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 (212) 922-6000
area code:
Date of fiscal year end: 8/31
Date of reporting period: 8/31/03
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
Dreyfus Balanced
Fund, Inc.
YOU, YOUR ADVISOR AND
DREYFUS
A MELLON FINANCIAL COMPANY(TM)
ANNUAL REPORT August 31, 2003
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
THE FUND
- --------------------------------------------------
2 Letter from the Chairman
3 Discussion of Fund Performance
6 Fund Performance
7 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
29 Report of Independent Auditors
30 Important Tax Information
31 Board Members Information
33 Officers of the Fund
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus Balanced Fund, Inc.
LETTER FROM THE CHAIRMAN
Dear Shareholder:
This annual report for Dreyfus Balanced Fund, Inc. covers the 12-month period
from September 1, 2002, through August 31, 2003. 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 fixed-income component of the fund.
After a prolonged period of sluggish growth, the U.S. economy has shown signs of
sustainable improvement. Estimates of economic growth in 2003's second quarter
recently were revised upward to 3.3%, and many economists expect another strong
showing for the third quarter. These improving economic expectations have driven
most broad measures of stock market performance higher so far in 2003.
Investors who stayed the course throughout the bear market were more likely to
have participated in the 2003 equity rally, reinforcing our longstanding belief
in a long-term approach to equity investing. We remain committed to providing
you with the benefits of professional management and diversification. As always,
we encourage you to talk with your financial advisor, who can help you adjust
your strategies as market conditions evolve.
Thank you for your continued confidence and support.
Sincerely,
/S/STEPHEN E. CANTER
Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
September 15, 2003
2
DISCUSSION OF FUND PERFORMANCE
Douglas D. Ramos, CFA, Portfolio Manager
Gerald E. Thunelius, Director, Dreyfus Taxable Fixed Income Tea
HOW DID DREYFUS BALANCED FUND, INC. PERFORM RELATIVE TO ITS BENCHMARK?
For the 12-month period ended August 31, 2003, the fund produced a total return
of 7.09% .(1) This compares with a 8.98% total return for the fund's Customized
Blended Index. The Standard & Poor's 500 Composite Stock Price Index ("S&P 500
Index" ), which comprised 60% of our blended index, provided a total return of
12.06% , and the Lehman Brothers Aggregate Bond Index, comprising 40% of our
blended index, produced a total return of 4.36% for the same period.(2,3)
We attribute these results primarily to a sharp upswing in stocks during the
second half of the reporting period, which more than compensated for a stock
market slump in the first half of the reporting period. However, the fund's
equity-related declines proved steeper than those of the S&P 500 Index during
the first half of the reporting period, causing the fund's total returns to
trail the blended benchmark. Bonds generally contributed positively to the
fund's overall performance.
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%.
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 valu-
The Fund 3
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
ation 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.
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?
We emphasized stocks over bonds throughout the reporting period in anticipation
of an improving U.S. economy. This approach undermined performance during the
first half of the reporting period, but boosted returns during the second half
of the reporting period when stocks rose sharply. Among stock holdings, the fund
benefited from overweighted positions in technology stocks such as Intel and
Cisco Systems; economically sensitive financial stocks such as Citigroup; and
consumer
4
discretionary stocks such as Best Buy. Performance relative to the benchmark
suffered primarily due to the fund's relatively heavy exposure to the energy
group, which trailed the averages, and its relatively light positions among
industrial stocks, one of the market's stronger sectors.
On the fixed-income side, declining interest rates and rising corporate bond
prices benefited returns. As relatively credit-sensitive bonds rallied amid
signs of better business conditions, the fund's bond portfolio particularly
benefited from its emphasis on investment-grade corporate bonds. In the more
interest-rate-sensitive market sectors, the fund received attractive returns
from Treasury Inflation Protected Securities, known as "TIPS."
WHAT IS THE FUND'S CURRENT STRATEGY?
As of the end of August, we continue to emphasize stocks, especially those that
we believe are positioned to benefit from stronger economic growth. We have
found a number of investments meeting our criteria in the technology, consumer
discretionary and energy groups, and fewer in relatively defensive areas, such
as health care and consumer staples. Among bonds, we gradually have reduced the
fund's holdings of corporate securities, moving their weightings closer to their
representation in the fund's fixed-income benchmark. In our view, a more
sector-neutral strategy is prudent while the bond market adjusts to investors'
more optimistic assessment of economic prospects.
September 15, 2003
(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 GAINS 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 GAINS 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
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Balanced Fund,
Inc. with the Standard & Poor's 500 Composite Stock Price Index, the Lehman
Brothers Aggregate Bond Index, and the Customized Blended Index
- --------------------------------------------------------------------------------
Average Annual Total Returns AS OF 8/31/03
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
FUND 7.09% 2.62% 6.67%
((+)) SOURCE: LIPPER INC.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE FUND'S PERFORMANCE
SHOWN IN THE GRAPH AND TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN DREYFUS BALANCED FUND,
INC. ON 8/31/93 TO A $10,000 INVESTMENT MADE ON THAT DATE IN THREE DIFFERENT
INDICES: (1) THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX (THE "S&P 500
INDEX"), (2) THE LEHMAN BROTHERS AGGREGATE BOND INDEX (THE "AGGREGATE BOND
INDEX"), AND (3) THE CUSTOMIZED BLENDED INDEX. THE CUSTOMIZED BLENDED INDEX IS
CALCULATED ON A YEAR-TO-YEAR BASIS. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
ARE REINVESTED.
