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PROSPECTUS AUGUST 29, 1994
DREYFUS ASSET ALLOCATION FUND, INC.
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DREYFUS ASSET ALLOCATION FUND, INC. (THE "FUND") IS AN OPEN-END,
NON-DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. ITS
GOAL IS TO MAXIMIZE TOTAL RETURN, CONSISTING OF CAPITAL APPRECIATION AND
CURRENT INCOME. THE FUND FOLLOWS AN INVESTMENT STRATEGY THAT ACTIVELY
ALLOCATES THE FUND'S ASSETS AMONG COMMON STOCKS, U.S. TREASURY NOTES
AND BONDS AND SHORT-TERM MONEY MARKET INSTRUMENTS. IN ADDITION TO USUAL
INVESTMENT PRACTICES, THE FUND MAY USE SPECULATIVE INVESTMENT TECHNIQUES SUCH
AS SHORT-SELLING, BORROWING FOR INVESTMENT PURPOSES, AND FUTURES AND OPTIONS
TRANSACTIONS.
YOU CAN INVEST, REINVEST OR REDEEM FUND SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY IMPOSED BY THE FUND. YOU CAN PURCHASE OR REDEEM SHARES BY
TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THE FUND BEARS CERTAIN COSTS PURSUANT TO A DISTRIBUTION PLAN ADOPTED IN
ACCORDANCE WITH RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 AND A
SHAREHOLDER SERVICES PLAN.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT YOU
SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
PART B (ALSO KNOWN AS THE STATEMENT OF ADDITIONAL INFORMATION), DATED
AUGUST 29, 1994, WHICH MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER
DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY
BE OF INTEREST TO SOME INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY,
WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK
11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 666.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THE NET
ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES...................... 3
CONDENSED FINANCIAL INFORMATION..................... 3
DESCRIPTION OF THE FUND............................. 4
MANAGEMENT OF THE FUND.............................. 14
HOW TO BUY FUND SHARES.............................. 16
SHAREHOLDER SERVICES................................ 18
HOW TO REDEEM FUND SHARES........................... 20
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN..... 23
DIVIDENDS, DISTRIBUTIONS AND TAXES.................. 23
PERFORMANCE INFORMATION............................. 24
GENERAL INFORMATION................................. 25
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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THIS PAGE INTENTIONALLY LEFT BLANK
PAGE 3
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees...................................... .75%
12b-1 Fees (distribution and servicing).............. .50%
Other Expenses....................................... .61%
Total Fund Operating Expenses........................ 1.86%
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $19 $58 $101 $218
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding the
various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis. Long-term investors could pay more in 12b-1 fees than the economic
equivalent of paying a front-end sales charge. Other Expenses and Total Fund
Operating Expenses are based on estimated amounts. The information in the
foregoing table does not reflect any fee waivers or expense reimbursement
arrangements that may be in effect. Certain Service Agents (as defined below)
may charge their clients direct fees for effecting transactions in the Fund's
shares; such fees are not reflected in the foregoing table. See "Management
of the Fund," "How to Buy Fund Shares" and "Distribution Plan and Shareholder
Services Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst & Young
LLP, the Fund's independent auditors, whose report thereon appears in the
Statement of Additional Information. Further financial data and related notes
are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for the period July 1, 1993 (commencement
of operations) to April 30, 1994. This information has been derived from
information provided in Fund's financial statements.
PER SHARE DATA:
Net asset value, beginning of period....................... $12.50
INVESTMENT OPERATIONS:
Investment income--net..................................... .24
Net realized and unrealized (loss) on investments.......... (.11)
TOTAL FROM INVESTMENT OPERATIONS....................... .13
DISTRIBUTIONS:
Dividends from investment income-net....................... (.13)
Dividends from net realized gain on investments............ (.01)
TOTAL DISTRIBUTIONS................................... (.14)
Net asset value, end of period............................. $12.49
========
TOTAL INVESTMENT RETURN .99%*
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.................... .16%*
Ratio of net investment income to average net assets....... 2.48%*
Decrease reflected in above expense ratio due to
undertakings by The Dreyfus Corporation................ 1.58%*
Portfolio Turnover Rate ................................... --
Net Assets, end of period (000's omitted).................. $51,063
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* Not annualized.
Page 4
Further information about the Fund's performance is contained in the
Fund's annual report which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE - The Fund's goal is to maximize total return,
consisting of capital appreciation and current income. The Fund's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940) of the Fund's outstanding
voting shares. There can be no assurance that the Fund's investment objective
will be achieved.
MANAGEMENT POLICIES - The Fund seeks to achieve its investment objective by
following an asset allocation strategy that contemplates shifts, which may be
frequent, among common stocks consisting of those included in the Standard &
Poor's 500 Stock Index* (the "S&P 500 Index"), U.S. Treasury Notes and Bonds
with remaining maturities at the time of purchase of at least one year, and
short-term money market instruments.
The Dreyfus Corporation has broad latitude in selecting the class of
investments and market sectors in which the Fund will invest. The Fund will
not be managed as a balanced portfolio and is not required to maintain a
portion of its investments in each of its permitted investment types at all
times. Thus, during the course of a business cycle, for example, the Fund may
invest solely in common stocks, U.S. Treasury Notes and Bonds or short-term
money market instruments, or in a combination of these classes of
investments. The asset allocation mix for the Fund will be determined by The
Dreyfus Corporation at any given time in light of its assessment of current
economic conditions and investment opportunities. Some of the factors that
The Dreyfus Corporation may consider in determining the Fund's asset
allocation mix include the following: (1) level and direction of long-term
interest rates versus short-term interest rates; (2) historical investment
returns for each asset class in which the Fund can invest relative to the
prevailing business cycle; and (3) general economic conditions, such as
current inflation, unemployment and capacity utilization figures, that could
affect investments. Under normal circumstances, however, the Fund's asset
class weightings are anticipated to be 55% in common stocks, 35% in U.S.
Treasury Notes and Bonds and 10% in short-term money market instruments. The
asset allocation mix selected will be a primary determinant of the Fund's
investment performance. Under certain market conditions, limiting the Fund's
asset allocation among these asset classes may inhibit its ability to achieve
its investment objective of maximum total return.
COMMON STOCKS - The common stocks in which the Fund invests will consist of
those included in the S&P 500 Index. The S&P 500 Index is composed of 500
selected common stocks, most of which are listed on the New York Stock
Exchange. The composition of the S&P 500 Index is determined by Standard &
Poor's Corporation based on such factors as the market capitalization and
trading activity of each stock and its adequacy as a representative of stocks
in a particular industry group, and may be changed from time to time.
