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 six-month period ended October 31, 1998. This period was
marked by unusual volatility in the stock and bond markets. Your Fund produced a
total return of -9.94%,* which compares with a total return of -0.40% for the
Standard & Poor' s 500 Composite Stock Price Index,** which is made up entirely
of common stocks, and a total return of 5.55% for the Lehman Brothers Aggregate
Bond Index.*** We believe that 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 1.85% during the same period.(+)
Economic Review
So far in 1998, the main regions of the world have had very different economic
fundamentals. The U.S. entered the year with a strong economy near full
employment, with unemployment only slightly above 4%. The tight labor market led
the Federal Reserve Board to contemplate a rise in interest rates early in the
year. The U.S. economy cooled enough over the months that the Fed decided to
stand pat. Evidence of economic cooling continued to accumulate and worries
about the world economy intensified. Financial stresses pushed the Fed to ease
credit in both late September and mid-October. After many years of subpar
economic growth, continental Europe moved into a sustained economic expansion.
The overall European economy benefited as interest rates in peripheral countries
such as Spain and Italy fell, approaching the lower levels established by
Germany, on the eve of currency unification. Unlike the U.S., Europe has
substantial excess capacity of productive plant and labor. In Asia, weak
economies were pervasive as a result of the Asian financial crisis. The Latin
American economies weakened as the financial stresses spread throughout that
region.
A main influence on the U.S. economy this year was the foreign financial
crisis and cooling of the world economy. The positive effects hit first. Actual
inflation and expected inflation dropped, causing a decline in long-term
Treasury bond yields and mortgage rates. This caused a boom in housing. The fall
in inflation helped the consumer sector as more of the growth in consumer income
was left over after inflation to buy goods and services. Consumers benefited
from a combination of good growth in income after inflation, a strong labor
market and past increases in the price of assets they owned.
The negative effect of Asian weakness was felt in the industrial sector more
than in the consumer sector. Corporate profits weakened, especially in sectors
affected by the Asian crisis such as world-traded commodities (oil, metals and
paper) and exports. One result of this industrial weakness was to cool off a
U.S. economy that had been growing rapidly.
The major change in the economic outlook over recent months has been a
downward shift in expectations for world economic growth. A credit crunch
developed in emerging countries and former communist countries, sharply reducing
the economic outlook for Asia and Latin America as well as for
commodity-exporting countries throughout the world. The effect on Europe and the
U.S. has been to lower expectations of profit growth and drive down bond yields
Evidence of a weaker world economy accumulated as the financial stresses
continued. A worsened financial crisis occurred between the Russian default in
mid-August and the fallout from the Long-Term Capital Management (hedge fund)
crisis through early October. However, proactive steps were taken to stabilize
the Japanese banks, design a support package for Brazil and ease monetary
policy. The prospects for world economic weakness and monetary ease in the major
countries will be powerfully influenced by whether foreign financial stresses
calm down or intensify in the coming months. There appears to be a shift in the
priorities of key policymakers from fighting potential inflation to
restimulating future world economic growth.
Market Overview
The six months ended October 31, 1998, encompassed some very different market
phases. There was stock market strength during the early part of the period.
Then small-cap indices started to erode in the spring and were joined by
large-cap indices by midsummer. A sharp decline until the end of August was
followed by a brief rebound and then a renewed decline amid financial fears
until early October. The last few weeks of the fiscal year saw a strong rally in
response to the easing of monetary policy. Returns on mid-cap and small-cap
stock indices tended to be weaker than on large-caps, with a negative total
return on small-cap indices.
Three key trends influenced stock market behavior during the reporting period.
First, the Federal Reserve kept the Federal Funds rate flat at 5.5% early in the
half year, but then eased policy twice. Second, weakness in emerging country
economies contributed to declining commodity prices and a drop in long-term
Treasury bond yields to multidecade lows. Third, expectations for corporate
profits dropped, first in the sectors sensitive to Asian developments such as
oil, basic materials and exports and then for a broader list of stocks.
The trigger for the sharp decline in stocks in August appeared to be the
Russian default in the summer of 1998. This resulted in deepening concerns about
weaker economic growth and corporate profits. There was also a global margin
call on risky assets held by hedge funds and financial institutions. This raised
the cost of debt financing for many corporations and many emerging countries.
