DREYFUS ASSET ALLOCATION FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
AUGUST 21, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Asset Allocation Fund, Inc. (the "Fund"), dated August 21, 1996, as
it may be revised from time to time. To obtain a copy of the Fund's
Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11566-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. and Canada -- Call 516-794-5452
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies .............B-2
Management of the Fund ...................................B-13
Management Agreement .....................................B-17
Purchase of Shares .......................................B-19
Shareholder Services Plan ................................B-20
Redemption of Shares .....................................B-21
Shareholder Services .....................................B-23
Determination of Net Asset Value .........................B-26
Dividends, Distributions and Taxes .......................B-26
Portfolio Transactions ...................................B-28
Performance Information ..................................B-29
Information About the Fund ...............................B-29
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors .......................B-30
Appendix .................................................B-31
Financial Statements .....................................B-38
Report of Independent Auditors ...........................B-48
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in the Fund's Prospectus entitled "Description of the Fund"
and "Appendix."
Portfolio Securities
Repurchase Agreements. 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
that enters into them. 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.
Commercial Paper and Other Short-Term Corporate Obligations. These
instruments 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. 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. 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 in the Fund's
Prospectus for other commercial paper issuers.
Convertible Securities. Although to a lesser extent than with fixed-
income securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock. A unique feature of convertible
securities is that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis,
and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
Convertible securities are investments that provide for a stable stream
of income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance
of capital appreciation, however, because securities prices fluctuate.
Convertible securities, however, generally offer lower interest or dividend
yields than non-convertible securities of similar quality because of the
potential for capital appreciation.
The Fund may invest in convertible preferred stocks that offer enhanced
yield features, such as Preferred Equity Redemption Cumulative Stock
("PERCS"), and higher dividend income than is available on a company's common
stock. PERCS are preferred stock which generally feature a mandatory
conversion date, as well as a capital appreciation limit that is usually
expressed in terms of a stated price. The Fund also may invest in other
classes of enhanced convertible securities, such as ACES (Automatically
Convertible Equity Securities), PEPS (Participating Equity Preferred Stock),
PRIDES (Preferred Redeemable Increased Dividend Equity Securities), SAILS
(Stock Appreciation Income Linked Securities), TECONS (Term Convertible
Notes), QICS (Quarterly Income Cumulative Securities) and DECS (Dividend
Enhanced Convertible Securities). These securities are company issued
convertible preferred stock. Unlike PERCS, they do not have a capital
appreciation limit. They are designed to provide the investor with high
current income with some prospect of future capital appreciation, issued with
three or four-year maturities, and typically have some built-in call
protection. Investors have the right to convert them into shares of common
stock at a preset conversion ratio or hold them until maturity. Upon maturity
they will convert mandatorily into either cash or a specified number of
shares of common stock.
Zero Coupon Securities. Zero coupon U.S. Treasury securities 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. Receipts include
"Treasury Receipts" ("TRs") "Treasury Investment Growth Receipts" ("TIGRs"),
"Liquid Yield Option Notes" ("LYONs"), and "Certificates of Accrual on
Treasury Securities" ("CATS"). TIGRs, LYONs and CATS are interests in
private proprietary accounts while TRs are interests in accounts sponsored by
the U.S. Treasury.
Municipal Obligations. Municipal obligations generally include debt
obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities. Municipal obligations are classified as general obligation
bonds, revenue bonds and notes. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenue derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from
the general taxing power. Industrial development bonds, in most cases, are
revenue bonds and generally do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity on
whose behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal obligations include municipal lease/purchase agreements
which are similar to installment purchase contracts for property or equipment
issued by municipalities.
Mortgage Related Securities
Government-Agency Securities--Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage Pass-
Through Certificates (also known as "Ginnie Maes") which are guaranteed as to
the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-
owned U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA
to borrow funds from the U.S. Treasury to make payments under its guarantee.
Government-Related Securities--Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of
the United States created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Bank and do not constitute a debt
or obligation of the United States or of any Federal Home Loan Bank. Freddie
Macs entitle the holder to timely payment of interest, which is guaranteed by
FHLMC. FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on
account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after
it becomes payable.
Private Entity Securities--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can be
no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance
or guarantee covers the Fund or the price of the Fund's shares. Mortgage-
related securities issued by non-governmental issuers generally offer a
higher rate of interest than government agency and government-related
securities because there are no direct or indirect government guarantees of
payment.
Foreign Government Obligations; Securities of Supranational Entities.
The Fund may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Manager to be of comparable
quality to the other obligations in which the Fund may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not readily
marketable, the Fund will endeavor to obtain the right to registration at the
expense of the issuer. Generally, there will be a lapse of time between the
Fund's decision to sell any such security and the registration of the
security permitting sale. During any such period, the price of the
securities will be subject to market fluctuations. However, where a
substantial market of qualified institutional buyers develops for certain
unregistered securities purchased by the Fund pursuant to Rule 144A under the
Securities Act of 1933, as amended, the Fund intends to treat such securities
as liquid securities in accordance with procedures approved by the Fund's
Board. Because it is not possible to predict with assurance how the market
for restricted securities pursuant to Rule 144A will develop, the Fund's
Board has directed the Manager to monitor carefully the Fund's investments in
such securities with particular regard to trading activity, availability of
reliable price information and other relevant information. To the extent
that, for a period of time, qualified institutional buyers cease purchasing
restricted securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of illiquidity during
such period.
Management Policies
The Fund may engage in the following investment practices in furtherance
of its objective.
Leverage. For borrowings for investment purposes, the Investment
Company Act of 1940, as amended (the "1940 Act"), 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 required coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio securities within three days to reduce the amount of its borrowings
and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. The Fund also
may be required to maintain minimum average balances in connection with such
borrowing or 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. To the extent the Fund enters into a reverse
repurchase agreement, 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.
Short-Selling. Until the Fund closes its short position or replaces the
borrowed security, it will: (a) maintain a segregated account, containing
cash or U.S. Government securities, at such a level that the amount deposited
in the account plus the amount deposited with the broker as collateral always
equals the current value of the security sold short; or (b) otherwise cover
its short position.
Derivatives. The Fund may invest in Derivatives (as defined in the
Fund's Prospectus) for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest than
"traditional" securities would.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency that is the issuer or counterparty to such Derivatives. This
guarantee usually is supported by a daily payment system (i.e., variation
margin requirements) operated by the clearing agency in order to reduce
overall credit risk. As a result, unless the clearing agency defaults, there
is relatively little counterparty credit risk associated with Derivatives
purchased on an exchange. By contrast, no clearing agency guarantees over-
the-counter Derivatives. Therefore, each party to an over-the-counter
Derivative bears the risk that the counterparty will default. Accordingly,
the Manager will consider the creditworthiness of counterparties to over-the-
counter Derivatives in the same manner as it would review the credit quality
of a security to be purchased by the Fund. Over-the-counter Derivatives are
less liquid than exchange-traded Derivatives since the other party to the
transaction may be the only investor with sufficient understanding of the
Derivative to be interested in bidding for it.
Futures Transactions--In General. The Fund may enter into futures contracts
in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or, on
exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however,
may have greater risk potential than domestic markets. For example, some
foreign exchanges are principal markets so that no common clearing facility
exists and an investor may look only to the broker for performance of the
contract. In addition, any profits that the Fund might realize in trading
could be eliminated by adverse changes in the exchange rate, or the Fund
could incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic exchanges
and those which are not. Unlike trading on domestic commodity exchanges,
trading on foreign commodity exchanges is not regulated by the Commodity
Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. 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.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in the
market value of securities held in its portfolio and the prices of such
securities instead increase, 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. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
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. The segregation of such assets will have the effect of limiting
the Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive
an amount of cash equal to a fixed dollar amount specified in the futures
contract multiplied by the difference between the settlement price of the
contract on the contract's last trading day and the value of the index based
on the stock prices of the securities that comprise it at the opening of
trading in such securities on the next business day.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
Interest Rate Swaps. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest
(for example, an exchange of floating rate payments for fixed-rate payments).
The exchange commitments can involve payments to be made in the same currency
or in different currencies. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio security transactions. If the
Manager is incorrect in its forecasts of market values, interest rates and
other applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these investment techniques
were not used. Moreover, even if the Manager is correct in its forecasts,
there is a risk that the swap position may correlate imperfectly with the
price of the asset or liability being hedged. There is no limit on the
amount of interest rate swap transactions that may be entered into by the
Fund. These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the other party to an
interest rate swap defaults, the Fund's risk of loss consists of the net
amount of interest payments that the Fund contractually is entitled to
receive.
The Fund may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific
currency at a future date at a specific price.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. 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, or at a specific date. 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, or at a specific date.
A covered call option written by the Fund is a call option with respect
to which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written by
the Fund is covered when, among other things, cash or liquid securities
having a value equal to or greater than the exercise price of the option are
placed in a segregated account with the Fund's custodian to fulfill the
obligation undertaken. The principal reason for writing covered call and put
options is to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. The Fund receives a
premium from writing covered call or put options which it retains whether or
not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease
to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, at
times have rendered certain of the clearing facilities inadequate and
resulted in the institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions in
one or more options. There can be no assurance that similar events, or
events that may otherwise interfere with the timely execution of customers'
orders, will not recur. In such event, it might not be possible to effect
closing transactions in particular options. If, as a covered call option
writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise or it
otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or
traded in the over-the -counter market. An option on a stock index is
similar to an option in respect of specific securities, except that
settlement does not occur by delivery of the securities comprising the index.
Instead, the option holder receives an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the
option. Thus, the effectiveness of purchasing or writing stock index options
will depend upon price movements in the level of the index rather than the
price of a particular stock.
The Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a
price which is expected to be lower or higher than the spot price of the
currency at the time the option is exercised or expires.
The Fund may purchase cash-settled options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments
for fixed-rate payments) denominated in U.S. dollars or foreign currency.
Equity index swaps involve the exchange by the Fund with another party of
cash flows based upon the performance of an index or a portion of an index of
securities which usually includes dividends. A cash-settled option on a swap
gives the purchaser the right, but not the obligation, in return for the
premium paid, to receive an amount of cash equal to the value of the
underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial institutions,
including securities brokerage firms.
Successful use by the Fund of options will be subject to the Manager's
ability to predict correctly movements in the prices of individual stocks,
the stock market generally, foreign currencies or interest rates. To the
extent the Manager's predictions are incorrect, the Fund may incur losses.
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 Derivatives 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 or Statement of Additional Information.
Forward Commitments. Securities purchased on a forward commitment or
when-issued basis are subject to changes in value (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 forward commitment or when-
issued basis may expose the Fund to risks because they may experience such
fluctuations prior to their actual delivery. Purchasing securities on a when-
issued 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. Purchasing securities on a forward
commitment or when-issued 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.
Investment Company Securities. The Fund may invest in securities issued
by other investment companies which principally invest in securities of the
type in which the Fund invests. Under the 1940 Act, the Fund's total
investments in such securities, subject to certain exceptions, currently are
limited to (i) 3% of the total voting stock of any one investment company,
(ii) 5% of the Fund's total assets with respect to any one investment company
and (iii) 10% of the Fund's total assets in the aggregate. Investments in
the securities of other investment companies may involve duplication of
advisory fees and certain other expenses.