THE FUND'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE
FEES AND EXPENSES. THE S&P 500 INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF
U.S. STOCK MARKET PERFORMANCE. THE AGGREGATE BOND INDEX IS A WIDELY ACCEPTED,
UNMANAGED INDEX OF CORPORATE, U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY DEBT
INSTRUMENTS, MORTGAGE-BACKED SECURITIES, AND ASSET-BACKED SECURITIES WITH AN
AVERAGE MATURITY OF 1-10 YEARS. THE INDICES DO NOT TAKE INTO ACCOUNT CHARGES,
FEES AND OTHER EXPENSES. THE CUSTOMIZED BLENDED INDEX IS COMPOSED OF S&P 500
INDEX, 60%, AND AGGREGATE BOND INDEX, 40%. FURTHER INFORMATION RELATING TO FUND
PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN
THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT
6
STATEMENT OF INVESTMENTS
August 31, 2003
COMMON STOCKS--65.5% Shares Value ($)
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CONSUMER DISCRETIONARY--9.8%
AOL Time Warner 40,500 (a) 662,580
Best Buy 14,000 (a) 728,140
Carnival 37,000 1,279,830
Clear Channel Communications 21,520 (a) 970,982
Comcast, Cl. A 18,745 (a) 557,664
Disney (Walt) 21,000 430,500
Ford Motor 24,000 277,440
General Motors 8,000 328,800
Hilton Hotels 20,000 305,600
Home Depot 29,000 932,640
InterActiveCorp 22,200 (a,b) 821,622
Lamar Advertising 11,500 (a) 384,215
Liberty Media 65,000 (a) 786,500
McDonald's 39,000 874,380
Staples 22,600 (a) 556,638
TJX Cos. 49,100 1,063,506
Target 25,600 1,039,360
Viacom, Cl. B 29,365 1,321,425
13,321,822
CONSUMER STAPLES--3.6%
Altria Group 25,000 1,030,500
Coca-Cola 23,000 1,000,960
Kraft Foods 9,200 273,240
PepsiCo 25,000 1,113,500
Procter & Gamble 17,100 1,492,659
4,910,859
ENERGY--4.3%
Anadarko Petroleum 13,000 565,500
Cross Timbers Royalty Trust 147 3,280
Devon Energy 17,630 912,353
Exxon Mobil 64,576 2,434,515
Schlumberger 19,000 940,690
XTO Energy 46,866 983,717
5,840,055
The Fund 7
STATEMENT OF INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED) Shares Value ($)
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FINANCIAL--13.6%
ACE 12,000 386,400
American Express 16,900 761,345
American International Group 36,351 2,165,429
Bank of America 15,300 1,212,525
Bank of New York 37,000 1,088,540
Bank One 13,000 513,110
Capital One Financial 4,000 213,600
Citigroup 63,733 2,762,826
Countrywide Financial 9,000 610,650
Federal Home Loan Mortgage Association 9,000 478,350
Federal National Mortgage Association 17,600 1,140,304
FleetBoston Financial 15,600 461,604
Goldman Sachs Group 8,200 725,618
J.P. Morgan Chase & Co. 16,920 579,002
MBNA 31,600 737,544
Marsh & McLennan Cos. 13,000 650,000
Merrill Lynch 3,000 161,340
Morgan Stanley 11,600 565,964
St. Paul Cos. 13,800 479,688
Travelers Property Casualty, Cl. A 44,969 692,073
Travelers Property Casualty, Cl. B 6,101 94,504
U.S. Bancorp 19,000 454,100
Washington Mutual 11,000 428,780
Wells Fargo 22,000 1,103,080
18,466,376
HEALTH CARE--7.0%
Abbott Laboratories 12,000 483,600
Amgen 14,000 (a) 922,600
Anthem 6,200 (a) 453,840
Bard (C.R.) 4,000 268,000
Becton, Dickinson & Co. 10,000 365,400
Biovail 8,000 (a) 332,240
Bristol-Myers Squibb 16,900 428,753
Johnson & Johnson 12,200 604,876
Lilly (Eli) & Co. 11,400 758,442
Merck & Co. 28,400 1,429,089
8
COMMON STOCKS (CONTINUED) Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (CONTINUED)
Novartis, ADR 11,000 406,670
Pfizer 44,800 1,340,416
Teva Pharmaceutical Industries, ADR 11,000 645,832
WellPoint Health Networks 5,000 (a) 390,000
Wyeth 15,500 664,175
9,493,933
INDUSTRIALS--6.5%
CSX 16,000 516,480
Danaher 10,000 772,500
Deere & Co. 11,000 621,610
Emerson Electric 11,000 613,360
General Electric 104,000 3,075,280
Illinois Tool Works 3,000 216,870
Lockheed Martin 6,000 307,380
Northrop Grumman 5,000 477,400
3M 4,000 569,880
Tyco International 26,000 535,080
United Technologies 6,400 513,600
Waste Management 20,000 532,200
8,751,640
INFORMATION TECHNOLOGY--14.3%
Accenture, Cl. A 24,500 (a) 518,420
Applied Materials 27,000 (a) 583,200
Cisco Systems 73,000 (a) 1,397,950
Computer Sciences 15,600 (a) 664,092
Dell 35,000 (a) 1,142,050
EMC 60,000 (a) 765,000
First Data 17,000 652,800
Hewlett-Packard 27,868 555,131
Intel 64,200 1,837,404
International Business Machines 16,000 1,312,160
Jabil Circuit 30,000 (a) 844,500
KLA-Tencor 17,000 (a) 1,009,120
Micron Technology 13,000 (a) 186,680
Microsoft 116,000 3,076,320
Motorola 47,800 512,894
The Fund 9
STATEMENT OF INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED) Shares Value ($)
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INFORMATION TECHNOLOGY (CONTINUED)
NVIDIA 24,000 (a) 435,840
National Semiconductor 13,400 (a) 390,476
Nokiaj, ADR 29,000 472,410
Oracle 85,000 (a) 1,086,300
SAP, ADR 14,000 419,160
Taiwan Semiconductor Manufacturing, ADR 27,700 (a) 326,306
Teradyne 18,600 (a) 331,638
VeriSign 30,000 (a) 449,100
Xilinx 16,000 493,440
