<PAGE>
Dreyfus
Asset Allocation
Fund, Inc.
Annual Report
April 30, 1998
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with this report for Dreyfus Asset Allocation
Fund, Inc. for the 12-month period ended April 30, 1998. Your Fund produced a
total return of 34.33%,* which compares to a total return of 41.06% for the
Standard & Poor's 500 Composite Stock Price Index (the S&P 500),** which is made
up entirely of common stocks, and 10.91% for the Lehman Brothers Aggregate Bond
Index.*** A more accurate measure of the performance of the Fund is against a
special customized blended index which, like the Fund, is composed of bonds and
cash equivalents as well as stocks. This benchmark index had a total return of
26.66% during the same period.+
ECONOMIC REVIEW
Although real Gross Domestic Product (GDP) sustained a growth trend
approaching 4% into the first quarter, incoming evidence suggests a shift to
somewhat slower economic growth in coming months. Aggregate profit margins
already have begun to narrow in some sectors. The conflicting pressures of a
softening economy and a still tightening labor market have kept the Federal
Reserve Board in neutral, although a bias favoring higher policy rates was
resumed recently. Market interest rates have likewise stayed within a narrow
range in recent months.
While manufacturing has turned appreciably sluggish since year-end, this was
overshadowed in the first quarter by a strong rebound in domestic demand. The
industrial sector has been slowed by the strong dollar and by weak exports.
However, with Asian economies still in turmoil, competition from Asian-made
imports has emerged only gradually. The first quarter rebound in domestic demand
was fueled primarily by strong housing market conditions and rising real
household incomes, but additionally by several short-lived influences.
Rising real wages that have been such a boon to consumers in recent months
may also be taking a toll on corporate profit margins. The first sign of profit
pressure was seen last year as the dollar strengthened. This year, profit
margins have eroded further due to weak exports and falling prices in some
sectors. Accelerating wage growth that is apparent alongside limited pricing
power may also prove a harbinger of profit margin erosion. Hence, a shift to
slower economic growth that coexists with rising wage pressures creates a
further risk to overall profit growth.
The above pressures have kept Fed policy unchanged until now. However, we
believe that policy makers are more concerned about wage growth than economic
strains, as evidenced by a recent shift towards a tightening bias. Although
long-term bond yields were below year-ago levels at the end of April,
substantially lower yields have proven difficult to attain in the absence of
lower short-term rates. This too could restrain the economic growth rate.
MARKET OVERVIEW--STOCKS
Equity prices during recent months continued to display considerable
volatility, most of the time on the upside. Last November, the markets were
still trying to recover from the financial crisis in Asia. As the months went
by, however, the U.S. equity markets rebounded from that severe blow.
Early in the New Year, there were temporary setbacks due to worries about
inflation and concern about the corporate profit outlook. By midwinter, however,
the markets resumed their upward surge, which continued almost unbroken until
interest rate jitters struck again in late April. This time the cause was a
press report that the Fed was going to tilt its policy toward tightening credit.
As it turned out, even that scare was short-lived and, as the month of May
began, stock prices set new records once again, especially the stocks of the
large-capitalized corporations.
<PAGE>
Despite the impressive gains in the broad market averages, it was not a
market that would allow investors simply to sit back and relax. Some
commentators had begun to refer to it as the "bubble market," a market that
could inflate to record heights one week, yet the next week could be deflated
just as quickly by unexpected national, international and corporate news.
Now that most first-quarter corporate profits have been reported, it is
apparent that the quarter saw a slowdown in total profits. While some analysts
believe there could be an increase in the growth of earnings in the second
quarter and beyond, many skeptics believe such possible increases to be
overoptimistic. The skeptics have cited several factors:
* possible delayed reaction to the collapse of Asian markets;
* the ever-present possibility that the Fed could still raise interest rates;
* the approaching shadow of the midterm elections next fall, with all the
political acrimony they could bring.
There was also the risk that Fed Chairman Greenspan might once again warn
against excessive enthusiasm in the equity markets, as he did in late 1996 when
he spoke of "irrational exuberance."