Lending Portfolio Securities. In connection with its securities lending
transactions, the Fund may return to the borrower or a third party which is
unaffiliated with the Fund, and which is acting as a "placing broker," a part
of the interest earned from the investment of collateral received for
securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must be
able to terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) the Fund may pay only reasonable custodian fees in connection with
the loan; and (6) while voting rights on the loaned securities may pass to
the borrower, the Fund's Board must terminate the loan and regain the right
to vote the securities if a material event adversely affecting the investment
occurs. These conditions may be subject to future modification.
Investment Considerations and Risks
Lower Rated Securities. The Fund is permitted to invest in securities
rated Ba by Moody's Investors Service, Inc. ("Moody's") or BB by Standard &
Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. ("S&P"),
Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps Credit Ratings Co.
("Duff" and with Moody's, S&P and Fitch, the "Rating Agencies") and as low as
the lowest rating assigned by the Rating Agencies. Such securities, though
higher yielding, are characterized by risk. See "Description of the Fund--
Investment Considerations and Risks--Lower Rated Securities" in the
Prospectus for a discussion of certain risks and the "Appendix" for a general
description of the Rating Agencies' ratings. Although ratings may be useful
in evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of these securities. The Fund will rely on
the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities. These securities generally are considered by the Rating
Agencies to be, on balance, predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with the higher rated
securities. For example, during an economic downturn or a sustained period
of rising interest rates, highly leveraged issuers of these securities may
not have sufficient revenues to meet their interest payment obligations. The
issuer's ability to service its debt obligations also may be affected
adversely by specific corporate developments, forecasts, or the
unavailability of additional financing. The risk of loss because of default
by the issuer is significantly greater for the holders of these securities
because such securities generally are unsecured and often are subordinated to
other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse impact
on market price and yield and the Fund's ability to dispose of particular
issues when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of
the issuer. The lack of a liquid secondary market for certain securities
also may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio and calculating its
net asset value. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of these
securities. In such cases, judgment may play a greater role in valuation
because less reliable, objective data may be available.
These securities may be particularly susceptible to economic downturns.
It is likely that an economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with any persons concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon securities and pay-in-kind bonds, in which the
Fund may invest up to 5% of its total assets. Pay-in-kind bonds pay interest
through the issuance of additional securities. Zero coupon securities and pay-
in-kind bonds carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, the Fund will realize no cash
until the cash payment date unless a portion of such securities are sold and,
if the issuer defaults, the Fund may obtain no return at all on its
investment.
Investment Restrictions
The Fund has adopted investment restrictions numbered 1 through 8 as
fundamental policies, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the Fund's outstanding voting
shares. Investment restrictions numbered 9 through 14 are not fundamental
policies and may be changed by vote of a majority of the Fund's Board members
at any time. The Fund may not:
1. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
2. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
3. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of the
Fund's total assets). For purposes of this investment restriction, the entry
into options, forward contracts, futures contracts, including those relating
to indices, and options on futures contracts or indices shall not constitute
borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund may
lend its portfolio securities in an amount not to exceed 33-1/3% of the value
of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
and the Fund's Board.
5. Act as an underwriter of securities of other issuers, except
to the extent the Fund may be deemed an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities.
6. Invest more than 25% of the value of its assets in the securities
of issuers in any single industry, provided that, there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
7. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent the activities
permitted in Investment Restriction Nos. 1, 3, 10 and 11 may be deemed to
give rise to a senior security.
8. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indices, and options on
futures contracts or indices.
9. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
10. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices.
11. Purchase, sell or write puts, calls or combinations thereof,
except as may be described in the Fund's Prospectus and this Statement of
Additional Information.
12. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
The Fund may invest, notwithstanding any other investment restriction
(whether or not fundamental), all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies and restrictions as the Fund.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best interest
of the Fund and its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Fund shares in the state involved.
MANAGEMENT OF THE FUND
Board members and officers of the Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below. Each Board member who is deemed to be an "interested person" of
the Fund, as defined in the 1940 Act, is indicated by an asterisk.
Board Members of the Fund
LUCY WILSON BENSON, Board Member. President of Benson and Associates,
consultants to business and government. Mrs. Benson is a director of
Communications Satellite Corporation, General RE Corporation and
Logistics Management Institute. She is also a trustee of the Alfred P.
Sloan Foundation, Vice Chairman of the Board of Trustees of Lafayette
College, Vice Chairman of the Citizens Network for Foreign Affairs and a
member of the Council on Foreign Relations. From 1980 to 1994, Mrs.
Benson was a director of the Grumman Corporation. Mrs. Benson served as
a consultant to the U.S. Department of State and to SRI International
from 1980 to 1981. From 1977 to 1980, she was Under Secretary of State
for Security Assistance, Science and Technology. She is 68 years old
and her address is 46 Sunset Avenue, Amherst, Massachusetts 01002.
*DAVID W. BURKE, Board Member. Chairman of the Broadcasting Board of
Governors, an independent board within the United States Information
Agency, since August 1995. From August 1994 to February 1995, Mr. Burke
was a Consultant to the Manager, and from October 1990 to August 1994,
he was Vice President and Chief Administrative Officer of the Manager.
From 1977 to 1990, Mr. Burke was involved in the management of national
television news, as Vice President and Executive Vice President of ABC
News, and subsequently as President of CBS News. He is 59 years old and
his address is 197 Eighth Street, Charleston, Massachusetts 02109.
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. For more
than five years prior thereto, he was President, a director and, until
August 1994, Chief Operating Officer of the Manager and Executive Vice
President and a director of Dreyfus Service Corporation, a wholly-owned
subsidiary of the Manager and, until August 24, 1994, the Fund's
distributor. From August 1994 to December 31, 1994, he was a director
of Mellon Bank Corporation. He also is Chairman of the Board of the
Noel Group, Inc., a venture capital company; a trustee of Bucknell
University; and a director of the Muscular Dystrophy Association,
HealthPlan Services Corporation, Belding Heminway, Inc., a manufacturer
and marketer of industrial threads, specialty yarns, home furnishings
and fabrics, Curtis Industries, a national distributor of security
products, chemicals and automotive and other hardware, and Staffing
Resources, Inc. He is 52 years old and his address is 200 Park Avenue,
New York, New York 10166.
MARTIN D. FIFE, Board Member. Chairman of the Board of Magar, Inc., a
company specializing in financial products and developing early stage
companies. In addition, Mr. Fife is Chairman of the Board and Chief
Executive Officer of Skysat Communications Network Corporation, a
company developing telecommunications systems. Mr. Fife also serves on
the boards of various other companies. Mr. Fife is 68 years old and his
address is 405 Lexington Avenue, New York, New York 10174.
WHITNEY I. GERARD, Board Member. Partner of the New York City law firm of
Chadbourne & Parke. He is 61 years old and his address is 30
Rockefeller Plaza, New York, New York 10112.
ROBERT R. GLAUBER, Board Member. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University, since January 1992. Mr. Glauber was Under Secretary of the
Treasury for Finance at the U.S. Treasury Department from May 1989 to
January 1992. For more than 5 years prior thereto, he was a Professor
of Finance at the Graduate School of Business Administration of Harvard
University and, from 1985 to 1989, Chairman of its Advanced Management
Program. He is also a director of Mid Ocean Reinsurance Co. Ltd. and
Cooke Bieler, Inc., investment counselors. He is 56 years old and his
address is 79 John F. Kennedy Street, Cambridge, Massachusetts 02138.
ARTHUR A. HARTMAN, Board Member. Senior consultant with APCO Associates Inc.
From 1981 to 1987, he was United States Ambassador to the former Soviet
Union. He is a director of the ITT Hartford Insurance Group, Ford Meter
Box Corporation and Lawter International and a member of the advisory
councils of several other companies, research institutes and
foundations. Ambassador Hartman is Chairman of the First NIS Regional
Fund (ING/Barings Management). He is a former President of the Harvard
Board of Overseers. He is 69 years old and his address is 1615 L
Street, N.W., Washington, D.C. 20036.
GEORGE L. PERRY, Board Member. An economist and Senior Fellow at the
Brookings Institution since 1969. He is co-director of the Brookings
Panel on Economic Activity and editor of its journal, The Brookings
Papers. He is also a director of the State Farm Mutual Automobile
Association, State Farm Life Insurance Company and Federal Realty
Investment Trust. He is 61 years old and his address is 1775
Massachusetts Avenue, N.W., Washington, D.C. 20036.
PAUL D. WOLFOWITZ, Board Member. Dean of The Paul H. Nitze School of
Advanced International Studies at Johns Hopkins University. From 1989
to 1993, he was Under Secretary of Defense for Policy. From 1986 to
1989, he was the U.S. Ambassador to the Republic of Indonesia. From
1982 to 1986, he was Assistant Secretary of State for East Asian and
Pacific Affairs of the Department of State. He is a director of Hasbro,
Inc. He is 50 years old and his address is 1740 Massachusetts Avenue,
N.W., Washington, D.C. 20036.
For so long as the Fund plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Board members of the Fund
who are not "interested persons" of the Fund, as defined in the 1940 Act,
will be selected and nominated by the Board members who are not "interested
persons" of the Fund.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half of the amount paid to them as Board members. The aggregate amount
of compensation paid to each Board member by the Fund for the fiscal year
ended April 30, 1996, and by all other funds in the Dreyfus Family of Funds
for which such person is a Board member (the numbers of which is set forth in
parenthesis next to each Board member's total compensation) for the year
ended December 31, 1995, were as follows:
Total Compensation
Aggregate from Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund* Board Members
Lucy Wilson Benson $2,250 $ 72,003 (13)
David W. Burke $2,250 $253,654 (51)
Joseph S. DiMartino $2,813 $448,618 (93)
Martin D. Fife $2,250 $ 59,253 (11)
Whitney I. Gerard $2,250 $ 59,503 (11)
Robert R. Glauber $2,250 $ 97,503 (20)
Arthur A. Hartman $2,250 $ 59,503 (11)
George L. Perry $2,250 $ 59,503 (11)
Paul D. Wolfowitz $2,000 $ 49,503 (10)
______________________________
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $1,059 for all Board members as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer and a director of the Distributor and an officer of other
investment companies advised or administered by the Manager. From
December 1991 to July 1994, she was President and Chief Compliance
Officer of Funds Distributor, Inc., the ultimate parent of which is
Boston Institutional Group, Inc. Prior to December 1991, she served as
Vice President and Controller, and later as Senior Vice President, of
The Boston Company Advisors, Inc. She is 38 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992 to
July 1994, he served as Counsel for The Boston Company Advisors, Inc.
From August 1990 to February 1992, he was employed as an Associate at
Ropes & Gray. He is 31 years old.
