<PAGE>
Dreyfus
The Dreyfus Fund
Incorporated
Annual Report
December 31, 1997
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with this annual report of The Dreyfus Fund
Incorporated for the year ended December 31, 1997. Over this period, your Fund
produced a total return of 10.75%* which compares with a total return of 33.35%
for the Standard and Poor's 500 Composite Stock Price Index (the "S&P 500")**
and 29.99% for the Standard and Poor's Barra Value Index.***
The performance results of the Fund during the measurement period were
certainly below our expectations relative to these indices. While the Fund was
under the portfolio management of the Value Equity Team for only about half of
the year, we are disappointed that we were not able to turn around performance
immediately during the last six months. Given that we position the Fund for
where we believe the market is going and not where it has been, it can take some
time for the market to realize the value of our investments. Value investing can
require some patience.
Performance during the first half of the past year was partially penalized by
an emphasis on mid-capitalization sized companies. The overall stock market as
represented by the S&P 500 favored the very largest companies during this time
period.
Performance during the second half of this past year, under your new
portfolio management team, was somewhat restrained by our disciplined value
investing approach. We believed that the valuation of most major market
benchmarks was excessive during this past year, and constructed an investment
portfolio with a relatively low correlation to the S&P 500 Index. In doing so,
we believed that the risk level of the Fund was significantly lower that that of
these benchmarks and that the values we uncovered would eventually be realized.
While the market was more than cooperative during the summer months, during the
fall months the portfolio was penalized.
The Fund performed well relative to the major stock market benchmarks during
the third calendar quarter, our initial period of portfolio management. Finance,
technology, transportation and cyclical holdings where we found significant
value were particularly strong contributors to portfolio returns. The Fund was
negatively impacted during the fourth quarter by the Asian economic crisis. Many
of the same companies and sectors that had done so well during the third quarter
were penalized during the fourth quarter due to either export exposure to Asian
countries or commodity exposure that might hurt selling prices. Late in the
quarter, we restructured the Fund's security holdings for this new economic
environment, favoring less cyclical, domestically oriented companies and
businesses.
VALUE INVESTING AND OUR INVESTMENT PROCESS
To briefly review our investment philosophy, while there are other investment
disciplines practiced at Dreyfus, we are passionate believers in value
investing. Paying attention to the value of securities has proven in numerous
industry and academic studies to result in superior and more consistent
long-term investment returns. As value investors, we want to buy growing
companies, but we want to pay as little for them as we have to. In this sense,
we believe it is a lower-risk, more conservative style of equity investing.
Our approach to the selection of securities starts and ends with our
analysts, who are an integral part of our investment team. Our Dreyfus analysts
contribute their proprietary forecasts to our computer models, their analysis
and opinions to our decision-making process, and their constant flow of
information to our ongoing assessment of owned securities. We screen the
universe of stocks by computer according to two principal methods. The first
computer screen determines value by calculating each security's earnings yield
(our forecast for earnings divided by the security price) which, to justify
purchase, must be greater than the risk-free yield available on reasonably
long-term U.S. Treasury securities. Being paid more than this risk-free rate for
the risk inherent in equity investing is central to our value discipline. The
second computer screen looks at 19 other factors that have historically
influenced stock returns. We input into this model the
<PAGE>
current economic and stock market trends, and the computer calculates each
security's exposure to this environment. Combining all of this data with our
analysts' in-depth knowledge of the individual companies, we then construct a
portfolio of approximately 65 securities. We use the same disciplined
criteria and several other factors to determine when selling a security
is in our shareholders' best interest.
EXAMPLES OF OUR INVESTMENT PROCESS
While all the detail that goes into the decision-making and implementation
process of buying, owning and eventually selling a security in the Fund is not
possible in this short report, provided below are several brief summaries of
actual transactions made during 1997.
One of the first securities purchased for the Fund by your new portfolio
management team and one of the best performing stocks during the year was Masco,
a buildings materials manufacturer. Our computer valuation model initially
showed Masco to be a competitively priced value stock. We were going to be paid
more in total earnings power than the risk-free interest rate that we could have
received from a fairly long-term U.S. Treasury investment. At this earnings
yield level, we were being compensated for the risk of equity investing.
