N-30D 1 pn30d-222.txt SEMI-ANNUAL REPORT Dreyfus Balanced Fund, Inc. SEMIANNUAL REPORT February 28, 2002 The views expressed herein are current to the date of this report. These views and the composition of the fund's portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE FUND -------------------------------------------------- 2 Letter from the Chairman 3 Discussion of Fund Performance 6 Statement of Investments 16 Statement of Financial Futures 17 Statement of Assets and Liabilities 18 Statement of Operations 19 Statement of Changes in Net Assets 20 Financial Highlights 21 Notes to Financial Statements FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Fund Dreyfus Balanced Fund, Inc. LETTER FROM THE CHAIRMAN Dear Shareholder: We are pleased to present this semiannual report for Dreyfus Balanced Fund, Inc., covering the six-month period from September 1, 2001 through February 28, 2002. Inside, you' ll find valuable information about how the fund was managed during the reporting period, including a discussion with the fund's portfolio manager, Douglas D. Ramos, CFA. U.S. stocks generally experienced heightened volatility, rising and falling dramatically in response to short-term influences during a reporting period that included the September 11 terrorist attacks, Argentina' s default on its sovereign debt, concerns about accounting irregularities among major corporations and the first calendar quarter of U.S. economic contraction in about 10 years. Once the dust settled, however, stock market returns for the reporting period ranged from slight gains to modest losses. Small- and midcap stocks generally outperformed their large-cap counterparts, and value stocks did slightly better than growth stocks overall. The importance of diversification was underscored in these turbulent times not just across the various sectors of the stock market, but also among asset classes. For example, the bond market's strong returns helped cushion the equity market' s decline for investors who allocated their investments among different asset classes. Perhaps most significant, market conditions during the reporting period affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. An economic recovery of uncertain strength is apparently underway, and the equity markets have recently rallied in response to renewed investor optimism. While we can' t guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation March 15, 2002 DISCUSSION OF FUND PERFORMANCE Douglas D. Ramos, CFA, Portfolio Manager How did Dreyfus Balanced Fund, Inc. perform relative to its benchmark? For the six-month period ended February 28, 2002, the fund produced a total return of -2.72%.(1) This compares with the performance of the fund's Customized Blended Index, which produced a total return of 0.21% for the same period. The Standard & Poor' s 500 Composite Stock Price Index ("S&P 500 Index"), which comprised 60% of our blended index, provided a total return of -1.67%.(2) The Lehman Brothers Aggregate Bond Index, which comprised 40% of our blended index, produced a total return of 3.02% during the reporting period.(3 ) We attribute the fund' s performance to an environment in which encouraging economic data was overshadowed by the September 11 terrorist attacks and some well-publicized corporate accounting irregularities and bankruptcies. The fund produced slightly weaker results than its benchmark primarily because of the disappointing performance of the fund' s fixed-income holdings. The fund's relatively large exposure to stocks, which generally provided lower returns than bonds during the reporting period, also hindered performance. What is the fund's investment approach? The fund invests in equity and fixed-income securities of U.S. and foreign issuers. The proportion of the fund's assets invested in each type of security will vary from time to time in accordance with Dreyfus' assessment of economic conditions and investment opportunities. However, under normal market conditions, the fund' s equity investments will range from 40% to 75% of its portfolio, with a benchmark allocation of 60% . Fixed-income investments (including cash and cash equivalents) will range from 25% to 60%, with a benchmark allocation of 40%. In allocating assets between stocks and bonds, we assess the relative returns and risks of each asset class using a model which analyzes sev- The Fund DISCUSSION OF FUND PERFORMANCE (CONTINUED) eral factors, including interest-rate-adjusted price/earnings ratio, the valuation and volatility