DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
August 31, 1998 marked the end of another fiscal year for the Dreyfus Balanced
Fund, Inc.. The past 12 months have been a very challenging investment
environment with many cross currents buffeting world economies and financial
markets. For the 12-month period ended August 31, 1998, your Fund produced a
total return of -2.99%.* Although the results could be characterized as mildly
disappointing, they are not surprising given current market circumstances and
the Fund's history and evolution.
While the bond markets have done well, propelled by lower interest rates,
stocks have produced mixed results during the past 12 months. Due to the
structure of the Fund, composed of a balanced mix of common stocks, bonds and
U.S. Treasury Bills, we think that an accurate measure of the performance of the
Fund is against a Customized Blended Index, which had a total return of 8.83%.**
The Lehman Brothers Aggregate Bond Index, a component of the Customized Blended
Index and a broad measure of bond performance, produced a total return of 10.57%
for the 12 months ended August 31, 1998.*** Large capitalization stocks, as
measured by the Standard & Poor' s 500 Composite Stock Price Index, a second
component of the Customized Blended Index, had a total return of 8.12%.((+))
Small-cap stocks returned -19.40%, as measured by the Russell 2000 Index.((+)(+)
)
ECONOMIC REVIEW
So far in 1998, the main regions of the world have had very different economic
fundamentals. The U.S. entered the year with a strong economy and nearly full
employment; unemployment was only slightly above 4%. The tight labor market led
the Federal Reserve Board to contemplate a rise in interest rates early in the
year. The U.S. economy cooled over the months and the Fed decided to stand pat.
Evidence of economic cooling continued to accumulate and worries about the world
economy intensified. World economic weakness has shifted expectations towards
monetary easing. After many years of subpar economic growth, continental Europe
moved into a better economic expansion. Unlike the U.S., Europe has substantial
excess capacity of productive plant and labor. In Asia, weak economies were
pervasive as a result of the Asian financial crisis. The Latin American
economies weakened as the financial stresses spread throughout that region.
A main influence on the U.S. economy this year was the foreign financial
crisis and cooling of the world economy. The positive effects hit first. Actual
inflation and expected inflation dropped, causing a decline in long-term
Treasury bond yields and mortgage rates. This caused a boom in housing. The fall
in inflation helped the consumer sector as more of the growth in consumer income
was left over after inflation to buy goods and services. Consumers benefited
from a combination of good growth in income after inflation, a strong labor
market, and past increases in the prices of assets they owned.
<PAGE>
The negative effect of Asian weakness was directed towards the industrial
sector more than the consumer sector. Corporate profits weakened, especially in
sectors sensitive to Asia such as world-traded commodities (oil, metals and
paper) and exporters. One result of the industrial weakness was to cool off a
U.S. economy that had been growing rapidly.
The major change in the economic outlook over recent months has been a
downward shift in expectations for world economic growth. A credit crunch
developed in emerging countries and former communist countries, sharply reducing
the economic outlook for Asia and Latin America as well as for
commodity-exporting countries throughout the world. The effect on Europe and the
U.S. has been to lower expectations of profit growth and drive down bond yields
The prospects for world economic weakness and monetary ease in the major
countries will be powerfully impacted by whether foreign financial stresses calm
down or intensify in the coming months. There appears to be a shift in the
priorities of key policymakers from fighting potential inflation to stimulating
future world economic growth.
MARKET OVERVIEW
The 12 months ended August 31, 1998 encompassed some very different market
phases, with stock market strength during much of the period followed by a sharp
decline towards the end, especially in August 1998, the final month of the
fiscal year. Over the 12-month period, the total return on the S&P 500 was 8.12%
despite a return of -14.45% in August 1998. Returns on mid-cap and small-cap
stock indices tended to be weaker, with negative total returns on those indices
Three key trends influenced stock market behavior during the fiscal year.
First, the Federal Reserve kept the Federal Funds rate flat at 5.5% for the
entire period. Sentiment shifted from expectations of a possible Fed Funds rate
increase to expectations of a cut by the end of the period. Second, weakness in
emerging country economies contributed to declining commodity prices and a drop
in long-term Treasury bond yields to multi-decade lows. Third, expectations for
corporate profits dropped, first in the Asia-impacted sectors such as oil, basic
materials and exporters, and then for a broader list of stocks. In general, mid-
and small-cap stocks began to sell off in April, ahead of the larger-cap more
liquid issues.
The trigger for the sharp decline in stocks at the end of the period appeared
to be the Russian default in mid-July 1998. This resulted in deepening concerns
about weaker economic growth and corporate profits. There were also global
margin calls on risky assets held by hedge funds and financial institutions.