Further, our multifactor computer model calculated an overall score for Masco of
+2, with zero being the average security score. Various factors in the model
demonstrated that the security's growth was being offered for sale at a
discount, that its reported earnings would likely be above consensus
expectations, and that the company was well positioned for the current economic
and market environment. As acquisitions were assimilated into the company, a
significant factor in its corporate strategy, management was able to reduce
operating costs by leveraging its existing operations, combining back office,
sales and administrative functions. Wall Street analysts did not include future
acquisitions in their computer models on the company, setting up the likely
possibility of positive surprises. Finally, management ownership interest in
Masco was substantial and we believe it to be an advantage when management's
financial interests are the same as our shareholders.
Masco remained an attractive investment for the Fund throughout 1997.
Fundamentally, operations were strong. Throughout the year, the company
delivered earnings above Wall Street expectations, ending the year eight cents
above the consensus estimate of six months earlier. For 1998, we believe the
company could deliver earnings per share growth of about 20% greater than 1997,
again well above the 15% growth rate expected by Wall Street analysts.
Digital Equipment was a holding within the Fund during 1997 that
unfortunately did not perform well. This computer hardware and services company
became tarnished by the Asian economic crisis given its significant exposure to
these markets. When we purchased the stock in November, we believed that the
impact of Asia was already factored into the stock price. Evidently, it was not,
and in early December the stock price declined significantly, triggering one of
our security sale rules, which attempts to protect the Fund from large losses.
After carefully reconsidering the investment thesis behind our holding and all
available fundamental data, we decided to retain ownership at least temporarily.
Digital's stock price subsequently stopped declining, then appreciated sharply
in mid-January of 1998. The company received a takeover proposal from Compaq
Computer later that month. The result was that Digital became a huge winner for
the Fund, but only in 1998.
AT&T, the long distance telephone company, was also purchased during November
1997. According to our computer valuation model, AT&T was a value stock, with an
earnings yield greater than the 5-year U.S. Treasury Bond yield. The multifactor
computer model score was a solid +6 for the security. Until very recently, the
stock had been a significant laggard in price appreciation relative to the
overall stock market. Concern over growing competition and changing technology
had weighed heavily on the stock for some time. Further, senior management was
unsettled, with lack of clear succession plans and a seeming lack of strategic
direction for dealing with the changing fundamental environment. In all of this
pessimism
<PAGE>
and concern over what we believed were issues that would soon be addressed, if
not resolved, we saw opportunity. Finally, with the advent of the Asian
economic crisis, a defensive security like AT&T with a largely domestic
orientation was well suited to the current investment and economic environment,
as reflected in our multifactor computer model.
AT&T remained in the Fund at the end of the year. Despite substantial
appreciation in the stock price, AT&T's earnings yield was still greater than
the minimum risk-free interest rate, that of the 90-day U.S. Treasury Bill, our
valuation sell point. Additionally, new senior management had been appointed and
dramatic steps to improve the company for the future had already been taken.
During the relatively short period that we owned the stock, it made a
significant contribution to the Fund's total return.
While not all of the Fund's holdings were as successful as these, this review
should provide you with an example of the type of detailed fundamental analysis
that is performed every day for your Fund. Every current holding within the Fund
and potential new holdings are regularly evaluated. Of course, portfolio
composition is subject to change and the stocks highlighted here may or may not
be part of the Fund's portfolio at any given time.
PORTFOLIO OVERVIEW
In addition to Masco and AT&T, investment results during this annual period
benefited from holdings such as Equitable Cos., Hartford Financial Services
Group, Dayton Hudson, Novartis AG, Allstate, Chubb, AES, Bankers Trust New York,
and Deere & Co. In addition to Digital Equipment, relative performance results
were penalized by holdings including Cabletron Systems, Micron Technology,
Georgia-Pacific, NIKE, and PacifiCare Health Systems, Cl.B.
We will continue to manage your investments with dedication and discipline.
Sincerely,
/s/ Timothy M. Ghriskey
Timothy M. Ghriskey
Portfolio Manager
January 16, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
*** The Standard & Poor's Barra Value Index is a capitalization-weighted index
of all the stocks in the Standard & Poor's 500 Composite Stock Price Index
that have low price-to-book ratios. It is designed so that approximately
50% of the S&P 500's market capitalization is in the Value Index.
