DREYFUS BALANCED FUND, INC.
LETTER TO SHAREHOLDERS
Dear Shareholder:
It is a pleasure for me to introduce the new manager of Dreyfus Balanced
Fund, Douglas D. Ramos, who took over the Fund's management in July. As he
explains in the following letter, Doug brings a new viewpoint to carrying out
his responsibilities for managing this Fund on your behalf.
Before coming to Dreyfus, Doug served twelve years at Loomis, Sayles &
Co. in Pasadena, CA. where he managed $1.9 billion in equity assets including
the equity portion of balanced funds, and set allocation policy for one of
their major funds. Earlier Doug was a portfolio manager and analyst at
Lloyd's Bank. He began his career with Manufacturers Hanover Trust as an
analyst, after graduating from the University of Rhode Island. He is a
Chartered Financial Analyst (CFA) and a Chartered Investment Counselor (CIC).
At Dreyfus, Doug Ramos has been named a senior vice president, senior
equity portfolio manager and head of Growth and Income equities.
We have great confidence in Doug's ability to enhance value for
shareholders of the Dreyfus Balanced Fund.
Sincerely,
{Stephen E Canter Signature Logo}
Stephen E. Canter
Chief Investment Officer
DREYFUS BALANCED FUND, INC.
LETTER TO SHAREHOLDERS
Dear Shareholder:
In this, my first letter to you as portfolio manager of the Dreyfus
Balanced Fund, Inc., I am pleased to provide you with this annual report for
the year ended August 31, 1997. Over this period, your Fund produced a total
return of 28.06%.* As you know, the Fund holds both equities and fixed income
securities. A customized blended index combining common stocks, bonds and
U.S. Treasury Bills produced a total return of 24.84% for the same period.**
The total return on the Standard & Poor's 500 Composite Stock Price Index,
made up entirely of equities, was 40.62% over the same period.***
NEW EQUITY PROCESS
Focusing primarily on stocks with a market capitalization of $1 billion
and greater, the equity investment philosophy is based on the premise that
stock selection in the low P/E spectrum of the market produces superior
investment results relative to broad market indices on a long-term basis. In
addition, returns are enhanced by sound fundamental research allowing
judgments as to which low P/E stocks have the greatest potential for
appreciation based on improving earnings and business conditions.
With respect to the Fund's equity holdings, the portfolio objective is to
maintain a fully invested, broadly diversified portfolio of common stocks
with price-earnings ratios less than the market, long-term projected earnings
growth greater than the market, and other financial characteristics that are
attractive relative to the market. The market is defined as the Standard &
Poor's 500 Stock Index.
PRIMARY STOCK SELECTION CRITERIA
To be eligible for purchase:
* The P/E ratio of the company's stock must be less than the P/E ratio
of the market, based on projected earnings.
* The long-term projected earnings growth for the company will,
usually, be greater than the market.
SECONDARY STOCK SELECTION CRITERIA
In addition to the primary selection criteria mentioned above, prime
purchase candidates will also have the following characteristics:
* Higher returns on shareholders' equity
* Lower dividend payout ratios
* Higher projected dividend growth rates
* Higher projected total rates of return
SELL CRITERIA
A stock is sold when:
* It hits a previously established sell target based on its relative
price/earnings ratio.
* The company's fundamental investment thesis is no longer valid.
* A stock with more attractive characteristics and greater potential
is identified.
* An individual stock's portfolio weight reaches or exceeds 3%. It is
then trimmed back to 2%.
PORTFOLIO CONSTRUCTION
Using a bottom-up stock selection process based on the above stock
selection criteria, a 45-50 stock portfolio is initially constructed, with
industry exposure limited to 10% of the portfolio. Quantitative tools are
used to determine each stock's contribution to portfolio return/alpha, and
marginal and overall active risk.
ECONOMIC REVIEW
The economy has maintained a strong growth trend since last fall,
gradually eroding expectations for a natural slowdown "just around the
corner." Inflation has held steady, even in the face of a substantially
tighter labor market. Corporate profits have continued to surprise on the up
side. Market interest rates have held within a now long-established trading
range. In this setting, monetary policy has remained benign: the Federal
budget is close to being in balance and the Federal Reserve Board (the "Fed")
has kept policy rates unchanged since March.
Real GDP grew at above a 4% rate in the nine months from the third
quarter of 1996 to midyear. Indeed, the initial estimate of near 2% growth in
this year's second quarter was raised to 3.6%, erasing the record of even a
temporarily slow period. Virtually all major economic sectors have
contributed to the economy's growth. In turn, the economy has provided
personal income that, in the prevailing low inflation environment, has
translated into strong real purchasing power. The strength in demand has begun
to raise imports, bolstering foreign economies. Inventories have also
started to accumulate at a faster pace, although inventory levels are
currently still quite lean in relation to sales.