In this atmosphere, wary investors were as quick to sell as to buy, depending
on the ebb and flow of economic and political news. Volatility, it appeared, was
a condition the markets would need to live with for some time to come, in rising
as well as in falling markets.
MARKET OVERVIEW--BONDS
Last fall, the U.S. bond market experienced a "flight to quality" as global
equity markets attempted to stabilize after sharp corrections caused by the
troubles in Asia. Investors in search of a safe haven bid the yield on the
10-year Treasury note down to 5.375% by mid-January. It was about this time that
equity markets around the world began to stabilize and the bond market moved
into a trading range, with the 10-year Treasury note trading between 5.40% and
5.80% for the remainder of the reporting period.
Continued good news on the inflation front has enabled investors to shake off
strong employment reports and support the market. Even though labor markets are
perceived as being tight and overall economic growth remains strong, the yield
curve flattened slightly during the reporting period. This suggested that
investors expect the Federal Reserve to hold off any credit tightening for now,
in spite of the recent pressures.
PORTFOLIO FOCUS
There are basically three decision levels for the Dreyfus Asset
Allocation Fund: the asset allocation, the equity holdings, and the fixed
income holdings:
Asset Allocation
The Fund generally maintained an equity allocation close to the top of the
permitted range during most of the past year. We believed that the investment
environment for the stock market remained positive and wanted to maximize the
Fund's participation in this asset class. In October and again in March, we
reduced the equity allocation to a more neutral exposure based primarily on a
view that stock market valuations are extended along with a less favorable
outlook for corporate profits. We do not believe an equity bear market is
imminent, but merely that the return on equities going forward is more likely to
be in line with historical averages and comparable to that of fixed-income
investments. We increased the allocation to bonds and cash to a neutral weight
from an underweight position when we reduced our equity exposure. This asset
allocation strategy was a positive addition to performance results.
<PAGE>
Equity Holdings
Equity investment results benefited from being overweight in industries such
as oil services, cement, retail drug stores and railroads. Specific holdings
that added to results are Cooper Cameron, Coflexip SA, Lone Star Industries,
Southdown, CVS, Rite Aid and Kansas City Southern Industries. Relative
performance results were penalized by holdings including Fruit of the Loom Cl.A,
La Quinta Inns, and OMI Corp.
Fixed Income Holdings
The fixed income portfolio was positioned with duration at times moderately
longer than the Lehman Brothers Aggregate Bond Index benchmark and at times
moderately shorter. The timing of these moves on balance added to the Fund's
returns. The Fund also benefited from an allocation to several convertible
bonds, high yield securities, and mortgage related securities. The allocation to
corporate bonds had a near neutral impact on performance.
As always, our objective is to maximize total return of the Fund through
asset allocation and management of the equity, fixed income, and cash portions
of the Fund. It is both an honor and a pleasure to be managing your investment
assets.
Sincerely,
/s/ Kevin M. McClintock
Kevin M. McClintock
Senior Portfolio Manager
Dreyfus Asset Allocation Fund, Inc.
May 18, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** SOURCE: LIPPER ANALYTICAL SERVICES, INC.--Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
*** SOURCE: LEHMAN BROTHERS--The Lehman Brothers Aggregate Bond Index is a
widely accepted unmanaged index of corporate, government and government
agency debt instruments, mortgage-backed securities and asset-backed
securities. Reflects reinvestment of dividends and capital gains.
+ The Customized Blended Index has been prepared by the Fund and is intended
to be a more accurate comparison to its general portfolio composition than
the Standard & Poor's 500 Composite Stock Price Index alone. We have
combined the performance of unmanaged indices that reflect benchmark
percentages with respect to each asset class in which the Fund invests as
described in its Prospectus: 55% equity securities, 35% fixed-income
securities, and 10% short-term money market instruments. The Customized
Blended Index combines returns from the Standard & Poor's 500 Composite
Stock Price Index, the Lehman Brothers Aggregate Bond Index, and the Bank
Rate Monitor Index of money market returns and is weighted to the benchmark
percentages.
