-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZeH0iUJyTAmYTtb7ccP6orfISTu847Y7eAq6fa2BdnJuEFrMjwzFNHFOM4o46Mn KiogLnbawcUoad1nGVytGw== 0000890341-03-000004.txt : 20030430 0000890341-03-000004.hdr.sgml : 20030430 20030430163518 ACCESSION NUMBER: 0000890341-03-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030228 FILED AS OF DATE: 20030430 EFFECTIVENESS DATE: 20030430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREYFUS BALANCED FUND INC CENTRAL INDEX KEY: 0000890341 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07068 FILM NUMBER: 03673409 BUSINESS ADDRESS: STREET 1: 200 PARK AVENUE, 8TH FLOOR STREET 2: C/O DREYFUS CORP CITY: NEW YORK STATE: NY ZIP: 10166 BUSINESS PHONE: 2129226838 MAIL ADDRESS: STREET 1: THE DREYFUS CORPORATION STREET 2: 200 PARK AVENUE, 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10166 N-30D 1 lp1-222.txt SEMI-ANNUAL REPORT Dreyfus Balanced Fund, Inc. SEMIANNUAL REPORT February 28, 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 Statement of Investments 15 Statement of Financial Futures 16 Statement of Securities Sold Short 17 Statement of Assets and Liabilities 18 Statement of Operations 19 Statement of Changes in Net Assets 20 Financial Highlights 21 Notes to Financial Statements FOR MORE INFORMATION - --------------------------------------------------------------------------- Back Cover The Fund Dreyfus Balanced Fund, Inc. LETTER FROM THE CHAIRMAN Dear Shareholder: This semiannual report for Dreyfus Balanced Fund, Inc. covers the six-month period from September 1, 2002 through February 28, 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. A number of economic and political factors continued to erode the value of most stocks during the reporting period. Faced with escalating tensions between the United States and Iraq, many investors continued to prefer fixed-income securities over stocks. We believe that the threat of war also contributed to the ongoing sluggishness of the U.S. economy, as many corporations apparently decided to wait until the situation is resolved before committing to new capital spending. In addition, higher oil prices and deteriorating consumer confidence put pressure on corporate earnings. The result of these influences has been generally negative returns from most sectors of the stock market. Virtually all investment styles, capitalization ranges and industry groups were adversely affected during the reporting period. How long will the bear market persist? While history suggests that stock prices should rebound if the economy strengthens, we believe that the economy is unlikely to make significant gains until current uncertainties are resolved. In the meantime, we believe it is more important than ever to follow a disciplined approach to investing. While it may be tempting to shift more of your assets from stocks to bonds or cash after a prolonged period of lackluster equity returns, adherence to your longstanding asset allocation strategy may be the most prudent course. Your financial advisor can help you to ensure that your portfolio reflects your investment needs, long-term goals and attitudes toward risk. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation March 17, 2003 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 28, 2003, the fund produced a -5.04% total return.(1) This compares with the performance of the fund's benchmark, a customized blended index, which produced a -2.48% total return. The Standard & Poor' s 500 Composite Stock Price Index ("S&P 500 Index"), which composed 60% of our blended index, provided a -7.29% total return for the six months ended February 28, 2003.(2) The Lehman Brothers Aggregate Bond Index, which composed 40% of our blended index, produced a 4.74% total return for the same period.