<PAGE>
The Dreyfus Fund Incorporated December 31, 1997
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE DREYFUS FUND
INCORPORATED AND THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
Dollars
$2,321,484
Standard & Poor's 500
Composite Stock
Price Index*
$2,011,752
The Dreyfus Fund
Incorporated
*Source: Lipper Analytical Services, Inc.
Average Annual Total Returns
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Year Ended Five Years Ended Ten Years Ended From Inception (5/24/51)
December 31, 1997 December 31, 1997 December 31, 1997 to December 31, 1997
----------------- ----------------- ----------------- ------------------------
<S> <C> <C> <C>
10.75% 10.09% 11.00% 12.29%
</TABLE>
[FN]
- -------------
Past performance is not predictive of future performance.
Although the Fund commenced operations on 5/24/51, the Standard & Poor's 500
Composite Stock Price Index was available beginning 12/31/51. Accordingly, the
above graph compares a $10,000 investment made in The Dreyfus Fund Incorporated
on 12/31/51 to a $10,000 investment made in the Standard & Poor's 500 Composite
Stock Price Index on that date. All dividends and capital gain distributions are
reinvested.
The Fund's performance shown in the line graph takes into account all
applicable fees and expenses. The Standard & Poor's 500 Composite Stock Price
Index is a widely accepted, unmanaged index of overall stock market
performance, which does not take into account charges, fees and other expenses.
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.
</FN>
<TABLE>
<CAPTION>
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Statement of Investments December 31, 1997
Common Stocks--99.1% Shares Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Banking--12.6% BankAmerica................................... 698,200 $ 50,968,600
BankBoston.................................... 150,000 14,090,625
Bankers Trust New York........................ 532,500 59,872,969
Chase Manhattan............................... 445,000 48,727,500
Citicorp...................................... 340,000 42,988,750
First Chicago NBD............................. 361,000 30,143,500
Istituto Banc San Pablo....................... 4,000,000 38,417,185
NationsBank................................... 762,000(a) 46,339,125
------------
331,548,254
------------
Consumer Durables--1.5% General Motors................................ 650,000 39,406,250
------------
Consumer Non-Durables--6.7% Kimberly-Clark................................ 900,000 44,381,250
NIKE, Cl. B................................... 835,000 32,773,750
Philip Morris Cos............................. 1,100,000 49,843,750
RJR Nabisco Holdings.......................... 1,300,000 48,750,000
------------
175,748,750
------------
Consumer Services--3.0% Circus Circus Enterprises..................... 1,850,000(a) 37,925,000
McDonald's.................................... 850,000 40,587,500
------------
78,512,500
------------
Electronic Technology--10.4% Adaptec....................................... 1,035,000(a) 38,424,375
Ditigal Equipment............................. 930,000(a) 34,410,000
Intel......................................... 600,000 42,150,000
International Business Machines............... 430,000 44,961,875
Lockheed Martin............................... 440,000 43,340,000
Micron Electronics............................ 590,000(a) 5,383,750
Raytheon, Cl. A............................... 41,450(a) 2,044,028
Storage Technology............................ 850,000(a) 52,646,875
Sundstrand.................................... 192,200 9,682,075
------------
273,042,978
------------
Energy Minerals--9.2% British Petroleum, A.D.S...................... 600,000 47,812,500
Pennzoil...................................... 730,000 48,773,125
Phillips Petroleum............................ 935,000 45,464,375
Tosco......................................... 1,310,000 49,534,375
USX-Marathon Group............................ 1,450,000 48,937,500
------------
240,521,875
------------
Finance--14.1% AMBAC......................................... 530,000 24,380,000
Allstate...................................... 590,000 53,616,250
Chubb......................................... 645,000 48,778,125
Equitable Cos................................. 1,200,000 59,700,000
Everest Reinsurance Holdings.................. 1,000,000 41,250,000
Federal Home Loan Mortgage Corporation........ 970,000 40,679,375
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Statement of Investments (continued) December 31, 1997
Common Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Finance (continued) GE Investment Private Placement Partners I, L.P