<PAGE>
Dreyfus Asset Allocation Fund, Inc. April 30, 1998
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS ASSET ALLOCATION
FUND, INC. WITH THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX AND A
CUSTOMIZED BLENDED INDEX
Dollars
$27,598
Standard & Poor's 500
Composite Stock
Price Index*
$20,878
Dreyfus Asset Allocation
Fund, Inc.
$20,113
Customized
Blended Index**
* Source: Lipper Analytical Services, Inc.
** Source: Lipper Analytical Services, Inc., Lehman Brothers and Bank Rate
Monitor
Average Annual Total Returns
- -----------------------------------------------------------------------------
One Year Ended From Inception (7/1/93)
April 30, 1998 to April 30, 1998
-------------- -----------------------
34.33% 16.46%
- --------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Asset
Allocation Fund, Inc. on 7/1/93 (Inception Date) to a $10,000 investment
made on that date in the Standard & Poor's 500 Composite Stock Price Index,
as well as to a Customized Blended Index reflecting the Portfolio's
benchmark percentage allocations. For comparative purposes, the value of
each Index on 6/30/93 is used as the beginning value on 7/1/93. The Customized
Blended Index is calculated on a year to year basis. All dividends and capital
gain distributions are reinvested.
The Fund allocates your money among stocks, fixed-income securities and money
market instruments. The Fund's performance shown in the line graph takes into
account all applicable fees and expenses. The Standard & Poor's 500 Composite
Stock Price Index is a widely accepted, unmanaged index of overall stock market
performance which does not take into account charges, fees and other expenses.
The Customized Blended Index has been prepared by the Fund for purposes of more
accurate comparison to the Fund's general portfolio composition. We have
combined the performance of unmanaged indices reflecting the benchmark
percentages set forth in the Prospectus: 55% common stocks, 35% fixed-income
securities and 10% money market instruments. The benchmark percentages
represent the asset mix that The Dreyfus Corporation would expect to maintain
where its assessment of economic conditions and investment opportunities
indicate that the financial markets are fairly valued in relation to each
other. The Customized Blended Index combines returns from The Standard & Poor's
500 Composite Stock Price Index, the Lehman Brothers Aggregate Bond Index and
the Bank Rate Monitor Index of money market returns, and is weighted to the
aforementioned benchmark percentages. Further information relating to Fund
performance, including expense reimbursements, if applicable, is contained in
the Financial Highlights section of the Prospectus and elsewhere in this
report.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Investments April 30, 1998
<TABLE>
<CAPTION>
Principal
Bond and Notes--19.5% Amount Value
- ------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Commercial Mortgage--3.1% GMAC Commercial Mortgage Securities,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-C1, Cl. E, 7.86%, 2006........... $ 1,000,000 $ 1,000,938
Nomura Asset Securities,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1998-D6, Cl. A4, 7.349%, 2028......... 2,000,000 1,979,688
-----------
2,980,626
-----------
Financial--5.6% Hyatt Equities, Notes,
6.80%, 2000................................ 500,000 (b) 507,263
IBJ Preferred Capital, Bonds,
8.79%, 2049................................ 2,000,000 (b) 1,899,654
Presidential Life, Sr. Notes,
9.50%, 2000................................ 850,000 873,405
Sumitomo Bank Treasury, Bonds,
9.40%, 2049................................ 2,000,000 (b) 2,033,958
-----------
5,314,280
-----------
Industrial--2.3% Dual Drilling, Sr. Sub. Notes,
