November 12, 1996
DREYFUS BALANCED FUND, INC.
SUPPLEMENT TO PROSPECTUS
DATED JANUARY 2, 1996
AS REVISED APRIL 1, 1996
THE FOLLOWING INFORMATION SUPPLEMENTS AND SUPERSEDES ANY CONTRARY
INFORMATION CONTAINED IN THE FOLLOWING SECTIONS OF THE FUND'S PROSPECTUS:
DESCRIPTION OF THE FUND
Commencing November 12, 1996, the Fund may engage in options and
futures transactions. Futures and options are a form of Derivative.
MANAGEMENT OF THE FUND-TRANSFER AND DIVIDEND DISBURSING AGENT
Effective May 10, 1996, Mellon Bank, N.A., One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, serves as the Fund's Custodian.
APPENDIX-INVESTMENT TECHNIQUES-USE OF DERIVATIVES
Although the Fund will not be a commodity pool, Derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission, which
limit the extent to which the Fund can invest in certain Derivatives. The
Fund may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Fund may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e., sell) covered call and put option contracts to the
(CONTINUED ON REVERSE SIDE)
extent of 20% of the value of its net assets at the time such option contracts
are written. When required by the Securities and Exchange Commission, the Fund
will set aside permissible liquid assets in a segregated account to cover its
obligations relating to transactions in Derivatives. To maintain this require
d cover, the Fund may have to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a Derivative
position at a reasonable price.
222s111296
November 12, 1996
DREYFUS BALANCED FUND, INC.
Supplement to Statement of Additional Information
Dated January 2, 1996
As revised April 1, 1996
The following information supplements and supersedes any contrary
information contained in the following sections of the Fund's Statement of
Additional Information:
Investment Objectives and Management Policies-Management Policies
Derivatives. Derivatives may be purchased on established exchanges or
through privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with Derivatives purchased on an exchange. By contract, no clearing agency
guarantees over-the-counter Derivatives. Therefore, each party to an over-
the-counter Derivative bears the risk that the counterparty will default.
Accordingly, the Manager will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Fund.
Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only
investor with sufficient understanding of the Derivative to be interested
in bidding for it.
Futures Transactions--In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and
the International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London
International Financial Futures Exchange and the Sydney Futures Exchange
Limited. Foreign markets may offer advantages, such as trading
opportunities or arbitrage positions, not available in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. For example, some foreign exchanges are principal markets so that
no common clearing facility exists and an investor may look only to the
broker for performance of the contract. In addition, any profits that the
Fund might realize in trading could be eliminated by adverse changes in the
exchange rate, or the Fund could incur losses as a result of those changes.
Transactions on foreign exchanges may include both commodities that are
traded on domestic exchanges and those that are not. Unlike trading on
domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund that
could adversely affect the value of its net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active
market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in
the market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities that it has hedged because it will
have offsetting losses in its future positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. The Fund may have
to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets in connection with its futures transactions in an amount
generally equal to the value of the underlying commodity. The segregation
of such assets will have the effect of limiting the Fund's ability
otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index futures contract obligates the Fund to
pay or receive an amount of cash equal to a fixed dollar amount specified
in the futures contract multiplied by the difference between the settlement
price of the contract on the contract's last trading day and the value of
the index based on the stock prices of the securities that comprise it at
the opening of trading in such securities on the next business day.
The Fund may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific
currency at a future date at a specific price.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time
during the option period, or at a specific date. Conversely, a put option
gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price
at any time during the option period, or at a specific date.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers
the transaction by segregating cash or other liquid assets. A put option
written by the Fund is covered when, among other things, cash or liquid
securities having a value equal to or greater than the exercise price of
the option are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone. The Fund receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events or events that may otherwise interfere with the timely
execution of customer orders, will not recur. In such event, it may not be
possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of
specific securities) or stock indices listed on national securities
exchanges or traded in the over-the-counter market. An option on a stock
index is similar to an option in respect of specific securities, except
that settlement does not occur by delivery of the securities comprising the
index. Instead, the option holder receives an amount of cash if the
closing level of the stock index upon which the option is based is greater
than, in the case of a call, or less than in the case of a put, the
exercise price of the option. Thus, the effectiveness of purchasing or
writing stock index options will depend upon price movements in the level
of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign
currency. These options convey the right to buy or sell the underlying
currency at a price that is expected to be lower or higher than the spot
price of the currency at the time the option is exercised or expires.
The Fund may purchase cash-settled options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps
in pursuit of its investment objective. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments
for fixed-rate payments) denominated in U.S. dollars or a foreign currency.
Equity index swaps involve the exchange by the Fund with another party of
cash flows based upon the performance of an index or a portion of an index
of securities that usually includes dividends. A cash-settled option on a
swap gives the purchaser the right, but not the obligation, in return for
the premium paid, to receive an amount of cash equal to the value of the
underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial institutions,
including securities brokerage firms.
Successful use of futures by the Fund is subject to the Manager's
ability to predict correctly movements in the prices of individual stocks,
the stock market generally, foreign currencies or interest rates. To the
extent such predictions are incorrect, the Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and
any other Derivatives which are not presently contemplated for use by the
Fund or which are not currently available but which may be developed, to
the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering
into such transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.
Transfer and Dividend Disbursing Agent, Custodian, Counsel and Independent
Auditors
Mellon Bank, N.A., the Manager's parent, One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, acts as custodian of the Fund's
investments. Under a custody agreement with the Fund, Mellon Bank, N.A.
holds the Fund's securities and keeps all necessary accounts and records.
For its custody services, Mellon Bank, N.A. receives a monthly fee based on
the market value of the Fund's assets held in custody and receives certain
securities transactions charges.