The labor market has tightened substantially in recent months as the pace
of new hiring has consistently exceeded the increase in the labor force.
Despite this, wage growth has been moderate while overall compensation growth
has accelerated only modestly. In their determination to hold the line on
prices, companies have resorted to unconventional hiring methods that, so
far, have avoided the need for higher wage offers.
Consensus expectations for corporate profits have been ratcheted upwards
virtually every month for the last several months. So far, positive surprises
in reported profits have justified the market's higher estimates. However,
the strength of the dollar overseas and other factors could affect future
profits.
Market interest rates have been stable since early 1996, oscillating
within a fairly narrow range. Several factors have kept rates steady: the
absence of faster inflation, positive Federal budget developments and an
accommodating Federal Reserve. Although the Fed has not changed policy rates
since March, they have held a bias towards tightening since last summer.
Therefore a move to tighten interest rates should not come as a surprise.
MARKET OVERVIEW
After acting like a high-speed elevator for most of the past 12 months,
the stock markets performed more like a roller coaster as the fiscal year
drew to a close on August 31.
After a brief sinking spell in March, caused by higher interest rates,
the equity markets climbed to one record after another until stopped by
another retreat in August. The Dow Jones Industrial Average, which started
the 12-month period at 5616.21, ended it at 7622.42, a gain of 2006.21
points. However, along the way, the 30 Dow Industrials broke through three
thousand-point milestones, reaching a high of 8259.31 in early August. In
spite of the drop in the last three weeks of August, the DJIA registered a
gain of 35.72% (excluding income) for the year ended August 31.
Again with income excluded, the broader Standard & Poor's 500 Composite
Stock Price Index gained 37.96% for the 12 months even after dropping 60.85
points from its high, and the Nasdaq Composite showed a year's gain of 39.06%
even though it stood 43.12 points below the year's high at the end of August.
While the market was rising, investors appeared to favor the larger
capitalized stocks, which enjoyed the sharpest rise, and subsequently gave up
the most in prices. The smallest stocks, as measured by the Russell 2000
small cap index, finished August at their high for the year.
Interest rates, and the anticipation of where they might go in the
future, were the dominant influences on the market. The rising elevator
effect came to a halt in March when investors were shaken by the Federal
Reserve's action raising interest
rates by a quarter point, the first such action in two years. Once that had
been absorbed, however, the market resumed its upward ride until fears of
higher interest rates and their companion, higher inflation, took hold again
in August.
The August decline was prompted by several factors, including the
Teamsters strike against United Parcel Service, resulting in a settlement
considered favorable to the labor union. This revived all the dormant fears
that national wage levels might rise, thus reviving inflation, and giving the
Fed reason to step on the monetary brakes once again.
Yet the economic environment for the equity market remained favorable.
Many commentators used the phrase "Goldilocks economy" - not too hot and not
too cold - to describe the economy's performance.
Stock price volatility, much of it on the down side, took over especially
in the last three weeks of August. From the start of the calendar year
through the end of August, 30% of stock trading sessions ended with the Dow
rising or falling 1% or more. Much to the relief of investors, the volatility
on September 2, the day after Labor Day, was all on the up side with the Dow
rising 3.38% for the day, the S&P 500 up 3.13%, the Nasdaq Composite up 1.94%
and the Russell 2000 gaining 1.09%.
Some of the August selling, no doubt, was prompted by the reduction in
the capital gains tax for securities held more than 18 months. How long that
will continue to impact the market is an open question.
Until now, the porridge on which the equity markets have been feeding has
been not too hot and not too cold. At these levels, of course, any unexpected
development can bring sharp reactions, particularly in view of the market's
spectacular gains since August 1996. Looking ahead, much depends on whether
the economy can maintain its "Goldilocks" condition, and not bring on another
dose of anti-inflation actions from the monetary authorities.
ASSET ALLOCATION
The Fund generally maintained an equity allocation close to the top of
the permitted asset range during the entire period. We believe that the
investment environment for the stock market remained positive, and wanted to
maximize the Fund's participation. This strategy in asset allocation
generally added to performance results.
Bonds composed the vast remainder of the Fund's assets during the period,
while cash equivalents were kept to a minimum. Cash equivalents provided a
low yield, and we were generally positive toward the bond markets during this
period. This strategy also benefited performance.