9.875%, 2004............................... 500,000 535,000
Philip Morris Cos., Notes,
6.95%, 2006................................ 500,000 515,090
Xerox, Sub Deb.,
Zero Coupon, 2018.......................... 1,800,000 (b) 1,080,000
-----------
2,130,090
-----------
Residential Mortgage--2.2% Norwest Asset Securities,
Mortgage Pass-Through Ctfs.:
Ser. 1997-11, B-2, 7%, 2027............. 523,411 515,233
Ser. 1997-11, B-3, 7%, 2027............. 747,872 (b) 695,287
Ser. 1998-13, B-4, 6.25%, 2028.......... 750,000 (d) 676,640
Ser. 1998-13, B-5, 6.25%, 2028.......... 250,000 (b,d) 188,750
-----------
2,075,910
-----------
Utilities--1.7% Indiantown Cogeneration, L.P., First Mortgage,
Ser. A-10, 9.77%, 2020..................... 1,000,000 1,214,761
Korea Electric Power, Deb.,
7.75%, 2013................................ 500,000 431,985
-----------
1,646,746
-----------
U.S. Government &
Agencies--4.6% Federal Home Loan Mortgage,
6.50%, 3/1/2028............................ 2,000,000 (d) 1,980,000
Federal Home Loan Mortgage, REMIC,
Multiclass Mortgage Participation Ctfs.,
Ser. 1999, Cl. PW, 7%, 8/15/2026........... 3,755,714 (a) 881,419
Federal National Mortgage Association,
9%, 8/1/2026............................... 589,588 624,964
</TABLE>
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998
<TABLE>
<CAPTION>
Principal
Bond and Notes (continued) Amount Value
- ------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
U.S. Government &
Agencies (continued) Federal National Mortgage Association REMIC Trust,
Gtd. Pass-Through Ctfs.:
Ser. 1993-86, Cl. HA, 9.64%, 6/25/2008.. $ 1,000,000 (a) $ 473,224
Ser. 1997-40, Cl. PF, 7%, 12/18/2026.... 1,000,000 (a) 410,090
-----------
4,369,697
-----------
TOTAL BONDS AND NOTES
(cost $18,398,894)......................... $18,517,349
-----------
-----------
Common Stocks--71.1% Shares
- ------------------------------------------------------------------------------ -----------
Consumer Non-durables--6.2% Dreyer's Grand Ice Cream...................... 85,600 $ 2,161,400
Philip Morris Cos............................. 29,900 1,115,644
Ralcorp Holdings.............................. 50,000 (e) 993,750
Ralston-Purina Group.......................... 15,000 1,590,000
-----------
5,860,794
-----------
Consumer Services--2.1% Scandinavian Broadcasting System.............. 55,000 (e) 1,746,250
Spanish Broadcasting System (Warrants)........ 1,000 (b) 205,000
-----------
1,951,250
-----------
Electronic Technology--11.9% Intel......................................... 16,300 1,317,244
Novellus Systems.............................. 55,000 (e) 2,633,125
PRI Automation................................ 78,000 (e) 2,086,500
Quantum....................................... 95,000 (e) 2,232,500
Texas Instruments............................. 47,000 (c) 3,010,937
-----------
11,280,306
-----------
Finance--4.9% BankBoston.................................... 8,000 863,500
Bankers Trust NY.............................. 7,000 903,875
Fleet Financial Group......................... 10,500 906,937
Wells Fargo................................... 5,300 1,953,050
-----------
4,627,362
-----------
Health Services--1.1% IDX Systems................................... 25,000 (e) 1,089,063
-----------
Health Technology--11.7% American Home Products........................ 20,000 1,862,500
Biogen........................................ 33,000 (e) 1,464,375
Genzyme--General Division..................... 75,000 (e) 2,320,313
Gilead Sciences............................... 65,000 (e) 2,470,000
Pharmacyclics................................. 45,000 (e) 1,220,625
SmithKline Beecham A.D.S...................... 30,000 1,786,875
-----------
11,124,688
-----------
</TABLE>
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998
<TABLE>
<CAPTION>