19,462,391
MATERIALS--2.3%
Alcoa 16,000 456,960
du Pont (E.I) de Nemours 7,000 313,180
International Paper 17,000 689,350
PPG Industries 11,000 604,010
Praxair 8,000 510,560
Weyerhaeuser 10,000 595,000
3,169,060
TELECOMMUNICATION SERVICES--2.2%
AT&T Wireless Services 21,000 181,020
BellSouth 23,000 579,600
SBC Communications 27,400 616,226
Telefonos de Mexico, ADR 14,000 424,340
Verizon Communications 32,000 1,130,240
2,931,426
UTILITIES--1.9%
Exelon 10,000 589,000
FPL Group 8,000 494,880
Progress Energy 8,000 323,920
Southern 17,000 482,460
TXU 19,000 418,000
Wisconsin Energy 8,700 253,518
2,561,778
TOTAL COMMON STOCKS
(cost $81,897,754) 88,909,340
10
Principal
BONDS AND NOTES--31.3% Amount ($) Value ($)
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AEROSPACE AND DEFENSE--.1%
Boeing Capital,
Sr. Notes, 4.75%, 8/25/2008 145,000 146,186
AIRLINES--.0%
America West Airlines Pass-Through Trust,
Pass-Through Ctfs.,
Ser. 1997-1, Cl. C, 7.53%, 1/2/2004 6,610 4,433
U.S. Airways,
Enhanced Equipment Notes,
Ser. C, 8.93%, 10/15/2009 114,798 (c) 22,960
27,393
ASSET- BACKED CERTIFICATES--.3%
MBNA Credit Card Master Note Trust,
Ser. 2002-C1, Cl. 1, 6.8%, 7/15/2014 343,000 355,186
AUTO MANUFACTURING--.1%
General Motors,
Debs., 8.375%, 7/15/2033 138,000 136,769
BANKS--.1%
Dresdner Funding Trust I,
Bonds, 8.151%, 6/30/2031 88,000 (d) 90,827
BEVERAGES--.1%
Miller Brewing,
Notes, 4.25%, 8/15/2008 135,000 (d) 134,728
COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--1.1%
GS Mortgage Securities II,
Ser. 2001-LIBA, Cl. A2, 6.615%, 2/10/2016 1,342,000 (d) 1,433,296
COMPUTERS--.4%
Hewlett-Packard,
Notes, 5.75%, 12/15/2006 330,000 354,828
International Busines Machines,
Notes, 4.75%, 11/29/2012 195,000 190,921
545,749
COSMETICS/PERSONAL CARE--.2%
Kimberly-Clark,
Notes, 5%, 8/15/2013 260,000 260,895
DIVERSIFIED FINANCIAL SERVICES--.2%
Ford Motor Credit,
Notes, A306 6.5%, 1/25/2007 320,000 331,416
The Fund 11
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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ELECTRIC UTILITIES--.4%
Consolidated Edison of New York,
Debs., 4.875%, 2/1/2013 290,000 284,416
Entergy Arkansas,
First Mtg., 5.4%, 5/1/2018 130,000 (d) 122,558
Public Service Colorado,
First Mtg., 4.875%, 3/1/2013 149,000 (d) 143,417
550,391
ELECTRIC COMPONENTS & EQUIPMENT--.1%
Emerson Electric,
Bonds, 4.5%, 5/1/2013 200,000 191,587
FOREST PRODUCTS & PAPER--.1%
Weyerhaeuser,
Notes, 7.375%, 3/15/2032 100,000 105,364
INSURANCE--.1%
Metlife,
Sr. Notes, 5.375%, 12/15/2012 155,000 (b) 155,920
MANUFACTURING--.2%
General Electric,
Notes, 5%, 2/1/2013 210,000 207,323
MINING & METALS--.2%
Alcoa,
Notes, 6%, 1/15/2012 206,000 217,405
OFFICE/BUSINESS EQUIPMENT--.3%
Pitney Bowes,
Notes, 4.75%, 5/15/2018 495,000 460,931
PHARMACEUTICAL--.0%
Lilly (Eli) & Co.,
Notes, 4.5%, 3/15/2018 58,000 54,126
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--.4%
IMPAC Secured Assets CMN Owner Trust,
Ser. 2002-1, Cl. AI3, 5.57%, 1/25/2023 529,946 529,862
RETAIL--.1%
Toys R US,
Notes, 7.625%, 8/1/2011 110,000 (b) 114,586
STRUCTURED INDEX--4.8%
Lehman Brothers TRAINS,
Ser. L-2002, 7.754%, 11/15/2031 2,521,200 (d,e,f) 2,880,521
12
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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STRUCTURED INDEX (CONTINUED)
Morgan Stanley TRACERS:
Ser. 2001-1, 7.236%, 9/15/2011 448,000 (d,f) 499,626
Ser. 2000-1, 6.799%, 6/15/2012 2,910,000 (b,d,f) 3,182,612
6,562,759
TELECOMMUNICATIONS--.3%
British Telecommunications,
Notes, 8.125%, 12/15/2010 91,000 108,169
France Telecom,
Notes, 7.75%, 3/1/2011 71,000 84,895
Verizon Florida,
Debs., 6.125%, 1/15/2013 243,000 255,359
448,423
U.S. GOVERNMENT AGENCIES/
MORTGAGE-BACKED--21.7%
Federal Home Loan Mortgage Corp.:
5.5% 4,426,000 (g) 4,398,315
2.75%, 8/15/2006 4,600,000 4,593,661
6.5%, 5/1/2032 140,043 145,075
Federal National Mortgage Association:
Mortgage-Backed:
6.2%, 1/1/2011 1,314,539 1,427,437
6.88%, 2/1/2028 938,873 990,210
5.5%, 4/1/2033 497,065 495,509
6%, 5/1/2033 935,621 951,405
Sub Notes,
8%, 1/1/2030-11/1/2030 743,544 800,237
Government National
Mortgage Association I:
5.0% 9,000 (g) 8,727
5.5% 4,229,000 (g) 4,218,047
6.0% 1,850,000 (g) 1,882,949
6.5% 1,231,000 (g) 1,277,926
6.5%, 6/15/2032 212,502 (b) 221,134
6.0%, 2/15/2033 207,453 212,054
5.5%, 4/15/2033 180,606 (b) 180,780
Tennessee Valley Authority,
Valley Indexed Principal Securities,
3.375%, 1/15/2007 1,109,563 (h) 1,186,450
The Fund 13
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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U.S. GOVERNMENT AGENCIES/
MORTGAGE-BACKED (CONTINUED)
U.S. Treasury Bonds,
5.375%, 2/15/2031 270,000 275,883
U.S. Treasury Inflation Protection Securities:
3%, 7/15/2012 1,378,206 (h) 1,466,397
3.625%, 4/15/2028 277,118 (h) 320,267
3.875%, 4/15/2029 1,022,421 (h) 1,234,342
U.S. Treasury Notes:
