<PAGE>
Dreyfus
Appreciation
Fund, Inc.
Annual Report
December 31, 1997
<PAGE>
Dreyfus Appreciation Fund, Inc.
- -----------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with this annual report for the Dreyfus
Appreciation Fund, Inc. for the 12-month period ended December 31, 1997. Over
this period, the Fund produced a total return of 27.85%,* which compares with a
total return of 33.35% for the the Standard & Poor's 500 Composite Stock Price
Index.**
Portfolio Composition
At the close of the period, the Fund had 0.3% of its net assets in short-term
Treasuries, and industry concentrations in consumer staples, health care and
financials. We will continue to invest the short-term cash equivalent assets as
investment opportunities arise in favorable market conditions.
Economic Outlook
The U.S. economy is positioned to extend the current business cycle, building
on a foundation of positive fundamentals and prudent monetary policy. If the
economy continues to expand throughout the year, as we expect, the current cycle
will become the longest peacetime expansion. The prospect of continued low
inflation, declining interest rates and a balanced budget for the first time
since the mid-seventies, presents a positive backdrop for financial assets in
our view, although Gross Domestic Product (GDP) growth will slow and earnings
momentum will decline.
Pessimism is pervasive, reflecting uncertainty about the length and depth
of the Asian crisis and the prospect of weaker corporate profits squeezed by
cheap imports, no pricing power and moderating demand. However, negative
sentiment can also be viewed as a positive factor or market stabilizer as it
counteracts speculative excesses that have developed during various periods in
this long market advance, and maintains the self-correcting dynamic which has
rationalized equities' historically high total return over the past three
years.
Our outlook calls for average annual GDP growth to moderate to 2.5%, with
inflation declining to 1.5%. In this environment, the yield on the 30-year bond
should decline toward 5.0%. Moderation in the rate of growth will reflect a
decline in export growth, a fall-off in capital spending, weaker growth in
consumer spending and a rapidly deteriorating current account balance, due to
the influx of extremely price-competitive imports from devalued Asian
currencies. The high correlation between corporate profit growth and GDP
supports our outlook for profit growth of 6.0%.
Market Environment
The equity market became somewhat speculative in mid-1997. We saw a distinct
shift in favor of small to mid-sized companies that might benefit from a
stronger-than-expected economy in the short term. The deepening crisis in Asia
brought about a palpable retrenchment in the fourth quarter, as investors sought
safe haven in companies of more dependable earnings. We believe that a
combination of weaker growth at home and growing risk aversion among investors
should cause higher-quality issues to outperform in 1998. In a slower growth,
low inflation environment, we would expect the pharmaceutical and financial
service holdings to benefit from visible earnings growth. Companies with leading
consumer brands can take advantage of weakened competitors and devalued
currencies to purchase assets at distressed prices, thus enhancing long-term
global market share.
Investment Highlights
Although the Fund achieved an outstanding absolute rate of return of 27.85%,
it underperformed the S&P 500 benchmark. This relative shortfall was principally
due to our firm's equity strategy of concentrating on large-capitalization, high
quality, multinational companies. These stocks weakened at mid-year when gains
in equity markets reached excessive levels and an increasingly speculative
sentiment pervaded, driven by the effort to lock in relatively short-term gains.
Investors booked profits in the large, high quality companies and moved into
smaller and
<PAGE>
mid-cap companies, as well as more speculative issues. With a long-term time
horizon, our approach may forsake short-term gains, in which momentum-based
strategies and market timers attempt to exploit changes in equity prices
related to current market sentiment and technical factors, rather than
long-term, fundamental economic, industry and company analysis.
During the year, investments in consumer staples, which outperformed the
overall market, had the most positive impact on the Fund's absolute performance
led by shares of Procter & Gamble, Coca-Cola, Philip Morris, Walgreen and
Gillette. The health care sector was the second best performing sector in the
Index and had the second most positive impact on the Fund, led by the
performance of Pfizer, Merck & Co. Johnson & Johnson and American Home Products.