Common Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Industrial Services--8.1% Cooper Cameron................................ 36,000 (e) $ 2,391,750
ENSCO International........................... 60,000 1,695,000
U.S.A. Waste Service.......................... 35,000 (e) 1,717,187
Waste Management.............................. 55,000 1,842,500
-----------
7,646,437
-----------
Non-Energy Minerals--3.6% Aluminum Co. of America....................... 23,000 1,782,500
Phelps Dodge.................................. 25,000 1,678,125
-----------
3,460,625
-----------
Producer Manufacturing--5.9% Harsco........................................ 40,000 1,840,000
MagneTek...................................... 95,000 (e) 1,870,313
Xerox......................................... 17,000 1,929,500
-----------
5,639,813
-----------
Retail Trade--4.2% American Stores............................... 70,000 1,680,000
Rite Aid...................................... 72,000 2,313,000
-----------
3,993,000
-----------
Transportation--9.3% Kansas City Southern Industries............... 89,000 4,021,688
OMI........................................... 145,000 (e) 1,395,625
Teekay Shipping............................... 47,000 1,445,250
Union Pacific................................. 35,000 1,916,250
-----------
8,778,813
-----------
Utilities--2.1% AES........................................... 36,600 (e) 2,019,862
-----------
TOTAL COMMON STOCKS
(cost $60,068,451)......................... 36,600 $67,472,013
-----------
-----------
Convertible Preferred Stocks--6.3%
- -------------------------------------------------------------------------------
Energy Minerals: Sanwa Fin., 1.25% (Units).................... 130 (b) $ 2,845,430
Union Pacific Cap. Trust, 6.25%.............. 60,000 (b) 3,142,500
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $6,104,848).......................... $ 5,987,930
-----------
-----------
Preferred Stocks--1.9%
- -------------------------------------------------------------------------------
Consumer Services; Spanish Broadcasting System
(cost $1,600,418).......................... 1,677 (b) $ 1,761,457
-----------
-----------
</TABLE>
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998
<TABLE>
<CAPTION>
Principal
Short-Term Investments--5.6% Amount Value
- ------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Bills: 4.95%, 5/28/98................................ $ 170,000 (f) $ 169,419
4.89%, 7/2/98................................. 416,000 (f) 412,531
4.87%, 7/23/98................................ 4,553,000 4,502,188
4.90%, 7/30/98................................ 273,000 269,688
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,353,166).......................... $ 5,353,826
-----------
-----------
TOTAL INVESTMENTS (cost $91,525,777)........................................... 104.4% $99,092,575
------ -----------
------ -----------
LIABILITIES, LESS CASH AND RECEIVABLES......................................... (4.4%) $(4,196,247)
------ -----------
------ -----------
NET ASSETS..................................................................... 100.0% $94,896,328
------ -----------
------ -----------
</TABLE>
Notes to Statement of Investments:
- ------------------------------------------------------------------------------
(a) Notional face amount shown. Interest only obligation.
(b) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At April 30, 1998,
these securities amounted to $14,359,299 or approximately 15.1% of net
assets.
(c) Held by the custodian in a segregated account as collateral for securities
purchased on a forward commitment basis.
(d) Purchased on a forward commitment basis.
(e) Non-income producing.
(f) Held by the custodian in a segregated account as collateral for open
financial futures positions.
