| UNITED STATES | |||||
| SECURITIES AND EXCHANGE COMMISSION | |||||
| Washington, D.C. 20549 | |||||
| FORM N-CSR | |||||
| CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT | |||||
| INVESTMENT COMPANIES | |||||
| Investment Company Act file number 811-7068 | |||||
| Dreyfus Balanced Fund, Inc. | |||||
| (Exact name of Registrant as specified in charter) | |||||
| c/o The Dreyfus Corporation | |||||
| 200 Park Avenue | |||||
| New York, New York 10166 | |||||
| (Address of principal executive offices) | (Zip code) | ||||
| Mark N. Jacobs, Esq. | |||||
| 200 Park Avenue | |||||
| New York, New York 10166 | |||||
| (Name and address of agent for service) | |||||
| Registrant's telephone number, including area code: | (212) 922-6000 | ||||
| Date of fiscal year end: | 8/31 | ||||
| Date of reporting period: | 2/29/04 | ||||
FORM N-CSR
Item 1. Reports to Stockholders.
| Dreyfus Balanced |
| Fund, Inc. |
SEMIANNUAL REPORT February 29, 2004
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents
T H E F U N D
| 2 | Letter from the Chairman |
| 3 | Discussion of Fund Performance |
| 6 | Statement of Investments |
| 16 | Statement of Financial Futures |
| 17 | Statement of Securities Sold Short |
| 18 | Statement of Assets and Liabilities |
| 19 | Statement of Operations |
| 20 | Statement of Changes in Net Assets |
| 21 | Financial Highlights |
| 22 | Notes to Financial Statements |
| F O R M O R E I N F O R M AT I O N | |
| Back Cover | |
Dreyfus Balanced Fund, Inc.
The Fund
LETTER FROM THE CHAIRMAN
Dear Shareholder:
This semiannual report for Dreyfus Balanced Fund, Inc. covers the six-month period from September 1, 2003, through February 29, 2004. Inside, you’ll find valuable information about how the fund was managed during the reporting period, including a discussion with Douglas D. Ramos, CFA, who manages the equity component of the fund, and Gerald E. Thunelius, Director of the Dreyfus Taxable Fixed Income Team that manages the fund’s fixed-income component.
The stock market rally that began during the spring of 2003 remained in place through the end of the reporting period.With the U.S. economy on firmer footing, corporate spending and investment began to improve after several years of cost-cutting, and earnings reports contained more positive surprises than negative ones. Although some sectors of the bond market have fallen while the economy has gained strength, others have benefited from a moderation in mortgage refi-nancing activity and better business conditions for many corporate bond issuers.
While we believe that the prospects for both stocks and bonds remain positive over the long run, investors should be prepared to weather day-to-day volatility as market conditions change. As always, we encourage you to talk with your financial advisor regularly about these issues and the investment strategies that may be appropriate for you.
Thank you for your continued confidence and support.
Sincerely,
| Stephen E. Canter |
| Chairman and Chief Executive Officer |
| The Dreyfus Corporation |
| March 15, 2004 |
2
DISCUSSION OF FUND PERFORMANCE
Douglas D. Ramos, CFA, Portfolio Manager
Gerald E. Thunelius, Director, Dreyfus Taxable Fixed Income Team
How did Dreyfus Balanced Fund, Inc. perform relative to its benchmark?
For the six-month period ended February 29, 2004, the fund produced a total return of 9.55%.1 This compares with a 10.72% total return for the fund’s Customized Blended Index. The Standard & Poor’s 500 Composite Stock Price Index (“S&P 500 Index”), which comprises 60% of our blended index, provided a total return of 14.59%, and the Lehman Brothers Aggregate Bond Index (the “Lehman Aggregate Index”), comprising 40% of our blended index, produced a total return of 4.92% for the same period.2,3
The stock and bond markets rallied in a recovering economy, and the fund participated in the markets’ gains to a significant degree. However, investors generally favored smaller-cap securities over their large-cap counterparts and corporate bonds over U.S.Treasury securities. In the equity portion of the portfolio, we allocated a relatively high percentage of assets to large-cap stocks while in the fixed-income portion of the portfolio, returns slightly lagged the benchmark due to its relatively higher allocation of U.S.Treasury bonds and mortgage-backed securities, which underperformed the Lehman Aggregate Index during the reporting period. Both of these factors contributed to the fund slightly underperforming its benchmark.
What is the fund’s investment approach?
The fund seeks long-term capital growth and current income.To pursue this goal, the fund invests in equity and fixed-income securities of U.S. and foreign issuers.The proportion of the fund’s assets invested in each type of security will vary from time to time in accordance with Dreyfus’ assessment of economic conditions and investment opportunities. However, under normal market conditions, the fund’s equity investments will range from 40% to 75% of its portfolio, with a benchmark allocation of 60%. Fixed-income investments (including cash and cash equivalents) will range from 25% to 60%, with a benchmark allocation of 40%.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
In allocating assets between stocks and bonds, we assess the relative returns and risks of each asset class using a model that analyzes several factors, including interest-rate-adjusted price/earnings ratio, the valuation and volatility levels of stocks relative to bonds, and other economic factors, such as interest rates.
In selecting stocks, we use a valuation model to identify and rank stocks within an industry or sector based on:
- Value, or how a stock is priced relative to its perceived intrinsic worth;
- Growth, in this case the sustainability or growth of earnings or cash flow; and
- Financial profile, which measures the financial health of the company.
The fund typically sells a security when we believe that there has been a negative change in the fundamental factors surrounding the company, the company has become fully valued or a more attractive opportunity has been identified.
To select fixed-income investments for the fund, we review the terms of the instruments and evaluate the creditworthiness of the issuers, considering all factors that we deem relevant including, as applicable, a review of the issuer’s cash flow, the level of short-term debt, leverage, capitalization, the quality and depth of management, profitability, return on assets and economic factors relative to the issuer’s industry.
