may terminate your participation upon 30 days' notice to
you.
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by a Portfolio in
shares of another Portfolio of the Fund or shares of another fund in the
Dreyfus Family of Funds of which you are a shareholder. Shares of the other
fund will be purchased at the then-current net asset value; however, a sales
load may be charged with respect to investments in shares of a fund sold with
a sales load. If you are investing in a fund that charges a sales load, you
may qualify for share prices which do not include the sales load or which
reflect a reduced sales load. See "Shareholder Services" in the Statement of
Additional Information. Dreyfus Dividend ACH permits you to transfer
electronically on the payment date dividends or dividends and capital gain
distributions, if any, from the Fund to a designated bank account. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. Banks may charge a fee for this
service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. Enrollment in or
cancellation of these privileges is effective three business days following
receipt. These privileges are available only for existing accounts and may
not be used to open new accounts. Minimum subsequent investments do not apply
for Dreyfus Dividend Sweep. The Fund may modify or terminate these privileges
at any time or charge a service fee. No such fee currently is contemplated.
Shares held under Keogh Plans, IRAs or other retirement plans are not
eligible for Dreyfus Dividend Sweep.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Portfolio shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department.
Page 21
Your employer must complete the reverse side of the form and return it to
The Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island
02940-9671. You may obtain the necessary authorization form from the
Distributor. You may change the amount of purchase or cancel the authorization
only by written notification to your employer. It is the sole responsibility
of your employer, not the Distributor, The Dreyfus Corporation, the Fund,
the Transfer Agent or any other person, to arrange for transactions under the
Dreyfus Payroll Savings Plan. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. An application for the Automatic
Withdrawal Plan can be obtained from the Distributor. There is a service
charge of 50cents for each withdrawal check. The Automatic Withdrawal Plan
may be ended at any time by you, the Fund or the Transfer Agent. Shares for
which certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k)
Salary Reduction Plans and 403(b)(7) Plans. Plan support services also are
available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; and for
SEP-IRAs, 401(k) Salary Reduction Plans and 403(b)(7) Plans, please call 1-800
- -322-7880.
HOW TO REDEEM FUND SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
The Fund imposes no charges when shares are redeemed directly through
the Distributor. Service Agents may charge a nominal fee for effecting
redemptions of Portfolio shares. Any certificates representing Portfolio
shares being redeemed must be submitted with the redemption request. The
value of the shares redeemed may be more or less than their original cost,
depending upon the Portfolio's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE
OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT
BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE
DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET BUILDER ORDER
AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY
IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A
SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST.
PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS
OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until the Transfer
Agent has received your Account Application.
Page 22
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, the Wire Redemption Privilege, the Telephone
Redemption Privilege or the Dreyfus TELETRANSFER Privilege. Other redemption
procedures may be in effect for clients of certain Service Agents. The Fund
makes available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities.
You may redeem or exchange shares by telephone if you have checked
the appropriate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. If you select a telephone
redemption or exchange privilege, you authorize the Transfer Agent to act on
telephone instructions from any person representing himself or herself to be
you, or a representative of your Service Agent, and reasonably believed by
the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of a Portfolio's shares. In such cases, you
should consider using the other redemption procedures described herein. Use
of these other redemption procedures may result in your redemption request
being processed at a later time than it would have been if telephone
redemption had been used. During the delay, the Portfolio's net asset value ma
y fluctuate.
REGULAR REDEMPTION -- Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. THESE REQUESTS WILL
BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information." Redemption requests
must be signed by each shareholder, including each owner of a joint account,
and each signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper
form generally will be accepted from domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations, as well as from participants in
the New York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion
Program. If you have any questions with respect to signature-guarantees,
please call one of the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE -- You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. To establish the Wire Redemption Privilege, you must
check the appropriate box and supply the necessary information on the Fund's
Account Application or file a Shareholder Services Form with the Transfer
Agent. You may direct that redemption proceeds be paid by check (maximum
$150,000 per day) made out to the owners of record and mailed to your
address. Redemption proceeds of less than $1,000 will be paid automatically
by check. Holders of jointly registered Fund or bank accounts may have
redemption proceeds of only up to $250,000 wired within any 30-day period.
You may telephone redemption requests by calling 1-800-221-4060 or, if you
are call-
Page 23
ing from overseas, call 1-401-455-3306. The Fund reserves the right
to refuse any redemption request, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. This Privilege may be modified or terminated at any time by the
Transfer Agent or the Fund. The Fund's Statement of Additional Information
sets forth instructions for transmitting redemption requests by wire. Shares
held under Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE--You may redeem shares (maximum $150,000 per
day) by telephone if you have checked the appropriate box on the Fund's
Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Fund.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares for
which certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE--You may redeem shares (minimum $500 per day)
by telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request or, at your request, paid by check (maximum $150,000 per
day) and mailed to your address. Holders of jointly registered Fund or bank
accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account only up to $250,000 within any 30-day period. The Fund
reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. The Fund may modify or terminate
this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call
1-401-455-3306. Shares held under Keogh Plans, IRAs or other retirement
plans, and shares issued in certificate form, are not eligible for this
Privilege.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Portfolio shares are subject to a Distribution Plan and a Shareholder
Services Plan.
DISTRIBUTION PLAN -- Under the Distribution Plan, adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, the Fund (a) reimburses the
Distributor for payments to certain Service Agents for distributing Portfolio
shares and (b) pays The Dreyfus Corporation, Dreyfus Service Corporation, a
wholly-owned subsidiary of The Dreyfus Corporation, or any affiliate of
either of them for advertising and marketing relating to Portfolio shares at
an aggregate annual rate of .50 of 1% of the value of each Portfolio's average
daily net assets. The Distributor may pay one or more Service Agents in
respect of distribution services. The Distributor determines the amounts, if
any, to be paid to Service Agents under the Distribution Plan and the basis
on which such payments are made. The fees payable under the Distribution Plan
are payable without regard to actual expenses incurred.
The Fund bears the costs of preparing and printing prospectuses and
statements of additional information used for regulatory purposes and for
distribution to existing Fund shareholders. Under the Distribution Plan, the
Fund bears (a) the costs of preparing, printing and distributing prospectuses
and statements of
Page 24
additional information used for other purposes and (b) the costs associated
with implementing and operating the Distribution Plan, the aggregate of such
amounts not to exceed in any fiscal year of the Fund the greater of $100,000
or .005 of 1% of the value of each Portfolio's average daily net assets for
such fiscal year.
SHAREHOLDER SERVICES PLAN -- Under the Shareholder Services Plan, the Fund
pays the Distributor for the provision of certain services to Portfolio
shareholders a fee at the annual rate of .25 of 1% of the value of each
Portfolio's average daily net assets. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The Distributor may make payments to Service Agents in respect of these
services. The Distributor determines the amounts to be paid to Service
Agents. Each Service Agent is required to disclose to its clients any
compensation payable to it by the Fund pursuant to the Shareholder Services
Plan and any other compensation payable by their clients in connection with
the investment of their assets in Portfolio shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DREYFUS TOTAL RETURN PORTFOLIO AND DREYFUS GROWTH PORTFOLIO -- Declare and
pay dividends from net investment income annually.
DREYFUS INCOME PORTFOLIO -- Declares and pays dividends from net investment
income quarterly.
APPLICABLE TO ALL PORTFOLIOS -- Under the Code, each Portfolio of the Fund is
treated as a separate corporation for purposes of qualification and taxation
as a regulated investment company. Each Portfolio distributes net realized
securities gains, if any, once a year, but it may make distributions on a
more frequent basis to comply with the distribution requirements of the Code,
in all events in a manner consistent with the provisions of the Investment
Company Act of 1940. No Portfolio will make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized
or have expired. You may choose whether to receive dividends and
distributions in cash or to reinvest in additional shares at net asset value.
All expenses are accrued daily and deducted before declaration of dividends
to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, paid by the Portfolios will be taxable to U.S.
shareholders as ordinary income whether received in cash or reinvested in
additional Portfolio shares. Distributions from net realized long-term
securities gains of the Portfolios will be taxable to U.S. shareholders as
long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Portfolio shares and whether such
distributions are received in cash or reinvested in Fund shares. The Code
provides that the net capital gain of an individual generally will not be
subject to Federal income tax at a rate in excess of 28%. Dividends and
distributions may be subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, paid by the Portfolios to a foreign investor generally
are subject to U.S. nonresident withholding taxes at the rate of 30%, unless
the foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Portfolios to a foreign investor as well as the proceeds of any
redemptions from a foreign investor's account, regardless of the extent to
which gain or loss may be realized, generally will not be subject to U.S.
nonresident withholding tax. However, such distributions may be subject to
backup withholding, as described below, unless the foreign investor certifies
his non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
Page 25
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup wi
thholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Fund believes that the Dreyfus Total Return
Portfolio has qualified for the fiscal year ended April 30, 1994 as a
"regulated investment company" under the Code. The Dreyfus Total Return
Portfolio intends to continue to so qualify if such qualification is in the
best interests of its shareholders. Management of the Fund expects that each
of the Dreyfus Income Portfolio and Dreyfus Growth Portfolio will qualify as
a "regulated investment company" under the code so long as such qualification
is in the best interests of its shareholders. Qualification as a "regulated
investment company" relieves a Portfolio of any liability for Federal income
taxes to the extent its earnings are distributed in accordance with
applicable provisions of the Code. In addition, each Portfolio is subject to
a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on the
basis of average annual total return and/or total return.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in a Portfolio was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of each Portfolio's performance will include such Portfolio's average annual
total return for one, five and ten year periods, or for shorter periods
depending upon the length of time during which the Portfolio has operated.