Statement of Financial Futures April 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Unrealized
Covered (Depreciation)
Contracts by Contracts Expiration at 4/30/98
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
30 Year U.S. Treasury Bond (long)................ 14 $ 1,683,063 June '98 $ (12,359)
S & P 500 (short)................................ 36 10,072,800 June '98 (331,176)
5 Year U.S. Treasury Notes (short)............... 7 762,234 June '98 (984)
---------
$(344,519)
---------
---------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Assets and Liabilities April 30, 1998
<TABLE>
<CAPTION>
Cost Value
----------- -----------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of
Investments................................... $91,525,777 $99,092,575
Cash............................................. 492,830
Dividends and interest receivable................ 306,654
Net unrealized appreciation on forward currency
exchange contracts--Note 4(a).................. 120,705
Receivable for shares of Common Stock
subscribed.................................... 1,500
Prepaid expenses................................. 6,476
-----------
100,020,740
-----------
LIABILITIES: Due to The Dreyfus Corporation and affiliates.... 77,422
Due to Distributor............................... 19,274
Payable for investment securities purchased...... 4,768,081
Payable for futures variation margin--Note 4(a).. 183,991
Payable for shares of Common Stock redeemed...... 15,297
Accrued expenses................................. 60,347
-----------
5,124,412
-----------
NET ASSETS..................................................................... $94,896,328
-----------
-----------
REPRESENTED BY: Paid-in capital.................................. $80,807,483
Accumulated undistributed investment income--net. 432,228
Accumulated net realized gain (loss) on
investments.................................... 6,313,633
Accumulated net unrealized appreciation
(depreciation) on investments [including
($344,519) net unrealized (depreciation) on
financial futures]--Note 4(b).................. 7,342,984
-----------
NET ASSETS..................................................................... $94,896,328
-----------
-----------
SHARES OUTSTANDING
(300 million shares of $.001 par value Common Stock authorized)................ 6,124,861
NET ASSET VALUE, offering and redemption price per share....................... $15.49
------
------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Operations Year Ended April 30, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME: Interest.......................................... $ 1,337,380
Cash dividends (net of $4,536 foreign taxes
withheld at source)............................. 880,095
-----------
Total Income.................................... $ 2,217,475
EXPENSES: Management fee--Note 3(a)......................... 586,043
Shareholder servicing costs--Note 3(b)............ 249,120
Registration fees................................. 43,201
Professional fees................................. 40,197
Custodian fees--Note 3(b)......................... 24,037
Directors' fees and expenses--Note 3(c)........... 21,768
Prospectus and shareholders' reports.............. 12,043
Loan commitment fees--Note 2...................... 633
Miscellaneous..................................... 17,238
-----------
Total Expenses.................................. 994,280
-----------
INVESTMENT INCOME--NET.......................................................... 1,223,195
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments and
foreign currency transactions:
Long transactions........................... $18,276,397
Short sale transactions..................... (196,174)
Net realized gain (loss) on forward currency
exchange contracts............................. 118,438
Net realized gain (loss) on financial futures:
Long transactions........................... 450,229
Short transactions.......................... (10,901)
-----------
Net Realized Gain (Loss)................. 18,637,989
Net unrealized appreciation (depreciation) on
investments [including ($344,144) net unrealized
(depreciation) on financial futures]........... 2,093,613
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS......................... 20,731,602
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $21,954,797
-----------
-----------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
April 30, 1998 April 30, 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Investment income--net................................................. $ 1,223,195 $ 1,278,329
Net realized gain (loss) on investments................................ 18,637,989 3,602,948
Net unrealized appreciation (depreciation) on investments.............. 2,093,613 4,067,820
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations.. 21,954,797 8,949,097
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net.................................................. (1,063,176) (1,364,500)
Net realized gain on investments....................................... (15,907,775) (2,536,364)
------------ ------------
Total Dividends.................................................. (16,970,951) (3,900,864)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.......................................... 48,997,788 37,388,539
Dividends reinvested................................................... 16,384,058 3,751,463
Cost of shares redeemed................................................ (36,325,090) (48,272,464)
------------ ------------
Increase (Decrease) in Net Assets from Capital Stock Transactions 29,056,756 (7,132,462)
------------ ------------
Total Increase (Decrease) in Net Assets....................... 34,040,602 (2,084,229)
NET ASSETS:
Beginning of Period.................................................... 60,855,726 62,939,955
------------ ------------
End of Period.......................................................... $ 94,896,328 $ 60,855,726
------------ ------------
------------ ------------
Undistributed investment income--net....................................... $ 432,228 $ 272,209