U.S. TREASURY NOTES AND BONDS - The Fund invests in U.S. Treasury Notes and
Bonds with remaining maturities at the time of purchase by the Fund of at
least one year. Under normal circumstances, the dollar-weighted average
maturity of this portion of the Fund's portfolio is expected to range between
3 and 10 years.
MONEY MARKET INSTRUMENTS - The short-term money market instruments in which
the Fund invests consist of U.S. Government securities, bank obligations,
including certificates of deposit, time deposits and bankers' acceptances and
other short-term obligations of domestic or foreign banks, domestic savings
and loan associations and other banking institutions having total assets in
excess of $1 billion, commercial
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* "Standard & Poor's," "S&P Registration Mark" and "S&P 500 Registration
Mark" are trademarks of Standard & Poor's Corporation. The Fund is not
sponsored, indorsed, sold or promoted by Standard & Poor's Corporation.
Page 5
paper and repurchase agreements, as set
forth under "Certain Portfolio Securities" below. The Fund may invest up to
100% of its assets in money market instruments, but at no time will the
Fund's investments in bank obligations, including time deposits, exceed 25%
of its assets.
INVESTMENT TECHNIQUES - The Fund also may engage in various investment and
hedging techniques such as leveraging, short-selling, options and futures
transactions, and lending portfolio securities, each of which involves risk.
See "Risk Factors" below. Options and futures transactions involve so-called
"derivative securities."
LEVERAGE THROUGH BORROWING - The Fund may borrow for investment purposes.
This borrowing, which is known as leveraging, generally will be unsecured,
except to the extent the Fund enters into reverse repurchase agreements
described below. The Investment Company Act of 1940 requires the Fund to
maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Leveraging may exaggerate the
effect on net asset value of any increase or decrease in the market value of
the Fund's investment securities. Money borrowed for leveraging will be
subject to interest costs that may or may not be recovered by appreciation of
the securities purchased; in certain cases, interest costs may exceed the
return received on the securities purchased. The Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay
a commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate.
Among the forms of borrowing in which the Fund may engage is the entry
into reverse repurchase agreements with banks, brokers or dealers. These
transactions involve the transfer by the Fund of an underlying debt
instrument in return for cash proceeds based on a percentage of the value of
the security. The Fund retains the right to receive interest and principal
payments on the security. At an agreed upon future date, the Fund repurchases
the security at principal, plus accrued interest. In certain types of
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based on the prevailing overnight repurchase rate.
The Fund will maintain in a segregated custodial account cash or U.S.
Government securities or other high quality liquid debt securities at least
equal to the aggregate amount of its reverse repurchase obligations, plus
accrued interest, in certain cases, in accordance with releases promulgated
by the Securities and Exchange Commission. The Securities and Exchange
Commission views reverse repurchase transactions as collateralized borrowings
by the Fund. These agreements, which are treated as if reestablished each
day, are expected to provide the Fund with a flexible borrowing tool.
SHORT-SELLING - The Fund may make short sales, which are transactions in
which the Fund sells a security it does not own in anticipation of a decline
in the market value of that security. To complete such a transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at the market
price at the time of replacement. The price at such time may be more or less
than the price at which the security was sold by the Fund. Until the security
is replaced, the Fund is required to pay to the lender amounts equal to any
dividends, interest or other distributions which accrue during the period of
the loan. To borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold. The proceeds of
the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out.
Until the Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account, containing cash
or U.S. Government securities, at such a level that (i) the amount deposited
in the account plus the amount deposited with the broker as collateral will
equal the
Page 6
current value of the security sold short and (ii) the amount
deposited in the segregated account plus the amount deposited with the broker
as collateral will not be less than the market value of the security at the
time it was sold short; or (b)otherwise cover its short position.
The Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain
if the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in
a security. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of any premium or amounts in lieu of dividends,
interest or other distributions the Fund may be required to pay in connection
with a short sale.
The Fund may purchase call options to provide a hedge against an increase
in the price of a security sold short by the Fund. When the Fund purchases a
call option it has to pay a premium to the person writing the option and a
commission to the broker selling the option. If the option is exercised by
the Fund, the premium and the commission paid may be more than the amount of
the brokerage commission charged if the security were to be purchased
directly. See "Call and Put Options on Specific Securities" below.
The Fund anticipates that the frequency of short sales will vary
substantially under different market conditions, and it does not intend that
any specified portion of the Fund's assets, as a matter of practice, will be
invested in short sales. However, no securities will be sold short if, after
effect is given to any such short sale, the total market value of all
securities sold short by the Fund would exceed 25% of the value of the Fund's
net assets. The Fund may not sell short the securities of any single issuer
listed on a national securities exchange to the extent of more than 5% of the
value of the Fund's net assets. The Fund may not sell short the securities of
any class of an issuer to the extent, at the time of the transaction, of more
than 5% of the outstanding securities of that class.
In addition to the short sales discussed above, the Fund may make short
sales "against the box," a transaction in which the Fund enters into a short
sale of a security which the Fund owns. The proceeds of the short sale will
be held by a broker until the settlement date at which time the Fund delivers
the security to close the short position. The Fund receives the net proceeds
from the short sale. The Fund at no time will have more than 15% of the value
of its net assets in deposits on short sales against the box.
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES - The Fund may invest up to 5% of
its assets, represented by the premium paid, in the purchase of call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) in which the Fund may invest. The Fund may write covered call and
put option contracts to the extent of 20% of the value of its net assets at
the time such option contracts are written. A call option gives the purchaser
of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during
the option period. Conversely, a put option gives the purchaser of the option
the right to sell, and obligates the writer to buy, the underlying security
or securities at the exercise price at any time during the option period. A
covered call option sold by the Fund, which is a call option with respect to
which the Fund owns the underlying security or securities, exposes the Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or securities or
to possible continued holding of a security or securities which might
otherwise have been sold to protect against depreciation in the market price
thereof. A covered put option sold by the exposes the Fund during the term of
the option to a decline in price of the underlying security or securities. A
put option sold by the Fund is covered when, among other things, cash or
liquid securities are placed in a segregated account with the Fund's
custodian to fulfill the obligation undertaken.
To close out a position when writing covered options, the Fund may make a
"closing purchase transaction," which involves purchasing an option on the
same security or securities with the same exercise price and expiration date
as the option which it has previously written. To close out a position as a
purchaser of an option, the Fund may make a "closing sale transaction," which
involves liquidating the
Page 7
Fund's position by selling the option previously
purchased. The Fund will realize a profit or loss from a closing purchase or
sale transaction depending upon the difference between the amount paid to
purchase an option and the amount received from the sale thereof.
The Fund intends to treat options in respect of specific securities that
are not traded on a national securities exchange and the securities
underlying covered call options written by the Fund as illiquid securities.
See "Certain Portfolio Securities-Illiquid Securities" below.
The Fund will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale.