RICHARD W. INGRAM, Vice President and Assistant Treasurer. Senior Vice
President and Director of Client Services and Treasury Operations of
Funds Distributor, Inc. and an officer of other investment companies
advised or administered by the Manager. From March 1994 to November
1995, he was Vice President and Division Manager for First Data Investor
Services Group. From 1989 to 1994, he was Vice President, Assistant
Treasurer and Tax Director - Mutual Funds of The Boston Company. He is
40 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of the Distributor and
an officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The Boston
Company, Inc. where he held various management positions in the
Corporate Finance and Treasury areas. He is 32 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of Funds Distributor,
Inc. and an officer of other investment companies advised or
administered by the Manager. From September 1989 to July 1994, she was
an Assistant Vice President and Client Manager for The Boston Company.
She is 32 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Supervisor of
Treasury Services and Administration of Funds Distributor, Inc. and an
officer of other investment companies advised or administered by the
Manager. From April 1993 to January 1995, he was a Senior Fund
Accountant for Investors Bank and Trust Company. From December 1991 to
March 1993, he was employed as a Fund Accountant at The Boston Company.
He is 27 years old.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Assistant Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The Fund's Board members and officers, as a group, owned less than 1% of
the Fund's shares outstanding on July 11, 1996.
No person is known to the Fund to own more than 5% of its outstanding
voting securities as of July 11, 1996.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Management of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board or (ii) vote of a majority
(as defined in the 1940 Act) of the Fund's outstanding voting securities,
provided that in either event the continuance also is approved by a majority
of the Board members who are not "interested persons" (as defined in the 1940
Act) of the Fund or the Manager, by vote cast in person at a meeting called
for the purpose of voting on such approval. The Agreement was approved by
shareholders on August 4, 1994, and was last approved by the Fund's Board,
including a majority of the Board members who are not "interested persons" of
any party to the Agreement, at a meeting held on August 24, 1995. The
Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Board or by vote of the holders of a majority of the Fund's shares, or, on
not less than 90 days' notice, by the Manager. The Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Christopher M. Condron, President, Chief
Operating Officer and a director; Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice Chairman-
Distribution and a director; Philip L. Toia, Vice Chairman-Operations and
Administration and a director; William T. Sandalls, Jr., Senior Vice
President and Chief Financial Officer; Elie M. Genadry, Vice President-
Institutional Sales; William F. Glavin, Jr., Vice President-Corporate
Development; Mark N. Jacobs, Vice President, Secretary and General Counsel;
Patrice M. Kozlowski, Vice President-Corporate Communications; Mary Beth
Leibig, Vice President-Human Resources; Jeffrey N. Nachman, Vice President-
Mutual Fund Accounting; Andrew S. Wasser, Vice President-Information
Services; Elvira Oslapas, Assistant Secretary; and Mandell L. Berman, Frank
V. Cahouet, Alvin E. Friedman, Lawrence M. Greene and Julian M. Smerling,
directors.
The Manager manages the Fund's investments in accordance with the stated
policies of the Fund, subject to the approval of the Fund's Board. The
Manager is responsible for investment decisions, and provides the Fund with
portfolio managers who are authorized by the Board to execute purchases and
sales of securities. The Fund's portfolio managers are Timothy Ghriskey,
Donald Georgerian and Kevin McClintock. The Manager also maintains a
research department with a professional staff of portfolio managers and
securities analysts who provide research services for the Fund as well as for
other funds advised by the Manager. All purchases and sales are reported for
the Board's review at the meeting subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The expenses
borne by the Fund include: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, fees of Board members who are not
officers, directors, employees or holders of 5% or more of the outstanding
voting securities of the Manager, Securities and Exchange Commission fees,
state Blue Sky qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
maintaining the Fund's existence, costs of independent pricing services,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of shareholders' reports and
meetings, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders and any extraordinary expenses. In addition, Fund
shares are subject to an annual service fee. See "Shareholder Services
Plan."
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
As compensation for its services, the Fund has agreed to pay the Manager
a monthly management fee at the annual rate of .75 of 1% of the value of the
Fund's average daily net assets. For the period July 1, 1993 (commencement
of operations) through April 30, 1994 and for the fiscal years ended April
30, 1995 and 1996, the management fees paid to the Manager amounted to
$232,788, $382,802 and $469,019, respectively. The management fees for the
periods ended April 30, 1994 and 1995 were waived by the Manager pursuant to
an undertaking and the management fee for the fiscal year ended April 30,
1996 was reduced by $170,503 resulting in a net fee of $298,516 for fiscal
1996.
The Manager has agreed that if in any fiscal year the aggregate expenses
of the Fund, exclusive of taxes, brokerage, interest on borrowings and (with
the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed the expense
limitation of any state having jurisdiction over the Fund, the Fund may
deduct from the payment to be made to the Manager under the Agreement, or the
Manager will bear, such excess expense to the extent required by state law.
Such deduction or payment, if any, will be estimated daily, and reconciled
and effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Shares."
The Distributor. The Distributor serves as the Fund's distributor on a
best efforts basis pursuant to an agreement which is renewable annually. The
Distributor also acts as distributor for the other funds in the Dreyfus
Family of Funds and for certain other investment companies. In some states,
certain financial institutions effecting transactions in Fund shares may be
required to register as dealers pursuant to state law.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 p.m., New York
time, on any business day that Dreyfus Transfer, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York Stock
Exchange are open for business will be credited to the shareholder's Fund
account on the next bank business day following such purchase order.
Purchase orders made after 4:00 p.m., New York time, on any business day the
Transfer Agent and the New York Stock Exchange are open for business, or
orders made on Saturday, Sunday or any Fund holiday (e.g., when the New York
Stock Exchange is not open for business), will be credited to the
shareholder's Fund account on the second bank business day following such
purchase order. To qualify to use the Dreyfus TeleTransfer Privilege, the
initial payment for purchase of Fund shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are designated on the Account
Application or Shareholder Services Form on file. If the proceeds of a
particular redemption are to be wired to an account at any other bank, the
request must be in writing and signature-guaranteed. See "Redemption of
Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year, provided the information on the old Account Application is
still applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services
Plan."
The Fund has adopted a Shareholder Services Plan, pursuant to which the
Fund pays the Distributor for the provision of certain services to the Fund's
shareholders. 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. Under the Shareholder Services
Plan, the Distributor may make payments to certain financial institutions,
securities dealers and other financial industry professionals (collectively,
"Service Agents") in respect to these services.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Board for its review. In addition, the Shareholder
Services Plan provides that material amendments of the Shareholder Services
Plan must be approved by the Board, and by the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund and have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan or in any agreements entered into in connection with the
Shareholder Services Plan, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Shareholder Services Plan is
subject to annual approval by such vote of the Board members cast in person
at a meeting called for the purpose of voting on the Shareholder Services
Plan. The Shareholder Services Plan was last so approved by the Board at a
meeting held on August 24, 1995. The Shareholder Services Plan is terminable
at any time by vote of a majority of the Board members who are not
"interested persons" and have no direct or indirect financial interest in the
operation of the Shareholder Services Plan or in any agreements entered into
in connection with the Shareholder Services Plan.
For the fiscal year ended April 30, 1996, the Fund was charged $156,344
pursuant to the Shareholder Services Plan.
Prior Distribution Plan. As of August 24, 1995, the Fund terminated its
then-existing Distribution Plan that had been in effect from August 24, 1994.
That Distribution Plan, adopted pursuant to Rule 12b-1 under the 1940 Act,
provided that the Fund (a) reimburse the Distributor for payments to certain
Service Agents for distributing the Fund's shares and (b) pay the Manager,
Dreyfus Service Corporation and 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. Under such
the Distribution Plan, for the period May 1, 1995 through August 31, 1995
(date of termination of the Distribution Plan), the Fund was charged $102,626
for advertising, marketing and distributing shares. For preparing, printing
and distributing prospectuses and statements of additional information and
for implementing and operating the Distribution Plan for the period May 1,
1995 through August 31, 1995 (date of termination of the Distribution Plan)
the Fund was charged $15,787.
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Shares."
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Service Agent, and reasonably
believed by the Transfer Agent to be genuine. Ordinarily, the Fund will
initiate payment for shares redeemed pursuant to this Privilege on the next
business day after receipt if the Transfer Agent receives the redemption
request in proper form. Redemption proceeds ($1,000 minimum) will be
transferred by Federal Reserve wire only to the commercial bank account
specified by the investor on the Account Application or Shareholder Services
Form, or to a correspondent bank if the investor's bank is not a member of
the Federal Reserve System. Fees ordinarily are imposed by such bank and
usually are borne by the investor. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-
7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through the
Automated Clearing House ("ACH") system unless more prompt transmittal
specifically is requested. Redemption proceeds will be on deposit in the
investor's account at an ACH member bank ordinarily two business days after
receipt of the redemption request. See "Purchase of Shares--Dreyfus
TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder
of a joint account, and each signature must be guaranteed. Signatures on
endorsed certificates submitted for redemption also must be guaranteed. The
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations, as well as from participants in the New York Stock Exchange
Medallion Signature Program, the Securities Transfer Agents Medallion Program
("STAMP") and the Stock Exchanges Medallion Program. Guarantees must be
signed by an authorized signatory of the guarantor and "Signature-Guaranteed"
must appear with the signature. The Transfer Agent may request additional
documentation from corporations, executors, administrators, trustees or guard
ians, and may accept other suitable verification arrangements from foreign
investors, such as consular verification. For more information with respect
to signature-guarantees, please call one of the telephone numbers listed on
the cover.
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record of the Fund, limited in
amount during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such amount,
the Board reserves the right to make payments in whole or in part in
securities (including non-marketable securities) or other assets in case of
an emergency or any time a cash distribution would impair the liquidity of
the Fund to the detriment of the existing shareholders. In such event, the
securities would be valued in the same manner as the Fund's securities are
valued. If the recipient sold such securities, brokerage charges would be
incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of its
net asset value is not reasonably practicable, or (c) for such other periods
as the Securities and Exchange Commission by order may permit to protect the
Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services."
Fund Exchanges. Shares of funds purchased by exchange will be purchased
on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a sales
load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a sales
load and additional shares acquired through reinvestment of
dividends or distributions of any such funds (collectively referred
to herein as "Purchased Shares") may be exchanged for shares of
other funds sold with a sales load (referred to herein as "Offered
Shares"), provided that, if the sales load applicable to the
Offered Shares exceeds the maximum sales load that could have been
imposed in connection with the Purchased Shares (at the time the
Purchased Shares were acquired), without giving effect to any
reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, an investor must give exchange instructions to
the Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless the investor checks the applicable "No" box on the Account
Application, indicating that the investor specifically refuses this
privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic instructions from any
person representing himself or herself to be the investor, and reasonably
believed by the Transfer Agent to be genuine. Telephone exchanges may be
subject to limitations as to the amount involved or the number of telephone
exchanges permitted. Shares issued in certificate form are not eligible for
telephone exchange.