This raised the cost of debt financing for many corporations and many emerging
countries. Expectations for economic activity in emerging countries in Asia and
Latin America shifted down sharply while expectations for U.S. corporate profits
weakened somewhat. Despite the fall in Treasury bond yields to multi-decade
lows, financial stocks led the summer sell-off due to concerns about financial
contagion among emerging countries and potential loan losses by financial
institutions.
<PAGE>
The erosion of expectations about corporate profit growth over the last year
contributed to an outperformance by a small group of super-cap growth stocks.
Investors had more confidence in the prospect for strong persistent earnings
growth for this small group of stocks than for the broad market. Value stocks,
which often have greater cyclical sensitivity to earnings fluctuations, lagged
behind these super-growth stocks. In addition, many of the financial stocks,
which fall into the value category, fell sharply following the Russian default
in mid-July 1998.
The fiscal year ended August 1998 was characterized by very different
performances of the various market sectors. Super-cap growth stocks did best,
followed by large-cap stocks in general with mid-cap and small-cap stocks
lagging behind. For example, the total return for the fiscal year on the Russell
1000 Index with a heavy large-cap representation was 6.10%, with the Russell
1000 Growth Index returning 8.26% while the Russell 1000 Value Index returned
3.89% . The total return for the Russell Midcap Index was -6.69%, while the
small-cap Russell 2000 Index had a total return of -19.40%.
PORTFOLIO FOCUS
ASSET ALLOCATION
On average, the Fund held approximately 60% of its assets in equity
investments for the 12 months ended August 31, 1998. Currently, a combination of
lower equity prices and a reduction in equity exposure leaves the Fund's
month-end allocation to common stocks at 53%. Longer-term fixed-income assets
and convertible preferred stocks currently represent 40% of the Fund, with the
balance in cash and equivalents.
While we currently believe that long-term prospects for stocks remain very
positive, equity valuation levels relative to interest rates are still a
concern. Ample liquidity and foreign buying helped fuel equity price gains
through July, but risks have increased and, as we suggested as a possibility in
our semi-annual letter, we have lowered our exposure to the equity markets. Of
course, we will look to increase the Fund's equity exposure should opportunities
arise.
EQUITY HOLDINGS
<PAGE>
My management of the Fund began in July 1997. Although the Fund was managed in
a value style prior to my arrival, I spent the latter half of calendar 1997
restructuring the Fund to reduce its exposure to cyclical stocks. At this time
we anticipate that the Fund will be primarily focused on investments in
mid-to-large capitalization companies which we believe have above-average
earnings growth prospects and whose common stock is selling at below-average
price-earnings ratios. While my first priority was to reduce the Fund's cyclical
exposure, it is now clear that capitalization/liquidity must also be a primary
focus. During the first half of 1998, additional changes were made to the Fund,
repositioning it away from small- and mid-cap stocks towards larger-cap
companies, while the p/e discipline has been maintained. Liquidity continues to
dominate. At some point, the extreme valuation spreads that now exist between
very large capitalization, high p/e companies and the rest of the equity market
should narrow and we hope to capitalize on any such development.
As the various discussions above have highlighted, the key investment drivers
have been liquidity and concerns about earnings growth. This has lead to an
investment environment where performance was largely driven by capitalization,
with an emphasis on growth stocks. During the year, investments in Dayton
Hudson, Equitable Cos., Allegiance, Pier 1 Imports, and Lexmark International
Group produced the largest positive contributions to the Fund. On the other side
of the ledger, issue selection and a small- to mid-cap bias hurt results. An
assortment of stocks from various industries (Wisconsin Central, Adaptec,
Phycor, RJR Nabisco Holdings, and Aetna) registered the largest negative
results.
In the current equity environment, favoring large capitalization growth
stocks, we think that issue selection with a large capitalization bias should be
the key factor determining potential investment success. We have continued to
look for stocks with above-average long-term earnings growth potential that we
believe are attractively priced relative to the broad market average. An example
of a recently purchased stock which meets our investment criteria is Tenet
Healthcare. Tenet is the second largest investor-owned healthcare services
company in the U.S., owning or operating 131 acute care hospitals and related
healthcare facilities in 22 states. Recently purchased at a 20% p/e discount to
the S& P 500, based on 1999 projected earnings, the company is expected to grow
its earnings at a rate of 15% to 17% over each of the next two years and 15%
longer term, well above many analysts' projected market growth.
FIXED-INCOME HOLDINGS
We have maintained a flexible duration posture in structuring the fixed income
portion of the portfolio during the past 12 months. On balance, we have added
value through modest duration adjustments, being longer than the Lehman Brothers
Aggregate Bond Index benchmark during periods of falling interest rates, and
shorter during rising interest rates. As of August 31, 1998, the Fund' s
duration was 4.9 years, modestly longer than the Lehman Brothers Aggregate Bond
Index duration of 4.5 years.