(3) We attribute these results to an unfavorable environment for most stocks during a reporting period in which we emphasized stocks over bonds. The performance of the fund' s fixed-income investments could not fully offset the fund's equity losses, so the fund's total return trailed that of its blended 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%. In allocating assets between stocks and bonds, we assess the relative returns and risks of each asset class, including interest-rate-adjusted price/earnings ratios, the valuation and volatility levels of stocks relative to bonds, and other economic factors, such as interest rates. The Fund 3 DISCUSSION OF FUND PERFORMANCE (CONTINUED) 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 the portfolio manager believes 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. What other factors influenced the fund's performance? A gradually improving U.S. economy led us to allocate a relatively high percentage of the fund' s assets to stocks. However, stocks failed to advance when concerns regarding an impending war with Iraq intensified, and the sustainability of the economy's growth remained uncertain. The fund's relative performance particularly suffered in fall 2002, when a brief market rally drove comparatively risky telecommunications and technology stocks higher. Those types of stocks failed to meet our investment criteria, and as a result, the fund generally avoided those types of holdings. On the other hand, the fund gained ground on its benchmark with good individual stock selections among retailers and oil-and-gas exploration and production companies. 4 On the fixed-income side, falling bond yields generated modest levels of price appreciation. The fixed-income portion of the portfolio produced higher returns than the Lehman Brothers Aggregate Bond Index, primarily because of strong returns from corporate bonds and commercial mortgage-backed securities. In addition, the fund's average duration -- a measure of sensitivity to changing interest rates -- was slightly longer than the Lehman Brothers Aggregate Bond Index for most of the reporting period, enhancing the fund's ability to maintain higher existing yields as interest rates fell. What is the fund's current strategy? As of the end of the reporting period, we continued to emphasize stocks over bonds. We are finding what we consider to be a relatively large number of attractive equity investments in the technology, energy, and materials and processing areas, and relatively fewer in the more defensive areas of industrials, utilities, health care and consumer staples. Among bonds, we continue to focus on corporate securities, especially from industrial and financial issuers. The average effective duration of the fixed-income portion of the fund as of February 28, 2003, was slightly longer than the Lehman Brothers Aggregate Bond Index. We believe that these strategies may position the fund to benefit from stronger economic growth when the situation in Iraq is resolved. March 17, 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. Part of the fund's recent performance is attributable to positive returns from its initial public offering (IPO) investments. There can be no guarantee that IPOs will have or continue to have a positive effect on the fund's performance. (2) SOURCE: LIPPER, INC. -- REFLECTS 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 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 28, 2003 (Unaudited)