------------ ------------
Shares Shares
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................ 3,100,069 2,577,794
Shares issued for dividends reinvested................................. 1,167,787 272,042
Shares redeemed........................................................ (2,287,416) (3,370,046)
------------ ------------
Net Increase (Decrease) in Shares Outstanding....................... 1,980,440 (520,210)
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Financial Highlights
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------------------------
PER SHARE DATA: 1998 1997 1996 1995 1994(1)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $14.68 $13.49 $13.81 $12.49 $12.50
------ ------ ------ ------ ------
Investment Operations:
Investment income--net............................ .24 .33 .32 .39 .24
Net realized and unrealized gain (loss) on
investments..................................... 4.40 1.83 1.70 1.35 (.11)
------ ------ ------ ------ ------
Total from Investment Operations.................. 4.64 2.16 2.02 1.74 .13
------ ------ ------ ------ ------
Distributions:
Dividends from investment income--net............. (.24) (.34) (.38) (.37) (.13)
Dividends from net realized gain on investments... (3.59) (.63) (1.96) (.05) (.01)
------ ------ ------ ------ ------
Total Distributions............................... (3.83) (.97) (2.34) (.42) (.14)
------ ------ ------ ------ ------
Net asset value, end of period.................... $15.49 $14.68 $13.49 $13.81 $12.49
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN.............................. 34.33% 16.49% 15.67% 14.22% .99%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets........... 1.27% 1.31% 1.25% .67% .16%(2)
Ratio of net investment income to average net
assets.......................................... 1.57% 2.12% 2.16% 3.00% 2.48%(2)
Decrease reflected in above expense ratios
due to undertakings by the Manager............. -- -- .27% 1.27% 1.58%(2)
Portfolio Turnover Rate........................... 262.74% 223.50% 370.06% 160.11% --
Net Assets, end of period (000's Omitted)......... $94,896 $60,856 $62,940 $56,639 $51,063
<FN>
- ------------------
(1) From July 1, 1993 (commencement of operations) to April 30, 1994.
(2) Not annualized.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
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. The Fund's investment objective is to
maximize total return, consisting of capital appreciation and current
income. The Dreyfus Corporation ("Manager") serves as the Fund's investment
adviser. The Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon").
Premier Mutual Fund Services, Inc. (the "Distributor") is the distributor of
the Fund's shares, which are sold to the public without a sales charge.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (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 the 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 and 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 Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that net realized
capital gain can be offset by capital loss carryovers, if any, it is the policy
of the Fund not to distribute such gain.
(e) Federal income taxes: It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2--Bank Line of Credit:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility ("Facility") primarily to be utilized for temporary
or emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended April
30, 1998, the Fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee
is computed at the annual rate of .75 of 1% of the value of the Fund's average
daily net assets and is payable monthly.
(b) Under the Shareholder Services Plan, the Fund pays the Distributor at an
annual rate of .25 of 1% of the value of the Fund's average daily net assets for
the provision of certain services. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information, and
services related to the maintenance of shareholder accounts. The Distributor may
make payments to Service Agents (a securities dealer, financial institution, or
other industry professional) in respect of these services. The Distributor
determines the amounts to be paid to Service Agents. During the period ended
April 30, 1998, the Fund was charged $195,348 pursuant to the Shareholder
Services Plan.
The Fund 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 Fund. During the period
ended April 30, 1998, the Fund was charged $41,063 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement to provide custodial
services for the Fund. During the period ended April 30, 1998, the Fund was
charged $24,037 pursuant to the custody agreement.
(c) 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 4--Securities Transactions:
(a) The following summarizes the aggregate amount of purchases and sales of
investment securities and securities sold short, excluding short-term
securities, forward currency exchange contracts and financial futures, during
the period ended April 30, 1998:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Long transactions....................................... $217,387,986 $205,010,205
Short sale transactions................................. 1,588,777 1,392,603
------------ ------------
Total............................................... $218,976,763 $206,402,808
============ ============
</TABLE>
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund is engaged in short-selling which obligates the Fund to replace the
security borrowed by purchasing the security at current market value. The Fund
would incur a loss if the price of the security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
The Fund would realize a gain if the price of the security declines between
those dates. Until the Fund replaces the borrowed security, the Fund will
maintain daily, a segregated account with a broker and custodian, of cash and/or
U.S. Government securities sufficient to cover its short position. At April 30,
1998, there were no securities sold short outstanding.