3.25%, 5/31/2004 740,000 (b) 751,588
7.5%, 2/15/2005 1,038,000 (b) 1,126,303
3.25%, 8/15/2008 575,000 (b) 570,104
4.25%, 8/15/2013 713,000 (b) 701,636
29,436,436
TOTAL BONDS AND NOTES
(cost $42,339,381) 42,497,558
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OTHER INVESTMENTS--9.4% Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES:
Dreyfus Institutional Cash Advantage Fund 4,259,000 (i) 4,259,000
Dreyfus Institutional Cash Advantage Plus Fund 4,259,000 (i) 4,259,000
Dreyfus Institutional Preferred Plus Money Market Fund 4,259,000 (i) 4,259,000
TOTAL OTHER INVESTMENTS
(cost $12,777,000) 12,777,000
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Principal
SHORT-TERM INVESTMENTS--2.5% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS;
1.05%, 9/18/2003 50,000 (k) 49,979
.88%, 10/23/2003 235,000 (j) 234,706
.89%, 10/30/2003 325,000 (k) 324,516
.91%, 12/4/2003 20,000 19,951
.93%, 12/11/2003 870,000 867,825
1.00%, 1/15/2004 1,050,000 1,046,178
1.04%, 2/5/2004 870,000 866,737
TOTAL SHORT-TERM INVESTMENTS
(cost $3,409,068) 3,409,892
14
INVESTMENT OF CASH COLLATERAL Principal
FOR SECURITIES LOANED--5.8% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANY;
Dreyfus Institutional Preferred Money Market Fund
(cost $7,830,027) 7,830,027 7,830,027
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TOTAL INVESTMENTS (cost $148,253,230) 114.5% 155,423,817
LIABILITIES, LESS CASH AND RECEIVABLES (14.5%) (19,638,227)
NET ASSETS 100.0% 135,785,590
(A) NON-INCOME PRODUCING.
(B) ALL OR A PORTION OF THESE SECURITIES ARE ON LOAN. AT AUGUST 31, 2003, THE
TOTAL MARKET VALUE OF THE FUND'S SECURITIES ON LOAN IS $7,614,015 AND THE
TOTAL MARKET VALUE OF THE COLLATERIAL HELD BY FUND IS $7,830,027.
(C) NON-INCOME PRODUCING--SECURITY IN DEFAULT.
(D) 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 AUGUST 31,
2003 THESE SECURITIES AMOUNT TO $8,487,585 OR 6.3% OF THE ASSETS.
(E) VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(F) SECURITY LINKED TO A PORTFOLIO OF INVESTMENT GRADE DEBT SECURITIES.
(G) PURCHASE ON A FORWARD COMMITMENT BASIS.
(H) PRINCIPAL AMOUNT FOR ACCRUAL PURPOSE IS PERIODICALLY ADJUSTED BASED ON A
CHANGES TO THE CONSUMER PRICE INDEX.
(I) INVESTMENTS IN AFFILIATED MONEY MARKET MUTUAL FUNDS--SEE NOTE 3(D).
(J) PARTIALLY HELD BY A BROKER IN A SEGREGATED ACCOUNT FOR OPEN FINANCIAL
FUTURES.
(K) PARTIALLY HELD BY A BROKER AS COLLATERAL FOR OPEN SHORT POSITIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 15
STATEMENT OF FINANCIAL FUTURES
August 31, 2003
Unrealized
Market Value Appreciation
Covered by (Depreciation)
Contracts Contracts ($) Expiration at 8/31/2003 ($)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL FUTURES SHORT:
U.S. Treasury 2 year Note 16 3,433,500 September 2003 680
SEE NOTES TO FINANCIAL STATEMENTS.
16
STATEMENT OF SECURITIES SOLD SHORT
August 31, 2003
Shares Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS
Altria Group 7,000 288,540
Kraft Foods 10,000 297,000
Teva Pharmaceutical Industries, ADR 4,000 234,848
TOTAL SECURITIES SOLD SHORT
(proceeds $702,004) 820,388
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 17
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2003
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of Investments
(including securities loaned
valued at $7,614,015)--Note 1(c) 148,253,230 155,423,817
Cash 24,520
Receivable for investment securities sold 3,726,629
Receivable from brokers for proceeds on securities sold short 702,004
Dividends and interest receivable 406,375
Receivable for futures variation margin--Note 4 1,750
Receivable for shares of Common Stock subscribed 2,512
Prepaid expenses and other assets 18,729
160,306,336
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 79,209
Payable for investment securities purchased 15,570,848
Liability for securities loaned--Note 1(c) 7,830,027
Securities sold short, at value (proceeds $702,004)
--See Statement of Securities Sold Short 820,388
Payable for shares of Common Stock redeemed 113,318
Accrued expenses 106,956
24,520,746
- --------------------------------------------------------------------------------
NET ASSETS ($) 135,785,590
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 157,518,149
Accumulated undistributed investment income--net 51,453
Accumulated net realized gain (loss) on investments (28,836,895)
Accumulated net unrealized appreciation (depreciation)
on investments (including $680 net unrealized
appreciation on financial futures) 7,052,883
- --------------------------------------------------------------------------------
NET ASSETS ($) 135,785,590
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(300 million shares of $.001 par value Common Stock authorized) 10,899,594
NET ASSET VALUE, offering and redemption price per share ($) 12.46
SEE NOTES TO FINANCIAL STATEMENTS.