Financial services was the best performing sector in the S&P Index and this
sector had the third most positive impact on the Fund's results, led by shares
of Federal National Mortgage Association, Chase Manhattan, Citicorp, Berkshire
Hathaway, Cl.A and Marsh & McLennan.
We appreciate your investment in the Dreyfus Appreciation Fund, Inc. and we
will continue to seek rewarding returns on your behalf.
Sincerely,
/s/ Fayez Sarofim
Fayez Sarofim
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.
<PAGE>
Dreyfus Appreciation Fund, Inc. December 31, 1997
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS APPRECIATION
FUND, INC. AND THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
[GRAPH] Dollars
$92,216
Standard & Poor's 500
Composite Stock Price
Index*
$90,279
Dreyfus
Appreciation Fund, Inc.
*Source: Lipper Analytical Services Inc.
Average Annual Total Returns
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Year Ended Five Years Ended Ten Years Ended From Inception (1/18/84)
December 31, 1997 December 31, 1997 December 31, 1997 to December 31, 1997
- ------------------ ------------------ ------------------ -------------------------
<S> <C> <C> <C>
27.85% 18.25% 17.17% 17.08%
<FN>
- -----------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Appreciation Fund,
Inc. on 1/18/84(Inception Date) to a $10,000 investment made in the Standard &
Poor's 500 Composite Stock Price Index on that date. For comparative purposes,
the value of the Index on 1/31/84 is used as the beginning value on 1/18/84. 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 and 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.
</TABLE>
<PAGE>
Dreyfus Appreciation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
Common Stocks--99.2% Shares Value
- ----------------------------------------------------------------------- ------------ --------------
<S> <C> <C> <C>
Apparel--2.3% Christian Dior........................ 150,000 $ 15,377,585
NIKE, Cl. B........................... 475,000 18,643,750
Polo Ralph Lauren .................(a) 300,000 7,293,750
Warnaco Group, Cl. A.................. 130,000 4,078,750
--------------
45,393,835
--------------
Automotive--6.1% Chrysler.............................. 1,100,000 38,706,250
Ford Motor............................ 1,149,905 55,986,000
General Motors........................ 400,000 24,250,000
Meritor Automotive.................... 91,666 1,930,715
--------------
120,872,965
--------------
Banking--6.9% Chase Manhattan....................... 460,000 50,370,000
Citicorp.............................. 460,000 58,161,250
HSBC Holdings, A.D.R.................. 35,000 8,802,500
SunTrust Banks........................ 275,000 19,628,125
--------------
136,961,875
--------------
Basic Materials--2.5% Dow Chemical.......................... 80,000 8,120,000
duPont (E.I.) de Nemours & Co......... 600,000 36,037,500
Rohm & Haas........................... 50,000 4,787,500
--------------
48,945,000
--------------
Capital Goods--8.9% AlliedSignal.......................... 600,000 23,362,500
Boeing................................ 450,900 22,065,919
Caterpillar........................... 430,000 20,881,875
Emerson Electric...................... 275,000 15,520,313
General Electric...................... 800,000 58,700,000
Minnesota Mining & Manufacturing...... 250,000 20,515,625
Rockwell International................ 275,000 14,368,750
--------------
175,414,982
--------------
Communication Services--3.1% BellSouth............................. 500,000 28,156,250
SBC Communications.................... 450,096 32,969,532
--------------
61,125,782
--------------
Computers--4.9% Cisco Systems .....................(a) 352,500 19,651,875
Compaq Computer....................... 625,000 35,273,438
Hewlett-Packard....................... 475,000 29,687,500
Microsoft .........................(a) 100,000 12,925,000
--------------
97,537,813
--------------