STOCK INDEX OPTIONS - The Fund may purchase and write put and call options on
stock indexes listed on U.S. securities exchanges or traded in the
over-the-counter market. A stock index fluctuates with changes in the market
values of the stocks included in the index.
The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in the Fund's investments
correlate with price movements of the stock index selected. Because the value
of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether the Fund will realize a gain or
loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in
the case of certain indexes, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly, successful use by
the Fund of options on stock indexes will be subject to The Dreyfus
Corporation's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
stocks.
When the Fund writes an option on a stock index, the Fund will place in a
segregated account with its custodian cash or liquid securities in an amount
at least equal to the market value of the underlying stock index and will
maintain the account while the option is open or otherwise will cover the
transaction.
FUTURES TRANSACTIONS -- IN GENERAL -- The Fund is not a commodity pool.
However, as a substitute for a comparable market position in the underlying
securities and for hedging purposes, the Fund may engage in futures and
options on futures transactions as described below.
The Fund's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission. In addition, the Fund may not engage in
such transactions if the sum of the amount of initial margin deposits and
premiums paid for unexpired commodity options, other than for bona fide
hedging transactions, would exceed 5% of the liquidation value of the Fund's
assets, after taking into account unrealized profits and unrealized losses on
such contracts it has entered into; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5%. Pursuant to regulations and/or
published positions of the Securities and Exchange Commission, the Fund may be
required to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount generally equal to
the value of the underlying commodity. To the extent the Fund engages in the
use of futures and options on futures other than for bona fide hedging
purposes, the Fund may be subject to additional risk.
Initially, when purchasing or selling futures contracts the Fund will be
required to deposit with its custodian in the broker's name an amount of cash
or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures position,
assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin," to and from the broker will be made
daily as the price of the index or securities underlying the futures contract
fluctuates, making the long and short
Page 8
positions in the futures contract more
or less valuable, a process known as "marking-to-market." At any time prior
to the expiration of a futures contract, the Fund may elect to close the
position by taking an opposite position at the then prevailing price, which
will operate to terminate the Fund's existing position in the contract.
Although the Fund intends to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that
a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move
to the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the Fund to substantial losses. If it is not possible, or the Fund
determines not, to close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
Fund's portfolio being hedged, if any, may offset partially or completely
losses on the futures contract. However, no assurance can be given that the
price of the securities being hedged will correlate with the price movements
in a futures contract and thus provide an offset to losses on the futures
contract.
In addition, to the extent the Fund is engaging in a futures transaction
as a hedging device, due to the risk of an imperfect correlation between
securities in the Fund's portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective in that, for example, losses on
the portfolio securities may be in excess of gains on the futures contract or
losses on the futures contract may be in excess of gains on the portfolio
securities that were the subject of the hedge. In futures contracts based on
indexes, the risk of imperfect correlation increases as the composition of
the Fund's portfolio varies from the composition of the index. In an effort
to compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater or lesser dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect the
Fund's net investment results if market movements are not as anticipated when
the hedge is established.
Successful use of futures by the Fund also is subject to The Dreyfus
Corporation's ability to predict correctly movements in the direction of the
market or interest rates. For example, if the Fund has hedged against the
possibility of a decline in the market adversely affecting the value of
securities held in its portfolio and prices increase instead, the Fund will
lose part or all of the benefit of the increased value of securities which it
has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. Such
sales of securities may, but will not necessarily, be at increased prices
which reflect the rising market. The Fund may have to sell securities at a
time when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption
of offsetting futures positions by the writer and holder of the option will
be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account which represents the amount by which the market price
of the futures contract, at exercise, exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the
futures contract.
Page 9
Call options sold by the Fund with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of which
are expected to move relatively consistently with the instruments underlying,
the futures contract. Put options sold by the Fund with respect to futures
contracts will be covered in the same manner as put options on specific
securities as described above.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES - The Fund may
purchase and sell stock index futures contracts and options on stock index
futures contracts.
A stock index future obligates the seller to deliver (and the purchaser
to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying stocks in the index is made.
With respect to stock indexes that are permitted investments, the Fund
intends to purchase and sell futures contracts on the stock index for which
it can obtain the best price with consideration also given to liquidity.
The price of stock index futures may not correlate perfectly with the
movement in the stock index because of certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the index
and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS - The Fund may invest in interest rate futures contracts and options
on interest rate futures contracts as a substitute for a comparable market
position and to hedge against adverse movements in interest rates.
To the extent the Fund has invested in interest rate futures contracts or
options on interest rate futures contracts as a substitute for a comparable
market position, the Fund will be subject to the investment risks of having
purchased the securities underlying the contract.
The Fund may purchase call options on interest rate futures contracts to
hedge against a decline in interest rates and may purchase put options on
interest rate futures contracts to hedge its portfolio securities against the
risk of rising interest rates.
The Fund may sell call options on interest rate futures contracts to
partially hedge against declining prices of its portfolio securities. If the
futures price at expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the Fund's
holdings. The Fund may sell put options on interest rate futures contracts to
hedge against increasing prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge against any
increase in the price of securities which the Fund intends to purchase. If a
put or call option sold by the Fund is exercised, the Fund will incur a loss
which will be reduced by the amount of the premium it receives. Depending on
the degree of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the Fund's
losses from existing options on futures may to some extent be reduced or
increased by changes in the value of its portfolio securities.
The Fund also may sell options on interest rate futures contracts as part
of closing purchase transactions to terminate its options positions. No
assurance can be given that such closing transactions can be effected or that
there will be a correlation between price movements in the options on
interest rate futures and price movements in the Fund's securities which are
the subject of the hedge. In addition,
Page 10
the Fund's purchase of such options
will be based upon predictions as to anticipated interest rate trends, which
could prove to be inaccurate.
FUTURE DEVELOPMENTS - The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and
any other derivative investments which are not presently contemplated for use
by the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering
into such transactions or making any such investment, the Fund will provide
appropriate disclosure in its prospectus.
LENDING PORTFOLIO SECURITIES - From time to time, the Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
Such loans may not exceed 33-1/3% of the value of the Fund's total assets. In
connection with such loans, the Fund will receive collateral consisting of
cash, U.S. Government securities or irrevocable letters of credit which will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund can increase its income
through the investment of such collateral. The Fund continues to be entitled
to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned security and receives interest on the
amount of the loan. Such loans will be terminable at any time upon specified
notice. The Fund might experience risk of loss if the institution with which
it has engaged in a portfolio loan transaction breaches its agreement with
the Fund.
FORWARD COMMITMENTS - The Fund may purchase debt securities on a when-issued
or forward commitment basis, which means that the price is fixed at the time
of commitment, but delivery and payment ordinarily take place a number of
days after the date of the commitment to purchase. The Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a security purchased on a when-issued or forward commitment basis
prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other debt securities held by the Fund are subject to changes in
value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based upon
the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on
a when-issued or forward commitment basis may expose the Fund to risk because
they may experience such fluctuations prior to their actual delivery.