(Units).................................... 6.128(b) $ 11,956,541
Green Tree Financial.......................... 900,000 23,568,750
Standard & Poor's Depository Receipts......... 150,000 14,540,625
Travelers Group............................... 962,500 51,854,687
------------
370,324,353
------------
Health Services--1.3% DAOU Systems.................................. 23,123 722,594
PacifiCare Health Systems, Cl. B.............. 645,000(a) 33,781,875
------------
34,504,469
------------
Health Technology--3.6% Amgen......................................... 780,000(a) 42,217,500
Biogen........................................ 1,315,000 47,833,125
Galen Partners II, L.P. (Units)............... 3.820(b) 3,543,506
------------
93,594,131
------------
Industrial Services--.3% Yorktown Energy Partners, L.P. (Units)........ 5.517(b) 8,449,597
------------
Non-Energy Minerals--1.5% Georgia-Pacific............................... 480,000 29,160,000
Georgia-Pacific (Timber Group)................ 480,000 10,890,000
------------
40,050,000
------------
Process Industries--3.9% Archer-Daniels-Midland........................ 1,963,500 42,583,406
Crompton & Knowles............................ 900,000 23,850,000
Temple-Inland................................. 715,000 37,403,437
------------
103,836,843
------------
Producer Manufacturing--9.6% Deere & Co.................................... 850,000 49,565,625
General Electric.............................. 618,000 45,345,750
Ingersoll-Rand................................ 1,060,000 42,930,000
Masco......................................... 1,040,000 52,910,000
Xerox......................................... 850,000 62,740,625
------------
253,492,000
------------
Retail Trade--6.1% American Stores............................... 2,100,000 43,181,250
Federated Department Stores................... 880,000 37,895,000
SK Equity Fund, L.P. (Units).................. 13.714(b) 33,965,046
Sears, Roebuck................................ 998,000 45,159,500
------------
160,200,796
------------
Transportation--5.0% CNF Transportation............................ 1,240,000 47,585,000
CSX........................................... 850,000 45,900,000
Federal Express............................... 600,000(a) 36,637,500
------------
130,122,500
------------
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Statement of Investments (continued) December 31, 1997
Common Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C> <C>
Utilities--10.3% AT&T.......................................... 885,000 $ 54,206,250
Ameritech..................................... 530,000 42,665,000
Coastal....................................... 825,000 51,098,437
Empresa Nacional Electricidad, A.D.S.......... 2,070,000 36,613,125
Telefonos de Mexico, A.D.R.................... 795,400 44,592,113
Texas Utilities............................... 1,025,000 42,601,563
--------------
271,776,488
--------------
TOTAL INVESTMENTS (cost $2,383,584,648)........................................ 99.1% $2,605,131,784
===== ==============
CASH AND RECEIVABLES (NET)..................................................... .9% $ 22,940,033
===== ==============
NET ASSETS..................................................................... 100.0% $2,628,071,817
===== ==============
<FN>
Notes to Statement of Investments:
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) Securities restricted as to public resale. Investments in restricted
securities with an aggregate market value of $57,914,690, represent
approximately 2.2% of net assets.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Acquisition Purchase Percentage of
Issuer Date Price* Net Assets Valuation+
- ------ ----------- -------- ------------- ----------
<S> <C> <C> <C> <C>
GE Investment Private Placement
Partners I, L.P. (Units)............... 5/28/91 - 9/13/95 $1,746,905 .46% $1,951,133 per unit
Galen Partners II, L.P. (Units)........... 12/8/93 - 1/3/97 927,620 .13 927,620 per unit
SK Equity Fund, L.P. (Units).............. 12/6/92 - 10/30/96 1,047,281 1.29 2,476,670 per unit
Yorktown Energy Partners, L.P. (Units).... 3/25/91 - 3/30/94 1,144,531 .32 1,531,556 per unit
<FN>
- ------------
* Average cost.
+ The valuation of these securities has been determined in good faith under the
direction of the Board of Directors.
</FN>
</TABLE>
Subject to certain limitations, the Fund has commitments to invest in the
limited partnership listed below:
Portion of Committed
Issuer Amounts Uninvested
- ------ --------------------
Galen Partners II, L.P. (Units)........... $147,742
See notes to financial statements.