EQUITY HOLDINGS
Results of equity investment during the year were positively impacted by
two primary factors - financial sector holdings and issue selection. The
greatest impact came from holdings in the financial sector with outstanding
returns generated by Ahmanson (HF), Great Western Financial, Chelsea GCA
Realty, and Equitable Cos. The other factor was issue selection. EMC, Cooper
Cameron, Tosco, and Corning are representative holdings that added to
performance during the year. On the other side of the ledger, issue selection
was a dual edged sword both helping and hurting performance during the year.
Stocks that hindered results included Novell, Fruit of the Loom Cl.A., Titan
Exploration, Read-Rite, and Officemax.
In the current equity environment, issue selection should be the key
factor determining investment success. We continue to find stocks with good
long-term earnings growth potential that are attractively priced relative to
the broad market average.
FIXED-INCOME HOLDINGS
We have maintained a flexible duration posture in structuring the fixed
income portion of the portfolio during the past year. On balance we have
added value through modest duration adjustments, being longer than the Lehman
Aggregate
Index benchmark during periods of falling interest rates, and shorter during
rising interest rates. Currently the duration is 4.9 years; modestly longer
than the Lehman Aggregate index duration of 4.6 years.
The most significant structural change in the portfolio has been an
emphasis on both commercial and residential mortgage-backed securities. These
securities have performed much better than comparably rated corporate bonds
due to generally improving real estate markets, changing rating agency
underwriting guidelines, and strong investor demand. We expect to reduce
exposure to this area over time if yield spreads continue to contract toward
those of comparably rated corporates. Additionally, we continue to
de-emphasize U.S. Treasury securities favoring instead corporate and mortgage
backed bonds for their additional yield and price appreciation potential.
It is a privilege to manage money on your behalf. You may be assured of
our best efforts to bring you rewarding returns.
Sincerely,
[Douglas D. Ramos Signature Logo]
Douglas D. Ramos
Portfolio Manager
September 17, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** The Customized Blended Index is composed of the Standard & Poor's 500
Composite Stock Price Index, 50%, the Lehman Brothers Aggregate Bond Index,
40%, and the Merrill Lynch 91-Day U.S. Treasury Bill Index, 10%. Reflects the
reinvestment of income dividends and, where applicable, capital gain
distributions.
*** SOURCE: LIPPER ANALYTICAL SERVICES, INC. - Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
DREYFUS BALANCED FUND, INC. AUGUST 31, 1997
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
A CUSTOMIZED BLENDED INDEX
Dollars
$24,336
Standard & Poor's 500
Composite Stock
Price Index*
$18,808
Dreyfus Balanced Fund
$18,358
Customized Blended
Index***
$13,768
Lehman Brothers
Aggregate Bond Index**
* Source: Lipper Analytical Services, Inc.
** Source: Lehman Brothers
***Source: Lipper Analytical Services, Inc.,
Lehman Brothers and Merrill Lynch, Pierce, Fenner and Smith Inc.
Average Annual Total Returns
One Year Ended From Inception (9/30/92)
August 31, 1997 to August 31, 1997
------------------- --------------------------
28.06% 13.70%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Balanced Fund,
Inc. on 9/30/92 (Inception Date) to a $10,000 investment made on that date in
three different indexes: (1) the Customized Blended Index, (2) the Standard &
Poor's 500 Composite Stock Price Index and (3) the Lehman Brothers Aggregate
Bond Index, which are described below. All dividends and capital gain
distributions are reinvested. Components of the Customized Blended Index are
reallocated annually.
Dreyfus Balanced Fund seeks long-term capital growth and current income
through investment in equity and debt securities. The Fund's performance
shown in the line graph takes into account all applicable fees and expenses.
The Standard and Poor's 500 Composite Stock Price Index is a widely accepted,
unmanaged index of overall stock market performance. The Lehman Brothers
Aggregate Bond Index is a widely accepted, unmanaged index of corporate,
government and government agency debt instruments. The Merrill Lynch 91-Day
U.S. Treasury Bill Index is calculated using bills that mature closest to,
but not beyond 91 days. The Indices do not take into account charges, fees
and other expenses. The Customized Blended Index is composed of Standard &
Poor's 500 Composite Stock Price Index, 50%, Lehman Brothers Aggregate Bond
Index, 40% and Merrill Lynch 91-Day U.S. Treasury Bill Index, 10%. 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.
<TABLE>
<CAPTION>
DREYFUS BALANCED FUND, INC.