18
STATEMENT OF OPERATIONS
Year Ended August 31, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Interest 1,954,609
Cash dividends (net of$2,085 foreign taxes withheld at source) 1,579,096
Income on securities lending 6,960
TOTAL INCOME 3,540,665
EXPENSES:
Management fee--Note 3(a) 832,592
Shareholder servicing costs--Note 3(b) 496,125
Professional fees 55,703
Custodian fees--Note 3(b) 28,754
Registration fees 18,863
Prospectus and shareholders reports 17,927
Directors fees and expenses--Note 3(c) 10,341
Interest expense--Note 2 3,689
Loan commitment fees--Note 2 1,405
Dividends on securities sold short 802
Miscellaneous 10,761
TOTAL EXPENSES 1,476,962
INVESTMENT INCOME--NET 2,063,703
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments:
Long transactions (10,293,756)
Short sale transactions 44,505
Net realized gain (loss) on financial futures (176,668)
NET REALIZED GAIN (LOSS) (10,425,919)
Net unrealized appreciation (depreciation) on investments
[including ($59,173) net unrealized depreciation on
financial futures] 16,470,001
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 6,044,082
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 8,107,785
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 19
STATEMENT OF CHANGES IN NET ASSETS
Year Ended August 31,
-----------------------------------
2003 2002
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 2,063,703 3,674,331
Net realized gain (loss) on investments (10,425,919) (17,374,841)
Net unrealized appreciation
(depreciation) on investments 16,470,001 (13,978,042)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 8,107,785 (27,678,552)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (2,818,934) (4,288,934)
- --------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 16,463,433 39,508,604
Dividends reinvested 2,754,654 4,182,745
Cost of shares redeemed (48,201,035) (47,253,705)
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL STOCK TRANSACTIONS (28,982,948) (3,562,356)
TOTAL INCREASE (DECREASE) IN NET ASSETS 23,694,097 (35,529,842)
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 159,479,687 195,009,529
END OF PERIOD 135,785,590 159,479,687
Undistributed investment income--net 51,453 576,469
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 1,402,088 2,965,005
Shares issued for dividends reinvested 239,624 311,891
Shares redeemed (4,175,197) (3,615,624)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (2,533,485) (338,728)
SEE NOTES TO FINANCIAL STATEMENTS.
20
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended August 31,
-------------------------------------------------------------------
2003 2002(a) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 11.87 14.16 16.42 16.51 15.19
Investment Operations:
Investment income--net .17(b) .27(b) .39(b) .41(b) .42(b)
Net realized and unrealized
gain (loss) on investments .65 (2.25) (1.65) 1.54 2.43
Total from Investment Operations .82 (1.98) (1.26) 1.95 2.85
Distributions:
Dividends from investment income--net (.23) (.31) (.39) (.43) (.45)
Dividends from net realized
gain on investments -- -- (.61) (1.61) (1.08)
Total Distributions (.23) (.31) (1.00) (2.04) (1.53)
Net asset value, end of period 12.46 11.87 14.16 16.42 16.51
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 7.09 (14.21) (7.87) 12.62 19.37
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses
to average net assets 1.06 1.01 .81 .96 .94
Ratio of interest expense
and loan commitment fees
to average net assets .00(c) .00(c) -- .00(c) .03
Ratio of net investment income
to average net assets 1.47 2.02 2.60 2.54 2.62
Portfolio Turnover Rate 288.05 200.50 295.43 160.38 162.40
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
($ x 1,000) 135,785 159,480 195,010 198,578 188,215
(A) AS REQUIRED, EFFECTIVE SEPTEMBER 1, 2001, THE FUND HAS ADOPTED 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 RATIOS/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) AMOUNT REPRESENTS LESS THAN .01%.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 21
NOTES TO FINANCIAL STATEMENTS
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 Bank, N.A. ("Mellon"), which is a
wholly-owned subsidiary of Mellon Financial Corporation. 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.
(a) Portfolio valuation: Most debt securities are valued each business day by an
independent pricing service (the "Service") approved by the Board of Directors.
Effective April 14, 2003, the fund began pricing 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 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 a
22
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 custody agreement, the fund received net earnings credits
of $554 during the period ended August 31, 2003 based on available cash balances
left on deposit. Income earned under this arrangement is included in interest
income.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The fund may lend securities to qualified institutions. At origination, all
loans are secured by cash 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.
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) 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 income
tax regulations, which may differ from accounting principles generally accepted
in the United States.
(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.
At August 31, 2003, the components of accumulated earnings on a tax basis were
as follows: undistributed ordinary income $108,694, accumulated capital losses
$19,762,632 and unrealized appreciation $6,499,081. In addition, the fund had
$8,624,903 of capital losses realized after October 31, 2002, which were
deferred for tax purposes to the first day of the following fiscal year.
24
The accumulated capital losses are available 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, $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
periods ended August 31, 2003 and August 31, 2002, were as follows: ordinary
income $2,818,934 and $4,288,934, respectively.
During the period ended August 31, 2003, as a result of permanent book to tax
differences, the fund increased accumulated undistributed investment income-net
by $230,215, decreased accumulated net realized gain (loss) on investments by
$238,027 and increased paid-in capital by $7,812. Net assets were not affected
by this reclassification.
NOTE 2--BANK LINE OF CREDIT:
The fund participates with other Dreyfus-managed funds in a $500 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.
The average daily amount of borrowings outstanding under the Facility during the
period ended August 31, 2003, was approximately $220,000, with a related
weighted average, interest rate of 1.68% annualized.
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 share
The Fund 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
holder accounts. 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. During the period ended August 31, 2003,
the fund was charged $111,184 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 August 31, 2003, the fund was charged $57,036 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 August 31, 2003, the fund was
charged $28,754 pursuant to the custody agreement.