Expectations for economic activity in emerging countries in Asia and Latin
America shifted down sharply while expectations for U.S. corporate profits
weakened somewhat. Despite the fall in Treasury bond yields, financial stocks
led the summer selloff due to concerns about financial contagion among emerging
countries and potential loan losses by financial institutions. However, in the
last few weeks of the fiscal year, these fears began to ebb and the stock market
rebounded.
The erosion of expectations about average corporate profit growth over the
last year contributed to an outperformance by a small group of super-cap growth
stocks. Investors had more confidence in the prospect for strong persistent
earnings growth for this small group of stocks than for the broad market. Value
stocks, which often have greater cyclical sensitivity to earnings fluctuations,
lagged behind these super-growth stocks. In addition, many of the financial
stocks that fall into the value category fell sharply following the Russian
default and global margin call concerns.
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 reduced the equity allocation over the past six months from
close to the top of the permitted range to a more neutral weighting. While we
believe that the longer-term investment environment for the stock market remains
positive, there are several aforementioned uncertainties on the horizon that we
think may have a dampening effect on corporate earnings in 1999. We believe that
these uncertainties, while unlikely to produce an equity bear market, may bring
the return on equities more in line with historical averages. We increased the
allocation to bonds and cash to an overweight position from an underweight
position when we reduced our equity exposure. This asset allocation strategy was
a positive addition to performance results up until mid-October when the Federal
Reserve triggered an equity rally by lowering the Fed Funds interest rate
between normally scheduled Federal Reserve Board meetings.
Equity Holdings
Equity investment results benefited from being overweight in industries such
as retail drug stores and pharmaceuticals. Specific holdings that added to
results are CVS, Rite Aid, Biogen and American Stores. Relative performance
results were penalized by holdings including Perkin-Elmer, Sealed Air and OMI.
Fixed Income Holdings
The fixed-income portfolio was positioned with duration moderately longer than
the Lehman Brothers Aggregate Bond Index benchmark during most of the period. On
balance, this added to the Fund's relative returns. The Fund's performance was
negatively impacted by an allocation to corporate and mortgage bonds. These
securities' spreads to Treasuries widened substantially, causing their prices to
decline, in the months of August, September and October. Large liquidations by
hedge funds and concerns about global economic conditions were the primary
causes of this widening spread.
We appreciate your investment in the Dreyfus Asset Allocation Fund.
Sincerely,
[Kevin M. McClintock signature]
Kevin M. McClintock
Senior Portfolio Manager
Dreyfus Asset Allocation Fund, Inc.
November 27, 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. It
reflects reinvestment of dividends and capital gain distributions.
(+)The customized blended index has been prepared by the Fund and is intended
to be a more accurate comparison to the 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.
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
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STATEMENT OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
Principal
Bonds and Notes--17.0% Amount Value
- ------------------------------------------------------- ____________ ___________
<C> <C> <C>
Commercial Mortgage--1.2% GMAC Commercial Mortgage Securities,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-C1, Cl. E, 7.86%, 2006 . . . . . . . . . $ 1,000,000 $ 917,188
____________
Financial--1.8% Hyatt Equities, Notes,
6.80%, 2000 . . . . . . . . . . . . . . . . . . . 500,000 (b) 509,430
Presidential Life, Sr. Notes,
9.50%, 2000 . . . . . . . . . . . . . . . . . . . 850,000 862,443
____________
1,371,873
____________
Industrial--1.3% Dual Drilling, Sr. Sub. Notes,
9.875%, 2004 . . . . . . . . . . . . . . . . . . . 500,000 520,000
Philip Morris Cos., Notes,
6.95%, 2006 . . . . . . . . . . . . . . . . . . . 500,000 526,962
____________
1,046,962
____________
Residential Mortgage--5.1% Norwest Asset Securities,
Mortgage Pass-Through Ctfs.:
Ser. 1997-11, B-2, 7%, 2027 . . . . . . . . . . 520,891 496,555
Ser. 1997-11, B-3, 7%, 2027 . . . . . . . . . . 744,271 (b) 701,476
Ser. 1998-13, B-4, 6.25%, 2028 . . . . . . . . 747,779 672,121
Ser. 1998-13, B-5, 6.25%, 2028 . . . . . . . . 248,927 (b) 180,501