Purchasing debt securities on a when-issued or forward commitment basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Fund consisting of cash, cash
equivalents or U.S. Government securities or other high quality liquid debt
securities at least equal at all times to the amount of the when-issued or
forward commitments will be established and maintained at the Fund's
custodian bank. Purchasing debt securities on a when-issued or forward
commitment basis when the Fund is fully or almost fully invested may result
in greater potential fluctuation in the value of the Fund's net assets and
its net asset value per share.
CERTAIN PORTFOLIO SECURITIES
U.S. GOVERNMENT SECURITIES - The Fund may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, which
include U.S. Treasury securities that differ in their interest rates,
maturities and times of issuance. Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of greater than ten
years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the
Page 11
Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. Principal and interest may fluctuate based on generally recognized
reference rates or the relationship of rates. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so,
because the U.S. Government is not obligated to do so by law.
ZERO COUPON SECURITIES - The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. The Fund also may invest in zero coupon securities issued by
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying U.S. Treasury securities. A zero
coupon security pays no interest to its holder during its life and is sold at
a discount to its face value at maturity. The amount of the discount
fluctuates with the market price of the security. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically and are likely to respond to a
greater degree to changes in interest rates than non-zero coupon securities
having similar maturities and credit qualities.
REPURCHASE AGREEMENTS - Repurchase agreements involve the acquisition by the
Fund of an underlying debt instrument, subject to an obligation of the seller
to repurchase, and the Fund to resell, the instrument at a fixed price,
usually not more than one week after its purchase. The Fund's custodian or
subcustodian will have custody of, and will hold in a segregated account,
securities acquired by the Fund under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange
Commission to be loans by the Fund. In an attempt to reduce the risk of
incurring a loss on a repurchase agreement, the Fund will enter into
repurchase agreements only with domestic banks with total assets in excess of
$1 billion or primary government securities dealers reporting to the Federal
Reserve Bank of New York, with respect to securities of the type in which the
Fund may invest, and will require that additional securities be deposited
with it if the value of the securities purchased should decrease below resale
price. The Dreyfus Corporation will monitor on an ongoing basis the value of
the collateral to assure that it always equals or exceeds the repurchase
price. Certain costs may be incurred in connection with the sale of the
securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities
by the Fund may be delayed or limited. The Fund will consider on an ongoing
basis the creditworthiness of the institutions with which the Fund enters
into repurchase agreements.
BANK OBLIGATIONS - The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings
and loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries
of domestic banks, and domestic and foreign branches of foreign banks, the
Fund may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations
of U.S. domestic issuers. Such risks include possible future political and
economic developments, the possible imposition of foreign withholding taxes
on interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Page 12
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from insurance from
the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. The Fund will not
invest more than 15% of the value of its net assets in time deposits that are
illiquid and in other illiquid securities.
Bankers' acceptances are credit instruments evidencing the obligation of
a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of
the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS - Commercial
paper consists of short-term, unsecured promissory notes issued to finance
short-term credit needs. The commercial paper purchased by the Fund will
consist only of direct obligations which, at the time of their purchase, are
(a) rated not lower than Prime-1 by Moody's Investors Service, Inc.
("Moody's"), A-1 by S&P, F-1 by Fitch Investors Service, Inc. ("Fitch") or
Duff-1 by Duff & Phelps, Inc. ("Duff"), (b) issued by companies having an
outstanding unsecured debt issue currently rated not lower than Aa3 by
Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined by The
Dreyfus Corporation to be of comparable quality to those rated obligations
which may be purchased by the Fund. The Fund may purchase floating and
variable rate demand notes and bonds, which are obligations ordinarily having
stated maturities in excess of one year, but which permit the holder to
demand payment of principal at any time or at specified intervals. Variable
rate demand notes include variable amount master demand notes, which are
obligations that permit the Fund to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. As mutually agreed between the parties, the Fund may increase the
amount under the notes at any time up to the full amount provided by the note
agreement, or decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest, at any time. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. In connection with
floating and variable rate demand obligations, The Dreyfus Corporation will
consider, on an ongoing basis, earning power, cash flow and other liquidity
ratios of the borrower, and the borrower's ability to pay principal and
interest on demand. Such obligations frequently are not rated by credit
rating agencies, and the Fund may invest in them only if at the time of an
investment the borrower meets the criteria set forth above for other
commercial paper issuers.
ILLIQUID SECURITIES - The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain options traded
in the over-the-counter market and securities used to cover such options. As
to these securities, the Fund is subject to a risk that should the Fund
desire to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could
be adversely affected.
CERTAIN FUNDAMENTAL POLICIES -- The Fund may (i) borrow money to the extent
permitted under the Investment Company Act of 1940; and (ii) invest up to 25%
of the value of its total assets in the securities of issuers in a single
industry, provided that there is no such limitation on investments in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. This paragraph describes funda-
Page 13
mental policies that cannot
be changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting shares. See
"Investment Objective and Management Policies-Investment Restrictions" in the
Fund's Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES -- The Fund may (i) purchase
securities of any company having less than three years' continuous operation
(including operations of any predecessors) if such purchase does not cause
the value of the Fund's investments in all such companies to exceed 5% of the
value of its total assets; (ii) pledge, hypothecate, mortgage or otherwise
encumber its assets, but only to secure permitted borrowings; and (iii)
invest up to 15% of the value of its net assets in repurchase agreements
providing for settlement in more than seven days after notice and in other
illiquid securities. See "Investment Objective and Management
Policies-Investment Restrictions" in the Fund's Statement of Additional
Information.
RISK FACTORS
CERTAIN INVESTMENT TECHNIQUES - The use of investment techniques such as
short-selling, engaging in financial futures and options transactions,
leverage through borrowing, purchasing securities on a forward commitment
basis and lending portfolio securities involves greater risk than that
incurred by many other funds with a similar objective. Using these techniques
may produce higher than normal portfolio turnover and may affect the degree
to which the Fund's net asset value fluctuates. Portfolio turnover may vary
from year to year, as well as within a year. Under normal market conditions,
the portfolio turnover rate of the Fund generally will not exceed 100%.
Higher portfolio turnover rates are likely to result in comparatively greater
brokerage commissions or transaction costs. See "Portfolio Transactions" in
the Fund's Statement of Additional Information.
The Fund's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as a regulated investment
company, the Fund must earn less than 30% of its gross income from the
disposition of securities held for less than three months. This 30% test
limits the extent to which the Fund may sell securities held for less than
three months, effect short sales of securities held for less than three
months, write options expiring in less than three months and invest in
certain futures contracts, among other strategies. However, portfolio turnover
will not otherwise be a limiting factor in making investment decisions.