To establish a retirement plan by exchange, shares of the fund being
exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. For Dreyfus-
sponsored Keogh Plans, IRAs and IRAs set up under a Simplified Employee
Pension Plan ("SEP-IRAs") with only one participant, the minimum initial
investment is $750. To exchange shares held in corporate plans, 403(b)(7)
Plans and SEP-IRAs with more than one participant, the minimum initial
investment is $100 if the plan has at least $2,500 invested among the funds
in the Dreyfus Family of Funds. To exchange shares held in a retirement plan
account, the shares exchanged must have a current value of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of a Portfolio,
shares of one of the other Portfolios of the Fund or shares of another fund
in the Dreyfus Family of Funds. This Privilege is available only for
existing accounts. Shares will be exchanged on the basis of relative net
asset value as set forth under "Fund Exchanges" above. Enrollment in or
modification or cancellation of this Privilege is effective three business
days following notification by the investor. An investor will be notified if
his account falls below the amount designated to be exchanged under this
Privilege. In this case, an investor's account will fall to zero unless
additional investments are made in excess of the designated amount prior to
the next Auto-Exchange transaction. Shares held under IRA and other
retirement plans are eligible for this Privilege. Exchanges of IRA shares
may be made between IRA accounts and from regular accounts to IRA accounts,
but not from IRA accounts to regular accounts. With respect to all other
retirement accounts, exchanges may be made only among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being acquired
may legally be sold. Shares may be exchanged only between accounts having
identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges service or the
Dreyfus Auto-Exchange Privilege may be modified or terminated at any time
upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the yield
on the shares. If withdrawal payments exceed reinvested dividends and distri
butions, the investor's shares will be reduced and eventually may be
depleted. Automatic Withdrawal may be terminated at any time by the
investor, the Fund or the Transfer Agent. Shares for which certificates have
been issued may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest automatically their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the Dreyfus
Family of Funds of which the investor is a shareholder. Shares of other
funds purchased pursuant to this privilege will be purchased on the basis of
relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds that
are offered without a sales load.
B. Dividends and distributions paid by a fund which does not
charge a sales load may be invested in shares of other funds sold
with a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a
sales load may be invested in shares of other funds sold with a
sales load (referred to herein as "Offered Shares"), provided that,
if the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any reduced
loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge and the applicable contingent deferred sales charge, if any,
will be imposed upon redemption of such shares.
Corporate Pension/Profit-Sharing and Retirement Plans. The Fund makes
available to corporations a variety of prototype pension and profit-sharing
plans including a 401(k) Salary Reduction Plan. In addition, the Fund makes
available Keogh Plans, IRAs, including SEP-IRAs and IRA "Rollover Accounts,"
and 403(b)(7) Plans. Plan support services also are available.
Investors who wish to purchase Fund shares in conjunction with a Keogh
Plan, a 403(b)(7) Plan or an IRA, including an SEP-IRA, may request from the
Distributor forms for adopting such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or IRAs
may charge a fee, payment of which could require the liquidation of shares.
All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans may
not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is $2,500
with no minimum on subsequent purchases. The minimum initial investment for
Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only
one participant, is normally $750, with no minimum on subsequent purchases.
Individuals who open an IRA may also open a non-working spousal IRA with a
minimum investment of $250.
The investor should read the Prototype Retirement Plan and the
appropriate form of Custodial Agreement for further details on eligibility,
service fees and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Shares."
Valuation of Portfolio Securities. The Fund's securities, including
covered call options written by the Fund, are valued at the last sale price
on the securities exchange or national securities market on which such
securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except in the case of open short positions where the asked price is
used for valuation purposes. Bid price is used when no asked price is
available. Short-term investments are carried at amortized cost, which
approximates value. Any securities or other assets for which recent market
quotations are not readily available are valued at fair value as determined
in good faith by the Fund's Board. Expenses and fees of the Fund, including
the management fee paid by the Fund and fees pursuant to the Fund's
Shareholder Services Plan, are accrued daily and taken into account for the
purpose of determining the net asset value of Fund shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board, are valued at fair value as determined in good
faith by the Board. The Board will review the method of valuation on a
current basis. In making their good faith valuation of restricted
securities, the Board members generally will take the following factors into
consideration: restricted securities which are securities of the same class
of securities for which a public market exists usually will be valued at
market value less the same percentage discount at which purchased. This
discount will be revised periodically by the Board if the Board members
believe that it no longer reflects the value of the restricted securities.
Restricted securities not of the same class as securities for which a public
market exists usually will be valued initially at cost. Any subsequent
adjustment from cost will be based upon considerations deemed relevant by the
Board.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Dividends, Distributions
and Taxes."
Management of the Fund believes the Fund qualified as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for the fiscal year ended April 30, 1996. The Fund intends to
continue to so qualify, as long as such qualification is in the best
interests of its shareholders. Qualification as a regulated investment
company relieves the Fund from any liability for Federal income taxes to the
extent its earnings are distributed in accordance with applicable provisions
of the Code. The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any
government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the
cost of his investment. Such a dividend or distribution would be a return on
investment in an economic sense, although taxable as stated in the Prospectus
under "Dividends, Distributions and Taxes." In addition, the Code provides
that if a shareholder holds shares of the Fund for six months or less and has
received a capital gain distribution with respect to such shares, any loss
incurred on the sale of such shares will be treated as a long-term capital
loss to the extent of the capital gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain and loss. However, a portion of the gain or loss
from the disposition of non-U.S. dollar denominated securities (including
debt instruments, certain financial forward futures and option contracts and
certain preferred stock) may be treated as ordinary income or loss under
Section 988 of the Code. In addition, all or a portion of the gain realized
from the disposition of certain market discount bonds will be treated as
ordinary income under Section 1276. Finally, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as
ordinary income under Section 1258. "Conversion transactions" are defined to
include certain forward, futures, option and straddle transactions,
transactions marketed or sold to produce capital gains, or transactions
described in Treasury regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by the Fund
from certain futures and forward contracts and options transactions will be
treated as 60% long-term capital gain or loss and 40% short-term capital gain
or loss. Gain or loss will arise upon exercise or lapse of such contracts
and options as well as from closing transactions. In addition, any such
contracts or options remaining unexercised at the end of the Fund's taxable
year will be treated as sold for their then fair market value, resulting in
additional gain or loss characterized in the manner described above.
Offsetting positions held by the Fund involving certain contracts or
options may constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, override or modify the provisions of
Sections 1256 and 988 of the Code. As such, all or a portion of any short-
term or long-term capital gain from certain "straddle" transactions may be
recharacterized to ordinary income. If the Fund were treated as entering
into "straddles" by reason of its engaging in certain forward contracts or
options transactions, such "straddles" would be characterized as "mixed
straddles" if the forward contracts or options transactions comprising a part
of such "straddles" were governed by Section 1256 of the Code. The Fund may
make one or more elections with respect to "mixed straddles." Depending on
which election is made, if any, the results to the Fund may differ. If no
election is made, to the extent the "straddle" and conversion transactions
rules apply to positions established by the Fund, losses realized by the Fund
will be deferred to the extent of unrealized gain in the offsetting position.
Moreover, as a result of the "straddle" rules, short-term capital loss on
"straddle" positions may be recharacterized as long-term capital loss, and
long-term capital gains may be treated as short-term capital gains or
ordinary income.
Investment by the Fund in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount,
timing and character of distributions to shareholders by causing the Fund to
recognize income prior to the receipt of cash payments. For example, the
Fund could be required to accrue a portion of the discount (or deemed
discount) at which the securities were issued and to distribute such income
in order to maintain its qualification as a regulated investment company. In
such case, the Fund may have to dispose of securities which it might
otherwise have continued to hold in order to generate cash to satisfy these
distribution requirements.
PORTFOLIO TRANSACTIONS
The Manager supervises the placement of orders on behalf of the Fund for
the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency, is made in the Manager's best
judgment and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable net
price. Subject to this consideration, the brokers selected will include
those that supplement the Manager's research facilities with statistical
data, investment information, economic facts and opinions. Information so
received is in addition to and not in lieu of services required to be
performed by the Manager and the fee of the Manager is not reduced as a
consequence of the receipt of such supplemental information. Such
information may be useful to the Manager in serving both the Fund and other
clients which it advises and, conversely, supplemental information obtained
by the placement of business of other clients may be useful to the Manager in
carrying out its obligation to the Fund. Brokers are also selected because
of their ability to handle special executions such as are involved in large
block trades or broad distributions, provided the primary consideration is
met. Large block trades may, in certain cases, result from two or more
clients the Manager might advise being engaged simultaneously in the purchase
or sale of the same security. Certain transactions in securities of foreign
issuers may not benefit from the negotiated commission rates available to the
Fund for transactions in securities of domestic issuers. When transactions
are executed in the over-the-counter market, the Fund will deal with the
primary market makers unless a more favorable price or execution otherwise is
obtainable.
For the period July 1, 1993 (commencement of operations) through April
30, 1994 and for the fiscal years ended April 30, 1995 and 1996, the Fund
paid total brokerage commissions of $26,354, $106,361 and $500,390,
respectively, none of which was paid to the Distributor. The Fund paid no
gross spreads on principal transactions during such periods.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Performance Information."
The Fund's average annual total return for the 1 and 2.833 year periods
ended April 30, 1996 was 15.67% and 10.72%, respectively. Average annual
total return is calculated by determining the ending redeemable value of an
investment purchased at net asset value per share with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number of
years in the period) and subtracting 1 from the result.
The Fund's total return for the period July 1, 1993 (commencement of
operations) through April 30, 1996 was 33.42%. Total return is calculated by
subtracting the amount of the Fund's net asset value per share at the
beginning of a stated period from the net asset value per share at the end of
the period (after giving effect to the reinvestment of dividends and
distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc., Standard & Poor's 500 Stock Index, the Dow
Jones Industrial Average, Money Magazine, Wilshire 5000 Index and other
industry publications. From time to time, the Fund may compare its
performance against inflation with the performance of other instruments
against inflation, such as short-term Treasury Bills (which are direct
obligations of the U.S. Government) and FDIC-insured bank money market
accounts. In addition, advertising for the Fund may indicate that investors
may consider diversifying their investment portfolios in order to seek
protection of the value of their assets against inflation. From time to
time, advertising materials for the Fund may refer to or discuss then-current
or past economic or financial conditions, developments and/or events.
From time to time, advertising materials for the Fund may refer to
Morningstar ratings and related analyses supporting such ratings.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "General Information."
Each share has one vote and, when issued and paid for in accordance with
the terms of the offering, is fully paid and non-assessable. Fund shares are
of one class and have equal rights as to dividends and in liquidation.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and
dividend disbursing agent. Under a transfer agency agreement with the Fund,
the Transfer Agent arranges for the maintenance of shareholder account
records for the Fund, the handling of certain communications between
shareholders and the Fund and the payment of dividends and distributions
payable by the Fund. For these services, the Transfer Agent receives a
monthly fee computed on the basis of the number of shareholder accounts it
maintains for the Fund during the month, and is reimbursed for certain out-of-
pocket expenses. For the period December 1, 1995, (effective date of
transfer agency agreement) through April 30, 1996, the Fund paid the Transfer
Agent $18,073.
Under a custody agreement with the Fund, Mellon Bank, N.A. holds the
Fund's securities and keeps all necessary accounts and records. For its
custody services, Mellon Bank, N.A. holds the Fund's securities and keeps all
necessary accounts and records. For its custody services, Mellon Bank, N.A.
receives a monthly fee based on the market value of the Fund's assets held in
custody and receives certain securities transactions charges.