<TABLE>
<CAPTION>
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1997
Cost Value
--------------- --------------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments $2,383,584,648 $2,605,131,784
Cash............................................. 5,297,828
Receivable for investment securities sold........ 20,735,563
Dividends receivable............................. 5,735,598
Receivable for shares of Capital Stock subscribed 343,855
Prepaid expenses................................. 91,389
--------------
2,637,336,017
--------------
LIABILITIES: Due to The Dreyfus Corporation and affiliates.... 1,556,680
Payable for shares of Capital Stock redeemed..... 7,337,620
Accrued expenses................................. 369,900
--------------
9,264,200
--------------
NET ASSETS..................................................................... $2,628,071,817
==============
REPRESENTED BY: Paid-in capital.................................. $2,433,368,624
Accumulated undistributed investment income--net. 4,840,133
Accumulated distributions in excess of net realized
gain (loss) on investments..................... (31,683,975)
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions 221,547,035
--------------
NET ASSETS..................................................................... $2,628,071,817
==============
SHARES OUTSTANDING
(500 million shares of $1 par value Capital Stock authorized).................. 264,663,499
NET ASSET VALUE, offering and redemption price per share....................... $9.93
=====
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Statement of Operations Year Ended December 31, 1997
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME: Cash dividends (net of $697,105 foreign taxes
withheld at source)...................... $ 38,477,034
Interest................................... 5,217,540
------------
Total Income............................. $ 43,694,574
EXPENSES: Management fee--Note 3(a).................. 17,536,594
Shareholder servicing costs--Note 3(a)..... 1,709,574
Custodian fees--Note 3(a).................. 300,478
Professional fees.......................... 131,901
Prospectus and shareholders' reports....... 121,279
Directors' fees and expenses--Note 3(b).... 86,062
Registration fees.......................... 61,053
Loan commitment fees--Note 2............... 31,949
Miscellaneous.............................. 13,712
------------
Total Expenses........................... 19,992,602
-------------
INVESTMENT INCOME--NET................................................... 23,701,972
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments and
foreign currency transactions:
Unaffiliated issuers.................. $349,918,726
Affiliated issuers.................... (1,129,532) 348,789,194
------------
Net realized gain (loss) on forward currency
exchange contracts....................... 19,825,318
-------------
Net Realized Gain..................... 368,614,512
Net unrealized appreciation (depreciation)
on investments:
Unaffiliated issuers.................. (93,544,070)
Affiliated issuers.................... (7,899,314) (101,443,384)
------------ -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.................... 267,171,128
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $ 290,873,100
=============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Investment income--net................................................... $ 23,701,972 $ 19,235,284
Net realized gain (loss) on investments.................................. 368,614,512 294,972,253
Net unrealized appreciation (depreciation) on investments................ (101,443,384) 123,751,684
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations.... 290,873,100 437,959,221
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net................................................... (18,861,839) (20,361,089)
Net realized gain on investments......................................... (406,809,835) (269,233,670)
Dividends in excess of net realized gain on investments.................. (31,683,975) --
-------------- --------------
Total Dividends.................................................... (457,355,649) (289,594,759)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................ 2,865,010,268 8,914,742,586
Dividends reinvested..................................................... 383,965,424 236,366,888
Cost of shares redeemed.................................................. (3,153,188,355) (9,254,246,198)
-------------- --------------
Increase (Decrease) in Net Assets from Capital Stock Transactions.. 95,787,337 (103,136,724)
-------------- --------------
Total Increase (Decrease) in Net Assets......................... (70,695,212) 45,227,738
NET ASSETS:
Beginning of Period...................................................... 2,698,767,029 2,653,539,291
-------------- --------------
End of Period............................................................ $2,628,071,817 $2,698,767,029
============== ===============
Undistributed investment income--net........................................ $ 4,840,133 --
-------------- ---------------
Shares Shares
-------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Shares sold.............................................................. 247,569,413 810,824,782
Shares issued for dividends reinvested................................... 38,995,031 21,687,752