COMMON STOCKS--68.5% Shares Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER DISCRETIONARY--8.8% AOL Time Warner 57,500 (a) 650,900 Best Buy 10,000 (a) 290,700 CDW Computer Centers 11,000 (a) 480,260 Carnival 40,000 918,800 Clear Channel Communications 23,520 (a) 858,715 Comcast, Cl. A 20,745 (a) 606,169 General Motors 9,000 303,930 Home Depot 19,000 445,550 Lamar Advertising 11,500 (a) 360,755 Liberty Media, Cl. A 72,000 (a) 661,680 Staples 30,000 (a) 519,300 TJX Cos. 54,100 869,387 Target 45,600 1,306,440 Tiffany & Co. 17,000 407,490 USA Interactive 27,200 (a) 667,216 Viacom, Cl. B 40,365 (a) 1,498,752 10,846,044 CONSUMER STAPLES--5.5% Altria Group 24,000 927,600 Coca-Cola 21,000 844,620 Colgate-Palmolive 7,000 352,170 Kimberly-Clark 8,400 384,972 Kraft Foods 43,200 1,279,152 PepsiCo 27,000 1,034,640 Procter & Gamble 18,100 1,481,666 UST 16,000 461,280 6,766,100 ENERGY--6.1% Anadarko Petroleum 27,000 1,244,160 Exxon Mobil 87,576 2,979,336 Ocean Energy 47,000 943,290 Schlumberger 24,000 998,640 Transocean 17,000 385,900 XTO Energy 38,000 957,980 6 7,509,306 COMMON STOCKS (CONTINUED) Shares Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL--14.7% American Express 17,900 601,082 American International Group 51,351 2,531,090 Bank of America 20,300 1,405,572 Bank of New York 40,000 911,200 Bank One 14,000 504,420 Citigroup 70,733 2,358,238 Countrywide Financial 10,000 533,900 Federal Home Loan Mortgage 16,000 874,400 Federal National Mortgage Association 18,600 1,192,260 FleetBoston Financial 33,600 825,216 Goldman Sachs Group 8,200 569,490 Household International 18,900 527,877 J.P. Morgan Chase & Co. 13,920 315,706 MBNA 29,000 401,650 Marsh & McLennan Cos. 14,000 569,800 Morgan Stanley 25,600 943,360 St. Paul Cos. 14,800 456,728 Travelers Property Casualty, Cl. A 48,969 766,365 Travelers Property Casualty, Cl. B 6,101 97,006 U.S. Bancorp 4,000 83,680 Wells Fargo & Co. 27,000 1,224,450 XL Capital, Cl. A 6,000 425,640 18,119,130 HEALTH CARE--9.6% Abbott Laboratories 13,000 463,060 Amgen 13,000 (a) 710,320 Anthem 8,200 (a) 488,802 Bard (C.R.) 8,000 472,800 Bristol-Myers Squibb 18,900 440,370 HCA 24,300 1,002,132 Johnson & Johnson 18,200 954,590 Lilly (Eli) & Co. 12,400 701,344 Merck & Co. 29,400 1,550,850 Pfizer 72,000 2,147,040 Pharmacia 18,000 743,760 The Fund 7 STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE (CONTINUED) Teva Pharmaceutical Industries, ADR 16,000 604,480 WellPoint Health Networks 14,000 (a) 952,140 Wyeth 16,500 581,625 11,813,313 INDUSTRIALS--6.1% Boeing 16,000 440,960 CSX 17,000 456,620 Danaher 10,000 650,200 Emerson Electric 11,000 517,770 First Data 18,000 623,700 General Electric 108,000 2,597,400 Norfolk Southern 18,400 350,704 Raytheon 10,000 270,800 3M 5,000 626,850 Tyco International 28,000 414,400 United Technologies 8,400 492,072 7,441,476 INFORMATION TECHNOLOGY--12.4% Accenture, Cl. A 30,500 (a) 467,870 Analog Devices 20,000 (a) 583,200 Applied Materials 18,000 (a) 233,640 Cisco Systems 67,000 (a) 936,660 Computer Sciences 16,600 (a) 518,916 Dell Computer 38,000 (a) 1,024,480 EMC 66,000 487,740 Hewlett-Packard 45,868 727,008 Intel 103,200 1,780,200 International Business Machines 19,000 1,481,050 Jabil Circuit 32,000 (a) 531,520 KLA-Tencor 19,000 (a) 679,250 Microsoft 126,000 2,986,200 Motorola 51,800 436,156 National Semiconductor 14,400 (a) 246,672 Nokia, ADR 31,000 410,130 Oracle 94,000 (a) 1,124,240 8 COMMON STOCKS (CONTINUED) Shares Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ INFORMATION TECHNOLOGY (CONTINUED) Teradyne 12,300 (a,b) 142,557 Xilinx 20,000 (a) 458,000 15,255,489 MATERIALS--2.2% Alcoa 17,000 348,500 Dow Chemical 18,000 491,400 duPont (E.I.) deNemours 7,000 256,690 International Paper 18,000 630,540 PPG Industries 11,000 510,400 Weyerhaeuser 10,000 498,500 2,736,030 TELECOMMUNIATION SERVICES--2.4% BellSouth 25,000 541,750 SBC Communications 58,400 1,214,720 Verizon Communications 34,000 1,175,720 2,932,190 UTILITIES--.7% Exelon 10,000 491,500 Progress