levels of stocks relative to bonds, and other economic factors such as interest rates. In selecting stocks, we use a valuation model to identify and rank stocks within an industry or sector based on * VALUE, or how a stock is priced relative to its perceived intrinsic worth; * GROWTH, in this case the sustainability or growth or earnings or cash flow; and * FINANCIAL PROFILE, which measures the financial health of the company. Next, based on fundamental analysis, we generally select the most attractive of the higher ranked securities. While we employ a value-tilted approach, the fund can invest in a mix of value and growth companies. Dreyfus manages risk by diversifying across companies and industries. To select fixed-income investments for the fund, we review the terms of the instruments and evaluate the creditworthiness of the issuers, considering all factors which we deem relevant, including, as applicable, a review of the issuer's cash flow; level of short-term debt; leverage; capitalization; the quality and depth of management; profitability; return on assets; and economic factors relative to the issuer's industry. What other factors influenced the fund's performance? The reporting period's political and economic shocks created generally favorable conditions for high quality bonds, such as U.S. Treasuries and government agencies. Although the fund benefited to a degree from the strength in this area, a relatively large percentage of the fund's holdings were concentrated in investment-grade corporate bonds. That' s because corporate bonds generally perform well during times of economic growth, and we believed that the U.S. economy was likely to emerge from recession. In fact, financial indicators showed a clear resumption of economic growth in late 2001, but the concerns raised by the September 11 attacks and the Enron collapse led many investors to favor low-risk securities despite improving economic conditions. Our views regarding the improving economy also led us to focus a relatively high percentage of the fund's assets on stocks. Although returns from the fund's stock holdings were roughly in line with the S&P 500 Index, they nonetheless undermined the fund's relative performance overall. The fund's holdings in technology, capital goods, health care and basic materials provided disappointing performance, largely because of holdings in a small number of companies that failed to meet expectations. On the other hand, the fund achieved relatively strong results in the communications services, energy and transportation groups. What is the fund's current strategy? As of the end of the reporting period, the fund's stock positions emphasized industry groups that we believe can benefit early from renewed economic growth. Specifically, we have emphasized technology stocks and de-emphasized communications services, capital goods and basic materials. On the fixed-income side, we have continued to maintain a relatively heavy exposure to corporate bonds. In light of attractive valuations and further evidence of U.S. economic growth, we placed a slightly greater emphasis on equities than the fund's benchmark. Of course, we are prepared to change the fund's composition as market conditions evolve. March 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, FUND SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PART OF THE PORTFOLIO'S RECENT PERFORMANCE IS ATTRIBUTABLE TO ITS INITIAL PUBLIC OFFERING (IPO) INVESTMENTS. THERE CAN BE NO GUARANTEE THAT IPOS WILL HAVE OR CONTINUE TO HAVE A POSITIVE EFFECT ON THE PORTFOLIO'S PERFORMANCE. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE. (3) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS A WIDELY ACCEPTED, UNMANAGED TOTAL RETURN INDEX OF CORPORATE, U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY DEBT INSTRUMENTS, MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES WITH AN AVERAGE MATURITY OF 1-10 YEARS. The Fund STATEMENT OF INVESTMENTS February 28, 2002 (Unaudited) COMMON STOCKS--65.7% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL SERVICES--1.5% CDW Computer Centers 11,000 (a) 580,800 Lamar Advertising 11,500 (a) 458,735 McGraw-Hill Cos. 28,000 1,842,400 2,881,935 CONSUMER DURABLES--.6% Ford Motor 27,000 401,760 Goodyear Tire & Rubber 29,500 811,250 1,213,010 CONSUMER NON-DURABLES--4.6% Coca-Cola 16,000 758,240 Kimberly-Clark 8,400 525,840 Kraft Foods, Cl. A 75,200 2,940,320 Philip Morris Cos. 33,000 1,737,780 Procter & Gamble 19,100 1,619,489 UST 29,000 1,010,940 8,592,609 CONSUMER