Computations of average annual total return for periods of less than one year
represent an annualization of the Portfolio's actual total return for the
applicable period.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Page 26
Comparative performance information may be used from time to time in
advertising or marketing the Portfolios' shares, including data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's 500 Stock
Index, the Dow Jones Industrial Average, Moody's Bond Service Bond Index,
Bond Buyer's 20-Bond Index, Wilshire 5000 Index and other industry
publications.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on May 12, 1993, and
commenced operations on July 1, 1993. On August 26, 1994, the Fund commenced
offering shares of the Dreyfus Income Portfolio and the Dreyfus Growth
Portfolio and the existing portfolio of the Fund began operating as the
Dreyfus Total Return Portfolio. The Fund is authorized to issue 300 million
shares of Common Stock (with 100 million allocated to each Portfolio), par
value $.001 per share. Each share has one vote.
Unless otherwise required by the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Directors or the appointment of auditors. However, pursuant to
the Fund's By-Laws, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Fund to hold a special meeting of
shareholders for purposes of removing a Director from office or for any other
purpose. Fund shareholders may remove a Director by the affirmative vote of a
majority of the Fund's outstanding voting shares. In addition, the Board of
Directors will call a meeting of shareholders for the purpose of electing
Directors if, at any time, less than a majority of the Directors then holding
office have been elected by shareholders.
To date, the Board of Directors has authorized the creation of three
series of shares. All consideration received by the Fund for shares of one of
the Portfolios and all assets in which such consideration is invested will
belong to that Portfolio (subject only to the rights of creditors of the
Fund) and will be subject to the liabilities related thereto. The income
attributable to, and the expenses of, one Portfolio are treated separately
from those of the other Portfolios. The Fund has the ability to create, from
time to time, new series without shareholder approval.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted under the provisions of the Investment
Company Act of 1940 or applicable state law or otherwise to the holders of
the outstanding voting securities of an investment company, such as the Fund,
will not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Portfolio affected by
such matter. Rule 18f-2 further provides that a Portfolio shall be deemed to
be affected by a matter unless it is clear that the interests of each
Portfolio in the matter are identical or that the matter does not affect any
interest of such Portfolio. However, the Rule exempts the selection of
independent accountants and the election of Directors from the separate
voting requirements of the Rule.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquires may be made to your Service Agent or by writing
to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144,
or by calling toll free 1-800-645-6561. In New York City, call
1-718-895-1206; on Long Island, call 794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 27
DREYFUS
ASSET ALLOCATION
FUND, INC.
PROSPECTUS
(LION LOGO)
Copy Rights Premier Mutual Fund Services, Inc., 1994
Distributor 550/551p5082694
__________________________________________________________________________
DREYFUS ASSET ALLOCATION FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
AUGUST 26, 1994
__________________________________________________________________________
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with the current
Prospectus of Dreyfus Asset Allocation Fund, Inc. (the "Fund"), dated
August 26, 1994, as it may be revised from time to time. To obtain a copy
of the Fund's Prospectus, please write to the Fund at
144 Glenn Curtiss Boulevard, Uniondale, New York 11566-0144, or call the
following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
On Long Island -- Call 794-5254
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . . . B-8
Management Agreement. . . . . . . . . . . . . . . . . . . . . . B-11
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . B-13
Distribution Plan and Shareholder Services Plan . . . . . . . . B-13
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . B-15
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . B-17
Determination of Net Asset Value. . . . . . . . . . . . . . . . B-20
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . B-21
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . B-22
Performance Information . . . . . . . . . . . . . . . . . . . . B-23
Information About the Fund. . . . . . . . . . . . . . . . . . . B-24
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . B-24
Financial Statements. . . . . . . . . . . . . . . . . . . . . . B-25
Report of Independent Auditors. . . . . . . . . . . . . . . . . B-36
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Description of the Fund."
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation (the
"FDIC"). Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the Federal
Reserve System only if they elect to join. In addition, state banks whose
certificates of deposit ("CDs") may be purchased by each Portfolio are
insured by the FDIC (although such insurance may not be of material
benefit to the Fund, depending on the principal amount of the CDs of each
bank held by the Fund) and are subject to Federal examination and to a
substantial body of Federal law and regulation. As a result of Federal or
state laws and regulations, domestic branches of domestic banks whose CDs
may be purchased by the Portfolios generally are required, among other
things, to maintain specified levels of reserves, are limited in the
amounts which they can loan to a single borrower and are subject to other
regulation designed to promote financial soundness. However, not all of
such laws and regulations apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of
foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent banks in addition to the issuing branch, or may
be limited by the terms of a specific obligation and governmental
regulation. Such obligations are subject to different risks than are
those of domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding and other taxes on
interest income. These foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial record keeping
requirements. In addition, less information may be publicly available
about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation or by Federal or state
regulation as well as governmental action in the country in which the
foreign bank has its head office. A domestic branch of a foreign bank
with assets in excess of $1 billion may be subject to reserve requirements
imposed by the Federal Reserve System or by the state in which the branch
is located if the branch is licensed in that state.
In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a
designated bank within the state, a certain percentage of their assets as
fixed from time to time by the appropriate regulatory authority; and (2)
maintain assets within the state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state.
The deposits of Federal and State Branches generally must be insured by
the FDIC if such branches take deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign
subsidiaries of domestic banks, by foreign branches of foreign banks or by
domestic branches of foreign banks, the Manager carefully evaluates such
investments on a case-by-case basis.
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not
readily marketable, the Fund will endeavor to obtain the right to
registration at the expense of the issuer. Generally, there will be a
lapse of time between the Fund's decision to sell any such security and
the registration of the security permitting sale. During any such period,
the price of the securities will be subject to market fluctuations.
However, if a substantial market of qualified institutional buyers
develops pursuant to Rule 144A under the Securities Act of 1933, as
amended, for certain unregistered securities held by a Portfolio, the Fund
intends to treat certain unregistered securities as liquid securities in
accordance with procedures approved by the Fund's Board of Directors.
Because it is not possible to predict with assurance how the market for
restricted securities pursuant to Rule 144A will develop, the Fund's Board
of Directors has directed the Manager to monitor carefully each Portfolio's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
To the extent that, for a period of time, qualified institutional buyers
cease purchasing restricted securities pursuant to Rule 144A, the Portfolio's
investing in such securities may have the effect of increasing the level
of illiquidity in that Portfolio's during such period.
Investment Techniques
Options Transactions. Each Portfolio may engage in options
transactions, such as purchasing or writing covered call or put options.
The principal reason for writing covered call options is to realize,
through the receipt of premiums, a greater return than would be realized
on the Portfolio's securities alone. In return for a premium, the writer
of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of
the option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the price
of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a decline in the price
of the underlying security. The size of the premiums that the Portfolios
may receive may be adversely affected as new or existing institutions,
including other investment companies, engage in or increase their option-
writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may
be below, equal to or above the market values of the underlying securities
at the time the options are written. In the case of call options, these
exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. Each Portfolio may write (a) in-the-
money call options when the Manager expects that the price of the
underlying security will remain stable or decline moderately during the
option period, (b) at-the-money call options when the Manager expects that
the price of the underlying security will remain stable or advance
moderately during the option period and (c) out-of-the-money call options
when the Manager expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price
of the underlying security alone. In these circumstances, if the market
price of the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market
environments that such call options are used in equivalent transactions.
So long as the Portfolio's obligation as the writer of an option
continues, the Portfolio may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Portfolio to
deliver, in the case of a call, or take delivery of, in the case of a put,
the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Portfolio effects a
closing purchase transaction. The Portfolio can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned an exercise notice.
While it may choose to do otherwise, each Portfolio generally will
purchase or write only those options for which the Manager believes there
is an active secondary market so as to facilitate closing transactions.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, at
times have rendered certain clearing facilities inadequate and resulted in
the institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions in
one or more options. There can be no assurance that similar events, or
events that otherwise may interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be
possible to effect closing transactions in particular options. If as a
covered call option writer a Portfolio is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the
underlying security upon exercise or it otherwise covers its position.