<PAGE>
The most significant structural change in the fixed-income portion of the Fund
has been a reduction in both corporate and mortgage-backed securities. These
securities performed much better than Treasuries up until June when yield
spreads versus Treasuries began to widen. This widening was caused by increased
credit fears in the marketplace due to stock market volatility and concerns that
international economic problems would soon affect the United States. We continue
to favor U.S. Treasury securities, as we believe the recent credit concerns are
likely to continue.
We are grateful for the opportunity to invest your capital and will be working
diligently on your behalf.
Sincerely,
[Douglas D. Ramos, CFA signature logo]
Douglas D. Ramos, CFA
Portfolio Manager
September 29, 1998
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%.
*** SOURCE: LEHMAN BROTHERS -- The Lehman Brothers Aggregate Bond Index is a
widely accepted unmanaged index of corporate, government and government
agency debt instruments, mortgage-backed securities and asset-backed
securities.
((+)) 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 stock market performance.
((+)(+))SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- Reflects the reinvestment
of income dividends and, where applicable, capital gain
distributions. The Russell 2000 Index is a widely accepted unmanaged
index of small-cap stock performance, and is composed of the 2,000
smallest companies in the Russell 3000 Index. The Russell 3000 Index is
composed of 3,000 of the largest U.S. companies by market capitalization.
<PAGE>
DREYFUS BALANCED FUND, INC. AUGUST 31, 1998
- -----------------------------------------------------------------------------
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
$26,313
Standard & Poor's 500 Composite Stock Price Index*
$19,978
Customized Blended Index***
$18,245
Dreyfus Balanced Fund, Inc.
$15,223
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
- -----------------------------------------------------------------------------
<TABLE>
One Year Ended Five Years Ended From Inception (9/30/92)
August 31, 1998 August 31, 1998 to August 31, 1998
____________________ ____________________ __________________________
<S> <C> <C> <C>
(2.99%) 10.88% 10.69%
- ------------------------
</TABLE>
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. The Customized Blended Index is
calculated on a year-to-year basis. All dividends and capital gain distributions
are reinvested.
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, mortgage-backed securities, and asset-backed securities. 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.
<PAGE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS AUGUST 31,1998
Principal
Bonds and Notes--36.8% Amount Value
- ------------------------------------------------------- ____________ ____________
Banking--1.1% IBJ Preferred Capital, Bonds,
<S> <C> <C>
8.79%, 2049 . . . . . . . . . . . . . . . . . . . $ 5,000,000 (a) 3,806,730
Mitsubishi MMCA Auto Trust, Pass-Through Ctfs.,
Ser. 1995-1A, 5.70%, 2000 . . . . . . . . . . . . 233,617 233,809
_____________
4,040,539
_____________
Consumer Non-Durables--1.3% Philip Morris Cos., Notes,
6.95%, 2001 . . . . . . . . . . . . . . . . . . . 2,000,000 2,072,712
Fuji, Bonds,
9.87%, 2049 . . . . . . . . . . . . . . . . . . . 4,000,000 2,684,248
_____________
4,756,960
_____________
Finance--1.1% Sumitomo Bank Treasury Company, Bonds,
9.40%,2049 . . . . . . . . . . . . . . . . . . . . 5,000,000 (a) 3,906,765
_____________
Industrial--4.1% Belo (A.H.), Sr. Notes,
6.875%, 2002 . . . . . . . . . . . . . . . . . . . 3,000,000 (b) 3,104,181
Dual Drilling, Sr. Sub. Notes,
9.875%, 2004 . . . . . . . . . . . . . . . . . . . 2,650,000 2,703,000
EES Coke Battery, Sr. Notes,
7.125%, 2002 . . . . . . . . . . . . . . . . . . . 1,699,000 (a) 1,712,611
Rockwell International, Deb.,
5.20%, 2098 . . . . . . . . . . . . . . . . . . . 5,000,000 3,898,730
Tosco, Notes,
7.25%, 2007 . . . . . . . . . . . . . . . . . . . 3,150,000 3,304,728
_____________
14,723,250
_____________
Pharmaceutical--.9% Bayer, Deb.,
6.65%, 2028 . . . . . . . . . . . . . . . . . . . 3,000,000 (a) 3,168,903
_____________
Real Estate--1.4% Crescent Real Estate Trust, Notes,
7.125%, 2007 . . . . . . . . . . . . . . . . . . . 5,000,000 (a,b) 5,031,995
_____________
Telecommunications--.6% Scandinavian Brothers, Sub Deb.,
7%,2004 . . . . . . . . . . . . . . . . . . . . . 2,000,000 (a) 2,080,000
_____________
Transportation--2.3% American West Airlines, Pass-Through Ctfs.,
Ser. 1997, 1C, 7.53%, 2004 . . . . . . . . . . . . 2,930,229 3,041,270
Continental Airlines, Sinking Fund Pass-Through Ctfs.,
6.80%, 2007 . . . . . . . . . . . . . . . . . . . 5,000,000 5,144,075