Ser. 1998-D6, A-4, 7.595%, 2028 . . . . . . . . 2,000,000 1,901,875
____________
3,952,528
____________
U.S. Governments &
Agencies--7.6% Federal Home Loan Mortgage, REMIC,
Multiclass Mortgage Participation Ctfs.:
Ser. 1999, Cl. PW, 7%, 8/15/2026 . . . . . . . 3,755,714 (a) 563,357
Ser. 2068, Cl. IA, 6.50%, 10/15/2023 . . . . . 9,063,907 (a) 1,458,723
Federal National Mortgage Association,
9%, 8/1/2026 . . . . . . . . . . . . . . . . . . . 424,398 448,665
Federal National Mortgage Association REMIC Trust,
Gtd. Pass-Through Ctfs.:
Ser. 1993-86, Cl. HA, 9.64%, 6/25/2008 . . . . 1,000,000 (a) 371,344
Ser. 1997-40, Cl. PF, 7%, 12/18/2026 . . . . . 1,000,000 (a) 197,656
U.S. Treasury Bonds,
8.75%, 5/15/2017 . . . . . . . . . . . . . . . . . 2,000,000 2,796,200
____________
5,835,945
____________
TOTAL BONDS AND NOTES
(cost $14,359,044) . . . . . . . . . . . . . . . . $13,124,496
____________
Common Stocks--47.8% Shares
- ------------------------------------------------------------------------------------------ ____________ ____________
Consumer Non-durables--7.5% Philip Morris Cos. . . . . . . . . . . . . . . . . . . 64,900 $ 3,318,013
Ralston-Purina Group . . . . . . . . . . . . . . . . . 75,000 2,503,125
____________
5,821,138
____________
DREYFUS ASSET ALLOCATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998 (UNAUDITED)
Common Stocks (continued) Shares Value
- ------------------------------------------------------- ____________ ____________
Consumer Services--1.4% Clear Channel Communications . . . . . . . . . . . . . 20,000 (c) $ 911,250
Spanish Broadcasting System (Warrants) . . . . . . . . 1,000 (b,c) 205,000
____________
1,116,250
____________
Electronic Technology--9.0% Applied Materials. . . . . . . . . . . . . . . . . . . 70,000 (c) 2,428,125
Intel . . . . . . . . . . . . . . . . . . . . . . . . 16,300 1,453,756
Perkin-Elmer . . . . . . . . . . . . . . . . . . . . . 36,000 3,035,250
____________
6,917,131
____________
Finance--4.6% Everest Reinsurance Holdings . . . . . . . . . . . . . 55,000 1,894,063
NAC Re . . . . . . . . . . . . . . . . . . . . . . . . 35,000 1,695,312
____________
3,589,375
____________
Health Technology--5.7% Biogen . . . . . . . . . . . . . . . . . . . . . . . . 33,000 (c) 2,293,500
Medtronic . . . . . . . . . . . . . . . . . . . . . . 33,000 2,145,000
____________
4,438,500
____________
Industrial Services--3.8% Waste Management . . . . . . . . . . . . . . . . . . . 65,000 2,933,125
____________
Non-Energy Minerals--.3% Aluminum Co. of America. . . . . . . . . . . . . . . . 3,000 237,750
____________
Process Industries--3.3% Sealed Air . . . . . . . . . . . . . . . . . . . . . . 71,000 (c) 2,516,063
____________
Retail Trade--7.5% American Stores. . . . . . . . . . . . . . . . . . . . 70,000 2,279,375
CVS . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 1,142,187
Rite Aid . . . . . . . . . . . . . . . . . . . . . . . 60,000 2,381,250
____________
5,802,812
____________
Transportation--.6% Marine Transport . . . . . . . . . . . . . . . . . . . 14,490 (c) 29,433
OMI . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 (c) 450,000
____________
479,433
____________
Utilities--4.1% Niagara Mohawk Power . . . . . . . . . . . . . . . . . 65,000 (c) 950,625
Pinnacle West Capital . . . . . . . . . . . . . . . . 50,000 2,190,625
____________
3,141,250
____________
TOTAL COMMON STOCKS
(cost $33,307,996) . . . . . . . . . . . . . . . . $36,992,827
____________
Convertible Preferred Stocks--3.6%
- -------------------------------------------------------
Energy Minerals; Union Pacific Cap. Trust, 6.25%
(cost $3,000,000) . . . . . . . . . . . . . . . . 60,000 (b) $ 2,760,000
____________
Preferred Stocks--2.3%
- -------------------------------------------------------
Consumer Services; Spanish Broadcasting System
(cost $1,728,815) . . . . . . . . . . . . . . . . 1,797 (b) $ 1,770,045
____________
DREYFUS ASSET ALLOCATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998 (UNAUDITED)
Principal
Short-Term Investments--29.4% Amount Value
- ------------------------------------------------------- ____________ ____________
U.S. Treasury Bills: 3.80%, 12/31/98. . . . . . . . . . . . . . . . . . . . $ 725,000 (d) $ 720,128
3.88%, 1/14/99 . . . . . . . . . . . . . . . . . . . . 654,000 648,467
4.30%, 1/21/99 . . . . . . . . . . . . . . . . . . . . 21,541,000 21,324,082
____________
TOTAL SHORT-TERM INVESTMENTS
(cost $22,723,294) . . . . . . . . . . . . . . . . $22,692,677
____________
TOTAL INVESTMENTS (cost $75,119,149) . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.1% $77,340,045
_______ ____________
LIABILITIES, LESS CASH AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . (.1%) $ (63,326)