Stock Index Options. Each Portfolio may purchase and write put and
call options on stock indexes listed on national securities exchanges or
traded in the over-the-counter market. A stock index fluctuates with
changes in the market values of the stocks included in the index.
Options on stock indexes are similar to options on stock except that
(a) the expiration cycles of stock index options are generally monthly,
while those of stock options are currently quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or make
delivery of a stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied
by (ii) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the stock index upon which the option is
based being greater than, in the case of a call, or less than, in the case
of a put, the exercise price of the option. The amount of cash received
will be equal to such difference between the closing price of the index
and the exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. The writer may
offset its position in stock index options prior to expiration by entering
into a closing transaction on an exchange or it may let the option expire
unexercised.
Futures Contracts and Options on Futures Contracts. Upon exercise of
an option, the writer of the option will deliver to the holder of the
option the futures position and the accumulated balance in the writer's
futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of options
on futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the time
of sale, there are no daily cash payments to reflect changes in the value
of the underlying contract; however, the value of the option does change
daily and that change would be reflected in the net asset value of the
Portfolio.
Investment Company Securities. Each Portfolio may invest in
securities issued by other investment companies which principally invest
in securities of the type in which the Portfolio invests. Under the
Investment Company Act of 1940, as amended (the "Act"), a Portfolio's
investments in such securities, subject to certain exceptions, currently
are limited to (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Portfolio's net assets with respect to any one
investment company and (iii) 10% of the Portfolio's net assets in the
aggregate. Investments in the securities of other investment companies
may involve duplication of advisory fees and certain other expenses.
Lending Portfolio Securities. To a limited extent, each Portfolio
may lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value
of the securities loaned. By lending its securities, the Portfolio can
increase its income through the investment of the cash collateral. For
purposes of this policy, the Fund considers collateral consisting of U.S.
Government securities or irrevocable letters of credit issued by banks
whose securities meet the standards for investment by the Portfolio to be
the equivalent of cash. From time to time, the Fund may return to the
borrower or a third party which is unaffiliated with the Fund, and which
is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Portfolio must receive at least 100% cash collateral from the
borrower; (2) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral;
(3) the Portfolio must be able to terminate the loan at any time; (4) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions payable on the loaned
securities, and any increase in market value; (5) the Portfolio may pay
only reasonable custodian fees in connection with the loan; and (6) while
voting rights on the loaned securities may pass to the borrower, the
Fund's Board of Directors must terminate the loan and regain the right to
vote the securities if a material event adversely affecting the investment
occurs. These conditions may be subject to future modification.
Investment Restrictions. Each Portfolio has adopted investment
restrictions numbered 1 through 8 as fundamental policies. These
restrictions cannot be changed, as to a Portfolio, without approval by the
holders of a majority (as defined in the Act) of such Portfolio's
outstanding voting shares. Investment restrictions numbered 9 through 14
are not fundamental policies and may be changed by vote of a majority of
the Fund's Directors at any time. No Portfolio may:
1. Invest in commodities, except that the Portfolio may purchase
and sell options, forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.
2. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Portfolio
may purchase and sell securities that are secured by real estate or issued
by companies that invest or deal in real estate.
3. Borrow money, except to the extent permitted under the Act. For
purposes of this investment restriction, the entry into options, forward
contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes shall not constitute borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the
Portfolio may lend its portfolio securities in an amount not to exceed 33-
1/3% of the value of its total assets. Any loans of portfolio securities
will be made according to guidelines established by the Securities and
Exchange Commission and the Fund's Board of Directors.
5. Act as an underwriter of securities of other issuers, except to
the extent the Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
6. Invest more than 25% of the value of its assets in the
securities of issuers in any single industry, provided that, there shall
be no limitation on the purchase of obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
7. Issue any senior security (as such term is defined in Section
18(f) of the Act), except to the extent the activities permitted in
Investment Restriction Nos. 1, 3, 10 and 11 may be deemed to give rise to
a senior security.
8. Purchase securities on margin, but the Portfolio may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indexes, and options on
futures contracts or indexes.
9. Invest in the securities of a company for the purpose of
exercising management or control, but the Portfolio will vote the
securities it owns in its portfolio as a shareholder in accordance with
its views.
10. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and
the deposit of assets in escrow in connection with writing covered put and
call options and collateral and initial or variation margin arrangements
with respect to options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes.
11. Purchase, sell or write puts, calls or combinations thereof,
except as may be described in the Fund's Prospectus and this Statement of
Additional Information.
12. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Portfolio's investments in all such
companies to exceed 5% of the value of its total assets.
13. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are
illiquid, if, in the aggregate, more than 15% of the value of the
Portfolio's net assets would be so invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the Act.
Each Portfolio may invest, notwithstanding any other investment
restriction (whether or not fundamental), all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
restrictions as the Portfolio.
If a percentage restriction is adhered to at the time of investment,
a later change in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Portfolio shares in certain
states. Should the Fund determine that a commitment is no longer in the
best interest of the Portfolio and its shareholders, the Fund reserves the
right to revoke the commitment by terminating the sale of such Portfolio's
shares in the state involved.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. Each Director who is deemed to be an "interested person"
of the Fund, as defined in the Act, is indicated by an asterisk.
Directors of the Fund
LUCY WILSON BENSON, Director. President of Benson and Associates,
consultants to business and government. Mrs. Benson is a director of
Communications Satellite Corporation, General RE Corporation, The
Grumman Corporation and Logistics Management Institute. She is also
a Trustee of the Alfred P. Sloan Foundation, Vice Chairman of the
Board of Trustees of Lafayette College, Vice Chairman of the Citizens
Network for Foreign Affairs and a member of the Council on foreign
Relations. Mrs. Benson served as a consultant to the U.S. Department
of State and to SRI International from 1980 to 1981. From 1977 to
1980, she was Under Secretary of State for Security Assistance,
Science and Technology. Her address is 46 Sunset Avenue, Amherst,
Massachusetts 01002.
*DAVID W. BURKE, Director. Consultant to the Manager and an officer,
director, or trustee of other investment companies advised or
administered by the Manager. From October 1990 to August 1994, he was
Vice President and Chief Administrative Officer of the Manager.
From 1977 to 1990, Mr. Burke was involved in the management of national
television news, as Vice President and Executive Vice President of ABC
News, and subsequently as President of CBS News. His address is 200
Park Avenue, New York, New York 10166.
MARTIN D. FIFE, Director. President of Fife Associates, Inc. and other
companies engaged in the chemical and plastics industries. His
address is 30 Rockefeller Plaza, New York, New York 10112.
WHITNEY I. GERARD, Director. Partner of the New York City law firm of
Chadbourne & Parke. His address is 30 Rockefeller Plaza, New York,
New York 10112.
ROBERT R. GLAUBER, Director. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University, since January 1992. Mr. Glauber was Under Secretary of
the Treasury for Finance at the U.S. Treasury Department from
May 1989 to January 1992. For more than five years prior thereto, he
was a Professor of Finance at the Graduate School of Business
Administration of Harvard University and, from 1985 to 1989, Chairman
of its Advanced Management Program. His address is 79 John F.
Kennedy Street, Cambridge, Massachusetts 02138.
ARTHUR A. HARTMAN, Director. Senior consultant with APCO Associates Inc.
From 1981 to 1987, he was United States Ambassador to the former
Soviet Union. He is a director of the ITT Hartford Insurance Group
and a member of the advisory councils of several other companies,
research institutes and foundations. He is President of the Harvard
Board of Overseers. His address is 2738 McKinley Street, N.W.,
Washington, D.C. 20015.
GEORGE L. PERRY, Director. An economist and Senior Fellow at the
Brookings Institution since 1969. He is co-director of the Brookings
Panel on Economic Activity and editor of its journal, The Brookings
Papers. He is also a director of the State Farm Mutual Automobile
Association and State Farm Life Insurance Company. His address is
1775 Massachusetts Avenue, N.W., Washington, D.C. 20015.
PAUL WOLFOWITZ, Director. Dean of The Paul H. Nitze School of Advanced
International Studies at Johns Hopkins University. From 1989 to
1993, Under Secretary of Defense for Policy. From 1986 to 1989, he
was the U.S. Ambassador to the Republic of Indonesia. Before
assuming that post, he was Assistant Secretary of State for East
Asian and Pacific Affairs, Department of State, from 1982 to 1986.
In 1993, he was the George F. Kennan Professor of National Security
Strategy at the National War College. His address is 1740
Massachusetts Avenue, N.W., Washington, D.C. 20036.
The "non-interested" Directors are also directors of Dreyfus
California Municipal Income, Inc., The Dreyfus Fund Incorporated, Dreyfus
Municipal Income, Inc., Dreyfus New York Municipal Income, Inc., and
Dreyfus Short-Term Income Fund, Inc. Each of the "non-interested"
Directors, except Mr. Wolfowitz, is also a Director of Dreyfus Worldwide
Dollar Money Market Fund, Inc., and The 401(k) Fund, and trustees of
Dreyfus Institutional Short-Term Treasury Fund and Dreyfus Short-
Intermediate Municipal Bond Fund. Each of the "non-interested" Directors,
except Mr. Glauber, is also a director of Dreyfus Liquid Assets, Inc. and
a trustee of Dreyfus Short-Intermediate Government Fund. Mrs. Benson also
is a director of The Dreyfus Socially Responsible Growth Fund, Inc. and
The Dreyfus Third Century Fund, Inc.