_____________
8,185,345
_____________
Utilities--.6% Realty Income, Notes,
7.75%, 2007 . . . . . . . . . . . . . . . . . . . 2,000,000 2,196,278
_____________
Foreign--1.5% Argentina, Floating Rate Deb.,
6.625%,2005 . . . . . . . . . . . . . . . . . . . 1,425,000 948,523
Republic of Brazil, Ser. C, Deb.,
6.827%, 2014 . . . . . . . . . . . . . . . . . . . 2,320,420 1,215,320
Republic of Columbia, Bonds,
8.70%, 2016 . . . . . . . . . . . . . . . . . . . 1,000,000 713,677
Sultan of Oman, Deb.,
7.125%,2002 . . . . . . . . . . . . . . . . . . . 1,000,000 (a) 550,160
<PAGE>
</TABLE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31,1998
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------- ____________ _____________
<S> <C> <C>
Foreign (continued) United Mexican States, Floating Rate Notes,
6.617%, 2019 . . . . . . . . . . . . . . . . . . . $ 1,500,000 $ 1,150,200
Venezuela, Floating Rate Notes,
6.627%, 2007 . . . . . . . . . . . . . . . . . . . 2,261,900 935,860
_____________
5,513,740
_____________
Other--10.2% Asset Securitization Corp.,
Ser. 1997-D5, Cl. A1D, 6.85%, 2041 . . . . . . . . 5,000,000 5,237,500
Commercial Mortgage,
Pass-Through Ctfs.:
Ser. 1997-TZH, Cl. C, 7.724%, 2025 . . . . . . 5,000,000 (a) 5,333,200
Ser. 1997-TZH, Cl. D, 7.902%, 2027 . . . . . . 3,000,000 (a) 3,172,080
GMAC Commercial Mortgage Securities,
Asset Backed Ctfs.,
Ser. 1996-Cl. E, 7.86%, 2006 . . . . . . . . . . . 3,000,000 3,033,750
GS Mortgage Securities Corp. II, Sub. Deb.,
Ser. 1998-GLII, Cl. A, 6.562%, 2031 . . . . . . . 5,000,000 5,120,313
NSCOR, Residential Mortgage Securities:
Ser. 1997-11, B1, 7%, 2027 . . . . . . . . . . . . 3,975,200 4,058,759
Ser. 1997-11, B2, 7%, 2027 . . . . . . . . . . . . 346,789 349,862
Ser. 1998-2, B2, 6.50%, 2028 . . . . . . . . . . . 748,300 750,848
New York City Tax Lien,
Collateralized Bonds:
Ser. 1996-1, Cl. C, 7.11%, 2005 . . . . . . . . 197,049 (a) 197,450
Ser. 1997-1, Cl. D, 6.90%, 2005 . . . . . . . . 1,348,272 (a) 1,363,160
Residential Funding Mortgage Securities I,
Pass-Through Ctfs.:
Ser. 1998-S9, Cl. M2, 6.50%, 2013 . . . . . . . 2,049,332 2,052,899
Ser. 1998-S9, Cl. M3, 6.50%, 2013 . . . . . . . 1,021,344 1,016,075
Ser. 1996-S18, Cl. M3, 8%, 2026 . . . . . . . . 2,411,923 2,513,274
Ser. 1996-S22, Cl. M3, 8%, 2026 . . . . . . . . 2,390,118 2,481,265
_____________
36,680,435
_____________
U.S. Government & Federal Home Loan Mortgage Corp.,
Agencies--11.7% Real Estate Mortgage Investment Conduit:
Ser. 1497, Cl. FF, 6.50%, 8/15/2021 . . . . . . 1,650,000 1,675,476
6.50%, 9/1/2028 . . . . . . . . . . . . . . . . 5,000,000 (c) 5,028,125
Federal National Mortgage Association,
Real Estate Mortgage Investment Conduit:
Ser. 1996-M3, Cl. A1, 7.385%, 3/25/2021 . . . . 4,614,162 4,918,121
9%, 6/1/2026 . . . . . . . . . . . . . . . . . 1,680,474 1,781,303
Government National Mortgage Association,
Mortgage Backed Ctfs.,
7.50%, 4/15/2037 . . . . . . . . . . . . . . . . . 1,996,709 2,068,451
U.S. Treasury Bonds,
6.125%, 11/15/2027 . . . . . . . . . . . . . . . . 24,000,000 26,615,760
_____________
42,087,236
_____________
TOTAL BONDS AND NOTES
(cost $133,689,478) . . . . . . . . . . . . . . . $132,371,446
_____________
<PAGE>
</TABLE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31,1998
Common Stocks--52.8% Shares Value
- ------------------------------------------------------- _____________ _____________
<S> <C> <C>
Consumer Durables--2.8% Eastman Kodak . . . . . . . . . . . . . . . . . . . . 42,300 $ 3,304,688
General Motors . . . . . . . . . . . . . . . . . . . . 53,000 3,060,750
Leggett & Platt . . . . . . . . . . . . . . . . . . . 194,000 3,892,125
_____________
10,257,563
_____________
Consumer Non-Durables--4.5% ConAgra . . . . . . . . . . . . . . . . . . . . . . . 137,300 3,398,175
Kimberly-Clark . . . . . . . . . . . . . . . . . . . . 92,900 3,541,812
Philip Morris Cos. . . . . . . . . . . . . . . . . . . 87,800 3,649,188
RJR Nabisco Holdings . . . . . . . . . . . . . . . . . 89,900 1,949,706
Warnaco Group, Cl. A . . . . . . . . . . . . . . . . . 128,700 3,507,075
_____________
16,045,956
_____________
Consumer Services--.5% Cendant . . . . . . . . . . . . . . . . . . . . . . . 64,000 (d) 740,000
Times Mirror, Cl. A . . . . . . . . . . . . . . . . . 18,100 1,035,094
_____________
1,775,094
_____________
Electronic Technology--5.9% Boeing . . . . . . . . . . . . . . . . . . . . . . . . 52,000 1,608,750
Compaq Computer . . . . . . . . . . . . . . . . . . . 84,000 2,346,750
International Business Machines . . . . . . . . . . . 31,000 3,491,375
Lexmark International Group, Cl. A . . . . . . . . . . 69,700 (d) 4,221,206
Perkin-Elmer . . . . . . . . . . . . . . . . . . . . . 70,900 4,103,338
Raytheon, Cl. B . . . . . . . . . . . . . . . . . . . 34,600 1,578,625