Neither the Transfer Agent nor Mellon Bank, N.A. has any part in
determining the investment policies of a Fund or which securities are to be
purchased or sold by a Fund.
Stroock & Stroock & Lavan, Seven Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX
Description of certain ratings assigned by Standard & Poor's Ratings
Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors
Service, L.P. ("Fitch") and Duff & Phelps Credit Rating Co. ("Duff"):
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B
Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to
meet timely payments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to
pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the
major ratings categories.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus sign (+) designation.
Moody's Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major ratings categories, except in the Aaa category and
in categories below B. The modifier 1 indicates a ranking for the security
in the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment
of short-term promissory obligations, and ordinarily will be evidenced by
leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate
reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12-36 months or the
DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
Duff
AAA
Bonds rated AAA are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury
debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are
narrow and risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
STATEMENT OF INVESTMENTS APRIL 30, 1996
COMMON STOCKS-63.7% SHARES VALUE
_______ ______
<S> <C> <C> <C>
COMMERCIAL SERVICES-1.3% McGraw-Hill Cos........................ 19,200 $ 847,200
______
CONSUMER DURABLES-1.3% Eastman Kodak......................... 10,400 795,600
______
CONSUMER
NON-DURABLES-5.3% American Greetings, Cl. A.............. 28,800 795,600
Colgate-Palmolive...................... 11,000 842,875
Kimberly-Clark......................... 11,000 798,875
Reebok International................... 31,000 899,000
______
3,336,350
______
CONSUMER SERVICES-1.8% Harrah's Entertainment................. 32,000 (a) 1,104,000
______
ELECTRONIC TECHNOLOGY-6.4% Boeing................................. 9,800 804,825
Digital Equipment...................... 11,400 (a) 681,150
Hewlett-Packard........................ 8,000 847,000
Intel.................................. 13,000 880,750
Perkin-Elmer........................... 15,200 834,100
______
4,047,825
______
ENERGY MINERALS-4.5% Amerada Hess........................... 17,000 962,625
Phillips Petroleum..................... 25,000 1,037,500
Sun.................................... 27,800 861,800
______
2,861,925
______
FINANCE-5.2% Alexander & Alexander Services......... 46,000 868,250
CIGNA.................................. 6,700 759,613
First Chicago NBD...................... 19,200 792,000
First Union............................ 13,500 830,250
______
3,250,113
______
HEALTH SERVICES-1.4% Humana................................. 35,000 (a) 861,875
______
HEALTH TECHNOLOGY-5.4% Baxter International................... 21,300 942,525
Bristol-Myers Squibb................... 8,800 723,800
Schering-Plough........................ 14,800 849,150
Warner-Lambert......................... 8,000 894,000
______
3,409,475
______
NON-ENERGY MINERALS-1.5% Aluminum Co. of America................ 15,000 935,625
______
PROCESS INDUSTRIES-6.1% duPont (E.I.) de Nemours............... 5,000 401,875
Grace. (W.R.).......................... 10,600 821,500
James River............................ 32,000 856,000
Praxair................................ 21,300 822,713
Union Carbide.......................... 20,000 910,000
______
3,812,088
______
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1996
COMMON STOCKS (CONTINUED) SHARES VALUE
______ _______
PRODUCER
MANUFACTURING-9.5% Allied Signal.......................... 15,300 $ 889,312
Deere & Co............................. 18,000 699,750
Honeywell.............................. 14,800 778,850
National Service Industries............ 21,900 810,300
Raychem................................ 12,900 1,004,588
Tenneco................................ 16,000 878,000
Westinghouse Electric.................. 47,000 887,125
______
5,947,925
______
RETAIL STORES-1.3% Price/Costco........................... 44,500 (a) 845,500
______
RETAIL TRADE-1.6% Tandy.................................. 19,500 1,011,562
______
TECHNOLOGY SERVICES-1.3% Computer Associates International...... 11,500 843,812
______
TRANSPORTATION-2.8% Burlington Northern Santa Fe........... 10,500 918,750
Consolidated Freightways............... 32,500 849,062
______
1,767,812
______
UTILITIES-7.0% AT&T................................... 11,600 710,500
Ameritech.............................. 13,300 776,387
Entergy................................ 25,700 681,050
GTE.................................... 16,900 733,038
NYNEX.................................. 15,800 776,175
Texas Utilities........................ 18,700 752,675
______
4,429,825
______
TOTAL COMMON STOCKS
(cost $38,338,140)................... $40,108,512
======
PRINCIPAL
U.S. TREASURY NOTES-24.7% AMOUNT
_______
5.625%, 11/30/2000..................... $11,790,000 $11,432,616
6.25%, 2/15/2003....................... 4,200,000 4,128,469
______
TOTAL U.S. TREASURY NOTES
(cost $16,149,812)................... $15,561,085
======
SHORT-TERM INVESTMENTS-11.1%
U.S. TREASURY BILLS: 4.91%, 5/2/96.......................... $ 4,223,000 $ 4,222,409
5.01%, 5/9/96.......................... 1,112,000 1,110,821
4.79%, 5/16/96......................... 611,000 609,778
4.975%, 7/5/96......................... 1,011,000 1,001,921
______
TOTAL SHORT-TERM INVESTMENTS
(cost $6,945,023).................... $ 6,944,929
======
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1996
VALUE
______
TOTAL INVESTMENTS (cost $61,432,975)........................................ 99.5% $62,614,526
===== ======
CASH AND RECEIVABLES (NET).................................................. .5% $ 325,429
===== ======
NET ASSETS.................................................................. 100.0% $62,939,955
===== ======
NOTE TO STATEMENT OF INVESTMENTS;
(a) Non-income producing.
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1996
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $61,432,975)-see statement...................................... $62,614,526
Cash.................................................................... 54,090
Dividends and interest receivable....................................... 368,131
Prepaid expenses........................................................ 52,823
______
63,089,570
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $38,486
Due to Distributor...................................................... 12,925
Payable for Common Stock redeemed....................................... 27,446
Accrued expenses........................................................ 70,758 149,615
_______ __________
NET ASSETS.................................................................. $62,939,955
======
REPRESENTED BY:
Paid-in capital......................................................... $58,883,189
Accumulated undistributed investment income-net......................... 358,380
Accumulated undistributed net realized gain on investments and
foreign currency transactions......................................... 2,516,835
Accumulated net unrealized appreciation on investments-Note 3(b)........ 1,181,551
______
NET ASSETS at value applicable to 4,664,631 shares outstanding
(100 million shares of $.001 par value Common Stock authorized)......... $62,939,955
======
NET ASSET VALUE, offering and redemption price per share
($62,939,955 / 4,664,631 shares)........................................ $13.49
======
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1996
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest.............................................................. $ 1,316,374
Cash dividends (net of $7,044 foreign taxes withheld at source)....... 817,355
______
TOTAL INCOME.................................................... $ 2,133,729
EXPENSES:
Management fee-Note 2(a).............................................. 469,019
Shareholder servicing costs-Note 2(b,c)............................... 332,513
Professional fees..................................................... 38,934
Prospectus and shareholders' reports-Note 2(b)........................ 35,823
Directors' fees and expenses-Note 2(d)................................ 21,939
Registration fees..................................................... 21,379
Custodian fees........................................................ 11,962
Miscellaneous......................................................... 21,629
______
TOTAL EXPENSES.................................................. 953,198
Less-reduction in management fee due to undertakings-Note 2(a)........ 170,503
______
NET EXPENSES.................................................... 782,695
______
INVESTMENT INCOME-NET........................................... 1,351,034
______
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments-Note 3(a).............................. $10,939,480
Net realized (loss) on forward currency exchange contracts-Note 3(a);
Short transactions.................................................... (19,869)
______
NET REALIZED GAIN..................................................... 10,919,611
Net unrealized (depreciation) on investments............................ (3,331,125)
______
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 7,588,486
______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 8,939,520
======
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
________________________________
1995 1996
______ ______
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 1,532,118 $ 1,351,034
Net realized gain (loss) on investments................................. (299,354) 10,919,611
Net unrealized appreciation (depreciation) on investments for the year.. 5,745,320 (3,331,125)
______ ______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 6,978,084 8,939,520
______ ______
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (1,414,222) (1,572,884)
Net realized gain on investments........................................ (193,729) (8,104,494)
______ ______
TOTAL DIVIDENDS....................................................... (1,607,951) (9,677,378)
______ ______
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 19,578,479 21,004,054
Dividends reinvested.................................................... 1,551,632 9,365,253
Cost of shares redeemed................................................. (20,923,382) (23,330,934)
______ ______
INCREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS................ 206,729 7,038,373
______ ______
TOTAL INCREASE IN NET ASSETS...................................... 5,576,862 6,300,515
NET ASSETS:
Beginning of year....................................................... 51,062,578 56,639,440
______ ______
End of year (including undistributed investment income-net of
$580,230 in 1995 and $358,380 in 1996)................................ $ 56,639,440 $ 62,939,955
====== ======
SHARES SHARES
______ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 1,522,416 1,464,307
Shares issued for dividends reinvested.................................. 123,439 737,421
Shares redeemed......................................................... (1,633,975) (1,638,061)
______ ______
NET INCREASE IN SHARES OUTSTANDING.................................... 11,880 563,667
====== ======
</TABLE>
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
FINANCIAL HIGHLIGHTS
Reference is made to page __ of the Fund's Prospectus dated _______, 1996
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Asset Allocation Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and currently offers three portfolios including
the Dreyfus Total Return Portfolio (the "Portfolio"). The Portfolio's
investment objective is to maximize total return. The Dreyfus Corporation
("Manager") serves as the Portfolio's investment adviser. The Manager is a
direct subsidiary of Mellon Bank, N.A. ("Mellon"). Premier Mutual Fund
Services, Inc. (the "Distributor") acts as the distributor of the Portfolio's
shares, which are sold to the public without a sales charge.
The Fund accounts separately for the assets, liabilities and operations
of each portfolio. Expenses directly attributable to each portfolio are
charged to that portfolio's operations; expenses which are applicable to all
portfolios are allocated among them.
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Securities for which there are no such valuations are valued at fair value as
determined in good faith under the direction of the Board of Directors.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange. Forward currency exchange contracts are
valued at forward rate.
(B) FOREIGN CURRENCY TRANSACTIONS: The Fund does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized on securities transactions, the difference between
the amounts of dividends, interest and foreign withholding taxes recorded on
the Fund's books, and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise from
changes in the value of assets and liabilities other than investments in
securities, resulting from changes in exchange rates. Such gains and losses
are included with net realized and unrealized gain or loss on investments.
(C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and dividends from net realized
capital gain are normally declared and paid annually, but the Portfolio may
make distributions on a more frequent basis to comply with the
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
distribution requirements of the Internal Revenue Code. To the extent that
net realized capital gain can be offset by capital loss carryovers, if any,
it is the policy of the Portfolio not to distribute such gain.