STATEMENT OF INVESTMENTS AUGUST 31, 1997
Principal
Bonds and Notes-39.0% Amount Value
------- -------
<S> <C> <C> <C>
Banking-1.9% Barnett Cap. Trust 2, Deb.,
7.95%, 2026.......................... $ 2,500,000 $ 2,493,750
Norwest Asset Securities, Pass-Through Ctfs.:
Ser. 1997-11, Cl. B1, 7%, 2027....... 4,012,000 3,897,909
Ser. 1997-11, Cl. B2, 7%, 2027....... 350,000 336,547
-------
6,728,206
-------
Consumer Non-Durables-.6% Philip Morris Cos., Notes,
6.95%, 2006......................... 2,000,000 2,026,552
-------
Finance-8.9% CS First Boston Mortgage Securities, Sub. Deb.,
Ser. 1997-C1, Cl. E, 7.50%, 2011..... 4,000,000 (a) 3,961,250
Evans Withycombe Residential, Notes,
7.50%, 2004.......................... 3,450,000 3,519,624
First Union, Deb.,
8.04%, 2026.......................... 2,000,000 2,008,598
First Union-Lehman Brothers, Pass-Through Ctfs.,
Ser. 1997-C1, Cl. C, 7.44%, 2007..... 2,000,000 2,050,937
Ford Motor Credit, Notes,
7.20%, 2007.......................... 2,000,000 2,034,068
Industrial Finance, Notes,
7%, 2007............................. 2,000,000 (a) 1,981,074
Morgan Stanley Cap. I, Sub. Bonds,
Ser. 1997-HF1, Cl. E, 7.55%, 2007.... 4,000,000 (a) 3,970,000
Realty Income, Notes,
7.75%, 2007.......................... 2,000,000 2,080,374
Salomon Bothers Mortgage Securities VII, Deb.:
Ser. 1997-TZH, Cl. C, 7.724%, 2022... 5,000,000 (a) 5,134,355
Ser. 1997-TZH, Cl. D, 7.902%, 2022... 3,000,000 (a) 3,078,750
Wharf International Finance, Deb.,
7.625%, 2007......................... 1,000,000 (a) 1,007,692
-------
30,826,722
-------
Industrial-3.9% Belo (A.H.), Sr. Notes,
6.875%, 2002......................... 3,000,000 (b) 3,024,570
EES Coke Battery, Sr. Notes,
7.125%, 2002......................... 2,000,000 (a) 2,005,790
PDV America, Sr. Notes,
7.25%, 1998.......................... 3,000,000 (b) 3,019,803
PTTEP International, Deb.,
7.625%, 2006......................... 2,500,000 (a) 2,478,125
Tosco, Notes,
7.25%, 2007.......................... 3,150,000 3,207,141
-------
13,735,429
-------
Oil & Gas-.7%. Halliburton, Notes,
6.75%, 2007.......................... 2,500,000 2,519,985
-------
Transportation-.9% America West Airlines, Pass-Through Ctfs.,
7.53%, 2004.......................... 3,000,000 3,015,000
-------
DREYFUS BALANCED FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Bonds and Notes (continued) Amount Value
------- -------
Utilities-2.0% Chilinger, Notes,
6.50%, 2006.......................... $ 1,975,000 $ 1,891,414
Indiantown Cogeneration, L.P., First Mortgage,
9.77%, 2020.......................... 2,500,000 2,933,672
Wisconsin Bell, Deb.,
6.35%, 2026.......................... 2,000,000 1,980,512
-------
6,805,598
-------
Foreign-.3% Sultan of Oman, Deb.,
7.125%, 2002......................... 1,000,000 (a) 1,002,250
-------
Other-6.5% Asset Securitization Corp.,
Asset Backed Ctfs.,
Ser. 1996-MD6, Cl. A7, 7.754%, 2026.. 4,500,000 4,661,719
GMAC 1993-B Grantor Trust,
Asset Backed Ctfs.,
Cl. A, 4%, 1998...................... 22,485 22,486
GMAC Commercial Mortgage Securities,
Asset Backed Ctfs.,
Ser. 1996-C1, Cl. E, 7.86%, 2006..... 3,000,000 3,109,688
GS Mortgage Securities Corp. II, Sub. Deb.,
Ser. 1997-GL, Cl. G, 7.823%, 2030.... 6,000,000 6,046,875
MMCA Auto Owner Trust,
Asset Backed Ctfs.,
Ser. 1995-1, Cl. A, 5.70%, 2000...... 861,334 (b) 861,774
New York City Tax Lien,
Collateralized Bonds:
Ser. 1996-1, Cl. C, 7.11%, 2005 626,917 (a) 619,669
Ser. 1997-1, Cl. D, 5.712%, 2005 2,473,099 (a) 2,476,191
Residential Funding Mortgage Securities I,
Pass-Through Ctfs.:
Ser. 1996-S18, Cl. M3, 8%, 2026...... 2,443,874 2,458,385
Ser. 1996-S22, Cl. M3, 8%, 2026...... 2,420,078 2,452,599
-------
22,709,386
-------
U.S. Government &
Agencies-13.3% Federal Home Loan Mortgage Corp.,
Real Estate Mortgage Investment Conduit,
Ser. 1497, Cl. FF, 6.50%, 8/15/2021.. 1,650,000 1,610,895
Federal National Mortgage Association,
Real Estate Mortgage Investment Conduit:
Ser. 1996-M3, Cl. A1, 7.385%, 3/25/2021 4,805,749 4,916,883
9%, 6/1/2026 2,665,774 2,833,211
Government National Mortgage Association,
Mortgage Backed Ctfs.:
5.50%, 12/20/2026.................... 5,895,376 5,935,878
5.50%, 7/20/2027..................... 5,000,000 (c) 4,971,850
7.50%, 4/15/2037..................... 2,000,000 (c) 2,066,860