Sundstrand . . . . . . . . . . . . . . . . . . . . . . 33,000 1,503,562
United Technologies . . . . . . . . . . . . . . . . . 31,900 2,314,744
_____________
21,168,350
_____________
Energy Minerals--3.6% British Petroleum, A.D.S. . . . . . . . . . . . . . . 64,000 4,680,000
Mobil . . . . . . . . . . . . . . . . . . . . . . . . 41,200 2,847,950
Texaco . . . . . . . . . . . . . . . . . . . . . . . . 78,000 4,333,875
Tosco . . . . . . . . . . . . . . . . . . . . . . . . 54,400 1,196,800
_____________
13,058,625
_____________
Finance--8.7% Chase Manhattan . . . . . . . . . . . . . . . . . . . 69,000 3,657,000
Chubb . . . . . . . . . . . . . . . . . . . . . . . . 58,100 3,631,250
Equitable Cos. . . . . . . . . . . . . . . . . . . . . 30,000 1,715,625
Everest Reinsurance Holdings . . . . . . . . . . . . . 63,000 2,205,000
Federal Home Loan Mortgage Corp. . . . . . . . . . . . 87,000 3,436,500
Federal National Morgtage Association . . . . . . . . 79,000 4,488,188
First Union . . . . . . . . . . . . . . . . . . . . . 70,500 3,419,250
NationsBank . . . . . . . . . . . . . . . . . . . . . 66,000 3,762,000
Travelers Group . . . . . . . . . . . . . . . . . . . 45,600 2,023,500
Washington Mutual . . . . . . . . . . . . . . . . . . 92,700 2,966,400
_____________
31,304,713
_____________
Health Services--3.5% Aetna . . . . . . . . . . . . . . . . . . . . . . . . 63,000 3,791,812
Beverly Enterprises . . . . . . . . . . . . . . . . . 115,100 906,413
Columbia HCA/Healthcare . . . . . . . . . . . . . . . 96,000 2,166,000
Tenet Healthcare . . . . . . . . . . . . . . . . . . . 145,000 3,742,812
Wellpoint Health Networks . . . . . . . . . . . . . . 35,400 1,889,475
_____________
12,496,512
_____________
<PAGE>
</TABLE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31,1998
Common Stocks (continued) Shares Value
- ------------------------------------------------------- ______________ ____________
<S> <C> <C>
Health Technology--2.1% Allergan . . . . . . . . . . . . . . . . . . . . . . . 38,000 $ 1,795,500
Biogen . . . . . . . . . . . . . . . . . . . . . . . . 110,000 5,087,500
Genzyme-General Division . . . . . . . . . . . . . . . 25,800 696,600
_____________
7,579,600
_____________
Industrial Services--.8% Waste Management . . . . . . . . . . . . . . . . . . . 69,025 3,045,728
_____________
Process Industries--2.0% Great Lakes Chemical . . . . . . . . . . . . . . . . . 33,000 1,291,125
Owens-Illinois . . . . . . . . . . . . . . . . . . . . 115,000 (d) 3,586,563
Praxair . . . . . . . . . . . . . . . . . . . . . . . 61,500 2,206,312
_____________
7,084,000
_____________
Producer Manufacturing--3.9% AlliedSignal . . . . . . . . . . . . . . . . . . . . . 106,000 3,637,125
Honeywell . . . . . . . . . . . . . . . . . . . . . . 45,000 2,812,500
Masco . . . . . . . . . . . . . . . . . . . . . . . . 178,600 4,107,800
Xerox . . . . . . . . . . . . . . . . . . . . . . . . 37,700 3,310,531
_____________
13,867,956
_____________
Retail Trade--3.6% American Stores . . . . . . . . . . . . . . . . . . . 161,000 4,669,000
Federated Department Stores . . . . . . . . . . . . . 92,200 (d) 4,016,462
May Department Stores . . . . . . . . . . . . . . . . 75,000 4,218,750
_____________
12,904,212
_____________
Transportation--2.8% Burlington Northern Santa Fe . . . . . . . . . . . . . 21,000 1,954,312
CNF Transportation . . . . . . . . . . . . . . . . . . 111,100 3,471,875
Union Pacific . . . . . . . . . . . . . . . . . . . . 50,700 2,018,494
Wisconsin Central Transportation . . . . . . . . . . . 204,000 2,562,750
_____________
10,007,431
_____________
Utilities--8.1% AT&T . . . . . . . . . . . . . . . . . . . . . . . . . 54,000 2,706,750
Bell Atlantic . . . . . . . . . . . . . . . . . . . . 83,000 3,662,375
Coastal . . . . . . . . . . . . . . . . . . . . . . . 143,400 3,728,400
Duke Energy . . . . . . . . . . . . . . . . . . . . . 61,000 3,804,875
El Paso Energy . . . . . . . . . . . . . . . . . . . . 125,400 3,111,488
GTE . . . . . . . . . . . . . . . . . . . . . . . . . 67,000 3,350,000
SBC Communications . . . . . . . . . . . . . . . . . . 91,000 3,458,000
Texas Utilities . . . . . . . . . . . . . . . . . . . 126,600 5,380,500
_____________
29,202,388
_____________
TOTAL COMMON STOCKS
(cost $204,655,011) . . . . . . . . . . . . . . . $189,798,128
_____________
<PAGE>
</TABLE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31,1998
Convertible Preferred Stocks 3.3% Shares Value
- ------------------------------------------------------- ____________ _____________
<S> <C> <C>
Energy Minerals--.7% Union Pacific Capital Trust, 6.25% . . . . . . . . . . 60,000 (a) $ 2,677,500
_____________
Finance--2.1% CVS Auto Exchange Trust, Cum., 6% . . . . . . . . . . 46,000 3,329,250