_______ ____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $77,276,719
_______ ____________
</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 October 31, 1998,
these securities amounted to $6,126,452 or approximately 7.9% of net assets.
(c) Non-income producing.
(d)Partially held by custodian in a segregated account as collateral for open
financial futures positions.
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF FINANCIAL FUTURES OCTOBER 31, 1998 (UNAUDITED)
Unrealized
Market Value Appreciation
Covered (Depreciation)
Contracts by Contracts Expiration at 10/31/98
____________ _______________ ______________ ______________
<S> <C> <C> <C> <C>
5 Year U.S. Treasury Notes (long). . . . . . . . . . . . 401 $45,970,893 December '98 $31,658
30 Year U.S. Treasury Bonds (short). . . . . . . . . . . 15 1,933,594 December '98 (938)
________
$30,720
________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998 (UNAUDITED)
Cost Value
____________ ____________
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $75,119,149 $77,340,045
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 128,498
Dividends and interest receivable . . . . . . . . . . . . 325,679
Receivable for shares of Common Stock subscribed . . . . 308
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 9,770
____________
77,804,300
____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 65,411
Due to Distributor . . . . . . . . . . . . . . . . . . . 16,092
Payable for futures variation margin--Note 4(a) . . . . . 262,094
Payable for shares of Common Stock redeemed . . . . . . . 153,115
Accrued expenses . . . . . . . . . . . . . . . . . . . . 30,869
____________
527,581
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $77,276,719
____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $72,645,472
Accumulated undistributed investment income--net . . . . 1,252,275
Accumulated net realized gain (loss) on investments . . . 1,127,356
Accumulated net unrealized appreciation (depreciation)
on investments (including $30,720 net unrealized
appreciation on financial futures)--Note 4(b) . . . . . 2,251,616
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $77,276,719
____________
SHARES OUTSTANDING
(300 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED). . . . . . . . . . . . . . 5,541,026
NET ASSET VALUE, offering and redemption price per share . . . . . . . . . . . . . . . . . $13.95
_______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 790,811
Cash dividends . . . . . . . . . . . . . . . . . . . . . 553,580
____________
Total Income . . . . . . . . . . . . . . . . . . . $ 1,344,391
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 318,193
Shareholder servicing costs--Note 3(b) . . . . . . . . . 144,139
Professional fees . . . . . . . . . . . . . . . . . . . . 27,120
Registration fees . . . . . . . . . . . . . . . . . . . . 15,201
Directors' fees and expenses--Note 3(c) . . . . . . . . . 8,949
Prospectus and shareholders' reports . . . . . . . . . . 7,205
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 2,550
Loan commitment fees --Note 2 . . . . . . . . . . . . . . 287
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 700
____________
Total Expenses . . . . . . . . . . . . . . . . . . . . 524,344
____________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820,047
____________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments and foreign
currency transactions . . . . . . . . . . . . . . . . $ (5,584,538)
Net realized gain (loss) on forward currency
exchange contracts . . . . . . . . . . . . . . . . . . 201,788
Net realized gain (loss) on financial futures:
Long Transacations . . . . . . . . . . . . . . . . . . 526,458
Short Transactions . . . . . . . . . . . . . . . . . . (329,985)
____________
Net Realized Gain (Loss) . . . . . . . . . . . . . (5,186,277)
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions (including $375,239
net unrealized appreciation on financial futures) . . (5,091,368)
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . $(10,277,645)
____________
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . $ (9,457,598)
____________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS ASSET ALLOCATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
October 31, 1998 Year Ended
(Unaudited) April 30, 1998
__________ ____________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 820,047 $ 1,223,195
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . (5,186,277) 18,637,989
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . (5,091,368) 2,093,613
____________ ____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . . (9,457,598) 21,954,797
____________ ____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---- (1,063,176)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . ---- (15,907,775)
____________ ____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- (16,970,951)
____________ ____________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,823,780 48,997,788
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 16,384,058