Generally, the fund seeks to maintain a fixed-income portfolio with an investment-grade average credit quality. However, up to 20% of the fund’s fixed-income portfolio may be invested in securities rated below investment-grade (BB/Ba and lower, commonly referred to as “high-yield” or “junk” bonds), but no lower than B, or the unrated equivalent as determined by Dreyfus at the time of purchase.While we are permitted by prospectus to buy non-investment grade bonds, we generally avoided doing so during the reporting period.
What other factors influenced the fund’s performance?
The fund enhanced returns by emphasizing stocks over bonds in the improving U.S. economy.Among stocks, the fund benefited from good individual investments in the areas of consumer staples, such as food and tobacco giant Altria Group; financials, such as finance company Countrywide Financial; and energy, including oil and gas exploration and development company XTO Energy.
4
However, the fund’s relative performance was hindered by a pullback among some of its semiconductor holdings such as KLA Tencor and Novellus, and lackluster growth among large-cap technology holdings such as Microsoft. Other disappointments included Biovail and Medimmune in the health care sector, Liberty Media and Viacom in the consumer discretionary area and European airline Ryanair in the transportation sector.
Among bonds, we generally invested in the market’s various sectors in proportions that are similar to their representation in the Lehman Aggregate Index.This enabled the fund to participate in the reporting period’s corporate bond rally.At the same time, to balance opportunities for higher yields with the risks of potentially higher interest rates, we set the bond portfolio’s average duration in a range we consider neutral relative to the Index.
What is the fund’s current strategy?
As of the end of February, we have maintained the fund’s emphasis on stocks, focusing on companies — primarily in the technology, industrials and materials and processing sectors — that we believe are positioned to benefit from a stronger economy. We have found fewer opportunities in the relatively defensive health care, consumer staples and financials sectors.
On the fixed-income side, we have continued to maintain a generally index-neutral approach, which is designed to manage risks effectively while providing participation in the bond market’s returns.We believe this strategy is prudent while the bond market continues to adjust to a stronger economic environment.
March 15, 2004
| 1 | Total return includes reinvestment of dividends and any capital gains paid. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption fund shares may be worth more or less than their original cost. |
| 2 | SOURCE: LIPPER INC. — Reflects the reinvestment of 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. |
| 3 | SOURCE: LIPPER INC. — Reflects the reinvestment of dividends and, where applicable, capital gain distributions.The Lehman Brothers Aggregate Bond Index is a widely accepted, unmanaged total return index of corporate, U.S. government and U.S. government agency debt instruments, mortgage-backed securities and asset-backed securities with an average maturity of 1-10 years. |
The Fund 5
| STATEMENT OF INVESTMENTS | ||||
| February 29, 2004 (Unaudited) | ||||
| Common Stocks—70.4% | Shares | Value ($) | ||
| Consumer Discretionary—7.4% | ||||
| Carnival | 14,000 | 621,180 | ||
| Clear Channel Communications | 10,520 a | 452,781 | ||
| Comcast, Cl. A | 18,745 a | 563,100 | ||
| Disney (Walt) | 29,000 | 769,370 | ||
| General Motors | 6,000 b | 288,720 | ||
| Hilton Hotels | 20,000 | 320,600 | ||
| Home Depot | 29,000 | 1,052,990 | ||
| Lamar Advertising | 11,500 a | 456,550 | ||
| Liberty Media | 47,000 a | 535,800 | ||
| McDonald’s | 39,000 | 1,103,700 | ||
| PetsMart | 12,000 | 325,680 | ||
| Staples | 10,600 a | 277,932 | ||
| TJX Cos. | 21,100 | 496,905 | ||
| Target | 11,600 | 509,936 | ||
| Time Warner | 40,500 a | 698,625 | ||
| Toyota Motor, ADR | 8,000 | 553,040 | ||
| Viacom, Cl. B | 29,365 | 1,129,378 | ||
| 10,156,287 | ||||
| Consumer Staples—6.3% | ||||
| Altria Group | 32,000 | 1,841,600 | ||
| Coca-Cola | 23,000 | 1,149,080 | ||
| Kraft Foods | 9,200 | 310,868 | ||
| PepsiCo | 25,000 | 1,297,500 | ||
| Procter & Gamble | 17,100 | 1,752,921 | ||
| Wal-Mart Stores | 39,000 | 2,322,840 | ||
| 8,674,809 | ||||
| Energy—3.8% | ||||
| Anadarko Petroleum | 10,000 | 512,500 | ||
| ChevronTexaco | 9,000 | 795,150 | ||
| Exxon Mobil | 64,576 | 2,723,170 | ||
| Schlumberger | 9,000 | 580,410 | ||
| XTO Energy | 20,866 | 622,641 | ||
| 5,233,871 | ||||