EQUITY SECURITIES - Investors should be aware that equity securities
fluctuate in value, often based on factors unrelated to the value of the
issuer of the securities, and that fluctuations can be pronounced. Changes in
the value of the Fund's equity securities will result in changes in the value
of the Fund's shares and thus the Fund's yield and total return to investors.
FIXED-INCOME SECURITIES - Investors should be aware that even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. Thus, if interest rates have increased from the time a security
was purchased, such security, if sold, might be sold at a price less than its
cost. Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
cost. In either instance, if the security was purchased at face value and
held to maturity, no gain or loss would be realized. The value of U.S.
Treasury securities also will be affected by the supply and demand, as well
as the perceived supply and demand, for such securities.
FOREIGN SECURITIES - Since the stocks of some foreign issuers are included in
the S&P 500 Index the Fund's investments may contain securities of such
foreign issuers which may subject the Fund to additional investment risks
with respect to those securities that are different in some respects from
those incurred by a fund which invests only in securities of domestic
issuers. Such risks include future political and economic developments, the
possible imposition of withholding taxes on income payable on the securities,
the possible establishment of exchange controls or the adoption of other
foreign governmental
Page 14
restrictions which might adversely affect an investment
in these securities and the possible seizure or nationalization of foreign
deposits. The Fund will not invest more than 20% of the value of its assets
in the common stocks of foreign issuers. See "Certain Portfolio
Securities-Bank Obligations" above.
OTHER INVESTMENT CONSIDERATIONS - The Fund's net asset value per share is not
fixed and should be expected to fluctuate. You should purchase Fund shares
only as a supplement to an overall investment program and only if you are
willing to undertake the risks involved.
Federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, the Fund may be required to distribute such income
accrued with respect to these securities and may have to dispose of such
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.
The Fund's classification as a "non-diversified" investment company means
that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. A "diversified" investment company is required by the Investment
Company Act of 1940 generally, with respect to 75% of its total assets, to
invest not more than 5% of such assets in the securities of a single issuer
and to hold not more than 10% of the outstanding voting securities of a
single issuer. However, the Fund intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), which requires that, at the
end of each quarter of its taxable year, (i) at least 50% of the market value
of the Fund's total assets be invested in cash, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of the Fund's total assets be invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies). Since a relatively high
percentage of the Fund's assets may be invested in the securities of a
limited number of issuers, some of which may be within the same industry or
economic sector, the Fund's securities may be more susceptible to any single
economic, political or regulatory occurrence than the securities of a
diversified investment company.
Investment decisions for the Fund are made independently from those of
other investment companies advised by The Dreyfus Corporation. However, if
such other investment companies are prepared to invest in, or desire to
dispose of, securities of the type in which the Fund invests at the same time
as the Fund, available investments or opportunities for sales will be
allocated equitably to each investment company. In some cases, this procedure
may adversely affect the size of the position obtained for or disposed of by
the Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, was formed in 1947 and serves as the Fund's investment adviser. The
Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank, N.A., which
is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As of
June 30, 1994, The Dreyfus Corporation managed or administered approximately
$71 billion in assets for more than 1.9 million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall management
of the Fund's affairs under a Management Agreement with the Fund, subject to
the overall authority of the Fund's Board of Directors in accordance with
Maryland law. The Fund's primary portfolio manager is Ernest G. Wiggins, Jr.
He has held that position since May 12, 1994 and has been an employee of The
Dreyfus Corporation since December 1993. From 1992 to December 1993, Mr.
Wiggins was President of Gabelli International and, prior thereto, he held
various positions with Fidelity Management and
Page 15
Research Company. The Fund's
other portfolio managers are identified under "Management of the Fund" in the
Fund's Statement of Additional Information. The Dreyfus Corporation also
provides research services for the Fund as well as for other funds advised by
The Dreyfus Corporation through a professional staff of portfolio managers
and securities analysts.
Mellon is a publicly owned multibank holding company incorporated under
Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, Mellon managed more than $130 billion in assets as of July
31, 1994, including approximately $6 billion in mutual fund assets. As of
June 30, 1994, various subsidiaries of Mellon provided non-investment
services, such as custodial or administration services, for approximately
$747 billion in assets, including $97 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to pay
The Dreyfus Corporation a monthly fee at the annual rate of .75 of 1% of the
value of the Fund's average daily net assets. The management fee is higher
than that paid by most other investment companies. From time to time, The
Dreyfus Corporation may waive receipt of its fees and/or voluntarily assume
certain expenses of the Fund, which would have the effect of lowering the
overall expense ratio of the Fund and increasing yield to investors at the
time such amounts are waived or assumed, as the case may be. The Fund will
not pay The Dreyfus Corporation at a later time for any amounts it may waive,
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume. For the period July 1, 1993 (commencement of operations) through
April 30, 1994, no management fee was paid by the Fund pursuant to an
undertaking by The Dreyfus Corporation.
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by The Dreyfus Corporation. The
expenses borne by the Fund include: organizational costs, taxes, interest,
loan commitment fees, interest and distributions paid on securities sold
short, brokerage fees and commissions, if any, fees of Directors who are not
officers, directors, employees or holders of 5% or more of the outstanding
voting securities of The Dreyfus Corporation, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory fees, charges of
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 Dreyfus Corporation may pay the Fund's distributor for shareholder
services from The Dreyfus Corporation's own assets, including the management
fee paid by the Fund. The Fund's distributor may use part or all of such
payments to pay Service Agents in respect of these services.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 110 Washington Street, New York, New York 10286, is the
Fund's Custodian.
Page 16
HOW TO BUY FUND SHARES
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of Institutional Administration
Services, Inc., a provider of mutual fund administration services, the parent
company of which is Boston Institutional Group, Inc.
You can purchase Fund shares through the Distributor or certain financial
institutions, securities dealers and other industry professionals
(collectively, "Service Agents") that have entered into agreements with the
Distributor. Stock certificates are issued only upon your written request. No
certificates are issued for fractional shares. The Fund reserves the right to
reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a client
of a Service Agent which has made an aggregate minimum initial purchase for
its customers of $2,500. Subsequent investments must be at least $100. The
initial investment must be accompanied by the Fund's Account Application. For
full-time or part-time employees of The Dreyfus Corporation or any of its
affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Fund's Board, or the spouse or minor child of any of the foregoing, the
minimum initial investment is $1,000. For full-time or part-time employees of
The Dreyfus Corporation or any of its affiliates or subsidiaries who elect to
have a portion of their pay directly deposited into their Fund account, the
minimum initial investment is $50. The Fund reserves the right to offer Fund
shares without regard to minimum purchase requirements to employees
participating in certain qualified or non-qualified employee benefit plans or
other programs where contributions or account information can be transmitted
in a manner and form acceptable to the Fund. The Fund reserves the right to
vary further the initial and subsequent investment minimum requirements at
any time.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian." Payments to open new accounts which
are mailed should be sent to The Dreyfus Family of Funds, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account Application.