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,985,791) (36,325,090)
____________ ____________
Increase (Decrease) in Net Assets from Capital Stock Transactions . . . . . . . . (8,162,011) 29,056,756
____________ ____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . . (17,619,609) 34,040,602
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,896,328 60,855,726
____________ ____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,276,719 $ 94,896,328
____________ ____________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,252,275 $ 432,228
____________ ____________
Shares Shares
____________ ____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685,854 3,100,069
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . --- 1,167,787
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,269,689) (2,287,416)
____________ ____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . . (583,835) 1,980,440
____________ ____________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
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.
Six Months Ended
October 31, 1998 Year Ended April 30,
_____________________________________________
PER SHARE DATA: (Unaudited) 1998 1997 1996 1995 1994 (1)
__________ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . $15.49 $14.68 $13.49 $13.81 $12.49 $12.50
______ ______ ______ ______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . .16 .24 .33 .32 .39 .24
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . (1.70) 4.40 1.83 1.70 1.35 (.11)
______ ______ ______ ______ ______ ______
Total from Investment Operations . . . . . . . . (1.54) 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 . . . . . . . . . $13.95 $15.49 $14.68 $13.49 $13.81 $12.49
______ ______ ______ ______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . (9.94%)(2) 34.33% 16.49% 15.67% 14.22% .99%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . .62%(2) 1.27% 1.31% 1.25% .67% .16%(2)
Ratio of net investment income
to average net assets . . . . . . . . . . . . .97%(2) 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 . . . . . . . . . . . . . 118.19%(2) 262.74% 223.50% 370.06% 160.11% --
Net Assets, end of period (000's Omitted) . . . . $ 77,277 $ 94,896 $ 60,856 $ 62,940 $ 56,639 $ 51,063
- -----------------------------
(1) From July 1, 1993 (commencement of operations) to April 30, 1994.
(2) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS ASSET ALLOCATION FUND, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Asset Allocation Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "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 (the "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 form 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. Under the terms of the custody agreement, the Fund receives net
earnings credits based on available cash balances left on deposit.
(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 of 1986, as amended (the "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 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.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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
October 31, 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
October 31, 1998, the Fund was charged $106,064 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 October 31, 1998, the Fund was charged $24,042 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended October 31, 1998, the Fund was
charged $2,550 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 aggregate amount of purchases and sales of investment securities,
excluding short-term securities, forward currency exchange contracts and
financial futures, during the period ended October 31, 1998, amounted to
$92,701,326 and $120,528,468, respectively.
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. At October 31, 1998, there were no open forward currency exchange
contracts.
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 DREYFUS ASSET ALLOCATION FUND, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 October 31, 1998, are set forth in the
Statement of Financial Futures.
(b) At October 31, 1998, accumulated net unrealized appreciation on
investments and financial futures was $2,251,616, consisting of $6,452,658 gross
unrealized appreciation and $4,201,042 gross unrealized depreciation.
At October 31, 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).
[reg.tm logo]
(reg.tm)
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. 550SA9810
Asset Allocation
Fund, Inc.
Semi-Annual
Report
October 31, 1998