Saint George Bank, Cum., 9% . . . . . . . . . . . . . 60,000 (a) 2,760,000
United Rentals Trust I, 6.50% . . . . . . . . . . . . 40,000 (a) 1,335,000
_____________
7,424,250
_____________
Process Industries--.5% Sealed Air, Ser. A, Cum., $2.00 . . . . . . . . . . . 40,000 1,660,000
_____________
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $13,470,400) . . . . . . . . . . . . . . . . $ 11,761,750
_____________
Principal
Short-Term Investments--8.4% Amount
- ------------------------------------------------------------------------------------------ _____________
U.S. Treasury Bills: 4.93%, 10/15/1998 . . . . . . . . . . . . . . . . . . $ 5,878,000 (e) $ 5,843,437
4.80%, 10/29/1998 . . . . . . . . . . . . . . . . . . 1,512,000 1,500,222
4.96%, 11/5/1998 . . . . . . . . . . . . . . . . . . . 1,468,000 1,455,434
4.91%, 11/12/1998 . . . . . . . . . . . . . . . . . . 2,529,000 2,504,570
4.89%, 11/19/1998 . . . . . . . . . . . . . . . . . . 18,117,000 17,926,047
4.90%, 11/27/1998 . . . . . . . . . . . . . . . . . . 1,114,000 1,101,122
_____________
TOTAL SHORT-TERM INVESTMENTS
(cost $30,325,152) . . . . . . . . . . . . . . . . $ 30,330,832
_____________
TOTAL INVESTMENTS (cost $382,140,041). . . . . . . . . . . . . . . . . . . . . . . . . . . 101.3% $364,262,156
_______ _____________
LIABILITIES, LESS CASH AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . (1.3%) $ (4,741,287)
_______ _____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $359,520,869
_______ _____________
</TABLE>
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,
1998, these securities amounted to $37,095,554 or approximately 10.3% 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 futures positions.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF FINANCIAL FUTURES AUGUST 31, 1998
Market Value Unrealized
Covered (Depreciation)
Financial Futures Short Contracts by Contracts Expiration at 8/31/1998
____________________ _____________ _____________ _____________ _____________
<S> <C> <C>
5 Year U.S. Treasury Notes . . . . . . . . . . . . . 178 $(19,652,688) December '98 $ (13,188)
30 Year U.S. Treasury Bonds. . . . . . . . . . . . . 260 (33,020,000) December '98 (430,625)
___________
$ (443,813)
___________
Financial Futures Long
____________________
S & P 500. . . . . . . . . . . . . . . . . . . . . . 19 4,531,500 September '98 $(1,041,725)
___________
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1998
Cost Value
_____________ _____________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $382,140,041 $364,262,156
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 1,589,810
Receivable for investment securities sold . . . . . . . . 7,478,459
Interest and dividends receivable . . . . . . . . . . . . 2,159,687
Receivable for shares of Common Stock subscribed . . . . 42,697
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 11,171
_____________
375,543,980
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 254,005
Payable for investment securities purchased . . . . . . . 15,118,414
Payable for futures variation margin--Note 4(a) . . . . . 538,198
Payable for shares of Common Stock redeemed . . . . . . . 28,691
Accrued expenses . . . . . . . . . . . . . . . . . . . . 83,803
_____________
16,023,111
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $359,520,869
_____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $355,645,633
Accumulated undistributed investment income--net . . . . 2,660,190
Accumulated net realized gain (loss) on investments . . . 20,578,469
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions
[including ($1,485,538) net unrealized (depreciation)
on financial futures]--Note 4(b) . . . . . . . . . . . (19,363,423)
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $359,520,869
_____________
SHARES OUTSTANDING
(300 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED). . . . . . . . . . . . . . 23,668,011
NET ASSET VALUE, offering and redemption price per share . . . . . . . . . . . . . . . . . $15.19
_______
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 10,215,126
Cash dividends (net of $33,976 foreign taxes
withheld at source) . . . . . . . . . . . . . . . . . 3,944,431
____________
Total Income . . . . . . . . . . . . . . . . . . . $ 14,159,557
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 2,309,615
Shareholder servicing costs--Note 3(b) . . . . . . . . . 971,664
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 62,086
Registration fees . . . . . . . . . . . . . . . . . . . . 56,158
Professional fees . . . . . . . . . . . . . . . . . . . . 42,975
Prospectus and shareholders' reports . . . . . . . . . . 41,286
Directors' fees and expenses--Note 3(c) . . . . . . . . . 23,628
Loan commitment fees--Note 2 . . . . . . . . . . . . . . 2,130