Energy 8,000 311,200 802,700 TOTAL COMMON STOCKS (cost $97,039,674) 84,221,778 - ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS--.2% - ------------------------------------------------------------------------------------------------------------------------------------ OIL & GAS; EXCO Resources, Cum. Conv., $1.05 (cost $304,054) 14,465 254,439 - ------------------------------------------------------------------------------------------------------------------------------------ Principal BONDS AND NOTES--30.0% Amount ($) Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ AIRLINES--.7% America West Airlines Pass-Through Trust, Pass-Through Ctfs., Ser. 1997-1, Cl. C, 7.53%, 1/2/2004 730,477 579,732 The Fund 9 STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ AIRLINES (CONTINUED) Continental Airlines, Pass-Through Ctfs., Ser. 1999-1, Cl. A, 6.545%, 8/2/2020 124,560 105,151 Ser. 2000-2, Cl. A1, 7.707%, 4/2/2021 138,145 114,515 U.S. Airways, Enhanced Equipment Notes, Ser. C, 8.93%, 10/15/2009 114,798 (c) 20,090 819,488 ASSET-BACKED CERTIFICATES--.5% MBNA Credit Card Master Note Trust, Ser. 2002-C1, Cl. C1, 6.8%, 7/15/2014 523,000 546,901 AUTO MANUFACTURING--.5% Ford Motor Credit, Notes, 7.875%, 6/15/2010 234,000 234,102 GMAC, Bonds, 8%, 11/1/2031 306,000 308,186 542,288 BANKING--.4% Bank of America, Sr. Notes, 4.875%, 9/15/2012 225,000 230,671 Citigroup, Sub. Notes, 5.625%,8/27/2012 225,000 (b) 242,827 473,498 CABLE & MEDIA--.3% TCI Communication Financing III Bonds, Capital Securities, 9.65%, 3/31/2027 212,000 224,720 Viacom, Gtd. Sr. Notes, 6.625%, 5/15/2011 126,000 145,149 369,869 COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--2.3% Chase Commerical Mortgage Securities, Ser. 2001-245, Cl. A1, 6.173%, 2/12/2016 570,000 (d,e) 618,593 GS Mortgage Securities II, Ser. 2001-LIBA, Cl. A2, 6.615%, 2/10/2016 1,342,000 1,474,631 TIAA CMBS I Trust Commercial Mortgage, Ser. 1999-1, Cl. A, 7.17%, 1/15/2032 696,730 (d) 770,064 2,863,288 10 Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ CONGLOMERATES--.3% General Electric Capital Corp, Notes, Ser. A, 5.45%, 1/15/2013 190,000 200,410 General Electric, Notes, 5%, 2/1/2013 210,000 216,924 417,334 CONSUMER PRODUCTS--.1% Newell Rubbermaid, Notes, 4.625%, 12/15/2009 145,000 (b) 148,861 ELECTRIC UTILITIES--.6% Consolidated Edison of New York, Debs., 4.875%, 2/1/2013 290,000 (b) 299,188 Long Island Lighting, Debs., 8.2%, 3/15/2023 438,000 456,663 755,851 ELECTRONICS--.3% Hewlett-Packard, Notes, 5.75%, 12/15/2006 330,000 359,888 FINANCIAL--.7% Goldman Sachs Group, Notes, 6.125%, 2/15/2033 225,000 227,153 Household Finance, Notes, 7%, 5/15/2012 180,000 204,139 Renaissancere, Notes, 5.875%, 2/15/2003 200,000 204,648 USA Education, Notes, Ser. A, 5.625%, 4/10/2007 227,000 249,351 885,291 INFORMATION TECHNOLOGY--.2% International Business Machines, Bonds, 4.75%, 11/29/2012 255,000 262,497 LIFE INSURANCE--.1% Metlife, Sr. Notes, 5.375%, 12/15/2012 155,000 (b) 164,901 MINING AND METALS--.2% Alcoa, Notes, 6%, 1/15/2012 206,000 228,760 The Fund 11 STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ MORTGAGE BANKING--.5% Countrywide Home Loans, Gtd. Notes, Ser. K, 5.625%, 5/15/2007 600,000 650,473 PAPER & FOREST PRODUCTS--.2% Weyerhaeuser, Notes, 6.75%, 3/15/2012 190,000 210,195 PUBLISHING--.1% Thomson, Bonds, 5.75%, 2/1/2008 125,000 137,041 RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--2.4% IMPAC Secured Assets CMN Owner Trust, Ser. 2002-1, Cl. AI3, 5.57%, 1/25/2023 1,900,000 1,925,365 Norwest Asset Securities Corporation: Ser. 1997-11, Cl.B2, 7%, 8/25/2027 253,660 253,341 Ser. 1998-2, Cl.B2, 6.5%, 2/25/2028 674,855 718,128 2,896,834 RETAIL STORES--.1% Fred Meyer, Gtd. Notes, 7.375%, 3/1/2005 135,000 146,166 STRUCTURED INDEX--3.2% Morgan