__________________________________________________________________________
DREYFUS ASSET ALLOCATION FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
AUGUST 29, 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 29,
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-12
Distribution Plan and Shareholder Services Plan . . . . . . . . . . . B-13
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . B-14
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . B-16
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . B-19
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . . B-20
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 the Fund 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 Fund 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 the Fund, 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 Advisers to monitor carefully the Fund'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 Fund's
investing in such securities may have the effect of increasing the level
of illiquidity in the Fund's portfolio during such period.
Investment Techniques
Options Transactions. The Fund 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 Fund'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 Funds 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. The Fund 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 Fund's obligation as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Fund 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 Fund effects a
closing purchase transaction. The Fund 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, the Fund 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 the Fund 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. The Fund 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
Fund.
Investment Company Securities. The Fund may invest in securities
issued by other investment companies which principally invest in
securities of the type in which the Fund invests. Under the Investment
Company Act of 1940, as amended (the "Act"), a Fund'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
Fund's net assets with respect to any one investment company and (iii) 10%
of the Fund'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, the Fund 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 Fund 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 Fund 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 Fund 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 Fund
must be able to terminate the loan at any time; (4) the Fund 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 Fund 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. The Fund has adopted investment
restrictions numbered 1 through 8 as fundamental policies. These
restrictions cannot be changed, without approval by the holders of a
majority (as defined in the Act) of the Fund'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. The Fund may not:
1. Invest in commodities, except that the Fund 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 Fund 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 Fund
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 Fund 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 Fund 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 Fund 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 Fund'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 Fund's
net assets would be so invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the Act.
The Fund 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 Fund.
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 Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interest of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of such Fund'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 and Officers 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. Mr. Burke was Vice President and Chief
Administrative Officer of the Manager from October 1990 through
August 1994. 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., Dreyfus
Short-Term Income Fund, Inc. and 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 Tax Exempt 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, 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 Not Listed Above
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. Her address is 200 Park Avenue, New York, New York
10166.
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. His address is 200 Park Avenue, New York, New York 10166.
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. His address is 200 Park
Avenue, New York, New York 10166.
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. His address is 200 Park Avenue, New York, New York
10166.
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.
Her address 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 and Chief Executive Officer; Joseph S. DiMartino,
President; W. Keith Smith, Chief Operating Officer; Julian M. Smerling,
Vice Chairman of the Board of directors; Philip L. Toia, Vice Chairman-
Operations and Administration; Paul Snyder, Chief Financial Officer;
Robert F. Dubuss, Vice President; Daniel C. Maclean, Vice President and
General Counsel; Jeffrey N. Nachman, Vice President--Mutual Fund
Accounting; Mark N. Jacobs, Vice President-Legal; Elie M. Genadry, Vice
President--Institutional Sales; Peter A. Santoriello, Vice president; Kirk
V. Stumpp, Vice President--New Product Development; Katherine C. Wickham,
Vice President-Human Resources; Maurice Bendrihem, Controller; and Mandell
L. Berman, 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. 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 the Fund, 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. 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 the Fund's shares, or, on not less than 90 days'
notice, by the Manager. The Agreement will terminate automatically, in
the event of its assignment (as defined in the Act).
The Manager manages the Fund's investments in accordance with the
stated policies of the Fund, 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.
In addition, the Fund is subject to an annual distribution fee for
advertising, marketing and distributing Fund 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 pays the salaries of all officers and employees employed
by both it and the Fund, maintains office facilities, 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 the Fund'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, which amount was reduced by $232,788
pursuant to an undertaking by the Manager, resulting in a net fee of $0.
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 the Fund'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."
Fund 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 Fund's shares, pursuant to which the Fund pays the
Distributor for advertising, marketing and distributing Fund 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 the Fund and
its shareholders. In some states, certain financial institutions
effecting transactions in Fund 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 Fund 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 by a 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 Fund's shares.
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 the Fund and $23,907 for preparing, printing
and distributing prospectuses and statements of additional information and
for implementing and operating the Plan, pursuant to the Distribution
Plan, 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 Fund'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 the Fund 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.
For the period July 1, 1993 (commencement of operations) through
April 30, 1994, the Fund was charged $77,596 pursuant to the Shareholder
Services Plan 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 the Fund, limited
in amount during any 90-day period to the lesser of $250,000 or 1% of the
value of the Fund'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 Fund to the
detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as the Fund'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 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 the Fund, 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 the Fund in 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. For details, please contact the Dreyfus Group Retirement
Plans, a division of the Distributor, by calling toll free 1-800-358-5566.
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. The Fund's securities, including
covered call options written by the Fund, 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 the Fund 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 the Fund 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 the Fund 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. 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 the Fund
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 Fund's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to the Fund
characterized in the manner described above.
Offsetting positions held by the Fund 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, overrides or modifies the
provisions of Section 1256 and 988. 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 the Fund were treated as entering into "straddles" by reason of
its engaging in certain contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the contracts
or options transactions comprising a part of such "straddles" were
governed by Section 1256 of the Code. The Fund may make one or more
elections with respect to "mixed straddles." Depending on which election
is made, if any, the results to the Fund may differ. If no election is
made to the extent the "straddle" rules apply to positions established by
the Fund, losses realized by the Fund will be deferred to the extent of
unrealized gain in the offsetting position. Moreover, as a result of the
"straddle and conversion transaction" 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 the Fund 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 the Fund to recognize income prior to the receipt of cash
payments. For example, the Fund 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, the Fund 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
the Fund's transactions in securities of foreign issuers may not benefit
from the negotiated commission rates available to the Fund for
transactions in securities of domestic issuers. When transactions are
executed in the over-the-counter market, the Fund 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, 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."
The Fund'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.
The Fund'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 the
Fund'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, 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 Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Fund 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
====== =============
NOTE TO STATEMENT OF INVESTMENTS;
(a) Non-income producing.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994
ASSETS:
<S> <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.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF OPERATIONS
FROM JULY 1, 1993 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1994
INVESTMENT INCOME:
INCOME:
<S> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FROM JULY 1, 1993 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1994
OPERATIONS:
<S> <C>
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 3 of the Fund's Prospectus dated August 29, 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
IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal Tax purposes the Fund hereby designates $.0110 per share as a
long-term capital gain distribution of the $.1360 per share paid on December
17, 1993.