Electronics--3.8% Intel................................. 1,050,000 73,762,500
Raytheon, Cl. A....................... 25,508 1,257,863
--------------
75,020,363
--------------
Energy--8.6% British Petroleum, A.D.S.............. 475,000 37,851,563
Chevron............................... 425,000 32,725,000
Exxon................................. 625,000 38,242,188
</TABLE>
<PAGE>
Dreyfus Appreciation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Investments (continued) December 31, 1997
<TABLE>
<CAPTION>
Common Stocks (continued) Shares Value
- ----------------------------------------------------------------------- ------------ --------------
<S> <C> <C> <C>
Energy (continued) Mobil................................. 450,000 $ 32,484,375
Pennzoil.............................. 10,000 668,125
Royal Dutch Petroleum (New York Shares) 500,000 27,093,750
--------------
169,065,001
--------------
Finance--5.2% American General...................... 300,000 16,218,750
Associates First Capital, Cl. A....... 325,000 23,115,625
Federal National Mortgage Association. 875,000 49,929,687
Hertz, Cl. A.......................... 350,000 14,087,500
--------------
103,351,562
--------------
Food, Beverage & Tobacco--14.3% American Stores....................... 150,000 3,084,375
Anheuser-Busch........................ 140,000 6,160,000
Coca-Cola............................. 1,285,000 85,613,125
Kellogg............................... 250,000 12,406,250
Nestle, A.D.R......................... 350,000 26,140,625
PepsiCo............................... 1,100,000 40,081,250
Philip Morris......................... 1,600,000 72,500,000
Unilever, N.V (New York Shares)....... 100,000 6,243,750
Walgreen.............................. 1,000,000 31,375,000
--------------
283,604,375
--------------
Health Care--18.3% Abbott Laboratories................... 525,000 34,420,313
American Home Products................ 500,000 38,250,000
Johnson & Johnson..................... 950,000 62,581,250
Merck & Co............................ 800,000 85,000,000
Pfizer................................ 1,400,000 104,387,500
Roche Holdings, A.D.R................. 325,000 32,256,250
Schering-Plough....................... 75,000 4,659,375
--------------
361,554,688
--------------
Insurance--2.8% Berkshire Hathaway, Cl. A..........(a) 700 32,200,000
Marsh & McLennan...................... 300,000 22,368,750
--------------
54,568,750
--------------
Media/Entertainment--2.0% Disney (Walt)......................... 120,000 11,887,500
McDonald's............................ 450,000 21,487,500
Tricon Global Restaurants..........(a) 225,000 6,539,062
--------------
39,914,062
--------------
Personal Care--6.2% Lauder (Estee)........................ 250,000 12,859,375
Gillette.............................. 485,000 48,712,187
Procter & Gamble...................... 770,000 61,455,625
--------------
123,027,187
--------------
Photography--.8% Eastman Kodak......................... 250,000 15,203,125
--------------
Publishing--.5% McGraw-Hill........................... 100,000 7,400,000
News Corp, A.D.R...................... 120,000 2,677,500
--------------
10,077,500
--------------
</TABLE>
<PAGE>
Dreyfus Appreciation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Investments (continued) December 31, 1997
<TABLE>
<CAPTION>
Common Stocks (continued) Shares Value
- ----------------------------------------------------------------------- ------------ --------------
<S> <C> <C> <C>
Retail--.7% May Department Stores................. 50,000 $ 2,634,375
Wal-Mart Stores....................... 300,000 11,831,250
--------------
14,465,625
--------------
Transportation--1.3% Norfolk Southern...................... 825,000 25,420,312
--------------
TOTAL COMMON STOCKS
(cost $1,384,883,674)............... $1,961,524,802
==============
Preferred Stocks--.4%
- -----------------------------------------------------------------------
Publishing; News Corp, A.D.R.