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 8,699
____________
Total Expenses . . . . . . . . . . . . . . . . . . 3,518,241
_____________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,641,316
_____________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments and
foreign currency transactions . . . . . . . . . . . . $ 30,582,996
Net realized gain (loss) on forward currency
exchange contracts . . . . . . . . . . . . . . . . . . 521,341
Net realized gain (loss) on financial futures:
Short transactions . . . . . . . . . . . . . . . . . . (594,336)
____________
Net Realized Gain (Loss) . . . . . . . . . . . . . 30,510,001
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions
[including ($1,460,069) net unrealized
(depreciation) on financial futures] . . . . . . . . . (53,386,750)
_____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . (22,876,749)
_____________
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . $(12,235,433)
_____________
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
August 31, 1998 August 31, 1997
_______________ _______________
OPERATIONS:
<S> <C> <C>
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,641,316 $ 8,259,529
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . 30,510,001 33,359,808
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . (53,386,750) 32,330,537
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . . . (12,235,433) 73,949,874
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,883,286) (7,851,890)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,779,620) (11,090,177)
_____________ _____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,662,906) (18,942,067)
_____________ _____________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,954,235 114,567,348
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,648,271 18,584,915
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167,442,602) (110,769,614)
_____________ _____________
Increase (Decrease) in Net Assets from Capital Stock Transactions . . . . . . . . . 76,159,904 22,382,649
_____________ _____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . . . 12,261,565 77,390,456
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347,259,304 269,868,848
_____________ _____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $359,520,869 $347,259,304
_____________ _____________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,660,190 $ 1,902,160
_____________ _____________
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,899,523 6,833,342
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . 3,094,784 1,161,022
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,463,510) (6,696,371)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . . . 4,530,797 1,297,993
_____________ _____________
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
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: 1998 1997 1996 1995 1994
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . $18.15 $15.13 $15.61 $13.72 $13.28
______ ______ ______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . .47 .45 .51 .54 .41
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . (.88) 3.65 .29 1.99 .59
______ ______ ______ ______ ______
Total from Investment Operations . . . . . . . . (.41) 4.10 .80 2.53 1.00
______ ______ ______ ______ ______
Distributions:
Dividends from investment income--net . . . . . . (.46) (.44) (.53) (.51) (.42)
Dividends from net realized gain on investments . . (2.09) (.64) (.75) (.13) (.14)
______ ______ ______ ______ ______
Total Distributions . . . . . . . . . . . . . . . (2.55) (1.08) (1.28) (.64) (.56)
______ ______ ______ ______ ______
Net asset value, end of period . . . . . . . . . $15.19 $18.15 $15.13 $15.61 $13.72
______ ______ ______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . (2.99%) 28.06% 5.19% 19.03% 7.73%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . .91% .96% 1.00% 1.04% .69%
Ratio of net investment income
to average net assets . . . . . . . . . . . . 2.76% 2.71% 3.37% 3.99% 3.26%
Decrease reflected in above expense ratios
due to undertakings by the Manager . . . . . -- -- -- -- .41%
Portfolio Turnover Rate . . . . . . . . . . . . . 177.85% 235.56% 186.23% 72.42% 58.22%
Net Assets, end of period (000's Omitted) . . . . $359,521 $347,259 $269,869 $165,909 $82,848
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
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, 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,
consistent with reasonable investment risk. The Dreyfus Corporation (the
"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. Under the terms of the custodian agreement, the Fund receives net
earnings credits based on available cash balances left on deposit.