DREYFUS BALANCED FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Bonds and Notes (continued) Amount Value
------- -------
U.S. Government &
Agencies (continued) U.S. Treasury Notes:
7.875%, 11/15/2004................... $ 2,825,000 $ 3,072,187
6.25%, 2/15/2007..................... 7,000,000 6,931,094
7%, 7/15/2026........................ 13,300,000 13,823,687
-------
46,162,545
-------
TOTAL BONDS AND NOTES
(cost $135,311,419)..................... $135,531,673
=======
Common Stocks-59.7% Shares
-------
Consumer Durables-1.0% Harman International..................... 81,000 $ 3,624,750
-------
Consumer Non-Durables-5.3% Cott..................................... 329,600 3,151,800
Fruit of the Loom, Cl. A................. 78,000 2,086,500
Kimberly-Clark........................... 74,900 3,553,069
NIKE, Cl. B.............................. 58,000 3,095,750
Philip Morris Cos........................ 69,000 3,010,125
Warnaco Group, Cl. A..................... 110,100 3,571,369
-------
18,468,613
-------
Consumer Services-1.9% Harcourt General 68,000 3,234,250
La Quinta Inns........................... 152,000 3,192,000
-------
6,426,250
------
Electronic Technology-8.7% Adaptec.................................. 95,000 (d) 4,560,000
Boeing................................... 65,650 3,573,822
EMC...................................... 87,900 (d) 4,510,369
Harris................................... 43,000 3,746,375
Lockheed Martin.......................... 35,000 3,629,062
Micron Technology........................ 75,000 3,342,188
3Com..................................... 63,000 (d) 3,146,062
United Technologies...................... 46,000 3,590,875
-------
30,098,753
-------
Energy Minerals-4.5% Mobil.................................... 51,200 3,724,800
Pennzoil................................. 60,600 4,677,563
Phillips Petroleum....................... 69,000 3,281,812
Tosco.................................... 113,400 3,749,288
-------
15,433,463
-------
Finance-9.3% Allstate................................. 53,000 3,872,313
BankAmerica.............................. 61,600 4,054,050
Bankers Trust NY......................... 39,000 4,046,250
Chase Manhattan.......................... 34,500 3,835,969
Chelsea GCA Realty....................... 90,400 3,395,650
DREYFUS BALANCED FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Common Stocks (continued) Shares Value
------- -------
Finance (continued) Equitable Cos............................ 115,000 $ 5,002,500
Equity Office Properties Trust........... 44,700 (d) 1,304,681
NationsBank.............................. 59,000 3,503,125
Travelers Group.......................... 52,400 3,327,400
-------
32,341,938
-------
Health Services-3.8% Aetna.................................... 39,500 3,769,781
Allegiance............................... 133,000 4,172,875
Beverly Enterprises...................... 100,000 (d) 1,631,250
PacifiCare Health Systems, Cl. B......... 53,200 (d) 3,637,550
-------
13,211,456
-------
Health Technology-2.6% Forest Labs.............................. 81,000 (d) 3,326,063
Pharmacia & Upjohn....................... 50,000 1,703,125
Watson Pharmaceuticals................... 75,000 (d) 3,942,187
-------
8,971,375
-------
Industrial Services-1.1% Cooper Cameron........................... 61,000 (d) 3,957,375
-------
Non-Energy Minerals-2.9% Georgia-Pacific.......................... 40,000 3,650,000
ISPAT International...................... 87,300 (d) 2,340,731
Lone Star Industries..................... 75,000 3,984,375
-------
9,975,106
-------
Process Industries-4.7% Ciba Specialty Chemicals................. 13,800 1,189,974
Goodrich (B.F.).......................... 75,000 3,159,375
Great Lakes Chemical..................... 88,000 4,092,000
Owens-Illinois........................... 111,000 (d) 3,864,188
Temple-Inland............................ 60,000 3,870,000
-------
16,175,537
-------
Producer Manufacturing-6.6% AlliedSignal............................. 54,000 4,458,375
Caterpillar.............................. 66,000 3,832,125
General Signal........................... 64,800 2,810,700
Ingersoll-Rand........................... 65,500 3,938,187
Raychem.................................. 46,300 4,308,794