The Fund does not pay any remuneration to its officers and Directors
other than expenses to those Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
the Manager, which totaled $14,365, with respect to the Dreyfus Total Return
Portfolio for the period July 1, 1993 (commencement of operations) through
April 30, 1994 for all such Directors as a group.
For so long as the Fund's plans described in the section captioned
"Distribution Plan and Shareholder Services Plan" remain in effect, the
Directors of the Fund who are not "interested persons" of the Fund, as
defined in the Act, will be selected and nominated by the Directors who
are not "interested persons" of the Fund.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., a wholly-owned subsidiary of The Boston Company,
Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc.
JOHN E. PELLETIER, Secretary. Senior Vice President and General Counsel
of the distributor and an officer of other investment companies
advised or administered by the Manager. From February 1992 to July
1994, he served as Counsel for The Boston Company Advisors, Inc.
Prior thereto, he was employed as an Associate at Ropes & Gray, and
prior to August 1990, he was employed as an Associate at Sidley &
Austin.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The
Boston Company, Inc., where he held various management positions in
the Corporate Finance and Treasury areas.
FREDERICK C. DEY, Assistant Treasurer. Senior Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1988 to August 1994, he was
Manager of the High Performance Fabric Division of Springs
Industries, Inc.
ERIC B. FISCHMAN, Assistant Secretary. Associate General Counsel of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From September 1992 to August 1994, he
was an attorney with the Board of Governors of the Federal Reserve
System. Prior to September 1992, he attended the Boston University
School of Law.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of their
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts and, prior thereto, was
employed as a Research Assistant for the Bureau of National Affairs.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Directors and officers of the Fund, as a group, owned less than 1% of
the shares of Common Stock of each Portfolio outstanding on August 22,
1994.
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; Julian M.
Smerling, Vice Chairman of the Board of Directors; Joseph S. DiMartino,
President and a Director; W. Keith Smith, Chief Operating Officer and a
Director; Paul H. Snyder, Vice President and Chief Financial Officer;
Daniel C. Maclean, Vice President and General Counsel; Robert F. Dubuss,
Vice President; Elie M. Genadry, Vice President-Wholesale; Henry D.
Gottman, Vice President-Retail; Jeffrey N. Nachman, Vice President-Mutual
Fund Administration; Daine M. Coffey, Vice President-Corporate
Communications; Jay R. DeMartine, Vice President-Retail Marketing; Barbara
E. Casey, Vice President-Retirement Services; Peter A. Santoriello, Vice
President; Kirk V. Stumpp, Vice President-New Product Development;
Lawrence S. Kash, Vice Chairman-Distribution; Philip L. Toia, Vice
Chairman-Operations and Administration; Katherine C. Wickham, Vice
President-Human Resources; Mark N. Jacobs, Vice President-Fund Legal and
Compliance; Christine Pavalos, Assistant Secretary; Maurice Bendrihem,
Controller; and Mandell L. Berman, Frank V. Cahouet, Alvin E. Friedman,
Lawrence M. Greene, Abigail Q. McCarthy and David B. Truman, directors.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994, with the Fund. As to
each Portfolio, the Agreement is subject to annual approval by (i) the
Fund's Board of Directors or (ii) vote of a majority (as defined in the
Act) of the outstanding voting securities of such Portfolio, provided
that in either event the continuance also is approved by a majority of the
Directors who are not "interested persons" (as defined in the Act) of the
Fund or the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval. As to each Portfolio, the Agreement
is terminable without penalty, on 60 days' notice, by the Fund's Board of
Directors or by vote of the holders of a majority of such Portfolio's
shares, or, on not less than 90 days' notice, by the Manager. The
Agreement will terminate automatically, as to the relevant Portfolio, in
the event of its assignment (as defined in the Act).
The Manager manages each Portfolio's investments in accordance with
the stated policies of such Portfolio, subject to the approval of the
Fund's Board of Directors. The Manager is responsible for investment
decisions, and provides the Fund with Portfolio Managers who are
authorized by the Board of Directors to execute purchases and sales of
securities. The Fund's Portfolio Managers are Howard Stein, Jeffrey F.
Friedman, Richard B. Hoey and Ernest G. Wiggins, Jr. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for the
Fund as well as for other funds advised by the Manager. All purchases and
sales are reported for the Directors' review at the meeting subsequent to
such transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: organizational costs, taxes, interest,
loan commitment fees, interest and distributions paid on securities sold
short, brokerage fees and commissions, if any, fees of Directors who are
not officers, directors, employees or holders of 5% or more of the
outstanding voting securities of the Manager, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining the Fund's existence, costs of independent
pricing services, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, costs of preparing and printing
certain prospectuses and statements of additional information, and any
extraordinary expenses. Expenses attributable to a particular Portfolio
are charged against the assets of that Portfolio; other expenses of the
Fund are allocated between the Portfolios on the basis determined by the
Board of Directors, including, but not limited to, proportionately in
relation to the net assets of each Portfolio.
In addition, the Fund is subject to an annual distribution fee for
advertising, marketing and distributing Portfolio shares and an annual
service fee for ongoing personal services relating to shareholder accounts
and services related to the maintenance of shareholder accounts. See
"Distribution Plan and Shareholder Services Plan."
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services. The Manager also may make such advertising and promotional
expenditures, using its own resources, as it from time to time deems
appropriate.
As compensation for its services, the Fund has agreed to pay the
Manager a monthly management fee at the annual rate of .75 of 1% of the
value of each Portfolio's average daily net assets. For the period July
1, 1993 (commencement of operations) through April 30, 1994, a management
fee of $232,788 was payable by the Fund with respect to the Dreyfus Total
Return Portfolio, which amount was waived pursuant to an undertaking by the
Manager, resulting in no fee being paid.
As to each Portfolio, the Manager has agreed that if in any fiscal
year the aggregate expenses of the Portfolio, exclusive of taxes,
brokerage, interest on borrowings and (with the prior written consent of
the necessary state securities commissions) extraordinary expenses, but
including the management fee, exceed the expense limitation of any state
having jurisdiction over the Fund, the Fund may deduct from the payment to
be made to the Manager under the Agreement, or the Manager will bear, such
excess expense to the extent required by state law. Such deduction or
payment, if any, will be estimated daily, and reconciled and effected or
paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of a Portfolio's net assets increases.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor
also acts as distributor for the other funds in the Dreyfus Family of
Funds and for certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made between the hours of 8:00 a.m. and 4:00 p.m., New York time,
on any business day that The Shareholder Services Group, Inc., the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), and the New
York Stock Exchange are open. Such purchases will be credited to the
shareholder's Fund account on the next bank business day. To qualify to
use the Dreyfus TeleTransfer Privilege, the initial payment for purchase
of Fund shares must be drawn on, and redemption proceeds paid to, the same
bank and account as are designated on the Account Application or
Shareholder Services Form on file. If the proceeds of a particular
redemption are to be wired to an account at any other bank, the request
must be in writing and signature-guaranteed. See "Redemption of Fund
Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year, provided the information on the old Account Application
is still applicable.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Distribution Plan and Shareholder Services Plan."
Portfolio shares are subject to a Distribution Plan and a Shareholder
Services Plan.
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the Act provides, among other things, that
an investment company may bear expenses of distributing its shares only
pursuant to a plan adopted in accordance with the Rule. The Fund's Board
of Directors has adopted such a plan (the "Distribution Plan") with
respect to the Portfolios' shares, pursuant to which the Fund pays the
Distributor for advertising, marketing and distributing Portfolio shares.
Under the Distribution Plan, the Distributor may make payments to certain
financial institutions, securities dealers and other financial industry
professionals (collectively, "Service Agents") in respect to these
services. The Fund's Board of Directors believes that there is a
reasonable likelihood that the Distribution Plan will benefit each
Portfolio and its shareholders. In some states, certain financial
institutions effecting transactions in Portfolio shares may be required to
register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be
made to the Directors for their review. In addition, the Distribution
Plan provides that it may not be amended to increase materially the costs
which Portfolio shareholders may bear for distribution pursuant to the
Distribution Plan without shareholder approval and that other material
amendments of the Distribution Plan must be approved by the Board of
Directors, and by the Directors who are not "interested persons" (as
defined in the Act) of the Fund and have no direct or indirect financial
interest in the operation of the Distribution Plan or in any agreements
entered into in connection with the Distribution Plan, by vote cast in
person at a meeting called for the purpose of considering such amendments.