Stanley Tracers: Notes, 5.878%, 3/1/2007 1,305,000 (d,f) 1,404,192 Notes, 7.252%, 9/15/2011 224,000 (d,f) 254,836 Notes, 7.22%, 9/15/2011 1,504,000 (d,f) 1,711,044 Notes, 6.799%, 6/15/2012 510,000 (d,f) 568,526 3,938,598 TELECOMMUNICATIONS--1.0% British Telecommunications, Notes, 8.125%, 12/15/2010 262,000 318,051 France Telecom, Notes, 7.75%,3/1/ 2011 412,000 488,887 Verizon Florida, Debs., 6.125%, 1/15/2013 243,000 266,102 Verizon Global Funding, Notes, 6.875%, 6/15/2012 143,000 163,759 1,236,799 TOBACCO--.6% Philip Morris Cos., Notes, 7.65%, 7/1/2008 241,000 280,167 12 Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ TOBACCO (CONTINUED) UST, Notes, 6.625%, 7/15/2012 414,000 466,908 747,075 U.S. GOVERNMENT AGENCIES/MORTGAGE--BACKED--14.7% Federal Home Loan Mortgage Corp., 6.5%, 196,000 (g) 205,126 Federal National Mortgage Association, Mortgage-Backed: 5.5% 730,000 (g) 747,104 6% 950,000 (g) 988,000 6.2%, 1/1/2011 1,322,234 1,494,240 6.5%, 8/15/2021 886,712 894,825 6.88%, 2/1/2028 945,515 1,084,089 Sub Notes, 8%, 1/1/2030-11/1/2030 1,083,988 1,176,343 Government National Mortgage Association I: 5.5% 807,000 (g) 830,451 6% 250,000 (g) 261,405 6.5% 320,000 (g) 337,098 Tennessee Valley Authority, Valley Indexed Principal Securities, 3.375%, 1/15/2007 2,197,000 (h) 2,719,813 U.S. Treasury Notes: 1.25%, 1/31/2005 345,000 345,957 3.75%, 2/15/2013 6,900,000 7,003,776 18,088,227 TOTAL BONDS AND NOTES (cost $35,467,941) 36,890,123 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER INVESTMENTS--7.0% - ------------------------------------------------------------------------------------------------------------------------------------ REGISTERED INVESTMENT COMPANIES: Dreyfus Institutional Cash Advantage Fund 2,854,333 (i) 2,854,333 Dreyfus Institutional Cash Advantage Plus Fund 2,854,333 (i) 2,854,333 Dreyfus Institutional Preferred Plus Money Market Fund 2,854,334 (i) 2,854,334 TOTAL OTHER INVESTMENTS (cost $8,563,000) 8,563,000 The Fund 13 STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) Principal SHORT-TERM INVESTMENTS--2.3% Amount ($) Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ U.S. TREASURY BILLS: 1.13%, 4/24/2003 350,000 (k) 349,412 1.15%, 5/22/2003 180,000 179,532 1.18%, 5/29/2003 1,175,000 1,171,675 1.17%, 8/28/2003 1,175,000 (j) 1,168,244 TOTAL SHORT-TERM INVESTMENTS (cost $2,868,632) 2,868,863 - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED--.6% - ------------------------------------------------------------------------------------------------------------------------------------ REGISTERED INVESTMENT COMPANY; Dreyfus Instutional Preferred Money Market Fund (cost $728,350) 728,350 728,350 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT (cost $144,971,651) 108.6% 133,526,553 LIABILITIES, LESS CASH AND RECEIVABLES (8.6%) (10,596,411) NET ASSETS 100.0% 122,930,142 (A) NON-INCOME PRODUCING. (B) ALL OR A PORTION OF THESE SECURITIES ARE ON LOAN. AT FEBRUARY 28, 2003, THE TOTAL MARKET VALUE OF THE FUND'S SECURITIES ON LOAN IS $709,690 AND THE TOTAL MARKET VALUE OF THE COLLATERIAL HELD BY FUND IS $728,350. (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 FEBRUARY 28, 2003 THESE SECURITIES AMOUNT TO $5,327,255 OR 4.3% OF THE NET ASSETS. (E) VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE. (F) SECURITY LINKED TO A PORTFOLIO OF DEBT SECURITIES. (G) PURCHASE ON A FORWARD COMMITMENT BASIS. (H) PRINCIPAL AMOUNT FOR ACCRUAL PURPOSE IS PERIODICALLY ADJUSTED BASED ON A CHANGES TO THE CONSUMER PRICE INDEX. (I) INVESTMENTS IN AFFILIATED MONEY MARKET FUNDS-SEE NOTE 3(D). (J) PARTIALLY HELD BY A BROKER IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN FINANCIAL FUTURES POSITIONS. (K) PARTIALLY HELD BY A BROKER AS COLLATERAL FOR OPEN SHORT POSITIONS.