Xerox.................................... 48,700 3,676,850
-------
23,025,031
-------
Retail Trade-3.8% Dayton Hudson............................ 64,000 3,648,000
Federated Department Stores.............. 48,200 (d) 2,024,400
General Nutrition........................ 134,000 (d) 3,718,500
Pier 1 Imports........................... 190,500 3,238,500
Polo Ralph Lauren, Cl. A................. 22,900 (d) 601,125
-------
13,230,525
-------
Transportation-1.2% CNF Transportation 118,000 4,262,750
-------
DREYFUS BALANCED FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Common Stocks (continued) Shares Value
------- -------
Utilities-2.3% Coastal.................................. 71,700 $ 4,140,675
El Paso Natural Gas...................... 62,700 3,526,875
Houston Industries....................... 20,042 405,850
-------
8,073,400
-------
TOTAL COMMON STOCKS
(cost $174,725,956)..................... $207,276,322
=======
Convertible Preferred Stocks-1.2%
Energy Minerals; Petroleo Brasileiro-Petrobras
(cost $2,912,751)....................... 17,000 $ 4,142,922
=======
Principal
Short-Term Investments-.2% Amount
-------
U.S. Treasury Bills: 5.57%, 9/18/1997
(cost $573,591).......................... $ 575,000 (e) $ 573,367
=======
TOTAL INVESTMENTS (cost $313,523,717).......................................... 100.1% $347,524,284
====== ===========
LIABILITIES, LESS CASH AND RECEIVABLES......................................... (.1%) $ (264,980)
===========
NET ASSETS..................................................................... 100.0% $347,259,304
====== ===========
Notes to Statement of Investments:
(a) Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
August 31, 1997, these securities amounted to $27,715,146 or approximately
8.0% of net assets.
(b) Held by the custodian in a segregated account as collateral for
securities purchased on a forward commitment basis.
(c) Purchased on a forward commitment basis.
(d) Non-income producing.
(e) Partially held by custodian in a segregated account as collateral
for open Financial Future positions.
SEE NOTES TO FINANCIAL STATEMEN
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BALANCED FUND, INC.
STATEMENT OF FINANCIAL FUTURES AUGUST 31, 1997
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures Short: Contracts by Contracts Expiration at 8/31/97
- ----------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
5 Year U.S. Treasury Notes................... 23 $(2,455,250) September '97 $ 25,156
10 Year U.S. Treasury Notes.................. 60 (6,541,875) September '97 (50,625)
-----
$(25,469)
=====
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1997
Cost Value
-------- --------
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $313,523,717 $347,524,284
Cash....................................... 390,284
Receivable for investment securities sold.. 13,202,920
Interest and dividends receivable.......... 1,654,402
Net unrealized appreciation on forward
currency exchange contracts-Note 4(a)...... 51,044
Receivable for shares of Common Stock subscribed 42,999
Receivable for futures variation margin-Note 4(a) 18,594
Prepaid expenses........................... 23,128
--------
362,907,655
--------
LIABILITIES: Due to The Dreyfus Corporation and affiliates 160,979
Payable for investment securities purchased 13,169,031
Payable for shares of Common Stock redeemed 2,243,120
Accrued expenses........................... 75,221
--------
15,648,351
--------
NET ASSETS.................................................................. $347,259,304
========
REPRESENTED BY: Paid-in capital............................ $279,485,729
Accumulated undistributed investment income-net 1,902,160
Accumulated net realized gain (loss) on investments 31,848,088
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions
[including ($25,469) net unrealized (depreciation)
on financial futures]................... 34,023,327
--------
NET ASSETS.................................................................. $347,259,304
========
SHARES OUTSTANDING
(300 million shares of $.001 par value Common Stock authorized)............. 19,137,214
NET ASSET VALUE, offering and redemption price per share.................... $18.15
=====
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS BALANCED FUND, INC.
STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1997
INVESTMENT INCOME
INCOME: Interest................................... $ 8,354,546
Cash dividends (net of $25,877 foreign taxes
withheld at source).................... 2,829,287
-------
Total Income......................... $11,183,833
EXPENSES: Management fee-Note 3(a)................... 1,825,854
Shareholder servicing costs-Note 3(b)...... 887,212
Custodian fees-Note 3(b)................... 48,748
Professional fees.......................... 45,969
Registration fees.......................... 42,921
Directors' fees and expenses-Note 3(c)..... 28,796
Prospectus and shareholders' reports....... 25,253
Loan commitment fees-Note 2................ 3,325
Miscellaneous.............................. 16,226
-------
Total Expenses....................... 2,924,304
-------
INVESTMENT INCOME-NET....................................................... 8,259,529
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments and
foreign currency transactions.......... $33,225,569
Net realized gain (loss) on
forward currency exchange contracts.... 49,375
Net realized gain (loss) on financial
futures:
Long transactions...................... 2,550
Short transactions..................... 82,314
-------
Net Realized Gain (Loss)............... 33,359,808
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions [including ($25,469)
net unrealized (depreciation) on financial
futures]............................... 32,330,537
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 65,690,345
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $73,949,874
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS BALANCED FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
August 31, 1997 August 31, 1996
-------- ---------
OPERATIONS:
Investment income-net..................................................... $ 8,259,529 $ 7,484,059
Net realized gain (loss) on investments................................... 33,359,808 10,594,753
Net unrealized appreciation (depreciation) on investments................. 32,330,537 (10,694,194)
-------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations......... 73,949,874 7,384,618
-------- --------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net..................................................... (7,851,890) (7,065,294)
Net realized gain on investments.......................................... (11,090,177) (9,035,826)
-------- --------
Total Dividends......................................................... (18,942,067) (16,101,120)
-------- --------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................. 114,567,348 212,974,684
Dividends reinvested...................................................... 18,584,915 15,726,554
Cost of shares redeemed................................................... (110,769,614) (116,025,180)
-------- --------
Increase (Decrease) in Net Assets from Capital Stock Transactions....... 22,382,649 112,676,058
-------- --------
Total Increase (Decrease) in Net Assets............................... 77,390,456 103,959,556
NET ASSETS:
Beginning of Period....................................................... 269,868,848 165,909,292
-------- --------
End of Period............................................................. $ 347,259,304 $ 269,868,848
======== ========
Undistributed investment income-net......................................... $ 1,902,160 $ 1,494,521
-------- --------
Shares Shares
-------- --------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................... 6,833,342 13,678,706
Shares issued for dividends reinvested.................................... 1,161,022 1,029,914
Shares redeemed........................................................... (6,696,371) (7,500,481)
-------- --------
Net Increase (Decrease) in Shares Outstanding........................... 1,297,993 7,208,139
======== ========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BALANCED FUND, INC.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Year Ended August 31,
-------------------------------
PER SHARE DATA: 1997 1996 1995 1994 1993(1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $15.13 $15.61 $13.72 $13.28 $12.50
---- ---- ---- ---- ----
Investment Operations:
Investment income-net........................ .45 .51 .54 .41 .39
Net realized and unrealized gain (loss)
on investments............................. 3.65 .29 1.99 .59 .71
---- ---- ---- ---- ----
Total from Investment Operations............. 4.10 .80 2.53 1.00 1.10
---- ---- ---- ---- ----
Distributions:
Dividends from investment income-net......... (.44) (.53) (.51) (.42) (.32)
Dividends from net realized gain on investments (.64) (.75) (.13) (.14) -
---- ---- ---- ---- ----
Total Distributions.......................... (1.08) (1.28) (.64) (.56) (.32)
---- ---- ---- ---- ----
Net asset value, end of period............... $18.15 $15.13 $15.61 $13.72 $13.28
==== ==== ==== ==== ====
TOTAL INVESTMENT RETURN.......................... 28.06% 5.19% 19.03% 7.73% 8.88%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... .96% 1.00% 1.04% .69% .23%(2)
Ratio of net investment income
to average net assets...................... 2.71% 3.37% 3.99% 3.26% 3.46%(2)
Decrease reflected in above expense ratios
due to undertakings by the Manager......... - - - .41% 1.13%(2)
Portfolio Turnover Rate...................... 235.56% 186.23% 72.42% 58.22% 46.42%(2)
Average commission rate paid (3)............. $.0587 $.0684 - - -
Net Assets, end of period (000's Omitted).... $347,259 $ 269,869 $165,909 $82,848 $48,315
(1) From September 30, 1992 (commencement of operations) to August 31, 1993.
(2) Not annualized.