| Financial—14.4% | ||||
| American Express | 13,900 | 742,538 | ||
| American International Group | 30,351 | 2,245,974 |
6
| Common Stocks (continued) | Shares | Value ($) | ||
| Financial (continued) | ||||
| Bank of America | 15,300 | 1,253,376 | ||
| Bank of New York | 22,000 | 726,000 | ||
| Bank One | 13,000 | 701,740 | ||
| CIT Group | 14,000 | 552,580 | ||
| Capital One Financial | 7,000 | 495,040 | ||
| Citigroup | 57,733 | 2,901,661 | ||
| Countrywide Financial | 6,666 | 610,806 | ||
| Federal Home Loan Mortgage | 9,000 | 557,280 | ||
| Federal National Mortgage Association | 17,600 | 1,318,240 | ||
| Fidelity National Financial | 14,300 | 559,273 | ||
| FleetBoston Financial | 15,600 | 702,468 | ||
| Goldman Sachs Group | 8,200 | 868,134 | ||
| J.P. Morgan Chase & Co. | 16,920 | 694,058 | ||
| MBNA | 19,600 | 535,668 | ||
| Merrill Lynch | 13,000 | 795,730 | ||
| Morgan Stanley | 11,600 | 693,216 | ||
| National City | 9,000 | 321,300 | ||
| Travelers Property Casualty, Cl. A | 29,969 | 544,237 | ||
| U.S. Bancorp | 21,000 | 599,130 | ||
| Wells Fargo | 22,000 | 1,261,700 | ||
| 19,680,149 | ||||
| Health Care—7.5% | ||||
| Abbott Laboratories | 10,000 | 428,000 | ||
| Amgen | 8,000 a | 508,240 | ||
| Bard (C.R.) | 4,000 | 377,560 | ||
| Barr Pharmaceuticals | 7,000 a | 541,870 | ||
| Becton, Dickinson & Co. | 10,000 | 486,500 | ||
| Boston Scientific | 8,000 a | 326,800 | ||
| Bristol-Myers Squibb | 16,900 | 470,158 | ||
| Community Health Systems | 11,000 a | 308,550 | ||
| Genzyme | 4,000 a | 203,120 | ||
| Johnson & Johnson | 12,200 | 657,702 | ||
| Lilly(Eli) & Co. | 11,400 | 842,916 | ||
| Medtronic | 9,000 | 422,100 | ||
| Merck & Co. | 14,400 | 692,352 | ||
| Novartis, ADR | 11,000 b | 485,650 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Common Stocks (continued) | Shares | Value ($) | ||
| Health Care (continued) | ||||
| Pfizer | 75,800 | 2,778,070 | ||
| Watson Pharmaceuticals | 7,000 a | 321,440 | ||
| Wyeth | 11,500 | 454,250 | ||
| 10,305,278 | ||||
| Industrials—8.4% | ||||
| CSX | 16,000 | 504,480 | ||
| Caterpillar | 4,000 | 303,000 | ||
| Danaher | 5,000 | 448,150 | ||
| Deere & Co. | 11,000 | 706,530 | ||
| Emerson Electric | 8,000 | 499,840 | ||
| General Electric | 104,000 | 3,382,080 | ||
| Honeywell International | 14,000 | 490,700 | ||
| Illinois Tool Works | 7,000 | 556,640 | ||
| Ingersoll-Rand | 16,000 | 1,063,680 | ||
| PACCAR | 6,000 | 332,460 | ||
| Rockwell Collins | 11,000 | 357,940 | ||
| 3M | 8,000 | 624,160 | ||
| Tyco International | 18,000 | 514,260 | ||
| United Parcel Service, Cl. B | 8,000 | 565,040 | ||
| United Technologies | 5,400 | 497,394 | ||
| Waste Management | 20,000 | 570,000 | ||
| 11,416,354 | ||||
| Information Technology—15.3% | ||||
| Accenture | 24,500 a | 565,950 | ||
| Altera | 12,000 a | 264,960 | ||
| Applied Materials | 27,000 a | 573,480 | ||
| Cisco Systems | 73,000 a | 1,686,300 | ||
| Computer Associates International | 15,000 | 398,400 | ||
| Computer Sciences | 15,600 a | 651,924 | ||
| Dell | 35,000 a | 1,142,750 | ||
| EMC | 60,000 | 859,200 | ||
| Hewlett-Packard | 29,868 | 678,302 | ||
| Intel | 64,200 | 1,876,566 | ||
| International Business Machines | 19,000 | 1,833,500 | ||
| Jabil Circuit | 30,000 a | 839,400 | ||
| KLA-Tencor | 8,200 a | 432,960 |
8
| Common Stocks (continued) | Shares | Value ($) | ||
| Information Technology (continued) | ||||
| Lexmark International | 4,000 a | 329,160 | ||
| Microsoft | 122,000 | 3,233,000 | ||
| Motorola | 38,800 | 715,860 | ||
| Nokia Oyj, ADR | 29,000 | 631,330 | ||
| Oracle | 85,000 a | 1,094,800 | ||
| QUALCOMM | 7,000 | 444,150 | ||
| SAP, ADR | 9,000 | 356,400 | ||
| Siebel Systems | 22,000 a | 287,320 | ||
| Taiwan Semiconductor Manufacturing, ADR | 43,700 a | 454,043 | ||
| Texas Instruments | 15,000 | 459,750 | ||
| VeriSign | 28,000 a | 487,480 | ||
| Xilinx | 16,000 a | 672,640 | ||
| 20,969,625 | ||||
| Materials—3.2% | ||||
| Air Products & Chemicals | 10,000 | 482,400 | ||
| Alcoa | 14,000 | 524,580 | ||
| du Pont (E.I.) de Nemours | 9,000 | 405,810 | ||
| International Paper | 17,000 | 752,420 | ||
| Phelps Dodge | 6,000 a | 517,560 | ||
| PPG Industries | 8,000 | 469,520 | ||
| Praxair | 16,000 | 581,120 | ||
| Weyerhaeuser | 10,000 | 652,500 | ||
| 4,385,910 | ||||
| Telecommunication Services—2.0% | ||||
| BellSouth | 16,000 | 440,960 | ||
| SBC Communications | 19,400 | 465,794 | ||
| Sprint (PCS Group) | 43,000 a | 387,000 | ||
| Telefonos de Mexico, ADR | 14,000 | 475,580 | ||
| Verizon Communications | 24,000 | 919,920 | ||
| 2,689,254 | ||||
| Utilities—2.1% | ||||
| Exelon | 9,000 | 604,260 | ||