The Distribution Plan is subject to annual approval by such vote of the
Directors cast in person at a meeting called for the purpose of voting on
the Distribution Plan. The Distribution Plan was so approved by the
Directors at a meeting held on August 25, 1994. The Distribution Plan may
be terminated at any time with respect to each Portfolio by vote of a
majority of the Directors who are not "interested persons" and have no
direct or indirect financial interest in the operation of the Distribution
Plan or in any agreements entered into in connection with the Distribution
Plan or by vote of the holders of a majority of the Portfolio's shares.
Pursuant to the Distribution Plan for the period July 1, 1993
(commencement of operations) through April 30, 1994, the Fund was charged
$155,192 for advertising, marketing and distributing shares of Dreyfus Total
Return Portfolio and $23,907 for preparing, printing and distributing
prospectuses and statements of additional information and for implementing and
operating the Distribution Plan with respect to the Dreyfus Total Return
Portfolio, all of which was reimbursed pursuant to an undertaking by the
Manager.
Shareholder Services Plan. The Fund has adopted a Shareholder
Services Plan, pursuant to which the Fund pays the Distributor for the
provision of certain services to each Portfolio's shareholders.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Directors for their review. In addition, the
Shareholder Services Plan provides that it may not be amended without
approval of the Directors, and by the Directors who are not "interested
persons" (as defined in the Act) of the Fund and have no direct or
indirect financial interest in the operation of the Shareholder Services
Plan or in any agreements entered into in connection with the Shareholder
Services Plan, by vote cast in person at a meeting called for the purpose
of considering such amendments. The Shareholder Services Plan is subject
to annual approval by such vote of the Directors cast in person at a
meeting called for the purpose of voting on the Shareholder Services Plan.
The Shareholder Services Plan was so approved by the Directors at a
meeting held on August 25, 1994. The Shareholder Services Plan is
terminable at any time with respect to each Portfolio by vote of a
majority of the Directors who are not "interested persons" and have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan or in any agreements entered into in connection with the
Shareholder Services Plan.
Pursuant to the Shareholder Services Plan for the period July 1, 1993
(commencement of operations) through April 30, 1994, the Fund was charged
$77,596 with respect to Dreyfus Total Return Portfolio, all of which was
reimbursed pursuant to an undertaking by the Manager.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt if the Transfer Agent receives the
redemption request in proper form. Redemption proceeds will be
transferred by Federal Reserve wire only to the commercial bank account
specified by the investor on the Account Application or Shareholder
Services Form. Redemption proceeds, if wired, must be in the amount of
$1,000 or more and will be wired to the investor's account at the bank of
record designated in the investor's file at the Transfer Agent, if the
investor's bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees
ordinarily are imposed by such bank and usually are borne by the investor.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
________________ ________________
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-
654-7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have selected the Dreyfus TeleTransfer Privilege, any request for a
wire redemption will be effected as a Dreyfus TeleTransfer transaction
through the Automated Clearing House ("ACH") system unless more prompt
transmittal specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
Fund Shares--Dreyfus TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion
Program. Guarantees must be signed by an authorized signatory of the
guarantor and "Signature-Guaranteed" must appear with the signature. The
Transfer Agent may request additional documentation from corporations,
executors, administrators, trustees or guardians, and may accept other
suitable verification arrangements from foreign investors, such as
consular verification. For more information with respect to signature-
guarantees, please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record of a Portfolio,
limited in amount during any 90-day period to the lesser of $250,000 or 1%
of the value of such Portfolio's net assets at the beginning of such
period. Such commitment is irrevocable without the prior approval of the
Securities and Exchange Commission. In the case of requests for
redemption in excess of such amount, the Board of Directors reserves the
right to make payments in whole or in part in securities or other assets
in case of an emergency or any time a cash distribution would impair the
liquidity of the Portfolio to the detriment of the existing shareholders.
In such event, the securities would be valued in the same manner as the
Portfolio's securities are valued. If the recipient sold such securities,
brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities
and Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Exchange Privilege. Shares of other Portfolios of the Fund or other
funds purchased by exchange will be purchased on the basis of relative net
asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load
that could have been imposed in connection with the Purchased
Shares (at the time the Purchased Shares were acquired), without
giving effect to any reduced loads, the difference will be
deducted.
To accomplish an exchange under item D above, shareholders must
notify the Transfer Agent of their prior ownership of fund shares and
their account number.
To use this Privilege, an investor or the investor's Service Agent
acting on the investor's behalf must give exchange instructions to the
Transfer Agent in writing, by wire or by telephone. Telephone exchanges
may be made only if the appropriate "YES" box has been checked on the
Account Application, or a separate signed Shareholder Services Form is on
file with the Transfer Agent. By using this Privilege, the investor
authorizes the Transfer Agent to act on telephonic, telegraphic or written
exchange instructions from any person representing himself or herself to
be the investor or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Telephone
exchanges may be subject to limitations as to the amount involved or the
number of telephone exchanges permitted. Shares issued in certificate
form are not eligible for telephone exchange.
To establish a retirement plan by exchange, shares of the fund being
exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. For Dreyfus-
sponsored Keogh Plans, IRAs and IRAs set up under a Simplified Employee
Pension Plan ("SEP-IRAs") with only one participant, the minimum initial
investment is $750. To exchange shares held in Corporate Plans, 403(b)(7)
Plans and SEP-IRAs with more than one participant, the minimum initial
investment is $100 if the plan has at least $2,500 invested among the
funds in the Dreyfus Family of Funds. To exchange shares held in a
Retirement Plan account, the shares exchanged must have a current value of
at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange permits an
investor to purchase, in exchange for shares of a Portfolio, shares of one
of the other Portfolios of the Fund or shares of another fund in the
Dreyfus Family of Funds. This Privilege is available only for existing
accounts. Shares will be exchanged on the basis of relative net asset
value as set forth under "Exchange Privilege" above. Enrollment in or
modification or cancellation of this Privilege is effective three business
days following notification by the investor. An investor will be notified
if his account falls below the amount designated to be exchanged under
this Privilege. In this case, an investor's account will fall to zero
unless additional investments are made in excess of the designated amount
prior to the next Auto-Exchange transaction. Shares held under IRA and
other retirement plans are eligible for this Privilege. Exchanges of IRA
shares may be made between IRA accounts and from regular accounts to IRA
accounts, but not from IRA accounts to regular accounts. With respect to
all other retirement accounts, exchanges may be made only among those
accounts.
The Exchange Privilege and Dreyfus Auto-Exchange Privilege are
available to shareholders resident in any state in which shares of the
fund being acquired may legally be sold. Shares may be exchanged only
between accounts having identical names and other identifying
designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained from the Distributor, One Exchange Place, Boston, Massachusetts
02109. The Fund reserves the right to reject any exchange request in
whole or in part. The Exchange Privilege or the Dreyfus Auto-Exchange
Privilege may be modified or terminated at any time upon notice to
shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis. Withdrawal payments are the proceeds from sales of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested
dividends and distributions, the investor's shares will be reduced and
eventually may be depleted. An Automatic Withdrawal Plan may be
established by completing the appropriate application available from the
Distributor. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the
Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from a Portfolio in shares of another Portfolio of
the Fund or shares of another fund in the Dreyfus Family of Funds of which
the investor is a shareholder. Shares of other funds purchased pursuant
to this Privilege will be purchased on the basis of relative net asset
value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds that
are offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge
a sales load may be invested in shares of other funds sold with
a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided that, if
the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge and the applicable contingent deferred sales charge, if
any, will be imposed upon redemption of such shares.
Corporate Pension/Profit-Sharing and Retirement Plans. The Fund
makes available to corporations a variety of prototype pension and profit-
sharing plans including a 401(k) Salary Reduction Plan. In addition, the
Fund makes available Keogh Plans, IRAs, including SEP-IRAs and IRA
"Rollover Accounts," and 403(b)(7) Plans. Plan support services also are
available.
Investors who wish to purchase Fund shares in conjunction with a
Keogh Plan, a 403(b)(7) Plan or an IRA, including an SEP-IRA, may request
from the Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or
IRAs may charge a fee, payment of which could require the liquidation of
shares. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans
may not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$2,500 with no minimum on subsequent purchases. The minimum initial
investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7)
Plans with only one participant, is normally $750, with no minimum on
subsequent purchases. Individuals who open an IRA may also open a non-
working spousal IRA with a minimum investment of $250.
The investor should read the Prototype Retirement Plan and the
appropriate form of Custodial Agreement for further details on
eligibility, service fees and tax implications, and should consult a tax
adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. Each Portfolio's securities,
including covered call options written by a Portfolio, are valued at the
last sale price on the securities exchange or national securities market
on which such securities primarily are traded. Short-term investments are
carried at amortized cost, which approximates value. Securities not
listed on an exchange or national securities market, or securities in
which there were no transactions, are valued at the average of the most
recent bid and asked prices, except in the case of open short positions
where the asked price is used for valuation purposes. Bid price is used
when no asked price is available. Any securities or other assets for
which recent market quotations are not readily available are valued at
fair value as determined in good faith by the Fund's Board of Directors.