(c) Each Board member also serves as a Board member of other funds within the
Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not
an "affiliated person" as defined in the Act receives an annual fee of $40,000,
an attendance fee of $6,000 for each in-person meeting and $500 for telephone
meetings. The Chairman of the Board receives an additional 25% of such
compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board
Members, if any, receive 50% of the annual retainer fee and per meeting fee paid
at the time the Board member achieves emeritus status. These fees are allocated
among the funds in the Fund Group in proportion to each fund's relative 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 market
mutual funds as shown in the fund's Statement of Investments. Management fees
are not charged to these accounts. During the period ended August 31, 2003, the
fund derived $65,064 in income from these investments, which is included in
dividend income in the fund's Statement of Operations.
26
(e) During the period ended August 31, 2003, the fund incurred total brokerage
commissions of $151,314 of which $150 was paid to Harborside Plus Inc., a
wholly-owned subsidiary of Mellon Financial Corporation.
NOTE 4--SECURITIES TRANSACTIONS:
The following summarizes the aggregate amount of purchases and sales of
investment securities and securities sold short, excluding short-term securities
and financial futures, during the period ended August 31, 2003:
Purchases ($) Sales ($)
- --------------------------------------------------------------------------------
Long transactions 390,245,750 417,299,495
Short sale transactions 710,394 1,456,904
TOTAL 390,956,144 418,756,399
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
August 31, 2003, 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
The Fund 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recognizes a realized gain or loss. These investments require initial margin
deposits with a broker, 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 August 31, 2003 are set forth in the
Statement of Financial Futures.
At August 31, 2003, the cost of investments for federal income tax purposes was
$148,806,352; accordingly, accumulated net unrealized appreciation on
investments was $6,617,465, consisting of $12,474,164 gross unrealized
appreciation and $5,856,699 gross unrealized depreciation.
28
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Dreyfus Balanced Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Dreyfus
Balanced Fund, Inc., including the statements of investments, financial futures
and securities sold short, as of August 31, 2003, 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 auditing standards generally accepted
in the United States. 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 by the custodian as of August 31,
2003 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 Balanced Fund, Inc. at August 31, 2003, 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 accounting principles generally accepted in the United
States.
Ernst & Young LLP
New York, New York
October 14, 2003
The Fund 29
IMPORTANT TAX INFORMATION (Unaudited)
The fund designates 57.55% of the ordinary dividends paid during the fiscal year
ended August 31, 2003 as qualifying for the corporate dividends received
deduction. The fund also designates 78.30% of the ordinary dividends paid during
2003 as qualified dividends, subject to a maximum tax rate of 15%, as provided
for by the Job and Growth Tax Relief Reconciliation Act of 2003. Shareholders
will receive notification in January 2004 of the percentage applicable to the
preparation of their 2003 income tax returns.
30
BOARD MEMBERS INFORMATION (Unaudited)
JOSEPH S. DIMARTINO (59)
CHAIRMAN OF THE BOARD (1995)
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* The Muscular Dystrophy Association, Director
* Levcor International, Inc., an apparel fabric processor, Director
* Century Business Services, Inc., a provider of outsourcing functions for
small and medium size companies, Director
* The Newark Group, a provider of a national market of paper recovery
facilities, paperboard mills and paperboard converting plants, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 191
--------------
DAVID P. FELDMAN (63)
BOARD MEMBER (1994)
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* BBH Mutual Funds Group (11 funds), Director
* The Jeffrey Company, a private investment company, Director
* QMED, a medical device company, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 53
--------------
JAMES F. HENRY (72)
BOARD MEMBER (1993)
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* President, CPR Institute for Dispute Resolution, a non-profit organization
principally engaged in the development of alternatives to business
litigation (Retired 2003)
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 24
--------------
ROSALIND GERSTEN JACOBS (78)
BOARD MEMBER (1993)
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Merchandise and marketing consultant
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 37
The Fund 31
BOARD MEMBERS INFORMATION (Unaudited) (CONTINUED)
DR. PAUL A. MARKS (77)
BOARD MEMBER (1993)
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* President and Chief Executive Officer of Memorial Sloan-Kettering Cancer
Center (Retired 1999)
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* Pfizer, Inc., a pharmaceutical company, Director-Emeritus
* Atom Pharm, Director
* Lazard Freres & Company, LLC, Senior Adviser
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 24
--------------
DR. MARTIN PERETZ (63)
BOARD MEMBER (1993)
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Editor-in-Chief of The New Republic Magazine
* Lecturer in Social Studies at Harvard University (1965-2001)
* Co-Chairman of TheStreet.com, a financial daily on the web
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* Academy for Liberal Education, an accrediting agency for colleges and
universities certified by the U.S. Department of Education, Director
* Digital Learning Group, LLC, an online publisher of college textbooks,
Director
* Harvard Center for Blood Research, Trustee
* Bard College, Trustee
* YIVO Institute for Jewish Research, Trustee
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 24
--------------
BERT W. WASSERMAN (70)
BOARD MEMBER (1993)
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Financial Consultant
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* Lillian Vernon Corporation, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 24
--------------
ONCE ELECTED ALL BOARD MEMBERS SERVE FOR AN INDEFINITE TERM. ADDITIONAL
INFORMATION ABOUT THE BOARD MEMBERS, INCLUDING THEIR ADDRESS IS AVAILABLE IN THE
FUND'S STATEMENT OF ADDITIONAL INFORMATION WHICH CAN BE OBTAINED FROM DREYFUS
FREE OF CHARGE BY CALLING THIS TOLL FREE NUMBER: 1-800-554-4611.
JOHN M. FRASER, JR., EMERITUS BOARD MEMBER
IRVING KRISTOL, EMERITUS BOARD MEMBER
32
OFFICERS OF THE FUND (Unaudited)
STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000.
Chairman of the Board, Chief Executive Officer and Chief Operating Officer
of the Manager, and an officer of 95 investment companies (comprised of 188
portfolios) managed by the Manager. Mr. Canter also is a Board member and, where
applicable, an Executive Committee Member of the other investment management
subsidiaries of Mellon Financial Corporation, each of which is an affiliate of
the Manager. He is 58 years old and has been an employee of the Manager since
May 1995.