SEE NOTES TO FINANIAL STATEMENTS. 14 STATEMENT OF FINANCIAL FUTURES February 28, 2003 (Unaudited)
Market Value Unrealized Covered by (Depreciation) Contracts Contracts ($) Expiration at 2/28/2003 ($) - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL FUTURES SHORT: U.S. Treasury 10 Year Notes 29 3,345,875 June 2003 (17,484) SEE NOTES TO FINANCIAL STATEMENTS. The Fund 15
STATEMENT OF SECURITIES SOLD SHORT February 28, 2003 (Unaudited) Shares Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS Teva Pharmaceutical Industries, ADR (proceeds $149,288) 4,000 151,120 SEE NOTES TO FINANCIAL STATEMENTS. 16 STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited) Cost Value - -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments (including securities loaned valued at $709,690) 144,971,651 133,526,553 Cash 2,040 Receivable for investment securities sold 650,582 Interest and dividends receivable 394,965 Receivable from brokers for proceeds on securities sold short 149,288 Receivable for shares of Common Stock subscribed 1,980 Prepaid expenses 8,706 134,734,114 - -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 84,153 Payable for investment securities purchased 10,456,890 Liability for securities loaned--Note 1(c) 728,350 Securities sold short, at value (proceeds $149,288) --See Statement of Securities Sold Short 151,120 Payable for shares of Common Stock redeemed 147,782 Payable for futures variation margin--Note 4 12,234 Accrued expenses 223,443 11,803,972 - -------------------------------------------------------------------------------- NET ASSETS ($) 122,930,142 - -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 159,222,811 Accumulated distributions in excess of investment income--net (97,654) Accumulated net realized gain (loss) on investments (24,730,601) Accumulated net unrealized appreciation (depreciation) on investments [including ($17,484) net unrealized (depreciation) on financial futures] (11,464,414) - -------------------------------------------------------------------------------- NET ASSETS ($) 122,930,142 - -------------------------------------------------------------------------------- SHARES OUTSTANDING (300 million shares of $.001 par value Common Stock authorized) 11,036,981 NET ASSET VALUE, offering and redemption price per share ($) 11.14 SEE NOTES TO FINANCIAL STATEMENTS. The Fund 17 STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Interest 1,132,427 Cash dividends (net of $277 foreign taxes withheld at source) 830,527 Income on securities lending 2,023 TOTAL INCOME 1,964,977 EXPENSES: Management fee--Note 3(a) 434,148 Shareholder servicing costs--Note 3(b) 314,403 Professional fees 32,019 Custodian fees--Note 3(b) 14,781 Prospectus and shareholders' reports 9,814 Registration fees 9,586 Directors' fees and expenses--Note 3(c) 6,133 Interest expense--Note 2 3,688 Loan commitment fees--Note 2 931 Dividends on securities sold short 270 Miscellaneous 5,383 TOTAL EXPENSES 831,156 INVESTMENT INCOME--NET 1,133,821 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments: Long transactions (6,441,156) Short sale transactions (3,218) Net realized gain (loss) on financial futures (113,277) NET REALIZED GAIN (LOSS) (6,557,651) Net unrealized appreciation (depreciation) on investments [including ($77,337) net unrealized (depreciation) on financial futures] (2,047,297) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (8,604,948) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (7,471,127) SEE NOTES TO FINANCIAL STATEMENTS. 18 STATEMENT OF CHANGES IN NET ASSETS Six Months Ended February 28, 2003 Year Ended (Unaudited) August 31, 2002 - -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 1,133,821 3,674,331 Net realized gain (loss) on investments (6,557,651) (17,374,841) Net unrealized appreciation (depreciation) on investments (2,047,297) (13,978,042) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (7,471,127) (27,678,552) - -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): INVESTMENT INCOME--NET (1,752,931) (4,288,934) - -------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS ($): Net proceeds from shares sold 7,878,318 39,508,604 Dividends reinvested 1,714,690 4,182,745 Cost of shares redeemed (36,918,495) (47,253,705) INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS (27,325,487) (3,562,356) TOTAL INCREASE (DECREASE) IN NET ASSETS (36,549,545) (35,529,842) - -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 159,479,687 195,009,529 END OF PERIOD 122,930,142 159,479,687 Undistributed (distributions in excess of) investment income--net (97,654) 576,469 - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (SHARES): Shares sold 686,375 2,965,005 Shares issued for dividends reinvested 151,255 311,891 Shares redeemed (3,233,728) (3,615,624) NET INCREASE (DECREASE) IN SHARES OUTSTANDING (2,396,098) (338,728) SEE NOTES TO FINANCIAL STATEMENTS. The Fund 19 FINANCIAL HIGHLIGHTS The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund's financial statements.