For subsequent investments, your Fund account number should appear on the
check and an investment slip should be enclosed and sent to The Dreyfus
Family of Funds, P.O. Box 105, Newark, New Jersey 07101-0105. For Dreyfus
retirement plan accounts, both initial and subsequent investments should be
sent to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Neither initial nor subsequent investments should be
made by third party check. Purchase orders may be delivered in person only to
a Dreyfus Financial Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND
WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the nearest
Dreyfus Financial Center, please call one of the telephone numbers listed
under "General Information."
Wire payments may be made if your bank account is in a commercial bank
that is a member of the Federal Reserve System or any other bank having a
correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA#8900118202/Dreyfus Asset
Allocation Fund, Inc. for purchase of Fund shares in your name. The wire must
include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the Account
Application is received. You may obtain further information about remitting
funds in this manner from your bank. All payments should be made in U.S.
dollars and, to avoid fees and delays, should
Page 17
be drawn only on U.S. banks. A charge will be
imposed if any check used for investment in your account does not clear. The
Fund makes available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Subsequent investments also may be made by electronic transfer of funds
from an account maintained in a bank or other domestic financial institution
that is an Automated Clearing House member. You must direct the institution
to transmit immediately available funds through the Automated Clearing House
to The Bank of New York with instructions to credit your Fund account. The
instructions must specify your Fund account registration and your Fund
account number PRECEDED BY THE DIGITS "1111."
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in this
Prospectus, and, to the extent permitted by applicable regulatory authority,
may charge their clients direct fees which would be in addition to any
amounts which might be received under Shareholder Services Plan. Each Service
Agent has agreed to transmit to its clients a schedule of such fees. You
should consult your Service Agent in this regard.
The Distributor may pay dealers a fee of up to .5% of the amount invested
through such dealers in Fund shares by employees participating in qualified
or non-qualified employee benefit plans or other programs where (i) the
employers or affiliated employers maintaining such plans or programs have a
minimum of 250 employees eligible for participation in such plans or programs
or (ii) such plan's or program's aggregate investment in the Dreyfus Family
of Funds or certain other products made available by the Distributor to such
plans or programs exceeds one million dollars ("Eligible Benefit Plans"). The
determination of the number of employees eligible for participation in a plan
or program shall be made on the date Fund shares are first purchased by or on
behalf of employees participating in such plan or program and on each
subsequent January 1st. All present holdings of shares of funds in the
Dreyfus Family of Funds by Eligible Benefit Plans will be aggregated to
determine the fee payable with respect to each purchase of Fund shares. The
Distributor reserves the right to cease paying these fees at any time. The
Distributor will pay such fees from its own funds, other than amounts
received from the Fund, including past profits or any other source available
to it.
Fund shares are sold on a continuous basis at net asset value per share
next determined after an order in proper form is received by the Transfer
Agent or other agent. Net asset value per share is determined as of the close
of trading on the floor of the New York Stock Exchange (currently 4:00 p.m.,
New York time), on each day the New York Stock Exchange is open for business.
For purposes of determining net asset value, options and futures contracts
will be valued 15 minutes after the close of trading on the floor of the New
York Stock Exchange. Net asset value per share is computed by dividing the
value of the Fund's net assets (i.e., the value of its assets less
liabilities) by the total number of shares outstanding. The Fund's
investments are valued each business day generally by using available market
quotations or at fair value which may be determined by one or more pricing
services approved by the Board of Directors. For further information
regarding the methods employed in valuing the Fund's investments, see
"Determination of Net Asset Value" in the Fund's Statement of Additional
Information.
Federal regulations require that you provide a certified TIN upon opening
or reopening an account. See "Dividends, Distributions and Taxes" and the
Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE -- You may purchase Fund shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account Application
or have filed a Shareholder Services Form with the Transfer Agent. The
proceeds will be transferred between the bank account designated in one of
these documents and your Fund account. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House member
may be so designated. The Fund may modify or termi-
Page 18
nate this Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may request
a Dreyfus TELETRANSFER purchase of Fund shares by telephoning 1-800-221-4060
or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those in
this Prospectus. You should consult your Service Agent in this regard.
EXCHANGE PRIVILEGE -- The Exchange Privilege enables you to purchase, in
exchange for shares the Fund, shares of certain other funds managed or
administered by The Dreyfus Corporation, to the extent such shares are
offered for sale in your state of residence. These funds have different
investment objectives which may be of interest to you. If you desire to use
this Privilege, you should consult your Service Agent or the Distributor to
determine if it is available and whether any other conditions are imposed on
its use.
To use this Privilege, you or your Service Agent acting on your behalf
must give exchange instructions to the Transfer Agent in writing, by wire or
by telephone. If you previously have established the Telephone Exchange
Privilege, you may telephone exchange instructions by calling 1-800-221-4060
or, if you are calling from overseas, call 1-401-455-3306. See "How to Redeem
Fund Shares-Procedures." Before any exchange, you must obtain and should
review a copy of the current prospectus of the fund into which the exchange
is being made. Prospectuses may be obtained from the Distributor. Except in
the case of Personal Retirement Plans, the shares being exchanged must have a
current value of at least $500; furthermore, when establishing a new account
by exchange, the shares being exchanged must have a value of at least the
minimum initial investment required for the fund into which the exchange is
being made. Telephone exchanges may be made only if the appropriate "YES" box
has been checked on the Account Application, or a separate signed Shareholder
Services Form is on file with the Transfer Agent. Upon an exchange into a new
account, the following shareholder services and privileges, as applicable and
where available, will be automatically carried over to the fund into which
the exchange is made: the Exchange Privilege, Wire Redemption Privilege,
Telephone Redemption Privilege, Dreyfus TELETRANSFER Privilege and the
dividend/capital gain distribution option (except for Dreyfus Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined net asset value; however,
a sales load may be charged with respect to exchanges into funds sold with a
sales load. If you are exchanging into a fund that charges a sales load, you
may qualify for share prices which do not include the sales load or which
reflect a reduced sales load, if the shares of the fund from which you are
exchanging were: (a) purchased with a sales load, (b) acquired by a previous
exchange from shares purchased with a sales load, or (c) acquired through
reinvestment of dividends or distributions paid with respect to the foregoing
categories of shares. To qualify, at the time of your exchange you must
notify the Transfer Agent or your Service Agent must notify the Distributor.