| FPL Group | 8,000 | 525,200 | ||
| MCI | 11,000 a,c | 242,000 | ||
| Progress Energy | 8,000 | 369,280 | ||
| Southern | 17,000 | 515,440 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Common Stocks (continued) | Shares | Value ($) | |||
| Utilities (continued) | |||||
| TXU | 12,000 | 337,560 | |||
| Wisconsin Energy | 10,000 | 323,200 | |||
| 2,916,940 | |||||
| Total Common Stocks | |||||
| (cost $ | 80,779,196) | 96,428,477 | |||
| Principal | |||||
| Bonds and Notes—30.3% | Amount ($) | Value ($) | |||
| Airlines—0.% | |||||
| US Airways, | |||||
| Enhanced Equipment Notes, | |||||
| Ser. C, 8.93%, 10/15/2009 | 114,798 | d | 1,148 | ||
| Asset-Backed Certificates-Credit Cards—.3% | |||||
| MBNA Credit Card Master Note Trust, | |||||
| Ser. 2002-C1, Cl. 1, 6.8%, 7/15/2014 | 343,000 | 382,438 | |||
| Asset-Backed Certificates-Home Equity—.5% | |||||
| Residential Asset Mortgage, | |||||
| Ser. 2003-RS-8, Cl.AI 4, 4.223%, 10/25/2028 | 625,000 | 635,169 | |||
| Banks—.6% | |||||
| Bank of America, | |||||
| Sr. Notes, 4.375%, 12/1/2010 | 665,000 | 681,509 | |||
| Dresdner Funding Trust I, | |||||
| Bonds, 8.151%, 6/30/2031 | 88,000 | e | 104,846 | ||
| 786,355 | |||||
| Beverages—.1% | |||||
| Pepsi Bottling Group, | |||||
| Sr. Notes, 7%, 3/1/2029 | 95,000 | 112,131 | |||
| Commercial Mortgage Pass-Through Ctfs.—1.1% | |||||
| GS Mortgage Securities II, | |||||
| Ser. 2001-LIBA, Cl. A2, 6.615%, 2/14/2016 | 1,342,000 | e | 1,505,631 | ||
| Commercial Services—.4% | |||||
| Pitney Bowes, | |||||
| Notes, 4.75%, 5/15/2018 | 495,000 | b | 489,178 | ||
| Computers—.3% | |||||
| Hewlett-Packard, | |||||
| Notes, 5.75%, 12/15/2006 | 330,000 | 358,817 | |||
| International Businss Machines, | |||||
| Sr. Notes, 4.75%, 11/29/2012 | 65,000 | 66,750 | |||
| 425,567 | |||||
10
| Principal | ||||
| Bonds and Notes (continued) | Amount ($) | Value ($) | ||
| Consumer Products—.2% | ||||
| Kimberly-Clark, | ||||
| Notes, 5%, 8/15/2013 | 260,000 | 272,462 | ||
| Diversified Financial Services—1.4% | ||||
| Boeing Capital, | ||||
| Bonds, 5.8%, 1/15/2013 | 80,000 | b | 86,048 | |
| Boeing Capital, | ||||
| Sr. Notes, 4.75%, 8/25/2008 | 145,000 | 152,465 | ||
| CIT Group, | ||||
| Sr. Notes, 4.75%, 12/15/2010 | 136,000 | 140,042 | ||
| General Motors, | ||||
| Debs., 2.02%, 1/16/2007 | 327,000 | 326,114 | ||
| General Electric Capital, | ||||
| Sr. Notes, Ser. A, 4.25%, 12/1/2010 | 183,000 | b | 184,950 | |
| Goldman Sachs, | ||||
| Notes, 3.875%, 1/15/2009 | 250,000 | 254,029 | ||
| Ford Motor Credit, | ||||
| Notes, 1.37%, 3/13/2007 | 141,000 | 137,299 | ||
| Ford Motor Credit, | ||||
| Notes, 5.625%, 10/1/2008 | 321,000 | b | 330,631 | |
| SLM, | ||||
| Notes, 5%, 10/1/2013 | 355,000 | 361,948 | ||
| 1,973,526 | ||||
| Electric—.7% | ||||
| Consolidated Edison of New York, | ||||
| Debs., 4.875%, 2/1/2013 | 290,000 | 298,458 | ||
| Entergy Arkansas, | ||||
| First Mortgage, 5.4%, 5/1/2018 | 130,000 | 129,711 | ||
| Public Service Company of Colorado, | ||||
| First Collateral Trust Bonds, | ||||
| Ser. 12, 4.875%, 3/1/2013 | 149,000 | 152,717 | ||
| TXU Energy, | ||||
| Sr. Notes, 7%, 3/15/2013 | 300,000 | 341,681 | ||
| 922,567 | ||||
| Electrical Components & Equipment—.1% | ||||
| Emerson Electric, | ||||
| Bonds, 4.5%, 5/1/2003 | 200,000 | 200,511 | ||
| Food & Beverages—.1% | ||||
| Miller Brewing, | ||||
| Notes, 4.25%, 8/15/2008 | 135,000 | b,e | 139,277 | |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Principal | ||||
| Bonds and Notes (continued) | Amount ($) | Value ($) | ||
| Forest Products and Paper—.0% | ||||
| International Paper, | ||||
| Notes, 5.85%, 10/30/2012 | 55,000 | 58,827 | ||
| Healthcare-Services—.2% | ||||
| UnitedHealth Group, | ||||
| Sr. Notes, 3.3%, 1/30/2008 | 250,000 | 252,025 | ||
| Healthcare-Products—.0% | ||||
| Eli (Lilly) & Co., | ||||
| Notes, 4.5%, 3/15/2018 | 58,000 | 56,447 | ||
| Insurance—.2% | ||||
| Chubb, | ||||
| Notes, 6%, 11/15/2011 | 70,000 | 77,328 | ||
| Metlife, | ||||
| Sr. Notes, 5.375%, 12/15/2012 | 155,000 | b | 163,119 | |
| 240,447 | ||||
| Manufacturing—.1% | ||||
| General Electric, | ||||
| Notes, 5%, 2/1/2013 | 210,000 | 217,682 | ||
| Media—.2% | ||||
| Clear Channel Communications, | ||||
| Sr. Notes, 5%, 3/15/2012 | 72,000 | 73,614 | ||
| Liberty Media, | ||||
| Sr. Notes, 5.7%, 5/15/2013 | 100,000 | 102,260 | ||
| Time Warner, | ||||
| Notes, 6.875%, 5/1/2012 | 85,000 | 96,455 | ||
| 272,329 | ||||
| Mining—.2% | ||||
| Alcoa, | ||||
| Notes, 4.25%, 8/15/2007 | 55,000 | 57,927 | ||
| Alcoa, | ||||
| Notes, 6%, 1/15/2012 | 206,000 | 229,679 | ||
| 287,606 | ||||
| Oil and Gas—.1% | ||||
| ConocoPhillips, | ||||