SERVICES--2.8% Carnival 36,000 982,440 Clear Channel Communications 16,520 (a) 770,162 EchoStar Communications, Cl. A 23,800 (a) 621,656 USA Networks 30,000 (a) 886,800 Viacom, Cl. B 41,365 (a) 1,925,541 5,186,599 ELECTRONIC TECHNOLOGY--9.1% Altera 18,000 (a) 343,260 Amkor Technology 33,000 (a) 458,040 Analog Devices 21,000 (a) 781,410 Applied Materials 9,000 (a) 391,230 Compaq Computer 74,100 751,374 Dell Computer 30,000 (a) 740,700 Gateway 39,400 (a) 181,240 General Dynamics 8,000 727,040 Hewlett-Packard 25,300 509,036 Intel 72,200 2,061,310 International Business Machines 31,000 3,041,720 Jabil Circuit 29,000 (a) 540,850 KLA-Tencor 14,000 (a) 810,740 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ ELECTRONIC TECHNOLOGY (CONTINUED) Lam Research 21,100 (a) 456,604 LSI Logic 42,000 (a) 629,580 Micron Technology 32,000 (a) 1,028,800 Motorola 27,800 361,400 National Semiconductor 14,400 (a) 362,160 Novellus Systems 13,600 (a) 579,224 Raytheon 15,000 580,350 Teradyne 25,000 (a) 837,750 Texas Instruments 18,000 528,300 United Technologies 7,400 539,830 17,241,948 ENERGY MINERALS--4.8% Anadarko Petroleum 39,000 2,031,900 ChevronTexaco 7,855 663,276 Conoco 26,000 719,160 Exxon Mobil 94,576 3,905,989 Ocean Energy 48,000 876,000 XTO Energy 45,000 847,800 9,044,125 FINANCE--12.6% Allstate 43,000 1,505,860 American Express 17,900 652,455 American International Group 44,351 3,280,644 Bank of America 15,300 978,435 Bank of New York 28,000 1,053,920 Citigroup 106,733 4,829,668 Federal Home Loan Mortgage 32,000 2,039,680 Federal National Mortgage Association 24,600 1,924,950 FleetBoston Financial 26,600 887,908 Goldman Sachs Group 8,200 663,708 Household International 18,900 973,350 J.P. Morgan Chase & Co. 28,920 845,910 Mercury General 12,000 518,400 Morgan Stanley Dean Witter & Co. 26,600 1,306,592 Wells Fargo 47,000 2,204,300 23,665,780 The Fund STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ HEALTH SERVICES--2.6% Express Scripts 11,000 (a) 569,470 HCA 33,300 1,356,309 Healthsouth 90,000 (a) 1,071,900 Quest Diagnostics 2,900 (a) 205,639 Wellpoint Health Networks 14,000 (a) 1,702,680 4,905,998 HEALTH TECHNOLOGY--6.7% Abbott Laboratories 20,000 1,131,000 American Home Products 23,500 1,493,425 Bard (C.R.) 8,000 435,200 Baxter International 13,000 721,240 Bristol-Myers Squibb 28,900 1,358,300 Johnson & Johnson 32,200 1,960,980 Merck & Co. 23,400 1,435,122 Pfizer 86,000 3,522,560 Zimmer Holdings 14,490 (a) 518,162 12,575,989 NON-ENERGY MINERALS--.3% Alcoa 17,000 638,690 PROCESS INDUSTRIES--.8% Dow Chemical 23,000 719,440 International Paper 18,000 787,500 1,506,940 PRODUCER MANUFACTURING--3.6% Emerson Electric 7,000 403,130 General Electric 112,000 4,312,000 Masco 27,200 763,504 Tyco International 47,700 1,388,070 6,866,704 RETAIL TRADE--3.3% Lowe's Cos. 15,200 687,800 May Department Stores 20,600 754,784 Safeway 10,000 (a) 429,800 Staples 25,000 (a) 491,750 TJX Cos. 35,400 1,344,138 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ RETAIL TRADE (CONTINUED) Target 46,600 1,952,540 Tiffany & Co. 17,000 557,770 6,218,582 TECHNOLOGY SERVICES--6.3% AOL Time Warner 39,500 (a) 979,600 Accenture, Cl. A 25,500 (a) 667,845 Adobe Systems 12,000 436,560 Anthem 5,200 (a) 302,120 Avaya 25,583 (a) 136,869 Charter Communications, Cl. A 60,000 (a) 624,000 Check Point Software Technologies 23,500 (a) 656,120 Computer Sciences 20,600 (a) 978,706 Electronic Data Systems 24,500 1,446,235 Microsoft 62,000 (a) 3,617,080 Oracle 59,000 (a) 980,580 SunGard Data Systems 32,000 (a) 987,840 11,813,555 TRANSPORTATION--1.1% Norfolk Southern 44,000 1,046,760 Southwest Airlines 51,000 1,076,610 2,123,370 UTILITIES--5.0% AT&T 50,400 783,216 Allegheny Energy 15,300 528,921 BellSouth 19,000 736,440 Duke Energy 59,000 2,082,700 El Paso 15,000 586,200 Exelon 10,000 492,800 Liberty Media, Cl. A 60,000 (a) 768,000 SBC Communications 36,400 1,377,376 TXU 18,000 915,660 Verizon Communications 26,096 1,221,293 9,492,606 TOTAL COMMON STOCKS (cost $119,139,781) 123,968,440 The Fund STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) PREFERRED STOCKS--.1% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------------ OIL AND GAS; Exco Resources, Cum. Conv., $1.05 (cost $304,054) 14,465 238,311 ------------------------------------------------------------------------------------------------------------------------------------ Principal BONDS AND NOTES--32.3% Amount ($) Value ($) ----------------------------------------------------------------------------------------------------------------------------------- AEROSPACE--.4% Goodrich (BF), Notes, 7%, 4/15/2038 804,000 678,407 AUTOMOTIVE--.0% Ford Motor, Notes, 7.45%, 7/16/2031 86,000 82,632 CHEMICALS--.6% Dow Chemical, Notes, 6.125%, 2/1/2011 911,000 900,799 Lyondell Chemical, Ser. A, Notes, 9.625%, 5/1/2007 159,000 162,577 1,063,376 COMMUNICATIONS--.2% Charter Communications Holdings, Sr. Discount Notes, 0/11.75%, 5/15/2011 441,000 (b) 256,883 Nextel Communications, Sr. Notes, 5.25%, 1/15/2001 60,000 30,525 287,408 CONTAINERS--.1% Owens-Brockway, Notes, 8.875%, 2/15/2009 224,000 (c) 229,040 ELECTRONIC TECHNOLOGY--.3% Amkor Technology, Sr. Notes, 9.25%, 2/15/2008 110,000 103,400 Computer Sciences, Notes, 6.75%, 6/15/2006 202,000 209,546 Southern Capital Funding, Bonds, Ser. A, 5.30%, 2/1/2007 283,000 (d, e) 284,169 597,115 FINANCIAL--3.4% Abbey National Capital Trust I, Gtd. Non. Cumulative Trust Preferred Securities, 8.963%, 6/30/2030 436,000 511,382 Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL (CONTINUED) Boeing Capital, Sr. Notes, 5.75%, 2/15/2007 339,000 342,883 Citigroup, Notes, 5%, 3/6/2007 455,000 453,944 Fuji JGB Investment, Bonds, 9.87%, 6/30/2008 720,000 (d,e) 591,473 General Electric Capital, Medium-Term Notes, Ser. A, 5.875%, 2/15/2012 928,000 930,886 General Motors Acceptance, Notes, 6.125%, 9/15/2006 813,000 811,963 6.875%, 9/15/2011 640,000 638,700 Goldman Sachs Group, Notes, 6.60%,1/15/2012 310,000 316,472 IBJ Preferred Capital, Bonds, 8.79%, 6/30/2008 175,000 (d,e) 136,364 International Lease Finance, Notes, 5.75%, 2/15/2007 262,000 263,529 Lehman Brothers Holdings, Notes, 7%, 2/1/2008 427,000 449,368 Morgan Stanley Dean Witter, Unsub. Deb., 6.10%, 4/15/2006 386,000 403,497 Steers Trust 2001 VZ-1, Notes, 5.565%, 10/15/2005 650,000 (c) 641,875 6,492,336 FOOD & BEVERAGES--.2% HJ Heinz Finance, Bonds, 6.75%, 3/15/2032 203,000 (c) 201,652 Tyson Foods, Notes, 8.25%, 10/1/2011 230,000 (c) 252,358 454,010 FOREST PRODUCTS & PAPER--.2% Weyerhaeuser, Notes, 5.95%, 11/1/2008 370,000 (c) 363,433 HOTELS & MOTELS--.2% Hilton Hotels, Notes, 7.625%, 5/15/2008 429,000 426,527 The Fund STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE--1.1% Ace Capital Trust II, Bonds, 9.70%, 4/1/2030 536,000 633,609 CNA Financial, Notes, 6.50%, 4/15/2005 235,000 225,250 Conseco, Notes, 6.80%, 6/15/2005 224,000 116,480 Mercury General, Sr. Notes, 7.25%, 8/15/2011 124,000 127,463 XL Capital, Sr. Notes, 6.50%, 1/15/2012 272,000 277,413 Zurich Capital Trust I, Bonds, 8.376%, 6/1/2037 598,000 (c) 604,203 1,984,418 INTERNET--.2% Thomson, Notes, 6.20%,1/5/2012 350,000 348,514 METALS--.1% Barrick Gold Finance, Deb., 7.50%, 5/1/2007 195,000 207,740 OIL & GAS EXPLORATION--.2% Ocean Energy, Bonds, Ser. B, 8.375%, 7/1/2008 391,000 410,550 RETAIL--.3% Sears Roebuck Acceptance, Notes, 6.75%, 8/15/2011 470,000 482,933 STRUCTURED INDEX--.5% HYDI 100-Linked Ctf. of Deposit, 9.40%, 11/15/2006 990,000 (f) 1,002,375 TELECOMMUNICATIONS--1.6% AT&T, Sr. Notes, 7.30%, 11/15/2011 644,000 (c) 646,693 American Tower, Sr. Notes, 9.375%, 2/1/2009 213,000 141,645 Citizens Communications, Notes, 9.25%, 5/15/2011 586,000 643,450 Crown Castle International, Sr. Notes, 9.375%, 8/1/2011 200,000 148,000 Marconi, Bonds, 8.375%, 9/15/2030 1,060,000 402,800 Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS (CONTINUED) Nextel Communications, Sr. Notes, 9.375%, 11/15/2009 609,000 389,760 TCI Communications Financing, Bonds, 9.65%, 3/31/2027 287,000 315,869 Telecorp PCS, Bonds, 0/11.625%, 4/15/2009 175,000 (b) 154,875 Tritel PCS, Sr. Sub. Notes, Ser. B, 10.375%, 1/15/2011 220,000 249,150 3,092,242 TRANSPORTATION--.8% American West Airlines Pass-Through Trust, Ctfs., Ser. 1997, 1C, 7.53%, 1/2/2004 1,928,462 1,408,822 US Airways, Ser. C, Notes, 8.93%, 4/15/2008 115,868 79,318 1,488,140 UTILITIES--1.5% British Telecommunications, Notes, 8.375%, 12/15/2010 569,000 640,763 El Paso, Sr. Notes, 7%, 5/15/2011 683,000 674,413 Long Island Lighting, Deb., 8.20%, 3/15/2023 438,000 456,960 NRG Energy, Sr. Notes, 8.625%, 4/1/2031 357,000 347,418 National Rural Utilities, Bonds, 8%, 3/1/2032 423,000 422,530 TXU Electric, Sr. Notes, Ser. J, 6.375%, 6/15/2006 300,000 305,205 2,847,289 OTHER--8.3% Bear Stearns Commerical Mortgage Securities, Ser. 2001-TOP, Cl. A, 6.08%, 2/15/2035 1,419,750 1,462,371 Chase Commerical Mortgage Securities, Ser. 2001-245, Cl. A, 6.173%, 2/12/2016 312,817 (c,g) 334,041 Chase Manhattan Bank-First Union National, Ser. 1999-1, Cl. A, 7.134%, 8/15/2031 570,000 (c) 582,608 CS First Boston Mortgage Securities: Ser. 1998-Cl. A, 6.26%, 5/17/2040 1,205,090 