(E) FEDERAL INCOME TAXES: It is the policy of the Portfolio to continue
to qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .75 of 1% of the value
of the Portfolio's average daily net assets and is payable monthly. The
Agreement provides for an expense reimbursement from the Manager should the
Portfolio's aggregate expenses, exclusive of taxes, brokerage, interest on
borrowings and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Portfolio. The most stringent state
expense limitation applicable to the Portfolio presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of certain expenses as described above) exceed 2 1/2% of the first
$30 million, 2% of the next $70 million and 1 1/2% of the excess over $100
million of the average value of the Portfolio's net assets in accordance with
California "blue sky" regulations. However, the Manager had undertaken from
May 1, 1995 through July 3,1995 to waive receipt of the service and
distribution fees, and thereafter, had undertaken through April 30, 1996 to
reduce the management fee paid by the Portfolio, to the extent that the
Portfolio's aggregate annual expenses (exclusive of certain expenses as
described above) exceeded an annual rate of 1.25 of 1% of the value of the
Portfolio's average daily net assets. The reduction in management fee,
pursuant to the undertakings, amounted to $170,503 for the year ended April
30, 1996.
(B) Prior to September 1, 1995, the Portfolio had a Distribution Plan
(the "Plan") adopted pursuant to Rule 12b-1 under the Act, which provided
that the Portfolio (a) reimburse the Distributor for payments to certain
Service Agents (a securities dealer, financial institution, or other industry
professional) for distributing the Portfolio's shares and (b) pay the
Manager, Dreyfus Service Corporation, a wholly-owned subsidiary of the
Manager, and any affiliate of either of them (collectively "Dreyfus") for
advertising and marketing relating to the Portfolio at an aggregate annual rate
of .50 of 1% of the value of the Portfolio's average daily net assets. The
Distributor could pay Service Agents a fee in respect of the Portfolio's
shares owned by shareholders with whom the Service Agent had a servicing
relationship or for whom the Service Agent is the dealer or holder of record.
The Distributor determined the amounts to be paid to Service Agents to which
it made payments and the basis on which such payments were made. The Plan
also separately provided for the Portfolio to bear the costs of preparing,
printing and distributing certain of the Portfolio's prospectuses and
statements of additional information and costs associated with implementing
and operating the Plan, not to exceed the greater of $100,000 or .005 of 1%
of the Portfolio's average daily net assets for any full fiscal year. During
the period from May 1, 1995 through August 31, 1995, the Portfolio was
charged $118,413 pursuant to the Plan. Effective September 1, 1995, the Plan
was terminated.
(C) Pursuant to the Portfolio's Shareholder Services Plan, the Portfolio
pays the Distributor at an annual rate of .25 of 1% of the value of the
Portfolio's average daily net assets for the provision of certain
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
services. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Portfolio and providing reports and other information, and services related
to the maintenance of shareholder accounts. The Distributor may make payments
to Service Agents in respect of these services. The Distributor determines
the amounts to be paid to Service Agents. During the year ended April 30,
1996, the Portfolio was charged $156,344 pursuant to the Shareholder Services
Plan.
Effective December 1, 1995, the Portfolio compensates Dreyfus Transfer,
Inc., a wholly owned subsidiary of the Manager, under a transfer agency
agreement for providing personnel and facilities to perform transfer agency
services for the Portfolio. Such compensation amounted to $18,073 for the
period from December 1, 1995 through April 30, 1996.
Effective May 10, 1996, the Fund entered into a Custody Agreement with
Mellon to provide custodial services for the Fund.
(D) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
(A) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended April 30, 1996
amounted to $216,302,113 and $222,856,833, respectively.
The Portfolio enters into forward currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings. When executing forward currency exchange
contracts, the Portfolio is obligated to buy or sell a foreign currency at a
specified rate on a certain date in the future. With respect to sales of
forward currency exchange contracts, the Portfolio would incur a loss if the
value of the contract increases between the date the forward contract is
opened and the date the forward contract is closed. The Portfolio realizes a
gain if the value of the contract decreases between those dates. With respect
to purchases of forward currency exchange contracts, the Portfolio would
incur a loss if the value of the contract decreases between the date the
forward contract is opened and the date the forward contract is closed. The
Portfolio realizes a gain if the value of the contract increases between
those dates. The Portfolio is also exposed to credit risk associated with
counter party nonperformance on these forward currency exchange contracts
which is typically limited to the unrealized gains on such contracts that are
recognized in the statement of assets and liabilities. At April 30, 1996,
there were no open forward currency exchange contracts.
(B) At April 30, 1996, accumulated net unrealized appreciation on
investments was $1,181,551, consisting of $2,766,782 gross unrealized
appreciation and $1,585,231 gross unrealized depreciation.
At April 30, 1996, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS TOTAL RETURN PORTFOLIO
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Asset Allocation Fund,
Inc., Dreyfus Total Return Portfolio (one of the Series constituting the
Dreyfus Asset Allocation Fund, Inc.), as of April 30, 1996, and the related
statements of operations for the year then ended and changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of April 30, 1996 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Asset Allocation Fund, Inc., Dreyfus Total Return
Portfolio at April 30, 1996, and the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the indicated
years, in conformity with generally accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
June 4, 1996
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
STATEMENT OF INVESTMENTS APRIL 30, 1996
COMMON STOCKS-40.5% SHARES VALUE
______ ______
<S> <C> <C> <C>
COMMERCIAL SERVICES-1.2% McGraw-Hill Cos....................... 600 $ 26,475
_____
CONSUMER DURABLES-1.1% Eastman Kodak......................... 300 22,950
_____
CONSUMER
NON-DURABLES-3.2% American Greetings, Cl. A.............. 800 22,100
Kimberly-Clark......................... 300 21,788
Reebok International................... 800 23,200
_____
67,088
_____
ELECTRONIC TECHNOLOGY-5.6% Boeing................................. 300 24,638
Digital Equipment...................... 400 (a) 23,900
Hewlett-Packard........................ 200 21,175
Intel.................................. 300 20,325
Perkin-Elmer........................... 500 27,437
_____
117,475
_____
ENERGY MINERALS-3.4% Amerada Hess............................ 400 22,650
Phillips Petroleum..................... 600 24,900
Sun.................................... 800 24,800
_____
72,350
_____
FINANCE-2.9% Alexander & Alexander Services......... 1,200 22,650
CIGNA.................................. 200 22,675
St. Paul Cos........................... 300 15,938
_____
61,263
_____
HEALTH SERVICES-1.0% Humana................................ 900 (a) 22,163
_____
HEALTH TECHNOLOGY-4.6% Baxter International.................... 500 22,125
Bristol-Myers Squibb................... 300 24,675
Schering-Plough........................ 500 28,687
Warner-Lambert......................... 200 22,350
_____
97,837
_____
PROCESS INDUSTRIES-4.4% duPont (E.I.) de Nemours............... 300 24,112
Grace (W.R.)........................... 300 23,250
Praxair................................ 600 23,175
Union Carbide.......................... 500 22,750
_____
93,287
_____
PRODUCER
MANUFACTURING-6.5% Allied Signal.......................... 300 17,437
Honeywell.............................. 400 21,050
National Service Industries............ 600 22,200
Raychem................................ 400 31,150
Tenneco................................ 400 21,950
Westinghouse Electric.................. 1,200 22,650
_____
136,437
_____
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1996
COMMON STOCKS (CONTINUED) SHARES VALUE
______ ______
RETAIL STORES-1.2% Price/Costco........................... 1,300 (a) $ 24,700
_____
TRANSPORTATION-1.1% Consolidated Freightways 900 23,513
_____
UTILITIES-4.3% AT&T................................... 400 24,500
GTE.................................... 500 21,687
NYNEX.................................. 400 19,650
Texas Utilities........................ 600 24,150
_____
89,987
_____
TOTAL COMMON STOCKS
(cost $816,755)...................... $ 855,525
=====
PRINCIPAL
U.S. TREASURY NOTES-45.9% AMOUNT
______
5.625%, 11/30/2000
(cost $998,844)...................... $1,000,000 $ 969,688
=====
SHORT-TERM INVESTMENTS-12.4%
U.S. TREASURY BILLS: 4.91%, 5/2/1996........................ $ 232,000 $ 231,967
5.01%, 5/9/1996........................ 30,000 29,968
_____
TOTAL SHORT-TERM INVESTMENTS
(cost $261,935)...................... $ 261,935
=====
TOTAL INVESTMENTS (cost $2,077,534)..................................... 98.8% $2,087,148
===== =====
CASH AND RECEIVABLES (NET).................................................. 1.2% $ 25,048
===== =====
NET ASSETS.................................................................. 100.0% $2,112,196
===== =====
NOTE TO STATEMENT OF INVESTMENTS;
(a) Non-income producing.
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1996
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $2,077,534)-see statement....................................... $2,087,148
Cash.................................................................... 23,589
Dividends and interest receivable....................................... 24,119
Prepaid expenses........................................................ 1,309
Due from The Dreyfus Corporation........................................ 1,558
_____
2,137,723
LIABILITIES:
Due to Distributor...................................................... $ 428
Accrued expenses........................................................ 25,099 25,527
____ _____
NET ASSETS ................................................................ $2,112,196
=====
REPRESENTED BY:
Paid-in capital......................................................... $2,017,438
Accumulated undistributed investment income-net......................... 6,741
Accumulated undistributed net realized gain on investments.............. 78,403
Accumulated net unrealized appreciation on investments-Note 3........... 9,614
_____
NET ASSETS at value applicable to 155,370 shares outstanding
(100 million shares of $.001 par value Common Stock authorized)......... $2,112,196
=====
NET ASSET VALUE, offering and redemption price per share
($2,112,196 / 155,370 shares)........................................... $13.59
=====
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1996
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest.............................................................. $ 60,106
Cash dividends (net of $100 foreign taxes withheld at source)......... 15,437
_____
TOTAL INCOME.................................................... $ 75,543
EXPENSES:
Management fee-Note 2(a).............................................. 13,414
Registration fees..................................................... 17,065
Prospectus and shareholders' reports-Note 2(b)........................ 14,096
Auditing fees......................................................... 12,648
Shareholder servicing costs-Note 2(b,c)............................... 11,068
Custodian fees........................................................ 3,871
Legal fees............................................................ 774
Directors' fees and expenses-Note 2(d)................................ 695
Miscellaneous......................................................... 868
_____
TOTAL EXPENSES.................................................. 74,499
Less-expense reimbursement from Manager due to
undertakings and expense limitation-Note 2(a)..................... 48,798
_____
NET EXPENSES.................................................... 25,701
_____
INVESTMENT INCOME-NET........................................... 49,842
_____
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments-Note 3................................. $293,243
Net unrealized (depreciation) on investments............................ (78,337)
_____
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 214,906
_____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $264,748
=====
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
______________________________
1995* 1996
_____ _____
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 18,604 $ 49,842
Net realized gain on investments........................................ 21,880 293,243
Net unrealized appreciation (depreciation) on investments for the year.. 87,951 (78,337)
_____ _____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 128,435 264,748
_____ _____
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (15,937) (45,768)
Net realized gain on investments........................................ __ (236,720)
_____ _____
TOTAL DIVIDENDS....................................................... (15,937) (282,488)
_____ _____
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 1,330,845 711,307
Dividends reinvested.................................................... 15,022 271,371
Cost of shares redeemed................................................. (72,402) (238,705)
_____ _____
INCREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS................ 1,273,465 743,973
_____ _____
TOTAL INCREASE IN NET ASSETS...................................... 1,385,963 726,233
NET ASSETS:
Beginning of year....................................................... __ 1,385,963
_____ _____
End of year (including undistributed investment
income-net of $2,667 in 1995 and $6,741 in 1996)...................... $1,385,963 $2,112,196
===== =====
SHARES SHARES
_____ _____
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 105,429 51,017
Shares issued for dividends reinvested.................................. 1,145 20,548
Shares redeemed......................................................... (5,515) (17,254)
_____ _____
NET INCREASE IN SHARES OUTSTANDING.................................... 101,059 54,311
===== =====
*From October 18, 1994 (commencement of operations) to April 30, 1995.