Shares redeemed.......................................................... (271,282,702) (837,850,436)
-------------- ---------------
Net Increase (Decrease) in Shares Outstanding......................... 15,281,742 (5,337,902)
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Financial Highlights
Contained below is per share operating performance data for a share of
Capital 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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
PER SHARE DATA: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $10.82 $10.42 $11.93 $13.10 $13.27
------ ------ ------ ------ ------
Investment Operations:
Investment income--net............................ .10 .08 .22 .21 .24
Net realized and unrealized gain (loss) on investments 1.01 1.57 2.57 (.76) .58
------ ------ ------ ------ ------
Total from Investment Operations.................. 1.11 1.65 2.79 (.55) .82
------ ------ ------ ------ ------
Distributions:
Dividends from investment income--net............. (.08) (.09) (.22) (.22) (.30)
Dividends in excess of investment income--net..... -- -- -- -- (.03)
Dividends from net realized gain on investments... (1.78) (1.16) (4.08) (.40) (.66)
Dividends in excess of net realized gain on
investments..................................... (.14) -- -- -- --
------ ------ ------ ------ ------
Total Distributions............................... (2.00) (1.25) (4.30) (.62) (.99)
------ ------ ------ ------ ------
Net asset value, end of period.................... $ 9.93 $10.82 $10.42 $11.93 $13.10
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN.............................. 10.75% 15.85% 23.77% (4.26%) 6.36%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets........... .71% .73% .74% .74% .74%
Ratio of net investment income to average net assets .85% .70% 1.56% 1.63% 1.67%
Portfolio Turnover Rate........................... 201.10% 220.92% 269.26% 27.70% 39.29%
Average commission rate paid*..................... $.0592 $.0601 -- -- --
Net Assets, end of period (000's Omitted)......... $2,628,072 $2,698,767 $2,653,539 $2,445,300 $2,850,523
<FN>
- ------------
*For years beginning January 1, 1996, the Fund is required to disclose its
average commission rate paid per share for purchases and sales of investment
securities.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
The Dreyfus Fund Incorporated (the "Fund") is registered under the Investment
Company Act of 1940 ("Act") as a diversified open-end management investment
company. The Fund's investment objective is to provide investors with long-term
capital growth consistent with the preservation of capital. The Dreyfus
Corporation ("Manager") serves as the Fund's investment adviser. The Manager is
a direct subsidiary of Mellon Bank, N.A. ("Mellon"). Premier Mutual Fund
Services, Inc. is the distributor of the Fund's shares, which are sold to the
public without a sales charge.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities are valued at the last
sales price on the securities exchange on which such securities are primarily
traded or at the last sales price on the national securities market. Securities
not listed on an exchange or the national securities market, or securities for
which there were no transactions, are valued at the average of the most recent
bid and asked prices. 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, where
applicable, amortization of discount on investments, is recognized on the
accrual basis.
(D) AFFILIATED ISSUERS: Issuers in which the Fund held 5% or more of the
outstanding voting securities are defined as "affiliated" in the Act. The
following summarizes affiliated issuers during the period ended December 31,
1997:
<TABLE>
<CAPTION>
SHARES
-----------------------------------------
MARKET
BEGINNING END OF DIVIDEND VALUE
NAME OF ISSUER OF PERIOD PURCHASES SALES PERIOD INCOME 12/31/97
-------------- --------- --------- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outboard Marine 1,250,000 -- 1,250,000 -- -- --
</TABLE>
(E) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net are declared and paid on a
quarterly basis. 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. 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.
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(F) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes.
NOTE 2--Bank Line of Credit:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility ("Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the 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
December 31, 1997, the Fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(A) Pursuant to a management agreement ("Agreement") with the Manager, the
management fee is payable monthly, based on the following annual percentages of
the value of the Fund's average daily net assets: .65 of 1% of the first $1.5
billion; .625 of 1% of the next $500 million; .60 of 1% of the next $500
million; and .55 of 1% over $2.5 billion.
The Agreement provides for an expense reimbursement from the Manager should
the Fund's aggregate expenses, exclusive of taxes and brokerage commissions,
exceed 1% of the value of the Fund's average daily net assets for any full year.
No expense reimbursement was required pursuant to the Agreement for the period
ended December 31, 1997.
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 December 31, 1997, the Fund was charged $1,224,939 pursuant to the
transfer agency agreement.