| Notes, 4.75%, 10/15/2012 | 115,000 | 117,980 | ||
| Real Estate—.1% | ||||
| EOP Operating, | ||||
| Sr. Notes, 7%, 7/15/2011 | 80,000 | 92,190 | ||
12
| Principal | ||||
| Bonds and Notes (continued) | Amount ($) | Value ($) | ||
| Structured Index—2.9% | ||||
| Morgan Stanley TRACERS: | ||||
| Ser. 2002-1, 5.878%, 3/1/2007 | 2,146,000 | e,f | 2,314,141 | |
| Ser. 2002-5, 6.799%, 6/15/2012 | 1,484,000 | e,f | 1,681,281 | |
| 3,995,422 | ||||
| Telecommunications—.4% | ||||
| British Telecommunications, | ||||
| Notes, 8.375%, 12/15/2010 | 91,000 | 111,485 | ||
| France Telecom, | ||||
| Notes, 7.75%, 3/1/2011 | 71,000 | 85,782 | ||
| Motorola, | ||||
| Sr. Notes, 8%, 11/1/2011 | 105,000 | 126,362 | ||
| Verizon Florida, | ||||
| Debs., 6.125%, 1/15/2013 | 143,000 | 155,638 | ||
| Verizon Wireless Capital, | ||||
| Notes, 5.375%, 12/15/2006 | 45,000 | b | 48,392 | |
| Vodafone, | ||||
| Notes, 7.875%, 2/15/2030 | 20,000 | 25,163 | ||
| 552,822 | ||||
| Transportation—.0% | ||||
| Union Pacific Corp, | ||||
| Debs., 7.125%, 2/1/2028 | 45,000 | 52,288 | ||
| U.S. Government Agencies—8.6% | ||||
| Federal Home Loan Banks, | ||||
| Bonds, Ser. 432, 4.5%, 9/16/2013 | 3,280,000 | 3,311,793 | ||
| Federal National Mortgage Association, | ||||
| Notes, 4.625%, 10/15/2013 | 8,300,000 | 8,454,463 | ||
| 11,766,256 | ||||
| U.S. Government Agencies/Mortgage-Backed—11.5% | ||||
| Federal Home Loan Mortgage Corp., | ||||
| 6.5%, 5/1/2032 | 94,542 | 99,476 | ||
| Federal National Mortgage Association: | ||||
| Motgage-Backed: | ||||
| 6.2%, 1/1/2011 | 1,307,341 | 1,469,386 | ||
| 5.5%, 4/1/2023 | 493,081 | 504,945 | ||
| 6.88%, 2/1/2028 | 931,980 | 1,051,959 | ||
| 6%, 5/1/2033 | 789,695 | 823,004 | ||
| Sub Notes, | ||||
| 8%, 3/1/2030-11/1/2030 | 555,176 | 602,011 | ||
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Principal | |||||
| Bonds and Notes (continued) | Amount ($) | Value ($) | |||
| U.S. Government Agencies/Mortgage-Backed (continued) | |||||
| Government National Mortgage Association I: | |||||
| 6% | 2,600,000 | c | 2,714,361 | ||
| 6.5% | 31,000 | c | 32,724 | ||
| 6.5%, 6/15/2032 | 126,548 | 133,705 | |||
| 5.5%, 4/15/2033 | 158,591 | 163,051 | |||
| 6%, 2/15/2023-2/15/2034 | 5,388,708 | 5,632,908 | |||
| U.S. Treasury Bonds, | |||||
| 5.375%, 2/15/2031 | 1,729,000 | 1,863,672 | |||
| US Treasury Strip Principal, | |||||
| 0%, 10/15/2009 | 1,950,000 | 651,582 | |||
| 15,742,784 | |||||
| Total Bonds and Notes | |||||
| (cost $ | 40,708,113) | 41,551,065 | |||
| Other Investments—2.1% | Shares | Value ($) | |||
| Registered Investment Companies: | |||||
| Dreyfus Institutional Cash Advantage Fund | 949,000 | g | 949,000 | ||
| Dreyfus Institutional Cash Advantage Plus Fund | 949,000 | g | 949,000 | ||
| Dreyfus Institutional Preferred Plus Money Market Fund | 949,000 | g | 949,000 | ||
| Total Other Investments | |||||
| (cost $ | 2,847,000) | 2,847,000 | |||
| Principal | |||||
| Short-Term Investments—1.1% | Amount ($) | Value ($) | |||
| U.S. Treasury Bills; | |||||
| .83%, 3/18/2004 | 150,000 | h | 149,934 | ||
| .85%, 4/15/2004 | 325,000 | i | 324,636 | ||
| 1.01%, 4/15/2004 | 900,000 | h | 898,992 | ||
| .9%, 5/6/2004 | 100,000 | 99,833 | |||
| Total Short-Term Instruments | |||||
| (cost $ | 1,473,295) | 1,473,395 | |||
14
| Investment of Cash Collateral | ||||||
| for Securities Loaned—1.7% | Shares | Value ($) | ||||
| Registered Investment Company; | ||||||
| Dreyfus Instutional Preferred Money Market Fund | ||||||
| (cost $ | 2,282,560) | 2,282,560 g | 2,282,560 | |||
| Total Investments (cost $ | 128,090,164) | 105.6% | 144,582,497 | |||
| Liabilities, Less Cash and Receivables | (5.6%) | (7,615,704) | ||||
| Net Assets | 100.0% | 136,966,793 | ||||
| a Non-income producing. | ||||||
| b | All or a portion of these securities are on loan.At February 29, 2004, the total market value of the fund’s securities on loan is $2,215,960 and the total market value of the collateral held by fund is $2,282,560. |
| c | Purchase on a forward commitment basis. |
| d | Non-income producing—security in default. |
| e | Securities exempt from registration under rule 144A of the Securities Act of 1993.These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers.At February 29, 2004 these securities amount to $5,745,176 or 4.2% of net assets. |
| f | Security linked to a portfolio of investment grade debt securities. |
| g | Investments in affiliated money market mutual funds. |
| h | Partially held by a broker as collateral for open short positions. |
| i | Partially held by a broker for open financial futures. |
See notes to finanial statements.