STEPHEN R. BYERS, EXECUTIVE VICE PRESIDENT SINCE NOVEMBER 2002.
Chief Investment Officer, Vice Chairman and a Director of the Manager, and
an officer of 95 investment companies (comprised of 188 portfolios) managed by
the Manager. Mr. Byers also is an Officer, Director or an Executive Committee
Member of certain other investment management subsidiaries of Mellon Financial
Corporation, each of which is an affiliate of the Manager. He is 50 years old
and has been an employee of the Manager since January 2000. Prior to joining the
Manager, he served as an Executive Vice President-Capital Markets, Chief
Financial Officer and Treasurer at Gruntal & Co., L.L.C.
MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000.
Executive Vice President, Secretary and General Counsel of the Manager, and
an officer of 96 investment companies (comprised of 204 portfolios) managed by
the Manager. He is 57 years old and has been an employee of the Manager since
June 1977.
MICHAEL A. ROSENBERG, SECRETARY SINCE MARCH 2000.
Associate General Counsel of the Manager, and an officer of 93 investment
companies (comprised of 197 portfolios) managed by the Manager. He is 43 years
old and has been an employee of the Manager since October 1991.
ROBERT R. MULLERY, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel of the Manager, and an officer of 26 investment
companies (comprised of 61 portfolios) managed by the Manager. He is 51 years
old and has been an employee of the Manager since May 1986.
STEVEN F. NEWMAN, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel and Assistant Secretary of the Manager, and an
officer of 96 investment companies (comprised of 204 portfolios) managed by the
Manager. He is 54 years old and has been an employee of the Manager since July
1980.
JAMES WINDELS, TREASURER SINCE NOVEMBER 2001.
Director - Mutual Fund Accounting of the Manager, and an officer of 96
investment companies (comprised of 204 portfolios) managed by the Manager. He is
44 years old and has been an employee of the Manager since April 1985.
The Fund 33
OFFICERS OF THE FUND (Unaudited) (CONTINUED)
RICHARD CASSARO, ASSISTANT TREASURER SINCE AUGUST 2003.
Senior Accounting Manager - Equity Funds of the Manager, and an officer of
25 investment companies (comprised of 104 portfolios) managed by the Manager. He
is 44 years old and has been an employee of the Manager since September 1982.
ERIK D. NAVILOFF, ASSISTANT TREASURER SINCE DECEMBER 2002.
Senior Accounting Manager - Taxable Fixed Income Funds of the Manager, and
an officer of 18 investment companies (comprised of 76 portfolios) managed by
the Manager. He is 35 years old and has been an employee of the Manager since
November 1992.
KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001.
Mutual Funds Tax Director of the Manager, and an officer of 96 investment
companies (comprised of 204 portfolios) managed by the Manager. He is 49 years
old and has been an employee of the Manager since June 1993.
ROBERT J. SVAGNA, ASSISTANT TREASURER SINCE DECEMBER 2002.
Senior Accounting Manager - Equity Funds of the Manager, and an officer of
25 investment companies (comprised of 104 portfolios) managed by the Manager. He
is 36 years old and has been an employee of the Manager since November 1990.
WILLIAM GERMENIS, ANTI-MONEY LAUNDERING COMPLIANCE OFFICER SINCE SEPTEMBER 2002
Vice President and Anti-Money Laundering Compliance Officer of the
Distributor, and the Anti-Money Laundering Compliance Officer of 91 investment
companies (comprised of 199 portfolios) managed by the Manager. He is 33 years
old and has been an employee of the Distributor since October 1998. Prior to
joining the Distributor, he was a Vice President of Compliance Data Center, Inc.
34
NOTES
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
(c) 2003 Dreyfus Service Corporation 222AR0803
Comparison of change in value of $10,000 investment
in Dreyfus Balanced Fund, Inc.
with the Standard & Poor's 500 Composite Stock Price Index,
the Lehman Brothers Aggregate Bond Index,
and the Customized Blended Index
EXHIBIT A:
Dreyfus Standard & Poor's 500 Lehman Brothers Customized
PERIOD Balanced Composite Stock Aggregate Blended
Fund, Inc. Price Index * Bond Index * Index *
8/31/93 10,000 10,000 10,000 10,000
8/31/94 10,773 10,546 9,849 10,267
8/31/95 12,822 12,805 10,962 12,051
8/31/96 13,488 15,202 11,412 13,602
8/31/97 17,273 21,377 12,554 17,462
8/31/98 16,757 23,113 13,881 19,051
8/31/99 20,002 32,314 13,992 23,662
8/31/00 22,527 37,585 15,049 26,693
8/31/01 20,754 28,422 16,908 24,107
8/31/02 17,804 23,308 18,279 22,287
8/31/03 19,067 26,120 19,074 24,289
* Source: Lipper Inc.
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board has determined that Bert W. Wasserman, a member
of the Audit Committee of the Board, is an audit committee financial expert
as defined by the Securities and Exchange Commission (the "SEC"). Bert W.
Wasserman is "independent" as defined by the SEC for purposes of audit
committee financial expert determinations.
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 date 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) Code of ethics referred to in Item 2.
(a)(2) Certifications of principal executive and principal financial
officers as required by Rule 30a-2(a) under the Investment Company Act of
1940.
(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: October 24, 2003
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: October 24, 2003
By: /S/ JAMES WINDELS
-----------------------
James Windels
Chief Financial Officer
Date: October 24, 2003
EXHIBIT INDEX
(a)(1) Code of ethics referred to in Item 2.
(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)
Exhibit (a)(1)
THE DREYFUS FAMILY OF FUNDS
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE
AND SENIOR FINANCIAL OFFICERS
1. Covered Officers/Purpose of the Code
This code of ethics (the "Code") for the investment companies within
the complex (each, a "Fund") applies to each Fund's Principal Executive
Officer, Principal Financial Officer, Principal Accounting Officer or
Controller, or other persons performing similar functions, each of whom is
listed on Exhibit A (the "Covered Officers"), for the purpose of promoting:
o honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
o full, fair, accurate, timely and understandable disclosure in reports and
documents that the Fund files with, or submits to, the Securities and
Exchange Commission (the "SEC") and in other public communications made by
the Fund;
o compliance with applicable laws and governmental rules and regulations;
o the prompt internal reporting of violations of the Code to an appropriate
person or persons identified in the Code; and
o accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to situations that may give rise to actual as
well as apparent conflicts of interest.