Six Months Ended February 28, 2003 Year Ended August 31, ----------------------------------------------------------------------------- (Unaudited) 2002(a) 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 11.87 14.16 16.42 16.51 15.19 18.15 Investment Operations: Investment income--net .09(b) .27(b) .39(b) .41(b) .42(b) .47 Net realized and unrealized gain (loss) on investments (.69) (2.25) (1.65) 1.54 2.43 (.88) Total from Investment Operations (.60) (1.98) (1.26) 1.95 2.85 (.41) Distributions: Dividends from investment income--net (.13) (.31) (.39) (.43) (.45) (.46) Dividends from net realized gain on investments -- -- (.61) (1.61) (1.08) (2.09) Total Distributions (.13) (.31) (1.00) (2.04) (1.53) (2.55) Net asset value, end of period 11.14 11.87 14.16 16.42 16.51 15.19 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (5.04)(c) (14.21) (7.87) 12.62 19.37 (2.99) - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of operating expenses to average net assets .57(c) 1.01 .81 .96 .94 .91 Ratio of interest expense and loan commitment fees to average net assets .00(c,d) .00(d) -- .00(d) .03 -- Ratio of net investment income to average net assets .78(c) 2.02 2.60 2.54 2.62 2.76 Portfolio Turnover Rate 145.55(c) 200.50 295.43 160.38 162.40 177.85 - ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 122,930 159,480 195,010 198,578 188,215 359,521 (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) NOT ANNUALIZED. (D) AMOUNT REPRESENTS LESS THAN .01%.
SEE NOTES TO FINANCIAL STATEMENTS. 20 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 direct 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. 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 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. The Fund 21 NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) 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 $876 during the period ended February 28, 2003 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. 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 22 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. (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. The fund has an unused capital loss carryover of $4,176,001 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to August 31, 2002. If not applied $89,710 of the carryover expires in fiscal 2009 and $4,086,291 of the carryover expires in fiscal 2010. The tax character of distributions paid to shareholders during the fiscal year ended August 31, 2002, was as follows: ordinary income $4,288,934. The tax character of current year distributions will be determined at the end of the current fiscal year. The Fund 23 NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) 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 during the period ended February 28, 2003 was approximately $443,600, with a related weighted average annualized interest rate of 1.65%. 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 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 28, 2003, the fund was charged $70,000 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 28, 2003, the fund was charged $33,181 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 February 28, 2003, the fund was charged $14,781 pursuant to the custody agreement. 24 (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 and an attendance fee of $6,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. 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. (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 accounts. During the period ended February 28, 2003, the fund derived $58,181 in income from these investments, which is included in dividend income in the fund's Statement of Operations. (E) During the period ended February 28, 2003, the fund incurred total brokerage commissions of $71,582, of which $150 was paid to Harborside Plus Inc., a wholly-owned subsidiary of Mellon Financial Corporation. NOTE 4--Securities Transactions: The following summarizes the aggregate amount of purchases and sales of investment securities and securities sold short, excluding short-term securities and financial futures, during the period ended February 28, 2003: Purchases ($) Sales ($) - -------------------------------------------------------------------------------- Long transactions 204,238,380 226,745,188 Short sale transactions 688,402 834,472 TOTAL 204,926,782 227,579,660 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 The Fund 25 NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) 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 28, 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 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 February 28, 2003 are set forth in the Statement of Financial Futures. At February 28, 2003, accumulated net unrealized depreciation on investments was $11,445,098, consisting of $6,673,798 gross unrealized appreciation and $18,118,896 gross unrealized depreciation. 26 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 222SA0203 -----END PRIVACY-ENHANCED MESSAGE-----