The Fund compensates Mellon under a custody agreement to provide custodial
services for the Fund. During the period ended December 31, 1997, the Fund was
charged $300,478 pursuant to the custody agreement.
(B) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $6,500 and an attendance fee of $500 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
(A) The following summarizes the aggregate amount of purchases and sales of
investment securities, excluding short-term securities and forward currency
exchange contracts, during the period ended December 31, 1997:
Purchases Sales
-------------- --------------
Unaffiliated issuers............ $5,411,072,410 $5,741,342,016
Affiliated issuers.............. -- 4,050,759
-------------- --------------
TOTAL........................ $5,411,072,410 $5,745,392,775
-------------- --------------
-------------- --------------
The Fund enters into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. When executing forward currency exchange contracts, the Fund
is obligated to buy or sell a foreign currency at a specified rate on a certain
date in the future. With respect to sales of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract increases
between the
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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 December 31, 1997,
there were no open forward currency exchange contracts.
(B) At December 31, 1997, accumulated net unrealized appreciation on
investments was $221,547,136, consisting of $308,013,561 gross unrealized
appreciation and $86,466,425 gross unrealized depreciation.
At December 31, 1997, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
<PAGE>
The Dreyfus Fund Incorporated
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
SHAREHOLDERS AND BOARD OF DIRECTORS
THE DREYFUS FUND INCORPORATED
We have audited the accompanying statement of assets and liabilities of The
Dreyfus Fund Incorporated, including the statement of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the years indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held by the custodian as of December 31, 1997 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Dreyfus Fund Incorporated at December 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the indicated
years, in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 2, 1998
Important Tax Information (Unaudited)
For Federal tax purposes the Fund hereby designates $.975 per share as a
long-term capital gain distribution (of which 51.18% is subject to the 20%
maximum Federal tax rate) of the $1.745 per share paid on December 26, 1997. The
Fund also designates $.074 per share as a long-term capital gain distribution of
the $.215 per share paid on June 30, 1997.
The Fund also designates 15.81% of the ordinary dividends paid during the
fiscal year ended December 31, 1997 as qualifying for the corporate dividends
received deduction.
<PAGE>
The Dreyfus Fund Incorporated
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 026AR9712
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE DREYFUS FUND INCORPORATED AND THE STANDARD
& POOR'S 500 COMPOSITE STOCK PRICE INDEX
EXHIBIT A:
STANDARD & POOR'S 500 THE
PERIOD COMPOSITE STOCK DREYFUS
PRICE INDEX * FUND
12/31/51 10,000 10,000
12/31/52 11,840 10,437
12/31/53 11,722 10,426
12/31/54 17,887 17,094
12/31/55 23,540 21,634
12/31/56 25,093 24,887
12/31/57 22,383 23,767
12/31/58 32,097 36,617
12/31/59 35,949 45,971
12/31/60 36,129 49,066
12/31/61 45,847 61,991
12/31/62 41,859 53,563
12/31/63 51,402 67,003
12/31/64 59,884 78,289
12/31/65 67,369 101,770
12/31/66 60,565 103,506
12/31/67 75,101 131,101
12/31/68 83,437 146,511
12/31/69 76,345 128,868
12/31/70 79,398 120,805
12/31/71 90,752 137,760
12/31/72 107,995 150,415
12/31/73 92,120 121,928
12/31/74 67,708 97,676
12/31/75 92,896 128,698
12/31/76 115,005 163,844
12/31/77 106,724 163,899
12/31/78 113,768 183,947
12/31/79 134,702 230,812
12/31/80 178,345 301,036
12/31/81 169,606 317,341
12/31/82 205,902 362,708
12/31/83 252,229 434,406
12/31/84 268,120 448,408
12/31/85 354,455 560,840
12/31/86 420,029 652,372
12/31/87 441,870 708,585
12/31/88 516,104 770,531
12/31/89 678,677 952,679
12/31/90 656,960 920,943
12/31/91 857,332 1,178,929
12/31/92 923,347 1,244,140
12/31/93 1,016,235 1,323,213
12/31/94 1,029,548 1,266,846
12/31/95 1,415,938 1,568,002
12/31/96 1,740,895 1,816,506
12/31/97 2,321,484 2,011,752
*Source: Lipper Analytical Services, Inc.