1,259,077 Ser. 1998-Cl. C, 6.78%, 5/17/2009 1,471,000 1,500,917 The Fund STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED) Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ OTHER (CONTINUED) GS Mortgage Securities II, Ser. 2001-LIBA, Cl. A, 6.615%, 2/10/2016 1,342,000 1,381,712 IMPAC Secured Assets CMN Owner Trust, Ser. 2002-1, Cl. AI3, 5.57%, 3/25/2023 1,900,000 1,909,500 JP Morgan Commerical Mortgage Finance, Ser. 2000-C10, CI. C, 7.537%, 8/15/2032 1,370,000 1,487,081 KBC Bank Funding Trust III, Bonds, 9.86%, 11/2/2009 270,000 (d,e) 312,892 MBNA Credit Card Master Note Trust, Ser. 2002-C1, CI. C1, 6.80%, 7/15/2014 523,000 514,236 NSCOR, Residential Mortgage Secuities: Ser. 1997-11, B2, 7%, 8/25/2027 332,185 328,218 Ser. 1998-2, B3, 6.50%, 2/25/2028 715,571 719,014 Residential Asset Securities, Ser. 2001, KS1, CI. AT1, 5.593%, 7/25/2016 210,822 211,382 Residential Funding Mortgage Securities I, Pass-Through Cfts., Ser. 1996-S22, Cl. M3, 8%, 10/25/2026 1,667,467 1,665,771 Royal Bank of Scotland Group, Conv. Non-Cumulative Dollar Preference Shares, 7.648%, 9/30/2031 780,000 (d) 833,240 TIAA CMBS I Trust Commerical Mortgage, Ser. 1999-1, Cl. A, 7.17%, 1/15/2032 743,593 (c) 785,428 United Mexican States, Bonds, 6.25%, 12/13/2019 329,000 318,924 15,606,412 U.S. GOVERNMENT & AGENCIES--12.1% Federal Home Loan Mortgage Corp., Medium-Term Notes, 6.25%, 7/15/2032 750,000 759,718 6.50%, 3/15/2029 196,000 (h) 199,062 Federal National Mortgage Association: Bonds, 7.25%, 5/15/2030 750,000 856,531 Notes: 3.50%, 2/25/2004 103,000 103,315 5.625%, 2/28/2012 174,000 172,677 Sub. Notes: 6.406%, 1/1/2011 1,336,135 1,386,623 7%, 3/15/2029 4,772,000 (h) 4,916,639 8%, 1/1/2030-11/1/2030 2,171,076 2,297,000 Government National Mortgage Assocation I, 7%, 3/15/2032 1,250,000 (h) 1,291,788 Principal BONDS AND NOTES (CONTINUED) Amount ($) Value ($) ------------------------------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT & AGENCIES (CONTINUED) Real Estate Mortgage Investment Conduit, Ser. 1497, CI. FF, 6.50%, 8/15/2021 1,650,000 1,719,118 Tennessee Valley Authority, Valley Indexed Principal Securities 3.375%, 1/15/2007 1,175,000 (i) 1,314,754 U.S. Treasury Bonds: 5.375%, 2/15/2031 130,000 129,319 8.875%, 2/15/2019 1,500,000 2,042,865 U.S. Treasury Inflation Protection Securities, 3.754%, 1/15/2008 5,000,000 (i) 5,654,602 22,844,011 TOTAL BONDS AND NOTES (cost $61,404,302) 60,988,908 ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS--6.3% ----------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER--1.4% San Paolo U.S. Finanical, 1.87%, 3/1/2002 2,600,000 2,600,000 U.S. GOVERNMENT AGENCIES--4.1% Federal National Mortgage Association, 1.82%, 3/7/2002 7,700,000 7,700,000 U.S. TREASURY BILLS--.8% 1.66%, 3/7/2002 1,500,000 (j) 1,500,000 TOTAL SHORT-TERM INVESTMENTS (cost $11,799,585) 11,800,000 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $192,647,722) 104.4% 196,995,659 LIABILITIES, LESS CASH AND RECEIVABLES (4.4%) (8,367,623) NET ASSETS 100.0% 188,628,036 (A) NON-INCOME PRODUCING. (B) ZERO COUPON UNTIL A SPECIFIED DATE AT WHICH TIME THE STATED COUPON RATE BECOMES EFFECTIVE UNTIL MATURITY. (C) SECURITIES EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933. THESE SECURITIES MAY BE SOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS. AT FEBRUARY 28, 2002, THESE SECURITIES AMOUNT TO $4,641,331 OR 2.5% OF THE NET ASSETS. (D) DUE DATE SHOWN REPRESENTS EARLIEST DATE THE ISSUER MAY REDEEM THE SECURITY. (E) THE STATED INTEREST RATE IS IN EFFECT UNTIL A SPECIFIED DATE AT WHICH TIME THE INTEREST RATE BECOMES SUBJECT TO PERIODIC CHANGE. (F) SECURITY LINKED TO A PORTFOLIO OF HIGH YIELD DEBT SECURITIES. (G) VARIABLE RATE SECURITY INTEREST RATE SUBJECT TO PERIODIC CHANGE. (H) PURCHASE ON A FORWARD COMMITMENT BASIS. (I) PRINCIPAL AMOUNT FOR ACCRUAL PURPOSE IS PERIODICALLY ADJUSTED BASED ON CHANGES TO THE CONSUMER PRICE INDEX. (J) PARTIALLY HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN FINANCIAL FUTURES POSITIONS. SEE NOTES TO FINANCIAL STATEMENTS. The Fund STATEMENT OF FINANCIAL FUTURES February 28, 2002 (Unaudited) Unrealized Market Value Appreciation Covered by (Depreciation) Contracts Contracts ($) Expiration at 2/28/2002 ($) ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL FUTURES LONG: Standard & Poor's 500 41 11,345,725 March 2002 (436,650) U.S Treasury 30 year Bonds 46 4,733,688 June 2002 6,250 FINANCIAL FUTURES SHORT: U.S Treasury 5 year Notes 65 6,914,375 June 2002 (7,109) U.S Treasury 10 year Notes 44 4,660,563 June 2002 (11,016) (448,525) SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES February 28, 2002 (Unaudited) Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 192,647,722 196,995,659 Receivable for investment securities sold 1,643,848 Interest and dividends receivable 833,486 Receivable for shares of Common Stock subscribed 81,023 Paydowns receivable 269 Prepaid expenses 10,340 199,564,625 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 100,123 Payable for investment securities purchased 10,509,685 Cash overdraft due to Custodian 92,291 Payable for shares of Common Stock redeemed 89,987 Payable for futures variation margin--Note 4(a) 26,705 Accrued expenses 117,798 10,936,589 -------------------------------------------------------------------------------- NET ASSETS ($) 188,628,036 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 191,721,750 Accumulated undistributed investment income--net 1,154,563 Accumulated net realized gain (loss) on investments (8,147,689) Accumulated net unrealized appreciation (depreciation) on investments [including ($448,525) net unrealized (depreciation) on financial futures] 3,899,412 -------------------------------------------------------------------------------- NET ASSETS ($) 188,628,036 -------------------------------------------------------------------------------- SHARES OUTSTANDING (300 million shares of $.001 par value Common Stock authorized) 13,872,609 NET ASSET VALUE, offering and redemption price per share ($) 13.60 SEE NOTES TO FINANCIAL STATEMENTS. The Fund STATEMENT OF OPERATIONS Six Months Ended February 28, 2002 (Unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Interest 2,063,407 Cash dividends (net of $2,023 foreign taxes witheld at source) 850,001 TOTAL INCOME 2,913,408 EXPENSES: Management fee--Note 3(a) 558,332 Shareholder servicing costs--Note 3(b) 364,791 Custodian fees--Note 3(b) 17,185 Registration fees 11,852 Directors' fees and expenses--Note 3(c) 9,061 Prospectus and shareholders' reports 8,212 Dividends on securities sold short 2,420 Loan commitment fees--Note 2 1,658 Miscellaneous 4,015 TOTAL EXPENSES 977,526 INVESTMENT INCOME--NET 1,935,882 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments and foreign currency transactions: Long transactions (4,556,137) Short sale transactions 34,257 Net realized gain (loss) on financial futures (2,306,826) NET REALIZED GAIN (LOSS) (6,828,706) Net unrealized appreciation (depreciation) on investments (including $1,682,922 net unrealized appreciation on financial futures) (661,602) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (7,490,308) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,554,426) SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Six Months Ended February 28, 2002 Year Ended (Unaudited) August 31, 2001 -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 1,935,882 5,204,135 Net realized gain (loss) on investments (6,828,706) (346,861) Net unrealized appreciation (depreciation) on investments (661,602) (21,071,047) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,554,426) (16,213,773) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net (2,396,503) (5,064,960) Net realized gain on investments -- (7,548,675) TOTAL DIVIDENDS (2,396,503) (12,613,635) -------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS ($): Net proceeds from shares sold 18,510,522 62,126,555 Dividends reinvested 2,331,536 12,263,493 Cost of shares redeemed (19,272,622) (49,131,132) INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS 1,569,436 25,258,916 TOTAL INCREASE (DECREASE) IN NET ASSETS (6,381,493) (3,568,492) -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 195,009,529 198,578,021 END OF PERIOD 188,628,036 195,009,529 Undistributed investment income--net 1,154,563 1,642,825 -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (SHARES): Shares sold 1,347,411 4,103,430 Shares issued for dividends reinvested 171,326 828,740 Shares redeemed (1,417,935) (3,254,969) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 100,802 1,677,201 SEE NOTES TO FINANCIAL STATEMENTS. The Fund FINANCIAL HIGHLIGHTS The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund's financial statements. Six Months Ended February 28, 2002(a) Year Ended August 31, ---------------------------------------------------------------- (Unaudited) 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 14.16 16.42 16.51 15.19 18.15 15.13 Investment Operations: Investment income--net .14(b) .39(b) .41(b) .42(b) .47 .45 Net realized and unrealized gain (loss) on