The Fund 15
STATEMENT OF FINANCIAL FUTURES
February 29, 2004 (Unaudited)
| Unrealized | ||||||
| Market Value | Appreciation/ | |||||
| Covered by | (Depreciation) | |||||
| Contracts | Contracts ($) | Expiration | at 2/29/2004 ($) | |||
| Financial Futures Long: | ||||||
| U.S. Treasury 5 year Note | 5 | 568,828 | March 2004 | 517 | ||
| U.S. Treasury 10 year Note | 15 | 1,730,625 | March 2004 | 2,524 | ||
| Financial Futures Short: | ||||||
| U.S. Treasury 30 year Bond | 54 | 6,149,250 | March 2004 | (51,132) | ||
| (48,091) | ||||||
| See notes to finanial statements. |
16
STATEMENT OF SECURITIES SOLD SHORT
February 29, 2004 (Unaudited)
| Shares | Value ($) | ||||
| Common Stocks | |||||
| Kraft Foods | |||||
| (proceeds $ | 275,848) | 10,000 | 337,900 | ||
| See notes to finanial statements. | |||||
The Fund 17
STATEMENT OF ASSETS AND LIABILITIES
| February 29, 2004 (Unaudited) | |||||
| Cost | Value | ||||
| Assets ($): | |||||
| Investments in securities— | |||||
| See Statement of Investments (including securities | |||||
| on loan, valued at $2,215,960)—Note 1(c): | |||||
| Unaffiliated issuers | 122,960,604 | 139,452,937 | |||
| Affiliated issuers | 5,129,560 | 5,129,560 | |||
| Cash | 7,296,840 | ||||
| Receivable for investment securities sold | 3,525,049 | ||||
| Dividends and interest receivable | 614,653 | ||||
| Receivable from brokers for proceeds on securities sold short | 275,848 | ||||
| Receivable for shares of Common Stock subscribed | 63,399 | ||||
| Prepaid expenses | 16,493 | ||||
| 156,374,779 | |||||
| Liabilities ($): | |||||
| Due to The Dreyfus Corporation and affiliates | 88,497 | ||||
| Payable for investment securities purchased | 16,041,049 | ||||
| Liability for securities on loan—Note 1(c) | 2,282,560 | ||||
| Payable for shares of Common Stock redeemed | 391,054 | ||||
| Securities sold short, at value (proceeds $ | 275,848) | ||||
| —See Statement of Securities Sold Short | 337,900 | ||||
| Payable for futures variation margin—Note 4 | 74,713 | ||||
| Accrued expenses | 192,213 | ||||
| 19,407,986 | |||||
| Net Assets ( | $) | 136,966,793 | |||
| Composition of Net Assets ($): | |||||
| Paid-in capital | 146,727,314 | ||||
| Accumulated undistributed investment income—net | 28,748 | ||||
| Accumulated net realized gain (loss) on investments | (26,171,459) | ||||
| Accumulated net unrealized appreciation (depreciation) | |||||
| on investments [including ($48,091) net unrealized | |||||
| (depreciation) on financial futures] | 16,382,190 | ||||
| Net Assets ( | $) | 136,966,793 | |||
| Shares Outstanding | |||||
| (300 million shares of | $.001 par value Common Stock authorized) | 10,083,251 | |||
| Net Asset Value, | offering and redemption price per share ($) | 13.58 | |||
| See notes to financial statements. | |||||
18
| STATEMENT OF OPERATIONS | |||
| Six Months Ended February 29, 2004 (Unaudited) | |||
| Investment Income ( | $): | ||
| Income: | |||
| Cash dividends (net of $271 foreign taxes withheld at source): | |||
| Unaffiliated issuers | 787,058 | ||
| Affiliated issuers | 42,394 | ||
| Interest | 630,877 | ||
| Income on securities lending | 4,039 | ||
| Total Income | 1,464,368 | ||
| Expenses: | |||
| Management fee—Note 3(a) | 409,314 | ||
| Shareholder servicing costs—Note 3(b) | 269,945 | ||
| Professional fees | 40,791 | ||
| Prospectus and shareholders’ reports | 15,058 | ||
| Custodian fees—Note 3(b) | 14,889 | ||
| Registration fees | 10,902 | ||
| Dividends on securities sold short | 8,298 | ||
| Directors’ fees and expenses—Note 3(c) | 7,516 | ||
| Loan commitment fees—Note 2 | 722 | ||
| Miscellaneous | 5,832 | ||
| Total Expenses | 783,267 | ||
| Investment Income—Net | 681,101 | ||
| Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |||
| Net realized gain (loss) on investments: | |||
| Long transactions | 3,139,957 | ||
| Short sale transactions | (113,966) | ||
| Net realized gain (loss) on financial futures | (360,555) | ||
| Net Realized Gain (Loss) | 2,665,436 | ||
| Net unrealized appreciation (depreciation) on investments | |||
| [including ($48,771) net unrealized (depreciation) | |||
| on financial futures] | 9,233,041 | ||
| Net Realized and Unrealized Gain (Loss) on Investments | 11,898,477 | ||
| Net Increase in Net Assets Resulting from Operations | 12,579,578 | ||
| See notes to financial statements. | |||
The Fund 19
STATEMENT OF CHANGES IN NET ASSETS
| Six Months Ended | ||||
| February 29, 2004 | Year Ended | |||
| (Unaudited) | August 31, 2003 | |||
| Operations ($): | ||||
| Investment income—net | 681,101 | 2,063,703 | ||
| Net realized gain (loss) on investments | 2,665,436 | (10,425,919) | ||
| Net unrealized appreciation | ||||
| (depreciation) on investments | 9,233,041 | 16,470,001 | ||
| Net Increase (Decrease) in Net Assets | ||||
| Resulting from Operations | 12,579,578 | 8,107,785 | ||
| Dividends to Shareholders from ($): | ||||
| Investment income—net | (703,806) | (2,818,934) | ||
| Capital Stock Transactions ($): | ||||
| Net proceeds from shares sold | 8,867,581 | 16,463,433 | ||
| Dividends reinvested | 686,772 | 2,754,654 | ||
| Cost of shares redeemed | (20,248,922) | (48,201,035) | ||