Expenses and fees of the Fund, including the management fee paid by the
Fund and the distribution and service fees, are accrued daily and taken
into account for the purpose of determining the net asset value of Fund
shares.
Restricted securities, as well as securities or other assets for
which market quotations are not readily available, or are not valued by a
pricing service approved by the Board of Directors, are valued at fair
value as determined in good faith by the Board of Directors. The Board of
Directors will review the method of valuation on a current basis. In
making their good faith valuation of restricted securities, the Directors
generally will take the following factors into consideration: restricted
securities which are securities of the same class of securities for which
a public market exists usually will be valued at market value less the
same percentage discount at which purchased. This discount will be
revised periodically by the Board of Directors if the Directors believe
that it no longer reflects the value of the restricted securities.
Restricted securities not of the same class as securities for which a
public market exists usually will be valued initially at cost. Any
subsequent adjustment from cost will be based upon considerations deemed
relevant by the Board of Directors.
New York Stock Exchange Closings. The holidays (as observed) on
which the New York Stock Exchange is closed currently are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
It is expected that Dreyfus Total Return Portfolio qualified as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") for the fiscal year ended April 30, 1994, and each
Portfolio intends to continue to so qualify, as long as such qualification
is in the best interests of its shareholders. Qualification as a
regulated investment company relieves each Portfolio from any liability
for Federal income taxes to the extent its earnings are distributed in
accordance with applicable provisions of the Code. The term "regulated
investment company" does not imply the supervision of management or
investment practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's
purchase may have the effect of reducing the net asset value of the shares
below the cost of his investment. Such a dividend or distribution would
be a return on investment in an economic sense, although taxable as stated
above. In addition, the Code provides that if a shareholder holds shares
of the Fund for six months or less and has received a capital gain
distribution with respect to such shares, any loss incurred on the sale of
such shares will be treated as a long-term capital loss to the extent of
the capital gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions
will be treated as capital gain and loss. However, a portion of the gain
or loss from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial forward futures and option
contracts and certain preferred stock) may be treated as ordinary income
or loss under Section 988 of the Code. In addition, all or a portion of
the gain realized from the disposition of certain market discount bonds
will be treated as ordinary income under Section 1276. A market discount
bond is defined as any bond purchased by the Fund after April 30, 1993,
and after its original issuance, at a price below its face or accreted
value. Finally, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section
1258. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold
to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a
Portfolio from certain futures and forward contracts and options
transactions will be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. Gain or loss will arise upon exercise or
lapse of such contracts and options as well as from closing transactions.
In addition, any such contracts or options remaining unexercised at the
end of the Portfolio's taxable year will be treated as sold for their then
fair market value, resulting in additional gain or loss to such Portfolio
characterized in the manner described above.
Offsetting positions held by a Portfolio involving certain contracts
or options may constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the
Code, which, in certain circumstances, override or modify the provisions of
Sections 1256 and 988 of the Code. As such, all or a portion of any short-term
or long-term capital gain from certain "straddle" transactions may be
recharacterized to ordinary income. If a Portfolio were treated as entering
into "straddles" by reason of its engaging in certain forward contracts or
options transactions, such "straddles" would be characterized as "mixed
straddles" if the forward contracts or options transactions comprising a part
of such "straddles" were governed by Section 1256 of the Code. A Portfolio may
make one or more elections with respect to "mixed straddles." Depending on
which election is made, if any, the results to the Portfolio may differ. If no
election is made to the extent the "straddle" and conversion transactions rules
apply to positions established by the Portfolio, losses realized by the
Portfolio will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the "straddle" rules, short-term capital
loss on "straddle" positions may be recharacterized as long-term capital loss,
and long-term capital gains may be treated as short-term capital gains or
ordinary income.
Investment by a Portfolio in securities issued or acquired at a
discount, or providing for deferred interest or for payment of interest in
the form of additional obligations could under special tax rules affect
the amount, timing and character of distributions to shareholders by
causing a Portfolio to recognize income prior to the receipt of cash
payments. For example, a Portfolio could be required to accrue a portion
of the discount (or deemed discount) at which the securities were issued
and to distribute such income in order to maintain its qualification as a
regulated investment company. In such case, a Portfolio may have to
dispose of securities which it might otherwise have continued to hold in
order to generate cash to satisfy these distribution requirements.
PORTFOLIO TRANSACTIONS
The Manager supervises the placement of orders on behalf of the Fund
for the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency, is made in the Manager's best
judgment and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable
net price. Subject to this consideration, the brokers selected will
include those that supplement the Manager's research facilities with
statistical data, investment information, economic facts and opinions.
Information so received is in addition to and not in lieu of services
required to be performed by the Manager and the fee of the Manager is not
reduced as a consequence of the receipt of such supplemental information.
Such information may be useful to the Manager in serving both the Fund and
other clients which it advises and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to
the Manager in carrying out its obligation to the Fund. Brokers are also
selected because of their ability to handle special executions such as are
involved in large block trades or broad distributions, provided the
primary consideration is met. Large block trades may, in certain cases,
result from two or more clients the Manager might advise being engaged
simultaneously in the purchase or sale of the same security. Certain of
each Portfolio's transactions in securities of foreign issuers may not
benefit from the negotiated commission rates available to the Portfolio
for transactions in securities of domestic issuers. When transactions are
executed in the over-the-counter market, each Portfolio will deal with the
primary market makers unless a more favorable price or execution otherwise
is obtainable.
For the period July 1, 1993 (commencement of operations) through
April 30, 1994, the Fund paid total brokerage commissions of $26,354 with
respect to Dreyfus Total Return Portfolio, none of which was paid to the
Distributor. The Fund paid no gross spreads or concessions on principal
transactions for such period.
Portfolio turnover may vary from year to year, as well as within a
year. High turnover rates are likely to result in comparatively greater
brokerage expenses. The overall reasonableness of brokerage commissions
paid is evaluated by the Manager based upon its knowledge of available
information as to the general level of commissions paid by other
institutional investors for comparable services.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Performance Information."
Dreyfus Total Return Portfolio's average annual total return for the
.80 year period ended April 30, 1994 was 0.99%. Average annual total
return is calculated by determining the ending redeemable value of an
investment purchased at net asset value per share with a hypothetical
$1,000 payment made at the beginning of the period (assuming the
reinvestment of dividends and distributions), dividing by the amount of
the initial investment, taking the "n"th root of the quotient (where "n"
is the number of years in the period) and subtracting 1 from the result.
Dreyfus Total Return Portfolio's total return for the period July 1,
1993 to April 30, 1994 was 1.19%. Total return is calculated by
subtracting the amount of each Portfolio's net asset value per share at
the beginning of a stated period from the net asset value per share at the
end of the period (after giving effect to the reinvestment of dividends
and distributions during the period), and dividing the result by the net
asset value per share at the beginning of the period.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc., Standard & Poor's 500 Stock Index, the
Dow Jones Industrial Average, Money Magazine, Wilshire 5000 Index and
other industry publications. From time to time, the Fund may compare its
performance against inflation with the performance of other instruments
against inflation, such as short-term Treasury Bills (which are direct
obligations of the U.S. Government) and FDIC-insured bank money market
accounts. In addition, advertising for the Fund may indicate that
investors may consider diversifying their investment portfolios in order
to seek protection of the value of their assets against inflation. From
time to time, advertising materials for the Fund may refer to or discuss
then-current or past economic or financial conditions, developments and/or
events.
From time to time, the Fund may compare its performance with the
performance of other instruments, such as certificates of deposit and bank
money market accounts which are FDIC-insured. From time to time,
advertising materials for the Fund may refer to Morningstar ratings and
related analyses supporting such ratings.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Portfolio shares are of one class and have equal rights
as to dividends and in liquidation. Shares have no preemptive,
subscription or conversion rights and are freely transferable.