investments (.52) (1.65) 1.54 2.43 (.88) 3.65 Total from Investment Operations (.38) (1.26) 1.95 2.85 (.41) 4.10 Distributions: Dividends from investment income--net (.18) (.39) (.43) (.45) (.46) (.44) Dividends from net realized gain on investments -- (.61) (1.61) (1.08) (2.09) (.64) Total Distributions (.18) (1.00) (2.04) (1.53) (2.55) (1.08) Net asset value, end of period 13.60 14.16 16.42 16.51 15.19 18.15 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN (%) (2.72)(c) (7.87) 12.62 19.37 (2.99) 28.06 ----------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA (%): Ratio of operating expenses to average net assets .52(c) .81 .96 .94 .91 .96 Ratio of interest expense, loan commitment fees and dividends on securities sold short to average net assets .00(c,d) -- .00(d) .03 -- -- Ratio of net investment income to average net assets 1.03(c) 2.60 2.54 2.62 2.76 2.71 Portfolio Turnover Rate 95.62(c) 295.43 160.38 162.40 177.85 235.56 ----------------------------------------------------------------------------------------------------------------------------------- Net Assets, end of period ($ x 1,000) 188,628 195,010 198,578 188,215 359,521 347,259 (A) AS REQUIRED, EFFECTIVE SEPTEMBER 1, 2001, THE PORTFOLIO HAS ADOPTED THE PROVISIONS OF THE AICPA AUDIT AND ACCOUTING GUIDE FOR INVESTMENT COMPANIES AND BEGAN AMORTIZING PREMIUM ON DEBT SECURITIES. THE EFFECT OF THIS CHANGE FOR THE PERIOD ENDED FEBRUARY 28, 2002 WAS TO DECREASE NET INVESTMENT INCOME PER SHARE BY $.01, INCREASE NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS PER SHARE BY $.01, AND DECREASE THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS FROM 1.07% TO 1.03%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA FOR PERIODS PRIOR TO SEPTEMBER 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN PRESENTATION. (B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (C) NOT ANNUALIZED. (D) AMOUNT REPRESENTS LESS THAN .01%. SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1--Significant Accounting Policies: Dreyfus Balanced Fund, Inc. (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a non-diversified open-end management investment company. The fund's investment objective is to provide investors with long-term capital growth and current income, 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"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of the Manager, is the distributor of the fund's shares, which are sold to the public without a sales charge. The fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (a) Portfolio valuation: Most debt securities are valued each business day by an independent pricing service (the "Service") approved by the Board of Directors. Debt securities for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other debt securities are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Other securities (including financial futures) are valued at the average of the most recent bid and asked prices in the market in which such securities are primarily traded, or at the last sales price for securities traded primarily on an exchange or the national securities market. In the absence of reported The Fund NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) sales of securities traded primarily on an exchange or national securities market, the average of the most recent bid and asked prices is used. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Directors. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. (b) Foreign currency transactions: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities, resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the fund received net earnings credits of $9,055 during the period ended February 28, 2002 based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. (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 Revenue Code of 1986, as amended (the "Code"). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gain. (e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. The fund had an unused capital loss carryover of approximately $90,000 available for Federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to August 31, 2001. This amount is calculated based on federal income tax regulations which may differ from financial reporting in accordance with accounting principles generally accepted in the United States. If not applied, the carryover expires in fiscal 2009. NOTE 2--Bank Line of Credit: The fund participates with other Dreyfus-managed funds in a $500 million redemption credit facility (the "Facility" ) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowings. During the period ended February 28, 2002, the fund did not borrow under the Facility. The Fund NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) NOTE 3--Management Fee and Other Transactions With Affiliates: (a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .60 of 1% of the value of the fund's average daily net assets and is payable monthly. (b) Under the Shareholder Services Plan, the fund reimburses the Distributor an amount not to exceed an annual rate of .25 of 1% of the value of the fund's average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended February 28, 2002, the fund was charged $29,128 pursuant to the transfer agency agreement. The fund compensates Mellon under a custody agreement for providing custodial services for the fund. During the period ended February 28, 2002, the fund was charged $17,185 pursuant to the custody agreement. (c) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $40,000 and an attendance fee of $6,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board Members receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. (d) During the period ended February 28, 2002, the fund incurred total brokerage commissions of $89,397, of which $640 was paid to Dreyfus Brokerage Services. Dreyfus Brokerage Services was a wholly-owned subsidiary of Mellon Financial Corporation until January 31 2002. NOTE 4--Securities Transactions: The following summarizes the aggregate amount of purchases and sales of investment securities and securities sold short, excluding short-term securities and financial futures, during the period ended February 28, 2002: Purchases ($) Sales ($) -------------------------------------------------------------------------------- Long transactions 174,558,447 175,656,856 Short sale transactions 1,287,761 181,169 TOTAL 175,846,208 175,838,025 The fund is engaged in short-selling which obligates the fund to replace the security borrowed by purchasing the security at current market value. The fund would incur a loss if the price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed security. The fund would realize a gain if the price of the security declines between those dates. Until the fund replaces the borrowed security, the fund will maintain daily, a segregated account with a broker or custodian of permissable liquid assets sufficient to cover its short position. At February 28, 2002, there were no securities sold short outstanding. 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 real- The Fund NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) ized 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 February 28, 2002 are set forth in the Statement of Financial Futures. At February 28, 2002, accumulated net unrealized appreciation on investments was $4,347,937, consisting of $17,093,195 gross unrealized appreciation and $12,745,258 gross unrealized depreciation. At February 28, 2002, 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). NOTE 5--Change in Accounting Principle: As required, effective September 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing discount or premium on debt securities on a scientific basis. Prior to January 1, 2001,the portfolio did not amortize premiums on debt securities and amortized discount on a straight line basis. The cumulative effect of this accounting change had no impact on total net assets of the portfolio, but resulted in a $27,641 reduction in accumulated undistributed investment income-net and a corresponding $27,641, increase in accumulated net unrealized appreciation (depreciation), based on securities held by the portfolio on August 31, 2001. The effect of this change for the period ended February 28, 2002 was to decrease net investment income by $66,385 decrease net unrealized appreciation (depreciation) by $12,206 and increase net realized gains (losses) by $54,179. The statement of changes in net assets and financial highlights for the prior periods have not been restated to reflect this change in presentation. NOTES For More Information Dreyfus Balanced Fund, Inc. 200 Park Avenue New York, NY 10166 Manager The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 To obtain information: BY TELEPHONE Call 1-800-645-6561 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 BY E-MAIL Send your request to info@dreyfus.com ON THE INTERNET Information can be viewed online or downloaded from: http://www.dreyfus.com (c) 2002 Dreyfus Service Corporation 222SA0202