</TABLE>
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
Reference is made to page __ of the Fund's Prospectus dated _____, 1996.
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Asset Allocation Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and currently offers three portfolios including
the Dreyfus Income Portfolio (the "Portfolio"). The Portfolio's investment
objective is to maximize current income with a secondary goal of capital
appreciation. The Dreyfus Corporation ("Manager") serves as the Portfolio's
investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.
("Mellon"). Premier Mutual Fund Services, Inc. (the "Distributor") acts as
the distributor of the Portfolio's shares, which are sold to the public
without a sales charge.
As of April 30, 1996, Major Trading Corporation, a subsidiary of Mellon
Bank Investments Corporation, the parent company of which is Mellon Bank
Corporation, held 95,736 shares of the Portfolio.
On February 1, 1996, the Board of Directors approved an Agreement and
Plan of Reorganization providing for the transfer of all or substantially all
of the assets and liabilities of the Portfolio to Dreyfus Lifetime
Portfolios, Inc., Income Portfolio in a tax free exchange for shares of
Common Stock of Dreyfus Lifetime Portfolios, Inc., Income Portfolio at net
asset value and the assumption of stated liabilities (the "Exchange"). The
Exchange is subject to the approval of the Portfolio's shareholders.
The Fund accounts separately for the assets, liabilities and operations
of each portfolio. Expenses directly attributable to each portfolio are
charged to that portfolio's operations; expenses which are applicable to all
portfolios are allocated among them.
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Securities for which there are no such valuations are valued at fair value as
determined in good faith under the direction of the Board of Directors.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net are declared and paid on a
quarterly basis. Dividends from net realized capital gain are normally
declared and paid annually, but the Portfolio may make distributions on a
more frequent basis to comply with the distribution requirements of the
Internal Revenue Code. To the extent that net realized capital gain can be
offset by capital loss carryovers, if any, it is the policy of the Portfolio
not to distribute such gain.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Portfolio to continue to
qualify as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise
taxes.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .75 of 1% of the value
of the Portfolio's average daily net assets and is payable monthly. The
Agreement provides for an expense reimbursement from the Manager should the
Portfolio's aggregate expenses, exclusive of taxes, brokerage, interest on
borrowings and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Portfolio. The most stringent state
expense limitation applicable to the Portfolio presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of certain expenses as described above) exceed 2 1/2% of the first
$30 million, 2% of the next $70 million and 1 1/2% of the excess over $100
million of the average value of the Portfolio's net assets in accordance with
California "blue sky" regulations. However, the Manager had undertaken from
May 1, 1995 through July 3, 1995 to waive receipt of the management, service
and distribution fees, and thereafter, has currently undertaken through June
30, 1996, to reduce the management fee paid by, or reimburse such excess
expenses of the Portfolio, to the extent that the Portfolio's aggregate
annual expenses (exclusive of certain expenses as described above) exceed an
annual rate of 1.25 of 1% of the value of the Portfolio's average daily net
assets. The expense reimbursement, pursuant to the undertakings and expense
limitation, amounted to $48,798 for the year ended April 30, 1996.
The undertaking may be extended, modified or terminated by the Manager,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) Prior to September 1, 1995, the Portfolio had a Distribution Plan
(the "Plan") adopted pursuant to Rule 12b-1 under the Act, which provided
that the Portfolio (a) reimburse the Distributor for payments to certain
Service Agents (a securities dealer, financial institution, or other industry
professional) for distributing the Portfolio's shares and (b) pay the
Manager, Dreyfus Service Corporation, a wholly-owned subsidiary of the
Manager, and any affiliate of either of them (collectively "Dreyfus") for
advertising and marketing relating to the Portfolio, at an aggregate annual
rate of .50 of 1% of the value of the Portfolio's average daily net assets.
The Distributor could pay Service Agents a fee in respect of the Portfolio's
shares owned by shareholders with whom the Service Agent had a servicing
relationship or for whom the Service Agent is the dealer or holder of record.
The Distributor determined the amounts to be paid to Service Agents to which
it made payments and the basis on which such payments were made. The Plan
also separately provided for the Portfolio to bear the costs of preparing,
printing and distributing certain of the Portfolio's prospectuses and
statements of additional information and costs associated with implementing
and operating the Plan, not to exceed the greater of $100,000 or .005 of 1%
of the Portfolio's average daily net assets for any full fiscal year. During
the period from May 1, 1995 through August 31, 1995, the Portfolio was
charged $4,113 pursuant to the Plan. Effective September 1, 1995, the Plan
was terminated.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(C) Pursuant to the Portfolio's Shareholder Services Plan, the Portfolio
pays the Distributor at an annual rate of .25 of 1% of the value of the
Portfolio's average daily net assets for the provision of certain services.
The services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Portfolio
and providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. During the year ended April 30, 1996,
the Portfolio was charged $4,471 pursuant to the Shareholder Services Plan.
Effective December 1, 1995, the Portfolio compensates Dreyfus Transfer,
Inc., a wholly owned subsidiary of the Manager, under a transfer agency
agreement for providing personnel and facilities to perform transfer agency
services for the Portfolio. Such compensation amounted to $285 for the period
from December 1, 1995 through April 30, 1996.
Effective May 10, 1996, the Fund entered into a Custody Agreement with
Mellon to provide custodial services for the Fund.
(D) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended April 30, 1996
amounted to $5,568,357 and $5,310,812, respectively.
At April 30, 1996, accumulated net unrealized appreciation on investments
was $9,614, consisting of $56,338 gross unrealized appreciation and $46,724
gross unrealized depreciation.
At April 30, 1996, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS INCOME PORTFOLIO
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Asset Allocation Fund,
Inc., Dreyfus Income Portfolio (one of the Series constituting the Dreyfus
Asset Allocation Fund, Inc.), as of April 30, 1996, and the related
statements of operations for the year then ended and changes in net assets
for each of the two years in the period then ended, and financial highlights
for the each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of April 30, 1996 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Asset Allocation Fund, Inc., Dreyfus Income Portfolio at
April 30, 1996, and the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended and the financial highlights for each of the indicated years, in
conformity with generally accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
June 4, 1996
<TABLE>
DREYFUS ASSET ALLOCATION FUND,INC., DREYFUS GROWTH PORTFOLIO
STATEMENT OF INVESTMENTS APRIL 30,1996
COMMON STOCKS-98.3% SHARES VALUE
______ ______
<S> <C> <C>
CONSUMER
NON-DURABLES-7.1% CPC International...................... 500 $ 34,563
Canandaigua Wine, Cl. A................ 1,000 (a) 30,375
Jones Apparel Group.................... 800 (a) 41,100
PepsiCo................................ 570 36,195
Philip Morris Cos...................... 400 36,050
_____
178,283
_____
CONSUMER SERVICES-7.6% CUC International...................... 1,000 (a) 32,875
Disney (Walt).......................... 400 24,800
Liberty Media Group, Cl. A............. 850 (a) 23,269
Scholastic............................. 500 (a) 32,750
Time Warner............................ 1,000 40,875
Viacom, Cl. A.......................... 900 (a) 36,000
_____
190,569
_____
ELECTRONIC
TECHNOLOGY-18.2% Adaptec................................ 700 (a) 40,250
Boeing................................. 550 45,169
Cisco Systems.......................... 800 (a) 41,500
HBO & Co............................... 200 23,750
Hewlett-Packard........................ 350 37,056
Intel.................................. 700 47,425
Perkin-Elmer........................... 800 43,900
PictureTel............................. 1,200 40,800
Rohr................................... 2,000 (a) 36,500
Shiva.................................. 700 (a) 41,825
Thiokol................................ 800 34,200
Transition Systems..................... 1,000 (a) 24,250
_____
456,625
_____
FINANCE-11.7% Aetna Life & Casualty.................. 500 35,625
Allstate............................... 463 17,999
American Travellers.................... 2,200 (a) 42,900
BayBanks............................... 300 31,425
Chase Manhattan........................ 500 34,438
CorVel................................. 850 (a) 25,393
FINOVA Group........................... 750 41,625
Federal National Mortgage Association.. 1,000 30,625
Guarantee Life Cos..................... 2,000 (a) 34,250
_____
294,280
_____
HEALTH SERVICES-3.3% American Home Products................. 300 31,650
Humana................................. 1,200 (a) 29,550
McKesson............................... 480 22,860
_____
84,060
_____
DREYFUS ASSET ALLOCATION FUND,INC., DREYFUS GROWTH PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30,1996
COMMON STOCKS (CONTINUED) SHARES VALUE
______ ______
HEALTH TECHNOLOGY-10.4% AMSCO International.................... 1,700 (a) $ 24,650
Bio-Rad Labs, Cl. A.................... 800 (a) 37,200
Bristol-Myers Squibb................... 500 41,125
Fuisz Technologies..................... 1,500 (a) 38,250
Mentor................................. 1,500 35,438
PAREXEL International.................. 1,000 (a) 49,250
Pfizer................................. 500 34,437
_____
260,350
_____
INDUSTRIAL SERVICES-3.3% Culligan Water Technologies............ 1,000 (a) 33,750
Schlumberger........................... 550 48,538
_____
82,288
_____
MACHINERY-INDUSTRIAL/
SPECIALTY-1.5% Parker Drilling....................... 5,000 (a) 38,125
_____
OIL & GAS EXPLORATION-1.8% Ranger Oil............................ 6,000 45,000
_____
PROCESS INDUSTRIES-5.4% Albany International, Cl. A........... 1,700 36,550
Crown Cork & Seal..................... 650 30,631
International Specialty Products...... 3,000 (a) 37,500
Witco................................. 900 30,713
_____
135,394
_____
PRODUCER
MANUFACTURING-7.4% Coltec Industries...................... 3,000 (a) 39,000
Cooper Industries...................... 1,028 43,690
Olin................................... 400 35,400
Raychem................................ 500 38,938
Thermo Electron........................ 480 29,580
_____
186,608
_____
RETAIL TRADE-5.1% Gap.................................... 1,500 45,187
Lowe's Cos............................. 1,000 32,375
May Department Stores.................. 600 30,600
Talbots................................ 700 20,125
_____
128,287
_____
SEMICONDUCTORS-1.5% Tencor Instruments...................... 1,500 (a) 37,125
_____
TECHNOLOGY-4.8% Business Objects, A.D.S................. 400 (a) 34,600
Intergrated Systems Consulting (Rights). 134 (a) 2,412
Sun Microsystems........................ 800 (a) 43,400
Symantec................................ 2,500 (a) 40,312
_____
120,724
_____
TECHNOLOGY SERVICES-6.4% Discreet Logic......................... 2,200 (a) 36,575
McAfee Associates...................... 600 (a) 36,750
DREYFUS ASSET ALLOCATION FUND,INC., DREYFUS GROWTH PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30,1996
COMMON STOCKS (CONTINUED) SHARES VALUE
______ ______
TECHNOLOGY
SERVICES (CONTINUED) Microsoft.............................. 300 (a) $ 34,012
Safeguard Scientifics.................. 800 (a) 53,600
_____
160,937
_____
UTILITIES-2.8% MCI Communications..................... 1,000 29,437
SBC Communications..................... 800 40,000
_____
69,437
_____
TOTAL COMMON STOCKS
(cost $2,159,338).................... $2,468,092
=====
PRINCIPAL
SHORT-TERM INVESTMENTS-.8% AMOUNT
______
U.S. TREASURY BILLS; 4.79%, 5/16/96
(cost $20,959)....................... $ 21,000 $ 20,958
=====
TOTAL INVESTMENTS (cost $2,180,297)......................................... 99.1% $2,489,050
===== =====
CASH AND RECEIVABLES (NET).................................................. .9% $ 22,106
===== =====
NET ASSETS.................................................................. 100.0% $2,511,156
===== =====
NOTE TO STATEMENT OF INVESTMENTS;
(a) Non-income producing.