| Increase (Decrease) in Net Assets | ||||
| from Capital Stock Transactions | (10,694,569) | (28,982,948) | ||
| Total Increase (Decrease) in Net Assets | 1,181,203 | (23,694,097) | ||
| Net Assets ($): | ||||
| Beginning of Period | 135,785,590 | 159,479,687 | ||
| End of Period | 136,966,793 | 135,785,590 | ||
| Undistributed investment income—net | 28,748 | 51,453 | ||
| Capital Share Transactions (Shares): | ||||
| Shares sold | 681,934 | 1,402,088 | ||
| Shares issued for dividends reinvested | 54,146 | 239,624 | ||
| Shares redeemed | (1,552,423) | (4,175,197) | ||
| Net Increase (Decrease) in Shares Outstanding | (816,343) | (2,533,485) | ||
| See notes to financial statements. |
20
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and dis-tributions.These figures have been derived from the fund’s financial statements.
| Six Months Ended | ||||||||||||
| February 29, 2004 | Year Ended August 31, | |||||||||||
| (Unaudited) | 2003 | 2002a | 2001 | 2000 | 1999 | |||||||
| Per Share Data ($): | ||||||||||||
| Net asset value, | ||||||||||||
| beginning of period | 12.46 | 11.87 | 14.16 | 16.42 | 16.51 | 15.19 | ||||||
| Investment Operations: | ||||||||||||
| Investment income—netb | .06 | .17 | .27 | .39 | .41 | .42 | ||||||
| Net realized and unrealized | ||||||||||||
| gain (loss) on investments | 1.13 | .65 | (2.25) | (1.65) | 1.54 | 2.43 | ||||||
| Total from Investment Operations | 1.19 | .82 | (1.98) | (1.26) | 1.95 | 2.85 | ||||||
| Distributions: | ||||||||||||
| Dividends from | ||||||||||||
| investment income—net | (.07) | (.23) | (.31) | (.39) | (.43) | (.45) | ||||||
| Dividends from net realized | ||||||||||||
| gain on investments | — | — | — | (.61) | (1.61) | (1.08) | ||||||
| Total Distributions | (.07) | (.23) | (.31) | (1.00) | (2.04) | (1.53) | ||||||
| Net asset value, end of period | 13.58 | 12.46 | 11.87 | 14.16 | 16.42 | 16.51 | ||||||
| Total Return (%) | 9.55c | 7.09 | (14.21) | (7.87) | 12.62 | 19.37 | ||||||
| Ratios/Supplemental Data (%): | ||||||||||||
| Ratio of operating expenses | ||||||||||||
| to average net assets | .56c | 1.06 | 1.01 | .81 | .96 | .94 | ||||||
| Ratio of interest expense, loan | ||||||||||||
| commitment fees and dividends | ||||||||||||
| on securities sold short | ||||||||||||
| to average net assets | .01c | .00d | .00d | — | .00d | .03 | ||||||
| Ratio of net investment income | ||||||||||||
| to average net assets | .50c | 1.47 | 2.02 | 2.60 | 2.54 | 2.62 | ||||||
| Portfolio Turnover Rate | 139.54c | 288.05 | 200.50 | 295.43 | 160.38 | 162.40 | ||||||
| Net Assets, end of period | ||||||||||||
| ($ x 1,000) | 136,967 | 135,785 | 159,480 | 195,010 | 198,578 | 188,215 | ||||||
a As required, effective September 1, 2001, the fund has adapted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing discount or premium on fixed income securities on a scientific basis and including paydown gains and losses in interest income.The effect of this change for the period ended August 31, 2002 was to decrease net investment income per share by $.01, increase net realized and unrealized gain (loss) on investments per share by $.01, and decrease the ratio of net investment income to average net assets from 2.13% to 2.02%. Per share data and ratio/supplemental data for periods prior to September 1, 2001 have not been restated to reflect this change in presentation.
| b | Based on average shares outstanding at each month end. |
| c | Not annualized. |
| d | Amount represents less than .01%. |
See notes to financial statements.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus Balanced 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 provide investors with long-term capital growth and current income. The Dreyfus Corporation (the “Manager”) serves as the fund’s investment adviser.The Manager is a wholly-owned subsidiary of Mellon Financial Corporation (“Mellon Financial”). Dreyfus Service Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, 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 accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Most debt securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Directors.The fund prices securities traded on the NASDAQ stock market using the NASDAQ official closing price. Debt securities for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other debt securities are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Other securities (including financial futures) are valued at the
22
average of the most recent bid and asked prices in the market in which such securities are primarily traded, or at the last sales price for securities traded primarily on an exchange or the national securities market. In the absence of reported sales of securities traded primarily on an exchange or national securities market, the average of the most recent bid and asked prices is used. 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, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the cus-
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
tody agreement, the fund received net earnings credits based on available cash balances left on deposit.