The Fund will send annual and semi-annual financial statements to all
its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York
10286, is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, is the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has
any part in determining the investment policies of the Fund or which
securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance
of the shares of common stock being sold pursuant to the Fund's
Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF INVESTMENTS APRIL 30, 1994
COMMON STOCKS--59.9% SHARES VALUE
------------- -------------
<S> <C> <C>
BASIC INDUSTRIES--4.9%
Chemicals--2.5% Dow Chemical...................... 4,500 $ 282,375
dupont (EI) de Nemours............ 16,400 936,850
Eastman Chemical................. 1,200 53,400
-------------
1,272,625
-------------
Metals_.4% Alcan Aluminium................... 1,500 31,312
Aluminum Co. of America.......... 2,900 197,200
-------------
228,512
-------------
Mining_1.1% Minnesota Mining & Manufacturing.. 9,600 469,200
Placer Dome...................... 3,900 79,950
-------------
549,150
-------------
Paper & Forest Products_.5% International Paper............... 1,600 104,400
Rayonier......................... 450 12,713
Weyerhaeuser..................... 3,300 140,663
-------------
257,776
-------------
Photography_.4% Eastman Kodak..................... 4,800 199,200
-------------
TOTAL BASIC INDUSTRIES......... 2,507,263
=============
CAPITAL GOODS--1.5%
Environmental Control--.7% WMX Technologies.................. 14,100 368,363
-------------
Machinery & Industrial_.8% Caterpillar....................... 2,700 296,662
Cooper Industries................ 2,800 106,750
Gardner Denver Machinery......... 112(a) 952
-------------
404,364
-------------
TOTAL CAPITAL GOODS............ 772,727
=============
CAPITAL GOODS/TECHNOLOGY--8.4%
Aerospace/Defense--.4% AlliedSignal...................... 3,400 117,300
United Technologies.............. 1,800 114,750
-------------
232,050
-------------
Electrical Equipment_3.3% General Electric.................. 16,700 1,588,587
Westinghouse Electric............ 6,800 79,050
-------------
1,667,637
-------------
Electronics_2.4% Intel............................. 10,200 622,200
Motorola ........................ 11,600 517,650
Texas Instruments................ 1,400 107,100
-------------
1,246,950
-------------
Information Processing_2.2% Apple Computer.................... 1,500 45,000
Automatic Data Processing........ 2,600 133,900
Hewlett-Packard.................. 1,100 88,275
International Business Machines.. 13,000 744,250
Pitney Bowes..................... 2,900 110,925
-------------
1,122,350
-------------
Telecommunications_.1% Airtouch Communications .......... 1,600(a) 39,400
-------------
TOTAL CAPITAL GOODS/TECHNOLOGY.. 4,308,387
=============
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1994
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- -------------
CONGLOMERATES--.3%
ITT............................... 1,800 $ 161,550
=============
CONSUMER CYCLICAL--7.6%
Appliances--.2% Corning........................... 2,700 85,050
-------------
Auto Related_3.1% Ford Motor........................ 11,500 671,313
General Motors................... 16,000 908,000
-------------
1,579,313
-------------
Merchandising_4.3% Home Depot........................ 9,800 411,600
K mart........................... 4,800 79,200
May Department Stores............ 3,000 125,625
Penney (J.C.).................... 2,700 146,475
Sears, Roebuck................... 4,700 220,900
Wal-Mart Stores.................. 48,100 1,214,525
-------------
2,198,325
-------------
TOTAL CONSUMER CYCLICAL........ 3,862,688
=============
CONSUMER GROWTH STAPLES--10.0%
Beverages--3.5% Coca-Cola......................... 26,800 1,115,550
PepsiCo.......................... 17,500 638,750
-------------
1,754,300
-------------
Drugs_3.1% American Home Products............ 1,600 92,400
Bristol-Myers Squibb............. 12,000 646,500
Merck & Co....................... 25,000 740,625
Upjohn........................... 3,900 104,325
-------------
1,583,850
-------------
Entertainment_.5% Disney (Walt)..................... 6,100 258,487
-------------
Hospital Supplies_1.5% Abbott Laboratories............... 9,400 266,725
Baxter International............. 3,400 77,775
Johnson & Johnson................ 10,600 438,575
-------------
783,075
-------------
Printing & Publishing_.5% Dun & Bradstreet.................. 2,500 146,875
Gannett.......................... 2,200 115,500
-------------
262,375
-------------
Restaurants_.9% McDonald's........................ 7,800 468,000
-------------
TOTAL CONSUMER GROWTH STAPLES... 5,110,087
=============
CONSUMER STAPLES--4.1%
Foods--.5% Albertson's....................... 3,800 108,775
General Mills.................... 1,800 92,925
Sara Lee......................... 3,500 72,625
-------------
274,325
-------------
Household Products_1.6% Procter & Gamble.................. 14,700 836,063
-------------
Tobacco_2.0% Philip Morris Cos................. 18,500 1,008,250
-------------
TOTAL CONSUMER STAPLES ...... 2,118,638
=============
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- -------------
ENERGY--7.7%
Oil & Gas Production--7.7% Amoco............................. 3,300 $ 185,212
Atlantic Richfield............... 500 47,687
Chevron.......................... 2,900 258,100
Exxon............................ 22,900 1,439,838
Mobil............................ 8,200 641,650
Royal Dutch Petroleum............ 10,800 1,177,200
Texaco........................... 2,600 167,375
-------------
TOTAL ENERGY ........... 3,917,062
=============
FINANCIAL--6.3%
Banking--3.4% Banc One.......................... 7,287 240,471
BankAmerica...................... 9,600 415,200
Bankers Trust New York........... 1,400 93,625
Chase Manhattan.................. 6,000 204,000
Chemical Banking................. 2,600 90,350
Citicorp......................... 5,300 196,100
Morgan (J.P.).................... 3,100 190,650
NationsBank...................... 5,600 292,600
-------------
1,722,996
-------------
Finance_1.3% American Express.................. 7,800 231,075
Federal National Mortgage Association 5,500 457,875
-------------
688,950
-------------
Insurance_1.6% American General.................. 2,700 68,850
American International Group..... 7,300 622,325
General Re....................... 1,000 111,500
-------------
802,675
-------------
TOTAL FINANCIAL................ 3,214,621
=============
RAILROADS--1.2%
CSX.............................. 1,800 140,175
Norfolk Southern................. 2,200 140,525
Union Pacific.................... 5,400 318,600
-------------
TOTAL RAILROADS................ 599,300
=============
UTILITIES--7.9%
Communication--6.2% American Telephone & Telegraph.... 27,600 1,411,050
Ameritech........................ 4,800 189,000
Bell Atlantic.................... 1,700 87,975
BellSouth........................ 7,200 438,300
GTE.............................. 17,500 553,438
NYNEX............................ 4,400 160,050
Pacific Telesis.................. 1,600 51,200
Southwestern Bell................ 5,100 211,650
U.S. West........................ 2,000 81,500
-------------
3,184,163
-------------
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED)
APRIL 30, 1994
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- -------------
UTILITIES (CONTINUED)
Electrical--1.7% Duke Power........................ 3,300 $ 120,862
Pacific Gas & Electric........... 10,100 267,650
Public Service Enterprise........ 400 11,550
SCEcorp.......................... 7,400 118,400
Southern Co...................... 10,200 198,900
Texas Utilities.................. 3,700 130,425
-------------
847,787
-------------
TOTAL UTILITIES................ 4,031,950
=============
TOTAL COMMON STOCKS
(cost $31,231,292)........... $30,604,273
=============
PRINCIPAL
U.S. TREASURY NOTES--14.6% AMOUNT
-------------
7.25%, 8/31/1996................. $ 1,000,000 $ 1,027,656
8.50%, 11/15/2000................ 5,000,000 5,440,625
6.375%, 8/15/2002................ 1,000,000 960,625
-------------
TOTAL U.S. TREASURY NOTES
(cost $8,034,531)............. $ 7,428,906
=============
SHORT-TERM INVESTMENTS--24.1%
U.S. Treasury Bills: 3.09%, 5/5/1994................... $ 1,771,000 $ 1,770,379
3%, 5/19/1994.................... 602,000 600,947
3.24%, 5/26/1994................. 5,167,000 5,154,521
3.44%, 6/2/1994.................. 1,805,000 1,799,304
3.23%, 7/7/1994.................. 2,018,000 2,004,742
3.125%, 7/21/1994................ 1,009,000 1,000,918
-------------
TOTAL SHORT-TERM INVESTMENTS
(cost $12,330,811)............. $12,330,811
=============
TOTAL INVESTMENTS (cost $51,596,634)........................................ 98.6% $50,363,990
====== =============
CASH AND RECEIVABLES (NET).................................................. 1.4% $ 698,588
====== =============
NET ASSETS.................................................................. 100.0% $51,062,578
====== =============
</TABLE>
NOTE TO STATEMENT OF INVESTMENTS;
(a) Non-income producing.