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1996
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $2,180,297)-see statement....................................... $2,489,050
Cash.................................................................... 46,304
Dividends receivable.................................................... 1,326
Prepaid expenses........................................................ 1,632
Due from The Dreyfus Corporation........................................ 1,289
_____
2,539,601
LIABILITIES:
Due to Distributor...................................................... $ 493
Accrued expenses........................................................ 27,952 28,445
____ _____
NET ASSETS.................................................................. $2,511,156
=====
REPRESENTED BY:
Paid-in capital......................................................... $2,032,740
Accumulated undistributed investment income-net......................... 899
Accumulated undistributed net realized gain on investments.............. 168,764
Accumulated net unrealized appreciation on investments-Note 3........... 308,753
_____
NET ASSETS at value applicable to 155,163 shares outstanding
(100 million shares of $.001 par value Common Stock authorized)......... $2,511,156
=====
NET ASSET VALUE, offering and redemption price per share
($2,511,156 / 155,163 shares)........................................... $16.18
=====
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1996
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
Cash dividends (net of $34 foreign taxes withheld at source).......... $ 24,007
Interest.............................................................. 5,726
____
TOTAL INCOME.................................................... $ 29,733
EXPENSES:
Management fee-Note 2(a).............................................. 14,629
Registration fees..................................................... 19,937
Prospectus and shareholders' reports-Note 2(b)........................ 14,322
Shareholder servicing costs-Note 2(b,c)............................... 12,673
Auditing fees......................................................... 12,320
Custodian fees........................................................ 4,176
Legal fees............................................................ 698
Directors' fees and expenses-Note 2(d)................................ 666
Miscellaneous......................................................... 926
____
TOTAL EXPENSES.................................................. 80,347
Less-expense reimbursement from Manager due to
undertakings and expense limitation-Note 2(a)..................... 52,389
____
NET EXPENSES.................................................... 27,958
____
INVESTMENT INCOME-NET........................................... 1,775
____
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments-Note 3................................. $326,968
Net unrealized appreciation on investments.............................. 201,379
____
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 528,347
____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $530,122
====
</TABLE>
See notes to financial statements.
<TABLE>
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30,
______________________________
1995* 1996
______ ______
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 46,798 $ 1,775
Net realized gain (loss) on investments................................. (80,489) 326,968
Net unrealized appreciation on investments for the year................. 107,374 201,379
_____ _____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 73,683 530,122
_____ _____
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (2,536) (45,138)
Net realized gain on investments........................................ __ (77,715)
_____ _____
TOTAL DIVIDENDS....................................................... (2,536) (122,853)
_____ _____
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 1,789,201 1,034,341
Dividends reinvested.................................................... 2,536 122,852
Cost of shares redeemed................................................. (494,560) (421,630)
_____ _____
INCREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS................ 1,297,177 735,563
_____ _____
TOTAL INCREASE IN NET ASSETS...................................... 1,368,324 1,142,832
NET ASSETS:
Beginning of year....................................................... __ 1,368,324
_____ _____
End of year (including undistributed investment
income-net of $44,262 in 1995 and $899 in 1996)....................... $1,368,324 $2,511,156
===== =====
SHARES SHARES
_____ _____
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 143,001 70,906
Shares issued for dividends reinvested.................................. 207 8,738
Shares redeemed......................................................... (39,204) (28,485)
_____ _____
NET INCREASE IN SHARES OUTSTANDING.................................... 104,004 51,159
===== =====
* From October 18, 1994 (commencement of operations) to April 30, 1995.
</TABLE>
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
Reference is made to page ___ of the Fund's Prospectus dated ___, 1996.
See notes to financial statements.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Asset Allocation Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and currently offers three portfolios including
the Dreyfus Growth Portfolio (the "Portfolio"). The Portfolio's investment
objective is capital appreciation. The Dreyfus Corporation ("Manager") serves
as the Portfolio's investment adviser. The Manager is a direct subsidiary of
Mellon Bank, N.A. ("Mellon"). Premier Mutual Fund Services, Inc. (the
"Distributor") acts as the distributor of the Portfolio's shares, which are
sold to the public without a sales charge.
As of April 30, 1996, Major Trading Corporation, a subsidiary of Mellon
Bank Investments Corporation, the parent company of which is Mellon Bank
Corporation, held 85,545 shares of the Portfolio.
On February 1, 1996, the Board of Directors approved an Agreement and
Plan of Reorganization providing for the transfer of all or substantially all
of the assets and liabilities of the Portfolio to Dreyfus Lifetime
Portfolios, Inc., Growth Portfolio in a tax free exchange for shares of
Common Stock of Dreyfus Lifetime Portfolios, Inc., Growth Portfolio at net
asset value and the assumption of stated liabilities (the "Exchange"). The
Exchange is subject to the approval of the Portfolio's shareholders.
The Fund accounts separately for the assets, liabilities and operations
of each portfolio. Expenses directly attributable to each portfolio are
charged to that portfolio's operations; expenses which are applicable to all
portfolios, are allocated among them.
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Securities for which there are no such valuations are valued at fair value as
determined in good faith under the direction of the Board of Directors.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and dividends from net realized
capital gain are normally declared and paid annually, but the Portfolio may
make distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that net realized
capital gain can be offset by capital loss carryovers, if any, it is the
policy of the Portfolio not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Portfolio to continue
to qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .75 of 1% of the value
of the Portfolio's average daily net assets and is payable monthly. The
Agreement provides for an expense reimbursement from the Manager should the
Portfolio's aggregate expenses, exclusive of taxes, brokerage, interest on
borrowings and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Portfolio. The most stringent state
expense limitation applicable to the Portfolio presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of certain expenses as described above) exceed 2 1/2% of the first
$30 million, 2% of the next $70 million and 1 1/2% of the excess over $100
million of the average value of the Portfolio's net assets in accordance with
California "blue sky" regulations. However, the Manager had undertaken from
May 1, 1995 through July 3, 1995 to waive receipt of the management, service
and distribution fees, and thereafter, has currently undertaken through June
30, 1996, to reduce the management fee paid by, or reimburse such excess
expenses of the Portfolio, to the extent that the Portfolio's aggregate
annual expenses (exclusive of certain expenses as described above) exceed an
annual rate of 1.25 of 1% of the value of the Portfolio's average daily net
assets. The expense reimbursement, pursuant to the undertakings and expense
limitation, amounted to $52,389 for the year ended April 30, 1996.
The undertaking may be extended, modified or terminated by the Manager,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) Prior to September 1, 1995, the Portfolio had a Distribution Plan
(the "Plan") adopted pursuant to Rule 12b-1 under the Act, which provided
that the Portfolio (a) reimburse the Distributor for payments to certain
Service Agents (a securities dealer, financial institution or other industry
professional) for distributing the Portfolio's shares and (b) pay the
Manager, Dreyfus Service Corporation, a wholly-owned subsidiary of the
Manager, and any affiliate of either of them (collectively "Dreyfus") for
advertising and marketing relating to the Portfolio, at an aggregate annual
rate of .50 of 1% of the value of the Portfolio's average daily net assets.
The Distributor could pay Service Agents a fee in respect of the Portfolio's
shares owned by shareholders with whom the Service Agent had a servicing
relationship or for whom the Service Agent is the dealer or holder of record.
The Distributor determined the amounts to be paid to Service Agents to which
it made payments and the basis on which such payments were made. The Plan
also separately provided for the Portfolio to bear the costs of preparing,
printing and distributing certain of the Portfolio's prospectuses and
statements of additional information and costs associated with implementing
and operating the Plan, not to exceed the greater of $100,000 or .005 of 1%
of the Portfolio's average daily net assets for any full fiscal year. During
the period from May 1, 1995 through August 31, 1995, the Portfolio was
charged $4,088 pursuant to the Plan. Effective September 1, 1995, the Plan
was terminated.
(C) Pursuant to the Portfolio's Shareholder Services Plan, the Portfolio
pays the Distributor at an annual rate of .25 of 1% of the value of the
Portfolio's average daily net assets for the provision of certain services.
The services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Portfolio and
providing reports and other information,
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. For the
year ended April 30, 1996, $4,876 was charged to the Portfolio pursuant to
the Shareholder Services Plan.
Effective December 1, 1995, the Portfolio compensates Dreyfus Transfer,
Inc., a wholly owned subsidiary of the Manager, under a transfer agency
agreement for providing personnel and facilities to perform transfer agency
services for the Portfolio. Such compensation amounted to $410 for the period
from December 1, 1995 through April 30, 1996.
Effective May 10, 1996, the Fund entered into a Custody Agreement with
Mellon to provide custodial services for the Fund.
(D) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended April 30, 1996
amounted to $4,786,732 and $4,151,551, respectively.
At April 30, 1996, accumulated net unrealized appreciation on investments
was $308,753, consisting of $338,274 gross unrealized appreciation and
$29,521 gross unrealized depreciation.
At April 30, 1996, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS ASSET ALLOCATION FUND, INC., DREYFUS GROWTH PORTFOLIO
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Asset Allocation Fund,
Inc., Dreyfus Growth Portfolio (one of the Series constituting the Dreyfus
Asset Allocation Fund, Inc.), as of April 30, 1996, and the related
statements of operations for the year then ended and changes in net assets
for each of the two years in the period then ended, and financial highlights
for the each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of April 30, 1996 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Asset Allocation Fund, Inc., Dreyfus Growth Portfolio at
April 30, 1996, and the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended and the financial highlights for each of the indicated years, in
conformity with generally accepted accounting principles.
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New York, New York
June 4, 1996