(3) For fiscal years beginning September 1, 1995, the Fund is required to
disclose its average commission rate paid per share for purchases and sales of
investment securities.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Balanced Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 ("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, consistent with
reasonable investment risk. The Dreyfus Corporation ("Manager") serves as the
Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. ("Mellon"). Premier Mutual Fund Services, Inc. is the distributor of the
Fund's shares, which are sold to the public without a sales charge.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Most debt securities (excluding short-term
investments) are valued each business day by an independent pricing service
("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. 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 change 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,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(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 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
DREYFUS BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Revenue Code. To the extent that net realized capital gain can be offset by
capital loss carryovers, if any, it is the policy of the Fund not to
distribute such gain.
On September 29, 1997, the Board of Directors declared a cash dividend of
$.115 per share from undistributed investment income-net, payable on
September 30, 1997 (ex-dividend date), to shareholders of record as of the
close of business on September 29, 1997.
(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 Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-BANK LINE OF CREDIT:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility ("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 this Facility. Interest is charged to the Fund at rates based on
prevailing market rates in effect at the time of borrowings. For the period
ended August 31, 1997, the Fund did not borrow under the Facility.
NOTE 3-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Pursuant to a management agreement with the Manager, the management
fee is computed at the annual rate of .60 of 1% of the value of the Fund's
average daily net assets and is payable monthly.
(b) Under the Shareholder Services Plan, the Fund reimburses Dreyfus
Service Corporation, a wholly-owned subsidiary of the Manager, 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 August 31, 1997, the Fund was charged an aggregate of
$760,773 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. Such
compensation amounted to $73,624, during the period ended August 31, 1997.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended August 31, 1997,
$48,748 was paid to Mellon pursuant to the custody agreement.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, financial futures and
forward currency exchange contracts during the period ended August 31, 1997
amounted to $721,320,531 and $701,516,280, respectively.
<TABLE>
<CAPTION>
DREYFUS BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In addition, the following summarizes open forward currency exchange contracts at August 31, 1997:
Foreign
Currency Unrealized
Forward Currency Exchange Contracts Amounts Proceeds Value Appreciation
- --------------------------------- ------ -------- ------- -------
<S> <C> <C> <C> <C>
Sales:
- ------
Swiss Francs, expiring 9/19/97........... 1,860,298 $1,302,000 $1,250,956 $51,044
=======
</TABLE>
The Fund enters into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. When executing forward currency exchange contracts, the
Fund is obligated to buy or sell a foreign currency at a specified rate on a
certain date in the future. With respect to sales of forward currency
exchange contracts, the Fund would incur a loss if the value of the contract
increases between the date the forward contract is opened and the date the
forward contract is closed. The Fund realizes a gain if the value of the
contract decreases between those dates. With respect to purchases of forward
currency exchange contracts, the Fund would incur a loss if the value of the
contract decreases between the date the forward contract is opened and the
date the forward contract is closed. The Fund realizes a gain if the value of
the contract increases between those dates. The Fund is also exposed to credit
risk associated with counterparty nonperformance on these forward currency
exchange contracts which is typically limited to the unrealized gains on each
open contract.
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 (see Statement of Financial Futures). Investments in financial
futures require the Fund to "mark to market" on a daily basis, which reflects
the change in the market value of the contracts at the close of each day's
trading. Typically, variation margin payments are received or made to reflect
daily unrealized gains or losses. When the contracts are closed, the Fund
recognizes a realized gain or loss. These investments require initial margin
deposits with a custodian, which consist of cash or cash 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, 1997, and their
related unrealized appreciation/depreciation are set forth in the Statement
of Financial Futures.
(b) At August 31, 1997, accumulated net unrealized appreciation on
investments, financial futures and forward currency exchange contracts was
$34,026,142, consisting of $38,211,198 gross unrealized appreciation and
$4,185,056 gross unrealized depreciation.
At August 31, 1997, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS BALANCED FUND, INC.
REPORT OF ERNST & YOUNG LLP, 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 and
financial futures, as of August 31, 1997, 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 generally accepted auditing
standards. 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, 1997 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, 1997, 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 generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
October 6, 1997
DREYFUS BALANCED FUND, INC.
IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates $.630 per share as a
long-term capital gain distribution of the $.731 per share paid on December
13, 1996.
The Fund also designates 9.32% of the ordinary dividends paid during the
fiscal year ended August 31, 1997 as qualifying for the corporate dividends
received deduction. Shareholders will receive notification in January 1998 of
the percentage applicable to the preparation of their 1997 income tax
returns.
Registration Mark
[Dreyfus Lion "d" logo]
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.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 222AR978
Registration Mark
[Dreyfus Logo]
Balanced
Fund, Inc.
Annual Report
August 31, 1997