The fund may lend securities to qualified institutions. At origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan will be maintained at all times. Cash collateral is invested in certain money market mutual funds managed by the Manager as shown in the fund’s Statement of Investments.The fund will be entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Such income earned is included in interest income.Although each security loaned is fully collateralized, the fund would bear the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner.
(d) Affiliated issuers: Issuers in which the fund held investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(e) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net are declared and paid quarterly. Dividends from net realized capital gain, if any, 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, it is the policy of the fund not to distribute such gain. Income and capital gain distributions are determined in accordance with incomes tax regulations, which may differ from accounting principles generally accepted in the United States.
(f) 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
24
provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
The fund has an unused capital loss carryover of $19,762,632 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to August 31, 2003. If not applied $89,710 of the carryover expires in fiscal 2009 and $3,995,412 expires in fiscal 2010 and $15,677,510 expires in fiscal 2011.
The tax character of distributions paid to shareholders during the fiscal year ended August 31, 2003, was as follows: ordinary income $2,818,934. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $350 million redemption credit facility (the “Facility”) 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 based on prevailing market rates in effect at the time of borrowings. During the period ended February 29, 2004, 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 .60 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 reimburses the Distributor an amount not to exceed an annual rate of .25 of 1% of the value of the fund’s average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts.The services provided may include personal services
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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. During the period ended February 29, 2004, the fund was charged $52,000 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 February 29, 2004, the fund was charged $23,881 pursuant to the transfer agency agreement.
The fund compensates Mellon Bank, N.A., an affiliate of the Manager, under a custody agreement for providing custodial services for the fund. During the period ended February 29, 2004, the fund was charged $14,889 pursuant to the custody agreement.
(c) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
(d) Pursuant to an exemptive order from the Securities and Exchange Commission, the fund may invest its available cash balances in affiliated money markets funds as shown in the fund’s Statement of Investments. Management fees are not charged to these money market mutual funds. During the period ended February 29, 2004, the fund derived $42,394 in income from these investments, which is included in dividend income in the fund’s Statement of Operations.
NOTE 4—Securities Transactions:
The following summarizes the aggregate amount of purchases and sales of investment securities and securities sold short, excluding short-term securities and financial futures, during the period ended February 29, 2004 of which $38,204,534 in purchases and $38,324,207 in sales were from dollar roll transactions.
| Purchases ($) | Sales ($) | |||
| Long transactions | 185,006,911 | 190,655,201 | ||
| Short sale transactions | 551,967 | 11,845 | ||
| Total | 185,558,878 | 190,667,046 |
26
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 or custodian of permissable liquid assets sufficient to cover its short position. Securities sold short at February 29, 2004, and their related market values and proceeds are set forth in the statement of Securities Sold Short.
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 contracts at the close of each day’s trading. Typically, 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 equiva-lents.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 February 29, 2004 are set forth in the Statement of Financial Futures.
At February 29, 2004, accumulated net unrealized appreciation on investments was $16,492,333, consisting of $18,991,603 gross unrealized appreciation and $2,499,270 gross unrealized depreciation.
At February 29, 2004, 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).
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 5—Legal Matters:
Two class actions have been filed against Mellon Financial and Mellon Bank, N.A., and Dreyfus and Founders Asset Management LLC (the “Investment Advisers”), and the directors of all or substantially all of the Dreyfus funds, alleging that the Investment Advisers improperly used assets of the Dreyfus funds, in the form of directed brokerage commissions and 12b-1 fees, to pay brokers to promote sales of Dreyfus funds, and that the use of fund assets to make these payments was not properly disclosed to investors.The complaints further allege that the directors breached their fiduciary duties to fund shareholders under the Investment Company Act of 1940 and at common law.The complaints seek unspecified compensatory and punitive damages, rescission of the funds’ contracts with the Investment Advisers, an accounting of all fees paid, and an award of attorneys’ fees and litigation expenses. Dreyfus and the Dreyfus funds believe the allegations to be totally without merit and will defend the actions vigorously.
Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the defendants in the future. Neither Dreyfus nor the Dreyfus funds believe that any of the pending actions will have a material adverse affect on the Dreyfus funds or Dreyfus’ ability to perform its contracts with the Dreyfus funds.
28
For More Information
| Dreyfus Balanced |
| 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. |
| 200 Park Avenue |
| New York, NY 10166 |
| Distributor |
| Dreyfus Service Corporation |
| 200 Park Avenue |
| New York, NY 10166 |
| To obtain information: |
| By telephone |
| Call 1-800-645-6561 |
| By mail Write to: |
| The Dreyfus Family of Funds |
| 144 Glenn Curtiss Boulevard |
| Uniondale, NY 11556-0144 |
By E-mail Send your request to info@dreyfus.com
On the Internet Information can be viewed online or downloaded from: http://www.dreyfus.com
A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, by calling the telephone number listed above, or by visiting the SEC’s website at http://www.sec.gov
© 2004 Dreyfus Service Corporation 0222SA0204
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the Registrant's most recently ended fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
-2-
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dreyfus Balanced Fund, Inc. | |
| By: | /s/ Stephen E. Canter |
| Stephen E. Canter | |
| President | |
| Date: | April 23, 2004 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ Stephen E. Canter |
| Stephen E. Canter | |
| Chief Executive Officer | |
| Date: | April 23, 2004 |
| By: | /s/ James Windels |
| James Windels | |
| Chief Financial Officer | |
| Date: | April 23, 2004 |
EXHIBIT INDEX
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)
-3-