The following summarizes open forward currency exchange contracts at April
30, 1998:
<TABLE>
<CAPTION>
Foreign Currency Unrealized
Forward Currency Exchange Contracts Amount Proceeds Value Appreciation
- --------------------------------- --------------- ----------- ----------- -------------
Sales:
- -----
<S> <C> <C> <C> <C>
Japanese Yen, expiring 5/18/98.............. 390,000,000 $3,064,712 $2,944,007 $ 120,705
---------
---------
</TABLE>
The Fund enters into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. When executing forward currency exchange contracts, the Fund
is obligated to buy or sell a foreign currency at a specified rate on a certain
date in the future. With respect to sales of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract increases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
decreases between those dates. With respect to purchases of forward currency
exchange contracts, the Fund would incur a loss if the value of the contract
decreases between the date the forward contract is opened and the date the
forward contract is closed. The Fund realizes a gain if the value of the
contract increases between those dates. The Fund is also exposed to credit risk
associated with counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gain on each open
contract.
The Fund may invest in financial futures contracts in order to gain exposure
to or protect against changes in the market. The Fund is exposed to market risk
as a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to "mark to market" on a daily
basis, which reflects the change in the market value of the contract at the
close of each day's trading. Accordingly, variation margin payments are received
or made to reflect daily unrealized gains or losses. When the contracts are
closed, the Fund recognizes a realized gain or loss. These investments require
initial margin deposits with a custodian, which consist of cash or cash
equivalents, up to approximately 10% of the contract amount. The amount of these
deposits is determined by the exchange or Board of Trade on which the contract
is traded and is subject to change. Contracts open at April 30, 1998 are set
forth in the Statement of Financial Futures.
(b) At April 30, 1998, accumulated net unrealized appreciation on
investments, forward currency exchange contracts and financial futures was
$7,342,984, consisting of $8,977,338 gross unrealized appreciation and
$1,634,354 gross unrealized depreciation.
At April 30, 1998, 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).
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Dreyfus Asset Allocation Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the statements of investments and financial futures, of Dreyfus Asset
Allocation Fund, Inc., as of April 30, 1998, and the related statement of
operations for the year then ended, the statement of 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 and financial highlights. Our procedures included verification by
examination of securities held as of April 30, 1998 and confirmation of
securities not held by the custodian by correspondence with others. 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. at April 30, 1998, 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 & YOUNG LLP
New York, New York
June 3, 1998
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
- ------------------------------------------------------------------------------
Important Tax Information (Unaudited)
For Federal tax purposes the Fund hereby designates $.7620 per share as a
long-term capital gain distribution (of which 25.39% is subject to the 20%
maximum Federal tax rate) of the $3.831 per share paid on December 11, 1997.
The Fund also designates 5.80% of the ordinary dividends paid during the
fiscal year ended April 30, 1998 as qualifying for the corporate dividends
received deduction. Shareholders will receive notification in January 1999 of
the percentage applicable to the preparation of their 1998 income tax returns.
<PAGE>
Dreyfus Asset Allocation Fund, Inc.
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 550AR984
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS
ASSET ALLOCATION FUND, INC. WITH THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX AND A CUSTOMIZED BLENDED INDEX
EXHIBIT A:
STANDARD
& POOR'S
DREYFUS 500
ASSET COMPOSITE
PERIOD ALLOCATION STOCK CUSTOMIZED
FUND, PRICE BLENDED
INC. INDEX * INDEX **
7/1/93 10,000 10,000 10,000
4/30/94 10,099 10,227 10,107
4/30/95 11,535 12,010 11,362
4/30/96 13,342 15,636 13,623
4/30/97 15,542 19,564 15,879
4/30/98 20,878 27,598 20,113
*Source: Lipper Analytical Services, Inc.
**Source: Lipper Analytical Services, Inc., Lehman Brothers and
Bank Rate Monitor