Any such qualification is subject to confirmation of your holdings through a
check of appropriate records. See "Shareholder Services" in the Statement of
Additional Information. No fees currently are charged shareholders directly
in connection with exchanges, although the Fund reserves the right, upon not
less than 60 days' written notice, to charge shareholders a nominal fee in
accordance with rules promulgated by the Securities and Exchange Commission.
The Fund reserves the right to reject any exchange request in whole or in
part. The Exchange Privilege may be modified or terminated at any time upon
notice to shareholders.
The exchange of shares of one fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable
gain or loss.
Page 19
DREYFUS AUTO-EXCHANGE PRIVILEGE -- Dreyfus Auto-Exchange Privilege enables
you to invest regularly (on a semi-monthly, monthly, quarterly or annual
basis), in exchange for shares of the Fund, in shares of other funds in the
Dreyfus Family of Funds of which you are currently an investor. The amount
you designate, which can be expressed either in terms of a specific dollar or
share amount ($100 minimum), will be exchanged automatically on the first
and/or fifteenth day of the month according to the schedule you have
selected. Shares will be exchanged at the then-current net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. See "Shareholder Services" in the Statement of
Additional Information. The right to exercise this Privilege may be modified
or cancelled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by mailing written notification to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
The Fund may charge a service fee for the use of this Privilege. No such fee
currently is contemplated. The exchange of shares of one fund for shares of
another is treated for Federal income tax purposes as a sale of the shares
given in exchange by the shareholder and, therefore, an exchanging
shareholder may realize a taxable gain or loss. For more information
concerning this Privilege and the funds in the Dreyfus Family of Funds
eligible to participate in this Privilege, or to obtain a Dreyfus
Auto-Exchange Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER -- Dreyfus-AUTOMATIC Asset Builder permits
you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased
by transferring funds from the bank account designated by you. At your
option, the bank account designated by you will be debited in the specified
amount, and Fund shares will be purchased, once a month, on either the first
or fifteenth day, or twice a month, on both days. Only an account maintained
at a domestic financial institution which is an Automated Clearing House
member may be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder
account, you must file an authorization form with the Transfer Agent. You may
obtain the necessary authorization form from the Distributor. You may cancel
your participation in this Privilege or change the amount of purchase at any
time by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE -- Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the Federal
government automatically deposited into your Fund account. You may deposit as
much of such payments as you elect. To enroll in Dreyfus Government Direct
Deposit, you must file with the Transfer Agent a completed Direct Deposit
Sign-Up Form for each type of payment that you desire to include in the
Privilege. The appropriate form may be obtained from the Distributor. Death
or legal incapacity will terminate your participation in this Privilege. You
may elect at any time to terminate your participation by notifying in writing
the appropriate Federal agency. Further, the Fund may terminate your
participation upon 30 days' notice to you.
DREYFUS DIVIDEND OPTIONS -- Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share
prices which do not include the sales load or which reflect a reduced sales
load. If you are investing in a fund that charges a contingent deferred sales
charge, the shares purchased will be sub-
Page 20
ject on redemption to the contingent
deferred sales charge, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Dividend ACH permits you to transfer electronically on the payment date
dividends or dividends and capital gain distributions, if any, from the Fund
to a designated bank account. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. Banks may charge a fee for this service.
For more information concerning these privileges or to request a Dividend
Options Form, please call toll free 1-800-645-6561. You may cancel these
privileges by mailing written notification to The Dreyfus Family of Funds,
P.O. Box 9671, Providence, Rhode Island 02940-9671. Enrollment in or
cancellation of these privileges is effective three business days following
receipt. These privileges are available only for existing accounts and may
not be used to open new accounts. Minimum subsequent investments do not apply
for Dreyfus Dividend Sweep. The Fund may modify or terminate these privileges
at any time or charge a service fee. No such fee currently is contemplated.
Shares held under Keogh Plans, IRAs or other retirement plans are not
eligible for Dreyfus Dividend Sweep.
DREYFUS PAYROLL SAVINGS PLAN -- Dreyfus Payroll Savings Plan permits you to
purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a Dreyfus Payroll Savings Plan account, you must
file an authorization form with your employer's payroll department. Your
employer must complete the reverse side of the form and return it to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form from the Distributor. You may
change the amount of purchase or cancel the authorization only by written
notification to your employer. It is the sole responsibility of your
employer, not the Distributor, The Dreyfus Corporation, the Fund, the
Transfer Agent or any other person, to arrange for transactions under the
Dreyfus Payroll Savings Plan. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN -- The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An
application for the Automatic Withdrawal Plan can be obtained from the
Distributor. There is a service charge of 50 cents for each withdrawal check.
The Automatic Withdrawal Plan may be ended at any time by you, the Fund or
the Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
RETIREMENT PLANS -- The Fund offers a variety of pension and profit-sharing
plans, including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts,"
401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan support services also
are available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; and for
SEP-IRAs, 401(k) Salary Reduction Plans and 403(b)(7) Plans, please call
1-800-322-7880.
HOW TO REDEEM FUND SHARES
GENERAL -- You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
The Fund imposes no charges when shares are redeemed directly through the
Distributor. Service Agents may charge a nominal fee for effecting
redemptions of Fund shares. Any certificates representing Fund shares being
redeemed must be submitted with the redemption request. The value of the
shares redeemed may be more or less than their original cost, depending upon
the Fund's then-current net asset value.
Page 21
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE OF
YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC ASSET
BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION,
THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE OR
PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE DREYFUS
TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET BUILDER ORDER AGAINST
WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR
SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT
COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO
THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE AND
BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF
BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until the Transfer
Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon not
less than 45 days' written notice if your account's net asset value is $500
or less and remains so during the notice period.
PROCEDURES -- You may redeem shares by using the regular redemption procedure
through the Transfer Agent, the Wire Redemption Privilege, the Telephone
Redemption Privilege or the Dreyfus TELETRANSFER Privilege. Other redemption
procedures may be in effect for clients of certain Service Agents. The Fund
makes available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities.
You may redeem or exchange shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
or exchange privilege, you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. The Fund will require the Transfer Agent to employ
reasonable procedures, such as requiring a form of personal identification,
to confirm that instructions are genuine and, if it does not follow such
procedures, the Fund or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent instructions. Neither the Fund nor the Transfer
Agent will be liable for following telephone instructions reasonably believed
to be genuine.
During times of drastic economic or market conditions, you may experience
difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Fund shares. In such cases, you should consider
using the other redemption procedures described herein. Use of these other
redemption procedures may result in your redemption request being processed
at a later time than it would have been if telephone redemption had been
used. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION-Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. THESE REQUESTS WILL
BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information." Redemption requests
must be signed by each shareholder, including each owner of a joint account,
and each signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper
form generally will be accepted from domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities
Page 22
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program, the
Securities Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges
Medallion Program. If you have any questions with respect to signature-
guarantees, please call one of the telephone numbers listed under "General
Information."