2. Covered Officers Should Handle Ethically Actual and Apparent
Conflicts of Interest
OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interest interferes with the interests of, or his service to, the
Fund. For example, a conflict of interest would arise if a Covered Officer,
or a member of his family, receives improper personal benefits as a result of
his position with the Fund.
Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and the Investment Advisers Act of 1940, as amended (the
"Investment Advisers Act"). For example, Covered Officers may not
individually engage in certain transactions (such as the purchase or sale of
securities or other property) with the Fund because of their status as
"affiliated persons" of the Fund. The compliance programs and procedures of
the Fund and the Fund's investment adviser (the "Adviser") are designed to
prevent, or identify and correct, violations of these provisions. The Code
does not, and is not intended to, repeat or replace these programs and
procedures, and the circumstances they cover fall outside of the parameters
of the Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts arise from, or as a result of, the contractual
relationship between the Fund and the Adviser of which the Covered Officers
are also officers or employees. As a result, the Code recognizes that the
Covered Officers, in the ordinary course of their duties (whether formally
for the Fund or for the Adviser, or for both), will be involved in
establishing policies and implementing decisions that will have different
effects on the Adviser and the Fund. The participation of the Covered
Officers in such activities is inherent in the contractual relationship
between the Fund and the Adviser and is consistent with the performance by
the Covered Officers of their duties as officers of the Fund and, if
addressed in conformity with the provisions of the Investment Company Act and
the Investment Advisers Act, will be deemed to have been handled ethically.
In addition, it is recognized by the Fund's Board that the Covered Officers
also may be officers or employees of one or more other investment companies
covered by this or other codes of ethics.
Other conflicts of interest are covered by the Code, even if such
conflicts of interest are not subject to provisions in the Investment Company
Act and the Investment Advisers Act. Covered Officers should keep in mind
that the Code cannot enumerate every possible scenario. The overarching
principle of the Code is that the personal interest of a Covered Officer
should not be placed improperly before the interest of the Fund.
Each Covered Officer must:
o not use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Fund whereby
the Covered Officer would benefit personally to the detriment of the Fund;
o not cause the Fund to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the benefit
of the Fund; and
o not retaliate against any employee or Covered Officer for reports of
potential violations that are made in good faith.
3. Disclosure and Compliance
o Each Covered Officer should familiarize himself with the disclosure
requirements generally applicable to the Fund within his area of
responsibility;
o each Covered Officer should not knowingly misrepresent, or cause others to
misrepresent, facts about the Fund to others, whether within or outside the
Fund, including to the Fund's Board members and auditors, and to
governmental regulators and self-regulatory organizations; and
o each Covered Officer should, to the extent appropriate within his area of
responsibility, consult with other officers and employees of the Fund and
the Adviser with the goal of promoting full, fair, accurate, timely and
understandable disclosure in the reports and documents the Fund files with,
or submits to, the SEC and in other public communications made by the Fund;
and
o it is the responsibility of each Covered Officer to promote compliance with
the standards and restrictions imposed by applicable laws, rules and
regulations.
4. Reporting and Accountability
Each Covered Officer must:
o upon adoption of the Code (or thereafter, as applicable, upon becoming a
Covered Officer), affirm in writing to the Board that he has received,
read, and understands the Code;
o annually thereafter affirm to the Board that he has complied with the
requirements of the Code; and
o notify the Adviser's General Counsel (the "General Counsel") promptly if he
knows of any violation of the Code. Failure to do so is itself a violation
of the Code.
The General Counsel is responsible for applying the Code to specific
situations in which questions are presented under it and has the authority to
interpret the Code in any particular situation. However, waivers sought by
any Covered Officer will be considered by the Fund's Board.
The Fund will follow these procedures in investigating and enforcing
the Code:
o the General Counsel will take all appropriate action to investigate any
potential violations reported to him;
o if, after such investigation, the General Counsel believes that no
violation has occurred, the General Counsel is not required to take any
further action;
o any matter that the General Counsel believes is a violation will be
reported to the Board;
o if the Board concurs that a violation has occurred, it will consider
appropriate action, which may include: review of, and appropriate
modifications to, applicable policies and procedures; notification to
appropriate personnel of the Adviser or its board; or dismissal of the
Covered Officer;
o the Board will be responsible for granting waivers, as appropriate; and
o any waivers of or amendments to the Code, to the extent required, will be
disclosed as provided by SEC rules.
5. Other Policies and Procedures
The Code shall be the sole code of ethics adopted by the Fund for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. The Fund's,
its principal underwriter's and the Adviser's codes of ethics under Rule
17j-1 under the Investment Company Act and the Adviser's additional policies
and procedures, including its Code of Conduct, are separate requirements
applying to the Covered Officers and others, and are not part of the Code.
6. Amendments
The Code may not be amended except in written form which is
specifically approved or ratified by a majority vote of the Fund's Board,
including a majority of independent Board members.
7. Confidentiality
All reports and records prepared or maintained pursuant to the Code
will be considered confidential and shall be maintained and protected
accordingly. Except as otherwise required by law or the Code, such matters
shall not be disclosed to anyone other than the appropriate Funds and their
counsel, the appropriate Boards (or Committees) and their counsel and the
Adviser.
8. Internal Use
The Code is intended solely for the internal use by the Fund and does
not constitute an admission, by or on behalf of the Fund, as to any fact,
circumstance, or legal conclusion.
Dated as of: JULY 1, 2003
------------------
EXHIBIT A
Persons Covered by the Code of Ethics
Stephen E. Canter President (Principal Executive
Officer)
(Principal Financial and
James Windels Treasurer Accounting Officer)