(cost $7,781,484)................... 450,000 $ 8,943,750
==============
<CAPTION>
Principal
Short-Term Investments--.3% Amount
- ----------------------------------------------------------------------- ----------
<S> <C> <C> <C>
U.S. Treasury Bills: 5.09%, 1/22/1998...................... $1,082,000 $ 1,078,819
5.25%, 2/26/1998...................... 100,000 99,227
5.20%, 3/5/1998....................... 666,000 659,999
5.23%, 3/12/1998...................... 1,788,000 1,770,174
5.17%, 3/19/1998...................... 399,000 394,591
5.12%, 4/2/1998....................... 2,102,000 2,074,338
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $6,077,111).................. $ 6,077,148
==============
TOTAL INVESTMENTS (cost $1,398,742,269)................................ 99.9% $1,976,545,700
====== ==============
CASH AND RECEIVABLES (NET)............................................. .1% $ 1,092,333
====== ==============
NET ASSETS............................................................. 100.0% $1,977,638,033
====== ==============
<FN>
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Non-income producing.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Appreciation Fund, Inc.
- -----------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1997
<TABLE>
<CAPTION>
Cost Value
-------------- --------------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments. $1,398,742,269 $1,976,545,700
Cash................................................... 14,977,769
Cash denominated in foreign currencies................. 134,143 133,464
Dividends and interest receivable...................... 2,521,628
Receivable for shares of Common Stock subscribed....... 1,896,521
Prepaid expenses....................................... 178,017
--------------
1,996,253,099
--------------
LIABILITIES: Due to The Dreyfus Corporation and affiliates.......... 810,819
Due to Fayez Sarofim & Co.............................. 444,221
Due to Distributor..................................... 165,136
Payable for shares of Common Stock redeemed............ 16,760,944
Accrued expenses....................................... 433,946
--------------
18,615,066
--------------
NET ASSETS ................................................................... $1,977,638,033
==============
REPRESENTED BY: Paid-in capital........................................ $1,399,595,417
Accumulated distributions in excess of investment income--net (98,228)
Accumulated net realized gain (loss) on investments and
foreign currency transactions........................ 340,838
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions..... 577,800,006
--------------
NET ASSETS ................................................................... $1,977,638,033
==============
SHARES OUTSTANDING
(100 million shares of $.01 par value Common Stock authorized)................. 61,070,685
NET ASSET VALUE, offering and redemption price per share....................... $32.38
======
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Appreciation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Operations Year Ended December 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME: Cash dividends
(net of $499,377 foreign taxes withheld at source).. $ 27,441,153
Interest............................................... 1,719,808
------------
Total Income..................................... $ 29,160,961
EXPENSES: Investment advisory fee--Note 3(a)...................... 4,475,808
Sub-investment advisory fee--Note 3(a).................. 4,130,808
Shareholder servicing costs--Note 3(b).................. 4,365,886
Registration fees...................................... 351,552
Custodian fees--Note 3(b)............................... 119,755
Professional fees...................................... 88,868
Prospectus and shareholders' reports................... 86,415
Directors' fees and expenses--Note 3(c)................. 35,791
Interest expense--Note 2................................ 11,262
Loan commitment fees--Note 2............................ 11,213
Miscellaneous.......................................... 12,527
------------
Total Expenses................................... 13,689,885
------------
INVESTMENT INCOME--NET.......................................................... 15,471,076
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments and
foreign currency transactions....................... $ 4,286,731
Net unrealized appreciation (depreciation) on investments and
foreign currency transactions....................... 317,934,827
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS......................... 322,221,558
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $337,692,634
============
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Appreciation Fund, Inc.