Redemption proceeds of at least $1,000 will be wired to any member bank of
the Federal Reserve System in accordance with a written signature-guaranteed
request.
WIRE REDEMPTION PRIVILEGE-You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. To establish the Wire Redemption Privilege, you must
check the appropriate box and supply the necessary information on the Fund's
Account Application or file a Shareholder Services Form with the Transfer
Agent. You may direct that redemption proceeds be paid by check (maximum
$150,000 per day) made out to the owners of record and mailed to your
address. Redemption proceeds of less than $1,000 will be paid automatically
by check. Holders of jointly registered Fund or bank accounts may have
redemption proceeds of only up to $250,000 wired within any 30-day period.
You may telephone redemption requests by calling 1-800-221-4060 or, if you
are calling from overseas, call 1-401-455-3306. The Fund reserves the right
to refuse any redemption request, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. This Privilege may be modified or terminated at any time by the
Transfer Agent or the Fund. The Fund's Statement of Additional Information
sets forth instructions for transmitting redemption requests by wire. Shares
held under Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE-You may redeem Fund shares (maximum $150,000
per day) by telephone if you have checked the appropriate box on the Fund's
Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Fund.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares for
which certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE-You may redeem Fund shares (minimum $500 per
day) by telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request or, at your request, paid by check (maximum $150,000 per
day) and mailed to your address. Holders of jointly registered Fund or bank
accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account only up to $250,000 within any 30-day period. The Fund
reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. The Fund may modify or terminate
this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may request
a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares
issued in
Page 23
certificate form, are not eligible for this Privilege.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Fund shares are subject to a Distribution Plan and a Shareholder Services
Plan.
DISTRIBUTION PLAN - Under the Distribution Plan, adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, the Fund (a) reimburses the
Distributor for payments to certain Service Agents for distributing Fund
shares and (b) pays The Dreyfus Corporation, Dreyfus Service Corporation, a
wholly-owned subsidiary of The Dreyfus Corporation, or any affiliate of
either of them for advertising and marketing relating to the Fund at an
aggregate annual rate of .50 of 1% of the value of the Fund's average daily
net assets. The Distributor may pay one or more Service Agents in respect of
distribution services. The Distributor determines the amounts, if any, to be
paid to Service Agents under the Distribution Plan and the basis on which
such payments are made. The fees payable under the Distribution Plan are
payable without regard to actual expenses incurred.
The Fund bears the costs of preparing and printing prospectuses and
statements of additional information used for regulatory purposes and for
distribution to existing Fund shareholders. Under the Distribution Plan, the
Fund bears (a) the costs of preparing, printing and distributing prospectuses
and statements of additional information used for other purposes and (b) the
costs associated with implementing and operating the Distribution Plan, the
aggregate of such amounts not to exceed in any fiscal year of the Fund the
greater of $100,000 or .005 of 1% of the value of the Fund's average daily
net assets for such fiscal year.
SHAREHOLDER SERVICES PLAN - Under the Shareholder Services Plan, the Fund
pays the Distributor for the provision of certain services to Fund
shareholders a fee at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The Distributor may make
payments to Service Agents in respect of these services. The Distributor
determines the amounts to be paid to Service Agents. Each Service Agent is
required to disclose to its clients any compensation payable to it by the
Fund pursuant to the Shareholder Services Plan and any other compensation
payable by their clients in connection with the investment of their assets in
Fund shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the Investment Company Act of 1940. The Fund will not make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. You may choose
whether to receive dividends and distributions in cash or to reinvest in
additional Fund shares at net asset value. All expenses are accrued daily and
deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with distributions
from net realized short-term securities gains and and all or a portion of any
gain realized from the sale or other disposition of certain market discount
bonds, paid by the Fund will be taxable to U.S. shareholders as ordinary
income whether received in cash or reinvested in additional Fund shares.
Distributions from net realized long-term securities gains of the Fund will
be taxable to U.S. shareholders as long-term capital gains for Federal income
tax purposes, regardless of how long shareholders have held their Fund shares
and whether such distributions are received in cash or reinvested in Fund
shares. The Code provides that the net capital gain of an individual
generally will not be subject to Federal income tax at a rate in excess of
28%. Dividends and distributions may be subject to state and local taxes.
Page 24
Dividends derived from net investment income, together with distributions
from net realized short-term securities gains and all or a portion of any
gain realized from the sale or other disposition of certain market discount
bonds, paid by the Fund to a foreign investor generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign investor
claims the benefit of a lower rate specified in a tax treaty. Distributions
from net realized long-term securities gains paid by the Fund to a foreign
investor as well as the proceeds of any redemptions from a foreign investor's
account, regardless of the extent to which gain or loss may be realized,
generally will not be subject to U.S. nonresident withholding tax. However,
such distributions may be subject to backup withholding, as described below,
unless the foreign investor certifies his non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will be
mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Fund believes that the Fund has qualified for the
fiscal year ended April 30, 1994, a "regulated investment company" under the
Code. The Fund intends to so qualify, if such qualification is in the best
interests of its shareholders. Such qualification relieves the Fund of any
liability for Federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. In addition, the Fund
is subject to a non-deductible 4% excise tax, measured with respect to
certain undistributed amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as to
Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on the basis
of average annual total return and/or total return.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter periods depending upon the
length of time during which the Fund has operated. Computations of average
annual total return for periods of less than one year represent an
annualization of the Fund's actual total return for the applicable period.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the
Page 25
income and principal changes for a specified period and dividing by the net
asset value per share at the beginning of the period. Advertisements may
include the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's 500 Stock
Index, the Dow Jones Industrial Average, Moody's Bond Service Bond Index,
Bond-20 Bond Index, and other industry publications.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on May 12, 1993, and
commenced operations on July 1, 1993. The Fund is authorized to issue 300
million shares of Common Stock, par value $.001 per share. Each share has one
vote.
Unless otherwise required by the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Directors or the appointment of auditors. However, pursuant to
the Fund's By-Laws, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Fund to hold a special meeting of
shareholders for purposes of removing a Director from office or for any other
purpose. Fund shareholders may remove a Director by the affirmative vote of a
majority of the Fund's outstanding voting shares. In addition, the Board of
Directors will call a meeting of shareholders for the purpose of electing
Directors if, at any time, less than a majority of the Directors then holding
office have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquires may be made to your Service Agent or by writing to
the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or
by calling toll free, 1-800-645-6561. In New York City, call 1-718-895-1206;
on Long Island, call 794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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DREYFUS
Asset Allocation
Fund, Inc.
Prospectus
(Lion Logo)
Copy Rights Premier Mutual Fund Services Inc., 1994
Distributor 550/551pros3A