<PAGE>
(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 of 1986, as amended (the "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, 1998, the Board of Directors declared a cash dividend of $.13
per share from undistributed investment income-net, payable on September 30,
1998 (ex-dividend date), to shareholders of record as of the close of business
on September 29, 1998.
(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.
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. During the period ended August
31, 1998, 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, 1998, the Fund was charged $823,322 pursuant to the Shareholder
Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. During the period
ended August 31, 1998, the Fund was charged $76,706 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended August 31, 1998, the Fund was
charged $62,086 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 of investment securities,
excluding short-term securities, financial futures and forward currency exchange
contracts during the period ended August 31, 1998 amounted to $677,417,672 and
$669,221,078, respectively.
<PAGE>
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 DREYFUS BALANCED FUND, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gain on each open
contract. At August 31, 1998, there were no open forward currency exchange
contracts.
The Fund may invest in financial futures contracts in order to gain exposure
to or protect against changes in the market. The Fund is exposed to market risk
as a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to "mark to market" on a daily
basis, which reflects the change in the market value of the contracts at the
close of each day's trading. Typically, variation margin payments are received
or made to reflect daily unrealized gains or losses. When the contracts are
closed, the Fund recognizes a realized gain or loss. These investments require
initial margin deposits with a custodian, which consist of cash or cash
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, 1998 are set
forth in the Statement of Financial Futures.
(B) At August 31, 1998, accumulated net unrealized depreciation on investments
and financial futures was $19,363,423, consisting of $12,584,902 gross
unrealized appreciation and $31,948,325 gross unrealized depreciation.
At August 31, 1998, 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).
<PAGE>
DREYFUS BALANCED FUND, INC.
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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, 1998, 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, 1998 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, 1998, and 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.
New York, New York
October 5, 1998
<PAGE>
DREYFUS BALANCED FUND, INC.
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IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates $.993 per share as a
long-term capital gain distribution (of which 51.86% is subject to the 20%
maximum Federal tax rate) of the $2.202 per share paid on December 12, 1997.
The Fund also designates 8.995% of the ordinary dividends paid during the
fiscal year ended August 31, 1998 as qualifying for the corporate dividends
received deduction. Shareholders will receive notification in January 1999 of
the percentage applicable to the preparation of their 1998 income tax returns.
<PAGE>
<PAGE>
Dreyfus lion "d" logo (reg.tm)
Dreyfus logo (reg.tm)
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 Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 222AR988
Balanced Fund, Inc.
Annual Report
August 31, 1998
<PAGE>
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
EXHIBIT A:
STANDARD
& POOR'S 500 LEHMAN
COMPOSITE BROTHERS
STOCK AGGREGATE DREYFUS CUSTOMIZED
PERIOD PRICE BOND BALANCED BLENDED
INDEX * INDEX ** FUND INDEX ***
9/30/92 10,000 10,000 10,000 10,000
8/31/93 11,384 10,967 10,888 11,107
8/31/94 12,006 10,802 11,730 11,385
8/31/95 14,577 12,023 13,961 13,184
8/31/96 17,306 12,516 14,686 14,705
8/31/97 24,336 13,768 18,808 18,358
8/31/98 26,313 15,223 18,245 19,978
* Source: Lipper Analytical Services, Inc.
** Source: Lehman Brothers
*** Source: Lipper Analytical Services, Inc., Lehman Brothers and Merrill
Lynch, Pierce, Fenner and Smith Inc.