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Investment income--net................................................ $ 15,471,076 $ 8,578,200
Net realized gain (loss) on investments.............................. 4,286,731 3,060,053
Net unrealized appreciation (depreciation) on investments............ 317,934,827 136,758,813
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations.. 337,692,634 148,397,066
-------------- --------------
DIVIDENDS TO SHAREHOLDERS:
From investment income--net........................................... (15,585,302) (8,454,676)
In excess of investment income--net................................... (98,228) --
From net realized gain on investments................................ (3,671,898) --
-------------- --------------
Total Dividends.................................................. (19,355,428) (8,454,676)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................ 3,038,700,676 955,936,798
Dividends reinvested................................................. 17,226,988 7,839,218
Cost of shares redeemed.............................................. (2,242,123,459) (715,488,852)
-------------- --------------
Increase (Decrease) in Net Assets from Capital Stock Transactions 813,804,205 248,287,164
-------------- --------------
Total Increase (Decrease) in Net Assets........................ 1,132,141,411 388,229,554
NET ASSETS:
Beginning of Period.................................................. 845,496,622 457,267,068
-------------- --------------
End of Period........................................................ $1,977,638,033 $ 845,496,622
============== ==============
Undistributed investment income (Distributions in excess of
investment income)--net.............................................. $ (98,228) $ 123,595
-------------- --------------
<CAPTION>
Shares Shares
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Shares sold.......................................................... 102,660,433 40,260,066
Shares issued for dividends reinvested............................... 538,558 301,519
Shares redeemed...................................................... (75,178,590) (29,767,862)
-------------- --------------
Net Increase (Decrease) in Shares Outstanding.................... 28,020,401 10,793,723
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Appreciation 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.
<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 . $25.58 $20.55 $15.17 $14.92 $15.15
------ ------ ------ ------ ------
Investment Operations:
Investment income--net................. .25 .25 .33 .28 .24
Net realized and unrealized gains (loss)
on investments...................... 6.87 5.03 5.42 .26 (.14)
------ ------ ------ ------ ------
Total from Investment Operations...... 7.12 5.28 5.75 .54 .10
------ ------ ------ ------ ------
Distributions:
Dividends from investment income--net.. (.26) (.25) (.34) (.28) (.24)
Dividends in excess of investment
income--net.......................... (.00)(1) -- -- -- (.03)
Dividends from net realized gain
on investments...................... (.06) -- (.03) (.01) (.03)
Dividends in excess of net realized gain
on investments...................... -- -- -- -- (.03)
------ ------ ------ ------ ------
Total Distributions................... (.32) (.25) (.37) (.29) (.33)
------ ------ ------ ------ ------
Net asset value, end of period ....... $32.38 $25.58 $20.55 $15.17 $14.92
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN.................. 27.85% 25.68% 37.89% 3.62% .71%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .87% .91% .92% .96% 1.07%
Ratio of net investment income
to average net assets............... .99% 1.34% 2.28% 1.86% 1.66%
Portfolio Turnover Rate............... 1.23% 4.84% 4.51% 6.58% 9.65%
Average commission rate paid(2)....... $.0613 $.0633 -- -- --
Net Assets, end of period
(000's Omitted)..................... $1,977,638 $845,497 $457,267 $233,459 $237,018
<FN>
- ----------------------
(1) Amount represents less than $.01 per share.
(2) For fiscal 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>
Dreyfus Appreciation Fund, Inc.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Appreciation Fund, Inc. (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 ("Dreyfus") serves as the Fund's investment adviser. Dreyfus
is a direct subsidiary of Mellon Bank, N.A. ("Mellon"). Fayez Sarofim & Co.
("Sarofim") serves as the Fund's sub-investment adviser. Premier Mutual Fund
Services, Inc. (the "Distributor") is the distributor of the Fund's shares,
which are sold to the public without a sales load.
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.
Investments denominated in foreign currencies are translated to U.S. dollars at
the prevailing rates of exchange.
(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, 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 discounts on investments, is recognized on the
accrual basis.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and 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, 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 Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes.
<PAGE>
Dreyfus Appreciation Fund, Inc.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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.
The average daily amount of borrowings outstanding during the period ended
December 31, 1997 was approximately $191,200, with a related weighted average
annualized interest rate of 5.89%.
NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other
Transactions With Affiliates:
(a) Fees payable by the Fund pursuant to the provisions of an Investment
Advisory Agreement with Dreyfus and a Sub-Investment Advisory Agreement with
Sarofim are payable monthly, computed on the average daily value of the Fund's
net assets at the following annual rates:
Average Net Assets Dreyfus Sarofim
-------------------- ---------- ----------
0 up to $25 million.................... .44 of 1% .11 of 1%
$25 up to $75 million.................. .37 of 1% .18 of 1%
$75 up to $200 million................. .33 of 1% .22 of 1%
$200 up to $300 million................ .29 of 1% .26 of 1%
In excess of $300 million.............. .275 of 1% .275 of 1%
(b) Effective October 1, 1997, under the new Shareholder Services Plan, the
Fund pays the Distributor for the provision of certain services at the annual
rate of .25 of 1% of the value of the Fund's average daily net assets. 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 Distributor may make payments to Service Agents (a
securities dealer, financial institution or other industry professional) in
respect of these services. The distributor determines the amounts to be paid to
Service Agents. During the period from October 1, 1997 through December 31,
1997, the Fund was charged $1,210,177 pursuant to the new Shareholder Services
Plan.
Prior to October 1, 1997, under the Shareholder Services Plan, the Fund
reimbursed (a) the Distributor for payments made for servicing shareholder
accounts ("Servicing") and (b) Dreyfus, Dreyfus Service Corporation, a
wholly-owned subsidiary of Dreyfus, and any affiliate of either of them for
payments made for Servicing, at an aggregate annual rate of up to .20 of 1% of
the value of the Fund's average daily net assets. Both the Distributor and
Dreyfus or its affiliates paid one or more Service Agents a fee in respect of
the Fund's shares owned by shareholders with whom the Service Agent had a
Servicing relationship or for whom the Service Agent was the dealer or holder of
record. During the period from January 1, 1997 to September 30, 1997, the Fund
was charged $2,161,537 pursuant to the Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
Dreyfus, 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 $580,622 pursuant to the transfer
agency agreement.
<PAGE>
Dreyfus Appreciation Fund, Inc.
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NOTES TO FINANCIAL STATEMENTS (continued)
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 $119,755 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 $2,500 and an attendance fee of $500 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended December 31, 1997,
amounted to $787,427,766 and $18,531,039, respectively.
At December 31, 1997, accumulated net unrealized appreciation on
investments was $577,803,431, consisting of $596,992,264 gross unrealized
appreciation and $19,188,833 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>
Dreyfus Appreciation Fund, Inc.
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Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Dreyfus Appreciation Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Dreyfus Appreciation Fund, Inc., 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
Dreyfus Appreciation Fund, Inc. 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 4, 1998
<PAGE>
Dreyfus Appreciation Fund, Inc.
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Important Tax Information (Unaudited)
For Federal tax purposes the Fund hereby designates $.0608 per share as a
long-term capital gain distribution (of which 58.88% is subject to the 20%
maximum Federal tax rate) of the $.3108 per share paid on December 29, 1997.
The Fund also designates 100.00% of the ordinary dividends paid during the
fiscal year ended December 31, 1997 as qualifying for the corporate dividends
received deduction.
<PAGE>
[LOGO]
Dreyfus Appreciation Fund, Inc.
200 Park Avenue
New York, NY 10166
Investment Advisor
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Sub-Investment Advisor
Fayez Sarofim & Co.
Two Houston Center,
Suite 2907
Houston, TX 77010
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. 141AR9712
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN DREYFUS APPRECIATION FUND, INC.
AND THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE
INDEX
EXHIBIT A:
STANDARD
& POOR'S 500 DREYFUS
PERIOD COMPOSITE STOCK APPRECIATION
PRICE INDEX * FUND
1/18/84 10,000 10,000
12/31/84 10,687 11,374
12/31/85 14,078 15,389
12/31/86 16,705 17,702
12/31/87 17,582 18,514
12/31/88 20,494 21,590
12/31/89 26,976 27,463
12/31/90 26,137 26,960
12/31/91 34,082 37,321
12/31/92 36,676 39,048
12/31/93 40,365 39,324
12/31/94 40,897 40,749
12/31/95 56,247 56,186
12/31/96 69,153 70,611
12/31/97 92,216 90,279
*Source: Lipper Analytical Services, Inc.