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $51,596,634)_see statement...................................... $50,363,990
Cash.................................................................... 275,901
Dividends and interest receivable....................................... 284,519
Prepaid expenses_Note 1(e).............................................. 113,558
Due from The Dreyfus Corporation........................................ 122,573
-------------
51,160,541
LIABILITIES;
Accrued expenses........................................................ 97,963
-------------
NET ASSETS ................................................................ $51,062,578
=============
REPRESENTED BY:
Paid-in capital......................................................... $51,638,087
Accumulated undistributed investment income_net......................... 462,334
Accumulated undistributed net realized gain on investments.............. 194,801
Accumulated net unrealized (depreciation) on investments_Note 4(b)...... (1,232,644)
-------------
NET ASSETS at value applicable to 4,089,084 shares outstanding
(300 million shares of $.001 par value Common Stock authorized)......... $51,062,578
=============
NET ASSET VALUE, offering and redemption price per share
($51,062,578 / 4,089,084 shares)........................................ $12.49
======
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF OPERATIONS
FROM JULY 1, 1993 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1994
INVESTMENT INCOME:
INCOME:
Interest.............................................................. $501,958
Cash dividends (net of $727 foreign taxes withheld at source)......... 482,771
----------
TOTAL INCOME...................................................... $ 984,729
EXPENSES:
Management fee--Note 2(a)............................................. 232,788
Shareholder servicing costs_Note 2(b,c)............................... 275,297
Prospectus and shareholders' reports_Note 2(b)........................ 32,366
Registration fees..................................................... 29,945
Auditing fees......................................................... 27,107
Organization expenses_Note 1(e)....................................... 15,555
Directors fees and expenses_Note 2(d)................................. 14,365
Legal fees............................................................ 12,156
Custodian fees........................................................ 6,849
Miscellaneous......................................................... 2,905
----------
649,333
Less_expense reimbursement from Manager due to
undertakings_Note 2(a)............................................ 588,150
----------
TOTAL EXPENSES.................................................. 61,183
------------
INVESTMENT INCOME--NET.......................................... 923,546
------------
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments (including option
transactions)_Note 3(a)............................................... $ (21,143)
Net realized gain on financial futures_Note 3(a):
Long transactions..................................................... 114,340
Short transactions.................................................... 142,191
----------
NET REALIZED GAIN..................................................... 235,388
Net unrealized (depreciation) on investments............................ (1,232,644)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (997,256)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $ (73,710)
============
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FROM JULY 1, 1993 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1994
OPERATIONS:
Investment income--net.................................................................... $ 923,546
Net realized gain on investments.......................................................... 235,388
Net unrealized (depreciation) on investments for the period............................... (1,232,644)
-------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................. (73,710)
-------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net..................................................................... (461,212)
Net realized gain on investments.......................................................... (40,587)
-------------
TOTAL DIVIDENDS......................................................................... (501,799)
-------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................................. 69,747,836
Dividends reinvested...................................................................... 486,322
Cost of shares redeemed................................................................... (18,696,071)
-------------
INCREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS.................................. 51,538,087
-------------
TOTAL INCREASE IN NET ASSETS........................................................ 50,962,578
NET ASSETS:
Beginning of period--Note 1............................................................... 100,000
-------------
End of period (including undistributed investment
income_net of $462,334)................................................................. $51,062,578
=============
CAPITAL SHARE TRANSACTIONS:
SHARES
-------------
Shares sold............................................................................... 5,525,794
Shares issued for dividends reinvested.................................................... 38,293
Shares redeemed........................................................................... (1,483,003)
-------------
NET INCREASE IN SHARES OUTSTANDING...................................................... 4,081,084
============
See notes to financial statements.
</TABLE>
DREYFUS ASSET ALLOCATION FUND, INC.
FINANCIAL HIGHLIGHTS
Reference is made to page 4 of the Fund's Prospectus dated August 26, 1994.
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Asset Allocation Fund, Inc. (the "Fund") was incorporated on May
12, 1993 and had no operations until July 1, 1993 (commencement of
operations) other than matters relating to its organization and registration
as a non-diversified open-end management investment company under the
Investment Company Act of 1940 ("Act") and the Securities Act of 1933 and the
sale and issuance of 8,000 shares of Common Stock ("Initial Shares") to The
Dreyfus Corporation ("Manager"). Dreyfus Service Corporation ("Distributor")
acts as the distributor of the Fund's shares, which are sold to the public
without a sales load. The Distributor is a wholly-owned subsidiary of the
Manager. As of April 30, 1994, the Manager held 412,386 shares.
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) 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. 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, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
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 Directors.
Short-term investments are carried at amortized cost, which approximates
value. Investments traded in foreign currencies are translated to U.S.
dollars at the prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and dividends from net realized
capital gain are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that net realized
capital gain can be offset by capital loss carryovers, if any, it is the
policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the provisions
available to certain investment companies, as defined in applicable sections
of the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from all, or substantially all, Federal income
taxes.
(E) OTHER: Organization expenses paid by the Fund are included in prepaid
expenses and are being amortized to operations from July 1, 1993, the date
operations commenced, over the period during which it is expected that a
benefit will be realized, not to exceed five years. At April 30, 1994, the
unamortized balance of such expenses amounted to $84,182. In the event that
any of the Initial Shares are redeemed during the amortization period, the
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of such shares being redeemed bears to
the number of such shares outstanding at the time of such redemption.
DREYFUS ASSET ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .75 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Fund. The most stringent state expense limitation
applicable to the Fund presently requires reimbursement of expenses in any
full fiscal year that such expenses (exclusive of distribution expenses and
certain expenses as described above) exceed 2 1/2% of the first $30 million,
2% of the next $70 million and 1 1/2% of the excess over $100 million of the
average value of the Fund's net assets in accordance with California "blue
sky" regulations. However, the Manager had undertaken from July 1, 1993
through January 11, 1994 to reimburse all fees and expenses of the Fund and
thereafter had undertaken through April 30, 1994 to reduce the management fee
paid by, and reimburse such excess expenses of the Fund, to the extent that
the Fund's aggregate expenses (excluding certain expenses as described above)
exceeded specified annual percentages of the Fund's average daily net assets.
The expense reimbursement, pursuant to the undertakings, amounted to $588,150
for the period ended April 30, 1994.
The Manager may modify the expense limitation percentages from time to
time, provided that the resulting expense reimbursement would not be less
than the amount required pursuant to the Agreement.
(B) Under the Distribution Plan (the "Plan") adopted pursuant to Rule
12b-1 under the Act, the Fund pays the Distributor, at an annual rate of .50
of 1% of the value of the Fund's average daily net assets, for costs and
expenses in connection with advertising, marketing and distributing the
Fund's shares and for servicing shareholder accounts. The Distributor may
make payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the Fund's
shares owned by clients of the Service Agent. The Plan also separately
provides for the Fund to bear the costs of preparing, printing and
distributing certain of the Fund's prospectuses and statements of additional
information and costs associated with implementing and operating the Plan,
not to exceed the greater of $100,000 or .005 of 1% of the Fund's average
daily net assets for any full fiscal year. During the period ended April 30,
1994, the Fund was charged $179,099 pursuant to the Plan.
(C) Pursuant to the Fund's Shareholder Services Plan, the Fund pays the
Distributor, at an annual rate of .25 of 1% of the value of the Fund's
average daily net assets for servicing shareholder accounts. The services
provided may include personal services relating to shareholder accounts, such
as answering shareholder inquiries regarding the Fund and providing reports
and other information, and services related to the maintenance of shareholder
accounts. The Distributor may make payments to Service Agents in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended April 30, 1994, the Fund was charged $77,596
pursuant to the Shareholder Services Plan.
(D) Certain officers and directors of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or the Distributor. Each director
who is not an "affiliated person" receives an annual fee of $1,000 and an
attendance fee of $250 per meeting.
(E) On December 5, 1993, the Manager entered into an Agreement and Plan
of Merger providing for the merger of the Manager with a subsidiary of Mellon
Bank Corporation ("Mellon").
DREYFUS ASSET ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Following the merger, it is planned that the Manager will be a direct
subsidiary of Mellon Bank, N.A. Closing of this merger is subject to a number
of contingencies, including receipt of certain regulatory approvals and
approvals of stockholders of the Manager and of Mellon. The merger is
expected to occur in mid-1994, but could occur later.
Because the merger will constitute an "assignment" of the Fund's
Management Agreement with the Manager under the Investment Company Act of
1940, and thus a termination of such Agreement, the Manager will seek prior
approval from the Fund's Board and shareholders.
NOTE 3--SECURITIES TRANSACTIONS:
(A) The aggregate amount of purchases of investment securities, excluding
short-term securities and options transactions, during the period ended April
30, 1994 amounted to $39,265,842.
The Fund is engaged in trading financial futures contracts. 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 contract at the close of each day's trading. Accordingly,
variation margin payments are made or received 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. At April 30, 1994, there were no financial futures contracts
outstanding.
(B) At April 30, 1994, accumulated net unrealized depreciation on
investments was $1,232,644, consisting of $1,111,802 gross unrealized
appreciation and $2,344,446 gross unrealized depreciation.
At April 30, 1994, 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 ASSET ALLOCATION FUND, INC.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS ASSET ALLOCATION FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Dreyfus Asset Allocation Fund, Inc., including the statement of investments,
as of April 30, 1994, and the related statements of operations and changes in
net assets and financial highlights for the period from July 1, 1993
(commencement of operations) to April 30, 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of April 30, 1994 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Asset Allocation Fund, Inc. at April 30, 1994, and the
results of its operations, the changes in its net assets and the financial
highlights for the period from July 1, 1993 to April 30, 1994, in conformity
with generally accepted accounting principles.
(Ernst & Young Signature Logo)
New York, New York
June 6, 1994
